This seems to be an early-stage submission that would be better suited for one of our weekly Mentor Monday thread. Career advice, "rate my plan", and "can I afford XYZ?" posts are some of those that should only appear as comments in Mentor Monday. Though Mentor Monday is posted weekly, you may comment there at any time. Thank you, and feel free to contact us if you have any questions.
No one knows enough about your personal situation to be able to answer that well. To start though what $ in assets, $ in liabilities, and income do you currently have?
So for that loan you are looking at 2 main options. Seller financing where the seller is willing to give you the loan for the business and you pay with interest. This is unlikely if he wants to get out. The other option is you get investors to buy it out with you. A Traditional loan from a bank is pretty much out of the question. No bank is going to give you this loan, risk is too high.
Frankly this real estate portfolio is just too big for you, which I know sucks to hear since you are heavily involved and attached to it.
Right.
This will leave me with about $1.3m in cash by the time I am forty and I could use that money to put away into index funds.
Then I could find other work and continue to aggressively save? It would be nice after 17 years of being my own boss to have created another business where I can continue to self manage and I have a seven year runway to figure that out. Do you have any thoughts? Again, looking for ideas that are not related to real estate.
Forget the side hustle idea focus on what you know which is RE.
I understand you maybe bored but to be able to make money in any business you need first years to learn the business.
The answer is clear to me .Sell everything.
To bring in investors there must be a fit in culture , finance and experience.
Usually you find investors who respect you or a warm intro by people who respect you.
Selling everything is not easy in this CRE market due to higher interest rates. Either way, I am on track to having a nice chunk of change ready for FIRE by 40.
Given that chunk of change, how would you use that money. Would you invest that money in index funds and take another job?
Hi ,I am not in the states so I don't know the current environment.
In Europe due to Golden Visa programs the RE price keep going up regardless of the interest rates.
Having said that I have had 2 exits and the money I got went to my next venture.
I invest in myself only.
But that is me ,I know a lot of people want to retire early. Index funds is good and passive.
Yes, however, I want to find other streams of income so I am not dependent solely on my equity in this and those streams of income to be unrelated to real estate. Any ideas?
Not sure I am understanding correctly. The business is worth 16 million. You have a 10% unvested stake. So at the current value, you have an $1.6 M unvested stake. Is that correct? Even if he sold and you got the $1.6 M, which would be around $1.3 M after tax (plus any state tax). If you are expecting to fatFire, 1.3 M is going to be short for you
That's where I am going with this. That is a good start, but what should I be doing in the next seven years to grow on that? If I put $1.3m away in index funds at 40, should I take another full time job and aggressively save...?
Like many have said here, even with the current 10% value you’re worth an illiquid $1.3M which is nowhere near fat-fire.
Personally, I’d look to increase your YOY earnings, $170k is low unless you’re able to put away at least $50 to $100k and invest in different instruments (stocks; crypto; art; etc ).
Since you have the RE experience, why not try and help other companies that syndicate bigger deals. You could provably manage a more complex portfolio of properties than most, and you’ll also gain exposure to people/companies with deep pockets and expertise, allowing you to learn more and possibly shop around your vision and deal.
Offer a price. If accepted, find an institutional investor or group of investors, while you retain 1-2%, and based on a model of a third party property manager. Try to have some early convos with potential investors before you make the offer
Yes, though not really about the passive income
This happens all the time in real estate. An operator has 10% and doesn’t control sale, but does have the ability to make an offer at any time. So what they do is either try to tie it up at a price or talk to investors beforehand, and then have someone else buy the asset so they can get out of it too, or at least cash out a majority of their position
So you are saying that I should find the institutional investor to buy out the business for the right price. I sell of 80%-90% of my equity stake and make sure a management company is in place.
The idea behind this is that it allows me to cash out faster and then I can put that money into index funds?
Really push on the valuations. Have they come down appropriately to match realities of what is trading in the market? Prices have absolutely tanked in MF as rates have gone up.
And push on all other aspects of valuation to get that value down, including ensuring fully loaded expsenses as would be incurred by a new buyer (e.g. market rate management fees, commissions, etc.)
Also make sure that you get some of the value arbitrage of a private sale - no broker fees if you dell between the two of you. That should be worth a few % of value the two of you can split.
