20 Years to $20K/month Passive Income

63 Replies

I buy in northern colorado.   Everything within 10 miles. I like 30 year loans personally. Much more flexible and much more cash flow. 

I'm just gonna pipe in and say make sure you pay attention to the post about the lesser areas.  LOTS of hidden costs, plus WAY more headaches.  

Real life rarely, if ever mirrors your analysis on paper.  When I had a lot of rentals I never heard a peep out of anyone that lived in a house worth over $200k.  Had 27 units that were lower end- Total nightmare.  You're worried about buying wrong and that getting you out of the biz.  That's nothing compared to nightmare tenants.

$20k/mo isn't that hard to do in 20 years.  Your analysis isn't factoring in raises in rents and paydowns of loans.  Plus as you get your systems and resources (and money) in place they get a whole lot easier to buy.  If you're making enough to live on, that'd get a whole lot easier if you kept current cash flow in the biz for loan paydowns and new acquisitions.  I'm mostly rehabbing now, but plan on accumulating some rentals next year and not pull a dime out of that company for a long, long time.

I'd second what's been said on the purchase.  Find one that works and just buy it.  If you're going to own it for 30+ years, I'd be way more worried abut cash flow and demographic trends in the area than a discount to market value.  You'll learn a ton owning one.  Just get it and ride it for 6-8 months, then do another.  You'll get a lot of knowledge on here, but nothing will teach you better than doing it.

Watch those Homepath props, they dont require appraisals and offer good financing so tend to be above market.  Still some deals in there, but I've seen a bunch way over priced.

@Marshall Downs , thanks for the advice. Honestly, I'm with Mark Ferguson on the 30 year versus 15 year. More flexibility. It might cost me a half a point or so, but gives more breathing room. One can always pay it down early, right?

@Darrell Shepherd , thanks for the heads up about the lower end properties. The duplex I'm considering right now probably falls into that category. I still have to go check it out, but at first glance, it looks like it could approach the 2% rule.

On the other hand, I could build a brand new (super nice!) duplex in the same city I live in and that would barely meet the 1% rule. Totally different type of tenant, but when analyzing newer duplexes like this in the past, I was warned that the numbers weren't quite good enough, and that I would just be "buying a job." That really stuck with me, and I've been much more aware of the numbers. Obviously, there's always going to be a trade-off, but as a newbie, I'm trying to figure out where to draw the line. The cheaper property route comes with better Cashflow, more headaches, but is more affordable. The more expensive property route comes with better tenants (typically), worse cash flow, and would really stretch me thin during lean months of vacancy.

30 year loans are great for the 1st 4 deals. After that you'll need local banks and you'll be looking at commercial loans.

@Mark S.  

I think you need to really focus on your goals and how you are getting there.  No offense, but you have analysis paralysis.  You need to take action at some point.

Try to go to your local REIA. You might meet a mentor or partner there or at least see how others are doing it which could give you the confidence you need.

I can only offer my experience as someone who works full time.  I started looking in 2010 and became a little discouraged as Los Angeles is competitive.  I was able to get a 4-plex from a short sale that met my parameters.  If I had been on Biggerpockets then, I would have been told not to buy it, because it didn't immediately meet the 1% rule and wasn't in a favorable rental market apparently and CA was synomous with Greece at the time, but I knew the rents were below market, we were near the bottom of the cycle in SoCal, and I was able to cash flow with plenty of room for cap reserves from day 1 because I could tie up financing at 3.625% and long term there was no threat of development for many miles for my product.

I have since bought another triplex that had been only partly rehabbed and poorly managed.  I have been able to increase the rents on both properties and the market value has increased on each property by $250k (only paper profits, but I have enjoyed asset managing the properties and the overall experience).

You may need to do some of your own marketing to get in your market (which is really the way to go as you should buy at a discount and why I have moved onto commercial property investments) but in any case I am sure you just need to decide your path and take it.

Good luck and get after it.

@Mark S.   what you need is to buy your first rental.  Great long term plans are nice, but the journey of a thousand miles begins with the first step.  lower income is higher rate of return but more work.  you might have to look for a more expensive worse cash flow property to make your renting easier.  Either way jump in there, maybe get a slightly distressed property and have it fixed up to be a rental.  those are usually cheaper.

@Mark S

$20k/month passive. That is a great goal to have! This happens to be the retirement plan I am pursuing to build as well.

I like to achieve this goal with all SFR "A" class assets. I will need 13 SFRs owned free and clear valued at $3.34 Million to reach $20k/month.

