Best way to 10k/month cash flow?

Question

So lets say a guy has around 400k in liquid assets and is looking at a goal of 10k+ passive cash flow per month, what is the path of least resistance to get there?

In other words, what would you do with that money to hit that goal?

J Scott · Answer

If you have $400K in available assets and are looking for $10K per month in income (or $120K in annual income), you'll need about 30% cash-on-cash return to achieve your goal.

A few thoughts about that:

- Without risk, you won't achieve that right off the bat;

- Without leverage, you won't achieve that right off the bat;

- For a more realistic shot at $10K per month, you probably should expect a COC return closer to 15-20% maximum (if you're knowledgeable and experienced), which would require a bankroll of about $600-800K.

So, unless you're willing to take a lot of risk and/or use a lot of leverage, you probably won't to grow your capital by 50-100% before you expect to achieve your goal.

Depending on your skill level with real estate, your chosen investment vehicle(s), your ability to participate actively in your investments and your motivation, I would expect that 50-100% growth to take anywhere from 2-5 years.  So, I would expect you to be 2-5 years away from your goal, depending on how much work you're willing to put in.

Personally, if it were me, I would flip houses for 2 years, increase my capital to $700-800K, and then find a reasonably leveraged, reasonably passive investment (NNN, multi-family, etc) that can return about 15% annually.

And, if you don't have any real estate experience, I would expect to study for 6-12 before taking any action at all, as real estate investing is certainly not risk free, even for experienced investors.

Jon Holdman · Answer

If you could acquire 44 properties with conventional loans, similar to the deal Nathan describes, you could achieve your goal.  You need to get rents of $1260 per property.  I'll assume 30 year, 5% loans.  Here's the math, including costs that were omitted above:

Purchase: $80,000, no rehab needed
Closing costs: $1,6000
Down: $20,000
Total cash invested: $21,600
Refi costs: $2,500 (these costs may be off, but these number are closer than $0)
New loan: $75,000
Cash out from the refi: $12,500
Cash left in property: $9,100
New payment: $403
Rent: $1260
NOI: $630 (assumes 50% rule, which is the best you're going to do with a PM running the properties)
Cash flow/month: $227

Do this 44 times and you get:
Total cash invested: $400,400
Cash flow: $10,010

Trouble is, you can't do this.  Even doing this a few times is not trivial.  Cash out refi's are not easy to get.  Doing them after a year on a property with no improvements is even tougher.  Your $80K purchase is now a comp for others, and those others will become  your comps when the property is reappraised.  Not saying this is impossible, but its not a walk in the park.

Further, as Nathan points out, you can't get 44 loans like this.  If both you and your wife have good credit (720+) and good income (separately, not together) you can pretty easily get to eight (assuming you don't have a mortgaged primary residence).  With some searching, you can probably get to 20 (10 each).  After that, you're looking at commercial financing.  That's may be a bit more expensive and will almost certainly be shorter terms, probably 15 years max.

A truly passive investment would be a NNN commercial property.  For example, a garden center in Wilton, NY.  Priced at $1,567,600 with a 8% cap rate.   That means if you paid cash, you'd get back 8% per year.  Instead, you put down 25%, $391,875, and get a 20 year, 6% loan (not sure if that's realistic or not) for the rest.  So, you get the full 8% on your 25% down payment and get get 2% (8% cap rate less the 6% interest rate) on the remaining 75%.  That would get you a net of 14% on your money, which, unfortunately, only $4,572 a month.  In reality, you would get about $600 a month less than that because of the principle payments that would be included on your note.

Another option would hard money lending.  Not too difficult to get double digit returns.  If you make the loans yourself (i.e., no broker) and your state allows, 15% or even higher is in the realm of possibility.  Trouble is that its hard to get all the money invested.  You end up with some left over that's too small to do another loan.  And you have some downtime from when one loan pays off before you can get the money back out.

To answer your question, is there an easy, passive investment that will produce 30% returns?  Nope.  It doesn't exist.  Half that maybe.

Are there people out there who will promise 30% totally passive returns?  Absolutely.  Beware.

Joe O · Answer

EDIT: J Scott beat me to it and posted while I was typing.  Much of the below is redundant, but basically reinforces what he said.

It'll take work.  You're looking for a 30% cash on cash return - not impossible, but you'll likely have to build up to that 10K/mo through compounding.

That is, you may generate a lower return, say 10-15%, build your investment, and then getting that same 10-15% on a higher investment of 800K or so will net you 10K/mo.

Either way, it'll take work, it's not an invest it and forget it for passive cash flow.

More reward (the 30% returns you want) come with more risk and work.

