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.
Not difficult.
I was wondering if you can shed some light on this and why you say it's not difficult. I only have two rental properties but between those, my flipping business and a dayjob it's sometimes a stretch.
So managing 7 rentals and a dayjob does not sound like a picnic. I would not say it's not possible but I wouldn't say it's "not difficult"...
Don't be ridiculous, finish your degree if you're a semester short.
- Would it be difficult to manage 6-7 rentals while holding your day job?
When someone says not difficult, it doesn't mean you can just sign an offer and then just collect checks.
When you are starting out you will be on a learning curve. You may choose to do your own painting, which means you will be there on weekends and nights when vacancies come up. You may manage it yourself which means you will need to learn about screening tenants. You will need to meet tenants after you worked all day, or on weekends. You will get the occasional call for maintenance. You will either take care of it yourself or have a handyman. If you have a handyman you will need to learn how competent he is. Does he overcharge and does he know what he is doing? There are pretenders out there that want money upfront.
If you buy into the idea of using a property manager (PM) then you need to manage them.
If you want maximum rent you will have more turnover which means with each new tenant you run the risk of getting a bad one. If you price the property well for the tenant and have a place they like you can have stable tenants.
So, all in all, to manage 6 units you need to be good at business and follow certain rules. Some people can't handle 1 unit. Actually, it is my experience most people don't do well with rentals because they bring their own ideas to the table instead of using good business practices.
I have 5 units and my last vacancy was 6 yrs ago. I am very happy with the way things have gone over the last 20 years managing 5-9 units, (6 has been ideal for me) working lots of hours (overtime on a regular basis) at a day job, plus I finished a degree on the side and have done lots of volunteer work.
1. Not yet
2. We bought our 1st rentals in 2008 and have 10 now. I have gotten my real estate license and have put together a business plan that would allow me to quit my day job anytime, but I have to spend some more time convincing my wife it's the right thing to do. Right now it looks like it will be 1-4 years down the road.
3. 6-7 rentals while holding a day job is work, but it's certainly doable. We focus on getting newer units in good shape or we get them into good shape up front to reduce maintenance calls later. We also buy in good areas and screen our applicants carefully to get good tenants. We spend more on our units than many, but can then charge top dollar rents while getting fewer maintenance calls.
Yes: I was able to quit my day job after I started out in real estate.
I started at age 34yrs- (still in the process of financial independent .........)
I will be able to manage 6-7 rentals with my day job but I think you'll need a PM once you have 10 -12units and still have a day job.
Thanks for posting these great questions!
I did but not the way I suspected. I came into real estate thinking that becoming a landlord with cash flow was an end goal. I've since learned it was just the beginning of a lifestyle shift and merely a tool to be used. The tools change as the lifestyle changes. Getting into real estate gave me the freedom to leave my job as an employee. The real estate covered my monthly nut but really wasn't making me rich. I was essentially "retired" but I was all equity and just enough cash flow to get by. That was boring, frankly.
I thought I'd never go back to it after that but a storm came through town and I figured I'd adjust some claims as an independent and it turns out it was pretty good at it. I decided to keep adjusting independently and last year in April a large bank across the street from city hall in Chicago suffered a fire that ended up doing millions of dollars in property damage and I was asked to handle it. I did so well at it that I made a name for myself in the local industry and now I'm contracted for my opinion. It got to the point where an hour or two of my opinion made me more money than a monthly rental and with no overhead or exposure. I calculated it out and basically less than a full day's work a week made me more monthly than 20 rentals did. It didn't take me long to put together an 80/20 Pareto's law strategy to chuck my lowest performing rentals, stop buying more boat anchors, and move forward with what was making me money. I know some are going to say that's "S" quadrant income, to which I say "so f-ing what". It's income from my mind. As long as I can think and type with either hands, voice recognition or the tech that Professor Hawking uses, I can make money and if I can't think I won't care if I'm living in a cardboard box. I know the sales pitch is that real estate is "passive income" and it's a load of horse crap - unless you're sitting on a pile of cash and need some place to put it. There is nothing passive about building a large portfolio of real estate. It is work.
Now I'm independent in the sense that I hire and fire my employers now and have an abundance of time that is not required for the payment of monthly expenses, so now the focus is becoming rich. I have a couple ideas on how to do that, which include possibly some elements of real estate but more likely to include selling products or information. If Apple has shown us anything it's that in an economy where people can't afford their home, their bills or health insurance, they always seem to find a way to afford white plastic crap they don't need.
Absolutely nothing wrong with being a consultant, but to compare it to investing is apples to oranges. I'm certainly not advocating rentals are a holy grail for anything, but when you talk about rentals not being passive, you have to recognize that passive income isn't a black and white thing. There are degrees of passivity.
