How Much Do You Need to Invest to Replace Your Income with Rentals?

Summary

BiggerPockets Real Estate Podcast

Episode: How Much Do You Need to Invest to Replace Your Income with Rentals?
Date: October 15, 2025
Hosts: Dave Meyer, Brandon Turner, Henry Washington

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Episode Overview

This episode explores one of the most sought-after real estate investing goals: replacing your working income with rental cash flow, and ultimately achieving financial freedom. The hosts tackle common questions from real investors, dissect investment strategies, and compare the merits of building equity versus cash flow in rental portfolios. Throughout, they provide actionable advice for both new and experienced investors—especially those aiming to replace modest incomes through strategic, disciplined real estate moves.

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Key Discussion Points & Insights

1. How Much Investment Is Needed to Achieve Financial Freedom with Rentals?

(Timestamp: 00:00–07:20)

Brad’s Situation (Listener Question)

• Brad has $3,000/month to invest, a $2,500/month cost of living, low overhead, and a goal of achieving financial independence (FI) in five to ten years.
• He wants to free himself from his 9-5 to pursue passion projects but is starting with little-to-no savings or assets.

Primary Advice:

• House Hacking as a Launchpad:
  • Henry Washington: Recommends buying a duplex, living in one unit, renting the other (and possibly renting his current home if already owned) for "essentially three rental units off the bat that you can have within the next, you know, 90 days." (01:51)
  • House hacking reduces overhead, channels more of his $3,000/month into investments, and accelerates portfolio growth.
• Recognizing the Power of Aggressive Savings:
  • Brandon Turner: Brad’s frugality and high savings rate (“saving a lot of money, that foundational thing to do”) are huge advantages. (07:20)
• Achievability of 5-10 Year Timeline:
  • Dave Meyer: "Ten years is very reasonable, I think." (03:39)
  • Five years is ambitious, but possible in affordable markets with disciplined, iterative house hacking.
  • Using a FI calculator and Brad’s specifics, Brandon finds: “Doing that with pretty on market deals, we get exactly 10 years. Exactly 10 years is a realistic number.” (04:39)
• Iterative House Hacking:
  • Repeat every few years to scale up and potentially beat the 10-year FI goal.
  • “House hack three times ... you’ll be basically financially free in five years. And then we work another five years, get to 10 years, you’ll probably buy four or five more rental properties and by 10 years ... you’ll probably be one and a half to two times your current income.” (06:11–07:09)

Notable Moments:

• Henry Washington: “If you are willing to live frugally, go do this—that is, you know, house hack three times.” (06:14)
• Brandon Turner: “For real estate that’s not that hard ... if you were willing to house hack, I bet you could get, reduce your housing expenses to zero like pretty quick.” (05:39)

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2. Cash Flow vs. Equity: What Should Investors Prioritize?

(Timestamp: 07:20–09:21, 21:37–29:44)

Current Market Realities:

• Equity First, Cash Flow Later:
  • Focus early on value-add, appreciation, and debt paydown for future flexibility.
  • Dave Meyer’s Book Quote: “Focus on equity growth early ... shift the balance of your portfolio towards cash flow later.” (21:37)
  • Henry Washington: “Cash flow is the least important way that real estate pays me. Especially early on.” (23:14)
• Cash Flow Still Necessary for Stability:
  • Don’t ignore cash flow, but early-stage deals can prioritize wealth building.
  • “I am okay, buying a deal that breaks even if it’s in an appreciating market ... there are other factors that are more important to me.” (24:20, Henry)
• Equity Unlocks Future Opportunities:
  • “If I can own enough properties totally debt free when I want to retire, that’s a dream.” (25:59, Brandon)
  • “Having that equity makes cash flow easy to get.” (29:17, Brandon)
• Location and Market Affect Strategy:
  • In cheaper, cash-flowing markets with frugal living, pursue great cash flow deals from the start. In pricier or appreciating markets, build equity first.
  • Henry Washington: “Go try to make sure that you’re buying assets that are gonna last you ... you’re not having to recycle them after five years.” (08:40)

Notable Quotes:

• Henry Washington: “Cash flow is cool, but it’s equity and appreciation that really builds wealth...” (23:14)
• Brandon Turner: “It’s almost like a false dichotomy ... People are like, cash flow or appreciation? Well, cash flow is not that good right now. So building equity makes sense.” (28:15)

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3. Portfolio Planning for Rookies: Ideal vs. Realistic

(Timestamp: 13:02–18:49)

Jared’s Question (Listener from California):

• Portfolio mix (single-family, multi-family, short-term rentals)? How to start for modest growth in 3–5 years?

