Retire Early With Real Estate: How Smart Investing Can Help You Escape the 9-5 Grind and Do More of What Matters

INTRODUCTION

If you have built castles in the air, your work need not be lost; that is where they should be. Now put the foundations under them.

—HENRY DAVID THOREAU

Beginnings

Welcome to the Book on Real Estate Early Retirement! The primary purpose of this book is to help you retire earlier and more confidently by using the fantastic tool of real estate investing. Look at this as your step-by-step guide to climb the mountain of an early retirement (aka achieve financial independence) using real estate.

The early in the title of the book could mean 30 years old, 45 years old, or 55 years old. Or it could just mean sooner and more comfortably than you would have otherwise. And the retirement in the title could mean a point where you stop working. Or just as likely, it could mean a point where you no longer need to work for money, yet you continue with a job, a business, or projects that you love. That second idea of early retirement has been my own personal preference.

Whatever early retirement means to you will work just fine with the content of this book. But before we get into the nuts and bolts of a real estate early retirement, I want to share with you my bigger reason for writing this book. The book is about more than real estate investing and money. It’s actually about life.

My Motivation to Retire Early Using Real Estate

I chose to begin investing in real estate as a full-time entrepreneur at 22 years old right after college. Looking back, I now realize why I made that choice. I was afraid of giving away my independence, my flexibility, and my ability to create a life that mattered to me.

It wasn’t that I was afraid to work. I actually love working on interesting and meaningful projects. The issue was freedom. My particular career options—working for a big company or going to medical school—basically gave control of my life to those particular career paths for a very long time.

Have you discovered the same lack of freedom in your career? Do you feel like the need to work for money really controls your life? Even with a job you enjoy, wouldn’t it be better if you had the wealth to work on a schedule and on terms that you choose?

Because of that initial motivation, I began investing in real estate as a career. And over the last fifteen years, I’ve used it to pay my bills, build wealth, and eventually create passive income streams that replaced my need to trade time for dollars. Real estate investing and the wealth it built have given me control over my life.

And that’s exactly what I want to help you do with this book. Real estate investing is the vehicle. And taking control of money and your life is the destination.

Put Money in Its Place

So, my goal with the book is to help you put money back in its place. And its place is not at the center of all your decisions. Instead, I would love your values, your friends and family, your personal goals, and your life aspirations to guide all your decisions.

Instead of working eight- to ten-hour days just for money, I want to help you spend eight- to ten-hour days on projects that fire you up in the morning. If these projects still pay you money, fine. But if they pay you little or no money, that’s fine, too.

The projects could be about contributing, like spending more time raising your kids or helping those in need. They could also be about doing things purely for enjoyment and growth, like traveling or learning something new. Or they could mean continuing to pursue a career or business you love.

The difference will be, as Warren Buffett says, that you’ll tap dance to work every day because you’re doing it for love and not for a paycheck. And if someone or some company changes the rules of work in a way you don’t like, you’ll be free to walk away.

I hope all of that sounds good to you. But I realize that the grind and hectic schedule of a career may have made it difficult to think about life after mandatory work. What would you even do with your life if you didn’t have to get up every day and trade your time for money?

To help spark some ideas, I wrote the Money-Life Manifesto, which is about how to stop selling out for money. I originally published it on my personal website, but I felt it was important to include it here.

The Money-Life Manifesto: Do What Matters

Ancient Greek philosopher Aristotle once coined the term The Golden Mean. It suggests that any virtue can become a vice when there’s too much or too little of it. For example, courage is a virtue. But too much courage makes you rash and foolhardy, and too little courage makes you a coward. This manifesto is about the magical middle ground of money. You could call it the Golden Mean of Money. Here is how I see it:

The Golden Mean of Money is a place where you don’t emphasize money too much or too little. It’s about winning with money, and then using the resulting freedom to do what matters in life.

The True Cost of Living

Here’s a life-changing question to ponder:

If money were no obstacle … if you had all the money in the world, what would you do differently in your life?

In other words, is money keeping you from something? Is money an obstacle to something important? After thinking about it, some of you will say, "Absolutely! Money is a huge obstacle." Still, some of you will have to dig deeper. You might be comfortable with your life. At the moment, nothing seems wrong that money can satisfy.

