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!

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.

Big picture....I think if pure money is the goal (a set dollar target), maybe join a hedge fund or something. If just money is only the goal and motivation, it may be hard to sustain a long term landlord plan. Money and financial targets can be part of the motivation but if they are the sole driver, you may have issues or spotty success.... Why? A long term rental enterprise in my ten years (and for those I know in it longer and bigger) is actually more than collecting rent checks, which is just a small part of the operation. How do you feel about working with people, screening tenants, handling property issues, the basics of cleaning units, showing them, working to move people in, helping them move out. Over and over and about much more. If you find some joy or at least interest in this, I think the money can come. It is a by product of a successful business. So I would start with how you like maybe being a landlord (rather than a dollar sign target) something you have an interest in, be it painting units or working the phone with potential renters or handling the paperwork and working with contractors. These are how you keep rentals and good renters. It is Tony Robbins stuff or any magic formula. It is shelter... You will be housing people and filling a societal need and will be rewarded if you do it well and can compete and sustain the operation long term.

Yes it has been done and probably could be done again. The methods I used were WAY back in the 70's-80's and took about 5 years to reach your #. Times have changed and some of those methods wouldn't work now, but there are methods today that didn't work back then. I was in the process of working toward a 2nd book a few years back. "how an old fart moved to a new area and made one million dollars in one year starting new". I was well on my way and about 6 months in, I was just a little behind schedule. I was doing repo purchases in Hidalgo County TX and then rehab, newloans and sell to investors. Then the rules changed and investors weren't allowed more than 4 institutional loans. I had 9 deals in escrow and 8 fell through. Each investor already had 4 or more. It destroyed that method. So,,,, You go find new methods. I did that with buying a subdivision, building homes on the U.S.?Mexico border and selling to Foreign residents that felt safer having there funds in U.S. real estate. I think there are always methods available, but you need to be prepared to be flexible. You've received great suggestions on here and good warnings also. Just remember you'll need to be flexible and prepared to change. If you get caught with your pants down, you're liable to get screwed.... Wiser to tread softer and set a longer safer goal, imo. Rich

@Jessica Soares I am just starting out and actually have the exact same goal. We just bought our first deal. Where are you now? Were you able to achieve this?

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

Jon Holdman

Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes

13y

Its easy. Rentals are a cash on cash return business. Making 10% cash on cash return is doing pretty good. $30K a month is $360K a year. With a 10% return you simply need to invest $3.6 million to generate your goal.

So perhaps your real question is how can you earn $3.6 million in the next five years. $50K in true profit off a fix and flip would be very good, though it depends on the price range. $50K profit from a million dollar house isn't nearly as impressive as $50K off a $200K house. That's probably before taxes, too. $3.6 million over give years means about $700K per year and that puts you into a high tax bracket. I'm guessing you'd need something like $1.25 million pre tax. So that's 25 of those flips per year.

Of course as you start with the rentals they will throw off profit of their own, which you can reinvest.

Be sure you read about and understand the 50% rule. Millions of dollars invested in rentals means a LOT of units. With 75% LTV loans you will have a total of $14 million in property. That's probably something like 200 +/- units. That means you WILL have all the true management costs. Evictions will be routine business for you. As in you will probably have several in progress at all times. A unit completely trashed by an upset tenant will be routine, too. You'll be buying 10 roofs every year, or the multi-family equivalent. Overly optimistic cash flow assumptions, like "cash flow = rent - PITI" simply will not work. You're into "large numbers", so those averages, like the 50% rule will be what you see, if you do a good job. That rule says 50% of gross schedule rents go to capital, expenses and vacancy. From the remaining 50% you have to cover your debt service (P&I payments on your loans). What's left is your cash flow. That's the number that goes into that 10% cash on cash return.

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Paul Timmins

Specialist · Rockland, MA · Member since 2010 · 7k+ posts · 2k+ votes

13y

@Jessica Soares

In apartments we speak of $100 a month per unit cashflow. Therefore 300 units will put you there. If you were only getting 50% of the cashflow you would need 600 units.

