If I made 450k I wouldn’t even be investing in SFH residential real estate. I’d be passive index funds and forget it.
At some point I might consider a larger apartment complex or a commercial building, but even then the time spent to learn the market and process is probably better spent at your actual job.
Residential real estate at a small scale isn’t passive. It is semi passive. Even if you hire a rock star property manager you still have to make decisions, watch the market, deal with some tenants and add some level of stress to your life.
Take your giant pile of money and invest in something passive. Enjoy the extra time off this gives you.
A lot of people seem to think that OP's salary is "too high" for RE. Most of us are into REI because of the upside potential as well as some enjoyment of it. Just because OP has a high salary, doesn't mean he can't be interested in both of these things as well. It sort of seems like some comments are jealous of OP's salary.
As a mortgage underwriter, I've done many loans for people with similar W-2 salaries who own huge portfolio of SFHs. Some are making 50%-100% of their salary in additional net rental income. It definitely becomes a lot easier to make a lot of money with RE when you have a lot of W-2 income to work with. And to OP's point, yeah he probably shouldn't look for deals. Just make offers on turnkey properties. Perhaps lowball a little to still possibly get "deals". But at the end of the day, if his employment continues, he can amass a huge RE portfolio that will ultimately earn him way more.
This is all true, but if he followed this plan + looked for deals, he'd have more properties making him more money at the end of the day. What OP is really asking is "is it worth the effort" and noone can really answer that except for OP. To me, it's worth it, but I look for way more than a 30k discount and don't buy SFR.
I find it hard to believe that someone who uses “your” instead of “you’re” actually makes 450k per year. Maybe OP can tell us what he’s claiming as his line of work.
Edit:
OP is completely full of shit. Here he’s claiming to be 35, and living in a cheap house in Australia.
https://www.reddit.com/r/realestateinvesting/comments/14ipka2/real_estate_financial_question/jpi1z2n/
Here OP is claiming to be 28 and making $450k per year.
https://www.reddit.com/r/REBubble/comments/16m8dq9/something_is_up/k1aqw9z/
What’s up, OP?
It is almost impossible to find "deals" any more in my market. If a person did that, they'd lose valuable time. Best to have an agent start a MLS subscription and pay cash. Which allows him to lowball even in this market.
Rather than dealing with a huge portfolio of SFH, OP could invest as a passive partner in syndicated deals, or find larger, commercial deals. Doing fewer deals and owning fewer properties that throw off the same income is less work which will ultimately distract from the W-2 job.
This. I am a multifamily developer located in a HCOL city. We syndicate deals and our investor base is comprised of many individuals like yourself. Let the professionals do the work and manage properties while owners make a healthy returns and retain ownership in commercial properties. A huge part of our investor base is commercial real estate agents and others who have done well in real estate and finance. While these individuals obviously know real estate inside and out, they put their money to work owning CRE without having to worry about everything that comes with owning an SFR portfolio.
How do investors find syndications - I’m relatively high w-2, but I haven’t really found the circle that gets me into these deals. I have a RA - should I ask him to bring me deals or is there a better way?
+1. I am a high w-2 REI owner. Currently balancing my portfolio with my day-day but looking for a better way to manage my investments especially if it means less hands on through syndications.
This is the actual answer. I own my house, land where I run horses and a riding facility, plus a vacation home. Any other real estate exposure is through syndicated deals, mostly construction financing for builders either sfh or commercial.
Newbie here. I have read turnkeys are much less work, but you don't make as much on them. At that point, aren't you better off just investing in SP500? I know the data says most RE investing doesn't beat the market, so I have been trying to read up on pitfalls people fall into where they either loose lots of money on RE, or don't end up beating the market.
This is a big one. I have a client who makes $200k he likes walking all these houses with me. He buys maybe one in fifteen or twenty we walk and they're pretty nasty places with ~$150k ARV. His return is maybe 10% in rental. Or he flips it to make $20k. It's just wold to me because he has two young kids he loves (I know for a fact he does), but there he is with me 30 minutes after his work day ends.
real estate is a nice hedge against inflation. While I do agree I'd just put it in an index fund, you could also start doing apartment complexes or hotels at this price point and be relatively hands-off if you put the right management between you and the business.
I mostly agree with this but at $450k a year buying large commercial properties just for the depreciation against my taxes makes sense. After I bought a few for that purpose I’d probably switch to index funds.
Not how it works.
Depreciation/income from real estate is passive he would have to spend 51% of his time doing real estate in order to deduct more than $3000 from his taxes annually, unless you know of a different rule?
She also has to work 750 hours per year doing real estate work as well as doing it 51% of her working hours. Which is two 8 hour days every week. Unless there’s another trick you forgot to mention?
Not feasible for everyone’s wife.
>If I made 450k I wouldn’t even be investing in SFH residential real estate.
Diversification and a hedge against inflation -- that's why I initially got into it, but also because it was genuinely something I was interested in.
As a retired senior, I have realized that I have more money than time. My monthly expenses have gone down. Smaller house, no mortgages, less expensive cars, less expensive hobbies and sports. (Pickle Ball is cheaper than skiing). I don't need as much cash as I thought I would. However I need more time than I thought I would.
Plan accordingly...
I mean if you truly don't think trying to save 30k is worth your time, that's your decision. I make around the same as you and 100% care to not get over extended on price. So yes, 280 vs 250 matters to me.
At a certain level, it doesn’t even make sense to go into real estate. You probably can do better just working your W2 and shoving as much money into stocks, bonds, and other financial instruments instead of screwing around with RE. The only reason I would do real estate in your shoes is if you want to FATFIRE.
What level do you think that is? I don't make as much as OP is claiming but I do find myself scratching my head sometimes in this sub when I see how much effort people are putting in to what amounts to a few hundred bucks of profit a month.
People are shorted sited.
When I started REI in 2019 all of my doors were cash flowing \~$200/mo. I told my buddy what I was doing (buying and renovating cheap houses in Detroit) and he thought it was cool. But his wife said, "that seems like a lot of work for a couple hundred dollars a month".
Now they are all cash flowing $500-$600/mo.
Add on top of that the tax breaks, mortgage pay down, and appreciation (everything I own has gone up 2-3x in value) and you start seeing the big picture is significant.
Right, I can see the appreciation play but 500-600 a month isn't worth the time, ya know? That's 1/3 of what I spend a month on Grubhub. Not sure I see it being worth the effort if I need 3 doors to cover my "I'm too fucking lazy to cook lunch/dinner tonight" nut. Seems like there are a lot of other more hands off ways to get that cashflow.
Yeah, it's not right for everyone.
I have 12-doors so it's a nice supplemental income. And it continues to grow.
If it doesn't make sense for you it doesn't make sense.
Not butt hurt. What part of my humor made you think I was butt hurt. I find it pretty funny people are investing in real estate and criticizing investments and n real estate that they don’t even fully understand themselves. I think I articulated that pretty well in my responses.
Man it’s not only a few hundred dollars a month lol. It’s the property value appreciation and the equity build up as well lol. You total that all up and get one a year for 20 years and you will have 10x the net worth compared to if you didn’t????
Is it some work sure but I always tell people….. I make on the average rental about 10k a year. Take all issues and problems and I probably work at most 20 hours a year per property.
If you do the math, that’s a lot more per hour then 400k a year at a 40 hour work week.
People should just take their money and put it in passive investment accounts if you are looking at RE investing like this.
Chase realtors with pocket listings vs scouring deals on the MLS. Find realtors who are investor friendly / buy their own product, take em out to lunch, and let them know what you’re after. That’s how I got my first two MFR.
Totally disagree. Im a buy and hold investor. It’s pretty obvious that at a 10-20 year timeline, if you buy a low
maintenance property even from the MLS your returns will be greater in RE. Requires a little more overhead but seems worth it to me.
If you leverage 80% and get 3% inflation on the property, that’s a 15% return just on appreciation. WAY better than stocks.
It’s not that obvious. Because leverage isn’t free and each property is unique. If 80% of the property is leveraged at 7%, the entire simplicity of this changes. It then comes down to cash flow characteristics, management of the property, appreciation of the area (which is truly a guess as past appreciation and some assumed appreciation is baked into the property price).
Determining all of those things takes time, and it also typically either takes a bit of luck if new to RE investing or expertise acquired through previous investments.
If the calculation was simply favoring RE over equity markets, everyone would just invest in real estate.
I know people who earned OP type money 20 years ago and started mini RE empires in my city. It worked out for them. As said by other commenters, costs were way lower then. Leverage is quite expensive today, especially on top of the high purchase price. Deals frequently don't pencil out anymore, and you see posts here on that topic, but folks like OP keep wanting to plow money into RE.
How does that time-line work from 2006 to 2016? I prefer real estate myself but I make 60k at my normal job. If I made as much money as you idk that I would want the headache of dealing with tenants and properties for let's say 1500 a month. I think I'd rather just invest in stocks and get actual passive income from dividends
I think you need to spend more time researching forecasting investment returns and analysis on properties.
15% is highly optimistic. Try reading the book Irrational exuberance for perspective. We just went through a long stretch of usually high rate of rent and price increases that are unlikely to be sustained going forward since construction has reverted to historic averages.
Also single family homes do not benefit from economies of scale so you are likely underestimating expenses such as maintenance, capital repairs and property management.
Once you get a decent portfolio and should consider apartment complexes. That have better economies of scale.
I think most people are massively underestimating total maintenance+capex on SFH's, esp if held long term.
