Being frugal paid off in RE: $1k car, $1MM in RE, $140K/yr gross rents, and free couches..

82 Replies

I was looking for advice on starting out in being a successful real estate investor (with no capital) years back and ran across a few people who gave some of the best advice I have ever received for that scenario:

BE FRUGAL WITH YOUR MONEY (+ NETWORK! and FHA for 4plexes ;)

I started with no cash, slightly negative net worth coming out of college, a few credit cards, and a dream in my pocket.. After making some financial sacrifices along the way in my personal life, including moving more than once, I was able to build a portfolio of over $1MM in RE and $140k/yr in gross rents (my share; gross, not net) between 4 personally and partially owned properties and a master lease deal, at 30 years old. Did you make sacrifices to get started too?

I make under $100K in a stable 9-5 job in the Bay Area (which is not that much here!), and work across from people who have spent as much on their Brietling watch as I did on the downpayment for my first 4plex that is up $100K+ and giving me monthly cash flow. I settled for an inexpensive but nice pair of cufflinks for $30.

 After not having a car for years, I drove a hand-me-down beater truck w/ 250k miles, until it couldn't pass smog, and traded it for a coin-op washer & dryer for a 4plex I bought with a partner a few months ago. After that, I bought a 1991 Honda Civic for $1k, and put the rest of those savings in a partnership on a duplex with the same $100K in equity upside and lots of cash flow for less than half in cash of what most of my colleagues have spent on a car. ***NETWORKING COMES IN HANDY FOR BUILDING THE PORTFOLIO TOO!**

I invite friends out to beautiful Lake Merritt for a drink instead of going to the bar.
I skip cable and satellite TV and watch things on occasion on Hulu.
I have always received free furniture off of Craigslist or from friends, in decent condition, but of course never really what I wanted.

MY RECOMMENDATION FOR OTHERS STARTING OUT WITH LITTLE CAPITAL, OR DON'T HAVE THE EXPERIENCE OR AGE, PUT YOUR MONEY TOWARDS RE INSTEAD OF "NICE STUFF!"

I recently met a young investor like myself who said he didn't have enough money to get started in some areas he wanted to, couldn't find cash flow, but was driving a brand new Mercedes! I'm sure I'll get some flack from those who have really "made it" about enjoying your life. And I do :) But the best things in life aren't things ;) Or shiny stuff. Or new, comfy cars. *some of which I may enjoy more in the future*

But that long-term growth of income and equity in RE really can put you closer toward that goal of getting off the 9-5, and plowing your cash into RE instead of depreciating assets is a great way to get started!

ps. I finally bought my first new couch from a store after meeting my first big benchmark of $1MM in RE :) Not too expensive, but It's great! And has a fold-out bed, which I may utilize to generate some income when I AirB&B out my apartment next time I'm out of the country traveling! :)

Did you make sacrifices to get started in RE? Any advice for others getting started out?

So true @J Martin! The car analogy is one I use often.   Ours have over 100,000 each and our newest is almost 10 years old.  Our new car money has been funneled into RE instead, and I wouldn't have it any other way. The newer cars will come soon, after some milestones have been hit.    

Being frugal is definitely a way of life no matter how much money you make or if you have a huge net worth. I started from zero properties to owning 50+ properties in one year. I have used my savings to purchase some properties and with the profits I made I invested into new properties. I used to drive big fancy cars and living in huge houses. I found that buying fancy car is the most stupid financial decision one can make. Not only it attracts a lot of unwanted attention (and problems). Fancy cars, clothes, bags, watches,  etc does not appreciate like real estate does. It starts to loose value the minute you drive off the dealership. Nowadays I drive my Honda Civic Hybrid and my wife drives a Scion. We are very happy with this lifestyle and no matter how much money I make I will keep living within our means. So I'll completely agree that if you don't have much capital to start with you must create the habit to not waste money and invest every cent you can. 

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Excellent post.  Although I have yet to purchase my first investment property, my wife and I have always had a frugal lifestyle.  There are definitely areas we can improve on, but we managed to pay off our 15 year mortgage in 10 1/2 years.  We achieved this while gradually increasing our retirement contributions to 25% of our gross income.  If we spent money like our friends, neighbors, & peers there is no doubt we would still be in debt.

For those of you living a frugal lifestyle or wishing to adopt one, here is a site you might want to check out.  The mission of the organization is to keep usable items out of the landfils.  Unlike Craigslist, which I also use, the site can take on more of a community feel. 

No affiliation with the organization.

@J. Martin  Congrats!  I wish I started younger!

On the BP podcasts they always ask what sets apart successful investors.  I think one of the big things is saving and sacrificing.  People who are looking to get into RE so they can take nice vacations are not the ones who are going to have long term success.

