Solidifying and Automating My Way to Financial Independence

Recently, I shared how I went from a negative net worth to over $500k in 4 years. The past four years have provided a great foundation for financial independence. However, I still need to think through a few items and finalize my plan. My rental properties provide great monthly income but I will need more than rental income to leave Corporate America in the dust.

The following actions will get me to my goal retiring early:

  • Automate investing
  • Increase dividend income
  • Increase assets in non-retirement accounts
  • Buy one more rental property
  • Budget & Spending
  • Debt Reduction
  • Cash buffer

Automation

Like a car on cruise control I want to automate my path to financial independence. Paying bills sucks. In fact, I have over 20 bills I must pay every month. Going forward I want to will automate as much of my life as possible. This will free up more of my time, reduce stress, and eliminate the possibility of late payments.

Likewise, I also want to automate a portion of my investing. Moving forward, I will be opening up a new brokerage account. A portion of every paycheck will be directly deposited into this account. The funds will go towards weekly purchases of a low-cost index fund.

Also, I am not giving up on dividends. This strategy will allow me to dollar cost average into the market AND increase my dividend income (index funds pays dividends).

I am fortunate to save a lot of cash every month, however, I am not comfortable with so much cash sitting idle. These funds are not providing a return. I plan purchase index funds while saving for another investment property.

The brokerage account will be with Vanguard. I looked at several options and all the major brokerage firms offer low cost index funds. However, Vanguard does not charge you a commission when you buy their funds. Vanguard’s funds also offer one of the lowest expense ratios to manage the fund. This will save me hundreds or even thousands of dollars over the next few years.

Increasing Dividends & Non-Retirement Account Investments

Dividends will provide 25-33% of my income when I achieve FIRE. Ideally, I would like an average of $1,500/month in dividend income.

Most of my stocks and index funds are in retirement accounts (Roth IRA & 401K). There are ways to access these funds early, however, I would like to increase my non-retirement account balances and dividend income.

As previously mentioned, this will be accomplished by regularly buying index funds. Additionally, I will continue to buy undervalued dividend growth stocks when the opportunity presents itself. Divided growth stocks provide a great hedge against inflation since most dividends grow faster than the rate of inflation.

Buying One More Rental Property

My rental property portfolio currently consists of three properties. The portfolio provides quality passive income which is evident by last month’s Landlord Report.  However, I would like to purchase an additional rental property before stepping away from my day job. 

Why?

My first property was an accidental rental. I bought the place to keep my cost of living low and to house hack with roommates; they paid most of my bills. The cash flow from rental property #1 is not very strong. The other two properties provide great cash flow and were bought with the intension of being rental properties.

Adding one more property with strong cash flow will greatly improve my (mostly) passive income. In fact, the cash flow from an extra property will likely help me hit my estimated FIRE number and cover most (all?) of my annual expenses.

Also, there is a good chance rental property #1 will not be rented once I go FIRE (more on that below).

Solidifying a budget/spending

Several members in the FIRE community track spending and budget religiously. I do not have an exact budget and may never make one. Additionally, I am unable to report my monthly spending since I do not pay close attention to my spending habits.

I do have a general idea of my expenses and could guestimate my income needs. However, we do not want to leave FIRE planning to guess work.

Over the next year or two I will hone in on my spending habits. Knowing how much I spend every month will help determine how much I need to save and how much income my rental properties and stock portfolio must generate.

My current goal is $45,000/year in passive income. However, I believe my spending is closer to $30,000 annually. Fun fact, I lived on less than $1,000/month for two years after graduating college.

Clearly I need to do some work in this department to finalize my FIRE plans. Determining my spending needs may show that I am a lot closer to FI than I anticipated.

Debt Reduction

Debt is a wonderful thing. Debt also has the ability to crush dreams. One of my goals is to pay off all debts except my mortgages before going FIRE.

When I graduated college, I had five figures of student loan debt. I have always paid more than the minimum payment and I am aggressively paying down my student loans. My student loans still have a few thousand dollars outstanding. This must be crushed before I can claim FI

In my FIRE life, I plan to have rental property #1 paid off (or very close to paid off). This house will serve as my ‘FIRE HQ’. I love the location and the neighborhood is very walkable. Additionally, the house is one block away from a major running/bike trail; this trail connects to over 100 miles of tails.

The upkeep on the house is minimal given it’s small size. The utilities are very manageable for the property; this will help keep my cost of living low.

The Cash Buffer

Cash is king.

I plan on having three years of living expenses in CASH when I step away from my job. Why?

Well, this will allow my portfolio to grow for three years without taking any distributions. This will likely translate into the ability to safely withdraw more funds in the future than if I were to start withdrawing funds day one. In fact, this may lead to me using a withdrawal less than 4.0% rule.

The cash buffer will also provide protection if there is a down market or recession during the first few years. I will not have to sell when prices are low and avoid losing money.

Peace of mind and further accumulation are two other reasons I would like to have three years of living expenses in cash when I retire.

The cash buffer will protect me from catastrophic events. Perhaps I will incur a large medical bill or need to replace a roof. Cash has my back.

I will be able to pocket my rental property income as well during this time and potentially reinvest the proceeds.

Lastly, I am fiscally conservative. The cash buffer will dramatically increase my chances of FIRE working.

What steps are you taking to solidify your FIRE plans? Have you automated your life as much as possible? Have you thought about a meaningful cash reserve?

Landlord Report – July 2017

Hello there – welcome to another “Landlord Report”. This monthly report will share my experiences as a landlord. The report will show EVERYTHING related to my rental properties and life as a landlord…. This report will actually capture the past two months; I have been busy and could not keep my regular posting schedule.

I will discuss the rents that I collected, mortgage payments, and other ‘landlord items’. Other topics may include repairs, finding new tenants and any other items that might randomly pop up. The report will also share how much money I made and the amount of time (hours) it took. I want to show the world being a landlord is a wonderful thing.

Throughout this process I aim to be as transparent as possible. Being a landlord and owning rental property is a wonderful way to earn (mostly) passive income. Please feel free to contact me with any questions – happy to provide insight.

The Landlord Report – July 2017

landlord

This month was rather uneventful. I was one plumbing problem away from a perfect month (a month with no expenses and repairs).

The major highlight revolves around being the ‘Midnight Plumber’. Ok, the phone call came in at 10:30pm but midnight plumber sounds cooler. One of my tenants called me because the apartment’s plumbing was backed up and water was flooding into the kitchen sink.

Reluctantly but willingly, I got out of bed and drove 20 minutes to rental property #3. A few minutes with the plunger fixed the toilet.

The kitchen sink still filled up if water was running for an extended period of time. I took apart the P-trap and cleaned out debris. The problem was still not fixed. The plumbing for the kitchen sink needed to be snaked.

The next morning I gave a quick phone call to my handyman. He went over to snake the drain. Problem solved

The table below outlines all my income and expenses for the past two months:

guyonfire

As you can see, July was a great month for my rental property portfolio. Rental property #1 and rental property #2 had perfect months. Rental property #3 took still had a great month despite the plumbing problems.

Rental Property #1

The Starter Home

Rental Property #1 Summary

In summary, rental property #1 – earned $481.76 and I spent 20 minutes my time collecting the rent on my way home from work. My mortgage debt dropped by $787.57 from my monthly mortgage payment. When considering principal reduction, I came out ahead $1,269.33

Rental Property #2

The Fixer-Upper

The tenants paid their rent of $4,000 in full and on time. Rent collection required me walking downstairs to get my morning cup of coffee. There were no repairs or expenses this month, which is AWESOME! And something that happens more frequently than you might think.

Rental Property #2 Summary

In summary, rental property #2 – earned $1,591.43**. I spent maybe 10 minutes of my time depositing the checks with my smart phone. As a result, I earned $1,591.43 for 10 minutes of effort!!! July 2017 was a great awesome PERFECT month for rental property #2. Does this income beat your day job?

