Can $100,000 Invested in Rental Property Retire Me RIGHT NOW?

by FI Fighter on July 5, 2013

in Real Estate Thoughts

DSC08784

Anyone on the journey to early financial independence is longing for the day when, for any given month, the following event will occur:

Net Passive Income > Expenses

Just Gotta Believe

When this day arrives, the dream will become reality. This is Year 2 on the journey for myself, and I am still as passionate about achieving this goal as I was on the day I first started. It’s a slow process, as I’m sure many will attest to, but one that can be extremely gratifying as well. It is so empowering to see your net worth grow — seeing paychecks, dividends, rent income, even interest from a checking account being deposited into your account on a continual basis. I know one day soon, this income stream will become overflowing!

You just gotta believe! Stay on course, be persistent and patient. It will happen soon enough. Here’s a quote from Think and Grow Rich by Napolean Hill that I reference to on a daily basis:

“When riches begin to come, they come so quickly, in such a great abundance, that one wonders where they have been hiding during all those lean years.”

Evolution of Thought

You can say that the prospect of becoming wealthy is often on my mind these days. When I first started, my only real objective was to get out of the rat race ASAP. I had become burned out and disillusioned with the 9 to 5 grind, and wanted to desperately escape. I had read so much about safe withdrawal rates, that I initially thought that this was the right path for me. The safe withdrawal method showed me that I could safely withdraw 3% of my savings, and have the principal last throughout my retirement years (20 to 40 years). My original target retirement age, before starting this blog was 45.

But I never wanted to touch the principal. I wanted an investment vehicle that would preserve the principal and help it last indefinitely. Investing with dividend stocks seemed like the natural way to go. I figured, if I could just live off the dividends, then I would never have to even touch the underlying principal. To reach my objective of $1500/month in passive income using dividend stocks that yielded 3% annually, I would need the following:

($1500/month) * (12 months) = $18,000/year

$18,000/0.03 = $600,000

Not exactly a small figure, right? Even if we increased the dividend yield to 4%, that’s still $450,000. The truth of the matter is that it takes an even greater amount of time to save up for this principal when you consider the fact that this sum must be built upon earned income that must be taxed!

Put another way, I’m slaving away for every last penny that goes into this principal. Yes, even the capital gains obtained through selling must be taxed (whether it be short-term or long-term gains). Any dividends earned and re-invested must also be subjected to some kind of tax hit.

This sucks… and I’m sure everyone feels the same way. But what if there was another way… a better way?

New Approach

When I first acquired Rental Property #1, I didn’t really know what I was doing. I bought it because I knew the market was hot, but I really didn’t fully understand all the tax benefits of owning property. It really wasn’t until I filed my tax return for 2012 that I started to grasp all the benefits of home ownership. The light bulb started to go off big time, you could say.

You see, the government wants you to own property. They tell you so explicitly through the tax laws (loopholes, some might say). After accounting for interest deductions, depreciation, maintenance/repairs, etc., you can basically walk away and keep all 100% of your net rental income! Talk about taking a short cut towards wealth accumulation!

It gets better. When you sell property, there are many things you can do to avoid paying taxes. If you own the home, and designate it as owner occupied (not a rental), the government allows you to profit up to $250,000 ($500,000 with a spouse) upon selling, provided you lived in that house for two of the last five years. That’s right, you’ll pay 0% tax on capital gains up to $500,000. See, this is how the rich keep getting richer!

In my case, if I decided to do a 1031 exchange right now (on either Rental Property #1 or Rental Property #2), I could sell it for $100,000 profit, and roll over all that money and buy even more rental properties. Not a single penny would be subjected to taxes! (still have to pay the many small transaction fees, agent commissions, etc., but you get the point). So, not only does the government give you a break on your own personal residence, but even rental properties can avoid the tax man! How awesome is this?!? $100,000+ in net gains will go a long, long ways towards setting anyone free.

Hey, I didn’t make the rules on how this investing game works… but I’d be a total sucker if I didn’t use them for my own advantage. Clearly, all the signs are telling everyone to invest in rental property!

$100,000 Ammo

This brings me to the point of this article. Lately, I’ve been spending a lot of time on real estate forums, and a question that gets asked over and over again is, “I am a newbie. I have x amount of money. How should I invest it?”

$100,000 is commonly thrown around, so I’ll work with that figure. If I was starting from scratch today with $100,000, here is exactly how I would invest it:

– Identify a rental market that has favorable returns (e.g. say NO to: Bay Area, L.A, New York, Boston, etc.).

