I always tell people that real estate has the potential to be a great investment. But getting started can be daunting.
As a real estate investor for eight years, I’ve found the key is to take small steps. When I started investing at 23, I set myself a modest goal of making a little extra money on top of my engineering salary with an rental property or two.
Today, I own 61 rental units that brought in $431,000 in rental income last year. I am also a real estate coach at Roofstock Academy. I mainly work in a converted van that my wife and I live in. When we’re not traveling across the United States in our van, we stay in our duplex home in California.
After paying my mortgages, property taxes, property management and maintenance fees, I earn about $6,000 per month in passive income from my property portfolio.
Since 2019, I’ve been investing that money in a redevelopment project that converts eight units to 17 and lives off my full-time coaching salary.
How I bought my first property
In 2013, right out of college, I worked as a fire protection engineer and made $73,000 a year.
Saving for an investment property was one of my goals, so I was living well below my means. I paid $800 a month to rent an apartment with roommates. My employer covered essential expenses like my car and cell phone bills, saving me even more every month.
In 2014, I used $40,000 that I had saved up in cash and sold $20,000 worth of stock to make my first real estate purchase: a $295,000 single-family home in Southern California. I also took out a loan from a family member for the rest of the cost, so I didn’t have to borrow from the bank.
The house sat vacant for two months before I rented it out, but it didn’t need any renovations. My tenant’s rent of $1,810 per month allowed me to cover the monthly loan payments on the house as well as operational management expenses.
In 2016, I owned three houses. I financed my second purchase with a traditional bank loan, and purchased my third with a $250,000 loan from a family member at 4% fixed for 30 years.
I made $51,404 that year in gross rental income for all three properties, and while most of that money went to mortgage, maintenance, and property management costs, I also been able to take home about $1,800 a month.
In 2017, I decided to increase my savings to buy additional real estate. I found an even cheaper apartment to share with roommates and invested those savings along with the money I was making on real estate in the stock market and my investment accounts.
When I learned how much further each dollar could go in opportune markets — where cash flow was high and purchase prices were low — I started looking outside of California. I bought the cheapest multi-unit properties I could find in the Midwest, mostly in Ohio and Kentucky, and fixed them.
To do this remotely, I have built relationships with agents and property management professionals in these markets. So I knew I would have a team on the ground to identify the best properties and take care of my tenants.
I work with small family management companies, whose fees cost on average 7% of my gross rent per property but can reach up to 20%.
I feel very lucky to be able to work 9 to 5 as a coach from my van and explore new parts of the country – all while earning passive income through my real estate investments.
I believe that if you save enough money and look in the right places, you can get a head start in real estate investing, even in times when real estate prices are skyrocketing.
Here is my best advice:
1. Start small with a well-researched strategy
My investment strategy is the “BRRRR” method: Buy, Rehabilitate, Lease, Refinance, Repeat.
I buy houses in markets where the units rent for much more than their monthly mortgage payment. I fix them, then I rent them out to cover the cost of the house and invest in other properties.
To find out which strategy is best for you, I recommend researching the basics. There are so many resources available, podcasts (including mine, The Distance Real Estate Investor) to online courses.
You can also contact other investors on forums like BiggerPockets, where the BRRRR method was popularized, to learn about their strategies.
Many people also wonder what their ROI goals should look like. I always say people should compare the total returns they can get in real estate (calculate that by adding cash flow, appreciation, loan repayments and tax benefits) to the returns they could get in other investment vehicles.
Choose a number that suits you. And most importantly, don’t compare yourself to anyone else.
2. With my method, the goal is to do as little work as possible
I buy something when it feels easy and I know that the property won’t be too much work to be entrusted to a management company.
Even though it means lower profit margins initially, it allows me to simplify my life and use the majority of my real estate portfolio as a passive source of income. You do the work once to buy and fix the house, then reap the rewards for as long as you own the property.
The main objective of my real estate portfolio is to become 100% financially independent, or to cover all my expenses without working, even taking into account future expenses.
3. You don’t need a full renovation to increase property value
There are two ways to increase the value of your properties: maximize returns or profits, or minimize expenses.
So far I’ve spent about $2.5 million on renovations in my wallet and I’ve tried to make every dollar count. The simple act of adding upgrades such as laundry rooms and stainless steel appliances to rental-ready properties can help increase a property’s rental value.
Buying in opportune markets or places where home values are expected to rise over time, and making small adjustments to these properties can also increase the long-term value of your purchases.
4. Rely on local real estate professionals
I always work with local, family-owned property management companies in the markets I invest in.
It allowed me to build a portfolio in the Midwest while living in California, and now it allows me to travel while generating income from my properties. I can FaceTime homes with my agent, rely on a trusted contractor for renovations, and leave it up to my property manager to find responsible tenants.
Use online platforms like All Property Management to connect with on-the-ground experts in your target market and seek recommendations from your peers and network.
Michael Albaum is a real estate investor and Head Coach of Roofstock Academy. Follow him on Twitter @MichaelAlbaum.