Year 1: Inception (2012) was followed by Year 2: The Grind (2013). For 2014, initially, I wanted this year to be known as Year 3: The Accelerator (2014). I had high hopes of continuing my aggressive plan to purchase three more rental properties and snowball the cash flow further. After careful thought and consideration, I’ve decided to scrap that plan altogether and go with something entirely different.
Conservation. That’s the name of the game for 2014. Once Rental Property #5 closes escrow, I will ease my foot off of the gas pedal and proceed to cruise at a much safer speed. You see, sharp turns could arise at any moment on this journey, so I need to do the smart thing and make sure I don’t drive my car into a ditch… or worse.
Boring is Good
2013 ended on a high note. I had four properties under my belt and the forward looking net cash flow was over $1500/month. Granted, I didn’t have any major expenses pop up in 2013, so that forward looking number can be a bit misleading. At this point, I know I have a lot to lose, so I’m realizing that the prudent thing to do is to build up my cash reserves. For 2014, I want to play it safe. More specifically:
- Rebuild cash reserves to $40,000 by the end of 2014.
- Pre-pay loans (principal and interest payments) in advance for each rental to create some more breathing room.
- If the market corrects enough, invest back into some dividend growth stocks.
It’s going to be rather dull year, no question. I simply want to hoard cash and save money. I think 2013 was already exciting enough, and I’m still running off the high that it created. I was able to purchase three rental properties in 2013, which has put my cash flow numbers in a pretty decent place.
There might be a little excitement, though. For 2014, I would also like to do the following:
- Acquire a sixth rental property.
- Go on a round-the-world expedition.
- Start researching into Texas rental properties.
- Work on growing this blog.
- Network with other bloggers, readers, and investors.
The sixth rental property probably won’t happen (close escrow) until after my August trip. However, starting in March, or April, I would like to make a trip out to Dallas or Houston (or both) to start seriously researching into the Texas market. Currently, I have investments in the Bay Area, Chicago, and Indianapolis. I’m not sure what will ultimately become of those Bay Area rentals, but in addition to Chicago and Indianapolis, I would like to find a third source/vendor for out-of-state rentals.
I work in the semiconductor industry, and my company is a major supplier of IC’s to many different customers. For some businesses, we are a first source supplier. For others, we are a second source, or even third source. In the high-tech world, almost every major manufacture (Apple, Cisco, Huawei, etc.) has multiple sources. It’s extremely risky to rely on just one primary source! If a major supplier has a lines down situation, manufacturing stops, and catastrophe ensues. It’s extremely risky business to not have backup vendors.
I believe the same model should apply in real estate investing. I will soon own two properties in Chicago. I have one home in Indianapolis, and two more in the Bay Area. The Bay Area stuff, I’m most comfortable with since they’re located in my own backyard. I’m the property manager and I oversee everything. However, for the out-of-state stuff, I am completely reliant on others to take care of my properties for me. I am currently using two turnkey vendors… and I’m not at all comfortable with that idea, long-term. It’s been in the plans all along to diversify into a third (and maybe even fourth) out-of-state market. This year, I will dive in and do my research. I’ll go out there, meet the teams, tour the properties, and get a better understanding of how the Texas rental market works. If I like what I see, chances are high that my sixth rental will be located in Texas.
Outside of saving cash and purchasing a sixth rental, my only other big plans this year would be my round-the-world trip in August. I’m really looking forward to that and it should easily be the highlight of the year for me.
In addition to all that, I’ve also been having a blast networking with more bloggers and readers. I love hearing from all of you. Thanks again to everyone for all the support and encouragement! I’m humbled to be able to share this journey to early FI with you all. I’m looking forward to another awesome year in 2014!
2013 ended on a positive note and the cash flow numbers have made huge strides over the past two years. Early FI is looking more and more attainable each day. However, we’re not out of the woods yet, and proper precaution must be taken to insure we get to our final destination safely, and in one piece. Instead of trying to accelerate even faster (my original plan), we’re going to take the tortoise approach this year. Let’s ease back, rebuild the safety net, and proceed with extra caution. It would be absolutely wonderful to be able to retire at 30, but let’s try and do so while minimizing risks. Pitfalls (maintenance, vacancies, etc.) may be just around the corner, so it’s better to be safe than sorry. For 2014, we’re going the conservative route… That’s quite alright, because I know we’ll still get to the final destination. All good things come to those who wait.