Who has become financially independent from Real Estate?
Investor · Scottsdale, AZ · Member since 2011 · 509 posts · 134 votes
It would be great if your guys could answer the following questions
- Were you able to quit your day job and live off cash generated from RE?
- If so, what age did you start investing, and how long after investing did you create financial independence.
- Would it be difficult to manage 6-7 rentals while holding your day job?
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.
I think we have adequately shown this statement above about the "only" passive investments to be untrue. The bank CD is a poor choice in almost any case and there exists many passive vehicles, not just the ones mentioned in that quote. I named several above as examples.
Yes, these things are awful investments but they are as SECURE as you can get and that is essential if you are going to consider yourself financially independent.
Well of course, nothing is risk free I didn't even suggest that. The US can also collapse and your T bills would be worth nothing...but the point is the level and probability of risk. I am sure you agree that a savings account is more secure than a stock certificate.
Oh yeah, there is no textbook definition of financial independence. So disagree away doesn't mean neither you or I are righht.
Yes but the $10M principal is still there reinforcing my point about security. Which is more than can be said for the equity in a rental property.
What are you talking about? Their income went down but their principal did not. Many other investments, real estate included, would have seen a loss of both income and principal.
You are correct. If you start nitpicking my definition and are stricly literal then you are right.
Absolutely agree. Real estate can be a great way to achieve it. But not to maintain it if your interest is for it to be passive, meaning you don't have to work on it.
No way, nope, not a chance. You will always have to be involved. Houses burn down, PM's steal from you, tenants leave, houses deteriorate, etc.
I think this is a real bad example because that guy I am sure has a gazillion dollars sitting in a savings account type of investment and the other gazillion dollars in business ownership. Plus you are talking about a Fortune 100 company, that is a whole other league compared the little 1, 2, 5... guy operations we discuss in these forums.
Sure, the business could fail, the stock could tank, and you could be left without financial independence, but again, that can happen with govenrment-backed interest-bearing securities as well.
Yes J but please be realistic. What is more likely, for a small business to fail (like they do every day) or for you to loose the money in your savings account?
Again, I didn't even intended to imply that CD's and savings account are good investments. I was referring to security as compared to a real estate investment and they are. They might not perform as well but they are more secure.
That's fine, I never said they were the ONLY ones. Just make sure you read what I wrote, not what you want to read.
I agree with you on this but are we then going to go into a discussion on "degrees" of passiveness?...
Either it's passive or it's not.
And who manages them?...
What about when the owner stops making payments and you have to foreclose on them?... Or they burn down the house?... Or they don't pay their property taxes?...Or they walk away from the house?
Once again you read what you wanted to read. A CD is a secure and passive way to safeguard cash, no more no less. To think that a CD can make you rich is ridiculous if anyone here suggested that they should be banned :-)
Ok I get it, you are not voting for my post... ;-)
I completely agree with you that from a financial perspective, that is often the correct thing to do (and since I like to look at things in black and white, I'm not afraid to admit that you're right and I'm wrong!)...I gave a vote on your post the minute I read it!
That said, as someone mentioned in the other thread, there is also a psychological component, and it's sometimes correct to go with the suboptimal financial solution in order to appease the psyche...
In other words, you're absolutely correct that 100% leveraged is financially better than 70%, though I sleep better knowing I have over $100K equity in my primary residence, and that I'm unlikely to ever be underwater on it... :)
You sort of confused me with this post. You say you sleep better by knowing that you have $100k equity. Then wouldn't you sleep even better knowing you own the house free and clear??
I agree with others that mathematically speaking paying off a mortgage does not make a lot of sense but you allude to the psychological component and that is because after all personal finance is personal therefore sleeping in a paid off property just feels better.
Again, I know Rich Weese gives very good financial reasons not to pay it off but so many of us here have roles as husbands and fathers and providing a paid off home makes a whole lot of sense from a security and personal perspective.
If you ever run into financial hardship, which can happen to anyone, it's nice to know you don't have to make that payment.
Rich Weese, Janet is gorgeous!
I like working in real estate full time, but it is also nice to have a husband bringing in some W-2 income. Banks are keen on the W-2s.
A strategy I like is to flip, take the earnings and put them into buy and hold rentals. It takes some will power (Will Barnard?) not to spend the income from the flips. If I ever land any type of windfall, I try to put the money into a long-term hold rental as soon as possible. That way, I won't be tempted to spend my dollar "soldiers."
For the past two years, I have focused solely on buy and holds and now am starting to look at flips again.
I love to delegate but you can't delegate firing a property manager. Good luck. mck
You sort of confused me with this post. You say you sleep better by knowing that you have $100k equity. Then wouldn't you sleep even better knowing you own the house free and clear??
