It is primarily a how-to book, but also serves as a bit of a memoir, as it echoes what he has done in his life. He started in real estate as a 22-year old who put off his med school dreams after injuries made an NFL career unlikely to pursue entrepreneurship instead.
Initially, he was a “bird dog” for a real estate investor he met through the university, and shortly thereafter he became an investor in real estate himself.
After about 15 years, he was able to put nearly everything on autopilot, and he and his family have been exploring the world, spending nearly a year and a half in Ecuador, refining their Spanish language skills while helping their daughters become truly bilingual.
Retire Early with Real Estate
Chad was kind enough to share a copy of his first book with me, and it’s available from Amazon starting at a penny under $10 for the Kindle version and currently under $16 for the paperback.
Personally, although I have purchased several homes, I haven’t been much of a real estate investor. I’ve been a reluctant landlord in a couple of different situations after moving out, but when I analyze the returns compared to what I put in, those were certainly suboptimal investments. Reading this 300-page book confirmed those suspicions for me.
Mr. Carson does a number of things very well in this book, and I’ve got a few minor critiques, but altogether I found the book to be a great introduction to what it means to be financially independent and how real estate investing can be used in a wide variety of ways to help achieve that goal.
Do What Matters
This mantra is a consistent theme across his website and throughout the book. He recognizes that what matters to him may be different than what matters to you or me, but it’s important to understand what that is. Retiring early should not put individuals into a state of perpetual idle leisure, but rather in a better position to spend more time doing things that matter to them.
“Sleep more. Relax in the morning. Sit on a rocking chair.
Learn something new. Be impractical. Explore.
Visit amazing places. Go on adventures. Hike trails. Ride a bike again.
Unplug from the matrix. Do work you love. Buck the system. Say “shove it” to the man.
Raise your own kids. Play silly games. Help with homework. Spoil your grandchildren.
Plant a garden. Grow your own food. Eat healthy. Exercise.
Pursue your passions. Volunteer. Listen to people. Make an impact.
Advance your cause. Create your art. Write your story.
Get OFF the 9-5 treadmill.
STOP selling out!
DO what matters!”
He also acknowledges that, as The White Coat Investor would say, “retirement is squishy,” and it can mean different things to different people. There may still be some work, there will definitely be some income, but once you reach financial independence, you have the ability to choose how you spend your time without the need to focus on making more money.
Real Estate versus Investing in Stocks and Bonds
The author invests in both property and index funds, and he discusses the ways in which one can reach a state of financial independence via one or the other or both.
You’re probably familiar with the 4% rule of thumb which suggests a retiree can withdraw 4% of his or her initial nest egg, increase withdrawals with inflation, and have a very low likelihood of running out of money.
In Retire Early with Real Estate, Coach Carson shows how a successful real estate investor can expect better cash flow and may be able to spend a larger amount in retirement than the investor relying on the 4% rule.
For example, it’s not unusual to see 6% to 8% cash-on-cash returns for a fully paid-off property in the right market. Ten homes purchased for $100,000 each could generate $60,000 to $80,000 per year after all expenses are covered.
The real estate investor also has the advantage of retaining ownership of the asset, whereas the stock and bond investor may have to sell assets in a down market. The owner of mutual funds also may end up with a lot more money than he or she started with if not met with lousy initial returns.
There’s a lot more to this comparison, and that’s why the book is 300 pages long. The real estate path requires more work up front to find the right properties and tenants, and requires more paperwork and ongoing management, although much of this can be outsourced, of course.
Putting Money in its Place
I really like the perspective that Chad takes when discussing the role of money in his life and where he wants it to be in yours.
It’s not front and center.
“So, my goal with the book is to help you put money back in its place. And its place is not at the center of all your decisions. Instead, I would love your values, your friends and family, your personal goals, and your life aspirations to guide all of your decisions.” -Chad Carson
While this may seem counterintuitive for a book discussing investing, analysis of real estate strategies, the careful use of debt as leverage, and how much money you need to retire, it’s a great reminder that money is a tool. Nothing more, nothing less.
Figure out the money piece, and you can spend time on things that matter more than money. I have been known to say that money is everything, but it’s certainly not the only thing. Lose sight of that fact and you may never feel you have Enough.
While the author is admittedly rather frugal, he has the means to spend more, and he recognizes that people will make different choices. He does make it clear that our spending tends to highlight what we value, and that choices to have to be made.
“You can’t have it all right now. You have to choose. If you choose to spend 100% of your income on stuff, you are prioritizing that stuff over everything else. If you choose to save a large portion of that income and invest it, you’re choosing to move towards freedom and
flexibility as quickly as possible. There is no right or wrong, here. There are only choices that either connect with your deeply-held values or they don’t.” -Chad Carson
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Real Estate Investing Strategies
Yes, the book does go into detail with a wide variety of actual ways an investor can use real estate to generate the income needed to retire decades earlier than is typical. The author has done nothing but invest in real estate until his more recent entrepreneurial activities that include this book, his website, and his course.
