Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
So I'm sitting on about 1.4 mil in equity right now. Projected to be nearly 3 mil in five more years. But let's say I have some hardships along the way so I conservatively figure I'll have 2 mil. I could retire with my current cash flow of about 30K a year right now, if I'm frugal, which I am in general. But I don't want it to always be so "tight" so to speak. Seattle is expensive but I plan on relocating anyway when I pull the trigger, so I'd have less expenses. Ideally I'd like to increase my cash flow to replace my six figure job income.
Would you buy an apartment complex with a loan? Turnkey rentals paid in cash? What kind of cash flow could I make from something like this? The apartment complex might offer good cash flow, but also the potential to increase the value of the property through increasing the NOI. Paid off turnkey rentals seem like they would provide cash flow, but not much else.
Also in line with this question, we all know W2 income is King when it comes to getting loans. So as much as I hate to, would it be better to keep the W2 income to qualify for loans so I can snap some up at the bottom of the next major crash? Until I have a few mil to my name and a six figure cash flow? I mean at that point I'd really feel comfortable to retire.
That's easy. Give it to me and I'll....OK, maybe not,...but it is an easy answer.
Buy a NNN commercial property for 2M with a Cap Rate of at least 6% and you'll have $120k in income with no expenses directly related to the property attached to it. No management, no decrease in income, no CAPEX, no problems. Make sure the company/tenant is at least AA rated, and it is the start of a lease at least 20 years in length...with bumps...so you'll get "raises" too.
not sure if your staying in WA with no state income tax.. but a lot of the folks i know that are high net worth invest in tax free muni bonds AAA rated.. rates have been low but they are rising.. might be worth talking to your broker about.
I would diversify.. and NOTES would be a nice way to go for cash flow as well just get with a great HML there in seattle and let them place your loans for you.. lower your rate so you can cream the borrowers... if the local HML are at say 2 and 12 put your money our for 9 but be ultra picky.. risk of loss remote.. hassle factor none .. fun in looking at potential loans off the charts.. and return great.. the thing about pooled investments is just that your one of many if they go TU you stand a very good chance of principal loss... so if U went that route sponsor is CRITICAL and I would limit your investment with them to no more than 10% of your portfolio.. at that point principal protection is utmost not necessarily return... for SFH that would be an option if you want to work your retirement portfolio. there is nothing passive about owning SFH managed or not.
I've made 60+ equity crowdfunding/syndicating investments over the last 3 years. My cash on cash return last year was 9.8%. The vast majority of the distribution was tax free last year. Note that it was actually tax deferred and the man will eventually get his take. The biggest positive is its 100% passive, once you do the due diligence and make the investment. You also get diversification that reduces your risk. Diversify geographically, across different asset classes, different sponsors etc.
The average projected IRR is 15-20%. It may take a few years to reach double digit returns and you need to be prepared for the next recession. Invest defensively at this stage of the cycle.
@Joe Villeneuve Good clarification for anyone reading..."absolute NNN" versus it really not being NNN entirely. Key to look out for (and not always listen to brokers! :) )
@Joe Villeneuve Good clarification for anyone reading..."absolute NNN" versus it really not being NNN entirely. Key to look out for (and not always listen to brokers! :) )
It drives me nuts when I look at a listing that says NNN, only to find out it really isn't "absolute". Very misleading.
A lot of that will depend on the structure of the NNN too. I've seen it different ways--some have lease terms with fewer rent increases. Some keep you responsible for the roof or structure. So to pin the number down specifically, will depend on the structure. Hands-off, yes, but missing a lot of income streams
That's right, but I wouldn't call that a Absolute NNN. What you described is often called it though by brokers, and that's just misleading. A true NNN covers everything.
Hands off yes is important. This is for retirement. You're getting a steady income with bumps and no work for 20 plus years. The example I gave averaged around $200k/year in cash flow.
It's not 200K a year cash flow. Your example is 101,750 a year cash flow over the 20 year period you mentioned....and as I noted you are basically eating your principal all that time and have little left when you sell at that point....NNN leases are out.
