Zero to financial freedom as quickly as possible

[Account Closed]

Goal: Generate at least $2,500 net per month outside of my job and my wife's job.

Current Location: I live in a suburb or Portland, Oregon, where SFRs and small multiplexes are currently going for around $300k. (Of course, this wildly varies with specific location, condition, etc. I'm just using this number to illustrate that homes aren't $80k here, nor are they $700k.)

Occupation: My wife works within minutes (on foot) of where we live and loves her job. I can work from anywhere with an Internet connection. Her telecommuting options are very limited, and she has no desire to leave her current job.

Current Financial State:

• Saving $5k per month to put towards investments or extra debt payments
• Have around $110k in fixed-rated debt (all 6.5% interest or less)
• Have around $40k in variable-rate debt (currently at 7.95%)

The Million 2.5 Thousand Dollar Per Month Question: If you were in my shoes, how would you reach my goal as quickly as possible?

We started out following some advice from Scott Trench's book, Set For Life. We moved to within walking distance of my wife's office to eliminate a 75-minute one-way commute, along with about $400 per month in gas money. We've got one car that we paid for in cash that gets 35-ish mpg. We've always been frugal, so our non-debt expenses are pretty minimal.

We moved into an apartment so that we could start reaping the new location benefits as quickly as possible, but we're actively looking for a small multiplex to house hack in order to further reduce expenses and get started on our investment journey.

But after that, things get much less certain for me. We could focus on paying off consumer debt (either all or just the variable-rate stuff), we could house hack another multiplex, we could start looking for SFRs, we could invest out of state in turnkey properties. We could do any number of things.

So what would you do?

[Scott Trench]

@Account Closed this is awesome! Next time you make it to Denver, please hit me up for a beer. 

I'll chime in with my thoughts here:

First, you have made some decisions already that will give you an excellent chance at increasing your savings rate rapidly, great stuff! $5,000 per month is no joke, in fact, it's incredible. The fact that you aren't sure about whether to pay off debt or invest aggressively with this huge surplus of savings is a GOOD problem. Your goal should be to continue to give yourself good problems. This is Rich Dad's whole thing when he says that some people have the problem of having not enough money, while others have the problem of having too much money.

Second, as you can tell from the commenters, smart people have varying opinions about the best way to handle debts. Generally speaking, (and assuming as a matter of course that you are current on these debts, and that they are not impacting your credit score negatively) I'm of the opinion that debts in the 8-10% range  should probably be paid off, and debts with fixed rates below 5% can probably just be paid current. Debts in between are discretionary. A more gung-ho guy like yourself might find more motivation in immediately pursuing investments whereas a more passive person might want to just pay the debts and be done with them.

Third, it makes sense to me that a house-hack with 3.5% down is the right move after you (and your lender) are comfortable with your debt position. Depends on whether your analysis tells you that you are highly likely to net a financial positive (which is usually the case, in my experience) in a place that you will be happy living in.

Fourth, with a high savings rate, no commute, a rapidly optimizing lifestyle, diminishing debts, and a growing pool of capital, you are going to go through a transition. Right now, it may seem like there's not too much you can do, other than keep working hard, increase the savings rate bit by bit, and maybe take a few stabs at some unlikely or low wage ventures... Over the next 18 months, then the next 3-5 years, the opposite feeling may be the case. EVERYTHING will seem like an opportunity. There is simply not enough time in the day to take advantage of everything once you have a large amount of financial runway, very low expenses, and have invested a couple of years in learning everything you can about the business of your choosing (be it real estate or some other venture). This, again, is a good problem.

So, basically, I think that the way to get into real estate is probably through house-hacking and rapidly building out a rock-solid financial foundation and eliminating that variable debt. This will probably take you 12-18 months. At that point, you will probably be moving towards a really good position to begin to seriously consider alternatives to your job (if desired) that present risk but also opportunity to move towards your goals 10X faster. Invest in yourself if this is the goal, talk to your lender about possible ramifications (because lenders don't like self-employment income in the first few years!) and stack the odds in your favor as much as you can in the interim! Alternatively, you may be in position such that just by continuing to work your current job you are saving even MORE than the $5,000 per month you currently save. If that's the case, you'll continue to accelerate towards financial freedom at a very high rate, and be able to accumulate multiple significant investment properties each year. 

Keep on giving yourself good problems!