@J. Martin  absolutely! My husband and I have paid off over $35k in debt in the last 3 years. I started following Dave Ramsey years ago and was on a budget for a long time, but we were so far in the hole that it took us a long time to get on even ground and really start paying off debt.

We were scrimping, saving, every dollar had a name. Very focused and just attacking debt like nobody's business. However my student loan debt is big and not getting any smaller, and I was tired of being a slave to it. Then our son came along and changed everything. Now I wanted to be a stay at home mom, so I had to figure out "how to be home with him and still make the kind of money I am making now" to get rid of all of this stupid debt.

So my thoughts brought me back to real estate investment. I have always been interested in it, but just thought I could never do it. And then I came across Bigger Pockets and researched, researched and educated myself. Then I heard a podcast in which Brandon spoke about 203k loans and it was ON! We were renting at the time. We had squirreled away some savings and I called mortgage brokers until I found one that was willing to do the 203k loan for me. Then I found a hungry agent who was willing to show me 30 homes before we found one that we could live in and fix up. 

And here we are. We have our first foreclosure and now I am working on finding 2 and 3 and 4. I love to flip, that is my passion. That is what I love and while it is a little more difficult to get going, I have finally found some investors that are willing to work with me and help me grow my business and fulfill my dreams. 

I owe a lot to this community, because without it. I don't think I could have gotten as far as I have with the confidence that I have.

Great thread J! Thank you!

Good job, J!  How frugal do you plan to be in 10 years from now?  My expenses have gone way up in the past 10 years. I'm still fairly frugal in a few key areas, but overall, spending way more now. 

@J. Martin  

Congratulations J.  Being a serial entrepreneur since my 20s, frugal just became a way of life.

But all it takes is one kid and keeping the frugality train on-track becomes much harder ... though our little fellow thinks Kijiji is a store as that from where almost all his clothing has come.  A few weeks ago, he came into the kitchen for breakfast sporting his favourite bright orange pants which not longer reached his ankles and informed his Mom that it was time to go to Kijiji because his pants had shrunk.

@J. Martin sounds like he is further along on the journey but still making intentional choices about where to splurge and where economize.  I'm maybe not quite there yet, but I am starting.. I've decided that next time I am definitely hiring out the drywall work!

This is a great post. I have a been a recent fan of Mr. Money Mustache. Coming from a third world country and having to raise a family of 6, my parents were naturally frugal. I was frugal as well but lost my way a bit in my late 20s --- still living below my means -- but frittering away on little luxuries like eating out instead of investing in assets. I'm trying to get back to my roots but not look at it from just muscling my way to frugality but from a minimalist lens where I really do not need much stuff to have a wonderful life. Really focusing on spending time with family, friends and to some extent, travel, which I value and not waste money on non-value added stuff or activities. @messaging @J. Martin

@J Martin- congrats.  Quick question about the coin-op laundry.  Ive been told its not worth while until 8 units.  What is your take so far at the 4 plex?

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I have also ridden the frugal train to RE success. Been house hacking for the last 3 years so I could apply every penny I make to RE. 

@J. Martin  I think you point of using frugality, not only with money but in all aspects of your life is a good point. About a year ago I realized I that I didn't have the time motivation to buy & prepare food. So I started eating out a lot, but soon realized that was ridiculously expensive. So I asked one of my friends if they would be interested in making my food for me. She is a stay at home mom and has to shop for food and prepare it for her family anyway. So he just makes a little extra and packages it up for me. Costs 100$ plus the cost of food. Saves me time and money. I am now reaching a point in my RE where I will need to do the same. Some things that made sense to do myself are no longer making sense. Time to farm it out so I can focus on bigger deals.

Great post @J. Martin  

I almost hate using the word "frugal"...the connotation, at least for me, conjures up feelings of deprivation, missing out, etc.  But I do it and I love it.  Lean living, getting rid of "crap", doing with less...the reality is that once you do it, you realize how much less you actually need.

And it doesn't mean that one cannot enjoy the finer things in life...it's about striking a balance between what you truly enjoy doing and having and then focusing on that.  Priorities must also go into the mix...similar to you not going after a new couch until you had 1mm in RE.

Great stuff.

There isn't much I can add but I completely agree. I still drive a 2002 Honda Accord and plan to keep using it until it dies. Just makes sense to use it on assets that bring cash flow or appreciate. I grew up "poor dad" so learning to be frugal was a process but is paying off. 

Great Post!

Originally posted by @Jon Klaus :

Good job, J!  How frugal do you plan to be in 10 years from now?  My expenses have gone way up in the past 10 years. I'm still fairly frugal in a few key areas, but overall, spending way more now. 

