Passive Income?

[Tahoe1305]

I just checked. S&P500 has averaged 26% per year for the last decade. I know that isn’t normal (until it is though…..), but that rate of return (and risk level) can’t be matched.

That’s total return not annualized btw. I.E it’s increased 260% in the last 10 years.

 

[NRA4LIFE]

My wife and I rented out her condo when we bought our house in 1992. We decided it was too much of a PITA, especially when we were moving to WA in 1997.

 

[Jimmy]

I too see people adding on a smaller living quarters and renting out to traveling nurses(who make REALLY good money) for 6 months at a time or so.

 

[BreechFace]

It's amazing what you and your wife could put away in 2-3 years of each having a side hustle, even if it is Uber Eats, or the like. Put all that money in a separate savings and at the end make a smart purchase into a rental with a large down payment. This while getting yourself familiar with the housing market, educating yourself.

Sounds like you are handy, that is a plus and when you retire you will have time to piddle around at a rental changing out a garbage disposal or water heater and saving yourself some contractor fees.

 

[hikenhunt]

I was a landlord for about 4-5 years and had a terrible experience. I couldn't get renters to stay and the turnaround to find a new one always meant 1-2 months of no rent. I learned how hard renters are on things: Broken toilet bowl (still don't know how that happened), clogged and running toilet that flooded the bathroom, kitchen and carpeted living room (brand new carpet btw), water pouring from stovetop hood vent (bathroom above, tub faucet somehow came loose), furnace went out, water heater went out, mold in the bathroom, etc.

I couldn't rent for enough to hire out that work and I was starting a family at the time. I quickly realized how valuable my time was worth so sold it.

 

[grfox92]

It's pretty simple to weed out shitty tenants.

When you list the rental say in the add that you require, background check, credit check and proof of income. This will weed out most undesirable tenants. Not fool proof, but if someone is bad at paying their bills and broke, and in debt, they won't even bother pursuing.

People with great credit and plenty of money wouldn't bat an eye something like that.

Sent from my SM-S931U using Tapatalk

 

[Crowmangler]

I've come up with some interesting ideas over the years. I'd recommend running some very well thought out scenarios with actual legitimate, conservative real world numbers. Put them on paper& discuss with the bank, maybe even a property manager, etc. Gotta include insurance, loan interest, vacancies, taxes, maintenance, utilities, contingencies, "oh shit" events, etc. What is the best & worst case return on your money?
The numbers either work or they don't.
Then ask yourself "Is this really worth the time & overall bull shit for what I'm putting at risk?
Compare that to the historical ~10-12% return on an S&P 500 ETF. Add to that number what you (and or her) could bring in with a reasonable side gig.
Whatever you decide I wish you the best.

 

[Maverick1]

Looked at rental properties a few times. But, time is precious, so I put my money into the stock market. Less involvement than being a landlord, and all transactions are done according to my schedule, not those of a tenant.

 

[arrow179]

Typically in real estate most of your money is made at the buy. It is going to depend on your “market” and what the future upside in appreciation looks like. DON’T OVERPAY FOR A PROPERTY! I’ve bought and sold a bunch of real estate and have rolled the sale price into new properties using a 1031 tax deferred exchange. Most of what I have bought and sold has been rural real estate (farm ground). I think my next purchase will be some sort of commercial real estate with a triple net lease.

I agree with the other comments that you must do your due diligence in selecting the tenants as that will be either a blessing or a nightmare depending on the situation.

I’m currently in Florida and the real estate seems to be “expensive” for residential rentals but I feel pretty good about the upside and the current state of Florida government. I’ve thought about doing residential rentals but it seems like a lot of headaches.

If you don’t have the cash for a down payment I would definitely not pull it out of the equity of my personal residence. My goal is to have everything paid off in the next 9-10 years (the only thing I currently owe on is real estate) as I really despise banks! I don’t like writing those checks every month…

 

[pacoalcracker]

Consult this idea with your banker, your financial advisor if you have one, and a CPA/accountant. See what they have to say about it. In my opinion, you are doing well...don't screw it up now.

 

[180ls1]

I'd read "One Rental At a Time" first. Great book, pretty biased pro real estate though. Remember, there is potential for better returns with RE but it comes at more risk and more work. It's not passive.

Generally the best ROI is in your career. When is the last time you have diligently pursued a pay raise?

Those investments are worth a hard look also. Everyone is in love with the SP500 the past 10 years but remember the 10 years before that it did a big fat 0% for a decade...... that is a LONG time.

 

[MCS]

Rentals are great and you can do very well with them but you should never buy a rental that doesn't cash flow. I'm shopping for my next rental right now. I will most likely buy a new house because Lennar is buying mortgages down so it makes more sense to buy a new home in my market then a houses built in the 70's or 80's.

Figure in your costs mortgage, taxes, insurance, vacancies, repairs, property management. 15% vacancies and repairs and 10% for PM. Also keep a large amount of cash set a side for major repairs. The left over is what you get.

