How crazy is my action plan?

[Greg Fuente]

I'm new to the forums although I've been listening to the podcast for a while. Due to a legal settlement, I have some capital to invest and I need some help/advice formulating a plan. At this point, my goal of $20,000/month passive income just seems crazy, but here it goes...

I am a 40-something California resident who spent time in the Midwest region during grad school. I'm looking to invest in single and multi-family rentals in Milwaukee, Chicago and Indianapolis areas. My plan is to put 20% down on 15-year mortgages for properties yielding ~$400/month profit. I am starting out with $1 million capital investment and looking to build separate management teams for each area.

Any advice, warnings, questions, and just general information would be greatly appreciated. I am looking to gather as much information as possible before taking the plunge. Particularly, I'm interested in ways to work around mortgage quantity limitations.

[Lee Smith]

@Greg Fuente I would start in one market, and find a team and iron out the bugs/details... Then you can move to other markets.. I would recommend you go to these places and make contacts. Be quick to hire, and quick to fire.. Plan for multiple trips, or find people who can keep you up to date with videos, pictures, etc... There's no reason to be out of the loop anymore.

As @Account Closed said, $400 cashflow sounds ambitious with 20% down. You are also going to run into issues with only being able to get 4-10 loans. After that you are going to need to find portfolio/blanket loans which may be difficult given todays marketplace..

You need to figure out your goals and your risk tolerance... You could do flips or rentals.. You could go Single family, or multifamily.. You could go low income or bread and butter...

Single families rent quicker and have tenants that stay longer than mutifams, but your cashflow is lower. Multifams take longer to rent, and you get quicker turnovers, but you get higher returns...

You need to decide where you want your rentals to be.. You can get higher returns in lower income areas(40-80k), but you won't see appreciation, and you will have more hassles with tenants. Bread and butter neighborhoods(80-125k) will see appreciation and better tenants.

If you are planning to get loans on properties from the get-go, then you need to find houses in better shape(will cost more) and there is minimums most banks will lend (40-50k). Banks don't like houses that need work, and that's where the best deals are at. Cash buyers and people not afraid of work(or hiring contractors) are the best deals, but not everyone can be a cash buyer..

When dealing with multifams, you need to be aware of a couple of different things though.

• Higher vacancy rates, instead of 2-4 weeks to fill a single fam, you are looking at 4-8 weeks to fill a multifam.
• Higher turnover rates.. While my single fam renters generally rent for 3-4 years on average, my multifams only rent for 1 year on average.
• Watch out for owner paid utilities. These can break the deal. While water/sewer is easy to deal with, anytime you are paying for heat you are looking for trouble. Residents crank the heat up in the winter and then open a window to cool off...

I am not trying to scare you off, just you need to budget for them.

I work with a lot of investors here in Indy. I don't care how much you read and hear people brain washing you, nothing is comparable to real world experience. A lot of guys preach things but they don't pan out in the real world. I can't tell you how many people tell me they always do things a certain way, and then when you really check, they are doing things totally differently. I tell you this, because I want you to be flexible. Listen to lots of people and don't expect everything to work a certain way.