Drive to 5 Update: April 2014

Keep Calm

Yes, this is when I discuss my recent purchases and changes to my Drive to 5.  I’m working (slowly) to my 5 for the year.  The impetus for my Drive originally came from Jason at Dividend Mantra.  Just like anything, it took me a few months to understand his philosophy on dividend growth stocks.  Originally, I assumed dividend growth stocks were a combination of growth and dividend stocks.  As I learned, dividend growth stocks are stocks which reliably grow their dividends.

As I have learned, pay raises are not guaranteed.  Even though growing dividends are not guaranteed, a company that is growing its dividends generally tries to continue to grow the dividends.  Stopping the growing dividends and/or reducing the dividends generally signals a potential weakness in the underlying business.

Since I last wrote, I have added a few shares of Intel (INTC) and SeaDrill (SDRL).  In addition, a few of my positions have increased their dividends (YES! dividend growth investing is actually working for me).  Specifically, KMI and O increased their dividends.

I am now earning $129.85 per year in forward dividends, or an increase of 57% from the start of the year.  I am still $370.85 away from my goal however.

In order to help push along my dividends for the year, to try to hit my 5, I am working more in the field (at my day job) in a position that pays a ‘hazard’ pay of $5/hr.  I realize this isn’t much, but it’s something.  I plan to use all of that money as ‘bonus’ investments.

Disclosure: Long INTC, SDRL, KMI, O

How I saved $200 on my CSA membership

Credit Card Cash Back


I generally despise credit cards.  They are financial quicksand.  No matter how quickly you think you can pay them back, there is that ever present sucking sound as those damn cards continue to suck hard earned cash out of your bank account.  The sales pitch is always “Hey, we’ll give you 2% back on everything you spend!”  The card companies know that they’ll give 2% so long as they have you at 20% APR, or an eighteen point spread!  Eighteen points cash-on-cash is crazy.  I am generally willing to invest for 15% cash on cash return.

Well, I’m flirting with the devil.  We received an invitation in the mail to get a new credit card with a $200 signing bonus.  We needed to spend $500 within the first three months of having the card and we would receive 20,000 points, which is redeemable for $200.

I signed on the dotted line.  I knew we needed to purchase our CSA share for the summer.  For those of you that don’t know, CSA stands for Community Supported Agriculture.  We essentially prepay a farmer to produce our produce for a set period of time.  It is sort of an insurance policy for farmers.  They have their cash up front, so regardless of the year, they know they won’t lose the farm in the winter.

At the beginning of this year, we set a budget for all of 2014.  We knew we were going to purchase a CSA share this year, so I knew how much to set aside on a monthly basis so we were ready for the purchase.  Well, the credit card offer came along, and the ‘early bird special’ came for the CSA, a perfect match for the 2014 frugal budget.

I paid the $750 for the CSA (Yes, it’s a LOT of veggies…but it’s still expensive).  After paying for the CSA, I destroyed the card, so I can’t use it for anything else.  I was a little nervous waiting for the 20,000 points to post to my account as no communication from the Chase card services mentioned anything about the points except the initial teaser.  Well, we received our statement today and I actually eagerly opened the envelope and found…20,000 points applied to  my account, redeemable for $200.

The $200 will be applied to the CSA payment, for a net-out-of-pocket of $550 for the CSA.  Not too bad.

Abundance Thinking vs. Scarcity Thinking

Cash from bike

Abundant or Scarce?

My work (day job) has been rough for the past 18 months or so.  The business experienced some growing pains, resulting in several layoffs, a pay freeze and a pay cut.  Originally, I was living with a Scarcity Mentality…”Well, if he makes an additional $500/year, that’s $500 less that I can make”.  I was fearful of not being able to do what I want to do in life.  When most of the upheaval began at work, I decided that I could either be bitter (which I was for a while), or I could take work for what it was (a good job) and design my life to be what I want it to be.  The only way to do so was through Abundance Thinking.