My mortgage debt decreased $711.64. When factoring paying down my debt, rental property #2 made me $2,303.07.

**I also live in the house and get paid to live here. Pretty sweet right? House Hacking is awesome.

Rental Property #3

This was the first full month for rental property #3. As I previously mentioned, we had a small plumbing problem at rental property #3 this month.

The repair took an hour of my time and also a phone call to my handyman. He was kind enough to snake the drain for free since I recently referred him a lot of work.

One of the units utilities are included in their rent. This expense costs me $80.40.

In summary, rental property #3 – earned $1,735.52 and I spent only an hour of my time managing this property.

Rental Property #3’s mortgage debt also decreased $398.50. When factoring paying down my debt, I earned $2,134.02

Portfolio Summary

In summary, I spent 1 hours and 30 minutes of my time maintaining my portfolio of rental properties. Rental property #3 is FINALLY up and running. And guess what? It’s kicking butt!

In July, my rental properties provided me with $3,808.71 in cash flow. There is nothing like (mostly) passive income.  My mortgage debt decreased $1,897.72 last month which further increased my net worth. Factoring in repayment of debt and cash flow, my rental properties earned me $5,706.42. What else can you spend an hour and a half on and make this kind of income? Being a landlord sounds pretty good, right?

Together Everyone Achieves More: Building an All-Star Real Estate T.E.A.M.

guyonfire

T.E.A.M, the acronym commonly found in sports locker rooms and offices around the country, is a cheesy saying designed to promote collaboration. In fact, my boss has this written on his whiteboard and I am forced to see this message everyday.

Despite the acronym’s corny nature, the statement contains a lot of truth. The same holds true for having an all-star real estate team. You cannot expect to succeed in real estate on your own and will need to surround yourself with a team all-stars if you wish to succeed.

Most people believe a real estate agent is the first person to to engage; this is a common misconception.

Lenders

First and foremost you will need a lender or mortgage broker. This is the MOST IMPORTANT PLAYER ON YOUR TEAM. I kid you not, your lender, banker, or mortgage broker should be a perennial M.V.P.

Lenders, bankers and mortgage brokers all serve the same function; their job it to get you a loan. There is little difference between the three. My personal preference is a mortgage broker since brokers typically have a larger number of products to offer.

A quality lender is a game changer for your team. Lenders are very knowledgeable and will help determine your buying power. A good lender offers various loan products. The products may vary based on down payment, fixed rate or adjustable rate, and loan term (how long until the loan matures).

Additionally, your lender will provide you an approval letter. This document is required for submitting an offer on a house (unless you are buying all cash). Approval letters legitimize your ability as a buyer and provide sellers comfort in your offer.

I highly recommend going with a seasoned lender who has experience closing loans. This is not a position you want filled by a rookie.

The Real Estate Agent

The real estate agent is the second most important team member. Truthfully, most agents are horrible and not worth their commission.

However, when you find a quality agent you now have a master negotiator and someone who knows the market like the back of their hand. If you are interested in rental properties, you should not be looking for just any agent. Preferably, your agent is an experienced investor.

You want to find an agent who owns and/or manages investment properties that provide POSITIVE cash flow every month. This type of agent will assist you in analyzing deals, provide insight to market rents and help you avoid any pitfalls.

The Inspector

Never buy a property without a home inspection. Let me repeat that. NEVER buy a property without a home inspection. NEVER EVER! You are about to invest tens or even hundreds of thousands of dollars to buy property. Do NOT skimp on the inspection.

A quality inspector will tell you everything you need to know about the property. The inspector’s job is to look under every nook and cranny; if there is a problem they will find it. The inspection may take a couple of hours. Be patient – its worth it. Your real estate agent will refer an inspector if you do not know one.

I ended up walking away from the first property I ever had under contract. Thankfully, I had the guidance from my lender and real estate agent to order a home inspection. A simple home inspection saved me a small fortune.

At first glance the property looked great. The house was modestly renovated and reasonably priced. On the surface everything looked great. However, the inspector found a BIG problem.

The attic access was painted shut. After cutting into the paint to open the hatch, he discovered an alarming problem. Most of the beams for the roof were rotted out and moldy. The roof and all of the framing would need to be replaced. This was a serious problem. Walking from the property saved me a tens of thousands of dollars and countless headaches.

INSURANCE

Like the property inspection, insurance will protect your investment. Insurance brokers are boring and mundane but provide a vital service. Banks will require that you have insurance. On the off chance you are buying all-cash, you should still purchase insurance. Why would you spend a small fortune to have a renter burn the place down and lose everything? Insurance protects you from those “oh shit” moments.

In addition to insuring the property, most policies provide liability coverage up to $250,000. The liability coverage will take care of accidents such as someone slipping on ice or cover legal expenses if are sued you for a indecent that took place at the property.

Furthermore, you can purchase an umbrella policy. This type of policy is in addition to your home owner’s policy and protects you and everything under your ‘umbrella’. I highly recommend an umbrella policy once you have more than a few properties. The policies are affordable; $10-$20/month will get provide well over $1 million in coverage.

Role players

Not every player can be an all-star. You will need a few role players to round out your real estate team. Each role player has a specific skill set that is only needed during crunch time or an emergency.

  1. The LICENSED electrician – unless you enjoying being shocked and know what you are doing, I highly recommend finding a LICENSED electrician. Electricians are hard to come by but good to know. Want a new light fixture installed? Need a heavy up? Bought an old house and need to install new GFI outlets in the kitchen and bathrooms? Or perhaps the property is so old the entire electrical infrastructure needs to be replaced. An electrician, more specifically, a LICENSED electrician can help with all of these problems. You should only use a licensed electrician; bad electrical work could lead to bigger problems such as fire.
  2. Mr. Plumber – plumbing problems will almost certainly occur if you own rental properties long enough. Some problems may even require a plumber. This team member can assist in snaking drains, installing new fixtures, outdoor faucets or assisting in the building of a new bathroom.
  3. HVAC – ever lose air conditioning during the hottest day of summer? What about heat during the coldest day of winter? That shit sucks! Having a reliable HVAC repair person/company is vital. Without one, you may be stuck with nagging tenants begging for a hotel room until heat/ac is restored.
  4. Appliance guy – refrigerates, ovens/stoves, washers, driers and dishwashers are typically cheaper to repair than replace. Having a great appliance repair person will save you a small fortune. Ideally, you would like an individual or company capable of repairs all appliances. Additionally, you would want a quick turnaround (next day or two).
  5. The Generalist – Jack of all traits and a master of none. You will want a generalist to round out your team. This member is capable of doing various small and medium size products and repairs.
  6. The Lawyer – When push comes to shove, you want a quality real estate attorny in your bullpen. A good lawyer can help you review lease agreements, navigate the local landlord-tenant laws, and assist in any legal proceedings. Be sure to find an attorny with local real estate knowledge.
Finding Your Teammates

There are many ways to find your teammates. Generally, your real estate agent will be a good referral source.

Also, I highly recommend going to local real estate investing clubs. These events are great for networking, finding likeminded individuals and mentors. Additionally, attendees at such events will likely refer you to potential teammates.

You can also ask your existing team members. I once found a plumber through my electrician; they worked on a job together a while back. This is a people business and its who you know.

Your local home improvement stores like Home Depot might be a good way to find a few team members. Perhaps will bump into a handyman/generalist in one of the isles. You may also find an electrician picking up wires.

Also, you should always request recommendations or references before hiring a team member. Hiring the wrong person is costly mistake and a project will quickly go over budget if you have to replace them. Save yourself headaches by doing your due diligence up front.

