Getting Rich as a Big Law Lawyer Forum

[Anonymous User]

Putting this here to ask the opinion of fellow lawyers who invest in real estate. I’m thinking about taking advantage of my higher salary in big law by having my wife (I will be pretty busy) help me use my money to build a huge real estate portfolio. I was thinking about creating an LLC and then when I start in big law after graduation, buy a couple townhouses under the company name and then expanding from there over time. My goal is after 20 or so years to have multiple commercial and residential properties. I want to build a website where my tenants can go and access their leases and pay their rent to streamline the process and make it a little more organized and cleaner. Has anyone else done this to make the most of their big law salary? The more I research the more I understand that real estate allows you more control over your investments because you can figure out ways to raise the value of your assets and minimize risk. I plan on using as much leverage from the bank as possible with each transaction. I’m trying to get to a point where my passive income is equivalent if not higher than my big law salary so when I am set to retire I know I can live the same quality of life indefinitely. Any advise or feedback?

[CanadianWolf]

Difficult to be a passive landlord over multiple properties. Too much work with respect to maintenance and repairs in addition to administrative functions. Might work if you buy a multi-unit building & live in one of the units.

I have a childhood friend who became an investment banker. Bought about a dozen rental investment properties. Went bankrupt when the real estate market collapsed. Was over-leveraged.

Investing in raw, sub-dividable land can be a great investment, but may not provide an income stream and owner is required to pay property taxes & liability insurance.

Commercial warehouses can provide a solid stream of income with reasonable maintenance duties.

[2013]

I think you’re overestimating how long people last in biglaw. You need 20-25% down for investment property. Unless you’re independently wealthy, you won’t have enough money to purchase more than like 3-4 properties in like 6 or so years in a MCOL city. I doubt you’re looking to rehab places.

[Anonymous User]

I have never been able to find the time to deal with real estate investing as a biglaw person. I've known a few people who have tried, most have given up on it. You can get outsized returns in real estate for sure, but you have to put the work into it.

Unless your spouse is not otherwise working and will spend enough time to meet the relevant tax thresholds for being considered a real estate professional, be aware that people often misunderstand the scope of the potential tax benefits, too.

[Anonymous User]

I have some experience in the RE industry. RE is a job. It's not passive income, if such a mythical thing even exists. I'm not saying it's a bad idea just know that.

[Anonymous User]

I can’t comment on the wisdom of RE specifically, but I will say that investing your income in something seems key to making the most of your BigLaw earnings. It’s a great way to generate a lot of starting principal and turning that principal into investments seems to be the way to go.

[Sackboy]

Real estate as passive income is a terrible investment compared to the market. If you're one of those Youtubers/shops that actually goes in, flips properties, and juices the margins that way, then, yeah, it can be more profitable than what you'd get by just shoving your money in VTSAX, VOO, VTI, etc. If you get to that point, however, it's a full-time job that you do not have time for. The easiest way to get rich as a big law lawyer (or any profession) is the boring way of putting away a significant portion of your income and letting it compound over a long period of time.

Do the math, if you invest $60k into a $300k property, let's say you lose out on 8% long term annual compounding returns on the $60k. At the start, that's $4,800/yr. I picked a random $295k condo in Chicago (the low end of a HCOL city or high end of a MCOL city, depending on how you look at it). Zillow tells me that's going to cost me $1,747/mo. Okay, now you have to add in closing costs, which would probably be $6k here (and money you'll also lose the ability to compound in the market). The pain of closing costs dilutes over time, but it's a real cost. Now, let's add in home owners insurance of $100 and keep in mind that you are responsible for the repairs and also any renovation costs that it takes to get this place on the market initially. Overall, based on current rents in the city, you could probably rent this place for $2,300. Congrats, you're squeaking out like $50/mo. in returns plus whatever part of your mortgage payment is applied to principle compared to market (except this doesn't actually include closing costs, renovation costs, repairs, etc.). Sure, your property could appreciate wildly, but it could also not. If you're buying in a market already seeing massive appreciation, the amount is going to be far higher than $300k for anything good, which will cause more lost investment income.

