Is 4 homes enough??

[Jake Andronico]

I currently have two house-hacks that I've moved out of and are now full time rentals that cash flow roughly $800-1K per month each. 

When I started straight out of college, I used to think that I NEEDED 10 houses in 10 years or I was doing something wrong. 

When I didn't get there, I felt internally inferior, sad, angry, and somewhat depressed....

When I worked extremely hard daily to save and expand, it didn't feel quick enough. Then I would just get burnt out over time.... 

But then when I tried to relax and recharge, I felt guilty for not taking action towards my goals because of this imaginary time frame. 

It wasn't a good cycle.

I then started listening to @Chad Carson, who wrote "The Small and Mighty Real Estate Investor". 

He spends A TON of time with his family, moved out of the country with his wife and kids, and "retired" off of a relatively small portfolio with little debt that took about 20 years to create and consolidate. 

He also interviews full time investors w/ similar stories and portfolios. Long story short - I realized how powerful only 3-4 PAID OFF rental properties can be. 

A consolidated, simplified portfolio. Managers in place. Renovated properties. Maintenance budget covered. Good, stable tenants with solid property management. 

Roughly $7-10K per month coming in (in certain markets). 2-3 hours of work per week managing the managers..... not a bad place to be.  

Maybe nobody else is struggling with this - but I wish it was talked about more and I just wanted to put it out there with the hopes it helps even one person's perspective.

[Scott Trench]

“Enough” may most powerful word in the English language, when it comes to investing.

There’s always someone buying their 10th, 100th, or 1000th unit. The kind of leverage one has to use to get there, and the kind of expectations one has to set with investors seems unbearable to me, especially as near term market rents and cap rates are totally out of your control. 

There's this unhealthy focus on celebrating people who buy property. The celebration should be when it is paid off, or otherwise exited. Almost anyone with a good sales pitch can buy lots of property. The game is what kind of returns or freedom you produce, and how the thing is working for you in year 5, or 10. Funny, I have seen far fewer of the people who bragged about unit count 3 years ago posting their scores on IRR or exits recently. I've seen a few begging investors for more capital, preferred or common, to bail out their deals though!

There is everything right with owning a few properties and paying them off. People just have a hard time turning their mathematical optimizer brains off, and knowing when to say, “I have enough, this is no longer a math problem” and paying the things off and living their best lives.

The other problem with that is it’s like a 5-7 year journey, easily, once you make the call, to pay off property. During that time, you are just snowballing cash flow into mortgages. This doesn’t make for as compelling a post on social media.

I write this as I’m personally leaning towards to not taking on any more debt, consumer or real estate, though I reserve the right to change that opinion.

[Theresa Harris]

It shouldn't be about the number of houses.  Everyone needs to be realistic and decide what they want. For me, I look at what I will get in 10 years when houses are paid off and I'm retired.  From there I will decide if I want to slowly sell them off or keep them.  Then again 10 years is a long time!

[Brendan Meehan]

Yes, thank you!! I am in the research/ planning phase of investing consuming as much info as possible and I have come across Coach Carson (and one of his mentors John Schaub) and I feel for me this is the way.  There are many ways to go about this journey and I feel it is important to find the path that works best for you.  

[Henry Lazerow]

The whole point of real estate is to get a higher return then a stock index and this is easily done through mortgage leverage. I see no reason to hold a payed off property which in any decent market would only be a 5-7 cap meaning 5-7% annual return on cash when SPY averages a safer/less work 8-9%. Most of my clients constantly refinance to re-invest the equity and keep their returns well above that 8-9% threshold. 

[Jake Andronico]

Quote from @Henry Lazerow:

The whole point of real estate is to get a higher return then a stock index and this is easily done through mortgage leverage. I see no reason to hold a payed off property which in any decent market would only be a 5-7 cap meaning 5-7% annual return on cash when SPY averages a safer/less work 8-9%. Most of my clients constantly refinance to re-invest the equity and keep their returns well above that 8-9% threshold. 

The whole point of RE varies for everybody individually. RE decisions don't always make 100% financial sense, even though they can make complete sense for the individual/family, in my opinion. 

Some people are willing to give up multiple percentage points for peace of mind, monthly payments, simplicity, safety, etc. 

