How it Works

Real Estate Investing Without Debt – The All-Cash Plan

WHO’S THIS FOR?

Smart, growth-oriented investors

This strategy is built for beginners OR experienced investors who are looking to expand their real estate portfolio with bulletproof safety.

On your path to a destination of Financial Independence, a simple but powerful goal of free & clear (a.k.a. no debt) short term vacation rental properties is a good idea and should be your goal. 

Once you have set your personal free & clear goal, the next natural question is how do you get there?

Short-Term Vacation Rental Investing is how

What are Short-Term Vacation Rentals?

Short-term rentals (STR’s) vacation rental properties are usually furnished condos or houses, that are rented for short periods of time, typically by the week or month as opposed to standard rentals that are leased out for several months or more at a time. Short term rentals are now commonly seen as a more popular alternative to hotels. Many people refer to short-term rentals as Airbnbs. Although short term vacation rentals have existed for quite some time, Airbnb popularized the industry by allowing home-owners to rent out their unused spaces such as entire houses or even a bedroom or couch for short periods of time.

Paradise Rental Fund partners with our sister company Paradise Rental Vacations utilizing the leading short-term rental technology providers, and top level property management platforms to create an edge while investing in short-term rentals.

Want to invest in lucrative short-term rentals? Join our Tribe. Become an STR investor today.

Paradise Rental Fund was founded by a team that has firsthand experience with short-term rentals and knows they can be both lucrative and enjoyable investments. What’s not fun about owning vacation properties you could enjoy with your family and friends and also earn a profit from each month? We want to take the knowledge and know-how we have amassed and empower a new generation of vacation homeownership and investment.

On the other hand, by helping people to become tremendous Investors we want to empower our Tribe to scale their businesses alongside us. Many times, in the past we have seen some of the best property managers/owners struggle to scale their businesses beyond a single property. This is because they are capital constrained and can’t receive the financing necessary to grow. We partner with Investors who are looking to make a splash but might not have the time and know-how necessary to create remarkable and profitable short-term rental experiences.

Why Short Term Rentals?

30% More profit than long-term leases

$169 Billion market in 2019

31.9 Million users of short-term rental platforms

Our plan is one way to get there

The All-Cash Plan for Short Term Vacation Rental Ownership

This is by far one of the most conservative investment plans available.  This plan is conservative because it involves no debt from the very beginning.

I am personally not afraid to use a small amount of debt, as long as it fits my rules. I see it as a simple risk-reward trade-off. In some situations, there might be a reason to take on some debt, but only if the rewards of debt clearly outweigh the risks.

This allows you to have better cash flow and flexibility.

I have also found that simple, conservative plans executed consistently and with conviction will often out-perform more debt-filled, “so-called intelligent” highly leveraged with debt, real estate investment plans touted by many.

In the worst case, these conservative, no-debt plans reach the goal slower. But very often in real-life scenarios, the “tortoises” of the investing world reach their financial goals just as fast. And most importantly, the most conservative investors maintain their financial status over time.

Plenty of fast, debt-filled strategies have crashed and burned because of their excessive debt. And like the hare who lost to the tortoise in Aesop’s classic fable, what’s the point of being fast if you don’t reach the goal you set out for in the first place?

So, our version of a simple, conservative All-Cash Plan basically works like this:

Sounds simple, doesn’t it? But will simple work?

Simplicity Executed to Perfection

Coach Vince Lombardi said: Simple execution wins championships

I love the story of Vince Lombardi, an NFL Hall of Fame coach.  Coach Lombardi ran only two simple plays on offense – a sweep left and a sweep right.  This play is as simple (yet powerful) as it gets in football.

But you can probably guess what happened.  His players executed these simple plays to perfection and won championships.

So, this All-Cash Plan is the equivalent of Lombardi’s sweep left and sweep right for real estate investing.

An All-Cash Plan Example – Free & Clear Airbnb style short term rental properties

To shed light on how this plan works, let me show you some real numbers using an example of an Airbnb style short term rental here in Puerto Rico.

Rental Property Analysis

Insert analysis examples

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Our Investment Approach

In addition to building a strong partnership team, having a clear vision of the assets we want to pursue is very important to us. Below, we share our current investment approach so you know exactly what type of deals we seek to acquire.

We are always monitoring the economic climate and fine-tuning our investment approach to reduce our investment risk. Therefore, our investment plan is a living document and is continually reviewed and updated to ensure that we appropriately reduce risk.

Our investment thesis is comprised of three core areas:

  1. Returns
  2. Markets
  3. Property class

Let’s dive into each area a little bit deeper…

Returns

When initially considering a potential deal, there are three initial criteria that must be met in order for us to continue to pursue it. They are:

  1. Cash-flowing from Day 1 of operation — we will never enter a deal that will have negative cash flow.
  2. Majority of returns have to come from cash flow — this ensures that we are not banking on appreciation and if we have to hold the property longer to time the market appropriately, we will have a solid cash-flowing asset that will make our investors happy.
  3. Stabilized asset — it must be at least 80% occupied continually. This gives us the flexibility to hold the asset longer, if needed, to time the market and exit the property when it makes the most sense for our investors. This protects our investors’ capital which is critical during any current economic uncertainty.

