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

3 Reply

246 views

Most Popular Reply

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.

The DIY Landlord Book4.7247 Reviews

Website View Page

11 Reply

See this reply in the discussion

44 Replies

Jump to latestLatest

Sort by

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

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?

Take your pic, how do you want to calculate inflation?
Inflation is not a singular static thing. So myself, personally, I say to use the LONGEST potential expected hold time, for a look-back threshold than take it X2 or X3.
So let's say your like me, and say it's 7yrs. So I look back and I get the median inflation of 7yrs, 14yrs and 21yrs. Than I compare those, and I pick one. If I feel there is any "liar data" in there I throw out that piece.
IMO now that we are on other side of "inflation shock" I throw out the last few years and I like to use preceding 15/20yrs inflation data.
0 Reply
Sam Booth
OP
Member since 2022 · 241 posts · 62 votes
2y
Quote from @James Hamling:

Quote from @Sam Booth:

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?

Take your pic, how do you want to calculate inflation?
Inflation is not a singular static thing. So myself, personally, I say to use the LONGEST potential expected hold time, for a look-back threshold than take it X2 or X3.
So let's say your like me, and say it's 7yrs. So I look back and I get the median inflation of 7yrs, 14yrs and 21yrs. Than I compare those, and I pick one. If I feel there is any "liar data" in there I throw out that piece.
IMO now that we are on other side of "inflation shock" I throw out the last few years and I like to use preceding 15/20yrs inflation data.

I like it! I agree the last few years have been out of whack. That's a good chart for seeing what inflation typically would be 👌
0 Reply
James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
2y
Quote from @Sam Booth:

Quote from @James Hamling:

Quote from @Sam Booth:

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?

Take your pic, how do you want to calculate inflation?
Inflation is not a singular static thing. So myself, personally, I say to use the LONGEST potential expected hold time, for a look-back threshold than take it X2 or X3.
So let's say your like me, and say it's 7yrs. So I look back and I get the median inflation of 7yrs, 14yrs and 21yrs. Than I compare those, and I pick one. If I feel there is any "liar data" in there I throw out that piece.
IMO now that we are on other side of "inflation shock" I throw out the last few years and I like to use preceding 15/20yrs inflation data.

I like it! I agree the last few years have been out of whack. That's a good chart for seeing what inflation typically would be 👌

Myself, I am using 4.25%.
Post '08' was manipulated, post 202 same, so it is hard to get a "good read" but i peg 4.25 as a good basis.
but, that's myself and you'd be best served digging through things to come up with your own because the journey alone will give great knowledge and insights to better understand the "machine" of it all.
0 Reply
Charles Perkins
Member since 2024 · 222 posts · 161 votes
2y
The reality is this is not simply a real estate investment decision it also involves personal lifestyle, life changes, and other factors. A good financial advisor that understands your situation and a good estimate of future cash flows would help greatly.
Calculating cash flows is actually the easier part of this endeavor. Your lifestyle, life events, and other income all come into play. Building reserves for emergencies and creating other contingency arrangements is also a good idea.
When I retired I already knew that I had more than enough to retire because I had already been living more than 10 years exclusively on my rental cash flows and building reserves for retirement.
1 Reply
Sam Booth
OP
Member since 2022 · 241 posts · 62 votes
2y
Quote from @Charles Perkins:

The reality is this is not simply a real estate investment decision it also involves personal lifestyle, life changes, and other factors. A good financial advisor that understands your situation and a good estimate of future cash flows would help greatly.
Calculating cash flows is actually the easier part of this endeavor. Your lifestyle, life events, and other income all come into play. Building reserves for emergencies and creating other contingency arrangements is also a good idea.
When I retired I already knew that I had more than enough to retire because I had already been living more than 10 years exclusively on my rental cash flows and building reserves for retirement.
Agreed. I did use my spreadsheet and a average inflation rate and got a rough cost for cap ex per year to save for now. I can adjust that later if inflation goes up.

