My real estate plan is simple … I need to buy one new rental property each year for three years starting in 2022. Doing so would give me 5 rental properties by 2026, when I plan to be financially independent.
I’ve owned homes since 2009, but I began my real estate investment journey in 2014 when I purchased my first rental property. This was a foreclosed property that we fixed up, adding significant equity to the unit. More recently in 2019 we converted our second home in the Midwest into a rental property. But other than these two units I had to put my ambitions on hold due to being too busy completing law school at night until 2018 and then paying off my student loans for the last few years.
We recently hit millionaire status and our discretionary income has increased lately, so I’m looking forward to buying more properties soon!
Real estate in Washington, DC, is incredibly expensive, and it’s nearly impossible to find a property in our area that cash flows. Additionally, DC and its surrounding areas are so expensive that coming up with 20% for a down payment would be a significant challenge.
As a result, I’m planning on purchasing my future rental investments out of state, likely in Atlanta or Memphis. Or even maybe in the Baltimore suburbs. I hope to partner with a local investor in these areas to buy and fix up a property, but I’m not confident I’ll find a competent local whom I can trust.
Alternatively I’ve considered buying through a turnkey provider who specializes in selling rent ready, cash flowing properties to investors. After the initial sale, these providers typically act as a management company as well. Turnkey companies sell their properties at market value, so it’s tough to get a “deal” with any value-add potential. But the advantage of going turnkey is the property should be rent ready, or better yet already have a tenant in place, when you close the deal. This is very appealing for someone like me with more cash than time at the moment.
When searching for properties, I focus on ensuring they have strong cash flow potential. Appreciation is great, but I don’t believe you can plan on having your properties significantly appreciate over time. There are way too many factors out of an individuals control in this regard. A cash flowing property is one that churns out a profit each month after all costs are accounted for – including mortgage, tax, insurance, and other long term costs such as maintenance, CapEx, vacancy, and management fees. Many properties will generate enough income to pay the monthly mortgage/tax/insurance bill, but you have to look a LOT harder to find a cash flowing property after adding in these other factors.
Having 5 investment properties by 2026 will significantly contribute to my plan for financial independence. If each property cash-flows at an inflation-adjusted $200/month, these properties would provide $1,000/month in income. This isn’t enough to retire on, but it’s a strong start, and combined with my stock portfolio, should be enough to become financially independent.
How am I going to pay for these rentals you ask? Good question…
Completing Operation Crush Student Debt will free up $3,000+ a month, more than enough to start buying properties quickly. As I begin to build my real estate empire I’ll also be leverage the income generated by my rental portfolio to assist in purchasing additional properties. I haven’t run the numbers yet, but I imagine this will snowball at a rapid pace.
My goal of acquiring only one property each year isn’t too ambitious, but I believe it best to set a reasonable goal to get the ball rolling, and revise my vision in the future if needed as my plan unfolds.
As I begin to buy new properties I plan to share all the property specifics, such as their location, the financial numbers, any renovations, etc. Stay tuned for all the juicy details!