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BlogArrowLandlording & Rental PropertiesArrowHow to Retire From a $50,000 Job on Just $25,000 of Rental Cash Flow
Landlording & Rental Properties

How to Retire From a $50,000 Job on Just $25,000 of Rental Cash Flow

Mike Roy
Expertise:
3 Articles Written
silhouette of man standing in front of water during sunset with hands stretched overhead symbolizing gratitude

When I told my friends and family I was leaving my corporate sales career, most scratched their heads and asked, “How will you support yourself?”

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When I explained that the income from my rental property investments was now sufficient to cover my everyday living expenses, the common refrain was, “How did you replace your salary so quickly?”

After all, I’m still in my 30s.

But the truth is I didn’t have to.

There is an unfortunate, often intimidating misconception among those who aspire to reach financial independence through cash flowing real estate. Many believe that to reach the “Promise Land,” your passive income must be equal to or greater than what you earn at your W-2 job.

This fallacy seems especially pervasive among my friends living paycheck-to-paycheck.  If they earn $50,000 per year and spend every dollar, they must need $50,000 of passive income in order to retire, right?

Unfortunately, they conclude that the only path forward is to somehow save $500,000 and invest it at a 10 percent annual return. In turn, this imposes such a steep mountain to climb, such a herculean savings task, that many abandon the financial independence journey before they even start.

And all because of a myth—one that I’m going to destroy right now!

The truth is much kinder and one that puts financial independence in closer reach for everyday Americans. The beautiful reality is that the strategic and intentional pursuit of financial freedom through income-producing real estate means that several of life's largest expenses can be eliminated altogether.

Consequently, you will not need nearly the income you earn now to sustain yourself indefinitely!

Here are the four biggest expenses you can eliminate when you pursue financial freedom through residential income property. As I go through them, I’ll also show you why this means you can retire from a $50,000 job on just $25,000 of rental income.

Related: Stop Living Paycheck to Paycheck—Here’s How

avoid-bad-deal

4 Big Expenses Eliminated by Replacing Your W-2 With Rental Income

Expense No. 1 – Housing Payment

If you’re like most Americans, housing is your largest expense. While the generally accepted measure of housing affordability is 30 percent of gross income, according to Business Insider, most Americans are now spending nearly 40 percent!

However, if you’re like those who are pursuing or have achieved financial freedom, housing might well be your smallest expenditure.

Volumes have been written on BiggerPockets about the strategies and benefits of house hacking, so I won't belabor it here. What's important to realize is that there's a strategy that works for any lifestyle and even in the most expensive locations.

It truly remains the most viable, actionable way for a modest wage earner to permanently eliminate housing expenses. For those in pursuit of early retirement, house hacking is a cornerstone strategy.

Now consider the impact of house hacking on the income required to retire from a $50,000 job.

Let’s assume a scenario where this $50K wage-earner spends $1,250 per month on rent, the 30 percent threshold of affordability. That’s $15,000 per year spent on housing. But let’s not forget, to earn $15,000 of post-tax income, that person would likely have had to earn about $18,000 in pre-tax W-2 income.

However, if that same person instead house hacked a well-purchased fourplex with a low down payment FHA loan, their effective rent could potentially be zero.

Our conclusion: the $50,000 wage-earning renter would achieve an equivalent financial position with a house hack and just $32,000 of gross income.

Related: House Hacking 101: How to “Hack” Your Housing and Get Paid to Live for Free

Expense No. 2 – Retirement Savings

When you’re financially independent, your passive income equals or exceeds your expenses—forever. This means that the years of deferring 5 percent, 10 percent, or more of your gross income to a retirement plan are over.

Let’s conservatively say that the same $50,000 wage-earner had been contributing just 5 percent of gross earnings, or $2,500 pre-tax, to a retirement account. Once financial independence is achieved, no longer are those contributions necessary.

So now, the $50K renter who traded for a $32K salary and a house hack can lop off another $2,500 of gross earnings required to be financially free.

Do you contribute 10 percent of your gross income to a retirement plan? In that case, you can subtract $5,000 of gross annual earnings required to achieve financial independence!

