how to make $20K cash flow monthly
Investor · Johns Creek, GA · Member since 2014 · 22 posts · 2 votes
Hello BP members,
I own 16 free & clear rentals(SFR, worth $1.3M)) here in Atlanta, GA - C Class suburb generating $10K/month before tax C/F (gross monthly rent $16k/mo).
I am in early 50s and have a full time day job with $120K before tax salary annually. My goal is to create $20K/month before tax C/F from rentals by Aug. 2017(9Months!). I have access to HELOC of $300K, and $150K cash reserve. I am in process of increasing our rentals through MLS (mainly REO, burnt land lord,etc.) putting 20% down, average monthly C/F $300/property. I am now planning to do a delayed financing with a direct lender (APR mid 4%) to do BRRRR upto the total 10 loans which is current cap.
Can anyone suggest the best strategy to make my goal ($20K/mo before tax C/F) as early as possible ? My plan is to do the conventional loans up to the limit (10 properties), then do portfolio loan using my existing rentals.
Thanks !
Sean
This is pretty easy with where you are right now. You just have all of your holdings in the wrong place...for now. They are out of order. You have rentals worth a lot in equity, and you need to tap into it to expand. The trouble is, if you refi, you get cash but a reduced cashflow. If you are starting out at an avg of only $300/month with no debt, adding debt, and subtracting that from your 300/m cf now, may not get you anywhere.
You may need to take a step back, before you can take a giant leap forward, by selling some/most/all of your current rentals (gradually, but not slowly) to access the $1.3M as cash...then use it to flip in order to double your cash. You realize that if you went from $1.3M invested, to 2.6M invested, at only 10% return, you would be over your 20k/month requirement.
There are a number of ways to do this. I've done a few of them. They work...and faster than you think.
This is pretty easy with where you are right now. You just have all of your holdings in the wrong place...for now. They are out of order. You have rentals worth a lot in equity, and you need to tap into it to expand. The trouble is, if you refi, you get cash but a reduced cashflow. If you are starting out at an avg of only $300/month with no debt, adding debt, and subtracting that from your 300/m cf now, may not get you anywhere.
You may need to take a step back, before you can take a giant leap forward, by selling some/most/all of your current rentals (gradually, but not slowly) to access the $1.3M as cash...then use it to flip in order to double your cash. You realize that if you went from $1.3M invested, to 2.6M invested, at only 10% return, you would be over your 20k/month requirement.
There are a number of ways to do this. I've done a few of them. They work...and faster than you think.
Hello @Hisashi N., are you looking for more rentals or interested in flipping? If so i would love to meet up with you! Lets network!
I think you should be looking into multifamily. Sell 1 or 2 of your high value properties, combine with your 300k LOC. And use as a downpayment on a 2mil ish multifamily.
Guys,
Thanks a lot for your advices.
Joe, I am not quite following what you were telling. If you can explain with the example numbers, it would be much appreciated.
David, I will contact you separately.
Joshua, thanks for your advice as well.
Basically, I am thinking to refinance some of my existing free and clear properties.
If one property is worth $100K, then national lenders will refi upto 80% of the property value at rate of 4.5% APR or so. This equals to $80K. If I divide this $80K into 4, I can use it to put $20K down to buy another $100K house x 4. My monthly P&I for $100K for 30 yr fixed at 4.5% is ($80K new loan, plus $20K refi) is approx $500/mo. If the rent is $1000/mo, the cash flow is approx $200/mo. I can create $200/mo x 4 = $800/mo new cash flow. With the existing C/F of $600/mo from my free and clear house, my new total C/F with the new 4 houses will be $1400/mo.
Joe, do you agree to above scenario ?
thanks!
I agree with @Joshua D.! If you want to double your cash flow, multifamily is the way to go. Even if you start out with Triplexes and Quads, you will quickly find that using your HELOC and selling your highest value free and clear properties, you will be able to use leverage to increase your portfolio and your cash flow. You are also in great position to use owner financing and a decent rehab budget to do bigger multifamily deals (10+ doors)
@Mark Allen is spot on. Also, I remember hearing in a podcast a while back that some lenders will let you put up your existing portfolio as collateral. That way you would not have to sell properties or take out a cash out refi!!
You Were asked a question higher up. Just tagging you as I am curious of your answer as well.
The claifying comments seemed that he is indeed cash flowing well. However to get another 10k of rent at 200 a door is still like 50 properties that you have to buy in 9 months. What is that like 6 a month! I still would vote to find 2-3 good multi family deals.
