All Forum Posts by: Isaiah Cuellar

What town are you living in?  If you live out there you might buy a burned out house and rebuild.  But the value would only be as a place to live.  You wouldn’t buy a 3,000 acre ranch unless you’re getting into agriculture.  They won’t sell because it’s spring and the vegetation will grow back this month anyways.  

West Texas and other rural communities there are very few land “Deals” since you need to bring the purpose to the property.  

Maui fire.  That land is the value, not whether you live there or do a business.  

Hope you folks out there are working your way thru that tragedy in both places.  

If you're 22 there are a lot more opportunities where you live. Just have to learn those REI techniques. Forget the out of state investing. Start your snowball close by and using your personal needs to invest.

I’ve made to use a scientific/financial term, I’ve made a “boatload” of money on a property with negative $80-/mo cash flow. And not even the easy way where you buy for way under market. (Who wouldn’t buy a negative cash flow property for $100m off?)

I go by actual profit. The principle portion was $1500+ the first month. So I was $700/mo to the good and only getting better. Add a couple hundred a month in rent increases every year and 10 years later I have a paid off $700k property. I put $100k down, an average of say $400/mo or $5k/yr. For 10 years.  So another $50k. For $150k I have a paid off $700k property.

All of this was beyond tax free. I paid negative taxes after depreciation until the 7th or 8th year. Your wealth will not come from cash flow. Until  a home is paid off all the real wealth will come from appreciation. (Especially when calculated not against it’s value but your cash in the deal.) I’ve said if before and I’ll say it again. If you NEED a property to cash flow $200 to afford it, you’re not ready for real estate. You just aren’t. One major repair, one long vacancy and all your “needed” cash flow is gone. 

Treat these rental properties as investments like your retirement accounts. They don’t cash flow ever. But you’re still told by financial experts/advisors to stick hundreds of thousand in to them and pray for appreciation. 

Cash flow is only one TINY way rentals make you money. I don’t know why there are only cash flow fanatics. No depreciation, loan pay down, tax advantage fanatics. 

Good luck whatever you do but assume most people telling you not to do something haven’t done it themselves. It’s like when your friend says “Ferraris break down all the time…”. When you ask how many they’ve owned, how many their friends own, and how many they’ve repaired, or even seen broken down. You hear a sad little “zero”. 

@AnnMarie Bacchus

I think it is based on your current knowledge base and need. It can be extremely beneficial to have a tax pro in your corner. Once you have a tax pro they can help you on more complex matters such as Cost segregation, material participation and effective tax strategies that can be used to reduce W-2 income. You may be struggling to find a tax professional as these options are not available until you own have at least one property in your portfolio. 

It is entirely possible to manage your own taxes and educate yourself but this is time many can't commit to. I always recommend bringing in a tax professional focused on real estate when you think your portfolio is getting too large for you to manage or have questions that are more complex than a basic search. Usually most investors begin to see a need at 3-5 properties. However, this depends as well. Some investors can manage 10 without issue and some need help at one property. I think it would be worth It to schedule a few consultations and ask what you can expect if you hire that company and how it will benefit you.

The bottom line is having a RE focused tax professional is a great option that can be worth its weight in gold. If you feel comfortable self managing your taxes and have the time this gold can be saved and applied to your first property. I would recommend focusing on the education piece right now, doing research, and potentially signing up for a program so you can learn more about how real estate properties are taxed. Then you will know the basics and know what questions you need to ask to know if you are the right fit with a professional. This will also save time if you are paying by the hour as there will be less time spent explaining basics. 

Hope this helps 

Dear Community,

I hope this message finds you well. I'm currently faced with a financial dilemma and would greatly appreciate your insights and advice.

Background: I am 23 years old and earn a monthly salary of $3992.00. While I am committed to aggressively paying down my debt, particularly my mortgage, to achieve financial freedom in 12 years, I find myself losing money every month due to my repayment strategy.

Financial Breakdown:

• Monthly Income: $3992.00
• Mortgage Payment: $1608.86
• Additional Mortgage Principal Payment: $1000.00
• Furniture Payment: $500.00
• Water Softener System Payment: $370.00
• Investment Contributions:
  • Coinbase: $500.00
  • Schwab: $500.00
  • TD Ameritrade: $812.50

Current Mortgage Status:

• Remaining Balance: $249,000.00
• Interest Rate: 4.875%

Dilemma: While I aim to invest in various accounts and accelerate my debt repayment, I am burning through my cash at a faster rate than anticipated. I am banking on a promotion in the fall, but without it, I fear I may run out of funds.

