There are a lot of ways to make side-income in the modern world, and rental property is – how do you say – a classic.
For many, it may seem daunting or scary, but it’s easier than ever to own and rent-out property. Technology has made researching, acquiring, and advertising real estate more streamlined and more transparent than ever. Here at OnTrajectory, we asked a few real-world real estate investors to talk about their own experiences – and they’ve been kind enough to share tips to help you get started!
“Like most people, I fell into real estate investing on accident. I bought a condo that I could afford, which was really ugly. I wanted it to look nicer, so I made a bunch of cosmetic changes, and sold it for 50% more than I bought it for,” explains Mindy Jenson of Bigger Pockets. “I was hooked! I\’ve done this manner of investing multiple times since, and eventually got a job at BiggerPockets.com based on my experience investing. This led to a partnership with other investors met through the site, and I now own a 46-unit Mobile Home Park in Maine.”
“I bought my first property when I was 24 years old using an FHA loan that required a 3.5% down-payment,” Says blogger Guy on Fire. “The house had 3 bedrooms, 2 bathrooms, and was located in a working-class neighborhood. There was nothing fancy about the place. I was [house hacking] by living in one room and rented the other two rooms. The rents from my roommates/tenants covered most of my mortgage. This allowed me to save a large portion of my income.”
Since then, Guy on FIRE has expanded the amount of properties he owns.
“I have 4 properties (7 units). Combined, all of my units rent for $13,425 a month. The cash flow after expenses and the mortgage is great. I publish a monthly report, The Landlord Report, which provides a summary of my rental property portfolio and what it\’s like being a landlord. The report can be found on the real estate corner section of my site.”
Another investor, Coach Carson, started investing in properties right after getting his degree: “I got started finding deals for other investors. I was fresh out of college with little money and no experience. But I had no student debt (thanks to a football scholarship!), so I was flexible enough to take a chance as an entrepreneur. I used my energy and free time to make up for my many other deficiencies.”
It can be a lot of work to get started, but once you get comfortable you can make some great deals. Coach Carson has made a few: “Well into my real estate career, I bought two beautiful old duplexes in a great location. After some repairs, the price has almost doubled in value and it cash flows extremely well. It\’s a long-term keeper!”
Mindy Jenson has also made some big wins in her time as a real estate investor. Her biggest? “Definitely the Mobile Home Park. We purchased it for almost what the land beneath it is worth. It is about half tenant-owned homes and half park owned homes, and we\’re transitioning the park-owned homes to be tenant-owned, which will provide significant cashflow with very little work once we have completed the transition.”
Investing in real estate can have a huge impact on your net worth, and can be fantastic step on your road to financial independence. As Guy on FIRE says, “Eliminating my housing expense by house hacking allowed me to save and invest regularly, real estate offers one of the fastest ways to financial independence thanks to leverage and mostly passive cash flow. I will have the flexibility to leave my job by the time I turn 30.”
Carson is also proud of the benefits he’s gotten from real estate investing: “Rental income has made my own financial independence possible. More importantly, it\’s allowed me and my family to do what matters to us. For example, we just returned from 17 months living abroad in Cuenca, Ecuador. Rental income back in the U.S. paid all the bills!”
Jensen was enthusiastic about the impact real estate has had on her journey, as well: “The proceeds go directly back into our 401(k) and will provide almost 100% of our monthly retirement fund needs. We were already at FI when we bought the park, so it didn\’t help us on our journey, but it is an extra layer of security for retirement.”
Maybe reading this has made you hotly interested in trying out real estate management for yourself. Well here’s some advice from the seasoned pros : “Do your research, run your numbers, and if a property doesn\’t work, don\’t force it. Not every property is a good deal and some properties don\’t make sense at any price,” advises Jensen. “Do some research before you jump in with both feet. Know what makes a property a good rental and what doesn\’t, create a set of criteria for your investments and don\’t try to make a house fit into your mold. You will find a property that does fit.”
“Save early and often. Keep your expenses low and live like a college student for as long as possible. Find a mentor or other individuals investing in real estate. Offer to buy them a cup of coffee or lunch. Be a sponge and learn as much as possible,” suggests Guy on FIRE.
“Be patient,” says Carson. “Rental properties start off more like a business than an investment. At first, you may invest a lot of time and money and get little in return. But after a few years, rentals become much more passive and pay well. Stick with it!”
And if you do decide to add rental income to your financial plan, OnTrajectory can help you model that plan! Below are 3 examples of what you could do with the extra income a rental could generate. These are based on the purchase of a property with the following characteristics:
- $20k down and a $100k 30-year mortgage @ 5%
- Property Taxes: $800/year
- Maintenance & Insurance: $100/month
- Rental Income: $1000/month
- Property Value Increase: 4%/year
1. Saving for Large Purchase
If you saved the income until age 45 (about $70k) – then spent it at age 46, thereafter stashing the rental income into a mutual fund account @ 5%, the final result is $71,861 at age 90 (including all your other income and living expenses).
Should you simply place the income into a money market account @ 5%, the final result is $202,116.
3. Roth IRA Account
Maxing out a Roth at $5,500/year and placing the excess $6,500 into a money market account, the final result: $581,441.
Now here is the most surprising model of all. What if you did nothing at all, and choose not to make the investment. Given the income and living expenses used in all of these scenarios, the result would be a deficit of $22,283!
Of course, no model is perfect — but no matter what you decide to do, OnTrajectory is here to help you model all of your potential futures!
Mindy Jensen is a Community Manager at https://www.biggerpockets.com/ .
More from Guy on FIRE can be found at https://guyonfire.us/.
You can find more from Coach Carson at https://www.coachcarson.com/. His new book, Retire Early With Real Estate will be released August 23rd, 2018.