High income earner seeking to quit his day job- What to invest in

65 Replies

Hi all-

Let me start out by saying I've been following this site for a little while now and I love the insight that you all provide.  This really is a fantastic resource.

About me-

I've been blessed with great parents who provided me a great education and now I earn well into the 6 figures. Unfortunately it is all W2 income. I also live in the lovely state of Taxachusetts where a tiny run-down shack can sell for $600,000. I currently own 2 rental properties, each cash flow about $200/month. I was considering a third purchase- out of state turnkey property, short term vacation rental, SFH, codo, etc then I started doing some thinking...

My ultimate goal is to own enough property within the next 5 years to supplement my income and cut back substantially.  I'd like to see real estate completely replace my income within the next 10 years.  I'll probably never stop working because it's not in my nature but like most people, I'd prefer to work because I want to, not because I have to.  That said, I find it almost impossible to meet these goals with my current plan on picking off these properties that are cash-flowing between $200-$500 a month.  

So, my question to the group is, where do I put my money?  What kind of investment portfolio do you think would help me replace my income?  Do you think my timeline is realistic? Any help is greatly appreciated.

Stop focusing on the little fish. With a high income you should focus on commercial deals (>4 units). This could be a portfolio or apartment building. I only focus on deals that cash flow >$1000 a month. (Might not be possible in Boston). This means I may only do a deal every 1-2 years. Like you, I don’t want to go through all the stress/process of a deal just to cash flow a few hundred. I’m in a similar high cost city, so I focus on out of state. The first out of state deal is going to be a pain, there are ways to limit it, but there are going to be hassles you can’t avoid.

I second @Michael N. that you should focus your attention on cash flow producing commercial properties. How many sfr rentals producing $200 per month do you need to supplement your income? Larger commercial deals normally have less management required and you can scale savings across the asset. Good luck

@Vincent Meoli have some similar experiences and graduated to commercial so to speak. Happy to talk offline. 

But I'm gonna push back on the  "taxachusetts" idea which is tired and not grounded in reality, especially when you think about the economic power of the state, the relatively decent infrastructure, high housing costs and  generally working public sector (I know, I know...but travel to some other places). Take a look at this:

https://wallethub.com/edu/best-worst-states-to-be-...

We are right in the middle of the pack, and our quality of life in general is higher than most of the states above us, so we actually get a lot for our money, and we should stop complaining. People can argue about how that money is spent, of course, but the overall burden is not high. You can make money here.

@Vincent Meoli And I would check out parts of Western and central MA before going out of state...the numbers are much different and some towns are thriving

@Vincent Meoli . Plenty of excellent suggestions already. Find investor friendlier market for the type of asset you are interested in and with your high income, you definitely have a higher entry point. Get in the game !!!

Good Luck .

My goals are similar. I started with the end game and worked backwards. How much REI income is needed to make the jump? What’s attainable and what’s the floor for cash flow per month per door? How many doors needed? How many doors can be acquired per year? Which markets (local, in-state, out-of-state) and which type of properties (sfr, 2-4 unit, commercial, mix) will meet the criteria? Answering these questions will help build the road map.

@Vincent Meoli You can keep buying single family residences all you like but you will keep having issues (if the idea is for rental income to completely replace your W2). 

You either have to move up in units (4 units to be in residential), or towards larger commercial deals (multifamily, mobile home parks, self storage, NNN leases, etc) to start generating a better return for your capital. Furthermore, you also have to start looking at the tax part of your income. Hence, invest in tax-advantaged investments (RE and otherwise) to substantially reduce your overall tax bite.

It's not just an income issue but a tax (and portfolio management) issue. 

@Vincent Meoli how much equity do you have in your rentals? Why not 1031 into a bigger property? 

You have to start somewhere to learn the game so its great that you own smaller rentals and now you can take another step. My recommendation, like the others have said, if you have the financials to go big then do it. RE has a small ball effect and buying one or two every year can mean you can buy 3 or 4 in a few years and even more the years after that. 

Another item to consider, @Vincent Meoli , is that you appear to be an Accredited Investor (earning $250k+ the past 2 years) If that is indeed the case, you are eligible to invest in more kinds of deals, specifically Syndications. They often offer higher returns with less time required on your part to operate the deal. 

Sounds like you're looking for both supplementing your income and also achieving time freedom.

