Ready to take the first actual steps into REI and gut says apt/multi

[John J Kelly III]

Possible long post.

Over the past several years I keep meeting people who are successfully invested in real estate.  Some use the cash flow to fund their hobbies but at least 2 of the people have completely replaced their W2 jobs and reap the benefits of their investing.  Aside from the replacing their W2 income they also "haven't paid income tax in decades."  Now that caught my attention because as a straight W2 earner with essentially zero write-offs I've been paying 6 figures per year just in taxes.  Absolutely brutal!!

I'd be very interested in making a move towards rental income with the ultimate goal of replacing my W2 earnings.  Definitely not in the near future but as a goal.  I have a property management company I am familiar with (manages 600+ doors) and can come up with a bit of cash.  Cash flow would be ideal so I am thinking a multi family or apartment might be the best way for me to go, maybe even commercial property with the idea of scaling?

Funds can come from a variety of places but I'm even thinking of taking some from my 401k roll over. Sure it's gaining a decent return but down the road when I start to withdraw the tax implications will be there. So, why not take that money now, pay the 10% penalty but be able to use the depreciation from the REI to offset the income from the withdrawal. Just thinking out loud here. Even have a HELOC available, etc.

The one gentleman I met worked the numbers backwards.  Needed to replace his W2 of 300k per year.  So he did figured he'd need X amount of doors to have passive income of 25k per month.  Took him a bit but he did it.  

I'm in the Philadelphia suburbs and would probably prefer to invest locally and at least being able to drive by and physically see my investments.   

Thoughts? Ah, the elephant in the room. I could come up with about 400k not including HELOC, but absolutely would be interested in spending less than that.

I welcome all thoughts and comments!

[Alan Asriants]

If you are a first time investor and looking to purchase Apt building with more than 6 doors, having a solid property management company in place is a solid idea. Without any experience it can be overwhelming to deal with many tenants at a time and lots of contractors, tenants, etc can really take advantage of you. Making your wonderful investment turn into a nightmare. That being said it is all very possible. The Philly suburbs are excellent rental markets now, and if I were you I wouldn't even touch Philadelphia county. Lots of unnecessary tax, lower demand for rentals, local gov issues etc. Buying in a solid neighborhood with a great school district in Bucks or montco is a great move. 

Here are a few larger appts I found with a quick search in solid locations:

https://www.loopnet.com/Listing/909-E-Willow-Grove-Ave-Wyndm...

https://www.loopnet.com/Listing/501-Washington-Ln-Jenkintown...

https://www.loopnet.com/Listing/305-S-Warminster-Rd-Hatboro-...

Try to stay away from really old buildings with converted appt units, UNLESS it was fully gutted within the past 20 years or so, otherwise that full gut rehab falls on you, and with tenants in place and constant maintenance issues, it will be very time consuming and costly to mange. 

Another strategy to try, to just start out and get your feet wet is to buy a townhouse/Single family or maybe even a duplex and try to manage that. Get to know how to do a minor renovation, how to manage a property, how to write a lease, etc. This way you gain extremely valuable experience without the headache of managing dozens of tenants and large amount of property. And trust me as a first time investor, this one cookie cutter SFH will take up a good amount of your time.

Once you get established with this practice round (SFH), then go on to fry some bigger fish. Hope this helps