Leaving W-2 in 6 weeks...seeking BP advice!!

Multi-Family and Apartment Investing
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Leaving W-2 in 6 weeks...seeking BP advice!!

Ron Ripley
Investor · Walnut Creek, CA · Member since 2016 · 31 posts · 9 votes

Hey there fellow BP-ers!!

I am beyond excited to announce that, after much soul-searching and number crunching, I will be leaving a fantastic run in the W-2 world (tech) mid March. I plan to focus 100% of my time on my RE investing portfolio and continuing to grow it to a place where it pays all the bills...and more! I am 58, married, and was thinking this morning about something I forgot about in my planning for this new chapter. My plan with one of my "not so great performing" SFH rentals (Rio Rancho, NM) was to sell when the tenant lease comes up in March and 1031 into a like-kind SFH in a better market. This property has never appreciated in 10 years of ownership (it dipped big time and now the value is pretty much where I bought it at!). Cash flow is barely break-even thanks to the loan product I chose back then. Could be worse of course, but would really like to cut my losses with this one. Since I will be without a W-2 in 6 weeks - my plans for this property now change a bit. I see two options but please advise on any other ideas. Option #1: Try to refinance in the next 6 weeks so that I am at least cash flowing (although it would really only get me to about $90/month - still not great and again, poorly appreciating area. Option #2: Just sell and cut my losses paying the short term cap gains and redirecting what's left to what I am now investing in - multifamily syndications. (the property value is approx. $160k, loan about $115k)

Thoughts? Advice? Other options? I know it is possible to get a mortgage without a W-2 and I've been studying those options, but not sure I want to endure the hurdles of that scenario especially after this past year of 3 refis and 4 new mortgages (!)....even with good W-2 income, exceptional credit score, and significant savings - I was put through the RINGER with endless requests for more and more doc! ugh

Anyway, there you go...have at it! :-) Seriously, thanks for any thoughts or advice you might have if you were in this situation - what would you do? Happy to provide any more detail if needed. Have a GREAT day - LOVE this community btw.

Ron

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Bjorn AhlbladPro Member
Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
6y

@Ron Ripley Congrats! Make sure you have done your numbers well and left room for a bit of bad luck in case that were to come along. It is a one way street and once you get off that high tech W2 bus there is no way back. Once you get away from that W2 job you should set yourself up as a RE professional and be qualified for the lower tax bracket etc. Talk to your accountant. I left Silicon Valley a couple of years ago and now live in the rainforest of the PNW; my rentals help me supplement my retirement. Life is good. All the best! Oh yeah that place in NM? Don't refi sell it fast.

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  • Account Closed
    Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes
    6y
    Originally posted by @Ron Ripley:

    Hey there fellow BP-ers!!

    I am beyond excited to announce that, after much soul-searching and number crunching, I will be leaving a fantastic run in the W-2 world (tech) mid March. I plan to focus 100% of my time on my RE investing portfolio and continuing to grow it to a place where it pays all the bills...and more! I am 58, married, and was thinking this morning about something I forgot about in my planning for this new chapter. My plan with one of my "not so great performing" SFH rentals (Rio Rancho, NM) was to sell when the tenant lease comes up in March and 1031 into a like-kind SFH in a better market. This property has never appreciated in 10 years of ownership (it dipped big time and now the value is pretty much where I bought it at!). Cash flow is barely break-even thanks to the loan product I chose back then. Could be worse of course, but would really like to cut my losses with this one. Since I will be without a W-2 in 6 weeks - my plans for this property now change a bit. I see two options but please advise on any other ideas. Option #1: Try to refinance in the next 6 weeks so that I am at least cash flowing (although it would really only get me to about $90/month - still not great and again, poorly appreciating area. Option #2: Just sell and cut my losses paying the short term cap gains and redirecting what's left to what I am now investing in - multifamily syndications. (the property value is approx. $160k, loan about $115k)

    Thoughts? Advice? Other options? I know it is possible to get a mortgage without a W-2 and I've been studying those options, but not sure I want to endure the hurdles of that scenario especially after this past year of 3 refis and 4 new mortgages (!)....even with good W-2 income, exceptional credit score, and significant savings - I was put through the RINGER with endless requests for more and more doc! ugh

    Anyway, there you go...have at it! :-) Seriously, thanks for any thoughts or advice you might have if you were in this situation - what would you do? Happy to provide any more detail if needed. Have a GREAT day - LOVE this community btw.

