Mark Coveny’s guide to retiring with a Real Estate side hustle

[Mark Coveny]

First things first financial freedom is a marathon, not a sprint. You need to be looking years if not decades into the future and you need the willpower to stay the course over a LONG period of time. In my opinion, the single biggest reason that people can’t afford to retire is that they lack willpower. Don’t get me wrong, the system is rigged against you. You aren’t going to be paid what you deserve. You are going to have do work you don’t enjoy. If you stick with it long enough then you will have to work… when you can afford to not work and let me tell you years of working that can be the toughest piece of the all.

You should be looking for a career that pays "good" money and is in demand. (if it's something you can work from home or abroad with more the better for your side hustle of Real Estate) I suggest aiming for the median household income (MHI) as I feel like that's both "good" money and reasonably attainable. That means you should be looking for a job that pays 56k as of 2019. As I don't know how old you are let me start with discussing Return On Investment (ROI). ROI has the highest priority in your life whether you know it or not. So, if you are 20 then the ROI of going to law school is worth it, but if you're 60 then that **** is just a waste of money. *Note* you must have the willpower to stick with it for the ROI to count. So if that 20-year-old becomes a lawyer then changes careers before he even pays off the loans then it created a negative ROI. When looking at changing careers/jobs keep in mind that if you hate your job so much that you're spending all your money on booze to try and forget it, then it doesn't pay **** because your net worth isn't increasing. The bar you should stay focused on is increasing your net worth year after year, decade after decade until you reach financial freedom. (not just financial independence)

If you are looking to change careers here what you should look for:

1. A job you will like (do the soul-searching time to get this one right, it is worth the time)
2. A job that pays well (see MHI above)
3. A job that is in demand

Take at least two career quizzes that are big and reputable and find the jobs your personality type will enjoy (#1) that AVERAGE close to the MHI (#2), and then look at job sites and make sure that are NUMEROUS people looking for people in that career. (#3) You need to satisfy ALL THREE!!! You want a job that you will like, that pays well, and that is in demand. If you find a job that sounds super cool(marine biologist), but no one is hiring, guess what? That ain’t the job for you… If you find a job that sounds perfect, and in high demand(teacher) but it doesn’t pay ****, guess what? That ain’t the job for you… I can’t stress this enough picking a job is like walking through a candy store, a lot of them seem good till you break them down by pay/demand/desire and look at them, don’t get distracted by something shiny. Regardless of what you pick, continue to learn and make yourself more marketable. (more on this later) You want to make it so that you are the one everyone wants to hire. Make it so you can find a job in your career even when no one else can. To that end I found Cracked’s article https://www.cracked.com/blog/6... to be inspirational. To this day I think about the story about the guy bleeding on the street. You want to become the doctor that everyone needs, you want to become in demand, so you don’t have to put up with any boss’s ********. I can’t tell you how powerful it is to have financial independence where you have to the ability to quit if you want to. It’s not financial freedom to do what you want (no million dollar homes), but it’s pretty nice in its own right for peace of mind.


Now I’m going to tell you a secret: there are only two ways to have more money. Earn more and spend less. Most people are hyper-focused on the first one and completely ignore the second one. This is why I say willpower is the single most important trait you need to become financially independent (can live without a job) or financially free (can what you want within reason without a job). I’m going to tell you a fact that will likely shock you. 25% of families making over 150K are living paycheck to paycheck. Let me state that again 1 in 4 of the families making over 150k are living paycheck to paycheck. For families making between 50 – 100k that number jumps to 33%. When I began my journey to financial freedom after the housing crash in 2007 that destroyed me I came across http://earlyretirementextreme.com/ and I can’t stress enough the importance of living below your means if you want to increase your net worth. This is where willpower comes in and get worse going from Financial independence to Financial Freedom because you COULD quit if you wanted to… (since then I have also found https://www.mrmoneymustache.com/2013/02/22/getting-rich-from-zero-to-hero-in-one-blog-post/ which seems to be along the same lines, but your mileage may vary)

When you start having a net worth, you'll need to start making money from investments as it's impossible to retire from a salary alone. There are just two options here stocks and real estate in my opinion. Now I hear people in the back row talking about everything from owning your own business to doing those microloan things, but for consistent passive ROI you're down to two. I woke up financially from the concept that I just need to work hard, and I would be able to retire when the housing bubble crashed in 2007. It showed me how quickly things can turn south. At that time, I had numerous friends who had 401ks (stocks) that were cut in half or more when the market crashed. I have found 4% ROI is around what you get from stocks barring another cluster**** like 2007. With real estate, on the other hand, I wouldn't recommend buying anything that doesn't have an ROI of at least 10%. My last property in Starke FL was around 18% and the one I have now in Tallahassee Fl is sitting around 22%. It's really easy to see how a higher ROI on your net worth can speed up the process of getting to retirement.

