Howdy! Looking into getting into REI and have been looking at different systems and vehicles to get me there. We don't have any huge goals of owning 1,000+ units or raking in millions a month. Our goal is just to replace our monthly income of roughly $10,000/month passively within the next 10 years. That's it! Looking into ways to do this conservatively and one of the methods that really stood out to me was buying a MFH (2-4 units), paying it off, then taking the full rent + savings from our FT jobs and snowballing the same process over and over until our goals are reached. Averaging the rents around $700/unit in our area, that would only take 15 units to be fully paid off to achieve $10,000/monthly passive income. We have a decent amount of income since we've reduced our mortgage, auto loans, and adjusted our budget to live significantly below our means. This is definitely achievable in 10 years if we buy 3 quadplexes and a triplex, or 8 duplexes, etc. I know this isn't the normal investing kind of plan I see out there but this is how we could leverage REI to meet our specific goals to reach financial freedom. I'd like to ask the seasoned veterans here if there is anything inherently wrong with this plan? Is there anything else I should know about before setting this as "the plan." I don't see this kind of plan talked about very often or at all. Most everyone is looking into BRRRR and other types of trade-up systems.

As a cash buyer I may be in the minority here. But your plan sounds excellent to me. Swinging a lot of debt is not for the faint of heart and your plan will do the same thing in the same amount of time as someone using a no money down plan. You will arrive at your destination at the appropriate time and sleep better at night if the economy gets rough in Texas. Good luck.

Excellent plan goes against the refi till you die and max leverage BP crowd.. although you still are going to have at least 30% overhead to keep your units in nice shape.. so be sure to deduct that from your gross cash flow. the most successful folks I know that are not professionals in the business have either entire portfolios paid for or substantially paid for.. although as well keep in mind 10k today is 15k in 10 years or more.. When I started in the business in the later part of the 70s 4k a month was a kings sum. Now it barely gets you through the week.

You used the phrase "replace our income" vs. supplement, so I am taking this to mean you intend to quit your W-2 jobs and go full time real estate once you get to the end of your plan. I am sure you realize that $10,000 / month from rents isn't like $10,000 pay check. As Jay mentioned, figured a minimum of 30% for maintenance, property taxes, insurance, legal, bad debt, and vacancy. Also, if you truly want "passive" income, then a property manager will cost about 50% of one month's rent to fill a unit and an ongoing fee of 7-10% of monthly rent. Then there's Cap Expenditures. The boogie man many REIs forget to plan for and so the minute their houses get paid off they have to go get another mortgage to replace the roof, the flooring, the HVAC, the water heater, etc. Set aside 5% of monthly gross potential rent (vacant or not) to build up your reserves. With no W-2 income I'd want a minimum of $10,000 per unit set in reserves. Also, I'm assuming your current employer is paying for part or all of things like health insurance, retirement plans (Social Security, if nothing else), short and long-term disability insurance, and possibly some other nice perks that will be your own to foot the bill once you go full time RE. Be sure to deduct all of that from your gross. Bottom line: the folks I have talked to who have left W-2 behind typically get somewhere around 150% of their income before jumping ship. If you have very little/no other debt, then it will certainly be easier. I'd plan for around $14,000 - $15,000/month income, and if I found I didn't need it...hey, gravy on the biscuit! Good luck....a very aggressive but exciting goal.

Yep, this. Acquisition opportunities come in waves. Then crickets. I've had years looking for 1 and got 19. Other years looking for 4 and got nada for 3 years. This year I'm selling 2 unexpectedly and 17 others on purpose. Plans are great and nothing wrong with less debt, but sometimes you need to make hay while the sun is shining. If 3 deals come up in the same year, responsible debt (especially long term low rate fixed resi debt) is ok. You can then accelerate paydowns in dry years. I've had quite a few dry years so have been knocking out commercial and higher rate resi debt to earn more than 6% safely while I wait with dry powder at the ready. If i hadn't used debt during the good years? I'd be hunting around for skinny deals with everybody else instead of napping.

@Josiah Sia the approach works fine. The slow methodical nature of one property every 2-3 years is what will be hard. Once you start and understand REI and the potential of it, and once you know what a good deal looks like, it will be hard to stay disciplined to your plan and let good deals pass by. Your plan doesn’t maximize your return, takes a long time, etc but if you can stick with it the approach will work. Spend some time understanding how to analyze deals to make sure you know what you are buying and what your monthly expenses are. You won’t net $700/mo/unit after expenses, and if you are buying a 4plex in rent ready condition, as you stated, for $150K that brings in $2800/mo I will venture a guess that the location and your tenant pool will lead to additional expenses. Go on YouTube and watch deal analysis videos or watch Brandon Turner’s weekly webinars, as they are geared for beginners and focus a lot on analysis. Good luck!!

Thank you Jay! That makes a lot of sense and is definitely something I need to calculate out. I'll plan to go above the salary units # I had originally had to account for overhead and inflation. I didn't think of those and I'm glad you brought those up! P.S. Your podcast was great! You even addressed my question here in the fire round of that episode saying "the quicker you get your buy and holds paid off, the better you are." It's like having a celebrity responding to me on my post!

One of the downsides of conservative investing is slower growth the trade off being lower risk. I think you have a great plan. It will probably be difficult to replace $100k income in just 10 years, though. You will need to buy all the properties and in theory pay them all or mostly all off. That does take time. Life is a grind, enjoy it.

Not a problem! :-) My point is, pause after a small collection of units (5-ish) and see how that goes for a while. Then you can better set your goals for the long term.

Haha, force my $ away so I can't spend it. Good deal! :)

Downsides for conservative investing?

Josiah Sia

OP

Rental Property Investor · Member since 2019 · 91 posts · 30 votes

7y

Originally posted by @Ola Dantis:

@Josiah Sia Hey Josiah, first I think your plan is brilliant.

However, I'll urge you to give yourselves some leeway for the surprises along the way! That way, you don't feel deflated when you feel like a hit a roadblock or overwhelmed with inertia. Remember, it will happen and it is part of the process.

In addition, the reason you might not see a lot of people mentioning or doing this type of approach is that it can be cash-heavy as paying a mortgage down requires some cash infusion usually from other sources. That said, if you guys are able to pull it off, I think that would fantastic! 👍

Thank you for the words of encouragement Ola. I'm definitely trying to map it out so its "ready" for those speed bumps and road blocks. Definitely can't catch them all but I can definitely prepare! hahah

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Josiah Sia

OP

Rental Property Investor · Member since 2019 · 91 posts · 30 votes

7y

Originally posted by @Josh Bakhshi:

Josiah,

I love your goal and plan. Good for you!!! Limit your risk by paying cash, don't drop your day job if you get a good income from it and you enjoy going to work. But still understand this is still a BUSINESS. It will still demand your time and attention. You wont get there overnight, but with you mindset, you WILL GET THERE!

Good luck

Thank you! I love it too the more and more I hear others provide their feedback. This community is so great. I've already learned so much and have been able to account for so many aspects I didn't even think about. Overage, extra overheads, inflation, medical and health insurance, etc. It's amazing!

I appreciate the kind words. I need to steel my mind so it doesn't waiver. This is going to feel like a long 10 years but by the time it's done, it's going to feel short compared to doing something else and waiting to retire at 65!

Downsides for conservative investing?

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