After almost 20 years of work, I feel like I’m on the road to an early retirement. According to my back-of-the-napkin calculations, I’ll be done in another 5 years, give or take, which will put me in my mid-40s. But, as much as it’s inspiring to have a game plan and see the progress, I feel it’s also sucked some of the happiness out of my life.
When I came out of college with a degree in Math in 1995, the economy was not the best and I had no idea if I was even remotely employable. It took me close to 6 months (sending out 10 resumes by mail each day) but I finally landed a beginning-level job in the IT industry. The salary was over minimum wage, but not by much. I was very happy with getting the job, but I felt as though I could do better. I then asked myself “What’s next?”, a phrase that even now drives my wife crazy. Within 1 month, my resume was updated and I was fishing for the next thing.
In the following years, I worked like hell at my career. Working during the day, taking courses at night, learning all I could. I was now a software developer (a job I still do) and was switching jobs every 2-3 years, always negotiating a higher salary. During these years, I also moved to the US from Canada and became familiar with the harsh and often arbitrary immigration system.
It was very clear that if I were to become unemployed, there would be no safety net. Then, the large layoffs from the dot-com implosion started to happen in 2000 and the company I was working for closed. I managed to find something else, but it was not easy and I had to move across the country to do it. Even in a good economy, few companies want to spend extra money on immigration lawyers and paperwork.
At this point, I felt as though I was more on my own than ever, but at least I was working a good paying job. Still, a little voice inside my head kept reminding me that jobs are indeed temporary. I needed to escape somehow; more, I needed an alternative source of income. So I again asked myself, “What’s next?”
I knew the internet (or at least I thought I did), so a friend of mine and I tried to start an online business. For over 2 years, we worked in the evenings and weekends, bootstrapping a company with a few zero-interest credit cards and our own money, trying to make a go of it. I even took a leave of absence from work to try to get more time to work on the business.
At our peak, we had three employees working for no salary but only equity and belief in the company. Everyone worked extremely hard but, unfortunately, we went as most small businesses go and we couldn’t survive. Thinking about that business still makes my heart ache to this day. We started to repay the loans and I was exhausted, disillusioned, but I think wiser for the ordeal. The main lesson I took away was that businesses have to have a strong cashflow to survive.
Then, there were some talks of layoffs and, sure enough, they came. I was spared, but others were not so lucky. Still, it could have been me, and the little voice that talked of freedom became even more insistent. I was forced to ask the now-painful question, “What’s next?”
By this time, I had a long resume along with some biz experience and was ready to make another move. I was now qualified for the highest-level jobs in my field and I switched to what I saw as an up-and-coming company and a very healthy raise. That first year or two, however, was near-insanity and some days it took all I had to just not walk right out of that place and never look back. But, with the ever-looming potential immigration problems it would cause, I said nothing.
It was during this time that I met the woman who would eventually be my wife. She was my ray of sunshine in a hard world and was responsible for keeping me sane during these years when things seemed like they were going off the tracks. Without her continuing support, I don’t know how I made it each day – I love you, Honey!
Then, one fine day, the whole world went straight down the tubes: Mortgage meltdown, stock market collapse, waves of massive unemployment, and bank bailouts. I braced myself for impact… but none came for me. For whatever reason, not only was I spared but the company I was working at started posting excellent numbers and growing. I was not only safe for the time being, but doing better than ever financially. My instincts, now honed for disaster detection, practically shrieked at me to capitalize on this temporary windfall in whatever way I could.
Up until now, I was living in an apartment downtown. The rent was as low as the clientele and there were a host of issues that up until this point, I was tolerating: the constant street noise, the threat of crime, the dirtiness, you get the picture. I decided I would buy myself a house. I had saved up a very good downpayment and was following the news about foreclosures being at record lows. But even then, the houses that were in safe, quiet neighborhoods and not too far from work were still more than I could just pay outright. I would need a mortgage.