Some of you might also point out that amazing world changers in the past like Mother Teresa, Gandhi, Martin Luther King Jr., and others didn’t worry too much about money. It wasn’t an obstacle for them. Or was it? Did their famous causes require money and other resources? Of course, they did! And while it’s true none of them were rich or were obsessed with money, they certainly knew enough to use resources, including money, to further their true missions in life. Money was a tool.

So I respectfully ask you to get uncomfortable and think. Step out of your normal life, and step into your imagination. What would your life look like if you could create it from scratch? What would your ideal life look like if money were not a primary concern? I suggest you actually do the exercise of taking out a pen and paper and answering those questions for yourself. This is one of those exercises that can change your life.

A Life That Matters (My Definition)

Another way of asking this is: What does it mean to live a life that matters? I have asked this question a lot. I have asked myself, and I have asked others. The answers I received may sound familiar to you …

Sleep more. Relax in the morning. Sit on a rocking chair.

Learn something new. Be impractical. Explore.

Visit amazing places. Go on adventures. Hike trails. Ride a bike again.

Unplug from the matrix. Do work you love. Buck the system. Say shove it to the man.

Raise your own kids. Play silly games. Help with homework. Spoil your grandchildren.

Plant a garden. Grow your own food. Eat healthy. Exercise.

Slow Down.

BREATHE.

Pursue your passions. Volunteer. Listen to people. Make an impact. Advance your cause. Create your art. Write your story.

Get OFF the 9-to-5 treadmill.

STOP selling out!

DO what matters!

Do any of these resonate or excite you? If so, you already know the recipe for a life that matters. The real question is what is keeping you from doing it right now? Is it because you’re too busy working? Do you have too little money in the bank? Are you stuck making monthly payments? Do you need more security? Is it because you’re afraid?

For most of us, money seems to be directly or indirectly part of the problem. It’s not the goal itself, but it is preventing us from achieving the goal. The good news is that you are still in control. Money is a tool. It does not have to control you. You can learn to use and master money. And in case you’re wondering, that’s the point of the rest of the book!

Early retirement is just the term I’ll use for taking back control of your money and your life. And real estate investing is one of the best methods to do that. I’ll show you how in the chapters that follow. But before we jump into that, I want to tell you a little more about me and why you might find my perspective and advice helpful.

My Story: A Sprint up the Real Estate Mountain

As I said earlier, I graduated from college and decided to jump full-time into real estate investing. This is not a normal path, by the way. Most real estate investors I know began part-time while working another full-time job.

I began my real estate investing with a business partner, and we still actively invest together, fifteen years later. Our business started slowly our first two years, and we made very little money. In fact, I lived in the spare bedroom of my business partner’s small house to save money. We ate a lot of inexpensive ramen noodles for a long time (and loved it).

Eventually our original business of flipping houses (i.e., buying and quickly reselling properties) began to succeed. This allowed us to pay our bills and pile up some cash savings. I even moved out of the spare bedroom and got my own property (a four-unit apartment building, which I’ll explain more about in Chapter 11 on the House Hacking Plan).

We also started buying a few rentals. Over time, rentals and other income-generating real estate investments became our main strategy. We used these investment properties to generate regular monthly income and build wealth. Eventually these investments also replaced our need to work as hard flipping houses to pay the bills.

But our path was certainly not straight or without challenges. Five years after starting our business, we grew (sprinted) and bought a lot of properties. But this was probably the worst possible time, right before the 2008–2010 Great Recession in the United States. Luckily, we had not spent much of the money we had made before that, so we had cash savings to draw on. And we needed it.

In addition to having costly rental turnovers because many of our tenants lost their jobs, we also faced costs from mistakes we made during our sprint. Basically, we bought some properties that we shouldn’t have. Some were in bad locations that did not attract ideal tenants. For others, we underestimated up-front repairs and rental expenses. And all of this led to negative cash flow that drew upon our cash reserves.

But we worked hard, adjusted strategies as needed, and lived inexpensively. As a result, we made it through. But the difficulty of overcoming this challenge taught us an important lesson that helped to shape all of the advice you’ll get in this book.

Why Massive Real Estate Empires Aren’t Always Better

Our growth in real estate investing moved us up the financial mountain to higher altitudes. In the end, we had more properties and more money coming in. But we also had more risk, more hassle, and less time. The mistakes we made caused us to pause and reflect.