Key Takeaways:

• Execution Beats Over-Planning:
  • Brandon Turner: “There’s like an ideal portfolio composition and then there’s a realistic portfolio composition ... you need to be thinking about what’s your next best step.” (13:02–15:04)
  • Emphasis on doing instead of endlessly strategizing (“spend a lot of time planning ... not executing”). (15:34)
• Focus on Finding and Executing Good Deals:
  • “Just focus on short term execution. Like those are really the only two things that have ever mattered to me...” (15:34)
  • As you gain experience (“execute your first deal”), adjust the plan according to your strengths (“superpowers”) and market conditions.
  • Henry Washington: “Your focus just needs to be on figuring out how you’re going to generate leads for properties that are actually going to make you money.” (15:04)
• Be Open to Change:
  • The plan will change (“the plan can change, the plan will change ... 100%. It will change.”) (16:45–16:46)
  • Example: Henry’s plan to buy one house/year turned into five deals in two months upon getting started. (17:48)

Market-Specific Advice:

• Investing in California is tough for cash flow; may require out-of-state investments or value-add projects (ADU strategy, etc.).

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4. New Construction vs. Older Properties for Rentals

(Timestamp: 29:48–35:11)

Kelly’s Question (Listener):

• Is it easier to manage new builds compared to older rentals? Is tenant demand higher?

Main Points:

• New Construction Management is Easier:
  • Henry Washington: “I have never once gotten a work order for anything repair or maintenance-wise on my new construction homes, but I have gotten requests on properties ... that are older.” (30:10)
  • Fewer maintenance headaches, better tenant demand.
  • Warranties and modern codes reduce surprises; “management is always easier with new construction. New homes that are built well, up to modern code ... so much easier.” (31:59, Brandon)
• Cash Flow vs. Real Profitability:
  • New properties might underwrite to lower cash flow initially, but the real costs (maintenance, vacancy, capex) are far more predictable.
  • Brandon Turner: “If you’re buying an old property and you are not underwriting for a new roof or replumbing ... you’re underwriting it wrong.” (34:04)
  • Many investors overstate expected cash flow by underestimating expenses in older properties.
• Underwriting Realism:
  • “Everyone does. It’s like 90% of the people ... do cash flow ... but that doesn’t include maintenance and vacancy and capex and turnover. I’m like, well, that’s not cash flow.” (34:04)

Memorable Exchange:

• Brandon Turner: “Well, it’s hard to breathe up there on your soapbox.”
• Brandon Turner: “There’s not much oxygen up here, man.” (35:11–35:15)

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Notable Quotes & Moments

• “If you were in my shoes and wanted to quit the 9 to 5 in 5 to 10 years to pursue other passion projects, how would you go about it?” – Brad’s opening listener question (00:46)
• “House hack three times ... you’ll be basically financially free in five years.” – Brandon Turner (06:14)
• “Cash flow is the least important way that real estate pays me. Especially early on.” – Henry Washington (23:14)
• “There’s like an ideal portfolio composition and then there’s a realistic portfolio composition. And I think that’s what you need to be thinking about as a real estate investor in 2025.” – Brandon Turner (13:02)
• “Management is always easier with a new construction ... so much easier.” – Brandon Turner (31:59)

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Timestamps for Key Segments

• 00:00–07:20: How much to invest monthly for FI + House hacking pathway
• 07:21–09:21 / 21:37–29:44: Cash flow vs. equity, and when to focus on each
• 13:02–18:49: Portfolio planning for rookies; execution vs. over-planning
• 29:48–35:11: New construction vs. older properties for rentals

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Overall Tone & Style

The tone is candid, practical, and encouraging, emphasizing action over over-analysis, realism about timelines and market challenges, and the importance of both patience and creativity in real estate investing. The advice comes with humor, humility, and stories of personal experience—making it accessible for aspiring investors at any level.

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For more in-depth resources, calculators, and community Q&As on these topics, visit biggerpockets.com.

