Justin Cambra – Scaling to 60+ Units in 3 years with Commercial Loans Ep. 233

Synopsis

Based in Washington, Justin Cambra has been investing in real estate for the past 5 years. He was able to scale his portfolio to over 60 units in under 3 years using commercial loans. Today’s episode gives us a look into how you too can quickly grow your rental portfolio.

Key points

Justin started buying property locally first. He’d been focusing on cash flow then later decided to pivot out of the Seattle area.

Liquidating Stocks To Buy Property

Justin was expecting money to come his way through the stocks from his employer. He decided that he wanted to invest that money into real estate. So in August 2016, he bought a $530,000 duplex north of the airport in Seattle.

It was a 1 bedroom, 1 bath at the top, and a 3 bedroom, 1 ½ bath at the bottom. Justin decided to live at the top and rent out the bottom. That duplex was situated in ⅔ of an acre. In the future, Justin plans to tear it down and put up more town units.

In May 2017, Justin purchased an 11-unit apartment complex in Eastern Washington

Shifting To Out Of State

Even though Justin had the money, there still wasn’t much he could do if he kept buying in Seattle. This pushed him to focus on smaller dollar amount projects and started buying $20,000-25,000 out-of-state properties. His goal was to build cash flow and equity.

He chose Milwaukee to buy properties in because they were a lot cheaper there. He was able to buy a duplex there for $65,000. It rents for $700-750 per unit or $1,400 in total rent, way over 2% of the purchase price.

The properties he bought there were older buildings close to 100 years old. So Justin advises making sure there isn’t too much deferred maintenance. Rather than doing a full rehab, Justin opted to make gradual $2,000-5,000 improvements during tenant turnovers.

Justin would continue to buy properties in 2017 and 2018, but it wasn’t until 2019 that he ramped up and bought more and more real estate.

Financing Through Commercial Loans

Justin had to get commercial loans to finance his deals. Terms were usually 5-year fixed, 25-year amortization. He got his loans from US Bank. But when he wanted to refinance, he faced a challenge. Banks didn’t want to lend to him since he wasn’t living in the same state as the property.

It took him a month, but eventually he was able to find one who considered him since he already owned property in Wisconsin.

Being a creature of habit, Justin liked to go to the bank that had loaned to him in previous deals. Because Justin could buy a property for $50,000 in Milwaukee, oftentimes, it became hard to find a bank who would loan for such a small amount.

Another thing to consider was there would still be fixed costs such as $1,500-2,000 for processing fees, $2,000 for escrow, and $700 for appraisal fees. Looking at those, the percentage of the costs and fees would be pretty high relative to the loan amount.

By the time Justin reached 20+ properties, he realized he needed to find a new bank as it was unlikely he’d be able to get a loan from them anymore unless he’d be willing to put down a huge down payment.

Doing A 1031 Exchange

In 2019, Justin sold his 11-unit apartment building. He was sure that the property in Yacama wouldn’t appreciate anymore. He had bought it for $365,000 and made $80,000 in 14 months.

So he did a 1031 exchange and bought 5 duplexes and 1 triplex with the same amount of money

He took out new loans for all the properties. The only difference was for the last property, he dumped all the rest of the money and got a loan for only 50% loan-to-value.

Why Real Estate Investing

Justin divested his stocks because tech companies’ stocks don’t really pay dividends. He sees real estate as a fairly consistent investment once you get into your niche. He also liked having more control on his investments. He even turned his retirement account from his current employer into a solo 401K that already outright owns 3 properties.

He just wished he had realized earlier that he didn’t necessarily need to sell his stock, but he could just borrow on it to buy property then pay it off later. This was called a margin account. It lets people borrow against the equity in their account. Justin is able to borrow up to 80% of the value.

The benefits of borrowing from a margin account is that if the stock value goes up, you’ll be able to borrow more. But if the value drops, then you’d be forced to do a margin call to bring the funds back to the minimum threshold.

Checking Out A New Market: Detroit

After Milwaukee, Justin moved to investing in another market, Detroit. He liked Detroit because it has the same prices as Milwaukee.

Justin was able to get boots on the ground by talking with different people in the area and eventually hiring someone who worked as both a real estate agent and a property manager.

He now owns 3 properties that are located in the periphery of Detroit.

What’s Next

Justin’s portfolio currently includes 29 properties comprising 63 doors. He is about to close on another property in Yacama, a 6-plex subject 2 property that he plans to BRRR.

He’s also considering looking at private money and doing more partnerships on the debt side. The plan is to use private money to buy the property, fix it up, and then refinance.

He’s actually been able to get money out in 3 months without needing to wait for the 6-month seasoning period. Generally, he gets 90% loan-to-cost with 3.5% interest rates.

Plans To Retire

Justin wants to follow the FIOR movement which is Financial Independence, Optional Retirement. He still has fun at his job, but he is aggressively building his portfolio so that he can leave his job by January 2023.

His goal is to build the true passive income that is cash in hand right now. So he’s been living on the edge to push to get to that date. His monthly passive income goal is somewhere in the $15,000-20,000 range.

References

More from our guest

• You can connect with Justin via his Instagram, Facebook, or LinkedIn.
• Or give him a call or send a text message at (425) 387 3975.