$500k in cash, goal of $120k/yr passive income by 2028

18 Replies

Hi - I am new to BP, but loving all that I am learning here. I live in the Atlanta, GA area and am relatively new to REI. I set a goal for myself a couple of months ago to reach $10k/month ($120k/year) in passive income in 10 years (so, by start of 2018). I have around $500k in cash that I plan to invest into real estate to accomplish this goal. I am keeping my day job, and would plan to not take any income out of this investment until it is possible to do so and meet goal. Bought my first rental, a condo for 80k, with cash last month, and have done a couple of private, short term loans for friends that flip houses. My thought was to pursue buy and hold rentals, possibly purchase notes, and possibly tax liens. (currently trying to read/learn more about notes/liens). Playing with the numbers, my goal seems like a nearly impossible stretch. Figured I would ask any advice, recommendations, or thoughts about viability, and best paths to get there. Thanks.

Not at all.  You just need to have a plan, an understanding of the importance of finding micro-markets to invest in...and how to find analyze and find them, and you need an in depth understanding of how money works.

Many will tell you they understand all three of these things, but they really don't.  All three work in conjunction with eachother, and none of the three is more important than the other...and they are all critical to achieve your goals...which, by the way, is not out of line at all.

Welcome to BP @David Crumley !

There are a lot of topics you touched on. The condo you purchased for cash. Is it rented out? How do you like that process? You should definitely keep learning about all the other strategies you mentioned. It’s commendable that you have goals and are aiming to achieve it. Once you keep going you may find it’s not as unattainable as you think. Keep plugging away!

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@David Crumley , An Excel sheet and the rule of "72" will be  your best planning tool.  You're much closer and on track than you think no matter which sectors you choose to invest in.

For one thing you've actually got $580K in cash and asset equivalents.  For another I'm guessing your day job will make an annual contribution to investing capital.  And for a third the reinvestment of net income is assured to really accelerate things for you.

Get a multi year sheet going and figure your starting asset balance and the rates of each investment to arrive at a blended portfolio rate of return.  then add that net cash plus last years investment totals plus your day job contribution and recalculate.  If your blended rate is 7.2% then your assets will double in 10 years.  If you're annually contributing from day job then that could be cut way down.  

Let yourself get excited at the possibilities.  Then chart a course that gets you there.  And be very careful of the "greed" factor.  At your point there is absolutely no margin to the throw it in the wind and pray strategy of someone with nothing to lose.  You're at the cusp of being there.

Generally in your situation most other investors would follow principles of leverage and avoid paying cash. You could start small with residential or go into the big leagues with commercial properties/multifamily. If I had all that money I would consider the following with residential real estate: 

Do 10 flips in 3 months, you could pay Hard money guys up to 15% percent of the total loaned amount and still make very nice profits (think 15% of ARV to be conservative). You could also rent the houses, refinance immediately after finishing since you must have a decent job (check the bank requirements first). Also, you'd need to incorporate a construction business and get some workers (cutting out the subs would be ideal and you must know how to rehab as well). You could literally change an entire neighborhood and drive prices up (this could be risky starting out so probably spread your eggs first rodeo). If 10 houses in 3 months isn't enough you could also get a giant bank loan right away since you most likely have a good job (and I would assume good credit), then use your $1mill (assuming 500k bank loan) as down payment for hard money lenders. If you can't double the return on initial investment ATLEAST every 6 months you are doing something wrong. Second year I would tap into the big leagues

I’d be a little leary about using your own cash reserves, and not someone else’s money, but if you are having success go for it.  

I appreciate all of the comments and advice. Some very good points. A few mentioned using leverage, and I certainly agree. I purchased this first condo with cash, as it was an off market deal I could get at a good price if acting fast. My strategy initially is to use cash to buy (instead of short term loans), and then after fixing up and getting rented, would refi and take out cash, and roll into more deals. Based on all of my research, podcast, books, etc, I gravitate towards buy and hold, as it gives cash flow and a tangible equity down the road. But, as mentioned earlier, I started also delving into other ideas (notes/tax liens) as I wasn't sure that I could find the return rates needed to hit my goal with just buy rentals. All that being said, still need it to be relatively passive until I hit my goal!

