Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
I don’t mean to burst peoples’ bubbles here, but in my opinion, most investors on BiggerPockets won’t get to a place where they can replace all their monthly income with the cash flow of their properties. Some will. But I see that as more of the exception than the rule. Let’s say that you would like $10,000 a month in cash flow in order to quit your job. How many properties on average do you think it takes to get to $10,000 a month in mostly passive income? Let’s say on average you make $200 a door after accounting for all expenses and savings for cap ex, turn over, and vacancy. At $200 a door, it would take 50 doors to get to $10,000 a month and that is if you manage the properties yourself. Some people have ownership of 50 doors on their own and manage everything themselves but then the income ceases to be passive and becomes active. But most people have partners or employees when they get to that size and then it takes a lot more doors to get up to $10,000 a month when you need to pay other people to help you with the work it takes to acquire and manage so many units
The reason I am writing this is not to make anyone feel bad, or dash your dreams. Rather it is to give people more of a realistic framework of what making $10,000 a month in passive income really looks like. That way people can be more realistic with their goals. I hear a lot of people say that they want to buy rentals and then retire. But I don’t think they really know how much work and the infrastructure that it takes to own and manage the number of units it takes to get to $10,000 a month.
I’d love to hear the opinions and experiences of others on this topic. Also, feel free to share if you think I am wrong or the work it took you and the money it took to get $10,000 a month in passive income. I’d love to hear your thoughts and opinions.
The way these forums push real estate investing, few people here will ever get to the point they can truly retire off the rental income. Look at how many people push the approach that the second you get $1 in equity in a property, you take it out to buy another property - repeat over and over. They boast about having 100 units that each bring in a small amount of free cash every month. What they never talk about is that their job is to service those 100 units. 100 units = 100 times the potential problems + little equity if they ever want to cash out.
I'm taking the approach that I want to have a small number of units fully paid off by the time I retire. With no mortgage to pay every month, I'll stick 80% of the rent into my pocket.
I agree it's not as simple as some suggest. I'm interested to hear what others share. This is interesting timing because I just thought the other day that I should check in and see how you're doing.
The way these forums push real estate investing, few people here will ever get to the point they can truly retire off the rental income. Look at how many people push the approach that the second you get $1 in equity in a property, you take it out to buy another property - repeat over and over. They boast about having 100 units that each bring in a small amount of free cash every month. What they never talk about is that their job is to service those 100 units. 100 units = 100 times the potential problems + little equity if they ever want to cash out.
I'm taking the approach that I want to have a small number of units fully paid off by the time I retire. With no mortgage to pay every month, I'll stick 80% of the rent into my pocket.
Great post. This is something that has been on my mind for a while now. I believe you are correct in that there is a minority of the BP community that will reach $10k. While I know there are numerous ways to achieve this, for the majority, I see them achieving it in one of two ways: * Building Systems/A Team/A Business - This would be the faster of two ways here to get to $10k semi passively. Building an operation around acquiring real estate will move you significantly faster but may be move active. With many of BP members working W2 careers, this may be a challenge for many due to time restrictions and/or lack of this level of commitment. * With Time - The other way I can see many getting to the point of truly achieving $10k passively is with time. While this may be the slower route, its ok because ultimately you will get there. Someone steadily investing over the course of 20 years (random number) can definitely develop a system of acquiring properties and scaling up little by little. By giving these properties off to property management, I can definitely see $10k a month passively being very possible. Going this route will take lots persistence and delayed gratification, which many people lack.
This is just my 2 cents from the limited experience I have so far so take it with a grain of salt.
I am very curious to see what others' responses are to your post.
It is possible to be paid full-time from real estate, but it’s not usually from passive rental properties only. There’s usually a flip in the mix somewhere as well as this is not passive. Whereas I have been self-employed most of my life I cannot truly relate to replacing my W-2 job, but I can say being paid full-time for real estate was not simply collecting a rental check. It’s like a lot of investors have to have some sort of hustle/job in order to support their rental habit.
My wife and I worked on getting out of bad debt early in our marriage. W have now been married for 11 years, and have no personal debt beside our primary mortgage. I own a construction company and sometimes need to go with less pay during slow times. we have intentionally got our monthly bills below 4k/month. We are just looking to how can we move our way out of being the primary operators of the construction company and be more passive in our investment companies. we have 2 flips under our belts and are working on our first BRRR. Our expectation is not to be fully passive but to be more intentional with the time we do work. We only need a handful of houses to accomplish that.
