I agree with you, and am doing the same thing myself.
A long time ago, I figured that I only needed four free and clear properties to fund my retirement lifestyle. I have one free and clear now, with nine more still mortgaged. By the way, I retired four years ago.
My original plan was to sell my oldest property and use the proceeds to pay down (or payoff) the mortgage on my newer property, then keep selling as many of my older properties as needed to payoff the mortgages on four properties. Then with four free and clear properties, I would retire.
After several years of investment planning and careful property acquisition, I discovered that I really did not need to sell off my properties unless there was an overriding business reason to do so. Instead, I just added a little extra to each monthly mortgage payment to retire the loan balance faster. Since everything comes out of my cash flow, my tenants are really funding my retirement plan while I reap all the advantages of the tax shelter provided by my real estate. Rent increases keep pace with inflation, while fixed rate loans help keep my expenses relatively constant.
Posted by mark(ar) on August 21, 2002 at 08:56:19:
I have noticed that most here feel that the buy and hold thing is old news and the in thing is flipping. What is your opinion as to how many rentals one should have, how many is too many and if the answer is none then when do you retire and let property work for you?
Posted by Mark (SDCA) on August 22, 2002 at 11:24:30:
I agree with everything you said and everything else posted under this topic. Buy and hold IS given short shrift here. I am a firm believer in buy and hold.
To answer your question… What I have done is figure taht I will “retire” on my rentals, with the houses owned free and clear. (I do none of my own maintenance so that is not an issue). I looked at the income they are currently throwing off. I expect that to grow with inflation. I am comfortable with the gross income they are throwing off so I don’t feel the “need” to buy anymore. I currently have 8. That is plenty for me and yet still easy to manage.
Things that need to be considered-stability, Stage of your investing career, and inclination.
The young person that might get married, get a job transfer or even downsized would have problems if they went to a new area and had rental property in the old area. Many do management and handyman work themselves to save money. Sort of difficult if you lives hours or many miles away.
The stage of your investing career is also a factor. If you need to accumulate cash then rentals do not help you do that. L/O and subject to’s for a few years will give you plenty of landlording experience. If you come across a good property to treat as a rental then you can keep it.
Whether you want to deal with tenants and toilets is up to you. Remember when you do that work you are working for the hourly wage that that handyman would do it for.
I have heard that a couple dozen houses becomes a full time job for you if you play handyman. An owner financed note can bring you income and get you out of the hands on stuff. You may sacrifice appreciation or increased rents but you may also get it back.
That is a personal decision, based on what you want to do. Start off figuring out what monthly income you want your rentals to provide you. Then figure out about what monthly income you can expect for rental houses in your area. Put in a factor for vacancies and see how many houses you will need for the cash flow that you want to have.
I have heard of people who have several hundred houses. That seems excessive to me. They usually have to have an office staff and repair crews to manage such a large number of houses.
In some areas of the country, just 5 free and clear houses will provide enough income for some people to be satisfied. For instance, here in Coastal CA, you might have $2K or so in gross rents on a property. After expenses, you might have $1500 a month income. Five houses means about $7,500 a month income or about $90K a year. In other areas, it might take 20 or 30. If you have expensive habits, it might take more.
So, how many “should” one have? As many as you want.
Personally, I don’t need a lot of houses or even a lot of cash flow. As long as I can pay my bills easily and feel comfortable, that is enough for me. Just so I don’t have to work unless I choose to do so. I will probably have about 18-20 houses when I retire next year. And not of all of those will be free and clear.
Posted by Stew(NE) on August 21, 2002 at 09:21:14:
My answer is that you should hold as many rentals as your SYSTEM can handle and that have positive cashflow. For example, if you are doing all the work on them, it will get old and there is a limit to how many you can handle.