Financial Freedom in 2 Years by Scaling Their Rental Portfolio FAST

Summary

Podcast Summary: Real Estate Rookie - "Financial Freedom in 2 Years by Scaling Their Rental Portfolio FAST"

Release Date: December 27, 2024
Hosts: Ashley Kehr and Tony J Robinson, BiggerPockets

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Introduction

In this inspiring episode of Real Estate Rookie, BiggerPockets hosts Ashley Kehr and Tony J Robinson welcome James and Emily, a dynamic couple who achieved financial independence (FI) in less than two years. Their journey from financial struggle to prosperous real estate investors showcases the power of strategic planning, expense management, and a dedicated real estate portfolio. The hosts set the stage by highlighting James and Emily's remarkable transformation:

“James and Emily were able to retire less than two years after they started saving for early retirement at the ages of 27 and 28. Now they travel the world.” – Scott Trench [00:30]

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Financial Backgrounds

James's Upbringing

James opens up about his challenging financial upbringing, detailing the hardships his family faced:

“We had our cars repossessed and utilities cut off multiple times. We even set up camp in our living room with a tent when we couldn’t afford utilities.” – James [02:13]

Growing up as a child of deaf adults, with the early loss of his father and his mother's struggle to provide by working third shifts, instilled in James both a chip on his shoulder and an initial tendency to overspend in an attempt to appear affluent.

“Every dollar that was coming in would be spent on a phone or a car... I think that living frugally came naturally to me because of growing up so poor.” – James [03:41]

Emily's Upbringing

In contrast, Emily had a more structured approach to money management, thanks to her parents who followed Dave Ramsey's budgeting principles. However, her financial discipline wavered during college, leading to reckless spending.

“We always had our little banks that we tithed and saved... In college, I kind of went off the deep end and started spending and spending.” – Emily [05:37]

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Mindset Shift

The turning point in James and Emily's financial journey came when they discovered the concept of FI through Mr. Money Mustache. James recounts his initial, albeit flawed, attempt to convince Emily:

“I lowered our air conditioning and changed the hot water heater... I found out about this website. If this works, if you hop on board, then we can do this pretty quickly.” – James [07:20]

Emily was initially skeptical but began to shift her perspective through James's actions and steady commitment.

“Actions speak louder than words.” – Emily [08:39]

This mutual commitment transformed their relationship with money, aligning their goals toward achieving FI.

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Expense Reduction Strategies

A pivotal factor in their rapid path to FI was their aggressive reduction of living expenses. James and Emily meticulously analyzed and trimmed their monthly budget from nearly $100,000 in combined income with a 0% savings rate to an impressive 85% savings rate.

Housing Costs

They made a strategic move from a high-cost condo to a significantly cheaper one:

“We moved from a $1,500/month condo to one costing under $500/month.” – James [16:02]

This decision alone slashed their housing expenses by two-thirds, providing substantial savings that could be redirected into investments.

Food and Utilities

Further cutting costs, they reduced their food expenses by half by shopping exclusively at Aldi and minimizing dining out:

“We cut our food expenses to around $300/month by shopping exclusively at Aldi and eating out significantly less.” – Emily [17:07]

Additionally, they optimized utility usage, contributing to their overall expense reduction.

“We eliminated food waste and optimized our grocery shopping, bringing our monthly food costs down to about $300.” – James [18:11]

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Real Estate Scaling

With their expenses drastically reduced, James and Emily focused on building their real estate portfolio. Starting in Huntsville, Alabama, they capitalized on the market's affordability to acquire multiple low-cost duplexes.

Initial Investments

Starting mid-2017, they purchased duplexes priced around $50,000 each, leveraging low down payments and performing renovations themselves to add value.

“We bought anything we could afford, using 20-25% down on multifamily homes.” – James [19:18]

Their strategy was straightforward yet effective: invest in properties that adhered to the 1% rule, ensuring positive cash flow from each investment.

Portfolio Growth

Within two years, they expanded their portfolio to 17 rental units, generating a substantial annual cash flow of over $31,000 by September 2019.

“By 2019, we had nine long-term rentals and one short-term, generating just over $31,000 in cash flow.” – James [28:52]

Their disciplined approach and clear goal-setting enabled rapid portfolio growth, culminating in their decision to retire from traditional employment.

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Life After Financial Independence

Achieving FI allowed James and Emily the freedom to pursue their passions, including extensive travel. They relocated to Cyprus, taking advantage of property owned by Emily's family to live rent-free while renovating and managing their rentals.

“We moved into a mother-in-law apartment in Cyprus and renovated it while traveling around Europe.” – Emily [31:02]

Despite unforeseen challenges like the COVID-19 pandemic, which forced them to return to the U.S., they adapted by focusing more on short-term rentals, further enhancing their cash flow and maintaining their FI status.

“Upon returning to the U.S., we shifted focus to short-term rentals, increasing our cash flow and portfolio value.” – James [31:56]

Their lifestyle exemplifies the flexibility and resilience that FI provides, allowing them to explore the world while managing a thriving real estate business.

