Reaching $100,000 per year CASH FLOW

13 Replies

As with most of us investors, one of our big milestones would be to reach a passive income cash flow of a cool $100,000 a year. Only being on my first duplex and on the close verge of purchasing my next 2-4 unit MF, I'm wondering the timeframe of this goal is. What are some unforeseen challenges, road blocks, and obstacles a newer investor can't see as their starting up that will get in the way of this goal? It seems to me as long as you can put yourself into properties that can cash flow ~$10,000/year and acquire ten of them, you'll be at your ultimate goal. I understand that $10k/year deals are not easy to find. A typical time frame/strategy would be the following: -1 property / year over the next 10 years -minimum cash flow $10k/year -finance each property with as low of down payment as possible, leverage as much as possible From listening to hundreds of podcasts now and reading lots, I'm gathering that most people are not in properties that cash flow $10k/year. More so, it seems that a typical investment property, let's use duplex as an example, would cash flow only $300/mnth, or $3600/year. With this logic, you'd need around 27 duplexes to make this happen. Is it unrealistic to use the $10k/year cash flow logic with 10 total houses, or has this worked for people? How did you get to your $100,000/year cash flow?

You get to $100k/yr profit by increasing the # of units/houses over time.  Everyone has their own "fuel" to grow this number.  My #1 fuel so far has been my full-time W-2 income.  "Keep your day job" is what I tell people.

PS-I will have a great 4-family up for sale on the west side of Cincinnati soon.

Zach - $100k/yr cashflow is a great goal (I have the same one) but doing it with 27 or any large number like that is unrealistic.  Finding 27 properties that fit your criteria and are profitable would very difficult, even over a 15 year period. (you could always look out of state also, but that has its own issues)

But to answer your question (at least from what I've read) most investors scale up at a certain point. Meaning- initially they buy a single family or a quad. Then, some time later they buy a second and third.. but eventually, when you have like 10, you need to sell all those single/quads for something like a 25 door building.  At that point, you're also adding in appreciation of the buildings you own, but that's the basic idea..

Once you start to scale up, the real 'passive income' generation starts.

Learn to put you money to work for you instead of you working for your money.  When you work for the money for your investments, you need a new "money" for each, which means you are using those funds only once.  That's called spending...and you can only replace those funds to use on your next property based on your time...as in your job(s).

Learn how to use your money instead of spending it...as in using the same funds over and over again, never spending it.  This is called the money working for you.  Your money can work an unlimited number of jobs at once.

Originally posted by @Jay J. :

Zach - $100k/yr cashflow is a great goal (I have the same one) but doing it with 27 or any large number like that is unrealistic.  Finding 27 properties that fit your criteria and are profitable would very difficult, even over a 15 year period. (you could always look out of state also, but that has its own issues)

But to answer your question (at least from what I've read) most investors scale up at a certain point. Meaning- initially they buy a single family or a quad. Then, some time later they buy a second and third.. but eventually, when you have like 10, you need to sell all those single/quads for something like a 25 door building.  At that point, you're also adding in appreciation of the buildings you own, but that's the basic idea..

Once you start to scale up, the real 'passive income' generation starts.

10 - 15 properties alone, or 20-25 properties with partners. All within a 3-5 year period. All with property managers in place. All SFH

...and not spending a dime.

Instead of all those duplexes it would be easier to buy small and then large apartment buildings after you get your first couple multi family properties. It's also easier to handle 1-2 loans and locations instead of 27. The PDF by Brandon Turner, 7 years to 7 figure wealth, which is free and you can google it, really outlines how that works. Starting with 1, then 2, then 3 fourplexes, then trading up for a small 28 unit apartment building, then 2 years later trading it up for a 72 unit. That's really an easier way to scale, I think.

$100,000 per year is a worthy long term goal. However, getting there should built around a series of short term goals.

These short term goals should be built around your desired earnings potential, the type of asset you find attractive, and your tolerance for risk.

There is some sound advise already here I this thread, but I can't notice that it's all linear. Advise geared towards only SFR or MF. Why?