Lastly, I highly recommend that all your team members are local. You do not want to depend on someone who is an hour away and three towns over. Having local team members makes them more accessible and cuts down on repair times.

Q2-2017 Dividend – The Dividend Report

As many of my readers may know, I love dividend stocks and believe dividends provide a great source of passive income. Moving forward, I will be providing quarterly updates regarding my dividend income. Utilizing ‘The Dividend Report’ section of my blog, I will share my progress towards my dividend goals. I will also share dividend growth stock ideas and thoughts. Additionally, I will share the rational behind any future purchases or sales. Dividends are truly a wonderful thing.

The Goal

The current goal is to average $1,500/month in dividend checks. I would like dividends to provide between 25-33% of my monthly retirement income. However, this goal may be revised upwards over time.

Q2-2017 Dividend Income

My Q2-2017 dividend income was $686.46. Last quarter (Q1-2017), my dividend income was $334.60. This equates to a $351.86 or 205.05% increase from the previous quarter. The increase was largely due to 401k contributions that provided more dividends via index funds. Additionally, the funds in my 401k do not provide a dividend in the first quarter (weird I know; I get two dividends in Q4)

Last year’s second quarter dividend income was $453.51. This equates to a $232.95 or 51.36% increase from the same quarter last year.

In past four quarters, my total dividend income was $3,050.29. I am proud to report that my dividend income is continuing to trend upwards. This growth is fueled by my individual stocks increasing their dividends and continuing to invest (mostly via index funds).

My average monthly dividend income is now $254.19 ($3,050.29 / 12 months = $254.19), which is 16.94% of my current goal of $1,500/month. I am now almost 2.0% closer to my goal; Previously I was at 15.08% of my goal.

The graph below outlines my quarterly dividend income dating back to Q1-2013:

The table below outlines my quarterly dividend income dating back to Q1-2013:

New Purchases

No individual stock purchases in Q2-2017. Currently, I do not see many (any?) undervalued dividend growth stocks. The market is at all-time highs and I cannot justify buying an individual stock at these levels. I am patiently waiting for a pullback to present a buying opportunity.

Landlord Report – May & June 2017

Hello there – welcome to another “Landlord Report”. This monthly report will share my experiences as a landlord. The report will show EVERYTHING related to my rental properties and life as a landlord…. This report will actually capture the past two months; I have been busy and could not keep my regular posting schedule.

I will discuss the rents that I collected, mortgage payments, and other ‘landlord items’. Other topics may include repairs, finding new tenants and any other items that might randomly pop up. The report will also share how much money I made and the amount of time (hours) it took. I want to show the world being a landlord is a wonderful thing.

I also manage ~50 properties for other people, but this report will not share information on my clients or their properties.

Throughout this process I aim to be as transparent as possible. Being a landlord and owning rental property is a wonderful way to earn (mostly) passive income. Please feel free to contact me with any questions – happy to provide insight.

The Landlord Report – May & June 2017

landlord

The past few months were very busy; my day job and side hustle took up a lot of my time. I was also busy finalizing rental property #3 which is now fully leased.

Oh, and I have a few minor (major?) repairs to report! While I love a perfect month, which is a month with no repairs and expenses, this is not always the case. I want you to fully understand life as a landlord.

The past two months have included the following – raccoons, termites, chainsaws and bed bugs – oh my! But never fear, these are actually all small problems and easy fixes. The chain saw was the best part!

The table below outlines all my income and expenses for the past two months:

As you can see, I actually lost money in May and June. However, this is a bit misleading. Rental Property #3 was not rented in May; the June rent is pro rated for only 5 days. Never the less, I did have some modest expenses and stories from the past two months to share with you.

Rental Property #1

The Starter Home

Raccoons! Bed bugs! Say it ain’t so… I will not go, turn the lights off carry me home (ok, maybe listening to Blink-182 while writing blogging is not a good idea).

Raccoons! My new least favorite animal. This issue occurred last winter and I had a small raccoon family living in the attic. The annoying creatures have been removed and the attic sealed up months ago.

So why am I talking about this now? The raccoons tore up the attic space. More specifically, the duct work for my HVAC system was damaged. Thankfully, this was a relatively effortless fix.

I called my go to HVAC repair guy (a must have member of your team; I should write a post on this at some point). Two afternoons of labor and $310 later the HVAC system showed no signs of our furry visitors.

Total time for HVAC: 30 minutes

Bed bugs! Wow, so one of the tenants is a bit of a slob. Bed bugs are no joke and a result of personal cleanliness (or lack their of). Bed bugs also bread quickly which can lead to infestations if the problem goes untreated. My pest guy treated the house the following day for $650. This is an expense that I paid but the tenant will reimburse me for since lack of cleanliness caused the problem.

Total time for bed bugs: 15 minutes

The tenants paid their rent of $4,600 ($2,300 x 2) in full and on time. Rent collection took a total of 40 minutes (20 minutes per month).

Rental Property #1 Summary

In summary, rental property #1 – lost $196.48 and I spent  about 1 hour and 20 minutes my time the past two moths. My mortgage debt dropped by $1,489.49 over the past two months from my monthly payments. When considering principal reduction, I came out ahead $1,293.01

Rental Property #2

The Fixer-Upper

Chainsaw time! The property had a tree that my tenants and I wanted removed. I went to Home Depot to rent a chainsaw but their rental was broken. Not wanting to delay the project or leave the store empty handed, I bought a chainsaw, gloves and industrial bags.

The total expense was $142.12 and I now have a chainsaw for future projects fun. This also took about an hour and half of my time but was a fun project on a sunny afternoon. Who doesn’t love power tools?

Also, one of the bathrooms sinks experienced slow draining. This is a common occurance that will happen over time. Thankfully, this repair only took 5 minutes. All I needed to do was disconnect the drain stopper and clean out some hair that was clogging the drain…. YUCK!

The tenants paid their rent of $8,000 ($4,000 x 2) in full and on time. Rent collection required me walking downstairs to get my morning cup of coffee.

Rental Property #2 Summary

In summary, rental property #2 – earned $3,040.74**. I spent maybe 10 minutes of my time depositing the checks with my smart phone. As a result, I earned $3,040.74 for 1 hour and 45 minutes of effort!!! On an hourly basis, this was $1,737.56/hour. May and June 2017 were great months for rental property #2. Does that beat your day job?

My mortgage debt decreased $1,416.19 over the past two months. When factoring paying down my debt, rental property #2 made me $4,456.93.

**I also live in the house and get paid to live here. Pretty sweet right? House Hacking is awesome.

Rental Property #3

TERMITES!!!! We will get to that in a moment.

Ah yes, rental property #3. Renters moved in the last week of June and I collected a partial month of rent along with a security deposit and July’s rent from both tenants.

The termite swarm showed up out of the blue. I had a termite inspection conducted prior to buying the property; there were no signs of termites.

Well, one day I walked into unit #2 and there were dead termites all over the bathroom and one of the bedrooms. My heart skipped a beat, sank and panic sunk in.

This was a first for me; I have never encountered a termite problem before. Thankfully, this problem was solved with a simple phone call to my pest guy.

The termite remediation costs $950; the fee covered treatment for both units and the entire property. I lost a few nights of sleep wondering if the house was going to collapse; it won’t.

In summary, rental property #3 – lost $3,591.16. This figure is a bit misleading since the property was only rented for 5 of 61 days. Never the less, I DID lose money. The termite remediation was a curve ball and unexpected. However, I anticipated the property being vacant for a few months while I renovated and leased the building. Going forward, rental property #3 will provide quality cash flow.

Rental Property #3’s mortgage debt decreased $$794.77 over the past two months. When factoring paying down my debt, I lost $2,796.39

Portfolio Summary

In summary, I spent 3 hours and 5 minutes of my time maintaining my portfolio of rental properties. Rental property #3 is FINALLY stabilized and will provide income on a go forward. This is a huge relief since rental property #3 also killed my cash flow the past two months. I am comfortable with these upfront costs since the rental property will provide great passive income in the future.

