PLEASE DISPROVE MY STRATEGY!!!.... I need critiquing...

[Maxwell Jacas]

Goal: 

1. Retirement for my wife and myself by the end of 2020. (ie. $7000/monthly cash flow)

Plan: 

1. Purchase and Hold inexpensive duplex properties primarily in the florida area.

Breakdown: 

1. Year 1-
2. savings and credit building for  20% down payment, Purchase 1st property in college town, rent out each room for students.

*starting close to home to get my bearings*

1. Year 2- 
2. Save again for another down payment and refinance last property for an additional property, now giving me 3 properties in 2 years time. (all student rentals)
3. Year 3- 
4. Continue the same strategy from the previous years, this time Im purchasing single level duplexes in florida. At this point, Ive saved for another property and refinanced my 3 properties with the intention of purchasing 4 more properties in year 3, giving me a total of 7 properties.

Summation:

If I continue this pattern, I will have 31 properties in 5 years time. 

NOW, PUNCH HOLES IN MY STRATEGY!!!!

Assumptions:

-Property prices: >$80k

-Mortgages per property: $500/mo (max)

-Cashflow Goal: $1000/mo ($1500 rental income - mortgage) *not including reserves for maintenance and any other incidentals

-I will need to have 6 months of mortgage payments saved as well per property.

-Refinancing is done annually and for the appraised value of the property( only need downpayment)

-Refinancing can be done multiple times to the same property yearly. (at most 5 times)

-Refinancing wont be necessary once I have a steady cashflow which will make that aspect of the strategy moot.

Synopsis:

Im sure there is alot Im missing and not considering, this is why I need help.

I like to deal in absolutes, flat out numbers. Im not greedy or really into it for massive wealth, i just want to live the way I prefer. 

It is very ambitious and I have scenarios that are a little more conservative, but I live by the rule, "go big or go home."

I want to make $1000/month cashflow per property after all expenses. I sure there are ways to save money and tricks to do so, but Im here to reach my goal, and if someone is making a little more money from me and its on the up and up, i would be fine with it. I believe I need a great relationship with a bank/lender who sees my vision and no matter the interest rates and percentages, if they can provide the financial support, the end justifies the means.

Thank you in advance.

Max

[Garett H.]

and refinance last property for an additional property, 

What are you refinancing for? You don’t have equity to pull out of this property, unless you’re planning on the assumption of massive appreciation every year. You do have your 20% downpayment in the property, but that’s pretty much the minimum that every lender is going to require.

Assumptions:

-Property prices: >$80k

Do you mean less than $80k?

-Refinancing is done annually and for the appraised value of the property( only need downpayment)

-Refinancing can be done multiple times to the same property yearly. (at most 5 times)

As mentioned, refinancing yearly isn’t something that makes sense. Not to mention closing costs..

You say your goal is $1000 per property CASH FLOW. That’s a big stretch. 

To give you some rule of thumbs that are pretty standard matrices used for RE investors: ~50% of your monthly rent is usually estimated to be your operating costs.  So in your scenario where you are obtaining $1500 rent ~$750 of that is going to be going taxes, principle, insurance, interest, maintenance, property management, etc.. 

The other rule of thumb is the 1% rule, if you can buy a property for $100,000 and get 1% of the cost ($1000) for rent per month, it’s possibly a good deal that you’d want to look further into. So unless you’re getting pretty creative/steals on property obtaining $1500 a month rent on $80k properties is going to be difficult (not impossible, but difficult and arguably not sustainable at the rate you’re aiming for)

To just throw some numbers out there based on these rule of thumbs and your target of $1000 a month cash flow. You’d need to have properties that rent for ~$2000 a month. Using the 1% rule you’re looking at ~$200k properties (does your target market even support this kind of return on this level housing?) For a $200k property you’re going to need $40k cash as a downpayment, and will need that for every property you acquire. (Again, there are many ways to get creative here, and the first place I’d recommend to learn about these are this site) The next hurdle is going to be getting financing for the large number of properties you’re talking about. Does your 9-5 income and current outstanding debt support the debt to income ratio requirements to take on an additional 7+ $200k properties?

$7,000 a month cash flow per month in <6 years is an extremely  high goal. I’m all for setting huge goals as well, but without any real estate background or experience it will be extremely difficult to get these results.