The Book on Rental Property Investing - Part 2

In chapter 3 Brandon outlines different strategies to build wealth over time. I thought I’d see how our strategy lines up to his great examples.

Our goal is to accumulate $1MM in net worth in 15 years, about half of which will come from investment properties.

Year 1: Purchase 3 properties, 5 units. Invest $22K personal savings. Value $280K (30% forced appreciation), loan of $193K. Job savings of $10K, rental cash flow of $3K (partial year).

Year 2: Purchase 1 property, 2 units. Incremental value $165K (25% forced appreciation), total accumulated loans of $310K. Job savings of $16K, rental cash flow of $13K.

Year 3: Purchase 1 property, 1 unit. Incremental value $53K (0% appreciation), loan of $340K. Job savings of $14K, rental cash flow of $15K.

Year 4: Holding pattern, lending got tight. Loan of $315K. Job savings of $8K, rental cash flow of $16K.

Year 5: Holding pattern, rough year, unsure of path forward. Loan of $305K. Job savings of $10K, rental cash flow of $16K.

Year 6: Holding pattern, stuck in inertia. Loan of $275K. Job savings of $9K, rental cash flow of $22K.

Year 7: Holding pattern, full time college bills start. Value $420K (1% per year appreciation), loan of $250K. Job savings of $9K, rental cash flow of $17K.

This was a good exercise, some of the numbers surprised me.

I thought we were better savers. Brandon suggested trimming $1K/month off expenses, and that was assuming a lower income than ours. We aren’t doing fantastic. At least we are debt free except for mortgages.

I didn’t realize how much under market we bought the early properties for. Of course, how do you measure market in an unstable market? Not surprised there hasn’t been much appreciation since then. We’re building wealth by having tenants pay off the mortgages, not through appreciation.

I’m also surprised at how consistent the rental income has been. Living through it feels like a roller coaster of good and bad years, but once you get enough properties they help stabilize each other.

Not nearly as aggressive as Brandon’s examples, but includes putting two kids through college with no accumulated debt. Maybe once they graduate (year 11, we hope) we will get in gear again. It’s funny how our plan seems really risky to most of the people we associate with, but looks pretty wimpy compared the movers and shakers on BiggerPockets.