30 With a New Hobby in Real Estate

[calmloki]

...

In our case we do both equity investing and landlording. They're both simple on the face of the subject, and they're both horribly time-consuming at certain points in the process.


Having been a landlord for nearly 20 years now, all I have to say is... good luck with that and enjoy it while it lasts.

On the day that you declare yourself ER'd, what are you going to do with all that real estate?

Suspect OP's cunning plan is to plug tenant/buyers in on a lease to buy option. Tenant is paying an inflated rent which converts to down payment at purchase time. Tenant feels like an owner and hopes to become one, so does all maintenance to their standard. If the sale doesn't happen landlord is happy because he got inflated rent for a year or so. Sort of the real estate version of rent-to-own. Just a guess.

I like real estate as well and it's done better for us than those stock thingies. Not smart enough to do it with low or no money down and without substantial time and effort. Some people are smart and get rich in real estate buying distressed property for no money down (looking at you Tom Vu).

 

[Onward]

I am not sure what town you are in, and location location location is of major importance in RE deals.

It's a small, upscale town with many multi-million-dollar homes. Well, they used to be multi-million-dollar homes.

 

[jayc]

***disclaimers - obviously it's wise to 401k invest if there's a company match but why invest beyond that?

Where else can you get 100% of your earnings that will work for you tax deferred for the next 30 years? Taking advantage of the maximum 401K contributions is the way to go. That is $16,500 a year.

You are only into the game 2 years. Do the basics often outlined in this forum and get back in about 10 years.

 

[jayc]

Quoted for truth!

I'm no guru or even apprentice, but I do invest lots of planning/preparing time.
My goal is to aquire 10 lease purchase properties and suvive off the net rents. As each property sells I'll gain 10% to 15% net that will be rolled 1031 exchange into the next property downpayment. So mortgages decrease and net rental income increases. ...it's just a breathing theory so far.

Better re-check the rules for 1031. The mortgage cannot decrease on like property.

 

[brewer12345]

In a way I hate to participate in this thread, since I suspect it is just spam. But there are a lot of ways to make a good living and get ahead financially other than various real estate schemes and corporate life. Like one's own business. Some will be scalable, and have the chance of producing great wealth. Some will be just providing some goods or services efficiently on a one off scale. Today I was walking down an alley after having coffee with a friend. I saw the biggest baddest blackest Mercedes I have ever seen parked behind some storefront. I asked her whose it was-she said it belonged to the guy who ran the restuarant on the corner. One location, good but relatively inexpensive food, long tenancy in this spot, and a very fine looking Mercedes came out of it.

When I was a boy men on my street raised families of 6-8 children on a well run bar. The things that work are always changing, but always there.

I imagine that real estate would be similar. Other than getting lucky with a surging market, it comes from an eye for value, market knowledge, good negotiating skills, and lots of careful blocking and tackling. Plus a dose of luck can never hurt.

Ha

Nothing wrong with 'jacking the spammers' thread.

I think it is too easy to forget what you are pointing out, Ha: there are many ways to skin the cat. I have played the salaryman for a number of years now, but DW bailed out in early 2003. She set up her small business (private practice career counselor) before the first kid arrived and managed to keep it alive as we/she were mostly consumed with infants/toddlers in the house. But now that the kids are starting to go to school (pre school and first grade in the fall), she has had more time to devote to the business and her net will likely be triple last year's. This is still very much a part time endeavor, but since it all falls to our peronal bottom line (savings) and it is highly tax efficient, it adds a lot of juice.

My own vision of the pot of gold at the end of the rainbow has greatly changed in the past few years. I went from shooting for pure FIRE to being more comfy with ESR. Once we meet our $$ goal, we will relocate to a lower cost area and work or run a small business or two part time for an indeterminate period of time. But I suppose that if I found some venture worth jumping into full time or a really attractive RE opportunity I will have the freedom to jump on it.

 

[srlimoges]

Um, I’m a little confused. You joined this forum yesterday and signed off on these rules:

http://www.early-retirement.org/forums/misc.php?do=sknetwork&page=tos

http://www.early-retirement.org/forums/misc.php?do=sknetwork&page=rules

If you don’t want to be told what to do, why are you agreeing to all these rules? and just so we readers don’t go nuts: Please please use spell check.

Now back to your regularly scheduled one-note play.

I'm pro capitalism, not anarchy. Rules and regs are good if the purpose behind them are too (like offering to help people).

Thanks for the knock. Not quite so classy IMO though.

 

[bbbamI]

Where's mah popcorn?

 

[srlimoges]

Ok, may be it's just me, but this sounds just like the guy a couple of weeks ago, that was retired at 30, with investment property, and didn't know what to do. For me the first sentence was a red flag!

"Ever since 14 yrs old I've disliked working for corporate america - being told what to do, when to do it, and how it should be done."

I know very few 14 year old's that work for corporate America. Second red flag "after graduating at 28".

I hope you can tell by the thought and intent behind all this advise that this isn't a flavor-of-the-week. It's not even about real estate. It's about retirement objectives that we don't force fit cookie cutter solutions on.

 

[srlimoges]

I for one, welcome alternate approaches. Gotta shake the cobwebs out of corners, and keep an open mind. So I'm glad you've brought it up. Real estate investing certainly can be a valid alternative to equity investing.

But that doesn't mean that those of us who invest in equities haven't considered the alternatives. My Dad held real estate in a few different forms, and I decided I disliked that more than I disliked 'working for the man' and taking my chances in the market. But that doesn't make it wrong for you.

If you understand the risk/reward, and are comfortable with the work it takes, sounds like you've found your path. But I think your posts are coming across to some as a bit condescending - like you are assuming that those that chose other paths are just sheep that don't know better.



The same reason a Ford dealer tries to sell you a Ford, not a Toyota. But it is your choice to make.

-ERD50

I agree completely! Uncommon goals cannot be achived with common means.

 

[CuppaJoe]

....
Thanks for the knock. Not quite so classy IMO though.

Less classy than yelling, "troll on board"? Most of the message was not intended for you.

 

[Texas Proud]

I am not sure what town you are in, and location location location is of major importance in RE deals. But here the stats on one of my bldgs:
Purchased 1997 - $335K - $50K down payment
Almost sold (in contract) 2010 (13 yrs later)
Sale price: $785K (could have gotten more if I sold before the bubble burst ) Invested in Major repairs: $25K - $30K over the 13 years. Monthly income net of expenses has varied from $800 - $3000/month over time.
That is a return of $420K over 13 years on initial $50K invested - not taking the monthly income into account at all, just the appreciation. These are rough ballpark figures, I apologize.

I can't think of many equity type investments that have had a return this attractive but I plead ignorance if I am in error.

The downside is that this is just another job, albeit ones own. It can be a lot of work and a pain (as well as reward) at times.

Just curious on how much time you spent over the past 13 years working on this property.... and I mean any minute that was taken from your life...

I have met some people who have made out very well in RE.... and I have met some who have declared bankruptcy... I would think most of the people who started to invest in RE.... say in the last 5 or so years have nothing to show for it... zilch.. they lost everything they invested... most of the people who have started to invest in equities and bonds have at least 50% of what they invested... and maybe 100% or more...

As someone else has said, people who invest in RE are wired differently than people who invest in the 'market'... I have no problem with you making your money the way you do.... just don't try and make it like I have to follow your way to get where I want to go..


Someone who opens a thread talking about not wanting to work for the man IMO has other problems... I have not had many problems working for the man for 30 years... I get paid very well for doing it... my income risks are a lot lower than if I ran my own company and had to deal with tenants and all the other problems in RE... and not knowing what might happen if a fire destroyed a big hunk of my inventory... and if I do not like something from the man, I tell them... if it does not change I leave... simple..

 

[srlimoges]

If you enjoy landlording then that's what you should do. It gives you a greater measure of perceived control and you can have much more influence over the process.

But that's no reason to trash the plans/goals of those who actually enjoy working in the corporate world, for whatever reason, and feel that equity investing is an appropriate mix of effort/reward.

In our case we do both equity investing and landlording. They're both simple on the face of the subject, and they're both horribly time-consuming at certain points in the process.


Having been a landlord for nearly 20 years now, all I have to say is... good luck with that and enjoy it while it lasts.

On the day that you declare yourself ER'd, what are you going to do with all that real estate?

Thanks Nord, I respect your opinion.

I'm not trying to trash others goals who want to follow 'the man and stock plan'. I respect Brewer's path as it fits his goals!!

But I defininately don't want that, and want to offer knowledge that other approaches do exist for aggresive RE. The corporate plan is a dead end for me and I'm probably not alone.

My shorter term goal is semi retirement, away from corporate america. I haven't focussed much on retirement #2. What would you suggest I do with the real estate if I want a full time retirement?

 

[Westernskies]

Ever since_14 yrs old I've disliked working for corporate america - being told what to do, when to do it, and how it should be done. Like 90% of kids I was taught to go to college, grad school, and work for someone else the rest of_life. After graduating at 28 yrs old and working for less than two years I've decided I want to retire ASAP and be disassociated with corperate america.

I've researched many retirement methods searching for the fastest way out. However, most popular investing strategies require at least a 10 year working minimum - way longer than I want.

Diligance in research led me to real estate, specifically the lease purchase strategy. With this method, on paper, (semi) retirement is realistically 5 years away (permanent retirement from all things corporate america).

I'm now 30, own 3 investment properties that net a combined $1000 per month, and am on pace to 'retire' by 34.

Back to the post beginning, how come the popular retiremethods preach stock/mutual fund investing over real estate for retiring early?

***disclaimers - obviously it's wise to 401k invest if there's a company match but why invest beyond that? Also, purchasing real estate requires loans, which isn't true FI, but retiring early (and isn't RE the tangable goal?)

So, you spent 10 years in skool, got out and worked two years for the man, and you're already ready to get out... because you just don't like being told what to do. You come here for advice, but don't like what you are being told... And, from your posts you apparently didn't like your teachers telling you how to use grammar and spelling, either. Hmmm.... there is a pattern emerging here, it sounds like you may have issues with ANYONE telling you what you don't want to hear.

If you have been out of grad school for two years and have managed to accumulate $1000/month positive income from your rentals, how do you figure you will be ready to pull the plug at 34? At your current rate maybe you can be at $2-3,000/month off 4-6 properties. That's a big maybe...and doesn't leave you with any cash reserves, no equity and dangerously exposed in the event of a RE market downturn.

With your grad school education should be able to knock down big bucks for a few years, but you are effectively working to add RE that will net you ~$300/month per house, if everything goes well. You could probably save/invest 10-15X that amount if you applied yourself to a career for a few years instead of working so assiduously to avoid it. I know, this is the ER website, but my take is that you aren't even close to ready, mentally or financially. (Or maybe a spammer playing a one-note RE piano...)

 

[NW Landlady]

Just curious on how much time you spent over the past 13 years working on this property.... and I mean any minute that was taken from your life...

I have met some people who have made out very well in RE.... and I have met some who have declared bankruptcy... I would think most of the people who started to invest in RE.... say in the last 5 or so years have nothing to show for it... zilch.. they lost everything they invested... most of the people who have started to invest in equities and bonds have at least 50% of what they invested... and maybe 100% or more...

As someone else has said, people who invest in RE are wired differently than people who invest in the 'market'... I have no problem with you making your money the way you do.... just don't try and make it like I have to follow your way to get where I want to go..
..

TP - I am in the Pac NW. I purchased multiple properties and many from other Landlords who were retiring on the $$ they made on their investments. I started w/my first multifam 13 yrs ago. I am selling them off now to FIRE. I am selling them to Young new Investors mostly who hope to FIRE from their investment. The example I gave is not the best investment I made, nor in a particularly fancy part of town that appreciated much. I did not include the $195K I made in income over 13 years, because I figure that paid for "my time" working the Bldg.

While I recognize some parts of the US rental properties would be a poor investment, I am lucky I guess investing where I did. My current Net Worth is in the high 7 figures, but after I pay Uncle Sam on the sales, I expect it will be more like Mid 7 figures. Not bad for 13 years.

Yep, I am wired differently!

 

[Westernskies]

. I am selling them to Young new Investors mostly who hope to FIRE from their investment.

...sell 'em all to the OP on a contract.

 

[srlimoges]

So, you spent 10 years in skool, got out and worked two years for the man, and you're already ready to get out... because you just don't like being told what to do. You come here for advice, but don't like what you are being told... And, from your posts you apparently didn't like your teachers telling you how to use grammar and spelling, either. Hmmm.... there is a pattern emerging here, it sounds like you may have issues with ANYONE telling you what you don't want to hear.

If you have been out of grad school for two years and have managed to accumulate $1000/month positive income from your rentals, how do you figure you will be ready to pull the plug at 34? At your current rate maybe you can be at $2-3,000/month off 4-6 properties. That's a big maybe...and doesn't leave you with any cash reserves, no equity and dangerously exposed in the event of a RE market downturn.

With your grad school education should be able to knock down big bucks for a few years, but you are effectively working to add RE that will net you ~$300/month per house, if everything goes well. You could probably save/invest 10-15X that amount if you applied yourself to a career for a few years instead of working so assiduously to avoid it. I know, this is the ER website, but my take is that you aren't even close to ready, mentally or financially. (Or maybe a spammer playing a one-note RE piano...)

RE: first paragraph - I feel that you haven't read the entire thread as it appears, in my opinion, that you don't understand the main points of this topic.

RE: second paragraph - I plan on semi-retiring on 10 properties at age 34. I accumulate $1500 net per month from wages at corpX. Each new property adds roughly $300+ net per month. Right now I own 3 properties, netting $1000, and earn $1500 from wages totaling a net monthly savings income of $2500. This savings will grow exponentially as new properties are acquired faster that will produce additional income. Also, when a property sells lease purchase I net 10% to 15% from the purchase price (a price I've locked in for the renter already). This increases the downpayment on the next property, lowering the mortgage, and increasing the net profit from rent. The snowball gains inertia.

RE: third paragraph - thanks for the advise, but as noted I feel you haven't read the thread and don't understand my retirement goals.

Apparently I should change my forum name to spammer...

 

[calmloki]

Where else can you get 100% of your earnings that will work for you tax deferred for the next 30 years? Taking advantage of the maximum 401K contributions is the way to go. That is $16,500 a year.
...

Well, (using made up numbers) the real estate version of that is:

Buy rental for $200k, putting $40k down.
Rent and earn (yeah, IRS says it's unearned income - Hah!) maybe 1% of purchase price after loan payments and expenses, or $2k/year.
On taxes, write off depreciation, at 1/27.5 per year on improvements (say 80% of original purchase price, or $160k). So the $40k down payment is making $2000/year, or 5%, but the tax man says you can write off depreciation of $5818 per year, and that $3818 depreciation amount over and above rental earnings can be written off against other income. When the property is sold you do have to pay taxes on the depreciation that has been taken - or you can 1031 exchange into a more expensive property and keep doing that until your heirs inherit the property at the basis as of date of sale - and start a whole new depreciation schedule!

 

[Westernskies]

RE: first paragraph - I feel that you haven't read the entire thread as it appears, in my opinion, that you don't understand the main points of this topic.

"Asking" for advice and then trying to sell the rest of us on your genius RE scheme as the only way to ER? No, I got the main point of your post, loud and clear.

 

[srlimoges]

"Asking" for advice and then trying to sell the rest of us on your genius RE scheme as the only way to ER? No, I got the main point of your post, loud and clear.

this is more evidence to the point I made above. Please read the thread, not just a post.

 

[Sarah in SC]

Aye, Dale Carnegie courses were certainly a part of the curriculum.

 

[Westernskies]

Aye, Dale Carnegie courses were certainly a part of the curriculum.

More like Dal Carnige...

 

[Keim]

More like Dal Carnige...

Now, now Westernskies. While the OPs spelling isn't perfect, it isn't THAT bad. Eet iz a lut buttur den zum Ize scene.

 

[Westernskies]

Now, now Westernskies. While the OPs spelling isn't perfect, it isn't THAT bad. Eet iz a lut buttur den zum Ize scene.

(not counting grad school...)

YouTube - seven years of college

 

[Texas Proud]

Soooo, it sounds like the OP IS working for the man... at say $24K to $30K... (net $1500 per month).... I will agree that if that is all you are making after a college education, then an alternative is needed...

It also doesn't seem like you are spamming like your first post would have indicated.... maybe a troll... we will see if you have more input than just this thread...


Don't get me wrong... RE can be a great investment as others have said... but there are a lot more people who crashed on the rocks than made it through with smooth sailing... I do know that when I was real young, we would not have food on the table if my father was not a slum lord for awhile... but we kids had to do a LOT of work on all the houses...

I also have seen one of my BIL lose everything during the last banking crisis in the 80s... he had over $5 mill in RE... but lost it all... everything... because the market crashed and people just did not lease... he did not have enough cash to pay the mortgage, the S&L went under, the loan was called etc. etc....

It is a high risk way to get rich... just like someone who bought stock on margin... you can make it big or you can lose it all.... I just think you do not see the true risks involved... maybe they will never happen... great... you win... but if they do hit, you can be wiped out... I don't want to play Russian Roulette with my retirement funds...

 

[Westernskies]

but if they do hit, you can be wiped out... I don't want to play Russian Roulette with my retirement funds...

He's not- he's doing it with borrrowed money- who do you think will left to pick up the tab when the market hiccups and this carefully constructed house of cards falls apart?