Transcript

[Brandon Turner]

Can you really reach financial freedom in five to 10 years with real estate investing?

[Dave Meyer]

Even if you're starting from scratch without.

[Brandon Turner]

Making a million dollars every year, how much do you need to invest? And how can you get the biggest return on the money you have to invest? We're answering all that today.

[Dave Meyer]

Plus we'll talk about whether you should focus on cash flow or equity when.

[Brandon Turner]

You'Re buying your first rental. Hey, everyone.

[Dave Meyer]

I'm Dave Meyer, head of real estate investing at BiggerPockets.

[Brandon Turner]

And and today on the show, I'm joined by my friend Henry Washington.

[Dave Meyer]

Today we're going to answer a few.

[Brandon Turner]

Questions from real investors on the BiggerPockets forums. First up, we have one from an investor who wants to start working towards a financial freedom goal but isn't sure.

[Dave Meyer]

Exactly where to start.

[Brandon Turner]

And I think we can help them out.

[Henry Washington]

That's right.

[Brandon Turner]

Our first question comes from Brad Hills. Brad says, I find myself in a situation where I have a bit of extra income and I want to start leveraging it. My admittedly lofty goal is to become financially free in five to 10 years. I don't want to stop working. I just want to pivot my time to other ventures that can make some income that I enjoy. I can afford to put $3,000 a month, maybe a little more if I get aggressive towards this end. My monthly overhead is very modest. It costs me about 2,500 bucks a month to cover my living expenses, and I'm happy with the quality of life that affords me. So if you were in my shoes and wanted to quit the 9 to 5 in 5 to 10 years to pursue other passion projects, how would you go about it? Consider starting from scratch with no real savings or assets to speak of. Love this question. There's so much to unpack here. I think what this investor is probably saying is that they're ready to start and that they can continuously put an extra $3,000 a month into their portfolio, which to me is a huge amount that could. That's like a really significant advantage that this investor is going to have.

[Henry Washington]

If I were him and I was owning a home already, I would probably go buy a duplex, live in one of the units, rent the other unit, and rent out the unit that I'm living in. So that gives you essentially three rental units off the bat that you can have within the next, you know, 90 days. If you start shopping for a place right now, and it helps you by eliminating some of that $2,500 a month that you're spending on living Expenses, you'll be able to eliminate some of that by house hacking. And so now you bump your $3,000 a month up even more because you now have lowered your living expenses. If you want to retire in five to 10 years and you're not going to flip houses, then you're probably going to have to start buying assets sooner than later because they're probably not going to cash flow very well in the first year or two. And so being able to get a couple of units by house hacking and eliminating your expenses gives you more money to play with. If you're making 100 to 200 bucks a month in net cash flow in the first couple of years, then with rent growth and with appreciation and debt pay down five to 10 years. That could look really, really good, especially 10 years. Five years maybe not as well.

[Brandon Turner]

Yeah, I was going to ask you that. Do you think this is a reasonable timeline and goal? Because as Brad said, it's a lofty, ambitious goal. Do you think five to 10 years with this person's lifestyle is reasonable?

[Henry Washington]

I wouldn't say unreasonable. It's definitely doable. But you're going to have to be pretty aggressive. Ten years is very reasonable, I think.

[Brandon Turner]

Yeah, I agree. Five years is pretty lofty. Unless like you said, you're going to flip houses unless you're starting with a lot of capital. It just takes a little bit longer than that. I've talked about it on the show. I think the average just buying on market deals and not even doing what I would consider aggressive approach, Henry's talking about with off market deals. Yeah, I think 10 years is a.

[Dave Meyer]

Little bit more realistic.

[Brandon Turner]

It could even take 12. But I actually built this financial independence calculator on biggerpockets.com for free. You can check it out. And I'm putting in Brad's numbers right now. I'm just showing that he can contribute $36,000 per year in his savings. And I'm assuming I'm making a big assumption here that he has initial savings of $40,000. So basically he can start with a property right now and then I put the average property price at 120,000. He lives in Akan where the median home price is 140. But as an investor, I'm assuming you're going to go in and do 1:10, 1:20, put a little bit of money into it to rehab this kind of property with appreciation at 3%. So really nothing crazy. An average return on equity similar to cash on cash, return of 7%. Just doing that with pretty on market Deals we get exactly 10 years. Exactly 10 years is a realistic number.

