Trying to achieve financial freedom - WHAT NOW?

19 Replies

Here's my situation.  I'm 40 years old.  I have 4 rental properties.  1 has about 50% equity.  The other 3 have around 30% equity.

I have about $800,000 in my 401k.

I have about $200,000 in cash.

The 4 properties are on 30 year notes and all about 2-3 years into paying off the note.  Total owed is around $750,000.  

I gross around $110,000 per year in rent and pocket about $3,200 / month depending on how many expenses I have.

My goal is to achieve financial freedom soon.  Preferably in the next 5 years or so.

I would retire today and live on about $40,000 per year and stay within the 4% SWR.

I can pay off about $10,000 per month on the properties.

What should I do to get there faster? Should I add more properties? Should I only BRRR? I don't want to write any more 25% down checks. Should I just pound down these notes $10,000 per month?

I'd like to grow my portfolio and expand my cash flow ability while achieving financial freedom in 60 months or less.  

What am I doing wrong?  What would you recommend?

You have a lot of options. You could keep at what you are doing and pay the notes down as fast as you can and use the $200k to help get you there. I don't like this method, because I like leverage. You could refi your 50% equity property to pull out more cash and use that and the $200k to buy more rentals or to invest as you like (Crowdfund, syndication, stock market, oil, metals, start ups, etc). I personally would go this route. To me that is the fastest way to get you to your "retirement." Of course if you buy more rentals you create more work if you self manage (which may work for you), so either hire a management co or fund other real estate/businesses. 

What ever you do congrats for having a good problem!

I agreed to Todd.

The fastest way to have financial freedom is more and more leverage.

After 5 years of investment, I just achieve financial freedom starting a few months ago when my cash flow is twice of my last W-2 job.

How did I do it in 5 years of investment?
Leverage, leverage, and leverage.

If cash is the king, leverage is the god.

I pulled out all my cash, all my IRA retirement fund, pulled out $200k 0% interest rate credit cards, to finance as many properties as possible.

I'm house rich, and poor cash now.
But each month, I have a decent cash flow.

Originally posted by Account Closed:

I agreed to Todd.

The fastest way to have financial freedom is more and more leverage.

After 5 years of investment, I just achieve financial freedom starting a few months ago when my cash flow is twice of my last W-2 job.

How did I do it in 5 years of investment?
Leverage, leverage, and leverage.

If cash is the king, leverage is the god.

I pulled out all my cash, all my IRA retirement fund, pulled out $200k 0% interest rate credit cards, to finance as many properties as possible.

I'm house rich, and poor cash now.
But each month, I have a decent cash flow.

 Ok I'm fairly well versed on these things but how do you get $200k 0% credit cards?

And what do you do with them?  That's unsecured loans and not applicable to mortgages to be used as a down payment. 

Teach me! :)

I don't think you're doing anything wrong.

I would recommend that you continue to buy more properties. 

Based on the numbers provided, I'm assuming your average purchase price was ~$250K and you put down ~20% or $50K on each. If these numbers are in the ballpark, you have sufficient cash to buy 4 more similar properties, and increase your annual net income to ~$80K (that offers a lot more breathing room).

Since you purchased your properties 2-3 years ago, I'm assuming you have very LOW rates on your notes; and therefore, I would not be in a rush to pay down these loans. Instead, take advantage of the continued low rates to buy more. As mentioned above by Todd and Cathy, use the leverage.

I would not recommend investing any additional money in the stock market because you already have $800K of your 401K invested in stocks/funds.

You're in great shape, keep going!

PS - I was able to take out a loan against my 401K with a repayment plan and pay myself interest. It's a great way to pay yourself, but the max term I believe is 5-6 years.

I have 4 credit cards of $50k line each.

They always offer 0% interest rate for 12 to 18 months, but I need to pay 3% transaction fee, for 12 to 18 months, which is still good rate.

I have decent monthly cash flow. I can pay off one $50k credit card "A" easily 18 months later, then use that $50k available line from credit card "A" to pay off credit card "B", then use the $50k line from Credit Card "B" to pay off Credit Card "C", repeat the same process...

If I stop buying more properties, I can use my monthly cash flow to pay off all 4 credit cards before the 0% interest rate expires.

However, I'm still buying today and tomorrow, so my monthly cash flow is used to expand my portfolio, therefore, I use one credit card to pay off another credit card.
I have been using the 0% interest rate credit cards for more than 3 years. Since I always pay on time, the credit cards company always offer me 0% balance transfer for 12 to 18 months.

