Nathan Nicholson, a top salesperson from Louisville, Kentucky, took an unconventional path to financial freedom. At 33, with only $30,000 in savings, he made a bold decision that would change his life. Against nearly everyone’s advice, he cashed out his entire 401(k) to invest in real estate. Thirteen years later, he owns 23 single-family rentals, has paid off 11 of them, and generates $112,000 a year in true net cash flow.
Nicholson’s journey began with a single estate sale purchase for about $38,000 to $40,000. He paid in cash and used this first property as a learning tool. His strategy was simple: pay off one house, use it to learn, then move on to the next. This domino effect allowed him to build his portfolio systematically.
Building a portfolio with diverse financing strategies
Nicholson’s initial capital came from his 401(k) liquidation. He deployed it wisely, starting with cash purchases. As his portfolio grew, he utilized various financing methods, including 203K renovation loans, conventional loans with 20% down, and seller financing. He also secured a business line of credit against his paid-off properties, giving him the flexibility to buy houses in cash.
Every time Nicholson pays off a property, he immediately puts it on a business line of credit. Currently, he has close to $1 million available across roughly 10 paid-off properties. This strategy allows him to use the equity in his properties to fund new acquisitions without raising outside money. For instance, he recently wired $56,000 to pay off a property on Lees Lane that nets about $600 a month, adding another $100,000 in available credit from that single payoff.
Finding deals in a competitive market
Nicholson’s underwriting bar is a 1.3 debt service coverage ratio (DSCR), meaning the property needs to generate roughly 30% more income than his monthly debt service. He finds most of his deals through direct-to-seller marketing, designing his own postcards, pulling lists, making the calls, and handling everything up through disposition himself.
On his most recent deal, he bought a four-bedroom house for $125,000 that appraised at $170,000 to $175,000, walking into roughly $45,000 to $50,000 in equity with no money out of pocket. This approach allows him to find undervalued properties and maximize his returns.
Improving portfolio performance
Nicholson is not just focused on buying more properties; he is also working to improve the performance of his existing portfolio. This year, he switched property managers to cut his fee from 12% down to 8%, saving roughly $12,000 a year on $300,000 in rent. He is also pushing for 3% annual rent increases across the portfolio, adding about $8,000 a year once fully executed.
Additionally, he is targeting payoffs on the properties with the highest mortgage balance and lowest payoff cost. These payoffs give him close to a 10% return on the cash he uses to retire the debt and immediately expand his line of credit. He is also watching for interest rates to drop into the 5.5% to 6% range so he can refinance several properties at once, pay off two or three more outright, and net an extra several hundred dollars a month in cash flow across the portfolio.
