Best strategy for high W2 income earner?

Member since 2019 · 7k+ posts · 4k+ votes

2y

Quote from @Andrew Zhang:

Hi, first time posting here. A little story about me is, I am unmarried, and late 20s. I was fortunate to make about $750k this year and next year the expected salary is $900k. I have a 1.2M house with 25%-ish equity, and no other assets. My yearly spending rate is low like 30K ish, besides the mortgage. I like my W2 job but I don't see myself keeping this high salary forever, so I am thinking of ways to create income streams. I've been reading posts here and was looking at low priced markets for cash flows, but even if I buy 10 of these and paid fully, it's nowhere near the income I am making. I also thought about buying more pricy homes in California and bet on the appreciation - but this doesn't seem like the most efficient way to use my liquidity. Maybe I should go into multi-unit homes? but I absolutely have no idea how to get started on this. My ultimate goal is to make 30k/month income apart from W2, but without working hard like STR owners.

Long story short, if you were making a high 6-digits a year, what asset would you buy to create incomes?

Buy the most expensive house in Hawaii and that’s it , that would be the safest investment

Kerry Noble JrPro Member

Investor · Indianapolis, IN · Member since 2018 · 2k+ posts · 1k+ votes

2y

I would fund flips and buy notes....in a smaller market like mine

4 Reply

Chris SeveneyBusiness Member

Moderator

Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

2y

@Andrew Zhang

As others mentioned private lending today is a good avenue as it provides decent cash flow and if there is a market downturn you are not susceptible to it if you lend correctly

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Member since 2019 · 7k+ posts · 4k+ votes

2y

Quote from @Chris Seveney:

@Andrew Zhang

As others mentioned private lending today is a good avenue as it provides decent cash flow and if there is a market downturn you are not susceptible to it if you lend correctly

no capex. Debt of 8% - 10% IRR is good enough if rate is to be permanent 4-5 in future.

Vessi Kapoulian

Investor · Los Angeles, CA · Member since 2020 · 102 posts · 94 votes

2y

There are so many options @Andrew Zhang.

I would first start by deciding how you want to get involved - actively or passively. Then determine your strategy - cash flow, appreciation, tax deferral. Then decide on an asset class. Once you have narrowed down options and focus, education is a key first step. And eventually taking action. Down the road one can certainly diversify across strategies and asset classes but from my own experience in the beginning focus is key.

Real estate is not a get rich quick scheme, and it will take some time to build that income stream. But it is possible.

Member since 2019 · 7k+ posts · 4k+ votes

2y

Quote from @Vessi Kapoulian:

There are so many options @Andrew Zhang.

I would first start by deciding how you want to get involved - actively or passively. Then determine your strategy - cash flow, appreciation, tax deferral. Then decide on an asset class. Once you have narrowed down options and focus, education is a key first step. And eventually taking action. Down the road one can certainly diversify across strategies and asset classes but from my own experience in the beginning focus is key.

Real estate is not a get rich quick scheme, and it will take some time to build that income stream. But it is possible.

All real estate investment is all active in reality

The actual passive is only CD…

Once you think real estate is passive you would lose money very quickly , due diligence is extremely important in any investment.

3 Reply

Hersh ShahBusiness Member

Realtor · Atlanta, GA · Member since 2016 · 121 posts · 80 votes

2y

@Andrew Zhang sounds like you are really good at what you do! I’d keep crushing it with what you are doing and find a way to leverage what you don’t know through a partner that is skilled and reputable.

One of the easier things as others have mentioned is to lend money at favorable terms. Depending on your risk tolerance you can even partner on projects for upside instead of a guaranteed return.

We are always looking for people that don’t have time and/or experience but have money to contribute towards bigger projects. Find someone like us to partner with!

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Mike Dymski

Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes

2y

Generating 30k/month income with active owned real estate is another job. And, managing PMs, residents, and contractors may be very different than your high income W-2. Most high income earners that invest in real estate work with a broker and purchase NNN or they invest passively as a limited partner in syndications (often with the help of their Registered Investment Advisor).

Georgie Howie

Investor · DMV Area · Member since 2018 · 7 posts · 0 votes

2y

Quote from @Vessi Kapoulian:

There are so many options @Andrew Zhang.

I would first start by deciding how you want to get involved - actively or passively. Then determine your strategy - cash flow, appreciation, tax deferral. Then decide on an asset class. Once you have narrowed down options and focus, education is a key first step. And eventually taking action. Down the road one can certainly diversify across strategies and asset classes but from my own experience in the beginning focus is key.

Real estate is not a get rich quick scheme, and it will take some time to build that income stream. But it is possible.

