How do I make 5k passively in real estate???

Real Estate Agent · Philadelphia, PA · Member since 2013 · 150 posts · 59 votes

Hey,

My goal with real estate is to net $5,000 a month from rental income in the next 10 years. I'm currently a real estate agent in the Philadelphia area and I also do flips. The pay is great but its basically a 9 to 9 job. I have no problem with working hard and smart. My current problem now is that once I leave or take a vacation ... so does my income!! Which sucks. I'm only 23 but I'm thinking of when I get older and have kids and I'm missing games and birthday because I have to chase that dollar.

QUESTION:----->

How does one go out there and build a portfolio of rental properties where you NET $5,000 a month in 10 years time or less? Please be a detailed as you possible can! Thank you so much.

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Jon Klaus

Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes

12y

Assuming you can net $200 per house, per month, a 10 year buy and hold plan might look like this:

Year 1, buy 1 rental, $200 monthly cash flow

Year 2, buy 1 rental, $400 cash flow

Year 3, buy 2 rentals, $800 cash flow

Year 4, buy 2 rentals, $1200 cash flow

Year 5, buy 3 rentals, $1800 cash flow

Year 6, buy 3 rentals, $2400 cash flow

Year 7, buy 3 rentals, $3000 cash flow

Year 8, buy 4 rentals, $3800 cash flow

Year 9, buy 5 rentals, $4800 cash flow

Year 10, buy 5 rentals, $5800 cash flow

That's 29 homes. You also should have rent appreciation, and a balance sheet that gets stronger each year. That would allow you to trade up to commercial some time in the latter years or at the end of 10 years for even more passive income.

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Ugochukwu Opara
OP
Real Estate Agent · Philadelphia, PA · Member since 2013 · 150 posts · 59 votes
12y
@Jeff S. Hey buddy,

wise words. I haven't been able to borrow because they say I haven't been working full time for 2 years or self employed for 2 years. There are opportunities in my area that I have come across. My dilemma is where do I get the fund to buy said 30K property from?

How would you go about it if you were in my shoes? 50k salary. 718 credit score. Currently $500 monthly in expenses.
0 Reply
Patrick L.
Real Estate Investor · Saint Petersburg, FL · Member since 2013 · 1k+ posts · 951 votes
12y
Originally posted by Ugochukwu Opara:
@Patrick L. He y Buddy,

Yeah looking like I need a cash reserve in order to buy and hold. This has been my problem. Currently I live pretty frugally. I recently just downsides to a small used car and got rid of my car note. Moved into families spare bedroom to drastically offset living expenses. However, I am still no where near being able to put 60K annually aside. At best I could swing 25-30K.

What would you do in my shoes?

Well it sounds like you're in the right mindset to save as much as possible to reinvest. You don't have to start with $60k, you just have to start. If you can get rolling with one rental property and you're living frugally then you can reinvest the profits from that first one to speed up your savings for the second one. By reinvesting the profits from each one it should accelerate the time between each one as you go forward. I had really good income from my other business when I started and I began putting everything I had available into rentals from 2008-present (I was flipping houses prior to that) and I went from 0 rentals to 43 rentals in 5 years. The number I purchased accelerated each year as I was able to reinvest my rental income each year into new rentals.
2 Reply
Ugochukwu Opara
OP
Real Estate Agent · Philadelphia, PA · Member since 2013 · 150 posts · 59 votes
12y
@Paul Timmins Wow! That would be more than enough. I'll look into that immediately.

I have an llc but its not even a month old. Feeling a little nervous walking in with a baby llc and asking for 75K with nothing to back it but my salary. What are your thoughts?
0 Reply
Jon Klaus
Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
12y

Income $50K a year. Expenses $6K a year. Fantastic! Bank $44K a year and buy properties once you can get mortgages.
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Ugochukwu Opara
OP
Real Estate Agent · Philadelphia, PA · Member since 2013 · 150 posts · 59 votes
12y
@Levi Forrest Yeah I read botu entity formation and rushed out and formed an llc. based on your feedback I should have consulted a lawyer first prior to doing so.

What are your thoughts and how did you find your law firm?
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Ugochukwu Opara
OP
Real Estate Agent · Philadelphia, PA · Member since 2013 · 150 posts · 59 votes
12y
@Jon Klaus Well ... maybe 10k in expenses and 40k saved annually. I gave myself too much credit lol

Thanks for the game plan. I can stick to that.
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Levi F.
Real Estate Investor · soldotna, AK · Member since 2011 · 69 posts · 36 votes
12y
I chose based on a personal relationship and trust in one of the lawyers. I think an LLC should server you just fine. Now just focus on finding how you want to invest in your specific market and practice evaluating!

Good luck, it's a great journey.
1 Reply
Ugochukwu Opara
OP
Real Estate Agent · Philadelphia, PA · Member since 2013 · 150 posts · 59 votes
12y
@Patrick L. Oh my word! You're a monster!! 0 - 43 in 5 years!! Amazing!

