Rental Property Investor · Venetia, PA · Member since 2015 · 107 posts · 47 votes
The five year plan is 360K gross revenue a year - so before taxes, operating expenses, etc.
So the question is: what would this business look like?
Conservative estimate is that 10 rehab/flips a year, as well as a buy&hold "wheel" where I purchase 2-3 properties every year and after five years start cashing in the oldest properties, could achieve this.
I know we've got a bunch of folks who are already at this point. What's the better strategy I should be focusing on here?
Hi Chris, I think you need to define your goal a little better, because there are a lot of ways to get to $360k revenue. Also, make sure you're clear about the "before taxes, etc." part. Personally, I would define my profit and profit margin goals, let that determine what the revenue should be. Who cares if you bringing in $30k a month, if you're spending $29k?
But to your real question: I think real long term income comes from being a smart buy-and-hold investor. Not only do you get to make money 4 different ways (cash flow, appreciation, mortgage pay down, and depreciation), but the taxes you do pay are typically at a lower capital gains rate, not the higher rate for income that you pay on a flip. And you can use 1031 exchanges to defer taxes indefinitely. Disclaimer: I'm neither a tax lawyer nor an accountant.
Think of it this way: To hit your goal with flips you'd have to do 10/year at an average of $225k sales price, assuming a 16% profit margin. And keep doing that every year...forever.
If instead you use the BRRR strategy to buy and hold 10, 4-unit properties every year at an average monthly cash flow of $150 per unit, guess where you are after 5 years? 200 total units and a yearly cash flow of...$360k. On top of that, you're making money 3 more ways.
Either way, 10 properties/year is an ambitious goal. You could certainly ramp up to that, but it will take time. You could mix them up in the beginning. Use the flip profits to fund the B&H.