The count is the easy half. Twelve houses, if each one clears $420 a month and the income you want is $5,000.
The other half is the $690,000 of down payments and closing costs that twelve houses take, and that is the figure that decides whether the plan is five years out or twenty five. Both numbers fall out of one thing: what a single house clears.
What does one rental clear each month?
Cash flow is the rent left over once the empty weeks, the running costs and the mortgage are paid. Here is the example the rental calculator on this site opens on. A $250,000 house renting for $2,750 a month, bought with 20% down on a 30-year loan at 7%. Property taxes run $3,000 a year and insurance $1,400. Five percent of the rent goes to repairs and another 5% to a fund for the roof and the furnace, with 8% to a property manager. Those are the example’s assumptions, not quotes for any address.
| One house | Twelve houses | |
|---|---|---|
| Rent | $2,750 | $33,000 |
| Empty weeks (5% of rent) | −$138 | −$1,650 |
| Property taxes | −$250 | −$3,000 |
| Insurance | −$116 | −$1,400 |
| Repairs and a replacement fund (10% of rent) | −$275 | −$3,300 |
| Property manager (8% of rent) | −$220 | −$2,640 |
| Mortgage | −$1,331 | −$15,967 |
| Cash flow each month | $420 | $5,043 |
These are example figures, not a forecast for any market.
Twelve of these houses pay $5,043 a month, which clears the $5,000 target with a little room. If the stack above needs unpacking, how to calculate cash flow on a rental property walks through every line.
Look at how little of the rent survives. The twelve houses collect $33,000 a month and hand over $5,043. Everything in between is why the answer to “how many houses” is always a bigger number than it sounds like it should be.
How many houses does $5,000 a month take?
Divide the income you want by what one house clears, then round up. $5,000 divided by $420 is 11.9, so twelve.
The same division handles any target. $2,000 a month takes five houses. $10,000 takes twenty four. There is nothing clever in it, which is worth saying because the question usually gets answered with a story about somebody who did it in four years rather than with a number.
What moves the answer is not how many houses you can find. It is the $420. A house clearing $600 gets you to $5,000 in nine. A house clearing $200 needs twenty five. The per-house figure is doing all the work, which is why how much a rental should cash flow matters more here than the count does.
What does buying twelve of them cost?
In this example each house takes $50,000 of down payment and $7,500 of closing costs. Call it $57,500 to get the keys. Twelve of those is $690,000.
Nobody buys twelve houses in an afternoon, and nobody funds all of it from savings. Rents rise, loans get paid down, and equity from the early houses can go into the later ones. But the $690,000 is the size of the pile the plan has to produce one way or another, and it is a more useful number to stare at than the twelve. For what the first one of those twelve takes, see how much money you need to buy a rental property.
Would paying them off take fewer houses?
Three houses instead of twelve. Strip the mortgage out of the table above and the same house clears $1,751 a month instead of $420, because the $1,331 payment was the largest line on it.
| 20% down at 7% | Paid for in cash | |
|---|---|---|
| Cash flow a month | $420 | $1,751 |
| Houses to reach $5,000 a month | 12 | 3 |
| Cash to buy them | $690,000 | $772,500 |
Three paid-off houses reach $5,000 a month for $82,500 more cash than twelve financed ones, and leave you with three roofs to look after instead of twelve. The financed column wins on a different measure: it puts $3,000,000 of property in your name rather than $750,000, so it gains more when values rise and loses more when they fall. The income question and the growth question pull in opposite directions here, and the arithmetic will not settle which one you care about.
What if the house is ordinary instead of excellent?
The example house rents for 1.1% of its price, which is strong. Change two assumptions and watch the plan stretch: a loan at 7.5% instead of 7%, and 8% of the year empty instead of 5%.
| 7% loan, 5% empty | 7.5% loan, 8% empty | |
|---|---|---|
| Cash flow a month | $420 | $270 |
| Houses to reach $5,000 a month | 12 | 19 |
| Cash to buy them | $690,000 | $1,092,500 |
Half a point of interest and three points more vacancy cost seven houses and another $402,500 of cash. That is the whole difference between the two columns. If the vacancy figure is the one you are least sure of, what vacancy rate to use for a rental covers where to get a real one.
What this arithmetic leaves out
The $420 is before income tax. What you keep depends on depreciation, your other income and your filing status, and a tax professional is the person to put real numbers on it.
An average also hides the bad month. A roof at the example’s $9,000 is more than twenty months of this house’s cash flow, which is why the 10% set aside above sits in the table at all rather than counting as profit.
And twelve mortgages is a conversation with a lender, not a division. The terms you are quoted on a fourth investment loan are not always the terms you were quoted on the first, and the down payment asked for can move too. Ask a lender what happens after the fourth loan, and after the sixth, before a plan depends on the twelfth.
Which number to pin down first
The number to pin down is not the count. It is the cash flow on one real house in the market you actually buy in, with that county’s tax rate and a real insurance quote in it.
Put that house into the rental calculator, take the monthly figure it gives you, and divide your target by it. The answer you get will be built on your own numbers instead of this example’s.