Transitioning From a Full-Time Employee to a Full-Time Investor

Updated: Mar 7

Not too long ago, the American dream was to get married, buy a single-family home, have a couple of kids and a dog, and find a good company to work for. The goal was to get hired and stay on until you reached the retirement age of 65. At that time, you could take your social security and your retirement pension and live comfortably. It certainly wouldn’t bring you a lavish lifestyle, but at least your working days would be behind you.

Of course, there were several variables that had to be in place. First, the company you worked for had to stay profitable, so your job remained secure and the ideal matching retirement fund contributions would be made. In addition, you had to hope that you would maintain your good health so that you’d be around when the time came to retire. If not, there would be some insurmountable barriers to enjoying a pleasant retirement.

A Different American Dream

In the 1990’s, the American dream of the 1960’s ’70’s and ’80’s began to change. Many people wanted to work for themselves. Entrepreneurship skyrocketed. People began changing jobs often, leaving the area they grew up in, and began moving to another part of the country. The new American dream also began changing as people increasingly developed a strong desire for an earlier retirement. Sixty-five years was too old to start enjoying life, forty-five sounded much better.

The question was, how could anyone make that happen? Once people realized that it was possible to give up their guaranteed paycheck and become a full-time investor, all bets were off. The new American dream was born, and passive investing took off. However, while many people began investing, they also realized that it takes time to build wealth. There wasn’t a “fast lane” to that early retirement.

Passive Income Takes Time to Build

I’d like to share an example of why it takes time to build enough wealth for that early of a retirement. Let’s say you’ve worked for a company for 20 years, you’re in your mid-40’s and you’ve managed to save $500,000. While that’s a substantial sum, it’s not enough to retire on at 45 or 48 years old.

Here’s why: current cash-on-cash returns are about 7%. That means your $500,000 would earn you $35,000 per year - hardly enough to say goodbye to your W2 job. So instead, you invest that money in a multifamily real estate syndication and wait for 3 to 5 years during the hold period. After 5 years, you’ve earned $35,000 per year, or another $175,000.

In addition, there would be appreciation on the real estate asset. All of sudden, your $500,000 is now $850,000, and if you reinvested all the money you’ve made at 7% cash-on-cash return, you’d be earning $60,000 per year, which is a lot closer to your goal. Plus, if you wait a little longer and continue to reinvest your earnings and income, you’d be receiving $150,000 per year, more than enough to say goodbye to that 9 to 5 job. My point here is that it takes time to build wealth to allow you to live comfortably from passive income.

Real Estate Investing