What does the cash flow path look like?

Question

My wife is under the impression that you can’t make money on Real estate until a home is paid off. It’s definitely a point of contention for us.

Can someone tell me what the path looks like to financial freedom? If my goal was to make 100k/year on RE, how many rental units would I need and how much time would it take. I know the answer is it depends but could someone put me in the ballpark?

What does the cash flow progression look like from year 1 to year 15? I know it starts slow

Paul Wakefield · Answer

Thanks Andrew!

So your example above has a $500/month.

I think I’ve heard BP mention $200/month is our minimum for entering a deal. So a person would need 40-100 investment properties to make $20k a month 100k/year on the above 2 scenarios? How long does that take people ?

Andrew Bang · Answer

You have to look at each property separately .   You can definitely cash flow with a mortgage.  Quick and easy way is to take your PITI and add $300 for expenses.  Any rent above that would be your cash flow on that property.

So your cash flow will depend on buying the correct property and putting down enough to get your PITI right.  It your PITI is $1700 + $300 expenses = $2000.00 If you can get $2500.00/month rent for this property then you'll cash flow $500 approx a month

Conner Olsen · Answer

@Paul Wakefield There's tons of variables to consider. First I would think about how much capital you have and how much you expect to have over the next decade. If you assume a 10% CoC return and 20% down for each property and an average purchase price of $200k then you would need 25 rentals and $1 million in cash.

Lexey Vezzoso · Answer

Hey Paul!

It can definitely be challenging in these beginning stages trying to learn it all and understand what you can do in real estate.

I want to recommend a YouTube channel for you and your wife to watch that will teach you some amazing ways that you can make money in real estate without paying off a single home.

Look up Pace Morby on YouTube. He has a ton of great information on there that shows you the ways you can do this without any money.

Good Luck!

-Lexey

Bill B. · Answer

What you need to consider when you ask what do I need to make $100k/year is do you mean this year or in 10 years?

7 years ago I was “making” $97k/yr with cashflow of $72k. Is that what you mean or do you mean cashflow $100k/yr?

Either way, 7 years later with the same 11 properties I’m making and cash-flowing $175k/year. (Because I used the rent to pay off the mortgages) With rent increases I’ll be around $190k by years end.

So somewhere between 6 properties if you can wait 7 years to get there. And maybe 15 if you mean this year right now. This might be easier or harder to do today. I did it with low interest rates and cheap prices. But I also did it with almost zero inflation and before BP and free expert opinions and advice from people who had done it all before. I knew NOBODY that owned 1 rental or even 2 houses. I THINK I made $60k one year but that might be a dream.

I bought a new primary every year and a year later turned it in to a rental and bought a new primary. Occasionally I had enough money or found a good enough deal to buy something as a rental right away. Rents have literally doubled in the last 7 years. If they do that again I could easily be making $400k/year on 11 rentals in 2030. (Although that might be the same as $200k today or $100k 10 years ago.)

But honestly, the income hardly matters. 10 years ago These were cheap $150k houses that are worth maybe $450k each now. That’s $3.3million in appreciation. Imagine if I had bought expensive homes or more of them.

Don’t worry, you’ll always have FOMO. When real estate was slow and the stock market was a rocket ship from 2010 to 2016 I kicked myself for not having it all the stock market. This year I’m kicking myself for the money I do have in the stock market. Real estate investing done correctly is really really boring. But it’s also slow. I used spreadsheets showing the reduced interest every month from making payments to keep my self motivated and show the ice was melting.

Mike D'Arrigo · Answer

@Paul Wakefield as long as you buy the right asset class in the right markets, there is no reason you won't make money even while you have a mortgage. Explain to your wife that real estate wealth comes from 4 sources: 1. Cash flow, 2. Appreciation, 3. Equity through mortgage paydown and 4. Tax benefits. The combined return from all sources is what makes real estate such a good investment in my opinion. Don't expect to get rich over night. You should figure on being it for the long haul. One of the beauties of real estate is that your returns become exponential over the years. The average annual appreciation rate in the U.S. is 3.5% and average rental rate increase is 2%. These returns compound every year. Although your income and equity will be increasing exponentially, the majority of your expenses will remain fixed over time assuming you have a fixed rate mortgage.

Kenny Smith · Answer

Paul,

All great questions!  It really all depends on what type of investment strategy you want to implement!  Whether that is long term renting, medium term renting (furnished), short term renting (under 30 days, furnished), rent by the room (live in one room, rent out the others), multi family property (live in one unit, rent out the others, single family home, etc.  If you want to take out an owner occupied loan, and live in the property for atleast a year, or if not, you'd have to take out an investment loan typically having to put down a minimum of 20-25%.  It really depends on your situation.

As an example, my fiancé and I house hack our 2 SFH's.  We have a separate unit in the basement in which we AirBnb (STR).  We do about $2,500-$3,000 a month on average.  Which just covers our mortgages.  Once we buy another one, we can rent out the top floor of our house, and probably cash flow about $3,500 a month after expenses such as utilities, PITI, CapEx, Maintenance, etc.

If you have any other questions, feel free to DM me, and I'd be happy to help.

What does the cash flow path look like?

Most Popular Reply