– Make sure that the gross rental income is at least 1% of the purchase price (e.g. $1000/month rent is 1% of $100,000. Even better, see if you can get 2% — $1000/month for $50,000 property).

– Put 25% down on the downpayment.

– Go with a reputable turnkey provider that also manages their own properties.

-Try and get 2-4 properties. In different markets for diversification. A blend of single family homes (SFH) and multi-family units (duplex).

And that’s basically it! As you can see from the above, I’m not going to let something as trivial as out-of-state investing deter me from reaching my endgame. It may seem scary at first… but so was buying stocks the first time around. It’s just the way the human psyche works… we immediately feel uncomfortable with something we don’t understand. But once you let it marinate in your mind for awhile, it really isn’t that scary at all. When I was buying dividend stocks, I bet you I didn’t know where 99% of the companies were headquartered. No big deal…

…But I do need to address this one major point:

DISCLAIMER: I’m NEW with this whole out-of-state investing thing, and this is my first time working with a turnkey company. Since I haven’t officially started collecting rent checks yet, I don’t want to misguide anyone with any false information or false promises! That is why I am volunteering to be the guinea pig. I insist. I’ll update the progress of my out-of-state investing on this blog, regularly. In fact, I do hope you learn (and earn) from all my mistakes. As always, do your own due diligence and know your risk tolerance before venturing into ANYTHING. The following is a thought experiment and nothing more. I am NOT offering any advice, or guidance. Consult with a professional before making any investment decisions. Protect your downside, always!!! The purpose of this article is to simply share with readers where my thought process is currently at. This is the state of mind I’m operating in right now, but by no means is anything guaranteed. I’ll have to try this for a few years before I can truly say with 100% certainty that everything is working as intended.

So, using the above criteria (and factoring in that important DISCLAIMER), let’s start looking for some properties!

Rental #1

When I first started looking at out-of-state properties, I took a trip out to the Midwest. After careful consideration, I’ve decided to focus primarily on the Indianapolis and Chicago markets.

Rental Property #3 is a two-flat in Chicago. Let’s start there and try to find a similar type of property.

The following is a typical two-flat property found in South Chicago. It’s about 100 year’s old, solid brick construction. Each flat rents for about $1100/month. That’s $2200/month in gross rents. Since the purchase price is $160,000, our 1% rule is satisfied.

Chicago_Property

If you go through a turnkey company, the property will be fully rehabbed inside. It’s basically brand new EVERYTHING! You can check out my Rental Property #3 updates to get a peak inside. Further, property management is already in place, and the turnkey companies generally guarantee that the tenants will be leased and in place prior to closing. The first year’s rent is typically fully guaranteed as well. Rental properties will never be truly “passive”, but having management in place will help make it somewhat “semi-passive”.

Here’s a breakdown of the numbers. You can see how the returns get “juiced” when the gross rents > 1% of the purchase price. The returns are still solid even after allocating funds for maintenance (5%) and vacancy (5%). Property management fee is 8%, which is typical. You MUST remember to do this. Expenses are more than just mortgage, property taxes and insurance!!

Chicago_numbers

The downpayment comes out to $40,000. However, let’s not forget closing costs which will eat up another $5000, or so (appraisal, inspection, title transfer, etc.). Total cost is $45,000.

We have created a net cash flow of $650.49/month. We are more than 1/3 of the way towards reaching our $1500/month passive income target. We now have $55,000 remaining to invest.

Rental #2

Just as you would never put all your eggs in one basket in the stock market, I believe the same should hold true for rental properties. With that said, I really like Indianapolis as a rental market. The purchase prices are insanely cheap, the state is landlord friendly (much easier to evict a tenant here), and the property taxes are generally very low.

Continuing with our mission of finding turnkey properties, here’s another one:

Indy_Property

This property was built in the 1960’s. It’s somewhat older, but it is a single family home. It’s also ridiculously affordable, with a purchase price of only $62,000, even though it has been fully rehabbed (though not to the extent, and quality of the Chicago properties). The neighborhood is probably in the “B/C” range.

Let’s look at the numbers. For property management, we are factoring in 10%. This is higher than the typical 8%, but expected since the rents are much lower. Typical rents in this area are around $700 to $1000. This property rents for $800/month. Vacancy and maintenance are both 5%, like Chicago.

indy_numbers1

Alright, so Chicago took down 45% of our disposable funds, leaving us with 55% left to finish the task. We were able to obtain $650.49/month in rent from Chicago, so we still need to account for the remaining $849.51.This Indianapolis property will add $304.62/month in cash flow. Adding the two incomes together, we are now at $955.11.

