$10K per Month in 4 Years & Retired at 31 With Ryan Chaw

Full-time pharmacist and side hustling real estate investor Ryan Chaw bought his first property in 2016. Just four years later, this 28-year-old is bringing in $10,755 per month in rental income and plans to retire in three years (or sooner).

Name: Ryan Chaw

Age: 28

Location: Sacramento, CA

What were you doing prior to real estate?

I graduated with my Doctor of Pharmacy in 2015 at age 23. I loved my job but I wanted to do something more in life.

I’m actually still a full-time pharmacist! I built up my real estate portfolio on the side while working my full-time job. Soon my rental income will cover all of my expenses and I’ll retire at around 31 years old or sooner.

What got you interested in real estate investing, and how did you get started?

I was inspired to become a real estate investor by my grandpa who had three properties in the Bay. The rental income allowed him to retire early and also help cover my brother’s and my college tuitions.

I bought my first property in 2016—a single-family home in my local college town. I rented out the home per bedroom to college students and renovated to add extra bedrooms to increase rental profit.

I repeated the same process for each property, buying 1 property each year. I then created a system for identifying a deal, getting consistent high-quality tenants, self-managing the property while working a full-time job, and decreasing expenses through preventative maintenance.

What is your real estate investment plan and preferred investing strategy?

My strategy is to purchase single-family homes near colleges and break them up into multiple bedrooms. Then, I rent them out per bedroom to college students to maximize my cash flow.

Here’s why the strategy is so great:

It’s the parents who are paying the rent. I never have to deal with unpaid rent or evictions because no parent would risk having their child evicted from where they are staying at school. The parents also help keep the place clean for their children.
I bypass many of the strict pro-tenancy laws in California by renting out to students. Many pro-tenant laws for multifamily and commercial real estate just don’t apply to single-family homes. One example is when California passed AB 1482 in January of this year; most multifamily homes were restricted to a maximum rent increase of 5% per year. The law doesn’t apply to single families though. I’m able to rent out the property as a multi-unit/multiple door property and charge market rent for each bedroom without restrictions.
I maximize profit on the rentals. Per Rentometer, my rentals should be averaging $1,500 per month in rental income. Instead, I’m receiving $2,500-$3,100 per month in rental income on my single-family homes.
There is huge demand for off-campus housing, as on-campus housing is very expensive. A room on campus is $1,200 per month, and the students are also required to purchase a meal plan. I charge only around $620 per bedroom. So my rooms are half the price with way more privacy than the college dormitories. To top it off, I’m actually closer to many of their classes than some of the “on-campus” dorms. In other words, the students are getting a great deal by staying in one of my bedrooms. It truly is a win-win situation.

However, whenever I tell people I invest in student housing, most of them ask me, “Ryan, don’t you just end up with a party house?”

I figured out a way around that. I have this acronym I use with my coaching clients called PRIME tenants:

Placement of Advertisements: You need to place your ads where your target tenants hang out. Putting ads up where your target tenants don’t hang out is like fishing in an empty pool.
Review Social Media: Look through social media profiles to screen for party-type tenants (evidence of smoking, drugs, and alcohol).
Identify Type of Tenant: Is this a tenant who constantly asks for a cheaper deal? Are they difficult to communicate with? Do they get angry easily?
Measure Responsiveness: Typically, the more responsive the tenant, the more mature and professional they are. Would you rather have a tenant take three weeks to get back to you when you tell them their rent is late or somebody who gets back right away?
Ensure Proof of Income: Though it is the student staying at the house, you need to ensure that the parents make enough money to afford the rent by asking for proof of income.

The key to a successful strategy is having the proper systems in place.

How much did you have to invest when you first started?

It wasn’t easy. I started from scratch. But I did it, and I did it in a way that I believe anyone can do it.

Soon after I graduated, I worked a lot of overtime as a pharmacist. I put in 14- to 16-hour days sometimes. I had two different jobs because I knew real estate was capital-intensive. I saved up for a whole year before purchasing my first property with a 20% down payment in 2016.