Debt was always an anathema to me – my Dad told me stories about paying off his house before he was 30 and living debt free throughout his life. I tried to learn from him, paying cash for everything, and not even getting a credit card until I was almost 30. But, this was not the 1950’s and I resigned myself to it. I still think back to when I signed the papers, when I looked at the large amount owing. I remember the feeling of mentally rolling up my sleeves, ready to pound that number into the ground. I was excited about having a house, but I viewed the mortgage as just a lot of work to do. I would do my best to pay it off as quickly as possible.
As I lived in the house, I started doing little projects. Little projects became bigger ones, and tools started to inhabit my garage. I also started to read. I read about houses. I read about Real Estate; about investing, about rentals and foreclosures and cash flow, about cap rates and tenants. And I found websites where I could look all over my area and see dozens of inexpensive abandoned homes for sale within less than an hours drive of where I lived.
I also read about people having a secure future owning rentals. 401ks, stocks, bonds and most other investments from a retirement perspective are what I like to call depletive; when you collect a payment, the amount of whatever product you have goes down. Given enough time and withdrawing, you will eventually hit zero. (This is exactly why tools like FIRECalc are so popular; no-one wants to hit zero) But rentals are non-depletive. Given a renter willing to pay, the money will continue to flow.
“What’s next?” , said the voice
THIS would be next.
One of the toughest parts of deciding to try landlording was my battle with mindset. I had bought my house with the intention of paying it off quickly. But real estate investment nearly requires you to be OK with taking on a lot of debt. In fact, taking on debt makes the investment give a much better return. (See: The Ideal Mortgage Amount Is $1 Million Dollars)
So, in order to make this work, I not only had to be OK with my own personal mortgage but also another one, possibly many. Before I signed the paper on my first rental (and many nights for years afterward), I would find myself unable to sleep, sitting downstairs with a stiff drink or three and wondering if this was indeed the right way forward; running the numbers in my head and on paper again and again to make sure that I hadn’t missed anything.
Oh, and did I mention that these rentals were foreclosures? They required work to make them rentable. So, after a long week of insanity at the office, we’d have to pack up the tools and air mattress and live at the rental all weekend. It’s kind of like going camping at a forced-labor facility. Sure, at times it was fun, but more often than not, it was just hard. It’s corny but I imagined my 50-year-old self there, encouraging me to keep going and not to quit. As I sweated my bag off in the summer heat, I imagined him having a fantastic life, thanks to me.
We eventually rented it and, when I got that first rental payment, I felt so vindicated, so good that something finally went the way it should, that my business made money right out of the gate. I also knew deep in my bones that this would be the way forward, the way out.
I started saving up more money for the next rental and studying real estate like crazy. I created a program that would comb the MLS for house listings, do all the calculations, and come up with a top-100-rental list for every city. Weekends were reserved for house showings of what I had dredged up during the previous week. It got to the point where I could look at a home listing and if it was in any of about 5 or 6 cities, I would just know what the rent on it would be and could estimate the ROI (return on investment) in my head. I would buy and rehab two more rentals in this crazy period of time in addition to managing existing tenant issues.
My income and net worth also spiked way up way during this time – I remember seeing my end-of-year statement and thought it was a mistake. The company was doing awesome because everyone left it all on the field every single day. But, the weird thing was that I still felt hard-done-by. Sure, my bills were paid, but everything else was already spent in my head even before I got my mitts on it. All my eggs went into the basket marked “retirement”.
Sadly, this would also be the year that made me confront my own mortality. I had been working very hard and decided to take a break one weekend to visit a friend in the city. There we were, just talking when my entire vision went “white” for a few seconds and I instantly felt like I was on a roller-coaster. My friend called an ambulance and I was rushed to the hospital where they did some scans on me. They didn’t find anything, but for the next couple of days, I could barely walk. This was definitely a wake-up call and I was afraid and also conflicted. I felt like I was on a long march through the desert. If I slowed down or stopped for too long, I’d run out of water and dehydrate. If I went too fast, I could drop dead from heat exhaustion.
After that incident, I decided to take a week-long vacation and see my family back home. I had been averaging less than a week vacation (actually, more like a stay-cation) a year for the past four years, so taking an extra week that year seemed positively luxurious.