Start out with 10 30 year fixed mortgages and start accelerating down your payments.

If your stock market portfolio is valued at $3.34M, you can withdraw $133,600/year for 25 years and have nothing left at the end.

You can have a $3.34M real estate portfolio which can generate $20k month passive income, without digging into your prinicipal while your assets are appreciating.

Originally posted by @Mark S.:

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!

Where in Kentucky are you?  2% is a good number, but not set in stone.  That was easy to do a couple of years ago, getting a little harder now.  I think you could cheat on 2% some on a new home since you shouldn't have the major repairs for a while.  I use a Gross Rent Multiplier.  Same thing, just easier math.  50 times rents is 2%.  The going rate was 99 times rent when I was doing things before (1%).  Tough to make things work buying at that, but you can go over 50 a bit and still have good numbers.  Plenty of threads on that around here.  SO much of that depends on your market.

My only rental falls short of that, but not by much.  I think I've got $55k in one that rents at $940 (section 8 short changed me last minute by $200+, but I went ahead and took it).  Keep in mind 2% a 'rule of thumb' not a rule.  If you are in an area that rents as soon as the sign goes up, you can cheat some versus one you can buy at a better ratio, but may sit vacant for two months in between tenants.  IMO, you need to real world it as much as analyze the deal.  The hedge funds hat bought so much so fast are going to get a lesson on land lording pretty soon.  Their realized returns will be far short of what it looked like on paper.   

You can do lower end, you just need to screen the hell out of your tenants (shoot for old people on fixed income, they don't move much), and just know that that kind of property is hands on.  I still remember one calling me when I was on a date on a Friday night bitching me out because the neighbor (who was not my tenant) was shooting off fireworks...like kept calling, F'ing up my night.  Plenty of stories like that, you wind up being a whole lot of their income, so they think you owe them something.  If you self manage the lower end stuff, just know they do NOT think like we do.

I got knocked in the dirt in 2007 and my first rehab when I got back in the game was a $14k purchase.  Absolutely nothing wrong with starting small...

If you are thinking of lower end property read "The Section 8 Bible"  it's a great perspective on how to handle tenants at these lower price point properties.

And remember "Risk is the likelihood of not achieving your goals".

@Mark S.  

I have same goal and have been doing it about 8 years. It is possible! Figure out a formula that you are happy with and use it. that is what I did. Once you figure out the formula that will work for you, buy home #1 and then duplicate it! The first few will take th longest and as your skill level increases, it will duplicate faster!

As for your questions:

1.) Should I just jump in when I find a "good deal," and modify my income goals as I progress? YES! Always be willing to modify your goals as you achieve them. Goal Achievement is definitely not a straight line! There will be many turns, u-turns, hills (up and down), mountains, bridges and stepping  stones to get you there.

2.) Would you start with turnkey out of state investing if you're a new investor? Depends a lot on your personal situation. I did out of state but not turnkey but it is not for everyone. Many systems and things have to be in place to do it.

3.) Regardless of where you start, would you want all your properties in the same state r multiple states (to diversify)?  Again, depends on the situation and you goals and how many homes you get to.

4.) What other advice would you give to someone like me? Educate yourself on you retarget market, find a reia or two in you rare to attend and start looking for deals and make some offers! ACTION WORKS! 

Hope this helps ya!

Happy Investing!

@Mark S.   

from my experience(s) I would be looking at commercial mixed use NNN & then throw in some Contract for Deed deals to make it really interesting.

Most of our smaller ones are very profitable & pay >20% p.a. Net & require minimal involvement. 

If this aspect of REI interests you I would ping Joel Owens & tap his expertise ......

good luck

@Pat L. Don't you think commercial NNN mixed use is a bit complicated for a beginning investor?

Originally posted by @Mark Ferguson:

@Pat L. Don't you think commercial NNN mixed use is a bit complicated for a beginning investor?

 Not at all IF he consults with someone with Joel Owens' expertise, (& isn't that what BP networking is all about??).

I admit I fell into it & struggled somewhat but it has been a great opportunity. I have found the ROI & demand to be exceptional & not one vacancy in 8-10 years. One tenant had a new roof ($18,000) installed at his expense, (he just wants first refusal if we sell).

Furthermore, NNN &/or CFD doesn't have the multi-unit tenant/maintenance drama that he will not have the time for at this stage of his Corporate career. Sure he could buy into distancing himself with a PM but we all know how effective/expensive that can be.

Thanks, everyone that's posted so far on this thread.

I made an offer not too long ago on a duplex and got beat by $3,300 on the offer price. Other investor paid $100 over asking price, all-cash.

