How Much Money Can You Make from Rental Properties?

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Buying one rental property may not make you a ton of money right away. However, rentals can be an amazing investment when held for the long-term and when multiple properties are purchased. There is also the opportunity to buy larger commercial or multifamily properties, which can increase returns as well. With a good rental property, you should be making money every month (cash flow); you should make money as soon as you buy by getting a great deal; you will have fantastic tax advantages, you can use financing which greatly reduces the amount of cash needed; and the property value and rents will most likely go up in value over time.

Rental properties have been a great investment for me. I make more than $100,000 a year from the cash flow on my rental properties after all expenses including mortgages, property management, maintenance, and vacancies. I now have 20 rental properties which are a mix of residential and commercial. I bought my first rental property in December of 2010 for $97k. I started with residential properties but now buy almost all commercial, including a 68,000-square-foot strip mall in 2018.

You cannot buy just any property and turn it into a rental if you want to make a lot of money. You have to buy properties below market value with great cash flow to be a successful rental property owner. Not only do I make money every month from my rentals with minimal work, but my rentals have also increased my net worth thanks to buying below market value and appreciation (I don’t like to count on appreciation, but it is a nice bonus). This is not just a hypothetical article. I have owned rentals for many years, kept track of their returns, and written many articles about what I have learned.

The cool thing about real estate is while I have more than $6,000,000 worth of rental properties, it did not take millions of dollars to buy them.

Why did I choose rentals?

One of my passions is automobiles. I purchased a 1986 Porsche 928 a few years ago, and I absolutely love that car. I also have a 1999 Lamborghini Diablo, a 1981 Aston Martin V8, a 1998 Lotus Esprit Twin Turbo, and a few other cars. In my early 20s, I never thought I could afford any of these cars in my early. However, I started to make decent money as a real estate agent in my mid to late 20s. The problem was I was not saving much money. I just kept spending it. I knew if I ever wanted to get ahead in life and be able to afford these cars, I would have to invest the money I was making. I researched everything I could and decided rental properties were the best investment. I worked very hard to save money to buy my first rental.

As soon as I started buying rentals, I could see the fruits of my labor. I was making money every month from rent, I made money as soon as I bought the house because I bought it below market value, and it was forcing me to save money. I wanted to buy as many as I could, and I knew with steady money coming in every month from the rentals I could someday feel comfortable buying expensive cars.

Why are rentals a good investment?

Not all properties are a good rental, but if you can find properties that are, they can be an amazing investment. A rental property should have a number of attributes

Cash flow

Good rentals will make money every month after paying all expenses. The expenses should include mortgage, taxes, insurance, maintenance, vacancies, and property management. The cash flow is the rent minus all of these expenses. Some people like to shoot for different numbers, but I always liked to see $400 to $500 in cash flow per property.

Buy below market

I get a great deal on every rental I buy. I don’t want to pay retail when I can pay to 20% to 30% less than retail. It is not easy to get great deals, but it is possible. On almost every house I have ever bought, I got a great deal. That instantly increases my net worth, makes me more cash flow, and looks better on my balance sheet for banks.

Leverage

You can put as little down as 20 percent when buying rentals. You can put even less down when buying a property as an owner occupant and then turning the property into a rental.

Tax advantages

Most expenses on rental properties are deductible or depreciable. You can also depreciate the structure of a rental property, which means you can save thousands of dollars each year on your taxes. You can also complete a 1031 exchange on rentals to avoid capital gains taxes.

Appreciation

Many people only talk about housing prices when comparing rentals to the stock market, but appreciation is a bonus. It is not what you are shooting for when buying a rental property because no one knows for sure if prices will go up or when.

It is not easy to find rental properties that are a good investment. It takes me months to find great deals that make over $500 a month like mine typically have, and they are not available in every market. My typical rental property used to cost between $80,000 and $130,000, and it rented for $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. Cash flow is not the only benefit of rental properties. I slowly pay down the mortgage every month; I have great tax advantages; and they will most likely appreciate.

I am able to save that much cash from each rental property because I make a very good living as a real estate agent as well as from fixing and flipping houses. 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 further ahead in life by saving as much as possible and investing wisely.

How much do you need to buy a rental?

I go over the exact cost of a rental property here, but let us assume that it costs $30,000 to purchase and repair one rental. You do not have to invest $90,000 a year to buy three rentals a year because you can begin refinancing rental properties after you own them for a year and take 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 four percent interest rate and 20 percent 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 much should a rental property cash flow?

It is not easy to make $500 a month in cash flow from a single rental property. I detail how to calculate cash flow here, and I created a cash flow calculator to help people determine cash flow. Cash flow is not the rent minus the mortgage payment: you must consider many other factors. My rents range from $1,250 to $1,600 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 for $80,000 to $130,000 and usually make quite a few repairs before I rent them out.

What are the long-term returns for someone with little money?

Investing in rental properties can provide fantastic returns when you have a lot of money to invest. Even if you have little money, you can invest in rental properties. I am going to walk through how many years it will take someone to accumulate one million dollars from investing $7,500 a year into long-term rental properties.

The more money you make and save, the easier it is to make one million dollars from rentals. However, even people who do not make a lot of money can get there, although it may take a little longer. I am going to write out this plan assuming someone has a $75,000 salary and can save 10 percent of their income a year.

When you first start out, $7,500 does not go very far, and it takes a lot of money to buy an investment property. Luckily, there are many ways to buy a rental property with much less money if you are an owner occupant or use some of the techniques I discuss here. In the first year, the best bet is to buy a HUD home or REO that needs some work but will still qualify for an FHA or conventional loan. The key to my strategy is buying houses below market value. HUD or REO houses are a great way to do that. We will assume the investor can buy a house similar to the ones I purchase in my area, which cost around $100,000. There are closing costs that the buyer is charged when they get a loan, but you can ask the seller to pay most of your costs.

Buying as an owner occupant year one

The first step is to buy a house. But you cannot buy just any house; you want to buy a house as an owner occupant that you can later turn into a rental. You also want to get a great deal on a house to gain instant equity. To get a great deal on a house, you may have to buy one that needs some repairs. With a HUD home, you can roll $5,000 of the repairs needed into the loan with the FHA escrow and only put 3.5 percent down for the down payment. If the home needs a lot of work, you could use an FHA 203K loan to roll more repairs into the loan. We will assume this house needs $4,000 in work to qualify for a loan, and you bought a HUD home with the costs rolled into the loan. With an FHA loan, you have to pay mortgage insurance every month and an upfront mortgage insurance premium (which could be $200 or more a month).

With a conventional loan, mortgage insurance is much lower than FHA, and you might be able to remove it after two years. However, you may not be able to roll the repairs into the loan, but you could get the seller to fix some items before closing. If the repairs are cosmetic items, you should be able to get a loan without making the repairs before closing. I will assume the total cash needed to close on this hypothetical house is about $5,000. Hopefully, this house was bought below market value because it needed some repairs and was a foreclosure. Once the house is repaired, it should be worth around $125,000.

Since you bought this house as an owner-occupant, you have to live in the home for at least one year.

Year two

After one year, you have gained about $22,000 in net worth; $125,000 – $100,000 purchase price – $4,000 repairs rolled into the loan + $1,000 gained in equity pay down. In year one, no rent was collected because the home was owner-occupied to get a low down payment. In year two, the house is rented out and you can buy another owner-occupied home using the same strategy. When you try to buy a home right away, you won’t be able to count the rent from the first house as income right away. It is best to buy houses priced low enough that you can qualify for two houses at once to make this work. Otherwise, you may have to wait up to a year for the rent to count as income and can buy again.

You can only have one FHA mortgage at a time, so this time you have to get a conventional loan with 5 percent down. In the second year, you have saved up another $7,500 from your job and have $2,500 left over from the first year for a total of $11,500 saved. The second home also costs $100,000, and the seller pays 3 percent closing costs. The down payment needed is $5,000, and $5,000 in repairs are needed on this second house. The total cash needed to buy an owner-occupied home is $10,000 and the repaired value is $125,000.

The first house is rented out for $1,300 a month (which I will do all the time on a $100,000 purchase), and the payment is $550 with taxes and insurance. Add vacancy, maintenance, mortgage insurance and we’ll assume $300 a month in positive cash flow.

Year Three

In the second year, you made $25,000 from buying house number two (equity) and made $3,600 from cash flow. You also made $2,500 from equity pay down on both loans (I am assuming each loan will pay down $500 more each year). In year two, all the savings was used from year one, but you saved $7,500 and made $3,600 in cash flow for a total of $11,100 savings. Buy another house using an owner-occupied loan and use $10,000 of cash. Net worth increases to $53,100 after adding the equity pay down, cash flow and equity gained in the purchase of a new home.

The second house is rented out again using the same figures, although the mortgage insurance may be less because we are using a conventional loan instead of an FHA loan.

Year Four

Another house is bought below market value in year four. Cash flow increases to $7,200 a year plus $1,100 in previous savings and $7,500 saved this year. You now have $17,300 cash saved up before we subtract another $10,000 for the purchase of a new house as well as cash for the repairs. Net worth has increased $25,000 on the purchase plus $4,500 in equity pay down. The total net worth increase is now $90,800 for the last four years.

You own four houses and three of them are rented out. At this point, you may be able to remove the mortgage insurance on the conventional loans that have been held for two years, but I am not going to in my calculations to keep things simple and conservative.

Year Five

In year five, we repeat the entire process again and come up with the following numbers. Cash flow increases to $10,800 and previous savings $5,800 and $7,500 saved up equals $25,600 saved cash. The investor purchases another property and uses $10,000 in cash to leave $15,600 in his cash account. Net worth increases by $7,000 for equity pay down: $10,800 for cash flow and $25,000 for the purchase of a new property. The total increase in net worth is now $133,600.

You may have noticed this investor just mortgaged his fifth house. For many people, getting a loan on more than four houses is very difficult. However, the investor is buying houses as an owner occupant, which makes it much easier to get a loan.

Year Six

The same process is repeated all over again. Cash flow is $14,400, previous cash is $14,100, savings equals $7,500 for $37,500 cash minus $10,000 for a new purchase. The investor has $27,500 left in his bank account. He increases his equity pay down to $13,500, has an increase of $25,000 in net worth from a purchase, and an increase in net worth from cash flow of $14,400. He now has increased his net worth by $186,500.

Year seven

In year seven, the seventh house is purchased. Cash in the bank equals $26,000 from previous savings, $18,000 in cash flow, and $7,500 in new savings, which totals $53,000. You are now able to buy two properties this year! Buy another owner-occupied property using $10,000 and an investor-owned property.

To purchase an investment property, we need to put at least 20% down, and we still need to make repairs. We are buying below market value still, so we are going to assume we are adding $25,000 more a year in equity and $3,600 more a year in cash flow. Estimated costs for down payment and repairs is $32,000 to buy an investment property. You have $11,000 of cash left after buying two properties this year. Net worth increased by $60,500 after adding the usual amounts to total $247,000.

Year eight

Year eight is very exciting because we get to add two properties into the mix instead of just one. With the extra houses added, increased cash flow, and continued equity pay down, our net worth increased $98,200 in just one year! Total net worth is now $345,200, and you are making real progress! You have $42,200 saved up after buying another house in year eight as an owner-occupant, so you can buy another investment property, but won’t, because our margins will be too thin with only a couple thousand in savings.

Even though you are still making only $75,000 a year, you increased your net worth by almost $100,000 a year. There are not many people who can increase their net worth by more than they make in a year!

Year nine

In year nine, you are adding $26,500 in equity pay down, $28,800 in cash flow, $25,000 in built-in equity with purchases, for a total net worth increase of $80,300. Your total net worth increase over nine years is now $425,500. You also have $60,000 saved up after paying for one house as an owner occupant, which is enough to buy another investment property, leaving $26,500 cash left over!

Year ten

In year ten, you have enough cash to buy two more properties and have $28,000 in cash left over. Net worth increases by $114,500, bringing us up to a total increase of $540,000.

Year eleven

You can buy two more properties and increase your net worth by $129,200 for a total of $669,200. Cash flow is at $43,200 a year, and there is $36,700 of cash left over after buying two more properties. You could buy a third house this year but decide not to stretch your limits. You need to make sure you have plenty of reserves for the rentals.

Year twelve

This year, you buy three houses because there is $94,600 in cash available. After buying the three houses, there is $22,100 cash left in savings, equity was paid down, and $44,500 and $50,400 in cash flow was generated. Total net worth is now $814,100! You are getting closer to making one million dollars investing in real estate!

Year thirteen

You have increased your net worth by $190,200 this year because you bought three houses last year. The total net worth increase is now $1,004,300! Your actual net worth will be higher than this because I did not calculate savings from your income into the net worth, just the gain from buying rental properties. Cash flow is now $61,200 a year, and you have paid off $54,000 of equity in one year!

You own 16 rental properties which are producing over $60,000 a year! The incredible part is we did not increase the rents at all, even though they are likely to go up over thirteen years. We assumed there was no appreciation, even though there likely will be over that time. Due to the tax advantages of rentals, you are probably taking home as much in passive income from your rentals as you are from your job.

Things we did not consider

This was a very basic calculation for how to make one million dollars investing in rental properties. It would take a book to go through all the variables and possible roadblocks that might come into play. Here are a few items we did not consider, which would have an impact on the time it takes to reach one million dollars in increased net worth.

  • Inflation will increase the prices of homes and wages as well as rents. While the investor has to pay more for houses each year, he will also be making more and saving more. The biggest factor is the rent increases. His rent on the first houses he buys will increase as time goes on, but his payments will stay the same. His cash flow will increase greatly as time goes on, which we did not account for.
  • Taxes were not accounted for either because that gets very complicated. The cash flow the investor is making would be income, but the investor could offset that with depreciation from the rental properties. I assumed those two factors even themselves out.
  • Investment property purchases had 20 percent down, where the owner-occupant purchases had 5 percent down. There should be an increase in cash flow on the investment property purchases because of the lower down payment, but I left them the same to make the math easier.
  • Refinancing was not considered either, but the investor could easily have refinanced a couple of properties to get more cash out to buy more rental properties. This would have increased cash flow and net worth due to the increased number of properties purchased.
  • Obtaining more than 4 or more than ten mortgages can be difficult. I am assuming the investor is able to get as many loans as possible with a lender. I can have as many loans as I want with my portfolio lender, but many people cannot. This would be a roadblock once he reached ten financed properties.
  • Buying owner-occupied properties each year is possible but may not be realistic. Moving thirteen times in thirteen years may put a bit of stress on the family!
  • I also assume the investor manages his homes himself, which is doable in the beginning but it maybe tough when he gets ten homes or more.

How Did I Build a Rental Property Portfolio

I have 20 rentals now, but I did not buy them overnight. I started in 2010 and slowly bought them over the last 9 years. I bought 1 in 2010, 2 in 2011, 2 in 2012, and kept building from there. I worked very hard to make a great living as a real estate agent, but I also used real estate to buy more rentals.

I bought my first rental by refinancing my personal house and taking cash out of it. I also refinanced some of my rentals along the way so that I would have more capital to buy even more rentals. I was lucky that our market appreciated so much, but I also bought every rental property way below market value, which allowed me to take cash out when I refinanced.

I stopped buying residential rentals in 2015 because the market in Colorado became too expensive. However, I was able to invest in commercial rentals in my area and cash flow on them. There are a lot of different ways to invest in real estate!

How much have my rentals made me?

I put together some stats to show how much rentals made me after four years of owning them. It has been a few years since then, and things have gotten even better! At the time, I had bought 11 rental properties. After doing some calculating, I discovered my rental properties have appreciated and been bought cheap enough to produce a gain of $600,000 since December of 2010! It is important to remember that net worth is all on paper, and I would not realize $600,000 in profit if I decided to sell all of my rental properties today. I would have to have selling costs, and I would have a large tax bill if I sold my rental properties.

