Rental Property Investor · Altamonte Springs, FL · Member since 2018 · 185 posts · 97 votes
Hello Investors,
I’m in need of some advice here with this plan I have. My goal is to achieve financial independence in 3 years by investing in apartment buildings. I need to get $5000k cash flow per month to accomplish this. I currently have $150k cash in savings that would like to put down as a down payment on a small apartment building. I have been looking at the Michigan market to do this, Detroit and suburbs of Detroit to be more specific. That’s one investment.
Plan for second investment:
I have about $200K equity on a SF rental. I plan to get an equity line of credit and use that money as down payment on another apartment building in Jacksonville since that’s were I plan to retire eventually. I done my research on both markets and feel confident about investing there. I have only invested in SF here in WA, which I manage my self.
What do you guys think? Am I on the right path to achieve my goal? Can my freedom number be accomplished through this two investments? What would you guys do different?
Would love to hear from investor who invest in apartment buildings in this two areas.
Rental Property Investor · Scottsdale, AZ · Member since 2016 · 184 posts · 223 votes
7y
@Maria Luna : it sounds like you're off to a pretty good start, since you already have a small portfolio.
If cash-flow is truly your goal, then you may consider shifting your portfolio out of appreciation (i.e. low/no cashflow) markets like SF. I'm guessing if you took the 200K out of the SF property, you'd be cashflow negative on that property? If so, you would have to make additional cashflow in your out of state properties to make up the difference on top of your 5K goal.
Further, taking out a $200K HELOC would effect your debt-to-income ratio (DTI), which may disqualify you from the additional debt you need to purchase your new properties, unless you can get non-recourse debt. You'll have to do the math or ask a mortgage broker.
But let's say my assumption is incorrect and that you could tap the full $200K equity at cash-flow neutral and DTI isn't a problem. That gives you a capital base of $350K for your new projects. 5K/month is 60K/year, which amounts to an annualized 17% return. That's doable, but a bit on the aggressive side, given that you'll also need reserves and you won't yet have much economies of scale.
So, I wouldn't plan on being able to do both projects in one shot. More likely, you'll have to snow-ball. That is, buy a value-add property, rehab it, and then do a cash-out refi to start your next project (BRRR as everyone around here likes to say.) :)
Just make sure to have adequate reserves AND a plan-B in case there is a downturn in the economy!
Another idea is to invest the full $350K passively, which may get you close to what you need depending on the operator. A discussion of the pros/cons of active vs. passive is beyond the scope of your question, though.
Yet another idea is to start a syndication yourself, which would allow others to invest in your deals along with your own money, giving you way more leverage.
$5k per month cash flow from apartments in 3 years can be done. If you are able to purchase a 16 unit building at minimum of $600/month, you will clear a little over $9k per month before expenses, etc.
You can always go to a lender with all of your financials and ask them what you can qualify for and go from there as a starting point.
Rental Property Investor · Scottsdale, AZ · Member since 2016 · 184 posts · 223 votes
7y
@Maria Luna : it sounds like you're off to a pretty good start, since you already have a small portfolio.
If cash-flow is truly your goal, then you may consider shifting your portfolio out of appreciation (i.e. low/no cashflow) markets like SF. I'm guessing if you took the 200K out of the SF property, you'd be cashflow negative on that property? If so, you would have to make additional cashflow in your out of state properties to make up the difference on top of your 5K goal.
Further, taking out a $200K HELOC would effect your debt-to-income ratio (DTI), which may disqualify you from the additional debt you need to purchase your new properties, unless you can get non-recourse debt. You'll have to do the math or ask a mortgage broker.
But let's say my assumption is incorrect and that you could tap the full $200K equity at cash-flow neutral and DTI isn't a problem. That gives you a capital base of $350K for your new projects. 5K/month is 60K/year, which amounts to an annualized 17% return. That's doable, but a bit on the aggressive side, given that you'll also need reserves and you won't yet have much economies of scale.
So, I wouldn't plan on being able to do both projects in one shot. More likely, you'll have to snow-ball. That is, buy a value-add property, rehab it, and then do a cash-out refi to start your next project (BRRR as everyone around here likes to say.) :)
Just make sure to have adequate reserves AND a plan-B in case there is a downturn in the economy!
Another idea is to invest the full $350K passively, which may get you close to what you need depending on the operator. A discussion of the pros/cons of active vs. passive is beyond the scope of your question, though.
Yet another idea is to start a syndication yourself, which would allow others to invest in your deals along with your own money, giving you way more leverage.
