The Real Estate Strategy Anyone Can Do

Everyday we see forum posts and debates on which Real Estate strategies to use or not use. Should we buy using all cash? Should we use maximum leverage? House Hack? BRRRR? Flip? Live-In-Flip? Syndication?

All of that information can be overwhelming, and frankly, the answer is “it depends.” Every investor will be different and have different goals and interests.

The strategy I am going to talk about aimed at the investor who wants the security of passive income with low risk. This investor isn’t looking to scale to a thousand units and have an empire and a pool of money to swim in. If this sounds like you, this may be a strategy you want to consider.

I call it the “Thach” strategy. Thach Nguyen is the CEO & Founder of Thach Real Estate Group and was the BiggerPockets podcast guest on Episode 395. I refer to this as the “Thach strategy” because he packaged this idea with a structure that is easy to follow and hits all of the major points.

Step 1: Set the Goal

If you have been on BiggerPockets for a while, you probably already know what your financial freedom number is. What dollar amount in passive income will pay your bills?

Another way to approach this method is to create a dream budget! Think about what type of lifestyle you dream about; you might be surprised that the monthly cost is not as much as you think! There are many worksheets for this that you can access with a quick Google search. But you more or less add up what your monthly costs would be for your dream house, travel, eating out, vehicles, charity, etc.

Step 2: Calculation

For the sake of this post, let’s use $7,000/month of passive income as the goal. This equates to $84,000/year. Now how can you get there as quickly as possible?

Let's first calculate how many properties you will need to reach our goal. Say you buy a home for $100,000 and it rents for $1,000 a month. At $1,000/month, you would only need to purchase 7 homes, right?

Not quite! You also need to consider the cost of property management, variable expenses, insurance, taxes, etc. You should assume 30% of your rental income for expenses. That means you’ll need to purchase 10 homes to bring your gross monthly rental income to $10,000/month. After putting your 30% aside, you should end up earning around $7,000/month passive income.

In our fictional scenario, it could take 5-10 years to get to 10 units. So be patient while you let the strategy work for you!

Before you write off the Thach strategy because these numbers don’t reflect the market you’re working in, try this exercise with more realistic numbers for you. Thach himself implements this strategy in Seattle, which is a very pricey market! This means that this isn’t a market specific approach which is good news for you!

Step 3: Buy

Alright, now that you have your goal identified, it’s time to take all those hours spent on BiggerPockets learning, and apply that knowledge to start growing your portfolio. It’s time to take action!

This is where plans start to differ based on individual preferences. If you are someone who is able to reliably save $20-$40,000 a year, maybe your plan will be to buy your 10 houses with conventional 20% down payments. Simple.

Or maybe you utilize the BRRRR method to be able to recycle your hard earned dollars. I won’t dive into this method since this has been hashed on BiggerPockets time and time again! The main takeaway is that you’re able to reuse the same dollar to accumulate properties quicker. (TIP: it is okay to leave a little money in a BRRRR deal. Waiting for a “perfect” BRRRR will result in missing out on many solid, “base-hit” deals!)

There are plenty of different options to start buying real estate such as Seller Financing, Subject-To, and taking a HELOC on your primary residence. There are many others you can look into and there is a method for every different type of investor out there.

Bottom line: buy smart and reach your goal number of properties as soon as possible!

Step 4: Payoff & Snowball

Now that you’ve reached your goal number of properties, you’ll want to pay them off as quickly as possible. This will allow you to take the rental income for yourself and will passively pay for your lifestyle.

To accomplish this, begin taking whatever money you were previously saving to buy real estate, and put it all into paying the mortgage on the first property you bought. We can now take whatever rental income not paying mortgages and expenses and roll that into the first property mortgage.

The first house may take a year or two to be fully paid off, depending what kind of savings potential you have. Once the mortgage is off of house number one, that will be another $500/month ($6000/year) to start putting towards the next one. Then after another year, another house is paid off, creating a snowball effect and bringing your extra available income to $12,000/year to put into your next mortgage. The snowball will continue to grow and by the time you’re paying off your last house, your extra rent from paid off mortgages will be around $53,000 a year. That last mortgage won’t last long!

You did it! Your theoretical goal has been reached and now you, a seasoned Real Estate investor, get to relax into retirement with a consistent $7,000/month coming in passively!

Conclusion

The above, of course, was a super simplified example for the sake of clarity in the post. The numbers will vary widely depending on which market an investor is working in.

People may argue “Why would you pay down the mortgage so quickly?” “Let the tenant pay it down!” While I agree, the Thach strategy gives security to the investor with fully paid off homes.

Beyond security, this strategy is also nice because it offers a lot of flexibility in your planning and goals! If you are bored with your passive income or can’t get enough of investing after you reach your goals, you can re-leverage your 10 homes and go on a buying spree! Or take a Line of Credit on your equity and continue to scale.

My plan is to use this method for a large portion of my own properties! By using the BRRRR method and adding in house flips to generate extra cash flow, I will be “supercharging” this method to achieve my goals quicker. You can too!

I will leave you with this: Thach was able to use this strategy to reach $100,000/month in rental income! What do you think? Is this strategy right for you?