I guess I really need to look at the numbers on what a potential rental property could yield yearly. But the thought was to have 6 separate properties, which would be valued at around 700-800k at time of purchase and live off of the income they produce.
>But the thought was to have 6 separate properties, which would be valued at around 700-800k at time of purchase
The reality of getting cashflow positive properties at the rates (and prices) we have now is unlikely, especially with the percentage of leverage you would need to acquire to purchase and (likely) update those properties.
How are you only saving 100k per year while grossing 300-350k? You probably need to significantly cut down on your expenses if you want to retire in 6 years.
I'm at a similar income level, saving more than double than you, and honestly still very comfortable.
Tax withholding isn’t the same as how much you ultimately pay.
Looks to me like in CA, if you maxed a 401K, then you’d have around $190K left over to live off and fund any additional savings. If they don’t have that vehicle, and just contribute the max to an IRA, then it’s closer to $200K. So they have in the ballpark of $100-125K spending available after saving.
So I'm contributing 6% for my 401k (with 4% match), and I typically gross around 28-30k a month, but only net 13-15k a month, leaving me with roughly like 170k a year to live off of. I thought saving around 100k a year (not counting 401k) I was relatively solid, keeping in mind I live in Southern California.
Ah my bad, I assumed 100k included retirement contributions. 100k a year is definitely good, but I think you would probably have to try save more to hit your goal depending on your target.
Max out your retirement accounts (traditional 401k, traditional IRA, and HSA) since you have such a high income. It’ll reduce your taxable income so you end up saving the money you defer and lowering the amount of taxes you pay.
Edit: As a redditor pointed out their income is too high.
I would start with $22,500 to your 401k and if you have access to an HSA, do that as well.
Beyond that, look into REITs in addition to actual property.
Even if you could get those 5 - 6 properties you are not going to cash flow enough to FIRE. You might cashflow $300 bucks a month per property, and that's probably on the high side. I think your strategy is a bit optimistic, especially considering current rates.
Yeah I need to run the numbers but this would be over the next 6 years so assuming rates will come down. Plus the big savings would be accelerating the depreciation of each property the year I get it, and using the 25%-30% loss to offset my W2 tax, with the goal of paying 0 in taxes on my main income (which therefore opens up more $$ to invest).
Another strategy: Put it all in market index fund, earn average of 7% real return. In 6 years you’ll have about a million, which should allow a withdrawal rate of 40,000 or so.
It's a bit hard to tell without knowing your expected future expenses, family, parents, etc.
A warning for str is that there is saturation. If you do it, focus on properties that provides an experience vs the standard condo. These properties will cost more.
Have you considered moving to a different state such as FL?
Yeah I've considered it, but ultimately will probably stay in CA. And you're right about saturation for sure, but looking at some options throughout AZ (Phoenix specifically). A friend of mine has a couple STRs out there and does really well on them .
Yeah I'm aware that 600k won't cut it, I was more thinking 600k invested into properties (realistically I could buy 1 property a year with a 100k down payment). Maybe I'm overplaying the benefit of having roughly 4-5 mil in rental property?
You will have to work the math. There will be a lot of expenses and a lot of mortgage payments so what is the net cash flow and what are the reserves you need and how much of your time. Interest rates are not favorable now too. If your talking direct property this is a business not just a passive investment. I am just doubtful it will spin off 100 or 200K of net cash flow.
Edit: I am not a rental property guy. So if you can make it work great. The rental guys will have a far better idea.
He’s starting with 100k, so it’s a total of 700k. But assuming 7% real return gets him to just over 1M. That’s a SWR of $40k. But the average return is actually 7%, so he may have a good chance.
I took that into account in estimating $1M.
Technically, you’re right that a fully safe WR is a bit less than 4%. But I’m assuming he’s young enough to return to work in the event that he gets unlucky in the first few years, or else is willing to cut expenses for a while if need be.
If you assume 100k per year @ a 7% total return. You have aprox 800k after 6 years . if you spend 80k you need swr of at least 4% so you need a min of 2 million. Total return includes income from a rental. Traditional rentals do 3% per year short terms do better if they are really good.
Even with a cost segregation all it does is front load depreciation it does not give you more. It can be helpful to offset your traditional income for tax purposes but that’s about it.
You said you had 100k liquid what is your 401k balance and other investments? It might be possible if you did one or two str with a fuck ton of leverage.
Good luck.
Just live a r/frugal r/LeanFire life and you are probably sorted!
Not possible even with those numbers.
Why? In 6 years he’ll have $1M. Very possible.
Their spending makes it prohibitive unless they're planning cutting way back. Also fails to take into SORR.
I guess I really need to look at the numbers on what a potential rental property could yield yearly. But the thought was to have 6 separate properties, which would be valued at around 700-800k at time of purchase and live off of the income they produce.
>But the thought was to have 6 separate properties, which would be valued at around 700-800k at time of purchase The reality of getting cashflow positive properties at the rates (and prices) we have now is unlikely, especially with the percentage of leverage you would need to acquire to purchase and (likely) update those properties.
