20 Years to $20K/month Passive Income

63 Replies

At 30 years old, I would consider myself a little bit late to the real estate investing party (although, I'm sure others might disagree). In my 20s, I have been fortunate enough to have decent full-time positions in the corporate world and to sock away a couple hundred thousand (including growth) in qualified retirement plans. Compared to the average American, this is probably an excellent start; compared to investors my age on BP nation, maybe it's average, at best.

While I still plan to maximize retirement account contributions and to (at least for quite some time) stay in the corporate world, I really want to get my real estate investing off the ground. Here's my plan:

I would like to have $20,000/month positive, passive cashflow by the time I'm age 50 in 20 years. I currently have zero rentals.

If I break this down, I need to generate (not factoring inflation, etc.) $1,000/month positive, passive cashflow each year for the next 20 years.

Most properties I've looked at in my area provide about $100-$150/month positive cashflow, at best. By these numbers, I would need to acquire 7-10 units/year, which I don't see as reasonable for me to buy personally from my W-2 income.

I'm starting to think I may need to set $200-$250/month per unit as one of my minimum criteria, however, this may force me to buy out-of-state, which opens up a whole new can of (potential) worms. If I did this, though, I would only need 4-5 units/year, which seems a tad more reasonable, although (in my opinion) ambitious.

Originally, my plan was to start small and buy 1-2 units/year. If I do this, I very likely won't reach my goal.

My primary concern is getting started (I've made several offers, however, no luck yet); I believe getting started will help drive momentum. My secondary concern is reaching my income goal.

I've calculated, based on a 10% income yield, what it would take in equity (stock) investments to produce this $12,000/year Cashflow. It's pretty simple: $120,000. To buy, say, 5 properties a year at $60,000 (let's say each spun off $200/mo for $200/mo x 5 units = $1,000/mo = $12,000/yr Cashflow). At 20% down payment, that would be $60,000 cash outlay. Clearly, there are other items (mild rehab, closing costs, etc.) that would be out of pocket, but probably not enough to make up that extra $60,000. I guess I'm sold on the real estate investment method, but just want to be sure I'm thinking about it correctly.

1.) Should I just jump in when I find a "good deal," and modify my income goals as I progress?
2.) Would you start with turnkey out of state investing if you're a new investor?
3.) Regardless of where you start, would you want all your properties in the same state r multiple states (to diversify)?
4.) What other advice would you give to someone like me?

I'm planning to buy-and-hold in B/C type neighborhoods with minimal rehab and am debating whether or not I want to use property management, however, I do factor in 10% for PM in my numbers when analyzing.

Thanks in advance, everyone!

@Mark S.  

1.) Should I just jump in when I find a "good deal," and modify my income goals as I progress?  I think your income will ramp up as you progress.  I think nailing down what you want your niche to be right now and focus only on being as good as you can at that niche is key.  As you go along and become an expert in your niche, you'll find other ways to exploit your niche and ramp up your profits thus your "passive income" acquisitions.

I should note that I don't believe managing 100 properties or how many ever it may take to meet your 20k/mo net income goal is ever considered "passive income".

2.) Would you start with turnkey out of state investing if you're a new investor? 

No, I wouldn't recommend that.  Certainly not if you wish to meet your goals.  If you're going to come up with 20k/mo income in the next two decades, you're going to need to be a little more hands on, cut out the middle man turnkey sellers and own your risk, your business, your plan.

3.) Regardless of where you start, would you want all your properties in the same state r multiple states (to diversify)?   As mentioned, I'd focus on your niche and really becoming an expert in that area before looking to expand.  Becoming an expert in your local area will open up other opportunities that won't necessarily involve you finding a new area to farm.

4.) What other advice would you give to someone like me?

Keep reading here at BP, attend your local REI meetings and find someone that is doing exactly what you want to do.  You're not the only one that wants substantial monthly cash flow...and I'd be willing to bet there are investors close to you that have already achieved this.  Check into your local REI meetings, your local property management companies, find out who the big players are.  Buy them lunch, learn from them.

@Mark S. I hope it helps.  

And re: your earlier pondering...you're way ahead of the pack.  You have a substantial amount of cash socked away that you can start putting towards real, performing assets (I'm a huge fan of RE vs market/401k).  If you wish to keep those two things separate, it looks like you're in a strong position to ramp up a separate pile of cash to go after RE aggressively.

Compound interest 200k @ 15% for 20 years....depending on your draw rate, you're almost there.

@Frank R., yes, thanks for pointing out that disappointing fact that I have over 200 posts and zero rentals. I've been looking on MLS, HUD, HomePath and HomeSteps, etc., and have not been able to lock one up. Most offers have been on the foreclosures. It seems that most wholesalers that I've come in contact with in this area are only interested in cash buyers or those that have hard money lenders. I would be starting off with conventional financing or possibly HomePath financing on one of those properties.

@Mark S.  Just giving you a jab.   Aug 2008 I put my first offer on a rental.  I closed escrow on it a month later.  Prior to that I had fear, most of it was created from the people I was surrounded by.  That first rental was a high I will never forget.  Probably similar to a a stoner and heroine.  

Frank R. , no problem. You're right, though. Sometimes I need a little tough love. My biggest fear is never locking up deal #1, but I don't want to settle, buy a bad deal, and give up either.

Tell us about your first rental.

I'm evaluating a duplex now that is listed at about $55K, 2BR/1.5BA, and would probably bring $450-$500/unit. Area is pretty bad, but I might take a shot at it. Have message into my agent to check it out. Gotta see how much work it needs, etc.

@Mark S. First rental was a 1995 5 bedroom 2 bath, 1,500sqft home in Visalia. Paid $107K, 20% down conventional. Still own have been through 3 tenants. Current rent is $1,200... could go up to $1,300. The cashflow is good. PITI is $725 mo. Current value is about $175K.

