Hey! Im slightly confused on what the fastest way to accumulate >$500,000 a year in passive income would be. As of right now, I have a plan to acquire 3-4 fourplexes over the course of around 5 years. I would buy them individually, renovate them, build equity, have renters pay off part of the mortgage, save all cash flow and then sell them all and use the profits as a downpayment for a smaller apartment building ~24units. I would then do the same thing....renovate, build equity, get renters to pay off part of the mortgage and save all cash flow. After a few more years, I would sell the complex and use the profits for a large ~75 unit apartment complex. This complex will be brining in substantial passive income but not enough to meet my personal goals of >$500,000 yearly.
My question is, what do i do now? What should i have done? Whats the fastest way to get to where i need to be? Do i start the process all over again with fourplexes? Do i use the profits from the 75 unit building as a down payments for another 75 unit building ~5 years later once i have saved up all the profits/equity? Do i go into commercial real estate? What do you all think i should do? What do the wealthy and experienced investors do? Any advice would help!
@Ryan McElroy , first question is why $500K(no need to answer). This can help development of the how.
The reality is that if we take an assumed rate of return, say 10%, you will need a free and clear $5MM. Can you leverage and raise investor funds to to do this? Perhaps the way would be $25MM in gross assets.....my point here is that no one has passive income of >$500K doing things as described above.
You asked what wealthy investors do.....not this. Folks with that level of "passive" income are founders of companies that have gone public and hold significant stock, HNW investors in large funds, and so on. I have a large passive income(not $500K) and I have it through leveraged ownership in foreign debt. This is a dangerous game and I will not be describing in on BP.
Your plan, frankly, is great. You will grow a large portfolio the right way. However, your end result is not going to be truly passive. Managing millions of dollars in rental properties is far from passive as you will be in a position to be making large income affecting decisions that a PM cannot/shouldn't make. Also, fees and expenses are very large at that level of investment management because you would be wealthy but still very small from an HNWI perspective.
My advice, develop a multifaceted plan that includes many paths of income. Rental properties, management company, and so on. Do this right and sell to a large investor/entity and cash out for your millions.
@Ryan McElroy I would concentrate on getting your first bought. Then build on that. You will end up where you work to get to. You may find that it is not worth the trouble. This business may not be right for you. The quickest way to $500k per year is to be the CEO of a large corporation..
Buy 1 property and see where it takes you.
I have been thinking about this same thing. How much income would I like to earn? How much equity will it take? Depends on so many thing. I really agree with the advice that you should start with one and see where it takes you.
My associate has somewhere in the league of 400-500k per year in free and clear cash flow, no mortgages.
I do not have every single detail at hand how he did it. I know he started poor growing up, made some cash in the stock market and that let him buy his first couple cheap houses in our city.
I do know that he bought a bunch of cheap, distressed homes for 25-30k when the market declined in 2008-10 in our city. He then owner financed all of them. I think he got some of that cash through a land deal and a car lot deal. I have to check on that. The main thing is that he only owner finances houses now so he has no maintenance costs or worries like most people on BP. I am following the same path.
One 75 unit apartment building won't do it, but 66 would most likely. But as others have expressed, it wouldn't be all passive.
Small clarification on your comment and others similar in other forums. Owner financed. Appears by writing that this was after acquisition? But that does not make sense. And owners in a distress situation - how did they owner finance? Could not have been short sale. I am familiar with other investor's strategy of acquiring distressed dogs for cheap, fixing up, and then selling and carrying the note. IE, us the investor is the bank. As a way to not deal with landlord toilet issues etc.
i don't think this is what you are referring to however.
Thanks for your clarificaiton
Thanks for the response! Would you mind developing your advice a little more? What do you mean by having multifaceted plan? What types of investments do you suggest i look into in that case? Also, why do you suggest cashing out for millions? Isn't the point of having apartment rentals to generate cash flow month in and month out so you can retire and live ofd the income? Obviously having millions would be great, but it doesn't generate money every month. Once i spend it, its gone...
Im new to the investing world which is why i'm asking hahah.
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing