Note: Since i live in San Francisco Bay Area, CA and most of my investors are here locally, i will cater this blog towards them.
There are 3 types of Single-Family investment scenarios we will consider here:
I will like to compare these 3 scenarios with buying Multi-Family Apartment out of state.
Real World Scenario #1
1.1 Buying a primary home in Bay Area, CA
I did a simple search in Redfin/ Zillow and found that there are more than 4000 homes that are sold in Bay Area, CA between $1.5 Million to $1.75 Million last year. And i personally know lot of my friends and co-workers buying a $1.5 Million Homes.
So based on Redfin estimate for a $1.5 Million single family home in Santa Clara County a home owner has to down pay $300k + Closing Costs and pay $7591 as PITI (Principle, Interest, Taxes and Insurance). There are tax benefits for you, but capped at $750k for mortgage and $10k for SALT taxes. I am not a CPA, but tax benefits can be around $1023 per month (Say first 5 years where interest portion will be high). So it will be $6568 per month as payments by the home owner for next 30 years !!
1.2 Buying a 32 unit apartment complex in Jacksonville, FL
We bought a 32 unit complex in Jacksonville FL last year for $1.5 Million, Elm Tree at Hyde Park.
Note: Buying an Apartment Complex out of state needs some sophistication and learning. Do not buy without help from someone who already did it like a Mentor.
For this property we obtained ~81% loan from Freddie Mac with 20 year term, 30 year amortization, non-recourse, 5.17% interest rate and 3 years of interest only option.
With this option we have invested ~$350k including down payment + closing costs + renovation costs of units to raise rents to market. And the projected returns are around $5353 for next 5 years and beyond for rest of the hold of the property. And these returns have tax advantages (again please consult your CPA) because of depreciation we can get for commercial properties.
The cash flow is calculated based on a conservative basis after all vacancy factors, repairs and maintenance, Property Taxes, Insurance, Lender Reserves etc. Current average rents for this property is $656 per unit and Market rents are at $717 per unit which we are hitting in Year 4 as per our projections after renovations.
Verdict for Scenario #1
1.1) You have to keep working your day job and pay $6568 for the next 30 years
1.2) You will earn $5353 per month tax free till you hold the property and you can pay off rent/ health insurance/ bills and live anywhere in the world with financial independence.
Note: Buying a primary home is an American Dream and i am not denying the fact that it will be more fulfilling and you can create memories in your own home as you raise your family. This is just an illustration and my opinion as an investor.
Let me know your feedback!
Real World Scenario #2 (Coming Soon...)
Real World Scenario #3 (Coming Soon...)
What is F.I.R.E. Movement?. FIRE stands for Financial Independence, Retire Early.
As per Wikipedia,
FIRE Movement, The model is particularly popular among millennials, gaining traction through online communities via information shared in blogs, podcasts, and online discussion forums. Those seeking to attain the goals of FIRE intentionally increase the rate by which they save their income through simple living or generating secondary and passive streams of income. The goal is to save an amount for which the interest generated from investments provides enough money for living expenses in perpetuity. The intention is to allow for retirement from traditional work decades earlier than the standard retirement age.
But how can you achieve FIRE? 2 things:
While there are many ways to save the income you are getting through your active job like visualizing all expenses in mint.com or an article from nerdwallet or calling suze orman.
For Earning passive income, you can invest in any of the following asset classes and the max returns you get is 9.1% annualized (Also on a Real Estate REIT). Where in Multi-Family Apartment Investments are projected at 18%+ annualized returns in addition to tax benefits using depreciation (including accelerated and bonus depreciation).
We will have to build 4.6 million new apartments by 2030 just to keep up with the strong demand-but Apartments got a long history of out-performance in returns with other commercial real estate classes as well.
Email me at firstname.lastname@example.org for more information.
Who is a Zovestor? Investor who knows that happiness is passive income and Financial Freedom!
I am one of those who has worked for a number of different employers as a full-time employee with funded 401K accounts. Often, whenever I changed jobs I would automatically rollover my former 401K account at the previous job into the new employer’s 401K, plus, there have even been a couple of times that I had left my funds in the former account where it was dormant for years, sometimes as cash, and sometimes as low yielding bonds over which I had absolutely no control.
For a while I had thought that I was the only one who was this passive about my funds and investments, then I discovered that I wasn’t! In fact, this tendency is so widespread that, last year alone, almost $9 billion were abandoned or neglected in old 401K’s and retirement plans of past employers from previous jobs.
Not only this, but it was also apparent these previous employees, who actually own these funds have very little control over the money. Their investment options are quite limited, even when it comes to stocks and bonds, and the fees are mostly exorbitant.
Fast forward to a few months back, I discovered Self-Directed IRA’s that afford you the opportunity to roll over your previous 401K funds and to grant you complete control over your investment choices which are inclusive of varied investment opportunities like Real Estate, Precious metals, as well as Crypto-Currencies.
I found the Real Estate aspect of investing quite fascinating and I started doing my own personal research on it. What I found out was that there are two different types of Self-Directed IRA’s. The first kind is one that comes with an account manager or custodian assigned to manage the account for you and to conduct all necessary transactions on your behalf.
In contrast, the second category is one that grants you autonomy, with complete checkbook control over your account and overall your transactions, with the only condition being that you refrain from any nefarious or otherwise illegal or suspicious transactions that may make you run afoul of the law.
These Self-Directed IRA’s appear quite appealing but their major disadvantage is that they charge very high and exorbitant fees. I have researched them over and again and interviewed scores of their providers, but they are all mostly similar in operation, charging numerous fees on each transaction and for each property you own or operate, making them quite expensive.
Fortunately, there are a couple of exceptions to this unpleasantness, and boy was I glad to have found them. My intensive search helped me to discover Solo 401K and QRP (Qualified Retirement Plan), and very fortunately so. I have compared several providers to both Solo 401K and QRP in my quest to find the best outfit to work with, but none measured up to both, especially to Solo 401K.
Solo 401K gives you complete checkbook control to invest in Real Estate, especially in Apartments, which can be a source of constant mail-box income for you.
Learn about Self-Directed IRA's here
Learn about Solo 401k's here
Learn about QRP here
We have researched many providers of Self-Directed IRA’s alongside Solo 401K and QRP providers, and as our final verdict, we are definitely recommending Solo401K.com. In fact, we have been recommending them to many of our existing partners and investors and all of them have been satisfied with their services.
Ensure you contact Rachel Nabers <Rachel@nabers.com> for all your inquiries and refer our name to get top-notch, 5-star rated service. Nabers group are pioneers with the best service and the lowest cost!
Note: We have affiliations with Solo401K.com and we also personally use their services.
Click here to open a Solo 401k account
Let us know what are your thoughts on this?