Real estate is a great investment. This is what I tell everyone. It can be difficult to get started.
Eight years as a real-estate investor, I have learned that small steps are the best way to go. At 23 years old, I started investing to earn a little extra money in addition to my engineering salary. I had one or two rental properties.
Today, I have 61 rental units which last year brought in $431,000 in rental income. Roofstock Academy is also my real estate coaching. My wife and I reside in a converted van, which I use as my office. We live in our California duplex when we aren’t traveling the U.S. with our van.
After I pay my mortgages, property taxes and property management fees, I make about $6,000 per monthly in passive income from my real-estate portfolio.
Since 2019, I have been investing the money in a redevelopment project, converting eight units into 17 and living off my full time coaching salary.
How I bought my first property in real estate
2013 was my first year of college. I worked as a fire prevention engineer, earning $73,000 per annum.
My goal was to save money for investment properties. I lived very low. To rent an apartment with my roommates, I paid $800 per monthly. My employer paid for essential expenses such as my car and cell phone bills. This allowed me to save even more each month.
2014 was my first real estate purchase. I used $40,000 of cash I had saved and sold $20,000 of stocks to buy a $295,000 single family home in Southern California. To cover the rest of the cost, I borrowed from the bank but I was able to get a loan from a relative.
It was vacant for two months until I rented it. However, it did not need any renovations. My monthly rent of $1,810 from my tenant enabled me to pay the monthly loan payments and manage the property.
My real estate portfolio is growing
In 2016, I owned three houses. My second purchase was financed by a traditional bank loan. The third house I purchased was purchased with a $250,000 loan from my family member at a fixed rate of 4% for 30 years.
In total, I earned $51,404 in rental income from all three properties that year. While most of it went to mortgage, maintenance, and property management costs, I also took home $1,800 per monthly.
2017 was a year that I increased my savings in order to buy more real estate. I found a cheaper apartment to share with my roommates and I invested the savings and the money I made from real estate in the stock market as well as my investment accounts.
I began to look outside of California after I realized how far each dollar could go in the right markets, where cash flow was high but buying prices were low. I purchased the best multi-unit properties in the Midwest (mainly Ohio and Kentucky) and then fixed them up.
To make this happen from afar I established relationships with agents and property managers in these markets so that I would have a team to help me find the best properties and take care my tenants.
My fees average 7% of my gross rental income per property, but can go up to 20% if I’m working with family-owned management companies.
How to get started in real estate investing
I am very fortunate to be able to travel the country as a coach and work a regular 9-to-5 job. I also earn passive income from my real estate investments.
If you have enough money to save and are willing to look around, investing in real estate can give you a competitive edge — even in this era of high home prices.
Here is my top tip:
1. Start small with a well-researched strategy
My investment strategy is “BRRRRR”: Buy, Rehab, Rent, Refinance, Repeat.
I purchase homes in areas where units rent for more than their monthly mortgage payments. They are then renovated and rented out to pay the mortgage payment or to invest in other properties.
It is important to understand the basics of each strategy in order to determine which one works for you. There are many resources, including podcasts, such as my podcast, The Remote Real Estate Investor, and online courses.
To learn more about the strategies of other investors, you can reach out on forums such as BiggerPockets.
Many people wonder about their return on investment goals. People should compare the total returns they get from real estate (calculate it by adding cash flow and appreciation, loan payments, tax benefits, and tax benefits) with the returns they could be receiving in other investment vehicles.
Choose a number that is most comfortable for you. Don’t compare yourself with anyone else.
2. My method is designed to make it as easy as possible for you to accomplish your goals.
I feel comfortable buying something if it is easy to do and that the property won’t require too much management.
Even though this may mean lower profit margins upfront, it allows me to simplify my lifestyle and use most of my real estate portfolio for a passive income stream. Once you have completed the purchase and fixed the property, you will reap the benefits for as long as the property is yours.
My main goal with my real estate portfolio, is to be financially independent at 100%, or to pay all of my expenses, even future expenses.
3. To increase property value, you don’t necessarily need to do a complete renovation
You have two options to increase the value of your property: Maximize profits or maximize returns, or minimize expenses.
My portfolio has seen me spend approximately $2.5 million on renovations so far. I have tried to maximize every dollar. A few simple upgrades, such as stainless steel appliances and laundry rooms, can increase the rental value.
You can increase the value of your property by buying in favorable markets.
4. Local property professionals are available
In the markets that I invest, I work with mom-and-pop local property management businesses.
I was able to build a portfolio of properties in the Midwest, while still living in California. Now, I can travel and generate income from my properties. My agent can let me view houses via FaceTime and I can rely on trusted contractors for renovations. It is up to my property manager to find responsible tenants.
You can connect with experts in your market using online platforms such as All Property Management and get recommendations from your network and peers.
Michael Albaum is a real estate investor and Head Coach of Roofstock Academy. Follow him on Twitter @MichaelAlbaum.
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