How I created $5,000/month passive income by 34

First of all, thank you all so much for a warm welcome to your subreddit with my post the other day! I have basically been chasing FIRE my entire adult life, but only recently learned about the label. Your replies to my post were all very well-received and helpful. I had dozens of people reach out and ask for specifics on how I got to $5,000. I'll enjoy sharing this with anyone interested in reading it, as I almost never discuss this with anyone in real life for fear of being a show-off or making them feel bad about their financial situation. Here is the exhaustive report:

I got a business degree at an affordable 4-year college. At times, I got incredibly frustrated at how many classes or assignments didn't feel relevant or worth my time. In retrospect, many of them weren't. However, there were also those few lessons or courses that completely altered the course of my life. Having a sound understanding of statistics, finance, accounting, economics, political science, and philosophy have added greatly to my ability to earn money and enjoy my life. (Also, there were babes, lots of babes.) I see a big difference in my family members that went to college vs those that didn't. I don't think you should go into big debt for it, but there are plenty of affordable colleges around. I guided rafting trips in the summers and assembled radios in the evenings during the year, and never took on student debt.

It took me over a year after college to get my gears going. I felt a strong drive to work in a field that actually had a positive impact on the world, as strong as was my drive to make money. I got started selling solar panels door to door in 2012. It was miserable, but it was my only door into the industry, and I wanted in. I worked a tough year and then was able to get a job taking inbound sales calls for a different solar installer. Inbound sales was a dream compared to knocking on people's doors. I worked commission only and went on an absolute tear. I would sometimes help install as well, and LOVED seeing those systems go up on roofs in my coal-powered state. One house at a time. I would work late into the evening and couldn't get enough. Made about $140k/year doing that from 2013-2016.

My first good year selling solar panels, I bought a house. Had no real estate experience at all. The mortgage payment was $1650/month, and there were 4 bedrooms. I rented the other 3 rooms to my friends at $425/room. But then I realized that the downstairs living room was freaking huge. Huge enough that one could conceivably buy 6 IKEA bookshelves to section off part of it to make a janky 5th bedroom for myself so that I could rent out all 4 rooms and pay $0/month to live there. All my savings from paying no mortgage went toward saving up for the next house.

I began buying a house every 12 months, paying 5% down and moving into it as my primary residence (conventional loans, not FHA). Buying a house as your primary residence gets you the best interest rate and the ability to do a low down payment. You have to live there for at least 12 months, and after that you can move and just keep it as a rental. My second house had a spacious mother-in-law apartment. Mortgage was $1,900, and we rented the apartment unit for $1,500 (I was married now so no more roommates). When we moved out, I could rent the whole house for $2,700 total. This method of investing is known as "house hacking", and is a way to acquire rentals without big down payments, if you are willing to deal with the inconvenience of moving. We saved so much by renting out the other unit that it was much easier to save up for the next down payment.

In 2017, we were uprooted for my wife's medical residency and moved to the midwest for 3 years (and she started making $50k/year). When I saw the low prices on the real estate in the midwest, I went bonkers. While there, we bought 2 more duplexes by the same method of "house hacking", and these ones produced even more cash flow. I wanted to buy even more rentals, but didn't have enough money for the standard 20% down required to buy additional rentals.

I discovered the "BRRR" method online, and started going full throttle with it. Here's what the average project looked like. I found a lender who would lend me $150,000 at 8% interest. I would buy a piece of junk duplex in a decent neighborhood for $100,000, and spend $50,000 working with and hiring contractors to remodel it. I would then go to the bank and get a conventional 30-year refinance at around 4.5% interest. The house would appraise around $200,000 market value. I would get a 75% LTV loan for $150,000, thus paying off my private construction loan. When the refinance was done, I was left with a fully remodeled duplex with mortgage payment of $1,200/month, rented out for $2,400/month. I pay $200/month for property management and set aside $350/month per property for future repairs. The BRRR method is very labor intensive and has risks (a homeless guy even burned one of my houses down for fun right after the remodel was finished... thank you insurance), but it got me 8 more rentals in 2.5 years... using almost none of my own money!! I am closing on my final 2 refinances this month, which will put me at just over $5,000/month in passive cash flow, after setting aside reserves for repairs/vacancy. In addition to the cash flow, the balances on the mortgages go down by about $50,000/year in total, and the properties will presumably continue to appreciate over time as well... two other substantial non-cash forms of income. The total ROI is so high that people won't even believe me if I say the number.

Over the years, the hustle selling solar panels and flipping houses earned enough to pay off all $200k of my wife's medical school debt. So here we are. My wife just started working as a doctor with a serious income, and I am complaining about being bored surfing the internet and watching my houses produce income. Moving to a new city during the pandemic with no job hasn't been a good recipe for me having a fulfilling life, but I know it will improve. We have been trying to get pregnant for 4 years and are doing IVF this month (hey, it was still a lot of fun trying!).

Honestly, our financial life right now is almost absurdly ideal and I feel incredibly fortunate to have ended up here. While I have never been poor, I have spent a significant amount of time around true poverty, and I know that my life in no way resembles the opportunity the average person has. After taking this rather unfulfilling hiatus to shoot aliens and read about politics, I expect I will hit the trenches again soon. I anticipate that every dollar I earn for the rest of my life will be donated, but I don't want an ounce of credit for that statement until I actually do it. My best guess is that I will work part time in real estate investing, donating the money, and spend the rest of my time as a parent and enjoying the outdoors and community theater (and ok, wasting some time reading about politics).

I know this is not a path everyone can replicate, for a variety of reasons, but hopefully parts of it will be of use to some readers. Some parts, like suddenly moving to a midwest city with great real estate opportunity, were just good luck... and also having the moxie to take full advantage of that luck. The rental portfolio was very labor intensive to create, but is not anymore. These labor intensive methods of investing meant that I only invested about $100,000 of my own money to build the portfolio. Some people understandably are not interested in being landlords; I've chosen to accept the occasional headaches it brings in exchange for the income. Looking at the big picture, I think my financial success is due to these key points:

1. Having a big income gave me a huge jumpstart, especially since I was frugal and invested it early. Frugality alone can do a lot for you, but income is equally powerful.
2. Didn't have kids until later (in our case, due to infertility). Of course, having children is a deeply personal choice that has implications for your life far beyond financial. However, having kids 6 years ago would have completely altered our financial situation.
3. In my opinion, if you hit home runs with the big budget items (house, car, kids), the small items become far less consequential. For the last 7 years, I have paid between $0-400/month for my housing costs by living in duplexes or houses with a mother-in-law apartment. I still only buy secondhand and don’t order booze at restaurants, but do you know how many avocado toasts I can order every month before I even put a dent in that?

Thank you for coming to my TED talk.