How many units needed before you hit financial freedom, and why?
New to Real Estate · Savannah, GA · Member since 2021 · 15 posts · 26 votes
Hey everyone! I am currently trying to get all my ducks in a row and have a long-term plan outlined. I know real estate investing will be the way I achieve my financial freedom. My vision of financial freedom is, of course, having my assets pay for my livelihood but also allow me to buy more assets to grow. What I'm trying to wrap my head around is a realistic number of units I need to achieve this goal. At my W-2 job, I am making around 60K a year. This amount is fine because I am keeping my expenses low. But I also know that this amount of money won't sustain me year-over-year for the rest of my life. I haven't put an exact number on what my end goal is yet, but it's more than 55K a year lol.
I'm aware that this COMPLETLY depends on the deal. What's most important to me right now is the cash flow of the deal. Appreciation and tax benefits are just icing on the cake.
I would love to hear everyone's stories as to how many deals/doors it took for you to achieve your financial freedom and, ideally, a breakdown of what those numbers look like. Now is the time to brag! lol
Somewhere between 1 and 100...or more. There is no way anyone can answer this question. Only you can.
It's all based on:
1 - The end financial goals as you stated (actual numbers with $$$$ in front). Your numbers, not someone else's.
2 - The market or markets you will be investing in (this changes with time)
3 - The strategies (not strategy) you will using in each of the different markets you will be investing in.
Somewhere between 1 and 100...or more. There is no way anyone can answer this question. Only you can.
It's all based on:
1 - The end financial goals as you stated (actual numbers with $$$$ in front). Your numbers, not someone else's.
2 - The market or markets you will be investing in (this changes with time)
3 - The strategies (not strategy) you will using in each of the different markets you will be investing in.
@Joe Villeneuve Yeah, I realize no one can answer it for me. I was just trying to highlight where I am currently to see if others could relate and share how they've achieved their goals. What I'm really looking for are examples of peoples numbers so I can have some sort of idea. You're right though; my markets and strategies will all change with time, and I will continue to work towards figuring out what my end financial goals will be. Thank you.
Hi Laura,
(This is not Investment Advice--because I do not give investment advice, I am simply answering your question here.)
Lets say (just plugging numbers here) for example in Savanna if you own 1 SFH outright and after CAPEX, Repairs, Turns, Insurance, Property Taxes, and etc... you have $500 a month left over as spendable cash--sheltered by depreciation.
10 would put $5,000 a month in your purse, which is probably a little more than your take home after the IRS and other deductions bite your paycheck.
But you need to also have something to pay your Health Insurance, and depreciation stops after so many years, so you have to figure that in also.
You will need to fully understand the expenses side of this business and make an excel financial model (if you want to be precise).
Assuming it will take 30 years per property to pay the mortgage off free and clear, and 25% of the price of each in cash to buy and make rent ready each one....that might give you some idea of the time frame.
The more money you have to start with the faster it will be.
Also, in a situation like this, buying SFH's in the cheapest neighborhoods may result in buying in the most dangerous crime ridden neighborhoods..There are people in here who do just that...but you have to be hard and tough to avoid being taken advantage of...and because workers do not want to go (Fear Going) into these areas the owners typicality self-manage and self repair.
Higher priced SFH's will take longer, and duplexes, triplexes and quads (may have) a little lower operating expenses over time--single roof for all, single shell for all, etc...
There are other investment types out there, but I think you are asking about Buy and Hold---which is what I described above.
If you think you will get rich quick (like Olden Days) Tom Vu used to promise...it's unlikely----like everything else this is a business, and it requires specialized knowledge and work.
There are more sophisticated ways to make money in this business, but I think I answered you basic question.
I'd recommend LEARN LEARN LEARN more, and different ways to invest--Learn all you can.
Good Luck!
@Scott Mac I really appreciate you actually breaking it down for me. Like I mentioned, just trying to wrap my head around it all. I am learning something new every day, thankfully. So I hope to be as knowledgeable as most people here at BP.
If you don’t mind, could you share with me the more sophisticated ways to invest that you hinted at?
@Scott Mac I really appreciate you actually breaking it down for me. Like I mentioned, just trying to wrap my head around it all. I am learning something new every day, thankfully. So I hope to be as knowledgeable as most people here at BP.
If you don’t mind, could you share with me the more sophisticated ways to invest that you hinted at?
Joey and Rachel decide to buy a SFH that needs (a little) work to freshen it up.
They buy it below what it costs to fix it up.
They know how to estimate the costs and know local Realtors who can help them find such properties.
They buy the SFH and fix it up, and resell it (Flip it) to make a profit.
They reinvest their profit in another and do the same until they have enough cash to do this without borrowing.
Then they reinvest their profits into duplexes to hold on to.
