​​Retire on Real Estate

Building Rental Income for a Safe and Secure Retirement

True Stories of "Not-Chickens"

Retire on Real Estate

Not-Chickens are everyday people, like you and me, who decided to own 1 or more rental property for the long term retirement security, comfort, and/or financial self-sufficiency.


(If you are a "Not-Chicken", I invite you to contact me to share your story here!)



Enid (Age 76) 

Enid grew up in a poor family in Tennessee. She was the first in her family to graduate from college, which for a poor, African American female in the South in the 1960’s was a feat unto itself! After she graduated, she moved to Buffalo New York to work as a guidance counselor in the school system and start a new life for herself.

The school system came with a pension, so Enid knew she wouldn’t have to worry too much about her retirement. Nonetheless, during those working years, she started a side business in which she imported African art which, with her kids’ help, she hauled around to various festivals to sell. She eventually retired at 56 from the school system and also gave up her side business. To supplement her pension, Enid did some investing over time by buying and selling stocks on her own . . . until the stock market dropped in 2008. She kept thinking it would bounce back but it showed no signs of recovery. Worried, Enid pulled all her money out minus the $80,000 that had vanished before her eyes. And that was the moment she decided to try real estate.

Enid bought her first property at a foreclosure auction for $6500. She was not able to see the interior before the auction, so it was a bit of a gamble. However, it was on an okay street in an area fairly close to her home in the city of Buffalo, and she figured for the price tag, it would be worth the gamble. Turns out, it was. The house needed only minor repairs and it came with rent-paying tenants. To this day, she still owns the property. 

Soon, her grandson came to live with her and he took to the whole investing idea. With his help scouting properties, she bought another property at auction. This one was only $3500, but this time it ended up being a bit of a nightmare. After purchasing it, again interior sight unseen, she found significant water damage to the entire house due to pipes that had burst over the winter. But little by little, and with the help of her grandson’s handy skills and other hired workers, they were able to fix it up for under $20,000 and eventually rent it out. Enid continues to be the proud owner of this property as well. 

Enid now owns four properties, plus her home that she shares with her companion, plus three more that he owns. Their properties are all two-family homes, half of which are rented as “Section 8.” She likes all her tenants and says that Section 8 has been a positive experience for her. They do have annual inspection requirements, but Enid doesn’t mind. She says it forces her to keep her properties in good and safe condition, which she would want to do anyway.

Altogether, she and her companion’s fourteen mortgage-free rental units come to over $100,000 in income each year, which she says is a darn bit better than her mutual fund. Granted, the mutual fund is invested conservatively due to her age and yields only about 1.5 percent per year. But, due to her age, she really shouldn’t be invested in risky stocks anyway. She considers her mutual fund investment to be basically as good as a savings account.

In the end, Enid is grateful for her rental properties. The properties, plus Social Security and her pension, allow her a comfortable life. She lives in top floor unit of the duplex that she’s occupied for forty years. It’s not a mansion, but it works for her. She enjoys an awesome quality of life making jewelry and sculpture in her attic studio/exercise room. She believes everybody should have a hobby before they retire, in order to help them make the transition into retirement. Enid says that she’ll never be bored. Considering that she’s in her upper 70’s and still enjoys laying tile and painting her own rentals, I’m inclined to believe her!

 Enid is not only an amazing and vibrant woman, but she’s also an awesome role model for her kids and grandkids. Her son is still grateful to her for having convinced him, when he was 22, to buy a house instead of a car. Back in 1985, she’d explained to him that the $2500 he’d spend on a house would go up in value over time, but $2500 for a used car would only go down in value and his car would eventually wear out. He listened to her sage advice, and now this same home – which is now a rental property – is worth more than $100,000.

Deb (Age 57)

Deb is a therapist who is semi-retired and loving life, all because of some smart real-estate related decisions that she made earlier in her life. It all started in her thirties after she and her husband got divorced. It was at that point in time that she decided she didn’t want to go back to paying rent. Rather, she wanted to earn rent from someone else!

So, instead of just dreaming about this, Deb took action by purchasing a two-family home using money from her portion of the sale of her and her ex-husband’s home. She and her young children moved into one half of this New Jersey duplex and she rented out the other half. The income from the rental unit was able to pay most of the mortgage for the whole property. This freed up her work-related income to use for their day-to-day living expenses and to pay down the mortgage. Her goal was to pay down the mortgage as quickly as possible. Indeed, ten years later, Deb owned the whole duplex free and clear.

At that point, Deb decided to buy a modest house for her and her now teenage children. To do this, she obtained a home equity line of credit (HELOC) on her recently paid-off two-family house for the down payment. She then used the income from both sides of the duplex to pay off the HELOC as quickly as possible. Deb and her kids then moved into yet another home using the same strategy and keeping both of her existing properties as rentals.  

