An ex-mortgage underwriter who owns 129 rental units worth over $28 million lists the 3 strategies he used to maximize cash from real estate and grow his portfolio, including the property types he chose and a tax advantage he used

  • Chris Gerbig picked property types he believed would appreciate faster.
  • He was also intentional about the locations he chose for better monthly cash flows.
  • Limiting the time between each sale and purchase also helped avoid taxes.

Cash is king when it comes to real estate investing. The more you have, the less you’ll have to pay in loan interest rates. This is especially true in a high-interest-rate environment where debt is expensive. That is why real-estate investors use a variety of strategies to maximize their profits.

Chris Gerbig, who began investing in real estate in 2016, has tried a few different approaches. He was able to amass 28 single- and multi-family homes worth more than $28 million at the time of purchase thanks to a combination of getting the right financing and increasing his cash. Two of his properties are valued at $491,000 according to Zillow, with the remainder reflected in sales documents he provided to Insider. In addition, he owns a warehouse and two self-storage facilities.

In an interview with Insider, he discusses his top three strategies for increasing your cash flow when investing in real estate.

A cash-led exit strategy

According to him, one way to increase your cash stash is to accumulate it through appreciation. This entails securing a property that you believe will appreciate faster than the average home. A popular way for investors to do this is to choose a property that needs a little bit of rehabbing, which can go a long way toward increasing a home’s value.

However, Gerbig was not a real estate expert in 2016 and refused to take on any projects. So he decided to stick to new construction, which he expected to be more valuable by the time the development was finished. It would also not require any repairs or upkeep, making it a comfortable investment option for him.

That year, he was an early buyer of a duplex in a new neighborhood development. He wanted to try his hand at multi-family properties before committing to a large commercial property.

“I knew that this side of town was growing very rapidly because I lived literally right around the block and the neighborhood in question was just a giant cornfield behind my house,” Gerbig stated. “I knew how busy and popular and family-friendly my neighborhood was.”

Each side of the duplex had a three-bedroom, two-bathroom unit. He paid $240,000 for it. He rented each unit for $1,300 after closing on the house. It generated a total of $2,600 per month. After a $1,300 mortgage payment and property management fees, the monthly cash flow was around $1,000, which he put into a savings account for his next big purchase.

After about 18 months, the neighborhood had grown and the property’s value had skyrocketed. Gerbig was successful in selling the property for $280,000. He received $40,000 in appreciation before taxes, plus approximately $15,000 in rental income. His initial deposit was returned to him, totaling approximately $95,000 before taxes.

“If you buy in a brand-new-construction neighborhood and maybe you’re one of the first people buying, you might get that property at a lower value before the neighborhood is fully established,” Gerbig explained. “Once everything is in place and people have moved in, property values will naturally rise because it’s a great place to live.” But if it’s just you on an empty block with a bunch of dirt lots all around, I think I can come in at a lower price.”

Gerbig advises doing a walk-through and thorough inspection after the property is finished in case the developer overlooked something.

A monthly cash flow driven by cash

Short and medium-term rentals are excellent ways to boost a property’s monthly cash flow. Location is critical in this approach.

He knew Nashville, Tennessee was a thriving city and decided he wanted to buy a property to use as a short-term rental with a high cash flow. So he went to the area and drove around for a day looking at properties.

“I discovered these condos being built. I saw the rooftop deck, which is about a half mile from downtown and overlooks the skyline. ‘These are fantastic properties,’ I thought. If I can get these on Airbnb, I’ll make a killing on them.”

In January 2017, he paid $639,000 for a four-bedroom, three-bathroom condo-style townhouse in the new development. It was close to a popular tourist area with few short-term rental options. It was significantly more expensive than anything he had previously purchased. But he came prepared with money. Gerbig was able to use the proceeds from the sale of the duplex, as well as money from his own savings, to put down on the condo. He later bought a second unit in the same complex.

He told Insider that the two Airbnb listings were completely booked for the entire year. They were less than a mile from downtown Nashville and had a rooftop deck with a view of the skyline: ideal for Nashville’s booming tourism market, he said, and nothing else existed this close to downtown. There was a lot of interest because he was the first person in the development to list on Airbnb.

The unit started bringing in around $10,000 per month. It had a cash flow of about $6,000 after mortgage payments and property management fees.

Gerbig advises doing some market research if you’re thinking about short-term rentals. Find tourist hotspots that don’t have a lot of Airbnbs. Checking Airbnb listings to see how many properties are available and how many are booked out can help you gauge demand and supply. He also recommended checking to see if the area has rental-friendly laws that do not restrict short-term rentals.

Gerbig cautions that this method is much more hands-on, implying that it is not passive income. The fees for hiring a property manager to do the work will be high. Gerbig pays a property manager 8% of his long-term rental revenue. However, he pays 20-30% of his gross revenue for short-term rentals.

Mortgage refinancing for lower debt and equity

Gerbig saw a fourplex in January 2019 that he thought would make an excellent rental property. One idea he had was to use the equity in his own home to get enough money to buy it.

“I spoke with the seller, and we verbally agreed on some terms. Then I went to my bank and asked if I could pull this off.” They agreed. So I signed the purchase contract for the property, refinanced it, took the cash, and closed,” Gerbig explained.

Interest rates were more appealing at the time than they had been in the past. So he could refinance his home for $535,000 at a 4.5% rate, which was lower than the 5% rate he had before.

“As interest rates decreased, as my credit score increased, I was able to qualify for a lower rate,” Gerbig stated. “And my credit score rose as I became more responsible with my money, paying bills on time.” So I was doing a lot of things correctly in terms of my own credit, which qualified me for a lower rate.”

This enabled him to withdraw $40,000 from the refinance and apply it to the purchase of the fourplex. This process, however, was accompanied by refinancing fees. It was $6,000 for Gerbig, which he rolled into the loan.

“I planned to invest the money in a cash-flowing investment property that appreciated in value.” So a couple thousand dollars in fees did not compensate me,” Gerbig explained.

One month later, in February 2019, he used that cash, along with money saved from other rentals, to put down $60,000 on a $230,000 fourplex.

Eliminating taxes

In June 2018, an interested buyer offered $739,000 for two of Gerbig’s townhome-style condos in Nashville. He agreed because the money would be used for another real estate purchase he already had planned. Furthermore, the short-term rentals demanded more time and effort than he was willing to devote.

Because of the short time between selling and repurchasing another investment property, he was able to take advantage of Section 1031, which allows investors to defer capital gains tax on sales. According to Gerbig, investors have 45 days to identify their next purchase property and six months to close in order to qualify for the deferral. And the amount you save on taxes is determined by your tax bracket, he added.

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