$100k passive income club after expenses: What property type?

Question

For those of you BP investors who at the $100k passive income level after expenses. What type of property class did you start out with and end up with to reach this level. I am also interested to know how many of you started out with Single Family Home investments and exchanged to a different property type to reach the $100k passive income level. For those of you who care to share,  what is your yield on your real estate equity vs the $100k passive income.

For example, if you own 10 single family homes free and clear valued at $1,388,888 and your net passive income is $100,000 your yeild is 7.2%.

Question to those in the $100k passive income club:

I started out with single family home / Townhome investments and ended up with the following property type:

A)  Multi-family / ApartmentsB)  I started out with Single Family Homes and still own Single Family Homes that currently nets me $100k passive income.

C) Commercial Investment : Office / Retail / Industrial etc. I have started out investing in Single Family Homes and have exchanged all of my single family homes for commercial investment properties that generates $100k in passive income

D) I no longer buy and hold. I have sold off all of my single family home investment properties and now hold only notes that yield me $100k passive income a year.

E) Other..... Self Storage etc.

Account Closed · Answer

@Frank B., Chris Soignier,

What I have learned is that if your properties are cash-flowing well, depreciation doesn't entire off-set your cash-flow so you still have to pay taxes. The good thing is that you don't have to pay self-employment tax on your passive income.

My ROI is quite good while my IRR is out of the park. My ROE, however, is quite pathetic. It's in the 3-4% range. Well, that fits the Bay Area investment landscape. If I could achieve Steve's ROE, wife could have quit her job already. I told her 2020, but it looks like it will be earlier.

It's interesting that my partner in this new business adventure is someone I met through BIggerPockets more than a year ago. We have seen each other at meetups and said hi, but never had a chance to talk until recent months.

He recently reminded me of what I told others at the meetups "Treat everyone the same regardless of their level of knowledge and their appearance because you'd never know if they will become your business partner in the future."  :>)

Account Closed · Answer

@James  Park,

Why don't you share with us yours first?

I started out with duplexes, single family homes, townhomes and condos. Graduated to 6- to 8-unit apartments. Have made offers on 10-14 units, but no luck so far.

A new business adventure, which has nothing to do with real estate but has everything to do with real estate, knocked on my door a couple of weeks ago.  I have decided to put my real estate investment adventure onhold in the hope of getting my little sister and my wife off their W-2 sooner.

Wife and little sister both love this new business adventure so I don't have much of a choice. Happy wife = Happy life. Sister will be off her W-2 job in about a month to do what she has always dreamed of. Hoping to wife off her W-2 job sometime next year when the new stream of income exceeds her salary. It's a new and fun adventure for my family and I.  All thanks to real estate.

Although I believe we will do well, wish us luck. We'd rather be lucky than good.

Cheers.

Steve Vaughan · Answer

Account Closed  love your quote to treat everyone the same regardless.  So true.  Can't judge a book by it's cover.  The old axiom is real and we never know!

It's a little more personal for me, as I am all cattle with absolutely no hat.  My brand is one of being under-estimated often and it works for me.  Old car, homeless construction painter plumber clothes.  No seller has their guard up at appointments I go to!  Cheers!

James Park · Answer

@Gautam Venkatesan,

I don't know much about notes, but it seems that a portfolio of notes and single family homes may be a good path to go. I have interviewed several successful commercial brokers in my area and one of the questions I always ask them is what their retirement portfolio looks like. I was very surprised to hear that none of them own commercial real estate within their buy and hold investments. Many owned single family home rentals, multi-family, and few very successful ones owned an apartment. I asked them why they sell commercial properties and do not own any commercial themselves and their response was, "Commercial real estate is most sensitive to the economic downturn in the market. If we have another melt down like we had from 2007-2009, commercial will get crushed, but everyone needs a roof over their heads even during recessionary times. That is why I like to sell commercial for the fat commission but like hold residential for my passive income portfolio.

