Afford Anything - Ask Paula - Can You Force a Rental Property to Cash Flow?

Episode Date: October 22, 2018

#157: We're back with another Ask Paula - Real Estate Edition of the show! In this episode, we cover down payments, cash flow, investing in condo hotels, building a rental on the side of your own house, selling your properties, and whether it's better to buy actual properties or REITs. Erin asks: Would you ever put 30% down (or more) in order to make a rental property cash flow positive? Avy asks: In 4-5 years, I'd like to have a rental property for diversification and passive income. Is it better to stick with the plan to buy rentals, or should I go into REITs? Additionally, if I want to invest in rentals, where should I look? Rod asks: Could you tell me if investing in condo hotels as a rental property is a good idea? I'm 10 years away from retirement, and I was thinking of buying one in Las Vegas, since I plan to move there when I retire. Being a traditional landlord doesn't appeal to me - I don't want to deal with the hassle of bad tenants or repairs when I'm retired. I'm hoping a condo hotel might be a way for me to get income from a rental property without all the hassle. What are the pros and cons I should consider? Tom asks: I want to build a small two-bedroom house on the side of my personal residence (located in Texas) to use as a rental. What advice can you offer to help me execute this plan? Sandra asks: I live in California, and 5 years ago I purchased 3 properties free-and-clear in Memphis, TN. While they’ve been working great for me, I think they have much more potential, but I’m no longer interested in managing them, or my property managers. It’s too much for me as I changed careers; I’m now going in a much different direction. All I want is to cash out and invest that money into my new business, as that’s more fulfilling to me. I know to sell them cash is the first choice but investors are in the game of low-balling - way too low. Selling retail is an option, but it’ll take longer, and I don’t know if the market is in my favor. Seller financing drags things out, and lease options are not great for me, so I’m interested in your feedback. Learn more about your ad choices. Visit podcastchoices.com/adchoices

You can afford anything but not everything. Every decision that you make is a trade-off against something else. And that doesn't just apply to your money. It applies to your time, your focus, your energy, your attention. It applies to anything in your life that's a scarce or limited resource. And so the questions become twofold. Number one, what matters most? Not what does society say ought to matter most, but what truly matters most in your life.

And number two, how do you align your daily decisions accordingly? How do your behaviors reflect your intentions? Answering these two questions is a lifetime practice, and that's what this podcast is here to explore. My name is Paula Pant. I'm the host of the Afford Anything podcast and the founder of Afford Anything.com. Welcome. If you're new here, we have a lot of new listeners, a lot of new people who have joined the Afford Anything community in the recent weeks. So welcome.

And if you are new here, here is the normal format of the show. Typically, every other week, we interview a guest, and on the weeks in between, we answer questions that come from you, the listener community. So half of our episodes are interviews, and the other half of our episodes are Q&As. Now, among these Q&A episodes, half of these episodes are dedicated to answering questions about personal finance, financial independence, retirement investing, entrepreneurship, traveling, anything that relates to optimizing your finances and your life.

The other half of the Q&A episodes are dedicated specifically to answer in questions about reaching financial independence through rental property investing. So what that means is that 75% of our episodes are about optimizing your money and your life. And one in four episodes are specific to rental property investing. Today's episode is that one in four episode. So if you're not interested in rental investing, here's what I recommend you check out instead. Open up your podcast playing app and pull up episodes 59 and 60. Those are the episodes in which I interview Andrew Hempstead.

Halim about how he became a millionaire on a schoolteacher salary by the age of 41. It's one of my favorite interview series. So that's episodes 59 and 60. Check that out or check out episode 100 in which I interview the mad fientist about how he retired in his early 30s. Orr, or check out episode 143, which right before the Susie Orman episode, it used to be the recent community favorite. And that's the episode that's a conversation with my good friend Emma Patti. about life after reaching financial independence. So if you're not interested in rental property investing,

check out any of those episodes and hit the subscribe button. If you are interested in rental property investing, stick around because our first question is from Erin. Hey, Paula, love your podcast. I was wondering if you would ever put 30% down or more in order to make a rental property cash flow positive. Thanks very much. Erin, that's a great question.

I'm going to unpack this question a little bit because what I hear when I hear you ask this are actually two questions. Would I ever put 30% down is one element of your question. And what would I do in order to make a property be cash flow positive is another element of your question. So let's talk about both of those. Now to the first half of your question, would I ever put 30% down? That's an easy answer. Yeah, of course I would. I've bought properties in which I've put 100% down,

meaning I've bought them all in cash. And on the flip side, conversely, I also bought one property with zero percent down. I've literally run the gamut from zero percent to 100 percent. I've done it all. And if we zoom out and think about what I'm actually saying here, beyond the numbers, beyond the percentages, what I'm trying to communicate, the bigger lesson is that there is no, quote-unquote, ideal percentage to put down. Not from a strategic perspective.

