How Owning 22 Rental Properties Can Retire You Faster Than $1M in a 401K


*Note: This is an update to the “How 15 rental houses can retire you faster than a million dollar 401K” article we posted a few years ago. You can view the original article and the accompanying comments on it here.

Or…Saving Your Way to Retirement vs. Building Cash Flow To Retire

First let me say that I prefer the second title to the first because saving your way to retirement is really the concept that I want to attack and hopefully destroy in your mind by the time you finish this article.

Second, let me make a few concessions. Does building cash flow require education? Yes. Does this require courage? Yes. Does this require commitment? Yes. Does this require hard work? Yes.

But let me ask you this. Are you really thinking there is something for nothing out there? Do you think that you are going to get ahead without courage, commitment and hard work? I don’t think so. I think you know this is true. However, because of lack of self-education, you just don’t know what to do so you keep doing what you are doing year after year, decade after decade.

“Formal education (high school and college) gets you a job.
Self-education gets you rich.” -Jim Rohn

According to Social Security, 90% of Americans are retiring at or below poverty income levels. The main reason for this is that they are saving for retirement instead of building passive streams of income. They retire with only social security income and their meager savings.

We will call this Business Model No. 1. It’s scrimping and saving your way to retirement.

Special Note: Remember that a family is a business. It is a business that is supposed to run at a profit. Most people never learn this simple point.

Let’s look at the results of Business Model No. 1 over a nine-year period compared with Business Model No. 2.

Business Model No. 2 is building wealth and passive income streams with real estate. We will keep it simple and only look at single-family property for this example.

Beginner facts

Let’s look at the median income in the US. As of 2011, the median income in America for a family is $50,502 according to the Census Bureau.

If we take a conservative approach and decide to save 10% of our income for investments that is about $420 a month.

I understand that the vast majority of people can’t and don’t do this. They live paycheck to paycheck with no savings at all. That is why the average 65 year old only has $35,000 to show for 40+ years of working 40, 50 even 60 hours a week.

But for this example, let’s say they do it.

What Results will you get in 9 years (and 32 years) with Business Model No. 1?

According to, the average stock market return since the turn of the last century is 9.4% — 4.8% in price appreciation, plus approx 4.6% in dividends. The average inflation for the same period has been about 3%.

At the end of 7 years, you will have saved up about $45,000.

At the end of 9 years, you will have saved up about $70,000.

It will take you 32 Years to save up $1,000,000

Because of inflation, your $1,000,000 is now only worth $388,337.03.

Now you have to start taking out money from the principle effectively forcing yourself to “pray you die before you run out of money.”

Where are the golden years? Travel, grand kids, cars, houses, charity and legacy. Just pulling out the equivalent of $40,000 a year in today’s money means you have less than 10 years worth of savings. What if you live longer?

Now let’s look at Business Model No. 2: Building Passive Income

Take the average of my last 7 deals.
$20,000 Equity Capture
$400 a month cash flow after principle, interest, taxes, insurance (PITI) and $100 a month maintenance and vacancy reserve.
$12,000 down. This is the total down payment including everything out of pocket.

Start saving the same $420 a month but this time, educate yourself in real estate investing and start buying income-producing assets instead of speculating in the stock market.

29 Months to save up $12,000
Now Saving $820 a month ($420 from earned income, $400 from cash flow)
15 Months to save $12,000
Now saving $1,220 a month
10 Months to save $12,000
Now saving $1,620 a month
7 Months to save $12,000
Now saving $2,020 a month
6 Months to save $12,000 and buy another house
Now saving $2,420 a month
5 Months to save $12,000 and buy another house
Now saving $2,820 a month
4 Months to save $12,000 and buy another house
Now saving $3,220 a month
4 Months to save $12,000 and buy another house
Now saving $3,620 a month
3 Months to save $12,000 and buy another house
Now saving $4,020 a month
3 Months to save $12,000 and buy another house
Now saving $4,420 a month

We are now at the end of year 7. Let’s see where we really are.
10 Houses
Picked up $200,000 in equity
$4,000 a month in passive income

Where are you at with Business Model No. 1 in the stock market? You’d have $45,000 and no monthly income.

Let’s go just two more years: You will average about one house every two months over this period.
Two more years and that is 12 more houses.

We are now at the end of Year 9. Let’s see where you are.
22 Houses
$440,000 Equity Capture
$8,800 a month in positive cash flow

Where are you with your savings program in the stock market? You’re at $70,000 and no monthly income.

Obviously there is no comparison financially. Building wealth with real estate is much more effective.

But now let’s see how your life will be different at the end of those nine years.

It’s not the money, it’s the Lifestyle.™

How do your bills come in? Monthly, right? How does $70,000 in the stock market help you pay your bills? It doesn’t. How about that $8,800 a month passive income? All your bills are paid aren’t they? Yes. The average family in the US spends $4,009 a month.

