BiggerPockets Money Podcast: $200K/Year & Early Retirement in 10 Years by Being a "Lazy" Investor

Hosted by: Mindy Jensen and Scott Trench from BiggerPockets
Guest: Dion McNeely
Release Date: December 6, 2024

Introduction

In this episode of the BiggerPockets Money Podcast, hosts Mindy Jensen and Scott Trench delve into the inspiring journey of Dion McNeely, a self-proclaimed "lazy" investor who achieved financial independence and retired early by leveraging real estate. Originally part of the Fire series on their YouTube channel, this episode aims to provide actionable insights for listeners aspiring to replicate Dion's success.

Early Financial Struggles and Debt Management

Discovering Financial Independence

Dion McNeely’s path to financial independence began later in life. He started investing at the age of 40 as a single parent with three children after being laid off from a law enforcement job. Faced with $89,000 in hidden bad debt revealed during his divorce, Dion realized the importance of securing his family's financial future to avoid becoming a burden.

Dion McNeely [01:09]: "I was trying to do the most important thing that I think we could do for our kids. Right. I didn't start investing till I was 40."

Understanding Debt: Bad, Good, and Worse

Dion categorizes debt into three types:

1. Bad Debt: Consumer debt such as credit cards and personal loans.
2. Good Debt: Typically associated with investments like mortgages.
3. Worse Debt: High-interest or adjustable-rate loans that pose significant financial risks.

During his divorce, Dion discovered $313,000 in bad debt, ultimately being responsible for $89,000 after negotiations with creditors. Determined to eliminate his worst debt, Dion split his disposable income between saving for a house hack and paying down high-interest loans, eventually clearing his bad debt while simultaneously acquiring rental properties.

Dion McNeely [02:25]: "Bad debt is that consumer debt. Then there's also worse debt. In order to reach financial freedom and have the confidence to retire, I wanted to make sure all of my worst debt was gone."

Real Estate Investing Strategy

House Hacking and Building a Portfolio

Dion’s strategy revolves around house hacking—buying multi-unit properties, living in one unit, and renting out the others to generate income. This approach not only provides rental income but also makes the property more lendable to future financing.

Dion McNeely [02:25]: "I was trying to do the most important thing that I think we could do for our kids. Right. I didn't start investing till I was 40. I was a single parent with three kids."

Despite initial challenges, including a low income of $17 per hour and significant debt, Dion managed to become bankable by moving out of his home, renting it for two years, and establishing a rental income on his tax returns. This period was crucial for improving his credit score and saving for a down payment, ultimately enabling him to purchase his first duplex in 2015.

Mindy Jensen [02:09]: "It's not a get rich quick scheme. The really hard thing is convincing people that 10 years is quick."

The 10-Year Plan

Dion emphasizes the importance of a decade-long commitment to financial freedom through real estate. Unlike “get rich quick” schemes, a 10-year plan allows for sustainable growth without taking excessive risks.

Dion McNeely [02:09]: "Real estate is a get rich quick scheme. The really hard thing is convincing people that 10 years is quick."

The Golden Age of Real Estate

Why 2024 is a Prime Time to Invest

Dion outlines two and a half reasons why 2024 marks a golden age for real estate investment:

1. Remote Work Revolution: The shift to remote work has transformed housing demands. Many remote workers are relocating from expensive metropolitan areas to more affordable suburbs, pushing up rental prices without a corresponding increase in property prices.

   Dion McNeely [10:59]: "Remote work is a game changer. So what's happening now in 2024 is that massive jump that happened after 2020 because there was a rent freeze for a year."

2. Regulatory Changes: On November 18, 2023, conventional lending regulations were modified to allow purchasing duplexes, triplexes, and fourplexes with just a 5% down payment. This change democratizes access to multi-unit properties, previously requiring FHA loans for low down payments on larger properties.

   Dion McNeely [11:02]: "The other half reason is if you're paying attention, attention to fair market rents... there's a significant increase."

3. Fair Market Rent Adjustments: Fair market rents are recalibrated annually, reflecting post-pandemic rental increases. Understanding these adjustments allows investors to identify properties that will cash flow more effectively.

   Dion McNeely [11:02]: "What 2028 people are going to say is if you were aware of this and in the middle of 2024, you were anticipating what Section 8 rents were doing to the area."

Investment Philosophy and Portfolio Management

Concentrated Focus on Real Estate

Dion adopts a concentrated investment strategy, allocating 100% of his investment capital to real estate. Unlike popular advice advocating for diversification across multiple asset classes, Dion believes mastering a single asset class yields superior returns.

Dion McNeely [17:54]: "I'm 100% in real estate... If I owned a stock or had a penny in a retirement account, I'd probably still be working."

