Plan: Build $1M in Net Worth Through Real Estate With 5 Purchases Over 7 Years

by | BiggerPockets.com

The plan I am about to describe is very similar to the one I am taking in my life. The idea is simple: buy incredible rental properties, save the cash flow, and reinvest that cash flow into even more properties. This is not a get-rich-quick plan. It plays out over seven to 10 years—maybe more, maybe less.

The timeline is not important, nor are the specific numbers. What matters is the underlying math, and I hope that after reading about this plan, you will better understand the kind of plan you will want to build for yourself.

Before I get to the plan for making $1,000,000 in net worth, let me clarify a few things:

  • This is not the only way to make money in real estate, just one path that I like.
  • This is not a guaranteed plan. This is an “if-then” plan. If A, then B, and if B, then C. Everything depends on those “ifs.”
  • This plan works based on ideal numbers. For example, I use a nice, round “3% appreciation” number, because that has been the U.S. historical average. However, real life is not likely going to appreciate by exactly 3% each year. Some years might be 1%, some might be 5%, and others might be -4%. Again, these are average ideals.
  • The specific price per unit does not matter as much as the mathematical concepts I’m about to talk about. For example, if I say, “Buy a $100,000 house,” half the readers of this book will instantly think, “Phhhh… I could never find a house that cheap,” while the other half thinks, “Phhhh… I would never pay that much for a house.” Real estate is relative to location, and that’s OK! The mathematical concepts are what matter, far more than the specifics. You might find properties with values that are higher or lower, depending on your location.
  • This is not legal advice. I’m not even telling you that this is the path you should definitely take. Again, this is just one plan that has worked!

Setting Your Buying Standards

The vast majority of properties out there are terrible investments and would end up costing you more than you’d make. Instead, you must adhere to certain standards for this plan to work. The following is an example of such standards:

  • Multifamily property (In this plan, we’ll be buying fourplexes and 24-unit apartments.)
  • Cash flows of $200 per unit, per month after all expenses have been paid, including vacancy, maintenance, utilities, management, capital expenditures, taxes, and insurance, plus any other expenses the property may have.
  • Property must be purchasable for a discount because you are great at finding great deals in the market. For this sample plan, we’ll be buying each property at 80% of what it’s normally worth. For example, while the average buyer would pay $100,000, we’ll pay $80,000.
  • Property’s value must be capable of being improved by 10% during the first year through “forced appreciation” (such as a paint job and landscaping).
  • Property must appreciate at 3% per year after year one.

You may be tempted to say that these standards are impossible to fulfill, but trust me, they are not. BiggerPockets is full of examples of investors who are following these very standards and succeeding. Perhaps the area you live in is different, but these locations do exist. I own properties just like this. However, you will have to think differently. For example, ask most average Americans whether buying a property for 80% of its value is possible, and they’ll say, “No.” Ask an experienced house flipper, and he or she will say, “Yes, but that’s paying way too much.” You see, a house flipper or real estate wholesaler typically has to purchase a property for far less than 80% of the value for their plan to work. It all comes down to mindset. Are you someone
who says, “It can’t be done!” or someone who asks “How can it be done?”



Related: How a 1031 Exchange Can Make You Millions

Buying Your First Property

Using these standards, we find a fourplex that needs a little help. Perhaps it’s a bank repo that smells like a hundred cats, or a for-sale-by-owner (FSBO)
property owned by someone who can’t quite take care of it. I’m not talking about a disaster—just a place that needs some cosmetic assistance.

The property is listed at $100,000, but we are able to buy it for $80,000.

For simplicity’s sake, we’ll say that the seller will pay our closing costs, which means we are required to put down $16,000 for a 20% down payment. In addition, we will spend $4,000 on minor repairs and improvements to satisfy the standard of 10% appreciation during the first year.

Year One

Here is a summary of our portfolio after year one:

  • Our loan is for $63,500 (approximately).
  • Our value is at $110,000 (10% appreciation during year one).
  • Our cash flow saved (from cash flow) is $10,000. (OK, technically $9,600. I like easy math.)
  • Our total equity is $46,500.
  • Our total net worth is $56,500.

