I'm going to go against the grain here. I'm a REALTOR, Property Manager, and investor in NC and SC. I am 100% biased and fully believe that if you are seeking a bit of cash flow and fast equity, Charlotte, NC, Greenville/Spartanburg, SC and Columbia, SC are the way to go. Because I know my markets well and have first hand experience in the cash flow and equity. I see it every day.
HOWEVER, if I were looking out of state for investments, I would not be looking in Ohio right now. My husband is from Ohio. I was super excited two years ago when he took me to get my eyes on properties I'd been watching and I was gravely disappointed. Those same properties are still worth about the same as they were when I looked at them 2 years ago. I do plan on purchasing there at some point - in maybe 2-3 years. But I don't think I'm "missing the bus" on not purchasing now.
With steady and proven markets like Charlotte, I know that if I don't purchase everything I can now, I may not be able to afford an investment property here in the near future.
@Stephanie Walker Greenville/Spartanburg how are your clients underwriting the numbers with the taxes imposed on out of state investors?
I am finding in state, homestead property purchase has say a $3k to $5k annual tax, same property by out of state investor, non homestead jumps to 12 -14K!! Thanks for your insight!
If you have that kind of money, you may want to look into Infinite Banking (IB) as a strategy. It's basically using life insurance as a tax free investment vehicle. So you 'over fund' your WL policy and if the policy is structured for IB, you can take out up to 90% of the funds you just put in as a loan. Loan rates vary but typically around 5-6%.
The concept is to then use the funds 'borrowed' to invest in RE or whatever will make you a return higher than the borrowed rate. So for example, you could be a private money lender at 15% annually and use the monthly returns to pay back your policy loan and pocket the difference tax free. The $ you 'pocket', can be used for whatever.... pay for your policy premiums, add to a SD IRA or QRP, add to a Roth, buy a property, JV with someone on a property, start another WL policy (maybe this one is for your kids college), buy a car (not the smartest move but you get the idea).
Unfortunately, we always need to keep taxes in mind because Uncle Same always wants a piece of the pie.
As always, consult a tax professional for your specific situation.
@Deb S.
Thanks for bringing up Infinite Banking (IB)! I haven't explored it extensively, but the concept of tax-free growth and leverage within a life insurance policy is intriguing. Would you be able to share more about how you find life insurance policies suitable for IB and structuring those loans? Also, how do you manage potential downside risks like market fluctuations and loan repayments?
1. Syndications %10+ returns
2. Mineral Rights ownership %10+ returns
3. TurnKey Single Family Home Rentals %10+ returns
4. Done for you landgeek investment easily %15+ returns
5. Own a semi passive franchise or 10. Depending on time constraints.
All of these are extremely passive except owning a franchise. But you could get your franchise up and running to the point of having a team run it while you’re semi passively managing it.
The best part of all of these are the tax advantages. Notes and stocks have zero tax advantages so you’re likely to lose money to the tax man. The goal is to take advantage of cash flowing investments with the intent of having a tax advantage. 10% cash flow returns are not an uncommon thing if you can find an experienced operator. Sounds like you’re in the right track of saving and being smart with your money. I would look more into keeping that hard earned money protected from the government.
@Alexander Petrovic
Thanks for the detailed options! I appreciate you highlighting the tax advantages, as that's definitely a crucial factor for me.
Hey BiggerPockets family!
My wife and I (mid-40s) are motivated W2 earners with a rental property under our belts, eager to expand our real estate portfolio and create significant passive income. We've set ambitious goals and are open to exploring diverse strategies to achieve them. Here's our financial blueprint:
Key Parameters:
Seeking Wisdom for Optimal Strategies:
Initial Explorations:
We've begun considering possibilities like:
Community Wisdom Requested:
We're eager to tap into the collective knowledge of this community! Share your insights on:
We're open to all ideas and perspectives! Thank you for sharing your expertise and helping us chart a path toward financial freedom through real estate.
Excited to learn from the best!