I think for most people Real Estate isn't about not working any longer but have more flexibility in the work they do or have more income to do the things they have wanted to do. The happiest people I know are working still but on their terms.
@Shiloh Lundahl reaching FI via LTRs definitely seems like a long and slow slog which is partly why I invest currently in STRs. It’s not a passive venture but in my opinion one can more quickly achieve the $10k/month mark and with a lot less total effort.
This was one of the primary reasons I didn't do standard SFH LTR. It would take too long. I focus on STR and I expect to hit 10k a month this year. 10,000 a month is more like 3-4 properties, way more doable.
I don't mean to tell anybody anything; y'all know as much or more than me. There is a lot more to this than just CF. I made a lot more money through appreciation than I ever will from CF-ever. We also make adjustments-or should make adjustments as we go through life's phases. My wife and I are now both retired. We own rentals that we can manage easily ourselves and provide us with plenty of retirement income. We are both REI professionals so our taxes are pretty reasonable too.
Our goal was to never have to un-retire that means no part time jobs at Walmart or elsewhere and we have more than achieved that goal. My wife takes trips anytime and anywhere she wants. I don't enjoy overseas travel anymore so I stay home with the dog and go fishing.
What counts is being able to do the things you want to do and REI has done that in spades. So ya, CF is a good thing but appreciation-forced and market has done so much more.
IF you're buying properties that only net $200 a month while self managing you're buying the wrong properties IMO. I net 3 times that on all my SFR's that I self managing. So to answer your question of how long it would take for someone with a better strategy to net $10K a month self managing? Maybe 2 or 3 years if they hustle and have some initial investment to BRRR. Seems like you have ruled the idea out but for a lot of people its doable if they buy a couple BRRR's a year. 17 properties at $600 is $10,200. Should be doable in 5-7 years through the slower route. Beside imagine how much more you'll be making once some of these units get re rented while the expenses largely stay flat. In 20 years rent could very well be doable what it is today even at a moderate 3.25% a year increase while the mortgage stays the same. That investor that retires in their 50's after holding for 20 years might only need 10 properties to make the same money. Once they are paid off you'd be even further along. Its definitely a long game but I see no reason why someone who's able to BRRR a few houses a year can't get there.
IF you're buying properties that only net $200 a month while self managing you're buying the wrong properties IMO. I net 3 times that on all my SFR's that I self managing. So to answer your question of how long it would take for someone with a better strategy to net $10K a month self managing? Maybe 2 or 3 years if they hustle and have some initial investment to BRRR. Seems like you have ruled the idea out but for a lot of people its doable if they buy a couple BRRR's a year. 17 properties at $600 is $10,200. Should be doable in 5-7 years through the slower route. Beside imagine how much more you'll be making once some of these units get re rented while the expenses largely stay flat. In 20 years rent could very well be doable what it is today even at a moderate 3.25% a year increase while the mortgage stays the same. That investor that retires in their 50's after holding for 20 years might only need 10 properties to make the same money. Once they are paid off you'd be even further along. Its definitely a long game but I see no reason why someone who's able to BRRR a few houses a year can't get there.
This is what I meant above when I listed the 3 reasons why most investors won't reach CF/Income replacement level, and the things they could/should know/do that would allow them to reach it. Its starts with REI focusing on CF as if it's a stand alone solution...it's not. Neither is focusing on equity alone. The two of them together is better but they are means to an end, not the end.
Unfortunately, too many REI don't understand what cost is. They introduce interest rates, ROI in percentages (telling them nothing of value), and equity build up...but within the same property instead of total equity. $100k in equity in one property is equal to $100k in equity spread out evenly in 5 properties. The difference is what the true value is in both cases.
Similarly, CF as a percentage of $$$ invested, or a total CF in a property also tells us nothing of value. Why? First think about why we want CF...to replace our monthly income...to cover our monthly bills. $200, $400, $600 per month are just numbers without any context within our overall plan...to achieve a replacement source for out income. Same, even worse, is when we use percentages as our judge of a good deal. Cash flow should first pay us back for the cash we put into the deal the CF comes from. Number one judge of a good deal should be how long it takes to recover that cash in. If a deal that makes $6000/yr costs $60k in DP, that means it takes 10 years to recover the DP. If a $5k CF/yr on a $20k DP only takes 4 years to recover it, which deal is better?
I've read on this forum how there are REI that love deals that cost them $90k in cash (DP, CC, rehab, etc..., and make $3k/month as a good deal. How is that possible if it takes 30 years to recover their cash?
There are only 2 ways I know of that someone can retire early in life with $10,000 a month passive income from real estate starting from scratch, not having a large amount of money to start with.
