Hello gurus,
I am new to investing. My plan is to have 10 units/SFH/Condos etc in 10 years. I plan to buy and hold them and rent it for positive cash flow. The plan is to have something around 13k in rents from all the units
I am 35 year old and my present salary is $120k.
What should be the game plan to accomplish this goal? Please advice
First, you have set a goal, which is the $13k in rents (I'm assuming you mean cash flow), and that is more than most...the defined goal...the $13k is fine.
Second, you really don't have a plan. "...to have 10 units/SFH/Condos etc in 10 years..." isn't a plan. A plan is how do you get to the $13k/month. My question is "how did you arrive at 10 units in 10 years?...and why?
Third, if it takes you 10 years to get $13k/month, you're in the wrong market...and you're doing it wrong.
What you need to do is define a more detailed set of financial goals, that involve specific income to pay off your total personal debt (profits) and your monthly bills (cash flow), and break them down to a series of "measurable milestones". Then, you need to develop criteria for a series of "steps" (properties), with each "exit" from one property becoming the "entrance" to the next property, that leads you through your milestones and to your goals. Now, you need to find a market where your "property criteria" describes the majority of properties in that market...and camp out there. This may not be "your own backyard". Simply being "where you live" is a terrible reason for investing in a market. The logic being you know that market. Well, that "knowledge" might be telling you "don't invest here". The fact that is in your own backyard is not a good reason for choosing a market.
Now, pick off your steps one by one, and you will find your way to your goals.
Don't:
1 - ...stray from your plan by chasing what I refer to as "shiny objects of distraction"...no matter how good that deal might look.
2 - ...rationalize a bad deal into a good one, or you'll get out of the game faster than you got in.
3 - ...listen to those that want to tell you that if you lose money in the beginning it's OK since you are learning. If that was true, the REI that lost the most money should be the smartest person in the world.
4 - ...try to do it alone.
I am unsure of your family situation, but I personally love the concept of house hacking when you don't have alot of commitments to a family or anything like that yet, you can buy two-four units at once with a multi-unit and I personally think that will easily allow you to achieve your goal of 10 properties in 10 years I have a goal set for 30 properties by 30 and I am only 20 currently, but my minimizing actual purchases and maximizing units within your scope you can afford a little downtime in between purchases while you get the hang of it, I'm no expert but this is approach I am taking towards it, and it is food for thought, good luck
@Nikolas BuchholtzWhat is house hacking?
house hacking is a concept where you move into the residence you are buying and rent out other rooms or units to create a profit. So in the example above purchasing a fourplex would mean living in one for at least a year and renting out the other 3 for a profit ( that's the way it should be otherwise reevaluate the deal to see what fits your life) the reason house hacking is nice is because by being an owner occupant you can qualify for an FHA loan that allows you to have a low down payment which frees up capital for other business oppourtunities. So you could put a 3.5 percent down payment live there for a year and within that year with the amount of money you have left over because of the low down payment allows you to potentially purchase more properties in the same year. Finally after that year is up if you want to move out and have your space buy a house whatever if you set it up right and already have positive cash flow from 3 units on a four unit mortgage the second you put in a new tenant to replace you, your cash flow goes up alot more. Again I'm no expert but those are the concepts alot of good stuff out there on house hacking check it out
@Chai JonnHouse hacking is what I have been doing as well.
I bought a foreclosure duplex with an FHA loan (3.5% down), lived in it, rented it and sold it a year later for double what I paid.
Then I bought a four family that was in distress with a VA loan, lived in it, raised the rent 20%.
A year and a half later bought another four family in distress with an FHA loan (3.5% down), moved into it, raised the rent 20%.
Now I'm saving for my next while I repair these and build equity in them.
(WARNING: FHA Loans that you only pay 3.5% down on require PMI and it's a SUPER huge kick in the balls. It was nice to get my ball rolling but I assure you I won't be doing that again.)
@Chai JonnI will offer a little different perspective than @Joe Villeneuveor @Anthony R.and say that if your goal is to have $13K per month, you could do that with 10 properties in 10 years. If you are buying properties in the $125K to $140K range and they are renting for $1300 per month, then the total gross per month would be $13,000. That is gross rents before expenses, so actual cash flow would be the amount after you subtract taxes, insurance, repairs and mortgage payment. Getting $1300 per month per property rent is realistic for single family properties costing $125K to $140K today. In the future those properties will rent for more. You could purchase one home per year for the next 10 years. If you combined that with a strategy of aggressively paying off the mortgages, you could own 10 properties in 10 years and see $13,000 per month of cash flow after rent appreciation. Many people have done much better than this including Joe and Anthony.
When I started out my goal was 10 properties in 10 years with a goal to have them all paid off by year ten. I targeted single family homes. Some people have the strategy of buying lots of units (more doors everyone says). My preference is a smaller number of properties with higher rents and long term tenants. I buy homes that are ideal for families. I rarely hear from my tenants and the only work is when I rerent, which isn't often. I don't have lots of doors and for me that is good because less tenants it less trouble. I know a lot of people do not agree with my strategy, but I work a full time job and that is what I can handle.
