HOW LONG DOES IT TAKE TO LIVE OFF OF YOUR INVESTMENTS?

Question

There are a lot of courses out there that say you can have a positive cash flow in 3 yrs 2 yrs and even 1 year and so on and so forth. From my experience most places sell for a high enough price that the rents barley cover it.  Ie 1000 a month mortgage and 1050 rents per month.

So how does a guy ever live off of the properties in a short amount of time. I know that in ten to twenty years your mortgage is paid down and rents are up so you can do so but what about in 1 to 2 years

Account Closed · Answer

It takes time, but you can do it faster than the 20 years that it takes to pay off your mortgages.

You buy 2 types of property. The ones you want to hold for long term, and some shorter term properties to re-sell.

Do your fix-ups, hold them for a year, and 1031 all their equity into a property that you want to hold. If you've bought them right, you'll have a substantial down payment for your buy and hold, that you haven't had to save out of your salary.

Every 2-3 years, you move into one of your buy-to-sells, and sell them tax free at the end of 2 years. Then that tax fee money can be used to pay off your mortgages.

You'll hear a lot of investors that want to be as far in debt as possible. But my feeling on debt is that when I retire, I don't want to deal with any more tenants than I have to. I'd rather have 8 houses bring $1000 rent with no mortgage, than 80 houses each giving me $100 cash flow every month.

Dealing with 80 tenants is not retirement. It's a whole lot of work.

Travis Elliott · Answer

Thanks PNW

I dont think that I want to kive in a house every two years and then sell it.   I own a mobile free and clear and I live in it with only 120.00 lot rent.  I am going to close on two houses mid May/  They will both be rentals.

I am open to other suggestions.

Michael Rossi · Answer

Actually, you could probably have the same $3,000 spendable income per month with 15 rentals, if you do the management and maintenance yourself.  By doing so, you will EARN the management and maintenance fees in addition to your $100 per unit per month cash flow.

Good Luck,

Mike

Travis Elliott · Answer

Hey thanks for the replies guys.  The only way that I can see making an income early is through mobiles.  Problem is that the lots wont allow rented mobiles.

I understand the retirement side of investing but I am looking for income now.

Stephen Leblanc · Answer

I aim to make $100 in total profit from every unit I purchase.  So if I want my retirement income to be $3000 per month, I will need to have 30 units.  To follow my example further.... if I want to retire in 10 years, I will have to buy 3 units per year for 10 years.

Hope this helps.

steve

Jon Holdman · Answer

I think the picture is better than that, Steve.  That's because over time rents and expenses go up, but your payment stays the same.  Assuming you have a fixed rate loan.

I do realize there is nothing magic that says rents and expenses WILL go up, or that they will go up in synch.  Certainly, its possible they will not.  However, if you apply a "50%" rule of thumb (or 40% or 33% or whatever), they there is an implication these two track. If they don't track, the the "50% rule" turns into the "55% rule" or the "45% rule" over time.  I've not seen anyone argue that's the case.

The inflation rate has been higher and lower over time.  But, we've not had any recent period of deflation.  If inflation continues to be fairly well controlled at a few percent, then I would tend to thing rents and expense will be driven by inflation.  That will drive your NOI up, also by inflation.  Your payment, which is getting paid out of the NOI stays the same.  So, your cash flow will increase by the amount the NOI increases.

Say your getting $600 in rent and making a $200 payment.  Expenses are $300, so you have cash flow of $100 after making the payment.  After a few years, rent increases 10% to $660.  Expenses go to $330, and NOI also goes to $330.  Your payment stays at $200, so your cash flow goes to $130.  That's a 30% increase in cash flow.  Rent doesn't need to double for you to double your cash flow.  Rent increasing 33%, from $600 to $800 is enough for you to double your cash flow.  So, while the income you need is growing with inflation, rentals at least have the potential to grow your income at a rate higher than inflation.

Jon Holdman · Answer

If you have rentals with a $1000 note and $1050 in rent, you'll never live off of them.  Those will suck cash out of your pocket for years to come.  Anyone who says "cash flow = rent - PITI payment" is jerking your chain.

Timothy W. · Answer

Read the "How Low can you go" thread MikeOH started.  You should be able to pick up cheap property in SD.