How to Go From Zero to $8k/Month in Retirement Income (With No Remaining Debt)

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I speak with investors almost everyday about the same thing: How do I replace my income or at least a part of it? What does it look like, and what do I do to get there? You’ve found yourself on BiggerPockets, reading blog posts, listening to podcast episodes, getting fired up about real estate. And the end game is your form of financial freedom. Let’s dive in on this concept.

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Defining What You Want (Out of Life)

You ran across this article and decided to start reading on your laptop or your mobile device, wondering if it was specifically about having money in retirement, reaching a certain lifestyle, being able to retire early, or maybe even a perfect blueprint of how to have passive income. Here is the first driving question to me: What exactly are you looking for? Once you retire, or once you have X amount of income, then what do you want to have or what do want to do?

For the sake of putting you into the right state of mind, let’s ponder this quote for a moment.

“The question you should be asking isn’t ‘What do I want?’ or ‘What are my goals?’ but ‘What would excite me?’”
— Timothy Ferriss, The 4-Hour Workweek: Escape 9-5, Live Anywhere, and Join the New Rich

What are you excited about? To me, it is about what I want to do — play with my kids, get back into classical piano, learn to fly, do more interesting and cool real estate deals, grow our turnkey business. Whatever it is, define it.

Retirement Income is About Lifestyle Choice

From zero to covering your lifestyle with retirement income means nothing without knowing what you are actually fired up about doing. Once you’ve defined what you want to do, these specific things lay the groundwork for your plan.

If you are excited to travel, then where do you want to go? And how often? If you are excited to read books and find every cool coffee shop within 100 miles of your house, what does it take to do that? You’ve dreamt about being a pilot your entire life, so now that you have the time to do it, what’s next?

“People don’t want to be millionaires — they want to experience what they believe only millions can buy.”
— Timothy Ferriss

People don’t want to be millionaires; they want to experience what they think it is to be one. Now, I do believe that most of us, me included, do in fact want to be a millionaire because it affords us to experience the things in life we want. But it is NOT about the money. It’s about what we can do — the opportunity, the experience, the time with family and friends.

life_hack_regain_free_time

 

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

What is the Makeup of Your Budget?

What does it cost you today to run your household per month? Is it $5k, or $8k, or $10k+? What are you actually paying for, and are they fixed expenses or random costs? What kind of choices have you decided to spend those dollars on? Is it a car payment, a house payment, school debt, or your kids’ sports and activities? Or that pesky credit card you keep having to pay off, but aren’t so sure what you really are paying for? What other items are you paying for that you shouldn’t be? Over the course of a few years, what can you pay off?

Save More Now

Right now, it costs you $6k a month to run your household, and you are trying to replace that income with passive income. What if you have $6k in monthly income in retirement, but you are able to make decisions to get your fixed expenses down to, say, $4k a month? For instance, you pay off your car, and your $400 car payment goes away. Your mortgage payment is $1,500, and if you have 10 or 15 years left on the mortgage, could you have your home paid off at retirement? Or if you just bought your house, do a 15-year note on it, or pay down extra principal every month to pay it off faster.

In Tony Robbins’ book MONEY Master the Game: 7 Simple Steps to Financial Freedom, he talked about the “Money Power Principle 3.” Tony makes an example of a 30-year mortgage on a $270k house with 6% interest, equaling a monthly payment of $1,618. He says, “With this technique, you would also write a second check for an extra $270 — next month’s principal balance — a very small number, relatively speaking. That second check of $270 is money you’ll never pay interest on.” You literarily just cut the amount of money you would pay over the lifetime of the loan in HALF.

30 years of payments, 12 months X $1,618 = $582,480 (paid on schedule)

15 years of payments, 12 months X $1,618 + $270 = $339,840

You added $270 a month to your payment for 15 years and saved $242,640.

This is an incredible amount of money you now have the choice to pay to the bank with interest — or pay to yourself with interest. Apply the $242k and begin investing it in buy and hold properties for the next 15 years (with 20% down and leveraged with a mortgage). Let’s say you average 8% cash on cash return over those 15 years. You have now turned that $242k into $615k (and don’t forget all the wonderful tax advantages and someone else paying down the principal).

Stop Saying You Can’t

Taking action is key here. You can’t save money? Spend less. Make more. Get a second job. Don’t buy a new car — keep the one you have (and pay it off). Stop spending $200 a month at Starbucks. Whatever it is, stop it! Even if you are saving a few hundred dollars a month towards buying your first investment property, you are actively visualizing and seeing where your future is going. An average investment property here in the Midwest can be purchased for $80k-$120k. You will need roughly $16k-24k to acquire this first property.

If you are just getting into the earning years, you might have a different approach than someone within a few years of retirement. If you are just getting started, you can buy your first home as a rental in a few years. Use the benefit of whatever financing and purchasing you can and live in it; maybe even do some work yourself. After 2-3 years, you can buy a second property and keep the first one as a rental. Do this again in 2-3 years.

