{"id":109989,"date":"2019-04-23T11:30:25","date_gmt":"2019-04-23T17:30:25","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=109989"},"modified":"2024-02-19T14:50:45","modified_gmt":"2024-02-19T21:50:45","slug":"rental-investing-earn-2000-month","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/rental-investing-earn-2000-month","title":{"rendered":"How to Earn $2,000 Per Month Through Real Estate Investing"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\"><span style=\"font-weight: 400;\">What could having an extra $2,000 per month do for you? &nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-weight: 400;\">Pay down bills? Build up savings? Take more trips? Or maybe start down <a href=\"https:\/\/www.biggerpockets.com\/blog\/3-steps-financial-freedom\" target=\"_blank\">the path of financial freedom<\/a>?<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-weight: 400;\">Have you considered using <a href=\"https:\/\/www.biggerpockets.com\/blog\/how-to-rent-your-house\" target=\"_blank\">rental properties<\/a> as a way to get there?<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\">How to Build Passive Income With Rentals<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-weight: 400;\">Many who are starting out with rentals seem to get the broad concepts but don\u2019t quite understand how to reverse engineer replacing a set dollar amount of income. &nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-weight: 400;\">I\u2019ll take you through three ways to build passive income with rentals, showing you all the numbers and demystifying how to piece it all together.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-weight: 400;\">In the following examples, we&#8217;ll assume your goal is to build a rental portfolio of $100K homes that cash flows $2,000 a month. &nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-weight: 400;\">Why? Because the math is easy, and this is a real everyday situation in 2019 for many investors. My portfolio, for instance, is made up of homes just like these.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Buying Rentals With Conventional Lending<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-weight: 400;\">In this scenario, we will purchase a $100K home using conventional financing. We&#8217;ll assume that we are bringing a down payment of 20 percent and the interest rate is 5.5 percent (although the rate may differ depending on your creditworthiness). &nbsp;&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Here are the numbers <\/strong>(feel free to use the <a href=\"https:\/\/www.biggerpockets.com\/real-estate-investment-calculator\" target=\"_blank\" rel=\"noopener noreferrer\">BiggerPockets calculators<\/a>)<strong>:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><span style=\"font-weight: 400;\">$100,000 purchase with 80% LTV ($80K loan)<\/span><\/li><li><span style=\"font-weight: 400;\">$20K down (For ease, let\u2019s not calculate in closing costs, though you must when you are running your full models.)<\/span><\/li><li><span style=\"font-weight: 400;\">$1,000 for rent (Hitting that 1% rule!)<\/span><\/li><li><span style=\"font-weight: 400;\">$455 for principal and interest<\/span><\/li><li><span style=\"font-weight: 400;\">$65\/mo for taxes and $50\/mo for insurance (Realistically, this will vary.)<\/span><\/li><li><span style=\"font-weight: 400;\">$80\/mo for property management (I ALWAYS include management even when I self-managed because you never know when you may need it!)<\/span><\/li><li><span style=\"font-weight: 400;\">$150\/mo for <a href=\"https:\/\/www.biggerpockets.com\/glossary\/capital-expenditure\" target=\"_blank\" rel=\"noreferrer noopener\">CapEx<\/a>\/maintenance\/vacancy\u00a0 (This number will come from working with your property manager and experience. If you have less than five to 10 homes, estimate on the higher end. For me, I use a standard 15% in my farm area because I know the true vacancy, buy my homes rehabbed, and can keep maintenance low. However, I see many investors \u201cmaking the numbers work\u201d by NOT including enough in this cash reserve area.)<\/span><\/li><li><span style=\"font-weight: 400;\">Free and clear money = $1,000 &#8211; $455 &#8211; $65 &#8211; $50 &#8211; $80 &#8211; $150 = ~$200\/mo<\/span><\/li><li><span style=\"font-weight: 400;\">So how many homes do you need to generate $2,000\/mo or $24K\/yr?<\/span> <ul><li><span style=\"font-weight: 400;\">$2,000 \/ $200 = ~10 homes<\/span><\/li><li><span style=\"font-weight: 400;\">AND you will also save $1,800\/yr per home in reserves, which is $18,000 total per year.