General Landlording & Rental Properties

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Shiloh Lundahl
  • Rental Property Investor
  • Gilbert, AZ
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Realistically most investors won’t replace all income W/ cashflow

Shiloh Lundahl
  • Rental Property Investor
  • Gilbert, AZ
Posted Jan 16 2022, 15:25

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.

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Robin Searle
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Robin Searle
  • Real Estate Agent
  • Colorado Springs, CO
Replied Jan 20 2022, 11:07

@Shiloh Lundahl I totally agree and also agree with those saying STRs are a more lucrative way to go. I have three in Colorado Springs and one long term rental and soon will do medium term part of the year on my primary. The STRs did very well last year but with some big expenses not $10000 a month net by any means. I think once I’m doing the medium term plus the STRs plus the one ltr I may get close

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Jay Hinrichs#3 Tax Liens, Notes, Paper, and Cash Flow Discussions Contributor
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Jay Hinrichs#3 Tax Liens, Notes, Paper, and Cash Flow Discussions Contributor
  • Real Estate Broker
  • Lake Oswego OR Summerlin, NV
Replied Jan 20 2022, 11:40
Originally posted by @Andrew Syrios:
Cash flow is oversold when it comes to the benefits of real estate. It's nice and EVENTUALLY you can replace your income with it. But cash flow is really the cherry on top, the thing that makes it so you're doing a Ponzi scheme with yourself. $100 or $200/month here and there is nice but it will take a while to replace an income especially when the roof replacement or HVAC replacement comes around. The other advantages (appreciation, tax write off, principal paydown, etc.) are, overall, more important.

kind of blasphemy on BP with the CASH flow is everything and appreciation is gambling crowd  LOL.  I totally 100% agree with you.

Cash flow allows you to hopefully stay neutral and pay down debt while your props go up and at the very least someone is paying for your properties.. Of course there are plenty of do it yourself landlords in every market that their lively hood is generated by owning rentals but it is their JOB they just replace one for another. 

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Marco Anemone
  • Bolingbrook Illinois
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Marco Anemone
  • Bolingbrook Illinois
Replied Jan 20 2022, 16:55

@Joe Villeneuve, in an earlier post you mentioned something along the lines of "hos is it a good deal to invest $90k and get 3k a month. It'll take 30 years to get back your money" I think you meant 30 months - 2.5 years.

Sorry, I can't seem to quote your post from my phone.

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Jeff He
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Jeff He
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Replied Jan 20 2022, 18:15

@Shiloh Lundahl

Great post! Thanks for sharing.

If you make enough cash flow to replace your W2 income, you're probably overallocated to real estate anyways. Should rebalance your portfolio into more equities and other alternative assets.

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Joe Villeneuve#1 Innovative Strategies Contributor
  • Plymouth, MI
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Joe Villeneuve#1 Innovative Strategies Contributor
  • Plymouth, MI
Replied Jan 20 2022, 18:31
Originally posted by @Marco Anemone:

@Joe Villeneuve, in an earlier post you mentioned something along the lines of "hos is it a good deal to invest $90k and get 3k a month. It'll take 30 years to get back your money" I think you meant 30 months - 2.5 years.

Sorry, I can't seem to quote your post from my phone.

 OK???

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Marco Anemone
  • Bolingbrook Illinois
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Marco Anemone
  • Bolingbrook Illinois
Replied Jan 20 2022, 19:20
Originally posted by @Joe Villeneuve:
Originally posted by @Marco Anemone:

@Joe Villeneuve, in an earlier post you mentioned something along the lines of "hos is it a good deal to invest $90k and get 3k a month. It'll take 30 years to get back your money" I think you meant 30 months - 2.5 years.

Sorry, I can't seem to quote your post from my phone.

 OK???

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?

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Sam Yin
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Sam Yin
  • Los Angeles, CA
Replied Jan 20 2022, 20:32

@Marco Anemone not sure if that was a misprint... but 3k/m equals 36k/yr, which will recover the 90k in less than 3 yrs.

In any case, misprint or not, I think a philosophy that some subscribe to is exploiting the equity. There is more than one way to skin a cat. But as along as the end result gets you to where you want to go, it's right for you.

For example, I spent roughly 200K on 2 triplexes in summer of 2020. Of that 200k, 50k was earned income and 150k was equity extracted from another property. This yields about 1k/m from each triplex.

But that's not the play. It's now Jan 2022, I'm in escrow on those 2 triplexes, hoping to close in a few weeks. The total equity to be exhanged is a little over 300k. My up leg is either 10 or 15 unit that will suck up all those funds. The new cash flow will be 30k/y or 40k/y. There is enough upside to double the cashflow in 12 months.

But that's not the only play. The forced appreciation on commerical residential is where the growth potential is.

And then repeat, and repeat, etc... if you are inclined. Or stop at the cash flow number you want.

Just my .02. It's my current strategy. I use to be a Bush and hold forever, but I realized that would take too long to achieve the FI or RE timeline I was looking for.

