San Fran Area Rentals for Early Retirement
Davidson, NC 路 Member since 2017 路 17 posts 路 9 votes
What you are looking to do is highly unlikely unless you have a great deal of money to invest. The old no money down hype is exactly that.
Depending on your cash flow you could be looking at owning lot of door in a very short time. If you cash flow $100/door/month your looking at owning 34 doors to receive $40,000 K income. If you are buying $100K properties you will need about $700,000K in cash for down payments. It is doable in 10 years but as you can see you need deep pockets to start.
Investing in real estate is normally a long slow process to wealth not a race.
What you are looking to do is highly unlikely unless you have a great deal of money to invest. The old no money down hype is exactly that.
Depending on your cash flow you could be looking at owning lot of door in a very short time. If you cash flow $100/door/month your looking at owning 34 doors to receive $40,000 K income. If you are buying $100K properties you will need about $700,000K in cash for down payments. It is doable in 10 years but as you can see you need deep pockets to start.
Investing in real estate is normally a long slow process to wealth not a race.
@Paul Faryna ... I would agree with @Thomas S. that just borrowing money and investing it isn't going to get you the money you want to have.
In Silicon Valley less desirable homes are more volatile. Some still haven't recovered from the downturn in 2008 enough to reach the high they hit in 2007. If you focus on the lower end, and put a lot of sweat equity in, you stand a good chance of growing your investment quicker than just investing in quite desirable homes. However because their values are more volatile, you want to cash them out when demand is high. Rent price increases tend to have different timing than purchase prices.
Locally, Mountain View just passed a rent control law. It's not clear how that has or will affect prices there. East Palo Alto has had many high-tech employees (Facebook) push up prices. It's not clear if that trend will keep pushing prices up for a long time to come. If it does, East Palo Alto could be a gold mine. People have bet on that in the past and been disappointed.
Thanks for the responses guys! A lot of good perspectives.
Also, sorry for the formatting. I wrote it on the app with readable paragraphs and then it got turned into a giant block. Anyone know how to avoid this happening on the app?
@Jeff Keller yeah housing prices here are crazy! I'm not looking to invest in the immediate area, at least an hour away and maybe in other states. I met with a colleague who just bought a duplex for house hacking and the numbers don't make sense to me. I'm looking for cash flow and CCR, not speculating on property values (I'm a student of Ben Graham's Intelligent Investor). Thanks for the info about specific areas here too, I'd love to hear more about your strategy. I know Apple is opening a large campus near my house in Sunnyvale soon (separate from the more well-known Spaceship) and I'm sure there will be some interesting developments due to that.
@Thomas S. I'd like to understand your numbers better. My girlfriend and I are pretty frugal, we can save 50-70% of take home pay. Let's say we had $50k/yr to invest in properties (downpayments + closing + repairs needed to rent etc.) and get 10% CCR (which we could likely due much better than from what I understand).
This equates to $5k of cash flow per year. Ignoring the potential to reinvest the cash flow or any appreciation, it seems we could have $40k of cash flow in 8 years. I'm sure I may be missing something here, so please let me know what it is.
If there are any good tools for quickly modeling a strategy like this, I'd be very grateful for a pointer as well!
I hope your $40K lifestyle is not in the Bay Area! That is below the median income in the US and pretty hard to live on today not to mention inflation. You can get to 10% return relatively easily so if you have $400-$500K you can get your desired income. Rentals are not the only way to get there. There are a lot of passive investments that give you this kind of return. You have to consider tax implications and of course potential appreciation of rentals but given what you stated as your goal you may consider other options.
@Account Closed, we COULD get by for $40k per year in the Bay, but it would be tough. Real estate tax advantages certainly would help. We don't plan on staying here forever but at least a few more years. Then it will likely be full time traveling if we make financial independence (FIRE) before having a kid or settling somewhere much cheaper. As for inflation, $40k is a rough number, inflation shouldn't be too much of an issue hopefully in the next 5-10 years (who knows though with QE), but we could easily get by on $35k or even $30k without day jobs. Plus, I'm sure I'll still be hustling on the side working on my blog or real estate or something new!
