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.


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

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  1. Launch Personal Finance June 8, 2020 at 5:58 AM

    No way I’d be comfortable with 15 mortgages
    Even with relatively low leverage as in this scenario, still way too much that can go wrong for my tastes.
    But certainly an interesting idea to consider!

    1. Joel June 8, 2020 at 10:13 AM

      Yep, me too I think. It would also be a headache to manage all the payments, dates, rates, etc. Maybe better to just have a big portfolio loan, backed by the 15 houses.

  2. DJ @MyMoneyDesign June 8, 2020 at 6:34 AM

    OK, I’ve heard of a CD ladder, bond ladder, and even a Roth IRA conversion ladder, but now a “rental property ladder”? That’s some wild stuff Joel, but I like the concept! Thanks for sharing.

    1. Joel June 8, 2020 at 10:22 AM

      haha! Next up is the “Air-bnb Ladder”… followed by maybe a “crypto-ladder”?

  3. Eric June 8, 2020 at 7:13 AM

    Hey Joel,

    Excited to hear more about your real estate experience! Buying a property a year is more than feasible (especially if just SFH). You can also refi your loans into a larger combined loan down the road to bypass the max # of mortgages.

    There’s a reason most wealthy in the U.S. own real estate – tax advantages. RE is a tax safe haven.

    Also, all the money that was just printed over the last couple months? That’s gonna lead to inflation in the next year or two, quite possibly 5-10%+ inflation. That means everything’s price is gonna go up. But, if you own RE, that’s a hedge against inflation.

    I’ve got a couple RE properties and now working to get into apartment syndication. It’s not easy, but if becoming financially independent was easy then everyone would do it, right?

    1. Joel June 8, 2020 at 10:28 AM

      Hey Eric, Yep – if it was easy, everyone would be doing it. Really like the idea of a portfolio loan – or a massive line of credit secured by multiple properties.
      Shoot me an email about your syndication research and projects! Joel

  4. Timias June 8, 2020 at 12:31 PM

    Joel, thanks for switching things up and talking about one of my favorite topics, real estate. Real estate is not for everyone, but it provides cash flow not tied to the emotions of the masses, steady appreciation on value and rent, the ability to shelter income through deductions related to operating the property, and the ability to defer gains in perpetuity.

    I wouldn’t necessarily advise that someone be 100% in real estate, but your example is feasible even on a smaller scale. If you can identify an income floor that covers your monthly needs, you can buy enough houses where the cash flow covers that amount after 15 years. You can refinance in your example or cover your expenses with cash flow from rentals and paper assets.

    You have a lot more flexibility with real estate as compared to paper assets which makes it a great addition to a retirement portfolio. You also have capital sources outside of banks that can be used if you run into mortgage limits. There are good enough property managers that will do what is necessary to remove the stresses of being a landlord. Again, thanks for the example and taking about real estate.


    1. Joel June 8, 2020 at 1:37 PM

      Cheers Timias. Yep, there are certainly a lot of pros to RE and also ways to hire-out some of the ‘dirty work’ that investors don’t want to take on. Good call on the private money lending, that’s a good way around the traditional bank limits. Cheers!

