Wanting to become a buy and hold investor full time

[Robert McConnell]

After graduating from Purdue in 2012 I immediately started working full time as an Automation Engineer. When I was relocated from Ohio back to Indiana I was given a moving bonus. I used this moving moving bonus along with other funds to put a down payment on my first rental property. The property has positive cash flow and I've little to no problems with the tenants.

I've been looking mostly in starter family cookie cutter neighborhoods for the next rental purchase. Preferably 3bd 2 ba. I am considering doing a flip to generate some cash to help buy the second rental property. I've never done a flip before so I know little to nothing about the process. Not even sure if this is a good time to flip.

My goal is achieve financial freedom before I am 40. Which gives me 15 years. 

[Mike H.]

You're at a great age to do it thats for sure. And having a good w2 job is going to be a huge help. My advice would be to house hack a couple of houses and use the low money down owner occupant financing to get yourself into 4 or 5 houses.

If you buy them right, you should be able to pull some equity out of them as an owner occupant to build up your initial capital reserves.

I started with a heloc of 43k and haven't flipped a house since I started buying rentals. I got the heloc and pulled out every penny just before the credit markets started pulling everybody's credit off the table and closing accounts (they closed my heloc 4 or so months after I pulled the money out).

But if you can get all in (purchase plus rehab) at 70% or better on an owner occupant house hack, you can then get a heloc on that house at 80% to sometimes 90% of the appraised value which would mean another 10 to 20% of the appraisal value.

If you're looking at houses in the 130k to 150k range that would be 25k to 30k possibly if you can find a lender going to 90% or 13k to 15k if they're going to 80k. Do that 2 or 3 times and that will give you a nice chunk to start with.

btw: I'm on the 10 year plan as well. I'm wrapping up year 8 and will be closing on #50 tomorrow. But one thing I would add is that while that may seem like enough to quit my job, it isn't. Not for what I'm wanting to do.

I net about $225/mo per house after everything (PITI, repairs, vacancies, capex, misc). So its a really nice number and I net more than I make at my job (Business Analyst - IT). But the reality is that I'm using those rental profits to continue to grow as I'm coming out of pocket anywhere from 5k to 10k per house.

So if I quit my job, I'd have to quit buying. Or at the very least I'd have to quit buying as many houses as I'd like.

I don't know what that magic number actually is. But achieving it strictly with buy and hold is not as simple as you might think. You need to factor that income to live and also how you're going to be able to continue to grow once you quit. How do you qualify for loans without your w2 income? How do you feed some of your out of pocket to take down more houses and continue growing when you quit? 

Flipping would be great. But I just think its too hard to find good deals that when I do, I can't see parting with them. 

Not to scare you off because at some point, I'll be willing to quit and scale back my buying and will have an unbelievable amount of freedom that I could never have gotten any other way. But I do think its helpful to point that issue out to some people that are thinking about doing this to get out of their job. 

To me, there's two numbers to really nail down for figuring out how many houses/years its going to take to leave a job.

1) One number is the one that if I ever lost my job, I'd make as much or more from my rentals than the job and that I would be just fine.

2) A number that if I hit, I can replace my income from income and then some and also make enough money so that I can continue to feed my growth as well. I enjoy doing this too much to ever want to have to stop. But it takes money to fund growth.......