Real Estate Investing Series: How to Retire off Rental Cashflow The Smart Way & Be Financially

How Retire off Rental Cashflow: The Smart Way & Feel Financially Free

I never planned to quit my secure government job in 2015; it just happened. I always had a goal of early retirement and, during a recent one-year sabbatical, I decided to accelerate this plan and turn it into reality. Finally, my real estate portfolio was generating cash flow that theoretically exceeded my basic living expenses. Many real estate gurus out there aggressively market that you can retire early if you acquire enough properties in so many years. I ran a quick Google search and found these interesting headlines:

”How to Retire Rich and Early with Real Estate”

“How Rental Properties Can Help You Retire Early”

“Retiring Rich with Rent-to-Own Properties”

I decided to pretend to ‘retire’ for one year, relying completely on rental cashflow. My experiment was to see if I could reliably live off rental cash flow without dipping into my reserve funds.

Real Estate Investing Background

To understand me better, this is the state I was in when I decided to pretend to retire for one year:

• I had been acquiring at least one property per year since 2007; • My real estate strategy was to buy and hold (or buy, fix and hold); • All of my properties had mortgages; • My real estate portfolio was generating enough cash flow (i.e., rental income minus ALL expenses, including mortgage) to cover my housing and living expenses; • I had reserve funds for expensive repairs and maintenance.

My Year Off

The first three months were quite boring. Nothing happened in my real estate properties. No one bothered me and there weren’t any big repairs. A few paycheques from my rental cashflow went towards basic housing expenses and savings: no problem.

After 6 months, I received a few pay cheques and other times, I had to return my pay cheque.  Then, I experienced my worst string of vacancies in over 8 years. Moreover, the Canadian economy was affected by the global oil crash and the rental market changed overnight. I had to drastically reduce rent to two of my largest cash flowing properties to remain competitive. This really hurt my rental income. I lost at least a thousand dollars of monthly rental income.

I had a string of bad luck. Or maybe it’s normal when you have a larger portfolio to have more frequent and larger expenses. During this time, I had to pay for a new roof, furnace repairs, two tree crownings, paint jobs, and normal wear-and-tear repairs.

The plus side was that I never had to dip into my reserve funds. The minus was that all of my rental income for that year was all gone.

In the end, I was finding it incredibly hard to have a sustainable and significant amount of rental cashflow. This level of uncertainty can be unbearable if you have never gone without a steady pay check AND you need the rental cashflow to pay for life expenses. Every month had a level of uncertainty on whether I was paid or not.

This level of uncertainty is probably why so many people who have left their full time job trade it in for something else related to real estate, for financial stability. Very common paths include becoming a property manager, house flipper, turning into a real estate agent, real estate investment coach and/or running real estate investment workshops. However, unless you have a few of your properties mortgages paid off, it is very difficult to ‘retire early’ relying solely on rental cashflow.

How Do I Recommend Retiring Early and Relying on Cashflow through Real Estate Investing?

If you ever decide to quit your job and retire using real e