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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
Yes. It depends on where your market analysis says you are investing, and how...meaning the specific strategies that makes the market analysis work
Of course its possible!! However, running in place wont get you there. Don't get paralysis by analysis. Gotta get out and take that first step. Start with a phone call to a couple of real estate agents. They can get you pointed in the right direction and connect you with other professionals.
@Matt Burgess such great goals. Welcome to BiggerPockets and best of luck on your journey.
Congrats on your first BP post and on learning about RE!
No one can say with any degree of certainty if your goal is achievable for you specifically. We simply don't have enough info.
We can do some pack of the napkin math to change your cash flow number into a metric that has some more use.
First off, I'm going to make the assumption that when you say cash flow, you mean free cash flow(FCF), ie after all operating expenses and debts have been paid.
Some basic metrics let us arrive at an amount of money/number of units you'd need to get $50k/yr FCF.
First off we will assume you have mortgages on these properties and that they have at least a Debt Service Coverage ratio of 1.2. That means the NOI is 20% greater than the mortgage payments. If you want to have $50k left over after paying your mortgages, you'd need to have a NOI of $300k/yr (1.2x-x=$50k, where x is your mortgage payment and 1.2x is your NOI)
Next, if your NOI is $300k,and from my experience SFRs have between a 50-65% total expense ratio over time, that means the gross rents will have to fall between $600k-$857k/yr or 50k-$70k/month.
Since median rent in St Charles MO is $1,675/month, that will put you at around 30-40 units, probably a bit less since you won't buy all of them right now.
The median home price in St. Charles sits around $200k, so with a 20% mortgage, you'd need $1.2-1.7M in down payments.
That number is admittedly on the high side, since nothing says you need buy only SFRs, you could go into 2-5 unit multi family which will drastically lower your per unit cost. If you can get each unit for $100k and use some lower down payment products in the beginning, with some forced appreciation, you could get 30 units for around $500k in down-payments most likely.
The big issue I see is time. your 27 yo for you is in 6 years. (congrats on the birthday btw) You'd need to save, on average $83k/yr. If you set the goal at your 30th birthday, that savings requirement drops to $55k/yr. Bear in mind that is an average. You could do $55k a year like clockwork or start off at $30k/yr and growing it 15% every year.
Again, these numbers are back of the napkin ideas and are just a reference point. With sweat equity, hard works, a solid strategy, and luck you could need 20% less units.
Best of Luck.
Bill's analysis seems pretty conservative to me. It also assumes no fixer uppers (which would allow you to save lot of money on the purchase price, probably more than 20%) and buying all units in perfect, operating condition. In NJ deals abound that can provide $200-400/mo per unit in free cash flow including single and multi. So to get there you'd need perhaps 10-20 units, on the lower end with apartments and multi-fam, on the higher end with SFR. Instead of trying to save up a mammoth amount, you'd surely be better off buying properties one by one, starting small (should be able to get something for $5-10k down), and adapting your financial strategy as you go forward and learn more about buildings, construction, expenses, tenants, etc.; you will learn by doing, and your ideas are probably going to change a lot between age 20 and 30. I'm not an investor myself yet but have worked with several for many years; just my two cents.
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@Matt Burgess get a good W2 job, crank up your savings rate, and house hack.
@Matt Burgess this is absolutely possible but you better have a pretty high paying job to get you to that point. $50k per year in cash flow in 6 years is gonna take some serious equity on your part. Buying properties that only cash flow $100 per door won’t get you there very fast. Best of luck!
@Bill F. Thank you for breaking it down like this. This really helps paint a better picture of what achieving this goal will actually look like. I also agree that $83k/ year seems like an awful lot right now, but I will definitely be looking to purchase small multifamily properties to decrease the unit per cost like you talked about. Thanks again! This is very helpful.
@Patrick William I agree that the best approach will be to start buying properties one by one. I need to acquire some more knowledge by actually doing, before I jump in to several deals at once. I know some people buy multiple deals right away, but I don't have the risk tolerance for that. I will need to start slow and gradually progress. Thank you for your help!
@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!
@Billy Daniel Thank you! I plan on making phone calls to agents this week to help me get started.
@Marlen Weber Thank you!
@Joe Villeneuve You're right, I will have to focus in on the strategy that works best. I am working on getting a more specific strategy right now. Thank you for your input!
#4 All Forums Contributor
- Plymouth, MI
Originally posted by @Matt Burgess:
@Joe Villeneuve You're right, I will have to focus in on the strategy that works best. I am working on getting a more specific strategy right now. Thank you for your input!
No, I think you misunderstood what I meant. Don't focus on one strategy that you try to make work for as many markets as possible. Focus on as many possible strategies you can learn, and apply the strategy/strategies that work best in a particular market...depending on the specific property in that market.
#4 All Forums Contributor
- Plymouth, MI
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.
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!
Great mindset sir! My wife and I have nearly an identical goal to yours. We would like $5k per month but we have pensions on our side. We are both part of the Air National Guard and I am also training o become a firefighter. With those three pensions combined we will be over our $5k per month goal but we have to wait until we are 60. Our main real estate investing goal is to pay off our home in 10 years instead of 30. By doing that we are basically creating a cash flowing property of $750 per month (we pay ourselves that money) and we are reducing the amount of interest paid to the bank by $73k. Our other real estate goal is to buy 2-5 duplexes and have them each paid off as soon as possible. This will allow us to retire before the age of 60 and then have our pensions waiting for us once we turn 60.
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.
@Joe Villeneuve Yes, I meant that I am currently learning about different strategies and trying to decide what strategy works best for the market and property types that I will be investing in. Thank you for the clarification.
@Jessie Nunley This seems like a very safe plan to build great wealth! I also plan on paying off my primary residence as soon as I can once I purchase my “forever home”. I probably won’t do the same for my investment properties, because I would rather have more cash flow and lower mortgage payments. But that mindset could change once I really get started. Good luck to you both on reaching your goals!
@Matt Burgess
Totally doable Matt. I started in real estate at 20, was nearly bankrupt at 23, then changed some things and was a millionaire at 27. Now I'm 34.
The big shift is I went after acquiring assets. I did then as I do now, I buy and sell houses to create cashflowing assets for the future.
So to make 50k year, you need 500k in net assets producing 10% year.
I tend to make at least 25k a house, so that 500k would be 40 deals.
Can you do 40 deals over the next 6 years? Seems pretty doable if you invest the time to learn and push this.
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@Matt Burgess don't pay off your primary residence as soon as you can; that will unnecessarily tie up cash that you could use in your investing. Interest rates for primaries are incredibly low right now. Save everything you can while you decide what your first investment will be.
Also, check out Kristy Shen's book "Quit Like a Millionaire." It's a non real-estate path to FI, but I found her personal story and mindset inspiring to those of us looking to invest in real estate.
@Matt Burgess totally possible
I went from $0-120k in 7 years
@Matt Burgess I would recommend house hacking with multi-family, avoid Dutchtown South, Overland and St. Ann are nice areas, Saint Ann is a little pricey though. Carondelet is ok as well. Anything West of I270 is generally worth checking out. Forest Park is high but you could buy the worst property in that area and flip it.
God Bless
#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.
He's given himself 6 years to do it. In the right market, using the right strategies, why not?
@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.