The second perk of real estate is that you can apply "sweat equity". Remember before when I said you should keep learning? Well, guess what you need to learn? Electrical, Plumbing, Drywalling, Painting, General Contracting, Legal, etc. If you learn how to do everything you can leverage that knowledge so that you don't have to invest as much money to get that higher ROI. Even if you eventually hire someone else to do the work (which you most likely will) having the knowledge will be VERY important for you to assess buildings you are looking to buy. (you should get to the point where an inspection is a waste of money unless you don't have the time to look yourself) By knowing what needs to be done you'll have a better knowledge of pricing, and skill of your contractors. You'll be able to buy rental flips that will be very lucrative because no one else wants to touch them given the damaged condition they property is in. And you are going to need every little bit of advantage you can find because you are poor as **** even if you don't know it.

This is how I evaluate real estate. I base it on two points.

1. comparable rents
2. 75% of gross potential cap rate (this covers costs, vacancies, expenses etc. up until you start using a PM company)

Go on Hotpads, Zillow, etc. and look for the prices on units near sqft and the same bed/bath numbers and compare the rent prices.

To figure the cap rate of what I would buy in a quad it would be something like this:

4 units with rent income of $600 = $2,400 X .75 = $1,680 a month

$1,680 x 12 = $20,160 (max potential income per year) / $150,000 (purchase prices) = 13.44% gross potential cap rate (it’s 10% or more cap rate, so it’s a worth a much better look)

It should be noted that many investors will purchase all the way down to a 7% cap rate (and they’ll likely tell you I’m not using a true cap rate when I guesstimate the expenses/costs at 25%) if you have good records on your rent rolls, insurance, taxes, property management, maintenance, and all other costs. I wouldn’t suggest it unless you know that you can bump the rents. (Remember you may have to move to make this happen that's another reason why you want a career that is in demand)

Another rule that I always go for a positive cash flow. (the income must cover the note) I only go up to 15-year loans. So, with this property I could put 4% (because this qualifies for single-family home financing even as a quad) at 6k down for 15 years at 3.5% interest and my note would be $1,381 while my income would be $1,680 a month. I recommend https://www.biggerpockets.com/... for additional advice on this front, but you’ll likely do ok if you follow my down and dirty method.

I look for quantity over quality. I’d rather have 6 units at $500 a month than 3 units at $1000 a month. My reasons for this are twofold.

1. The income isn’t as spiky and if I miss out on a two months’ worth of rent it’s not a big deal.
2. It’s easier to find tenants.

A fact of life in the USA is that there are a LOT more poor people looking for housing than there are rich people looking for housing. I would say that they aren’t as picky, but that’s not always the case. My ideal rent amount is between $600 - $700 you get about 20% turnover in this range so it’s fairly low, and because they are generally blue-collar working people, they don’t beat the units up too bad. Turnover increases as you go lower down the rent amounts, and finding renters gets harder as you go above the amount. (but there’s still turnover, as no one is always right about picking tenants) This is just my personal preference on the “sweet spot”, and you can’t always find good deals on properties in this range, but it’s what I shoot for.

In closing, I’d like to say that in the US we don’t talk about finances enough with our children. There’s this stigmatism to it, and I guess people don’t want children to worry. It’s something someone needs to tell you about it though because it’s impossible to retire off your salary as most people say. If you want to retire you MUST do it off the back of someone else’s work. Be it through investing your net worth into stocks or real estate you MUST make your money work for you if you want to achieve financial freedom. Gone are the days when you could work and save, and then live comfortably on that nest egg till you die. In this country, your medical bills in your 70s are dramatically more than you are used to paying. You need to allocate a thousand dollars a month or more just to cover medical expenses along. So, watch that net worth grow and remember you’ll either have the willpower, or you’ll be working till you die…