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Insights and Takeaways

James and Emily's journey offers several valuable lessons for aspiring real estate investors seeking FI:

1. Teamwork and Communication: Their success was built on mutual trust and shared goals.

   “Trust is so important in your FI journey.” – Emily [43:02]

2. Expense Management: Aggressive reduction of living expenses can significantly accelerate the path to FI.

   “We went from a 0% to an 85% savings rate by cutting our expenses drastically.” – Scott Trench [43:02]

3. Real Estate Strategy: Investing in affordable properties with positive cash flow is a viable path to financial independence.

   “We bought the cheapest properties we could find and renovated them ourselves to add value.” – James [22:16]

4. Mindset Shift: Overcoming societal judgments and focusing on long-term financial goals are crucial for success.

   “Ignoring what other people think about you helped us tremendously.” – James [35:05]

5. Flexibility and Adaptability: Being willing to adjust strategies in response to changing circumstances ensures sustained financial health.

   “When COVID hit, we adapted by focusing more on short-term rentals, maintaining our cash flow.” – James [32:49]

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Conclusion

James and Emily's story is a testament to how disciplined savings, strategic real estate investments, and a robust support system can lead to rapid financial independence. Their ability to adapt, manage expenses, and build a substantial rental portfolio within two years offers a blueprint for others aspiring to achieve similar financial freedom.

“Work is more fun when you don't have to do it.” – James [43:02]

Ashley Kehr and Tony J Robinson wrap up the episode by emphasizing the importance of trust, aggressive savings, and a resilient mindset in the journey toward FI, encouraging listeners to apply these principles in their own financial endeavors.

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Connect with James and Emily:

• Instagram: Rethink the Rat Race
• Website: rethinktheratrace.com

Explore More:

• Visit BiggerPockets.com for resources, forums, and additional podcasts to help you on your real estate investing journey.

Transcript

[Mindy Jensen]

Hey, Rickies. While we're still off enjoying the holiday season, we have a special episode to share with you from the Bigger Pockets Money podcast. Now, just two years after discovering fire, today's guest achieved it. And they did it without millions of dollars in the bank. Their secret, a strategic real estate portfolio, slashing expenses, and a laser focused approach to financial independence. Now, how did they scale their real estate portfolio while keeping costs low? Well, Emily and James are breaking it all down in today's episode.

[Scott Trench]

James and Emily were able to retire less than two years after they started saving for early retirement at the ages of 27 and 28. Now they travel the world. And if any of this sounds amazing to you, keep listening to hear how they did it. Hello, hello, hello, and welcome to the Bigger Pockets Money podcast. My name is Mindy Jensen and with me, as always, is my amazing co host, Scott Trench.

Thanks, Mindy. Great to be here with you. You're my super duper trooper co host today here on BiggerPockets Money. BiggerPockets has a goal of creating 1 million millionaires. You are in the right place if you want to get your financial house in order, because we truly believe financial freedom is attainable for everyone, no matter when or where you're starting. Or maybe it's attainable for you even before you hit millionaire status. Listen on to find out how.

Today we are going to discuss how to get your partner on board for financial independence. And. And I'm going to suggest maybe you spend a little bit more than the 30 seconds that James did. We're also going to talk about how you can cut down your expenses to help you reach financial independence and what your fine number should be when investing in real estate. This segment is sponsored by BAM Capital, your path to generational wealth with premier real estate opportunities. See why over 1,000 investors have invested with Bam [e-mail] Bam that's BiggerPockets.com Bam without further ado, James and Emily, welcome to the BiggerPockets Money Podcast. I am so excited to talk to you today.

[James]

Thanks. We're excited to be here.

[Emily]

We are.

[Scott Trench]

Thank you, James and Emily. We want to get a bit of a financial snapshot before we jump into your story. So can you give us a bit of information? What life was like growing up, financially speaking. And I'm going to go with James first.

[James]

So, yeah, financially speaking, it was, I would say, difficult growing up. So I am a coda. That means I'm a child of deaf adults and my parents divorced when I was young. And my dad passed away when I was 12. And so my mom worked third shift at Walmart to raise me and my two sisters. And so it was not. I don't want to say it was common, but it wasn't uncommon for, you know, our cars to be repossessed. We had our utilities cut off multiple times. And so, like, it's funny, looking back on it as an adult, I can see, you know, that this wasn't normal, but at the time, you don't know that that's not normal. You know, like, people don't typically set up camp in their living room, right? And so we would get out the tent and, like, get candles and stuff together. But in retrospect, it's because we didn't have utilities on. And so there was actually a couple of years where we had a leak under the slab of our house and we didn't have the money to have it fixed. So, um, my, my. Anybody in the family that needed to use water for whatever reason would have to walk out to the street where the utility you know, cut on was and would have to cut the water on if we needed to shower, you know, brush our teeth, wash dishes, use the toilet, anything. And so. But we always had to remember to cut it off because if we didn't, we didn't have enough money for the bill. And so that was like. That was a few years of existence in the. In the Lowry household.

[Scott Trench]

So how did that translate to your. Your money story in high school and college years? Can you give us just a little snapshot about how that parlayed into kind of adulthood?