Unless you are getting absolute bargain properties, which is a time consuming and difficult task to execute on, or making it a full-time job, the money isn't remotely worth the effort compared to what the market will give you long term, but, hey, I get it owning real estate makes some people feel like they have a kingdom and are good investors and all that. But, you know what beats that? Actually being a good investor.

[Anonymous User]

I know it seems like a side note in your post, but why build a website? A bunch of decent platforms exist already. Sounds like a massive headache.

[Wanderingdrock]

Here's how you get rich as a Biglaw lawyer:

1. Make a budget. Base it on your projected first year income (after asking - either a trusted colleague or even just this forum - what their actual take home is) without taking into account bonuses and with taking into account maxed tax-advantaged contributions (backdoor IRA for each of you and your wife, max voluntary contribution to 401(k), mega backdoor Roth contribution to 401(k) if your firm allows, max HSA, etc.). Re-assess your budget periodically as you get more info or new life events occur.

2. Build up an emergency fund of cash in a high-yield savings account.

3. Open a free taxable investment account at any of the big providers (Vanguard, Merrill, whoever).

4. Dump all of your excess income (beyond your budget and what it took to build the e-fund) into that taxable investment account and invest in ETFs.

As your income increases with annual raises, make sure to control your lifestyle inflation. Some costs will increase because of life events and some costs will increase because you want to enjoy life, but try to make sure your savings increase proportionate to your raises. After 20 or so years, you'll be rich, assuming you can stick it out in Biglaw for 5 or so of those and take a job after that which at least covers your budget.

[Lacepiece23]

I did real estate while in biglaw. Have a very good friend who is much more successful than I. She has like 15 properties and I have 4 after recently selling one at a 400% ROI.

Here’s the deal, the difference between me and her isn’t money or even the ability to find a good deal. The difference is her ability to find better contractors and have a knack for managing them.

To make money in real estate, you have to renovate so you can refi the equity. But to do this, you have to rely on contractors with no higher education and are terrible at running their business. And not only are they terrible, they will lie, cheat, and steal.

I’ve lost tens of thousands with bad contractors. Luckily, I’ve bought good enough deals where I still broke even or made money.

If you don’t know the ins and outs of construction or have a brother that you trust doing the work, just save and dump your money into the market.

[Anonymous User]

Difficult to be a passive landlord over multiple properties. Too much work with respect to maintenance and repairs in addition to administrative functions. Might work if you buy a multi-unit building & live in one of the units.

I have a childhood friend who became an investment banker. Bought about a dozen rental investment properties. Went bankrupt when the real estate market collapsed. Was over-leveraged.

Investing in raw, sub-dividable land can be a great investment, but may not provide an income stream and owner is required to pay property taxes & liability insurance.

Commercial warehouses can provide a solid stream of income with reasonable maintenance duties.

The only trust funder that I know receives monthly checks from a trust that is fully invested in commercial warehouses. The trust manages the properties, taxes, and admin. I don't know how typical that strategy is, but I thought it was interesting that that was how at least one very prosperous family went about bequeathing money in a way that generated regular passive income for offspring. Obviously it helps to buy commercial real estate in 70s and hold onto it for 50 years.

[Dw686]

Buy a commercial property, try to get your wife qualified as a real estate professional, perform a cost segregation study on the property to be able to get a massive depreciation number, write-off your ordinary income if you file jointly.

Seek the advice of someone legit if you decide to do this.

[Stevenmilbe]

Here's how you get rich as a Biglaw lawyer:

1. Make a budget. Base it on your projected first year income (after asking - either a trusted colleague or even just this forum - what their actual take home is) without taking into account bonuses and with taking into account maxed tax-advantaged contributions (backdoor IRA for each of you and your wife, max voluntary contribution to 401(k), mega backdoor Roth contribution to 401(k) if your firm allows, max HSA, etc.). Re-assess your budget periodically as you get more info or new life events occur.

