I am always thinking of the long term. I only have a few units now but my plan is to buy one unit every year (by doing a cash out Refi from the previous year). The idea is to purchase enough units to suppliment a comfortable income. As such in looking over the number I wanted to get everyone opinions.
20 units @ 700/mo rents (average) $14,000 x .40 (60% to cover taxes, insurance, vacancy, repairs, PM and lease up) = 5,600 gross monthly income.
Then $5,600 x .75 ( 25% tax bracket) = $4,200/mo net income. To cover health care, vehicle, primary home costs, groceries, daily expenses.....etc
These numbers assume all houses are paid in full with no debt services.
Are my numbers to conservative? Not conservative enough? I am missing something?
I would add a CAPEX expense to compensate for large costs like roofs, HVAC, kitchens, baths, flooring, etc... You can nuke numbers until the ind of time, but I think if you add CAPEX to your list its a good foundation and will leave you room to work with.
retire when you get 68.
Or however many you decide to stop at. We are at 60 or so. We also have under contract to buy three more SFR's and 8 - 4 plex s . Let's see, 100 paid off with $50,000 gross monthly. That would let me give away a bunch of money.
Only you know what it takes to retire. Some say expenses go up (travel more, etc)... others say expenses go down (college loans paid off, primary residence and cars paid for, etc)... you'll have to decide what your plans are.
My goal is to retire WELL! I.e. I can do what I want... that doesn't mean buying yachts and bathing in the finest wines or anything silly... but having the money to travel, see the world, enjoy fine things (in moderation), etc...
Beyond that, I want my net worth rising WHILE I'm retired. I don't want to be worried about outliving my money. I can't imagine how miserable it must be to hope you die.
People define retiring sometimes as hey I can just sit around and do nothing.
I have news for everyone. Even when you can do that you get BORED really fast. Everyone needs purpose in life and feeling like they are doing something.
We were waiting to eat at Cracker Barrel for Thanksgiving and walking around the shop. An older lady probably in her late 70's or early 80's started chatting with us. She was a Cracker Barrel worker in the shop and said she retired but became so bored so worked a few times a week to be around people and chat it up.
I think even when I get older ( 39 now ) I will still be doing real estate for a very long time. The difference being I get to pick and choose what business I want etc.
The mind shift from doing something because you want to and not because you have to is very, very powerful. Once you have achieved that success and freedom you still enjoy working and reaching goals.
@Dustan Marshall You've got the system correct. Now just execute it. As far as what you need, that's up to you, but if you refinance your last deal, you'll have at least the same money you started with, so you can keep going at any time.
Based on your system, I wouldn't worry about taking any money out each month to cover problems (cash reserve). Just put aside $1000 from each refi and that should take care of it.
If you are pulling money out of the houses every year are you "truly" growing? Just a thought.
I think the key is to know your goal numbers. Our goal number is 100k and a paid off primary. We both agree that if the rentals can bring in a 100k Net profit and our primary house is paid off we are good to go, or 100k + mortgage for primary! So that is our goal! For us that means 10 house paid off or 23 houses not paid off. That is under current profit margins.
This is definitely a personal decision. I'm shooting for 100 units at about 60/40 equity/leverage making $100 - 200 each in monthly cash flow.
Im shooting for 10 units and a paid off primary. I'm not going to retire just going to relax a lot more.
People tend to look too much at "home many units/doors" do I need, instead of how much money do I need, and how much can I make per unit/door.
I average over $400 per month/house in positive cash flow, and that's with a mortgage on every house. Someone that is averagine $100 a door will need 4 times the number of doors I need to achieve the same cash flow,,,,so the quality of a deal makes a BIG difference
I may be looking for deals a lot longer than someone else, but it's note a race to me, its a matter of adding another quality house in a good neighborhood at a price that I can make cash flow well,,,,I can't find the deals I could a few years ago, so my cash flow per house will go down,but I won't accept any $100-$200 per month deals,,I'd rather wait to find a better deal
thanks for the insight. You really make a good point and I like how you would have the same cash flow as someone who has 4x the number of properties as you with only 25% of the headaches!!!
I like your strategy. I started out wanting $5,000 gross, just to make my life easier. But after a few houses I realized that I could do much better. So I changes the goal to 10,000 gross. Then lately when I works the numbers I notices how little NET income that actually produces even when paid off and using PM. So I changed the goal again to over 4,000/mo net. That is where I got the 20 unit number from. And that would be enough to let me walk away from my day job. But not enough to live the way I wish. So I would need to set a different goal post-retirement.
I agree completely! The 20 units is just to replace my day job income. When I "retire" from it I will be able to do RE full time. And meet my post - retirement goals.
What % do you use for CAP EX. Or could you suggest one for me that goes beyond the 10% I already use for repairs.
I want 10 rental properties paid off free and clear averaging out 625 per month each. I may want more after I hit this.
It depends on your financial needs, combined with what the market you are looking in will offer in cash flow. Reverse Engineer it.
If you need at least $8,000/month to cover your bills (or whatever you need to retire), and the market you are looking in offers an avg. of $400/property in cash flow, then you need 20 houses. If you need/want a raise, go get another rental.
I agree with @Joel Owens
Focus on enjoying the journey. The exercise is valid but pretty academic. The goal won't make you happy.
Also, let me throw out the idea that you'll need more rentals if you're not operating efficiently or not trying to optimize the income from each rental. Most landlords don't even consider the idea of wringing out the potential from each asset.
More is not always better or more profitable.
In my area it will be on the appraisal. It's usually around $50 a month. Or you can use 10% which if your target rent is over $500 it will make the numbers more conservative for you and will build cushion for bad months.