I have two rental property investments. 1 SFH in San Diego purchased in 2010 for 900k, currently valued at 1.4m, generating $5,500 in rent a month. 1 SFH (+ guest house) STR / Airbnb in Cabo Mexico purchased in 2016 for 800k, fully furnished / renovated for 150k, and now generating about $10k per month in revenue and valued at 1.4m+. Having a high paying corporate job and choosing to live very frugally I made the decision to pay off the 4.75% fixed rate loan on the San Diego property and used a large portion of my savings to pay cash for the Mexico property. Does that make me a bad investor? Why would I do that? Well I don’t assume I will have a high paying job forever and I have 3 kids. For me the worst case scenario is now a guaranteed roof over our heads with no major bills (granted Cali property taxes at 1% are not insignificant). I own outright two very nice properties and can choose to live in one and rent out the other and hopefully provide my family with a decent life in a beautiful place almost no matter what. I can further choose to supplement my income as a Starbucks barista or similar and exit the corporate rat race fully. Anyway curious about your thoughts? Smart or foolish? Any strategies to consider unlocking value or diversifying further? How to mitigate future risk? PS I currently work, live and rent overseas.

I would sit down with you, your family and decide what your goals are. Why are you doing this? Too many of us focus on the "What should I do" instead of the "Why am I doing this".. If you create how your life will look or how your want to life to look as your end goal. Then the decisions that you make to buy, sell, rent all become part of your strategy. Whether it is SD, Cabo, Thailand, Texas.. All of these make sense as long as you are making decisions based on your goal and you are sticking to your strategy. Do not do what I did which was take everyones advice and no one knew what my goals were.. I was buying and selling based on their goals.. and they had nothing to do with mine.. that was a "Me Problem".. Decide what your goals are first and then create the buying / selling strategy based on those goals is my advice

Am I a bad investor? Or does this enable FIRE?

Sean Fisher

Grants Pass, OR · Member since 2019 · 4 posts · 7 votes

7y

My wife and I bring home just under 10k per month and we live in half of that and save the other. We have one kid. We don't own a home yet.

If you have a rental property that pays for your life and you are already frugal I'd say that's a good investment, but I would want more properties, just to be sure. College for three kids? I can't make any suggestions, as I am just stepping into REI.

0 Reply

Thomas S.

Member since 2016 · 13k+ posts · 12k+ votes

7y

Rental income total of $15500/ month = $186000/year assuming the $15500 is your positive cash flow (probably not). Selling and investing the $2.8M in a income fund would generate about 10% return on average or $280000/year. For the additional 100K per year in income I would not bother owning real estate. You are obviously a ultra conservative individual and for that reason will not be able to maximise your returns. Most investors could easily double or triple your returns however you are not that person. If what you are doing makes you feel good, for now, it does not matter what others may think. For individuals like yourself it is not about making money it is all about physiological security as you have clearly expressed. Owning paid off real estate is like stuffing your money in a mattress. It's all about having the money not about using it.

5 Reply

Marc Winter

Real Estate Broker · Northeast PA · Member since 2017 · 2k+ posts · 2k+ votes

7y

@Thomas S. I agree with your analysis... but PLEASE let us know the income fund that generates 10% regularly.

10 Reply

Nathan GesnerBusiness Member

Moderator

Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes

7y

I agree with Thomas. You could make a lot more money with a different investment strategy and double or triple your income. However, you're not exactly living paycheck to paycheck, either. What you're doing is safer and sufficient to provide for your family. I'd probably stick with it.

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Amanda G.

Rental Property Investor · Augusta, GA · Member since 2017 · 825 posts · 278 votes

7y

@Matt Ayoub, the gentlemen above say most of what I would. The only thing I would add is, with that much capital, I would start looking for options where other people did the legwork and I got the mailbox money. I'm in the reverse position myself, I'm being the legs for a handful of out-of-towners. It works out well for all of us.

0 Reply

Caroline C.

Investor · Jacksonville Beach, FL | NYC | Tamarindo Costa Rica · Member since 2014 · 182 posts · 130 votes

7y

@Matt Ayoub In our portfolio we have 3 vacation rentals in Costa Rica and like to think of that as our FIRE plan B - move to CR where the cost of living is much less, stay in one and live off the rental income of the others. We choose to currently work at building our own side businesses so that we can maintain the lifestyle we have, but it is nice to know we can go that frugal route and simply survive on the rental income in a great location.

2 Reply

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

7y

Originally posted by @Caroline C.:

@Matt Ayoub In our portfolio we have 3 vacation rentals in Costa Rica and like to think of that as our FIRE plan B - move to CR where the cost of living is much less, stay in one and live off the rental income of the others. We choose to currently work at building our own side businesses so that we can maintain the lifestyle we have, but it is nice to know we can go that frugal route and simply survive on the rental income in a great location.

I took a two week trip to CR.. while it was nice.. I did a deep dive into living there and just could not see how that would work..

One of the humorous chapters at least to me was what happens if U perish there.. well no refrigeration so they put you in the ground in a matter of a day or so.. so the point was make sure your relatives know they are not coming to your funeral at least as it relates to how we handle the deceased here in the states..

AS for what to do with the equity the OP has.. that's all personal choice.. scaling up in the rental business on your own is a lot of work.

you also want to preserve that 500k owner occ exemption.. don't lose that .. that's the best tax treatment in the US>

I think there are syndicates and other passive investments were professionals can handle the day to day that could be appropriate for this investor..