But for this exercise, let’s stick with just 5 percent. We’re down from $32,000 to $29,500 at this point.

first-rental-down-payment

Expense No. 3 – Income Taxes

Discussions about taxes are best held between you and a qualified CPA, which I am not. What follows is for general educational purposes with a shared understanding that everyone’s specific tax situation will be different. This is not tax advice, but a conceptual framework to help you understand that active income is generally taxed at a higher rate than passive income.

Ah, that feels better! And with the obligatory disclaimer out of the way, here we go.

One of the great benefits of owning income-producing real estate is the series of incentives bundled within the U.S. tax code. Depreciation, deduction of operating expenses, and the new 20 percent pass-through deduction are a few of the tools available that can greatly reduce or eliminate one’s tax liability on rental property income.

Because of these and other tax incentives, it is quite possible that investors with $25,000 of rental cash flow may show zero net income (or even a loss!) on their tax return.

Let’s be clear: I’m not saying that every rental property investor with $25,000 in cash flow will show a net profit of zero on their taxes. I’m only saying that the U.S. tax code provides the tools necessary to legally achieve this with a strategically constructed, leveraged portfolio.

Conversely, a $50,000 wage-earner is going to pay some level of income and FICA taxes. And while contributions to retirement plans and health savings accounts (HSA) can help reduce one’s taxable W-2 income, the opportunities to mitigate W-2 taxes are far fewer than those available to rental property investors.

Let’s assume the best-case scenario of the single wage-earner who lives in a state that does not impose income tax. Let’s also assume aggressive contributions to a 401(k) and HSA. Given that marginal tax brackets start at 10 percent, it’s very unlikely that the savviest of tax planning strategies would produce an effective income tax rate of less than 5 percent of gross income ($2,500).

For our purposes, it’s important to simply recognize that the rental property investor with $25,000 in cash flow might pay zero taxes, and the $50,000 wage-earner is likely to pay at least $2,500.

The house hacking rental property investor has again reduced the amount necessary to become financially independent from $29,500 to $27,000.

Expense No. 4 – Job-Related Expenses

Finally, there are all those job-related expenses to consider: the clothing, the transportation cost, and the extra meals eaten out because you’re too busy or too tired to cook at home.

What is the incremental cost? It’ll vary.

So again, let’s be super conservative and say you spend just $500 per year on clothing and shoes for work that you would not have otherwise; $1,000 per year in gas and extra wear and tear on your car; and another $750 per year eating out more than you would have if you did not have a job.

That’s just $2,250 per year, or $43.27 per week. Can we agree that this is a low-ball estimate?

Even so, to earn $2,250 of W-2 income might mean $2,500 of gross pay is required. And while $2,500 might be a laughably low estimate for this category, it’s all you need to subtract to bring our total income requirement down further still from $27,000 to $24,500.

Do you see what we did there? In two paradigm shifts—where you live (house hack) and how you earn your income (rental portfolio)—we’ve proven that you can live just as well on $25,000 of rental income as you did working a $50,000 job!

Related: The Ultimate Guide to Real Estate Taxes & Deductions

vacation-rental-upgrades-1

Financial Independence Is Truly Within Reach

If you’ve been following closely, two things should be readily apparent:

1. Any level of W-2 wage earnings can likely be offset with a house hack and a rental portfolio that generates 50 percent of said W-2 income. 

A $100,000 wage-earner who spends at the 30 percent threshold of housing affordability can potentially save as much as $30,000 per year with a house hack—twice the house hack savings of our $50,000 wage-earner. So while the amount of rental income you require will increase proportionately to a higher W-2 income, the amount of savings you generate when you eliminate your housing cost, retirement contributions, income taxes, and job-related expenses will decrease proportionately, as well.

2. The value of a raise at your W-2 job was just cut in half! 

Let’s say that you earn $60,000 as a junior accountant and know that senior accountants at your firm earn $70,000. However, senior accountants have at least five years of experience and tend to be the go-getters who put in 60 hours per week. Great, you’re just 15,600 hard hours away from that $10,000!

But we just proved that you’ll likely require just $5,000 of income from a rental property in your early retirement. That’s just $416.67 per month, or a well-purchased duplex that cash flows at $208.33 monthly per door.

So, should you spend 15,600 hours going after that raise? Or maybe 1/100 of that time to identify and purchase a duplex?