Question: Given my situation, what strategies would you recommend? How would you manage finances and investments if you were in my shoes?

Thank you all in advance for your invaluable advice and insights.

@Isaiah Cuellar since you're pretty young, if I were in your shoes, I'd be more inclined to build up a portfolio of multiple properties instead of paying off one property fast.

The reason being: one property doesn't produce that much cashflow (even if it's paid off).  Let's say you could snap your fingers and this property could be paid off today. What type of cashflow is that? $2k/mo? $3k/mo?  ...even if it's $5-$6k/mo cashflow, to most people, that's not enough to hang their hat on for the rest of their lives (unless they're living a very conservative lifestyle).

Most people can't retire on the cashflow from one single fam property...but 4, 5, or 6 properties? Now you're talking.

Also, I think you have some assumptions that aren't entirely correct. First, you mentioned that you were concerned that a lender was telling you to pay off the mortgage so he could "make more interest" off you--think about that for a moment, and you'll realize it makes no sense. The faster you pay off that mortgage, the LESS interest the bank makes from you. Does that mean you should pay off the mortgage as fast as possible? Maybe, but maybe not (see below).

Another assumption I'd suggest re-evaluating: you seem concerned that if you have a 30 yr mortgage and you just let the tenant pay it off at the minimal rate, you'll have the mortgage until you're in your 50s. Maybe, but maybe not. A LOT will happen in 30 years, and if you stay focused on REI, you will likely be in a MUCH different position in 5, 10, 15, 20 years from now.

As the years pass, your financial picture will constantly change, and you will constantly re-evaluate your position, options, and goals. Maybe in 10 years, you decide to pay off that 30 yr mortgage in a lump sum. Maybe in 5 years you have a lot of equity, and you decide to do a cashout refi and use the money for other investments. Maybe in 15 years, you've improved the property and rents have increased so much that you can put that extra rent toward paying off the property faster. There are a million possible scenarios that could play out OTHER THAN just having your tenant make the minimum payments for 30 years. (And as others mentioned, just having the tenant make the minimum payments for 30 years isn't a bad option, either--someone else bought you a house!).

The problem is, you probably have relatively little understanding of all the possible scenarios that could play out over the next 5, 10, 15, 20, 30 years--because (I'm assuming), you haven't run many (or any) projection models.

My suggestion is to take a step back, and start running a LOT of projection models. Run projection models for 5, 10, and 15 years with various scenarios (like paying off the property, not paying off the property, acquiring more properties, raising rents at 2%, raising rents at 5%, using rent increases to pay off the mortgage at a snowballing rate, putting cashflow into CDs, putting cashflow into a DP for another property, remodeling the property to increase rents, renting the property by the room, adding tenant storage or other amenities to increase rents, building an ADU at the property, selling the property, STR'ing the property, etc., etc.). Run models that investigate every possible path you can imagine. Seriously, spend three months living, eating, breathing projection models--run projection models until you're running them in your sleep. I'm speaking from experience here: I run projection models almost daily, and over the years, it has made me (and saved me) a LOT of money. In fact, I'd go as far as saying that my net worth is probably double what it would have been thanks to everything I've learned from running countless projection models--without them, I'd be flying blind.

The purpose of running projection models is NOT to perfectly predict the future (nobody can do that). Instead, the purpose of the models is to give you a MUCH better understanding of your options, and what outcomes could occur given various events and decisions--this will give you a much better understanding of what path works best for you (and also which paths would not work well). Running the models will show you not just WHETHER paying off this property fast is the right/wrong move, but WHY it's the right/wrong move (which is critical).

Here's a post I wrote a while back about how to use projection models, and why they're such a critical tool for any real estate investor: https://www.biggerpockets.com/forums/48/topics/1164330-are-y...

Good luck out there!

There is always more potential for cash flow in lower class neighborhoods in my opinion.  Your process seems like a good way to determine cash flow / potential of an investment property, if you have a realtor you can have them pull rental comps for a decent picture of the rental markert as well. 

Hi Isaiah,

Property deducted expenses from your rental property can reduce the taxable income generated by the property. Buy and hold rental income is generally considered a passive investment income unless you are a real estate professional. Losses from passive activities typically cannot offset active income (W-2). This is a major reason some W-2 employees get into STR, as managing STR could classify you as a real estate professional with enough activity. With that being said, it's probably advisable to use a tax professional on this topic!