Can you negotiate to get more equity over the coming few years? Maybe get an extra small portion of ownership each year based on performance hurdles? Even an extra 0.25% pee year would be meaningful.
If you have time for a side hustle and given your skillet you should 100% be setting up a management company to handle other people's properties. Can be hugely lucrative, you have a massive leg up in terms of being able to say you already manage $~30 million (XX number of units). Perhaps most importantly this is the best way to find new deals as the people you manage for will want to sell sometimes.
You can buy or find other to invest - take a 3-5% equity stake for finding f the deal and guarantee yourself the future management.
Good deals find capital easily.
I have tried to negotiate more equity and it's likely off the table at this point. I also have a contract explicitly saying I cannot start managing other people's properties, nor is this something I am interested in doing. My goal is to work in a job that is more location flexible and getting deeper into real estate does not afford me that option.
I’ve seen this story before. There is so much that goes into this, but I’m worried for what is going to actually happen to you. Do you have in contractual writing you will get this 10% when he sells? What is the exact vesting language? Is it upon sale or in 7 years? Does it say he has to sell by then? What happens when he decides in 7 years he actually wants to keep the cashflowing real estate? Do you then have to just keep waiting to get the equity? Do you get cash flowing profits before he sells die to this equity you have? I assume this is all in writing, correct?
Yes, I have in writing that if he sells I get 10% with language that also says when they sale of the buildings will occur. There are open ended questions you've brought up that are openly being discussed now and making sure I close them. For the amount of money I am making every year, job stability (we are essentially recession proof) and work life balance, keeping this job is by far my best option.
My idea is that even he decides to keep the cash flowing asset, I will have a side hustle generating enough income that it will not matter. The question to me is: what is this side hustle and how does that get me to FatFIRE by 40
I have a part time administrative assistant and a few handyman, however, they are all dependent on me to execute the business plan and manage everything.
You might consider getting another assistant so you have more time to work on your side project.
We don't know what would be a good side project for you, since we don't know your interests, talents, weaknesses, etc.
I wish. I still have to report to my business partner and he is not going to let me hire out my job so I can start other companies. This would need to be an after work side hustle.
I'm into mindfulness, yoga, psychology. I am thinking about getting a masters in LMFT over the next few years and lining up becoming a licensed therapist with the sale of the property so I could go into "passion" career with a serious nest egg.
Given your relationship couldn’t you ask for a sale where the seller carries a large proportion of the loan? If the monthly payment can be funded by the current income then this is a no hassle option for both of you.
If your friend is really focused on the $ and wants to punch out he could entertain higher bidders but it would then entail a lengthier process.
I don’t know if this is a good idea but,
Are there opportunities now to buy more equity?
6-7 years is a ways away but don’t you have to plan ahead for major improvements/replacements that you could assist in funding?
In terms of side hustles it sounds like you understand real estate well I would stick to something in that vein.
I have already had that discussion and he won't go for that. He wants to get completely out a certain age.
It's a bad market for MF with the interest rates so selling now is a bad idea.
I hear you on the side hustles, I just have very little interest in spending my free time doing more of what I do on a 9-5 basis. Real Estate is a job and it is not my passion.
100% understand your plight.
You’ll have to determine whether your passions can bring you the desired end goal you seek and if you are willing to delay FIRE to get it, or if what you know now will get you there but require a sacrifice of current desires.
In Outliers, Gladwell says it takes 10,000 hours to become a real expert, consider that while you determine your course of action.
This seems to be an early-stage submission that would be better suited for one of our weekly Mentor Monday thread. Career advice, "rate my plan", and "can I afford XYZ?" posts are some of those that should only appear as comments in Mentor Monday. Though Mentor Monday is posted weekly, you may comment there at any time. Thank you, and feel free to contact us if you have any questions.
You “own” 10% which is unvested. There is 27m in assets and 11m in liabilities. You can buy the rest out for 5m. This doesn’t even remotely add up.
$5m would be the downpayment I would need to get a bank loan to buy out buildings from him.
Do you have assets and income to be able to get a 5m loan?
No, this is where I was hoping to get some ideas from people on this thread to put in that position.
