What type with $50k per year?

General Real Estate Investing
13yFollow

What type with $50k per year?

Matt Cariello
Specialist · Milwaukee, WI · Member since 2013 · 40 posts · 1 vote

Hello everyone,

I am new to real estate investing and have a quick question to ask you guys. I'm in a pretty unique situation where I will be able to invest and/or save roughly $50,000 per year (sometimes more if I have a good year at my job) in some sort of real estate investment and want to be able to get the most for my money. I've been reading up a lot on single-family homes and whatnot, however, I found that in order to make the amount of money that I think I can with this amount of capital (Especially if I save it for a few years) it'll take a lot of properties (60-70 single-family rentals) in order to return the same amount it may for one or two larger multifamily apartments. My question is, should I save up a few years and use some of that $50,000 per year in order to put a decent sized down payment on a larger complex? Or, should I focus all on single-family homes and just purchase a lot of them? Maybe a mixture of both? I'm thinking of possibly starting off with a few single-family homes, and then once I've kind of learned the ropes, using my $50,000 per year to save up enough to start investing in larger projects. FYI - I am not opposed to going into projects with multiple investors… I'm not necessarily looking to do this all by myself.

What are your thoughts? Sorry for the long-windedness of this!

Matt

0Reply
181 views

Most Popular Reply

Kelly N.
Investor · SE, MI · Member since 2013 · 1k+ posts · 461 votes
13y

Hi Matt,

If I were you I'd think about buying now to learn the ropes. Maybe look at multi family (2-4 units) since they may make more money for you in your market. Save the cashflow from these investments to be used along with your $50k per year, and buy more. When you find something big, do a 1031 exchange- sell some of your SF to fund the larger purchase. Set some goals and go for it!

Kelly

1Reply
See this reply in the discussion

41 Replies

Jump to latestLatest
  • Jerry W.Pro Member
    Moderator
    Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
    13y

    Matthew Cariello, no. Lets say he fianced $28,000 at 4% for 30 years. He would pay $135 per month on his mortgage. That comes out of your profit side to tell you how much per door profit you make. This makes the yearly cost $1,620 for mortgage so your profit is $2880 per year. That is roughly 240$ per door per month. How many large apt complexes regularly turn that profit in your area? Especially after you take out fiancing? Also you are making more than $240 per month because principal is also being paid down. Its a fast method of determining if the numbers on a property look good enough to do a full work up to try to buy. You still need to do due dilligence, because repair costs, insurance rates, taxes, vacancy rates, etc can vary even within a few blocks of each other. By the way Ed Lee good job on explaining that.

    0Reply
  • Ed L.
    Residential Real Estate Agent · Hattiesburg, MS · Member since 2011 · 475 posts · 141 votes
    13y

    Basically a 2% property will yield a 12-16% return on investment.

    A 3% property will net about 18-20% ROI...

    Pretty good by todays standards.

    You also get to write off depreciation to off set rental income. SFR is depreciated over 27.5 years. $35,000 / 27.5= a write off for $1,272 per year.

    Then there is appreciation of the asset. Housing prices tend to rise with inflation in a normal market.

    It's not a path to get rich quick, but when compared to the available option today I think it's a pretty solid path to building wealth..

    1Reply
  • Ed L.
    Residential Real Estate Agent · Hattiesburg, MS · Member since 2011 · 475 posts · 141 votes
    13y
    Originally posted by Matthew Cariello:
    And if you DID finance and didn't pay all cash, you'd throw the interest payment into the 50% as well I'm assuming?

    That's correct..

    Things change pretty drastically when you involve financing.

    The cash on cash returns will be higher, but there will be higher risk due to the leverage involved.

    Using the $35,000 house. $750 x 50%= $325 in cash-flow if cash purchase.

    Let's look at the deal using financing.

    $35,000 Investment
    Bank requires 15% down payment. Actual cash in the deal is $5,250
    I like to use a 15yr term & assume a 4% interest rate.

    Total payment is $220 per month.

    $325-$220= $105 in cash flow once the note is paid.

    $105x 12=$1,260 in annual net income.

    Cash on cash return would be $1,260 / $5,250 (Down payment)= 24% Cash on cash return.

    I would probably do this instead of paying cash if I could find more 2% properties in my market. It's about like looking for a needle in a hay stack.

