In your opinion & experience should I retire early?

Question

Hi Folks,

This is my first actual post on BP in 2 years even though I read other posts daily.

With two year anniversary of my first rental purchase coming up I'm reaching out to BP community regarding your experience/recommendation on next chapter in my journey.

Let me give you some color about myself, financials and rentals units:

• Prior to US as a family of five we were renting 200 square feet storage since that was the only thing we could afford. I dropped out of middle school because my family needed financial help. I did "child labor jobs" minimum of 12 hours a day 7 days a week for 5 cents per hour. I did loading/unloading big trucks, iron clothes in 120 degree room, and paint furniture without proper tools like mask which made me sick everyday.
• Moved to US as a Refugee with just $50, zero English, and didn't know anyone here zero friends/relatives.
• Worked my butt off at all kinds of job clean bathrooms, fast food, manufacturing carpet plant and finally got a part time sales job which led to six figure income with multiple leadership roles.
• Finally got my BA degree which was paid by my W2 employer. Took me 10 years going part time, but finally got it done. 
• I been doing sales/management job for 14 years now and 3-4 years ago I decided I needed additional income on top of my W2 which would allow me to retire early and that's where my journey with rental units started.
• Today I have 8 total rentals all purchased with traditional Conventional 30 year fixed loan with 15% or 20% down.
• Four purchased in 2017 and four in 2018.
• Seven of them have mortgage today. Property values have increased min 5% to maximum 25% since purchase.
• One of the initial purchase in 2017 is paid off already I was able to use credit card balance transfers to pay off a 30 year mortgage in 2 years.
• I have 50+ credit cards with total credit line of $380k which helps me keep my utilization below 30% and still take advantage of balance transfer benefits. I do not pay any interest only fee I pay is initial 2%-4% one time fee.
• I have a positive cash flow of $4,222 ($527 per door average) a month after mortgage payment (including insurance and tax).
• I'm not including $1,056 a month in mortgage principal balance decrease with each payment.
• All mortgage payments are 4 months prepaid in advance for just in case something major comes up.
• I do have a W2 job with annual income little over six figures and most recently got my Realtor license last year for extra part time income. Back to working 7 days a week, but love what I do now!

Now you have some color about me I'm stuck on deciding which route to take from here and I really need your honest recommendation please!

• Here is the deal I just got $150k in cash after selling company stock I had saved for years. With that cash amount so far I have came up with couple options if I'm missing any please let me know.

• Option A: I could pay off 2 of the loans for $145k and increase my cash flow to $5,611 a month after mortgage payment (including insurance and tax). This would leave me with 5 rentals on mortgage and 3 mortgage free for total value of $370k that's mortgage free.
• I could pay off 2 of the loans for $145k and increase my cash flow to $5,611 a month after mortgage payment (including insurance and tax). This would leave me with 5 rentals on mortgage and 3 mortgage free for total value of $370k that's mortgage free.
• Option B: Purchase 3 more homes with 20% down again estimating $35k down per unit for total of $105k. Using $500 per door average cash flow that will increase my monthly cash flow to $5,722 extra $111 per month compare to option A. Plus I would have 3 more units to manage. 
• Purchase 3 more homes with 20% down again estimating $35k down per unit for total of $105k. Using $500 per door average cash flow that will increase my monthly cash flow to $5,722 extra $111 per month compare to option A. Plus I would have 3 more units to manage. 
• Ultimate goal with both options or any other you recommend: I initially started in Real Estate two years ago so I could retire early at 45 that was the game plan. Today, I'm in mid 30's and after reviewing our expenses for the last 12 months we are averaging $2,250-$2,750 a month for everything. Even if we moved that number to $3,500 a month in spending that would leave $2,111 positive cash flow each month/$25k a year. I have traveled to many different countries and with technology growth now I have stayed a month using Airbnb for $1,000 month including all utilities. I do have $95k saved up in cash that could be used if necessary. I can always work part time to bring additional income and worst case I travel for several years and return back to full time job plus rental income.
• I initially started in Real Estate two years ago so I could retire early at 45 that was the game plan. Today, I'm in mid 30's and after reviewing our expenses for the last 12 months we are averaging $2,250-$2,750 a month for everything. Even if we moved that number to $3,500 a month in spending that would leave $2,111 positive cash flow each month/$25k a year. I have traveled to many different countries and with technology growth now I have stayed a month using Airbnb for $1,000 month including all utilities. I do have $95k saved up in cash that could be used if necessary. I can always work part time to bring additional income and worst case I travel for several years and return back to full time job plus rental income.

