I have $300,000 to invest; is early retirement on my horizon?
Living in Los Angeles, it only made sense to my parents to get me a commercial agent who would send me out for parts in commercials/magazine ads at the age of 5. Ultimately, I worked in the industry for 10 years and accumulated a tidy sum. I'm 28 years old now and have roughly $480,000 in investments: An IRA ($170,000), personal brokerage account ($32,000), and non-retirement accounts ($278,000). In two years, I expect having $300,000 to invest into an early retirement (about age 35). By that point, I'll be in control of a property my parents own and I'll be receiving $1,500 per month in rent from that property. My question is geared to the roughly $300,000 I'll have to invest; should I purchase a home and rent it? Is $300,000 enough to purchase multiple homes?
Seems you have been doing well for yourself from an early age. Especially considering your parents have owned and managed rental business, it’s best to ask them for honest opinions. Which parents wouldn’t want to help their kids and share with them the best experience?
Your $300k may go a long way in any other less expensive states, and that’s why you need to consult with your parents to learn if it’s best to buy outright or use rent to pay off the mortgage. They will guide you on how to use leverage for rental and what interest you need to apply to give you the best ROI.
Currently you have a pretty diversified portfolio with traditional investment in stocks and bonds and alternative investment in real estate. Great job and keep up!
It would be difficult for me to make a recommendation based on your limited information. Although if you do not own your own home now, then buying a home would be a priority. Without more detailed information of your lifestyle, expenses, and current investments as well as risk tolerence any recommendations would be limited.
Contacting a local Financial Advisor to go over your financial goals with you in order to make certain your financial goals are in line with your future plans regardless of whether you retire sooner than later. This is a great city having lived here for the past 30 years, so making a plan now to make certain you have continued stability in the future makes the most sense.
You're only 28 years old, so retirement is on a distant horizon. No, don't buy a rental home. And yes, $300,000 might be sufficient to purchase multiple homes with mortgages, but don't do it. Instead consider diversified stocks and bonds, or a Real Estate Investment Trust REIT. That'd be a safer and easier strategy.
I live in LA too. The short answer? No. You can't buy a cardboard box on the sidewalk for less than a million in LA. (You know that, I presume.) And if you use maximum leverage -- and everyone does -- you really don't have enough assets to be able to weather a recession, or a 7.5 earthquake.
The reason I decided to post an answer to your question is not to puncture your plan to be an LA real estate mogul. I really wanted you to start focusing on what you will do with the rest of your life. 35 is way, way too early to buy a rocking chair and clip coupons for a living. I'm glad to see that you have a degree of financial independence, such that a new career doesn't have to begin paying off on day one. But how will you live a fulfilling life? What is your passion? Do you see yourself as a professional rent-collector, or a creative person with talents you want to develop? Spend the next two years (or longer) making a plan and setting goals for your future happiness.
At the moment you can't get really good income property for a reasonable rate of return. Everything seems to be priced for speculators who hope to see home prices grow to the sky. The party will stop and I can't predict when, but I would urge you to invest in something more liquid. Feel free to contact me if you have questions.
Congratulations on being so well-established for a potential early retirement. You seem to be well diversified with $480,000 in investment accounts, so buying rental properties would be a sound strategy from a diversification stand-point, especially if you don't plan on touching the $480k for a while to allow it to grow.
Regarding your early retirement, you are on track to retire very early, but I don't know if age 35 is feasible yet. It will depend on how your investments are invested, what your expenses are likely to be, the lifestyle you want to live, and how much of the rental income you can count on. Keep in mind, you will have to save some of the rental income for rainy days such as when the tenant moves out or when the roof needs a $20,000 replacement. Based on your numbers, you may want to have a fiduciary and fee-only financial planner do a retirement projection for you to make sure you can retire in the time frame you are hoping for. You may be surprised that even the considerable savings you have may not sustain the lifestyle you want, especially since you will be dealing with inflation over a 60+ year period.
I would consider waiting on investing in the rental properties until after you've managed the property your parents own for at least a couple years. It would be horrible to find out you don't like managing and running real estate after you sunk your money into additional properties. I also personally wouldn't buy multiple properties at once, as the workload tends to be exponential as you add more properties. Instead, consider putting the $300,000 into a low-risk investment for a couple years while you get used to running rental properties. Then using some of it to purchase another rental property and get used to running two properties. Then add a third a few years down the road if you still enjoy being a landlord/property manager.
Managing rental properties can be a pain and is a lot more work than the 'gurus' would have you believe. (Keep in mind, these gurus make their living by selling books, courses, and other services to people after convincing the people to invest in rental properties.) This is not to say rental properties are a bad investment. My family has been in real estate since WWII and my mother, two brothers, and myself run a private rental real estate company. But one of my brothers has a full-time job dealing with the day-to-day operations of the real estate business. And there is still extra work to go around to the rest of us.