Am I on the right track???

[Aaron Einfrank]

Hi Everyone,

I have been planning on starting my REI business for quite a while now and I have learned a lot so far by reading this message board. Based on my research here is my plan:

Goal: Replace my current income of $3000 per month with income from rentals in 4 years.

Source of income: Duplexes, Triplexes, and Fourplexes

I have decided to invest in small multi family rentals because based on my market research they are more likely to produce positive cash flow than are single family residences. Also, there is less risk associated with vacancy in multi family properties due to the fact that if one unit goes vacant in a 4-plex you have only lost 25% of your income as opposed to 100% in a single family. Also, small multi-family residences seem to be more manageable for the beginning investor than do apts. Are these assumptions correct? Is there a different way of looking at this that I am not recognizing?

Method of Acquisition:

I plan on mail marketing to out of state property owners who have owned their property for more than 5 years and who own the property in their names as opposed to LLC's.

The reasoning behind this is as follows: Out of state owners are more likely to be having difficulty managing their properties than are people who live in close proximity to their property. Owners who have owned 5 years or more are more likely to have the equity needed for me to purchase their property at a price that fits my system. I am also assuming that people who own property in their own name as opposed to LLC's are less sophisticated and are therefore more likely to have other management issues motivating them to get rid of their property at an attractive price. Is this reasoning accurate? Is there anything I am overlooking?

Financing:

Properties shall be acquired assuming that 45% percent of gross rent will be devoted to expenses.

I plan on purchasing properties using funds from a HELOC on my primary residence as a down payment and financing the rest using conventional financing, hard money, or rehab loans depending on the condition of the property.

Due to the significant amount of equity I plan on being able to refinance quickly and pull out the funds from the HELOC and start the process all over again.

I plan on using 5/1 interest only loans in order to increase my cashflow. This is the reason I have chosen to budget 45% of gross rents toward expenses as opposed to 50% as many people on this forum recommend. This will allow me the flexibility to make more competitive offers if need be.

Thanks for taking the time to read my post and give me feedback.

Aaron