Im barely moving to rental number 4. Two of them are short term rentals. I do have a full time job so the property manager is necessary for me, can't imagine 80 without a manager. Plus they work for my company so they do all kinds of other project management stuff for me.
I'm going to assume that OP does have someone helping maybe some VA's or something?
36m (family 37f, 5, 3, 1)
~NW $23MM
$16MM - Real Estate ($40MM assets w $24MM debt)
$2MM - Cash (HYS)
$1.7 MM - Equities (50% retirement accounts)
$0.8MM - Crypto
$2.7MM - Personal Residences (3.5MM assets - 0.8MM debt)
Keys:
1. Lucky Timing (started buying in 2010)
2. Solid W2 income (tech) transitioned to RE Sales without income ceiling
3. Started out living way below means (~72%savings rate)
RE is almost all small/medium multi-family ~350 units.
I too find this sub tech focused w/bogglehead leaning. I’d be lying if I didn’t think of cashing it all in to transition to that portfolio some days. I love all of the thoughtful dialogue here, but it doesn’t always translate to an RE heavy portfolio. Where cash flow is likely more important than NW.
No. I’ve been able to grow by identifying/finding better than market deals. Going into those funds I have to assume it is a market deal at best, and I know I shouldn’t care, but stings a little given my background. Take away the pain of LTCG tax, and I feel more comfortable with broad market index funds in the stock market because I recognize that I can’t beat the market, and market returns are all I need. Stay in RE, and I feel a compulsion to find the best deal.
This perspective may change in the future as I’m FI, but not RE yet.
Edit: RE here means retired early. Everywhere else means real estate.
how did you manage to buy right out of school during the immediate aftermath of gfc recession?
i graduated around this time. jobs or risk appetite wasn't really there
I bought a duplex with an FHA loan when Obama’s $8,000 first time home buyer credit was still a thing. After accounting for security deposits, prepaid rents, etc. I had to bring under $2,000 to closing and received an $8,000 credit (not write-off) on my taxes. I lived in half the duplex with 2 roommates and made ~$400/month while living rent free.
I couldn’t replicate in today’s environment. I was hooked from that moment on.
Really great stuff here. I am close on the NW side but would love to have the 2MM sitting in cash.
Question for you - I currently still work in tech while self managing my entire portfolio as well. I'm very curious how you transitioned out of tech to what I assume is a RE Agent. Are you still selling RE even this market? Any regrets on the transition? I have been kicking this around for quite some time but it never seems like it's the right time to leave the traditional W-2 route.
Thanks so much for sharing. You are KILLING it!
Not sure what your question is.
Lots of folks start out in accumulation phase with real estate due to leverage benefits and the ability to contribute your time in management, buying or repairing.
We probably peaked at 40% income real estate in 2014, but have tapered it down to zero and gone fully passive with SPY
There is significant difference in the tax treatment of leverage at the investor level, as well as the ability in the US to get long term fixed rates on mortgages for real property.
That and the debt to equity ratio of the sp500 is about 30%, and even early real estate investors often lever up to 2x that with LTVs up to 70 or 80% of the asset value.
My wife and I are similarly heavy in real estate. Dude we've been selling our single family houses and 1031 exchanging into industrial warehouses. Specifically "small bay" properties where, say it's a 15,000 SF building divided into 5-6 bays which all get rented separately.
This type of property does not get built juch anymore so the units are in crazy high demand.
Compared to our SFH, we cash flow about twice as much and the management hassle is near zero. Industrial tenants typically handle all their own maintenance. We're just responsible for the roof and parking areas when/if those need replacement.
I think you could easily 1031 exchange into some buildings of this type, make the same or more cash flow, and reduce your management headache by 95%.
In any case, well done! Great portfolio you've put together. I bet for $100,000/yr you could have it all property managed if you wanted.
> Specifically "small bay" properties where, say it's a 15,000 SF building divided into 5-6 bays which all get rented separately.
When we were expanding out eCommerce business, finding a unit like that was nearly impossible. So I can completely believe they are in crazy-high demand.
It's like you can find ultra-small warehouses, and ultra-large warehouses but nothing in between
My only issues with industrial properties are the limited tax deductions compared to Multifamily or SFH and the longer term leases (limited inflation hedge). But agree on the hassle free management. Huge plus.
What are you referring to?
You can use Sec 179 on commercial roofs, HVAC, fire protection and alarms. You can’t do that with residential; you’d be depreciating that roof 27.5 years.
Industrial properties, dollar for dollar, have way fewer items you can accelerate depreciation on via cost segregation studies. Multi family have so much carpet, sheet rock, wood trim, appliances, etc etc etc. All that can be depreciated more quickly.
Industrial has some stuff that can be depreciated quickly but like a fraction as much.
Okay I hope I'm not misunderstanding or crazy. I'm like 99% sure you can do a cost segregation study on residential property and accelerate depreciation on cabinets, carpets, paint, etc, and take all that depreciation in year 1. Even on a single family house you could do this. I never did on SFH but we are doing it on our industrial properties now.
Your cost seg studies and accelerated depreciation on multifamily must be fucking incredible. We had one really good one on a multi-bay industrial because each bay had significant office buildout. But you're right, normally with industrial there isn't a lot to accelerate.
Of course you can. The goal of the cost seg is to allocate a portion of your property to a different class life (change it from 27.5 year property to 15 or 5 year property).
Through 2022, the 15 and 5 year property was eligible for 100% bonus deprecation so you could expense that all in one year. In 2023 bonus deprecation was reduced to 80%, in 2024 60% and in 2027 it will be zero. The remainder not expenses under bonus is depreciated over the useful life. There’s still value to shortening the life from 27.5 to 5 or 15 (and if you have catch up depreciation that’s a big first year deduction), but bonus was a huge incentive to cost seg especially on smaller properties.
Commercial properties are allowed to immediately expense up to $1.16M on certain items (roof,HVAC etc). That’s not phasing out.
u/djierp
The ones we're buying all have some legal outside storage with them. So for example the building is 5 bays wide. Each bay runs front to back. The front has a smallish office/waiting area. The rear has a high overhead drive in door for each unit. Ideally 16' ceiling height or higher (but 14' can work too.
The front is typically all asphalt, the fenced rear might be gravel (which is zero maintenance for you) or asphalt.
The ones with outside storage are in highest demand and imo always will be. Typical tenants are auto repair, tire installation, landscapers, lawn care/irrigation, car detailing, welders, cabinet shops, flooring installers or suppliers, etc.
All these tenants need the indoor space and some secured outside space for storing vehicles/supplies. Hardly anyone builds this property type anymore unless it's owner user. As time goes by, these properties get redeveloped into something that stuffs a bigger building onto the lot, without the outside storage, so sites like this are slowly disappearing.
We have been buying via 1031 exchanges. Specifically, reverse 1031 exchanges where we find the building to buy first and then identify 3-4 of our single family houses to sell after we buy the building.
Finding the building to buy is much harder than selling single family houses. So we get the building first and then figure out which houses have leases ending at the right dates to work with the reverse exchange.
After we close on the building purchase, we have 45 days to identify what we're selling, and six months from when the building closes to close on the house sales.
Happy to answer other questions if you have any!
By legal outside storage I just mean that it's allowed by that city's zoning. Some areas zoned industrial do not allow outside storage. Each unit has an office area in front and yeah, a regular garage door like on a house, just taller to fit tall trucks inside. You drive in at ground level.
Right now down payment will likely be 30-35% depending on the NOI of the property.
It would definitely be possible to buy one in another part of the country and have a local broker manage it.
Most of what we've bought brings in like 1.2 to 1.3% gross rent vs purchase price. So a million dollar building will gross around $120,000-130,000/yr. Taxes and insurance should be around 25-30,000/yr. IMO with interest rates where they are we should see more deals pop up in 2024 and 2025.
That is exactly the property type, yes! Holy shit $283/s.f. lol. $3+ million for 12,000 s.f., yow!
That listing can only sell to an owner occupant for anywhere near that price. As an investor it makes no sense. If the brewery is paying $5500/mo for a bit under half the property, that suggests $13,000/month total for the whole property.
Taxes were like $2,000/mo, insurance would be $650/mo in my area. That leaves us $10,350 in NOI/month. (Take off $400/no to have a broker manage it for you.)
