Brannon Potts’ Journey in Real Estate
Brannon Potts, now 54, embarked on a venture to build rental properties in his late 40s. He aimed to create an additional income stream and ideally retire in his 50s.
In the five years since, this investor from the Fort Worth area has adopted a build-to-rent strategy, successfully constructing 14 rental units across eight different properties. As he has expanded his portfolio, Potts has fine-tuned both the types of homes he builds and his management strategies. He mentioned that he has built the same design five times, making incremental adjustments each time.
“I’ve got it pretty optimized,” he shared, though he acknowledged that the journey hasn’t been “all sunshine and rainbows.”
Through his YouTube channel, Potts has documented his projects and explained the financial aspects of his investments. He also discussed two significant mistakes he’s made that have reshaped the way he operates his real estate business.
1. Overlapping Lease Expirations
Potts discovered that vacancies can swiftly diminish a landlord’s profits, an insight he gained after leasing out a fourplex.
“I was just thrilled to have them all leased and to get things moving,” he recalled. However, problems arose when multiple tenants vacated their units around the same time. “Suddenly, several leases were ending within 30 days, and I was left with many vacancies at once.”
To avoid this scenario in the future, Potts began to stagger lease expirations, ensuring that he wouldn’t need to replace several tenants simultaneously. For the fourplex, he adjusted it so only two leases needed renewal each year, spaced roughly 60 days apart.
He applies a similar principle when completing multiple properties simultaneously. This year, for instance, he finished two nearly identical multi-family buildings. Instead of marketing them both at once, he opted to promote them one after the other.
“We only put one property on the market at a time because flooding the area wouldn’t be ideal,” he explained. After one unit is leased, he shifts his attention to the next.
2. High Levels of Debt
An additional mistake Potts made revolved around leverage. He pointed out that on one multi-family property, his loan-to-value ratio was between 80% and 85%, which he now realizes is higher than he would prefer for his investment strategy.
“I took on more debt than I’m comfortable with,” he admitted. Given his background in banking—specifically in commercial lending before becoming CFO of his family business—Potts knows the risks of being overleveraged. “I’ve seen foreclosures happen to those who stretch their finances too far.”
Nowadays, he aims to maintain a loan-to-value ratio of around 70% to 75%. This approach means preserving more equity in the property, rather than financing as much as he can.
Having that cushion “provides options” in case complications arise, he mentioned. If property values drop or he needs to sell in a hurry, someone with high leverage might find themselves in a tight spot, facing losses after subtracting selling costs. At an 85% or 90% leverage rate, Potts said, there’s a risk of being “upside down.”
“I’m not planning to sell any,” he clarified. “But I consider multiple scenarios if things take a turn for the worse. Worst case, I can sell and exit the situation.”