Actually, if I owned my residence F&C, I wouldn't sleep better. I'd lose sleep knowing that I had all this equity tied up in my home that I could be borrowing at 3%, which would make me lose sleep! :)
Having at least some equity in my house is important to me, as psychologically I want the option to sell my house on the spur of the moment and not have to bring cash to the table. There's just something reassuring to know that I can sell my house at any point in time and not have to worry about affecting any other finances or investments. For me, having at least a little equity in my personal residence is a must-have.
Now, the $100K equity number is meaningful to me because it means that I could sell my personal residence on the spur of the moment and generate enough cash that I could buy another (much less expensive) house for the family to live in and own F&C. Or, in a worse case, my home could lose 20% of it's value and I'd still have equity. I'm not concerned about values dropping more than 20%, so that's reassuring to me.
Again, the losing sleep thing is psychological, not mathematical, and I don't know my psyche well enough to know why certain things like this are important to my psychological well being, but nonetheless, they are. How well I sleep is just a barometer for me of how happy my subconcious is.
And my subconscious is a lot like my wife -- I'm not always sure why she's happy or unhappy, all I know is that I try to do the things that keep her happy or else life isn't very fun... :)
Thanks McKellar. I agree. I hope all is going like you anticipated in your new area. Maybe see you at next Summitt. Rich
I'm with j Scott on having equity in my primary residence.
I decided to buy my current home at the age of 19. I had approximately 40,000 in savings doing absolutely nothing.
I put it down to purchase my home.
Haven't missed the money one bit, but I do sleep well knowing I could sell my home tomorrow if needed and not have to bring cash to the table.
My original intention was to pay down my mortgage ASAP , but I've since started re investing and prefer to keep cash reserves.
My primary goal in life is still to own my own home, my office building, and 10 sfr rental free and clear.
I like the question a lot. My opinion is that the real estate entrepreneur needs to think of their business generating 1) cash now, 2) cash flow and 3) cash later. Here's how my business has evolved to get that result. I fix-n-flip median or higher priced houses for cash now; buy really cheap houses and sell with owner finance for cash flow; and buy just below median priced houses and rent for cash later. Now if you have a great day job and want to leave the flipping (a job itself) to others, then by all means, purchase cash flow and/or cash later properties.
Timeline: I started flipping 14 years ago, then started buying cash flowing and rental properties 10 years ago… all part-time. 3 years ago I was able to leave my job because I had almost replaced my engineering income with the occasional flip and 15 or so cash flowing properties.
Now, it's still not by any means all passive income. I work at least 5 days/week with the occasional week vacation and half days off here and there, but it is work I thoroughly enjoy. And in the past 3 years, my net worth has skyrocketed, income has doubled, and quality of life increased infinitely.
At 24 years old I quit school and my "day job". I went from delivering sandwiches to running a brokerage pretty much over night. I work 60 hours a week.. so I am not "financially independent" per se.. but I am free of corporate america, I don't deliver food and no one tells me what to do. I'm 1 semester shy of an economics degree and I'm not going back to school. The smartest thing I ever did was quitting work to start a business. Even if I was "financially independent" I would WORK on something.. So.. really.. for me.. its more about happiness and fulfillment then getting rich. Getting rich is just a small side effect of what I do..
I am with other posters on this topic. It has turned more into a bragging discussion. Although I don't comment too often, I do read a very good amount of posts on these forums. And I see the same 3-5 people, chimming in on a topic to basically gloat to the other members on the board. It's kinda sad if you think about it...
I must have read Rich Weese book in a prior life. I never worried too much about the equity in my personal residence because I always had plenty of much cheaper places that I could move to. Back in the day, they weren't paid off but the places were perfectly nice and the payments very affordable. For a number of years now we have had paid-off rentals and I could move to any one of them should the need arise. I think the smart play is to refi your primary to the max and use that cheap money for investments. As for sleeping at night and being able to sell without bringing cash to the table - that's called "buying right".
I don't see it that way. I am intensely interested in how those ahead of me did it and are doing it. I have learned an immense amount from some of the more prolific posters in this thread and on BP. I'm not saying all motives are driven by humility, but that even what appears to be bragging might be quite useful.
Timeline: I started flipping 14 years ago, then started buying cash flowing and rental properties 10 years ago… all part-time. 3 years ago I was able to leave my job because I had almost replaced my engineering income with the occasional flip and 15 or so cash flowing properties.
Now, it's still not by any means all passive income. I work at least 5 days/week with the occasional week vacation and half days off here and there, but it is work I thoroughly enjoy. And in the past 3 years, my net worth has skyrocketed, income has doubled, and quality of life increased infinitely.
Great first post, Steve. Welcome to BiggerPockets!