Once a deal passes these specific criteria, we then ensure it meets the following minimum returns:

Markets

We only seek opportunities in tourist-driven areas and sub-markets. Here are the data points we review when considering investing in a particular market.

At this time, we are very bullish on specific submarkets in Puerto Rico because not only do they meet our criteria, this market in general has lower investor competition, ultimately allowing us to provide higher yield returns for our investors.

Property Class

We target undervalued properties in order to increase operating income and decrease expenses by taking advantage of value-add opportunities.

We are currently targeting B and C class assets that are 1960s+ vintage. Here’s why:

  1. They are generally recession-resistant. An A-class property will be too expensive to purchase and a D-class property will be too undesirable for most vacation renters.
  2. B and C class properties trade at higher cap rates which means higher cash flow for our investors.
  3. Value-add business models can be applied across B and C class assets. A-class properties typically have rents that are already at the top of the market which makes it difficult to add value, increase rents, and therefore increase the return for our investors.
  4. D class properties are too high risk for us given the amount of repositioning that would need to take place and they generally have higher crime rates and low to no cash flow, which we avoid.

Final Thoughts

Given the current economic climate, the stage is set for the appreciation of hard assets in the years to come. Here are three reasons why: 1) The current record-low interest rates (and the expectation of them remaining low in the near future), 2) the fact that over 20% of all dollars now in existence were created over the past year, and 3) the Fed’s statement that they will let inflation run above its long-term target. Real estate is the United State’s largest hard asset class; therefore, we want to ensure that we continue to seek value-add opportunities that fit within our investment thesis to position our investors to take advantage of this opportunity as the tsunami of liquidity is pumped into the market.

However, as the economic climate continues to shift, we’ll continue to monitor the markets we invest in and fine-tune our thesis as necessary, and report back to you on a regular basis.

First, you will need to join our Investing Tribe and contribute your portion of the investment.

Next, the group buys a property.

Because you already own this property free & clear, all of the monthly net rent goes into our company bank account. Importantly, we’ll also assume that we can continue to bring in additional money from other likeminded investors.

So, each year we’ll accumulate the monthly net rent in our bank account (before taxes, although depreciation will likely shelter part of the income from taxes).

After some time goes by, we’ll have enough new money pooled and saved. So, we buy another property.

So now we have property number 2 in the – All-Cash Plan of Free & Clear Airbnb style short term rental properties.

After some more time goes by, we’ll have enough new money pooled and saved.  So, we buy a third property.

This pattern keeps going on and on compounding, and the money accumulates faster and faster like a snowball rolling downhill over time.

The Overall Results of the All-Cash Plan

If you want to see the big picture, in just 10 years the group would own at least 8 properties that produce over $460,000 per year in net rent, free and clear of any debt!

Here is an infographic that shows the simple plan and the fantastic financial results:

Infographic – detailed – All-Cash Plan to Free & Clear Rental Properties

How many plans do you know that turn an initial investment of $5,000 into a $460,000 per year income stream for life?

I know of very few.

And the other ones that do claim to work depend on a lot of factors that are completely outside of your control. 

This plan depends primarily upon your ability to do four things:

I like it when my financial destiny depends upon my efforts and not upon chance, the economy, or the whims of others!

Here are a couple of common responses I hear all the time from people who want to get into real estate investing.

“I don’t have enough cash. OR It will take too long to get started.”

My first response is patience.  If you don’t have enough cash yet, you have an earning and savings problem, not an investing problem.

“We cannot solve our problems with the same level of thinking that created them”                                    

– Albert Einstein

Get the picture?

Also, you might consider thinking outside of the box.

Do you have enough money in an IRA or 401k? These types of accounts can be self-directed to buy real estate.  I personally have worked a variation of this all-cash plan in my own self-directed IRA with much success.

You may also be able to partner with someone else.  If you have $10,000 and someone else has $30,000, and you join forces with a group of other like-minded individuals together you can all buy one property.

So, if you like your real estate wealth building steady and super-safe, this might be a path up the mountain for you.  There will certainly be challenges, but as you can see, the final payoff is worth the effort.

I’ve read many books from several different successful real estate investors, and they all preach about the advantages to using debt to finance their real estate purchases.

I learned many things about real estate investing, both from reading and from experience. One thing I learned is that Leverage is Powerful, but also Dangerous

Leverage can increase your returns, however, if you take on too much debt, buy properties with negative cash flow, or otherwise muck things up, debt will sink your ship. the number one cause of bankruptcy is debt, but that doesn’t mean debt can’t be used wisely.