Open the book up and you’ll learn beginning techniques that include the House Hacking Plan, the Live-in-Then-Rent Plan, the Live-In-Flip Plan, and the Buy-Remodel-Refinance-Rent-Repeat (BRRRR) Plan.For those further along in their wealth-building stages, he describes the Rental Debt Snowball Plan, the Buy and Hold Plan, and the Trade-Up Plan.
Each plan is described in detail and easy-to-follow hypotheticals are outlined with numbers in paragraph, table, and sometimes chart diagrams.
Sprinkled throughout the text are the real-life stories of successful real estate investors who have used any or all of the above plans to reach or approach financial independence, and most of them quite early in life. Altogether, there are 20 of these investor profiles with a number of them coming from names you might recognize in the personal finance blogging community.
Chad doesn’t ignore the downsides of real estate investing. He struggled through the housing crisis ten years ago, and profiled a real estate investor who struggled mightily at the time, going through a divorce and a Chapter 11 bankruptcy in the midst of the Great Recession.
No Book is Perfect
For one thing, he talks about the fact that he wrote most of this book in Ecuador, but I don’t think I saw a single picture from the beautiful country. Fortunately, he’s got a website and a Twitter account where he shares some splendid photography.
A Two-Year Residency?
Forgive the football pun, but the All-American dropped the ball a bit when discussing physicians. He says “Most doctors study for at least 10 years before beginning to receive large incomes. They spend four years at a university, four years in medical school, and two years at a residency.”
This is more of a critique on me, since I’ve had my copy since June, and if I hadn’t procrastinated so long on finishing it, I may have been able to tell him to change that to “three or more years in residency” and maybe mentioned tacking on an optional fellowship, but it’s far too late for the publisher to make that correction in the first edition.
Income Versus Total Return
At one point, a 7% return from real estate investing is compared to a 1.82% dividend from the S&P 500. When looking solely at income and ignoring total return, this makes real estate seem like the much better deal.
What Chad knows but didn’t really hash out in the book is the fact that U.S. stocks have seen capital appreciation at a higher rate than real estate, which, over the long run, rarely does much better than keeping up with inflation.
Massive Tax Drag?
In a section that actually has little or nothing to do with real estate, Chad compares investing in a tax-deferred IRA to investing in a non-qualified, a.k.a. taxable brokerage account.
While I agree that tax-advantaged accounts should be maxed out, the taxable account gets really short-changed here. In his example, a $10,000 a year investment in a tax-deferred retirement account returning a generous 10% per year results in $1,644,940, whereas a taxable account’s returns are subject to a combined state and federal tax rate of 30% and only grows to $944,608, or about 43% less.
That’s a huge difference if true, but to quote the lady in the Geico commercials, “That’s not how this works. That’s not how any of this works!”
Invested in a tax-efficient manner, for example in the S&P 500 fund with the 1.82% dividend, the only portion potentially subject to tax would be that dividend as long as the investor isn’t selling shares.
If the investor has taxable income that pushes him or her out of the lower tax brackets where that dividend would be in the 0% qualified dividend bracket, the dividend could be taxed at a rate of about 15% to 35% depending on state and total income, but more commonly on the lower end of that spectrum.
The tax drag would be about 20 to 25% or 1.82%, or 0.4% per year. Using my compound interest calculator, using monthly investments and compounding (which is more typical of real-life investment behavior), I get $1,975,423 for the tax-deferred account after 30 years, and $1,813,962 for the taxable account, a difference of 8%. But that difference could be zero if the investor has taxable income of a median American household.
The tax-deferred investment did benefit from an initial tax-deferral, but a significant chunk of that benefit will likely be recaptured via income taxes upon withdrawal. The taxable account, conversely, consists of post-tax money, and it’s certainly possible that an early retiree could draw upon that account for decades without incurring any additional taxes.
While no book is perfect, this book serves as an excellent introduction to the myriad ways real estate can be used to help achieve the goal of early financial independence or early retirement.
In addition to the strategies mentioned above, the book also touches on note investing, crowdfunding and other syndicated investments, what to look for in investment properties, and much more.
Furthermore, Chad Carson takes a holistic approach to life and money, making this more than just a real estate textbook, but rather a book with both practical advice and philosophies that should be guiding an investor’s behavior.
I refer to the author by first name throughout most of my review because I consider Chad to be a friend. We’ve been in communication throughout the time in which he’s written this book, and we recently shared some quality craft beers well into the evening around a Minnesota campfire. I may or may not have been tossing pallets on that FIRE to keep the flames going strong and my buddy around a bit longer.
Chad is accomplished but modest, authoritative yet soft-spoken, and I highly recommend Retire Early with Real Estate to anyone considering using real estate investing as a part of their financial independence plan.
For those who are looking for a more thorough personal, interactive, multimedia approach to learning more about real estate investing and financial independence, look into his signature course, Real Estate Start School.
Enrollment closes this Sunday, September 22nd, and the price will go up when the course opens up again next spring.
Is Real Estate Investing a part of your approach to achieving financial independence? Do you invest in single family homes, multi-unit properties, REITs, crowdfunded real estate, notes, or use other methods? What percentage of your portfolio is devoted to real estate?