Now, certainly there are certain required minimum percentages that are based upon the type of loan that you get. So, for example, if you get an FHA loan, you'll be required to put at least 3.5% down. And that's assuming, of course, that you buy that property as a primary residence, live in it for a year. And perhaps it's a multi-unit dwelling in which you can live in one of the units and rent out the others. That would be an example. But if it's an FHA loan, you can put 3.5% down. There are some other loans that would require you to put down 10,000. percent, 20 percent, an investor loan of 25 to 30 percent, or you could foray into the world of

private loans in which you might not have to put anything down, but in exchange, you might have to pay a sky high interest rate. I mean, there's a whole menu of loan options to choose from. And depending on what loan you decide to go with, there might be certain minimums that you are required to put down. But from a strategic point of view, I do not believe that there is any particular percentage that is better or worse than another one. Let me share with you a story that kind of illustrates this concept. Recently, in the Facebook group for the beta testers for my course, Your First Rental Property, I shared a screenshot of a listing, a public listing that was from Zillow, for a property

in Atlanta that is not far from one of my rental properties that is selling for just shy of $30,000. It's like $29,000 and change. And one of my beta tester students left a question on there, and he asked, would it be better to buy this property in cash, or would it be better to use that same amount of money as a down payment on a multitude of properties, or on a single multi-unit property? Fundamentally, that is a question of risk mitigation. So let's assume in that case that you have $30,000 in cash plus extra for an emergency fund. the benefit to using all of this cash to buy this property, so paying 100% down for this property,

is the benefit of buying anything in cash, less paperwork, less hassle, and less risk. On the other hand, if you were to use that same $30,000 as, let's say, the down payment on a fourplex, assuming that in this hypothetical scenario you're comparing two properties with the same neighborhood profile, the same tenant profile, the same cap rates, assuming all else being equal for the same of illustrative example, you would have, by virtue of using this money as a down payment and leveraging into something more expensive, you would have, number one, greater upward potential because you could achieve equity growth through debt payoff and that debt payoff would come from the rental income from your tenants. And after a few years, you can borrow against that increased equity in order

to buy more properties. So by using leverage, you put yourself in a position in which you might be able to use even more leverage in the future. That's the thing about leverage, right? Leverage is a lever. It can propel you upwards quite rapidly. It can also push you down into the earth pretty quickly. So there's a strong argument for both choices. It's okay to borrow money for a rental property so long as that rental has a good cap rate. It's also okay to go into a property in all cash, and it's okay to be anywhere along that spectrum. So my long answer to your short question is it's absolutely okay to choose to put down 5%, 10%, 30%, 40%, 50%, 100%, 0%, whatever it is that you choose. Now, that's the first half of your question.

The second half of your question, though, is would I do this in order to make a property cash flow positive? And that is where a little red flag appeared before my eyes. Because what I want to know is the cap rate. on this property. That is the first question I want answered. And the reason for that is because when you are choosing a property, you want to first evaluate whether or not that property is worth buying. And if it is worth buying, then you can play around with the financing to find some arrangement that is best for you, that intersection between what you qualify for and what you want. before you get to that financing aspect, evaluate the property itself because you don't want the

financing arrangement to cloud your judgment of it. And so when you said, Aaron, when you said, would you put down 30% to make it cash flow positive, the little warning bell that went off in my head was, is she choosing this property based on the fact that it would be cash flow positive with a 30% down payment? Because if so, then that is not a sufficient reason in and of itself to buy a property. Any property, we'll look at 1-2-3 Main Street as your subject property. Any property would, well, not any, I take that back. Many properties would look good with zero financing.

Many, many properties would look good and would be cash flow positive if you bought them with cash. And conversely, just to use an extreme example, a lot of properties would look terrible and would have negative cash flow if you had financing at a 99% interest rate. But that doesn't mean that that particular subject property, 1, 2, 3 Main Street, that doesn't mean that it itself is inherently a better or worse choice, right? You take the same subject property and if you slap different types of financing arrangements on it, it might look good, it might look bad, it might cash flow positive, it might cash flow negative,

but it's still the same property. It's still a property that sells for X and rents for Y and has operating expenses of Z and needs initial repairs of A. It is still a property with important variables that need to be looked at absent of financing before you make that choice. What I'm saying, Aaron, is never use a strong cash position to make a mediocre deal look good. one of the biggest criticisms that I hear about the practice of buying rental properties in cash or, in your case, buying rental properties with a strong down payment, is that oftentimes people who do that, people who buy rentals in cash, choose subpar or mediocre or underperforming properties because, hey, what the heck it cash flows anyway. So I hear that criticism as an argument against paying cash for a property. And my response to that is that's not an argument against paying cash for a property or having a strong down payment for a property, as you're suggesting, Aaron.

That's simply an argument against conflating financing with analysis of the property itself. So to summarize, your question was, would I put down 30% in order to make a property become cash flow positive? Would I put down 30%? Yes. Would I do some fancy tap dancing in order to make a property cash flow positive? I suspect that if that is required, and I don't know the numbers on this property that you're looking at, but I have a suspicion that the property might not be totally worth pursuing. Thank you so much, Erin, for calling in with that question. Our next question comes from Avey.

