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

Clifford Tran

Rental Property Investor · San Francisco, CA · Member since 2013 · 12 posts · 30 votes

9y

Really cool story, man. I'm 26 and started down the same path as you did maybe 1 year ahead of you. :)

The big difference is that I have a family and decided to let my wife leave her job to focus on our properties and stayed on the W-2 job myself. Totally get your point about leaving a salary job with mediocre pay. I think some of the other guys that advocate for you staying with a salary job assume that you can make a good salary and are very upwardly mobile on the corporate ladder. This is true in my case and so it helps me look good to the bank on paper to qualify for business loans.

For us young guys shifting from white collar jobs to RE investing the "bank doesn't loan without W-2" problem is real so you might find that could inhibit your ability to pick up more assets quickly. My solution to that - probably applies to you as well - is to bank on fast appreciation of your current assets. Mine are in CA so the market gives me equity I can borrow against relatively quickly compared to most places. If you've got property in hot markets this might be the easiest way for you to pull funds to move forward. Partnerships are nice to explore but every investor knows it often doesn't work as well as it's advertised.

Some care about the big money and some for the freedom. It sounds like you'd rather have the freedom first and I can't blame you for that. :)

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Filipe Pereira

OP

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

9y

Originally posted by @Zach Zimmer:

Congrats and keep going!

My only point would be to consider keeping the W2 job a while longer to let the REI keep snowballing while obtaining easier / preferred financing due to holding the day job.

I could have "retired" the W2 a few years ago but watching the monthly NOI snowball get bigger and bigger while living off just that W2 wage has been amazing. (However worth mentioning my day job is a Director of Engineering so fairly substantial. If I was just an engineer making $65k it might be a different story...)

Exactly...if I was making 120K, I'd stay...but I'm making 1/3 of that, roughly. The property management company I am developing as well as my commissions from real estate will surpass my W2 income, once I grow it enough, of course!

0 Reply

Cody Z.

Real Estate Agent · Belmar, NJ · Member since 2017 · 370 posts · 200 votes

9y

@Filipe Pereira Congrats on your accomplishment and thanks for the daily inspiration

1 Reply

Account Closed

Aspen, CO · Member since 2015 · 14 posts · 3 votes

9y

love it! on your track...

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Filipe Pereira

OP

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

9y

Originally posted by @Jannelle Marshall:

@Filipe Pereira nice job, keep up the good work. Do you still work as an architect as well?

Jannelle, I do not work for an architecture firm anymore - however I still possess the skills and 2 college degrees to do the work. :) If you need a hand, let me know! If I can't help you, I can certainly point you in the direction of those that can. My new "home base" is actually one town over from you, in Granby Connecticut. That is where I will be running the property management company from, primarily,

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Filipe Pereira

OP

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

9y

Originally posted by @Jeff Krauss:

Congrats! I wish I would have started younger. I accidentally stumbled upon investing as a 30-year-old intern architect buying my first property in the hood of Baltimore for $7,500. Pulled cash from a credit card to buy it. 5 years and 8 houses later, was making as much as my job was paying me! Loved telling my jerk VP how much I was making! Sold everything at 35 and "retired" for a year. Got bored as hell. Now at 47, I'm back with 9 rentals and only work a day job because I haven't found something else better to do! Nice going to work because I want to, not because I have to!!!

YOU nailed it my friend! This is exactly how I feel.

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Filipe Pereira

OP

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

9y

Originally posted by @Clifford Tran:

Really cool story, man. I'm 26 and started down the same path as you did maybe 1 year ahead of you. :)

The big difference is that I have a family and decided to let my wife leave her job to focus on our properties and stayed on the W-2 job myself. Totally get your point about leaving a salary job with mediocre pay. I think some of the other guys that advocate for you staying with a salary job assume that you can make a good salary and are very upwardly mobile on the corporate ladder. This is true in my case and so it helps me look good to the bank on paper to qualify for business loans.

For us young guys shifting from white collar jobs to RE investing the "bank doesn't loan without W-2" problem is real so you might find that could inhibit your ability to pick up more assets quickly. My solution to that - probably applies to you as well - is to bank on fast appreciation of your current assets. Mine are in CA so the market gives me equity I can borrow against relatively quickly compared to most places. If you've got property in hot markets this might be the easiest way for you to pull funds to move forward. Partnerships are nice to explore but every investor knows it often doesn't work as well as it's advertised.