The downpayment here is $15,500. Let’s add $3000 for closing costs. We have now used 63.5% of our capital. We have $36,500 left in ammunition, and are 64% of the way there towards achieving $1500/month.

Rental #3

Sticking around in Indianapolis, this time we’ll go looking for a newer construction single family home.

This property was built in the 2000’s.

Indy_Property2

Similar to before, we will account 10% for property management fees. The vacancy and maintenance reserves will be 5% each.

indy_numbers2

We are down to our final purchase and need $544.89 in passive income for us to reach our $1500/month target. This final property brings in $428.97. Summing everything together, we arrive at our final number of $1384.08, or $115.92 short.

However, this property only cost $22,500 in downpayment. Adding $3000 in closing costs, and our total for all three properties comes out to be $89,000.

This means we didn’t make full use of our $100,000 capital. For this study, I did elect to go with a cheaper property for the first Indianapolis purchase, so substituting that for another property similar to Indy #2 would have helped us reach our goal.

Still, the analysis does show that it is VERY possible to achieve $1500/month in passive income through the use of just $100,000 in capital. This is truly amazing… unbelievable, really.

Original Numbers Summary

Capital Invested:

Chicago: $40,000 (25% Downpayment) + $5000 (Closing Costs) = $45,000
Indianapolis #1: $15,500 (25% Downpayment)+ $3000 (Closing Costs) = $18,500
Indianapolis #2: $22,500 (25% Downpayment)+ $3000 (Closing Costs) = $25,500

Total: $89,000

Net Rental Income:

Chicago: $650.49
Indianapolis #1: $304.62
Indianapolis #2: $428.97

Total: $1384.08

Total Cash-on-Cash Return: ($1384.08) * (12) / ($89,000) = 18.66%

Revised Numbers Summary

Capital Invested:

Chicago: $40,000 (25% Downpayment) + $5000 (Closing Costs) = $45,000
Indianapolis #2: $22,500 (25% Downpayment)+ $3000 (Closing Costs) = $25,500
Indianapolis #2: $22,500 (25% Downpayment)+ $3000 (Closing Costs) = $25,500

Total: $96,000

Net Rental Income:

Chicago: $650.49
Indianapolis #2: $428.97
Indianapolis #2: $428.97

Total: $1508.43

Total Cash-on-Cash Return: ($1508.43) * (12) / ($96,000) = 18.86%

Breakdown

As you can see with the revised numbers, by substituting the first Indy property with a more expensive property (another Indy #2), we can allocate more of our capital and achieve our $1500/month ($18,000/year) target. In fact, even with the substitution, we still have $4000 leftover. Our cash-on-cash return, in both scenarios, is over 18%, including all the closing costs!!

You can run the numbers all day until you are blue in the face (I used to do this). But, eventually, there will come a time when you start to realize that sitting on the sidelines accomplishes NOTHING. For myself, I realized that if I truly wanted to reach my goal, and in a timely fashion, I would have to step up to the plate and take action.

Leverage vs. Pay Off

At this point, readers might be wondering why I’m advocating the use of leverage (taking out a loan), as opposed to just paying for a property with 100% cash? Well, for starters, multiple properties will provide a hedge against vacancy (e.g. 4 units total as opposed to 1 SFH). Also, multiple properties scattered throughout multiple states helps promote the diversification we seek in our investments.

However, and most importantly, it’s because now is a very good time to be borrowing money from the banks. Interest rates are at historic lows, so the numbers work out quite nicely.

Let’s analyze Indy #2 with the assumption that we went all in, $90,000 in cash.

indy_numbers2_revised

As you can see, our cash-on-cash return is no longer an outrageous 22.88%, but only 10.33%. Since we are going “all in” without a mortgage, our cash-on-cash return matches our Cap Rate, and is exactly 10.33%.

Although 10.33% is still a solid return, it doesn’t allow us to accomplish our goal. What we have, instead, is this scenario:

Capital Invested:

Indianapolis #2: $90,000 (100% Downpayment) + $3000 Closing Costs = $93,000

Total: $93,000

Net Rental Income:

Indianapolis #2: $775.00

Total: $775.00

 

Total Cash-on-Cash Return: ($775.00) * (12) / ($96,000) = 9.69%

Our total net income for the year comes out to be $9300. Our monthly cash flow is only $775.

