{"id":164535,"date":"2024-01-12T13:19:51","date_gmt":"2024-01-12T20:19:51","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=164535"},"modified":"2024-02-19T04:56:55","modified_gmt":"2024-02-19T11:56:55","slug":"how-many-properties-do-you-need-to-retire","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/how-many-properties-do-you-need-to-retire","title":{"rendered":"How Many Properties Do You Need To Retire?"},"content":{"rendered":"\n\n      <iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm\/?e=BIGPOC5377519138\" width=\"100%\"><\/iframe>\r\n  \n\n\n\n\n<p><span data-preserver-spaces=\"true\">Before discussing how to calculate the number of properties needed to replace your current income, understand that&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/money-466\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">retirement<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;is not a one-time event. Retirement requires rental income that will enable you to maintain your current standard of living for the rest of your life.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">How Many Properties Do You Need?<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">If there is no inflation, the number of properties you need to replace your current income is easy to calculate. For example, if your current income is $9,000 per month and each rental property nets $300 per month, you need 30 properties ($9,000\/$300 = 30 properties).<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">However, the reality is that there will be inflation. For the following example, I will assume that the average inflation will be 5% and the rent growth rate will be 2%. Under these conditions, how will your future rental income compare to the buying power of $9,000 today?<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">I will calculate the present value (inflation-adjusted) buying power in years five, 10, and 15 using this formula:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><em><span data-preserver-spaces=\"true\">FV = PV x (1 + r)^n \/ (1 + R)^n<\/span><\/em><\/li>\n<\/ul>\n\n\n\n<p><span data-preserver-spaces=\"true\">Where:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong><span data-preserver-spaces=\"true\">R:<\/span><\/strong><span data-preserver-spaces=\"true\">&nbsp;Annual inflation rate %<\/span><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">r:&nbsp;<\/span><\/strong><span data-preserver-spaces=\"true\">Annual appreciation or rent growth %<\/span><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">N:<\/span><\/strong><span data-preserver-spaces=\"true\">&nbsp;The number of years into the future<\/span><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">PV:<\/span><\/strong><span data-preserver-spaces=\"true\">&nbsp;The rent or price today<\/span><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">FV:<\/span><\/strong><span data-preserver-spaces=\"true\">&nbsp;The future value in today\u2019s dollar value<\/span><\/li>\n<\/ul>\n\n\n\n<p><span data-preserver-spaces=\"true\">Calculating the future buying power:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong><span data-preserver-spaces=\"true\">After five years:<\/span><\/strong><span data-preserver-spaces=\"true\">&nbsp;<\/span><em><span data-preserver-spaces=\"true\">$9,000 x (1 + 2%)^5 \/ (1 + 5%)^5 = $7,786.<\/span><\/em><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">After 10 years:&nbsp;<\/span><\/strong><em><span data-preserver-spaces=\"true\">$9,000 x (1 + 2%)^10 \/ (1 + 5%)^10 = $6,735.<\/span><\/em><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">After 15 years:&nbsp;<\/span><\/strong><em><span data-preserver-spaces=\"true\">$9,000 x (1 + 2%)^15 \/ (1 + 5%)^15 = $5,826.<\/span><\/em><\/li>\n<\/ul>\n\n\n\n<p><span data-preserver-spaces=\"true\">Since rents don&#8217;t keep up with inflation, your purchasing power will decrease over time, forcing you back into the job market.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">But what if you invest in a location where rents increase faster than inflation? For example, suppose you buy in a city where rents rise 7% and inflation is 5%. How will future rental income compare to the buying power of $9,000 today?<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong><span data-preserver-spaces=\"true\">After five years:<\/span><\/strong><span data-preserver-spaces=\"true\">&nbsp;<\/span><em><span data-preserver-spaces=\"true\">$9,000 x (1 + 7%)^5 \/ (1 + 5%)^5 = $9,890<\/span><\/em><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">After 10 years:<\/span><\/strong><span data-preserver-spaces=\"true\">&nbsp;<\/span><em><span data-preserver-spaces=\"true\">$9,000 x (1 + 7%)^10 \/ (1 + 5%)^10 = $10,869<\/span><\/em><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">After 15 years:<\/span><\/strong><span data-preserver-spaces=\"true\">&nbsp;<\/span><em><span data-preserver-spaces=\"true\">$9,000 x (1 + 7%)^15 \/ (1 + 5%)^15 = $11,944<\/span><\/em><\/li>\n<\/ul>\n\n\n\n<p><span data-preserver-spaces=\"true\">Because rents increase faster than inflation, you&#8217;ll have the additional income required to cover rising costs in the future. This will enable you to maintain your current standard of living.