From a purely logical financial perspective, I believe you're correct. 

[Jake Andronico]

Quote from @Brendan Meehan:

Yes, thank you!! I am in the research/ planning phase of investing consuming as much info as possible and I have come across Coach Carson (and one of his mentors John Schaub) and I feel for me this is the way.  There are many ways to go about this journey and I feel it is important to find the path that works best for you.  

Yes sir! Glad you found them :)

[Jake Andronico]

Quote from @Theresa Harris:

It shouldn't be about the number of houses.  Everyone needs to be realistic and decide what they want. For me, I look at what I will get in 10 years when houses are paid off and I'm retired.  From there I will decide if I want to slowly sell them off or keep them.  Then again 10 years is a long time!

Yep. Knowing the end goal (or a relatively clear idea of it) is huge :)

[Samuel Coronado]

This is the great Dave Ramsey debate. I think it's a great one to have at the end of the day. debt free is an amazing feeling and people who are debt free scientifically sleep better at night. My goal is to have a few debt free properties, but do it through the way Chad Carson explained in Retire with Real Estate. I'm buying a property a year up to a threshold, then turning around and making all those properties pay off one at a time very very aggressively. My plan is to be in Spain in 5 years. I am already very financially free, making about 150k a year from real estate and military pensions, but I am holding my 90k a year job to get more and pay off debt asap. 

[Courtney Walker]

@Jake Andronico

I agree. You can’t take your portfolio with you to the grave. Figure out what strategy supports your lifestyle and move toward the target.

[Jake Andronico]

Quote from @Samuel Coronado:

This is the great Dave Ramsey debate. I think it's a great one to have at the end of the day. debt free is an amazing feeling and people who are debt free scientifically sleep better at night. My goal is to have a few debt free properties, but do it through the way Chad Carson explained in Retire with Real Estate. I'm buying a property a year up to a threshold, then turning around and making all those properties pay off one at a time very very aggressively. My plan is to be in Spain in 5 years. I am already very financially free, making about 150k a year from real estate and military pensions, but I am holding my 90k a year job to get more and pay off debt asap. 

Man, congratulations!! Amazing spot to be in. 

Very inspiring. 

[Jake Andronico]

Quote from @Courtney Walker:

@Jake Andronico

I agree. You can’t take your portfolio with you to the grave. Figure out what strategy supports your lifestyle and move toward the target.

Yep, exactly. I'm becoming more and more attracted to the only true "flex" in my opinion: Freedom of time. 

[Jeff S.]

@Henry Lazerow so you aren't considering appreciation in your analysis. If there is no appreciation then your cash flow would be higher certainly more than 5-7%. Your net rent is comparable to a stock dividend while the appreciation is comparable to stock price. If SPY pays 1.38% dividend and it drops in value good luck living off that income. Lets say you have 5% appreciation and a 5% return on your cash that is about equal to SPY in a bull market. This bull won't last forever.

[Henry Lazerow]

I am not factoring appreciation in my numbers as feel prices may stagnate for a while. Neither are most of my clients right now and I work with a lot of investors have sold close to 50 million of 2-4 units. Hopefully market does keep pumping but i see it unlikely to appreciate like the past decade anytime soon. 

[Christian Ehlers]

Love this post! I’ve had a lot of different clients, especially people house hacking and getting started, that are worried that they only have 1-2 properties after a few years.

I have to remind them often that we are in a high priced, high appreciation market and around here 2-3 properties might be enough to retire off one day when paid off. 

Determine your goals and take it from there!

[Jake Andronico]

@Christian Ehlers

Yessir! Glad you found it valuable. Completely agree. 

[Julien J.]

@Jake Andronico

At the end of the day is depends on your goals. Paint the dream, assess your current situation, and plot plan between the two.

Play our the year over year rent increases, fix debt loans, and appreciation.

[Alecia Loveless]

@Jake Andronico 4 houses is not enough for me. I’m looking to replace my income and my spouses income and to retire us both in the next 2.5 years.

If the cash flow from 4 meets your goals that’s great! The whole point of investing in real estate is for each of us to meet our individual needs. There’s definitely no one size meets all. That’s the beauty of it!

