Savvy Nickel
by Brandon Turner
Brandon Turner's comprehensive guide to building wealth through rental properties. From analyzing deals and securing financing to managing tenants and scaling a portfolio, this is the most practical and complete rental property investing guide available.
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Brandon Turner is a co-founder of BiggerPockets, the largest real estate investing community in the United States. His book on rental property investing is the most comprehensive, practical, and actionable guide to building a rental portfolio available for beginners and intermediate investors. It covers the full spectrum from market analysis and deal evaluation through financing, property management, and scaling — with honest treatment of both the opportunities and the pitfalls.
| Attribute | Details |
|---|---|
| Title | The Book on Rental Property Investing |
| Author | Brandon Turner |
| Publisher | BiggerPockets Publishing |
| Published | 2015 |
| Pages | 370 |
| Reading Level | Beginner to Intermediate |
| Amazon Rating | 4.7/5 stars |
Paperback: Buy on Amazon
Kindle: Buy on Amazon
Brandon Turner is a co-founder and vice president of growth at BiggerPockets. He personally owns and manages over 400 units of rental property, primarily in the Pacific Northwest. He has hosted the BiggerPockets Podcast for many years and has taught more people about rental property investing than any other contemporary author.
Turner makes the case for rental real estate as a wealth-building vehicle through five sources of return:
1. Cash Flow
Monthly rent income minus all expenses (mortgage, taxes, insurance, maintenance, vacancy, management):
Monthly Cash Flow = Rent - Mortgage Payment - Taxes - Insurance
- Vacancy Reserve - Maintenance Reserve
- Capital Expenditure Reserve - Management FeesMost beginner investors calculate cash flow incorrectly by omitting reserves for vacancy, maintenance, and capital expenditures.
The correct expense ratios:
| Expense | % of Gross Rent (typical range) |
|---|---|
| Mortgage (principal + interest) | Varies by financing |
| Property taxes | 1-2% of property value annually |
| Insurance | 0.5-1% of property value annually |
| Vacancy | 5-10% of gross rent |
| Maintenance | 5-10% of gross rent |
| Capital expenditures (roof, HVAC, etc.) | 5-10% of gross rent |
| Property management (if used) | 8-12% of gross rent |
The 50% Rule (quick estimate):
Turner introduces a rough screening heuristic: assume operating expenses (excluding mortgage) will equal approximately 50% of gross rent. If the remaining 50% minus the mortgage payment is positive, investigate further.
Example:
| Item | Amount |
|---|---|
| Monthly rent | $1,500 |
| Operating expenses (50% rule) | $750 |
| Net operating income | $750 |
| Mortgage payment (30yr, 6.5%, 20% down on $200K) | $1,011 |
| Monthly cash flow | -$261 (negative — do not buy) |
At these assumptions, the property cash-flows negative. Turner's guidance: in most markets, positive cash flow requires either a below-market purchase price, a significant down payment, or a price-to-rent ratio that favors renting.
2. Appreciation
Real estate values typically increase over time. Over the past 50 years, U.S. residential real estate has appreciated at approximately 3-5% annually nationally, though with enormous geographic variation.
Turner distinguishes:
| Type | Description | Reliability |
|---|---|---|
| Natural appreciation | Market-driven price increases | Unpredictable; not a business plan |
| Forced appreciation | Value-add through improvements | Controllable; can be planned |
Investors who rely on appreciation (buying cash-flow-negative properties hoping to sell at higher prices) are speculating. Those who buy for cash flow are building a business.
3. Loan Paydown
Each mortgage payment reduces the principal balance. The tenant's rent effectively pays down the mortgage over time, building equity without additional investment from the owner.
Amortization equity buildup:
| Year | Starting Balance | Principal Paid | Ending Balance | Equity Built |
|---|---|---|---|---|
| 1 | $160,000 | $2,600 | $157,400 | $2,600 |
| 5 | $148,600 | $2,900 | $145,700 | $14,300 |
| 10 | $134,500 | $3,600 | $130,900 | $29,100 |
| 30 | $0 | $160,000 (total) | $0 | $160,000 |
Assuming the property was purchased at $200,000 with 20% down ($40,000), after 30 years of loan paydown, the owner has built $160,000 in equity purely from the tenant paying down the mortgage.
4. Tax Benefits
Rental income is taxed at ordinary income rates, but several deductions reduce the taxable amount:
| Deduction | Description |
|---|---|
| Mortgage interest | Interest portion of mortgage payment |
| Depreciation | IRS allows depreciation of residential property over 27.5 years |
| Property taxes | Deductible as business expense |
| Insurance | Deductible as business expense |
| Repairs and maintenance | Deductible immediately |
| Professional services | Property management, legal, accounting |
The depreciation shield:
A $200,000 property (excluding land value, typically 20-30% of purchase price) depreciates at:
Annual depreciation = $160,000 / 27.5 years = $5,818/yearThis $5,818 annual deduction can offset rental income — or in some cases, other income (consult a tax professional; passive activity loss rules apply).
5. Inflation Hedge
Long-term leases typically allow annual rent increases; mortgage payments remain fixed. As inflation drives operating costs and rental rates higher, fixed-rate mortgage holders benefit because their debt service cost stays constant while revenues rise.
Turner's analytical framework:
Cap Rate = Net Operating Income / Property ValueThe cap rate is the yield on a property if purchased with all cash (no mortgage). It allows comparison of properties regardless of financing:
Net Operating Income (NOI):
NOI = Gross Rental Income × (1 - Vacancy Rate) - Operating ExpensesCap rate benchmarks (vary significantly by market):
| Market Type | Typical Cap Rate |
|---|---|
| Expensive coastal cities (NYC, SF, LA) | 3-5% |
| Mid-size cities | 5-7% |
| Secondary markets | 6-9% |
| Small towns, rural areas | 8-12%+ |
Higher cap rates offer better cash-on-cash returns but typically come with higher risk (less liquid markets, more price volatility, potentially declining populations).
Cash-on-Cash Return = Annual Pre-Tax Cash Flow / Total Cash InvestedThis measures the return on actual cash invested (down payment plus closing costs):
Example:
| Item | Amount |
|---|---|
| Purchase price | $150,000 |
| Down payment (20%) | $30,000 |
| Closing costs | $3,000 |
| Repairs needed | $5,000 |
| Total cash invested | $38,000 |
| Monthly rent | $1,400 |
| Monthly operating expenses | $700 |
| Monthly mortgage (30yr, 6%) | $720 |
| Monthly cash flow | -$20 (barely negative) |
Cash-on-cash return: -$240 / $38,000 = -0.6% (very poor deal)
Turner's target: 8-12% cash-on-cash return minimum for a property to be worth investing in.
A quick screening tool:
GRM = Purchase Price / Annual Gross RentLower GRM is better (paying less per dollar of rent). GRM of 8-10x is attractive in most markets; above 15x often indicates cash-flow-negative investment.
Turner's deal-finding strategies ranked by effort and reliability:
| Strategy | Description | Competition Level |
|---|---|---|
| MLS listings | Standard real estate listings | Very high |
| Direct mail to owners | Letters to absentee landlords, probate, etc. | Medium |
| Driving for dollars | Finding distressed properties by observation | Low |
| Networking with wholesalers | Buying contracts from wholesalers | Medium |
| Foreclosure auctions | Bidding at courthouse steps | High; specialized knowledge needed |
| Off-market through agents | Agents with motivated sellers | Medium |
The best deals are not on Zillow. Properties listed on the MLS are already priced to reflect what the market is willing to pay. Below-market deals typically come through relationships, direct outreach, or finding properties that need work others are not willing to provide.
| Loan Type | Typical Terms | Best For |
|---|---|---|
| Conventional (20% down) | 30yr, 6-7%; PMI avoided | Primary strategy for most investors |
| FHA (3.5% down) | 30yr; owner-occupied only | House hacking (living in one unit) |
| Hard money | 6-18 months, 10-15%; points | Flips; BRRRR strategy |
| Portfolio lender | Flexible terms; relationship-based | 5+ properties when conventional limits apply |
| Seller financing | Negotiated; any terms agreed | Motivated sellers; creative deals |
| Private money | Negotiated; from private individuals | Flexible; relationship-dependent |
Turner popularized the BRRRR method (Buy, Rehab, Rent, Refinance, Repeat):
The steps:
The math:
| Step | Numbers |
|---|---|
| Purchase price (distressed) | $80,000 |
| Rehab cost | $20,000 |
| Total invested | $100,000 |
| After-repair value (ARV) | $150,000 |
| Refinance at 75% LTV | $112,500 |
| Cash returned | $112,500 - $100,000 = $12,500 cash-out |
If executed well, BRRRR allows investors to recycle capital — getting most or all of their cash back while retaining the asset and its cash flow. This dramatically accelerates portfolio growth compared to buying and holding with cash.
BRRRR risks:
Turner advocates for professional property management for most investors (despite the 8-12% cost):
The case for professional management:
The case for self-management:
Turner's tenant screening criteria:
| Criterion | Standard |
|---|---|
| Income | 3x monthly rent minimum |
| Credit score | 650+ minimum (varies by market) |
| Rental history | No evictions in past 5 years |
| Criminal history | Depends on state law; material felonies |
| References | Verify with previous landlords directly |
Fair Housing laws prohibit discrimination based on race, color, religion, sex, national origin, disability, and familial status. Tenant screening criteria must be applied consistently to all applicants.
The essential real estate team:
| Team Member | Role |
|---|---|
| Real estate agent | Finding deals, market knowledge, comps |
| Property manager | Day-to-day management (if not self-managing) |
| Contractor | Reliable, priced right, quality work |
| Lender/broker | Multiple financing options |
| CPA specializing in real estate | Tax optimization |
| Real estate attorney | Contracts, evictions, LLC structure |
| Insurance agent | Landlord policies, umbrella coverage |
Building reliable relationships with each team member is often the most time-consuming part of building a rental portfolio — but it creates the infrastructure that makes scaling possible.
Q: Is rental property still viable with today's (2024) interest rates?
A: Higher rates (6-7%) have compressed cash flow significantly compared to the 2015-2021 period. In most expensive markets, cash-positive deals are difficult to find. Strategies that work include: larger down payments, markets with higher cap rates, house hacking, value-add deals via BRRRR. Rental property remains a viable strategy but requires more selectivity than in low-rate environments.
Q: Do I need an LLC?
A: Consult a real estate attorney in your state. LLCs provide liability protection but have costs (formation, annual fees) and may complicate financing (most conventional lenders won't lend to LLCs). Many beginning investors start personally and transition to LLCs as their portfolio grows. An umbrella insurance policy provides liability protection at lower cost and complexity for small portfolios.
Rating: 4.7/5
The Book on Rental Property Investing is the most complete rental real estate guide available. Its deal analysis framework, BRRRR strategy, and team-building guidance are comprehensive and practical. Essential reading for anyone considering building a rental portfolio.
Paperback: Buy on Amazon
Kindle: Buy on Amazon
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