This is a far cry from the original numbers of $1384.08, and $1508.43. Our total cash-on-cash has also been reduced from over 18% to just ~10% when we don’t use debt! Clearly, the power of leverage is evident. As long as the property cash flows (with all vacancy, maintenance, taxes, insurance, mortgage, etc.) accounted for, there’s really no reason not to borrow money. In fact, a person who knows how to utilize leverage effectively can supercharge their wealth building exponentially. But, I’ll save that topic for another day. Just know that now is a wonderful time to be borrowing money!

Conclusion

Going back to the original question, “Can $100,000 Invested in Rental Property Retire Me RIGHT NOW?” The long answer short, YES, I do believe it is possible to retire NOW off of only $100,000 of capital invested. Of course, you’ll probably want to keep working for a bit longer to secure a higher margin of safety… or buy more properties like me. 🙂

Who knows, maybe financial independence is just the beginning. Once the chains come off, who says you can’t do real estate investing full time? Just because I want to exit the rat race and stop working for the man NOW doesn’t mean that I’m lazy and unmotivated. Actually, I don’t think I would mind doing this full time (after a long vacation), because it’s FUN to be your own boss and control your own destiny. Maybe true wealth is actually just around the corner after you retire?

In closing, I’ll leave off with that famous quote yet again:

“When riches begin to come, they come so quickly, in such a great abundance, that one wonders where they have been hiding during all those lean years.”

Translation: Don’t work HARD! Work SMART! You’ll be FREE and WEALTHY forever after.

{ 57 comments… read them below or add one }

1 Dan23 July 5, 2013 at 4:34 pm

Pretty neat. I’ve been toying with putting some money towards a rental for a while. Did you have to personally sign for the mortgages?

Reply

2 FI Fighter July 6, 2013 at 7:42 am

Dan,

Yep, I had to sign for all mortgages under my name. Once I get to 5 or 6 properties, though, I’m probably going to form a LLC and transfer ownership of all properties into that entity. Both for legal purposes (isolate personal assets from liabilities), and anonymity.

With only 3 properties so far, it’s probably not yet worth the hassle. I’ll stick to Umbrella Insurance for the meantime.

Cheers!

Reply

3 Mauij February 24, 2016 at 9:44 am

How will an LLC create anonymity if you are posting about them on your website?

Reply

4 Martin July 5, 2013 at 4:52 pm

Fighter, it looks so great and easy when you are putting it down this way. I feel itchy to jump in a wagon and take this ride. It really looks appealing to own a property. But (you know me, still scared and skeptical), how those numbers go together with all the mortgages? Am I reading it correctly that your mortgage is around 350/mo and you get 600/mo in rent? How the hell I pay more in mortgage than I can ever receive in rent?

Reply

5 FI Fighter July 6, 2013 at 7:48 am

Martin,

Glad you are intrigued my friend. Real estate investing probably isn’t as scary as a lot of people make it out to be. Like anything, you have to do the research and find the markets that work. I guess that’s the tricky part. But the tax benefits and return on investment definitely make it worth the effort.

Yes, you are reading that correctly. For Indy #2, the mortgage is about $350, and total expenses is around $650. Since rent is $1100, you get to pocket about $440 each month.

The Indy market works for returns, but this isn’t true for all markets. I know California and Colorado are definitely more expensive, so you have to be more careful. In California, you could own a $700,000 property that will only rent for $2500/month. Using the 1% rule, the returns would start to get squeezed once you exceeded a purchase price of $250,000. So, for $700,000, the property taxes and mortgage will totally wipe out any gains. It just wouldn’t be possible to make that property cash flow at all. It would be taking money out of your pocket every month! So, from an investment stand point, it’s bad deal, any way you put it.

Take care!

Reply

6 Executioner July 6, 2013 at 5:55 am

Nice detailed article.

How does one go about finding a “reputable turnkey provider”?

Reply

7 FI Fighter July 6, 2013 at 7:54 am

Executioner,

Ahhh, that’s the fun part! At this point, I’d love to make a recommendation, but since I’m just getting started myself, I really can’t with full confidence.

I found these companies through networking. Kind of like when you are first learning about stocks, your probably go to Seeking Alpha, and read articles, interact with the community. Pretty soon, you learn which stocks are reliable, and make a list of targets to start investing in.

With turnkeys, they are also everywhere. Some have been around longer than others. So, it’s important to find other investors who have done it before, and can recommend it. The challenge when getting started is, “who can you trust?” It takes time to build up a sound network of people you can trust.

