Create Passive Income: My Real Estate Acquisition Goal
We are a married couple in our early 30’s who currently live in the heart of the Midwest. So far we have been lucky to have very successful careers, but we yearn for the peace of mind and freedom that a passive income could bring.
The end goal of our journey is simple; we want to create passive income from our real estate investments to quit our day jobs. We all know the grind of a 9-5 job and frankly, we are sick of it. 40 hours a week, plus commute time, for the privilege of getting 10 days worth of vacation in a year? No thanks. We believe there is a better opportunity out there for everyone.
Along with not having to worry about a 9 to 5 job, we want to depend on the passive income for our retirement income. You read that right, retirement income. We are not going to depend on a dollar amount in our checking account, but instead we are going to go into retirement with a passive income stream in place.
How are we going to reach these lofty goals? We are going to enter the world of buy and hold real estate investing. Simple put, we are going to buy homes and rent them out.
How Many Rental Units Will It Take To Create Passive Income?
There are a lot of moving parts, but my investing goal is for every rental until I own to cash flow for an average of $150 per month. A very important distinction is that a rental unit is defined on a per “front door basis”. A single family home is 1 unit, a duplex is 2 units, a triplex is 3 units, so on and so forth. I use the 50% Rule to calculate cash flow. The cash flow is what is left of the rental income after paying:
- Debt Obligation (Mortgage)
- Real Estate Taxes
- Property Insurance
- Operating Expenses
- Creating a Fund for Major Expenses
Based on $150 per month in cash flow, each rental unit is worth around $1,800 a year.
- 5 rental units for $9,000 a year
- 10 rental units for $18,000 a year
- 15 rental units for $27,000 a year
- 20 rental units for $36,000 a year
- 25 rental units for $45,000 year
We don’t have a magic number in mind because we see this as a long term endeavor with hopefully no end in sight. Our first goal is 20 units, because $3,000 a month in passive income will be able to cover our most basic expenses (primary mortgage, utilities, gas, groceries and clothing). I look forward to updating this page as we hit each goal!
It is important to remember that the cash flow from these properties is just the icing on the cake. The real benefit to this strategy is that in the meantime the debt is being paid down by the tenants and appreciation is happening at the same time. Not only that, but the tax benefits that come along with being able to depreciate the property really makes buy and hold real estate investing exciting.
Follow Us On Our Journey
I hope you find this website useful. As I researched this lifestyle choice I was able to find countless books and websites on the dos and don’ts of real estate investing, but I never found an actual case study from a real person. I hope this website fills that void and will be beneficial to current and perspective passive income seekers for years to come.