Looking for opinions on getting started. The Goal is Cashflow...

Real Estate Investing Real Estate Law
1

Hi,

I am a former lurker of the website several years ago. At the time I owned as many as 7 total duplex / triplex / single family houses. After a couple of years, we had some problems with the properties, and I hadn’t bought them quite right, so we sold 2-3 and had to short sale several, and we eliminated everything except for a single family property. Since that time we turned our house into a rental - do to the fact that we were moving out of state, and now have just the 2 single family houses.

We are currently in a new area (9 mo.), and I am looking to get back into real estate, primarily for cash flow purposes. Many people have suggested to go about it with nothing down deals and without lender financing, which makes sense since we only have about 10k in savings and I am self employed with a fluctuating income. However, due the risk that was involved the last go around, I want to start out by investing very safely, and with low risk, but with the greatest cash flow possible.

I have created a couple goals that I want to achieve by the time I am 40 (6.5 yrs). (Inspired by Hermain Cain’s 9, 9, 9 plan for taxes, even if I don’t endorse him personally.)

  • Purchase between 1-3 houses by March
  • I want to have 5k a month in passive cash flow
  • I want to have 50k cash in the bank.
  • I want to have 500k in real estate value
What is the best way to accomplish these goals? In some ways they may sound aggressive, but if I am serious and go about this the right way I think I will have to reevaluate them later.

I am currently considering purchasing a duplex on contract for $15k (should appraise for $30k) that already has 2 renters at $375 and $400 - one of which is a long term tenant. It would be 8k down and payments for 1 year. The reason to do this would be that it seems safe, the taxes and insurance would run about $125 per month and management would be $65 a month. This seems safe, good cash flow, and a good return on investment, and at the end of the year I would own it outright.

The downside is there isn’t a lot of cash to do the next deal, still seems risky for some reason, and there is a very short time frame to get this done and I feel rushed.

Is there a better way to approach this situation? If I do this deal I feel like it will hold me back from doing other deals - that could eventually prevent me from reaching my goals. How should I be going about investing, to best accomplish my goals?

What do you think about this deal. I figure that if I want to have $5k in cash flow in 6.5 years, I will need between 10-20 houses to reach my cash flow goal. That comes out to 2-4 houses I need to purchase per year - to reach my cash flow goals. I am really looking for your thoughts. I want to invest the right way, I hate debt, but want to use it effectively, and I want to have a steady cash flow.

2

If you only have $10K in savings, that leaves you with very little for reserves. If you end up over leveraging yourself, you will be forced to sell again. With really high cash flow properties, you will have more maintenance and possibly more tenant turnover compared to a newer property. I see it all the time where people buy extremely high cash return properties, and they turn out to be money pits.

Your six year plan sounds good, but it isn’t enough time to let your portfolio grow. If you want to have $5K/month in cash flow, you got to let that portfolio grow over a longer period. I don’t get why people think that income property is a get rich quick thing. It takes time to raise rents, build equity, and pay down your loan. It doesn’t happen over a few years. I have a friend that has over $10K/month in cash flow, but she has had her rentals for 30 years.

Now if you said that you had $100K to work with, then that’s a different scenario. But if you have just enough for the first property, that’s pretty risky to me. From what you said, you want to invest with low risk. But at the same time, your goal is very aggressive. Just be aware that with any aggressive investment, there are usually high risks. If I were in your situation, I would pace myself and go with a 10 year plan in mind. What’s the rush?

3

I don’t think I am neccessarily rushed I just wanted to set a goal to push for that would require focus. Last time I did this my goal was to be debt free by 30 and I had about 30k in school loans, 10k on a car, and 3.5 years to do it. I accomplished the goal while only making 35-40k a year. This time around I thought that making the goal by the time I turned 40 was a good date.

As far as being aggressive, my entire outlook is to not over leverage myself, I want to avoid that, so in order to get $5k in cash flow a month I was figuring I needed to have:

10 Properties @ $500 a month cash flow = $5k or
20 Properties @ $250 a month cash flow = $5k or
35 Properties @ $143 a month cash flow = $5k or some variation

With home prices the way they are, I was figuring that it would be possibly to achieve this goal, in order to get there I would have to buy between 2-6 properties per year to hit my cash flow numbers. My goal doesn’t have a specific amount of cash flow in mind for the first 5 years, I can be re-investing part of the cash flow to pay down mortgages on other properties to get to my desired cash flow by 40.

Obviously I wouldn’t be able to purchase 100% down on every property. However, the above scenario would be 100% free and clear. Between no money down deals and potentially using the cash flow to help finance later deals, I was hoping to have about 5 homes paid for in 5 years, at those numbers it seemed realistic to achieve $5k in cash flow. Now I may not be there in 3-4 years, but the hope would be, in 6 years I would have made enough in rents and such that I would be close to achieving that number.

