Author Topic: What is your preferred path to FIRE and why?  (Read 11094 times)

EaMone

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What is your preferred path to FIRE and why?
« on: March 15, 2016, 04:59:06 PM »
Most of the reading I've been doing on the forums here, and early retirement blogs in general, seem to point towards investing in low cost ETFs/index funds as the preferred method of generating a large enough financial nut to FIRE. It seems to me like the ones who choose to prioritize rental real estate (like arebelspy) are the minority. Is there a reason for this?

I think both paths are great and both have their pros and cons, but it seems to me like rental property is a more secure form of income for an early retiree. And if your market is still decently priced, it seems like it would require less capital to generate the same amount of income you would need to retire from rentals than you would from stocks/bonds.

As far as I'm concerned, I currently own a duplex and I would love to purchase a few more rentals. Unfortunately, most desirable neighborhoods in Miami are now priced at levels that don't make sense to invest in.

The search feature wasn't working when I tried it, so forgive me if this topic has been beaten to death.


Spork

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Re: What is your preferred path to FIRE and why?
« Reply #1 on: March 15, 2016, 05:07:53 PM »
preferred path: low cost ETFs/index funds (mostly)
why: lazy bastard

EaMone

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Re: What is your preferred path to FIRE and why?
« Reply #2 on: March 15, 2016, 05:16:17 PM »
preferred path: low cost ETFs/index funds (mostly)
why: lazy bastard

Hah! I saw that one coming.

BarkyardBQ

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Re: What is your preferred path to FIRE and why?
« Reply #3 on: March 15, 2016, 05:27:26 PM »
Index funds.

Because...
...Unfortunately, most desirable neighborhoods in ___ are now priced at levels that don't make sense to invest in...

Also, lazy and too many other things to do.

iamlindoro

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Re: What is your preferred path to FIRE and why?
« Reply #4 on: March 15, 2016, 05:40:50 PM »
There are plenty of both types of investor here, and my own FIRE income will be about 60% rental income to 40% index funds, but the effort and temperament required for each are drastically different.

Index funds are essentially fool-proof.  It's easy to describe how to start investing in index funds to a new or otherwise unsophisticated investor: Buy funds representing the entire market with low expense ratios. Don't sell when the market takes a turn for the worse. Granted, actually overcoming human nature and holding through bear markets can be difficult for some people, but it's a simple and effective concept.

Real estate, on the other hand, requires a fair amount of research to identify good investments. Many people buy rentals without even learning to properly evaluate them, but that's neither here nor there. If you want to purchase real estate and have it cash flow reliably for an extended retirement, you need to understand the entire purchase process, learn to manage either tenants or a property manager, oversee repairs and rehabs when necessary, file evictions if a tenant stops paying, and keep an eye on how local trends and legislation affect your business.  Don't get me wrong: I love real estate and it doesn't have to be a huge amount of work to own it, but it is *more* work when it comes to education, preparation, and running your business.  Most of my RE work comes down to decision-making... but it took time to learn enough to make informed decisions on a variety of topics.

Either is a great choice, so long as people are honest with themselves about which path is best suited to their personality and goals.
« Last Edit: March 15, 2016, 05:44:02 PM by iamlindoro »

arebelspy

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Re: What is your preferred path to FIRE and why?
« Reply #5 on: April 03, 2016, 05:02:21 PM »
My preferred path, for myself, is real estate.

I think it's faster, and more stable, if done correctly.

I think the best path, for most people, is passive index funds.  Real estate takes a lot of work, and specialized knowledge, to do right.  Anyone can do it, but most won't, and given that, a simpler strategy that can be just as effective often, and has its own advantages, is better.

I laid out a fairly decent (IMO) weightings of pros/cons between index funds and real estate in this podcast:
https://radicalpersonalfinance.com/78/
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

jim555

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Re: What is your preferred path to FIRE and why?
« Reply #6 on: April 03, 2016, 06:13:14 PM »
Real estate is a job that requires effort, skill, and dedication.  So FIREing on real estate is not really FIREing at all, it is just an easier job.

