How I achieved $5k+ monthly cash flow in 1.5 years

259 Replies

(Disclaimer: I totally took the formatting of this post from another post by Anton Ivanov that I liked a year back!)

A Little Backstory

I am currently 30, married, no kids, living in Gilbert, AZ and working as a finance/business analyst.

My portfolio consists of 8 total units, soon to be 11 mostly SFHs, with a duplex and condo all in the greater Phoenix area.

My units cash flow between $500/door and the total cash flow of the portfolio is about $4-5k/month (accounting for vacancies, repairs, capex, etc). My average COC return at purchase is about 20% with cap rates between 8-11%.

All properties are financed. The only financing I have ever used were conventional loans and investment loans through a local credit union. 6 of the properties were financed with me alone. 2 are with my brother in his name with 50/50 ownership in an LLC.

How did I get here? Here are the important parts:

  • Graduated from college in 2015. Moved to AZ to start work in finance making $60K/yr.
  • 2015-2017. Rented a room for $375 from a now great friend who I met on Facebook. Got inspiration to house hack cause he was doing it with his spare rooms.
  • 2017: Bought my first property SFH. Used conventional loan and put 20% down with money I had saved the prior two years and in college. Didn't know what I was doing and followed the advice of friends to put as much down as possible. Mortgage was $1328 a month. I had 3 roommates who paid me $450 a room or $1350 a month. We split the utilities amongst 4 for about $50-100 a month. Basically lived for free. Bought an i8 for $1250 a month cause I was dumb and justified it with the fact that I had no living expenses. Wish I could take that back cause it would've been another down payment by now
  • 2018: Got married in September and thought about kicking my roommates out. Decided to buy another house(#House 2).  Found a good deal that needed just a little bit of work(~$10K). Put 7% down with primary residence loan and moved 15 minutes away from 1st home. Rented the master in my first house for $550 which left me with positive cash flow. Still wasn't really thinking real estate would help me quit my day job. Found another house 10 minutes away that was turn key and somehow convinced my parents to front the down payment with a payback structure of 10 years at 0% interest. Parents are the best(#House 3). This was about the time I started on the bigger pockets blog and started to actually run numbers. This house would bring me $500/mo cash flow at 16% cash on cash return. Wheels begin to turn.
  • 2019: I make it my life's mission to read every article on bigger pockets to escape the 8-5 grind of my day job and go ham with home buying.
    • March: Team up with my brother and go 50/50 in on a condo. 15% CoC return. (#House 4)
    • May: Team up with my brother again and go 50/50 in on a duplex. 38% CoC return. (#House 5)
    • June: Buy a Tiny Home I found on Facebook Marketplace. Seller financed for 5 years at 0% interest and can literally not find any place to put it legally. Negative cash on cash return with it sitting. (It now is being rented in an RV park for -$150 cash flow a month). Will be paid off in 5 years though so that was a bummer from a cash flow perspective. (#House 6)
    • July: Construct another bedroom in house #1 for an additional $450/mo in income.
    • September: Move with my wife into a different primary residence right next to my first house. Projected CoC return when we move out is 28% Turn the old house into a rental for 17% CoC. (#House 7). Start doing AirBnB for one room which we closed off from the rest of the house with a farmhouse door. Netting about $1.4K a month…will probably level off to $1.2K after averaging summer. Essentially house hacking to pay a little more than half our mortgage.
    • November: Go under contract for a new build. 50/50 with a friend and both on the investment loan. 10% down. Projected finish in March with $550 cash flow for each of us or 25% CoC. (I included this property as #House 8).  All in all I will have rented and purchased 8 Homes from September 2018 to March 2019 or 1.5 years.
    • 2020: Have an investor willing to give me a 10 year loan at 6% to construct a guest house on one of my properties. Projecting my loan costs and expenses to be about $1600/mo and this house should net me $3000/mo on AirBnB per other comparable units in the area. CoC after I furnish property will be about 80-140%. Harder to gauge with STRs.

Future Plans

My original goal was to get to 20 units and the elusive $100K in rental cash flow by 35 or in 5 years. I never touch my rental income except for investing in more units and at my current state can buy another 2 rentals every year from rental income and an additional 1 unit from my personal income. I should hit my goal around age 33.

