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How Many Rental Properties Do You Need to Retire Early?


What a great question, Passive Income MD. How many doors should one have in a rental property portfolio in order to have enough passive (or somewhat passive depending on how you do it) to provide for all of your retirement needs?

Now that I have enough money to call myself financially independent and then some, I’ve thought more about diversification.

It would be nice to have some income-producing assets that don’t rely on the stock market to further “smooth the ride” beyond what my small bond allocation does.

Thus far, I’ve mainly relied on crowdfunded real estate to do that (see my crowdfunded real estate resource page or PIMD’s top real estate crowdfunding sites), but I could see us owning rental properties in the future. In fact, we’re planning to offer part of our future home as a short-term vacation rental.

As is customary with these Saturday Selections, this post originally appeared at Passive Income MD.


How Many Rental Properties Do You Need to Retire Early?


Those of you who know me personally know that I’m a big fan of real estate investing. In fact, I think it’s one of the best ways for physicians to achieve financial freedom.

The passive income provided by such investments can continue flowing for your entire life, and in fact, the best investments can actually be generational–extending well beyond your own lifetime. However, the biggest benefit of real estate investing is that it can start providing cash flow immediately, and you can begin replacing some of your income right away.


Is There A Foolproof Plan?


I’ll go ahead and say this at the outset: there is no perfect, magic formula for how many rental properties you need in order to retire, just like there’s no perfect, magic formula for how large your stock portfolio needs to be in order to retire.

Yes, there’s the popular 4% rule, but in no way is that a guarantee either. There are just too many factors to consider. At the end of the day, all you can do is make a well-educated guess, use real current numbers, and look at both history and statistics.

In all of this, I’m making the assumption that you have absolutely no other source of income including retirement portfolios, Social Security, and rich children to support you.


So How Many Rental Properties Do You Need?


Personally, I like to follow the acronym K.I.S.S. –Keep it Simple, Stupid. This helps me come up with a very simple, completely attainable goal.

As far as answering the question of the day – How many rental properties do you need to retire? – here’s how I go about it:

1. Figure out how much you need in retirement to cover your monthly expenses and enjoy life a little.
these would command considerable rent
2. Figure out how much monthly cash flow you get from a typical rental unit/property.
Using those two numbers, figuring out how many rental properties you need to retire is fairly simple. To do it, you’ll just need a couple formulas:
  • Monthly amount needed for retirement ÷ Cash flow per rental property = Number of rental properties you need
  • Cash flow = Income – Expenses

For our purposes, income is mainly from rent paid for by your tenants. Expenses include the mortgage, interest, taxes, maintenance, vacancy, and a whole host of other things.


An Example of Retiring with Rental Income


With all that in mind, let’s use an example. Imagine there’s a man looking to find out how many rental properties he needs in order to retire. We’ll call him Ronald Drump. In order to Make Retirement Great Again, he needs $8,000 per month to safely retire and have everything covered.

He’s been buying up a few rental properties and notices that he averages $200 per month in cash flow per rental unit. How many properties, then, does he need to retire? ($200/unit is a very doable and conservative amount. I tend to see closer to $300/unit in my own portfolio.)


$8,000 ÷ $200 (per rental unit) = 40 units


There you have it: a nice, concrete number to shoot for. If you buy a 10-unit building that provides $200/unit in cash flow, that’s $2000 for the building. You only need three more similar buildings to reach your $8,000 goal. Passive income now covers all of your expenses.

Now, I know what some of you smart folks are thinking. You’re thinking that this is ridiculously simplistic –- and you’re right. I didn’t mention anything about rent increases, leverage, tax benefits, increasing expenses, etc.

But I can assure you that if you follow the rough formula and do end up with something like 40 units under your belt, you’ll have done something right. You’ll be very close to (or more likely way past) where you need to be to retire, and like our hypothetical Mr. Drump, you’ll be well on your way to Making Retirement Great Again.


[PoF: If you like this idea of retiring with rental income, see Coach Carson’s article on the same topic for further reading.]


I've got my 2 acres of non-leveraged, crop-producing, cashflowing farmland via AcreTrader. Get yours.


Easy? Agree or not? Have your own thoughts, let me know…

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12 thoughts on “How Many Rental Properties Do You Need to Retire Early?”

  1. In my point of view, its not the quantity but the quality of the rental property should be taken into consideration while purchasing them. Buying rental property is considered as one of the best ways to make effortless money and many considered it as the best choice to get early retirement. However, certain important factors should be taken into consideration while investing in rental property. The quality and location of the rental property play a detrimental role in these kinds of investments.