[JD Martin]

Naturally everyone has different goals but putting all of your income into 4 homes is pretty risky unless you're just going to camp out under the interstate. One vacancy cuts 25% of your gross income. Two vacancies cuts 50%. Let's say your 4 houses average gross $2500 per month ($10k gross for 4). Your net on those houses, even without debt, and if you are self managing, is probably not going to be more than $8k per month after you consider insurance, taxes, maintenance, and capital expenses. If you have managers, like in your example, you're probably netting $7k per month. So that's $84k per year before taxes. Even with depreciation expenses and a few other things you're probably going to owe $5k-10k in federal income taxes at that level. So you're netting say $75k per year. 

$75k per year isn't nothing, for sure, but you better have someplace pretty cheap to live if you're on one income. Paying for your food, transportation, health insurance, utilities, property taxes, insurance (assuming you have no mortgage here), kid expenses, fun stuff etc on a little over $6k per month isn't going to leave you with much left over. And I didn't factor anything in for vacancies. If you figure a 5% vacancy rate, which is really low, you'll need to knock another $5k off your annual income. Now we're talking about $5700 per month to pay for all your stuff. 

So I get the point of the post, but having that few properties to retire off of is pretty damned risky if you ask me, with no other income coming in. Now if you're going to keep working, absolutely you can just have as many or as few houses as you want to have. But if I was going to live off my rentals (and I do, though I collect a pension and a few other minor things in retirement now), I'd rather have 15 or 20 houses each making a little bit less, even if they had leverage, because going down a house or two for vacancy or disaster is a 5-10% effect on my income. 

[V.G Jason]

It's funny when people say $10k/mo isn't enough, but then they want to replace their W2 income which isn't even $10k/month.

Most people here on BP would love $10k/mo net from their rentals; they'd quit their W2. 

But while they plant the seeds today, it matures tomorrow. So $10k is going to be $15k in 2037-2040. So plant more seeds. I think if you think having 4-5 paid down is going to be the absolute, I'd aim closer to 7. Or I would try to find ways to create another source for more income to flow through, so you are not dependent upon just RE income. For the average 80k BP'er to be really happen in 10-12 years, you're going to want 7-10 paid off houses + another source of income(equivalent to 2-3 houses net cash flow) eliminate all debt, and have a low cost of living.

I think everyone just needs to pump the brakes on the quitting the W2 though, cause you're not going to find a more helpful resource for retirement benefits + medical benefits. And everyone who views real estate as strictly a leverage game and not one to enter without it, understand finance is not only mathematical but behavior too. You're going to need an end game and de-risking is apart of it. Ideally getting into the 20-40% LTV will be key, not necessarily all paid off but when you're in that range you'll be a lot more comfortable to operate.

[Bryan H.]

Quote from @Henry Lazerow:

The whole point of real estate is to get a higher return then a stock index and this is easily done through mortgage leverage. I see no reason to hold a payed off property which in any decent market would only be a 5-7 cap meaning 5-7% annual return on cash when SPY averages a safer/less work 8-9%. Most of my clients constantly refinance to re-invest the equity and keep their returns well above that 8-9% threshold. 

Can that still be done in today’s 8-9% interest rate environment? 

[Henry Lazerow]

Yes but it won't be as fast as the past or how books teach it. To do a BRRR in 2023 you may need to wait 2-3 years for rents to grow so has a solid cashflow margin after you BRRR it. I actually just closed a BRRR refi on a 4 unit last month.

[Cody Warhurst]

I'm in the very beginning of my journey in real estate investing coming from a career of corporate w-2 jobs...good jobs. Easy jobs. Well paying jobs. Long story short, i pivoted out of my industry to become a financial advisor with my brother who runs a really successful practice just about two years ago and despite being good at it, working with family wasn't easy and I resigned in September. 

I didn't want to go back to corporate America and I didn't need to--my wife is a wfh pharmacist with a cushy job that covers all our needs with a few hours of work a week. If we pay our bills until we retire and let our current investments grow, we will retire with something like $4-5M in assets.

That said, our goal in real estate investing is to simply replace her income with "passive" income. That's it. Now, we might change our mind when we get further down the road, but we have no grand plans and we're simple people. We want control of our lives, a relatively predictable future, and to spend lots of time with our kids (both under 2).

