Evaluate my plan

[Craig L.]

I think most successful investors will tell you that having a concrete plan on paper before you start investing is absolutely critical. I've been doing research for several months now and have formulated a plan that I am anxious to take action on, and thought I'd get some feedback. So here it is...

My overall goal is to have a passive income of $10k per month by January 2011. I will balance the first 1-2 years of investing with a full time job, which I understand is not going to leave much time for sleep.

The first phase of my investing will last 8-12 months and include capital base growth and no-down-payment rental acquisition. For capital base growth, I am focusing on rehabs (REO houses) with the typical formula ending up with a profit of 30% ARV. I have enough liquid assets right now for my first rehab to be in the range of a $75-100k ARV house, so a $20-30k profit if flipped. I am still unsure whether I will retail the rehabs and pay the 6% realtor commission as well as higher short term capital gain taxes, or lease/option them to get full retail, no commissions and lower taxes. I'd probably just straight flip my first one or two which would give me a capital base to make cash offers a pay less in rehab loans on future rehabs. At the same time, I will be looking for flexible sellers to negotiate purchasing property for no money down that I would rent out. I'll be using the techniques outlined in Carleton Sheets course to acquire properties for no money down that will still cashflow... and I suspect this will work well in my area since rentals with conventional financing can be acquired with a gross rent multiplier of 50-60.

In 8-12 months I hope to have completed 3 rehabs, have $50k in capital, and 2-6 rental units which cashflow $100-250 each per month. I also expect to have some experience in property management which will help me find a good property manager in the future. Now comes the fun part of making $500/mo passive income grow to $10k/mo in 2 years. I think it is ambitious, but possible.

Phase 2: With the $50k in capital I want to acquire apartment complexes at 95% LTV -- or $1 million in total mortgages. Apartment units can be had for $25-35k each in my area, giving me a total of about 30 units which cashflow at (conservatively) $100/mo. That now puts me at $3500/mo passive income. In the next year, I would improve the apartment complex(es) intelligently with the goal of decreasing operating expenses and increasing rents $20-25/mo. 30 units X $20 X 12 months = $7200/yr, and more importantly increases the value of my apartment complex by $72k (assuming a conservative 10% cap rate).

Phase 3: After having improved the income-determined value of the apartments on the books for a year, I would plan to do a 1031 exchange into an even larger apartment complex and do it all over again, with the goal of that complex netting me $10k/mo in passive income.

Phase 4: Take a vacation. :beer:

Any comments, criticisms, advice etc. would be very helpful.

Thanks!