A few years ago I was at a networking event and met a man who owned about 1,500 units worth of rental properties. I was shocked and said, wow you must be retired!
He replied that no, he still had to work a full time job. I was shocked a second time.
When I turned 30 years old, I was able to ‘retire’ with about 30 units of rental property and here this man had 1,500+ units and couldn’t replace his income.
So, that leads to the obvious question – How many rental properties do you need to retire?
It’s Not About the Number of Units
Over time I realized that many investors in the multifamily industry will count ownership of units regardless if they own 0.02% or if they own 20% of the partnership. So that really answers the question as to why he couldn’t retire on 1,500+ units.
His fraction of ownership was miniscule. On the other hand, my 100% ownership of 30+ units was enough to provide six figures of income.
This makes it difficult to figure out how many units you truly need to own in order to retire.
So let’s take a look at it from a couple different perspectives.
How Much Income Per Rental Unit?
This also varies on a lot of factors, but a lot of real estate owners are striving to profit somewhere between $100 and $300 per unit per month.
So let’s say the rent is $1,500. Take out 50% for expenses and you’re left with $750 per month. The goal would be to have your debt service be $650 or less per month which would leave $100/month in profit.
Debt service is just the total principle and interest payments.
If you were able to make this happen with your property, then you’d profit about $1,200 per year. In this scenario 50 units would earn around $60,000 per year.
If you’re on the higher side, let’s say $250/month in profit you’d only need to own 20 rental units to achieve the same $60,000 in income.
Calculate Total Equity Needed
Another way to look at it is the total equity needed to achieve your income goal. Let’s stick with the $60,000 per year level only because the last examples used it.
Let’s say you can achieve a 10% return on equity in your local market. This could be equity you put into the deal or it could be sweat equity or forced appreciation from your work on the property.
To get $60,000 in income per year, you’d need about $600,000 in equity if you could earn 10% per year on that equity. This percentage is probably a bit on the high side, but you get the idea.
Now you just calculate how much real estate you need to own to have that $600,000 in equity.
How Many Rental Properties Do I Need to Retire Using Rental Property?
This number will vary based on how much you need to earn. It will also vary based on where the units are. But the number will likely vary from about 15 to 50 units if you own 100% of the ownership.
If you are invested with partners that number will obviously increase proportionally.