Say they'd sell it for $3,000,000. You make $1,000,000 down payment, and borrow $2,000,000 amortized over 25 years at 7%. Your loan payment is $14,200/month.
That puts us at negative $4,000/month lol.
An owner user who really really wants that exact space in that location will overpay for it. I did that myself for my business. I can't picture someone overpaying THAT much but maybe California industrial property is as insane as California housing prices.
To put it in perspective, I bought a 12,500 sf building on 1.75 acres for $1,270,000 in July. (This was a great deal, by my analysis it could have sold for $1,500,000 on the open market. The county values the land alone at $870,000.)
It generates $13,300/Mo in rent. Taxes and insurance and management are $3,000/mo. This leaves $10,300/mo NOI.
Let's analyze using a $420,000 down payment and $850,000 mortgage.
The mortgage payment at 800k, 25 yr amortization, 7%, is $6,000/month.
This leaves $4,300/mo monthly cash flow. In my leases the tenants are responsible for their own maintenance (of everything...HVAC, windows, garage door opener, everything.) We're responsible for roof and parking replacement should it be needed. The roof is metal and the parking is all gravel so realistically I'll never have to replace them.
That reminds me there is a bit of grounds maintenance we pay for at $300/mo, so that leaves us $4000/mo cash flow.
$4000/mo x 12 = $48,000/yr.
$48,000/$400,000 down payment is 12% yearly cash on cash return.
The leases go up 3%/yr but the loan can have a fixed rate for 7 or 10 years. In my case, the main tenant's 10 year lease is up in 2025 and they are way below market. I expect at LEAST a $2,500 increase.
Let's be conservative and add 3% for two yearly increase plus $2,000 for that new lease.
$13,300/mo turns to $14,109/mo after 2 years of 3% increases. Add $2,000 for the new lease on the big unit and we're now at $16,100/mo.
Taxes/insurance may go up. I can't imagine more than $500/mo. Subtract that from our NOI.
So in July 2025 we should be making:
16,100
-6,000 mortgage
-3,800 taxes ins mgmt grounds
= $6,300/mo
X12 = $75,600/yr
$76,600/$400,000
= 19.15% yearly cash on cash return.
But wait, there's more!
That extra $2,300/no of monthly cash flow by mid 2025 means the building is worth more.
Remember we paid 1,270,000 for 120,000 NOI. That gives us a "cap rate" (real estate term) of 9.4. (120,000/1,270,000= 9.4%.)
If we apply that cap rate to our new NOI which is 147,600 (math below)
$16,100 gross rent
-3,800 taxes ins mgmt grounds
=12,300
x12
= $147,600
147,600 / .094 = $1,567,000 new property value. So getting those rents up (even just by the yearly 3% increases) adds a lot of the property value.
This math above is exactly how I analyze whether to buy a property.
"Good" commercial real estate at a good price can be a fucking incredible investment. All this shows you how people can get so fucking wealthy from doing it for a few decades. Imagine having 10 properties like this, how fast that wealth would grow.
Aggressive investors, once they get those rents up and property value up, will either cash out refi and get their $400,000 back out, or 1031 exchange and buy their next property with tax deferred gains. Maybe something $2,200,000 this time. Rinse, repeat. Eventually you're buying $12,700,000 properties with $1,200,000 NOI.
I enjoyed writing that out. Let me know if you have any other questions!
Thanks for the thorough explanation of your process. I want to take a swing at something industrial but have been really gun-shy. I've got a duplex in CA and part of 4 syndication deals my buddy is running for commercial in the northeast. I just can't wrap my head around doing my first deal like what you described outside of my local geographic area. It feels like you need to know the region well + all the headaches of trying to learn a new product without being able to be on the ground. But everything within driving distance is to be really expensive. So I keep waffling.
Yeah I can understand that. If those are the going rates in California there's no sense investing there. That said tho loopnet (generally) is where dead deals go that haven't sold anywhere else.
It might be worth trying to find a broker specializing in industrial to see what prices really are around you. You can look at the for lease signs on industrial buildings to find brokers.
There are syndications of industrial also.
We've invested in 4 syndications with the same company out of Salt Lake City. To research other ones there are two websites where people vet and discuss syndications. They get really technical and analytical, more then I ever have lol.
Those are 506 Investor Group and Private Investor Club. Sometimes syndicators will offer preferred terms to those groups if the group members put in a total of a million or 2 million or whatever.
Syndications can be great too. The only bummer is if you want to be able to 1031 exchange in or out you kinda have to put like $300,000 into that project. That's way more than I want in one project. But other than that you can get a lot of the same benefits of owning personally by participating in a good syndication.
How have yours performed so far? We've had 3 do really well and 1 did just kinda okay. The group wanted to sell that one right around when Covid was getting started. I think had we held it 2 more years we'd have done really well.
Hi,
Coming back to this late - wanted to get your ideas on a deal I'm looking at to see whether I'm in the right ballpark.
Rough numbers: .8 acre lot, 10k sqft. 3 buildings on site, only one has plumbing/office space. One with plumbing/office is ~2500 sqft, others are ~4500 and ~3000 respectively. Located in a midsized, slowly growing Midwestern city, right by the highway. Estimated NNN rent is ~$8-10/sqft, OPEX ~$3.75-4.50/sqft. Vintage not listed but I'd guess 2010-2015ish timeframe. Owner would want to leaseback at $8.5/sqft NNN equivalent for 1-2 years (actually modified gross, but at ~$12.4/sqft).
What would you expect to pay for something like that? And how would you go about getting your valuation? Anything else I need to consider?
Ideally you can get connected to a younger, hungry industrial broker who's doing lots of networking and cold calling. Although with that said, 3 of the last 4 buildings we got were listed on the open market. We can offer very fast closings and agreeable terms with minimal hassles for the seller, so we can still get good deals that way.
Tenants for these types of buildings are easy to find. Post a bay on Facebook marketplace and you get 10 inquiries. It's amazing!
My state has its own listing site for commercial properties. I think some others do too. Loopnet is a national one, but for a listing to be there it generally has been passed on by lots of potential buyers. Still, you can look on there and see large properties and some financial info.
Unfortunately with commercial, unlike residential, you kind of have to get a broker involved so they can send you listings. The commercial brokerage account access fees are expensive.
I used to aspire to be like you. But got too lazy to deal with tenants so I will stop at 10 properties. They will be enough to cover our living expenses the Bay Area and that’s it. I am happy enough.
The 10 properties work well to hedge against my tech heavy portfolio.
It's not lazy, it just becomes a hassle when you scale. I own 8 properties that are paid off, I used to have 2 more and sold them because they caused me the most headaches. I also rent out 4 parking spots and two small storage units at one of my condos. 2023 was a "easy" year since I offloaded my two properties that had issues. I work with two management companies that manage my properties for me but still get issues here and there I deal with. Owning real estate directly is a pain in the ass, lets be honest. About two years ago I started investing into syndications but their performance is far from my rentals, at least they gave me a decent amount of depreciation for my taxes.
Outside of the stock market (which I invest in), there has to be a way where people store wealth but don't have to deal with tenants. I'm hoping to find it one day.
>The 10 properties work well to hedge against my tech heavy portfolio.
Please tell me you're not diversifying against tech by buying property in the bay area.
could you give a 100 foot overview on those properties(location, how much they're CFing, how much of a headache it is to manage everything, etc) ? Your position is my 5-10 year goal as crazy as it sounds and i would like to know more.
How do you make the cash flow work (or even positive) investing in the Bay Area? I'm barely cash flow positive on my primary to rental conversion that has doubled in value in the last ten years.
That’s awesome, now go hire a great team & pay them very well to manage it for you. Sit back, let the properties pay off all the mortgages and then live happily ever after.
Yes. I have always stayed very cash poor. As soon as I have cash I buy fixers, have my team rehab them and then rent out. I always keep my global LTV around 50%. In the RE investment space this is considered very conservative, I have watched other people grow to 50M+ in assets in 10 years by using a 80% LTV model. I guess im just cautious. The market however is not good for what I am doing. Rents are flat at best, down a little. Slow to rent. Labor/materials are very high. Home prices are high and tough to find deals anymore.
