Leverage is definitely interesting. Fortunately, our family spending is really quite low, so we cash flow ~$100k/year. We are planning to work an additional 2 years (maybe more if either we decide to, or our rentals aren't doing so hot). One of the properties will be a 1031 exchange. One has minimal capital gains/depreciation recapture. The third property, we lived in for 2 of the past 5 years, so our gains would be untaxed.
For rough numbers, after we invest everything, we would have ~1.6M in debt with ~400k in equity if things go as planned. We'd have ~$100k in 'just in case' money, which would grow to something like $200-300k at the end of our working careers 2 years from now.
Assuming maintenance and vacancy costs at 20% of gross rent (very very conservative in my area where vacancies are more like 0-1%), we would be getting something like $6-8k/month net depending on specifics of properties we buy. I have found and visited properties that meet this criteria with good rental history and financial documentation. Our expenses are around $5-6k. I expect many expenses (like having multiple vehicles, eating out, etc...) to be either eliminated or greatly reduced upon retirement. Our expenses would probably be in the ~4k range, especially if we spend extended periods in low cost of living areas. This gives us ~2-4k of buffer/additional savings. Worth noting is that I am not counting the principal portion of our mortgage payments, which would be another ~1-2k/month of 'savings'. After 2 years of 3-5% rent increases, our net income should increase significantly.
In order for our plan to fail, vacancy/maintenance would first have to chew through 20% of rent (and also not be covered whatsoever by insurance), then we'd have to chew through our budget buffer, then we'd have to chew through another 200-300k in cash. I can't think of any reasonable scenario where that would happen. The only scenarios would involve something like 50% statewide vacancy that just aren't realistic. Perhaps I'm not seeing something? How did people lose everything in the crash?
For my rental that I had during the cash, I actually raised my rents 20% and had less vacancy. Things actually improved for me during the recession as far as my rentals went... I know not all recessions are the same, but this one was actually great for rentals...
EDIT: I did a number of simulations of 'what if' scenarios. What I found is that if the property values tanked, I would be pretty insulated since I would just choose not to sell (and I am getting 30 year fixed rate mortgages for all my properties).
Inflation also was not a concern because if rents go up 5%, my net income after expenses actually goes up 10%. So yes, some of my expenses would go up by 5% (my home mortgages and rental mortgages would be fixed), but the increase in my income would more than make that up. Runaway inflation would actually be the best case scenario for me.
However, if rents started going down and we had a very prolonged deflationary period for rent, but inflation in the rest of the economy for 10+ years, then that could be a real problem. That was the only scenario I identified where I'd be in trouble. Then again, I'm no historian, but I'm not aware of anytime that has ever happened. I would have to make some tough choices, like whether I would move to a lower cost of living country, rent out rooms in my current house, or perhaps even go back to work.
Another scenario would be world war 3, but I think in that case, having to go back to a day job would be the least of my problems.
I'm actually really curious about people's take on this. I'm an engineer and I always try to think of the worst case scenarios for everything. So far, I can't think of a realistic scenario where this wouldn't work.
EDIT 2: Wow this was a long post.
