One of the questions that I get asked a lot when I tell people that I invest in real estate is how much time I spend on it. Most of the time, people are looking for validation that it is just too much effort for them to put in. They are looking to confirm their limiting belief about real estate investing. On the other end of the spectrum, some real estate investors will paint things as being almost completely passive, which is disingenuous. So, I want to provide an authentic case study that will give a powerful glimpse at what I call the passive hustle of real estate investing.
First, what is the passive hustle of real estate investing?
Well, it’s just that.
It’s part passive and part hustle.
I guess the confusing part is that the hustle comes first and the passive comes second. But to call is “hustle passive” just doesn’t make any sense. So, “passive hustle” it is.
Basically, like I’ve talked about before, passive income, even in real estate investing, is a misnomer. It’s a unicorn. It doesn’t exist. Ah, but leveraged income does exist. And that’s exactly what real estate investing is. It’s leveraged income. The effort you put in is not tied to your income in a 1:1 ratio like your day job as a doctor or other professional.
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But that naturally leads to the next question…
How much hustle does it take to successfully invest in real estate?
I’ve thought lots about how to answer this question.
And I think the best way is with an example. Because an example can be illustrative. And it can be independently interpreted by all of you. Some of you may look at the example and think that the work required is worth it. Others not. But you will be better able to make this judgement through a case study such as this.
Let’s set the stage
So, here is the case study.
I’m writing this post on April 11, 2021 although it will likely run somewhat later.
On April 5, 2021, Selenid and I closed on our second real estate investment property, a duplex.
I am going to go day by day and share what we did from the time of closing to renting out the duplex. This period was a period of real estate hustle.
Then, I am going to share with you the immediate passive rewards that came as a result of that initial real estate hustle. I will also project our long term returns based on our short term active work.
Then you can be the judge.
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What I won’t include
I won’t include the time period of searching for an investment property.
This of course involved active work. It involved looking at listings that we found as well as the ones our investor real estate agent sent us. We then had to go look at the properties and run due diligence. We made offers.
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Once the offer was accepted, we entered the closing period. This period is pretty passive as the bank and everyone gets their ducks in a row.
Overall, the active effort of this portion of the process is pretty minimal. I don’t think anyone should be scared of the time requirements of this part of real estate investing.
Most of the time people are worried about getting the property ready, renting it out, etc. And of course, they are worried about being a landlord. But I’ve covered that already in this post.
The case study
April 2, 2021
- Walkthrough of the property before planned closing on April 5
- Some items identified on inspection to be repaired by the sellers were not taken care of
- Our agents spoke with the sellers’ agents. They agreed to fix the issues before Monday
- The sellers had professional pictures taken for their listing after they made some renovations. So, we sent those pictures for virtual staging
April 3, 2021
- The virtual staging being complete, we created our ads for the 2 units and ran them
- Through the weekend, we scheduled showings for the following week as interested people contacted us through the ads
April 5, 2021
- We met with the agent for a final walkthrough
- Two small, non-urgent repairs weren’t fixed over the weekend. Both were windows that needed the weight balance fixed
- We negotiated a $500 credit
- The sellers’ agent gave us the keys ahead of the closing so we stayed for an hour and cleaned
- I also did a few minor touch up repairs like painting the outside wood steps and cleaning litter from the yard
- We went to the closing and signed papers for 30 minutes. The property was ours!
April 6, 2021
- We had scheduled showings throughout the day. Selenid did most of them with the help of my brother, Jason
- One family was very interested in the lower unit. They submitted an application and screening that we reviewed that night. They met our criteria all around. We sent them our standard lease and they signed. We requested first month’s rent and security deposit. They paid this. The unit was theirs
- Some other interested parties desired evening showings. I went and did these once my kids were asleep. Some submitted applications but no one committed
April 7, 2021
- We dropped of the keys to our new tenants for the lower unit
April 8, 2021
- We went to Home Depot to look for new appliances for both units since they were not included in the sale
- We found durable, efficient, and affordable appliances and purchased them
- The total came out to $2,000 less than we had projected in our initial calculations for the property
April 10, 2021
- Two more showings in the afternoon. Both parties were interested but one submitted an application and screening that night
April 11, 2021
- Leases were sent to the interested couple for the upper unit. They signed and submitted necessary deposits. The unit was theirs!
- We went to Target and bought items for a welcome basket for the 2 sets of tenants. We do this for all of our tenants when they move in. I went to round on a patient in the hospital and dropped these off on the way home
That’s the real estate hustle part
No one can say that this wasn’t work. Or wasn’t active. It was.
But did I mind doing it? That’s a complicated question. Did I want to drive back to the property for showings that one night?
Well, I wouldn’t necessarily choose to have done that in another context. But I know the grand plan and see into the future so I knew it was worth it.
And that’s what we have to get into next…
What did we gain from all this work?
Let’s talk dollars. (I’m going to share a full deal analysis of the property soon. That will include a much more detailed analysis. For the purpose of this case study, we’re talking in broad terms.)
We bought this property with a mortgage and paid 25% down. We don’t actually owe our first mortgage payment until June 1. Therefore, we knew that the earlier we got tenants into the property, the more cash flow we made before some of it was taken up in equity pay down via mortgage payments (made by our tenants to build our equity).
In all, we made over $3,000 in rent and non-refundable deposits from the hustle of this first week and change. I think that’s pretty good!
I’m sure there are many of you thinking that over $3,000 for that work is not worth it. And you may be right if the was it. But that is just the cherry on top, the icing on the cake, the sprinkles on the sundae…(I can go on, trust me.)
Through our strategy, we have created an expected cash on cash return for this property of 20.2%. And remember, our goal is 10%. Expected income each year is in there $12,000 – $15,000 range.
And on top of this, we are building equity in the property every month that our tenants pay out mortgage for us.
But wait there’s more. Via forced appreciation with the property, we have already increased the equity in it by over $100,000.
Annnndddd…Selenid is working to reach real estate professional tax status (REPS) this year. Which means that each hour of “material participation” in our rental business brings her closer to that designation. And that designation will allow us to offset our W2 income from passive real estate losses. This will save us tens of thousands of dollars in taxes.
That real estate hustle doesn’t seem too bad now…
The take away message
The message that I hope you all take away from this case study is how powerful just a little bit of work and hustle can be in real estate investing. That’s point #1.
Point #2…last year at this time, Selenid and I knew nothing about real estate. Fast forward a year and here we are, cash flowing over 20% on our 2 properties and closing on a third with expected CoC of greater than 25%.
Like everything else, there is nothing special about us. We had and sometimes still have the same limiting beliefs as everyone else. But we have worked hard on our mindset to overcome these and find success.
You can do the same! Start here:
- A Physician’s Guide to Real Estate Investing
- How to Win the Fight Against Analysis Paralysis
- How To Get That First Investment Property Under Your Belt
- Financial Education 101: How to Finally Get Started on the Path to Financial Well-Being
- How to Grow A Healthy Relationship with Money
What do you think? Is the active part of real estate worth the passive returns? What has your experience in real estate investing been? Let me know in the comments below!
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4 thoughts on “Powerful Case Study of Passive Hustle in Real Estate Investing”
My wife and I are so amazed and impressed that you juggle a blog, real estate side hustle, and parenting while being a plastic surgeon!
A blog post on your and Selenid’s time management tips sometime could be super interesting!
Thanks Tom! We will definitely write something on that topic soon!