500k cashflow per year with rentals in 2021?

Question

Hello everyone, I am new around here and so far love this community! I have a few questions regarding cashflow and scaling your portfolio as quickly as possible to generate 500k a year in pure cashflow the quickest way possible. I know that there is a similar post on the forums about this topic (I'll link it below)

My question is to make 500k a year in cash flow from rental properties and the quickest way possible say 5 to 10 years?

How would you guys achieve this and is it even remotely possible? What states would you invest in and what strategy would you go with? I want to start house hacking when I graduate and buy multifamily properties, maybe even apartment buildings if they can generate enough?

Now for some backstory. I am 22 going to college and I am trying to learn everything about real estate investing while I am in school and would love to be financially free by 35. Depending on how much cash flow I can make a month I would need to purchase quadplexes or apartment buildings to generate the cash flow needed to make 500k a year. Say I have 167 individual units that generate $250 cash flow a month that will do the trick. But how do I go from A - B and what's the quickest way you guys would suggest?

Now Anthony Dooley commented on the post linked below, said that he finds deals on a 50k house that pays off faster and rents for $800 per month which is a 20% ROI. Is that possible in this scenario?

Anyways thank you guys for coming to my ted talk and I am looking forward to all the replies :)

Form Post:

https://www.biggerpockets.com/...

Felicia Feliciano · Answer

Mind sharing the deals your investors found last year.  Class of hood and some basic numbers.

I think whats happening is people are buying BEST AVAILABLE and calling them deals.   I cant find SQUAT.

Ex 5 years ago you could get $500. Today you can get $100 a door.  In todays market that $100 is a deal.

Doug Crenshaw · Answer

@Quinn Peterson Well at least you have goals! I can't tell you how many investors I speak with that don't know where they want to be! You have figured out the first step! Now it how to achieve it as you have asked. That can be done in numerous ways, but you will have to figure which way will suit your needs. The best way is to pay cash for properties. If you don't have the cash then financing is the only option. If you want to build up you have to start somewhere and it is usually with one property and then adding to your portfolio! I had 3 new investors all get a property last year, and two of them are looking for the next one already! How fast, where, when, how, that is all great questions to ask yourself. I would look at market stats for multiple areas and figure out the best growth area that suits your needs. Once you do that then start interviewing "Investor Friendly" Realtors to find one that knows the market and can be the boots on the ground in the area you choose. In my 25+ years of investing I can say that there are deals out there in almost every market in every location. It just comes down to buying it right, managing it right, and selling it right. If you fail on any one of those areas you may or may not make the money that you desire.

As far as where to buy... you have to know the market where you are looking. That is where a Realtor can help if they understand RE Investing. They can also be your downfall if they do not!

What type of property is best for you... again you have to know your market. As an example in the state of Florida single family and 2-4 units are considered "Residential Real Estate" and anything 5+ units is considered "Commercial Real Estate". Both have their pros and cons but the the rules of engagement are different not to mention price point!

As far as how fast... That is up to you and how fast you can make the purchases to get where you want to be. If you have $500K to purchase with it will take you longer than if you had $5 million. If your credit is poor it will take you longer than if you have a 750 score.

The biggest number that I would focus on when looking to build a Buy & Hold Portfolio is the 1% Rule. Plenty of posts on that if you want to check it out or just shoot me an email. The property can be a smaller $50K property or a larger $500K property, but if it is producing below 1% Rule you are not going to achieve your goal very quickly and may even wind up in a negative cash flow. Negative cash flow will squash your dreams very quickly!

So while I cannot tell you where you need to be or how much you need to spend or how quickly you can build your empire... I will tell you that you are on the right track! Lot's of good advice out here on BP! Good luck on your endeavor and let me know if I can assist you if you want to look at the Tampa/St Pete markets!

Doug Crenshaw · Answer

Yes I do have experience with 5+ Units and the 1% Rule is still the deciding factor for that type of purchase. As far as BRRR goes it is a matter of figuring how long you need to hold the property to get it to a level that is worth the refi...

Quinn Peterson · Answer

Thank you for responding everyone! And thank you for all the details @Doug Crenshaw that really helps a lot! I was considering the BRRRR Method for my portfolio. Would you have any experience with apartment buildings or large multifamily properties? I figure the bigger the better in terms of scale for investing.

@Felicia Feliciano 5,000 seems too high in terms of ROI in my opinion but if that`s what it takes then I will achieve it!

Felicia Feliciano · Answer

your 1St one is exactly what im talking about.  $129 a month will get you nowhere. Its just best available at the moment investing.

Good on them.  Its a start.

Warren doesnt do that.

Doug Crenshaw · Answer

I don't mind sharing at all! The Tampa/St Pete market is kind of unique in that you can have a ghetto type of neighborhood, next to apartment building, single family, horse ranch, crack house, and a $1million house all within a mile of each other! We do not have segregated areas like a lot of cities across the US. I will share these three deals in particular that were all New Investors getting their first deal! It took me some time to help educate them and had to turn down many deals that they looked at. However, when I explained to them why I was telling them to move on it was a lesson learned for them without the cost of money and only a little bit of their time!

