I want to buy 5 units by the end of 2018! How should I do it?

24 Replies

My 2018 goal is to buy 5 units by the end of the year. One single family and two duplexes. I will have $20k saved by next April. About $40k in 401k and $13k in stocks. Should I sell my stocks and borrow against my 401k to reach my 2018 goal?

What is the expected total market price of the 5 units. What is your approved mortgage amount. What is your anticipated cash flow on the units. How much is your anticipated cash reserve. What is your annual income.

Planning to buy and being able to buy are different animals. You must be properly positioned to be able to make the right decisions as to how you are going to achieve your goals.

Bottom line is we need much more information in order to be able to advise.

@Thomas S. thanks for replying! $20k savings and 50% of 401k and my $13k from stocks, I have about $53k as down payment. That can leverage me about $212k. If I want 5 units, each would be valued at $42k. I am hoping to find those and hoping to get $150-$200 cash flow from each. I definitely make enough and have good enough credit to borrow $212k. Just not sure if I should borrow against my 401k and sell my stocks to reach that goal.
@Anthony Gayden I am not sure if I am in the position to buy more. I think it's a little idealistic to buy 5 units with my current financial situation already. But please let me know what you are thinking. What else can I do to buy more?

Seller carrybacks, partnerships, debt assumption, trade things, property repairs in lieu of down payment (FHA 203b or 203k).

Where are you investing, surely not anywhere near San Francisco?  

If you go commercial for all 5 units at once you have even more options for funding. But just have to get creative!

@Geoff Andrist Never thought of debt assumption! Thanks! I am looking at Memphis TN, Chicago, Cincinnati, Columbus OH, Dayton OH, Texas and even Detroit. Definitely not anywhere close to the bay area. It's madness here and beyond my level as of now. I agree, 5 units can be any form. It can be a five-plex. My goal is to have $1000/month cash flow. So $200 from each unit. I just thought it'd be hard to get a commercial loan from banks for a 5 Plex with my limited investing background. But I definitely will try.

@Jia Liu , if you opt to go commercial consider working with an existing investor or mentor.  Sometimes if you find a screaming deal you can bring it to an investor who will essentially guarantee the deal for you to lenders (normally asking for a cut as well btw).  I thing your numbers seem optimistic, but maybe not impossible.  Also, if you manage and owner occupy the one of the units you can "house hack" it!  Would certainly be easier to manage if you're living there.

Just depends on your network, creativity, and proclivity for hard work.

Good luck, let me know how it goes!

you will have a hard time having true long term success if your units are only $42k per. You will have lower quality homes and tenants. You would be better buying two really nice homes. They will perform better long term then 5 cheap ones. 

@Geoff Andrist can you please elaborate on "debt assumption" that is a new term, are you referring to take over the existing terms of the current owner? How does that benefit the owner for profit? vs. a sale to pull the equity out. For commercial, what are options are available for funding? 

Hi Jia!  Sound like you have a solid plan in place. That's awesome and a huge step in the path to investing in real estate.  Next step is to take action, do some research on the markets you are interested in and connect with a local agent and lender.  I good local lender will be able to give you all the options available to you and advise on the best way to finance your investment property. From what you've mentioned about what you want to accomplish, Columbus Ohio would be a great place to start looking.   Have you looked at any properties here in Columbus? 

@Dulce Beltran  

Debt assumption is more common in commercial properties (5 or more units) but can still be done in residential.  Was pretty universal in foreclosures, or when working creative deals.  

Not so common anymore, here's a link on the reason why: https://www.johntreed.com/blogs/john-t-reed-s-real...

How does that benefit the owner?  People sell for all kinds of reasons, and the cost savings for the seller of an off market property can be substantial, and much faster.  I like to remind myself it can be a good deal BOTH ways in the transaction if done well. Just need to break down what the seller is really after versus what they're telling you (usually not the same).

Commercial funding? Far more open to creative solutions.  There's different regulations at work in a commercial purchase which are less restrictive.  So you can see lots of seller carryback financing, also defeasance work arounds, or even sometimes multi stage buy outs, even simple lease options, and of course traditional funding.  It depends on how comfortable your sellers are with these concepts, and which piece fits the puzzle.

That's one of the reasons I enjoy commercial property so much more than residential.  More flexibility.

@Geoff Andrist I was unaware and that's a great choice especially if the terms of the property are decent and you can force appreciation through better management/improvements, etc. What is Defeasance work arounds? That is what I am learning, the flexibility with commercial funding especially since I can obtain 5+ units in one acquisition. My initial plan was to obtain 1-4 units as I inferred the financing was "easier" and am learning that may not be the best route. Thank you for your input, I highly appreciate it!

@Jia Liu

So it sounds like you will have around $73,000 all together in April from your 401k, savings and stocks.

Your goal is to earn $1,000 a month in Cash Flow by the end of 2018.

My suggestion would be to not worry so much about the amount of units you have. I would suggest focusing on getting a great deal.

For example. I recently picked up a property in Florida. Purchase price $71,000, rehab $10,000, appraisal at $120,000. The property is now rented at $1,100 a month. So for $81,000 I receive $990 a month from my property management company after they take their fee. Plus the property has $39,000 in equity according to the appraisal.

Another property I just purchased for $44,000, rehab $7,000 will rent for $900. Appraised value is $80,000.

My point is that it's more important to focus on getting a great deal on each property you buy as opposed to focusing on the number of units you own. 

@Jia Liu

Sounds like you need to refine your market and drill down on the MV and metrics of whats possible within that market.  Sure you may be able to get a bunch of properties <$50k and may get you the CF within your requirements but how is that going to serve your long term goals?

Start with strategy, then define your market, and then work with your financials. Going by door count, cap rates, CF, CoC, etc. could get you into a precarious spot if you don't have 1-10 year objectives in place. Especially if your investments or the economy experience and unforeseen decline in value.

@Jia Liu Don't neglect the value in just finding a deal to get one under your belt. It's great to set goals, but putting a timeline on it can get you in trouble as well. You can surely find a good deal by the end of the year in one of your markets if you look hard enough. Though, jumping on an okay deal because your deadline is approaching won't do you any good. I'd focus in on one or two markets and go visit for a few days to know what you're up against. The million dollars you'll save by investing outside of SF should justify a few plane tickets :)

@Rob Drum Jr. Marketing campaigns and building relationships. I've been investing across the country for nearly 7 years. Takes time to set up a team- but as an investor I've found Investing in the right markets at the right time is more important than focusing on only local investments.

You need some of my favorite sellers - the tired plex owners with tired looking properties that are 70+ and still mowing their own lawns.   They don't like taxes and love to seller-finance.

You obviously aren't looking for $42k duplexes (really?  See the active thread - Landlord's Nightmare) in the  Bay Area, but that's who I seek.  Tired looking, but not war zone plex owners get a postcard from me.  

@Dustin Rose Wow, that's really smart! Just like some areas of town are better for certain strategies, so are some parts of the country.  You're just playing on a bigger chess board than most of us ;)