Our 1 year journey to 22 units & $10,000/mo cashflow without OPM
Background:
Me and my wife are both full time IT professionals with 9-5 jobs, which are more like 8-8 jobs really and sometimes weekends too. We decided to start actively investing in cash flowing multifamily real estate after reading a few books and understanding the value of assets vs liabilities and passive income to attain financial freedom. More importantly, we absolutely LOVE REAL ESTATE. We started investing in February 2020 and have racked up 22 units of rental real estate in Cincinnati OH, which is where we live.
Market Selection
Thankfully, we live in an investor friendly market where laws are mostly landlord friendly and cashflows are good. Active real estate investing is all about control - control over the scouting, buying, rehab, operations and selling process is crucial if you are an active investor who is starting out and has a small team. You either need to be in the market where you are investing or have a trusted 'boots on the ground' partner (who preferably has skin in the game) to be able to invest remotely. Our criteria was to buy a C class asset in A/B neighborhood. We used city-data.com and census.gov to hone in on our primary market and submarkets.
Asset Class
After educating ourselves and based on our financial situation, we decided to invest in Class C value add multi-family asset class for these reasons
- Reduced vacancy risk with multifamily
- CAPEX and repairs spread across multiple units
- ARV based on operations and NOI
- Value add = forced appreciation
- Economies of scale in general - easier to scale.
Deal#1
We found two extremely distressed 1920s 4plexes right next to each other in a class A neighborhood of Cincinnati. We bought them for $50k per door which was on the higher side, however, we knew we couldn't go wrong with this location. One mistake that you can't fix is - wrong location.
How we found the deal: MLS
Rehab cost: $200k
ARV: $750-800k
Financing: We purchased the property with 20% down conventional 30yr loan and financed the rehab using a HELOC against our primary SFR.
Rehab time: 6 months
Cashout refi: due to COVID, underwriting was extremely conservative, even with 65% LTV, we were able to pull most of our money out using cashout refi at 2.7%.
Rents: We were able to double the rents from $450 per unit to $900 per unit. One of the units converted to Airbnb which produces more income.
cashflow: We self-manage the property. Due to extensive capital expenditures and repairs, the property is almost brand new and seldom has maintenance issues. We were able to achieve $450-500/mo per door in cashflow after reserves.
Deal#2
We rolled in our cash from cash out refi into second property which is a 10 unit apartment building in Class B+ neighborhood of Cincinnati which is being heavily gentrified.
How we found the deal: LoopNet
Financing: 75% of purchase cost + 100% rehab cost funded by a local bank - first year interest only
Cost: $47k per door 100% occupied. All 2 bedroom units
Rents: $600 per door
Market rents: $1100-1300 per unit
Rehab budget: $175k
Other measures being implemented to increase NOI: Energy efficient LED lighting indoor and outdoor, RUBS, coin laundry, storage units, pet fees
Projected rehab time: 6 months
Projected ARV based on 7 CAP: $1.2m
Projected cashflow after cashout refi: $400 per door
Deal#3
Cost per unit: $55k
Rent per unit: $800-850/mo per unit
Property type: 4plex in Cincinnati
How we found it: off market through Facebook group
Strategy: 1 year House-hack followed by 5-7 yr hold rental
Financing: FHA loan 3.5% down @2.375% interest rate
2 units owner occupied, 2 units rented
Rental income covers all expenses and mortgage costs
If all 4 units are rented, property to cashflow $200-250 per door as-is
Learnings:
1) Mindset shift
Reading Kiyosaki's Rich Dad, Poor Dad and Cashflow quadrant motivated us to - let go of our liabilities and build assets, move from Employee quadrant to Entrepreneur and Investor quadrant and put us on the path to create passive income.
2) Education -
We spent a year reading books on real estate investing, listening to podcasts, reading BP forums and analyzing deals. Here are our favs:
- Rental property investing (Brandon Turner)
- Managing rental properties (Brandon and Heather Turner)
- Investing in real estate with low or no money down (Brandon Turner)
- BRRRR (David Greene)
- ABCs of real estate investing (Ken McElroy)
- Tax Strategies for the Savvy Real Estate Investor
- Estimating Rehab Costs (J Scott)
3) Set Big Hairy Audacious Goals (BHAG)
We set audacious goals, wrote them on a whiteboard and continue to read them at least weekly to remind us of where we are going. We develop a vision board to remind us of our vision for the future and to keep us motivated. We picked this up from some of the highly successful mentors and friends.
4) Network and build relationships: Real estate is a "We" sport, not a "me" sport
Your network is your net worth and this is especially true in real estate. Me and my wife are both introverts and not natural at networking. We made a conscious effort to speak with at least 1-2 individuals per day. We continue to strive to form meaningful relationships with people that we can learn from, whose habits we can adopt, develop lifelong friendships and become better versions of ourselves.
5) Million-dollar Habits
No matter what journey you embark on, to be successful, you have to pick up success habits. To be in the 1%, we have to stop doing what the 99% of the people do. We are making an effort to be consistent with habits like reading, eating healthy, proactively plan the week, write down daily and weekly goals, etc. Changing habits isn't easy and we are still struggling to make the 'Miracle Morning' real for us :)
5) Take action!
You can have all the education and resources, but you won't move the needle if you don't take action. Buying 8 units of highly distressed property was a HUGE risk, but we had educated ourselves, we had done the research and it was time to take the plunge. Sometimes, you have to trust your instincts and go for it! But ALWAYS, EDUCATE YOURSELF FIRST!
6) Have massive reserves, especially for rehabs if you are just starting out
Your first rehab is always the hardest and most stressful. Due to the lack of experience, you are not used to the surprises. We highly recommend J Scott's 'Estimating Rehab Costs' book to get you educated but experience is the best teacher. The rehab on our first deal which we anticipated to be $120k actually ended up being a $200k rehab!! Luckily, we had enough reserves.
7) Find mentors : You should always learn from mistakes, but they don't have to be YOUR mistakes. That's where mentors come in.
Some of these programs can get very expensive but we view this as an investment and not an expensive. Mentors, coaches and mastermind programs keep you motivated and help you build a trusted network. Mentors are there to look over your shoulder and to stop you from making a mistake.
What next?
While we want to continue to build our personal portfolio of rental multifamily properties, our goal for 2021 and beyond is to build bigger, better teams and do Joint Venture (JV) and syndication deals. Once we hit our freedom number, we want to transition to real estate full time. We would love to transform our cities and communities - one building and one block at a time, while generating great returns for our investors.
We are forever grateful to R.Kiyosaki for changing our mindset, BiggerPockets for creating a community for folks like us to get started, Brandon Turner, Ken McElroy and David Greene for writing the books which formed the bedrock of all our education as we got started, our mentor Vinny Chopra who blows us away everyday with his energy, positivity and his million-dollar habits, and countless friends that we have made during this journey.