Ideal number of rental properties?

Question

Hello everyone,

I was wondering what most of you real estate investors would consider the "ideal" number of properties to be able to quit your job and live comfortably without having the NEED to pick up another property. Lets say each property brings in a net profit $150 cashflow every month.

All answers are highly appreciate.

Ali Boone · Answer

The answer is different for everyone. Calculate your expenses per month, and figure out how many properties would be required to cover those and then have a little cushion.

One property buys your groceries. Another property covers your entertainment expenses. Four properties cover your rent/mortgage. Do it that way.

Jon Holdman · Answer

Really, this question deals with cash on cash returns, regardless of the type of investment.  If you've found investments that product 10% cash on cash returns, and you want $100,000 a year, you need to invest $1 million.  That might seem scary, but run one of the numerous retirement calculators and that number might look achievable compared to the numbers they cough up.  If you want to be a "capitalist" and live off the income your money produces, you need a lot of money.

Many people do exactly what Brian Mathews is saying.  Buy one or two properties per year while they're fairly young.  Use 15 year loans, which hurts your cash flow in the short term.  But when they're paid off, you have an asset that's producing as much as a rental can.

A lot depends on where you invest.  That has an impact on your lifestyle, too.  There are plenty of places where you can find rentals that will generate 15-20% cash on cash returns.  Pretty much anywhere away from the east and west coast, if you pick the right specific area.  Those places tend to have lower costs of living, do you get a double bonus.

OTOH, if you're determined to live the high life in LA or NYC, you need more income.  And rentals produce worse returns.

Jon Holdman · Answer

$150 a month would be $1800 year.  If you want $180,000 a year in income, you would need 100 properties.   OTOH, if $18,000 is enough for you to "live comfortably", you only need 10.  So, the real question is what lifestyle do you want and how much does it cost to live that way?

Brian Mathews · Answer

It also depends on your cashflow.  I'd rather have 20 - $1000/month rent paid for properties cashflowing $500 a month.  Than 100 of them cashflowing $100 a month.  Less hassle and you may not have to pay PM fees.

Harry M. · Answer

It's funny that you mentioned that. That is exactly how I look at it. It's a great self-motivator - it's a lot easier to say "right, next property pays the water and electricity bill" than looking up at this mountain of what it takes to become financially independent.

One way of approaching reaching your goal while not accumulating too many properties is this:

- Figure out your comfortable living expenses, plus some money to continue investing once you're full-time.
- Figure out how many properties that would take, if they were paid off. So if the OP's goal is 10K/month, and we use the 50% rule, and go for properties that rent for 1200/month, that's 17 properties. 
- Set about acquiring properties as fast as is prudently possible, with the best financing rates you can get, that cash flow with the financing in place. Don't worry about paying down the mortgages yet.
- Once the 17 properties have been acquired, start paying them off one at a time, in order of interest rate. Unless you were able to acquire the properties super-fast, then while you were busy acquiring you will have at least dented the mortgage balance with your regular payments. Also, unless we go through a period of negative inflation, the mortgage balance will have devalued over time due to inflation. So you have a nice head start, then you slam the remaining balance with the cash flow from 17 properties plus the money you had been setting aside for acquisition. Then you hit mortgage #2 with all of the above, plus the increased cash flow from #1 due to having paid it off, and so the snowball picks up speed.

What I like about this is that you don't wind up with so many properties that managing them is a pain in the rear/expensive. And if you really crunch the numbers it is almost as fast as continuing to acquire financed properties after you've picked up #17.

Jon Holdman · Answer

I think few people live purely off rentals.  I don't expect to.  Rather, its one of many sources.

If you do really want that many units, I think most investors end up with larger properties.  They also are probably using professional management, which reduces your on labor but increases your costs.  My personal estimate is every unit requires about 20 hours per year, if you're self managing.  So, 100 units is 2000 hours, which is a full time job.  OTOH, if your rents average, say, $1000 per unit, $100,000 total per month, $1.2 million per year, you might be paying the PM $120,000 per year.  That's not a bad paycheck.  Realistically, with this many units, you probably have a company and have employees doing this work.  But, that's another form of a job.  Even managing the PMs for this number of properties is something of a job.

Elizabeth Colegrove · Answer

Honestly I don't have an ideal number of properties. I have an ideal number per month I would like to cash flow. My first goal is making up my salary. My second goal is making up my husbands salary. Third goal our combined salary.....

Baby steps are key along with knowing that things change and adapting to your new priorities.

Todd Carel · Answer

Going back to what Jon said.....how many of you live off your rentals? To me it seems daunting to expect to live off buy and hold investing until you have them all paid off. I'm not even close.

John Thedford · Answer

I am not worried about the number of units. I worry about net cash flow. Would you rather have five great cash flowing properties or twenty poor properties that cost you money every month?

Annette Hibbler · Answer

Why set a limit at all?  Like many other investors, I live off my passive income.  When I want to acquire a new car (which is liability) or go on vacation to Europe for instance, I'll wait to acquire another asset that can pay for that.  My assets (properties and passive income) pay for my liabilities. Why set limits when I don't have to?

Ideal number of rental properties?

Most Popular Reply