Wasn’t that a great little ride?
Started With Two Nomad Properties in Scenario 1
We began by talking about what happens if you bought two Nomad properties—one rental and one to live in.
In that first scenario, I explained our assumptions about your paycheck and living expenses and how we modeled it that you earned $5,000 per month total for your household. I make an implausible—if not impossible—assumption; I assumed you never got a raise over 40 years. You and your spouse started off earning $15 per hour working 40 hours per week or $10 per hour working two jobs for a total of 60 hours a week and that for the entire 40 years of the model, you continued to earn that same amount.
I also assumed that in that first scenario your personal expenses remained the same for the entire 40 years. Your cost for food, clothing, etc remained fixed for the entire 40 year period. Again, this is not likely but so is not getting a raise. I did assume that you spent every dime you earned from your fixed paycheck (after paying income taxes) on your personal expenses so you were not saving anything at all.
What did change during the 40 year period though is your housing expenses. Property taxes and property insurance on the properties you owned did go up as the property value increased. This caused you to dip into savings to pay this increase in housing expenses because you were not making enough from your fixed paycheck to be able to afford these increases.
I had you start with $40,000 in savings. It turns out this was more than enough in the first scenario for the down payment on your first purchase with 3% down payment as well as the down payment of 3% for your second property when you converted the first to a rental.
Plus, since your first rental had negative cash flow, you had enough in savings to handle negative cash flow until rents increased and your cash flow improved and became positive. Eventually, after several years, your rental property started to replenish your savings and make it grow rather than draw it down.
We further assumed that you kept your savings in the stock market and could, somehow magically, get a consistent 8% per year from your stock market investments. I think this is optimistic based on historical data, but we used it on all 5 scenarios. I plan to write new content in the future that will show how assuming different interest rates for the stock market return in similar scenarios impacts the actual results. So, if you’re interested in that look for that new content.
Gave You Raises in Scenario 2
In our second scenario, I kept many things the same, but changed a few things to show how those changes made a difference in our model.
What stayed the same? We still purchased only two Nomad properties: one rental and one to live in. Same properties, same down payment, same loans, same rents and tenants. We also started with the same $40,000 in savings earning 8% in the stock market.
What changed in this scenario though is related to our paycheck and saving money. In the second scenario, instead of assuming you did not receive raises for 40 years, I assumed instead, that you earned a 3% per year raise to your paycheck. However, I also assumed that your personal expenses like the money for food, utilities, and clothing increased by 3% each year as well. Another assumption that changed for this scenario is that I assumed you were saving $160 per month from your paycheck in month 2. As your income goes up by 3% and your personal expenses go up by 3%, the amount you end up saving increases by 3% as well.
Saving that money monthly and investing it in the stock market makes a huge difference in your numbers, so it is very likely worth doing.
One other thing that changed in scenario 2 is the amount of money we started with. Instead of starting with $40,000 we started with $10,000. We did not have enough money for a 3% down payment to buy the second property in month 13. We had to wait until we saved enough money for a 3% down payment plus a little more than $5,000 in cash reserves. I say a little more than $5,000 because we want to save $5,000 in today’s dollars in cash reserves, but we figure out what $5,000 is adjusting for inflation and use that number.
Added a Third Nomad Property In Scenarios 3 and 4
For scenarios 3 and 4, I essentially copied what I did for scenarios 1 and 2 except instead of just buying two Nomad properties we bought 3 Nomad properties. That means two rental properties and the property we lived in.
In scenario 3 we discovered that the $40,000 we started with wasn’t quite enough to deal with the increase in expenses, negative cash flow and down payments we required if we were not getting raises. That meant we needed to add additional money to the model to do it.
However, in scenario 4 I showed you how to do the entire model starting with $10,000 by just delaying purchases of new properties until you have enough money to handle those increased expenses.
As you probably expected, buying three Nomad properties tends to be better than buying two Nomad properties. However, it appears as though saving money from your paycheck makes a huge difference as well as we could see in the results from scenarios 2 and 4 where we did save money from our paycheck and invest them in the stock market at the optimistic 8%.
We Unleashed the Full, Unbridled Power of Nomad in Scenario 5
Fabulous secret powers were revealed to us the day we held aloft our magic sword and said… by the power of Greyskull… sorry, wrong story… the secret powers were revealed when we showed what doing the full Nomad model of buying 11 Nomad properties looked like in scenario 5.
In that scenario, we started with $10,000 and as we saved enough from our paycheck to buy another property plus about $5,000 in cash reserves, we bought another Nomad property. Our first few required 3% down payment. Additional properties required 5% down payment.
Turns out, that’s a pretty darn good model for acquiring 10 rentals.
Checklists for Tenant Turn-Over and Emergencies
To round out the book, I did share with you some of the resources we have when you need to move a tenant out of your property and, additionally, how to not be a jerk and leave your loved ones the info and tools they need to handle your business should something unexpected happen to you.
We have both checklists and classes on those topics for you to assist you.
Speaking of checklists and classes… you might have guessed (and you’d be correct in guessing such things) that these are not the only classes, checklists, or scenarios we’ve ever created.
In fact, since 2003 I’ve been teaching real estate investing classes for my local real estate brokerage clients in Fort Collins, CO. If you are in Northern Colorado and looking for a real estate broker to help you buy or sell a home, I’d encourage you to attend a few of our real estate investor classes and see if you think I’d be an amazing real estate broker that could help you buy or sell a home. If you happen to live in another city and want me to recommend a real estate broker near you to assist you, you can reach out to me about that as well.
In the last couple years we started to record the real estate investor classes and publish them on both the LearnToBeRich.com website and my brokerage website, JamesOrr.com. Here are links to the pages that have the classes published… all but a few exceptions are free and available to the public. We do keep a small number locked down for paying clients only.
I tend to publish some of the results from scenarios where I test a very large range of real estate investing models and variables on the LearnToBeRich.com blog and also in books you can purchase on Amazon. However, the chance of me modeling your exact, unique, specific situation as a scenario using the Nomad Calculator 3 is extremely unlikely, but I have good news for you.
You can enter in your own properties and run what-if scenarios on your own exact, unique, specific situation yourself using the Nomad Calculator 3 here:
And finally, in a previous life, my wife Tammy and I operated nuclear reactors in the United States Navy. When you operate a nuclear reactor you don’t do anything without a checklist. So, when we came to the real estate world, we looked around for the checklists for doing this business. I was shocked when I could not find them, so we started to create our own. The latest result of my checklists are in the form of the Ultimate Nomad Checklists which you can access on the LearnToBeRich.com website here:
To stay abreast of the newest downloads and goodies I release, I’d encourage you to subscribe to our mailing list and the 100+ episode and growing podcast:
Well… that’s all I got for you for now… I hope you’ve enjoyed our little journey together discussing Your Third Nomad Property.
- Your Third Nomad Property
- Just Keeping Two Nomad Properties
- Just Two Nomad Properties with Inflation Adjusted Wages and Expenses
- Buying a Third Nomad Property
- Buying Three Nomad Properties with Inflation Adjusted Wages and Expenses
- Full Nomad Instead of Just 3 Nomad Properties
- Preparing For Tenant Turn-Over
- Preparing For Emergencies
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