I am so excited and ready to begin my real estate journey and very happy to have found this community. I have saved up $200k that I am ready to invest with the goal of being able to leave my job so i can begin a new career risk free as a therapist/healer. I live in SF and have begun making relationships with property managers, contractors, agents and lenders. My hope is that I can learn if my goal is reachable and how you would play things out in this situation. Looking forward to it!
Current Situation:
30 years old
$275k/yr income
$3k month rent (option to move home to be rent free)
$200k to invest in real estate
Goal:
$5k/month cashflow to quit job in 4 years or less
Ask: Is my goal reachable? What strategy would you implement with this situation?
I'm not following your plan here, @Sean Winters. You're going to quit your current job on ~20% of your current salary? That doesn't seem reasonable. That said, if you were to focus on value-add MFR properties in a good cash-flow market, I think you could get to $5k/month. Since you're focused on cash flow, you'll most certainly have to look outside the Bay area. With $200k you're starting from a strong position.
I'm not following your plan here, @Sean Winters. You're going to quit your current job on ~20% of your current salary? That doesn't seem reasonable. That said, if you were to focus on value-add MFR properties in a good cash-flow market, I think you could get to $5k/month. Since you're focused on cash flow, you'll most certainly have to look outside the Bay area. With $200k you're starting from a strong position.
@Jaysen Medhurst thx for the reply Jaysen. I won't quick my job until i get to $5k/month cash flow. Curious on how you would plan out a strategy to get there with a $200k starting point.
@Sean Winters, most investors like to see ~$150/unit/month in cash flow. So, to get to $5k/month you need ~34 units.
It's unlikely that $200k will buy enough units to get you there right away. I would focus on value-add opportunities, specifically 5+ unit properties where you can force appreciation. You then refi to recapture your capital and do more deals or sell and use a like-kind exchange to step up to a larger deal.
This also assumes you only use the $200k that's saved up. With your income you should be stockpiling cash to do more deals. If you could save up an additional $80k/year for REI, you could probably hit your cash flow number through straight acquisitions (no value add). That would be a very modest 10-12% CoC ROI.
There are plenty of articles and webinars here on BP to get you started, @Sean Winters. I really like Frank Gallinelli's Book What Every Real Estate Investor Needs to Know About Cash Flow...
Then you really need to put in the time analyzing deals. Try to do 3-5 a day. You gotta get the numbers in your bones.
$200k is good starting point and gives you some options. You'll definitely find better cash flow in the midwest versus California. Do you feel comfortable investing out of state?
A big question to ask is how comfortable are you with leverage? In the midwest, you could probably find a $50K house that rents for $800 a month pretty easily. If you pay cash for those houses, you'll need about 112-14 or so to hit your $5K a month goal. That means you need to save and invest another $400K over what you have already. Can you do that in 4 years?
You have a high income, so you could easily qualify for mortgages as well. If you were willing to carry some debt after leaving your job, you could probably do it faster than 4 years, but you'd need more like 30-40 houses based on my example. Are you willing to leverage?
You also may find you like real estate so much that you won't want to stop after you've hit your goal.
It's like what @Paul Shannon said. If you are wanting to run fast, using OPM is one of the best ways to reach your goal.
Most people playing this game do not have $200k saved up and a high paying job, so you have a strong advantage. You might be able to buy them outright without leverage and be able to save up to buy the next one.
It will also depend on the type of houses and the work you are willing to put into it. Turnkey can range from $100-$200 in cash flow, when leveraging debt. You'll also realize higher returns in lower-class neighborhoods, but bear the risk of theft, damages, etc.
The more value you bring to a community, the more return you will receive. Lower-class neighborhoods need good landlords, and distressed homes need to be rehabbed.
To do the math:
Goal: $5k/month Avg Income/Door: $150 Total Units Needed: 34
Home Price: $50k-$100k 25% Down: $10k-$20k
Year 1: 4 doors (Assuming most first time investors will want experience, before jumping all in.) = $600/month
Year 2: 8 doors = $1.2kmonth
Year 3: 10 doors = $1.5k/month
Year 4: 12 doors = $1.8k/month
Total monthly income = $5,100/month
Real Estate is a long game, where you don't realize actual returns until later on. Along the way you'll hedge against inflation with the appreciation of the home as well.
Once it's paid off, the home's monthly income will skyrocket from $5.1k/month to $27.2k/month ($800 rent/unit)