- “Going to be a slumlord, huh? Have fun with that!”
- “My brother tried that for 10 years and lost money every year.”
- “My uncle owned a multiplex once. All the units got trashed and he constantly had to evict people for not paying.”
For whatever reason, when I started getting excited about buying a rental property (for that oh-so-nice rental income), the above reactions are what I got from my family, friends, and co-workers. Maybe they were just trying to be helpful – trying to protect me from a future disaster – but I think there was more to it than that.
I wanted to do something great – earn a passive income, create options for my future life, and grow my net worth to huge sums! Many people have these dreams. Few people take the first step to achieving them. The “advise” I received was basically their excuse for their own lackluster existence. They were the lobsters in the bucket that continually pulled everyone else down because if someone else was successful, that ultimately meant that they themselves were a failure.
I wanted a rental income. I didn’t care what experience Aunt Suzy or distant friend Bill had. In almost every book that I’ve read about millionaires, almost every one of them mentions rental revenue as a fantastic passive income that will help you grow wealthy. So let’s think for a moment.
- All the broke people said, “Don’t do it. Rental income doesn’t work.”
- While the millionaires retorted, “Rental income is a God-send. Not only do you receive a passive income, but your asset grows in value as well!”
Should I listen to the broke nay-sayers or the wealthy property owners? Ummm… I’m going to choose the advice of the millionaires.
Rental Income: A Dream Come True
We bought our first rental home (with cash, thanks to Liz’s house flip before she moved to Holland) on November 30th, 2015 for $81,000. It was a three bedroom, one bath home that needed quite a lot of work – mostly cosmetic, but we knew it was going to take us some time.
20 gallons of paint and poly later (which equates to 4 months’ time), the house was ready to rent out. We had a couple of open houses, qualified the applicants, and selected the first one that met our stringent criteria. It was time to collect some of that rental income.
The three guys moved into our rental on April 15th. To date, we have received the following payments – all on time:
- $1,200 deposit
- $600 rent for half of April
- $1,200 for May
- $1,200 for June
Not including the deposit (I suspect we’ll refund them in full since they’ve proved to be such great renters already (how do I know? They have rugs everywhere. They mulched the front yard. AND, they even edged the outskirts of the property… LOVE IT!)), we have already been paid $3,000 in rent. In the next 20 days or so, we’ll receive another $1,200, all while I’m doing absolutely nothing.
When we bought the house, it was worth $81,000. We put $8,000 into it, the housing market got hot, and suddenly our property value jumped to $120,000! If we wanted to, we could probably list the rental house tomorrow and get a bid for full asking price before the sun goes down. That’s how hot the market is in our area.
So, not only are we receiving a regular income for doing practically nothing, but our asset value is skyrocketing as well! In a matter of just 7 months, we increased our net worth by $39,000 just by fixing up a house that was already in pretty decent shape!
The Future Investment
The majority of people told me to avoid rental properties. A select few told me rental properties were nice for extra income, but were a hassle at times. The millionaires told me (via the books I’d read) to develop rental income…. and then reinvest it…again…and again….and again. This is the nugget that very few learn about and even fewer truly understand.
Rental income is nice. It can be used for a child’s tuition, a nicer car, or for a vacation home on a lake somewhere. This is what the majority of rental owners do with their profits. This however, is not how you become wealthy with a rental property. The key to wealth is through re-investment.
Liz and I earn a rental income of $1,200 each month. We NEVER spend it.
The rent checks simply get deposited in the bank, and we let the account grow, and grow, and grow. We’re letting it get beefy so we can buy the next place (again, with cash) at the end of 2017. At that point, we’ll be earning a rental income of approximately $2,600 a month.
Give it two more years and we’ll buy another cash property. Rental income…$4,000 a month.
With the ramp-up of income, we can likely do this 5 more times in the next 5 years. That’ll give us a monthly rental income of $12,000, and a rental asset value of over $1,000,000! What do you think of rental properties now? I hope you’re in my camp. They’re an absolute dream come true!
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.