Letizia Alto and Kenji Asakura’s Real Estate Journey

Letizia Alto and Kenji Asakura have successfully created a substantial portfolio of rental properties that generate steady cash flow. They both worked long hours at the hospital, totalizing up to 80 hours weekly, with a vision for a different lifestyle in the future.

“Right after we got married in 2015, we set clear cash flow goals,” said Alto. “We aimed to replace both of our incomes from clinical work within seven years. It’s all about having more time together and for our kids. We observed many doctors around us leaving the field, and that motivated us.”

To kick things off, they used savings from buying their first house to invest in their initial two rental properties. Over the years, their investments grew, reaching over 100 units, but they lived in those properties themselves until 2022. When they relocated to Puerto Rico, they finally purchased a home, focusing on portfolio management and enjoying life with their three children.

“What sets us apart is how we apply business principles to our rental operations,” Asakura shared. “Many people don’t view rental properties as businesses; they merely see them as housing solutions. But, really, each property operates like a small business.”

Alto stated, “There are six key avenues for making money in real estate.”

1. Cash Flow

Investing in rental properties allows for cash flow generation, which is crucial as it considers all expenses against rental income. For Alto and Asakura, achieving positive cash flow is a top priority.

They utilize a cash-on-cash calculator, which helps them analyze various metrics such as the purchase price and expected rent. Before making any purchases, they thoroughly assess the potential returns twice. Initially, they determine if an offer is worth making, and once under contract, they conduct a detailed review with an inspector, real estate manager, agent, contractor, and insurance broker. This multi-faceted approach helps refine their estimates of the costs involved.

“I used to think I had everything figured out until I realized due diligence was more complicated than I anticipated,” Alto remarks. “We often negotiate or seek credits to ensure the deal aligns with our cash-on-cash return expectations.”

Ultimately, if a deal doesn’t make financial sense, they simply won’t proceed. “We avoid properties that don’t provide cash flow,” said Alto. “That income is what will truly grant us freedom.”

2. Debt Payment

Each mortgage payment contributes to equity, allowing the couple to build their ownership stake over time. The advantage is that the tenant’s rent effectively pays off the mortgage.

“When you’re generating cash flow, your tenant is essentially covering your mortgage,” Alto explained.

3. Forced Appreciation

Alto and Asakura often work to increase the value of their properties. This ‘forced appreciation’ occurs by boosting net operating income (NOI) either by increasing revenue or reducing costs.

For instance, they look to raise rents when they’re below market rates or get creative by renting out unused space, like storage units. “Finding hidden value is essential for us,” remarked Asakura. “We might convert a garage into a workspace or add more bedrooms.”

In terms of cost-cutting, they’ve implemented strategies like billing utilities for separate spaces to enhance profitability. By closely managing income and costs, they significantly improve cash flow, which makes the properties more appealing to potential buyers, according to Alto.

4. Immediate Appreciation

Immediate appreciation happens when investors realize value from properties almost right away. This is about acting fast on great deals, negotiating effectively, and utilizing a robust network to discover opportunities out of the typical market.

5. Market Conditions

Being at the mercy of the market is a lesson Asakura learned from his earlier investments. He bought land in hopes of rising values, which worked until the market crash in 2008, leading to unmanageable expenses and property taxes. “It taught me the importance of not depending solely on market valuations,” he said.

“Purchasing property in areas with potential development can lead to better appreciation,” Alto noted, though he cautioned that market control remains elusive.

6. Tax Advantages

A significant aspect of their success revolves around leveraging tax incentives available for real estate investors. Initially, large tax refunds helped them acquire more properties.

“The tax system is designed to encourage certain actions,” Asakura pointed out. Understanding how to navigate this system is instrumental for them.

The primary strategy they employ is claiming ‘real estate professional status,’ which permits them to offset their W2 income with losses from rental properties if they meet specific IRS conditions. Since Asakura shifted to part-time work in 2015, it allowed her to qualify as the professional, enabling Alto to keep taking deductions from their clinical income.

“For our first year qualifying, we focused on renovations to generate losses effectively,” Alto added, noting that improvements often raise property values and cash flows, creating a beneficial cycle.