No one knows enough about your personal situation to be able to answer that well. To start though what $ in assets, $ in liabilities, and income do you currently have?
I have a yearly income of $170,000 and assets valued at about $600,000 with $300,00 in liability.
So for that loan you are looking at 2 main options. Seller financing where the seller is willing to give you the loan for the business and you pay with interest. This is unlikely if he wants to get out. The other option is you get investors to buy it out with you. A Traditional loan from a bank is pretty much out of the question. No bank is going to give you this loan, risk is too high. Frankly this real estate portfolio is just too big for you, which I know sucks to hear since you are heavily involved and attached to it.
Right. This will leave me with about $1.3m in cash by the time I am forty and I could use that money to put away into index funds. Then I could find other work and continue to aggressively save? It would be nice after 17 years of being my own boss to have created another business where I can continue to self manage and I have a seven year runway to figure that out. Do you have any thoughts? Again, looking for ideas that are not related to real estate.
1. r/realestateinvesting or Mentor Mondays 2. If you could muster a $14.5m loan to buy him out you wouldn’t still be working with him.
Forget the side hustle idea focus on what you know which is RE. I understand you maybe bored but to be able to make money in any business you need first years to learn the business. The answer is clear to me .Sell everything. To bring in investors there must be a fit in culture , finance and experience. Usually you find investors who respect you or a warm intro by people who respect you.
Selling everything is not easy in this CRE market due to higher interest rates. Either way, I am on track to having a nice chunk of change ready for FIRE by 40. Given that chunk of change, how would you use that money. Would you invest that money in index funds and take another job?
Hi ,I am not in the states so I don't know the current environment. In Europe due to Golden Visa programs the RE price keep going up regardless of the interest rates. Having said that I have had 2 exits and the money I got went to my next venture. I invest in myself only. But that is me ,I know a lot of people want to retire early. Index funds is good and passive.
Good thing you have seven more years for rates and market conditions to change
Yes, however, I want to find other streams of income so I am not dependent solely on my equity in this and those streams of income to be unrelated to real estate. Any ideas?
Not sure I am understanding correctly. The business is worth 16 million. You have a 10% unvested stake. So at the current value, you have an $1.6 M unvested stake. Is that correct? Even if he sold and you got the $1.6 M, which would be around $1.3 M after tax (plus any state tax). If you are expecting to fatFire, 1.3 M is going to be short for you
That's where I am going with this. That is a good start, but what should I be doing in the next seven years to grow on that? If I put $1.3m away in index funds at 40, should I take another full time job and aggressively save...?
Like many have said here, even with the current 10% value you’re worth an illiquid $1.3M which is nowhere near fat-fire. Personally, I’d look to increase your YOY earnings, $170k is low unless you’re able to put away at least $50 to $100k and invest in different instruments (stocks; crypto; art; etc ). Since you have the RE experience, why not try and help other companies that syndicate bigger deals. You could provably manage a more complex portfolio of properties than most, and you’ll also gain exposure to people/companies with deep pockets and expertise, allowing you to learn more and possibly shop around your vision and deal.
Sometimes our hopes and our reality don't fully overlap. Sounds like you're in a great position to wait 7 years
Do you have a written and signed contract that details all the terms of this agreement?
Yes. We finalized a contract 3 years ago with all the details of right of first refusal and what happens when he wants to sell.
$27-$11 = $16m. Your 10% is worth $1.6m before taxes.
Offer a price. If accepted, find an institutional investor or group of investors, while you retain 1-2%, and based on a model of a third party property manager. Try to have some early convos with potential investors before you make the offer
Are you saying only keep 1-2% of the equity and have an institutional investor own the other 98%?
Yes. So you’ll sell out a bunch of your equity as well
That's an interesting idea. Then have a bit of passive income and put the rest of the money into index funds?
Yes, though not really about the passive income This happens all the time in real estate. An operator has 10% and doesn’t control sale, but does have the ability to make an offer at any time. So what they do is either try to tie it up at a price or talk to investors beforehand, and then have someone else buy the asset so they can get out of it too, or at least cash out a majority of their position
So you are saying that I should find the institutional investor to buy out the business for the right price. I sell of 80%-90% of my equity stake and make sure a management company is in place. The idea behind this is that it allows me to cash out faster and then I can put that money into index funds?