Last year, Deb sold two of her homes at substantial profit in order to fulfill her dream of becoming an inn keeper. With the proceeds from the sale of her homes, she and her partner purchased a gorgeous, historic bed-and-breakfast in Asheville, North Carolina with no mortgage.

They currently enjoy having no housing expenses of their own, plus cash flow from that very first duplex which she still owns, and cash flow from guests who visit their inn. Just as in the game of Monopoly, Deb literally traded her red houses for one green hotel and has been thriving in life ever since. She and her partner enjoy a high quality of life in a lovely setting and they collect rent for the pleasure of sharing the space in their lovely inn with others.

John (Age 48)

Currently a political staffer for a State representative, John got his start in real estate when he was a waiter and a student. He had gone back to school later in life to finish his degree and at that time was waiting tables to make ends meet. It was 2002 and he moved in with a friend to save a little money; meanwhile his friend used the extra income to offset his mortgage on the house. Over the next couple years as it became clear to John that his friend was making money off him, he realized that he wanted to get into the game.

John started exploring homes in the more affordable parts of town and found a two-unit building listed for only $90,000. While he missed this opportunity, it had made him aware of this particular part of town for the next time. Indeed, a couple months later he noticed a duplex on the same street with a “For Sale By Owner” (FSBO) sign in front. Partnering with his father (to save on the down payment), John bought the house. He moved into one unit and a cousin rented out the second unit. As he had anticipated by doing a careful analysis of the numbers before buying, his financial situation improved overnight. John went from paying $800 to roughly $200 in housing expenses. The $770 he received in rent almost completely covered his $970 mortgage.

After a couple years, another FSBO two-unit apartment house opened up on his same street. At this point John knew the neighborhood and the rental market in that neighborhood fairly well, so he was able to quickly jump on the opportunity. John’s two properties were both cash-flow positive from the very start. The rental income was immensely helpful to John’s day-to-day financial situation because his job was not particularly lucrative. Within another few years, after housing values had come down from the boom in 2007, he decided to purchase a third property – this time, for himself, and he rented out the unit in which he had been living. This new home was a foreclosed property that needed a fair bit of work. An FHA loan allowed him to get in with a down payment of only 3.5% of the total (purchase price plus $50,000 in rehab costs).

In our conversation, John marveled at the fact banks will easily give $100,000 (and more!) for the purchase of a real estate investment, and yet it can be virtually impossible to get this kind of money anywhere else. John is very glad to have his two investment properties and plans to purchase more over time. He benefits from the monthly cash flow and also sees them as critical components of his overall retirement plan.  

Catherine (Age 54)

“I’ll hit one million, then I’ll cash out.” This is what Catherine, a former fire-fighter and a stock-market day trader, told herself. Then she did it. She actually passed the one million mark. However, she waited a moment too long. Within three hours, the value of her stock had plummeted by three quarters. Ouch. It was in this very moment that Catherine knew for certain that she was in over her head. She realized there were forces at play and players in the market that were infinitely more powerful than herself. This crash marked a pivot point in her life. It marked the point at which she realized she needed a different way to protect herself and her two kids financially. And that was when she knew she had to try real estate.

So in 1998, Catherine put together a group of five other moms who were also concerned about money. They decided to have a go at rehabbing a property together to sell for a profit. Each chipped in $20,000, either pulling from savings or borrowing from a retirement account, home equity line of credit (HELOC) or another kind of loan. Then, armed with $100,000, the ladies bought a property for $50,000 in a transitional neighborhood. They budgeted $50,000 in renovation costs and ended up selling the property for around $150,000.

These adventurous ladies rotated care of the kids while they took turns learning different skills that could be applied to the renovations. Catherine says that the experienced contractors in the area were demeaning at first, though over time they grew to respect them and eventually offer useful, even nonpatronizing advice and helpful contacts. While this experience didn’t make them millionaires, it did launch most of them into other ways of making money in real estate.

For Catherine, she found her career in fixing up properties and holding for the long term. Catherine now has six rental properties, down from her high of ten. When she was at ten, she decided to sell off the ones that were the most problematic for her in terms of the types of tenants that she was able to attract and retain for long tenancies. Selling off the four helped her pay off the mortgages of the others. In addition, since she has become proficient at rehabbing houses, she continued doing some other fix-n-flip work in order to accelerate her goals in paying down the mortgages.

At this point, Catherine has only one mortgage at $974 per month and she receives $8000 per month in rent from her six rentals. Catherine is happy with her income and considers herself retired. She says she has more than enough, especially given that she enjoys living frugally anyway, driving a used car and shopping at thrift stores. She says that about a year ago she noticed that, for the first time, she was completely free from money worries. She realized that she had been experiencing a state of “enough” for so long that she was actually starting to believe it! Her old fears of not having enough had simply vanished.

