Five Deals to Financial Independence

A friend shared a video with a young guy showing how he was able to quit his job through rental real estate in a relatively short time. The young buck broke down each property showing cash flow, expenses and income on a simple whiteboard. After watching, my friend then recommended I do the same for my audience. So here you go!

This would be a long post if we went through every single property so I'm going to share my first 5 properties minus one because it was an owner finance deal, which they paid off. If you like this format, let me know and I’ll write another post with more of the properties.

Here’s a high level summary of my first 5 properties: 

Vineyard was my first property and my primary residence, purchased with 3.5% down FHA financing and minimal repairs.

Walker and Lancaster were sold as package as well as Autumn Hills and Cypress Harbor.

I received a $27,000 kickback from the seller for Walker, which made it a SWEEEET deal (let me know if you’re interested in how I structured the deal to get that kickback from the seller).

Cypress Harbor and Vineyard are both owner financed deals so the income column is the gross amount I’m currently receiving from the buyers and the profits are the actual monthly take home profits.

Remember in owner financing you make the difference between your loan payments to the bank and the buyers loan payments to you, because the buyer pays all taxes, insurance, repairs, maintenance, etc.

For simplicity, I have left out the taxes, insurance, capex and property management and just showed monthly profit, net of all expenses.

So what are we looking at in the table above?

I bought these properties in 2015 & 2016, with minimal repairs and great financing (most 3.25-4.5% interest rates). You might be saying to yourself, “wow, some of the monthly profits are pretty low. I’m not wasting my time for $100-$130/mo!”

You’re 100% correct in that assumption BUT I’m budgeting for $125/mo property management fee, an annual lease fee and $200/mo for capex and vacancy for each property!

Note: I don’t budget for capex, vacancy or leasing for the two owner financed properties.

Therefore, the monthly profit column is the monthly income minus principal, interest, taxes, insurance, $125 for property management, one months rent for lease fee, and $200 for capex and vacancy.

Be wary when folks show their monthly rental profits, as some are not taking into consideration the property management, capex or leasing costs.

The ROE and ROI columns are return on equity and return on investment. These are also often misunderstood by many investors. We want to have a solid return on our money invested into the deal (ROI) as well as the equity (or money) that’s currently in the property if we were to sell it, net of fees (ROE).

With these two figures you can see if your equity is working hard for you or you need to sell and deploy the capital elsewhere. We like to see at least 15% for both ROE & ROI.

Note: ROI will not change but ROE will change every year as your equity grows from debt paydown and appreciation in the property.

Another Note: on all properties above I received most if not all my cash back either through seller kickbacks or the down payment from owner financing. When I had little to no money in the deal I just used a standard 15% ROI instead of infinity or 10,000%, as it throws off the averages.

Well there you have it! 5 of my first 6 deals, both owner finance and rentals.

Anything else you would like to see? Let me know by commenting below!