Rental properties have been a great investment for me and I have made a lot of money from them. I am making over $60,000 a year from the cash flow on my rental properties and I didn’t buy my first rental until December of 2010. I have 11 rental properties and I plan to buy 100 rentals by the year 2023. You can’t buy just any property and turn it into a rental if you want to make a lot money. You have to buy houses below market value and with great cash flow to be a successful rental property owner.
When I was able to start saving money in 2008 from my real estate business, I wanted to grow it as fast as possible. After exploring many investment opportunities, everything I read and researched pointed me to rental properties being the best investment. I have to say I am very happy I chose to invest in rental properties as not only are they bringing in over $60,000 a year, but they have appreciated in value and increased my net worth by $600,000.
I detail how I have been able to achieve these returns in my complete guide to investing in long-term rentals. In this article I will detail how much money you can make from rental properties over ten years.
Why I want to make a lot of money off rental properties
When I was younger I told myself I did not need the finer things in life, that I was happy with whatever I could afford. I told myself I didn’t need more expensive things, because I didn’t believe I could ever afford the things I really wanted. In the last couple of years I have completely changed my thinking process. I now believe I can achieve and acquire whatever I want and I was doing myself a disservice by masking my true desires. I also realized that it feels really good to be able to help others and give to charity. The more money you have, the more you can give to charity and help others. If you have passive income coming in from rental properties then you will also have more time to dedicate towards helping others as well.
One of my passions is automobiles; I love classic and exotic cars. I purchased a 1986 Porsche 928 a few years ago and absolutely love that car. The 928 was the most expensive car Porsche made when it was built, but I was able to purchase the car for only $6,000. I think the 928 is one of the all time bargains for classic/exotic cars, unfortunately not all classic/exotic cars are bargains. My all time favorite car is a Lamborghini Muira, which was built in the late 60’s and early 70’s. The Muira was the predecessor to the famous Lamborghini Countach, which is also one of my all time favorite cars. A Countach will run at least $300,000, in today’s market and a Muira is somewhere in the $800,000 range if not more. Not only are these cars extremely expensive to purchase, but maintaining them will cost thousands of dollars a year. It is not easy to maintain or find someone who knows how to maintain a Lamborghini.
Why are long-term rental properties are a great investment?
I knew if I ever wanted to be able to afford a Countach or a Muira, I would have to make a lot more money or get very high returns on the money I was investing. I have been able to do both in the last few years and a lot of that increase has been from my decision to start investing in long-term rental properties. I have purchased 11 rental properties and I am making over 20% cash on cash returns on all of them. In fact I am making over $5,000 from my rental properties every month. That is $60,000 a year in income from my rental properties, with very little management or time required.
It is not easy to find rental properties that provide that much cash flow; it takes me months to find great deals that make over $500 a month. My typical rental property costs between $80,000 and $130,000 and rents from $1,200 to $1,500 a month. I put 20 percent down on the properties and finance the rest with my portfolio lender. I usually end up spending $25,000 to $35,000 in cash to buy each rental property. Here is a great article that explains how I buy properties that meet these guidelines. Cash flow is not the only benefit of rental properties. I slowly pay down the mortgage every month on my rentals, I have great tax advantages and they will most likely appreciate. If you can’t find properties that cash flow well in your area, you may want to look into buying turn-key rental properties in different areas of the country.
I am able to save that much cash for each rental property because I make a very good living as a real estate agent and fix and flipping homes. I like to have nice cars and a nice house, but I always make sure I am saving and investing money first. There are ways to buy rental properties with little money down, but I think you will get farther ahead in life by saving as much as possible and investing wisely.
For more information on why rental properties are such a great investment and how to start investing in rental properties. Check out my E book Retire Rich and Early with Real Estate at Amazon as an 113 page E book or as a PDF for only $6.49!
Long-term goals are very important to my success in real estate
I know $60,000 a year is not enough extra income to justify purchasing a Lamborghini, but I just started investing in December of 2010. I plan to keep purchasing rental properties for at least the next ten years and my super aggressive goal is to own 100 rental properties by 2023. I have no idea how I will accomplish this goal given my current income and buying pace, but I also have no idea what exciting and lucrative opportunities may present themselves in the future. For the purpose of this article, I am going to assume I will buy three houses a year for ten years to show the income potential of long-term rentals. With this strategy I could easily afford the Countach and possibly the Muira with enough saving and planning. If you can’t afford to buy 3 rental properties a year, then check out this article where I detail how much you can make buying one rental property a year.
