There are many approaches to investing in real estate. Investors do not have to physically own property to invest in the real estate industry, but many buy up multiple properties to rent out, generate supplemental income, or have a second residence for them and their families.

One idea that tends to float around is buying one rental property each year to retire early. The theory is that in a handful of years, you will be able to retire early and enjoy a generous amount of cash flow each month from tenants. That cash flow can be used to pay off mortgages, buy a new property, or supplement income. But will this idea work for you and your investment portfolio?

Real estate investments require a lot of money up front and consistent involvement, but promise great returns as the property appreciates in value and continues to generate cash flow. Consider all of the factors before you put this plan in motion.

How much will you earn when you buy one rental property each year?

Let’s break down the numbers. Keep in mind that these are simply approximations; we will also review how to reach (or increase) your earnings later in this blog post.

Year One

You invest $60,000 and take out a $140,000 loan to buy a $200,000 property. Each month, you charge rent that covers the cost of the mortgage payments and puts an extra $500 in your pocket. At the end of the year, you have $6,000 in your pocket, which goes to paying off the loan.

Year Two

You invest another $60,000 and take out a $140,000 loan to buy a second $200,000 property. Now you have two properties that produce a cash flow of $1,000 after mortgage payments. At the end of the year, you have $12,000 to pay off the first mortgage. The first mortgage is down to $119,000 a year.

Year Three

With your third $200,000 property under your belt, you have $1,500 coming in each month. The $18,000 can be used toward paying off the first mortgage, and see that you only have $98,000 left to pay on this mortgage.

So on and so forth, right? While all of this is happening and you are comfortably making mortgage payments off of your properties, the value of these homes are appreciating. These calculations don’t necessarily consider the possibility of increasing rent to match competition next door – if you raise rents at the right times, you can get even more out of your rental properties.

Before you know it, you have multiple rental properties under your belt, you have thousands of dollars coming in each month, and you have investments that continue to increase in value. Sounds pretty great, right?

There are certainly a lot of advantages to buying multiple properties, especially if you consider the alternatives. When you gamble that money in the stock market, you have to play the game of choosing stocks that won’t drop in the course of a day. Real estate is always worth something – even if the value doesn’t appreciate at expected rates, you will still be able to sell and get something out of your investment. Luckily, the real estate market is generally steady.

If you play your cards right and budget appropriately before you buy, you can increase the amount of cash flow you make each month and expand your opportunities further.

How to Buy One Rental Property a Year – and Make the Most of Your Investments

There is no doubt that you have seen similar calculations with a lot of numbers. While these numbers are appealing, they don’t always reflect the reality of managing rental properties. After all, you have to play the part as landlord (or pay someone to do it.) If you can think of all the times you have had to call upon your landlord in the past, you know it has the possibility to be a demanding job.

In order to make this work, you will have to consider a few factors:

Your Initial Investment

Many investors might tap out at the idea of shelling out another $60,000 for their second year’s investment. If you have the cash up front to keep buying houses, then you won’t have any problem getting started on this process. If you don’t, you still have options.

Not all investors will need $60,000 up front. Down payments can be as little as 3% of the home’s value; but investors need to consider the cost of forking over a low down payment before they buy. The more you can put up front, the smaller your mortgage payments (including interest on your remaining mortgage) will be.

Another option is to refinance your current home with a cash-out refinance on your primary residence. A cash-out refinance can help you get a large amount of money by adjusting the terms of your loan. If you have been making mortgage payments steadily and have a good line of credit, this should be no problem.

Another option is to rent out your first home. If you are already a homeowner but want to become an investor, you can transform this house into your first rental property. This process may cut down on the time it takes to get tenants into your home and potentially increases your monthly cash flow (especially if the home is already paid off.)

Read our guide on how to rent out your first home and buy a second property.

Vacancy and Remodel Costs

It is certainly possible to make $500 each month by renting out a $200,000 property. But not every month will balance out when you consider the rent you are charging your tenants and the costs of maintaining the property.

As the landlord, you may be called to unclog the shower, fix lights, replace windows, you name it. (You may also hire someone else to do this job for you.) All of these repairs come with costs that may eat into your monthly income. Before you start charging tenants rent, lay out terms in your contract about repairs, security deposits, and who they can call if they need repairs.

The $500 each month will only come if the property is occupied. Landlords may also face costs if the property is vacant and they want to advertise their property.

Multiple Mortgages

With multiple properties come multiple mortgages. As you buy more properties, you can generate more monthly income to quickly pay off your original mortgages, but you may still face a point where you reach the generally accepted four-mortgage limit.

Here, you still have options. Investors may be able to take out a mortgage through the 5-10 Financed Properties program, but like similar programs, you will have to have a pristine record of making payments and maintaining good credit.

If you decide to buy multiple properties at once, you may be able to take out a blanket mortgage that covers these properties in a single loan. This may be a wise choice if you want to consider selling and buying new properties within a few years.

A blanket mortgage allows investors to sell a home, even if they have not paid off the mortgage, and use that money to buy another property without high fees. There is no “due on sale” clause in blanket mortgages.

Property owners can also refinance multiple mortgages and cover it with a blanket loan, giving them the ability to finance more properties as they build their portfolio.


There are advantages and setbacks to taxes on rental properties. Investors will have to claim advance rent and rental payments on their tax return. But rental properties also come with a handful of tax deductions that can make your yearly tax payment a little easier.

Rental property owners can deduct:

  • Mortgage payment interest
  • Repair costs (you cannot deduct renovation costs that aim to “improve” the property, only costs that aim to keep the property in working condition)
  • Utility payments
  • Insurance payments
  • Advertising and marketing costs

Time Investment on Rental Properties

Before you buy a rental property, consider the amount of time that you will need to get the property ready to rent and what repairs could be on the horizon. Hidden costs to get the building up to code can quickly eat into your monthly income.

If you want to sell a property and buy a new one after a few years, there is also a way to complete this transaction without heavy taxes. Taxes can threaten to eat up 40% of your real estate profits, but a 1031 exchange can eliminate capital gains tax and maximize equity. There are six different types of 1031 exchanges that allow you to sell and buy a new property, or renovate an existing property within a designated amount of time without paying capital gains tax.

Read our guide to 1031 exchanges to learn whether this would fit into your overall investment strategy.

Investors can buy rental properties as passion projects or a way to secure an early retirement, supplemental income, and an investment with the potential for great returns. Assess your current financial situation and talk to a financial advisor about whether you are ready to start buying one rental property a year.