# Beginner can't make the math workout!

6 Replies

I am a high earning professional in a high stress job just getting started in my career in my mid 30s. I've never invested in RE. I love my job, but I'm also often burned out and don't see myself doing it into my 60s. My biggest goal with REI is to find a way to pull back from my job and retire early. I would like to be financially independent within 15 years from now.

Almost certainly unrealistic, but my goal would be to replace at least half of my income by RE within 15 years, about \$180,000, and I could drop down to half time at my current job.

I can’t not get my job’s match which is 6%. At my salary that maxes out my 403b. I put in \$19,000, my job puts in \$19,000. Then we’re also offered a 457 where I can put another \$19,000. It’s hard not to use the 457 because maxing this retirement account saves me about \$6,000 on taxes. We save 20% of our income towards retirement (retirement accounts, real estate investing, etc) which comes to about \$73,000 annually. Subtracting \$38,000 from my retirement accounts leaves \$35,000 to use annually towards RE investing.

Reading RE books and listening to the BP podcast, I get really excited and fired up about it, but I can’t quite make the connection to how it makes sense. Feel free to tell me how dumb my math is, because I’m just not getting it.

\$35k as a down payment at 25% down, means I can buy a \$140k property annually. Let's say it cash flows \$300 monthly, yearly I have \$3,600 in cash flow. Which in this hypothetical example, my ROI is 10.3%.

If I repeat this process every year, at the end of 15 years my cash flow is \$54k. Nowhere near my goal of \$180k.

Part of what doesn’t make sense to me is that in 15 years, I’ve invested over \$500k and only earned \$400k in cash flow. I know I’m ignoring any appreciation, but I hear over and over again not to count on appreciation because that’s a gamble.

How are people getting into this business enough to replace they’re income? Or buy multiple properties per year? I understand this is most likely a very complex question. I appreciate any input. Thanks.

Your financial goals are not unrealistic. You just need to understand a number of things as to how they apply to REI:

1 - How to Analyze Markets

2 - How Money Works

3 - How to design a REI Plan...and stick to it.

4 - How #'s 1 - 3 are connected and completely dependent on eachother.

5 - What Risk, cost (to you), profit, leverage, and loses are.

6 - Why you never ever spend your seed money, only your profit.  Use your seed money to infinity though.

7 - Memorize this number sequence, what it means, and why it is so important to REI....1073741824

8 - Why your money is a verb, and not a noun, and why you lose if it is a noun.

@Jared Ebert   Don't forget that your tenants are also paying down your mortgage.  You can refinance and pull out some of that money to buy additional properties.

I would suggest not using your own money even though you have it. There are two approaches. BRRRR approach which requires buying a fixer upper, force the appreciation by rehabbing. In your case you will need a good contractor. If done right when you refinance you will have very little of your own money in the project if any. Your ROI/Cash on Cash return is infinity or say you have \$10,000 stuck in \$3600 cash flow at end of year one is a 36% return (simple math here). In 34 months your return converts over to infinity. 2nd choice is same concept but use other people's money.

Remember the four benefits of rental property.

1. 1. Mortgage Buy Down - Tenant is taking care of PITI.
2. 2. Depreciation - Tax Benefit
3. 3. Appreciation - This depends on your market. I agree don’t count on it, but it is a benefit and most areas have some appreciation.
4. 4. Cash Flow - After all expenses.
5. There are many benefits to owning long term real estate.

6. Good Luck.

@Kenneth Garrett

I like the idea of not using your own money, but even with the BRRRR method, you still have to come up with a down payment and the rehab costs. How else would you pay for that?

What do you mean by this sentence below?  Also, 1073741824?  SHould this mean something to me?

6 - Why you never ever spend your seed money, only your profit. Use your seed money to infinity though.

When I use private lenders I am able to fund the purchase and rehab.  When you build relationships and earn there trust you can fund 100%.