I want 25% of that and in twice as much time. But I agree with your wise words and thats what the advise I'm getting is leaning towards:

1) Save as much as you can

2) roll with one rental at a time

3) continue saving and reinvest profits

4) rinse and repeat until you net 5K monthly

What did you use to do in your other business if you don't mind me asking.

Any other advice? entity formation for 43 properties?
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Ugochukwu Opara
OP
Real Estate Agent · Philadelphia, PA · Member since 2013 · 150 posts · 59 votes
12y
Thank you soo much @Levi Forrest Your words have been motivational.

Its good to know what what I want to do can be done and has been done. Cheers!
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Ugochukwu Opara
OP
Real Estate Agent · Philadelphia, PA · Member since 2013 · 150 posts · 59 votes
12y
@Darrin Carey Thanks for the feedback. Yeah I'm in love with the 4 unit idea and want that to be my first rental. I agree with you completely.

what made you venture in the commercial world, higher returns?
0 Reply
Patrick L.
Real Estate Investor · Saint Petersburg, FL · Member since 2013 · 1k+ posts · 951 votes
12y
Originally posted by Ugochukwu Opara:
@Patrick L. Oh my word! You're a monster!! 0 - 43 in 5 years!! Amazing!

I want 25% of that and in twice as much time. But I agree with your wise words and thats what the advise I'm getting is leaning towards:

1) Save as much as you can

2) roll with one rental at a time

3) continue saving and reinvest profits

4) rinse and repeat until you net 5K monthly

What did you use to do in your other business if you don't mind me asking.

Any other advice? entity formation for 43 properties?

I think that strategy is the best bet, you have to start somewhere. Just make sure your first deal is a good one, starting off with a bad deal can set you back more than it helps you.

I was able to pick up that many that quickly because I had cash in the bank to invest to get me started so it's not a fair comparison. My other business is a web development/SEO/online marketing firm that I'm working on phasing out in favor of real estate which is what I am really passionate about.
0 Reply
Mike Sagesse
Commercial Real Estate Agent · Brooklyn, NY · Member since 2013 · 17 posts · 1 vote
12y
Originally posted by Ugochukwu Opara:
Hey,

My goal with real estate is to net $5,000 a month from rental income in the next 10 years. I'm currently a real estate agent in the Philadelphia area and I also do flips. The pay is great but its basically a 9 to 9 job. I have no problem with working hard and smart. My current problem now is that once I leave or take a vacation ... so does my income!! Which sucks. I'm only 23 but I'm thinking of when I get older and have kids and I'm missing games and birthday because I have to chase that dollar.

QUESTION:----->

How does one go out there and build a portfolio of rental properties where you NET $5,000 a month in 10 years time or less? Please be a detailed as you possible can! Thank you so much.

0 Reply
Shaun Carl
Buffalo, NY · Member since 2013 · 36 posts · 6 votes
12y
Something that can be a great start is getting your first property where you can live in one of the units. This is something I wish I would have done, rather than getting a separate house. You can save money, learn, and start your buy and hold strategy. And not to mention you can get a much better loan on a place that you are going to live in with something like 3.5% down. If you can find a multi with a one bedroom that you can live in (a multi with a 1 br is cheaper) then you can have a place to learn and build equity. Save the cash flow from that place with your annual income and look for another Multi unit that you can move into (usually wait 2 years between properties), and maybe upgrade to a nicer multi. Now you have two multi unit properties that should be cash flowing at least 150+ per door.

A 4 unit would give(150 x 3 (your living in one) x 12months) 5400 per year. After 2 years 10800 to go with the 20000 you can save. Then take that 30800 and go but a down payment on another 4 unit (you now have 2 years rental income) that you can put a lower down payment on while living in one of the units. Now you add up the total rent and the savings you should have after 4 years and you could have around 100K in savings. Once you get there, purchase properties with CASH (I prefer multis) that you can get for 60-70k including purchase and rehab, that have an ARV of 90-100k. The properties should also have a cash flow of $150 per door. With a Cash purchase everything is easier and cheaper. Then you refi those properties and pull out the money you put in. Do this as many times as you can until you hit your limit on the number of mortgages. Also, dont forget all the money your saving from your current job plus all the cash flow from each property you have. Add all that with the equity you have and your exceeding the 5K net easily. You have to use as much leverage as possible while being comfortable with the risk.

This is the strategy I am currently taking. You have to be pretty specific in your property search and patient.

I just started my company and will be closing on my first property. It will be a 4 unit CASH FLOWING 1100/month that I purchased including rehab for 60k.Once I finish the rehab I can refi and pull most of the 60K out of it to start again. It took a bit of looking to find and I got a bit lucky, but that is what you need to do to start out. I already found another 4 unit that the owner just wants to get rid of for under 30K. You just have to be patient and look everyday as much as possible at as much as possible.

2 Reply
Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
12y
All I will say is that you can grow faster by making more annual income to save.

