Retiring early with a few rentals paid off

17 Replies

I've been browsing the forums and it seems that many people are into leveraging their money by buying numerous rentals looking for long term wealth. That sounds great... However, I want to retire ASAP. My SFH will be paid off soon. I'm considering renting out our house ($1,300/month based on two rentals across the street) and getting a bigger home as we're quickly outgrowing our current.

As I mentioned, I'd like to retire early. I'd like to own 2-4 rental properties renting for approximately $1,300/month. My plan is to pay them off as soon as possible. I figure this should go pretty quickly given that I have one property paid already. I like this idea as it reduces my risk and increases my monthly income very quickly. Not only that, but that's only 2-4 families that you have to deal with. My trouble with leveraging numerous properties is that you deal with that many more people, drama, vacancies, repairs, etc. I also plan on continuing to work part-time which will pull me about $24k/year.

Has anyone else done this? If so, how did it go for you? 

I know some people have retired early, but maybe not quite as you describe. Let me see if I understand your situation:

You are about to pay off your primary residence and want to move out, rent it out for $1300/month, and buy a bigger primary residence to live in. Plus you want to buy 1-3 more rental properties and pay them off in just a few years, right?

So questions I have for you:

1) how much would your next primary residence cost? What would its PITI be?

2) do you have funds for your down payments on your new primary residence and the other rentals already?

3) what are your monthly costs of living? How much rental income would you need to live confortably?

4) are you willing to use a property manager to handle tenant issues?

5) will you buy rentals that need fixing up first?

I have the same goal of being able to retire early if I want, and my timeline is 4-5 years out before that can happen in a buy-and-hold strategy after much analysis on my part.

Charles,

I plan on buying my next home for about $250,000. What I will likely do is stay in my current home after it's paid off to save up more money to pay for our next home. I may just wait and buy a rental first to help afford a bigger home. I plan on buying one property at a time and paying them off. However, if the market drops then I may try and buy as many deals as I can.

My current cost of living is about $1,500-2,000/month. I'd like to have about $4-5k income/month. I intend on handling management myself, but that may change as my net worth increases. I'm open to buying any kind of rental at the moment, but leaning towards those that don't need too terribly much work (carpet, paint, flooring, cabinets, etc).

I'd love to have this done in about 5 years or sooner if possible.

@Tim B. I recently ran a calculator to see how quickly I could pay off all the houses I own (six homes) if I use the mortgage payment from the first paid off one to work on the second, and then use both of those to work on the third, etc.  If I snowball without making extra payments, I will make the last payment in 23 years.  That's NOT what I wanted to see. I was hoping to use those rents to live off one day.  So, new plan - once I'm done buying, I'll start aggressively paying down.  

Anyway, I think a five year plan might be a bit optimistic if you want to have four properties.  It might make more sense at two, but that's probably not enough income to live off of.  If your rents are 1300 (x2), and 40% of that goes to expenses, that only leaves $1560/month. Health insurance alone will take a chunk out of that, plus you'll still have the mortgage on your personal home to pay.      

Sensible leverage helps you build up your portfolio larger and faster (but with extra risk). Free and clear creates safer cash flow. So, personally I used leverage early on to grow my portfolio, then at some point once I figured I had enough properties where the cash flow could sustain me if they were paid off and my family situation changed the switch flipped of valuing safety over growth so I am now deleveraging to free and clear cash flow. The market has a lot to do with my position too ... in a cold market (2009-2012) I levered up to snatch up as many properties as I could when prices were low and deals were plentiful. As prices started to rise (2013-today), I deleveraged as I did not see as many buying opportunities and wanted to be safer and have some "dry powder" ready if and when the market turned again. Really it is all up to your personal preference, comfort level, and strategy, but these were the considerations and rationale that I had/have.

Tim. I think you are vastly underestimating what it would take to "retire" early.

You look fairly young. As you get older you will see your expenses rise (marriage,kids,healthcare,etc). I am from St. Louis and I know your area has a low cost of living but I think you will still want a much higher standard of living than what you are looking at.

My advice would be to think bigger. If you plan on staying where you are, with some work you could become a big fish in a small pond. My grandmother did that in a small town and made a fortune.

Thanks for the responses guys.

@Dawn Brenengen You made some great points. Given what you and @David Faulkner have said, I'm going to save up and wait for a cold market again to buy several properties and then consider consolidating once the market gets hot and depending upon my portfolio. In the meantime, I plan on searching for properties off the MLS as the MLS is very pricey at this moment.

@William Jenkins I am pretty young (30) with a wife and 3 kids (1 on the way). I have seen our expenses increases a bit (primarily in food) with the three (all under 5) we have now. My hopes are to make enough to live on and have some extra spending money. I'm going to shoot for about $5,000/month net, but may try to increase that because.... why not?! 

I've also thought about when I will be able to retire off my rentals, but I'm currently in the stage of aggressively acquiring more properties.  One thing to factor in when calculating how soon you could retire is inflation.  You can expect your rental income to at least increase with inflation.  If we assume that inflation is 3%, your current rental income is $1000 a month, and you plan on retiring in 10 years, then in 10 years your rent will be 1.03^10 * 1000 = $1,343.  Those are very conservative numbers and areas with increasing home prices like most of California could see much higher growth over a 10 year period.

@Tim B. If you want to retire early, check out some personal finance blogs that put out great content on this topic. Budgets Are Sexy is great for ideas on getting your financial house in order, Afford Anything is written by a blogger who used real estate to retire early and travel the world and has been a guest on the BP podcast, Mr. Money Mustache has great content on the more technical side of what it takes to achieve financial freedom, Mad Fientist has some great calculators to see when you can expect to become financially independent based on your expenses and investments, and lastly Go Curry Cracker is a great blog about location independent living from two early retirees.