If purely passive income (things like savings interest and stock dividends) are on one side of the spectrum and purely non-passive income (things like flipping burgers) are on the other side of the spectrum, being a consultant isn't too far from flipping burgers. Certainly, there are advantages -- you can make your own hours and "fire your employers," but in the end, if you're not working, you're not making money.
Rentals are far from passive, but much closer to the stock divideneds than to the burger flipping. While rentals may not provide much income today, most investors are thinking 15-20 years out, when the mortage is paid off and the debt service payments are going right into the investor's pocket.
On top of that, the investors I know who have 10+ free-and-clear rentals are hiring a full-time PM (employee, not third-party) who can essentially make the rentals a passive income stream, with the exception of the minimal oversight of the one employee.
Again, not putting down the idea of consulting (it can be great income!) and not advocating that rentals are necessarily the best semi-passive investment -- but for some reason it sounds like you are comparing the two as if they are the only options. The two are mutually exclusive, and there are plenty of other more passive (and less passive) income streams than rentals that are still more passive than consulting.
It's completely apples to oranges...
Wow, two things:
- Didn't realize that was THE Tim W. back here (welcome back Tim!)
- I think you summed up in one sentence what I rambled on about for 5 paragraphs (and your point was much better!)
The reason is you didn't read what I wrote.
I agree. Looking back over the 15 years of working, I was in angst when relying on the "active" only and when relying on the "passive" only. The combo of the two is fantastic.
Wow, two things:
- Didn't realize that was THE Tim W. back here (welcome back Tim!)
Thank you. I won't be nearly as active before but will try to comment now and then.
The reason is you didn't read what I wrote.
Do you sincerely believe I responded without actually reading your post or are you just being inflammatory for no reason other than you didn't like what I had to say?
If I had responded without reading what you wrote, it's unlikely my response would have been so closely related to your post. If what you meant was that I misinterpreted what you wrote, or didn't understand what you wrote, or ignored points in your post, that's quite possible -- I make mistakes on occasion. But, having responded without reading what you wrote just doesn't seem rational...and I'm generally pretty rational.
As for my response, your post essentiallly said that you stopped doing X and moved forward doing Y. That sounds to me like you were "comparing the two as if they were the only options."
Again, maybe I misinterpreted your post (and if so, I apologize, it was unintentional), but my response certainly seems to logically follow my interpretation, indicating that at very least I read your post.
Regardless, welcome back...things have been way too non-confrontational around here since you've been gone. Only took 2 posts for you to get back to where you left off! :)
This will be my last response to you Tim...I'll happily refrain from responding to any of your future posts...you clearly aren't interested in anyone else's opinions and just want to argue...
I do not intend to add fuel to the argument but I agree with JScott. I do quite a bit of consulting but am equally active in RE with rentals. I take my consulting income and invest in RE. Why would anyone say 'I make more in consulting, so I am not going to deal with RE anymore'. If managing your rentals was turning out to be a full-time job, then maybe something was wrong with your approach. I have a PM manage my rentals and I do absolutely nothing except authorize repairs, approve tenants and verify whether the rent made it to my account.
I have no idea why anyone would say that. I didn't say it.
A couple people seem to be missing my point. In fact it makes me wonder if the next thread should be "Who has become emotionally independent from real estate?" My point is real estate doesn't have to become your only answer. Sometimes it's the thing that creates opportunity to take massive advantage of other market conditions that propel you much further forward much faster than real estate on its own would do. When you see that window of opportunity, take it. Don't let the investment that brought you to that place become a crutch that keeps you there.
I agree. Looking back over the 15 years of working, I was in angst when relying on the "active" only and when relying on the "passive" only. The combo of the two is fantastic.
This is where I'm at. I love the combo of self-employment with the rental properties. I've paid off a third of my properties. Looking forward to paying of the remainder within the next 10-15 years. The combo of self employment and rentals will allow me to retire nicely in 10-15 years. It's possible to retire today, but I'm looking forward to developing some properties and insuring a good retirement. It also means my wife and I can enjoy some vacations now.
Lets keep this discussion to the topic at hand without the arguments. Thank you.
Omg there's a bunch of testosterone floating around on this thread.
And you people with passive investments. One word. Yuck!
Back to the posters question.
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?
I didn't have a day job. I fell in love with dirt before I could legally drink. First property I was 18-19 years old. I don't think I've ever experienced financial independence from investing and frankly I hope I never do... might as well plant me at that point...
And I certainly don't believe that I'm a employee to my career... or that because I don't have rentals that it means I don't have security...