In May and June, my rental properties lost me $752.90 with consumed over three hours of my time. BUT!!! My mortgage debt decreased $3,700.45 over the past two months. Factoring in repayment of debt, on paper, I still came out ahead $2,947.55

Negative Net Worth to over $500,000 in 4 Years

Flash back to four years to 2013. I had just graduated college with five figures of student loans and about $5,000 of credit card debt. Thankfully, the credit had zero interest for 12 months; I had just signed up for it on a whim on a spring break trip.

The job market was still rough at that time. I had applied to approximately 90 jobs before being hired. That said, I was fairly optimistic about the future since I landed a great entry level analyst job soon after graduating.

Flash forward to the present. I am very blessed and fortunate to have the life I am living. I have a great job, own three properties that provide dependable income and am working towards financial independence. Today, my net worth is more than $500k. Yup, over a half a mil.

I am going to tell you how I got there but first I’ll share a bit about my background.

I grew up lower middle class and middle class. At times, I even got free breakfast and lunch at school because of our family’s income.

I have never received an inheritance or any windfalls. I do not have a trust fund.

My parents had me at a very young age then went their separate ways.

I struggled with dyslexia.

I did not graduate high school on time.

I failed out of college… TWICE – but eventually graduated.

I graduated with five figures of student debt like most of my peers (and still have loans).

I acknowledge there are privileges in my life that some less fortunate than me did not enjoy; I had a loving family, attended relatively safe public schools and never worried about a roof over my head as a child. My success is a result of hard work, being frugal, avoiding lifestyle inflation and a bit of luck (thank you bull market).

Year 1: The Accumulation State

Fresh out of college, the ‘real world’ was waiting for me. Honestly, this is a scary time in life. It is sink or swim and time to start ‘adulting’. Bills come in, credit scores matter, and attending class is no longer your biggest worry.

Instead, you are working Monday through Friday (including the occasional weekend). Unfortunately, you cannot play hooky to go on a bike ride with friends in the middle of the week anymore.

Life becomes a juggling act. Balancing work, family and friends is not easy; its a skill many never master. I certainly have not.

I faced a learning curve in my first year in the real world. In college, I studied finance and economics, so I knew it was important to start saving and investing as early as possible. The idea of going broke or further into debt scared the living hell out of me. I had big aspirations of living the ‘baller life style’ and did not know about #FIRE yet.

I squirreled away as much of my paychecks as possible while contributing to 10% to my 401k. Unfortunately, my employer did NOT match 401k until you had a year of tenure.

Growing up, I always had two or three part time jobs. While I was making a decent penny for a 23 year old (I would prefer not to share specifics; I’ve gotta keep some details private!), I wanted an extra source of income.

Experts talk about diversification all the time. Usually it pertains to investing. However, I needed to diversify my income; I felt at risk for having one income stream.

Think about it. It’s binary if your only income comes from your employer. You either have your paycheck  or you do not. If you were let go next week, how long could you survive without that income?

So, I continued side hustling. I was ‘swim practice taxi’ for a high school kid and drove him to swim practice every morning. This required waking up at 3:40am to pick the kid up by 4:00am so that he could make his 4:30am practice. While the kid swam, I would either get a jump start on my work or exercise for an hour and half. It was easy to be productive during this time since there are no distractions at such an early hour. Then I would drive him home and head to the office.

I also worked the occasional odd job for extra income. I lived at home for approximately 8 months and learned to live off my side hustle income.

This allowed me to save most of my salary, build up an emergency fund and max out my Roth IRA. My emergency fund was about $8,000.

Thanks to my savings mindset, I was able to come up with a 3.5% down payment (around $11,000) for my first property, which I bought less than a year after graduating. It is a 3 bedroom/2 bathroom duplex (I own half the duplex) in a working class neighborhood – nothing fancy.

The monthly payment was more than I was comfortable with (thanks PMI) BUT that was ok. Why?

Because I decided to househack and rent out the extra rooms. The rent I collected covered a bulk of the mortgage and kept my cost of living low. Renting anywhere would have been more expensive.

Bonus – I also received tax benefits associated with owning a home and my renters were paying down most of my debt every month.

I ended year 1 with a net worth of: $33,313.11

Year 2: The Growth Stage

This year started off with a bang as I was the proud homeowner. My side hustle ended, though, since the kid could drive himself to practice.

Just when you think everything is going well, life can throw you a curve ball (or two). I had two major medical accidents a month apart. I was lucky to have good health insurance from my employer, but this experience stressed the concept of having an emergency fund and did set me back a bit financially.

This financial setback combined with no longer having a side hustle motivated me to find ways to increase my earning potential. Thankfully, my cost of living was low since I was househacking.

I was killing it at work and decided to ask for a raise. My boss agreed; but this promise went unfilled for a few months.

One day a recruiter from a competitor’s firm left me a voicemail. I decided to return the recruiter’s call. Next thing you know I was on my second round of interviews and the new firm paid for my travel to New York City for a final interview. A job offer followed shortly after the trip to the Big Apple.

The new job was a promotion and the compensation was something my previous employer did not match. So, I left my old job on good terms and never looked back.

Around the same time, I started a Master’s program. Taking classes at night and on weekends filled up my schedule. Long-term this would be beneficial, or so I thought. I mean, Americans are trained to think higher education is good right? Looking back, for me, grad school ended up being a complete waste of time and money.

Near the middle of year 2, I stumbled upon a few FIRE (financial independence; retire early) blogs. I was immediately fascinated with the idea, concept and lifestyle many bloggers wrote about.

Biking to work and preparing most of my meals at home became common practice. This allowed me to increase my savings rate significantly. Parking in the city is about $20/day and eating out is not cheap.

Dreams of a flexible life filled with travel, time outdoors and avoiding an office constantly crossed my mind. The idea of working on projects for primarily enjoyment and not monetary gain excited me.

I began to take as many steps as possible to set myself up for financial independence. Past aspirations of a “baller lifestyle” with fancy cars and country club memberships faded into distant memory.

Towards the end of year two I was able to refinance my house and get rid of PMI payments. Refinancing lowered my monthly mortgage payment about $400. This helped me budget, save, and invest as I was generally living on less than $1,000 a month. However, I would occasionally let loose to enjoy a night out with friends or travel.

I ended year 2 with a net worth of $112,061.49 – a $78,848.38 increase over year 1. About half the increase was from savings/investing. The other half was from reduction in my mortgage debt and property value increasing (confirmed by appraisal and Redfin).

Year 3 – The Snowball and Risk Taking State

Year three was marked by wanting to grow and get to financial independence as quickly as possible. Two actions allowed me to take years off my timeline to achieving financial independence.

First, I started another side hustle. (Oh boy here he goes again…) I worked part-time (sometimes felt like full-time) as a property manager for a few dozen rentals in the city.

The position required me to be the main point of contact for all the tenants. Additionally, I was responsible for scheduling repairs (some I did on my own), marketing vacant units, collecting rents and overseeing the turnover process of tenants moving in and out.

This was a great learning experience as I wanted to own more rental properties. The gentleman I worked for had over 15 years of experience in being a landlord/property manager in Washington, D.C.

Our nation’s capital has very tenant friendly laws and landlords have few rights. This can be challenging to navigate around if you do not know what you are doing. I highly recommend understanding your local landlord/tenant laws if you plan to own rental properties. Some places are tenant-friendly while others places are more landlord-friendly.

Second, I bought my second investment property, The Fixer-Upper. This was the worst house on a decent street in a neighborhood surrounded by gentrification. This is the ultimate trifecta for anyone looking to find a good deal and create value.

