I made this post a few days ago that had some 1100 comments and good conversation: https://us.teamblind.com/s/LeFeeVAy I’m writing this follow up post to help people realize that financial independence is possible with a tech salary even if you’re not making >300k as a household. Case study: Seattle Age 30 Household TC 300k 401k: Max $20k After tax income:$220k Spouse and 2 kids Expenses: $4k mortgage or rent $1k kitchen $1k utilities and gas $1k for 2 cars $2k for day care and later 529 $2k for travel, shop, entertainment Expenses: 11k/month or $130k annual. That’s a pretty solid lifestyle. $90k left to invest annually. Put $40k in index fund VOO annually. In 20 years, this will be $2M compounded at 7%. We will come back and grow this further. Put remaining $50k towards rental properties in cashflow states like OH, NC, GA, MD, TN, PA. We will come back to this. The $20k annual addition to 401k and $5k company match over 20 years will turn to $1.2M compounded at 7%. Back to rentals: A rental investment usually needs 25% down, so your $50k will enable you to buy a $200k property annually. Rental property Case study: $200k purchase price Expenses: $1500 rent or $18k/month Property tax: $2k Property management:$2k Vacancy and repairs: $1k Mortgage for 15 years at 4% is $1100/month or $13k/yr Total expenses: $18k/yr Cashflow: Zero (Cashflow without mortgage is $13k/year) Buy one such property every year for 10 years. Remember you have 15 year mortgages. So in 15 years, first one will be paid off and you will have free cash flow of $13k/yr. next year $26k/yr. Use this cash flow to pay down all properties within 5 years of the first one being paid off. So after 20 years, you have 10 properties generating $130k/yr and worth $2M (actually more as rents and values will go up with inflation). Also, after 10 years, you are contributing the $50k that was being used to acquire properties to your stock portfolio. So now your portfolio goes from $2M to $2.7M compounded. So let’s do the math. After 20 years, you have $2.7M in stock market generating $50k in dividends AND $2.x M in rental properties generating $130k/yr AND another $1.2M in 401k. So $180k in annual income, stock portfolio growing by 4% every year (as you are just using dividends and not growth) and a $5M+ net worth. This whole math assumed you are 30 years old with zero net worth. If you start at 25, you’ll be in an even better state, or be financially independent at 45. By 50, your kids are off to college, you’re not paying for 529k etc so you use that money to buy health insurance. I saw a thread today that said FIRE is dumb which led me to write this post. You see, one can be financially independent without eating just rice and beans. Also, the RE part is optional. Good luck. All of this is from personal experience. I became FI recently. Details here: https://us.teamblind.com/s/LeFeeVAy #personalfinance #FIRE #FatFIRE #FinancialIndependence
You're not doing it right. Single, no kids, $300k TC. My annual expense is $45k. Food, rent, everything. If I can hang in FAANG another 10 yrs I'll have $5MM proj. Right now just hit $1MM. Will retire at $10MM. Gotta find a better job that provides free food. I want to spend $0 on food!!!
+1
Sexy post! I am following this
30 year mortgages are better
Playing devil’s advocate. Technically the 401k doesn’t contribute to your cash flows and is just a nice big number to feel good about until you cash it in and pay tons of taxes on it. Would it have been better to use that money for more real estate? Yea, employer match free money, but it’s illiquid and practically just a nice number to look at irrelevant to your real passive income generating assets.
This dude got rich from occupancy fraud 100% look it up
Lol wut?
Occupancy fraud is saying you are going to live in a property to get a lower mortgage rate even though you plan to rent it out. Just FYI in case you didn’t know. 4% mortgages on rental properties are pretty common. I have several at 3.675 legally.
Nice post. I’ve decided mostly against real estate since it seems like a headache. Just aiming for better TC and dumping vast majority into the market for a more predictable path to FI.
What alternative to rental properties do you suggest for someone working in India as the rentals are cash flow negative here.
Move out
Thank you for sharing! We are at late 30s and getting close to our fire goal! Two questions I have - 1. In your earlier post you mentioned your primary home is paid off, why? Given the current low mortgage rate, shouldn’t you take the money out and invest to get better return, especially you have 150k emergency fund? 2. We are based in Seattle and only have local rental properties which yield limited cash flow, but good appreciation. If you have the options, would you invest 10 properties in the States you listed above, or 2-3 local properties with good appreciation? What are the challenges of having properties remotely? Based on our limited 5 year landlords experience, it is nearly impossible to find good property managers, and I image it would be even harder for remote properties? Your rentals generate good passive monthly income, and good appreciation properties cannot provide this unless they are sold/or paid off. Plus we don’t want to pay them off if the mortgage rate is low. Thoughts?
Do you mind sharing you goal? Any kids? I am 35 and the only investment I did was get a house. I am scared of buying rental properties out of state and Seattle-Bellevue is neatly untouchable. What had been your experience?
Our goal is 6m. We have two yong kids (<7yr). Once we reach the goal, I will quit to spend more time with kids, pick up old hobbies, and figure out what to do next. Eastside housing market is not hot, but mad! It is nearly impossible to get positive cash flow if you buy now (brk area) with 25% downpayment. You may get positive cash flow in very southern/northern area. But I personally prefer high appreciation over cash flow - rentals could only increase by a couple of thousands yoy, but appreciation can easily reach hundred thousands yoy, especially given the potential of Seattle. That being said, I don’t plan to invest any real estate property in the next a couple of years in Seattle and eastside due to this craziness of market and the fact that WA is very unfriendly to landlords in general. I may explore the opportunities in the States op shared above once I quit my job and have more bandwidth. We plan to continue invest in stock - DCA to buy voo, qqq, and few stocks we are familiar with. Stock has better liquidity than real real estates and much lower cost of maintaining.
From this post I am pretty sure you have no clue on how rental properties work and you have made it look like it's a joke and everything is so easy. I am telling you from 1st hand experience.
Okay, thanks for your opinion. I own 12 so while I’m not an expert, I know a little bit. Details in the link at top of post. Tell me more about your experience so we can have a constructive data oriented conversation?
I don't necessarily agree with you @BeerRaiser (I had 10 units at one time), but I can see where you are coming from. I do think you have to be "wired" for it. It takes a fair amount of time and if you don't love it then it can become a big pain in the a**. I've 1031-exchanged almost all my units into DSTs (https://en.wikipedia.org/wiki/Delaware_statutory_trust) which has worked out really well for me. I get ~7% cash returns, depreciation deductions + appreciation. All without having to do anything.