How many rentals to retire?

Member since 2022 · 241 posts · 62 votes

So I have been investing in real estate in the south since 2021 and now have 5 properties. How do you know how many properties you need to retire? It's hard for me to know how much cap ex and repairs will be in the future as the price of those things goes up. I have a spreadsheet of the rough timeline for when roofs and cap ex items will need to be done. Any help appreciated! Here's kinda what I have: (I usually really front load properties with alot of repairs and painting so that it pushes alot off into the future)

+ Gross rent

- property management 10%

- vacancy rate 5%

- cap ex savings (250/ month?)

- maintenance and repairs (50/month?)

- taxes

= Profit

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Nathan GesnerBusiness Member

Moderator

Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes

Quote from @Sam Booth:

Find your end goal, then reverse engineer it.

Let's say you want $60,000 net cashflow to live off. This is after all your real estate expenses. This requires $5,000 per month. You need five properties creating $1,000 free and clear every month. Easy, peasy.

Now, what does it take to produce $1,000 per month free and clear? You'll have to do some creative math.

1. Write down your incomes for each property.

2. List all your known expenses (taxes, insurance, utilities, etc.)

3. List all your projected expenses. These are things you know will happen, but you don't know if they will happen tomorrow or five years from now (capex, vacancies, turnover costs, etc.)

4. Once the projected expenses are listed, estimate when the costs will occur. For example, you may project that each property will turn over every 24 months and lose 1.5 months of rent for a vacancy or additional maintenance. You estimate your roof will require replacement in ten years, so you'll need $10,000 when the time comes. Create a simple spreadsheet like the one below to calculate how much you should set aside each month for these projected expenses:

5. Take the total income, subtract your known costs and the projected costs, and you'll know how much remains to live on. If it meets your needs, you are set.

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Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
2y
I might have missed it, but are the properties paid for or have a mortgage? I wouldn't focus on the number of properties, but the cash flow. Determine what you need to make to support your lifestyle that you want. That number will be different for everyone.
5 Reply
Sam Booth
OP
Member since 2022 · 241 posts · 62 votes
2y
Quote from @Theresa Harris:

I might have missed it, but are the properties paid for or have a mortgage? I wouldn't focus on the number of properties, but the cash flow. Determine what you need to make to support your lifestyle that you want. That number will be different for everyone.
I have mortgages for each one currently. My thought is to accelerate the pay off so that when free and clear they will cash flow much better then now. Not sure how to account for cap ex when you factor cap ex roofs, hvacs, etc in. Plus turns.
1 Reply
Adam BartomeoBusiness Member
Real Estate Broker · Cape Coral, FL · Member since 2015 · 2k+ posts · 1k+ votes
2y
You cannot answer the question without more information... Do you need $2,000/mon or $20,000/mon? Are you looking at cashflow or some combination of cashflow and appreciation? Mortgage or no mortgages. If you are cash flowing $200/door and you want to make $20,000/mon then you will need 100 doors. You need to end goal and then you can reverse engineer the numbers.
[email protected]239-339-3969
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Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
2y
Quote from @Sam Booth:

Find your end goal, then reverse engineer it.

Let's say you want $60,000 net cashflow to live off. This is after all your real estate expenses. This requires $5,000 per month. You need five properties creating $1,000 free and clear every month. Easy, peasy.

Now, what does it take to produce $1,000 per month free and clear? You'll have to do some creative math.

1. Write down your incomes for each property.

2. List all your known expenses (taxes, insurance, utilities, etc.)

3. List all your projected expenses. These are things you know will happen, but you don't know if they will happen tomorrow or five years from now (capex, vacancies, turnover costs, etc.)

4. Once the projected expenses are listed, estimate when the costs will occur. For example, you may project that each property will turn over every 24 months and lose 1.5 months of rent for a vacancy or additional maintenance. You estimate your roof will require replacement in ten years, so you'll need $10,000 when the time comes. Create a simple spreadsheet like the one below to calculate how much you should set aside each month for these projected expenses:

5. Take the total income, subtract your known costs and the projected costs, and you'll know how much remains to live on. If it meets your needs, you are set.

The DIY Landlord Book4.7248 Reviews
Website View Page
11 Reply
Sam Booth
OP
Member since 2022 · 241 posts · 62 votes
2y
Quote from @Nathan Gesner:

Quote from @Sam Booth:

Find your end goal, then reverse engineer it.

Let's say you want $60,000 net cashflow to live off. This is after all your real estate expenses. This requires $5,000 per month. You need five properties creating $1,000 free and clear every month. Easy, peasy.

