28 Years old looking for FI advice

[nwtractor]

Hi, my name is Nate and I am 28 years old. I currently have a great paying job that pays between 100k-150k dependent on overtime and have saved about 500k . Roughly 200k in a Roth 401k/IRA and 300k in savings account. I do have a mortgage 175K and no other debt.


Right now I am actively looking to purchase a multifamily or commercial investment property for passive income. It has been tough looking for the right property that fits my needs but am willing to wait for the right property. Using some of the FI calculators if I was to just invest the money in the stock market with average returns 6-7% I could be FI in 5-10 years. Should I keep waiting for the right property or put my money to work right now and just let it ride in an index fund.

Thank you for reading and your thoughts!

 

[Dtail]

The poll is public currently.

 

[Maenad]

I think owning rental property can be great for a more steady income, but you have to be cool with being a landlord. To a certain degree it's a personality difference. Bigger Pockets is supposed to be a good resource for rental property ownership advice, per a friend of mine who's going the rental property route.

For investing, JL Collins' stock series is a classic. Throwing money into index funds is much easier than landlording, but you do have to be OK with the swings in the market, which is much easier said than done.

 

[NgineER]

First of all-you are doing fantastic! I hadn’t even started working at your age.
I like rental properties, but am also invested in the market. I have a couple of duplexes and a triplex. Properties are hard to get a hold of, but having cash is king.
I’d recommend paying off your mortgage with your cash to get an instant return on your money. Then get a HELOC to help with cash offers on properties.

Good luck!

 

[pb4uski]

I have experience in both. I manage a portfolio for myself and my mother and also manage a commericial property that she owns. Also, when my Dad was alive he had some residential rentals in addition to the commercial rental.

I wouldn't go near residential rentals. My dad decided that they were a PITA and sold his. I also have a friend who has a residential rental but the difference is that it is a duplex and he lives in the other unit, so is on-site. Residential is quite time consuming and it sounds like you are busy enough with your job.

The commercial rental is ok. Actually, quite lucrative but also high risk in that it is in a depressed area and if our long-term tenant left I'm not sure we could fill it.

I myself prefer equities because I'm lazy. My equities never call me to inform me that a pipe is plugged and needs attention.

 

[GR111]

OP you are doing great! Also, good advice from previous posts. The only thing I would add is that I am a fan of diversification which is much easier with index funds. If you decide to go that way you might also look at a small allocation to REITs since you like real estate. Index funds might also be less impactful on your day job than real estate. But if real estate is what you’re interested in and being a landlord is your thing, I would say do your homework, get a good inspector, and get in at the right price. Best of luck.

 

[pb4uski]

^^^ Good point on diversification... people who have much of their wealth tied up in real estate end up with a lot more geographic concentration risk and sector concentration risk than I would be comfortable with. Many times, their rentals are nearby to where they live... if that region has a downturn you get wiped out. A neighbor had a commercial property in Flint, MI that he ended up handing the keys to the bank because he couldn't sell it... they also had a home about 45 minutes away that they had trouble selling.

Between my home and winter condo that is plenty of real estate for me.

 

[Offgrid Organic Farmer]

Hi, my name is Nate and I am 28 years old. I currently have a great paying job that pays between 100k-150k dependent on overtime and have saved about 500k . Roughly 200k in a Roth 401k/IRA and 300k in savings account. I do have a mortgage 175K and no other debt.


Right now I am actively looking to purchase a multifamily or commercial investment property for passive income. It has been tough looking for the right property that fits my needs but am willing to wait for the right property. Using some of the FI calculators if I was to just invest the money in the stock market with average returns 6-7% I could be FI in 5-10 years. Should I keep waiting for the right property or put my money to work right now and just let it ride in an index fund.

Thank you for reading and your thoughts!

Multifamily investment property can be a great investment.

I worked in a career that offers a 20-year pension, and I invested in Multi-Family-Residences at the same time. It is an investment that you need to be well suited for, and some people are not.

A 15% Return on Investment is possible, I have seen it.

It is also possible for these properties to provide tax-sheltering over your earned income, that was a huge piece of the benefit for me when I was working.

 

[pb4uski]

Multifamily investment property can be a great investment.

But then there is also this:

When I was working, we owned a series of apartment buildings. We did very well with them. When I retired, we consolidated our real estate holdings down to only one. It had been our best performing property, so we thought that was a smart move. We refinanced it and used the cash to buy our retirement home.

In 2008 that city's big employers experienced lay-offs and we lost all our tenants. If we had not had that mortgage, we would have been fine. But servicing the mortgage without rental income ruined us.

In 2016 we bought another rental property. This time there is no mortgage.

 

[Offgrid Organic Farmer]

Every investment has some level of risk.