A lot of that will depend on the structure of the NNN too. I've seen it different ways--some have lease terms with fewer rent increases. Some keep you responsible for the roof or structure. So to pin the number down specifically, will depend on the structure. Hands-off, yes, but missing a lot of income streams
That's right, but I wouldn't call that a Absolute NNN. What you described is often called it though by brokers, and that's just misleading. A true NNN covers everything.
Hands off yes is important. This is for retirement. You're getting a steady income with bumps and no work for 20 plus years. The example I gave averaged around $200k/year in cash flow.
It's not 200K a year cash flow. Your example is 101,750 a year cash flow over the 20 year period you mentioned....and as I noted you are basically eating your principal all that time and have little left when you sell at that point....NNN leases are out.
From your example:
"$2,035,000 Accumulated Cash Flow (NOI)
If you put that same "seed" money into the stock market...or almost any other investment, that money is "parked" there the same way.
However, if you used that same $2M as a 20% DP on a NNN worth $10M, with a minimum of a 6 CAP (I know, you want higher, I just focusing on the minimum you want) you would have a debt service of around $560k/year...which would get you your $30k. Buy a 10 CAP, same price, and you just doubled your income (more than dbl.).
I've found the transition from what we've been doing for a long time to the next or alternate chapter to be a longer and more fluid process than 'in a few years I'm going to do x all at once and go in direction y'.
The intelligent keep tax consequences in mind (always) and take advantage of unseen pluses as they present themselves. If you sell all and realize massive gains in the same calendar year, you will limit your options to re-deploy that capital. Picture a complex multi-1031 exchange with clock ticking, hair on fire. Mistakes will be made. No thanks.
I've re-positioned more debt and had more liquidity events already this year than planned, simply because I've rolled with opportunities as they have presented themselves. Two tenants of two houses I've had my eye on selling happened to move out. These together happen to just put me below a gain threshold tax-wise. Time to sell.
Next year I can do 1 to 2 more, but you can bet it will be on purpose, following a tax-friendly plan.
This year I've also paid off 19 doors. Higher rate, higher PITA loans went bye-bye. Rates are low now and private lenders are getting less than 1% in the bank. Bob and weave. Fluidly re-position as you go.
Now - what to do with stacks of benjamins? For now I've been buying houses with cash and wholetailing to others that are still young and hungry and like working. Shave and a haircut, get out. Being in WA with high transfer costs and always being aware of tax burdens, I have modified the model from the traditional buy & flip a bit, but that's my new venture for now.
Long-term plan is to own 1 larger apt complex with on-site mgt. Consolidate and integrate, hopefully in my backyard, but not opposed to OOS. Do a little every year to reach your goal. Good luck with whatever direction you choose!
I've found the transition from what we've been doing for a long time to the next or alternate chapter to be a longer and more fluid process than 'in a few years I'm going to do x all at once and go in direction y'.
The intelligent keep tax consequences in mind (always) and take advantage of unseen pluses as they present themselves. If you sell all and realize massive gains in the same calendar year, you will limit your options to re-deploy that capital. Picture a complex multi-1031 exchange with clock ticking, hair on fire. Mistakes will be made. No thanks.
I've re-positioned more debt and had more liquidity events already this year than planned, simply because I've rolled with opportunities as they have presented themselves. Two tenants of two houses I've had my eye on selling happened to move out. These together happen to just put me below a gain threshold tax-wise. Time to sell.
Next year I can do 1 to 2 more, but you can bet it will be on purpose, following a tax-friendly plan.
This year I've also paid off 19 doors. Higher rate, higher PITA loans went bye-bye. Rates are low now and private lenders are getting less than 1% in the bank. Bob and weave. Fluidly re-position as you go.
Now - what to do with stacks of benjamins? For now I've been buying houses with cash and wholetailing to others that are still young and hungry and like working. Shave and a haircut, get out. Being in WA with high transfer costs and always being aware of tax burdens, I have modified the model from the traditional buy & flip a bit, but that's my new venture for now.