[Henry Washington]

Yeah. And you think if you truly are going to wait 10 years, I mean you could honestly do more than one house hack, you should probably be buying a new house hack every couple of years, right?

[Brandon Turner]

Yep.

[Henry Washington]

If that's your goal is to get there in five to 10 years. If you bought one house hack and you lived in it, that gives you a couple of units that offset your living expenses. You're renting out the house you currently live in. Assuming you own your house and now you've got three rental properties, right? They're all producing income besides the one that you're living in, but you're not paying to live there, which gives you more cash. Within a year to a year and a half, you start looking to get your next one Ye and do it again. You move out of the one you're living in now you've got two more units, assuming we're just doing duplexes. And then within another two years you do it again. And that's just the house hacking portion. He can still do your method of buying decently cash flowing deals off the MLS because he lives in a market where that's actually possible. I mean if you put those two strategies together, I'd bet he can get there in less than 10 years.

[Brandon Turner]

He lives off of $30,000 a year in post tax income. And for real estate that's not that hard. Now that I'm thinking about this. And if you were willing to house hack, I bet you could get reduce your housing expenses to zero like pretty quick. Right? Because that's probably $1000 or $1200 of that 2500amonth that Brad is spending. I think what two, three house hacks and you could probably do that. I think it's five years. I think you could probably do this in five years because Brad lives a.

[Henry Washington]

Really frugal lifestyle and he lives in an affordable.

[Brandon Turner]

And he lives in an affordable market. That's right. So this to be a strategy or an approach that is available to everyone. But if you are in a situation like this and you are willing to live frugally, go do this like that is that is, you know, house hack three times. I would keep working past that point if I were Brad because you never know. Your lifestyle is going to creep eventually. You want to have some cushion and so do that. You'll be basically financially free in five years. And then we work another five years, get to 10 years, you'll probably buy four or five more rental properties and by 10 years, then you'll probably be not just replacing your current income. You'll probably be one and a half to two times your current income, which is still a modest, you know, that's still 60 grand a year. Like maybe that works in Akron, certainly doesn't work in Seattle, but like, if that works for you, that's great. And then, then you're, you're five plus in 10 years, which is amazing.

[Henry Washington]

Yeah. I mean, I think this guy needs to take advantage of his superpowers when two of his superpowers are, one, that he's frugal and two, that he lives in a market where you can buy cash flow on the market. Like put that to work now.

[Brandon Turner]

Absolutely. And I love, I love just the framing of this question because I think it approaches financial independence in real estate in a very realistic way. He's saving a lot of money, that foundational thing to do. I know a lot of people say they want to get into it with no money. It's possible, but it's way easier if you're saving tons of money, like Brad is doing. Not everyone can do that, but like he's doing that. He's looking to become financially free in five to 10 years. As we've established, that is possible for most people if you're willing to go, you know, the routes that we talked about. But for Brad, that might be possible even sooner. And he's saying that he doesn't want to quit his job immediately. So all three of those things together are going to put Brad in a really good position to be able to pursue financial independence somewhat aggressively. So I love it. I think it's definitely possible. So one thing we talk about, Henry, is like, I often counsel people who are in different kinds of markets to pursue equity building strategies first, whether that's brrrr flipping or just doing, you know, cosmetic rehabs on a traditional rental property. Because as we talk about a lot, building equity is the pathway to cash flow later in life. But I kind of think differently. Like you're in this market that offers cash flow that's cheap and you have a frugal lifestyle. I'd probably just go after the best cash flowing deals right away, right?

[Henry Washington]

Yeah. I mean, the goal with real estate is to get wealthy over time so that you have income coming in when you're not having to work for it. And most investors get into flipping because they need to generate cash now so that they can go buy assets that they can live off of in the future. This guy technically doesn't need to do that step because he's saving money and he lives in a place where you can get the cash flow sooner than later. So for this investor, what I'd focus on is go try to make sure that you're buying assets that are gonna last you so that you're not having to recycle them after five years into better assets.

[Brandon Turner]

I think that's a really good point. I invest in the Midwest too, and it's hard to find them. But trying to find properties built in the 60s ideally or later, I've bought a lot of 1910s, 1920s. I bought some 1890s before and they're a pain in the butt, man.

[Henry Washington]

Did you buy Paul Revere's house?