I always reminded myself of when my wife and I were first married.  We made about $15/hour, combined income, and we felt like we were living like a king and queen.  I always wondered how it was possible to feel that good, while not making much money.  Part of it was because we were newly-weds and it’s very easy to practice Abundance Thinking when everything is new and exciting in life, but part of it was simply because life is abundant if you’re willing to watch and listen.

For years, my parents would discuss an ‘abundant mentality’.  As a kid, I never really understood what they meant by an “Abundance Mentality”.  I then read about Abudance Thinking vs. Scarcity Thinking in Stephen Covey’s “7 Habits of Highly Effective People”, and still the concept failed to sink into my thick skull.  Finally, after my wife and I decided to really take charge of our finances did the concept of Abundance Thinking finally catch hold.

In Stephen Covey’s book, 7 Habits, he defines the Scarcity Mentality and Abundance Mentality as follows:

“Most people are deeply scripted in what I call the Scarcity Mentality.  They see life as having only so much, as though there were only one pie out there, and if someone were to get a big piece of the pie, it would mean less for everybody else.  The Scarcity Mentality is the zero-sum paradigm of life.  People with a Scarcity Mentality have a very difficult time sharing recognition and credit, power or profit – even with those who help in the production.  They also have a very hard time being genuinely happy for the success of other people.

“The Abundance Mentality, on the other hand, flows out of a deep inner sense of personal worth and security.  It is the paradigm that there is plenty out there and enough to spare for everybody.  It results in sharing of prestige, of recognition, of profits, of decision making.  It opens possibilities, options, alternatives and creativity.”

I have found that by practicing Abundance Thinking, my wife and I are more content with our lives and we are actually enjoying life more now while spending significantly less.  Don’t get me wrong, there are still many things we want to do that we are unable to afford currently, but with our new Abundance Mentality, none of our goals feel like pipe dreams any longer.

My wife hates budgets (I find them kind of fun, just difficult to stick to).  In order to make our budget more fun, my wife created a “Frugal Fun Calendar“.  The calendar is full of either free, or very low cost activities/items that we can do/purchase each month.  We didn’t know what to put in the calendar and we actually stressed about not having enough to do in a month.  We settled on about 18 different activities for each month.  We thought it wasn’t going to be enough.


Through our first month of the Frugal Fun Calendar, we learned that we have so many options and so many ways to interact as a family that we actually couldn’t do all that we had planned when we started the month.  On Jan 1, we thought we would be bored, with too many days of nothing to do.  But by Jan 31, we had only completed about 3/4 of what we had planned and we felt the days were just packed.  Only by practicing Abundance Thinking have we been able to enjoy all that is available to us locally.

One interesting mental shift that has occurred is that now, rather than simply spend money on something like we used to do, we actually don’t even want to spend the money anymore.  It just doesn’t seem worth it when we have so much to do without spending money.  I used to be a bookaholic and my wife used to chastise me because my mom is the director of a library (although she has a bad book habit as well…).  I used to buy a book once a month or so.

Since we’ve been practicing Abundance Thinking, I’m finding that the library has a HUGE selection, and (as long as I return the books on time), they’re free.  In addition to the town’s library, we have a HUGE University library system that we can access.

Lastly, Abundance Thinking has actually made us happier.  Rather than fretting about what we can’t buy because we don’t have enough money, we are able to slow down and realize how much we have and that we don’t need to buy those other things.  I admit that it helps that we spent every last penny (and then some) in our past life and purchased some really nice clothes, kitchen equipment, etc.  With proper care, those items will last most of our lives and will generally remain stylish.

If you aren’t actively practicing Abundance Thinking, I encourage you to give it a try.  Set a specific time period, say 4 months.  Go cold turkey and force yourself to maintain the Abundance Thinking lifestyle for those four month.  You may have to kick the multiple-Starbuck-per-day habit and make your own coffee.  You may have to make lunch for yourself before work.  Consider walking or biking to work.