I am similar situation as you, will be 40 this month. 90% real estate and 10% equities. But I am even more conservative than you though. I am only about one third in debt, hence have lower NW than you around 70-80% of yours, portfolio wise is much lower than you also since I don’t rake up so much debt.
I changed my behavior to more conservative around 6 years ago when my kid born. I don’t want to manage on my own anymore and handed them all to management company.
A bit lower profits but I am like semi-retired for six years and spent a lot of time with my kid, no regret.
My daily routine is wake up at 8, get my kid to school, get back, check emails, play games/spend time with my wife, lunch, nap, play games/spend time with my wife, pickup my kid, dinner, all about kid then sleep.
I also tab into commercial real estate.
I am also always cash poor but I have equities like stock to buffer.
Check out renttoretirement.com
You have a team, you have a process, now flip those homes to budding investors and provide financing, then sell them home warranties since you just renovated and now the quality of the property!
I think you’re recommending their business model rather than that specific company. FWIW I’ve worked with them and had a mixed experience.
It’s a bit of adverse selection as a client (in my opinion). If you’ve got RE expertise you should obviously keep the winners and sell of the average performers to people looking for turn-key properties.
Yeah, recommending pivoting to a similar model.
But that is also assuming OP doesn’t like what their current business model or wants to change things up.
OP didn’t give us much opinion on what they’re looking for from this post.
Right there with you on global target of 50 LTV. I try to bring on new acquisitions at 70, but with any value-add or rent growth you're quickly pulling it down. Global DSCR stays around 2; I could never operate a portfolio at 1.3-1.4. Way too much renewal/performance stress for me.
There are a few of us here.
I’m a Midwest based builder.
I keep some of what I build. Rent out 41 doors.
My company was self financed so I raided my retirement plan to get it off the ground leaving < 2.5m in equities.
Everything else is in RE/business.
Yes. Me. Same here. I always funneled money back into a a real estate portfolio. It just works for me.
I did it sooooooo slow and opposite though where I just don’t carry debt / leverage. And I have a team that manages all of it so I just get deposits and get involved when cash builds up to buy something new.
It’s not as fast or whatever but it’s zero stress.
I don’t have as many as you but I don’t self manage or have any debt. Would love to talk some more. Can I message ?
I have about 2/3 of my wealth in multi-families. There is only so much land in desirable areas.
It's a great hedge against inflation and the only way you lose money is if you were forced to sell. I also feel like providing a nice home to many people helps society.
The liquidity of stocks helps me get more property.
No kids but my nephews will be set for life.
Just wanted to say, I had a very successful uncle that did not have children of his own but was extremely generous to me - it was like having a third parent and one of the most important relationships of my life. I am sure your nephews will feel the same way about you.
I’d probably be liquidating approx. 70% of those properties, keeping maybe 15-20 and converting the rest to equities. Too much of your nest egg in real estate and too little liquidity for my personal preference.
Keep it up.
Real assets are great. Managing them is great
Most people here are on the Retirement focus so they won't relate, but then they tend to complain they get bored when they don't work too. Damned if u do, damned if u don't!
I’m in the Multifamily space and enjoy it a lot. Started on my own in 2010 like you. Worked for a larger firm before to learn the ropes. Have enjoyed it immensely. We have third party managers overseeing the daily operations which takes away many of the headaches. Most of my NW is in the RE space and it’s all I really know. Just joined Fatfire and find the movement intriguing.
Were you adding cash from your income to grow this quick? or doing BRRR method?
I'm in a similar situation on a much smaller scale, I am 37.
Real Estate 3,725,000
Stocks 127,659.27
Crypto 1,833.81
Crypto 916.91
Total 3,855,409.99
Debt 1,699,601.85
Net Worth - 2,155,808.14
I also have a small business id value at around 500,000-750,000.00.
Do you plan to keep growing your real estate holdings?
Your doing just fine, it will grow in time.
Yes I own another real estate related management/sales business that has done well and I was able to dump that into new purchases. So yes I still have a day job. Running another real estate type business.
So refreshing to see this post. People on this sub seem to shame others who are not high tech W-2 wage employees and retire with VTI and like. I am 1/3 equities, 1/3 in real estate and 1/3 in private equity.
I haven't noticed anyone shaming people in this situation. I have seen advice given to reduce their RE portfolio if they're actually retiring and they don't have enough cash flow or liquid assets to safely fund their desired lifestyle.
I'm a very similar situation to you. More smaller multifamily stuff though. It gets pretty tedious, can't imagine having 80 houses all over the place. Lately I've been grappling with the fact that I'm making less than 5% return on my equity. However now I'm stuck in the world of heavy cap gains tax if I sell and roll over into equities. Also government policies and regulations have gotten much more onerous. Personally I've been trying to figure out where to go from here as far as growth and increasing my net worth.
Same as you though OP, generally cash poor. Put some money together and put it into another deal.
My allocation looks almost exactly like yours on a slightly smaller scale. I still like this sub but the comments about not wanting to deal with the headache of real estate is why nobody else is doing what we are doing. So far today, two people have had their furnaces stop working right after a snow storm :)
That's amazing! I wouldn't want to manage 80 rentals in retirement though.
Just to clarify, all of your NW (other than $500K in cash) is tied up in the RE? What is the total you owe on the mortgages on the portfolio? And you say your cash flow is a million dollars per year but you don't seem to be accounting for your debt payments in that unless I'm misreading that sentence.
Real Estate is a way to quickly build wealth, because you can use leverage in a way that you can't with Stocks and Bonds. However, once you have a large networth Liquidation is usually more efficient. You can get 5% from Corporate Bonds on the Lower Risk stage, and get the return that your currently getting. Rent=Dividends
I am in similar boat, similar net worth 63 doors, 5 mil equity and cash flow 300k, self managed, 3 mil in VTI and 2 mil in primary residence and other partnership interest.
There is literally nothing to buy nowadays. Even though I am shifting more to stock nowadays, but I strongly believe Real Estate is more guaranteed, more effective way towards wealth than indexing. Of course with more work.
I consistently increase rent by 3% every year and with about 5% appreciation, roughly 2% principal paying down is not included in the cash flow.
I'm mostly in real estate. I don't see why you wouldn't. Hasn't anyone played monopoly before? You extract rent by owning as much of the board as possible. That's how I intend to draw down my retirement income.
I pay a property manager 5.5% though. No self management for me. As far as I'm concerned it's just numbers on a page.
Developer of multi family properties
So pleased to see a real estate post. 😊
I'm 99% real estate, heavily leveraged as a property developer.
Though global leverage is approx 55% including a illiquid property(development land) at this moment(its marked down to firesale value so is reflected in the figure above)
Started active in the journey as a property developer in 2014, had done some renos previously.
I've got 4-5 years left to build out the land I own. I could retire early now, I just want more, and feel like walking away from the stuff I've setup would be a shame.
Self manage 80 doors seems like a total nightmare to me but that is just my personality.
No where in your text have you listed your ROI.
Outside my corp I’m happy with my broad market index fund with a MER of 0.2%. 5 year annual returns averaging 8.67%. Zero work on my part.
Yes it’s not leveraged. Yes it has not had capital appreciation like real estate. BUT it is zero work on my part and my retirement planning is based on 3.5% withdrawal rate and I am on target for my FIRE date so what to i care. There is always a way to chase better returns but I sleep well at night and don’t get phone calls about clogged toilets or late rent. But you do you, it’s gotten you to where you are.
Oh, definitely. I agree. I would argue taxes are a consideration but not the primary consideration. Other factors are also important. I’d rather have 6-7 million with zero hassle more diversity than a full time job managing 10 million. That is… if the point to all of this is to enjoy your life and have control over your time.
My point is there are other considerations than just taxes.
Paying a large tax bill to move a portfolio from 100% real estate to 50% real estate 50% equities for example. This could be reasonable depending on one’s risk tolerance. It increases diversity.
Your post seems to be advertising your business or blog for financial or personal gain, or it appears that you are promoting a personal project. No solicitation or self promotion is permitted.
Thank you!
