Pod Insights BiggerPockets Real Estate Podcast How to Buy 4 Rental Properties by 40 Years Old About this episode Four rental properties by age 40? It’s possible, and if you can achieve it, your financial future will change forever. Henry and I have done it—both of us were able to buy four rental properties before our forties, and not only will it allow us to retire early, but our traditional retirement will be much wealthier. So, how do you start? This is exactly how to buy four rental properties by age 40, step by step. (And don’t worry if you’re over 40, you can use the same steps.) We’ll start with an easy property that many new investors can qualify for (with a bit of work), then a property with a huge upside for your net worth. Next, a cash-flowing investment that can help you have more rental income, and finally—where it all comes together—an investment property that you have expertise in. If you can acquire all four rental properties, your life and the life of your family could be changed forever as you create serious equity, grow cash flow, and leave a legacy behind. Four rentals by 40? This is exactly how it’s done. In This Episode We Cover The first rental any new investor should start with (least money down, no experience needed) How to add value to rental properties to increase your net worth Out-of-state real estate investing for cash flow, where home prices are more affordable The upsides to pay attention to when adding value to a property Real estate investor vs. average American’s net worth (the differences are huge) And So Much More! Check out more resources from this show on BiggerPockets.com and https://www.biggerpockets.com/blog/real-estate-1245 Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email [email protected] . Learn more about your ad choices. Visit megaphone.fm/adchoices
Transcript Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:00 Dave Meyer? Four rentals by 40 years old. That's all you need to cement a comfortable retirement or even retire early. If you can achieve this, you'll be significantly wealthier, and I'm talking millions of dollars wealthier than the average American. Plus, you'll have passive income to support yourself in retirement instead of just a social security check. Getting to four rentals is a huge deal. And today, I'm going to share the four-step plan anyone can use to build a small but powerful rental portfolio that accelerates their timeline to retirement, or at least makes them a heck of a lot richer. In the example I'm sharing today, buying only four rental properties, even if you
0:39 Dave Meyer? stop there and do nothing else, would increase your net worth by $3.3 million by the time you're ready to retire. And if you're already 40 or you're over 40, don't worry. You can follow the same steps and map out your own retirement timeline using the walkthrough I'm going to share with you today. So you don't need a dozen properties. All you need is four. This is how you get there.
1:06 Dave Meyer? What's up, everyone? I'm Dave Meyer, Chief Investment Officer at BiggerPockets. Today on the show, I'm showing you how acquiring only four rental properties by age 40 can completely transform your financial trajectory. We're going to dive right in with an example of how this works step by step. And this is a plan almost anyone can follow. And actually, it's pretty similar to the types of properties and the timeline I personally followed on my own journey to financial freedom. And I'm sure there are some people out there listening to this who want to scale all the way up to dozens or even hundreds of properties, which is cool if you want to do that. But I think four properties gets most people where they want to go by retirement.
1:50 Dave Meyer? So we're just going to talk through the first four steps. And if you want to keep growing from there, great. But these four steps will set you up for a successful career, whether you want to go big or not. All right, let's jump into our first property. My recommendation for almost everyone out there is to buy an owner-occupied property for your first. Deal. The idea behind this first deal is not to hit a home run or to get a huge amount of cash flow. The idea here is to set yourself up so that you're saving additional money and you're starting to build equity in your home. And you're going to use those two things, your increased savings and the equity that you build in this first deal to go buy your second deal, your third deal and your fourth deal.
2:31 Dave Meyer? So don't think that you're going to have to save up a new down payment for each of these four properties. Each deal that you do should help your next deal become easier. So again, for this first deal, you're going to want to do owner occupied. This is going to give you access to better financing, loans where you can put as little as 3.5% down. You're going to get better interest rates and it's just the easiest way to get into the game. Now, there are generally two different types of owner occupied deals that you can consider. The first and largely the most popular is known as house hacking. This is where you buy either a single family home, live in one bedroom and rent out the other bedrooms to roommates. That's an option for people. Some people don't want to live with roommates.
3:16 Dave Meyer? So the other option is to buy a small multifamily. This is either a two unit, a three unit or a four unit property. You live in one and then you rent out the others. And the key is here, you got to stop at four because if you buy something bigger than four, you lose that owner occupied financing, which is what you really need on this first deal. So I recommend to most people, if you can find them and if they're available in your area, look for a duplex or a triplex and invest in that, live in one unit and then rent out the others. The benefit of doing this again, is that you don't necessarily need to cash flow. If you can find a cash flowing house hack, that's great, but your key here is to save money.
