Tailwind Talks

How I’m Managing $5.9M in Real Estate

• Cole Baltz • Season 1 • Episode 27

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Unlocking the hidden power of real estate equity could be the key to exponential portfolio growth—yet so many investors leave millions in potential wealth sitting idle. As a part-time real estate investor juggling careers as both an airline pilot and military instructor, I've built a portfolio valued at nearly $5.9 million with approximately $2.3 million in equity, all starting from a single flip house.

Equity represents the spread between what you owe and what your property is worth—and it's where true wealth accumulation happens in real estate. While monthly cash flow might seem attractive (my properties generate $55,000 in gross monthly rents), the long-term equity growth often proves far more powerful. Through this video, I open my actual portfolio spreadsheet to show exactly how equity positions build through various methods: buying below market value, forced appreciation through renovations, natural market appreciation, rising rents, and simple time in the market.

My Milwaukee properties showcase how dramatically equity can build—some purchased just four years ago have already moved from 80% loan-to-value to under 40%, representing hundreds of thousands in gained equity per property. But this creates a fascinating dilemma: my portfolio now contains $2.3 million in "idle equity" that could theoretically fuel expansion to over $10 million in total portfolio value if leveraged properly.

However, accessing this equity isn't as simple as many online real estate gurus suggest. Cash-out refinancing comes with significant limitations, particularly when it means replacing 4% interest rates with today's 6-7% rates. I share my current strategy for deploying this equity through portfolio purchases and value-add opportunities while maintaining the delicate balance between aggressive growth and financial stability.

Whether you're just starting your real estate journey or looking to scale your existing portfolio, this transparent look at real numbers and actual properties will help you develop a more sophisticated approach to building wealth through property equity. Like and subscribe if you found this valuable, and comment with questions about your own real estate investing challenges!

Speaker 1:

What is up? Everybody, my name's Cole. I'm a part-time real estate investor, full-time legacy airline pilot and a part-time military instructor pilot. Today I'm gonna be making a video all about equity what is equity, how do I use it and when do I use it and I'm gonna be using my very own portfolio as a lens to look through and learn about it together. The first thing I would wanna say is what is equity?

Speaker 1:

Equity is generally what you owe on a property versus what it's worth. So if you buy a property for $100,000, and let's say you use a VA loan, so you put $0 down and the appraiser comes out and says it's worth $150,000, when you're going through the due diligence and the underwriting period with the bank, if they say it's worth $150,000, then your equity would be the spread between what it's worth and what you owe on it. So in that case your equity on that would be $50,000. And it's important because in the United States about 45% of people's net worth is wrapped up in their actual home value. So for a lot of Americans that makes up the majority of their actual wealth. So understanding equity and how it applies to your own life is really important, even if you're not going to build a real estate business, but I think, in the lens of building a real estate business, it's the most powerful tool that you have.

Speaker 1:

I talked about cash flow in the last video, and you guys saw that, even though we bring in over $55,000 a month in gross rents, we actually don't see very much of it, especially on a month where not a lot of people pay. Equity, though, is something that's going to continuously be building. Generally, there are some caveats to that, and it can be a lot more powerful and can grow a lot quicker than your cash flow will, so let's go through it. I'm going to throw up an Excel spreadsheet that I use all the time when I'm working with banks, showing them the portfolio and how it all works. I blacked out some of the information that's not applicable for today's video. It's not that I'm trying to get one over on you guys. The right side of the sheet is just all about cash flow, and some of the other information just isn't applicable for today's video, so I tried to keep it focused in on what is important, and the stuff that's important today is the total value of the portfolio, which you can see is, by the end of the month should be about $5.9 million just under $5.9 million against a mortgage debt total of about 3.5 million. So you can see there's a spread there. Right, it shows about 60% loan to value, which is a decent sweet spot to be in. 60% loan to value just means I owe 60% of the value of the properties in a mortgage.

Speaker 1:

As you can see, my portfolio is built up with a lot of smaller deals. There's no really massive deals. There's one that was relatively recently that was a little bit larger, with a value of just over a million dollars, but for the most part, you can see, these are all smaller deals. Some of these deals are just over $100,000. There's not these, just massive equity numbers that you'll see here, because this is real life, this is a real portfolio and a lot of people are going to sell you 20, 30, $40 million transactions. But if you're starting out and you're working a full-time job and you're not already really wealthy, this is the way that you're going to have to build it, because you're going to have to build a reputation with the banks, you're going to have to slowly but surely build up that portfolio and you can see that's exactly how we've done it.

