Investment strategy by the numbers

[Avi M.]

Hey all,

First post on BP!  I remember a few years ago after reading a few articles about "what's your magic number" (the amount of money you need to retire), I determined my number (a goal to set out for).  It was close to $3 mil.  Pretty far from that at this point in my life, but the more I think about it and the more I read on BP, maybe my (and countless others) thinking is a bit off.  I'd imagine I could achieve the lifestyle I want much earlier if I were to focus on cash flow rather than liquid assets.

My question is, if the goal is to get to a passive cash flow of $10,000/mo, what's a realistic amount of money to have saved up to accomplish this?  Note: this is more a question of "if someone could save X amount, they should be able to retire quite easily" -- assuming $10,000/mo is the goal.  Of course there's value in investing whatever capital is available now and re-investing the proceeds to get to the goal faster.  This is more of a theoretical question than a practical one.

Also, the focus would be passive investing.  My definition of passive would be buy/hold (with property management in place), notes, etc.  Something that would take a maximum of 15-20 hours per month.

Along with the amount needed, it would be interesting to hear *how* you would do it as well.  Focus your attention on one large apartment complex?  Turnkey investment properties?  Note investing across many properties?  Diversify?  Something else I'm missing that would be considered passive?

I'd love to hear anyone's response to this: from newbies to pros.  Thanks!

[Sharad M.]

@Avi M. 

I had very similar conversation with another BP investor today. If your goal is to get $10,000 passive cash flow, then you first need to see what kind of properties will you buy. To keep the math simple, let's say you find yourself interested in SFHs that rent for $1,000/month and sell for $50,000. Assuming there is no financing, you will need 20 of these houses to get $10,000 net cash flow. 20 houses means $1,000,000 purchase price.

Now if there is financing involved, you will need more than 20 houses to factor in the Principal and Interest payment in your cash flow.

You will need to work backwards into all the numbers starting with $10,000 net cash flow number.

I did this by buying mix of SFHs and some small multi-units (2-4 units). How you arrive there will depend largely on what kind of capital you have available. If you had $1,000,000 available in cash, it will take you a lot of time and effort to purchase 20 houses. It will be lot faster and easier to purchase a big apartment complex assuming similar numbers.

I bought one house at a time based on capital availability and kept reinvesting the income into buying more properties.