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A plan of how to get to a passive income of 4k/mo in 11 years. Hard but doable.

J.K.

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Jun 13, 2016
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I came up with this extremely conservative and very long-term idea of how to retire at age 41, constituting my current income by almost passive income of the same size.

If I save up 3k/mo, in 20 months I will be able to buy a 2-room apartment in my city for 60k
I can rent that for at least 400 bucks/mo, and add this money to the other 3k that I am saving up.
This will accelerate the rate of getting to 60k for the next apartment, which I will be able to buy in, say, 18 months.
rent that one out and add the money to the other 3400.
Keep doing that until I am making 4k/mo from renting, it will take 11 years of hard work and saving everything. Then I can stop working forever.

Has anyone ever done that? Do you have any feedback?

(taxes for lending here are 10%, 4k here buys 4000 cheeseburgers)
 

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The $400/mo that you rent your new 2-room apartment does not count for your expenses. You'll need to consider your cost of insurance, property taxes, HOA fees, general maintenance, vacancy, utilities if you pay them, etc.

Your plan is sound, and perfectly legitimate. Just make sure you're considering all of the factors that you need to be considering.
 
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J.K.

J.K.

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The $400/mo that you rent your new 2-room apartment does not count for your expenses. You'll need to consider your cost of insurance, property taxes, HOA fees, general maintenance, vacancy, utilities if you pay them, etc.

Your plan is sound, and perfectly legitimate. Just make sure you're considering all of the factors that you need to be considering.
well, where I live, the yearly tax is about 50-100 bucks so its negligible. Insurance is 13 bucks/mo so also negligible. Utilities are typically paid by the renters. However, renters often leave without paying so that's a problem, indeed. Could turn out to be a lot of hassle, especially when there are 10 families to deal with.
 

Fastlane Liam

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Tell me if Im wrong, but you're thinking Defence.

All calculations are based on your earnings; 3k a month

What if you were to use that 3k into a product that solved a problem and served a need. Bundled into a scalable entity (mass produced and sold on Amazon), and you could have 4k a month passive alot sooner than 11 years.

Sure you will fail, sure Im cutting out so much. Just seems more fastlane to create more income.
 
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J.K.

J.K.

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T
Tell me if Im wrong, but you're thinking Defence.

All calculations are based on your earnings; 3k a month

What if you were to use that 3k into a product that solved a problem and served a need. Bundled into a scalable entity (mass produced and sold on Amazon), and you could have 4k a month passive alot sooner than 11 years.

Sure you will fail, sure Im cutting out so much. Just seems more fastlane to create more income.
You are absolutely right, this is the most defensive and also most surefire way to passive income I could think of. I am currently researching many ideas - from high-risk, high-reward to low risk-low reward ones.
 

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Tell me if Im wrong, but you're thinking Defence.

All calculations are based on your earnings; 3k a month

What if you were to use that 3k into a product that solved a problem and served a need. Bundled into a scalable entity (mass produced and sold on Amazon), and you could have 4k a month passive alot sooner than 11 years.

Sure you will fail, sure Im cutting out so much. Just seems more fastlane to create more income.
That's just one method for wealth generation. Real estate investing is tried and true for hundreds and hundreds of years. There is just as much (if not more) risk in trying to scale up an Amazon business as there is real estate investing.


well, where I live, the yearly tax is about 50-100 bucks so its negligible. Insurance is 13 bucks/mo so also negligible. Utilities are typically paid by the renters. However, renters often leave without paying so that's a problem, indeed. Could turn out to be a lot of hassle, especially when there are 10 families to deal with.
Let's assume $100/yr for taxes and $13/mo for insurance. You're now down ~$21/mo on your income, which might not sound like much, but you just took a 5% hit to your income. It adds up fast.

You'll need to consider big expenses that come up every few years. Your carpets will wear out, your water heater could break, a kitchen appliance may need to be replaced, etc. There's also routine maintenance such as a clogged pipe that you need to hire a plumber for, etc.

