Today - at age 24 - I "retired". Here's how I did it.

Filipe Pereira · 2017-09-07T15:23:08-07:00

Hey all! Just sharing my story with the hope that it will light a fire under some of you, or keep the one you've already got burning hot. Here we go: It all started with a small loan of a million dollars from my dad....okay, okay only kidding!!Last year I purchased a 4 plex with good amount of money down (20-25%) in East Hartford Connecticut. PP was 200K, and rents were at $3605 a month. I sat on the property for a few months, felt out the tenants and have since then asked a few tenants to leave, or increased their rent as a way to encourage them to find new housing. In the last 11 months or so, I have rehabbed two apartments (10-12K of material, labor done by yours truly) and am now sitting at gross rents just shy of $4,110. Recap - I got a 4 plex, put in 10-12K of rehab to get out an extra 6K per year. I like that ROI!Most recently I purchased a SFR in Windsor Locks, CT. I'll admit, I'm a huge car buff, and I wanted the place for the generously sized 4 car garage....well, once we got to the inspection period, I didn't think the numbers would work, so I started to back out. The listing agent made magic happen though, and got the sellers to drop the price 60K! I figured that the house needed 30-40K worth of work. This property quickly became a home run deal.Even though I'm a car guy and wanted that garage badly, I knew I had to mortgage the rest of the house with it...but, what 24 year old in their right mind needs a 4 bedroom house for himself? So guess who got himself a couple of house mates?? This guy! The mortgage and then some is covered, and now I am sitting on two properties, both with what I would consider good equity. One I will likely never sell, the other is more of a live-in-for-free-while-making-a-profit-flip. At this point, the money I make as a landlord is getting dangerously close to the money I was taking home from my W2 job as an entry level architect in training in downtown Hartford. I've decided to put that career on hold to develop a property management company here in north central CT. There is no way I could "retire" and sit on my butt for the next 60 years! Plus, I want to buy more cash producing assets, and be my own boss....that takes money! ;)Here's to financial freedom, my friends!! Filipe

Darian Richardson

Flipper/Rehabber · Atlanta, GA · Member since 2016 · 66 posts · 14 votes

9y

@Filipe Pereira This is awesome to hear, as a 24 year old my self with a duplex under my belt, I aspire for my next deal to be a quad plex and bringing another cash flow stream.

One question I do have, do you mind explaining how you financed the second deal, did the bank or where ever you loaned from give you difficulty because you already had a loan out?

1 Reply

Filipe Pereira

OP

Property Manager · Windsor Locks, CT · Member since 2016 · 1k+ posts · 1k+ votes

9y

Originally posted by @Darian Richardson:

@Filipe Pereira This is awesome to hear, as a 24 year old my self with a duplex under my belt, I aspire for my next deal to be a quad plex and bringing another cash flow stream.

One question I do have, do you mind explaining how you financed the second deal, did the bank or where ever you loaned from give you difficulty because you already had a loan out?

Good to see you already have your first one under your belt!!
Nope- the second purchase was actually easier than the first, but I think part of that was due to the mortgage banker. Plus, the second one is an OO SFR, which are typically easier to finance. I used a conventional mortgage on the second one as well.

0 Reply

Abraham Anderson

Investor · Sevierville, TN · Member since 2015 · 121 posts · 674 votes

9y

Nice job, bro. What are your plans for future deals?

0 Reply

Peter TverdovBusiness Member

Developer · New Brunswick, NJ · Member since 2015 · 1k+ posts · 2k+ votes

9y

I would recommend getting a W2 job again, fast. Replacing entry level income is not "retiring". You also just made it almost impossible to get a bank loan for at least 2 years. What happens when you find a wife? Or have a kid? Good early success but you are jumping ship way too early IMO. Now, if you want a property management company that manages 500 places that's different, go for it because the W2 job is pointless.

[email protected]732-289-3823

19 Reply

Joe SplitrockPro Member

Moderator

Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes

9y

@Filipe Pereira wow that is pretty low monthly income to be retiring on. Assuming the 50% rule on your four-plex and a $1000 mortgage, that only puts around $12K in your pocket a year. Even if the house is another $1000 per month, that is only $24K total per year.

I am not trying to be negative, but I think you will need more that that to live off. Especially if you want a family or insurance. You are off to a good start, but I would probably have kept that W2 a little longer for insurance and so you can get loans for more real estate.

8 Reply

Alex ShaughnessyPro Member

Real Estate Investor · Spring Valley, CA · Member since 2016 · 288 posts · 98 votes

9y

that's amazing. hope it all works out

1 Reply

Greg Moss

Long Island , NY · Member since 2017 · 30 posts · 31 votes

9y

Filipe,

Thats awesome how early on you were able to get a few properties under your belt. I am currently looking for my first one now. I understand the motivation to get rid of your W2 job to have the freedom to do what you love. I would also recommend trying to hold on to one for the next 3-5 years. This will only increase your cash flow and speed up the process of being able to buy more properties.

