100K to start - advice on long term strategy before I begin...

[Nick Rose]

First post here, and hoping to get some advice/insight into the feasibility of long terms goals.

Goals

As most, I've been doing a fair bit of research to determine the best route (for me) to investing in real estate. My current long term goal is to have enough passive income property to generate 200K per year income within 15 years and not jeopardize our current retirement savings plan. I have a degenerative muscle disease that is slowly weakening my arms and legs so I'm hoping to retire in 15-20 years, and also have enough income to help my kids thru college.

Background

I'm a full time mechanical engineer in Michigan, and my wife works full time in business. I'm 37, and we have 2 young kids. Currently, I have a mortgage on our primary residence and own and self managing a nice single family rental (11 years left on 15 year mortgage). I have done so for 4 years. I've personally renovated the rental, and my current home. I grew up as a major DIY'er with dad building cars, houses etc. I guess you could say I'd rather be making a tree house than watching sports. Now that our house is finished, I'd like to use some savings to purchase real estate. I"ve considered single family homes, however it seems it would take an enormous amount of effort to have enough homes to meet my goals. Commercial/Multi-units with management in place seems to fit. We have nearly perfect credit and I have 150-170K. My initial thoughts are:

1) Use 100K as a downpayment to buy a multi-unit housing for 400-500K price range. Keep the remaining cash for reserves.  Finance the rest.  

2) Assuming an income from the property of 35-40K per year, (I have to verify cap rates as they seem all over the place.) I would use all of the net income to payoff the loan asap. I could also flip a home (or 2) a year on the side with a goal to make 30K/year after tax flipping. All going toward paying off the complex in 5-6 years.

3) After the multi-unit's loan is paid, save up 120K in 2 years time frame.

4) Buy another 400K property and again work to pay it off again.. This time in 4 years using 2 multi-units income (70K NOI apartment + 30K flipping)

My rough estimate is I could continue to do this and it would take approximately 14-15 years and 5-6 400K property purchases to reach my goal. Does this high level plan sound feasible? Obviously, there is potential for many bumps in the road and many details to vet out. Maybe others have tweaks how I can reach the goal sooner? Possibly pulling equity out of the properties to purchase more sooner? Any comments are welcome!

[Joel Florek]

@Nick Rose I would have to agree with @Charles Kao. I would love to be in your position with that much cash on hand. You have an opportunity to look to get leverage on a much larger property given you buy right. Think in the 20 to 40 unit range. You will need some creative financing to go along with what you have but you could put yourself in a situation to go and buy 1 building that will give you the NOI you hope to have as cash flow in the future. The goal is to not tie up all your money in just one deal if possible. However, if you do you need a plan to get it out within a year or two through refinancing after completing value add projects.

I have bought 20 units in the U.P. with only about $5k of my own cash during closing. I have put more money in to pay down debt faster after I have closed the deals but my NOI is $80k on the 2 properties. Think the opportunity you have with $170k.

There are many ways to get from point A to point B so I think you need to focus on how to leverage one strategy and focus all your energy on that one strategy for the next 1 to 3 years. If you seem to be gaining traction keep it going, if not pivot when you feel its right. Based on your goal I would argue that mid sized multi family investing is your best strategy(20 to 50 units). The question I think you need to consider is how involved do you want to be in the day to day action and how will that play into how you evaluate and work to close deals. Will partners be involved or you going solo and working with a management company. How many properties and in what location of interest are you going to want to focus on.

Would be happy to get on the phone sometime and talk more about your goals give you my two cents based on my experiences. PM me if youd be interested.