Just wondering, I need some motivation…
How much as everyone made within one year of their first purchase? I wanna see what my potential is. I have a 5 year goal of 10 homes. Not sure if thats too slow or not cause I don’t really know what to expect.
Well lets see some stats lets get the newbies motivated!
My wife and I do this for our full time job and need to be VERY motivated. We plan on 6 properties in the next year. We have been is business for 3 months and already have 2 active projects that will net nearly 100K (1 REO and 1 Short Sale). Good luck.
About how much in rent a month do you guys make?
JP,
I average $200 per month on my rentals. How much you make is therefore simply dependent on the number of rentals you have. 50 rentals - $10,000 per month. 100 rentals - $20,000 per month. etc. Of course this assumes no vacancies.
If you’re wanting to do this as a full time business, 10 rentals in 5 years seems quite slow to me. At that rate, it will take quite a while to generate a significant cash flow. However, everything depends on your goal and your plan. If you’re just wanting supplemental income while working full time somewhere else, then 10 rentals in 5 years might be just right.
Mike
Well I would love to make 20,000 a year, but I need to start somewhere first. How long do you think it should take to get to 100 rentals? How long did it take you? Whats a good # to be at 5 years from now?
It seems that this question must be the question of the month or something, as it has come up frequently in some form or another.
However, the answer is still the same. It really doesn’t matter what someone else has done. YOU are the key factor in determining how well, or bad, you’ll do in this, or any business.
I do agree with PM that if you are really planning on this being a full time career (fulltime meaning not doing anything else. No need to make it a fulltime J-O-B), you need more lofty goals. Maybe 2 props the first year and increase every year thereafter or something.
As to average rents, profits, etc. Averages rents vary. $200/month average may not work for you. Personally, my rent average is $300/month, and another investor in this area, his is $400/month. If your rent average is higher, you need less properties to make more $$$. I did see a flaw in PM’s comments (at least in my opinion), which was, if you are buying at 30% discount from FMV, then why would you want only 1% of purchase price as rent? Personally, I’d be looking for 1% of FMV as rent.
There are many more ways to make money in REI besides being a landlord. Since you’re wanting averages, my average for a wholesale deal is about $5K per deal, my average for a retail sale is about $25K per deal. So, if I average $300/month on rentals and I have 10 (your goal), then I make $3000/month, $36,000/year, assuming no vacancies. Or I could wholesale 10 deals a year and make $50K (or better). Or I could retail 2 deals a year and make $50K (or better).
Just some thoughts,
Raj
JP,
In my opinion, it is completely realistic to do 10 properties a year. It all really depends on how hard you’re willing to work. It takes quite a bit of hard work (and sacrifice) to do 10 properties per year.
So, the number of properties that YOU acquire is only limited by your willingness to work hard and your ability to develop and follow a good plan. Real estate investing isn’t difficult but it does require doing things right. Like any other business, the vast majority of those that start will fail, but that’s largely because they aren’t willing to do whatever is necessary to succeed.
Most of the experienced investors on this board could just about tell you who will succeed and who will not by their posts. People that pay near retail for properties will not succeed. People that buy with 100% LTV, interest only loans will not succeed. People that don’t have a reserve (either cash or credit) will not succeed. People that don’t aggressively manage their rentals (or have them agressively managed) will not succeed. People that accept a minimal positive cash flow from rentals will not succeed. It’s not rocket science, but you do have to follow proven principles if you want to succeed.
Mike
Will I succeed by my post?
Raj,
I think that you misunderstood my comment (or maybe I wasn’t very clear). I was only suggesting that a person use minimum rents of 1% of purchase price as a screening tool for which properties to look at. Personally, I must have a positive cash flow of AT LEAST 1/3 of the mortgage payment, although I actually buy properties with the positive cash flow closer to 1/2 of the mortgage payment. As you correctly pointed out, you can’t say that a positive cash flow of X dollars will work for someone because house prices vary greatly. For example, using the 1/3 rule, if I had a mortgage payment of $1,500 per month, I must have a positive cash flow of $500 or I wouldn’t even consider the property.
JP,
I think that you’re on the right track with your questions, but really get the education before you invest and be sure you do it right. Business isn’t terribly forgiving of making big mistakes.
Mike
JP, Sorry to say this but you are asking the wrong question.
The question you might ask is how much do I want to make as an investor?
