Real Estate’s Role in My Early Retirement

Real estate is a neither a good investment nor a bad investment, it’s simply one option out of many. For me it was and remains a big part of my portfolio currently about 20% not including my primary residence. I’m not writing this to convince you that real estate is right for you, or that it was better than other investments for me. This is simply the story of how real estate contributed to my success.

Real Estate Investing is No Vacation

Like many things, I began investing in real estate because I saw my parents’ example. Growing up, my parents had a vacation home, a two family vacation home, and they would rent one apartment to help defray the costs. Eventually they added another vacation rental property. I also wanted a vacation home and why not have some rental income to help with affordability?

I bought my first home at the age of 25, not a rental but where I lived. Still, I had a roommate to help with costs. By the time I was 30 I had sold that home and moved in with my fiance in the home she owned but that we rebuilt after a tragic fire.

With the money from the sale of my condo, and some of the insurance money, we bought a three family vacation home at the NJ shore, renting two apartments and using the third as the management office/living space.

Oh, and just for reference for today’s investors and home buyers, our interest rate on the mortgage was 9%.

Three years after buying that property and with a lot of built up equity in our primary residence, we refinanced our home and paid off the rental property saving tens if not hundreds of thousands of dollars on interest because we lowered both the interest rate and the term (going from 30 year mortgages to 15 year).

Vacation rentals are more difficult to manage but it wasn’t too much of a burden.

The next six years consisted of many twists and turns financially speaking but the one constant was that we maintained a very high savings rate. This savings allowed us to begin thinking much more strategically and long term. In 2009 we bought our second vacation rental property, this time in California.

It would be both an investment and a “vacation” property for us. Vacation is in quotes because every vacation was spent working on some project to improve or maintain the property. These were working vacations for sure (and they call real estate a passive investment).

Again, in 2010, just one year after purchasing this latest investment, with lots of built up equity in our primary residence in spite of the recent bursting bubble, we refinanced to yet a lower interest rate and took enough cash out to pay off the second rental property. We were still careful to leave plenty of equity, so at no point were we ever under water in spite of two major refinances and a housing crash.

The Plan Comes Together

In 2017, after selling a business, we bought our retirement home in the same area of California where our rental property is located. Since we aren’t retired yet, this too has been rented, providing extra income until we make the final move.

Now in 2018 with more equity in our primary residence than the amount left on the mortgage, we are selling our home of 19 years in my case and 25 in my wife’s case. And the best part is that we don’t need to buy a new house to live in as we’ve already done that. The proceeds of this sale can now be invested to generate both growth and current income.

For six months a year, we’ll live in the three unit rental property in NJ continuing to rent two apartments to generate extra income. The other six months will be spent in CA where we’ll keep one property as a rental and live in the other. Eventually we can sell the CA rental and might even downsize from the NJ rental.

Real estate offered us options and when you retire early options are important.