    Ron

    Congrats. Multi-families (large 75 units and above) are the best ROI in my opinion. And then there are better returns than that in cash flow SFR in the right market like this:

    3 Ways to Wealth in Real Estate - CashFlow Flip Hold – Here’s How

    https://www.biggerpockets.com/forums/311/topics/780022-3-ways-to-wealth-in-real-estate-cashflow-flip-hold-here-s-how

    0Reply
  • Bjorn AhlbladPro Member
    Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
    6y

    @Ron Ripley Congrats! Make sure you have done your numbers well and left room for a bit of bad luck in case that were to come along. It is a one way street and once you get off that high tech W2 bus there is no way back. Once you get away from that W2 job you should set yourself up as a RE professional and be qualified for the lower tax bracket etc. Talk to your accountant. I left Silicon Valley a couple of years ago and now live in the rainforest of the PNW; my rentals help me supplement my retirement. Life is good. All the best! Oh yeah that place in NM? Don't refi sell it fast.

    1Reply
  • Evan Polaski
    Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
    6y

    @Ron Ripley congrats on making the big jump.  Why would you have short term capital gains on the sale of a property you have owned 10 years?  Also, capital gains is not calculated on what you receive at the closing table, but what your sale price is less the book value on your schedule E (?).  Regardless, it should be long term capital gains on the taxable profit.

    Another thing to think about is most lenders will want to see 2-3 years of tax returns with your non-W2 earnings on it, if/when you apply for any new credit.  So, making sure you have that history is key, and enough income on those Schedule Cs and Es to get you what you need.  However, if you are going the passive route, this may not be necessary.

    To answer your question, it sounds like your focus is on the passive side, so I would sell the property and reinvest in another syndication.  It seems be aligning with your goals and gets you out of a trouble property.  Seems like a win-win.

    0Reply
  • Greg Dickerson
    Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
    6y
    Originally posted by @Ron Ripley:

    Hey there fellow BP-ers!!

    I am beyond excited to announce that, after much soul-searching and number crunching, I will be leaving a fantastic run in the W-2 world (tech) mid March. I plan to focus 100% of my time on my RE investing portfolio and continuing to grow it to a place where it pays all the bills...and more! I am 58, married, and was thinking this morning about something I forgot about in my planning for this new chapter. My plan with one of my "not so great performing" SFH rentals (Rio Rancho, NM) was to sell when the tenant lease comes up in March and 1031 into a like-kind SFH in a better market. This property has never appreciated in 10 years of ownership (it dipped big time and now the value is pretty much where I bought it at!). Cash flow is barely break-even thanks to the loan product I chose back then. Could be worse of course, but would really like to cut my losses with this one. Since I will be without a W-2 in 6 weeks - my plans for this property now change a bit. I see two options but please advise on any other ideas. Option #1: Try to refinance in the next 6 weeks so that I am at least cash flowing (although it would really only get me to about $90/month - still not great and again, poorly appreciating area. Option #2: Just sell and cut my losses paying the short term cap gains and redirecting what's left to what I am now investing in - multifamily syndications. (the property value is approx. $160k, loan about $115k)

    Thoughts? Advice? Other options? I know it is possible to get a mortgage without a W-2 and I've been studying those options, but not sure I want to endure the hurdles of that scenario especially after this past year of 3 refis and 4 new mortgages (!)....even with good W-2 income, exceptional credit score, and significant savings - I was put through the RINGER with endless requests for more and more doc! ugh

    Anyway, there you go...have at it! :-) Seriously, thanks for any thoughts or advice you might have if you were in this situation - what would you do? Happy to provide any more detail if needed. Have a GREAT day - LOVE this community btw.

    Ron

    This all depends on your income needs, goals, resources and knowledge. Theres a lot of ways you can go. First step would be to talk to your accountant to make sure you minimize tax consequences if you sell properties. Then its a matter of how much cash you have to work with and how much you need to offset your lifestyle.

