Late Starter’s Guide to Real Estate (Start in Your 40s!)

0:00You can get into real estate at almost any age and still pursue and achieve financial freedom. Do you feel like it's too late to start investing in real estate? It's not. And today, I'm sharing my Late Starter's Guide to Real Estate Investing. So whether you're 30, 40, or even 50, investing in real estate today will likely improve your financial situation and allow you to retire early. If you have a stable career or already own a home, you even have some advantages over the 20-year-olds you see on social media showing off their massive portfolios. On this show, I'll explain how to maximize the benefits of starting later, and I'll share the exact strategy I think works the best for anyone starting in this age range.

0:47Hey everyone, it's Dave Meyer, head of real estate investing at BiggerPockets. I've been investing now for 15 years and on this show we teach you to pursue financial freedom through real estate. One of the questions I get most as a real estate investor and a real estate investing educator is, is it too late for me to start? And I can tell you right here at the top of this episode that the answer is definitely no. You can absolutely and should get started in real estate investing because there are just so many benefits regardless of when you start. But there are real good reasons why this question about whether it's too late to start come up.

1:27First and foremost is just social media. You probably see this all the time. You see these really young people seeing incredible success. They might be exaggerating or straight up fabricating that success, but nevertheless, we see it all the time. And then the second reason is that the benefits of compound interest are real. The longer you are in the real estate market, the better. But even though that is true, it is still better for you to start today than not get started at all. And that's what we're going to talk about in today's episode. In order to address this question, we do need to also answer what starting late means in the first place.

2:03Because I've had people who are 25 years old ask me if it's too late to start, which is kind of crazy. But I've also had people who are 60 years old ask me that question. And the span of what people think is the right time to start or too late to start is really, really broad. So for the purposes of this episode, I think we sort of need to hone in on an age as an example. And I'm going to use the age 40 for the example, not for any real reason, but I just figured sort of quote unquote midlife would be the most relevant example. But the lessons and the strategies I'm going to talk about today will really apply to anyone who is starting from basically their late 20s up until their 60s.

2:45So with that, here it is, the Late Starter's Guide to Investing in Real Estate. So we're going to walk step by step how someone who's, again, as our example, 40 years old should start investing in real estate. And one more time, just want to reemphasize that if you're 35 or 45 or 30, these are probably the same things. I'm just going to be using the example of a 40-year-old. So what then is the first step in the Late Starter's Guide? It is setting your goal. And I know if you listen to the show, you're probably like, you say that for everyone, whether they're 20 or 40 or 60. And that's exactly the point.

3:21Setting your goal and figuring out your strategy is always the first step. I wrote an entire book called Start With Strategy to emphasize this point and help people set their goals because I really genuinely believe that is the most important thing that you get started. So we know that we got to set our goals, but what is a good goal and what is a realistic goal? Because if you just pick something out of the hat, you might say, I want to retire in three years. Sure, most people do, but that is not really a realistic goal, regardless of when you're starting. Now, I've done the math repeatedly, and what I've shown is that almost regardless of what your current income is or where you're starting, if you dedicate yourself to real estate investing.

4:04For 10 to 15 years, you can replace your income. I want to say that again because this is an amazing goal. This is what's so cool about real estate investing is if you start today at 40, when 10 to 15 years, so by age 50 or 55, you can absolutely replace your income and retire early. So that is the goal that I recommend most people anchor themselves to is trying to create a sustainable, low-risk, high-probability strategy that is gonna take you from where you are today, which can be zero rental properties, and get you to full income replacement through real estate in the next 10 to 15 years. That is the goal that has always gotten me excited, and hopefully that's getting you excited because it can cut your time from now to retirement in less than half, even if you're starting at 40.

4:58That is 10 to 15 years less of work if you start investing in real estate today. So if you agree with this goal, which I hope you do because it's an exciting one, we can then move on to step two, which is to assess your resources. This is a big point I often make with people, and I wrote a whole lot about this in my book. It's called the resource triangle. It's basically this concept that every single deal and every single real estate portfolio needs three distinct resources to be successful. That's capital, otherwise known as money. You need to have money to purchase real estate, even if it's not your own, but you need some money.