Thanks @Joshua D. for tagging me. I never realized the question above was asked of me without it.
Here goes. First, as I mentioned above, you have your REI in reverse order. You flip before you buy Holds using the profits from the flips to first expand your "usable" cash to invest, then to buy the Hold properties.
Let me add I wouldn't buy multi-family to hold. They are up/down with their CF because their expenses are up/down. If you want $20k/month when you retire, you want it every month...not just some. I would (and do) buy NNN's instead.
Here are the steps to "Victory":
1 - Sell about $800k worth of your $1.3M ARV Holds (I said above you need to step backwards first)
2 - Use cash to buy/rehab/flip at about 20% profit
a - $800k--->$960k
b - $960k--->$1,152k
c - $1,152k--->$1.38M
d - $1.38M--->$1.66M
3 - Use $1.66M as 20% DP on NNN worth $8.3M
4 - 80% mortgages =~ $552k/year
5 - Assume remaining Holds from #1 ~ $500k and leaves CF of about $4k/month ($16k/month left)
6 - Need $192k/year to cover remaining $16/month in CF
7 - NNN needs to cover $750k/year
8 - NNN worth 8.3M @ CAP Rate of around 9--->NOI (=CF on NNN) = $750k
9 - $20k/month achieved = Victory
@Hisashi N., you could just speed up the use of your already winning formula.
ie. Paying an average ~$40k, but successfully having them appraise at ~80k average?
Why not just keep doing that - more often? eg. Since you started this thread 5 days ago, have you bought at least another ONE (and submitted TEN other Offers)? Ramp it up!
So, another 33 properties, averaging $300/m return, will get you the other $10k/m! Congrats...
Thanks @Joshua D. for tagging me. I never realized the question above was asked of me without it.
Here goes. First, as I mentioned above, you have your REI in reverse order. You flip before you buy Holds using the profits from the flips to first expand your "usable" cash to invest, then to buy the Hold properties.
Let me add I wouldn't buy multi-family to hold. They are up/down with their CF because their expenses are up/down. If you want $20k/month when you retire, you want it every month...not just some. I would (and do) buy NNN's instead.
Here are the steps to "Victory":
1 - Sell about $800k worth of your $1.3M ARV Holds (I said above you need to step backwards first)
2 - Use cash to buy/rehab/flip at about 20% profit
a - $800k--->$960k
b - $960k--->$1,152k
c - $1,152k--->$1.38M
d - $1.38M--->$1.66M
3 - Use $1.66M as 20% DP on NNN worth $8.3M
4 - 80% mortgages =~ $552k/year
5 - Assume remaining Holds from #1 ~ $500k and leaves CF of about $4k/month ($16k/month left)
6 - Need $192k/year to cover remaining $16/month in CF
7 - NNN needs to cover $750k/year
8 - NNN worth 8.3M @ CAP Rate of around 9--->NOI (=CF on NNN) = $750k
9 - $20k/month achieved = Victory
As much as I agree this works for some, what OP is doing is working for him, he just needs to learn to scale it better. Completely changing his niche because ''that's where the money is at'' is pure greed.
Learning to flip and then learning commercial real estate is not only risky but extremely hard, extremely hands on and also not worth the time for him frankly. Flipping and doubling 800k in flip profits will take him years and he already makes 120k/y from his stable job taking 0 risks.
I'm not an experienced landlord but investing in what you know is the first rule of investing.
Thanks @Joshua D. for tagging me. I never realized the question above was asked of me without it.
Here goes. First, as I mentioned above, you have your REI in reverse order. You flip before you buy Holds using the profits from the flips to first expand your "usable" cash to invest, then to buy the Hold properties.
Let me add I wouldn't buy multi-family to hold. They are up/down with their CF because their expenses are up/down. If you want $20k/month when you retire, you want it every month...not just some. I would (and do) buy NNN's instead.
Here are the steps to "Victory":
1 - Sell about $800k worth of your $1.3M ARV Holds (I said above you need to step backwards first)
2 - Use cash to buy/rehab/flip at about 20% profit
a - $800k--->$960k
b - $960k--->$1,152k
c - $1,152k--->$1.38M
d - $1.38M--->$1.66M
3 - Use $1.66M as 20% DP on NNN worth $8.3M
4 - 80% mortgages =~ $552k/year
5 - Assume remaining Holds from #1 ~ $500k and leaves CF of about $4k/month ($16k/month left)
6 - Need $192k/year to cover remaining $16/month in CF
7 - NNN needs to cover $750k/year
8 - NNN worth 8.3M @ CAP Rate of around 9--->NOI (=CF on NNN) = $750k
9 - $20k/month achieved = Victory
As much as I agree this works for some, what OP is doing is working for him, he just needs to learn to scale it better. Completely changing his niche because ''that's where the money is at'' is pure greed.