I have many long-term and short-term goals that I constantly tweak and review. Setting goals has been a huge part of my success and helped me focus on what is important and what I want out of life. This series of articles helps describe my mindset and what I have done to become successful.
Update: My goal changed from buying a Countach to a Lamborghini Diablo due to many reasons. I actually purchased a 1999 Lamborghini Diablo in June of 2014 and you can read all about it here.
How much does it cost to buy a rental property?
I go over the exact cost of a rental property here, but lets assume it costs $30,000 to purchase and repair one rental. You don’t have to invest $90,000 a year to buy three rentals a year, because you can begin refinancing rental properties after you own them a year and taking cash out to invest in more rentals. You can also save the cash flow from your rental properties to buy more rental properties. I usually buy my properties for about $100,000, with a 4% interest rate and 20% down, which leaves a payment of $381 for principal and interest. Those numbers combined with rents from $1,200 to $1,500 a month leave me with at least $500 a month in income from my rental properties.
How can you make $500 a month in cash flow from a rental property?
It is not easy to make $500 a month in cash flow from a single rental property. I detail how to figure cash flow here and I also created a cash flow calculator to help people figure cash flow. Cash flow is not the rent minus the mortgage payment; there are many other factors that must be considered. My rents range from $1,250 to $1,500 a month and my mortgage payments range from $450 to $650 a month. I have to account for maintenance and vacancies on my rental properties, which leaves me with about $500 in profit each month. I buy my properties from $80,000 to $130,000 and usually make quite a few repairs before I rent them.
Making a lot of money with rental properties does not come from buying one property or even two, but from buying many properties. Here is a great article on the benefits of rental properties.
How much money can you make from rental properties in ten years?
Here is a chart showing the cash flow, houses paid off, extra cash flow from paying off mortgages, money paid towards mortgage reduction and total income for ten years.
Cash Flow = profit for each year
PO = How many properties are paid off
ECF = Extra cash flow from paid off properties
MRCF = Mortgage reduction amount from cash flow
INC = total income
Cash flow PO ECF MRCF INC
1. $18,000 0 0 $18,000 $18,000
2 $36,000 0 0 $54,000 $36,000
3. $54,000 1 $4,572 $112,572 $58,572
4. $72,000 2 $9,144 $189,144 $81,144
5. $90,000 3 $13,716 $292,860 $103,716
6. $108,000 5 $22,860 $423,720 $130,860
7. $126,000 7 $32,004 $581,724 $158,004
8. $144,000 9 $41,148 $766,872 $185,148
9. $162,000 12 $54,840 $983,712 $216,840
10. $180,000 15 $68,580 $1,232,292 $248,580
I hope the numbers make sense, I didn’t want to write a novel to explain every detail. Basically after ten years, you would have invested $900,000 to buy 30 properties (assuming you didn’t refinance or use other methods to put less money down). You would be making $248,580 a year, which turns out to be 27% on the $900,000 invested. You would also own 15 houses free and clear that would be worth 2.25 million dollars.
If you are looking for help learning how to invest in rental properties I offer The Complete Blueprint to Successful Real Estate Investing, which offers a 290 page guide, specific instructions on how to get started and learn your market, audio segments, personal coaching, conference calls, and much more all for a very reasonable price.
Additional benefits of rental properties
The really exciting thing is these numbers are not adjusted for any inflation, rent increases or appreciation to make the math simpler. My models for my rental properties show a higher income at the end of ten years, because I am making more than $500 a month cash flow per property and I am also planning on buying more than 30 houses in the next 10 years. If things go as planned I will have more than enough passive income to afford that Muira! If you can’t find rental properties in your area that will cash flow, you may want to consider investing in turn-key rental properties.
If you can’t afford to buy this many houses or don’t want to buy this many, you can still have a great passive income by buying one house a year. It can cost a lot of money to buy a rental property, but you can more than make up for the initial cost by how much money you can make on rental properties. If you are wondering how I can afford to spend so much money on rental properties, I am a real estate agent that also fix and flips houses. Both business have been a great source of income and capital for the rental properties.