Investor · Fort Wayne, IN · Member since 2016 · 108 posts · 24 votes
I know I want to focus on multi family buy and hold but I have not made a purchase yet. I plan to purchase a few this year to get my feet wet and find out a good cycle of dealing with tenants. I plan to do my property managing for the first few until I get a good feel and then go to a property manager once I feel I am too big to do myself.
My ultimate goal is 100k/month cash flow. I was initially thinking that would mean 1000 doors at $100 each but I am wondering what everyone shoots for. Maybe I am low or high in my goal. I would obviously prefer to be low in that amount. I have been verbalizing and describing my goal based off of doors but I am thinking that is wrong and maybe sends off the wrong message.
Example: If I could do a commercial property and made 3k/month off of one door this completely skews my numbers.
So I guess my questions are on MF homes like duplex to 6 plex what are people getting realistically per door and also on apartment complexes. Does that amount change. Ultimately I feel I will need to get into 100++ units in the future to achieve my goal but one step at a time.
Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
10y
If you want to trade a dollar for a quarter, that is up to you. Having a loan.means you can deduct the mortgage payment as an expense. So if you are in a 25% tax bracket, you send the bank a dollar and the IRS discounts your tax bill by 25 cents.
Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes
10y
It depends on the area and the financing. On a side note, why $100k/month? Is that the lifestyle you are living now and just want to replace your current income?
Investor · Fort Wayne, IN · Member since 2016 · 108 posts · 24 votes
10y
I see what you are saying. I buy the house outright or fully finance it. I guess I am assuming a 20% down. Obviously deals will be out to pay cash and to land contract but I want to use this as a basis.
$100k/month I say why not. While I have a very nice lifestyle now it is now way 100k/month. I place that goal based off of knowing I can achieve it and knowing what that will allow me and my family in the future.
Ultimately I want to give my kids a great head start like my parents did. Getting them involved in the process and the thoughts behind REI along the way.
Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes
10y
Understood. I'm not familiar with your area but clearing at least $100/door a long with 100 other calculations should be used to sift through and compare opportunities. For example if you buy a $1,000,000 home and it is clearing $100/month you're in trouble.
I shoot for 12% CoC ROI with a 15 year note. That generally gives my a margin for error that I am comfortable with. Also, the equation I use to figure out what I can reasonably expect for long term cash flow is monthly rent - 30% (Vac & Maint) - PITI (15 year note) = reasonable expectation of long term cash flow.
Investor · Fort Wayne, IN · Member since 2016 · 108 posts · 24 votes
10y
I'm sorry I should have expanded further. I guess in my head I am assuming a 10%+ CoC.
Your figure for cash flow is a lot less strict than I have been placing. I have been using 50% of income. Then subtracting my loan payment to determine cashflow projections. The 50% is intended to allow for my costs and vacancies.
I have been weighing to figure either 15 or 20 year loans but have not decided.
I guess ultimate I may be putting the cart before the horse but at some point in the coming years I will run out of capital to purchase more properties and I am trying to plan for my biggest bang for my buck.
Example scenario on Duplex using your figures
70,000 purchase
14,000 down payment
1,000 Monthly rent
360 Vac/Mant
$442/month mortgage - 15yr@5%
140 CoC at 12% ($1680 year)
An additional $58 left over. Which is actually about a 17% return total. Is this how you figure your cashflow?
Here is how I am doing preliminary amounts
70,000 purchase
14,000 down payment
1,000 monthly rent
500 vacancies/other expenses
442 mortgage
58 CoC which is about 5%
Obviously this is just an example and not a real deal but just using the numbers as examples. Id prefer 20%+ CoC but I am trying to plan for the real world.
Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes
10y
The 50% rule is reasonable, as well. Keep in mind that you can likely up your CoC ROI by extending your loan to 25 or 30 years. That just isn't my preference. Also keep in mind, you will likely be out of pocket $16k-$17k on the examples above because of closing cost above your DP. All that being said, I think you are on the right track and understand the equations well enough.
Make your mistakes small ones, by starting small. I think you have a good chance of being just fine. Your goal is going to take some time and your kids my be grown and gone before you reach it an can start providing those benefits, to them. But way to shoot for the stars!
Greenwood, IN · Member since 2013 · 346 posts · 93 votes
10y
Yes you are figuring right. However, keep in mind when you are taking the 15 yr mortgage you are trading cash flow for equity. However, I would say if you are still cash flow positive using the 50 percent rule on a 15yr note, it's probably a pretty good deal.