We realized that big real estate empires aren’t always better. We had modeled ourselves after other real estate investors who had big goals to own a lot of properties. But we hadn’t really thought about our own personal life goals.

We hadn’t asked important questions like the ones I proposed in the Money-Life Manifesto. We didn’t focus on the actual activities and schedule that would make us happy. And we didn’t build a real estate investing portfolio that served our personal goals.

We realized that getting bigger and growing faster brings problems, too. I look at it like trying to control Frankenstein’s monster. Frankenstein is the famous fictional story of a scientist who created a person from scratch in his laboratory. But his creation took on a life of its own and became an angry, uncontrollable monster.

In real estate investing, we also create a new entity—a business. It’s possible to build systems, outsource everything, and tame the monster so that you still have a passive big business. But it’s not easy! And when it doesn’t go well, the oversized business monster can gobble up all your free time and your money. In graph form, this business creation and growth cycle looks like this:

Business Life Cycle

The Danger Zones are where real estate Frankenstein monsters attack.

The growth spurts of this graph are the steep inclines. These are the Danger Zones. This is when you, the business owner, are most susceptible to cash crunches, dramatic market crashes (such as the 2008–2010 Great Recession), people problems, and even personal burnout. These Danger Zones are where the Frankenstein monster rears its ugly head. You can win against the monster; just be prepared for a tough battle.

But the point of telling you my story isn’t to scare you away from growth. After all, any worthwhile destination involves challenges and risks. My point is to help you decide the purpose of your growth before you start. That way you can build a real estate investing portfolio that serves your goals instead of serving growth for growth’s sake. This process involves finding the sweet spot of your real estate investing business.

Real Estate Investing Sweet Spots

You as an entrepreneur have to decide where on the business life cycle graph you want to end up. You have a virtually endless choice of plateaus that you could aim for. The sky’s the limit in our economic system.

But again, your choice will depend on your personal financial goals. And your choice will also depend on your willingness to take on the risks and hassles of the perilous climb up to higher economic ground. The reward at the top better be worth the sacrifice of the climb (and the fights with Frankenstein’s monster)! Unfortunately, plenty of people have arrived at the top of gigantic financial mountains only to realize they lost everything they really wanted along the way.

The key is to find your personal business sweet spot. As you’ll see in the graph below, I’ve marked two different sweet spots (although there are an infinite number in reality). One is smaller (fewer assets, fewer employees/ team members, less money), and the other is bigger (more assets, more employees/team members, more money).

Business Life Cycle

Smaller or bigger business sweet spot? It’s your choice.

Both sweet spots are beautiful, level plateaus where you’ve increased income while also gaining efficiency that frees up your personal time and reduces hassle. The bigger sweet spot has more money earned. But nothing comes without a cost. You must make the choice if bigger is worth it for you. And that choice may come down to the concept of enough.

A Place Called Enough

One of my favorite personal finance books is Your Money or Your Life by Vicki Robin and Joe Dominguez. In the book, they share a graph called the Fulfillment Curve. Here’s my drawing of what that looks like:

THE

Fulfillment Curve

Source: Your Money or Your Life, Penguin Books, 2008

While the authors shared this as a personal finance concept, it also can apply to a real estate investing business. As you move up the curve, you pass milestones like survival, comfort, and even small luxuries that make life sweeter. But you finally arrive at a place called enough, the peak of the fulfillment curve. In terms of happiness, it doesn’t get much better than this.

But as you continue moving past the peak of the curve, each subsequent amount of money you earn and spend has diminishing returns on your personal happiness. This occurs because all of the extra above and beyond the peak fulfillment carries clutter, complexity, stress, and hassle with it. Later in Part 3: Preparations for the Climb, I’ll offer some specific ideas and exercises to help you get clearer on what enough means to you. But for now, just know that you don’t have to build a massive real estate empire to live an amazing life. Owning two, ten, or even fifty real estate investments could all be appropriate, depending on your goals.

Success does not mean getting bigger or earning the most money. Success is when money and your investments support the life you want. And you are the only one who will know what that means.

Following most chapters, you will see a profile of real estate early retirees I interviewed for this book. These will give you an idea of the real numbers and stories of people who’ve actually used real estate investing to retire early (or who are on the verge of retiring early). There are a variety of different starting points, perspectives, and styles of real estate investing included in these profiles. I hope they’ll inspire you for your own journey. And in order to let you know my story a little better, the first profile I’ll share is mine!

