How can I earn $5k/month in passive income and live abroad?

Question

My wife and I are in our early 30's and currently have a 1-bedroom condo in CT renting for $1,750/month with expenses (including mortgage, tax, insurance, etc.) at $1,200.  We both work 9-5 jobs in the marketing/events industry and are currently renting a studio for $1100 while saving up and living frugally. We want to build a portfolio that cash flows $5,000/month so that we can retire early to live in Madrid, Spain in less than 10 years, debt-free.  We've considered acquiring 5 units that would yield a cash flow of $1,000/each after paying them off.  Paying off the loans would enable us to have peace of mind and not worry about paying off large debts. Do paying off these loans make sense or should we build a portfolio focusing on increasing cash flow and acquiring more properties while holding onto the debt while abroad (i.e. 20 units at $250 cash flow each)?

Brendan F. Nagle · Answer

Please read 4 hour Work Week by Tim Ferris. The math of how do I get to 5000 a month is easy. The reality is that 20 doors will cashflow ebb and flow differently. You will need reserves, 6 months expenses in the bank. A property manager and team that take care of your property. Tenants that pay on time and no black swain events in the next 10 years. How many people on this website, had Airbnb dreams or vacation rentals that just went splat a month ago. One winter repair bill or surprise from the HOA of the condo will take years off your cashflow for a unit. The book also relates to how to solve problems remotely.

Now how to accomplish it. BRRRRR each house or MF to get to the desired amount of units. Use the cashflow to get a large cash reserve, then poor the rest in to debt paydown. Decide how long you want to be in Spain retired for. 2,5,10 years. Sell your worst performing rentals and redistribute that equity to other asset groups with dividends. Retiring forever, requires unlimited funds. But a finite amount of time can be eaten like an elephant, one bite at a time.

Good luck on your journey.

Account Closed · Answer

How so? Except mortgage interest, a paid off house has the same tax benefits. And you can only get back 30% of your interest and none of your principal off your taxes. So your cash flow is always better on a paid off house.

@Christian Valencia I am living off rentals and other income abroad now. My primary rental sources are 100% paid off. Given the current global situation do you think I sleep better that way rather than wondering what happens if tenants don't pay AND I have a mortgage? Fewer paid off properties should be the end goal rather than a huge portfolio leveraged to the hilt.

Chris Seveney · Answer

@Filipe Pereira

I would recommend to go the private lending route. Especially from afar. You do not have to deal with termites, toilets and tenants.

You act as the bank and collect the monthly payments. If they default yes you need to go through legal which is why making sure there is equity and decent down payment can reduce risk.

Avery Carl · Answer

@Christian Valencia I’m more of a using smart leverage to scale investor than a pay off debt investor (for now, that may change once I’ve scaled to the level where I’d like to be). Vacation rentals in proven vacation markets (read: not metro markets with volatile STR regulations) allowed me to scale faster than I would have using solely LTR income. I used 5 STR’s to scale to 20 LTR’s in just a few years time.

Or you could maybe try a small multi house hack rather than your studio apartment. That would get some cash flow coming in the door more quickly as well.

Marlen Weber · Answer

@Christian Valencia considering your goals are to build a portfolio, be on the lookout on the upcoming months for opportunities to buy. The real estate market will have lower than usual opportunities due to the global issues we are facing and it will be a great time to build the portfolio that you are your wife are seeking.

Craig Sloan · Answer

@Christian Valencia I don't know that the larger portfolio will impact future loan approvals.  The property is the collateral, especially with commercial properties so your personal finances shouldn't be the driving force behind the loan.  If you don't already have one, try to develop a great relationship with a small local bank.  We use a small local bank and they have been very good to us.  I know several other investors that have a similar story.

Hai Loc · Answer

All it takes is to buy one cash flowing asset and your good to go. If your capital is insufficient you can partner..

You may have to start small build equity and work your way up whether its 1031 exchange or just accumulating more assets..

Filipe Pereira · Answer

Hi @Christian Valencia I sent you a connection request!To answer your questions, no I do not live in / invest in Fairfield County. I am a ways up north in Windsor Locks, about 20 minutes from the MA border. We invest, manage and buy/sell in the Hartford County and Springfield MA area. Lots to choose from up here while avoiding some of the more costly parts of CT. I was down in Old Saybrook this weekend and couldn't believe the prices. Wow!

Ruth Blue · Answer

@Christian Valencia

One major lesson my mom @Rhonda Blue taught me about investing is to be sure and know you tax liability. If you have your properties leveraged you may be in a better tax situation with deductions like insurance, interest,  lost rents, etc then if you have your properties paid off and just showing income. Do what helps you sleep at night but I know I would rather have renters pay for my mortgage and have less tax liability.

Christian Valencia · Answer

Wow! I'm happy to see several responses already! Thank you all for the tips and feedback!

@Craig Sloan thanks! Ah - yes! Robert K. has changed our lives! Such a great reminder and the returns are certainly higher with the larger portfolio vs. the smaller one. Any insight on how a larger portfolio can impact the process of getting a loan approved? I'm thinking that the more debt I take on, the lesser the bank can lend (?) We're also open to hard money lenders when needed.

@Filipe Pereira thanks! and great to know that there's a BP network in CT! We should definitely connect! Your intuition is right - we live in Stamford where prices (and taxes) are high and cash flow isn't the greatest :) We're looking within this area and neighboring cities. Do you happen to invest in lower Fairfield County? Any insight would be much appreciated! We wouldn't be managing the properties and we're factoring in all operating expenses into our cash flow analysis (including property management). As far as paying off the loan - 100% agree! It DOES sound liberating! I'm sure that many can argue this approach isn't the most effective, but to me it just sounds simpler.

I welcome any and all methods from investors out there! Hope to learn more as the thread (hopefully) continues.

Cheers!

- Christian

How can I earn $5k/month in passive income and live abroad?

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