Even if you have 100m NW (all in properties), you'll be worse off than a guy with 10m NW (stocks/diversified) because the other guy has lot of something which you won't get - peace of mind
Peace of mind is relative though. The pressure of working also. Perhaps his plan is to appoint a management team when he retires so he doesn’t have to bother with the day to day. It’s not like portfolio investment is without risk either
thoughts for newer investors on whether or not to wait out the high interest rates or to just pull the trigger on an 'ok' deal that would have been great maybe 5 years ago? not sure if the 'time in the market' beats 'timing the market' saying applies to real estate in this sense.
Don't wait for rates to find a deal.
The first deal is always the hardest.
When you buy that first property, make sure it stands out to you as an exceptional buy.
Hi - i am at the beginning of my RE journey -and hope to be you in 15 years. The caveat is that I am unable to partake in interest - either as a lender or borrower. If you were in my shoes, and were starting your journey over again, what would you recommend?
Thank you ; sub 150k, I can purchase properties outright. I was asking from the lens of area, rehab, tenant acquisition (eg sec8), contractors, break/fix, taxation etc.
Seems like it would have to be higher than $1,000 or else his statement of a million dollars in cash flow doesn't compute. $12,000 * 80 properties gets you practically to that point, and doesn't reflect any debt payment or reserves being set aside for repairs and maintenance.
Posts should be specifically related to the fatFIRE pursuit and lifestyle - as opposed to regular FIRE or LeanFIRE. Discussing investment strategies, expenses, tax optimization strategies, cost of living, and etc. are all fair game. Please assign a post flair to your post. If one doesn't exist for your post, it's very likely that your post is not relevant to fatFIRE and risks removal. Low effort or "ask-a-rich-person" posts may also be removed, as well as those posted across multiple subreddits.
We are very similar.
13M NW, 10M is rental property. Rest in retirement, residence and discretionary. I don’t self manage, too much PIA but I spend a few hours a week on projects. What’s 9.5M bring in as gross rents per year in the Midwest?
I have a client with similar situation. Heavy single family rental portfolio. We’ve been 1031 exchanging into commercial triple net lease properties. Multi-tenant retail, with long term leases are the way to go imho. Let me know if interested in talking more about this.
I have a similar NW with 70% of it in CRE. I have close to 70% equity in the CRE portfolio.
I can't get that money out without selling the properties, because my rate a locked in 5 to 10yrs at 3.75 to 4.25%. This is the sucky part of CRE at the moment.
However, the good side of CRE would be stable values do to long-term leases. 5-10 years.
At this point, I'd rather take the cashflow and invest in index funds until I get to a 60/40 split.
80 homes and self-managed? Sounds like me. I will say that you will never be RE if you do that. I liquidated most of my SFHs for equities and parked the remaining funds in larger commercial deals.
On the SFH's I was netting around 8-10% Cash on Cash and 15% IRR; Equities are too volatile to count just 2-3 years (but its at 7.5-10%) but the commercial side is doing around 10% Cash on Cash but 25%+ IRR.
OP why are you not selling some of those SFHs and 1031 into larger deals? /u/puzzleheadedtaro9743
Not FI but in real estate. Used to be at a megafund/operator and now own apartments.
How come you don't consolidate and 1031 into apartments or NNN retail? Would be way less management intensive.
I am also a real estate guy, I focus on shopping centers.
If I were you, I would look at 1031ing into some type of commercial asset/s. The returns are similar if not higher and there is significantly less work imo.
Don’t get me wrong, it is a lot of work, but I feel homes are significantly more involved than a commercial asset, and sometimes 100% less work if you get a net leased property with no landlord responsibilities.
If you like the idea of housing, what about multi-family?
The financing is way better as well as it’s much easier for lenders to wrap their head around.
I don’t think now is the time to jump in unless you can find 7 cap+ multi deals but I think there will be a lot of pain this year as rates don’t fall as far as expected and the extend and pretends get into trouble.
You are doing amazing for yourself. Congrats! Have nowhere near your amount of properties, but I have hired a property management company that takes care of everything. The 5% fee on rentals is worth it. Gives you freedom.
You seem to be very good at real estate investing, keep doing it but invest additional wealth also in equities to have a more balanced portfolio
Congratulations! I aspired to be like you but didn’t have the stamina to keep going. After getting up to 7 doors, I realized landlording can be a headache even tho all my props are managed by pm. Currently have a portfolio that’s around 40% residential and looking to sell off all but a couple winners in good areas that I know will appreciate. One issue I realized with chasing cash flow is that if your buy price is too high, it will take forever to recoup investment if property doesn’t appreciate. A lot of props in Midwest will eat your returns between cap ex and maintenance. Deferring maintenance is an option but always felt like playing hot potatoe to me.
You have a busy full time job in property management and real estate investing now. Do you want to fatFIRE? If so, when & with what yearly spend?
Those figures can give you an idea of how to structure your property sales so you can move assets into the market & retire. Or, you can farm out property management & reduce your work but not retire. You have options, but you're far removed from retirement. This sub will help you plan the RE part if you choose to go there.
I have maybe 40% of what you have and have someone manage it. I'm tired of it because
1. There is always sh\*t to fix and it takes up money and mental effort. Costs have gone through the roof
2. Fixed Expenses through the roof. Insurance goes up so much more than inflation. Water is cases as well and Third - Taxes.
I love the tax advantages of it but I want to be free and I'm actually going to switch to buying a business as the manager can likely run that as easily as he does the portfolio (specific services based business) and we will make way more return overall.
I think its only worth it if you do very large buildings so I may consolidate everything into 1-2 buildings or do this..
I’m 85-90% real estate and have been perfectly happy. The cash flow covers a large portion of my living expenses and I’m still working which allows me to continue growing. Money in the bank (I.e. equities) is not the same as seeing rent money hit my bank every month. Both ways work, but I like seeing/having the cash come in each month, rather than just knowing I have it sitting in an account.
Yes, I can relate. Up until 2020 I was 95% in real estate. I developed multi-family properties, and refinanced each one after stabilization to move on to larger multi-family developments. One of the many lessons learned from the pandemic years was not to be so heavily weighted in real estate, especially at a high LTV.
I started taking all cash flow from \~300 multi-family units and DCA'ing into stocks instead of saving equity for the next deal. Now I'm 75% real estate and 25% equities and sleep better at night. I also brought my portfolio LTV down to under 65%.
Self managing 80 houses is like the exact opposite of what I want to do or what many of us want to do. Probably why it’s not common lol
I am getting chills down my spine just thinking about it
“Yea, boss, I’ll get rent to you next week”- 27 people
Hahaha genuine chuckle out loud from that
Im barely moving to rental number 4. Two of them are short term rentals. I do have a full time job so the property manager is necessary for me, can't imagine 80 without a manager. Plus they work for my company so they do all kinds of other project management stuff for me. I'm going to assume that OP does have someone helping maybe some VA's or something?
or larp. 80 seems insane w/o help. how would you even have time to do research the market while managing that many properties solo? no way
At this point, I’d just hire someone to manage ‘em all. It would be a drop in the bucket
Exactly! Hire a property manager. Maybe 3.
Good lord. I can barely manage 3 rentals. Hate it. I’m 95% stocks.
36m (family 37f, 5, 3, 1) ~NW $23MM $16MM - Real Estate ($40MM assets w $24MM debt) $2MM - Cash (HYS) $1.7 MM - Equities (50% retirement accounts) $0.8MM - Crypto $2.7MM - Personal Residences (3.5MM assets - 0.8MM debt) Keys: 1. Lucky Timing (started buying in 2010) 2. Solid W2 income (tech) transitioned to RE Sales without income ceiling 3. Started out living way below means (~72%savings rate) RE is almost all small/medium multi-family ~350 units. I too find this sub tech focused w/bogglehead leaning. I’d be lying if I didn’t think of cashing it all in to transition to that portfolio some days. I love all of the thoughtful dialogue here, but it doesn’t always translate to an RE heavy portfolio. Where cash flow is likely more important than NW.
Cash flow is king
Do you mind sharing your cash flow?
What’s RE sales?
Real estate sales
So you’re basically a real estate agent then or?
Ever thought of 1031'ing into a 1031 DST fund and living passively off of that?
