Advice for our next move?

[BSforever]

I need to leave my job in the next couple of years. The singular thing that has kept me here so long is the flexibility it offers. I'm a property manager of a complex and I'm able to work primarily from home which allows me to keep my young kids and avoid daycare cost. I love being with them, even though it's sometimes total chaos :)

Within 2ish years I would like to be in a similarly flexible position at a different company, or working for myself. I am genuinely open to most anything, outside of hands on health care or hospitality/retail. Been there, done that.

Originally I was thinking something is tech or finance but I have nothing that's exclusively calling to me. What I do have is a list of the traits an ideal career would have for me.

- Flexible
- Six figure earning potential
- Preferably less than two years training needed to switch
- Relatively high demand


Or we can do something drastic that we have been discussing for years. We own a piece of property that is ideal for building rentals. Utilities are available, the preliminary plan has been approved. There's three reasons why we are very tempted to do this.

1. I've been a property manager for 10 years. I feel confident in these abilities. I like my job minus the owner conflicts (reason I'm wanting to change jobs).

2. My husband is a general contractor. He has successfully built several rental communities and he would be doing ours. Those savings are significant to the cash flow.

3. The local bank that we have done small real estate deals with has indicated that they are very interested in funding the project, both the construction and long term loan.

Reasons why we haven't or wouldn't do this
- Millionsssss in debt
- Riskiest thing we have ever done


Well honestly after typing this novel out, it seems to make more sense to do the property development? The banker has said we could do it in phases so that would make it less risky and it's a non recourse loan. So if it totally bombed, we could recover. We are 32 & 44. The likelihood of it not being successful is very low though. It would be an apocalyptic scenario. There is a significant need for rentals in this particular area.

The first phase would replace my 90k income. The second phase would double it. That would be more income that we would ever need and we could either aggressively pay off the loan (tempting with these rates) or heavily invest. Once the mortgage was paid off, the cash flow would be insane for us. The equity from day one is also very attractive.

Thoughts or advice from anyone?

Tldr:
Retrain into a different career within two years or take the plunge and build our own rental development and be semi retired?

[zolotiyeruki]

How much would it cost for each phase?  I mean, it sounds like a fantastic opportunity.  With DH being a GC, that takes a lot of uncertainty and headache out of the process.  How long would you expect the first phase to take?

Given that it's a non-recourse loan, the worst that can happen is you lose the land. Well, not even that.  The worst that happens is the bank repossesses the land and whatever progress you've made, resells it, and gives you whatever's left after getting their money back.

Sure, there's that risk, but is there any reason you couldn't continue in your current job until the first phase of construction is complete?  That takes all the risk out.

I'm having a hard time seeing a downside here.

[BSforever]

Estimating that each phase will cost 2.3 million. Estimated completion time would be 18 months. Luckily I can totally stay with my current job throughout the building process. I don't think there would be any issues arise. I'll also offer to train my replacement to try to smooth things out as best as possible.

I think our hesitation is just around how much debt it would be and  because I tend to have a doomsday attitude. Like yeah on paper it's a good move but surely it won't work out so well for us. We aren't that lucky, blah blah blah. It's a really bad habit, I'm trying to change it.

[Expatriate]

But the debt will be non recourse. Worst you’ll lose is the land plus any hours your partner puts in. You can keep your current job until the first phase is done.

Given that this is something you’d both enjoy, that’s basically only upsides.

[BSforever]

Yes, the non recourse is the thing that has made us stop and say perhaps this is the smart thing to do after all. Thank you both for the reassurance. My husband feels like the current financial situation will have people favoring affordable rentals versus buying houses for a good while longer. Is this the general consensus in the MMM community too? We've never had an issue leasing units at my job, I can't imagine why it would become an issue.

[Freedomin5]

As long as housing remains unaffordably high in your locale, or there’s something in your location that favors/draws in renters (like a university), there will always be a need for decent rental housing.

I also don’t see a downside, and if your current job is flexible enough, and your kids are old enough to be in school, there also may be no need to quit your 90k job after completing phase one. That may help assuage the little doomsday prophet residing in your brain.

You and your spouse sound like you are uniquely suited, with your respective skill sets, to take on this project.

[patchyfacialhair]

High risk, high reward.

This is high risk in the sense that at best, you'll have X number of units...all in the same location...therefore subject to the same market...good or bad.

