Growing His Portfolio (and What Changed over Time)
“I used this same process for the next seven properties I bought over the last several years and have taken the income from the rentals and just put them all back into the business, paying down principal on the houses.
“I now have a total of 12 units (eight single-family rentals and two duplexes), and only have debt on three properties using this technique.My rental portfolio is now generating $7,700/month in gross rental income, netting around $40,000/year after all expenses and my rental property loans.”
I asked Brady what he’s done differently over time, as he’s gained more experience.One answer he was quick to give? The kinds of neighborhoods where he invests.
“This is changing as my portfolio grows. I primarily have invested in B- & C class neighborhoods. They are not in war zones and have relatively low-crime and are working class neighborhoods.
“As my portfolio has grown, I am starting to focus on B+ neighborhoods as they are a little less transient and there is less turnover.”
And we know how tenant turnovers ruin your rental returns!
Brady’s Advice for New Rental Investors
“The 50% Expense Rule that everyone talks about? It’s definitely true.
“Over my first 6 years of investing in rental properties, our expenses have averaged 45-55%/year.
“I highly recommend having a reserve fund in place as you never know when a bad month or couple months is going to hit your portfolio. Here is a good example of what we have run into at the end of 2017: As the weather got cold and furnaces were needed, we had three furnaces that went out and needed replaced at an average of $2,000 each.”
That’s where so many landlords run into trouble – your returns are not determined by what happens in a typical month, but the long-term average of your occasional-but-large expenses. (For a quick read about this, check out our article on visualizing real estate cash flow.)
“One of our rental properties had a small undetectable leak behind the sink for an extended period of time causing mold to build up behind the wall.We ended up letting the tenants out of the lease contract, hiring a mold remediation company who also found asbestos behind the wall, hiring an asbestos abatement company, and then rebuilding the kitchen wall.
“Four months of lost rental income and $10,800 in repair costs later, I am glad we had reserves in place!”
Any other pieces of advice Brady?
“Start learning now. Read real estate investing and landlord blogs, listen to all of the BP podcasts, save up for the down payment and jump in! It seems a lot scarier from the outside looking in, and once you have your first property, it is much easier to scale from there.”
Brady on Investing in Hot Real Estate Markets
“As the market has heated up in Kansas City, it is becoming harder and harder to find great deals and we have had to get creative. My tip would be to form as many relationships as possible with your local wholesalers.
“Every time you see a bandit sign on the side of the road, call it and leave a message for the wholesaler that you are a cash buyer and would love to be added to their buyers list.
“Go on Facebook, and search for investor groups in your area.In Kansas City alone, there are over five local real estate investor groups that I have joined where people are posting deals all the time at a discount.
“Network with fellow investors at meetup groups, REI clubs, and talk to people you know about real estate, because you never know where your next deal is going to come from!”
Financial Independence, Retirement, and the Good Life as a Landlord
Brady continues to work full-time in the financial services industry. He’s continuing to build his portfolio, through his Mill Creek Home Buyers company.
I asked him what’s coming up on the horizon, as he builds passive income.
“I plan on “retiring” from my full-time job when I am 50 years old. I enjoy what I do at my job, so I am not in a hurry per se, but want to retire when I am still young enough to enjoy being active in my retirement.
What motivates you, to build passive income and escape the rat race? What specifically are you looking to do/achieve?
“My motivation is to provide for my family and free up my time so that I can spend my time helping out in the community and with my church. I am looking to build a passive income of at least $10K/month so that I can use my abilities to help others.”
What are your plans, once you reach full financial independence?
“Take a year off of “working”, spending time with my family, church, fishing, golfing, and working out. Once I am going stir-crazy, I plan on helping others invest in real estate and focus on larger scale real estate investments while spending time helping out in my church.”
What are your plans, once you reach financial independence? The more concrete they are, the more you can visualize them, the more likely you are to realize them!
Related Article Read:Everything you need to know about due diligence in real estate.
Related Article Read:Should I Transfer the Title on My Rental Property to an LLC?