How much equity have I built with rentals?

One thing I have done with every rental property I buy, is buy them below market value. I try to buy my properties at least 20 percent below the current value, and if a home needs repairs, I want that rental property worth 20 percent more than the price I paid plus the cost of the repairs. For example; if I buy a rental for $100,000 and it needs $20,000 in work, I want it to be worth $144,000 or more when I am done repairing the home ($100,000 + $20,000 = $120,000 * .20 = $144,000). That means I usually gain at least $20,000 in net worth on every rental property I buy. The 11 rentals I have bought have gained at least $220,000 (I buy many properties at more than 20 percent below market) just by buying homes at the right price.

I also have been lucky that prices have increased significantly in Northern Colorado in the last few years. I would say lucky for the sake of calculating net worth, but the increase in prices has made it harder to buy cheap rental properties with great cash flow. If you want to know how much my houses have appreciated, I broke down each rental and how much money it has made below.

Rental 1

I bought my first rental property for $96,900 on 12/5/2010. At the time I bought it, I knew it was worth at least $125,000, which is not a huge spread between the buy price and fair market value, but the home needed less than $2,000 in repairs.

The house is now worth at least $165,000 and most likely more. I had it appraised earlier this year, and the appraisal was $165,000 and our market values have increased since that time. If the house is worth $165,000, then my net worth increased about $66,000 after you subtract the repairs. The home was rented out for 1,050 a month when I first bought it and now is rented out for $1,400 a month.

Rental 2

I bought rental property number 2 for $94,000 on 10/5/2011. This home needed much more work than number one, and I spent about $15,000 repairing the house. At the time I bought this house, I thought it was worth $140,000 after it was repaired, and this house is now worth around $175,000. That leaves me with a net worth increase of about $66,000 on this property as well.

This house has been rented to my brother-in-law since I have owned it. The rent has been steady at $1,100 the entire time but could be $1,400 to $1,500. My brother-in-law has a house under contract and will be moving soon.

Rental 3

I bought my third rental property for $92,000 on 11/21/2011. This house needed repairs, and I spent about $14,000 getting it ready to rent. At the time I bought this house, I thought it was worth $135,000 fixed up, and this house is now worth around $170,000, which creates a net worth increase of $64,000.

This home has been rented to the same tenants for $1,250 a month, but we just raised the rent this month to $1,300 a month. It would probably rent for $1,400 to $1,500 to a new tenant.

Rental 4

I bought rental property number 4 for $109,000 on 1/25/2012. This home also needed about $14,000 in repairs before it could be rented. At the time I bought this house, I thought it was worth $145,000. This house is one of my most valuable rental properties and is worth $185,000 in today’s market. That leaves a net worth gain of $62,000.

This home was rented for $1,300 up until this year when I rented it to new tenants for $1,500 a month.

Rental 5

I bought rental property number five for $88,249 on 12/14/2012, and it needed more repairs than the others. The market had definitely begun to improve at this point, and finding a home that was under $100,000 was very tough. This home was a good deal, even though it needed $18,000 in repairs. I thought it was worth around $130,000 when I bought it, and I now think it is worth $165,000.  That leaves a net worth increase of $59,000.

This home has been rented to the same tenants for $1,200 a month.

Rental 6

I bought rental property number six for $115,000 on 3/7/2013. This house needed about $15,000 in repairs, and I thought the property was worth about $150,000 after it was fixed up when I bought it. It is now worth $170,000, and that leaves a net worth increase of $40,000.

This home was first rented for $1,300 a month until earlier this year it was rented for $1,400 a month.

Rental 7

I bought rental property number 7 for $113,000 on 4/18/2013. This house needed only $9,000 in repairs, and I thought it was worth $155,000 when I bought it. This neighborhood has done great, and the home is now worth $185,000, which leaves a net worth increase of $63,000.

This home has been rented for $1,400 a month since I bought it.

Rental 8

I bought rental property number 8 for 97,500 on 11/18/2013. The home needed $15,000 in repairs, and I thought it was worth $150,000 once fixed up. It is now worth $165,000, and that leaves a net worth increase of $52,000.

This home has been rented or $1,400 a month since I bought it.

Rental 9

I bought rental property number 9 for $133,000 on 2/14/2014. This home only needed $4,000 in work before it was rented, and I thought it was worth $155,000 after it was repaired. I think it is worth $165,000 now, and that leaves a net worth increase of $28,000.

This home is rented for $1,400 a month.

Rental 10

I bought rental property number 10 for $99,928 on 4/13/2014. The home only needed $3,500 in repairs before it was rented, and I thought the home was worth $125,000 when I bought it. I think it is worth about $130,000 now, leaving a net worth increase of $26,500.

This home is rented for $1,250.

Rental 11

I just bought rental property number 11 on 7/24/2014. This house will need about $15,000 in repairs, and I paid $109,318. I think this house is worth $155,000 repaired, leaving a net worth increase of $30,000.

I think this home rents for $1,400 a month.

What is the total gain?

