Living off rentals

Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes

While listening to Barbara Corcoran she emphasized the need to have other income while building your real estate holdings. I wonder how many actually live off rental income alone without having put in years of building equity and having other main sources of income. I know in my area starting out cash flow is low and while holding RE over the long-term is lucrative pulling money out to live would be a constant drain on equity.

I imagine if you buy low cost properties and get lots of doors and frugally manage them you could earn a living. If you are a good RE agent or builder/developer or have a great source of income and can delay gratification then you are golden. As she says after 20 years or so she can easily pull cash out for personal use. Living off rentals is the plan just wonder if it is realistic.

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V.G JasonPro Member

Investor · Member since 2022 · 3k+ posts · 3k+ votes

Living off rentals will take a long, long time for the average REI. 15-20 years, probably. You'll need 7-10 quality doors.

Going the full scale--- lower barrier to entry, lots of doors, etc. You got to remember the more houses, the more capex, the more tenants. Bad areas then you're talking bad tenants. So on paper, sure, you'll get there maybe in 8-10 years but reality will hit. You'll get higher turnover, more damage to the properties, higher vacancies.

The average BP folk on a W2 making $80k/year. Needs to save up to buy 1 rental property in a favorable location every 3-4 years. By year 12-15, re-fi 1 and sell 1. Take that cash do capex, and pay down the debts. Have 2-3 rentals that make you probably $7500/mo. To really get into the part where you're having 8-10 fully paid off rentals in year 12-15, you'll need to make a $400-500k/year at least for a 4-5 year stretch.

This whole jump in and get rich on REI passed us in 08-22. It's going to be the even longer game now.

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V.G JasonPro Member
Investor · Member since 2022 · 3k+ posts · 3k+ votes
3y
Living off rentals will take a long, long time for the average REI. 15-20 years, probably. You'll need 7-10 quality doors.
Going the full scale--- lower barrier to entry, lots of doors, etc. You got to remember the more houses, the more capex, the more tenants. Bad areas then you're talking bad tenants. So on paper, sure, you'll get there maybe in 8-10 years but reality will hit. You'll get higher turnover, more damage to the properties, higher vacancies.

The average BP folk on a W2 making $80k/year. Needs to save up to buy 1 rental property in a favorable location every 3-4 years. By year 12-15, re-fi 1 and sell 1. Take that cash do capex, and pay down the debts. Have 2-3 rentals that make you probably $7500/mo. To really get into the part where you're having 8-10 fully paid off rentals in year 12-15, you'll need to make a $400-500k/year at least for a 4-5 year stretch.
This whole jump in and get rich on REI passed us in 08-22. It's going to be the even longer game now.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
3y

it is a constant theme you see here in the Forums .. folks cant wait to quit the Job because rentals are so much easier etc etc.
I guess one thing is true you become self employed so you get to pay SEI tax and your own insurance .. U have to put your own money into your retirement accounts no matching funds. So Basically I am with you guys @V.G Jason best way to get to a point to live on rental cash flow is to absolutely keep your day job .

Now some folks pull it off in the less expensive markets of the country were cost to acquire is in many instances less than 50k a door cost of living is much less than other areas and they are as stated extremely frugal. @Steve Vaughan Steve I believe gives the best reality check on living on rentals and what it takes the sacrifices he had to make scaling and well thought out exit strategy.. His post should be mandatory reading for anyone thinking they are going to quit their job in 3 years and live off of rental income.

Now there is a hybrid you do the rentals but your also flipping homes building homes Trading paper and or making commission as an agent or wholesaling type activities this gets you self employed and you can bring in the cash flow you need to live so all your rental income just pays down debt or you use to buy more doors..

And some just skip the rentals all together and just make HML PML buy debt etc etc.. thats more my speed.. I have rentals but they are paid for so I dont need many of them and they are all in high priced A class areas with the tenants that go with them. I tried the 350 doors of section 8 deep south stuff that is way too much for me and sold out years ago.. talk about a job holy cow.. :)
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Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
3y
Quote from @Jay Hinrichs:

it is a constant theme you see here in the Forums .. folks cant wait to quit the Job because rentals are so much easier etc etc.
U have to put your own money into your retirement accounts no matching funds.
@Steve Vaughan Steve I believe gives the best reality check on living on rentals and what it takes the sacrifices he had to make scaling and well thought out exit strategy.. His post should be mandatory reading for anyone thinking they are going to quit their job in 3 years and live off of rental income.

