Author Topic: Can we really retire early on 4 duplexes?  (Read 4267 times)

nen

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Can we really retire early on 4 duplexes?
« on: January 08, 2017, 11:15:52 AM »
My husband and I are DINKs with a plan to retire early, well go to very part-time, that seems too easy.  I'm hoping the experts (you!) can help us vet this plan.

I'm 39 and my husband is 46. We live in Austin, TX and our lifestyle is pretty simple.  $2,800/mo covers all of our necessary expenses. We don't want to be rich, we want more free time.

We currently have the following properties, all with mortgages and at least 25% equity. We manage the properties ourselves (family helps with Dayton).
1. Our home in Austin- SFH, mortgage $1500/mo
2. A duplex in Austin - value $250,000, cash flows $1100/mo after PITI (doesn't include vacancy or repairs)
3. A duplex in Dayton, OH - value $110,000, cash flows $624/mo after PITI (doesn't include vacancy or repairs)
Our plan is to buy 2 more duplexes in Dayton (Austin has gotten too expensive) with similar numbers to the one we already have, so 2 more cash flowing $624/mo.  We have the cash for the down payments and are actively looking. 

Once we buy 2 more duplexes, the total cash flow (before vacancy and repairs) will be $2,972 - enough to cover our monthly expenses. We already have 6 months PITI for all 4 properties in savings, one year's living expenses in taxable investments (can get to the cash if needed), and small retirement accounts.

We both plan to work part time for challenge and social engagement, and money to cover travel, taxes, pay down mortgages by the time my husband is 60, AND to cover repairs and vacancy expenses.  Once mortgages are paid off, our total cash flow will be $6,142 (in today's dollars), more than enough to support us and cover taxes, vacancies and repairs.  We will also have our taxable investments, retirement accounts and social security.

This seems too easy.  What am I missing?  I'd appreciate you poking holes in the plan, giving advice, and pointing out what I'm missing.

Thank you in advance!

Cwadda

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Re: Can we really retire early on 4 duplexes?
« Reply #1 on: January 08, 2017, 11:20:52 AM »
I don't see why not. As long as the numbers work.

HPstache

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Re: Can we really retire early on 4 duplexes?
« Reply #2 on: January 08, 2017, 11:38:19 AM »
You could live in one of the duplexes and make the math really promising!

Catbert

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Re: Can we really retire early on 4 duplexes?
« Reply #3 on: January 08, 2017, 12:20:41 PM »
The two issues I see are:

-Not accounting for vacancies and repairs on your rental unit.  As a long time rental owner I know that those can be substantial and seem to hit all at once (e.g., you're evicting one tenant for non-payment of rent and then another gives notice on a property that needs more than a coat of paint before re-renting).  Have you been a landlord long enough to see how this plays out with your properties?

-Having all your eggs in one asset class (real estate) is always dangerous.

How confident are you of your budget?  I often see budgets here where people have forgotten all the one-off costs, because they think they are just one-off.  Yes, a new roof will last 20 years.  But every 10 years you'll need an new-to-you car.  And every once in awhile there will be an expensive year of medical and/or dental expenses.   And..And...And.


terran

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Re: Can we really retire early on 4 duplexes?
« Reply #4 on: January 08, 2017, 12:32:16 PM »
Another "issue" is that if you're managing them yourselves you're not really FIREing so much as you are buying yourself a small real estate business that you work in (probably part time). Nothing wrong with that, and I'm sure you could have a very happy life that way, but just be clear with yourself that this won't be complete freedom as you'll always have whatever work is involved in managing the properties until you invest more such that you can live off the income after paying an outside property manager.

maizefolk

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Re: Can we really retire early on 4 duplexes?
« Reply #5 on: January 08, 2017, 03:13:11 PM »
Just to play Devil's advocate:

  • Are the family members who currently help you manage one duplex in Dayton going to be okay with helping to manage three duplexes (six sets of tenants) indefinitely?
  • You mention both working part time to pay off the mortgages on all four rentals. Assuming 25% equity in all to start this would be .75*(250,000+(110,000*3)) = $435,000 of equity to pay off in the next 14 years before your husband turns 60. That's about $30,000/year. Is that reasonable for the type and amount of part time work you are each looking at? Especially after you add in spending on travel, taxes, etc.
  • Are you planning to get healthcare through your part time jobs? If not, have you priced out what it would cost you privately, both today, and when you're 53 and your husband is 60?

Okay, that is every potential gotcha question I could think of. Good luck!

nen

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Re: Can we really retire early on 4 duplexes?
« Reply #6 on: January 08, 2017, 06:13:01 PM »
I think we've got everything covered!  Thank you all for your thoughts. 