Found a nice little 2/1 SFR that I'll be taking a look at shortly. The numbers aren't as good as those for the duplex, but I'm just eager to get something under contract for crying out loud.

I'm going to start getting more active looking on Craigslist, too. Something's gotta give!

@Mark S any luck yet?

I'm curious too after having read this thread.

If you haven't purchased yet--try going to a local REIA club meeting. Meet local investors. Someone might be selling something "off the market". That's how I found my first two purchases.

@Mark S.  

I think that $20,000 in passive income over 20 years is a phenomenal goal.  Most people never get there, even though I think it is extremely doable.  

 BUT, I think that you are thinking about the path to getting there in the wrong way.  You are ignoring the power of compound interest.  In your post you state that you would like to generate an incremental $1,000 per month every year over the next 20 years.  In my opinion, this is a herculean feat.  Assuming that you average a very solid 10% return, you'd have to invest $120,000 in the first year to get $1,000 per month.

Let's look at it this way instead.  If you manage to invest $40,000 in Real Estate in the first year and achieve a 10% return on that $40,000, you've now got $4,000 or $333.33 per month.  That's not even close to the $1,000 per month that you stated in the original post, but continuing along this path will get you to your goal of $20,000 per month in 20 years, here's how:

After year 1 you have invested $40,000.  The 10% return on that $40,000 nets you $4,000 in cash, or $333 per month, which you reinvest.

Next year, you add another $40,000 to your investment for a total net worth to start the year of $84,000.  This $84,000 returns $8,400, or $700 per month.  You again reinvest.

This process, repeated over 20 years, will get you to just over $240,000 per year in passive cashflow, your stated goal, but doesn't require you to achieve the near impossible feat of generating $1,000 per month in your first year.  If you are a superstar on that kind of level, you should aim for $20,000 per month in just 11-12 years!  

Hope this helps - please do not be discouraged by the gargantuan struggle of attempting to generate that kind of cashflow in just one year!

As a follow up - I would definitely do this through Real Estate, and based on your description, I assumed that $40,000 per year in incremental investments is very reasonable for someone with your corporate experience (likely earning a high salary).

Funny... I just posted a similar topic asking for feedback on my goal and plan.  It's similar to this OPs goal but smaller: $5k-$8k in 10-15 years without touching cashflow in the interim years.  In other words, I want to build a portfolio that gives me the option to generate an inflation adjusted $5-$8k in ~10 years.

My strategy is to buy use 15 year mortgages to houses whose rents are (at a minimum) enough to cover the PITI and maintenance (and allowances).

I'm working with an experienced REI agent and we seem to be able to find solid candidates... I expect to make my first offers in the next few weeks. My goal is to close on one this year and at least two in 2015.

I believe! :)

PS - My other thread: http://www.biggerpockets.com/forums/88/topics/153870-rental-portfolio-goal-and-structure-feedback

@Greg P.  Throw dozens of offers out.  There is no commitment unless it is accepted and you close escrow.  It is good motions to go through.



I am in the Lexington area and have been in REI since 2003. If you have any detailed questions. To help you pull the trigger feel free to message me or you can even call.

You have posted a very tall order for your goals. I am not saying it can't be done but it will really take a strong focus on your part. 

I am trying to get to $60K in "passive income" (usnig PM) within the next 6 years. I even put a calendar entry in Outlook to remind me to retire that day. You know, just in case I forget.

Will be harder to do since I will have to do out-of-state investing exclusively. Basically that assumes a 10% ROI on each dollar invested and $600,000 invested by the end of the 6 years. That's hard, but not impossible, I think...

Originally posted by @James Park:

If your stock market portfolio is valued at $3.34M, you can withdraw $133,600/year for 25 years and have nothing left at the end.

This isn't accurate.

Originally posted by @Kurt K. :
Originally posted by @James Park:

If your stock market portfolio is valued at $3.34M, you can withdraw $133,600/year for 25 years and have nothing left at the end.

This isn't accurate.

I think the inaccuracy is the last statement "nothing left at the end." The numbers seem to be referring to the 4% rule which is the "Safe Withdrawal Rate" for retirement assets ($133k / 4% = $3.34M). The safe rate (a) adjust for inflations and (b) has a very high probability of NOT depleting assets through volatility. So, it's a portfolio that is VERY UNLIKELY to have "nothing left at the end" after 30 years. In fact, in 95% (99%) of back tests there will be assets after 30 years and it should last much longer. Of course, caveat emptor! :)

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