Now, I just want to quickly remind you that this kind of property doesn’t exist on every street corner. Is finding these properties difficult? Yes! Is find-
ing these properties hard if you only need to find one such property every two years across the entire United States? Well, it’s definitely not impossible!

Year Two

Nothing changes during year two. During this year, you simply manage your property incredibly effectively. Cut expenses as much as possible; raise the rent as much as possible. Run a well-oiled machine. By the end of year two, our portfolio looks like this:

  • Our loan is for $63,000 (approximately).
  • Our value is at $113,300 (3% appreciation during year two).
  • Our total cash flow saved is $20,000.
  • Our total equity is $50,300.
  • Our total net worth is $70,300.

Year Three

At the start of year three, we will buy our second fourplex, using the $20,000 we have saved from the cash flow. (That’s right, we’re not going to put any more of our hard-earned cash into this plan.)

This next property will be exactly like our first—identical, with the same numbers, same price, and same cash flow. (Remember, this is an “ideal” scenario just to represent how this works in the real world. Maybe you’ll buy a fiveplex, a triplex, or four separate houses. The underlying math is what
is important.) We now have two income streams going: Fourplex A and Fourplex B. For the sake of time, here are our combined figures for the end of year three:

  • Our combined loans are $126,000.
  • Our combined value is $227,000.
  • Our annual combined cash flow saved is $20,000.
  • Our total equity is $101,000.
  • Our total net worth is $121,000.

Year Four

At the end of year four, we will simply “rinse and repeat” once again. You guessed it—another fourplex, same numbers. We now have three streams of income going: Fourplex A, Fourplex B, and Fourplex C. The totals for the end of year four are as follows:

  • Our combined loans are $177,000.
  • Our combined value is $350,500.
  • Our annual combined cash flow saved is $30,000 ($10,000 from each property).
  • Our total equity is $173,500.
  • Our total net worth is $203,500.

Year Five

At the end of year four/the beginning of year five, we will make our first “trade-up.” If you are familiar with the board game Monopoly, you’ll recognize this strategy. In Monopoly terms, we’re essentially going to trade our houses for hotels. In this example, however, we will trade our three fourplexes for one apartment building. As you saw at the end of year four, we have accumulated approximately $203,500 in equity, but we can’t use all of
this cash; the trade-up has certain costs associated with it (such as agent fees and closing costs) that need to be covered.

We will use a 1031 tax exchange to defer taxes to a later date, but we still need to pay closing costs and for an agent to sell the properties. After all expenses have been paid out, we will have approximately $175,000 remaining to invest in our next property. As you can probably guess, we will use this as a 20% down payment on our next investment, allowing us to pay up to $875,000 for a property.

We will buy our new property using the same “standards” as for our first three properties. These were (as a quick reminder):

  • Multifamily property.
  • Cash flows of $200 per unit, per month after all expenses have been paid.
  • Property must be purchasable for 80% of its value.
  • Property must be capable of being improved by 10% during the first year through “forced appreciation.”
  • Property must appreciate at 3% per year after year one.

After some careful searching, we find an apartment building worth $1,000,000, but we are able to buy it for $800,000. Our 20% down payment ($160,000) makes the loan amount $640,000 and leaves us with approximately $13,000 for closing costs, reserves, and some repairs. At the end of year five, our portfolio looks like this:

  • Our loan is for $625,000.
  • Our value is $1,100,000 (10% during year one).
  • Our cash flow saved is $57,600 (24 units x $200 x 12 months).
  • Our total equity is $475,000.
  • Our total net worth is $532,600.

Year Six

No changes or purchases are made during year six. We just relax and collect the cash flow, saving every penny for our next trade-up. Again, this is a time to manage effectively and save cash. At the end of year six, our portfolio looks like this:

  • Our loan is $610,000 (approximately).
  • Our value is $1,133,000 (3% during year two).
  • Our cash flow saved is $115,200 (24 units x $200 x 24 months).
  • Our total equity is $523,000.
  • Our total net worth is $638,200.