One DFW investor I met through BP has a portfolio of single family homes Multi family like

@Steve Vaughan and he is already there at $100k passive income. He seems to be very happy and doing well with his retirement portfolio. He has couple that he owns free and clear and some that are still mortgaged. His goal is to eventually own all his investment properties free and clear. He told me about an older couple he knows in the DFW area who owns 40 single family homes in the Dallas Fort Worth area who generates almost a million dollars in passive income. Their strategy is really simple of buying distressed, fixing them up to look very nice and new, then leasing them to quality tenants. I feel very strongly the Single Families, multi-family, and apartments are the best asset classes for an income retirement for an individual investor. I would say that one slight advantage of SFH over multi and apartment is that you are most likely dealing with an investor on the side when purchasing an multi or an apartment investment where the owner maybe a very savvy negotiator, perhaps even more savvy that you. However, when you are purchasing single family homes, you are dealing with a retail seller who may not be very sophisticated in terms of negotiating. You can also diversify with SFH by buying in different streets, different sizes, and different neighborhoods

I really like the old couple model in DFW and would love to follow this path. Hopefully when am in my 60s I will also own 40 single family homes in Atlanta while vacationing in the Carribeans, Europe and Asia. Finding high quality tenants and lease contracts for single family homes is just very easy and intuitive for me to understand. Selecting the right tenants for SFH will pretty much remove 95% of the problems. Trying to find tenants for retail, office, and industrial is just a whole different learning curve that will increase my risk.

Finally, what I realize as real estate broker, the more buy and hold rentals I own, the more my earned income will be shielded from taxes. I am just amazed by how 9 out of 10 real estate agents and brokers I meet do own any rental properties. I believe that every real estate agent should own rental properties solely for purposes to shield their income as the more money you make as an real estate agent / broker, the more tax shielding you will need.

Steve Vaughan · Answer

I'm not quite there yet @James  Park - but adjusting for my reduced cost of living here in central WA...

Mostly wanted to chime in because it's you!  I started out with mobile homes.  Buying for cash and selling on paper before DF.  After those and acquiring a couple single-families I was fortunate to run into a nice bank CEO with a 10 unit mixed-use REO he financed for me. I found my niche in the 7-10 unit space.  Eventually I would like to consolidate into one larger complex.

I still have 7 single-families, but my favorite is the multi's.  My ROE is dropping as the years go buy and equity builds, but I would estimate it to be right at about 7%.  I expect my ROE to continue dropping until the duration of my current depreciation dictates an exchange or I just decide the heck with it and let assets be paid off.  My first multi pay-off will be in a few short years and will snowball quickly from there if I so choose.

Great discussion.  Thanks for letting me share!

Chris L. · Answer

@James  Park

Are you talking 100K annually or monthly?  I will assume you are talking on an annual basis.

I started in the stock market and transitioned to real estate in 2003.  Since I had a base amount of money it was an easy transition with plenty of lessons learned along the way (read that as deals that lost money).

I started with Duplexes and vacation rentals followed by some commercial properties.  In 2008, I started buying SFR's and now have a nice collection of 93 SFR's that produce very well. My ROE is about 12%.

I have subsequently invested in some notes but have decided that I prefer SFR's.  I have evaluated up to 100 unit apartment complexes but the returns cannot match my SFR package so I just keep adding to the numbers.

I am fortunate to have a top notch property management team which makes all of it work.

Chris

Brent Coombs · Answer

He's not waiting; it just takes time. (He's ALREADY well on his way)...

Chris Soignier · Answer

I'm guessing that's what he met.    Rental properties will often produce positive cash flow, but depreciation puts them in a tax loss position, at least in the earlier years if you're doing accelerated depreciation.     Most investors have a limited ability to offset passive losses against earned income, but real estate professionals (as classified by the IRS) don't have that limitation.

Victor Webster · Answer

This is great discussion! I am  very happy I found this site! I own several commercial buildings in South Carolina. All historic properties that I bought and renovated and now lease to commercial tenants. I try to find historic buildings that have been somewhat neglected. Buy them at a deal and renovate and then acquire tax credits and other incentives. Its not easy and it can be very risky but I really enjoy it!!

Tariq B. · Answer

@Steve Vaughan

haha I love it, about how you said "Old car, homeless construction painter plumber clothes." I dress the same why about 75% of the time lately and ALWAYS at my sites. I like to do it because people really do treat you differently and it helps to keep me humble. I find it funny at times because I dress like a homeless person driving a 1994 Mazda pickup then go home to change into a suit and Mercedes. I don't think my neighbors understand quite yet lol.

$100k passive income club after expenses: What property type?

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