Some care about the big money and some for the freedom. It sounds like you'd rather have the freedom first and I can't blame you for that. :)

Very good points Clifford. My fiance LOVES LOVES LOVES her job. I couldn't get her to quit if I tried to. Once we get married, I will definitely be bankable again. I am not too concerned with hitting pause on my acquisition strategy and catch a breath, even if it is for a year or two. I have this great opportunity to take on a huge risk by developing my own business.

Given I have no kids, no debt (besides the mortgages) and no "real" responsibilities I feel that it is an excellent time to venture out and see what I can squeeze together. :)

0 Reply

Saeryon Park

Metuchen, NJ · Member since 2017 · 6 posts · 5 votes

9y

Filipe, thanks for sharing! I'm in process of acquiring a short sale SFR, trying to get a team together to do a flip. I want to get some plans drawn up but most architects I have contacted in the past are very costly. They usually want to steer you into bigger budget or their own vision. How can I get architectural help and plans on a budget?

2 Reply

Anthony Vyas

Stratford, CT · Member since 2016 · 1 post · 1 vote

9y

Congrats! Nice to see local CT investors doing deals.

1 Reply

Christian Funicelli

Real Estate Agent · Arlington, VA · Member since 2017 · 8 posts · 3 votes

9y

You also have to fill up those garages ... and mod. lol

1 Reply

Joe SplitrockPro Member

Moderator

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

9y

Originally posted by @Filipe Pereira:

Originally posted by @Joe Splitrock:

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.

Joe, I share your thoughts on having multiple opinions from multiple points of view. I didn't post this as a "hoorah" or a "look at me!". I did this to motivate and inspire others, and I appreciate your inquisitive responses.

Looking at the numbers, by the time you subtract the taxes out of my w2 earnings, the numbers are very similar. I have a hefty emergency fund for the property should something go wrong. That would cover a new roof, 4 water heaters, 4 hot air furnaces, 4 vacancies etc, if that all occurred at the same time, which I can all but guarantee won't happen. Therefore, I don't put money aside every month for capex, vacancies, etc. The money is already there.

"That is $80K total, assuming they accept all that rental income."

Right, but most places don't. They want to see a track record over multiple years before they count 100% of that income. So really, you are still looking at a 40K income and significant mortgage debt. Again, I'm not necessarily trying to buy anything in the next 18 months as it is - but should I want to, I have no problem reaching out to those who have expressed partnering up. Regardless, of W2 or not, I would still need to come up with substantial savings before feeling comfortable with putting a downpayment on another property. I don't LOVE debt, or fully leveraged assets.

They would want to see at most two years to count the income. As far as saving up a down payment, that could be done in two years with your W2 income easily. Since you quit your job, you don't need any of it to live on, so even after taxes you could save up tens of thousands over two years.

Here is the best part. You don't need 20-25% down for a primary residence. So after 1-2 years, you can just move out of your current primary residence to a new one using a small down payment. Convert your current primary residence to a full rental property.

My thought is a 24 year old guy sunk considerable money into college to become an architect. You have really not had any time to get experience in the profession. You are at the point in your career where you should be gaining experience, so if you try to come back later it just gets harder.

Here is the flip side. If you are 100% committed to the property management business and can scale it to well over $40K income within a year or two, go for it.

0 Reply

Christopher Wedde

Investor · Portsmouth, NH · Member since 2016 · 45 posts · 21 votes

9y

Congratulations! I heard you posted this by Brandon on Friday. Good job!

2 Reply

Jermaine White

Chicago, IL · Member since 2015 · 14 posts · 1 vote

9y

Congrats! Great Decision Making skills!

1 Reply

Caleb Griffin

Real Estate Broker · Lewisville, NC · Member since 2015 · 124 posts · 40 votes

9y

Keeping the fire burning for sure, I love it!

1 Reply

Nathan Clemons

Investor · Durham, NC · Member since 2017 · 4 posts · 5 votes

9y

Loved your inspiring story and much success to you!!!

1 Reply

Christian Chevier

Contractor · Ft Worth, TX · Member since 2015 · 20 posts · 10 votes

9y

I like it! Motivating. Did the $10k reno to the apartments pay for itself with increased property value? I have a duplex that I am on the fence about putting $7k + into a reno to increase the upstairs rent/property value. This is fun!

1 Reply

Memo Hernandez

Homeowner · Las Vegas, NV · Member since 2017 · 9 posts · 3 votes

9y

very good I'm on that track as well.just need to increase my credit score to qualify.thanks for the article

1 Reply

Michelle D.

New Brunswick, NJ · Member since 2015 · 54 posts · 12 votes

9y

Congratulations! Freedom is your friend!