How much income do I need and want? This is the first question investors should think about before they think about the investment vehicle they use. This number will influence the business model and product that will allow you to reach your goal. Investing in real estate takes time and effort. Trying to determine your investing style, strategy and location to implement can be overwhelming to say the least. Let’s say you decide to invest in real estate. Based the strategy that best suits your goals, you can identify a style of property that will allow you to best employ your chosen strategy and the choose best market to deploy your capital. There really are a lot of items to consider before entering into an investment.
Let’s say your goal is to replace your current income of $60,000/year. That is a gross income of $5000/month before taxes, etc. Let’s say you decide that you want to grow your passive income through real estate investing. No problem. You would need to net $5000/mo from your rentals to replace your income. Assuming approximately 50% expenses for vacancy, taxes, insurance, and capital expenses, you you need to gross $10,000/mo from your rentals. If you decide to own nice houses that rent for $1,0000/mo then you would need 10 rental houses to meet your goal. That’s right, 10 nice rentals are all that is needed to replace your income – assuming you own them free and clear. Should you decide to grow your business more quickly with leverage, then you would need to increase the number so you can net the amount you need. Of course this is a business and just like any other business, real estate is subject to raises and falls in the marketplace so it would be prudent to have at least 12-15 houses as a safety net in our example.
How Much Income Do You Need?
The bottom line is figure out what your income needs are, then build a portfolio to support those needs. Lots of ideas sound good on the outset. And most of them work! The key is to determine the ultimate goal and shape your business and investment to support the life you want to live.