Being able to retire early is based on two things: your expenses and your savings rate (GREAT article btw). If you keep your expenses low and save a high % of your income then you can retire much earlier than if you spend a lot and only save 5-10% of your income like mainstream financial advice would tell you. Many people don't understand this because they've been taught that retirement = nest egg, withdraw 4%, never work again, play golf. Doing that at 35 sounds insane because most people have a mortgage, 2 car payments, consumer debt, and can't afford to save for future retirement at 65, let alone quit working tomorrow. Supplementing with part-time work will certainly help. You also mentioned managing yourself. Remember that this is a "job" and to fact in the cost of property management so your deals still cash flow even

I believe you can get financially independent by 35 because I've read about so many people who've done it and the math is surprisingly simple. However, adding a fresh mortgage on $250k as well as buying and paying off enough properties to have $5k/month of free-and-clear profit sounds like a tall order over just 5 years unless you have a really, really high income that gives you the cash to do all this. Maybe consider house-hacking a multi family or staying in your paid off home as long as possible while building your rental portfolio. 5 years of mild annoyance living in a house that's too small could be worth it if it lets you build an income stream that will cover your expenses and a mortgage on $250k down the road. Can you sell your current home and buy something bigger for around the same price if you moved to a different part of your area? I know here in St. Louis $250k in many inner-ring suburbs doesn't go very far, but you can get a relatively new 4BR house with 3500 sqft in Columbia, IL for the same price.

I'm rambling now, but basically be careful trying to create financial independence while simultaneously upgrading your lifestyle. The two don't work together well. Consider getting your expenses covered by investments first, then work to increase that passive income to the point you can upgrade your lifestyle.

I personally took 1-2 months trying to figure out numbers that fit the lifestyle that I currently want, and a lifestyle I potentially foresee.  It took a long time to figure out true expenses - that includes your normal bills and, more importantly, your non-normal bills - cars break down, need maintenance, kids get more expensive as they grow up, inflation, etc.  @Dawn Brenengen and @Max Householder   made some excellent points.  Is $1300 after expenses?

This is not to say that you can't accomplish your goals, but rather, you should be more detailed in your numbers.  When you figured those out, then you can get a more realistic picture of your goal.  It's very easy to get caught up in figuring out dream numbers and getting excited when you don't include all the facts.

Note: If you truly plan on "retiring", i.e. not working, then you'll want to factor in property management into your numbers also.  

@Max Householder , That's definitely stuff to consider. It's easy to forgot the non-normal things. I'm thinking we can live on about $2,000/month. Naturally, I'd like a bigger buffer through rentals and also plan to do some sort of work that I enjoy to keep me busy and earn extra money.

That's definitely stuff to consider. It's easy to forgot the non-normal things. I'm thinking we can live on about $2,000/month. Naturally, I'd like a bigger buffer through rentals and also plan to do some sort of work that I enjoy to keep me busy and earn extra money.


@Tim B. , The poverty line for a family of 6 in 2015, according to the Federal Government, was around $32000.  So, your projection is about 25% below poverty level.  I'm not saying that's impossible to do (it would be for ME...), but that sounds REALY, REALLY rough!

Originally posted by @Dawn Brenengen n Brenengen Brenengen:

@Tim B. I recently ran a calculator to see how quickly I could pay off all the houses I own (six homes) if I use the mortgage payment from the first paid off one to work on the second, and then use both of those to work on the third, etc.  If I snowball without making extra payments, I will make the last payment in 23 years.  That's NOT what I wanted to see. I was hoping to use those rents to live off one day.  So, new plan - once I'm done buying, I'll start aggressively paying down.  

Anyway, I think a five year plan might be a bit optimistic if you want to have four properties.  It might make more sense at two, but that's probably not enough income to live off of.  If your rents are 1300 (x2), and 40% of that goes to expenses, that only leaves $1560/month. Health insurance alone will take a chunk out of that, plus you'll still have the mortgage on your personal home to pay.      

Old post but Dawn, did you end up doing this? aggressively paying down all those properties and get debt free there

@Harpreet Walia   Nope!  My mindset changed a bit after this.  Now, I prefer to keep the low interest mortgages and invest the money I would have spent paying them down.  I'm glad I did since the stock market has been going gangbusters these past few years.  I would have really regretted focusing my extra money on sub 4% interest rates instead of the 10+ the stock market has been returning.  

I'm 39 now.  Current payoff schedule is

First one paid off at age 45.  Today's value 190k

Second at 50 - 270k

Third at 63 - 290k

Fourth at 64 - 260k

Fifth at 65 - 250k

Personal home paid off at 62 (value 425k).  However, I will likely sell the personal one and not use that as a future rental, probably no later than age 55.  You can see there is a big delta between mortgages number 2 and 3.  

Originally posted by @Dawn Brenengen :

@Harpreet Walia  Nope!  My mindset changed a bit after this.  Now, I prefer to keep the low interest mortgages and invest the money I would have spent paying them down.  I'm glad I did since the stock market has been going gangbusters these past few years.  I would have really regretted focusing my extra money on sub 4% interest rates instead of the 10+ the stock market has been returning.  

I'm 39 now.  Current payoff schedule is

First one paid off at age 45.  Today's value 190k

Second at 50 - 270k

Third at 63 - 290k

Fourth at 64 - 260k

Fifth at 65 - 250k

Personal home paid off at 62 (value 425k).  However, I will likely sell the personal one and not use that as a future rental, probably no later than age 55.  You can see there is a big delta between mortgages number 2 and 3.  

 Thanks Dawn. 

I am now 57 I bought 8 houses cash. Yes you can do it. Only problem is now I want to buy 2 4plexs because I'm bored buy will need finance them. Good luck. 

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here