3:55 Dave Meyer? If you buy a house hack, you live in it and for example, you spend $500 less per month on housing. That's a win. Even if you're coming out of pocket, a couple hundred bucks a month for your housing, as long as it's less and significantly less than what you were paying in rent, that's still a win. You're going to use that saved up money for your next property. It also is going to help you learn the business of being a landlord and a real estate investor. And if you're doing it right and you're buying the right kind of deals, you'll be building equity as the value of your property increases over time. That equity is something you can tap for your second, your third or your fourth deals. So those are the basics of house hacking,
4:37 Dave Meyer? but I also want you to remember a house hack doesn't have to be this two to four unit. It doesn't even have to be a single family home with roommates. You can do it by adding an ADU or a mother-in-law suite. Where I live, a really popular thing to do is people buy split level homes. They do a lock off into the basement and they turn their single family into two units. That's not available to everyone, but the point here is get creative. There are ways to make house hacking work that might not appear immediately obvious on Zillow. And often those are the best deals. So that's it for step one. Save up your money, invest in an owner occupied strategy. So you get that owner occupied financing.
5:17 Dave Meyer? Find a deal that's going to allow you to save money and build equity that you can invest in your next deal. And being onsite is a great opportunity to get good at being a real estate investor. Get good at working with tenants, get good at property management. Those are the three goals of step one. So let's walk through an example here. Let's just imagine that you're 30 years old. You're going to do this house hacking strategy and you find a home for $400,000. In some markets it will be cheaper, some will be more, but that's the median price home in the U.S. today. Now, if you get this owner occupied financing that I've been talking about using 3.5% down, your down payment is only going to be $14,000. That is enough. Like I said, if you save $20,000 up for this first deal,
6:02 Dave Meyer? you'll still have some money for closing costs and for cash reserves. So this is a realistic deal. Now I look at deals all the time and for deals like this, depending on the market you're in, it is realistic to believe that you could save $500, maybe more $700, $800 in some examples off of what you would be paying in rent. So now, as opposed to renting, you are saving $500 per month in cash. On top of that, you're also getting amortization, you're getting tax benefits, you're getting appreciation. But just the cash savings alone is $6,000 per year. So if you save that after three years, you're going to have close to $20,000 saved. That's enough to just do this deal again.
6:44 Dave Meyer? So as you can see, buying the first deal and doing that right leads to the second deal. And the second deal will lead to the third and the third will lead to the fourth. But the key is to find a good deal that's going to build you that equity and help you save that money. So that's the first deal, but the second property is where things really start to ramp up and take you from a homeowner to a real investor, which has huge impacts on your net worth and retirement timeline. We're going to talk about the second deal that you should be looking for and how that's different from your first one, but we do have to take a quick break. We'll be right back. Most investors only think about insurance when something goes wrong. A tenant injury, storm damage, loss of rent. Then suddenly, the cheapest policy doesn't feel like the
7:29 Dave Meyer? best one anymore. That's why a lot of BiggerPockets investors use steadily for landlord insurance designed specifically for rental properties. Whether you own one property or a growing portfolio, they make it simple to get covered properly. And BiggerPockets Pro members get an extra 5% off their landlord insurance premiums. Visit biggerpockets.com/landlordinsurance to get a quote today.
7:53 Henry Washington? Here's a strategy that most W2 employees have never heard of. Normally, if you want to write off a rental property against your regular income, you need real estate professional status. That means tracking hundreds of hours a year. Rent to Retirement just launched a program that skips all of that. It's called the STR loophole tenant placement program. Here's how it works. You buy one of Rent to Retirement's Class A new construction investment properties. You set up an Airbnb listing and self-manage it for the remainder of the year. Rent to Retirement then rents the home as a short-term rental to establish it as an STR for the year, no furnishing required, making this the easy button to save five or six figures in taxes this year. And because you're the sole manager, there's no hourly
8:38 Henry Washington? minimum to meet. That lets you use a cost segregation study to accelerate the depreciation and potentially write off over $100,000 against your income, even on your first rental. Add in cash back up to 13% of the home price, which exceeds $60,000 on some properties. With this massive cash back incentive, investors are seeing total returns up to 126%. New construction, A-class properties, and inventory is limited. Learn more at biggerpockets.com/retirement or text REI to 33777. Again, text REI to 33777.
