How to make $100K in five years with just three properties.
I want to show you how to make $100,000 in five short years on just three properties. Let me illustrate. Start by buying three $90,000 properties each requiring a 25 percent down payment for a total of $67,500. Can we make at least $100,000 on this $67,500 down payment and reap what would be a 148 percent five-year return? Yes, we can.
First, buying the right properties is key. We need properties that have equity built in. This can be done if you know how to buy off-market properties from motivated sellers. If you don’t know how, work with a coach or mentor. With your three properties averaging $10K in equity at the time of purchase you’re nearly a third of the way to your five-year goal before you start.
Now we turn to our cashflow numbers. Each property should have a net cashflow of $200 per month on average. This nets you $600 month total or $7,200 annually. In five years, this cashflow alone gets us $36,000. With the $30K in up front equity your gain after five years is at $66K.
Now to hit our five-year goal of $100,000 we still need to account for an additional $34,000. We’ll look to normal appreciation for this. If each property appreciates just $2,300 per year, you’ll easily hit the $34K number. A 2.6 percent annual appreciation will do it. This is a modest number for many markets. If you add your original equity, your cashflow, and your appreciation, your $100K goal is crushed.
“Wait just a minute!” You might say. “That’s only if everything goes perfectly . . . no evictions, capital expenditures, etc.”
To this I say, “true.” But we aren’t done talking about gains yet. We have not counted principal paydown funded by tenants rather than your wallet (perhaps another $5,000 or so per property or more than $15,000). Now let’s figure in annual rent increases. At just three percent annually, your cashflow figure will climb another $2,400 over five years. Finally, we’ll use the tax deductions and depreciation as well as combined security deposits and we should be able to comfortably cover turn costs as tenants move in and out.
Now after five years you have hit your initial goal and are ready to 1031 exchange original down payment and gains ($167K) into a $500K asset. Perhaps this is a 10-unit apartment complex worth $60,000 per door that each rent for $750 per month? Increase the rents to $800 per unit over five years and the complex should be worth about $75,000 more. Along with the asset’s initial $167,000 equity, this property could help you profit $175,000 over five years. Now with $342,000 in hand it’s time to exchange into a $1,2M asset.
Continuing with this method, it is easy to see that in 10, 15, or 20 years, you can generate enough passive income to cover many if not all your basic expenses. The key is saving and re-investing your cashflow and exchanging into larger or more numerous assets until you are ready to begin living off the income.
Average investors can make this work. Ask yourself, “What will motivate me to sacrifice to get started on this path to financial freedom?” If you would like to work with a coach that will help you get things started the right way, let me know. I’m passionate about helping people build wealth and I’m excited to show you how. Reach out to me at Jared@ROITK.com or visit roiturnkeyproperties.com.