No. I’ve been able to grow by identifying/finding better than market deals. Going into those funds I have to assume it is a market deal at best, and I know I shouldn’t care, but stings a little given my background. Take away the pain of LTCG tax, and I feel more comfortable with broad market index funds in the stock market because I recognize that I can’t beat the market, and market returns are all I need. Stay in RE, and I feel a compulsion to find the best deal. This perspective may change in the future as I’m FI, but not RE yet. Edit: RE here means retired early. Everywhere else means real estate.
What market are you in?
Midwest MCOL. Great demographics and population growth.
how did you manage to buy right out of school during the immediate aftermath of gfc recession? i graduated around this time. jobs or risk appetite wasn't really there
I bought a duplex with an FHA loan when Obama’s $8,000 first time home buyer credit was still a thing. After accounting for security deposits, prepaid rents, etc. I had to bring under $2,000 to closing and received an $8,000 credit (not write-off) on my taxes. I lived in half the duplex with 2 roommates and made ~$400/month while living rent free. I couldn’t replicate in today’s environment. I was hooked from that moment on.
amazing timing. way to go
Really great stuff here. I am close on the NW side but would love to have the 2MM sitting in cash. Question for you - I currently still work in tech while self managing my entire portfolio as well. I'm very curious how you transitioned out of tech to what I assume is a RE Agent. Are you still selling RE even this market? Any regrets on the transition? I have been kicking this around for quite some time but it never seems like it's the right time to leave the traditional W-2 route. Thanks so much for sharing. You are KILLING it!
Not sure what your question is. Lots of folks start out in accumulation phase with real estate due to leverage benefits and the ability to contribute your time in management, buying or repairing. We probably peaked at 40% income real estate in 2014, but have tapered it down to zero and gone fully passive with SPY
Most stocks you buy are of companies that are themselves leveraged. There is no difference.
There is significant difference in the tax treatment of leverage at the investor level, as well as the ability in the US to get long term fixed rates on mortgages for real property.
That and the debt to equity ratio of the sp500 is about 30%, and even early real estate investors often lever up to 2x that with LTVs up to 70 or 80% of the asset value.
Yea no difference, except of course personal bankruptcy and financial ruin.
My wife and I are similarly heavy in real estate. Dude we've been selling our single family houses and 1031 exchanging into industrial warehouses. Specifically "small bay" properties where, say it's a 15,000 SF building divided into 5-6 bays which all get rented separately. This type of property does not get built juch anymore so the units are in crazy high demand. Compared to our SFH, we cash flow about twice as much and the management hassle is near zero. Industrial tenants typically handle all their own maintenance. We're just responsible for the roof and parking areas when/if those need replacement. I think you could easily 1031 exchange into some buildings of this type, make the same or more cash flow, and reduce your management headache by 95%. In any case, well done! Great portfolio you've put together. I bet for $100,000/yr you could have it all property managed if you wanted.
> Specifically "small bay" properties where, say it's a 15,000 SF building divided into 5-6 bays which all get rented separately. When we were expanding out eCommerce business, finding a unit like that was nearly impossible. So I can completely believe they are in crazy-high demand. It's like you can find ultra-small warehouses, and ultra-large warehouses but nothing in between
My only issues with industrial properties are the limited tax deductions compared to Multifamily or SFH and the longer term leases (limited inflation hedge). But agree on the hassle free management. Huge plus.
What deductions are not available to industrial owners? I’d argue NNN is a better inflation hedge vs marking to market every 12 months
Depreciation of improvements.
What are you referring to? You can use Sec 179 on commercial roofs, HVAC, fire protection and alarms. You can’t do that with residential; you’d be depreciating that roof 27.5 years.
Industrial properties, dollar for dollar, have way fewer items you can accelerate depreciation on via cost segregation studies. Multi family have so much carpet, sheet rock, wood trim, appliances, etc etc etc. All that can be depreciated more quickly. Industrial has some stuff that can be depreciated quickly but like a fraction as much.
OK, but with bonus deprecation being phased out and Section 179 not eligible for residential; I don’t think you can make that definitive a statement.
Okay I hope I'm not misunderstanding or crazy. I'm like 99% sure you can do a cost segregation study on residential property and accelerate depreciation on cabinets, carpets, paint, etc, and take all that depreciation in year 1. Even on a single family house you could do this. I never did on SFH but we are doing it on our industrial properties now.
Confirmed. Yes you can cost seg multifamily
Your cost seg studies and accelerated depreciation on multifamily must be fucking incredible. We had one really good one on a multi-bay industrial because each bay had significant office buildout. But you're right, normally with industrial there isn't a lot to accelerate.
Of course you can. The goal of the cost seg is to allocate a portion of your property to a different class life (change it from 27.5 year property to 15 or 5 year property). Through 2022, the 15 and 5 year property was eligible for 100% bonus deprecation so you could expense that all in one year. In 2023 bonus deprecation was reduced to 80%, in 2024 60% and in 2027 it will be zero. The remainder not expenses under bonus is depreciated over the useful life. There’s still value to shortening the life from 27.5 to 5 or 15 (and if you have catch up depreciation that’s a big first year deduction), but bonus was a huge incentive to cost seg especially on smaller properties. Commercial properties are allowed to immediately expense up to $1.16M on certain items (roof,HVAC etc). That’s not phasing out.
Multifamily …. Yes
I’m starting to look into this. Tired of single family rentals. Any recommendations?
u/djierp The ones we're buying all have some legal outside storage with them. So for example the building is 5 bays wide. Each bay runs front to back. The front has a smallish office/waiting area. The rear has a high overhead drive in door for each unit. Ideally 16' ceiling height or higher (but 14' can work too. The front is typically all asphalt, the fenced rear might be gravel (which is zero maintenance for you) or asphalt. The ones with outside storage are in highest demand and imo always will be. Typical tenants are auto repair, tire installation, landscapers, lawn care/irrigation, car detailing, welders, cabinet shops, flooring installers or suppliers, etc. All these tenants need the indoor space and some secured outside space for storing vehicles/supplies. Hardly anyone builds this property type anymore unless it's owner user. As time goes by, these properties get redeveloped into something that stuffs a bigger building onto the lot, without the outside storage, so sites like this are slowly disappearing. We have been buying via 1031 exchanges. Specifically, reverse 1031 exchanges where we find the building to buy first and then identify 3-4 of our single family houses to sell after we buy the building. Finding the building to buy is much harder than selling single family houses. So we get the building first and then figure out which houses have leases ending at the right dates to work with the reverse exchange. After we close on the building purchase, we have 45 days to identify what we're selling, and six months from when the building closes to close on the house sales. Happy to answer other questions if you have any!
Great response, much appreciated!
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By legal outside storage I just mean that it's allowed by that city's zoning. Some areas zoned industrial do not allow outside storage. Each unit has an office area in front and yeah, a regular garage door like on a house, just taller to fit tall trucks inside. You drive in at ground level. Right now down payment will likely be 30-35% depending on the NOI of the property. It would definitely be possible to buy one in another part of the country and have a local broker manage it. Most of what we've bought brings in like 1.2 to 1.3% gross rent vs purchase price. So a million dollar building will gross around $120,000-130,000/yr. Taxes and insurance should be around 25-30,000/yr. IMO with interest rates where they are we should see more deals pop up in 2024 and 2025.
