Can I really retire early on 4 duplexes?

25 Replies

My husband and I are DINKs with a plan to retire early, well go to very part-time, that seems too easy, and I'm hoping the experts (you!) can help us vet this plan.

I'm 39 and my husband is 46. We live in Austin, TX and our lifestyle is pretty simple.  $2,800/mo covers all of our necessary expenses. We don't want to be rich, we want more free time. 

We currently have the following properties, all with mortgages and at least 25% equity. We manage the properties ourselves (family helps with Dayton). 

1. Our home in Austin- SFH, mortgage $1500/mo

2. A duplex in Austin - value $250,000, cash flows $1100/mo after PITI (doesn't include vacancy or repairs)

3. A duplex in Dayton, OH - value $110,000, cash flows $624/mo after PITI (doesn't include vacancy or repairs)

Our plan is to buy 2 more duplexes in Dayton (Austin has gotten too expensive) with similar numbers to the one we already have, so 2 more cash flowing $624/mo.  We have the cash for the down payments and are actively looking.  

Once we buy 2 more duplexes, the total cash flow (before vacancy and repairs) will be $2,972 - enough to cover our monthly expenses. We already have 6 months PITI for all 4 properties in savings, one year's living expenses in taxable investments (can get to the cash if needed), and small retirement accounts.

We both plan to work part time for challenge and social engagement, and money to cover travel, pay down mortgages by the time my husband is 60, AND to cover repair and vacancy expenses.  Once mortgages are paid off, our total cash flow will be $6,142 (in today's dollars), more than enough to support us and cover vacancies and repairs.  We will also have our taxable investments, retirement accounts and social security.

This seems too easy.  What am I missing?  I'd appreciate you poking holes in the plan, giving advice, and pointing out what I'm missing. 

Thank you in advance!

I can't poke any holes in your plan. Many others have done the same thing. Just make sure you have sufficient reserves to cover major repairs and prolonged vacancies. 

I'd get one more duplex for good measure! :)

Don't forget about capital expenditures. The roof of your duplex's will need repair/re-done at some point before you're 60.

Don't forget your capital expenditures (not to be confused with repairs). These are things that will eventually need to be replaced (some cost more than others like HVAC, roof, plumbing, exterior paint, plumbing, floors, etc).  Seems like you have already budgeted for repairs so just budget in for these cost too. Some on here have quoted around ~200/month for lifetime capital expenditures which are relatively predictable (unlike repairs).  

I would be OK with those numbers and your plan but again, I am a small fish.  Hope that helps.  

Here is a link to this issue by @Brandon Turner . @brandon 

https://www.biggerpockets.com/renewsblog/2015/10/13/real-estate-capex-estimate-capital-expenditures/

@Brandon Turnerundefined

@Jen Lucas I love your plan. My wife and I have pretty much the same plan. We are a decade ahead of you in ages so we are concentrating on carefully 1031 exchanging some leveraged properties to debt free "doors" in quality areas. We are also doing as much capex as practical on our long term holds while we are working and can absorb the cash hit better.

One thing we are doing that you might consider is to hold a few nice SFR's, our idea is that should circumstances require in retirement we can always sell one or two for other adventures without affecting the master plan significantly.

Great plan, Enjoy!!!

@ jen lucas

No poking, only jealousy.......

Like others have said, capital exp.. 

Other than that, if you are happy with a simple life style (which seems to be the case), I guess it CAN be that simple.....

@Jen Lucas I think the others hit the nail on the head, capital expenditures could easily drain your reserves if Murphy rears his ugly head. Budget monthly for these major expenses and re-calculate your cash flow. You may need to add a few more duplexes to you portfolio.

I live in Marysville, OH so Dayton is a short drive away for me. I am curious how are you finding deals in Dayton and what is your criteria? What has your experience been so far with your current Duplex? I ask because I am beginning to explore lower priced markets in this area.

I currently own a fourplex in Marysville and starting to look for another multi family property. Prices here are pretty high and multi families are hard to come by.

Thank you all for the responses!  Very helpful.  I'll definitely make sure we're considering Cap expenses.  @Aaron B - I'm most familiar with North Dayton (Englewood, Vandalia, Union).  I see you're in Austin too.  I'll PM you

Originally posted by @Jen Lucas :

My husband and I are DINKs with a plan to retire early, well go to very part-time, that seems too easy, and I'm hoping the experts (you!) can help us vet this plan.

I'm 39 and my husband is 46. We live in Austin, TX and our lifestyle is pretty simple.  $2,800/mo covers all of our necessary expenses. We don't want to be rich, we want more free time. 

We currently have the following properties, all with mortgages and at least 25% equity. We manage the properties ourselves (family helps with Dayton). 