Owning real estate is one possible solution to your end goal. You have to ask yourself whether you truly want to own real estate or are you simply looking for a nice return on your money. There is no correct answer here, and each investor will be different. There are plenty of other options for investing in real estate without owning the properties. Note investing, first mortgage investing, syndication, etc. are options that provide double digit returns if invested properly, all without dealing with tenants or house issues. Happy to discuss further if you have any questions on where to find these options.

As suggested SFHs are table scraps in regards to generating income, they are best left to those speculating on appreciation and mortgage pay down in prep for full retirement in 30 years.

Commercial investments should be your primary goal. Possibly take a look at the Mobile Home Community market.

@Vincent Meoli  , I live completely off my investment income and I own both single-family rentals directly myself, and commercial real estate (including multifamily/apartments) through passive syndications/crowdfunding. In my opinion, both have their pluses and minuses, neither is 100% superior to the other, and I think a prudent investor has both in a well balanced portfolio (in addition to public stock market holdings as well).

My single-family rentals are my bread-and-butter and make up the core of my real estate portfolio. I'm currently netting about 9% on them (income only and not including price appreciation), but I had the advantage of purchasing them a couple years ago in Tampa, which was good timing in an excellent market (and also had a good year last year with very few capital expenditures and repairs. That won't happen every year.). It can be difficult to get this kind of yield today in many markets. You didn't say how much you purchased your rentals for, but I suspect it is impossible to get that kind of yield where you live. So I would recommend taking a look at other markets. For example, you can use a company called Roofstock that lets you choose from hundreds of properties that are already rented across the country. They source from private equity firms, so theoretically the quality should be a bit higher than what a typical turnkey provider might get (although it's important to do your due diligence).

You can also go the return key provider in another state. Of course the question here is how do you trust the provider? In managing my own properties, I've seen numerous times where I could've taken shortcuts that would have temporarily saved me money, but in the long term cost a lot more. And there would've been no way for someone to tell the difference if I was a turnkey provider and simply sold them the property. So that's why I simply can't use one. But I'm also more conservative the many investors and others will go to a turnkey provider. Some people will check references, etc. to get a comfort level with them. It all depends on your level of risk tolerance.

Another option is to invest passively via syndication/crowdfunding. As I said above, I think a well balanced portfolio needs to contain this as well as directly owned real estate. The yield here should be higher than your single-family rentals, because you should be able to have access to much cheaper debt, etc. And it is passive so it is much less work. On the downside, you may be taking more risk, depending on what you choose to invest in. More importantly, you have to be able to feel comfortable with the vetting a person to take full control of the investment. Many people can never get that level of comfort, and if that is you, then this option is probably not for you. But if you can, then it also allows you to get into real estate asset classes that most people simply can't afford when buying on their own. Right now I am getting 7 to 8% on my most conservatively underwritten debt funds. I'm getting 10 to 11% on conservative debt construction funds. Equity funds yield anywhere from 6% to 11 or 12%, depending on the strategy and asset class. And then if they are value-added, typically the bulk of the equity return comes when you sell it at the end of the holding period which is on top of the previous return.

Boy, lot's of responses!  I think I'll call my friend @L. Matthew Perry in.  He has or had a very similar situation and can probably give you some good tips.


But I agree with @Michael N.   You need to focus on bigger deals with bigger cash flow.

Keep in mind that when you quit your day job to be a real estate investor - you may be taking on the role as landlord/property manager.  I think it's important to point this out.  It's just a DIFFERENT day job and one that you can get called at weird hours to fix a toilet.

If you want to just INVEST in real estate - look at passive deals and view your Real Estate Investment porfolio in terms of either appreciation or cash flow.  

Originally posted by @Jeff Wallenius :

Owning real estate is one possible solution to your end goal. You have to ask yourself whether you truly want to own real estate or are you simply looking for a nice return on your money. There is no correct answer here, and each investor will be different. There are plenty of other options for investing in real estate without owning the properties. Note investing, first mortgage investing, syndication, etc. are options that provide double digit returns if invested properly, all without dealing with tenants or house issues. Happy to discuss further if you have any questions on where to find these options.

Originally posted by @Ian Ippolito :

@Vincent Meoli , I live completely off my investment income and I own both single-family rentals directly myself, and commercial real estate (including multifamily/apartments) through passive syndications/crowdfunding. In my opinion, both have their pluses and minuses, neither is 100% superior to the other, and I think a prudent investor has both in a well balanced portfolio (in addition to public stock market holdings as well).

