Author Topic: Different Path to FIRE Through Rentals  (Read 2904 times)

smitts961

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Different Path to FIRE Through Rentals
« on: April 28, 2018, 02:51:09 PM »
Hello all,

I'm new here and relatively new to the FIRE community. My goal is to have enough rental income to retire(just manage my rentals) by the age of 35.

My plan is to have 10 small multifamily properties(2-4 units) and then pay them off 1 by 1. I'm 20 now and have one triplex. By my calculations, 20-30 units should conservatively produce $6-8k profits per month, which is double my monthly expenditures.

I'm curious if anyone else here has taken a similar path. Lots of people have done this, mostly people I've met on the biggerpockets forums, but they don't seem to want the same things the people in the FIRE community do. It seems most of them want to become millionaire real estate moguls. I'm just looking for more than enough money to comfortably live off, while still having enough free time to enjoy the things I actually want to do in life instead of working all the time!

Would love to hear from anyone who has taken a similar path!
« Last Edit: April 28, 2018, 02:59:18 PM by smitts961 »

JDS

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Re: Different Path to FIRE Through Rentals
« Reply #1 on: April 28, 2018, 03:10:45 PM »
The bigger pockets podcast from Thursday was based on this exact plan. Did you listen to it? It was a good episode.

smitts961

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Re: Different Path to FIRE Through Rentals
« Reply #2 on: April 28, 2018, 03:26:12 PM »
Yes I listen religiously every Thursday at work! His path was very similar to what I want in many ways. He is one of the few out of the 270-something podcasts that I really related to. I gain knowledge from every podcast though.

Another Reader

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Re: Different Path to FIRE Through Rentals
« Reply #3 on: April 28, 2018, 03:39:17 PM »
Look up one of the forum admins, Arebelspy.  He bought SFR's during the crash in Las Vegas and later in suburban Detroit.  He and his wife retired around age 30 and are traveling the world and the US with a toddler and a new baby.


FrugalSaver

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Re: Different Path to FIRE Through Rentals
« Reply #4 on: April 29, 2018, 12:37:05 AM »
Yep. Arebelspy details this approach

Iím doing the same.

MommyCake

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Re: Different Path to FIRE Through Rentals
« Reply #5 on: April 29, 2018, 07:15:17 AM »
This is my goal as well, except that I think I will eventually want to use a property manager instead of managing them myself. 

waltworks

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Re: Different Path to FIRE Through Rentals
« Reply #6 on: April 29, 2018, 08:51:08 AM »
Yes, tons of people have done what you want to do. Some of them post here.

The last decade or so was an ideal time to do this, and many of us (myself included) became very wealthy by buying RE at a massive discount. It was like shooting fish in a barrel in certain markets for a few years.

Much tougher now but it can still be done. I sold all my rentals in the last few years after they appreciated between 50 and 100% because I was tired of managing them, and because I felt (and still feel) that the housing market is overvalued in many places. I've been wrong about that so far, obviously.

-W

smitts961

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Re: Different Path to FIRE Through Rentals
« Reply #7 on: April 29, 2018, 10:03:36 AM »
Glad to hear there are others here with a similar vision. I live and invest in a small town-rural area about an hour south of Pittsburgh. We have not seen the rise in prices that most across the country have seen. Appreciation is little, but the cashflow is good. I bought my current triplex for $45k and monthly rents total up to $1800. Albeit, I do pay some utilities because they are not seperate. Even accounting for maintenance, capex, and vacancy, it still cashflows about $700 per month. These properties are pretty commonplace in my area.

imolina

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Re: Different Path to FIRE Through Rentals
« Reply #8 on: April 29, 2018, 09:11:01 PM »
Yes, tons of people have done what you want to do. Some of them post here.

The last decade or so was an ideal time to do this, and many of us (myself included) became very wealthy by buying RE at a massive discount. It was like shooting fish in a barrel in certain markets for a few years.