[James]

Sure. So it, I mean, it definitely created a chip on my shoulder. The problem was I actually probably erred the other way. I overspent money because I thought that, like, I'm going to show that I have money and I didn't have any money, to be clear. And so every dollar that was coming in would be spent on, you know, a phone or a car or whatever, you know, going out on these, like, lavish dates. And then I would be at home, like, not eating anything for days because, you know, I had spent all my money. And so because of that, I think that living frugally came naturally to me because of growing up so poor. And then it just becomes, as opposed to, you know, we. We live this way because we don't have any money. It turns into, we live this way so that we can have money. And that, like, was a really, like, important, like, mindset shift that I had towards, I guess, our financial independence journey.

[Scott Trench]

When did Your mindset shift. You're in high school and you're spending every dime that comes in on lavish high school dates. What. At what point did you. Did you change the spendy ways?

[James]

That is a. Yeah, that's a good question. So it was a lot after high school, actually. Emily and I were already married and we were pretty much living hand to mouth. And I mean, it wasn't as dire as it was when I was growing up, but we definitely didn't have any, like, finances to speak of. And so I actually found out about Mr. Money Mustache and just this concept of, like, I can choose to live, you know, in this manner, and it's like, against the grain, it's against the norm. And that really, like, resonates with me. And so because of that, that's kind of what put us on the financial independence path. So I went from, you know, zero to a hundred. I did not, like, air into it at all. There was no dipping my toe in. And so I went from really piss poor habits to really good habits, I think.

[Scott Trench]

How about you, Emily? What did your upbringing with money look like?

[Emily]

So, grew up as a. Like, my dad was the sole provider and they tried to. My parents tried to instill, you know, good budgeting habits. They followed Dave Ramsey. And, you know, we always had our, like, little banks that we tithed and that we saved and all that kind of stuff. They always, you know, like, wanted me to have, like, at least a hundred dollars in my savings account, which. Or my checking account, which sounds, you know, wild. That, like. But that was just like the threshold. They were like, you know, if you ever dip back into it, make sure that you, you know, refill it up. And then in college, I kind of went off the deep end and then just like, just started spending and spending and spending. Even though, like, I knew that I had to pay for school. And so, I don't know, I just feel like once I got my degree and got like a big girl job, I guess I would have the money to just like, get everything that I wanted, basically. And that kind of led to, whenever we got married, not saving anything and going shopping and just spending money frivolously.

[Scott Trench]

What was your inflection point? Did you. Did you come to find Mr. Money Mustache together? Did one of you find it and tell the other? Did you have, like, an agreement to stop spending and start saving? Or was it more of a difficult conversation?

[James]

It was a little more difficult than that. So I found Mr. Money Mustache and I did it as poorly as one could pose this to Their spouse.

[Emily]

And you also tried to send me articles.

[James]

Yeah, yeah, yeah, exactly.

[Emily]

I just.

[James]

His writing doesn't resonate with everybody, and that's okay, you know, but, yeah. So I found Mr. Money Mustache.

[Scott Trench]

The face punch was not a very good cajoling way.

[James]

Who would have thought, you know, that that doesn't work for everybody? So, yeah, I found out about Mr. My Mustache at work that day. I went home and I, you know, lowered our air conditioning. It was in the middle of summer so that we weren't using as much air conditioning. I changed the hot water heater. Like, I was doing, like, the smallest thing to, like, move the needle. And she came home and, like, I've already done half of these things. And I'm like, hey, I found out about this website. We can quit our jobs if you listen to me. You know, and it wasn't, like, quite as chauvinistic as that, but it was like, hey, there's this information here. If this works, if you hop on board, then we can do this pretty quickly.

[Scott Trench]

So what was the temperature of the room and the temperature of Emily's response to this conversation?

[James]

The room was pretty warm. The response was pretty cold, I'll tell you.

[Scott Trench]

Wow, what a surprise. I can't believe that approach didn't work, James.

[James]

I don't know why. You know, I had planned it out, mapped it out for about 30 seconds in my head, and it did not work out the way I hoped. So it turns out that that's not the way to do it.

[Scott Trench]

Emily, what was it that he said or did or showed you that started to change your mind for, like, whenever.

[Emily]

A new idea is, you know, presented to me, I feel like I need to hear different sides to it. And so when James told me that I didn't have to obviously work forever, which, I mean, that was, you know, what he said to begin with. You know, in five years, you can quit your job, because I hated my job. And. And then it was also, like, him doing, like, actions. Like, he was showing me that he was changing based on his actions. So he was riding his bike to work, even though it was kind of, you know, sketching, going down, like, main. Main roads and, you know, packing his lunch. Just little things that showed me that he was, you know, making an effort. And, I don't know, just actions speak louder than words.

[Scott Trench]

We're speaking to James and Emily about their money story, but it's time for a quick ad break. When we're back, James and Emily will tell us how they cut their expenses in half to hit financial independence.

[Mindy Jensen]

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[Mindy Jensen]

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[Scott Trench]

To the BiggerPockets Money Podcast.

Let's hear about some financial details. How how much were you making when you started this journey? How much were you spending? How did that change over time?

[Sponsor]

What?

[Scott Trench]

From what? Especially on the spending front, how much Were you able to lower it down to.