I have used up the 10 Fannie Mae conventional loan quota the first 2 years of investment before I start using my 0% credit cards.

After you have 10 conventional loans. You can finance through hard money loan, seller financing, or portfolio loans.

If you're still looking to grow, don't pay down any of that sweet fixed rate, long-term debt.  You need dry powder for a deal if it comes up.

I've been punching my debt in the face for a few years, but I am content and the mortgages deserved it.  They were all above 6% or were commercial and had short terms, adjustable rates and bothered me for my financials every year.  I doubt I'll ever accelerate my long-term stuff at 4% and below.  Too easy to beat that return!

Account Closed - I used to do the 0% credit cards.  To avoid the 3% check-writing/cash fee, I'd do a 'balance transfer' to my business acct.  All they needed was a company name and acct number.  Haven't played with cc's in years now. Be careful with those 0% deals.  If they randomly pull your credit and don't like your new debt load, they can pull the grace period whenever they feel like.  I had one go from 0% to 29.99% and never missed a payment!

Well it certainly doesn't sound like you are doing anything wrong! Sounds like you are in a great position.

My vote would be that you don't focus as much on paying down the notes and focus more on adding more properties. Numbers-dependent of course, but adding more properties is where the income is going to come from for financial freedom. 

While looking at it backwards, it's still the same question- leverage or pay cash? Leveraging all day long is where the returns are, so if financial freedom is what you want, that's the fastest way to get there.

https://www.biggerpockets.com/renewsblog/2015/04/1...

What to buy...BRRRR can definitely do it but if you are totally hands-on with it, you'll only be able to invest so fast. There are ways to have other people do it for you so you can do it a lot faster (and still reap the forced appreciation in the cash-out refi so you can pull your money back out and rinse and repeat).

Happy to chat more anytime if you want!

Originally posted by @Account Closed :

You are being offered some lunatitacal advice here.    Refi and buy metals?  CRedit card game?

Seems to me if your goal is $40k a year-you are almost there.  Paying down the extra 10k is wise.

What doesnt make sense is how much you being paid now, $15,000 a month?   $10,000 a month is quite a lot of disposable money.

 I probably net about $16,000 per month give it take. I have a fortunate career but am trying to 10x so to speak so as not to just sell my time to corporate America and also be behilden to the whims of the stock market. 

Originally posted by @Ali Boone :

Well it certainly doesn't sound like you are doing anything wrong! Sounds like you are in a great position.

My vote would be that you don't focus as much on paying down the notes and focus more on adding more properties. Numbers-dependent of course, but adding more properties is where the income is going to come from for financial freedom. 

While looking at it backwards, it's still the same question- leverage or pay cash? Leveraging all day long is where the returns are, so if financial freedom is what you want, that's the fastest way to get there.

https://www.biggerpockets.com/renewsblog/2015/04/1...

What to buy...BRRRR can definitely do it but if you are totally hands-on with it, you'll only be able to invest so fast. There are ways to have other people do it for you so you can do it a lot faster (and still reap the forced appreciation in the cash-out refi so you can pull your money back out and rinse and repeat).

Happy to chat more anytime if you want!

 My concern is getting over leveraged. Not sure quite what that number is for me but having a recession coming eventually and people. It able to make payments would concern me. I currently have mortgages and taxes of about $$5400 / month for my rentals. 

@Steve S.

Have you heard of a self-directed IRA or a solo 401(k)? These type of retirement plans allow you to purchase real estate with your retirement funds, they would be an asset in an IRA or 401(k). You can also do other alternative investments such as, private lending, private placements and many other things. I would be happy to discuss this further and connect with you.

Thank you

Carl Fischer  

@Steve S. ,

You seem conservative in your approach and your $40k/year goal is so achievable in 5 years without leveraging up the wazoo like others suggested. This is what I would do if I were you.

1) Your total loan balance is $750k. At say 4%ish interest rate, your total monthly mortgage payment is about $3,600.

2) I'd take $150k and pay down/pay off one of the properties. It's basically a guaranty 4% return on your money. Then obtain a HELOC/LOC to give yourself some liquidity should there's an emergency and you need the funds.

3) Your total new loan balance is down to $600k on your rentals. This should reduce your monthly mortgage payment to $2,900-ish. You should be able to pay them all off in 4 year-ish with an additional $10k of principal pay down. 

4) In 4 year, your net cash flow will increase to $6,800/mo ($3,200 now + $3,600 once the mortgages are paid off).

