What’s Too Much? How to Know You’ve Accrued Enough Properties

by | BiggerPockets.com

If you’ve been in the real estate game for a while, you may be pretty happy with your life right now. Sure, you’ll probably have some pretty substantial outgoings to cover those mortgages, property management costs, and general maintenance. But the incomings should exceed them. At least, they will if you’re doing it right.

So when and why should you invest further? More to the point, when should you stop investing? Basically, how much is enough? Of course, this is a personal question and one that I cannot give a definitive answer to. But I can help you to work it out for yourselves. Blog readers: Get a piece of paper and write down a figure that you believe will ensure your secure financial future, taking into account your current monetary needs and what you anticipate needing/wanting when you retire. Done? Great! Let’s consider that number your ideal retirement nest egg. Now what?

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A goal written down is nothing more than a wish.

You have a figure in mind? Maybe even an idea of how to get there? A fantastic start! But without action, that figure, that goal, is nothing more than numbers on a piece of paper. A wish, a desire, a fantasy. If you want that secure financial future, you’ve got to work for it.

If you’ve had any success in real estate in the past, then you’ve clearly worked hard already. Nothing is different in terms of the work needed as you move your business to the next level. If anything, it gets harder. But when you’re dealing with several properties, you can viably employ a property manager, something to consider once everything is set up in terms of easing your own workload. Sure, they’ll take a percentage of your rental income, but for a stress-free retirement and a huge reduction in your own responsibilities, I’d say that’s worth it.

Related: Want to Retire Early? Sorry, But Much of Your Net Worth May Not Help

Whether you’re a buy-to-sell investor or you have some rental properties, as you advance in real estate, the workload often increases. This is predominantly because your budget is increasing, too. As you gain capital, you move into a position to purchase bigger, better properties. Take, for example, a large, somewhat dilapidated country house — a great investment, for sure, but one which will cost you a lot to buy in the first place. Renovation work will also be expensive. The pay-out at the end when you sell it onwards, however, should be worth it. Alternatively, if you’re a landlord, you may find yourself purchasing an apartment block. Once more, this is a great investment and should provide you with a significant, steady monthly cash-flow. If you suddenly become a landlord to 10, 15, 20 tenants, however, that’s hard work! Perhaps a property manager would be useful here.

To be clear, I’m not trying to put you off further investments to bolster your retirement nest egg. If you want that figure scrawled on the paper beside you, go for it. Just be prepared to work hard to get what you’re hoping for.

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Be realistic about your goal.

If it’s taken you 20 years to get to where you are now, think realistically about what you can accomplish in the next five. Don’t expect miracles because that will lead to disappointment. Chasing an unattainable, unrealistic dream is just depressing. Keep things realistic, simplistic, and practical. In fact, studies suggest a property portfolio of between one and four houses is more than enough to secure a comfortable future. Lay out exactly what your goal, timeframe, and budget are for achieving that goal, and begin looking around for investments that will help you get there. Realistic, practical, and sensible.

However, we all know that as your income increases, so too does your spending — and it’s easy to get carried away. If you’re used to a high-end lifestyle, you may choose to invest in a few more properties in order to boost your cash-flow. But the key here is to be very careful about the practicalities and risks involved in relation to your own goal. If you have experience investing in multiple properties at the same time, then by all means continue down this road. If you have two stable rentals at the moment, add one more and stick to what you know and what works. Everyone’s goals are different, but you must do what is realistically achievable for you.

Don’t overstretch.

It’s a common mistake amongst real estate investors to over-stretch themselves financially. Don’t do it! You’ve come this far, don’t fall at the final hurdle. In most cases, real estate is a safe bet, but that doesn’t mean it can’t go wrong. We all remember 2008, and whilst we rode the turbulent waves of that housing crisis, we shouldn’t get complacent. True, the market is very steady right now, but it’s always best to be prepared in case anything unexpected happens (and 2016 has been the year of surprises).

Therefore, it would be unwise to take out an adjustable-rate mortgage, and you should be saving for the biggest deposit possible to lower your interest rate. The quicker you can pay off your new mortgage, the better. You don’t want to be significantly indebted to the banks when you retire if you can help it. The fewer payments you have to make, the more rent you can keep for yourself. Or better yet, if you’re a proficient saver. You can even consider buying with 100 percent cash. I recently made up this quote for caution: “Cash is king, cashflow is queen, and financing could be the peasant.”

In terms of over-stretching, this doesn’t just relate to money. As you’re nearing retirement, now is not the time to invest in difficult, time-consuming properties. But this is common sense, right? You don’t need me to tell you not to take unnecessary risks in this area because, as is obvious from your earlier successes, you’ve already identified a great strategy for yourself. Stick to it! When you’re considering how you foresee your cash-flow increasing, it’s probably best to bypass the money pits and focus on solid, reliable investments. For such a big decision, it may even be worth getting a mentor or advisor to help you choose the right property. They can tell you which properties are going to be problematic, either as a buy-to-sell or for rental incomes. Just because you’ve been successful in the past and have experience in the market doesn’t mean you couldn’t benefit from some guidance. Which brings us to the final piece of my own advice…

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Never stop learning.

Don’t think that because you’ve seen successful so far, you’ve learnt all there is to know. You haven’t. Keep reading, keep gathering information, and most importantly, keep you eye on the markets. The fact that you’re reading this blog implies you’re doing research, which is a great start. The internet is filled with advice from real estate entrepreneurs (and a few people imparting their personal stories of failure to help you avoid the same fate). You can also learn from others around you — colleagues, employees, people you’ve met through the real estate business. Ask their opinions, take a look at what they’ve done, and judge your future accordingly.

