How do you pay yourself, when investing in real estate?

3 Replies

I am  very interest   and eager to start in real investing. I just started to read some books, because i  like to read, and maybe i will learn something valuable.  I have seen many articles, saying to start in one thing and become good at it. 

If i ask myself what i am interest in, is multi family ranters.I could have passive income from more people, than going to single family homes. Might be harder, but that is what i am interest in. For now, i am just reading books and watching people thoughts on investing in real estate, pros and cons and different markets. 

But, i am not really sure, how someone gets paid monthly or somehow when investing, let's say in multi-family buildings. That X person have Xs units around the country or a city, so how that someone earn money? Do i need to have LLC business entity, and pay myself employee salary? Or, as a owner how much someone pay himself/herself?

@Davey Davanoski

You don't really pay yourself.

Flips are different, the profits go towards your income.

Rental properties generate passive income, but if you're looking to retire from a day job it's not usually possible for the average person owning 1 or 2 properties.

As an example let's say you have a target goal of $300 positive cash flow to consider an investment. One property won't be enough to stop working. If you need $10,000 per month to live on, you would need to own 33 units. If you live somewhere inexpensive, maybe you can half that and only need 15 units to live on. But, that's before taxes.

What rental property does is generate long term wealth by accumulating assets and having someone pay for those through rental income.

If you want to own enough property to quit your day job, you'll have to figure out what you feel is comfortable enough to live on and then figure out how many units you wish to own.

If you really want to build a real estate empire, you would have to buy a lot of residential units or large commercial property and run it like a business.

@Davey Davanoski

You can have all the rental payments go to your personal savings or checking accounts, or for the purposes of easy bookeeping, you can also setup a checking account for the LLC and have everything go in there.

Then sweep out owner funds each money to your personal account when needed.

But, that is just for bookeeping purposes. When you go to pay income taxes each year, they don't care about those things. The IRS is just concerned with passive rental income, which is offset by related expenses.

The property may or may not be in an LLC. If you get a conventional loan, they won't let you put it in an LLC. But, you can setup an LLC just to manage collecting rental checks and dealing with expenses. But, since this is all passive income, it will flow through to you anyway for tax purposes.