A very rough general rule of thumb is to assume that 50% of your rental income will go to expenses. Maybe it's less in your area, maybe it's more. I don't know - you need to research it.
 
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J.K.

J.K.

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Hmm, true. I also read about tenants who leave and break everything before they do... Maybe it will take more than 11 years.. or in 11 years the monthly income will be a lot less, you are absolutely right.

I had a similar idea for parking garages - for 60k I could buy 4-5 garages and rent them out at 100-150 bucks/mo. This quintuples the number of renters but the expenses are reduced and the potential damage too, however, it will be very hard to find so many garages.
 

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Hmm, true. I also read about tenants who leave and break everything before they do... Maybe it will take more than 11 years.. or in 11 years the monthly income will be a lot less, you are absolutely right.

I had a similar idea for parking garages - for 60k I could buy 4-5 garages and rent them out at 100-150 bucks/mo. This quintuples the number of renters but the expenses are reduced and the potential damage too, however, it will be very hard to find so many garages.
Nobody said it would be easy :)

Just ensure you're setting aside money for large expenses like replacing appliance and carpets. If you screen your tenants well, and your apartments are in decent, safe areas, you shouldn't have tenants who trash your apartment when they leave.
 

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Valor

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You're thinking way too small here.

First off, $4k a month isn't much at all - in 11 years, you should be able to build up a cashflow of much more than that.

Let me start by saying I'm not currently in real estate yet, but if you're going the real estate route and you have the ability to save $3k a month, you should have no problem getting some type of loan as leverage. Paying all cash is far from the most efficient way to grow a portfolio. Like other people mentioned, you're also not accounting for operating expenses in your $400/month example.

And if you don't mind getting your hands a little dirty, you can do some initial rehab work on the properties you acquire which will force some appreciation of the properties, speeding things up even more.

Give this article a read (or BiggerPockets in general):

Plan: Build $1M in Net Worth Through Real Estate With 5 Purchases Over 7 Years

This might not be as "extremely conservative" as you want, but trying to be "extremely conservative" often times ends up being the exact opposite.
 

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Valor

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well, where I live, the yearly tax is about 50-100 bucks/mo so its negligible. Insurance is 13 bucks/mo so also negligible. Utilities are typically paid by the renters. However, renters often leave without paying so that's a problem, indeed. Could turn out to be a lot of hassle, especially when there are 10 families to deal with.
I'm not going to argue hypothetical numbers, but 50-100 bucks/mo is negligible? When you're renting for 400/mo? That is up to 25% of your monthly rental rate....not including utilities, vacancy rate, repairs and maintenance, capital expenditures, and any other operating expenses.
 

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I'm not going to argue hypothetical numbers, but 50-100 bucks/mo is negligible? When you're renting for 400/mo? That is up to 25% of your monthly rental rate....not including utilities, vacancy rate, repairs and maintenance, capital expenditures, and any other operating expenses.
You're totally right. I misread the OP and thought it was $50-100/year. Those taxes are not negligible at all of that's really $50-100/mo!
 

Real Deal Denver

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First off, $4k a month isn't much at all - in 11 years, you should be able to build up a cashflow of much more than that.
That amount is close to the average **household** income, so that is a pretty big amount to save. No way I could do it at this point. Did you mean $40.00 a month? LOL. (See next post)

Let me start by saying I'm not currently in real estate yet, but if you're going the real estate route and you have the ability to save $3k a month, you should have no problem getting some type of loan as leverage.
Bingo. Prize of the day for that great advice.

How much stock can you buy for $20,000? $20,000.

How much real estate can you buy, with a 10% down payment of $20,000? $200,000.

Leverage. The most important word you need to know. Besides rum, perhaps.

How much can you make if each one goes up 5%? End of lesson. You got it.
 
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biophase

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Your plan is sound, but that is a savings plan. I would be totally ok with this "if" this is your behind the scenes passive plan. Saving $3k a month is great for, but if you can do that in 2018, then saving $3k a month in 2029 means that you are falling behind. I would hope that you're savings would go up to at least $5-$10k a month.