Diversification Within Real Estate

Within his real estate portfolio, Dion employs diversification by:

• Investing in properties at least 10 miles apart to mitigate regional risks.
• Targeting areas near economic drivers like ports, military bases, colleges, and major employers.
• Ensuring tenant diversity, with approximately one-third military, one-third Section 8 recipients, and one-third working or retired individuals.

This strategy ensures resilience against market fluctuations, pandemics, or government shutdowns.

Dion McNeely [18:08]: "If you have to be crayon eater, I've got my crayons ready to eat. It has to be simple."

Reserve Fund Strategy

Dion maintains a consolidated reserve fund that scales with his portfolio size:

• Up to 7 units: $10,000
• Above 7 units: $30,000
• Post-Retirement: $50,000

Funds exceeding these reserves are reinvested to grow his portfolio, ensuring financial stability without spreading resources thinly across multiple properties.

Dion McNeely [26:07]: "I'm the lazy investor. For 10 years I bought rent ready or already occupied... It's kindergarten simple."

Life After Financial Independence

Enjoying Financial Freedom

Retiring in 2022 with 16 rental properties, Dion now faces the challenge of managing his newfound wealth. His portfolio generates approximately $204,000 in profit annually, which has recently increased to $250,000 due to inflation. Dion spends only $50,000, allowing him to live comfortably while continuing to invest.

Dion McNeely [07:01]: "I retired in 2022 with 16 rental properties. I spend about 50, so I have four times the amount of money coming in that I need."

Reverse Budgeting

To avoid the frugality often associated with financial independence, Dion employs a "reverse budget." This strategy mandates spending a minimum amount each month to ensure he enjoys his wealth without falling back into old, restrictive habits.

Dion McNeely [20:13]: "A reverse budget is if you had to be frugal in financial freedom, I wouldn't have done it. I would have stayed at work until I was in my 70s or 80s."

Maintaining an Active Portfolio

Though retired, Dion continues to manage his properties efficiently, dedicating approximately two hours a month per property. By implementing streamlined systems and leveraging technology, he minimizes the time commitment required, allowing him to enjoy personal pursuits like scuba diving.

Dion McNeely [28:07]: "It's a great question. It has two short answers. When you're growing your portfolio, all of the time it is not passive. Real estate investing is not passive. Real estate ownership is close to passive."

Advice for Aspiring Financial Independents

Commit to a Decade-Long Plan

Dion underscores the importance of patience and persistence, encouraging listeners to embrace a long-term commitment to their financial goals. He dispels the myth of overnight success, highlighting that consistent effort over ten years can lead to substantial financial freedom.

Dion McNeely [30:06]: "Understanding that it's going to take a decade is the first step, right?"

Choose an Exciting Asset Class

Selecting an investment avenue that genuinely interests you increases the likelihood of sticking to your financial plan. Whether it’s real estate, stocks, crypto, or entrepreneurship, passion for the chosen asset class fuels perseverance.

Dion McNeely [30:06]: "Pick an asset class that excites you. If it's entrepreneurial and you want to start a business, if it's stocks, if it's crypto, if it's real estate, we're more likely to stick to a plan we're emotionally invested in."

Start Small and Scale Gradually

Dion advises beginning with a manageable number of properties—starting as few as four can significantly alter your financial landscape. As confidence and capital grow, so too can the portfolio, ensuring stability and continued growth without overwhelming risk.

Dion McNeely [30:06]: "If you pick four properties, your entire life will be changed. Your generation will have millions to inherit by the time you get there."

Conclusion

Dion McNeely’s journey from financial distress to early retirement exemplifies the power of strategic real estate investing. By maintaining a focused investment approach, managing debt effectively, and committing to a long-term plan, Dion achieved remarkable financial independence within a decade. His pragmatic advice serves as a blueprint for aspiring investors seeking to transform their financial futures through real estate.

For more insights and resources, listeners are encouraged to visit Dion's YouTube channel, DionTalkFinancialFreedom, or his website diontalk.com, where he offers a free binder course and valuable tools for managing rentals and seller financing.

Notable Quotes:

• Dion McNeely [02:25]: "Bad debt is that consumer debt. Then there's also worse debt. In order to reach financial freedom and have the confidence to retire, I wanted to make sure all of my worst debt was gone."

• Dion McNeely [07:01]: "I retired in 2022 with 16 rental properties. I spend about 50, so I have four times the amount of money coming in that I need."

• Dion McNeely [20:13]: "A reverse budget is if you had to be frugal in financial freedom, I wouldn't have done it. I would have stayed at work until I was in my 70s or 80s."

This comprehensive summary captures Dion McNeely’s transformative journey towards financial independence through disciplined real estate investing, effective debt management, and strategic portfolio diversification. Listeners are equipped with practical strategies and motivational insights to embark on their own paths to financial freedom.