Don't Buy A Rental Property If ...

Michael Zuber (0:00)

All righty, folks, we have the man, myth, the legend back, Mr. Coach Carson. Yes, keynote speaker at the Just Completed Bigger Pockets event, and he crushed it. But what we're gonna do here is we're gonna take a question from his community and really talk about when you should not, yes, not buy a cashflow rental property. We get accused all the time of being housing bulls, but there are some times in life where a cashflow rental is not right for you, or at least not right now.

Coach, great job at BP. You are the man, myth, the legend. Well received, well done. Congratulations.

Chad Carson (0:33)

Thank you. Well, thanks for being on the front row, by the way, and supporting. It always, that means a lot. So, I saw you there, and you did a great job with your talk as well.

Michael Zuber (0:40)

I appreciate that. Well, why don't you kind of set this up for us? Because again, I think people would be shocked to hear you and I say, you know what? Probably not the right move to buy a cashflow rental today in your situation. So set it up for us.

Chad Carson (0:52)

Yeah, so I had a coaching call, and this person, they approached me with this deal that they wanted me to help them analyze, which I do a lot of, and I'm happy to do that. But I actually kind of turned the tables and said, you know what? This rental that you want to buy for, I think it was $100,000 and put $30,000 in it, it was like in a cashflow market, lower price market, it would rent for $1,300 or $1,400, it met the 1% rule. But my feedback to him, the reason he wanted to buy it was the problem I had, was he had about a $60,000 HELOC that he was trying to pay off, which is awesome. He'd use that to buy some other stuff and do some remodels. And so he's like, well, I have some cash saved, and I think I might be $30,000 or something like that. I'm going to try to use that to buy a rental, and then I'm going to use that $250 in cash flow to help me pay that HELOC back. And I said, that sounds good on the surface, but I actually don't think that's a good idea. Here's why, rental properties like that, even a cash flow rental, has a ton of ups and downs, roller coaster ride in the beginning.

And you also have to use that, you have to, your negative cash from your, your cash position goes negative as soon as you buy a rental, because you have to make a down payment. You have to invest in the closing cost. And so it's a great middle term to long term investment. But if you need cash in the next two years, like to pay a debt off, I think there's better options. I think there, for example, and I'd be curious what you would think, if you had to come up with another 50, 60,000 bucks the next couple of years, I would say your day job, can you work extra hours? Can you get bonuses? Can you invest that into, like if you have a business or a consulting thing or something where you can take on a couple of extra clients and do some marketing with that money?

If you're going to do real estate, I would lean more towards, can you buy something that you can buy at a discount and then either flip it or do like a short-term hold and hold it for a couple of years, sell it to your tenant, make 30, 40, 50 grand. There's other options, but my feedback to him was like, don't just think buying a cash flow rental is going to pay you back a lot of cash today because it's actually a negative cash event. That's my short-term story.

Michael Zuber (2:52)

I'm so glad to hear you say that because I would have had the same advice. And again, I'm not opposed to using HELOX or having all that. I've done it many times, talked about it in my book. But once I did the agreement with Olivia, the better half in my situation, the goal was we couldn't buy another one until the HELOX paid off.

So that meant sell more software. I was a software guy. That meant save money, don't do crazy vacations. It just became all encompassing. And today, it's never been easier to create a side hustle, whether that's taking your skill, knowledge, hobbies, whatever it is, and creating a small income stream from that. But yeah, you don't take on more debt to pay off other debt.