If you can switch professions and make 200k a year instead of 50k that might just help you just a little bit in getting there sooner............ : )

Once you get really busy you will value your time more than anything. These days I will not create another job for myself with an investment. The investment has to stand alone on it's own without my intensive involvement.
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1 Reply
Ugochukwu Opara
OP
Real Estate Agent · Philadelphia, PA · Member since 2013 · 150 posts · 59 votes
12y
@Joel Owens Honestly, you've open my mind to the commercial world. I've always thought it was relatively the same income but just from a different avenue.

But 200K vs 50K is insane! I'm completely open to learning as much as I can.

You mentioned that in commercial people specialize and you went for apartment buildings, triple net leasing, and transactions only.

How did you narrow it all down?

You also mentioned land development, retail, multifamily, office, industrial etc.

How you navigate through everything and pick your niche?
0 Reply
Johnny Flewellen
Real Estate Investor · Las Vegas, NV · Member since 2011 · 14 posts · 15 votes
12y
The easiest way to accomplish your goal is by simply re-investing back into your business and stay away from debt in the form of mortgages. In addition, invest into affiliate programs that would benefit your current email list and take advantage of Deed Sales in Delaware County since your in that State.
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Ugochukwu Opara
OP
Real Estate Agent · Philadelphia, PA · Member since 2013 · 150 posts · 59 votes
12y
@Johnny Flewellen Hey buddy, thanks for the feedback. Glad you took the time to respond.

I'm interested in your comment. It's the exact opposite of what everyone else is advising. You're saying that to hit my "$5k net monthly" goal, I should invest more into my real estate agent business and stay away from mortgages?

Instead, you recommend I focus on affiliate programs and Deed Sales in Delaware County? I'd love to hear a more in dept analysis of what you are proposing. Please tell me more. Thanks
0 Reply
Shaun Reilly
Landlord and Rehabber · Newton, MA · Member since 2010 · 2k+ posts · 877 votes
12y
@Ugochukwu Opara

You have a great attitude and mindset for success. Being so young and focused on your goal should mean you won't have much trouble getting there once you hash out these details.

I think just deciding on where to focus will be the biggest hangup for you. Lots of good advice so far and there are multiple valid paths that have been laid out here.

Another option at least early on is looking at getting into some low cost rentals. There doesn't seem to be any shortage of places for <$10K in your area. Most will need some decent work to them but also seems like renting them for $800+ is pretty possible too. If you aren't loanable at this point that can get you in the game since you can play the all cash game.

Hypothetically say you buy a junker in an okay area for $6K put $18K into it and can get $800/month in rent. You are all in for $24K and if you use the 50% rule pulling in $400/month in cash flow. Given you just did a major rehab and if you self manage you should be WAY higher than this for a couple years if you keep vacancy reasonable and don't have any hell tenants that destroy the place.

You can have all your investment back pretty fast and a big chunk before going after that multi you can live in and get a mortgage on. You also will learn the closing process (not a big deal since you are an agent), the rehab process (Less of a big deal since it does sound like you have worked with investors doing this stuff), the leasing process (Very good to learn how easy or hard it is to rent in the area), and how to manage (Eventually you would want to hire it out to be passive, but can be good to learn the ropes early on).

Also if things go to total hell your downside is capped with a relatively small investment with no debt issues.
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Jason Mak
Rental Property Investor · San Marino, CA · Member since 2011 · 398 posts · 144 votes
12y
I think you are off to a good start by being on BP! Everyone has given you solid advice. Joel's advice on going to commercial is good but ultimately, no matter what you choose, residential, commercial, hospitality, etc etc, just don't give up, keep on learning, keep on meeting and talking to mentors, and most importantly, keep on building your reputation. Even working for free or at a discount to get good experience would be recommended and keep your eye out for operations and situations in your local geographic area where you have an edge.

I bet a lot of BPers would agree that the first few years are tough but once you build your reputation and client base, the momentum and pipeline will follow.

Finally, why settle at 5k per month? The sky is the limit!
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Adam Powadiuk
Toronto, Ontario · Member since 2013 · 4 posts · 0 votes
12y
use your real estate commission to get ownership pieces of investment real estate. Locate investors looking to share ownership in a property. Work out a partnership agreement. Source suitable property that is available for sale. Upon closing kick your commission into the deal as your equity portion. Assuming you can get 80% LTV you have now contributed 2.5% of the 20% down payment and you own 12.5% of the property. Rinse and repeat.
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Mark Podolsky
Investor · Scottsdale, AZ · Member since 2008 · 281 posts · 113 votes
12y
Buy land pennies on the dollar. Sell retail on a land contract with owner financing. Won't take long to get to $5k a month of passive income.
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Ryan Nelson
Member since 2018 · 1 post · 1 vote
7y
@Ugochukwu Opara, I'm curious how your doing in your process. Your five years in. Are you on time, behind, or ahead?
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