  2. Subscribe to get more great content like this, an awesome spreadsheet, and more!
  3. Zestimate 4.3M of real estate in 24 SFH located in mid-west. Gross rent with vacancies: 400k. 15 yr mortgage (4.5-5.5%) on 23 of them – 210k. Insurance – 15k. Property Tax – 70k. CC used for all expenses – 80k last year. Cash flow 2018: $25k. Self-managed.

  4. From my point of view, I will ask my husband to retire early once we have at least 2 residential properties. And that would comprise our home and a vacation house near the beach. At the moment, we are still working on our finances to be able to achieve that goal.

  5. My personal experience is that owning, improving and managing rental properties is not consistent with the concept of retirement; however, I am very hands on because I am not retired yet. For example, I managed a large scale capital improvement project, which required working with contractors and subs and took a lot of my time. Every tenant turnover requires managing a cleaning crew, carpet crew, paint crew, marketing/listing, showings, tons of random calls and emails from prospective tenants, background checks, etc. There are regular services that I provide as the landlord that have to be managed. Then, there are calls and emails on the weekend and other inopportune times. When I retire, I plan to sell the investment property and likely 1031 into something that is managed by a third party. I suppose a RE portfolio could be a very good part of one’s retirement, but in that case, I imagine it would be through ownership in real estate funds rather than direct ownership and management of rental properties. Also, for context, I live in a desirable location where my duplex grosses ~ $5,000 per month and cash flows (after mortgage, taxes, insurance and other expenses) ~$2,500.

  6. This is exactly why I am happy I have gotten into real estate.

    I didn’t want to dip my toes into real estate because I had bad experience with the 2 condos I had owned (and subsequently lost in the divorce). The money was not worth the hassle.

    So I turned to passive real estate ventures. Sure I lose some money to the middleman but for me the tradeoff is worth it. The money is truly passive/mailbox money and I like knowing I have a base income floor for the future

  7. I like real estate and my properties are managed using a managemen company. The longer I hold the property, the more I become frustrated with the property mismanagement company. Sending same tradesmen for same job 3 out of 4 months and always billing back to me, arguing when you question. Tenants claim plumbing problem, receipt says clogged toilet, and they don’t bill the tenant.

    With that said, I prefer short term flip and construction lending. I can get 13 to 16% cash on cash without near the hassle.

    • Joe– short term flipping is treated as ORDINARY INCOME… hence you get profits taxed at what could be 40% vs passive income on longterm rentals are PASSIVE INCOME hence much more tax advantaged… esp when you consider depreciation where it will offset paper gains… making it much sweeter over time.

      I have fractional interests in over 550 doors at the moment and a rental house that has significant equity that I will hopefully turn into another MFR building… passive income, esp via MFR route has great benefits and to me seems much better than many other RE options.

  8. The math may be a little different per geography and real estate type. I like rules of thumbs though too – like you PIMD. I remember telling my wife that with 10 houses producing $500 in net income we would have $5K per month. That is a nice base of income to supplement the other streams. We don’t just have SFH though and a medical office building has done well too. Depending on the properties it may be 5 (like Cory and his Wise Wife) or 10 – 12 properties. The point is it doesn’t need to be 80 – 100 properties or anything unmanageable.

  9. When I got up to 64 units (5 apartment buildings) my wife put her foot down and said “stop buying more property.” She had projected out that in a few years, with debt pay down and rent increases, that this number of units would cover all our retirement needs.

    I bought them over 6 years. At about 12 years from the first purchase, the property covered our retirement needs and the cash flow continues to grow from there. There is a time to say “enough.” Figure that out for your situation.

    Dr. Cory S. Fawcett
    Prescription for Financial Success

  10. I began acquiring properties late in life (32) & it was during the 18-19% Int Rate years.
    Never looked back, but spent a LOT of time & skin rehabbing the properties I could afford & drove old vehicles that cramped my social life. Retired at 49 (1998) & continued to acquire then sell, often holding them as (high interest) notes for the investor/buyers.
    My Eng colleagues told me I was crazy yet most are still working to afford their own retirement.
    With my very understanding wife we have >50 properties (all free & clear). We have multi-plexes, mixed use commercial & quality SFH. We have rehabbed the majority ourselves. Several of our tenants have been with us for 8-14 years. When I interviewed for a full time maintenance guy I could not believe the number of 55+ guys who have nothing but debt, a few tools & a barely functional vehicle.


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