If you’re not happier, go back to your old life style, it’s not difficult, but I would bet you may enjoy the Abundance of life more than you think.

The New Cell Phone Plan

Moto X


As my wife and I continue on our path to Financial Freedom, we wanted find some ways to increase our available income for saving/investing.  To find ways to increase available income for saving/investing, we could focus on either increasing income or reducing expenses.

The easy answer is focus on ‘income’ rather than expenses.  How many times do you ask yourself “How can I make more money!”?  Asking yourself that question misses the obvious question “Why do I need that much more money?”  You should only need money to pay for expenses, not for ‘luxuries’.  Most people forget that expenses are generally flexible and are dictated by our choices while our income is usually outside our personal control.

Yesterday I stumbled across “Choosing the Cheapest Cell Phone Plan is a Headache” on CNN.  The article discusses the big four carriers: Verizon, AT&T, T-Mobile and Sprint.  The article describes the tactics each of the carriers is using to lure clients to use their services.  Verizon lets you get discounted smart phones; AT&T allows all minutes, texts and data to be shared within the family; T-Mobile doesn’t require a signed contract; and Sprint has a Framily Plan, which allows Friends/Family to split a bill and have separate bills mailed to different addresses.

At first, these choices seem great.  Who wouldn’t want to choose lower cost smart phones vs. sharing 10GB of data with your family?  The article assumes you need to have 10GB of data or unlimited texts.  Do we really need all that data?  If you could order a 10lb cheeseburger, is it worth it?

We were paying $140/month for 250 texts, unlimited data and 700 cell phone minutes on Verizon’s network.  That was for two smart phones with upgrades every two years.  I checked my email every 10 minutes, every time I heard a ‘ding’ from my phone.  I knew it was rude to check email while at lunch in Portland, Maine with my wife, but I did it anyway.  The ‘ding’ was addictive.  I never stopped to ask myself if I really needed to get email 24/7.

In late 2013, we decided to go on an aggressive campaign to reduce our expenses in order to increase our income available for saving/investing.  One really expensive item we decided we could change was our phone service.  Did we need to check email while driving at 65mph down the highway to or from work?  When watching an episode of The Office, did I need to know how my investments faired?  Honestly, was my life better because of 24/7 email contact?  (Hint: actually I was a lot more depressed)

After reading this article on Mr. Money Mustache, I decided to pay for the Moto X smart phone on Republic Wireless’s network.  Republic Wireless operates it’s network through free wifi access points when available.  When I’m at home and I make a phone call, my call gets routed for free through my internet.  When I’m at work, the same thing (through my work’s wifi network).  For those times I’m away from wireless networks, Republic Wireless partnered with Sprint and rents space from Sprint’s cell towers.

Sprint coverage isn’t as great as Verizon’s, but does everyone really need to drive an Aston Martin?  I decided that while Verizon’s coverage and network were awesome, I didn’t need to spend $140/month for that service.

My new service gives me data while I’m on a wifi network (there are a TON of free networks around, just look for them…Home Depot, Starbucks, Barnes and Noble, local coffee shops, etc).  I get unlimited talk minutes and unlimited texts on cell networks.  The best part of the new plan: the cost.  Now, instead of having to set aside almost 10% of one of my paychecks, I set aside $12.50 per paycheck (that’s not a typo).  Yes, my wife and I now spend $25/month for our smart phones rather than $140/month.  That’s a savings of $115/month.

I do sacrifice some call quality with the Republic plan, but honestly, for $115/month, or  $1,380/year, the small cut to quality is worth it.  My current investments are returning between 15-20%, so at the low end, that $1,380 will be worth $1,587 next year.  Over 10 years, that $1,380 will become $28,019.  That’s almost 8 months of work for me.  (I do invest in the stock market, however I’m saving for real estate investments right now).  If you were to invest that $1,380 in the stock market, over 10 years, at 7% gain per year, you would have almost $19,000.

