Can I make six-figure a month investing in real estate?
Have you ever thought about what your life would look like if you could make a six-figure income with real estate investing from your long-term real estate investments? Today’s post is about how the investments we plan and execute today could get you there at some point shortly.
The secret of making a six-figure income with real estate investing is quite simple. Essentially, there are two, very different routes to get there:
Blueprint Method
This method involves fewer properties and much lower risk. The concept is simple and leads to six-figure income with real estate investing but it requires a solid plan and the discipline to execute it. Look at it this way: each free and clear property in your portfolio produces an income of $11,000/year. To generate an annual income of $100k you would need to own 9 such properties. If you don’t have the capital to acquire 9 properties with cash today to produce that kind of income, then you can purchase quality assets with 20-25% down and then use the positive cash flow they produce to aggressively pay down the mortgages one at a time with focused intensity. For more analysis download the detailed analysis of this domino strategy on a portfolio of nine single-family homes. In that example, the entire portfolio worth over $1.25M becomes free and clear in 12 years and produces a six-figure annual income before taxes. Can your IRA or 401(k) match that kind of performance? Not only that but the speed of reaching your goal is completely up to you and how aggressive you want to be. In comparison to the Perpetual Leverage Method below this strategy involves significantly less risk for two reasons. First, the number of mortgages you undertake is less than half. Second, these mortgages get paid off quickly in 12-27 months instead of lingering in your portfolio for 30 years.
Perpetual Leverage Method
The Perpetual Leverage Method leads to six-figure income with more properties and higher risk. Say you acquire a property that produces $4,000 in annual income after operating expenses and mortgage payments by putting 20% down. If you want $100k in annual income using this method, you have to own 25 such properties producing the same income each. I call it the perpetual leverage method because it involves keeping the properties leveraged for 30 years according to the original loan terms and using cash flow to create passive income. There are three major downsides to this method. First, the risk to the investor rises with each loan added to the portfolio and since the loans are being paid off on a 30-year schedule, the risk is virtually unchanged, throughout three decades. Second, managing 25 homes is not easy and not for everyone. You would think this would allow you to be financially free and quit your job when in reality you’ve just changed jobs and became a property manager. Last but not least, acquiring 25 properties is difficult due to loan guidelines that restrict the number of properties with a mortgage any one investor can own.
The next question then inevitably becomes: If it is so simple, why isn’t everyone earned a six-figure income with real estate investing? Because math isn’t the real issue. It’s a planning, commitment, and discipline issue. To work Blueprint strategy, you have to start with a solid plan, you have to be committed to it long term and finally, you have to execute it. Twelve years might sound like a long time from now, but think about where you were 12 years ago.