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Updated almost 3 years ago, 12/29/2021
Goal to make $50,000/ year in cash flow
Hi everyone, I am a complete newbie but I have been listening to as many podcasts as I can and I also read "The Book on Rental Property Investing" by Brandon Turner. I found the chapter on planning to be especially useful. I have been running in place, trying to get started on my real estate journey and a plan seems like a great start. This seems super obvious now that I am writing this, but for whatever reason, I didn't think of it before! I sat down to choose my goals and then try to work through them backwards.
My first goal is to achieve $50,000 per year in cash flow before my 27th birthday (I just turned 21). For anyone who has already gained experience, does this seem achievable? Also what kind of financing would you recommend? Any feedback would be greatly appreciated!
#4 All Forums Contributor
- Plymouth, MI
Originally posted by @Jessie Nunley:
@Joe Villeneuve I tend not to make very many assumptions when giving advice. Right market, right time, right strategy, right career, right this and that. All assumptions that may or may not work out. But yes you are correct, if everything worked exactly as planned then he surely could reach his goal in 6 years.
How are they assumptions? Those are requirements for making deals.
@Joe Villeneuve you are assuming that this young man has the ability for each of those to happen. He’s clearly not as experienced as you and does not have the same resources as you either. As much as I’d love for everyone to be able to reach that amount of success, it’s just incredibly unlikely on a 6 year span. Unless he has significant $$$ to invest now.
@Matt Burgess when I was your age, I’m 34 now, I had a vision to buy, renovate and rent out properties over time. Grew up around real estate with my family. But, I didn’t do it. Why not? I lacked dedication and discipline. I also did not really invest time and energy into learning all that I could. Money wise, didn’t have much, but I could have focused on getting a good W2 job earlier in my life they would’ve allowed me to get a loan for my first property. I could have I was hacked my way forward in my 20’s and might have already achieved the dreams I had. Now I am revisiting those dreams and putting time and energy into them. And becoming more disciplined and focused and making progress. My advice? Keep going. Don’t wait for someone to say “great idea, go for it.“ Just go do it. 
#4 All Forums Contributor
- Plymouth, MI
Originally posted by @Jessie Nunley:
@Joe Villeneuve you are assuming that this young man has the ability for each of those to happen. He’s clearly not as experienced as you and does not have the same resources as you either. As much as I’d love for everyone to be able to reach that amount of success, it’s just incredibly unlikely on a 6 year span. Unless he has significant $$$ to invest now.
6 years is plenty of time to gather the needed knowledge and build his desired dollars. Start learning how,...then do it. REI isn't the rocket science many REI say it is. I think the reason they think that way is based on their limited knowledge base...and that's not an insult, that's just the way most REI are taught. They try to use the same basic strategies, and if they don't work...they force it, and rationalize that it did work...just not as well as they "assumed" it would.
They try to farm leads, instead of develop sources, and think that volume of leads = success. They focus on quantity instead of quality. All they're doing is taking on more work, and end up looking for needles in haystacks. They should be looking for stacks of needles. They are focusing on properties instead of markets.
Mostly, they have no plan...or the plan they thin they have, isn't really a plan. Their goals are vary general and there's no defined set of steps taking them from where they are when they start, to where they want to be...and too many just repeat the mantra "I want to be financially free" and have no idea what that means...to them. What they think is a plan is just a series of disjointed events, all stand alone, with no connection from one to the next. The biggest secret of how to do this in 6 years (or less), is to design a plan of connected steps, with the entrances and exits defined ahead of time. Establish how the money needs to flow, then define the criteria that will allow that to happen, and go find the markets and pick the strategies that match the criteria...at that timeline in the plan.
What makes it difficult, is when the REI has no defined plan, no idea of what they need in a market to achieve their goals, and really not defined (financial) goals. Market analysis, How Money Works (strategies), and the Plan must work together...or success will pass you by...and you swon't even know it.
@Matt Burgess
Extend your goal to $50k/ yr for a minimum 5yr period. It’s easy to make numbers work on paper and for a year or two of “putting things off”... your goal should be legitimate cash flow after all cap ex and maintenance.
It’s definitely possible. Persistence, focus, and consistency will get you there. Keep reading, keep listening, and keep networking. Best of luck!