    0Reply
  • Ron Ripley
    OP
    Investor · Walnut Creek, CA · Member since 2016 · 31 posts · 9 votes
    6y

    THANKS everyone for taking the time to respond to my post with some great feedback! I really appreciate it. I am covered in terms of supporting myself financially but the focus was mostly around what to do with my NM SFH.

    @Evan Polaski your post was especially appreciated in clarifying something I should have known regarding short/long term capital gains. (duh!) You helped me realize that my best strategy is to sell and shift the proceeds into syndication which is my #1 investment vehicle today - especially with my primary goal being cash flow. Thanks again gang.

    Ron

    1Reply
  • Evan Polaski
    Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
    6y

    @Ron Ripley I am glad, I could help.  Always feel free to reach out with any questions.

    1Reply
  • Charles LeMaire
    Rental Property Investor · DFW TX · Member since 2018 · 179 posts · 260 votes
    6y

    My $0/02!  If passive is attractive to you, identify some MF sponsors that you would work with - some deals require you know the sponsor first.  Sell the property and in the same year (TIMING!) invest in a MF syndication that is using bonus depreciation (part of Trump tax).  The depreciation will offset gain on the house - so no big tax consequence (now).  

    There is never a guarantee, but it will likely pay you about 8% and return another 30%-40% when sold.  Wash, Rinse, Repeat!  

    A few financial planning points.  1. plan for your RMDs (if any).  2. plan for Medicare pricing, it increases as you make more.  3. consider Roth conversions now as the rates are low, if you have traditional.  

    Regards,

    Charles LeMaire 

    0Reply
  • Ron Ripley
    OP
    Investor · Walnut Creek, CA · Member since 2016 · 31 posts · 9 votes
    6y

    @Charles LeMaire - thanks so much for those additional tips - very helpful!

    0Reply
  • Andy WebbPro Member
    Rental Property Investor · Carrollton, TX · Member since 2013 · 750 posts · 538 votes
    6y

    @Ron Ripley - it sounds like you should go ahead and sell the house in NM.  If you do decide to hang on to it and have already arrived at that great place without that W2 job, keep in mind there are other financing options out there.  At least in my market, I am seeing a lot of long-term, 30-year note options being offered by hard-money lenders.  The rates aren't too terrible and they won't need to see a W2 income...so you do have other options.

    0Reply
  • Roni E.Pro Member
    Specialist · Earth 2.0 · Member since 2019 · 598 posts · 271 votes
    6y

    I would make sure you have some funds send aside for a rainy day/getting started. I would get Joe Fairless book, Apartment Syndication, then get Michael blank SDA course, and then get your real estate license. This you have invested in yourself and helped get the knowledge to go forward.

    0Reply
  • Ronan DonnellyPro Member
    Investor · New York City, NY · Member since 2012 · 332 posts · 385 votes
    6y

    @Ron Ripley, congrats on planning to take the big move from employee to entrepreneur. To echo what others have said, getting rid of time consuming, low cashflow SFH's and rolling it into bigger complexes whether as a member of a syndicate or individually is definitely a better way to go. Good luck!

    [email protected]
    0Reply
  • Ron Ripley
    OP
    Investor · Walnut Creek, CA · Member since 2016 · 31 posts · 9 votes
    6y

    More great advice - thanks everyone! @Ronan Donnelly @Roni E. @Andy Webb

    I feel very fortunate to even be in this position and love the community support! Thanks

    0Reply
  • Bob Prisco
    Specialist · Cleveland, OH · Member since 2018 · 1k+ posts · 666 votes
    6y

    @Ron Ripley  buy rental props with 10% + net caps, refi, buy more , repeat.. keep it simple :) 

    0Reply
  • Marlen Weber
    Specialist · Plano, TX · Member since 2020 · 2k+ posts · 861 votes
    6y

    @Ron Ripley Congratulations on such a big decision and good luck on your new journey. 

    0Reply
  • Ron Ripley
    OP
    Investor · Walnut Creek, CA · Member since 2016 · 31 posts · 9 votes
    6y

    @Marlen Weber thanks so much!!!

    0Reply
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