2. Build up an emergency fund of cash in a high-yield savings account.

3. Open a free taxable investment account at any of the big providers (Vanguard, Merrill, whoever).

4. Dump all of your excess income (beyond your budget and what it took to build the e-fund) into that taxable investment account and invest in ETFs.

As your income increases with annual raises, make sure to control your lifestyle inflation. Some costs will increase because of life events and some costs will increase because you want to enjoy life, but try to make sure your savings increase proportionate to your raises. After 20 or so years, you'll be rich, assuming you can stick it out in Biglaw for 5 or so of those and take a job after that which at least covers your budget.

Literally this. The hardest part for me was making a budget, but don't be afraid to play with numbers a bit and see what works for you (referring to things like savings rate, non-fixed expenses, etc.)
There are numerous resources to help guide you w this, for example JL Collins' book The Simple Path to Wealth, and even a biglaw specific website like BigLawInvestor.

But the above is the best way for someone w a job that is pretty much 24/7

[Anonymous User]

V10. M&A. Just finished lifting the last contingency on a residential investment property. Hoping this was the right decision for ROI. This decision was one of the few eventual avenues to get out of Biglaw.

[Anonymous User]

I felt stretched managing rent and servicing loans for my first three years of biglaw. No idea how anyone miraculously has extra funds to “invest” in any real estate, let alone multiple properties. Biglaw only starts to pay out with real savings in years 5 and 6, and most people are out by then. Don’t count on the recent special bonuses to set the market moving forward.

Notions of saving / investing significantly as a junior associate are predicated on inherited wealth. That’s just another “how to capitalize on being born rich” thread.

[Anonymous User]

I felt stretched managing rent and servicing loans for my first three years of biglaw. No idea how anyone miraculously has extra funds to “invest” in any real estate, let alone multiple properties. Biglaw only starts to pay out with real savings in years 5 and 6, and most people are out by then. Don’t count on the recent special bonuses to set the market moving forward.

Notions of saving / investing significantly as a junior associate are predicated on inherited wealth. That’s just another “how to capitalize on being born rich” thread.

Hmm, I don't think this is completely true. I think investing in real estate might be a push (I don't see myself buying any real estate, even for myself, any time soon), but I am getting paid market, currently pay about $3,000 for rent a month (recently had a partner move in, which helps on this front) and after 2 years in Biglaw have about $100k saved up and about $100k in investments with $100k in debt. Planning to pay off my debt in full in February, bring my investments up to about $200k by end of 2022 and looking to either do one more year of Biglaw thereafter or get out. Grew up poor in a single parent household and paid my own way through school.

[Anonymous User]

I felt stretched managing rent and servicing loans for my first three years of biglaw. No idea how anyone miraculously has extra funds to “invest” in any real estate, let alone multiple properties. Biglaw only starts to pay out with real savings in years 5 and 6, and most people are out by then. Don’t count on the recent special bonuses to set the market moving forward.

Notions of saving / investing significantly as a junior associate are predicated on inherited wealth. That’s just another “how to capitalize on being born rich” thread.

This is largely dependent on individual circumstances. I graduated with 75k in debt and moved into a 1bedroom flex with a roommate, so I was only paying around $1700/month in rent. Definitely didn't feel stretched and had good savings by year 3 - way better than my law school buddies with double the debt and double the rent.

Anyway, I'm no expert, but I've thought about RE investing a lot just for diversification from 100% equities.

Each time, I just come back to why not invest in a REIT? Let someone else deal with the headache of actually managing the property, being a landlord, collecting rents etc. Meanwhile still get dividends on your invested capital. OP, I'd strongly consider this option unless you truly are trying to be a real estate baron rather than just making passive cash on investments.

Here's my thoughts on REITs vs. owning underlying real estate:

Pros: less work (no maintenance, no dealing with contractors, no collecting rents), less risk (capital invested over several properties rather than in 1-2, if a tenant doesn't pay, I'm not the one who has to evict/take them to court), same sector exposure, passive income, less stress

Cons: Less leverage (I could take out margin, but the interest on that would be much higher than the interest on a mortgage backed by real assets).