Career aspirations aside, the decision is easy. And it gets better.

Back to the example of the $50,000 wage-earner.  Instead of needing to save $500,000 and invest at a 10 percent return as originally feared, that savings goal has also been cut in half to just $250,000 invested at a 10 percent return.

This means you can turn that $15,000 annual house hack savings into the $250,000 you require in just 15 years, assuming a 1.5 percent compounded return.

While 15 years may not be considered early retirement in some F.I.R.E. circles, it’s lightning fast to those who are taught to expect to work 30 years, 40 years, or more. But 15 years isn’t your best-case scenario either. In fact, 15 years should be the longest amount of time you should expect the financial independence journey to take.

How do you get there even faster? Maybe you bear down and go after that promotion after all. Maybe you change employers to one that will pay you more or promote you faster. Maybe you find a side hustle that will put another $10,000 per year into your pocket? Or maybe you flip or BRRRR a property along the way.

Any one of these decisions can increase that $15,000 of annual savings into $25,000, and  now you’re just 10 years away. Combine these strategies with the power of goal setting and lifestyle optimization, and you might get there even faster.

If you’re reading this in your early 20s, you could be financially free by age 30!

Financial independence is more achievable than most think. Eliminate big expenses and get there faster with a house hack and an income-producing rental portfolio, and you’ll have your friends and family scratching their heads, too!

______________________________________________________________________________________

Need a way to up your real estate investment game? Author and investor David Greene shares how he expanded his real estate business from two houses per year to two houses per month with the BRRRR strategy. Pick up your copy from the BiggerPockets bookstore today!

______________________________________________________________________________________

Are you pursuing financial independence? How’s it going?

Let me know below!

By Mike Roy
Mike Roy is a multifamily real estate investor, licensed real estate agent, active house hacker, and personal finance/early retirement enthusiast. He earned a Master's Degree from the Universi...
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Mike Roy is a multifamily real estate investor, licensed real estate agent, active house hacker, and personal finance/early retirement enthusiast. He earned a Master's Degree from the University of Massachusetts before embarking on a decade-long corporate sales career that included attaining his "dream job" in professional sports with the Tampa Bay Rays. It was there he learned that even the job of your dreams demands that you trade your precious time, family relationships and personal freedom for money. Mike's search for a better way forward brought him to BiggerPockets in 2012. Soon after, he began his own journey toward financial independence through income producing real estate, a goal he accomplished in 2019 at the age of 38. Mike spends his newfound freedom on his most meaningful pursuits: being a loving, attentive husband and father; continuing to learn and grow as a real estate investor; and guiding others toward financial independence through personal finance mastery and acquisition of income producing real estate.
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27 Replies
    Dave Rav from Summerville, SC
    Replied over 1 year ago
    Great post! This situation is similar to me. Although I haven’t yet totally thrown in the towel on my J-O-B, I’m getting closer and closer. Ive been part-time now for about 2 years and am loving the shorter work days. I’m home early 3 days a week and off every Friday (yep, every weekend is a 3-day weekend!). I would say my quality of life is absolutely fantastic, for someone in their 30s. Like you, my RE cashflow and residuals have allowed this. Income replacement is where its at. And as you mentioned, if you can trim back your expenses, you can fast-track early retirement. One concept I don’t share with you is the house hacking – not for me. I’d rather not reside with my tenants and see them daily, plus I like to keep my personal and biz lives separate (in a house hack, you’re physically living in your business). Just how I do it. I’m also in my 30s and really appreciate the importance of monthly CF. I used to think flips were most important, and although I’ve done several (and will do more) and they’re very helpful, they dont provide ongoing income. You eventually have to get “back to work” and turn the next deal. Thanks!

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    Dave Rav from Summerville, SC
    Replied over 1 year ago
    Great post! This situation is similar to me. Although I haven’t yet totally thrown in the towel on my J-O-B, I’m getting closer and closer. Ive been part-time now for about 2 years and am loving the shorter work days. I’m home early 3 days a week and off every Friday (yep, every weekend is a 3-day weekend!). I would say my quality of life is absolutely fantastic, for someone in their 30s. Like you, my RE cashflow and residuals have allowed this. Income replacement is where its at. And as you mentioned, if you can trim back your expenses, you can fast-track early retirement. One concept I don’t share with you is the house hacking – not for me. I’d rather not reside with my tenants and see them daily, plus I like to keep my personal and biz lives separate (in a house hack, you’re physically living in your business). Just how I do it. I’m also in my 30s and really appreciate the importance of monthly CF. I used to think flips were most important, and although I’ve done several (and will do more) and they’re very helpful, they dont provide ongoing income. You eventually have to get “back to work” and turn the next deal. Thanks!

