20 Years to $20K/month Passive Income

[Mark S.]

At 30 years old, I would consider myself a little bit late to the real estate investing party (although, I'm sure others might disagree). In my 20s, I have been fortunate enough to have decent full-time positions in the corporate world and to sock away a couple hundred thousand (including growth) in qualified retirement plans. Compared to the average American, this is probably an excellent start; compared to investors my age on BP nation, maybe it's average, at best. While I still plan to maximize retirement account contributions and to (at least for quite some time) stay in the corporate world, I really want to get my real estate investing off the ground. Here's my plan: I would like to have $20,000/month positive, passive cashflow by the time I'm age 50 in 20 years. I currently have zero rentals. If I break this down, I need to generate (not factoring inflation, etc.) $1,000/month positive, passive cashflow each year for the next 20 years. Most properties I've looked at in my area provide about $100-$150/month positive cashflow, at best. By these numbers, I would need to acquire 7-10 units/year, which I don't see as reasonable for me to buy personally from my W-2 income. I'm starting to think I may need to set $200-$250/month per unit as one of my minimum criteria, however, this may force me to buy out-of-state, which opens up a whole new can of (potential) worms. If I did this, though, I would only need 4-5 units/year, which seems a tad more reasonable, although (in my opinion) ambitious. Originally, my plan was to start small and buy 1-2 units/year. If I do this, I very likely won't reach my goal. My primary concern is getting started (I've made several offers, however, no luck yet); I believe getting started will help drive momentum. My secondary concern is reaching my income goal. I've calculated, based on a 10% income yield, what it would take in equity (stock) investments to produce this $12,000/year Cashflow. It's pretty simple: $120,000. To buy, say, 5 properties a year at $60,000 (let's say each spun off $200/mo for $200/mo x 5 units = $1,000/mo = $12,000/yr Cashflow). At 20% down payment, that would be $60,000 cash outlay. Clearly, there are other items (mild rehab, closing costs, etc.) that would be out of pocket, but probably not enough to make up that extra $60,000. I guess I'm sold on the real estate investment method, but just want to be sure I'm thinking about it correctly. MY QUESTIONS FOR YOU: 1.) Should I just jump in when I find a "good deal," and modify my income goals as I progress? 2.) Would you start with turnkey out of state investing if you're a new investor? 3.) Regardless of where you start, would you want all your properties in the same state r multiple states (to diversify)? 4.) What other advice would you give to someone like me? I'm planning to buy-and-hold in B/C type neighborhoods with minimal rehab and am debating whether or not I want to use property management, however, I do factor in 10% for PM in my numbers when analyzing. Thanks in advance, everyone!

[Sam B.]

@Mark S. 

1.) Should I just jump in when I find a "good deal," and modify my income goals as I progress?  I think your income will ramp up as you progress.  I think nailing down what you want your niche to be right now and focus only on being as good as you can at that niche is key.  As you go along and become an expert in your niche, you'll find other ways to exploit your niche and ramp up your profits thus your "passive income" acquisitions.

I should note that I don't believe managing 100 properties or how many ever it may take to meet your 20k/mo net income goal is ever considered "passive income".

2.) Would you start with turnkey out of state investing if you're a new investor? 

No, I wouldn't recommend that.  Certainly not if you wish to meet your goals.  If you're going to come up with 20k/mo income in the next two decades, you're going to need to be a little more hands on, cut out the middle man turnkey sellers and own your risk, your business, your plan.

3.) Regardless of where you start, would you want all your properties in the same state r multiple states (to diversify)?   As mentioned, I'd focus on your niche and really becoming an expert in that area before looking to expand.  Becoming an expert in your local area will open up other opportunities that won't necessarily involve you finding a new area to farm.

4.) What other advice would you give to someone like me?

Keep reading here at BP, attend your local REI meetings and find someone that is doing exactly what you want to do.  You're not the only one that wants substantial monthly cash flow...and I'd be willing to bet there are investors close to you that have already achieved this.  Check into your local REI meetings, your local property management companies, find out who the big players are.  Buy them lunch, learn from them.