Now, not everyone needs to work as hard as I did, but I knew the earlier I had the necessary capital, the better position I would put myself in, in the future. And that’s because money invested in real estate grows exponentially over time—especially if you consider things like equity paydown, appreciation, and increasing rents. Inflation also works in your favor because your dollars become cheaper in the future while your mortgage payment remains fixed.

Tell us about your first deal.

My first deal was so exciting! But also super intimidating because I’ve never done this before.

I did some research to find a great real estate agent and then just called him up and said I wanted to buy a property in the next month. Together we found a 3-bed, 2-bath, single-family home that I ended up buying for $262,000.

How many deals have you done to date?

I have purchased four single-family homes to date. The crazy thing is—because of my strategy—with just four homes, I’ve been able to put in 18 tenants and generate a gross rental income of $10,755 per month.

What is the most important part of a deal for you?

Cash flow for me is most important. During a recession, as long as I have a positive cash flowing house, I don’t need to worry if my home drops dramatically in price. Because I still get money in my pocket every month. If I build enough cash flow, I can leave my job and make six figures per year through my rental income. This will happen around when I hit 31 years old.

How do you know if a property fits your goals?

Here’s one quick rule of thumb I use: If I can still make positive cash flow on a 15-year loan term after housing expenses, then it’s probably a good deal. Any properties that meet the 1% rule (monthly rent is equal to or greater than 1% of the purchase price) typically also meet my 15-year mortgage positive cash flow rule.

Another measure I use is cap rate. I aim for 8% or higher cap rates.

What red flags do you look out for when purchasing property?

I have three:

Age: Because of the crazy number of problems I had on my first property (it was 100 years old), the first red flag I look for is the age of the property. I’m not saying I would never purchase a very old property again. I’m saying that if I do choose to purchase an old property, I would only do so if the price I can get it at is appropriate for its age (tens of thousands of dollars cheaper than surrounding comparable houses).
Neighborhood: Specifically, its condition. I build my investment model around attracting high-quality, college student tenants. Most of these students aren’t OK with living in a trashy/dangerous neighborhood. Security is actually one of the biggest concerns for the parents (the ones paying the rent!). Even if there is an occasional homeless guy wandering around in the neighborhood, that won’t be fine with the parents.
HOA: The third red flag I avoid is an HOA. Not only do they eat into your cash flow, they are also another level of government I just don’t want to deal with. Who knows? The current HOA may be landlord-friendly and allow renters and renting by the room. But that’s no guarantee the future HOA board will treat landlords the same way.

Tell us a story about a deal you’ll never forget.

That definitely would be my very first deal. From the beginning, there were so many problems with it.

Have you ever heard of Murphy’s law? It basically states, “Whatever can go wrong, will go wrong.”

In 2016, I felt like I was living out this law in real-time. It had a lot of red flags that I chose to ignore. For one thing, there were a lot of holes around the exterior of the house where pests could get in. So, I had both rat and flea infestations.

I also had to completely remodel the bathroom because it was set up so that you had to climb steps to get into the bathtub to take a bath or shower, which was a huge safety issue. Since I had to redo plumbing to get this done, it cost over $7,000 for the remodel—I hadn’t planned on the project being that expensive.

Then, what really brought me through the wringer was when my sewage line broke. Because the house was super old, it had cast-iron sewage pipes that were rusted over. Roots were sticking into the sewage pipes.

I got a call from a tenant at 11 p.m. one weekend, complaining the sewage backed up and flowed out of the kitchen sink onto the kitchen floor—complete with a foul-smelling odor. I frantically called up people to sanitize it and a plumber to find out what was wrong with the pipes. This was around midnight, so I had to pay a premium for the cleanup. Plus, the plumber discovered the whole line was broken and needed to be replaced, which cost me over $9,000.

I also didn’t know much about advertising specifically to student tenants at that time, so I was left with a room vacancy for eight months, meaning $5,000 in lost rental income.