Now, what does it take to produce $1,000 per month free and clear? You'll have to do some creative math.

1. Write down your incomes for each property.

2. List all your known expenses (taxes, insurance, utilities, etc.)

3. List all your projected expenses. These are things you know will happen, but you don't know if they will happen tomorrow or five years from now (capex, vacancies, turnover costs, etc.)

4. Once the projected expenses are listed, estimate when the costs will occur. For example, you may project that each property will turn over every 24 months and lose 1.5 months of rent for a vacancy or additional maintenance. You estimate your roof will require replacement in ten years, so you'll need $10,000 when the time comes. Create a simple spreadsheet like the one below to calculate how much you should set aside each month for these projected expenses:

5. Take the total income, subtract your known costs and the projected costs, and you'll know how much remains to live on. If it meets your needs, you are set.

That all makes sense, it's more the inflation factor. In 2021, a roof was 6k, now Same company is 10K. So it's hard to plan those cap ex
1 Reply
Greg Kasmer
Rental Property Investor · Philadelphia, PA · Member since 2021 · 774 posts · 500 votes
2y
@Sam Booth - I agree that planning out your CapEx can be difficult. In larger mutlifamily properties I typically increase my existing expenses (non-mortgage expenses) by the same growth rate as my revenue.... assuming I have up to date and accurate existing expenses. Not knowing anything else about the future this keeps your pro forma not overly weighted one way or another. In the reverse, if you increase revenues 3% and expenses 2% you're naturally going to inflate over time. Good Luck!
1 Reply
Carlos Valencia
Lender · 92703 · Member since 2022 · 326 posts · 538 votes
2y
Hello Sam,

Its really going to depend on how much net income you need to live off plus a little extra for emergencies or entertainment. Find that number out first and try to give yourself a buffer since cost of living will still go up but also will your rents and expenses. Once you figure that number out you can determined how much net rental income you will need. Therefore the number of properties will depend on that figure. Focus on the overall cashflow because maybe for you it only takes 10 properties to retire and for others maybe 20 some might need 5 it all depends on how their portfolio is performing.

@Albert Bui @Matthew Kwan
0 Reply
Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
2y
Quote from @Sam Booth:

Nobody can predict the future. You are trying to make an estimate so you're not caught flat-footed.

Calculate your plan and increase it by 25%. You may have too much or too little, but at least you'll have something. Or you can do nothing and guarantee failure.
The DIY Landlord Book4.7248 Reviews
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1 Reply
Bob S.
Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
2y
Quote from @Sam Booth:

So I have been investing in real estate in the south since 2021 and now have 5 properties. How do you know how many properties you need to retire? It's hard for me to know how much cap ex and repairs will be in the future as the price of those things goes up. I have a spreadsheet of the rough timeline for when roofs and cap ex items will need to be done. Any help appreciated! Here's kinda what I have: (I usually really front load properties with alot of repairs and painting so that it pushes alot off into the future)
+ Gross rent
- property management 10%
- vacancy rate 5%
- cap ex savings (250/ month?)
- maintenance and repairs (50/month?)
- taxes
= Profit

impossible for anyone to answer, it's up to you how much you need/want per month. I swear it's like BP is turning into FB, sadly
Good luck
2 Reply
Greg M.
Rental Property Investor · Los Angeles, CA · Member since 2017 · 2k+ posts · 5k+ votes
2y
This is something that I have personally given a lot of thought to as my goal is similar, a handful of paid off properties, each free cash flowing a few thousand per month. However, you have not provided any real numbers or location to be able to give you any sort of accurate answer. Are rents rising in your area? Prices appreciating? Rent control? Turnover times? Current rent rate? Class of units? Are the units near you?
Unless you're not local to the units, why do you have a property manager? That's pissing away 10%. You're talking about paying off the mortgage faster to save on what, a 4% interest rate, all the while giving someone else 10% to do minor work for you. If you have a basic understanding of Excel and can use Yelp to find honest workers, you can manage 5-10 units by yourself in a couple of hours per month.
CapEx at $250/month? You're the one with the spreadsheet. Does this allow for the accumulation of funds to pay off major improvements around the time they will need be?
What about insurance?
Is vacancy rate of 5% realistic? It means a new tenant around once every 1.5 years. Most people stay way longer than that.
0 Reply
Sam Booth
OP
Member since 2022 · 241 posts · 62 votes
2y
Quote from @Greg M.:

This is something that I have personally given a lot of thought to as my goal is similar, a handful of paid off properties, each free cash flowing a few thousand per month. However, you have not provided any real numbers or location to be able to give you any sort of accurate answer. Are rents rising in your area? Prices appreciating? Rent control? Turnover times? Current rent rate? Class of units? Are the units near you?
Unless you're not local to the units, why do you have a property manager? That's pissing away 10%. You're talking about paying off the mortgage faster to save on what, a 4% interest rate, all the while giving someone else 10% to do minor work for you. If you have a basic understanding of Excel and can use Yelp to find honest workers, you can manage 5-10 units by yourself in a couple of hours per month.
CapEx at $250/month? You're the one with the spreadsheet. Does this allow for the accumulation of funds to pay off major improvements around the time they will need be?
What about insurance?
Is vacancy rate of 5% realistic? It means a new tenant around once every 1.5 years. Most people stay way longer than that.

