Chad Carson’s new book: Retire Early with Real Estate provides a step-by-step guide to achieving financial independence through real estate investing. Unlike most real estate books, Carson lays out several different real estate investing strategies, categorized by what financial stage of life you’re in. Instead of focusing on a single strategy in excruciating detail, Carson provides a perfect amount of information on each strategy to get you started. By the end of the book you will have a good grasp of the terrain along each of the paths before you.
In all, the book is a guide to financial independence, or “the peak of the financial mountain,” as Carson describes it. Like any mountain to climb, there are several paths to get you to the top. Although this book focuses on the real estate path, Carson recommends diversifying into multiple income streams, including equities and business ventures, to hedge the risk of real estate investments.
The book is divided into different phases of one’s financial independence journey after an explanation of why financial independence should be pursued to begin with, and why real estate makes the most sense in terms of achieving that goal. Part 1 focuses on why you should choose real estate investing over other paths to reach financial independence. Part 2 provides a zoomed-out view of the journey to financial independence. Part 3 is getting prepped to make your journey, while parts 4, 5 and 6 key in on the journey itself. Lastly, part 7 puts the ball in your court with some exercises on fine-tuning the financial independence journey to your tastes, risk-tolerance and long-term goals. Let’s take a look at each part:
Part 1: Why Real Estate?
In this part, Carson makes the case for Real Estate investing and why it’s an I.D.E.A.L. strategy as it comes with 5 distinct benefits: Income (cash flow from rental income after all expenses are accounted for), Depreciation (tax write-off you wouldn’t ordinarily get with other investments), Equity (mortgage paydown for the portion of the payment that goes towards principle), Appreciation (your home value goes up and so does your net worth! Also, as home values go up and rental markets heat up, your rental income goes up as well), and Leverage (if you put 20% down on a $200,000 house and that house appreciates 10%, the $20,000 gain represents a 50% return since your money is leveraged. Of course, leverage has some risk, too, as losses will hurt more if you’re leveraged (ie. if your home value drops 10%, you’d realize a negative 50% return)).
Part 2: Zooming Out
In this section, Carson looks at the larger why of pursuing financial independence. Why would you want to “retire early” or make sacrifices in spending today? Carson beautifully sums up the freedom and flexibility financial independence provides: “Freeing yourself from the tyranny of having to work for money is a very worthwhile pursuit. And doing it earlier in life is even more amazing.” Of course, you can still choose to keep working once you have enough passive income to sustain your expenses, but the key word here is choose. You no longer have to work.
After getting clear on the why, Carson dives into how much property or money you need to be considered financially independent and touches on the journey to getting there. You don’t have to put your nose to the grindstone for 10+ years and hate your journey to financial independence. After all, you’re still living your life, so enjoy it along the way! Take mini-retirements every so often and don’t enter a state of deprivation. Just optimize your life for, as we say here at Clocking Out Early, a balance between present and future happiness.
Part 3: Preparing for the Journey
Before you start your journey, you should have the best tools to make the climb. So see if you can do anything to increase your income and reduce your expenses. Doing one or both of these things will free up more cash, which makes the journey faster and easier. Carson dives into some strategies on how to do both of these things to put you in the best position possible to make this journey. He also quite helpfully identifies five wealth stages and bases his investing strategies off of these stages throughout the rest of the book.
First is survival. This is where you’re either living paycheck to paycheck or digging yourself out of a debt hole. A lot of people start here (like us!) and getting out can be challenging. But as long as your goal and motivations behind the goal are strong enough, you’ll be able to get out of the survival stage and into the next stage: Stability.
Stability is when you’ve built up an emergency fund and have paid off high interest debt like student loans, credit cards and car loans. Once you get to this point, you can start to use some of Carson’s investing strategies for those who don’t have a lot of cash saved up. And if you continue to save and invest every raise you get and savings from expenses you cut, you can enter stage 3: Saver.
Saver is when you start to invest 25%, 50% or 75% of your take home pay. You’re putting money away into a retirement account and saving after-tax income to be used for the next stage:
Growth. This is when you have enough money to really start investing in real estate. Carson lays out how to invest this excess money later in the book and we’ll cover that shortly. Once you’ve invested enough to build up passive income that sustains your expenses, you’ll enter the final stage: Withdrawal.
At this point, Carson recommends drawdown tactics that allows you to cover your living expenses while still growing your portfolio. This stage is when you become financially independent and work becomes optional.
