Question for the group to sanity-check the direction I'm going....experience is finding out there's a better way after you're done.

My goal is to achieve 5K in so-called passive income per month. That seems reasonable and achievable, and I think there are more than a few folks on BP who are there. 

I define passive as not having to rehab, wholesale, or any activity that requires me daily to keep the machine going...so that more or less leaves buy-and-hold of some type, perhaps buying notes, maybe something else I'm not thinking of. I welcome disagreement on this point.  

Let's say I had 300K I'd be willing to use towards this goal.

My current plan is to gain experience in landlording, rehabbing, building a local team, finding deals, with the aim of BRRRR-ing properties (right now SFR and small MFR, but maybe larger commercial once I have a handful or properties) over the next 5 years to achieve this.

Better ideas? Recommendations?

thanks

If you have $300k I'd probably buy some multifamily and 1031 into something once you're ready and only if you want to. If not then just keep it.

You'd have to use a lot of the money for closing costs and other expenses unless you negotiate most costs to the seller so your return can vary obviously.

But that is a good sum of money to start out with and that's what I'd do. Reinvesting the returns you'd get, you can definitely achieve your goal. Just my 2 cents

Easy.  You're probably less than 2 years from that right now...assuming you actually have that $300k starting point.

Plan:

1 - Flip your cash 3 times a year with a profit averaging 15% per flip.  In less than 2 years you would have over $600k.

2 - Use that $600k as a 20% DP on a NNN (or more than one NNN) with just under a 9 CAP (avg if more than 1 NNN)

3 - Should get you $70k/year (=/- a few hundred)

@Chris Gordon , you could raise another 700k with 2 or more partners and put down 33% on a 3 million dollar multi family for 33% percent of the profits, plus your fee for facilitating the deal. you could also flip said multi family or BRRR it. just an idea

Hey @Chris Gordon , I'm a non-performing note investor and I have JVs who have asked me how to get to $10,000/month using notes. I wrote up an analysis and - strangely enough - it involves starting with $300,000.  Write to me at my email below if you'd like me to send you a copy!  In my own portfolio, I'm currently getting a minimum of $20/month income for every $1000 I have invested so if you could do the same, you'd only need $250,000 invested to achieve your goal. And it's very passive. 

Just some alternative thoughts that you might lump under buy and hold but perhaps with less hassle: mobile home parks, storage units, graveyards

@Chris Gordon - great question. I strive for 15+% CoCR. With your $300k, that will be $3750/month. At 20% CoCR you’ll hit your goal of $5k. To gain 20% CoCR you’ll probably want to look at a value add Class C/C- apartment complex or Mobile Home Park. 

you are fairly close to Baltimore buy 6 homes for less than 50k and boom there you go. A 3 bed 2 bath will rent for roughly 1200 or more. Investing there definitely help me get to your number and then some. But it takes a minute to learn the game there, it can get frustrating. Same returns can be had in philly too. Or buy better class property's that will net you at least 300 a door refinance rinse and repeat. 

@Chris Gordon It's much easier said than done. What looks good on paper can turn out to be a nightmare in real life. The key is to find a niche, learn it and do a small deal. From there, make notes of what worked and what did not work. Continue if you like it. If not, find something else. Finding a niche that works for you is the hardest part. Good luck! 

@Chris Gordon To be honest, so much of this depends on the “let’s say I had $300K”

1.) Do you have $300K in a checking account?

2.) Do you have a net worth to support a $1.2M multifamily purchase? Just thinking of $300K being 25%...

3.) Is the $300K coming through some other means that needs payment?

That aside, in your shoes I’d look for a nice boring 10% cash-on-cash return to start. I’d imagine a lot of people get aggressive, look for the 2% property, look for 20% cash-on-cash, etc. And experienced investors who know what they are getting into can go there. For newer investors I’d posit they go after it and we never hear from them on BP again. I’d never advise someone to start with a massive rehab or a C- property. Unless, of course, you’re a contractor or want to be incredibly hands on.

Others will completely disagree but I’d rather find something that’s a cosmetic rehab or a yield play just to get started. Pro-forma returns on C- properties are always great. Until you hit pesky reality...

300k could purchase 6 of the properties i currently own in baltimore. Owned for many years. Currently Rented, you would receive almost 6k a month pre expenses. After expenses youd be close to 5k per month. (Pre tax). 

@Jeffrey H. so the math works out that there are 50k properties, presumably not needing much post-closing investment, which would rent at approximately 1000 each?

If so then I need to get smart on Baltimore

@Chris Gordon slightly more complicated. To acheive this, one would need a time machine to tale advantage of bank giveaways and desperate contractors of 6-8 years ago. Maybe im underpriced now

Still there’s an argument there for having investments more liquid than RE at the ready for those times, if and when they occur again

@Chris Gordon with $300k, you can easily make $5k/month by just investing with a few trusted flippers. Most will pay 10% IR per flip; and can do about 20% IR/year.  On $300k that is $60k/year = $5k/month.

