All Forum Posts by: Mathew Pezon

Hello and welcome to the BiggerPockets community!

The number of properties needed to generate $15k in net profit each month can vary greatly depending on several factors:

• Purchase price and down payment: More expensive homes require higher initial investment, but may also generate higher rental income. More affordable properties may cash flow well but take longer to scale.
  
• Rental rates in your market: Locations with higher rents (e.g. $2k/month) will require fewer properties than areas with lower rent (e.g. $800/month). Research rental comps in your target neighborhoods.
  
• Expense ratios: Repairs, vacancies, property taxes, insurance, property management fees, etc. can take a big chunk out of gross rents. Factor in at least 40-50% of rents going to operating expenses.
  
• Financing: 30-year mortgages will have lower monthly payments than 15-year loans, increasing cash flow. But more properties will be needed than buying in cash.
  
• Appreciation/equity paydown: Cash flow from rents will be supplemented by property value gains and tenants paying down your mortgage.

As a rough estimate, assuming you can buy properties for $150k that rent for $1,500/month with 50% expense ratios, each property may cash flow around $750/month or $9k/year. To reach $15k/month ($180k/year), around 20 properties would be needed.

However, with $2,500/month rents, only 12 properties may be required. Buying higher cash flowing properties, putting more money down, or adding value/raising rents can further reduce the number needed.

I would recommend using the BiggerPockets rental property calculator and Rehab Cost Estimate Calculator to run the numbers on different scenarios in your market. Identify a target cash-on-cash return, and divide $180k by that amount to see how many properties you'll need.

Wish you the best in your REI journey! Let me know if you have any other questions.

Hi Benjamin,

Kudos on getting started with real estate investing at 22! I was in a similar position once - eager to begin investing.

In my experience and piggybacking on Emma's response, there are pros and cons to both approaches that are worth considering:

Buying an investment property first allows you to dip your toes into landlording while still renting yourself. As rental income starts flowing in, you can save and build equity faster to buy your own place later. Just be cautious taking on a lot of debt/maintenance as a new investor.

However, buying a primary home provides stability and potential appreciation too. If your family is contributing, you could purchase a multifamily home to house everyone, while renting out units you don't need. This builds equity while offsetting housing costs and how I started my real estate journey - house hacking.

My advice would be to run the numbers on both scenarios, factoring in real estate goals, finances, and family needs. Are there affordable investment properties in good areas near you? How much can everyone contribute to a down payment today?

There’s no one-size-fits-all answer. The key is balancing your dreams with practicality. Patience and discipline are crucial when starting out. Maximize savings, learn about your market, and the right opportunity will come! Feel free to message me if you want to discuss more.

Does this help provide some guidance on weighing the pros and cons of buying versus renting first? Let me know if you have any other questions!

Hi Patrick, there could be arguments on both sides. 

When I was starting out, I used to purchase the materials for contractors and have them pick them up at Home Depot and I did all the shopping myself. It took a lot of time. In phase 2 of my growth as a REI, I would have the contractor do the shopping and used Home Depot's "text to confirm" system where you can see all the items the contractor is purchasing (with pictures, quantities, and pricing), and then you approve the purchase (or deny it) with the credit card on file. I found it to be very useful because I was able to 1) get detailed knowledge about actual pricing and 2) control costs by establishing vendor accounts with Home Depot.

However, once you have several successful flips under your belt and have built relationships with trusted contractors and are looking to do more volume, transitioning to contractor-sourced materials maximizes efficiency. Find a company that isn’t going to gouge you on pricing but they handle the logistics so you can focus on finding more deals.

In the end, you will make more margin finding the next good deal rather than splitting hairs to save $50 on kitchen cabinets by shopping around for an hour at supply houses. Just my 2 cents

Hi @Trent Stevens,

Welcome! 

Getting into real estate investing can be intimidating at first, but with the right mindset and patience, there is no greater investment. It's great that you're doing research and seeking advice early on.

Your credit score isn’t a show stopper. These days, it’s harder to find deals than get money. If you find a good deal, you will find the money. It might be more expensive, but the money will be there. Many investors (including myself) start out with less than perfect credit. My first car loan interest rate was 17% back when rates were under 4%! Focus on continuing to pay down debt where possible. Over time, responsible financial habits will repair your credit.

Your goal of 20 paid off homes by 55 is ambitious but doable if you start now, educate yourself, repair your credit, and stay disciplined. Be patient, don't overleverage, and continually reinvest profits. It's a marathon, not a sprint. Over time, compounding returns from even modest investments make the goal realistic.

Best of luck! Feel free to ask any other questions as they come up.

