When I began planning to write the book Retire Early With Real Estate, I wanted to do some research. I had my own experience building wealth and living off of rental income, but I wanted to learn from the experiences of others.
So, I sent out a 11-question survey to readers on BiggerPockets.com, ChooseFi.com, and my own newsletter. Eight hundred and fifty one responses later, I learned some very interesting details and lessons.
In this post, I’ll share three of my favorite results. For the full survey results (11 questions) plus 25 detailed case studies of real estate early retirees, be sure to get the book (available here).
Now, let’s take a look at some of the survey results.
Passive Income Needed For Financial Independence
How much passive income do you need to pay your expenses after financial independence? During conversations with people, I usually get a wide variety of answers.
Some people can’t imagine being happy with less than $200,000 per year. Others live happily on less than $30,000 per year (check out this Tim Ferris interview of my friend Mr. Money Mustache — Living Beautifully on $25-27K Per Year).
Of course your number depends on your personal preferences and your location’s overall cost of living. You may also have extenuating circumstances, like high medical costs.
So, there’s no judgement from me whatever your number happens to be.
BUT … too many of us succumb to the popular idea that we need a huge amount of passive income to reach financial independence. In real estate, that translates to you need a big real estate empire with hundreds of units to actually make it.
After doing this survey, I realized that those popular ideas aren’t actually that common. Let’s take a look at the results for this question:
Here are my big takeaway lessons:
- A majority of people needed less than $75,000 per year (~56 percent).
- Less than 9 percent of people needed the top income category — more than $150,000 per year.
- The median response was that people need between $50,000 to $75,000 per year.
So at least in my sample set, “keeping up with the Joneses” means just covering a reasonable amount of expenses with passive income.
And this seems to make sense because according to this article (which draws from Census and social security data), the median U.S. household income as of 2015 was $56,516. The average household income was $79,263.
If you want to retire early, these takeaways are important. The more income you need, the more wealth (and time at a job) you’ll need to reach financial independence.
And the less wealth you need, the sooner you can step out of the 9–5 rat race (i.e. retire early) and create more options for your life!
Now let’s look at another survey topic, the ideal number of rental units in retirement.
The Ideal Number of Rental Units In Retirement
How many rental units would be ideal for your retirement? Many BiggerPockets podcasts feature guests with hundreds of units and enormous real estate empires.
But is that what you need?
Let’s look at the survey results to see how most people responded:
Here were my big takeaway lessons:
- A majority of people wanted 20 units or less (~57 percent)
- A large majority of people wanted 50 units or less (~78 percent)
- The median response was between 20 and 50 units
I’m also aware that two of my answers overlapped (11–20 and 20–50). So, my mistake made it hard on anyone who wanted exactly 20 units!
But the big lesson here is that most people aren’t wishing for hundreds of units. A portfolio of 20–50 units will satisfy most.
And when you look at the simple math of a real estate early retirement, this also makes sense. Depending on the cost of your properties, you can build a portfolio of only 10–20 units and cover all of your personal expenses very easily.
For those not wanting to spend time managing enormous empires, you can now breathe a sigh of relief!
Let’s wrap things up by looking at the ideal debt level for your rental properties in retirement.
The Ideal Level of Rental Property Debt in Retirement
To stay leveraged or not? That is the question that fires up passions in so many BiggerPockets forum discussions!
Most real estate investors start with some debt (although an all-cash plan is possible, too). But eventually you’ll hit a fork in the road when you must decide how to invest excess cash flow:
- Should you continue to save cash for more down payments?
- Or should you begin paying off your mortgages?
As I explain in the book, a lot depends upon your personal risk preferences and how big you want to grow your portfolio.
Just in terms of growth, reinvesting cash into new deals usually makes sense. But I knew many investors in 2007–2009 who crashed and burned because they were overleveraged. They didn’t reduce their risk, and they basically had to start over as a result.
So, what is the ideal level of rental property debt once you reach retirement? Here are the responses from the survey (the percentage refers to the overall portfolio loan to value ratio):
Here were my big takeaway lessons:
- A majority of people (~65 percent of responses) prefer a rental debt level of 50 percent or less in retirement
- Very few people (2.5 percent of responses) are comfortable with high debt levels of 76% or more in retirement
- Over 15 percent of people weren’t sure or this question didn’t apply to them (I assume because they didn’t own real estate)
I would also guess that older respondents would be less likely to carry higher debt levels than younger respondents. But I didn’t get that breakdown from the survey, unfortunately.
My own personal preference at 38 years old is between 26 percent and 50 percent loan to value. I like the idea of having some properties free and clear of debt for increased cash flow and reduced risk. And then on other properties, I like to maintain good debt at higher loan to values for inflation hedges.
As you grow and develop a mature portfolio of rental properties for passive income, you’ll need to make your own choices as well.
The Most Important Survey Response is YOUR Answer
I hope you’ve found these early retirement survey responses interesting and helpful. They certainly informed many of my ideas as I wrote the book Retire Early With Real Estate.
In the book, I go into these topics in much more depth as I explain how to climb towards early retirement using real estate. I also interview 25 early retirees in much more depth to understand how they did it.
But ultimately, the most important response to any of these questions is yours! And the most interesting and educational part of the survey is WHY you respond the way you do.
So, now let me ask you…
What amount of personal expenses do you need to cover after financial independence?
What’s your ideal number of rental units in retirement? What’s your ideal level of debt on rental properties in retirement? Tell us below!
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.