Discussion rental verse investing

[Atretes1]

So a little about me. I am 48 retiring at 56 with a nice pension. Half of my net worth is rental properties. I have 7 doors. 4 doors will be paid off within 3 years of me retiring. I would like to max out all my retirement spaces for the next 7 years, If I don't do overtime that's 40% of my w2 income. I do have the ability to do overtime but I will probably slow that down. I do make 30 grand extra on my rentals not including extra maintenance or capex costs. I have also been throwing extra money in a taxable brokerage for fun money when I retire at 56. I've been debating on throwing all my extra money in the brokerage verse buying more rental properties. I realize cash flow is not the only way you make money on rentals (cash flow, appreciation and tax benefits). My employer does not match any of my retirement funds besides the pension but I would like to have 1.5 to 2 mill invested in 7 years. I have 700k invested now.

I guess I am curious. How many of you have w2 jobs and also have rentals. Do you still invest in retirement plans/other areas also?

[Jluke]

7 properties and 30k doesn’t seem like your rentals are really profitable.

have you ever done an analysis to determine the rate of return?

of course selling 7 properties would probably bring in a lot of cash since it seems like you don’t owe much on them.

I just always hear mixed stories about the good and bad of being a landlord.

I own zero rentals so all I have is 401k, Roth IRA and taxable account. Same age as you.

[kork13]

I mentioned in your other thread, but I'm in a somewhat similar position -- 38 y/o, W2 job (military), looking ahead to a pension, and healthy amounts in IRAs & TSP. I've currently got 1x $250k rental property, plus $500k invested in Real Estate Limited Partnership (RELP) syndications doing a handful of development projects. In all, real estate accounts for roughly ⅓ of our total net worth.

For the longest time, our plan has been to build up to no less than 3 rental properties by the time I hit retirement eligibility in 4 years ... Though that plan may now be changing, to focus our non-retirement investment money more toward RELPs instead. There's more to the story, but in short, RELPs are less hands-on but offer a great ROI potential, and I appreciate those facts.

The rental provides ~$10k/yr income above expenses. Notable for us (and this is an uncommon philosophy), but I hate debt, and refuse to use mortgages ... I know that reduces our overall ROI, but debt-free RE provides way less stress & way more stability. I love it.

The RELPs are very new (within the last month), so they aren't cash flowing yet ... But I anticipate those should throw off ~$30k-$35k/yr within the next 3 years, then expect to eventually get a big payout ($1M+) upon sale of the partnerships' developed assets (5-10+ years from now).

Even still, I'm a big fan of using rental property for producing income as well as asset growth. To your question, I've actually been a fan of doing both -- we invest money into our brokerage, let it build up, then as we have enough built up to make a new RE investment, we sell from the brokerage & move it into the next RE deal. As I see it, retirement accounts cover the traditional investments (stocks, bonds, etc), and real estate covered the rest. You just have to keep a reasonable balance, because as we saw in 2006-2008, real estate can be great, or it can be terrible. So you need to balance your exposure across multiple/many asset types.

[Atretes1]

7 properties and 30k doesn’t seem like your rentals are really profitable.

have you ever done an analysis to determine the rate of return?

of course selling 7 properties would probably bring in a lot of cash since it seems like you don’t owe much on them.

I just always hear mixed stories about the good and bad of being a landlord.

I own zero rentals so all I have is 401k, Roth IRA and taxable account. Same age as you.

Actually, they do pretty good. All my properties are worth about 1 million I have about $438,000 left to pay them off. I am not sure how many more rentals I want to buy but if I see a good deal I will jump on it. its harder to cash flow now with higher interest rates and such compared to my original properties. Hence, why I switched to 30 year loans.

Property 1
Cash on cash return 19%. Bought for $83,000 in 2016 now worth about $130,000. I have the original tenants in this property and they have paid half of it off. 15 year note. Will be paid off 1 year before retirement.

Property 2
Cash on cash return 20%. Bought for $81,000 in 2017 now worth about $125,000. 15 year note. Will be paid off during retirement.

Property 3
Cash on cash return 19%. Bought for $195,000 in 2018 now worth about $280,000. 15 year note. Will be paid off 1 year after retirement.

Property 4
Cash on cash 19%. Bought for 125,000 in 2023 now worth about $140,000. 30 year note.

Property 5 BRRRR
This was a BRRRR in 2023 on a 20 year note. Cash on cash 12%. I have $125,000 into this property. It appraised at $155,000. I did a cash out refi of 110,000. I left 15k in the deal as a down payment. It cash flows the worst of all of my properties. But it was also a fantastic BRRRR for net worth.

Property 6 BRRRR
This was a BRRRR in 2023 on a 30 year note. I have 95k into it. It appraised at $115,000. I did a cash out refi on this for $92,175. So I only left about 3 grand in the deal as a down payment. I cash flow $3492 a year on this property. That's more than my down payment a year.

[Atretes1]

I mentioned in your other thread, but I'm in a somewhat similar position -- 38 y/o, W2 job (military), looking ahead to a pension, and healthy amounts in IRAs & TSP. I've currently got 1x $250k rental property, plus $500k invested in Real Estate Limited Partnership (RELP) syndications doing a handful of development projects. In all, real estate accounts for roughly ⅓ of our total net worth.