SwordGuy

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Re: What is your preferred path to FIRE and why?
« Reply #7 on: April 03, 2016, 09:47:03 PM »
Real estate is a job that requires effort, skill, and dedication.  So FIREing on real estate is not really FIREing at all, it is just an easier job.

It certainly takes that to build up enough properties to FI on.

But it doesn't take that to keep it going afterwards, not if a property manager is involved.

We're using real estate and stock holdings.   Real estate for day to day income and stock for long term stache growth.  Provides diversification and allows us to be FI a number of years faster.

bobechs

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Re: What is your preferred path to FIRE and why?
« Reply #8 on: April 03, 2016, 10:49:31 PM »
My preferred path is for someone with more money than me to irrevocably commit to take care of me for life.

That hasn't happened and almost certainly won't, but it's still my preferred path.

dontwannaworkforever

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Re: What is your preferred path to FIRE and why?
« Reply #9 on: April 03, 2016, 11:45:07 PM »
Right now just investing in index funds.

I am however toying with the idea of starting a successful business and then just selling it in the amount of my FIRE number....but I have much more research to do before I jump into that.

Yaeger

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Re: What is your preferred path to FIRE and why?
« Reply #10 on: April 04, 2016, 12:49:31 AM »
US Index funds all the way tilting more towards international investment (40% international, 40% domestic, 10% energy, 10% bonds).

Retirement:
TSP Life-cycle 2050 Fund 55%

Taxable:
Vanguard SP500 10%
Vanguard Total International 10%
Vanguard Emerging Markets 10%
Vanguard Energy Fund 10%
Vanguard Total Bond 5%

Tyn

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Re: What is your preferred path to FIRE and why?
« Reply #11 on: April 04, 2016, 03:27:44 AM »
I'm going with index funds because they are simple and don't have an upfront cost.

I can't afford a house in the area I currently live in, so I would need to research where a good investment opportunity would be and pay a property manager (and save up a deposit).  There's also planning for maintenance and vacancy costs.  My index funds get bought automatically each month and apart from potential rebalancing in the future don't need me to pay any attention to them.  For me I don't think any increase in return would be worth the extra hassle, I'm very much a set and forget sort of person.

Dicey

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Re: What is your preferred path to FIRE and why?
« Reply #12 on: April 04, 2016, 05:23:59 AM »
We do some of each. We invest in low-cost index funds, which is boring as hell. We also own real estate, which is a helluva  lot more work and for us, way more fun. We enjoy the search for diamonds in the rough, and the entire DIY reno process. We may be frugal wierdos, but we get far more satisfaction from our RE ventures. At this writing, we have lowball offers in on two undervalued properties. We're like kids before Christmas wondering if we'll end up with either or both of them. Focusing on RE also makes it a lot easier to ignore stock market fluctuations, which is good, right?

This path led us to FI, and I'm RE. DH still works, primarily to qualify for a nice pension and to stay busy. His mom has Alzheimer's and lives with us, so serious  traveling is not an option at present. Until it is, dabbling in real estate keeps us busy, happy, and strengthens our balance sheet.

Metric Mouse

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Re: What is your preferred path to FIRE and why?
« Reply #13 on: April 04, 2016, 05:53:06 AM »
Most of the reading I've been doing on the forums here, and early retirement blogs in general, seem to point towards investing in low cost ETFs/index funds as the preferred method of generating a large enough financial nut to FIRE. It seems to me like the ones who choose to prioritize rental real estate (like arebelspy) are the minority. Is there a reason for this?

I think both paths are great and both have their pros and cons, but it seems to me like rental property is a more secure form of income for an early retiree. And if your market is still decently priced, it seems like it would require less capital to generate the same amount of income you would need to retire from rentals than you would from stocks/bonds.

As far as I'm concerned, I currently own a duplex and I would love to purchase a few more rentals. Unfortunately, most desirable neighborhoods in Miami are now priced at levels that don't make sense to invest in.

The search feature wasn't working when I tried it, so forgive me if this topic has been beaten to death.

Real Estate is fantastic. I'd never do it though. Way too much work. Would not have worked for me, and would have required me to work much, much longer to get to FIRE. Stocks work everywhere - some markets just don't work out for real estate. 

