Author Topic: 27yo with 2 kids on 1 income: Owns $1M in Rentals with $100k/yr in Gross Rents  (Read 3143 times)

FamVestor

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  • Age: 27
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This is the story of how we – a family of four on one income – house-hacked our way from $0 to $1million in real-estate in less than 2-years, and how just two houses bring in $100k/year in gross rents.


Our Two Properties

Today we closed on our second Investment-Rental-Property. A 3-Family home in North-Arlington, NJ; 15 minutes from NYC. We bought it for $350,000 and it appraised for $370,000(Low in my opinion).

Our first home and first ever real estate purchase was a 4-family home in Garfield NJ; also 15 minutes from NYC. We bought it in October 2015 for $430,000; last month it appraised for $630,000.

Together with the two properties, we own $1,000,000 in real-estate. Which is pretty cool, especially considering that we didn’t own a single piece of property just two years ago. When I say we, it is me and my wife. We are a team.

So the million figure is really cool, but what is really awesome is the cashflow from the rentals.

So we have a total of 7 units; 4x 3-bedroom Units in Garfield, and 2x 2-bedrooms and 1x 1-bedroom in North Arlington.

 

The $8350/Month Club

I recently made it a goal for myself to join the $8,350 a month club… that equates to $100,000 annually.

 

Currently, we live in one of the units in Garfield, and our In-laws live in another so here is how the rents breakdown:

Unit 1(3bdrm): $0/month

Unit 2(3bdrm): $1000/month

Unit 3(3bdrm): $1710/month

Unit 4(3bdrm): $1700/month

Total: $4410/month

 

In North Arlington, the 3rd unit is currently vacant, and the other 2 units are paying $1200/month, which is far below market rents. Below is what I plan to rent out the units for once leases expire, etc:

Unit 1(2bdrm): $1500/month

Unit 2(2bdrm): $1500/month

Unit 3(1bdrm): $1200/month

Total: $4200/month

 

So together that’s $8610/month in gross rents, well passed my goal, so with just these two properties, we should be able to get over $100,000 in passive rental income and keep in mind that includes us living in one of the units for FREE!

Of course, there are major expenses to consider, things like Mortgage, Home Insurance, Property  Taxes, Vacancy Considerations, Maintenance.

 

Property Expenses

Garfield (Quadplex) Annual Expenses:

Mortgage 3.49%: $24,216($2,018/month)

Property-Taxes: $11,181

Insurance: $1,581

Utilities: $3,000

Vacancy+Maintenace: EST $3,500

Total Expenses: $43,478

 

North Arlington (Triplex) Annual Expenses:

Mortgage 3.875%: $15,792 ($1,316/month)

Property-Taxes: $13,672

Insurance: $1,112

Utilities: $2,000

Vacancy+Maintenace: EST $3,000

Total Expenses: $35,576

 

Total Yearly Expenses for Both Properties: $79,054

 

How we can Retire with just these Two Properties

Subtract the total expenses from the $100,000 and you are looking at $20,946/year or $1,745/month. Not super extravagant, but decent and we still get to live in one of the units for free!

But what if we paid down the mortgage… the total expenses minus the mortgage is $37,446, subtract that from the $100,000 and you get $60,954/year or $5,080/month. That with our frugal lifestyle means we could actually live off the income, especially considering that our housing costs are covered by living in one of the units.

 

Ambition or a Simple Life?

Now the dilemma… do we strive for more and keep buying properties, expanding our income but also our expenses, and making our life a little more complicated, but perhaps greater? Or do we want to just live simply… keep the income the same and just lower our expenses. Once that mortgage payment is gone we are in essence financially independent.

 

Early Retirement through Real-Estate alone


Financial Overview Spreadsheet

I calculated using my Financial-Spreadsheet ( https://docs.google.com/spreadsheets/d/1FLJJ7KcFspcXRg0zxW1lTmAmmzb7ud8Td5OrEVZzpx4/edit?usp=sharing ) – assuming the $100,000 in rent – that our annual savings rate after all expenses is $53,722. After maxing out my 401k($18k) and our IRA(2x $5.5k), that still leaves $24,722 in excess to put towards our mortgage. I would focus on paying down the smaller one first… $280,000(North Arlington Triplex), so that would take 7.75 years. Once that was paid off, I would continue to contribute the same amount + the $1,316 I was paying towards the North-Arlington Triplex mortgage to the Garfield Quadplex Mortgage and could pay that down in 6.5 years. So in total it would take 14.25 years to own the houses outright and get our after expenses, passive income checks from the rental properties of $5,080/month.

 

Dilemma

After considering this dilemma for a while, I have come to the conclusion to take the simpler frugal approach.

Although attractive, it is not my dream to build a real estate empire. When I first heard the Biggerpockets podcast and got inspired about Real Estate Investing; it wasn’t the stories of the millions that inspired me, but of those individuals who were able to run their own lives, no longer slaves to a paycheck – Masters of their own time.

