Rantoul, IL · Member since 2017 · 45 posts · 15 votes
I’m sure the question is on the forum somewhere but I’m unable to find it.
I understand the idea of flipping a house by taking something in need of repair, updating, etc. performing that work, and by doing that adding value that can be realized at sale. And then there is the BRRRR strategy where instead of selling to get the added value one refinances with the bank retains the difference.
My goal is to supplement my retirement with income from rentals. So naturally, I need to create a portfolio income producing properties. With a buy and hold strategy, how do I come up with the down payment money add properties? The only thing I can think of is to refinance and roll that money into the next which is of course is the BRRRR strategy.
Is there another way? Am I missing something here?
Do you have cash now? It sounds like your goal is turn your cash into a stream of monthly cash flow. The real question is what rate of return are you looking for on an annual basis? If you don't have any cash, then your first goal is get some cash and grow that cash to an amount to where you can invest that cash into a cash flowing investment. So here are the questions you need to answer:
How much monthly cash are you trying to generate?
What is your risk tolerance on a scale of 1-100?
Take your answer from #1 and multiply it by 12 to get the annual cash flow you want. For example, if you're trying to generate $1,000/month, then the number would be $12,000. Next take the number from #2 and divide it by 5. So if your risk tolerance is 50, then you number is 10. Turn this number into a percentage, so 10 = 10%. Now take the annual cash flow ($12,000) and divide it by percentage from #2 (10%): $12,000 / 10% = $120,000. This is the total cash you need to accumulate.
The next step is developing a plan to accumulate that cash. You can use Excel to calculate the amount you need to invest per year, the number of years, and the annual rate of return in order to accumulate that total cash. For example, in order to accumulate $120,000 over a 10 year period with a rate of return of 10% per year, you would need to invest $6,845. You can change two of the three variables above (Time, rate and annual amount) to determine the 3rd. Feel free to use this .
My question is not really strategic, i.e. planning, assessing risk, etc., but tactical. I'll try stating the question differently.
Let's say I have $20k to invest and and my end game is to have properties that will cash flow which I plan to use to supplement my income. Besides rehab and sell, or rehab and refinance, is there another technique people use to come up with cash so they can do the next deal?
Maybe I need to go back and listen to some of the podcasts again?
@Jerry Ellis There are any number of ways to come up with cash. It's just a matter of how much you need, how quickly you need it, what you would be willing to pay for it (interest), and how much effort you put in. Here are a few options that are discussed all throughout the forums - wholesaling, flipping, hard money loans, private money loans (friends/neighbors/coworkers), partnerships, portfolio lenders, owner financing, self directed IRA. Or you can get creative with a separate side hustle to fund your RE ventures - sell stuff on ebay, teach piano lessons, build an app, etc. The sky's the limit once you start thinking outside the box. Best of luck!
Matt Faix Thanks Matt. I've felt like I was missing some bit of information. As I evaluate this opportunity and formulate a plan, the steps need to be mapped out so that I don't come to a stretching halt.
So in a broad sense, my plan will probably include looking for deals and refinancing to get some cash out.
~ Jerry