PROFILE OF A REAL ESTATE EARLY RETIREE

CHAD CARSON (yes, it’s me!)

Coach Carson (coachcarson.com)

Location: Clemson, South Carolina

My Favorite Quote:

Keep life simple. Getting to financial independence by chasing huge expenses is a losing game.

WEALTH-BUILDING STATISTICS

•Profession/Career: Real Estate Investor

•Income During Wealth-Building Phase: $75,000 to $99,999/year

•How Big a Role Did Real Estate Play in Wealth-Building? Primary

•Primary Real Estate Strategy(ies): Long-term hold rentals, short-term hold rentals, fix and flips, private lending/notes, self-directed retirement account

FINANCIAL INDEPENDENCE STATISTICS

•Age at Financial Independence: 36 to 40

•Annual Expenses in Retirement: $30,000 to $50,000

•Ideal Number of Rentals in Retirement: 20 to 50

•Primary Source of Retirement Income: Rental Properties

•Secondary Source of Retirement Income: Interest from private mortgage notes, side hustles/part-time work, private business, Social Security income

•Ideal Debt Level of Real Estate Portfolio: Less than 25% loan to value

____________Q&A____________

Q: Can you explain in more detail how you built your current wealth?

I began my career flipping houses with a business partner. Sometimes we found deals and quickly resold them for a small markup. Other times we fixed them up and sold at full price to make a bigger profit. We used these deals to pay the bills and save some money for long-term investing. Later we bought rental properties, both short-term holds and long-term holds. We used something like the Buy-3-Sell-2-Keep-1 plan to sell excess properties and pay off some of the remaining ones. We also created our own seller-financing notes and invested in a self-directed IRA (primarily in private notes and tax liens).

Q: What were the biggest obstacles and setbacks during your wealth-building stage? How did you overcome or push through them?

My career and investing were closely tied, and this was probably my biggest challenge (and strength). It was challenging because I was always focused on survival and paying the bills, so I sold some good long-term hold properties that I would like to still have. And the real estate downturn in 2008–2010 was tough. But in the end, my career as an investor gave me many opportunities to also build wealth using real estate as a tool.

Q: What’s your No. 1 best tip for those looking to build wealth with real estate investing?

Always focus first on your savings rate. You can’t retire early without saving a lot of money. Then invest in simple assets you understand, and do it consistently and persistently. You won’t be perfect, but disciplined savings and investing will win in the end.

Q: Can you explain in more detail your post–financial independence income? How do you plan on living off of this income?

We do our investing primarily in a small college town, so small multi-unit student rentals produce a core part of our cash flow. We also like single-family houses that we rent to families or local professionals. These are very stable long-term income and wealth builders. Additional income comes from interest from loans to investors and a few seller-financing transactions. Finally, my online business with online courses, books, and occasional consulting is another secondary source of income.

Q: What concerns do you have for the future in terms of retirement income? How will you address them?

It’s not a great concern, but I don’t want to have all my eggs in one basket over the long run. Real estate will always be my core investment, but I want to diversify to different locations, and I also want to own a bigger piece of other non–real estate businesses (in the form of equity stock investing).

Q: Do you plan to start selling your real estate holdings? If so, when and how?

Nothing drastic, but I plan to continually prune my portfolio by selling to get rid of suboptimal properties. I’ll then decide where to move that equity so that it performs better.

Q: What’s your No. 1 best tip for those looking to live off of investment income after retirement/financial independence?

Keep life simple. Getting to financial independence by chasing huge expenses is a losing game. Even if you achieve it, you have to work long, grueling hours for many years. And for what? A big house? An expensive vacation? Keep your expenses simple, build income streams to pay for them, and then go do what matters.

How to Read This Book

This book is best understood as a step-by-step strategy guide. You are the climber of your own personal financial mountain, and the book is your trusty map to help you safely reach the top. But keep in mind, this guide won’t tell you the one best way to reach the top. Instead, you will get a choice of several reliable routes and combinations that you can choose from.

Just like the benefits of a map, this book’s suggestions can give you clarity and overall direction for your real estate investing. But you will still have to do the hard day-to-day work of climbing. And like all climbers of the financial mountain, you’ll have to recover from inevitable stormy weather, rockslides, and other