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Bobby Stener

Rental Property Investor · SF Bay Area · Member since 2018 · 49 posts · 54 votes

7y

I happen to be SUPER conservative myself as I believe I have been scarred by the gfc. I want to be able to live comfortably in any downturn so I take steps to do so. You have to think of the most valuable asset you have= time. You can’t take your money with you when you die, and if you leave it to your children the chances are high that they will be unequipped to handle it. So, if you have built a decent nest egg then chill and retire and use your TIME to be happy because I assure you (from experience) another Ferrari won’t do it!

2 Reply

Michael Glaspie

Real Estate Consultant · Fayetteville, NC · Member since 2017 · 151 posts · 144 votes

7y

I would say pay it off. You will continue to accrue cash through rentals. You can also secure a very genrous HELOC for more investing power. Between those two, you can really leverage some large investments. I dont think its a bad idea at all. This would be a conservative play where your cashflow is fairly gaurunteed. There are more agressive plays to be made, however with the HELOC you can play those games if you'd like.

2 Reply

Dennis M.

Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes

7y

Geez ,you can have a Roof over your head for much less than 800k if that was your goal because any kind of Cash flow obviously isn’t

1 Reply

Syed H.

Developer · NY/NJ/PA · Member since 2018 · 758 posts · 935 votes

7y

Nothing wrong with what you are doing. It’s just more conservative. Everyone has a different risk tolerance. Owning almost anything debt free obviously kills your return metrics for any deal. But, you obviously highly value being debt free.

Anyways, What you are doing isn’t something I would do as a very active investor. But for a passive investor, It’s fine.

0 Reply

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

7y

Originally posted by @Dennis M.:

Geez ,you can have a Roof over your head for much less than 800k if that was your goal because any kind of Cash flow obviously isn’t

in prime CA 800k and your roof will be a cardboard box on a lot you bought . :) in Portlandia that still buys a decent home.

our median is now up into the mid 400s.. still a very good value vis a vi the west coast.. and well today the sun is shinning and 65 degrees so not all bad.. LOL

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Dennis M.

Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes

7y

Originally posted by @Jay Hinrichs:

Originally posted by @Dennis M.:

Geez ,you can have a Roof over your head for much less than 800k if that was your goal because any kind of Cash flow obviously isn’t

in prime CA 800k and your roof will be a cardboard box on a lot you bought . :) in Portlandia that still buys a decent home.

our median is now up into the mid 400s.. still a very good value vis a vi the west coast.. and well today the sun is shinning and 65 degrees so not all bad.. LOL

Yeah I’m having a hard time fathoming 800k for a single family home . tomorrow I meet with a seller who I plan to buy from next month . We agreed on 10,500$ for the sale price lol I guess it’s the slumlord in me but I’d rather own many low cost properties than a few big dollar ones but I’m in it for cash flow not appreciation.

2 Reply

Joshua Braskett

Flipper/Rehabber · hamilton nj · Member since 2019 · 24 posts · 9 votes

7y

always great not to carry any debt at all imo keep grinding and saving get a couple more rentals and keep that cash flow rolling in! good luck to you in your journey

1 Reply

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

7y

Originally posted by @Dennis M.:

Originally posted by @Jay Hinrichs:

Originally posted by @Dennis M.:

Geez ,you can have a Roof over your head for much less than 800k if that was your goal because any kind of Cash flow obviously isn’t

in prime CA 800k and your roof will be a cardboard box on a lot you bought . :) in Portlandia that still buys a decent home.

our median is now up into the mid 400s.. still a very good value vis a vi the west coast.. and well today the sun is shinning and 65 degrees so not all bad.. LOL

Yeah I’m having a hard time fathoming 800k for a single family home . tomorrow I meet with a seller who I plan to buy from next month . We agreed on 10,500$ for the sale price lol I guess it’s the slumlord in me but I’d rather own many low cost properties than a few big dollar ones but I’m in it for cash flow not appreciation.

I always say/said your markets are more akin to trading cars than real estate.. works for the owner operator who is dialed in no doubt.

I met one investor one time in Indy middle 80s been collecting these things for 55 years.. had 800 doors.. LOL I also sold a subdivision to a developer in southern WA.. who during the economic crisis of the northwest in the early 70s bought almost 5000 doors mainly SFRs . I was selling him a 100 lot subdivision I developed.. Well I was flipping the plat for a nice 500k profit.. thought man I am the dude.

so I go to his place which was out in the boonies of southern WA ( AMBOY) pull of the road and in my logging days NO ONE had a paved driveway.. well he did.. then he had an old beat up single wide for an office. I noticed something aviation related Maybe Sectional and commented on that and he said yes I fly.. Do you want to see my air plane. I thought we were going to go to the airport.. nope follow him a few hundred more yards to a massive gate made of wrought iron and art work.. it opens and we drive up onto a PAVED 4000 foot lighted runway on his property.. and over to his two 100/100 hangers were he had a few million in airplanes.. Turbine Aero commander as I recall.. and then up on the hill was his 15,000 sq foot mansion made out of Missouri lime stone.. but you would never have known it if you met him in the grocery store.. he used his planes to fly to his big ranch up in BC..

There is money is you can scale low end properties that's for sure.. he was quite the character and once I realized his name and mentioned it he was famous in the area I just had never heard of him.

So bottom line keep stacking those babies up at the price of a used Honda. !!!

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Tanner Marsey

Rental Property Investor · San Diego, CA · Member since 2017 · 439 posts · 578 votes

7y

@Matt Ayoub

Are you investing to maximize cash/net worth or are you investing for stability. Sounds like you desire/have achieved stability. If you’re happy with it.... stay the course.

I'm in the same boat sort of. I really want to pay off my primary residence early. I know it's not the best use of funds in terms of ROI. But I want to retire early. Making sure I don't have a mortgage payment is worth more to me than the ROI I can get elsewhere. Make sure your actions align with your goals.

Your problem is a good one to have.