<\/span><\/li><li><span style=\"font-weight: 400;\">Note that this income is most likely tax-free as you will have depreciation to offset any income for the first few years.<\/span> <\/li><\/ul><\/li><\/ul>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-weight: 400;\">To take this approach you would need approximately $200,000 to build your portfolio. Maybe this seems daunting to hold 10 homes or to get 10 loans, or maybe even to fund the down payments. But stick with me as we explore other options.<\/span><\/p>\n\n\n\n<figure class=\"wp-block-image\"><img loading=\"lazy\" decoding=\"async\" width=\"702\" height=\"336\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/02\/rental-property-pros.jpg\" alt=\"rental-property-pros\" class=\"wp-image-86212\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/02\/rental-property-pros.jpg 702w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/02\/rental-property-pros-300x144.jpg 300w\" sizes=\"auto, (max-width: 702px) 100vw, 702px\" \/><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\">Buying Rentals With All Cash<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-weight: 400;\">Another way to build your portfolio is to purchase properties in all cash. Personally, I\u2019m not a fan as it locks up your money in an illiquid investment, not allowing you to leverage other people\u2019s money to build wealth. <\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-weight: 400;\">However, I do understand and respect how having a paid-off home feels, and it&#8217;s probably a good strategy the closer you are to retirement.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Here are the numbers for this scenario:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><span style=\"font-weight: 400;\">$100,000 purchase (no loan)<\/span><\/li><li><span style=\"font-weight: 400;\">$1,000 for rent <\/span><\/li><li><span style=\"font-weight: 400;\">$65\/mo for taxes and $50\/mo for insurance<\/span><\/li><li><span style=\"font-weight: 400;\">$80\/mo for property management <\/span><\/li><li><span style=\"font-weight: 400;\">$150\/mo for CapEx \/ maintenance \/ vacancy<\/span><\/li><li><span style=\"font-weight: 400;\">Free and clear money = $1,000 &#8211; $65 &#8211; $50 &#8211; $80 &#8211; $150 = $655\/mo<\/span><\/li><li><span style=\"font-weight: 400;\">So how many homes do you need to generate $2,000\/mo or $24K\/yr in this instance?<\/span> <ul><li><span style=\"font-weight: 400;\">$2,000 \/ $655 = ~3 homes<\/span><\/li><li><span style=\"font-weight: 400;\">And you will also save $1,800\/yr per home in reserves, which is $5,400 total per year.<\/span><\/li><li><span style=\"font-weight: 400;\">Note that this income is most likely NOT all tax-free as depreciation will not cover the entire income. Therefore, you will probably have to pay taxes as well on the income. Boooo!<\/span> <\/li><\/ul><\/li><\/ul>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-weight: 400;\">To take this approach you would need approximately $300,000 to build your portfolio. This equates to fewer<\/span> loans and fewer<span style=\"font-weight: 400;\"> homes to manage but more capital and fewer tax deductions. \u00a0<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-weight: 400;\">Don\u2019t worry\u2014we have more to explore!<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-weight: 400;\">Now, you may be looking at these two methods of how to generate $2,000 per month in income, thinking, where on earth are you going to get $200K to $300K or more?<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Here are a few fund-raising ideas (with no specific recommendations):<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><span style=\"font-weight: 400;\">Save up the down payment from your day gig.<\/span><\/li><li><span style=\"font-weight: 400;\">Start a side gig. (But wait\u2026 wasn\u2019t real estate supposed to be your side gig?!)<\/span><\/li><li><span style=\"font-weight: 400;\">Leverage personal lines of credit.<\/span><\/li><li><span style=\"font-weight: 400;\">Partner up with others.<\/span><\/li><li><span style=\"font-weight: 400;\">Wait for assets to appreciate and refinance.<\/span><\/li><li><span style=\"font-weight: 400;\">Sell your properties and trade up. (I\u2019m selling six of my original properties to capitalize on the appreciation and do it all over again!)<\/span><\/li><li><span style=\"font-weight: 400;\">Play the lottery. (Just seeing if you are still awake!)