Renton, WA · Member since 2009 · 127 posts · 15 votes
I'm curious to know how many RE investors here achieved financial independance. I think that's #1 reason as to why I'm interested in the subject.
When I say financial independance, I don't mean you don't work all day. What I mean is if you chose to take a 1 year vacation, you would come back to find your house and your car still in your name.
Currently I have $4000 monthly expenses and $500 positive cash flow from my 9-5. Armed with that, lots of energy & motivation, an amazing relationship with my wife who's also very interested in the subject, and a powerful brain (I had median PhD income when I was 19 with a 2 year community college degree) - can someone honestly tell me if I have a shot at achieving financial independance in Real Estate within 2 years?
I know a "guru" will say I can do it in 2 months... as long as I buy the seminar package :mrgreen: .
What about you real RE investors? You think I got a shot?
I've been working for 5 years with longest break of 4 days when I was in the hospital. I think 1 year vacation is well deserved :mrgreen:
You would have to bust your butt solid for the next two years.
A lot of what's called real estate investing is really real estate related businesses. Fix and flipping, wholesaling, and developing are all businesses. If you turn the crank, and do good deals, you'll make a nice profit. If you stop turning, like going away for a year, the income stops.
If you're going to do one of these sort of things, you would need to set up a business and have employees who would turn the crank for you. That's possible, I suppose. But, do you really think the employees are going to bust their humps to keep you paid if you just disappear for a year? I don't think so. Certainly CEOs of major corporations, or even not so major ones are continuously involved in their businesses.
I really think its something of a myth that you can create some sort of business that will just run itself and spin off cash without any involvement on your part.
If you have enough investments, you can certainly live on the income produced by those investments. A rule of thumb is that you should take out 4-5% per year of your nest egg if you want to live off it indefinitely. That's largely taxable, so, with $48K a year in expenses, you'd need to be taking out something like $70K a year. Even using the 5% number, you would need $1.4 million.
OTOH, you could do something, like wholesaling or flipping or just saving that $500 a month, and sock away every penny. When you have $48K saved up, quit your job. Take a year off. Then start working again.
Or, figure out some sort of job that will generate some income with minimal time. Tim Ferriss' "Four Hour Work Week" is all about that. Not surprisingly, he recommends "education" as a business that will make money with minimal input. He doesn't limit it to real estate, and also doesn't really recommend doing guru type seminars. Just create a niche educational product and sell it for a moderate cost. Or, create some sort of product that can be manufactured by someone, distributed by someone else, taken by phone, mail, and web orders. He gives a pretty detailed plan for setting up a business like that. Then, he recommends taking "mini vacations" for months at a time.
Rental properties can generate cash without continued inputs. However, you'll have to have great deals if you want to be able to cover all the expenses, including the property manager. You'll be doing good to clear $100 per door per month, so you'd need 40 properties to generate the income you're wanting. Is that possible? Sure, but it will take a LOT of work on your part.
You'll be much more successful, I suspect, if you pack up and move to some midwestern state. Lots of cities in the center of the country where this is much more feasible. That may seem radical. But, if your company offered you a 20% raise to transfer to one of those cities, I suspect you'd at least consider it.
Don't know what kind of job you have, but I suspect it comes with vacation. If the longest break you've taken in five years is four days, that's probably your doing more so than anyone else. Take a nice two week vacation.
Financial independence is different for everyone. Build residual income and find a source for transactional income. It's hard work. I'd say most investors "work" more than most day jobbers, but it's usually because they want to. Stay consistent. Patient people get the leftovers from those that hustle.
Ivan, I've been busting my @ss for 3yrs. I've had some ups and downs.
The biggest achievement I've ever made was being able to bring my wife home. Her last day at her corporate job at United Health Care was on Monday. They let her go early on her last day, whats funny is as soon as she got home we went down to the county records and started pulling probate files.
now I can't go on vacation for a year, but I have enough on my plate that as long as I don't royally screw things up, I'll never have to get a job working tow trucks again!
It's nice only having to wake up early to get the kids to school instead of having to go to a job.
Truth be told I want financial independence not so that I can take a vacation, but so that I have the opportunity to pursue my passions without requiring them to feed my family...
I think the entire concept of financial independence is a big joke and largely a myth. Yes, you can certainly build a business that will support your family and allow you to control your schedule. Can you take a year off and do absolutely nothing, and expect the money to keep rolling in? No.
The bottom line is that no matter what you do, YOU must be actively involved in your business if you want it to keep going. That doesn't mean that you must take care of the minutia, but it does mean that you must at least manage the managers and the macro view.
Furthermore, it is nearly impossible to get to a point that you are financially secure for life. Look at all the millions of people in this country who thought their retirement was secure. They had enough money, diversified per the "experts" in mutual funds. Then, one day they woke up and their retirement fund was cut IN HALF!
In addition to that, there are many other issues that can rob you of financial independence. I was talking to a friend of mine the other day, who is also one of my mentors (no, I certainly don't pay a mentor). We were discussing insurance and the deductibles we have. I have a $5,000 deductible on all my rentals and he has a $10,000 deductible on his. The idea is that the higher deductible keeps the insurance premiums lower and when you have dozens of rentals (hundreds for my friend), that insurance premium savings is significant. I can certainly afford $5,000 (and my friend can certainly afford $10,000) if there's a fire or something else bad happens at one of my rentals. Therefore the deductible seems like a smart move. However, the hurricane that brought 80+ mph winds to Ohio this year (and destroyed the roof on my personal home) really got me thinking about this issue. What if a bigger storm came through and destroyed all the roofs on my rentals? That could certainly happen. Could I afford $5,000 out of pocket for every rental? Could my friend afford $10,000 for every rental? Could I get a loan to cover this amount (using my property as collateral) if all my property were severely damaged? Probably not and the result would be that my nice little illusion of financial independence would be gone!
The bottom line is that life involves risk and you can't remove that risk with insurance or a good plan. You've got to be continuously involved with your business and keep making the changes that allow your business to stay successful.
To answer your question directly. I think that you could realistically build a business that would provide $4,000 per month with relatively few hours of weekly work in about 4 years (buying 10 rentals per year). You could do it in half that time if you were willing to do the management and maintenance yourself.
You have to create more than one tier of cash flow to get complete financial independence....
Ivan you can certainly achieve it depending on what you call financial independence in a matter of years...
On a basic level...
You'll likely have to work your tail off....
I did.... Although of course early on you don't know what you don't and at times you become stagnant knowledge wise believing you know everything....
The moment you do that... you should start studying again, because you are in for a greater learning curve...
So, what do I mean... levels and tiers..
Well first you can invest in real estate....and you have X cashflow depending on how you did it...
Then you realize... to free yourself up you have to pay someone... and teach them your systems...
For instance I'm on the phone couple 2 - 3 times a week with my office... for about 5 - 15 min...
Checkin' the pulse so to speak..
From their I've built other businesses besides real estate.. that provide cashflow and the ability to invest in real estate and other passive vehicles...
So, I have created simultaneously created another level of freedom and other tiers of cashflow...
For instance just met with a friend and we are creating a business that invests in stocks... Yep... I'm going to create a stock portfolio.. haven't done that in years..
But,it will create a tier...
So, I personally have a ton a freedom... I believe I could leave for a year plus... and it would still run and probably all grow without me... (maybe even better) as I would be forced to create better systems to allow more freedom..
Sure, I'd make a calls, check some email etc.. but, nowadays I'm so far out of the day to day... my biggest decision is typically lunch...
That said... I'm not the kind of person where my brain rests...
So, I continually think about business etc... because "I love it"....
I've just learned not to act on ever whim... or I'd always be busy as hell...
And my people can't get done what I have put in place already as it is....
Now, like Mike said.... It can all be attacked... at least until your like Gates and the rest of them....
but, after awhile what I've learned is create cashflow from different sources...
I'm not going to go into definition of "rich" as I wrote a whole dissertation on it ;) http://www.passiveincomefrom0.com/2009/01/why-i-want-to-be-rich/
At the end of the day I think it all comes down to how much I disagree with the idea of 9 to 5. Mke and David - thank you both for your insight!
According to what you say, I've been living extremely rich life :) Especially:
Living a rich life is laughing your *** off and crying your guts out.
I used to believe being a man means you cannot cry or show weakness. Now, even though I'll still hide it, I _love_ letting tears roll after an emotion movie, or when you wake up on Saturday and realize what an amazing week it was. My wife says she thinks it's very cute :)
Still, no matter how much I enjoy my life, I still have to spend most of my time at my 9-5. I would much rather spend that time with my family/friends/pursuing my passions. And for that, you do need money in the bank/real estate/whatever.