Is all that data worth 8 months of work?  I’d rather be home asking my daughter “What noise does the chicken make?”  (Her reply: “bock bock bock”…not bad for a 1 year old, but then again, I’m her dad).


Goals, Updates and Changes for 2014



Just as everything in life is a work in progress, so too is this blog.  Having read through many of my previous posts, I realize most of the posts are more academic (aka: dry).  In 2013, I tried to write within the self imposed bounds of “Real Estate Investment”.  Life is more colorful than simple real estate investment, so in 2014 this blog shall morph into a more colorful tale of my (and my family’s) journey to financial independence (FI).  I also have more to say than just real estate investment, just ask my brothers (and probably my parents).

To kick things off, I’ve set my goals for 2014.

2014 Goals:
HBS Real Estate-
1) Add an additional $1,000/month in cash flow (forward looking cash flow)
2) Purchase a minimum of 3 additional rental properties
3) Use unique financing on at least one property (eg. Owner financing, 0% down, etc)
4) Leverage at least an additional $200,000
5) Identify a headquarters for HBS to move the business out of my garage.

Personal Goals:
1) Finish the wood stove room (the picture was taken before my daughter was born…she’s well past 1 year old now)
2) Get master bedroom finished to drywall stage (with new floors)
3) Enter, run and finish a marathron
4) Bike to work at least 160 days this year (that’s 66% of the year)
5) Increase passive cash flow (excluding Real Estate Investment) to $500/year (forward looking cash flow)
6) Invest a minimum of $100/month into my daughter’s stock fund
7) Repay my daughter what we owe her (used to pay for the roof that goes over her bedroom)
8) Invest all unplanned or ‘windfall’ income (eg. Bonuses at work, tax refund, etc.)

Just as I had no idea how to rewire an entire house, I have no idea how I will accomplish some of these goals, but I’ll figure it out.

Using an APOD

An Annual Property Operating Data sheet (APOD) is a very important tool to use before you buy a rental property, while you own the property and even when you sell the property.  At its most basic, an APOD is simply a worksheet to calculate your potential profit or loss.  With minor tweaks to a basic APOD, you can have a powerful tool available at your fingertips.

As the name suggests, an APOD details the annual costs required to own the rental property.  Some APODs factor in lost rent due to vacancy, costs for repairs, costs for improvements, utilities, etc.  Typically, when I ask my real estate agent for an APOD, I receive either hand written chicken scratch from the current owner, or a worksheet that seems to show the house in quite a rosy light.  When I receive these “Income and Expense” statements, I usually ignore their bottom line and plug and chug in my spreadsheet.

I developed an APOD that is conservative, meaning the APOD exaggerates the downside risk, effectively taking a worst-case-scenario snapshot of the property.  I developed this because I want to ensure that I will make money when I purchase a rental property.  I don’t have cash to burn owning a property that doesn’t throw off cash at the end of the month.  To be conservative, I slice almost 30% off of the gross rent each month (detailed below).

Here is a snapshot of my APOD:


We’ll start working through each column:

The first column is rather easy, it’s simply current information about the building.  I always include the address for the building.  I do this for a few reasons.  First, it is simply a record of a property I reviewed.  Secondly, I now have one additional point of data for calculating my local rents.  Lastly, keeping the address allows me to follow up on the house or building if it goes off the market.

After the address, is the current information on the asking price, current rent, taxes and insurance.  All of these figures are then used to determine potential profit from the rental.  The ‘Month to Close’ allows you to remember when you purchased the building to calculate your first partial year’s gross income.  I prefer to have each rent recorded rather than only a gross rent for the building.  This allows me to determine if certain units are under market rent.  Again, I can also compare the rent of the new building to my rentals to determine if I am over or under charging.

Note: If this is a UFUO (Unique Fixer Upper Opportunity), then input your calculated rents (see: Calculating Your Rent).  Remember, if you purchase a UFUO, your first year’s numbers will generally look horrible because you are incurring costs while you are fixing the place (Watch for the post: Repair vs. Improvement).