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The next question to address is: How much cash from your savings will be needed for the&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/down-payment\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">down payment<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;on 30 properties?<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">It Depends on Appreciation<\/span><\/h3>\n\n\n\n<p><span data-preserver-spaces=\"true\">Suppose you buy property in a city with low prices. Prices are low because of limited demand over several previous years. I will assume that each property costs $200,000, and you will have a 25% down payment.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The cash from your savings for the down payments on 30 properties will be:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><em><span data-preserver-spaces=\"true\">30 properties x ($200,000 x 25%)\/Property = $1,500,000<\/span><\/em><\/li>\n<\/ul>\n\n\n\n<p><span data-preserver-spaces=\"true\">Accumulating $1.5 million in after-tax savings will be challenging for most. However, there is a way to acquire 30 properties at only a fraction of the capital.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Suppose you buy in a city with significant, sustained population growth, which resulted in rapid appreciation. In the following example, I will assume an average appreciation rate of 7% and that each property costs $400,000 due to higher demand.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Assuming a 25% down payment, the cash from your savings for the first property will be:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><em><span data-preserver-spaces=\"true\">$400,000 x 25% = $100,000<\/span><\/em><\/li>\n<\/ul>\n\n\n\n<p><span data-preserver-spaces=\"true\">Because the value of the property is rapidly increasing, you can use a&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/what-is-a-cash-out-refinance\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">cash-out refinance<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;for the down payment on your next property. For example, assume the appreciation rate is 7%, you will use a 75% cash-out refinance, and the current mortgage payoff is $300,000. How many years will it take to have net proceeds of $100,000?&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The formula I will use is:<\/span><\/p>\n\n\n\n<p><em><span data-preserver-spaces=\"true\">Net Cash = PV x (1 + r)^n &#8211; mortgage payoff<\/span><\/em><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong><span data-preserver-spaces=\"true\">After year 1:<\/span><\/strong><span data-preserver-spaces=\"true\">&nbsp;$400,000 x (1 + 7%)^1 x 75% &#8211; $300,000 = $21,000<\/span><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">After year 2:<\/span><\/strong><span data-preserver-spaces=\"true\">&nbsp;$400,000 x (1 + 7%)^2 x 75% &#8211; $300,000 = $43,470<\/span><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">After year 3:<\/span><\/strong><span data-preserver-spaces=\"true\">&nbsp;$400,000 x (1 + 7%)^3 x 75% &#8211; $300,000 = $67,513<\/span><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">After year 4:<\/span><\/strong><span data-preserver-spaces=\"true\">&nbsp;$400,000 x (1 + 7%)^4 x 75% &#8211; $300,000 = $93,239<\/span><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">After year 5:&nbsp;<\/span><\/strong><span data-preserver-spaces=\"true\">$400,000 x (1 + 7%)^5 x 75% &#8211; $300,000 = $120,766<\/span><\/li>\n<\/ul>\n\n\n\n<p><span data-preserver-spaces=\"true\">So, after about five years, the net proceeds will be enough for the down payment on the next property. Growing your portfolio using a cash-out refinance greatly reduces the amount you pull from your savings.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Final Thoughts<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">If you buy in a city with slow rent growth and appreciation:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span data-preserver-spaces=\"true\">Properties will cost less.<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Your inflation-adjusted income will continuously decline due to rents not keeping pace with inflation, and you will be forced to get a job or keep buying more properties.<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">All investment dollars must come from your savings.<\/span><\/li>\n<\/ul>\n\n\n\n<p><span data-preserver-spaces=\"true\">If you buy in a city with rapid rent growth and appreciation:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span data-preserver-spaces=\"true\">Properties will cost more.