All Forum Posts by: Nicholas Daniels

Hello BiggerPockets! 

My name is Nicholas, I'm from Michigan and am currently a junior in college. I've set a goal of having the option to retire at 26 years old (or just before I turn 27). I would like to have $6,000/mo in passive income, or $72,000/year. I know there's people who need more, but I figure this is a goal I can attain and put me where I want to be. 

I think the best way to achieve this goal is by breaking down the goal into easy measurable steps. I'm a big believer in the stupid simple formula, meaning if it's not stupid simple it's not for me. 

Alright so I've done some research and I figure I can cashflow about $300/mo on a single-family house. I'm from Michigan and there's a lot of $100,000 houses renting for $1,100-1,250 dollars. It's a very good state for cash flow.

So my goal of 6000 (goal)/300 (cashflow per house) meaning  I need 20 single-family houses (or units) in order to achieve this goal. I'll give you a bit of background and then tell you how I plan on getting to this goal. I ask for help at the bottom of the page because I need help on how to hit the goal. 

Background: 

Credit Score: 737 (this will be around the same when I graduate and start purchasing properties)

Debt: $0 (this will be the same when I graduate and start purchasing properties)

Savings available to be utilized currently at age 20: $10,586

Expected savings at age 22 (roughly a month or two after I graduate and I start purchasing my first property): $15,586 

Estimated Earnings at age 22 after graduation: $55,000 (I'm willing to work a second job and a side hustle in order to get my income to this level). This is also fairly conservative I will most likely make $60,000-$65,000. 

Savings Rate: 70% of my gross income ($38,500/yr) can be saved, I'm a minimalist and I don't require hardly anything to survive. 

How I'll achieve this goal: (broken down by age): 

Age 22: 

I'll have roughly $15,586 dollars to invest a couple of months after I graduate. This doesn't give me enough to purchase a $100,000 house at 20% down. So my plan will be to use a Home possible loan (5% down) or an FHA loan if needed to purchase a duplex (which will cost around $150,000 which I can afford with 5% down with my savings). I will live in one unit, rent out the other, (househack) as well as have a roommate on my side in hopes of completely eliminating my housing expenses. It may even cashflow but this house is mainly just to allow me to increase my savings and I can rent it out when I leave for ideally $200/unit.

I should have saved $38,500. This will let me put 20% down a $100,000 property that will cash flow $300. A lot of properties will only require small fixes that should take under $3000 to do.  I will hire a property manager right away. Based on many houses I've analyzed in my area and in Michigan, in general, I can put 5% repairs, 7% vacancy, 5% Capital Expenditures, 10% property management and still come out with $300/mo cash flow at the end. I don't want to deal with tenants. My primary focus will be acquiring more properties and working up capital. Also, even if a house doesn't cash flow as expected, I could pay the entire mortgage off in two years which will guarantee its cashflow. 

Summarizing age 22: 

1 duplex I live in: Cashflow $0 

1 Single-family: $300/mo 

Total Cashflow: $300/mo 

Cash leftover: $11,500 =  $38,500-20,000 (downpayment) -3000 (repairs) - 3000 (closing costs) - 1000 (cash reserves to leave in account in case of emergency to cover 1 months rent) 

Age 23: 

After 6 months I'll have saved $19,250 dollars. Combined with my $15000 from the previous year I'll have a total of $30,750. This will be enough for another 100k house 20,000 down, 3000 repairs, 3000 closing costs and then $1000 reserves in case anything goes wrong This leaves me with $3,750. Nearing the end of the year I'll be able to ave another $19,250 added to my $3,750 for a total of $23,000.  I'll purchase another 100k house (I'm assuming I got a raise or something an I can dip into the $1000 reserves I set for the other properties as well as cashflow from the others.

Summarizing age 23:

1 duplex I live in: Cashflow $0

3 Single-family: 900/mo

Total Cashflow: $900/mo

Cash leftover: $0 

Age 24: 

By this time I'm making $10,800/yr cashflow off my rentals. I'm assuming I'm able to increase my savings to $40k/year from my income assuming even inflationary raises. This means I'll have $50,800 to invest throughout this year. This will allow me to purchase 2 100k properties that cashflow $300/mo, assuming the same formula as before 
I doubled it for simplicity. 

$50,800-40,000 (downpayment) -6000 (repairs) - 6000 (closing costs) - 2000 (cash reserves to leave in account in case of emergency to cover 1 months rent). I'm actually $3200 short but I'm going to assume I can either pull equity out of another home or sell something to make this happen considering it's not that much money. 

