How Much Passive Income I Make from Duplexes - Real Estate Investing

Hey, everyone, it's Mike Andy's Business Bootcamp podcast. And today I'm not gonna be talking about business or how to grow your company. I'm actually sharing with you about the five duplexes, the real estate investing that I've done, All the numbers behind them, what I purchased them for, how much debt I have on them, what I rent them out for now, and ultimately, how much passive income can I make from these five duplexes? Before we end a show, a big thank you to a sponsor, which is Gusto. If you do have employees and you do have a business, make sure you check out gusto.com bootcamp. You can try out their software completely free for 90 days, where you can do time tracking as well as do all your payroll with them. Super easy, super affordable. Check it out Today, go to gusto.combootcamp so let me start off by saying that I am not an expert when it comes to real estate, but I do believe it is the next progression when it comes to us as business owners. Once you start to be successful to diversify outside of your first pillar, and what I mean by your first pillar is, I believe in order to get your second business, whether it be real estate or you're going to do stocks or you're going to invest some other means of asset, you want to think about, what can I do to develop one strong pillar? And I find a lot of times people, the reason they fail is they go from one thing to the next without ever really developing a strong business that actually supports and generates cash flow and profits that allows them to invest in real estate, that allows them to start a second or a third business, and they start to get the next shiny thing that they're running to without actually developing that first solid pillar that gives them the financial leverage to actually go do those other investing opportunities. For me, real estate, I'm not really super passionate about building or construction or anything like that, or painting. Not really interested. But for me, it's a way of diversifying away from my businesses that take up 95% of my time and really have a safety net so that if something does go wrong with the businesses, personally, I'm going to be okay because I can kind of break glass and get the equity out of the real estate if I needed to. If the businesses were hurting by having that safety net, it actually allows me to operate with actually less cash reserves in the business, simply because I know that if worse comes to worse and something crazy happened in the business, I'd be able to take Either a home equity line of credit or sell one of my real estate deals and take the equity out. Alright, so let's jump into it. This is property number one that I purchased when I was about 18, 19 years old. About five years ago. Five, six years ago. Duplex number one. So this duplex had the first unit, which is a three bedroom, one bath. And this place was in bad shape when I purchased it. It was in really, really bad. This three bedroom, one bath taught me a lot about functional obsolescence, which is something you're going to look at if you're thinking about buying a duplex. A three bedroom is going to usually house a family, but guess what? One bath, not a good idea. If I would have gone back and done this again, I might have tried to add a bathroom just so I could get a family of three or four in here without having just one bathroom. That was the first unit. The second unit is actually why I purchased this property. And that's because there was no second unit when I first purchased this place. And that's because I saw the zoning had an opportunity for what's called adu, accessory dwelling unit. And that basically allowed me to create a secondary unit because of the zoning of the city. Up above the garage and is a studio as a second unit for this duplex. So the purchase price for this duplex was $95,000. Now I paid this cash because it was a wholesaler that actually sold this to me. So a wholesaler doesn't actually own the place. They hold the contract and then basically sell it off to me. So I know they made like an extra 15 grand between me and other.

So I know they made an extra 15 grand or so between me and the seller. However, I was able to get in there. I spent my first $95,000 in cash. I still remember writing that check. I was absolutely scared out of my mind. It was cash, $95,000 down. And then I went and got a construction loan for $170,000 to fix up the place. So then the current value now today is 360,000. Now what's crazy is I've held it for about five or six years now, but I, after fixing up the place, I had a little bit of equity and I was like, you know what if I can just sell this for like 290 or 300,000, make a quick buck and get out of here. I was just done with renovation, done with all the headache, and I was like, this is just too much. And that's the big thing. I've learned about real estate is a long term game. A lot of times this first year or two you might not make a lot of profit. You're trying to learn a lot of things, especially in your first deal. You're gonna learn a lot of things that you should do and what you should not do. And, and one thing I am very happy about is it didn't sell for the couple weeks that I had it on the market. I decided, you know what, I'm going to keep it and I'm actually going to move into it. I'm going to rent it out. So I lived in the studio for a while, the adu and then rented out the main unit. So the current value now is $360,000. A little bit conservative, but at least 360 current rents are $1,400 for unit number one and $500 for the studio. They also pay for the utilities, the mortgage. Now I owe $150,000 on the mortgage and that equals about 1,000, $1,050 per month. I could refinance this and get a lower interest rate and probably make this