In my early 20s (age 22 to be precise)
I somehow got approved for financing on two positive cash-flow investment properties in a major Canadian city.

At age 25 I added another, and at age 26 yet one more. Now I am 4 properties to the good, loan to value less than 50%, average interest about APR 2.65% (mix of 5Y balloon fixed and floating), and my 42 tenants provide enough inflation-indexed net income to pay for the kids college education in perpetuity (they are aged 1 and 2 now, so we are lucky to be ahead).

Oh by the way, I (still) work in the financial industry by choice. The plan is to wear these golden handcuffs a bit longer, at least until my mortgages are completely discharged (debt deflation is still a risk scenario for us).

I am not an expert stock picker (my field is fixed income trading) so I am going to pay off my debt first before pursuing equity investment. In the long term this may be a bad idea however I think that working in a bank means that I have more implied equity exposure than I need already just from my job.

Being frugal to me (our family’s annual expenses are currently about 40-50k) also means holding on to this well-paying bankster job as long as the opportunity cost is significant! However, for the kids’ sake I would like to gradually increase the time I spend with my family in the coming years (I am 27 now, with phased-in retirement hopeful by my mid 30s)

if you think that structures don’t depreciate in the real world, i’ve got a bridge i’d love to sell you.

1 plex eventually buys another plex, which buys another. At some point you choose to stop, but multiple plexes is just added security. I think 3 plexes is probably ideal, and a prop management company takes the responsibility for everything @ 10% of the rents. The profit then gets split for your normal housing and re-investment.

When all assets are paid, selling the unit is possible to maximize even more.

Anyway, you are correct in that “retirement” is a misgnomer in the way the term is traditionally used. The idea of doing nothing meaningful for the rest of my life and living the “pro-leisure circuit” does not come anywhere close to my definition of fulfillment or happiness.

I find leisure most satisfying when it serves as a break from meaningful work. I work a lot during the winter months when my kids are in school and take summers and holidays off. For example, last spring I wrote 4 months of posts to cover the summer and didn’t touch the business the entire summer vacation. I typically take about 3 months a year off and work roughly 9 months. That is about the right mix for me.

Retirement (in my opinion)is really just another form of financial freedom. It means you can choose what you do based purely on your desire and not on your financial needs. I don’t use the term retirement in the traditional sense. I think of it as retiring from the work-a-day world, but not retiring from active productive involvement in the world. I reserve the latter for the time when my health has failed.

So anyway, I’m retired in the sense of not having to work, but like Jacob, I’m very motivated by my blogging work, the education it provides, and the feedback I get from my readers. It is meaningful work. It is a way to contribute and hopefully make a positive difference.

Hope that clarifies.

Is retirement a misnomer, where you are just retired from one job, but are simply doing another one that’s more to do with the internet?

1: Do it when you are young. You won’t reduce your lifestyle to do it since you likely live in comparable housing and you will build management and maintenance skills (along with equity) that will serve you for a lifetime. It will also allow lots of time for long-term inflation to work its magic and give you many years to enjoy the income from the property after it is paid off.

2: Real estate is essentially a leveraged play on inflation which is the dominant economic environment 90+% of the time. That is why real estate rarely goes down. A purchase at the tale of this deflationary credit bubble (1-2 years from now) would likely provide a low risk long term entry point.

3: Buy it with fully amortizing fixed rate financing. This fixes your single biggest expense – interest. As inflation returns the financial leverage means you can build wealth in real terms despite inflation. It also causes operating leverage which creates ever increasing cash flows (assuming you bought positive cash flow to begin with) as your interest expense becomes a decreasing proportion of your total outflow.

4: The net result is it produces an inflation adjusted income stream you can never outlive.
For example, if 10 apartment units are sufficient to support your lifestyle today, they will likely support your lifestyle 50 years in the future.

It doesn’t matter if the dollar goes to zero or the currency is replaced with the Amero or any other nonsense. Your apartments will get priced at a certain percent of a workers income and you as the owner receive that income through inflation, deflation, currency changes and everything in between. There are very few investments that offer that feature and security.

Anyway, there is much more to this discussion than a blog comment can provide. I just wanted to give you an idea that the analysis goes beyond what you can buy and rent it for today. That is the starting point of the anlysis, but it is not the point of the strategy.