Part 4: The First Steps
Part 4 is when we get into the meat of the book. Carson starts with some beginning wealth-building plans for those in the Stability and Savings stages, like house-hacking. House-hacking is where you purchase a multi-unit property, live in one unit, and rent out the others. Often, the rental income from your tenants will pay your mortgage each month, freeing up income that you can use to continue to invest. House-hacking also allows you to use loan programs you’d normally not qualify for if you were buying properties to rent out exclusively. Since you’ll be living in one of the units, you can qualify for low to no-down-payment programs like the FHA loan.
This allows you to start real estate investing before you have a lot of capital saved up. Because of the large amount of content Carson lays out in his book, we won’t be able to break down each of the strategies he breaks down in this section, but here’s a list of each:
- Live-In Rent plan (living in a home you fix up slowly and then rent out after a couple years living there),
- Live-in Flip plan (same thing as live-in rent, except you sell the house after slowly fixing it up),
- BRRRR (Buy, Renovate, Rent, Refinance, Repeat. It’s just like it sounds and is a great option if you don’t have much capital, as you can use hard-money lending for the initial purchase and pay them back when you refinance).
Part 5: The Climb
Part 5 focuses on plans that compounds your investments very quickly, often getting you to financial independence within 10-15 years. Carson starts by detailing the Rental Debt Snowball Plan. Just like the debt snowball, all excess cash flow from rentals and from your job should pay off a single mortgage. Once that mortgage is paid off, you take the excess cash from that recently-eliminated mortgage payment along with your other cash flow and income and put it into the next mortgage. You rinse and repeat until all mortgages are paid off.
Carson then gets into the most popular real estate investing strategy: The Buy and Hold Plan. This is when you purchase a property that cash flows today with the intention of holding it long-term (he also discusses holding property short-term). As time goes on, your cash flow goes up, your mortgage balance goes down, and your net worth skyrockets. Lastly, Carson details the Trade-Up plan which leverages the 1031 exchange language in the IRS tax code. In short, if you sell a property and purchase another property that’s equal or greater than the value of your previous property, you can defer federal taxes. You can keep doing this endlessly and some people have built great wealth by starting with a duplex and ending up with a 100+ unit apartment building without having to pay taxes. Carson goes into detail on variations on all of the above plans and how you can tailor these plans to fit your needs.
Part 6: Reaching the Top of the Mountain
Once you have enough passive income to sustain your expenses, what do you do? How do you take money out if it’s locked behind early withdrawal penalties? How do you reduce risk in your portfolio? Once you’ve finished the aggressive build-up to financial independence, how do you switch to a more conservative strategy so you can make sure you never run out of money? Carson addresses all of this and then some in this section.
Part 7: Customizing the journey for you!
In this section, Carson recaps and helps you come up with a plan for yourself by asking some key questions. Start by getting clear on your why behind your financial goals. Then determine how much you need saved up or how many properties you need to sustain you indefinitely. At that point, determine your current wealth stage so you know which strategy to start with, and finally, get started!
Carson’s excellent book is a one-stop shop for those wanting to get into real estate investing or at the very least, learn about it. There are a ton of resources online and people often get stuck in analysis-paralysis for this very reason. Carson’s book consolidates all those resources and information. His book is littered with several “profiles” of those who’ve reached financial independence or those who are well on their way with information on their strategy, struggles and recommendations. But it doesn’t just contain technical information and strategy. A recurring theme throughout the book is appealing to the emotions of the reader. By helping the reader find their why and the motivation behind pursuing financial goals like financial independence, Carson inspires the reader to take action and puts weight behind his words.
On the other hand, Carson unfairly criticizes investing in the stock market at the beginning of his book by quoting just dividend returns on stocks and bonds that fall in the 2-3% rate and didn’t take full equity returns into account, which end up tripling this return in the long run, pre-inflation. Carson also doesn’t spend much time on finding and analyzing a deal and discussing when an investment property makes sense to purchase. In a time of extremely hot markets when good deals are harder and harder to come by, the book could have benefited from a short chapter on analyzing a deal and perhaps another on finding deals.
Overall though, I highly recommend this book for anyone looking to achieve financial independence, grow wealth or put themselves in a better position financially. This book is a timeless tactical manual that will be relevant 10, 50 and 100 years from now. Carson’s digestible tone, inspirational chapters and concrete strategies makes this a must-read for investors.