1. Our home in Austin- SFH, mortgage $1500/mo

2. A duplex in Austin - value $250,000, cash flows $1100/mo after PITI (doesn't include vacancy or repairs)

3. A duplex in Dayton, OH - value $110,000, cash flows $624/mo after PITI (doesn't include vacancy or repairs)

Our plan is to buy 2 more duplexes in Dayton (Austin has gotten too expensive) with similar numbers to the one we already have, so 2 more cash flowing $624/mo.  We have the cash for the down payments and are actively looking.  

Once we buy 2 more duplexes, the total cash flow (before vacancy and repairs) will be $2,972 - enough to cover our monthly expenses. We already have 6 months PITI for all 4 properties in savings, one year's living expenses in taxable investments (can get to the cash if needed), and small retirement accounts.

We both plan to work part time for challenge and social engagement, and money to cover travel, pay down mortgages by the time my husband is 60, AND to cover repair and vacancy expenses.  Once mortgages are paid off, our total cash flow will be $6,142 (in today's dollars), more than enough to support us and cover vacancies and repairs.  We will also have our taxable investments, retirement accounts and social security.

This seems too easy.  What am I missing?  I'd appreciate you poking holes in the plan, giving advice, and pointing out what I'm missing. 

Thank you in advance!

You have ALREADY DONE THE HARD PART....in that you defined what "enough" is for you and established your own definition of success rather than blindly accepting that "more money and getting rich" is essential to achieving success. In addittion to CAP EX, you might also spend some time calculating how your expenses might change when you "retire"....some categories might go down (commuting expenses, work wardrobe, etc) but others may go up as you'll have a lot more hours available to go out and "enjoy living". That enjoyment might be free but it might also change your expenses. Also, bear mindful of future personal captial expenditures like auto purchases, etc. Just want to include an "escrow" of some sort for depreciating consumables like cars....My only request is that you update this thread with your progress!!!!:)

I read on BP that a conservative view is 50% of gross rent covers all the expenses except mortgage so if that number covers your $2800 needed per month you should be good. (Ie $5600 with paid off houses)

The only problem I see is that your travel budget will go way up as you enjoy retirement too much!

@Jen Lucas One thing that hasn't been mentioned is actual taxation, I'm not sure what tax bracket you'll be in with the part time jobs, and income from your RE business, It's always important to factor in taxes when planning retirement as this will be an expense to your bottom line/goal.

You need to dig deep into your long term costs for Vacancies/Evictions, Maintenance & Repairs, and Capital Reserves. These numbers become critical once you move to depending on your rental income to support your bills and lifestyle.

Those items add up to a lot more than most people expect, especially because they only appear sporadically.

I don't have enough information on your properties to speculate on specific numbers, but those items can easily eat up 30% or more of your expected gross rent income.

As others brought up living expenses that will change - one big factor that crossed my mind that wasn't mentioned was health care coverage - that expense will probably rise as you get older and may be something that you are getting from your FT jobs right now... so perhaps a bit more of a buffer of living expenses of 2800 and actual passive income of 2900 would be warranted to cover increased health care costs?  

One nice payday bonus will be when your mortgages are paid off your effective income will also rise - so you will have that to look forward to too of course.

Good Luck and best wishes!

Devil's advocate, you might want to run the numbers factoring in costs for a property manager.  Right now you have the ability to do it along with family help but if you want to travel when you're older, the family moves, etc. you'll like either have to (or want to) engage a property manager.  Granted, it's a more "conservative" approach but I think if you're planning for retirement it's better to be conservative than aggressive.  

And, as others have said, you might consider building up cash reserves (rather than just relying on rental income) for major capital expenses like roofing.  You can also take the strategy of staggering the age of the properties that you buy so that those big expenses are scattered __ years apart.  

I'll leave the age old question of "what to do in 27.5 years" for others to answer...

@Jen Lucas - my wife and I are nearing that point as well (I project two more years).  She has quit her job already actually.  The one variable that I am concerned about are health costs - we are insured through my employer now.  Do you have an idea of how you will handle health insurance or care?  Is that included in the $2800/month that you mentioned for your current expenses?

Andy

@Jen Lucas Everything looks pretty solid to me, you just need to watch out for increasing future expenses. In particular, I'd be concerned about health care. You might wind up needing another property (or two, or three) just to cover your insurance until you hit Medicare age. 

And in the shorter term, while you're still working, I would consider paying down your existing mortgages (or using 15 year notes) - your returns are much, much worse with shorter term loans (and your cashflow will be less) but you'll get them paid off faster, and have more security sooner. Just a thought. 

One other stray thought: consider minimizing the number of different areas you invest in, and really consider the future of the market in which you're buying. I see Texas continuing to go up (if more slowly) for quite a while. Population growth isn't slowing down, and more and more industries are moving there from the business-unfriendly states. The opposite is probably true for Dayton, although my crystal ball is no better than anyone else's, and at this point, who the heck knows what our economy is going to do on the manufacturing side? Dayton may very well wind up being a great market in 10 years. 

