Getting Started--- What would you do in my position?

Question

My spouse and I own a business in the construction/home services industry. We have grown the business to afford hiring someone to take over my role so I can pursue investing in real estate.

I have joined my local REIA and will be attending meetings next month, I have a relationship with an individual I trust (an older relative) who has offered about 150-180k to invest with me for my first deal(s) at a reasonable return, and I have started analyzing deals. Due to my other business, I know good contractors/subs, understand contracts/scope of work/etc and believe I can fill in any gaps through REIA networking if need be.

I am looking for Flips or BRRRRs I believe initially to build up some cash and/or equity and cash flow, but would be open to having my strategy/goals challenged.

With my previous business, I never took a paycheck and grew the revenue from ~80k to >2million annual revenue in 3-3.5 years and navigated a seller finance purchase of a overlapping/competing business. That said, it is demanding physically and timewise on my spouse especially and I'd like to have a solid RE portfolio in 5 years to give him more time freedom as our toddlers enter school.

My goal is to have 500k in *annual cash flow* in 5 years. I think this is totally doable, assuming I'm smart with lenders and analyzing deals. I live outside Atlanta and have plans to expand our other business to Tennessee (chattanooga, nashville, knoxville triangle) and Texas (austin/dallas/tyler area). Additionally, I have family I often visit in Birmingham and along the I-85 corridor (Greenville, Charlotte, and RDU area). So, those are the markets I am considering investing in due to already being familiar, and having access to trustworthy referrals, etc. I know those are all reasonably hot markets right now, but I'm up for some competition & hustle. Ideally, I'd like my first few projects to be local to me in Atlanta/West GA/NW GA market as I get my footing but am flexible for the right deal (out of state or more south/east of Atlanta which I know investors are loving right now).

If you are an experienced investor currently cash flowing 500k+ annually I'd love to hear your thoughts on my goals, pitfalls to avoid, strategies to employ etc.

Michael Dumler · Answer

@Nicole Elianna, that is a big goal! If the goal is $500k in annual cash flow within five years, realistically, you'll need to explore creative/higher-risk investment strategies such as rent-by-the-room. If I'm being honest, I don't foresee you getting there with traditional SFH rentals. Please research PadSplit or HomeRoom to gain further insight into this type of real estate investment. Moreover, with your experience managing contractors and rehab projects, converting regular single-family homes into co-living properties could very well become your specialty. If you can BRRRR rent-by-the-room properties, even better. However, given current market conditions, sourcing and acquiring BRRRR deals is difficult. I would start breaking down your goal/number ASAP to get an idea of what your daily actions need to look like.

$500k annual cash flow in 5 years -> 1-year rate: $100k per year in cash flow -> ~$8k-$9k per month in cash flow -> hypothetically speaking; $2,000-$3,000 in cash flow per 1 co-living property = acquiring ~3-4 properties per month starting now, which realistically probably means around 15-20 offers per month, at least from my experience, unless you have some fantastic source to acquire deals off-market.

It is feasible, but needless to say, it is going to require a lot of constant grind.

I hope this provides some guidance and clarity!

Wyatt Wolff · Answer

You would definitely need to work with high leverage opportunities. Multifamily would probably be your best bet. I would look into multifam that needs a lot of value add/ has a lot of upside. Realistically, you probably won't get there with just SFH. That said, I agree with the above. Rent by the room could work, especially in ATL (assuming its legal there) and CLT (I'm here, HUGE demand).

I would also have a realistic check in with yourself... would it be easier to scale/grow your current biz to allow for more freedom for your spouse? Your economy of work will be MUCH better with that

Justin Roland · Answer

I think it is totally doable with a strict focus and reinvesting all proceeds back into the business/. new properties.  That is a very high income so I would definitely look to acquire some short term rentals to supercharge the cash flow.  I have 2 short term rentals and cash flow about 50k per year at about a 50% leveraged position.  I am a mortgage broker in Charlotte as well so if there is anything I can do to help you out feel free to reach out!

Nicole Elianna · Answer

Yes, so my spouse and I have a roadmap for growing our biz and while I've hired someone to help in my day-to-day role, I'll still be doing revenue operations/outside sales/biz dev about 7-10 hours a week. We have processes in place to free up alot of my time and automate so while I won't be stepping away completely I'll have time to pursue other things. I understand most would say I should double-down with my spouse on our business full time but 1) our industry is heavily regulated in a way that can really affect revenue so it's a priority for both of us to have another avenue of income-- if not cash flow now, then appreciation/equity. 2) my spouse and i work very differently so while we have made it work the last couple of years, it isn't conducive long term to a healthy marriage.

I understand my goals listed above are aggressive. I prefer to operate on stretch goals, my background is in tech startup sales so I love to hustle and I'd rather fail at getting to 500k and get to 350K, than shoot for $300k and work less smart/efficiently or only get to $250k. I think rent by the room and multi-family are my best bets, from what I have been checking out and appreciate the comments there. I have 2 dependents and will be the primary caregiver for both my parents and his parents as they age so we want to hustle now so we aren't stressed financially by these responsibilities in 10-15years and are able to maintain the standard of living we have achieved with income from our (now) primary business.

I'd be interested in speaking about the charlotte market down the road once I have a couple deals under my belt. I have 2 siblings in Charlotte and 1 in RDU so those markets are on my short list since I know them pretty well and used to live there myself.

Jonathan Bock · Answer

@Nicole Elianna

You have a really valuable skill set in building a business.  I know this is BP but if you can run a business that well and grow revenue consistently; I would think about scaling your service biz to provide the freedom you and your spouse desire.

Brian Levredge · Answer

I would look at more than just residential if the goal is to get to 500k in cash flow.  It will also make it more challenging by investing in markets that have seen a lot of growth like most of the ones you list.  Reason being is that while I think there's still plenty of runway left in those markets they don't have the same upside they did five years ago meaning you'll have to adjust your time horizons some.  Case in point, in Chattanooga I was buying multi family at 30k per door seven years ago.  Today that number is 90-100k (or more) plus capex.  Prices may come down some but you still won't have that upside to sell and roll the equity over into something bigger to hit your cash flow goals.

You might consider looking at other asset classes that are less popular such as commercial office.  You may also consider looking at smaller tertiary markets where there will be higher caps and cash flow but not necessarily as much upside on resale.  Best of luck!

Alice Horn · Answer

@Nicole Elianna are you looking to invest locally or interested in branching out? The Orlando market may have a larger supply of homes uniquely suited for rent-by-the-room. Just starting to research this myself but thought I would reach out in case you would like to chat.

Kevin S. · Answer

With a typical LTR property @ 7% cap rate someone would need to buy with either cash for about 7M to get $500,000 cash flow or it's equivalent of equity if leveraged?  Either way the figure is about 7M??

Getting Started--- What would you do in my position?

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