I am here to echo what Vessi mentioned and offer another perspective. Before venturing into real estate investments, it's crucial to have a clear understanding of your goals and objectives. Exploring beyond real estate to options like venture capital funds can broaden your investment horizons. However, if you're leaning towards real estate, consider forming a partnership. Look for a partner who needs additional capital to fund more deals. In such a partnership, you would typically adopt a more passive role, contributing financially to the purchase and rehabilitation of properties, while your partner would be actively involved in sourcing deals and managing renovations or developments.

Focusing on new development projects, especially residential ones with five or more units, could be a strategic move. These projects can be either for sale or rent, and you have the option to target market-rate rents or delve into affordable housing. Understanding the nuances of the market you're interested in is crucial, as is researching Low-Income Tax Credits available for developers in affordable housing. This research will inform your investment strategy and help you maximize returns.

Networking is also a key component of success in real estate. Connect with developers in your area of interest to gain insights and opportunities. And most importantly, continually educate yourself about real estate development to make informed decisions. Staying informed and connected will position you well for successful real estate investment ventures.

All the best !

V.G JasonPro Member

Investor · Member since 2022 · 3k+ posts · 3k+ votes

2y

You do well, but not really well enough to play real ball.

Depending on your comfort level, I'd buy debt or a mix of buying debt + buying 2-3 properties in one area and growing a portfolio of houses in a couple of different areas that fit your goals. Let those seeds mature and assess as your life comes.

Goal of making $30k/month apart from W2 income is just some random number from hat. Don't define it by a metric, define it by an underlying set up. Remember every 12-15 years, you'll need 40% more. So plan accordingly. Put a structure of exposure(ex. 50% hard assets like RE, 25% equities, 25% debt funds) with $Y as original investment and make it flexible as you see opportunity come and as your income varies.

And biggest advice is don't buy what others sell you directly. Do your own damn diligence.

Allan C.

Rental Property Investor · Member since 2018 · 826 posts · 810 votes

2y

@Andrew Zhang don't ignore the debt pay-down aspect of having a mortgage that a tenant pays off. In very simple terms, for every $1M invested you'll get $100k equity increase a year on 75% LTV for 30 yr FRM (it'll be less in early years and greater on latter years).

So let’s say you have $5M equity in properties with leverage, then you’ll be banking $500k/yr equity after 17 yrs. As someone said earlier, it’s not a get rich scheme, but you’ll generate high equity as you stick with it.

The real question is how much time you are willing to spend and that’ll determine which path you take.

Mark R.

Real Estate Broker · TX · Member since 2008 · 50 posts · 22 votes

2y

Partner with someone on a few small SFR deals and see if you like it. Find some local successful LPs and learn more about what they are doing. Start underwriting deals for fun. Network. Play small until you know what resonates with you.

Jerel Ehlert

Attorney · Austin, TX · Member since 2014 · 890 posts · 759 votes

2y

You don't need more cashflow.

I would buy Class A property, putting down significant down payment so that the debt payment will moderately cashflow (not looking to replace income, but can weather downturns in the economy and not worry about debt service). This allows even small appreciation rates to affect net worth. You get to offset depreciation against current earned income.

Buy the properties outside of CA.

If you want to hedge against loss of, or replace, current income, almost every HML will offer mediocre returns in a debt fund (8.00-10.00%APR). If you set up your own lending fund and wanted another full time job, 20-35%APR is about average returns, depending on your asset class, geographic region, and skill. To replace $30K/mo, you would need about $2M and manage it yourself - a full time job.

Brock Mogensen

Real Estate Syndicator · Milwaukee, WI · Member since 2018 · 1k+ posts · 907 votes

2y

Really depends on how involved you want to be in the portfolio. Certain asset classes and strategies are more passive than others.

Small multifamily in B-class markets can be a great strategy. However, these are the deals everyone is looking for and will take lots of searching to find one that makes sense. But a great asset class.

You can look at NNN properties. Which are much more hands off. But need to learn the fundamentals of how these deals work, as it is different than multifamily.

Or there is a completely passive approach like investing syndication deals as an LP.

2 Reply

Nicholas L.Pro Member

Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes

2y

@Brock Mogensen I think I just heard you on a podcast... Millennial Mike? Or that guy from Rochester? Congrats on your success so far, your story was awesome.

@Andrew Zhang

You got lots of good advice. I'll throw one thing out. Do NOT buy 10 random houses in a supposedly "cash flowing" midwest market. There are numerous examples of HCOL investors like yourself who bought 1 or 2 or 3 and got crushed because they weren't ready for the CapEx on the old, creaky midwest housing stock; didn't have the right team; didn't do an inspection; etc. IF you want to own real estate directly, great, buy 1 property and do your due diligence.