Thank you, Jay. Means a lot coming from you. And you're right about retirement matches. I've only done ROTHs for 21 years. No 401s, 403s or social insecurity contributions.

Sacrifice was definitely a thing early on. Not many willing to buy a doublewide in a trailer park and live there for 5 years after you quit your job.

We were able to acquire 35 doors in large part because our shelter expenses were under $300/mo. Most want both the Barbara Corcoran lifestyle and the passive income. Doesn't work that way,

I haven't had a w2 since 2002. Got creative with seller-financing buys of 7 and 10unit buildings. Bought 3 2003-2007. Did SF to BRRRs long before it was named. Had a wonderful private lender reach out to me and we had a great run for 15 years. He still has 3 of my mortgages and we are still friends.

It's all about your why, sacrifice and creativity. Do good things out there. Conscious / compassionate was my mantra and I have been blessed with more than expected because of it.

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V.G JasonPro Member
Investor · Member since 2022 · 3k+ posts · 3k+ votes
3y
Quote from @Steve Vaughan:

Quote from @Jay Hinrichs:

it is a constant theme you see here in the Forums .. folks cant wait to quit the Job because rentals are so much easier etc etc.
U have to put your own money into your retirement accounts no matching funds.
@Steve Vaughan Steve I believe gives the best reality check on living on rentals and what it takes the sacrifices he had to make scaling and well thought out exit strategy.. His post should be mandatory reading for anyone thinking they are going to quit their job in 3 years and live off of rental income.

Thank you, Jay. Means a lot coming from you. And you're right about retirement matches. I've only done ROTHs for 21 years. No 401s, 403s or social insecurity contributions.

Sacrifice was definitely a thing early on. Not many willing to buy a doublewide in a trailer park and live there for 5 years after you quit your job.

We were able to acquire 35 doors in large part because our shelter expenses were under $300/mo. Most want both the Barbara Corcoran lifestyle and the passive income. Doesn't work that way,

I haven't had a w2 since 2002. Got creative with seller-financing buys of 7 and 10unit buildings. Bought 3 2003-2007. Did SF to BRRRs long before it was named. Had a wonderful private lender reach out to me and we had a great run for 15 years. He still has 3 of my mortgages and we are still friends.

It's all about your why, sacrifice and creativity. Do good things out there. Conscious / compassionate was my mantra and I have been blessed with more than expected because of it.

In bold-- because that is what is advertised. I mean look at the videos this own site pushes on youtube. I get those little headshots of the video whenever I look at YouTube. The headline makes me kind of upset. There's a lack of a reality check.
If you're looking for quick money, expect a quick downfall. If you can't absorb that, then do not risk what you are putting in. Physical assets are very much, high maintenance and highly active. The barrier to entry is higher, the rate of debt is higher and in my view, the liability will get linearly higher too. You'll need to start now(mid 20s) and wait until probably mid 50s to get to really living off passive income. If you're a high earner, say $500k/year but can live off say $100k/year, then you can do it quicker. But regardless sacrifice will be made.
Get your W2 job going, and going stronger. Keep this on the side, and grow with a bigger cushion.
6 Reply
Jeff S.
OP
Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
3y
@V.G Jason not a gravy train. Even Brandon Turner admits you "have to do the suck". I see people with the prize in front of them not realizing there is sacrifice, hard work, some luck and a knack for it all. Getting to the point of having a well oiled machine is the goal and very admirable in my book.
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Jeff S.
OP
Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
3y
@Jay Hinrichs quite a few over the years on BP have pulled it off each in their own way. Being your own boss is the dream. I had to get a w2 to get out of the mess I got in being self employed in RE. It sure was nice being able to qualify for financing and always being able to pay my bills. I think if I had been in a lower cost area I would have gone for many doors and would have worked it hard. I am happy having had the job and investing in property but it was a slow but sure road. Going broke was not something I was willing to do again.
Paid off class A properties it doesn't get any better. I am happy with decent tenants and no drama and not lots of doors to each his own. Better to do w2 early and not Walmart or Starbucks at 70.
7 Reply
Jeff S.
OP
Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
3y
@Steve Vaughan yours is a great story. You really should be talking to these want to be start-ups with some reality. Being creative when money gets tight is key in your case and having a finance partner who trusted you and actually reached out to you it doesn't get any better. In your case it is/was a relationship business working with finances and tenants. I remember some of your stories as not all tenants are a dream not mailbox money. Now you kick back and let those contract buyers deal with it all.
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Jeff S.
OP
Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
3y
@Account Closed I agree it is like any baboon can quit their job and rake in the cash all the while living a high end lifestyle. Sometimes it is easy come easy go. Any of us who have lost it all can appreciate the security that time with appreciation and capital build up brings. It also has a lot to do with your skillset. If you are a home remodeler and have a knack for finances or a wife that does then fixing for others and for yourself all along keeping some for self is a great plan. If you are a broker or contractor at some point you may want to be able to kick back and rentals can help. Know lots of investors who were able to work their way to riches by doing their work and investing. No one size fits all on the journey to independence.
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Petar Stojanovski
Member since 2023 · 28 posts · 9 votes
3y
"Living off rentals will take a long, long time for the average REI. 15-20 years, probably. You'll need 7-10 quality doors.