Hey, Paula. My name is Avey. I live in Sacramento, California. I moved here in the country in 2009 and just started on my 401K 2010. I currently have a total investment of probably around 200,000, give or take. That's a combination of 401K IRA and some personal investing accounts. I've been maxing every year for my 401k. I only have around $6,000 in cash. I do have a goal in four to five years. I want to have a rental property for diversification and passive income.

With that being said, would it be better for me to just stick with a plan and buy some real estate properties or should I go into reeds? Also, if I go to real estate properties, where should I look? I started looking in Atlanta, Georgia, just by listening to you. I can't afford houses here in Sacramento, California as a second investment property. So that's it. Avey, first, congratulations on accumulating $200,000 in your 401K and IRA and some personal brokerage accounts. That's an incredible accomplishment. So in eight years, between when you opened your 401k and now, $200,000 in eight years, that's amazing.

So Steve, can we get a round of applause? All right, so your goal in the next four to five years is to have a rental property, and there's two components to your question. The first is real estate versus reet, and the second is, if real estate, then where should you look? I'll answer the second part of your question first, because it's a more straightforward answer. Atlanta is awesome. I'm a big fan of Atlanta. Specifically, if you were to look there, some of my favorite areas are the 303-4 zip code, the 303-5-4 zip code, East Point, College Park, Hapeville, Mosley Park, Panthersville, Ellenwood, Douglasville, and pretty much everywhere that's south of the airport like Union City and Fairburn, those are all places with great opportunities. Now that being said, please don't look at Atlanta just because I happened to own properties there. There are a lot of places all across the U.S. with great opportunities. So Birmingham, Huntsville, Montgomery, all of those three cities in Alabama have amazing opportunities. Cincinnati, oh my goodness, I was looking at listings in Cincinnati the other day,

and it's incredible. You can practically blindfold yourself and throw a dart at listings in Cincinnati, and you can find multi-unit properties that beat the 1% rule. I was looking around. There's duplex is there that cost $50,000 and rent for $1,000 per month between the two units. I mean, it's amazing. So yeah, definitely check out Cincinnati, Dayton, Ohio, Indianapolis, Louisville, Kentucky. And you mentioned that you live in Sacramento, so if you wanted to, which you don't have to, but you could also check out places that are a little bit closer to where you live. Like Las Vegas has a lot of great rental properties.

Boise itself is a lot of great rental properties. bit run up, but the outlying counties like Gem County and Canyon County, those present really good opportunities in Idaho. Spokane, Washington, I think, is really interesting. That's definitely a place I would like to explore a bit more. Okay, so I'm looking online right now. I'm looking at listings as I'm talking. There's a fourplex in Spokane. It's selling for $325, and rental income is $3,260, so it just meets the 1% rule as a fourplex. Yet here's another one. It is, oh, this one has seven units. Okay, so it's not residential, so you might not want to go there, but it's selling for 375, it's bringing in $3,800 a month. Oh, here's a triplex. It's selling for

175, and it's renting for just shy of that much, $1,000 a month. When it's that close to meeting the 1% rule, you can bump up the rent 100 a month. On a triplex, I mean, yeah, you can bump up the rent $33 a month per unit. So you can get that to meet the 1% rule. So yes, Spokane absolutely intrigues me in terms of places on the West Coast. And now, And of course, there are lots of places all over the Midwest and the South that have amazing rental deals. So take your pick. There's abundant opportunity. But now let's go to the first part of your question.

Should you buy a specific residence or should you go into a reet? The answer largely depends on your goals and risk tolerance. I don't mean to sound like a broken record. I realize I say that a lot. But your answer will hinge upon whether you want some. something that is purely an investment or whether you want something that is a hybrid between a business and an investment. When you buy an index fund, if you were to buy VTSAX, the Vanguard Total Stock Market Index Fund, for example, hypothetically, if you were to buy that,

you would have something that is purely an investment. And the benefit of it is that you don't have to do anything. But the drawback to it is that you cannot do anything even if you wanted to. So if your investment is not performing in the way in which you want it to, your hands are tied. There's nothing you can do. You've just bought some digits on a screen and you're going to do as well as the forces that be decide that you do. Those companies that are within that basket of stocks that you've purchased will operate as well or as poorly as they do. And you will do as well or as poorly as what those decision makers decide. I mentioned in a previous podcast the notion of the feature is also the bug. When it comes to buying an index fund or a REIT, the feature is also the bug. The feature is that you don't have to do anything. The bug is that you cannot do anything. With a rental property, a specific, unique property that you yourself own, the feature is that you get to exercise judgment about the way that that property is managed and handled.