My single-family rentals are my bread-and-butter and make up the core of my real estate portfolio. I'm currently netting about 9% on them (income only and not including price appreciation), but I had the advantage of purchasing them a couple years ago in Tampa, which was good timing in an excellent market (and also had a good year last year with very few capital expenditures and repairs. That won't happen every year.). It can be difficult to get this kind of yield today in many markets. You didn't say how much you purchased your rentals for, but I suspect it is impossible to get that kind of yield where you live. So I would recommend taking a look at other markets. For example, you can use a company called Roofstock that lets you choose from hundreds of properties that are already rented across the country. They source from private equity firms, so theoretically the quality should be a bit higher than what a typical turnkey provider might get (although it's important to do your due diligence).

You can also go the return key provider in another state. Of course the question here is how do you trust the provider? In managing my own properties, I've seen numerous times where I could've taken shortcuts that would have temporarily saved me money, but in the long term cost a lot more. And there would've been no way for someone to tell the difference if I was a turnkey provider and simply sold them the property. So that's why I simply can't use one. But I'm also more conservative the many investors and others will go to a turnkey provider. Some people will check references, etc. to get a comfort level with them. It all depends on your level of risk tolerance.

Another option is to invest passively via syndication/crowdfunding. As I said above, I think a well balanced portfolio needs to contain this as well as directly owned real estate. The yield here should be higher than your single-family rentals, because you should be able to have access to much cheaper debt, etc. And it is passive so it is much less work. On the downside, you may be taking more risk, depending on what you choose to invest in. More importantly, you have to be able to feel comfortable with the vetting a person to take full control of the investment. Many people can never get that level of comfort, and if that is you, then this option is probably not for you. But if you can, then it also allows you to get into real estate asset classes that most people simply can't afford when buying on their own. Right now I am getting 7 to 8% on my most conservatively underwritten debt funds. I'm getting 10 to 11% on conservative debt construction funds. Equity funds yield anywhere from 6% to 11 or 12%, depending on the strategy and asset class. And then if they are value-added, typically the bulk of the equity return comes when you sell it at the end of the holding period which is on top of the previous return.

Hey Ian.

Thanks. At this point I max out my 401K on a yearly basis. I also have investments in IRA, rollover Roths, etc etc, I am well covered in the market and have been doing quite well there. But it doesn't allow me the financial freedom I'm seeking in the short term and I feel like I need more diversification. I also love the tax benefits that come with real estate.

I have the means to live well, but I work hard to get there.   It is the knowledge an experience that all of you have that I am looking for in order to secure a future for myself and my family.  I never want to miss my kid's gymnastics competition or soccer tournament.  I don't mind working hard.  I'd just like to work smarter.

I'll have to look more at the syndication/crowdfunding route.  

Thank you.

Originally posted by @Karen T. :

Keep in mind that when you quit your day job to be a real estate investor - you may be taking on the role as landlord/property manager.  I think it's important to point this out.  It's just a DIFFERENT day job and one that you can get called at weird hours to fix a toilet.

If you want to just INVEST in real estate - look at passive deals and view your Real Estate Investment porfolio in terms of either appreciation or cash flow.  

Hey Karen-

This falls way outside of what I want.  I have no intention of getting calls at all sort of hours of the night to deal with stupidity- I do this now.  The cash flow I am seeking has to sustain someone to deal with the headaches for me.

Originally posted by @Michael N. :

Stop focusing on the little fish. With a high income you should focus on commercial deals (>4 units). This could be a portfolio or apartment building. I only focus on deals that cash flow >$1000 a month. (Might not be possible in Boston). This means I may only do a deal every 1-2 years. Like you, I don’t want to go through all the stress/process of a deal just to cash flow a few hundred. I’m in a similar high cost city, so I focus on out of state. The first out of state deal is going to be a pain, there are ways to limit it, but there are going to be hassles you can’t avoid.

This is what I'm leaning towards.  It just may take a little longer getting the cash together getting into these properties.  

@Vincent,  Yes, I completely understand. If you're looking to have more time with your family, a passive investment strategy, rather than active, is the way you would want to go. If you have any questions about anything, just let me know.

@Vincent Meoli Im going to say what others may have already said, Id go for a large deal if you can make the numbers work on a 10 unit + building for the biggest bang for your buck, or if its financially feasible become accredited as an investor and join a few syndication deals

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