Learning to flip and then learning commercial real estate is not only risky but extremely hard, extremely hands on and also not worth the time for him frankly. Flipping and doubling 800k in flip profits will take him years and he already makes 120k/y from his stable job taking 0 risks.
I'm not an experienced landlord but investing in what you know is the first rule of investing.
Investing in what you know, simple because you know it, isn't a good rule though, if what/where you are investing doesn't work well. You can put lipstick on a pig, and it still oinks.
@Joe Villeneuve what loan terms are you using for your commercial loan? Is that what youre seeing in the marketplace? Are you really finding commercial NNN returning 12% cash on cash?
@hisashi - i wouldnt sell your current portfolio, youre making good returns. I would leverage them and buy more. Without using joes strategy i dont see you doubling your takehome without taking Joe's drastic action.
@Joe Villeneuve what loan terms are you using for your commercial loan? Is that what youre seeing in the marketplace? Are you really finding commercial NNN returning 12% cash on cash?
@hisashi - i wouldnt sell your current portfolio, youre making good returns. I would leverage them and buy more. Without using joes strategy i dont see you doubling your takehome without taking Joe's drastic action.
7-7.5%, 30 years
@Joe Vileneuve,
thanks a lot for your explanation ! Now I understood. However, please advise what property type are you referring to when you say rehab/flip for $800K to $960K, then $960K to $1,152K and so on. Are you refering to commercial (Multi unit apartment complex) ??? I have only rehab experience on SFRs (My most expensive rehab cost is $50K). Also what time frame are you reallistically thinking to increase the $800K to $1.66M ??? Thanks for your advice.
@Brent Coombs,
I have one in under contract (MLS) closing this Friday. I have been only looking MLS. Maybe I should start direct mail marketing again(I have done this about a year ago for 3 months period, about 900 post cards, then gave up...). But balancing my full time job is a challenge !
I'm referring to SFH. Those numbers represent the number of dollars invested and returned with "friends" (profit) each time you use them. Depending on the market you are in, those amounts can buy/rehab anywhere from 1 property (CA for example) to 12 properties (SE MI for example). Sorry, I should have explained that.
@Hisashi N., ha! Very good. I like your "I am in process of increasing our rentals through MLS (mainly REO, burnt land lord,etc.)" approach. You need to have the right Realtor/s on your side who will bring all these type to your attention. You may need to set time aside from work if there are Sherriff's (or other) auctions coming up during the working week, or you need to have your Maximum Allowable Offer/s worked out in advance for someone to represent you at these auctions. Just make sure your net $300/m per door (or whatever number you settle on) remains your focus when deciding your MAOs. All the best...
thanks guys for your replies!
@Tony Nguyen, I think your calculation is missing debt service.... In option1, $20K/mo CF is before paying debt service, correct?
By the way, I am closing on my 17th SFR with 20% down this Friday!
Purchase Price $100K
$20K down,
$5K closing cost,hopefully $5k repair (out of pocket is $30k)
$80k loan (30 yr fixed, 4.125%, $385/mo P&I or so)
Rent $1100/mo
$400/mo or so CF after PITI, 8%vacancy, 5% maintenance, 10% Mgmt)
Cash on cash return is 16% or so.
Plus $3000/yr or so depreciation, to reduce taxable income to $2k from $5k.
not bad....
Step by step. SFR
@Hisashi N. it sounds like you are in the 3rd quarter up by 50 and you want to start throwing hail marys. I am sure you have a reason for the 9 month time frame and the 20K a month but what you are doing is working. Since money isn't the issue start marketing more to get more leads/deals. I will assume your 16 paid off houses bring in 1,000 each and because you have no debt your expenses are roughly 25%. That means you are at $12,000 a month. If you are taking on debt for your next 8,000 that means you need another 16 houses, 16 houses / 9 months means you need 1.77 houses a month. Start advertising and hustle! You could also look into some small multi-family a 4plex would certainly speed up the process :D
Thanks for the suggestion in small multi family. I have set this time frame to get me going faster....