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    Erik W. Real Estate Investor from Springfield, MO
    Replied over 1 year ago
    Good post to get younger folks thinking about the amazing opportunities available in the good ol’ USA today. We hear too much gloom and doom out of the 24 hour news cycle, so this ought to be a breath of fresh air. Would like to mention a few things: defining terms is important, and you did do a great job of that for the most part. I do, however, take issue with the word “retire” in the article title. Now I know that the author doesn’t always get to choose the title: it appears to be chosen for them to encourage maximum click-a-bility. By ‘retire’, I think most folks envision days on the golf courses, weekends at the lake, and bee-bopping all over the country doing whatever, whenever. The truth with house hacking is there is work: you’ve traded your junior accountant Dockers, polo shirt, and nerd glasses and are now managing 3 sets of tenants and responding to their needs, which can come at inopportune times since you live (literally) next door. This example highlight that you’ve also traded away one thing many American’s prize: privacy. Maybe in one’s 20s or 30s living in what is essentially a large housing co-op sounds like a cool adventure, but as they start to have a family and raise young kids, my guess is many folks want more privacy. My guess is supported by the fact that there are very few 4-plexes being built in my area these days. If the market for them were thriving, I would expect to see more being built. Most of what you get now are high-end duplexes that won’t cash flow enough to truly eliminate (or even substantially reduce) housing expenses: they barely generate enough rent to cover the T&I and some maintenance. If you’re willing to go less luxury, Most 4-plexes in my town are in the older section…and many of those a very run down. It would take a lot of work and patience. So even if you can find a 4-plex and even if your spouse/life-partner is okay with giving up a ton of privacy and having 3 tenants living next door…you’re still very limited in where you can live. I’m not saying it can’t be done, but I think if we’re going to discuss the topic thoroughly we need to count the “soft” costs of 1) limited choice of places to live, 2) limited privacy, and 3) increases management/workload. There are other options for cheap living too, which could be another post topic entirely. Think travel trailer/RV! Again, thanks for the post. It is encouraging and thoughtful. I think if we all took time to look at what we really needed to live and what our desires were vs. competing with the lifestyles we see around us, and then asked “what would it take to earn X$?” we’d all be pleasantly surprised! It’s not as hard as we think. I’ve been looking at shifting more of my income to rentals vs W-2. Just got promoted last year and the pay bump was nice, but hardly inspiring. I could’ve made the same extra money with just 2 more units added to the Empire!
    Ben Morrow
    Replied over 1 year ago
    Great points about the some of the real world realities! I think when it comes to the 4 plex House Hack idea you need to go with property mgmt for the other 3 units. This will add privacy because you’ll just be “one of the tenants” to the three tenants. Also, it’s great to eliminate the annoyance of people knocking at your door or having to directly solve tenant conflicts (this happens all too often with multi-unit living situations). Best 10% fee you will ever spend.

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    Ricardo Gomez from San Diego, CA
    Replied over 1 year ago
    Hello Erik, I agree with your comment completely. Right now I’m in my early 20’s, and house hacking sounds like a great way to get started in real estate investing. However, when I envision my life being financially independent, living next to my tenants is not something I want to be doing when I’m married with kids. The “soft” costs really do make an impact on this decision. In my opinion privacy is one of my top priorities, even today. This is a good article, and thank you for sharing. Sincerely, Ricardo Gomez

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    Dave Rav from Summerville, SC
    Replied over 1 year ago
    @Erik Whiting – some good points raised. Its funny, my post just before yours highlights the same thing. House hacking is definitely NOT for everyone – this includes me. I have never done it, yet am barreling toward financial independence (not the same as retirement) The one thing house hacking offers is a fast-track toward financial independence, or maybe even retirement. It does this through assisting (or fully paying for, in some cases) one’s largest expense in life – housing. If someone does take this path, I highly recommend once the property is stabilized doing whatever is necessary to exit that multifamily as one’s primary residence. Conversely, I have been investing strategically and regularly for about 12 years – began at age 27. No house hacking here. I also consider myself conservative, and dont take crazy risks. My efforts seem to be paying off, and replacing my income nicely. This affords me the ability to work part-time, spend more time with family, and enjoy the important things in life. Thanks for your post!