Ultimately, I’m taking a risk myself. But hey, I’ll be the guinea pig. My close friends are also monitoring my moves, sitting on the sidelines waiting patiently to see what happens next.

Cheers!

Reply

8 JC @ Passive-Income-Pursuit July 6, 2013 at 6:35 am

I’m glad to see some of the calculations that go in to real estate investing. That’s pretty amazing that you could potentially retire right now with just $100k invested. I guess I need to look more into getting some real estate. Sadly I still think that will be on hold for a while because I don’t think it’ll look good to have a mortgage on an investment property right before trying to obtain a primary residence mortgage. Hopefully the rates can stay at relatively low levels until sometime next year, although I’m not really expecting that.

I’m with Executioner. How have you been able to find solid turnkey/management companies? I figured the management expenses would eat too much of the profit but you’ve shown that it really isn’t that bad.

Reply

9 FI Fighter July 6, 2013 at 8:02 am

JC,

Yeah, the $100k figure that can generate $1500/month in passive income totally blew my mind as well. Originally, my thinking was that I needed to come up with $450k, which would obviously take much, much longer.

Still, even if I could retire now, I wouldn’t. I’m pretty conservative, and even if the numbers suggest things could work, it doesn’t mean they really would work in reality. I didn’t address the topic of debt, much, but leverage really is a double edged sword. It cuts sharply both ways. So, before exiting for good, I would need to make sure I had a sizeable nest egg ($50,000+) in savings/stocks.

With the turnkey companies, I look for vertically integrated companies. I want a provider that not only “flips” the properties, but also owns the construction team and property management entities. I need someone who will stand behind their own work and not point the finger at someone else. For each provider, I’ve already told them, if this goes well, you can bet I’ll be coming back for more properties.

To find the right provider, you have to network with people and find out who other investors recommend. More importantly, you have to make a trip out and actually meet these folks in person. I would never do business with someone I haven’t met in person, at least once.

For both Indy and Chicago, I have flown out there and met with the top guys (either owners or VP’s). I know the folks who run the show and have all their contact info. Basically, I did as much homework as I could, but ultimately must take the calculated risk of engaging in business with them. Time will tell if this was the right decision or not.

Cheers!

Reply

10 Kurt @ Money Counselor July 6, 2013 at 7:57 am

“Even if we said 4%, that’s still $450,000.” I’m a bit confused–the higher the withdrawal rate, the less of a nest egg I need still to last indefinitely?

Reply

11 FI Fighter July 6, 2013 at 8:06 am

Kurt,

I meant to say 4% yield. If you invest in dividend stocks that pay 4%, you would need $450,000 to generate $18,000/year or $1500/month.

Sorry for the confusion. I’ll have to re-check that paragraph.

Reply

12 Rental property depreciation July 16, 2013 at 5:28 am

Nice blog. Just recall my appointment with my quantity surveyor who helped me depreciate the tax on my rental home. Cool post. Carry on!! 🙂

Reply

13 FI Fighter February 18, 2014 at 10:02 pm

Thanks!

Reply

14 Adrian July 19, 2013 at 1:09 pm

What turnkey provider did you use in Indianapolis? I currently am located in Indianapolis.

Reply

15 FI Fighter February 18, 2014 at 10:02 pm

Adrian,

Please send me a PM and I can give you more details.

Cheers!

Reply

16 Gregg K September 12, 2013 at 8:40 am

I like your idea as I am doing something very similar to build passive income and a nice real estate portfolio. FYI: Once you transfer the deed to an LLC it will cause the due on sale clause to be triggered and the bank can force you to refinance, in which case they will not carry a note for an LLC so you be wasting money deeding it to your LLC and then it back to where you started in the first place your name.

Why did you choose Chicago? I was interested in that market as well because the numbers worked, but realized it’s a net loss state and more people are moving out then moving in. I had some good experiences with a few turnkey business, so let me know when your ready for your next purchase and I can give you the pro’s and con’s of the companies I have used or researched!

Reply

17 Tyler January 9, 2014 at 12:33 am

Gregg,
There are options to move properties into an LLC without the bank calling the sale due (not that I’ve ever heard of one doing that on a mortgage that is being paid on time anyway). I did this: deed the properties to a trust and banks cannot, by law, call the note due. Then, inside the trust, assign beneficial interest to your desired LLC. For tax and liability purposes the LLC has the property, but the county shows the trust has it so the bank doesn’t care. You can also use this for anonymity purposes. Also, the transfer to a trust does not trigger an excise tax so your only expenses are legal fees and a few fees from the county for changing ownership paperwork. Nifty trick. A few downsides here are obviously you cannot claim any of these were your personal residence so if you sell you are taxed on the gains. The second is if you are working within a c corp the gains are taxed at the same level as any gains whereas if you take them personally they are considered long term capital gains and taxed at a lower level if owned for the appropriate time.

