Self employed retirement savings
Are there any self-employed people on this forum? How old are you and how much have you saved for retirement? Which vehicles are you using (SEP, Solo 401k, Roth or Traditional)?
I’m 27, have $200k and will have another at least 100k by the end of this year but it’s all been in cash. I need to start investing this and want something that allows me to stash away as much money as possible while also not forcing me to create the same type of account for future employees. The only other W2 employee hire I would ever have to make is an Assistant and it’s not 100% that I am hiring one soon, just a thought for the future.
I'll be 26 in August. I like doing stuff and never want to "retire". I'm operating life under some pretty radical assumptions - one of which is that I will be alive and productive for at lease several hundred years. Another is that it is a human's goal to seek fulfillment - not happiness. I quit my job almost a year ago and run a few businesses (property management, R/E brokerage, R/E investment, R/E multifamily rehabbing, e-commerce (mostly an afterthought)). For me, real estate is the golden goose. I believe it's the Earth's cartel and I'll take all I can get. I'm trying to acquire solid cash-flowing 2-4 unit multifamily rental properties at a good pace. Would eventually like to get into bigger and bigger apartments and eventually triple-net commercial leases. I've got a list of businesses I'd like to try out, but I have a full plate currently. I'd love to give more "fun" and less formulaic businesses a shot, but I also have some fun hobbies I'd like to spend more time on and new ones I'd like to try. I have a list of like 500 books I need to read, movies to watch, a million things to research, a mile-long to-do list... I'd like to eventually step back into a more managerial role and focus more on travel and hobbies. I'm moving pretty quickly, so who knows, but it'll probably be like 10 years before that can realistically happen. I mean where I can take a few calls a day and not even have to look at computers. I'm also a massive control freak, so that's something I'm working on. Trying to relinquish control of shit and be more present..
Love your passion. RE is great. However, take it from someone twice your age who has seen many cycles in many markets. Don't be overweight in RE (or anything). You can't imagine getting stuck, but it's out there. Diversify into some other asset classes (liquid markets) for long term security. I wouldn't have wanted to be stuck with too much RE in 2008 or too much stock in 2001 or 1993. Lack of liquidity could come back and bite you. In general, banks lend when you don't need it and not when you're tight. Be careful!
I try to minimize risk by buying only cash-flowing or strong value-add properties. If values go to zero, I can always keep collecting rent. Maybe not as much. My wife is a teacher, so having a W-2 income is a great help. Maybe I won't be able to refi out appreciation. But that's OK. Eventually, I would like to diversify more. I'm very interested in investing in organic farms, certain tech, I'll even take some index funds. Just not yet. What do you like to invest in?
Would love to hear as much detail as you're willing to share. I assume your income is much higher than mine. A strange thing is happening for me as I become more secure in life - financially and otherwise. My risk tolerance seems to be naturally decreasing. I drive more carefully now. I'm super polite to everyone. I think I just subconsciously am afraid this will all go away. I manage properties for some high-income guys and I see they're incredibly diversified. I get it. I'm curious what the mindset is at that stage in the game though.
EDIT: I see you answered below, so if you could discuss your mindset and goals, that'd be interesting for me to rear and I'd appreciate that. Could you also elaborate on your commercial R/E investing and how your partnership is structured? Also, are you doing the thing where you built up a large life insurance policy and can essentially use it like a bank? I'm reading some e-books on that in the sauna trying to figure out how that all works.
Man, you're in the business. At the very least, start investing in some of the companies you research. (not talking about insider trading- you know the industry pretty well, pick some long term quality companies).
As a self employed person, you have fewer Qualified Plan options than others. Yes you can do a SEP or solo 401k. Understand that qualified plans (without a company match) are more hype than substance. Your're deferring your taxes, not eliminating them. Tax deferral over along time period will generate a large nest egg (good), but said nest egg will be fully taxable at ordinary income rates (bad). Non- qualified planning is pretty powerful. Long term cap gains vs income tax for stock portfolios (minus the dividend piece along the way). Roth is great but you won't qualify if you do well due to income testing.
I have the following plans in place:
NQ - Brokerage account with individual stocks (my own mutual fund if you will) Deferred Annuities for later income stream Cash Value Life insurance for protection and tax free income down stream (have a lot of this - most on this forum and in general will say "bad" but they truly don't know how it works or understand it - very powerful. What bore you with the details, but suffice to say, my most important assets) Real Estate (commercial for me - don't care for residential house flipping or any of that crap. Too much risk and work - have a partner who IDs good commercial buys, we sit and hold. Sometimes unimproved land, sometimes with operating businesses on site for cash flow)
There's lots of things you can do. I would say the most important thing is to do something with that cash. Also, be cautious of SEPS and things like that. Fine if you're a sole Prop but if you ever have employees, you have to contribute for them too.
Rickle,
I enjoyed reading your write ups. Especially the part about insurance. You’ve motivated me to dive deeper and really educate myself on it, I’ve always viewed it as something that was for older people, and provided by your job.
Would you mind talking about your cre deals? I’m someone that wants to eventually invest, and skip investing in residential but with the lending rules (75% ltv) it seems like it’s a long way off.
Not much to tell you re CRE. It's pretty simple. Nothing exotic. My biggest piece of advice is to not do anything until you're comfortable and really feel you know what you're getting in to.
I had an opportunity to jump in (with guys I eventually jumped in with on other deals) on a waterfront residential lot and just never felt comfortable. I think they wanted me primarily for capital and balance sheet (could get better financing with me involved). I just wasn't ready. They each put up 50k capital, cleaned up the property, fixed a dock, etc. Sold it and profited 90k each in a yr. I told myself the only reason I missed out is I wasn't educated, so I started paying more attention. They did a few more deals and I finally felt comfortable with their skills and my knowledge. Not mad i missed out. I just wasn't ready. Since then we've formed a group and done many deals. Like anything else, we can't always agree on exit strategies which is why it's so important to separate each deal in it's own LLC. Participate only in the ones you want.
Also understand everyone's motivation. This is key. I own / operate a successful insurance / investment planning brokerage firm. It generates nice profits for me every yr. I viewed the CRE as simply another investment. Our managing member has made this his focus and essentially it's his income. He looks at every opportunity like an elephant hunter. I just viewed them on their own merit and chose to get in when I thought it made sense based on my risk tolerance. Somethings to consider are:
need for cash flow (i don't) carry cost until exit (financing, taxes, maintenance while vacant) cost to build, develop time frame
Some perspective - I've had years where I've received 6 figure distribution checks (that's plural!). But, we have a few that have caused nothing but carry cost for the past several yrs. Like 20k per yr contribution for mortgage, taxes, etc with values not appreciating. Those are deals I'd be happy to sell at a loss and just not have to pay anymore. That will happen. it's called life. You have to think of it like a portfolio. Win some, lose some.
Regardless, my real income comes from my day job.
How much do you make that you can save $100k a year? Jesus
I’m a residential realtor selling homes in a decent area with a price point around $400k. Should make minimum 350k this year in gross commissions based on my current pace, maybe more if Q3 is good to me. Then subtract marketing/business expenses and other write offs (car, gas, insurance, phone, etc,).
I pay myself a salary of 70k (bumped it up from 60k last year) and I live on that. When you factor in what I get to write off I’m really living on about 90k this year so not bad. The difference comes as a big bonus distribution at the end of the year which I’ve been saving but I need to invest it in something.
Funny thing is this was supposed to be a short term gig until I got a “real job” in CRE. I’ve come too far to stop now but I’ll see what happens if/when the market shifts
So your net income is more like 90-100k? not bad
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