Owning Rental Property: One Man’s Early Retirement Plan

Joe Udo does not have a typical response when someone asks him what he does for a living. He did back in 2010 when he was a computer engineer at Intel. But physical and mental exhaustion caused him to quit his day job—with the specific goal of retiring by the age of 40. Nowadays, he answers that question with something along the lines of, “a stay-at-home dad and multiplier of income streams.”

Owning rental property became one of those income streams while Joe was still a computer engineer in 2007, when he and his family rented out their old home after moving.

The Landlord Decision

Joe entered the housing market in what he considers the easiest way to do so: by renting out rather than selling your old home.

Passive income is important to Joe’s overall goal of retiring by 40. “I read that rental property is an excellent way to generate passive income. You can increase the rent to keep up with inflation and other costs. The renters will pay the mortgage for you, and after the mortgage is paid off, the rental income will be all yours.”

In all, Joe and his family have owned three rental properties in the Portland, Oregon, area.

“In 2011, we acquired a fourplex when the housing market was still down and the deal was a bargain. Last year we sold our original rental property and the fourplex, and we acquired a duplex.” The decision to sell the fourplex was twofold. First, the market was hot for sellers, so Joe wanted to cash out some profit. And second, at that point in time, he was tired of being a landlord.

The duplex was acquired because Joe’s growing family wanted more room in the near future. He explains, “We plan to rent this property out for two to five years and move into it at some point. My mom can live in one unit when she’s here. When she’s not, we can rent out the unit to tourists and professionals with short-term stays. My dad is 70, so he might also move in with us at some point.”

Breaking Down the Numbers

“We are not making much income from the duplex at this time,” Joe admits. “The rent is below market because the previous owner didn’t increase the rent for seven years. I’m slowly increasing the rent to match market value. Also, there was some deferred maintenance on this property, so the repair and maintenance budget will be high for a few years.”

Still, most months, Joe has seen positive cash flow. His monthly rental income is $2,090, and his current monthly expenses (mortgage, homeowner association fees, utilities, property tax, insurance, and maintenance) average $1,980.

Lessons Learned From Owning Rental Property

While Joe says he believes rental income is a great investment, he has learned some lessons from his involvement.

“I learned that it’s difficult to find a great property manager. The management companies are always busy, and they don’t always keep a close eye on your property. Also, the screening is probably the most important part of being a landlord. It’s much easier to manage a property if you have a tenant who is financially secure.”

Joe is now his own property manager and has had minimal problems thus far. He has had a few, such as when a neighbor sent photographs of a renter’s handiwork—an unauthorized tree house carrying with it potential liability issues—but in general he’s quite happy with his decision to become a landlord.

[cf]skyword_tracking_tag[/cf]