I use 30 yr fixes on my SFH to get the most in cash flow. However, I am close to maxing my 10 out.
Then I will need to make the decision to expand with 20 or 25 yr notes, or even 15. Where getting acceptable cash flow is very tough.
Keep in mind the 50 rule is just an estimate, including management.
But yes you are using it right. 50 percent of the gross rent, goes to operating expenses, then you deduct the other half, with principal and interest(not taxes/insurance) and what is left is your cash flow or profit.
Investor · Fort Wayne, IN · Member since 2016 · 108 posts · 24 votes
10y
Thanks Jacob. I'm still in debate on loan terms. Ultimate my goal is passive income so higher monthly amounts may work best however I will pay a ton more in interest. I had thought about the 15 year and then refinancing to gain more investing capital. I dont plan on taking money out to pay myself until later down the road so anything gained early on will just be reinvested.
Once my kids turn 10 I will start including them in the business and plan on starting them with their first house if they are interested when the time comes. I can really just kick myself time and time again for not following my parents advice 15+ years ago. I can only imagine where I would be now.
Yes you are figuring right. However, keep in mind when you are taking the 15 yr mortgage you are trading cash flow for equity. However, I would say if you are still cash flow positive using the 50 percent rule on a 15yr note, it's probably a pretty good deal.
I use 30 yr fixes on my SFH to get the most in cash flow. However, I am close to maxing my 10 out.
Then I will need to make the decision to expand with 20 or 25 yr notes, or even 15. Where getting acceptable cash flow is very tough.
Keep in mind the 50 rule is just an estimate, including management.
But yes you are using it right. 50 percent of the gross rent, goes to operating expenses, then you deduct the other half, with principal and interest(not taxes/insurance) and what is left is your cash flow or profit.
The bank I have talked to has no issue with the 10 loan since they keep thier loans in house however I believe they want a 20 year loan. There is great cost benefits to going 20 years instead of 30 and since I dont need the cash flow now it may be better for me to make a lower cashflow and save on interest. O decisions decisions. Time will tell.
Investor · Crystal, MN · Member since 2013 · 486 posts · 277 votes
10y
@Adam Beckstetdt - I really like your straightforward question. And I understand why a lot of responses focus on things like CoC ROI, 50% rule, etc. I go for $250.00 a door cash flow and 10 cap. I recently had to buy one a bit lower than that goal, but rents are in my favor, so I'm not too worried.
Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
10y
$100 per door is great if you have 1000 doors, but it doesn't really work for a duplex. One repair could knock out months of your profit. Here is the big secret. Buy the property well below retail price, then rent the units out at retail price. Rents go up over time. Try to find a deal where your NOI will pay off the property in 5-7 years. Until there is no debt on the property, the cash flow isn't that great.
$100 per door is great if you have 1000 doors, but it doesn't really work for a duplex. One repair could knock out months of your profit. Here is the big secret. Buy the property well below retail price, then rent the units out at retail price. Rents go up over time. Try to find a deal where your NOI will pay off the property in 5-7 years. Until there is no debt on the property, the cash flow isn't that great.
Unfortunately my market area is a sellers market right now so deals are slim right now. I do plan to buy my units right though.
As far as paying off the loan. I am not really sure I find that the best for me. The more income I make means the more deductions I have to find. While I want to create alot of passive income I would rather make a decent passive income with a loan and then when the loan is paid down I would take money out to reinvest in another property or two without the hefty taxation of a full loan free income.
I dont plan to live off of my passive income for some time so everything is going back into the business.
Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
10y
If you want to trade a dollar for a quarter, that is up to you. Having a loan.means you can deduct the mortgage payment as an expense. So if you are in a 25% tax bracket, you send the bank a dollar and the IRS discounts your tax bill by 25 cents.
Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
10y
It may be a seller's market where you are, which means it's bad timing for you to buy. However, It's hard to believe that there are no distressed property in a city that size. There are zero foreclosures or estates for sale. No abandoned homes in need of repair. Absentee owners or landlords that are tired or elderly.
If you want to trade a dollar for a quarter, that is up to you. Having a loan.means you can deduct the mortgage payment as an expense. So if you are in a 25% tax bracket, you send the bank a dollar and the IRS discounts your tax bill by 25 cents.
I like how you explained this! I have a better deal for anyone interested. Send me your dollar instead and I will send you back 35 cents.