This will put my passive income somewhere in the neighborhood of $10k/month or $120k/year at which point I'll consider quitting my day job.

Key Takeaways

It's hard to pin point a single thing that helped me the most. Some may say I was fortunate or "lucky" at several points in my life, but I think a steady, consistent growth strategy is what played the biggest role.

Here are some other things:

Maximizing My Income

I've had a few partners in my deals but most of my investments required cash from me to close.

What really helped is maximizing my income from my full-time job. I went from earning (around $60k/year) in 2015 out of college to $130K now in 2019. Switching companies helped me negotiate a raise.

Having a ~25% Savings Rate

Honestly I know there are people on this forum who save way more then me. But ever since I got married the cost of life has skyrocketed. I can't save like I used to when I was single because my wife will get mad if we eat mac and cheese everyday. She is in school so all of the savings is from my income, but at least there is SOME personal savings.

Along the same lines, I've never touched any of my income from rental properties or other investments. 100% of that is re-invested.

Again, I think this is something that can be done by anyone, regardless of their income level. Too many of my peers make six figures and have almost no savings, because of their lifestyle choices. How much money can you spend on alcohol, clubbing, and coffee??

Renting by Room and charging for utilities

I'm sure most of you are wondering how I get those CoC numbers. I actually rent out to college students/young professionals by room so I'm able to really squeeze cash out of my rentals. A typical home that might rent for $2K that has 5 bedrooms…I can get $2.3-2.5K or about $500 a room. I also charge tenants for all utilities including electric, sewer, water, trash, internet, landscaping, and even garage covered parking(which is coveted here in the Arizona summers). Since the cost is split between 4 to 6 tenants people don't even blink an eye.

This probably isn't for everyone as it is more time intensive, but I've found that since my homes are nicer, the tenants treat them really well. I also meet and interview every tenant in person to make sure they pass my "gut feeling" test as well as referrals from employers, and most importantly past roommates. Something that has helped my actual cash flow is including a 2 month early lease termination penalty. Because my market naturally has more turnover in this state of their life, I don't make the termination impossible…and 2 months rent instead of 6 months rent is much more doable. I actually have negative vacancy rates for every property because often times people will terminate their lease early and pay the penalty and I'll fill the room as soon as they move out.

Being Very Conservative with Cash Flow Projections

I work in finance so I make sure that all of my cash flow projections are conservative except for my vacancy rates since I feel like I know my market pretty well. My vacancy rates are 2% of gross income. My repairs are 5% and capex is around 7%. Granted this is based off 10-30% more in projected rental revenue from renting out by room. So those numbers as a percent would be much higher based off traditional whole home leases.

Running My Rental Portfolio Like a Business

Weirdly enough I really like to find tenants and check up on the properties. I don't know maybe I’m just weird like that. I'm the least handy person ever though so I've built a network of people to handle all the stuff I can't do which is everything. I have a plumber, electrician, flooring person, carpenter, and even a carpet cleaner who goes out to clean in between tenant turnover. If there are ever problems I send them out. They take a picture of the before and after and I pay them. The thing that takes me probably the longest is collecting rent and utilities which I do on Venmo and then I send to the different bank accounts I've set up for each property. I'm sure when my portfolio expands even more I'll have to start outsourcing some of the management.

Thanks for reading this long post!  

    Updated almost 2 years ago

    Update: Guest house in 2020 will gross $3K/mo and net around $1.5-1.6.

    @Cameron Lam Good stuff man! I’ve considered the room renting structure myself. Would you be willing to share a sample contract with a fellow member of BP? What part of the valley are you targeting for the next few? 

    @Victor Avelino I think my biggest advice right now without knowing your situation would be to maximize the income from your day job or either have an extremely high savings rate to get into that first house.  You can't beat the programs for first time home buyers and I wish I could go back in time and put little down on that first one.  Luckily I'm in the process of doing the equivalent of a cash out refi on that home to use that 40-60K or so on another investment or two.

    @Whitney Bowling sure.  It's a pretty standard contract that I got from a friend's property management company.  All the little additional terms are added by hand by me.