Since I use a no money down strategy, I have higher mortgages, so I expect smaller cash flow. I try to cashflow 1500-2000 per unit. So if I want to make 20k, I make a goal to buy 10 units, (which I did.)
My associate cash flows at 800-1500 per year because his financing costs more due to his credit situation.
People like to hear how much an investor is making a year and if they can accept that number they want to be an investor.
With the right resources, skills and network of people you can make AS MUCH AS YOU WANT… REALLY!
When the lenders stop lending, fiond private lenders, or re-rent lease options. That is why this business is so alluring. There are so many ways to make money, that there is enough for everyone.
There are ways to lose that money too and that’s what separates the talkers from the do-ers.
So, How much do you want to make JP?
P.S. I made 23k in cash flow but the tax benefits made it oh, so much nicer.
I was a buy and hold guy but now starting easy flips.
in my first year i cashflowed -1200/yr before tax breaks. then i sold and made 70k. ;-D
second year i cashflowed 450/mo on a 16.5k investment [10% down and 90% financed on a 3 yr arm
at 3.75%]. i also bought a 2 homes at the end of the 2nd year that cashflowed 200/mo with 100% financing.
in the 3rd year i bought 4 more homes that cashflow 125 each. also sold the home i bought in the
2nd year for a 75k profit. also booked several more homes that still haven’t been built and have gone
up 10% or more since then.
now in the 4th year[counted in terms of 12 calendar months, not jan through dec].
i’m selling a home i bought 6 months ago for a 25k profit. plus i booked 5 homes using credit partners that i expect to flip and make 25-50k on each one. plus there’s a bunch of otherstuff, but i’m tired of typing
and blowing my own trumpet.
i’ve done all this while working full time.
First year I made $600 month cashflow from my 3 unit rental. I was also doing a high end rehab that would net me $140,000, however, that sale was delayed 5 months.
Second year I wholesaled one deal and made $10,000 along with the $140,000, I made $150,000 for the year, but all it did was pay off accumulated debt.
This is my third full year and I expect to net almost $1,000,000. Not by keeping my rentals, but by rehabbing them, renting them and then selling. I also only do multi units, at least 3 or more units, but I prefer 6 or 7 units at a time.
When I finish the rehab I am doing now I will net $400,000 for 6 weeks work.
The key is how much you pay for the propety. As I have written before, I never pay retail…I never pay more than 40% of the wholesale price. I am rather picky in what I buy and you must be patient.
I think 10 properties per year is absolutely realistic if you are shooting for $200 PCF per property. I just closed on my first two 2 weeks ago and already have them both lease/optioned, and through networking with a lot of investors, agents, and a GREAT mortgage guy, I have good deals upon good deals to choose from. Very few of them are GREAT deals, but the point is, I have a steady flow of opportunities from which to choose.
The best part is, I will be able to buy up to 8 cash flowing properties in the next 3 months if I want to without ever writing a check. I am focused on finding the best possible deals now though, so my goal is to have 5 closed by year end.
I hope to keep my job until next year sometime, and possibly longer. But definitely by 2007 I want to be out of the corporate crap world
Mike…(or someone else)
Could you please explain what you mean by this type of loan?
Thanks,
-Mike
If you’re asking the question, the jury may be out.
allagash,
What I meant by the quote “People that buy with 100% LTV, interest only loans will not succeed” is that buying retail and borrowing 100% (interest only) of the money to do so will result in failure. Because we have had a real estate boom, every get rich quick wannabe is now buying real estate. Dozens, if not hundreds, of new “gurus” have emerged and they all are touting “NO MONEY DOWN” strategies. Why are they touting the no money and no credit needed strategies - because they are targeting low income people who are dreaming of sitting on a yacht sipping a tall drink (complete with little umbrella). Many, if not most, of these people are low income because they are LAZY and have no drive or determination to do better. (If you doubt this, become a landlord). They dream of being rich, but they NEVER will be rich or even middle class because they are too lazy. Instead of studying or working to improve in their abundant spare time, they spend their spare time drinking, smoking dope, watching their big screen TV, playing computer games, committing petty crimes, looting (if they’re from New Orleans) etc - anything but working. (sorry, not very politically correct to tell the truth, but I see it every day)
If you ask 100 people if they would like to be rich, probably 100 would say yes. If you ask the same 100 people if they would be willing to work 12 hours a day, six days a week for 5 years to be rich, probably 50 would SAY that they were willing to do that. If you watched the same 100 people to see what they would do, I’d bet that less that 5 of these people would actually be willing to do whatever is necessary to actually succeed.