Related: How Retirement Contributions Are Saving One Real Estate Investor $53K in Taxes

If you bought your first house at age 25 and then bought a new house every 3 years using this idea (and you would need to work with your mortgage person to make sure you were following all the rules of that lender/mortgage), at age 49, you would be up to 8 properties! If they were all on 30-year mortgages, the 8th house would be paid off at age 79. But the first house you bought would have been paid off at age 55! If they were on 15-year mortgages, they would be paid off at age 64.

Let’s say at age 65 you retire and review where your real estate investments are. For the sake of the example, you decided to run 15-year mortgages to have them all paid off at that point.

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Starting at Age 25 With the 8 Property Plan

Year 1 @ age 25 (house 1): $100k/20% down/15 yr AM

  • Need $20k down (save over 3 years, $555 monthly savings goal)
  • Any extra cash flow after expenses/reserves goes to buying next property ($1k a year towards next property)
  • At age 40, house 1 is paid off

Year 4 @ age 29 (house 2):$100k/20% down/15 yr AM

  • Need $20k down (save over 3 years, use $3k from house 1 yearly income after expenses, and the 3-year savings goal is now $17k over 3 years, or $472 monthly)
  • House 2 is paid off at age 44
  • Any extra cash flow after expenses/reserves goes to buying next property ($1k a year towards next property)
  • At age 44, two houses paid off, and $2k monthly in passive income (minus expenses)

Year 7 @ age 32 (house 3): $120k/20% down/15 yr AM

  • Need $24k down (save over 3 years, use $6k from house 1/house 2 yearly income after expenses, and the 3-year savings goal is now $18k over 3 years, or $500 monthly)
  • House 3 is paid off at age 47
  • Any extra cash flow after expenses/reserves goes to buying next property ($1k a year towards next property)
  • At age 47, $3k monthly in passive income (minus expenses); 3 houses are now totally debt-free

Year 10 @ age 35 (house 4): $120k/20% down/15 yr AM

  • Need $24k down (save over 3 years, use $9k from house 1/house 2/house 3 yearly income after expenses, and the 3-year savings goal is now $15k over 3 years, or $416 monthly)
  • House 4 is paid off at age 50
  • Any extra cash flow after expenses/reserves goes to buying next property ($1k a year towards next property)
  • At age 50, $4k monthly in passive income (minus expenses); 4 houses are now totally debt-free

Year 13 @ age 38 (house 5): $135k/25% down/15 yr AM

  • Need $34k down (save over 3 years, use $12k from house 1/house 2/house 3/house 4 yearly income after expenses, and the 3-year savings goal is now $24k over 3 years, or $611 monthly)
  • House 5 is paid off at age 53
  • Any extra cash flow after expenses/reserves goes to buying next property ($1k a year towards next property)
  • At age 53, $5k monthly in passive income (minus expenses); 5 houses are now totally debt-free

Year 16 @ age 41 (house 6): $135k/25% down/15 yr AM

  • Need $34k down (save over 3 years, use $15k from house 1/house 2/house 3/house 4/house 5 yearly income after expenses, and the 3-year savings goal is now $24k over 3 years, or $527 monthly)
  • House 6 is paid off at age 56
  • Any extra cash flow after expenses/reserves goes to buying next property ($1k a year towards next property)
  • At age 56, $6k monthly in passive income (minus expenses); 6 houses are now totally debt-free

Year 19 @ age 44 (house 7): $150k/25% down/15 yr AM

  • Need $38k down (save over 3 years, use $18k from house 1/house 2/house 3/house 4/house 5/house 6 yearly income after expenses, and the 3-year savings goal is now $20k over 3 years, or $555 monthly)
  • House 7 is paid off at age 59
  • Any extra cash flow after expenses/reserves goes to buying next property ($1k a year towards next property)
  • At age 59, $7k monthly in passive income (minus expenses); 7 houses are now totally debt-free

Year 22 @ age 47 (house 8): $150k/25% down/15 yr AM

  • Need $38k down (save over 3 years, use $21k from house 1/house 2/house 3/house 4/house 5/house 6/house 7 yearly income after expenses, and the 3-year savings goal is now $20k over 3 years, or $555 monthly)
  • House 8 is paid off at age 62
  • Any extra cash flow after expenses/reserves goes to buying next property ($1k a year towards next property)
  • At age 62, $8k monthly in passive income (minus expenses); 8 houses are now totally debt-free

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Related: Case Study: How One Couple is Using Real Estate to Retire With $410,000/Year by Age 62

Equity, Appreciation, and Cash Flow

Not assuming any real estate appreciation:

Your real estate portfolio is now worth $1,200,000.