[James]

So combined, we were making just under a hundred thousand dollars when we first got married. And we were, we had a, essentially a 0% savings rate. There were like, we, we have texts back and forth to each other saying, like, hey, the mortgage is coming out in a few days and we don't have enough money in that account. Like, we need to move some money around. And then, you know, it was the same text the next month. And so it was, it was a pretty. And like, we're not making any contributions to 401ks or anything like that at the time. So like, we, we genuinely had a 0% savings rate. The good news is we weren't actually actively in like, debt, in consumer debt, at least. We did not have student loans and we did not have any debt other than our condo that we lived in at the time.

[Scott Trench]

Okay, so you're not in a high tax bracket at that point. So you're essentially, you're essentially spending like 80k, it sounds like, on your life, more or less, at that point in time. What were you able to drive it to over that, over the next little bit? And was it a process or like, did it happen overnight was an event, or was it a process where it happened gradually after a couple of big breakthroughs or big moves that you made?

[James]

I would say that it was gradual for sure.

[Emily]

For sure.

[James]

And so some of it was, you know, you make a couple of choices and then that makes the next choices easier. And so we looked at our spending and once, once I got Emily on board, you know, living by example and doing things, and, you know, she actually probably out like, frugal me. And so it became, okay, let's sit down and look at what we're spending our money on. And how can we game this? Like, how can we lower this in any way, shape or form from our cell phone bill to our cable that we were paying for, to the Internet that we had on our, on our phones, on in the house, everything. And then it turned into, okay, can we get cheaper cars? Can. And if we're doing all these things, why don't we move from the condo that we're in into a much cheaper condo that has the same, essentially the same like, footprint, but we get to save so much more money. So we, we jumped from, I mean, at our lowest, we were at, you know, 0% savings rate, and at our highest, we were at like an 85% savings rate.

[Scott Trench]

That's awesome. So, so how long did it take you to get to the condo? Decision, the housing decision. And what was the impact of that one decision in helping you move from 80 to 35,000 in expenses?

[Emily]

Felt like the decision took a couple of months because.

[James]

Which is still quick. That's really quick. Like, she's like, it took a couple of months. We moved from one home to another.

[Emily]

The condo that we had bought, so the. The condo that we were in was like 150,000. And then the other condo that we bought was. I think we bought it for 43,000.

[Scott Trench]

$43,000.

[James]

Yeah. Yeah, exactly.

[Scott Trench]

In what year?

[James]

Yeah, this is in 2016. 2015. 2016. Yeah. And so the $160,000 condo, like, sounds cheap now, but at the time, like, we could have bought a three bed, two bath house in a decent neighborhood for that. And so we were like, oh, let's live the downtown life, you know, live above some bars and restaurants and stuff like that. And then when we jumped, we jumped from a one bed, one bath condo to a one bed, one bath condo for, you know, a third of the price and the way was a fraction of the price as well.

[Scott Trench]

And you guys are based in Huntsville, Alabama, right?

[James]

That's correct. Yeah.

[Scott Trench]

And this is. This is one of the markets that has, you know, the whole country has transformed, but this is probably one of the more explosively transforming markets in the United States in the last 10 years. Right. Last eight years in particular, around that. What would. What would a condo go for nowadays in Huntsville?

[James]

Both of.

[Scott Trench]

Both of those ilks that we just discussed.

[James]

Yes. So the $43,000 condo, you could probably get for 125 to 150, I would say. And the more expensive condo in the nicer area, I think they're going for like 260, so almost $100,000. Jump.

[Scott Trench]

Okay, awesome. So.

[James]

So these are.

[Scott Trench]

These are not. This is a low cost of living area. No bones about it, even today with the changes that have happened around it. But even inside of that, you were able to find huge potential for this. And so what was the. Your monthly payment or how did that translate in terms of your annual spending getting you from 75 to 35?

[James]

So, yeah, our condo that we had, the initial one, our fancy condo, the HOA and the mortgage combined were $1500 a month. And when we transitioned to the much cheaper condo, our mortgage was $323. And our HOA was like not even a hundred dollars, I think, at the time. So we went from $1,500 to, you know, under five. So, you know, our living expenses just right there and One third of what they were before.

[Scott Trench]

And I bet you could set the thermostat to fairly cool and still come out ahead in terms of your H VAC costs. Right?

[James]

Exactly. Yeah. But being around, being in an hoa, being in a condo, you're actually insulated very well on all sides, so still no air conditioning there.

[Scott Trench]

Okay, so. So we've got that. What were the other biggest chunks here? Was it transportation? You know, when I think about, you know, average American spending, it's housing, transportation, and food. Was it those three for you guys? Or was there another major category that really got us another big chunk of that $40,000 drop off in expenses?

[Emily]

There was food.

[James]

Yeah, there was definitely food.

[Emily]

Yeah. Because I feel like we cut that at least in half.

[James]

Yeah, yeah.

[Emily]

If not more, based on, like, grocery shopping and stuff like that.

[James]

Pretty much. If Aldi didn't carry it, we couldn't afford it. That was the idea. Right. And so we only shopped exclusively at Aldi, essentially, for everything. And that. That definitely lowered our expenses a lot. We ate out so much less because we were at one point, you know, living in the condo above restaurants. We would just pop down and go eat every weekend with friends. Every. Every weekend night, it would be a Friday night, Saturday night, you know, brunch on Sundays. And, you know, that stuff adds up. So on top of that, we. We now. Even now, but especially then, we wouldn't eat out if it wasn't just the two of us. Like, the two of us, we would just eat at home and we would go out for, you know, birthdays or, you know, events and stuff like that. But it just became, if the only thing that you have in common with your friends is going and spending money in the same place, then you actually don't have that much in common, you know, so. So that helped.

