How can I cashflow $4K/mo from a $400K investment (within 4 yrs)?

Question

Hi, the goal is to get $4000 per month of consistent cashflow. This needs to happen WITHIN 4 years - basically by the end of 4 years, the $4000/mo cashflow should be consistent. I know many variables can go into play, but run this simulation with me.

You have $400K to invest. How would you do it? I want to run a worst-case scenario simulation -

We are assuming that the market MAY go into recession over the next 5 years (2019 to 2024). It will reach the lowest point in 2024, and then come back up over the next 5 years (to current prices) by 2029.

I want to know the following - if you have $400K for investment, then how would you invest it?

Of course, if you are CERTAIN that the market will drop over the next 5 years, then you may just save that money and invest it all in 2024 (when the market reaches its lowest point). But see, you don't KNOW if the market will go into recession over the coming years. The market MAY go into recession...

So how do you invest your $400K (while managing risk for the recession that may happen over the coming years), and generate $4,000 per month consistent cashflow (within 4 years)?

Specifically, what STRATEGIES would you use? - flipping, buy/hold, notes, turnkey, BRRRR, wholesaling, development on raw land, mobile homes, student rentals, house hacking, multi-family homes, SFH, commercial properties, Airbnb - how would you do it?

I've been having long discussions on this topic and thought that you folks can shed better light on the subject. Looking forward to your views and strategies. Thank you.

Stone Jin · Answer

As for strategies, you can eliminate flipping, wholesaling, development as they are jobs and not cashflow vehicles.

48K a year in cashflow on 400K investment, so that's a 12% cash on cash return.  I'm sure there are many markets in the midwest you can just buy 5 80K houses that each cashflow $800 per month.

As for the rest of the strategies, it all depends on what you are comfortable doing.  Student rentals and airbnb have higher returns but usually have more turnover and work involved.  Notes and traditional buy and hold have less turnover and work.

Since this is all hypothetical- not sure what you are looking for.

Randy Thomason · Answer

Hi Shay,

Notes are a great way to get return and I do buy them but I look for slightly flawed notes to get bigger returns.  Not flawed from the standpoint of late or missing payments.  Flawed in that they were not underwritten well by the seller.  (no appraisal, no credit check, no dow payment,etc)  But i look for some payment history and current LTV ratios.  I often buy at big discounts from motivated sellers and get a 20 to 40% ROI.  Then if you wanted you could sell some front end payments and keep the back side.  This way you could get your cash back and have a free back side investment coming in in 5 to 10 years with good payments.( I recently did this and got my full investment back by selling 5 years of the payments of $808/mth and kept the last 16 years.  It had a 9 year pay history also.  I have nothing invested at all and if the loan goes to term I will collect $155,136.) I have zero risk and everything to gain.

But my favorite strategy is buying houses Subject to the existing mortgage from motivated sellers. I average 1 per month easily without much marketing for them.  States differ but in my state I can usually buy houses in the 80 to 125,000 range like this.  Closing cost me around 1k and they will cash flow 200 to 400 per month.  Some need a little work. 2-6k.

Combine this with some notes, a duplex here and there, some short term private loans to landlords maybe (factoring for their monthly rent)  and then you can hit your magic number and be diversified to a degree.

Just some different ideas to throw at you for thoughts!

Dan Deppen · Answer

You can buy performing notes that yield 12% and get your $4K/mo cash flow target right away. No investment is completely immune from changes in the market, but this would probably be lower risk than many of the other options.

AJ Singh · Answer

@Shay Singh

As a first time investor, start with single family rentals. you can buy using turnkey or MLS route.

your local area can present opportunities and you can join local REA groups to educate yourself more.

Recession in housing market is given and if you are tapping your line of credit as a down payment, you are leveraged to the hilt.

to make $4k net a month, you will need to generate $6k after prop mgt fees and keep a cushion of $2k a month for repairs.

real estate investing is great but have to acknowledge that repairs are always needed as you scale portfolios.

look into midwest and midsouth areas. lot of reputable turnkey providers and realtors on BP. i am sure you will connect to the right source and start your journey. If you keep on thinking about probable recession, it may lead to paralysis of analysis scenariors and you may never start investing.

