How I Spend Only 30 Minutes A Month On My Rental Properties and Still Have Positive Cashflow

I say investing in rental properties is one of the best investments you can make. Real estate generally appreciates 1% above inflation, and it’s a way of gaining passive income. Meaning, you can earn money without having to work.  I use the term work lightly.

 

Depending on the type of landlord you are, you could find yourself working extremely hard.  Some landlords do everything! This includes finding, fixing, renting, ongoing maintenance ecetera and ecetera.  Landlords who perform all the real estate tasks work very hard and in my opinion for little savings or gain.  These type of landlords also are not gaining a passive income.  How is your income passive if you’re working 10-60 hours a week on your real estate empire?  Passive income to me means, if I’m not involved the checks keep coming.

 

I am a 100% passive landlord.  I spend a maximum of 30 minutes per month performing real estate activities.  The 5th of every month I review a very detailed property report from my property manager.  If I find any discrepancies I call him or email him to work it out.  My last statement took 5 minutes to review!

 

So how did I get to the average of 30 minutes if it only takes 5 minutes to review the statement?

 

The majority of my time spent performing real estate activities occurs during the buying process.  This includes identifying, purchasing and fixing the property.  Before buying I generally know what I can receive for rent.  With my rental estimate numbers in mind, I know an acceptable total cost (purchase + repairs) for which I will pay for my next property.  With that number in mind I receive reports from several real estate agents for properties in my price range.  I also contact wholesalers to identify properties.  This takes the most time!

 

Once we identify 3-4 properties we move quickly.  My property manager who was an construction manager goes to each property to determine if it is a neighborhood he will work in.  Once the neighborhood test is passed.  He performs a full inspection of each property to identify things we need to fix.  The inspection is crucial!  He provides me a detailed report with pictures of every inch of the house and the associated problems. I use his results to negotiate on the price of the home.

 

Once I analyze the inspection report, we send in an offer.  This offer is typically low and we make sure we site all the issues identified.  Negotiation takes on average 3 days.  I buy in all cash and we move quick.  We do not wait for other offers we give 4 hours for the seller to respond or we kill the deal.

 

After the closing, my property manager completes the identified fixes.  My leasing agent finds the tenants and the checks start to roll in.  Once we receive the first rental check we pull 70% of the equity out of the home to perform the next deal.  So technically, we only needed to have cash for the 1st deal.  Each subsequent deal is reliant on equity from the last deal.

 

I forgot to add one thing.  I live in Virginia and my properties are 540 miles away.

 

Cash Flow

 

Now that you have a primer on my real estate process  how do you know if a rental property is earning? Basically you just have to calculate the cash flow. A property’s cash flow determines the actually money that comes in and out of the business.

 

Calculating the cash flow of a business involves carefully looking at every income and expense of your property. In order that you won’t miss out on essential numbers, you can make a comprehensive list of the areas that can either put money to your account, or take money out.

 

Calculating Cash Flow

 

There’s a simple formula that I  use in order to come up with the total cash flow of my rental properties. If it is not earning, I can also determine how much money I am losing per month. The simple formula is presented below:

 

Rental income – Vacancy Loss – Payments – Expenses = Cash Flow

 

As you can see, there are 4 elements in my formula. Familiarize yourself with each element so you can come up with the figures.

 

  1. Rental income

The rental income simply means the amount of rent that I charge my tenants. For example, rental property 1 I am charging $925 per month. Annually that will be $11,100.  This is the property my property manager from hell found for me.  What he lacked in professionalism and property manager skills he made up for it in identifying all start properties.


 

Total Rental Income per month:  $925

 

  1. Vacancy Loss

To be realistic, vacancy loss should be taken into account. This means that at any time, some of my properties may not be occupied or there may be a possibility of default. This of course means less income for me.  I suggest you make your vacancy loss very conservatively.  I use 10%. Fortunately, I haven’t had to use my vacancy loss fund, but it’s good to have.  10 % of $11,100 is $1,110 annually.