• I could pay off 2 of the loans for $145k and increase my cash flow to $5,611 a month after mortgage payment (including insurance and tax). This would leave me with 5 rentals on mortgage and 3 mortgage free for total value of $370k that's mortgage free.

• Purchase 3 more homes with 20% down again estimating $35k down per unit for total of $105k. Using $500 per door average cash flow that will increase my monthly cash flow to $5,722 extra $111 per month compare to option A. Plus I would have 3 more units to manage.

• I initially started in Real Estate two years ago so I could retire early at 45 that was the game plan. Today, I'm in mid 30's and after reviewing our expenses for the last 12 months we are averaging $2,250-$2,750 a month for everything. Even if we moved that number to $3,500 a month in spending that would leave $2,111 positive cash flow each month/$25k a year. I have traveled to many different countries and with technology growth now I have stayed a month using Airbnb for $1,000 month including all utilities. I do have $95k saved up in cash that could be used if necessary. I can always work part time to bring additional income and worst case I travel for several years and return back to full time job plus rental income.

I don't know what or why and maybe priorities get shifted when people hit mid 30's closer to 40, but my gut and heart keeps telling me everything will be okay if I decide to retire early........ However, little dang voice in my head keeps telling me don't do it you are going to fail and regret it.

I ask you now... You are in my spot what would you do? Go for it or No? If this is a crazy idea and I'm crazy to leave a six figure job please let me know. When I talk to people close to me including family/relatives about this the hate meter is off the charts I have never witnessed anything like this before. Not a single person has said Go for it and that's why I'm reaching out to BP Community to get your feedback since we share a similar goal for the most part. Thank You for your time and God Bless.

Russell Gronsky · Answer

Account Closed, 2 biggest issues I can see for you are accounting for maintenance, capex and any utilities you pay for your rentals, and vacancy risk. Also, do you have kids? Your expenses will go up if you plan on having kids or plan on paying for college for kids you have today.

You keep mentioning how much you make each month after mortgage, insurance and taxes but what about your capex, vacancy, property management, maintenance and repairs after a tenant moves out? Are you accounting for that? And yes, even if you self-manage, you should account for property management costs as you never know when you'll want or need to have a PM take over.

The second and more important issue I see is vacancy risk. You only have 8 doors and you've only been investing for 2 years. You haven't experienced a down cycle yet. When a recession hits and people start losing jobs, vacancies rise and/or rents go down for many places. If you have just 1 rental vacant for 6 months, how will that affect your daily life? What if you have 2 rentals vacant for 2-3 months plus you need to spend $2,000-$4,000 to make repairs from the previous tenant?

I think you can get past the above scenarios with your savings on hand and available credit but you'll be stressing a lot. You could also be facing banks closing some of your credit cards. That happened to me in the 2008 crash. I had a card with a $60,000 credit limit. I always paid off the card in full each month, never missed or had a late payment yet one day I woke up, logged into my account and saw that while the card was still open, my credit limit was now ZERO dollars!

So my suggestion to you is to re-run the numbers on each of your rentals to see how much you actually make each month, after capex, maintenance, repairs, property management (even if you self-manage, you should account for property management) etc. Run some scenarios on what could happen during a recession to your rentals, savings and credit cards/credit lines. Finally, set aside not just the savings you have today for your family, but also a "rainy day" account for your rentals. How much should you save per house is going to vary, depending on who you ask but a number I hear most often is $10,000 per door.