If you had a modest growth in the value over the holding and building period, a few years later as they are all paid for and with a 3% growth rate of appreciation, the properties have nearly doubled in their value. At that number:

Your real estate portfolio is now worth more than $2,000,000!

Cash flow: The rents went up by roughly 3%, and you are now at a modest $2k monthly per property, grossing $16k monthly cash flow.

Let’s assume you are running at roughly 50% of your expenses with maintenance, vacancy, taxes, etc. — and you are now cash flowing AFTER EXPENSES roughly $8k a month.

Many Ways to Move

You have $8k in monthly income after expenses.

You have $2M plus in your real estate portfolio plus whatever you had saved or had in your other investments. And now, you could divest part, 1031 exchange to larger multifamily properties, or simply let it ride and collect your check.

The opportunity to live with what you want in retirement IS possible, you just have to determine what you want to do or experience, how much will it cost you, and begin your savings and investment plan NOW.

How are you using real estate as your lifestyle and retirement vehicle? Any questions about the above case study?

Let me know your thoughts with a comment!

About Author

Nathan Brooks

Nathan Brooks is a dad, husband, worship leader, and real estate investor in the Kansas City market. Foodie. Coffee addict. Crossfit junkie.

48 Comments

  1. Joshua D.

    I like how you detailed out the whole plan! If you could combine this with the BRRRR plan and use no money down to buy these properties, it would speed the accusation time line up a bunch. I am a big fan of debt free rentals in retirement. Thanks for your thoughts.

  2. David Ferrette

    Very interesting case study. The principals behind it I feel are sound and apply to many investors just starting out. I prefer the BRRRR method but I am trying to acquire as many properties as I can right now. At some point I will take your advice and switch over to paying the mortgages off quickly.

    • Nathan Brooks

      David, agreed with your point, and definitely if feasible or in the wheel house of that investor, it would be a good way to go. My intention here was literally for anyone, buying a local house off the MLS or a turn key house from a great provider, this would be able to come to fruition for most people even while working.

  3. Greg Jeanfreau

    I agree with the others regarding the BRRRR plan, but I am attempting to accomplish this using only 15 year mortgages on the Refi’s to pay down our line of credit to have ready for the next one. We are on number 4 (multifamily) right now running at about one BRRRR every 18 months or so on average, but I am putting some systems in place to hopefully speed that up to about one ever 6 months. We are just about to start paying a little extra on the first 15 year mortgage to take it down to about 10 or less and really get this snowballing.

    • Nathan Brooks

      This is so great Greg. It’s hard to put in all these different kinds of nuances into a blog post, but it sounds like your plan is really coming together. That’s the most important part after all … just HAVING a plan, tweaking over time and over whatever the market is doing, and executing it.

      • Ed J.

        Nathan, this is a really a motivating article. I agree with what you said “just having a plan” is so true. Plenty of different ways to approach real estate, but I think lots of ways will work, if you just have a plan an stick with it. Several years back , I put 3 houses on ten year mortgages and that plan is working great. Thank you for writing this. Gives me motivation to double my efforts to keep paying down loans.

  4. Purchasing rental property can definitely propel you to financial independence. I was able to get 5 renters, and it allowed me to give up my W2 job, that was making a 6-figure income. I made more on my rentals than my W2 job.

    Never give up the FI dream, it is entirely possible.

  5. Samantha Klein

    Great post. I currently own 2 duplexes and 1 is paid off. I plan on putting 20% down on 2 more duplexes in 2017 and doing a cash out refi on my paid off duplex, and buying another one. I will then have 5 duplexes and I plan on having 3 of the 5 all paid off by 2020, I am going to leave a mortgage balance on 2 of them giving me approx 45K a year in net rental income. My household budget for bills is only 1.2k a month so with almost 4k a month in income, we are going to have some fun.

  6. Allison Medina

    I like this post a lot! However, what about folks starting to invest at the age of late 30s or 40s. Is there hope for financial freedom when starting out that late? One huge stumbling block for me and my husband is our enormous student loan debt. I’m interested in flipping to use the cash to kill that debt. As long as we have it, we won’t be getting far!

    • Peter Crisp

      Allison,

      Yes you can and my wife and I are living proof. You just have to work harder and you may have to risk more, and perhaps find friends and family to help. It also helps to live in a rising market. We live in Surrey, BC and our house (and our rental house in Surrey) went up by 28% last year alone. Luck – yes, but also we stretched ourselves to the limit to keep the house as a rental property when we bought out current house knowing that it would likely appreciate (and we used BRRR before the term was coined). We bet that we could keep it occupied (we have) but that was a major risk. We have an income suite in our new house also, which I renovated to bring to code to make it a legal suite. I continue to find sweat equity opportunities. Even at our distant rental properties (east coast of Canada), I find bargains. Just today, I found a guy on Kijiji willing to take out old insulation for free, saving me from paying my guy to do the same thing! I can’t retire yet (unless I cash out everything, and I don’t want to that right now) but the cushion is already there on paper. And that’s in 11 years from starting at near zero with a pile of debt I had to work out. So, keep trying and you can do it!