Could you quit your job if you had $8,800 a month in passive income? For most people the answer is yes.

As soon as your passive income meets and exceeds your bills,
you are retired. It has nothing to do with age.
We have students in their 20s that have done this.

How long will you live in retirement?
How well do you want to live in retirement?
Can you enjoy your golden years? Travel, grand kids, cars, houses, charity and legacy.

In conclusion, building wealth with real estate is so much more effective than speculating in the stock market it is not even comparable.

So get out there, get educated and start building passive streams of income for you and your family.


  1. Kinta Nicely says:

    I am very interested in Real Estate,and I would love to get educated on it,however,I can’t seem to get my feet on the ground.I am dead broke and no income what can I do?

    • How do I continue to get loans? I have 8 rentals so far but they quit lending me after 4 mortgages. My passive income is at $2400 a month right now but the bank say Fannie Mae has capped the investment mortgages. Please advise

      • This is not true. While each bank limits its exposure to 4 (this is fairly common), you can go to another bank that will lend you another 4. You need to look around and ask fellow investors in your area for contacts. As well, there are mortgage brokers that will do for up to 10, which I think is the fannie mae limit per person. Beyond that, you may run into resistence, then you can think of commercial loan option if you want to keep doing this. Good luck.

    • This assumes that you can leverage each property as quickly as stated above with no issues; and that you can find enough deals with that high of a debt service coverage ratio, while still being in the market price range to only require apprx 12K down. These are very difficult to find… this market is very efficient.

    • Go to and join as many real estate groups in your area as you can. Then attend them all. See which ones have the smartest people and feed off of them. You can’t learn Real Estate from bs courses and webinars. You’ll have to see how real people deal with state and local real estate tax laws to actually make a profit. You can also team with potential investors if you’re good, or know subcontractors that are, at renovating at the cheapest cost possible. Then you can split the equity and finance your costs as you go along.

  2. Nightvid Cole says:

    You are over-leveraged with no emergency fund at the beginning. You could just as easily lose it all due to a destructive tenant that is difficult to evict. Suze Orman says you need 12 months of working capital. What is that in your case, $20,000? And that is IN ADDITION to your personal emergency fund.

    You are also neglecting property management costs. And don’t try to pull this whole “But I do it myself!” baloney. You still have to account for the value of your time. By the time you have a few of them, it will be a full-time job anyway. What’s the point of “retiring” if you still have to work full time for income? Is that even retirement at all?

    Finally, you need to account for the lost income during the time you were learning how to do the whole landlord thing.

    Even if you only “pay yourself” $100/month for your work on the first house, you are doing worse than you would in the stock market. Initial investment = $12,000 down + $5,000 closing costs, furniture + $20,000 emergency fund + $2000 lost income to spend time starting up = $39,000. Cash flow = $400/month – $100/month opportunity cost of your TIME = $300/month. Yield = 9.2%

    VS. 1.5X leveraged portfolio of small capitalization stocks @13% return (give or take).

    Now who’s talkin’?

    • Robert Sprive says:

      You’re not factoring in the tax benefits of real estate nor are you factoring in the income factor. Yes you may get an annualized yield of 13% but what is your hold period? what is your maximum draw-down? Both are not easy but to dispel real estate for the stock market is strange.

      • Nightvid Cole says:

        Tax benefits are quite small unless your itemized deductions are much above the standard deduction, and income is available in the stock case, though you might occassionally have to sell a few shares every now and then. Neither of these is much of a reason to prefer real estate over stocks.

        • Krazyrent says:

          I have an Accounting Degree and own about 60 properties the tax benifit is huge for rental properties as you can write off the depreciation, you are limited to the amount of depreciation you can take unless you are a real estate professional, which would be an easy test to meet with multiple properties basically 750 hours a year. Last year I cash flowed 250,000 but had 260,000 in depreciation and I was able to take the loss againts other income. Note: you have to actively and material participat in your rentals to take the benifit go to search exactly how to meet the rules.

          • cary honganen says:

            not only do you have to materially participate (51% of working time towards RE) but you also have to file an “Election to Aggregate” properties with the IRS at the time you start acquiring significant numbers of properties. If you neglect to file the election, then through the 1986 tax reform act the IRS can require you to show 500 hours material participation on each property you own (ex: 10 properties x 500 hours each = 5,000 hours material participation per year w/o filing-impossible). Even though I was a PIG member for several years I was never introduced to this filing. I was audited on my 2007 and 2008 tax returns as I filed as an active RE investor, setting off earned income with RE investing losses. IRS claimed I was passive and could only offset income from properties. I eventually prevailed this past December as I was doing mostly RE investing those two years and could prove it, but it was a VERY painful process. I did eventually file the election in 2011 but that left me open for 2009 and 2010. I have since sold all but two of my rentals (in consultaion w/my lawyer) and invested in a 506 acre timber tract in E. Texas. Way less gov’t intrusion as I was able to get out from the ’86 tax reform act which the gov’t now uses to raise funds as few RE investors know of this filing. And I get all kinds of tax incentives. I logged 55 acres last fall, made about $169,000 and still had a $38k loss on the whole deal. As long as I stay in timber farming I should not have to worry about excessive taxes again. Plus, no property insurance costs and verrrry low property taxes with proper ag exemptions. I paid over $30k in property taxes per year on my rental houses. I pay less than $1,000 per year on my timber tract

