Seems very clear to me. The only ambiguity is pre-tax or after-tax.
Cash flow means after all expenses and after all debt service. Without a doubt, this is a huge pile of SFR's. With this many houses, the 50% rule is going to be the best you're going to do. If you own these houses free and clear, you need gross scheduled rents of $2,000,000 a year or $166,667 a month. Greg's profile is incomplete and hidden, so no idea where he is. Depending on the average rent, this is probably at least 100 properties, perhaps as many as $200 or even 300 if rents are very low.
If the properties are leveraged, you need a lot more. Lets assume average gross scheduled rents of $1,000 and that you can buy at $66,500. Lets assume you can get financing at 6% with 30% down for 20 years. (You're definitely not talking conventional in this scenario.) That makes your payment $333.60. Applying the 50% rule you get $166.50 a month in cash flow which is $1,998.02 a year. You need 500 such properties with such terms to get to the million a year in pre-tax cash flow. Expenses, interest and depreciation will, at first, be more than the cash flow, so there will be no tax.
Is that realistic? IMHO, not for a single person. You're talking a creating a company when you're talking those kind of numbers. And you need $10 million for the down payments.
If they were free and clear, you'd only (only!) need 167, but you would need $11 million. Given this set of assumptions, that seems a better route because you have only one third the houses and only need a million more to get there.
You say you're making $700K-one million, pre tax, flipping houses. Even after taxes, that's something like $400-600K. If you were dumping all that profit directly into buying SFRs for rentals, you could get to your goal over time. With 2-3 flips closing per month, you must have crews and employees and processes in place to make that happen. Turn your attention to building up a rental business and, yes, I think you could get there.
I don't think you get there in 3-5 years in a straightforward way. You could buy 8-10 houses like I describe per year with your cash flow from the flipping business. As the rentals come online, you can use that cash flow to buy more houses. Assuming you can buy ten such houses per year with the proceeds from the flipping business, and that you pump all the cash flow from the rentals into buying more, it would take about 11.5 years to reach your goal.
How much capital do you have? Everything is realistic if you have a pile of cash. With $20M in cash and an average 5% capitalization rate you can have your $1M/year in cash flow. Do you have that kind of coin laying around to put to work?
The only way to make this money is to work smart and hard, 40 pluse hours a week. Ask your self. Are you Commited to working the hours and a program that will get you there day in and day out ?Also are of integrity and an honest with people person? Will you make eonugh phone calls each day to make 2 offers everyday? Are you willing to help other s do the same.?
If you can say yes to each question, then yes.
Lee, what do you mean others do the same, please be more specific. Bryan, I have a good nest egg of cash, and doing 2-3 flips per month averaging 30k per flip. Any strategic ideas?
It is possible. But as Bryan said there are certain variables. Now you do not need to have $20 million in cash. You could do it with much less starting capital. But also there needs to be the supply in the market your looking at, or would you be going to multiple markets? Also would you be self managing or hiring property management company? ( this would significantly lower your cashflow but if you find a good company would allow you to purely focus on acquisitions )
You can certainly start with less, but you will need about $20M in equity roughly to get that kind of cash flow. At the very least you will need $10M or so if you want to manage rentals in da hood with closer to 10% yields.
Greg - if you are netting $90K a month. Then you could easily buy 2 homes per month cash that rent for, say, $800 month. That's $1,600/month additional each month, over 60 months that would be $96,000 gross cash flow per month.
Now of course there are many other factors, like other expenses, vacancies, etc, but your target is really not far off given your current monthly profit.
Of course I do not know your monthly lifestyle either so that may trim things down a bit if you have extreme monthly bills and a high end lifestyle.
I think a smart investor could average 15% cash-on-cash return with single family rentals, but even at that type of return, you still need $6-7M in cash.
Without that kind of cash, I doubt it's possible without getting VERY lucky...and even then, I'm not sure it's possible...
You can certainly start with less, but you will need about $20M in equity roughly to get that kind of cash flow. At the very least you will need $10M or so if you want to manage rentals in da hood with closer to 10% yields.
Agreed. I think the plan may be to keep flipping and buying rentals. Then leveraging the rentals to buy more rentals meanwhile, flipping to buy more properties. lol..
Agreed. I think the plan may be to keep flipping and buying rentals. Then leveraging the rentals to buy more rentals meanwhile, flipping to buy more properties. lol..
I know this is all theoretical, but you guys aren't taking into account lots of stuff like taxes he has to pay on his flip gains. He can't just take 100% of the cash and buy rentals.
Also, did you ever consider the feasibility/cost of managing all these rentals?
You'd need a staff and therefore many more rentals to net your number.
Your kind of number is more realistically achieved with apartments and mobile homes than SFH.
