How You Can Retire Early with Rental Real Estate

Some time back I wrote an article called the Early Retirement Blueprint.  I suggest you have a major catalyst investment working towards your Financial Independence plan.  My choice is rental real estate but others lean towards stocks and the 4% rule, while others make the move towards an online business.  Here’s a brief bullet point recap from the Blueprint:addtext_com_MDg1ODA5MTMyNjI1

  • Make sure all personal debt is paid off
  • Major investment that will be your catalyst
  • Secondary investment(s) that will bring passive income
  • Tax deferred retirement accounts prepared for your official retirement age
  • Emergency Fund that fits your comfort level

Today I want to dive into my major investment that is acting as my catalyst, rental real estate.  I want to give a little back story on acquiring the property and the timeline to show how things have developed.  I think it’s important to understand how everything started, while I have a catchy headline about retiring early this is not intended to be a step by step plan.

Mrs. Even Steven, not her name at the original time of the home purchase, bought a home in Florida in July 2009 for $205,000.  The home was purchased with an FHA loan and at the time Obama was giving money out just for buying a home.  The home was purchased as an investment for the future that Mrs. ESM lived in, well for a while.  Then love and happiness happens and I steal Mrs. Even Steven away to Chicago where we “give” Obama back all of his money and ask random strangers to live in the house for a few dollars each month.  Welcome to the world of rental real estate and our plan to retire early.

Later on in 2010 we rent the house in Florida and begin the life of luxury and spending all of the money on yachts, vacations to Europe, and fancy meats and cheeses (charcuterie for the distinguished).  None of this is true, although from 2010-2013 I’m not really sure we could tell you where the money was going that we received for rental income.  I know some went to pay back Obama and I’d like to think that the rest just built up in our savings, I’m not really sure, we were married but handling our finances separately.  I was still deeply in debt, in 2012 as I was paying back credit card debt and working on my next debt repayment plan for student loans we then began to discuss applying the rental income towards the Florida rental mortgage.  It also helped that in July of 2012 we purchased a home in Chicago that has 2 separate rental units besides the unit that we live in.  Some may call this house hacking, which by loose definition involves living in a house you purchased while allowing others to live in your home and pay your mortgage.  This is when the plan develops and more importantly the execution begins.

The day we made a significant decision to pay off our FL home was April 2013.  I know this because our debt thermometer on our bedroom door has this date along with an approximate mortgage balance of $189,000.  I can only assume that from 2009-2013 the down payment and small principal reductions of our regular mortgage payment brought this down from the original purchase price to the reduced $16,000 over the previous 4 years.  Here is a simple timeline that should help the back story:

2009—Buy FL Home

2010-Present–Rent Out FL Home

2012-Present—Buy CHI Home and Rent Out CHI Home

2013-Present–Made Additional FL Principal Payments

In 2009 the original plan like any 30 year mortgage was to pay off the home in the year 2039, simply make 360 consecutive payments at the 5.375% and you then get a deed to your home mailed out a few months later, I think they throw a parade and dedicate a street after you upon completion.  All things considered I would be 57 years old when the Florida home would be “free and clear” as the saying goes.  That’s not exactly ideal for early retirement.

In 2012 I was reading websites, magazines, and any books I could get my hands on that discussed paying off debt, financial independence, and early retirement.  I realized I was behind as all of the smart kids who were talking about savings rates and the 4% rule while I was wondering why everyone had 4% for an interest rate……that’s a financial independence joke, please keep reading I won’t make any other FI jokes I promise.

I had thousands of dollars in personal debt, mortgage debt, and didn’t really have an idea on our household expenses.  How can I dive into savings rates when I have $50,000 in student loans?  How can I contribute to my 401K or brokerage account when I have 2 mortgages?  I can’t retire early, I should just be happy I can pay all of my bills.

April 2013 was also a big moment for Even Steven Money it was when the website was launched.  That’s when everything really started and thus the 7 year outlook for financial independence, I encourage you to create your own FI day.  In 2012, we made a decision to research and buy a home that we would house hack, but April 2013 is when the action really started.  Kind of like the grand opening ceremony of a building, before that the construction workers are digging, but the building is not operational until that grand opening and that for us was 2013.

Here was the plan:

  • Pay off Florida home
  • Take extra Florida home income and pay off Chicago home
  • During or after pay off personal debt

3 steps and all of my math and calculations can be done using a Debt snowball excel sheet.  The calculations told us that in October 2020 (our original FI date) that all of our debt would be gone and we would have enough rental income to cover any expenses because at that point what expenses did we really have?  Basic expenses to live like food, clothes, and utilities and then whatever costs the home would need including insurance and taxes.  At this time that was all I needed a very simple plan that if we pay off both rental properties that the excess income would allow us to retire early and sail off on our financial independence day.  So that is my long winded back story on our rental real estate and how we got here.  One of the questions you may be asking is how can you afford 2 mortgages?  That is an important part of the plan, let’s look into that further.

