Who has become financially independent from Real Estate?
Investor · Scottsdale, AZ · Member since 2011 · 509 posts · 134 votes
Who has become financially independent from Real Estate?
Most Popular Reply
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
14yThere seems to be this idea that by investing in real estate you can have cash to travel to exotic locations with beautiful members of the opposite sex and not really have to work at all. I guess it those slides the gurus show that creates this idea. I think its a myth. Those gurus show those pictures and tell those stories to suck you into buying their courses. "See, buy my course and bootcamp and mentoring program and you can hang out in Aruba with this gorgeous woman!"
The best way to achieve that goal is to have enough money invested in truly passive investments to give you the returns you want. Passive doesn't include any direct real estate investments, IMHO. By real estate investments I mean income producing properties. Not wholesaling, rehabbing, property management, brokering or any other real estate jobs. Those are simply jobs, the exact thing the gurus denigrate while trying to convince you of the easy riches that will come from their courses. Income producing properties will always have an element of management. Either you manage them directly or you pay a manager. You're either managing the tenants or managing your PM. Not sure which is more work, but directly managing residential rentals doesn't scale and eventually you'll have to hire a PM or employees.
Truly passive investments, OTOH, require very little involvement. Bank CDs or treasuries are the seminal passive investment. Unfortunately, at 2%, you would need $5 million to produce $100K in annual income. Dividend paying stocks, corporate bonds, REITs, and similar investments hopefully pay a higher rate, but have more risk. Or, if you want to be more directly in real estate, investing in someone else' business will produce returns in low to mid double digits. You'll have a line of people out the door if you offer long term (more than a few years) real estate financing at 8%. You would only need $1.25 million at 8% to generate that $100K. Good NNN commercial properties can generate those returns, too, provide you tenant doesn't go belly up. You might manage 12% if you directly make hard money loans. But now you've over into the "job" realm because you have to deal with actually making the loans.
So, in reality most of "real estate investing" is really a self employees job. I'm sure there are numerous people here who fall into that category.
I think managing 6-8 rental properties with a full time job is possible. You're going to be dealing with a turnover every couple of months. You'll have minor items crop up that require you to deal with them on short notice. You'll occasionally have an evening interrupted. But I think managing one unit consumes about 12 hours per year, provided you don't have a major disaster (e.g., nasty eviction.) A big chunk of that is associated with the turnover. So, 6-8 properties means 72-96 hours a year, which is roughly 6-8 hours a month. Some months you'll do nothing but deal with collecting rent. Some months you'll spend all 8 of those hours dealing with a turnover. Once a year you have to get your taxes together.
109 Replies
- Homeowner · Burleson, TX · Member since 2008 · 756 posts · 376 votes14y
Welcome to BP Jared Vidales.
That question has been debated many times. It is going to depend on your desired standard of living and the location of where you will reside.
It is far cheaper to live in DFW than some parts of the northeast. Also, some of us live a little more simply than others.
I did live on rental income for a while. It was 2008-9, during the lending lock up. Nothing was happening in RE and I was bored. Had go go back to work to break the boredom.
Some things I did learn, you better know what you want to do when you quit working. Also, you better know how to keep growing your income after quitting because you can't go to the boss and ask for a raise. When to property taxes and insurance rise 10% and you can only raise rents 5% your net income just took a hit.
I currently manage 10 active units and I do work a full time job(school teacher). It has all been fairly easy until I just had 5 tenants move out at once. I lost 50% of my customers at the end of May WOW. I now have 3 of those units leased and should have the other 2 rented this month. Talk about a learning experience.
Good luck to you.
- Specialist · Cleveland, OH · Member since 2011 · 1k+ posts · 852 votes14y
Jared,
I have been in the game over 15 years. full time over 12 years. I had about 12 units when I quit my job in the 90s. I had no plan, no experience and got a rude awaking when I quit. I just about went BK very quickly. I turned it around by learning how to flip contracts and built a nice business again. Today I am very happy with the decision I made to leave, and I am living a lifestyle that I could never achieve working for someone else, financially or freedom of time.