It is up to you to decide whether or not to renovate it. And if so, what standard should you renovate it too? Should you make it as nice as the other properties on the same block? Or should you make it just smidge above that so that it can stand out from the competition? It's up to you to decide what rental price, within reason, what rental price you want to set, whether or not you want to allow pets, whether you want to. Pets, whether you want to insist on minimum one-year leases or if you would be open to letting people rent for only six months, or if you want leases of no shorter than two years. It's up to you to choose

the property management company. It's up to you to choose the minimum qualifications for the tenants who will live there. Are you going to require that they have income that's three times the rent? Are you going to require that they have a certain credit score? You're in the driver's seat and you get to make all of these decisions. Now, that doesn't mean that you have to work the property like it's a job. You can outsource the day-to-day handling of the property. Your contractor will do the repair and maintenance work. Your property manager will field phone calls from potential tenants and do showings

and sit down and sign the lease with whoever signs the lease. You know, your team will handle the day-to-day lifting, but you as the owner, you're the one who calls the shots. You're the one who makes the choices. You're the one who chooses who that contractor is going to be and guides the scope of work that that contractor fulfills. And so the opportunity that you have when you own a rental property yourself is that you can make that property really perform. You are the entrepreneur investor. And you can take a property, as I've done, that's only marginally performing.

You know, property that is just making the 1% rule but not doing any better. And you can breathe life into it. You can take something that is undervalued and make it the Cinderella turnaround story. And you get all the reward that comes from that. And that's what's cool about owning rental properties. It's your judgment that makes that property what it is. And I will tell you at a personal level, owning rental properties has been, boosted my confidence significantly. When I bought my first property, I felt silly calling myself a

landlord. I was 27 years old. What 27 year old is a landlord? So I felt that imposter syndrome. I felt a complete lack of confidence. And if I had to talk to the tenants about anything, if I had to let them know that we were not going to be renewing their lease the next year because we wanted to renovate that unit. If I had to have any type of difficult conversation with them, it was incredibly hard for me to do that. At the time I bought my first rental property, I was massively insecure. But going through the experience of being an owner and having that hybrid between a business and an investment, that taught me so much.

It boosted my confidence. The lessons that I have learned from that have very much, both the knowledge as well as that confidence, have translated to a lot of the success that, you know, that. afford anything has had, the website, this podcast. When you develop confidence as a business owner, that stays with you forever. And that is the unsung reward of owning rental properties. That's something you can never get from a REIT. That's something you can never get from index funds. There are certain life skills that come from owning a business and rental properties can be an amazing step into that world.

So that is what I love about owning rentals. But by the same token, the feature is also the bug, it's absolutely nowhere near as simple as just logging into a Vanguard account, buying some reets and then logging off. I mean, you can do that in five minutes and then never think about it again for the next 50 years. So which would you rather? That's up to you. I can't answer that for you.

You have to want to own rental properties in order to enjoy doing it. I mean, like any business, you have to want to be the owner of a business in order to have a successful business. There's a lot of creativity, and there's the opportunity for mastery and purpose and autonomy that comes with owning rental properties. That's something that you can't get from a REIT. And it's something that you'll never get from a crowdfunding website. But that being said, the kids who were forced to go into business school but never really wanted to be there, they're the ones who drop out, right? If you don't want it, then don't do it. You have to want it. So that's up to you. Thank you for asking that question. Our next question comes from Tom.

Hi, Paula Pan. This is Tom. I have a question on house hacking. I'm looking into building a small two-bedroom house on the side of my personal house to use it for a rental. What advice can you give me to launch such a plan? Keep in mind, I live in Texas, and I don't know if I'm able to build a home on the side of my house. I would appreciate if you can answer my question. Thank you. Tom, first of all, I think that's a fantastic plan if you are able to do it. So here's what I would do. Number one, I would check with your city or county to make sure that you have the permission to do so.

Check your zoning. the way that you would do that, I mean, the easy way, the quick and dirty way is to contact a general contractor and say, this is something that I would like to do, would you be able to pull a permit for this? Because if you have a general contractor who's working on building that addition, then the GC is the abbreviation for general contractor. The GC's job, part of it, would be to apply for the permit. And so you would know right away whether or not you would be able to do this. So that's the first thing I would do. I would check zoning.

I would check regulations, then I would apply for a permit, either apply yourself or apply via a G.C. And if you can get a permit for the project, then that's your green light. You can go ahead. And if you can't get a permit for the project, then that's your red light and you know to stop. So that's step one. That's the discovery phase. And by the way, I want to be clear, the reason that I'm saying this, because I know that there are going to be some number of you who are listening to this, who are quietly thinking, oh, yeah, but.

Can't I just do it under the table unpermitted? The reason that I emphasize getting a permit and doing it above the board and on the books, it's not for any moralistic reason. It's for the very practical, very strategic reason that if you were to do it under the table, if you were to do it illegally and anything went wrong, if a tenant slipped and fell and wanted to sue you, and you had an illegal dwelling, nothing is going to protect you. You could lose everything because a lot of people will contact me and say, hey, how can I protect

myself? Should I put my properties in an LLC? Should I have umbrella liability insurance? Like I get all of these questions from people who want to know what's the best way for them to protect themselves. Doing things above board, doing things with proper permits and making sure that everything is code compliant and using contractors who are licensed and bonded and insured, that is one of the most fundamental ways to protect yourself. Because that way, if you do get sued, you can go to the judge and say, you know what, I had a licensed electrician do this work. I didn't just have Joe from Craigslist do it.