If the goal is to hit a certain 'income number' (and not ('invest in residential properties') why not consider investing in real estate assets that typically pay much greater returns.

Residential real estate is a great asset class, but it's also an asset class that atypically pays the lowest returns for buy and hold investors (assuming no distressed or value add acquisition). Why is this so attractive? Is it because of the relative ease of financing? Is it asset familiarity? 

Idk, but if we go back and review the original goal then if any of the above is a reason to stay in that particular asset class then it might be time to reconsider the income goal (or at least it's time horizon) or instead consider expanding the investment horizon to include buying real estate assets that consistently pay a much greater cash flow return and enjoy equal or greater rates of appreciation.

Incorporating the latter into your investment universe could substantially reduce the amount of time required to hit your desired income goals.

Originally posted by @Vincent Crane :

Instead of all those duplexes it would be easier to buy small and then large apartment buildings after you get your first couple multi family properties. It's also easier to handle 1-2 loans and locations instead of 27. The PDF by Brandon Turner, 7 years to 7 figure wealth, which is free and you can google it, really outlines how that works. Starting with 1, then 2, then 3 fourplexes, then trading up for a small 28 unit apartment building, then 2 years later trading it up for a 72 unit. That's really an easier way to scale, I think.

 I found 7 years to 7 figure wealth to be BS.  His numbers aren't realistic.

Originally posted by @Account Closed :
As with most of us investors, one of our big milestones would be to reach a passive income cash flow of a cool $100,000 a year.

Only being on my first duplex and on the close verge of purchasing my next 2-4 unit MF, I'm wondering the timeframe of this goal is.

What are some unforeseen challenges, road blocks, and obstacles a newer investor can't see as their starting up that will get in the way of this goal? It seems to me as long as you can put yourself into properties that can cash flow ~$10,000/year and acquire ten of them, you'll be at your ultimate goal. I understand that $10k/year deals are not easy to find.

A typical time frame/strategy would be the following:

-1 property / year over the next 10 years -minimum cash flow $10k/year -finance each property with as low of down payment as possible, leverage as much as possible

From listening to hundreds of podcasts now and reading lots, I'm gathering that most people are not in properties that cash flow $10k/year. More so, it seems that a typical investment property, let's use duplex as an example, would cash flow only $300/mnth, or $3600/year. With this logic, you'd need around 27 duplexes to make this happen.

Is it unrealistic to use the $10k/year cash flow logic with 10 total houses, or has this worked for people?

How did you get to your $100,000/year cash flow?

Hi Zach,

Great questions.

I always tell investors that you must have a set time frame in mind of achieving your desired cashflow.

For example it could look something like this:

5 Years

$500,000 in gross annual income

$5million in assets invested at 10% gross return.

How short or long your time frame is will in return indicate the level of risk you have to take.

I'm a big believer in building the foundations of your portfolio with cash only.

How you go about making lump sum cash profits is a whole different post haha

When we flip A class properties, we look at making a minimum $30,000 profit per deal.

At the end of the day if you're not buying turn-key I wouldn't get out of bed unless you aren't making 15-20% net ROI on your buy and holds.

Just a few things to think about and this just my opinion off course.

Thanks for reading and have a great day.

ps. Always expect unexpected S#$% to come up so make sure to underestimate all income and overestimate all expenses.

I'm looking at a 6 unit that cash flows 1000+ per month. It used to be a 2 story house with basement, but got built out into 2 units on each floor, a basement unit, and a backyard unit. It is $8000 per unit, but needs a lot of rehab. Haven't seen too many deals like that.

You get there the same way you eat an elephant.  One bite at a time.  Keep your W2 job and put all of that cash flow into growing your business.  Live on less than you make and invest some of your W2 income as well.  How fast it grows all depends on you.  I think $10K per duplex cash flow seems a bit high if they are financed, unless you got them really cheap.  Are you cash flowing $10K on the one you have now?  Just use the numbers you have for your currently property to forecast ahead.  Don't be overly optimistic that "someday all these repairs will stop" (they won't) or "the next one I buy will cash flow better" (it might).  Get the actually numbers you have averaged so far for expenses including vacancy, plus add a little extra into the budget just in case, then use that to forecast ahead and see how fast you can grow.  But be ready for the unexpected things in life to happen, after all  the best way to make God laugh is to tell him your plans.               

Thanks to all for the awesome insight, and thanks for the direction to head to Brandon's 7 years to 7 figures. I've glimpsed it so far and it looks like a great source and also the numbers at glance look legit and realistic. Thanks again for the feedback and keep em comin'! I think large unit apartment complexes are for sure a great strategy and path to take long term. Just glancing at some of the 10-12 units in my area and the gross rental income, the returns are so much nicer than these 2-4 fams I've been running in my excel tool I created. Why have 10 2-4 unit properties that cash flow the same as one single larger apartment complex? Why worry about 10 roofs when you can only have one to worry about that will provide you the same return? Some big roadblocks are obviously experience and knowledge. Nobody (well I'm sure people have done it) would want to get into the game on a 10+ unit apartment complex as their first investment. But the returns on them make so much more sense from a cash flow standpoint. I think the other big point im learning early on here is to utilize creative financing. This is one aspect I have not done a whole lot of research on yet. What other advice do you have for a mid 20's YP trying to reach $100,000/year cash flow?
Originally posted by @Account Closed :
As with most of us investors, one of our big milestones would be to reach a passive income cash flow of a cool $100,000 a year.

Only being on my first duplex and on the close verge of purchasing my next 2-4 unit MF, I'm wondering the timeframe of this goal is.

What are some unforeseen challenges, road blocks, and obstacles a newer investor can't see as their starting up that will get in the way of this goal? It seems to me as long as you can put yourself into properties that can cash flow ~$10,000/year and acquire ten of them, you'll be at your ultimate goal. I understand that $10k/year deals are not easy to find.

A typical time frame/strategy would be the following:

-1 property / year over the next 10 years -minimum cash flow $10k/year -finance each property with as low of down payment as possible, leverage as much as possible

From listening to hundreds of podcasts now and reading lots, I'm gathering that most people are not in properties that cash flow $10k/year. More so, it seems that a typical investment property, let's use duplex as an example, would cash flow only $300/mnth, or $3600/year. With this logic, you'd need around 27 duplexes to make this happen.

Is it unrealistic to use the $10k/year cash flow logic with 10 total houses, or has this worked for people?

How did you get to your $100,000/year cash flow?

 That's a good goal to have, and I may consider stepping away from my full-time job when I get around that amount of cash flow.

In terms of a time frame, the answer isn't that simple. It all depends. Look at the people on this forum who have been able to greatly expand their businesses/investments in a short time frame using creative financing. A very ambitious person might be able to do it in a few years. Others who have more conservative investment strategies might take 10-15 years or longer. Those who invest in single family may take longer than those who invest in large multifamily.

Zach,

All of our 2-flats in chicago generate $10k per year in passive income using conventional lender with around $50k down payment for 25% down payment requirement. To acquire 10 over time you will need $250k in cash plus verifiable income from a job to qualify for the loans. Assuming a 5 year roll up you need $150k in starting cash from your current job to buy 10 over 5 years. Here is how it works.

Year 1: buy 3 with $150k in savings that each generate $10k per year 

Year 3: buy 2 with $60k earned from first 3 purchased in year 1 (you will only need $60k vs $100k with creative financing). Now you have 5 generating $50k per year passive income 

Year 4: buy 2 with the $50k again creative financing available now you have 7 or $70k per year coming in

Year 5: buy 3 more with $70k again creative financing now you have 10 total and you reach your goal 

Creative financing is utilizing short term hard money with loan that rolls over to 30 years when rehab and leasing is done which lowers your out of pocket expense from $50k per 2-flat to $25k per building which gets you more buildings faster. The trick to all of this is finding the right properties like a market here in chicago that you can consistently buy the $10k per year in cash flow. I'm executing this exact strategy for several of my clients now so if you want to see how it works ring me. You don't have to buy in chicago with this strategy but you will have to search around for turnkey companies that have ample 2-flats to make your goal work. Hope this helps and happy hunting!