The taxes and insurance are usually available on the MLS listing.  If not, ask your real estate agent for this information.  Note: It is good to verify the tax information by calling the municipality.

You do not need to include the information about the building’s size, zoning, heating system, etc.  I do just to remember how the building is set up.  I am usually leery of private wells and septic systems (many other people have no problems with them…it’s one less cost for me to consider).  I also try to keep away from oil heating systems, unless it is possible to upgrade to gas or high efficiency electric.

In the ‘Loan Information’ section, you should input your Purchase Price, Term for the loan, and the rate.  Typically banks will require 25% down for a non-owner occupied investment property.  Seldom will a bank lend if you have less than the 25%…but sometimes they do.  The second property I purchased, I was able to negotiate for only 15% down, which helped my cash flow significantly.

Let’s move to the Operating Expenses:

This column is relatively self-explanatory.    Under the “Administrative” heading are your ‘overhead’ items.  If you are smart and willing to put in a little work, there should be very few costs while you only own a few buildings.

I do not have a property manager yet, but if I did, all of her/his payroll information would be located under the “Property Management” heading.  You could include yourself as an ‘employee’ under the property management heading.  Monthly, you would be able to take the cash allocated under that heading.  I don’t do this because I am trying to expand my business, so I am reinvesting all of my profits.  This rate is also 10% of gross rent (part of the 30% off the top I mentioned earlier)

Under “Maintenance”, the ‘unexpected maintenance’ is a self-calculating cell.  I arbitrarily chose a value of 10% of the property gross cash flow (the second 10% off the top).  I assume this is what is going to randomly break and will have to be repaired (This is also part of my downside risk assessment).  Once my repair reserves are adequate to cover most random expenses (roof repairs, boiler repairs, etc), I will pare back the repair reserves and add that to my profits.

The “Services” heading lists typical services that may have to be paid.  I normally pay for trash because it is a fixed monthly cost.  If you have other services or utilities, you would want to include a brief description.

For “Utilities”, I included the typical utilities for our area.  I never include phone or cable in my rent, but maybe you want to do so.  There are two free spaces for other utilities at the bottom of that page.

HA!  Now we are at the fun part.  The Income/Payments column is a LOT of fun to look through.  Our first stop is the Income.  This is where we see the gross rent for the property.  Some properties may have coin-op laundry, vending machines, etc.  The monthly income from those other sources would be included as Other Income.

When my bank evaluates a loan, they assume a 5% vacancy rate.  In order to be conservative, I assume a 10% rate (the third 10% off the top).  If you manage your property properly, this vacancy rate may be as low as 0% (which is additional profit).

The ‘Net Annual Income’ is the total potential income less the vacancy.

Next step is to subtract the loan payment.  I break out both a 15% down and 25% down, just to give you an idea of what is possible (normal commercial loans are 25% down, but sometimes banks will give you 85% LTV).  For most loans, especially if you are purchasing through a corporation of some sort, focus on the 25% number.

Taxes and insurance are the annual taxes and insurance (probably more expensive than you thought!).

The IRS allows you to assume that your asset (rental property) will be worth nothing after 27.5 years of ownership.  This is called ‘depreciation’.  The IRS allows you to deduct 3.636% of the initial value of the building, not the land, which you purchased.  This accounting happens at tax time.  Depreciation is considered a ‘loss’ to your business, reducing your taxes at the end of the year.  It’s not quite cash flow to your bottom line, but significantly helps to reduce the profit on your taxes.  Just remember that depreciation gets ADDED to an eventual sale of the building (the tax man giveth and taketh).

Now, let’s step to the last column, “Cash Flow”.