Much tougher now but it can still be done. I sold all my rentals in the last few years after they appreciated between 50 and 100% because I was tired of managing them, and because I felt (and still feel) that the housing market is overvalued in many places. I've been wrong about that so far, obviously.

-W

so how did you invest the money from the sale of your rentals?. I am actually thinking if I should sell my rentals or keep them, but then the stock market is also very volatile now.

waltworks

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Re: Different Path to FIRE Through Rentals
« Reply #9 on: April 30, 2018, 07:25:05 AM »
80/20 stocks/bonds. Boring and zero effort.

-W

Another Reader

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Re: Different Path to FIRE Through Rentals
« Reply #10 on: April 30, 2018, 08:15:26 AM »
80/20 stocks/bonds. Boring and zero effort.

-W

What was the tax hit?

I would sell more rentals except it's very difficult for me to write large checks to the IRS and the FTB.  I have some unused "losses," so I'm probably going to use those up selling a couple more.  After that... 

waltworks

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Re: Different Path to FIRE Through Rentals
« Reply #11 on: April 30, 2018, 08:25:21 AM »
80/20 stocks/bonds. Boring and zero effort.

-W

What was the tax hit?

I would sell more rentals except it's very difficult for me to write large checks to the IRS and the FTB.  I have some unused "losses," so I'm probably going to use those up selling a couple more.  After that...

Not very much, actually. I made sure to make *very* little income each year I sold a place. I'd have to look back through a couple years taxes to be sure but I'd be surprised if the total tax bill was over $20k all-in, including depreciation recapture.

The biggest downside was accidentally having to pay back ACA subsidies last year, but that was only $6k. No biggie.

I'm much happier without the rentals to think about all the time, even though they were generally not much trouble.

-W

afox

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Re: Different Path to FIRE Through Rentals
« Reply #12 on: April 30, 2018, 02:25:18 PM »
Hello all,

I'm new here and relatively new to the FIRE community. My goal is to have enough rental income to retire(just manage my rentals) by the age of 35.

My plan is to have 10 small multifamily properties(2-4 units) and then pay them off 1 by 1. I'm 20 now and have one triplex. By my calculations, 20-30 units should conservatively produce $6-8k profits per month, which is double my monthly expenditures.

I'm curious if anyone else here has taken a similar path. Lots of people have done this, mostly people I've met on the biggerpockets forums, but they don't seem to want the same things the people in the FIRE community do. It seems most of them want to become millionaire real estate moguls. I'm just looking for more than enough money to comfortably live off, while still having enough free time to enjoy the things I actually want to do in life instead of working all the time!

Would love to hear from anyone who has taken a similar path!

The problem is managing and maintaining that many rental is the equivalent of several full time jobs.  You could hire everything out but then you've gone from a manager.  I guess if you hire a manager to hire everyone else you could have some semblance to "retirement" but that person is going to want $4000 a month in income.   So, if you like managing RE more than your day job this is a good plan.




smitts961

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Re: Different Path to FIRE Through Rentals
« Reply #13 on: April 30, 2018, 04:43:48 PM »
Yes I've realized with my 3 units now, that at times it can be some work. But I like the fact you can do the work on your own time for the most part. At some point in my life, I will probably hand the management off to one of the local property management companies that charge 8-10% monthly rent, buying a couple more to offset that cost. I think the key to low stress management is great tenant screening. Most months when all my units are rented, I would say I spend an hour at most managing my property, most of which is spent going to deposit checks.

afox

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Re: Different Path to FIRE Through Rentals
« Reply #14 on: April 30, 2018, 11:18:04 PM »
the management companies charge 8-10 percent plus one months rent to find a tenant.  they dont actually do any work, they just call professionals to do the work.  Even with management companies there is still a ton of work that goes on behind the scenes.  Legal stuff, tax stuff, dealing with city/codes, rules and regs, etc.  And then are you geographically stuck to this area for the rest of your life or at least travelling there often?  You are taking on quite a bit of risk too.  I strongly considered a plan like yours.  I would just say you should compare your options carefully.  Its tough to get impartial advice on RE investing, there are a lot of people that would love 0.05% of your next transaction.  RE seems to attract a certain type of person that really does not like to talk about their negative experiences with RE.  If your day job/profession is in a field with decent pay and some room for growth you should run the numbers and carefully consider your options.


