I closed on house number two a few weeks ago and have been working at fixing it up. Before and after pictures to come upon completion.
Once this place is rented out my gross rental income will be right around $2k/month. Taxes, the water bills, and insurance eat up about $250/month (though I pay all these annually up front). Which means I’m netting about $1,750/month. I figure on shuffling about $500/month into a reserve account for future maintenance on the properties. Which leaves me with about $1,250/month net. With education related expenses coming to an end in a few months, that means the $1,250 ought to cover my personal expenses. Which means, I suppose, that I’ll officially be financially independent (FI).
FI is a funny thing to calculate and think about. In fact, the capital I used to purchase these properties has been in my possession since the summer of 2009. And I hadn’t worked from October 2009 all the way up until just about a month ago. So does that mean I’ve been FI since the summer of ’09? The money was in securities and the returns weren’t enough to completely cover my living expenses, but now that I’ve changed my investment into real estate, that same amount of capital is enough to cover my living expenses.
You might be inclined to say ‘no’, I wasn’t FI, because my returns weren’t covering my expenses. Which sounds reasonable. Except that someone could well be FI, living off of securities for years, but then have one or two years with low returns that aren’t enough to completely cover living expenses, then rebound back. Would you say that person is no longer FI during the 2-year bear market? Probably not, you would probably say they were FI the entire time. So maybe I have been FI since 2009.
Whatever, it really isn’t of any consequence other than bragging rights anyway. Not so much of being FI, but of how quickly I did it, in 2009 I was 25 years old.
So now the insured value of my properties is just over $400k (the replacement value, the minimum coverage the insurance company will issue a policy for for my houses). The combined assessed value for tax purposes is $270k. Realistically, if I wanted to sell the houses quickly, I could probably get around $160k for the pair. Which shows you just how nuts the real estate market is right now. I saw a listing the other day for an old farm house on 10 acres where the asking price was $130k. Six years ago it had an asking price of $1.5M.
So I’ve already got my eyes open for a third house. Which I could probably swing on my own, but things would start to get a little tight. Which is why I made an arrangement to go 50/50 with another investor for a short-term partnership where we will purchase a place with cash, fix it up, and put it back on the market, splitting all costs and proceeds. Which will leave me in a comfortable position to be able to purchase a few more rentals on my own.