The first of them was in an "opportunity zone" area that is being revitalized by a lot of investors. Some are being F&F while others are B&H. The properties that are not in good enough condition to renovate, they are getting leveled and brand new homes built in their place. This SFR property was listed at $119K and the ARV is $124K. After negotiations, we were able to buy it for $105K. It does need some renovations done to it, but the tenant has been in the property for 3 years and wants to stay and there was more cosmetic repairs than the roof leaking kind of renovation. The rent was at $900/mo which is about $350/mo too low. Since she was on a MTM, we got her to sign a one year lease for $1100/mo and got a pet deposit that the previous landlord didn't collect even though her lease said no pets! So now with the purchase price of the $105K and rent at $1100/mo we are at $129/mo positive cash flow with ALL expenses covered including the mortgage, taxes, insurance, repairs, Cap Ex, and PM fees. He is taking the $129/mo and putting it into his "repairs" account and when/if the tenant moves out he will have the cash to renovate the property. In the meantime we will continue to rent the property to the same tenant, but next year her rent will go up $50/mo and continue until she decides to move out. That is my "boil the frog" type of example. When she does move out in maybe 3-5 years we will already be at the market rent and maybe above it, so when we renovate it we can get the same rate and continue to boil the frog up by $50/mo on every lease renewal.

The second property was in a "blue collar" area and was a Tri-Plex. The property has a SFR and a duplex built from a garage and a garage apartment above it. The listing price was at $350K and the final purchase price was $336,500. We were also able to negotiate the seller to do a termite treatment for the entire property and a new roof on the duplex. The SFR had a new metal roof installed about 12 years ago so that won't be an issue. The total rents that were being collected were at $2650 which were combined to be $950/mo below market rents. Since the two units in the duplex are on MTM we bumped their rent $100/mo each. The SFR is at $1300/mo until April so they will stay the same, but their rent will be raised $250/mo starting in May and it will still be $250 below market rent! Then on all three properties the rent will be raised another $50/mo every 6 months until they move. Again boiling the frog... So as it sits currently, he is receiving $2850/mo rent and to keep the positive CF of $215/mo he is managing it himself instead of carrying a negative cash flow of $70/mo by having a PM. Once he is able to get to full market rent of $3600/mo he may then decide to have a PM take it over since he would then be at a "hands off cash flow" of $476/mo including all expenses and PM fees. He may just keep it and keep managing it himself for $836/mo cash flow. Whenever the tenants move out he wants to update the kitchen and bathroom of one of the duplex units, but the rest of the property is in good rentable condition.

The last one is a F&F SFR in a smaller niche "blue collar" area. The original list price was $299,900 and we were able to get the property for $283K to include a new roof and skylights from the seller as well as the ceiling repairs from the leaks in the roof and skylights. The previous owner had also made a "bedroom" out of the garage, which was not permitted, so we had them remove the illegal "bedroom" and turn it back into a 2 car garage rather than deal with non permitted electrical and construction issues. The ARV was originally at $398K when we purchased the property in August. We are still undergoing a $75K renovation of the property due to covid delays, but the current ARV is now at $412K. So since they were able to buy it for cash at $283K and are putting in $75K in renovations they are looking for a resale value around $420K with a bottom line profit of $62K since they already included the selling costs in the $283K purchase!

All three of these were "newbie" investors that I worked with last year and they all three had different levels of knowledge, money, and no experience. None of them jumped on the first "deal" they thought they had and they also had many turned down by me with explanations as to why. They all have thanked me tremendously for helping them find the right property for them.

The biggest trick I can tell you is don't believe a seller when it comes to what a "deal" is or isn't. Do your own due diligence and research. Make sure that what you are being told is a "good deal" and that it really is a good deal! The other thing is what makes it a good deal will mean different things to different investors. Some look at up front money, some monthly cash flow, and others look at what can I get on the back end. The reality is that there really isn't a perfect model for any one strategy. Every property has to be evaluated on how you intend to make your money and if that works for that property! The F&F example above would not work as a B&H because market rent is at $2500/mo which is not close to the 1% Rule in calculating B&H properties. The second B&H property would not make it at $950/mo below market rents so are you willing to put in the management time to keep money flowing? If not then that one would not work for you. In the first example is $129/mo a good cash flow for you? His goal is to do the refi later and take out equity so he wasn't worried about the low monthly cash flow...would that work for you? As my dad taught me as a kid... "There is more than one way to skin a cat" and while that may freak out some PITA members to say it that way... no animals were hurt in that statement, but a huge life lesson was learned by me! Making money in RE Investing starts with you and how you want to go about it. Just because you pick one route doesn't mean you can't change it! I take every property I get sent my way to evaluate what strategy works best for that property. Not does it only fit my way of doing things!

I hope that helps and if you have any further questions let me know!

Felicia Feliciano · Answer

5,000 doors @ $100 per . You are golden.

I think your only shot is D class.   At least it pro formas out.

You just have to execute............................................lol.

On the Flip side A-B class pro formas dont work out but highly EASILY to execute.

500k cashflow per year with rentals in 2021?

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