Real Estate Investing Basics

3 Investing Strategies to Earn $5,000+ a Month in Passive Income

Expertise: Personal Development, Business Management, Real Estate Investing Basics, Landlording & Rental Properties, Personal Finance, Flipping Houses
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closeup of human hand with key dropping key into another person's open palm in front of a house

When my business partner and I started our company, I sat in the sales seat and had the privilege of talking with all our clients about investing, real estate, and their life goals. Recently, I got to take a nostalgic trip back into that seat for a short period of time and found that many of the conversations are still the same. Investors all over the world are interested in real estate as an avenue for bringing in passive income. Specifically, it's not uncommon to hear an investor say they have a goal to bring in a specific amount of passive income per month around the $5,000 or $10,000 range.

I love this goal. And I love that real estate has a track record of helping people achieve these goals.

But people often go into this type of investing with a fantasy about how much cash flow they can actually get and the timeline it will take to get it. Buying four or five houses—unless you own them free and clear, so they’re producing significant rental income—will not make you $5,000 in passive income.

Real estate investing is not a sprint, it’s a marathon. The very best investors I know—and we do this ourselves in our company—utilize all the best components of the real estate strategy together:

  • Buy a property that makes financial sense underwritten to today’s conditions.
  • Have a tenant whose monthly payments are at or above the mortgage.
  • Do all of this well, with a plan, over time.

If you want to get down to the brass tacks of the thing, here are three actual plans for adding $5,000 per month in passive income through real estate.

Related: The Truth About Active Income vs. Passive Income

Investment Strategy #1: Buy a Few, Pay Them Off

Ideal for: Someone who has $50,000 to $60,000 per year to invest. They want to own it, they want the tax benefit, they want the control.

Using this strategy, an investor will buy and hold the least number of properties possible and have an aggressive principal paydown approach. The investor would want to acquire the properties as quickly as possible, and then the question becomes how much additional principal they can pay down over time.

If you put 20 percent down in a 20-year amortization in the current interest rate climate, you can average three percent of the paydown per year, so that's 15 percent over five years. In this example, you could continue to buy.

Let's use 10 houses as an example. You buy two houses per year, and you'll own every house in five years. In five years, those first two houses are at 50 percent loan-to-value (LTV). You can look back at which one is the lowest-performing property and sell that one off. Take your available cash remaining from the sale of that property and pay it down on the lowest principal balance. Then, you can quickly pay down to a low LTV ratio.

Soon, you'll start to have some paid-off properties. In the short-term, you have the tax advantages of depreciation and the cash flow benefits of rental properties. As you pay them off, you won’t have the benefit of the interest to write off. It’s the most conservative. It’s the safest. Even with a 30 to 40 percent expense ratio, you could still be making more than $5,000 per month in cash flow on ten $100,000 houses.

Passive Real Estate Investing

Ideal for: An investor who has a good amount of money in an IRA that they can deploy or an investor with a higher income who wants to diversify.

With this approach, an investor would invest in syndications, real estate investment trust, or apartment buildings that are totally passive. People can do this, especially people who are higher income earners. It’s a perfect option for those who don’t want to solve the problems of an individual asset.

Say, for example, you had an upfront investment of $100,000 by using your IRA. If you invested $50,000, you’d make about $1,250 in passive income per quarter. Once that property is totally stabilized and refinanced, you can typically expect to make an additional percentage return on your investment until that property is sold.

Although it’s not hitting your $5,000 per month in cash flow immediately, as you do those syndications, they do snowball over time. So, I can take my initial $50,000 investment and the $5,000 I made that year in passive income and keep rolling the interest into the deal. Though the initial return was only one-tenth of the goal for passive income, using this strategy over 10 years could literally mean $10,000 per month in passive income.

If you're a super saver or you have a high net worth, this could absolutely be a great option. The only downside is if the general partner who manages the syndication decides to sell, you're not really in control of that decision.

You would have whatever gain is built into the deal (make sure to underwrite every deal specifically), but you wouldn't have control. You also don't have the same tax benefits as owning individual real estate investments, of course. So, there are definitely elements to consider here.

Related: Mastering Turnkey Real Estate: How to Build a Passive Portfolio

Cheerful couple receiving keys to their new home

Investment Property Scaling with Turnkey or BRRRR

Ideal for: Real estate investors who are more active in their investing or who have their own team and understands the risks associated with this strategy.