You can hit 300 units in your first, second or third deal. A buddy of mine has a very strong team he hit 1,000 units in the last 6 months.

Locate Private Money sources to use to fund deals.

Good luck developing your plan.

Paul

5 Reply

Account Closed

Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes

13y

I like it when people admit to the actual number they want/need to live off of. So thanks for the honesty. My annual combined net deal profit goal for the last few years is less than yours but not by much. And I'm pretty sure I couldn't get there with rentals. I only landlord when I have to. It's just not my skill set, and outside of my tolerance range. But rentals are more passive than what I do and the benefit longer term is way better.

When you say $30K/mo profit, do you mean cash flow? Or actual business net income? It's a big number for passive or semi-passive income. Putting aside all the challenges of the learning curve with rentals and starting with minimal cash (relatively speaking), there's the volume challenge. Even people with cash are having a hard time buying properties with a good return in any kind of volume in many areas.

Looking forward to what other here have to say.

1 Reply

Ellis San Jose

Specialist · Westlake Village, CA · Member since 2010 · 1k+ posts · 781 votes

13y

First of all that is a terrific goal. Just the fact the you have written it down sets you on the road to realizing your goal.

I would adjust the goal & have it broken down in small chunks, how much extra cash flow can you create in the next 30, 60, & 90 days. That way you can see progress. Even if it's $20 a month extra to begin with. Start the incremental game early.

Also, financial calculator is a helpful tool for planning & asking important questions such as:

a) What rate of return can I reliably achieve today, in order to reach $30,000/month?

b) If I can get 10% annualized, given my current net worth what amount of capital will I need to generate $30,000/month, what about if I can get 12%, 15%, 20%?

c) What education and skills do I need to move me from a 10% yr investor to a 15%, 20%, 25%, infinity%?

d) What gross income to I have to generate to net $30,000 profit /month

Also, try to own some recurring revenue as soon as possible. Maybe have a rule for every 5 properties I flip I keep one.

Why limit yourself to solo rental income only? I would add a few more ways to create recurring revenue streams. They are all real estate related. You will be surprised how you will find more opportunities you never considered before.

a) Partnerships or JV with others who have capital & no time or expertise.

b) Note income (not just buying notes)

c) Management income

Congratulations on your journey, it promises to be very exciting.

4 Reply

Michael B.

Apopka, FL · Member since 2012 · 207 posts · 120 votes

13y

One other thought:

Don't underestimate the difficulty of making money at flipping houses. Contrary to what you see on TV it's a very hard, relatively low profit business that is fraught with risk. Not saying that you can't do well at it, but it doesn't happen automatically.

I've bought 2 places in the last 3 years that were flips gone bad. One was an investor that paid too much and set out to do lots of renovations. He ended up in bankruptcy and I bought the townhouse from the bank. Another flip was from an investor that did a good job of fixing up the place, but ended up with too much money in it. When I bought it from him it had been on the market for 13 months. He ended up losing about $30k and about 2 years on the flip gone bad.

But flipping is a good place to start. The economics of flipping houses forces you to be very careful and to be a fast learner. Otherwise bad things happen to your pile of cash.

1 Reply

Account Closed

Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes

13y

Also, try to own some recurring revenue as soon as possible. Maybe have a rule for every 5 properties I flip I keep one.

Why limit yourself to solo rental income only? I would add a few more ways to create recurring revenue streams. They are all real estate related. You will be surprised how you will find more opportunities you never considered before.

I wish I had seen the importance of this earlier. I dislike landlording so much and overlooked that I could create cash flow other ways. I now have a couple of notes from selling and carrying the paper. I have great payors and getting those checks in the mail is something I should have put into action long ago. Must have more! Setting the goal of making sure every 5th deal (or whatever) is a cash flow deal is a great idea.

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

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