All Forum Posts by: Eliot M.

@Chris Soignier Ha. Sorry, that's confusing. What I meant to say is, there is only 1 income in the household and nothing else to subsidize my leaving early. For example some people can "retire" at $50k in passive because the other spouse is making the other $50k at a W2. I'm the only one that works so I'm  saying I need this passive income to bear 100% of the household expenses because it will be the only income. 

@Thomas S. I'm not sure I understand what you're saying. The ROI number above is based on after-tax net cash flow from the property divided by the cash required to buy (down payment + closing costs + repairs). I'm not including the principal pay down above, which would increase that ROI number even higher.

@Account Closed I've thought a lot about the rent raising/inflation thing and I don't use it in any of models for one specific reason: the very first house I ever bought I have now owned for a decade. You know how much it has appreciated? Zero. In fact it's probably down 10%. It's on the MLS right now all fixed up very nice and just nobody wants it. Lesson learned. Don't count on appreciation/inflation/increased rents. I have a very cynical attitude towards counting on inflation in investments because for me it just has never worked out in my favor.

@Account Closed It's a good question and one that I've thought alot about. I've talked to a lot of lenders and it looks like I'm set until 10 houses. Then on 11-32 I go with portfolio lenders or asset-based lenders (I've talked to those guys as well), and while the economics are less friendly (higher closing costs, higher rate, and slightly less LTV), I still am assuming I can get a 25% yearly return on those economics. But as a worse case scenario I have also modeled out what happens if I just get stuck after #10 and have to pay cash... It's worse and it takes longer but it only extends my retirement out by 3 additional years according to my calculations.

I didn't notice you were in Sacramento. California is hard. I'm not sure how to give you advice on properties that are so high. But just remember that an investment is an investment. Just because you live in California doesn't give you permission to justify a mediocre investment. If you can't get more than 10% ROI after a generous allotment for vacancies and capex, just put your $ into the stock market. 10% should be your measuring stick.

I've put a plan down on paper to help me escape the rat race.  I've thought about this for over 10 years, finally took some action 2 years ago and bought my first rental.  3 rentals into it and I feel like I have a good enough handle on this whole rental investing thing that I can take what I've learned and extrapolate it out into the future to make a plan for my exit from the corporate world.  I have thought long and hard about this, built countless spreadsheets, talked to investors, realtors, lenders, family members, read countless real estate and investment and business books, and listened to hundreds and hundreds of hours of podcasts.  Now I'm ready to really lean into this hard and go for it.  But before I do, I want to post it here for the BP community to poke holes in it and test my assumptions.  I would really appreciate any and all feedback you can give me.  

In the markets I'm familiar with, I can buy houses for roughly $50k and rent for $750-$800 per month.  Using a traditional mortgage, this translates to an out-of-pocket of about $12,500 ($10k down pmt, $2500 closing costs).  Annual cash flows after all expenses, vacancies, travel, termite bond, taxes, maintenance and capex, are about $3-$3.5k (proforma picture below):

Using debt, I'm looking for AT LEAST a 20% CoCROI and really 30% will be my floor as I gain more experience.  

All that being said, I have calculated that I need 32 houses in order to hit 6 figures of passive rental income per year, after income taxes.  I have 3 now, 29 to go!  So it will be a long road and am looking for any guidance you could give.  Essentially, I am on year 2 of a 10 year journey (see pic below).

Has anyone else taken a similar path?  To me, 8 more years seems great when compared with 30 more years in a corporate job that I don't like.  But I also keep listening to these superstars on the podcast that "retire" within a couple years of starting.  Just listened today of some lady who had acquired 150 properties within 8 years, so I don't know what I'm doing wrong or incorrectly.  I have figured that if I plan to go buy 30 more SF homes, I could go get a real estate license and keep the buying side of the commissions, which will net me ~$40k and assist me in lopping off 1 year of my 8 year plan and making it a 7 year plan (reflected in the picture above).  I know things change and "the best laid plans", but I'm just fine tuning here and trying to think of ways to speed up the process "responsibly" and not wrecklessly, and all while I try to enjoy my life and my family.  

I hear a lot about direct mail, but honestly I can not stomach sending out thousands of $ of mailers every month in the hopes of getting calls back - my temperament is such that I would just rather go buy more houses... even if it means maybe I pay more.  

So anyway, there's the plan in all it's glory.  Please poke holes, offer advise, joke on me, ask questions as much as you can.  Thanks in advance!

Paul, pass and keep looking.  There are better deals out there.  Previous posters have mentioned you haven't factored in any expenses for vacancies, repairs, prop mgmt, or capex.  

@Matt Bell would David maybe know of some experienced flippers in the Montgomery area that I could get in touch with? I'm looking for a 50/50 partner on a deal I have in place right now. Someone local who can be boots on the ground. I bring the off market deal + money, partner brings experience+money. 50/50. 

@Kevin Stone I was born and raised and lived in Montgomery for most of my life. Know the areas well and have good contacts. Be more specific in your question and I'm sure we can help you out. I have a few rental properties there. 

Thanks everyone for your replies so far! And thanks @Valerie Hiscoe especially for taking the time to write out such a thorough piece of advice. I think you may have steered me clear of a big mistake. I think I'm sold on your #3 point above. I need to take a backseat on this one and look for a veteran flipper who has experience and who will partner up with me and spearhead the project. This protects me on so many levels. If they visit the property and don't want a piece of the equity, no deal! I won't even make an offer. If a pro doesn't want it, I don't want it. Thanks again Valerie. 

Now, to focus my efforts on finding an experienced rehabber in the Montgomery, AL area! Any takers interested?