What real estate success looks like

So far on this blog, we’ve spent most of our time talking about buying your first building. But what does the end-game look like?

One thing to understand about real estate is that there’s literally no limit to how big you can get. If you’re disciplined about saving money and re-investing, you can keep growing your asset base for your entire life. Since the market is so large (trillions of $$$s), there is nothing stopping you from accumulating hundreds of millions of assets… again, if you’re ambitious and disciplined.

But what about a normal person or couple who just wants to ensure financial security in retirement? Maybe a pair of teachers. What does success look like for them?

Well, imagine they spent their 30s and early 40s saving up the dough to buy four fourplexes. Assume they ran the buildings competently and never missed mortgage payments. Assume also they never refinanced.

What will their financial life be like at 65-70? Obviously, the value of the dollar will have changed. So let’s just assume that inflation effects everything equally (revenue and costs), so that we can think about things in terms of today’s dollars (not 2045 dollars):

  • They own 16 units
  • Mortgages have been paid off
  • Each fourplex generates the equivalent in 2012 dollars of $4,000 / month gross, or $3,000 / month net.
  • So they have the equivalent of $12,000 per month or $144,000 / year net coming in
  • The assets themselves are worth, say 10x gross, or $480,000 each
  • So the total asset base is worth $1.92MM

Even if these people didn’t save a penny after buying the apartment buildings, they are going to retire comfortably. If they did the smart thing, and contributed to their IRAs, etc., then they are going to be worth well into the $2MMs (in 2012 dollars), maybe more. They’ll also have some money coming in from social security plus any pensions from their jobs. So their income is probably going to be around $200,000 total.

Can they charter jets to Tahiti? No. Do they have servants? No. But do they have a wonderful, care-free retirement plus the ability to  leave something valuable to their children? Yes they do. The seeds they planted in their 30s and 40s grew into a stable financial base for the rest of their lives and allowed them to leave something valuable to their children. And that’s not so bad…