Long-term plan is to own 1 larger apt complex with on-site mgt. Consolidate and integrate, hopefully in my backyard, but not opposed to OOS. Do a little every year to reach your goal. Good luck with whatever direction you choose!
Nice narrative Steve. You just laid out a "real life" example of how money is a verb.
20 years is a long time. Look at how many major companies were around 20 years ago are not today...strong finacials today doesn't equate to strong financials in 20 years, 10 years, 5 years, or even 6 months in extreme circumstances.
Well I'll throw in a few different points. Take or leave any of them, they are just what pop into my head-
- I don't agree about the NNN option. Then you're just stuck with the 6% or whatever it is...not really any way of increasing the value or the return.
- For reference, you can get a great turnkey at 8-11% cap rates right now, with appreciation potential, and with tax benefits. Those %s beat a lot of the suggestions people have given, imo.
- Leveraging is key for highest cash flow, but you may not need to worry about it with your level of capital if you just pay cash. It all depends on how the numbers pencil out. If paying cash will get you to your cash flow goals, then cool. If not, leveraging will for sure but then you are talking about the loans. You could certainly and go ahead and do the loan route now while you have the W2 so you can take advantage of it without having to hang onto that job for too long if you want it.
- You'll only need the W2 for residential loans though. If you go commercial, it's not as critical.
- Where are you planning to buy? If it's local, the options will be limited by the numbers. If you aren't set on buying locally (sounds like you're not), then you can just pick what feels better and has the better numbers.
- Residential rental properties (1-4 units) are the most tax-benefited asset class available.
- Residential vs. commercial in general: This is a a crazy-basic article, but might trigger some pros and cons thoughts for you on which to go-
Ali didn't you start out in Seattle? I see you moved south...
Anyhow, the thing that scares me about NNN leases is demand. If a company goes out of business it can be very difficult to find a tenant. I like what Grant Cardone says about multi family: EVERYBODY needs a place to live.
Analysis is still the key...as always. NNN analysis involves the rating of the parent company...and the industry.
A lot of that will depend on the structure of the NNN too. I've seen it different ways--some have lease terms with fewer rent increases. Some keep you responsible for the roof or structure. So to pin the number down specifically, will depend on the structure. Hands-off, yes, but missing a lot of income streams
That's right, but I wouldn't call that a Absolute NNN. What you described is often called it though by brokers, and that's just misleading. A true NNN covers everything.
Hands off yes is important. This is for retirement. You're getting a steady income with bumps and no work for 20 plus years. The example I gave averaged around $200k/year in cash flow.
It's not 200K a year cash flow. Your example is 101,750 a year cash flow over the 20 year period you mentioned....and as I noted you are basically eating your principal all that time and have little left when you sell at that point....NNN leases are out.
From your example:
"$2,035,000 Accumulated Cash Flow (NOI)
If you put that same "seed" money into the stock market...or almost any other investment, that money is "parked" there the same way.
However, if you used that same $2M as a 20% DP on a NNN worth $10M, with a minimum of a 6 CAP (I know, you want higher, I just focusing on the minimum you want) you would have a debt service of around $560k/year...which would get you your $30k. Buy a 10 CAP, same price, and you just doubled your income (more than dbl.).
That doesn't make any sense. Your original numbers were that you'd end up with $2,035,000 accumulated cash flow over 20 years. That's just about 102K a year that you are living off of. That's not the same as parking 2 mil in the stock market, and it's not 200K a year cash flow. You could park that money in the stock market and live off the dividends of 80K a year using the 4% rule, and watch your investment grow in value while you live off the dividends, never touching the principle. In your example, you're literally eating your principle every year, then when you sell, you've barely got anything left at almost 500K. Why would you sell the building for such a little profit after 20 years? Wouldn't it be more valuable over time??? I don't think your numbers are accurate at all....
How do you figure when you sell you have nothing left? I paid off my mortgage on the building. I have my money in the building. When I sell the building, if I sell the building, I get that back. If not, I extend the lease and keep cash flowing. That principle is there when I want it. I can get it out with a refi if I wanted to...and any time...including during the original lease period.