Its great to see people talking about more realistic goals for real estate--e.g. not getting super rich and managing hundreds of units. It's inspiring to know the ceiling and to have a lofty goal to shoot for but also a metric for success that is modest. 

edit: we are only looking at multifamily, not sfh. This isn't coming from nowhere either--My parents owned 30 some units from the late 70s-2010's before they got out entirely. My brother owns maybe 10 units but he's divesting because he makes 7 figures from being an advisor and doesn't need the hassle (he's self managing and very very lazy)

[Scott Trench]

“Enough” may most powerful word in the English language, when it comes to investing.

There’s always someone buying their 10th, 100th, or 1000th unit. The kind of leverage one has to use to get there, and the kind of expectations one has to set with investors seems unbearable to me, especially as near term market rents and cap rates are totally out of your control. 

There's this unhealthy focus on celebrating people who buy property. The celebration should be when it is paid off, or otherwise exited. Almost anyone with a good sales pitch can buy lots of property. The game is what kind of returns or freedom you produce, and how the thing is working for you in year 5, or 10. Funny, I have seen far fewer of the people who bragged about unit count 3 years ago posting their scores on IRR or exits recently. I've seen a few begging investors for more capital, preferred or common, to bail out their deals though!

There is everything right with owning a few properties and paying them off. People just have a hard time turning their mathematical optimizer brains off, and knowing when to say, “I have enough, this is no longer a math problem” and paying the things off and living their best lives.

The other problem with that is it’s like a 5-7 year journey, easily, once you make the call, to pay off property. During that time, you are just snowballing cash flow into mortgages. This doesn’t make for as compelling a post on social media.

I write this as I’m personally leaning towards to not taking on any more debt, consumer or real estate, though I reserve the right to change that opinion.

[Scott Trench]

Quote from @JD Martin:

Naturally everyone has different goals but putting all of your income into 4 homes is pretty risky unless you're just going to camp out under the interstate. One vacancy cuts 25% of your gross income. Two vacancies cuts 50%. Let's say your 4 houses average gross $2500 per month ($10k gross for 4). Your net on those houses, even without debt, and if you are self managing, is probably not going to be more than $8k per month after you consider insurance, taxes, maintenance, and capital expenses. If you have managers, like in your example, you're probably netting $7k per month. So that's $84k per year before taxes. Even with depreciation expenses and a few other things you're probably going to owe $5k-10k in federal income taxes at that level. So you're netting say $75k per year. 

$75k per year isn't nothing, for sure, but you better have someplace pretty cheap to live if you're on one income. Paying for your food, transportation, health insurance, utilities, property taxes, insurance (assuming you have no mortgage here), kid expenses, fun stuff etc on a little over $6k per month isn't going to leave you with much left over. And I didn't factor anything in for vacancies. If you figure a 5% vacancy rate, which is really low, you'll need to knock another $5k off your annual income. Now we're talking about $5700 per month to pay for all your stuff. 

So I get the point of the post, but having that few properties to retire off of is pretty damned risky if you ask me, with no other income coming in. Now if you're going to keep working, absolutely you can just have as many or as few houses as you want to have. But if I was going to live off my rentals (and I do, though I collect a pension and a few other minor things in retirement now), I'd rather have 15 or 20 houses each making a little bit less, even if they had leverage, because going down a house or two for vacancy or disaster is a 5-10% effect on my income. 

I completely agree with this point. A portfolio of ONLY four paid off houses is not enough to make me sleep well for life. It would need to also be accompanied by a stock portfolio, or other investments, and a large cash reserve.

$5700 is likely “enough” in a LCOL, with a large cash buffer, and a stock portfolio, and everything paid off, including house, cars, etc.

But, four paid off houses may be safer than one W2 job. A layoff at the company could mean that 100% of your income is wiped…

[Travis Timmons]

Personal finance is as much dopamine, cortisol, and serotonin as it is cash on cash, IRR, and math. Do what makes your life better.

[Jeff S.]

@Henry Lazerow I applaud you not selling appreciation and just selling the obvious income. I would not compare this to the market assuming SPY will continue at !0% as it is  a very tired bull market. For my money a solid 5% when things are declining is very sweet.