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The Basic Concepts of Pyramiding Rental PropertyThe practice of "pyramiding rental property" has led to some very impressive retirement estates over the years for down-to-earth investors. If you've ever thought that the only way to achieve wealth with real estate is by striking oil on your property, think again.
The methodical process of pyramiding rental property is surely one way of building up your estate over time. Let's take a look at what pyramiding actually is and how you can apply it to your rental property investing…
The Basic Concept of Pyramiding
The term "pyramiding" has its origins from the Great Pyramids of Egypt. The familiar shape of the pyramid becomes wider as one proceeds downward from the tip (apex) to the base. With real estate pyramiding, an investor starts out with a single property at the tip, or narrowest point, and over time, purchases additional property to "widen the base" of his or her rental property portfolio.
The base is widened when an investor's initial equity in a rental property doubles over time. When this occurs, the investor can either "trade up" to a larger property through a 1031 exchange, or purchase an additional property by using the increased equity.
 Creating a Realistic Pyramid Plan
To obtain the greatest financial benefits from pyramiding your rental property, a practical, well thought out pyramid plan must first be developed. Developing such a plan will act as your "road map" for successfully building your estate.
Financial Benefits of Pyramiding
A well designed, methodical real estate pyramid process can surely pay great dividends over time. This includes increased equity and cash flow that results from the "larger economy of scale" as your mini real estate empire grows over time.
The Realities of Pyramiding Rental Property
We've all heard that nothing in life is free - everything has a price, whether it is physical, financial, emotional, etc. The reality of pyramiding is that as you accumulate a greater number of properties, your time commitment needed to keep your growing portfolio of rental units operating smoothly will also increase.
If you can't devote the necessary time, then the alternative is to "farm-out" the management to a real estate management company (if you can find a decent one!). You can also hire on-site management where a tenant performs the management in exchange for reduced rent, etc. So no matter what, you'll always have options.
The plus side is that as your rental property portfolio increases, you just might be in a position to quit your day job if that is your goal and operate your properties full time. You'll become the captain of your own ship!
For more in-depth information and examples of pyramiding rental property, please visit The Landlord's Library book collection. It's a great "one-stop" resource that provides everything you'll need for improving your landlording success.
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