How I’m living Rent Free
Tags: Entrepreneurship, Real Estate, Real Estate Investments, Investing, Millennials

About a year and a half ago I read a book called Rich Dad Poor Dad. This book changed the way I look at money and ever since reading it, I’ve been looking for ways to grow my passive income and set my future self up for financial freedom. After some research, I’ve come to the conclusion that Real Estate Investing is what’s going to get me there. The purpose of this article is not to talk you in to why real estate is a better investment than stocks, bonds, crypto, etc. It’s something I’d like to share because anyone can do it (and should) to allow themselves to live the life they want. This article outlines the steps I took to live rent free.

Step 1: Save and Invest at least 10%

I’ll be honest, I am not the most frugal person. I spend most of my weekends eating out, meeting friends for drinks or traveling. Realizing years ago that I am not exactly frugal, I started setting aside money before it even hit my bank account. At first it was into a 401k, everyone tells you “save for retirement now” so I thought it was the safe play to do… knowing nothing about a 401k or stocks I put away 10% of my pay check. After about 2 years of doing that, I looked at my 401k savings and it wasn’t really yielding the results I wanted. So I decided to learn more about the stock market. Fortunately, I was working at a public company so I decided to invest in that because I knew the company and industry. Around the age of 25, I started putting 15% of my pay into my company’s Employee Stock Purchase Plan. This basically allowed me to invest money without ever seeing it, buying stocks at the strike price and owning them out right to sell at market value.

For example, say your company is public and when you’re hired the company the stock is being traded at $15. That’s your strike price. Let’s say a year later the company stock is being traded at $20 a share, you are still purchasing them at $15/share but you can then go sell them for $5/share. Doesn’t take a math wizard to see this can be fruitful.

It turns out investing your money is indeed a good idea.. go figure. This was my first step towards living rent free and I didn’t even know it yet. It took years for me to get to the point where I honed in on real estate as an investment, even so I still invest in a 401k and stock. Side note — I use Acorns to invest in stock, and while my current company is not yet public I still put a total of 20% of my income going towards my 401k and Roth IRA. Being self aware has helped me make tweaks to my saving habits. If you’re struggling or on a tight budget, start small. Invest 1% this month, then 2% next month, and keep going. At the end of a year you’ll be putting aside 12% of your income without even noticing.

Note — At first I could not afford to put money aside, and that was okay. I started a side hustle and making extra income in the on demand economy. Driving for Postmates, charging scooters for Lime, using Turo to rent out my car. The key here was to save all of this money so I could invest it into a new property.

Step 2: Educate Yourself

I hear a ton of advice about mastering your investment choice before you actually start saving. I say, why not do both? Education is an absolute necessity. I don’t mean education in the “traditional” sense. A college degree is great and all but how many of us actually use what we majored in our careers? Educate yourself on things that are relevant to your life and things that you love. I am obsessed with the idea of passive income. Why? Because it will buy me time and with time I can do the things I truly love. My goal is to be living on a beach off of passive income within the next 5 years. Enough about me though, figure out what you love. Is it spending time with family? Awesome, passive income will give you that time. Is it helping care for your parents? Great! Passive income will help. In order to arrive at that destination though, it first takes an education. I’m not financially free yet but I would not have been able to purchase a 2nd property and live rent free without first educating myself in Real Estate Investments.

At first it started off with reading Rich Dad Poor Dad. Having discovered this passive income thing, I started to read more on the subject. Turns out, there is a plethora of information available to those of us willing to put aside 10–15 minutes to do what it takes to find it (search real estate investing on google). There are hundreds of books on Real Estate Investing like Rich Dad Poor Dad by Robert Kiyosaki, The Millionaire Investor by , Quit like a Millionaire by and How I turned $1,000 into $100,000 in Real Estate by So and So that are all incredible guides to wealth by people who have all done it. The trick here is that you must to take the time to educate yourself before you jump into any type of investment. This is your life, chances are you already know where you need start. If you don’t, read a book.

I then discovered a podcast called BiggerPockets. This podcast centers around Real Estate Investing, each week they host an investor and talk about their story. My favorite part is that the majority of the people they host did not come from money. They built their wealth through real estate, some starting with literally $500, some without citizenship in the US, others with a family and a full time job. This has made all the difference because not only have I been able to listen and (attempt to) replicate what they’ve done but I also learn from their mistakes.

Besides Podcasts, getting involved in Real Estate Investors meetups in my city has made a huge difference. We meet 3 times a month to talk about city updates, what’s working, what’s not, things to look out for, properties for sale, etc. Every meeting starts with an introduction and where you are in your REI journey. Then we list any deals we have in motion on a whiteboard and can network afterwards. After intros and deals we always have a guest speaker who is crushing it in Real Estate Investing. This has been immensely helpful because everything these people are going through is relevant — it’s in my city!

Lastly, If you don’t want to join a meetup, that’s fine. Find someone who is investing in real estate and take them out to lunch or dinner. Learn about their journey and see if you can add value to their business in anyway. Come prepared with some questions, make sure to pay for the meal and think about what value add you can offer. The big discovery I’ve made when it comes to educating myself on the subject is to stop trying to reinvent the wheel, it’s already been done. Just follow the steps of those who are already doing it. It’s that simple.

