- Danaus Chang bought his first property in his early twenties.
- He has since built a portfolio of 11 units in Texas and California.
- His properties generate $ 160,000 in excess cash flow per year.
When Danaus Chang’s parents immigrated to Texas from China decades ago, they started investing in real estate as a way to create the kind of wealth their teaching jobs couldn’t provide.
Thus, the asset class has always been present in Chang’s life. His parents encouraged him to buy a property as soon as possible, and he did exactly that. In his early twenties in 2003, after graduating with a finance degree from the University of Texas, Chang purchased a 4 bedroom property in Austin, Texas with a principal residence loan, which are generally available at lower interest rates than investment loans.
But after making the down payment, Chang never paid another dime for the property. That’s because he moved into one of the bedrooms and rented the other three to friends – with whom he was candid about the arrangement – whose combined rents paid the full payment. mortgage, and more. Chang, who is now 42, said it was a win-win because he was able to offer them relatively cheap rent.
This was Chang’s first experience with “home hacking” – bringing multiple parties to life in a rental property – a strategy that would inform the rest of his real estate investing journey and help him scale his portfolio.
After living for a few years at his first property in Austin, Chang began working in the tech industry in San Francisco. After buying his first property, he started diligently saving money to move into other properties.
With his W-2 income, as well as the income he received from his four unit property in Austin, he was able to purchase two other properties in the Austin area (one with four units), as well as one in Fort Worth. In addition to the appreciation in property values, rental prices have also risen over the years, increasing Chang’s free cash flow.
Fast forward to 2019, Chang and his wife were looking to buy a property in San Francisco to live there. Instead of buying a one-unit condo, they were able to buy a large, multi-million dollar house in the famous Alamo Square neighborhood because they hacked the house into four different units. This allowed them to live in their accommodation for free, as the other tenants covered the mortgage payment.
“I was sort of looking at him, and I was like, ‘oh man, that would be so cool if I could afford something like that. “And I started doing the math, and then I talked to a mortgage specialist, and he was basically like, ‘If you rent out some of these properties, you can use that income against your W-2 money, Add them up and pool them, and you can afford to buy this multi-million dollar property, ”Chang told Insider on Monday.
“And that was a huge surprise for me,” Chang continued. “This is something I don’t think everyone knows about. You can hack your way even into large estates and multi-million dollar estates.”
In other words, Chang was able to qualify for such a large mortgage because he was able to show his plans to divide the house into units.
Chang and his wife have since moved out of the property and rented out their accommodation, further increasing their excess cash flow.
Chang’s 11-unit portfolio now generates more than $ 160,000 in free cash flow per year, according to internal records seen by Insider.
Why you shouldn’t be afraid of leverage – and how to use it
Some warn against building up too large a portfolio of properties. If an economic downturn hits, you could lose tenants and rents could go down, and you’ll be stuck with the mortgage payment bill, the argument goes.
But Chang, who recently co-founded a real estate company called Awning, doesn’t see it that way. While he said there are currently bad investment properties on the market with prices that have skyrocketed, investors should be well positioned as long as the properties are in areas of growing population and with high levels of population. good measures of supply and demand.
He cited Austin as an example.
“Even if you lead to this madness [in terms of soaring home prices] happening in Austin, there was a reason for it. It’s not only that Austin is a cool city … but there has been significant job growth, “Chang said.” Tesla was there before Elon. [Musk] even said he was going to move there. Apple had already built this incredible campus. “
He also said not to focus on cash flow at first, but rather on building equity and scaling up.
For example, Chang advised potential investors who have saved a large chunk of the money not to invest as much as they can in a down payment in order to maximize their cash flow. Instead, they should spread it over multiple down payments for different properties, he said.
“Rather than putting in as much money as possible, it’s good to be able to go into debt,” he said. “As long as the rents can get closer or cover the mortgage, it’s basically a free home after that. And then the rental income will go up, and that’s where your positive cash flow will start to happen. “
Once this cash flow increases, it will allow the investor to grow further as their income will be higher. The accumulated equity also enables options such as cash refinancing to buy more homes, also known as the BRRRR (buy, rehabilitate, rent, refinance, repeat) strategy.
Having more assets also allows for better business in terms of insurance rates, contractors and property management fees, he said.
“At the end of the day, if you’re able to leverage your portfolio, your assets, that’s how you start to see even more exponential growth,” he said. “But all of this can’t happen unless you start leveraging your time, resources, and money as well.”