Hi @Caleb Olaez

Congratulations on completing your real estate course and pursuing this career path at such a young age. Getting an early start in real estate investing is wise. With some diligent saving and strategic investments, $10k can be enough to get started.

I would suggest looking into wholesaling or house hacking opportunities in your local market (I house-hacked a 4 unit property with an FHA mortgage as my first deal), as those allow you to build experience without large upfront capital. Study comparable sales and talk to investors in your area to identify properties with potential upside. Be prepared to start small, learn as you go, and continually educate yourself. Patience and persistence are key.

As a new investor, partnerships can be very valuable. Consider reaching out to experienced investors who may be open to joint ventures, where you contribute sweat equity in exchange for a share of profits and learning the ropes. Also connect with contractors, brokers, attorneys and other professionals to build your network.

Continue saving to grow your capital over time. Live frugally and plow profits back into new deals. There will be challenges along the way, but real estate is rewarding for those willing to put in the hard work. With discipline and dedication, you can build a solid investing business. Best of luck in your journey! Let me know if you have any other specific questions.

Hi there,

Kudos to you and your sister for saving up and securing financing to start your fix-and-flip journey in Ohio! That's an exciting first step.

Regarding your question about home improvement loans – I would initially caution against taking on too much additional debt upfront. However, utilizing a hard money lender is an option to consider if you need extra capital for your first few flips.

The main pros of hard money lenders are that they can fund projects very quickly and have more flexible qualifying guidelines than banks. The biggest con is that their interest rates and fees are much higher.

I'd recommend starting with a smaller scale flip using your current budget. This will allow you to test the rehab process without overextending. Once you complete your first successful flip, you can either reinvest the profits into the next project or potentially utilize a hard money lender for additional funding.

The key is keeping overhead and interest costs in check, even with hard money lending. Scope projects conservatively, watch contractor budgets, and focus on necessities over luxuries in the remodel.

By scaling up gradually and keeping a close eye on your numbers, you can successfully utilize hard money lending without taking on excessive risk or debt. Just be cautious and strategic in order to maximize returns.

Let me know if you have any other questions! Wishing you both the best as you embark on your first flip.

Hi Astante,

Thanks for opening up about your situation. I'm sorry to hear you got scammed early on. But don't let that discourage you. It's great that you're eager to get back in the game.

Wholesaling can be a solid way to start, especially if you're handy and well-connected. I'd suggest networking with other investors in your area, going to local real estate meetups, and letting people know you're looking for deals. Build those relationships.

As for finding deals, look into driving for dollars in neighborhoods with old, often neglected properties. Talk to probate attorneys and estate executors to find inherited houses. And send out direct mail campaigns offering to buy houses. It's a numbers game, so persistence and following up is key.

Finally, study wholesaling further so you truly understand the process before pursuing a property. Know your numbers and how to evaluate a deal. Bring in a mentor if needed. Arm yourself with knowledge.

You have the drive, experience, and work ethic. With the right connections and education, you can break into wholesaling. Wishing you the best of luck! Let me know if you have any other questions.

Hello there,

When considering an owner-financed deal, the seller's equity position is an important factor in determining if the deal is feasible and mutually beneficial. Generally, the more equity the seller has, the more flexibility and better terms they can offer the buyer.

As a rough guideline, I would look for the seller to have at least 20-30% equity remaining in the property. This indicates they have enough skin in the game to motivate them to offer fair terms.

With 20-30% equity, the seller can likely offer favorable terms.

Conversely, a deal with a seller who has less than 20% equity remaining would be riskier for the buyer. The seller has less motivation to offer good terms, and there is a higher chance of default. I would avoid deals with less than 10-15% equity.

Factors like the property type, market conditions, and seller's financials would also influence the terms. But in general, 20-30% equity provides a good starting point for an owner-financed deal that works for both parties.

Hi Michael,

Let's refocus! Maximizing the performance of your current property might be the key to a more stable and profitable path as compared to exploring new investments. It seems like you are undercharging your property. Why don't you hire a PM? It gonna save you bucks by the end of the year. It's worth considering.

Hi Jorge,

Great points. Lots of gold here. I might add that after holding for 4-5 years and realizing 90% of the value, waiting an extra 2-3 years for the extra 10% benefit sometimes is too slow of a payoff when you could sell, recycle the capital, and buy the next asset at a larger discount than the upside you were waiting for. 

Over the years I've seen equity get "lazy" because I never sold. I held everything indiscriminately. Without selling, capital wasn't free to buy the next asset at a discount. I was waiting around for a 5% appreciation rate when I could have found a new asset at a steep discount. 

After holding properties for 5-6 years minimum, I don't regret selling them. I regret not selling them sooner to buy more properties at a discounted price.