What is Real Estate Passive Income?
Real estate passive income is simply the money left over each month once you cover all the expenses of your rental property. Take the first step to generating a successful passive income. Understand the facts and have realistic expectations about the real estate investment rental business:
Generating Real Estate Passive Income is NOT Easy
Anything is worth having will take hard work, commitment and time. Acquiring cash flow rental properties is no different, it will require a lot of hard work and commitment upfront. You MUST have a plan to be financially independent and create wealth. Anyone who calls themselves a “real estate guru” and tells you otherwise, is doing you a disservice. I am here to share with you about the buy and hold cash flow rental properties strategy that helped me creating financial independence and grow my family wealth since 2008. I grew a single rental property in 2001 to 45 rental projects by 2008, all while managing a mortgage company.
There are Benefits to Keeping your Day Job
While building a real estate passive income requires time and commitment I would suggest keeping your day job. My day job provided the down payments for my rental properties when I started this real estate investing business. I went through the traditional financing options, and I was able to get ten rental mortgage loans under my income. I encourage you to keep your job because you can maximize your return on investment when you can borrow bank to build your wealth.
Passive Income does NOT Appear Overnight
I do not believe in get –rich – quick schemes. I am not suggesting that you can quit your job today and earn six-figures in passive income. You must stick with YOUR FINANCIAL GOALS of why you started this passive real estate investment business. Once you defined your goals clearly, they will help you focus on your daily tasks and keep you moving forward. You will make few mistakes along the way, but you can minimize the mistakes and maximize your returns on investments by following my lessons. Just like any job you will have to put in the hours to success. The difference is that once you build enough passive income from your real estate investment business, it can provide the same or better lifestyle that you’re having now. Passive income allows you to fund the lifestyle you want without requiring you to trade your time for money.
You Can Hire Professional and Still Make Money
Once you select a right market to invest, you must know how to select high-quality integrity professionals on your team first, they’re the key players to maximize your investments. I went through some challenges during the beginning years of my business and also lost money hiring wrong people. I have systems in place on how to select local professionals to take care of my investments.
Here is a sneak peek at the type of strategy I use to produce monthly cash flow, you see the unlimited potential of real estate passive income is about.
Property Purchase Price: $200,000
Down Payment: $40,000 (20%) + $6,000 (Closing cost)
Loan Amount: $160,000 @ 6% (30 year fixed-rate mortgage)
Rental Income: $2,000
Mortgage Payment (Principle and Interest) = $959
Tax = $300
Insurance = $100
Vacation Rate (5%) = $100
Maintenance (5%) = $100
Property mgmt. fee = $100
Total expenses = ($959 + $300 + $100 + $100 + $100 + $100) = $ 1,659
Rental Income: $2,000
Total Expenses: $1,659
Monthly Cash Flow: $341/month
Equity Pay Down: $159/month
Cash on Cash Return: $341 × 12 months = $4,092/year
$4,092/$46,000 (down payment + closing cost) = 8.8%
This return does not count the equity payment of $159/month in the mortgage payment.
Wealth Building from Rental Property
In addition to receiving monthly cash flow upfront, your property can build WEALTH as long as you own the property.
Loan balance paying down: $159/mo
Total of loan balance paying down: $1908/year
Below is the table to show the principle (loan balance) pay off.
Appreciation is a BONUS – assuming the inflation average is 3% per year.
So the rental initial purchase price at $200,000
Then next year, the value is $206,000.
As you can see that rental property doesn’t just create financial independence, but it can build wealth for you and your family in a long run.
The summary of the calculation from the above as below:
Monthly cash flow: $341
Yearly cash flow: $4,092
Monthly equity paying down: $159
Yearly equity paying down: $1908
Yearly appreciation: $6,000
What if you can buy 1-2 properties (average purchase price $150,000-$200,000) a year while working at your full-time job, by the time 10 years down the road, you can own about 10-20 rentals.
Yearly data with 10 rentals:
Cashflow: $40,920 ($4,092 * 10)
Equity paying down: $19,080 ($1908 * 10)
It is impossible to get every property with the same return so keep in mind each property will be different. Your goal is to buy property with average monthly cash flow ranging from $350-$450. Once you know how to do 10 rentals, you will gain confidence to scale up your real estate portfolio to 20 + rentals or more.
Passive Income can Work for You too
As you can see what rental properties can bring to each of us, not just financial independence, but also the wealth creation for years to come. By learning my story you can learn to make your informed decisions on your journey to financial independence. I grew my business from a single rental to a six-figure passive income business through stable selected real estate markets. I was able to build a multi-million dollar real estate portfolio over a period of eight years, and I believe you too can do it.