No matter how you feel about real estate, it is the best wealth generator for the average person. However, there are multiple ways to get involved with real estate; we just need to find the ones that suit our tastes best.
Today, I begin the Real Estate Lifestyles series, comparing real estate versus other professions and asset classes. Some bizarre comparisons are coming your way, but they may help you envision different paths that you may not see now.
The first comparison is owning rentals versus buying real estate investments trusts (REITs). I own rentals, and I own REITs, so comparing them will help you evaluate the differences. Since we are all at different points of our lives, I will put parameters in place to try to compare assets over time. Let’s begin.
Don’t Gamble with Retirement 3 + 4
Parameters. For this comparison, I will give us a 20-year time horizon, starting from zero. We are 30 years old and have a job that pays us $80,000/year. We aim to retire at age 50, move overseas with a $10,000/month passive income. We will assume that we are knowledgeable in REITs and real estate by reading books and following articles.
Rentals. There are many, many ways to achieve success in real estate over a 20-year time horizon. You can build an army of single-family residences or an ocean of multi-family properties. But, I will have that comparison for an episode of RE Lifestyles.
Today, we will do it the safest way possible, by house-hacking our way to freedom. The goal of house-hacking is to live for free in your primary residence as someone else pays your mortgage. You can accomplish this in many ways: roommates, Airbnb, or buying a duplex (or triplex).
At age 30, and as a first-time homebuyers, we qualify for multiple types of loan assistance. These loans include FHA, USDA, Fannie Mae, Freddie Mac, and VA Loans. I cover all of these in my article “Maximum Leverage.”
This first house is the most important purchase of our entire career. We will choose the room-rental route (because I personally use this method). So, for our first home, we need a 3 or 4 bathroom home. Yes, bathroom (not bedrooms).
Real Estate is a Mindset (Advanced)
Over the years of renting rooms, I have learned that guests don’t want to share bathrooms. We only want to rent rooms that have access to a single bathroom. The rooms don’t have master bedrooms or on-suites; they just need access to one bathroom per roommate.
Let’s say we use our loan assistance to buy a 2,500 square-foot, four-bedroom, four-bathroom home. We now get to work finding QUALITY roommates. The keyword being “quality.” We can charge a great rate for each room with quality roommates and not have many tenant issues.
The goal will be to achieve “Mortgage Positive,” which will be easy with three roommates. Next, we will want to pay off the mortgage in ten years altogether. This will be highly possible to accomplish, especially if you control your personal spending habits. For the sake of this article, we don’t have a family. However, I am living proof that you can become very successful at this game with a family.
After you pay off the first house, we will move on to the next place. With no mortgage and four roommates, the first house should yield you all kinds of income. For instance, if you had four roommates living in my area of Florida, you could charge $800/month at today’s rent levels. That is $3,200/month.
I’m Too Serious
Our next home would have to be close to our first home to manage our properties. Ideally, we would want to locate ourselves near a military base or college. With the right mindset (remember “Real Estate is a Mindset”), we can pay off three homes in 20 years—quickly.
Now for the tricky part. When we move overseas, we will need to have someone manage our properties. As we age, we can start to see the writing on the wall. Hopefully, we can begin to prepare one of our long-term tenants to become our property manager in exchange for free room and board. We can call this a residential manager.
In the article “Don’t Fear Delegation,” I discuss why leadership is vital to our automated business. If we can groom a residential manager, we can make this real estate method work in the long run. I would start grooming someone at the ten-year mark of our journey.
Yes, don’t get me wrong, having 10-12 tenants will be a pain in the rear-end—there is no doubt about the “suckiness” of being a landlord. But, to pay off three houses in twenty years is unheard of in America. Creating $10,000/month in rental income over 20 years should not be difficult—again, with the right mindset.
What Limiting Beliefs Do You Have About Money?
Real Estate Investments Trusts (REITs). Now, let’s switch gears to a more passive method of accumulating wealth. Dividends are the most passive of passive income. However, it takes a lot of self-education and money to get vast amounts of cash from the stock market.
There are many types of REITs, and we need to know every single type if we are going to maximize our income. First, however, we need to prepare ourselves to invest 50% or more of our income. Also, we will need to start some side hustles or automated businesses, to increase our revenue.
