How do I scale my portfolio?

Question

My goal is to generate $10,000 in monthly passive income in 10 years.

I currently have $30K ready to invest. It's taken me 2 years to save this up.

In my area (Phoenix, AZ), I could househack or a BRRRR, but it's unlikely to cash flow with comfortable margins because of the price/rent ratio in A-B neighborhoods of Phoenix.

I'm thinking I'll do some flips here in Phoenix and then eventually invest money into Turnkey investments in the Midwest, where cash flow is way better.

The problem with turnkey is they require 25% down, so it would take a long-*** time to hit my goal of $10K per month.

Am I missing something?

I've heard people that buy 1 property the first year, 2 the second, 4 the third, etc. But I don't understand how the financing works for that... can someone explain that to me please?

I understand BRRRR is a way to acquire property and potentially retain cash, but it's infinitely more complicated investing out of state. Does anyone do this without any previous connections in that state?

I appreciate the help!

Al Williamson · Answer

Hey @Daniel LehrmanI like your goal. It's very realistic!I've been documenting that it's possible to generate a $10K monthly net income within 2 years using rental arbitrage.I've been making videos and time stamping them so NO ONE can say I'm a guru or faking it.When the market's hot, like it is in CA, I think rental arbitrage makes the most since.So what I'm doing is RENTING small apartment units/cottages from other landlords and converting them into short-term corporate housing rentals.I started with $10,000 in cash and used $2,800 to set up my first unit.I saved all my profits until I was able to set up another unit. Then I saved the profits from the two units and set up a third. And so on...I'm on Month 13 and I have 9 units that produce $7,160 of net income per month. And this whole strategy is debt-free investing because I pay as I go.It looks like I'll be able to take a $10K monthly distribution and hire in a manager in Month 17.Anyway, I hope that helps. I wanted to add a very doable concept to your list of ideas.

Caleb Heimsoth · Answer

Daniel Lehrman I don’t have some specific goal of 10k a month in ten years but I can outline what I have done so far, what I plan to do next and where it’ll likely evolve in the next 10 years. You could look out of state and buy in cheaper markets. That’s what I’ve done and will continue to do. My goal is to buy two properties a year. I did that last year and I’ll do that this year. After this year I will likely pay one property off next year and then buy another next year and two more the following year. If that all happens I would have 7 properties likely all single family and monthly cash flow of around 1800-2000 a month in 3 years. After that with my girlfriend (who will be finishing school by then) we will have two incomes of likely 150-180k gross with the added 20-25k in annual real estate cash flow. With minimal living expenses we can buy a lot, quickly. I estimate 5 rentals a year and this point. I may pay some off in lieu of buying more at this point, but let’s say we don’t and just buy 5 a year. So that for 3 years is 15 plus the 7 id already own in my own. (She’s on board with this in case you’re wondering). Assuming those are single family, which is unlikely st that point as we’d probably do some multi. Conservatively that’s 5k a month in cash flow and I’m about 30 by then. Assuming my job Income increases over time (a fair assumption as I’m in an I demand field, and so will she be) we can probably do 5 a year for another 5 years. So I’d be 35, with combined cash flow at that point of around 8500. Probably another 2 years after that and I’d hit 10k. Total time 15 years. There’s a lot of assumptions here, mainly that we only buy single family which is unlikely. At some point I would diversify to multifamily, then syndications (being the limited partner) and probably partnering as I have friends who will likely have money but no time (thing high powered attorneys). I’ll also want to buy some notes. So likely you throw that all together and if probably hit the 10k goal sometime around 33-35. Total invested capital, would roughly be 15-17k a rental which at 37 rentals (at 35) would be 592k (16k a rents). Not exact as I did this all while parked in a car in a parking lot but hope it helps

Wes Blackwell · Answer

@Daniel LehrmanPerhaps here's another way to look at it...With a cashflow of $200/door, $10,000/month would be 50 doors.Now the question is "What's 50 doors going to cost you?"At $15k/yr in income to spend, that would be $150,000 in cash to leverage over 10 years.Do the math on what 50 doors will cost and see what percentage of that is going to be $150k.I think the challenge in getting to that $10,000/month is that you're trying to buy $120,000/yr in income with $150,000. Doesn't seem plausible to me.Even if you have a solid plan, you're going to need more cash to get to that level of income.So, two possible solutions, both revolve around earning more income. 1) Sell more homes2) Flips housesImagine if you could double your savings to $30k per year. That would get you there twice as fast.

Caleb Heimsoth · Answer

AJ Singh that’s a good plan. Mine is probably similar. I’d like to have multiple paid off in 7-10 years. First one should be in about 2 years from closing

AJ Singh · Answer

@Caleb Heimsothfunny you mention that. i have hit a pause button on rentals this year to pay mortages back with a seven year horizon. keeping fingers crossed...

AJ Singh · Answer

@Caleb Heimsothyou will have to turn to portfolio lending once you hit nineteen mortgages. Assuming you will invest in one principal residence. You and your girlfriend will qualify for ten each assuming you have enough income to qualify. so your strategy to keep paying earlier rentals is sound as you will reach max cash flow quickly.

Caleb Heimsoth · Answer

@AJ Singh yeah that’s right but I’ll probably never be that leveraged anyways. I’d rather own less, with less leverage and more cash flow