1. Be the lead in a syndication of a 200 unit or more apartment building (there is enough momentum and volume to have a property mangement team.) McElroy, Kiyosaki, & my partner and a few others do this type of investing
2. Buying "off market" using Subject To and then selling as a Lease Option, getting 10% down, with generally $700 to $1,000 a month positive cash flow, which is what I do. I've written about it & shown proof elsewhere on BP. If you say it can't be done "that's YOUR story" and for you, you are correct.
You are only limited by what your mind can conceive.
But, I agree with the original poster's comments, most won't ever take the time or do the work to make it happen.
My goal was $4,000/month cash flow and I’ve achieved a little more than that with 9 units in 20 years and I’m still active. In combination with a work pension I’ll receive in 5 years, that’s more than enough for me. I’d assume if my goal was 10K passive from rental income I’d have a problem. But most people “believe” they need 10k but after accounting for realistic wants and needs they really don’t.
It is possible to be paid full-time from real estate, but it’s not usually from passive rental properties only. There’s usually a flip in the mix somewhere as well as this is not passive. Whereas I have been self-employed most of my life I cannot truly relate to replacing my W-2 job, but I can say being paid full-time for real estate was not simply collecting a rental check. It’s like a lot of investors have to have some sort of hustle/job in order to support their rental habit.
I agree that it is doubtful that someone can do it all from just rentals...and still be passive. It can be done completely using RE though. Rentals are a large part, but SF isn't the part of it that is rentals. Like you said, there would be so many needed you would have to either self manage (I like my family and friends, so this is out), or hire someone (added cost subtracting from rental income which increases the # of rentals needed).
The solution is the timing of multiple sources of RE income. Some (specific types) of RE cash flow, the BRRRR method (I don't like this method in the beginning or in the middle, but at the end it's a goldmine).
Real estate is not much different than any other business. The people who are successful at it are likely to be successful at other business if they had chosen to do those, because they have the entrepreneur spirit and the grit and smarts. On the other hand, people who don’t have the skills or work ethics to thrive at a W-2 job are not likely to be successful at real estate investing either. There is no magic in real estate investing, it takes the same kind of discipline, hardwork, and intelligence as any other business.
@Nathan Gesner Hey buddy. I am doing really well. This past year I bought a cabin in the woods in Lakeside, Arizona and last Friday, I just closed on a beautiful property in Costa Rica. I own both of these with other investors and we are listing them as short-term rentals, but they have been on my vision board for years and now I have reached those goals. So I am super excited about those things. Also, we just added an awesome pool in the back yard (I made a video about the pool and posted it on my YouTube channel) and it is super fun. So all-in-all I have been doing really well. How have you been doing?
@Greg M. I have seen a lot of people move from the many units approach to a manageable amount such as 10 - 15 that are fully paid off and then they just enjoy the cash flow without the heavy mortgage. Thanks for you share.
@Brandon Rush I agree with you that the majority of people who reach the 10k amount that didn't start out with a ton of money at the beginning will likely either need to build a system and a team like we have, or they will need the patience and persistence to do it over time.
Not sure where or why you went with your response. For what it's worth I've already replaced my monthly expenses with rental income. A professional REI should know how to BRRR as I said in my post. If they are expecting to be able to just buy turn keys and rent them as is they will obviously see lower returns for less work. I leave usually never leave my initial equity in my BRRR's after I refinance. At most maybe 5% so on a typical $150-$200K deal we are talking about less than $10,000. If I'm returning $7,200 a year on that rental and left $10K equity in it that's a pretty amazing return. I never mentioned appreciation because it's never guaranteed and repayment of loan isn't money you have access to so it shouldn't be thought of much. But of course they benefit the scenario. My SFR's have appreciated close to 30% over the past two years! That's more than my monthly cash flow. I like cash flow it helps keep businesses alive when times are rough. I'm a lot more comfortable knowing half my tenants could stop paying and I'd be fine. Can't do that with $200 a month in cash flow. And before you say I don't consider my time I spend less than an hour a month per rental to net $600-$700 a month. All I'm hearing from you is excuses. I did this in 3 years it wasn't easy but I think most people are capable of similar results.
And when the economic downturn hits there is always a big shakeout--big losses.
One issue is a lot of the sales hype to lasso newbee money for training asks the question(s) wouldn't (a negative) you like to build Generation Wealth? Wouldn't (a negative) you like to quit your job? (Who would say no to that).
This business involves work like any other--and some Mr. Howell time too.
And like a lot of other things in life--the more Dough you've got to start with the more Go you will have.