  5. J June 8, 2020 at 1:37 PM

    The concept of a rental property ladder is interesting, but I’m really glad you highlighted the downside potential instead of just showing the positives. As I was reading the strategy I had some red flags going off. If you’re 100% into real estate and this is going to be your full time job, maybe it’s for you. The exact strategy isn’t my thing, but the overall concept was interesting to read about and perhaps take some inspiration from. I’m not fond of the idea of cash out refi’s so late in life, though. It puts the property back in a leveraged, risky position during times of your life when you may not be able to handle the risk. Let’s say you early retired at 50 with the first cash out refi at 65. You might still be fine handling the details of managing that now leveraged property, but once you get into your 70’s and 80’s that may no longer be the case. This was something that became an issue with one of my mother’s landlords. She lived in a property that her 80+ yr old landlord built in what was previously his back yard when he was younger (there were 2 units total). The maintenance on those units was becoming more expensive and likely to only get more so (think stair case to the top unit reaching the end of its life as well as possibly the floorboards of the unit). As he got older he started having more issues with mobility (my mom found him collapsed on the floor with cuts on his head). After my mother moved she kept in touch, and in his condition he really had a hard time keeping honest tenants in there and fighting to get the rent. The properties were not leveraged, so being able to make concessions to honest tenants was possible for him (such as those made to my mother). But I couldn’t imagine having to deal with looming, expensive repairs, difficult tenants, AND a mortgage payment when I’m in that condition. I think he was lucky to be able to do so for so long. My own grandfather won’t make it to 75.

    1. Joel June 8, 2020 at 1:48 PM

      Thanks for sharing J. Glad you found the concept interesting. And I 100% agree with you that the older you get, the less you want to ‘actively manage’ your estate and assets. Financial independence is about taking money worries OUT of your life, not piling more on. :)

  6. Backpack Finance June 8, 2020 at 2:11 PM

    I’m not a real estate investor. My whole experience in the space has been buying my primary residence and selling it after a few years. Like many others, I don’t think I would be able to sleep at night with so many properties. However that’s just me.

    Lately I have been getting interested in real estate again. Just a bit though, haven’t done anything yet. I really like how Sam from Financial Samurai looks at real estate investing and I see myself going that path one day.

    His strategy is buying a property and enjoying it. When time comes, you move one, rent your place and buy another one. Then again and again and again. Obviously you will not retire with 15 properties but you will accumulate 4-5 properties that you actually got to enjoy yourself during your lifetime.

    Haven’t done it but I really like the idea and I can see myself sleeping at night with such a strategy to complement my equity investments.

    1. Joel June 8, 2020 at 3:30 PM

      Nice! Yeah I think many people have that same strategy. They’ve built great wealth by just never selling the properties when they move and keeping them as rentals. It has it’s advantages also… one is that you know everything about the property when renting it out, because you’ve experienced it first hand.

      Glad you value sleeping at night! Stress aint worth it, no matter how profitable things can be.

  7. Paul Tom June 8, 2020 at 2:12 PM

    I live in San Francisco Bay Area. It cost a lot just to purchase a condo in this area. A house will cost at least 750K.

    1. Joel June 8, 2020 at 3:45 PM

      Hey Paul, I hear ya! I’m in Los Angeles – not quite as bad as SF, but similarly expensive. I think a strategy like this is better suited for a less expensive real estate market. It is possible to buy out-of-state properties, but definitely not everyone is comfortable with that. Investing remotely has more challenges for sure! I know first hand – my rental properties are in Texas!

  8. Joe June 8, 2020 at 6:25 PM

    Hey Joel…I’d like to agree with some of the other comments that mentioned how great it is that you are talking about rental real estate! I’m 42 and live in Florida and have been a real estate investor for 20 years (started even before I moved out of my parents house lol). I do think 15 year mortgages paying for themselves right off the bat is a little optimistic, but I do like the theory. I hope you dive into this topic more often and I wish you the best of luck in this space :-)

    1. Joel June 8, 2020 at 7:00 PM

      Thanks Joe! More to come over time!

      1. paula June 17, 2020 at 4:06 PM

        So funny that you had this specific reference! I bought for exactly 75k in Chicago Il and the condo makes enough to pay itself off in exactly 15 years. This CAN be done even in a pricey market, because the rentals are so much higher. I don’t have a mortgage on mine, but with the rates the way they are, I’m thinking it might be smart to cash out and invest. Just hesitant to pull that plug for some reason…

        1. Joel June 17, 2020 at 4:35 PM

          What a coincidence! Yeah refinancing now is a great way to lock in rates… But if you don’t have another investment planned for the money you are taking out, then it may be better to play it safe and leave it paid off. It’s a difficult decision right now given the market. I don’t blame you for being hesitant.