[Brandon Turner]

Yes, exactly.

[Dave Meyer]

No.

[Brandon Turner]

I mean, unless they're completely renovated, which is rare, and they're going to be more expensive than the price point we're talking about. But yeah, Brad, seems like you're in an awesome situation, so go out and get it. We have another question coming up about portfolio goals, a topic I love to talk about, but we got to take a quick break. We'll be right back. Managing rentals shouldn't be stressful.

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[Brandon Turner]

Welcome back to the BiggerPockets podcast. Henry and I are here answering your questions about real estate. This one comes from Jared in California who says, I'm a rookie investor based in California looking to start building a portfolio in the area. What do you guys think? An ideal portfolio composition that prioritizes modest growth in the next three to five years. Long term rental and a single family category seem to be a good base to start cash flow. But what are your suggestions based on experience? Examples Start off with two single families that move to multi or then focus on short term rentals. I think sort of the question here might be setting Jared up for the wrong answer because he said what is an ideal portfolio composition? If you wanted me to like run the math and tell you the precise, best possible portfolio composition could probably do that for you. But you're not going to find the deals. Like that's not. There's like an ideal portfolio composition and then there's a realistic portfolio composition. And I think that's what you need to be thinking about as a real estate investor in 2025. And that's just always true. Like you need to be thinking about what's your next best step, like what is the best deals that you can do to, to get to your long term goal. I actually, I don't know about you. I don't really think about this question that much. Like what's the optimal thing? Do I want single families or multifamily? When do I pivot from one to another? I honestly think a lot of investors spend way too much time thinking about that. I'm just an investor. I look for opportunistic deals that fit my long term goal. And my long term goal is 10 years from now. I want to not have to work and I want to replace more than just my regular income, but have some on top of that. And so any deal that I find that fits that criteria, I'm going to go for. I don't care if it's single family or multifamily. I'm just trying to do whatever I can opportunistically and move on to the next deal.

[Henry Washington]

I would say your focus just needs to be on figuring out how you're going to generate leads for properties that are actually going to make you money. And then as you start to buy some of those properties and you start to figure out what is it that you're good at, what is it that's your superpower, then you can adjust your portfolio based on what you know. Now I just don't know that you know enough to know that your portfolio is going to look exactly like what you're planning it to look like in the beginning. I just don't know that it works like that.

[Brandon Turner]

No. I think it's worth as a rookie investor spending time figuring out what your financial goals are. Like, why are you doing this? Where are you trying to go? Because that will really help you home in on the right kinds of deals. But I honestly think this is an example. I mean, no offense, Jared. A lot of rookie investors do this, spend a lot of time planning what they want to do and not executing. And this is just. This happens in every business. I've started a lot of business. I have definitely done this myself. Where I dropped this like business plan and what I'm going to do three years from now. And literally none of it has Ever met, Not once in my whole life has that ever been a useful exercise. Long term goals, figure out where you want to go and then just focus on short term execution. Like those are really the only two things that have ever mattered to me in my own entrepreneurial career. And I know it's, it's like sort of ingrained in this entrepreneurial philosophy that you hear all over the place in the media and the news, whatever is like you got to have your business plan, you got to plan this all out. No you don't. You have to have goals and you need to execute on short term things. And the plan will become clear to you, I promise.

[Henry Washington]

And the plan can change.

[Brandon Turner]

The plan will change like 100%. It will change. Like for example, I like set a goal at the beginning of this year. It's like I'm looking for purpose built for units. It's not because I have some ideal portfolio in my mind that I'm trying to get to. It's just like I've just been looking at a lot of deals and those are the ones I like the best right now. If I saw a single family that worked, I would just buy that instead. Like I have to create some buy box and limitations about what I'm trying to buy. Otherwise it's too overwhelming. But I also just want to find good deals and when they come across my desk, I'm going to take them seriously. So I just think as a rookie, execute your first deal. I think for Jared, you're going to need to think hard about whether or not you want to invest in California. Like that's just a hard thing to do as Henry alluded to. And you could invest out of state or you're going to have to get good at construction. Like those are probably the two routes for you and that's just the way it is. And you just kind of have to choose.