Basically I know what roofs and large expenses cost TODAY but not in 5 or 10 years. Real estate went up 50% in value last 5 years. All of these properties are not local go me and some have higher interest rates. I was trying to figure out I'd there's a percentage or something that alot of people might be able to use? Otherwise I have a Cap Ex Spreadsheet with what years different items will be done on. But I am guessing on inflation and the costs. Sounds like there's no real way to know for sure. Appreciate the input
0 Reply
Sam Booth
OP
Member since 2022 · 241 posts · 62 votes
2y
Quote from @Adam Bartomeo:

You cannot answer the question without more information... Do you need $2,000/mon or $20,000/mon? Are you looking at cashflow or some combination of cashflow and appreciation? Mortgage or no mortgages. If you are cash flowing $200/door and you want to make $20,000/mon then you will need 100 doors. You need to end goal and then you can reverse engineer the numbers.
I got it all figured out except the inflation of cap ex items. Roof in 2021 was 6k. Now it's 10k.
1 Reply
Sam Booth
OP
Member since 2022 · 241 posts · 62 votes
2y
Quote from @Nathan Gesner:

Quote from @Sam Booth:

Find your end goal, then reverse engineer it.

Let's say you want $60,000 net cashflow to live off. This is after all your real estate expenses. This requires $5,000 per month. You need five properties creating $1,000 free and clear every month. Easy, peasy.

Now, what does it take to produce $1,000 per month free and clear? You'll have to do some creative math.

1. Write down your incomes for each property.

2. List all your known expenses (taxes, insurance, utilities, etc.)

3. List all your projected expenses. These are things you know will happen, but you don't know if they will happen tomorrow or five years from now (capex, vacancies, turnover costs, etc.)

4. Once the projected expenses are listed, estimate when the costs will occur. For example, you may project that each property will turn over every 24 months and lose 1.5 months of rent for a vacancy or additional maintenance. You estimate your roof will require replacement in ten years, so you'll need $10,000 when the time comes. Create a simple spreadsheet like the one below to calculate how much you should set aside each month for these projected expenses:

5. Take the total income, subtract your known costs and the projected costs, and you'll know how much remains to live on. If it meets your needs, you are set.

This is basically what I did, but not sure how to account or inflation. Roof was 6k in 2021 and now 10k.
0 Reply
Sam Booth
OP
Member since 2022 · 241 posts · 62 votes
2y
Quote from @Bob S.:

Quote from @Sam Booth:

So I have been investing in real estate in the south since 2021 and now have 5 properties. How do you know how many properties you need to retire? It's hard for me to know how much cap ex and repairs will be in the future as the price of those things goes up. I have a spreadsheet of the rough timeline for when roofs and cap ex items will need to be done. Any help appreciated! Here's kinda what I have: (I usually really front load properties with alot of repairs and painting so that it pushes alot off into the future)
+ Gross rent
- property management 10%
- vacancy rate 5%
- cap ex savings (250/ month?)
- maintenance and repairs (50/month?)
- taxes
= Profit

impossible for anyone to answer, it's up to you how much you need/want per month. I swear it's like BP is turning into FB, sadly
Good luck
I just thought with all the more advanced investors it would be either a parentage or spreadsheet and way to account for inflation of cap ex items
0 Reply
Account Closed
Rental Property Investor · New Braunfels, TX · Member since 2022 · 408 posts · 408 votes
2y
Quote from @Sam Booth:
I just thought with all the more advanced investors it would be either a parentage or spreadsheet and way to account for inflation of cap ex items
Use 66% for inflation based on your roof numbers….
0 Reply
Bob S.
Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
2y
Quote from @Sam Booth:

Quote from @Bob S.:

Quote from @Sam Booth:

