Retire by 40 (in 5 years)?

[want2retire]

Hi all,

Long story short, I'm looking to retire within 5 years and am hoping the community here can be a good resource to help.

I've been working since I was 12, and left a great job in the mortgage industry to start an e-commerce company. I owned that business from 21-30yrs old, until the great recession wiped out my entire net worth and put me out of business at the same time.

In 2012 I left that business behind and took a contract job in IT. The contract was short term and in 2013 I found a really sweet F/T work from home job (also in IT).

In between the contract job and my current WFH job I started a side business. The side business was a sort of fall back in case my contract ran out before securing F/T perm work. So the side business just sort of sat dormant until last spring when I decided to try to make something of it. Last year it net me an additional 65K of income. This year it's on track to net me over 100K and will surpass what I make at my F/T job.

I'm also planning to purchase two rental properties within the next 12 months (with no leverage).

Current age: 35
Income: 100K yr (plus side business)
190k mortgage at 4% (no other debt)
Total monthly expenses: $3,000 (including mortgage)

Although it sounds great to work from home making decent money, the environment at the job has changed and is burning me out. My goal is to pay off my mortgage, build the business up to a point where I can sell it, use the windfall to purchase enough rental properties to replace my income, hire a property management company, and retire (or at least semi-retire as a R.E. investor).

I've been living fairly frugally and definitely do not consume everything I earn. I do however want to "splurge" and purchase a vacation home in South Florida to use during these frigid northeast winters. This of course will add another mortgage to pay off, but with the amount of money I pay in state income tax it should be pretty close to a wash (Florida residents are not subject to state income tax if they live there 183+ days per year). I could buy a property there cash, but that would take away from the 2 investment properties (in cash) I was planning to buy this year. I plan to pay this mortgage off by 2018/2019.

I'd like to hear your thoughts or if this is just a completely naive plan.

I know that's quite a bit of info to digest, but hopefully it should kick off a healthy discussion

Thank you in advance!

 

[nash031]

Welcome!

Do you have any other assets? Putting all your eggs in the real estate basket is more risk than I would take on, and managing enough rental properties to offset your current $36,000 expenses could be considered full-time work by some.

In addition, I'd urge caution on thinking $36k is going to be your expense requirement for all time starting at 35. Married? Kids? You'll live another 45 years plus or minus a decade, and that's a long time and lots of things change!

I joined this board at 35, now 38 already things are changing for me... Still planning and progressing on my track as initially planned, but now acknowledging I may not be able to take on the same amount of risk as I was three years ago. It may or may not affect what I do in four years... we'll see in four years!

Also, if I may be so bold, what about the Great Recession wiped out your net worth?

W2R might seek copyright compensation with your handle. ;-)

 

[W2R]

Welcome, want2retire!

As nash031 hinted, my username on this forum originally was Want2retire. I finally managed to retire in 2009, and changed my username so I no longer have any claim on that username.

But I'm thinking, maybe that's a good omen for you! I'm hoping that you can retire soon, too.

 

[want2retire]

Welcome!

Do you have any other assets? Putting all your eggs in the real estate basket is more risk than I would take on, and managing enough rental properties to offset your current $36,000 expenses could be considered full-time work by some.

Thanks for taking the time to reply! I know it seems like I'm putting all my eggs in one basket, but I was considering diversifying across several properties. I certainly wouldn't want to put everything into one office building or apartment complex. My strategy would be purchase single family properties as rentals which would allow for easier liquidation (it's easier to sell a single family than a larger building). I just really like the idea of an investment that I can touch. Plus, if I can have an income producing asset that's a nice bonus!

With that many properties it would most certainly be a F/T job to manage them myself and I would definitely opt to use a property management company.

In addition, I'd urge caution on thinking $36k is going to be your expense requirement for all time starting at 35. Married? Kids? You'll live another 45 years plus or minus a decade, and that's a long time and lots of things change!

I don't currently have kids, but will be getting married at some point soon and would like to have them. I wasn't planning on 3k being static expenses. I was only considering retiring when I can "replace" the income I make at work so I would need at least 100K yr to feel comfortable.

Also, if I may be so bold, what about the Great Recession wiped out your net worth?

I was young and dumb and reinvested most of the profits back into the business because for every dollar I put in, it kept spitting more back out . Then when the recession hit instead of cutting my losses I poured everything in to save it.

Welcome, want2retire!

As nash031 hinted, my username on this forum originally was Want2retire. I finally managed to retire in 2009, and changed my username so I no longer have any claim on that username.

But I'm thinking, maybe that's a good omen for you! I'm hoping that you can retire soon, too.

Congrats on retirement! I'm honored to be able to use your name and yes hopefully it will be a good omen. Thank you!

 

[Senator]

Good luck in retiring by 40...

First things, retiring by 40 is near impossible to do.

You can be self-employed, but that is not retiring. If your self-employment income surpasses your FT job, go for it. Even if it is less, being on your own is worth something.

Rental income can be great, but a bad tenant can cost you. Understand cash flow and tenant screening.

 

[FreeBear]

First congratulations on all your hustles, side and otherwise. Looks like you're able to make decent money taking risks. I admire that in entrepreneurs like you; I'm to lazy and chicken for this stuff!

Do you want to fully retire and never w*rk again or do want to work, but just not in a cube for "the man"? Makes a big difference, esp at your age. If you want to w*rk for yourself, I suggest checking out Money Mustache. He w*rks for himself doing only gigs he likes, but is sitting an egg nest of at least 25X (4% rule) of expenses. This is why he only does w*rk he likes!

I can't tell you need 36K or 100K to retire. This probably the most important thing to figure out. Need to understand current expenses, then project into a multi-decade retirement. Not a trivia exercise...

In round numbers, you'll need at least 1M in investments (4% rule) to produce 40K of yearly "income". In my location, it would probably take almost 1M in residential single family homes to produce this income after taxes & expenses, assuming properties are owned free and clear. Many (most?) here would think you'd be crazy to retire so young with "only" 1M and 40K/yr expenses, unless you plan to at least w*rk part time. You also mentioned 100K income... The numbers seem staggering, but you don't mention how much money you have saved.

I'm not a real estate guy, but my dad was. It's not for everybody, and it's not easy money for most. Seems like you have to like the business and know what you are doing and have enough cashflow to survive bad situations! I'm concerned that you don't seem hands on in terms of managing the properties and doing upgrades/repairs. Money going into a strangers pocket...

Perhaps you can get into RE gradually, while investing the reminder. It will help with liquidity while keeping the $$ working between RE acquisitions & business ventures. As years go by, business mistakes, RE or otherwise, have a greater impact on odds of a true no-w*rk retirement. Why RE and not just sock $$ in low cost index funds? Or do both?

Different strokes for different folks. Glad you're thinking about your future. I FiRED last year at 46.

FB