Ans you dont need 10 cap rate but probably a 15% ROI to get your net 4k a month unless you have lump sum of 25k as a cushion for emergencies

Stone Jin · Answer

@Shay Singh

Be careful about leveraging especially if you believe the market is going to decline in the next 5 years.  With the 400K cashout you are already leveraged and if you leverage against that you will be 100% leveraged which will make you vulnerable in a down market.

Also as a newbie, I would stay clear of C and D class property.  It takes a certain type of investor to handle those type of deals.

Buying a note that gives you 10% is fine if you understand the equity position and which position you are in.  There are plenty of crowdsourcing sites that offer 8-11% returns on 1st position notes where there is at least 25% equity in the deal.

Owning B+ properties outright in certain markets will likely be the safest play but those deals are hard to find where you can make 12% cash on cash.  You can look at small multifamily like an 8 plex or 3-4 sfh.  Good luck

Shiloh Lundahl · Answer

@Shay Singh probably the easiest and most passive way to earn the 4K a month would be to lend it out as a private money lender by buying notes. CAUTION: if you do this method, make sure you have vetted the person and the investment really well before lending any money.

The following isn’t a sales pitch, it is an example. We have people who lend us money at 10-12% (10% for 1 year, 11% for 2 years, and 12% for 3-4 years). We then create a second position note on one of our rental properties that is leveraged under 80% and bring up the leverage to 80% as long as the cash flow can support the added debt expense. Doing something like this is one way to earn 10-12% passive return.

I say this is not a sales pitch because currently we have private money lenders on most of our properties already and we have a waiting list of people who would like to loan to us. This was just an example of a way to reach your goal of 12% through the ups and downs of the market.

*by the way, if you want to respond to someone and have them know that you have responded to them then put a “@“ in front of their name and choose them from the names that appear to the left.  You can include anyone from your contact list or anyone who has commented on the thread.

Henri Meli · Answer

@Shay Singh $4K per month is $48k per year. If 400k is 25% of down payment, then your asset needs to cost $1,6mm.

You will need a 10 cap asset to produce you this cashflow consistently. C and D class properties ( multi family ) can do it. You can also look at distressed assets. after you have spent money fixing them up.

Shiloh Lundahl · Answer

@Shay Singh probably the easiest and most passive way to earn the 4K a month would be to lend it out as a private money lender by buying notes. CAUTION: if you do this method, make sure you have vetted the person and the investment really well before lending any money.

The following isn’t a sales pitch, it is an example. We have people who lend us money at 10-12% (10% for 1 year, 11% for 2 years, and 12% for 3-4 years). We then create a second position note on one of our rental properties that is leveraged under 80% and bring up the leverage to 80% as long as the cash flow can support the added debt expense. Doing something like this is one way to earn 10-12% passive return.

I say this is not a sales pitch because currently we have private money lenders on most of our properties already and we have a waiting list of people who would like to loan to us. This was just an example of a way to reach your goal of 12% through the ups and downs of the market.

*by the way, if you want to respond to someone and have them know that you have responded to them then put a “@“ in front of their name and choose them from the names that appear to the left.  You can include anyone from your contact list or anyone who has commented on the thread.

Shay Singh · Answer

Hi Stone, thank you for your response. I will research the midwest market further. I understand that the hypothetical scenario may have made my post unclear.

Actually, if I refinance my current house, I will get $400K cashout, which I want to reinvest in a way that gives a $4K/mo cashflow. However, as I suspect the market may enter recession (I may be wrong), I want to take that factor into consideration in my planning (just in case things go sideways).

I would like to come up with an investment strategy that not only generates a $4K/mo cashflow, but one that would be immune if the market went into recession within the next 5 years.

I presented it as a scenario, because I wanted to see what decisions and strategies experienced real estate investors would use. As I'm very new to all of this, it would be very insightful to learn what other investors would do if they were in my place :)

How can I cashflow $4K/mo from a $400K investment (within 4 yrs)?

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