Speaker 1:

Now there have been some adjustments. We've sold some properties along the way. The eight unit was on here. It's not the first property I bought, but it's just the oldest one that we have in the portfolio and its loan to value is 35%. And you might be saying, like, how is that even possible? The way that it's possible is because there was originally three duplexes on here and we sold one of them and all the money that we made off of that with a small exception was used to pay down the existing mortgage. So we only owe $131,000 against a pretty large market value for those two duplexes. So that's how you end up in some of these interesting situations.

Speaker 1:

But a lot of the rest of it is all just erosion over time, and I'll explain that here. A lot of the rest of it is just time in the market. As a famous investor once said, time in the market is better than time in the market, and in this case it's absolutely true. You can see our loan-to-value averages go up as you get closer to present day. So if you reverse engineer that, you can say okay, the longer that you've had a property, the lower your loan-to-value generally is.

Speaker 1:

And here's some of the reasons for that. The first one would be buying below market value. Right, if you can get a deal off market or maybe even on market that you can negotiate to a pretty low price. Now you already have baked in equity. I've done that a couple of times where I bought properties for under what they were worth on the market because I was able to close fast, I was easy to deal with or I just had a personal relationship built up with somebody, and so in those situations you're already buying into an equity situation. You maybe are paying $80,000 for something that's worth $120,000. And you might ask, why would somebody do that? A lot of people are looking for an easy transaction. So if you're easy to deal with, you're not giving them a lot of problems, you're not nickel and diming them, I think you can really build yourself in a position where people want to deal with you. Additionally, if you can close quickly, that's another massive one. Maybe somebody is coming up on a bankruptcy. Maybe that person needs money to fund a vacation or fund their kid's college or who knows what's going on in their own personal life. But they might need that money quickly and if you can provide it quickly, a lot of times that's considered a high value item where you can maybe get something for a little bit cheaper than you would be able to otherwise.

Speaker 1:

Forced appreciation is the next one. Forced appreciation the idea behind that is that you buy something that's beat up. It's got broken windows, the tenants destroy the entire inside of the house and it needs a new roof, and you buy this place for a cheap price, but then you fix it up. You put a lot of work into it. Think about flipping the BRRRR strategy right. In those strategies, basically what you're doing is taking a bad property and making it nice again, right? So flippers do that all the time, and even with long-term real estate, that also works.

Speaker 1:

There's some of these that we bought that were in pretty rough shape and we cleaned them up. We got better tenants in them, we made some improvements along the way and now they're better than at least they were when we got them. Therefore, raising the equity position, market appreciation over time now this one I can take no credit for. This is literally all of us just riding the same wave together. Whether it goes up or down, we're all going in this together in a lot of ways.

Speaker 1:

The market appreciation, as you can see, I bought a lot of stuff in the very early post-COVID stage and after the money printer went, burr prices in Milwaukee and a lot of places went nuts. So a lot of this stuff I can take no credit for. I didn't do anything special, I just was in the market. So they went up over time and will that go forever? Absolutely not. Nothing is a straight line up or down, so you can't really anticipate what that's going to be. Milwaukee's seen a huge influx of people moving to this area because of the cheap cost of living and so if you look at that, I could maybe extrapolate that into the future and say, okay, this is going to be something that's a trend that continues for a long period of time. But when you're seeing I think Milwaukee saw a 17% average increase in price year over year If you're seeing that you really, if you're planning on that every year, you're going to be putting yourself in probably a pretty rough position because it's unlikely to continue on that trajectory forever. But it's been going that way for a while. So now I have a lot of baked in equity that I just have because things went up over time.

Speaker 1:

On the same note as that, we have the rents. Rents are a massive way to understand the value of a property. If rents go up, the property's value also goes up, because you have to look at these as little businesses. If a business's revenue goes up over time, generally that business is worth more money, and the same applies in real estate. Milwaukee has seen massive increases in average rents and therefore the property values have also gone up because they're generating more money. It's just a little business. Every single one of these is just a small business that you're buying.

Speaker 1:

Basically, that's how I frame it in my mind, and so when you're raising rents, you're raising the income of the business, and so it's not always. That's not always going to happen, though they're not going to go up forever. A lot of people I see a lot of people buying properties that are extremely expensive, but they're building in slow equity. They're building in massive equity gains over time because of just market appreciation and the rents going up, and I think that's scary because you don't really know what's going to happen. We could have world war three tomorrow. You have no idea what's going to happen. So if you're betting the farm on all this stuff going your direction, you're probably going to be left disappointed and you're probably going to leave your investors disappointed. Like I said, I can't take any credit for things like market appreciation, other than the fact that maybe I can be more aggressive with raising rents to try to generate more revenue, therefore raising the value of the portfolio or the property.