Or to put it another way and directly answer your question:
"400k in liquid assets and is looking at a goal of 10k+ passive cash flow per month, what is the path of least resistance to get there?"

1) Put 400K in passive investment yielding 5% with no further work required.
2) Wait about 37 years without touching it.
3) Principal will now be approximately 2.4 million and should kick off 10k/mo at that 5% rate.

Watch out for inflation (hope that's a 5% real return, not nominal)

If you found yourself not liking that plan, you may want to get realistic and realize a few things:
1) 30% returns, while not impossible, are unrealistic
2) Getting to 10K/mo cash flow will be anything but "passive" 
3) "The path of least resistance" won't get you there.  It will require hard work

As for getting started, you're in the right place.  Start reading!  Good luck.

Jon Holdman · Answer

I'll give some thoughts in a reply a bit later, but first let me put on my moderator hat.

This is NOT a solicitation from Jay for opportunities to invest his money. (I'd avoid mentioning such a number in a public post, but too late.)  If you post "invest in such and such", and you're selling "such and such", please provide a good explanation of why "such and such" is a good investment and how it will produce the desired returns.  If you write anything like "contact me for more info",  I'll delete your post.

Sorry to be so testy right off the bat, but there have been several threads like this that have turned into a series of ads for different investments.  Lets please stick to advice here, not ads.

More later.

Jay Dawson · Answer

Thank you for the detailed answers and interesting ideas. I also thought the key would be to pursue flipping to increase the liquid asset amount and looking for more reasonable returns in the 15-20% range on managed rentals. By 'path of least resistance' I didn't mean not putting time or hard work into it, but rather the best path to get to the end goal. So rather than trying every facet of RE investing.. trying to stick to just a few areas (i.e. flipping then buying rentals for cash flow) to achieve the goal.

I know some of the 'guru' guys advocate building up your RE portfolio and rolling your proceeds into owning large apartment buildings/complexes. Is anyone experienced in doing something like that to briefly share their experiences?

Thank you again to those of you who took the time out to respond, and to reiterate Jon's point this post isn't asking for a solicitation for deals or anything like that, just looking for knowledge. Chris, I figured your response was part of another post, but glad to hear you're doing well with your properties.

Chris Masons · Answer

OOPS, sorry guys, I confused part of this thread with another thread I was reading.

Please disregard the last parat of mym post regarding financing on 5 to 10 properties as it was meant for another thread!

thx!
Chris

Chris Masons · Answer

Nice topic/discussion with actual examples on what is required to acheive such a tough goal.

I often think about trying to move into cash flowing properties full time but realize how tough it actually is to achieve and work involved.

I have a nice supplemental income from it and continue on working on increasing my NET monthly + cashflow from my properties but kind of took a step back and am not trying to do this solely now. If I was younger and single, you bet I would be much more agressive and maybe I could achieve this.

I have 5 properties 1 primary SF) and rest multi families. a 4 fam, 3 fam, and 2 2 families. My next multi 2 family deal I am working on will be little tougher as I am breaking into the 5th investment property realm. While Fannie and Freddie will do up to 10 (per their special guidelines section) I am finding banks have their own overlays that won't do it just because it is more risk for them and more work involved.

Jay, have you ran into any problems between the 5- 10 mortgage range? I am curious who national banks (if any) did your financing on properties 5,6, and 7. I don't want to go to local banks/portfolio lending as this will kill my cash flow as I focus primarily on the positive monthly cashflow.

as always thx in advance!
Chris

Nathan Emmert · Answer

You can achieve 30+% Cash on Cash Return by buying distressed rental properties and using maximum leverage... it'll just be a riskier investment.

If you could, for example, buy a rental worth (bank appraisal) $100k for $80,000.  You would initially put down $20k (25%) to purchase the property based on the sale price.  In short order (0, 6, 12 months depending on the lender) you could do a cash out refi at FMV of $100k.  Based again on a 75% LTV, you'd pull $15k out and only be in the property $5k.  Assuming you're making more than $125 in free cash flow per month on the property with a $75k mortgage (rent of $1,100+/mo)... and assuming you can do this 79 more times based on your $400k.

Of course this isn't really any more passive then flipping as finding those deals isn't as easy as calling up your local realtor.  A secondary issue is between a spouse and yourself you'd only qualify for 20 mortgages (10 a piece) before your capital costs would start to rise.  But it is possible.

With more money you could shop for less stellar deals... or go with less leverage making for safer investments.  The less skin you have in the game the more debt you're going to have and thus more risk to be taken.

Best way to 10k/month cash flow?

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