How Many Rental Properties Do You Need to Retire? | The STRR Podcast #97 | Tim Hubbard

How many properties does it really take to retire? Well, that totally depends. I want to break down an example between traditional long term rentals, which I used to do exclusively, and short term rentals, which now I heavily focus on, although I do both. So I want to break down an example and help you guys answer this question if you haven't already. And that's how many properties do we really need to retire or. Or to become financially free? Let's dive right in. Welcome to Short Term Rental Riches, where we'll discuss investing in real estate, but with a specific focus on short term rentals to help you build wealth faster with as little headache as possible.

Welcome back to the Short Term Rental Riches podcast where we talk about all things real estate, but with a heavy focus on short term rentals. And why do we talk with a heavy focus on short term rentals? It's because they make a lot of money. They are a great piece of a real estate portfolio. I have different types of properties in my real estate portfolio, commercial, long term rentals and short term rentals. But short term rentals helped me become financially free much, much faster than I ever could have with long term rentals. So welcome back. That's what we're going to talk about this week. Not necessarily my story, but how many rentals it takes to become financially free. And there's several questions that we have to ask ourselves here, so let's just get right into it. And the first one is, what are your monthly bills? That's a good one. That's one we need to know. And of course that's different for everyone. It's different wherever we are in the world. If we have the luxury of being able to work virtually, then we can go to a place where the cost of living is lower but the quality of life is still high. So that's important. We need to know how much money we need just to cover our basis. But then we also need to answer the question, how much money do we want to have on a regular basis? So in this episode, I'm just going to break down the standard $10,000 a month because it seems like that's what a lot of people in the US Anyways have kind of strived for. Now with inflation, maybe we should raise that up. Inflation's going crazy. But I'll just stick with that number for, because it's easy, it's round. And I want to break down an example between long term rentals and short term rentals because it's really crazy when you think about trying to retire. These days with long term rentals and we're talking like traditional single family long term rentals. And of course the, this is not across the board. There's really good opportunity in some places. But in on average, I'm gonna say that a traditional single family home right now might make like 200 bucks a month. You know, in profit, we're talking cash flow. So after mortgage, after your interest, after expenses and management, maybe you're making like $200 a month. So if you want $10,000 a month in cash flow, how many properties is that? That's 50 properties. 50 single family homes. That's a ton, right? That's a lot to manage. 50 different mortgages, 50 different insurance quotes that you're renewing all the time, 50 to 50 different property tax bills. 50, you know, that's a lot of properties. And now not to say you can't manage a lot of properties at the same time, I do, I have more than that actually. But if we're trying to retire with 200, is that even worth it? I don't know. We gotta ask ourselves this. So that is a lot of properties. And I want you to think about this. If one of those properties that's making $200 a month, let's say the AC goes out. And what does an AC cost these days? Maybe $5,000. That could be low. That could, that could be low for wherever you are. Maybe it's slightly high in some places, but I'd say that's a pretty good average for a standard size three bedroom home, maybe 5,000 to 7,500. But if we call 5,000, how many months of your $200 cash flow income did that just erase? 25 months. 25 months. That means if you have a single family home that's cash flowing $200 a month and your AC goes out, well, you can kiss your profits goodbye for over two years because that AC just ate up all of them. And that's if you have no other maintenance issues along the way. So we can see how this becomes really difficult now to have enough income from these traditional, I'm talking traditional, like turnkey single family rentals. Now these are also not fully occupied all the time. Now you might say short term rentals aren't either. Unlike a long term rental where we may have a tenant that moves out maybe after two years, maybe after three years, we're very likely going to have to paint that property again. There's probably going to be lots of holes where the shelving is and you know, maybe there's some damage in some places. Maybe you have to redo the flooring. And let's just say that costs $3,000. Well, that's another 15 months of cash flow that that property is not going to, not going to give back. So it just, it takes a heck of a lot of single family rentals these days that aren't making a lot of monthly cash flow. Now what am I, what do I mean when I say retire? I mean financially free. Because retirement, we don't want to just do nothing for the rest of our lives, right? If we're working our butts off at something, then yeah, maybe a break where we're not really doing anything for a few months or six months or, or even a year. But the longer it goes, if you're not really doing anything and you don't have a purpose, well, you're not going to be super happy. And so I think a better way to look at retirement or financial freedom is instead of calling a retirement, I heard someone say rewirement. It's what do we really want to do? What are we passionate about? And that's what financial freedom gives us the ability to do. So those are a couple examples with single family homes. Remember that $10,000 a month mark in cash flow, that's 50 single family homes if they're only doing 200 bucks a month in cash flow. Now you may say, yeah, Tim, but If I have 50 single family homes, the market's going crazy, they're appreciating and I'm going to be rich because of all the appreciation. Well, yes, you might be able to pull out some of that money and be rich or feel rich for a while. But, but at the end of the day, it's the cash flow that allows us to live comfortably. So even if those properties went up 20% in value and you were able to pull out a chunk of money, now remember, the money that you can pull out from a lender is based on the rent. So if your rents didn't go up as much, you still can't pull that money out, even though there's equity there. But once that money's out, you know, you're still stuck with that low, low monthly cash flow. And if you raised your loan on the property, take out more cash, well then your cash flow is going to go even further down. So yes, that can buy time, but the end of the day we're looking for cash flow, right? So. All right, now the fun part, now we get to talk about str short term rentals and in my personal experience, if you guys been listening to the show for a while, hopefully have short term rentals already because we can take this number of 50 rentals and we can divide that in two conservatively. We could divide it in three, we could divide it in five. What I mean is that we can operate a short term rental instead of a single family home and make two, three or five times the amount of our traditional rentals. And I know because I've, I've done it lots of, you know, been doing it for years. And in fact that this podcast episode I kind of got triggered because I just did a live of event where we saw a bunch of my properties and it always reminds me that, you know, everyone's at different stages in this journey and the live events are a lot of fun because we get to see everyone in those stages. So it, it's just really exciting. I'm really excited about the short term rental industry still going forward. I mean, I'm more excited now than I was when I got started because the world has changed. People are living more mobile than ever. More people are working remotely than they ever have, which means more people will be staying in short term rentals. But it's also exciting because the growth, this just allows you to scale. My portfolio just has kind of blown up over the last five or six years because those cash flows were so much higher and I was able to reinvest that money. And now if we get just one more thing, if we go back to that appreciation example, you know, having 50 homes and pulling money out, well, we can still do that with short term rentals. So we don't have the giant vacancies, we can still get the appreciation, we can get much higher cash flow. And if we have these giant, you know, AC systems that go out or you know, a crack on the foundation or something like that, well, we can get higher cash flow back to recoup those expenses. So I think the opportunity is incredible with short term rentals. Not to mention if you are a US citizen, which most of our listeners are, I think we have the best opportunity in the world. I own property in two other countries outside of the U.S. we can't get financing as foreigners in other countries. It's very difficult, I should say. So we have the lowest interest rates in history and you. The US gives us the ability to borrow and leverage these deals for 30 years fixed. That is incredible. So we have an amazing, amazing opportunity here in the US So hopefully you have a number in mind and if you get into the short term rental industry if you're not already in it, I think you're going to find that you can hit that financial freedom mark much faster than you ever thought possible. So a little more insight into short term rentals. Hopefully you guys are doing well out there. And until next time, have a wonderful day.