@Matt Burgess
This is absolutely achievable if you put the work effort, time and energy into it.
1. Pay off all your debt and SAVE, SAVE, SAVE!
2. Find a 4 family in Carondelet. 4% down FHA loan
3. Live in one unit, rent out the others.
Rents in the area would be $550.
550 x 3 = $1,650
Fixed Expenses
PITI - $977
Water/sewage/garbage - $250
Vacancy, Repairs, Capex - 20% =$330
Total costs - $1,557
After your electric bill, it's essentially a wash, give or take.
That means you are LIVING FOR FREE!!!!!
ASSUMPTION TIME
If you were renting that unit, not owning, assume $550 rent and $100 electric = $650.
At minimum, you could be saving $650 a month.
$650 x 12 = $7,800 a year you could be using that money to buy more property, save, etc.
Find a sales job, become a Realtor, start producing lots of w-2 income and you'll be well on your way to financial freedom in your timeline.
@Matt Burgess
Is 50k net or gross?
I think it's achievable given the right gameplan! @Matt McConkey paints a pretty good roadmap of actionable steps you can take to start on the journey. If his advice resonates with you, I would suggest reading "Set For Life" by Scott Trench. It's an easy read and elaborates on Matt's roadmap above.
In the book, Scott will challenge you to examine your spending patterns and SAVE more, pay off debts, and accelerate your earning potential rather than rely on an inflation-tracking W2 salary. That's the first step -- from there, he goes into investment strategies and ways to start generating the cashflow and returns. I've also linked to a blog post of his that paints the picture very well.
I will say, that this book and strategy is geared towards someone who is already earning a median income or higher. It may not fit your current position and if it doesn't that's ok -- there are plenty of other books and/or strategies out there that will!
To sum it up, I would say: start trying to learn as much as possible, create an actionable plan... and MAKE IT HAPPEN.
Blog post link: https://www.biggerpockets.com/blog/becoming-a-landlord-the-easy-way
@Matt Burgess hey Matt. First off I’m jealous that your getting started at 21! I’m 28 and wish I would have had your foresight when I was 21. That being said if I could go back I would do things differently.
If you want to earn $50k a year in passive income through real estate then focus 100% on real estate from the start. Don’t put effort and time into getting a good w2 job so that you can buy real estate. Become an agent, start wholesaling, do whatever you can to make money in the industry that you want to be a part of. If you do this you will gain a ton of knowledge as well as make good money that you can put towards your investments.
You’re also young enough that you can work for cheap or become an apprentice to someone in these early years. Latch on to someone you admire and help them out. If you can do this I think that will help you tremendously!
Good luck on achieving your goals! Like you said the first step is making a plan, the next is executing!
So let’s dispel a few myths... if you are deep into real estate it really isn’t as passive as most make it sound... the main reason being that to maximize cash flow you will do as much yourself (ie. Manage your properties) to keep as much of the profits as you can.
Once you get past that mental hurdle I would suggest there are several avenues to achieve $50k/year... but I would second the poster that said that you can do it for well under 1.5-1.7m dollars. I'm generating over 200k free cash flow /year on 40 doors... 19 properties... that's just rentals. 75% financed, 25% free and clear. Average net after PITI and reserve: $527/door/month. Approach: buy for under $75k / door, rent for $1,000 plus per month. Best deal so far: bought for $50k, renting for $1,400/month. I'm 3 years into real estate, generating 4x your 50k target, so I would say you could get to $50k with probably $300-400k investment if optimized for maximum profit... and can easily do it in 6 years as long as you can line up your equity. You are going to need 10-12 great properties... that's 2 a year across 6 years.
It’s obviously going to take $$ to achieve your goal. So you have to look at your resources... savings? Family (as a loan, or an investment Possibly)? Friends with money looking for a better return than the bank potentially? A hard money lender might be tough starting out... definitely network with others at local real estate investor meetings! Pick up their contacts, their resources, partner with them on a deal that you might find and split the profits possibly? It’s all about how dedicated you are.