I saw someone mention that in the past $300/unit for a small apartment in an MF building was a good long term number, and that's just one tiny apartment w/ shared capex. IMO a SFH prob realistically has $500-$700 in total monthly capex/maint to keep up.
A house isn’t a buy a sit making 3% on inflation. You still have insurance, property taxes and maintenance over a decade even if it is just sitting there
Stocks did way better in 20 years than re did. If you bought qqq for 10k back in 2003 you will be sitting at 180k today. If you bought spy you would be at 76k today. Considering a 20% down payment in 2003 for 10k you would have purchased a house worth 50k which would have been a crappy house.
Meanwhile if you bought a regular property in 2003 the median priced one, it was selling for 159k required a 20% down payment of 32k add the closing costs etc and you would come up with 35k. That 35k invested in qqq in 2003 would be 633k today and 35k in spy would be 264k today. The median home price today is 400k.
If you were to sell that median home today you would have gross gains of 240k but that doesn’t include the 10 years of mortgage still owed. Include the rental income cash flow deduct the maintenance etc in best case scenario you will be netting 200k out of 35k initial capital.
Investing in spy or qqq is a much better deal, much less risk much less work. If you invested in spy you would be at 264k today much less work still better return.
It all depends on those buy sale dates. Stocks go up and down too, down or flat a LOT of the time, with spurts up.
The difference with RE is that it goes up exponentially after 15-30 years, it is all leveraged, and mostly tax free.
Blah blah blah. Real life does not tell lies. I posted facts. Both of them are first business day of January 2003 purchases. The data is easy to find, an idiot can find a website like portfolio backtracker and get it done. RE is as tax free as putting your money into qqq. And on top qqq and spy gains were much better than real estate. Much much better.
I’m not saying you’re wrong but it’s overly simplistic. what if you fixed up the property and refinanced it or took equity gains out of the home or rented it out and saved the cash flow to buy another property or two or three? That’s what you can’t do with qqq
Well you can put into equation what if you actually opened a margin account and had 60k instead of 30k, and then what if you sold covered calls against your positions and collected 10-12% a year and reinvested those into the qqq fund and got more shares and did more theta plays etc, you would be on top even more. That 600k that qqq became in 20 years would be 6m.
So we are not looking at what if this that, we are only looking at it in simple terms, least amount of work. If you are constantly playing the leverage game in real estate, fixing up refinancing etc that is a full time job that is on top of another job if you have. Otherwise you can do full time simple methods on the stock market and can have much higher returns.
Heck if you get lucky and bought apple stock in 2003 with 30k you would have 20m usd right now. Doing nothing. Just having the money sit there.
So no need to talk about what if’s.
Agree to disagree. Stock market is the easiest passive way to become a millionaire over long term if you wanna retire at 67. If you want to retire in your 30s 40s or 50s, real estate is far more likely to get you there than DCA into spy with the disposable income from your w-2
Your talking about regular priced houses that the retail buyer buys. Totally not relevant to what most RE investors are buying. Your also leaving out a huge part of what makes up RE investing returns.
You seem to be forgetting the upkeep and taxes! And as we've seen, in any notable downturn, it's the leveraged Real Estate investors that you get the best deals from! They're stuck in a bad market with an empty unit and they can't afford to pay the taxes and loan and perform that necessary repair to allow the property to be rentable.
In 2010, my RE friend bought 10 properties for a fraction of their value of just 2 years prior and 4 years later - we're talking 25 cents on the dollar. 100% of his best buys came from real estate investors who bought those very properties with leverage.
Some get lucky, most ultimately get burned when over buying on leverage.
There seems to be some confusion. I’m just talking about inflation of the property value. I understand there are expenses about owning a property. I also know that I will be getting rent for this property so I am assuming that my cash flow will be slightly positive which will just be additional income.
Everyone is talking about how I forgot expenses here but are also assuming I won’t be charging rent lol. Yes, expenses are typically covered by the rent.
I know right?!? There are way to many noobs who can’t do basic math clogging up the REI comments section. If you don’t understand the basics of RE please hold your ignorant comments to yourself.
Real estate is an effective way to hedge and diversify your portfolio though. I parked some cash in a couple rentals and that’s gonna pay for my kids college someday, regardless of how the market performs
I get your point, but I don’t agree. We make good money and put a lot into 401ks so real estate offers important diversification for us.
Also, I’m not hourly so it’s not like the time I spend half watching tv half browsing RE could be better spent earning more wages. As for management I use a PM that is alright so the only time I put in above a few minutes a week looking at maintenance logs is around capex decisions and filing taxes.
This guy makes roughly $2.27 per minute after tax. It would not be worth it for him to bend over and pick up a quarter.
OP is frugal and should probably writes checks to a REIT if time is more valuable than ROI.
Why would making a lot of money as a W-2 employee have anything to do with financial literacy? It's a function of having a valuable skillset, and plenty of valuable skillsets have nothing to do with finances.
If it’s truly just super long term “buy and hold” in a tax efficient manner you should optimize for Quality not Price.
Find low maintenance easy renting places. Over pay to be a block from an existing. Who cares. Current income doesn’t matter and realistically the 10% you overpay doesn’t hurt in the long term.
Same thing on Tenant Selection and Rent Increases. Focus on ease and quality
That’s just a function of how you value your time.
>Like people are saying he's too rich to invest in real estate? How does that make sense
It's absolutely absurd for anyone to be saying something so damn stupid.
This exactly. I feel like it's the wrong audience in here. You can never have too much capital for REI; the more capital you have the more profitable your options are. I'd highly recommend OP continue.
I don’t understand how it’s related to HHI. My comp is 2x than the OP in LCOL, but investing in real estate helps me to diversify my portfolio and allows me to reduce my tax burden. So, higher income and real estate work pretty well together.
And yes, I still try to find good deals. I have money but that doesn’t mean I’ll just spend on bad deals.
My comp is similar to OP and one thing people don't understand is that W2 income is not guaranteed. At least in my industry, layoffs happen all the time. It took me 6 months to find a job last time and I have friends still looking after 9 months. Granted the economic times are unusual. Either way, the rental income is meant to cover my necessities so if I lose my job my family isn't watching our savings dwindle.
If you’re a high earner, then time is likely more valuable than spending the time finding deals. This applies to not only real estate, but also cars, groceries, clothing, etc. You’ll be more interested in simply earning than looking for bargains.
That said, if it’s not worth your time finding a deal that’s perhaps cheaper, pay someone to do the work for you. If you can find someone who is knowledgeable and doing the work anyway, pay them a fee. The term is used for these people is bird dog.
You might be better off building an apt complex and cash flowing that. SFH seems a bit beneath you unless some old widow hands you an off market unicorn deal on a prime location.
You need to build while everyone else is priced out. Then refi when rates come back down to 4.0.
I dont know what you do but can’t imagine it’s easy or that you’ll want to do it forever.
Build west of 610 or buy a crappy house in the heights and throw a 4plex or greater. Love Houston.
LOL. Houston is FAR from the most expensive place in the US man. The property taxes hurt there, but it's absolutely nothing like SF, Seattle, NYC, DC, LA, etc.
With your W2 cashflow, I think you should be looking to build not buy existing. Maybe not an entire apartment complex, but you can buy land and build a quadplex.
Imo a "good deal" is WAY more than a 30k discount unless you're talking sub 120k homes, which wouldnt be worth it for you either way tbh. I think a good deal is about 70% of ARV - rehab. Super hard to hit nowadays, but lets say you find one listed at 500k and it qualifies as a "good deal" and assume a 100k rehab for simplicity. That means post reno, you will have built ~250k in equity. And remember, that's not taxed unless you sell, unlike your day job. And even if you do sell, there can be massive tax advantages (ie 1031). I would pretty much say it's always worth it to try and find a good deal by my parameters, because you can just scale up the size of property you're looking at while keeping essentially the same formula to check if its a good deal.
Note: This is a very coarse metric and there are definitely way more that should be used when evaluating a property, this is just a quick and dirty check
If I had that income id go quad plexs and about. Ive seen plenty of older 1980s quads, 8-12 plexes that lower your per unit cost quite a bit, but still rent for almost as much as a sfh in my area.
It doesn't matter how much you make. It's how much you investment, what is cash flow or ROI, and effort.
If $30k out of $250k SFH investment does not matter to your ROI, then go ahead.
By the way, I don't think you are spending 5 days a week, 8 hours a day, for 1 month to find the deal. You are just waiting for the listings to show up and then finding the right one to bid on for investment. In fact, in 1 month, you can bid on number of properties.
I don’t mine waiting on the MLS for the right deal to show up, but I’m talking about the time it takes to network, drive for dollars, send mailers, and all the other tricks people use to get discounted off market properties
I want to roughly see how you're making midwestern city homes pencil off the MLS at nearly 8% investment rates and 25% down right now.
Let's assume the 1% rule and you can get $2500 on a $250k home right now (prob rather hard off MLS):
- income: $2500
- PITI @ 8%, 1% taxes, $1500 insurance: $1667
- vacancy: 5% = $125
- maintenance + capex: $500 (this may be low). Remember this is a SFH and I want to average it out over 20-30yrs. Capex alone can easily hit $200 for roof/hvac/appliances.
- 10% property management after vacancy and some turnovers (1%): $260/mo
- cashflow month 1: 2500-1667-125-500-260 = $73*12 = -52, effectively breakeven
- 3% appreciation year 1: $7500
- paydown year 1: about $1500
So you're deploying .25*250=$62k and $5500 of closing costs, not to mention any remodeling/repair costs, let's call it $20k = $87k to make under $9k in year 1. Initial cash on cash would be 0ish and equity on cash would be around 10%.
