High Yield Cash Flow Strategy: Becoming A Millionaire in 4 Years
Stefan Aarnio is an Award Winning Real Estate Entrepreneur, author of Money People Deal: The Fastest Way to Real Estate Wealth and Self Made: Confessions of a Twenty Something Self Made Millionaire. Stefan is also a recipient of the 2014 Rich Dad International Hall of Fame award.
Starting with only $1200, Stefan has built a multi-million dollar portfolio for his partners and has earned himself a spot on The Self Made List. Stefan has accumulated properties at an alarming pace controlling 25% of his local niche through his understanding of Real Estate Joint Ventures. Stefan’s philosophy is simple, find great deals, build a fantastic team, pay everybody and create partnerships for life.
My Strategy for building a $1,000,000 net worth in 10 years would be to buy-fix-and sell starter homes in Winnipeg, Manitoba, Canada with an “all cash” strategy.
I would start with $100,000 of cash that I would invest as follows:
Major Expense – Real Estate Coach, 1 year retainer – $52,000 would be invested in my real estate coach to accelerate business growth, assist with raising capital and build the systems of the business safely and quickly. Note: This strategy would be nearly impossible or extremely difficult without retaining the experience of a coach or mentor who has done it before. This plan would take years to set up and cost hundreds of thousands of dollars in mistakes without the help of an experienced coach to build the business.
Major Expense – Back Office – $15,000 would be spent on an office assistant to help with the admin work (This is 6 months of a 30k per year salary) after 6 months, my deals will pay for this salary. My time is better spent on raising money, negotiating deals and acquisitions. By having someone in house to handle all of the administrative tasks, I can focus better on the deal flow, the pipeline, marketing and raising capital.
Major Expense – Acquisition Budget $18,000 on “We buy houses” marketing for acquisitions. Direct mail campaigns, online marketing and local signs. Most of the properties we acquire will be “off market” distressed opportunities that have fallen to one of the 3 D’s – Death, divorce and downsizing. We will be purchasing property at 40-60% of the retail value and will need to utilize off market opportunities to reach our income goals.
Major Expense – Investor Budget – $15,000 on “high net worth” capital raising marketing, namely events and other marketing activities. Bigger fish require bigger bait. Attracting high net worth JV partners is not cheap and sometimes come at the price tag of up to $1,000 per lead. I would use this money wisely to attract the biggest money partners possible to fund my deals.
I would invest $0 into actual property and all money into marketing, my coach and my brand to raise $1,600,000 to run my flipping company.
I would avoid investing in property all together with my company cash because I can earn higher returns by investing in people and systems. My coach would accelerate my business growth and allow me to expand rapidly and my marketing and internal team on staff would allow me have exponential growth in the first few years of business.
The property I would target in Winnipeg Manitoba Canada would be a starter home that we would buy for $100,000 on average, renovate for $40,000 on average, pay $20,000 in transactional costs and net a profit of $40,000 per property. This $40,000 would be split 50/50 with my joint venture partners. I would net $20,000 per property.
Year 1 – My First 6 Flips
Year 1 would be the most difficult year of the plan because I would have to set up all of the marketing systems. In year 1, I would only expect to flip 6 homes and we would earn $120,000 of cash for my company in the first year. I would only need $420,000 of investor capital to do 6 deals (140k per piece) because I could turn the capital twice in the year (once every six months) and re-use it. In my flipping strategy, we would stay very liquid over the 10 years.
Year 2 – 100% Growth
In Year 2, I would flip 12 houses for $240,000 in earnings and an accumulated earnings of $360,000. The business would essentially double in year two because the systems are established and the team is starting to gel. Raising the extra money to expand the capital pool would not be a problem because the track record would be established and JV partners love to invest in proven concepts.
Year 3 – 50% Growth
In year 3, I would flip 18 houses earning $360,000 and accumulated earnings of $720,000. I would only grow the business by 50% in year 3 to avoid growing pains and make sure that my contracting crews are able to handle the extra volume. I would also make sure that my marketing is attracting choice deals and we aren’t buying the wrong types of properties or growing too fast.
Year 4 – 33% Growth
In year 4 I would flip 24 houses for $480,000 in earnings and accumulated earnings of $1,200,000. It wouldn’t take 10 years to reach a million dollars in this plan, ONLY 4 YEARS INSTEAD. 24 deals a year is the optimal level of business for a city of Winnipeg’s size (population between 700k and 800k people). At 24 deals per year, I would be a significant player in the property flipping game and it would be difficult to grow larger by only investing in this one market. If I wanted to expand further, I would need to find a second city (perhaps somewhere in the USA).
Year 5-10 Cash Flow of $480,000 per year
If I keep the business at 24 deals a year for 10 years, the total earnings over the 10-year period is $4.08M of unencumbered cash and zero debt. The JV capital pool required would be $1.68M and would be kept liquid as deals are bought and sold.
Since this plan is ALL CASH, there is very little risk of rising interest rates and a low probability of losing money if the market would shift. This strategy would be easy to raise money from high net worth JV partners because of liquidity, speed and high yield.
I am currently executing this strategy In Winnipeg Manitoba and it works as stated in this article.
Discover how to start flipping houses in your area without using your own funds: http://stefanaarnio.com/book