All Forum Posts by: Fabio Salas

@Phaen Pittman I bought a duplex in Imperial Beach last year and house hacked it for a year by living in one unit and renting out the other through Air BnB.  This worked out well for me because I made enough money through Air BnB rentals to cover 2/3 of my mortage, leaving me a very cheap monthly rent.  From June through the end of August I made enough to live for free.  Now I'm deployed and I've turned both units into long term rentals.  As mentioned above, the rents are not strong enough to completely cover the mortgage AND expenses.  All said, I'm having to come out of pocket $200-$300 per month.  This was something I thought a lot about before buying the duplex because I knew at most I would only househack for 3 years before turning it into a long term rental (it actually turned out to be just 10 months because I ended up deploying to the Middle East).  In other words, this duplex is negative cash flowing right now.  That said, for me this was a LOOOOOONG term investment.  What I mean by this is, I knew I would be negative cash flowing this property for at least the first 10 years.  After that things start to even out.  By year 15 it starts to positive cash flow; additionally with the profits from tax breaks, equity, and appreciation  I will greatly outperform just about any other form of investment I could take on with just $200-$300 per month.  All of this said, I agree with everyone's reasoning that purchasing an investment that negative cash flows is not necessarily a good idea.  However, for me, I felt like investing in a multifamily in San Diego was a worthwhile investment.  For one, I do intend to keep the property as long as possible.  For two, I've been an active duty Marine for 17 years; this affords me a steady paycheck that allows me to afford the out of pocket monthly expenses.  For three (and this part is the biggest gamble), I believe SD's future real estate market will continue to perform as it has for the past few decades.  In other words, there will be ups and downs over the next few decades, but in the long run I believe the SD market will continue to outperform just about any other market in the U.S.  So if I'm able to hold on to this property, in the long run it will become a half million dollar asset that is paid off and provides incredible cash flow.  In other words, this duplex is an investment in my retirement.  Between now and retirement, the rest of my investments MUST cash flow.  I have another rental in AZ that I've been renting out for 6 years and cash flowing steadily the entire time.  I'm selling it this summer.  The profits from that sale I'll be investing in rental properties in the Midwest where I can immediately cash flow.  Additionally, I'll be looking to pick up 1-2 more properties that immediately cash flow as well.

I'm sorry, this is a much longer post than I'd intended it to be.  My point is, I believe investing in anything that negative cash flows is generally a bad idea.  But saying it is 'generally a bad idea' is not the same as saying 'it's ALWAYS' a bad idea'.  Personally I believe it comes down to your own specific circumstances and finances.  Do the math, figure out what you can afford, analyze your situation (financial, family, etc), and then make a decision on what you want to do in the future.

Either way, good luck with whatever you decide to do.

@Jeff W Ok, I see what you mean now.  That's a good idea.  @Tomer O. Considering you don't have any other income and likely can't qualify for a loan on your own that's a sound strategy to follow.  The key is to buy a solid property that won't need a ton of repairs now or anytime soon so you don't blow your monthly income on repairs.  Also key is to place a good tenant so they don't cause you increased expenses.  This way you maximize your monthly cash flow.

@Jeff Wallace I think I understand what you mean now.  When you say $1K cash flow from a $100,000 dollars investment, you mean using the $100K as a down payment on a much more expensive property or RE business (e.g. storage facilities) that can generate that kind of cash flow.  Is that correct?  I'm asking because I'm seriously interested to know more.  @Tomer O. would definitely benefit from such an investment since he already has the capital to fund it. I too am looking to buy 1-2 more properties this fall and I intend to pay for them cash and use the BRRRR method as Brandon likes to call it. But lately I've been thinking my money may be better off invested in other forms of REI vice rental houses. If you don't mind me asking, what sort of investment are you referring to that will generate $1K/month in cash flow?

Wow!  That's an amazing turn around.  Great job.  I own 3 rentals in high priced markets (one of which is in San Diego), but I'm looking to invest in the midwest next.  I have family there so I'm fairly familiar with the market.  I don't know if I can match your numbers, but I'm sure going to try.  Keep up the great work.

@Pedro Martins Allow me to clarify from how I understood the original post.  I don't think he expects to make $1K/month in cash flow from just one investment.  He said this is his goal within the next few years.  So if he can acquire 10 properties in 5 years that cash flows $100/month, it's totally doable.