Specialist · Tampa, FL · Member since 2012 · 933 posts · 492 votes
7y
@Maria Luna I definitely feel that your goal is achievable. It comes down to your specific criteria as well. If you're a value add investor, to where you can force the appreciation your cashflow will be much greater than you coming in buying a turn key stabilized asset. It's really about you finding the right asset to match up with your goals financially
Rental Property Investor · DFW TX · Member since 2018 · 179 posts · 260 votes
7y
$5000k cash flow per month -- Perhaps I am reading challenged or pessimistic, but that is $6Mil per year cash flow. I assume this does not include any Cap Gain. My RE world is MF, so to get this one would have to do one or more of the following to sum to that amount:
* Asset Manage - The AM gets 2% of gross, so on $1K/unit, $20. So AM some 25,000 units.
* Deal Sponsor or GP - The B shares earn 30% of net. We may get about $100/unit to the bottom line, so say about $30 goes to the Sponsor. So be a sole Deal Sponsor (GP) on 16,000 units. Or Co-Sponsor on 32,000 units.
Rental Property Investor · DFW TX · Member since 2018 · 179 posts · 260 votes
7y
Seems the thing entered part way... use the below.
$5000k cash flow per month -- Perhaps I am reading challenged or just pessimistic or realistic, but $500K/month is $6Mil/year in cash flow. As you say cashflow, I assume this does not include any Cap Gain. My RE world is MF, so to get this one would have to do one or more of the following to sum to that amount:
* Asset Manage - The AM gets 2% of gross, so on $1K/unit, $20. So AM some 25,000 units.
* Deal Sponsor or GP - The B shares earn 30% of net. We may get about $100/unit to the bottom line, so say about $30 goes to the Sponsor. So be a sole Deal Sponsor (GP) on 16,000 units. Or Co-Sponsor on 32,000 units. OK, say you are the AM and one of 3 GPs on 16,000 units, it would get you there. BTW, Accquistion Fees would look to move you up, but they are not really "CashFlow" (not recurring monthly income) and in my small part of the RE world, they world they are not common. And the Sponsor fees are usually 20% and the AM fees are commonly 1.5%, but I digress...
* Passive Investor - The Passive makes about 8% cashflow on his investment, some higher, some lower. So simply invest $75,000,000 and you are home free. If you can get 10% reliably, you only need $60,000,000.
If you are really saying INCOME rather than cashflow, that is, including CapGain, you can get there, but. I do not know any sole Asset Manager managing 25K units. There are some companies doing that, but not a single. I do know a couple that has 2K to 3K. As for GPs, sole GPs rarely have 5K units or more. Grant Cordon's web site indicated 5K last year, but he is an organization. But if you have multiple properties and some sell each year, the CapGain can get you there, but here again, you need a lot of units. Say you have an average 5yr hold, that you can make $2.5K to $5K per unit (these were two of my best deals, so this might be optimistic. Both were sole Sponsor, for co-sponsor divide by 2, etc.) you need to sell around 1,200 to 1,500 units each year and have a pipeline of 7,500 units. To get this working by year 3, I don't feel this is possible in my world.
To get into the Sponsor role, you need a track record and some trusting passive investors. It is true that you are using OPM, but most investors want your skin in the game. You are starting with $350K. That might be enough to do 2 100 unit apartments. But you are now locked in for a while. Again the 3 years is hard.
To have 7,500 units under management, your net worth would be in the neighborhood of $8Mil. Considering compounding, you would have to double your $350K about 4 times: $350K, $700K, $1.4M, $2.8M, $5.6M. So you are attempting to double your money every 8 to 9 months.
Most have thought you meant $5K not $5000K, but I take you at your word as that has not been corrected.
Thank you for your advice, it’s greatly appreciated. Yes that’s one thing I been wondering about, my debt to income might be a problem. So my next step is to go talk to a lender and see what they say.
I have also been exploring the idea of syndicating or maybe just partnering with somebody.
Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
7y
Any thing is possible not probable. If your time frame is 36 months there will be less risks if you target it not so aggressively. My impression in Florida 3 years away housing prices will not much different from 2019. So you need to find creative financing or partner to achieve your goal.
Rental Property Investor · DFW TX · Member since 2018 · 179 posts · 260 votes
7y
@Maria Luna - Thanks for the correction, much more reasonable. Again, my world is MF and I am a passive investor. The 3 year deadline is still a problem as they deals do not turn that fast. My average annualized returns have been 30% for the 14 deals that have sold (2011 to present), but it was in year 4 (Started 2011, so in 2014) when the first deal sold. So as a Sponsor or a Passive, it would be very hard to compound your money in MF. MF has been a great way to grow, but not as fast as you want. And the environment changes over time, I hit a very good time. The returns will likely be a bit less for a while. If you can swing the Sponsor position, especially as the Asset Manager, you have a better chance, around 250 units or so. Even as a passive only, if you have a bit more time, it could work. I encourage you to look hard at MF.