This home was purchased with an FHA 203k loan which required only 3.5% for the down payment. The loan also gave me extra funds to fix up the place. To be clear, this was a complete gut renovation. The property had been neglected and unimproved since the 70s.

The renovation process was stressful but rewarding. My bank account almost hit zero a few times as the renovation budget was more than loan would cover. However, it was definitely worth it in the long run.

I continued my love of house hacking by living in the property. However, unlike my previous house, I lived here for free. Actually – I got paid to live here because my tenants (roommates) covered all of my expenses and then some.

Not only did I keep my cost of living low, I completely eliminated my housing expense.

This was huge! Absolutely HUGE for my budgeting. Most people’s biggest expense is housing and I no longer had to worry about paying rent or a mortgage.

At this point, my only living expenses were transportation, food, and entertainment. As you can imagine, this did wonders for my savings rate and ability to invest.

My spending has increased modestly and I no longer live on less than $1,000/month. I am still thrifty and do not spend lavishly, but enjoy a few more meals out or drinks with friends.

Heck, I still occasionally go for a Zero Day Challenge like my buddy over at Zero Day Finance. Highly recommend checking his blog out if you are looking to learn more about saving and budgeting.

During years 1 and 2 I passed on many weekend trips and lavish trips abroad. In year 3, I decided to enjoy life a bit more. After all it is all about balance. I went skiing for 5 days out west and went backpacking in Europe for 17 days. Gotta live life while you still can as long as you are still planning for tomorrow.

I ended year 3 with a net worth of $261,038.14 – a $148,976.65 increase over year 2. Much of this increase came from the value created in my second investment property and continuing to pay down mortgage debt (with other people’s money). Though approximately 35% came through saving/investing; compound interest or the ‘snowball effect’ is an amazing tool.

Year 4- ball out or burnout?

Year 4 was a year full of decisions. The job I once enjoyed became unbearable. My boss turned into a micromanager and fostered a hostile work environment; my whole team agreed.

To further complicate matters, our firm had willingly stopped doing new business for almost a year. Going to work everyday to twiddle my thumbs and deal with a buffoon of a boss did not sit well with me. I had two feet out the door and never looked back.

A small, local firm reach out to me and through a recruiter. The position did not entice me but I knew the work environment could not get any worse. The company was committed to growth, which I liked. Given my experience working with some of the world’s most sophisticated clients at my previous job, I knew could contributing to the new firms growth would manageable. The smaller firm demanded less hours and provided better compensation as well.

During my discussions with HR, I was able to negotiate a meaningful 40% pay increase and a modest signing bonus. I also negotiated a start date that allowed me a full month off in between jobs.

The mountains are my zen place and I spent a week in the rockies climbing and camping during my month of ‘down time’.

“The mountains are calling and I must go” – John Muir

The other three weeks were spent tending to the responsibilities of my side hustle and getting my life in order from all the things I neglected during my 80+ hour work weeks.

My side hustle become more of a burden as we doubled the number of properties under management during my tenure. This now felt more like a full-time job. As I announced earlier this month, I will be stepping away from my side hustle. The money and experience were great, but I value my free time and do not need the additional income.

Year 4 was also great for my savings and investing. I still did not have any living expenses and continued to invest regularly.  This was the first year that I maxed out my 401k. I also bought investment property #3.

The decisions made in year 4 will allow me more downtime and help avoid burn out. I could have kept going 100 miles an hour to afford a baller life style, but the at the expense of being burned out, I do not see the value.

I value my free time and flexibility. I want to escape the rat race and get off the corporate hamster wheel. The dreams of financial independence are more vivid every day.

I am not ready to walk away from my day job but the sacrifices I made in the past 4 years have provided a great foundation for financial independence. I plan to enjoy my life more and work less while continuing to save for financial independence.  If everything goes to plan, I look forward to announcing my FIRE date before the age of 30.

I ended year 4 with a net worth over $500,000.00 – a $238,961.86+ increase from year 3. The increase was about 40% from saving and investing and about 60% from reducing mortgage debt and property values increasing.

I have overcome adversity and defied the odds, and have two pieces of advice for you: Do not let society put you in a box. The only place you will find success before (hard) work is in the dictionary.

Have you ever sacrificed short term pain for long term gain? What instances in your life have you put in the extra time to get ahead in life? Did you know when it was enough? Or did you burnout? Perhaps you are still going 100 miles an hour?

Making It Happen: Andrew From Living Rich Cheaply

I have always thought that investing in real estate was a great way to build wealth. It just didn’t seem possible for me because I live in New York City where housing is so expensive. When I hear about people buying houses for $100,000 or $200,000, I’m a little very envious. That amount of money would be a down payment on a house in my neighborhood and I don’t live in Manhattan or some hip part of Brooklyn where real estate prices are even more insane.

I was content investing in index funds which I’m a big proponent of, however, as I started reading about attaining FIRE (Financial Independence Retire Early), I wanted something to accelerate my path there. This is not a investing in the stock market versus real estate debate. I am a fan of both, but investing in real estate in my opinion can accelerate your path because of a thing called leverage. Leverage, can of course be risky, but when used wisely and with a little bit of luck, I think it can be a positive.

After reading posts from a few bloggers, who also live in high cost areas, invest in real estate out-of-state, I was intrigued. Initially, I thought it was crazy and very risky to buy a property so far away, but realized that it can work if you have a good team that you trust. Also, I’m not a handy person nor do I have any experience being a landlord. Ultimately, I probably would have relied on a property manager whether I invested in my backyard or out-of-state, so having a trusted person was the most important factor in my investment.

I went through the forums on Biggerpockets and contacted the forum members there as well as bloggers who had invested in rental properties out of state to get referrals. There was one company that kept on coming up as having a sterling reputation which was something that I wanted for my first investment. I contacted them and their customer service and reviews were excellent, but I felt the return on investment in my opinion was…just okay. Investing in real estate was my opportunity to accelerate my path to FIRE, I didn’t want “just okay.” Now I didn’t want to take excessive risk either when purchasing my first rental property but I wouldn’t mind taking a smart calculated risk.

After asking more people for referrals and reading the forums daily, I found a company which also seemed to have great references. They sold turnkey properties but they also had a hybrid approach. With their hybrid approach, I’d buy a distressed property, it would be renovated and then rented out. The company I worked with would act as the realtor, then the project manager and then the property manager. Money is made at the purchase and I wanted to buy low and “force appreciation” by renovating the property. It is similar to those who make money flipping houses, but rather than selling the house, I’d be renting it out. I felt that this approach was superior to buying a turnkey property where you would be paying market prices, whereas I’d have much more equity in the deal.

With my investment, I purchased a single family house in Kansas City, Missouri. I bought it at foreclosure for $60,000 and put another $11,000 for renovations. The property appraised for $83,000 and is currently being rented for $850. Hopefully, with some appreciation and principal pay down, I will do a cash-out refinance to take money out and buy more properties.

One lesson that I learned as a new real estate investor is that things don’t always go as planned. When I tell people that the rent is $850 and my mortgage payment each month is $485 with another $76 going to the property manager, they assume I’m making close to $300 each month. That has not been the case. Repairs are inevitable and while they were including in my calculations when I made the investment, there have been more repairs than expected. I also know that eventually there will be bigger expenses needed to maintain the house such as a new roof and hot water heater. There is also the possibility of a vacancy if the current tenant leaves. Obviously, these expenses have to be taken into account when you make the investment. While I’ve had more repairs that I expected, I still feel like the investment is going well. The fact that the property already appreciated $12,000 due to the renovations definitely helps.

Investment Property #3 and Life Update

Well, as many of you know my posting activity has dropped considerably in the past month or two. This is for many reasons. Mostly my side hustle but I have also been busy getting investment property #3 leased up (hint there were a few headaches and surprises. keep reading).

