Complicated Residential Real Estate Situation....Experience Needed

[ddm5]

Hi,

New to the forum.  Long time reader of the blog.

MMM made a post awhile back that I can't seem to find.  It was about being a landlord/rental real estate and quoted a forum post from here from a guy who was an expert on the subject.  Where is that guy?  Or any other real estate experts?

I have a $50k a year office job, but recently I have spent every waking non-working moment doing internet marketing and have seen some success.  My best day was $6k profit...I probably average $1000 a day profit when you factor in the testing of new campaigns and the down days.  That may be increasing to a consisten 3-4k soon but I don't want to get ahead of myself...I already did that on my 6k day, projecting that I could buy a new house every week or so.

My first priority in life right now is to use this money to purchase residential real estate to rent out.  I live in Indiana, so I am blessed with a market where rents are reasonably high but real estate prices are insanely low.  For instance, I can rent my house (purchased for $120k) for $1600/mo.  I can rent a $70-80k house for $1000/mo.  My goal is to reach 40-50k in GROSS passive income from real estate, at which point I plan to get the hell out of this otherwise miserable state.

My marketing income cannot be considered for mortgages right now, so we're using my job job DTI.  This allows me about $100k more of mortgage debt using a max DTI of 45%, after factoring in property taxes and insurance.  Since the minimum mortgage amount seems to be $50k, I plan to finance two properties with $50k mortgages and downpayments for the balance, and then buy the rest cash.  I should only need to purchase 2 properties cash (in addition to the 2 that are financed and the home I currently live in) to achieve my goal.

I am using a property management company since I plan on moving thousands of miles away or even out of the country.  They take the first month's rent plus 10% of the rest and handle everything so my income is truly passive.

Can anyone walk me through the best way to do this and get the most efficient bang for my buck so as to get out of here quickly?  Should I buy "turn key" properties that need absolutely no work but are more expensive, or buy dirt cheap ones that need work?  If so, what "work needed" should I absolutey avoid at all costs?  What is considered a good ROI, as in, based on an expected rental rate, how much should I pay for the house/pay monthly?

Any guidance from you old vets would be great!

Thanks

[KingCoin]

The scope of this question is unfortunately enormous. You touch on everything from investment financing, to deal analysis, to portfolio construction, to turn-key vs. fixer uppers, each of which could be an enormous thread in itself. With respect to the how's, where's, and why's, of real estate investment, you should get yourself to biggerpockets.com and start reading. You can start here:
http://www.biggerpockets.com/real-estate-investing/introduction
Learn the 1% rule. Learn the 50% rule. Learn the pros and cons of real estate investment in general.

As for financing, if you're making $1,000/day, why do you need to finance $60k houses? You could be a cash buyer of a 6-pack of those bad boys in a little over a year.

Why the pants-on-fire urgency? Why not invest wherever you move? If you're going the turn-key route, why not geographically diversify a bit? Local expertise aside, it seems kind of strange to buy a bunch of local properties and then leave.

Why real estate? Why not buy a corporate bond portfolio that yields 7% or put together a more traditional looking portfolio and apply the 3-4% safe withdrawal rate?

In short, you don't need an expert at all. You need to do some research yourself and get up to speed.

[arebelspy]

Agree with KingCoin.  Think about the questions he posted.

Here's some books that can help with some of the more basic questions you asked: https://forum.mrmoneymustache.com/real-estate-and-landlording/real-estate-book-recommendations/

[ddm5]

Enormous scope, definitely.  Just needed a place to start, and you gave me exactly that!  Thanks a ton.  I'll read everything suggested and that should give me enough to feel comfortable diving in in January.  I'll post any questions I have afterwards here.

Pants on fire urgency is because I hate this place and if I continue being "reasonable" (complacent) I'll never get out.

Thanks again!

[arebelspy]

Enormous scope, definitely.  Just needed a place to start, and you gave me exactly that!  Thanks a ton.  I'll read everything suggested and that should give me enough to feel comfortable diving in in January.  I'll post any questions I have afterwards here.

Pants on fire urgency is because I hate this place and if I continue being "reasonable" (complacent) I'll never get out.

Thanks again!

Good for you!   :)   Let us know how it goes and if you have any questions along the way.

Welcome to the forums!

[KingCoin]

Pants on fire urgency is because I hate this place and if I continue being "reasonable" (complacent) I'll never get out.

Good stuff. Don't be afraid to take it slow. Real estate mistakes tend to be more expensive than other financial blunders due to high transaction cost and low liquidity. If you're printing as much money as you say as you are, I'd ring that register as long as you can without letting real estate distract you too much. Remember, you can also build a steady income stream in bonds or similar investments, so d consider them as another way to replicate your 50k of lost income before getting out of dodge. I'd think holistically about your earnings and income stream rather than narrowly. Replacing a job income stream with a real estate income stream is a tidy formula, but not necessarily the best way to think about things or structure your financial life.

[zinethstache]

With your particular tenacity, I would think investing in dividends would be fun for you. If you are not a handy man real estate DIY-er I would not recommend real estate, but that's just me. My experience is in real estate and we are doing well with our investments, but we are hands on which gives us better ROI and peace of mind. You are obviously driven, I would not consider yourself complacent. I am intrigued about the various stock market investments now that I am settled with some rentals, but I know I have TONs of learning to do.

To dip into possible stock investing options http://www.bogleheads.org/forum/viewforum.php?f=2 is a site I've been reading, it gets in pretty deep, but that is the depth you will need to go to make the right decision on what to do with your windfall. Great work, so many folks can only dream of stumbling upon a side gig making that kind of dough!

Its tough when you feel trapped and you hate where you live, just do lots of research before you do anything.

[arebelspy]

If you are not a handy man real estate DIY-er I would not recommend real estate, but that's just me.

I think this is a misnomer.

I'm not handy at all, but I have no issues hiring competent people to work on my properties.  Make sure you build repairs into your numbers (rather than expect to do them yourself for free - and I'd argue they should be built in even if you are handy, and you "pay" yourself for them), and it shouldn't matter one whit if you're all thumbs.