How to Nail a Six-Figure Passive Income in Ten Years

Everyone has their own goals for the new year. Most people hope to lose weight and quit smoking, but new investors should add one more resolution to their priority list: building passive income.

Your strategy depends on your timeframe. As a new investor, you can build a six-figure passive income in 10 to 15 years, so long as you use a certain framework. Looking for a quicker approach?

Note: This article is meant as a blueprint to aid you in creating your own strategy. Always consult a real estate advisor when establishing detailed plans.

Make $100,000 a Year in 10 Years

To accomplish goals, you have to begin with the end in mind. That way, you can reverse-engineer your path.

The Setup

For this approach, it’s best to start with an investment of $160,000. Each property should bring in an average $300 cash flow a month, which totals $3,600 a year per property. At that rate, you need to buy 28 homes in 10 years, or in other words, three homes a year. This is a realistic goal.

Of course, you should make room for adjustments. Still, you should find $300/mo. a relatively safe number. Some houses may only have a $250 monthly cash flow, but others will bring in $400. And, if you know how to find the best deals,  you can purchase a B- home for under 100k.

Year One

Let’s say you need a $20,000 down payment to invest in each house. That means you can buy eight investment properties in your first year with the $160,000 initial investment we talked about above. This gives you an annual cash flow of $28,800 at the end of your first year.

Roll $20,000 of that money into another property. Save the remaining $8,800 for potential maintenance issues or investment opportunities down the road.

Year Two

Now you have nine properties and a $32,400 annual cash flow. If you decide to add that to the $8,800, you’ve accumulated over $40,000. That means you can purchase two more homes the following year.

Years Three, Four, and Five

Year Three gives you 11 properties with a cash flow of almost $40,000. If you keep investing that money, you have 13 properties in Year Four, and 15 properties in Year Five, with an annual cash flow more than $60,000. According to the 10-year timeframe we’re shooting for, you’re halfway there. If any major maintenance or tenant-related issues arise, don’t worry; you should still have enough to achieve your goal.

Years Six Through Nine

As you continue to invest your cash-flow, your property count continues to grow. Year Six brings you to 18 properties, Year Seven to 21, Year Eight to 25, and Year Nine brings you to 29. Congratulations, you’ve already met your property goal, and you haven’t even hit Year Ten yet.

Year Ten: The Results

If you stick with this general plan, you reach $108,000 a year in passive income at the end of year ten. Keep in mind, you did this without raising rent, using a 1031 exchange, or refinancing. And better yet, you paid down 10 years worth of principal on your first properties and somewhat less on the others.

If you raise the rent by $10 a door over 10 years, you receive $36,000 more per year. That is more than enough to cover inflation or other unforeseen issues. Just think, you started with just $160,000, and you paid that off within 10 years. Now you can enjoy your annual passive income.