How Nathan Nicholson Cashed Out His 401(k) to Build 23 Rentals

Nathan Nicholson was 33, the top salesperson at his company, and had only $30,000 in savings to show for it. Rather than keep grinding toward a retirement that felt mathematically out of reach, he cashed out his entire 401(k) against nearly everyone’s advice and used it to buy small brick houses in his hometown of Louisville, Kentucky. 

Thirteen years later, he owns 23 single-family rentals, has paid off 11 of them outright, and generates $112,000 a year in true net cash flow, all while reinvesting 100% of it back into the business. He calls himself “the tortoise investor” because he’s never once bought a deal that didn’t cash flow from day one. 

Here’s how he built it.

You cashed out your entire 401(k) to get started. How did that first capital actually get deployed?

I bought my first house at an estate sale for about $38,000 to $40,000, paid in cash, and it was already livable. My whole strategy was creating a domino effect: pay off one house, use it as a toy to learn on since I genuinely didn’t know what I was doing yet, then move to the next. 

Once that initial cash ran low, I started using 203K renovation loans with 20% down, then transitioned to conventional single-family loans, always putting 20% down on my own personal credit.

I’ve never raised outside capital from investors. Everything has been built on W-2 income, savings, and relationships with banks, the old-fashioned way.

You’ve built a system where paid-off properties fund new acquisitions without raising outside money. How does that actually work?

Every time I pay a property off free and clear, I immediately put it on a business line of credit instead of just letting the equity sit there. 

Right now, I have close to $1 million available across roughly 10 paid-off properties on that line, and I use it like my own bank to buy houses in cash, which is often what it takes to win a deal in today’s market. I just wired $56,000 to pay off a property on Lees Lane that nets about $600 a month. Once it’s added to my line, I’ll pick up another $100,000 in available credit from that single payoff.

It’s a two-part benefit: I get the monthly cash flow from owning the property outright, plus more purchasing power to keep buying without ever crowdfunding.

What’s your actual underwriting bar for a deal right now, and how are you still finding them in this market?

I only buy at a 1.3 DSCR, meaning the property needs to generate roughly 30% more income than my monthly debt service, which is essentially my updated version of the 1% rule for today’s rates. I’m not finding many 1.3 deals on the open market in Louisville right now, so I hold the line and just don’t buy until I do. 

Most of my recent deals have come through direct-to-seller marketing I run myself: designing my own postcards, pulling lists, making the calls, and handling everything up through disposition myself since I’m not willing to pay a wholesaler’s fee. 

On my most recent deal, I bought a four-bedroom house for $125,000 that appraised at $170,000 to $175,000, walking into roughly $45,000 to $50,000 in equity with no money out of pocket.

You’ve said you prefer seller financing over subject-to deals. Why, and how does that fit your overall risk philosophy?

I’m not a subject-to investor personally, even though I know plenty of people who’ve done well with it. What I prefer is owner financing on properties that are already free and clear, combined with the line-of-credit strategy I described. 

The distinction that matters to me is control: With seller financing or my commercial line of credit, my name is on the title and the personal guarantee, and I actually own the property outright. With subject-to, the underlying loan stays in someone else’s name, and that introduces risk I’m just not comfortable carrying, even though I recognize it can work well for other investors when done properly.

What are you doing right now to improve the performance of your existing 23 properties instead of just buying more?

I’m focused on four things this year. 

First, I switched property managers to cut my fee from 12% down to 8%, which alone is saving roughly $12,000 a year on $300,000 in rent. 

Second, I’m pushing 3% annual rent increases across the portfolio, since most of my units are still under market, which adds about $8,000 a year once fully executed. 

Third, I’m targeting payoffs on the properties with the highest mortgage balance and lowest payoff cost, since those give me close to a 10% return on the cash I use to retire the debt, plus they immediately expand my line of credit. 

Fourth, I’m watching for rates to drop into the 5.5% to 6% range so I can refinance several properties at once, pay off two or three more outright using the equity I’ve built from appreciation, and still net an extra several hundred dollars a month in cash flow across the portfolio.