Want to Cover Your Living Expenses With Passive Income? Here’s What You Should Know.
As we have continued to build and scale our business, I have been amazed at the number of people from within our market (and all over the United States) who have come to us looking for the same thing. I hear this story in a myriad of fashions, words, and specifics at least 2-3 times a week.
“I live in ________ city and work a great full-time job. My [wife/husband/spouse/partner] works as well, and we would like to be able to get him/her working from and eventually cover their income with passive income. Eventually, I’d like to work less or quit my job as well.”
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Yes, the passive income. I love it.
This week my partner and I have spent a lot of time chatting with new investors looking for great deals, and I think a few things have really stood out to me in those conversations. There are so many different ways to get the passive income you want and ways to buy those assets that achieve it. Here are a few things we talk about all the time as you are approaching your thought process to build that stream of income.
Have a Game Plan
You want passive income? Great. Now what?
Is this to replace X dollars a month? If so, how much? Do you need $50k a year job? That’s roughly $4k a month in passive income, so how many properties do we need? If we are getting $150-200 a month per property after actual expenses, cap ex, mortgage, etc., then we would need to have 20-30 properties.
If we want to have $4k a month in income and 20-30 properties, then HOW do we do that? What is our timeframe? How willing to sacrifice our current situation are we to save and put dollars into deals versus meals, heels, or wheels? (Don’t you like how all those cool things came together there?)
No matter how much you want to know everything today, you can’t. I have been in the real estate business for well over 10 years, done hundreds of deals and millions and millions of dollars of transactions, and I STILL learn something every day. Every day.
So if you want to be in real estate, read. Listen to the BiggerPockets Podcast. Get a mentor or coach. Learn. Chat with your friends who do real estate. Call your local trusted real estate agent. Join a local real estate investors association. Do SOMETHING. Learn and learn more.
Now, learning also has a few facets. If you want to go and buy a fixer house and rehab it yourself, then you should chat with others who are doing that. If you want to buy an apartment building, then go chat up the commercial real estate guys or investors who own them. Just because your neighbor is a real estate agent or owns a couple rental houses doesn't make them an expert. Seek out the people who are actively doing what YOU want to do (and doing it well, several levels ahead of where you are or want to be).
Take Massive Action
There is still nothing, in my mind anyway, that replaces the action. If you want to cover that $4k a month in income, how badly do you want it? Enough to give up your Starbucks? Or your luxury car lease? Or the bigger home you have wanted? Or an extra family vacation?
It’s all choices. Choices we decide to do or not do. Do you give up this one thing here to have what you want over there?
And another thing — taking massive action doesn’t mean that you get to buy all 20-30 properties this year. I mean, if you are sitting on a bunch of cash, maybe you can. Or if you want to just go bootstrap deals, get funding, and put them together yourself, you might be able to do that, too. It’s not impossible to scale up pretty quickly. But if you do want to scale on that kind of short timetable, you don’t want to be doing and learning at the same time.
Bring in the Right People
I love working with my partner. He is awesome, smart, and funny. And there is a great balance between his skills and mine. If you aren’t actively working in real estate or your skill set and education don’t match with what it is you want to accomplish, then bring in the right people to help you.
That might mean you can rehab the houses, but you bring in a great property manager. Or you might have no idea how to rehab a house, so you bring in a great contractor. Or you know how to rehab, but are terrible with colors, layout, and design, so you bring in a great designer or architect.
I have ALL of these folks on my cell-phone Rolodex. I have to. There are always things I encounter that I don’t know or am not sure about. And when that happens, I call the people who can help me.
Set Realistic Expectations
So you want the best schools, with the best neighborhoods, with $50k in equity, 70% LTV all-in, and $400 a month cash flow. Good luck! I’d love to buy that deal. As a matter of fact, I’d like to buy a whole bunch of those.
As a matter of fact, I have bought one this past year. One. Out of 60.
Believe me, I’d love to buy another 10, or 20, or 100 of those. But they are hard to find.
Make sure you understand what you are asking for and how you can get it. If you want to find a deal like that, you likely need to have the ability to buy with cash, do a large rehab, and be prepared to find the deal on or off the market with a wholesaler or via the MLS.
But if you are an out-of-state investor and are buying turnkey properties, these deals just aren’t there. Know what kind of average ROI and cash flow numbers a market has and what kind of returns are realistic for your investment.
Real estate is an amazing tool. It harnesses all kinds of tax advantages. It offers passive income, is a tangible asset, and is something humans have a basic need for. It’s an incredible way to build wealth and income at the same time.
Do your homework. Dig in. Prepare. Save. Learn. Execute. Repeat. Learn. Change. And have fun doing it.
Investors: What advice would you give someone who wants to live off of passive income? Or if you aren’t there yet, what questions do you have for more experienced investors?
Leave all your comments below!