I personally recommend value investing, and that's been my preferred method to reaching FI, but, like real estate, it won't work for everyone, and the amount of time it can take is greater than just sinking money into a fund.

arebelspy

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Re: What is your preferred path to FIRE and why?
« Reply #14 on: April 04, 2016, 05:56:28 AM »
Most of the reading I've been doing on the forums here, and early retirement blogs in general, seem to point towards investing in low cost ETFs/index funds as the preferred method of generating a large enough financial nut to FIRE. It seems to me like the ones who choose to prioritize rental real estate (like arebelspy) are the minority. Is there a reason for this?

I think both paths are great and both have their pros and cons, but it seems to me like rental property is a more secure form of income for an early retiree. And if your market is still decently priced, it seems like it would require less capital to generate the same amount of income you would need to retire from rentals than you would from stocks/bonds.

As far as I'm concerned, I currently own a duplex and I would love to purchase a few more rentals. Unfortunately, most desirable neighborhoods in Miami are now priced at levels that don't make sense to invest in.

The search feature wasn't working when I tried it, so forgive me if this topic has been beaten to death.

Real Estate is fantastic. I'd never do it though. Way too much work. Would not have worked for me, and would have required me to work much, much longer to get to FIRE. Stocks work everywhere - some markets just don't work out for real estate. 

I personally recommend value investing, and that's been my preferred method to reaching FI, but, like real estate, it won't work for everyone, and the amount of time it can take is greater than just sinking money into a fund.

Only if you invest in a market that doesn't work.  As far as I know, there's no law that says you have to invest in the market you live in.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

forummm

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Re: What is your preferred path to FIRE and why?
« Reply #15 on: April 04, 2016, 06:35:46 AM »
Preferred path: Lottery jackpot
Why: Instant FIRE

Realistic preferred path: Mutual funds
Why: I tried real estate, and I'm just not cut out for that. I care too much about things so I put too much money into doing things "right" or well. And I'm too much of a softy in dealing with people. And I don't want the hassle. And don't want the risk of having a big problem materialize. And don't want to have to evict people who are down on their luck. And it would weigh on me every day that there was a risk that something could happen or that I'd have to deal with some issue. No thanks. It's much easier and more convenient to just pile away fund shares.

I think real estate is probably the faster way to FI if you do it right and work hard at it. But then it's also like a 2nd job for at least awhile.

2Birds1Stone

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Re: What is your preferred path to FIRE and why?
« Reply #16 on: April 04, 2016, 07:27:43 AM »
Mine is a lazy ETF portfolio that I will draw ~3.5-4%

Squirrel away

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Re: What is your preferred path to FIRE and why?
« Reply #17 on: April 04, 2016, 07:32:39 AM »
It's probably different for us compared to most of here as it's UK, but it's mainly pensions and isas.

We did think about buying a rental property, but I think I read they are changing the law on buy to let and we are both totally useless at DIY so we didn't think it was a great option for us.:D

dude

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Re: What is your preferred path to FIRE and why?
« Reply #18 on: April 04, 2016, 07:54:46 AM »
Pension + low cost Index Funds (in tax-deferred and taxable accounts) + Social Security + home appreciation.


MMMarbleheader

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Re: What is your preferred path to FIRE and why?
« Reply #19 on: April 04, 2016, 08:09:22 AM »
I think it will be index funds and moving from a single family home to a 3 family with one owner occupied unit, one rental and one AirBNB

Bertram

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Re: What is your preferred path to FIRE and why?
« Reply #20 on: April 04, 2016, 08:12:00 AM »
Preferred path: Lottery jackpot
Why: Instant FIRE

Realistic preferred path: Mutual funds
Why: I tried real estate, and I'm just not cut out for that. I care too much about things so I put too much money into doing things "right" or well. And I'm too much of a softy in dealing with people. And I don't want the hassle. And don't want the risk of having a big problem materialize. And don't want to have to evict people who are down on their luck. And it would weigh on me every day that there was a risk that something could happen or that I'd have to deal with some issue. No thanks. It's much easier and more convenient to just pile away fund shares..

Agreed on all points.