Related: How to Set Short, Mid & Long-Term Goals on Your Quest for Financial Freedom

You may have achieved a certain level of success; you may even have young real estate mogul-wannabes coming up to you to ask for advice. But that doesn’t mean you can’t learn something from the new kids on the block as well. As the market changes and advances, younger buyers and renters enter the frame, and it is key to understand what this group (the Millennials) are looking for when it comes to real estate. If you can follow the trends amongst this large, financially powerful group, a whole new market will be open to you. But don’t just jump in before doing any research — always prepare, plan, and learn.

Conclusion

You may think you’ve made it — a few properties in your portfolio, a healthy monthly income. And you have. Congratulations. But it is human nature to want more, and there’s nothing wrong with that. My advice as you begin your final foray into the real estate market is to know your limits, be cautious and sensible, and invest wisely. Don’t get greedy.

Once you achieve that figure you wrote down earlier, stop. If you continue to invest, continue to expand your business, you could find your entire retirement consumed with property-related work. That’s not the point of real estate investment. You should be buying properties that will provide you with money to live on, not jobs to perform. Live your life on your terms, not those dictated to you by your tenants who constantly seem to have a problem with something in your rental. If you’re a landlord, hire a property manager, you won’t regret the money spent. To make your investing even more passive, how about buying properties from a turnkey provider? This could free you up even more to enjoy the hard-earned money, which should be rolling in rather than making you slave away. You’re there, you’ve done it, you’re a success. Now it’s time to sit back and enjoy the fruits of your labor. 

Do you have an end goal for your investing? How will you know when you’re done?

Let me know your thoughts with a comment!

About Author

Engelo Rumora

Engelo Rumora “The Real Estate Dingo" is a successful property investor, motivational speaker and serial entrepreneur that quit school at the age of 14 and played professional soccer at 18. He is also a soon to be published author along with becoming a TV personality in his very own real estate house flipping show. To find out more go to engelorumora.com . Engelo Rumora has been involved in over 400 real estate deals and founded five businesses in Ohio. The most successful is Ohio Cashflow, a company that specializes in providing turnkey properties in several Ohio markets. The newest venture is List’n Sell Realty, a real estate brokerage based in Toledo, Ohio and soon to be known as the #1 discount broker in the country.

5 Comments

  1. Jiri Vetyska

    Great article Engelo!
    It’s easy to forget one major lesson from the last bubble – so many people were suddenly worth several million dollars, it was way too easy back then with 95% financing, but most if not all of these newbie millionaires didn’t have a plan and didn’t know when to stop. And so greed took over and they quickly lost everything, There comes a time at certain point when you have to focus on capital preservation and stop or slow down future risky endeavors.

    • Engelo Rumora

      Thanks Jiri and agreed,

      I always tell my investors to build a firm foundation with cash properties.

      Once the foundation is strong and cashflow is pouring in, then and only then consider leverage.

      Too many folks are sold easily on leverage because they think they can achieve success quicker.

      This is true, but only when you know what you’re doing and that takes years to truly become an exper in real estate investing.

      Thanks again and much success

      • Raeshelle Cooke

        You keep saying purchase with cash 100% out right as if people can actually do that. Maybe you have the money to do it, or your parents did, but most do not. Not everyone can purchase a house out right. Most people can ONLY leverage and finance. If there was a rule that said you must purchase 100% out right, so many people wouldn’t be wealthy today or get the chance to ever be. I’d love to purchase a house with cash out right and not owe banks, but I cant . I wasnt born in riches. So I will leverage and become wealthy that way. And there’s nothing wrong with it.

        • Derek G.

          I’m no expert by any means. I do know what amount of risk I feel comfortable with.
          I don’t think there is anything wrong with leveraging. I have a couple properties paid off and will utilize a cash refinance to pull some of the money out in an effort to reinvest and acquire more properties. I do think there is a problem with over-leveraging yourself. If you only have 10-20 percent equity in every single property, you are taking on more risk with every property. I’d try to to acquire as much equity as possible. I’m happy with 40-50 percent equity in every property. It’s a layer of protection I can deal with.
          I guess it all boils down to the amount of risk you are willing to comfortably accept as a real estate investor. I’m comfortable with 40% equity in each property. It’s a cushion that satisfies my nerves.
          If I put 20% down on a property in equity, I’ll try to build the equity up fast by placing profits from that property (as well as others) into the principle mortgage payment.
          Everyone’s different. What level of risk are you willing to accept?

  2. Nathan G.

    Over-leveraging will be the death of many investors. If you have 20% equity, it won’t take much to wipe that equity out. But that may not matter if you are cash-flowing, right? Well, if you are cash-flowing $100 – $200 a month, it won’t take much drop in the rental market to reduce your rent rates or force a vacancy. The next thing you know, you can barely afford to pay the mortgage each month or maybe you are forced to pay it out of pocket. When you are highly leveraged, one bad property can have a domino effect on your entire portfolio.

    It is “easier” to make money if you have money. Nobody doubts that. That doesn’t mean you should over-leverage yourself! Instead of buying a property a year, maybe you only buy one every 2-3 years so you can save up more money. Maybe you take on a second job – even for just a few months – to save up for a bigger down-payment.

    Isn’t it better to be successful with a few properties than to be over-leveraged with lots of properties and lose everything?

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