Example. Buy duplex for 40k with 10k rehab. Total cost 50k
Refi after it is tenanted ( appraisal comes back around $100k ) I do all commercial loans so my LTV is 70% which mean roughly I will pull out $67k ( 3k closing costs ) which is an increase of my original cash by 17k.
Greg, one of my long-term goals is to collect $1million/year in rent. After two years of hitting it hard I collect 60,000/month in rent. At the current pace by the end of 2012 I should be collecting 83,333/month.
To NET $1million/year exclusively from rentals will probably take a lot longer.
Matthew, that loan program you have is very sweet. I wish I could find something like that.
He said cash flow, he did not indicate specifically profit.
I looked at it like this:
$1,000,000 / 12 months = 83,334 per month in cash flow.
3 bedroom SFHs in my area are running around 40-50k and rent 1100-1200/m
So, 83,334 / 1150= 73 (rounded up)
73 * 40 = 2,920,000
73 * 50 = 3,650,000
At least between there if you're look at my amounts as far as paying cash.
Why leverage any of the properties and simply not go for f & c ownership given my scenario above? Is it because you like the low cost of funds in today's environment? With regard to taxes, are not most of you that have a large nest egg etc after years and years of success doing your fix/flips within a retirement account? I know my excuse, but why do I not see this being done very often?
Greg - if you are netting $90K a month. Then you could easily buy 2 homes per month cash that rent for, say, $800 month. That's $1,600/month additional each month, over 60 months that would be $96,000 gross cash flow per month.
This does not account for taxes which would be pretty major when taking home 1,080,000/year.
Originally posted by Steven Hamilton II:
He said cash flow, he did not indicate specifically profit.
J Scott and Bryan based their math on profit, while others have based it on revenue. That is why the numbers are so different.
What you collect in rent and what you keep from rents are two very different realities. When you say cash flow, do you mean you want to collect $1M per year and stick it in your pocket? You will have to collect a whole lot more than $1M if that is your plan.
Not to be rude, buy imo if your really making $720,000-1,080,000 a year doing flips your a damn good flipper and should focus on flips for the time being, who knows when those spreads will no longer be avilable, and if your making a million a year on flip and invest a good portion of that into rentals you should be there in no time, but a million is a ton for even a very experienced investor, so your doing something right.. just keep doing it!
The question does not have enough information to answer it properly. If you are talking free and clear product with average capitalization rates and "cash flow" using the 50% rule of thumb you will need roughly $20M in equity.
If you are mixing in flips, leverage, etc. there are a hundred other questions you would need to ask to get any sense of what it would take. Leverage tolerance, tax rates, starting capital, experience, markets served, etc.
The answer mostly depends on starting capital IMO. Until the OP answers that everyone will be talking in circles.
Seems very clear to me. The only ambiguity is pre-tax or after-tax.
Cash flow means after all expenses and after all debt service. Without a doubt, this is a huge pile of SFR's. With this many houses, the 50% rule is going to be the best you're going to do. If you own these houses free and clear, you need gross scheduled rents of $2,000,000 a year or $166,667 a month. Greg's profile is incomplete and hidden, so no idea where he is. Depending on the average rent, this is probably at least 100 properties, perhaps as many as $200 or even 300 if rents are very low.
If the properties are leveraged, you need a lot more. Lets assume average gross scheduled rents of $1,000 and that you can buy at $66,500. Lets assume you can get financing at 6% with 30% down for 20 years. (You're definitely not talking conventional in this scenario.) That makes your payment $333.60. Applying the 50% rule you get $166.50 a month in cash flow which is $1,998.02 a year. You need 500 such properties with such terms to get to the million a year in pre-tax cash flow. Expenses, interest and depreciation will, at first, be more than the cash flow, so there will be no tax.
Is that realistic? IMHO, not for a single person. You're talking a creating a company when you're talking those kind of numbers. And you need $10 million for the down payments.
If they were free and clear, you'd only (only!) need 167, but you would need $11 million. Given this set of assumptions, that seems a better route because you have only one third the houses and only need a million more to get there.
You say you're making $700K-one million, pre tax, flipping houses. Even after taxes, that's something like $400-600K. If you were dumping all that profit directly into buying SFRs for rentals, you could get to your goal over time. With 2-3 flips closing per month, you must have crews and employees and processes in place to make that happen. Turn your attention to building up a rental business and, yes, I think you could get there.
I don't think you get there in 3-5 years in a straightforward way. You could buy 8-10 houses like I describe per year with your cash flow from the flipping business. As the rentals come online, you can use that cash flow to buy more houses. Assuming you can buy ten such houses per year with the proceeds from the flipping business, and that you pump all the cash flow from the rentals into buying more, it would take about 11.5 years to reach your goal.