Catherine now helps others who are looking to diversify their retirement plans, often at the last minute. Most of her clients are in their 50’s and are worried about not having enough money to survive retirement. Catherine’s five-year plan is to eventually trade her homes for a multi-unit apartment building (of approximately 20 units), which she expects will net her roughly $30,000 a month. By doing a 1031 exchange on these properties, as explained in Chapter 8, she will legally avoid taxes on the sale by directing her profit into the purchase of another investment property. She plans to partner with her now grown children on this venture, hoping to pass down both the adventure and the sense of financial security that come with real estate investing.

Catherine says that, frankly, she is surprised that so many people think owning rental property is risky. To the contrary, she believes that it is far riskier to work for 30 years, sock away money little by little, and expect some kind of magical retirement in the end. This single mom and former firefighter is living life to its fullest, has time to spend with her children and do whatever she pleases most of the time. Most importantly, she will never have to worry about where money will come from as she gets older because she has created streams of income that  - while they might change form – will never run out.

Venesa (Age 36)
Venesa had been interested in the idea of real estate investing for much of her adult life. Like many of us, she had purchased and read multiple books on the subject. Then, after meeting and falling in love with her now second husband, they took the plunge together . . . twice! A modern-day Brady Bunch family, she (a government employee) and he (a self-employed car-transporter) became a family of six overnight. When he and his children moved into Venesa’s home, instead of selling his place in Virginia, they decided to hold onto it and rent it out, even with it being in a different state. They instantly learned the value of real estate from that smart move, as it had positive cash flow from the very start. Venesa attributes part of their success to the government program called “Section 8”. By enlisting the house in Section 8, they were able to help out a family with few financial resources while receiving guaranteed rent from the government. It was a win-win arrangement. Plus, their tenant has been terrific both in taking care of the property and also in promptly communicating any repair needs to Venesa and her husband. The family has been a long term tenant now of six years, and counting.

Fast-forward a couple years. Venesa and her husband decided to find a place with more space for their family of six. Instead of selling, again they decided to keep Venesa’s house and rent it out. With this second rental, however, they learned a valuable lesson the hard way (as we all do in life!)  The lesson that Venesa would like to pass on to readers is this: Never rent to a family member or friend! Unfortunately, they did this and the family member stopped paying rent. Venesa and her husband were able to stay afloat thanks to having steady income from their full time jobs and cash flow from the first rental. Nonetheless, their outlook is bright. Not only do they view this property as a long term investment (and learning opportunity), they plan to purchase a couple additional homes in the not-too-distant future. Their plan is to pass all four properties down to their four children in order to help them get started in their adult lives. In fact, since their oldest son has his eyes set on Ohio State University, their plan is to buy a home in that area for him and some fellow students to live in as a house-share. This savvy, forward-thinking plan will not only help them save vast sums of money on college housing, it will actually allow them to make money at the same time, all while securing a long-term asset that will eventually be owned free and clear.

Venesa and her husband view the rentals as a family business. With their eyes set on eventually passing the properties and the responsibility to their children, they’ve consciously engaged their kids in various aspects of property management and upkeep from the very start. Note that this gift goes beyond the tangible asset of house itself. Venesa and her husband are fostering creativity, problem solving, and “can-do” business mindsets in their children, so that they will have the internal resources to succeed financially in life.  

When I asked what investment property ownership means to her, Venesa said that the properties signify “tangible wealth” that will last for generations to come. 

Beth (Age 37) and David (Age 41)
Beth and David met in college through their mutual love of soccer. When they realized they loved each other more than the game itself, they knew they had something. Neither one of them had thought that could be possible! They later got married and bought a townhouse in a neighborhood that turned out to be not exactly their favorite. Suffice it to say that there was a crack house across the street!

They eventually decided they wanted to move to a safer neighborhood with a better school system for their future children. Plus they wanted a big yard where they could kick a soccer ball around.

Beth and David didn’t let the fact that they’d bought their house in 2007 at the peak of the housing market stop them from moving. In fact, they’d always wanted a rental property. So they simply saved up funds for their next home, moved, and turned their first home into a rental.

Beth and David say the transition to being landlords has been a smooth one.  They did some painting, staged their home, took a bunch of quality photos, and listed it for rent on Craigslist. They hosted an open house, where they had a pretty good turnout.  They collected three applications (with application fee). After using TransUnion SmartMove (www.mysmartmove.com) for their background checks and credit screenings, they selected a couple with the highest credit score with whom they’d also had a good conversation. They asked for a month and a half times the rent as a security deposit and charged an additional pet rent of $10 per month for the dog.