    0Reply
  • Matt Cariello
    OP
    Specialist · Milwaukee, WI · Member since 2013 · 40 posts · 1 vote
    13y

    Jerry W. - You said no it's not part of the 50% but Ed Lee, you say it is. I mean I guess what difference does it make in the end (it's still money going to the bank and not to you), but it would be nice to know the correct answer so when I'm evaluating properties I know which side to put the interest on for comparison purposes.

    Thanks guys!

    0Reply
  • Kyle Hipp
    Investor · Appleton, WI · Member since 2012 · 1k+ posts · 464 votes
    13y

    Matthew. Look up some threads on the 50% rule and it will answer all your questions and more.

    0Reply
  • Matt Cariello
    OP
    Specialist · Milwaukee, WI · Member since 2013 · 40 posts · 1 vote
    13y

    Thank you Kyle Hipp, that's exactly what I'll do.

    Ed Lee - With that scenario and 50-60k per year to invest, I would just assume buying (with financing) 4-5 properties per year - Even if I were paying some interest on the properties at Jerry's example of $135 per property and coming out at $240 per door... $240 per door X 5 properties is $1200 per month vs. paying straight cash for 2 properties and making $375 per door... $375 X 2 is $750.

    Am I on the right track here?

    0Reply
  • Ed L.
    Residential Real Estate Agent · Hattiesburg, MS · Member since 2011 · 475 posts · 141 votes
    13y
    Originally posted by Matthew Cariello:
    Thank you Kyle Hipp, that's exactly what I'll do.

    Ed Lee - With that scenario and 50-60k per year to invest, I would just assume buying (with financing) 4-5 properties per year - Even if I were paying some interest on the properties at Jerry's example of $135 per property and coming out at $240 per door... $240 per door X 5 properties is $1200 per month vs. paying straight cash for 2 properties and making $375 per door... $375 X 2 is $750.

    Am I on the right track here?

    If you are comfortable with taking on the added debt then absolutely right!

    With interest rates being so low I feel kinda crazy for not gobbling up more.

    Honestly, my biggest problem has been finding solid 2% deals on a regular basis. I scour the market daily looking for deals and seldom do I find 2%. ( That said I just closed on one that will do about 3.4%!)

    I probably come across 5-6 a year that will work and that are in areas I'm comfortable with. I'll bid on all of them and may win 1-2. Typically it's a multiple offer situation with the bids going over asking price.

    Some markets are different and good rental deals are more plentiful.

    And there's all kinds of different tactics investors employ... Right now the big boys on wall street are gobbling up homes that probably aren't even 1% deals in hot markets. They are gambling purely on price appreciation and they are doing it BIG TIME!

    0Reply
  • Matt Cariello
    OP
    Specialist · Milwaukee, WI · Member since 2013 · 40 posts · 1 vote
    13y

    Ed that 3.4% pickup is fantastic! Good for you!

    Do you have a spreadsheet or some sort of template that you use in order to input all of the data in order to analyze what kind of returns that you will have? Or just pen and paper analysis?

    Thanks much -- a spreadsheet would be fantastic help

    0Reply
  • Ed L.
    Residential Real Estate Agent · Hattiesburg, MS · Member since 2011 · 475 posts · 141 votes
    13y
    Originally posted by Matthew Cariello:
    Ed that 3.4% pickup is fantastic! Good for you!

    Do you have a spreadsheet or some sort of template that you use in order to input all of the data in order to analyze what kind of returns that you will have? Or just pen and paper analysis?

    Thanks much -- a spreadsheet would be fantastic help

    Yea I keep waiting to uncover missed during my due diligence period.

    This one was a 3br./2ba cabin that was built in 2003. Only 1,100 sq/ft but a good efficient floor plan.

    Paid $18,000.

    Plan on spending $7,000 on light remodel. (Paint, floors, etc)

    $25,000 invested. Already have multiple applicants for $850 per month..

    Only drawback is it's further out of town than my other properties.

    Like everything in economics there is no way to look forward without assumptions.

    Using the 50% rule it should net $425 monthly x 12= $5,100 / $25000 = 20.4% annual return..

