you are going to be working forever if you plan on attaining this goal through single family homes.
you are going to be working forever if you plan on attaining this goal through single family homes.
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Not quite. Our plan is on track to get that in 12 years. We try to acquire 5-6 properties per year. This year we will probably end up getting closer to 9 because of all the great deals. All the mortgages will be paid up in 10-12 years. So, with acquisitions, mortgage paydowns and annual rent rate increases, we should be bringning in at least $60K per month by the year 2020.
70% of market for an sfr rental is very easy now in Vegas. We’ve closed at 64% recently. Email me and we’ll get you hooked up.
the properties you attain this year will be paid off by 2020 if everything goes according to plan and the properties you get from this year on, will not be paid for through just rental income. in order to pay off 70 properties in 12 years, is not impossible but it just seems like you will have to do more. unless you are producing loads of money from your brokerage, you will never make it with just rental income.
honestly, i don’t see it, but if you do, more power to you.
Of course you can’t pay off the mortgage just from the rentals. To do that you would have to wait 30 years for each property. That is the point. We make around $200K per year from the brokerage, not counting 2006, and another $100K from other non-real estate business income (Yes, we both have other jobs/businesses besides real estate). Over 50% of this is put back into the properties to accelerate payment of the outstanding obligations.
This is not a new concept. In fact it is a very old and established method of real estate investing. What throws people is the idea of making real estate income on appreciation alone (via flips). Unfortunately, there is an overabundance of guru material and investor “education” on the latter method and not enough on the good ole fashioned, tried and true method of investing for perpetual income through real estate.
Anyone can do this even with just 1 or 2 rental properties. For example: You buy 1 property this year. $150K SFR that can rent for $1100 per month. You put 20% down ($30K). You will have no out of pocket costs for each year as the rental income will cover it. Then you set aside $12K of your income from other sources to pay down the mortgage principal. In year 2 you put in another 10% of outstanding principal (10,800). In year 3 you pay it down another 10% ($9,700). Year 4 you pay it down another 10% ($8,750), etc. If you keep putting in 10% to 20% each year, the principal will be paid off in 12 years max. Now with a rent rate increase of only 1% or 2% per year - on year 12, you will have a free and clear income of $1200-$1250 per month. (Very conservative numbers)
Obviously, the faster you pay off the mortgages, the faster you realize a free and clear income. Now, don’t forget your “security” which is a paid off property that you can mortage, leverage or sell if you ever need a chunk of cash for any reason - emergency, college, starting another business, etc. I know what you are thinking. Easy for us, we have income of $300K plus to play with. Well, when we started 9 years ago both our jobs were only pulling in $70K combined!
Great info guys! I am in S. Cal. but as a lender I lend in all 50 states. I drove the San Fernando valley last Friday and looked at some REO fixers. basically speaking real dumps. the banks are hoping to sell them in the $320-$400 range and the cost of repairs will be at least $60-$80K. Add to that the buying, holding, selling, taxes and everything else that I don’t remember now and what is the profit margin when I will be competing against builder close outs? I also travel to Kansas and MO several times a year. you can buy and hold for cash flow or flip there with a safer profit margins both on residential and multi family. I am trying to have a team to help me with these projects since I am mostly in the office doing loans. the other thing that will be great, especially for S., Cal., is the FHA loan. I am working on a plan of buying maybe all cash, as one of you guys suggested, and put a lease option, potentially qualifying buyer in the property and then refi with an FHA loan, or just have the buyers fully approved and lined up and then start buying more. I will refine this plan even more and any suggestions are most welcome. I also drove and looked at properties in Palmdale, Lancaster on Saturday. On a 4 -5 bedroom REO fixer the bank is asking for about $160 - $170K. if an ivestor can get these with an all cash offer, purchse as is, quick close with $80K approx. then it has a possibility other wise you will be competing against builder close outs of 3 car garaqe, 5 bedroom brand new homes selling for $280K.
But it is true, the gurus do not get into the details of title, seasoning or other issues which I see in underwriting daily. I did go to some trainings and each time I brought up these questions I was politely silenced and pushed back. they mention loan programs that I would love to find out who the investor(s) is etc. I have clients who have taken these classes and they call me all the time and ask about scenarios of financing their end buyer but I do not have a solution. And I have been doing this for 20 years and I have access to many, many programs. Maybe I am being too conservative.
NO NO NO!!! This is not the way. You HAVE to buy properties that cashflow $200 per unit today with expenses that are 50% of gross rents…
Shhhhhhh! :biggrin
What Deal Hunter is talking about is how more landlords i have known or read about have gotten wealthy over time. They actually used some of their own money to INVEST in a business that would pay them over the long term.
Of course you want to buy as low as you can and build a cash flow business, but if you can afford to INVEST in the future of your business, you can make investments now (when you can’t find deals that cash flow $200 a month on 50% expenses today) that will pay you later.
Cash flow in most businesses is looked at in terms of Cash on Cash return. Yes, infinite return is good. So is 20%. 20% annual cash on cash return is GREAT when compared to the stock market and many other business projects. If i have to put down $10,000 dollars to make a property give me $2,000 a year in positive cash flow, done. That’s a 5 year break even on just the cash - without considering the appreciation of rents, property, or the principal reduction. Can you put $10k into the stock market and make $10k in 5 years? Some can. I can’t. My two theoretical portfolios of $10k each are down 24% and 18% each since last year. However, the property that I bought for $88k with 3500 in closing, zero down, and 10k in fixup was just above break even for the year - with expenses - while renting for $1050 a month - and has an ARV of $120k today. Had I put down another 9k, my position would have improved.
Equity growth from principal loan reduction, appreciation, and cash on cash return factor into my return on investment criteria as much as strict cash flow analysis…
(This should make it’s way into the landlording / rehab forum somehow, too!)