Fayetteville, NC · Member since 2013 · 22 posts · 0 votes
I graduated University in 2009 and at the time my goal was to travel and see the world. After this winter 5 years later I will have accomplished my goal. Now my new goal is building cash flow of 1.5-2k from rental properties so I can quit my day job if I wanted and focus on my next goal in life.
I would like to be able to accomplish this in 5-6 years. Starting next August I will be moving to the Gulf where I can save 25K (conservative est) a year to use to invest with. I will most likely be an out of state / country investor so will be focusing on where the numbers and outlooks are the most promising for buy and hold. I will have roughly 1 month off in the Winter and 2 months off in the Summer to travel to the US to look for properties and do all or most of the preparation and ground work.
With that said, is my plan too ambitious? Any recommendations or strategies would be most appreciated.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
13y
$2K a month or a year? Before taxes or after?
I'll assume $2K a month before taxes. $24K a year. At a 10% cash on cash return you simply need to invest $240K. If you can invest $25K each year and roll the returns from the investments back in, it would look like this:
Year 1: Investment: $0. Save $25K, returns $0
Year 2: Invest saved $25K on Jan 1 for $25K invested. Save $25K, returns $2.5K
Year 3: Invest saved $25K plus $2.5K returns on Jan 1 for total of $52.5K invested. Save $25K, returns $5.25K
Year 4: Invest savings plus returns of $30.25K on Jan 1 for total of $83K invested. Save $25K. Returns of about $8K
Year 5; Invest savings plus returns of $33K Jan 1 for total of $116K invested. Save $25K. Returns about $12K.
Year 6: Savings plus returns of $37K Jan 1 for total of $153K invested. Save $25K. Returns about $15K
Year 7: Savings plus returns of $40K for total of $193K invested. Save $25K. Returns about $19K.
Year 8: Invest savings plus returns of $44K for total of $237K invested. Returns about $24K. GOAL!
Now, the fallacy here is that you can actually get all this money invested. Small increments are hard to invest so you may have to save up larger lumps and invest when you can. But the rough number is about right.
If you can manage 15% cash on cash returns, or more, this will happen more quickly.
I'd encourage you to 1) buy properties in the same area, and 2) move there, and 3) manage them yourself. That will generate higher returns, thanks to the labor you're putting in.
Residential Agent And Investor · Scottsdale, AZ · Member since 2013 · 212 posts · 83 votes
13y
You can definitely build up a solid portfolio of cashflowing rentals with 25k a year, but how quickly you can do it will be dependant on the quality of deals you find, how you deploy your capital, and how you manage the properties.
Being an out of state investor, you may want to look more towards turnkey properties that require little effort to start making income.
Your timetable will definitely shorten if you can find additional capital or if you can find a way to recycle your capital through methods like cash out refinancing or obtaining HELOC's.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
13y
$2K a month or a year? Before taxes or after?
I'll assume $2K a month before taxes. $24K a year. At a 10% cash on cash return you simply need to invest $240K. If you can invest $25K each year and roll the returns from the investments back in, it would look like this:
Year 1: Investment: $0. Save $25K, returns $0
Year 2: Invest saved $25K on Jan 1 for $25K invested. Save $25K, returns $2.5K
Year 3: Invest saved $25K plus $2.5K returns on Jan 1 for total of $52.5K invested. Save $25K, returns $5.25K
Year 4: Invest savings plus returns of $30.25K on Jan 1 for total of $83K invested. Save $25K. Returns of about $8K
Year 5; Invest savings plus returns of $33K Jan 1 for total of $116K invested. Save $25K. Returns about $12K.
Year 6: Savings plus returns of $37K Jan 1 for total of $153K invested. Save $25K. Returns about $15K
Year 7: Savings plus returns of $40K for total of $193K invested. Save $25K. Returns about $19K.
Year 8: Invest savings plus returns of $44K for total of $237K invested. Returns about $24K. GOAL!
Now, the fallacy here is that you can actually get all this money invested. Small increments are hard to invest so you may have to save up larger lumps and invest when you can. But the rough number is about right.
If you can manage 15% cash on cash returns, or more, this will happen more quickly.
I'd encourage you to 1) buy properties in the same area, and 2) move there, and 3) manage them yourself. That will generate higher returns, thanks to the labor you're putting in.
