Bryce Stewart was 35 years old when he retired from his full-time high school teaching job. Now he works one or two hours a day as a real estate investor. In an interview with Insider, he explained how he managed to grow his annual income to $ 17,000-20,000 per month from his rental units.
The small town of Bethlehem, located in the Lehigh Valley area of Pennsylvania, about an hour and a half from New York City and Philadelphia, is home to just over 75,000 people. Including Bryce Stewart and his wife Kelly.
The now 41-year-old Stewart published his book “House Hacker’s Guide to the Galaxy: Use Your Home to Make Millions and Retire Early” in December. In it, he explains the strategies that have helped him achieve financial freedom.
When he wanted to buy his first property, he didn’t have a lot of savings to fall back on. Instead, with the help of his benevolent in-laws, he has used other avenues to raise capital. And since then he has gradually built his portfolio with 37 units.
The purchase of the first property
In 2008, Stewart and his wife Kelly lived in a one-bedroom condominium in Bethlehem that was steadily depreciating in value. When Kelly became pregnant, they moved into a larger apartment that cost her $ 850 a month in rent. Unable to get rid of their apartment, they rented it out, making monthly losses. “From two wages that had two mouths to feed, we went down to one and a half wages and three mouths – and lost $ 300 a month,” said Stewart.
When his wife got pregnant again, Stewart decided to give real estate a try. In 2009 he invested $ 177,800 in a duplex in Bethlehem. He took advantage of a loan from the US Federal Housing Administration. This mortgage lending is provided by the agency to low to middle income borrowers for the construction or purchase of a home. Stewart was able to deposit a little over $ 6,000 using his savings and borrowing some money from his in-laws.
Stewart and his family moved into a three bedroom, two bath apartment. He also rented another one-room apartment on the property.
In 2011, Stewart bought the adjacent triplex for $ 195,000. He couldn’t afford to take out a loan on his existing investment property as the down payment would have been about $ 60,000. So he got creative. He bought the property for his own use, which meant his family moved into one of the units on the triplex (they could still keep the low rate for the duplex). This arrangement enabled him to get a loan with a ten percent down payment of $ 19,500 that he borrowed from his parents.
At the end of 2012 he rented five units – the additional two units in the triplex, the two units in the duplex and the condominium. And while he was still making a loss on the condo, the rentals made him about $ 1,500 a month total in profit.
The power of a home equity loan
Stewart was fortunate that his in-laws trusted him enough to loan him the money to build his portfolio. He said they were able to borrow such a large amount because they took out a home equity loan (HELOC). This is a type of second mortgage that allows a homeowner to take out a loan from the bank to make major expenses. The equity of the house serves as security.
They first use the HELOC when Stewart and Kelly have to renovate the house. You borrow approximately $ 65,000 from Stewart’s in-laws over a nine month period. While he was staying in the triplex, Stewart went to the bank and had it reevaluated with the renovations. The value rose from $ 195,000 to $ 300,000. As the owner, Stewart was able to obtain a loan of 90 percent of its new value at 3 percent interest. From that $ 270,000, he paid off his debts to his in-laws and paid off the original loan for the triplex.
The money borrowed was constantly being recycled, Stewart said. His in-laws lent him the money, he paid them back, they put it back in their house and then took it out when he needed it.
In 2013, Stewart and his family moved out of the triplex and into a three bedroom house. The rental income from the apartments they owned at the time and Stewart’s salary finally put the family on a solid financial footing. For the next eight years, Stewart continued to search for cheap real estate in Bethlehem. In 2019, he finally sold the (initially loss-making) condominium for $ 119,000.
Retire with enough real estate investments
By 2015, Stewart had amassed 16 units that were $ 8,300-8,500 in profit per month (after subtracting the monthly cost of his single-family home). So he was able to retire from his full-time job. Since banks want to see proof of a permanent job before granting loans on investment property, he signed up as a substitute teacher after he retired.
His advice to prospective investors is: “Hold back. Don’t tell your boss that you are quitting to become a real estate investor. It should start as a sideline. “
Today Stewart owns 37 rental units in Bethlehem that generate monthly profits of $ 17,000 to $ 20,000. “My strategy worked because there is solid demand in this market. And it has been there throughout my investment career, ”he says.
This article was translated from English and edited by Ilona Tomić. You can read the original here.