How to make your rental property a truly passive investment

  • CJ McGlown, a 29-year-old software engineer, owns a rental property that passively earns him $ 12,000 a year.
  • He decided to invest in a turnkey house and hire a property manager so that it didn’t become his “job”.
  • Taking out a new mortgage worked for him because rent checks cover the mortgage payment and more.
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According to CJ McGlown, you have two options when entering real estate: “Do you want to be an investor, or do you want this to be your profession?”

McGlown, a software engineer and self-taught millionaire, wanted to get into real estate investing as a way to earn passive income. That way, he could focus his energy on passionate projects and his business instead of worrying about his income.

There is a great emphasis on the word passive for McGlown. When he bought his first investment property in 2019, he knew he was strictly looking to grow his wealth, not make it his new job.

“My real passion is technology,” McGlown said. “I only use real estate as a wealth building strategy. “

Currently, McGlown only spends about three hours a month working for his rental property, but that makes thousands of dollars every year. And to make it a reality, it followed three strategic steps.

1. He changed his lifestyle to save for property

When McGlown started saving for the investment property, he wasn’t sure whether he wanted to finance it or buy it in cash.

He knew that he would need a fair amount of hidden savings anyway. So he started to save aggressively.

That way, if he ended up financing it, there would be a lot less risk, but if he decided to buy the whole thing, then he would have the money to do it, ready to go.

“I tend to pick the thing that’s going to be the hardest because that’s where I’m going to get the most discipline,” he said.

Saving for the investment wasn’t easy, but it wasn’t new to him either. He had spent the first two years of his professional life paying off $ 200,000 in student loans and already knew how to live sparingly.

So, he used the same strategies he used at the time to save for his real estate investment.

2. He learned about financing options through free and inexpensive resources.

“I started with a resource called Bigger Pockets,” McGlown explained, “I started to learn the basics about how you make money with real estate.”

Thanks to this education, the topic of leverage kept coming back conversation after conversation.

“I would hear people say things about Bigger Pockets like ‘leverage is better’ and ‘you can go further with leverage,'” said McGlown.

However, the thought of going into debt again scares him. After finally breaking free from student loans, the thought of signing more loans was not something he was eager to do. Partly for this reason, he even considered paying off the entire property, which most homebuyers don’t.

His parents had taught him the idea “money is king,” and part of him still clung to the idea that borrowing for a house would be risky.

However, he realized he was wrong after calculating the numbers: if he only invested in the down payment, the monthly rent checks would be more than enough to cover the mortgage. Over time, the property would pay for itself.

“I realized that if you rent it long enough, [it’s like] you never bought it, “he said.” You just got it for free. ”

Funding for the investment also meant he could start earlier and wouldn’t have to save hundreds of thousands of additional dollars.

“I started to see how I could build wealth and the money could go further with leverage,” he said.

By that time, he had saved $ 75,000, which he used for the down payment.

3. He paid more up front to save his time and energy

Ultimately, McGlown’s goal was to have as passive an income stream as possible. To get there, he knew it would cost more. He first experienced it during his research


mortgage lenders

.

“I started looking for different interest rates, to see what I could get,” he said, but nothing really seemed like the right choice. Eventually, he decided to try working with a mortgage broker, which helped him find a much better interest rate in less time.

“They came back with much better opportunities than I have ever found,” he said. “A mortgage broker is well worth it. “

Once he started looking for the property to buy, he was also willing to pay a bit more for a turnkey property in a popular location that he was safe to rent. That way, he didn’t have to worry so much about the risk of financing.

“I’d rather pay a premium for a property that is in the right location rather than getting a good deal for the property,” he said. “Even if you get a bad deal, the location [makes up for it] because of [property value] appreciation.”

He also hired a property manager to handle any issues his tenants faced, in an ongoing effort to keep the investment passive. He pays the property manager a percentage of the rent price.

Between mortgage payments, property manager fees, and insurance, he owes about $ 1,600 per month. However, he rents the house for about $ 2,600 per month, which allows him to earn an additional $ 12,000 per year from this investment. In addition, his equity in the property only increases over time.

For McGlown, this setup is exactly what he wanted: a recurring monthly income with little active energy on his part.

“If you want to, you can do a little nip and get as much value as you can,” he said. “But then you created a job.”

About William Rowan

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