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Joe Villeneuve#1 Innovative Strategies Contributor
  • Plymouth, MI
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Joe Villeneuve#1 Innovative Strategies Contributor
  • Plymouth, MI
Replied Jan 20 2022, 21:22
Originally posted by @Marco Anemone:
Originally posted by @Joe Villeneuve:
Originally posted by @Marco Anemone:

@Joe Villeneuve, in an earlier post you mentioned something along the lines of "hos is it a good deal to invest $90k and get 3k a month. It'll take 30 years to get back your money" I think you meant 30 months - 2.5 years.

Sorry, I can't seem to quote your post from my phone.

 OK???

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?

Unless I can see the actual, full, quote, I can't comment on a small part of it taken out of context, that may or may not be accurate.  Sorry.

I will say that based on the long quote below, I would assume that the numbers were $90k in cash in up front, and $3k/year...not month, because that does work out to 30 years to cash cost recovery..

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Replied Jan 20 2022, 22:06

What you have indicated is typically the case.  However I have developed a unique and 6 year proven business model that mitigates risk and significantly maximizes rent roll by targeting an underserved motivated market that pays a 40% over market rates. 

I am located in Ottawa, Ontario, Canada where it is incredibly difficult to evict a tenant even if there is no lease. In Ontario one can only evict with a court order...statistically it takes 3 appearances infront of a judge to get an eviction and the back log of eviction applications has cause a 14 month waiting period to get a hearing.. 

My model makes my properties legally exempt from the Residential Tenancy Act of Ontario. Therefore I can remove problem, non paying lodgers within 24 hours with Police assistance if necessary. 

My first property is valued at $1M.  It Generates $11k/month. Total operating expenses is $2800/month. Thus total cash flow is $8200/month. (I personally property manage this property)

2nd property valued at $1.25M Generates $12,731/month.  Operating expenses including onsite superintendent(who had 0.1% ownership) = $3000/month.. 

Thus Total cash flow = $9731

So from just 2 properties I have $17,931 of cash flow. 

I have no employees.. superintendent is paid with a rent discount. (Accounted for above)

90% of the Lodgers are on longterm lodging contracts. Short term rental occurs in between long term fills. 

I am now refinancing for my third property.. again, other than an onsite superintendent who will have a 0.1% ownership, no additional employees will be required.. my model is structured so that each additional property adds $4500- $5500/month to my net income. 

The goal is to eventially flip the portfolio into a Real Estate Investment Trust. 

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Bill Crider
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Bill Crider
  • Lender
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Replied Jan 21 2022, 09:39

Most investors won't replace all income with cashflow because they:

1. Don't hold their property long enough

2. Don't buy right

3. Don't manage right

4. Listen to people who convince them to sell for shorter term gains.

5. Don't buy enough properties.

But that doesn't mean the strategy is flawed, it just means most people's execution is flawed, usually because their attention span is too short.

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Replied Jan 21 2022, 11:23
Originally posted by @Blaise P.:

@David Abbate

Many MDs make a lot more that $10k CF in real estate.

 Right, but we weren't talking about that at all. MD's will always have to show up and work for the income, where as good Real Estate is at least semi passive if you've got good management.

My point was that the opportunity to become a Doctor and get paid for it does not hinge so much market conditions- where as being able to buy property well enough that it cash flows enough to quit your job, very much does. 

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Blaise P.
  • pennsylvania
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Blaise P.
  • pennsylvania
Replied Jan 21 2022, 13:24

@David Abbate

I agree that an MD has to work. In fact, everyone with a job has to show up and work. The thread is about replacing your salary with passive cash flows. If I understand correctly, you believe a person earning $10,000/mo can achieve this goal, but an MD cannot. I disagree. There is no magic cut off point where one can no longer replace income with cash flows. It's not difficult to find NNN properties that net well over $100,000. Why couldn't an MD buy a few of those and retire.

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Replied Jan 21 2022, 13:57
Originally posted by @Blaise P.:

@David Abbate

I agree that an MD has to work. In fact, everyone with a job has to show up and work. The thread is about replacing your salary with passive cash flows. If I understand correctly, you believe a person earning $10,000/mo can achieve this goal, but an MD cannot. I disagree. There is no magic cut off point where one can no longer replace income with cash flows. It's not difficult to find NNN properties that net well over $100,000. Why couldn't an MD buy a few of those and retire.

I don't know why you are putting words in my mouth and confusing a simple and clear issue.

As far as the NNN properties generating wonderful returns being not difficult to find, I don't know anything about that but find it hard to believe. Yield is just sitting there for the picking, while SFH and small multifamily is about as dry as dust?

 I'm also real aware of the turn around trap on things like retail, specifically, and a 7 cap doesn't help me much if my tenant doesn't renew in 7 years and I end up with an outrageous retrofit.

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Blaise P.
  • pennsylvania
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Blaise P.
  • pennsylvania
Replied Jan 21 2022, 14:41

@David Abbate

“MD’s will always have to show up and work for their income”. The same is true for a janitor, isn’t it? What are you saying?

An MD’s “salary does not hinge on market swings”. Isn’t that true for most jobs?

The only way I can read you comments is that MD’s for some reason cannot match their income with passive cash flows from real estate investments. I disagree.

This thread is about cash flow matching one's salary, not cap rates, DSCR's, ROI's or anything. Just cash flow.