I went to a seminar when I got started and their mantra was “Flip, flip, flip, buy a rental” It’s a good way to finance your rentals. I can tell you that the first flip we did we netted $50k before taxes. Bought for $70k, invested $30k, sold for $174k in about 3-4 months. There is your 50k in one deal! Sure, you would have to repeat it once a year to keep that income up, but it’s a great way to get enough free cash to buy a rental to start your “passive” cash flow journey.
Oh, and to the poster that was jealous because he was 28, and you are 21, I’m 50, so way more jealous of you both! Lol. The secret is TO START! Don’t just keep thinking about it. Lay out concrete steps... pick up the phone, talk to your family... someone you might not even be thinking of may have the $$ where they are willing to front your venture... you won’t know until you ask / take an action! My mother literally has to take minimum distributions on her retirement accounts... people in that situation (in your circle) might say, hey, I’m willing to take a chance on you?! It takes about $20-$25k to buy a $75k house (financed). How fast can you source that money will determine how fast you start achieving your goal!
All the best!
Randy
Don't get too wrapped up in strategy. Once you're actually investing, your strategy will evolve to what you're good at and you will learn what you're not good at. Simple as that. Analysis paralysis can be poison but you do need to do your research. If you're getting good advice from seasoned investors, listen to them. Too many think they know it all because they read a book.I'll tell you right now, this is a learning in the school of hard knocks investment path. My first investment was a complete nightmare but it taught me many lessons and I use what I've learned from that property on every one of my new purchases. Good luck and welcome!
The strategy I have taken is different than those above and takes less cash but more work. I buy cheaper properties for cash with a criteria of 20% net return per year. This means buying significantly under market and doing major renovations to add value. My strategy gets you to $50k net cash flow with $250k cash but you probably have to leave a market with $200k median home prices. You also have to get dirty and learn skills obsessively.
Example: trashed 3/2 foreclosure, working class neighborhood, $16k purchase and $10k Reno + 6 months working weekends to fix it up. Current value $80k and rents for $750. The way I work it out is 6k net cash flow on $26k cash. Now there is also the value of my time but I have been well compensated in equity if I wanted to pull it out. See this as an alternative route if you’re trying to make it work with less cash, avoid massive debt, and learn a lot about houses during the process.
Originally posted by @Justin Gottuso:
@Matt Burgess when I was your age, I’m 34 now, I had a vision to buy, renovate and rent out properties over time. Grew up around real estate with my family. But, I didn’t do it. Why not? I lacked dedication and discipline. I also did not really invest time and energy into learning all that I could. Money wise, didn’t have much, but I could have focused on getting a good W2 job earlier in my life they would’ve allowed me to get a loan for my first property. I could have I was hacked my way forward in my 20’s and might have already achieved the dreams I had. Now I am revisiting those dreams and putting time and energy into them. And becoming more disciplined and focused and making progress. My advice? Keep going. Don’t wait for someone to say “great idea, go for it.“ Just go do it. 
Justin, thank you for the advice. I've been struggling with the "Just go do it" mindset, but I've been working on that. I can see how you many have struggled with the discipline and focus when you were younger. It is tough to stay focused when your peers are out doing what most people do when they are young. I'm glad you were at least able to revisit those dreams and I hope things are going well.
@Bill F.this info was amazingly helpful! I'm hoping to get $60k/yr in 7 years. These numbers will be hard to hit and I really appreciate you walking thru them
Originally posted by @Pat D.:
I think it's achievable given the right gameplan! @Matt McConkey paints a pretty good roadmap of actionable steps you can take to start on the journey. If his advice resonates with you, I would suggest reading "Set For Life" by Scott Trench. It's an easy read and elaborates on Matt's roadmap above.
In the book, Scott will challenge you to examine your spending patterns and SAVE more, pay off debts, and accelerate your earning potential rather than rely on an inflation-tracking W2 salary. That's the first step -- from there, he goes into investment strategies and ways to start generating the cashflow and returns. I've also linked to a blog post of his that paints the picture very well.
I will say, that this book and strategy is geared towards someone who is already earning a median income or higher. It may not fit your current position and if it doesn't that's ok -- there are plenty of other books and/or strategies out there that will!
To sum it up, I would say: start trying to learn as much as possible, create an actionable plan... and MAKE IT HAPPEN.