5:38You need time because real estate is not entirely passive, regardless of what people say. You need to at least put some time into it. And you need skill because someone needs to operate your business with some degree of proficiency to actually make sure the things that you buy wind up producing money for you. And the cool thing about real estate is even though you need all three of these resources for every single deal, you don't need to bring all of them to the table. When I got started, I had time and I had a little bit of skill, but I didn't have any money. And I was able to trade my time and tiny bit of skill at that point for other people's money.

6:17Some people, particularly those who are starting a little bit later, might be in a different position. You may have saved up some money right now. And that means you can bring that to the table when you're figuring out how to grow your portfolio. And as I mentioned earlier in the show, a lot of people talk about the amazing benefits of getting started early. But most 22, 23-year-olds that I know don't have any savings. And that's a disadvantage for starting really early. Whereas if you're 40, you may have some money that you can contribute. Even if you don't, that's fine. but I'm just saying this is one potential advantage of starting a little bit later.

6:55But regardless of what you have, this second step of assessing your resources is really important. You need to figure out what you're going to bring to the table. Because even if you have a lot of hustle, you can't create something out of nothing. You can't create a portfolio out of thin air. You need some resources that you can bring to the table, whether it's capital, time, or skill, you need some of that to make your dreams of a real estate portfolio of retiring early more realistic. So I recommend what you do is sit down and think through what you can bring to the table. Start with money. Look at a couple of different things.

7:38First, look at how much money you actually have saved up and that you can realistically contribute to real estate investing. Now, even if you have$50 ,000, let's call it 50 grand saved up, that's a lot of money that can absolutely get you started in real estate. But you may not want to invest that all into your portfolio. You may have kids or a family or people that rely on you. You might want to save some money for emergency funds. All those are really important. So think through that and subtract those other funds that you have from your savings and figure out what you realistically and responsibly can put towards real estate investing.

8:15So maybe that's$40 ,000. That's great. That's a great place to start, even if it's$10 ,000. Just knowing that number and how much money you can contribute to your portfolio is going to be really, really beneficial to you. That's the first part of capital. The second part of capital that I think is really important for late starters is figuring out whether you want to stay in your job or not. And this is a really sort of controversial thing that always comes up in real estate. A lot of people want to prioritize quitting their job, which is totally fine. Some people choose to stay in their job longer.

8:49My recommendation for late starters is to really think through how you can maximize your current income. The sooner you can get more income in the door to invest into your portfolio, the better it is going to be for you. We talked about this a little bit earlier, that compound interest is a really important, powerful force. The more money you get to invest in the market sooner, it's just going to grow and grow and grow and help you achieve that retirement faster. And so when people ask me, should I quit my job to go into real estate? Should I stay in my current job? My recommendation for late starters is which option is going to help you maximize that income short term.

9:30If you're in a high paying job that you can live with, that's not making you miserable. It doesn't even need to be your favorite. But if you are in a high paying job, that's going to allow you to get loans and is going to give you excess money that you can save and then put towards your portfolio. If you want to retire early, I would do that. I know a lot of people want to retire right now. But remember, retiring in three to five years, if you're just getting started, is not super realistic. So prioritizing and thinking sort of long term about how do I retire in 10 years, maximizing your current income is going to be really important.

10:02There are some people, though, that are out there who are like, I hate my job. I literally can't stand it. That's a different story. Or I actually like my job or hate your job, whatever, but I just don't make a lot of money. Then those to me are then scenarios that you may want to consider going into real estate. If you think you can make more money as an agent or a loan officer or a property manager, go do that. You're going to get the benefit of learning the business and you're going to make more money and you might get real estate tax professional status at the same time. Like if you can make more money doing that, go do that.

10:35And if you would like it, right, you know, if you would like it, do that as well. So this is, again, the first sort of steps in assessing your resources. How much do you have saved up? And then how are you going to get money to pour back into your portfolio? Sort of make a decision for yourself. Is that going to be staying in your current career or switching into one that can make you more income in the short term? All right. So that's the first assessment in the resource triangle, but we got to talk about time and skill. Super important audits you need to do to allocate your resources, but we got to take a quick break.