I would love to hear how many rentals you ended up with and how you acquired them? I am starting to think for lower priced properties it may make more sense to pay cash for them, rather then get loans. Currently have 5 with mortgages.
0 Reply
Marcus Auerbach
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ 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!
You are still overthinking it a little: no need to incorporate inflation, because it is just a devaluation of the currency, so it effects income and expenses alike.

The fact that you are planning for capex items already puts you ahead of at least 50% of new investors, who just think about PM and repairs.

One major realization is that you need equity growth to pay for capex. So the much more important question is: are you buying in a neighborhood where you have the best possible expectations for future appreciation?
0 Reply
Samuel DioufBusiness Member
Real Estate Agent · Columbus & Cleveland, OH · Member since 2023 · 1k+ posts · 1k+ votes
2y
I wouldn't ask how many doors, but instead, how much cash flow is needed? And this will depend on what type of lifestyle you're looking to have.
[email protected]614-662-1652
Reafco - Samuel Diouf528 Reviews
Website View Page
0 Reply
Sam Booth
OP
Member since 2022 · 241 posts · 62 votes
2y
Quote from @Marcus Auerbach:

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!
You are still overthinking it a little: no need to incorporate inflation, because it is just a devaluation of the currency, so it effects income and expenses alike.

The fact that you are planning for capex items already puts you ahead of at least 50% of new investors, who just think about PM and repairs.

One major realization is that you need equity growth to pay for capex. So the much more important question is: are you buying in a neighborhood where you have the best possible expectations for future appreciation?

It's more of a cash flow Markey. There's been good appreciation lately however.
0 Reply
Sam Booth
OP
Member since 2022 · 241 posts · 62 votes
2y
Quote from @Samuel Diouf:

I wouldn't ask how many doors, but instead, how much cash flow is needed? And this will depend on what type of lifestyle you're looking to have.
Probably need 5 to 10K net cashflow to totally retire. That's after counting cap ex vacancy and everything else
1 Reply
Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
2y
Quote from @Sam Booth:

You are so focused on calculating inflation. Are you also calculating rent increases?

If rent is $1500 today, it could easily be $2250 in 10 years. If you are saving a percentage of rent, your savings will increase along with costs.

Check out File Place: https://www.biggerpockets.com/...
The link is in the footer of every page on the left. This is an area where members can share spreadsheets, forms, documents, pictures, and more. You may find something there.
If you find something you like, leave a review!
The DIY Landlord Book4.7247 Reviews
Website View Page
1 Reply
Frank Perez
Member since 2021 · 2 posts · 0 votes
2y
Quote from @Sam Booth:

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

You can make an assumption based on historical data found Bureau of Labor Statistics. It's an assumption based on the last ten years to give you an idea.
0 Reply
Alecia LovelessPro Member
Member since 2019 · 3k+ posts · 2k+ votes
2y
@Sam Booth An advisor suggested to me I think long and hard about my plan to accelerate the payoff of my mortgages. He told me that he had found it much more useful to save the extra money for repairs, emergencies, or future investment.
Depending on your interest rates you may be able to get a better return on your excess money than by paying off the mortgages.
However only you know your current financial situation to determine this factor.
0 Reply
Tom T.
Investor · Cumming, GA · Member since 2015 · 79 posts · 72 votes
2y
@Sam Booth
What will taxes be in 10 years? ours have doubled in the last 5-6...
I've contemplates selling and collecting what amounts to 10 years of profit at once. Being older makes the math look different.
Its good to have options
0 Reply
Sam Booth
OP
Member since 2022 · 241 posts · 62 votes
2y
Quote from @Alecia Loveless:

@Sam Booth An advisor suggested to me I think long and hard about my plan to accelerate the payoff of my mortgages. He told me that he had found it much more useful to save the extra money for repairs, emergencies, or future investment.
Depending on your interest rates you may be able to get a better return on your excess money than by paying off the mortgages.
However only you know your current financial situation to determine this factor.
I think there's definitely a better return not paying mortgages off, but it's also nice to be free of debt. Hard to choose!
0 Reply
Marcus Auerbach
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
2y
Quote from @Sam Booth:

Quote from @Alecia Loveless:

@Sam Booth An advisor suggested to me I think long and hard about my plan to accelerate the payoff of my mortgages. He told me that he had found it much more useful to save the extra money for repairs, emergencies, or future investment.
Depending on your interest rates you may be able to get a better return on your excess money than by paying off the mortgages.
However only you know your current financial situation to determine this factor.
I think there's definitely a better return not paying mortgages off, but it's also nice to be free of debt. Hard to choose!

