Item — HN Reader

For me it's still residential real estate.

Between 2010 and 2012 or so I picked up some condos here in San Diego at short sale for about 1/3 of what their price was a few years earlier. I get about 1.5% of their purchase price every month in rent. At the same time, the property values have appreciated so the rents are starting to increase as well.

The longest I've had any of them vacant was about two weeks and that was only during the time I was replacing carpet, appliances, furnace, painting walls, fixing stuff, etc.

To make it completely passive I have a property manager (I live in the area, but I value my time). That along with HOA fees and real estate taxes eat into my bottom line, but combined it's only about 1/5 of the monthly rent.

These properties allowed me to quit my job, self-fund my company, and I'm actually putting money away every month. Go figure.

I'm not a real estate expert, but if you have any basic questions feel free to get in touch (contact info is in my profile). As background, I bought my first house at 21 and owned 5 homes by the time I was 27 (I'm 29 now). I was in the military until a few months ago, so I didn't make a whole lot, but I'm pretty good with money and invested wisely. I didn't grow up with much, so I learned what not to do with money. I'm also pretty deliberate about how I spend my money, which is different than being frugal.

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My family owns several rental properties as well. It's a part time job to manage all of them, though it gets easier once you have 3~4, at which point they share the same resource pool for repairs and such.

some observations

- don't cheap out and buy in a bad neighbourhood. We did this once, and with the turnover/repair costs it made a loss.

- choose tenants carefully (you can say no). Families with income are best.

- know when to evict people. Rent for long enough and you'll certainly get a pathological renter.

Very cool. Congratulations!

I am also into residential real estate and was wondering why you chose to go the cash route especially when rates have been so low. For instance, in the properties that I am currently in business for, for 20% down I able to fetch a 30% ROI after mortgate + all fees incl. property management, taxes, insurance, etc... For the same properties, if I would go all cash, my return would be closer to 11 to 12%. Of course with the mortgage approach, it tends to be a bit slow (i.e. a mortgage at a time) and longer to scale to the same levels of in terms of absolute monthly returns since my monthly cash flow is lower in absolute terms.

Interested in your thoughts.

I tried, and I even looked at hard money loans, but at the time I couldn't get any (even with an 800 credit score and never missing a payment on anything in my life).

Lenders were hesitant to loan for investment properties, especially in condo complexes with low owner occupancy rates.

In 2012 I learned that I didn't look hard enough when I a buddy told me he 'had a guy' that he'd get loans from for the same thing for 20-25% down. He said it was a bit shady and the rate was a bit higher than a conventional loan, but it did the job.

And to be honest with you, in all of my investment I've never crunched the numbers to determine exact ROI. I always ballpark it in my head and go with my gut. I'm sure it's more risky and I'm probably leaving money on the table, but to me investing was a hobby and that kept (keeps) it fun. I do it because I love doing it.

Also, it may be holding me back, but I don't like debt. The last three homes I bought cash, as well as both of our cars. Hell, I'm even self-funding my business. I find it gives me a lot more freedom albeit a lower return. But to me it's worth it. For example, sure I could grow my business faster with funding, but I've been working on it for two years now and still love it. In fact, I'd do it for free. You can't put a price on that.

Thanks a lot for your response. I may shoot you an email since you offered before. Would be interested in discussing further.

Monthly property taxes + monthly HOA + monthly payment to manager < 20% of cash-flow? That is incredible.

How do you get enough money to buy an house at 21? A loan?

Yes. I was in the military so I used the VA loan. Additionally, the house was only $140,000. I've since refinanced to a 15yr loan on that property and the rental income still covers it.

Where did you get your equity? Do have debt on any of them? I want to follow this plan too, but don't have the equity for down payments...

Of the 5 homes, I have mortgages on the 2 most expensive ones (we live in one of them). The other 3 I bought more or less cash.

The first condo I bought by selling most of my stock investments. After buying the condo I started investing again. The following year I took out a HELOC out the next condo, sold all my stocks again and bought the next one cash. I did the same for the one after that. I've since paid off the HELOCs.