A few months ago, I had this weird little “thing” happen. I thought, “Hmmm, that’s odd”, bookmarked what I was reading and moved on. About 6 weeks ago, I had another “thing” happen, and after some discussion with my wife we kind of moved on. About 3 weeks ago, I was on the verge of a life event that made me think of finances in a new way. About 10 days ago, I published my alternative income update and I started to notice a pattern.
And recently, a cartoon sealed the deal. Let’s enjoy that cartoon before I clarify all that boring stuff in the last paragraph:
I used to think Teen Titans Go! was just really weird. Now I realize it is awesomely weird. In around 90 seconds, someone could learn more about real estate investing than 90% of the population.
If you didn’t get it from the title or from the cartoon: I’m starting to get excited about real estate investing again.
What I was Reading
I’ve been following Rental Mindset from its very first post. As you can tell from the website, Brian thinks a little differently than many people about their path to financial freedom. Most seem to take the path of acquiring stocks and mutual funds to build a nest egg over time. Brian may be doing that as well, but Rental Mindset shows that much greater returns are possible.
Many people don’t like the idea of being a landlord (including me). However, he shows that with turnkey properties and property managers, it doesn’t have to be a ton of work. Specifically, he’s been writing about how we finds a turnkey rental property and how he recently bought another one.
The following thought crept into my mind… what if I streamline the management of these rental properties? If, and this is a big if, that were true, adding another rental property would be much more feasible.
The Discussion with the Wife
I get the feeling that my wife is getting frustrated with work. Well, it’s more than “getting the feeling”, but I’m trying to be diplomatic. All careers have their ups and downs, right? About 6 weeks ago, my wife had a down around the same time that we were taking a vacation at a beach.
It’s not to hard to figure out which way the work/life scale tipped. It’s natural for people to plan their escape from their cubical in such situations. It’s probably 10x more natural when your spouse has more or less done that.
It is worth exploring whether adding to our rental properties would speed that escape along. My initial thought is that it would not. While we might have a a lot of passive income in 10 years, I can’t see how adding more properties now would speed that up. I’m not giving up on the idea though.
Before you think I’m evil for not taking the corporate job, I’d love to switch places. However, my wife is 90% of the way to a sizable military pension. The golden handcuffs don’t get looser for a couple of years.
I Thought I Might Get a Windfall
There were some rustlings that a windfall might be headed our way. That fell through almost as quickly as it came. For a few days though, it was fun to imagine how I might invest the money. Adding a rental property wouldn’t be the worst plan. However, since this hypothetical thing didn’t happen, I have to move on. I feel like I had already “mentally” acquired the money, so to a degree, it is difficult to imagine it never happened.
The Pattern of My Alternative Income
Each month, I look at how much income my investments should give me. If you are looking to get $25,000 a year from dividend stocks paying 2.5%, you are going to need to have one million in that brokerage account. My wife and I have been diligently saving in our Roths/401Ks/TSPs for nearly a decade now. We usually max out our contributions. The markets have been doing quite well. We aren’t at a million and we really aren’t all that close.
That’s not to say it is “a million or bust.” I’m just picking nice round numbers. I can see the amount of money we’d make from those hypothetical 2.5% dividend stocks grow each month the market grows. However, it only grows a relatively small amount.
I also calculate the percentage of profit we’d get based on the equity we have in our properties. The mathematical explanation is too long here, but the link a couple of paragraphs up, explains it well. I’ve been seeing this number jump a lot more throughout the year. It feels like real estate is actually beating stocks. My guess for why this is happening is that our properties are getting more valuable while the tenants are paying down the debt. We also have the benefit of leverage.
I think our investment in rental properties has been quite a bit lower than what we’ve poured into our retirement accounts. That small fraction of an investment has slightly surpassed what I expect to make from stock investing. Again, it’s not nearly as passive, but it definitely seems to be a plus
Conclusion
While I’m getting excited about buying another rental property, it won’t likely happen. If that windfall did come through (again, it didn’t), we’d think about investing it in a way that got my wife to retirement faster. Adding another 15 year mortgage is probably not going to get it done.
Very Superb Article.
Thank you KC
Thanks for the shout out. In fact, I think you were the very first comment on my website!
I do think about it slightly differently than most. But I am also very far away from ‘retiring’ in the classic sense of the word (I have already retired in the sense that I work for myself, and not just chasing the highest paying thing). I want more people with 2-3 decades of saving/investing left to think about fully leveraged rental properties. With a 5-10 year outlook, the advise should change. I still think real estate can be a big part of it though!
Assets enter trends. Right now, you might be seeing real estate eclipsing gains of your other assets. But that might not be the case if you look at other periods in time. I still go back to 2008 when everything was going for firesale prices. Surely it will happen again in our lifetimes? If so, then that would be a good time to add to a portfolio granted we have some powder to put to use. I’m also terribly curious about this windfall you speak of. :)
As long as the oil prices keep low, we cannot expect another downfall like 2008. The unrest in the Middle East is going to keep the oil prices down, due to which you should make investments wisely. Don’t keep money in the bank, rather invest it in a business, or even engage in ‘buy and lease back property’ activities.