Speaker 1:

In specific, the next thing that you could do is just buy into a good equity position. Now that really doesn't mean a whole lot, because basically what I'm saying is you could just put a massive down payment down. If you pay cash for a property, you suddenly have a hundred percent equity position in that property. But it doesn't really work out that way, because that may be true on paper, but your money is still tied up in the deal, right. So there's an aspect of not wanting to have all your money tied up in deals and, honestly, what people tend to want to do is refinance these properties and get their money out of the deal so that way they can just hold them forever and basically have no money in the deal.

Speaker 1:

Doing that maybe works for certain scenarios. There might be some situations where you don't want to pay a hard money lender and you just want to get the property. You have the cash sitting around, so it makes sense to use it, but it's not really truly equity in my eyes, because it's still your own money that's tied up in it. It's not really, it's just a. You're just moving it from the bank account into this property and generally, those are going to be some of the bigger ways that you're able to force equity into a property. Some of it takes a long time. If you look 2021, that's only been four years and there's been some massive moves in the market, but it's still been four years where we just sat on our hands and literally did nothing. And I would recommend that to a lot of people that are starting out, as you're probably going to do more damage if you just do nothing.

Speaker 1:

Sometimes it's always fun to want to buy deals and flip and always have something going on, always have an iron in the fire and eventually I think that makes sense because you have a large enough portfolio to sustain that. But I also think that there's a negative to that and sometimes, when you're trying to move too fast and do things too quickly, you can shoot yourself in the foot and set yourself back, and I've definitely done that outside of real estate. I've done that with stock trading and stuff. I've done a lot of things that I thought were going to do a lot better than they did and I shot myself in the foot. I didn't bet my entire life on that, so that part saved me, but it's still a drawback and it's something that I look at and say, oh man, where do I manage all this equity? And, honestly, that's a question that I'm still trying to answer for myself. I don't have all the answers here.

Speaker 1:

I've been trying to do my best to strategically make moves but, honestly, we haven't sold a whole lot. We've retained the majority of our properties and we haven't even considered selling any of them, and that's because we wanted to build up a portfolio. We wanted to get the cash flow going. But as time has gone on, it's gotten more difficult not to touch these properties, because you can see some of these we could be looking at about a quarter million dollars just by selling two duplexes, losing four units but getting a quarter million dollars in cash. That's the problem is the idle equity, the equity that we have tied up in all of this.

Speaker 1:

We have $2.3 million worth of equity, but we're not using it. It's not doing anything for us, it's just sitting on the sidelines and that's something that I'm trying to address this year and definitely next year is moving out of the deals, rotating into other deals, because a lot of these loans are all on five-year adjustable rate mortgages, which means when their term comes due for example next July the first one's going to come due and we're going to go from a 4% interest rate roughly up to whatever the market is, which I expect to be somewhere in the sixes or sevens, so it's going to be significantly more expensive to keep that property. So that's a situation where we're looking at that and saying, okay, we need to do something about that, because we have about a quarter million dollars worth of equity and in the ways that we've been buying properties, that's about a $1.2 million purchase ability just off of two duplexes and if you look at our equity position, about $2.4 million, just under $2.4 million that's about $11 to $12 million worth of buying power out in the market if you're doing an 80% loan to value, which is what we've done with all these properties. So I don't want to be that leveraged. That's pretty high leverage. It's giving you a lot of ways to lose, but that's literally double our portfolio size.

Speaker 1:

So when I'm sitting here. Looking at that, I'm like man. We need to figure out a way to start growing because we have all this idle equity, but we want to build this business even bigger. We want to get to 100 units, we want to get to 1000 units, but the only way for us to do that is to smartly use this money. Smartly use this money, and so up to this point we've just been sitting on our hands, but it's time to take our hands out from underneath our legs and say, okay, let's go make some moves. So we've been aggressively sending emails, doing tours. We just put in a couple offers. One of those offers I mentioned in my last video did not go through. The other one's still up in the air but probably not going to happen. So it's tough because we want to buy deals, but we also don't want to overcommit or to spend too much money on something that's not really worth it, and so we're still sticking to our principles, which makes finding deals hard, and therefore we have all this equity that's doing nothing for us.

