Investor · Venice, CA · Member since 2016 · 163 posts · 49 votes
My goal is to be 100% done with my W-2 job in 5 years through REI and move from LA to Colorado. If I can do it sooner than all the better.
I hear on the podcasts so-and-so quit their job and now are doing this full time. They have a SFH that they sold into a 4-plex that they sold into a 12-unit and syndicated into an XYX, so on and so forth. When I think of doing that my heart sinks and I immediately think of "How do they pay themselves?", moreover, "What do they pay themselves?" If your money is always in flux how do you decide your income?
I'd be interested to hear from former W-2 people that have made the transition to 100% REI. If you're solely relying on rental income or are you refinancing and taking a cut of that for your own household, cars, bills, vacation, investments, etc as you continue to reinvest.
Mainly the mechanics of how you decide what you pay yourself. CPA's please chime in!
Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
8y
Michael Glaser Didn’t have a W2, nor in REI rentals, but I cut myself a check and part of the monthly expenses / overhead on the company. You want to pay yourself the minimum living expenses that you are comfortable, plus a thousand or two just to boost self confidence. Then when your networth rises 50-100k, take off 5-10% of the rise and tap yourself on the back. Remember it’s networth. Yes people in podcast like to brag about that 1x to 4x to 12x to 100x, but they never mentioned what their networth when they did that. to me that’s important, if i have a net worth of 200k 2 units vs the guy having 300 unit apartment bldg and 100k networth, i think im better off when market dips.
Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
8y
Michael Glaser Didn’t have a W2, nor in REI rentals, but I cut myself a check and part of the monthly expenses / overhead on the company. You want to pay yourself the minimum living expenses that you are comfortable, plus a thousand or two just to boost self confidence. Then when your networth rises 50-100k, take off 5-10% of the rise and tap yourself on the back. Remember it’s networth. Yes people in podcast like to brag about that 1x to 4x to 12x to 100x, but they never mentioned what their networth when they did that. to me that’s important, if i have a net worth of 200k 2 units vs the guy having 300 unit apartment bldg and 100k networth, i think im better off when market dips.
Investor · Venice, CA · Member since 2016 · 163 posts · 49 votes
8y
@Manolo D. Thanks for sharing your experience of owning a business.
My original question was for those who, like myself, are trying to scale their REI and quit their jobs. I'm investing in Kansas City with hopes of moving to Colorado between Denver and Boulder. Cost of living in that area is rather high. I'd like to start planning on my "WHY" number once I get more comfortable in my current business model.
If anyone can speak from experience on how and when they quit. More importantly how they calculated what to pay themselves.
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
8y
Michael Glaser I haven’t quit, that would probably be foolish for someone under 25. That being said you didn’t mention what kind of money you’re throwing behind your goal.
5 years is a short time horizon. Do you have hundreds of thousands of dollars over that time period to make this happen? If not you’ll probably be lucky to live a Lower middle class life style. That’s as a single guy, if you have or want kids it’ll likely be lower.
For me this question is easy. Buy a lot of rentals. Pay a punch of rentals off, retire. I will scale a lot at the beginning, but over the years I will take 6-12 month intervals here and there and pay off a lot of rentals in that time period. So if you were watching my leverage it would look like a stair case.
Once a property is free and clear, let’s say it rents for 900 a month. So 900 times 12 equals 10800. Subtract 12 percent for PM, 1200 for taxes and 2000 if I want to be safe for repairs and capex (not including turnover expenses) and 600 for insurance. That leaves me gives me approximately 5700 in annual cash flow per property that’s paid off.
Conservatives id probably want 150-200k a year to retire fully. So assuming the above numbers for SFR that costs me 60k, at 200k a year I need 35 free and clear properties. Which is 2.1M in equity, which yields me around 10 percent.
So that’s my “freedom number”. It will probably be more or less than that by hundred thousand or two, but that’s the rough estimate. I think that’s very achievable by 40 for me at least but that’s 17 years of investing.
Also it’s not that scary because my tenants are paying off all this debt over time too, so I’ll probably get 5-10 houses free and clear just from the tenants money/cash flow.