9:17 Dave Meyer? I just booked a backpacking trip through Olympic National Park. Two nights out on the trail, no cell service, nothing to do but eat trail mix and stare at mountains I'll never get tired of. That's the whole appeal. But while I'm off grid, my place doesn't need to sit empty. I can list my space on Airbnb and make a little extra income while I'm away. And with Airbnb's co-host network, I could partner with a vetted local co-host to help take care of the details, from guest communications to onsite support, so I can fully unplug and enjoy my time out in the backcountry. If you've got upcoming travel plans, you can find a co-host at Airbnb.com/host.
9:59 Speaker 02 This episode is brought to you by Indeed. You're ready to level up your business, but the pressure to find the right person to make that happen is intense. Indeed sponsored jobs can help carry the load. It boosts your job post to help it reach quality talent fast. Cut through the chaos with Indeed sponsored jobs. Get a $75 sponsored job credit at Indeed.com/podcast. Terms and conditions apply. Hiring now, then this is a job for Indeed sponsored jobs.
10:32 Dave Meyer? Welcome back to the BiggerPockets Podcast. I'm Dave Meyer, giving you my step-by-step plan for getting four rentals by 40 years old. Before the break, we talked about your first deal being an owner occupied house hack that allows you to save money and build equity so that you have enough money to go out and do this again. Now, property too is going to be a little bit different. Now that you have some experience and hopefully some money from house hacking, we're going to look for a deal that has a little bit more meat on the bones, got a little bit more juice, because we want to build equity. That's the thing that's going to build our net worth and really secure our retirement in the long run. Now, the way you do this is by finding what is known as a value add property.
11:15 Dave Meyer? So this is finding a property that's not in the best condition and doing some sort of renovation. It doesn't need to be a full burr. You don't need to tear out all of the walls. This could be anything from a light cosmetic deal. Or if you want to, you can do one of my personal favorite strategies. I call the slow burr. You could do a full gut rehab. That's where there's a lot of equity to be gained. But the point here is property two is going to be a value add project where you actually do a renovation on a property to build lots of equity. Now, depending on who you are, you should decide how intense of a renovation that you want. So if you don't have any experience with renovations, I would look for something that's more of a light cosmetic or a light rehab.
12:00 Dave Meyer? That's something like renovating kitchens, painting, putting in new floors. But you're not doing anything structural. You're not moving walls. You're not popping the top. You're not doing anything like that. Unless you have experience with renovations. If you have experience or work in construction or know someone who could help you with that process, you could do a bigger project. But for deal two, I would recommend most people stay on the lighter side of the renovation. It will reduce your risk and there's still significant upside in these kinds of deals. The next thing that you need to look for in your deals are, one, in today's market, you should be looking for deals that have been sitting on the market for 60 days or more. We are in a buyer's market right now, which means that buyers have leverage.
12:42 Dave Meyer? And if any seller has a property that's been sitting on the market for 60 days or more, they're going to probably be pretty motivated to negotiate with you. So look for those deals because that's where you're going to be able to buy below current comps. And that's going to give you even more equity throughout the course of your deal. On top of just looking for things sitting on the market 60 days, I think two key things that you want to look for in your deals are areas where you think there is going to be rent growth. So where there's going to be a lot of demand for renters. That is always helpful as a real estate investor. And the second is a place that's in the path of progress. You don't want to invest in a place where properties aren't going to appreciate or there's not going to be demand if you want to sell it.
13:24 Dave Meyer? So look for places where people want to live, where the government is investing. Those are great ways to take your deals from a single or a double to a home run over the lifetime of your investment. So those are the things to look for in the deal. And just as a reminder, the goal of this deal is to build equity as much as you can and to get a cash flowing rental. All right, so let me just give you an example of how this works. You go out and buy a property worth $300,000. Then you're going to need to put money into it, right? Let's say you have a rehab budget of 50 grand, which is a generous budget, right? Like, that's enough to make significant improvements to a property. So your total all-in costs are going to be $350,000 for this deal.
