Faster road to financial freedom?

20 Replies

Hi everyone,

This is my first post ever on BP, and I'm a huge fan. I've watched every single podcast and just found out about the site a month ago after reading.. Rich Dad Poor Dad, of course. 

I'd love to get some of your brilliant minds to offer your opinions here. I'm 25, with a bachelors degree, working in consulting, making 65k with 18k in student loans, renting, no car payment. I live in Atlanta by the way.


The goal: 

to have enough passive income, to be able to travel abroad cheaply, and see the world. So maybe, 3k per month? Basically to do what Paula does (plug to BP podcast 35), seeing 30 countries before age 30.

The options: 

1) Keep working, making 65-70k, saving $1k-$1,500 per month, and buy a triplex, live in it, use that cash flow to buy another 2-3 properties. (maybe 10k down on each property, the triplex being 150k and the others being 100k?) 

2) Get an MBA, probably a top 25 school, coming out making 100-120k, but with 100k likely in student loans. This would significantly increase purchasing power to buy more properties post grad faster, and could use cash flow to pay student loans. This would also give me way better knowledge of finance and ability to get good jobs long term, if I need to work a regular job.

Can't wait to hear all of your thoughts, thanks everyone!

- Vincent Crane

@Vincent Crane  Welcome.  Now my first question is, have you plotted out the numbers and timeline to acquire properties and the accumulative cash position (as in money/cash coming vs. cash you put out) based on your concept of "saving $1k-$1,500 per month, and buy a triplex, live in it, use that cash flow to buy another 2-3 properties. (maybe 10k down on each property, the triplex being 150k and the others being 100..."?

@Vincent Crane   -- my 2¢ -- Keep working, buy the triplex, use cash flow to pay off debt, save for travel.  Travel NOW!  Buy another property or two as possible.  Get a good property manager to handle while you're away.

Get your MBA locally -- unless you plan to move away from Atlanta, the networking from local grad school is as valuable as a big name degree.  You've got top options within a 90-minute strike in all directions of town, there's the possibility of part-time and online education so you can continue to earn while in school, lessening the debt load, you'll have your living arrangements already in place with your multi-family property.  Is a pedigree worth $100k? And if you have that kind of job (requiring those kinds of hours for that kind of money), when are you going to have time to travel before you're 30???

Thanks for getting back to me Joe. 

My thought was this, as a first time buy if I buy a triplex for 200k with 10-15k down, and I live in it, and it's my first purchased home ever, I rent out the other 2 units, for like $1500 each, and basically live rent free. Then I can take my savings of 1k per month, plus the "free rent of $1,500 per month" So then after 6 months I can probably put down 8k on an 80k house, rent it out for like $1600 a month, I think the 2% rule generally works in Atlanta. And then take that cashflow and savings after another 6 months and buy a 3rd property. These numbers seem like they would work, and after 2 years or so there would be some pretty significant cashflow/savings from not paying rent. I think all of this would take 3 years or so.

Regardless if you rent or buy you still pay a mortgage.....just not your mortgage.  I would get the triplex ASAP so you have no mortgage/rent/living expense.  Then save up and wipe out your debt.  Once you are debt free just keep saving money like crazy to buy more multi families.

Forget the MBA it is a waste of time and money.  Too much higher education can be a very BAD thing for the debt it will stick you with and the time it will take to pay it off.  If you are disciplined you could probably "retire" by 35 or 40 and travel all you want not having to worry about money because you acquired enough properties early on to facilitate this life style.  Live like no one else now so you can live like no one else later.......I forget who said this lol.

The quote is from Dave Ramsey.

Vincent,

Like you, I followed Bigger Pockets for a long time before finally decided to get involved and post.  Lots of great information and resources here.

You listed 2 very different options.

Option 1:  Regardless of your educational motivation you should consider owning income real estate.  Invest based on cash flow, and even though you may intend to manage the property yourself I would underwrite with this expense so you know you will still make money if you decide to travel, move away, or simply get tired of the 4 Ts (tenants, toilets, trash and termites).  For most, and myself included, managing property is learning experience, and it's not all good... collections, evictions, lawsuits, and so forth.  It's almost a "right of passage" to appreciate what an honest and reputable property management company can do for you.  In fact, long term, property management will be the key to success or failure of your income real estate.  Hire them wisely...  Interview, check references, and visit property currently under their management to feel comfortable about how they manage.

Option 2:  I wouldn't consider an MBA unless you're genuinely interested in the education.  You certainly don't need an MBA from some expensive institution to provide you with the knowledge you need to run a successful business, or to successfully acquire income property.  Knowing the answer is not as important as knowing where find the answer.  Regardless of how educated you become, you will always need the expertise of people who have specialized knowledge.  However, if you see yourself as an "employee" the education may be worth while.  And hopefully it will help you get the job of your dreams.  And hopefully you actually enjoy the job.  And hopefully work with people who appreciate you.  Always be ready for corporate downsize, or for the wind to change direction and your employer tells you you're being transferred to a place you wouldn't want to visit; let alone live.

