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How Many Rental Properties to Retire?

Rental properties lining the streets
How many rental properties to retire? It’s a numbers game!

Are you nearing retirement? Or maybe you’re considering investing in real estate and want to determine how many rental properties you need to retire in the future. Whatever the case, buying rental properties is a great way to build passive income and income-generating real estate that may allow you to retire early one day.

Continue reading to find out the answer to how many rental properties it takes to retire and how you can get started investing in real estate today. 

How Many Rental Properties to Retire?

Maybe the better question is, how much money do you need saved up to support your lifestyle into retirement? To find out how many rental properties you need to retire, we need to do some math. But first, it’s important to know that we all have different retirement goals and that these numbers are just examples and may vary depending on the cost of living in your area and other factors.

How Much Income to Support my Current Lifestyle?

You first need to determine how much monthly income you need to maintain and support your current lifestyle. You should account for the possibility of this number changing upon retirement as your lifestyle shifts.

To do this, you need to calculate your living expenses and how much money you need each month to cover those expenses. You should ideally have extra money to save after budgeting for your living expenses, although this isn’t always possible.

For example, if your living expenses total $5,000 per month, you should aim to make at least $6,000 to $7,000 in monthly income to save some money each month. 

The Rental Property Retirement Formula

According to Roofstock, the rental property retirement formula is I = M x C, where I is the income needed in retirement, M is the money invested in your rental properties, and C is cash-on-cash return.

To find the number of rental properties needed to retire, you then need to establish your target retirement income. 

Using $60,000 as our target retirement income from rental properties with an average cash-on-cash return of 6 percent, investors will need to invest about $1 million in real estate to make $60,000 per year in rental income:

I = M x C

M = I / C

$60,000 / 6% CoC = $1,000,000 money invested

Assuming each home is worth $140,000, investors will need about 7 to 8 rental properties to generate $60,000 in rental income.

Investors in areas where average home prices are much higher than $140,000 will find that they may need to acquire more rental properties to produce the same cash flow in their area.

Deciding on a Rental Property

The next step in acquiring a rental property is deciding which type of property you want to buy. Some factors to consider when deciding on a rental property include the following:

  • Location
  • Cost of living
  • Type of property (single-family, multi-family, condos, etc.)
  • Rental income
  • Prices

New investors should also account for rent fluctuations throughout the year. Seasonal trends may cause you to lower your rental rates if you need to find a new tenant. Warmer locations in the Southwest may experience less of an apparent change in rent prices than seasonal areas in the Northeast.

Remote real estate investing is becoming more popular among new investors. This type of investing involves a buyer purchasing a property in a location often far from them while managing the property remotely. 

Remote investors often work with property managers to oversee the day-to-day operations of the rental property and may never visit their investment properties in person.

The Benefits of Rental Property Investing

Rental Property new construction
There are many benefits of rental property investing including performing a 1031 exchange.

If you’re reading this article, you probably already know that there are plenty of benefits that come with rental property investing. However, here are some lesser-known benefits that come with acquiring rental properties:

Tax Benefits Such a 1031 Exchange

There are plenty of tax benefits that landlords can use to their advantage when managing rental properties. For example, one of these benefits is a 1031 exchange, where business owners can sell their property and use the proceeds to buy another investment property without any tax consequences. 

Another tax benefit of rental property investing is using the interest as a deduction from your mortgage payment. The deduction applies to the goods and services you used for the property and covers everything used to improve the interior or exterior of the home.

The last tax benefit from rental property investing is using your insurance as a tax deduction. Any insurance policies you have related to your rental properties can reduce your insurance premiums. Policies like landlord liability insurance and flood insurance are all things that can be used as tax deductions that allow you to pay less in taxes at the end of the year.

Protection from Inflation

Rental property investing is one of the best ways to protect against rising inflation in the US. Luckily, inflation can be combated much easier with real estate than it can in other industries. A byproduct of inflation is that you’ll be able to charge more for rent, and your property may increase in value (also known as appreciation).

Exit Vehicles

Real estate is the perfect exit vehicle. There are no rules when it comes to selling your rental properties, but most landlords who sell do so when home values are up and they can command more for the home than what they bought it for. However, you’ll probably need to hold onto your rental properties for at least several years before they significantly increase in value. 

Diversifying your Assets

Let’s face it, owning real estate is one of the best ways to diversify your investment portfolio. Most investment portfolio’s consist of assets like stocks, bonds, and other securities. Real estate adds another dimension of wealth building that is unique in many ways

Instead of just relying on one investment type, you can diversify your investments with residential or commercial real estate investing. This ensures you “don’t put all your eggs in one basket” and minimizes your overall investing risk.

Final Thoughts

How many rental properties do you need to retire? This article gave a practical example of how many rental properties you need to earn $60,000 in rental income each year when you retire. However, high-cost areas require extensive research to determine how many properties you’ll need to generate the same level of income.

Are you looking to get started in real estate investing? You have come to the right place. Wholesaling real estate is a great way to build up capital quickly so you can start investing in rental properties. We offer a step-by-step guide that shows you exactly how to do it!

The Step-by-Step Guide to Getting Your First Wholesale Deal in 30 Days or Less
Wholesaling real estate step-by-step guide

About the author: Ryan hovers around a 10-20 handicap any given day. But the talent is there, no question.