Books 006: Retire Early with Real Estate - Chad Carson

When Chad Carson, the author of Retire Early with Real Estate came out with his new book, I knew I had to get a copy. I had been following his blog for a while and felt like his advice was practical and actionable. His book breaks down into five main parts which include thoughtful philosophies as well as practical strategies for retiring through rental properties. He uses a metaphor of climbing a mountain throughout the book and the importance of preparing your mind, understanding the route, preparing for the climb, taking small steps, and dominating the climb itself.

As there are tons of real estate books, podcasts, and courses out there, for the experienced investor, part 1-3 may sound redundant, however, I encourage you to renew your understanding of the basics and pick up a few golden nuggets in Chad’s book. Below is my review of his book and key takeaways:
 

Part 1 - Why Real Estate Investing

Chad explains how determining your WHY for investing in real estate is crucial before you even start preparing for this journey. As you may have read from my previous blog posts, I believe that 80% of success in anything starts with the right mindset, and when you are so sure of your WHY and have the will to succeed, you will be able to break down any barriers, roadblocks, and overcome plateaus. Otherwise, you may find yourself out of gas and giving excuses at the first sign of struggle (e.g. I don’t have money/time, I don’t know how to find deals, I don’t know if real estate works, etc.)

The first chapter in this books introduces the acronym IDEAL, which stands for - Income, Depreciation, Equity, Appreciation, Leverage, and why these 5 reasons (and many more) provide massive value for the real estate investor who is trying to create cash flow and financial freedom/early retirement.

Part 2 - Map of the Financial Mountain

In Part 2 of this book, Chad encourages the reader to set goals to understand what you’re climbing toward. Questions such as “how much wealth does one need during retirement”, “what is your retirement destination”, and “not waiting on happiness to come to you”. Chad also does a great job sharing the profiles of actual real life investors who have experienced the very topic discussed in this book to illustrate actionable steps that people took to reach their goals (similar concept to Millionaire Real Estate Investor and Millionaire Next Door). One unique trait about this part is that it challenges to people to stop and think about the climb to financial freedom before they start. A lot of people read Rich Dad Poor Dad, or attend a 3-day bootcamp on real estate investing and dive right in. Although I applaud these individuals for taking action and not forming analysis paralysis, but like the quote says, “if you don’t know where you are going, any direction will take you there”. Remember that you are the captain of your ship to retirement and you will need to be clear on the path, what retirement will look like to you, and draw out the map.

Part 3 - Preparations for the Climb

In Part 3, Chad discusses the basics of wealth building, which are the same whether you invest in real estate or anything else. He discusses how average people become “rich” such as increasing income, and reducing your expenses, for start. Further he discussed the five different wealth stages that he observed with many other investors:

  1. Survival

  2. Stability

  3. Saver

  4. Growth

  5. Withdrawal

As with any type of investing, it is important to have a solid foundation for which you build upon your portfolio. Before you start your climb you want to make sure you are in optimal physical shape. By increasing your wages and reducing your expenses, you are in much better shape to take advantage of opportunities that arise, have flexibility in taking risks, and not be riddled with obstacles before you even begin (e.g. bad credit, loan denials due to debt-to-income ratio, no money for downpayment). At the end of the day, it is a simple formula, by spending less than you earn, you will have positive cash flow. Repeat this over time, and concurrently increase your income and decrease your expenses, and the snowball effect will be exponentially great.

Part 4 - First Steps

Now that you have found your WHY, drew your financial roadmap, and prepared for your climb, it's time to take your first steps. In Part 4, Chad shares useful strategies to build wealth and reach early retirement using real estate. Chad covers different wealth building strategies such as house hacking, live-in flip, and the BRRRR strategy (buy, rehab, rent, refinance, repeat). Although these strategies will fit each reader differently according to their current marital, financial, and personal situation, you can use one or a combination of these strategies to build true wealth.

Part 5-7 - The Climb

Now that you have tools such as house hacking, live-in flip, and the BRRRR strategy in your tool belt, Chad explains tips for getting to the top of the mountain when you want to live off your income for the rest of your life. This part includes my favorite chapter of the entire book - chapter 15: The Rental Debt Snowball Plan. I personally like this chapter as it seems like a hybrid idea of popular real estate investors and Dave Ramsey (aka No Debt). Although I love the idea of using leverage (other people’s time, money, and knowledge) to build wealth, there is something called being “over leveraged.” Once you get to a certain portfolio size, I believe it is prudent to reduce risk by deleveraging your portfolio through the rental debt snowball plan. This plan explains how we can tackle the smallest (or highest interest) debt with the excess positive cash flow to reduce leverage and build a portfolio of debt-free investments that reduce impact of different market cycles for a long term buy-and-hold investor.

Another key point made in this part is the trade up plan or 1031 exchange. Section 1031 of the IRS tax code allows investors to defer the gains made on the sale of their real estate assets through a “like kind exchange” (Please consult your CPA for details on how this may impact your finances). By trading up from one rental to another you are able to lock in the gain and purchase bigger, better real estate without allowing taxes to destroy your wealth. At the end, when you kick the bucket, your heirs will be able to receive the portfolio at market value and not have to pay additional taxes on all those years of depreciation and deferred tax gains.

The last part of this book shares the importance of having backup plans to your retirement, as well as finding a retirement withdrawal plan that will last as long as you need it as well as build security around your portfolio.

Favorite Book Quote: “Real Estate is the vehicle, taking control of your money and your life is the destination.”

In conclusion, whether you are a novice, or experienced real estate investor there are themes and actionable items that provide value. As we head into 2019, I highly encourage you to read this book and reflect on your goals and build upon your current strategies for an early retirement.

Good Luck!

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