Heck I vividly remember my wife being frustrated that every week I earned what she had as an employee in a year.
However I also remember the 1800 dollar telephone bill while out of the county on vacation because I had deals going on and thought I need ed to call my office staff.
Can one have a job and a few rentals yes. I Have a friend who has 23 and is a full time teacher.
The best part of being a professional real estate investor is that no matter what you flavor is this career is fairly blind and without prejudice... heck Helen Keller could buy housing for profit.
And just for the record I've never bragged about anything I've done in real estate. Lol..
I'd just like to say that I've had the pleasure of meeting the OP the day he started this thread I believe. Very smart young man with what I believe is a very bright future ahead of him.
I for one, am just glad I got to meet the man who has gotten so many jimmies rustled so seemingly easy.
Now, my personal answers to OP's questions:
- Yes, but NOT the proverbial 'passive' investing. At least, not at first. I used the constant flow of lump sums to fund my future, if that makes any sense.
- I believe, 26 or 27 and I can't answer the 'financial independence' phrase question. I just simply believe we all have our own definition. Of which I Believe, was a topic of discussion a long time ago here on BP that might have also turned into a thread similar to this if my memory serves me correct.
- For me? nope. For you, maybe. Questions like this that are going to be varied answers from varied investors(passive or aggressive/active) from varied markets with varied experiences. If questions similar to that are asked without being asked in a very tightly specified manner, it has the tendency to bring out everyone and all the variable answers. Sometimes, that cause jimmies to be rustled as you may have noticed.
Disclaimer: I'm not bashing anyone. I haven't actually read through the entire thread. I only noticed this thread was getting super popular after the last page. Sorry if I missed some good arguments beforehand. I only opened this thread because I remembered meeting Jared Vidales earlier that day or the day after(I can't remember specifically) and thought he must have said something interesting to get such a response from everyone.
that is all. goodnight
Yes Nick, I wonderred too, how the topic could get this far, now I see,but what the heck, here is post 99 and the next one will give Jared his membership to the 100 post club.....LOL
While I have had rentals, I'm glad I don't any longer, but 6-7 is really no hill to climb, if they are good properties, if you get trash you'll have trash and alot of work.....
My personal asst, as mentioned before REALLY makes my income passive. Look at the bank account at first of the month and go over some reports (generated by property mgrs and verified by personal asst) and determine how much to disburse and where to disburse it- I call that truly passive. I also maintain over hobbies like travel and building houses. Those are my CHOICES and not requirements to occupy my time. Rich
If you mean by "passive investments" a CD, MM or other totally passive investment, some folks are elderly, disabled or otherwise unable to actively do anything, the YUCK is them not being able to be active, not their investments. For instance, my father, who just passed away, had Alzheimer's for ten years and still made around $150,000 a year from his "passive" real estate investments. The "yuck" was his Alzheimer's Disease, not his passive investments.
As a side note to ALL posters, a common mistake in online discussions is to put the incorrect emotions into a post you are reading. NEVER put emotions or assumptions into what you read online. IF you do, 90% chance you will be wrong. Just read what was written, read it in MONOTONE, and sometimes re-read it. I have just now read through this entire thread for the THIRD time.
Bigger Pockets is NOT a competition! (Except a few who like the 'influence' thing, LOL) Bigger Pockets is about sharing one's experiences. Bigger Pockets is about learning from other people. Bigger Pockets is about cheering on someone's success. Bigger Pockets is about raising one's chances of becoming successful in Real Estate Investing.
The OP asked about "Financial Independence" and we have already established that that means different things to different people. Whether it is a dollar amount, a state of mind, the ability to pursue one's hobbies, the chance to sit in a chase lounge in an RV park all day, or to travel the world and not worry what the plane or hotel costs, we all have our own dreams. Whether one's personal residence is F & C or financed at 100% LTV, if the individual is HAPPY, they are successful. If a poster states, "I have 100 Free and Clear rentals", they are NOT bragging, they are NOT saying they are better than anyone else, they are just stating what they have. And some posters prefer to NOT state what they have. BOTH are OK. I have never seen any where posted on Bigger Pockets the statement, "I am better than you." If you read a post and assume that the poster is saying that, you probably need to re-read it with a different mindset.
I hope other posters here on Bigger Pockets will back me up on this, but I truly believe in my heart that EVERYONE ON BIGGER POCKETS is CHEERING for everyone else to SUCCEED. When I read a success story on BP, it boosts me emotionally, like cheering on your team.
GO BIGGER POCKETS MEMBERS!
Rich,
I guess it's nice to be Rich. ;)