I owned 130 houses. Today I own about 19.
In 2021 I owned 130 single-family rentals, and I was trying to get to 1,000. Today I own about 19, and those are on the way to zero. I traded the rest through 1031 exchanges into a Starbucks, a Denny's, a cell tower site with AT&T as a tenant, natural gas royalties and 63 units in northern Arizona.
I don't regret owning the houses. They were a great starting point, and I will still buy one when the numbers work. What changed is that I finally ran the math on every house I owned.
Return on equity is the number that decides it
Most rental owners know their cash on cash return. You put $40,000 down, the house nets $5,000 a year, and you are getting 12.5%. That tells you how the money you put in is doing. It says nothing about the money sitting in the house today.
Return on equity is easier to figure. Take the net income for the year and divide it by the equity in the property today, which is the money trapped inside it.
Appreciation is what crushes this number. Phoenix home values went up 224% from 2011 to 2022, and since 2021 rents have only gone up 31%. The equity balloons, the income lags behind, and the return on that equity shrinks every year you hold.
“Return on equity tells you how lazy your money is.”
What the math looked like on my own houses
Here are three houses from my portfolio, with the numbers I walked through on the show.
| House | Bought | Worth today | Nets per year | Return on equity |
|---|---|---|---|---|
| North Phoenix | $116,000 in 2012 | About $435,000 | $22,000 | 5.1% |
| San Tan Valley | $159,000 in 2016 | $364,000 | $6,700 | 1.8% |
| Tucson | $132,000 in 2019 | $276,000 | $9,300 | 3.4% |
The North Phoenix house is my best one, and it earns 5.1% on its equity. The San Tan Valley house is owned free and clear and earns 1.8%. I would make more money holding Treasury bills than I make on that home today, and I wouldn't have to manage a tenant.
On another episode I ran the same test on a $440,000 Phoenix rental with almost $250,000 of equity that cash flowed about $500 a month when nothing broke. That's a 2.4% return on trapped equity, while a Treasury bill paid nearly 4% for doing nothing.
When I keep a house
Some houses pass the test. I bought one in Sierra Vista for $80,000 in 2019. In 2022 I refinanced it at 3.5%, fixed for 30 years, and took the money out. Very little lazy equity sits in it and it's performing well, so I'm probably keeping it.
Katelyn Mitchell, who co-hosts the show, ran this test with a young couple who owned three rentals. Two had lazy equity, so they chose to sell those two and move the money with a 1031 exchange. The third had a cash-out refinance at 3% and was working, so they kept it. She opened that call with a line we use a lot: every day you keep an asset, you are choosing to buy it again at today's value.
“I'm not telling every one of our listeners today that your single family rentals are crap. What I'm saying is until you know the math, the return on equity, your actual returns... you can't make the decision that you want to keep them”
What I traded into
Every house is its own management unit, with its own roof, water heater, HVAC, tenant, lease and insurance bill. Twenty houses is 20 management units, and they just stack up. My coach Gary Keller showed me that idea in his book The Millionaire Real Estate Investor.
My first big exchange put three rentals into a Starbucks building. One was a Sedona house that sold for about $1.1 million and would rent long term for about $3,500 a month, an awful return on that much equity. I paid $1.95 million for the Starbucks at almost an 8 cap. With a second tenant it nets about $151,000 a year, the lease is triple net, and Starbucks has options to stay until 2048. When the property tax bill jumped, it wasn't my problem.
Next I sold the weakest 21 of my 45 Huntsville houses in bulk to one investor and bought a $2.5 million property with an AT&T cell tower, a billboard and another national credit tenant. I went from 21 roofs to zero, and my cash flow nearly doubled. Nine more houses went into a Denny's near Casa Grande that nets $160,000 a year, rising to $175,000 in 2029. Ten went into 63 units in northern Arizona that make over $500,000 a year, a 12.7% yield on cost. All told, I took 50 to 80 management units out of my life and replaced them with five.
If you sell, buy first
Not every exchange I tried closed, and every one that failed was a forward exchange. When you sell first, you get 45 days to name what you will buy and 180 days to close. Getting a commercial deal signed and through due diligence in 45 days is really hard. In a reverse exchange you buy first, then you have 45 days to name what you will sell. That part is easy, because it's the stuff you already own. Talk to your CPA and a qualified intermediary early, since there are many kinds of exchanges and the rules are strict.
Start with your own list. For every house, write down what it's worth, what you owe and what it nets after real expenses. Our rental tracker locks in property management, even if you manage it yourself, and one month of vacancy. I moved repairs up to one and a half months of rent, because the old rule of one month doesn't work today. Then sort by return on equity and look at the bottom of the list first.
The numbers on this page are Brett's own results and individual examples from specific deals at specific times. They are not typical and not a promise of what you will earn. This page is education, not financial, tax or legal advice. Talk to your own CPA, attorney and advisors before you act.