Step 3: Take Action

It definitely didn’t feel this way, but by setting aside some money I was already taking action. By reading books, I was taking action. By charging Lime scooters, I was taking action. Taking action in real estate does not only mean going and purchasing property. It can mean reading, networking, meetups, listening to podcasts, etc. Once you have a solid base of knowledge, then you must take more action towards that first deal.

I’d been taking action by looking for properties (for months) on websites like Zillow, driving around neighborhoods I wanted to buy in to see if anything was up for sale, talking to real estate agents, etc. But the way I found my first deal was different. One day, I came home after work and noticed that my neighbor had put up a for rent sign in his front yard. Having listened to various podcasts, read several articles and seen some webinars that recommended reaching out to landlords offering to rent, I decided to strike up a conversation with my neighbor. He turned out to be a really nice guy and at first I asked if he’d let me see the house because I may have some friends that would be interested in renting it… which was true, I had friends looking for a place to live and living next door to them sounded fun. He gave me a quick tour and I instantly knew this was not the type of place my friends would want to live in. The carpets were brown from all the stains, the tile in the kitchen was peeling, the walls were yellow from discoloration, the doors were rotting, it had window AC units and wall heaters, and zero appliances. The place was a mess, I’m not sure how this guy was hoping to rent it out.

I let him know I’d talk to my friends but wasn’t sure if they’d go for it due to the condition of the house. We exchanged numbers and I let him know I’d get back to him if they were interested. That was around the end of May. A week passed by and it was now June, and I noticed that the for rent sign was still there. While at home for lunch, I happened to see his car parked outside of the house. I walked over and greeted him and asked how the property management company was doing finding him tenants. He opened up and expressed some concerns with his property manager as well as having a difficult time getting tenants — he was on the hook for another month without rental income. I asked bluntly if he’d ever consider selling the property, after some conversation I knew that this was not his primary residence. Still, he said no, he wanted to keep receiving the rental income on this property. We did however discuss Real Estate Investing and he opened up to me about how many properties he owned — 42. His daughter owns 10 and his son owns commercial real estate. I told him my story and how I’d bought the house next door before really learning about Real Estate, and how I was looking to become an investor myself. I made sure he knew to contact me first if he ever had a property that was stressing him out or that he just needed to unload.

A couple of weeks went by and it was now nearing July, when I decided to call him. I asked again how everything was going, I let him know my friends weren’t interested in renting it unfortunately but that I would be very happy to buy it still. He agreed to come have me look at it again before we even discussed the sale. He showed me the house and the basement this time, told me about some water damage the house had several years back and then said he would be willing to sell it for $230,000. Looking at comps (comparing his house to similar ones in the same neighborhood) in the area, I knew that this house was not worth $230,000. I told him that, and he said he knew its not worth that but he wasn’t truly looking to sell it. Due to the renovation costs, the price I was willing to pay was $175,000. Knowing fully my numbers would work at $200,000 and that he’d be more inclined to meet me somewhere around there.

A couple of days passed by and he called be back now with more interest (it was July by this point), he offered to sell it to me at $210,000. I said the most I would do was $200,000 if he were to offer seller financing. This is where my education paid off big time. Seller financing is exactly what it sounds like, instead of going through a bank, the seller serves as the bank and you pay them the interest that would otherwise go to the bank. This is a win win for the two of us, on one end he was still getting his “rental income” plus interest and very little risk, on the other end I didn’t have to go through all the hurtles the bank makes you go through and could negotiate the downpayment and interest rate. After discussing terms, we agreed to certain terms — 5% interest rate and 10% down. We scheduled time to meet with a title company and on July 22nd, I closed on my 2nd property.

It’s now been nearly 4 months since that and I’m still living in a construction zone (just need to finish kitchen cabinets) but it’s been absolutely worth it. I got tenants to rent out my previous house to cover my mortgage + $300 in rental income. I found a roommate for this house who is going to cover $750 of the $1,022 mortgage. That leaves me with $28 at the end of each month. I get paid $28 just to live there. Granted, that’s not a lot of money when you put it that way. But when you subtract the rent that I was paying, that’s over $1,000 saved each month that I can then use to invest in my next property.

What’s Next?

I am still in the first inning. My plan is to repeat this process through other properties to the point that rental income will replace my 9–5 income. The best part is that I don’t need to wait to save up another $20,000. I just had to do it once. Refinancing my first property, will help my numbers look even better than $300 in rental income, Cash out Refinancing my 2nd property will allow me to take out the money that I put into it and use it to purchase another property. I could not have done this without educating myself first.

P.S. This is in no way easy. It sucks not being able to bring guests to my home because there’s no air conditioning (there is now). It’s tough going from living in a master bedroom with my own bathroom, bathtub and rainfall shower to sharing a bathroom. I felt broke picking up lime scooters, delivering people’s food on weekends, having someone else drive my car, etc. But you know what? In 5 years when I am living on a beach in Costa Rica off of these sacrifices, the people renting my car, eating out will be doing exactly the same thing.