A Little Backstory

Hi BiggerPockets! I wanted to make this post to give some inspiration to those newbies just starting out or even the more seasoned vets!  I set out on my real estate journey with my first investment property back in 2018.  My original goal was to reach the coveted 6 figure "passive" income mark.  I am currently 31, married, with a newborn and just hit my goal in two years.

My portfolio consists of 24 total units (14 of which I've bought into and have equity - i'll get more into this later), mainly SFH's all in the greater Phoenix area.

My units all cash flow differently but my total cash flow of the portfolio is about $8.3K a month or $100K a year (accounting for vacancies, repairs, capex, etc). My average COC return at purchase is usually between 20-30% with cap rates between 8-11%.

All properties are financed. The only financing I have ever used were conventional loans and investment loans through a local credit union. 6 of the properties were financed with me alone. The rest were financed with various partners in some variation of a 50/50 or 60/40 split.

How did I get here? Here are the important parts:

• Graduated from college in 2015. Moved to AZ to start work in finance making $60K/yr.
• 2015-2017. Rented a room for $375 from a now great friend who I met on Facebook. Got inspiration to house hack cause he was doing it with his spare rooms.
• 2017(Unit 1): Bought my first primary residence SFH. Used conventional loan and put 20% down with money I had saved the prior two years and in college. Didn't know what I was doing and followed the advice of friends to put as much down as possible. Mortgage was $1328 a month. I had 3 roommates who paid me $450 a room or $1350 a month. We split the utilities amongst 4 for about $50-100 a month. Basically lived for free. Bought an i8 for $1250 a month cause I was dumb and justified it with the fact that I had no living expenses. Wish I could take that back cause
• 2018(Units 2&3): Got married in September and thought about kicking my roommates out. Decided to buy another house(#Unit 2). Found a good deal that needed just a little bit of work(~$10K) with 7% down.  Turned Unit 1 into my first full rental.  Found another house 10 minutes away that was turn key and somehow convinced my parents to front the down payment with a payback structure of 10 years at 0% interest. Parents are the best(#Unit 3). This was about the time I started on the bigger pockets blog and started to actually run numbers. This house would bring me $500/mo cash flow at 16% cash on cash return. Wheels begin to turn.
• 2019: I make it my life's mission to read every article on bigger pockets to escape the 8-5 grind of my day job and go ham with home buying.
  
•      March(Unit 4): Team up with my brother and go 50/50 in on a condo. 15% CoC return. 
  • May(Units 5-6): Team up with my brother again and go 50/50 in on a duplex. 38% CoC return. 
  • June(Unit 7): Buy a Tiny Home I found on Facebook Marketplace. Seller financed for 5 years at 0% interest and can literally not find any place to put it legally. Negative cash on cash return with it sitting. (It now is being rented in an RV park for -$150 cash flow a month). Will be paid off in 5 years though so that was a bummer from a cash flow perspective.
  • July: Construct another bedroom in House #1 for an additional $450/mo in income. 12% CoC
  • September(Unit 8 - New Primary): Move with my wife into a different primary residence right next to my first house. Projected CoC return when we move out is 28% Turn the old house(Unit 2) into a rental for 17% CoC. Start doing AirBnB for primary with one room which we closed off from the rest of the house with a farmhouse door. Netting about $1.8K a month. Essentially house hacking to pay most of our mortgage. My wife helps manage and that has actually gotten her more excited about investing. We also used this as a litmus test to see if we should convert any of our other rentals in STR's
• 2020: I wrote a post similar to this at the end of 2019 to sort of journal my experience.  I had multiple people reach out to me on this forum so I can attest that BP is a great network to have.
  
