Five year plan for Rental Passive Income with $50k/year savings

14 Replies

Hi everyone, I’m putting together a five year plan of investing in rental properties for passive income and would love to get some feedback.

I live and own businesses overseas. I’ll be saving $4,100 per month, which is approximately $50,000 per year after taxes.

I don’t own any property, so I’m starting from scratch. Since I live overseas, I’m not interested in fix or flips. I’m focused on turnkey properties, either single family or small multi family.

So, let’s assume an investment rate of $50,000 per year, and all rental income goes right back into buying more properties.

What is a conservative plan with low maintenance rental properties each year and what income can I realistically achieve after five years?

I’ve been thinking it over for some time now and I want to put together a detailed plan to follow.

I would love to hear your plans and thoughts.

Thanks everyone!

Are you buying properties in the U.S.? If so, you definitely need a real estate  who is honest enough, smart enough and has enough business savvy to make decisions on your behalf. While there are hundred of thousands of real estate agents I found only one in the past 50 years who seriously made 100% sure that I was purchasing the right properties for investment purposes. Every other agent I ever dealt with told me that every property on (or off) the market was a super great deal. Hope you get my drift?

Your question depends on whether you are going for single family properties or multi-units. For single families you can expect to net $200 to $500 per unit, but to be safe I would say the average is about $300 per month per unit. The trick to making a lot of money is to get super good deals where you put $50k down on a properties and you get the property for $30k to $50k less that its re-sale value. Suppose you earn $3,000 per year on cash flow and in 10 years you net $30.000. If you get the property for $30k less you just made that same $30k in 1 day. You want to try to find properties that will appreciate.Then you make the really big money. You don't get rich collecting rents.

The multi-unit properties are where the big money is and they are recession-proof. What I do is save my investment money for several years and stay away from single-family properties unless I get a super deal as explained above. Then, when I have a wad of cash I can afford to get into 10 to 30 apt units and I can make up the difference from not buying single families the day I close escrow. To see how that works there is a video on youtube. Search BLPREI.

I see a lot of people on this forum who got bit by the Real Estate Bug and they have Real Estate Fever. that is horrible and I feel bad for them because their anxiety causes them to make fast and rash judgments. Be patient and wait for the kill line an alligator.

So, get your spreadsheet out. If you invest $50,000 every year you will have $500k in 10 years invested plus your $3,000 to $6,000 cash flow every year starting with the year you purchase each property. 

Originally posted by @Ryan H. :

Hi everyone, I’m putting together a five year plan of investing in rental properties for passive income and would love to get some feedback.

I live and own businesses overseas. I’ll be saving $4,100 per month, which is approximately $50,000 per year after taxes.

I don’t own any property, so I’m starting from scratch. Since I live overseas, I’m not interested in fix or flips. I’m focused on turnkey properties, either single family or small multi family.

So, let’s assume an investment rate of $50,000 per year, and all rental income goes right back into buying more properties.

What is a conservative plan with low maintenance rental properties each year and what income can I realistically achieve after five years?

I’ve been thinking it over for some time now and I want to put together a detailed plan to follow.

I would love to hear your plans and thoughts.

Thanks everyone!

 You'll probably spend roughly half of your scheduled rents on maintaining the properties. So it's fair to assume that that if a property rents for $1,000/mo you'll probably earn an average $6,000 a year on that property.

Since you are investing out of state you'll probably want to look at the turnkey markets. In no particular order I have listed some of the most popular markets for out of state investors

  • Cleveland, Ohio
  • Dayton, Ohio
  • Toledo, Ohio
  • Youngstown, Ohio
  • Cincinnati, Ohio
  • Memphis, Tennessee
  • Birmingham, Alabama
  • Kansas City, Missouri
  • Saint Louis, Missouri
  • Indianapolis, Indiana
  • Detroit, Michigan
  • Erie, Pennsylvania
  • Louisville, Kentucky
  • Milwaukee, Wisconsin
  • Jackson, Mississippi

Each of these markets is popular with turnkey investors because of the low barrier to entry, high rental demand & high rent to price ratio. I recommend setting up keyword alerts for each area as they are discussed in the forums daily with advertisements posted in the BiggerPockets marketplace hourly.

One thing to note when looking at the individual markets, you can make or loose money in any market. Don't think that one particular out of state market will shoot you to success or abject failure. It's not really that complicated to buy out of state. It only becomes complicated when investors try to over complicate or over think everything. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth as possible.

  • Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
  • Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
  • Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
  • Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
  • Make sure your property manager is a licensed real estate brokerage.
  • Understand you can not eliminate all risk, only mitigate it. If you are risk adverse real estate, (especially out of state) is not for you.

It all depends on your ultimate financial goals.  All plans start with the financial goals first, then you reverse engineer the specifics of the plan from there.  Without the financial goals, this question cannot be accurately answered.

@Jack Orthman I really appreciate the feedback. Yes I would be purchasing in the US.

I always thought it would be best to get my feet wet with single family and small multi family, and eventually scale up to apartment buildings over time.

I thought I would need 5 years of investing in smaller properties before I have the capital for the bigger units.