I would like us to contribute at least $100,000/year by the tenth year. Again, with the right mindset, we should be able to achieve this goal. If we know our mission is to live overseas via REITs in twenty years, we can document our journey via YouTube or a blog. This content would give us a reason to research daily and leverage everything we learn.
Financial Security vs. Financial Freedom
Now, where we make our money is buying when our REITs are out-of-favor. That means buying during a bear market, a correction, or a market downturn. Being “greedy while others are fearful, and fearful while others are greedy” is the best advice that Warren Buffet gave to the investing community.
We will have to understand each sector, each REIT, and the overall investing thesis of interest rates, Federal Reserve, Treasury bonds, and the housing market. An excellent place to start is by joining the mailing list of Hoya Capital Real Estate. I read their articles weekly to get a good grasp on the world of REITs.
For example, mall REITS and office REITS suffered the most during the pandemic. How will they recover? Taking the time to get to know each sector will pay off in spades. So how much money will it take to retire with $10,000/month passive income?
Over-Budgeting: You Can Only Cut So Much Before…
I believe, by using the proper investing techniques, leveraging information, and buying when REITs are cheap, we can achieve an 8% dividend yield (on cost). An 8% yield is double what I usually try to achieve, and you shouldn’t take it lightly.
With an 8% yield on cost, we would need $1.5 million in our REIT portfolio. Is that possible? Yes, yes it is—if, at 30 years old, you are mentally ready for the challenge. Investing during the pandemic could have doubled your fortune alone.
The best part of dividend investing is that it is passive. Yes, you have to read and keep up with your investments and the market, but that is super fun. When you head overseas, all you will need is your fantastic Chromebook. Besides becoming a writer, dividends take a while to get going but will give you the most freedom over time. (Or do both!)
Conclusion. So which way is better? Well, I am going to cheat a little. My answer is a combination of both. You see, once you pay off your first home and still have three roommates, you are making so much money, it will be insane.
Let’s say you pay off your first four-bedroom home, and you keep your three roommates (as you should). You should be clearing at least $2,000/month of rental income, plus living for free and no home payment.
The Woman’s Guide to Investing
At that point, you can stop buying homes and jump into the REIT game. With your job, rental income, and a blog, you will be unstoppable. Then when you move overseas, you can replace yourself in the home with a residential manager.
If you plan correctly, you could have (at least) $2,000/month rental income, $10,000/month in dividends from REITs, and income from your blog—all with minimal fuss from tenants and customers. Now, that is what I call a rich life.
The key to getting this lifestyle is being obsessed with the idea of passive income and achieving your goals. People (especially your family and friends) don’t want to see you doing well. Find like-minded people and move in those circles. You are a sum of the five people whom you spend the most time. With that, good luck, and see you in the next episode of RE Lifestyles!
- PDF of the Month: Don’t Gamble with Retirement 3+4 (696-Page Free PDF)
- Free PDF Downloads: Download FREE PDF books here
- Financial Mindset: Become CEO of Yourself (book)
- Retirement Planning: Don’t Gamble with Retirement 4 (Free PDF)
- Investing: The Pros and Cons of Dividend ETFs (Free PDF)
- Cryptocurrencies: The Magic of Cryptocurrencies (Free PDF)
- Real Estate: Real Estate is a Mindset (Intermediate) (Free PDF)
- Business: Retire Rich, Retire Comfortable with a Business 2 (Free PDF)
- Everything!: The Biggest Book on Passive Income Ever! (book)(Web Edition)(Art Edition)
- I bought a Kindle Oasis: Check it out Amazon
- Read My Books for Free: Free Kindle Books Schedule
- Sign up to Access our “Hidden” Free Kindle Book Schedule
- My first Children’s book: A Child’s First Book on Passive Income (book)
- Book Reviews: 54 Takeaways from 54 Books (book)
- Want to Build Passive Income from Books and Affiliate Marketing? (Learn here)
- Writing: Can Grammarly Make You a Better Writer? (direct)
- My Favorite Chromebook: The Ultimate Chromebook (direct)
- Follow us: On our Facebook Page and Join our Facebook Group
- Amazon Author Page: Check out my author page on Amazon
- Monthly Dividend Planner: Check it out on Etsy
Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
Leave a Reply