When I first became a landlord, it was somewhat by accident. I didn’t even know I needed financial independence. I wasn’t sure what to do, and how to do it. I had a solid six-figure income job, and was able to weather out any storms. I left one place vacant for 18+ months, because I didn’t have the time to work on it. I took in some bad tenants, and suffered some aggravation. Luckily, I had the income and backup capital to weather any storms.
As I started to manage those first rentals, I realized that having a vacancy for 18 months was ridiculous. I just learned a hard lesson on opportunity costs. My taxes were the same, and all costs still came, but my income was down. Note to self: Factor in opportunity costs when you are making decisions.
I continued to learn, and developed a thirst for freedom. I began a quest for financial independence, I went to many RE seminars. I learned as much as I could. I understood the concept of buying in bulk, and selling pieces off. It is what every retailer does. I then started to look at multi-family housing. After all, isn’t that what an apartment is, a large piece of RE, sold to many tenants, for only a period of time? If I purchase a 4-plex, paid by a 30-year mortgage, I have just purchased 1,440 months of apartment, and I sell it to tenants 12 months at a time. No different than a retailer. One additional benefit is, I have locked in my price, no matter what rents do for the next 30 years.
After a few Section 8 tenants, I realized the cleanup and remodel between tenants was a lot of work. I could hire it out, or do it myself. Doing the work myself was getting old. It was irritating that tenant’s abuse the property that I worked so hard to prepare for them. I was beginning to think it was impossible to make money on these types of tenants.
I began studying the tenants that I had issues with. Most were genuinely nice people. I knew they had poor credit, but they had low income. Doesn’t every low-income person have bad credit? After you do the research as to what goes into a credit score, you come to realize that credit and income have nothing to do with one another. People have bad credit because they do not pay their bills, or they have too high of a debt ratio.
I started to picture my mother, who would be considered a low-income person heading a single parent family. The difference is, she worked nights to get the extra night differential money, worked extra shifts to make more money, and even worked more jobs to get extra money.
Once, my mother co-signed an auto loan for a co-worker at her part-time job, and the person defaulted. She made all of the car payments, rather than have her credit ruined. If she quit paying, the car would have been repossessed and she could have repaired her credit, but her word was her bond. I came to realize, there is no excuse for missed rent payments, or poor credit.
As I thought about the rental property, I realized many of the benefits. Retirement was a long way away, but I knew I did not want the feeling of being attached to my employer forever. Knowing that if I quit, or got laid off, I could lose everything was not a great thought. The properties I had cash flowed. They didn’t require a lot of work, mostly. If I had more of them, I might make more money. If I make more money, I could be financially independent. I just had to reduce the amount of work between tenants. I had to reduce horror stories.
I also looked at many different opportunities over the years. I started a small lawn mowing and snow plowing company. I also did a bit of handyman work, rototilling, tree trimming, hauling, etc. I tried selling a few items on eBay. If I was just sitting around doing nothing, I may as well go out and make a $20 bill. I investigated some franchises, including a check cashing business, a tanning salon, even a hair stylist shop. All had promising income opportunities, but the RE was what I always fell back on.
Now that I have a decent sized RE portfolio, my income from RE is higher than my real job. The RE is more risky on a month-to-month basis. On a long term basis, the job is more risky. The possibility of layoffs, getting bought by a different company, getting a hot-head boss that doesn’t like you, etc. are all real. Upset the apple cart, or say the wrong thing on a job, and you are out the door.
The real risk of RE is that you cannot manage your property effectively. It is not the tenants. So the risk is controlled by you. Understand how to mitigate risk, and the risk gets diminished, or eliminated. Getting better tenants, having enough capital for a cushion in bad times, being able to contract out the hard tasks and take on the easy ones, all help to reduce the risk and increase the income.
So I studied all I could how to reduce risk and get better tenants. I worked on marketing techniques. I read many of the blogs, articles, forums, went to seminars, and talked to other investors. I took RE classes. I did everything I could do to get immersed in how to be a profitable landlord.
And so now, the journey is getting easier. My cash flow is great. My properties are remodeled, and my tenant base is solid. It is certainly possible to be financially independent with rental property. I have listed all of my tips and tricks here in my Blog. Mine is not the only way to do it, but if you do it this way, you can succeed.
Do you have a plan for financial independence? Does it include Real Estate?