My Business Plan - Feedback Appreciated

13 Replies

Background: I'm in my mid 20's and acquired a my first rental six months ago.  I currently work in corporate America and will be self managing my properties.

Strategy: Buy and hold.

Goal: To make real estate my sole source of income in 10 years.  Owning 1 million in real estate that creates over 10% cash on cash will help me achieve my goal.  (If I could replicate my first deal I would only need 8 more properties to achieve this goal).

Numbers: 10 rental properties valued at $100K each with returns of a minimum of 10% will create $100K in cash flow.  Also, the debt pay-down will be around $400 per month per mortgage will help increase my net worth by an additional $48k per year.

Criteria: Investing in high end neighborhoods with good schools.  I'm willing to take on less of a return to attract higher end tenants.  Typically I would like 2-4br single family homes between 800-1200 square feet.  Attracting good tenants will be crucial because I will be working a full time 50 hour job as well.  Properties that take less than $10k in repair will be a target of mine to get the rentals up and running fast, plus less effort to manage to renovation process.  Appreciation will be an added bonus, however I do not count on it.  I want to purchase properties from $80,000 - $120,000.  However, I will raise this number if the opportunity presents itself.  An opportunity would be defined as supports business plan, good returns, falls within criteria, and helps me achieve my goal.

Financing: Live below my means and do conventional financing with loans from banks. Possibly house hack SFH's to get in with a low down payment and rent it after a year. This area will be a work in process as I grow, however I recently find a lender who funds their own loans and doesn't abide by Fannie Mae guidelines! They recently approved me for a second rental.

Finding Deals: MLS and Homepath as I do not have many contacts within real estate at this time.

Exit Strategy: 1039 properties in portfolio that are under performing.  Since I will be investing in higher end neighborhoods selling will not be a problem.

I believe that I had a moment this morning where I realized how attainable owning 1 million of real estate is.  I appreciate any feedback to improve and if anyone has similar success story, feel free to share!

Initial questions. 

1. Are there properties selling for $80k-120k in the neighborhoods you want, in the area that you live in?  

2. And will those properties generate 10% cap rates each year?

Originally posted by @Adrian Chu :

Initial questions. 

1. Are there properties selling for $80k-120k in the neighborhoods you want, in the area that you live in?  

2. And will those properties generate 10% cap rates each year?

1. My first investment was a condo, and yes they sell for that much. The HOA is well run etc, I did a lot of background work on them and grew up in the area. SFH's in the same areas are double the price and double the taxes. Ideally I would like to buy SFH's but they currently out of my price range or in lower end neighborhoods. I am still weighing the pros of cons of condo's in A- neighborhoods vs. SFH's in C+ neighborhoods. In the future I could potentially trade up my condos to buying SFH's in higher end areas in numbers are right.

I'm biased for sure about condos being a better investment than most people think on here if proper background work is done.

2. No, I am wrong in what I said.  I mean 10% cash on cash return.

Also, I see that your are a real estate entrepreneur.  How did that come to be?

@Rob Randle

I had the same goal when I started investing 13 years ago.   I attained that goal and then realized it didn't matter as much to me about what the total value was, I became more interested in my monthly income.  I sold a few houses,  in lower end neighborhoods that were farther away than I wanted to manage them.   currently my rentals are within 15  minutes of where I live with 2 exceptions.   One is 4 hours away in Dallas and I am currently selling it, and the other has a tenant in there that's been there for 14 years, and takes care of everything (I haven't been to the house in 2 years but do drive by occasionally).   Currently I am working to pay everything off and then I will think about getting into multifamily, maybe before I retire early, maybe after.   I only bought properties that were below appraisal and had positive cash flow.

You say you want 100k cash flow/year from 10 properties. That equals out to $833/month/property? Unless your market is extremely lucrative, I think you need to look over your numbers there again.


Originally posted by @Rob Randle:
Originally posted by @Adrian Chu:

Initial questions. 

1. Are there properties selling for $80k-120k in the neighborhoods you want, in the area that you live in?  

2. And will those properties generate 10% cap rates each year?

1. My first investment was a condo, and yes they sell for that much. The HOA is well run etc, I did a lot of background work on them and grew up in the area. SFH's in the same areas are double the price and double the taxes. Ideally I would like to buy SFH's but they currently out of my price range or in lower end neighborhoods. I am still weighing the pros of cons of condo's in A- neighborhoods vs. SFH's in C+ neighborhoods. In the future I could potentially trade up my condos to buying SFH's in higher end areas in numbers are right.

I'm biased for sure about condos being a better investment than most people think on here if proper background work is done.

2. No, I am wrong in what I said.  I mean 10% cash on cash return.

Also, I see that your are a real estate entrepreneur.  How did that come to be?

Hi Rob

I have been quite active in the condo niche and I agree with you - many people overlook condos.  With their low price-to-entry, percentage-wise, we can see extremely high returns.  

However, as rental properties, with HOA dues, property tax, insurance, maintenance, and debt service, there is not much "meat" left each month. Holding a condo leads to risks with potential special assessments and such. Which is why I mainly look at condos as flip opportunities. I see flipping as the easiest way to "trade up" to SFHs.

