Scaling Rental Properties

7 Replies

Hi everyone, I am new to the forum and to investing (I am currently working on my first deal) and I have set myself a goal. I want to have an annual income of 500,000 by 2030. Now I have the advantage of having a pretty good starter job and own a budding company so hopefully my first few down payments will be no problem, but there is my question. Based on my calculations, if I was to average $300 per unit per month, which I believe to be realistic in my area, I would need to own 1,667 units to average this paycheck. My question is, how can you scale? would you recommend buying apartment complexes or increasing the value of each unit I purchase? I ask because that is quite a few units to manage even with a property management company..... 

@Errol Alexander Dowis let’s start with what does a “good starting job” entail as far as pay goes? I think your 300 dollars in cash flow per unit is kind of high unless rents are 1000 or more per.

Think of it this way. Let’s say you can earn 10 percent return on invested capital. This isn’t horrible, it’s not great, it’s just good or average.

To get to 500k a year would require 500k/.1 or 5M invested capital. Can you do that between now and 2030? Of course you can raise money from others but then you need bette returns to cover what you’re paying them.

Value add apartments can be a good way to scale but you need some serious coin to do that and most people don’t get there in a day.

If you flip for capital and BRRRR a whole bunch of doors, 2030 isn't just doable, it's realistically too far down the road. There will be road blocks galore, but every road block has a way to hurdle it. $300/door is high = flip houses to further pay down principle for a refinance to make your $300/door. HML cost of money makes you less competitive due to cost of money = make more offers. Every problem has a solution, and there are a bunch of nay-sayers out there who will try to chop the legs out from loftier goals than their own.

Originally posted by @Errol Alexander Dowis :

Hi everyone, I am new to the forum and to investing (I am currently working on my first deal) and I have set myself a goal. I want to have an annual income of 500,000 by 2030. Now I have the advantage of having a pretty good starter job and own a budding company so hopefully my first few down payments will be no problem, but there is my question. Based on my calculations, if I was to average $300 per unit per month, which I believe to be realistic in my area, I would need to own 1,667 units to average this paycheck. My question is, how can you scale? would you recommend buying apartment complexes or increasing the value of each unit I purchase? I ask because that is quite a few units to manage even with a property management company..... 

 I'd by 10 one 1-4 unit properties with residential mortgages 1st. After you've purchased your 10 1-4 unit properties you'll need to step into apartment buildings as you're limited to 10 & only 10 residential mortgages. No way to scale to your goals without continually leveraging your cash.

Also, if you can live off your 9-5 job then you could focus your cash flow back into the mortgage to pay it down faster. Once a property is paid off, and you are no longer having to worry about principle and interest each month, the cash flow jumps quite a bit (depending on how much the mortgage was to begin with of course). So you may only need 75 properties if each is getting you $500-600 a month in cash flow (after the note is paid off) to reach your goal. I don't know how scalable that plan would actually be, but it seems like if you take all the cash flow from multiple properties and focus it on just one mortgage, get rid of the mortgage (cash flow increases) focus on the next property, ect, ect, it could start a large rock rolling down hill with ever increasing momentum to get you to the place you want to be.

But if you are refinancing to pull out cash for down-payments on additional properties then this may not work for your plan. It just of depends on which camp you are in, the more aggressive highly leveraged more upside but more risk camp OR the more conservative less debt lower risk but potentially lower reward camp.

But those are great goals you have set, good luck.

It is hard enough to net $300/door today with a 20-30% down per month. Without some deep pocket for high down it is not plausible. I know one used car dealer who retired and sold 2 dealership and bought MF $3M with cash 8 years ago. His income is about 50-60% of your goal.