    0Reply
  • Ziv Magen
    Fukuoka, Fukuoka · Member since 2012 · 148 posts · 29 votes
    13y

    Lots of great info in the replies, and you seem to have the profitability aspect of things covered - I'll just pipe in to say that a lot of it also depends on how hands-on you want to be and how diverse you feel like being. If you like to micro-manage, you can get better diversity and hedging from a few smaller investments - but if you're day-to-dailies are full of other business or personal activities, you'll be able to handle a smaller number of larger investments far more efficiently with the limited time you might have on hand.

    0Reply
  • Matt Cariello
    OP
    Specialist · Milwaukee, WI · Member since 2013 · 40 posts · 1 vote
    13y

    Exactly my thoughts Ziv Magen - I am going to start small and 1031 them (or add to them) with some larger units that are less hands-on as my career is very time consuming.

    The more hands-off the better for me! Thanks so much for your reply!

    0Reply
  • Ziv Magen
    Fukuoka, Fukuoka · Member since 2012 · 148 posts · 29 votes
    13y

    Matthew Cariello, if you're already going hands-off (meaning, you're going to use contractors like a PM or reno expert etc without handling the nitty gritty in person), don't limit yourself to your own 'hood - it's a big state/country/world out there, and good deals are everywhere ;)

    0Reply
  • Ramon Jenkins
    Real Estate Agent · Milwaukee County, WI · Member since 2009 · 3k+ posts · 525 votes
    13y

    just my opinion - sounds like a good plan -

    0Reply
  • Matt Cariello
    OP
    Specialist · Milwaukee, WI · Member since 2013 · 40 posts · 1 vote
    13y

    Ziv Magen - Yup. Couldn't agree more!

    0Reply
  • Michael Petrovich
    Investor · Garland, TX · Member since 2014 · 21 posts · 8 votes
    11y
    Originally posted by @Matt Cariello:

    Hello everyone,

    I am new to real estate investing and have a quick question to ask you guys. I'm in a pretty unique situation where I will be able to invest and/or save roughly $50,000 per year (sometimes more if I have a good year at my job) in some sort of real estate investment and want to be able to get the most for my money. I've been reading up a lot on single-family homes and whatnot, however, I found that in order to make the amount of money that I think I can with this amount of capital (Especially if I save it for a few years) it'll take a lot of properties (60-70 single-family rentals) in order to return the same amount it may for one or two larger multifamily apartments. My question is, should I save up a few years and use some of that $50,000 per year in order to put a decent sized down payment on a larger complex? Or, should I focus all on single-family homes and just purchase a lot of them? Maybe a mixture of both? I'm thinking of possibly starting off with a few single-family homes, and then once I've kind of learned the ropes, using my $50,000 per year to save up enough to start investing in larger projects. FYI - I am not opposed to going into projects with multiple investors… I'm not necessarily looking to do this all by myself.

    What are your thoughts? Sorry for the long-windedness of this!

    Matt

    Thanks for asking this question for me Matt, lol. I am LITERALLY in the same boat as you with my savings at 50k/year and not knowing which route to take - well at least I was until reading almost every post on BP.   My initial idea was to save up, buy rentals, build up through the years, then live off the "passive income."   I learned a few things ( a ton) on BP by repetition of others with more experience.  1st, it isnt passive income...you still have a certain amount of work and responsibility cut out for you, even with a management company.  2nd, grow the money you have in your "wallet"... don't wait years to be able to finally apply it towards something grand.  My plans slowly shifted to flipping/rehabbing homes.  I find that I don't have to wait 6 years to buy a 300k RE investment (saving 50k/year).  I can flip with 50-100k in my area/state - get a return, apply it going forward and build a snowball effect.  In 6 years, I would obviously have more than 300k by flipping as many times as possible (given the right numbers - always).  Perhaps I could come out with 450k in six years... or more.  That to me sounds better.  There are tons of opinions on BP... and most of them would work given the right push and strategic planning.  I feel like the underlining theme on BP is to do more with what you have - whether it is time, money, great ideas, work ethic, etc.

    0Reply
  • Tyson Luthy
    Property Manager · Idaho Falls, ID · Member since 2015 · 147 posts · 83 votes
    11y

    Buy whatever the deals are. Don't limit yourself, be open to anything that makes sense. You don't have to know everything now, just find a good deal (whatever it is) and buy it. Just get started and you'll learn what you like more as you go along.

    Sounds like your in a great position to make big things happen!

    Go for it!

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free