Think of it like individual stocks for individual companies, but all in the same industry. Sure...you're very knowledgeable about multiple segments of that industry (development and management), but it's like getting these stocks at a discount due to in house management and in house development. Nonetheless, the stock values can decline for a number of reasons. They can also skyrocket, or just perform as forecasted.

BUT I like others like the non-recourse loan, and you're both young enough to where you can go get comparable jobs with minimal effort if push comes to shove. And if successful, you have your own thing. Love that idea. All said...I'd do it, as long as you're VERY sure of the numbers.

[Log]

Alternative framing: we're in a massive housing shortage across the country (assuming you're in [insert any Anglophone country here]), so building additional housing units is the morally right thing to do. If you own this land where it is legal to add multiple additional units of housing and you've been sitting on it, that is a massive wasted opportunity both for you, and for society at large. To not build on it when the need for housing is so dire right now would be a terrible waste.

And you can do even more to save the planet by building in a manner that is friendly to pedestrians, and by providing ample secure bike storage for residents.

[Sandi_k]

I don't find the prospect of rental units reassuring.

What would happen to your income if we have Pandemic 2.0, and evictions (even for non-payment of rent!) are halted, as has been the case in many markets?

If I had depended on rentals for income, we'd have been bankrupted by Covid.

[Villanelle]

Yes, the non recourse is the thing that has made us stop and say perhaps this is the smart thing to do after all. Thank you both for the reassurance. My husband feels like the current financial situation will have people favoring affordable rentals versus buying houses for a good while longer. Is this the general consensus in the MMM community too? We've never had an issue leasing units at my job, I can't imagine why it would become an issue.

I wouldn't base this decision on market-timing.  Who knows what the housing markets (buying or renting) will look like in one year, or five?  I'd look at this as a long-term investment, somewhat ignoring what you think the housing market will look like in X years. 

Overall, if your local market is generally strong and you have more people than housing units, it seems like this is a good bet over the long haul.  I'd want to have a beefed up savings, and also be prepared to keep the current job (even if you don't like it), if you open these units to a crap market.  If those things were in place, I'd probably vote to make this move, knowing that you are putting all your eggs in this one basket. 

[BSforever]

I'm sorry but I don't know how to reply to each of you without making this a scrambled mess. I'm finding the varying viewpoints and suggestions very be helpful though. Thank you all!

@Freedomin5
My youngest are 3 and 1 so school for them is still a bit far off. I could stick it out at my current job but I truly truly want to make a switch as soon as it is safe to do so. I think the answer to this would be a large pile of cash in the event we have any hiccups with the rentals. And my husband can continue to work. I've also thought about hiring an assistant to keep up with the current role and also assist with the hypothetical new rentals. This is something I'm going to have to do more thinking on.

@patchyfacialhair
I agree with everything you said. Especially comparing it to the stock version. It does concern me having such a bulk amount in one single location and we've discussed having smaller numbers of units in different locations but I'm thinking that would make self managing them a nightmare. We've also thought that another option would be to get them built, occupancy up for a couple of years, then sell them for a profit if values are still high.

@Log
I honestly hadn't ever thought of it that way but it's a good point. I often have to turn people away because the town is growing at a faster rate than housing and we stay pretty full. It does make me feel terrible because I know a lot of the other places are not as affordable as us. Many people have to rent in a town or two over. The theme in this area has been developers building huge homes on huge lots. There's been very little focus on affordable rentals. Thank you for the different perspective.

@Sandi_k
For us, covid wasn't a problem. It might help that we are in a Southern state, so things shut down for a bit but it didn't last long. I also screen tenants fairly rigorously and most of our tenants were thankfully not too badly hit by covid fallout. Many of them are in healthcare, local government jobs, retired, and a variety of other occupations. We were very flexible with them and I'm happy to say out of 70+ units, we had zero covid related evictions. We have had tenants who have lived in the complex for 15+ years. Most of the time they will communicate if they're going through a hard time and as long as we can map out a plan for them to be able to get back on track, it's never an issue for us to work with them.

@Villanelle
I agree with everything you said. Ideally we would hold these units indefinitely, pay them off, and have them as a large part (but certainly not all) of our retirement portfolio. One thing I did forget to mention is that since it would be producing more income than we need, one option is to set it up as an LLC but file as an S Corp. My husband and I would pay ourselves a salary. Then the remainder would be taxed as pass through income. I think that's the term the cpa used. We would then either open a Solo 401k or IRA. I'm not sure if this is the most tax advantageous way to do it but it was one suggestion given to us.