In any case, I hate to see young, smart, motivated people under a mountain of student loans.

Good luck with whatever you choose.

@Vincent Crane  I'm not seeing numbers.  What I'm seeing is what you think you can rent these units for, but no definitive numbers.

1 - What is the rent in the area?  Can you get the 1500-1600/month, or are you using those numbers because they are what you need to get.  Big difference. 

2 - I don't see any mention of the cash flow you would be getting out of these rentals.

3 - You are buying these properties with loans, but there are very few lenders that will loan to you once you have 4 or 5 loans on the books.  What are you plans after you hit your 4/5 property?

4 - I see a combination of goals, but no actual plan to get there.

I'm not quite sure how to reply to your replies on here individually, where maybe it would then look indented like it should be? (feel free to jump in anyone if you know), like reddit I guess?

@Joe Villeneuve  The rent in the area definitely varies a lot, but it is reasonable to get a triplex where you can rent out of of the 3 bedroom units for 1500-1600 a month. As far as cash flow goes... Typically I think you can get a somewhat decent triplex for like 180k, and have a mortgage of about $1400 a month and rent out each unit of the triplex for $1400 or so, each unit having 3 bedrooms. So one unit would cover the mortgage, another would cover all the other expenses, such as repairs, trash, taxes, etc. and then the one I would live in would be "free" hypothetically. I'm not sure about once I get to property 4/5, I'm guessing some creative financing and private money would come into the picture, but I'm far from there, just trying to figure out the b school, or first triplex route first. The numbers here are total estimates, I'm not looking at any specific property yet, but I have checked out a few online just to run some numbers. (I am new here so apologies if there's any obvious gaps I'm missing).

@Eddie Werner  

 Thanks Eddie, I think the common theme I'm seeing is... buy the property and rent it out, use the cashflow to pay off existing debt and buy more, since no one else is doing that, I'll be able to retire early since I'm starting early, and it seems like the secret road to success. While most people think grad school and earning more money is the key to building wealth, it's not, it's really about building up your passive income through real estate rentals. Great advice!

@Vincent Crane   why Grad school? Unless you're going after a very specific degree  that is highly skilled, in my opinion I'd skip it, save money and get real world experience. I think most companies would rather see your experience than advanced business degrees. Good luck!

You need to find exact numbers.  You can't use words like "guess" or "about" when making a decision on what rout to take.

Find at least 5 properties and analyze them with real numbers, then you can use that to define the basis for your goals.

Next, figure out how you are going to buy them, what cash you will get back (cash flow), and then how much money you will have available (and how fast) to move onto your next property.

By the way, if you're working full time, how/who is going to manage the rehab, the tenants, the analysis, the business side, etc...

These are not road blocks, but they are things you need to establish before you can put a business plan together.  It's the forming of that business plan that will dictate if your will be able to do what you want...and what adjustments you need to make to plug the holes in the plan.

Don't give up.  The setup is what you will depend on as you start investing.  Don't let anyone tell you to move forward with out it.  Every step you take, particularly financially dictates your options for the next step, and the next one, and...

It's like dominoes.  A poorly conceived, or complete lack of a business plan means doom.

If my 2c are worth anything....

You have chosen two very different paths but as you stated it in the beginning - your goal is to travel and see 30 countries by 30.  That's six countries a year.  I think your best bet would be to house hack your way to 4 properties and then take a "mini" retirement which would allow you to take 6 months off and possibly knock 10-12 countries off your list on one big trip.  When you get back resume working and continue to acquire property.  Then take a mini retirement again.  Rinse and repeat.

An MBA will not help you achieve your stated goal. Period.

However, if you have dreams of accruing wealth.  An MBA will give you the earnings potential to really invest and let compound interest work for you.  But that is a 30 year play IMO.

I am going to grad school currently for a masters in engineering and it is significantly hampering my ability to review deals and focus on real estate.  Energy is finite and at the end of the day, there is little left for real estate.  Before I started my degree I was taking courses to become an agent.  I think being an agent part time will get you to your goals faster than an advanced degree would.

If you are true to yourself and if your goals are sincere - save money like a crazy person and work even crazier.  Work so hard that everyone thinks your are nuts.  Anyone can work really hard when there is an end in mind.  Invest that cash in property to hit your passive income goal, save money by being your own agent.  

If you house hack and have "free" rent, you should be able to travel on a lot less than $3k per month.

When you get back from traveling, you could always get an MBA then...

@Vincent Crane  

 My 2 cents on just the properties..

Your quote "So then after 6 months I can probably put down 8k on an 80k house"

Your second property will be an investment property, so more like 20% (16k) down plus closing costs. So $20k down. Also most banks won't count your rental income until after it's been on your tax returns for 2 years. So you'll have to qualify for two mortgages off your straight income. Shop around with banks, but that was one of the biggest obstacles I ran into when purchasing a few properties right in a row.

