I have 30 units, but I want to build an empire

[Steve A.]

Hi guys,

Last time I posted on here I had an affiliate marketing campaign that was generating me over $1000 per day.  Times have changed and traffic has dried up.  I now have only a $500-1000 trickle of online income per month.  But it's OK!  Because I saved every penny of what I made, and having bought my first rental in January of 2014, I finished the year with about 30 units, most of them duplexes.  Half are cash purchases, half are financed at 25-30% down, with 4% fixed rate 30-yrs. 

I took a load off and did some minor traveling domestically for a few months.  I quit my job.  It was an amazing time.  But I found that I love investing and business and owning income-producing assets, and the income that my properties are producing, about $5000 per month net, while it beats the hell out of my old W-2 income, was not enough to build an empire.  I am 29, and would just feel like I wasted my potential if I didn't use this moment to strike while the anvil is hot.

So after my break I went out and got ANOTHER job working for the man.  This one, however, pays a ton and is in the oil/gas industry.  The lifestyle is terrible, as I am in the field in remote locations in a trailer, working 12+ hours usually on a night shift in cold weather.  But the money is unlike anything any other employer would ever offer me.  I am making about 12k a month gross from the job, and I have no state income tax and substantial deductions.  I am also trying to use what little free time I have to experiment with a much less lucrative remote job so that I can boost my income after I leave the industry.

I have done very little with my life except for working, and I would like to travel the world and become more knowledgeable/worldly.  I have barely been out of the American Midwest and it kills me.  So I plan to REALLY retire once I get to an acceptable income level and go take off around the world for 2-3 years, then reassess.  At that point, to be honest, I'll probably start a semi-active/semi-passive business activity like owning franchises (I've been looking at Sport Clips in particular), since I'll be bored.

My goal is $10-15,000 per month after all taxes.  I pay no FICA or state on real estate income, and then of course we have all the deductions for a good chunk of federal.

I am trying to think of the quickest way to get to my goal.  I am estimating this will take 2-3 years in the oilfield, at which point I'll be 32.

I sold my house and moved into an RV, so my monthly expenses including fun and entertainment are under $1000 a month.  Between the job and the real estate I should be getting 15k a month after taxes, so 14k net after expenses.

I will start purchasing again in June, using my last 5 conventional mortgages.  I will be able to buy about 5 in a 6 month period, as I usually buy duplexes for 45-60k with 30% down, with rents of 1100 or so per month.  That takes us to the end of 2015.

In 2016, I will buy 7 more properties conventionally financed with a partner whom I already own 3 properties with, thus maxing him out as well.  This will probably take 4 months. 

I am conservatively estimating I can get $200/door out of these, and they will be duplexes, so 5*200*2 + 7*200 (since I own half) = $3400 a month for a total of $8400/month net cashflow once my conventional mortgages are maxed out.

It's at this point where I am not sure where to go next. Should I buy properties in cash to deleverage at that point? I would consider my current level of leverage, in light of my ridiculously low expenses, not to be excessive, so I would be tempted to do some more 30-40% down financed deals. At this point, I am assuming I would have to go with some sort of portfolio ARM, or buy a larger property with a commercial loan?

I will still have 20 months of at LEAST 15k a month coming in (probably much more) if I stay the full 3 years.  So at my average unit cost of about 25k, I could buy at minimum 15 more units in cash, or 2-3x that if financed.

*** What would you do? ***

Afterwards, as a safety net for some capital infusion, I will take two months off of every year to take advantage of an opportunity I have to make about $20k.  It's not something I would want to do for longer than those 2 months per year.  That will more than cover my living/travel expenses, leaving all the real estate income to pile up.  Part of the income will be invested in a boring Vanguard stock index fund for safety and dividends.  At that point, I would like to become either a multi-unit franchisee or directly purchase businesses, hopefully buying them with cash since I am very wary of the risk.  I would also like to get into oil & gas leases and farms to further diversify my business interests.

[Travis Beehler]

Originally posted by @Steve A.:

Originally posted by @Travis Beehler:

Originally posted by @Jerry Poon:

@Steve A. How did you manage to get 30 units in 1 year??

 I'm with Jerry,

How did you get 30 units in a year?  I'm also curious about how you got 30 year loans?  I do all my financing via commercial lenders, and they are only 20 year lenders.

Also, just to be a teasing jerk, it's "strike when the iron is hot", not the anvil.  Ha!

Travis

Good call...I always get colloquialisms wrong.  For the financed ones, I still had a job at that point.  The rest were cash.  I was able to buy so many because I made a load of money from the internet.

 Ah that makes sense.  I think people are right though, in that with a commercial loan, you do get a few advantages with them.  Check out your lenders in your area, and see how you can leverage "other people's money" as we call it. :)  No sense in spending $60k on a property and making say $500 a month, when you can finance a property, make $400 a month, and only be out say 15-20k.  You'd be able to buy 3x as many properties for the same amount of money than you would be with buying 1 with full cash.  Then, you make more money per month, AND you get appreciation of the property, AND you get to deduct all that nice interest off your taxes. :)  Your mileage may vary of course. :)

I would also HIGHLY recommend you make Microsoft Excel your friend.  I have a really nice spreadsheet that I made based upon another user's work, and it helped me figure out right away if a property was worth it or not when buying, and it gave me a quick net return results when I popped in the numbers.  I'd be happy to share it with you or anyone else on here.  Just message me if you'd like it and I'll happily send you a dropbox link.

Travis