a little bit better. But I'm happy just paying this thing off. Even though over half of it I've paid off on the mortgage in terms of the equity. So passive income from duplex number one is $850 per month. And that is if you take the total number of rents, which is 1,900, minus the mortgage that I pay every single month of 1000 do, that gives me $850. But I do have a management company that manages, they do a phenomenal job. They are $190 or 10% of gross rents. And so that 190 is 10% of 1,900. And that is the total number of amount of rents that I collect. So in all this duplex makes me $660 passively. And the reason I can say it's passively is because I am paying that management fee. And for people out there that are saying, oh, you shouldn't have a management company, you have to remember that I don't want to spend going after toilets or dealing with leases. I'm very happy to pay this. In order for me to be able to free up my time and stay working on the pillar, which is my businesses, lawn care, landscaping and other companies that I have now, the rent on this property will go up. Currently we're at 1400. That number one unit there will probably go up to 1800 within the next 12 months. Just because rents are Going up. And the market is definitely in high demand for this type of a unit. So that leads me to my second deal, which was actually three duplexes, all at the exact same time. They're right next to each other. They are owned by the same person. So duplex is number two, three and four. And this was in spring 2020, right when the pandemic hit. There was a peak fear in the market. And this is when, if you followed me for a while, you know that I really got really heavily invested in the stock market. And this is also when I started purchasing real estate even more so. So duplex two, three and four, all in the spring of 2020. All, all of these units. So there's six units total, two for each duplex. All of these units are three bedroom, two bath. A total of six units. Purchase price was $507,000 per duplex. So that was a total of $1.521 million for the three together. Now, as these units became vacant and we got new renters in, is when we would fix them up. We'd spend about $20,000 fixing these, each unit up. So for a total of $120,000 in total fix again as these units became vacant. Now, right now, the current value of this property, after you fix it up, raise the rent. Now it's $620,000 per duplex. Three of those is a combined $1.86 million in current value. The current rents on these properties, we get $10,200 per month. Now, I have an asterisk there because right now we're still in the market moratorium. And there are some people that are not paying rent. And these are the people that we were basically given as tenants. And unfortunately, they did not have the right vetting. We had drug issues, People were squatting. We had a lot of problems. So even though this picture that I'm painting today sounds pretty good, keep in mind there's going to be unforeseen things happen and tenants can really make big problems for you. And we had to get lawyers and attorneys and the police involved to get some of these people out. Even though the eviction moratorium was on, it doesn't mean that someone can doing crime activity out of their house. And it also doesn't mean that they can't not talk to their landlord and try to figure out a solution, try to figure out a payment plan. So currently, two of these units are being rented out at $1500 per month. Four of them are being rented out at $1800 per month. Our hope is that in the next 12 to 18 months, all of the units will be rented out at $2,000 per month. Because the next door is a vacant deteriorating house that's being demolished and they're putting in luxury apartment, luxury condos. So I know it's going to dramatically affect our property values. And that's another reason why I purchased this building. And these buildings, these three duplexes, is because right next door, this massive eyesore that makes the place look horrible. And I noticed this from our city council meetings notes that I saw that they rezoned and reclassified the zoning of the that area to allow for high luxury condo units that are going to be going in in the next 12 months. Alright, so now the mortgage on this one, each duplex is $2,300 per month for the mortgage. Multiply that by three, that's a total mortgage of $6,900. Now that includes not only the mortgage, but also the insurance and property taxes. That's all inclusive when I say mortgage. So as a total, our, our debt still on this property is $1,050,000. So you can kind of do the math. I got 25% down on this property. Had to put a little over $400,000 down on the property. As you can see, it's about 25% on the property to get it under contract. So all in all, the passive income on duplex 2, 3 and 4, we have $10,200 in rent. We have a $6,900 mortgage. Again, I'm paying 10% of gross rents and to the manager. And then I'm also paying $200 per month in maintenance because we do mow this lawn. Augusta Lawn Care, my landscaping company, we go out there, take care of the property. So all in all, passive income, $2,080 per month. Now the equity on these three units is now our value is 1.86 million. And I owe currently 1,050,000. So currently the equity in this property is $810,000. Alright, to bring brings me to my fifth duplex that I purchased in the fall of 2020, right when I was 24, 25 years old. So all units, both of These units were three bedroom, two bath. The purchase price was $617,000. And one thing I didn't mention is my first property was in Blaine. My second, third and fourth property, those three duplexes, they were in Ferndale. This fifth property was in Bellingham. Bellingham is kind of the largest city in our county. And their home values are much higher. So $617,000 was the