Real Estate Gives You Options In Life...

If you scale a nice real estate portfolio over 10-15 years, it will open many options in life

Let me explain…

Ask yourself - if you replaced your take home W-2 income with real estate, what would you do with all your time?

• Would you travel at your own leisure?

• Would you spend more time with friends and family?

• Would you go 100% into your passion project?

• Would you volunteer at a homeless shelter?

• Would you just chill and relax?

There is no right or wrong answer.

Imagine waking up whenever you want without an alarm and being able to choose what you want to do for the day. Most of us (myself included) are dictated by an alarm clock. We must be at work Monday through Friday even if we don’t feel like it. It is an obligation. For me, there is 1 day a week where I don’t want to work, but force myself. There are people I hate working with, but have no choice since it’s my “professional duty” and I need to pay the bills.

So…How do I replace my W-2 income?

You probably work at least 40 hours a week and let’s say you take home $5,000 per month or $60,000 per year after taxes (low 6-figure salary).

Cash flow approach

If you want to buy single family and each single family home cashflows $500 per month then this is simple math. How many units do you need to replace your W2 income in this case? 10 units!

Number of units = Monthly take home pay / cash flow per unit

Number of units = $5,000/ $500 per unit = 10 units

If you are able to buy 1 unit per year for 10 years or buy one 10 unit apartment complex (my personal preference obviously), you can replace your job income.

When buying 1 unit at a time, the cash flow slowly snowballs. You save up for a down payment to buy 1 single family home. Afterwards, you continue to save money for the next down payment, but now have an additional $500 per month on top of that. This means you can save for the 2nd single family home faster. Now you continue to save, but have an additional $1,000 per month on top of that. This is where it starts to snowball. You are able to buy the subsequent properties faster and faster every time.

How about multifamily? Well you need to find just one (yes, just 1) 10-unit apartment complex. Lot simpler to deal with - just 1 roof, 1 property manager, 1 location. When you buy value add multifamily, it will take around 2-3 years to stabilize this asset. You will have to renovate units slowly. Tenants will churn slowly. Rinse and repeat for 2-3 years and you will have a nicely renovated apartment complex with a better tenant base paying market rents. Lots of work. Lots of time. Lots of stress, but you just need 1.

Equity approach

Real estate is more than just cash flow. Cash flow is one way to build wealth using real estate. You can make a lot of money, way more money if you take advantage of real estate equity. You can force appreciation or have natural market appreciation or have both. Equity is more delayed gratification. This approach works wonders if you live in a high cost of living housing market like California (trust me - this is how I built my wealth)

Let me share my first single family home purchased in 2017 in Bay Area, CA. Purchased for $825,000 back in November 2017. Fast forward to 2023, it is now worth $1,300,000. I made around $500,000 over 6 years doing nothing ($83,000 per year tax free). Natural market appreciation which increased equity in my house.

If I sold the property and invested the $500,000 into the S&P 500 index fund which averages 7% per year over the long term, that would be roughly $35,000 income per year off dividends or $2,900 per month.

How much equity do you need to replace a $5,000 per month income? That would be $60,000 per year divided by 7% or 0.07 which is roughly $850,000 equity.

Cash flow and equity approach (my favorite approach)

With multifamily (5+ units), as you increase the cash flow, you increase the net operating income (NOI), and then you increase the value/equity. This is how you have your cake and eat it too!

Let me show you an example…

If you are able to increase your rents from $500 → $750 and let’s assume it is a 10 unit apartment complex in an 7 CAP market.

• $250 × 10 units = $2,500 extra cash flow per month

• $2,500 × 12 months =$30,000 increase in NOI

• $30,000 / 0.07 = ~$428,000 in forced appreciation

To summarize - you increased your cash flow by $2,500 per month PLUS forced around 428k of equity

Ask yourself: Is it worth spending 10-15 years building a real estate portfolio that can replace your regular job income and provide you with more choices in life?

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