I would also add that FIRE community has a higher than average amount of high earners. However high earners tend to live in areas where real estate prices already reflect the high incomes and hence it at least appears (and likely is) rather difficult to do well with real estate. Also higher earners tend to not have as much free time and prefer a more trouble free way to build a nest egg.

forummm

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Re: What is your preferred path to FIRE and why?
« Reply #21 on: April 04, 2016, 08:24:36 AM »
Preferred path: Lottery jackpot
Why: Instant FIRE

Realistic preferred path: Mutual funds
Why: I tried real estate, and I'm just not cut out for that. I care too much about things so I put too much money into doing things "right" or well. And I'm too much of a softy in dealing with people. And I don't want the hassle. And don't want the risk of having a big problem materialize. And don't want to have to evict people who are down on their luck. And it would weigh on me every day that there was a risk that something could happen or that I'd have to deal with some issue. No thanks. It's much easier and more convenient to just pile away fund shares..

Agreed on all points.

I would also add that FIRE community has a higher than average amount of high earners. However high earners tend to live in areas where real estate prices already reflect the high incomes and hence it at least appears (and likely is) rather difficult to do well with real estate. Also higher earners tend to not have as much free time and prefer a more trouble free way to build a nest egg.

True. Although you don't have to be an investor in local real estate, it is probably the default in most people's minds. And to your other point, there are a lot of people here who spend a lot of time on projects that have a very low return on hourly investment (like washing and reusing ziplock bags and tin foil), so I think there's also a big preference of activity selection occurring (I prefer to save money by mowing my own lawn and getting a good deal on groceries than to make money via real estate).

AZDude

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Re: What is your preferred path to FIRE and why?
« Reply #22 on: April 04, 2016, 10:13:04 AM »
My path: Index funds, REIT, high yield bonds, probably some real-estate in the future

Why: Index funds are easy, reliable, and make up the bulk of my investment. REIT shares provide steady income with low risk, even if the ceiling for their return is lower. High yield bonds are something I invested heavily in years ago during the recession, but I am phasing them out as they mature. I bought these on the secondary bond market for way below their initial asking price. They carry  risk, but I searched carefully and looked for companies/governments I thought stood an excellent chance of rebounding from the recession. I have yet to have a default in almost 9 years. Most yield something like 6% to 10%. I am a little worried about a few because there was a time when oil prices were low and bonds related to petroleum were super cheap, and I bought a bunch. Obviously prices rebounded, I looked like a genius for a few years, and now prices are low again. I chose carefully, but nevertheless I have one especially that looks dicey and I could be out my entire initial investment.

Real estate looks interesting, and I often look around for potential properties, but I have yet to actually pull the trigger on one. Sooner or later I will take the plunge.

dreams_and_discoveries

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Re: What is your preferred path to FIRE and why?
« Reply #23 on: April 05, 2016, 04:45:54 AM »
Another vote for the lazy option - staching index funds.


FLJOEL

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Re: What is your preferred path to FIRE and why?
« Reply #24 on: April 06, 2016, 07:26:35 AM »
Realistic preferred path: Mutual funds
Why: I tried real estate, and I'm just not cut out for that. I care too much about things so I put too much money into doing things "right" or well. And I'm too much of a softy in dealing with people. And I don't want the hassle. And don't want the risk of having a big problem materialize. And don't want to have to evict people who are down on their luck. And it would weigh on me every day that there was a risk that something could happen or that I'd have to deal with some issue. No thanks. It's much easier and more convenient to just pile away fund shares.

I think real estate is probably the faster way to FI if you do it right and work hard at it. But then it's also like a 2nd job for at least awhile.

Exactly, I had awful problems with multiple renters. It ended up costing me more in time and aggravation. If you do it though make sure the home is VERY close to where you are now, that aggravation factor is a lot less when you don't have to take an hour out of your weekend in drive time...

Cap_Scarlet

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Re: What is your preferred path to FIRE and why?
« Reply #25 on: April 06, 2016, 01:42:50 PM »
preferred route?

Earn a shed load and the rest sorts itself out

arebelspy

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Re: What is your preferred path to FIRE and why?
« Reply #26 on: April 06, 2016, 01:44:09 PM »
preferred route?