            But I have to say, if I was looking for an investment scheme and did not understand the timber business, I would most definitely be back in real estate. But I would make sure to file the exemption and I would also reassociate myself with LUINC. I got the best RE investing education I could ask for from LUINC.

  3. I am very interested in working my way up to 22 homes. I already own 4 and am about to purchase 1 more. I do have positive cash flow on some of them. However, many banks that I have contacted for future borrowing for investment homes, limit my borrowing based on DTI requirements and a maximum # of properties. I prefer not to borrow from hard money lenders or private individuals as the interest rates are much higher and the loan durations are much shorter. Does anyone have any recommendations on whether any financial institutions will lend to small real estate investors based on good rental income and positive cash flow of each property and less on DTI? P.S. – My credit scores are very high.

  4. Evil Chaperone says:

    At ground zero, you need to put real estate investing on the back burner. Finish high school. Go to a technical or vocational school to build a marketable profession. Roofing, plumbing, carpeting, HVAC tech, etc.. Get a job starting at the bottom level and bust your ass as hard as you can to become an expert in your profession. Work seven days a week and save as much as you can along the way. Then when you have the capital to kick this plan off, go for it!. Your not just going to crawl out of your moms basement or off your grandmas couch and start investing in real estate. Takes money AND reserves to succussfully pull this off. Be prepared to fall on your ass a few times along the way.

    • cary honganen says:

      Good sage advice. i took a few severe hits along the path of learning, one a six figure loss. Without the reserves I had I would have gone bankrupt. Not all your moves will work out like you think, no matter how good you plan. As the evil one says, become an expert in your craft, save as much as you can, keep your credit scores up, and invest in yourself through education from someone like LUINC. Hang out with like-minded individuals. You will still make mistakes but you will be able to recover from them. And always remember to learn something from your mistakes so you do not repeat them. I look at them as mini-learning events to take to heart, especially when significant money is involved.

  5. This article fails to mention all the debt that has been accumulated in this plan. Real estate is a great investment tool when done correctly but that method isn’t outlined above. Save cash and purchase a rental property then use the cash flow to save for the next one. It won’t take long without a mortgage. Yes, it will take a little longer but you’ll have less risk and stress.

  6. This is great information, however, it seems like a huge chunk of the puzzle in Business Model 2 is left out. My biggest question is: how would you consistantly get financing for 22 mortages? That’s really the only thing making me question this model. Thanks in advance for any input

    • Buy cheap properties. I was cut off at 6 loans. I took my house portfolio to a local bank and got a line of credit. Extra cash included which I used to buy more cheap houses. Then when LC maxed out, I termed it out and got another line of credit. Then started to get loans on duplexes and a quad. 12 years and up to 60 units. I do owe a bunch. But my equity is huge and billing 25k monthly rents.

      • cary honganen says:

        I too used LOC’s instead of conventional loans. I also paid off my house and max’ed out a HELOC (80% loan value, interest only payments only when I use it) that I used to purchase. I still take the same approach buying the timber tracts I now invest in. Sometimes I will refi out or just do a timber cut to raise funds for the next tract. I will retire with over 1,000 acres and a nice six figure income in a couple years.

  7. this is an awsome model, I’m doing something similar but at a slower pace. My question is where are you going to find a bank to finance you all these properties. 2. where are you going to find homes this cheap and with out any appriciation. if you are planning on equity building then every time you buy a home you should also expect to pay more correct. this means you have to put more down. this is assuming all prices stay fix for 9 years. I don’t know maybe i’m just wrong.

  8. Fred benzing says:

    I can’t figure out how this scenario will work on a $50’000 annual income.

    I can’t see any bank loaning this kind of scenario without the investor having the funds to pay for all 22 houses which will all have mortgages against them with an annual income of $50,000

    • If the property makes enough positive cash flow, your debt is basically cancelled out. But it needs to show up on your tax return to be able to be used i believe, that’s how its been working for me. Also, get yourself a good loan officer, they want to get paid so they want to help you close, they will work far more diligently than most bankers that get paid per hour.