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    Katie Rogers from Santa Barbara, California
    Replied over 1 year ago
    Assuming 10% interest/dividends to live on is pretty optimistic. Retirement experts used to assume 8% for many, many years, but many of them are reducing those expectations because (among other reasons) recently so many corporations have pulled so much future profit into the present through various means.
    Mike Roy Rental Property Investor from Bath, ME
    Replied over 1 year ago
    Hi Katie – Remember, we’re not talking stocks and bonds, but instead income producing real estate. 10% returns are harder to find today, but historically it’s quite reasonable.
    Katie Rogers from Santa Barbara, California
    Replied over 1 year ago
    You wrote, “Instead of needing to save $500,000 and invest at a 10 percent return as originally feared, that savings goal has also been cut in half to just $250,000 invested at a 10 percent return.” That implies stocks and bonds. If you are talking about real estate returns, remember that that most people need to qualify for a loan as well as accumulate the down payment, and even then you may be hard pressed to actually achieve a 10% return year in and year out. Lots BP users report that they aim for a cash flow of a minimum of $100/door/month. At that rate, to have a cash flow of $25,000 per year you would need 21 units. Historical returns are one data point, but certainly not guaranteed. From 1999 to 2019. the SPY has returned only an average of 2% per year. If 20 years of the your typical 40-year working and saving life are those 20-years, you are far below so-called historical averages. Besides, historical averages contain survivorship bias. For example, a 180-year annualized average return glosses over all the companies that went out of business during that time.

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    Al Bigonia Investor from Farmington, New Hampshire
    Replied over 1 year ago
    Well done Mike! I’m a 70 year old boomer. 20 years ago I was a 50 year old just past the child support etc. years after divorce with $25 in my checking account. Bought a Duplex with 100% VA financing. A few years later I decided “help” with the mortgage wasn’t enough. Another Duplex later I had (in affect) what most of my friends were after as their fist step towards retiring…a paid off house. (no Mortgage) They say most peoples biggest fear in retirement is that they will outlive their money. With Rental Property we don’t have that worry. I Love Bigger Pockets, and all that I’ve learned from them, but there’s too much emphasis on building a Real Estate Business. (I have SS Checks too now)
    RC Lupton Contractor from Denver, CO
    Replied over 1 year ago
    Congrats Al, well done!!

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    Mike Roy Rental Property Investor from Bath, ME
    Replied over 1 year ago
    Thanks Al!

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    Randy E. Rental Property Investor from Durham, NC
    Replied over 1 year ago
    Great job, Al! A little thinking, a little planning, some saving, a lot of guts, and you achieve what all working-class people dream of their entire adult lives.

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    Matt McGuire Rental Property Investor from Montgomery, TX
    Replied over 1 year ago
    Great article and comments! One topic I would add is the cost of health insurance. I know several people (including my parents) that won’t quit that W-2 job because of the cost of health insurance. It is outrageous and depending on your age could be the same as a mortgage. What are some ways people are managing the soaring cost of insurance when leaving their W-2 job early?
    Mike Roy Rental Property Investor from Bath, ME
    Replied over 1 year ago
    Hi Matt – Great comment! If you are truly going to try to retire on $25k, the federal tax credit will result in a very low premium for an ACA plan. In fact, tax credits dont phase out until $100k. For very high income earners, health sharing ministries provide a compelling option.

