Is $150k yearly cash flow possible with $1.5m investment?

Question

I am looking to retire in the next few years and my plan is to invest in rental property that generates a cash flow of $150k/year to live on. I currently have about $1,150,000 in savings and another $350k in equity on my primary residence. Total $1.5m to invest. Is this a realistic expectation and if so how would you recommend doing it?

Jay Hinrichs · Answer

u probably want some diversification. with just straight rental props highly unlikely to attain that net return. with HML you can get close but keep in mind you have turn over IE you get payoffs and the money is never out 365 days a year.

in a fund you lose control and are at the mercy of how the fund goes .. So uber caution there.

and as suggested syndication is great with TOP flight operators..

Keep in mind anyone that says they have this investment that they bought years ago and its doing this wont track for something bought today as prices have gone up more than rents. So cant acheive the same cash flow as those that invested 5 to 10 years ago.

Colton Hahn · Answer

Of course, there are syndications out there with reputable sponsors that pay out 10%+ annually distributed monthly. Just make sure you vet out the sponsor of course as that is one of the biggest risks in the syndication space, "jockey over the horse" sort of approach

Isaiah Tademy · Answer

With that much cash, you could get into hard money lending and generate a 10% return on $1.5M giving you the income you're looking for. Without the headache of tenants.

Ian Ippolito · Answer

Since you have a significant sum of money, you have multiple options for investing.

The main one is whether you want to go passive (where you can make less money, but don't have to do any work and can hire a manager who has a lot more experience than you can hope to achieve) versus active (where you can make more money because of no management fee, but then you have to do the work and may also make mistakes learning from the school of hard knocks).

I invest in both types, and feel neither is 100% superior to the other and both have their pros and cons ( and that a diversified portfolio should have both).

Also the current rates of return vary through different stages of the real estate and business cycle (and don't stay constant).

So you want to get a 10% return. I'll let others comment on doing this actively and talk about just the passive side.

You can currently find some passive deals that will project this kind of return, over the long-term. However they usually involve selling the property at the end. In that case, it's a combination of income and hoped-for price appreciation at the end. And you're wanting to live off of it. So you need income and essential want income-only returns at 10%.

To generate 10% income on equity investments is very high and above what you can usually expect at this time in the market. Maybe with interest rates going up , they will stay up and then the real-estate market will adjust and this will change in the future. But currently income return is much lower because we've been in a low interest rate regime for decades (and hasn't adjusted by much).

As other mentioned you can look at debt to try to get that kind of return (because debt pays only income). However even most of the debt funds are below 10% (which in my opinion is a better way to invest in the asset class versus buying notes individually because of the diverisifcation protection of hundreds of notes versus buying individually on my own).

So in general, to get this kind of return, you would have to be willing to take more risk (such as loaning on your own, going into riskier loan states and types, etc).

And different investors have different risk tolerances, so everyone will look at that risk/reward equation differently. I'm a conservative investor and protecting principal from loss is more important to me than trying to get the highest projected return. So for me, personally, 10% income expectation is too high (and I wouldn't personally expect that).Others will look at this and disagree.

In the end there's no one right answer. It's a very personal decision that only you can make after looking very closely at your own financial situation, your goals, your risk tolerance, consulting with your financial advisor etc.

Good luck!

Brock Mogensen · Answer

Investing as an LP in a syndication deal could be an option, if you are looking to be a passive investor.

Steve Vaughan · Answer

With risk-free money markets paying me 5% to do nothing, an opportunity would have to be exceptional.

A lot of these suggestions, risk and (lack of) liquidity adjusted, don't squeeze enough juice for me.

For me it took about $2M in reasonable quality rental equity purchased over the last 20yrs to net what you want safely.

I'd chillax in risk-free liquidity for half what you want until the dust settles a bit, unless I was a pro at a specific niche.

And I'd leave my home equity alone. The 80% (maybe) of $350k cost of capital is going to be steep if anything besides a heloc. Even then, heloc rates are near your hopeful 10% ROE.

Nicholas L. · Answer

higher yield = higher risk.

there's a reason hard money pays a higher rate than a savings account.

and I assume the equity in your primary comes with a rate you'd have to beat - right? if you're tapping it via a HELOC for example then you have to beat that rate. why do that when you have $1.15M to invest from savings?

it comes down to - do you want to be active or passive?

Ray Lin · Answer

Since you have so much cash in hand, everybody wants to be your friend. You will have a lot of options. Real estate is a long game and trust in a business is extremely important. I treat real estate investing as a business, develop contacts, establish relationships and grow the business. We're been managing an 8plex for 10+ years, yields $4500 monthly, 54K a year on $300k purchase price. Your numbers are definitely attainable.

Marie M. · Answer

You might consider becoming a partner and acting as the money combined with someone else's experience and sweat equity.

A lot of people are looking for partners right now on both sides of a deal. It's important for matches and alignment in what your both looking for and clear expectations in writing. I have high hopes for my own future partnerships!

Justin Hughes · Answer

I agree with hard money lending or a good yield fund, especially if you're looking for purely passive returns. If you've got the time, and/or just plain want to be an active participant (hey, it can be fun sometimes!) then either do a mix or find the right assets. STR can juice your cash-flow, but then you're talking extra active participation. I guess I'd have to ask what kind of lifestyle you're looking for outside of your investment activities. If you don't care about being tied up in day-to-day operations, you can easily exceed that $150k/yr, however if you want to just go about your days with no day-to-day involvement and just wake up to monthly direct deposits and are fine taking a lower return, then it's completely different answers.

Is $150k yearly cash flow possible with $1.5m investment?

Is $150k yearly cash flow possible with $1.5m investment?

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