Reply

18 Scotty November 5, 2013 at 6:21 pm

What a great read. My fiancé and I currently have $100k in savings. We do not own a house now and my credit isn’t perfect. Would you suggest that we obtain a primary residence first (this would obviously cut into our savings) and I obviously need to fix any credit problems.

Reply

19 FI Fighter February 18, 2014 at 10:01 pm

Scotty,

Thanks! A personal residence is a big decision and the “right” decision will vary from person to person, situation to situation. It also really depends on your location as well, and whether or not it makes more sense to rent or own. I live in an expensive city, and right now it’s cheaper to rent than to own…

Best of luck!

Reply

20 Bill November 11, 2013 at 8:08 am

I would like to get into the Indianapolis mkt, who are you using for turnkey?

Reply

21 FI Fighter February 18, 2014 at 9:59 pm

Bill,

Please send me a PM and I can provide you more information.

Thanks!

Reply

22 brian messer December 31, 2015 at 2:48 pm

love your blog. I have 13 homes in boise id area . would like to diversify into new area .I would like to get into the Indianapolis mkt, who are you using for turnkey

Reply

23 Moses November 11, 2013 at 10:23 am

very good job.. thanks for taking your time in writing this.. very appriciated

Reply

24 FI Fighter February 18, 2014 at 9:59 pm

Moses,

You bet!

Reply

25 Edwin February 18, 2014 at 9:47 pm

Numbers question sir!

About the Cap Rate on all three properties.

Cap Rate = Net Income/Purchase Price ……right?

So for example on Indy #2; C.R. = 5,327/90,000 = 5.9%

Can you please walk me through how you calculated the 10%

Thanks!!

Reply

26 FI Fighter February 18, 2014 at 9:58 pm

Edwin,

For Indy #2,

This is how you are calculating it:

Cash Flow = $443.97
Cap Rate = ($443.97*12)/$90,000 = 5.9%

However, to get the actual Cap Rate, you need to remove the mortgage payment which is no longer present if you buy all cash.

Cash Flow = $443.97 + $346.03 = $790.00
Cap Rate = ($790.00*12)/$90,000 = 10.53%

Cheers!

Reply

27 FI Fighter March 18, 2014 at 8:14 pm

Article was revised on 3/18/14 to add HOA dues which should be accounted for… This changes the returns/cash flow slightly, but the underlying message is still the same…

Reply

28 Eric74 March 1, 2014 at 7:46 am

What a wonderful article, thank you !
I can’t believe how the houses are so cheap in these states !
Here in France it’s the opposite, the real estate market is so expensive.
Now I understand why you sold all your stocks, well done.
This is another American dream 😉

Reply

29 FI Fighter March 18, 2014 at 8:15 pm

Eric,

Yes, the returns are pretty good in many parts of the country. 🙂

Reply

30 Tyler March 9, 2014 at 11:31 am

Really enjoyed reading your real estate strategy.
I live in So. California and looking to invest in properties out of state.

I hope to find a 2% of $50,000 deal.

Reply

31 FI Fighter March 18, 2014 at 8:16 pm

Tyler,

Thanks! Glad you enjoyed the article.

Good luck on finding deals!

Reply

32 Saad April 6, 2014 at 9:27 am

Excellent article and I’ve been thinking about this for awhile now.

I’m moving to Chicago (joining my wife who lives in there) and have about $750K that I’m willing to invest. I was thinking dividend stocks but as you mentioned, I’m looking at around 4% return. If I’m able to gain 1% per 1k, that would be great.

Ideally, with the 750K, I’m looking to 4 properties (fully paid/no mortgage) and rent them out in the ballpark of $1500-$1800 per month. What am I looking at in terms of net return per year? Do you suggest any turnkey property managers that I can touch base with in Chicago?

Thanks,

Reply

33 FI Fighter April 28, 2014 at 10:02 pm

Saad,

Thanks for the message. Please send me a PM for more info.

Take care!

Reply

34 Bill April 26, 2014 at 7:26 pm

How did you come up with cap rate? I calculated a cap rate of 4.88% rather than 9.49% on your Chicago property (assuming Cap rate = net rental income / sales price).

Thanks in advance!