- Tom

I am 33, so I was in your shoes not too long ago.  I did my undergrad in finance and then graduated with my MBA in finance as well.   

I can tell you right off the bat, that most on this forum are not going to recommend going back to school for your MBA so that you can advance your corporate career.  Almost all on here are entrepreneurs, and by that very definition, their goal is to do everything they can to get out of the day to day employee grind and run their own lives and businesses.  Many on this forum would probably advocate not even going to college (just a guess), because they would view that as a distraction (time and money) to pursuing your own path.

I think you need to look at your MBA as an investment and then run the numbers.  You need to analyze the cash investment, calculate the return (increase in salary), and then discount that out by how many years you plan on working in the corporate world.  If you are already thinking about how you are going to grow a rental empire so that you can quit your day to day, then I think you should avoid the MBA.  If that is not the case, then I would say an MBA from a top tier school could be the proverbial golden ticket in the corporate world. 

My path was and is still to this day somewhat of a hybrid. I don't regret getting my MBA at all, and would do it again tomorrow if I had to. For me personally, my degree has paid off with a very high ROI.

      

  

I have an MBA, (although its not from a top 25 rated university, still a great university Texas a&M corpus). I did it while working full time and it only cost me 15 months of my life and 8k and I worked full time and paid cash! I own 5 houses (self manage 11), work full time and did I mention I travel! I have been to 2 different countries in 4 months with another 2 planned for the next 4. We use our W2 incomes to buy houses. Our goal is to retire at 42 and 44, living off a military pension (god/navy willing ) and our houses. So I understand where you are coming from. It possible to do all of it! 

You should look at doing it all, not choosing. Owning houses, traveling (now and later) AND buying houses. I went to a great but not top 25 school! I work a great job but it is at a considerable less salary but in a low cost of living area.) We got started with a personal property but it't a single family home not a multiplex couldn't make that work! It has low downpayment and interest rates! If you can have roommates you can live even cheaper having other people pay your bills, build interest while you invest in other things.

The key is to build multiple plans all complementing the same thing! When we were paying cash for grad school we rented a CHEAP A$$ house and lived with another couple. When we bought our first house it was a huge fixer. When we knew I wanted to be able to travel and meet up with my husband this year we rented out all of our houses, I down sized into a "storage unit with a kitchen, bathroom, and bed" but it gave us the money to invest while living!

So splurge on whats important, invest in your dreams and be frugal/cheap everywhere else. There are times where you will need to be extra cheap to get through a stage or time but this should be a phase not a way of life! You can do it all, there are choices involved but know it doesn't have to be a all or nothing conversation! 

Oh by the way! I wouldn't be where I am today if it wasn't for my MBA. My MBA is what got me my first "true" professional job at 23. It is what got my foot in the door as an executive secretary to the owners for a commercia/multi family company. It is what landed me my current job. With out my MBA I wouldn't be able to be where I am today on THIS road. There are tons of roads (check out the podcasts). I would NEVER talk someone out of a MBA or hire education! That being said, for what "I" do "ANY" MBA from a well named school was my ticket, not necessarily a 100k degree! Just a second thought on education

Hi @Vincent Crane  

Welcome to BP!

I am a fellow Atlanta Investor here in Atlanta. I have been in management consulting for over 11 w Big4. It's good to see you here on BP. 

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I don't think the 2 percent rule is that common in Atlanta-maybe it was 3 years ago. You can still get it but it will be in c and d hoods which are a bit more challenging to manage.

You have all had amazind advice so far, it's great to hear from so many different people that all have much more experience than myself, and have all taken different paths to get there. 

 @Kevin Auyong   I have yet to buy my first property so you could be completely right. There's very good and very bad areas, it's difficult to find properties at a reasonable price, in a safe area that can cash flow with solid tenants from what I'm assuming.

I've made a few trips to Atlanta looking at real estate and prices went up pretty quickly over the last few years. Only C areas can get you 2%. You won't see much appreciation probably, but run right could be great cash flow.

I too am resetting my life to buy all rentals and live off the rents so I understand where's your coming from. It can be done, just needs work and being smart.

@Vincent Crane  I have a similar background as you.  I spent a few years in consulting, MBA, etc.  

Consulting is like an MBA.  You learn a lot quickly and get a lot of exposure.  You, hopefully, will learn great business management skills and most importantly, you learn how to learn very quickly.  

MBA you get a much broader business exposure.  You'll learn accounting, finance, real estate, entrepreneurship, marketing, strategy ... on and on.  Most importantly, you'll develop relationships which will propel your career regardless of your path.

You don't have to pay $100k to get your MBA.  Try UGA, Tech, full-time programs.  You'll get a full-ride and even get paid to go.  Take a semester abroad, intern abroad.  Enjoy your time and prepare for your career in real estate.  

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