If you add up all these numbers, my total net worth has increased by $556,500, but these numbers do not tell the entire story. I had more costs than I listed when I first bought these houses, but I did not go back through each closing file to get those exact costs. On many of these properties, I had the seller pay some closing costs, which covered much of my buying costs. I also had some carrying costs while I was getting the properties repaired and they were not rented out yet. However, I also did not include any of my cash flow or the money I made on these properties since 2010. I used all of my cash flow to pay off rental property number 1, which added up to over $70,000. That $70,000 in cash flow definitely covers all the closing and carrying costs I had on each property and went directly to increasing my net worth by paying off a loan. Speaking of paying down loans, I did not include the equity I have gained over the last 3.5 years by paying down my loans. I have paid down thousands of dollars of loan balances with regular payments on my rental properties.

Net worth is not money in my pocket but what I am worth on paper. Even though it is cool to see this number increase over time, this money is not all readily available. I would have to sell my rental properties to see this money, and I would not see all of it. There would be selling costs when I sell the properties and taxes owed once I sold them. Since I am using the depreciation on the rental properties to save me in taxes, I would have a higher than normal tax bill because I would have to recapture that depreciation.

What about in 2019?

I have 20 rentals that have increased my net worth about $3,000,000 in the last 9 years. I have gotten lucky that Colorado has appreciated like crazy, but they were still awesome deals even without that appreciation. They make me about $13,000 a month after all expenses. The cool part is I have spent less than $350,000 on the properties after refinancing some to take money back out. Talk about an amazing investment!

You can see all my rentals here.

My book on making money with rental properties

I provide a lot of information on my blog and YouTube channel, but I also have written six books. My book Build a Rental Property Empire has been a best-seller for years. It goes over everything I do to find, finance, repair, manage, and even sell my rentals. I also added a commercial chapter to go over that aspect as well. You can find the book on Amazon as a paperback, audiobook, and Kindle. Build a Rental Property Empire: The no-nonsense book on finding deals, financing the right way, and managing wisely.

Conclusion

It can take time to make a lot of money with rentals, but it is possible. Over the years I have bought a 1999 Lamborghini Diablo, a 1998 Lotus Esprit, a 1981 Aston Martin, and more thanks to the rental properties. The rentals have also allowed me to be aggressive with my house flipping business because I know I have that cash flow coming in every month. We flipped 26 houses last year!

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84 thoughts on “How Much Money Can You Make from Rental Properties?”

  1. Good luck on the Muira! One of my favorites too. I like how you say you have no idea how you will accomplish this, but you also have no idea what opportunities will come. Great attitude…that’s how to keep pressing forward to realize ambitious goals!

    • If I only set goals that I knew exactly how to achieve, then it wouldn’t be nearly as challenging or exciting.

      • I am a 25 y/o subscriber of yours. Bought my first home at 21 y/o on a short sale 40k below value and used my first time homeowners 8k tax credit to renovate property. It’s been a great investment as I have rented it out for $500 extra cash flow per month (And I live in the master bedroom as I rented out the other three rooms through college). I have been raised a Dave Ramsey type of investor but I don’t agree 100% with everything he teaches. This RE investment idea is definitely good in theory, how far along are you as of today? And I would love to see your spreadsheet with all of the assumptions you made to come up with these numbers. Love this post, great work as we are all reading to hopefully learn something and expand our thinking!

        • Hi Randy,
          Thank you for the comment! Good work on your rental. I have 10 rentals now with an 11th under contract. You can find the details under the rental property category on the blog. I think Dave Ramsey has some great ideas for those looking to save money, but he is ultra conservative about debt. Debt can be a great thing is used carefully and to create more money. My spreadsheets are actually hand written out year by year. I keep redoing them, which is an awesome exercise to get an idea of the numbers and progress I will be making.

  2. Are there any Aussie readers reading this? Is this possible to do in the current Aussie market or is this only possible for US readers given the cheap real estate on offer there at the mo?

    • I just saw this article about the Aussie market. https://www.biggerpockets.com/renewsblog/2013/04/14/housing-bubble-australia/
      I have no personal knowledge about what it’s like over there, but there are markets that don’t work for my model in the US as well. Many investors in New York, San Fransico or other high value areas end up investing in other areas of the country because prices are just too high in their local market to cash flow. You may try a simple google search for “best places to buy rental properties in Australia”.

    • Hi. I’m an Aussie living in Atlanta. I think you’ll find it more difficult to achieve in Australia given the higher cost of houses and interest rates. I have a house in Brisbane which I’m currently selling so I can buy some rentals in Atlanta where I’ll get a better return. I wouldn’t be able to buy as cheap in Brisbane.

      • Hi Rachel, sorry for the delayed reply, I have been moving all weekend. I have heard from a couple Aussies, that prices are too high there to make the numbers work for investing. Good work taking the steps to invest in a better market. That can be a very scary thing to do, but sometimes it is the only choice.

    • There’s still plenty of good pockets of affordable real estate in Australia. A lot of new investors get caught up with the ‘prestige’ of having an investment property and overlook golden investment suburbs in areas they wouldn’t live in themselves. An example would be Woodridge Qld.

      In Woodridge, it is strategically located between two major CBDs (Brisbane & Gold Coast), on a train line and the M1 Freeway, close to tafes and universities and has a consistent rental vacancy rate below 3% for over 10 years. You can still buy a 3 bedroom home there for less than 250k and rent that for $300 a week.

      There are a lot of positive cashflow opportunities there, It attracts a large ethnic diversity of cultures and you can get good long term tenancies and properties are never vacant for long.