In the Cash Flow column, we account for all the income and payments to determine what our profit or loss is for the property.  Again, I have split out the 15% and 25% down payments.  The ‘Annual Income’ is the vacancy adjusted income.  The loan, taxes and insurance are rather firm numbers.  It’s tough to get the bank or the township to reduce your loan or tax payments.

Operating expenses may be a flexible payment.  One of the easier ways to reduce the operating expenses is to evaluate the energy consumption of the property.  The addition of energy conservation, renewable energy installations or energy efficient equipment, may significantly reduce the operating expenses.

The number everyone is interested to see is the ‘Monthly Cash Flow’.  This is your potential profit.  I have found that some investors insist on purchasing properties with monthly profits north of $500.  I have found that I am happy with properties yielding $100 – $300 per month (per unit).  I have friends ask me why I bother purchasing those properties when I could go on vacation or fix my own house (or buy the flat screen, new couch, new car, new…head over to Mr. Money Mustache for his take on this ‘new’ junk).  My typical response is “Do you want to give me $100 per month for the next 10 years?”  They usually say “no.”  Well, these properties ARE giving me that $100 per month, generally without complaint!

When I am going to make an offer on a property, I note a few items on the APOD.  First, I check to make sure the monthly cash flow is greater than $100 per unit.  This $100 is totally arbitrary; you could have said it had to be “1 beelllion doolars.”  Because the APOD automatically calculates these ratios, I adjust my purchase price (which is my offer) to get to the $100/unit threshold.  This offer is then my ‘highest and best’ offer.  Unless the building is in terrible condition, or otherwise warrants a lower price, I usually simply offer my ‘highest and best’ offer and let the chips fall where they may.

The next section calculates the required closing costs.  This helps me pull the necessary money together for any of these deals.  With the example above, you can see the significant difference between the 15% and 25% down payments.

Assuming the property passes the $100 minimum threshold, I then look to the ratios section.  Looking at the “Ratios” section, we’ll see the effect a larger down payment has on our money’s velocity, because we are unable to leverage our cash as much as if we had only used the 15%.

I want to make sure that my cash-on-cash return is greater than 15%.  This means that you will have all your cash back after 6 2/3 years.  It also means that for each $1 I invest, in 365 days, I will have $1.15.  This is also double the average return of the stock market for the past 80 or so years.  Now, the initial cash-on-cash rate may be low because the current owner is renting the building at lower than market rates.  If this is the case, evaluate the building first with the current rents, and then with your new proposed rents.  See how it stacks up.  To get your building to the new rents, there will probably be some friction with existing tenants and you will probably have to find some new tenants.  You don’t want to pay to own a rental property.

For my local market, a good rule of thumb for the actual value of a property is to assume five times net income.  This is only a rough guide, but does help me during negotiations or when I refinance.

The APOD is THE tool I use when I am evaluating a potential property.  Don’t force the APOD to show positive results.  If the property is not beneficial, you don’t want to buy it.  Period.  No one has enough money to throw at a poor property.  Think Tom Hanks in the Money Pit!

I have a few tweaks to make to my APOD.  Once I have those made, the APOD will be available to purchase on this website.  Stay tuned!


As I’ve mentioned previously, goals are extremely important.  What would football be without an end zone?  How about baseball with no home plate?   How would a business function with no bottom line?  Goals help you to focus.  They tell you where you’re going and keep you on track as you work towards the goal.  Steven Covey, in his book “Seven Habits of Highly Effective People”, advocated starting with the end in mind (Habit #2).

Too often, people ignore the simple fact that you NEED to have a goal in order to be successful.  No one is going to hand you the keys to a 10-unit rental property with 20% margins.  Do you think Steve Jobs only wanted to create cool devices?  Don’t you think his GOAL was to bring classy design to mundane objects (Walkman = iPOD; Extreme lightweight computing = iPad; rabbit ear TV = iTV)?

People say that they want money.  That is all well and good, but ‘wanting money’ is not a goal.  Having money usually happens when you define your goals and take actual steps in pursuing those goals.

