Best Place to Start?

Question

Hi, I'm a 23 year old ambitious male graduating college in a few months. I have been reading up on real estate investing for the past 3 years (on and off) and feel now is the best time to start taking it more seriously. My ultimate goal is to own enough apartment buildings/units/passive income to quit my job and focus full time on REI. If you could give me any advice on what area of real estate investing i should focus on, what to avoid, places to further educate myself, ect. that would be a great help!

*As of right now, i'm thinking abut moving to the Carolinas and using an FHA loan to buy a quadplex (fourplex). I plan to use the FHA loan to renovate any issues and to update the building as needed. I would rent out 3 units and live in the fourth one rent free. Now, if this is a good starting place for me, how would i proceed from there? How would i get to my goal of owning multiple apartment complexes? could someone walk me through this?..

If it helps, my financial goal is around $300,000 a year, or $25,000 monthly of passive income.

Ryan McElroy · Answer

Hey! sorry about the late response!

I ultimately would like to have enough monthly cashflow to quit my job and be able to do anything I want at any point in my life. I don't want to be filthy rich, I want to have enough money to never have financial concerns again. If one week i want to take a trip to Bora Bora, I can do that because my income allows me to. I will live modestly, but have a large bankroll to do anything I want.

To further develop my plan as of right now, i would use an FHA 203K loan to buy a fourplex, renovate it, rent out 3 units and live in the fourth. This would allow me to live rent free while the mortgage gets paid down by the tenants. Over the course of 3-4 years, ill purchase a few more fourplexes, using the profits from the previous units as a downpayment. At some point, around the 5 year mark, i will sell all the properties and use the profits to purchase a larger apartment complex. I will renovate, build equity and refinance like the previous properties. After a few more years ill trade up and buy an even larger complex (~75 units), using the same process.

***At this point i get lost. I do NOT want to stop here. I want many more units and dont know the best way to get there. Do i use the profits from the 75 unit complex to buy another 75 unit complex 5 years down the road? Do i start the process all over again? Any advice would be great!

Thanks Ryan

John Matthews · Answer

@Ryan McElroy Welcome to BP.

It's great that you've got a goal to work towards. Here's my 2 cents:

First, you mentioned you want to transition to full time REI, what about that interests you? That would be the first question I would answer. For me, it's laying the groundwork for "passive" income so I can spend time on other entrepreneurial ventures and not be tied to my W2 income. But if you truly love REI and are still ok with an active investment, that's something to consider. Maybe that's becoming a wholesaler, then flipping once you've got cash / financing / partner deals in place.

Anyway, once you figure that out, you need to work backwards to figure out what you need. Use that goal of $25k/month and work back from there. So for example, if you want to buy and hold, then that $25k/month comes rent. Well the next thing you need before you can get a plan is when you'd like to have your goal met by. Say it's in 10 years. So let's assume you can get $150/door/month after debt service / holding costs. If so, then that means you'll need about 167 units. From there you can back your way into how accurate you want your plan to be. If you assume linear acquisition, then you'll need to acquire 17 doors a year. Linear growth probably isn't the best way to go as you'll have more money coming in to buy more properties as you grow, but you can figure out what makes the most sense to you. Maybe instead this means you need to wholesale 40 deals a year, or flip 20 houses a year - start with your first one, and work your way up, setting tangible goals along the way.

All of this depends on your current situation, how much time you have, your financial situation, your skillset, etc.

If you have no idea where to start, do some research on the main ways to invest in real estate and start from there: http://www.biggerpockets.com/real-estate-investing/strategies-niches