Speaker 1:

Some of the best deals for somebody in this situation, in my mind, is something that has a forced appreciation aspect to it. So like that 12 unit that I toured. That would be a perfect scenario, because it's something that's beat up, it's run down, we can go in there, we can fix it up, we can make it better and then move on. Another scenario that we think is enticing is a portfolio purchase right, so we're buying 10 duplexes or 20 duplexes at a time instead of just one or two here and there. It's a lot more efficient. You can get a better deal generally, too, because you're dealing with somebody that's maybe trying to get rid of in and out, and we've had some pretty good success with buying portfolios like that. So there's a lot of ways that we think we can work this, but we haven't done enough, I don't think. I think we could be at least at a $10 million value on the portfolio, but currently we're at 5.9, just under 5.9 million. So we're a far cry from there, and a lot of that has to do with me.

Speaker 1:

I'm running this thing. I'm generally the one that's working a lot of this stuff, so it's on me for not really pushing that hard. But there is something to be said for the peace of mind of looking at that and saying, hey, if anything goes wrong, if I lose my job at the airline, if the military kicks me out, if my friends lose their job and my partners lose their job, we can lean on this and say, okay, there is like two sides of that coin, where you want to be aggressive, but you want to be so aggressive where you have no ability to make any moves, and that's. One tough thing with real estate is that it's not very liquid, so you don't have the ability to really quickly move through deals. Once you're dealing with some cash deals and generally you're selling those at a kind of an attractive price to a cash buyer, which means that you're not getting the most out of it on the market. So that's what it looks like.

Speaker 1:

The next question maybe would be why don't I just live off this and just say, yeah, you know what? I made it to the top. I'm just going to chill out, drink a pina colada and wake up in 40 years and I guess that's just not who I am. That's not what I like to do. I like building this business. I like the challenge of trying to build something from scratch. This literally started with one single family flip house and we built it to this, and I think we have a long way to go. So there's something attractive to me about doing that and I don't think I'm going to stop. That's just what I love to do. I really enjoy this business and the challenge of trying to compete in one of the most competitive markets on the planet.

Speaker 1:

So I'm not stopping anytime soon, but there is an argument to be said. You know what? I could just retire and just live off of, live a very modest lifestyle and just live off the interest. But these days I don't even know if you could retire. Even if all of that was mine, because I have partners, even if all of that was 100% mine, I don't even know if you could retire off that these days it's so expensive. I'm sure a lot of you have experienced the same thing. It is expensive out there and I don't really know if that would be enough to get the job done. So let me know what you think it takes to retire in a 2025 world.

Speaker 1:

A lot of people would say why don't you just do a cash out refinance? And there's two arguments against that, I think. One is that a lot of our interest rates are much lower than the market right now, so we don't want to take on a larger interest rate if we don't have to right now, because they're all so much more attractive. And the other thing is, when you're doing a cash out refinance, a lot of loan programs will not let you take out more than 60, 70, 80% loan to value. So on some of these properties we couldn't even get money out of it if we wanted to.

Speaker 1:

And lately what I've been seeing a lot of is about 70, 75% loan to value. They've been a little bit more gun shy with the high leverage deals, which is totally fine. But if you're looking at this, some of these if I have one that's from 420 of 23, and it's at 0.74 loan to value there's nothing I can do with. That's already and actually we did a cash out refinance on that one, so that makes sense. But there's nothing you can do with some of these deals. They're just dead in the water. The biggest thing that you could do maybe it's a portfolio, them all, put a bunch of them all into one loan and then try to do a cash out on that.

Speaker 1:

But it's not as simple as just doing a cash out refinance. A lot of people online just talk about the BRRRR strategy and just say, okay, buy, rehab, rent, refinance, repeat, it's no big deal, but a lot of the stuff is not that simple unless you have a really big equity position, and even then you may only get 80% of the money that you originally thought you were going to get, because they're not going to let you go to 100% loan to value, which means that your profits are capped. So if you buy a place for 100, you put 50 into it and it's worth 200, you may only get 150, 160 out of it. So your spread on that is basically nothing, if not very tight. That's something to think about.

Speaker 1:

You really need to understand that before you start doing this, because that's how a lot of these flippers get screwed. They don't realize that they can't just get all their money back out of it. They only get a percentage of it and then they're like I guess I don't have enough money for another deal or I need to sell this place, and it turns into a nightmare. So, anyways, that's a tangent, but that's what the portfolio looks like. You can see the progression from the oldest deals to the most current deals and the ones that haven't even closed yet. That's why there's question marks all over them, but I hope that the look inside this portfolio has been helpful. If you thought it was helpful or interesting, let me know in the comments, like subscribe. I really appreciate all of that. And again, like I've always said, if you're watching this, I know you could be anywhere on the internet, but somehow you're here listening to me, so I truly appreciate it. I'm here to try to answer some real estate questions and try to show my own portfolio building as time goes on. So if you have anything else that you