Good luck!

I agree with consolidating into one area.  Dayton could possibly be good, especially with Military tenants in that area (read: guaranteed rent).  perhaps...consider selling/renting your current personal resident and moving into a Duplex or Triplex and live totally mortgage free...

I think you'll find that you're going to need to be far richer than you think to retire comfortably, even part time working, from rental income.

Is the $1500 mortgage including property tax and Insurance?  You'll still be liable for those even when the principal is paid off.  So you're still looking at 5k per year roughly?

Right now your health care is covered by employment.  The W2 income is steady.  You don't have to worry about your employer not paying your salary because they got into a rent house they couldn't afford (maybe).

I don't know how much you're setting aside for repairs, but I would say it needs to be at least 1% of the purchase price per property (and that depends on the age of the property). Like others said, you'll need to determine the EoL for your major systems and save accordingly in addition to your repairs. Or have a line of credit and be prepared to lose much (if not all CF) from a property for some time while paying down charged CapEx.

Have you accounted for property tax increases over time in the Austin area?

Lastly, the older you get, the more you'll have to rely on others to help out with the properties.  Can you live off the equity if you have to sell earlier than expected?  Can you take a 10% hit to your gross rents (all or partial) if you decide to take up a PM?

Not trying to be a Debbie Downer but these are things you need to think about long and hard.

Hopefully everything works out and you get to live your dream(s)!

Seems slim to me unless you have additional sources of revenue such as 401k's or Roth IRA's. When do you plan on retiring? It would be nice to get your primary and duplexes mostly paid off before retirement. I am also 46 and plan on having most of my mortgage paid off along with a number of duplexes that I owe very little on to go along with our roths, 401ks and SS. The difference between us is I dont want to work if I have to and I want to have a ton of extra income to give, travel and live a higher quality of life like a cabin on the lake and a warm weather vacation home. Those are our goals.

@Jen Lucas you plan is simple and thats why its achievable.. here is a link to a blog that might help you. (its not my blog) she talks about tax benefits of being retired and actually how much you can make a year of your investments without paying taxes legally!!! 

http://themoneyhabit.org/start-here/ this is the blog she is retired at 28 years of age. 

and this is the article i mentioned about tax benefits and being retired - below  

http://themoneyhabit.org/can-pay-zero-income-tax-r...

best of luck in this amazing journey you are about to start. keep us updated. 

So far everyone has been giving some great advice.

My wife and I are also planning on retiring early through multifamily properties. We own a 4-plex here in Dayton that has gross rents of $1805/month. After PITI we have $1065 a month in cash flow. Now we save ALL of that cash flow right now, but in the future we reasonably believe about $500 a month will be needed for reserves for CAPEX and maintenance (also water and electric for the common space since it is a small apartment building). So our real profit per month is around $500. It's always better to err on the side of caution and overestimate a bit on CAPEX, repairs and maintenance, but over long periods of time it is fairly predictable.

Dayton has some great cap rates in certain areas, it's certainly one of the better markets I've closely researched.

It can seem easy but there will almost always be unexpected bumps in the road that you come across. Just be sure to leave yourselves enough margin for the hiccups!

Good Luck!

As others have said, factor in the cost of health insurance. If you're being covered by your employer right now, you might have sticker-shock as to how much it would cost to self-insure, especially as you get older.

Personally, I'm pretty conservative so if I was sure I could live happily on $3000/month, I would probably double it at least just to be safe before I pulled the plug. If you track your expenses meticulously and make sure you're covering everything without depleting your savings, then there's no reason it won't work at your goal amount though.

One consideration I'd suggest you consider is health insurance . . . 

If you've been used to having employer-paid health insurance, you might be unpleasantly shocked to see the real costs . . . 

We own a small business, so we see/pay the entirety of our premiums (through the business's small group plan) . . . We are about your age . . . and our insurance for a "silver" level plan is about $1150/mo for the two of us ($1850/mo including our 3 kids) . . . And that's a policy with a $2500 individual deductible and modest but not insignificant co-pays. We often burn through our deductibles, even with having a relatively very healthy family . . . I haven't added it up, but I'd guess that our health care expenses are at least several hundred per month, on average, beyond the insurance itself. 

That'd take a very big chunk out of your 2800/mo in living expenses . . . 

So, anyway, during your strategizing, just be sure you have considered the full cost (and availability!) of health insurance and any other employer provided (or employer subsidized) benefits you are accustomed to receiving. 

And, of course, just getting insurance without having a FT W-2 type job is likely to get very difficult again when the ACA is repealed/replaced/whatever. 

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