After the property was rented, they took advantage of low interest rates and refinanced their mortgage to a lower payment that was more in line with the rent. They are now working to pay off their mortgage as quickly as possible by making biweekly payments. They figure paying their mortgage off quickly will open up options in terms of extra income, college tuition, a house for their kids once they are grown, or maybe even eventually trading the property for a beach house.

They say they are thrilled to have this investment. The crack house is gone (by chance). The neighborhood is improving. And mostly, they love the fact that they are building equity while someone else is paying their monthly costs of ownership. The tenants have been awesome to work with and have even renewed their lease. Beth and David couldn’t be happier.   

​​​Svetlana (Age 32)
Svetlana moved to the US from Russia and is happy call sunny Los Angeles home. Svetlana is a real estate agent, and has understood the power of real estate investing for a long time.

Svetlana’s first investment was a four-unit building located in the neighboring state of Utah. She harnessed the powerful strategy of seller-financing with this first investment property. She chose Utah because she found purchase prices in LA to be too high to offer positive cash flow potential. Unfortunately, however, this long-distance purchase became untenable because she had not anticipated a quirky local zoning law that prohibited her from renting out one of her four units. In addition, she felt out of her comfort zone with respect to Utah’s cold and snowy winters!

Because of these issues, Svetlana sold her first investment only a year later and she purchased a new multi-unit building in the High Desert outside of LA. She lives by some advice she received at her local real estate investment club: Buy one rental per year for 15 years and then pay them off. For Svetlana, a Level III Goal investor, this recommendation is manageable and realistic enough to actually do. Indeed, after four years (at the time of this interview) Svetlana is the proud owner of three multi-unit homes (each with two or three apartments) with a fourth one on the way.

Her advice to newbies is to stay in-state or at least within a certain radius of your hometown. Also, do your due diligence in terms of local ordinances and laws that might affect your ability to manifest your calculations. In addition, she stresses the importance of building a cushion before you purchase (to account for an unexpected vacancy or repair need), knowing your numbers and not going forward with a purchase if your numbers are too tight. Her final words of advice are: “Get started now! Anyone can do this, no matter your age.”  

At this point, Svetlana has found a location and type of property that work for her. As a result, she has become an expert within her specific range of focus. She uses a property manager for all her properties in order to free up her time for purchasing the next property. She is glad that the first investment property didn’t discourage her from picking up more properties. Svetlana, will be well positioned for a safe, comfortable, and financially self-sufficient retirement.

​​​Jake (Age 69) and Mary (Age 69)
Life wasn’t always as comfortable for Jake and Mary as it is now. When they started their life together as a married couple, they both worked in the same factory. In 1971 they bought their first home, which was a two-family home, for $14,000. Unfortunately, the company they worked for closed down and they lost their jobs the very day before they closed on the purchase of their first house. Fortunately, they were not stuck with paying the whole mortgage as they would have been had they bought a single-family house. The rent from the upstairs unit helped ends meet during these tough times. This was important because they went through many more years of job upheaval across several different companies. It was the early 70’s and there was a recession at play, gas shortages, and tough economic times for many companies and families. Had their first purchase, during those hard times, been a single-family home rather than a two-family home, they likely would have lost it to foreclosure.

Jake was eventually offered a job as a school teacher. He jumped on the opportunity since it promised to be more stable than his previous jobs in the various factories. Therefore, with the income from both of their jobs, Jake’s involvement in the Army reserves, and the rental unit upstairs, Jake and Mary worked hard to pay down the principal on their mortgage.

All their hard work paid off the day Jake and Mary seized the opportunity to buy the two-family house next door. They took out a mortgage on 80 percent of the purchase price and the 20 percent down payment came from a second mortgage on the equity in their first home. A few years later when the opportunity came along to purchase a third duplex in the neighborhood, Jake and Mary knew again that they couldn’t pass it up. They had become pros at buying property using no money from their savings. They had also become pros at maintenance, repair and property management.

A few years later, Jake and Mary decided to move out of their duplex. They took out yet another second mortgage to cover the cost of the down payment on a larger single family home for their family. Again, they worked to pay off this second mortgage and then, again, they leveraged their equity for the purchase of another home, this time a beach house at a popular vacation destination.

When Jake retired from his job as a school teacher at age 66, many of his colleagues exclaimed, “Aren’t you going to get another job?”  His answer was that the apartments kept him busy enough and provided the cash flow he needed to complete his retirement picture. Now that Jake is three years into retirement, he has some perspective. In his words, “When you retire, you feel such relief. You look so refreshed. It’s like a big load has been taken off.”

