I Retired Early: Why Real Estate Investing Was the Secret to My Success

Who doesn’t aspire to retire early from a day job? While high salaries can help make that possible, it typically takes some kind of investing to achieve true financial freedom.

Brie Schmidt Zdravkovic, a Realtor and real estate investor with Second City Real Estate in Chicago, and Claire Fleming, a real estate investor and blogger at Everywhere With Claire, both quit their jobs in their 30s after just a few years of real estate investing.

Buy and Hold

Zdravkovic, age 41, described herself as a “buy and hold investor,” calling it “the slow boring way to wealth generation.”

She started by purchasing one property in 2011 and bought more than 30 other properties that she rented out over the next 4.5 years.

“I was able to snowball my investing to where we were generating $35,000 in rental income before expenses.”

She quit her day job at age 31, but she does spend about 15 to 20 hours per week managing the portfolio while her husband is a stay-at-home dad.

Seek a High Capitalization Rate

For Zdravkovic, deciding what properties to buy comes down to a simple financial metric known as the capitalization rate or cap rate.

“Your gross rent minus expenses divided by purchase price is your cap rate. If a property generates $1,000 per month, that’s $12,000 a year, divided by purchase price, which gives you your cap rate: your apples to apples comparison.”

If you’re looking at better, more desirable areas, you might have to look at a lower cap rate; that’s the trade-off, she said.

“Or if you’re looking at a property that needs a lot of work you want a higher cap rate to justify the purchase.”

Consider Management

Zdravkovic eventually sold many of her properties, going from 31 to six, and took the profits and reinvested them.

While she has way more freedom than when she worked at a day job, she did warn that you have to have systems in place to take care of tenant problems even when you’re away.

“If a heater goes out, they don’t care if you’re on vacation or stuck in meetings, someone needs to go handle that. That is one of the downsides.”

However, the work is worth it if your goal is to replace the income of one working person in five to 10 years.

Find an Investor-Friendly Realtor

To get started in this kind of real estate investing, Zdravkovic urged that it’s essential to find an “investor-friendly real estate agent,” saying this is a very niche market and comprises only about 5% of the realtor market.

“They have a different perspective than retail agents. Their mindset is focused on what investors need and what properties will meet those investors’ criteria.”

House Hacking

Another strategy that works really well is house hacking, Zdravkovic said.

“You find a two- to four-unit property where you can use an owner-occupied loan, with 5% down, or an FHA loan with 3.5% down, and you live there for a year and then go buy another one.”

That’s exactly what Claire Fleming did eventually.

In 2014, Fleming, now 35, was done paying off her debts and paying more rent than she liked, so her mom suggested she buy a house instead.

She stuck to the rule of not paying more than one-third of her income on a mortgage, so bought a home in North Carolina for $125,000, which needed a lot of repairs. With a lot of DIY love, she upgraded it to such a degree that in three years she was able to take out a home equity line of credit (HELOC).

That’s when she began to invest in rental properties.

Utilize HELOCs To Invest

“At the end of 2017 I was 29 years old and I used the equity in my primary home to put a downpayment on a duplex, just outside of downtown Raleigh,” she said.

She maxed out her HELOC with a 20% downpayment but was able to use the rental income to pay back the HELOC. Once that was paid off, she pulled another HELOC and bought her next property. She did this again until she owned three condos and one duplex.

“Look at a HELOC,” she said. “If your appraised value continues to increase, you have what’s essentially a second mortgage you can put on the property. They tend to have higher interest rates but if you’re taking a pull on your HELOC at 7% and investing it in a market that’s increasing 20% year-over-year, you’re making money.”

Not to mention, if you use your HELOC to purchase another property, the interest you’re paying on that HELOC is a business expense, she said, though it’s wise to check with an accountant before writing anything off.

Assess Airbnb Potential

Since her condo was in the same building as the others she rented out, it was easy for her to run an Airbnb out of them.

“I had a lot of success, because I had over a 92% occupancy rate, so I was making a good amount of profit. They did take more effort on my part but because I was onsite already it made it easy to manage.”

In early 2021, she quit her remote tech job and lived primarily off the income from her rentals and Airbnb. This enabled her to live her dream of traveling in an upgraded van and writing about van life travel on her blog Everywhere with Claire, through which she also earns some affiliate income.

While Airbnb can be a risk depending on the market you’re in, she suggested that three-bedroom homes have a better chance of being booked.

“Three-bedroom homes are much more rare on Airbnb and VRBO, so by buying a three-bedroom instead of two you increase the number of potential guests because there is not much competition so you can command a higher dollar amount.”

Now, to minimize the burden of managing them, she insists on longer-term stays, from one month to one year, minimizing constant turnover.

Don’t Wait for 20% Down

A lot of people believe they have to get 20% down in order to buy, but Fleming said that’s not the case.

“Don’t wait until you have 20% down to purchase a home. Get an FHA loan or one that requires a lower down payment. If you can get in the game faster, then you can ride the wave of appreciation over time.”

DIY Repairs Don’t Have To Scare

Another thing she’s found is that “[b]uying a home that is not move-in ready scares off a lot of buyers, which means less competition.”

While she doesn’t recommend buying properties in need of huge structural changes, cosmetic updates, the kind you don’t need to do immediately, are totally possible to do yourself.

“They’re changes you can learn to do yourself. Home Depot offers classes. I took a free class there explaining how to put floors together. People shy away from DIY projects but they’re more accessible than people expect.”

Consider Refinancing

Additionally, she suggested don’t be scared to buy low at a high interest rate and refinance when rates come down.

“I’ve done several, and instead of paying for closing costs, I rolled them back into the new mortgage and dropped my rate. My interest decrease was offset by the increase in closing costs.”



Leave a Reply

Your email address will not be published. Required fields are marked *