I have real estate and most of it is paid off. I went a similar route. I put $40k down on a $200k place in 2005. I rented it for $1600/mo and it cashflowed about $500/mo at the beginning. Then as my income grew, I paid the loan down in $25k to $50k chunks. Today it cashflows about $1100/mo and rents for $1900/mo.

If your $3k/mo is solid and the housing market is decent. I would save up $12k, then get a $48k loan. Your cashflow would be probably $0-$50/mo. But instead of waiting another 17 months to buy, you purchased in month 4. If you want to be a little risky, you could purchase a second place in month 8 and a third in month 12.

Now let's look at your numbers:
Property 1 - $150 cashflow/mo
Property 2 - $150 cashflow/mo
Property 3 - $150 cashflow/mo
Your savings - $3000/mo
If all 3 properties went vacant, you could still float them all.

Now let's compare month 20's

Method 1 - All cash
You just purchased 1 $60k place (it could be slightly higher by now, $65k?) - cashflow $400/mo
$0 in your pocket
Low Risk

Method 2 - With loan - 3 properties worth $180k - cashflow $450/mo
Roughly $26,000 in your pocket
Med. to High Risk
 

Real Deal Denver

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View attachment 19166
Hmm, true. I also read about tenants who leave and break everything before they do... Maybe it will take more than 11 years.. or in 11 years the monthly income will be a lot less, you are absolutely right.

I had a similar idea for parking garages - for 60k I could buy 4-5 garages and rent them out at 100-150 bucks/mo. This quintuples the number of renters but the expenses are reduced and the potential damage too, however, it will be very hard to find so many garages.
Both extremely good points.

I have long thought about something similar to your garage theory, but much easier.

Parking Lots. In Denver, there are many of them downtown, and they do excellent business. Can't destroy a parking lot. I might have to check into that further now.

Thanks for a post that reignited an idea I had forgotten about.
 

WJK

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I came up with this extremely conservative and very long-term idea of how to retire at age 41, constituting my current income by almost passive income of the same size.

If I save up 3k/mo, in 20 months I will be able to buy a 2-room apartment in my city for 60k
I can rent that for at least 400 bucks/mo, and add this money to the other 3k that I am saving up.
This will accelerate the rate of getting to 60k for the next apartment, which I will be able to buy in, say, 18 months.
rent that one out and add the money to the other 3400.
Keep doing that until I am making 4k/mo from renting, it will take 11 years of hard work and saving everything. Then I can stop working forever.

Has anyone ever done that? Do you have any feedback?

(taxes for lending here are 10%, 4k here buys 4000 cheeseburgers)
I have done what you want to do. And you can do it too. Your plan at this point is very basic. There are some ways to speed up you plan.

You can use real estate to shelter some of your income through income property depreciation -- which can increase your investment plan contributions.

You can use your personal residence to build up an additional RE equity. And then sell every couple of years to increase that position without owing Federal taxes. That means buying a fixer-upper every two years and selling it at the end of the holding period, and when you have it fixed up -- which increases the market value & your equity. Then do it again. And again. And again.

You can CAREFULLY use leverage (OPM-- other people's money) to buy larger properties so you can take advantage of appreciation on the whole nut -- not just your equity portion.

You can use a 1031 exchanges, as long you understand that you're kicking the can down the road -- deferring income taxes.

And that's just the beginning of the possibilities. I started in real estate in 1976, and almost all of my income is real estate passive income.
 

GoGetter24

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Biophase is right on the loans. Slowly saving up to buy a house in cash over time is done by almost no-one.

So don't be too afraid of debt. You can put 30% or 50% down if you're afraid of leverage.

But you definitely need to do some all included calculations on this.
 

JoannaGl

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I came up with this extremely conservative and very long-term idea of how to retire at age 41, constituting my current income by almost passive income of the same size.