Statistically, about 80% of new businesses fail or cease to operate within 5 years. Of those businesses that are still in business, only a small percentage will thrive. Real estate investing is no different than any other business and the same percentages will apply.
Back to the point. Almost all the courses that are out there contain good information. In fact, almost every course out there contains the same basic information. Nearly every book or course I’ve completed talks about buying at a discount, and yet there are many newbies that either didn’t do their homework or ignored that portion of their education and bought an investment at retail - because it was easy and didn’t require much work. Worse yet, they had no money, so they borrowed 100% of the purchase price (market value) AND borrowed it interest only. As the interest rate rises, so does their payment. Worse yet, their principle never decreases. They’re BETTING on appreciation. If the market softens at all, they’re stuck with a property they can’t sell without a big loss and they’re often losing money each and every month. That’s why they fail. It happens every day. How do I know - because I look at their houses when they are desperately trying to sell (although I usually can’t buy them until the foreclosure sale or after because they can’t bring enough money to the table to make it a good deal for me).
What it market value? I’d say that it is the average price that a given type of house is selling for. Some houses are sold for more than market value and others are sold below market value. If an investor can’t do the work necessary to find a property below market value, they just don’t have what is it takes to succeed.
Just my opinion - probably worth what you paid for it.
Mike
Hi Mike,
Thanks for the nice (shrewd) analysis…
Later,
-Mike
Great post Property manager. I have owned rentals and you are correct, they are lazy and worse than that, they lack the basic drive and instincts to succeed in this world. It all starts with the way they are raised. The old saying that they are babies having babies.
More importantly and back on point, the only way to get ahead in this business is to buy below wholesale. As I always write, I buy at 40% of the wholesale price. Never pay retail. If you consistently buy at below wholesale, then it should not matter if the market softens. Also, I never buy with no money down. If you do not have the money to invest in real estate, then you need to take the necessary steps to get that money.
If you buy rentals and do not have reserves, you are doomed to fail. It is a when, not if, but a tenant will cause some damage that YOU THE LANDLORD will have to fix. The heating may break or there is a small fire in the apartment and it is now unrentable for a few months. Do not buy rentals to start your REI career. I always suggest that people wholesale or do rehabs and learn the business. By doing rehabs you learn the skills to succeed in every type of RE market.
Masoning…
By suggesting that rehabs are a good start as a RE career…are you referring to what is commonly also called “flipping”…(buying undervalued fixer-uppers and then reselling in a relatively short time frame…i.e. 3 to 6 months)?
If you could please expound on why you think this approach is better than first jumping into rentals…I’d really appreciate it.
Thank you,
-Mike
I agree that betting on appreciation is dangerous, basically that’s just a gamble. I see all these people flocking to get their money in places like Florida and putting them on either interest only or neg. amoritizing loans waiting for appreciation to make them rich.
So many people are going to get burned it’s not funny, but hey, they make their own beds, right? I would prefer to invest in areas that are affordable and have steady slow to moderate, but fairly predictable, appreciation. I want to rely on solid cash flow for income and not try to cash in on quick appreciation that very likely might not happen.
I am new at this, and I am focusing on (instead of straight rentals), lease options at a good rental rate where I can sell the house for a predetermined amount in a year or two if the tenant pays me on time each month. Also, the tenant is required to take care of maintenance. It isn’t fool proof or entirely risk free, but it does minimize some of the risk you have as a normal landlord.
I am also looking for great flip opportunities to raise cash as well.
So I guess to stay on the topic here, I hope to accumulate about 5-8 properties by the end of the year, and if half of the tenants buy the places in a year, I will start to see my bigger profits Q4 next year. I look for a net profit from the sales on lease option of no less than $10000 after closing costs, etc. The two I just bought would average about $15000 if options were taken. If none of the tenants buy, then I’ll still have PCF enough to make some money, and I still will be looking for quick flips.
I agree that if you have zero money and you want to get started, bird dogging is the way to go. I know at least three of my close friends and I were discussing this, and would pay somebody here in our area $500-$1000 per house that they find and we close, which if you are good at it and work hard and network, could make you a nice income if you’re working with a few people.
Anyway, sorry for the rambling post. This is always a good topic.