[Finances_With_Purpose]

I love this idea - it utilizes both of your skills and allows you to keep the profits. 

I wanted to say that first, before advising you to count the costs as to some issues. 

A few thoughts on things to think through before you plow forward, though.  I don't know the answers to these, but here are things I would personally consider in your position:
1.  Can you go ahead and build two phases at once, thus increasing occupancy/profits enough so that leaving your job works sooner?  Or keep your job through occupancy of phase one, until phase two?  That way, you do not have the extra risk of losing your income. 
2.  How vibrant is your housing market?  Others are right: this is high reward, but high risk.  You'll be making a large bet on the growth of the local housing market and economy.  In some places, that's a great plan.  In others, it's risky.  It's riskier the more your local economy relies upon one or two employers or industries to make it, or the higher-end your units are (thus pricing out more of the market). 
3.  Plan out contingencies: what if supplies / building is delayed?  Can you carry the loan, or what are your options in that case?  Can you refi the loan if rates go down?  What can you do to mitigate known risks? 
4.  How would another covid situation impact you?  You know your market, but I gather that it hit harder in places with longer eviction moratoriums.  You might get stuck with occupied units for years in some places.  You are probably already familiar, but be very aware of what costs/risks are involved, especially legally, in dealing with local landlord/tenant issues. 
5.  What impact, if any, will the increase in evictions now have on your market?  Evictions were on hold in many places for years but are now going again, which is putting more rental units on the market once again.  (It may be a minimal impact, but I don't know your proposed market/renter profile.) 

Beyond that, I would get a good bit more advice from real estate pros before jumping fully into it. 

[Sanitary Stache]

I love this idea. 
How much are you risking?  I mean, how much did you pay for the property that are thinking about developing? 

I think I'd like to do this, but I don't have the experience you are describing of property management and general contractor.  With that experience, and feeling comfortable risking ownership of the property, this seems like a good idea to me. 

I think your career switch needs to be explored.  Why do you "need to leave" in the next few years? What does "stick it out" mean?  Typically, I assume someone interested in FIRE who uses that language wants to leave their job because it sucks.  Does property management suck?

It also gives me pause that your new career criteria have very little to do with the work and more to do with how much money it earns and how quickly you can swtich.  I am also a little wary of how much money you plan to extract from the property development.  I envision some status quo rental properties with the amount of profit you are thinking, versus the moral imperative Log mentions of reducing the environmental impact of the housing stock by building something different.

[lhamo]

This does sound like an interesting opportunity, but I'll throw another option out there:

What could you get for the property from another developer?

A loan for 2.3 mill for just the first phase is going to take quite a while to pay back.  Plus all the risk and headaches of a multi-year development project and eventually a business that you still have to work in.  Might make sense to offload those risks/worries to someone else and pocket the cash now, or in a year or two if you want to wait out the current rollercoaster economy.

[zolotiyeruki]

I think your career switch needs to be explored.  Why do you "need to leave" in the next few years? What does "stick it out" mean?  Typically, I assume someone interested in FIRE who uses that language wants to leave their job because it sucks.  Does property management suck?

In the OP, @BSforever says this:

1. I've been a property manager for 10 years. I feel confident in these abilities. I like my job minus the owner conflicts (reason I'm wanting to change jobs).

(emphasis mine)  To me, this shouldn't mean that a change of career is in order, just a change in employer. If that.

Personally, I think this is a fantastic opportunity for OP's family.  Building is literally OP's DH's job, and managing the property is literally OP's current job.  Yes, there's risk, but since the loan is non-recourse, the risk is limited to the land they own.

[Sanitary Stache]

Thanks @zolotiyeruki. I missed that. 

It does sound like a great opportunity.

[sonofsven]

I also think it's totally do-able for you two. I'm also a GC and have been doing something similar, building houses for sale with a partner. We've built houses for clients previously and it's so much more enjoyable not building for clients, even though we make more money building for clients.
It can be stressful, at least it is for me, to be responsible for so much of the project, so just work on ways to deal with the stress if that becomes an issue, but otherwise, I would go for it.