[Scott Trench]

That's a great quote. I think a lot of people can take that to heart.

And what do you think that was the impact of the change there in your approach to how you eat and hang out?

[James]

That's a great question. I think that we probably were spending, you know, a couple grand a month on food. And some of that was just food waste. Some of that was going out to eat. You know, a lot of times, like, we would buy things and then not eat it. And so we essentially eliminated food waste. Like, we would take everything to go if we needed to. I was like, you know, just having, like, a smorgasbord of meals for lunch at work. And so I think that we probably got it to under. I Mean, we were definitely under 500. I think that we were in the 300 range for a month.

[Scott Trench]

Okay. So this was even bigger than the housing decision. Between these two things, we're getting 80% of this drop off and 40k in spending. If it was thousands a month and even 2000 and you're dropping to 500amonth, I mean, that's the next 15, 20k of this. So what did you do with all of this money that you started saving?

[James]

So we decided to focus almost exclusively on real estate. I don't want to say exclusively because we were still maxing out Emily's 401k at her job. She got a better match than I did. Mine was a discretionary match, which I didn't really trust too much. And we were maxing out both of our IRAs. And then any dollar after that, any dollar after that went into real estate.

[Scott Trench]

What kind of real estate? And were you staying in this $43,000 condo market? Because that's, that's a little, I'm a little jealous.

[James]

We were, yeah. So we, we bought anything that we could afford at the time. And so part of that was we were just starting out. You know, we're scraping by. And we, at the time too, we didn't understand like creative financing or anything like that. So we were just going down to the bank putting down 20% or 25% on multifamily homes and, you know, just groveling at the bank like everybody else. And so, so the, the harder part was finding mortgage companies that would give you a mortgage for a property under $50,000. Because we've bought that condo, we bought a duplex for 50, another duplex for 50, and then another duplex for 47. So, so it was a very cheap market at the time.

[Scott Trench]

And what are these properties renting out.

[James]

For now or then? I mean, then they were still already hitting the 1% rule and then some, they were 2% rule, essentially. Right. So a $50,000 duplex, you could rent one side for 500, essentially.

[Scott Trench]

Wow. Okay. And what year was this?

[James]

This was in. That was 2018. Yeah, yeah.

[Scott Trench]

Wasn't the market supposed to crash in 2018, Scott?

I think it did. Oh, wait.

Oh wait, no it didn't.

So you accumulated how many? So, so, okay, so, so we're getting a pretty clear picture of this. You're accumulating 40k ish a year from your income. And does your income change dramatically over this period of time or does it remain relatively steady around that kind of 90, 90 ish grand mark a little bit.

[James]

We both kind of jumped around.

[Emily]

Yeah. I maybe got a six grand raise in that time period. And then by the, like the most that I made was 72.

[James]

Yeah.

[Emily]

And so it wasn't like that much of a jump.

[James]

Right, right. So I think like all in by the. Got a promotion, she got a, you know, raise and stuff like that. We were making around 120 grand a year by the time we quit our jobs.

[Scott Trench]

And how did the portfolio. So, so was it. It was just straight up 25% down accumulation on rental properties in Huntsville, Alabama, that cash flowed and slowly snowballed over what time period we're talking about? Is this a couple years?

[James]

Yeah. We bought our first rental in December of 20. Well, I guess. No, sorry, the first, like true. Yeah, true rental property mid 2017. And we quit our jobs in 2019, September 2019.

[Scott Trench]

So two years, Scott, 50% or 25% down on a $50,000 condo is still only 12,500 or I'm sorry, a $50,000 duplex. So 12,500 and they're renting it for $1,000. In one year you've got your whole down payment back. I'm sorry, one year. In one half of one month you've got your whole down payment back to do it again.

That kind of market situation, incredible here for it. Do you think it's still like, do you think if you're starting today, you would still be able to accomplish do that? What would you. Would you have done something fairly similar to get there if you were starting over here in 2024?

[James]

Absolutely. So part of it was we bought the cheapest property we could find and then we renovated it ourselves to make it look nicer on the inside. Right. It was a condo, but we painted cabinets, we, you know, pulled down wallpaper, stuff like that. So there was some sweat equity involved. And then it turned into, okay, well, we had this clear goal of let's buy 10 properties in five years. Right. So two properties a year. Well, when you have a clear goal set, you have to look at every property that comes on the market essentially. Right. And especially at the prices that they were coming on at. So we had a house with a mother in law apartment under contract for 80, 83,000, I think 86,000. And we were planning on renting out both of those and staying in the condo that we were in at the time. And in the process of us closing, we found the two other duplexes for 50,000, but we didn't have enough money like cash on hand, we didn't have the 12,500 that you've, you know, told us about Mindy, there times two. So 25 grand, essentially. Right. We didn't have that in cash on hand to buy all of these properties with 20% down or 25 for the multifamily. So we ended up doing a house hack. We lived in the mother in law apartment and lowered our down payment on that 1 to 5% so that we had enough cash to buy the other two properties. And so we went from having one condo that we lived in to having seven doors in a month.