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
10y
@Adam BeckstetdtI am curious why you are setting goals to have $100K per month income before even buying your first property? I guess nothing wrong with dreaming big, but having never owned a rental property, it seems you should get your feet wet instead of just dreaming. For example set a 12 month goal of getting two properties. Maybe two duplex so you have four doors and target $100 per door. Plan on the first one in the next 4 months and the other one before March 2017. If you are able to do better, that is great. My point is just to set short term achievable goals and get going.
I hope you don't take this the wrong way, but it just struck me as odd you are planning how you can make a million dollars a year and you have never even owned a property. You seem to know many of the terms, but really this business is all about action.
@Adam BeckstetdtI am curious why you are setting goals to have $100K per month income before even buying your first property? I guess nothing wrong with dreaming big, but having never owned a rental property, it seems you should get your feet wet instead of just dreaming. For example set a 12 month goal of getting two properties. Maybe two duplex so you have four doors and target $100 per door. Plan on the first one in the next 4 months and the other one before March 2017. If you are able to do better, that is great. My point is just to set short term achievable goals and get going.
I hope you don't take this the wrong way, but it just struck me as odd you are planning how you can make a million dollars a year and you have never even owned a property. You seem to know many of the terms, but really this business is all about action.
There are deals to be had everywhere. Good luck!
I agree with you Joe. I have shorter term goals and honestly I am shifting them based off of the info I have. I am not completely new in the real estate game but I have never personally owned rentals so this part is new to me. I do have 1,3, and 5 year goals as well but I threw out my longer goal to get an overall picture of the end game. I think depending on my end goal someone may suggest something different.
@Adam BeckstetdtI am curious why you are setting goals to have $100K per month income before even buying your first property? I guess nothing wrong with dreaming big, but having never owned a rental property, it seems you should get your feet wet instead of just dreaming. For example set a 12 month goal of getting two properties. Maybe two duplex so you have four doors and target $100 per door. Plan on the first one in the next 4 months and the other one before March 2017. If you are able to do better, that is great. My point is just to set short term achievable goals and get going.
I hope you don't take this the wrong way, but it just struck me as odd you are planning how you can make a million dollars a year and you have never even owned a property. You seem to know many of the terms, but really this business is all about action.
There are deals to be had everywhere. Good luck!
I agree with you Joe. I have shorter term goals and honestly I am shifting them based off of the info I have. I am not completely new in the real estate game but I have never personally owned rentals so this part is new to me. I do have 1,3, and 5 year goals as well but I threw out my longer goal to get an overall picture of the end game. I think depending on my end goal someone may suggest something different.
Your income goal is very large and is something only a fraction of real estate investors ever aspire to. There is only a handful of people on BiggerPockets operating at that level. I am not one of them, but I can imagine the commitment it must take to get to that level.
the first question is What market are you going to start. In NY, the per door return is higher but so is the cost. I think 100 per door is average if your cost is around 30-40 thousand per unit. The per door calculation is often used in multis. In our market of TN, we are seeing costs of 40,000 per unit with returns of 100 per door (assuming you are financing with 15-20% down).
@Adam BeckstetdtI am curious why you are setting goals to have $100K per month income before even buying your first property? I guess nothing wrong with dreaming big, but having never owned a rental property, it seems you should get your feet wet instead of just dreaming. For example set a 12 month goal of getting two properties. Maybe two duplex so you have four doors and target $100 per door. Plan on the first one in the next 4 months and the other one before March 2017. If you are able to do better, that is great. My point is just to set short term achievable goals and get going.
I hope you don't take this the wrong way, but it just struck me as odd you are planning how you can make a million dollars a year and you have never even owned a property. You seem to know many of the terms, but really this business is all about action.
There are deals to be had everywhere. Good luck!
I agree with you Joe. I have shorter term goals and honestly I am shifting them based off of the info I have. I am not completely new in the real estate game but I have never personally owned rentals so this part is new to me. I do have 1,3, and 5 year goals as well but I threw out my longer goal to get an overall picture of the end game. I think depending on my end goal someone may suggest something different.
Your income goal is very large and is something only a fraction of real estate investors ever aspire to. There is only a handful of people on BiggerPockets operating at that level. I am not one of them, but I can imagine the commitment it must take to get to that level.
What is your one year goal?
My year end goal is 3k/month. This should be an easy achievement but it starts me off slow. I dont see myself getting really big until things start to steamroll probably about year 7-8.