Ryan- check the name of the topic. Wasn't about getting rich AND there are certainly financially independent people that are happy and very fulfilled. I'm just one of them- and the only RICH I mentioned,,, was my name.
Shawn- read the thread topic . You didn't answer the question, but instaead chose to critique the ones that did. I try not to gloat, but simply answer questions when asked. If you have a problem with reading "same 3-5 BP posters", go somewhere else. Most of those are in the top of influence pool and well respected as well as much more experienced than you. Maybe someday, you will be influential. Good luck. VERY Rich.
Cheryl- Thanks. Your posts are always a pleasure to read whether we agree or disagree! Just Rich
Well obviously one person took my post to heart.
Now, it's still not by any means all passive income. I work at least 5 days/week with the occasional week vacation and half days off here and there, but it is work I thoroughly enjoy. And in the past 3 years, my net worth has skyrocketed, income has doubled, and quality of life increased infinitely.
Steve, this is fantastic and inspirational, thanks for posting. I want to make a post like this very soon...
Amen, to that brother! That is a great story to hear.
I agree with this and I don't think it has been brought up. To me financial independence has to do with not HAVING to work but that does not mean you will not WANT to work. This is especially true if you love what you are doing.
I am of the opinion that work is still work even if you enjoy it but not having to get out of bed unless you want to would still be a great feeling.
I do agree that owning property is passive, but I gotta say that I run a portfolio of properties as well as wholesale.
1. My business of managing my holdings takes quite a bit of involvement. As much as everyone would like to think properties are completely passive, they take some killer management in place to keep them going. I do have tight systems and processes in place and good people, but it is still work.
2. Now lets talk about my wholesale business. Although for many, wholesaling is a job. I have it set up as a business. I have real assistants, not VA's that sort through all of the properties that people bring me. They then analyze them using my system that I have in place. They then set up my video studio for me to walk in and shoot a video to post on my site and craigslist and send out to my buyers. Applications come in, earnest money is dropped, they get qualified using my grading system, then everything is sent over to my attorney that closes the deals. I rarely see the house other than a pic nor do I meet the buyers.
So I guess what I am saying is that I spend more time on my "passive investments" than I do on my "real estate job". Overall, Jon is correct. Most folks do not spend the time to build the system, but either way this is a business and it all takes long hours and tons of work. The only beautiful babe that I spend time with is my wife and it is not on an island somewhere, it is out on a farm where I also work hard, LOL!
As they say, "The only place success comes before work is in the dictionary"
Rich, I think this is uncalled for and actually reinforces Shawn's point.
Don't get me wrong I have benefited greatly from reading posts from those more experienced than me but this kind of reaction from you comes across very negative. Don't let the "influence meter" go to your head. ;-)
Luis- negative in return for negative. The paragraph you selected, I still stand by. I have no qualms about the influence, and I'm somewhere around 80. That is fine. I'm referring to those that post a lot and deserve their 100 rating like Bill, JScott , JonK, Will etc.
I'm really tired of the folks like Shawn that get on here and critique others for their posts/success without providing any answers, input or benefits to the site. If he wants to join a thread, then at least state something in response to the topic of the thread. If he wants to just complain and whine, I suggest he start a new thread about that topic and leave the others alone. If he has some knowledge or experience to share, then do that. Many of us do that as well as ***** and moan. To just ***** and moan seems silly. Now, you all can have the last comment. I've had mine. Have a nice day. Rich
Posting is a gift to others. Sharing experience, especially from the most successful investors, is something 99.99% of us appreciate greatly. If you have a personal problem with someone send them a note.
If you prefer, you can pay lots of money for the information and types of stories you hear here. Believe me, you will not pay money to anyone that doesn't share their accomplishments, as it should be.
By the way, you might check the heading on this post and see you you qualify, or plan to, and give a little info about that.
OK, let's try to get bank ON TOPIC for Jared's post - slinging mud in either direction isn't the answer...
It would be great if your guys could answer the following questions
- Were you able to quit your day job and live off cash generated from RE?
I could if I were to live more modestly, but I am happily engaged in my REI career and want to keep working.
- If so, what age did you start investing, and how long after investing did you create financial independence.
Seriously at age 44. 3 years.
- Would it be difficult to manage 6-7 rentals while holding your day job?
Not difficult.
I really do stay away from rubbing it in, I have never mentioned the properties held, money in the bank, extravagant life styles, value of any project or deal I don't think (I might have spilled the beans about a small options flip a few months ago, not sure, but nothing to brag about). At my age and from early retirement I don't need to tell anyone what I made or what my assets are. Simply saying, if you work your tail off, eat, breath and sleep real estate, look for opportunities in all kinds of properties, work well with others, be smarter than most, take risk but not too much, you too can retire with dignity....maybe at an early age.
Good luck!