Breaking Down the Plan

Our plan was more like a rough sketch back in 2013, but it certainly has a great foundation.  Here are a couple rules we follow to make our plan work and if you own rental real estate or are considering a purchase, I suggest consider adding this to your plan.  It’s important to understand your finances and your plan, I keep track of my income, expenses, and investments all at Personal Capital, seriously if you are not using technology to simplify your life, send me an email or make a comment in this very post and I will yell at you in all capital letters, thank you.

The mortgage payment from each home will be paid from your regular earnings, in our case this is our 9-5 job.  I can’t stress this enough because this is also the same method we obtained a mortgage with.  While Mrs. Even Steven was approved for a larger mortgage amount in Florida she set a smaller amount for her home buying budget.  While in Chicago we did the same, even as the mortgage lender added the going market rate for rent into our income, we chose to keep to a budget that fit our 9-5 income only.  Don’t stretch your dollar, don’t leverage up, don’t go big mortgage or go home.

If the mortgage payment for Florida is $2,000 that payment will be taken from Mrs. ESM paycheck, none of this money is from any rental income received from any property.  This goes for the Chicago property as well, any mortgage payment is directly from our 9-5 job.  This builds in financial security to our plan.  We have 4 forms of income that would need to fail for the mortgage to not be paid: Mrs. ESM Income, Mr. ESM Income, FL Rental Income, and CHI Rental Income.  There is also a reserve for home improvements/maintenance and personal savings accounts that could also be used.  Check out the flow chart shown below that gives a nice high level overview on how our funds are being used, the only update is I am debt free.

waterflow of money

I call this the Money Flow Chart

This strategy effectively minimizes your risk.  It reduces risk by adding layers of income to each potential mortgage payment.  As you can see above there are 3 incomes being put towards the FL Mortgage, this makes for the mortgage to rapidly decrease each month.  The mortgage amount itself not including insurance or taxes goes towards principal and some towards interest.  As the principal mortgage amount decreases  the larger amount goes towards the principal rather than interest.  This portion is all taken care of with Mrs. ESM Income, and then any additional FL rental income is then added each month along with the additional CHI income minus the housing maintenance reserve set aside in a separate savings account from CHI Rental Income specifically.  3 incomes all going towards the FL Mortgage.

In a few short months we will have a paid off rental home.  This is very different than a paid off home.  A paid off home results in zero income and still expects taxes, insurance, and maintenance to be paid.  In our scenario the paid off rental home in Florida, the rental income will pay for the taxes, insurance, and maintenance of the home and still provide a monthly income from rental income in longevity.

The plan itself essentially makes your rental home into a big dividend check each month.  Each month we expect to receive a monthly check that will deposited into our account, now like any dividend there is always the chance that the dividend will be cancelled, but the better tenant/company you have the more likely the dividend check will be in the mail.  Rental real estate and dividend investors have a lot of similarities, but that’s another article for another time.

Pay Off Home, Repeat, Retire Early

If you follow the Early Retirement path that I have chosen you will have 2 paid off rental homes creating enough income to cover your expenses in 7 years.  We are on pace to pay off our FL home in 3 years and 9 months so let’s call that 3.75 years and pay off our CHI home in 3.5 years.  The time to pay off a mortgage is intriguing and has a few variables, but it comes down to the size of your mortgage, interest rate, and amount of principal added*.

A good rule of thumb is that if you are able to double your mortgage payment the estimated number of years to see your balance travel down to $0 will be ~10 years, what I found interesting was that the higher interest rate you have the faster the extra monthly payment reduces your number of years to payoff.  This ranged anywhere from 10.8 years to 7.6 years as the annual interest rate increased.  I used the free mortgage excel calculator to run the scenarios just mentioned.


If you are enjoying house hacking like we are here in Chicago then using the above example of a $100,000 home, we are paying the monthly payment (PI) and then the renter is paying the extra monthly payment reducing the number of years to payoff your home in 10.8 years, the income of $477.42 each month most likely won’t cover all of your expenses but after the home is paid off you are on your way to early retirement**.  Remember we are house hacking so not only have we increased our income but we have also eliminated our house expense.  We just might be closer to early retirement than we thought.  Let’s see how buying additional houses can increase our time to early retirement and our monthly income.

Buy More Houses

In the examples below each option increases the extra monthly payment as it gets doubled, tripled, quadrupled, and quintupled the mortgage each time on a $200,000 mortgage, this ranged from the original 10.8 years all the way down to 3.1 years, which is logical to me as the larger extra payments are made the reduction in interest paid becomes less and less important.  While the number of years to payoff the home decrease, the added extra payments do not decrease your number of years at such a large figure as going from double your monthly payment to triple the payment.  This payment allows the mortgage to be paid off in 6.6 years and is 4.2 years difference from simply doubling your mortgage payment.  All other increases only reduce your number of years to payoff by less than 2 as your payments largely go towards principal.