Reply

35 FI Fighter April 28, 2014 at 10:01 pm

Hi Bill,

I think you are taking yearly net $7,805.84/$160,000 = 4.88%

However, for Cap Rate (all cash) you need to subtract out the debt service (mortgage) of $615.17, which is not there for all cash.

yearly net = $15,187.92
Cap Rate = $15,187.92/$160,000 = 9.49%

Cheers!

Reply

36 Bill April 29, 2014 at 3:45 pm

Very helpful. Thx!

Reply

37 crow May 4, 2014 at 1:51 pm

I’m manage a small PM company in Florida and the rental market here is great….I own 9 properties of my own and manage 15 for other investor friends of mine. I am doing just as FI Fighter suggests with the transfer to LLC. I am now also dabbling in hard money lending to other investors @15% short term and converting my rentals in to owner mortgages @10-12% real estate is where the real money is and if you look forward to a decent retirement this is the way to go! great post always nice to see others with great ideas!

Reply

38 Dotan October 7, 2014 at 2:18 am

Hi there, thanks for sharing, sounds very exciting and you must be very satisfies to see your hard work literally paying off. I’m currently invested in Oakland, CA rates are a bit lower on the rent side, about 8.25% net annually, but made about 50% in two years on prop value increase, I’m wondering how are your investments doing in that format? is the market value supposed to appreciate dramatically over the next five years, or is it very stable.

Reply

39 sheila October 30, 2014 at 2:40 pm

I have 100k to 140k …. … I have my own home paid for (value 780k). A rental in Stockton I take in 450 cash/mo. and am looking into Utah since my son will go to med school out there and so he could live in that property. How do i find out if Salt Lake City or near area is a good place to invest? Any suggestions where to look? Thanks so much for all of your info…came at just the right time! I do have 300k in a retirement fund with my job and still working…. would like to retire soon!!! 59 and not getting younger! Thanks Sheila

Reply

40 James November 2, 2014 at 8:32 pm

Love the breakdown. I’ve been poking around Memphis for my first property, but I’d be curious to know who you went with in Indianapolis. Can you give any details?

Reply

41 Chris November 8, 2014 at 6:27 pm

Such an excellent breakdown for a novice like me who just began contemplating rental properties. Thank you very much!

The question I have is, if you theoretically already generate for example $3 million per year in income after tax and expenses and wished to go all out in the rental property investment business by investing £1.5 million per year in turn-key rental properties, would you still take the path of buying multiple properties of the value stated in the article, just at a much larger scale?

Also, playing with this kind of money, would there be a cutoff point of the amount of rental properties you could acquire through leverage? I imagine it’d be a large annoyance having each bank turn you down after getting a loan on a certain amount of rentals. I’d love to hear a way around it because this method of investing seems like it would scale virtually infinitely.

Thanks for your time;

Chris

Reply

42 Al Harris November 22, 2014 at 7:58 am

Hello –
I have several buy and hold rental opportunities in Milwaukee WI for less that $30K. Some Single family, some duplexes. Here’s 1 I closed on last month:
Milwaukee Property #1
Singel Family
Room 3
Bath 1
Interest 0
Price $13,650.00
Downpayment $0.00
Loan $0.00
Mortgage $0.00
HOA $0.00
Property Tax $90.00
Insurance $155.00
Landscaping $0.00
Utilities $0.00
Property Manager $0.00
Vacancy $0.00
Maintenance $100.00
Monthly Payment $0.00
Rent $750.00
Monthly Net $405.00
Yearly Net $4,860.00
Cash-on-Cash 65.93%

Reply

43 Dotan November 22, 2014 at 8:53 am

Al Harris hi, would you be kind enough to give some more information, like street name or even neighborhood, would love to talk as well if you are interested in partnerships, I have one in Oakland, Ca and am planning on expanding. My email is dotan_arch@yahoo.com
Thanks and good luck,

Reply

44 Eric January 25, 2015 at 7:04 am

Al, I’m looking for a turn-key property manager/realtor/maintenance company in your area. Can you drop me a line if you know one or two?