[Henry Washington]

You can build cash flow in California with the ADU strategy. It's pretty niche and you're going to have to go figure that out. And you're right, like go do a deal and then reevaluate. Because I still have my original goals from before I did a deal when my wife and I were planning out what we wanted our real estate portfolio to look like. We wanted to buy one house a year for the next five years. Yep, that's what we started out as, as our goals. Because we wanted to go slow. We based on what we knew at the time, that seemed aggressive. Yeah, we did five deals in our first two months. Once we got going, right?

[Brandon Turner]

Like, yeah, exactly. You're like, I could do this.

[Henry Washington]

Yes, absolutely. So don't focus on the exit. Focus on how are you going to find deals that make sense for the numbers you're trying to hit in the market you're trying to be in. And if you can't figure that out, if that doesn't exist where you are, then maybe you'll need to pivot markets or maybe you'll need to pivot strategies. But I think there's more you need to figure out.

[Brandon Turner]

All right, Great question, though.

[Dave Meyer]

We have a couple more questions to.

[Brandon Turner]

Answer for you guys, but we have to take another quick break.

[Dave Meyer]

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[Dave Meyer]

Welcome back to the Bigger Pockets podcast.

[Brandon Turner]

I'm here with Henry answering your questions. We've answered one about how to invest with 3k a month, another one about portfolio goals for rookie investors. Next we're going to talk about advice on building equity or cash flow. Classic question. I love it. Jessica Wan asks, hi everyone. I'm looking to buy my first rental property and when I was reading Dave Meyer's Start with Strategy book, oh my God, getting a call out. She didn't spell my name right, but I'll forgive her. He mentioned a very interesting point. Now I'm just reading my own quote. All right, I'm going to read something I wrote in my book. It says, quote One approach that I personally subscribe to is focus on equity growth early in your career and then shift the balance of your portfolio towards cash flow later. The idea is not to completely ignore cash flow, but rather to seek deals for their potential for equity gains, even if that means a modest cash on cash return due to the combined forces of value add, market appreciation, amortization and leverage. Seeking deals that build equity can generate large amounts of capital with which you can reinvest. If you spend the early days amassing equity, getting cash flow later in your career is relatively easy. You can do it through rebalancing and deleveraging. Jessica then went to go on to ask, is this the strategy that you guys are using? Any advice on focusing on equity or focusing on cash flow? For my first rental property, this will really help with the deals I should look into. I'm currently considering long distance investing since California is not affordable to me. I already gave my opinion because I just Read it to you. So, Henry, what's your, what's your opinion on this?

[Henry Washington]

I have, I have said this before on the podcast. Cash flow is the least important way that real estate pays me. Especially early on. Now, later on, once properties are paid off, it'll be a much more profitable endeavor. But like, cash flow now to me is more of just a measure telling me that I bought a deal that makes sense. In other words, what I learned after I started accumulating properties is that cash flow is cool, but it's equity and appreciation that really builds wealth and allows you to be able to become wealthy and build and grow your portfolio by allowing you to leverage that equity that you have in your properties to go and build a bigger nest egg of more properties. And so that is a very long winded way of saying that. Like, I agree, but I always say this and then I get, you know, comments that like, oh, you're saying don't buy cash flow. No, I think you should absolutely buy deals that cash flow.

[Dave Meyer]

Yeah, yeah.

[Henry Washington]

I'm just saying it's not the most important factor when you're evaluating a deal. I am okay, buying a deal that breaks even if it's in an appreciating market. If it's not going to give me maintenance headaches. Like, if a deal doesn't cash flow a ton, that doesn't mean I won't buy it. There are other factors that are more important to me. And so I think people should absolutely look for deals that cash flow, but it shouldn't be the only thing that you're evaluating properties on. And so if you're in a position where you can invest for building equity and those properties pay for themselves, meaning the mortgage and all the expenses are covered by the rent, and you still get to put a little bit of money in your pocket afterwards, that's going to require you to have some savings or have some money. Because yes, the property may cover itself, but it doesn't always all flow at the same time. It's not like you got your rent and then the AC went out and now you have the rent money to be able to pay for the ac. You may have to pay for the AC out of your pocket and then recoup it with rents over time. Right. Like, you need to have some cash. Like, not every investor is in that boat where they can say, okay, I'm going to focus on deals that have a great equity return as long as they cover themselves and put a little bit of cash flow in my pocket. Because they may not have the cash backing to be able to float a portfolio like that. But if you're in that kind of a position, if you're in that good of a financial position, then I absolutely think this is what you should be focused on because it's going to help you become wealthier faster. The cash flow will come later.

[Brandon Turner]

Yep, exactly. My whole strategy has always been like, how do I get to the point when I want to live off my real estate, let's just call it 10 years from now, and have enough money that I could just go buy properties for cash and live off of that? I know that sounds like stupidly simplistic, but it's true. Like if you wanted $100,000 a year to live off of and you let's just assume in 10 years, cap rates are at 5%. So that means like if you bought a property for cash, you're making a 5% cash on cash return. How much money do you need to pull that off? $2 million. Right, that's. That's the answer. So my whole strategy in thinking of that is how do I get $2 million 10 years from now? And it's not through cash flow, 50 bucks a month or 100 bucks a month. It's through building equity through the things that we talk about on the show, whether it's value add, buying deep, being in the path of progress, zoning upsides where you can add additional units, doing the burr flipping. Like you can pick a ton of different ways to do it. But for me, that's ultimately the goal because if I can own enough properties totally debt free when I want to retire, that's, that's a dream. And if I choose to use leverage, which I probably would, then I can probably scale even more. But that's like to me, true financial independence is like, I want to own all this without debt eventually. And that's how, that's the simple formula to get there. How much money do you want annually? Divide that by what you think cap rates might be 5 or 6%. That's the equity goal you need to go after. Go pursue that as aggressively as you can.

[Henry Washington]

Yeah, I agree. And I think people ask this question sometimes are still thinking of getting cash flow the way you used to be able to get cash flow five years ago? Right when I got started in 2017, yes, you could go buy a rental property. You could walk into equity of 50 to $100,000 of equity and that thing would cash flow 300, $400 a door. Right. Like it. It was a different game. The properties were Cheaper. The rents were allowing you to do that. The interest rates were lower, the insurance wasn't as high. So focusing on equity, if you can, is obviously going to get you there faster than just, you know, 50 to 100 bucks a door.

[Brandon Turner]

That's a great point. It's almost like a false dichotomy, right? People are like, cash flow or appreciation? Well, cash flow is not that good right now. So building equity makes sense. And really, cash flow is fine if you have a ton of money, right? If you have $2 million to invest, I could find you cash flow all day. Put 50% out, buy it for cash, right? So, like, that's what gives you the flexibility. I'm. I'm kind of joking, but I'm being serious. Like, if you have so much cap equity that you could just go out and put 50% down, 75% down, you're going to have no problems. You will have no problems. So go figure out the way to accumulate that equity. And I know it's not simple. I'm not saying that you could just go do this with no effort. You're going to have to work for it for sure. But that, to me is the fastest path to achieving financial freedom. Even though it puts a step in your way. Right? It's not. I'm going after cash flow, and I'm going to see more and more of my living expenses covered every month with.

[Dave Meyer]

Every deal I buy.

[Brandon Turner]

That might not be true for a while, but know that having that equity makes cash flow easy to get. And so you're just waiting. You're taking one strategy, an equity building strategy to start, and then you deleverage, which means you use less debt. And in the future, when you deleverage, you're just going to be able to find a lot easier cash flow. And on top of that, you'll probably be able to buy nicer properties with less headache and get cash flow at the same time. If you pursue that equity first.

[Henry Washington]

Boom.

[Brandon Turner]

Done. Answered.

[Dave Meyer]

All right, last question of the day.

[Brandon Turner]

Comes from Kelly, who's wondering about new construction rentals versus older properties. She says, for property managers and landlords, have you noticed a big difference between managing new builds versus older inventory? So some investors I know are shifting towards new construction because of fewer maintenance headaches and stronger tenant demand. Would love to hear what you're seeing.

[Dave Meyer]

This is perfect.

[Brandon Turner]

I just did a whole on the market episode about this, but I'll ask you first, Henry.

[Henry Washington]

In my portfolio right now, I have two new construction homes that I've owned for going on Three years now. And I have other assets that I've bought since I bought those new construction homes that are not brand new construction. And I can tell you that I have never once gotten a work order for anything repair or maintenance wise on my new construction homes. But I have gotten requests on properties I bought after I bought those new construction homes that are older than this new construction home for sure. So yeah, managing new construction is easier.