The home I'm in now is paid off so when I move to the next home the rent from this home will pay the mortgage on the next home.

 

[RS3579]

Good luck. I can’t wait till the day my rental is gone. Make sure it’s something you really want to do. Check the potential tenants as much as you can. If you both are not into it you’ll hear about it every time a light bulb needs changed. The rentals have too many laws on their side.

 

[String&stick]

Thoughts to think on. . .

I own 7 properties totaling 14 units. 4 single family homes, a triplex, duplex, and a 5 unit apartment.

We started with a couple of flips, rolled some money into the rentals, rentals were bought using the BRRRR method, buy, repair/renovate, rent, refinance, repeat.

Find a house with obvious update needs that you can handle or you can pay someone a reasonable amount to handle. Fix them up and take them from a D property to a C+ or B level property (fix the holes in the walls, remove old carpet, refinish wood floors, update bathroom/kitchen, etc).

We have used HELOCs for this with the intent/knowledge that we are buying a $100,000 house for $85,000, with a plan to put $15,000 of materials into it and our own labor, and knowledge and plan to have it appraise for $150,000 to $160,000 when we are done. Once we have completed the home we have it appraised as part of a refinance and we pay off the HELOC with the loan. In this manner our house is only "exposed" to the market for 3 to 6 months during the renovation process. We typically aim to have no more than 70% leverage on the property when finished.

This method has allowed us to start building a portfolio of real estate for late in life, it also give us the ability to trade up in the future with 1032 exchanges.

I don't love a heloc used at your age, but short term while you're still working isn't as big of deal as it is if it is a primary component of the financing.

Also look at self-directed Roth IRAs you could potentially purchase a house within the IRA. Not sure on your local but near me you can still find some fixer upper 2bd/1ba homes below 75k that you could dip your toes on

 

[Cervid]

Cattle prices are at record highs right now, I would not want to get into the cattle game right now.

Maybe I’m missing something, but if the price of cattle is high, wouldn’t you want to be a producer of cattle right now? I.e. higher prices incentivizing people to bring more supply?

 

[svivian]

Maybe I’m missing something, but if the price of cattle is high, wouldn’t you want to be a producer of cattle right now? I.e. higher prices incentivizing people to bring more supply?

If you already own cattle that are producing offspring absolutely. But if you don’t own any and are just getting started now not so much.

It would be like buying into the stock market at the peak. Cattle prices going to fall eventually

 

[backcountry_hunter]

The term passive income drives me insane and I reserve it for YouTuber self-proclaimed real estate experts with stupid haircuts that are driving corvettes flashing $100 bills. And then retreating to their parents basement when the video is done

Heavily invested into s&p500, have a paid for rental an hour away with a property management company that does 100% of it… and I still don’t believe any of the income from any of it is passive.

If you want to leave legacy type real estate for the next gen and your heart is intent on leveraging equity into a new investmen, black dirt in northern Iowa is probably your safest most “passive” bet

 

[SDHNTR]

There is absolutely nothing passive about being a landlord.

 

[bz_711]

Gated RV storage lots seems to be in high demand around here, maybe that's a way to go?!?

I like your thinking on that. Much easier business model than most things also - can nearly automate the whole thing with keypad gates...seems like people always need place to park RV, Boats, and trailers. I've seen some also have some full garages on the property and small businesses rent them for use (contractors, lawn guys, etc).

Good Luck!

 

[Tjdeerslayer37]

Thoughts to think on. . .

I own 7 properties totaling 14 units. 4 single family homes, a triplex, duplex, and a 5 unit apartment.

We started with a couple of flips, rolled some money into the rentals, rentals were bought using the BRRRR method, buy, repair/renovate, rent, refinance, repeat.

Find a house with obvious update needs that you can handle or you can pay someone a reasonable amount to handle. Fix them up and take them from a D property to a C+ or B level property (fix the holes in the walls, remove old carpet, refinish wood floors, update bathroom/kitchen, etc).

We have used HELOCs for this with the intent/knowledge that we are buying a $100,000 house for $85,000, with a plan to put $15,000 of materials into it and our own labor, and knowledge and plan to have it appraise for $150,000 to $160,000 when we are done. Once we have completed the home we have it appraised as part of a refinance and we pay off the HELOC with the loan. In this manner our house is only "exposed" to the market for 3 to 6 months during the renovation process. We typically aim to have no more than 70% leverage on the property when finished.

This method has allowed us to start building a portfolio of real estate for late in life, it also give us the ability to trade up in the future with 1032 exchanges.

I don't love a heloc used at your age, but short term while you're still working isn't as big of deal as it is if it is a primary component of the financing.

Also look at self-directed Roth IRAs you could potentially purchase a house within the IRA. Not sure on your local but near me you can still find some fixer upper 2bd/1ba homes below 75k that you could dip your toes on

this is the way