What would you do?

18 Replies

I wanted to ask everyone what you all think my best strategy should be.  

Current status:

Wife and I are employed and rather high-income earners (total household income >1M), but because we are employed, we are getting destroyed on taxes.  We are doing traditional investments, including 401k, 457, great pension plans if we stay long enough, etc.  We are investing with the help of a financial manager/consultant to ensure we can maintain a nice lifestyle upon retirement (which is realistically 25-30 years away).

I got excited about real estate investing after reading a couple books and seeing the potential.  Positive cashflow from rental income will not affect our lifestyles and this isn't meant to take place of our jobs.  We live fairly meagerly and splurge more on convenience rather than big ticket items (no fancy car, big house, etc.  just exorbitant seattle delivery fees :) ).

Both our jobs are time consuming.  Wife is on board and fully supportive, but I cannot count on her to "get it done" when issues arise.  I work erratic hours 6-7 days a week.  I would most certainly require a property manager even with my very first property.

My thoughts:

If through rental properties I can break even in terms of rental income versus expenses, and given that I would be in a financial position to pay down mortgages fairly aggressively and benefit from rental income long-term, it seems to me collecting real estate properties would be a great way to build a vast portfolio, perhaps more effectively than traditional investments.  Meanwhile, I would not be significantly affected by waves of market rises and crashes since my job is fairly safe and well-paying and should be able to handle such slow-downs.  After putting money into traditional investments, I imagine I could save an additional 100k annually to invest into real estate.

My current actions:

I'm lurking on this site to try to meet as many Seattle-area investors as I can, reading aggressively about rental property investing, and saving money.  Wife and I are newlyweds and I have lots of student loans so we're in the saving money phase in the meantime.

So, if you were in my position, how would you play the real estate game?  I thought that since additional monthly income is not required, I can look at properties that even net zero positive cash flow, as long as all expenses and costs are covered, have tenants essentially pay down the mortgages while I reap the rewards, and hopefully, appreciation as well.  At age 60 I can sell out or bequeath the properties and retire.  What would you do?

ok, you kind of know what you want, but you really dont want it. i can tell.

you guys hate how much taxes you are paying, i get that. you dont need any money and make a ton just going to work. do you really care about breaking even or making $200 per month after all expenses? no. that money is nothing to you. you are after the tax deductions. you dont have time to create your systems, hire and fire people, deal with phone calls, etc. 

you gotta work with a CPA, not a financial adviser, to tell you all the options to invest in to get the "Trump tax breaks". he will most likely tell you to just spend it on rental properties, and at that point you are better off hiring someone to do everything for you and you just get the tax deductions...

Just invest in large apartment complexes where you make 5-8% on your money and it's safe, steady. or invest in the builders. 

trust me, i know your situation and you dont want to be a hands on landlord.

Acquire cash flowing multifamily properties at below market value.

Hi Shiv,

Busy professionals who earn solid incomes and can qualify for accredited investor status have some unique opportunities to create significant passive income by investing in real estate syndication run by experts that focus on specific real estate market niches such as MF apartments, student housing, storage units, etc. This is the passive investing approach. This does not preclude you from eventually or in parallel being active w/some parts of your money such as purchasing SFR or small MF but given what you describe in your opening, you seem ripe for reviewing opportunities w/experienced operators that do what they do best 24 x 7 while you do what you do best, earn and save to fuel investing opportunities that others manage for you. It also allows you to diversify geographically in other markets around the country and in different niches "type" diversification.

Like Rosston mentions above, value add apartments are a good example where even in today's market, good syndicates can find solid relative value and w/experience and ingenuity, create value thru refurbishing older apartments, bringing in new property management that ultimately increases NOI and value of the property even if the market slows down. We like large apartments because of scale as well.

Hi Shiv!  

I can tell you from a Deal Sponsor/Lead Investor point of view...it is a lot of work. (Even on our small deals under 10 units...they can be more work).  Unless you are wanting to make a career change, I agree with a previous post that you should look for Passive deals to be a part of.  I understand that 5-6% return is normal in some parts of the country (and friends in Canada say the same).  However, in the markets we look in...we won't even look at buying an Apartment Complex for less than 10-12% cash on cash return annually.  (Markets we like to buy in are Dallas, Houston, Atlanta, Tennessee). My last piece of advice, make sure you trust who you are investing with.  Good luck, and congrats on being newly married! 

I'm not sure if you get to share in the depreciation of these syndicated thingies.  Probably not or not enough to help your current tax woes.  Might as well buy a REIT if you ask me.  No control and no say.  My $.02.

If I were you (I'm on the flip side with depreciation deductions coming out of my ears) I would buy solid multi-family assets large enough to afford onsite mgt where the land is 10% or less of the asset value.  I have some where the land is 3%.  That means you can depreciate 97% of the purchase price over it's life.  

Strong asset in a good area.  Low land value.  Congrats and good luck @Shiv Jey .

Hi @Shiv Jey , if you are looking for a passive experience and are an accredited investor, you can buy into institutional grade $50-125M projects with as little as $100,000 and diversify. Professionals with decades of experience and very impressive track records do all the heavy lifting for you. You get potential cash flow, tax shelter (through depreciation @Steve Vaughan  :-) ) and appreciation. Loans are non-recourse. This is the world of Delaware Statutory Trusts. Happy to answer any questions you may have. - Leslie

@Shiv Jey did you say (total household income >1M)? You need motivation to get started in the real estate world and reading what you wrote, you already wasted on it from your successful job and life which I wish I had.

it seems your making too much money that you don't know what to do with it, well if that's the case with your (total household income >1M) then open a charity or give back to the community, wish I had your problem.