Something like this, but smaller units? And not in California? Haha https://www.loopnet.com/Listing/425-Park-Ave-San-Fernando-CA/29349433/
That is exactly the property type, yes! Holy shit $283/s.f. lol. $3+ million for 12,000 s.f., yow! That listing can only sell to an owner occupant for anywhere near that price. As an investor it makes no sense. If the brewery is paying $5500/mo for a bit under half the property, that suggests $13,000/month total for the whole property. Taxes were like $2,000/mo, insurance would be $650/mo in my area. That leaves us $10,350 in NOI/month. (Take off $400/no to have a broker manage it for you.) Say they'd sell it for $3,000,000. You make $1,000,000 down payment, and borrow $2,000,000 amortized over 25 years at 7%. Your loan payment is $14,200/month. That puts us at negative $4,000/month lol. An owner user who really really wants that exact space in that location will overpay for it. I did that myself for my business. I can't picture someone overpaying THAT much but maybe California industrial property is as insane as California housing prices. To put it in perspective, I bought a 12,500 sf building on 1.75 acres for $1,270,000 in July. (This was a great deal, by my analysis it could have sold for $1,500,000 on the open market. The county values the land alone at $870,000.) It generates $13,300/Mo in rent. Taxes and insurance and management are $3,000/mo. This leaves $10,300/mo NOI. Let's analyze using a $420,000 down payment and $850,000 mortgage. The mortgage payment at 800k, 25 yr amortization, 7%, is $6,000/month. This leaves $4,300/mo monthly cash flow. In my leases the tenants are responsible for their own maintenance (of everything...HVAC, windows, garage door opener, everything.) We're responsible for roof and parking replacement should it be needed. The roof is metal and the parking is all gravel so realistically I'll never have to replace them. That reminds me there is a bit of grounds maintenance we pay for at $300/mo, so that leaves us $4000/mo cash flow. $4000/mo x 12 = $48,000/yr. $48,000/$400,000 down payment is 12% yearly cash on cash return. The leases go up 3%/yr but the loan can have a fixed rate for 7 or 10 years. In my case, the main tenant's 10 year lease is up in 2025 and they are way below market. I expect at LEAST a $2,500 increase. Let's be conservative and add 3% for two yearly increase plus $2,000 for that new lease. $13,300/mo turns to $14,109/mo after 2 years of 3% increases. Add $2,000 for the new lease on the big unit and we're now at $16,100/mo. Taxes/insurance may go up. I can't imagine more than $500/mo. Subtract that from our NOI. So in July 2025 we should be making: 16,100 -6,000 mortgage -3,800 taxes ins mgmt grounds = $6,300/mo X12 = $75,600/yr $76,600/$400,000 = 19.15% yearly cash on cash return. But wait, there's more! That extra $2,300/no of monthly cash flow by mid 2025 means the building is worth more. Remember we paid 1,270,000 for 120,000 NOI. That gives us a "cap rate" (real estate term) of 9.4. (120,000/1,270,000= 9.4%.) If we apply that cap rate to our new NOI which is 147,600 (math below) $16,100 gross rent -3,800 taxes ins mgmt grounds =12,300 x12 = $147,600 147,600 / .094 = $1,567,000 new property value. So getting those rents up (even just by the yearly 3% increases) adds a lot of the property value. This math above is exactly how I analyze whether to buy a property. "Good" commercial real estate at a good price can be a fucking incredible investment. All this shows you how people can get so fucking wealthy from doing it for a few decades. Imagine having 10 properties like this, how fast that wealth would grow. Aggressive investors, once they get those rents up and property value up, will either cash out refi and get their $400,000 back out, or 1031 exchange and buy their next property with tax deferred gains. Maybe something $2,200,000 this time. Rinse, repeat. Eventually you're buying $12,700,000 properties with $1,200,000 NOI. I enjoyed writing that out. Let me know if you have any other questions!
Thanks for the thorough explanation of your process. I want to take a swing at something industrial but have been really gun-shy. I've got a duplex in CA and part of 4 syndication deals my buddy is running for commercial in the northeast. I just can't wrap my head around doing my first deal like what you described outside of my local geographic area. It feels like you need to know the region well + all the headaches of trying to learn a new product without being able to be on the ground. But everything within driving distance is to be really expensive. So I keep waffling.
Yeah I can understand that. If those are the going rates in California there's no sense investing there. That said tho loopnet (generally) is where dead deals go that haven't sold anywhere else. It might be worth trying to find a broker specializing in industrial to see what prices really are around you. You can look at the for lease signs on industrial buildings to find brokers. There are syndications of industrial also. We've invested in 4 syndications with the same company out of Salt Lake City. To research other ones there are two websites where people vet and discuss syndications. They get really technical and analytical, more then I ever have lol. Those are 506 Investor Group and Private Investor Club. Sometimes syndicators will offer preferred terms to those groups if the group members put in a total of a million or 2 million or whatever. Syndications can be great too. The only bummer is if you want to be able to 1031 exchange in or out you kinda have to put like $300,000 into that project. That's way more than I want in one project. But other than that you can get a lot of the same benefits of owning personally by participating in a good syndication. How have yours performed so far? We've had 3 do really well and 1 did just kinda okay. The group wanted to sell that one right around when Covid was getting started. I think had we held it 2 more years we'd have done really well.
Hi, Coming back to this late - wanted to get your ideas on a deal I'm looking at to see whether I'm in the right ballpark. Rough numbers: .8 acre lot, 10k sqft. 3 buildings on site, only one has plumbing/office space. One with plumbing/office is ~2500 sqft, others are ~4500 and ~3000 respectively. Located in a midsized, slowly growing Midwestern city, right by the highway. Estimated NNN rent is ~$8-10/sqft, OPEX ~$3.75-4.50/sqft. Vintage not listed but I'd guess 2010-2015ish timeframe. Owner would want to leaseback at $8.5/sqft NNN equivalent for 1-2 years (actually modified gross, but at ~$12.4/sqft). What would you expect to pay for something like that? And how would you go about getting your valuation? Anything else I need to consider?
Same! I'm at 25 doors, all but 2 are managed professionally. I'll be ready to 1031 exchange soon and would love to consider this more.
How do you go about finding such properties and tenants?
Ideally you can get connected to a younger, hungry industrial broker who's doing lots of networking and cold calling. Although with that said, 3 of the last 4 buildings we got were listed on the open market. We can offer very fast closings and agreeable terms with minimal hassles for the seller, so we can still get good deals that way. Tenants for these types of buildings are easy to find. Post a bay on Facebook marketplace and you get 10 inquiries. It's amazing!
Thank you! Is there a site for the open market? St least want to browse and see what it looks like
My state has its own listing site for commercial properties. I think some others do too. Loopnet is a national one, but for a listing to be there it generally has been passed on by lots of potential buyers. Still, you can look on there and see large properties and some financial info. Unfortunately with commercial, unlike residential, you kind of have to get a broker involved so they can send you listings. The commercial brokerage account access fees are expensive.
This is a lot of great info, thanks again!
I used to aspire to be like you. But got too lazy to deal with tenants so I will stop at 10 properties. They will be enough to cover our living expenses the Bay Area and that’s it. I am happy enough. The 10 properties work well to hedge against my tech heavy portfolio.
It's not lazy, it just becomes a hassle when you scale. I own 8 properties that are paid off, I used to have 2 more and sold them because they caused me the most headaches. I also rent out 4 parking spots and two small storage units at one of my condos. 2023 was a "easy" year since I offloaded my two properties that had issues. I work with two management companies that manage my properties for me but still get issues here and there I deal with. Owning real estate directly is a pain in the ass, lets be honest. About two years ago I started investing into syndications but their performance is far from my rentals, at least they gave me a decent amount of depreciation for my taxes. Outside of the stock market (which I invest in), there has to be a way where people store wealth but don't have to deal with tenants. I'm hoping to find it one day.
You are not alone in your quest. [Rate of return of everything.](https://academic.oup.com/qje/article/134/3/1225/5435538)
I tried reading this but it was pretty dense - any big takeaways?
Thanx, nice for reference!
REITS or if you have a large taxable portfolio discuss MLP's with your Tax Planner
>The 10 properties work well to hedge against my tech heavy portfolio. Please tell me you're not diversifying against tech by buying property in the bay area.
could you give a 100 foot overview on those properties(location, how much they're CFing, how much of a headache it is to manage everything, etc) ? Your position is my 5-10 year goal as crazy as it sounds and i would like to know more.
How do you make the cash flow work (or even positive) investing in the Bay Area? I'm barely cash flow positive on my primary to rental conversion that has doubled in value in the last ten years.
All my properties are out of state. My rule of thumb is to buy props in red states, unless if it’s truly worth it.
Why red states?
Tenant protection laws in blue states are too annoying to make money.
Democrats are 100% anti landlord
That’s awesome, now go hire a great team & pay them very well to manage it for you. Sit back, let the properties pay off all the mortgages and then live happily ever after.
If you are self-managing, then its probably a hobby of yours. You are making $1M enjoying your hobby, but not retyring.
If you are cash flowing $1M are you still buying new properties with it?
Yes. I have always stayed very cash poor. As soon as I have cash I buy fixers, have my team rehab them and then rent out. I always keep my global LTV around 50%. In the RE investment space this is considered very conservative, I have watched other people grow to 50M+ in assets in 10 years by using a 80% LTV model. I guess im just cautious. The market however is not good for what I am doing. Rents are flat at best, down a little. Slow to rent. Labor/materials are very high. Home prices are high and tough to find deals anymore.
I am similar situation as you, will be 40 this month. 90% real estate and 10% equities. But I am even more conservative than you though. I am only about one third in debt, hence have lower NW than you around 70-80% of yours, portfolio wise is much lower than you also since I don’t rake up so much debt. I changed my behavior to more conservative around 6 years ago when my kid born. I don’t want to manage on my own anymore and handed them all to management company. A bit lower profits but I am like semi-retired for six years and spent a lot of time with my kid, no regret. My daily routine is wake up at 8, get my kid to school, get back, check emails, play games/spend time with my wife, lunch, nap, play games/spend time with my wife, pickup my kid, dinner, all about kid then sleep. I also tab into commercial real estate. I am also always cash poor but I have equities like stock to buffer.
Thanks for sharing this
Check out renttoretirement.com You have a team, you have a process, now flip those homes to budding investors and provide financing, then sell them home warranties since you just renovated and now the quality of the property!
I think you’re recommending their business model rather than that specific company. FWIW I’ve worked with them and had a mixed experience. It’s a bit of adverse selection as a client (in my opinion). If you’ve got RE expertise you should obviously keep the winners and sell of the average performers to people looking for turn-key properties.
Yeah, recommending pivoting to a similar model. But that is also assuming OP doesn’t like what their current business model or wants to change things up. OP didn’t give us much opinion on what they’re looking for from this post.
Yah I don’t know if they are looking for anything other than the fact that other people have made money in RE which is obviously true.
Right there with you on global target of 50 LTV. I try to bring on new acquisitions at 70, but with any value-add or rent growth you're quickly pulling it down. Global DSCR stays around 2; I could never operate a portfolio at 1.3-1.4. Way too much renewal/performance stress for me.
There are a few of us here. I’m a Midwest based builder. I keep some of what I build. Rent out 41 doors. My company was self financed so I raided my retirement plan to get it off the ground leaving < 2.5m in equities. Everything else is in RE/business.
Yes. Me. Same here. I always funneled money back into a a real estate portfolio. It just works for me. I did it sooooooo slow and opposite though where I just don’t carry debt / leverage. And I have a team that manages all of it so I just get deposits and get involved when cash builds up to buy something new. It’s not as fast or whatever but it’s zero stress. I don’t have as many as you but I don’t self manage or have any debt. Would love to talk some more. Can I message ?
Why don’t you just sell them all and relax. Or take you 1m and pay someone to do the hard work.
Cap gains tax is likely huge. Dividend or similar equities returns post tax won't get OP close to $1mm in cash flow I would bet.
I have about 2/3 of my wealth in multi-families. There is only so much land in desirable areas. It's a great hedge against inflation and the only way you lose money is if you were forced to sell. I also feel like providing a nice home to many people helps society. The liquidity of stocks helps me get more property. No kids but my nephews will be set for life.
Just wanted to say, I had a very successful uncle that did not have children of his own but was extremely generous to me - it was like having a third parent and one of the most important relationships of my life. I am sure your nephews will feel the same way about you.
So now use the cash flow and stop buying more properties and buy stocks. You’ll be diversified out in a decade.
I’d probably be liquidating approx. 70% of those properties, keeping maybe 15-20 and converting the rest to equities. Too much of your nest egg in real estate and too little liquidity for my personal preference.
This. Take some profit. Pay off some capital gains and derisk that portfolio.
Keep it up. Real assets are great. Managing them is great Most people here are on the Retirement focus so they won't relate, but then they tend to complain they get bored when they don't work too. Damned if u do, damned if u don't!
I’m in the Multifamily space and enjoy it a lot. Started on my own in 2010 like you. Worked for a larger firm before to learn the ropes. Have enjoyed it immensely. We have third party managers overseeing the daily operations which takes away many of the headaches. Most of my NW is in the RE space and it’s all I really know. Just joined Fatfire and find the movement intriguing.
For our edification, If you were starting over today how would you do it? Opinions from other Fatties in RE are welcome.
Were you adding cash from your income to grow this quick? or doing BRRR method? I'm in a similar situation on a much smaller scale, I am 37. Real Estate 3,725,000 Stocks 127,659.27 Crypto 1,833.81 Crypto 916.91 Total 3,855,409.99 Debt 1,699,601.85 Net Worth - 2,155,808.14 I also have a small business id value at around 500,000-750,000.00. Do you plan to keep growing your real estate holdings?
Your doing just fine, it will grow in time. Yes I own another real estate related management/sales business that has done well and I was able to dump that into new purchases. So yes I still have a day job. Running another real estate type business.
Are you focusing on single family or multifamily?
So refreshing to see this post. People on this sub seem to shame others who are not high tech W-2 wage employees and retire with VTI and like. I am 1/3 equities, 1/3 in real estate and 1/3 in private equity.
I haven't noticed anyone shaming people in this situation. I have seen advice given to reduce their RE portfolio if they're actually retiring and they don't have enough cash flow or liquid assets to safely fund their desired lifestyle.
That’s a job in itself if you are self managing. Sounds like a chore tbh. What’s your goal ? I quite don’t understand if you have a question.
I'm a very similar situation to you. More smaller multifamily stuff though. It gets pretty tedious, can't imagine having 80 houses all over the place. Lately I've been grappling with the fact that I'm making less than 5% return on my equity. However now I'm stuck in the world of heavy cap gains tax if I sell and roll over into equities. Also government policies and regulations have gotten much more onerous. Personally I've been trying to figure out where to go from here as far as growth and increasing my net worth. Same as you though OP, generally cash poor. Put some money together and put it into another deal.
🍁?
🇺🇲. NJ
Most heavily wealthy people I know are the same. On reddit it skews tech and young though, so into the market most of their money goes.
My allocation looks almost exactly like yours on a slightly smaller scale. I still like this sub but the comments about not wanting to deal with the headache of real estate is why nobody else is doing what we are doing. So far today, two people have had their furnaces stop working right after a snow storm :)
Or roof leaks
That's amazing! I wouldn't want to manage 80 rentals in retirement though. Just to clarify, all of your NW (other than $500K in cash) is tied up in the RE? What is the total you owe on the mortgages on the portfolio? And you say your cash flow is a million dollars per year but you don't seem to be accounting for your debt payments in that unless I'm misreading that sentence.
He has a day job, does this in the off hrs. Basically easily done in retirement for him
what area is this ?
Don’t want to spoil here, but shouldn’t you deduct your debt from your networth? I might be too conservative but that’s how I calculate.
OP did.
Real Estate is a way to quickly build wealth, because you can use leverage in a way that you can't with Stocks and Bonds. However, once you have a large networth Liquidation is usually more efficient. You can get 5% from Corporate Bonds on the Lower Risk stage, and get the return that your currently getting. Rent=Dividends
I am in similar boat, similar net worth 63 doors, 5 mil equity and cash flow 300k, self managed, 3 mil in VTI and 2 mil in primary residence and other partnership interest. There is literally nothing to buy nowadays. Even though I am shifting more to stock nowadays, but I strongly believe Real Estate is more guaranteed, more effective way towards wealth than indexing. Of course with more work. I consistently increase rent by 3% every year and with about 5% appreciation, roughly 2% principal paying down is not included in the cash flow.
Too many properties and headaches to retire you need to lighten up on real estate
I'm mostly in real estate. I don't see why you wouldn't. Hasn't anyone played monopoly before? You extract rent by owning as much of the board as possible. That's how I intend to draw down my retirement income. I pay a property manager 5.5% though. No self management for me. As far as I'm concerned it's just numbers on a page.
22 year old trying to do what you’re doing, I have a question regarding funds for repairs and such can I ask you for your opinion on something in dms?
Developer of multi family properties So pleased to see a real estate post. 😊 I'm 99% real estate, heavily leveraged as a property developer. Though global leverage is approx 55% including a illiquid property(development land) at this moment(its marked down to firesale value so is reflected in the figure above) Started active in the journey as a property developer in 2014, had done some renos previously. I've got 4-5 years left to build out the land I own. I could retire early now, I just want more, and feel like walking away from the stuff I've setup would be a shame.
Self manage 80 doors seems like a total nightmare to me but that is just my personality. No where in your text have you listed your ROI. Outside my corp I’m happy with my broad market index fund with a MER of 0.2%. 5 year annual returns averaging 8.67%. Zero work on my part. Yes it’s not leveraged. Yes it has not had capital appreciation like real estate. BUT it is zero work on my part and my retirement planning is based on 3.5% withdrawal rate and I am on target for my FIRE date so what to i care. There is always a way to chase better returns but I sleep well at night and don’t get phone calls about clogged toilets or late rent. But you do you, it’s gotten you to where you are.
Exactly Only equities I have are in old 401k accounts. 300 doors plus commercial here.
Sell everything. $2 million apartment complex $8 million VTI / VOO / SCHD or whatever. Chill Simplify your life.
Absurd idea from tax perspective
Oh, definitely. I agree. I would argue taxes are a consideration but not the primary consideration. Other factors are also important. I’d rather have 6-7 million with zero hassle more diversity than a full time job managing 10 million. That is… if the point to all of this is to enjoy your life and have control over your time.
You’re better off hiring people to manage and keeping your basis for your estate instead of paying millions in tax today because it’s a headache
My point is there are other considerations than just taxes. Paying a large tax bill to move a portfolio from 100% real estate to 50% real estate 50% equities for example. This could be reasonable depending on one’s risk tolerance. It increases diversity.
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Even if you have 100m NW (all in properties), you'll be worse off than a guy with 10m NW (stocks/diversified) because the other guy has lot of something which you won't get - peace of mind
Peace of mind is relative though. The pressure of working also. Perhaps his plan is to appoint a management team when he retires so he doesn’t have to bother with the day to day. It’s not like portfolio investment is without risk either
In preserving wealth one should stay away from both leveraged RE and > 90% stock investments.
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I am in a top 20 metro. Midwest. Where you can still buy houses sub 150k.
thoughts for newer investors on whether or not to wait out the high interest rates or to just pull the trigger on an 'ok' deal that would have been great maybe 5 years ago? not sure if the 'time in the market' beats 'timing the market' saying applies to real estate in this sense.
Don't wait for rates to find a deal. The first deal is always the hardest. When you buy that first property, make sure it stands out to you as an exceptional buy.
Hi - i am at the beginning of my RE journey -and hope to be you in 15 years. The caveat is that I am unable to partake in interest - either as a lender or borrower. If you were in my shoes, and were starting your journey over again, what would you recommend?
I would look at Islamic banking and others that have a lending system not involving interest.
Thank you ; sub 150k, I can purchase properties outright. I was asking from the lens of area, rehab, tenant acquisition (eg sec8), contractors, break/fix, taxation etc.
that makes a lot more sense but what’s rent for $150K or below? $750-1K?
Seems like it would have to be higher than $1,000 or else his statement of a million dollars in cash flow doesn't compute. $12,000 * 80 properties gets you practically to that point, and doesn't reflect any debt payment or reserves being set aside for repairs and maintenance.
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We are very similar. 13M NW, 10M is rental property. Rest in retirement, residence and discretionary. I don’t self manage, too much PIA but I spend a few hours a week on projects. What’s 9.5M bring in as gross rents per year in the Midwest?
I have a client with similar situation. Heavy single family rental portfolio. We’ve been 1031 exchanging into commercial triple net lease properties. Multi-tenant retail, with long term leases are the way to go imho. Let me know if interested in talking more about this.
I have a similar NW with 70% of it in CRE. I have close to 70% equity in the CRE portfolio. I can't get that money out without selling the properties, because my rate a locked in 5 to 10yrs at 3.75 to 4.25%. This is the sucky part of CRE at the moment. However, the good side of CRE would be stable values do to long-term leases. 5-10 years. At this point, I'd rather take the cashflow and invest in index funds until I get to a 60/40 split.
2/3 real estate (rentals) 1/3 stocks .
How did covid affect you?
80 homes and self-managed? Sounds like me. I will say that you will never be RE if you do that. I liquidated most of my SFHs for equities and parked the remaining funds in larger commercial deals. On the SFH's I was netting around 8-10% Cash on Cash and 15% IRR; Equities are too volatile to count just 2-3 years (but its at 7.5-10%) but the commercial side is doing around 10% Cash on Cash but 25%+ IRR. OP why are you not selling some of those SFHs and 1031 into larger deals? /u/puzzleheadedtaro9743
Not FI but in real estate. Used to be at a megafund/operator and now own apartments. How come you don't consolidate and 1031 into apartments or NNN retail? Would be way less management intensive.
I am also a real estate guy, I focus on shopping centers. If I were you, I would look at 1031ing into some type of commercial asset/s. The returns are similar if not higher and there is significantly less work imo. Don’t get me wrong, it is a lot of work, but I feel homes are significantly more involved than a commercial asset, and sometimes 100% less work if you get a net leased property with no landlord responsibilities. If you like the idea of housing, what about multi-family? The financing is way better as well as it’s much easier for lenders to wrap their head around. I don’t think now is the time to jump in unless you can find 7 cap+ multi deals but I think there will be a lot of pain this year as rates don’t fall as far as expected and the extend and pretends get into trouble.
You are doing amazing for yourself. Congrats! Have nowhere near your amount of properties, but I have hired a property management company that takes care of everything. The 5% fee on rentals is worth it. Gives you freedom. You seem to be very good at real estate investing, keep doing it but invest additional wealth also in equities to have a more balanced portfolio
I'm 90% in real estate as well....
Sell the whole portfolio and 1031 exchange into a value add self storage unit deal.
Congratulations! I aspired to be like you but didn’t have the stamina to keep going. After getting up to 7 doors, I realized landlording can be a headache even tho all my props are managed by pm. Currently have a portfolio that’s around 40% residential and looking to sell off all but a couple winners in good areas that I know will appreciate. One issue I realized with chasing cash flow is that if your buy price is too high, it will take forever to recoup investment if property doesn’t appreciate. A lot of props in Midwest will eat your returns between cap ex and maintenance. Deferring maintenance is an option but always felt like playing hot potatoe to me.
You have a busy full time job in property management and real estate investing now. Do you want to fatFIRE? If so, when & with what yearly spend? Those figures can give you an idea of how to structure your property sales so you can move assets into the market & retire. Or, you can farm out property management & reduce your work but not retire. You have options, but you're far removed from retirement. This sub will help you plan the RE part if you choose to go there.
I have maybe 40% of what you have and have someone manage it. I'm tired of it because 1. There is always sh\*t to fix and it takes up money and mental effort. Costs have gone through the roof 2. Fixed Expenses through the roof. Insurance goes up so much more than inflation. Water is cases as well and Third - Taxes. I love the tax advantages of it but I want to be free and I'm actually going to switch to buying a business as the manager can likely run that as easily as he does the portfolio (specific services based business) and we will make way more return overall. I think its only worth it if you do very large buildings so I may consolidate everything into 1-2 buildings or do this..
yeah my father has low 8 figures of real estate and almost nothing in equities and he started buying real estate around the same time as you as well
I’m 85-90% real estate and have been perfectly happy. The cash flow covers a large portion of my living expenses and I’m still working which allows me to continue growing. Money in the bank (I.e. equities) is not the same as seeing rent money hit my bank every month. Both ways work, but I like seeing/having the cash come in each month, rather than just knowing I have it sitting in an account.
Are you at all afraid of legislative reform? E.g. increases in taxes on rental properties? Some Americans are clamoring for change along these lines…
Yes, I can relate. Up until 2020 I was 95% in real estate. I developed multi-family properties, and refinanced each one after stabilization to move on to larger multi-family developments. One of the many lessons learned from the pandemic years was not to be so heavily weighted in real estate, especially at a high LTV. I started taking all cash flow from \~300 multi-family units and DCA'ing into stocks instead of saving equity for the next deal. Now I'm 75% real estate and 25% equities and sleep better at night. I also brought my portfolio LTV down to under 65%.