You grow wide, before you grow deep.
Your income is a function of your portfolio size in dollars (more important than number of doors!). When you do the math debt-free is not all that attractive. It saves you maybe 5% on maybe half to 3/4 of the property value, which is also a tax write-off. In the end it's a quite low ROI.
And then you have tax considerations. Take a free an clear property, pull half of the equity out (tax free) and invest that for example in the stock market.
5k-10k in monthly income after everything sounds like 20-30 units.
0 Reply
Sam Booth
OP
Member since 2022 · 241 posts · 62 votes
2y
Quote from @Marcus Auerbach:

Quote from @Sam Booth:

Quote from @Alecia Loveless:

@Sam Booth An advisor suggested to me I think long and hard about my plan to accelerate the payoff of my mortgages. He told me that he had found it much more useful to save the extra money for repairs, emergencies, or future investment.
Depending on your interest rates you may be able to get a better return on your excess money than by paying off the mortgages.
However only you know your current financial situation to determine this factor.
I think there's definitely a better return not paying mortgages off, but it's also nice to be free of debt. Hard to choose!

You grow wide, before you grow deep.
Your income is a function of your portfolio size in dollars (more important than number of doors!). When you do the math debt-free is not all that attractive. It saves you maybe 5% on maybe half to 3/4 of the property value, which is also a tax write-off. In the end it's a quite low ROI.
And then you have tax considerations. Take a free an clear property, pull half of the equity out (tax free) and invest that for example in the stock market.
5k-10k in monthly income after everything sounds like 20-30 units.

20 to 30 units making 1000 each or 2000 each? How are you coming up with that?
0 Reply
Marcus Auerbach
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
2y
Quote from @Sam Booth:

Quote from @Marcus Auerbach:

Quote from @Sam Booth:

Quote from @Alecia Loveless:

@Sam Booth An advisor suggested to me I think long and hard about my plan to accelerate the payoff of my mortgages. He told me that he had found it much more useful to save the extra money for repairs, emergencies, or future investment.
Depending on your interest rates you may be able to get a better return on your excess money than by paying off the mortgages.
However only you know your current financial situation to determine this factor.
I think there's definitely a better return not paying mortgages off, but it's also nice to be free of debt. Hard to choose!

You grow wide, before you grow deep.
Your income is a function of your portfolio size in dollars (more important than number of doors!). When you do the math debt-free is not all that attractive. It saves you maybe 5% on maybe half to 3/4 of the property value, which is also a tax write-off. In the end it's a quite low ROI.
And then you have tax considerations. Take a free an clear property, pull half of the equity out (tax free) and invest that for example in the stock market.
5k-10k in monthly income after everything sounds like 20-30 units.

20 to 30 units making 1000 each or 2000 each? How are you coming up with that?

From personal experience. Net-net-net $300 to $500. I assume you are over 50 when you are thinking about retirement, so in 10 years you won't have them fully paid off, maybe some. And then you still have maintenance and repairs, property management, insurance and taxes. For quick math, just cut the rent in half. So if you have a $20,000 rent roll paid off you can count on taking out 10k. And don't forget income tax.
1 Reply
Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
2y
Quote from @Sam Booth:

If they are fully paid off.
The DIY Landlord Book4.7247 Reviews
Website View Page
0 Reply
Basit SiddiqiBusiness Member
Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
2y
Amount of rentals to retire = Cash needed for your lifestyle / cash-flow per property.

Also factor in tax into this equation

Best of luck
[email protected]917-280-8544
Basit Siddiqi CPA4.979 Reviews
View Page
0 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.