FIRE/passive income via out-of-state landlording?

Question

Background: We (me, 25F, and husband, 28M) are semi-low earners for the FIRE community and the urban area we live in and have hit a point where it's hard to reduce expenses much more. We'll work hard to increase incomes before children come along, but we don't have too much time left to do that. We own our home and intend to rent it out soon, but we've never been landlords before. The thoughts: With the above in mind, I've been dreaming about REI a lot recently. As our savings grow (still less than 100k, but definitely more money than either of us have ever seen in our lives), I've been thinking about using the cash to put 20% down on well-priced homes in other states that meet the 1% rule, renting them out, and then having local property managers keep up with the day-to-day maintenance. Still need to do a lot of research--I know the FIRE community is very anti-outsourcing for property management, and I know it cuts into profits, so I'm curious about the BP community. If done smartly and sustainably, I'm super tempted by the ability to raise our monthly passive income much quicker than dumping masses of cash into the stock market will ever allow us. I mean, if we successfully rent out our current home for what we're expecting when we move out of state, even with property management taking 8% off the top, we'd be left with around $430 of monthly cashflow and around the equivalent of monthly equity increase. That's a pretty good deal...right? Am I crazy to dream of having multiple rentals with less than $100k in cash? Any thoughts or advice on reaching one's monthly passive income goal with mostly rentals? And as a side question: any thoughts on landlording from out of state? (For those interested, our monthly house payment is $1,126, and based on comps we could rent this 3 bd/2.5 bth single-family out for around $1,700. Over the nearly 2 years we've owned the place, it's reliably increased in value about 5% each year--we went from a $195k purchase price to a current Zillow estimate of $222k, and comps in the area have even been selling in the $230ks. The reason we'd go for renting as opposed to selling is that we recently refinanced and need to hit that break-even point at the very least.)

Jon Schwartz · Answer

Hannah,I'm a feature editor in my day job!LA production is still seriously impacted. Smaller productions -- like commercials and returning TV shows -- are shooting, but nothing bigger than that. That's going to change before the end of the year, and we're all hoping for a swift and steady uptick in 2021.Best,Jon

Jon Schwartz · Answer

Hannah,I'm an investor, house hacker, agent, and FIRE pursuer.If you're moving to Socal imminently, you should hold onto your capital! Housing costs here are wild, and the best way to get a handle on them is by house hacking. I house hack a duplex in order to keep my cost of living down.Where in Socal are you headed?All the best,Jon

Dustin Morris · Answer

@Hannah Taylor if you target the right properties you can BRRRR over and over again leaving little or no money in the deal and getting a cash flowing rental property. You recycle your initial investment into a new property and before you know it you’ve built out a portfolio with limited capital in those deals. Just need the capital upfront and it sounds like you do. Could look at house hacking as well or going morr turnkey with something that cash flows with limited repairs. Issue here is capital can be tied up and make it harder to scale. Best of luck!

Mark Albini · Answer

Hello, and welcome to the investment community. I highly recommend investing out of state, and it's not hard with $100k in certain markets. Even with PM fees, you should strive for a minimum of 10% ROI but shoot for higher. (I have some producing much much higher) Even some on market listings right now allow for 18-20% ROI. You may want to look into Indiana. That's where I'm at, I've become a licensed agent here and have built up my portfolio way faster than I thought. All with investing very little money as I look for rentals in the $80k and under price range.

Dillon Dale · Answer

@Hannah Taylor I definitely think you're on the right track with your line of thinking to achieve fire. Real estate imo is the best vehicle to invest money. I don't have any money in stocks and all in real estate so I am speaking from experience. It is absolutely possible to have multiple rentals with less than 100k saved. Leverage is your friend as long as you buy right and make sure you understand the numbers. Look into the BRRRR strategy. It's a great way to keep growing your portfolio without constantly having to replenish your capital via a job or otherwise. Out of state investing is not a bad idea depending on what your local market is like. As long as your property cash flows with a manager and meets your return goals, then you're better off! Your time has a price too and managing rentals can be tough especially early on, so if you dont want to do the work yourself there's no shame in hiring a manager!

Hannah Taylor · Answer

@Jon Schwartz Good to hear about someone else who's successfully house hacking! Thanks for that advice. I keep getting tempted by well-priced condos here in GA--and, I reason, once we move west, we'll have TWO rentals: a condo and our current home--but it probably is much better for us to keep saving as much as we can while we're here.We're hopefully headed to LA! My husband's a video editor/colorist/DP/swiss army knife, so he's hoping to break into the film industry. At this point, we're just monitoring COVID and waiting for things in LA to open up more (and for things everywhere to feel more safe).

Hannah Taylor · Answer

@Dustin Morris Thank you! Definitely interested in BRRRR. And house hacking is definitely in our future--we're planning on moving to SoCal as soon as the country has a handle on COVID, and there's no way we'll be able to afford the type of house we'd like there without it being a duplex or hacked somehow!

Dillon Dale · Answer

@Hannah Taylor yes appraisals are definitely a big cause for anxiety since it's not a factor you can control. Check out the biggerpockets rookie podcast episode 25 if you haven't already. It's about what appraisers look for and has some great info!

Hannah Taylor · Answer

@Dillon Dale Thanks so much! Very encouraging! I definitely have to look into BRRRR; I have an idea of the basics but appraisers kinda terrify me and I always expect them to cheat me. I'm always afraid they'll derail a good refinance deal. I think I just have to take the leap at some point!

Hannah Taylor · Answer

Thanks so much for your reply, @Mark Albini! I will absolutely keep ROI in mind as I'm looking through things. If I'm looking at the markets I'm interested in correctly, I think 10%+ is absolutely possible. (BP's calculator is awesome, loving playing around it.) We just need to get some experience under our belts renting out our current home, and I think we'll feel much more confident about branching out after!