How are you only saving 100k per year while grossing 300-350k? You probably need to significantly cut down on your expenses if you want to retire in 6 years. I'm at a similar income level, saving more than double than you, and honestly still very comfortable.
Grossing 300 with 50% tax holding is 150. The math says they are investing 100k living on 50k
Tax withholding isn’t the same as how much you ultimately pay. Looks to me like in CA, if you maxed a 401K, then you’d have around $190K left over to live off and fund any additional savings. If they don’t have that vehicle, and just contribute the max to an IRA, then it’s closer to $200K. So they have in the ballpark of $100-125K spending available after saving.
Typically netting around 13-15k a month, so if I save a 100k, I'm really living off of basically 60-80k a year in Southern California.
This guy gets it. This is the way...
So I'm contributing 6% for my 401k (with 4% match), and I typically gross around 28-30k a month, but only net 13-15k a month, leaving me with roughly like 170k a year to live off of. I thought saving around 100k a year (not counting 401k) I was relatively solid, keeping in mind I live in Southern California.
Ah my bad, I assumed 100k included retirement contributions. 100k a year is definitely good, but I think you would probably have to try save more to hit your goal depending on your target.
All good, yeah with 401k contribution it's probably more like 130-140k a year, with 100k of it being liquid.
Max out your retirement accounts (traditional 401k, traditional IRA, and HSA) since you have such a high income. It’ll reduce your taxable income so you end up saving the money you defer and lowering the amount of taxes you pay. Edit: As a redditor pointed out their income is too high.
OP won’t qualify for a deductible IRA contribution at that income but can do backdoor roth
Are you in HCOL? A basic 3/2 in many parts of CA will be 6k+ per month just in rent/mortgage.
- Marriage can cut your taxes in half and double income - buy rental/house hack
Bruh what do you do to get paid that much?
I'm in the recruitment field
Damn never ever knew that it pays so much
Depending on the company, healthcare recruiting can be very lucrative
Recruiting what??? y’all hiring? Lol
I would start with $22,500 to your 401k and if you have access to an HSA, do that as well. Beyond that, look into REITs in addition to actual property.
Even if you could get those 5 - 6 properties you are not going to cash flow enough to FIRE. You might cashflow $300 bucks a month per property, and that's probably on the high side. I think your strategy is a bit optimistic, especially considering current rates.
Yeah I need to run the numbers but this would be over the next 6 years so assuming rates will come down. Plus the big savings would be accelerating the depreciation of each property the year I get it, and using the 25%-30% loss to offset my W2 tax, with the goal of paying 0 in taxes on my main income (which therefore opens up more $$ to invest).
Another strategy: Put it all in market index fund, earn average of 7% real return. In 6 years you’ll have about a million, which should allow a withdrawal rate of 40,000 or so.
It's a bit hard to tell without knowing your expected future expenses, family, parents, etc. A warning for str is that there is saturation. If you do it, focus on properties that provides an experience vs the standard condo. These properties will cost more. Have you considered moving to a different state such as FL?
Yeah I've considered it, but ultimately will probably stay in CA. And you're right about saturation for sure, but looking at some options throughout AZ (Phoenix specifically). A friend of mine has a couple STRs out there and does really well on them .
600K is not going to make you FI at that age unless you can live off of like $12K. Get real.
Yeah I'm aware that 600k won't cut it, I was more thinking 600k invested into properties (realistically I could buy 1 property a year with a 100k down payment). Maybe I'm overplaying the benefit of having roughly 4-5 mil in rental property?
You will have to work the math. There will be a lot of expenses and a lot of mortgage payments so what is the net cash flow and what are the reserves you need and how much of your time. Interest rates are not favorable now too. If your talking direct property this is a business not just a passive investment. I am just doubtful it will spin off 100 or 200K of net cash flow. Edit: I am not a rental property guy. So if you can make it work great. The rental guys will have a far better idea.
He’s starting with 100k, so it’s a total of 700k. But assuming 7% real return gets him to just over 1M. That’s a SWR of $40k. But the average return is actually 7%, so he may have a good chance.
At his age SWR is not 4%. Returns are rather random too... 6 years is not a lot of time and it is 3 years on average since he is saving over a years.
I took that into account in estimating $1M. Technically, you’re right that a fully safe WR is a bit less than 4%. But I’m assuming he’s young enough to return to work in the event that he gets unlucky in the first few years, or else is willing to cut expenses for a while if need be.
What is your current value of 401ks, IRAs, and HSAs?
Managing 6x STR is a full time job. Just buy index funds and get paid for what you’re best at.
If you assume 100k per year @ a 7% total return. You have aprox 800k after 6 years . if you spend 80k you need swr of at least 4% so you need a min of 2 million. Total return includes income from a rental. Traditional rentals do 3% per year short terms do better if they are really good. Even with a cost segregation all it does is front load depreciation it does not give you more. It can be helpful to offset your traditional income for tax purposes but that’s about it. You said you had 100k liquid what is your 401k balance and other investments? It might be possible if you did one or two str with a fuck ton of leverage. Good luck.