How realistic is it to make $1mil cashflow per year by renting SFH's?

[Greg P.]

Hello, is this a realistic 3-5 year goal with SFH rentals? Please share your opinions and strategies. Thank you.

[Jon Holdman]

Maybe I'm overly simplistic, but this question:

Seems very clear to me. The only ambiguity is pre-tax or after-tax.

Cash flow means after all expenses and after all debt service. Without a doubt, this is a huge pile of SFR's. With this many houses, the 50% rule is going to be the best you're going to do. If you own these houses free and clear, you need gross scheduled rents of $2,000,000 a year or $166,667 a month. Greg's profile is incomplete and hidden, so no idea where he is. Depending on the average rent, this is probably at least 100 properties, perhaps as many as $200 or even 300 if rents are very low.

If the properties are leveraged, you need a lot more. Lets assume average gross scheduled rents of $1,000 and that you can buy at $66,500. Lets assume you can get financing at 6% with 30% down for 20 years. (You're definitely not talking conventional in this scenario.) That makes your payment $333.60. Applying the 50% rule you get $166.50 a month in cash flow which is $1,998.02 a year. You need 500 such properties with such terms to get to the million a year in pre-tax cash flow. Expenses, interest and depreciation will, at first, be more than the cash flow, so there will be no tax.

Is that realistic? IMHO, not for a single person. You're talking a creating a company when you're talking those kind of numbers. And you need $10 million for the down payments.

If they were free and clear, you'd only (only!) need 167, but you would need $11 million. Given this set of assumptions, that seems a better route because you have only one third the houses and only need a million more to get there.

You say you're making $700K-one million, pre tax, flipping houses. Even after taxes, that's something like $400-600K. If you were dumping all that profit directly into buying SFRs for rentals, you could get to your goal over time. With 2-3 flips closing per month, you must have crews and employees and processes in place to make that happen. Turn your attention to building up a rental business and, yes, I think you could get there.

I don't think you get there in 3-5 years in a straightforward way. You could buy 8-10 houses like I describe per year with your cash flow from the flipping business. As the rentals come online, you can use that cash flow to buy more houses. Assuming you can buy ten such houses per year with the proceeds from the flipping business, and that you pump all the cash flow from the rentals into buying more, it would take about 11.5 years to reach your goal.