I think most people believe cap rates on high quality commercial properties tend to be lower than residential properties because they are considered lower risk investments. Thus, I disagree with you on this point, as well.

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Syed H.
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Syed H.
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Replied Jan 21 2022, 17:03

$10k/month? I'm not even a big spender and thats just too little money lol. 

Realistically most investors won't replace their income because of 1 of 3 reasons:

  • They don't have enough income to use to invest 
  • They don't have enough time to use to invest
  • They mismanage risk

RE requires money and/or time. It's just a fact. No way around it. 

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Curtis Mears
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Curtis Mears
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Replied Jan 21 2022, 18:05

@Shiloh Lundahl

If you are paying a bank or private loan, then yes, you would need 50 plus doors. If you can pay off properties, then you could do it with about 10 properties.

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Brian G.
  • Rental Property Investor
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Brian G.
  • Rental Property Investor
  • Los Angeles, CA
Replied Jan 21 2022, 21:45

@Jorge Hernandez yes

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Jabbar Adesada
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Jabbar Adesada
  • Rental Property Investor
  • Beaufort, SC
Replied Jan 22 2022, 04:15

@Mike Hern

Hey Mike you should also add 1-4 STRs

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Mike Hern#4 Buying & Selling Real Estate Discussion Contributor
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Mike Hern#4 Buying & Selling Real Estate Discussion Contributor
  • Investor
Replied Jan 22 2022, 08:54
Originally posted by @Jabbar Adesada:

@Mike Hern

Hey Mike you should also add 1-4 STRs

I like STRs but they require a lot of money up front to furnish in addition to acquiring the property. And using VRBO or AIRBnb takes up a big chunk of the cash flow. And if you have a property manager that can take as much as 20%. So, for it to be passive income, a lot of things have to fall into place.

Still it's a great choice for the right locations.

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Peter Tverdov
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Peter Tverdov
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Replied Jan 22 2022, 09:06

It can be done and you don't need to be leveraged to your eye balls (BRRRR method).

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Mike Hern#4 Buying & Selling Real Estate Discussion Contributor
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Mike Hern#4 Buying & Selling Real Estate Discussion Contributor
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Replied Jan 22 2022, 11:14
Originally posted by @Jabbar Adesada:

@Mike Hern

Hey Mike you should also add 1-4 STRs



I just heard that the military cut off all communication between personnel & families. Is that correct?

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John Bierly
  • Rental Property Investor
  • Bainbridge Island, WA
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John Bierly
  • Rental Property Investor
  • Bainbridge Island, WA
Replied Jan 22 2022, 14:21

I passed that mark recently; not sure how much it means - it obviously goes further in most areas in the Midwest or South than it does on the coasts.  I invested about 110k in two duplexes outside of Seattle in 2014 and now have 24 units in two complexes (so about $400/mo per unit cash flow).  However my cash flow has been much less than that until recently, here is why:

1. Realize you may not get cash flow for some time as many properties are for sale because owners have deferred CAPEX and would rather cash out than take it on. Unfortunately this bill will fall on you and it will usually take a couple years of cash flow to work through this. Tenants won't pay more just because the water heater is new or because you replaced Federal Pacific electrical panels. Not will you be able to avoid doing these fixes as lenders are getting more restrictive and requiring work identified by inspectors to be done within specified time periods and paid out of escrow accounts.

2. Once you have that behind you, it's time to start improving units to get better rents.  My vote goes towards LVP flooring (except in bedrooms), stainless appliances, and an all white interior paint job.  Replacing kitchen cabinets (as long as they are a decent wood) and countertops is much more expensive and often outside of the skillset of a handyman.  This "near new" look typically has meant a $75 to $100/mo improvement in rents but again can eat up a couple more years cash flow to implement across all units as they turn.

3. At that point you should be able to cash flow with a stabilized property and can look for I/O financing (typically Freddie Mac if you want a longer I/O period). This is going to significantly improve your CF and you should be able to meet the more restrictive LTV hurdles that go with these loans (65% or so) due to appreciation from increased rents.

Brandon, I suppose this is similar to your "with time" approach but with trying to shorten it a bit by being willing to reinvest cash flow for the first 4-5 years.  All of which assumes you don't need it to live on during that period...

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    Bruce Runn
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    Bruce Runn
    • Investor
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    Replied Jan 22 2022, 21:12

    @Shiloh Lundahl

    If someone is only clearing $200/door a month, it's not difficult to identify the problem with your premise.  

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    Adam Wigdorski
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    Adam Wigdorski
    • Rental Property Investor
    • Buffalo, NY
    Replied Jan 23 2022, 21:15

    @Shiloh Lundahl

    I get your point as most follow everything they hear on these podcast to the t.

    The east answer to make yourself the outlier is to don’t accept 200 a door cashflow. I myself Hoover around 500 a door cashflow or I won’t buy the property. Even with owning 32 doors i still stick to this model. To much work and to tight of margins to buy an investment property and only cashflow 200-400 bucks. With those margins you’ll never recoup your down payment or really build up your rainy day fund for when your going to need that new roof.

    Just my opinion