I’ve developed a bit of a rough, back of the envelope, 10 year, real estate investment plan. Basically, I’ve decided I want to own 5 houses. 4 to rent out, 1 for me to live in. I want to acquire them all by continuing to buy cheap foreclosures, with all cash, and rehabbing them myself into rent-able condition. Then manage the properties myself for the next decade or so, living well off ~50% of the net rents and reinvesting the other ~50% into securities. Then hopefully, before I’m 40, I can sell off my 4 rentals and put all the proceeds into securities, getting out of the land-lording business all together. So, how to get these first 5 houses…

Well, I already have one. Rented out to happy tenants who mail the check each month and since moving in, have never called me even once.

I’ll be closing on my second rental property before the end of the month. I’m hoping to have it all fixed up and rented out by the beginning of summer. It might take me a little while to get it rented because I have to deal with a septic system modification. Which means lots of bureaucracy, red tape, and licensed contractors. But I think the house will ultimately be worth the headache because it’s on a private, flat, level lot on a quiet street, about 1 mile from the center of a small town and only about 4 miles from several big box stores. It has a small creek running alongside one border of the lot. And it’s about 18 miles from my parent’s, my brother’s, and my sister’s houses (not too far, not too close ;-)). It’s also smack in the middle of a large rail trail network meaning it’s in a great spot for cycling since you can ride a bike on about 50 miles of paved paths through the woods that take you to various towns in the area and one medium-sized city as well. And it’s about a 1hr 30m drive to Boston, or 20m drive to a train station that can take you into the city.

I plan on finding a tenant who wants to lease the place for about 12 months, starting this summer.

I’d like to move into the house myself, and I’m itching to get going on building a big permaculture garden, but I’m going to continue living in my apartment for another 12-24 months or so because it’s in a location I like living in, it makes it convenient to get to school and to my new job, plus it’s nice, and it’s cheap.

I have some reserves left over to buy a third property, but after buying and rehabing two houses with all cash, capital will be starting to dwindle a bit.

So I have a partner lined up who wants to buy a property with me. We’re going to go into it splitting the purchase price and rehab costs 50/50. The hope is to purchase another one of these $20k-$40k single family homes, rehab it ourselves with cash, make it a desirable, mortgagable house. And then relist it for somewhere between $100k-$150k depending on how everything turns out. At that price level it will be one of the cheapest ready-to-move-in houses on the market in the area and I’m hoping we will be able to sell it within about 6 months of completing the rehab work. I’m hoping to purchase this, my 3rd property, sometime this summer, after the rental house I’m buying right now is all squared away.

I ought to walk away from the sale of the 3rd house with about $50k in my pocket before the end of the year. Which is enough to buy two more foreclosures which gets me to owning 4 rentals, just one house shy of my ultimate goal.

Then it’s just a matter of saving the rents up and working at my easy-going job until I’ve got another $20k-$30k to buy the 5th and final house. Hopefully I can get all that done by the summer of 2013 or so. The entire process should be fairly enjoyable.

At that point I think I could quit doing paid work, move into one of my houses, and declare myself “retired”. I’ll have a mortgage-free house to live in. Plus I’ll have 4 rentals, with no mortgages, grossing around $3,600/month. Land-lording overhead costs should be quite low. -With taxes and insurance making up the bulk of it. Repairs won’t run me too much though since I have the skills to take care of the majority of things that will need to be repaired or renovated from time to time. I don’t expect too many vacancies either since part of my landlording strategy is to keep rents below the market rate, which lets me have my pick of tenants, plus it essentially ‘traps’ them because any other option they could take, including buying their own house with a mortgage, would wind up increasing their housing costs. I expect, after expenses, I’ll be netting around $2,600/month from rents. I also expect to keep my personal expenses, with a mortgage-free house and all the other cost savings that come with having some gardens, storage space and room for tools, to right around $1k/month. Which means I ought to be able to save an additional $1,500/month to reinvest into securities.

I’m trying to keep the number of rental houses to the minimum number I need to meet my financial goals. I don’t want to have to do any more work than I absolutely have to. Especially when I’m talking about being a landlord for ~10 years, the fewer properties to manage, the better. One thought I had was to sell all my properties in these small towns and use the proceeds to buy one high-value single family home or duplex in Boston or Cambridge. Essentially getting me the same rental income but with 1/4 or 1/2 of the tenants to manage. But we’ll see about that when the time comes.

If I find the buying, rehabbing, and selling project works out well, I may continue to rehab 3 or 4 more properties in the following years, just to pad my coffers and give my securities’ investing a jump start. Because I know these cheap foreclosures won’t be around forever.

The main reason I want to have an income above and beyond my necessities is so that as I age my stash will grow exponentially. So that 20-30 years from now when I’m in my 50′s and 60′s my net worth will be well up into seven figure territory.

I’m not completely averse to using financing to buy houses faster. But if I can do it this quickly without having to bother with loan origination fees, interest payments, and all the red tape that comes with buying property on credit, then why not? After my rental network is all setup I may look into tapping some of the equity in order to invest in securities, or to trade up my properties to higher value rentals, but I’ll analyze those options later.