Summarizing age 24:

1 duplex I live in: Cashflow $0

5 Single-family: 1500/mo

Total Cashflow: $1500/mo

Cash leftover: $0

Age 25: 

I'll be cash flowing roughly $18,000/yr plus my savings of $40,000/yr. I'll have $58,000 to invest. I'll copy the same strategy I utilized for Age 24 and purchase two properties. This time however I will also use a cash-out refinance on a couple of properties, allowing me to purchase one more house. 

I doubled it for simplicity.

$58,000-40,000 (downpayment) -6000 (repairs) - 6000 (closing costs) - 2000 (cash reserves to leave in account in case of emergency to cover 1 months rent). $4000 leftover to help with the cash-out refinance if needed. 

Summarizing age 25:

1 duplex I live in: Cashflow $0

8 Single-family: 2400/mo

Total Cashflow: $2400/mo

Cash leftover: $0-$4000 (depending on if money is needed to help with cash-out refinance purchase)

Age 26: My cashflow is $28,800/yr. Added to my savings of $40,000/yr and I've got $68,800 to invest. This will be a critical moment. I will purchase two more single-family houses which will leave me with $14,800.

$68,800-40,000 (downpayment) -6000 (repairs) - 6000 (closing costs) - 2000 (cash reserves to leave in account in case of emergency to cover 1 months rent). 

I'll leave the duplex, rent out the other room I was living in which will bring the cash flow of the duplex to $400/mo ($200/unit). Then I'll purchase a triplex of fourplex for with an FHA loan 3.5% down (this will cost roughly $250,000-$300,000). At 3.5% (of 250k or 300k) + or - closing fees I'm looking at $12,000-$15,000. I'm assuming I can live in a unit for free with the other 3 tenants covering the mortgage and all expenses plus giving me $200/mo cashflow. If not I can get a roommate on my side, I actually like having company and have some friends who are responsible who would room for cheap.

Summarizing age 26:

1 duplex: Cashflow $400

10 Single-family: 3000/mo

1 fourplex I live in: 200/mo

Total Cashflow: $3600/mo

Cash leftover: $0-2000.

Where I need help: Some Questions I've got. 

That's my plan. As you can see I'm $2400 short on cashflow. I'm not sure how to close the gap. Maybe I could use more home equity or cash our refinance than I assume? Maybe I can somehow put less than 20% down for the properties? Would I put these In an LLC? Multiple LLC?

I think I was fairly conservative with my numbers, especially because I'm tucking away 27% for CapEx, repairs, Property Management, and vacancy. That might free up some cash. I also like tucking away the extra $1000 just in case **** hits the fan.

If I'm able to earn $60,000/yr+ I can get a bit closer, but still, I need help closing the gap. Either way, this $3600/mo is enough for me to retire on. As I stated above I'm a minimalist, but $6000/mo is where I want to be. 

If you have any advice let me know!

Sincerely, Nicholas 

I was curious if I bought a duplex with an FHA loan (house hack, live in one unit rent the other) (3.5% down). Could I then purchase a 4-plex using a conventional loan (25% down) and put that inside an LLC?

Then could I pay off 25% of the FHA loan convert it to a conventional, then put it inside an LLC?

I was curious if I bought a duplex with an FHA loan (3.5% down). Could I then purchase a 4-plex using a conventional loan (25% down) and put that inside an LLC? Then once the FHA is paid down to 20% I could convert it to a conventional and put it in the LLC?

Hey guys! I'm currently a junior in college (20 years old) and have been researching real estate since I was a Freshman. I've been inspired by a lot from reading answers on here, so I decided to make an account that way I can ask specific questions relevant to my situation. 

Alright, this is kind of a two-question post. 

1) Review my plan

2) Am I doing my analysis correctly?

1) Okay so as I said, I'm currently a Junior in college. I have no debt. My credit score is currently 727. I maxed out my Roth IRA at 19 years old and will do so again each year going forward in 2020, 2021, etc (I currently have $6000 in there; maxed out one time). I have $2,600 of Disney stock, $5,200 of Altria stock. I have $7400 in an ETF, this will be liquidated to max out my Roth next year leaving, with the rest open for whatever. I'll realistically earn around 6-8k this summer (2020). I could probably bump that up 8-10 if I bust my *** doing 50-60 hours a week.