So, not to throw all your eggs in 1 basket, I'd find 3 trusted/established flippers and invest $100k with each. 

Onward!

sjw

In the right market buying small multifamily properties with traditional 30 yr mortgages can return a true 20% cash on cash return after all expenses including management and Cap ex. This is without doing anything fancy like big rehabs, flips, or even BRRRRing. Just plain boring disciplined investing in the right market and buying at the right price in C+ to B type neighborhoods. So in theory if you had 300K in the right market you could hit your goal within a year. 

@David Grabiner I see you're from Chattanooga. We love that town. Unfortunately we weren't so sure of the schools. Do you actively invest there? That's on my radar for out-of-state investments.

@Chris Gordon Yes I am a full time investor here in Chattanooga. It is a great small town but it seems that over the last year or so the out-of-state investors have driven up the prices so great deals are more difficult to find. Now they can be found, but being a smaller market there aren't as many opportunities as in larger markets and the good ones get taken quickly or more often than not don't even hit the MLS before they are sold.

The market is too small to support turnkey providers and most management companies are not worth the money you pay them. This makes it hard to get great deals from out of town unless you have a good and trusted partner in Chattanooga, or a really great real estate agent. But if an agent is that great they are going to be listing agents and not a buyers agent. 

I respectfully disagree on Chattanooga first there are still plenty of deals to be had and second there are some solid property managers in town that can handle out of state investors.  If you buy a bunch of properties then yes a local partner makes good sense.  

Regarding schools like all towns this size some are good and some are bad. 

@Jeffrey Holst I think it all depends what is considered a good deal. Yes there are about 116 small multifamily properties listed on the MLS at this moment but how many of them are in decent neighborhoods and will give a true 20% cash on cash return? If someone is looking for 10% -12% cash on cash then yes those can be found easily, but in my experience there is a lot of competition for great deals.

There definitely is competition for 20% cash in cash returns but I doubt there are many markets where you can get 20% with out pushing a little.  With a little leverge I think it's still fairly easy to take a mls duplex and get around 20%

The average duplex in Chattanooga sells for about 100k in a decent neighborhood and rents for about 550 to 600 per side.  20% down would give you a payment around 500 a month with taxes and insurance being around 1500 it's not that hard to see 20% returns 
 on your 20k down payment

1150 a month rent is 13800 with a 5% vacancy and 8% management and 5% maintenance reserve you are left with 11316 to pay your fixed costs of 1.5k (taxes and insurance) and 6k payments or about 3816 per month over a 19% return and that's based on average properties.  By doing light remodels we are see rents of 1500 a month and payments of a little less than 500 a month.  My estimated returns on my duplexes are close to 25% cash in cash and these are ones I bought in last 8 months.

side note I only see 78 small multi families in mls.   Some of which are too pricey and have been on market for many weeks.  I am not saying it's easy I'm just saying it can be done.  

I also prefer larger deal which re getting harder to find locally and agree that it is easier to make money with a 20 unit than with 10 duplexes mainly because you control the appreciation to a large degree.  



Originally posted by @David Grabiner :

@Jeffrey Holst I think it all depends what is considered a good deal. Yes there are about 116 small multifamily properties listed on the MLS at this moment but how many of them are in decent neighborhoods and will give a true 20% cash on cash return? If someone is looking for 10% -12% cash on cash then yes those can be found easily, but in my experience there is a lot of competition for great deals.

Originally posted by @Chris Gordon :

@Jeffrey H. so the math works out that there are 50k properties, presumably not needing much post-closing investment, which would rent at approximately 1000 each?

If so then I need to get smart on Baltimore

50K Properties, not much post~rehab needed, renting at $1000.00  a month?  Where?

~Daniel F. Harb

@Jeffrey Holst

This is what is so great about investing everyone has their own way to do their numbers and make assumptions. We use different strategies, and different loans to achieve our goals.  Allow me to mention how I think the numbers would be different for a new investor just starting out in the market. 

Purchase price 100K

Down payment 25% at 4.9% interest rate 30yr amort is likely what a new investor could get on a conventional loan. =25K

Closing costs = 3K

Gross rent = 1200 * 12 months = 14400

Taxes = 1500

Insurance = 650

Vacancy 5% = 720

Management 10% (really this can be higher when leasing fees are considered) = 1440

Maintenance 10% (I think it is better to have higher reserves especially when new) = 1440

Total cash flow = 3873

Cash on cash return = 3873/28000 = 13.83%

13.83% is still a very nice return and given local dynamics I think it's fair to assume some upside will occur over next 3 to 5 years.  

@Daniel F. Harb in baltimore, in my possesion. Not easy to accomplish or find. One needs to understand locations on a house by house basis, all things construction, particularly where to get materials and labor for a song, the ability to do work yourself if need be, how to deal with the city gov. Lots of other stuff. I bought stuff when banks couldnt give it away, that helped too