As far as where I am at in my goal, I am in year 12 and closing on SFH property 7 in two weeks. That probably takes away credibility from my strategy but there is more to the story. In year three I had eleven doors. I was making good money, but working my *** off, so I chose to sell the multifamily properties. The reason is that I work a full time job and I started a family so my priorities changed.
There is no single path and there is no single destination. I think @Mike Landryput it best when he said the most important thing is to get started. Goals are great, but they will change as you find what works for you.
@Chai Jonn$10K passive cash flow is a lofty goal but 10 years gives you plenty of time. Your income of $120K should give you at least $40K to invest with, especially since you live in Austin (not SF!) where cost of living isn't too bad.
Here is what I would advice:
1) Save up $40K which gives you plenty of time to read and educate yourself as an REI
2) Buy a class B multifamily (MF) property (in an area you would want to live) in the $300K-$400K range, which should get you 4 units off the bat (you said you wanted cash flow (CF), not appreciation). Use an FHA loan for the loan interest rate and lower DP. Put $30K down and reserve $10K for emergencies. Open 2 credit cards with intro offers of 0% APR for 21 months which are really easy to get - I like Citi Preferred Diamond. The rented 3 units should cash flow around $600/mo to start if you buy right then go up as rental appreciation occurs.
3) Save for another 6 months from your job ($20K) plus your previous reserves ($10K hopefully you still have it) and the CF from you MF ($3600)
4) Purchase another MF with your savings. This time you need the full 25% down since it won't be an FHA loan. This probably means you can only get a duplex around $200K and it could be lower class B or upper C. CF should add another $500/mo. You're already at $1,100 in less than 2 years!
5) Keep the cycle going, save $20K-$40K then by a MF adding $500/mo in CF. Invest all the CF into the next down payment - of course pay off those early credit cards when the time comes - or if not at least balance transfer to a new 0% card again and again until you die (just kidding! or am I - no I am)
6) In 10 years or less you will have your $10K in CF
@Chai Jonn$10K passive cash flow is a lofty goal but 10 years gives you plenty of time. Your income of $120K should give you at least $40K to invest with, especially since you live in Austin (not SF!) where cost of living isn't too bad.
Here is what I would advice:
1) Save up $40K which gives you plenty of time to read and educate yourself as an REI
2) Buy a class B multifamily (MF) property (in an area you would want to live) in the $300K-$400K range, which should get you 4 units off the bat (you said you wanted cash flow (CF), not appreciation). Use an FHA loan for the loan interest rate and lower DP. Put $30K down and reserve $10K for emergencies. Open 2 credit cards with intro offers of 0% APR for 21 months which are really easy to get - I like Citi Preferred Diamond. The rented 3 units should cash flow around $600/mo to start if you buy right then go up as rental appreciation occurs.
3) Save for another 6 months from your job ($20K) plus your previous reserves ($10K hopefully you still have it) and the CF from you MF ($3600)
4) Purchase another MF with your savings. This time you need the full 25% down since it won't be an FHA loan. This probably means you can only get a duplex around $200K and it could be lower class B or upper C. CF should add another $500/mo. You're already at $1,100 in less than 2 years!
5) Keep the cycle going, save $20K-$40K then by a MF adding $500/mo in CF. Invest all the CF into the next down payment - of course pay off those early credit cards when the time comes - or if not at least balance transfer to a new 0% card again and again until you die (just kidding! or am I - no I am)
6) In 10 years or less you will have your $10K in CF
You make a good point on saving $40K per year, but honestly he should be able to save even as much as $60K or more. There is another thread going right now on BP where a lady and her husband just retired at age 27. They only have two rental properties and they rent out their living room on Airbnb. They are living on under $2000 per month cash flow living in California. It is pretty crazy, but the point is you can save lots of money if you adjust your life style. You just have to want it.
Can I quickly reiterate that rentals are not for the faint of heart. It's for the foolish brave and the stupid bold.
I went into my full time job today at 650 and worked until 3. Then, I spent a couple hours going over the monthly repairs my contractor just did for me. Hit the gym for an hour and went home.
It was 9:02pm and I finally sat down to relax for a little before I shower and go to bed....
Then it happened....
A tenant in my other building called to let me know her hot water wasn't working and that there was water all over the basement floor. So I had to get my smelly, sweat covered *** up, still in my gym clothes, and rush over to the other building to shut off the water to the hot water tank.
Doesn't end there! Now I have to purchase a hot water tank and have it installed in the middle of winter before my tenant starts to freak out that she can't take a shower.
By the way, remember that I said I already met my contractor to go over the monthly repairs that he already did and was paid for? That's right, the monthly repair budget was spent. Good thing I budgeted capital expenditures into the rent :-D
This happened just moments ago and is just one example of a narrative you will live in one version or another. I guarantee it.
