Kathy Kettke $200K in 10 houses -> $70K/year free cashflow

[Jonathan Benjamin]

Hi, new aspiring RE investor here.  I have cash to invest, but at this stage I'm mostly investing in education so that I don't make some dumb mistakes.  

Recently Kathy Fettke has been taking a lot of interviews where she talks about a strategy of taking $200,000 in cash, using it to buy 10 SFR properties that cashflow ~$300/each per month after financing costs, with the result being that after 10 years you'll have fully paid off the first house and will be generating total free cashflow of around $70K/year.

I've run some numbers of this strategy and the assumptions seems like it requires a cap rate of 8% on the houses, annual appreciation of 4% on the properties, a mortgage rate of 4%, with 20% down on each of a $100K SFR. Sound about right? Seems like the cap rate AND the appreciation rate are awfully ambitious for most markets.

Any thoughts on this? Does it effectively require BRRRR'ing each property to hit the target appreciation, or can this be done with more turnkey properties in any markets? Or is there some aspect of this build-up that I'm missing? Would love to discuss, and feel free to poke holes in any of the assumptions I have about.

[Randall Alan]

I can tell you that we are executing a somewhat similar plan to hers.  I can't speak to the "paying it off in 10 years part"... that isn't part of our plan... as we use the cash we get each month to live on... but otherwise the $300 per house is totally feasible.  As to the purchase side, we target homes under $75,000 a door that can rent for at least $1,000 a month.  This will net us about $500 a month after Principle, Interest, Taxes, and  Insurance.  If you account for a $100 maintenance reserve, this gives us $400 net per month.  The better either of the two numbers (Purchase price below $75,000, and Rent above $1,000) can be, of course the whole thing functions even better.

I would suggest the bigger "key" to the whole puzzle is to "buy right".  We have worked through wholesalers and picked up properties that already have $50,000 equity in them at closing. See screenshot below. So you could literally instantly flip this house and get the majority of your money back... but for us the goal is rentals, so we will hold onto the equity, knowing that we are 'sitting pretty' down the road.  Here is an example of ours.  When we closed, the property was worth $95,000.  it is now worth $127,995.  This house rents for $1,400 a month.  We didn't finance this one, and it nets around $1,100 a month.  If it was financed it would probably be around $900 or so.   If you find the really great buys, it will totally change your strategy, and your numbers!

All the best!

Randy