For the longest time, our plan has been to build up to no less than 3 rental properties by the time I hit retirement eligibility in 4 years ... Though that plan may now be changing, to focus our non-retirement investment money more toward RELPs instead. There's more to the story, but in short, RELPs are less hands-on but offer a great ROI potential, and I appreciate those facts.

The rental provides ~$10k/yr income above expenses. Notable for us (and this is an uncommon philosophy), but I hate debt, and refuse to use mortgages ... I know that reduces our overall ROI, but debt-free RE provides way less stress & way more stability. I love it.

The RELPs are very new (within the last month), so they aren't cash flowing yet ... But I anticipate those should throw off ~$30k-$35k/yr within the next 3 years, then expect to eventually get a big payout ($1M+) upon sale of the partnerships' developed assets (5-10+ years from now).

Even still, I'm a big fan of using rental property for producing income as well as asset growth. To your question, I've actually been a fan of doing both -- we invest money into our brokerage, let it build up, then as we have enough built up to make a new RE investment, we sell from the brokerage & move it into the next RE deal. As I see it, retirement accounts cover the traditional investments (stocks, bonds, etc), and real estate covered the rest. You just have to keep a reasonable balance, because as we saw in 2006-2008, real estate can be great, or it can be terrible. So you need to balance your exposure across multiple/many asset types.

Half of my properties get paid off near retirement. I floated the idea of fast tracking paying the others off also. The more that are paid off means higher cash flow but also slower in scaling of properties. Paid off properties definitely can give you piece of mind.

[bjl584]

Cash on cash metrics are nice, but they can get people in trouble, because high returns cash on cash often mean high leverage.

I would start paying down the properties that you have and slow down on scaling your portfolio.
A lot of people BRRRR themselves into oblivion as soon as there is a large expense or an extended vacancy.

[Atretes1]

I put 25% down on all my properties except my last 2 Brrrr's. The first 3 properties are on 15 year loans. I have a lot of equity.

[Atretes1]

I put 25% down on all my properties except my last 2 Brrrr's. The first 3 properties are on 15 year loans. I have a lot of equity verse leverage.

[riverwed070707]

This is a simpler equation than most people make it out to be. The only questions that matter are 1) how much are you going to spend in retirement and 2) how much more do you need to get there.

Unless your spending is really high, I'd venture to guess you're overestimating what you'll need. I think its good to have some overage to allow some flexibility but sounds like you're kind of there already. Here's how I'm structured:

Estimated retirement expenses=$42k
7 doors across 3 properties (with mortgages)=$42k/yr net
$200k SDIRA lent out as hard money loans=$20k/yr (reinvesting gains until traditional retirement age)
$60k personal savings lent out as hard money loans=$6k/yr (reinvesting until projected retirement at 42, then will serve as efund)
401k and Roth=$255k, contributing 20% gross income for 3 more years, then will just grow til 65

Planning to retire at 42 and live off rentals. As 65 approaches, I'll start selling off the rental portfolio and either investing in stocks or HML. Those will more than cover my living expenses and I'll have my meager 401k and Roth as a backup and to cover medical as we age. No plans to pay off my rentals early except one that's on a commercial loan coming due in a couple years. I'll pay that off when I sell my primary home increasing my cash flow $7,200/yr. The other 2 are at 3% and there's no reason to pay them off sooner.

Short answer to your question is yes I have a W2 and use traditional plans but they are primarily a backup plan and I'm not striving for huge numbers with them.

[Atretes1]

42 is a nice age to retire. I wish I started earlier to be able to do that. Part of my plan is finishing my pension so I have 7 years left. My pension is a big thing tho. It will pay me more than my base pay in retirement so it is worth finishing my 7 years out. I have 7 doors and make 30k of of them. If they were all paid off they would net me about 80k. Half of them will start getting paid off in 7 years.

[riverwed070707]

Curious why if your pension is more than your base pay now, plus you have the rentals, you're concerned with such a large number in your brokerage? Is there a risk your pension could go away?

[LivingAlmostLarge]

I think that rentals make for a cheaper retirement plan because of leverage. If you leveraged stocks the way you leverage rentals at 20% you'd be also able to retire soon. But there is a lot more risk in the market. That being if you play stocks you could be seeing a 400% in a year (here's looking at palantir last year and nvidia before that). I mean if you happen to hit it big with tesla, AMD, amzn, msft, google, etc well just like rentals people retire millionaires overnight.

I say that because we know people who made $10M+ on tesla just happened to hit for them and they retired. I know someone else who hit on nvidia and amd. I made a nice pile of cash last year on palantir personally. And another friend who made a lot on BTC. That's the only way I would say that the market is equivalent to rentals.

But rentals I think are a great way to provide basically an annuity. I am like kork right now. Kork how did you find your RELP?

[kork13]

LAL: Can't quote or use any of the text editing buttons properly ... but I answered about the RELPs to your question in my original thread about it -- https://www.savingadvice.com/forums/...545#post750545

[Atretes1]

riverwed070707 I am maxing out my 457, IRA and HSA. I have nowhere else to put the cash. I have too much cash and want it invested or to buy rental properties. Plus, it will be a nice buffer of fun money from 56 to 59.5. I also might want to by a Lambo when I retire...lol

My Pension is as secure as the State of Kansas is.

[Randomsaver]

It's not rental income but capital gain. Just think of it as a stock. Buy a stock sell a stock, what is the gain?

You can buy 10 properties without renting and earning a cent of rent from it, and still come out really good on the returns.