What would be my earning potential?

Question

Hello,
I am completely new to real estate investing and was hoping to find out from people who have been in the game for a while what a realistic earning potential would be from accumulating long term rentals over time.
Obviously this is a very broad question, but I’m just hoping for some examples of what I could realistically be expecting after investing in rentals for around 10 years.

My goal would be to purchase:

1st year: 1 unit

2nd-10th year: 2 units per year

Total of: 19 units after 10 years

*FYI - I live in Harrison Township, MI (Not Detroit) *

1st year: 1 unit

2nd-10th year: 2 units per year

Total of: 19 units after 10 years

*FYI - I live in Harrison Township, MI (Not Detroit) *

Jonathan Greene · Answer

You can't calculate it like that because you are going to make about 20 percent of mistakes buying on your first 5-8 properties. So, average cash flow is a product of the choices you make and the capital you have to deploy, as well as your lendability.

I think what @Alecia Loveless wrote should be very helpful to you in terms of judging the money coming in, but it all depends on your location and investments.

Drew Sygit · Answer

Have bought, renovated, refinanced and sold rentals in my portfolio.

Besides monthly cashflow, you can cashout refi every 5-10 years or when increasing rents support the ability to do so.

This either provides opportunities to invest in more real estate, rehab a property(s) or for personal use.

You can also sell low performers to do the same.

Chris Grenzig · Answer

@Kyle Fitch an important distinction on this is your financing. I would say today 40-50% of your income goes towards normal operating expenses. 50% if you want to include replacement reserves which you should. So if you have a $1200 rental then that $600 before you place any debt. If you lever it up to the max then it's probably only $80-120 per unit per month. If you place only 50% debt on it then you can probably do $300-400 per unit per month.

Personally I think 19 units cash flowing $300-400 per unit per month is too vague.

19 units purchase at $60k per unit that rent at $700 is $1.14m in value and might only need $250-400k in down payments to acquire.

Versus 19 units at $250k per unit and $1800 average rents is $4.75m and probably needs $1-2m for a down payment to acquire.

I would start looking at what type of properties you're going to acquire and where and then start backing into what they might cash flow and cost and where that money is going to come from.

10 year back of the napkin model/ assumptions

1 unit at $60k is $18k down payment at 70% LTV and lets just assume it cash flows $100/month no matter what for easy math. Let's assume it appreciates 2% per year to be safe.

(sorry if this screenshot shows up small in text, I don't see any way to make it bigger. when I edit the post it shows bigger, but when I post it shows up small. If you click the photo it should open full size in another tab.)

This is imprecise so you can take this and fine tune it to make it better, but you get the idea.

Column A - year

Column B - total units that year, adds previous year total to new units added in Column C

Column C - new units added that year

Column D - $60k per unit value added for that year (assumes it stays at $60k per year which is wrong, but you could tweak to have it match the 2% inflation from columns E & F)

Column  E - takes previous year value from column F and multiplies by 1.02 or 2%

Column F - Adds columns D and E for the current year. Basically you added 1 or 2 units for that year valued at $60k per unit, and then adds in the 2% increase from last year to current year.

Column G - expected cash flow for total number of units at $100 per unit per month

Column H - down payment need to acquire the new units at 30% down

Column I - adjusts how much down you would need assuming you saved the cash flow from the previous year and applied it to the current year's acquisitions.

You could figure out roughly what range the properties you would be targeting would cost and use your own assumptions to come up with something similar. Underwrite a few deals to figure out how much cash flow would be at certain debt levels. You could then get more sophisticated and factor in refinances after 5-10 years and how that money could be re-invested into acquiring extra units.

When doing this exercise PLEASE make sure you are factoring in a couple of things:

- closing costs for acquisitions

- working capital or cash reserves up front for a rainy day

- operating expenses and replacement reserves

- mistakes, bad years, bad acquisitions. (maybe make one deal and have $-100 cash flow per month for every 8 units you acquire or something like that? Maybe assume 1 unit out of 5 has a $5,000 unexpected bill every 3 years?)

- and finally once you do this, realize it will never even be close to how it actually plays out in real life, but it can serve as a guide for what sort of money you may need to save up to try and actually accomplish something like this. If you want a 10-year goal, you need to create a road map of steps and milestones to hit today so you know you're on the right track. For example, you would need to save up $18k in this example to buy your first property, then save up $34,800 for year 2 if you saved all $1,200 of the cash flow from your first property.

Kyle Fitch · Answer

@Drago Stanimirovic

Thank you so much for this information! This is exactly the type of example I was looking for!

Would you say that acquiring 19 rentals that cash flow for $300-400 after expenses in 10 years is realistic in todays time?

Drago Stanimirovic · Answer

Hi Kyle,

Given your plan to acquire 19 rental units over 10 years, here’s a realistic projection:

For cash flow, assuming each unit rents for about $1,200 to $1,500/month and generates $300-$400 in net cash flow after expenses, you could see $68,000 to $91,000 annually from 19 units.

Appreciation typically runs at 3-5% per year. If your $150,000 properties appreciate by just 3%, they could be worth around $200,000 each in 10 years, adding significant equity.

Additionally, mortgage paydown from tenants further builds equity. By year 10, you’ll have a combination of growing cash flow, appreciation, and equity that could boost your wealth by several hundred thousand dollars.

Consistent investing and proper management can lead to solid passive income and long-term wealth. Reach out if you need help with financing along the way!

Best,

Drago

Travis Biziorek · Answer

Hey Kyle, it's really hard to say because there are so many variables.

I can speak to personal experience but your mileage will definitely vary.

I acquired 12 doors in Detroit from 2019-2021. At the time, they were all cash flowing (net) about $150/door. Today, that number is $500-$600/door on average.

I benefitted from rent inflation, but I also did some things that would help improve net cash flow (appealing property taxes, for example).

Happy to send you some resources with more details on how I accomplished it.

Alecia Loveless · Answer

@Kyle Fitch I’ve got 31 units and average about $6,000/month. I took out a second mortgage on my newest building so when that is paid off in 5 years this will go up to $8500/month.

This will depend greatly upon your market, in my area $200/month/unit is considered solid cash flow.

Some markets may be higher, and a lot of markets now are either break even or slightly negative for the first couple of years.

Drago Stanimirovic · Answer

Yes, acquiring 19 rentals with $300-$400 monthly cash flow each over 10 years is realistic, but it depends on the market, property types, and how you manage financing and expenses. Markets with balanced property prices and strong rental demand will be key.

While rising prices and interest rates may impact cash flow, with careful deal analysis and a focus on areas with good appreciation potential, it's achievable. Staying consistent and adapting to market changes will help you meet this goal.

If you need help with financing or property strategies, feel free to reach out!

Best,

Drago

Kyle Fitch · Answer

@Jonathan Greene

I appreciate your response and insight!

What would be my earning potential?

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