[email protected]817-480-9452

Preston DeanBusiness Member

Realtor · Fort Worth, TX · Member since 2021 · 779 posts · 368 votes

2y

Quote from @Andrew Zhang:

Hi, first time posting here. A little story about me is, I am unmarried, and late 20s. I was fortunate to make about $750k this year and next year the expected salary is $900k. I have a 1.2M house with 25%-ish equity, and no other assets. My yearly spending rate is low like 30K ish, besides the mortgage. I like my W2 job but I don't see myself keeping this high salary forever, so I am thinking of ways to create income streams. I've been reading posts here and was looking at low priced markets for cash flows, but even if I buy 10 of these and paid fully, it's nowhere near the income I am making. I also thought about buying more pricy homes in California and bet on the appreciation - but this doesn't seem like the most efficient way to use my liquidity. Maybe I should go into multi-unit homes? but I absolutely have no idea how to get started on this. My ultimate goal is to make 30k/month income apart from W2, but without working hard like STR owners.

Long story short, if you were making a high 6-digits a year, what asset would you buy to create incomes?

HI @Andrew Zhang

If I am you I would start looking at 4 plex's and keeping the strategy simple. Purchasing properties in a b+ area that need some fixing up and buy & hold for 10+ years. With all cash purchases you are going to have a stronger offer than conventional or financed offers. Go in with a lower offer price and a quick close. After the property is 100% rented out and fixed up get it appraised and pull out 70% of your equity and the reuse that money to purchase another property. Simply put the BRRRR method.

Texas has a wide range of multi family properties 2-4 units.

I say only 2-4 because you can get a 30 year fixed but with 5+ units you won't be able to take advantage of that fix rate for 30 years

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V.G JasonPro Member

Investor · Member since 2022 · 3k+ posts · 3k+ votes

2y

Quote from @Jerel Ehlert:

You don't need more cashflow.

I would buy Class A property, putting down significant down payment so that the debt payment will moderately cashflow (not looking to replace income, but can weather downturns in the economy and not worry about debt service). This allows even small appreciation rates to affect net worth. You get to offset depreciation against current earned income.

Buy the properties outside of CA.

If you want to hedge against loss of, or replace, current income, almost every HML will offer mediocre returns in a debt fund (8.00-10.00%APR). If you set up your own lending fund and wanted another full time job, 20-35%APR is about average returns, depending on your asset class, geographic region, and skill. To replace $30K/mo, you would need about $2M and manage it yourself - a full time job.

Is this guy my doppleganger?

I don't think he has the means to play ball and get A neighborhood 60-80% down. You need $3mil ish to really do that, hence why I did not suggest. I guess it depends where, too.

But yes, best asset right now is low leverage A+ property in great city that is on sale due to rate and illiquidity. You're downpayment will make it cash flow, and quality>quantity with appreciation. With more means, you can speculate on other properties at 20-30% down with little to negative cash flow and put the offset in debt fund & get longer equities. You offset cash flow loss, take on great risk, and have excellent exposure to all areas-- hard assets, debt funds, equities.

Bud Gaffney

Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes

2y

Be the bank !

Bud Gaffney

Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes

2y

Fund deals !

Henry Lazerow

Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes

2y

If you make that much money just buy 1 or 2 class A/B 4 unit buildings moderately leveraged 70-75 LTV and long term hold it, I have sold many of these to high income buyers over the years and they ran very smoothly. I also own one myself. No need to mess with a bunch of houses or headache lower class deals. Lots of scammers in private funds so would avoid that too. Can keep the remainder in index funds simple and works.

2 Reply

Matthew Irish-JonesBusiness Member

Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes

2y

@Andrew Zhang you should be focused on A class assets, historic tax credits, and cost segregation.

You don’t need performing assets, you need a Real Estate tax strategy.

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Dave Skow

Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes

2y

@Andrew Zhang- consider larger multi family properties ....apartments .....10-60 units

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Sean O'KeefePro Member

CPA | Accepting new clients | 50 States · Member since 2022 · 1k+ posts · 871 votes

2y

Quote from @Dave Skow:

@Andrew Zhang- consider larger multi family properties ....apartments .....10-60 units

The best strategy is a well-planned strategy.

2 Reply

Member since 2019 · 7k+ posts · 4k+ votes

2y

Quote from @Sean O'Keefe:

Quote from @Dave Skow:

@Andrew Zhang- consider larger multi family properties ....apartments .....10-60 units

The best strategy is a well-planned strategy.

best answer ;-)