How Many Rental Properties to Make $100k?

Investing in rental properties can be a great way to generate income and build wealth. Some people use rentals for additional income, while others make it their full-time business. 

However you approach real estate, you most likely have a few financial milestones you want to achieve in the next few years. Earning $100,000 could be one such milestone.

Achieving this goal depends on several factors, including the number of properties owned, the type of properties, and the net income after expenses. CRI Properties, a leading property management company in North Carolina, will explore how many rental properties you might need to make $100,000, considering various costs and the type of income generated.

What Does $100,000 Look Like in Real Estate?

When we talk about making $100,000 from rental properties, it's important to clarify what this figure represents. It can mean different things, such as:

• Total Equity Assets: The combined market value of all properties minus any debts. This figure does not necessarily reflect your annual income from those assets. It does, however, include the additional value that accrues through appreciation, which has historically increased annually for years.

(Image by FRED Economic Data)

• Gross Income: The total revenue generated from rental properties before any expenses. This is the sum of all rental payments received from tenants.
  

• Net Income (Profit): The income left after all expenses related to the properties are paid. This includes operational costs, taxes, repairs, and mortgage payments, if applicable. (Gross income - expenses)

Which figure fits your goals most closely? If you’re saving for retirement, you might be more focused on total equity assets. If this is your main source of income, then $100k in profit might be your target.

For this article, we will focus on net income, or profit, as it represents the actual earnings an investor takes home after covering all expenses associated with their rental properties.

Considering Expenses

To accurately calculate how many rental properties are needed to make $100,000 in profit, we must first account for the various expenses that landlords typically incur:

• Taxes: Property taxes vary by location and can significantly impact your bottom line.
  

• Repairs and Maintenance: The cost of keeping properties in good condition to attract and retain tenants.
  

• Improvements: Investments in property upgrades can increase rental income potential but also add to expenses.
  

• Administration: Costs associated with property management, whether performed personally or by a management company.
  

• Vacancies: Loss of income due to unoccupied units must also be factored into the overall calculation.

Calculating the Number of Properties

Once you understand the types of expenses involved, let's consider the calculation. Assuming an average return on investment (ROI) of 10% to 15% on rental income, newer rental owners are advised to anticipate the lower end of this spectrum due to potentially slimmer margins at the start. If you’re searching “How many rental properties to make $100k,” you might be newer to the industry than other players. And that’s great! Just don’t have unrealistic expectations since overestimating ROI can quickly drain your capital. 

Here's a simplified formula to estimate how many properties you might need to reach $100,000 in profit:

• Calculate the average net annual income per property after all expenses.
  

• Divide $100,000 by the net annual income per property to get the number of properties needed.

Example Calculation

Let's say each rental property generates $20,000 in gross annual income. Assuming a conservative ROI of 10% after expenses, the net annual income per property would be $2,000 ($20,000 * 10%).

You’d then need 50 similar properties to make $100k a year. Or you’d need 50 years with a single property to reach the same financial goal.

Factors Influencing the Calculation

Of course, taxes and repairs aren’t the only factor that goes into your ROI. You’ll also have to price your rental accordingly. Here are three things to consider when competing in the rental market. 

• Type of Unit: Homes, apartments, and vacation rentals can yield different ROIs. Vacation rentals may offer higher income but can also have higher vacancy rates and operational costs.
  

• Location: Properties in high-demand areas may command higher rents and have lower vacancy rates, potentially reducing the number of properties needed to reach $100,000 in profit.
  

• Management Efficiency: Streamlining administration and upkeep can improve profit margins over time, reducing the overall number of properties required. Thankfully, CRI Properties is here to help you manage properties and keep things running smoothly. 

Come Up With a Plan to Make $100k Sustainably. It’s Not a Race.

Reaching a net income of $100,000 from rental properties is a realistic goal, but it requires careful planning and management. The number of properties needed can vary widely based on factors such as the type of rental units, their location, and the efficiency of property management practices. 

While the example provided suggests that 50 properties might be needed under certain conditions, the actual number could be significantly lower with higher-yielding properties or more efficient management.

For prospective and current rental property owners, it's crucial to perform a detailed financial analysis and consider ways to optimize the profitability of each unit. This might include improving property conditions to justify higher rents, reducing vacancy rates through better marketing and tenant retention strategies, and minimizing expenses by negotiating better rates for repairs and services.