Jake and Mary credit their success to a number of factors. The first was having purchased multi-family homes, rather than single-family homes. This created greater income potential and spread the vacancy risk. Another factor was the use of 15-year mortgages rather than 30-year mortgages. They felt this was a critical component to gaining equity quickly, equity that they leveraged to purchase additional property. They also credit their success to location, in that the properties are within a fifteen minute drive to just about anything, for example highways, shopping, hospitals, universities and other large employers. Finally, they enjoy being so geographically close to their rentals that they are literally choosing their neighbors when they select their tenants.

When I asked Jake what advice he would give to new landlords, he shared the following: 1) Use a 60 day lease. That way, if you need to get rid of a tenant you can do so quickly without having to evict;  2) Always be tough and enforce late fees; 3) Raise the rent if the water bill seems excessive; 4) Be tough if a tenant moves pets in against the rental policy. Simply tell them: “Either the pet’s gotta go, or you gotta go.” 5) Never rent to relatives because it is difficult to enforce delinquent rent and can create disharmony in the family.

At the time of this writing, Jake and Mary’s home and three duplexes are completely paid off. Only the beach house has a mortgage, and this is easily accommodated by the income from the other properties. A bonus to owning the properties is that when Jake’s parents needed affordable end-of-life care and housing, they were able to help out by having them stay in one of their ground level units. They plan to pass their properties down to their two sons upon their death.    

Jake and Mary’s current income is a blend of rental income, social security benefits, and pensions. They are fortunate that all sources are steady income streams rather than the kind of nest egg that gets smaller as one goes through retirement. The bottom line is that, having achieved the Level II Goal, minimally, Jake and Mary’s retirement years are comfortable. They even have a vacation property where they can spend time with their sons and grandchildren and kick up their feet and be even more comfortable.

​​​Kevin (Age 33) and Andrea (Age 33)
Starting off as high school sweethearts in northern Virginia, Kevin and Andrea went to college, got married, bought a fixer-upper townhouse with a low-down payment program, and had a couple darling children, all in the right order! Then they made a slightly less conventional decision, one that is sure to have a positive lasting impact on the remainder of their lives. One that will serve as an “insurance policy” for life’s uncertainties, especially when it comes to eventually retiring in a pension-less world.

You see, Kevin and Andrea’s real estate investing career actually began long before they became landlords. It first started in their minds. They had been thinking about acquiring a rental property for quite a bit of time, as they had a coworker and an uncle who had been investing in real estate rather successfully. In fact, they knew deep down, that they just had to own a rental property, and yet they also had enough self-awareness to know that they possessed just enough apprehension to prevent them from actually going out and buying their first rental.  

So they took the path of least resistance to move forward with their Level I Goal. They decided to move into a more comfortable home and keep their existing townhome as a rental. After all, they knew their house well, they knew the neighborhood well, and most importantly, they already owned it.

To move forward with this goal, Kevin and Andrea decided to create a budget and sock away money for a down payment. Finally, a few years later, their hard work paid off and they were able to buy a new home and keep their starter home as a rental.  Even though they live only a couple miles from their property, Kevin and Andrea use a property manager. This property manager – whom they absolutely love – is the same agent who helped them buy their new home. They approached him and asked if he would be willing to manage their first home as a rental after they moved. Kevin and Andrea chose to use a property manager because they had gotten off to a rocky start with their first tenant who was unreasonably high maintenance. So, Kevin and Andrea modified their strategy and handed the keys – and the responsibility – over to their new property manager. This way, they can simply enjoy their time with their children, other friends and family members, and their church community. They have the luxury of almost never having to think about their property as they go about their daily lives.

Kevin and Andrea like the idea of having a rental property because they know it will be extra income for the family once the mortgage is paid off. They believe that if there is ever another housing crash, then they will only benefit from more renters. More so, their location is in a high-demand rental market since their townhouse is convenient to the highway and only 20 miles south of Washington D.C. Even more appealing is the fact that their home is in an area with a strong military presence. As is true for any area where there are military bases and training academies, many people who are associated with the military prefer to rent, rather than buy, a home since they are typically reassigned every two to four years, often without much notice. For Kevin and Andrea, these location-related qualities give them the peace of mind to know that their investment is stable for the long term and will provide extra income when it comes time to pay college tuitions, a margin of safety for their future retirement, and a tangible appreciating asset they can eventually pass down to their kids.  

​​​Jen (Age 30) and Rachel (Age 35)
Jen and Rachel knew they were a match the day they met. On top of an instant click, they noticed that, as far as real estate goes, they had been living parallel lives up till that point and had similar dreams and goals for the future. Both had lived in other cities prior to meeting in Baltimore and both had purchased properties in those other cities in the aftermath of the housing meltdown. In addition, both had decided to hold on to those properties for the foreseeable future.