In a nutshell, unless you are making a ridiculous amount of money, it is not hard to beat what ya are makin in a 9-5. Just plan a little better than I did! LOL! - Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes14y
There seems to be this idea that by investing in real estate you can have cash to travel to exotic locations with beautiful members of the opposite sex and not really have to work at all. I guess it those slides the gurus show that creates this idea. I think its a myth. Those gurus show those pictures and tell those stories to suck you into buying their courses. "See, buy my course and bootcamp and mentoring program and you can hang out in Aruba with this gorgeous woman!"
The best way to achieve that goal is to have enough money invested in truly passive investments to give you the returns you want. Passive doesn't include any direct real estate investments, IMHO. By real estate investments I mean income producing properties. Not wholesaling, rehabbing, property management, brokering or any other real estate jobs. Those are simply jobs, the exact thing the gurus denigrate while trying to convince you of the easy riches that will come from their courses. Income producing properties will always have an element of management. Either you manage them directly or you pay a manager. You're either managing the tenants or managing your PM. Not sure which is more work, but directly managing residential rentals doesn't scale and eventually you'll have to hire a PM or employees.
Truly passive investments, OTOH, require very little involvement. Bank CDs or treasuries are the seminal passive investment. Unfortunately, at 2%, you would need $5 million to produce $100K in annual income. Dividend paying stocks, corporate bonds, REITs, and similar investments hopefully pay a higher rate, but have more risk. Or, if you want to be more directly in real estate, investing in someone else' business will produce returns in low to mid double digits. You'll have a line of people out the door if you offer long term (more than a few years) real estate financing at 8%. You would only need $1.25 million at 8% to generate that $100K. Good NNN commercial properties can generate those returns, too, provide you tenant doesn't go belly up. You might manage 12% if you directly make hard money loans. But now you've over into the "job" realm because you have to deal with actually making the loans.
So, in reality most of "real estate investing" is really a self employees job. I'm sure there are numerous people here who fall into that category.
I think managing 6-8 rental properties with a full time job is possible. You're going to be dealing with a turnover every couple of months. You'll have minor items crop up that require you to deal with them on short notice. You'll occasionally have an evening interrupted. But I think managing one unit consumes about 12 hours per year, provided you don't have a major disaster (e.g., nasty eviction.) A big chunk of that is associated with the turnover. So, 6-8 properties means 72-96 hours a year, which is roughly 6-8 hours a month. Some months you'll do nothing but deal with collecting rent. Some months you'll spend all 8 of those hours dealing with a turnover. Once a year you have to get your taxes together.
- Investor · Southeast, MI · Member since 2012 · 2k+ posts · 1k+ votes14y
Jared Vidales
If you had 7 rentals, they were paid for, and you netted $1,000 per rental per month, you just made $7,000 per month for a part time job. You could easily do that and still work while re-investing that rental income into more rentals. This doesn't factor in repairs or vacancies, but you can see the profit potential.
I started with one rental. It starts to snowball. The real estate crash hurt me some, but I'm back! Eventually, I got enough rentals to quit my day job. I've done a lot of flips, which is nice, but the rental income goes into perpetuity. That's what I'm looking for. With prices going up, it's nice to hold onto them and get an income.
I'd say go buy one. If you don't like it, someone else will buy it from you. There's an *** for every seat. Good luck.
- Investor · Westminster, CO · Member since 2009 · 1k+ posts · 1k+ votes14y
Originally posted by Jon Holdman:
So, in reality most of "real estate investing" is really a self employees job.These are by far the truest words spoken in this thread. Most REI's "buy" themselves a job.
I have been investing since age 21, 30 years ago. My total income coming strictly from REI started on November 5, 2010, the day I quit my last job. The most "work" I do now is to take my checks to the bank, that is from those PMs who do not Direct Deposit for me. I also have to "work hard" when I have to authorize a repair via email to my PM. I own 10 house that I have NEVER seen.