@Joe Splitrockit's possible he might be able to save more. I'm guessing he is paying 35% or so in taxes on job income though which immediately knocks it down to $80k take home. Living on $20k is doable but rough, especially for 10 years.
Retiring at 27 sure sounds good! I'd be moving to Central America tomorrow living on my $5k cash flow like a king if my wife didn't have anything to say about it.
You should be able to get where you want to go in less than 3 years...if, you are in the right market...and, you don't need to have access to any new money than what you are starting out with.
@Chai Jonn
I am no guru, but I do have a detailed but not anal business plan I'd be happy to share with you via email. (Or you can read it by buying MY book at www.kenlavoie.com/rer.shtml ) ha ha! Shameless plug. But seriously, I'm happy to just share mine with you. Not that it's perfect by any stretch but I think it might at least give you some ideas on what you need to know, decide, etc. PM me your email and I'll send it over!
10 in 10 is a good goal. Most of the advice telling you to go bigger is from real estate guys, not guys who have a regular job.
My advice is to start working with an expert to help you with your first purchase or two. An investor that has been buying and renting homes for years that you know to be wealthy is a good place to start. If you don't have one of those guys you can look to turn-key providers.
@Ryder Meehan@Joe SplitrockThanks for the rough plans and advice. I have learn a lot from this thread so far.
@Ryder MeehanI am looking for both cash flow and apreciaton. What range should I be targeting in Austin market to accomplish both? You mentioned 125k to 140k are good cash flow properties but not appreciation. What about DFW area for 140k range?
@Joe SplitrockYour plan really sounds good. And yes, I need to start somewhere like @Mike Landrysaid
@Kenneth LaVoieI will PM you shortly
@Ryder Meehan@Joe Splitrock@Joe Villeneuve
How to find a good investor friendly realtor? Or a turn key provider? What are the questions I need to ask before I decide on one?
How to find a good investor friendly realtor? Or a turn key provider? What are the questions I need to ask before I decide on one?
A turn Key provider, like me, will become obvious once you learn how to analyze markets.
As far as an REI friendly Agent, here are the questions to ask:
Q1 - Do you work with other REI, how many do you work with, and how many deals do you do with them?
A1 - Yes...and at least 2 other REI, with at least 2 deals per month. Every REA "says" they are REI friendly...most are not.
Q2 - Will you put in all of my offers, even if you don't think it will be accepted?
A2 - Yes. Negotiation is an art, that starts with the first offer.
Q3 - Are you HUD certified?
A3 - Yes. HUD offers are done online...and if the agent isn't certified (they have to take a class) they are no use to you.
Q4 - Do you require me to sign an exclusive agreement with you?
A4 - NOOOOOO. If the answer is yes, then ask them if they'll sign an exclusive agreement with you.
Q5 - ...and the big one, will they make offers (all offers) before you inspect the property?
A5 - YESSSSSSSS. Inspecting properties first is a waste of time...and reduces the number of deals you can offer on and will be accepted. Only inspect deals after the offer is accepted.
If the answer is the wrong answer to ANY of the above questions besides,...move on.
@Joe Villeneuve Thank you so much for the info. Also, is there any minimum number of deals one should close to call he/she a good REI?
I just went back and listened to Podcast 60 with Serge Shukhat on how he went from 0 to 68 units in 4 years. There's some great advice in there. I'd check that out @Chai Jonn
@Joe Villeneuve Thank you so much for the info. Also, is there any minimum number of deals one should close to call he/she a good REI?
Numbers with street names after them don't matter. The only number that does has $$$$$ in front.
@Mike LandryThat's awesome you got four units. How did you finance them? Did you use cash or do you have several of loans?
I basically use @Joe Villeneuve method. I buy the house with cash, fix it up, and then refinance it into a conventional loan. My criteria is differenct though. I want to have less than $20,000 of my money left in the deal after it is refinanced and I want to get $500 in cashflow every month after PITI. These are good neighborhoods B+ and newer houses. My oldest one is 2006...not that I'm against old ones. I just like princess rehabs....carpet and paint. Honestly I'm really not that interested in doing large rehabs anymore, at least not at the small profit margins available in my area. I do keep most of my profits rolling into the next deal and I also contribute $1000 a month from my personal income.
@Jermaine Freeman - this is just what I find works for me in my area. So many different ways to make RE work!
I don't claim to be an expert....but my opinion on where you should look:
I wouldn't start in "austin", the prices are high relative to rents. There can be money made there but not from rents, more from holding and betting on appreciation. Just use caution and make sure the numers work.
Small Multifamily in my area SUCKS. It is very hard to find a multifamily property where you own the whole thing. In my area when you own a duplex, you only own one side of the duplex and probably pay a very high monthly HOA. I'm not saying it doesn't exist in your area, but it might not make as much sense as is does for people living in other regions of the US.
I would look for a good blue collar neighborhood on the outskirts of austin. Good luck.