I am looking to close on my first multi-family before the end of the year

Keep up the good work

Greg

1 Reply

Jack B.

Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes

9y

Filipe, can you share your total net income from rents vs. your living expenses? Have you had to cut back on things?

I will be FI as soon as I move back into one of my rentals, but I'm still grinding it out in corporate since I have a high paying job. That said, I own roughly 2.5 million in real estate and am 10 years older than you, so amazing that you did this at 24...

I'm in Seattle and my cash flow is only 30K, but that's more than I need if I downsize and live a simple life. I make another 30K off principle pay down and 200K a year appreciation for now. But eyeballing moving to a cash flow market when I retire in a few years.

2 Reply

Filipe Pereira

OP

Property Manager · Windsor Locks, CT · Member since 2016 · 1k+ posts · 1k+ votes

9y

I appreciate the time that you took to comment on the thread. I'm not sure you guys read the post (or thread) in it's entirety, but I will do my best to address your comments here as well.

First, I think it's important to address the myth that we, as architects (or architects in training as I was), make a ton of money. We don't. Most recent grads make somewhere in the realm of 40-52K per year, out of graduate school. Therefore, replacing my W2 income wasn't extremely difficult.

Also, having a "low" salary makes me less and less bankable from the get go. While some salaries will allow you to carry 5,6,7 etc properties, a salary between 40 and 50K won't - not in my market at least. My mortgage debt (I have no other debt - no school loans, car loans, personal loans, etc. Nada. Zilch) is already at a level that banks will take a harder look at before making me a loan. So to say that I can't buy any more properties now because I don't have a W2 job is a bit of a stretch - the truth is I'd have a hard time getting a loan even if I had a W2 job.

Joe –regarding the income I generate off of the 4 plex, your assumption of the 50% rule is way off. I won’t go into significant detail, but I can tell you that the income I generate with the 4 unit was very close to the income I generated at my W2 job, minus about 140 hours of work per month.

Jeff – I have not cut back my lifestyle significantly, if at all. I have a couple of nice cars that I paid cash for (I’m a car guy), I have my real estate, I have my average expenses just like any other Joe Schmo and I enjoy the occasional nice dinner out with my fiancé. I don’t live an extravagant life by any stretch of the word, but I also don’t need that to be quite happy in life.

Perhaps most importantly, I feel that a few folks here didn’t make it to the bottom of the post where I explain that I don’t plan on sitting on my butt for the next 60 years. I might have retired from architecture and the regular “desk job” but by no means am I done “working”. The main difference now is that I work because I want to, not because I have to:

"I've decided to put that [architecture] career on hold to develop a property management company here in north central CT. There is no way I could "retire" and sit on my butt for the next 60 years! Plus, I want to buy more cash producing assets, and be my own boss....that takes money! ;)"

Lastly, I just want to mention that when you reach a point where the income generated off of your investments is more than your outgoes, you are free to do whatever you want. I don’t need 1 million, 2 million or even 10 million dollars in the bank to know I am financially free. As things sit, I can afford all of the things I need, and I have plenty of the things I want with the income I currently have. If I don't feel like getting out of bed tomorrow, no boss is going to tell me otherwise.

Happy investing! :)
Filipe

4 Reply

Filipe Pereira

OP

Property Manager · Windsor Locks, CT · Member since 2016 · 1k+ posts · 1k+ votes

9y

@Jack B. @Peter Tverdov @Greg Moss @Joe Splitrock I tried to tag you in the post above, but was having troubles. Hopefully this triggers a notification for you,

Filipe

0 Reply

Greg Moss

Long Island , NY · Member since 2017 · 30 posts · 31 votes

9y

Filipe,

Makes perfect sense, but the only reason why I was agreeing on keeping the W2 job is that you mentioned a goal of 1 million of RE by 30, and I was just saying that compounding your cashflow now while you're young in terms of passive rental income on top of your W2 income is huge. If you have 40-50K In gross passive rental income on top of your W2 income you would be able to get to that next property quicker in terms of any financing.

But everyone is different and being financially free at your age and not having to work a 9-5 on an income that works for you is all that matters!

I look forward to my passive income growing in 2018

Greg

2 Reply

Filipe Pereira

OP

Property Manager · Windsor Locks, CT · Member since 2016 · 1k+ posts · 1k+ votes

9y

Yes @Greg Moss, but again, the ability to get another mortgage is already limited. When you factor in that I would need significant time to save funds for another downpayment (think 50-60K minimum) I would be awfully close to my planned wedding date - at which point I would have my (the wife's) W2 stability and great income to add to mine, and thus buy more properties.

I would much rather be my own boss and go back to my entrepreneurial side in the meantime. Plus, my income potential now is so much greater than what it was while working my 9-5.

If I REALLY want to purchase more properties (say, tomorrow), I can always partner up with someone that can carry the loan more easily. If there is a will, there is a way!

0 Reply

Joe SplitrockPro Member

Moderator

Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes

9y

Originally posted by @Filipe Pereira:

I appreciate the time that you took to comment on the thread. I'm not sure you guys read the post (or thread) in it's entirety, but I will do my best to address your comments here as well.

First, I think it's important to address the myth that we, as architects (or architects in training as I was), make a ton of money. We don't. Most recent grads make somewhere in the realm of 40-52K per year, out of graduate school. Therefore, replacing my W2 income wasn't extremely difficult.

Also, having a "low" salary makes me less and less bankable from the get go. While some salaries will allow you to carry 5,6,7 etc properties, a salary between 40 and 50K won't - not in my market at least. My mortgage debt (I have no other debt - no school loans, car loans, personal loans, etc. Nada. Zilch) is already at a level that banks will take a harder look at before making me a loan. So to say that I can't buy any more properties now because I don't have a W2 job is a bit of a stretch - the truth is I'd have a hard time getting a loan even if I had a W2 job.

Joe –regarding the income I generate off of the 4 plex, your assumption of the 50% rule is way off. I won’t go into significant detail, but I can tell you that the income I generate with the 4 unit was very close to the income I generated at my W2 job, minus about 140 hours of work per month.

Jeff – I have not cut back my lifestyle significantly, if at all. I have a couple of nice cars that I paid cash for (I’m a car guy), I have my real estate, I have my average expenses just like any other Joe Schmo and I enjoy the occasional nice dinner out with my fiancé. I don’t live an extravagant life by any stretch of the word, but I also don’t need that to be quite happy in life.

Perhaps most importantly, I feel that a few folks here didn’t make it to the bottom of the post where I explain that I don’t plan on sitting on my butt for the next 60 years. I might have retired from architecture and the regular “desk job” but by no means am I done “working”. The main difference now is that I work because I want to, not because I have to:

"I've decided to put that [architecture] career on hold to develop a property management company here in north central CT. There is no way I could "retire" and sit on my butt for the next 60 years! Plus, I want to buy more cash producing assets, and be my own boss....that takes money! ;)"

Lastly, I just want to mention that when you reach a point where the income generated off of your investments is more than your outgoes, you are free to do whatever you want. I don’t need 1 million, 2 million or even 10 million dollars in the bank to know I am financially free. As things sit, I can afford all of the things I need, and I have plenty of the things I want with the income I currently have. If I don't feel like getting out of bed tomorrow, no boss is going to tell me otherwise.

Happy investing! :)
Filipe

I want you to know I am only bringing up things to consider as a way to help you. I know most responses have been "great job you are awesome", but I am firm believer that just surrounding myself with people who think I am right isn't helpful. So if you want to hear only good things, stop after reading the next sentence. You are doing great!

As an investor, I can't ignore the numbers. You are saying that your four-plex produces around as much income as your $40K architect job. That means your cash flow is $3333 per month on rents of $4110. That means your payment, insurance, CAPEX, repairs, vacancy all combined is less than $777 per month. You said that the purchase price was $200K with between 20-25% down. Lets say you put 25% down, which would mean you financed $150K. Based on financing $150K at 4% for 30 years, your P&I would be $716.12 which leaves $60.88 left from the $777. I am not sure what taxes and insurance would be in your area, but there is no way that $60.88 would cover those expenses, let alone operating expenses, vacancy, repairs and CAPEX. The math says you are grossly underestimating the operating costs of your business. My guess is that you are just subtracting payment from rent and calling that cash flow. All those other expenses are very real, even though they may not appear as a monthly expense. In a four-plex, they amount to around 50% over time. I didn't think they did when I was starting out either.

As far as getting a loan for more properties, having W2 income will make a big difference. You mentioned your $40K job isn't enough to get a loan, but really what you had was $40K from your architect job and $40K from your rental property. That is $80K total, assuming they accept all that rental income. Now your income is significantly reduced. Banks don't trust rental property income as much as they do W2 income. It will make a big difference on your ability to get loans.

It is good you plan to start a business, because there isn't enough money here to retire on. Good luck.

9 Reply

Filipe Pereira

OP

Property Manager · Windsor Locks, CT · Member since 2016 · 1k+ posts · 1k+ votes

9y

Originally posted by @Joe Splitrock: