Early Full Time Investors - How do you pay yourself??

6 Replies

Hey BP,

I am hoping to get some input from full time investors, specifically those who are very "hands-on" with your own investments. I currently have 12 units, with a SFH home and 2 lots under contract, in which we intend to develop duplexes. With things growing, I really want to leave my 9-5 job to focus on my investing business.

I currently live a pretty cheap lifestyle, so I only need about $30,000 annually to live very comfortably. So, where my head is at, let's say I do 4 BRRRR projects in a year where each project is a $50,000 renovation, or $200,000 in renovations for the full year. Let's assume $100,000 of that is labor cost, and let's assume half of that is stuff I could do myself instead of hiring an outside contractor, or $50,000 worth of labor. This would be more than enough for me to live comfortably, and then the rest of my time can be spent managing the rentals. All of the rental profits could then still be reinvested since the payment to myself would be a part of the capital investment (rehab), and not expensed against the rental income once the project is officially in service.

However, I understand that with me being structured as a single-member LLC, I cannot pay myself an hourly rate for the work I do, or in other words have my LLC send myself a 1099-NEC at the end of the year. The money I pay myself would have to be through a draw from the LLC to myself. This is a little tough for my brain to process. Basically, here is where I am getting messed up:

Scenario 1: All renovation work hired out

Purchase: $50,000

Renovations: $50,000

Total Investment: $100,000

Liability: $100,000 (private credit line)

Equity: $0

If the property cash flows $2000 and I pay down $2000 in principal after the first year, I have $4,000 in equity on my balance sheet after year 1. 

Scenario 2: $20,000 worth of renovations done by me

Purchase: $50,000

Renovations: $30,000

Total Investment: $80,000

Liabilities: $100,000 (private credit line)

Equity: -$20,000 (negative due to draw to myself)

If the property performs the same as in scenario 1, I have -$16,000 in equity on my balance after year one. 

This makes it feel like it is disadvantageous to perform the work myself, when in reality the investment is in the exact same spot regardless. 

I know this is just accounting and bucketing of costs and that its just the framing of money. But again, just trying to figure out the best way to pay myself here and still keep my financials straight. 


Curious to get your thoughts!

Originally posted by @Trevor Dominique :

Hey BP,

I am hoping to get some input from full time investors, specifically those who are very "hands-on" with your own investments. I currently have 12 units, with a SFH home and 2 lots under contract, in which we intend to develop duplexes. With things growing, I really want to leave my 9-5 job to focus on my investing business.

I currently live a pretty cheap lifestyle, so I only need about $30,000 annually to live very comfortably. So, where my head is at, let's say I do 4 BRRRR projects in a year where each project is a $50,000 renovation, or $200,000 in renovations for the full year. Let's assume $100,000 of that is labor cost, and let's assume half of that is stuff I could do myself instead of hiring an outside contractor, or $50,000 worth of labor. This would be more than enough for me to live comfortably, and then the rest of my time can be spent managing the rentals. All of the rental profits could then still be reinvested since the payment to myself would be a part of the capital investment (rehab), and not expensed against the rental income once the project is officially in service.

However, I understand that with me being structured as a single-member LLC, I cannot pay myself an hourly rate for the work I do, or in other words have my LLC send myself a 1099-NEC at the end of the year. The money I pay myself would have to be through a draw from the LLC to myself. This is a little tough for my brain to process. Basically, here is where I am getting messed up:

Scenario 1: All renovation work hired out

Purchase: $50,000

Renovations: $50,000

Total Investment: $100,000

Liability: $100,000 (private credit line)

Equity: $0

If the property cash flows $2000 and I pay down $2000 in principal after the first year, I have $4,000 in equity on my balance sheet after year 1. 

Scenario 2: $20,000 worth of renovations done by me

Purchase: $50,000

Renovations: $30,000

Total Investment: $80,000

Liabilities: $100,000 (private credit line)

Equity: -$20,000 (negative due to draw to myself)

If the property performs the same as in scenario 1, I have -$16,000 in equity on my balance after year one. 

This makes it feel like it is disadvantageous to perform the work myself, when in reality the investment is in the exact same spot regardless. 

I know this is just accounting and bucketing of costs and that its just the framing of money. But again, just trying to figure out the best way to pay myself here and still keep my financials straight. 


Curious to get your thoughts!

Hi, paying yourself doesn’t put at -ve equity. Instead a third party taking that money, you are taking that cash. You actually made income. Both cases, that is money out of your pocket to the contractor. You happen be to one of them. 

Your income position changes, your investment position remains the same. 

But I am correct in stating that it would have to be through a draw? And that I cannot pay myself as an independent contractor?

Originally posted by @Ashish Acharya :
Originally posted by @Trevor Dominique:

Hey BP,

I am hoping to get some input from full time investors, specifically those who are very "hands-on" with your own investments. I currently have 12 units, with a SFH home and 2 lots under contract, in which we intend to develop duplexes. With things growing, I really want to leave my 9-5 job to focus on my investing business.