5) If you set aside $1,800/mo for repairs and maintenance, you should still clear $5k/mo or $60k/year. 

6) Once you're there, you can decide how you want to spend your time each day. Success is being able to spend your life in your own way. Time is the most precious commodity that money can buy, and you're almost there. 

Congratulations and best of luck.

@Steve S.

To an outsider looking at your finances, they may think that you are doing really well. From the inside though it may seem to you that the amount of wealth that you have built will not support the kind of lifestyle that you want.

You have 4 rental properties, and I am guessing that you don't think they don't provide you with nearly enough cash flow. Are they single family homes?

I can't give you advice on how to push to the next level since I am not there myself. I am in a similar position to you, where though I have a decent amount of wealth, I am far from financially free. There is only one thing that we can do, and that is push harder.

Hi Steve,

I think you will find as I talk to a lot of investors that accumulating more houses over time creates more challenges as it doesn't scale real well.  I would look into MF and specifically, assess whether you want to keep being active or more passive.  If active, start looking at small MF.  If passive, start looking at being a limited partner in MF syndication deals.  You could start there and then branch into some other strong areas that give you some geographic and niche diversification.  We are very active in the DFW area in apt syndications if you want to start there folks can give you some ideas.  Be patient, get some good feedback here but don't forget to assess your time, skills, money and temperament to factor into your decisions.  Here's a blog post on why I like investing in MF apartments.

https://www.biggerpockets.com/blogs/9145/53820-why...

I totally hear you. It's really a number every person needs to be comfortable with for themselves. For some people that's no leveraged properties, some people are fine leveraging everything, and everyone somewhere in between. 

The key to avoiding the situation you are talking about, and rightfully so because it can be a dangerous situation is to buy properties that can sustain their income, in markets that support that sustainability. As long as you have a fixed loan/mortgage, and the rental income isn't at a high risk for dropping dramatically, you are covered regardless of what the market does. To do that, it's about buying only in growing, strong markets. You just have to have that rental income stay put. Even if the value of the house goes down, that doesn't matter if you aren't trying to sell it. 

Adjustable rate loans are where the real danger comes in and where people have really gotten in trouble. Get an adjustable rate loan, the market tanks, then your payment goes up....that's where trouble starts. So fixed-rates are the first step to that. 

Then you want to buy in solid growth markets, as I mentioned, and then also buy properties that do consistently cash flow so there may be a little wiggle room on rental income if something should happen. But if you are buying in growth markets, it shouldn't be too drastic of an issue. 

@Steve S. Are your properties single family homes in DFW? If so, at around $250k each, you are probably well above the median rents for the area. If and when a downturn comes, it could hit the higher end properties harder.

All that to say, I wouldn't be looking to leverage your existing properties any further right now. You are getting some good cash flow, and trading up for higher value properties is something I've considered (I've got twice as many properties as you and getting about the same cash flow - more management headaches, but they are bread and butter median income rentals).

A few options I see:

1. Keep buying more rentals that cash flow as deals come up. Use your extra income to pay down one mortgage at a time.

2. Invest more passively in multifamily syndications, notes, or as a hard money lender.

3. (Crazy idea) Liquidate the 401k to pay off your current mortgages (taxes and penalties would probably take a huge chunk, hence why it's a crazy idea). At 4.5% interest, you could add another $3800 to your $3200 cash flow per month, netting $84k per year from your rentals alone.

Originally posted by @Andrew Herrig :

@Steve S. Are your properties single family homes in DFW? If so, at around $250k each, you are probably well above the median rents for the area. If and when a downturn comes, it could hit the higher end properties harder.

All that to say, I wouldn't be looking to leverage your existing properties any further right now. You are getting some good cash flow, and trading up for higher value properties is something I've considered (I've got twice as many properties as you and getting about the same cash flow - more management headaches, but they are bread and butter median income rentals).

A few options I see:

1. Keep buying more rentals that cash flow as deals come up. Use your extra income to pay down one mortgage at a time.

2. Invest more passively in multifamily syndications, notes, or as a hard money lender.

3. (Crazy idea) Liquidate the 401k to pay off your current mortgages (taxes and penalties would probably take a huge chunk, hence why it's a crazy idea). At 4.5% interest, you could add another $3800 to your $3200 cash flow per month, netting $84k per year from your rentals alone.

 2 of them I would consider more high end. 

The other 2 are older and more C+ / B properties.