Single Family Home #1

Single Family Home #1

These goals, your goals, need to be documented and defined.

My goal is to have the financial stability to live my current lifestyle while having the ability to work any job I choose or to create any business I desire.  I do not want to have to continue to work longer hours while looking for higher paying jobs in order to have a good retirement.

Sounds great, but what exactly does that mean?  On simple terms, I want my investments to drop enough cash to my bottom line (take home pay) that any job I do take is extra cash, effectively a monthly bonus that would allow me to actually live better than I do now.  So, what does my current lifestyle cost?  Well, here we go:

Monthly budget (all numbers rounded up to the nearest tens)
– Housing: $850
– Food: $600
– Pet food: $200
– Electricity: $50
– Water: $40
– Sewer: $40
– Phone: $150
– Internet: $70 (Need to see about reducing costs here)
– Entertainment (Netflix): $10 (single DVD out at a time, no streaming)
– Investments: $90 (Two DRIP plans)
– Employer 401k Match: $80
– Vehicle (insurance, gas, maintenance): $225
– Eating out (Generally Starbucks, twice a week): $80
– HELOC: $150
– Heating system loan: $150
– Savings/Misc: $240

Total post-tax cash needed: $3,025 monthly

Assuming an effective tax rate of 25%, my gross take home would have to be $3,025 / 75% = $4,033 ($48,400 annualy; please note: health insurance is taken out pre-tax, so I lump the health care payment into the ‘effective tax’ rate of 25%; I am actually in the 15% tax bracket).

Therefore, my goal is to receive at least $3,025 monthly, after taxes and health insurance through some sort of investment.  For me, these investments are real estate.  In addition to knowing how much I need to receive, I also want to set a time frame for this goal.  In football, there are a total of 60 minutes of play in which to outscore your opponent.  My time frame is five years, a total of 1826 days (my clock started counting in July, 2012, so there is only one leap year).  Five years has no actual significance, simply a reasonable time frame in my mind.

Maybe five years sounds like a lot.  To me, it doesn’t sound like a very long time to meet my goal.  If we break down the financial goal ($4,033) by the time to deliver (1,826 days), I will need to increase my monthly take home pay, through these investments, by $2.21 per day for all 1,826 days.  $2.21 per day may not sound like much, but that is an increase of $66.30 monthly or $795.60 annually (let’s use $800 for ease of math).

If we assume a linear trajectory, during my first year of investment, I will need to bring home an additional $800 monthly.  At the end of my second year (after I’ve held my first year’s investment for 12 months), my gross income will have increased by $9,600 (12 months x $800 per month).  Obviously, that will not happen with one single property.  You may not receive $800 per month with two properties.  It may take four properties to reach the $800 per month target.

I am going to assume (hope) that the growth of my investments will not be linear, but rather some sort of curve, increasing at a faster rate each year.

Without a goal (a touchdown), I would not know how much I need to increase my annual take home (how may yards per carry/pass).  I would be hard pressed to develop a strategy to increase that take home in a sustainable manner (four downs to get a first down and get closer to the touchdown).  I could throw a hail mary in year five, and try to achieve the $4,033 all in one year, but that is not sustainable.

What have I achieved so far?

As of this writing, my wife and I own a small real estate investment business, HBS Real Estate, LLC.  The business has been ‘active’ for one year as of early August, 2013.  Our business is a Limited Liability Company (LLC) which I deliberately chose in order to protect our personal assets (see: Business Types).  Through the business, we own: one single family home and two duplexes for a total of five rentable units with approximately $710 monthly cash flow with a roughly 12.5% margin of error (see: Losses and Safety Factor).  Removing the margin of error, my monthly cash flow would be approximately $810, right in line with my rough calculations to make my goal of $4,033 monthly cash flow within five years.

What is your goal?  When you have your goal in mind, break it down into simple, measurable steps.  What is your first step?  The goal may seem insurmountable, but the first step is always easy; the trick is taking that first step.