Struggling To Find The Path To Passive Income

[Steven Rosenfeld]

I did W2 for 30 years as in corporate IT. Dabbled in real estate but never went for it big time - bought and sold a few primary residences and a couple of condos over the years. Now I'm 56 and hoping to never work for anyone again. I've got $2 million in an IRA (invested in mutual funds), $300K in investable cash, and $200K in reserves. I'd love to take that $300K and build up some passive income of $50-100K annually. I also got my real estate license during the pandemic but I am not into being a real estate sales agent. My wife has a great income and covers half our costs but we live in the NYC metro area, so expensive. Considering all of these variables, WHAT WOULD YOU DO IF YOU WERE IN MY SITUATION? Would you invest in some cash flowing (if they still exist) properties and start up the road of passive income from real estate? Is it too late for someone like me to make this happen?

[Todd Dexheimer]

If you are looking to be passive, then syndication or lending is the best route. Semi-active you could buy NNN lease deals (think Walgreens). Buying your own asset like a multifamily, office, retail, industrial will certainly require a lot more work. These come with a greater return potential, but higher risk if you don't know what you're doing.

[Paul Moore]

@Steven Rosenfeldcongratulations on your success so far! You say you do not want to work for anyone again…then I would certainly NOT recommend actively acquiring residential or commercial real estate. It is a job and it often doesn’t pay well 

I would recommend you check out the private investor club at the Real Estate Club Crowd Funding Review to help you vet passive income opportunities. You can also check out Jim Pfeifer’s Left Field Investors. Third I would buy @Brian Burke's wonderful book The Hands-Off Investor. This BP book is a gem in helping people like you vet passive income opportunities.

I agree with some of the folks above who said diversification is key. There are ways to get diversification by investing in a diversified fund, however, if you decide to use some of the money in IRAs you could certainly construct your own diversified, passive portfolio. It seems like you are in a great position. Best of luck!

[Steven Rosenfeld]

Quote from @Paul Moore:

@Steven Rosenfeldcongratulations on your success so far! You say you do not want to work for anyone again…then I would certainly NOT recommend actively acquiring residential or commercial real estate. It is a job and it often doesn’t pay well 

I would recommend you check out the private investor club at the Real Estate Club Crowd Funding Review to help you vet passive income opportunities. You can also check out Jim Pfeifer’s Left Field Investors. Third I would buy @Brian Burke's wonderful book The Hands-Off Investor. This BP book is a gem in helping people like you vet passive income opportunities.

I agree with some of the folks above who said diversification is key. There are ways to get diversification by investing in a diversified fund, however, if you decide to use some of the money in IRAs you could certainly construct your own diversified, passive portfolio. It seems like you are in a great position. Best of luck!

Thx Paul for your suggestions - I’m following up on all of them 👍

[Collin H.]

I left corporate America at 47 in 2013.  I had about $420,000 in a 401K.  I went against all advice and cashed it out.  Penalties, interest, etc.

I was left with $280K.  With that, I bought two small cabins on a trout stream in Cosby TN.  Depending on the year, they’ve been producing $70-95K per year, and are now worth probably $800K.  

Moral of the story: if i had $2 million in an IRA, i would seriously consider cashing it out, being left with $1 million, and buying a property that would easily net you $100-120K per year for the rest of your life.

What are your alternatives for that sort of income?  Bonds?  Stock market? Annuities?  I’ll take a vacation rental every time.

[Jon A.]

Quote from @Steven Rosenfeld:

I did W2 for 30 years as in corporate IT. Dabbled in real estate but never went for it big time - bought and sold a few primary residences and a couple of condos over the years. Now I'm 56 and hoping to never work for anyone again. I've got $2 million in an IRA (invested in mutual funds), $300K in investable cash, and $200K in reserves. I'd love to take that $300K and build up some passive income of $50-100K annually. I also got my real estate license during the pandemic but I am not into being a real estate sales agent. My wife has a great income and covers half our costs but we live in the NYC metro area, so expensive. Considering all of these variables, WHAT WOULD YOU DO IF YOU WERE IN MY SITUATION? Would you invest in some cash flowing (if they still exist) properties and start up the road of passive income from real estate? Is it too late for someone like me to make this happen?

 As others have pointed out, owning and managing rental real estate isn't a passive endeavor, unless you're the IRS. Also, I don't think it's realistic to expect anywhere near $100k/yr from your $300k investment, unless you're flipping houses, which is about as active as it gets. $100k of net income from $300k would be a 33% cap.

One option that comes to mind is investing in either a NNN property or a commercial condo. Those properties don't require much management, though of course your returns will be more limited.

Another option is to house hack. Buy a small multi fam and live for free.

3rd option is to play the money man in a partnership. I see deals all the time that would net the kind of gains you're looking for on the low end.

[Rick Albert]

All are providing great strategies. I think you have to decide on how active you are willing to be. You can have a property manager handle many things you and you just have to make high level decisions. Even if you are fully retired, it probably wouldn't be a bad thing to participate a little bit to keep your mind moving.

If I were in your position, I would be focusing more on cash flow rather than appreciation. You could look into the 5-10 unit space in areas like Birmingham where the neighborhoods aren't the best, but there is high cash flow. But even then you are looking at less than $2K/month. You will likely need to build up the cash (such as flipping homes or doing the BRRRR method to increase in quantity of units so in the long run you will get what you want).

I like what was mentioned by @Jon A. with the NNN leases. That is pretty close to full passive, but you still won't get to your $100K/year.

Maybe a REIT is worth looking into. That is super passive and they have quarterly distributions.

[John McKee]

I am in your position/age bracket and live in an expensive area as well. I am a NN-NNN lease investor. Cash flowing does exist in this space. It's actually a great time to be a buyer with less competition compared to your post 7 months ago. Not every seller will budge, but when you show them the underwriting you would be surprised how many people come around with a counter. Just focus on the cash flow and you will do fine.