This is not exactly what you have planned, but if I were in your shoes, I would convert a retirement account (IRA / 401K) to be self directed and become a private/relationship lender. This is more active and real estate investor-like than just parking money in a syndication. Let's say you have 100k in an account, revolving this 100k 2-3 times a year to flippers should result in some outsized returns with lower risk and time burden than investing. Right now for our flips we are paying pretty close to 10% flat per deal with average timeline of 4 months. The interest is Annual based but when paying points up front and fees, these lenders are making 10%ish per deal we do. Revolve that three times in a year and you are looking at 40% annual returns. As a high income earner that can afford to continue to stack and scale, not to mention tax benefits and income sheilding of whatever retirement account you are using, this seems like the option I would want to grow.
@Will Clark Thanks for sharing this interesting option! I haven't explored self-directed private lending much, and the potential returns you mentioned are definitely intriguing.
However, I do have some concerns. Managing flips actively and revolving capital like that seems potentially more hands-on than I initially envisioned. Could you elaborate on the level of effort involved in sourcing and evaluating deals, managing loan terms, and navigating potential risks?
Hey BiggerPockets family!
My wife and I (mid-40s) are motivated W2 earners with a rental property under our belts, eager to expand our real estate portfolio and create significant passive income. We've set ambitious goals and are open to exploring diverse strategies to achieve them. Here's our financial blueprint:
Key Parameters:
Seeking Wisdom for Optimal Strategies:
Initial Explorations:
We've begun considering possibilities like:
Community Wisdom Requested:
We're eager to tap into the collective knowledge of this community! Share your insights on:
We're open to all ideas and perspectives! Thank you for sharing your expertise and helping us chart a path toward financial freedom through real estate.
Excited to learn from the best!
@Michael Norwood, I was literally thinking about the same thing.
I am going to share with you my strategy that I was thinking of implementing.
Strategy:
1. Buy 20 4-plexes
2. Each 4-plex has to produce $1,000 per months from 4 units meaning 1 unit = $250 per months
3. Assuming you are not using other people money and you have 100K to invest each year, consider buying 2 4-plexes per year within first 4 years
What does it look like?
You spend 50K per one 4-plex
Downpayment = $40K with closing cost and other cost of $10K
If downpayment is $40K and it's 20% of the purchase price, then the purchase price needs to be around $200K per 4-plex. Absolutely doable depending on a state you are buying.
So after 4 years, you have 8 4-plexes that produce 8K per months.
4. If you don't spend your income from 8 4-plexes and continue to invest new money now your investment size is 200K per year, now you can:
- buy 4 4-plexes per year
- you need just 3 years to be at 20 4-plexes
5. And now, you reached your goal within 7 years
Option 2
1. Repeat steps 1 through 3
2. If you buy each 4-plex once in 6 months, you are potentially creating:
a. Bought 1st 4-plex at 6th months - after 4 year mark you generated - $42,000
b. Bought 2nd 4-plex at 12th months - after 4 year mark you generated - $36,000
c. Bought 3rd 4-plex at 18th months - after 4 year mark you generated - $30,000
d. Bought 4th 4-plex at 24th months - after 4 year mark you generated - $24,000
e. Bought 5th 4-plex at 30th months - after 4 year mark you generated - $18,000
f. Bought 6th 4-plex at 36th months - after 4 year mark you generated - $12,000
g. Bought 7th 4-plex at 42nd months - after 4 year mark you generated - $6,000
h. Bought 8th 4-plex at 48th months - after 4 year mark you generated - $0,000
2. So here's the math:
By month 30th, you'll have $60K and you spend another 40K to buy house #9. You have 20K left. You house 9 starts generating income.
By month 36th, you'll have $116K and you spend another 80K to buy house #10 and #11. You have 36K left. You house 10 and 11 start generating income.