[Emily]

Well, on top of the duplex.

[James]

Oh, we did have a duplex. I'm sorry. So we did have a duplex. So we had three doors. So we went from three doors to 10 doors. Yes, yes.

[Scott Trench]

And you're levered at like two to one from your income to mortgage ratio in the process here. So not even counting the rental income from these properties. So I mean, like, what a responsible, relatively speaking play that you're making here as well, in the context of that is not even high. It's not even really high leverage, but anyone's reckoning on that. So that's incredible. Just like a noob question here, because I have not bought a $50,000 property. Is it difficult to loan, especially a load like a low down payment loan for one of these properties? How did you facilitate that?

[James]

It is, yes. So we had to shop around quite a bit to find a mortgage broker that could find someone that would work with us because there are a lot of fixed costs on mortgages and at a $50,000 property purchase price, they're not going to make their money back on some of these costs. And so ironically, Capital One at one point offered mortgages and I think they went as low as 40 because we got a $43,000 mortgage on that and that was actually not counting our down payment. So it was probably like $35,000. And then, and then once we found a company that would do it, we just went back to them over and over again, you know, for these cheaper properties.

[Scott Trench]

Are these 30 year fixed rate Fannie Mae insured mortgages like normal stuff? Are they particularly expensive to take out? Do you have a lot of points on them?

[James]

No, they, but they, at that point we already had a higher interest rate. That was before the, you know, historic lows that we had. So. But in talking in today's terms, it's still a good rate. I think we were paying between five to five and a half percent on most of those who cares?

[Scott Trench]

It's $43,000.

[James]

Exactly. Exactly.

[Scott Trench]

Your mortgage payments like a dollar fifty and you're renting it out for a thousand.

I guess this problem I'm asking about doesn't really apply here in 2024.

Stay with us. We're taking a real quick break. When we're back, we're going to find out what life is like after financial independence for James and Emily.

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[Scott Trench]

Thanks for sticking with us. Let's jump back into the show.

Okay, so what did your cash flow and net worth situation look like when you chose to retire two years later in 2019? And what does your portfolio look like today here?

[James]

Okay, that's a great question. So you can tell what our numbers were in one.

[Emily]

So when we left our jobs in 2019, we had nine long term rentals and one short term and our cash flow was just over 31,000.

[Scott Trench]

Awesome.

[James]

I will say we did have a like healthy, I would say healthy cash savings so that we could like dip into that if we needed to because this was all a trial run. Like we're going to quit our jobs and live off of real estate. We don't know if it's going to work or not. So, so we had, you know, right at, I think a little over 100 grand saved up to give us, you know, a Runway. And that to us was like, you know, three or four years of living expenses.

[Scott Trench]

Awesome. Not many people are comfortable leaving work on a $31,000 a year cash flow from there from the rental property portfolio. The 100k in cash helps, but did you also have stocks or something? Maybe like a coast fire concept? In the 401 you mentioned that you had contributed to 401ks and those types of things.

[James]

Yeah, we did. So there was enough in the 401k that like we were essentially coast by and so if we quit contributing, you know, by the time we reached a certain age. But that doesn't help us if we have to go back to work in a year or two, you Know, but part of it was we dipped our toe in the water. So we both took leave of absences from work. And so that gave us, you know, also a little Runway outside of our cash to say, okay, if, like, if this, you know, to the bed in a year, then we can go back, you know, and my, my leave of absence was only a month. So if we didn't make it a month, there was a huge miscalculation.

[Scott Trench]

All right, so we've got 31,000 a year. What, what did you retire to and how did that number fund it?

[Emily]

I think that we retired to travel and that was like a big. So we, we moved abroad and we. So it was about like eight months, I guess, that we were abroad. And so that life, that money funded us to travel and go experience things that we wouldn't have been able to had we been at our nine to five jobs.

[James]

There is a caveat to this. There is a caveat. So we traveled abroad, we moved to Cyprus, which is where Emily's parents or dad is from, and her grandparents still live there. And so we actually moved into a mother in law apartment that they had. And we were renovating it while we were living there. So that was like our rent payment essentially to them was us fixing up this apartment. And so we were living rent free then. And then we did house sitting and stuff like that to travel around Europe, continuing to live for free in other locations.

[Scott Trench]

That's a valid way to do it. You didn't just happen upon this. I mean, that would have had to take some planning to do. But that is something that allows you to travel and still live at 31,000. I don't really see that much different than the person who has saved up a ton of credit card points and are using those credit card points at hotels and airlines and things like that.

[James]

So part of that was, you know, like Covid happened and that was the, that's why she said eight months, because we were in Europe and you know, Emily has her Cypriot citizenship, but I don't. And so it turned into, okay, how long can we stay here before he gets kicked out? And so we actually had a repatriation flight back to the U.S. this is when all the airlines were closed, all the airports were closed. We were, I think, one of two flights into London Heathrow that day. And people were walking around in hazmat suits. It was really weird. And so all of a sudden being the nomadic travelers wasn't quite as trendy as, as it can be on Instagram. And so that was that was our catalyst to come back to the, to the states. And I think you might have asked this like 10 minutes ago, but you're asking about our portfolio now and how that looks. And so on our return back to the states, we decided to focus a little bit more on short term rentals. And so we've converted a few and bought a few. And so now we have more short term rentals. So we also have more cash flow. So we got to loosen the purse strings on that 30 grand budget a little bit.

