Plan: Build $1M in Net Worth Through Real Estate With 5 Purchases Over 7 Years
by Brandon Turner
The plan I am about to describe is very similar to the one I am taking in my life. The idea is simple: buy incredible rental properties, save the cash flow, and reinvest that cash flow into even more properties. This is not a get-rich-quick plan. It plays out over seven to 10 years—maybe more, maybe less.
The timeline is not important, nor are the specific numbers. What matters is the underlying math, and I hope that after reading about this plan, you will better understand the kind of plan you will want to build for yourself.
Before I get to the plan for making $1,000,000 in net worth, let me clarify a few things:
- This is not the only way to make money in real estate, just one path that I like.
- This is not a guaranteed plan. This is an “if-then” plan. If A, then B, and if B, then C. Everything depends on those “ifs.”
- This plan works based on ideal numbers. For example, I use a nice, round “3% appreciation” number, because that has been the U.S. historical average. However, real life is not likely going to appreciate by exactly 3% each year. Some years might be 1%, some might be 5%, and others might be -4%. Again, these are average ideals.
- The specific price per unit does not matter as much as the mathematical concepts I’m about to talk about. For example, if I say, “Buy a $100,000 house,” half the readers of this book will instantly think, “Phhhh… I could never find a house that cheap,” while the other half thinks, “Phhhh… I would never pay that much for a house.” Real estate is relative to location, and that’s OK! The mathematical concepts are what matter, far more than the specifics. You might find properties with values that are higher or lower, depending on your location.
- This is not legal advice. I’m not even telling you that this is the path you should definitely take. Again, this is just one plan that has worked!
Setting Your Buying Standards
The vast majority of properties out there are terrible investments and would end up costing you more than you’d make. Instead, you must adhere to certain standards for this plan to work. The following is an example of such standards:
- Multifamily property (In this plan, we’ll be buying fourplexes and 24-unit apartments.)
- Cash flows of $200 per unit, per month after all expenses have been paid, including vacancy, maintenance, utilities, management, capital expenditures, taxes, and insurance, plus any other expenses the property may have.
- Property must be purchasable for a discount because you are great at finding great deals in the market. For this sample plan, we’ll be buying each property at 80% of what it’s normally worth. For example, while the average buyer would pay $100,000, we’ll pay $80,000.
- Property’s value must be capable of being improved by 10% during the first year through “forced appreciation” (such as a paint job and landscaping).
- Property must appreciate at 3% per year after year one.
You may be tempted to say that these standards are impossible to fulfill, but trust me, they are not. BiggerPockets is full of examples of investors who are following these very standards and succeeding. Perhaps the area you live in is different, but these locations do exist. I own properties just like this. However, you will have to think differently. For example, ask most average Americans whether buying a property for 80% of its value is possible, and they’ll say, “No.” Ask an experienced house flipper, and he or she will say, “Yes, but that’s paying way too much.” You see, a house flipper or real estate wholesaler typically has to purchase a property for far less than 80% of the value for their plan to work. It all comes down to mindset. Are you someone who says, “It can’t be done!” or someone who asks “How can it be done?”