purchase price. I put about $40,000 into the property to fix it up. Now, I didn't get 25% down conventional loan, and that would be about $150,000 down on the property just to get the loan. Now the current value is $750,000. And again, 2020 and 2021. The real estate market has gone bananas. So a lot of these gains that are seen in equity are not going to be real realistic to see every single year. That being said, we're doing some forced appreciation by fixing up the place, increasing the rents, and immediately because the cap rate or the expected return from the investment goes up. Therefore, the value of the property does go up. Even if the real estate market isn't appreciating as quickly as it has in 2020 and 2021. The current value now is 750,000. Current rents are 2,800 and 2,000. Now when I got the property, they were 1500 and 1650. So we've already raised them. And this property here, this one unit here, we actually haven't fixed up at all yet. We simply went, took them from 1500 to 2000. This unit is the one we really did the new carpets, did all the painting, changed the fixtures out. And actually I have a video of that I can make later this week if you're interested in this. Or maybe you're just bored out of your brain, might get back to the business stuff. But if you like this type of content about real estate and you want to see how we actually do the fix up where I spend the money to increase the rents, make sure you comment below, let me know and I will try to make more of this content and actually showing what we did to take this rent from a $1,650 unit to $2,800 unit for monthly rent. So the mortgage on this duplex is $2,700. That means we have a debt of $450,000. So when it comes to our income, we have $4,800 in rent. Great. We have a mortgage of $2,700. It has a tiny little lawn, so Augusta will come in there a couple times a month, clean it up, mow it $100 and then management again, 10% of the gross rents. Again, our gross rents are $4,800 per month and therefore $480 goes to the manager. So passive income of $1,520 per month. Our goal is to get the second unit up to $2,800. But to do that we will need to put some more money into fixing up the place. So now the equity in this property, $750,000 is the total value. I still owe $450,000 on the property, so therefore the equity I have in the property is $300,000. So now we've given you all the numbers on each of the properties, but now you're like, hey, how much passive income did that all get you? Total. Alright, let's just add up the numbers from the three different deals. All five duplexes, the passive income was 660, 2000, 80, 15, 20, for a total of $4,260 in passive income each month. Now, in terms of the equity, which is basically the value of the property, minus the debt or the mortgage I still have on the property, the total that is $1.31 million across all five duplexes. So now maybe you're hyped and you want to buy your own duplex and you're wondering if this is a good time. Let me bring a couple reminders before we come to that conclusion. First and foremost, you need to keep in mind that repairs and maintenance can be unforeseen. And if you're getting older units and a water heater goes out or there's a leak in the roof, there can be unforeseen expenses. And I didn't take into account any of those today. Vacancy as well as repairs might pop up and they're going to cost you both in form of less cash flow if you have vacancy and higher maintenance costs if you have random repairs that happen on older building. The second thing to keep in mind is appreciation. And I say this because everyone's in the comments going to say $600,000 for a duplex. I could have got that for 150,000. You're right. Maybe out in the middle of Ohio or Michigan or another state, you could easily get some of these properties for much, much cheaper. But it's not necessarily cheaper, is not necessarily better. You have to remember that if the value of the property is not appreciating, that asset is not worth very much. If you're in an area where there's a lot of growth and a lot of people moving into town, and there's new industries, new businesses, lots of new developments, there's a really good chance that your appreciation is going to be higher. Because the property values are higher, people are moving into town, there's driving more demand. That means that you're going to the value of that property is going to appreciate more. If you're living in an area where there's no one wanting to live there and is out in Whoville, guess what? You're not going to get as much appreciation. Now let's assume the appreciation rate is the same. Let's assume all property values go up by 10% next year. Just for example. Now if I had a $50,000 property that I purchased, that would mean that my appreciation for next year would be $5,000. Great. Now I buy in a more expensive area, I have the exact same rate of appreciation, but instead I buy a property that's $300,000. It's a more expensive area closer to town, in a better, you know, next to a nice neighborhood and maybe next to the hospital or a mall and it's $300,000, it goes up 10%. I've now made $30,000 in appreciation, which is six times the appreciation I made on a cheaper property. So keep that in mind because cheaper is not necessarily always better. It might be a great place to get started. Location, location, location is what brings appreciation. Alright, the third thing that you might be wondering is, well, can I self manage my properties? And the answer to that is yes. If you go back through all of the numbers and take out the amount of money I spent on property management, yes, you could easily double how much money you're putting in your pocket every single month. However, if you're a business owner or you're busy, this is not your full time thing. You want it