Retiring early with a fee rental properties/is it possible?

Question

Hello,

I am currently 40 yrs old and want to retire by 45.  I have 3 homes paid off (400k, 200k, and 110k in value) and will I will buy another before I retire in 5 yrs.  I have zero bills (cars, cc, student loans etc.) other than the regular like water, electric, cable, phone, etc..  I should have around 3k a month coming in on the rentals and we will stay living in the home worth 400k for the next 10 yrs.  I will have 300k cash put aside and will have 200k in 401ks that I will be able to get when I reach the right age.  I figure if we have any issues or need money we can sell the 400k house and just move in to a smaller one while we wait on our 401ks and SS.  Any potential issues that I'm not seeing?  Thanks in advance!

Jerry W. · Answer

@Nathan Baz, I agree you have done a great job.  The thing you need to consider is what your monthly expenses are.  The 600# gorilla for me is health care.  I can figure out how to live on what I have saved until I can collect from my retirement funds, pension and social security, I cannot figure out how to afford health insurance.  I have a LOT more rentals than you buy most have mortgages so the cash flow is minimal.  As the rentals pay off my cash flow will jump up.  My current employer pays about $2,200 per month for my health insurance and I add about $150 myself.  I also put about $180 per month into a health savings account.  I could live easily on $3K per month if I could have health care with it.

I also think having $400K in your primary home is nuts.  Either use some equity from it to buy more rentals that will pay the loan back, or sell it and buy more rentals and a smaller house or even a multi you can live in and rent out.

Steve Vaughan · Answer

You've done well so far, Nathan!

The first thing that made me flinch was the $400k primary vs only $300 in income property.

We became free at 31 in 2002. Here's how important freedom was to us: our primary was a $14k double wide in a park. Lot rent was $240/mo. We were there for 5 years as we bought rental houses and apt buildings.

Extreme I know, but the point is the same. Even now our primary is far far from being our most valuable property.  You'd be !Ich better off with a $400k multi and simpller primary.

Please keep us posted!

Jake Thomas · Answer

From your post it sounds like the two smaller in value properties are the rentals and only bring in $3K per month for $310K worth of value. The rent #'s seem light and I might invest in properties at a higher rental rate or increase rents significantly. Maybe sell the $310K worth of properties to buy ones that rent for higher amounts or one multi-family property. Everyone's markets are different but I have $100K properties that rent for $1,900 so you need to aim for as high as possible to maximize cash flow using just cash and no debt.

Thomas S. · Answer

500K in retirement savings is not enough. Down sizing to free up equity will not help much.

Your better option would be to increase your rental income by pulling all of the equity out of your properties and invest with minimum down on more income properties. Get a HELOC on your home and mortgage the rentals to the max.

If your present rentals do not cash flow with maximum financing sell them and invest in better cash flow properties. To retire early you need income not cash squirreled away in buildings. Make your cash earn it's keep.

You should be able to easily double your income with this approach.

Nathan Baz · Answer

I don't think I'd be comfortable with that strategy.  Thanks for the reply though.

Satha Palani · Answer

congratulation on having shored up a nice nest egg at 40! I think the real question is can you and your family live off the 36K a year in rental income? Ideally you would want a setup where all your expenses are being covered by your passive income and keep the 300K as a contingency fund. Factor in things like vacations, replacing the car, medical expenses etc. If you stop working at 45, you are looking at 25 years to before you can start collecting retirement benefits, that a long time. If anything I would over compensate for it a little.

Nathan Baz · Answer

Jake-I'd love to find some property's in the 100k range that would rent for $1900 but in this area the best I can find is $1100-$1200

Jeff-my expenses would easily be covered.

Jeff B. · Answer

Look at your checking account and determine income vs expenses - - don't forget to add property taxes and Fed+State.  How do they add up and what income is required to cover your existing expenses?

I do this using online backing to download a spreadsheet where I can get at the data.

If you're ready to retire, then income will cover everything and leave a pocket to handle the rentals.

Nathan Baz · Answer

thanks for your reply!  Do you have any recommendations for passive income?  My "emergency" idea would be to downsize from my current house to a smaller one and pocket 200k if I needed it.

Retiring early with a fee rental properties/is it possible?

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