Just to be clear, I am not looking for a get rich fast system. Last time around my properties were more expensive and had less equity. That also meant lower cash flow, and vacancies would kill my profit margin. This time around I was going to focus on lower priced homes and duplexes with the goal of a much higher cash flow margin.

4

Looking for opinions on getting started. The Goal is Cashflow…

I, too, think your plan is too agressive and too risky with no cash on hand for the inevitable emergencies.

I don’t see your problem as a cash flow problem, but rather, as a working capital problem. Where are you going to get the cash to buy your properties. If you are looking at 15K - 20K properties, then you need to generate at least 15K per year in working capital.

Maybe, you could wholesale 1-2 properties a month for around $3K each. In a year or less, you could have $20K to buy your rental outright and still have your $10K for reserves. Keep repeating every year until you have the number of free and clear properties you need to generate your desired monthly cash flow.

5

There’s nothing wrong with being aggressive as longs as its done properly. If you’re wanting passive income (cash flow) then you need to start educating yourself on subject-to and wrap mortgages. Marko has a great course on it and I stongly reccomend his course strongly. He’s a “No Bullshit” guy, unlike alot of these other “scam-urus” out there.

I’ve been in this game for over 15 years and seen alot of guru crap. I’ve wholesaled, fliped even built and developed. Nothing out there will create wealth like Sub-to, BUT its not a get rich quick program. 5 years doing sub-to you can retire. Compounding % is remarkable.

6

Have all kinds of advice and yet have none because you touched on your situation and that’s it. First of all, where in the heck are you going to do this? I know it isn’t in my market area, when we deal in things at those prices we are talking cars not real estate.

You say your self employed but don’t say if you have excess to apply to your investing. You don’t say how many available hours you can dedicate.

And just like others, if you are in a decent area, I would advise you to take up wholesaling to build reserves and along the way you will run into two other deals, one where you can do a simple rehab and sell, or one that fits into the keeper category and that is what you do you keep it, and generally if your really active you will find one or two of these a year.

I have additional activities to suggest but I don’t post them on a national site because I then see new competitors showing up and I’m the one that created them. So unless I have a long term established relationship I keep them to myself.

Maybe when I officially retire I will declare myself a guru and sell a course and make a few bucks, like that will happen. One of the early gurus courted my small investor group several decades ago, pretending to want to be one of us and then wrote his book and started selling courses and doing his speaking engagements. He didn’t even have the courtesy to thank us, could have at least sent a box of Omaha Steaks. All we got was a bunch of new investors to compete with.

7

revisit this plan after you 50K in the bank. Buying cash flow properties with only 10K in the bank is just naive.

8

Some of the advice in this thread makes me nauseated.

Use creative finance and add a few properties a year while NOT taking money out of your “business” account for living expenses. Dont worry about what they are “worth” just focus on maintaining them and selecting good tenants and keeping them happy. As long as the porfolio is paying for itself overall in the early years you will one day have a good chunk of monthly cashflow once you pay some off or refi them for increased flow.

9

[QUOTE=Brandon (NE Indiana);882932]Some of the advice in this thread makes me nauseated.

Use creative finance and add a few properties a year while NOT taking money out of your “business” account for living expenses. Dont worry about what they are “worth” just focus on maintaining them and selecting good tenants and keeping them happy. As long as the porfolio is paying for itself overall in the early years you will one day have a good chunk of monthly cashflow once you pay some off or refi them for increased flow.[/QUOTE]

While your nauseated, try not to forget that all the creative no money out of pocket deals you put together, are the same deals that people with cash dont want, and someday when you have the means, you wont screw around with terms deals either (even if you think you will).
Eventually, price vs value will be the only thing you care about. The reason for this is simple, having equity (money) in a deal buys you the time to work through the problems that are inevitable, and unavoidable.

10

[QUOTE=AmotoXracer;882951]While your nauseated, try not to forget that all the creative no money out of pocket deals you put together, are the same deals that people with cash dont want, and someday when you have the means, you wont screw around with terms deals either (even if you think you will).
Eventually, price vs value will be the only thing you care about. The reason for this is simple, having equity (money) in a deal buys you the time to work through the problems that are inevitable, and unavoidable.[/QUOTE]

Maybe. However, having my money in my pocket instead of the deal I did in August helped me work through the problems and lack of income due to evictions in 2 of the 3 units and having to rehab one of them.

In my immediate area in NE Indiana there doesnt seem to be anyone wanting small Multi-Fam properties. So either Im an idiot or Im buying when everyone is selling (or not wanting to buy). That has kind of worked out ok for Warren Buffett…Im looking to own this stuff for the long term so my ROI will one day speak for itself.

I will say that I agree with you that one day I will have the cash (or a line) to acquire and re-postion properties and the best price will be my focus. But ill get there by building equity in highly leveraged deals now.

No disrespect meant with my differing opinion…it is what is.