They have essentially made themselves a 2nd job and use the 2nd job income to speed the process up.
Phoebe and Ross do the same thing, but for whatever reason lose money on the flip, but try again.
Chandler makes enough money to just buy whatever he wants and is way too busy at his current job (Producing Wenus Reports) to be able to participate in any fix ups, but has put some money into both Phoebe and Ross, and Rachel and Joey flips as a silent partner--not working in the business.
And etc, ways...LEARN LEARN LEARN...
@Scott Mac I appreciate the scenarios. I have heard of many of those aspects via the podcasts. My girlfriend and I plan do start off by doing what Joey and Rachel have done lol. Thanks
4-5 units to get by ($50k/year) I stopped at 12 which was farther than I needed to go (>$200k/year). But I live a pretty simple life in a low cost state with no income tax. I spend 15-20 minutes a month on bookkeeping and every 2-3 months I have to approve a repair. Try not to use up your energy and cheap/easy loans buying cheap properties. More expensive properties actually attract lower maintenance tenants. Your experience may vary.
@Lauren Akins in my experience many people underestimate how much money they need and overestimate free cash flow.
First of all for living expenses, those costs will generally increase as you age, especially if children are involved. Even besides that medical, dental and vision can be huge expenses. Your health care needs in your 40's, 50's and 60's are huge compared to 20's and 30's. Just getting comparable insurance to your W2 will probably cost you $10K or more per year.
Cash flow is often overestimated because people just subtract mortgage payment from rent. They fail to include all the other operating expenses. CAPEX in particular is underestimated. Over a 20 year period, every major item in a property likely needs to be replaced, flooring and paint even more often. CAPEX is the silent killer of cash flow. On top of that if you want passive income, you may want to hire a property manager, which further cuts cash flow. You want to calculate "free cash flow" which figures in everything.
As you already mentioned, the number of units depends on the deal. There are houses that rent for $5000 and apartments that rent for $500.
Calculating the number of units will require you to work backwards from income. When I started out in 2004, I was making around $60,000. I did some math and figured I could cash flow about $500 a door if the properties were paid off. Working backwards form that, I calculated the need for about 10 houses. Over time had a family, increased my salary and increased my life style. We passed the 10 house mark and our paid off houses are cash flowing over $1200, although we have become bigger fans of leverage over time. I have freedom to retire but continue working and growing my portfolio.
Having a plan for the end game is important, BUT I guarantee you that plan will change and adapt. It is far more important to just keep acquiring properties and worry less about your exact exit number. Take action today to invest. When the time is right to step out of your W2, you will know it. I say this because so many people get so overwhelmed by an exit strategy that they never even get started.
@Lauren Akins in my experience many people underestimate how much money they need and overestimate free cash flow.
First of all for living expenses, those costs will generally increase as you age, especially if children are involved. Even besides that medical, dental and vision can be huge expenses. Your health care needs in your 40's, 50's and 60's are huge compared to 20's and 30's. Just getting comparable insurance to your W2 will probably cost you $10K or more per year.
Cash flow is often overestimated because people just subtract mortgage payment from rent. They fail to include all the other operating expenses. CAPEX in particular is underestimated. Over a 20 year period, every major item in a property likely needs to be replaced, flooring and paint even more often. CAPEX is the silent killer of cash flow. On top of that if you want passive income, you may want to hire a property manager, which further cuts cash flow. You want to calculate "free cash flow" which figures in everything.
As you already mentioned, the number of units depends on the deal. There are houses that rent for $5000 and apartments that rent for $500.
Calculating the number of units will require you to work backwards from income. When I started out in 2004, I was making around $60,000. I did some math and figured I could cash flow about $500 a door if the properties were paid off. Working backwards form that, I calculated the need for about 10 houses. Over time had a family, increased my salary and increased my life style. We passed the 10 house mark and our paid off houses are cash flowing over $1200, although we have become bigger fans of leverage over time. I have freedom to retire but continue working and growing my portfolio.
Having a plan for the end game is important, BUT I guarantee you that plan will change and adapt. It is far more important to just keep acquiring properties and worry less about your exact exit number. Take action today to invest. When the time is right to step out of your W2, you will know it. I say this because so many people get so overwhelmed by an exit strategy that they never even get started.
Hey Joe,
I’m sorry for pulling the conversation for a second, but question for you. Am I understanding correctly that you paid off all your properties first? Or what was your general investment plan?
@Joe Splitrock That is a great way to look at it. Thank you for opening up my eyes to actually work backwards on figuring out these numbers!
@Lauren Akins in my experience many people underestimate how much money they need and overestimate free cash flow.