By month 42nd, you'll have $180K and you spend another 160K to buy house #12, #13, #14 and #15. You have 20K left. Your houses 12-15 start generating income
By month 48th, you'll have $224K and you spend another 200K to buy house #15, 16, 17, 18, and 19. You have 24K left
So after 4 years, considering the best case scenarios (you find houses to buy, nothing breaks, and houses are not empty), you could have $20K per months
Best,
Eugene Nilus
CEO/Founder, Y2 Lending LLC
Co-Founder/Fund Manager, Y2 Capital Group
https://y2lending.com
@Eugene Nilus
Wow, you've laid out a detailed and ambitious plan! I love your structured approach and the acceleration strategy in Option 2. Could you expand on how you anticipate finding 4-plexes at your target price point and managing vacancies across such a large portfolio?
You've got a bunch of responses quickly! Let me add..
With your time constraints and capacity, definitely just jump straight into the actual passive activities. Private lending / note investing can be extremely passive and lucrative. Doing 12%+ you can double your money even after taxes in ~9years. That is compounding, if you can keep your funds working for you. You can't really compound your funds with a rental's cash flow.
You've got REITs on your list... Yes, the public markets is extremely passive. Just like spending time educating yourself about the various facets of the real estate market, investigate the public markets. There are other securities and funds that do 10% or better. You can use them either now to increase your wealth, or use them later after you've generated wealth to passively generate income.
Diversify and do a bit of both...
As for your question about "ripe markets," look at debt / bonds. Some yields-to-maturities (the effectively 'yearly yield' you get for each year you hold until it matures) are close to 10%. You can "lock-in" your growth (and still get the coupon). The risk profile is completely different, its just the counterparty risk.
Focus on generating wealth over the next 10 years, then look to switch to generating income / cash flow --- however, you do it.
P.S. I saw the other comment about tax rates on flips. Its just your ordinary/marginal rate on your profit. Self-employment tax, too, but I 'm guessing you two have that maxed out, or just about.
@David M.
Wow, you raise some fascinating points! Private lending and debt/bond options with high yields are exciting possibilities I haven't fully explored. Could you elaborate on your experience with these avenues? How do you typically find and evaluate private lending deals, and what kind of counterparty risk do you manage in the debt/bond market?
Working backwards at 6% cap rate you'll need approximately $4M. With the amount you're putting in that comes back to returns of about 15% IRR which is probably tough without being hands on or a significant reduction in interest rates. With that said it's possible buying turnkey on MLS: 20% down with 5% appreciation should yield 15% even if your rents only cover expenses and note payments.
With that said you probably have less head ache buying google, Microsoft and other tech giants. they consistently have return on equity in the 15-20%
Thanks for breaking down the numbers! $4M for a 6% cap rate is definitely significant. Your point about 15% IRR being challenging makes sense. The turnkey on MLS route with appreciation potential is interesting, but I'm curious about the potential risks and the hands-on aspect involved. Could you explain your experience with those?
Hey Michael, I'll chime in with what's worked for me. But understand it might not be ideal for you and your situation. You do have similar goals to what I had though.
I chose to invest in Detroit, largely SFH's and MFH's as LTR's. At the time the market there made sense for my goals. I wanted to build strong cash flow so I didn't have to rely on a W2.
I started slow, it was clearly working, so I ramped up fast. I built from zero to 12-doors in 2.5 years, largely through finding off-market deals and doing cosmetic updates to force equity and then refi out.
It worked extremely well, and still works well there today. My gross cash flow is $16,500/mo with a bit more than half of that as net profit.
I'm still investing in Detroit and extremely active there. Happy to provide you some resources on that market if you're looking into it.
I'm also now building an ADU at my primary here in California. Once done I'm officially financially free and not entirely sure yet where I'll be investing. But it will likely be a mix of Detroit and stuff here locally now that cash flow isn't my only focus.
@Travis Biziorek
Thanks for the perspective! I hear you – different strokes for different folks. Your Detroit strategy's impressive, but I'm hesitant about jumping in too fast. Maybe starting slow and scaling up over time like you did makes sense for me. Any tips on finding those off-market deals and managing initial workload with multiple properties?
Hi Michael,
welcome to BP. 20k passive in 10 years is a very modest target when your investment capacity is 80-100k in the first 4 years and 5-10years up to 200-300k.
