We have just gone over 4 scenarios. Two scenarios where you stopped doing the Nomad investing strategy after you acquired a single rental property (plus a property for you to live in). One model where you got inflation based raises and saved money from your paycheck each month and one where you did not. Then, we showed you what it looked like if you did Nomad just one more time and acquired two rental properties (and a property for you to live in). Again, we compared starting with $40,000 with no inflation based raises where you did not save any money monthly to starting with $10,000 but where you got inflation based raises to your paycheck and saved money each month from your paycheck.
Now, we are going to remind you what probably excited you about the Nomad investing model to begin with: doing a full Nomad model where you acquire 10 rental properties (plus one to live in).
In this model, we will assume you are starting with just $10,000 in your stock market brokerage account and that you are earning 8% per year from your stock investments. For the first 3 houses, it will look just like our last scenario where we stopped at 3 Nomad properties. But, in this scenario we will continue to purchase properties as an owner-occupant, move in, live there for a year and then convert the property to a rental when we buy our next Nomad property to move into.
Financing Full Nomad
For the first 3 properties you buy as a Nomad you can usually purchase them with 3% down payment. After your third property, you will need to start putting 5% down as your down payment for additional properties that you are moving into as an owner-occupant.
Here is a chart showing the percent down payment required for each purchase (and when the purchase happens).
Speed of Acquisition
Starting with $10,000 you have enough to purchase your first property and move into it the very first month. After that, we are assuming you need to save up enough for the down payment (whether that’s 3% or 5% of the purchase price) plus, in addition to the down payment, we also assume that you want to have $5,000 in cash reserves before you buy your next property. We will also adjust that $5,000 in cash reserves for inflation. So, the cash reserve threshold will increase over time and we will need to have larger amounts saved in the stock market to be able to buy additional properties.
Based on these acquisition rules, the following chart shows when we acquire each of the properties.
We end up buying our last property, our 11th Nomad property that we will ultimately stay in for the rest of the time, in month 275.
I will point out that it takes some time to buy the second and third Nomad properties, but with each additional purchase our rate of saving increases until eventually we are just waiting the 12 months required by the lender to live in the property as an owner-occupant before we purchase the next one.
If you want to see the previous 4 scenarios and how our acquisitions for full Nomad compare, here is a chart showing the number and speed of acquisition for those all on the same chart.
Stock Market Account Balance
Our stock market account balance looks like saw teeth… we save money for the next down payment (and cash reserves) and the account balance rises. We buy another house and the balance drops. We repeat for each of the 11 Nomad properties.
Here’s a chart showing the first 300 months of this scenario and this saw teeth looking chart.
After our last purchase the stock market account balance continues to grow as we deposit money saved from our paycheck, cash flow and the returns from the money invested in that account from the stock market. Here’s the same chart above except now I am showing you the full 40 years, 480 months.
You can barely see the saw teeth anymore since the total stock market account balance grows from the tens of thousands to the millions.
If we compare the two scenarios where we started with $40,000 and are not getting inflation based raises or saving money from your paycheck, you can see that those two scenarios rely on you withdrawing money from your account balances to support your properties. Here’s a chart showing the first 300 months of the total account balances for those 3 scenarios.
If we compare the two scenarios most like this scenario where we start with $10,000 but you do get inflation based raises and save money from your paycheck, you can see that your stock market account balance starts to grow earlier if you stop buying additional Nomad properties. Here’s a chart showing the total account balances of the first 300 months of those 3 related scenarios.
But that’s not the whole story. If we look at the full 480 months, you can see that the full Nomad scenario’s account balances are growing faster and overtakes the 2 Nomad property scenario before 480 months and will overtake the 3 Nomad property scenario shortly after month 480. Here’s the same chart as above except showing the full 480 months.
Want to compare all 5 scenarios on the same chart for the full 480 months? Here’s that chart.
And here’s the chart summarizing the account balances just in month 480 for all 5 scenarios.
With 10 rental properties you might expect significantly improved cash flow and you would be right. Even though we have negative cash flow for each property when we acquire it, over time the rent goes up and our mortgage on the property does not. That means that our cash flow improves even though the property taxes and property insurance are going up. Here’s a chart showing the True Cash Flow™ which includes cash flow from the tax benefit of depreciation and capital expenses for your rental portfolio for the first 180 months.
We do have negative cash flow, on and off, for the first 100 or so months. Eventually, we have enough positive cash flow from the rentals we’ve owned to even prevent us from having negative overall cash flow with new acquisitions. In other words, the properties with positive cash flow will support the new acquisitions with negative cash flow until they too have positive cash flow.
Over time the cash flow improves. By the time you get to month 480, you are seeing cash flow of about $23,000 per month as shown in the chart below.
How does this compare to the cash flow from the other scenarios? Let’s compare them all on the same chart.
As you can see in the chart above, the cash flows from the 2 scenarios where we have 2 Nomad properties (1 rental) are grouped together as are the 2 scenarios where we have 3 Nomad properties (2 rentals). The outlier, and clear winner, is the full Nomad scenario with 11 Nomad properties (10 rentals). This makes sense… the more rentals you have the more cash flow you’d expect to have.
Here’s a quick comparison of monthly cash flow in month 480 for all 5 scenarios.
Net worth considers total account balances and equity in properties. So, we’d expect to see the full Nomad scenario with 11 properties have a very high net worth compared to the other scenarios and you’d be right. Here’s a comparison showing the net worth of all 5 scenarios over the entire 40 year period.
And here is the net worth summary for month 480 for all 5 scenarios.
Stop Moving In
The biggest complaint I get with the Nomad model is having to move into the properties. Instead of moving in you could opt to save a full 20% down payment and not move into the properties. By putting 20% down payments into each property you eliminate the built-in 12 month delay you’d get from buying a house as an owner occupant, but many investors will not be able to save a full 20% down payment faster than a year.
- 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
- Preparing For Tenant Turn-Over
- Preparing For Emergencies
- Conclusion for Your Third Nomad Property
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