Finally, I found out there was no AC in the house, which became a problem during summer when temperatures got to over 100 degrees. I ended up installing a ductless AC system for $18,000.

All in all, I lost over $30,000 on that property.

But here’s the good news: Because of the remodeling and appreciation over time, the property appraised for $320,000 three years later, which is about $60,000 more than I purchased it for. I also was able to put in a fourth bedroom, increasing my rental income to $2,500 per month, roughly meeting the 1% rule (based off the original purchase price).

How has real estate investing changed your life?

It has given me hope for a bright future. Soon I’ll be able to live life on my own terms, being able to do what I want, when I want, where I want, with whomever I want to do it with. Within the confines of the law of course!

I’m already able to use the cash flow from my rentals to travel more. I’ve been to China, Japan, Taiwan, the Bahamas, Canada, Paris, London, Germany, and Mexico. I’ll be able to raise my kids without ever having to worry if we will be able to afford our children’s college tuition. Or wonder, will I be able to support my loved ones if something bad (knock on wood) happens to them?

What’s your “why”—the reason you pursued real estate investing and your drive to keep going when things get tough?

You know, I’ve been thinking about this one a lot lately. It comes down to impact and legacy. I don’t want to be working the same pharmacist job year after year until I hit 65.

When I was a kid, I used to have all these crazy dreams, such as discovering a cure for allergies (I had had a life-threatening anaphylactic reaction to cashews when I was 2 years old) and visiting the moon. Now I’m asking, “Why did I ever give up on these dreams? When did I start telling myself that ‘reality’ is different?”

Real estate will give me the time freedom to pursue these other goals in life and the impact I wish to make on the world.

I also enjoy working with college tenants. Some of them have actually asked me for advice for pharmacy school, and I always enjoy giving them my top tips for surviving college.

Speaking of tips, what lessons did you learn the hard way that new investors could learn from?

When I’m coaching people who want to invest in real estate, here are my top three tips I share:

The Big “Why”: The first thing people need to consider is their end game and their “why.” Do they want 10 doors? 50 doors? 100 doors? Do they want to make active real estate income through flipping, wholesaling, or being an agent? Or do they primarily want to be a passive income investor through buy and hold investing to achieve financial freedom?
Focus: A newbie investor should educate themselves on the options out there. Then, choose one strategy and stick with it. Otherwise, one could start down one path then lose their drive and end up starting over on a totally different path. That’s why having a clear vision is super important. Even if the vision isn’t perfect or the path to it seems super boring, knowing your goal and sticking to it will lead to success in real estate.
Emotional Intelligence: A huge lesson I learned throughout my investment journey is never to do anything out of fear. I once let a tenant in a room even though I knew they would be a party tenant. And that’s because we were in the same fraternity together. I already knew he was a loud guy and not very focused on his studies. But I was afraid that if I didn’t give him the room, I wouldn’t be able to find another tenant. He ended up really pissing off the other tenants and neighbors with his loud music and pot smoking. The police were called twice by the neighbors for his shenanigans. I eventually had to contact his parents to straighten him out (which worked out very well). It turns out that shortly after he had signed the lease, there were four other much more qualified prospective tenants that contacted me for a bedroom. I would have been just fine if I had waited and had a little patience.

How did you find out about BiggerPockets? How has it helped you?

I found out about BiggerPockets five years ago through reading The Book on Rental Property Investing by Brandon Turner. One huge takeaway I got was the importance of building up your teams and systems to make things simple for you.

Honestly, listening to the BiggerPockets Podcast has been super inspirational and showed me what’s possible in real estate and how so many people are successful in it. The Forums and Blog are a wealth of information, too. I also connected with some fellow California investors through the BiggerPockets messaging system who have been super instrumental in my real estate journey.

This is why I wanted to give back to BiggerPockets by sharing my story with the community. I also founded Newbie Real Estate Investing to teach others my investing system.

Is your real estate investing journey similarly inspiring? Share here for a chance to be featured in the next Investor Spotlight!

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.