Finally, I would recommend you go with Option B from your post to mitigate some of the vacancy risk and add a few more streams of cash flow. Managing 11 doors is not much harder than the 8 you have today.

Overall, you're doing a lot of things right and your numbers look good. You might need to stick to a 9-5 job for another year or two but I think you'll beat your goal of retiring by age 45 either way. Good luck!

Bob B. · Answer

You will not be retiring, you will be swapping a good W2 job for another.  Land-lording and retiring do not go together.  There will always be something to do.

You have done a great job and maybe its time to relax a little and enjoy some of what you have accomplished.

I'd keep the job and buy a couple more properties.  Then as you can 1031 exchange them into better properties.

Put as much as you can into retirement plans and keep doing what you have done but at a little more relaxed pace.

Maybe find a local fee paid investment adviser to walk you through it.

It is amazing that just yesterday a young girl posted here that she is tired of the rat race and quit her job to UBER, and look for Realestate.  (sad face)   No doubt, she will never obtain the wealth you have with your hard work.

Thanks for the inspirational post.

Good Luck

Nathan Gesner · Answer

Thanks for sharing your story. It's sad to know there are so many in our great country that would look at your current position and want to punish you for living the American dream.

I disagree with retirement. If you are healthy and capable, there's no reason why you shouldn't keep working. You could live off what you've built and devote your time to charity but it doesn't make sense to spend the next 30 - 40 years of your life sleeping in, playing bridge, and accomplishing nothing. Personal opinion.

I would continue growing. It may make sense to pay things off and live off the cash flow with no debt or worries but I think you're too young for that. I would continue using the cash flow to grow and improve the properties. Retirement can be another 20 years down the road.

Thomas S. · Answer

The way I view your present situation is it is built on a weak foundation. You are artificially inflating your cash flow with dead equity. That money could be far better invested outside of real estate or used as minimum down payments to expand your investments in real estate. Your back ground however tells me you are likely ultra conservative. I would not recommend you retire early dependant on real estate investments.

I see no logical reason why you would ever want to give up a 6 figure job you have worked so long and hard to achieve. Crazy idea. I also do not understand why you would need more that a 6 figure income.

Don't be mislead by opinions you hear on BP, most here are obsessed with real estate investing.

Dennis M. · Answer

Great story I appreciate your drive and work ethic especially coming from such humble beginnings. That being said I agree with the others . Don’t retire . You simply don’t have enough yet to live comfortably. I would take that 150k and buy more rentals . Preferably as many doors as possible .

Theresa Harris · Answer

You've done really well.  You love your job and what you're doing, so I'd say stick with it.  One thing you didn't mention is medical which can be costly in the US.  You're still young and if you retired, you'd probably get bored, plus you'd be more restricted in terms of buying more homes.

David S. · Answer

Account Closed

I think you answered your question in your last bullet point in which you said that you love what you do...

I would suggest snowballing your investment income into more investments, such as residential rentals.  You may even consider apt complexes or commercial.  If you are living off of your RE income, how can you expand?  Also, you can use that W-2 to expand out to 10 conventional loans.

I don't think $4k a month is enough to retire on.  As someone pointed out, medical insurance in the US is quite an issue at the moment.  There are many who pay out $2k a month on just medical insurance.

In any event, keep up the good work.  I think that a decision to retire early shouldn't be taken lightly and should take at least a year to decide.

Peter Tverdov · Answer

You're not retiring, you're moving from W2 to small business owner. I plan on "retiring" in about 2 years and I have a 6 figure job as well. They're not all they're cracked up to be just because you're earning a decent living.

Patrick M. · Answer

Retirement is a very personal decision which you should know the answer to. I don’t see anything mentioned which points to diversification or 401k.

If you manage your properties and take on more then you will not be retired. If you don’t enjoy your job and need the benefits- then go.

In your opinion & experience should I retire early?

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