 

Total Vacancy Loss per month:  $92.50

 

  1. Payments

 

Of course, my rental properties are not free of some form of payments.   There are payments to be made that come in the form of taxes, home equity line of credit (HELOC) and insurance payments. My tax plus insurance amounts to $166 per month. Multiply that by 12 to get the figure of $2,000 per year.  My other payment is $130 per month for the HELOC on property 1. My HELOC payments equal to $1,560. Bringing my total monthly payments to $296.67 per month.

 


Total Payments per month:  $296.67

 

  1. Expenses

 

Aside from calculating income, it’s of course very important to take proper note of monthly expenses. Note how much you spend for electricity and water (if you are shouldering these) and other maintenance cost that you might have.

 

The Landlord tenant laws of my area specify that I have to pay for water.  At first I was taken back by this, but I got over it since I do not have to provide any appliances in the rental.  My tenants bring their own appliances.  Talk about avoiding a headache.  I would gladly pay the $50 every 4 months for water over providing appliances.

 

The other expense I have is a 10% property management fee.  This is a fee worth paying.  My property manager is integral to the success of my real estate business.  He’s the reason why I only spend 30 minutes a month performing real estate activities.  He provides a value that is 30x his fee. I also subtract 10% for future maintenance.  You can never be too safe!  Something will always go wrong with the property.

 

Once I have each element, I can now calculate just how much cash flow I have every year. Divide the number by 12 and I have my monthly cash flow. It is possible that you will have a negative cash flow. That’s when your expenses exceed your income. My 10% maintenance fee and property management fee are of gross rents received.  So, since I receive $925 per month in rental income.  10% of $925 equals $92.50.  Also, I pay $150 a year for water, making my average monthly water bill $12.50.

 

Total Expenses per month:  $197.50

 

If you are experiencing a very low cash flow or worse, a negative one, there’s no need to keep on worrying because there are ways in order for you to increase your cash flow. There are two steps that you can take, first, you can choose to lower your expenses, or you can increase your income.

 

Monthly Cash Flow:  $925 – $586 = $339.50

 

Not a bad return at all for 30 minutes per month worth of work.  Factor in depreciation and I can really buff up these numbers.

 

Calculating the cash flow of a rental property is vital before you decide to purchase it. This is also very crucial for those who already have rental properties because it helps you keep track of whether or not their investment is really earning or if they are already losing money.

 

For those who are thinking about acquiring a rental property, aside from checking the potential repairs of the building, it would help to ask the previous owner just how much he is earning per month, the expenses the building incurs, and other information that can help you calculate the cash flow of the property.  Better yet get proof of income received by asking for the properties rent roll or rent deposits.

 

Reader thoughts!

 

Tell me about your real estate process and your monthly cash flow.

 

If you want more information about my deal check out my one on one real estate sessions by clicking this link

Comments

  1. What changes to this model will I have to make if I do not purchase the first property all cash?

  2. Are your rental properties in your name, or have you set up an LLC?

  3. Have you ever given thought to offer lease purchase option to your tenant? With that, you get all the benefits of property owner without any headaches. It's even safer process since if tenant decides to not exercise his or her option then you keep the cash and the property. I always invested in commercial properties — mainly hotels and shopping centers — so I don't have much experience with rental properties. Thanks for sharing.

    • I thought of doing this process, but it would limit my customer base significantly. Only a certain type of tenant can do a lease purchase option, none of the people I rent too can afford to buy a home. They rely on public assistance to rent from me.

  4. I wish I could "get into" real estate investing. Heck, I can't even buy a home for myself, so I've got a LONG way to go before I will ever be able to go there…

    • Elise,

      I'm sure you can find a real estate market which would work for the amount of money you would like to spend on your investment property. Also, you can buy a rental unit before you buy a primary residence. From a pure financial standpoint the rental property trumps the primary residence. Heck, my primary residence is a money pit compared to my rentals. All though my home isn't underwater I've made changes to my primary residence that were for stylish reasons over financial reasons.

  5. This is nice write-up on how passive rental properties can be. Like all businesses, the landlording business has plenty of opportunities to outsource as much or as little of it as you want: repairs, leasing, management, etc

  6. I totally agree, real estates are the best investments in this unstable economical situation nowadays. The only sad thing is, that even in these insecure financial times, the most people doesn't have the money to invest in real estates. And I don't need to explain why it doesn't work from credit.