Leverage is the one reason why investing in RE is huge. You can take $1mm and create a portfolio worth $5mm (assuming 20% down payments). My $1mm in a REIT is only $1mm because I won't take out margin. Thus, my passive income stream is based on a portfolio of $1mm vs. $5mm.

Personally, I don't think the stress/work is worth it, and I'm not handy enough (maintenance repairs will add up if you hire out for every issue) nor am I savvy enough to make owning underlying property work.

FWIW, I have not invested in REITs and remain 100% equities for 2 reasons: 1) market returns are better and I expect them to continue to remain better over the next 10-20 years and 2) I want to see where the RE market goes with WFH/interest rates rising in the near future.

Would love to get thoughts from people who are invested in REITs and their experiences.

[Elvis_Dumervil]

I felt stretched managing rent and servicing loans for my first three years of biglaw. No idea how anyone miraculously has extra funds to “invest” in any real estate, let alone multiple properties. Biglaw only starts to pay out with real savings in years 5 and 6, and most people are out by then. Don’t count on the recent special bonuses to set the market moving forward.

Notions of saving / investing significantly as a junior associate are predicated on inherited wealth. That’s just another “how to capitalize on being born rich” thread.

This is largely dependent on individual circumstances. I graduated with 75k in debt and moved into a 1bedroom flex with a roommate, so I was only paying around $1700/month in rent. Definitely didn't feel stretched and had good savings by year 3 - way better than my law school buddies with double the debt and double the rent.

Anyway, I'm no expert, but I've thought about RE investing a lot just for diversification from 100% equities.

Each time, I just come back to why not invest in a REIT? Let someone else deal with the headache of actually managing the property, being a landlord, collecting rents etc. Meanwhile still get dividends on your invested capital. OP, I'd strongly consider this option unless you truly are trying to be a real estate baron rather than just making passive cash on investments.

Here's my thoughts on REITs vs. owning underlying real estate:

Pros: less work (no maintenance, no dealing with contractors, no collecting rents), less risk (capital invested over several properties rather than in 1-2, if a tenant doesn't pay, I'm not the one who has to evict/take them to court), same sector exposure, passive income, less stress

Cons: Less leverage (I could take out margin, but the interest on that would be much higher than the interest on a mortgage backed by real assets).

Leverage is the one reason why investing in RE is huge. You can take $1mm and create a portfolio worth $5mm (assuming 20% down payments). My $1mm in a REIT is only $1mm because I won't take out margin. Thus, my passive income stream is based on a portfolio of $1mm vs. $5mm.

Personally, I don't think the stress/work is worth it, and I'm not handy enough (maintenance repairs will add up if you hire out for every issue) nor am I savvy enough to make owning underlying property work.

FWIW, I have not invested in REITs and remain 100% equities for 2 reasons: 1) market returns are better and I expect them to continue to remain better over the next 10-20 years and 2) I want to see where the RE market goes with WFH/interest rates rising in the near future.

Would love to get thoughts from people who are invested in REITs and their experiences.

The interest on a margin loan should actually be lower than a mortgage -- take a look at what Interactive Brokers charges, for example.

Also, margin interest is tax deductible with no limit, unlike a mortgage.

If you want to diversify, bonds are the natural choice. Series I and E savings bonds are an arbitrage right now relative to treasuries. Again, modulate your risk through margin loans on your equities.

[TUwave]

I felt stretched managing rent and servicing loans for my first three years of biglaw. No idea how anyone miraculously has extra funds to “invest” in any real estate, let alone multiple properties. Biglaw only starts to pay out with real savings in years 5 and 6, and most people are out by then. Don’t count on the recent special bonuses to set the market moving forward.

Notions of saving / investing significantly as a junior associate are predicated on inherited wealth. That’s just another “how to capitalize on being born rich” thread.