Blog post link: https://www.biggerpockets.com/blog/becoming-a-landlord-the-easy-way
Thank you for the suggestion, I will definitely check that out.
Originally posted by @Randall Alan:
So let’s dispel a few myths... if you are deep into real estate it really isn’t as passive as most make it sound... the main reason being that to maximize cash flow you will do as much yourself (ie. Manage your properties) to keep as much of the profits as you can.
Once you get past that mental hurdle I would suggest there are several avenues to achieve $50k/year... but I would second the poster that said that you can do it for well under 1.5-1.7m dollars. I'm generating over 200k free cash flow /year on 40 doors... 19 properties... that's just rentals. 75% financed, 25% free and clear. Average net after PITI and reserve: $527/door/month. Approach: buy for under $75k / door, rent for $1,000 plus per month. Best deal so far: bought for $50k, renting for $1,400/month. I'm 3 years into real estate, generating 4x your 50k target, so I would say you could get to $50k with probably $300-400k investment if optimized for maximum profit... and can easily do it in 6 years as long as you can line up your equity. You are going to need 10-12 great properties... that's 2 a year across 6 years.
It’s obviously going to take $$ to achieve your goal. So you have to look at your resources... savings? Family (as a loan, or an investment Possibly)? Friends with money looking for a better return than the bank potentially? A hard money lender might be tough starting out... definitely network with others at local real estate investor meetings! Pick up their contacts, their resources, partner with them on a deal that you might find and split the profits possibly? It’s all about how dedicated you are.
I went to a seminar when I got started and their mantra was “Flip, flip, flip, buy a rental” It’s a good way to finance your rentals. I can tell you that the first flip we did we netted $50k before taxes. Bought for $70k, invested $30k, sold for $174k in about 3-4 months. There is your 50k in one deal! Sure, you would have to repeat it once a year to keep that income up, but it’s a great way to get enough free cash to buy a rental to start your “passive” cash flow journey.
Oh, and to the poster that was jealous because he was 28, and you are 21, I’m 50, so way more jealous of you both! Lol. The secret is TO START! Don’t just keep thinking about it. Lay out concrete steps... pick up the phone, talk to your family... someone you might not even be thinking of may have the $$ where they are willing to front your venture... you won’t know until you ask / take an action! My mother literally has to take minimum distributions on her retirement accounts... people in that situation (in your circle) might say, hey, I’m willing to take a chance on you?! It takes about $20-$25k to buy a $75k house (financed). How fast can you source that money will determine how fast you start achieving your goal!
All the best!
Randy
I have noticed that the more I research real estate investing, the less "passive" it seems, but I'm okay with that. The numbers you outlined in the second paragraph also seem to be quite achievable in the market I plan on investing in, so I will use that as a reference. Thank you for reaching out, I especially appreciate the advice about potential financing options. That is the biggest hurdle I am facing currently as a college student, but its nice to know it can be done!
Simple way to get started is to buy a MFR for yourself. Can qualify for a conventional residential mortgage and generate cash-flow at the same time. Basic process that will teach you a lot as you go along. Once you get this one look for some more and expand your approach.
My first rental was a duplex. Lived in 1 side and rented the other out. Bought that one almost 20 years ago and still own it.
Everyone is correct though, you must jump in the water to get wet!
GOOD LUCK!
Getting a w-2 job "to save up" is a TERRIBLE IDEA.
You're 21.
Now is the time to be living on ramon and building those skillsets.
A w-2 job will suck up a lot of your time.
Worst...
You'll get comfortable fast. I remember graduating college and got my $36,000 per year job as an accountant. Thought I was rich because the most I ever made was min. wage working at Quiznos.
A lot of the advice here is with a 'lone wolf' mentality.
'Save up 20%...buy one...save up 20% and do it again.'
If you find a deal, someone will fund it.
They don't care how old you are. So look for deals and someone will lend you the money to get it going. Yes, you'll probably need to partner with someone as it'll be hard to refinance...but that'll come with time as you build up your business.
Now is the time to put in legwork.
Network with bankers, investors, private lenders...the works.
-------------
How do I know?
Real estate isn't my main thing...but a way to build wealth.
But I worked a job "society told me to get" and after 5 years was only making $50,000 out of college.
