Challenge: $30k a month in rental profit in 5 years?

[Jessica Soares]

Challenge: How would you achieve a goal to make $30k a month in rental profit in 5 years?

Newbie here. I've set a goal for myself to make $30k a month in rental profit in 5 years (shoot for the moon goal for me). I have some cash in a retirement account that I want to stretch as much as possible to achieve this goal. I know it's not enough to make a down payment on a 5 fam+ unit though and I figure I need as many of those as possible to achieve the goal. So my plan is to:

1. Flip as many houses as I can to raise capital for the down payment on the MFDs. I already have one under contract that should net me a conservative profit of $50k. Another oppty just came to me this week that looks to be similar. But I don't have enough $$ to do both (ugh!) b/c I'm putting my cash into the first flip (need to figure out how to stretch dollars :)

2. Use profits I make from flips to buy a MFD.

3. Take the equity out of the MFD and reinvest that in another oppty (flip or MFD).

Keep doing this as long as I can.

Seasoned investors, how would you make this goal a reality? Any advice on the above plan would be greatly appreciated!

[Jon Holdman]

OK, this deal makes more sense:

Do realize that if you do flip this house pretty quickly you may well burn a bridge with the lender. Maybe, maybe not. With lenders make this sort of mortgage, they expect it to be out for a while. Not a few months for a fix and flip.

When you sell this you will have commissions (about $12,000) and closing costs (about $4,000). You can reduce the closing costs significantly by doing a "hold open" on the title insurance when you buy and then requiring the end buyer to use the same title company. You'll have some purchase closing costs, perhaps $2000. You'll have mortgage origination costs around $2000, too. Not sure if the $7,000 for taxes is property tax for six months, transfer taxes or something else, so I'll use your number as is. You'll also have insurance. "Empty house" at the very least. Builder's risk would be better. Certainly not homeowners unless you're moving in shortly after the purchase. I'd guess that at around $1500 for six months. (These policies are very expensive and provide poor coverage, but its all you can get in situations like this.) Six months interest is under $1500. So, I get $30K in costs. Yeah, I can see a $50K profit out of the deal. That is, truly, a screaming rehab deal.

Hopefully by "under contact" you mean approved by the lender. Because a contract with the seller on a short sale means absolutely nothing. I've been there. Its a necessary step for the seller to accept your offer, but it truly means absolutely nothing.

As a rental this is a crummy one. Assuming you have a 30 year note, here's my analysis. That rate seems very low for a 30 year NOO loan, though. If its really a 15 year note, this deal is slightly cash flow negative.

Purchase price:$90,000

Rehab cost:$30,000

Rent:$950

Exp, vacancy, capital %:50%

Loan rate:3.00%

Loan term:30

Down payment %:20.00%

Down payment:$18,000

Loan amount:$72,000

P&I payment:$303.55

Expenses, vacancy, capital:$475

Net Operating Income:$475

monthly cash flow:$171.45

annual cash flow:$2,057.34

total investment:$48,000

Cash on cash return:4.29%

Cap Rate6.33%

You may do better than this if you self manage, avoiding the cost of a PM. But that isn't going to scale up to having enough rentals to have $30K a month in income.