Like I had a genuine licensed electrician who performed all of this work. And conversely, if you can't defend yourself like that, If you have an illegal dwelling or an unpermitted addition, then that LLC structure is not going to protect you. That umbrella liability policy, it's not going to protect you because the whole thing was illegal to begin with. So, Tom, to answer your question, step one is find out whether or not you can do it. Now, if you can do it, that's awesome because there's a pretty decent likelihood that you will be able to make some solid returns on that. And the reason that I say that is because since you are planning to build on land that you already own and on land that you would own, regardless of whether or not you used it as a rental, you can conceptualize the overhead of the underlying land as not really applicable to the cost of this new dwelling, right? You're building a dwelling on land that you own and that you would own in either event.

So you're taking an asset that you already hold and you are making additional use. of that asset, that asset being the underlying land. So the typical rental investor, when I buy a property, I'm buying the building and I'm also buying the underlying land. And the building is what I actually make income from. And that underlying land is just part of the overhead. It's part of the expense of purchasing the property, even though I don't actually monetize the underlying land directly.

In your case, though, because you already have that underlying land and all your building is the dwelling, then you're going to have a greater likelihood, all else being equal, of being able to get a good return on that dwelling relative to the cost of construction. So if you're able to go ahead with the plan, I would certainly get some estimates and start taking the next steps towards going ahead with it. But yeah, step one, make sure that you're able to do it. Because when it comes to an unpermitted illegal dwelling, it's not worth the risk. It is not worth the risk of losing everything that you've ever built for your entire life, just to make an extra grand a month.

So, Tom, I hope that helps answer your question. If you have any further questions about this, any additional information, if you talk to a GC and you get some more details, call back in and let me know. Because I think the concept is great, so the next question is feasibility. Thank you, Tom, for asking that question. We'll come back to this episode after this word from our sponsors. Do you want a bank that's going to pay you high fees, but that's also not going to nickel and dime you? Check out Radius Bank.

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And when they ask how you heard about us, say, afford anything. Again, for a 30-day free trial, go to freshbooks.com slash Paula. And when they ask how you heard about them, type in, afford anything. Our next question comes from Rod. Hi, Paula. My name is Rod. And I was wondering if you could tell me anything about investing in condo hotels as rental properties. I'm about 10 years away from retirement, and I was thinking of buying one in Las Vegas, which is where I plan to move when I retire. Being a traditional landlord does not really appeal to me. I don't really want to have to deal with the hassle of bad tenants or repairs when I'm in retirement. And buying a condo hotel looks like it might be a way for me to get

income from a rental property without that hassle. Can you please tell me what you think the pros and cons of this strategy are? Thanks for all you do, and I look forward to your answer. Rod, first of all, Las Vegas is a great place to live. I've been living here for three years. It's low cost of living. It's always sunny. There's mountains and plenty of outdoor activity. Great hiking, camping, climbing. There's even local skiing and snowboarding. It's a beautiful area, mountains, palm trees. And in the local neighborhoods, the restaurants and everything, they're so amazing and they're so cheap. So I'm glad that you recognize Vegas for the amazing. retirement destination that it is. Oh, and, duh, there's no state income tax. So you've got this low cost of living place with no state income tax that is beautiful and has plenty of outdoor activities and plenty of restaurants and entertainment and proximity to a major international airport. And it's close to the West Coast. And it's super cheap. And there's low taxes. It's the ultimate place to retire. So I'm glad that you see that because there are unfortunately so many

people who associate Vegas with only the strip, and that is the equivalent of associating Manhattan with only Times Square. It's ridiculous. It's not a representation of the entire city. It's only the well-known tourist area. So I work very hard at trying to spread the word about the sensibility of living in Las Vegas. Now, to your question about condo hotels, one thing that I found interesting about your question is that you specifically are interested in condo hotels. So hotels that have condos as compared with straight up condominium residences. So condos that are in condominium buildings in which no part of the building is used as a hotel. I don't understand why you want only condo hotels and not condo residences. Las Vegas certainly has a lot of

condominiums, the Ogden, the Jewel, the Newport Loft, Soho, the condos in Summerlin. There's plenty of condo residences here as compared with if you wanted condo hotel, you would go to where, veer towers? And I'm not sure what kind of returns you would get there because the cost per square foot there is so high. So that would be my first comment about what I've heard you propose is why limit your search to just condo hotels? Why not go for condo complexes overall? So that's the first thing that I would say. The second thing that I would say is that if your goal is to reduce your level of personal involvement,

then the solution is to get a property manager because the property manager is the one who is going to, write the listing, put the listing online, take phone calls from prospective tenants, answer questions, do showings with prospective tenants, host an open house if necessary with prospective tenants, sign one to a lease agreement, follow up with that tenant on all of their rent payments, collect those rent payments, manage maintenance and repair requests. That's the role of a property manager. So if your goal is to minimize your own level of involvement with this property, buying a condo is not necessarily the solution. Buying a condo will solve for minimizing any exterior maintenance that you might have to do