After that deal I went after the $50-60K properties and even into $25K condos.  Those type of deals disappeared quickly almost all doubling in value.    

Also my first mistake ever made was renting to someone self employed and I had to evict.  Nothing against self employed, the reality is that in general there income is not as steady.  Stick to employees or GFT's (government funded tenants).  

Mark, what are the actual goals that lead to 20k a month cash flow?  That sounds like a long road- so you might want to evaluate if that is even the number you want to reach bc you might take a different path with a different number.  At least it sounds like you have a good chunk of cash to start with.  Be very careful in parting with it.  I would absolutely use leverage where you can to meet that goal.

Keep in mind that at some point you'll be forced to use commercial/portfolio lenders with 15-20 year amortizations. You'll have a ton of debt paid off if you pick up a bunch of properties early on. I'm at 14 parcels for a total of 28 units and if they were free and clear I'd be around $9-10k a month cash flow.

I'm at $7500 a month in loan payments now. I could probably quintuple that in the next 5 years to $30k a month. Go another 8 years, which would put me at my 20 year mark as a landlord, and refi to lower the payments. I'd bet I would be in the $20k a month ballpark for cash flow.

His best bet is to focus on small apartment complexes. Say 12-50 units per deal. That's what Im trying to focus on now.

@Frank R., thanks.  I like hearing about people's mistakes in order to learn from them.  When you say GFTs, are you alluding to Section 8 tenants?

@Pete T. , no real rhyme or reason precisely. Most people choose $10,000/month as a somewhat arbitrary number. I work on commission, and the months where I make over $20,000, I feel pretty good about it. $10,000 is nice, too, but $20,000 would be much more comfortable, obviously. I'd probably be just fine with $10,000; better to shoot for the stars, right? As for starting with a lot of cash, not really. Just to be clear, the $200,000+ is tied up in 401(k), IRA, Roth IRA, etc. Even though there are options there, I'd prefer not to touch those funds for numerous reasons. I'd be pulling money from after-tax savings / after-tax investments, which is significantly less than the $200K+. I'm looking for highest LTV possible (aren't we all?!). HomePath, I've found 85% LTV. All other conventional 1-4 units are at 80% LTV. I might be able to do better, but that's what I've been looking at.

@Brandon Hicks , sounds like you're crushing it.  How old are you, if you don't mind me asking?  $7,500/month debt payments implies that you're bringing in some huge cashflow.  I'd love to focus on 12+ unit deals, however, I feel like I need to crawl before I ball.  That, and the fact that there's no way I have the capital requirements to begin with that.  I have, however, thought of starting with 4-plexes / quads.  I figure that still puts me in the residential space and more favorable financing, but gets my unit counts up.  The problem with the quads I've looked at, is that typically they're all in D neighborhoods.  Obviously, you're not likely to find a quad on the same street as a bunch of nice SFRs (although I did find a quad on a street with all SFRs around it - but it was in the hood).

@Mark S.  

Not really crushing it cashflow wise. I've bought $965k in properties in the past 3 years with little to no money down on land contracts. I had 4 units when I started that stretch. All on 20 year amms with the exception of one house on a 15 yr amm.

@Mark S.  - I like the way you are thinking about it. But as we start out, one thing we forget is the initial capital investment which we need to keep rolling. How do you plan to build equity to buy 4-5 houses or 7-10 wherever that number is.

Take baby steps, build strong basics and then aim for strides. I am currently looking for rehabbing and flipping to build my initial investment and as I go on with few properties, I will have a better idea of the tactical steps needed to make that passive income happen.

You have a bigger picture in mind, that is awesome, but what I feel may be missing is the incremental tactical steps to start the journey. As someone said

"Success is not a destination, its a journey"

If youre planning on holding for 20 years why do you need down payments? Get creative and buying on contract, seller financing, sub-2. Build some equity and then refi.

Leverage is risk. Period. I get that.

However, if you can control the risk and make it float borrowing as much as you can to build a portfolio as fast as you can is going to ensure you accumulate the most wealth in the end. Its no different than putting money into the market. Would you rather have your tenants paying starting to pay off 2 million in debt in year one or wait until year 15?

Just my opinion.

I guess I need to have an end goal in mind, albeit one that can evolve.  If I simply say, "yeah, I'm gonna buy a rental and have it generate $100-$200/month positive cash flow" and stop there, I'd never start.  I can go to a poker game and make that in one hand.  At that point, it's not worth my time.  Obviously there's so much more to it than that, but without setting goals, it's difficult to see the "why" in what you're doing/building.

Sam J. thanks for the mention. You can link articles, but I can't as the author.  

Definitely a good idea to have a plan. My rentals have increased my net worth by $600,000 in the last 3.5 years. That's nice, but not all usable sine it's a paper gain. The tax benefits, equity pay down are nice too 

@Sam Jones, thanks for posting that.   Interesting read.

@Mark Ferguson, sounds like you're crushing it; that's awesome.  It may be in one of your other articles, but are you buying in the same state/area of all over?

Mark don't forget you will be paying down debt on any units you purchase so here is my perspective. Buy 6 per year for the next 5 using a mix of purchasing strategies, put 15 yr notes on them and when yr 20 hits you have 30 debt free properties. Additionally, in 20 rents climb and you will prob be at $300/door income.

However, the truth is that once you become sophisticated enough in the field, you will move at an exponentially faster rate. I'm guessing with your corporate background this will occur within 5 years of part timing. Thus, your plan today will change at whatever time that occurs.

Just buy some dang property man and make sure it cashflows monthly and do whatever you can to continue that trend. Enough paralysis by analysis


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