I am 26 years old, with a Wife and 2-kids, and plans for 2 more kiddos. I like my federal government job as a R&D prototyping engineer for the Department of Defense. But what I like more is freedom. We’ve already gained partial freedom by purchasing that first quadplex that gave my wife the financial-freedom to quit her job as a school teacher to stay home with the Kids.

I guess my chance at freedom will come in 14 years. When I am 41.

Although if my Amazon Business or Blog takes off that could be substantially reduced. I still have my reach goal of early retirement set at the age of 28. My Wife was 28 when she retired from teaching.

 

How did we do it? FRUGALITY!

So if you’ve made it this far, you’re probably thinking good for you. How were you even able to afford these properties… Especially with 2 kids and on one government salary?

The answer is quite simple, Frugality!

When we got married in 2013, my Wife started her career as a teacher making $50k, and I started my Career as an engineer at $53k. So we were bringing in over $100k/year!

Pretty good money and both being raised in frugal families, we saved it!

 

Our Frugal Strategies

  • We lived at home, paying my parents $500/month
  • We packed our own lunches to work
  • Lived off a cash-budget of $450/month in out-of-pocket expenses
  • Cut our own hair at home
  • Rarely went out to eat
  • We re-sell unwanted things and clutter
  • Don’t pay for Cable TV or even own a TV
  • We don’t drink Alcohol or Coffee
  • Bought everything used off eBay, Craigslist, or Garage Sales
  • Travel for free/cheap via Travel-Hacking and don’t fall for tourist-trips
  • Pay less than $20/month each for our Cell-phone Service. (T-mobile Unlimited Family plan of 8)
  • Bought reliable used cars – Honda Fit($3000) for her, Yaris($5000) for me
  • Didn’t collect massive amounts of Student Debt, got scholarships, and worked through college even while taking 23 credit semesters


So by the time 2015 hit we had over $100,000 saved up, we were ready with a down payment and money for renovations.

 

BRRR and Finances of the Purchases

That first quadplex in Garfield which we bought in October of 2015, we got a conventional mortgage with 10% down with no PMI. Purchase Price was $430,000. So we had to put a $43,000 down payment.

Over a period of about 6 months, we put another $25,000 into it.

We then filed for a cash-out refinance, and the property appraised at $550,000! A $120,000 increase from when we bought it half a year earlier. We pulled out $67,000 of that equity in cold-hard cash. Pretty much dollar for dollar returning all our investment money.

We then put in another $15,000 of work really beautifying the until we would be living in.

Then we decided to apply for a Home Equity Line of Credit(HELOC) on the property, and this time about a year after we bought it, it appraised for $630,000! $200,000 over what we bought it for!

We got approved for a Credit-Line of $61,500

 

So just to make it clear, we already took out $67,000 in cash, and now also have available to us $63,000 in a line of credit at a low 2.49% interest rate.

 

It was at that point that we seriously began searching for Property Number 2!

As you can see, we didn’t need to save again for that second property, the first property we purchased funded that deal.

It’s really a simple formula called BRRR, I believe Brandon Turner coined that one. Buy, Renovate, Refinance, Repeat!

And that’s exactly what we are doing with this second property.

 

Formula for Success

So there you have it, our formula for success. It’s not rocket science, but it does take a tremendous amount of discipline!

But as you can see in just shy of two years we were able to acquire $1 million dollars in real estate! $630,000 appraised Garfield Quadplex, and $370,000 appraised North-Arlington Triplex.


The Fam

And we had every excuse in the book to play it safe, by the time we had bought that first property we already had a 6-month-old son, and my Wife was on an extended maternity leave. So just one income! and she never went back to work and we now have another son! and we are still able to keep doing this!

Plan smart, keep learning, persist, live below your means, and know that you can do this!
www.FamVestor.com
Learn about creating Passive Income, Being Frugal, Living Optimalisticaly, and designing a wholesome lifestyle all for the purpose of Investing in your Family.

coldestcat

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Nice! Im just starting my career and my wife is 1 year from finishing her engineering degree. We are planning on saving up, and while we dont have such cheap rent, we are living with my father in law and getting by with just 1 old paid off car.
This story is still an inspiration. Thank you for sharing.

FamVestor

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    • FamVestor
Thanks, let me know if you have any questions.
www.FamVestor.com
Learn about creating Passive Income, Being Frugal, Living Optimalisticaly, and designing a wholesome lifestyle all for the purpose of Investing in your Family.

hgjjgkj

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How were you able to put 10% down but no PMI?

FamVestor

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    • FamVestor
A smaller bank that offered it. They are really good, but only work in counties they have branches in. Called Trustco Bank. I wrote a review on them: https://www.biggerpockets.com/forums/311/topics/390706-trustco-bank-a-review-and-recommendation-for-fellow-investors
www.FamVestor.com
Learn about creating Passive Income, Being Frugal, Living Optimalisticaly, and designing a wholesome lifestyle all for the purpose of Investing in your Family.

Hargrove

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Thanks for sharing. It looks like you spend roughly 50-55k on your personal budget, but I can't really tell what "budget allowance" covers. Food? Gas? Clothes? Or is that under "miscellaneous"?