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In this example, you can acquire three, four, or five properties in a year, so you really start building up and seeing more significant cash flow in a shorter term. You're also spending less time in paydown mode and more in growth mode from a position of number of doors. BRRRR is one popular way to achieve passive rental income.

In this case, an investor can scale more on the cash flow side because there are more doors. If you have 30 to 40 doors making $150 to $200 per month, then you can have cash flow that gets you to that $5,000 per month—an excellent passive income stream. You are at a higher leverage, but you can apply the same idea of taking the one or two lowest performers and selling them, and then paying off the others or using those to purchase more doors for additional income.

To minimize the time you spend managing and searching for rental real estate, considering hiring a property manager or a property management company. They can handle things like listing your properties and turning them over between tenants. Your real estate agent can also help you scope out potential investment opportunities. After all, growing your taxable income with this strategy will require regularly purchasing new income properties.

So What Are the Best Passive Income Investments?

What does this look like for you? I’d highly recommend you assess the following three things:

  1. How much capital you bring in each year
  2. Your risk tolerance
  3. Your capacity (how much time, energy, and effort you can commit)

You should also pay close attention to your real estate market and discuss your strategy with your real estate agent. They'll have a good idea what strategies lead to long-term wealth in your metropolitan area.

Next, make sure you have a clearly defined goal and be honest with yourself about how badly you want to get to that goal.

We all know people who over a few years have acquired incredible portfolios, and we also know people who are still underwriting one or two opportunities months after being presented the deal. Everyone has different ideas of what they want their portfolio to look like, but no matter what that is, this fact is true: The clearer the vision, the clearer the outcome, the clearer the path to get there.

I tell my team this all the time. There are two things you can’t get back: time and experience. Don’t let those two things go to waste in your life. Make a plan. Outline the steps. And get after it. It’s time for action.

Related: A Slow, Boring, Incredibly Awesome Strategy for Building Wealth Through Passive Real Estate Investing

What approaches have you found the most effective on your investing journey?

Share your story in the comments.