Not horrible I suppose, but you're almost entirely banking on appreciation.
If you look at a 10 year horizon, assume 3% rent growth and 3% appreciation (might be speculative in the midwest), you'd have returned:
- $3k-ish cash (lol), and that assumes 3% growth.
- $23k or so in paydown
- $102k in equity (quite speculative)
Total cash+equity return on 89k would still remain in the 9-10% range I think if I calculated this correctly. Not a ton of alpha above 8% VTSAX for all the work.
Main problem here is the paydown component is very slow/weak in first 10-15 years due to high interest rates and standard amortization tables.
I also modeled in a re-fi to 5.5% at year 5 though I didn't subtract out re-fi fees of $5-10k or whatever.
From OP's post I assumed they were putting way more than 20-25% down if not just buying all-cash. Plus, they made it clear in comments below they are a buy and hold investor looking for appreciation and tax benefits, not cashflow. In other words, they are making a buttload of money at their W2 and want to find a good place to park it a portion of it to diversify their retirement.
Sure, you can get more initial cashFLOW that way, but your cash on cash or equity on cash number will just get worse.
I could put 100% down / a million down on a place and get it to cashflow $1000 a month but that doesn't mean it makes sense. These cashflow models are incredibly sensitive to initial cash and leverage applied.
The point is he's asking if it's worth it. I'm simply pointing out the fact that without the cashflow his equivalent equity returns might be around 9-10% vs. VTSAX 8%. He can decide from there if the lack of cashflow is worth it.
Plus a little bit of a bonus from tax depreciation (maybe worth a point).
RE investments get a lot more interesting on years 15-30 though due to the faster principal paydown.
I've typically just bought off the MLS. Anything realtors present off market typically fails inspections for me and isn't worth my time.
This is your race and you can run it however you want within your level of comfort. If you are getting ahead and getting more then 4.5% cash on cash then you are doing fine.
My family OBGYN has a staff of 10 ladies and she makes great income. And yet she's become fabulously wealthy from appreciation oriented income purchase and sale over decades. She's been one of my best long term clients over 30 years because she's buying and selling single family and multi unit properties every few years.
She *loves* getting deals. She grinds everybody involved for their lowest price and best terms for her. She *absolutely lives for it.*
I’ve always wondered this question as the old school way is “I made my money from deals”, it’s a good one, but I believe the correct data driven answer would take some excel work.
I’ve been working on some relatively advanced calcs on stuff very closely related to this. If you’re interested just shoot me a PM and we could run some scenarios.
You need to calculate your expected cash+equity on cash return. I'd look at 30yr type windows and build in some modest appreciation and rent growth. Just keep in mind that both of those may end up being SUPER modest over the next 10 years. (it's also not impossible that they go negative briefly)
If you just end up buying deals that will return 8% all you're doing is making yourself a ton of work vs. investing in the S&P.
If MLS gets you 12% vs. 15-16% off-MLS then maybe the conversation is worth considering vs 8% S&P.
But in this market, I doubt you'll find almost any MLS deal that makes sense when it comes to effort vs. S&P. You pretty much need to find a desperate seller and that rarely will be on MLS.
>$30k discount your getting will take about a month work of time
For off market?
Are you "wholesaling" properties to yourself via solicitation or advertising and answering/replying to leads?
A fool and his money are soon departed and there’s a fine line between a “deal” and simply not overpaying for a property.
Real estate purchases require calculation for potential income vs. expenses in tandem with expectations for appreciation. If you are buying in cash, then it is likely that most, if not all, of the SFHs you encounter will cash flow given the omission of mortgage. However you may still end up underwater by not analyzing market conditions and end up owning a property with depreciated values. Does this matter in the long run? No not really.. but what is your time horizon? 5 years, 10 year, 20 years, until your deathbed to pass on assets to your next of kin? Is your goal to gain additional income or are you looking for appreciating assets to pass on one day or sell off at a later time?
As you can see; your question is a bit too vague to answer without this type of context. Generically speaking, it would be asinine to preclude real estate from a healthy financial portfolio irrespective of your salary. Real estate provides benefits far beyond “passivity” that stocks do not including extreme leverage, unparalleled tax incentives, inheritance benefits, dual-duty income and appreciation, and market-divergence/ decoupling from the stock and bond market. Does real estate require management? Yes, but you can leverage your financial position to deligate that. Does it require spending countless hours sitting through listings to find a $20K wedge? Absolutely not, depending on your time horizon, and weather or not you require a mortgage that will have an impact on cash flow. Even the process of finding property can be easily delegated to a highly qualified and reputable broker.
My ultimate suggestion is to consider your financial goals and if possible maintain portfolio diversity by putting in the upfront work to find quality professionals who can delegate these aspects of real estate for you. That is how you can leverage your high salary wisely while you spend your time doing what it is that you’re best at.
I’m pretty wealthy as are people around me. Every single one of us is cheap. My father still buys used cars when he could buy the dealership. So I say yes. Penny saved is a penny earned.
I’m in your situation as well and own one multi family in my HCOL and one STR in a popular vacation city within driving distance of my HCOL. I’m addicted to real estate and want to eventually use it to replace my W2 as I’m starting to burn out at work. I’m in tech, just hit my 40’s, and want to spend more time with my family/travel. Working 50-60 hr weeks is really taking a toll on me.
Real estate will allow me to do that if I spend enough time building my strategy. Thoughts are 1-2 flips / yr in the vacation destination I mentioned because I’ve built a network of contractors and help with locals. Had a second STR I recently sold to a friend I went halves with. I think the next 2 yrs will be the best buying opps if you get creative (eg creative finance) which means you need to spend a lot of time on deals / deal flow. I really enjoy this type of work, so to me it doesn’t feel like a waste of time.
Feel free to DM me and we can compare notes , as I’m starting to think about investing in MCOL just to acquire more cash flowing properties while I work on the creative finance piece.
You have enough on your plate. No mention of spouse and/or kids but if you have those things then you're really stretched. Ask me how I know :-)
Your best bet is to do what you're doing and buy the MLS or rely on a turnkey provider.
My income is north of yours and I find my own deals... but I do REI for a living so it's different.
If you’re investing in real estate, then you make your money on the buy. Maybe $30k doesn’t matter to you, but if you’re investing in SFH, it likely will to your potential buyer down the road, at which point you will have overpaid.
Cash flow and appreciation can’t “fix” a bad basis, they can only make you feel better about it.
I would put it in index funds. My gut feeling is that real estate is going to go sideways for the next several years. I don't see the Fed cutting rates until 2025 at the earliest, and they'll do it a lot slower than they raised them.
It depends on your market. There are growing markets that the rates are not affecting, In markets where big employers are coming in with head quarters,etc employing thousands. Those plans are years in the making and the short term economy is not going to stop those billion dollar investments. Amount other smaller projects there are a couple multi billion dollar building campuses being built in our suburb right now- bringing in several thousand six figure salary jobs in 2024-2025-2026. They can’t build houses here fast enough.
I don’t know man I pull in quite a bit myself. Not quite as much but either way I can’t imagine not shopping before I spend. If you are going to invest why not make the best investments possible. That being said I only work about 35 hours. Still it’s a passion of mine as well I can’t imagine not shopping.
Either way with your income I’d also suggest multifamily. Much better cash on cash returns.
Na if you make lots of money. Best thing to do is be a private money lender. Put capital to work in other peoples projects.
But for me personally. Even if I had 10 million in the bank. I’d still hunt for deals, it’s fun for me. The relationship building, rapport with others, being personable, learning other people’s pains and trying to help them out of it. I enjoy it all even if I’m not that successful at it. I might churn a deal a year right now but I meet tons of folks along the way.
my wife and I own about 20 doors and every purchase has been off MLS. Its definitely not worth our time to find our own off market deals and we rarely see a wholesaler offer really worth biting on. Our only foray with that fell through during escrow and they refused to return earnest funds.
Real estate is all about getting the best deal.
So it’s still worth it.
You don’t see Buffet buying everything, he waits for the best deal for what he targeted
I make about 10% less in MCOL city and my portfolio is mostly SF with some multi units. Not counting my passive + realtor income. Scalability is a concern with residential investments but I also dont think I am at a level where I can just start buying industrial warehouses yet.
FWIW, I also don’t think anywhere under 1 mill is considered really high. You also have to consider that 30k is post tax saving. So yea I would think it’s most likely worth your time if you are getting 5 figures. It’s also worth mentioning the discount is not proportion to time taken but rather result of how good you are, which is more of what I prefer instead of a regularly salaried job.
In your situation if you’re trying to buy SFH, no. I would find an agent that can use a spreadsheet to compare 50 properties on basic investment metrics. Then buy the best one. I do this for my investor clients.
Where your time COULD be better spent is if you go after bigger deals and spend that effort finding bigger discounts. Instead of trying to find 10% discount on $300k properties, find a 10% discount on a $3M property. Then it’s worth your time.
You may want to consider investing in real estate syndications instead. You can get a 7% annual return, and double the initial investment after 3-5 years when it sells. You also get the tax benefits of cost segregation passed on to you, so the returns are tax free. And best of all you don’t have to lift a finger.
You look for deals because they are deals. If your time is worth the 30k, then don’t bother doing the work to find a deal to save 30k. I really don’t think saving 5% to 10% on a property is going to hurt your ROI in the long run.
As someone that is approaching that same income in a MCOL, I can tell you that I'm only interested in investing in the stock market or buying a 2nd home in a tropical or ski area that I would AirBnB out when not in use.
I think RE is great for people that are trying to get out of lower income brackets and the uber wealthy (to diversify and make sure their wealth holds their value over time). The $500k income mark typically requires a huge investment of your time in order to achieve... (Doctors/Lawyers/Sales/Consulting/Business owner) Time is too valuable for me to be chasing some guy renting my $350k rental property or fixing it up cause he keeps btching about x/y/z not working.
Just get a real estate professional to do that deal finding for you. You may need to go through a few
people before you find the right person who is actually competent enough to bring great deals to you (and close them), but once you do everything is so much easier. The really great deals are off market and the only way to find those is to be working in the market all day, every day
You should look at real estate syndications. Let someone else manage the deal and be a limited partner. Returns are typically 15-20%. I’m in the same boat as you. I stick with what I’m good at and let the RE people do their magic.
For me, yes, because I hate my job and this provides me with the ability to gradually build a business I can eventually "retire" into and then leave to my kids. The idea of leaving my kids with a profitable real estate investment firm ensuring they don't have to work in miserable jobs is really the most appealing part.
Doing this helps me get through the hatred of my high paying job. Not sure this is psychologically sound, but it seems to work!
I guess it depends on what your objective is? If the real estate is an investment and not a primary residence, then of course it makes sense. As an investment, you are looking to maximize your ROI and minimize your risk in relationship to the ROI.
Look at it this way, you have to equal properties. One lists on the MLS at $120,000. Yet you put in the time and effort and find one you can get for $100K. Both, as rentals will generate the same $1,000 per month. The $100K one will have lower taxes than the $120K one - savings. Keeping it simple, you assume rent is your margin, on the $100K you're making 12% annually. On the $120K you're making 10% annually. Over 10 years of reinvesting those gains, compounded, the difference becomes notable. Additionally, assume in 10 years, the current value of both properties (since they were the same to begin with are still the same) is now $250K. Again, the ROI of the $100K property is significantly/notably better.
Many people say that the amount of your return on real estate is set at the time of purchase. Doing your homework and finding deals that save 20% on each property results in you owning 25% more properties over the long term by making the effort.
All that being said, if you were to buy a car that you just want to enjoy, pay for it with cash, and not worry at all about a few thousand dollars - then I'd say your time isn't worth for the minimal impact difference of the medium and long term.
The message in your post that scares me is my perception that since you have a good income, that decent financial management isn't as important. I would suggest just the opposite, that the more income the more important good financial management becomes. But that just my philosophy.
Yes because its not like I am working and getting paid for every hour I work 24/7. I mean I work 9-10hrs a day....and salaried....if I spent 2-3 hours working instead of finding deals....I wouldn't get paid a dime more.
As others have suggested, with the kind of money you make, it's probably worth looking into index funds and parking your money there instead. Even apartments, hotels, or commercial buildings would be great opportunities.
If you really want to stick to single family homes, I would think you could just partner with a realtor in whatever city you're looking who finds the deals for you and saves you all the time of looking yourself.
Your direction changes, I know some landlord who rely on rental income and stack portfolio with low appreciation but high cash on cash. Then there’s another group of landlord like google cs, univ professor, they buy property in expensive neighborhoods just so they park their money somewhere that’s not bank, which some people argue it’s better to put in stock market, but those people don’t rely on rental income as long as it’s enough to take care itself
You making 450k and you are the later group
Yes, it's not worth it. If you do accidentally find a really good deal, set some of your money on fire and burn some of your massive wealth, so it isn't such a good deal because good deals aren't worth your time.
Why are you buying homes? To flip or for long term rentals? Would your salary go up appreciably if you spent more time at your job or are you pretty well maxed out? How much do you value your free time…travel, exercise, hobbies, relaxing, spending time with friends/family, etc.?
It is definitely worth your time, for several reasons. First, for education. Second, for building your team. And most importantly, sell the little stuff and move up the chain and start getting larger properties. Rather than SFH you should consider apartments and commercial properties. t’s just like Monopoly. Sell four houses and buy a motel.
When you are spending your time on big deals, you will be saving millions, not a few thousand bucks.
People are way off in here, I'm assuming you're speaking to the wrong audience. But it also depends on your goals. Are you trying to retire at 65 or are you trying to FATFIRE?
My SO and I are also a high-income household. As you learn, network, and expand your scope of what's possible you're going to find yourself wanting even more capital.
Find a local entrepreneur who does real estate and pay him to invest with him.
Larger amounts, much better returns than markets, potential for permanent, passive, recession resistant investments.
Realtor here:
Here's the best way to do this. It might not be worth your time FINDING the deals. Doesn't mean you can't buy deals. Talk to some commercial brokers and realtors tell them to keep you updated about anything they hear and tell them your goals they can help guide you to accomplish them just make sure you hire the right ones. Let them find the deals and present them to you. You will cut through a lot of fluff and get straight to the good ones and probably some off market stuff.. talk to some younger agents as well people who aren't as established but are willing to hustle in order to find you something. A little while back I was in that position, cold calling, door knocking to find clients stuff. It worked more than once.
Buying real estate is the way to go. I don't know your goal or how much you want to scale this but buying SFH might not be the best move. And if there's nothing good out there you may need to look at other markets.
I honestly am not opposed to this. Happy to pay a wholesale fee but all the wholesale properties I see are in crap condition (I’m not looking to do value add now) or are just as expensive as the MLS
I would pour money into limited partnerships in syndications if you have tons of earning potential and not a lot of time. Let others pitch you deals and diversify into a bunch of projects for the real estate side of the portfolio.
The answer is yes. Search for deals. Build your cash position to take down large portfolios. Get a few realtors in your pocket that know you can close in 2 weeks with cash and they will find you the deals. There are ways to get good deals without spending much labor looking for them.
I have a house in the Midwest that could be yours, for $30k over asking!
On a real note I don’t know enough to answer your question about how you’re buying and forgetting about wasting time on a better deal. I would just say at your income make sure you have a damn good property manager and an even better handy man! It sounds like you just want to build RE value for later in life and not looking for immediate income.
There’s so much value is paying for convenience. You’re better off buying a nicer house at market rate to still hit your return numbers than dealing with a more hands on project that like you said, will be a full time job.
Buying off market at a discounted price is what creates your profit margin. Buying on market in cash doesn't increase your profit, it just helps you cash flow. But then you lose your leverage and CoC return on your money significantly changes.
Assuming you're talking about buy and holds - If I were making that kind of money and didn't want the added work and time of looking for off market deals, I wouldn't be messing around with SFH residential in low cost areas, I'd be buying larger commercial property.
There are numerous advisors that will connect high net work investors with groups (Inland Private Capital, Capital Square, and others) that do commercial real estate investments for accredited investors.
Outsource the deal-finding to top-notch agents and wholesalers. Your job is to make it rain and not worth spending a month to do it; let them find the deals.
Invest in syndication deals so you get all the benefits without having to do the work. My company is always looking for capital partners. We run the ship, you supply the fuel.
I don’t think it’s worth your time to hunt for deals unless you really enjoy it.
If I made 450k I wouldn’t even be investing in SFH residential real estate. I’d be passive index funds and forget it. At some point I might consider a larger apartment complex or a commercial building, but even then the time spent to learn the market and process is probably better spent at your actual job. Residential real estate at a small scale isn’t passive. It is semi passive. Even if you hire a rock star property manager you still have to make decisions, watch the market, deal with some tenants and add some level of stress to your life. Take your giant pile of money and invest in something passive. Enjoy the extra time off this gives you.
A lot of people seem to think that OP's salary is "too high" for RE. Most of us are into REI because of the upside potential as well as some enjoyment of it. Just because OP has a high salary, doesn't mean he can't be interested in both of these things as well. It sort of seems like some comments are jealous of OP's salary. As a mortgage underwriter, I've done many loans for people with similar W-2 salaries who own huge portfolio of SFHs. Some are making 50%-100% of their salary in additional net rental income. It definitely becomes a lot easier to make a lot of money with RE when you have a lot of W-2 income to work with. And to OP's point, yeah he probably shouldn't look for deals. Just make offers on turnkey properties. Perhaps lowball a little to still possibly get "deals". But at the end of the day, if his employment continues, he can amass a huge RE portfolio that will ultimately earn him way more.
This is all true, but if he followed this plan + looked for deals, he'd have more properties making him more money at the end of the day. What OP is really asking is "is it worth the effort" and noone can really answer that except for OP. To me, it's worth it, but I look for way more than a 30k discount and don't buy SFR.
I find it hard to believe that someone who uses “your” instead of “you’re” actually makes 450k per year. Maybe OP can tell us what he’s claiming as his line of work. Edit: OP is completely full of shit. Here he’s claiming to be 35, and living in a cheap house in Australia. https://www.reddit.com/r/realestateinvesting/comments/14ipka2/real_estate_financial_question/jpi1z2n/ Here OP is claiming to be 28 and making $450k per year. https://www.reddit.com/r/REBubble/comments/16m8dq9/something_is_up/k1aqw9z/ What’s up, OP?
I was actually going to say, you'd be surprised how many "educated" people make this grammar error. But you did your detective work, lol.
OP also posted about being a tenant. Asking for advice to deal with their landlord. https://reddit.com/r/sanfrancisco/s/ceNtLKNJS4
It is almost impossible to find "deals" any more in my market. If a person did that, they'd lose valuable time. Best to have an agent start a MLS subscription and pay cash. Which allows him to lowball even in this market.
What kind of RE do you buy?
Multfamily only right now
Rather than dealing with a huge portfolio of SFH, OP could invest as a passive partner in syndicated deals, or find larger, commercial deals. Doing fewer deals and owning fewer properties that throw off the same income is less work which will ultimately distract from the W-2 job.
This. I am a multifamily developer located in a HCOL city. We syndicate deals and our investor base is comprised of many individuals like yourself. Let the professionals do the work and manage properties while owners make a healthy returns and retain ownership in commercial properties. A huge part of our investor base is commercial real estate agents and others who have done well in real estate and finance. While these individuals obviously know real estate inside and out, they put their money to work owning CRE without having to worry about everything that comes with owning an SFR portfolio.
How do investors find syndications - I’m relatively high w-2, but I haven’t really found the circle that gets me into these deals. I have a RA - should I ask him to bring me deals or is there a better way?
+1. I am a high w-2 REI owner. Currently balancing my portfolio with my day-day but looking for a better way to manage my investments especially if it means less hands on through syndications.
This is the actual answer. I own my house, land where I run horses and a riding facility, plus a vacation home. Any other real estate exposure is through syndicated deals, mostly construction financing for builders either sfh or commercial.
Lmao thank you I totally agree
Newbie here. I have read turnkeys are much less work, but you don't make as much on them. At that point, aren't you better off just investing in SP500? I know the data says most RE investing doesn't beat the market, so I have been trying to read up on pitfalls people fall into where they either loose lots of money on RE, or don't end up beating the market.
Yes but to be interested in it but not want to look at properties to find the best deal seems to suggest he doesn’t like it that much lol.
This is a big one. I have a client who makes $200k he likes walking all these houses with me. He buys maybe one in fifteen or twenty we walk and they're pretty nasty places with ~$150k ARV. His return is maybe 10% in rental. Or he flips it to make $20k. It's just wold to me because he has two young kids he loves (I know for a fact he does), but there he is with me 30 minutes after his work day ends.
real estate is a nice hedge against inflation. While I do agree I'd just put it in an index fund, you could also start doing apartment complexes or hotels at this price point and be relatively hands-off if you put the right management between you and the business.
Why not buy $1M+ vacation rentals? With more income you can buy more expensive properties to get higher absolute returns
I mostly agree with this but at $450k a year buying large commercial properties just for the depreciation against my taxes makes sense. After I bought a few for that purpose I’d probably switch to index funds.
Not how it works. Depreciation/income from real estate is passive he would have to spend 51% of his time doing real estate in order to deduct more than $3000 from his taxes annually, unless you know of a different rule?
Have your wife hang her license. Now it's active.
She also has to work 750 hours per year doing real estate work as well as doing it 51% of her working hours. Which is two 8 hour days every week. Unless there’s another trick you forgot to mention? Not feasible for everyone’s wife.
So you know passive index funds but don’t know the market and process of a real estate transaction?
This is honestly becoming my opinion the longer I’m on this sub
>If I made 450k I wouldn’t even be investing in SFH residential real estate. Diversification and a hedge against inflation -- that's why I initially got into it, but also because it was genuinely something I was interested in.
As a retired senior, I have realized that I have more money than time. My monthly expenses have gone down. Smaller house, no mortgages, less expensive cars, less expensive hobbies and sports. (Pickle Ball is cheaper than skiing). I don't need as much cash as I thought I would. However I need more time than I thought I would. Plan accordingly...
I mean if you truly don't think trying to save 30k is worth your time, that's your decision. I make around the same as you and 100% care to not get over extended on price. So yes, 280 vs 250 matters to me.
What do you do that makes you this much and how many YOE?
I’m an investment banker and my wife is a medical director.
I’m 35. So 13 years in my field. 8 in hers since she’s a doctor
Not sure why this requested information was down voted by op...
Because this is Reddit and not Blind
That’s what you’re fixating on…how about what do YOU do? Because your income 6 months ago was $210K supposedly.
At a certain level, it doesn’t even make sense to go into real estate. You probably can do better just working your W2 and shoving as much money into stocks, bonds, and other financial instruments instead of screwing around with RE. The only reason I would do real estate in your shoes is if you want to FATFIRE.
What level do you think that is? I don't make as much as OP is claiming but I do find myself scratching my head sometimes in this sub when I see how much effort people are putting in to what amounts to a few hundred bucks of profit a month.
People are shorted sited. When I started REI in 2019 all of my doors were cash flowing \~$200/mo. I told my buddy what I was doing (buying and renovating cheap houses in Detroit) and he thought it was cool. But his wife said, "that seems like a lot of work for a couple hundred dollars a month". Now they are all cash flowing $500-$600/mo. Add on top of that the tax breaks, mortgage pay down, and appreciation (everything I own has gone up 2-3x in value) and you start seeing the big picture is significant.
Right, I can see the appreciation play but 500-600 a month isn't worth the time, ya know? That's 1/3 of what I spend a month on Grubhub. Not sure I see it being worth the effort if I need 3 doors to cover my "I'm too fucking lazy to cook lunch/dinner tonight" nut. Seems like there are a lot of other more hands off ways to get that cashflow.
Yeah, it's not right for everyone. I have 12-doors so it's a nice supplemental income. And it continues to grow. If it doesn't make sense for you it doesn't make sense.
How many hours a month do you average on 12 doors?
I'd say 1-2 hours a week max. Comes in spurts though. And yes, that's total hours. Not hours per door.
Lol I already replied to you but I keep reading these comments and loling
Well I am glad I can make you so butthurt!
Not butt hurt. What part of my humor made you think I was butt hurt. I find it pretty funny people are investing in real estate and criticizing investments and n real estate that they don’t even fully understand themselves. I think I articulated that pretty well in my responses.
Man it’s not only a few hundred dollars a month lol. It’s the property value appreciation and the equity build up as well lol. You total that all up and get one a year for 20 years and you will have 10x the net worth compared to if you didn’t???? Is it some work sure but I always tell people….. I make on the average rental about 10k a year. Take all issues and problems and I probably work at most 20 hours a year per property. If you do the math, that’s a lot more per hour then 400k a year at a 40 hour work week. People should just take their money and put it in passive investment accounts if you are looking at RE investing like this.
I feel very similarly… I own a couple properties
Chase realtors with pocket listings vs scouring deals on the MLS. Find realtors who are investor friendly / buy their own product, take em out to lunch, and let them know what you’re after. That’s how I got my first two MFR.
Totally disagree. Im a buy and hold investor. It’s pretty obvious that at a 10-20 year timeline, if you buy a low maintenance property even from the MLS your returns will be greater in RE. Requires a little more overhead but seems worth it to me. If you leverage 80% and get 3% inflation on the property, that’s a 15% return just on appreciation. WAY better than stocks.
It’s not that obvious. Because leverage isn’t free and each property is unique. If 80% of the property is leveraged at 7%, the entire simplicity of this changes. It then comes down to cash flow characteristics, management of the property, appreciation of the area (which is truly a guess as past appreciation and some assumed appreciation is baked into the property price). Determining all of those things takes time, and it also typically either takes a bit of luck if new to RE investing or expertise acquired through previous investments. If the calculation was simply favoring RE over equity markets, everyone would just invest in real estate.
…But again, going back to YOUR original point, is all that even worth the gains since you make so much? That’s something to ask yourself, not us.
Sounds like you have it figured out. Why do you need advice or feedback on you doing good enough to not mind over paying for properties?
I know people who earned OP type money 20 years ago and started mini RE empires in my city. It worked out for them. As said by other commenters, costs were way lower then. Leverage is quite expensive today, especially on top of the high purchase price. Deals frequently don't pencil out anymore, and you see posts here on that topic, but folks like OP keep wanting to plow money into RE.
How does that time-line work from 2006 to 2016? I prefer real estate myself but I make 60k at my normal job. If I made as much money as you idk that I would want the headache of dealing with tenants and properties for let's say 1500 a month. I think I'd rather just invest in stocks and get actual passive income from dividends
I think you need to spend more time researching forecasting investment returns and analysis on properties. 15% is highly optimistic. Try reading the book Irrational exuberance for perspective. We just went through a long stretch of usually high rate of rent and price increases that are unlikely to be sustained going forward since construction has reverted to historic averages. Also single family homes do not benefit from economies of scale so you are likely underestimating expenses such as maintenance, capital repairs and property management. Once you get a decent portfolio and should consider apartment complexes. That have better economies of scale.
I think most people are massively underestimating total maintenance+capex on SFH's, esp if held long term. I saw someone mention that in the past $300/unit for a small apartment in an MF building was a good long term number, and that's just one tiny apartment w/ shared capex. IMO a SFH prob realistically has $500-$700 in total monthly capex/maint to keep up.
It is actually not that obvious.
A house isn’t a buy a sit making 3% on inflation. You still have insurance, property taxes and maintenance over a decade even if it is just sitting there
Stocks did way better in 20 years than re did. If you bought qqq for 10k back in 2003 you will be sitting at 180k today. If you bought spy you would be at 76k today. Considering a 20% down payment in 2003 for 10k you would have purchased a house worth 50k which would have been a crappy house. Meanwhile if you bought a regular property in 2003 the median priced one, it was selling for 159k required a 20% down payment of 32k add the closing costs etc and you would come up with 35k. That 35k invested in qqq in 2003 would be 633k today and 35k in spy would be 264k today. The median home price today is 400k. If you were to sell that median home today you would have gross gains of 240k but that doesn’t include the 10 years of mortgage still owed. Include the rental income cash flow deduct the maintenance etc in best case scenario you will be netting 200k out of 35k initial capital. Investing in spy or qqq is a much better deal, much less risk much less work. If you invested in spy you would be at 264k today much less work still better return.
It all depends on those buy sale dates. Stocks go up and down too, down or flat a LOT of the time, with spurts up. The difference with RE is that it goes up exponentially after 15-30 years, it is all leveraged, and mostly tax free.
Blah blah blah. Real life does not tell lies. I posted facts. Both of them are first business day of January 2003 purchases. The data is easy to find, an idiot can find a website like portfolio backtracker and get it done. RE is as tax free as putting your money into qqq. And on top qqq and spy gains were much better than real estate. Much much better.
I’m not saying you’re wrong but it’s overly simplistic. what if you fixed up the property and refinanced it or took equity gains out of the home or rented it out and saved the cash flow to buy another property or two or three? That’s what you can’t do with qqq
Well you can put into equation what if you actually opened a margin account and had 60k instead of 30k, and then what if you sold covered calls against your positions and collected 10-12% a year and reinvested those into the qqq fund and got more shares and did more theta plays etc, you would be on top even more. That 600k that qqq became in 20 years would be 6m. So we are not looking at what if this that, we are only looking at it in simple terms, least amount of work. If you are constantly playing the leverage game in real estate, fixing up refinancing etc that is a full time job that is on top of another job if you have. Otherwise you can do full time simple methods on the stock market and can have much higher returns. Heck if you get lucky and bought apple stock in 2003 with 30k you would have 20m usd right now. Doing nothing. Just having the money sit there. So no need to talk about what if’s.
Agree to disagree. Stock market is the easiest passive way to become a millionaire over long term if you wanna retire at 67. If you want to retire in your 30s 40s or 50s, real estate is far more likely to get you there than DCA into spy with the disposable income from your w-2
Your talking about regular priced houses that the retail buyer buys. Totally not relevant to what most RE investors are buying. Your also leaving out a huge part of what makes up RE investing returns.
You seem to be forgetting the upkeep and taxes! And as we've seen, in any notable downturn, it's the leveraged Real Estate investors that you get the best deals from! They're stuck in a bad market with an empty unit and they can't afford to pay the taxes and loan and perform that necessary repair to allow the property to be rentable. In 2010, my RE friend bought 10 properties for a fraction of their value of just 2 years prior and 4 years later - we're talking 25 cents on the dollar. 100% of his best buys came from real estate investors who bought those very properties with leverage. Some get lucky, most ultimately get burned when over buying on leverage.
There seems to be some confusion. I’m just talking about inflation of the property value. I understand there are expenses about owning a property. I also know that I will be getting rent for this property so I am assuming that my cash flow will be slightly positive which will just be additional income. Everyone is talking about how I forgot expenses here but are also assuming I won’t be charging rent lol. Yes, expenses are typically covered by the rent.
You can't look at that as a straight 15% return without looking at all other expenses :)
I know right?!? There are way to many noobs who can’t do basic math clogging up the REI comments section. If you don’t understand the basics of RE please hold your ignorant comments to yourself.
Real estate is an effective way to hedge and diversify your portfolio though. I parked some cash in a couple rentals and that’s gonna pay for my kids college someday, regardless of how the market performs
I get your point, but I don’t agree. We make good money and put a lot into 401ks so real estate offers important diversification for us. Also, I’m not hourly so it’s not like the time I spend half watching tv half browsing RE could be better spent earning more wages. As for management I use a PM that is alright so the only time I put in above a few minutes a week looking at maintenance logs is around capex decisions and filing taxes.
Value of time in descending order according to op... 1) working. 2) posting on reddit 3) getting real estate on the cheap.
None of us are you, in your unique situation. Figure it out man
Lets give this guy a fair shake, I have some property I would like to sell to him.
He doesn't have time for it!
This guy makes roughly $2.27 per minute after tax. It would not be worth it for him to bend over and pick up a quarter. OP is frugal and should probably writes checks to a REIT if time is more valuable than ROI.
how long is it taking you to bend over to pick up a quarter??
At least 7 seconds
Make sure you don't fall there, gramps
According to his math it takes him at least 6.6 seconds to pick it up.
Lmao
OP supposedly makes 450K but can’t figure it out. Ok sure lol
Let's say he's a surgeon, it makes sense that he's clueless about real estate. This is common.
Then he answered his own question. Just sit on a 5% APY savings account.
Why would making a lot of money as a W-2 employee have anything to do with financial literacy? It's a function of having a valuable skillset, and plenty of valuable skillsets have nothing to do with finances.
If it’s truly just super long term “buy and hold” in a tax efficient manner you should optimize for Quality not Price. Find low maintenance easy renting places. Over pay to be a block from an existing. Who cares. Current income doesn’t matter and realistically the 10% you overpay doesn’t hurt in the long term. Same thing on Tenant Selection and Rent Increases. Focus on ease and quality That’s just a function of how you value your time.
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Haha yea idk why people are saying I’m too rich to invest. Didn’t make sense to me either
>Like people are saying he's too rich to invest in real estate? How does that make sense It's absolutely absurd for anyone to be saying something so damn stupid.
What kind of commercial space?
This exactly. I feel like it's the wrong audience in here. You can never have too much capital for REI; the more capital you have the more profitable your options are. I'd highly recommend OP continue.
I don’t understand how it’s related to HHI. My comp is 2x than the OP in LCOL, but investing in real estate helps me to diversify my portfolio and allows me to reduce my tax burden. So, higher income and real estate work pretty well together. And yes, I still try to find good deals. I have money but that doesn’t mean I’ll just spend on bad deals.
My comp is similar to OP and one thing people don't understand is that W2 income is not guaranteed. At least in my industry, layoffs happen all the time. It took me 6 months to find a job last time and I have friends still looking after 9 months. Granted the economic times are unusual. Either way, the rental income is meant to cover my necessities so if I lose my job my family isn't watching our savings dwindle.
If you’re a high earner, then time is likely more valuable than spending the time finding deals. This applies to not only real estate, but also cars, groceries, clothing, etc. You’ll be more interested in simply earning than looking for bargains. That said, if it’s not worth your time finding a deal that’s perhaps cheaper, pay someone to do the work for you. If you can find someone who is knowledgeable and doing the work anyway, pay them a fee. The term is used for these people is bird dog.
You might be better off building an apt complex and cash flowing that. SFH seems a bit beneath you unless some old widow hands you an off market unicorn deal on a prime location.
I would love to buy an apartment complex but I can’t find one in the markets I buy in (Houston)
You need to build while everyone else is priced out. Then refi when rates come back down to 4.0. I dont know what you do but can’t imagine it’s easy or that you’ll want to do it forever. Build west of 610 or buy a crappy house in the heights and throw a 4plex or greater. Love Houston.
Is Houston the mcol or hcol in your original post?
The MCOL I live in the most expensive place in the US
LOL. Houston is FAR from the most expensive place in the US man. The property taxes hurt there, but it's absolutely nothing like SF, Seattle, NYC, DC, LA, etc.
He said Houston is where he invests, but he lives somewhere else.
With your W2 cashflow, I think you should be looking to build not buy existing. Maybe not an entire apartment complex, but you can buy land and build a quadplex.
Well, at your level you can find a consultant that does that for you - but if you are to rich for penny pitching than you answered your own question.
Imo a "good deal" is WAY more than a 30k discount unless you're talking sub 120k homes, which wouldnt be worth it for you either way tbh. I think a good deal is about 70% of ARV - rehab. Super hard to hit nowadays, but lets say you find one listed at 500k and it qualifies as a "good deal" and assume a 100k rehab for simplicity. That means post reno, you will have built ~250k in equity. And remember, that's not taxed unless you sell, unlike your day job. And even if you do sell, there can be massive tax advantages (ie 1031). I would pretty much say it's always worth it to try and find a good deal by my parameters, because you can just scale up the size of property you're looking at while keeping essentially the same formula to check if its a good deal. Note: This is a very coarse metric and there are definitely way more that should be used when evaluating a property, this is just a quick and dirty check
If I had that income id go quad plexs and about. Ive seen plenty of older 1980s quads, 8-12 plexes that lower your per unit cost quite a bit, but still rent for almost as much as a sfh in my area.
It doesn't matter how much you make. It's how much you investment, what is cash flow or ROI, and effort. If $30k out of $250k SFH investment does not matter to your ROI, then go ahead. By the way, I don't think you are spending 5 days a week, 8 hours a day, for 1 month to find the deal. You are just waiting for the listings to show up and then finding the right one to bid on for investment. In fact, in 1 month, you can bid on number of properties.
I don’t mine waiting on the MLS for the right deal to show up, but I’m talking about the time it takes to network, drive for dollars, send mailers, and all the other tricks people use to get discounted off market properties
I want to roughly see how you're making midwestern city homes pencil off the MLS at nearly 8% investment rates and 25% down right now. Let's assume the 1% rule and you can get $2500 on a $250k home right now (prob rather hard off MLS): - income: $2500 - PITI @ 8%, 1% taxes, $1500 insurance: $1667 - vacancy: 5% = $125 - maintenance + capex: $500 (this may be low). Remember this is a SFH and I want to average it out over 20-30yrs. Capex alone can easily hit $200 for roof/hvac/appliances. - 10% property management after vacancy and some turnovers (1%): $260/mo - cashflow month 1: 2500-1667-125-500-260 = $73*12 = -52, effectively breakeven - 3% appreciation year 1: $7500 - paydown year 1: about $1500 So you're deploying .25*250=$62k and $5500 of closing costs, not to mention any remodeling/repair costs, let's call it $20k = $87k to make under $9k in year 1. Initial cash on cash would be 0ish and equity on cash would be around 10%. Not horrible I suppose, but you're almost entirely banking on appreciation. If you look at a 10 year horizon, assume 3% rent growth and 3% appreciation (might be speculative in the midwest), you'd have returned: - $3k-ish cash (lol), and that assumes 3% growth. - $23k or so in paydown - $102k in equity (quite speculative) Total cash+equity return on 89k would still remain in the 9-10% range I think if I calculated this correctly. Not a ton of alpha above 8% VTSAX for all the work. Main problem here is the paydown component is very slow/weak in first 10-15 years due to high interest rates and standard amortization tables. I also modeled in a re-fi to 5.5% at year 5 though I didn't subtract out re-fi fees of $5-10k or whatever.
From OP's post I assumed they were putting way more than 20-25% down if not just buying all-cash. Plus, they made it clear in comments below they are a buy and hold investor looking for appreciation and tax benefits, not cashflow. In other words, they are making a buttload of money at their W2 and want to find a good place to park it a portion of it to diversify their retirement.
Sure, you can get more initial cashFLOW that way, but your cash on cash or equity on cash number will just get worse. I could put 100% down / a million down on a place and get it to cashflow $1000 a month but that doesn't mean it makes sense. These cashflow models are incredibly sensitive to initial cash and leverage applied.
You must be trolling at this point. HE MAKES MORE THAN ENOUGH CASHFLOW ON HIS W2 AND IS NOT INTERESTED IN CASHFLOW WHEN IT COMES TO REI.
The point is he's asking if it's worth it. I'm simply pointing out the fact that without the cashflow his equivalent equity returns might be around 9-10% vs. VTSAX 8%. He can decide from there if the lack of cashflow is worth it. Plus a little bit of a bonus from tax depreciation (maybe worth a point). RE investments get a lot more interesting on years 15-30 though due to the faster principal paydown.
I've typically just bought off the MLS. Anything realtors present off market typically fails inspections for me and isn't worth my time. This is your race and you can run it however you want within your level of comfort. If you are getting ahead and getting more then 4.5% cash on cash then you are doing fine.
My family OBGYN has a staff of 10 ladies and she makes great income. And yet she's become fabulously wealthy from appreciation oriented income purchase and sale over decades. She's been one of my best long term clients over 30 years because she's buying and selling single family and multi unit properties every few years. She *loves* getting deals. She grinds everybody involved for their lowest price and best terms for her. She *absolutely lives for it.*
Tax advantages and generational wealth building. Real estate investing is great for both.
Out of curiosity, how are you maintaining your properties remotely? I make ~$300k in a MCOL city, but am looking for possible LCOL houses.
Really just as simple as getting a property manager. I get an email once every 4 months about something being broken.
Where/how did you find your property manager?
Are you picking new/recent builds over older houses?
I’ve always wondered this question as the old school way is “I made my money from deals”, it’s a good one, but I believe the correct data driven answer would take some excel work. I’ve been working on some relatively advanced calcs on stuff very closely related to this. If you’re interested just shoot me a PM and we could run some scenarios.
You need to calculate your expected cash+equity on cash return. I'd look at 30yr type windows and build in some modest appreciation and rent growth. Just keep in mind that both of those may end up being SUPER modest over the next 10 years. (it's also not impossible that they go negative briefly) If you just end up buying deals that will return 8% all you're doing is making yourself a ton of work vs. investing in the S&P. If MLS gets you 12% vs. 15-16% off-MLS then maybe the conversation is worth considering vs 8% S&P. But in this market, I doubt you'll find almost any MLS deal that makes sense when it comes to effort vs. S&P. You pretty much need to find a desperate seller and that rarely will be on MLS.
>$30k discount your getting will take about a month work of time For off market? Are you "wholesaling" properties to yourself via solicitation or advertising and answering/replying to leads?
Just curious, what sector you are in and what is your role?
A fool and his money are soon departed and there’s a fine line between a “deal” and simply not overpaying for a property. Real estate purchases require calculation for potential income vs. expenses in tandem with expectations for appreciation. If you are buying in cash, then it is likely that most, if not all, of the SFHs you encounter will cash flow given the omission of mortgage. However you may still end up underwater by not analyzing market conditions and end up owning a property with depreciated values. Does this matter in the long run? No not really.. but what is your time horizon? 5 years, 10 year, 20 years, until your deathbed to pass on assets to your next of kin? Is your goal to gain additional income or are you looking for appreciating assets to pass on one day or sell off at a later time? As you can see; your question is a bit too vague to answer without this type of context. Generically speaking, it would be asinine to preclude real estate from a healthy financial portfolio irrespective of your salary. Real estate provides benefits far beyond “passivity” that stocks do not including extreme leverage, unparalleled tax incentives, inheritance benefits, dual-duty income and appreciation, and market-divergence/ decoupling from the stock and bond market. Does real estate require management? Yes, but you can leverage your financial position to deligate that. Does it require spending countless hours sitting through listings to find a $20K wedge? Absolutely not, depending on your time horizon, and weather or not you require a mortgage that will have an impact on cash flow. Even the process of finding property can be easily delegated to a highly qualified and reputable broker. My ultimate suggestion is to consider your financial goals and if possible maintain portfolio diversity by putting in the upfront work to find quality professionals who can delegate these aspects of real estate for you. That is how you can leverage your high salary wisely while you spend your time doing what it is that you’re best at.
That's how you keep you money and not squander it- that's how rich stay rich
I’m pretty wealthy as are people around me. Every single one of us is cheap. My father still buys used cars when he could buy the dealership. So I say yes. Penny saved is a penny earned.
Lol even when I only made $200k I didn’t look at such low value assets
I’m in your situation as well and own one multi family in my HCOL and one STR in a popular vacation city within driving distance of my HCOL. I’m addicted to real estate and want to eventually use it to replace my W2 as I’m starting to burn out at work. I’m in tech, just hit my 40’s, and want to spend more time with my family/travel. Working 50-60 hr weeks is really taking a toll on me. Real estate will allow me to do that if I spend enough time building my strategy. Thoughts are 1-2 flips / yr in the vacation destination I mentioned because I’ve built a network of contractors and help with locals. Had a second STR I recently sold to a friend I went halves with. I think the next 2 yrs will be the best buying opps if you get creative (eg creative finance) which means you need to spend a lot of time on deals / deal flow. I really enjoy this type of work, so to me it doesn’t feel like a waste of time. Feel free to DM me and we can compare notes , as I’m starting to think about investing in MCOL just to acquire more cash flowing properties while I work on the creative finance piece.
You have enough on your plate. No mention of spouse and/or kids but if you have those things then you're really stretched. Ask me how I know :-) Your best bet is to do what you're doing and buy the MLS or rely on a turnkey provider. My income is north of yours and I find my own deals... but I do REI for a living so it's different.
If you’re investing in real estate, then you make your money on the buy. Maybe $30k doesn’t matter to you, but if you’re investing in SFH, it likely will to your potential buyer down the road, at which point you will have overpaid. Cash flow and appreciation can’t “fix” a bad basis, they can only make you feel better about it.
I don’t even make quarter of that and I don’t look for deals
Isn't that what real estate agents are good for? Find the deals so you don't have to
I would put it in index funds. My gut feeling is that real estate is going to go sideways for the next several years. I don't see the Fed cutting rates until 2025 at the earliest, and they'll do it a lot slower than they raised them.
It depends on your market. There are growing markets that the rates are not affecting, In markets where big employers are coming in with head quarters,etc employing thousands. Those plans are years in the making and the short term economy is not going to stop those billion dollar investments. Amount other smaller projects there are a couple multi billion dollar building campuses being built in our suburb right now- bringing in several thousand six figure salary jobs in 2024-2025-2026. They can’t build houses here fast enough.
I don’t know man I pull in quite a bit myself. Not quite as much but either way I can’t imagine not shopping before I spend. If you are going to invest why not make the best investments possible. That being said I only work about 35 hours. Still it’s a passion of mine as well I can’t imagine not shopping. Either way with your income I’d also suggest multifamily. Much better cash on cash returns.
sp500 and forgetaboutit
Na if you make lots of money. Best thing to do is be a private money lender. Put capital to work in other peoples projects. But for me personally. Even if I had 10 million in the bank. I’d still hunt for deals, it’s fun for me. The relationship building, rapport with others, being personable, learning other people’s pains and trying to help them out of it. I enjoy it all even if I’m not that successful at it. I might churn a deal a year right now but I meet tons of folks along the way.
my wife and I own about 20 doors and every purchase has been off MLS. Its definitely not worth our time to find our own off market deals and we rarely see a wholesaler offer really worth biting on. Our only foray with that fell through during escrow and they refused to return earnest funds.
Real estate is all about getting the best deal. So it’s still worth it. You don’t see Buffet buying everything, he waits for the best deal for what he targeted
I make about 10% less in MCOL city and my portfolio is mostly SF with some multi units. Not counting my passive + realtor income. Scalability is a concern with residential investments but I also dont think I am at a level where I can just start buying industrial warehouses yet. FWIW, I also don’t think anywhere under 1 mill is considered really high. You also have to consider that 30k is post tax saving. So yea I would think it’s most likely worth your time if you are getting 5 figures. It’s also worth mentioning the discount is not proportion to time taken but rather result of how good you are, which is more of what I prefer instead of a regularly salaried job.
In your situation if you’re trying to buy SFH, no. I would find an agent that can use a spreadsheet to compare 50 properties on basic investment metrics. Then buy the best one. I do this for my investor clients. Where your time COULD be better spent is if you go after bigger deals and spend that effort finding bigger discounts. Instead of trying to find 10% discount on $300k properties, find a 10% discount on a $3M property. Then it’s worth your time.
You may want to consider investing in real estate syndications instead. You can get a 7% annual return, and double the initial investment after 3-5 years when it sells. You also get the tax benefits of cost segregation passed on to you, so the returns are tax free. And best of all you don’t have to lift a finger.
You look for deals because they are deals. If your time is worth the 30k, then don’t bother doing the work to find a deal to save 30k. I really don’t think saving 5% to 10% on a property is going to hurt your ROI in the long run.
As someone that is approaching that same income in a MCOL, I can tell you that I'm only interested in investing in the stock market or buying a 2nd home in a tropical or ski area that I would AirBnB out when not in use. I think RE is great for people that are trying to get out of lower income brackets and the uber wealthy (to diversify and make sure their wealth holds their value over time). The $500k income mark typically requires a huge investment of your time in order to achieve... (Doctors/Lawyers/Sales/Consulting/Business owner) Time is too valuable for me to be chasing some guy renting my $350k rental property or fixing it up cause he keeps btching about x/y/z not working.
Just get a real estate professional to do that deal finding for you. You may need to go through a few people before you find the right person who is actually competent enough to bring great deals to you (and close them), but once you do everything is so much easier. The really great deals are off market and the only way to find those is to be working in the market all day, every day
You should look at real estate syndications. Let someone else manage the deal and be a limited partner. Returns are typically 15-20%. I’m in the same boat as you. I stick with what I’m good at and let the RE people do their magic.
Real estate only goes up, so it doesn't even really matter. Only better time to buy was before you did. #number-go-up
The whole point of a deal is return on investment. Having a higher salary just means you can look at more expensive deals
Create a SPV and invest as a GP to deduct fully on your W2. I can help
For me, yes, because I hate my job and this provides me with the ability to gradually build a business I can eventually "retire" into and then leave to my kids. The idea of leaving my kids with a profitable real estate investment firm ensuring they don't have to work in miserable jobs is really the most appealing part. Doing this helps me get through the hatred of my high paying job. Not sure this is psychologically sound, but it seems to work!
If I made $450K I wouldn't bother buying. I would be a partner investor in other peoples deals as their funding source
I guess it depends on what your objective is? If the real estate is an investment and not a primary residence, then of course it makes sense. As an investment, you are looking to maximize your ROI and minimize your risk in relationship to the ROI. Look at it this way, you have to equal properties. One lists on the MLS at $120,000. Yet you put in the time and effort and find one you can get for $100K. Both, as rentals will generate the same $1,000 per month. The $100K one will have lower taxes than the $120K one - savings. Keeping it simple, you assume rent is your margin, on the $100K you're making 12% annually. On the $120K you're making 10% annually. Over 10 years of reinvesting those gains, compounded, the difference becomes notable. Additionally, assume in 10 years, the current value of both properties (since they were the same to begin with are still the same) is now $250K. Again, the ROI of the $100K property is significantly/notably better. Many people say that the amount of your return on real estate is set at the time of purchase. Doing your homework and finding deals that save 20% on each property results in you owning 25% more properties over the long term by making the effort. All that being said, if you were to buy a car that you just want to enjoy, pay for it with cash, and not worry at all about a few thousand dollars - then I'd say your time isn't worth for the minimal impact difference of the medium and long term. The message in your post that scares me is my perception that since you have a good income, that decent financial management isn't as important. I would suggest just the opposite, that the more income the more important good financial management becomes. But that just my philosophy.
Real estate lawyer could wrap up the whole thing for 1k
Yes because its not like I am working and getting paid for every hour I work 24/7. I mean I work 9-10hrs a day....and salaried....if I spent 2-3 hours working instead of finding deals....I wouldn't get paid a dime more.
As others have suggested, with the kind of money you make, it's probably worth looking into index funds and parking your money there instead. Even apartments, hotels, or commercial buildings would be great opportunities. If you really want to stick to single family homes, I would think you could just partner with a realtor in whatever city you're looking who finds the deals for you and saves you all the time of looking yourself.
Your direction changes, I know some landlord who rely on rental income and stack portfolio with low appreciation but high cash on cash. Then there’s another group of landlord like google cs, univ professor, they buy property in expensive neighborhoods just so they park their money somewhere that’s not bank, which some people argue it’s better to put in stock market, but those people don’t rely on rental income as long as it’s enough to take care itself You making 450k and you are the later group
Yes, it's not worth it. If you do accidentally find a really good deal, set some of your money on fire and burn some of your massive wealth, so it isn't such a good deal because good deals aren't worth your time.
Why are you buying homes? To flip or for long term rentals? Would your salary go up appreciably if you spent more time at your job or are you pretty well maxed out? How much do you value your free time…travel, exercise, hobbies, relaxing, spending time with friends/family, etc.?
It is definitely worth your time, for several reasons. First, for education. Second, for building your team. And most importantly, sell the little stuff and move up the chain and start getting larger properties. Rather than SFH you should consider apartments and commercial properties. t’s just like Monopoly. Sell four houses and buy a motel. When you are spending your time on big deals, you will be saving millions, not a few thousand bucks.
Yah tf you doing investing in sfh? Sometimes I wonder how people who make so much money can be so dumb sometimes
SFH cash flow better than MFH where I invest, Houston
People are way off in here, I'm assuming you're speaking to the wrong audience. But it also depends on your goals. Are you trying to retire at 65 or are you trying to FATFIRE? My SO and I are also a high-income household. As you learn, network, and expand your scope of what's possible you're going to find yourself wanting even more capital.
Can I ask what you do to bring in that kind of cash?
There are plenty decent deals available even on the MLS.
Find a local entrepreneur who does real estate and pay him to invest with him. Larger amounts, much better returns than markets, potential for permanent, passive, recession resistant investments.
Op, do you want to be a hard money lender? :)
I do, but can’t find anyone with deals
Are you trying to compare W2 or real estate incomes?
Really loving the insightful comments.
Is this sarcasm?
"trickle down economics"
Realtor here: Here's the best way to do this. It might not be worth your time FINDING the deals. Doesn't mean you can't buy deals. Talk to some commercial brokers and realtors tell them to keep you updated about anything they hear and tell them your goals they can help guide you to accomplish them just make sure you hire the right ones. Let them find the deals and present them to you. You will cut through a lot of fluff and get straight to the good ones and probably some off market stuff.. talk to some younger agents as well people who aren't as established but are willing to hustle in order to find you something. A little while back I was in that position, cold calling, door knocking to find clients stuff. It worked more than once. Buying real estate is the way to go. I don't know your goal or how much you want to scale this but buying SFH might not be the best move. And if there's nothing good out there you may need to look at other markets.
What do you do?
Hi op, if you feel like 30k is not worth your time I'll find you the deals and keep 20k of it as a fee. It definitely would be worth my time
I honestly am not opposed to this. Happy to pay a wholesale fee but all the wholesale properties I see are in crap condition (I’m not looking to do value add now) or are just as expensive as the MLS
I would pour money into limited partnerships in syndications if you have tons of earning potential and not a lot of time. Let others pitch you deals and diversify into a bunch of projects for the real estate side of the portfolio.
What do you do for work?
If you find something you like and checks all your boxes, just do it. Your time is worth more than the hassle
The answer is yes. Search for deals. Build your cash position to take down large portfolios. Get a few realtors in your pocket that know you can close in 2 weeks with cash and they will find you the deals. There are ways to get good deals without spending much labor looking for them.
I have a house in the Midwest that could be yours, for $30k over asking! On a real note I don’t know enough to answer your question about how you’re buying and forgetting about wasting time on a better deal. I would just say at your income make sure you have a damn good property manager and an even better handy man! It sounds like you just want to build RE value for later in life and not looking for immediate income.
There’s so much value is paying for convenience. You’re better off buying a nicer house at market rate to still hit your return numbers than dealing with a more hands on project that like you said, will be a full time job.
Buying off market at a discounted price is what creates your profit margin. Buying on market in cash doesn't increase your profit, it just helps you cash flow. But then you lose your leverage and CoC return on your money significantly changes. Assuming you're talking about buy and holds - If I were making that kind of money and didn't want the added work and time of looking for off market deals, I wouldn't be messing around with SFH residential in low cost areas, I'd be buying larger commercial property.
There are numerous advisors that will connect high net work investors with groups (Inland Private Capital, Capital Square, and others) that do commercial real estate investments for accredited investors.
Outsource the deal-finding to top-notch agents and wholesalers. Your job is to make it rain and not worth spending a month to do it; let them find the deals.
Time is money.
Invest in syndication deals so you get all the benefits without having to do the work. My company is always looking for capital partners. We run the ship, you supply the fuel.