Rules of Investing in Real Estate Using Debt

There are some simple rules you can follow when investing in real estate to ensure you don’t get over-leveraged and lose your shirt:

Always ensure you will have positive cash flow using conservative estimates for income and expenses

Use a larger down payment or all cash to ensure you have a positive cash flow

Ensure you keep a reserve fund for each property to handle unexpected repairs or vacancies

Learn to use debt prudently, and you will do well in real estate.

The main risk of owning real estate is having to add money to it every month through negative cash flow. Owning a rental property is like owning a small business: you need to increase your income and decrease your expenses while providing a good rate of return for you and your investors.

The more debt you take on, the higher your monthly payments. The shorter the loan term, the higher the monthly payments. Having no debt is much safer than having debt.

Focus on cash flow rather than debt, and you will do better in real estate.

If you have a couple of bad months with the higher-cost expense of mortgages, then you may find yourself in foreclosure.

All Cash Plan Summary

While I am a fan of having no personal debt, a very small amount of leverage can help you to build wealth in stable assets like real estate but only If used prudently. One way to reduce your risk is to only use a very small percentage of debt which can increase your rates of return without significantly risking foreclosure or bankruptcy.

“You can have everything in life you want, if you will just help other people get what they want.”

– Zig Ziglar

Lesson #1:  Commerce Is About People

It’s easy to be fooled into thinking that success in real estate or business is primarily about buildings, numbers, or paperwork.

It’s not.

Everything in our business starts and ends with real people. And just like you and me, these people have needs, problems, frustrations, desires, goals, and hopes.

By focusing FIRST on people, the rest of the business works much better.

When you make people and relationships your focus, it changes everything in your business.  And this isn’t just a fuzzy, feel-good philosophy.  It’s also the most profitable.

I want to share an amazing story that demonstrates why we really do the real estate business. I’ve shared this story many times!

Three friends who were all real estate investors, decided to go on a trip together to Europe.  Each of these three investors was successful in their own right.

The first had 18 houses that he owned free and clear (no debt owed).

The second had 48 apartment units, and he also owned his free and clear.

The third had 1,500 houses (!!), and he ALSO owned them free and clear.

Given their investments, isn’t it likely that all three of them had enough money to pay for a nice trip?

“you would think the guy with 1,500 houses could probably buy part of Europe!”

So after one week together, the three friends had a wonderful time.  In fact, it was so much fun that the one with 18 houses said to the others, “Why don’t we just stay another week.  I heard about some other great tours we could go on.”

The second investor with 48 apartments said, “Sure. Sounds great!”

But the third investor with 1,500 houses said “I’m sorry. I’ve got to go back to take care of some business problems.”

Hmmmmm …

The lesson?

Why do you really invest in real estate?  To own a bunch of properties? Or for freedom?

Freedom to Do What Matters

If personal freedom is your why for investing, be careful of the trap that more is always better.  You can always continue justifying new growth, new goals, and new mountains to climb.

We need to remind ourselves to get only as big as is necessary to meet our personal goals. After that, stop, slow down, and reconnect to your reason for investing in the first place. At some point, bigger businesses and portfolios bring more stress, debt, hassles and layers of management headaches.  You may earn more money, but each additional dollar will bring less and less personal freedom.

“Most people say they want passive income, and that’s great, but what they really end up wanting is either time freedom or geographical freedom or both. We didn’t necessarily [say] ‘Yeah, we’re gonna get 20 doors, we’re gonna get passive income, we’re gonna do our thing’, when in reality, having that 20 doors is not nearly as passive as people think.”

– Alex Breshears

The people I look up to, have chosen to grow their personal portfolio to a manageable size. They then use their extra time, money, and energy to teach and invest in other entrepreneurs.  They help others do what matters by helping them also become financially successful by creating true passive income.

In case you haven’t noticed, that’s my own motivation here at ParadiseRentalFund.com!

What matters to you may be totally different. And that’s wonderful! But the important part is to stay clear on YOUR reason for investing. Then you can use your “why” like a compass to steer your business and investment decisions over time.

Our Mission Statement

We have a very simple mission. It’s to bring individuals together who wish to earn a great return on their money and to acquire cash flowing properties here in Puerto Rico from which we can all profit and build wealth.  We strive to make the investing experience simple, enjoyable and passive for our private money investors. It’s so important to us!

Our Core Values:

Be genuine and honest

Be transparent

Be hardworking

Be helpful to others with no expectation of receiving anything in return

Be creative and open-minded

Be passionate and determined

Live, breathe and exude positivism

Be respectful and attentive

Be yourself!!

Find out what all the excitement is about with Puerto Rico real estate.  Discover why you should consider adding it to your investment portfolio.  Sign up for our FREE informative Intro packet!

* Disclaimer: We are a real estate management and investment firm that specializes in finding value added real estate opportunities and executing on those opportunities. We create thriving income properties through Vacation Rentals, and partner only with qualified investors to help them participate in this real estate market. This is not a solicitation or offer of securities. Investment can only be offered to accredited investors or through a written Investment Agreement or Private Placement Memorandum.