M/25 - Real Estate Advice (LA)

In my experience it sounds like a nice place to live, but not a great vehicle for a quick path to FI. What I'm going to explain to you has worked for me, but may not even be an opportunity for you depending on the real estate value that's available to you in the area that you want to be in.

When you are first starting out, you want low risk and high ROI, so that you can have your first investment paid for as quickly as possible reinvest in another property with the profits from the first. If you never take any of the profits from your RE investments, the exponential growth from those profits snowball pretty quickly. Here's an example (again, these opportunities are around, but perhaps now in your area), you purchase a house for $40k in a low income area, you should be able to rent a 3/2 house in just about any area for $700. Your gross ROI on that is 1.75% monthly (21% annually) instead of a $350k house that pulls $1700 in rent which comes out to less than .05% monthly (<6% annually). Unless you had a huge increase in income, it would take you 30 years to turn a profit. If you buy a cheap home in a low income area, you could have it paid off in less than 5 years, then you have income to purchase a second home and supplement the income and pay off the second house in half the time, rinse and repeat. In a matter of 10 years you have an income that exceeds your current job. Obviously there's risk in any investment, and things to consider like dealing with the type of people who rent in an area like that. I personally use Section 8, and that makes things pretty easy, but perhaps you would use a property manager, they cost money, but you wouldn't have deal with headaches. Perhaps I'm biased, but real estate is the quickest way to get to FI if you don't mind putting forth a bit of effort; but it's unlikely that it will shorten your path if you buy a $350k house. That would help after you retire, but cost you more money and time on the way.

/r/financialindependence Thread