Wood 'drastically underestimates the impact of social distinctions predicated upon wealth, especially inherited wealth. ' You got that from Vickers, 'Work in Essex County,' page 98, right? Yeah, I read that too.

[Saami]

I felt stretched managing rent and servicing loans for my first three years of biglaw. No idea how anyone miraculously has extra funds to “invest” in any real estate, let alone multiple properties. Biglaw only starts to pay out with real savings in years 5 and 6, and most people are out by then. Don’t count on the recent special bonuses to set the market moving forward.

Notions of saving / investing significantly as a junior associate are predicated on inherited wealth. That’s just another “how to capitalize on being born rich” thread.

Wood 'drastically underestimates the impact of social distinctions predicated upon wealth, especially inherited wealth. ' You got that from Vickers, 'Work in Essex County,' page 98, right? Yeah, I read that too.

I love you.

[Anonymous User]

I think people here overestimate the effectiveness of making a budget. It’s not a panacea. If you have low living expenses and aren’t profligate, you will have a lot of money to save up and invest, whatever investment strategy you choose. If you spend too much on unnecessary stuff, don’t. Or do, but then you won’t have money to invest. Your choice.

If you have a family to support, 205k doesn’t really stretch that far, that’s life. I’m happy I’m able to support them and that my investment is paying off, and I don’t need to be rich. Putting my expenses on a spreadsheet won’t change them, I’ve tried.

Idk this all just feels like avocado toast logic.

[Monochromatic Oeuvre]

I felt stretched managing rent and servicing loans for my first three years of biglaw. No idea how anyone miraculously has extra funds to “invest” in any real estate, let alone multiple properties. Biglaw only starts to pay out with real savings in years 5 and 6, and most people are out by then. Don’t count on the recent special bonuses to set the market moving forward.

Notions of saving / investing significantly as a junior associate are predicated on inherited wealth. That’s just another “how to capitalize on being born rich” thread.

Wood 'drastically underestimates the impact of social distinctions predicated upon wealth, especially inherited wealth. ' You got that from Vickers, 'Work in Essex County,' page 98, right? Yeah, I read that too.

"Do you like apples?"
"Yeah"
"Well, I got 1.5x market for 2300 plus the special. How do you like THEM apples?"

[Anonymous User]

I have some experience in the RE industry. RE is a job. It's not passive income, if such a mythical thing even exists. I'm not saying it's a bad idea just know that.

Index funds are passive income. I think, in addition to all the other virtues they have, the sheer simplicity of having a simple indexed portfolio is worth its weight in gold. I spend maybe 30 minutes to an hour a year updating my portfolio. It generates market returns. It's great and simple.

[Elvis_Dumervil]

I have some experience in the RE industry. RE is a job. It's not passive income, if such a mythical thing even exists. I'm not saying it's a bad idea just know that.

Index funds are passive income. I think, in addition to all the other virtues they have, the sheer simplicity of having a simple indexed portfolio is worth its weight in gold. I spend maybe 30 minutes to an hour a year updating my portfolio. It generates market returns. It's great and simple.

Another way to put it: your job, the thing you're trained to do and relatively skilled at, is to be a lawyer. Spend your time making money doing that. The marginal hour spent being a better lawyer is far more valuable than the marginal hour managing a rental property. Who's paid more, lawyers or superintendents?

And the marginal hour on both may not be that valuable -- go read to your kids or work out or something. Soon you'll be old.

[Anonymous User]

I have some experience in the RE industry. RE is a job. It's not passive income, if such a mythical thing even exists. I'm not saying it's a bad idea just know that.

Index funds are passive income. I think, in addition to all the other virtues they have, the sheer simplicity of having a simple indexed portfolio is worth its weight in gold. I spend maybe 30 minutes to an hour a year updating my portfolio. It generates market returns. It's great and simple.

Yeah I mean it's a great way to invest but people talk about "passive income" like some magic thing and it always boils down to just "have investments" or something that is essentially another job.