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15:22Welcome back to the BiggerPockets podcast. We're here talking about the late starter's guide to getting into real estate. Our goal here is to help, on average, someone who's about 40 years old, give or take 10 years, retire in 10 to 15 years using real estate, which is entirely possible. The first thing I told everyone to do is to set that goal. The second thing is to do a resource audit and figure out what you can bring to the table to build your portfolio. The first step was assessing finances, but we have two more to go. We got to talk about time and we have to talk about skill. Time, I think, is one of the most overlooked elements of building a portfolio for real estate investors, especially when you're first getting started.

16:05Because in reality, there's this big spectrum of how much time it takes to own and operate a real estate investing business. You could be house hacking and self-managing everything. You could be flipping properties. And that's super time consuming. And for some people, that might work. On the other end of the spectrum, maybe you're super wealthy and you just want to invest in syndications, or you want to split the difference and you buy duplexes and hire someone else to manage them. All of them work. It really just depends on your own personal resources. If you're someone who's going to prioritize a high paying job that maybe takes 40, 50 hours a week, you might not want to be self-managing every property because you're going to burn out.

16:47And that's really tough. So maybe you lean towards the more passive end of the real estate investing spectrum where you hire a third-party property manager. Maybe instead you work a job that you're okay with that has flexible time and you work 35 hours a week and you have five to 10 hours a week to manage your own property and that will increase your cash flow. You should do that. Again, the whole idea of this resource assessment is to just figure out what's realistic for you and your lifestyle. And as a late starter, you may have a family, you may have responsibilities, and it's really important to think about what time you can sustainably put into your portfolio.

17:23Because one of the worst things you can do is get into real estate, take on deals that are super time consuming and not be able to put the requisite time to make those things successful. You're either going to burn out or you're going to fail. And that's worse than just hiring a property manager. Like if you hire a property manager, you could just make these successful and sustainable over the 10 to 15 years that you need to make this sustainable for in order to realistically retire. So that's the second thing. And the third thing is your skill set. This, again, another thing people overlook, but it takes a variety of skills to be a successful real estate investor and figuring out what you're good at and what you're bad at, what you're going to hire for, what you're going to do yourself is another really important part of building your portfolio.

18:10As an example, I'm good at data analysis. I like analyzing deals. I like analyzing markets. I'm not very handy. So I outsource a lot of my property management, all of my repairs and maintenance. I outsource my billing and my CPA work because I'm not good at that either. And again, could I realistically do this all myself? Sure. Am I going to do that? Well, no. And as someone who is, I'm not 40 yet, but I'm getting pretty close. I have other priorities and things in my life, and I don't want to spend all of my time working on real estate. So just thinking through the things that you like doing, that you think you're going to be good at versus the ones that you would rather hire out is going to help you.

18:51Every successful investor I know hires out at least some of the skills and stuff that you need to successfully run a portfolio. This is not copping out. It is not cheating. It is not being lazy. It's just smart business. Like this is just what you got to do. And so take some time to think through this. This is the resource on it, thinking through how much money you have, how much time, and how much skill you have. That is step two in your late starter's guide and brings us to step three, which is mapping out your strategy. Strategy, the definition of it is a plan to achieve a goal. And we know our goal right now.

19:29And so the strategy that we need at this point in our plan for late start is to figure out like, how am I actually going to get from here today to the goal that I have of replacing my income in 10 to 15 years? And that might involve rentals that might involve short term rentals. But at this point, I really think you need to kind of go a little bit higher level. And of course, every person is going to have their own approach to this. But because you're listening here and I'm giving you a guide, I'm just going to tell you what I think is the highest probability strategy for trying to retire starting at age 40 in 10 to 15 years.

20:07Here are my strategies. Number one, I already told you this one. Maximize your current income however you can, whether that's staying in your current job, working a side hustle, going into real estate, get as much money as you can to put into your portfolio as quickly as can. That's the best strategy. Second, focus on building equity for the next seven to 10 years so you can build your net worth as quickly as possible. And this means not focusing as much on cash flow. I'll explain that in a minute. But I think the real focus when you're getting started and trying to scale up is get that net worth, your investable assets, the total amount of equity you have.