or that you might have to dispatch a contractor to do. So yeah, buying a condo will absolutely allow you to get rid of any exterior maintenance responsibilities. But beyond that, all of the other responsibilities will still fall upon you unless you have a property manager. That being said, if you do have a property manager, you don't really have to worry if you were to buy a single family home, you wouldn't have to worry that much about exterior maintenance responsibilities either because the PM's job would be to hire and supervise and pay a landscaping company that would come to the house periodically. And that would cost probably less than what the HOA payment would be. So, you know, 601, half a dozen of the other, if you're looking at two properties and they both have the same cap rates, they both have the same returns, but one's a condo and the other is a single family home. then sure, you can get a condo just so you can eliminate exterior maintenance entirely as a responsibility category. But at the risk of sounding like a broken record, getting a PM is the way to go.

Also, there's one other thing that I want to throw out here about condominiums, and that is the fact that the HOA of a condo might at any point decide that long-term rentals are no longer allowed. That is the inherent risk of owning a condo or owning anything that is under HOA jurisdiction. Now, are they likely to do that? I mean, it depends. You can certainly look through meeting notes of previous HOA meetings to see if there is any resident activism around that topic. But that is certainly an additional risk that you carry by virtue of investing in a condo that you would not carry if you were buying a single family home in a non-HOA governed area. So, best of luck with your decision and enjoy your move to Las Vegas.

We'll come back to the show in just a second. But first, a few years ago, there were these two friends from New York who were at JFK Airport. They had delayed flights and their phones were dead. And so they thought to themselves, why is it that we don't have luggage in which we can charge our devices directly from our luggage? Once they had that thought, they started asking thousands of people about how they pack. And then they designed a bag that solves old problems like sticky wheels and fixes new problems like dead cell phones. And from all of that, away travel was born. Now, away travel has four different types of luggage.

The carry-on, the bigger carry-on, the medium, and the large. Both sizes of the carry-on can charge all cell phones, tablets, e-readers, anything powered by a USB cord. And all of their suitcases are lightweight but strong. They're made with this premium German polycarbonate, which is impact-resistant. It has 360-degree spinner wheels. It's got a TSA-approved combination lock built right in. It's got a removable laundry bag that keeps dirty clothes separate. from clean. It's got lots of compartments, so it makes it really easy to manage all of your stuff

inside of your luggage. I have a carry-on from away travel, and what I love about it is that I can plug my phone directly into it, because oftentimes I'm in places where there's no convenient outlet. If you want to give them a try, for $20 off a suitcase, visit awaytravel.com slash Paula, and use promo code Paula during checkout. Again, for $20 off a suitcase, visit awaytravel.com slash Paula, and use promo code Paula during checkout. out. Awaytravel.com slash Paula. Handling payroll and benefits can be hard, especially if you run a small business. You don't have the time to be an expert in things like taxes and regulations and the old school

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three months free once you run your first payroll. Just go to gusto.com slash podcast. That's G-U-S-T-O-com slash Paula. Gusto.com slash Paula. Our final question comes from Sandra. But before we get to it, I wanted to share this. We received an amazing voicemail from a listener who is 24 years old. Her name's Courtney. And she, along with her parents, bought a house when she was 19, managed it for three years,

and sold this house when she was 22 for a $30,000 profit. So here is the context behind this voicemail. Now, in episode 155, a listener named Miguel called in with a question. He wanted to know how he could send his four kids to college. Joe, who's a former financial advisor and who often answers Q&A's with me on many of these episodes, Joe suggested that the parents that Miguel and his wife buy a rental property in the town in which their child attends college and then have that child manage that rental. And so after that episode aired, Courtney called in to tell us that she did exactly that.

Her parents made her buy a house and made her manage it. And she wanted to share what that experience was like from the college students' perspective. Take it away, Courtney. Hi, Paula. My name's Courtney. I'm 24, and I've been on my journey to FI for about 10 months now. I wanted to respond to Joe's idea the other day about having college. age students manage properties for their parents throughout their time at school, because that's exactly what my father and I did. I was not fond of the idea of buying a house at the age of 19, but he made me do it,

which I'm grateful for, because I learned a lot about general responsibility and being a landlord throughout my three years of owning a house. At the age of 22, I sold the house for sale by owner for a $30,000 profit, which helped me pay down a lot of my student loan debt. So overall, it was a great experience and I learned a lot about being a responsible adult at an early age because of it. It also sparked my interest in real estate, which is how I found your website. Thanks for all of the great material that you've put out to help us on our journey to FI. Have a great day. Wow, I'm impressed.

