So now let me give you specific use case of someone I know and they are using real estate investments to invest in their future and create financial independence
- A young couple fresh out of college with $35K of debt, a big car payment, and 2 jobs they don't like and looking to become financially independent and retire early by age 30. (What could they do)
-
- Well, they're young and have time and energy on their side.
- They don't have any assets to speak of, make decent money but have limited credit
- They should cut their expenses to the bone and live hyper frugally
- They should sell their very expensive car and make do with one car
- They are interested in real estate already so should actively network at local meetup groups and their local REIA
- They should actively seek out someone who is willing to take them under the wing and show them the ropes
- They should advertise as house buyers using cheapest methods possible (bandit signs, doorknocking, business cards, networking, social media, and direct mail once they can afford it)
- They should try to find a house to buy and move into. Since their credit is poor and they don't have much cash for a down payment they should try to find a distressed willing to sell on owner financing, subject to their existing mortgage, or a property they could rent to own.
- Move into the house they found that meets their criteria and use some sweat equity to fix it as a live-in flip while working on improving their credit
- Continue marketing for more properties and assign a few / wholesale a few contracts so they can raise cash for their savings and next down payment
- Now that their credit is better and have saved enough for a small down payment they find the next suitable house to live in move into that house and get an FHA loan to get long-term fixed financing
- Now use the strong equity position from on one of the first properties they purchased as collateral for an equity loan at 10% from a private lender and pay off the $35,000 of high-interest credit card debt thereby reducing the debt payments and increasing their savings rate
- After living in this property for a year do it again and turn the property they just moved out of into a rental. Now tenant is paying their mortgage and equity loan to the private lender
- they can continue doing moving to a new property every year while still earning their incomes, keeping expenses low, saving aggressively and using their creative financing strategies to acquire properties to hold as rentals
- After 5 -6 properties the young couple can quit their jobs and live off their rental income, wholesale fees, and starting flipping properties for more income now that they have more time
- By the age of 30, they'll have 10-12 properties and be financially independent so long as they maintain a low cost of living
- I refer to this strategy as hyper savers and live in flip house hacking
- What makes it work is the willingness to make sacrifices on their lifestyle while their young (one car, eating out less), flexibility to be able to move frequently, and the understanding that buying assets instead of consumer goods allows them to generate passive income and restructure their debt.