So based on the numbers the logical choice is to own 3 homes or units assuming equal value to take advantage of the largest gap in years to payoff the homes.  If this was followed, the first home would be paid off in 6.6 years, then as the snowball moved to the next house 4.8 years, and finally 3.8 years, all of these would be approximate in number as each home would be less than $200,000 for the loan amount over time or 24.4 years 19.8 years which would reduce your total time to pay off all 3 mortgages.  If we followed this plan our total time to pay off all 3 homes would be an estimated 15.2 years, minus the reduction as previously mentioned.  In this example you would own 3 homes without a mortgage, since you house hacked the home you would currently be paying $0 in mortgage/rent, that sounds pretty nice to me.

Early Retirement in 7 years……Like Me!

If you are reading this post then chances are you are looking to retire early.  It’s one thing to read about how to retire early, which essentially comes down to savings rate or big income with small expenses.  The higher the savings rate the faster you can get to early retirement, makes sense to me.  With real estate similar to dividend investing we are looking for the income to be greater than our expenses, once our income has met or exceeded this we would be able to declare ourselves Financially Independent, let’s see how that all works if real estate was our only investment.  Let’s retire in 7 years shall we.

On day 0 of our 2,556 journey we are going to purchase a home, which will cost $200,000.  Our monthly payment, principal and interest only, will be $954.83 per month.  We will live in this house and rent out a room/floor that will equal our mortgage payment of $954.83**.  For the next 46 months you will be making very large extra monthly payments, in fact you will need $3,819.32 extra.  The good news is we are receiving a monthly rent payment, hooray on being a landlord!!! Which means the extra monthly payment needed will $2,864.49 or triple our monthly payment.  Where will all of this money come from?  Here is where your savings rate talk comes in, how big does that gap need to be.


Math, It’s Fantastic

Let’s start with the our mortgage payment, the yearly total needed is $11,457.97 after taxes, the extra monthly payment will be $34,373.91 per year for a total of $45,831.88.  Using a conservative approach of 25% of your mortgage payments will require a yearly take home pay of $183,327.50, certainly a large salary especially as a take home amount.  The thing is in this scenario to retire in 7 years you will need a large savings rate or what equals to 75%, which matches perfectly with a 7 year early retirement date.

While there are many options on the time frame, the assumption that will be made is we will live in the house for 3.8 years until the home is paid off and then buy another property at the same cost and rate, applying the same logic that our monthly payment will be paid with our 9-5 salary/hourly paycheck.  The difference in property #2 is we will be receiving an additional extra monthly payment of $954.83 and increasing the total to $4,774.15 on a monthly basis, this along with the monthly payment will increase the total monthly payment allowing us to pay off the home in 3.1 years and allowing us to hit the early retirement goal of 7 years.  After we have hit our goal of 7 years our monthly income would be $2,864.49 and a yearly total of $34,373.90.  This will leave us without a mortgage payment for the rest of our lives and removing 25% of our expenses.  7 years and you are officially Financially Independent.***

It’s important to point out that in all of my calculations and numbers I am trying to take out variables tend to vary.  Taxes, insurance, home maintenance, vacancy, rent increases, etc.  When it all comes down to it a large savings rate makes getting to FI the most valuable tool, whether you are choosing real estate or the stock market.    I chose real estate, what are you going to choose to reach your FI goals?

I keep track of all my mortgage loans, rental payments, expenses, purchases, and everything in between with Personal Capital, this free website and app has made my life easier, I suggest you do the same.

I keep track of all my mortgage loans, rental payments, expenses, purchases, and everything in between with Personal Capital, this free website and app has made my life easier, give it a try.


*When you begin making the extra payments in terms of years remaining on your mortgage balance also makes a difference.

**Taxes, Insurance, Home Maintenance are all variables that make very specific examples difficult add in inflation and the expected rent increase along the way and your eyes might start to twitch, you might even start twerking I’m not sure how you are going to react really.

***Please do your own research, run your own numbers, consult a professional as I’m some random cartoon figure on a website I’d challenge and check out everything, I mean seriously do you take advice from Porky Pig, Donald Duck, Mr. Scrooge (this one is OK, he’s clearly rich and knows what he is doing)

13 Responses to “How You Can Retire Early with Rental Real Estate

  • Love the plan similar to mine
    I bought a four plex in DC as my first home I also have a 2 plex.
    I am going to pay off the 4plex in 4 more years but not sure if I should pay off the 2 plex or diversify to more stocks
    As the second source of fire income.
    I am Fire in 7 yrs.
    Thoughts ?
    Keep up the great work

    • EvenStevenMoney
      1 year ago

      That’s a great question Brian and it’s something that I’ve thought about. In my early retirement blueprint I suggest you have a catalyst which for you and I is our rental real estate and after that we would start to create other streams of income whether it be stocks, online business, etc. It’s really a decision on when you decide to make that step. I am a proponent of having multiple streams of income for those times that are more difficult, while others prefer to stay with one investment and keep building. I am personally leaning towards using the cash flow to increase my stock purchases rather than to pay off my other property.