Earn a shed load and the rest sorts itself out

Having family members on both sides who earn over 250k+ annually yet are constantly broke...I'm not sure it does. :)

Maybe the opposite though?

Spend very little and the rest sorts itself out.  :)
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

Gimesalot

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Re: What is your preferred path to FIRE and why?
« Reply #27 on: April 06, 2016, 01:52:04 PM »
Our Path: Mostly index funds but recently real-estate

Why? I never wanted the hassle of being a landlord so investing in index funds was the best option.  However, after a few run-ins with crappy landlords we decided it was time to buy a house.  Due to the insane cost of insurance where we live, we really didn't feel comfortable buying a single family home, so we bought a triplex and live in one apartment, rent out the other two.  This is pretty common where we live.

Result: Due to the instability and high cost of repairs of the rental, I have decided that I would still like a SWR of at most 5% NOT including the money from the rentals.  That will just be icing on the cake.

Fishindude

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Re: What is your preferred path to FIRE and why?
« Reply #28 on: April 06, 2016, 02:02:38 PM »
Get yourself into position to earn an above average income.
Keep your expenses well below the level of your income to allow investing of excess.
Don't get caught up in interest bearing debt; large mortgages, auto loans, credit cards, etc.
Pay off your house quickly and live there for virtually free using excess to invest.
Take advantage of any 401K, pension or similar benefits.
Start saving towards FIRE early in your working career and don't let other expenses get in the way of that, pay yourself first.
Pay cash for cars, vacations, toys and luxuries. 
Given the opportunity, pursue self employment to better control your own destiny and high side income potential.
Diversify your investments; 401K, cash savings, real estate, investment real estate, market investments, business, etc.
Create multiple streams of income, rather than just your daily job.
Have insurance to protect your accumulated assets.

jim555

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Re: What is your preferred path to FIRE and why?
« Reply #29 on: April 06, 2016, 02:13:15 PM »
CDs (PenFed 3%), GICs (fixed 401k), preferred stocks
Why?  Risk adverse.

Pension in 4 to 14 years, 55 to 65 yo.
« Last Edit: April 06, 2016, 02:17:59 PM by jim555 »

Langer83

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Re: What is your preferred path to FIRE and why?
« Reply #30 on: April 06, 2016, 02:21:48 PM »
I'm getting to FIRE entirely with index funds. I like the idea of finding an underpriced fixer-upper and renovating it myself, but I don't actually think I'd be cut out for that work--I think I'd do mediocre/slow work, be very frustrated, and be annoyed about spending all my free time doing renovations (After all, the reason I'm on this path is because I don't like working all the time). I also wouldn't want to deal with anything but perfect tenants (pay on-time, no damages, good communication), and my understanding is that the best returns are often in poorer neighborhoods where your odds of perfect tenants aren't great.

Other paths that haven't been mentioned include getting a side gig (which you could possibly quit your regular job to pursue eventually), peer to peer lending, and buying websites. I don't know much about these options, but I know some people have had good success.

Other than a fulfilling side gig, none of these options really appeal to me because the income/returns seem low on an hourly basis compared to my current job. I'd rather work my 9-5 for an extra year or two, but have my evenings/weekends to do what I want.

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Re: What is your preferred path to FIRE and why?
« Reply #31 on: April 06, 2016, 03:00:23 PM »
I think both paths are great and both have their pros and cons, but it seems to me like rental property is a more secure form of income for an early retiree. And if your market is still decently priced, it seems like it would require less capital to generate the same amount of income you would need to retire from rentals than you would from stocks/bonds.
My market isn't decently priced. For 20% down and a 25 year mortgage I get the privilege of maybe achieving the same return as the stock market; if my place remains occupied. Plus I would get to be a landlord! Hooray for extra work with less returns...