@Jeff W You've piqued my interest. I'm a newbie when it comes to REI with only 3 rental properties in 3 different states (4 doors total). My oldest property I've had for 7 years, but it's not until the last two years that I've really tried to learn more about REI. That said, I'm curious to know, what kind of prices are you seeing in Houston that a $120K investment can generate $1K in cash flow per month. I need to know because if that's the case I'm heading there and buying up 2 properties this fall when I return from deployment. My sister lives a few hours away in Dallas and I haven't seen any properties at that price that would cash flow that much. That said, I've only superficially delved into the Dallas market and I know absolutely nothing about the Houston market. I'm already used to owning properties out of state so if Houston is that great of a market I have no problem investing there while living in California. Specially because I already visit Texas 1-2 times a year to visit my sister and her family. I hope you see this message as I anxiously await your response.

@Tony Choe One thing to keep in mind any time you ask a question on these forums is that you're going to get lots of different answers with many different perspectives.  In my mind, that's one of the best things about seeking advice on these forums.  Other people may help shed light on your situation in a way you hadn't thought of before.

That said, here's my two cents on this.  I own rental properties in 3 different states (Florida, Arizona, and California).  The reason they are spread out is because I'm in the military and have personally lived in each of these rental properties.  After getting orders to move to another city I've turned my residential property into a long term rental.  Additionally, because I'm in the military I've opted to use a property manager for each of my rentals.  It's a worthwhile expense for me because I never know for sure where I will be and it's important to me that my tenants have someone they can call any time they need something (for example, I'm currently deployed to the Middle East.  It would be difficult to manage any property on my own while deployed).  In my situation, having lived in those cities, I had time to interview and vet several different property managers before turning over the keys to them.  My longest held rental property I've owned for 7 years and so far I've had very little to deal with.  Of course there are repairs here and there, but for the most part it's all been passive investing/cash flow.  What's helped me is having bought valuable properties and finding reliable property managers to take care of my properties.

So as many people have said, yes, property managers can be a critical element of your team.  That said, they don't have to be a critical element of your team.  It all depends on YOUR individual circumstances.  Just a few days ago I watched a BP Podcast where Josh and Brandon interviewed a woman who invests out of state (in fact I think she was a Canadian who invests in the U.S.; I can't remember for sure) and doesn't use a property manager.  During the interview she mentioned a company (I can't remember the name of the company, but I'm sure there's more than one) she uses to find and place tenants.  But once the tenants are in place she takes over management of the properties.  She also mentioned using an app called 'Thumbtack' to hire people to take care of repairs at her rentals.  All this from thousands of miles away.  

I'm not saying you should follow her exact strategy, my point is you have to figure out what your circumstances are, your own level of risk aversion, and then conduct a deep search into your options.  If you really analyze your situation you'll find there are many options:  invest locally, even if in an expensive market (I currently live in San Diego and own a duplex there; looking to buy another this summer), invest out of state and use a PM, invest out of state without a PM and figure out what companies are out there you can outsource some of those services to at a fraction of the cost, become a money lender until, etc, etc.

My point is, you can receive a lot of good advice from people who are successfully investing in RE, but their good advice may not always apply to your situation.  Take in all the advice you can, from as many people as you can, but analyze for yourself what makes sense.  Only YOU know your circumstances and therefore only YOU can truly analyze what options suit your needs.

Good luck brother!

Great advice from everyone.  I learn so much from posts like these.

I've been discussing this same issue with a buddy from work. I currently own 3 rental properties (2 SFH and 1 duplex for a total of 4 doors) and save $15,000 per rental property. My longest held rental I've had for 6 years and I've been fortunate to never have a major expense. So my concern is this, when a major expense does happen, how will I replenish the cash spent? Of course I'll put 10% away to restore the cash, but at that rate it'll take forever to replace it all. Very interested to know what others do.

That's a great looking rehab.  I love the fact you turned a vacation into a 2.5 month business trip.  Very creative and I'm certain it'll leave a lasting impression on your children.

@Dan Heuschele this is one of the best explanations I've seen regarding using the 1% rule or any rule like it. I think these rules are good for quick analyzations of REI properties, but should not be the sole deciding factor. Before pulling the trigger on any investment the numbers must be ran against that specific market, size of the property, types of rooms in the home, age of the home, etc, etc. Thank you for helping clarify that point. I already have a couple investment properties and looking to pick up two more this year, but I'm still a newby in this business so it helps to see these topics explained in various different ways so us newbies can understand the full scope of our investments.