Hi Joseph -
First of all, you may have to define the phrase “become financially independent” a bit better. Are we talking freedom to work where and when you choose? Is it simply a matter reaching a financial “magic number” ? What type of lifestyle do you envision for yourself?
While it may seem trivial to some, I’ve found that the concept of “independence” means different things to different people.
What is your risk tolerance? Or, in other words, how badly do you want to reach your goals? I mean, the equity you mention is a nice chunk of play money, but how would you feel if it were suddenly taken from you?
If you read your morning newspaper to read that the city/county/state had decided to condemn your property? How about the local investigative reporter for the TV news doing a special on your abilities (or lack thereof ) as a landlord? Maybe when you answer the door you find a Marshal (or somebody else equally unappealing) handing you a summons or notice of a lawsuit?
All of these things have happened to me in my RE career. And they can happen to you.
How would you feel? What would you do?
You might want to spend some time thinking about your answer.
If your stomach lurches at the mere thought of any of these, then you may want to rethink your plans. As a general rule, the faster you want to go the more dangerous the journey becomes. Getting to your destination is too often reduced to an unpredictable equation combining both speed and luck. Luck you can’t do anything about, speed you can. Pay attention to life’s speed bumps – you might learn something.
Ted mentions the use of leverage in his answer to you, but it seems that it wasn’t the answer you were seeking. Are you interested in cash flow or do you want that “independence” thing? They don’t necessarily go hand in hand, you know.
As for you living in California, congratulations. Few other places have offered the easy appreciation it has in past years.
Elsewhere on the board, there is an MBA student wanting to research gov’t policies that have affected the RE market. California would be a good place (maybe not the best place) to start. After all, past use of “straight notes”, multi-layered mortgage properties, little or no personal liability for purchase money mortgages along with a few other “small adjustments” skew the normal demand and distribution curves right out the window.
Ever tried to get a zoning change request through the California Coastal Commission? Nah, I didn’t think so. Anyway, …
Of course, that “easy appreciation” hasn’t always been the case in the short term. In most instances, the penalty for that appreciation has been a lack of cash flow (as you mention).
So what keeps you from investing elsewhere? Or in something other than small multi-unit properties? What is your exit strategy for those buildings anyway?
Usually, they’re too small for the big players – REITS, etc – and too big for your normal “Mom&Pop” just getting started – unless of course, you’re going to play banker and finance their acquisition of your pride and joy.
Here’s my point – this is an interesting game which richly rewards those who can think for themselves. Eight years is plenty of time to make some real money for yourself, but the strategy you choose needs to fit you, your market, and your timetable.
On the other hand, you could always rely on dumb luck. Hey, don’t knock it – it works for some – just look around.
Take care,
Eric C