What would you do?

[Randy Haworth]

I work FT, wife works FT in the Phoenix area and we want to get into real estate investing to create a retirement portfolio.  Our first step or goal is to replace wife’s salary with rental income from investment(s).   Looks like multifamily greater than 5 units will be needed, but can that be done with the available cash I have?  I could use this group’s thoughts, and thanks in advance for the ideas. Not sure if I can post financial numbers here, and I am not looking for investors, mentors, or any business deals, just thoughts on how to start out.  Have $50,000 to invest and want to net $40,000 annual return.

[Ronald Perich]

$50K will get you $200K of loans. But you'll need to keep some in reserve to help when problems arise (and they will arise). 

You can do it alone if you want to take the time necessary to create the value. Or you could try to partner with others, creating value for both you and them. Either way is going to take time, but partnering will generally get you more properties more quickly. But you are personally making less cash flow on each property.

But let's say you go it on your own. There's a four-unit in Glendale listed for $184,500 (just listed today). You pick it up for $180K. Average rent is $625 in the area. Figure 50% expenses. So you have $1250 a month to work with. Your mortgage is about $1K per month. You only have $250/m cash flow on your $45K investment. Not a great return. 

Go to a different market and make $500/m cash flow. After five years you'd have enough to repeat the buy. Now you're making $1000/m in cash flow. 

Repeat after another 2.5 years. Now you're up to $1500/m. 18 months later, do it again. $2000/m. Then 13 months later and 8 months later.

129 months into this (about 12 years), you are making $3K/m in cash flow from your single investment. And that's only if you don't receive any increases in rent. And only if you don't continue contributing your own money. You could knock that time down significantly if you contribute yourself.

Just reinvest all of your cash flow to buy more when you first start out. And keep saving for the next one at the same time. Maybe thrown in a wholesale or two along the way. Four a year could net you an extra $20K for your next purchase.