If I was interested my local REIT (Real Estate Investment Trust) currently pays a 4.27% annual dividend (April 6 posted rate) and manages 32,000 rentals in 220 communities. Why buy a single rental when you can buy 32,000? REITs face the same risk as owning rentals, but also have more diversity to protect from the horror stories of one bad tenant ruining your first rental. A REIT employs the same diversity to owning rentals as an ETF does for picking stocks.

steveo

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Re: What is your preferred path to FIRE and why?
« Reply #32 on: April 06, 2016, 03:35:40 PM »
preferred path: low cost ETFs/index funds (mostly)
why: lazy bastard

Exactly. This is one great benefit of this approach. It also works from a financial perspective. I think it works better or is more robust than most other methods as well.

ender

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Re: What is your preferred path to FIRE and why?
« Reply #33 on: April 06, 2016, 06:01:08 PM »
Preferred path: Lottery jackpot
Why: Instant FIRE

Realistic preferred path: Mutual funds
Why: I tried real estate, and I'm just not cut out for that. I care too much about things so I put too much money into doing things "right" or well. And I'm too much of a softy in dealing with people. And I don't want the hassle. And don't want the risk of having a big problem materialize. And don't want to have to evict people who are down on their luck. And it would weigh on me every day that there was a risk that something could happen or that I'd have to deal with some issue. No thanks. It's much easier and more convenient to just pile away fund shares.

I think real estate is probably the faster way to FI if you do it right and work hard at it. But then it's also like a 2nd job for at least awhile.

+1. These reasons make real estate not attractive to me, too.

stlbrah

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Re: What is your preferred path to FIRE and why?
« Reply #34 on: April 06, 2016, 08:04:30 PM »
I have done some studying on real estate investing a couple of times. I joined a couple of forums, read books, talked to real estate agent, got to know local market, etc. Both times I determined that it is just not that appealing to me. I have concluded that it is too much unnecessary responsibility.

I have done the same thing with consulting on the side. I know I could get way more business, but instead I just work occasionally for one client that only brings in a few thousand per year.  I have set up a website in the past (which domain name I didn't renew), and ordered some business cards that I ended up tossing.

This makes it sound like I am lazy, but not really the case. I just have other things I prioritize over my income like the gym and other hobbies that unfortunately don't bring in any money. I am busy from 6am (when I do the Miracle Morning routine) to the time I go to bed.


What I am a fan of for FIRE:
-Good paying Non-management level IT jobs
-Index fund investing
-Travel Hacking
-Coupons
- Home remedies
-Fashionable clothes from thrift shops
-DIY

It is actually humorous to me that simply doing this can lead to FIRE, while enjoying life to the fullest in the process. And not having to be a tech startup founder, investment mogul, actively trading stocks, or other stressful life.

RosieTR

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Re: What is your preferred path to FIRE and why?
« Reply #35 on: April 06, 2016, 08:12:12 PM »
Index funds, REITs, bonds, cash and a tiny bit of dabbling in individual stocks for fun. As for landlording, nope nope nopity nope. We have been there, done that and gotten the Tshirt. Property management companies are crap and had enough things like: sudden AC requiring $1500 of fixing, or informed that the door jam needed replaced because cops kicked it in. Never mind the other house where renters removed the carpet because apparently they confused basement with backyard as far as where to keep their dog was concerned. I did not exactly cherish the experience of painting the entire subfloor with Kilz but that's just me.

So, yeah. No more landlording here, thanks.

Fishindude

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Re: What is your preferred path to FIRE and why?
« Reply #36 on: April 07, 2016, 05:09:14 AM »
A lot of negative discussion about real estate investment.  Seems like everyone's first thought is that renting housing to individuals and families summarizes real estate investment.  If that was the only option, I'd stay away from it too, but there are many other ways to make a buck in real estate.

redcedar

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Re: What is your preferred path to FIRE and why?
« Reply #37 on: April 07, 2016, 05:34:40 AM »
70/30 index funds/real estate

Real estate in my current area has a decent appreciation path but unfortunately rental rates lag a good bit. So I will not aggressively seek out new real real estate but will continue to pay down the two properties that I do have and ride the appreciation wave, hopefully.

mohawkbrah

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Re: What is your preferred path to FIRE and why?
« Reply #38 on: April 08, 2016, 04:09:30 AM »
preferred path: low cost ETFs/index funds (mostly)
why: lazy bastard

i second this