Asking how long it takes to have a million dollars cash in the bank is unrealistic in my opinion. SFR is the long play. Properties cash flowing $400 a month is $4800 a year. You would need many properties. 20 properties at $5000 a year is $100,000 in 10 years you would have a million. That is not how to look at it. I know you asked not to discuss net worth, but that needs to be part of the equation. In a few years my rental portfolio is $600,000 plus of equity. There are numerous tax advantages as well. I don't look at it as how much cash I have but my net worth is more important. I could sell my portfolio and put $500,000 in the bank, but I'm looking for generational wealth. You can have a million dollars in value both cash and net worth but it's a marathon not a sprint.
Realtor · Pensacola, FL · Member since 2019 · 89 posts · 29 votes
6y
@Dustin Sanders
Maybe I should’ve asked it this way:
I’m starting from zero ($0) and buying my first rental property. If I’m wanting to buy an apartment complex for $5M, how long will it take me to build up enough capital for a 20% down payment ($1M)?
Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
6y
You can go to Target with a million dollar bill and ask for change . . .
No one can help you without additional information:
What are you doing with the cash that is being generated monthly from your properties? Stuffing your mattress? Getting 0.01% interest in a savings account? Earning a 5% dividend on Verizon stock?
What are you starting with? How much cash flow are you generating from your rental?
I understand. I tell them you have to look at equity, cash, ROI etc. If you calculate IRR It essentially is a ROI but not necessary cash in the bank. I would look at an investor who invests $300,000 into a deal. During the 5 years he received an annual return on his cash of 12% that's $180,000. He may also receive equity (say it's 70/30 split). You sell the property for 1,000,000 more than the purchase. In theory he would share in that equity split with other investors. Let's say he had 20% equity. That's $140,000. At the end he received $300,000 principal plus $180,000 interest plus $140,000 equity or a total of $620,000. This how I would explain it back. This is not counting any tax deductions you could take advantage of. You could apply the same theory to SFR.
Chandler, AZ · Member since 2020 · 295 posts · 272 votes
6y
As you can see a lot of people on this forum including myself don't have a direct goal of any particular number in our bank account. We see the goal of continuously building wealth with your profits. We can cash in at any time, but that isn't the goal. How quickly you accumulate wealth I think is what you are asking. The answer is it varies wildly and can not be predicted. It depends on environmental conditions and your decisions. Some people can start with nothing and wisely manage their RE business and have a million in a few years. Others can start with $100K, make poor decisions, and loose everything. Some people have high risk tolerance and others do not. I have been slowly acquiring RE ad do not have $1M in equity. I'm guessing that if you take all RE investors in the US, more than half do not have $1M in equity in their lifetime. Many do as its not too hard to get if you make wise decisions and are active. Only your decisions can predict your outcome.
Realtor · Pensacola, FL · Member since 2019 · 89 posts · 29 votes
6y
@Chris John
Thanks for the input Chris!
My sister is asking me when will she actually get to enjoy her money with enough in the bank?
For context, she is a nurse practitioner and her husband is a medical director so they’re making great money from a corporate employer perspective. They also hate what they do and would rather quit & be RE investors. At what point can they leave their comfortable $500k combined income? They have aspirations of having $1M in the bank so they can enjoy life with their kids, travel, etc.
Chandler, AZ · Member since 2020 · 295 posts · 272 votes
6y
Your sister's ask doesn't directly align with the RE investing that you likely would be able to participate in. Syndication might be what she is looking for? If she wants to know when she will reach a certain monetary goal, that type of thinking applies to different investing such as bonds and annuities and not to something as dynamic as hands on RE investing or stocks. Here's an example. One person can invest $300k cash in a SFH bought outright and receive say $1500 rent per month It would take 55 years to earn 1 million before expenses. Another person can start with $100K, fix and flip 10 houses and end up with 1 million in 5 years or less. The rate of return is based on active decisions and can not be guesstimated. She may be asking you to provide a specific offer on a specific property were you can work out all of the numbers and therefore estimate a profit on that one project. It probably won't provide a million dollars in the first transaction and you can't predict how many deals exactly it will take to get there.
$1M in the bank isn't going to be nearly enough to provide your sister's family with the lifestyle they have gotten used to. However, if they are making $500k a year, they can easily have their 1 million savings after 3 years with a financial advisor directing them and some discipline. That is going to be hard for you to turn around that kind of profit share for them in 3 years through RE starting from zero.
Rental Property Investor · Washington, DC · Member since 2020 · 20 posts · 35 votes
6y
@Dustin Sanders
To quote others, if they're bringing in 500K, they should hit that and more in a few years with a good advisor even outside of REI (REI response below). Not sure how much they're spending per year, but I'd suggest knocking that down and getting aggressive with investing & saving. Under the "25x Rule" they should multiply their income (or cost of lifestyle) by 25 to determine how much they'll need in retirement. If their lifestyle is 100K per year, they'll need 2.5 million. If it's the full 500K, they'll need $12.5 million (which sounds like a great goal for the couple, considering what they earn).