Courtney, thank you so much for sharing that story and the fact that you are 24 and you've been pursuing FI for 10 months already. That goes back to what I was saying earlier in this episode about how owning a rental property is character building and confidence boosting. It has a downstream effect that stretches far beyond the cash flow or the equity gains from any one particular house. Owning a rental property impacts the way that you think and the way that you approach life. And for many people, it can be your entry to entrepreneurship, to investing, to thinking in the way that a person pursuing FI needs to think in order to be able to do this thing that is both ambitious and unconventional.

So congratulations, Courtney, on discovering this early and on getting to the path to FI in your 20s. Thank you for calling in with your story and thanks for being part of this community. With that being said, let's move on to our final question for today's episode. And this question comes from Sandra. Hi, Paula. I love your podcast and your newsletters. here's my question. I live in California. I've bought three properties free and clear in Memphis, Tennessee for passive income. I've had them for about five years now. They have been working great for me, but I think they have much more potential, and some of the investor, other than me, can create that. I just haven't paid much attention to them lately, and I pretty much lost interest in general. these managing property managers and all that is too much for me. Since I changed careers and I'm moving towards a different direction on a self-development level, all I want is cash out

to invest that money into my new business. That's more fulfilling for me. I know to sell them cash is the first choice, but investors are in the game of low bowling, way too low. Selling retail would be an option to, but that takes longer, and I'm not sure if the market is in my favor now. Seller financing drags things out and list options not great for me. So I'm interested in your feedback. Thank you so much. Sandra, first of all, congratulations on knowing what it is that you want. Investing is personal. Personal finance is personal. And the fact that you are so clear about what's important to you and what's not is fantastic. So I 100% support your decision to sell these properties, put that money into your own business, whatever it is that you're doing, a business

that to you is more meaningful and more interesting, and focus on that and focus on the business and on self-development, just as you said. So how do you sell the properties? Well, as you said, both lease options and seller financing are not ideal for you because what you want is to be done. You want to walk away and both lease options and seller financing would drag the process out for many, many years. You would still be involved, especially with lease options. Well, really, especially with both. It would continue to be on your plate and on your mind for many years in the future. So I would not go to either of those options.

Now, one thing that you didn't mention, you said that they're properties, but you didn't mention if they are single-family homes or multi-units. And the reason that that makes a difference is because of the type of buyer that it might attract. Broadly speaking, single-family homes could attract primarily owner-occupants or retail home buyers, which means that selling these properties on a retail market, listing them for sale on the MLS, could be a very viable option. If, on the other hand, you own multi-unit properties, by definition, the only people who buy multi-units are investors. And investors are going to be more aggressive about how they make bids because they're placing offers from a spreadsheet-based decision matrix rather than from an emotional decision matrix, the way that retail home buyers, owner occupants do. That said, though, regardless of whether it's a single family or a multi-unit, I don't. You won't see any reason why you couldn't list these properties for sale on the MLS and open it up to that broad universe of buyers. You mentioned that you're not sure if the market is favorable, but you bought these properties in cash.

You own them free and clear. And you bought them five years ago, and the market, broadly speaking, has done quite well in the last five years. You mentioned that your properties are in Memphis, so I looked up the price history of Memphis homes over the last five years. and Memphis' home values have gone up between 2013 to 2018. Now, that being said, Memphis is still a buyer's market. Buyers in Memphis are in a stronger position than sellers. But at this point in time, that's going to affect all sellers in Memphis equally. And given the fact that you bought these properties in cash five years ago,

and given the fact that property values in Memphis have gone up since then, I just don't see the reason why you couldn't list it on the MLS, why you couldn't list it publicly for sale and see what type of offers you get. The only obstacle that I could imagine is if your properties are not in good enough condition that a person who is applying for, let's say, an FHA loan would be able to purchase the property. Like if your properties are not able to have a certificate of occupancy, or if your properties are in need of some major repair, that's so major that a lender would hesitate to lend on that property, in that circumstance, I could see there being an issue. But other than that, I guess that's the piece of the question

that I'm missing is, why not just list it for sale? And given everything that you've said, it seems as though you'll walk away with a nice profit, which you can then put towards your business in California. So that's what I would do if I were you. Remember, the broader of an audience that you try to sell to, the more potential offers you might collect. And so by listing it publicly, you'll be able to attract offers from cash buyers, from people using financing, from owner occupants, from investors. You'll be able to attract that whole universe, depending, of course, on the type of property that you have. So that's what I would recommend. Thank you, Sandra.

And if you have any other information about these properties or if there's anything that you'd like to clarify, please feel free to call back, leave another message. For anyone who listening, by the way, if you have a question that you would like answered on this podcast, go to afford anything. com slash voicemail and leave your question. We would be happy to answer it on an upcoming episode. That is our show for today. So a few notes in all of the excitement of the past couple of weeks, I forgot to mention some pretty big news. Are you ready? Drumroll, please. Steve, can we get a drum roll? This podcast has won the Podcast of the Year award through the Plutus Awards at FinCon. So, So, hooray! So we won the podcast of the year award.

