42 Year Old Husband and Wife, DINK... What Should We Do?

Question

hello, really my first beefy post... signed up a while ago and ready to commit!

my wife and i are 42 years old, dual income, no kids (working on that)... we bring home 15k/month after taxes. we save at least 2k a month. our mortgage is $3700/month, locked in at 2.875%. we don't want to/care about paying it off as any other income (stocks, etc.) will easily beat this rate over time.

we have about 200k in investments, 20k in liquid cash (spent 150k or so in the last year for health, fertility, and home renovations), my 401k has 775k, wife's has much less due to health issues...

we want to either buy rentals (i see this is a rocky risk) or small businesses (Codie Sanchez just opened my eyes to this). other options that sound feasible?

i guess the big question is - where should we start? anybody in a similar situation? we'd like to slowly build a small empire of ownership of local businesses.

i'm focusing on seller financing or SBA versus OPM... those options sound more feasible.

i really don't want to crowdfund real estate, etc... i'd rather own my own businesses, flat out.

we're ready to fail.... and also succeed :)

thanks.

Marcus Auerbach · Answer

Risky? The idea with real estate is to be as close to zero risk as possile. When you look at what are the actiual risks and where do you see people struggle and fail, one single issues stands out and that is buying cheap properties in the hood. Trashed up units, evictions, unpaid rents, massive capex etc. You never hear any of this from someone who bought in a class B neighborhood! Issues yes, but not existential.

Running a small business is a tough grind. Codie makes good money as an influenzer, so expect her recipie to be somewhat sugar coated. Guess who is going to stand behind the counter, when your emplyoee is calling in sick? Or quits? Thats tough when you have a W2.

Where should you start?

Follow your passion is! In order to succeed in RE you need a degree of obsession for brick & mortar, people and deals. We work with a lot of investors and once in a while I get someone who is just interested in the ROI and does not care how, I know it's a non starter - it's too hard and too messy. It's your passion that let's you keep grinding.

But it needs to fit your life style! The reason I started to focus on single family homes when I started 15 years ago was that they are the most hands-off: the tenant does everything (lawn, snow) and there are no interactions with other tenants. At the time I was travelling for work internationally about 25 weeks a year and quickly realized I could not deal with multifamily issues.

Nicholas L. · Answer

@Bob Sislow

congratulations on being in such a strong financial position.  i'd echo what others said - it's going to come down to your goals.  if you WANT to own small businesses - great.  if you WANT to own real estate, great.  i'd never presume to tell you what to do since all i have is what you posted.

i'll give you some advice on RE investing in general, though.  a lot of new investors post that they have been "researching for 6 months," and what they mean is that they look on Zillow every day.  if you're interested in learning more about your local market and what other investors are doing, I'd encourage you to go to every single REIA meeting within a 1-2 hour radius, pick the ones you like, go to those, and talk to all of the other investors there.  connect with some wholesalers and go look at some off market properties.  connect with some agents and look at some on market properties.  do that for 6 months.  evaluate.

you mentioned seller finance - it took me 3 years to find my first seller finance deal, which i closed on earlier this year.  am now looking for more.

hope this helps.

Michael Smythe · Answer

@Bob S.

When investing in areas they don’t really know, investors should research the different property Class submarkets. If you apply Class A assumptions to a Class B or C purchase, your expectations won’t be met and it may be a financial disaster.

Our OPINION for the Metro Detroit market (always verify each area for yourself!):

Class A Properties:
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% the more recent norm.
Tenant Pool: Majority will have FICO scores of 680+, zero evictions in last 7 years.

Class B Properties:
Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support.
Tenant Pool: Majority will have FICO scores of 620-680, some blemishes, but should have no evictions in last 5 years

Class C Properties:
Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation. Can try to reposition to Class B, but neighborhood may impede these efforts.
Vacancy Est: Historically 10%, but 15-20% should be used to also cover nonpayment, eviction costs & damages.
Tenant Pool: majority will have FICO scores of 560-620, many blemishes, but should have no evictions in last 2 years. Verifying last 2 years of rental history very important! Also, focus on 2 years of job/income stability.

Class D Properties:
Cashflow vs Appreciation: Typically, all cashflow with zero or negative relative rent & value appreciation
Vacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.
Tenant Pool: majority will have FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, recent evictions. Verifying last 2 years of rental history and income extremely important to find the “best of the worst”.

Make sure you understand the Class of properties you are looking at and the corresponding results to expect.

Tim Ryan · Answer

Hey Bob. Exciting for you and your wife to decide now is the time to start your real estate investments. My advice for you is to buy in a growth area, and in some of the best areas of that area if possible. Many investors I see go to "good areas". Well, often times they look good because they are already grown and appreciated. That's too late in my strategy.  Growth market means you buy in the early stage, usually when most people don't get it or see it yet.  I can tell you that Southeast Wisconsin is a very good growth area and you are very close to it.  How to navigate it and learn the ropes?  I can probably help with that. Or find some mentors who will assist.  You want to own on your own and not be raising funds, that's perfectly good and your decision. But you should be seeking assistance, mentoring, coaching, etc.  Which is what you are doing. So Bravo.

Paul De Luca · Answer

It sounds like you guys are in a solid financial position with flexibility. I think you should start with asking yourself - where do you want to go, and how do you want to get there? Since both you and your wife work full-time and plan on having kids in the near future, I expect you probably want to follow an investment strategy that is more passive & hands off.

With owning rental properties, there is a spectrum on how passive it is and it's up to you on how involved you want to be. If you don't want to be actively involved in managing your rentals, you can hire a property manager. BUT you have to still manage them and make sure they are doing their best job for you. Same thing would go for running a business - you could hire a manager to handle most of the operations.

The question would be, whether owning rentals or a business, is do you want to own a job or business?

I would argue owning and operating rental properties in simpler and easier to understand than most businesses and it gives you a lot of leverage to grow.

If you decide to invest in rental properties, the first step would be to define your buy box (what's your criteria - location, price range, property type, expected return, etc), get pre approved with a lender, and then build your team to execute your plan.

Bud Gaffney · Answer

Congrats on all your successes! Love your mindset and thinking. So many options! There are some really cool franchises "Neighborly" offers. Check them out! Also, what are your goals? Being a landlord isn't so bad :) I look forward to connecting!

Jasmin Silva · Answer

15k per month is a great income, is it possible you guys can cut down "unnecessary" expenses so you can have more leverage and cash to invest?

Bob S. · Answer

i like the simplicity, thank you Lane!

Lane Kawaoka · Answer

I started with turnkey rentals when net worth was under 750K.

Then move to larger deals from there.

42 Year Old Husband and Wife, DINK... What Should We Do?

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