20:50Grow that as quickly as you can. That can be passive. That can be active. That can be flipping. That can be burr. However you want to do it, the strategy behind it is to grow your net worth and equity as much as you can as soon as possible. The third part of the strategy is once you reach an appropriate amount of equity, which may be$2 million for some people, it might be$1 million for other people. But once you figure out how much money you need and how much equity you need to achieve that, then you shift to a cash flow focus. This can be in year seven, it can be year eight, and year nine. But that's it.

21:26That's my plan for retirement. Maximize your current employment, spend the first two thirds of your growth stage building equity, and then the last third of your growth stage shifting from an equity focus to a cash flow focus. That's it. Then you retire. I don't often prescribe strategies to people, but I really like this one. So for the purpose of this episode, I'm going to assume you like this one too, and we're going to use it. I'll share an example of you so you all understand sort of what I'm talking about, maximizing income, and also the shift from equity to cash flow over time. I'll explain that all in an example as we keep going.

22:06Okay, so let's just talk about goals and sort of working backwards towards once you have this strategy, how this might actually play out for you. So when we talk about goals and doing this resource audit, one of the things that you should do at this point when you're building out your strategy is figuring out what income replacement means to you and what retirement actually means to you. Do you need$10 ,000 a month? Do you need$5 ,000 a month? Do you need$20 ,000 a month? That's going to vary a lot per person. But the cool thing about real estate is that if you figure out what amount of money that you want, you can pretty easily work backwards and figure out one, how much cash flow that you're going to need monthly from your rental properties, but two, how much equity that you're going to need to actually generate that cash flow.

22:54And this is a super important concept that I really want everyone to think about here. Cash flow is really a function of two things. How much money you have invested into your portfolio and the rate of return that you earn on that portfolio. Just as an example, if you had$1 million invested into your portfolio and you earned a rate of return, like a cash on cash return of 10%, you can know that you're gonna have$100 ,000 per year. That's amazing, right? On the contrary, if you only have, let's say,$400 ,000 invested into your portfolio, which is still a lot of money, and you have that same 10 % rate of return, you're only going to be earning$40 ,000 a year.

23:36And I don't know your personal lifestyle, but I would imagine you can all see that earning$40 ,000 a year from your rental portfolio versus$100 ,000 a year in your portfolio is pretty different. And although conditions change and the rate of return that you can earn will change based on where you live, how good of an investor you are, what's going on in the macroeconomic environment, the rate of return doesn't change all that much. You know, on the low end, you might be getting 5 % cash on cash return. On the high end, if you're crushing it and doing value add, you might be getting a 15%. So that is a pretty big range.

24:11But I think for the average investor for who's just getting started, you need to assume that you're probably going to be getting a cash on cash return. Let's call it of 8%. Let's say you average an 8 % cash on cash return. So if you spend the next 10 to 15 to 20 years putting all the money that you have into your investment property and you wind up building up enough equity, let's call it$250 ,000 of equity. That's an amazing amount of money, right? You have an 8 % cash on cash return, pretty good cash on cash return. Your cash flow at that point is$20 ,000. Nothing to sneeze at, but probably not retiring off$20 ,000.

24:50Even if you got that cash on cash return, let's just say you had a fantastic cash on cash return and you got it up to 15%. That's great. That's a really high cash on cash return. At that point, you're doing better, but you're still only earning$37 ,500 per year in cash flow. That's a big difference. But again, it's probably not that retirement number that most people want. Instead of focusing on getting our cash on cash return from 8 % to 15%, if we spent the majority of our growth period of our portfolio building trying to build equity instead, let's say we had a million dollars in equity at the end of seven years, which may sound like a crazy high number at this point, but trust me, if you commit yourself to real estate investing, that is an achievable goal.

25:39So if you say you have a million dollars of equity invested and then you go back to that lower rate of return of 0.08, you would actually be earning$80 ,000 a year. Now that is getting pretty darn close, I think, to almost everyone's retirement number. That is actually higher than the median household income in the United States right now. And of course, I'm pulling numbers out of thin air. But what I'm trying to illustrate here is that what's going to matter to your retirement more is how much equity you build up in the first few years, not how much cash flow you're earning in the next few years.