How to accelerate my cash flow and net worth growth?

Question

I'm making a killing in the greater Seattle market. Up until I sold one of my houses in the area, I was making around 400K a year through appreciation, cash flow and principal pay down. About 60K was through the cash flow and principal pay down.

I cashed out my highest appreciating property because I didn't want to live there anymore and it was a really expensive house with a crushing mortgage that was going to be affected by the new tax laws if I held onto it much longer.

So I'm sitting on 1.4 million, about half of which is liquid. I have 2 properties that have seasoned enough to 1031 exchange again. 2 that have not.

I'd like enough cash flow to retire on (24K/year) though more is better. I'd also like to keep having properties that appreciate.

I don't think turnkey is for me, and apartment complexes that cash flow seem to be hard to find after institutional investors gobble up the decent deals.

I'm considering relocating to Las Vegas/Nevada area, buying either multiple four plexes for 350-400K, or multiple single family homes via 1031 exchange then paying off the debt after the deals. Buying a primary residence there paid in cash.

Either that or buy 3-4 more single family homes in Seattle, continuing to work and letting them appreciate for another 4 years then 1031 exchanging to Las Vegas.

Ultimately I'm trying to have enough cash flow to quit my day job purely from real estate (right now I could technically do it from index funds and real estate but the index funds don't have leveraged appreciation like RE does...) while also getting hundreds of thousands a year in appreciation.

Dennis M. · Answer

I’d cash out the real estate you have being we are at the top . Invest the money sagely to make a good return short term , them here in a couple years of take the money and buy up more real estate at heavily discounted prices once we are in the “ market correction” . Why live on a meager existence now when you can live better if you just plan and wait 4-5 years

Caleb Heimsoth · Answer

@Jack B. look into PPR run by @Dave Van Horn on BP. He’s got some books you can read to learn the basics. A note fund is a pool of money from lots of investors who give money to a fund manager in return for a return, usually around 10 percent. Your money is then used to invest in a series of notes aka mortgage debt.It usually comes with a lock period, of say 3 years. So you can’t get your money back until that time is up.You usually have to be accredited which is sounds like you are.

Alina Trigub · Answer

@Jack B. Congratulations on making a killing in Seattle market! I think you'd benefit from speaking with a tax strategist. Note, I didn't say pure tax accountant. You need to speak with someone who can help plan for strategies that allow to minimize/delay taxes. In addition to 1031 option, when you decide to rid of your property(ies) you may want to consider partial installment sale. I'm sure there're other ways that most of us have never heard of. Aside from that, you should evaluate multiple options presented to you via BP forums and other ways (your own RE investors network), and decide whether: you want to be active or passive. That will entail whether you will be (for example) going with another purchase and becoming a landlord again in LV or whether you'll start investing in syndications or notes (as another example). Maybe it will be a combination of the two. Bottom line, have several options evaluated and selected and then discuss it with a tax strategist for best option in your case.Happy to elaborate on the above, if you'd like feel free to PM me.Best of luck!

Mike Dymski · Answer

Your cash flow goal is minimal; so, you are essentially looking for where to invest in additional predictable market appreciation plays. That is a strategy that takes localized market knowledge, particularly (1) in this hot market and (2) if you are not adding value. I'd recommend gaining that market knowledge or investing with someone who has it. Appreciation plays are not penciling out for many investors in some markets today.And retiring with $24k or a low amount of annual cash flow and a bunch of appreciation plays is an uncommon and high risk strategy.

Sherwin Gonzales · Answer

@Jack B. Congrats on your successful REI career and having the awesome problem of trying to figure out what to do with all your liquid cash! I believe the best way to increase your cash flow and net worth is through real estate rather than liquid assets like stocks and bonds or notes. You have more control of the value of real estate and no control over the value of a stock or bond.With that much liquid, you need to have your money working for you rather than sitting idle! Why buy 3-4 single family homes when you can get one big commercial multi-family home with 5+ units? You mentioned that apartment complexes that cash flow seem hard to find but where are you looking? I don't have nearly the amount of liquid cash you have and am able to find multi-family deals that cash flow from day one!Plus, with multi-family, you can control the value because the value is based on the NOI. So you can increase the revenue and find ways to decrease the expenses. Unlike SFH or MF with 4 or less units, where the value is dependent on comps around the area and based on an appraiser's opinion. Just my two cents! Good luck on whatever you plan to do!

Michael Lee · Answer

Hello and welcome to this site Jack! One of the ways to increase your cash is to try to find ones that are as good or better than those you already own. I usually say not to purchase SFH's rentals but there are a few conditions I approve of and having great demand for them now and the unknown future. I have heard that Las Vegas is turning hot again and maybe the place to locate your homes. Just choose a location that shows better on a piece of paper to be the one location that feels better to you and looks better now or in the future and on their evaluation with no stones are left unturned. Good luck to you!

Jack B. · Answer

Thanks for the overview. Yes, I am accredited.

Jack B. · Answer

Thanks but again, as I noted in my OP, cash flowing MF is really hard to come by right now. Institutional investors snap up the deals. Loopnet just has the junk deals...

Leon Li · Answer

I'm in the same boat as you just not that many property in seattle. I have 4 in the area like Kirkland and Lynnwood. Yes the appreciation is amazing and we get spoiled. I personally haven't sold any of my property. I started buying out of state using Turnkey also will be doing my own, ie finding deals putting team together. Out of state is good option if you comfortable doing remote, I find that even with turn key you can get 15+ coc. with that much liquid cash, I would buy multi family to maximum the 10 loan per person rule. Also making sure the numbers are good. I would stick to residential mfh since I have no commercial mf experience and assuming you have non as well it's a different ball game, I would avoid. I'm also at a cross road, whether to sell all go big or small steps, I'm in tech so I know the seattle market is not slowing down.

Jack B. · Answer

The problem with just cashing out is extreme taxes that would cut my returns drastically. I hear you on the market correction, which is part of the reason I'm pooling cash. The note investing keeps coming up. People told me about it on Reddit and now here. Maybe I should look into it more. How risky is it though I wonder....