With rental real estate, if you have a mortgage on the property, that mortgage puts you at a far higher risk factor.

I can't complain, I made profits and my profits were protected.

 

[Sunset]

OP - you don't split out the IRA vs ROTH vs 401K vs 401K Roth

If you are self employed you can set up a self-401K.

At your earnings level, putting some into a tax deductible IRA/401K has value, but also spread some to the ROTH , as you have a long time for that money to compound tax free.

I voted for index funds, as a residential landlord my plan is to sell my last unit and buy index etf's.

I would buy index ETF's and some BRK.B (it is like a mini index fund but doesn't pay out any divs, just compounds, so Super tax efficient).

 

[nwtractor]

I think owning rental property can be great for a more steady income, but you have to be cool with being a landlord. To a certain degree it's a personality difference. Bigger Pockets is supposed to be a good resource for rental property ownership advice, per a friend of mine who's going the rental property route.

For investing, JL Collins' stock series is a classic. Throwing money into index funds is much easier than landlording, but you do have to be OK with the swings in the market, which is much easier said than done.

Yes I agree. I have been involved with bigger pockets and there is a lot of information out there on the subject. It's funny that you suggested jlcollins stock series, as I just started reading it.

 

[nwtractor]

Thank you! How has holding real estate worked for you? I have been analyzing properties and after taking money for vacancy, repairs, Cap expenses, and management you are lucky to get a 7% cash on cash return. I am currently listening to set for life by Scott Trench and he suggest that if you can't get above 10% ROI, stick with stocks.

 

[nwtractor]

OP you are doing great! Also, good advice from previous posts. The only thing I would add is that I am a fan of diversification which is much easier with index funds. If you decide to go that way you might also look at a small allocation to REITs since you like real estate. Index funds might also be less impactful on your day job than real estate. But if real estate is what you’re interested in and being a landlord is your thing, I would say do your homework, get a good inspector, and get in at the right price. Best of luck.

Thank you!

 

[nwtractor]

Multifamily investment property can be a great investment.

I worked in a career that offers a 20-year pension, and I invested in Multi-Family-Residences at the same time. It is an investment that you need to be well suited for, and some people are not.

A 15% Return on Investment is possible, I have seen it.

It is also possible for these properties to provide tax-sheltering over your earned income, that was a huge piece of the benefit for me when I was working.

If you were to do it again would you still choose real estate. I know that finding the right the deal is everything. Most of the deals that I have seen are between 4%-8% cash on cash return.

 

[nwtractor]

OP - you don't split out the IRA vs ROTH vs 401K vs 401K Roth

If you are self employed you can set up a self-401K.

At your earnings level, putting some into a tax deductible IRA/401K has value, but also spread some to the ROTH , as you have a long time for that money to compound tax free.

I voted for index funds, as a residential landlord my plan is to sell my last unit and buy index etf's.

I would buy index ETF's and some BRK.B (it is like a mini index fund but doesn't pay out any divs, just compounds, so Super tax efficient).

Right now all my retirement savings are in Roth IRA and Roth 401k. I am currently looking to see if I would be better off switching to a traditional 401k and maybe doing a conversion ladder later in life. I need to research more about the topic. I also thought that a Roth 401k would be great if I could take out my contributions tax and penalty free ( not sure if I can) for early retirement.

 

[SnowBound]

Well: One can learn a lot fast by having rentals. Find someone to mentor you, or get a part time gig working for a Rental Property Management Company (even for 3 months). Learn from others mistakes instead of being the "Sucker of the Day".

 

[Markola]

For investing, JL Collins' stock series is a classic. Throwing money into index funds is much easier than landlording, but you do have to be OK with the swings in the market, which is much easier said than done.

JL Collins’ book “A Simple Path to Wealth” is written exactly for younger people, such as the OP. Recommended.

 

[FreeBear]

Do you want to quit w*rking or do you want another j*b, namely landlording? I vote for index funds and ride out the next 10 years. Then play landlord, if you wish, but not so heavily leveraged to endanger your FI.


Maybe this sounds too simple, and you are looking for more of a challenge. I'm inherently lazy and would have loved to FIRE at around 35-40.

 

[pj.mask]

‘Depending on how much overtime’ - I’d ask yourself how much free and flexible time you have to fix issues as they arise? Repairmen can knock down your profits in a hurry on an older property.

I would switch to a traditional 401k, start backdoor Roth (if you don’t have an traditional IRA balance?)

I’d ask yourself if you want the time commitment and constant availability required to be a land lord and what benefit you think that will get you over market returns? Is that delta positive or (of positive) worth the effort?

 

[NgineER]

Thank you! How has holding real estate worked for you? I have been analyzing properties and after taking money for vacancy, repairs, Cap expenses, and management you are lucky to get a 7% cash on cash return. I am currently listening to set for life by Scott Trench and he suggest that if you can't get above 10% ROI, stick with stocks.

I assume this was meant for my response earlier. Real estate has been great for me. First property was a BRRR type property. Purchased for $54k, put about $108k into it. Did some work myself but mainly hired it out. Refinanced for $160k (valued at $280k) and rents for $32k/ year. Great ROI due to only $2k in it.
Used refinance money to buy two more properties, one of which needed some work. Put $12k into it and mostly my time into fixing kitchens and baths, took rents from $21k/ year to $31k/year.
On my fourth property now and looking for more, but I’m a little leery as properties have been purchased at price/monthly rent has gotten closer to 125x or more from my max of 100x monthly rent.

ROI is 13%, but that includes one property not being rented for six months during renovations and putting money into it, one property with only four months of ownership (but whole investment used in the ROI calculation)
Should be better this year, no renovations, turning some inherited tenants over and will bump up rent.

Rental properties has been great for me, but it is hard to let properties go by that don’t meet my requirements when I have money to invest.

But I’ve only been in rental properties in a hot economy, so I don’t want to overspend.

 

[pj.mask]

ROI is 13%

Rental properties has been great for me

But I’ve only been in rental properties in a hot economy.

A bump of 3% over historical stock returns (if sustained, and used for half my investments) would take 1.5 years off my 13 year plan to be completely FI. For me, managing enough rentals to cover half my investments while working full time and raising kids is not worth it.

Rentals can generate large returns because they are leveraged, require you to work at them, and have higher risk (tenants, vacancy, geographic concentration).

I’m not against renting but I haven’t seen cases where it is very advantageous for mid level investors. For someone with low income/savings needing leverage to get going and willing to work hard or for people with significant assets that can hire it out and run it like a business - can work well.

If you have good earnings and don’t want to grind all the time, is the potential reward worth the potential risk? Everyone’s answer is different.

ROI changes a lot with home loan vs cost basis vs current sale price (also considering depreciation recapture, limited mobility).

Easy to accurately show stock performance vs how individuals calculate their rental returns. I’m sure with +/- 5 % ROI I could pick numbers on a rental and make the calculations work.

 

[NgineER]

Fair enough...

ROI is 13% with the exclusions above.

On track for 37% this year (renting full time and no renovations)

Appreciation of properties is 20% since purchase.

For me, current cash flow (assuming 50% of rent goes to expenses and on top of that paying mortgages) covers 20% of my retirement WR, which means that I need to have 20% smaller stash to be FI.

I do recognize that I want to spend more time with family which is why future renovations will be hired out.

 

[nwtractor]

I assume this was meant for my response earlier. Real estate has been great for me. First property was a BRRR type property. Purchased for $54k, put about $108k into it. Did some work myself but mainly hired it out. Refinanced for $160k (valued at $280k) and rents for $32k/ year. Great ROI due to only $2k in it.
Used refinance money to buy two more properties, one of which needed some work. Put $12k into it and mostly my time into fixing kitchens and baths, took rents from $21k/ year to $31k/year.
On my fourth property now and looking for more, but I’m a little leery as properties have been purchased at price/monthly rent has gotten closer to 125x or more from my max of 100x monthly rent.

ROI is 13%, but that includes one property not being rented for six months during renovations and putting money into it, one property with only four months of ownership (but whole investment used in the ROI calculation)
Should be better this year, no renovations, turning some inherited tenants over and will bump up rent.

Rental properties has been great for me, but it is hard to let properties go by that don’t meet my requirements when I have money to invest.

But I’ve only been in rental properties in a hot economy, so I don’t want to overspend.

Wow sounds like you have done well. I know the brrr strategy seems like the way to go if you have time and money to work on it. It's just hard to find the right property, especially in this market. Makes you wonder if you are better off just waiting for the market to cool down.

 

[nwtractor]

‘Depending on how much overtime’ - I’d ask yourself how much free and flexible time you have to fix issues as they arise? Repairmen can knock down your profits in a hurry on an older property.

I would switch to a traditional 401k, start backdoor Roth (if you don’t have an traditional IRA balance?)

I’d ask yourself if you want the time commitment and constant availability required to be a land lord and what benefit you think that will get you over market returns? Is that delta positive or (of positive) worth the effort?

I have thought about switching to a traditional 401K and think it would be definitely worth it if I do plan on retiring in the next 5-10 years and converting to a roth IRA slowly. I'm not sure yet if I would actually retire in 5-10 years being that young I would need something to stay busy and would also need a way to cover health care cost.