14:05 Dave Meyer? And what a lot of people do for a BRRRR property is take out what's known as a hard money loan. These are loans that are designed specifically for these types of projects where you don't just borrow the money to buy the property, you also borrow the money that you need to do the renovation. And oftentimes with a hard money loan, you can put as little as 10% down. So because your total costs are $350,000, you're going to need $35,000 to get into this deal, which after a couple of years of saving up your money from your first deal, plus building equity, you should be able to do this within two, three, or maybe four years, you should have that much capital. Now, you go into this deal, you buy it for 300 grand, you add value to it.
14:50 Dave Meyer? After putting in 50 grand, hopefully, this property is now worth, let's just call it, $450,000. So you put in 350, now it's worth $450,000. And then, no, that might sound like magic, but it's not. You can absolutely put 50 grand in and build $100,000 of equity. That happens all the time. That is a relatively normal type of return that you can expect on a good BRRRR deal. So you build that equity, which is great. Obviously, your net worth just went up. But the real magic of the BRRRR property is that you can take some of the equity that you built out and apply it to property number three. So you're going to take out a new mortgage. You're going to have to put 25% down, which is about $112,000. You're going to need to pay off your old mortgage, right?
15:35 Dave Meyer? You still owe the hard money lender $315,000. But after those two things, you can take $20,000 out of this deal. So You only put 35 in, right? Remember? And now you're pulling $20,000 out of this deal for your next deal. Now, some people want to do a perfect BRRRR where they can pull out 35,000. That might be possible, but even in this example, you're pulling out 20,000 that you can go use for your next deal. You're more than halfway to your next deal. That's what's so powerful about the BRRRR strategy. And on top of that, you should also have a cash flowing rental property at this time, right? Because the key is even after that refinance,
16:18 Dave Meyer? you need to make sure that this deal is going to cash flow at least modestly. Doesn't need to be tons of cash flow. It doesn't have to be the highest cash on cash return. Remember, the main goal of this deal was to build equity, which you have done, and to get at least break even. I would recommend 3%, 4% cash on cash return minimum for this kind of deal. Now, once you've done that, you have 20 grand already. You're saving 6 grand a year from your house hack. Now you're making, let's call it $3,000 a year in cash flow from deal number two. And so in two years, you should be able to get deal number three, right? You have 20 grand in equity, plus you're saving 9 grand a year in cash flow. That will get you $38,000 in just two years.
17:02 Dave Meyer? And this deal we just did only cost us $35,000. So in two years, you can get to deal number three. So that brings us to property number three. And the goal of this property is to generate as much cash flow as you can. You still want to buy a great property. You don't want to be buying something that's never going to grow. But you want to prioritize cash flow and cash on cash return here over equity appreciation. So we're not necessarily doing a BRRRR or a house hack here. We are trying to find a cash cow. So the way that we're going to finance this is through the equity from our first two deals. Presuming both of those properties continue to appreciate at a modest rate of 3% per year. That's about average.
17:48 Dave Meyer? And you add that to the equity that you built in the BRRRR deal. That was a significant amount of money, plus you're Saving $800 a month. If you waited, let's just say, two years between your second deal and your third deal, you're now 35 years old in our example, you should have, just from doing those first two deals, another $60,000 to $70,000 to invest, which is more than enough to invest in this third property. Now, I know for some people, or if you watch a lot of social media, real estate content, you might think waiting two years for your next deal is a long time, or waiting five years from your first to your third deal. I don't actually think so. It took
18:29 Dave Meyer? me six years to get to my third deal and three properties. I had eight units at that point, but it took me three years, and that has been totally fine. By 15 years of doing this, I have become financially independent. And so I promise you, you can follow this timeline, it can absolutely work. Your goal, remember, is to get to four properties by 40, and you're already at three by 35 on this timeline. Now, there's sometimes a trade-off between cash flow and appreciation, not always, and you honestly want to find a little bit with both. I personally never look for deals that just maximize cash flow. Like, you can buy something, maybe it's in a D-class neighborhood, or a market that's never going to grow. Maybe you can get a 12%
19:12 Dave Meyer? or 15% cash on cash return in those markets. I don't personally like those kinds of deals. For me, I need to at least be able to believe that these deals are going to grow at least on average appreciation, and that they're still going to be good assets sometime in the future. They're still in a desirable place where there's going to be demand, but I'm willing to give up buying in the best possible neighborhood in order to get my cash on cash return up to eight, ideally closer to 10% on this kind of deal. Now, if you have 70 grand to invest, which you should by this point of your investing journey, you should be able to buy something for about 300 grand. Now, that's not going to buy cash flow in every single market in the United States,
19:56 Dave Meyer? but I think this deal is an example of a good time to go out of your current market unless you live in Western New York or the North. Northeast, parts of the Northeast or in the Midwest. If you live in some of those areas or even Tennessee, some areas in the South, you can buy a cash flowing duplex for like 250 grand or 300 grand. But if you don't live in these markets, you can just invest in those markets. I know it sounds intimidating to invest long distance, but if you've done two deals at this point, you've already done a BRRRR, you've already done a house hack, I promise you, you can invest long distance. I have done it. It is not that much harder. And in a lot of ways, it forces you to develop some of the skills and systems
20:39 Dave Meyer? that are gonna make you a better investor over the long run. So I would personally not shy away from that. Once you've found a market where you can actually do this realistically, again, lots of places in the Midwest, in the Southeast, some places in New York or in New Hampshire, it's places like that. This is definitely possible. The things I would personally target on this deal is an 8% cash on cash return or better after stabilization. Now, we're not going to prioritize a big equity bump on this. We're not going to do a big BRRRR project. But sometimes, and honestly, oftentimes in today's day and age, like you gotta fix up the house a little bit. You gotta throw some paint on there, put in some new floors, make a couple of improvements.