The other thing Jon mentioned is to manage your PMs. Let me add that you have to be ready to FIRE your PM too. I have fired three in the last 4 years (I have 7 PMs in six states right now)
I love passive income!
- Investor · Westminster, CO · Member since 2009 · 1k+ posts · 1k+ votes14y
Nicholas
I was in Colorado and fired two PMs in California and one in Texas. The two in California were extremely easy, but the one in Texas more than made up for the two easy one, WOW. He was the PM from heck! - Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes14y
From Jon Holdman- Not to be silly, but this IS me!!!
"There seems to be this idea that by investing in real estate you can have cash to travel to exotic locations with beautiful members of the opposite sex and not really have to work at all. I guess it those slides the gurus show that creates this idea. I think its a myth. Those gurus show those pictures and tell those stories to suck you into buying their courses. "See, buy my course and bootcamp and mentoring program and you can hang out in Aruba with this gorgeous woman".
This is exactly what I did and my info is well documented on BP with blogs, posts, "Meet the Investor" section and as a speaker at the recent Denver Summitt-with the topic "From Janitor to Multimillionaire".
I was very blessed, lucky and worked EXTREMELY hard, but yes, it has been done and can be done again. Good luck.Rich
p.s. I've NEVER sold a seminar, give away all profits from my Book and have NEVER promised this would be easy.
- Investor · Westminster, CO · Member since 2009 · 1k+ posts · 1k+ votes14y
Originally posted by Rich Weese:
....... and you can hang out in Aruba with this gorgeous woman. This is exactly what I did.......
Rich
We want pictures!! - Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes14y
Rich Weese No kidding!! We have to teach you how to get pics on here! In fact, I posted a topic on the forum yesterday asking how to post pics, and Joshua answered.. you might look at it.
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes14y
You can't load pics from a 8mm Brownie on any computer!
While I started a long time ago, I went full time and worked hard for 18 years and retired at 54, then played. I'm not the kiss and tell type, but my GF seems to stay close...LOL....don't let Rich fool ya I bet his wife was there and there's a reason he has such short hair...time to go dear...........LOL
- Property Manager · Livonia, MI · Member since 2011 · 4k+ posts · 1k+ votes14y
i have 5 rentals and a full time job. and unless i am in the middle of another rental, i rarely get calls. the key is to fix them nicely upfront, get good tenants and then be a good landlord.
let me elaborate a bit on all these 3:
1. spend the money to fix them so they dont have issues. snake the drain before the first tenant moves in. if a kitchen is needed, change it. do not wait for the first 2 tenants to move and then do it. if there is no bath fan, put one. is it expensive? yes. is it time consuming? yes. but spend the money now (especially if you can do some of the work) and it will be cheaper in the long run (once they are in, i have to hire contractors to get it done faster)
2. good tenants - easier said than done. the quality of your rental will dictate the type of tenants you get. give them unit with stains and you will receive a unit with 10 times more stains. do your homework, get references, learn how to interview the applicants. it's an art, you just have to watch their body language, their questions, their car (is it clean, but not always an indication)
3. respond to calls, check up on your properties. change the filters regularly. do not charge for changing a light bulb. treat them with respect until they stop paying.
that's it, really..
- Real Estate Consultant · Bloomfield, NJ · Member since 2010 · 2k+ posts · 1k+ votes14y
Originally posted by Jon Holdman:
The best way to achieve that goal is to have enough money invested in truly passive investments to give you the returns you want. Passive doesn't include any direct real estate investments, IMHO. By real estate investments I mean income producing properties. Not wholesaling, rehabbing, property management, brokering or any other real estate jobs. Those are simply jobs, the exact thing the gurus denigrate while trying to convince you of the easy riches that will come from their courses.Exactly. I like Robert Kiyosaki's definition of 'Financial Independence': When your PASSIVE (not earned) income exceeds your monthly expenses. For anyone who is wholesaling, building, rehabbing etc. the trick is to invest the money you earn into assets that generate passive income. Rental properties, businesses that run themselves - you get the idea.
