How One Couple Retired Early with a Single Rental to Sail Europe

The Decision to Buy Real Estate

Eventually, the Robinsons settled back down again in the U.S. and bought a home in Anchorage, Alaska. They enjoyed a tranquil ten years there, then were jolted awake, financially speaking.

“The 2008 crash was a wake-up call for us. Leaving our retirement savings in the stock market and hoping for the best was too risky. Our retirement savings in stocks took a hit like everyone else. And we were helpless fools in the whole debacle.

“Now real estate was something tangible; something we understood much better than the financial markets. So, in 2012, we took the plunge, aggregated our retirement accounts and funded a real estate LLC, held in trust for us by our self-directed IRAs.”

Screech! Stop the record. They did what? How did they buy a rental property in their IRA again? Trust? LLC? Huh?

When you open a self-directed IRA, you can invest in almost anything you want, including real estate. Some members of our Co-Investing Club invest in group real estate investments with a self-directed IRA. Read up on exactly how Martha invested in a rental property with a self-directed IRA for all the details.

 

How They Bought Their First Rental Property

“We, or technically our self-directed IRA, bought a little apartment building in Seattle, paying cash for it.

“We figured that there was very little downside to it. Even if the Seattle economy went flat or downturned, we could just lower the rents. No drama, just a lower return.”

Unlike mutual funds, ETFs, derivatives, and the like, rental properties were something the Robinsons felt confident investing in. “Returns based on the local demand for housing; this is something we could understand. And it was extremely low risk because no debt was involved.

“We chose Seattle because we perceived it to be a more stable market than Anchorage. We lived through the Alaska economic disaster of the 1980s when the price of oil dropped. It was too risky. Seattle was close, we had both lived there, and were generally familiar with the city.

“We wanted a stable neighborhood, a building in our price range (up to $850,000), a minimum return of about $40,000/year, and good condition. So we bought a five-unit multifamily property in Greenwood, built 14 years earlier, for $810,000.

“The units are all two-bedroom, two-bath, with a washer and dryer and off-street parking. When we bought the building, the rents were averaging around $1,200/month. They are now averaging around $1,700 to $1,800 per month. The rents could probably go a couple of hundred higher, but the tenants are good and we have low turnover.

“So, we grossed $108,000 and after expenses such as taxes, property management, maintenance, vacancy rate, and utilities, we netted $63,000 last year.”

 

Financial Independence, Early Retirement

After becoming landlords, Martha and Terry continued working. In fact, even though they had sold most of the equities in their IRA to buy a first rental property, they spent the next few years replenishing the equities in their retirement accounts.

Then the price of oil crashed, and they started getting jittery about their home’s value in Anchorage. “The economy in Anchorage is heavily dependent on oil, and Alaska was starting to see an economic downturn similar to the late 1980s. Layoffs were starting to roll around, new home starts dropped dramatically, businesses were closing, etc. We decided to sell the house, even though we didn’t want to move yet. We had some significant equity in it; we didn’t want that equity to evaporate.

“About six months after the house sold, my project management work was drying up. Frankly, with the house sold, no debts to carry, and a nice income from the self-directed IRA, we were free birds! Neither of us could think of a good reason why we should try to start over someplace else.

“So, we decided to retire early.”