So I have been investing in real estate in the south since 2021 and now have 5 properties. How do you know how many properties you need to retire? It's hard for me to know how much cap ex and repairs will be in the future as the price of those things goes up. I have a spreadsheet of the rough timeline for when roofs and cap ex items will need to be done. Any help appreciated! Here's kinda what I have: (I usually really front load properties with alot of repairs and painting so that it pushes alot off into the future)
+ Gross rent
- property management 10%
- vacancy rate 5%
- cap ex savings (250/ month?)
- maintenance and repairs (50/month?)
- taxes
= Profit

impossible for anyone to answer, it's up to you how much you need/want per month. I swear it's like BP is turning into FB, sadly
Good luck
I just thought with all the more advanced investors it would be either a parentage or spreadsheet and way to account for inflation of cap ex items

You are way overthinking, its just math, If you want/need 10k NET per month just run the numbers and buy as many rentals as you need to get to that number.
0 Reply
Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
2y
Quote from @Sam Booth:

You are overthinking this whole thing. Nobody can predict the future. Even an investor with 50 years of experience couldn't have seen the price increases that hit us in 2020.

Follow the cost of living index and increase your savings by the same amount each year. You will be close enough. Some expenses will come later than expected, some earlier. Some will cost more than expected, some less.

If you are worried your calculations are too conservative, add 25%, 50%, or double them. Just make a decision and move on.
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2 Reply
Marcus Auerbach
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
2y
Quote from @Sam Booth:

Quote from @Bob S.:

Quote from @Sam Booth:

So I have been investing in real estate in the south since 2021 and now have 5 properties. How do you know how many properties you need to retire? It's hard for me to know how much cap ex and repairs will be in the future as the price of those things goes up. I have a spreadsheet of the rough timeline for when roofs and cap ex items will need to be done. Any help appreciated! Here's kinda what I have: (I usually really front load properties with alot of repairs and painting so that it pushes alot off into the future)
+ Gross rent
- property management 10%
- vacancy rate 5%
- cap ex savings (250/ month?)
- maintenance and repairs (50/month?)
- taxes
= Profit

impossible for anyone to answer, it's up to you how much you need/want per month. I swear it's like BP is turning into FB, sadly
Good luck
I just thought with all the more advanced investors it would be either a parentage or spreadsheet and way to account for inflation of cap ex items

Nobody knows what inflation is going to be, but it does not matter, as long as you adjust rents every year. Inflation impacts both income and expenses, so to keep it simple, I'd use present day numbers.
Most people can retire (live okay) on a $2 to $3 million dollar RE portfolio even with some remaining leverage, if you want to live a little nicer life style aim for 5-10 million. That number may sound out of reach and I don't know how old you are, but don't underestimate what you can accomplish in 10 or 20 years.
2 Reply
Peter W.
Member since 2020 · 351 posts · 329 votes
2y
Not even economists can predict inflation well, especially more than say 2-3 years in the future. Make a reasonable assumption (maybe expenses grow at the same rate as rent growth at 3%) and then add some conservatism somewhere in case you are wrong, e.g. if you think you need 5k/mo cash flow aim for 5.5k/mo or 6k/mo in case you were wrong in your assumptions. Better to have too much money than too little.

As we say in the sciences, all models are wrong, some are useful.
0 Reply
Bob S.
Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
2y
Simple answer, get 10- 15k NET coming in, just do the math. If you need more than that, well get rid of the stupid toys LOL ,
0 Reply
Sam Booth
OP
Member since 2022 · 241 posts · 62 votes
2y
Quote from @Bob S.:

Simple answer, get 10- 15k NET coming in, just do the math. If you need more than that, well get rid of the stupid toys LOL ,
Maybe I am over thinking it but basically gross rent now is 7K. Out is state properties so expenses are:

10% property management
15% cap ex (lower cost of living area)
10% repairs / maintenance
5% vacancy

40% expenses / 60% profit

0 Reply
Bob S.
Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
2y
Quote from @Sam Booth:

Quote from @Bob S.:

Simple answer, get 10- 15k NET coming in, just do the math. If you need more than that, well get rid of the stupid toys LOL ,
Maybe I am over thinking it but basically gross rent now is 7K. Out is state properties so expenses are:

10% property management
15% cap ex (lower cost of living area)
10% repairs / maintenance
5% vacancy

40% expenses / 60% profit

YES you are overthinking, just do the math, if you want 15k net a month well, start buying, LOL,
Good luck,
1 Reply
Sam Booth
OP
Member since 2022 · 241 posts · 62 votes
2y
Thanks everyone for replies!
It sounds like I am over thinking it possibly but what I will do is just use a spreadsheet with Capex items on it, year it needs to be done and then maybe account for 3% inflation a year to get a relatively close cost of cap ex items.