21:21 Dave Meyer? And then, once you have gotten rents up to fair market value, that's when you need the 8% cash on cash return. So even if the rents today and the Zillow price don't give you that 8% cash on cash return, that's actually fine. That's quite normal. What you need to do, the job you have as an investor is to project out, what's my cash on cash return gonna be when I'm done fixing up this property? And if it's 8% or better, that's what I'd look for. Then I would look for at least two to three upsides on these deals. Because 8% cash flow is great, but you obviously want the deal to perform better and better over time. And so I like looking for areas where there's likely to be rent growth, if it's in the path of progress, or I also love places with zoning upside.
22:04 Dave Meyer? Now, I just want to say one more thing before we go back to our example, that there are a lot of markets in the Midwest that you can buy these kinds of deals, but I recommend looking for ones that still Have good appreciation. I said it before, but I want to reiterate here that as a real estate investor, you do not want to see your property values going down. So look for places like Milwaukee, or Indianapolis, or Grand Rapids, or even Detroit over the last couple of years. These are markets that are growing and they have good, strong fundamentals, but they're still really inexpensive. That's what you want to look for. You don't just want to find deals that are cheap because they're cheap. A lot of times, if they're in a mediocre market and they're cheap, it means that they're probably not going to appreciate. You're going to miss out on a lot of the benefits that you should be getting
22:48 Dave Meyer? from holding on to this property long-term. So presuming that you find this, you get a $300,000 deal with an 8% cash on cash return. If we return back to our example, now we're getting 750 a month from property number one, because rents have been growing at 3% a year. 350 a month from property number two, and 420 per month from property number three. That is over $1,500 a month in tax-advantaged cash flow, which is closer to earning $2,000 per month, like in a job that's going to get fully taxed. Now, you're only five years into this, but hopefully you're starting to see that these things start to compound. What is not a lot of cash flow in the beginning gets a little bit more, and a little bit more, and a little bit more. And it's not just when you acquire new deals.
23:33 Dave Meyer? Just by owning these properties, you've already gone from modest cash flow in deal number one to 750 a month on property number one. Now you're up to 350 a month on a BRRRR deal that was prioritizing equity growth over cash flow, but you're still getting cash flow. And as you'll see in our next property, the longer you hold this, every deal continues to get better. It's not just about acquiring new properties. It's about allowing every deal that you own to mature over time. And just like wine or many other things, most deals continue to get better and better the longer you hold them. So now that we've done property number three, let's move on to our fourth property that you should be targeting before the time you turn 40.
24:16 Dave Meyer? We're going to get to that, but first we have to take one quick break. We'll be right back. For my wife's birthday, I wanted to make her a new website for her landscape design business. So I researched a lot of different options. I tried out a couple, but honestly, it was really overwhelming. It was pretty time consuming and still, the site wasn't coming out the way I wanted it to. Then I tried Hostinger and everything was super simple. I asked Hostinger's AI to build a clean site for her business and it had a working version up in minutes. No coding or designer needed. Plus, its AI agent helps with SEO, website copy, and email marketing after launch. You get domain,
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26:06 Henry Washington? So when it's time for your next Toyota, you could trade in for more from a great deal today to a great value tomorrow. A Toyota is right for you. Shop toyota.com for deals and details, or stop by your local Toyota dealer today. Toyota, let's go places.
