Many real estate investors hit a wall at some point. They buy a few rentals, put down 20-25% on each, and before they know it, they’re out of money.
They find themselves waiting—saving up for the next deal—stuck in a holding pattern that can last years.
I recently got an email from a newsletter subscriber, Jon, who is in this exact position.
He owns a couple of cash-flowing rentals, has some equity, and wants to grow his portfolio. But he doesn’t know how to unlock the capital to keep going.
He asked about using small business loans to buy rentals—something I don’t have experience with—but the real issue isn’t financing alone. It’s the overall strategy.
This is where value-add real estate investing makes all the difference.
If you’re just allocating capital—buying turnkey rentals and waiting—you’re playing a very slow game.
But when you create value, you can recycle your capital and scale much faster.
My First Deal: The Great Greydale (A Pure Capital Allocation Play)
When I first got started in real estate, I played it safe.
The Great Greydale was one of my first purchases, and it was as hands-off as you could get. The house was already occupied by a Section 8 tenant, required no renovations, and cash flowed right out of the gate.
At the time, this seemed like the perfect deal—low risk, no headaches.
But I quickly realized something: I wasn’t actually growing my portfolio.
My money was tied up in the property, and I didn’t have a way to get it back out.
I used delayed financing to pull some capital out early, but without adding any value, my ability to scale was severely limited.
It became obvious that if I kept buying rentals like this, I’d hit a dead end.
I needed to shift my strategy.
Transitioning to Value-Add: The Crown Jewel
Fast forward a few months, and I took on The Crown Jewel—a completely different kind of deal.
It was off-market, needed serious work, and would be my first attempt at executing a true BRRRR (Buy, Rehab, Rent, Refinance, Repeat).
When I bought it for $38,000, I didn’t even have the money to start renovations right away.
It took eight months before I could begin the rehab.
But once we started, we went all in—opening up the kitchen, painting the entire house, refinishing the hardwood floors, replacing the roof, and adding a half-bath.
By the end of the project, I had $112,000 invested in the house.
That was a massive leap from where I started. But when the appraisal came in at $178,000, I was able to pull out $126,000 in a cash-out refinance.
This was a lightbulb moment.
For the first time, I had executed a full BRRRR and recovered all of my capital plus $14,000!
Instead of waiting years to save up for my next deal, I could recycle that money into another project.
This is how investors scale quickly.
Financing: The Key to Making Value-Add Work
Pulling off this strategy required more than just finding the right properties—it required the right financing approach.
Since I didn’t have unlimited cash, I had to get creative. Here’s how I funded my first few value-add deals:
- HELOC (Home Equity Line of Credit): This was a game-changer because it allowed me to borrow, repay, and reuse the same capital.
- 401k Loans: Not the best long-term option, but it gave me access to capital at a low interest rate with no credit impact.
- Hard Money Loan ($50,000): I used a small hard money loan to help bridge the gap on one deal.
The key here was constantly having a refinance in the pipeline.
I almost always had a loan lined up that would allow me to repay the HELOC and other short-term debt, which in turn lowered my monthly payments and freed up capital for the next project.
It wasn’t easy—there were months when cash flow was tight. But this approach allowed me to keep moving forward instead of waiting.
Are You a Value-Add Investor or Just Allocating Capital?
This is the fundamental question every real estate investor needs to ask themselves.
If you’re simply putting down payments on rentals and waiting to save up for the next one, you’re a capital allocator.
There’s nothing wrong with that, but it’s a slow path that requires patience.
If you’re actively adding value—renovating, improving, and repositioning properties—you’re an investor in the truest sense.
This strategy is harder, but it gives you the ability to recycle capital, scale faster, and build wealth far more efficiently.
Jon’s situation is one I see all the time.
He’s stuck because he’s following a capital allocation strategy, and it’s reached its natural limit. If he wants to grow faster, he’ll need to pivot toward value-add investing.
Wrapping It All Up
The best real estate investors understand the difference between buying assets and creating value.
If you want to scale quickly, you can’t just wait and hope—you have to manufacture equity and recycle capital.
The Great Greydale was a great first deal for me, but it didn’t move the needle. The Crown Jewel did.
That’s why value-add investing is so important. It’s what separates those who grow a portfolio from those who get stuck.
If you’re feeling stuck, the question isn’t just about how to finance your next deal—it’s about whether you need to change your entire approach.