Related: 5 Habits That Help Average People Make Millions

Year Seven

Year seven is another year of rest—if you can call it that! We simply manage effectively and save all the cash we can. At the end of year seven, our portfolio looks like this:

  • Our loan is $595,000 (approximately).
  • Our value is $1,167,000 (3% growth over the previous year).
  • Our cash flow saved is $172,800 (24 units x $200 x 36 months).
  • Our total equity in the property is $572,000.
  • Our total net worth is $744,800, including the cash flow saved.

Perhaps you want to simply live off the cash flow from this point on. This scenario is generating a respectable $57,000 in passive income each year, which is approximately what the average American household earns.

However, the total net worth is only three-quarters of a million dollars.

One final trade-up would be needed to reach that final million-dollar figure. Perhaps this could happen right away during year seven or perhaps not for several years. The key is to work with the market, to learn to ride it like a wave. For example purposes, let’s sell now and trade up.

End of Year Seven/Start of Year Eight

We take all the equity and cash we have (approximately $744,800) and subtract the sales expenses (we’ll say $94,800) to give us a nice round final profit of $650,000 to use for our final down payment.

Our final purchase will be a 75-unit apartment community listed for sale at $3,400,000, but we are able to purchase it for just $2,750,000 (20% off because the same rules apply!). We’ll use the down payment of $650,000 (making the seller pay closing costs) for a total mortgage amount of $2,100,000. At this final stage of our “million dollar journey”—the end of year seven or the start of year eight—our portfolio looks like this:

  • Our loan is $2,100,000.
  • Our value is $3,400,000.
  • Our cash flow saved is $0 (but will be $15,000 per month going forward).
  • Our total equity is $1,300,000.
  • Our total net worth is $1,300,000.

We did it! One million dollars ($1.3 million, actually), with only five purchases in seven (maybe eight) full years of investing.

Is This Possible?

Remember, this is an ideal situation with nice, round numbers. Many people have moved much faster, while others have moved much slower in their investment journey. The purpose of this exercise was simply to give you a “big picture” idea of how the approach works and to provide a good illustration of what I call “trading up.” This journey could take ten years, or it could take 20. It depends on a number of factors, many of which are outside your control (such as inflation, the market, the economy). However, this represents a possible road map. If this were your road map, it would be much easier to stay on track and avoid the shiny-object syndrome so many of us face! This plan sets standards that, if obtained, would give us the outcome we desire.

What do you think of this plan? How does your own plan match up?

Let’s discuss! Comment below.

About Author

Brandon Turner

Brandon Turner (G+ | Twitter) spends a lot of time on BiggerPockets.com. Like… seriously… a lot. Oh, and he is also an active real estate investor, entrepreneur, traveler, third-person speaker, husband, and author of “The Book on Investing in Real Estate with No (and Low) Money Down“, and “The Book on Rental Property Investing” which you should probably read if you want to do more deals.

24 Comments

  1. Erik Whiting

    Ah, spreadsheets/”what if” scenarios….yes indeed. Had myself convinced I’d have a net worth of 8 figures back when I first started playing with them in 2005. Well, didn’t quite work out that way, but still doing okay. And yes, I still play with spreadsheets. Numbers geeks can’t help it!

    My thought is that real estate is probably oversold to most folks. How many wannabe newbies, after seeing the latest episode of “Flip this House” (or whatever show) get all starry eyed, plug a bunch of what ifs into a spreadsheet, but they never do anything or fall by the wayside after their first tenant stops paying and steals all the copper wiring/plumbing in the house? See they screwed up already by not replacing the plumbing with PEX (wink!).

    I bought a house like that once. Someone else’s broken dreams.

    Anyway, I like “what ifs” like the one you have above. Even if they aren’t realistic, they provide some motivation when sitting in the dead of winter with 1 unit out of every 5 vacant and I’m paying heat to avoid frozen pipes. (Booo!)

