“I reached financial independence at 32 with a wife, a house, and two kids, primarily through real estate investments.”
Meet Leif Kristjansen.
Leif lives a quiet, pleasant life with his family. Except when it’s not quiet, when he and his family run off to Europe for several months at a time.
And no, Leif didn’t earn a massive salary before reaching FIRE (financial independence, early retirement). Nor is Leif a kept man – his wife isn’t some a hotshot lawyer pulling in six figures. She retired two years before he did!
Here’s exactly how Leif did it, and how you can do it too.
Leif’s Life Before Real Estate
“I worked in a lab, which probably isn’t a job which you hear about early retirees frequently.
“Scientists make a decent income but nothing that would wow anyone. People in the sciences also usually like their jobs a lot due to some inexplicable internal love of science, which also stops them from quitting early.”
Leif found himself intrigued by real estate investing and started saving money. When the Great Recession hit, and everyone else was pulling their money out of stocks and real estate, Leif saw an opportunity.
The Hunt to Buy His First Rental Property
“The first house I bought was an all-cash purchase of a cheaper house, because I was too scared about the whole landlording experience to feel comfortable signing a big mortgage.”
Buying rental properties is a numbers game, as Leif quickly discovered. He scratched his head when offer after offer failed to connect. “There would only be a few hours between a house being listed and an offer accepted, so you had to move incredibly quickly. I must have tried to buy 20 houses before I was successful.”
When I asked Leif for details about the market he was looking to invest in, he explained: “It was a working-class neighborhood in a major US city. Not scary to be in, but not as nice as where I lived.”
Leif’s patience in making offers and sticking to his numbers paid off, when a seller finally accepted his offer.
“The deal was a $60,000 all-cash purchase, out of state during the 2009 recession. It was all the money my (then) girlfriend and I had in the world, so it was terrifying. But I had run the numbers over and over and it seemed like a smart move.”
To give credit where it’s due, it’s also a bold move, buying your first rental property out-of-state. Leif and his girlfriend weren’t even homeowners, had never bought any real estate before. “We were still renting an apartment, and worried maybe we were doing something stupid, but still it seemed smart to me.”
I asked Leif to explain further. What was the rent? The cash flow?
“The tenants were paying about $800 a month in that house and the cash flow was good (around 8% return all things considered). They have been there for a while so the rent is low for the area, but they don’t ask for much or give me any trouble.”
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Free Mini-Course: Passive Income from Small Multifamily Properties
Leif and his girlfriend discovered they liked having a rent check coming in every month.
“That purchase worked out nicely overall, so I bought a few more all-cash houses and eventually realized it’s crazy not to get mortgages.”
It’s worth mentioning that when you don’t earn a huge income, you need to live on a fraction of your income if you want to retire young with real estate. Leif and his wife lived on half their income (less than half, in some years), so they could funnel money into real estate investments.
As he scaled and evolved as a real estate investor, he also found that housing markets evolve, too.
“The biggest issues I’ve had to overcome as I’ve expanded were based on the changing market. I didn’t have the money to stick with one market I liked and buy enough houses to retire. Cities and neighborhoods that I liked would go way up in value before I could muster up the money to buy another place.
“One part of the solution was living with the fact that I didn’t love some of the houses I bought, and I eventually ended up selling some of them.”
Which, of course, is the upside of rapidly appreciating markets. It may be harder to find good deals as a buyer, but as a property owner, you also get to sell and capitalize on those gains.
Managing a Growing Portfolio
Rental properties aren’t 100% passive income, of course. They require management.
“Another lesson was hiring property managers. Once you own enough rental properties, just dealing with them becomes close to a full-time job, so pay someone else to do it and just take the slightly smaller checks.
“It’s worth it to manage your own houses for a while, but I recommend planning to lose $100 per month to a property manager when you are deciding if you should buy a house or not. If you plan for it from the beginning it won’t bother you when you pull the trigger.”
In other words, always include property management costs when you’re calculating a rental property’s cash flow, regardless of whether you plan to manage it yourself! (And to make it easier, use our free Rental Property Calculator to run the cash flow numbers.)
The Switch to Using Leverage & Rental Property Loans
Buying rental properties with cash is safe, but it’s also slow.
“Mortgages are half the benefit of investing in real estate, where the other half of the real estate pie is that its consistent cash flow to live off of.
“Leverage yourself as much as possible to start while you have a job, then start shedding your debt as you close in on FIRE and early retirement. Paying off your rental property loans increases your returns by a huge amount, but might eat up your cashflow while paying down the mortgage.”
In other words, in the beginning your goal is to build a portfolio of cashflowing rental properties as quickly as possible. Take advantage of leverage, use rental property loans to cover 80% of your purchase price. Then as you build a portfolio, your focus can shift from buying properties to paying down debt.
“I went the other way around out of fear, and it was a huge mistake. Doing an all-cash purchase seemed like the right decision at the time and maybe it was right for me, but it didn’t do me any FIRE favors.”
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Leif’s Other Landlord Advice
“A second lesson I’ve learned is to carry a decent amount of cash for repairs, or have some low-interest credit you can dip into when needed. I have had many unnecessarily stressful situations from not having enough cash around.”
Unexpected costs will hit you, and often all at once. That’s why it’s so important to budget for those infrequent-but-inevitable expenses like vacancies, repairs, and so on. Look no further than these graphs of my own rental property cash flow.
The trick? To put budgeted money from the rent into a separate operating account each month.
Leif knows all too well. “Repairs will happen when you have the least ability to handle them so stay prepared.”
Life After Reaching FIRE from Real Estate
The nice thing about FIRE? You can choose to work as much or as little as you like.
“I still work part time as a scientist, mostly because my original job was entertaining, and doing nothing from the age of 32 onward seemed like it would get boring eventually.”
I asked Leif about what his life looks like, now that he’s financially independent and working only the hours he feels like working.
“It’s very comfortable right now. My wife and I were never big spenders so we didn’t have to change anything. For our budgeting we do have to be thoughtful about our two little ones. Saving money for school is important so I have to make sure I set aside enough for their future.”
But for all that, Leif doesn’t consider himself deprived. “We go out often and travel a lot but we don’t buy many things for home. Actually, we have a multi-month European trip we are planning right now, which is something I could have never done before.
“I’m loving the lifestyle, now that I think about it.”
It’s hard to argue with that!
In his (newly) free time, Leif is launching a blog about his experience, at FiveYearFIREescape.com. I asked Leif what his final advice was, for anyone thinking about pursuing FIRE with real estate. “Stop waiting. There’s no time like the present.”
What’s your target FIRE date? How much monthly income do you need to reach it? Share your plans and experiences below!