Live and Flips Math.

1 Reply

I work a 9-5 job.  The job pays the bills.  Not terribly happy with it but its not a bad job.  Its a job. 

I contribute to a 401k as does my wife in her job.  I've assumed an 8% rate of return on a 100% stock portfolio.  Plus, both of our jobs give us 5% matching.  So that brings us up to an average of 13% annual rate of return.

But I was wondering how the math stacked up if we sold our home and moved into a duplex/triplex.  We would live in one side.  Fix up the other.  Rent it out.  Then fix up our side.  Pay it off.  Rent it out.  Rinse and repeat on another duplex.  Continue to do this until we owned numerous properties.  Not a big debt guy so I would rather pay these off as we go rather than leverage them.

I believe I can have a better lifestyle doing this. But lifestyle aside, can I beat my 13% ROI with rental properties? I know there are a lot of variabilities with real estate. But generally speaking.

@Alan Davidson First of all, you are not getting 13%.  You're getting 8%.  The 5% matching is a one-time bonus.  You are getting (you assume) 8% per year on that and your contributions.

Now, since you made one math mistake I'll point out another.  Debt is your friend.  Not consumer debt.  Debt that makes you money.

That doesn't mean that you need to leverage to the hilt.  If you are a conservative person, financially, that's great.  Use less leverage.  But without leverage you might only do a little better than that 8% per year.  And it may not be worth the headaches that come with it.

If debt is so bad then why use it in the first place?  Right now you understand that that mortgage is worth taking on "if you pay it off [fast]".  Why?  Because it is helping you make money.  Now step back a minute and think about it.  What if you pay it off to the point where your conservative financial sensibility is comfortable with your equity position, lets say 30% equity, and then use the money the future money that would have gone to paying it down further to instead buy a second property?

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