Can I comfortably retire in 15 years, living off rental cash flow alone, by, every year for 15 years, putting 20% - 25% down on 1 run-of-the mill turnkey property at retail in a stable market (say, Indy) and re-investing all cash flow?

Question

This seems like an extremely conservative strategy for someone my age (I'm 26), but all I really care about is being able to retire comfortably and early in my early 40s. I know nothing is guaranteed, but does this conservative strategy have a probable chance at attaining the desired outcome?

Moving away from hypotheticals, has anyone out there actually employed this conservative strategy and been able to retire within 15 years of purchasing their first property? HAS ANYONE DONE IT? Would love to chat with you!

And speaking more analytically, does anyone have a SPREADSHEET that puts such a plan in action (at least in Excel), making reasonable assumptions, to prove that the numbers would work?

J Scott · Answer

This is a gross simplification, but it's better than nothing (too much turkey to think too hard right now)...let's assume:

- A turn-key property costs $100K

- You put down 20% ($20K) on each

- You purchase one per year

- You generate 8% return

- You reinvest all the cash flow for 15 years

The principal and reinvested cash flow will be worth just shy of $600K in 15 years.  Assuming 30 year amortized loan on the $80K mortgages, after 15 years (the first property you buy), you'll have about $26K in loan pay-down; while not linear, for simplicity, we'll say that the average loan pay-down of the 15 properties is half that ($13K), for total additional equity of about $200K.

That's total equity of about $750-800K; if you can generate an ROE of 8% across that portfolio, you'll be cash flowing about $60K per year, pre-tax in the year of your retirement.

Now, if you can generate a good bit higher than 8% by not buying turn-key properties, you'll likely find that your final numbers are much more interesting...

Shera Gregory · Answer

Hi Logan -- you asked about spreadsheets. The link below is for one that I put together starting with one that J. Scott developed. I made a few tweaks such as allowing for an all-cash purchase and 15 year loans. I also separated out maintenance from capital reserves. I agree with other comments that you have to plan for the large ticket items that come up only once every five to ten years on a single home but with 15 properties those are going to happen every single year. You can play with the numbers here, including rent increases and expense increases. Just be sure you aren't putting together deals on paper that won't exist in real life. The spreadsheet is for one SFH but you can project how this would cascade with multiple properties.

http://www.biggerpockets.com/files/user/Sartain/file/modified-sfh-cash-flow-analysis

Joe Villeneuve · Answer

That is the way to do it.  That is my model.  Use all cash in, refinance when seasoned for REFI, buy another, and so on.  When you refi your last property in the string, you get your money back out you started with.  You never spent it...you just used it over and over again.

It's fast, and you are always ahead, since you have cash coming out of these houses (cash flow), but you refinanced all your cash you put in back out.

Kerry Baird · Answer

Keller in his (terrific!) book Millionaire Real Estate Investor has a table that shows best practices for buy and hold, and using cash-out refinance to maximize your returns over the long haul.  Here are some of my favorite ideas from this book:

Financial Model:  buy middle of the market houses, purchased at 20% below value, 20% down and a 30 year loan.  There are just two ways to build wealth with real estate: equity build up and cash flow growth.  There is a compounding power of making several real estate purchases over time. It will increase your net worth and passive income exponentially.  For the first ten years buy one every other year using earned income. From here on out you could make all future acquisitions from the accumulated cash flow.   Now ramp it up to one house every year for ten years.

One house wouldn't do it for me.  5 paid off houses may do it.  10 paid off houses are even better.

Brandon Turner · Answer

Hey Logan A. I definitely think it's possible but there are some outside things that could affect your timeline. But if you were off by a few years - somehow I think that's okay :)

Check out these, if you haven't yet:

http://www.biggerpockets.com/renewsblog/2014/08/02...

http://www.biggerpockets.com/renewsblog/2012/12/12...

Happy thanksgiving!

Joseph Ball · Answer

Certainly not. Put your money in chain letters and MLM. LOL

Wayne Brooks · Answer

You can easily answer that for yourself.  If that property were paid off today, could you comfortably live on the rent from this one property, less normal expenses (say 40%)?  If not, how many paid off properties would it take?

I just noticed you said one a year.  Same answer, only of course they won't all be paid off.

Bill Gulley · Answer

750K @ 10%, 30 year, is $78,981 a year, if they refi after 10 (it's a commercial loan) so what, lend it out again! I don't fix toilets! Retire at 55, you won't need to get in the soup line until you're 85, unless you did a little reinvesting. Taxes not included, see your advisor before investing, this is no guarantee and your mileage may vary. Buy 2 a year instead!

I'm with Jason, I'm too stuffed and fighting to stay awake now!  :)

Joe Villeneuve · Answer

Not possible.  The numbers don't work.  You'll need new money every year for a new property, that will have more cash you put into it than you'll be getting out it, for probably at least 10 years after each property is purchased...and yes I have a spreadsheet to show this.

You don't need one though.  Simple math.  Each house will be making only pennies on the dollar.

"If it only makes cents, it doesn't make sense...it should make dollars".

Jay Hinrichs · Answer

@J  Scott   that will handle the wife's credit card per month

Can I comfortably retire in 15 years, living off rental cash flow alone, by, every year for 15 years, putting 20% - 25% down on 1 run-of-the mill turnkey property at retail in a stable market (say, Indy) and re-investing all cash flow?

Most Popular Reply