I think a mix of investment methods are needed to optimally increase your cash position and asset value, while keeping taxes low.
From experience I know you make around 7% per house flip where you invest into a flipper. If you are not taking out the 7% gain after about 3 months ( typical length of a flip ) and you let it compound in a year. You get 4 flips with 7% each. Because is compounding you get around 30% in return. This means if you invest 100k you will make 30k passively in your first year already. The issue here is high capital gain tax, the 30K capital gain will be taxed with 25% + your personal income tax, when you two are able to invest 80k-100k the first years and later 200k-300k then your tax bracket is already very high. For that reason I would suggest to keep some of the flips or buy some of the flips outright. For example if you buy a fixer upper for 200k put 70k into renovation, you can use the 70k for capital improvements which are totally tax deductable. Means the next flips are capital tax free. You want to keep some of the better flips not just for delaying/avoiding taxes but also use it for passive cashflow, appreciation, loan amortization and just to control assets.
If you use the flips to keep it as long-term rental or short-term rental is up to you. Short-term are making about 1.5 - 1.75 more than regular rental after management and utilities but require a bigger initial investment. A rough estimate is 20-25 USD per SQFT for doing short-term.
All being said. A mix strategy with a portfolio in single family houses focused on long-term to decrease taxes, multi-family properties for short-term for passive cashflow and flips for more $$$ to invest is the best strategy. Of course markets also tends to play a role. So being flexible, adaptable and skillful in more real estate investment ways will lead to bigger success.
Real estate investment being an exponential grower, 20k passive is hugely underestimated. Think about it year 5 to 10 is about 1.25m invested, 240k passive means just 19.2% in return. We have already 30% return in the first year just by flipping. Not adding the different plays with avoiding/delaying taxes, appreciation, passive income and so on.
Real estate tends to be overestimated in the first 3 years but hugely underestimated in 10 years.
Thanks for the insightful advice! While flips sound tempting, we're currently swamped with work and can't commit the hands-on time they require. Appreciate you highlighting the tax implications, too. We'll definitely consider your mix strategy of long-term rentals, short-term rentals (loving those numbers!), and potentially some selective flips for capital gain benefits. We're flexible and open to learning, so your adaptability point resonates strongly. Aiming for $20K/month might seem modest now, but your compounding example really opens our eyes to the potential! Thanks again for welcoming us to BP and sharing your experience. This was invaluable info!
The flips I mentioned were when you invest into a flipper group. For example I generate at this time ( one of the harder times for flippers ) about 9-12% in return, I charge 35% to my investors of their profit. So if my investor make 10k, I would charge them $3500. I usually have around 30% in the deal myself. So I would have the best interest for the flip to go well for the group. My investors would be limited partners. If you have any questions or need help to make decisions let me know.
@Michael Thach
Thanks for sharing your insights, I really appreciate you taking the time to explain details about your flipper group and the options for investors. I'll certainly take your information into consideration as I explore different investment opportunities. Best of luck with your future flips!
@Michael Norwood
I'm a lazy SFR investor that works full time. I've been investing for 8 years and cashflow 17k/month off my rentals not counting maintenance, cap ex and vacancies. I'm all in for about 100k of my own money over the years and have paid myself back every penny I've ever put into RE. So it's infinite cash flow from here on out with no skin in the game after paying myself back with cashflow. You're willing to put a lot of $ in over time. If that's the case, you could double or triple what I've done. I would go for buy n hold SFR in C+ class hoods. They appreciate the most and tenants usually can't afford or qualify to buy homes so they stay with you forever keeping turnovers very low. And the ROI is much higher in with these cheaper homes. Good luck!
@John Morgan
Wow, 17k/month from SFRs is seriously impressive! Doubling down on your niche clearly paid off. I respect your approach and the hard work you've put in. You're right, I'm willing to commit over time, and hearing your success with C+ neighborhoods is interesting. Could you tell me more about tenant trends and managing vacancies there? Any specific strategies you found effective?