    @Cameron Lam Congrats on your success! Im considering this route as well. Im involved with a group that has a decent pool of room renting tenants. I’d also like to see the rental contract you use if you don’t mind. Thanks for the inspiration!

    @Scott Anderson hey scott I've targeted Gilbert, Mesa, Phoenix.  I know Tempe is a good location as well but with all of the community colleges in the area like CGCC, MCC, ASU tempe, ASU Phoenix, ASU Poly, and even AT still there is not shortage of places where you could target.

    @Dan Wuertele  

    @Brandon Keener With my brother we created an LLC and made both of us 50% stakeholders. Even though I manage everything and could've done maybe a 60/40 or more aggressive split he was my first business partner and I want both of us to do well. Any time there is a disbursement we both take the same cut. Both properties roll up under that 1 LLC but have different bank accounts and umbrella insurance coverage. For my personal properties I was originally going to have multiple LLC's for each property but that honestly felt too cumbersome especially come tax time. So with the advice of a mentor and CPA I have all my non partner properties in 1 LLC with umbrella insurance coverage to cover any extra liabilities. My thinking here is that a good lawyer is going to go after you no matter what sort of LLC protection you have so best to get the umbrella.

    @Cameron Lam Your story is super inspiring. I'm on a similar journey myself. Main difference is that I've raised most of the money I've invested through syndication. I reckon you could grow you business a ton by raising money from other people. BP has a lot of forum posts about this topic, but please reach out if you have any questions about how to do it. With a track record like yours, I'm sure people would trust you to manage a deal or two.....the management fees you earn from syndicating could allow you to quit your day job and focus full time on real estate quicker than a few years.

    @Cameron Lam great story man! I usually don’t read posts that long but it was engaging so I just kept going. I started reading because I got $5+ monthly cash flow in the 1.5 years too so I was curious. Your story is kind of similar to mine but also a little different with the room renting and Air BNB. Congrats on what you got and good luck next year!

    @Cameron Lam

    Congrats! Thanks so much for being honest and laying it all out there the way you did. This helps a lot of people that haven’t taken a dip yet in purchasing like myself! Inspirational man keep it up!

    @Cameron Lam appreciate the post! You must be proud of all your hard work. I’m at the beginning of mine and my wife’s journey, recently having purchased our first duplex and saving up for our next properties this year and onward.

    I’m curious, how do you go about tracking the inflows and outflows of cash and costs and such for all of your properties? Interested to know what kind of tracking software or spreadsheets you’re using.

    Caemron, this is so awesome and encouraging, thanks for sharing! Your advice are so practical and actually apply to newbies like me and my husband. We totally have the potential to save more but don't. I've also considered rentng out rooms separately but always wondered what the upkeep would be like. My mom is renting a room from someone for $500 a month (Texas) and I've looked at several "rooms" with her. Coming from a tenant perspective, I personally think that making the rooms and common areas as cute (and clean) as possible really help. Are your properties specifically located near any business areas or schools?

    Happy New Year!


    @Cameron Lam

    Awesome story! Good luck in 2020!

    My question is how do you split the utilities? Is it as simple as saying hey electric was 100 this month everyone send me your 20 bucks?


    @Cameron Lam your story is inspiring to say the least. As a former Phoenix and Scottsdale resident I know how many colleges are in that market. You have done an amazing job of using that to your advantage. I hope to move back to AZ within the next couple years. I will definitely be using your strategy as a guide. Wishing you continued success in the new year.

    @Cameron Lam . Awesome story...reminds a little bit about myself. Went from nothing to 6 Properties in right under 2 year mark. Cashflowing 5900 per month and very excited because I see this snowball effect.

    Originally posted by @Elijah Brown :

    @Cameron Lam Your story is super inspiring. I'm on a similar journey myself. Main difference is that I've raised most of the money I've invested through syndication. I reckon you could grow you business a ton by raising money from other people. BP has a lot of forum posts about this topic, but please reach out if you have any questions about how to do it. With a track record like yours, I'm sure people would trust you to manage a deal or two.....the management fees you earn from syndicating could allow you to quit your day job and focus full time on real estate quicker than a few years.

    I've heard of the word syndication but never even contemplated it or looked up what it is.  You've got me intrigued now and I'll be reaching out to you in PM.  Thanks!

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