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💰 Retire Early with Real Estate in 10 Years or Less Using Dion McNeeley's Six Steps 🏡
623 Plays4 months ago
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📈 David chats with Dion McNeeley, a real estate investor who retired early using unique strategies. 🏡
Dion McNeeley, known for his "lazy" approach to real estate, walks us through his transformative journey from financial struggles to early retirement. Discover how he leveraged rental properties, developed the Binder Strategy for tenant management, and built a sustainable rental empire that allowed him to retire in under 10 years.
💡 Learn how Dion achieved early retirement in under 10 years and his six steps to financial freedom through real estate. 📈
🔑 Key Topics Discussed:
⇨ Transitioning from financial low to real estate empire
⇨ Building a rental real estate empire for early retirement
⇨ Achieving financial freedom and early retirement
⇨ Six steps to financial freedom with real estate
🔗 Dion’s Links:
🎓 Bigger Pockets Rental Real Estate Bootcamp
🪚 Matt the Lumberjack Landlord
👨💼 Millennial Mike
🔗 David's Links:
🍏 Forget About Money on Apple Podcast
🎧 Forget About Money on Spotify
🎧 Listen & Subscribe:
Don’t forget to subscribe to "Forget About Money" for more insightful episodes featuring experts who guide you on simplifying your finances and achieving financial independence. Hit the bell icon 🔔 to get notified of new episodes!
#️⃣ Hashtags:
#RetireEarlyWithRealEstate #DionMcNeeley #FinancialFreedom #RealEstateInvestment #RentalIncome #EarlyRetirement #PassiveIncome #RealEstateStrategies #FinancialIndependence #RealEstateInvestor
🕒 Timestamps/Chapters:
0:00 - 🚀 Introduction to Financial Freedom with Dion McNeely
1:17 - 💸 Overcoming Financial Challenges and Debt
2:31 - 🤔 Initial Reservations About Real Estate Investment
4:14 - 📈 Transitioning from Financial Low to Real Estate Empire
6:33 - 🏡 Building Rental Real Estate Empire for Early Retirement
12:08 - 💰 Achieving Financial Freedom and Early Retirement
14:56 - 💪 Persistence in Real Estate Investing Despite Challenges
15:54 - 📊 Utilizing the Binder Strategy for Rent Increases
24:44 - 📚 The Binder Strategy
30:06 - 💵 Reaching Financial Freedom
34:32 - 🔑 Six Steps to Financial Freedom
41:45 - 🕊️ Retirement Reflections
45:51 - 🌟 Life After Retirement
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Transcript
Podcast Introduction & Guest Overview
00:00:00
Speaker
You can retire early with real estate in 10 years or less by following these six steps to financial freedom. Here we go.
00:00:12
Speaker
Welcome to the Forget About Money podcast, where we encourage you to take action today so that you can focus on what matters most to you. Today, we are going to share how to retire early with rental real estate in 10 years or less with Dion McNeely.
Dion's Path to Financial Freedom
00:00:27
Speaker
Dion is currently a teaching assistant for the Bigger Pockets Real Estate Rookie Boot Camps. He is known for being a lazy rental real estate investor and today we are going to discuss his route to financial freedom, how he built his rental real estate empire and his six steps to financial freedom with real estate. Welcome, Dion. No, thanks for having me here. Thanks for the intro. I think the name of your podcast is brilliant because the the goal with financial freedom most people don't understand is to forget about money.
00:00:58
Speaker
And I'm gonna take a different ta tack on it. the the There's a sports ball guy, I always forget his name, talking about forget about things. He said, when you don't have enough, money is the only thing. And when you have enough, money is just a thing. And when I retired early, I actually walked away from $2 million dollars in golden handcuffs and don't care. Well, I look forward to hearing more about your journey. So let's get right into it.
Facing Financial Challenges
00:01:22
Speaker
Can you share what your financial situation was like before you discovered rental real estate? Yeah, and I've learned that I want to point out that there is a happy ending, right? I retired at 52 and never have to work again because when I talk about, here's my starting position, it sounds kind of depressing and I don't want to depress anybody. That's not the point of listening to this. I made it to 40 without ever really having a thousand dollars in the bank, right? I tried for a couple of different pensions. I tried the Marine Corps and they downsized after Desert Storm. I tried law enforcement, they downsized after a 2008 housing crash because when
00:01:54
Speaker
cities aren't collecting taxes, they're gonna lay cops off because everybody knows when there's there's a recession, there's no more crime. So we don't need police anymore. And I kept having my pension taken away. So I ah thought I'd have to make my own. But I was also a single parent with three kids. After getting laid off from law enforcement, I started teaching at a CDL school making $17 an hour. And i was a single parent with three kids and found out about eighty nine thousand dollars in bad debt in my name that i didn't know existed until the divorce so that was my plan i basically was telling all my friends that i'm the type of person who's probably going to work until i die.
00:02:28
Speaker
Well, I'm glad that there is a happy ending and I'm glad to have you here today. Looking back, what were some of the biggest challenges you faced when dealing with that debt and the financial instability? Well, one of the things, and this is comes up in one of my six steps to reaching financial freedom, is finding out what your options are. right This isn't step one, but it's one of the steps. and One of the biggest challenges was this, if you want to get into real estate, you know, you have to understand lenders are going to look at this thing called your debt to income ratio. How much money do you make versus what are your monthly payments going out that are recurring?
00:02:59
Speaker
And when you have $89,000 in bad debt and you're making $17 an hour and you're trying to raise three kids on your one income, you have a really bad debt to income
Career Setbacks & Self-Education
00:03:07
Speaker
ratio. That was probably my biggest challenge. And I did find a way around that. My second biggest challenge would be I tried for pensions, right? To get into the Marine Corps. you were You were an officer in the Navy. I was enlisted in the Marine Corps. You're talking a 13 week bootcamp, ongoing MOS training, i yeah years of commitment to be a Marine and then 20 plus years to get that pension. to do it through law enforcement. or It's a six month academy and and then working at ah at a state department or at least in the same state for 20 years to get your pension and then getting the right age for that. So all this time and commitment and that self education and education that it takes to reach those. And I thought with real estate, I'm going to create my own pension without any education at all.