Going the full scale--- lower barrier to entry, lots of doors, etc. You got to remember the more houses, the more capex, the more tenants. Bad areas then you're talking bad tenants. So on paper, sure, you'll get there maybe in 8-10 years but reality will hit. You'll get higher turnover, more damage to the properties, higher vacancies."
It is good to hear a realistic scenario even if it's not from an optimistic perspective. Actually, especially if it isn't.
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Jeff S.
OP
Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
2y
@Petar Stojanovski such a good question just how long does it take to break a way. How solid does one want to be before pulling the plug of guaranteed income. Those that jumped in like @Steve Vaughan head first being smart with expenses it can be done and what fun. 7 to 10 quality doors should do it. Starting from scratch how is it done? At what point can you go to pure self employment from other sources of income? Can you go to the bank after quitting?
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Timur Salikov
Cincinnati, OH · Member since 2016 · 116 posts · 83 votes
2y
Look up Dion McNeeley on here. He has 11 units with 18k in passive monthly income. He was able to achieve this within 10 years working a low paying job.

As far as myself, I have 12 units and only 1.5k in monthly profits. Hope to scale that to 6.5k / month as I rehab and reposition the units I already own.

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V.G JasonPro Member
Investor · Member since 2022 · 3k+ posts · 3k+ votes
2y
Quote from @Timur Salikov:

Look up Dion McNeeley on here. He has 11 units with 18k in passive monthly income. He was able to achieve this within 10 years working a low paying job.

As far as myself, I have 12 units and only 1.5k in monthly profits. Hope to scale that to 6.5k / month as I rehab and reposition the units I already own.

What year did he get in?
H2 '22 forward it's a completely different game. 2008 to H1 22 the best course of action was owning the asset by taking debt. Now the best course of action is likely owning the debt, if we're talking passive income and/or lower barrier to entry. If you are capable of more, then owning hard assets + owning the debt. Not taking debt, but owning the debt. Private debt (and hard) assets is the change of action for this.
1 Reply
V.G JasonPro Member
Investor · Member since 2022 · 3k+ posts · 3k+ votes
2y
Quote from @Petar Stojanovski:

"Living off rentals will take a long, long time for the average REI. 15-20 years, probably. You'll need 7-10 quality doors.

Going the full scale--- lower barrier to entry, lots of doors, etc. You got to remember the more houses, the more capex, the more tenants. Bad areas then you're talking bad tenants. So on paper, sure, you'll get there maybe in 8-10 years but reality will hit. You'll get higher turnover, more damage to the properties, higher vacancies."
It is good to hear a realistic scenario even if it's not from an optimistic perspective. Actually, especially if it isn't.

It's not about being optimistic, it's about being practical. People live in delusion thinking they'll get their quick, quit listening to nonsense. Honestly most people making lesser than the amount I stated($80k), but are in that more average 40k-60k should own the debt not take debt.