<\/span><\/li><\/ul>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-weight: 400;\">And those are just a few ways to do it! <\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-weight: 400;\">But I bet if you are like me, you want another way to go about it\u2014one that requires less of your personal capital and that could quite possibly be faster!<\/span><\/p>\n\n\n\n<figure class=\"wp-block-image\"><img loading=\"lazy\" decoding=\"async\" width=\"702\" height=\"336\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2016\/09\/value-adds-rental.jpg\" alt=\"value-adds-rental\" class=\"wp-image-92945\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2016\/09\/value-adds-rental.jpg 702w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2016\/09\/value-adds-rental-300x144.jpg 300w\" sizes=\"auto, (max-width: 702px) 100vw, 702px\" \/><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\">Buying Rentals the BRRRR Way<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-weight: 400;\">This is my all-time favorite strategy!<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-weight: 400;\">Let\u2019s define <a href=\"https:\/\/www.biggerpockets.com\/guides\/brrrr-method\" target=\"_blank\" rel=\"noreferrer noopener\">BRRRR<\/a> first. BRRRR stands for:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Buy <\/span><\/li><li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Rehab<\/span><\/li><li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Rent<\/span><\/li><li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Refinance<\/span><\/li><li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Repeat<\/span><\/li><\/ul>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-weight: 400;\">In this case, we are picking up a $60K home and putting in $15K to rehab it, leaving us in at $75K for a $100K home. <\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-weight: 400;\">If you are just starting out, I highly suggest sticking to cosmetic work (paint, carpet, fixtures) or working with a professional. (Also, check out <a href=\"https:\/\/www.biggerpockets.com\/store\/the-book-on-estimating-rehab-costs-ultimate-new-edition\" target=\"_blank\" rel=\"noopener noreferrer\"><em>The Book on Estimating Rehab Costs <\/em><\/a>by J Scott<\/span>.<span style=\"font-weight: 400;\">)<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-weight: 400;\">In the end, it\u2019s the same $100K home. You are just acquiring it earlier in the process and taking advantage of building value in the home by rehabbing it.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-weight: 400;\">Once you have bought, rehabbed, and rented your property, now it\u2019s time to get your money out and start cash flowing it. &nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-weight: 400;\">For ease, I\u2019ll skip how to <a href=\"https:\/\/www.biggerpockets.com\/blog\/hard-money-private-money-difference\/\" target=\"_blank\" rel=\"noopener noreferrer\">use hard money or private money<\/a> to fund the initial deal and rehab and dive right into what final numbers should look like when you refinance. <\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Here are the numbers (assuming the same conventional 5.5 percent loan in our conventional purchase):<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><span style=\"font-weight: 400;\">$100,000 refinance at 75% LTV ($75K loan)<\/span><\/li><li><span style=\"font-weight: 400;\">$25K down payment (But here\u2019s the kicker: the forced equity in the home becomes the down payment.)<\/span><\/li><li><span style=\"font-weight: 400;\">$1,000 for rent <\/span><\/li><li><span style=\"font-weight: 400;\">$425 for principal and interest<\/span><\/li><li><span style=\"font-weight: 400;\">$65\/mo for taxes and $50\/mo for insurance<\/span><\/li><li><span style=\"font-weight: 400;\">$80\/mo for property management <\/span><\/li><li><span style=\"font-weight: 400;\">$150\/mo for CapEx \/ maintenance \/ vacancy<\/span><\/li><li><span style=\"font-weight: 400;\">Free and clear money = $1,000 &#8211; $425 &#8211; $65 &#8211; $50 &#8211; $80 &#8211; $150 = ~$230\/mo<\/span><\/li><li><span style=\"font-weight: 400;\">So how many homes do you need to generate $2,000\/mo or $24K\/yr?<\/span> <ul><li><span style=\"font-weight: 400;\">$2,000 \/ $230 = ~9 homes <\/span><\/li><li><span style=\"font-weight: 400;\">And you will also have $1,350\/yr per home in reserves, which is $16,200 total per year.<\/span><\/li><li><span style=\"font-weight: 400;\">Note that this income is most likely tax-free, and you will also have depreciation to offset any income for the first few years. (That&#8217;s the beauty of leverage!)<\/span> <\/li><\/ul><\/li><\/ul>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-weight: 400;\">In this scenario, your total monetary investment could realistically be.