26:21 Dave Meyer? I just booked a ski trip to Park City and I've already got the whole thing planned out. Five days, first tracks every morning before the crowds show up, my knees reminding me I'm not 25 anymore by the second run, and an embarrassing number of overpriced burritos at the lodge. I don't even care. This is the trip I look forward to all year. But here's the part I actually appreciate. The practical side of my brain kicking in is that my place doesn't have to just sit there empty the whole time I'm away. I can list my space on Airbnb and bring in a little extra income while I'm out getting humbled on a mountain. And with the co-host network, I'm not the one handling all of it. You can
27:03 Dave Meyer? partner with a vetted local co-host who can create your listing, manage reservations, message guests, and even handle the styling. So I get to fully focus on my trip and my place is still working for me the whole time. Find a co-host at Airbnb.com/host. Investing in real estate has always been smart, but it hasn't always been simple. Now it's both, thanks to the Fundrise Flagship Fund. The Fundrise Flagship Fund launched more than five years ago with a mission of delivering low-fee access to blue-chip private market real estate. Today, the Fundrise Flagship Fund has grown to manage more than $1 billion of real estate on behalf of hundreds of thousands of investors, making it one
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28:28 Speaker 02 This episode is brought to you by Indeed. You're ready to level up your business, but the pressure to find the right person to make that happen is intense. Indeed sponsored jobs can help carry the load. It boosts your job post to help it reach quality talent fast. Cut through the chaos with Indeed sponsored jobs. Get a $75 sponsored job credit at indeed.com/podcast. Terms and conditions apply. Hiring now? Then this is a job for Indeed sponsored jobs.
29:01 Dave Meyer? Welcome back to the BiggerPockets Podcast. I'm Dave Meyer. We're going through how to get four rental properties by the time you're 40 years old. All right, so now that you've done your first three properties, you've done your owner occupant, you've done the BRRRR, you've tried a cash flow play. Step four is to pick your fourth property. And for your fourth property, you can honestly just decide which of these things that you like doing. If you want to do another owner occupied strategy, moving from house hack to house hack is a super powerful strategy. If you were comfortable doing a BRRRR and like doing a value add, you can absolutely do that again. Or if you're progressing through your investing career and kind of want to be hands off and want to buy in more turnkey kind of rental property that's more focused on cash flow,
29:46 Dave Meyer? you can absolutely do that, too. The great thing about building a portfolio over the course of six, eight years like this plan has you doing is that you have options now. You've built up enough equity. You have cash flow coming in that it's easy to get more loans. You can repurpose equity from one of these first three deals into your next one, and that allows you to expand and build your portfolio in the way that you want. The key things to know, though, are that if you want to grow the most net worth, you got to focus on equity. So I would say either doing a house hack or more likely a BRRRR. If you want to build that net worth as quickly as possible. If you want to do as little work as possible, which is a totally worthwhile goal, I would
30:29 Dave Meyer? focus more on the sort of cash flowing deals. And if you want to take the least amount of risk as possible, I would do another house hack. You refinance that first one into being a regular rental property, then do another house hack. Now for me personally, if I was making this choice, I like the BRRRR because I think it gives you a little bit of both, right? It allows you to build equity at the same time as you're building cash flow. So to continue our example, let's just assume I'm going to go out and do a BRRRR again. This time, I'm going to take a little bit of a bigger swing. I'm going to buy a property that needs renovation. That's $400,000. Remember, the first BRRRR we did was about 300 grand. We put 50K in.
31:09 Dave Meyer? I'm buying something this time, 400K, taking a bigger swing by doing an $80,000 renovation. If I do a hard money loan at 10%, that means I'm going to have to put about $48,000 of equity into this deal. And we should have that, you know, two or three years after doing deal number three. So again, you're not necessarily having to put much more money into this. From the cash flow you're building through deals one through three, plus the equity you're building, you should be able to afford this deal about eight years after starting. So in our example, you're about 38 years old at this point. So on this deal, you buy for 400, you put in 80. The ARV is going to be about 650, which is totally reasonable here.