I'm all for home ownership, but you really can't find too many areas where buying>renting right now. So rent for now.

Own the debt until that balances--yes the underlying house price may go up, but that's fine you're also more equipped. This is talking different bracket of incomes of course. Everyone's financial situation is different.
The little handyman at the PM company I work with in Dallas is asking me investing advice and wants to take a HELOC on his dad's house to buy some properties....just hearing stuff like this is so wrong. Somebody needs to speak up.
2 Reply
Henry Lazerow
Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
2y
The time to do that was 08-2020 where you could brrr at low rates. Now to brrr the cap rate has to be over 8% which doesn’t exist unless in high crime areas. Real estate will still get you rich slowly but 15-20 year out when can refi deals reinvest the equity etc.

I have around $3k net income now off real estate (8 doors) its a cool feeling to know i could live off it if moved to an inexpensive country like mexico, peru, etc.
Ways to “cheat” and speed it up will be house hacking at low down 5% if can find a property that still cashflows. Also self manage everything. I regret running management costs in my numbers early on, its easy to self manage even out of state.
5 Reply
Travis Biziorek
Investor · Arroyo Grande, CA · Member since 2014 · 1k+ posts · 1k+ votes
2y
Hey Jeff, it's definitely realistic. I will personally accomplish this in mid-2024.

This is how I've done it...

My wife and I purchased a townhome in the Bay Area in 2013 for $600,000. In 2017 we decided to move to a lower cost of living area (Detroit Metro) and sold the townhome for $765,000.

We purchased a home that needed updating for $420,000 in Troy, MI and renovated it ourselves. We put about $50,000 into it and it appraised for $550,000.

We then pulled a HELOC for $130,000 on top of ~$50k in savings and another $100k in 401k loans, and $50k personal loan. We went HARD buying C Class properties in Detroit proper for the next 2.5 years. We purchased cash, did cosmetic updates, and refinanced out. Then we'd just pay most of the HELOC down and do it again and again.

After 2.5 years we had 12-doors and we spent the next 12 months paying down debt. We sold our primary residence for $755,000 (the same one that appraised for $550,000 3.5 years earlier).

We moved to California's Central coast and, again, bought a fixer... this time for $740,000. Instead of fixing the house right away we decided to build an ADU. We'll be breaking ground (after 10 months of planning) on December 4th.

We will operate the ADU as a short-term rental and that will get us to financial freedom.

The Detroit rentals gross over $16,500/mo in rents with a bit more than half of that being net cash flow. The ADU should gross $4,500+/mo with basically all of it being net cash flow (we're paying cash to build the ADU). That gives us a little over $150,000 annually to live on. It's enough for us.

That said, I'm still working but I won't have to. It's quite freeing being able to do what you want when you want. And I'm only 41 :-)

I'll finish with this... what we did is NOT for everyone. We relocated our family across the country. We sacrificed A LOT. Doing the renovation on our primary in Troy was a massive undertaking. My wife was 8 months pregnant and we were scrambling to finish the last bit before our second kiddo came. After that we had a lot of hard lessons on the ground in Detroit. I remember a time my wife was crying and demanding that we "sell it... sell it ALL!".

We didn't, obviously, and it worked out. There were also tough months while we waited for refinances to come through. They'd get delayed and we were PUSHING it financially. More than once I'd look at my wife and say, "We need to tighten the belt for awhile". We don't live beyond our means whatsoever, so this was code for "We're kind of screwed for a bit... sorry!". Again, ultimately we got through it but it is not for the faint of heart.
30 Reply
Elisabeth Lernhardt
Member since 2019 · 57 posts · 39 votes
2y
It is possible for sure. I never set out to do this, just had a hard time letting go of homes, as I needed to move for my job. Timing was my friend, as was location. When I finaly lost my patients with California tenant laws in 2015, I was close to Reno, and that market was still relatively cheap, so I bought 4 properties in a 1032 exchange. I also had a condo in Incline that I rented out, so I could retire in 2018 just on the rents.
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Jeff S.
OP
Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
2y
@Timur Salikov Dion McNeely is living the dream. 10 years is a good goal and he can live on that cashflow.
1.5k in profit you are on your way. 12 units with lowering debt sounds like a good future.
1 Reply
Albert Hasson
Investor · Paradise Valley, AZ · Member since 2012 · 366 posts · 214 votes
2y
Doesn’t the answer really come down to lifestyle? Quitting a W-2 job when you are single and living in a double wide in the sticks is a much different scenario than quitting a W-2 job living in CA by the beach with a wife and 3 kids. I’ve been an active investor for 25 years and my real estate income still would only cover a 1/3rd of my very substantial monthly expenses.
5 Reply
Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
2y
We started RE investing in earnest in 2012. Our income was modest for those years (and still is modest - less than 6 digits last year). We now have 8 digits of RE equity (RE worth about double the equity) and a chance to cross $1m rent in 2024.