And no I'm not there yet but I'm working on it.
- 14yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
In reality there is very little that is pure passive income. Most requires some degree of involvement up to where it is no longer passive and becomes active. Some real estate investors are active investors with 3 houses, some are passive with 400 houses. Lots depend on leverage and return required.
- Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes14y
Mike M- As anyone that attended the Summitt in Denver. my woman is gorgeous- inside and out. Same one for 42 years and she is still hot!
Karen- last time I tried, it was broken! I'll try again. Driving to Yellowstone today, maybe manana.
Jared- I lived in Nipomo, Pismo and Arroyo Grande and owned additional properties in all 3. I wish I still owned a couple parcels- 286 acres in AG and 2 acres above the ocean in Pismo!
Bill- LOL.
Ibrahim- according to definition, I qualify as passive investor.
Don- My income stream is very passive. I visit properties once/twice pre year and look at mgmt repots. I also CHOOSE to build houses to keep juices flowing and that is LESS passive. Rich
- Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes14y
I am a relative short timer to rei. Started 4 or 5 years ago and now have 16 (soon to be 17) rental properties. My early ones weren't as good as the ones I'm picking up now. But I have to believe that at some point, I will be able to quit my job and live off the income.
I'm not sure if thats what I'm necessarily going to do though. I might just take a chunk of money and buy a franchise or something. Something that I can control my own time and thats close to home (I drive an hour each way to work now).
That way I'm still generating money from a job so I can continue qualifying for more loans but I can take off at 2pm if I want and check on a contractor.
I also wonder if, once I can quit my job, I will actually enjoy my job even more and just stay. There's a difference in having to go to work and wanting to go. Maybe if I don't have to go to work, I might want to more.
It'll be interesting to see.
All I know is that had I not gotten into REI a few years ago, I would be pretty depressed with my options right now. With real estate, I'm at least going to have a bunch of options. I'm 42 now and by 45 or 46, I think I'm going to be in a position to be able to make my choice based on what I want to do instead of what I have to do.
btw: Whats really nice is not having to fear what my company might do in the future in terms of layoffs and things. I'm not worried that when I turn 50 my company will lay me off and I'll have to figure out how to start over at 50.
So even if you don't use REI to quit your day job. You can very easily use REI to give yourself a peace of mind for your future.....
Even if you bought yourself 5 rentals and had them paid off when you retire, think of the difference that would make in your quality of life. What do you a think a retiree would do if you gave them 2 or 3k (thats on the low side to me but...) per month in net cash flow???? How many cruises could they go on with that? :-)
- Hatfield, PA · Member since 2012 · 1k+ posts · 629 votes14y
There is no financaial independence for most. 1928 saw many popping champagne. 1929 saw a 10+ year of severe hardship. Being a landlord was no picnic. In the 90s, the Asian currency crisis saw the value of people's stocsk and their money suddenly falling up to 80 to 90%. The 2008 financial crisis flushed the real estate industry into the toilets. In an era of Greece (the PIIGS), 1+ trillion annual deficits, and many other things, we are a landmine away from disaster. To many people, There is only financially independent for now.
Some landlords are leveraged way over their heads, putting every spare dollar and HELOCing up to their eyeballs to get more property and do more deals.
In other words, money is part of the formula. But selling apples on the street comes to those who think things will always be the same.
- Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes14y
I'm not sure how you can evaluate that based on rents and paid off properties. That might be fantastic or it might be barely getting by. Depends on how much of that 200k in rents is going to taxes and insurance.
I would say that if you had 20 properties with a cash flow of $800 a month or more (assuming they're paid off), you'd be sitting pretty.
But I believe you could have 30 mortgaged properties making about $300 or so a month and still be able to pull off retiring depending on where you live and your lifestyle.