    • We tend to agree with ESM on this one, we also prefer multiple income streams. Similar to you with have one two plex (paid in full) and one three plex (95% mortgaged). We also debated whether to pay off the mortgage or invest into other investments. Due to the tax benefits, we are leaning towards other investments. Reality is that it will be a combination of some additional mortgage payments and additional investments into dividend stocks/crowd funding loans to maintain cashflow.
      Good luck with your evaluations and assessments.
      Team CF recently posted…Thermostats and PancakesMy Profile

  • You really got into the weeds and details on this one! I love that.

    Your plan seems like a debt snowball where you plow back a bunch of money into one debt at a time, and then keep making the cash-flow-snowball bigger and bigger as you get them paid off. For those willing to take it on, I think this plan is better than anything else I can think of because (1) it predictably builds wealth without depending upon market fluctuations (2) You can plan an exact date when your debt is paid off (3) You will have a bunch of income to go along with the increase in net worth.

    For a catalyst, as you say, the income at the end is important. Big net worth’s don’t always translate well to usable income, and the timing of some stock growth plans could be iffy – like for example if you had a 2-3 year down market.

    Thanks for sharing all the details. Good luck in executing those next steps and continuing to pile up that snowball!

    • EvenStevenMoney
      1 year ago

      Thanks Chad. I started plugging in numbers and 45 hours later….just kidding.

      I’m pretty debt averse so the idea of rolling the extra cash until the mortgage is gone is a winner for me. Added bonus is that appreciation, can’t go wrong with buying during a downturn either.

      I’m all about the cash flow, going from zero to hero will be the end result and hopefully a great one.

      Chad I’m currently working on increasing that rent we talked about while at Fincon.

  • I would like to do this, particularly buying a two or three family, but with the amount of debt we have I just don’t think it is possible. I kind of wish we could. Best of luck to you guys though.
    Jason recently posted…Let’s Talk About Peer to Peer LendingMy Profile

    • EvenStevenMoney
      1 year ago

      Without knowing the numbers I think it would be possible. I mean our current situation involves not having a mortgage payment since we have rental income to take care of this. Selling your residence to make the move and not taking any more debt would be preferred in your situation of course.

  • I love the details in this post. It really outlines the benefits of real estate. I paid off my home mortgage 4 years ago and it was the BEST thing that I ever did. Not having that mortgage hanging around my neck was such a freeing feeling. I felt like I could tackle the world as I wasn’t scared of losing my house if something negative happened in life.
    Mustard Seed Money recently posted…Donating Money to Your CollegeMy Profile

    • EvenStevenMoney
      1 year ago

      That’s interesting MSM, did you pay off your mortgage early as your own home or a rental property? I’m interested to know where the mortgage payment has been going since, you know life after mortgage.

  • So eager to get into rental real estate. It was great when I was single and could rent out a room in my home to help pay my mortgage. Now that my kids are living in that room, acquiring more rental real estate is high on my list. Given the high costs of real estate here in the Silicon Valley, it will likely have to wait until we relocate somewhere a little more sustainable.

    Part of my still tenuous plan includes using a property manager to reduce the hassle of multiple rental units. What are your thoughts on property managers other than the usual overhead required?
    Jack @ Enwealthen recently posted…Why Do Banks Charge What They Charge, Pay What They Pay, And Generally Act Like Banks?My Profile

    • EvenStevenMoney
      1 year ago

      I believe in sticking with your strengths. Now I’m not a property manager nor have I played one on TV, but I’m a good communicator who is a good read of people. I prefer to be open and honest with potential tenants but will not hesitate to make a decision based on facts if this is the right thing for the client, who just happens to be me.

      Personally, we have not had a need for one. I haven’t looked into one as of yet, some of it could be because that person will be in the same building with us and having family take care of the Florida property certainly factors in.

      Long story but essentially I don’t have the experience in this area. I do think initially getting your hands dirty with aspects of your property will be a great lesson moving forward.

  • I like the idea of investing in real estate as it seems like one of the more secure investments. Also people always need a place to live, I admire you plan even though I have not even purchased my first house as yet.
    Chris@TheWiseDollar recently posted…How to Make Money with a BlogMy Profile

    • EvenStevenMoney
      12 months ago

      I’m personally a big fan of living in your property and renting part of it out to reduce costs or make extra money. I’m sure it isn’t for everyone but it has been a huge catalyst for our ER blueprint.

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