But that was a different time. Even in San Diego it was not very difficult to find 1% rent ratios on small MF RE in 2012, the interest rates were crazy low until 2022, and the appreciation between 2012 and 2021 was incredible. I retired from my w2 job in January 2022.

I think it is very unlikely that the next 10 years will have the same opportunity to grow wealth via RE as 2012 to 2021 had.

However, I believe smart, hard working RE investors can still obtain returns in excess of most other investment opportunities. However, it is much more difficult to do this via passive RE investing. If you expect to create significant wealth via RE passively in 7 years, it is my belief that it is unlikely in the current high rate, high priced, highly competitive market.

If I was still working RE hard, I am convinced I could still obtain great returns in RE. Instead I choose to travel most months (came back from NZ this morning) while obtaining good RE returns. I am still working a value add purchased in Dec 2021 and my market appreciation was 11% YOY - so I made nearly $2m from appreciation in the last year. Not bad wealth generation in a non-optimal RE market, but my last RE purchases were Dec 2021.

Good luck
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Jeff S.
OP
Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
2y
@V.G Jason every generation of investors has a different opportunity from their previous ones. I could not do what I did now and not sure what I would do if starting anew but it would be a different way for sure. As far as owning debt I watched some flippers who were buying foreclosures become hard money lenders with lots of capital. Some how one needs to get some traction to accumulate some equity in something they can use to move forward.
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Jeff S.
OP
Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
2y
@Henry Lazerow I know I always wanted to move to somewhere in Mexico because you used to be able to live great on a low budget. What else do you need once you have good food and great weather and a sandy beach. 3k is certainly a good feeling and someday if you choose it could grow with less debt if you did nothing else. Certainly more than a few investors do well in Chicago if you know what you are doing.
1 Reply
Jeff S.
OP
Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
2y
@Travis Biziorek that is awesome and a California central coast lifestyle too. It doesn't get much better. Looks like a solid 10 years of hard work and smart choices did it for you. A prime example of getting it done. Like you said "not for the faint of heart." Looking forward to hearing more.
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Jeff S.
OP
Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
2y
@Elisabeth Lernhardt I know and Reno is cool now. I go to Hot August Nights each year and talk with people who would love to relocate to Reno from hotter areas in AZ but can't afford to because RE there has appreciated so much. It seems like prices are on par with Portland which is hard to break into. Yet another success story.

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Jeff S.
OP
Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
2y
@Albert Hasson I know we see many physicians, orthodontist and dentists who keep working. A great lifestyle for sure. We are talking FAT FIRE here retire not in that double wide but super comfortably. CA by the beach with wife and 3 kids worth working for. Gotta love those warm weather beaches.
1 Reply
Jayson EwertBusiness Member
Real Estate Agent · Colorado Springs, CO · Member since 2020 · 21 posts · 17 votes
2y
Great question. For me, it's around 25-30 units. I'm at 13 rental units and it generally covers my recurring monthly costs (around 3500-4000 a month). I purchased property #1 in May of 2020. I'm also a licensed agent in Colorado and that money goes to my "wants" like special trips, gifts, and money for my future rental properties.

If I wanted to 100% live off my rentals and have no issues or concerns with money (reasonable quality of life), I'd want to be closer to 25-30 rental units. Keep in mind, when I have a bad month or an eviction etc it would be very painful if I was only relying on my rental income.
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