Fayetteville, NC · Member since 2013 · 22 posts · 0 votes
13y
Thanks guys.
John,
What would be your suggestions for getting the highest cash on cash return of say 15% or more?
Also, what type properties would you look at (ie purchase price / rent, SFH, Plex's etc) if trying to reach said goal of 1.5-2K a month in CF? Should I look to roll the equity and trade up?
What would be your suggestions for getting the highest cash on cash return of say 15% or more?
You'll achieve higher returns by doing more work yourself (property management, repairs, etc) and by investing in "less desirable" areas, generally meaning lower-income areas that have more risk of crime and turnover.
That said, 15% isn't an unreasonable return...it won't be simple these days, but certainly not impossible...
Investor · Macomb, MI · Member since 2013 · 654 posts · 115 votes
13y
@Lee Melvin , you can accomplish that with 3-4 properties in some markets and that will be after property taxes and insurance. Also assuming you are paying all cash.
Investor · Lucas, TX · Member since 2010 · 620 posts · 352 votes
13y
Looking back at my old spreadsheets It took me 3 years to get to $1,671 cash flow per month. Another 5 years to get to $2,333 (rents went down during the housing bubble). And finally the last 4 years to get to $5,128. By now plowing my cash flow, plus a little bit extra, into paying off mortgage debt instead of acquiring more properties this is projected to increase my cash flow to $9,084 in the next 7 years (all other things being equal).
What type properties did you buy? How much capital did you invest to get that?
If you're generating $1600/month in net cash flow, that's about $19,200 per year. If your properties are generating 10% cash-on-cash returns, then you should expect to have invested about $192,000 to achieve that level of cash flow (10% of $192,000 is $19,200).
Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes
13y
It all depends on your local conditions and the time that you buy and what kind of deal you get.
I spent about 200K cash to buy and renovate 5 SFH and 5 duplexes and my gross monthly is 5-7K, depending on vacancies. I'm having rents below market, because I rather want them full than vacant.They were all bought and renovated within 1-2 years.
But it's a labor intensive neighborhood, so it's different than a cushy middle-class neighborhood.
So, it all depends on where your risk threshold is
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
13y
In addition to your plan, I suggest considering additional creative ways you can create cash flow. You have to live somewhere when you get to the Gulf. I know it sounds cliche, but you are at an age when your living set-up can usually be more flexible. Think about taking advantage of that.
You could buy a 2-4 unit as your first purchase and live in one unit. You could buy a large SFH and live in it with roommates. Or you could convert an SFH to a higher and better use. I have a friend who converted a large ranch house in a college town from a 3/2 to a 5/2. All she did was was add a wall with door to the living room, and moved the the laundry area to free up a rec. room for the 5th bedroom. For the last the three years it's been rented to 5 students for $900/each.
When you get where'll you be living and working, keep your ears and eyes open. Ask and listen. Find out what's considered ghetto (even if it's not) and what is up-and-coming. Figure out school districts and preferred commutes. I suggest taking your time until you know what you like and don't like about the area.
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
13y
Lee: upon rereading your post, I see you are talking the big Gulf, not the US. So you would be a totally absentee landlord and living out of country? So my comments don't apply if you won't be living in the US.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
13y
You're moving to the Middle East, right? My suggestion would be to save the money and invest when you return home. Then figure out a place to live where living costs are low and rents high relative to prices. Lots of places like that in the "fly over" parts of the country.
Investing from far-away and depending on the PM and local help for every little problem will cut into your returns. Maybe it will work, maybe not. But being half a planet away means you can't easily get to the location to have a look. You can get a higher return in the right place and if you're very hands on. Getting a 10% return from a purely passive investment will be difficult.
Fayetteville, NC · Member since 2013 · 22 posts · 0 votes
13y
How much are property taxes and insurance (generally, average etc) in places like MO, TX, GA, OH.
Then would 10% for vacancy and 5% for repairs be a safe estimate?
Would like to buy a house cash for 40-60K that can rent for 800-1,000 a month. Or maybe there is better returns with plex's... A lot of researching and planning to do.....
How much are property taxes and insurance (generally, average etc) in places like MO, TX, GA, OH.
Then would 10% for vacancy and 5% for repairs be a safe estimate?
