A plan that makes sense

[Marcus McCauther]

I recently read (about a month ago) Brandon Turner's 7 years to 7 figure wealth and wow, he really nailed it! This motivated me to make a plan of my own, and so I set out to do so. I was almost instantly stopped by the thought of being realistic. I realize without a plan I'll get no where, but after all it has to make sense right? Common sense tells me that I can't make $100,000 in a month, but as a "newbie" it's quite confusing as to what's realistic when investing in real estate. Before writing this question I read a post where a guy was being told by a couple of readers that his plan would have him moving too slow and may potentially miss out on deals. This made the confusion even worse. My question is how do you develop a plan that works for you without over shooting it or not being agressive enough? I admit I even thought about taking Brandon's plan and manipulating it to fit a single family home scenario, but I started to feel that would have been just plan wrong.

Is there anyone who may be able to help me make planning make sense?

Thanks

[Brandon Turner]

Hey Marcus McCauther thanks for the kind words about my little book :) I'm a huge fan of making a plan. I like that by making a plan, you are able to turn your investing into a much more "now fill in the blank" sort of business, which helps keep you on track.

However - keep in mind that a plan is never going to perfect or followed perfectly. But it's a good guide.

First- have you checked out "The Ultimate Beginner's Guide to Real Estate Investing?" If not - definitely do so.

Secondly, I think a lot of the realism comes through "talking shop" and the forums here are the best place to do so. For example, you want to do single family homes - great! So, I'd start at the end - what's your goal?

Let's just say, hypothetically, you want to earn $10,000 per month in passive income from real estate.

That's 100 houses, each earning $100 per month in cashflow. OR that's 50 houses each earning $200 per month cashflow. OR 25 houses, each earning $400 per month cashflow.

Next, I'd look at your market. What kind of cashflow is possible? Take a look at the properties nearby and what they are selling for (the cheaper ones, hopefully, that maybe need just a little bit of work to make them rentable to a nice family.) If you can pick up a single family house for $70,000 total (if it's normally priced at $100,000) and it will rent for $900 per month, then figure out the cashflow on that. If you put down 20%, and mortgaged $56,000 - then you'd have a payment (principle, interest, taxes, insurance) of around $500. So, if you had NO maintenance or vacancies, you'd have $400 per month in cashflow. In reality? You'd probably be closer to $200, after those expenses.

Okay, so now you've got $200 per month per unit is average for your area. That means if you want $10,000 per month, you'd need 50 houses. That could be 5 houses every year, for ten years - OR it could be 10 houses each year for 5 years.

Next comes the financing - is that possible? Can you put down 20% on 5 properties per year? That's quite a bit of money. Can you find partners to put down 20%, and then you'd have to do twice as many (because you'll be splitting the cashflow 50/50?)

OR - can you find deals that are SO good, that your "down payment" becomes the good deal? For example - up above with the 70,000 house. What if you worked your tail off (direct mail, using wholesalers, etc) to buy the house for $50,000? Same numbers - no down payment. (Well, it's more complicated than that, cause a bank is gonna wanna still see you have an investment, but you could buy with hard/private money and refinance.)

There is also the issue of the "10 property cap" that you'll run into. They won't let you mortgage more than 10 properties. SO partners probably ARE going to be a big part of the strategy.

Unless.

You buy 10 houses, 2 each year. That's attainable, I think. Each one (using the example numbers above) are giving $200 per month in cashflow and you have $50,000 in equity in each (worth $100,000, your mortgage is for $50,000.) So, after 5 years, you've got $2000 per month in passive income, and you've got $500,000 in equity.

I bet you could "Trade-Up" that into a bigger deal that cashflows MUCH better. What kind of deal? Commercial, multifamily, or something? Go back to step one and look in your area - what are multifamily properties selling for? What could $500,000 buy you? What kind of down payment could that provide for?

Here's the bottom line: It's fun (for me anyways) to just sit down and do this plan on paper (or computer, like I've done before.) Then, take your ideas and throw them up on the BP forums and ask. "Hey BP - Is it possible to buy 2 houses each year? I make $50,000 per year and only live on $30,000 of it." Then BP can help you know if it's reasonable, or what would make it more so. Then, you go back, tweak your plan, rebuild, etc.

Again - you won't be able to follow your plan perfectly, and your interests might change, the properties that make the most sense might change, or the economy might change. But Math never changes - so if you can make the math work, it's easy to adapt.

Wow, that was super long! I hope it helped some. Thoughts?