Recycling Money to Buy Your First 3 Rentals

If you would have told me four years ago you could buy multiple homes with a standard downpayment on one home I would have said you were nuts.

Truth is, I stumbled into recycling money but it’s the single most valuable lesson if you want to grow your real estate portfolio fast.

Today I’ll share how I recycled $60k to get into 8 properties and my tips on getting started.

Now, before you think I’m some sort of criminal… I’m not talking about laundering money (although I’ve heard that’s quite profitable), I’m talking about recycling.

Totally legal, although I’ll admit I felt like it was too good to be true at first.

Recycling money is using the money (or equity) in one property to purchase another.

Here’s how it worked for me.

I bought my first ever primary residence just over 3 years ago with $60k down. The real estate bug bit me and I wanted to buy an investment property but I didn’t have enough money for a down payment…

My mentor suggested I take a HELOC on my primary. I said what the heck is a HELOC?! He explained it was a “home equity line of credit” - money the bank will lend you based on how much equity you have in your home. And you can use it for anything… okay.

Now, my home had appreciated since I bought it so I could take a line of credit out for my $60k down payment plus the appreciation. I was skeptical at first but I applied and they gave it to me. Mind blown!

I used the line of credit to purchase 5 cash-flowing investment properties but I also bought another primary residence with only 5% down ($25k). And guess what I did to that primary residence?

HELOC. I got $29k through the line of credit and put it directly toward a multi-family property. In the future I’ll either cash out the equity in that property or get a line of credit but either way, the money gets recycled again and again and again.

2 primary residences, 5 cash flowing rentals, and part of a multi-family property all with recycled cash.

Yes, I did supplement with some of my own savings toward the end, and I obviously got lucky with the level of appreciation. BUT even with zero appreciation I could have recycled my downpayment into 2 more properties and been happy as a lark.

Here are my tips to start recycling your money:

1. Buy a primary residence you can rent out within a year and cover the cost

2. Don’t get hung up with “forever home” syndrome

3. Apply for a HELOC on your home with a local credit union

4. SHOP around for a credit union that will give you the highest loan to value

Most unions only grant lines for 80-90% LTV (meaning 80% of your home value minus what you owe). If that’s all you can get then fine, but there are some unions that offer 100% LTV which will get you WAY more money to invest

5. Rent out your original primary residence

6. Buy another primary residence you can rent out within a year with the line of credit you just got

7. Apply immediately for a HELOC on your new primary residence

8. Buy a cash flowing investment property with that new line of credit

If you’re starting from scratch, this method can get you 3 properties in 2 years. If you have a primary residence already you can get there in just over 1.

Recycling is not a perfect system and has downsides so consult with appropriate professionals as you do this but if you’re looking to grow fast, this is one of the best strategies to consider.

Hope this helps!