Can you retire with a mortgage? How about 15 mortgages!?

Good morning, all. Happy Monday!
Some of you are excited to learn more about real estate investing. I’m no expert, but I do have a few rental properties and will share my experiences (and screw-ups) over time.
I know real estate investing isn’t everybody’s cup of tea, so I’ll keep posts like this light and sporadic. (Plus, J Money will kill me if I turn this site into a boring technical blog about real estate!)
Today I’m sharing a weird, but kind of genius, investing strategy to retire with rental properties. I don’t know anyone who’s actually pulled this off in real life … but, it’s less about following the exact strategy/timeline and more about understanding the concept of “good debt“ and why it could be OK to carry a mortgage payment or two (or 12) with you into retirement. Check it out …
Retire in 15 years, with 15 rental properties, and 15 mortgages
Here’s how you can build a real estate investment portfolio that brings in retirement income …
Year 1: You buy one rental property with a 15-year mortgage. If the property accumulates enough rental income to cover the monthly mortgage and expenses, you will own the property free and clear after 15 years.
Year 2: You buy another rental property, similar to the first. You get another 15-year mortgage and make sure the rent money can pay for all the monthly expenses. It doesn’t have to generate positive cash flow, it just needs to break even. After 15 years, it will pay itself off in full.
Year 3: Repeat. Get another rental property with a 15-year mortgage whose monthly income pays for itself. Same deal as the last two places.
*By now you might be thinking — three rental real estate properties in three years? That’s ridiculous! How can I afford this!? Well, the investment property doesn’t have to be terribly big or expensive. Let’s just say each one has a purchase price of about $75,000, and you put 20% as a down payment. That’s $15k out of your pocket each year. Also, keep in mind this is a “fake and perfect scenario,” so just play along for a second and see where it goes …*
Year 4: Buy another property, 15-year mortgage, just like the last ones.
Years 5, 6, 7 … 15: Keep buying one place each year, and by the end of year 15, you own 15 real estate properties.
Now here’s where the fun begins …
Year 16: At this point, there is no more need to buy new houses. The first house you bought in Year 1 should be fully paid off. Now, you go back to the bank and do a cash-out refinance. You start another 15-year mortgage, making sure the property once again is breaking even with enough money from the rental income to cover the expenses.
The money you pull out from the refinance is yours to spend that year. (In our fake $75k house scenario, this would be about $60k in CASH income to live on throughout Year 16.) You can quit your job and take early retirement, enjoying financial independence for a full year on the money you just pulled out.
Year 17: At this time, the property you bought in Year 2 is fully paid off. You can go to the bank and refinance and get another $60k in CASH for retirement income for the year.
Year 18: You can refinance property No. 3 now that it’s fully paid off. $60k in CASH to live on for the year.  In Year 19, you do the same with property No. 4, and you keep repeating the process over and over on your way to financial freedom.
Each new year brings you $60k in CASH to live on, and each year you have another fully paid off property to refinance. Each house repeats the 15-year mortgage → paid off cycle.
Oh and the best part … the refinance money is tax-free in the U.S. You never need to sell a property, and you can retire even though you have 15 outstanding mortgages.

via GIPHY
Best-Laid Plans vs. Reality
Sounds like a wicked retirement plan! But, when theory is put into practice, there would be some hurdles. It’s not impossible, but it’s highly improbable.
Here are a few holes we can poke in the plan:
— It’s hard to find cashflow-neutral properties that pay for themselves on a 15-year mortgage. Not impossible, just difficult. Might be easy in some years (like when the real estate market crashes), but very difficult when the economy is roaring and housing is expensive. Just like you wouldn’t expect the stock market to continually rise for 15 straight years, a linear 15-year real estate market is unlikely, so you probably shouldn’t count on that for your retirement planning.
— Do you know a bank that will allow you to have 15 mortgages? Me neither. Personally, the most mortgages I’ve had at one time was seven, and that was with five banks. Each mortgage becomes harder and harder to obtain and requires good banking relationships. Again, not impossible, just extremely difficult.
— You’d need a pretty hefty emergency fund in case things went wrong with the properties. Estimating a minimum $5k in reserves for each property, this plan would need to also include a $75k cash reserve account, which means less money for other parts of your investment portfolio or nest egg.
— Your retirement portfolio would have no diversification. Unless you can afford to also do other kinds of investing, you would be depending on real estate to perform each year, every year. That’s a little scary.
— Let’s not forget that owning real estate can be a pain in the a$$. Many people fail at buying rentals and doing property management.
So, for this 15-year plan to work out, all the economic stars would need to align perfectly in your favor.
Flipside: There are elements of genius in this plan to retire with real estate!
Although it’s highly improbable, you can’t ignore how creative this retirement strategy is! Even if someone started buying rentals in year 1 and ran out of steam in year 5 or 6, they’d still be in an excellent wealth position later in life.
Here’s what I love about the overall concept:
— It’s a great example of what “good debt” is. The fact that you can borrow money from the bank, spend it however you want, it’s tax-free, and have other people pay off the loan is pure genius. If you use it correctly, debt can be a major advantage in retirement.
— It’s actually a pretty conservative plan. Buying small properties with low-ish leverage is sustainable and isn’t too aggressive or greedy. Hard work at the beginning pays off huge later on.
— There’s so much flexibility and multiple exit scenarios. Some houses could be put on 30-year mortgages and have excess cash flow. Some could be sold, 1031-exchanged, or even left paid off and generating monthly cash flow if you wanted to.
— With rising house values and rental increases over the years, you could take out more and more money each year in retirement. Appreciation would help keep up with inflation and rising expenses.
Your turn to respond!
No retirement plan is carried out perfectly or followed to a T. Like I said earlier, this story is less about the exact strategy and more about the concept. Having mortgages on many rental properties can be a huge advantage in retirement, and that debt can be used as income.
What do you reckon? Would you do this? Anyone know a real estate investor / early retiree currently doing this? I’d certainly love to chat with them! 🙂
*pic up top by Raivis Razgals

Joel is a 35 y/o Aussie living in Los Angeles and the guy behind 5amjoel.com. He loves waking up early, finding ways to be more efficient with time and money, and sharing what he learns with others. Rise Early | Retire Early!

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