[Emily]

So before we quit too, we had converted one of our long term rentals to a short term rental with the idea that whenever we come back home, we could stay there and stay with all of our things for free, basically. And when we move back after, like whenever Covid happened, we kind of like use that as like, you know, there was a long term tenant that was moving out and so we moved into there and decided to convert that to a short term rental.

[James]

Right, awesome.

[Scott Trench]

So one of you guys is an engineer, because this is a very clear engineering plan, right. Of how to as rapidly as possible attain financial. Which one is it?

[Emily]

So I'm the engineer, but the brains behind all of the. Well, I feel like it's a, it's a team.

[Scott Trench]

It is a team.

[James]

It's a team effort.

[Scott Trench]

Awesome. So. So you look. I mean, this is a very, a very cool way to approach Fi, right? I mean, 31k a year, you know, I don't think most people would be that comfortable with you. It sounds like you weren't that comfortable with it. That's why you had 100k in cash stockpiled around it and ran a test before moving forward with the rest of it. But you clearly said we're going to go after fi. We're not going to go deep into these careers here. We're going to play and we're going to figure out how to do that in stages and whatever with this. And it seems to have worked out really well. It seems like you were able to do this test, come back, build short term rentals and continue to pile on and build your net worth, even as you have not had a traditional career plate, as I called it, the last couple of years. Is that generally right?

[James]

Yeah, that's pretty accurate. So, yeah, we would spend a couple of months, you know, working on a short term rental and then we would travel the rest of the year. You know, whether that's in Mexico or back to Europe. You know, we snowbird in Florida. And so like, yeah, that's. That's essentially what we do now.

[Scott Trench]

Why do you think this is so hard? Why do you. Why do you think it was so easy for you guys? But most people find the concept of FI so hard. What is it about the approach that you've taken or the way that you think about this that makes it so easy?

[James]

I think there are multiple facets to it, I think, but one of those would be we didn't care about judgment. We didn't care about what people thought. We went from living in a fancy condo to living in a really crappy condo, and then not crappy, it was fine, but not as nice as the first one. And then we downgraded our cars. And, you know, people in our families thought that we were, like, struggling financially, and ironically, we were doing the best we had ever done in our lives. But from the outside looking in, they thought they are struggling. And I don't know what they thought. If I had a gambling problem, I have no clue, like a drug problem. I don't know what they thought, like, where they thought the money was going. But so I think that, you know, ignoring what you think other people think about you, because you're not. You're not all important. And so I think that, you know, doing that helps a lot.

[Scott Trench]

That is a huge superpower. If you can just get over what everybody else, what you think everybody else thinks of you, you can do all of these things. What does Dave Ramsey say? Live like no one else now so you can live like no one else later. You move from the nice condo to the not so nice condo, and then now you own. How many rental units do you own now?

[James]

So we have 17 doors now.

[Scott Trench]

17 doors allows you to not have to work every single day, and you can go travel and snowbirded Florida, which is. I think it's funny, because doesn't Alabama touch Florida?

[James]

Yeah, it does. Yeah. Yeah. But we're in north Alabama. It snows there a couple times a year.

[Scott Trench]

Oh, really? I didn't know that.

[James]

Yeah. Yeah.

[Scott Trench]

The other thing that I think is really awesome about the way you approach fi, which I think I would have a hard time wrapping my head around, especially, you know, with a family and those types of things. You know, a little one here is I think there's a mentality of just in time for both of you guys, which is like, we have it just enough for what we need to do next. We're going to enjoy ourselves, and it'll work out in the next layer for all of this, which I think is the right way to mathematically Go about life to maximize for happiness. If you're to engineer it, that's the right way to do it. Right is to, hey, why would you stockpile wealth for another eight years if you knew you could make these things work? But most people, I think, would struggle to take that test year because of the disruption it would put into their career and those other types of things. Again, like what? Like, am I hitting something on the head there around this, like, just in time concept? Do you have a way that you describe it?

[James]

I think that we, we haven't really like described it that way, but I mean, that's pretty accurate to say that for us it was, you know, let's, let's quit now. And if we have to go back and get jobs, we have to go back and get jobs. You know what I mean? And so for, I mean, I know that everybody says that, you know, like our worst case scenario is everybody else's, like everyday life. But for us, I mean, it really kind of was that, like, let's test it out, see if it works and if it doesn't, like, we can go back. And it wasn't like she loved her job. It wasn't like, I mean, I didn't dislike my job, I enjoyed it, but at the same time, that wasn't, it didn't bring me fulfillment or anything like that.

[Scott Trench]

So you've said that you could always go back to jobs if you needed to. Do you consider yourself to be fully retired?

