Investing for 15 years compared to brokerage account

[Michael Clemson]

I have been reading the site and other resources for a few weeks. This will be a wall of text, but I've thought this through and hope someone can check my math and assumptions about how this works.

My goal is to compare 15 years of real estate investment using a $60k base cash investment plus $12k injected personal cash per year. I am comparing it to a taxable brokerage account (since I already max my 401k and IRAs) which would receive the same base and injections. As a "model" property, I used a 4-unit property in my area selling for $225k with monthly rents of $695/unit. I used estimated costs for cleaning, utilities, property tax, mortgage interest, insurance, professional services, etc, and guessed repairs would be 2% of the property value per year. It came out about the same as using the 50% rule and adding in the mortgage. Either way, this gives me 1/3 of rents in cash flow per year. I would need to put down $60k in principal and closing costs for the first year. In return I would receive $10k in rental income or $7.2k after 28% income tax.

Using this house as the "model," I then map out future years to determine when I could buy my next property. For any year in which I would start on January 1 with a multiple of 60k in cash (from rental income plus excess personal cash), I buy another model property, using the same assumptions as the first. (I ignore inflation, since my rents and personal income will also inflate.)

According to this math, I would buy my 1st property this year, and then again in 2017, 2019, and 2021, until starting in 2023 where I buy one every year until 2029, when I could buy two properties per year. By 2030, my annual rental income for 14 properties would be $143k, or $103k after taxes. I would have over a 850k in equity. By contrast, the same cash injections and reinvestments of return on a brokerage account would have only yielded me 610k by this point. If another 15 years pass, by 2045 (at the ripe age of 60), I'd likely be done buying new properties, with a portfolio of 69 properties. Even so, at 60 I would have $4M in equity and $700k in annual rents, compared to just $2M in a brokerage account.

So, some hard truths. I didn't include management costs, but at some point, at around 5-10 properties (20-40 units), I imagine I would either need to quit my job or hire someone to help with management. This could eat some of the revenue and slow growth. By 60 in my example, I would have had 280 units -- definitely a full time job! This is napkin math, I didn't add inflation, so it's basically expressed in 2015 dollars throughout. Nor did I adjust taxes on my rental income for older properties that have less interest expense after, say, 15 years of ownership on a 30-year mortgage.

What am I missing? Do you see issues with my model assumption?