Appreciate the input!
0 Reply
James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
2y
Quote from @Sam Booth:

Thanks everyone for replies!
It sounds like I am over thinking it possibly but what I will do is just use a spreadsheet with Capex items on it, year it needs to be done and then maybe account for 3% inflation a year to get a relatively close cost of cap ex items.

Appreciate the input!

Stop using guesstimates.
You have the start of a cap-x schedule but that's it, a start.
You list out all components. Than have a line for rated life expectancy. Next, current age. Next, todays cost of replacement. Next, annual inflation rate.
I like to have inflation rate on a line item but it's auto filled from top of sheet where I input my annual inflation rate. Reason being, I like to manually adjust a few things, items where i see more or less LT inflation.
Now, all the auto calculations.
This should kick out a total for the field of expected end of life date, and replacement dollar at end of life.
Now, you can simply reverse engineer that #, or better yet have auto-calc that does that. Takes that expected of of life replacement total, and divides it by the time left. Because different things have different dates.
Now you get an actual accurate allocation for cap-x.
AND to boot, you have a schedule of what-when. So say something goes out, a water heater, you can look it up and see it's gone out 2yrs early. maybe look into that, see if have a reason why. Maybe find out you didn't replace cathodes, and the water is harder there. So now you know it may be worth it to consider a better grade cathode, or water filter/ treatment.
Maintenance and cap-x does not, in large part, have to be a mystery game of wait n see what happens. Most of it CAN be put on a schedule, weighed and measured, so mathematical decisions can be made.
Now, does it take time to make this excel program, dang right. But, once it's made it's made, and your going to get repetitive use out of it, use that will help identify when something that shouldn't happen happened, or when things went better than planned.
Wouldn't you like to know what brand and model of washer lasted 1.5x it's rated life span? I would, that's a unit I'd want again. Or, if it went to hell in half it's rated lifespan just because it was junk and not worth the $.
This will also help in doing better informed buy's. Heck, I run it and print it out for a seller and include it with my PA as justification to my #'s that I am not just low-balling em but here is the facts, I'm gonna have this n that price coming up.
STOP guesstimating cap-x, put in the few hours to KNOW vs guesstimate. Best few hours spent.
1 Reply
Sam Booth
OP
Member since 2022 · 241 posts · 62 votes
2y
Quote from @James Hamling:

Quote from @Sam Booth:

Thanks everyone for replies!
It sounds like I am over thinking it possibly but what I will do is just use a spreadsheet with Capex items on it, year it needs to be done and then maybe account for 3% inflation a year to get a relatively close cost of cap ex items.

Appreciate the input!

Stop using guesstimates.
You have the start of a cap-x schedule but that's it, a start.
You list out all components. Than have a line for rated life expectancy. Next, current age. Next, todays cost of replacement. Next, annual inflation rate.
I like to have inflation rate on a line item but it's auto filled from top of sheet where I input my annual inflation rate. Reason being, I like to manually adjust a few things, items where i see more or less LT inflation.
Now, all the auto calculations.
This should kick out a total for the field of expected end of life date, and replacement dollar at end of life.
Now, you can simply reverse engineer that #, or better yet have auto-calc that does that. Takes that expected of of life replacement total, and divides it by the time left. Because different things have different dates.
Now you get an actual accurate allocation for cap-x.
AND to boot, you have a schedule of what-when. So say something goes out, a water heater, you can look it up and see it's gone out 2yrs early. maybe look into that, see if have a reason why. Maybe find out you didn't replace cathodes, and the water is harder there. So now you know it may be worth it to consider a better grade cathode, or water filter/ treatment.
Maintenance and cap-x does not, in large part, have to be a mystery game of wait n see what happens. Most of it CAN be put on a schedule, weighed and measured, so mathematical decisions can be made.
Now, does it take time to make this excel program, dang right. But, once it's made it's made, and your going to get repetitive use out of it, use that will help identify when something that shouldn't happen happened, or when things went better than planned.
Wouldn't you like to know what brand and model of washer lasted 1.5x it's rated life span? I would, that's a unit I'd want again. Or, if it went to hell in half it's rated lifespan just because it was junk and not worth the $.
This will also help in doing better informed buy's. Heck, I run it and print it out for a seller and include it with my PA as justification to my #'s that I am not just low-balling em but here is the facts, I'm gonna have this n that price coming up.
STOP guesstimating cap-x, put in the few hours to KNOW vs guesstimate. Best few hours spent.
Only thing I am guessing on is inflation. I know Today's price for roofs and such and have calculated in this area a percentage of rent per month to be set aside for that. Do you have a spreadsheet that might be useful for this?
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