SumBum

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Re: Different Path to FIRE Through Rentals
« Reply #15 on: May 05, 2018, 10:00:07 AM »
Not all, but more than 50% of my FIRE plan involves real estate.  I use property managers and factor that cost in when I'm running the numbers for a potential property.  The property managers here handle everything:  legal, city/county stuff, etc.  So far they've done well with tenant placement/management and that alone is worth the 8% fee to me.  I don't trust myself to choose a good tenant and I know I'd be buying every sob story when they're late with rent.  The property managers I have don't put up with it, so it's smarter for me to let a third party handle that.

Owning rentals is definitely not all roses.  Last month I got zero rent from two houses because the rent went toward paying for termite treatment in one of them.  I keep a rental property emergency fund that I scale up with each house purchase.  Right now I'm at a point that my day job salary and personal savings could cover every mortgage if none of my tenants paid rent for a few months.  That's probably overkill but it lets me sleep easy.  I think many landlords run into trouble because they don't have reserves for repairs or non-paying tenants.  Planning for worst-case scenarios is a must.

Even with the bumps in the road, so far I'm coming out ahead with rentals.  Not going to be a millionaire but I don't need a lot to live comfortably.  My long term plan is to scale up to the point that I have enough rentals to be FI, then purchase a few more to act as buffers before I actually RE.  I have other investments that aren't real estate for additional cushion. 
« Last Edit: May 05, 2018, 10:05:35 AM by SumBum »

toganet

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Re: Different Path to FIRE Through Rentals
« Reply #16 on: May 08, 2018, 08:50:29 AM »
I recently added one rental property to my FIRE plans, though I don't think I will do more any time soon.  This particular SFH is rented by family (my parents), and otherwise I would probably sell it vs. continue renting it out, as it's a 2-hour drive away.  Luckily I have lots of family nearby and they've been critical in this scenario working out. 

Based on this experience, though, I am looking at doing some BRRRR type deals in my local area once I've paid down some more debt.  Overall I see a mix of rentals and index investing as a good combination for me, but I won't know until I try it :)

Shockers

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Re: Different Path to FIRE Through Rentals
« Reply #17 on: May 25, 2018, 12:15:17 PM »
This is part of my plan.  I have a 9 unit apartment complex that I have a property manager look after.  I like the idea of units in one place.  One roof, one yard, 2 water heaters, 1 place to paint.  I found that the SFR's I was looking at to turn a profit were getting multiple bids.  It has been that way for about the last 4 years.  I found less competition when I started looking at 5+ units.  To me it became how much $/door and how do I create a system to take me out of the equation as much as possible.  If I had several SFR's it would take a lot of running around that can be accomplished more easily under one roof and one location.

I also have 285 doors but that is self storage and in my opinion a more efficient path and less drama filled than being a landlord.  Same type of thinking though - $/door + systems that take me out of the equation = me being able to quit my joe job sooner.  Hard to do though because of the $ that comes from my day job and how easily the other two run without me being there.

avocado lime

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Re: Different Path to FIRE Through Rentals
« Reply #18 on: June 09, 2018, 09:00:39 AM »
That's pretty much what my mom has done. She started with one sfh and kept buying 1-4 unit properties over the course of a decade and is now semi-retired and just manages her own rentals. She actually enjoys doing a lot of the physical work too, it saves her money and she gets a work out and feels accomplished. I'm also hoping to follow in her footsteps but right now I'm at 1 property but hoping to really kick it up a notch in within a year or so. I'd love to get into small retail and apartments too.

makinbutter

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Re: Different Path to FIRE Through Rentals
« Reply #19 on: June 09, 2018, 10:07:17 PM »
Add me to this group, too.  I'm somewhere in the $1k-1.5k range net monthly profit right now from my RE side hustle (which, I supposed would be veryleanFIRE, or SEAsiaFIRE, or AppalachiaFIRE...), but aiming to get that up to around $3-5k/month from RE alone before pulling the plug on meaningful work.