We actually won it about three weeks ago, and I completely forgot to mention it on the show because in the middle of all the Susie Orman excitement, that Susie episode went viral. And I was in London at the time, so I was managing all of the viral attention from London. And so anyway, in the middle of all of that, I completely forgot to say, we won podcast of the year. And then on top of that, somehow I also won the Lifetime Achievement Award. which is weird because how do you win lifetime achievement at 34? Do they know something I don't? Anyway, so we won those two awards.

So that's awesome. This podcast is growing. And speaking of growing, we also just topped 4 million downloads. So, wow. From inside of my closet where I'm sitting here broadcasting to 4 million downloads from inside of my closet in a Las Vegas condo. That's pretty awesome. So thank you to everybody who's been part of this crazy journey, part of this community.

I'm thrilled. This podcast would not exist without you, without you leaving comments and asking questions and rating it in iTunes and sharing it with your family and friends and following along on Instagram. This podcast wouldn't exist without any of that. So thank you so much because this is really your podcast. So hooray for the first four million downloads. And here's to the next four million after that.

And then the next 40 million after that and the next 400 million after that. Okay. Now, for the really big news, are you ready? Okay, I'm stealing myself to say this into the microphone. This is big. When I was a journalist, my editor taught me to always ask the question what's the BFD, which stands for big effing deal. Anytime somebody pitched a story to us back when I was a newspaper reporter, my editor said,

always asks that question in your head, what's the BFD? You've heard me just talk about we got four million downloads, blah, blah, blah. What's the BFD? What is what are we actually doing here? Why does any of this matter? Well, of course, this podcast is helping people reach financial independence. We're helping people pay off their debt. We're helping people not get into new debt.

We're helping people safe for retirement. We're helping people buy investment properties. We're helping people optimize their finances and their life. And we're doing it as a community. I'm just the catalyst to afford anything is all of us. And that in and of itself is the BFD. But it goes beyond that. in addition to all of the lives that we are changing inside of our own community,

we also got together as a community and decided that we were going to sponsor a water project somewhere in the world, something like digging a well, because we as a community understood that being able to turn on the tap and drink water that's not going to make us sick. Drink water that's not going to give us cholera is a huge gift. There are people in the world. There are kids who get sick from diseases that are spread in dirty drinking water. And we decided that we, as the Afford Anything community, we're going to get together and solely sponsor one water project somewhere in the world,

something that is specific and tangible and GPS identifiable. And guess what? We've done it. We have, I am so, so, so, so happy to announce. We have raised officially as of Friday, October 19th, which, by the way, today is my birthday. I'm turning 35 today, and this is the best birthday gift I have ever received. We have raised 12,432. for the Afford Anything fundraising campaign on Charity Water.

Wow. I'm speechless. I'm absolutely speechless. Thank you. Just thank you. $12,432 so that we, the Afford Anything community can build a specific water project somewhere in the world. this is actually happening. It's happening.

It has happened. It is happening. I'm just, I don't, as you can tell, I'm at a complete loss for words. This is enough to bring clean drinking water to more than 400 people. Possibly, those are 400 lives that we may have saved. 400 people who might not get cholera or dysentery or any of those other terrible diseases that come from drinking contaminated water. We've done that.

So thank you, thank you to everybody who donated in this campaign. Thank you to Richard Potter, who two days ago, donated $4,000 to match donations that got us from $8,000 to $12,000. Thank you to Jay Clark, who donated $1,500, and who wrote the note, quote, I've been wrestling with deciding on a worthy cause to contribute to, so your call to arms was very timely. Something as basic as clean water seems to be as good a cause as any. And thanks to Richard for his generosity and matching donations. Thank you, Jay Clark. And thank you to everybody.

Thank you to Chris who donated $20. And to Vijay, who donated $25. And to Quinn, who gave $125. Thank you to everybody who has made this possible. I will continue to share updates on this podcast about exactly what we're going to build, if it's going to be a well or if it's going to be something else, I'm going to share the exact GPS coordinates of precisely where this is going to get built. I'll keep updating you with everything.

And if you go to Afford Anything.com and sign up for the email list, you'll also get email updates as they come out with every. I'm just going to share all of the information. This is so exciting. We're going to keep running this campaign through the end of 2018. So if you would like to take part in this, go to Afford Anything.com slash watch. where you can make a donation and we can build something incredible, but I'm so beyond thrilled that we've reached our goal.

We've surpassed our goal. And there's going to be a well with clean drinking water somewhere in the world because of us. So thank you. My name is Paula Pan. And this is the Afford Anything podcast. Please open your favorite podcast playing app, Stitcher, or Google Play or Apple Podcasts, whatever it is that you use to listen to this. podcast, please open up that app and hit the subscribe button so that you don't miss any of our upcoming episodes. Next week, we'll be talking to Clark Howard about how he retired at 31.

Thank you so much for being part of this life-changing community. I'll catch you next week. P.S., I wanted to let you know, some people have been asking about the Susie Ormond ringtones. They are available on the show notes at afford anything.com slash episode 157. So again, if you want to download those ringtones. It's afford anything.com slash episode 157. You can also download some people have asked about a transcript for that show. You can also download a transcript there as well.