You can make a fortune with rental property investing. Let me show you how.
In my 20s and 30s, real estate investing was my favorite asset class to build passive income for financial independence. I worked in finance for 13 years and used 80% of my savings to invest in San Francisco and Lake Tahoe real estate.
But once I left work for good in 2012 at the age of 34 and had a son in 2017, I really started to HATE owning rental property, so I sold one property in 2017.
Here is my rental property transaction history:
1) Bought one property in 2005 for $1.52M, sold in 2017 for $2.74M. Cleared $1.75M after tax, fees, commissions, and paying down a $815K mortgage. But the best thing about this property is that I tried to sell it for $1.7M in 2012 and nobody wanted to buy it! Thank the lord!
I proceeded to invest $550,000 of the proceeds in real estate crowdfunding in the heartland of America where cap rates are 3-4X higher, $600,000 in stocks, and the rest in municipal bonds. It feels good not having to deal with tenants and maintenance issues anymore, while also earning as much, if not more.
2) Bought one two bedroom, two bathroom San Francisco condo in 2003 for $580,500. Paid off the mortgage in 2015, and it’s worth about $1.25M. Neighbor with same layout sold his for $1.35M in 2017. Given it's a condo, it’s so much easier to maintain. I plan to own this property forever because the property tax isn’t onerous, and I want exposure to SF real estate long term. I also want to hold this property as insurance for my son, just in case he struggles.
3) Bought a Lake Tahoe property in 2007, for $718,000, or $100,000 less than the person bought it for in 2006. But then my property proceeded to tank by another 35%! It might be worth $550,000 – $600,000 now after all this time. But, it’s cash flow positive $500 – $1,000 a month. The only saving grace is that it’s less than 5% of my net worth now, and I finally, finally get to bring my boy up to my favorite place.
4) Bought a Golden Gate Heights, San Francisco fixer in 2014 for $1.24M. Similar fixer just sold in September 2018 two blocks away for $1.88M. Planning on renting this property out to a stable family once we go to Hawaii. I think I can rent out the house for $6,000 – $6,500 a month. House will be paid off by 2030.
5) Bought another Golden Gate Heights panoramic ocean view property for $170,000 under asking given it was listed during the middle of the pandemic!
Real Estate Investing Can Build A Small Fortune
Based on my real estate purchases, I've been able to make about $3 million dollars since 2003. That's not bad, but that's also because I happened to buy three properties in San Francisco, where real estate has done well.
If I bought all my properties in Lake Tahoe or similarly less economically vibrant parts of the country, I wouldn't be as happy. Therefore, a lot of real estate investing has to do with LUCK, grit, and holding on for as long as possible.
Real estate is a young person’s game, even with a property manager. I’d much rather make money through Fundrise in the heartland of America where cap rates are much, much higher. Places like Austin, Dallas, and Memphis are booming. Cap rates are closer to 10% – 15% vs under 2.5% in San Francisco. Fundrise is free to sign up and explore.
There's no reason to live in a congested, ridiculously expensive place like the San Francisco Bay Area anymore due to technology.
The older you get, the less tolerance you have for dealing with rental property BS anymore. Time becomes more precious by the year!
About the Author: Sam began investing his own money ever since he opened an online brokerage account in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college working at two of the leading financial service firms in the world. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate.
FinancialSamurai.com was started in 2009 and is one of the most trusted personal finance sites today with over 1.5 million organic pageviews a month. Financial Samurai has been featured in top publications such as the LA Times, The Chicago Tribune, Bloomberg and The Wall Street Journal.