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

14 Replies

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

    Welcome back to ohio and you have a great plan. Few questions:

    • How do you plan to find the deals?
    • How are you funding the deals?
    • Who is going to do the rehabs?

    Looks great on paper , But I would first find a SFH for yourselves in a GREAT school district . Now you have locked in a great location for kids . Family first . Then I would go about buying rentals . Then I would make sure I had a large back up fund . Kids are expensive and time consuming .

    Welcome @Jacob Seim .  I like the initiative and would make one subtle tweak:

    Instead of "BRRRR xx units", figure out the necessary steps needed to get to xx units. It will depend on your approach but will be something like this:

    meet with xx realtors or get to know xx wholesalers and/or send out xx mailers 

    analyze xx deals

    offer on xx deals 

    Yes, we want to be result-driven but it's just as important to be process-driven.  By breaking down into smaller tasks you make it more tangible and keep yourself accountable on a more granular level.  More importantly, you detach yourself from the outcome.  You don't want to purchase a property, just because it is your 4th property and 4 was your goal for the year.  

    Success is not a nice linear path, analyze xx deals doesn't always immediately lead to xx results, but if you stay process-focused over the long-haul you will hit the long-term goals.  

    Also, what does "4 units" actually mean to you?  What is the definitive purpose (your "why?") that is driving you to achieve this number.  You don't have to answer me, but you internally need that purpose to get you through the potholes of adversity on the road to success. 

    Lastly, I agree with @Ryan Mainwaring , the next step would be to figure out the how-aspect now that you've defined the what, when and why.  Go get 'em. 

    @Ryan Mainwaring

    • How do plan to find the deals? - First property (house hack) off MLS with realtor. I'm analyzing and finding a number of move in ready properties that cash flow right now. Properties after that I plan on building a relationship with a great realtor, participating in a local real estate club, and finally reaching out to current multifamily owners in my target neighborhoods through a number of means (calling, driving/walking for dollars, direct mail).
    • How are you funding the deals? - First property (house hack) with cash saved. I have enough cash to buy a second which is where I'd like to start learning the BRRRR strategy so I can get back some (or all) of that cash for the 3rd property and so on.
    • Who is going to do the rehabs? - My brother in law owns an interior remodeling business south of Dayton that is doing very well. I plan on using him for kitchen, bath, flooring, and painting. He is also a roofer for his day job day and is capable of that trade. I'm a construction project manager by day so I'm comfortable managing any other subs that might be necessary (plumbing, electric, HVAC, etc.) and overseeing the process. 
    Originally posted by @Jacob Seim :

    Hello Everyone,

    My wife and I are expecting a baby in January ...........

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

    - Jake

    Hi Jake,

    Personally I think 5 years is too far out to plan based on  everything you're going through right now, making a plan for this length of time seems more of a wish list exercise than a followable plan.

    A more workable strategy might be to plan for buy number one only (figure out ALL of the details for that), then about 18 months later begin planning to buy number two.

    You have a lot of OTHER new variables pressing in on your time (and money), new baby, new home, new job, new city, etc...

    But some people like to plan far out..if that's you...then go for it...but I still think the time frames and details at this point are more of a wish list then a folowable plan of action.

    Good Luck!



    @Matthew Paul Thanks for the response and tips! I agree, family always comes first. My only fear of buying the SFH now is lifestyle inflation and the possibility of getting distracted or off track by life events. As for a back up fund, my wife and I keep a 6 month emergency fund which will be adjusted and increased with the addition of children and properties. I'd like to always have a 6-month emergency fund for every expense in my life, including rental property PITI.


    I like your plan.  It will be tough to find a cash flowing duplex in those A areas in Cincinnati.  Not saying it can't be done, but will be difficult.  You will have better luck in those B areas, where prices will be more reasonable.  I started the same way.  House hacking a unit in my 5 unit building on the east side of Cincinnati.  Refi'd after renovations and bought my 4 unit building.  House hacking can lay a great foundation for you.  If you need any recommendations for banks in Cincinnati I'm happy to pass names along.     

    @Tom Shallcross Thanks for the advise, I plan to incorporate your ideas into my goal setting. Goals need to be S.M.A.R.T. and you highlighted the difficulty in measuring my goals. Your process breaks it down into smaller pieces that can be measured. Smaller tasks are also easier to accomplish and move the entire process forward without getting burned out or overwhelmed. 

    @Scott Mac You're right. Lot's of variables! However, I am one of those people who like to set 1 year, 5 year, and 10 year goals. Wouldn't say I'm on that "The 10x Rule" kool-aid but I like to set lofty goals to push myself. It's worked out well so far in my career and personal finances. 

    @Jacob Seim  The overall plan makes sense, but it depends on personal cashflow to execute it. With the level of detail you've put into it, I'm assuming you've calculated that in. You've picked good neighborhoods. Some of them have become pretty hot over the past year or so.

    I see one glaring flaw. You're limiting yourself to 10 mortgages, and you've created a plan to work within that limitation. The 10 mortgage limitation only applies to conventional loans sold to Fannie/Freddie. Portfolio and other lenders don't have that limit. For example, one local investor I know has 120+ mortgages.

    Fannie/Freddie and other Government sponsored programs (FHA, VA, etc) generally will offer the lowest rates and best terms. As you grow past them, shorter amortizations become more common (20-25 year).

    There are also non-conventional 30 year mortgages that work for BRRRR (short seasoning), or to bypass other limitations (DTI calculations, >10 mortgages). Of course, they are not government sponsored so the rates are one to one and half percent higher.

    I just mortgaged 8 properties at a 4.9% rate on a 20 year loan. The shorter amortization reduces your current cashflow, but it does pay down the loan a lot faster. That extra payment is all going to principal.

    Once you've moved to Cinci, check out the local REIA. It's a good group of people and you'll find some good connections there. Find me and say "Hi", I'm almost always there.

    @Jacob Seim , you're 29.  Go a little slower.  ;-)  You MIGHT find, after a couple of places and a few years, that you want to completely change your business model in some manner.  You might decide that investing in the rust belt wasn't as lucrative as it initially appeared.  You might want to PM the properties yourself.  You might want properties near your home where you can have control.  

    That's before you get into the boom/bust cycles of real estate.  Almost everyone says we are at the top of the cycle.  If that is the case, you don't really want to pile in at the very top.

    Your COC of >10% is commendable. But you will have a better chance of finding a unicorn, even in the midwest. Those 10%+ "ROI's" are full of gotchas. Detroit has 15%+ ROI's. Are you looking to buy there? YOU won't get a 10% COC return. Somebody local MIGHT get a return close to that number. And the properties are, more than likely, C-, D, or even F type properties. The properties are generally old and have tons of CapEx just waiting for a new buyer. They are not the B properties you are seeking.

    My recommendation, FWIW, start MUCH slower. Buy a good B/A SFR near where you live. Rent it out for a year or two to get your feet wet and see where this market goes. You have plenty of time to buy another 5-10 properties.

    Trust me when I say this:  You don't know what you don't know.  

    @Alan Grobmeier I'll take all the advise I can get from people who have been through this journey before. "You don't know what you don't know" is wise advise. I'm bound to make mistakes. Hopefully, I can learn quickly and move forward. Thanks for contributing! 

    @Jacob Seim , we all make mistakes in this business.  I'm STILL learning despite having an almost 'push button' operation.  And PPL are kinda like cats, they don't always do what YOU want.

    As long as you don't lose a bunch or money at once or get over extended/leveraged, none of your mistakes should be 'fatal'.  ;-)