Given that, with mortgages, most if not all of that income will be tax free, thats a pretty good salary. I'm guessing at about $350 apiece, you'd be netting around 6k per month or so (including repairs and vacancies).
Thats about 100k a year job after taxes. Thats enough for me not to HAVE to work. But I'm not sure its enough for me to be comfortable enough to stop working.
Not only that but I don't know if it would qualify to continue getting loans. And while I like the money, I love the investing even more and don't think I would want to give it up. I see myself continuing to buy 2 or 3 houses a year for as long as the prices allow - even if I have to start buying them down to make the cash flow numbers work.
I want to keep adding every one I can if I can get that magic number of $300 to 350 a month. :-)
- Investor · Westminster, CO · Member since 2009 · 1k+ posts · 1k+ votes14y
Quick update, fired Property Manager number 4 today. I asked him to do his job, via Certified Letter, and he bolted on me. Life is good!
- West, MI · Member since 2012 · 674 posts · 182 votes14y
I know what my numbers are, I know property taxes account for 16.4% gross, and so on. Many people use the 50% rule and have no idea what it actually is. Know your numbers! You can take advice about people that are thinking about it or people that actually are doing it, for myself I would take the latter.
- Investor · San Ramon, CA · Member since 2011 · 1k+ posts · 569 votes14y
Originally posted by Ryan M.:
I know what my numbers are, I know property taxes account for 16.4% gross, and so on. Many people use the 50% rule and have no idea what it actually is. Know your numbers! You can take advice about people that are thinking about it or people that actually are doing it, for myself I would take the latter.Hehe, man I love Utah :) I still have to challenge my valuations with the HUDs but mine should come in around 5% here :) Got my insurance down around 2%. My vacancy has been a bit high this year due to buying properties with bad tenants or no tenants but hoping to keep it under 10% by the time all is said and done. 50% should be very easy to beat here.
Now I just need to refinance three of my properties down around 4.5%, that'll save me $600 a month over what I'm paying now :)
- Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes14y
For me getting out of my job came quickly, 8 days from when I realized I had a back problem to actually retiring was the amount of time I took to think about things. Knowing I could quit if I had to has been the best thing imaginable. Actually pulling the trigger was the best day of my life, it felt so good.
The time I am taking isn't about spending lots of money, it is quite the opposite. I am having fun being frugal, riding my bike around and cooking more. It is healthier and slower. Don't know how long I will continue not working but if I continue like I have, will not work again. If I do it will be for the enjoyment of it.
Of course it is possible things will go to hell like Ken Latchers has alluded to and my pension fund could go broke. That is ok, I don't really care. When/if that happens I will be good and rested and will do what has to be done. In the meantime am enjoying this (possibly temporary) soft spot.
- Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes14y
Originally posted by Ryan M.:
My 0.02..... You need 200k atleast in gross rents/year with paid for properties to consider it.Originally posted by Mike Hasemann:
I would say that if you had 20 properties with a cash flow of $800 a month or more (assuming they're paid off), you'd be sitting pretty.I think it's pretty useless to try to determine what OTHER people need in terms of properties, cash flow, etc, in order to be financially independent.
For some, $200K in gross rents or $800/month in rent on 20 free-and-clear properties would be much, much more than they need in order to be financially free. For some neither of those situations would generate enough cash flow for the investor to be financially independent. It all depends on the person's location, standard of living, goals, etc.
Personally, neither of those situations above ($200K in gross rents or $800/month in rent on 20 free-and-clear properties) would be enough for me to consider myself to be financially independent. My goals include saving for college for my kids, lots of charitable giving, and building an inheritance for my family, and it would take more than either of those situations above for me to feel like I've achieved that. That said, I know plenty of people who could happily live on much, much less than that for the rest of their lives.
There's no one answer to the question, "How much do I need to be financially independent," and therefore there's no one answer to, "How many properties or how many asset do I need?"
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