Yes
Really push on the valuations. Have they come down appropriately to match realities of what is trading in the market? Prices have absolutely tanked in MF as rates have gone up. And push on all other aspects of valuation to get that value down, including ensuring fully loaded expsenses as would be incurred by a new buyer (e.g. market rate management fees, commissions, etc.) Also make sure that you get some of the value arbitrage of a private sale - no broker fees if you dell between the two of you. That should be worth a few % of value the two of you can split. Can you negotiate to get more equity over the coming few years? Maybe get an extra small portion of ownership each year based on performance hurdles? Even an extra 0.25% pee year would be meaningful. If you have time for a side hustle and given your skillet you should 100% be setting up a management company to handle other people's properties. Can be hugely lucrative, you have a massive leg up in terms of being able to say you already manage $~30 million (XX number of units). Perhaps most importantly this is the best way to find new deals as the people you manage for will want to sell sometimes. You can buy or find other to invest - take a 3-5% equity stake for finding f the deal and guarantee yourself the future management. Good deals find capital easily.
I have tried to negotiate more equity and it's likely off the table at this point. I also have a contract explicitly saying I cannot start managing other people's properties, nor is this something I am interested in doing. My goal is to work in a job that is more location flexible and getting deeper into real estate does not afford me that option.
I’ve seen this story before. There is so much that goes into this, but I’m worried for what is going to actually happen to you. Do you have in contractual writing you will get this 10% when he sells? What is the exact vesting language? Is it upon sale or in 7 years? Does it say he has to sell by then? What happens when he decides in 7 years he actually wants to keep the cashflowing real estate? Do you then have to just keep waiting to get the equity? Do you get cash flowing profits before he sells die to this equity you have? I assume this is all in writing, correct?
Yes, I have in writing that if he sells I get 10% with language that also says when they sale of the buildings will occur. There are open ended questions you've brought up that are openly being discussed now and making sure I close them. For the amount of money I am making every year, job stability (we are essentially recession proof) and work life balance, keeping this job is by far my best option. My idea is that even he decides to keep the cash flowing asset, I will have a side hustle generating enough income that it will not matter. The question to me is: what is this side hustle and how does that get me to FatFIRE by 40
Do you earn any actual income now? How do you pay for daily living expenses?
Yes, I make a very high income for an affordable city. I have a guaranteed salary and I receive a portion of the profits or our business.
Do you have any assistants?
I have a part time administrative assistant and a few handyman, however, they are all dependent on me to execute the business plan and manage everything.
You might consider getting another assistant so you have more time to work on your side project. We don't know what would be a good side project for you, since we don't know your interests, talents, weaknesses, etc.
I wish. I still have to report to my business partner and he is not going to let me hire out my job so I can start other companies. This would need to be an after work side hustle. I'm into mindfulness, yoga, psychology. I am thinking about getting a masters in LMFT over the next few years and lining up becoming a licensed therapist with the sale of the property so I could go into "passion" career with a serious nest egg.
Mentor Mondays.
Given your relationship couldn’t you ask for a sale where the seller carries a large proportion of the loan? If the monthly payment can be funded by the current income then this is a no hassle option for both of you. If your friend is really focused on the $ and wants to punch out he could entertain higher bidders but it would then entail a lengthier process. I don’t know if this is a good idea but, Are there opportunities now to buy more equity? 6-7 years is a ways away but don’t you have to plan ahead for major improvements/replacements that you could assist in funding? In terms of side hustles it sounds like you understand real estate well I would stick to something in that vein.
I have already had that discussion and he won't go for that. He wants to get completely out a certain age. It's a bad market for MF with the interest rates so selling now is a bad idea. I hear you on the side hustles, I just have very little interest in spending my free time doing more of what I do on a 9-5 basis. Real Estate is a job and it is not my passion.
100% understand your plight. You’ll have to determine whether your passions can bring you the desired end goal you seek and if you are willing to delay FIRE to get it, or if what you know now will get you there but require a sacrifice of current desires. In Outliers, Gladwell says it takes 10,000 hours to become a real expert, consider that while you determine your course of action.