Dicey

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Re: Can we really retire early on 4 duplexes?
« Reply #7 on: January 08, 2017, 10:52:28 PM »
Are you willing to move to Dayton? Having three properties (min. six units) there is a big commitment and it's pretty far from Austin.

Have you imagined/created a doomsday scenario budget? What if Something Bad happens to each house in a short span of time? Yeah, it can happen.

Have you fully accounted for expenses that might increase upon leaving your jobs? Health insurance is the most obvious one, but there could be others you haven't factored into your spending.

I agree that in a way you're just trading one kind of job for another. it's also more difficult/costly to manage property from a distance. Rentals owned by a distant landlord always look like well, rentals owned by a distant landlord. Just a few more things to think about.

CongoKid

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Re: Can we really retire early on 4 duplexes?
« Reply #8 on: January 08, 2017, 11:11:58 PM »
I would recommend that you calculate your cash flow only after you've accounted for vacancy, repairs and capital improvements.  It would be particularly important to do this since you're hoping to live off of the cash flow.   

Check out this link http://forum.mrmoneymustache.com/real-estate-and-landlording/evaluating-a-rental-property/ for how a lot of people assess the cash flow potential of a property.  It also has links to other good sources.

My quick assessment of your numbers would suggest that you probably need 6-8 duplexes rather than 4 to get the cash flow you need to retire early....but have a look at the link above and run your numbers again.  Good luck!

soccerluvof4

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Re: Can we really retire early on 4 duplexes?
« Reply #9 on: January 09, 2017, 05:32:07 AM »
Do you have other investments? Emergency Fund and or FU money? What about your long term plan to cover Healthcare?

BTDretire

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Re: Can we really retire early on 4 duplexes?
« Reply #10 on: January 10, 2017, 06:29:15 AM »
I would recommend that you calculate your cash flow only after you've accounted for vacancy, repairs and capital improvements.  It would be particularly important to do this since you're hoping to live off of the cash flow.   

Check out this link http://forum.mrmoneymustache.com/real-estate-and-landlording/evaluating-a-rental-property/ for how a lot of people assess the cash flow potential of a property.  It also has links to other good sources.

My quick assessment of your numbers would suggest that you probably need 6-8 duplexes rather than 4 to get the cash flow you need to retire early....but have a look at the link above and run your numbers again.  Good luck!
`

 Over the long term those capital improvements can be big expenses. A new roof, bathroom remodel, kitchen remodel (X4), you need to live on your cash flow, plus build reserve to do those improvements 10 to 20 years in the future. 
  It can be done, just be realistic when you run the numbers, put in money for the monthly maintanence and the long term improvemnets.
When you get done you might say we're good, or we need X more units.

SuperMex

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Re: Can we really retire early on 4 duplexes?
« Reply #11 on: January 10, 2017, 02:12:27 PM »
The easy way to factor a rental true profit is to multiply the rent by .6

As an example if you rent an apartment for 1000 a month. (1000 x .6 = 600)

10% for taxes/insurance
10% for vacancy
10% for rental management
10% for future repairs

In many real-estate markets homes won't break even at .6 if you have a mortgage on them.

Of course generally speaking there is economy of scale the more units you have under one roof.

Duplex, triplex, quad-plex etc. Also the more homes you have the more you make on appreciation.

Examples single family home the numbers on them look like this

House #1 Rent $850 x .6 = 510 - mortgage of 220 = $290 x 12 =$3480
Value = 125,000 x .05 = $6,250 (this is the increase in price in the area you need to look at the historic appreciation in the area of the property)

$3480 + $6250 = $9730   now let's say you bought this house with 25,000 down then you would have a 39% ROI in year one. Now this will gradually go down as you have more equity in the home.

4-plex #1 Rent 500 x 4 = $2000 x .6 = 1200 - mortgage of 400 = 800 x 12 = $9600
Value = 200,000 x .04 = $8,000

$8000 + $9600 = $17,600    $40,000 down = 44% ROI

Fairly equal in this comparison these are real rentals that I have and one I had. Keep in mind that I used a dirty trick to get the homes for $1. A VA loan, the dirty trick is you can then live in the home for 2-3 years refinance out with a conventional home and then buy another home with $1 using the VA loan again. As long as you are putting value into the home when you live there and can get 80% LTV on the Refinance this will work.

SuperMex

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Re: Can we really retire early on 4 duplexes?
« Reply #12 on: January 10, 2017, 02:21:11 PM »
I realized I never really answered your question directly as long as the total rents of your 4 duplexes x .6 - mortgage is greater than your expenses then the answer is yes.

Due to economy of scale you would likely make more money with one 8-plex though.