00:03:46
Speaker
And I just tried having a rental and it failed so bad that I tried to quit. I'll talk about that in a minute until I found out about podcasts, audio books, uh, communities like one rental at a time with Michael Zuber or bigger pockets, that there are are people who've already done this and you can learn from them and skip most of the mistakes that I was making in that first year of trying to own a rental. Uh, so lack of education and a bad debt to income ratio were my biggest challenges when I started home. Did you have any initial reservations about entering the real estate market? I had a couple of examples of people who'd reached financial freedom through rentals and and no offense to my brother and my friend. who and My brother retired with 10 paid off rentals at the age of 50 and I have a friend who had 30 rentals and he retired at 55 and no offense to either one of them, but they're not the brightest crayons in the box, right? they
00:04:37
Speaker
they were able to do this and i thought there is there's no way they're smarter than me there's no way they're better at this than me and come to find out they are on on you know being educated learning things before doing stuff. And so
Real Estate Strategies & Success
00:04:50
Speaker
my my reservation was how are they doing it. And why can't I? that That would have been my biggest fear in the beginning. and And like I said, I messed up that first year so bad. Luckily, it was right after the 2008 housing crash. Home prices had gone down. I owed more on my house than it was worth. And when I tried to quit, so I had enough reservations about real estate to want to quit. And I thought, nope, it would be better just to work until I die because I'm losing money owning a rental because I was doing everything wrong. I was stuck with it.
00:05:18
Speaker
And that's why I figured out, well, I better educate myself. Found that rich dad, poor dad book, bigger pockets, communities, like one rental at a time. Started educating myself and realized not only am I making mistakes, um it's like I'm actively pursuing those mistakes. My mentality when I first started out was I'm not a real landlord yet. I'm just renting out my house. So I can't trust a stranger. Let me rent to a friend and if I went to a friend, I don't need a lease, right? You don't need a lease between friends. And so I rented to a single parent. And so when his rent was late, I figured I'm a single parent. I understand things get tight. So late became never.
00:05:53
Speaker
I personally set up my failure by being uneducated and making all of these bad choices. And then as soon as I educated myself, I realized, wow, it's actually easier to trust trust a stranger when you have a lease because now you have a document with courts designed to protect both sides of this agreement that you're making. and how to screen tenants and how to set my rents. And that's how I came up with what I call the binder strategy, which is I actually have a system where my tenants ask me to raise the rent and are happy when I agree and happy tenants don't trash your property, happy tenants don't leave. That um binder strategy makes it a lot easier for me to find cash flowing deals on the MLS and gave me the confidence to start adding more rental units to my portfolio.
00:06:34
Speaker
How did you go from your financial low point to building a rental real estate empire capable of early retirement? So to me, ah real estate is a get rich quick scheme because I believe anybody can reach financial freedom by investing for 10 years in real estate. The trick is understanding that 10 years is quick. For the first two years, Well i hear stories like i've got a friend cody davis i interviewed him when he was twenty and thirty rentals and he said i wish i started sooner and he's doing he's got over hundreds of units now he's doing amazing. And he's been doing it now for like three years so he's he's he's able to at least go buy a beer now after he buys a rental but he couldn't when i was interviewing him.
00:07:16
Speaker
And he did all that in a short period of time. I had the bad debt, the low income, raising the kids. I had to figure out that in two years I can save a down payment. In two years I can work on my credit score. I talked to a lender and then the lender told me, there's really no way you can buy a rental. Your debt income is really bad. Your net worth is not even good enough to go do a DSCR loan. Maybe you could sell her finance or property. There was all these options I didn't know about, but the lender casually dropped a sentence that changed my life. She said, if you had something like rental income on your tax returns for the last two years,
00:07:54
Speaker
Then you can buy a rental because we would then consider 75% of rental income in your debt to income ratio. That kind of fixes your problem buying a property because the properties would not be self-sustaining, but that's the way the numbers work to buy the next, get the next mortgage. So I moved from my house, right? but and So I've always been good at keeping a house and keeping my kids, never been good at keeping a girl around, but we had a house on the lake, private boat launch access, tennis courts, basketball courts, pretty much everything the American family dream is. Imagine telling your family, we're going to move from this into an apartment. and And I can imagine right now there's some people who just sat back and thought, yeah, my, my family would never be on board with that.
00:08:32
Speaker
I ran it by my kids. So maybe it's a little easier being single, but I still had the kids and I wanted to, you know, get their opinion and respect what changes would be happening to them. My son, you know, a teenager at the time said, wait a minute, you want to move into an apartment complex where there's all these other girls that live there that I can hang out with? He was excited. And my daughter came and she said, I get to be the new girl in a school. And there was some TV show called new girl that she was excited about. So thank you Hollywood for that. My family was excited about moving into an apartment and most people think, well, I'm not going to move from the house to an apartment. That's a step back. But think a step back where millions of families live in apartments were no better than different than or different than anybody else. We're just family moving to an apartment. We rent the house out. First year went really bad.
00:09:14
Speaker
Second year went better because I started educating myself. But at the two year mark, I was able to buy a duplex, move from the apartment into a duplex. Now we went back to having our own fence jar, two garages between. I wasn't renting out rooms because I had the young kids, but I had a house hacked duplex with a 5% down convention alone. So I was able to save that amount of money in two years. Working at the CDL school, teaching people for $17 an hour, I had gotten a little bit of a couple of raises. So I was making, you know, 19 bucks an hour now. And I played World of Warcraft and sold things online as a side hustle to make a couple hundred bucks a month ah and to also save for that down payment. We moved into the duplex and that took what I was paying for the apartment was $1,500 a month. At the duplex, my housing cost was $300 a month. And being able to add $1,200 a month to your saving when you're only making $19 an hour is huge. Because to get the $1,200,
00:10:07
Speaker
To pay for your mortgage because of taxes you have to make fifteen hundred right there your tax bracket is also an impact ah and your savings there. I live in that duplex for another two years i actually live there for longer but two years later about the next duplex so it wasn't fast. like Ten years is the get rich quick scheme but those first four years i did two things. I mean, a lot of little things save, not spend, earn more, work on credit score, stay in the same industry for two years. Like there's all these steps that I was doing. but What would I really do in real estate? I rented out my house, got better at that, purchased a duplex and then purchased another one. So at four years I now had five units and the the house started to make a little bit of money. The duplex that I purchased cash flowed. So I was able to save faster than next duplex came in a year and a half.
00:10:54
Speaker
So five and a half years in, I had seven rental units that made $100 more a month than what I was making as a police officer, right? My take-home as ah as a police officer in a small town in Washington around 2007, 2008 was $1,300 every two weeks. So $2,600 a month. My profit cashflow from seven units was $2,700 a month. Not enough to retire on. but a decent income because I basically was making as much as having a police officer working and giving me all of their money on the side. So then the next purchase was a fourplex and and that was my second house hack. I moved from a duplex into a fourplex. And the the great thing about this is when you're house hacking and you move out, you get to rent out the unit you were living in. So I moved, that duplex started cash flowing $800 a month. I moved into a fourplex that was paying me $1,700 a month. So the what moving across town,
00:11:46
Speaker
increased my income by $2,500 a month. So the 2,700 became over 5,000 by the next purchase. i did I could have
Steps to Financial Freedom in Real Estate
00:11:54
Speaker
retired then. I didn't. I loved my job. I had been demoted all the way down to president of the CDL company because I had a couple of ideas that grew the company really well. And I enjoyed teaching. I i didn't realize I did that that because I never had a teaching job. So I worked four more years and I acquired a couple more rentals and I retired in 2022. So about just under 10 years of investing first duplex was 2013. And and um I would like to run through the the decade of of reasons why you should never invest in real estate in just a second. But in 2022, I retired with 16 rental units. I purchased that last duplex. I call it my sweet 16. And the cash flow, which is profit after all expenses and setting aside for for future expenses and taxes, was $204,000. And I live on about 50. And that's traveling. you know I spend months in Colombia, months in Thailand, months in Portugal. I scuba dive everywhere I can. I spend about 50 because I live for free.
00:12:44
Speaker
Then retired two years now purchased another duplex which was a house hack bird which i'll call my first bird and my last bird but i'll turn it back over to you in just a second here's the ten years of right now everyone saying you can't buy real estate because and and then you put in a bunch of different reasons prices are high interest rates are high looming recession whatever the reason is you're hearing now here's the decade of me investing in real estate in two thousand and thirteen two thousand and eleven when i started saving. Everyone was saying, don't buy real estate. We got a double dip crash coming. We were at the bottom in 2011 and everybody was saying it's going to crash again. So I started saving. 2013, when I purchased the first duplex, everyone I knew was saying, and the social media sites were saying, don't buy. Prices are now above 2008. A crash has to happen. This is unsustainable. In 2015, when I got the next one, the silver tsunami was talked about because that was when baby boomers just hit retirement age and and the inventory was going to be flooded. Prices were going to drop.
00:13:40
Speaker
In 2018, everybody said, don't buy now. Interest rates are above 6%, and everyone knows you can't buy real estate when it's above 6%. If interest rates go up, prices have to come down. There's gonna be a crash. In 2020, we had an eviction moratorium, people entering forbearance, a pandemic, bought the floorplex, and it's weird. i closed This is a weird date for me. January 6, 2020, I closed on my floorplex. January 6, 2021, I started my YouTube channel, but then I purchased a triplex. In 2021, everyone was saying, don't buy real estate. It's going to crash because forbearance is ending, which is going to start foreclosures and that's going to flood the market. So every single year for that decade, there has been a legitimate, real sounding reason why you shouldn't buy real estate. And I bought almost every year and I'm buying now.
00:14:27
Speaker
I don't want to grow a bigger portfolio my goal wasn't a huge portfolio i want the right amount of cash flow from the least amount of units that's kind of my philosophy when it comes to real estate. And that's one of the reasons why i invest in high cost of living area i'm just outside of the coma washington. So it's not quite seattle prices but it's outside of the coma. You know a duplex in gary indiana you can probably buy for sixty or seventy thousand dollars i've got a friend who investment does really well ah duplex in where i invest the down payment is more than sixty or seventy thousand dollars. But with that, I get more cashflow from less units. And so it took a decade, but it also took a decade of fortitude investing when everyone was screaming like right now, don't buy real estate because, and what's shifted this year is how we found our deals. I changed how I was looking for my deals and found a bunch of ones that would have made sense, but only wanted to add one. So I've actually passed some deals on to friends.
00:15:22
Speaker
With those two things that changed it's still possible to find and ah here's the funny thing all of my real estate is from the MLS conventional loans No secret sauce, no ah driving for dollars, no mailers, no ah shopping the divorce court for the best deal out there. It's just, I i i have to invest the lazy way because I was working full time, you know, 50 to 60 hours a week at a minimum, raising three kids. My investing had to be, it'll never be easy, but it had to be as easy as I could make it or I wouldn't have continued.
00:15:55
Speaker
ah You're known for saying that you're lazy and getting tenants to ask for rent raises. Can you explain what you mean by that? Yeah. So this is called the binder strategy and you can find it on YouTube. And I've actually made a free course at Deontalk.com. There's, there's no hidden fees. It doesn't come up later. It's just Deontalk.com. You can find the binder course. I purchased my properties from the MLS and most investors say I want an empty property so I can rehab it and market it to market rents or even push market rents up and get the most money possible. I don't want the most money possible. I want limited tenet turnover right tenet turnover is expensive not only just for money but for time. It takes time to do tenet turnover so i want happy tennis because happy tennis don't leave. They don't trash your property so i was looking for properties on the mls weather rents were lower than normal because this is most tired landlords sell their properties now some will kick the tenants out and sell but some just want to sell i've had some sign new leases with the tenet and set a new amount to try to protect the tenant i've had.
00:16:52
Speaker
Some people say, I don't want to sell if you're going to own or occupy because I don't want my tenants to be displaced. They're selling it, but they care about the tenants. They want the tenants to stay. Well, it was the same thing. I don't, I don't want to make me people move. When I've done house hacks, I try to find my duplex was empty and my side needed, you know, some, some work, but not a lot. I purchased the properties with rents below area average rent. And most tenants live in fear. What, if you've ever rented, what are tenants afraid of? Either the owner comes and jacks up the rent or the owner sells to somebody and they jack up the rent. Or if you're in a place that has rent control, the owner just says, you have 90 days to get out. I'm moving in or I'm going to rehab the unit or I'm going to sell the property. Right? So there's legal ways to get the tenants out there. They live in fear of that. I lived in fear of that before having a house as a single parent. I was thinking, yeah, I'm at, I'm at the whim of the landlord ah with what happens with rents. So I buy the the property and I don't do this right away. I actually think I have one.
00:17:45
Speaker
Right here, this is ah and a binder that I used recently. I don't know how much i'll I'll show because it actually has like tenants address and stuff on there, but I call it the binder because it's physically a three ring binder. Now you can do this through email. I've done it with section eight through email. I've done it with tenants when I was out of the country through email. but But i don't do this right away because i didn't get to vet those tenants what if you don't want to keep them right so i wait at least two months and this does a couple of things. It lets me know they're gonna pay the rent on time i don't get noise complaints i don't get tell calls for super trivial things i have a a decent relationship with the tennis which is why we screen tennis. We want to make sure they're gonna pay we want to make sure they're gonna be good tenants.
00:18:21
Speaker
But it also gives me a chance to do the upgrades that i do and i do three things that every rental that i ever buy first thing that i put in coded locks ready by class c property specifically target class c. Because they're more recession resistant rants actually went up in two thousand nine and ten in class c properties some planning for bad things in the future. and I put in coded locks and i used to that that that's ah a a a a perk to not having a key. I put in motion sensor LED exterior lights to improve the safety at the at the property. And then I actually asked the tenants, and my first agent told me never do this, but I do it every time. I asked the tenants, if you want the place, what would you fix?
00:18:56
Speaker
Right? Ask the tenant. It's never been something big because the the the agent said, well, they'll ask for another bedroom or pave the driveway. And it's never been that. It's been the ceiling fan squeaks. Get a new ceiling fan. Or they, I would like a screen door so I could leave the door open in the summer. Really simple things. And now at the two month point, the tenants go, the new landlord is going to take care of the place. They fix some things. They fix the things I asked for. And then I go and have this conversation in person. but You've closed on the property of giving your landlord introduction letter i knew that the new owner here's how you contact me here's how i collect answers that procedure for issues right all that's done. But now we're going to sit and i sit with the binder. The first page of the binder is actually right from red fenders allow and it shows the property that they're in it shows what you paid now if they've been there a long time it shows what the new tax to test value is like the red fin zillow estimate or whatever it is.
00:19:45
Speaker
And you say my taxes and my insurance are based on this amount. So the rent you were paying made sense to the previous owner or to me before, but it doesn't now. Tenants don't care about your expenses. That's not why I'm sharing this. If they cared about your expenses, a paid off property and a property with a mortgage would rent for different amounts and tenants don't even know if you have a mortgage. So I'm sharing this to to show the tenant what I'm going to share with you. is information that's online that you can find. Transparency, honesty, you can you can trust, but verify everything I'm saying. The next page in will show what section eight will pay for the property and what the change is for the current year. So in this form, 2023 to 2024 went from 16 to 1900. So there was a $300 jump in in section eight. The next page is what the military, what the BAH is paying in the area. If you live around a military base, if you don't, you can skip that part.
00:20:37
Speaker
But then after that is several rentals right off of apartments dot com or red fan for any of the same number of bedrooms in your area and what they went for so the actual numbers on this this binder strategy that i was paying fourteen sixty. And every average i can find several for nineteen hundred two thousand right with the rent a gun up since twenty twenty forty percent in some areas right so it's gone up significantly. And I went to the tenant and you show them all of these things. You say, look, you're paying 1460 rents in this area. Here's some 1900s, 1950s sectioning open 1900. Give them the binder and ask this question. Cause what tenant has ever been asked this in their entire time render? What do you think is fair? I've never had a tenant say what should stay the same or it should go down.
00:21:22
Speaker
I've never had a tenant say, well, 1900 would be fine. Cause that's what everyone else is paying, right? They're not dumb. If I have a tenant turnover, I displace a tenant. So I feel bad tenant has to move. I have to do a rehab, which is going to be five to 10 grand, right? You know, LVP, flooring, paint, electric, or whatever updates I'm going to do. I don't want that in the time that it takes. And I don't want to just displace the tenant. So the tenants in this case came back, I think they said 17 or 17 50. And I thought that would be great. We went $50 less than what they suggested. So imagine how happy the tenet is two things happen is they say in amount i see that's great but let's go a little less they split the difference most tenants will split the difference if i went in and said hey i'm raising your rent a hundred dollars. I'm a jerk i'm flamed on social media that they don't like the landlord a hundred dollar increase would make me a jerk.
00:22:10
Speaker
I have this conversation. I explain what they would be paying if they moved. I explain what I could get if they move best mathematical situation as they move out. I do a rehab. I get area average runs from the new shiny market ah unit on the market. but I don't want to put the time and I don't want to make a move. So they go up to that 1650 or 1700 or whatever it is. So a two or $300 increase to the rents and they say, thanks. And my tenants watch my content and they said, you're absolutely right. Thanks. We're not paying 19. You didn't kick us out. We know why the prices went up. We were a part of the conversation and actually fix things so that's the binder strategy and in that course i literally break down the new ones versions of. Section eight property management at a distance local all of that.
00:22:53
Speaker
um I've had hundreds of people use the binder strategy that's been and talked about in Bigger Pockets episode 448 and some in the real estate rookie show. I believe it helps the tenants and the landlords because most landlords will kick the tenant out or worst, worst case scenario, the landlord doesn't raise the rent. And then they can't afford to fix anything. And then you get a slumlord. You even get guys like Graham Stephan, who's very successful on YouTube. but He sold rentals and he said in his own video. So I'm not saying anything behind his back. He said this himself. I didn't raise the rent for 10 years. So I had to sell the rentals because I made more money. I would have made more money if the money was buried in my yard than having it in the rentals. So now those tenants got new landlords who, who knows if they kicked them out, jacked the rents out, did whatever they did.
00:23:38
Speaker
because rents were low, Graham had to sell. I don't want to be in that situation. And I actually, when I was getting ready to retire, here's my, I don't know if you had this concern, but this was my biggest concern. I hear about people getting into real estate often and here's how you do it. And here's the steps. And I've got these six steps, but how do you find the people who failed? tried real estate, didn't like it, lost money and quit. How do you find out what they did? like you You find the success stories, right? If you talk to the person who won the lottery, they just say, well, you buy a ticket. Everybody that doesn't win the lottery is not saying, well, you just buy a bunch of tickets and eventually you'll win, right?
00:24:11
Speaker
So i actually found him in the choose f fi community that big got out of real estate got in the stocks and i found some who are talking across the board some people lost their properties because of divorce. Bad management fraud whatever the problem was but i would say 80% across the board lost their properties or got out of real estate because they said this and. I didn't want to raise the rent on a good tenant and lose them. So instead of raising the rent on a good tenant, you lost the asset. So I came up with a strategy that keeps my tenants happy, makes me a decent profit so I can actually fix things and grow the portfolio.
Financial Freedom & Retirement Reflection
00:24:45
Speaker
And I actually sit with each of my tenants and I say, you know, you shouldn't be renting. The conversation starts with that. You should buy a duplex like the one you're living in and rent out the other side and and live for almost free. And I've only had two people now in a decade go out and buy a place. But I tell them, I'll find you an agent.
00:25:00
Speaker
They'll find you a lender, you know help you get on the property ladder. I haven't had very many ah people take me up on that, but that's the binder strategy and how it makes it a lot easier for me to reach ah financial freedom with real estate and finding cash flowing deals right on the MLS. So you've retired and under 10 years from when you started, is that correct? Yeah, the first duplex was 2013 and retired in 2022. so I say it was about 12 years because I was saving for two years before I bought that one. like that moment When I woke up and and had that that epiphany that I need to take charge of my finances, I would say it was about 12 years. Eight years I could have worked for four more years because I loved my job and I really took those four years to train my replacements to make sure that I didn't leave the company in the lurch and that they were in good hands.
00:25:47
Speaker
We all can fall trapped to that one more year. I just though, so be really careful with that every time, especially when you start making good money. You think, Oh, if I just do one more year, I'll have a couple more rentals or my stock portfolio will be bigger. Cause while I talk about rentals, I always talk about three ways to reach financial freedom, right? You can start and grow a business with the intent of getting it large enough for somebody else to run the day to day. So you get your time back, you can invest in stocks and you you can use the 4% rule. And I recommend that on YouTube. There's a guy Joe Kuhn K U H N he's Invested with the stock method using the buckets and is more educated in that i don't own a stock if i own one stock i'd probably still be working ah don't use retirement accounts i. Focus on real estate so there's three different passes probably more like crypto and some other ones but those are the ones that i'm familiar with real estate iss not for everybody right there are its challenges in a decade i've had one phone call after eight pm.
00:26:37
Speaker
And that's the nightmare that stops a lot of people from getting into real estate. ah You can go through an eviction, you can have tenant turnover. I diversified since I'm 100% in that one asset class, I diversified in two very specific ways. The first is all of my properties. My goal is there at least 10 miles apart. So I'm pulling tenants from different economic drivers like a base, a port, college, hospital, Boeing, Amazon. So that if one of two of those go away, I don't lose all of my tenants have one property is impacted. And the second way I diversify is I diversify my tenant base. I try to maintain about a one third ratio of one third military, one third section eight, one third working or retired. So a stock market crash, prolonged government shutdown, a pandemic, a third of my portfolio could be impacted, but even through 2020, it's been over 10 years now. I've not had one late or missing rent payment. Uh,
00:27:27
Speaker
ah partially because i use the binder strategy and the others because of this thing that i call the math of time and is the massive time and and have a conversation with my tenants and and because of that i've never had ah a late or missing rent payment. Yeah that the diverse it diversification of your tenants meeting. what you just described as far as having maybe different types of tenants. That's something I have not given that much thought about as a fellow rental real estate investor. I have few fewer properties than you have, but that is still a concept that I find interesting and I haven't seen or heard it discussed very much. So thank you for bringing that up. You currently have 16 units, is that correct?
00:28:10
Speaker
Yeah. So let me clarify on that too, right? Because I don't want somebody to attack you yeah in the comments like to do me on YouTube. I always want to clarify. It would be probably illegal in most places to advertise section eight only or no section eight at all or military only or no military allowed, right? Right. So don't discriminate, but you control where you advertise. If I have a unit coming available and I and i would want to keep my ratio of section eight and I take the listing and I send it to the housing authority and I say, hey, this unit becomes available on Tuesday. Can you share it with your clients who are waiting for this number of bedrooms?
00:28:42
Speaker
And it's different on every military installation. There's no way to know who handles housing, but every military installation, you're being a Navy officer, you know that there's an MWR on every base. Contact your local MWR and say, hey, who handles the housing for this installation? When they get to that name, it's not going to be MWR, but they'll know who it is. You reach out to them and say, here's a listing. Now you're more than likely going to get a military applicant. You might get a civilian contractor. and but you can control where you advertise. That's how you do this legally. And then if somebody applies, like if I want section eight, I would advertise a section eight, but somebody else applies, you could follow the legal screening process just like normal. So it's never going to be a perfect one third ratio, but it's a goal to protect myself. My friend, Matt, the lumberjack landlord, he's been investing for about 20 years. He's got 137 rental units and he really struggled in the 2008 housing crash because he was renting to construction workers.
00:29:34
Speaker
And that was the industry that took a big hit. So recently in the last couple of years, after getting to know the one rental at a time community and meeting me, he now has, I don't think he has a third, but he's getting there probably 20% of his units are section eight, which has their challenges. When you start, I screen exactly the same and I've had, I've had no problems with section eight tenants, but he's had a few. Uh, so bigger portfolio, more likelihood to have problems, right? So that's another reason why I like the small portfolio. So that's how I diversify and do it legally. So your 16 doors bring in just over $200,000. And I would argue that anybody, no matter your cost of living area can live on $200,000. You emphasize not needing a large portfolio. How do you determine the right amount of cashflow from the least amount of units?
00:30:21
Speaker
ah So your brother runs the Camp Fi, right? This is an amazing community of people and and and tell just randomly tell them one day somebody said thanks because there's a lot of people that need that information. Stephen actually listens to this podcast so he would hear it from you. Awesome. In the Fi community, most people talk about your freedom number. right So i'm ah I'm going to add a a corollary to it. So the freedom number is, and and you can most of us can find it by doing a ah a kind of complex, but simple math equation. Look at the last six months. Instead of doing a projection, estimating the future is better for like cash on cash return, but an internal rate of return is better looking at the past to figure out actually what happened. What are you spending? And then these are the things that are going to change. You're no longer going to commute.
00:31:08
Speaker
You don't have to do dry cleaning for work. you're You're going to not be taxed at high because it's no longer earned income that's coming in. You're also not going to be saving for retirement. So a bunch of our expenses are going to go down. Healthcare, care you're now going to cover 100% of the premium. Your deductible is probably going to be the same, maybe goes up. So healthcare is the one time it kind of goes up, but you can figure out the math on this freedom number that everybody in the fire community talks about. What I used was called a multiplier. right i needed to brown I spent about $4,000 a month and an average month because i have I have what are called reverse budgets. I raised three picky kids, I've taken an oath to never cook again, so I've required that I spend $2,000 a month eating out on food.
00:31:47
Speaker
And then scuba diving has a little bit of an expense, but I drive a paid off vehicle, but I'm saving for the next one. I have sex. I get paid to live where I'm at. So I don't have the housing. It costs of 4,000 a month comfortable. So if I got to 4,000 a month in cashflow, I absolutely would not retire because now you're not ready for a black swan and eviction moratorium ah going through some evictions, a prolonged government shutdown, a major health concern. And you'd be, you'd have that ultimate failure in early retirement of going back to work. So. The it's a sliding scale, I thought about with 4000 a month, a four times multiplier would give me absolute confidence to retire. So when my cash flow passed 16000 and it was about 17000 a month when I retired a little more than that. And it's like 21000 now because thanks inflation. But I need for when it passed 16 I kind of felt silly going to work.
00:32:39
Speaker
like like one of um my most My first kind of viral videos was I did a whiteboard of how much I make per hour or per day having rentals. so And I sat down after that video and and I looked at it and I was like, I'm i'm making $80 an hour if it's a 40 hour work week without going to work. why um Why am I actually at a job? And it was like 7.30 at night on a Sunday when I just got off my work shift. To do that video for youtube and i was thinking it's sunday it's seven o'clock tonight i'm at work when i'm here and a couple months later i retired. I'm in the sliding scale to me is if you need twenty thousand dollars a month to live comfortably.
00:33:17
Speaker
I wouldn't retire until you make forty so I would double the larger the number the smaller the multiplier you need. If you can live if you're gonna be an expat and live in a country where a thousand dollars a month will cover all of your expenses, I'd want a five or a six time multiplier before I comfortably retired because expenses are going to happen visa problems can happen all of these things that you want to plan for and. And it's kind of ironic that the failure in early retirement is everyone else's day to day. But I still want that, call it swan account, sleep well at night, knowing that there's more there's more than four times what I need coming in. So that yes, I'll plan for inflation, but I also invested in an asset class that benefits from inflation, right? right this is
00:34:00
Speaker
it's It's terrible to my biggest fear when it comes to recessions is not for that people who won the assets. It's not the landlord who people might not pay rent, right? You should diversify, keep reserves, don't over lever. Like there's strategies you can use. My biggest fear is for the person who only has that one thing, that drug that kills your dreams, that one paycheck. That's what gets impacted in a recession, not the assets. the ass you know We've had rough economic times for the last three years and my net worth tripled because of inflation. So you have these six steps to financial freedom with real estate. What are those six steps and can we go through each one as if you were talking to a newbie over lunch?
00:34:39
Speaker
Yeah. So I'll do the cliff notes version cause this could get nuanced. The first few steps are the same for everybody. And the last few kind of branch out depending on the path you choose. Cause there is no one right way to reach financial freedom, but there is a one right way for you. The first step when reaching financial freedom or just having a better financial future is learning how to save. Now I'm talking like a brand new person at lunch, right? So I'm not, there are people who understand the concepts I'm going to go over, but saving doesn't mean spending less. That's a mistake most people think we we associate the word save with spend less or buy it on sale you saved money. ah The most important step to saving is making more money.
00:35:19
Speaker
over time, side hustle, ah learn a skill to be more attractive to your employer to to get a promotion too. And Gen X like myself were kind of, longevity was rewarded with pensions in the past. Well, if you're a millennial or Gen Z, you've figured out that there's more money to be made by changing companies every couple of years. So sometimes to save more, you need to change companies and increase your income, right? Employers are willing to give more money to steal you from a competitor than they are to give you a cost of living raise every year. So we make more. and spend less. There's a combination there. So make as much as you can, save and invest the difference. So we're going to save. Step two, work on your credit score. Those first two years before that first duplex, or if you're going to be investing in stocks or anything, if you and improve your credit score, and when you buy a house or buy a car, you're going to get a better loan.
00:36:05
Speaker
which is going to reduce your payments increase the amount that you can save and invest so it doesn't matter the asset class that you choose to invest in a credit score is not going to hurt you. Several videos older gram stuff and older meet kevin great strategies on increasing you know the choice if i can read the camp five they've got some great. Information on simple things like reducing your credit utilization can do this to your credit score some simple things not changing your habits you can call your credit companies and ask for a higher limit. But don't spend any more on that card and that reduces your credit utilization and to improve your score. And for me, um I've got some memory issues. So I automate every payment. So I'm never the reason for a late payment. Everything that's possible is automated. So those first two steps, that's everybody. The third step.
00:36:48
Speaker
maybe not a stocks thing, but for real estate is you go talk to a lender, right? What are my options? This is when I found out I i didn't know what a debt to income ratio was. I didn't know that I had bad salary and low salary and high debt. And I didn't know about the two, you why did lenders want you to have ah the same job for two years? Why do lenders want you to have rental income for two years? What are they actually going to factor? Talk to a lender to find out what your options are. Once you know your options of step one save step to credit step three lender step four this is where you choose a strategy you might have entrepreneurial inconsistent income and conventional loans are not going to work so dscr seller based financing asset lending
Post-Retirement Insights & Strategies
00:37:29
Speaker
but you have.
00:37:30
Speaker
Until you talk to that lender to find out what your options are, you don't know. And then when you choose that strategy, this could be, I have a friend, Millennial Mike, who's a law enforcement first responder near the Seattle area, high cost of living area. So he house hacks in a high cost of living area, but he invests in Gary, Indiana at a distance. He's I think 31 or 32. Sorry, Mike, I should know your age. But he's got 27 rentals and he's only been investing since 2018, right? and He's just killing it at a distance. He chose at a distance over high cost of living. I think because he's younger and he likes the dopamine hit of I buy two or three properties a year and it's just going really fast. I liked one property every two years, but $1,000 in cashflow per unit. right So it's slower, bigger, harder to save the down payment. I chose my strategy. I want to invest locally so I can self-manage. You choose that strategy. I'm four steps in and I haven't done the biggest mistake most people make with real estate. I haven't talked to an agent. Your real estate friend who's a realtor,
00:38:25
Speaker
What are the love to talk real estate but they don't want to spend a lot of time with this their job i don't want to invest a lot of time with you until. You know you can save you gonna need reserves down payment closing cost even if you do a zero down on the you're gonna want reserves. Things are gonna pop up they don't really want to talk to you until you've got your credit score somewhat manageable and you've gone to a lender to know what your options are right. Let me set up your search for you as an agent, but how high can you go? Do you just want to waste all my time looking at million dollar properties when you're qualified for 300,000? But once you've gone through all these four steps of choosing a strategy, knowing your options, step five is when you set up your searches. This is could be through real estate agents, could be driving for dollars, could be like the real Jesse Lee who does 5,000 mailers a month and has a great strategy for that. You've got all these ways now in step five. For me, it was two or three agents.
00:39:14
Speaker
with auto searches and I never take up their time, right? If you're working with one agent and they're going to be showing you properties, they should sign an exclusivity agreement so that you don't waste their time. But for me, it was just, I meet somebody, I say, here's what I'm looking for. Can you set up a search? They set up the search and I say, if if if you send me something I like, you'll get the commission, right? Dance with the one who brung you. And so I have those searches set up. And then i step six, Is run the numbers on deal after deal after deal and it should take sixty to ninety days to learn a market right don't don't jump in and buy a deal because if you're in california and you look at a deal. In idaho and it sounds amazing cuz you've got california money san diego money and you're investing in idaho and these numbers look good.
00:39:55
Speaker
And you call an agent in Idaho, they're going to show show you a deal that looks amazing. That every local investor passed for a reason. 60 to 90 days to learn what those reasons are. And then you got to learn how to run the cashflow. And so many people focus on, oh, what's my yield? What's my cash on cash return? That's, that's the thing we focus on, but math is a step. For me, it then goes down and I'll just do this, the shortest version of possible. Is it at least 10 miles from my other properties? I'd prefer side by side, small multifamily to over under because you have less noise complaints and that plumbing issue only affects one tenant instead of two. I want two or more bedrooms with a garage because more space means more stuff. I want fenced yards. I want washer dryer hookups in the units because anybody using a shared laundry or laundromat is waiting for a place to open up. Like I go through these, this list of things of what I'm looking for. Once I have that down, looking at properties takes me less than 30 seconds.
00:40:44
Speaker
learning the skill to look at properties took me years. And so I do members only on my live stream on my YouTube channel where we get in and we go, we just look at this super boring. We open an email, we look at a property, we take 45 minutes to go through every logical step of Here's the math. Here's the yield. This is the things to consider. Is there an HOA? Would we need flood insurance? Like how is this going to impact the numbers? But then we go through physical aspects of the property. Then the physical aspects around. Is it next to a water desalination plant where you're going to have smell? Or is it Lacey Washington had a mushroom plant where the the rents were suppressed, property values were suppressed, but the mushroom plant was losing the lock suit and had to move. So I purchased a duplex there. And two years later, a $300,000 duplex became a $700,000 duplex. and
00:41:28
Speaker
legal insider trading happens when you know your criteria and you've studied your market. It's really those six steps to get started. And at the 12th year of investing being retired, I'm saving. I keep my credit score up. I check in with lenders to see things like November 18th, 2023. They came out with a new loan product where you can buy a duplex triplex or fourplex with 5% down that changed triplex and fourplex without having to go FHA. i now I can continuously adjust my strategy. I i so said those two things shifted to find my most real recent deal that happened there. Fifth thing, I have my my funnels, my agents with my searches set up and sixth, I keep looking at deals. So starting out today,
00:42:09
Speaker
six steps to getting financially free in real estate. 12 years in, retired for two years, financially free, rinse and repeat. It's kindergarten. It had to be kindergarten simple. You were in the Navy. I was in the Marines. I've actually got in the Marines in the Navy. You guys had MREs. You didn't eat very many on your ships, right? But I've got Marine Corps crayons ready to eat. My investing had to be simple for it to work for me. And so I came up with six very simple steps that even I was able to follow through with. All right, so let me go back and I just wanna rehash these ah or repeat and just mention these six steps again. Number one, learn to save. Number two, work on your credit score. Number three, talk to a lender and determine your options. Number four, determine what strategy you think is gonna work for you. Number five,
00:42:57
Speaker
ah select two or three agents and get on the auto searches, emails, and number six, run the numbers to make sure they're a good deal. And then and then repeat. So here you are, you are retired, but you continue to go through those same six steps yourself ah whenever you're considering adding another property to your portfolio. Yeah, it's it's not my goal to add to my portfolio, but here's the problem that I'm hoping everybody that's watching that actually takes action gets to. you The money keeps piling up and you have to do something with it. I'm not a stocks guy. I don't like retirement. There's three people who get rich off retirement accounts and none of them are the people who have the retirement accounts. So so i yeah I don't need the money and i I didn't invest with the goal of generational wealth, right? My kids will inherit millions, but I don't want them to think they will. Other words, I'll take away their motivation to be successful themselves.
00:43:47
Speaker
So I will be creating more generational wealth that at some point I might choose charities. I might you know create a trust or several trust for my kids divided up. and the The most important thing we can do for our kids is not create generational wealth. The most important thing you can do for your kids. is to take care of your personal finances so you don't become a financial burden to them when you're too old to work because that's going to happen to all of us at some point. And that was my goal. Get the real estate in so that my kids aren't taking care of me because when I get old enough to where I can't take care of myself, I want a paid professional. I saw how it worked out with my kids and pets. I don't want them trying to take care of me.
00:44:21
Speaker
So that's my goal with real estate and there are several different exit strategies that I've considered I've got neighbors across the street who I need to ask they've never given me permission to share their names but they had 11 rentals right and and they've been retired for a while but they're older than me now and they're off learning their rentals and buying dividend stocks and at a certain age with enough appreciation you don't even need the 1031 people are so worried about taxes I. in ten years i haven't paid a penny in rental income tax not yet because of depreciation lever depreciation and how the tax system works it benefits you to own real estate. But i look forward to paying taxes and it's not because i want to be altruistic or anything like that the big word for marine i think i even use it right. I look forward to paying taxes because it means i made so much money that the government gets some.
00:45:08
Speaker
So if somebody works a 1099 job, you kind of live in fear at the end of the year, you've got this tax obligation. So you have to think, did I set aside enough? That's not the way this works. When you sell off real estate, you, the title company in your CPA, you work it out to where the taxes are gone at the point of sale. So you you sell the price place for a million dollars. Yeah. You're going to pay two or 300,000, maybe even more with full depreciation recapture in taxes. But you gotta check for six to eight hundred thousand dollars when you set sold that property. 1031 is the best option. and I haven't sold anything yet. If I do, it would probably be a 1031. But the way they're offloading and buying dividends, I think paying the taxes is actually sometimes it it would be okay with me. You've been retired for two years. What has life been like for you after two years of retirement from traditional work?
00:45:56
Speaker
So this isn't just me not being really good with the English language. This is the English language, not having words that are strong enough to say how great it is. You hit three years recently, right? So I did. yeah You have to admit no alarm clock, no boss. No, the the amount of stress that we don't think we have. I was demoted down to president of the company. I had control of my schedule. I got to control the direction of the company because it was it was doing well. And I would have told everybody, this is the best job ever. like I could do anything I want at all times and I'm making great money now finally. And then I retired and I realized there was a mountain of stress.
00:46:28
Speaker
Every single employee was reliant reliant on me to make sure that there was work so they had a job. Every student was relying on me to make sure that there were employers that wanted every company we worked with was relying on me to find enough students to satisfy their driver's need. Everything was a battle with a state agency and I thrived in it. I was good with it, but I feel like I lost 10 years of age when I walked away from the job. This is what I learned. You know, a day in the life of a retired person, there's no definition of it because you can do anything you want. And some people say you don't retire to do nothing. You retire to do anything and that didnt means anything. And so to prepare for being retired, I started taking, you know, I did a month in Columbia, a month in Thailand.
00:47:09
Speaker
two months in Florida, and scuba diving in all these different places. But I learned this, this theory, week one versus a week. When we take vacations, most of us get a week, maybe two, right? If your company will let you take two off at the same time, but you have travel time, you have that list of things you've Googled Cancun things to do. You've Googled Thailand, where to go. And and you so like you have the first week you go and you Play with the tiger swim with the elephants zipline ah you scuba dive you go to the three day full moon party all that's in the first week and now you've got these three weeks left right so week one is you do everything that you you were waiting to do because you didn't have the time the next three weeks. I learned that you don't ever plan a whole day.
00:47:51
Speaker
It's not the point of being retired you plan a thing for each day so that every day had something you didn't know that could be going out with a friend. ah Go to a movie find the axe- throwing place in your local area do you know how far it is to the most close one by closer than you think. If you could be bowling, it could be scuba or whatever, it's that one thing and then the rest of the day is what happens. but My friend Michael Zuber from One Rental at a Time often says, every day is Saturday. I say every night is Friday night and it could be playing World of Warcraft, gaming with my son who's still, that's how we communicate still. It could be, i I sleep at least eight hours a day, it's never in a row, right? You could take a nap whenever. This is what retirement is like is you have time freedom.
00:48:37
Speaker
andll i'll I'll wrap that up with this is the math of time for being retired early and why you need to retire early. An average person sleeps eight hours a day. An average person works eight hours a day. Now, I was almost always 10 to 12 hours, if not more a day, but we'll say eight to be fair. Then you commute it. I commuted an hour each way, but a lot of times it's 30 minutes. So you have an hour commute every day. You have to shop, cook, clean dishes, laundry. The average person gets a around four or five hours a day. That's theirs. And you're exhausted. That's your four hours to live your life versus being retired. Now I still sleep eight hours. Like I said, never in a row.
00:49:16
Speaker
I still shop, work out, well, I shop Amazon. I don't go into stores. If you take out Lowe's and Home Depot, I haven't actually been in a store in a decade, but I still, you know, clean up the house. That's kind of, so I lose some time. I get around 15 hours a day. So average person has five. I have 15. I've tripled the amount of life in my years instead of trying to add years to my life. That's why people should retire early. Well, I appreciate you sharing your inspiring story, retiring with real estate in under 10 years or right at 10 years. And you did it overcoming a lot of debt. You had some personal hardship.
00:49:53
Speaker
You've had some professional hardship in your past, which resulted in some physical and emotional hardship. All that stuff carried forward. You had your own challenges, but you overcame those challenges and you are able to retire unlike so many and enjoy those 15 hours a day. So congratulations and thank you for taking the time to sit and chat with me and thank you all for watching and listening.