"Oh you should be grateful...many people would want that."
Not good enough for me. Mom and dad aren't paying my bills (plus had a wife, kid and student debt, the whole thang)
Quit my job to do what I do now (marketing)...and within 12 months working fulltime on it, I had doubled my salary...and have gone up since then.
Yes, the first year was tough to qualify for a bank loan.
After that, it was easy.
Don't get sucked into corporate America because that's what other people on here did.
That's the slow way to get to your goal.
It takes up too much time. If you bust your butt for 12-24 months...the first 12 months will suck, but after that, it'll be easier (and better).
#4 All Forums Contributor
- Plymouth, MI
Be careful going in blind. Just jumping in the water, and not knowing how to swim, or how deep the water is, isn't smart.
Don't "just jump in". Step in with confidence by doing the following:
1 - Learn how to analyze markets. This will tell ou where to invest.
2 - Learn how money works. This is really learning different ways to move money through your investments...sometimes called strategies. The more strategies you learn, the more opportunities present themselves to you. One trick ponies usually end up buying properties instead of getting deals...then rationalizing how the property is still a good deal. This will tell you how to invest.
3 - Learn how to develop a REI Plan based on your Total financial goals Cash flow and profits to pay off Personal debt). This is one of the big areas REI fail at, in both appreciating its importance, and worse what a plan is and how to develop it. You start at the end, your financial goals, then reverse engineer it from there until you end up where you are now. Then turn around...and follow the breadcrumbs. You REI Plan will tel you when to invest.
All three MUST work as ONE.
A lot of people who focus on a making big money number end up giving up. Focus on the next deal.... then the next.
@Matt Burgess Go for it! Is it achievable? Of course! Will there be people that say it isn't? Of course!
Let it fuel you. Let it give you cause and desire and drive.
Will you have to refocus, adjust and learn many times before you get there? Sure of course.
Set a goal. Take repeated action. Adjust. Set a goal. Take Repeated action. Adjust. Set a goal, ...
When this is done, failure is not an option.
Nobody thought we could land a crewed spaceship before the Russians on the moon in 1969.
...and people thought Henry Ford, Steve Jobs, Elon Musk, Bill Gates and Grant Cordone were all off their rocker a number of times. Many still do.
The only limitations to anything we do, are those we put or allow others to put in our way. Get after it :)
There is a good podcast on how house hacking and managing your own properties can achieve that goal.
BiggerPockets Podcast 392: $12,500 per Month in 'Pure Cash Flow' With Todd Baldwin.
This podcast outlines how renting by the room and managing your own properties can give a big return. This is buying one properties a year. This does involve a lot of work on your end, but it is an option. The podcast focuses on the Seattle area, but the principles still applies!
#4 All Forums Contributor
- Plymouth, MI
Originally posted by @Jessie Nunley:
Originally posted by @Joe Villeneuve:
Originally posted by @Matt Burgess:
@Nicholas L. @Jessie Nunley I think you both are exactly right that I will need to get a high paying job to reach this goal. I also need to live well below my means if I want to have any chance. Thank you both for your input!
No you don't...to both statements.
I respectfully disagree sir. The chances of this young man creating $50k in cash flow per year without doing at least one of those is incredibly small. Unless an established investor such as yourself mentors him and helps him find deals. But the likelihood of that happening is pretty small as well. Ive learned that most investors don't like "mentoring" new investors because it takes too much of their time and potentially takes deals away from them.
I do it all the time.
#4 All Forums Contributor
- Plymouth, MI
Originally posted by @Jessie Nunley:
Originally posted by @Joe Villeneuve:
Originally posted by @Matt Burgess:
@Nicholas L. @Jessie Nunley I think you both are exactly right that I will need to get a high paying job to reach this goal. I also need to live well below my means if I want to have any chance. Thank you both for your input!
No you don't...to both statements.
I respectfully disagree sir. The chances of this young man creating $50k in cash flow per year without doing at least one of those is incredibly small. Unless an established investor such as yourself mentors him and helps him find deals. But the likelihood of that happening is pretty small as well. Ive learned that most investors don't like "mentoring" new investors because it takes too much of their time and potentially takes deals away from them.
I do it all the time.