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    John Elliott Investor from Oakland, CA
    Replied over 1 year ago
    Sorry to be the turd in the punch bowl here, but I think we should define the term ‘live off of’ more clearly. While it possible to ‘live off of’ 25K a year, while living in an apartment in a house-hacked four-plex, forgoing new clothes, vacations, and any of the slightest luxuries in life, one could potentially live like a pauper more or less by age 30. Thats a loooong life ahead of you living a pretty bare minimum lifestyle, but sure it can allow someone to leave workforce temporarily or transition to a different career , but as far as ‘retirement’ I think that’s a stretch. How sustainable is this lifestyle? Multifamily maintenance can be expensive , so can bad tenants. There are alot of variable expenses that are unaccounted for which eat into idealistic ‘spreadsheet’ math. All it takes is a few big bad events to knock over this house of cards, a historic depression, all your tenants move out, the foundation cracks, etc. My recommendation: aim higher. If you are making 50K W-2 , shoot for 50K passive/rental income – even if you ‘don’t need’ to. Don’t be so quick to pull the early retirement lever just because it’s ‘feasible’. Pull when you are constantly bringing in incomes , have a few years of tax returns to look back on and can safely project returns into the future , go with the most pessimistic scenario and build from there, you will be happy you did.
    Mike Roy Rental Property Investor from Bath, ME
    Replied over 1 year ago
    Agree 100%. The argument here was that, if you can live on $50k while paying 30% of your income to rent, you can live on $25k of rental income and a house hack. Neither scenario is lavish, but I used $50k of W2 because it is close to the national median. If you can get to $25k in passive income, you can most certainly keep going to $50k and beyond!

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    Harry Looknanan Jr. Rental Property Investor from San Antonio TX
    Replied over 1 year ago
    I routinely see the estimate of 30% of Gross Income being spent on Housing to describe what it should cost, but isn’t the reality 30% of take home pay?!! I don’t pay my monthly mortgage payment with Gross Salary. 🙂 In my humble opinion, its a disservice to calculate housing affordability on Gross Income. When the Mortgage person shared what we qualified for, I recalculated using my take home pay and went with the lower, more realistic, price range of Homes. Glad I did, because I have no control on Property Taxes which is taking more and more space on the housing budgets of Americans. I love Bigger Pockets. Let us consider using “Take Home Pay” for referencing Housing Affordability.
    Mike Roy Rental Property Investor from Bath, ME
    Replied over 1 year ago
    Thanks Harry. 30% gross is the threshold HUD uses to define affordability. The data shows that a significant number of Americans pay an even greater percentage of their income on housing. My intent was to broadly demonstrate the potential savings a house hack can provide.

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    Asif Aman Specialist from Durham, NC
    Replied over 1 year ago
    I think there are valid points on both sides. However, I just want to point out that the SPY performance of 2% annualized between 1999 and 2019 is very misleading, even if it true. Because, no one put all their money in SPY in 1999, which is the peak of the bubble, and waited for 20 years; that’s not how people invest for retirement. People put a small amount, whatever they can afford, 1% or 5% or 10% every paycheck. If you did that every month or every paycheck, your ROI will NOT be 2% annualized. It would be closer to the 10% that SPY has done for a century.
    Katie Rogers from Santa Barbara, California
    Replied over 1 year ago
    You are correct about SPY, but it was just an example. The author talked about putting your savings in an index fund. SPY is just an example of an index fund. It doesn’t really matter which fund you choose or which fund was offered in your 401(k). Except for a few individual stocks (and no one should fancy themselves a stock picker), what most people think of investing did not do very well for about 20 years. Besides what makes a bubble a bubble is not the no one is buying, but that everyone is buying. Again, I prepared these tax returns.
    Darin Anderson Investor from Victoria, MN
    Replied over 1 year ago
    I am not sure where you got your numbers from but the SPY returned almost 6% during that cherry picked 20 year period. The SPY ETF closed 5/3/2019 at 294.03 The SPY ETF closed 5/3/1999 at 93.85 (adjusted for splits and dividends) (these two values can be verified by looking them up) 93.85 x (1.0587) ^ 20 = 293.69 So the SPY return exceeded 5.87% annualized over 20 years. And that time period was cherry picked to be just before the two largest stock market corrections (both over 50%) to occur in the US stock market in the last 50 years. They both happened back to back and this period includes both of them and it still returned almost 6% annualized. Any other time period which isn’t so precariously chosen would do significantly better.
    Katie Rogers from Santa Barbara, California
    Replied over 1 year ago
    I did not “cherry pick.” Any investor could have faced the same 20-year interval I used, depending on many many variables in their life especially when they started their working history. There’s a reason the lengthy period of sideways returns was called the “lost decade.” I DID look up SPY. The chart for that ETF is very easy to find. The SPY closed on 5/3/1999 at $135. That 20-year interval did indeed return nearly 6% annualized. However, about this? On 9/23/1996, SPY closed at $68.59. On 3/2/2009, it closed at $68.92. That 13 years returned near 0% annualized. Many people concluded that there had been near zero gain on the savings of one-third of their working life and closed their retirement accounts. I know, because as I said I prepared their tax returns. They were doubly appalled at having to pay a penalty plus pay those deferred taxes plus pay (in some cases) a bit of capital gains tax. We can argue in hindsight that they should have let it ride, but some could not because they were already too close to retirement. Many 401(k)s lost half their value at that time. It is true that other time periods do better. It is also true that these kinds of arguments are heavily dependent on whatever start point or end point is chosen. Financial advisors (read: salesmen) are always trying to sell investment based on the most optimistic data. Another fact is that the people who mainly benefits from advisors’ rosy projections are not the clients, but the advisors (with their until recently quite common annual advice fee of 2% of assets under management. That 2% annual risk-free return has made the advisors rich, but not their clients.