First of all for living expenses, those costs will generally increase as you age, especially if children are involved. Even besides that medical, dental and vision can be huge expenses. Your health care needs in your 40's, 50's and 60's are huge compared to 20's and 30's. Just getting comparable insurance to your W2 will probably cost you $10K or more per year.
Cash flow is often overestimated because people just subtract mortgage payment from rent. They fail to include all the other operating expenses. CAPEX in particular is underestimated. Over a 20 year period, every major item in a property likely needs to be replaced, flooring and paint even more often. CAPEX is the silent killer of cash flow. On top of that if you want passive income, you may want to hire a property manager, which further cuts cash flow. You want to calculate "free cash flow" which figures in everything.
As you already mentioned, the number of units depends on the deal. There are houses that rent for $5000 and apartments that rent for $500.
Calculating the number of units will require you to work backwards from income. When I started out in 2004, I was making around $60,000. I did some math and figured I could cash flow about $500 a door if the properties were paid off. Working backwards form that, I calculated the need for about 10 houses. Over time had a family, increased my salary and increased my life style. We passed the 10 house mark and our paid off houses are cash flowing over $1200, although we have become bigger fans of leverage over time. I have freedom to retire but continue working and growing my portfolio.
Having a plan for the end game is important, BUT I guarantee you that plan will change and adapt. It is far more important to just keep acquiring properties and worry less about your exact exit number. Take action today to invest. When the time is right to step out of your W2, you will know it. I say this because so many people get so overwhelmed by an exit strategy that they never even get started.
Hey Joe,
I’m sorry for pulling the conversation for a second, but question for you. Am I understanding correctly that you paid off all your properties first? Or what was your general investment plan?
Sorry I didn't clarify that better. When I stated my plan was to buy 10 properties and pay them all off. Over time my mindset evolved to using leverage to grow faster. Some properties are paid off today, but most are leveraged. I wish I would have entered with a mindset of leverage only in the beginning. There is no reason to pay off properties when you are in acquisition mode. After you have a nice portfolio with considerable cash flow, then paying off properties may make sense.
@Bill Brandt 50k/12 is 4,100 per month / 5 units is 833, you cash flow $800 per unit??
@Joe Splitrock You're fine. And yes, I am so thankful to the podcasts for teaching me about leverage. I most certainly plan on leveraging as much as possible!
@Brandon Roberts I cashflow $12,500/mo now with 12 properties but they're almost all paid off. But I am paying $1,000/mo in HOA fees you might avoid and need 1 less property.
Back when I got started I was buying $100-$120k properties that brought in around $1300. Mortgage was about $350/mo @ 3.5% for 30 years with 25% down. Property taxes a little under $100/mo and insurance under $50. So a little over $500/mo payment per property. This was 2010/2011 when nobody was buying. These properties we’re down 50-65% and people still said I was “gonna lose my shirt”. This is when I would explain to them that I was pretty sure the house would always be worth more than the $25k I was putting down. And in a couple years I would have my money back.
Ps. I did this while unemployed. It was a great time to buy and be a landlord in Vegas. Zero vacancy for years, rising rents and easy loans.
4-5 units to get by ($50k/year) I stopped at 12 which was farther than I needed to go (>$200k/year). But I live a pretty simple life in a low cost state with no income tax. I spend 15-20 minutes a month on bookkeeping and every 2-3 months I have to approve a repair. Try not to use up your energy and cheap/easy loans buying cheap properties. More expensive properties actually attract lower maintenance tenants. Your experience may vary.
IMPRESSIVE number!
Congratulations
Can I ask how much money did it take to get to 12 rentals netting approx $1400 each per month?
The first 6 took about $100k. (25k down on 3 rentals and $10k down on 3 new primaries.)
After that houses were about $180k (80% increase in 3-4 years, ouch, I shoulda moved faster.) so next 5 took $45k x 2 and $18k x 3.
Last one was “trophy/retirement” lake home in MN with $100k down. Luckily even with a $5,000/year Hoa it cashflows a little over $20k/year now that it’s paid off. (It was negative $800/mo for the 6 years it took to pay off the 15 year loan.) (same renters for 6 years on Nov 1st with 1 year left on lease)
So 11 meant to be investments in Vegas took about $250k spread over 6 or 7 years and moving every year for that long. Pretty much all the money after the first 6 came from their cashflow. (As did the $100k down in MN).
TLDR: $350k in downpayments, $100k of non-real estate cashflow funds invested to get started.
Hey everyone! I am currently trying to get all my ducks in a row and have a long-term plan outlined. I know real estate investing will be the way I achieve my financial freedom. My vision of financial freedom is, of course, having my assets pay for my livelihood but also allow me to buy more assets to grow. What I'm trying to wrap my head around is a realistic number of units I need to achieve this goal. At my W-2 job, I am making around 60K a year. This amount is fine because I am keeping my expenses low. But I also know that this amount of money won't sustain me year-over-year for the rest of my life. I haven't put an exact number on what my end goal is yet, but it's more than 55K a year lol.
