When will I start seeing a return on my investment?

Question

Hi everyone!

I am new to the Real Estate Investing world and am looking into purchasing my first property! I have found a location and run the numbers and it looks like I would be making a positive cashflow, which is amazing! However for example; I make back my down payment in 2.5 years I am only then seeing the money go into my pocket. Ideally I would want to reinvest my profit into another property so I wouldn't be taking anything home then again until the new property is profitable. It still wouldn't be enough profit to do this full time without another job.

I see lots of people online who have quit their full time job and are doing Real Estate Investing only, buying new cars, being able to travel and I am wondering if this is just their "online persona", it is because of the amount of properties they have that has given them this financial/work free freedom or I need to find somewhere else that would give me a larger return.

Either way I am still moving forward on my journey :) I was just curious because that would be my dream goal to not have a 9-5 and my investments give me that freedom.

Jacob St. Martin · Answer

Hello Samantha,

There is good news and bad news. The good news is that real estate can provide you with the lifestyle that you are describing: No 9-5, cars, travel, financial freedom, etc.

The bad news is that many influencers make it look much easier and give some false promises to get you to buy a course.

Let's just address the first lie, a couple of properties is not going to make you rich and let you quit your job. $500 a month cashflow from a single family home is really solid but it isn't going to drastically change your life. The reality is that cash flow can be very unreliable. Tenants sometimes don't pay, roofs need to be repaired etc. A couple of maintenance requests can knock out an entire year of cash flow for you. This means that in order to live off of cash flow you need to have A LOT of properties/cash flow so that if a couple of properties underperform or need repairs you still have something to live off of.

The real benefit of getting started with these kind of properties is the equity you build. The way people quit their jobs is by hustling extremely hard, building a few million in sweat equity through flips/BRRRR/value add, and then dumping it in cash flowing assets that are lower maintenance.

If you are okay with your job, the best thing to do is keep it and use that hard earned money to start building equity. If you hate your job like I did then there is one way to quit your job faster, extreme defense. Offense is making money, defense is saving money. I was able to quit my job to focus on real estate full time but this is only because my wife and I have a strict budget and keep our expenses very low. I have house hacked so we have no housing expense, we cook most of our meals, hardly drink, bought our cars in cash, and have no debt. My wife makes less than $3,000 a month but we are able to live off of that and still be saving $1,000 of that a month (so keeping our combined expenses under $2,000 a month). Meanwhile I am working hard in value add deals, partnering with investors who have capital but not time/expertise. She pays the bills, I build us long term wealth.

If you want to discuss these concepts in more depth feel free to reach out to me in a message. I would be glad to help you find some direction for how to start investing.

Bill B. · Answer

That’s not how “returns” work. Any money earned by your money is already return. Once you have all your money back you’ve made 100%. That’s about 12.5 years in the stock market at almost 8%. So anything under 12.5 years is beating the stock market. And that’s when you forgot to count the principle pay down. (This is actually closer to most stock investing as almost zero stock investing has an actual cash return.) And you forgot to count the tax savings as returns. (Almost every newly purchased rental property. Even cash flowing ones. Will show a taxable losss. Meaning all the money you received is tax free, the principle pay down was tax free, and you got a larger tax refund. )

These are all part of what we call your return in real estate investing.

As far as what other people are doing or how they are performing. Ignore them. They are different people in different stages of their life that started in different places. Maybe they took risks you don’t want to, or made sacrifices you refuse to. Once you compare yourself to them why not compare yourself to Elon Musk, Bill Gates or Warren  Buffet? They’re “other people” too.

Just get started. 10 years from now other people will be looking at where you are and asking themselves “why aren’t I there?”. How do I go from where I am to where they are instantly…It’s a slow progress, but once it starts rolling you can’t believe how fast you make progress. Good luck.

Becca F. · Answer

@Samantha Ward

I posted a similar question more than 4 months ago. Just curious how did you arrive at getting your down payment back in 2.5 years? Is that for a long term rental or would you be doing mid-term or short term rental with higher rent?

As far as the influencers and becoming financially free, "using Other People's Money" they make it look using private lenders - I'm still puzzled by how a PL would lend money to a new investor with no proven track record.  I know in my circle, 7 real estate investors who were able to leave their W2 jobs but they're not sitting on a beach collecting rent checks. The first two invested before 2017, one of them bought back starting in 1998 and now has 4 properties in California. Both were able to leave W2 jobs at ages 37 and 40. They do all their own property management and repairs (unless a licensed contractor is needed). One of them wasn't a high W2 earner and lives frugally (in the Midwest)- he just picked the right properties at the right time and has benefitted from the huge run up in values from 2019 to 2022.

The more recent investors are very high W2 earners, tech workers ages 30 to 36 making $200,000 to $400,000. They scaled quickly from 2015 starting with house hacking in the Bay Area, approaching sellers directly, BRRRRs, 1031 exchanges etc. I've lost count of how many properties they have across multiple states but they're running businesses. They took a lot of risks that I wouldn't do, like liquidating much of their savings to buy property or used a lot more leverage than I would be comfortable with.

I started comparing myself to them and asked myself what am I doing wrong. I started changing my mindset and appreciating having a W2 job where it's an overall positive environment and allows me to buy property. I would add be cautious of anyone giving you numbers on a spreadsheet saying you'll "cash flow" at current interest rates and do lots of research. Good luck with your real estate journey.

Preston Dean · Answer

@Samantha Ward

I like to look at RE investing like getting a train started. It takes a tremendous amount of force and energy to move the train but once its started its on auto pilot (metaphorically). RE investing takes a while until you see your ROI & if you are buying & holding that ROI will be even longer!

If you are wanting a quicker ROI I would suggest flipping a few deals here and there to get the cash quicker but with that you are always on the hunt for your next deal

Nicholas L. · Answer

@Samantha Ward

unfortunately the market is tough right now, with both interest rates and prices high.  lots of folks who do real estate full time run, or own, a business, and so that's their 'work.  i think it is very difficult to live off of the 'cash flow' from long term rentals, and it takes either a handful of quality, paid off properties or 10-25 leveraged properties depending on your market.

making back your down payment in 2.5 years is actually really good - which makes me skeptical of that deal =) you can post the numbers here if you want.

finally - check this thread out.  i think this is a MUCH more realistic picture of what it's like during the first few years than the online hype.  my experience has been similar.  the cash flow of your first property is just unlikely to contribute meaningfully to your second.

https://www.biggerpockets.com/forums/12/topics/1171104-the-m...

Sam Yin · Answer

@Samantha Ward

Your goal should directly influence your strategy. Set a goal, work backwards, and create a realistic strategy based on your personal abilities.

An aggressive investment strategy can get you free from your 9-5 in about 3-5 years. A typical strategy will take closer to 10-15 years. A lazy strategy will likely take you 20+ years. You have to pick one. Higher risk equals higher stress but higher rewards, faster.  Your wealth is accelerated as you property appreciates and gets paid down and you extract that equity to reinvest. That is not the same as recoupling your initial investment to reinvest. Factor your equity growth and use it to help leverage.

Sam Yin · Answer

@Bill Brandt

That was very well put Bill. I wanted to say the same thing, but you were able to write it out best.

No need to constantly compare. One of the biggest factors for people's pace is their risk tolerance. Greater risk yields greater rewards, but it comes with greater stress and higher chances of failure. Once that train starts moving, it is truly amazing how quickly it can accelerate.

Marian Ford · Answer

@Samantha Ward

The idea is to have a goal in mind and be persistent.

Let's say you want to make $5k in passive income every month in order to quit your 9-5. Then you will likely need to build a portfolio of $1m rentals (5 houses $200k each, which rent for $2k a month) and pay them off. This is the least risky way.

You would need to save 25% of $200k = $50k for each property's downpayment

Find good deals

Payoff your properties

The whole journey can be >10 years if you are saving and are disciplined about reinvesting your cash flow.

It may sound like a long time, but real estate is pretty much the only investment where you can generate cash flow, build equity with principal paydown and grow your net worth. Your properties will hopefully appreciate nicely, so you may end up with well over $1m at the end.

When will I start seeing a return on my investment?

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