The Side Hustle

First my side hustle. I actively manage over 60 properties in the D.C. area and its summer time. So what? Well, summer time is always the busiest time for apartment and residential rentals. Why?

What a great question; I am glad you asked. Most people typically move between the end of April and September 1st. During this period of time we are constantly negotiating new leases with existing tenants. This means wether or not we are going to increase their rents.

Most of the time we do push for small 1-5% rent increases. Our rent increases depends on the neighborhood, where the current rent is relative to the market, and how much of a rent increase we think we can get without the tenant moving out.

Pro tip: Never be afraid to ask for a rent increase. Rents should gradually increase over time.

We have a strong retention rate with our tenants. This is largely because we are active landlords that take care of repairs and communicate in a timely fashion. However, life sometimes take tenants in another direction.

A handful of tenants moved on for various reasons. Some tenants relocate for grad school or work. Others want to move in with their significant other. The desire to live alone, have more space or live in a different area are other normal reasons.

As such, we also need to fill rentals where tenants are leaving. This means we are advertising the apartments on a several websites. We use craigslist, Zillow, Truilia, and hot pads. All of these services are free and provide great traffic to our listings.

We receive dozens of emails daily about our available apartments and homes. Responding quickly to schedule a time to show the unit is very important. Showings which typically occur in the evenings during the week. Weekend showings are generally late morning or early afternoon.

Once we have a prospect interested in renting, they must apply using our online application. The application is very accessible as tenants may apply using their smart phone, tablet, laptop or desktop. The form requires applications to provide basic personal information, rental history, landlord references, salary and employment information.

There is a $35/per person application fee which covers our costs for credit/background checks. Typical turnaround time takes 1-2 business days.

Next, we need to decide if the application is approve or rejected. Once the tenant is approved – we must have the tenant sign the lease, collect the security deposit and first month’s rent.

As you can imagine, its a very busy process.

BIG NEWS

So a big announcement and some exciting news…..This summer will mark the end of my side hustle. I started ‘part-time’ work as a 3rd party property manager (one who manages properties they do not own) a little over two years ago.

At the time, the extra money was very helpful. Hell, I might even classify it as necessity. You see, back then I just started a gut renovation on property #2 and things were tight. VERY TIGHT. I lost a lot of sleep those few months and my bank account almost hit zero a couple of times. (side note: I had an emergency fund, stocks and other assets I could have pulled from but resisted unless absolutely necessary).

The cherry on top of my part time hustle was the free education. Actually, if you look at it, I was paid to learn.

What do I mean? Well, I was working for a guy who had over 15 years of real estate investing and property management under his belt.

During my tenure with him which will end in September of this year, I saw and learned a boat load.

I learned the basics of taking care of homes. Many home repairs and some of the most common repairs take only a few minutes of wrench time. I learned to fix toilets and garbage disposals (VERY COMMON repairs).

I also learned how to caulk a shower, fix a shower head and a leaky faucet. This education will save me hundreds  (thousands?) of dollars over my life since I will not need to call a plumber or handy man if I have issues with any of these items. The list goes on but I will save you from reading all the things I can fix.

I have learned how to efficiently advertise and lease an apartment. To that point, I have also learned how to quickly turn over an apartment in less than 24 hours so that the unit does not have any vacancies.

Negotiating leases is another priceless skill I acquired over the past few years.

Being a landlord/property manager is a people business. Learning the proper way to talk to tenants and defuse difficult situations is very important. Like any other transaction or service, people want to feel important and taken care of.

HOWEVER! I also learned when to put my foot down or provide some tough love to tenants. Deciding when to waive and enforce late fees is a great example.

I have encountered a group of knucklehead, young 20 something guys who decided to move out in the middle of their lease and stop paying rent. Hint: did not end well, thank you Mr. Lawyer. We did not lose a cent AND they paid our legal bills.

We navigated the choppy waters when one tenant burnt part of the house down. Yeah, that was a fun phone call from the fire department.

Pro tip: Always have your property insured. Always require renters to have renter’s insurance. This way you can go after their insurance policy and not the individual.

I shadowed the gentleman I worked with on buying and renovating multiple properties. Between my renovation of property #2 and assisting in the management of these properties, I have a firm understanding of renovation process and costs associated with various upgrades.

Given our diverse rental portfolio, I learned to deal with ultra high-maintenance tenants and low-income tenants. Both require a different approach but at the end of the day we are all human and everyone just wants a quality place to live.

D.C. is a very regulated place and the laws are tenant friendly. I learned the ins and outs of what makes a rental legal or illegal and how to be in compliance with the (bogus) regulations.

But I digress….

Property #3

In recent months I have developed a bit of a soft spot for those less fortunate. (Big shout out to @steveonomics for calling me a Boomer Senator).

Why do I bring this up? Well, because it plays a big roll in investment property #3.

The Good

Let’s start with the good – I will get to the bad and ugly in a moment. I decided to partner with a local non-profit that helps homeless women with children get off the streets and out of homeless shelters.

This organization is truly wonderful. Depending on the women’s income situation, the non-profit pays some or all of their rent for a year. Additionally, is group fully furnishes the house for the family.

The organization also assigns the women a caseworker for monthly (or more frequent) visits. These meetings are used to help get the young ladies’ lives back on track.

Skills training and mentoring are provided to the women. The goal is to make them self-sufficient and provide for their families with limited or no assistance.

During the lease signing process, one of the ladies literally gave me a bear hug when I handed her the keys to her new apartment. I almost cried. Both ladies are so grateful to have a place to call home.

It really puts life in prospective, especially for the FIRE community. We are very fortunate to have all the blessings we do. Imagine, you could be in a much worse situation

Lastly, I was also able to rent the property for ~$250/month more than I expected which will help make the bad and ugly a bit more bearable.

The bad

Now the bad – there were some hiccups and unexpected items that came up during the renovation process. This typically happens when you start fixing a place up.

First, since I decided to work with the non-profit, the building sat vacant for a month longer than needed. There was a lot of red tape to deal with.

Second, I was originally guessing the entire renovation would be between $8,000 and $10,000. The actual figure was a bit over $20,000 and I will bore you with all the details in a future post (official investment property #3). A few of the highlights include needing a heavy up (electrical) at the property, getting gouged for labor by one of my normally trust worthy contractors and failing a few inspections that added to the overall time frame to completion.

HOWEVER, my numbers still worked and I will satisfy my personal return requirement of ~20%. This is why you never do a thin deal where there is little room for error.

The Ugly

Now…. for the moment you have all been waiting for… The U-G-L-Y (you ain’t got no alibi). After the property passed inspection and the renters were ready to move in, some pesky visitors decided to show up. Some good old fashion termites.

Thankfully, I had a very reasonable price for remediation. We give our pest guy a lot of business with all the properties we manage. He offered to treat the entire building for $900. Still, this was tough to stomach. Especially since there were no signs of termites during the inspection.

Oh and if that was not enough, the upstairs unit is having a bit of electrical troubles. My electrician who did all the work at the property has ghosted me and the local utility company is as dysfunctional as congress. Thankfully, everything will work out in due time.

Free Time Around the Corner

As I mentioned earlier in this post, I will be stepping away from my side hustle in September. I will still manage my own properties but that will take less than 5 hours most months. I will also casually continue to add real estate to my portfolio but really I am looking forward to the down time.

I am burnt out, overworked and exhausted these days. Working 80-100 weeks has become commonplace; this is unhealthy.

I am looking forward to a bit slower pace of life. I plan to take some down time to decompress and clear my head. My memory is shot from information overload. The days of being bombarded by dozens of emails and phone calls from tenants will not be missed.

I look forward to improving my health. Working out has taken a back seat the past few years given my workload. I look forward to running, biking, hiking and lifting more. I look forward to cooking more. Constantly being on the go made buying groceries and meal prep challenging.