Developer · Miami Jacksonville, Atlanta · Member since 2018 · 63 posts · 42 votes
7y
@Maria Luna Is that $5000k monthly goal gross cash flow or net cash flow? Since I'm in both the Detroit & Jacksonville market, I have a different perspective. Average rents in Detroit are about $600-700, which puts you at about an 8 unit property for $5000k gross. However, keep in mind that a large number of the inventory in Detroit would require rehab especially based on your target purchase price. Even at a low purchase price of $50-75k in Detroit for an 8 unit (which is very possible but not be in a good area where you can charge market rent), a basic rehab budget of $5-$15K per unit puts you at an additional $40k-120k in repairs, which is essentially all of your $150k.
With $5k monthly gross before expenses (and keep in mind that Detroit has among the highest property taxes), you're probably looking at 50-60% in net income ($2500-$3k/mo). Based on that, it would take you up to 5 years to recover your initial $150k investment (repairs included) before you really become whole in the deal.
Rental Property Investor · CT · Member since 2019 · 105 posts · 68 votes
7y
@Maria Luna
$5000 per month, I did it in less than 3 years and I started with about the same amount of cash as you. Use the BRRR method and self manage for as long as you can. I disagree with those who are just starting out immediately paying property management to handle their units. Unless you are really that short on time, a few hours a week is all you need to manage your rentals yourself and the amount of experience and knowledge gained is worth the extra time.
Buy the building, rehab it without taking any short cuts. Get the property 100% especially the exterior to the point where no major cap improvements are needed for the foreseeable future - this is what enables less tenant phone calls and problems with the property and gives you more time to focus on growing your empire. Refinance it and move on to the next.
Rental Property Investor · Altamonte Springs, FL · Member since 2018 · 185 posts · 97 votes
7y
@Fabiola F.
That would be 5K net cash flow. I love how you broke this down for me here, makes a lot more sense. I’m for sure gonna explore all my options and see where I end up at.
Rental Property Investor · Altamonte Springs, FL · Member since 2018 · 185 posts · 97 votes
7y
@Frank Maratta
That’s great to hear, congratulations!! It’s really encouraging to read that this has worked for somebody else.
I for sure plan on managing everything my self for as long as I can. I really don't see the point on paying for something I'm more than capable of doing. Been managing my rentals here in WA my self. Looking in to BRRRR is part of my plan, and feel optimistic that this can be done. And if it takes me 5 years instead of 3, than I'm on with that as well.
Investor · Chattanooga, TN · Member since 2016 · 676 posts · 543 votes
7y
@Charles LeMaire I think it would have actually been 60 million per year 5 mill a month. Regardless. I think it's possible to hit 5k a month.
my strategy would be to figure out how much I make per unit on units that I buy and then divide that per unit amount into 5,000 for example if I got 200 per unit per month in positive cash flow then I know that I need 25 units and I would just build the plan on how to get there.
Rental Property Investor · Los Angeles · Member since 2019 · 284 posts · 184 votes
7y
Im netting $5K a month now with only four-SFR + one-4plex in Los Angeles (where there is Rent Control)...And some of my units are under market rent. Most of these have been purchased within the past 5-6 years. Not to mention, I have gained over 3.5M within the past 9yrs in appreciation equity. So... Yes, you can do this if you pick the right market and have the right strategy and the right entry point... especially if you go MF direction!! I did all mine just passively buying here and there... not even going actively full force. If you can BRRRR at the right market and do it full time. You will kill it.
Multi-Family Syndicator · Abington, MA · Member since 2017 · 603 posts · 347 votes
7y
If you believe in it, have a vision and a plan you can achieve it. Might get murky and muddy at times but stay the course. Keep grinding through it and continue forward. Best of luck! Looking forward to reading your "I did it" post in a few years. God bless!
Investor · FL · Member since 2017 · 247 posts · 245 votes
7y
@Maria Luna Great discussion! I love number crunching. Short answer = yes, it's definitely possible. Longer answer = I achieve this with a different approach. I flipped some houses and worked a high-paying job full-time and cut my spending to nearly zero for a few years. Once I build up some equity, I started investing in multifamily syndications for cash flow. The end result was 100% passivity with financial freedom attached. Best of luck!