5-Year Plan: If you were in my shoes...

[Jacob Seim]

Hello Everyone,

My wife and I are expecting a baby in January and after months of debate have decided to leave beautiful Denver, CO and move back to Cincinnati, Ohio (Go Bearcats!) in Spring 2020. We want our child (and future children) to grow up with family constantly in their lives. 

We're savvy savers and have been on the Dave Ramsey train for a couple of years. We lived in Southern California for 2-years and now Denver for 2-years and have gotten to the point where we're saving 60% of our take home pay in cash for a 20% conventional loan down payment while putting another 15% towards investments (Roth's, 401k's, HSA, etc). We're also 100% debt free and have 800+ credit scores at 29 years old. The "Total Money Makeover" does work if you need bad debt help, fyi. 

I've always wanted to become a real estate investor (buying long term multifamily properties) but I typically move every year or so and have lived in Chicago, Hoboken, LA, and now Denver. Home prices were always expensive in these locations and I never knew the areas well. These factors coupled with a fear of long distance ownership has put my dreams on the back burner for a number of years. These are excuses for a lot of people on this forum but everyone has their level of risk tolerance. Mine's mid to low.

Moving back to Ohio has re-fueled by dream to invest in real estate. We know the areas well and my wife and I have put ourselves into a strong financial position where we can afford two properties right off the bat with conventional loans. Homes are CHEAP in the Midwest compared to what we've grown accustomed to out West and had been saving for. I've also been reading, learning, analyzing properties over the years while I've been too afraid to take to plunge. 

I'm in the process of establishing my 5-year real estate investing plan (goals). I've listed my steps and would love to hear input on tips, tricks, and advise from people familiar with the Cincinnati area or this style of investing. Or, if you could put yourself in my shoes and do it all over again, how would you structure your first 5-years?

1. Year 1 (Spring 2020): House hack a duplex in an up-and-coming B neighborhood on the East side of town (Ex. Norwood, Pleasant Ridge, Madisonville). I'm keeping an eye on A neighborhoods but they have to cash flow (Ex. Oakley, Hyde Park, Mt. Lookout). 
   1. The unit we intend on living in needs to be move in ready or require minor cosmetic upgrades only. My wife is graciously willing to house hack but has set limits on the living conditions and location. No live in rehab's on this one. 
   2. The unit we live in needs to be 2 bed, 1 bath minimum which excludes a lot of 1 & 1 quadplex properties. I think finding a property with a 3 bed, 2 bath unit would allow us to house hack longer without bursting at the seams and wanting to move out early. Thoughts?
   3. Learn good property management skills. 
2. Year 2: Buy 4 units. Begin learning the BRRRR strategy.
3. Year 3: Buy 6 units. Utilize BRRRR strategy.
4. Year 4: Buy 8 units. Utilize BRRRR strategy.
5. Year 5: Buy 10 units. Utilize BRRRR strategy.
   Move out of our house hacked property and buy our "Forever Home" near good schools and our 8-5 jobs. 
   1. Not sure if I should save every month for 5-years for the down payment on this forever home or use that money to buy more rentals over the 5-year span (insert opportunity cost debate). This means I would have to get creative when the time comes to finance the down payment on this house. Thoughts? Cash out refi, use funds pulled from last BRRRR, etc.? I'm a 20% down kind of guy.
   2. Assuming my number of units per property average is around 3, this would equate to 10 total properties (30 units) in 5-years and put me at the limits of conventional loans and portfolio lending. 

My buying criteria (First 5-years): 

• 1. 2-4 unit multi-family properties. 
• 2. B- or greater neighborhoods. 
• 3. Cash flow >$100 per unit per month. 
• 4. Cash on Cash ROI >10%.
• 5. Manage myself (Outsource mowing).
• 6. 20% down, 30-year conventional loans.
  • a. 3 properties under conventional loans through a broker. Saving that 4th loan for my forever home just in case. Would like to utilize a broker and lock in the lowest 30-year rate I can at that time while having access to the big national banks. 
  • b. Find and use a portfolio lender for the remaining 6 properties. This caps me at 10 loans under conventional financing. 

After 5-years, I'd like to graduate to larger commercial units. I'm a construction project manager by day and have learned that managing ten $100,000 jobs is WAY more work than managing than one $1,000,000 job. I'd like to keep growing my portfolio to the point where my cash flow makes more than my salary so I can quit my day job (before I turn 40) and focus on investing full time. This is my 10-year goal. 

Thanks for reading to the end! I feel like I just wrote a book. 

- Jake