All Forum Posts by: Jeffrey D. Logan

So I have started down the path of figuring out my roadmap to financial independence and trying to figure out how real estate fits into this equation. My net worth is pretty much split between a stock/bond portfolio and two rental properties. Most of the financial independence advice I seem to find online seems to either cater to those fully invested in real estate or those fully invested in stock/bond portfolio. I’ve got a mix, and am wondering how best to calculate your net worth “number” and withdrawal rate in that context.

The standard 4% withdrawal rule (must have assets of 25x needed income) assumes some rate of a return in a mixed portfolio of stocks and bonds. How does the standard 4% withdrawal rule work with real estate investments sprinkled in to your overall portfolio?

In a hypothetical example, say you have real estate investments that between cash flow, principle pay down and appreciation have been netting a rate of return similar to or better than what the stock/bond mix has, in this case I would be counting all my equity in these properties as just part of my broader, overall net-worth "number." However, I understand that the concept of "withdrawal" on a rental property isn't the same as it is for stocks/bonds. Additionally, at some point in this hypothetical roadmap, I would like to consolidate the properties and perhaps sell some to pay off others so that I own them free and clear and they're spitting off a much higher cash flow. At that point, I'll obviously be getting a much lower return on my equity going forward, but the higher cash flow will essentially be lowering the amount of income that I'd need to withdraw from other investments. I'm struggling with how to think about and classify real estate in the broader context of what my "number" is. When owning the properties free and clear, is it best to think of them only on the income side of the equation and not on the asset growth side? That is, if I own a 200k property free and clear with a NOI of 12k, should I just remove the 200k from my "number" and subsequently reduce my expenses that I use in the calculator by 12k?

Basically, in the context of FI and your broader portfolio, should you think of income properties just like any other asset with their own ROI (no different than a stock or bond), or should the expected income from these just be deduced from what you expect to spend, and you really ignore the equity portion of it.

I think this more broadly speaks to the question of how to transition from growth to income and how to plan for that as you build out your real estate AND stock/bond portfolio.

Any thoughts/advice appreciated! 

Thanks for the insight guys. So @Account Closed you're basically saying that you'd keep building that reserve up even after I've covered 6 months as opposed to investing it? I should have been more clear that when I said "pay myself" I really meant re-invest into something else (stocks, Fundrise, etc.). That's an interesting thought on renting out per bedroom, hadn't considered that. I ended up getting $1,500 per bedroom close to Teele Square, so was happy with that. Just curious, what do you consider as "low" or "high" month to month cash flow for this area? 

Hi all,

First time landlord in the Boston area here. Quick background: wife and I are moving to NH after being in a Somerville condo for 3 years. It has appreciated about $130k since we bought it ($570k to ~$700k). We were able to keep the condo and rent it out and it should cash flow (after mortgage, taxes, HOA and all expenses) around $250 a month. Obviously won't be the greatest cash-on-cash return if i were buying solely for a rental property, but the plan is to try this out for a while while betting that appreciation in Boston market will continue. We'll re-evaluate next year and decide whether to pull out the equity we have and invest in cheaper markets where the cash on cash return would be greater.

Anyways, I've read "The Book on Rental Property Investing" just to give me some background on real estate investing in general and the advice there is to keep 6 months of full expenses in cash reserves. He also outlines later on in the book how to account for big ticket capital expenses from a monthly budgeting perspective. So my question is, when do you consider it safe to start reinvesting the cash flow coming in? If you've already got 6 months of reserves in the bank, does a quarterly distribution of the cash above that make sense (where it could then either be re-invested into something else or saved for another downpayment)? Or should you just keep piling on the reserves for when that big ticket item like a new roof comes in? And how do you guys account for those unrealized, large expenses when analyzing your investment performance where you had budgeted for those expenses but haven't actually realized them yet (e.g. I've been budgeting for a new roof for 3 years but have not actually realized that expense yet and have actually re-invested some of the cash that would have otherwise gone towards that because I have enough in reserves)? 

Thanks and looking forward to being a part of the BiggerPockets community!

JD