      If you were wanting to dip your toe in property development, these areas are also great for finding a good large block that can be subdivided. If you look on Gumtree, often you can find houses for free that people want removed from their land so they can build. If you divide one of those properties, move a house onto the split block, give them both a spit and polish, and list one of them for sale, it will pay off the capital of the first property which you can then revalue and leverage to buy more. It costs about 25k to move a house, and about 20k for the subdivision with surveyors and whatnot.

      Think outside the square.

      • Great info! Although where I am I would like to see that buy that house that rents for $1200 a month for around $100k

  3. Thank you.

    My current thinking is buy a $300,000 unit (the cheapest in a good area in Melbourne) Live in it and pay off in 6 years. Then go to a smaller city nearby and buy two more at $200,000 each. And “Snowball Method” these in 6 years. Just thinking out loud. Trying to do the best with what I have. Should leave me with a $40,000, adjusted for inflation, income and a place to live in ten years. Which I’d be very happy with. No Muira for me. I also think although it’s important to maximise your earnings and keep learning and pushing but I think it is also important to stick with what it is you can understand easily in order to not bite off more than you can chew. This is the balance I struggle to keep. I think keep it simple works best for me. Anyway. Great blog. Very inspiring. Keep it up.

    • Thank you very much. I am curious what the rents are like there on a 200k property?
      I agree about making sure you understand what you are doing before Doing it. Just like anything new it can seem a bit overwhelming and confusing the first time you learn about a topic. At your pace you’d be better off than 90% of people in retirement and it will take you a lot less time than most people.

  4. Your blogs are great! I’ve been reading them non-stop!

    Any direct lenders you recommend? I’m in California and looking to invest in central coast areas and north of California.

    Thanks

    • Thank you Maria,
      I don’t have any recommendations for California. My lender is on Colorado and only works in Colorado unfortunately.

  5. Hello Mark,

    Thank you for your article. I did not see any math for tax liabilities. How are you using all of your excess cash flow dollar for dollar, without any adjustments for taxes?

    Best Regards,

    Colette

    • Most of the cash flow is income is countered by the tax savings by depreciating the properties. There is some other taxes that I pay on them, because the cash flow is higher that that depreciation, but I have not taken the time to calculate it out.

  6. Mark this is a brilliant explanation. I too, want to do some more in real estate. My family in particular has been burned on renting properties and so I’ve held back for until I learned more. How do you get and keep good renters? Do you, at any point, set up a company or companies to handle all the properties, paperwork and accounting involved?

    • Thank you for the comment and sorry for the delay responding. I am in Florida on vacation right now. I am in the process of starting a property management company right now. They will handle all the paperwork and accounting. It is really not too difficult with a few properties.

  7. You want to earn more so you can give more to charity but it your earning more that ultimately leads to why they need charity in the first place. Speculation in the housing market increases land prices which increases rent. Rent being higher, the poor now ask for your generosity to help them meet their needs.

    I’m more ok with renting to students or people who are only renting because they’re in the market for a house, but having long-term tenants is the reason that rent is high. That’s why people who rent are also people who receive charity. The landlord is putting them there. He’s not doing it intentionally and he’s not doing it alone; there are other factors, but he is certainly one of them.

    I’m just saying.

    • Hi Darris, I have heard this argument many times, but there are many fundamental flaws with it.

      1. Speculation in the housing market rarely raises house prices. It is a matter of supply and demand that raises house prices. The people that pay the highest amounts for houses are owner occupants. Investors look to get good deals and buy below market value, not pay at the top of the market.
      2. Land prices do not drive rent. Supply and demand drives rent. If house prices increase that does not mean rent prices will increase as well because landlords all get together and raise prices. Prices increase because there is a shortage of rentals and too many people looking to rent. There are many areas of the country with very high houses prices, but relatively low rent and vice verse.
      3. This is a free country and people can buy houses if they are able. The landlord is not forcing anyone to rent their houses. Not everyone wants to buy due to not wanting to settle in one place or bad credit or many other reasons. In my area it is cheaper to buy than to rent, but people still rent. It is not the landlord forcing people to rent houses but their own circumstances or choices.
      4. If there were not landlords where would people live who cannot buy homes? Landlords buy homes and rent them because there is demand for rentals. They cannot create the demand the renters do that.

  8. Mark,

    I reside in Colorado as well. I just purchased my first home and I am now looking to move forward with purchasing my first rental property. My credit is decent (Decent enough for me to purchase a home) and i don’t have any liquid cash to put down 20% on a property. What investors would you recommend me contact, pertaining to investment property. And how could i use my asset(My home) to help spring board me into investing into more rental properties? Thank you in advance. I am in Denver Specifically.

    • If you just purchased your current home you may not have much equity. It would be hard to use it for much unless you put a lot of money down. Finding investors for private money is one of the hardest things to to. I would check with friends and family first.

  9. Mark your articles are both educational, inspiring. and great reading material. They have motivated me to get the financial and physical freedom that I’ve been waiting on. I’ve been flipping and wholesaling for years but the market has changed and now I’m starting to implement your strategies as I’m about to purchase 2 properties this month to hold. Keep up the good work man….you’re the best!

    • Thank you Don!