I strain sometimes with whether to stay the course in stocks or, instead, make the bigger near-term bet on real estate. My skeptic won't leave me alone on the question of how much publication bias influences the number of real-estate mega-successes out there (vs how many had sudden disasters, housing values dropped, nightmare tenants, unsteady occupancy rates, etc). That skeptic also makes me scratch my chin that you have used your projected money (desired rent and occupancy) rather than your real money (current rent and occupancy) on your spreadsheet, and apparently assumed steady tenants despite a current vacancy, so you're not really looking at a surplus at the moment. The discrepancy makes this look quite a bit easier than it is.

Why you are deciding against getting just one or two more properties (instead of making a "real-estate empire" or sticking with just the two)?

LessIsLess

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Congrats - I love your story.  You guys are doing great.  If I could add one thing, and that is to have your wife keep her money-making skills sharp in case she has to take over for you.  It's to plan for a rare event with catastrophic consequence.  Insurance would help but it shouldn't be the only layer of protection. 

Another Reader

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Your numbers are optimistic.  Unrealistic in my opinion.  You are over-leveraged and under-reserved.  Stop looking at your scheduled gross income as a measure of what you have achieved.  It's the net income after all expenses that counts.  A period of vacancy or a couple of evictions will put you in a world of hurt.  Replacing a roof or a couple of furnaces will probably mean more borrowing because you don't have sufficient cash reserves.  Those New Jersey taxes are a killer. 

Multi-units should produce closer to 2 percent a month, especially with those taxes.  Expenses are higher on multi's. 

Slow down and clean this up.  Up your reserves and pay off some of that debt.  Maybe your wife can create some income working from home.  Separate your income real estate from your personal income and expenses.  Look at the real estate like the business it is.

And I agree, don't buy any more real estate until you you are more seasoned.  You have created plenty of risk with what you have done so far.

minimalistgamer

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Congratulations on your success. I am sure you worked very hard.

However, reading through your post, I got the feeling you have taken a lot of risk, and considering the debt you have, a few months of vacancy will make life difficult. Also, why do you still have a credit card balance? Wouldn't it be better to pay it off as quickly as possible?
I paid off my mortgage! You can read the details here -
https://minimalistgamer.blogspot.com/2017/01/paid-off-our-mortgage.html

Feel free to ask any questions.

JoshyBoy

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Woah, impressive work! Ever considered writing in more detail about this? eBook perhaps? Would love to learn more!

tralfamadorian

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Congratulations on your properties!  But...I would consider being more conservative on your Capex, Repairs & Vacancies numbers. If you're a Bigger Pockets pro member, then you probably already know that you should be socking away 10% for each.  But you're estimating 5.9% and 6.6% for all three combined, which is untenable.  Add to that the fact that your cash reserves are low and you could run into a cash crunch with a just a couple of unfortunate but predictable events.
« Last Edit: August 08, 2017, 11:23:04 AM by kellyincville »

Lan Mandragoran

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That's pretty intense!  I always considered myself pretty aggressive... but thats significantly more so than me.

If its cash-flowing after you have conservative estimates then its just a waiting game :). Rents should appreciate, you will pay down the loans. Save up a large large emergency fund to keep peace of mind imo.

Personally, I'd still invest and not just pay down such low interest rate% mortgages. You can always take money out of the market later when your able to pay off the loan.
Gradatim Ferociter
Step by step, ferociously

Vi veri veniversum vivus vici
"By the power of truth, I, while living, have conquered the universe"

MrSal

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How were you able to put 10% down but no PMI?

Smaller banks usually do this.

They do a mix of normal mortgage at 80% and the rest troguh a Heloc or HE Loan

PJC74

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Great story and excellent work!  Congrats to you and your family!

chrisgermany

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You have done well so far but also accumulated a lot of risk due to the high loans.
For how long is the interest fixed and what would happen if it increases a lot?
What happens if house values drop?
What happens if you get bad occupants, not paying, destroying a unit, not moving out?


Pay the babies off quickly. Keep them in good shape. Only than the $1M gets a meaning.
Increase your savings for emergencies and other investments.
Invest in another field like ETFs to spread the risk.

Collect experience in landlording like
Www.theliveinlandlord.com
Or
http://www.nononsenselandlord.com/
Good luck!
« Last Edit: August 12, 2017, 12:26:58 AM by chrisgermany »

Cornel_Westside

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How did you start as an engineer near NYC only making 53k a year? Are you actually an engineer? No offense intended, but when I came out of school, I got a job in a lower cost of living area than NYC, and I was making 75k. That was in 2011. Have you received several raises since then to bring you to market level? Because if you are actually in DoD R&D, that means you have a security clearance and could work at defense contractors making easily double 53k.
« Last Edit: August 11, 2017, 01:57:56 PM by Cornel_Westside »

bobechs

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Hah!  Caught by the Engineer Police!

Just don't develop any opinions on subjects and you may still get away with it for a while.

IOW, don't be like this guy:   http://reason.com/blog/2017/04/26/after-challenging-red-light-cameras-oreg