Creating 25K Cash Flow
How to create it and how many properties does it take?
“It depends” is the answer.
I like to think of this in a reverse-engineered format. The number of properties it takes to create 25K in positive cashflow is simply related to how much cashflow each property can generate.
There are a several factors to consider here:
What type of properties are you investing in? Single-family? Suited houses? Students? Multi-family?
What type of cashflow does each type of property generate? Singes are small cashflow/month, multi-family could be rather large.
The debt to equity ratios of each property… the more the debt you have on each property the lower the cash flow will be for that property.
Interest rates… higher interest rates mean lower cash flow.
New vs Old properties… old properties means more maintenance means less cashflow.
The ownership structure of properties… are they owned solely or through Joint Ventures, each has its purpose.
Amortization Schedules… do you like paying debt fast or slow… slow means more cashflow.
The list goes on.
For me, I like getting as many debt-free properties as possible to enable me to generate as much cashflow/property as possible. I also like running newer or renovated properties to avoid repairs and maintenance.
So as an example, If I have 5 suited houses debt free I can generate $2000 per month cashflow, that’s 10K towards the 25K. If I have another 5 suited houses at 50% loan to value, I can generate $1500 per month cashflow, that’s another 7.5K towards the 25K. Now I am at 17.5K per month. So then if I have another 15 suited houses that have 75% LTV mortgages, they will generate $500 per month positive cash flow for the remainder of the 7.5K needed to reach the 25K.
So in this scenario, I would need 25 properties averaging $1000.00 per month to generate the 25K per month.
How a few key thoughts…
1. This seems like a lot of properties, but remember this is the result, not the beginning. You have to start at the beginning, one property at a time and be very aggressive to achieve this. You buy real estate to retire on, not to replace your job. It’s a process that takes time.
2. Joint Ventures accelerate this process greatly because when the terms are complete they generate large amounts of cash to pay down debt and get to more debt-free properties quicker.
3. Sometimes selling 2-3 properties to get one property debt-free is the best strategy of all in a market where appreciation is at work (clearly this not the case in Alberta these past three years, but over time that should average out).
4. I want to build a strategy that will reduce my debt as fast as possible on houses that generate the most cashflow so that I can have as many pillars (debt-free properties) to support my portfolio as possible. I would like 10 debt-free properties generating 25k as fast as possible. The fewer properties for 25K the better.
5. Be careful not to try and do too many things at once ( I made this mistake). Choose one thing in ideally one area and become an expert at this. For me its suited houses in Edmonton and Kitchener/ Waterloo to get debt free properties as soon as possible with as many Joint Ventures as possible. We all win with that scenario!
Kind Regards,
John C. Heeney, CEO Glenroe Lending
Glenroe Farms Limited ( Private Lending )
We build LEGACY to create TRANQUILITY
john@glenroelending.ca
519 808 7370