[Brandon Turner]

To me this is, this is a no brainer. The newer the property generally speaking, or the more recently it's been renovated, not only are you going to get fewer repairs and maintenance, Kelly also hit on the fact that you're going to have higher tenant demand. People are going to want to live there more. They like living in renovated places. And there is a big good reason why more investors are shifting towards new construction. It is cheaper than existing homes. Right now is on average in the United states it is $18,000 cheaper to buy new construction than it is an existing home. Now there's all sorts of stuff. If you want to hear about this in detail, check out the on the market feed. I did a whole deep dive into this because there's different markets, a lot of the markets where there's a lot of this inventory or the markets that are seeing corrections. So there's all sorts of things to consider. But all things being equal, get the newer property. Absolutely. Get the newer property. Sometimes they have warranty, they're going to have newer systems, they might have newer appliances which will probably break faster than the older ones. That is the one exception, exception to the rule. But I think this is kind of a no brainer. I've bought mostly old properties in my investing career. You get better deals on them for sure, but they're a pain in the butt and I think it just depends on where you are. Kelly, specifically asking about management. Management is always easier with a new construction. New homes that are built well up to modern code like man, so much easier.

[Henry Washington]

Yeah, I think the trade off people deal with is so like if you underwrite an older home as a rental property, you typically might see more cash flow than if you're underwriting a newer home as a rental property because the newer home is probably going to cost more and rent might not be that much different between those two houses. Let's say for all intents and purposes they're the same square footage. Right? Older home, newer home, same square footage. They're probably going to rent for the same. And so what people are saying is, well, if I take the older home, I get More cash flow. If I take the newer home, I get less cash flow. But that's when you're underwriting it.

[Brandon Turner]

When you're underwriting it wrong.

[Henry Washington]

When you look at the performance of the property, right. That older property, if it has a maintenance issue that goes beyond what you budgeted for maintenance, then that cash flow gets whittled down too much less and your newer property is probably not going to have the maintenance issue. And so I think when you're underwriting the two deals, you might see a bigger cash flow number on the older property. But we don't know if that's a cash flow number you're going to get to. I think the underwriting on a new construction deal is more dependable because the maintenance shouldn't be a big surprise. You shouldn't have the surprise things that you have on the older home.

[Brandon Turner]

I couldn't agree more. And the reason I was saying that underwriting it wrong is if you're buying an old property and you are not underwriting for a new roof or replumbing or putting a new electrical or a new hot water heater, you're underwriting it wrong. I gotta be honest with you. For the first like five or six years I worked at biggerpockets, I like kept being like, man, am I just buying the worst deals. These people are out here buying like 15, 20% cash on cash returns. Like, what am I doing wrong? And eventually just, I realized that people were just doing the math wrong on cash flow. Like everyone does. It's like 90% of the people I meet do cash flow. They're like, well, I have a 20% cash on cash return, but that doesn't include maintenance and vacancy and capex and turnover. I'm like, well, that's not cash flow. What are you talking about? That is not cash flow. And they're like, yeah, when I factor that all in, it's like break even. I'm like, so you have break even cash flow. That is break even cash flow. I'm sorry. And so when Henry and I say we'll take break even cash flow, that's what we're talking about. I'm not talking about break even cash flow. Before I factor in 70% of the expenses I have as a business operator, like, you have to do it right. Sorry, this makes me so bad. But I think your point is, right, that like, if you underwrite it correctly, the numbers on new construction are much more competitive because you're not going to have the same amount. Yeah, I'll budget for a new roof. But I'm going to budget for 20 years from now, 25 years from now, because I'll probably have a warranty for at least 10 of those years. Like, that's why you have to get good at underwriting, because these sound like subtle differences, but they're not. This is like the difference between buying the right deal and buying the wrong deal. That means you're not going to like as many deals. That's okay. You're going to need to underwrite more deals. That's okay. But please, just do it right. Please. Okay, now I'm tired from all that yelling.

[Henry Washington]

Well, it's hard to breathe up there on your soapbox.

[Brandon Turner]

There's not much oxygen up here, man. All right. Well, this was a lot of fun. Thanks for coming, man. We appreciate it. Thank you so much for listening. We'll see you next time.

[Dave Meyer]

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[Brandon Turner]

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[Dave Meyer]

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[Brandon Turner]

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[Dave Meyer]

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