Today I’m going to go over how much money I make from 99 rental units and how I was able to acquire all of these units while I was in my 20s. I want to show you exactly what I make every year from all my real estate. I will also share some tips and tricks for how I found and acquired these properties, and how I make sure they are paying me the best returns. I want to show you the actual numbers so you can see what’s possible if you invest in real estate properly. You too can build a huge passive income!
There are 4 ways that I make money with buying and holding real estate:
- Cashflow
- Principal Paydown
- Appreciation
- Tax Benefits
We’ll go through how much money I make with each. Now some of this money is cash in my pocket, but a big chunk of it is just an increase in my net worth. That means there is value in the property that I can’t take out unless I refinance or sell the property. We’ll talk about why neither one of those options is always the right option for your situation. So while the returns are real, the money is not super liquid.
Cashflow
Cashflow is just your rents minus the expenses (property upkeep, management fees, taxes, insurance, and mortgage insurance). Whatever you have left is cashflow: money in your pocket that you can spend.
On my 99 units of rental real estate, I make $17,647 in cashflow every single monthly. That’s over $211,000 in cashflow that I make on my 99 units every single year. That $211,000 mark is what I use to determine what my lifestyle is. That goes toward my car payments, house payments, and any other living expenses.
Cashflow is my favorite because I made a rule: whatever I make in cashflow on my properties, I get to spend on my lifestyle. The more cashflow that I have, the more I allow myself to spend toward my house, cars, and all of those things. So I love building a massive income through cashflow.
Principal Paydown
On every single one of my units, I have a loan. You should never pay off your properties, always have a loan. I’ve talked about why elsewhere so we’ll skip that today. In the cashflow section we talked about how you take out your mortgage as an expense. When you pay your mortgage every month, there’s a portion of that mortgage that goes toward interest, and a portion that goes toward principal. The principal portion is paying down what you actually owe on your property, meaning you are actually getting more of your money tied up in that property. That is a legitimate return. It’s like putting money into a bank account that is your property.
I own 99 units where every month I’m paying a mortgage and accruing principal paydown. I currently get $9,952 in principal paydown every month or over $119,000 every year. As you continue to pay down your loan, you pay less and less in interest, and more in principal paydown. Not only am I getting $119,000 every year, that number is increasing every year too.
You may be thinking “That money is locked up, you can’t get it unless you refinance, 1031 exchange or sell.” It is still a legitimate return. Even if the property dips in value, over time, properties are always going up in value. It will always rebound.
That’s why I love principal paydown. It forces you to leave that money in, hold on to that return even when things do drop. Down the road, when your property is worth way more and you have it paid off, that is a fat return that you’ll have access to.
Appreciation
Here’s the deal with appreciation: people say that the average appreciation is 3% - 5%. You can actually force appreciation on your property. For example, I bought a 32-plex last year. On that 32-plex, I did renovations and raised the rents drastically. I raised them so drastically that that $2.1 million property is now worth over $3 million if I decided to sell it. I know it sounds crazy, but that is forced appreciation.
I’m not going to run the numbers on this appreciation. I did make $1 million of appreciation on that property in a year, but for the sake of these numbers I’m only going to run appreciation based on a 5% increase on all of my properties every year.
At only 5% appreciation, I make $36,250 every single month. That’s over $435,000 a year. It’s still a legitimate return even if you can’t get immediate access to it and even if property values dip in the short term. In Idaho in the last few years, property values have gone up so much that 5% is sickeningly conservative compared to reality. Especially considering what I’ve done with renovations and raising rents to force appreciation.
I was considering running this number at 15% instead of 5%, but I knew people would give me all kinds of flack. I’m running it at just 5% to show you that it’s still great even if the values dip. And even if you were to sell in a dip, you’ll still capitalize on appreciation. But if you wait for the right time to sell or 1031 exchange or refinance, you can win huge on appreciation to where 5% is understated. If you’re buying properties properly, forcing appreciation, and buying in areas where you know property values are going up, you’ll see that this number is very conservative.
Tax Benefits
This category is insane because there are so many different ways that you make or save on taxes by investing in real estate. Let’s go over them:
- My $211,000 cashflow will save me $78,353 a year in taxes. That is $6,529 saved per month. I don’t have to pay taxes on my income I made on my cashflow from investing in real estate.
- You’ve also got principal paydown and appreciation that you’ve made in income that you’re not paying any taxes on. I won’t do the math on these because the numbers are insane and because you will pay taxes if you ever sell the property.
- The government has provided a tax trick called the 1031 exchange. When you sell your property, you can have all that money put with a third party until you buy another property. If you just move that principal paydown and appreciation from one property into another property, you don’t have to pay tax on it. That’s why I’ll never sell a property just to get cash. I use that principal paydown, appreciation, and whatever money down I had on my previous property and flip into bigger and better properties. That means I can sell these properties every 5 - 10 years and won’t have to pay taxes on all of these returns. I can use that money on another property with bigger appreciation, bigger principal paydown, and bigger cashflow, which yields even bigger tax benefits.
Once you know about these loopholes, you can save huge money.
I can’t go into everything but we’ll focus just on the savings on my cashflow. That was over $78,000 a year, which means I get $17,647 in cashflow, $9,952 in in principal paydown, $36,250 in appreciation, and more than $6,529 in tax benefits. All together, that’s $70,378 that I make from investing in real estate every single month. By investing in these 99 rental units of real estate, I make over $844,000 every single year.
Now you know exactly how much I make on 99 units of rental real estate. The cool part that I haven’t emphasized enough is that every year, this number will get bigger even if I don’t purchase any more real estate. It will grow due to appreciation. If you have a property appreciate from $100,000 to $105,000, now you’ll get 5% on that $105,000. On top of that, your principal paydown is getting bigger every year. The market is also expanding so your rents should be increasing every single year. When it comes to the tax side of things, if you use these strategies, you should be able to capitalize bigger and bigger on those tax benefits.
I’ve said it before and I’ll say it again: there is no better investment than real estate. A lot of people will ask if this is consistent with any old group of 99 units. It’s not, that’s why it is so crucial that you know the numbers that you are looking for before you invest in real estate. Just buying any property is not going to get you to these numbers. You have to hold to the desired return that you want. Once you find it, then you jump on it and start building your portfolio.
If I had to pick out one thing that helped me get here in my 20s, it was that I found a job where I could maximize my earnings and put the majority of those earnings into buying more real estate. Now all of my active income is going into buying real estate. Early on, I lived super frugally so I could put the majority of my active income into real estate. Now I put all of it in because I want to continue to build my portfolio.
Maximize your earnings on the front end with whatever job you’re doing, find a side hustle, find a way to get a commission job. Maximize your income, spend as little as possible, and put the rest into real estate. That’s one huge tip that will help you get there.
The other big tip is to hold to your numbers. For me, I need to get my 15% cash on cash return while in a market that I also know is getting huge appreciation. It’s not that difficult to get to this point where you can be raking it in on a passive income through investing in real estate.
If you want to know more about how to invest, there’s a lot that goes into it. That’s why I created my investing course that goes over the step by step process on how to scale from no rental properties to over 100 doors of rental real estate.