Concerning the article about building wealth

[Justin Young]

I just read the article that was on this site " Investing in rental properties won't build wealth but this will". To sum it up and NOT verbatim is says, it's a good idea to invest in rental properties but to think you can be financially independent quickly, won't happen. It says the best thing to do is build a business and then buy real estate. It would take to long to have enough cash flow to support your living. I agree and disagree. In a way it's frustrating to me. Iv been working toward this goal ( to be financially independent from rental property cash flow) for the last eight years. My question: Has anyone became financially independent quickly from buying rental properties?? I'm talking 3-5 years. If you have then can you please share how you have done that, your strategy and your goals??? Or just leave a comment and let me know what you think. Thanks.

[Account Closed]

My comments will open a can of worms....but it's been weighing on my mind a lot lately after reading that article.

I see many folks coming in and talking about the BRRRR strategy...and I see many folks coming in and using other people's money to leverage themselves into more properties to chase the dream of financial independence. I've also read the article about the $35,000 "pigs" that folks seem to hate.

At the same time, I'm buying distressed properties that were previously rentals that are absolutely trashed from neglect of the previous landlord.  I looked at a home two weeks ago (via photos from the agent) of a home that belonged to a prominent investor in the midwest that was "Occupied up until the Sheriff's sale in December" that looked un-inhabitable to me.  I wouldn't live there

I don't see this as being a way to financial freedom unless you can accomplish two things:

1) Reduce your lifestyle (pay off your personal home, get out of debt, reduce expenses to the basics)

2) Own your properties free and clear.

By leveraging yourself into your next rental, you're reducing your cash flow.  Say you buy a property (distressed or otherwise) and pay cash.  You rent it out for $725 per month and 40% of that goes to reserves/insurance/property taxes.  That leaves you with $290 month net (or $3,480 per year) of free cash flow.  Put a mortgage on that property and you reduce that profit to less than $100/month.  That's peanuts.  You might as well save yourself the anxiety and stress of rentals and just give up that Starbucks habit.  People will argue that they are building equity and that tenants are paying that off for them but equity doesn't by you your ham sandwich for lunch (financial independence)....what it does is it ties you down into an investment that your kids might benefit from or that your nursing home will benefit from when you get old enough. 

...and what do people do...they get tired of maintaining that house that's making them $90 a month and try to pull more money out of it by not keeping a reserve for repairs or capex and they let it go the way of neglect....which reduces it's value....which means it loses the very same equity they argued about 15-30 years prior.  Throw in market factors when you don't have 5 years to wait for a market recovery and you're screwed in retirement.

The solution (and I agree with the article) is buy the first house with cash - even if it is a $35,000 "pig", save the net profits (after reserves), buy another one with that profit, and let it snowball.  That's the only solution.  You have to have time and patience...and in many cases more time than patience.

I recently read "The Tao of Charlie Munger".  In the book, it talks about how Charlie and Warren Buffet started out by leveraging...and then they stopped because they realized it was a fools game.  I recommend the book for a different perspective.