Would like to buy a house cash for 40-60K that can rent for 800-1,000 a month. Or maybe there is better returns with plex's... A lot of researching and planning to do.....
Read up on The 50% Rule to get a general idea of what you can expect expenses to be.
As for your expectations with regards to price/rent, those numbers are getting pretty difficult to achieve these days in many parts of the country. You're about a year too late...
How much are property taxes and insurance (generally, average etc) in places like MO, TX, GA, OH.
Then would 10% for vacancy and 5% for repairs be a safe estimate?
Would like to buy a house cash for 40-60K that can rent for 800-1,000 a month. Or maybe there is better returns with plex's... A lot of researching and planning to do.....
Read up on The 50% Rule to get a general idea of what you can expect expenses to be.
As for your expectations with regards to price/rent, those numbers are getting pretty difficult to achieve these days in many parts of the country. You're about a year too late...
I wont be limited to any one area. Will have the entire US to search out those deals / markets. Hopefully they will still exist to some degree when I am ready to invest.
How much are property taxes and insurance (generally, average etc) in places like MO, TX, GA, OH.
Then would 10% for vacancy and 5% for repairs be a safe estimate?
Would like to buy a house cash for 40-60K that can rent for 800-1,000 a month. Or maybe there is better returns with plex's... A lot of researching and planning to do.....
For SFR, I would say expenses run more than 50% due to property management, depending on taxes. MFR expenses will be upwards of 60% due to utility costs. Rents will compensate for this increase in expenses to some degree, and the benefits of SFR vs MFR is one that has been debated ad nauseum and is more a matter of personal preference and investment strategy.
The numbers you're looking for are definitely achievable, although you're going to be in tertiary markets or markets that don't have solid fundamentals and more than likely aren't going to see any appreciation.
I wont be limited to any one area. Will have the entire US to search out those deals / markets. Hopefully they will still exist to some degree when I am ready to invest.
The only way you're going to find those kinds of deals is to get VERY VERY familiar with one or two particular areas. Otherwise, you'll be competing with local investors who will have the inside track on all the good deals.
Investor · Nevada, MO · Member since 2013 · 70 posts · 5 votes
13y
When you guys are talking about a time frame in this thread are you talking about buying only "motivated seller" properties or does this include simply finding a property for sale that will cash flow and investing in it?
Looking back at my old spreadsheets It took me 3 years to get to $1,671 cash flow per month. Another 5 years to get to $2,333 (rents went down during the housing bubble). And finally the last 4 years to get to $5,128. By now plowing my cash flow, plus a little bit extra, into paying off mortgage debt instead of acquiring more properties this is projected to increase my cash flow to $9,084 in the next 7 years (all other things being equal).
Robert, how did you decide when to stop buying and start paying everything off? I go back and forth between which is best. Any help would be great.
Rental Property Investor · Tulsa, OK · Member since 2012 · 291 posts · 102 votes
13y
@Robert Steele and @Elizabeth S. I too am in the same boat as Elizabeth. I have such low mortgage rates on my properties that I cringe in considering converting my cash into equity but I am in search of minimizing my burden vs. maximizing my income. Until I am convinced otherwise I am leaning toward continuing to allocate extra cash toward buying more houses until the rates go up another point or two... Would love to hear your thoughts
Robert. That is not bad. 3 years to 1.6K.
What type properties did you buy? How much capital did you invest to get that?
If you're generating $1600/month in net cash flow, that's about $19,200 per year. If your properties are generating 10% cash-on-cash returns, then you should expect to have invested about $192,000 to achieve that level of cash flow (10% of $192,000 is $19,200).
I only invested $56K to acheive that. Granted they were all interest only loans at the time. SFRs btw.
The point at which to start paying down rather than acquiring happened when I decided I would have enough cash flow from paying off the properties I had rather than building up more cash flow by acquiring more SFRs with more management overhead.
Also, the market has kind of dried up this past year and good deals are hard to find. If something comes along in the future I might pick up another one or two. It doesn't have to be an all or nothing equation.
I too cringe at paying down low interest rate mortgages but when I look at the alternative places to invest out there a guaranteed 5.5% return on my money (my highest mortgage rates) looks pretty good.
Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
13y
@Gary Kurtz usually one in the same. My experience is that unmotivated sellers don't negotiate well and don't offer competitive prices because they don't need to.