​​Retire on Real Estate

Building Rental Income for a Safe and Secure Retirement

Online Appendix A: My Story  

Retire on Real Estate

The course of my life changed permanently the day I read Rich Dad Poor Dad by Robert Kiyosaki. From this master, I learned the revolutionary concept of “Your house is not an asset” among countless other lessons.

My launch into real estate investing entailed the simplest kind of all rental property acquisitions: moving and converting my home into a rental. My girlfriend (now wife) and I were at the point in our relationship where we were ready to take that next step. However, my one-bedroom condo felt too small for the two of us and her home – a house-share with a roommate – was also not ideal for obvious reasons. As luck would have it, we noticed one day that the tenant of the two-bedroom unit across the hall from my condo was moving out. We jumped on the opportunity to have a look around and quickly called the owner. Within a matter of only a couple weeks, I had gone from being the owner of a small condo to the landlord of that condo and the tenant of another.

This is how we first learned about the power of cash flow. As landlord, I received $1100 each month for the smaller, but nicer unit that I owned. As tenants, we paid only $1000 per month for a larger unit that was but more dated. The net result of this move was an extra $100 each month (plus a lot of extra space!).

Having considered real estate investing for much of my life, this first taste of being a landlord was thrilling! And I realized that it really wasn’t actually all that hard. A few months later I enrolled in a year-long real estate investing course at the Investors United™ School of Real Estate Investing. Over the course of that year, I purchased my first two investment properties, which I found by sending letters to landlords of properties along the busier streets in popular areas of town.

I ended up selling my condo just as the housing meltdown was beginning, a move that I was particularly relieved about since the condo fees seemed to be increasing all the time. The two rentals were break-even with respect to expenses and income, with much of the maintenance and repair costs coming out of my regular salaried income. We eventually made a change that had a powerful impact on our cash-flow. We switched both properties into “house-shares.” In this way, instead of renting each house as a whole, we rented room-by-room to individuals. Given that the homes were both within walking distance to a major university, it has always been easy to rent by the room. In fact, many people are eager to pay less than they otherwise would to rent an apartment, while having access to a larger home and new friends at the same time.

In the aftermath of the housing crash we bought our next three homes to aid our retirement goals. For two of the three, we temporarily leveraged my retirement funds by using a 401(k) loan for the down payment, payable in five years, on top of 15-year term standard fixed-rate mortgages. For the third property, we converted my Roth IRA to a self-directed Roth IRA and used those funds to purchase a fixer-upper which we renovated and then rented out as in a rent-to-own arrangement.

At this point, we have achieved the Level III Goal. Once the mortgages are completely paid off, the income from our handful of properties will be equal to our current income from our work. Our current plan is to pay down the mortgages on our existing properties as quickly as possible. Before retiring, however, we plan to use the monthly income from the rentals to pay for our daughter’s future college tuition. Then, finally, we’ll use the income to fund our safe, comfortable, and financially self-sufficient retirement dreams.

Since we will own our properties free and clear within 7 to 14 years, we feel a certain sense of calm knowing that we will never have to worry about whether we will be able to retire or whether we will run out of money in retirement. Sure, we have other retirement funds doing their thing in our other traditional mutual-fund based retirement accounts. We will probably also have Social Security in some form or another. But because we are creating an infinite flow of eggs, rather than building up one risk-laden nest egg to nibble away at in our golden years, we know that we’ll never have to worry. And that feeling is priceless.