Alright, so I plan on purchasing my first rental ~6 months after I graduate. I'll be 21 years old when I graduate, 6 months later I'll be 22. Based on my assets above I'll have roughly $10,200 dollars to invest in real estate when I graduate (2,600 (liquidate Disney stock+5,200 (liquidate Altria stock)+1400 (after conversion of etf into Roth IRA) +7000 roughly how much I'll earn this summer) -6000 (maxing out Roth in 2020).

Alright (sorry to ramble, I'm just trying to paint a clear picture of where I'm at. 

Okay, so that's my assets when I Graduate. I'm estimating my income will be ~$50,000 when I graduate. I'm willing to work 80 hours a week or more in order to make that happen if my job out of college only pays ~$40,000 I don't mind sacrificing my weekends to make more money. Based on my research I can get a loan with less than 2 years of work experience as long as my job is somewhat related to my major. I believe they need to see ~6 months of income, hence why I'm starting 6 months after and not the second I graduate. 

Okay, so if I'm earning roughly ~$50,000 a year. I'm assuming in 6 months I can save ~$12k. I'm a minimalist and I don't buy a lot, my main expense will be month to month rent somewhere. I'm assuming I can save ~50% of my gross income. 50k/2(.5) =~12,500. If I add this to the ~10,200 I have after college, I'll have a total of ~22,700 to invest in real estate. 

My current plan is to use an FHA loan and purchase a multifamily rental property (duplex, triplex, or quadplex). Most likely I'll do a duplex but have a friend or someone rent a room in an attempt to completely cover all expenses and live rent-free. Even if I'm unable to live rent-free, I figure I can still leave cheaper than I would be paying an entire mortgage or renting a place. I'm assuming my first place will cost me roughly $140,000- $170,000.

My goal would be to pay the equity down to 25% within a year, which is perfectly doable in my opinion. Let's say I purchase a $150,000 property with an FHA loan 3.5% down ($5,250). Then I dump my entire ~19,000 savings into the property for a year of income that would get it down to $125,750. I'd still have ~16,000 left after purchasing the property, repairs and closing costs 22,700-5,250-1500-5000 = 10,950. I would dump this into the property so that I would get the loan down to roughly ~114,800. This doesn't include amortization but I'm not sure what that would be. But it would be enough to get me to my 25% equity, which I'm already near not even including rent I'm charging or an even higher savings rate with potentially no rent. 114,800/150,000 (100) = 76% meaning my equity would be roughly where the 25% requirement is to refinance to a conventional loan.

I would then convert this loan to a conventional loan. Would this get rid of PMI or MI or how does that work? I haven't found a clear answer. But after I convert it to a conventional loan I would repeat the process with another FHA loan multifamily. Essentially I'd be gaining experience without having to risk as much as usual because I'd learn the game from the inside out.

Alright, so that's my plan roughly. But as they say, everyone's got one till they get punched in the face. 

Okay, so now I'll run my analysis of a property and maybe you can point out if I'm doing it wrong. 

2) 

Alright, so I've got a property I've found for $150,000. For the sake of this, I'm not going to do it when I'm living there, I doubt I'll be able to cash flow with me occupying a unit. So I was wondering if someone could show me how to calculate the ROI, Cash-on-cash and cash flow. Are there any other metrics I should look at to analyze a deal? Do these three numbers I should look at before purchasing a property (what is Cap Rate)? I'll give all the numbers I have and some questions for numbers I don't.
This property meets the 1% rule.

Property price: $150,000

Downpayment (FHA): $5,250

Fixing up the property: $5,000 

Interest rate 3.6% 30 years fixed: 150,000-5250=144,750 (3.6%) = $5,211/yr

Rent: unit 1: $1000/month Unit 2: $750/mo (I found a property like this): $1,750/mo total rent or 21,000/yr

Closing Costs: $1500 

MIP (paid upfront) at 1.75% of the cost (is this too high?): 150,000 (1.75%) = 2625

PM:?

Appreciation: ~4% (a little higher than inflation)

Should I assume a certain vacancy rate, capital expenditure, etc?: 

Lastly, I'm not that good of a handyman. I can't fix things like electrics, roofs, or any other serious repairs. I was curious about what are some things I should avoid having to fix (the bones of the house) such as foundation, water heater, etc? Because I don't want to have to fix anything major, so what should I look out for? 

I'm also not sure if I should replace water heaters with electric water heaters? They're more efficient and can lower electric bills fairly significantly.

Alright, that's all. Sorry if I'm rambling I just have a LOT of questions.