6 years, 4 homes, and financial freedom at age 33
Aspiring real-estate mogul, and self-made millionaire, my story:
At age 27, I bought my first home in Seattle on Feb 2012 at the beginning of the real estate rebound from ‘08. Put 3% down on a beautiful 3 bed 2.5 bath craftsman that was bank owned (REO) priced at $250,000. Had the selling bank pay for my some of my closing costs. Net investment was under $12,000.
I was with a great technology firm and took a promotion soon after that, which brought me down to California, all expenses paid for 6 months. It was a tough decision at the time, but I decided to turn my primary residence into a rental versus selling and turned a small monthly profit immediately.
When the market rebounded a bit I refinanced the loan to get rid of PMI and lower the payments, increasing the cash-flow significantly.
I lived a frugal life and made just over six-figures for a few years, saving at least 40%. In Jan 2016, I purchased another rental down the street from the first in Seattle, but in an even more desirable area and with a larger footprint. The lender made me put down 20% on $370,000 to close the deal on my new 4 bed 3 bath because it was an investment property, no sweat! Total investment was about $90,000. It was rented the very next month and because of the very large down payment, I was able to turn a nice profit out of the gate!
Went through a series of jobs, working on-and-off-again, but the rental streams kept me afloat. Needed to lower my overall expenses to save more and was able to acquire a nice double-wide trailer in Northern California with part of my 401k for very cheap, <50,000, and got my total monthly expenses under 1,000 per month.
Hunkered down for 6 months and with some savvy investments in crypto-currency I was able to nearly triple my meager remaining investment fund from $27,000 to $80,000. Worried I could end up with nothing to show for it, I did what I know best, and in Feb 2018 flipped it all into the purchase of another beautiful home priced at $435,000, this time a 3 bed 2 bath in a very desirable neighborhood. The lender forced me to put down 16% and buy out my PMI payment, for a total investment of 81,000 after closing.
I plan on offsetting my mortgage costs by renting the loft for 1/2 of the mortgage payment, it’s on the rental market now. I am also working on getting a new job in technology, and getting my property management company off of the ground in the next 6 months. This will give me plenty of lines of income to continue saving for the next property.
All said, I now have $1.75M in property and owe just under $800,000 on those mortgages. The rentals provide an amazing $4,300 per month in passive income (above and beyond the properties completely paying for themselves). With the new job and the property management venture, I plan on aggressively saving for another 3 years to start the process over again. I hope to repeat the process every 3 years or so, and possible accelerate the pace if possible. Will report back and add to this post then, below are a couple tidbits I’ve picked up along the way.
Lessons learned:
1. SAVE- Spend less time figuring out what to spend your money and more time investing it. Make a budget and push the boundaries of the amount you think you can save of your total income, my personal goal is 70% now.
2. You don’t have to sell your primary resdience for ANY reason, turn it into a rental and create a passive income stream. Most people sell to trade up to a bigger place, wait for the mansion until later in life.
3. Beware of property management companies and their fees, I manage all of my own properties because I can do it more effectively and for a greater profit. Similarly beware of investment funds and their fees too, every dollar they take is another dollar you’re not earning compound interest on.
4. If you can put enough down on a property (lenders will usually force you to do at least 20% on an investment property), you can make the rental cash-flow positive out of the gate.
5. Cash-flow properties pay in every way: a rising life-long perpetuity from the rents, equity from the renter paying your mortgage, and rising home prices. Also, they provide a great tax shelter, especially early on!
6.Leverage is a beautiful thing, Given the choice between earning 6% YOY on $400,000 against a home loan + a thousand in profits a month, versus 10% on $80,000 in the stock market, it’s really a no-brainer. Just think, there is always the potential to lose your shirt in the stock market!!!
7. Real estate can be your self-directed 401k and once it’s paid off in 15-20 years the cash-flows are enormous. With just the property I own today, when it’s paid down, I stand to make well over 10,000/ month in passive income, in today’s dollars.
8. Don’t ever make the minimum payment on anything if you can help it,the tax advantages are pennies on the dollar, and by making one extra mortgage payment a year you reduce your time horizon on the loan by about 8 years.
9. Don’t pay attention to equity, it’s just money on paper and the real goal is to turn an income on every property....if you are a successful saver, real estate investor, and landlord, why would you ever need to sell? Start slow, keep adding and building!
10. Even if you’re uber-successful, Keep working whether you NEED to or not, even if you decide to take a lower salary position with less stress. I’ve been experiencing financial freedom for the last 2 years and haven’t really HAD to work, but I realize that it is more fun to keep going, especially while I’m still relatively young and have the passion/drive.