254: How to Retire in Five Years

SHOW NOTES FOR EPISODE 254: HOW TO RETIRE IN 5 YEARS

Real estate investing can be the key to an early and fruitful retirement for those who are willing to put in the time and effort.  It’s especially effective if you have a full-time job, can aggressively save and ramp up quickly to build up your real estate holdings.  In this episode, Bill shares a simple formula anyone can use to build a retirement rental property portfolio in just five years.

For those of you who listened to last Friday’s Fun Fact Friday Episode,  “Running Out of Money – Part 1,” – you’re probably expected to hear Part 2 this week.  However, in the process of recording Part 2, we came up with road map to achieving financial independence in just 5 years.  So, we decided to postpone Running Out of Money Part 2 to share this simple recipe for a quick retirement

How to Retire in 5 Years

Assumption:

• A person who is still working and will be for another 10 years
• Having W2 income makes it easier to get loans
• He has simplified his life/downsized and is able, with his wife, who works too, they pull $2,000 a month from their monthly paychecks
• He has a retirement fund of $500,000 in a self-directed IRA or 401K
• He purchases his first three properties with cash (from his self-directed account) – $150,000 to purchase three $50K homes that each bring in $750 each (after expenses) of net cash flow each month for a total of $2,250
• Where there are mortgages involved, we use the 50% rule to estimate expenses
• Now, he is generating for future investments:
  • $2,000 from my paycheck
  • $2,250 in cash flow from my properties
  • Total – $4,250 a month or $51,000 a year
  • So, after one year of saving from from his paycheck and saving my property cash flow, he has $51,000 that can be used for 2 $20,000 down payments to buy 2 $100K houses with mortgages.  So, after debt service and expenses, they generate $425 per month net cash flow each or $850 together
  • Year two
    • $2,000 – money from your salary
    • $2,250 – income from first three properties I bought and own outright
    • $850 – two homes I bought with mortgages
    • $4,550 monthly or $54,600
  • This time, at the end of year two, he buys 2 $100K houses, paying $20K down on each, they generate $850 per month in rent that results in $425 per month each, after mortgage and expenses (using the 50% rule) or $850 per month
  • Year three
    • $2,000
    • $2,250
    • $850
    • $1,275
    • $6,375 monthly or $76,500
    • At the end of year three, you can buy 4 $100K houses at $850 rent/$425 cash flow times 4 to generate $1,700 in monthly cash flow
  • Year four
    • $2,000
    • $2,250
    • $850
    • $1,275
    • $1,700
    • $8,075 monthly or $96,900 per year
    • At the end of year four, you can buy 5 $100K houses at $850 rent/$425 cash flow times 5 to generate $2,125 in monthly cash flow
  • Year five
    • $2,000
    • $2,250
    • $850
    • $1,275
    • $1,700
    • $2,125
    • $10,200 monthly or $122,400
    • At the end of year five, you can buy 6 $100K houses at $850 rent/$425 cash flow times 5 to generate $2,125 in monthly cash flow and you can stop your payroll contribution of $2,000 per month and can now live financial free, supported 100% by your rental property income
  • Year six
    • $0
    • $2,250
    • $850
    • $1,275
    • $1,700
    • $2,125
    • $2,550
    • $10,750 monthly or $129,000 per year
    • At this point you could quit your W2 job and live off your rental income or keep moving forward, continuing to contribute $2,000 from both paychecks each month for another 5 years to double your monthly income.
    • Of course, over time, rents will likely go up, the properties will increase in value, your net worth will rise and other things may affect your investments.  Overall, however, you will have a secure source of income.
  • As you see from this example, in 5 years, you can reach half your 10 year goal

Isn’t it amazing what you can achieve in just 5 years with focused goals and an aggressive saving effort.  Whether it’s $10K in 5 years or $20K in 10 years.  It’s possible.  Now, this couple maxed out on their mortgages but in other years, they may consider getting a commercial loan for a 10 to 20-unit property or another means to go around the mortgage goal limit.

Here are podcasts featuring guests who appeared on the Old Dawg’s REI Network that achieved the same or similar results, some in less than 5 years.  Check ’em out!

253: Old Dawg Investor Creates Retirement ATM Machine in Just 2 1/2 Years

217: Husband & Wife Turn $50K Home Equity Loan into $56 Million Real Estate Portfolio in Just 5 Years

231: California Teacher Builds $7 Million Real Estate Portfolio in 7 Years

035: Investor Makes People’s Lives Better

201: From Russia With Love for Real Estate Investing

Well, that’s it for today!

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