A lot of that will depend on the structure of the NNN too. I've seen it different ways--some have lease terms with fewer rent increases. Some keep you responsible for the roof or structure. So to pin the number down specifically, will depend on the structure. Hands-off, yes, but missing a lot of income streams
That's right, but I wouldn't call that a Absolute NNN. What you described is often called it though by brokers, and that's just misleading. A true NNN covers everything.
Hands off yes is important. This is for retirement. You're getting a steady income with bumps and no work for 20 plus years. The example I gave averaged around $200k/year in cash flow.
It's not 200K a year cash flow. Your example is 101,750 a year cash flow over the 20 year period you mentioned....and as I noted you are basically eating your principal all that time and have little left when you sell at that point....NNN leases are out.
From your example:
"$2,035,000 Accumulated Cash Flow (NOI)
If you put that same "seed" money into the stock market...or almost any other investment, that money is "parked" there the same way.
However, if you used that same $2M as a 20% DP on a NNN worth $10M, with a minimum of a 6 CAP (I know, you want higher, I just focusing on the minimum you want) you would have a debt service of around $560k/year...which would get you your $30k. Buy a 10 CAP, same price, and you just doubled your income (more than dbl.).
That doesn't make any sense. Your original numbers were that you'd end up with $2,035,000 accumulated cash flow over 20 years. That's just about 102K a year that you are living off of. That's not the same as parking 2 mil in the stock market, and it's not 200K a year cash flow. You could park that money in the stock market and live off the dividends of 80K a year using the 4% rule, and watch your investment grow in value while you live off the dividends, never touching the principle. In your example, you're literally eating your principle every year, then when you sell, you've barely got anything left at almost 500K. Why would you sell the building for such a little profit after 20 years? Wouldn't it be more valuable over time??? I don't think your numbers are accurate at all....
OK. I rewrote my original numbers, adding in the part I left out...because I thought it was obvious and didn't need to be in it. My original numbers focused on the profit, and assumed that I would get the original principal back upon the sale if sold), in 20 years.
"If my NNN stayed at 6% I probably wouldn't do it either. The goal was $30k/year....this 6% is double what is needed. The point was how low of a CAP rate would be needed to achieve that goal based on the starting point of available funds. Also, I would be looking for a CAP Rate closer to 9% min.
Besides, that non-appreciating NNN is in fact appreciating...and with at least 5% bumps in the Lease every 5 years, that Original NOI of $180k from year 1 - 5, becomes $189k from 6 - 10, $198k from 11 - 15, and $218k from years 16 - 20. Then, with lease extensions, it goes up from there.
At this point, if you sold it at the same 9% CAP you bought it at, the sale price would be over $2.4M.
If you add it all up over that 20 year period, the numbers would look like this:
$2,035,000 Accumulated Cash Flow (NOI) $ 422,222 Profit upon sale
$2,455,222 TOTAL over 20 year period....and no management responsibilities."
Plus....
I get my original $2M back, so in the end, I put in $2M and get back.
I'm also in Seattle. I did a combination of a few suggestions in this thread in the last 12 months.
- sold and cashed out 3 Seattle properties in this crazy market
- refinance my house and took out a line of credit. Didn't want to be too aggressive/over leverage on my home... have a 200K HELOC. This is my "play money".
- 1031 exchanged 2 Seattle condos for 1 SFH and a 11-unit apartment building in NW Indiana (outside Chicago) as well as a triplex in Tacoma. All 3 properties cashflow.
- with the HELOC...
- bought a short sale with cash in Indiana. Will refi cash out after 6 months.
- bought a 10-unit apartment building in Indiana with a commercial mortgage
- bought a SFH in Indiana with cash - in the process of refi cash out. After cash out, money goes back to HELOC.
I am self-employed. No W-2 income. I'm taking out commercial mortgages even on the SFH. The bank does not care about my income as long as the property is profitable / meet DSCR criteria.
