How do i make enough money to never be a W-2 worker again

Question

Hi guys, I just recently got out of the airforce after four years. I'm glad I served my country, but my true passion is investing. I don't particularly appreciate working for others and never want to experience that again. I currently own a single-family home that I owe nothing on; the market value is roughly 150-160k currently. I pay $1,032 a year in insurance and pay $3,200 in property taxes a year for this property. I make $1,395x12= $16,740/yr in rent for this single-family home. Also, I own a duplex I purchased last month for $144,000. I put down $29,000 for the duplex, and I currently owe 114,000 for the mortgage. UNIT 1 rents for $675x12= $8,100. UNIT 2 rents for $775x12= $9,300. I pay $4,249/yr for prop tax and $1,347/yr for INS. I have 100k liquid cash in my bank account. I'm in school full time and do not currently work. For anyone that's good with math and knows how to make money grow, could you please give me your advice on what you would do in this particular situation if you were in my shoes. I want to make more cash flow and income than I'm making right now. How could I make another deal happen to leverage my liquid cash and equity to buy a deal that produces a lot more income?

Marcus Auerbach · Answer

The idea of having enough units to retire is hyped up too much. And it is flawed thinking. Lazy peole love it, but they will never get there. And if you are driven, you will not stop there. I am speaking from personal experience and from knowing a lot of investors.What the passive income does is it gives you options and the freedom to try things you could not otherwise, because you can't risk your livelyhood. Once you get to the point where you can try a business and you could in theory be okay with it failing you are playing at the next level.If you hate your W2 just find another. If you don't like working for someone else, work for yourself. But the goal is not to stop working - we all (well, most of us anyway) need a healthy purpose in life that satisfies us and makes us feel valuable. Thats why unemployed people get depressed.

Joe Splitrock · Answer

I agree, generally the people who "hate their job" so much that they want to retire, will not find investing any better. There is a misconception that investing is simply mailbox money. If you are in the business long enough or acquire enough properties, you start to have problems and find that it is real work. It is working for yourself, which can be good for some people and bad for others. Still in the end, managing your business is a work.There is also a fallacy in the idea that retiring will bring you happiness. As you mentioned, unemployed people have lower self worth and higher amounts of depression. Even retired people with substantial money can find themselves depressed. That is rooted deep in the human need for purpose. If you don't have purpose in life, you are just waiting to die. This is ultimately why even when people can financially afford to retire, they often keep working. It comes down to your "why". Saying "my why is that I want to retire at 30" is not a true why. Saying "I don't want to work for others" is not a true why. To get that answer you need to dig deeper with more why's, such as why don't you want to work a W2 or what do you plan to do when you retire at 30? I am a firm believer of digging deeper to find your true purpose and work backwards from there.

Theresa Harris · Answer

Your cash flow would go down, but why not pull money out of the first house which is paid in full and use that as a down payment for another duplex? or do the same with some of the money you have sitting in the bank.

Michael Salamone · Answer

@Jayden HamiltonThank you for you’re service, that is awesome! It sounds like you already have some experience investing w the duplex you have and aren’t exactly a newbie. It also sounds like you have a decent chunk of change saved up for a rainy dayHave you considered getting into the “awkward sized” multi families (ex 5-10 family apartment buildings)? The reason I call them awkward is because they are too large to be residential, and too small for the big companies to want to eat up. These are typically cheaper, but have tougher loan rules, so maybe take a look at those On the other hand, have you looked into how many properties you could get loans for using the $100,000? In an extreme example $10,000 down for 10 properties? On of my personal goals is to work to get my own “awkwardly sized” multi family. I like the idea of having one spot to work on, and not have to drive all over the place to work on my units. Best, Michael

Bryan Balducki · Answer

@Jayden Hamilton I would continue to network on BP and go to investing meetups. You could meet a partner, or joint venture in which you could put that money to work. I’d look into multi family investing and talk to a commercial lender. One multi family deal and you could be set. Sounds like you already have a track record so that will help! Or you could become a realtor and use your commission to partner on deals with those who have W-2s. The world is your oyster!

Patrick Menefee · Answer

@Jayden Hamilton there are a number of good recommendations on here, and a few that I didn't read. I'll give a couple of my own as a fellow Veteran based on my experience Quick background-6 years in the Army before starting corporate life in 2018. Bought my first investment property in September 2019 and quit my (pretty damn good) job in October 2020 to do real estate full time 3 recommendations/thoughts for you: First, define your timeline and goals. How much monthly income do you need in order to not have to work a job? If you don't tap into your SFH equity, without accounting for any reserves or property management it looks like you take home about $1,400/mo across both properties. You should really be setting aside money for repairs and reserves, which even at only 10% of gross income means you're now working with income of <$1,000/mo. So to start, figure out the exact dollar amount you need to make per year, quarter, or month. Additionally, figure out what you want. Are you trying to build your own true business? Are you trying to make the most money with as little effort as possible? Not working for others is great, but what do you want to do with the time that affords you?Start looking at your current situation and decisions with your end goal in mind (which is why you need to have that end goal figured out). For example, how much schooling do you have left? Is that all paid for with the GI bill, or do you have expenses that will be deducted from the $100k liquid cash available? What is the goal with going to school, and what purpose will it serve in your picture of your future life/business/income? With your current portfolio, are both of these good assets to keep going forward to keep moving towards your goals? Could you be putting the equity to better use? For example, if I consider the SFH, it currently puts $12,508 in your pocket annually. If you ever chose to add a property manager at 10%, and put 15% into reserves, you now net $9,381/yr. With $150k in equity, that's a 6.3% ROE. If you pull out $80k of that equity to invest elsewhere you're looking at negative cashflow. Is there a way you can make better use of that equity?If your priority is speed, cash flow is probably not the answer unless you already have a large nest egg ($100k is a great start, but even if you invest your $100k + your $150k in equity at 12% COCROI, you're making $30k/yr. Is that enough?) I'd suggest you build an avenue to create active income outside of a job (i.e. flipping, wholesaling, getting your license, etc.) to cover your monthly expenses, and then use the extra to continue buying income producing assets. The tax advantages of your current rental portfolio plus any new acquisitions will help minimize the tax burden of active income. Based on your analysis of how much you need to make to sustain yourself, use the appropriate amount of the $100k cash you have and create a reserve/operating fund for yourself. If you need $3,000/mo to survive, put at least $18k into the reserve account (more if it'll take you longer than 6 months to create the income you need). Now you know you have $82k available to invest That was a lot of detail, so hopefully that makes sense. But ultimately you need to start with step #1 and figure out how much you truly need to make, put money into reserves to cover those expenses for the appropriate period of time, and start putting the rest of your money to use to grow your income. I like bullet lists if you can't tell, so let me give a quick step by step if I were you: Deep dive your expenses and fill your reserve account to see how much you have in investable cashFigure out what you want to do with your time to make money (and again, I suggest the active route). Look into flipping, wholesaling, brokerage, and anything else that interests youPursue one avenue wholeheartedly with the remaining investable funds. As a flipper, I can use $50-80k to fund 2-5 flips (in conjunction with hard money). As a wholesaler, people set up a well oiled machine with data, systems, and a VA for <$2k/mo. Start putting that money to workOnce you have a business, consider putting your equity to better use. For now it's good cash and tax advantage while you have nothing better to do with your money, but overall you're wasting a ton of equity IMO. Once you have a place to put it, make better use of itAs you grow your income, continue building your portfolio of rentalsHope that helps, I know that was a lot of info thrown your way so let me know if you have questions!

Bruce Woodruff · Answer

RE will be the hardest money you ever made...so if it's the hard work you don't like, find a good W2 job and stick with it until retirement. Starting your own business is a huge gamble, most fail quickly.....The only RE I ever did that was 'relatively easy' is STRs....but still, high risk, hard work, all day every day.....

Daniel K. · Answer

Glib answer (maybe). Step 1) Whatever you did to get here, do it again. Step 2) Go to step 1.

Bruce Woodruff · Answer

@Jayden - if you insist on pulling out money and buying more properties, just don't do it right now! Wait until the market settles down....why throw away good money.....?

Henry Lazerow · Answer

Pull money out of the house to buy more! That's how people grow unless they have very high paying jobs. You do need to be careful and not just run the math as gross rents -costs. You need to factor in vacancy, repairs, average out bigger repairs like roofs/porches and average out occasional evictions unless it A class area.