I'm aware that this COMPLETLY depends on the deal. What's most important to me right now is the cash flow of the deal. Appreciation and tax benefits are just icing on the cake.
I would love to hear everyone's stories as to how many deals/doors it took for you to achieve your financial freedom and, ideally, a breakdown of what those numbers look like. Now is the time to brag! lol
Financial freedom is different for each individual and cost of living varies from region to region. My rough estimate is that I would need close to thirty properties with 10 financed and the rest paid off to reach my passive income goal. I'm in the process of picking up #6 financed. On all my properties the rents have gone up since purchasing them so that changed the calculations for the better than they originally were, but I also ran into a wall on this 6th property with my DTI being at the point where I won't be able to finance another until I get it lowered. What I do know is that at the very least I will reach retirement with a nice stream of income beyond taking money out of a 401k, receiving social security, or receiving a pension.
@Lauren Akins, my goal is to be debt free including my personal home and have $12,000 per month guaranteed cash income that adjusts upward to match inflation.
@Lauren Akins Hi Lauren, I agree with Joe. Everyone’s situation is different. I probably reached “financial freedom” around 15 units…I guess for me it meant I could cash out my assets and have $2 million free. All depends on your goals!
@Joe Villeneuve Yeah, I realize no one can answer it for me. I was just trying to highlight where I am currently to see if others could relate and share how they've achieved their goals. What I'm really looking for are examples of peoples numbers so I can have some sort of idea. You're right though; my markets and strategies will all change with time, and I will continue to work towards figuring out what my end financial goals will be. Thank you.
No. You don't "...continue to figure out...end financial goals will be". That's where you start. That's why they call them "goals".
Lauren,
Started buying in 2008 at the start of the GFC. No real estate experience other than my own home.
Mortgaged the first two, then started buying with cash. Deals were abundant and bargain priced.
Swore I'd stop at 50. Then 75. Now at 140+ and still doing it. Bought 3 in the last month.
Thinking of forming an addiction type group for real estate purchases. LOL. Enjoy it immensely. There's great satisfaction in supplying a wonderful home for other people.
Gary
Goals continue to change as I learn more about real estate investing. It started out as owning a 3 SFR and have them paid off by tenants in 30 years with $200-$600 cash flow each in the meantime. It evolved to an additional duplex with $500 cash flow in 2018, but now cash flows $1000. Then two more 3-plexes with $1000 cash flow each in 2020, set to flow $1200 each by 2022. Now in 2021, I added an 8plex that cash flow $4000, with a built in raise of 7% per year since its a long term government contract. Just pick up a 10plex that cash flow $3000 and gave notice to the tenants of 2 upcoming 20% rent raised in the next 12 months. Next month I will close another 10plex that cash flows $3000 as well and will do the same 20% raise 2 times in the next 12 months. both were mismanaged and below market rents. If anyone moves out, I bring in government program and raise rents 70% immediately. I could stop, but I want to keep the momentum going. My new goal is to keep growing my portfolio for 20 or more years and see where it goes. I am young, so I have a lot of time left. My current pace can only afford me 1-3 properties per year since I am on my own. If the pace keeps up, and the market stays steady or drops, there is a good chance to get to $500K cash flow/month in 15 - 20 years. My immediate goal is to get into syndications in 2022 and see where that takes me, with hopes to grow even faster. I learned it all from YouTube last year and a large part of it was listening to tons of BP podcasts and putting it into action.
The reality is your goals may change from year to year as your life style changes. I use to think that as long as I can match my gross income from W2, I'll be set. I do now, and I am still working the W2 to leverage the extra money to keep the real estate investment momentum going. Why not go the extra mile so there is buffer room to enjoy a little more later. Some delayed gratification is always good. Keep work life balance now, but look forward to mostly life balance in the near future.
I use to believe that 20 - 26 units would be the magic number for financial freedom. Its not about the number of units. Its about the income to support your lifestyle. That could be one unit or one hundred units, depending on what each unit cashflows and if you are realizing the full gains of real estate investing.
Good luck and I hope you find everyone's input valuable. I continue to be inspired by BP community and learn more lessons everytime I log on.
When I first started my number was 10. 10 is an easy, round, reachable number. My criteria was atleast $500/mo cash flow per door. As time has passed and we kept buying more my target keeps moving. I really love real estate, it clicks and I am good at it. The way my mind works, having a number and clear goal to look to made it much easier to feel more confident when I first started and is a good way to stay motivated. Your goals will change, your cash flow will change, that is a given, but having a clear goal that you are reaching towards will make it much easier to accomplish in my opinion. So keep going! Good luck!