 How frugal 10 years from now?... Less! lol.

Really, I think you can always keep growing your investments reasonably if you're living somewhere below your means. As the portfolio grows, your spending can grow too.. But I try to keep my spending growth at only XX% of my income growth, so a good chunk of the newly generated cash flow is going into new investments. I have almost 50% of my salary going into investments.

But I'm also 30 years old, and don't have kids or a partner. I hardly think I'll be getting free couches in 5-10 years (I think those days are already over.)

It's also about allocating your money.

Some people love traveling, like me, and skimp a lot in my day to day life to make that happen. Others value a very large house, but do more "around the neighborhood" stuff than spending lots of money out and about. Some love expensive clothes or cars. That's OK too, as long as its below your means, and you realize you have to allocate somewhere..

If you're doing REALLY great and can afford the big house, shiny car, international travel, etc., then great!! Enjoy it! Just make sure you have some savings.

You should always have an umbrella, because someday it's going to rain!

John, you said you're spending more now than 10 years ago. Are you spending proportionately more? Or is the % of your income going to investments staying the same or growing?

If your spending went up more than your income, and you're depleting your assets to live the lifestyle, I wouldn't encourage it. If you're enjoying the same 70-80% of your income, and enjoying the fruits of your prior labor today while letting your nest egg grow, then you're probably living well within your means, and SHOULD be enjoying the extra income you've built up, IMHO ;)

Awesome post. I also drive an old car. I'd rather buy a HOUSE than buy a CAR. I don't have any car payment and no house payment and of course, zero credit card debts. My overhead is very low...and I have peace of mind. And I channel all the savings into private lending and into real estate. 

FREEDOM.

@jmartin and I are very similar. We live off of one income and invest the other. We buy great rentals as personal homes and rent them out when we get transferred. While we have our toys we are very frugal. At 26 we have $84,300 in gross rents that we self manage from a distance with another 3 houses under contract all started less than 3 years ago. 

 I am a huge believe in "if there's a will there's a way".  It's not that people "can't do something" they don't want the consequences behind the sacrifice to succeed.

While I have no desire to live like a transient college student for ever. Our goal is that our sacrifice now will provide us the means to retire early while living comfortable :) as they say money compounds. 

@Don Coumbs  I too made adjustments due to the fact that my wife was starting (an now is in) grad school. I am so grateful for BP because of members like you and everyone else sharing their stories. It helps reaffirm my sometimes "uncool" perspective and see what the future can look like. 

J,

Great thread.  You sound like a lot of other successful investors and your priorities are in the right place.  You remind my of my Dad, the most successful and frugal person i've ever known personally.

My Dad still wears the same old clothes, some as old as the late eighties I suspect, but can never confirm.  He still drives a modest 15 year old car, and lives in the same house that he bought 30+ years ago.  He could afford a bigger home, a newer home, an ultra luxurious high end neighborhood, etc.  But he is happy where he's at in his upper-middle class neighborhood.  Also, one of his favorite shoes are a pair of nikes I threw out 13 years ago in high school. He fished them out of the garbage and still wears them to this day.  It's funny because they are skateboarding-type sneakers designed for a younger generation, but at 73 he doesn't care.  He thinks they are comfortable and hates seeing anything go to waste.  I love that about him!

Now someone may see him shopping at the market and figure he's a blue collar kind of guy, maybe he retired from a factory job.  Little do they know he makes more net income in his retirement from real estate than many physicians.  He made sacrifices when he was young and bought property instead, and it's paid off.

He always told me that when he worked at as a loan originator for 20+ years the first red flag he saw in people at the bank was how nicely they were dressed.  He said a lot of the time the more well dressed they were, the more they were trying to "impress" the bank to get a loan and their finances were in shambles.  His conservative lifestyle created a job for me out of college when the rescission hit and he has prepared my family well after he's gone.

His frugality is my inspiration every time I want to buy something unnecessary.  I can't thank him enough for the lessons he taught me.

Its not about what car you drive or watch you wear. Its about living within or below your means. I drive a fancy car, have a nice watch, take nice vacations and wouldn't want to live like many of you describe here. Life is about living. Accumulation of wealth is not a goal in itself. However, I have zero debt outside real estate mortgages (primary and rentals), save well over 30-40% of my Gross income each year. So nothing wrong with driving a nice car or having nice things if they bring you pleasure. Its only a problem when you can't afford them and get them anyway. I know people worth millions who still live in tiny apartments and refuse to take taxis and use buses because "its a waste of money". They are not happy people. From my POV, all their wealth is worth nothing but numbers in some banks computers. What is it worth if it doesn't improve your life? Im not saying consume for the sake of consumption. But enjoy life! Money comes and goes. Time only goes.

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