31:53 Dave Meyer? I think a lot of times a good rule of thumb is your equity growth should be about double your renovation cost. That's an efficient deal when you're doing a kind of BRRRR. So this is realistic that you can get your ARV up that high. And that means that even if you don't refi any money out, like if you do four deals and stop, which is the plan that we are giving you here today. So even if you don't take money out to do another deal and you factor in your holding costs and the debt costs that you're going to have to pay while you're doing the renovation, you're going to build about $120,000 in equity just from this deal alone. And hopefully by renovating your properties, you can drive up your rents and get an 8% cash on cash return, which I think is totally reasonable. That's not like the highest end. I think that's a realistic return you can generate.
32:38 Dave Meyer? So from this fourth deal alone, you're getting 120K in equity and an 8% cash on cash return, which means over $10,000 a year in cash flow. So those are the four steps. Those are the four deals that I would recommend anyone do if you want to get to four rental properties by 40 years old. Now, I understand that just doing these four deals and the numbers that I've been using so far may not seem like the most exciting thing in the world. It may not sound like those people who are buying thousands of units on Instagram, but let me just take a minute here and explain how just these four deals will help you stack up against the average American. At age 30, when you start this, you're saving $500 a month.
33:21 Dave Meyer? You're going to have a $400,000 home that's appreciating rapidly. You're getting amortization and you're getting huge tax benefits that will help you save more money to grow. By age 33, you now have your second property. You're generating more than $10,000 a year in cash flow and you have $119,000 in equity just from these two properties. Now, it might take you two or three years to get to that next deal, but by the time you're at age 35, your cash flow is now up to $16,000 a year and your equity value is 214,000. Then, by the time you're 40, you bought your fourth deal. You've been holding on to it for two years.
34:04 Dave Meyer? You have $30,000 in tax-advantaged cash flow. That's more like earning $40,000 a year in your career. And your net worth just from these properties is up to a whopping $490,000. Your equity after 10 years, $490,000. Compare that to the median 40-year-old in the United States, whose net worth is $76,000. So by buying these four properties alone, in just 10 years, your net worth will be five times the median 40-year-old. And from there, the benefits only start to compound. By the time you reach a more traditional retirement age of 60, actually 65 in the
34:47 Dave Meyer? United States here, but just by 60, now you'll start paying off the mortgages. You'll be done with property number one. Your cash flow is going to skyrocket. At that point to $75,000 a year again because of the tax advantages. That's more like making $100,000 a year. And your net worth at 60 years old, just from these properties will be $3.3 million. This is the power of real estate. You don't need to buy a lot of units. You need to buy them and hold on. As you can see, the benefits just continue to compound more and more and more. Like I said, you have a little over six grand in cash flow at age 60.
35:30 Dave Meyer? But once you start paying these things off, it gets even better. At 63, it's eight K a month. At 65, it's 10 K a month. At 69, it's 13 K a month in tax advantaged cash flow. Now, I know that seems like a long way away, but this is a much better recipe for retirement than anything else out there. I don't know anything, including a 401k, that could come even close to touching this in terms of how much passive income it generates and the net worth that you generate. So if you're out there looking for a way to build wealth, to pursue financial freedom, this is the exact plan I would follow. It's very similar to the plan I did for the first eight years. Now, of course, this is just an example.
36:13 Dave Meyer? Like, I don't know if it's going to take you two years between deals or three years between deals, but this rough outline can get you to a successful retirement. And of course, I did all this, in this example, four properties in just eight years. If you want to keep going after that, by all means, you should. There's, you have 20 years of working potentially to keep building that portfolio, build more cash flow, build more net worth. But for the average American, just four deals can be completely life-changing. As you can see, building more, more and more units, it can help, but it's not necessarily. Personally, I like to keep my portfolio relatively small because it's enough for me to comfortably retire
36:56 Dave Meyer? without having to add any additional work or stress to my life. To me, that's the beauty of real estate investing, that there's disproportionate benefits for the amount of work that you have to put in, especially. Over the long term. And it's also something that so many Americans can do. They just haven't taken the steps to try. But as we've shown you in today's episode, you can start with as little as $20,000 and build a massive portfolio worth millions of dollars, starting in your 30s or your 40s. Hopefully, this gives you a game plan that you can follow in pursuing financial freedom. If you want to learn more about any of these topics, dive deep into how to be a great house hacker, how to pull off a great burr.
37:39 Dave Meyer? Make sure to subscribe to the BiggerPockets YouTube channel. Thank you all so much for watching. We'll see you next time.
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