I think the operative word here is “won’t”. I appreciate the level of realism you injected here, but I think it’s fairly obvious that most people won’t.
But I also don't believe that most people come to BP because "most people hit their REI goals," I believe it's because that they believe they CAN hit their REI goals and BP helps with that. As an example, I want all of you guys and gals to hit your goals and dreams, but in the big picture it doesn't affect me one way or another if you do or not. I think a lot of people are similar.
Also I think it’s like the gym, you know it’s possible to get in shape because you see others in shape. But that doesn’t mean that a singular person WILL get in shape.
We don't need to 'replace all income'. Your expenses will drop significantly when you no longer work. Replace expenses.
I went with the replace all expenses approach vs replace all income and reached it 20 years ago this year. Skinny FI they would call it today.
The biggest way I reached it quickly was to pare down the lifestyle initially and educate myself to perform high dollar tasks myself while not paying a bunch of ordinary income or self-employment taxes.
So many slog off to commute and punch in yet think nothing of paying 'professionals' thousands of dollars to do things they could do themselves.
To reach the 'golden ticket' LOL of $10k per month we need off-market deals early. While others were working, I was shaking bushes in my target neighborhoods to acquire and expand. Most are so busy they just get an agent and an MLS auto-feed. Crappy deals and a highly paid agent.
You don't need to replace your income. Start by replacing your expenses net of work costs (clothes, lunches, rushed dinners, daycare, gas/vehicle w&t, travel, higher taxes, etc). The magic number per month will come as you expand.
Just to give a frame of reference to anyone who would like to get to 10k a month in passive income, let me share a little about my journey to 10k a month so that you may be able to see at least what goes in to achieving that milestone.
I started off with a net worth of around 20k in 2010. I bought my first investment property that year for market value. Because the market was depressed at the time, I experienced appreciation for my rental property and my primary home and, along with saving and paying off debt, my net worth increased to around 300k by 2015. My cash flow was only around $100 - $200 at that time with that one rental. Then I purchased the commercial building that I operate my therapy practice out of. I was able to get a bank loan and a private money loan that helped me get that building. My cash flow then went up to around $1500 a month. Then I started flipping some properties with a friend of mine in 2015 and 2016. We earned about 17k the first year and 95k each the second year. Then, in 2017 we decided to buy and hold real estate and do the lease option model on the disposition side. We were able to increase our portfolio to 17 properties in 2017 but that was a result of us being very active in buying properties under market value using the BRRRR Method and then adding lease option to them creating what I call the BRRRLO Model.
IN 2018 we bought more properties and also purchased a mobile home park. They way we were able to continue to buy properties is because we used har money loans and private money loans and we built an investor network that helped us create a system of finding properties, funding the initial purchase, fixing the property, finding long term financing, finding the tenant buyers and then managing the properties. We had to bring on assistants to help us build and manage our real estate companies.
We continued to grow in 2019 the same way until we got to about 90 units. Then in 2020 we adding an additional 100 units and we needed to bring on a couple more assistants to help us manage our properties.
For the first 4 years, WE DIDN'T TAKE ANY CASH FLOW! Then in March of 2021 my business partner and I started taking $5000 a month each in cash flow checks. And we weren't able to do that every month. So with 200 units altogether, we still struggle to be at the level where we take 10k a month each in cash flow. Part of that reason is because he roll our cash flow into accumulating more properties and in fixing up those properties.
As of right now, this is what our portfolio looks like: We own 213 units. This includes about 100 units in mobile home parks, 25 units in multifamily, a 12 unit commercial building, 74 single family homes, and 2 short-term rentals. Out of the 213 units, we only have 7 that are rent ready that are vacant, but we have 32 units that are in the process of being rehabbed, and we have 6 empty lots where we need to bring in some mobile home units. So if we were to finish the 32 units and get them rented out and fill the 6 empty spaces, then we would defiantly bring in a higher amount of cash flow especially considering that we are paying hard money fees on most of those units that are in process. So our growth kills a lot of our cash flow right now, but if we were to finish our current projects and stop buying new properties, then we would be at more than 10k a month for each partner.
During this whole process of growth, I have continued to support myself through my private therapy practice as I built my real estate business on the side and hired out a lot of the tasks that could be done by others.
So the point of this whole post is that YES it is possible to create 10k. But NO, it is not something that is easy and it does take time and systems to really get there. And if you are not willing to put forth the time to build those systems and appreciate the work that goes into it, then your real estate investments will be more of a hobby or side hustle rather than replace your income.
