An engineer used up his entire 401k to invest in Real Estate
And is now making $9k per month cash flow income from it.
An investor case study🧵👇
A lot can be learned from folks who have achieved tremendous scale.
Eg - I talked to an ex-colleague this week raising a $100M dollar fund in the niche of active senior housing and learned a lot about granular tactics.
But nothing is as refreshing as meeting someone taking a counter-intuitive path.
They remind me that you’ve got to try to think like the little kid who hasn’t had his inventiveness beaten out of him.
That's where the best ideas come from.
This thread attempts to radiate one such story I had come across.
My goal is simply to educate and motivate without taking any stance.
Everyone is different so please be thoughtful about the risks.
Let's jump in.
I'll be using a QnA style:
- to avoid including any bias
- because paraphrasing dilutes the insights
Two clarification points to give more context before we dive in:
1. He did not borrow against the 401k but liquidated all of it, which was the surprising part for me.
2. 9k is just cash flow income. Does not include:
- Principle paydown
- Any appreciation
- Tax breaks
Here we go!
👉What is your cash flow income per month right now?
About 9k per month after subtracting debt service, taxes, and expenses.
👉When did you start doing REI? How many units do you have?
I started at age 34 - I am 46 now.
I have 6 duplexes and 1 triplex.
At what cash flow income would you consider quitting your full-time job (if you wanted to)and have the lifestyle you want?
$200k/year.
👉How many hours per week do you devote to REI? How many hours do you work on your W2 job?
I am a full-time 40+ hours a week automation engineer. I spend about 10 hours tops a week on RE.
👉What led you to get started in RE?
My wife. She knew investing in real estate was the financially right thing to do. I was opposed to it first.
👉How much initial capital did you start with? How did you get this funding to invest?
I used every penny from my 401K which was $116k. After penalties, I was left with a little over $80k.
👉What's been your strategy?
I use the tortoise strategy - in no rush but I know the power of RE to amplify my retirement income.
I buy in a C-level area of Rochester NY. Only buy houses that need no work and are in above-avg condition. I buy to hold and rent, no flips.
I keep every penny I earn in a separate “business” account which I let grow until I have enough to buy the next.
Now that I'm nearing my 10 mortgage limit, my strategy is to pay off the one house which I owe the least, to finance the next.
👉What's your buying criteria and how did you decide on it?
I want my investing to be passive so I look for good roofs, vinyl siding, or asbestos so less maintenance.
I want to see a good DRY foundation. The interior can be fixed.
The exterior is what takes the brunt of mother nature. I want to see the house already filled with tenants that are current with their rent.
Numbers-wise - my minimum income per house, after mortgage/tax/escrow/insurance is > $700/house/month. If I can't get that, I don't offer
👉Did you have partners? How did you decide who to work with?
My wife is my only partner.
👉Was there a turning point that helped you go faster? Or what was the best decision you made?
The turning point was realizing when I hit 5 properties, I could afford to pay someone else to do my work. Huge relief!
The best decision I made was to pull every penny out of my 401K. My return on investment is currently 4x faster with real estate. As I grow, that return will be greater and faster.
But as you start to gain traction, it's like a snowball rolling downhill.
👉What were your biggest fears? How did you get over them?
At first, it was the fear of non-paying tenants. But then like any fear it was unfounded.
It sucks, but I don't struggle when a tenant doesn't pay.
👉What's been the hardest part of your journey so far?
Easily the damn pandemic. At first, I heard talks about a rent strike, so I contacted my banks and asked for forbearance which I received. I told every tenant to NOT pay me for 3 months straight.
They were all thankful. After the 3 months, I asked for rent and they all paid. It could have easily ended very differently.
👉What were the biggest mistakes you made? If you had to start over, what would you do differently?
Being nice to my tenants sometimes bites me in the short term, and I feel like it's a big mistake but in the long run, they all pay their dues and more.
Be human first!
👉What tools, apps, resources, skills, techniques, and habits were most useful to you?
I, fortunately, was able to gather many skills over the years.
I was a patriot missile operator and system mechanic in the army, I went to school for the electric trades.
All these skills helped me do the majority of repairs on the houses when needed and save the costs.
I’m at the point now where I have a handful of guys that I pay to do the job for me but I know when it’s a good job vs not!
👉What's your advice for W2 earners setting out to be their boss?
It's not a race, as you've heard before. Start early in life. If I could start over at 25, I'd buy a duplex or triplex and live in one and rent the others.
Save that rental income, DON'T SPEND IT!! Use it to grow the business and have the reserves.
You never know when you have to replace the lot line to the street because the tree roots destroyed the originals causing the basement to fill up with shit water.
Ask me how I know!
👉What are your future REI goals?
My goal is to hit 16 properties.
When I hit that, I will officially retire and be my own manager. I will continue to buy more properties after retirement and keep growing until I die so I have something to pass to my children when I'm gone.
👉What are you looking most forward to when you reach FI?
I just want to wake up in the morning without having to worry about making it to work on time. Like any parent, I want to travel and see my kids succeed.
That's a wrap
Hope the story shows what's possible and that anyone can do it.
Also, note that the goal of this thread is to expand your purview.
Not advocating that you should do the same.
Everyone is different, so please don't just blindly follow the insights here.
Consider your unique dynamics before picking your strategy.
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