When to transition between investments???

Question

Hello,

I am really interested in getting started in the real estate investing world. While searching for the right deal, I am also considering how I should start my investment. I have funds invested that return approximately $1,000 a month. This also represents the bulk of my capital investment. I am pleased with the return, but I am interested in growing my passive income.

My question is, would it make sense to pull my funds in my current investments to support my entry to real estate investing, or does it make more sense to pursue alternate funds to start my real estate investment path?

I may be doing poor/rough math here, but it seems I would need to purchase 3 or 4 places with those funds prior to matching those returns.

Thank you for your insight,

Jonathan

Jonathan White · Answer

@Greg Scott @Michael S.

I appreciate the insight. I was not thinking about things accurately at all. I looked into the situation further and I am not sure it is a viable avenue for funds anymore. There is a long backstory to it, so I will let that be.

At this time, I am looking to tap into those creative solutions that exist until I build the capital to move in some of the less creative ways on a deal. At that point, maybe the less creative ways won’t be the most attractive ways forward.

Alternatively I am looking in areas outside of San Diego, where the numbers might make sense. That opens a whole other can of worms though. Definitely keeping me busy.

Greg Scott · Answer

@Michael S. @Jonathan White

To be clear, RoE would be the annual passive income divided by the net value of your asset.   To get a 15% ROE that gives you $1000/month that means the value of the investment must be $80K.  (80*.15=12)

Now, where a lot of people mess this up is that their initial investment was $80K but the asset might be worth much more today.  If your asset is now valued at $200K and is kicking out $12K/yr your RoE is 6% (12/200=.06)

Calculate RoE and it will help you know what to sell and move to a better asset.

Michael S. · Answer

@Greg Scott  I'm tagging you in this reply because I want to reinterpret what you're saying.  Please correct me if I'm misunderstanding.  I am a newbie, so I'm bound to misunderstand SOMETHING.

@Jonathan White, you did not specify in your initial post anything about 15% ROI.  You've stated that you receive $1,000/month.  I think that Greg Scott was saying that you should liquidate your investments paying $1k/month and reinvest into real estate.

If I've misunderstood, Greg, please correct me.

Jonathan, if your ROI IS at 15%, then by all means leave it where it is.  If not, then consider what I've said above.

Jonathan White · Answer

@Greg Scott

Thank you for the reply. That makes a lot of sense. I am currently receiving about 15% return on that investment.

I suppose the obvious answer then would be to let that ride, and gather funds from elsewhere to start my pursuit for additional passive income.

Greg Scott · Answer

Jonathan:

The question to ask yourself is "What is my return on equity?"

The dividend yield from the S&P 500 is currently only 2%.   Income mutual funds may yield about 8%.  I would say most SF rentals these days, when purchased correctly,  yield about 15%.

So, what is the amount of equity do you have to get $1,000 per month?  How much more could you make at 15%?