What other passive investments are you referring to? From my understanding 10% is understated for real estate CCR, but I was just using that to show the feasibility of the plan. I see many members here claiming >20% although it does seem the market is hot and such deals are harder to find.
PS: before learning about the power of real estate my plan was indexing and the 4% rule. This would have meant around $1M invested to reach the $40k goal. Current market conditions (equities and bonds don't look good for 10 year returns) plus higher returns make real estate look like an obvious option if I just learn more and put in the work!
Haha, how'd you know, have you seen me there!? It's definitely possible though it would be tough in Sunnyvale.
Income:
$35,000 after taxes -- no real estate tax benefits included! That's a bit more that $2900 per month.
Expenses:
-$1400 -- rent (with roommate, admittedly this situation will change)
-$350 -- electric, gas, phones, internet, car insurance
-$500 -- health insurance
-$200 -- groceries
Total: $2450
That leaves a net of $450 for luxurious expenses and a safety net for "**** happens" - car repairs, vet bills, medical bills, etc.
Clearly doable, while living in the most expensive place in the world and living like a king compared to 99% of people on Earth and 99% of people who have ever lived. But again, this would not be my ideal area to settle down for a few reasons. If we "settled" somewhere with reasonable expenses we could cut the overall expenses in half and have more for luxury spending.
Haha, how'd you know, have you seen me there!? It's definitely possible though it would be tough in Sunnyvale.
Income:
$35,000 after taxes -- no real estate tax benefits included! That's a bit more that $2900 per month.
Expenses:
-$1400 -- rent (with roommate, admittedly this situation will change)
-$350 -- electric, gas, phones, internet, car insurance
-$500 -- health insurance
-$200 -- groceries
Total: $2450
That leaves a net of $450 for luxurious expenses and a safety net for "**** happens" - car repairs, vet bills, medical bills, etc.
Clearly doable, while living in the most expensive place in the world and living like a king compared to 99% of people on Earth and 99% of people who have ever lived. But again, this would not be my ideal area to settle down for a few reasons. If we "settled" somewhere with reasonable expenses we could cut the overall expenses in half and have more for luxury spending.
$200 for groceries? Are you going to live on Top Ramen and pb&j sandwiches? Also, transportation expenses, clothes, etc. are not accounted for. Are you going to have a car, a bus pass, a bike. They all cost some money to some degree. I think you are too Pollyanna in your assessments.
Welcome to Bigger Pockets. Make sure to read the Beginner鈥檚 Guide: http://www.biggerpockets.com/real-estate-investing
@Mark Nolan thanks for the recommendation, haven't read that one yet!
I've been reading a couple books, TONS of articles, and many podcasts (on 2x speed of course). Any other resources are well appreciated. I'm starting to see a lot of the same info over and over which I figure is a good sign that I'm learning the basic theory well.
Soon it will be time to take action!
@Paul Faryna I dont think you are accounting for a whole slew of other expenses and inflation is real, no matter the lies the government tells you about it. Anyway, there are a lot of passive funds that invest in things like tax liens, apartment syndications, hard money lending etc that pay over 10%
@Account Closed, It all depends on lifestyle choices. I'm not sure why so many people don't believe living off $40k is possible when it is EASILY possible in one of the richest countries in the world (the US). Let alone other places. Yes, that means you don't buy a new car every 5 years. Or eat out 5x a week. Or buy tons of stuff.
Thanks for the info on passive funds, I'm actually not too familiar with those!
Paul,
I'm investing only out of state since as you mentioned the price to rent ratio are terrible in the bay area.
We also have tenants friendly laws and regulations in CA so this is another big reason to consider landlord friendly states...
If you would like to learn more about out of state investments especially multifamily apartment complexes there is a meetup I host in Los Gatos. Feel free to check it out:
meetup.com/Los-Gatos-Real-Estate-Networking-Meetup