  9. Brian Thomas June 9, 2020 at 8:05 PM

    Like this idea a lot but don’t you think it’s extremely risky to have that much debt? How would you handle this if half the properties were vacant at the same time?

    1. Joel June 9, 2020 at 9:31 PM

      Yep, I think it’s extremely risky to retire with a high debt-to-asset ratio. Other fully owned investments would be needed to make me feel comfortable. As for the vacancies, although it’s a very low probability that half would be vacant at the same time, it could very well happen! (The current pandemic has thrown investors for a loop, I know some peeps who have 6 properties, and 4 not paying rent. ouch!) This is where emergency funds are needed *for each property*.
      Cheers! Joel

  10. The Financial Engineer June 11, 2020 at 6:30 PM

    Interesting read. I think I would agree with most and not go for 15 mortgages.

    The thought behind it is clever though. I am looking to invest in some real estate to utilize it for short-term rentals. I did not think about the cash out refi being a tax mechanism though.

    Thank you for that!

    1. Joel June 15, 2020 at 9:41 AM

      Yeah, 15 is tough to manage. It’s more about using debt as a tool, and equity as a source of income.

      Short term rentals are becoming very popular, and they can be really profitable too (although the current pandemic made things challenging). Whenever my wife and I travel we prefer house rentals over hotel stays. More room for a similar or cheaper price.

  11. mobilehomegurl June 13, 2020 at 1:14 PM

    Interesting concept Joel!

    Yes, in an ideal world that would be great. Though, I do agree – it doesen’t always work out the way we planned. And this is coming from someone who’s been in the game for over a decade.

    Unfortunately, there are ups and downs. Highs and lows. Not every property is going to turn out perfect. The game is having more winners than losers. But we have to keep in mind the losers will be there with the more properties we buy and accumulate. It’s just part of it.

    I’ve known some investors to have completely paid off mortgages but they are few and far between. And those I’ve known have usually had 30-year mortgages vs 15-year mortgages. Though, it’s taken a long time to pay them off.

    For me, I’m able to buy homes in cash for what I do: mobile home investing. Though some would argue I don’t use leverage to buy them, it’s kind of nice not having a mortgage…on any of them. :)

    I enjoyed this post. Great to see you’re writing some about real estate investing!

    1. Joel June 15, 2020 at 9:47 AM

      Cheers MHG,
      I like that you buy things in cash. Leverage is great, but security sometimes is better – especially with smaller places.
      Great point about the winners and losers. Gotta always consider that some of the properties will not perform with way you think they will. Not planning for failures can throw your plan off track quickly!.
      Cheers, Joel.

  12. Grettman June 13, 2020 at 10:10 PM

    The anti-Dave Ramsey plan! LOL!

    1. Joel June 15, 2020 at 9:48 AM

      Yeah, we better make sure Uncle Dave doesn’t read this post.

  13. Kathy June 18, 2020 at 10:55 PM

    I didn’t even finish reading the post but I know I can’t retire with even one mortgage in the US or any debt whatsoever. I have been a landlord before and it didn’t end well. However, I am thinking of building apartment back home in Africa because I can afford to either fully finance the project myself or get just a small loan to top up, so I will have no debt by retirement age.

    1. Joel June 19, 2020 at 9:36 AM

      Awesome! Having no debt definitely gives you peace of mind. And as the old saying goes: “A heart free from care is better than a full purse”.
      Have a great weekend! – Joel

  14. Dollartrak August 4, 2020 at 12:05 PM

    15 rental properties will end up being a full time job. You aren’t really able to retire.

    1. Joel August 4, 2020 at 12:47 PM

      Agreed. Even if you have property management, there’s still a lot of responsibility behind the scenes! It’s an exaggerated story – exposing cash-out refinances as a great tool in retirement.