Income or net worth?

Question

What do you think is easier to achieve; $400K per year in net income, or $5mm in net worth?  Or a similar question; which do you think you could achieve first?

Is real estate the easier path toward one or the other?

And finally, other than REI, what method might you choose to hit the income or net worth mark?

Aaron Mazzrillo · Answer

It is much easier to achieve income than net worth. Income can be derived by selling products and you could have zero net worth. As a salesrep, I could pen a contract which produced more than $400K a year in income via commissions. I leased my car and rented my home. My net worth was whatever cash I didn't spend.

Real estate is not the easiest path to achieve income. Selling products other people manufacture will get you more income quicker than buying and holding properties.

As for net worth, it is entirely dependent upon your lifestyle.

Intellectual property will produce income and net worth much faster than RE. Just ask the guy who invented Facebook.

Will Barnard · Answer

In another thread perhaps a month ago, a similar question was raised regarding becoming a millionaire through RE.

As I posted in that thread, I have already obtained that status through RE and expect to be a multi M by next year. I think that gaining net worth (assets minus liabilities) of $5M is most likely done first before $400k of consistent annual income, although I expect to be at that income level next year and most likely before I hit the $5M Net Worth mrk, so I guess it really depends on how you get your income.

if you are a landlord, you would need a ton of doors to achieve $400k in income, but could generate a large net worth through aprtment building acquisitions.
On the flip side, if you are a rehab flip investor (as I concentrate on right now) you can generate more income than net worth as you do not keep the assets very long, but obtain large paychecks from each flip.

David M. · Answer

@Jon Klaus

Isn't this sort of chicken and the egg?  Are you talking about purely investment?  Certainly there are jobs/professions which you can achieve $400k annually, but they aren't certainly run of the mill.

Via investments, $5m net work should be easier.  Achieving $400k annual income via the $5m shouldn't be impossible but contains risk.  Some of these Note investing and various other private funds say 10% yields, so 5mil gets you 500k annually in a perfect world...

REI using leverage is certainly a decent to good way to achieve the wealth component so that you can THEN generate the income with the grown/appreciated wealth.  Other than REI, another investment area is stocks.  Historically, the returns have been huge especially recent years.  Of course, many investors pivot towards REI because of their dislike of stocks.  I think its more a matter of diversification.

Chris Seveney · Answer

@Jon Klaus

$400k/yr easier to achieve IMHO

But it depends on your business and structure - a fix and flipper will say $400k a buy and hold person will say $5M

We invest in notes and for notes much easier to get to $400k.

Nathaniel Dodson · Answer

2000% net worth is easier! At the low cap rates and high interest rates currently found in the market, income can be negligible... However, values of the properties are going up massive amounts with the recent rental growth. To put it in perspective, $100 net rent growth creates $100 in additional income. That same $100 net rent growth in a 5% cap rate market, increases the value by $2000.

Erich Henson · Answer

My experience in real estate investing has been that reaching $5 million in net worth is easier than achieving $400k net income.  My net worth is around $6 million now but it only throws off about $200k/year in net income.  So I’d probably need a net worth of $12 million to generate $400k/year in net income.  That’s strictly from buy and hold real estate though.  Others have pointed out that you can hit a higher net income from other types of work/business.

I’d love to hear others’ experience with their net income vs net worth in real estate.  I think I’d need to own over 200 houses to make $1 million/year net income.  Does that sound about right?

Brian Boe · Answer

IMO the question is what do you need to live on?  NW would be important for long-term, but you gotta eat.  I'm sure we all know someone who is a millionaire, but are they able to live exclusively off of their net worth.  It would probably be easier to get to the 5M NW, than the 400K income level.

Jeff S. · Answer

Net worth by owning quickly appreciating property. That is easy. Having income property produce high income much harder, but more predictable. Rehabbing is work and can achieve wealth the quickest and maybe easy...just not in my experience,

Account Closed · Answer

It was easier for me to achieve 5 million in net worth.  Not sure though that everyone realizes what net worth is though

Net worth = Personal Assets - Personal Liabilities

Your goals and approach to real estate will be big factors in which might be achieved first.

Kevin C. · Answer

I'm thinking 4M in net worth would be easier to achieve than 400K in annual net income.

Then again, there are businesses that throw off a lot of cash, full service car washes come to mind.   If you're OK with the seedier side of town, I'm thinking a strip club could bust through 400K in annual net profits pretty easily (just guessing of course, I have no inside information on that type of business).

Income or net worth?

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