With the extra downtime that awaits, I plan to be more social and spend time with family and friends. I missed countless outings and get togethers because of my work load.

Giving back to my community will be another way to spend my extra time.

Lastly, I look forward to a creative break. I love periods of downtime and letting my brain run wild while traveling.  I have a few ideas would like to work on that will be very rewarding. Also, I would like to spend more time on this blog and post regularly.

Do you have a side hustle? Have you ever been overworked? Were you able to stop? Have you ever given up your side hustle?

Making It Happen: with Colin from Building-Income

We have a great interview today with Colin from Building-Income. His life journey is a fascinating one. Colin struggled with debt multiple times but has overcome many hurdles and is now a successful real estate investor.

Take it away Colin…


– Tell me a bit about yourself?

Currently, I’m a commercial real estate broker in Spokane, Washington.  My background is varied in that I’ve served in the army, earned a bachelor’s degree in finance, went to work as a property manager, then changed gears and worked as a police officer before returning to commercial real estate.  I’ve also owned several small businesses

My finances were a disaster throughout my twenties and thirties.  I got out of personal debt once ($46,000) only to put myself back into debt ($49,000) six months later.  Once I got free of that debt, I purchased a business that failed within a year and added an additional $60,000 more debt.  It was a was long period of financial immaturity.

Part of my journey through my blog, Building-Income, is sharing the lessons that my poor choices taught me so that others can benefit from them.  I’m making moves in my forties through real estate and aggressive savings that I wish I’d started in my twenties.  That’s the other part of the story and the one that I am most excited to share.

I’m fortunate that I have a supportive girlfriend who understands the big picture of what we’re trying to accomplish and is a great financial partner, as well.

 

– How did you get started in real estate investing?

My friend, Kevin, taught me how to do it.  I was 40 at the time and he was 26 years-old.  (note from Guyon_FIRE: Kevin has a great story too read more here: A Real Rich Dad Poor Dad Story)

For some reason, I didn’t believe I could invest in commercial real estate. I thought it was for other people, for the big players.  I even worked in the commercial real estate field, but wasn’t convinced I could do it.

Kevin showed me how to invest and he made it simple.  I had to humble myself and admit I didn’t know as much as he did.  I also had to admit that I was intimidated by the process.  Admitting my fear was freeing.  Once we completed our first deal, we immediately started looking for our second and haven’t stopped since.

 

– Why real estate?

Like most in the industry, I fell into it.

When I graduated from college, I thought I wanted to be a stock broker.  However, I needed a paycheck and I needed it fast.  I took a job as an executive assistant at a full-service brokerage firm.  My job was to do some basic bookkeeping and assist a property manager.  A bit later, I was promoted to a residential property manager position.  Further into my career, I was a commercial property manager before becoming a full-time broker (independent contractor).

I was blind to the good fortune of that exposure to real estate for so many years.  Unfortunately, I think a lot of people are like this.  We go to work, keep our heads down and miss the actual opportunities around us every day.  Then we go home with the small paycheck, complain about not getting ahead, and miss good fortune when it’s staring us in the face.  

 

– How many properties do you own now?

Currently, I’m a partner in ten commercial buildings and I solely own two residential properties.

The residential properties are a single-family home and a duplex.  

The commercial properties range in type from a single tenant retail building to a 10,000 sq. ft. retail strip center.  All of them were purchased by separate limited liability companies (LLCs) that were formed specifically for each task.  This allowed us to bring in different partners for the different deals.

 

– How has real estate investing positively impacted your life?

I told the full story in a blog post, but my finances were a complete disaster when I looked to buy my first property.  I’d gotten out of debt once and then almost immediately put myself back in debt.  It was immature behavior.  I needed to focus.  

Everyone talks about having a “why” to direct your activities.  Usually, that’s something bigger like early retirement.  For me, it was much more ground level; I needed to raise cash to invest in a single building.

Immediately, I reeled in my spending, sold a bunch of things I’d collected over the years and soon had enough to jump into a partnership.  The feeling of owning a piece of a commercial building did something to me inside.  It boosted my confidence, in a way, that a lot of things never had before.  I reached a goal that I thought previously was unobtainable – I invested in a commercial property.

I’ve continued to grind on my expenses so I can go after real estate.  I now have a bigger “why,” but real estate was what allowed me to understand I could reach my goals if I learned how to control my spending.

 

– Walk us through one of your deals.

That’s a great question, but tough to answer in a general way.

Commercial deals are very different than buying a residential property as many different factors might be the catalyst for the transaction.

A deal can be tenant driven when they are looking for a site and you help them.  We did that for a national janitorial company and the deal has worked out fantastic.  They wanted to relocate and we found them a spot, purchased the building and leased it back to them.  We just renewed them for their third term.

Deals may be vision driven such as when we realized an under-utilized corner was suddenly in play.  A check cashing store had just vacated a dilapidated building on one of the busiest streets in our city.  We were the first to call the owner before he’d even been inside the building since the tenant had vacated.  We bought the property, tore down the building and put Jacobs Java, a local coffee company, in place.  It is a ground lease deal (we only own the dirt), but the income stream has more than doubled the value of the property.

A deal can also be “value-add,” such as buying a vacant building and installing all new tenants.  We purchased a property that had been foreclosed and was completely vacant.  By the time we closed on the property, we had the building fully leased.  It was a great buy.

Since each deal is so different, it’s important to have a good team in place as you start to invest.  A mentor, broker, banker, lawyer and closing agent.  There can be more members of the team, but that’s the core group when you get started.  If you’re not going to manage the building, you should loop a property manager in to the process as well.  They can help point out potential issues that you might miss.

 

– What is a lesson you have learned from your mistakes as a real estate investor?

The biggest lesson so far is to always be aware of your perspective.  I also wrote about this previously, but the first investment property I had was a single-family rental.  Originally, it was my home, but I bought another, larger house.  I kept the smaller house, thinking it would make a good rental.

Unfortunately for me, I was desperate to rent it and leased it for less than my monthly escrow payment.  For years, I thought I was losing $50/month on it.  It bugged me, monthly.  This was during the time my finances were out of control.  

Had I changed my perspective, I would have realized I was really buying a house for $50/month, not losing $50/month.  I also could have raised the rent, but I never did.  Instead, I just complained about how terrible it was to lose $50/month for too many years.  

Finally, I sold the property and breathed a sigh of relief that I was free of it.  It wasn’t until a few years later when I woke up and realized I’d made a mistake by selling the property.  Had I changed my perspective, things would have turned out quite differently.

 

– What do you hope to achieve through real estate? 

Real estate will fund my retirement.  

In my partnerships, we have a different philosophy than many other investors, because we don’t take disbursements currently.  Instead, we are paying down debt on the properties.  Commercial loans work differently than residential.  Typically, you are forced to refinance or cash-out every ten years.  Therefore, we’re attacking debt to force ourselves deeper into the amortization schedule.  

When it’s time to refinance, we will for only what’s owed and then start taking distributions, or be paid off completely.  We have one property that will be completely paid off in eleven years from the date we purchased it.  From that point forward, it will be a cash flow machine and we won’t have to worry about market bumps or vacancies.  We’ll have removed a giant chunk of risk for ourselves as many of us will ready for retirement.

On a personal note, I completely paid off the single-family home I bought in late 2015.  It was a hit to my investment account, but that house is now debt free.  If there is ever a vacancy, I won’t be anxious to get a tenant.  I couldn’t have made a money move like that ten years ago when my finances were out of control.

Some will suggest I should have re-leveraged the single-family home, but I will say that there is something very satisfying about fully owning a rental property.  I’m not arguing with the position on leverage.  It’s just a different view point.  However, I now have a free and clear asset that I have no intention of every re-leveraging.  

