All Forum Posts by: Lucas Mills

Man, this is so me, except the whole "actually have investment properties and have already quit your job" part.

Disenfranchised is such a perfect word to describe how I've been feeling over the course of the past year or so. I've only been working as a physical therapist assistant for about 3 years now, and I already want to quit.

Don't get me wrong; I love my job. I really do. I couldn't think of a better way to pass my time each day, as it relates to work. I get to move around all day and interact with people. I enjoy being a "coach" of sorts and seeing people get better.

But, I want more. Specifically, I want more time for myself. Right now, I only get a couple weeks of vacation per year, and I just want more time and more freedom. I also don't want to feel like I have to work if I don't want to, any given day. In general, I want financial freedom. And not anything extravagant, but to simply replace my current monthly income with that from rental properties would be great! We're talking 3k/month after taxes. That's 20 units cash flowing $150/month, which I think is feasible within the span of 10 years or less.

Additionally, I am growing tired of the corporate attitude. Every so often we have to meet for an "employee development" review, and we are required to set personal goals for ourselves. It's insulting that someone, somewhere thinks that we, as employees, will buy into this crap and feel that our employer truly has our best interests at heart, when in reality, they only care because a happy employee is a productive employee. It's ironic that their approach is having the opposite effect, at least on one employee (me), because I value keeping work and my personal life separate. I just really want to work for myself and skip out on all of the pointless, bureaucratic bs.

@John Leavelle

Thanks for the reply. I didn't consider appliances -- we're primarily talking refrigerator, microwave, and oven, right? Doesn't the tenant usually bring their own washer/dryer?

Also, those other things you mentioned are good to keep in mind. I'm hoping that, barring some kind of unforeseen issue with the foundation or sewer lines (or something else), the additional 4k I tacked on should be enough to take care of those things.

I know there are a lot of unknowns at this point, but based on what is currently known, and assuming that there aren't any other significant issues requiring immediate and costly attention, do you feel that this is potentially a good/manageable rehab project for a first-timer, with good performance as a rental property given the potential for cash flow?

Hi -

My goal is to replace the income from my w4 job (about 3k/month after taxes) with "passive" income from rental properties. If I cash flowed $150 per property, this would mean that I would need 20 properties to meet my goal.

In my town, it seems that I'll need about 20k - 30k per property (down payment, rehab costs, etc.). This will of course vary, but that seems to be the "sweet spot" for properties of a certain price range that cash flow in my city (usually less than 50k if single-family home, or less than 100k if duplex).

I'm looking at a hypothetical property right now which essentially meets this criteria, and would require $20,600 upfront. I have almost exactly 20k in my bank right now. Granted, I have some tied up in the stock market, but I'm considering that as money that doesn't exist to me for this purpose because I'm not ready to sell my shares.

So, I have 20k. Obviously, I cannot (or should not) empty my entire checking account to purchase a property. This is unwise for several reasons, including

1. Not having any extra cash to cover unexpected costs associated with the property

2. Not having any extra cash to cover unexpected costs associated with my life (car needs repair, lose my job, etc.)

That said, I feel that I need to save up to approximately $40,000 before making this kind of a purchase. Doing so will give me the following:

* $20,000 for property acquisition

* $5,000 for unexpected expenses related to the property acquisition

* $10,000 for emergency fund (approximately 6 months of living expenses)

* $5,000 for liquid spending, bills, etc.

In other words, at least 15k would remain in my bank account after the property acquisition.

Here are my questions:

1. Is 40k a reasonable amount to amass given my goals? Is it too much or too little?

2. While I am saving up to 40k (or whatever amount I determine to be appropriate), what should I do with my money? As I said, I currently have 20k just sitting in my checking account -- should I be investing this with a short-term strategy that will get me better returns as compared to the interest from my bank? What about being a lendor through an online service such as Propser? Any other suggestions?

3. Should I be pursuing other forms of investing, such as maxing out a Roth IRA each year? The only other thing I'm doing is matching my work's 401K for that free money, but otherwise, that's about it. Maxing out a Roth IRA each year means that would be $5,500 less that I would be able to put towards property acquisition, which is a fairly substantial amount. And in the beginning, due to compounding principles, it seems that getting a fast start is desirable. So does it make more sense to pour my efforts into real estate investing for the first few years, and then transition into a more diversified form of investing such as a Roth IRA or something similar after I've acquired a few properties, or is this unwise?

I came across this listing on Zillow. It's currently pending, but I'm doing a hypothetical analysis just to see if it would be a good deal, or not. Who knows; I might put in an offer if it becomes available.

Here is the analysis that I ran with the biggerpockets rental calculator.

Rentometer says that, based on 15 3-bedroom rentals in a 1.96 mile radius, the average rent is $881 with the median being $795. I looked at one of the houses that is supposedly renting for $750 and it looks comparable, but perhaps a little nicer than the one I am analyzing. Thus, I'm going with $700 as a (hopefully) conservative amount for rent. Perhaps this would be closer to $750 or even more with some rehab, which this property needs.

From looking at the pictures, new flooring and paint pretty much throughout the entire house seems needed. At 1,196 square feet (assuming that I put vinyl plank down in every room), I estimate about $2,300 for vinyl plank flooring, after tax. Assuming that every room/ceiling needs a new paint job, I conservatively estimate $350 for paint, also after taxes (which would purchase 8 gallons, though I'm guessing more like 6 would be needed).

Also, it seems that new cabinets are needed, as there appears to be a lot of damage. I really have no idea on this one, but I would hope I could get some cheap cabinets for $3,000 or less (for the kitchen and utility room).

All told, I'm currently looking at $5,650 in repairs, but let's round up to $6,000 even. And this is just for the things that I'm able to see in the pictures.

If the roof doesn't need to be replaced just yet, and the HVAC system is in working order, what other things might need work which would quickly add to the estimated rehab cost? I'm going to round up to $10,000 to account for the unknown factor.

So, based upon all this as well as the analysis that I linked to above, what do you think about this deal? Are my estimates of the rehab conservative, or liberal? Am I somewhere within the ballpark as it relates to my assumptions as to what probably needs to be done based upon the pictures, the age of the property (built in 1986), and the other details within the listing? I am planning on doing the work myself -- in the age of youtube, is this feasible for someone like myself without any experience in rehab, whatsoever? What other considerations are there to be made before making an offer on a property like this?

@Sean Carroll @Casey Mericle @Sebastien Hitier @Jeff Sprunger

Hypothetically speaking, if I was able to get flood insurance for $50/month, does that make the deal worthwhile? Here is an analysis at that point (assuming I have moved out and have both units rented):

https://bp-v-newproduction.s3.amazonaws.com/upload...

I know that this isn't a home run by any means, and I know the immediate cash on cash isn't spectacular. But, this would allow me to live essentially rent-free while focusing on acquiring more properties. Plus, this property is in an otherwise desirable area (aside from the flood zone).

Plus, if I decide to self-manage this property, my cash flow goes up to $230 and my cash on cash goes to 15%. Maybe I self-manage this property for the next few years and put it under management at some indeterminate point in the future? The point is, for the here and now, it will eliminate my monthly rent which pay for itself in just under two years.

So given all of that, what do you guys think about the deal with those numbers?

I haven't really had a chance to do much looking into things since it's the weekend and I've been at work. But, it's likely that I won't pursue this one further.

Hi Casey -

I'm afraid I don't understand. Could you explain this strategy further or direct me to an article that discusses this? I am very new to all this and am not exactly sure what I'm seeing here.

Very true.

Ok.

Now what about as far as the property goes - would the fact that it's in a flood zone scare you off?

The seller states that during heavy rainfall, water has come up to "halfway" in the yard, but it has never reached the house. The house doesn't appear to have any water damage.

So, how might you determine whether it is worth the risk or not? Or, would you be more inclined to do the deal only if the better flood coverage ($183/month) worked with your numbers, instead of manipulating the coverage by only covering the loan amount and choosing the highest deductible?

As stated above, I can get the flood coverage down to $101/month, but it comes with a 10k deductible and only covers the amount of the loan. In a worse-case scenario, that would be a bit of a set-back, no? Or does that risk seem reasonable to you?

Sorry, a high yielding checking what? Do you mean checking account?

So put money into one account for future property acquisition, and money into another account that I'm setting aside each month for expenses. Is that right?