Ultimately, I want the safe predicable approach, so in 5 years, I can have more options to live more independently. It seems apartment buildings are the end goal, but I may need a few years of smaller properties before I get there.

Focus on being an Investor not a Landlord.

Do the math here… with 300 dollars per property (2 months of work to buy a turnkey rental) you are going to need 20-40 of these to replace your income. I had 11 of these and have systems in place but have 1-2 evictions a year and 3-4 big things that happen. Image if I had 30, just 3 x those numbers.

Directly investing in a turnkey rental or small MFH is a good way to start to learn and build up the war chest to go into my scaleable investments such as private placement syndications. Whatever you do, try to be as close to the investment as possible. This is the fundamental problem I have with Wall Street who takes too much fees off the hard-working efforts of the middle class. Stick with these Turnkey rentals despite what Gurus (who are trying to sell you their program) tell you for now. They have a little higher gains (a lot more volatility) but a syndicator who is willing to put you in a deal with more than 10-20% of your net worth is asking for trouble.

@Lane Kawaoka Hi Lane, I appreciate your feedback. It’s along the lines of what I was thinking. I don’t want to be a landlord, and I own 3 businesses, so I don’t have the time to be land-lording.

I’ve been in the stock market for the past few years, but it’s not helping me achieve my goal, which is long term passive income.

Being overseas, turnkey seems like my best bet. I figured $200-$300 per sfh/unit would be the average.

20-40 sfh/units is the goal, but I was curious what others thought I could achieve after 5 years of constant reinvesting.

I am 100% against turnkey. There are too many factors that are not in your favor. I am 100% against allowing someone to make my decisions and 100% against allowing someone to control my money in any way. I had a huge list of problems with turnkey investing, but this is a short list I can remember.

Cons about turnkey

You don't really know what you are purchasing because you did not familiarize yourself with the demographics or the market.

I am a general contract and let me tell you how most contractors do their work after a contract is signed. Suppose, this is your turnkey house and the turnkey company already purchased the house. You can bet that when construction is being done every penny saved is one more penny in their pocket. The company wants to impress you with the ROI they can offer and not impress you with the quality of work.

Maybe, your turnkey company is not so great when it comes to managing your property(s). Maybe, they don't care as much about replacing a tenant as they do getting a tenant for the next property they want to sell. Property management companies never do a job as well as the owner of a property who knows what he is doing. Read up about the pros and cons for management companies. They can cause you to go bankrupt. While almost everyone is making millions in California with apartment buildings the 25-unit building right next door to me went into foreclosure last year and the new owner picked in up in a short sale. Every day, I can't believe the management company drove this C grade property into foreclosure.

If you are thinking that the turnkey company will rent and manage your property you can bet that they will and the more problems they have with your property the more money they will make. You are giving them the opportunity to bleed you to death. 

Dear Mr. Property Owner:

I regret to have to tell you that your property needs a new roof, the plumbing is leaking and there is 10,000 gallons of sewer poop under the building. I got several estimates and my contractor can make the repairs for $45,000. Please remit a check so we can get started.

Thank you!!!

Sorry, but there is a reason so many people fail in business and it is because they believe and trust the wrong people to help make decisions. Never every let someone else control your money and when you go with a turnkey company you may as well just give them all pre-signed checks for your checking account.

We call it 'orchestrated crime'.

Are there good turnkey companies? Maybe! But, I'm not giving someone that much latitude!


So I calculated the numbers and included the compounding effect.

After 5 years at 8% Cash on Cash return, it would be $2,333/month = roughly $28,000 per year in passive income.

The problem I'm having is finding a Turnkey Provider that can offer COC of 8% and up.

since your over seas you may want to consider investing in debt instead of the hard asset.. you can do 8 to 10% and have TRUE passive income.. rentals are income but not passive .. you still are making decisions monthly once you scale even a little bit..  were as notes are true mail box money.. 

@Jay Hinrichs Hi Jay!

I honestly don’t know much about note investing. Is it a better option that stock investing? I’m currently getting about 8% on the stock market, but I’m getting tired of the ups and downs, and looking for more stability.

The COC is my hangup. I own 3 businesses overseas, but no real estate. COC has been the deciding factor.

COC on a business is 20%-50%, so I've kept putting more money into businesses. But where I live, the crime has gotten bad, and I'm looking to plant some seeds back in the US, so in a few years I can move back.

Turnkey seemed like a great approach for my situation, but with low COC it's going to take 5 plus years for any real rental income.

@Ryan H.  Sounds like you don't want to be very actively involved in the day to day operations while living abroad. Like others have said, Turnkey can be passive, but the turnovers can kill your returns. There are several different passive vehicles though.

To answer your question: 

What is a conservative plan with low maintenance rental properties each year? 

Multifamily syndication will require a good amount of initial due diligence on the sponsor, but very minimal time/effort once you've made your decision.

50k / year will require 5 Million in equity earning 10% (if we're being ultra-conservative here). I think the first step would be to educate yourself on different vehicles that will allow you to invest from afar and then find the expert sponsors in each of those to help you allocate your capital and achieve your goals.