How Can I Make $5k Per Month Without Risk?
“Level of Risk” always seems to be conversely connected to “Return on Investment.”
Here is how I dramatically reduce the risk in my business and maximize the return on investment (which is usually zero, by the way).
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Read Transcript for “How Can I Make $5k Per Month Without Risk?”
“How can I make $5,000 per month consistently and reliable without risk?” – Angela Cambridge, Boston, Massachusetts
Joe: There are two ways that you make money in real estate. One is by active investing and one is by passive investing. If you want to make money through passive investing, you have to have money because money is what makes you more money. Everything else is active investing.
Joe: If you have money, then you’ll want to buy some good rental properties that bring you good income and brings you 8% to 15% or more return, depending on whether you set up the deals or buy them from somebody else.
Joe: I sell properties regularly that bring in 12% to 16% return on a passive investment, properties that we’ve bought, rehabbed and we have property managers for and have tenants already in. We’ve done all the work on them and I’ve used my infrastructure. I sell those properties. I take a profit off of those deals but it still gives a return to passive investors who have the money to make it worth their while.
Joe: And, I also know that when I buy those properties, I don’t have to worry about whether or not I’m going to be able to sell them because if I can’t sell them, I can just hold onto them and I’ll be able to get that return and it will be a little bit higher because I paid less for it than somebody that I sell it to. You can do the same thing when you have cash to invest.
Joe: You have to learn how to buy these properties and how to build an infrastructure. I had a learning curve even after experience. When buying into a new area, it takes a while to learn that area, to learn what works and to find good property management in those areas.
Joe: The key to owning passive investment property is having good property management. So you have to pay attention to make sure that your property manager is paying attention, and you do that by getting regular reports you look at once a month or every two weeks, which is what I do.
Joe: My people spread out the numbers in front of me and I look and see what’s vacant, what the cost has been, what the repairs are, what income came in, what my expenses were, I see what my cash flow is, and I’m able to do that and touch base once a month with it and not really have to worry about it other than that because I have good people who are working on it.
Joe: It didn’t happen like that from the very beginning; it took me awhile to get it up and running, but now that it’s up and running, I don’t have to worry about it nearly as much, and it’s a pretty nice situation.
Joe: If you want to make $5,000 a month, passive investing is one way, but you have to have money to do that. Active investing is the other way and the way that most people have to do it. If I were just getting started today, I’d have to do the same thing.
Joe: Then, you can buy properties and put them into a portfolio. So, let’s say you buy them “Subject To” and each one of them brings in $200 or $300 a month – you’re going to have to buy a lot of properties before you get up to $5,000 a month if you’re just counting on that $200 or $300 a month of passive income from that property.
Joe: If it’s $1,200 a month income and you have $1,000 a month in expenses, that means you have $200 a month in cash flow on that property, so you’d have to do an awful lot of them. You’d have to do five of them just to get $1,000 a month and that means with 25 properties, you could have enough money to be able to get to your goal. It’s not that hard to get 25 properties, actually; you could probably put together one a month of these Subject To’s.
Joe: You also have to worry about vacancies, because when you have vacancies, then you have $1,000 a month going out and that can eat up five months of profit if you have one month vacancy. You’ll probably have one month of vacancy every year. A 10% vacancy rate is not uncommon.
Joe: I’ve had it to where it’s been as little as 2% or 3% and I’ve had it to where it’s as high as 20%, and boy that hurts – when you have 20% and you have mortgages going out. This happened right after the crash in 2007 and 2008. The market collapsed and people were losing their jobs and they had to move out and we lost so many tenants. We had a 20% vacancy rate for more than a year and it was pretty painful, so you have to make sure you have the cash reserves to do that, which fortunately I did, so that made it make sense and made it work. We got through it and now we’re back on track again. It didn’t take long to get back on track.
Joe: But you can also take these properties and flip them. You can have a business that flips your property for you using the “For Rent Method”. I think this is the best way to get it up and running. Using the For Rent Method, it’s pretty easy to make $2,500 to $7,500 and maybe even $10,000 per deal that you do and if you do one or two deals a month, you’ll be in good shape. It’s really not that hard to do that many deals because you have a lot of leads coming in and can convert those leads.
Joe: You have to do the work. You have to follow through with the process. Or, you have to outsource it to somebody who does the work and then you have to pay attention to make sure that they’re doing the work or set checks and balances in place that will make sure that they do the work.
Joe: What we do is we have a virtual assistant who sends out leads to our telemarketers and then the telemarketers make the calls and they fill out a sheet and send it back to the virtual assistant and then the virtual assistant then can see what they did.
Joe: We don’t necessarily tell the telemarketer that we’re checking up on them. What we do is say, ‘We want this back in the system’ so that they can schedule the follow up, and then they’ll send you another note that day that’s supposed to be followed up on, and they’ll go back to them and follow up on them again. That way, there’s checks and balances in the system without making your employees or the people that are working for you feeling like you’re looking over their shoulder even though everything that they do is confirmed by somebody else. If they do something incorrectly or if they don’t do their job, then the other person can’t do their job because they’re waiting for that job to be done.
Joe: So, build your structures and systems in a way so that if that person doesn’t do his work, then this person knows about it and they let you know, and then you can go to this person and say, ‘Why didn’t this work get done?’ That’s what makes it possible to put all this stuff together. Alright, I hope that helps.
Joe: It’s not that hard to build a $5,000 a month income. Most of my mentor students are able to do that if they follow through and if they do the work. Now, I also should put a disclaimer in here: a lot of people that come into my mentor program don’t do the work – they don’t follow through. They don’t do what I tell them to do, or they try to change it or reinvent the wheel. I don’t understand why they pay so much money for a program like this and then not follow through with it, but it does happen.
Joe: So, if you’re going to get into my mentor program, the first conversation that I’m going to have before you join is, ‘Will you do the work? Will you come on my calls? Will you follow through with this process? Will you do it the way I ask? Will you put aside at least eight to ten hours a week to devote to this process?’
Joe: This is a week, not a day – eight to ten hours a week – if you can devote that amount of time (and you can do that while you’re doing a full job) to this process and you actually do the work that I tell you to do during that time, then you’ll make money; I guarantee it.
Joe: I’ve never had anybody that followed through with it the way that I taught that didn’t make money before the program was done. I’ve had lots of people that didn’t follow through. So, if you’re going to get into my program, you have to promise me that you won’t be a whiner or complainer, and if you do those things, that’s pretty much the criteria I have for getting you into the program.
Joe: I want somebody who’s going to have a passion for the work, who’s going to enjoy this process, who’s not doing it just to make money but also because they’re jazzed by the idea of real estate. This is a fun business and working with people like this is a lot of fun. Getting people into homes and taking properties off of peoples shoulders is a lot of fun, and if you do it right – Jim Dralle used to call it the ‘Crying Quotient’ – how many people cry at closing thanking you for either getting them out of a property they couldn’t sell or getting them into a property that they couldn’t have bought without your help because their credit wasn’t in good enough shape to do it.
Joe: We get lots of hugs and thank you’s in this business because of the way we do business. We’re not there to screw some old lady out of her inheritance for her kids by ripping off all of her equity. We want to do what I believe is an honorable, ethical business. That doesn’t mean that we don’t sometimes get properties under market value, but we make sure that they understand what their options are before they sell. And if one of their options is to do it another way that might make them more money, we’ll give them that option. They still will sell it to us under market value many times just because the stress of it emotionally is more than their desire to make money.
Joe: You can still do honorable and ethical deals and get great, fantastic, high equity deals out of it. Anyway, talk to you next time.