A typical flip generates around 2-3 years worth of net rental income in 2-3 months of time. 


Regards,

Adrian

@Wayne Smith you mentioned that you only purchased homes that were below appraisal. What was your strategy for finding such properties? We're you able to find any on MLS or were you using a different method? Is the property you are selling in Dallas currently on MLS?

Originally posted by @Wayne Smith :

@Rob Randle

I had the same goal when I started investing 13 years ago.   I attained that goal and then realized it didn't matter as much to me about what the total value was, I became more interested in my monthly income.  I sold a few houses,  in lower end neighborhoods that were farther away than I wanted to manage them.   currently my rentals are within 15  minutes of where I live with 2 exceptions.   One is 4 hours away in Dallas and I am currently selling it, and the other has a tenant in there that's been there for 14 years, and takes care of everything (I haven't been to the house in 2 years but do drive by occasionally).   Currently I am working to pay everything off and then I will think about getting into multifamily, maybe before I retire early, maybe after.   I only bought properties that were below appraisal and had positive cash flow.

 You mentioned that currently you are working on paying everything off. Can you share with us the strategy that you are using to pay everything off? Are you doubling up on all payments or focusing on paying off first one you acquired? How many are you paying off? It seems that most on BP are in acquisition phase it's nice to hear from someone who is selling and paying off. 

@Rhondalette W.

Yes the property in Dallas (actually its in Quinlan, about an hour east of Dallas) is on MLS, but it is currently under contract.

I spent countless hours pouring over MLS, looking at rents, houses for sale, and foreclosures. I educated myself as much as possible about the immediate area around me and became somewhat of an expert. I knew what areas i wanted to invest in, how much rents were, and neighborhoods, etc. I found my properties through MLS, foreclosures, owner finance, and through word of mouth. I had a lot of people tell me about houses for sale, friends selling, etc asking if i was interested in buying. I went in with the attitude that if the house was a good deal and i got it great, otherwise, there are 50,000 more in the Houston area. I was not going to "HAVE" to buy a house. In my opinion that is when you overpay or ignore signs of serious problems. I bought several foreclosures @ 50% of their value, but then again, this was 10 + years ago. The market has definitely changed, and I haven't bought anything in 6 years. I had too many properties and could not get financed through banks.

I decided last year to pay every thing I own off, including my rentals.   I sold a newer model truck and my motorcycle and bought an older truck i paid cash for.  I listen to Dave Ramsey and follow his snowball principal to pay off debts (start from smallest pay it off then got to next one, etc)  I was in a fairly good position to begin with because I began buying properties to set myself up in retirement, and not take any income from my rentals for personal expenses.  I still work a full time job.  I had an owner finance that I purchased for 175,000 and it had income of 2500/month.  I set that up on a 15 year note and started paying 300 extra every month to pay it off in 9 years.   I am set to pay that off next month and plan to build a 6 plex on it by then end of next year, if not sooner.   I will be paying cash for that as well, and I have 4 mobile homes on the property that I will sell and rent just the spaces out (so I won't be liable for any repairs to the mobiles).    While I have done well with the mobile homes,  the mobile homes are more upkeep and maintenance than I want to put into them.  This should increase income on this property to 5-6000 depending on the mix for the 6 plex.   I currently have 11 rentals, and have mortgages on 7 of them.  When the sale on the Dallas properties closes I will pay off 2 properties then refi the remaining 5 to lower interest and payments.   Then i will throw all the money i can at paying this off, hopefully in 2 years.  

Also, perosnally i currently only owe on my personal residence and my wife and I make good income so we will be working on paying that mortgage off separately in the next 2 years

 @Wayne Smith  wow!!! You have a very well thought out detailed strategy for getting very thing paid off. I will read about Dave Ramsey's snowball method that you are using. Thank you so much for sharing with the newbies 😄

@Rhondalette W.

My plan has changed over the years, but I really think this is the best for me.   I associate mortgage loans with risk, and once my properties are paid off, then I have lots of cash flow to buy and pay cash.   A few years back I had 12 rentals and 5 of them became vacant in January.  I almost lost everything I had, so that has changed my attitude about loans and the risk associated with them.   And as Dave Ramsey puts it " I have done tons of research and I discovered that 100% of the foreclosures had a mortgage!"  

@Wayne Smith

Was it the more local banks that you had to go through to get a mortgage? As opposed to Chase, Capital One, etc.

Do they have multi-unit residential properties in your area?  Those might look better as an investment, than condos.  As others have stated condo fees and assessments tend to make condos cash flow worse than it would seem initially.  However it maybe that you have found a desirable, but affordable condo community that works well.

A few things I would look at very closely

- condos finances if they aren't rock solid - special assessments are even more likely

- deferred maintenance - again increases likelihood of special assessments

- percentage for rentals - if this gets too high, it could impact the ability to finance the condos

@Bobby Brown


Yes they do, I just bought SF and eventually I will buy an apartment complex. but I plan to pay off my houses first, then decide what to do with the houses (continue renting or sell to finance multifamily

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