Meeting up with family I hadn’t seen in a while made me feel like I had landed on a different planet. Their lives were so different than mine. For example, I was stunned when I was informed that one of my cousins take their whole family every year on a four-week vacation! Absolutely unheard-of! Oh, but it gets better! Another family member declared that they took TEN YEARS off to raise their children at home! I would have been less surprised if they would have just slapped me right across the face. In fact, I may have preferred the slap, looking back on it.
The rest of that vacation was emotionally hard. I felt cheated and very, very stupid. Nearly 20 years of striving, risking, putting it all on the line, while other people have great lives? Throwing my best years away like logs on a fire, just to watch them burn. What have I done?
At this point, I also discovered the early-retirement community, a collection of 30-to-40-somethings that had the means to pull the pin and live a life of relaxation. I won’t lie, reading their stories made me very angry. Angry at them, but even more angry at myself. I was working as hard as I could at both a demanding full-time job, grinding on investment projects and felt like I was still so many years away. What was I doing wrong?
For a long time, I couldn’t bear to read anything about ER and when I did, I just got really down. I tried to analyze where I went wrong in my life, every decision, every move, and I always came up with nothing.
As I started to read more about some of these stories, though, to dig a bit deeper, I noticed something. What people don’t say is even more important than what they do say. The basic assumption about ER is that living frugally is pretty necessary even after you retire. Except for a few cases, the stories I’ve read involve building a small passive investment income, reducing your outlay on (or even canceling) a lot of luxuries, possibly moving to a cheaper area of the country, and finding something part-time to supplement your income to ease the financial pressure.
I felt like this was the piece of the puzzle I was missing. Looking at my situation with new eyes, I realized something interesting: I actually could retire. Now. if I moved to somewhere cheaper (this wouldn’t be hard to find), paid cash for a house, and lived like they did on Gilligan’s Island (everyone together now… no lights, no phone, no motor car, not a single luxurieeee…) my rental income and savings could definitely support us.
Did I want to do it? No, definitely not – it wouldn’t feel legitimate. I’d feel that I cheated myself – working for 20 years so that I could hole up in a shack somewhere and do nothing? Things were just starting to take off. But then, to fully reap the rewards of my efforts, I’d have to be tied to this type of life for quite a while to come.
So, that’s where I am now; feeling trapped. It’s hard to enjoy the “now” with all of the stress and I am unable (or maybe just too stubborn) to get off the treadmill.
This question is now one that depresses me a bit. The way forward, the way out, is clear, but it simply boils down to making the calculation of time vs. money and staying the course. My current expenses are roughly $4,000-$5,000 a month and my current cash flow from rentals is about $4,000 a month so I’m just about covered.
I’m no stranger to hard work, but I’m now getting older and I am worried about my stress-level and my health. I also ask myself if all this is going to be worth it. Five more years of saving and perhaps one more rental should allow for my wife and I to be fully free. My current current net worth is about $800,000.
There are some things that I am very thankful for. Firstly, I could not have done this without my wife. She’s supported me through thick and thin and is truly a life partner in every sense. Secondly, is that I have a plan on how to move forward; continue to learn about investing and execute the plan.
Afterward: When I was first asked to do this article, I was told that it would be cathartic and it definitely was. Revisiting the hard times and reflecting on the years past was very emotional. I’m generally positive about the future, but reflecting on my life, I feel like there were a lot of things I’ve missed. I don’t expect sympathy, mind you – I realize that life is hard for nearly everyone these days. And, at least there’s an end in sight for me and I try to count my blessings.
Manage Your Money In One Place: Sign up for Personal Capital, the web’s #1 free wealth management tool to get a better handle on your finances. You can use Personal Capital to help monitor illegal use of your credit cards and other accounts with their tracking software. In addition to better money oversight, run your investments through their award-winning Investment Checkup tool to see exactly how much you are paying in fees. I was paying $1,700 a year in fees I had no idea I was paying.
After you link all your accounts, use their brand new Retirement Planning Calculator that pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. I’ve been using Personal Capital since 2012 and have seen my net worth skyrocket during this time thanks to better money management.
Updated for 2021 and beyond.