Are you wholesaling, flipping, or landlording? Have you thought about how long will it take for you to quit the rat race? Most investors never ask that question and waste years pursuing a real estate strategy that will never let them achieve their financial goals.
I never asked the question and delayed my retirement by YEARS with the wrong strategy.
It was 2005, a year after I read Rich Dad Poor Dad, and I decided that I needed to start with real estate investing to generate enough passive income to NOT have to work.
I educated myself. I hired a mentor. And I began to flip houses. Over the next several years, I ended up flipping 34 houses and made great money. But then I then realized that flipping houses was:
- Not generating passive income,
- Was a TON of work, and
- Was NEVER going to let me quit the rat race.
I didn’t realize these things because I never asked myself this one question:
Can I Quit the Rat Race With My Current Strategy?
In my case, I hadn’t asked this question — my goal was just to get started with real estate investing. But I now realize by NOT asking this question, I wasted several years pursuing a strategy that would NEVER help me retire.
That stops today because we’re all going to ask (and answer) that question right now.
To answer this question, you really need to be clear about your goals. And the best way to do that is by asking these next four questions:
- What’s your rat race number?
- How passive do you want your income to be?
- How many rentals would I need to own to retire?
- What’s the best strategy to achieve your goals?
Let’s start with the first question.
What’s YOUR Rat Race Number?
The rat race number is the amount of money you would need each month to cover to quit your job. Specifically, it’s the amount of passive income you need to cover your most basic living expenses.
If you could have your real estate investments produce THAT much passive income each month, you could quit your job, retire, or do whatever you wanted.
That’s your rat race number, and THAT’S what you’re seeking with real estate investing. Am I right?
For the purposes of our discussion, let’s say that you’ve sharpened your pencil and decided that you needed $5,000 after taxes to cover your living expenses and quit your job.
Then ask yourself the next question:
How Passive Do I Want My Income to Be?
Flipping houses is still a “time-leveraged” activity, meaning it can produce more income than many day jobs that have you strapped to a desk for 40+ hours.
But it’s still work. If you’re not buying, fixing, or selling houses, you ain’t making money.
Same thing for wholesaling: If you’re not marketing, talking to sellers, and doing deals, you’re not getting paid.
And the worst with either of these strategies is that they don’t give you any kind of residual income. When you sell the renovated house, you (hopefully) make a profit, but then that house stops paying you. It’s over — the money stops flowing.
At this point you might throw up your hands and say, “OK, Michael, but if it’s not wholesaling or rehabbing, then it must be rentals, right?”
And so we get to our next question:
How Many Rentals Would I Need to Own to Retire?
Rentals don’t produce the kinds of cash flips can, but they do produce passive income so you can retire some day.
But have you thought about how long it would take to retire?
Let’s do some quick math.
If you buy and manage your rentals right (and we’re a bit generous with our projections), let’s assume you can expect an average monthly cash flow of $200 per month from each single family rental (after all expenses, including vacancies, repairs, and mortgage payments).
We determined earlier that our rat race number is $5,000 per month. That means you would need to own a portfolio of 25 houses to generate that much income. Now let me ask you these two questions:
- How long will it take you to buy 25 houses?
- Do you realize how much work it will be to find, buy, and manage 25 houses?
Most investors haven’t asked either of these questions. And yet they pursue SOME kind of single family house strategy, even though it won’t help them get to where they want to go.
Then why do we do it?
I think it’s for three reasons:
- We do what is easy.
- We do what everyone else does.
- We aren’t intentional about what we do.
Fortunately, we’ve now asked the question and hopefully we’ve answered it. This leaves only one more question to ask.
What’s the Best Strategy to Achieve My Goals?
According to a Forbes article, unless you’re an investment tycoon or technology whiz kid, the most common way billionaires made their fortunes was with commercial real estate. That’s why I believe that…
Apartment building investing is the SINGLE BEST real estate strategy to get you out of the rat race in the next 3-5 years.
Don’t believe me? Then check out this story about Drew Kniffin from Minneapolis-St. Paul.
Drew bought a small 4-plex with a friend, and then they bought a 5-plex together with their property manager. That gave them the confidence to look for larger deals, and they pooled their resources, refinanced one of their previous properties, and closed on a 32-unit building in the Twin Cities.
Two weeks later, Drew quit his job.
Nope, I don’t think so.
I’ve interviewed successful investors on my podcast, and nearly 100 percent of the time, they follow this pattern:
- They decide to get started with apartment building investing.
- They take action.
- They do their first deal, and surprisingly, it doesn’t really matter what size that first deal is. Of all the deals they do, it’s the hardest one.
- The second and third follow in rapid succession.
- They quit their jobs and become full time investors.
- And they do this in 3-5 years.
As you’re evaluating real estate strategies, ask yourself this one question:
“Will it generate the PASSIVE income I need to QUIT THE RATE RACE in a REASONABLE amount of time?”
If so, then press on. But if not, make a change.
I’ve observed that MOST real estate investors have been able to quit their jobs (and generate REAL wealth) with apartment buildings.
If you think it might also be right for you, then read everything you can about apartment building investing. Start by reading all of my articles here on the BiggerPockets.
I hope this article has helped you reflect on your current path, clarify your goals, and map out a path for the future.
[Editor’s Note: We are republishing this article to help out our newer readers.]
To what degree is your current real estate strategy helping you to achieve your financial goals? What (if any) changes do you need to make?
Leave all your questions and comments below!