Reply

45 Dotan November 22, 2014 at 8:52 am

Al Harris hi, would you be kind enough to give some more information, like street name or even neighborhood, would love to talk as well if you are interested in partnerships, I have one in Oakland, Ca and am planning on expanding. My email is dotan_arch@yahoo.com
Thanks and good luck,

Reply

46 Making Retirement Happen December 11, 2014 at 2:35 am

This is something I considered, but found that rental’s that have high return are often in bad area’s, which sport expensive tenant related costs, like repairs, missed payments, etc. (at least in my country, anyway)

Reply

47 Brian January 10, 2015 at 4:08 am

Great blog, a few questions, I’m in a area that is bolstered by tourism and other factors that have high rent rates (2200) month for 2 bed homes. Some of the homes can be purchased for 100000 to 150000 and with little TLC would likely be occupied. I’m looking at a home that will cost 110000 ready to rent, I’m certain I can generate 1900 in the location. My question is should I go all in? The money being used is from a recent sale of a small commercial property and I will need to do an investment exchange to keep from beng taxed. I was looking forward to owning outright with no risk. 3 mortgages for 1500 seems risky and helpful to the banks. I have goals of 8000 a month by 50. I’m 38 but will retire with a 3000 mo pension at 40. My current home would generate 1700 if rented. Should I take on three investments? Assuming 200000 homes generating 2200 monthly are available. Or should I simplify this with one investment? 10 years before full retirement.

Reply

48 Shane February 3, 2015 at 4:20 pm

Hi Brian,
I’m not far from you down in the south bay near San Jose.
What market did you find getting $2000 +/- rents for around $150,000?

I have been looking around Atlanta, good value for the prices, but rents are low.

thanks,

Shane

Reply

49 No Nonsense Landlord July 11, 2015 at 4:27 am

I would say it takes more than 100K in RE investment to be retired, but if you only need a minimal lifestyle, it can happen.

Certainly, you should expect at least a 10% ROI, which means a $100K retirement on $1M in investment.

You need to buy right, and manage properly.

Reply

50 King Med July 13, 2015 at 1:31 pm

Great piece of information! My question is, how to makeup for tenants who don’t pay their rent on time or don’t pay at all. In addition to that, when you buy on mortgage base, how to improvise if the property doesn’t rent as quickly as expected when you have to pay the bank every month, is their any law or provision to give you a break? I live in the Dallas, Texas area, do you know of any any reputable turn key company that you would recommend and what do you think of the rental market in this area? Again great information! Thank you.

Reply

51 Dave July 25, 2015 at 6:06 am

Hi-
I’m in a similar boat…just curious is your plan working still today?

Reply

52 Rando July 30, 2015 at 12:13 pm

Ok you are completely relying upon rental income.
What happens when there is another recession and people are out of work ? There still is a huge risk, but as they say no risk no profit. But on the flip side if you are able to sustain the whole rental cycle for 5 years you would would be +90K income by then and have considerable equity in the properties. I would definitely think about and exit stratergy after 5 years and sell off all the properties. May be after 5 years you would walk away with +300K and reduce the risk

Reply

53 Jazmin W. September 16, 2015 at 4:27 pm

Thanks for posting and sharing. It is great to see another investor in Chicago renting two-flats. My family and I bought two properties from Profit from Rentals and Justin Ericson. Unfortunately, we had a theft and vandalism claim and the insurance company left us in limbo for a year and then denied us. This left us with no cash flow and a vacant and damaged property. I am on disability so I didn’t have the extra money to repair the rental. The owner Justin has been a tremendous help in not only helping to repair one of our units out of his own pocket, but in finding a lawyer and putting up the money to litigate. Being out of state is scary in not knowing who you can trust. I think it is rare that a person shows integrity in the way Justin has treated myself and my family even after the sale. I know people have different tastes about turnkeys, but there are a few trustworthy companies out there.

Reply

54 Gauffrete January 13, 2016 at 1:55 pm

I didn’t see where income tax on the rent income was included in your numbers. Is it? Or is the income actually 1384 – 28% (or whatever is appropriate)? Thanks.

Reply

55 Vivianne March 26, 2016 at 5:39 am

The housing market in the Midwest is still suffering from the crisis, your plan of action actually executable. My family in the Midwest are doing the samething, but my siblings are all buying cash for fixer upper and put in the sweat equity to fix it up though. The reward is amazing.

Reply

56 investor June 12, 2016 at 3:10 pm

Hello F I nice job. Partner and I own some homes in Columbus Ohio.

Any suggestions for any honest management companies there?

Also any thoughts on Columbus Ohio for rentals?

We have been in it for 5 years with some good success except our current manager got sick and is no longer doing it. That is the risk of out of state purchases like these.

anyone thanks for any input…

Reply

57 Dave August 7, 2016 at 6:31 pm

Just curious…how’s this going with these units?

Reply

Leave a Comment

{ 6 trackbacks }

Previous post:

Next post: