Best Real Estate Investment Strategies for a Busy Software Engineer
Member since 2024 · 3 posts · 4 votes
Hi everyone,
I'm posting on behalf of my friend Alex, who is seeking advice from experienced real estate investors. Here’s a bit about his profile and what he’s looking to achieve:
- Alex is 30 years old and works as a software engineer in San Francisco, earning $167,000 annually. His goal is to grow wealth through real estate investments with a balanced approach, minimizing time commitment, and maximizing returns.
- He recently inherited a 3-bedroom single-family home in Fremont, CA, valued around $1 million, currently rented out for $4,000/month.
Alex's main concerns are balancing his full-time job with the demands of real estate investment, managing cash flow effectively, and understanding the potential tax benefits.
- What investment strategies should he consider?
- Should he invest in another rental property or consider REITs for a more passive approach?
- What tax strategies should he consider?
How would you structure investment strategy with his current assets?
Thank you for your help!
"He recently inherited a 3-bedroom single-family home in Fremont, CA, valued around $1 million, currently rented out for $4,000/month." - If this property is not heavily leveraged (maybe paid off) he should sell this property tomorrow. RE prices have never been higher in most markets. In our area prices are up 6% y/y. If a family member passed away he would be selling at a stepped up basis. The tax savings alone are worth more than $4k in rent every month. He's not an accredited investor so he can't deduct losses on personal income. The equity position/rental income is beyond normal. Take that money and buy RE in other growing markets, stocks, bonds, index funds, high yield savings, or probably a combination of it all.
If Alex wants to be a REI there's nothing stopping him. Inheriting a $1M property and renting it for $4k per month does not make you a investor. It gives Alex a massive head start on the rest of society. Don't take it for granted and don't put all the eggs in the same basket. Best of luck.
"He recently inherited a 3-bedroom single-family home in Fremont, CA, valued around $1 million, currently rented out for $4,000/month." - If this property is not heavily leveraged (maybe paid off) he should sell this property tomorrow. RE prices have never been higher in most markets. In our area prices are up 6% y/y. If a family member passed away he would be selling at a stepped up basis. The tax savings alone are worth more than $4k in rent every month. He's not an accredited investor so he can't deduct losses on personal income. The equity position/rental income is beyond normal. Take that money and buy RE in other growing markets, stocks, bonds, index funds, high yield savings, or probably a combination of it all.
If Alex wants to be a REI there's nothing stopping him. Inheriting a $1M property and renting it for $4k per month does not make you a investor. It gives Alex a massive head start on the rest of society. Don't take it for granted and don't put all the eggs in the same basket. Best of luck.
Does Alex live in the house he's renting for 4k per month? That is a good amount of income. There are several strategies Alex can use to passively invest. How much time per week Alex is willing to invest would determine what type of investment to make. To build long term wealth he can buy into REITs or syndications. Those are less liquid and less control. IF he's wants more control and more liquidity investing in an appreciation market will serve his long term goals.
A good property manager will manage the property and a good CPA will help with taxes. Talk with them before the purchase to make sure they can help you with your goals and they are a good fit. Alex can continue to self manage his inherited house to learns the ins and outs of property management. Talk with a few lenders about using the equity in his current house.
Out of state investing can also be an option because it takes less capital to get started than CA. There is time to travel and view properties and interview people. There is travel time and cost involved. A state like Nevada are closer and offer tax benefits over CA. Have Alex decide the time he wants to invest into RE and develop a timeline to reach his investment goals.
Alex is in a good position. I would echo what @Jaron Walling said about selling on a step-up basis. 4k a month on $1m in equity is a 4.8% return on equity. He would be safer in a savings account at that rate (I know what you're thinking... appreciation, though). There are way better returns to be had in the market for a similar amount of work.
The only other thought regarding keeping the property is what the condition of the property is and if he could upgrade it and get a significant increase in equity position before he sells.
He needs to decide what kind of investor he wants to be; if he wants a truly passive investment, then he should probably stick to the stock market. If he wants to put in a little more time and get a little more out, he should consider out-of-state investing, maybe some STR investments.
Hi everyone,
I'm posting on behalf of my friend Alex, who is seeking advice from experienced real estate investors. Here’s a bit about his profile and what he’s looking to achieve:
- Alex is 30 years old and works as a software engineer in San Francisco, earning $167,000 annually. His goal is to grow wealth through real estate investments with a balanced approach, minimizing time commitment, and maximizing returns.
- He recently inherited a 3-bedroom single-family home in Fremont, CA, valued around $1 million, currently rented out for $4,000/month.
Alex's main concerns are balancing his full-time job with the demands of real estate investment, managing cash flow effectively, and understanding the potential tax benefits.
- What investment strategies should he consider?
- Should he invest in another rental property or consider REITs for a more passive approach?
- What tax strategies should he consider?
How would you structure investment strategy with his current assets?
Thank you for your help!
If it’s renting for 4000/month it’s probably worth more than a mil. Few things to consider.
1. California prop 13 only applies to inherited properties up to old valuation + 1 Mil. So property tax may go up in some cases. Also the +1m exemption is only for primary residence.
2. Step up in basis may be applicable for taxes.
You don’t have to sell immediately. If owning another appreciates primary, may be option to sell that one and move to inherited.
Talk to a financial advisor to optimize taxes now and for future.