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.
Investor · Macomb, MI · Member since 2013 · 654 posts · 115 votes
13y
@Lee Melvin , SFR. Although I purchased my first property in April of 2011, I have bought 4 more since July of last year all from the MLS. Deals in my area are not dead just because they are on the MLS.
@Gary Kurtz All cash deals. 4 were bank owned and my most recent was owned by a landlord retiring but all were listed on the MLS.
I'm not going to go into my cash flow numbers exactly but It took me a year to get the type of cash flow you are talking about assuming you mean after property taxes and insuracne but before income taxes. Well, two years I guess because I had a year gap from my first purchase to my 2nd purchase. But from my 2nd to 5th purchase was an 11 month time span.
I only have 4 occupied right now and an out of pocket expense of $99K on those 4 properties. My gross monthly income on them is $3081 before property taxes, property insurance and income tax. I did not finance my purchases.
So my gross ROI is almost 37% and my properties will break even in about 3 1/2 years depending on repairs. Since all my properties were basically fully rehabbed after I bought them, I'm not anticipating too many repairs unless I get a disgruntled tenant.
No my properties are not in Detroit and my most expensive project was just over $29K TOTAL Costs. My first and least expensive was $18K which only needed a furnace, hot water tank and paint. Total means purchase, rehab, permit fees, holding costs, closing costs and so forth.
Two are rented at $750, one at $850, one is a land contract at $731 a month and the buyer pays the insurance seperate, and the current one will be rented at $750.
I do not include any utilities in my rent. Everything is paid seperate by the client.
***My results are not typical though as you will see when reading posts on BP. Michigan is a different animal than most areas across the nation right now and I get my hands dirty from time-to-time to keep my costs lower as well.
So it all depends on your strategy, market, how you plan to purchase and available capital in the end. As you see, all of us have different scenarios.
***OOOHHH.. and remember I started buying before the market started quickly jumping up. Properties I paid $10K for last year are now $15K+ before rehab so this will affect your time frame also.
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.
That's awesome...that's about 30% cash-on-cash returns, which is a lot better than the typical investor will achieve (actually, a lot better than what even experienced investors will generally achieve).
You certainly shouldn't get the OP's hopes up that he can achieve that in today's market... :-)