Investment Property for Financial Independence

sunset-494544_1920-PDWhen 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?

23 Replies to “Investment Property for Financial Independence”

  1. As I’ve mentioned to you in the past, real estate is definitely part of my plan for financial independence. I would love to have my income from real estate exceed my income from my regular job. For now my plan is to keep building up my online income to the point where I can pay off student loans and start funneling the profits into real estate investments.

  2. Great stuff, and it’s such a pleasure to read from someone with years of experience in RE. Our plan for FI definitely includes real estate — it’s one of the two main drivers.

  3. I’m an accidental landlord too and it was one of the best accidents of my life haha. I’m looking for more opportunities right now but not in any rush. Like you, I have a good job, good side job(blogging/online) plus my rental property. Things are lookin’ good 🙂

    1. Thank you for the comment! I am glad you found my site. There are plenty of opportunities, if you keep your powder dry. I am not actively looking, but could make a deal if the right one presented itself.

      Keep up the great work!

  4. Very inspirational stuff. Real estate does become less scary the more you do it. Each individual vacancy doesn’t hurt as much as you acquire more units over time.

    In the long-term, I completely agree that relying on an employer is that much more risky. What are the odds that you go 30 years over you career without ever seeing the ax? Yet most people feel more secure about putting down a downpayment for a home they will have to mortgage for 30 years than they do about buying rental properties. If I lose a tenant, I can get another one to carry on the fight. If I lose my job, who’s going to save me and pay my mortgage?

    1. Exactly! No one cares more about you, than you. Being self-employed, which is what owning rental property is about, you set your own destiny. I saw many people in the years 2000-2003 lose their homes, have to move away for work, take lesser jobs.

      I believe I have reached enough income where I could quit now, and might, but two more years will reduce risk. And give me something to do for a while. Who knows, maybe I can do some blog income… At some point, I will focus on the income side of the blog too.

  5. I feel like there is so much I can learn here. We only have one residential property, but my though has always been that if you make it a little nicer, obviously within reason, you’ll attract a nicer level of tenants. If you keep it run down and dirty, that’s kind of what you can expect. So far, it’s worked out, but I’m sure we are due for our horror story at some point. I love real estate and I think it will be a huge part of our early retirement strategy, even if we do have to suffer through some bad tenants at some point.

    1. Thank you for the comment Kim!

      I always turn my property over spotless. And they are all fairly nice. Most of the small pictures here are my properties. A horror story is in your future, if you do not screen tenants. If you only have one or two tenants, you could get lucky all the time.

      I have the advantage because I screen tenants all the time. I turn 5-6 of my own every year, so it keeps me in touch. And I screen for a 120 complex, so I know what is possible, and what gives other owners issues.

  6. Our plan for FI has rental real estate providing about 20% of our spending money, but who knows what might change if there are more fabulous buying opportunities between now and FI?

    1. Thanks for the comment!

      At 20%, the risk is lower than if it was 100%. Keep in mind, at anytime, there could be a 20K expense. A new roof, new furnace, vacancy, etc all add up quick.

      Keep your power dry for an opportunity! There are always opportunities, it depends on who gets them. Most often, it is an investor, because they are looking all the time. that is their full time job.

      1. The 20% is still allowing for vacancies and money set aside for expenses. But a $20K expense is pretty unlikely unless there was some catastrophic hurricane damage, and even then the hurricane deductible is <$6K. I guess a fire would also do it, and the deductible is even lower for something like that. We'll be putting on a new roof next year, and that should be around $6-$7K. A whole new septic system would be ~$10K hired out. But when the structures are pretty simple, expenses on the order of $20K are a rarity.

        1. A $20k expense is not all that unusual…it can ‘sneak’ up on you.

          A $20K expense happens sometimes when you do not even realize it. A renter gets behind, and in 30 days you are out two months’ rent. It takes another month to get rid of them, if you are lucky. In CHI, or other areas, it may take three+ months. Now you are out 4 month’s rent (~$4K). Plus legal fees ($1K). Plus add some repairs and maybe additional vacancy ($1K) while you are getting it fixed up ($2K), and showing it. That’s $8K. Not quite $20K, but getting close.

          Add in any additional vacancy, or more expenses and you are up there quick. A couple of easy turnovers in one year will cost $5K, unless you are at the top of your game in terms of marketing and turning apartments.

          I do not care what a lease says, when a tenant wants to leave, they do. Sometimes you want them out too. When a tenant loses their job, it makes the most sense to get them out before any financial issues arise.

          Often, landlords get a bit disparate after a bad renter and a lot of expense so they skip some important screening steps just to get the next renter in.

          Be sure to read this post. The Landlord Trap

  7. My plan for financial independence is to invest wisely and a lot; to keep my priorities in check and avoid lifestyle inflation where possible, to focus on my career and growing my income while I am in my twenties and thirties, and to still enjoy my money as much as possible. My plan for financial independence includes real estate only in that we hope to pay off our mortgage 10 years ahead of schedule. I think we’ll have no problem doing it.

    1. Thank you for the comment!

      That would be the best, if they were actually affordable at a price you could make money at. I lived there for 11 years, and the weather is perfect. There would be no better place to go out there and see your property on a tax deductible rental property trip.

  8. Loved the article agreed with 100% of everything you said. I walked out of a job that went from 100k plus to 35000. If I was lucky with a crazy boss’s and maniacal owner. Like the re biz a lot, currently have 7 going to eight shortly and growing problem wasvi ended up in car business-( ugh) and felt trapped. I now manage my props hoping to get busier as I add more props rather than be toed down to a 55 hour a week no growth job.

    Would like to talk further off line what’s your email a dress?


  9. I am building a portfolio of dividend paying stocks for financial independence. A person could leverage this technique by buying equities on margin, something I haven’t done yet. I’m interested in rental properties at some point. I feel like I’m in the education phase now. There’s more to rentals than stocks, but I also think the return could be greater.

    1. Thank you for the comment!

      If I could get the same return with dividend stocks, I would switch. As it is, I am getting 15% return, every year. Doing my own maintenance adds another 5% or so. There are REITs, like ‘O’, that might help get a solid return and lower your risk.

      Just getting in a roommate, if you do not already have one, would help you quite a bit.

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