How long to build 1.5-2k in CF?

[Lee Melvin]

I graduated University in 2009 and at the time my goal was to travel and see the world. After this winter 5 years later I will have accomplished my goal. Now my new goal is building cash flow of 1.5-2k from rental properties so I can quit my day job if I wanted and focus on my next goal in life.

I would like to be able to accomplish this in 5-6 years. Starting next August I will be moving to the Gulf where I can save 25K (conservative est) a year to use to invest with. I will most likely be an out of state / country investor so will be focusing on where the numbers and outlooks are the most promising for buy and hold. I will have roughly 1 month off in the Winter and 2 months off in the Summer to travel to the US to look for properties and do all or most of the preparation and ground work.

With that said, is my plan too ambitious? Any recommendations or strategies would be most appreciated.

[Jon Holdman]

$2K a month or a year? Before taxes or after?

I'll assume $2K a month before taxes. $24K a year. At a 10% cash on cash return you simply need to invest $240K. If you can invest $25K each year and roll the returns from the investments back in, it would look like this:

Year 1: Investment: $0. Save $25K, returns $0

Year 2: Invest saved $25K on Jan 1 for $25K invested. Save $25K, returns $2.5K

Year 3: Invest saved $25K plus $2.5K returns on Jan 1 for total of $52.5K invested. Save $25K, returns $5.25K

Year 4: Invest savings plus returns of $30.25K on Jan 1 for total of $83K invested. Save $25K. Returns of about $8K

Year 5; Invest savings plus returns of $33K Jan 1 for total of $116K invested. Save $25K. Returns about $12K.

Year 6: Savings plus returns of $37K Jan 1 for total of $153K invested. Save $25K. Returns about $15K

Year 7: Savings plus returns of $40K for total of $193K invested. Save $25K. Returns about $19K.

Year 8: Invest savings plus returns of $44K for total of $237K invested. Returns about $24K. GOAL!

Now, the fallacy here is that you can actually get all this money invested. Small increments are hard to invest so you may have to save up larger lumps and invest when you can. But the rough number is about right.

If you can manage 15% cash on cash returns, or more, this will happen more quickly.

I'd encourage you to 1) buy properties in the same area, and 2) move there, and 3) manage them yourself. That will generate higher returns, thanks to the labor you're putting in.