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    Erik Orozco from Mcallen, Texas
    Replied over 1 year ago
    Great article @Mike Roy! The house hack is an option that can open so many doors for investors and seems to have gotten some heat lately. My guess is that some of these comments are coming from people who have never house hacked. The reality is some will choose not do it based on their circumstance, family, life style preference, etc. and that’s fine. But at the end of the day it is a choice and great opportunity that can sky rocket your investing/savings. I’m currently in a 4-plex house hack and looking to jump into another. I’ve acquired a cash flowing business and I’m in the middle of negotiating the purchase of a commercial property with the savings from my house hack. My tenants are low maintenance, private (they enjoy their privacy too imagine that), pay rent on time and have lived on the property for 5+ years. They don’t knock on my door or unexpectedly come over. They send me a quick text for non emergency maintenance or rent related items. They go directly to a bank and pay the rent. No checks no cash. They take care and have pride in their units. @John Elliot I like your recommendation for aiming for higher and having rental income match your w-2! But how likely will your big bad events happen in quick succession? Call me naive young and stupid but I don’t see this happening. Overall a fantastic plan for leaving the workforce or transitioning to a different career

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    Esete Berhane
    Replied over 1 year ago
    I really enjoyed reading this article and all the great comments. I’m newly starting my journey for Financial Freedom and everyone’s input and perspective is very helpful. I’m currently trying to house hack hoping to find a great deal soon.

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    Melissa Horwath Investor from San Francisco, California
    Replied over 1 year ago
    Boom. Spot on. I did just this. I’ll add that “living with the parents” really helped me out. I know some people don’t have this luxury or their parents want them to pay rent but what about a fund that you put the rent into and get a portion of it when you move out? House hacking is the most important thing to tackle as housing is likely your biggest expense. I saved 95% of my paycheck and bought a condo at 26, rented it out, bought another house, and retired at 36. It’s all possible with the right mentality. I’ll say it was easier than most people think because most people aren’t thinking this way! Saving became second nature. Think different, think big, think smart. Instead of buying another rental property and dealing with more tenants, why not pay down your current mortgage? It’s all about working the system so it benefits you. You have no control over paycheck-to-paycheck. Goal, plan, action.

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    Mark Coveny
    Replied 8 months ago
    I think you're missing two big expenses when you estimate retirement costs. First, while you will have less work-related expenses you'll have a lot of free time on your hands, that means you'll be doing projects, travel, eating out, etc. In other words, enjoying life costs money. So I feel like #4 will be replaced by it's more expensive brother... boredom. Secondly, and more importantly, is medical costs. You'll be looking at 10k a year or more depending on how healthy you are and how big of a risk you want to take with your health. (if you're younger obviously this isn't as big of a factor) Lastly real property is like any other investing, during the lockdown for Corona I've seen a dip in income, and an increase in repairs. (tenants have no problem using rags when they couldn't buy TP, hell I had a plumber fish a BLANKET out of one of them) If you're living on your lowest number possible long dips in the rental market will have you coming out of retirement to pay the bills.

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