    The danger of spreadsheet math is when the market tanks and your $1,000,000 becomes $750,000 right about the time your 5-year fixed loans need to be refi-ed or the rate goes up.

    • Excellent article, Brandon! I love the way you laid it out; simple and logical. My wife and I started REI in 2015 and have purchased a SF each year. We have have much success but your article motivates me even more to move into the MF zone. Thanks for the illustration.

  2. Shawn Ginder

    Thank you Brandon! Excellent article, love the way you broke down the vision! We are on track to achieve similar results in our market! Started the journey Summer 2016, added more in 2017, all while living in Europe, investing in home town area in Central PA. If we can do it living overseas, anyone who has the drive can do it as well. Absolutely love what you guys are doing on biggerpockets has been a tremendous resource!!

  3. My difficulty with this example isn’t the numbers. The numbers often look great. Unfortunately, as you yourself stated, you have the entire country in which to find the properties — so self-management is obviously off the table (and I haven’t met many people who’ve been happy doing that, anyway). So you have to have property management that actually manages the property, actually puts people in the places and isn’t just churning through people. So far, I’ve had a lot of difficulty finding such a company. In fact, there’s a joke someone told me once that property managers are almost always just failed real estate investors. How do you reconcile this, even in the theoretical case? Bad, or even mediocre property management is probably the worst burden on your long-term holdings.

  4. Ali Hashemi

    Admittedly way over simplified, but I think the intent of the article is conceptual rather than practical.

    What you’re describing is scalability – which is what separates SF investing from MF investing in my humble opinion.

    • Josh Jenkins

      Where I am (Texas) you can only take out a HELOC on your personal residence. You could refinance the investment property but it would likely only allow you to go to a &0% or 80% LTV so you might not be able to come up with the down payments necessary to step up without the sale using a 1031 exchange as Brandon suggested.

  5. Lewis Christman

    Like the article and philosophy. I would rather see worst case numbers i.e. paying 100% (then I would accept full sellers assist) or 95% and no seller assist. Stretching from 7/8 years to 10 is 100% acceptable and hopefully not as risky.

    Question for everyone – I take it alot of people are comfortable with cross country investing.

    • Wenda Kennedy JD

      The writer is talking about a 3 legged 1031 deal. Without giving you any legal advise, it’s simply where the other party is accepting the title to your 3 buildings in the 1031 exchange transaction. Those 3 buildings are sold to a 3rd party through a concurrent transaction. (The buildings are sometimes sold separately — in this case, 3 transactions.) The other party in the 1031 exchange transaction receives his cash for the 3 buildings. You receive title to the other party’s property — hence, it is called a 3 legged deal. These deals require the close attention of your tax accountant and possibly some legal advice from a RE attorney. The IRS rules for this type of transaction must be carefully followed for it to be valid.

  6. Wenda Kennedy JD

    Yes, the numbers don’t lie, and this step by step track can possibly work well as an aggressive master plan — BUT, I would feel over-leveraged with the presented numbers. I haven’t found RE to that predictable, nor that linear. The combined operating costs and debt service tend to easily overwhelm one’s cash flows. I would expect a longer time line with lower LTVs (loan to value ratios) in order to make it all work.

  7. John Murray

    Your on your way! Purchase at a 20-30% discount, renovate effectively (you do it), rent that house, refinance and repeat. My refinance loans are 75% of value and in a little less than 3 years I have accumulated about $3.2M with about $1M in equality. The difficult part was the 6000 hours of work, yup that’s how you make a half million in 3 years. Now the math $1000000-$500000= $500000. Now since I started with $500K the hourly rate 500000/6000 = $83 per hour. Now add the passive average profit of about $50K per year. $150000/6000= $25 per hour. Combine $83+$25= $108 per hour. The greatest part, pay next to zero taxes. Now reality check, how many people out there have $500K to start and willing to work 12000 hours (physical labor) over the course of 6 years, relocate and more hours of research. For those that can do this, you are going to be the happiest person in the world!

