$5000k CASH FLOW IN 4 YEARS, IS IT POSSIBLE??

[Maria Luna]

Hello Investors,

I’m in need of some advice here with this plan I have. My goal is to achieve financial independence in 3 years by investing in apartment buildings. I need to get $5000k cash flow per month to accomplish this. I currently have $150k cash in savings that would like to put down as a down payment on a small apartment building. I have been looking at the Michigan market to do this, Detroit and suburbs of Detroit to be more specific. That’s one investment.

Plan for second investment:

I have about $200K equity on a SF rental. I plan to get an equity line of credit and use that money as down payment on another apartment building in Jacksonville since that’s were I plan to retire eventually. I done my research on both markets and feel confident about investing there. I have only invested in SF here in WA, which I manage my self.

What do you guys think? Am I on the right path to achieve my goal? Can my freedom number be accomplished through this two investments? What would you guys do different?

Would love to hear from investor who invest in apartment buildings in this two areas.

Thank you in advance!

[James Kojo]

@Maria Luna : it sounds like you're off to a pretty good start, since you already have a small portfolio.

If cash-flow is truly your goal, then you may consider shifting your portfolio out of appreciation (i.e. low/no cashflow) markets like SF. I'm guessing if you took the 200K out of the SF property, you'd be cashflow negative on that property? If so, you would have to make additional cashflow in your out of state properties to make up the difference on top of your 5K goal.

Further, taking out a $200K HELOC would effect your debt-to-income ratio (DTI), which may disqualify you from the additional debt you need to purchase your new properties, unless you can get non-recourse debt. You'll have to do the math or ask a mortgage broker.

But let's say my assumption is incorrect and that you could tap the full $200K equity at cash-flow neutral and DTI isn't a problem. That gives you a capital base of $350K for your new projects. 5K/month is 60K/year, which amounts to an annualized 17% return. That's doable, but a bit on the aggressive side, given that you'll also need reserves and you won't yet have much economies of scale.

So, I wouldn't plan on being able to do both projects in one shot. More likely, you'll have to snow-ball. That is, buy a value-add property, rehab it, and then do a cash-out refi to start your next project (BRRR as everyone around here likes to say.) :)

Just make sure to have adequate reserves AND a plan-B in case there is a downturn in the economy!

Another idea is to invest the full $350K passively, which may get you close to what you need depending on the operator. A discussion of the pros/cons of active vs. passive is beyond the scope of your question, though.

Yet another idea is to start a syndication yourself, which would allow others to invest in your deals along with your own money, giving you way more leverage.

Hope that helps!

James Kojo