All Forum Posts by: Ron Gallagher

Why would you want 1,000 units? Wouldn't a better metric be how much money you want to make and then figure out how many units you need to buy to reach that goal?  I would rather reach my cash flow goal with as few units as possible versus having to manage 1,000 units and 1,000+ tenants.  The numbers being bigger in DC helps with this.  I blew past my cash flow goal with just 5 DC area properties, and now I have to only worry about 5 roofs and HVACs instead of 1,000.

When @Russell Brazil and I were chatting last week, I said "I don't know why anyone would ever buy anywhere other than DC!"  The last 3 properties I have purchased in DC just about meet the 1% rule, so while it's not common to find 1% rule properties in DC, it is very possible.  DC is only 68 square miles and half of that land is federally owned, park land, memorials and monuments, government buildings, etc. DC has height restrictions on buildings so you can't build up, you can only build out, and you can't build out that much because DC is only 68 square miles. This scarcity helps with appreciation.  The federal government isn't getting any smaller and isn't going out of business anytime soon so the region's biggest employer is as stable as you can ask for, which is why lots of people moved to DC during the last recession searching for that stable government job. So DC rentals are pretty recession resilient as well. DC is not prone to any natural disasters. It's really hard to find a downside to investing in DC. The only thing I worry about in DC is a dirty bomb or something similar that wipes out all my rentals, but then again I live in DC so I will likely be wiped out with my properties. 

@Kevin Leahy is right about how to house hack in DC and he's also right about me crushing it :]

If I only had $20k and wanted to house hack in DC I would buy a one or two bedroom condo with a low fee in a nice, easy to rent neighborhood (Logan Circle, Shaw, etc.) and partition off part of the living room area with temporary walls and sleep there myself and rent out the real bedrooms with the goal being to cover your PITI and condo fee, maybe even make a little money in Year One if you buy right. Then you're in the game, you're living in a great area for free, your roommates are paying your mortgage, and you can move out in a year and maybe move up to a rowhouse when you've saved up the down payment for your next property. Then a couple years later move up to a detached, single family house in DC, and then repeat until you are as wealthy as you want to be. I will be stopping this year with only 5 properties.

My first property was a condo in DC- I was 22 and inexperienced and didn't know much about real estate investing, so I put only $7,000 down (all the money I had at the time) and had to pay PMI for a few years but buying that condo got me in the game. Today that condo is worth 4 times than what I paid for it 20 years ago, and I liked living in that condo so much I moved back into it in 2016 and paid off the mortgage. That allowed me to slap a new, super low interest rate (2.85%), owner occupied mortgage on that condo which in turn allowed me to totally pay off the mortgage on another DC rental property that I owned. So having that "starter condo" in the portfolio allowed me to play around with my properties like a real life Monopoly game by swapping out the mortgages, having my choice of which of my properties I wanted to live in, etc. Life has been pretty sweet since buying that first condo!

I've had my rentals burn down to the ground in a fire in the middle of the night, I have had my tenants not pay their rent and go silent on me only to find out they are in jail, I've had to take entire interior walls down to plug up holes in the exterior brick wall to stop a rodent (and one possum) infestation, etc. etc.  

Whenever I feel like I'm having "one of those days" as a landlord I just look at my bank statements and immediately feel better :)

I wouldn't allow weed in my rentals if I could stop it. Potheads are very absent minded.  I had a pothead tenant once and he would leave the oven on for 3 hours because he got high and forgot about the pizza slice he was warming up in the oven, he would leave the front door wide open and unlocked, etc.

Weed is super powerful these days (this isn't your dad's hippie weed from the 70's) and this scientifically engineered weed is mind altering.  I would rather my tenants don't get high and burn the house down because they don't make good decisions while under the influence of mind altering drugs.

I think you answered your own questions here.   

@Joseph Phillip In Washington DC, one way to make properties cash flow is to buy a house and then rent out each bedroom individually. It's kinda like turning a single family home into a multi-unit property. 

Also, since the numbers are bigger in DC, I was able to reach the $5000 a month goal with just THREE properties. When most people are hoping that $80k house in the midwest will return $200 a month in cash flow, I just multiply everything by 10, and hope that the $800k house in DC will return $2000 a month in cash flow.  Buy three $800k houses in DC that give you $2000 each per month in cash flow, and you are making $6000 a month and viola! you are financially free with only THREE houses (that means only 3 HVACs, 3 roofs, etc. to maintain versus that landlord in the midwest that has to have 30 houses, and along with it 30 HVACs, 30 roofs, etc., to reach the same goal).

When calculating my Freedom Number with buy and hold rentals, I used mint.com to determine my average monthly expenses, which was about $2500 a month (I have no housing expenses- I live for free by house hacking, and I have no car payments- I drive my grandmother's 15 year old car that she gave me). So just to be safe I doubled my monthly spend and came up with a freedom number of $5000 a month in cash flow from my rentals (after taking out 10% for repairs and CapEx and 2% vacancy).

I reached my goal of $5000 a month at the end of last year, I have spent this year continuing to work my W-2 job while I built back up my cash reserves, secured long term financing for all my rentals, getting HELOCs on every property I can so I have access to money after I quit, etc. Also, I am currently under contract to purchase ONE MORE rental property, which will put my rental income at about 3x my monthly expenses in Year 1.  As the years go on I expect to increase my income with rent increases, build more equity with debt pay down (thanks tenants!), and reduce expenses by eventually billing back utilities to the tenants I inherit when I purchase this fully leased rental property.  

With my income soon to be at 3x my expenses I am looking forward to a life of Fat FIRE starting in 2020.


 

I would keep it and do a cash out refi now that rates are super low and tap into the equity that way. Take the proceeds from your cash out refi to invest in other deals. Shaw will continue to appreciate since it is so close to downtown DC and rents in Shaw are strong.  I saw one report about a year ago that listed rents in Shaw at the highest for any neighborhood in DC, even above Georgetown. 

I'm a buy and holder in College Park.  I own the closest residential building to the College Park Metro Station.  There's a lot of development going on in College Park as they want to be a "Top 20 College Town" and there's a partnership between the city and the university that's making it happen. I'm bullish on CP!

Sometimes you have to get creative to get rents up to meet the 1% rule.  For example, I'm a buy and hold investor in the Washington DC area and my last three Class B properties have met the 1% rule, but only because I rent out by the room for maximum cash flow.