  8. Alex Corbishley

    It would be interesting to run the same analysis at a 95%-100% purchase price of value. It’s the challenge I’m running into as the market is hot right now where we are looking. Everything < $250 is selling very quickly with multiple offers.

  9. John Barnette

    Have been doing a version of this in the San Francisco Bay Area. Much larger numbers, thus a longer period. Also needing much higher downpayment requirements…and I have an 800 fico. Not sure if the down-payment requirements are a function of the price range.

    In any event a couple of personal observations. Budget starter single family in C or low B area are in high demand and low availability. Coupled with no local construction of these types of properties. Has yielded tremendous appreciation. And even healthy and increasing cash flow. The tenants in my SFRs tend to be much much easier to work with and manage. Pay on schedule, etc. Low time commitment. I did trade up to an 8 unit last year. Not the same appreciation. More pain in the posterior tenants, and more time and effort. Like the analysis

  10. Jarod Mendez

    This article is just irresponsible. Yeah the numbers and scenarios look great, but they are completely unrealistic and present a false reality that new investors could be burned by.

    – Buying a 4-plex for only $80K and then being able to force its appreciation to $110K with just $4K in improvements? Sure, why not!

    – A 4-plex for $80K that cash flows $9,600 per year after all expenses? Based on 20% down and $4K in improvements, that’s a 48% cash-on-cash return. Sign me up!

    – OK, maybe it costs more like $250K to get into a $200 per month per unit cash flow 4-plex. Well that’s still a 19.2% cash-on-cash return, which in a rental friendly market is not what I’m used to seeing, even in D areas. Plus now it is going to take you 5 years for your cash flow alone to fund another deal since a 4-plex runs $250K. By the time you are in “Year 7” territory, it’s probably been more like 30 years and the aging units are no doubt soaking up some serious CapEx/Maintenance costs.

    – All the while, we are finding desperate sellers offloading these “great cash flowing properties” for 80% of the value and we are essentially flipping them a few years later for a 37.5% increase in value. Numerous blogs on BP have mentioned that multifamily values are based more on the income they generate since they cannot be easily comp’d like SFR’s, so I struggle seeing how this is possible.

    Readers, please take this as a rosiest of scenarios framework and think critically about the returns it is suggesting. If you can pull this off, more power to you, but if it was really this easy…

    • Matt Nusbaum

      Jarod – I totally agree with you that this is an extremely favorable scenario and not 100% realistic. However, I wouldn’t say its “irresponsible” as Brandon clearly throws in disclaimers at the beginning of the post. I think conceptually this is a good roadmap but exact numbers should be taken with a grain of salt. With a more realistic scenario and additional (new earned) capital added every year you would still see great results over time.

    • Derek Schlicker

      Yes exactly. The implication on the first purchase is the investor finds a property with an effective cap rate of 8.7% at your post-appreciation value of $110k ($9.6k / $110), 9.6% at the FMV of $100k ($9.6k / $100k) or an astounding 12% at the actual purchase price ($9.6k / $80k).

      In what reality is an investor going to be able to find a 12% cap rate fourplex at $80k??

  11. Matt Nusbaum

    Jarod – I totally agree with you that this is an extremely favorable scenario and not 100% realistic. However, I wouldn’t say its “irresponsible” as Brandon clearly throws in disclaimers at the beginning of the post. I think conceptually this is a good roadmap but exact numbers should be taken with a grain of salt. With a more realistic scenario and additional (new earned) capital added every year you would still see great results over time.

  12. John Murray

    I agree with both of guys, this article is complete hogwash. For one thing as a multimillionaire (that’s me) the most boring subject in the world is money. The most boring thing I can think of is spending time with my CPA and investment counselor going over millions of dollars of investments and tax advise. What is interesting and exciting is opportunity to make money. As a successful entrepreneur we thrive on calculated risk and have inherent courage. This is the difference between boring employee jobs and exciting entrepreneurial endeavors. I would rather spend my time busting my ass on a rental reno project than calculating endless figures on some pipe dream. If you want to become wealthy stop thinking of boring money and start with courage, hard work and most of all believe in yourself.

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