Nathan Brooks is the co-founder and CEO of Bridge Turnkey Investments, a Kansas City-based company renovating and selling more than 100 turnkey prop...
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    Charles A. Rental Property Investor from Jacksonville, FL
    Replied about 2 months ago
    Loss of control is one big reason we are all here rather than in the stock market. So I've really been puzzled by all the marketing that has blitzed investors on the syndication front. Many of the syndicated deals over the past 24 months are going to end in tears. I hate to break it to folks, And I am no alarmist. Many of us who have 10 year or more experience in RE watched these "baby syndicators" practically ask their first rookie questions on BP forums in mid 2018 only for them to attend some fancy syndication boot camp months later and then (bingo!),I start hearing them on some podcast talking about "raising $24 million" and "owning" 500 units in an environment of plunging cap rates and historically low interest rates. There is no better way to break it to you. If you're too busy to pay attention to your own investment,it may be better to not invest it at all.
    Tom Harrington Investor from Philadelphia PA
    Replied about 2 months ago
    Charles, very interesting perspective! I too am curious to see how some of these newer syndicates will fare going forward. Previously, I worked for a large iBuyer, managing a portfolio of SFR homes in Orlando. I have also spoken with and interviewed with several, quickly growing R.E. syndications with lots of private equity backing. Although I do believe that the iBuyer model will likely prove to be somewhat sustainable, I question the viability of some of these larger syndicates. I guess time will tell!
    Beau Parenteau New to Real Estate from Denver
    Replied about 2 months ago
    The BRRRR method sounds awesome. I've been able to pick myself up from homeless, through rehab, to employment, and invested in the stock market a few thousand; however, I'm digging myself out of about 25k in debt. While it's not exactly the ends of ends, an income of 47k yr/ makes that a difficult figure. To pursue a strategy such as the BRRRR, it would be my understanding that one needs considerable personal credit to achieve the lending partners to engage in this activity. While my current plan is to use leverage available to me through options trading to create cash flow and chip away at the debt to position myself to practice the BRRR methods. The be honest, I'm throwing this out there as a line for any suggestions. Real Estate is something I very much desire to have as a part of my overall portfolio, but I'm getting hung up on this credit thing. I feel there is a way to appease the appropriate parties, I just haven't figured it out yet. I read a quote recently "Take your ten year plan and try to get it done in six months. You will be much farther along than if you hadn't." I've been given it 100 towards that since I read it.
    Kimberly Vallance
    Replied about 2 months ago
    @Beau Parenteau, Research bird-dogging or wholesaling. They are two strategies for someone new to real estate to get some results without having to get a mortgage or lots of cash. You find the deals, get them under contract, then sell the contract to an investor at a price higher than you contracted for originally.
    Paul Schu Rental Property Investor from NC, IL
    Replied about 2 months ago
    “ If you invested $50,000, you’d make about $1,250 in passive income per quarter.” Where are these deals? I have looked at and invested in all different types of these but I have not seen any returns this high in a while.
    Colan Scheidenhelm
    Replied about 2 months ago
    We found a duplex in Cleveland that is cash flowing $800/month right off the bat. $37,500 down. This is also with a property manager fee at 10%. The deals are out there, you simply have to find them. Like others said, cities in the midwest. Kansas City, Cleveland, Columbus, Lincoln, Omaha. It takes time to find them, and help from realtors, but I found the Cleveland property here on BP with the help of a guy that was simply looking to sell and re-invest in another venture. Post in here telling people what you are looking for. Start talking to people about your RE goals and dreams. Simply think outside the box and make it happen! Of course, Do your own research, and make sure that you are comfortable with what you are buying. And if someone is offering you too much of a return that seems to good to be true, think hard about it..
    Justin M Christian Software Engineer / Real Estate Investor from Kansas City, Missouri
    Replied about 2 months ago
    We bought our primary residence as a temporary home in Kansas City. No major remodel needed to be done and we put 20% down with a $35,000 down payment. We're getting ready to move and rent out and will make $1700/mo in rent with ~$1150/mo in expenses. There are a plenty of deals here in the Midwest even better than the one described. In my perspective, $50,000 invested is too high for that return in the midwest. But Nathan and his team buy and renovate a ton of properties, so they are looking for consistent good deals rather than only focusing on grand slams.
    Amber Hackler from Saint Petersburg, Florida
    Replied about 2 months ago
    In the Midwest more than likely, investing in a duplex, triplex or 3 single small lil homes
    Wenda Kennedy JD from Nikiski, Alaska
    Replied about 2 months ago
    In my experience, it takes a LONG time, a lot of work, and careful planning to get there. And making sure that the properties are free and clear is one of the most important issues in order to really retire. But, it can be done by those of us who have a lot of grit.
    Jordan R McKell
    Replied about 2 months ago
    What does one do like me that doesn’t have an income at 60 years old and zero debt. I can’t qualify for any home loans without an income.
    Ryan Howell Rental Property Investor from Hendersonville, NC
    Replied about 2 months ago
    Never say "I can't" - instead "how can I get a loan without any income?"...then your brain starts trying to solve the problem instead of brushing it off. Potential ideas: -There are lenders that will lend on the debt service coverage ratio of the property irregardless of your income -do you have a personal residence with equity where you can sell or do a HELOC? -401k loan? -utilize a self-directed IRA to invest -find a partner at a local meetup - you bring the deal / he brings the funds Good luck!
    Kimberly Vallance
    Replied about 2 months ago
    @Ryan Howell, great response, Ryan! changing your thought patterns using 'how can I' really does make a difference! Suddenly a whole bunch of opportunities open up!
    David A.
    Replied about 2 months ago
    Like the opportunity to end up homeless by borrowing against his personal residence to dabble in REI- during a pandemic, with sky high property values in a seller market. That's a great opportunity. He's only 60 and already told you he has no income, so I'm sure he can bounce right back if his first venture goes to shit.
    Charles Maples from Olathe, Kansas
    Replied about 2 months ago
    Once again some good RE investing tips.
    Tomas Barrios
    Replied about 2 months ago
    Does anyone have more information about passive buying? It does sound interesting, however the process seems to be oversimplified in the post. My goal is to do between option 1 and option 2. To generate great passive investments.
    Sunshine V.
    Replied about 2 months ago
    I like idea #1 but by my calculations, after 5 years, the first 2 houses are at 35% LTV, not 50%. Am I missing something? It seems like you would have to pay them down at closer to 5% per year to get closer to that 50% mark in 5 years. Then if you use one to pay off another you would end up with 5 houses in 10 years. You could also just refinance certain properties, perhaps the ones that appreciated the most in 5 years and use that money to pay off the others while still holding those fully financed properties- thus pulling out tax free money and avoiding capital gains at the same time. Or perhaps sell 2 properties and rolling the profit into another property with a 1031 to avoid capital gains as well (not sure if you can roll 2 properties into 1 with 1031 though).