Hope that helps…

My $500k scenario was pulled from a hat. I had no idea of what real 4-plexes cost, but that seemed like a reasonable number to begin with (provided one isn’t in SF or NYC).

The $190k scenario is just an indication of what’s available in the real world (incidentally, I later searched for rents in the Astoria area and discovered the lowest rents are $400/mo, so one could profit handsomely if motivated and the building doesn’t need too much repair!).

So, assuming that you live in one unit, and assuming that all units are similar and the rents reflect legitimate market rates… If you put 20% down, you’re getting a “free” $800/mo apartment or $300/mo apartment.

For the $500k scenario, you put in $125k, and get a free $9600/year apartment. Alternatively, if you invested $125k in some other fashion and net 7.7% after taxes, you’ll get about $9600, which you could use to rent an $800/mo apartment. If you own the 4plex, you’ll spend some time managing and maintaining the place. If you rent, you could spend the same amount of time earning money in some other way– it’s work either way, right?

I’m not trying to argue that people don’t make money by buying and renting 4 plexes, because certainly many people do. And, for some people it is a great choice– particularly if you already know how to do a lot of maintenance type things.

For me, I think that other people will pay me more in my current capacity than I will earn by maintaining a 4 plex. But maybe if I trained myself in the right things, and started in my 20s, things would be different.

There certainly are many different paths to the top of the mountain, and I did really appreciate this post for pointing out what Todd had figured out over his career– valuable knowledge.

PS- the complex I rent at recently sold (asking price was $18.3mil, 148 units), the proforma cash flow before taxes was $625k.

Good news: Inexplicably, the structure (not land) is considered a depreciating asset for tax purposes, so you can amortize this out as an annual loss. This, in combination with the myriad other deductible business expenses, means that a rental business could show a paper loss despite being cash flow positive. If you use a flow-through business structure this loss lowers your personal taxable income.

Bad news: The whole thing should really be treated as a proper business. That means you need to incorporate as a business, have a separate bank account, pay an accountant to do your taxes, take delinquent tenants to court, carry liability/litigation insurance, stay apprised of and comply with all the relevant laws and ordinances, and so on.

It’s certainly doable, but it’s not as simple as buying a property and waiting for cash dividends. I don’t have any firsthand experience because so far I’ve had other opportunities with more appealing income/effort prospects.

Just for kicks, I went looking on rmls.com for 4-plexes a few minutes ago. Found one in Astoria, OR for $190k.

If you put $50k down, the mortgage is $794. That means 3 renters could each pay $300/mo and you’d be covered. I think $300/mo would be below market in Astoria for studio or 1 bedroom, but I could be wrong.

I do wonder if a 20-something buying an apt building would even be something a bank would consider in this tigher-lending environment, however. I would imagine you’d have to have significant outside income to qualify. Nonetheless, it is a decent strategy.

So, he works long hours now for an income stream in the future, and perhaps less responsibility if he farms out some of the work, but also less income…

Meanwhile I work long hours at my job, which earns me raises, promotions etc… as the years pass my job gets easier and I earn more, allowing me to save for the same amount of passive income that my landlord friend earns.

I don’t know if I’m convinced that we’ll end up at very different places…

I’ve been working on developing a business over the past few months as part of my plan to reach financial freedom and I can see the differences.

Maybe it’s my current mindset but I’m in my late 20s and couldn’t even fathom buying an apartment building. I have no qualms that it is a good investment – especially in my city with a 1% vacancy rate but I just don’t like taking on debt.

Would you really have taken on that much debt or is this the kind of advice that you would have done then if you had the knowledge/resources that you currently have?

Re the buy an apartment building, possibly doable in the US, but over here in the UK such an apartment building would cost millions, if not tens of millions, you have to be careful where you buy and what the type of residents you get. If you are aiming at young professionals then fine, but you need big money to buy the building, very risky buying cheap building in undesirable area, you need people who are actually going to pay their rent.

Hmm.. Work for a hedge fund and learn how to invest wisely.. Save lots of money.

then buy an appartment building with all the money you save.

Then sit back and relex as your investment grows.

Simple.