Madison Heights, MI · Member since 2018 · 8 posts · 2 votes
Hi Everyone!
I have been heavily researching starting a real estate portfolio and was hoping to get some advice/feedback on my plan.
I am 23 years old, have a salaried job in corporate finance, 750 Credit and recently moved to Michigan. I am originally from Seattle and don't know a lot about midwest markets so I was hoping to get some advice on which areas to focus on. I purchased a home here in Michigan which I am living in but I would like to start purchasing property to use as rentals. My goal is to make $500 a month on each property and get to 4 properties within the next 5 years. When I ran numbers it looked like I am able to come up with about 20K in personal savings annually (only including my salary). Is this a realistic goal? Thank you in advance for your responses!
Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes
7y
I think buying 4 properties in the 5 years with 20k a year to put down towards the purchases is definitely doable. That plan will work. I think your goal of net cash flow of $500/mo per house is where you're going to run into the biggest road block. You're going to have to really dig deep to find properties that can net that much with only 25k as a down payment.
I'm not saying it can't be done. But thats a hefty net profit margin to hit for sure. You've got to target the right price point in houses and the right areas for lower taxes. If you do that, then maybe you'll find that kind of net profit.
Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes
7y
I think buying 4 properties in the 5 years with 20k a year to put down towards the purchases is definitely doable. That plan will work. I think your goal of net cash flow of $500/mo per house is where you're going to run into the biggest road block. You're going to have to really dig deep to find properties that can net that much with only 25k as a down payment.
I'm not saying it can't be done. But thats a hefty net profit margin to hit for sure. You've got to target the right price point in houses and the right areas for lower taxes. If you do that, then maybe you'll find that kind of net profit.
Rental Property Investor · Everett, WA · Member since 2013 · 389 posts · 222 votes
7y
@Lisa Yang buy four plexes to maximize your unit count per for the limited amount of Fannie/Freddie backed loans you can easily qualify for. You have already used 1/4 with your single family residence
Real Estate Broker · Detroit, MI · Member since 2014 · 384 posts · 149 votes
7y
@Lisa Yang Your goals are realistic especially if you continue to network with other investors who will have access to good deals. I definitely suggest joining Michigan Real Estate Investors Association which meet monthly in Troy. This REIA is rich with educational content and resources.
Real Estate Broker · Seattle, WA · Member since 2014 · 1k+ posts · 427 votes
7y
Originally posted by @Account Closed:
@Lisa Yang buy four plexes to maximize your unit count per for the limited amount of Fannie/Freddie backed loans you can easily qualify for. You have already used 1/4 with your single family residence
This is a good point. I've mainly been investing in SFRs.
Madison Heights, MI · Member since 2018 · 8 posts · 2 votes
7y
Thanks for your responses everyone! @Jabari Long how do I join the REIA?
@Account Closed thanks for the tip! Is there a good strategy to find mulitplex properties? I typically have not seen any when looking through MLA listings.
Philadelphia, PA · Member since 2018 · 81 posts · 27 votes
7y
@Lisa Yang I certainly think netting $500/property is doable, but of course it depends on your market. In my market (Philadelphia), I can very easily find SFRs that I'm all-in for 100k that rent for $1100-1200. If I do an 80% LTV, my monthly expenses are around $550 and my NOI is around $600. Obviously, there are more factors at play, but I'm just saying your desired cashflow - to me - isn't the big concern. The concern is finding banks willing to do 80% LTV each year when you become less and less desirable as a lendee. Your debt to income is going to get more leveraged, your credit score may take a hit, and as the markets continue to tighten, I think it's going to be difficult to get reasonable rates on a new rental property every year.
As some other folks have pointed out, I'd look more towards multi-units. Perhaps in a year or two you're able to find a multi that you can owner-occupy. Ultimately, with economies of scale, having a quadplex in your portfolio is likely going to be a much better investment than four individual properties. Good luck!
Madison Heights, MI · Member since 2018 · 8 posts · 2 votes
7y
@Alex T. Thank you! I am concerned about lending as well so my plan for that was to split the mortgages between my spouse and I (were not married). We have similar income so splitting it should protect our debt to income. I would prefer to find a multiplex property but from what I have experienced those are hard to come by. Do you have any recommendations on how to find these deals?
Philadelphia, PA · Member since 2018 · 81 posts · 27 votes
7y
@Lisa Yang Good idea to split mortgages between you and your spouse. My wife and I do the same thing.
In terms of finding multis, I'd stick to the usual channels. I search relentlessly online. Categorize the properties based on my interest, and those at the top of the list I see as soon as possible; those at the bottom, I wait for price reductions. Try to hook up with an agent that has good off-market access. I personally like doing deals through conventional channels. I rarely buy things off-market, from sheriff sales, etc. Everyone has their own strategy. I like to make a lot of aggressive offers on market properties...and see what sticks.
If you're looking for even more REI experience, perhaps find a SFR that's zoned multi and convert it to multi. Those can be very lucrative deals.