How Many Rental Properties to Retire: The 2 Big Calculations

For those wondering how many rental properties to retire are necessary, there are two mathematical formulas and various situational factors that help answer this issue. Let’s delve into what they are below.

Main Takeaways

• Two main formulas can help you decide how many rental properties to retire with.
• Formula 1: Total Rental Income from All Properties / Cash-on-Cash Return (In Dollars) = Rental Properties You Need to Retire
• Formula 2: Yearly Money Invested in Each Rental Property x Yearly Cash-on-Cash Return from Rental Properties = Yearly Income Required for Retirement Costs

Table of Contents

• Rental Property Formulas You Need for Your Retirement Plans
• What is a Cash-on-Cash Return?
• Factors To Consider Alongside Your Calculations

Rental Property Formulas You Need for Your Retirement Plans

Two main formulas can help you decide how many rental properties you need for retirement. Here are some fundamentals Baltimore hard money lenders recommend for your rental income retirement strategy:

Formula 1: Total Rental Income from All Properties / Cash-on-Cash Return (In Dollars) = Rental Properties You Need to Retire

By using this formula, you can broad, general estimate of how many rental properties for retirement you’ll need.

Formula 2: Yearly Money Invested in Each Rental Property x Yearly Cash-on-Cash Return from Rental Properties = Yearly Income Required for Retirement Costs

Here, in using this method, you can get a feel for how much money you’ll have to make each year, with each property, to meet your goals.

What is a Cash-on-Cash Return?

The term cash-on-cash return refers to how much money you get back out of all the money you invest in a property each year. In practice, the result comes out as a percentage.

In turn, to find your property’s cash-on-cash return, you can use this formula:

Cash on Cash Return Percentage = Annual Income Left Over After Expenses / Total Cash Invested

If calculations show you need funding for new properties or renovations, you should know how loans and cash-on-cash returns are connected.

When you add loan payments to your expenses, it naturally deducts your retirement-ready income at the end of the day—or, in other words, your cash-on-cash return.

That’s why it can be a better idea to choose shorter-term loans, like hard money loans, for financing here. Such loans last mere months or, at most, a few years. This way, you can minimize loans’ long-term impact on your cash-on-cash return.

Factors To Consider Alongside Your Calculations

Basic formulas can certainly be helpful when deciding how many rental properties you need to retire. However, they shouldn’t be the end-all-be-all of your rental income retirement strategy.

After all, these formulas are static numbers, and the volatility of various real-life factors can alter them. Here are other ways to approach your plans:

Your Retirement Timeline

How soon you want to retire is an enormous issue for your rental income retirement strategy. After all, the more ambitious your retirement aspirations are, the more aggressively you’ll need to ramp up your money-making efforts now.

If you plan to retire on the quicker side, you may want to use the formula results as a conservative estimate. After all, it’s easy enough to build money gradually over time, but you’re moving on an accelerated timeframe. Instead, you will want to start generating as much surplus income as possible, now, to get the wheels turning in time. We’ll delve into how you can do this later.

Accounting for Current (And Future) Personal Expenses

Now, you must try to crunch any personal expenses that take up your rental income and will for the foreseeable future.

Furthermore, you need to factor in expenses that could unexpectedly pop up in the future, such as medical expenses, inflation, unexpected job losses, and other life realities.

Property Operating Expenses

When considering your plans, you should factor in how the costs of maintaining and improving a property can eat into your income. Sudden emergency repairs, vacancies, or value-adding additions could all disrupt your property’s cash flow, and by extension, its ability to serve your retirement.

The Quality and Value of Your Properties

Your current properties’ level of quality in customer service, amenities, and maintenance will determine how well you can attract and retain tenants.

Meanwhile, if you plan on getting new rental properties, you should consider a few other factors to attract the best possible tenants:

• Location
• Demographics (EG: the location has mostly seniors vs. college students)
• Price compared to nearby, similar-in-nature properties
• The “temperature” and trends of the local rental market

Your Non-Rental Income

Of course, if you have a non-rental income, it can help shave off your pre-retirement time. So, when considering how many rental properties to retire, remember how other income sources (like your full-time job, stocks, social security, etc.) contribute to your retirement fund, too.

Property Appreciation

As time passes, many properties increase in value. This is a known rule of real estate investing, but it holds especially true in this era. As you probably know, the US is in a huge housing shortage, and rentals like yours are in exceptionally high demand.

Since this pattern shows no signs of stopping soon, you can rest assured that your rental properties are very likely to naturally increase in value as time goes on. In particular, you can secure its status by continually updating your property to stay in good condition and meet modern preferences.

Then, as you inch closer to retirement age, your property can mature with you, ballooning to a value that can significantly cover your retirement.

Rental Strategy Revamps

It’s possible your formula results put too much profit-making pressure on your current properties. If so, that may be a sign you need to pivot your rental income retirement strategy.

For example, if your calculations show each property needs to make $100,000 more than they do now, you may need to renovate your property to attract high-paying renters. Or you could buy more rental properties to add to your income.

These strategies may hurt your wallet now, but they can pay off in the long run. Or, if you can’t pay for these value improvements all upfront now, you could get a loan. This way, you can secure your investment now, get it off the ground running, and pay off the loan in measured installments later.

Enhance Your Rental Income Retirement Strategy

By considering two core formulas and certain personal & business factors, you can know how many rental properties to retire are necessary for you. This way, you can maximize the profitability of your rental properties for retirement.

In doing your calculations, you may have found that your rental properties just aren’t enough to match your retirement timeline as they are. Maybe they need a little touch-up or a value-adding makeover altogether. Maybe you don’t have enough rental units or buildings to realistically cover all your income goals. In that case, you need to put these investments in motion, and fast.

Still, funding for property repairs, improvements, and outright purchases doesn’t come out of thin air. That’s where loans come in.

Even then, though, it can’t be just any type of loan. Traditional bank loan payments could tank your cash-on-cash return for years. So, instead, you can go with short-term hard money loans. These specialized loans for real estate investors are designed to be paid off much more quickly than traditional ones.

Even better, these loans have expedited delivery, so you can get going on your new project ASAP.  So, call us today to secure your rental retirement income!