  7. Eric Weaver

    Ok, So either I’m missing something from the Math OR the math doesn’t make sense.

    The first part of 30 years paying 1618 DOES equal 582k
    The second part of the added 270 for 15 years ALSO equals 339k
    But, If you use a loan calc and run the amortization,

    At year 15, there would still be a balance of 113k.

    According to 2 different loan calculators, It would reduce the term by 9 years and it would save you 107k

    Where did I go wrong?

    • Nathan Brooks

      Hi Eric … I believe you aren’t taking into account paying each down as they went, not in total at the same time. Either way, the plan worked paying them down … and the point of the article was to show how you could acquire properties in a conservative timeline, and have a great retirement income at the end.

      • Nathan,
        Eric is talking about the Tony Robbin’s example you stated in your blog. The math on that does not add up. If you check these numbers on a mortgage calculator online, it will take 21 years to pay off the 270K loan. To payoff this loan in 15 years, you need to make an additional payment of roughly 660 instead of 270.

        I don’t want to take away from this article, this is a good one. You are one of the few BP regulars I enjoy reading. Keep them coming.

        • Nathan Brooks

          Melroy, thanks so much for checking this. I’m not sure how I screwed it up, but I will get back after it and get that math fixed. Thanks for taking the time to look at it, and also the kind words!

        • Nathan Brooks

          Melroy, thanks so much for checking this. I’m not sure how I screwed it up, but I will get back after it and get that math fixed. Thank you for reading the post and the encouragement. Anything you are looking for more information on?

        • Nathan Brooks

          Melroy, thanks so much for checking this. I’m not sure how I screwed it up, but I will get back after it and get that math fixed so the blog post will show the corrected information. Thank you for reading the post and the encouragement. Anything you are looking for more information on?

          I appreciate hearing back … helps give some ideas on what else to write about. Thanks!

        • Joel Hartway

          Melroy and Nathan,

          If you read the Tony Robbins example very carefully, I believe he is telling us that each month you would add the amount of the FOLLOWING month’s principal balance due to your payment, not that it remains the same at $270 over the life of the loan. As you know, each month the principal payment amount increases and the paid interest decreases, so every month’s prepayment amount would also gradually increase, not remain at $270. I can’t find an online amortization calculator that will run this scenario so I can’t give you an exact number, but suffice it to say that by the end of the loan period your monthly prepayment amount increases substantially (certainly by more than double) which will make it harder to budget for.

          The ultimate result of using this method is that your loan period is cut essentially by half, so it makes more sense to me to just calculate the flat monthly prepayment amount needed to cut the loan period in half. That way you know what your monthly budget number is with certainty.

  8. sjoerd Graaff

    I am 53 years, and live in the netherlands. The morgage rules are different here. and also the tax. I can not deduced any cost of my rental appartment. And my morgage is restricted by my income and the morgage on my first house( where I live in) however I probably can loan an extra 130.000 euro and can by my first apartment , but it is not possible to get a next loan on my appartment. Because the rules are more strict after the crisis. So in order to a webinar, is it helpful for a Dutch guy to learn from that because of the differenses?

  9. Sylvia B.

    Good article, just one little quibble: “Cash flow: The rents went up by roughly 3%, and you are now at a modest $2k monthly per property, grossing $16k monthly cash flow.”

    In my world, “modest” and “$2k monthly” never belong in the same sentence.

    There is NO residential property in my market that even approaches $2k/month.

  10. Ryan Sommer

    So even if I started at 25 then I still wouldn’t be finically independent until my golden years when I can’t enjoy the freedom as much. What about if you are 40 years old like myself and live in Los Angeles where it takes at least $350k to buy a condo as an investment property? My thought is buy investment properties out of state but as a real estate noob that presents all kinds of roadblocks. Not trying to be negative but I think it’s harder to do depending on your market. And someone that is 25 where I live is not going to be buying any property unless they are already rich. The only thing I agree with is that it’s important to minimize expenses and simplify your lifestyle so you don’t need as much money

  11. Camilla Sauder

    Didn’t even think about real estate besides paying off our own house until about five years ago at age 47. We sat down and wrote out a five year plan similar to what you have but paying cash for everything so that when we acquire enough houses to replace my husband’s income, we are done. Not quite at the five year mark, we have purchased 19 investment doors and my husband is planning to go down to working part time in 2017. The keys to this were living below our means for the last 30 years on a budget, some real estate appreciation, downsizing and living where houses are a reasonable price. The end goal is to always have everything paid off so that you have the income to follow your dreams.

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