@David Crumley With $500K in cash you could put 25% down on a $2M apartment complex. If that complex is a 6% CAP rate deal, then your Net Operating Income would be $120K per year before debt service. Your goal is well within reach. You should look at every complex within 30 miles of ATL and drive the ones you like, make offers on the one that you would love to own.

@Anthony Dooley took the words right out of my mouth :)

just some random numbers for simplicity sake - for $10k a month net cash flow, you find units in apartments that cash flow $200 per unit net.  $10k/$200 = 50 units.  If units in your area sell for around $50k each, then you need to find about $2.5mil worth of property. with 25% ($500k) down, you can probably swing for $2mil so you're very close.

The 50 units can be all in 1 apartment complex, or 20 units here and 30 units there.  either way, you have a very good start and can be done in less than 10 years IMO. The hard part is finding the deals. Plus lenders want borrows who have experience in this area.  

Originally posted by @David Crumley :

I appreciate all of the comments and advice. Some very good points. A few mentioned using leverage, and I certainly agree. I purchased this first condo with cash, as it was an off market deal I could get at a good price if acting fast. My strategy initially is to use cash to buy (instead of short term loans), and then after fixing up and getting rented, would refi and take out cash, and roll into more deals. Based on all of my research, podcast, books, etc, I gravitate towards buy and hold, as it gives cash flow and a tangible equity down the road. But, as mentioned earlier, I started also delving into other ideas (notes/tax liens) as I wasn't sure that I could find the return rates needed to hit my goal with just buy rentals. All that being said, still need it to be relatively passive until I hit my goal!

That is the BRRR method and works well. Even better if you have a lot of cash up front.

I know you mention $120k/yr but there are a lot of variables here. I'm thinking there's a chance you're using this number because it's what you make at your day job. If this is the case:

1. $120k/yr at a W2 job is probably more like $84k-$90k/yr after taxes. With the way depreciation works with buy and hold, a LOT of your cashflow will be tax free, so realistically you may only need to be at $100k rental cash flow to be comparable to your current $84k/yr post-tax earnings. 

2. The numbers discussed do not include mortgage pay down. If you're leveraged and making $100k cash flow, you might be paying down $50k-$75k/yr on your mortgage, which is really a profit you are making also you just do not get it until you sell/refi.

@David Crumley BTW buying notes and liens is not real estate, it is paper. Debt instruments are not the same as owning and it would take a heck of a lot of paper to produce $120K. @Paul Choi in the ATL area, he could be cash flowing much more than $200 per unit.

More good points, and thanks for explaining some hypothetical pathways to reach my goal. For multi-family, what are best ways to find these in Atlanta area? My realtor has been great for single family, and condo/apt, but so far, have only looked at Loopnet to see multi-family properties on the market. Are most of these found off market, through certain agents or cold calling owners? Any other websites? Thanks.

@David Crumley I'm working with a few clients now looking into multi-family buildings. I have found some on the MLS and on commercial sites. Ask your agent if they have access to FMLS and set you up on a "Multi-family" portal search. Let me know if I could be of further assistance.

@David Crumley  

You need an agent/broker who specializes in multi family/commercial (15, 30, 50+ unit properties), not the quadplexes. It's a different world from agents who sells SFH.

Loopnet is where most of the "leftovers" goes - stuff that doesn't sell, odd-ball properties, etc. What it's good for is getting broker contacts and reaching out to them. Good MFH property deals are usually done off-market. Brokers have a deal on their desk and hit up their "preferred" list of buyers. If it doesn't sell, it goes on loopnet. So the goal is to get on their list. Ask them about a property you found on loopnet but more importantly, ask them about what else they got not on loopnet or what deals they have that's coming through the pipeline. Get your financing in order, multiple lenders willing to work with you (conventional, hard money, whatever), reserves in place, vetted property manager companies in the area on your speed dial, attorney for LLC or contract help, so that when the deal comes in, you're ready to pounce.

@David Crumley ...why not just buy a commercial asset with 30% leverage, 10-15 year note, 7-10% cap.  10-15 years from now you would have tripled your investment assuming zero inflation and you can focus on other ventures.  10-15 years later leverage against the property or 1031 exchange into a larger asset.  

With $500k or $580, you are off to a great start and your goal is very realistic. I agree that you should run out the multi year numbers and figure out what it will take to get the $120k returns you are looking for. I think you will find it is much closer than 10 years. I all depends on how hard you want to work. Have fun and good luck!

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