I want to be averaging about $15k/month in rental income. Any suggestions?

42 Replies

I want to get back into the property investment business. I used to buy and flip SFRs until the bust came in 2008! I lost all my properties. This time i want to invest in Multi family apartment rentals. The most important issue for me is cash flow from rentals. 

Start with about $2m to get 8% cash on cash? I am not saying this to be snarky but that is the reality of what you need to build up to reach that level. There are a variety of ways to get there (flips, wholesale, value add, etc) that you can read about on BP. You would need to share some info like age, family status, current income and assets, credit, access to capital (rich friends or family members), etc. It would be hard to provide any suggestions without more info. My recommendation for a single 25 yo guy in the Bay Area with a $150k per year income would be very different than a 40 yo with a family in the Midwest or south.

Value-add commercial real estate if you're looking for that much cash flow in a short 5 year time horizon. Not. Really a viable option if you don't have commercial experience though.

@joe, I'm 49 yrs old with a lovely wife and 3 teenage kids. I have about $250k to invest. I want to be able to buy a 100 unit apartment complex.

Acquisition Criteria

General Criteria

Potential High Yield Income StreamsVarious Cap rates depending on cash requirement, appreciation potential and propertyPrice range is generally $1,000,000 to $15,000,000 – all good deals consideredCash Equity – All Cash or Cash to Existing DebtValue Add Opportunities Sought

Property Criteria

Asset Class: A, B or CProperty Location :B+ to C+ AreaNumber of Units: Greater than 100 unitsPreferred Age: Properties built after 1980’sMinimum Occupancy: 70% or greaterPreferred Markets: Texas, North Carolina, South Carolina, Pennsylvania, Florida, Alabama

@Chris Mog - Are you concerned about getting into a new area of RE investing? Your original post said that you have experience with flipping SFRs. Why not get back into that? 

@Chris Mog

you state you lost everything in the bust. I have heard that story 100 times and my primary investment area was the center of the meltdown: Cape Coral, Florida. Your post makes me question how you lost everything. Leverage sky high? That was typically the reason. Now that you are ready to get back in the market, how much would you feel comfortable leveraging? Do you feel this would put you at risk when we have another downturn? Have you considered buying a smaller property with less leverage, building reserves and equity, and then moving into a larger property? I am not trying to find fault with your plans. Careful planning with different scenarios will help you avoid future problems (as it will all investors). The main reason I am not pursuing larger MF deals is: I am almost debt free and I can easily leverage one or two houses if I find another to acquire. You do have the benefit of youth working for you while I don't:) That being said, I do sleep easy at night and never worry about "all the money I owe" because my LTV is

I don't want to go back to SFR. I feel like I can make better investment with less risk owning a 100 unit apartment complex. Yes I lost everything because the properties were heavily leveraged. Anyway, I very given you my criteria, I need someone to help me figure out how to get it done.

I would suggest that you check out the podcast library and listen to those which focus on MF investment strategies. MF requires a different set of skills than SFR. Be prepared to go back to school (figuratively) and become comfortable with more complex deal structure and 6-7 figure financing. Good luck.

PM me if you think I can answer any questions.

Have you considered partnering to acquire units? I believe your post stated 250K. If you are seeking a complex at 25K per door, that comes out to 2.5M purchase price excluding other costs. 90% LTV might be difficult to finance. In our market, there is nothing that inexpensive unless it is a C property. Do you want that headache or will you hire management? I doubt you can find anything that will cash flow with that type of property. I am sure there are some MF investors on BP with experience in these larger deals that have some more insight. Good luck.

To get anywhere close to that for quality the time for that was 2010,2011.

25k a door is war zone type properties now.

I just do not think it is realistic and you stand to lose your whole 250k. Everyone is looking for this type of stuff now when that ship has sailed already.

Investors that bought those are now selling off for cash flow to end buyer investors. The investors have already made the equity growth gain out of it that bout 3 to 5 years ago.

So what r my other options to get to my goal of monthly cash flow of $15k per month?

I would agree that the best way to go it multifamily. But to get there, it would be nice to know a little bit more about your situation. If you don't have a lot of money, then probably (everything is always probably) going for syndications with high net worth investors is the best way to go.

The $2.5M number sounds about right for $15-$16k /mo in gross rents. In my area anyway, @Chris Mog . In your post title I didn't realize you were seeking that much in cash-flow, net of expenses. With $250k, sounds like you are seeking a COC return of 72%. My typical COC is a little over 20%.

I go back to the ant eating an elephant idea.  How do they do it?  One bite at a time.  Watch the small stuff.  It's ok to start with smaller properties that make sense.  I would do a CSI on my last round of RE investing.  ID exactly the things that went wrong and don't repeat.  Glad you are getting back up, dusting yourself off and trying again! 

Originally posted by @Chris Mog :

So what r my other options to get to my goal of monthly cash flow of $15k per month?

The numbers are the numbers -- if you can generate 8% returns, you need to have about $2.3M to invest to generate about $15K/month.  If you can generate 20% returns (pretty tough to do, but feasible if you're determined enough and are willing to put up with the headaches), you need about $900K to invest.

So, you need between $900K and $2.3M to have any realistic change of generating $15K/month in passive income.  

Now, if you can generate upwards of 20% returns (owner financing, partnerships, working your butt off, etc), you can start with less, but then that $15K/month is certainly not going to be passive income.

So, the question isn't, "How do I earn $15K per month in rental income..."  The question is, "How do I build up $900K to $2.3M so I can earn $15K per month in rental income..."

And there are lots of ways to build up large sums of cash, depending on your skills/experience...

Originally posted by @Chris Mog :

I want to get back into the property investment business. I used to buy and flip SFRs until the bust came in 2008! I lost all my properties. This time i want to invest in Multi family apartment rentals. The most important issue for me is cash flow from rentals. 

Sorry to hear.. trying to understand.. are you able to shed any light on the nature of the loss? Were these SFRs that you fixed but held on to and were renting out for cash flow? Renters defaulted and consequently caused problems for you or something?

if I purchase a 4bd, 2.5bath SFR in Atlanta area for about $150k, the rental income should be around $1100. If I buy 15 of those cash that's about $2.250m. So it's about the same thing if they r all 100% occupied. The most important thing for me is monthly cash flow!

Originally posted by Account Closed:
Originally posted by @Chris Mog:

I want to get back into the property investment business. I used to buy and flip SFRs until the bust came in 2008! I lost all my properties. This time i want to invest in Multi family apartment rentals. The most important issue for me is cash flow from rentals. 

Sorry to hear.. trying to understand.. are you able to shed any light on the nature of the loss? Were these SFRs that you fixed but held on to and were renting out for cash flow? Renters defaulted and consequently caused problems for you or something?

 Yes that's correct!

Originally posted by @Chris Mog :

if I purchase a 4bd, 2.5bath SFR in Atlanta area for about $150k, the rental income should be around $1100. If I buy 15 of those cash that's about $2.250m. So it's about the same thing if they r all 100% occupied. The most important thing for me is monthly cash flow!

Except that they won't be 100% occupied at all times.  And you'll have to pay things like taxes, insurance, maintenance, turn-over costs, lawn care, utilities when vacant, capital expenses, etc.

Overall, of that $1100/month in income, you should expect to have $500-600 of it left.  Not necessarily every month (some months you might have all $1100 and some months you might have nothing), but over the long-term, $500-600 is what you'll have left. 

That's closer to $8000-8500 per month in income if you had 15 of them.  To get $15K/month in net income, you'd actually need about 27 houses with the numbers you indicate above -- which would cost about $4M.

A few more thoughts:

- The return based on your numbers above ($150K for $1100/month in gross income) would equate to about 4.4% cash-on-cash.  Not great...you can probably do better around Atlanta.

- If you do your own property management, you can probably bring your monthly met income per property to closer to $700/month.  That would only require about 21 houses to reach your goal, and would increase your cash-on-cash return to about 5.6%.  Still not great.

- If you can leverage your cash with financing, you can probably bring your returns on that type of investment to closer to 8%.  Which again, would take you back to a requirement of about $2.3M -- but would greatly increase the number of units you'd need to acquire.

wow, that's a good idea. What if I look for a 25 unit B class apartment complex in Atlanta area for about $1.5m with 90% occupied?

J,

I love single families.  In Grand Rapids, you can find a single family for under 100,000 that will rent in the $1,500 price range.  These properties are easy to sell if you need to, and appreciating quickly if you buy them right.  I have several right owners right now under our management, willing to sell.  I also have an owner with a portfolio of 17 units, mostly single families and a couple duplexes willing to sell for 1.3 million.  His properties generate $13,085.00 a month in gross rent right now (averaging the last 7 months).  Great properties great tenants.  

I know many investors focus on buying multi-family properties, but in my opinion before you jump into that business and become highly leveraged, start with a few singles.  Tenants pay all utilities and typically stay in the property longer.  Turn over kills profits.  I would put any of my single family residents up against a mutli-family dollar or dollar, and I bet mine will out perform.  

I hope you're not being sarcastic with @J Scott.  He is a seasoned, proven, experienced pro trying to help you.   Last I'll say is- if you can secure a $1.5MM cash-flowing, fully occupied 25-unit B building with $250k, go for it!

at $400 profit per house, that's 37.5 houses. at 80k per house, that's 3M. same number as the advice above. 

i know you said multis, and that profit is not $400 per door. 

Originally posted by @Chris Mog :

wow, that's a good idea. What if I look for a 25 unit B class apartment complex in Atlanta area for about $1.5m with 90% occupied?

I presume a twinge of sarcasm in your comeback ... for, unless things are much quieter in Atlanta then elsewhere {which I doubt}, you'll be turning over a lot of rocks to find that 25-unit B class property that provides you with a 10% return.

Now you stand a better chance of finding a C- or D property that will produce those returns, but the income will be a long walk from passive.

Originally posted by @Chris Mog :

wow, that's a good idea. What if I look for a 25 unit B class apartment complex in Atlanta area for about $1.5m with 90% occupied?

If you can buy it for cash and get a 12% cash-on-cash return, you're all set.

Of course, if this particular deal is available in Atlanta, you'll be competing against me and a couple partners of mine for it...  ;-)

Congrats on saving up $250K.

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