Thanks for the clarification about depreciation, Leslie.

So let's see: $50M project. Land is 33% of value. $100k investment gets someone a .0002% slice. The depreciation deduction (his main purpose) is  $.14 per year exactly.  Lol

My last $100k bought a leveraged 10 unit mixed-use which I depreciate over $19k per year.  Syndication may work for some folks but it WILL NOT effect positive change to his tax position. 

Unless he loses his entire investment. Which is certainly possible. No control. No say. Multiple layers of sponsors , commissions and fees.  Cheers!

@Steve Vaughan , no need to exaggerate. He'd get a FULL 0.2% slice with his $100k. Lol. 

I agree about the "No control" issue. "Non-Recourse" means if THEY go broke, $100k - gone!

@Shiv Jey , I'm curious - why not pay those student loans off? Too attractive as deductions?

Are you saying You WANT to invest in things that continually lose you dollars - to lower your tax?

"lots of student loans and in the saving $ phase'?

Don't know the interest rates on your loans, but why not pay these off and get them gone? Once done, you'll have more free and clear cash flow just from your w-2 income.

Thank you all for your replies!  Clearly I've been on the wrong track, and will pursue all of your advice. 

With regard to student loans, it's about 150k in total, my interest rate is low (~3%). My impression was money invested even in more traditional, "safe" avenues would yield more than paying off student loans, so I decided not to be too aggressive about it. Therefore, I told myself I'd save aggressively to begin investing in SFR's, etc. and if I didn't find a deal I liked, I'd instead pay off my loans. Thanks to you all, it appears SFR's, though profitable, are a lot of work, more than I have to offer and passive income options are my best bet.

My goals now is to look into achieving accredited investor status and learn more about syndication with other passive income streams.   Much appreciated!

Nice to know you ARE for paying more tax because you're making even more money, after all!

Originally posted by @Shiv Jey :

 I thought that since additional monthly income is not required, I can look at properties that even net zero positive cash flow, as long as all expenses and costs are covered, have tenants essentially pay down the mortgages while I reap the rewards, and hopefully, appreciation as well.  At age 60 I can sell out or bequeath the properties and retire.  What would you do?

Can someone provide comments on the above? This seems like a good /passive strategy to me.

Originally posted by @Dimitry Lensky :
Originally posted by @Shiv Jey:

 I thought that since additional monthly income is not required, I can look at properties that even net zero positive cash flow, as long as all expenses and costs are covered, have tenants essentially pay down the mortgages while I reap the rewards, and hopefully, appreciation as well.  At age 60 I can sell out or bequeath the properties and retire.  What would you do?

Can someone provide comments on the above? This seems like a good /passive strategy to me.

Shiv wrote: "I reap the rewards, and hopefully, appreciation as well", but, if there is no positive cash return, there is NO reward for many years - but ONLY the possibility of appreciation (and eventual loan pay off at 60). So yes, if you can afford to put down $200,000 and see NO return from it for 25 years, but THEN you get a fat check for $1,500,000 (in 2040 dollars) when you sell (it should have been for $3,000,000, except for the great crash of  2025), then yes, many people use this approach. Many others will DELIBERATELY look for ones where they'll be NEGATIVELY cash flowing THOUSANDS of dollars for all those years, just to save HUNDREDS of dollars in tax.

All fine - UNTIL the high-income, low-interest-rate merry-go-round stops! My 2c...

Originally posted by @Brent Coombs :
Originally posted by @Dimitry Lensky:
Originally posted by @Shiv Jey:

 I thought that since additional monthly income is not required, I can look at properties that even net zero positive cash flow, as long as all expenses and costs are covered, have tenants essentially pay down the mortgages while I reap the rewards, and hopefully, appreciation as well.  At age 60 I can sell out or bequeath the properties and retire.  What would you do?

Can someone provide comments on the above? This seems like a good /passive strategy to me.

Shiv wrote: "I reap the rewards, and hopefully, appreciation as well", but, if there is no positive cash return, there is NO reward for many years - but ONLY the possibility of appreciation (and eventual loan pay off at 60). So yes, if you can afford to put down $200,000 and see NO return from it for 25 years, but THEN you get a fat check for $1,500,000 (in 2040 dollars) when you sell (it should have been for $3,000,000, except for the great crash of  2025), then yes, many people use this approach. Many others will DELIBERATELY look for ones where they'll be NEGATIVELY cash flowing THOUSANDS of dollars for all those years, just to save HUNDREDS of dollars in tax.

All fine - UNTIL the high-income, low-interest-rate merry-go-round stops! My 2c...

 Assuming that they are able to keep the property rented throughout those 25 years, that is still about ~750% total return on their initial investment, or 30% annually, right? I'm still new to this, but just thinking about the numbers.

Originally posted by @Brent Coombs :

@Dimitry Lensky, no. In that scenario, its EXPENSES including mortgage wipe out its rent income

@Brent Coombs Sorry for the confusion - I guess I was looking at it from the total return based on 20% cash down - even if the monthly cash flow from rent is wiped out to 0 by the mortgage payments, because the rent payment is paying the mortgage, they will still achieve a substantial return on their money due to the tenant's payment of their whole mortgage (hopefully) (so if they put 200k down, they will own an asset worth 1million in 30 years) This is a great return compared to what can be found in the stock market, right? 

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