“The theory behind the 25x rule is another rule–the 4% safe withdrawal rate rule-of-thumb. According to the 4% rule, a retiree can withdraw 4% of their investments in the first year of retirement. In subsequent years, they can then increase the amount by the rate of inflation. At this withdrawal rate, the theory goes, the retiree has a reasonable chance of dying before they run out of money.
It’s not a guarantee. Experts have backtested the 4% rule and found that it works MOST of the time. A very bad market in the first few years of retirement, however, could spell disaster for any retiree.”
In REI, they should take that $1,000,000 goal and divide it by the number of years they'd realistically be able to invest and earn it. Taxes, mishaps etc not included, if someone wanted to gross $1,000,000 in a year, they'd need 83/84 units all paying at least $1,000/mo. Plenty of BIG development companies pull far more than this on one building with 200 units in Washington DC, Boston, LA etc.
10 years that’s 100K per year, that’s between 8 and 9 units at $1,000/mo. Or double at $500/mo. This is without spending that money for 10 years. They can break the math down however they want. This is “grossly” oversimplified.
Take some of that good money and invest it into a high-rent area. For instance, my rent is $1650 here in the DC area, which is low compared to neighboring high-rise buildings with full amenities charging $2200+ ($1800+ for a studio). The guy who owns the place and is guiding me in my REI journey, owns a tooooon of garden-style MF buildings in the area and is easily grossing $1-2 million/year with his 1 partner. He started RE investing in college with $10K, and is an older man now. He lives in CA and his property manager does the heavily lifting here in DC.
Ask them to push those limits and aim for $12.5 million. They also have the option of taking their $1M (in 3 years tops) and moving to a country where it stretches further. I’d still go for that $12.5M.
is this a real question? or are you messing with people? BP has gotten pretty crazy with off the wall useless questions like this. ill answer your question they make 500k a year right? well it is very easy to live on 100k so that leaves 400k a year. that means if they should be able to save over 1m in less then 3 years. here ill help alittle more. take that 400k and buy few multi units each year for those 3 years and you could probably make 500k vary fast. thank you
Investor · Lakeland, FL · Member since 2017 · 1k+ posts · 1k+ votes
6y
The question isn’t really being asked right by the original poster’s family. They should look at the amount of cash they net each month (the amount of cash it takes to run their life each month)... not the amount they make. You need far less than their gross income... because they likely wouldn’t have to cover payroll taxes, 401k contributions, etc. they would likely have to pick up health insurance (cobra or otherwise) for themselves, however.
With that calculation done, it's a "simple" matter of figuring out an average NOI of properties they want to invest in and the dollars it would take to buy those properties . If they thought they could net $300 per door per month, and they needed $10,000 net to live on a month, they would need around 34 doors generating that NOI in a perfect world (this neglects Nom-operating properties due to turnover, renovations, non-paying tenants, etc)... so you would need a "fudge factor" to account for the incidentals.., but I think you look at it from a cash-flow perspective, versus acquiring $1,000,000 from real estate. Because $1,000,000 being spent at $120,000 a year ($10,000/month) is going to last all of about 8 years! But $10,000 in true cash flow will keep coming in month after month.
Rental Property Investor · Greenville, SC · Member since 2019 · 115 posts · 264 votes
6y
@Dustin Sanders this is WILDLY vague. There is literally no answer to this question given the (lack of) information provided. You want $1 million in your bank? Hustle, find deals, make connections and you come back and tell us how long it took.
Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
6y
Forget the noise here. The question is really, "How long do I to work at it before I have what I think are the aspirational toys and lifestyle of a millionaire?" The answer to that question is pretty simple: "Never." Because precious few people who want those toys and lifestyle ever make real money in real estate. You simply HAVE to have a better reason than that to do what's necessary.
I look at equity as being cash, I can access it anytime I want with a cashout refi. I just choose to leave it in the house because getting a .25% interest rate at the bank just doesn't make sense. If I did pull it out of a house, it definitely would not be sitting in a bank, it would be used to purchase another investment. So my answer to partners or potential partners would be never will I have a million in the bank, I would be a bad investor if I did.
There are many ways but as an individual investor with individual capital there are not that many. Plus like someone pointed out 1 million won’t give you much headroom. But let me articulate how I know.
Properties that are purchased in high appreciation areas can return you 2 - 4x in relatively short period of time. That’s how it’s worked in markets like SF or NYC over the past 20 years with some gaps for recessions etc. But often you will also have to come up with at least a high 6 (up to 999k) or minimum low 7 figure investment (over $1m) to start that process.
The other way is to do the “cash flow per door” model. The investment is lower but the returns are not that awesome especially if you are looking to pay your bills using a portion of that cash. This is the very long pole way getting to your million dollar target unless your properties appreciate and you are able to exit via a sale.
There are of course other assets you can tap. I know enough people who have angel invested in tech startups and have multiples of millions, the early investors in bitcoin etc might have done similar.
I'm very suspicious about this answer. You mean to tell me that it will be exactly 8 years and 5 months on the dot, no days to spare? My spidey senses are up!
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
6y
If they are making a half million a year, they should be able to save one million in a short period and earn 8-15% investing it passively (and more if investing actively).