 

– What advice would you give to someone who is looking to get into real estate but has not bought a property yet?

First, read.  Before you buy your initial property, read a few books on real estate investing.  I was given a free education as a property manager, but I still read several books by the time I bought that first one.  Then keep reading.  One of the deals we did last year (refinance – cash-out – purchase new) was from reading a story in a book.  I might not have thought of doing that if I hadn’t read about it first.

Next, talk with someone who has done it.  Take them to coffee or out for beers.  Ask questions and then ask some more.  Most investors love to share their stories and will give advice freely.  Guys ask me to share stories and I’ll do it in a heartbeat.  I still ask clients and other investors to share and they do as well.  It’s fun to talk about real estate, both success stories and not-so-successful ones.

Third, work with a broker (or agent, depending on your state).  As stated before, I’m a commercial broker, but if I buy a residential property, I work with a residential broker.  Brokers know the market, they know what’s coming down the pipe that could affect your potential purchase and they will want to keep you as a client.  I hear a lot of folks who think they’re smarter than a broker.  Unless you deal with real estate on a daily basis, you’re not.  Think about your profession.  If I decided to read a book and then walk into your office, could I do your job as well as you?  Not a chance.  There’s a difference between reading how it’s done and actually doing it.

 

– What have I not asked you that I should? Or something that you would like to share with our readers?

For me, real estate is about control.

When the market crashed in 2007, I had been speculating in the stock market.  I didn’t have a lot, but had gotten about $15,000 into various stocks.  I was essentially gambling.  Then it all came crashing down.  One of my largest stock plays was Washington Mutual.  One morning I woke up to find that the FDIC had put it into foreclosure and immediately sold it to Chase Bank.  My stock essentially vanished.

My investing in stocks was part of my financial immaturity.  I couldn’t gamble my way to wealth.  It was going to take a slow, methodical approach to building wealth.

When I buy a property, I have a lot of control and can make very informed decisions, not emotional ones.  

First, I can walk on to that property at any time.  It’s not going to suddenly disappear if the market crashes.

Second, it’s insured in case a catastrophe does happen.

Third, if the market sours and I experience a vacancy, I have a lot of options.  I can lower the rent, offer free rent for a period of time, or offer other incentives.  I’m only limited to my imagination.

With stocks, I was on the sideline, hoping someone else would make a good decision with the company I had invested in.

Now, I’m the one in control and making sure the investment is pointed in the right direction.

 

Making it Happen: Mad Money Monster

Mad Money Monster Bio

 

Mr. & Mrs. MMM
Mr. & Mrs. Mad Money Monster

Mad Money Monster is a personal finance blog chronicling one family’s journey from doing money all wrong to doing it all right. Lisa, also known as Mrs. Mad Money Monster, is the creator and resident blogger. They pride themselves as being Gen-Xers who have turned it all around and are now charting a course towards financial independence. Their traditional path to wealth consists of frugal living, index fund investing, and rental property ownership. They love inspiring others just like them to take control of their financial future and realize it’s not too late!

Getting Started

 

I always knew I wanted to own rental properties. Interestingly, I started by accident. The year was 2007, yes, the height of the real estate bubble, and my mom and dad were living in an apartment with their dog – a cute little Boston Terrier named Ace. Unfortunately, Ace wasn’t as nice as it was cute.

One morning my mom had him out for a walk and he ended up biting someone’s sneaker. He put a hole through the top of the sneaker. As luck would have it, he bit the manager of the apartment. Despite there not being any injury or real damage, he was evicted.

I was unable to take him at the time, so the next best thing to do was to buy my parents a house where they could live with Ace. Did I mention Ace was actually my dog? That’s true. So, I obviously had a vested interest in keeping him in the family.

Fortunately, I had always wanted to get into rental properties, and this seemed like as good of an excuse as any. So, I started scouring Realtor.com. Inventory was sparse and prices were high; unfortunately I didn’t have the luxury of time. I ultimately ended up settling on a house that needed upgrades. At the time, I wasn’t aware that real estate investors make their money in real estate at the time of purchase. I bought the house for close to list price in 2007. That says it all.

Related: One House, Two House, Red House, Blue House

Why Real Estate And How Many Properties?

 

rental house
Our rental property

For me, I’ve always been enamored with real estate. I grew up poor and we lived in a trailer. As a kid, all I ever wanted was a real house. After reaching adulthood, I decided real estate investing would be a perfect fit for me. I really enjoy transforming a property into a shining gem.

So far, Mr. Mad Money Monster and I have only one property. We are currently charting a path towards total debt elimination on our way to financial independence. In our world, total debt elimination means eliminating our mortgage debt, including our rental mortgage debt. That is currently the last debt we have on our plates. After that, our plan is to acquire more properties, paying cash.

Of course we know the power of leveraged money. It’s a personal preference for us to be cash only real estate investors. That being said, as long as the numbers work, there certainly isn’t anything wrong with financing a property that will cash flow.

Related: How I Almost Committed Financial Suicide

Positive Impact

 

As noted earlier, I love transforming a home into something spectacular. Something called sweat equity has definitely paid off with our property. We also love driving by our tangible asset – something you don’t get to do when you only invest in the market. Stocks go up and stocks go down, but people will always need a place to live.

It has also been a great lesson for our daughter. She knows we have another house that people pay us money to live in. She also knows that we take care of that house just like our own, because people pay us money to live there.

Related: How We Almost Committed Financial Suicide – Again

Lessons Learned

 

Being that I purchased my property at the height of the real estate bubble, near list price, means I did NOT make my money on the front end of the deal. Thankfully, I have no intention of selling the property anytime soon, so hopefully, I’ll make my money through passive income and on the back end when I eventually do sell it.

Goals

 

Our ultimate goal for real estate rentals is passive income generation and diversification. We prefer having fewer paid off properties over more leveraged properties yielding the same income. Fewer properties = fewer problems. Period.

Advice For The Virgin Investor

 

Do your up front homework, make connections within the field by attending local REIA (Real Estate Investors Association) meetings, and avoid analysis paralysis. All the upfront work, planning, and saving for a property won’t do any good if you’re too scared to pull the trigger.

Decide the type of property you want to invest in. Single family homes typically have lower vacancy rates and are easier to sell if you decide the life of a landlord isn’t up your alley. On the other hand, multi-family properties have multiple income streams; thereby, lessening the blow of a vacancy. You also have multiple tenants sharing one building. And that equals less overall maintenance.

Analyze what type of neighborhood you want to invest in. Go too expensive and you might have a hard time making money. Go too cheap and you might find yourself in a dangerous neighborhood.

I would also caution a virgin investor against not using a property manager. Yes, I know the argument for not using one – everyone wants to keep more of their profits. But, one must consider how involved they want to be with their property. A good property manager means you’ll be able to relax a bit knowing the legal aspects of your real estate venture are handled. A property manager can take care of everything or very little, depending on the preferences of the property owner. But make no mistake, a good manager is worth his or her weight in gold! Besides, you’re getting into real estate to earn passive income, not to give yourself a second job.

Oftentimes, professional investors calculate property management fees into the deal when they’re determining whether or not a property is worth purchasing.

Property managers can take care of things like…

  • Leases
  • Tenant Background Checks
  • Borough/City/Township Requirements
  • Inspections
  • Routine Maintenance
  • Unexpected Repairs
  • Difficult Tenants
  • Evictions
  • Court Hearings

Lastly, make sure you have a good umbrella liability policy. They’re cheap and they can cover your butt in the event a tenant decides to sue you for that cracked sidewalk they tripped over last week. It’s not probable, but it is possible. Cover your bases and your experience as a landlord will be a positive one that also puts cash in your pocket. Everybody Win.

Are you thinking of getting into real estate investing? What’s holding you back? If you’re already an investor, what is your #1 piece of advice for a newbie?