I find that it helps to work backwards - rentals are little more than money cranks that you turn on at the first of every month.  If you assume you're going to pull 10% Cash-on-Cash returns on your leveraged down payments (which is pretty bad/average, actually, from what I'm seeing on BP), and you want, say, 40k to live on per year... this means you'll need 40k / .1 = 400k invested.  EZPZ.

That said, I'm the type who as a child would play Final Fantasy and basically dick around and clobber way easier opponents until I had amassed an undefeatable advantage and smash my way through the Final Bosses without breaking a sweat, because I hated the thought of - gasp - potentially losing.  If you're at all the same way, maybe you want to make your assumptions that much more conservative.  How about 8% CoC returns on your invested down payments?  That brings the amount you need to... 40k % .08 = 500k invested.  Again, the math is ezpz (and certainly beats the hell out of the 4% SWW).


Blindsquirrel

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Re: Different Path to FIRE Through Rentals
« Reply #20 on: June 10, 2018, 04:16:16 PM »
  Another fan of doing both index/bond portfolio and RE. They are very poorly correlated so they do have benefits. Also, real estate can be as much involvement as you choose. REITS are zero involvement and self managing can be a fair amount. As far as pumping out cash flow, paid off RE has few rivals depending on the market. The rust belt offers great cash on cash returns but more robust areas economically have shown to have tremendous appreciation. Not a bad plan and happy investing. I would count on 50% or less of gross rents on a paid off joint as in your pocket money. The more units you own, the more your cash flow will even out. 

monarda

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Re: Different Path to FIRE Through Rentals
« Reply #21 on: June 11, 2018, 08:41:32 PM »
We're doing this- have over half of our portfolio in rentals. Been doing rentals for about 17 years. Now the gross rent is around $6700 monthly and we're pretty much able to live off of it, frugally.

Lmoot

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Re: Different Path to FIRE Through Rentals
« Reply #22 on: June 12, 2018, 04:14:09 AM »
I want to use real estate, but not so much to retire early because I plan on mangaging properties to be my job. I also want to focus on SFR in a specific neighborhood because RE isnít just an investment for me but an interest and hobby as well. There are a bunch of mid century fixeruppers in this neighborhood which is up and coming and Iíve been renting out a property here for 5 years to different professionals who work nearby. I havenít ever had to advertise.

Everyone has their niche. I have no interest in multi family homes, even though they can earn more, because of the competition between investors, they can be more costly to buy and maintain, and in my area affordable MFís are in not so good neighborhoods, and since I will be managing, having tenants I am comfortable communicating with is important to me, even more so than maximum return. But there are plenty of people who are successful in it.

My plan is to have moderate sfr with moderate rents, in an area that has most of a chance increasing in value, and Iíll get my payday when I sell in the future.

Also, I have passed over some management duties to tenants. After I speak with a service provider, I refer them to the tenants who will schedule and meet them (the service providers speak with me via phone when they are at the property), and they manage the yard work, and minor repairs and replacements. The rent is good for the area and itís convenient to local businesses, so so far theyíve all been gracious about being pseudo property managers. I also find it instills in them a respect for and pride in the property. I let them paint whatever colors they like and encourage them to make the yard theirs (within reason, and checking with me for anything more than minor landscaping). My current tenants put in a small sand leveled patio themselves, and wood shelving in the kitchen (with permission),  and I had it checked to make sure it was done correctly.

These particular tenants are handy and enjoy yardwork...theyíve made huge improvements, so I got them a $50 gift card for their one year ďhouseavversaryĒ knowing it would go towards the value and upkeep. I like having a good and involved relationship with my tenants, which I wouldnít get with a management property.

« Last Edit: June 12, 2018, 04:29:34 AM by Lmoot »