Scaling up and building liveable cash flow

[Steven L.]

Dear BP Community,

I have (partial equity in) one SFH that I'm trying to make a rental in a few months. It isn't investment grade, meaning that rough calculations tell me the net cash flow will be a lame $75/month. My goal is to generate a flow of at least $10,000/month so I can replace my 9-5 job and care for my family. My intent for investing is noble, so I hope the universe will be on my side.

I'm willing and able to relocate anywhere in the US to get a good deal and house hack MFHs, go commercial, BRRRR, flip, become a hard money lender, anything. I regret getting my first SFH because it feels like I pulled the trigger too soon and made a poor investment (despite my book knowledge). I sadly also assembled a bad team that dragged its feet and so I ended up taking that SFH deal for my desired deadline. I'd prefer not the sell the SFH but would consider doing a HELOC; on the bright side, I've got some equity now.

What strategy do you recommend in your wisdom for my goal? How do I assemble a good team (lawyer, agent/broker, lender, contractors) that won't run away as soon as they receive my money? How can I break out of 9-5 dependency in within the next 4 years and take care of my family?

I'm ready to network, take action, and make some deals.

With humility,
SL

[Michael Dumler]

@Steven L., just to be upfront, $10k in passive monthly income is achievable but difficult to obtain, to say the least. What market do you currently reside in? I almost always advise newer investors to acquire deals in their backyard. I'm biased, but I think assembling a good team starts with an investor-focused real estate agent that also invests. The agent can act as a resourceful catalyst for other vendor referrals. Hypothetically, let's say each deal cash flows $200 per month. With your four-year goal of $10k in passive income, this means you have to acquire 50 properties total and a new deal essentially every month... Not so easy when you break down the numbers. This will require daily deal analysis, offer submissions, contractor management, etc. You're pretty much asking for a full-time job at this point unless you have an excellent team in place, which is advisable. If you have any interest in rent-by-the-room investments in the Atlanta, GA market please reach out to me any time via cell or email. 

[Joe Villeneuve]

Quote from @Michael Dumler:

@Steven L., just to be upfront, $10k in passive monthly income is achievable but difficult to obtain, to say the least. What market do you currently reside in? I almost always advise newer investors to acquire deals in their backyard. I'm biased, but I think assembling a good team starts with an investor-focused real estate agent that also invests. The agent can act as a resourceful catalyst for other vendor referrals. Hypothetically, let's say each deal cash flows $200 per month. With your four-year goal of $10k in passive income, this means you have to acquire 50 properties total and a new deal essentially every month... Not so easy when you break down the numbers. This will require daily deal analysis, offer submissions, contractor management, etc. You're pretty much asking for a full-time job at this point unless you have an excellent team in place, which is advisable. If you have any interest in rent-by-the-room investments in the Atlanta, GA market please reach out to me any time via cell or email. 

 So don't buy properties that only CF $200/month.  $10k/month isn't that hard.  You just have to be willing to establish a plan that involves turning over a series of profitable rentals as the equity grows.  If you leave the equity in the property it grew in, you're losing money.  You have to move it when the equity doubles, and when you do this, you will see how fast your CF will become real.

Here's what I mean:

Appreciation/Yr                  Same Property               Selling/Properties
5%      Year                       PV             Equity            PV               Equity
    Start                     100k            20k             100k               20k
           1                        105k            25k              105k               25k
          2                         110              30                110                30
          3                         116              36                116                36
          4                         122              42                 122               42 Sell and re-invest at 20% DP
          5                          128             48                 210               52
         6                          135              55                 221               63
          7                          142             62                 232               75
         8                           149             69                 243               86 Sell and .......
         9                            157            77                 430              108
       10                            165            85                 452               130
       11                           174            94                  475               153
       12                           183           103                 499               177 Sell and......
       13                           192           112                 885               200

Now on top of this, if every time you sold you were doubling the number of properties you had, and thus doubling your CF as well.  So, even if you started out with 1200/CF/Year with your first house, your CF would also double every timssssse you sold a property(s).

Since you flipped 3 times, that means you are doubling the previous (pre sale) CF with each flip.  So, by where we are in the chart above, you would also go from 200/month to 1600...and growing exponentially.