If you just read the room mate scenario, the in-law suite scenario is very similar. The only real difference is the rate at which I get to 10 rentals. So if you haven’t read the room mate scenario yet, please read it now.
In the in-law suite scenario, the first house I buy has an in-law suite where I live. Then I rent the rest of the home out to a single family. Perhaps I rent it out for $1000/month, which fully covers the mortgage and maintenance. Perhaps my financial level is such that I would otherwise be paying $600/month in rent. But now I save that money. Round my savings down to $7,000/year.
Again, as in the room mate scenario, I save money, buy a second house, save and earn more money, and keep buying more and more houses at an accelerating pace. I estimate that purchases would be in years 0, 4, 6, 8, 10, 12, 14, 15, 16, 17. This is three years after than the room mate scenario because I began by saving $600/month rather than $450. Of course, if I threw in extra savings from my rat race day job, it would go even faster. But I wouldn’t want “all my eggs in one basket,” so I’d save most of my rat race day job excess earnings somewhere else.
With 10 houses now, I’m saving or earning $43,000/year. If along the way I bought a separate house to live in by myself, I’d only have 9 others to rent out because the mortgage limit is 10. But if later I used that income to pay one or more off, I could then get that 10th rental or even more. And if I were married as I am now, the limit is actually 20, where we each get mortgages independently from one another. Also, regarding qualifying, after I’ve done this for a few years, the mortgage company I use in real life right now let’s the rentals almost qualify themselves based on the expected rental income.
Remember… each house would have a fixed-rate 30 year mortgage. Those mortgages would get paid off in years 30, 34, 36, 38, 40, 42, 44, 45, 46, 47. When they’re paid off, they would make about $8,000/year cash flow each rather than only $4,000/year, both cases after tax. If I was 26 in year 0, then by the time I become 66, five of the mortgages would be paid off and I’d be earning about $60,000/year after tax. That’s like $90,000/year before tax. That’s a fine retirement if I didn’t retire earlier on less. And by the time I become 73, and hopefully haven’t kicked the bucket yet, all of the mortgages would be paid off and I’d be earning $80,000/year (like $120,000 before tax). (These later estimates assume I separately purchased and paid off a private house, then began renting the original house to a single family. I don’t want room mates for 50 years! So I say “earning” rather than “saving or earning”.)
Finally, by the time that income reaches $80,000/year in cash flow after-tax, I have now created “generational wealth” that I could pass on to my children or other heirs. Of course, they may have their own rentals by this time.
But what if I don’t want to live in the in-law suite, even though it has a private bathroom and kitchen? What about more private scenarios…
