Why a passive income millennial is still working full-time

  • Real estate investor Adam Masato is still working full-time and renting an apartment.
  • He’s on track for early retirement, but he has to keep his W-2 job a little longer.
  • His W-2 job helps him qualify for more investment property mortgages.

35-year-old real estate investor Adam Masato is on his way to making a living entirely on passive income.

He and his wife Diana Hernandez make $9,500 a month renting out their Los Angeles condo with a profit of $1,100 and an Airbnb in Joshua Tree, California with an average monthly profit of $8,400. The couple’s long-term goal is to retire early and support themselves with passive income.

Meanwhile, Masato says, “I’m just a regular millennial with a W-2 job.”

He recently moved into a rented apartment with his family

Masato and Hernandez moved in with Hernandez’s parents in 2019, seven months before the pandemic began, to save money for travel. They moved out of their Los Angeles condo and began renting it out to supplement their savings even more.

The couple spent two years saving and investing their combined income of $150,000 a year, not counting rental income from the condo, while living with Hernandez’s parents. Hernandez’ family comes from El Salvador, says Masato, where multiple generations living under one roof is the norm.

During the pandemic, Masato’s priorities shifted to long-term wealth building for his family and early retirement. Living with his in-laws has presented some challenges, but Masato says he would do it again.

After the birth of their son, the couple decided to leave home to take “our own peace of mind,” he says. Instead of trying to buy another home in LA’s competitive market, Masato says moving into an apartment was the best choice for his family.

He needs his W-2 job to qualify for more mortgages

Masato said he plans to keep his W-2 job for the foreseeable future. “I need it to qualify for more mortgages,” he explained. “I can’t use my Airbnb income until I have two years of tax returns.” He plans to buy more investment properties that generate passive income to support his goal of early retirement.

Buying a home can be more difficult when you’re self-employed, especially if, like Masato, you’ve worked for yourself for two years or less.

According to Christian Mills, head of financial advisor relations and behavioral finance expert at Reverse Mortgage Funding, LLC, any lender evaluating Masato’s mortgage application would look to have two years of professional experience. “Lenders require a two-year history to confirm that the borrower has regular, recurring income that can be relied on,” he says. “Underwriters will look to this two-year history as an established pattern that is likely to continue.”

When it comes to building a long-term passive income stream, time is the most important ingredient. Mills says, “Rental income can be used in many ways to get more credit. Here’s an example: An investor buys a $100,000 property with a

down payment

from $50,000. Two years later, thanks to a white-hot real estate market, the property is worth $200,000. The investor can then use the property’s additional equity, as well as the rental income, to buy another property and start the cycle again.”

Masato is still on track for early retirement

Masato says he envisions leaving the traditional workforce once he has two or three more rental properties. When that happens, he says, “I’ll be at a point where I can cover my living expenses and still put some money aside and keep investing.”

He adds: “Having a job is just a huge stressor, not because I hate my job or anything, just because I know I have a busy calendar or could be chewed out at any moment. I imagine a life that’s so much better. I’m not saving for a mansion or a supercar or anything. I just really want to have time to hang out with my family and travel – and really low stress.

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