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1
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5
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Joey Sabatini
5
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1
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Next best step to early retirement

Joey Sabatini
Posted

Hello everyone, 

I’m 48 years old and currently rent with 5 family members. I have 450k to invest and trying to figure out what would be best for an early retirement.
1) Do I purchase a property now in the Bay Area that. I'm considering purchasing a Bay Area property that has an ADU that could be rented.
2) Do I keep renting and invest in rental properties?

3) Invest in short term rentals? 

Any advice or recommendations would be greatly appreciated.

Best,

Joey



User Stats

900
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Jake Andronico
Agent
#5 House Hacking Contributor
  • Realtor
  • Reno, NV
721
Votes |
900
Posts
Jake Andronico
Agent
#5 House Hacking Contributor
  • Realtor
  • Reno, NV
Replied

@Joey Sabatini

There is no right or wrong answer. People make money in every approach to RE, and people also lose money in the same way. 

What are YOU comfortable with? What do YOU understand? 

The Bay Area is going to be an appreciation heavy market. Two big, very important questions are: 

1. When do you want to retire early? 

2. How much do you need per month? 

No need to overcomplicate it. Answer those two questions and work backwards from there :) 

Best of luck to you! 

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Caleb Raymaker
  • Realtor
  • Ann Arbor, MI
2
Votes |
8
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Caleb Raymaker
  • Realtor
  • Ann Arbor, MI
Replied

Welcome to Bigger Pockets, 

Out of state (OOS) investing would be a wise decision, with Californias market is so highly appreciated. That 450k could build you a lot more wealth else where in the country. I suggest looking into IN, OH, MI, WI, MO, ID, etc. Look for places with population growth and employment boosts. Short term rentals tend to have a higher yield (quick money) but higher turn over, long term rental lower yield or cap rate (long money) but more reliable tenants. 

You could potentially "House Hack" the ADU you mentioned, instead of renting. Hope this helps!

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Dan H.
Pro Member
  • Investor
  • Poway, CA
6,686
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5,805
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Dan H.
Pro Member
  • Investor
  • Poway, CA
Replied

I believe you are wanting to enter RE investing at a time more challenging than recent time.   I believe passive RE returns will take time.  More Active RE investing can accelerate the returns but they take work and have risk.  Also from the choices you provided, I believe you are looking at somewhat passive options.  

Option 1 if purchasing rent ready unit at high LTV will be cash flow negative. It will be quite a few years before you realize a good return. It can work, but probably not in the time span you desire.
Option 2 I have similar response to option 1. 
option 3: We have had STRs since 1999 which puts my STR longevity in rare territory. My view is that the extra income from STRs/MTRs basically compensates for the extra effort. If you use a PM on the STR/MTR the cash flow is competitive with LTR. for the asset value, STRs have never had lower income (no counting any Covid lockdown periods). This is from competition due to the STR craze.

So what do I recommend in your case?   I recommend you investigate some syndications.  Look for long time operators, ideally that survived the Great Recession.  Give up a bit of projected return for an established operator.   Let the experts do the work and leverage their knowledge base and their relationships.  I suspect that the returns from the best GP will continue to outperform other options that are as passive. 

BP is starting a site dedicated toward syndications.   Not sure when it will be ready for public use but you can sign up to be informed when it is ready.   

Good luck

  • Dan H.
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    Travis Biziorek
    • Investor
    • Arroyo Grande, CA
    1,780
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    Travis Biziorek
    • Investor
    • Arroyo Grande, CA
    Replied

    Joey, there's just not enough info here for anyone to truly help.

    Are you single? Kids? Or will you be living alone?

    What is your rent amount right now? What do you do for a living? Is it stable? How much do you make? How much are you saving monthly? How much are you spending?

    How much do you need to generate in investment income to either step away from your current job or do something you enjoy more but less pay?

    Those are just a few questions, and I'm not actually asking for answers. But you need to start answering them for yourself and come up with a clearer picture of what you're wanting to achieve.

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    Nathan Gesner
    Property Manager
    Agent
    Pro Member
    • Real Estate Broker
    • Cody, WY
    39,956
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    27,135
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    Nathan Gesner
    Property Manager
    Agent
    Pro Member
    • Real Estate Broker
    • Cody, WY
    ModeratorReplied

    You need to start with a goal. 

    If your goal is to build wealth that you can access later, that's one path. If your goal is to create cashflow that you can use for daily expenses, that's another path.

    We need to know where you are now and where you want to go. Then we can help you figure out how to get there.

    • Property Manager Wyoming (#12599)

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    Wale Lawal
    Agent
    • Real Estate Broker
    • Houston | Dallas | Austin, TX
    2,162
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    4,061
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    Wale Lawal
    Agent
    • Real Estate Broker
    • Houston | Dallas | Austin, TX
    Replied

    @Joey Sabatini

    The Bay Area offers various financial options, including purchasing an Attached Dwelling Unit (ADU) for rental income and long-term appreciation, investing in rental properties elsewhere for flexibility and stronger returns, and investing in short-term rentals for higher returns but more management and regulation risk. The best option for early retirement depends on long-term appreciation and steady income, with Bay Area ADU purchase best for stability and appreciation. Financing considerations include leverage, tax benefits, and property management fees.

    Good luck!

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    Drew Sygit
    Property Manager
    Agent
    #5 All Forums Contributor
    • Property Manager
    • Royal Oak, MI
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    Drew Sygit
    Property Manager
    Agent
    #5 All Forums Contributor
    • Property Manager
    • Royal Oak, MI
    Replied

    @Joey Sabatini

    Recommend you first figure out the property Class you want to invest in, THEN figure out the corresponding location to invest in.

    If you apply Class A assumptions to a Class B or C purchase, your expectations won’t be met and it may be a financial disaster.

    So, when investing in areas they don’t really know, investors should research the different property Class submarkets.

    Here’s our OPINION for the Metro Detroit market (use as a template for your target area!) that we’ve learned in our 24 years, managing almost 700 doors across the Metro Detroit area, including almost 100 S8 leases.:

    Class A Properties:
    Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.
    Vacancy Est: Historically 10%, 5% the more recent norm.
    Tenant Pool: Majority will have FICO scores of 680+ (roughly 5% probability of default), zero evictions in last 7 years.

    Class B Properties:
    Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation.
    Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support.
    Tenant Pool: Majority will have FICO scores of 620-680 (around 10% probability of default), some blemishes, but should have no evictions in last 5 years

    Class C Properties:
    Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation. Can try to reposition to Class B, but neighborhood may impede these efforts.
    Vacancy Est: Historically 10%, but 15-20% should be used to also cover tenant nonpayment, eviction costs & damages.
    Tenant Pool: majority will have FICO scores of 560-620 (approaching 22% probability of default), many blemishes, but should have no evictions in last 2 years. Verifying last 2 years of rental history very important! Also, focus on 2 years of job/income stability.

    Class D Properties:
    Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciation
    Vacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.
    Tenant Pool: majority will have FICO scores under 560 (almost 30% probability of default), little to no good tradelines, lots of collections & chargeoffs, recent evictions. Verifying last 2 years of rental history and income extremely important to find the “best of the worst”.

    Make sure you understand the Class of properties you are looking at and the corresponding results to expect.

    The City of Detroit has 183 Neighborhoods we’ve analyzed.

    PM us if you’d like to discuss this logical approach in greater detail!