[James]

I would say it depends on when you ask. So had you asked me that this time last year, I would have said 100% we are fully retired. And, you know, I work an hour, maybe two hours a week on real estate managing it, but if I wanted to, I could offload that into a property manager as well. Now, I wouldn't say that because we just bought a six unit apartment and have converted that and like it's going to be essentially a boutique hotel. And so I'm renovating it all myself essentially, and Emily's, you know, helping with all the furnishings and like the concept of what's going on in the apartments themselves. And so the past few months have not felt retired. But at the same time I get to not go and work on that and I get to go to Kilimanjaro and then we're going to Europe right after that.

[Scott Trench]

So I'm going to say that you are retired. Even though you have a current project. You're not a sit still kind of guy. You're not a. Let me just read for nine Hours a day for a month. You are an active person. You. I would say you've got ants in the pants. Would you, Emily, Would you say that that is a correct characteristic of James?

[Emily]

I think so. Because there are, like, times that he's like, oh, let's get this project and, like, do this. Or, you know, there's something that he has seen in the past, and he's like, oh, it's for sale now.

[Scott Trench]

Let's.

[Emily]

Let's do this. And, like, you know, make it this whole thing. And I have to kind of bring him down sometimes. But.

[Scott Trench]

So looking at where you are and where you've been, would you say you chose the right time to retire?

[James]

I think so, yeah.

[Emily]

Yeah, definitely.

[James]

Yeah. Had we quit earlier, we wouldn't have had the security that we have. Yeah. Of the, you know, rentals that we had. Had we quit later, again, I don't think that we would have quit because.

[Scott Trench]

Of COVID Emily, as the one who sort of had to be convinced as opposed to the one who discovered it, do you miss your job?

[Emily]

Not at all. Now, I do, like, miss some of the people that I used to work with, but people. The people are completely different from, you know, the work. Like, I can see them outside of work. And, you know, we, you know, the. Like, I still have some friends from work, and we hardly ever talk about work, so.

[Scott Trench]

Okay, that's really interesting. So you miss the people. How many people are, you know. Oh, I would really. I. I. My whole life is wrapped up into my job. You can still go have lunch with your friends at your old job while being retired. Like, that's your reason for not pursuing financial independence, is that you like your job because you like all the people that you're working with. Um, and that's. I mean, that's fine. I'm being super, super judgy there, but also, like, look at the life that they get to, like, you could do whatever you want. You chose to buy this little boutique hotel, but you didn't have to. You chose to. I mean, you're gonna go choose to climb Mount Kilimanjaro. You've got all these options now, including the option to continue working if you love your job. So that's what I'm doing right now. My husband and I are financially independent, but I continue to work because this is my job. Like, how hard is this? Right.

[James]

The other idea of it is that, like, work is more fun when you don't have to do it. Right. Like. Like, I'm sure you enjoy your job a lot More like the stress rolls off your shoulders because you don't have to sit there and take it. You know, if you wanted to quit, you could. And that is like. That in and of itself is powerful. You never have to quit, but you can quit. And so that, like, helps you deal with the day to day stuff a little easier.

[Scott Trench]

That is such a good point. I love it. All right, Emily, where can people find you online?

[Emily]

We are on Instagram at Rethink the Rat Race. And we have a website and it's rethink the rat race.com awesome.

[Scott Trench]

James and Emily, thank you so much for your time today. I think that this is an excellent example of how you can find financial freedom with a little bit of stocks and a whole lot of real estate. And that's kind of what we do [e-mail] to my listeners. We have a website. Every once in a while, I will have somebody come up to me and be like, I didn't know you had a website. There's a website. It's biggerpockets.com and we share all sorts of ways that you can get started investing in real estate. We have a forum where you can ask just about any question you can think of. We have a blog, we have multiple podcasts, and we are here to help you repeat James and Emily's story. So, James and Emily, thank you so much for sharing with my listeners today, and I will talk to you soon. Thank you for having us and enjoy Kilimanjaro.

[James]

Yeah, thanks.

[Scott Trench]

That was James and Emily, and I absolutely love their story. I want to highlight a couple of things. First, James discovered financial independence and then pitched it to Emily in the worst way possible. But after his initial terrible pitch, he started to lead by example. So if your spouse is not on board right now, look at how you're presenting this idea. They went from a savings rate of 0% to 80%.

[James]

That's right.

[Scott Trench]

Fantastic. That's not how you have to do it. How going from zero to one is better than zero to zero or negative. And I really like that they were on board when they were together, when they were at that 80% savings rate. James said something very interesting near the beginning of the show. I'm not sure if you caught this. If the only thing you have in common with your friends is going out and spending money, you really don't have that much in common. That kind of hit me hard. I can remember some friends in my past life where that was kind of the only thing we had in common. And that doesn't align with my values. So really look at your. Your friendships and see if, you know, see what you really have in common. Another thing that Emily said was, I trust James. I love that trust is so important in your fi journey. And, you know, that is. That is something I cannot underline enough. And finally, James wraps it with, work is more fun when you don't have to do it. I'm gonna leave you right there, because I can't say anything better than that. All right, that wraps up this episode of the Bigger Pockets money podcast. I am Mindy Jensen, and before he left, he was the Scott Trench. But, you know, sometimes CEO duty calls. So we are saying. I am saying on behalf of Scott, see you later, alligator.