  9. Robert Rieley says:

    I and my wife are brand new to this. We are both living paycheck to next. We are over 50. I wish to vigorously pursue this yet it is like information overload and working 70 + hours per week it seems it will take months on end to gain enough knowledge to begin. So any thoughts or suggestions greatly appreciated.

    • hi Robert, the ability to buy rental properties comes with knowledge of real estate financing, cash flow, risk and having multiple exit strategies. I think the best place to start is to reduce your overall debts, and save for at least a 6 month cash reserve. Then, if you own a single family home, sell it and buy and live in a 4 unit owner occupied home, using the tenants income to pay for the cost, and putting only a 15 year mortgage against it. (residential real estate, 4 unit, is easier to get financing for than commercial, so this is where you start). In just 7 years, you will be 50% paid off on this house, and can use the equity to buy your next 3 or 4 unit. I think buying commercial properties, of 5 units, or more, 10 units is only possible if you buy them from a bank, as a distressed property, that is under-performing and be willing to turn the property from around over 18 months. That means using private money or hard money as a bridge loan, getting the property to perform, in terms of lowering expenses (separating the heat), or increasing rents, getting rid of dead beat tenants, fixing up the apartments, or all of the above, and then refinance into a conventional loan later out of the hard-money or private money loan. So you can do it over 18 months turn around a 10 unit building. The only way to get your income up is to buy two 10 unit buildings and so forth. If you paid off your owner occupied 4 unit in 10 years (15 year mortgage but extra principal payments), your owner occupied 4 unit becomes all cash. You then find a 10 unit distressed property, and have a turn-around plan. Get a bridge loan using your paid off owner occupied 4 unit as collateral, or sell of your 4 unit. Get the 10 unit and owner occupy it and rehab it. Once you have it cash flowing and you have regular money against it, not expensive money, go get your next 10 or 12 unit building and so forth. In other words (a) save capital and get real estate education first (b) get an owner occupied residential,not commercial property with a short mortgage to build equity faster (c) get a distressed commerical 10 or 12 unit, using cash from your paid off residential property, (d) improve the cash flow in the distressed commercial property and stabilize it and finally (e) get your next 10 or 15 unit property and repeat the process.

    • Robert, just dive in & purchase your first one !! Your desire to succeed will drive you to a successful start. Make a good, common sense purchase & don’t be afraid. You will learn so much more from this hands-on experience than any reading,advice,etc will ever teach you !! Give it a shot. I was also nervous at first. Now 4 years later, it seems easy. Good Luck !!

  10. I own and manage 8 units. For all of the questions from the folks regarding obtaining financing, I can certainly help with that. The first 4 or 5 properties will be a cake walk because you’ll be within guidelines that allow lenders to give you a 30 year fixed rate note and resell the mortgage on the secondary market (a conforming loan). After the first 4 or 5 properties, you’re going to have to start getting creative. First, be prepared to put down a minimum of 10% per property. Second, be sure that you have adequate reserves. In a lot of instances, this means 6 months worth of piti payments on the properties that are currently financed. Third, DON’T rush the process. Feeling pressured to buy properties quickly because the market is heating up only leaves you vulnerable to mistakes. Fourth, talk to local banks/lenders. In my experience, the banks that will work with you are not going to be the national institutions, but are going to be local banks. Fifth, forget the notion that you will be able to positively cash flow on every property that you purchase. As the market recovers (like it is currently doing), you will be forced to accept ever smaller profits on each property. Most local banks that will work with you are not going to offer you 30 year notes for financing and that will definitely have an impact on your cash flow. My lender offers me 10 year notes with a low fixed rate and 10% down. This is one of the best deals in my area, but leaves me very little for cash flow (often cash flow is negative) and so I’m left with the choice of cash flow negative or wait till I have more saved to put down. Do you need 22 properties to retire? Probably not. I certainly don’t. My goal is somewhere around 10-12 because I intend to get the properties paid off as quickly as possible. My retirement comes when the properties are paid for, not when my monthly passive cash flow has exceeded my monthly expenses. Good luck!

    • wow. If you are getting negative cash flow then you should have no business buying any properties whatsoever. If the positive cash flow is not where I want it I simply do not buy! I will switch to doing secondary tax lien foreclose and flips or private lending until things improve as far as rental properties go. I put 20% down on all my purchases MINIMUM. Credit is fine and I have 6 months reserves for every financed property. Thing is now I am only doing cash buys from here on out using rental income and other income I receive. I only have 4 properties financed even though fannie mae will allow 10! I don’t plan on financing again unless i have to. This way I am not over leveraged AND i will get more cash flow with free and clear properties. You putting so little down and carrying negative cash flow could very well put you in a bind before it is all said and done. good luck!

  11. This is awesome! I know I need to get into the real estate game, and I love seeing examples like this. Can’t wait to get started! I’m saving this page for future reference.

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