  10. Hi Mark,
    Could you explain your numbers in more detail. For example where do you get your ” mortgage reduction amount ” in year two.. And what are your starting numbers? Cash flow of 18, 000 annually is what 500/month for 3 rentals? and the purchase price of the first one paid off is ?? I am using this model for mine but just not sure what your numbers reflect.

    Thanks and have really been enj0ying your blog.
    Liz

    • Hi, the mortgage amount reduction is from an amortization schedule you can get from bankrate.com.
      Yes to $500 a month cash flow. I bought the first one for about $97,000.

      • Hi Mark! Your first property, was that a condo or a townhouse?

        • It was a single family home

  11. Great article, but none of them touch on my situation .. which is POOR CREDIT .. and in the middle of a chapter 13 bankrupcty..
    that all being said.. in less than a year.. I should be getting about half a million dollars cash pay off what is left on the chapter 13.. ( about $30k) .. Lost home in bankrupcy etc..

    So my point with BAD CREDIT and about $500k in my pocket. with Zero Debt. NO credit cards etc. no car payments. everything paid off on the chap13.. (except house which was let go )..

    during all that. something happened and now were looking at a windfall .. my question .. I don’t need a loan to pay cash for a home.

    Should I purchase 1 or 2 homes? rent them out pay cash? or would I better off taking say $375k or so and purchasing a fourplex or whatever I can afford.? throw $25k – $50k into repairs if need be. and rent those out till the credit repairs itself? and then I will own the 4plex outright . have decent credit. in 2 – 3 years. and take a loan out on the building to purchase another property? say a home for $175k or so and rent that out?

    what’s the best thing to do with a bunch of cash. and bad credit!!

    • Frank, that is a tough situation. Having that kind of cash is a great though. With bad credit I would talk to a lender asap to see what steps to take to make your credit improve the fastest. Having credit cards that are paid every month may improve your score.

      Deciding on what to buy depends a lot on your market, what price to rental ratios are and many other factors.

  12. What if for 5 years you took all your profits and put back into buying more rentals to boost your plan and shorten your time line?

    • I have been doing that recently!

  13. Hey Mark, I am very interested in buying my first rental property. I’ve done some research and it looks like I can attain similar margins in my area as you can in yours. I am curious as to how long it took you to go from one property to two? I feel as though getting off the ground will be the most difficult step with an endeavor like this.

    • It took me about 10 months to buy my second one after my first.

  14. what sort of an income tax return do you file? self-employed or incorporated company? thanks.

    • It depends. I have multiple corporations and I am self employed as well. The rentals are single member LLCs are can be put on my personal tax return.

  15. How do you get more properties beyond 4

  16. so you can afford a Lambo on 60k a year profit….. really that doesnt seem like a good amount for 16 properties, what do you have tied up in the 16 properties?, if you average, your making about 312 bucks a mo on each property, I think I can do much better on mini storage where I can pull about 1200 a month ( 100x30ft building) at about 30k )not including property) each building

    • Hi Tim, Good catch! i updated the number of properties I own, but I did not update the income I am making on them. It is around $100,000 a year now with my 16 rentals.

      I finance them with 20 percent down and then have refinanced many as well. My cash on cash returns are over 15 percent when I buy and most are over 20 percent. That doesn’t include any appreciation, tax advantages, debt pay down or buying below market.

      Storage units can be nice, but your making 12 percent cash on cash assuming no other expenses and assuming you are paying cash, they won’t really appreciate unless rents go up, probably tough to buy below market and like you said you aren’t including the cost of land.

      No I cannot afford a Lambo on 60k a year if that was all I had. I simply stated I feel comfortable buying the Lambo because of that 60k a year coming in in addition to my flipping, real estate team and other sources of income.

  17. Can I use current house as equity or.. I would love to rent turn key duplexes here in colorado. Also could I use the possible rent as income?

    • You would have to get a line of credit or refi to use that equity. You can use rent as income if it covers all the expenses.

  18. Why are people so greedy? Ever heard of the studies that show haponess does not increase after more than 70-75k/year?

    • Those studies were conducted about 40 years ago and very flawed. More recent and better done studies show the level of happiness goes up the more money you make. I can say from personal experience my happiness level has increased greatly as I have made more money

  19. does a foreigner need to pay taxes?

    • Yes

  20. Hi Mark,
    Love reading your blog. We are looking to start our rental portfolio and live in Las Vegas. Should we look at other States to invest or is it hard to own rentals out of State? I am asking because $100000 or lower properties here that we have found are not single family homes and they only rent out for around $750-820. I am wanting to have 10 properties by the time our kids start college so I only have 6 years to do it.
    Thank you
    Cass

    • Those are not good numbers in my opinion. It can be hard to invest out of state depending on how involved you want to be.

  21. Hi mark how are you doing I am just trying to get my foot in the door dont’ have very much money right now what is the best way for a rookie to get started I was looking at single family homes or condos to start out looking forward to hearing from you.

    • I have always liked single family homes

      • Hi mark. I’m a young (19m) nursing student. I was in a very bad car accident resulting in a lost football career but also a potential large revenue I’m very interested in putting into real estate. My goal is to be a young retiree that can do whatever I want bc I used this opportunity as widely as I could have! I was very interested if you could possibly text me or email me. And if you would teach me some basics or better yet take me on as an apprentice of sorts! Any help would be greatly appreciated and I thank any time you devote to me!

  22. Hi Mark

    Do you consider to add a multifamily investment property to your portfolio ?