  7. This is also a timely post for me. We have been thinking about expanding into real estate as well. We are waiting until we own a bit more of our principle residence first though. We want to be in good shape before we take on more.

    • How do you plan on acquiring your rental until? Will you use my method of buy the first one cash then pull the equity or will you finance from the start? When you say "own a bit more of our principle residence first" are you considering pulling equity from your home to finance the rental property deal?

  8. Nice work on the positive cash flow. I have two rentals, one is positive, the other isn't but they help each other out and I have to contribute very little overall. Got them on auto pilot with property managers and direct debits, no stress!

    • No stress is worth the 10% I pay to my property manager. Real estate definitely doesn't have to be hard. Why isn't your other rental cash flow positive?

      • Positive cash flow properties are pretty hard to come by in Australia (not impossible though). I'm looking at capital gains over the long term for this one, but I'll be looking at different models to try as well.

        • Ahh… so you're going for appreciation / dividends (kinda of like a growth stock). I going for income / low appreciation (Just like a dividend). It's amazing how things are related :-)

  9. I've heard some horrible landlord stories, but this article could sell anyone on becoming a landlord ;)

    • I think it comes down to thinking of real estate as a business and willing to get the right team in place before buying your first property. So many people get caught up in all the catch phrases about real estate that they forget that it's really hard work.

  10. Great stuff. I like the system you have in place. If only I had enough money to buy the first property out right. Eventually I will get there and start building an empire. :)

  11. Now that is true passive income. 30 minutes a month doesn't mean squat in the grand scheme of things. Plus, having the property manager means you free up all of that time for other income earning ventures.

    I'm usually on the other side of the equation, doing the accounting and taxes on rentals, and I have to say some of my clients are the complete opposite. I think it's because they refuse to pay an outside party to handle the business for them, even though it would be much smoother and pore profitable for them.

    • 30 minutes and it's scalable meaning I would never spend more than 30 minutes a month. I can't wait to get to 10 properties! The only slow down in my process is the buying and HELOC process those two things eat up a lot of time.

  12. This is a very timely post for me as I am researching real estate at the moment. Interesting that you use a home equity line of credit. Are you planning to eventually pay off the credit lines or just keep rolling them into new rentals?

    • My HELOC are only on 12 year terms so I plan to pay them all off by year 11. I plan to get as many HELOC as I can pay them off at year 11 then start the process all over again. I'm using leverage to get the most bang for my buck. The trick is to buy the first one out right so you can start the process.

Trackbacks

  1. […] Bridge Finance | How I Ripped People Off With Store Credit Cards Your Finances Simplified | How I Spend Only 30 Minutes A Month On My Rental Properties and Still Have Positive Cashflow Money Spruce | 37 Must-Read Posts for Tax Savings Boomer and Echo | Using Tax Free Savings Accounts […]

  2. […] Whether you decide to go it alone or to work with a partner, renting out property can be a very lucrative venture, and if you’re smart, it will not take much of your time or energy. If you want some insider tips on managing your rental properties efficiently, check out this article. […]

  3. […] You Need To Create Passive Income and Earn Money Online – Pt 3How to Get a Small Business LoanHow I Spend Only 30 Minutes A Month On My Rental Properties and Still Have Positive Cashflow ul.legalfooter li{ list-style:none; float:left; padding-right:20px; } .accept{ display:none; […]

  4. […] How I Spend Only 30 Minutes A Month On My Rental Properties and … […]

  5. Personal Finance Buzz…

    Your story was featured in Personal Finance Buzz! Please visit and promote your article….

  6. fwisp.com says:

    How I Spend Only 30 Minutes A Month On My Rental Properties and Still Have Positive Cashflow…

    They say that real estate is one of the best investments you can make. I say investing in rental properties is one of the best investments you can make. Real estate generally appreciates 1% above inflation, and it’s a way of gaining passive income. Mea…

Password Reset

Please enter your e-mail address. You will receive a new password via e-mail.