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-weight: 400;\">Yes, you read that right! <\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-weight: 400;\">If you&#8217;re surprised, that&#8217;s the same reaction I had when I ran this situation past my lender. And it\u2019s totally legit!<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-weight: 400;\">Now, don\u2019t get me wrong, you will need capital to fund your initial deal and rehab. But i<\/span><span style=\"font-weight: 400;\">f you execute this strategy one property at a time, you only need to fund the initial bankroll for purchase. Then, you can use the same funds over and over again to build your empire! (Beg, borrow\u2014but don\u2019t steal!)<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Conclusion<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-weight: 400;\">There are myriad other ways to generate $2,000 per month in passive income, including joint ventures, syndications, notes, crowdfunding, etc. &nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-weight: 400;\">But my point is this: you don\u2019t have to have tons of money to create this income. Heck, you don\u2019t even need very much time if you learn how to properly leverage other people\u2019s networks<\/span><span style=\"font-weight: 400;\">. &nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span style=\"font-weight: 400;\">My hope for you is that you find the motivation (and the hustle) to jump-start your path toward financial independence!<\/span><\/p>\n\n\n\n<div id=\"hero-block_62df1a82bfc88\" class=\"first:mt-0 hero-block py-4    has-background has-slate-200-background-color has-text-color has-theme-gold-color\">\n    <div\n        class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 w-full \">\n            <main class=\"py-4\">\n                \n\n<h2 class=\"has-large-font-size wp-block-heading\"><strong>Five Steps to Financial Freedom<\/strong><\/h2>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-slate-900-color has-text-color wp-block-paragraph\">How do you BRRRR? Buy a property under market value, add value with renovations, rent it out to tenants, complete a cash-out refinance, then use that money to do it all over again. In this book, author and investor David Greene shares the exact systems he used to scale his real estate business from buying two houses per year to buying two houses per\u00a0<em>month<\/em>\u00a0using BRRRR.<\/p>\n\n\n\n<div id=button-custom-event-block_641381a0e089a class='button-custom-event'>\n      <a\n    href=\"https:\/\/store.biggerpockets.com\/products\/buy-rehab-rent-refinance-repeat?utm_source=blog&#038;utm_medium=marketing_block\"\n        x-on:click=\"window.analytics.track('Blog Block | Publishing: BRRRR Book', {\n      referrer: 'https:\/\/www.biggerpockets.com\/blog\/rental-investing-earn-2000-month',\n    });\"\n    class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\" target=\"_blank\">Get Yours Now<\/a>\n  <\/div>\n\n\n\n<div id=button-custom-event-block_64138199e0899 class='button-custom-event'>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n                <div class=\" first:mt-0 relative h-full lg:flex lg:items-center\">\n            <img decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  rounded-md hidden lg:block\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/07\/brrrr.png\" alt=\"\" title=\"\">\n        <\/div>\n            <\/div>\n<\/div>","protected":false},"excerpt":{"rendered":"<p>What could earning a few extra thousand dollars a month do for you? Have you considered using rental real estate as a way to get there? I\u2019ll take you through three ways to build passive income with rentals, showing you all the numbers and demystifying how to piece it all together.<\/p>\n","protected":false},"author":214306,"featured_media":109727,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5524],"tags":[],"class_list":["post-109989","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-investing-for-beginners"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/109989","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/214306"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=109989"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/109989\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/109727"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=109989"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=109989"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=109989"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}