Real Estate Investing for Beginners – Get Rich…. SLOWLY.

I have been meaning to write a real estate investing article once a month for a year! It hasn’t happened yet. Though, it is now. For my first article, I wanted to talk about how to get rich in real estate. SLOWLY. It’s boring, but this is the good ole fashioned way to do it.

For me, real estate investing is more than a source of income. Whether it’s good, bad, or ugly, it’s my passion. There are lots of ways to get rich in real estate, but the most common way is one of the slowest ways. It’s to buy and hold. Buy and Hold real estate means that you purchase a rental property with the intention of keeping it for a long period of time. This can be with residential rentals or it can be with commercial rental properties.

Let’s dig in to an example:

Let’s say you’ve got a little extra cash and you want to start investing in real estate! You decide to purchase your first property that happens to be a duplex! Bam! You’re a landlord, you’ve got this great property and it’s producing extra cash. Not a lot, but hey, it’s something! Now what? Well, you could take that cash and use it for everyday expenses, or you could save the cash and reinvest it back into real estate for your next purchase and do this over and over again until you have over $2,000,000 in cash-flow. (cash flow is the extra cash you have left over after expenses).

If you’re like me, you want to see numbers and how this works (note: this example is very simple, just to illustrate basics of real estate investing, this doesn’t take into account appreciation, depreciation, inflation, or rent rate increases).

Year 1: Let’s say you find a property that’s $70,000 and has rental income of $1,200 per month. You put up a $14,000 down payment. After all expenses you will have about $500 a month in cash flow or an additional $6,000 per year. Expenses include: Loan payments, taxes, capital expenses, regular expenses, and vacancy (more on this in my next article).

Year 2: I’m going to assume you have a good job and can easily contribute to your 401k and also save some extra cash on the side. Let’s say in year two, you save the $6,000 of cash flow from the investment property and you also save an additional $8,000 per year separately. Great! Now we can buy our second property. We find a very similar deal that’s $70,000 requiring a $14,000 down-payment and producing another $6,000 per year. Now you’ve got two rental properties producing $12,000 per year! Awesome!

Year 3: You’re doing great. You’ve got two properties but want to take it up a notch. Let’s get our 3rd and 4th property in year three. Your Realtor has found you two more at $70,000 each, needing $28,000 total down payment and cash flowing a total of $500 per month each or $12,000 per year total. You’ve saved your $12,000 from your two income properties and add another $16,000 from your savings for the 3rd and 4th. Now you’re producing a total of $24,000 per year in extra cash-flow.

Year 4: You take the $24,000 per year in cash flow from your 4 properties and reinvest that into 2 more. Using the same math, you will only have to pay $4,000 out of your savings to buy 2 more similar properties. This will put you at $36,000.00 per year in cash flow.

Fast-forward to Year 15: You’ve let your money from real estate investments compound, meaning you haven’t spent any of the cash flow, you’ve just invested it back into more properties. You’ve purchased anywhere from 2 to 6 properties per year and now have 47 total properties worth $3,290,000. These properties are producing $282,000 per year in cash flow and $754,000 per year in rental income. Once your properties start having the mortgages paid off, your cash-flow will increase significantly. Check this chart out:






Year
Yearly Cash Flow Yearly Rental Income Down Payment Total Properties Properties Bought 70K This Year
1 $ 6,000.00 $ 64,400.00 $ 14,000.00 1 1
2 $ 12,000.00 $ 78,800.00 $ 14,000.00 2 1
3 $ 24,000.00 $ 107,600.00 $ 28,000.00 4 2
4 $ 36,000.00 $ 136,400.00 $ 28,000.00 6 2
5 $ 48,000.00 $ 165,200.00 $ 28,000.00 8 2
6 $ 60,000.00 $ 194,000.00 $ 28,000.00 10 2
7 $ 72,000.00 $ 222,800.00 $ 28,000.00 12 2
8 $ 90,000.00 $ 266,000.00 $ 42,000.00 15 3
9 $ 108,000.00 $ 309,200.00 $ 42,000.00 18 3
10 $ 132,000.00 $ 366,800.00 $ 56,000.00 22 4
11 $ 156,000.00 $ 424,400.00 $ 56,000.00 26 4
12 $ 186,000.00 $ 496,400.00 $ 70,000.00 31 5
13 $ 216,000.00 $ 568,400.00 $ 70,000.00 36 5
14 $ 246,000.00 $ 640,400.00 $ 70,000.00 41 5
15 $ 282,000.00 $ 726,800.00 $ 84,000.00 47 6
16 $ 336,000.00 $ 856,400.00 $ 126,000.00 56 9
17 $ 301,500.00 $ 964,800.00 $ 154,000.00 67 11
18 $ 355,500.00 $ 1,137,600.00 $ 168,000.00 79 12
19 $ 409,500.00 $ 1,310,400.00 $ 168,000.00 91 12
20 $ 472,500.00 $ 1,512,000.00 $ 196,000.00 105 14
21 $ 549,000.00 $ 1,756,800.00 $ 238,000.00 122 17
22 $ 639,000.00 $ 2,044,800.00 $ 280,000.00 142 20
23 $ 738,000.00 $ 2,361,600.00 $ 308,000.00 164 22
24 $ 859,500.00 $ 2,750,400.00 $ 378,000.00 191 27
25 $ 994,500.00 $ 3,182,400.00 $ 420,000.00 221 30
26 $ 1,147,500.00 $ 3,672,000.00 $ 476,000.00 255 34
27 $ 1,318,500.00 $ 4,219,200.00 $ 532,000.00 293 38
28 $ 1,525,500.00 $ 4,881,600.00 $ 644,000.00 339 46
29 $ 1,795,500.00 $ 5,745,600.00 $ 840,000.00 399 60
30 $ 2,088,000.00 $ 6,681,600.00 $ 910,000.00 464 65

By year 15 you might have to quit your day job to manage your property. Though, you might be able to keep that job, but hire a property manager. Year 30, you’ll have 2 MILLION in cash flow. If this seems far-fetched, it’s not. The hardest thing will be to find the deals!

Leave a Reply

Your email address will not be published. Required fields are marked *