FIRE and Real estate


#1

Hey y’all - would love to hear your experience with real estate. Has real estate helped you or hurt you on the path to FI?

Are you scared of real estate? Or looking to get your toes wet? Perhaps you have a large real estate portfolio.

I personally love real estate and would like to use the cash flow from my properties to support my life style. Do you share similar real estate goals?


#2

I’ve always been interested in real estate, once even getting a real estate agent license while in college long long time ago, but never had done anything with it.

I’ve recently decided to explore it further as a way to learn and diversify, so DW and I are definitely in the “get your toes wet” phase. We are in the process of closing our third investment property, and to date, we’ve been very conservative on our purchases, because we are PM’ing on our own. It’s been an interesting mental exercise to go from no debt to taking on 3 mortgages, but as long as I can compartmentalize them to these properties, I’m good.

I generate a lot of cash from work, so I’m hoping to deploy it to build up home equity that matches our after-tax investment funds, not including our primary residence. Financially, this should add more FI cushion, and I consider this as part of my hobby/side hustle as it represents a marginal part of my NW.


#3

That is awesome @Toocold! What are the three properties like? Since you are self-managing, are the properties close by? Any growing pains along the way or did you have someone show you the ropes?

Tomorrow, I am releasing my first monthly report “Tales of a Landlord” - the report summarizes how my rental portfolio did for the month. I also share details of what ‘landlord tasks’ were required. The report is only about my properties and not the ones I manage for others (3 vs 50).


#4

Real estate is the beautiful asset class IMHO. It offers: high percentage of overall return from income (stocks? - nope), inflation hedging attributes (bonds? - nope), appreciation thru economic cycle, easily leveraged, favorable tax benefits and control.

My day job is in acquisitions for a large institutional real estate investor and investment real estate compromises 2/3 of my personal portfolio. The real estate I own spins off enough cash flow to meet my current living expenses so I am FIRE but still plan to keep on working.

When people talk about FIRE it is a question of whether or not your accumulated assets can produce enough income to sustain you for the rest of your life. The 4% safe withdrawal rate is gospel in the FIRE community but I’m not entirely comfortable relying on it particularly considering the mediocre bond returns out there and the inability of rates to lift off from today’s lows despite the fact that the globe is 8 years into the current economic expansion.

While real estate certainly does not offer guaranteed income I think it adds a lot more surety to the equation of whether or not your accumulated assets can sustain you long term. As many investors saw in the wake of the Great Recession and in the current run up, leverage is a tool that cuts sharply both ways. If you want staying power in real estate, buy carefully and leverage modestly to reap the rewards of a beautiful asset class.


#5

@HumbleMoney love this. let’s connect. Would enjoy hearing more about your acquisitions experience. Perhaps we have crossed paths


#6

Love RE as well @guyonfire.us. Made a bad decision in 2005 and bought a place in CA (where I was living at the time) but was young and dumb so bought more than I could afford. Three years later it was all gone. Matured since then and am in a good spot now so am considering using RE to help me to my FIRE. A bit scared and unsure what path to take due to the crazy DMV market. Houses are pricey, condo fees are ridiculous… am thinking that my ideal situation is to have a multi-unit where I can live in one and rent the other(s) out but those seem to be non-existent in the general suburban VA market.


#7

I keep coming close without actually pulling the trigger. I know it is in my future, just waiting for the right moment.


#8

@guyonfire.us just sent you a direct message if you want to chat further


#9

The three properties are SFH near where we live. Definitely entry level homes, but in an awesome school district. We only buy homes that we’d live in.

Because my work schedule, my wife who is a SAHM looks at all the homes, she handles all tenant issues, and working with the contractors. When I get home, I do marketing, doing the leases, setting up back-end systems (e.g. google voice) and accounting. The toughest part frankly was trying to convince my wife to start looking at properties. :slight_smile:

I went into real estate thinking that we’ll lose money while we learn, but it hasn’t been the case. The first two properties rented quickly, and I suspect that will be true for the third. Working with contractors is annoying.

As we get to about 5 rentals, I suspect we’ll start using a PM but this definitely is a learning experience. I’ll start on multifamily next year but it’s tough to find good deals now.


#10

@CSal - there are a few in northern VA but they rarely trade. DC has tons of 2-4 unit properties and its a much more active market. Personally, I do not like any property with a Condo/HOA fee.


#11

What is holding you back? What would need to change for the “right moment”? Sometimes, you just gotta dive in.


#12

Well a different wife for starters, but I am selling a house next Friday and will a have a nice lump to invest


#13

I love real estate. It feels more real than the stock market, to me, even though I do diversify in the S&P 500. We own 4 properties free and clear, including one unit that we live in, and we have three more with mortgages. It has definitely helped me achieve FIRE earlier than just saving alone. Our cash flow covers all our basic expenses.


#14

haha happy wife happy life. Congrats on the selling of your home


#15

Wow, 4 properties free and clear? That must feel amazing. 7 total is impressive as well. What is your plan moving forward? Do you plan to keep growing? Or just paying off the last 3?


#16

RE is the main reason I was able to retire early and not have to spend a penny of my assets to fund it (i.e. investment withdrawal rate = 0).

We have 14 properties we bought close to the bottom of the market many years ago. Details here: https://esimoney.com/financial-details-of-my-real-estate-investments/

Happy to answer any questions you may have.


#17

I’ve been in real estate for over a decade. Have a love/hate relationship with it. Though, in the end it’s a simple game but not an easy one.

It took me awhile to find my niche. Started out bird dogging, then wholesaling and eventually became a buy and hold landlord in single-family homes. From there, I sold my entire real estate portfolio and got into mobile home investing.

It’s definitely been quite an adventure! Hope that helps. :slight_smile:


#18

The three that have mortgages don’t cash flow by much, but they are always rented with good tenants and someone else is paying them down, so we still get money in our pocket every month in the form of equity and tax write offs at the end of the year. However, we have considerable equity in one of them, so we are going to sell the highest priced property with the most equity, pay off the lowest mortgage with the least equity and then we will get more cash flow. We will keep the last mortgage, because I have no desire to ever get another mortgage again… it is such a pain in the butt. So I don’t want to pay down that last mortgage. I will let someone else do that for me. :slight_smile:

After we do the plan above, then we are going to start buying the cheaper properties again, for cash, but I don’t want too many properties to manage. Probably 10 max. I just like having our basic expenses covered and then explore other ways to invest and make residual income.


#19

Real estate has helped me, and will be a cornerstone of any early retirement on my part. When I say cornerstone, I mean that it will be responsible for the majority of it.

I own 9 SFRs and one two unit house at this time. None of them cash flow much on their own, but combined, they cash flow a couple thousand dollars a month. The worst of the bunch is producing around 8% CoC, the best around 13%, plus they all have amortization, deprecation, and appreciation benefits that are not calculated in those returns.

I would like to buy another 10 in the next 5 years. I plan to do this by purchasing the house in cash with an LLC, then encumbering the house to take cash out and repeat the process. I am a fan of keeping houses encumbered both for the leverage and as a form of wealth preservation. I won’t say that it will then be time to retire, but if my average return keeps up and I’m cash flowing $4k/month, I’ll be in the right ballpark.


#20

My experiences have mostly been positive @guyonfire.us.

In many years the amount I have “made” from (unrealised) real estate capital gains has far exceeded my earned income.

It would be fair to say without the use of real estate investing (particularly the judicious use of leverage) I wouldn’t be Financially Independent today.

I’ve written a few posts about my real estate adventures here.