• • March(Units 9&10) : BP member takes a chance on me and partners with me on deal. Home with a guest home. He secures loan, and I manage and "buy in" my equity by paying him back with cash flow. Main home is traditional rental and guest house is an Airbnb. CoC is 28%.  I distribute all profits to this investor/partner and half is marked to pay him back every month.  $46K down total...my portion is $23K will take me ~3 years to pay back.  I have the option to "buy in" at any time to realize my portion of cash flows especially if we sell.  Great setup for me as I get into deals with no money down or infinite CoC and for my partners/investors many of whom were getting less then 5% return on their money.
  • April(Unit 11): Different BP member takes a chance on me with a similar structure as mentioned above on a condo unit. $204K condo...BP member fronts $8K I need to rehab unit...new floors, carpet, paint, baseboard, etc. 21% CoC. Will take me about 4 years to pay off my half of $44K($22K).
    • (Units 12-17): I find amazing 6 plex deal in East mesa. $460K total. Needs about $100K in rehab but existing tenants with longer leases compels us to sort of hold on until turnover happens to rehab. I reach out to 1st BP partner/investor and we secure the deal in the middle of COVID and lenders were such a pain to work with. Currently rents for $4300 but plan is to BRRR and turn some or all into AirBNB as it is located right next to a major hospital. We're in the process of gutting and rehabbing one of the units now so I will keep you posted on how that turns out. Using success of AirBnB in my old primary to manage this property. These are smaller units so not as scared with short term rentals and COVID as demand for small 1 or 2 person occupancy is high here. (Arizonians don't care about COVID?) 
    • May(Unit 18) - New Build I had secured with one of my best friends is finally done.  $427K purchase price at 22% CoC.
    • June(Units 19-21) - Triplex unit near downtown Mesa I secure with another friend for $230K. We put $50K into rehab. ARV is $310K. In process of cash out refi. Traditional rental on two units and AirBnB on third unit. After cash out refi projected CoC of 68%. ~$1300 a month cash flow for me. If AirBNB goes well we will convert the other two which would bring CoC projected to ~100% or $2K a month for me. During this time I get the OK from my boss to move out of state and work remote forever. So we're moving to Utah yay!
    • September(Unit 22) - Same New build down the street as Unit 18 with BP Investor 2. ~22% CoC. 3.5 year payback. Cash out refi #Unit 1 and pull out $50K to change CoC from 16% to 45%. Build two new rooms in Unit 3 and do cashout refi to increase CoC from 16% to 64%
    • October (Units 23-24) - Invest with partner in an Airbnb in Pinetop, AZ and Flagstaff AZ. Crazy competitive markets. We're offering non refundable earnest money just to accept our offer. Got rejected like 40 times before these two hit. 24% CoC Pinetop and 40% Flagstaff. (I'm including these two in the $100K annualized cash flow
    • December (Unit 25) - New Build primary in Utah will be done.  Has full walk out basement and separate garage for      renters.  Will probably do AirBnB and gross $2K a month.  Mortgage will be about $3.2K.  At least it will help cover      costs?

Future Plans

My original goal was to get to 20 units and the elusive $100K in rental cash flow by 35 or in 5 years.  I never thought it would happen in 2 years at the age of 31. I never touch my rental income except for investing in more units and at my current state my new goal is to eventually hit $500K a year in rental cash flow.  I think this will happen by investing in some larger complexes with various partners or doing some type of syndication(No idea how to do this).

The beauty of hitting this goal is that I literally have no fear at my day job.  I could get fired today and while that would put a halt to expansion, I could live a comfortable life.  I feel like I'm also performing better at my job as there is less pressure.  One thing to note too is that $100K a year in cash flow is more akin to $128K at a day job if you were taxed at a 22% tax rate...which might be generous.  One caveat is that this $100K a year cash flow does not include the cash flow I will be receiving in a few years when my 50% of equity is payed off to my partners where I was 0 money down.  At that time my cash flow will bump to $130K or $167K at a day job equivalent.

Key Takeaways

It's hard to pin point a single thing that helped me the most. Some may say I was fortunate or "lucky" at several points in my life, but I think a steady, consistent growth strategy is what played the biggest role.

Here are some other things:

Maximizing My Income

What helped increase my cash flow early on when I was securing deals myself is maximizing my income from my full-time job. I went from earning (around $60k/year) in 2015 out of college to $130K now in 2020. Switching companies helped me negotiate a raise.

Having a ~25% Savings Rate

Honestly I know there are people on this forum who save way more then me. But ever since I got married the cost of life has skyrocketed. I can't save like I used to when I was single because my wife will get mad if we eat mac and cheese everyday. She is a full time mom now, but at least there is SOME personal savings.

Along the same lines, I've never touched any of my income from rental properties or other investments. 100% of that is re-invested.