If I save up 3k/mo, in 20 months I will be able to buy a 2-room apartment in my city for 60k
I can rent that for at least 400 bucks/mo, and add this money to the other 3k that I am saving up.
This will accelerate the rate of getting to 60k for the next apartment, which I will be able to buy in, say, 18 months.
rent that one out and add the money to the other 3400.
Keep doing that until I am making 4k/mo from renting, it will take 11 years of hard work and saving everything. Then I can stop working forever.

Has anyone ever done that? Do you have any feedback?

(taxes for lending here are 10%, 4k here buys 4000 cheeseburgers)
RE can be really profitable, but only if you focus on the issues which can maximize you cashflow. Many people who I talk to about RE think that it is just «buy and rent and it will be ok». And when they buy their first property to rent they are only disappointed due to high costs, much administration and risk. Here are some guidelines which I’ve tested self:

1. Think about market and area you are living. It will save you a lot of money if you live not so far from the property. What kind of tenatns can give you best income? Turists? Imigrants? Students? Workers from the nearest factory? Families who rent a flat/house are usually not so profitable clients. I go self for immigrants due to a large market in Norway. I have a little, cheap apartment by the train station and rent 3 bedrooms separate. My neighbours rent the same kind of flat to a family, so they get 300-400$ less per month.

2. Read everything about the taxes and use all kind of exemptions of tax for RE.

3. Assess if it is profitable to offer all furniture in the apartment (it depends on the kind of client I mentioned in pt. 1). I offer furniture, people are really glad, and pictures are great. Do not use terrible furnitures! I got free, pretty furtinures from people who moved and did not need them any more.

4. Great, light, nice photos. Use extra lamps/lights when taking pictures.

5. Do not buy an expensive property which does not match to your kind of tenants. Turists need a better standard, but students don’t. Do not use too much money.

6. Fix everything you can before you let them in. Fix everything in the bathroom, maybe paint the walls so you can rent the apartment continously in the next years, fix the drawers etc.

7. Be a great landlord. The clients will find you self.
 
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J.K.

J.K.

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Jun 13, 2016
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Guys, I am so sorry - I made a typing mistake.
There is a yearly property tax on real estate here, which is a one time payment of 50-100 bucks per year. So yes, it is negligible.
 

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OP
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J.K.

J.K.

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Jun 13, 2016
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You're thinking way too small here.

First off, $4k a month isn't much at all - in 11 years, you should be able to build up a cashflow of much more than that.

Let me start by saying I'm not currently in real estate yet, but if you're going the real estate route and you have the ability to save $3k a month, you should have no problem getting some type of loan as leverage. Paying all cash is far from the most efficient way to grow a portfolio. Like other people mentioned, you're also not accounting for operating expenses in your $400/month example.

And if you don't mind getting your hands a little dirty, you can do some initial rehab work on the properties you acquire which will force some appreciation of the properties, speeding things up even more.

Give this article a read (or BiggerPockets in general):

Plan: Build $1M in Net Worth Through Real Estate With 5 Purchases Over 7 Years

This might not be as "extremely conservative" as you want, but trying to be "extremely conservative" often times ends up being the exact opposite.
Buying property, fixing it up and selling it at a property is also one of the ideas I'm considering. It is just a much more popular one, so I didn't think it was necessary to create a topic for it, asking for opinions. I've ordered a book on that because I don't have experience, but it sounds like fun.
The other idea I have is probably buying a piece of land in Spain and placing 2-4 prefabricated houses there and AirBnB-ing them.
 
OP
OP
J.K.

J.K.

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Jun 13, 2016
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Your plan is sound, but that is a savings plan. I would be totally ok with this "if" this is your behind the scenes passive plan. Saving $3k a month is great for, but if you can do that in 2018, then saving $3k a month in 2029 means that you are falling behind. I would hope that you're savings would go up to at least $5-$10k a month.

I have real estate and most of it is paid off. I went a similar route. I put $40k down on a $200k place in 2005. I rented it for $1600/mo and it cashflowed about $500/mo at the beginning. Then as my income grew, I paid the loan down in $25k to $50k chunks. Today it cashflows about $1100/mo and rents for $1900/mo.

If your $3k/mo is solid and the housing market is decent. I would save up $12k, then get a $48k loan. Your cashflow would be probably $0-$50/mo. But instead of waiting another 17 months to buy, you purchased in month 4. If you want to be a little risky, you could purchase a second place in month 8 and a third in month 12.

Now let's look at your numbers:
Property 1 - $150 cashflow/mo
Property 2 - $150 cashflow/mo
Property 3 - $150 cashflow/mo
Your savings - $3000/mo
If all 3 properties went vacant, you could still float them all.

Now let's compare month 20's

Method 1 - All cash
You just purchased 1 $60k place (it could be slightly higher by now, $65k?) - cashflow $400/mo
$0 in your pocket
Low Risk

Method 2 - With loan - 3 properties worth $180k - cashflow $450/mo
Roughly $26,000 in your pocket
Med. to High Risk
This is a great idea. I am not sure I will be able to sustain 3 mortgages on my salary though, I am not sure if the rental income added, will be added to my total monthly income when they consider it in the bank.
 
OP
OP
J.K.

J.K.

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Jun 13, 2016
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View attachment 19166


Both extremely good points.

I have long thought about something similar to your garage theory, but much easier.

Parking Lots. In Denver, there are many of them downtown, and they do excellent business. Can't destroy a parking lot. I might have to check into that further now.

Thanks for a post that reignited an idea I had forgotten about.
I've also thought about parking lots but there are a couple of problems with them:
1. Most of the places are taken
2. I need to hire 4 guys working 2/2 on 12 hour shifts to guard the parking lot.

Where I live a parking space in a parking lot costs 60-80 bucks/mo, and the salary of a security person (usually a retired guy who just sleeps there at night) is about 600. Doesn't check out very well, at least here
 

biophase

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This is a great idea. I am not sure I will be able to sustain 3 mortgages on my salary though, I am not sure if the rental income added, will be added to my total monthly income when they consider it in the bank.
You won’t know until after you get loans number 1 and 2.
 

MickyMillions

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Buy, renovate and redraw.

The rules may be different for you but in the U.K. This is how it works.
Buy it cash say £60k make sure it's current value is well below other in the same street or area. it needs to be awful, in disrepair and cheap for the area. Spend £20k on full refurb.

As an example It should now value up to £100k which the bank (after 6 months) will lend 75% so £75k.

You've just bought a house with only £5k of your own cash left in the deal. Mortgages at 2.4% will cost £150 rent should be £600-650.

Move on to the next one.
There's a load more to it and extra costs and tax to take into account in my country but property is a solid passive income imo and something to get your Fastlane acquired cash working for you.
 

roguehillbilly

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I'm pretty much echoing what was already said but saving 3k/mo and paying cash seems insane. Take the debt and be smart about it. The market could crash and you could lose your a$$ but I'd take the debt and buy the place, rent it out and use the difference between mortgage and rent to invest more.

Disclaimer: I don't rent any property
 

rocktacular

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I have real estate and most of it is paid off. I went a similar route. I put $40k down on a $200k place in 2005. I rented it for $1600/mo and it cashflowed about $500/mo at the beginning. Then as my income grew, I paid the loan down in $25k to $50k chunks. Today it cashflows about $1100/mo and rents for $1900/mo.
@biophase Can you (or other RE guys here) explain some of this math? When I do the calcs to solve for expenses, I get something like:

Beginning:
Rent $1,600
Mortgage $859 (based on 40k down on 200k @5% assumed rate)
Expenses $241 (15% of rent)
Cash Flow $500

Now:
Rent $1,900
Mortgage $0
Expenses $800 (42% of rent)
Cash Flow $1100

Did the expenses go up that much? Or do you still carry the mortgage (in which case expenses are less than 0)? Maybe I'm missing something else?

Thanks, I'm making lots of spreadsheets trying to understand RE stuff.
 

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