    • I have thought about it, but so far I am happy with single family.

  23. Hi Mark . you really inspired me .I’m a college student. I’m 24 years old. I managed to save 41,000 my mom and I own a town house near our house. When it comes to investing in property what advice do you have for me if I currently only have 41,000? Should I work and save up until I have 100,000 ? In order for me to buy another town houses ?

    • Can you get a loan? Have you talked to a lender?

  24. Hi Mark, how do you decide between fixing and flipping a house or fixing and renting the house?

  25. Hey Mark,

    I am about to take over my mom’s business. She has 20 properties and I am a little excited and scared to take over this business. Do you have a certain person plumber, electrian, and Etc… I have not handy at all and afraid I will taken advantage of your certain jobs because I don’t know how much this may cost. Any pointers.

    • Did your mom have any of these people that she used?

  26. Hi Mark,

    My name is Jeremy. I am looking into becoming a Landlord and buying rental properties. I was wondering where I could go to find rental Data or somewhere to show rental statistics for my area. Also if you could provide any guidance or tips and tricks I am a open book . Thank you for taking the time to put this article and video together for everyone.

    Sincerely
    Jeremy

    • investability has some data

  27. Hi Mark
    I live in Los Angeles, the land of no cashflow! I have a few rentals in the Cincinnati area and want to add more in a couple different markets in the midwest and the south.
    My main holdup with my situation is that I will most likely have to buy using turnkey companies given that Im not familiar with those markets enough or have the necessary contacts to work them and find the below market deals. Also not being close I assume it would be difficult, if I was able to buy low, to manage the repairs from long distance to get the properties rent ready. Im not opposed to turnkey companies but I will not be getting the $500-600 cash flows like you are achieving by being able to take advantage of working in your home market. It seems the most I could expect in cash flow through turnkeys is about 150-250 a door.
    Those cash flow amounts arent nearly as attractive and i keep going back and forth about whether or not at those numbers is it worth taking on a bunch of properties across the country and also dedicating my capital to it. Would love to hear your thoughts on this subject.
    Thanks for all the great content you provide!!

    • That is tough, Personally I think buying below market is one of the biggest advantages of real estate and that is really tough with turn keys. Any way you can pick a market, find a great agent and property manager? Then work on buying good deals?

  28. Hi Mark,

    I am thinking about using my VA loan of 750,000 0% down next year after I graduate from nursing school to start renting out properties. Do you have any advice on the best way to start this process? I will most likely move into the first house for a year and go from there. I’ve had friends in the military do this and they make a considerable amount renting properties but I just don’t even know where to begin. Thanks.

    -Haley Nix

    • I think that is a great idea!

      • My buddy and I are graduating CRNA school in May and want to begin like you did. We are going to start with an area around the university and target graduate students who are in medical school and then branch out. He is from Western, NY and I am from Central N.Y. so we were going to branch out within our respective cities once we start making a profit. We will have one LLC. Can you suggest a good place to start, whether its research or what not. We understand the risk, but are very hard workers and want to be successful. Thanks!

  29. can u buy a house for 20k and start selling/renting it out there or not

    • yes

  30. Hi Mark,

    Never invested in the USA, where should I buy my first rental property and get a min cash flow of $500 per mouth.? Any advise would be very appreciated

    Regards,

    Joe Gentile

  31. Hey Mark!

    Just found your site and am excited to explore but wanted to make you aware that in the paragraph “How much does it cost to buy a rental property?” the hyperlink “cost of a rental property here” doesn’t work.

    Just wanted to let you know!

    • Thank you! I fixed it

  32. Is your goal still to have 100 rental properties in your portfolio?

    • Yes, but it is going slow!

  33. Hi Mark,
    great article. What about using short term rental instead of long term?
    I am making my adventure in short term rental as i found that can be more profitable for certain properties. Obviously you have to spend more time managing it.

    • They take more management as you said. They can make money but it all depends on the market and time you have or extra cost of management.

  34. Hello Mark,

    Great article!
    I was trying to follow your numbers on the chart. I understand that there is additional cash flow from the mortgages being paid off however I can not follow your calculations on where that amount came from based on your model. I have been spending hours trying to back into the number and I cant. Can you let me know how you calculated the first Extra Cash Flow amount from mortgage paid off?

    Thank you very much sir.

    • Once a mortgage is paid off, there is no longer a mortgage payment being made to the bank. That increases your cash flow by whatever amount the mortgage was.

      • Ok, so I understand the concept and was able to pick up on that. However I was trying to back into where you got the $4,572 amount from. I assumed you split the difference on your estimated mortgage so you were accounting for a $550 mortgage payment. By my math you were bringing in $1500 per month and using the entire amount to pay off the mortgage on the initial home. With an $800,000 loan you would have had the first home paid off entirely in between the 5th and 6th month of the third year. Can you help me understand exactly where the $4,572 number came from?

        Also, would you be interested in being retained on a private consulting job? My partner and I have worked hard to build a successful international rental business. We have now gained the assets to take the model to the next level and instead of “re-renting” properties, we are ready to start owning. I am sure your experience and involvement would be valuable to the start of this new venture. Would you be interested in hearing the opportunity and getting involved? It is in the New York City market so I imagine it could be a very exciting project for you if you have the interest.

        Please let me know your thoughts and if you are interested in speaking offline to hear more. Thank you very much.

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