Again, I think this is something that can be done by anyone, regardless of their income level. Too many of my peers make six figures and have almost no savings, because of their lifestyle choices. How much money can you spend on alcohol, clubbing, and coffee??

Renting by Room and charging for utilities

I'm sure most of you are wondering how I get those CoC numbers on my non Airbnb properties. I actually rent out to college students/young professionals by room so I'm able to really squeeze cash out of my rentals. A typical home that might rent for $2K that has 5 bedrooms…I can get $2.3-2.5K or about $500 a room. I also charge tenants for all utilities including electric, sewer, water, trash, internet, landscaping, and even garage covered parking(which is coveted here in the Arizona summers). Since the cost is split between 4 to 6 tenants people don't even blink an eye.

This probably isn't for everyone as it is more time intensive, but I've found that since my homes are nicer, the tenants treat them really well. I also meet and interview every tenant in person to make sure they pass my "gut feeling" test as well as referrals from employers, and most importantly past roommates. Something that has helped my actual cash flow is including a 2 month early lease termination penalty. Because my market naturally has more turnover in this state of their life, I don't make the termination impossible…and 2 months rent instead of 6 months rent is much more doable. I actually have negative vacancy rates for every property because often times people will terminate their lease early and pay the penalty and I'll fill the room as soon as they move out.

Being Very Conservative with Cash Flow Projections

I work in finance so I make sure that all of my cash flow projections are conservative except for my vacancy rates since I feel like I know my market pretty well. My vacancy rates are 2% of gross income(I have an actual negative vacancy rate across my portfolio for 2 years). My repairs are 5% and capex is around 7%. Granted this is based off 10-30% more in projected rental revenue from renting out by room. So those numbers as a percent would be much higher based off traditional whole home leases.

Running My Rental Portfolio Like a Business

Weirdly enough I really like to find tenants and check up on the properties. I don't know maybe I’m just weird like that. I'm the least handy person ever though so I've built a network of people to handle all the stuff I can't do which is everything. I have a plumber, electrician, flooring person, carpenter, and even a carpet cleaner who goes out to clean in between tenant turnover. If there are ever problems I send them out. They take a picture of the before and after and I pay them. The thing that used to take me the longest was collecting rent and utilities since I did it on Venmo.  I have over 70 tenants now and FINALLY switched over to a portal called Rentler.  I literally looked at Cozy(Acquired by apartments.com), buildium, RentRedi, tenant cloud, etc.  I love Rentler cause I can set up individual rent payment series for individuals rather then tie them all to the same master lease(since most of my tenants have various lease start and end dates even in the same property), and it's free.  I can also manage maintenance requests and receive payments ACH in 2 days or via debit/credit card(for a fee to user).  It will be interesting to manage this whole thing from out of state...I think ill need to invest in some on the ground help.  Although with COVID I really was sort of doing it all remotely anyways.

Things that I'm not a PRO on

Accounting.  I don't have a real estate accountant or someone doing my books for me.  I track every transaction on a platform called Stessa, and I feel like I do a decent job.  I send out distributions each month to my various partners and those are logged as Owner Distributions in my cash flow statement but there's so much I don't know.  Like if one of us contributes $5K as a cash contribution for rehab...but that makes my cash flow negative...am I supposed to disburse $5K to pay that person back?  I don't know?  Still need to find a great real estate CPA

Legal: I'm set up with a company called Fortune Law Firm in Vegas. I read a ton on this subject but honestly it seemed like they were the best from some inside recommendations I received. Everything is not transferred over yet, but big picture I have my property management arm LLC that manages all the properties...pays mortgages, utilities, expenses and collects rents and sends distributions to partners. Each property is held in an individual sub series of a Series LLC. The title is held in a land trust and the beneficiary of that land trust is the sub series. This supposedly divides the liability. The subseries flows into a LLLP which flows into a revocable living trust and irrevocable living trust which blah blah blah dude its complicated. I'm still learning I hope its the right structure.

Anyways I've rambled for too long.  For those of you who made it this far, thanks for reading this long post!

Visit my BP profile to find the link to my blog(Not very well updated I promise I will do it I've just been busy!), and follow along my real estate journey!