<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Increasing rents will offset the effects of inflation, enabling you to maintain your standard of living.<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">You can use cash-out refinancing to acquire additional properties, requiring far less capital from your savings.<\/span><\/li>\n<\/ul>\n\n\n\n    \n  <div id=\"visibility-group-block_1b60386e95cb3c09c842634a065af5ca\" class=\"visibility-group alignwide  hidden\">\n        \n\n<div id=\"hero-block_c30a497cb8ee3fbb8c8a26ebc6abfc8b\" class=\"first:mt-0 hero-block py-4  alignwide   has-background has-slate-200-background-color has-text-color has-theme-gold-color\">\n    <div\n        class=\"gap-10 lg:gap-20 flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 lg:w-1\/2 \">\n            <main class=\"py-4\">\n                \n\n<p class=\"has-slate-800-color has-text-color has-large-font-size\" style=\"font-style:normal;font-weight:800\">Find the Right Agent, Close the Best Deal<\/p>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-slate-900-color has-text-color\" style=\"font-size:18px\">Step #1: Use Agent Finder to match with top <em><strong>investor-friendly<\/strong><\/em> real estate agents to help you find, analyze, and close your next deal.<\/p>\n\n\n\n<div id=button-custom-event-block_42486f8d3ad2b6e120cbf25db6824366 class='button-custom-event'>\n      <a\n    href=\"https:\/\/www.biggerpockets.com\/agent\/match\"\n        x-on:click=\"window.analytics.track('Blog Block | B2C Marketplace Agent Finder', {\n      referrer: 'https:\/\/www.biggerpockets.com\/blog\/how-many-properties-do-you-need-to-retire',\n    });\"\n    class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\" target=\"_blank\">Find an Agent<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n                <div class=\"lg:w-1\/2 first:mt-0 relative h-full lg:flex lg:items-center\">\n            <img decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  rounded-md hidden lg:block\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/08\/Marketplace-Blog-Blocks-Agent-v3.png\" alt=\"investor friendly real estate agent\" title=\"\">\n        <\/div>\n            <\/div>\n<\/div>\n\n  <\/div>\n  \n\n\n<div class=\"wp-block-group\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n    \n  <div id=\"visibility-group-block_64dd31c79f00f\" class=\"visibility-group  \">\n        \n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div id=\"hero-block_64dd2875dba9d\" class=\"first:mt-0 hero-block py-4    has-background has-slate-100-background-color has-text-color has-theme-slate-color\">\n    <div\n        class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 w-full \">\n            <main class=\"py-4\">\n                \n\n<h3 class=\"wp-block-heading my-0 tracking-tight font-extrabold has-theme-slate-dark-color has-text-color has-large-font-size\">Join the community<\/h3>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-theme-slate-color has-text-color\" style=\"font-size:16px;font-style:normal;font-weight:400\">Ready to succeed in real estate investing? Create a free BiggerPockets account to learn about investment strategies; ask questions and get answers from our community of +2 million members; connect with investor-friendly agents; and so much more. <\/p>\n\n\n\n<div id=button-custom-event-block_64dd2888dba9e class='button-custom-event'>\n      <a\n    href=\"https:\/\/www.biggerpockets.com\/signup\"\n        x-on:click=\"window.analytics.track('Blog Block | Acquisition | Free Membership Signup', {\n      referrer: 'https:\/\/www.biggerpockets.com\/blog\/how-many-properties-do-you-need-to-retire',\n    });\"\n    class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\" target=\"_blank\">Sign Up<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n            <\/div>\n<\/div>\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n  <\/div>\n  <\/div><\/div>\n","protected":false},"excerpt":{"rendered":"<p>If retiring is a problem, then the best way to solve it is by buying more properties. How many do you need?<\/p>\n","protected":false},"author":613715,"featured_media":164538,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7398,7119],"tags":[],"class_list":["post-164535","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-retirement","category-biggerpockets-daily"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/164535","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/613715"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=164535"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/164535\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/164538"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=164535"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=164535"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=164535"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}