All Forum Posts by: Michael Norwood

Quote from @Chris Seveney:

@Michael Norwood

You would be close if you reinvested the earnings every year

Assuming you can make 8-10% per year by year ten you will have $1.6M-$2.2M invested not including the reinvestments

Thanks for highlighting the potential impact of reinvesting earnings! Even without it, reaching $1.6M-$2.2M in ten years through real estate is a testament to its consistent growth potential. We're definitely committed to this path for its unique benefits.

I'm curious, though, are you suggesting specific real estate strategies that could potentially yield those 8-10% annual returns you mentioned? We're eager to maximize our income within this asset class while keeping it uncorrelated to the market.

We're already well-diversified in the market, but real estate offers advantages that make it particularly appealing to us, such as tax advantages, passive income potential, and stability.

Do you have any insights on avenues within real estate that could align with our goals?

Quote from @Michael Thach:

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!

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:

• Investment horizon: 10 years (2024-2034)
• Goal: $20,000/month cash flow from real estate
• Investment capacity:
  • Years 1-4: $80,000 - 100,000/year
  • Years 5-10: Up to $200,000 - $300,000/year

Seeking Wisdom for Optimal Strategies:

• Time constraints: We have busy schedules, so low-maintenance options are preferred.
• Cash flow priority: Our primary focus is generating steady monthly income.
• Open to possibilities: We're receptive to various models, asset types, and strategies that align with our goals.

Initial Explorations:

We've begun considering possibilities like:

• Single-family rentals (SFRs): Potential for consistent cash flow and appreciation, but require varying levels of management.
• Vacation rentals: Potential for strong cash flow, but seasonality and management considerations.
• Syndications: Access to larger deals, professional management, and diversification, but less control and potentially lower returns.
• REITs: Passive income with minimal effort, but returns might not reach our target.
• Creative financing: Options like seller financing or joint ventures to potentially accelerate growth.

Community Wisdom Requested:

We're eager to tap into the collective knowledge of this community! Share your insights on:

• Optimal strategies: Which approaches have proven successful for reaching similar goals, considering our time constraints and cash flow focus?
• Recommended models: What specific models or asset types would you suggest we explore?
• Market insights: Are there particular markets or regions ripe for investment, given our timeline and objectives?
• Experience-based tips: What lessons have you learned that could guide us on our journey?

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!