to be passive. And for most of you that are watching, you might be business owners. I would recommend go find a good property manager. They're not easy to find. You might have to go through a couple of them. But if you can find a trustworthy property manager, they can take care of all the the calls and the tenants while you make less return. But your time is worth a lot more in your business. I'm fortunate enough to have Liz, who you've seen on the podcast before, take care of the properties. She does an incredible job and she does that on the weekends after she's already worked at Augusta. The fourth thing to keep in mind is that you can't necessarily do what I did with no money down. There is a ways to do that to be able to get partners or get people to lend you money. That's like out of a regular bank or not a conventional loan. But if you're going to get a conventional 25% down loan and not have to get property, mortgage, insurance PMI, then you're going to have to have money down. And if you're going to fix up those properties, you're going to need money for renovations. So it's not like you can get started for nothing. And that's why I started at the very beginning of this video. And that said, focus number one on your business, focus on the thing, whether maybe you have a job right now, keep stacking money aside and your first property you can get in with an FHA loan for maybe 5% down. You don't need a 25% down loan, but again, that 25% is going to allow you not to have to pay property mortgage insurance, therefore making your monthly payments on your mortgage a little bit lower. Now, there's really just three reasons why I or any real estate investor are going to rent out properties and buy duplexes like this. The first thing is long term cash flow. And I say long term because, because like we saw in 2020, you buy a property that has tenants, a lot of times the leases aren't great, the tenants aren't that great, the rents aren't that great. You gotta fix up the property, fix up the type of quality tenant that's inside. Long term is the key here. And that cash flow is what comes maybe after two, three years. You get the right tenants in there, you get things fixed up, you get it where you want it and you able to actually generate great passive income. The next thing is appreciation. We've seen already today the amount of appreciation that you get from duplexes as the market rises, as your rents go up. And in my mind, the reason that these values of this property will continue up in the next several years is because the rents are going to go up and up. If you're worried about inflation right now, yes, Bitcoin is an option, yes, gold is an option. Buying dividend yield stocks is an option, but also buying real estate because if you, you know, real estate is also going to go up in value as well as the rents are going to go up in price per month, therefore improving the value and the value appreciating in that real estate asset. The third reason is taxes. There's a lot of write offs and a lot of deductions that I can take because on my tax return at the end of each year, I can actually deduct the interest that I pay on my mortgage. I can also deduct certain expenses that come as part of being a real estate investor. For example, in 2020, I had a lot of taxable income that came from a windfall in the stock market because I also purchased a lot of stocks in spring of 2020 after the crash. So therefore, that taxable income is not great for taxes. Whereas real estate, a lot of the income that I make, I'm able to not pay taxes on because of depreciation, that is tax savings on my tax return. So now the final question. Should you buy a duplex today? And for some of you, I would say yes. For some of you I would say no. But either way, regardless, regardless of your situation, I recommend that you educate yourself. I listened for four to five years podcasts and books about real estate and I bought one property in that time and then I waited several more years, like four or five more years before I ended up buying eight units in one year. Why? Because the market was right, I saw opportunity, I pounced on it. So don't get in a hurry with real estate. This is a long term investment. Wait for a good opportunity, they will eventually show up. Markets come up, markets come down, properties come up, properties show up on the market. And you could be quick and you're educated and you know it's a good deal. You know your numbers, you know what you can afford. You have letters from the bank that already authorized you for a certain amount on your loan. You can act quickly. So what I recommend you do is educate yourself, know your numbers, know what you can afford, know what type of property you're looking for, get an agent, start to look at the mls, the multiple listing service, and actually begin to look at some properties. And then when you're ready, whether that be in a year or two years or five years, you're going to be have the education information to make a decision and buy your first property. So I hope something was said today that was helpful. I have five duplexes. I'm sure there are people that have 500 and could do a much better job. But I hope that was helpful for those of you that might have businesses transitioning into real estate or other diversified assets. And that's a big reason why a business owner or someone like myself would like to buy real estate, is to diversify your portfolio outside of just one business or maybe you have a whole bunch of stocks. Diversification is important for safety as well as in case the businesses don't do well, do you have something to fall back on or pull that equity out of the real estate or your assets in order to make sure the business doesn't fail? I'm Mike Andes, Business Boot Camp Podcast. We'll see you tomorrow.