Jen had purchased a home near the University of New Mexico in Albuquerque where she had been attending graduate school. At the time, she lived in her house and rented out the other rooms to other graduate students in order to cover the cost of the mortgage (plus a little extra.) When she later moved to the East Coast she decided to switch her house over to a single tenant, who has been there ever since.

Split screen over to Rachel. In spite of being a financial planner, or perhaps because of it, Rachel believes in the long term stability and income potential provided by real estate. When she lived in Texas she purchased a home for herself and then turned it into a rental when she moved. When she lived in Providence, Rhode Island she did the same thing. Then she landed in Baltimore. After about six months of being a tenant and getting to know Baltimore, she took the plunge and purchased a “historic” (old) “rowhome” (townhouse) for herself in the Patterson Park neighborhood.

Then, when they were ready to take their first big step together as a couple, Jen joined Rachel in this home that Rachel had gradually been fixing up. Over the next couple years, Jen and Rachel then purchased two more rentals in the same up-and-coming neighborhood. Finally, they bought a new home for themselves and once again turned their existing one into a rental.

The couple now owns six rentals across four states. Like most successful investors, they found a model that seemed to work for them and they stuck to it. All of their properties were bank-owned (“REO”) foreclosures or short-sales which they purchased in the aftermath of the housing crisis. All of their properties needed some minor upgrades but no major rehab at the time of purchase. They made a habit of installing granite countertops and stainless steel kitchen appliances and painting all the walls tan to make their properties stand out. They strongly believe in making their properties desirable in order to attract quality tenants who will be easy to manage from a distance.  They also understand that part of the desirability factor is location, which is why all of their properties are in hip, hot or otherwise desirable rental areas.

Jen and Rachel’s purchase strategy has been to get a good price on a REO property and use a loan off either one of their 401(k) retirement plans for the down payment. They do some upgrades, wait a year and then refinance to recoup their down payment and pay back their 401(k). As a couple, they always put both names on each title but only one name on the mortgage. In this way they are able to attain more mortgages across the two of them together than if they were both on all the mortgages  (since many banks have a five mortgage per person limit in the standard mortgage industry). Their arrangement with each other is that the one whose name is not on the mortgage always contributes money toward the down payment so that they both have a financial stake in the property.

Because cash flow is positive on some of their properties while flat on others, Jen and Rachel have chosen to save money by not using property managers. Instead, they do thorough screenings so that they are able to find tenants who have steady income and good credit and who can afford their homes. They’ve also developed some creative ways to manage from a distance. For instance, they coordinate repairs through their tenants (and the tenants know the deal upon signing on). Also, when an existing tenant gives notice of plans to move out, Jen and Rachel offer the tenant $20 to show the house to each new prospective tenant who comes to check out the property. Everything else is handled electronically and over the phone.

Overall, Jen and Rachel are pumped about their investments. They feel like this is a great time to be landlords because many young people prefer to rent and many others who were burned in the housing crash have no choice but to rent. They also enjoy their jobs and rely on the income for their living expenses and the investment opportunities provided by them. They view their real estate holdings, not as a replacement to their retirement accounts, but as a way to diversify beyond these accounts. Their mortgages are all 30-year terms because their cash flow is not as great as they would like. However, Jen and Rachel are patient. They are young, they have time, and they know they will be in terrific shape for retirement when that day comes.

​​​Alfredo (Age 41) and Rose (Age 47)
It was 2006 and Alfredo and Rose were planning a wedding. At the same time, they were trying to figure out where to live once they got married. Alfredo was working in sales at a steel company and attending school in financial economics at night, while Rose was working as a real estate agent. They were renting an apartment in a neighborhood called Fells Point in Baltimore, Maryland. However, they knew their next home would be different. They knew they had to be on the other side of the whole rental equation.

Alfredo was determined to find a multi-unit building where the tenants’ rent covered the cost of their mortgage plus the cost of the asset until it was owned free and clear. So, while Rose planned a wedding, Alfredo set to work finding an apartment building for their post-nuptial life together. They knew they wanted to stay in the neighborhood. After all, Fells Point was a cool place to live. Originally a ship-building and commerce seaport (back in the 1700’s), Fells Point grew to become the hip, mildly touristy waterfront neighborhood that it is today.  It has quite a number of restaurants, pubs and shops and is enjoyed equally by the residents of the neighborhood as well as the many local visitors and out-of-town tourists.  

After making offers on a couple small buildings, both of which were rejected, the stars came into alignment for Alfredo and Rose. One day, when Alfredo was out walking their dog in their neighborhood park, he fell into conversation with another guy, also out with his dog. In their conversation, this fellow expressed concern about his future living situation because, as he said, the owner of his 23-unit apartment building had recently announced his intentions to sell the property. Alfredo had a deep feeling that this was the opportunity he’d been looking for. In fact, from that moment on, he would look at the building through his rented window and say to Rose with conviction, “We’re going to own that building.”

Alfredo wasted no time in contacting the owner. The owner was an older Italian guy who was retiring and looking to cash out. Also being Italian, Alfredo found it helpful to their negotiations to bond over their shared heritage. As with any negotiation, it helps if you can find a similarity or point of common interest (a trick that salespeople have understood for decades!). The owner said that he didn’t actually need all of his money at once and, in fact, he would be willing to lower the price if Alfredo and Rose would borrow money from him and pay him back with interest over time. The owner wanted to provide this “seller financing” – as explained in Chapter Eight – so that he could spread out his gain, reduce his immediate taxes and earn guaranteed interest on the amount borrowed by Alfredo and Rose. Alfredo and Rose were glad to take him up on the offer!

The stars continued to align for these soon-to-be newlyweds. A neighbor of theirs recommended the name of another neighbor who was a real estate attorney. She drew up a contract that Alfredo and Rose submitted to the owner as their written offer. In the course of their discussions, and based on her knowledge of current state laws, this attorney recommended a legal strategy to help them save money on their transfer taxes, which on an apartment building of this size, would have been substantial. In those days, limited liability companies (LLC) in the state did not have to pay state transfer taxes on the purchase or sale of property. Therefore, Alfredo and Rose convinced the owner to convert his “general partnership” into an LLC and then to sell them the LLC.

At the time they purchased the property, the units were all pretty run down and the rent amounts were incredibly low for the area. After purchasing the property, they borrowed money, once again from the owner.  Then, one-by-one, they renovated the units each time an existing tenant moved out. And each time they did, they raised the rent to make it commensurate with comparable apartments in the neighborhood. They found that the money they put into the renovations quickly paid off in terms of the higher rents that they were able to collect. After about five years, Alfredo and Rose refinanced their property and paid back the owner the balance of the amount owed.

Recently, there has been a lot of development in the area, which has driven up prices, but has also driven up demand for their units, which are priced a fair bit lower than the recently constructed ones. They have also tested the idea of one unit as an AirBnB rental. They keep it nicely furnished, provide nice linens, and are able to make roughly twice the income as their other units in a given month.

Their building provides healthy positive cash flow every month. They are now at the point where they are deciding their next move. The good news for them is that, thanks to having boldly bought this building eleven years ago, they have options. A new home for the family, a beach house and a second apartment building are all on the table. Whichever direction they decide to take, their next down payment can come from their savings (from their existing cash flow) and/or the equity in their property (which can be tapped in the form of a refinance or second mortgage).

For now, however, they and their children are happy living in their building and continue to love the neighborhood. Alfredo and Rose know they will never have to worry about retirement. In fact, they believe it could come soon to them since they have only nominal personal housing expenses and their monthly cash flow from the building now surpasses their monthly living expenses. Once the mortgage is completely paid off, working will be completely optional. With this one purchase, Alfredo and Rose’s apartment building has catapulted them into the realm of the Level III Goal of complete financial self-sufficiency for the rest of their lives.

​​​Amanda (Age 40) and Matt (Age 40)

After reading Robert Kiyosaki’s game changing book, Rich Dad Poor Dad, Amanda and Matt knew they just had to own rental property. The idea wasn’t totally new to either of them. After all, Amanda’s parents and grandparents were real estate investors and the main focus of Amanda and Matt’s joint tax and accounting practice was helping real estate investors strategize and save money on their taxes. However, in spite of their comfort level with the financial aspects of real estate investments, Amanda claims that she was so nervous on the day they bought their first rental that she felt like “jumping out of the window!” 

Now, over ten years later, Amanda and Matt own a total of eight rental properties, mostly in Las Vegas, Nevada. Even though they live in California, Amanda knows Las Vegas very well since she was born and raised there and she still has many family members and friends in the area.

Most of Amanda and Matt’s rentals are single-family homes in relatively safe, working class neighborhoods. Amanda explained that there is strong demand for rentals in this unique city because it is a very “cash intensive” economy. In other words, while people make good money, much of that income is from tips. As a result, these types of workers don’t always qualify for mortgages, especially those with a tendency to not report their tip income at tax time thereby giving the appearance of very low income. Amanda believes the strong demand for rental property is also affected by the vast number of Las Vegans who were burned by foreclosure and bankruptcy when the housing market crashed in 2007. Since then, many of these individuals have either been unable to qualify for a new mortgage or so jaded by the experience that they have no desire to own their own home.

Amanda and Matt use a property manager for all their properties. Not only are they out-of-state, but they simply don’t enjoy property management or dealing with tenants. They prefer to let the property manager handle all the work involved in renting and maintaining their homes. Instead, Amanda and Matt focus their energy and time on helping their clients through their accounting business and on acquiring new properties for their long-term retirement portfolio.

Amanda believes that your property manager can make or break your investment. In fact, she has a friend who was taken advantage of by an unethical property manager of her long-distance apartment complex. To protect themselves, Amanda and Matt have an in-town family member check on their properties intermittently; they also check them when they are in Vegas.

When I asked Amanda what tips she would like to pass on to readers, she said this: When you purchase an investment property, don’t envision yourself moving in. You must understand that it is an investment. Also, if the numbers don’t work out, just don’t buy it. We are always learning lessons as we go along. Some mistakes you can easily recover from, such as changing your property manager or doing some rehab after a bad tenant. However, it can be much more difficult to get out of a property that is not in line with your immediate cash-flow needs and long-term financial goals. Amanda and Matt are firm believers in the long-term wealth building potential of rental property. Their properties are on 30-year mortgages in order to maximize their cash flow in the present. They believe in saving up their money and then making that money work for them by redeploying it into the purchase of additional property. Their current plan is to hold properties for the long term. They plan to refinance them when possible, pull money out, and again put that money to work in a next property.

Heather (Age 45)
Heather’s story is quite unique. Heather has a background that includes everything from working in construction to majoring in finance in college. She was born into a commercial real estate family business that her grandfather had started and her father and her father’s brother now own. She and her cousin are currently the property managers in the family business in exchange for 12.5 percent ownership of the family business each.

Ironically, in spite of being highly experienced in property management, Heather’s first personal investment opportunity was one that required virtually no property management at all. It was also the type of opportunity that the vast majority of us would have driven past without ever having noticed. However, since Heather had been living and breathing real estate from the time she was born, she was prepared to act when opportunity presented itself. On one of her many travels from their office in Massachusetts to one of their properties in Maine, she noticed a piece of land go up for sale on a very well-traveled road.

After watching her family in the long-term real estate business for her whole life, she felt finally ready to jump into the game herself. She was eager to create her own passive income stream and her own long-term wealth-development strategy.

So Heather submitted an offer. Once she had a ratified contract to purchase the land, she set to work on finding an excellent, well-connected commercial real estate agent. She found someone with an “in” among restaurants and who proceeded to land her a deal with a popular fast food restaurant. Jackpot! Then, with signed lease in hand, Heather went to the bank to obtain a mortgage. The bank struggled with the fact that she was technically self-employed but because she had excellent credit, she was able to successfully obtain a mortgage. Jackpot again! The down payment for the purchase came from a home equity line of credit (HELOC) on her primary residence. As a result, without any money out of her own pocket, Heather used two streams of “good” debt to create one incredible stream of unending income, as you will see in a minute.

Once she had a ratified contract with a fast food restaurant, Heather had to plan what to do with the existing structure on the lot. To save costs on demolition, she approached the nearest fire department to see if they would like to use it for training ground. To her delight, they did. And in exchange, the firefighters hauled off all the resulting debris from the lot. Heather came up with a second move to save on some costs. She struck a deal with one of the firefighters who had expressed interest in keeping the oil that was still in the oil tank. In exchange for the oil, this firefighter removed the tank from the property for her, which was no small undertaking.

You may be curious about the numbers on this kind of investment. The restaurant pays Heather $4300 each month to rent the land. Heather’s original monthly mortgage payment on the land was $2400, which she recently refinanced to a 10-year mortgage with a $1500 monthly payment. This means until her asset is paid off, her cash flow is $2800 each month. Thereafter, her cash flow will be the full $4300 until she increases the rent at the end of their ten-year contract. It’s no wonder that Heather has a glimmer in her eye as she half-jokes that this investment is her 401(k). She will own it free and clear by the time she is 55. Heather is confident in the long-term sustainability of this investment. The restaurant has a vested interest in staying because it built the structure that sits on Heather’s land. Even if the restaurant does eventually pull out, Heather is not worried; they would be leaving their building behind them thus only improving the value of Heather’s property.  

In addition to this first amazing real estate investment, Heather used the strategy of buying a house for herself and then keeping it as a rental upon moving. However, before renting it out she refinanced it in order to lower her monthly payment and improve the cash flow potential. This was just after the big real estate bubble of 2007 and though she still couldn’t sell the house, she was able to rent it to a family who had lost their own house to foreclosure. This family has been there now for the last five years. The house has been good for the family since Heather charges a reasonable rent; plus it’s been good for Heather because it became the second asset in her personal real estate portfolio.