BEGINNER: ARE MY GOALS REALISTIC?

Question

Hello, I'm new to all things real estate and was considering investing in rental properties, but wanted to know if my goals are realistic or not.

Basically

How much profit can you make with rentals (apartments, duplexes, etc), and regarding loan products, how much capital would be required per year to reach my goals mentioned below?

Or how do you calculate how much profit a property will give you?  I know this is impossible to answer with a blanket number, but is there a rule of thumb or conservative figure that most end up seeing?

So this is what I was hoping real estate could do for me.

My goal is to work a second job for a maximum of 5 years, (was hoping 2-3 years), doing so I can (with a partner), have 100k cash each year to invest (50k each per year).

I'm in South Texas, I've seen prices around 220k-300k for property with 8-10 units.

Currently I have 8k auto debt which I could pay off whenever.

Credit score should be around 740+, (or maybe better?  Zero credit problems ever).

My thoughts are that 100k down should be allow me to buy a property worth 250-300k, and if 8-10 units (some might be 12 units) make hopefully around 20k+ net profit per year (or atleast 15k bare minimum?)

Following year adding a second property with 100k down, and either adding the profits from the first property to the down payment or keeping it for repairs etc.

Continuing this for 3-5 years while working two jobs, living tight, saving as much as possible and throwing it at investments so that I can then be reliably making 30-50k by around 4-5 years in.

Sorry if I dragged that out lol.  So am I horribly missing something big about loans, or the amount of profit that can be expected?

Some major pitfall that I'm not understanding?  Or properties just never pull that kind of return for that kind of investment?

I know this is considered wisdom, but I don't want to start in real estate if its gonna take what I described above plus 20 years of slow.and steady progress to finally be able to make 30k per year profit.  Thats just not my philosophy in life.  I'll work extra, I'll miss out on my family for a few years if it will pay off within 5 years or less, not if I'll not see the fruits of this for 20 years for.retirement.  that would be great, I'm 28yrs old, so 48 is still good to retire, but my daughter will be grown and gone, and no amount of money could let me live her childhood again, or turn back time, you know where I'm coming from?

I heard that 3-6 months of rent is generally profit, while the rest goes to expenses.  So that sounds doable.

But on BP, a user wrote a few years ago in response to a.question about ROI that $100/door/month is what you keep as profit.  And that sounds line a lot of work for a measly sum.  I mean, in the above example, 300k property to make 800 profit per month?

So what is a realistic expectation?

Thanks so much for any who read and respond.  Walls of texts are my forte lol

Christine Kankowski · Answer

You have to do an analysis of what the cash flow is taking into account - mortgage loan and rate, insurance, taxes (High in some parts of Texas) Vacancy, repairs, cost of processing applications, showing, writing up leases or paying property management to do it. Does the $220-300K property need rehab, or is ready to go?

YOur initial plan of saving money for the down payment sounds great. Dont spend anything, just save it all up. It's worth it once you can get in and make your money work for you!

Best of luck

YOur initial plan of saving money for the down payment sounds great.  Dont spend anything, just save it all up.  It's worth it once you can get in and make your money work for you!

Best of luck

John Alvarado · Answer

Thanks a lot for this information.  I think, however, that your strategy is more of a expert level strat, and not something I could do in the near future.

I also finally found a real estate investor state that in his years of experience, that 4-8% was the aprox. Profit on a low risk property, 8-12% on a medium risk, and 20% on high risk locations.

I was hoping it'd be 20% of invested cash in profit, so not sure if I'll still invest in a year or two, or just pay for a house almost in full and atleast thats a huge expense off my plate for life.

Thanks for the info

Jim Pellerin · Answer

@John Alvarado I typically do  sandwich lease options which go something like this.

1. I find a motivated seller to lease me his property for nothing down and for, let's say, $1,000 a month. I have an option agreement to purchase the property for say, $150,000.

2. I find a tenant buyer to lease it from me for $1,000 a month.

3. The tenant also has an option agreement where they pay me $20K as an option consideration to purchase the property for $200K in 3 years. They also pay an additional $500 a month towards their down payment.

4. In 3 years I assign my Option Agreement with the Seller to the Buyer for the balance owing to me. They exercise the newly assigned option and use their $20K + ($500x36=$18K) as their down payment.

5. An Agreement of Purchase and Sale is created and executed.

6. The tenant get's financing and closes on the property.

John Alvarado · Answer

My ignorance is showing...  A lease option is a contract to rent a property with the option to buy it later at a certain price by a certain deadline, much like a stock options.  Right?

If Its too basic to explain, perhaps a link or something explaining your method.  How do you have a cash flow per month from that?

Would it be, that you lease a property for a rent paid per month, so no down payment, then you sell later for 10-20k, but in the mean time you rent it out for higher rent than you are paying, and there's the $300-$500/month ?

Jim Pellerin · Answer

I typically walk away from a Lease Option agreement with $10k to $20k and a positive cashflow of $300 to $500 per month. Do 4 of those and there's your $100k the first year.

John Alvarado · Answer

Specifically the 300k one had 10 units, was built in 2011, and had leases for each unit.  I think that's a "turn key" property?

Rent in my area is around $1200 for 3 bed 2 bath, like $900-$1,000 for a 2 bed 1 bath

John Alvarado · Answer

Thanks for the replies.

I didnt mean to sound like someone who wants to walk in to real estate and suddenly be making lots of money super easy or without any risks involved and hard work.

I'm totally aware it will be a lot of work, saving, budgeting, etc and am willing

I just wanted to know if 1-2 properties with 8-10 units sounded like it fit making 30-40k after expenses.

Like if I asked if I could make 100k in rent profit each year if I bought one duplex for 150k, anyone could tell me absolutely not.

In others experience, are numbers such as 30-50k profit each year something that took you all years to achieve?  Or you got that with your first couple of properties?

I read on here a post by a group of 3 people who had salaries ranging from 100-150k per year, and their.numbers of a property was going to leave them with 1,100 profit annually, (might have been each, so 3,300).   That just doesn't seem like it makes enough return for all the work done.

But if there is no answer, I'll still take the advice and figure up all the cash flow stuff, mortgage etc like advised.

And as others have said, what does Jim Pellerin mean by "lease options" with zero down and no credit?

Cristian Aviles-Morales · Answer

Can you expand on the lease options? Sounds too good to be true.

Dennis M. · Answer

your putting the buggy in front of the horse . Life and real estate doesn’t work out on paper like that . Is it possible sure but as mike Tyson says “ everyone goes in with a plan till they get punched in the mouth “

Arvind Sontha · Answer

Hey Jim, what do you mean by Lease Options?

BEGINNER: ARE MY GOALS REALISTIC?

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