I currently live a pretty cheap lifestyle, so I only need about $30,000 annually to live very comfortably. So, where my head is at, let's say I do 4 BRRRR projects in a year where each project is a $50,000 renovation, or $200,000 in renovations for the full year. Let's assume $100,000 of that is labor cost, and let's assume half of that is stuff I could do myself instead of hiring an outside contractor, or $50,000 worth of labor. This would be more than enough for me to live comfortably, and then the rest of my time can be spent managing the rentals. All of the rental profits could then still be reinvested since the payment to myself would be a part of the capital investment (rehab), and not expensed against the rental income once the project is officially in service.

However, I understand that with me being structured as a single-member LLC, I cannot pay myself an hourly rate for the work I do, or in other words have my LLC send myself a 1099-NEC at the end of the year. The money I pay myself would have to be through a draw from the LLC to myself. This is a little tough for my brain to process. Basically, here is where I am getting messed up:

Scenario 1: All renovation work hired out

Purchase: $50,000

Renovations: $50,000

Total Investment: $100,000

Liability: $100,000 (private credit line)

Equity: $0

If the property cash flows $2000 and I pay down $2000 in principal after the first year, I have $4,000 in equity on my balance sheet after year 1. 

Scenario 2: $20,000 worth of renovations done by me

Purchase: $50,000

Renovations: $30,000

Total Investment: $80,000

Liabilities: $100,000 (private credit line)

Equity: -$20,000 (negative due to draw to myself)

If the property performs the same as in scenario 1, I have -$16,000 in equity on my balance after year one. 

This makes it feel like it is disadvantageous to perform the work myself, when in reality the investment is in the exact same spot regardless. 

I know this is just accounting and bucketing of costs and that its just the framing of money. But again, just trying to figure out the best way to pay myself here and still keep my financials straight. 


Curious to get your thoughts!

Hi, paying yourself doesn’t put at -ve equity. Instead a third party taking that money, you are taking that cash. You actually made income. Both cases, that is money out of your pocket to the contractor. You happen be to one of them. 

Your income position changes, your investment position remains the same. 

Originally posted by @Trevor Dominique :
But I am correct in stating that it would have to be through a draw? And that I cannot pay myself as an independent contractor?

Originally posted by @Ashish Acharya:
Originally posted by @Trevor Dominique:

Hey BP,

I am hoping to get some input from full time investors, specifically those who are very "hands-on" with your own investments. I currently have 12 units, with a SFH home and 2 lots under contract, in which we intend to develop duplexes. With things growing, I really want to leave my 9-5 job to focus on my investing business.

I currently live a pretty cheap lifestyle, so I only need about $30,000 annually to live very comfortably. So, where my head is at, let's say I do 4 BRRRR projects in a year where each project is a $50,000 renovation, or $200,000 in renovations for the full year. Let's assume $100,000 of that is labor cost, and let's assume half of that is stuff I could do myself instead of hiring an outside contractor, or $50,000 worth of labor. This would be more than enough for me to live comfortably, and then the rest of my time can be spent managing the rentals. All of the rental profits could then still be reinvested since the payment to myself would be a part of the capital investment (rehab), and not expensed against the rental income once the project is officially in service.

However, I understand that with me being structured as a single-member LLC, I cannot pay myself an hourly rate for the work I do, or in other words have my LLC send myself a 1099-NEC at the end of the year. The money I pay myself would have to be through a draw from the LLC to myself. This is a little tough for my brain to process. Basically, here is where I am getting messed up:

Scenario 1: All renovation work hired out

Purchase: $50,000

Renovations: $50,000

Total Investment: $100,000

Liability: $100,000 (private credit line)

Equity: $0

If the property cash flows $2000 and I pay down $2000 in principal after the first year, I have $4,000 in equity on my balance sheet after year 1. 

Scenario 2: $20,000 worth of renovations done by me

Purchase: $50,000

Renovations: $30,000

Total Investment: $80,000

Liabilities: $100,000 (private credit line)

Equity: -$20,000 (negative due to draw to myself)

If the property performs the same as in scenario 1, I have -$16,000 in equity on my balance after year one. 

This makes it feel like it is disadvantageous to perform the work myself, when in reality the investment is in the exact same spot regardless. 

I know this is just accounting and bucketing of costs and that its just the framing of money. But again, just trying to figure out the best way to pay myself here and still keep my financials straight. 


Curious to get your thoughts!

Hi, paying yourself doesn’t put at -ve equity. Instead a third party taking that money, you are taking that cash. You actually made income. Both cases, that is money out of your pocket to the contractor. You happen be to one of them. 

Your income position changes, your investment position remains the same. 

It can be structured in different ways. If you end up making more money via labor, you might want to get an S-corp and pay a salary for tax savings.  If not, the draw will be fine.  Remember you don't get taxed on the draw, you get taxed when you earned. 

@Trevor Dominique I still have my W-2 job which is an overnight position so my days are free for real estate, to qualify for loans.

Just today I had to meet a contractor at a property at 11:00am and then slept from 1pm-7pm. It’s nice to have the flexibility to do these things during the day without worrying about an 8-5 job.

I have started taking small draws from a couple of my properties. And I do mean small. Most of the money is still building up my reserves.

I will need to ask my accountant how to actually account for this in my books as this is something new this year.