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How to Make Your Investment Strategy More Passive
Joe: How to make your investment strategy more passive. I’ve got a question here from someone asking, “Joe, I don’t have a lot of time. I love my job and it’s not as a real estate investor. What can I do to make my role more passive and not have to worry about these investments?”
Joe: Hire someone to do it for you. I think that’s the goal. I think it’s really important to learn how to do it yourself. And maybe spend the time to learn how to do it yourself. Too many people just go and they say, oh, I’ve got $100,000 let’s go buy a house and let’s rent it out. And there are worse things that you can do with that money. But if you understand a little bit about property management, you understand a little bit about finding a tenant, you understand a little bit about maybe doing it as a lease option rather than as a tenant, those things can really help you. If you understand a little bit about how tenants work and how that all comes together that’s all very helpful.
Joe: If you’ve got one property it probably makes sense for you to be your own manager. But once you start getting two, three, four, five, ten, twenty, thirty, forty properties you want somebody else to manage those properties for you because that can be very time consuming and it doesn’t cost that much to have someone do that work for you.
Joe: And when you own those properties you’re not going to have to put much time into them at all. I don’t put any time into my properties. The only time that I put into them is once a month I get a report from the property manager, it goes to my bookkeeper, my bookkeeper puts it into QuickBooks and then she prints out a report. I look at the year to date, I look at the report. I also have a spreadsheet that helps me understand what my cashflow is and understand what my return on my investment is and I look at those numbers. But I do that about once a month. It takes me twenty minutes to look at all my portfolio because I look at the spreadsheets and I look at the numbers and I look at the bottom line.
Joe: I also scroll through all of the receipts that I’m sent by my property managers so I can see what they’re spending money on as far as repairs that need to be done so I can pay attention to all that stuff. It doesn’t really take very much time at all to do that.
Joe: I also go in and look at my bank accounts because I have different LLCs for different properties and I want to see how those bank accounts are doing. Is the money that’s going out and coming in, is it money that’s being spent on the things that I think it’s being spent on? Is there something that looks like an anomaly on there that maybe a big chunk of money went out that I didn’t know what that was for? So I have to find out what it was for. So all those things you have to pay attention to and that’s not passive.
Joe: But if you’re investing in just about any other thing you need to pay attention as well. If you’re investing in the stock market, you probably should pay attention to the market and what’s going on with it. You’re not going to have as much control as you have with real estate. Real estate gives you a lot of control. And you’re probably not going to get the same kind of return. Real estate’s going to give you a better return.
Joe: I had a friend of mine who owns a bunch of properties and he says, well, Joe, I don’t get better than 7%, 8% return on my properties. I said, well, how do you figure that return? He says, well, you know, if the property cost me $150,000 and now I’m making, you know, X amount of dollars. It’s about, after all the costs and rehab and property management, it’s making me about 7% on the cash that I invested in that property. I said, well, what about appreciation? He said, well, yeah, it has gone up in value. How much is it going up? Oh, probably about 3% per year. So you’re making that money as well. And did you put all the money down on this property? No, actually I only put 10% down when I bought those properties so the return of 7% that I’m getting is on the full value of the property, but I’m making a mortgage payment.
Joe: So that money go towards paying down a mortgage so it’s actually more than 7%. And his return is only on that 10% that he put down. So he’s, on the 10% that he put down, the $15,000 that he put down, maybe another $5,000 in closing costs, he’s got $20,000 into that property and he’s ending up making $8,000 or $10,000 a year on income after taxes, after a property management, and maybe he’s got a couple thousand dollars in repair costs that has to do, or vacancies that he has to do. So, still, you know, 6% or 7% return on the full value of the property but maybe 50% on the money that he’s go into the property.
Joe: And over time the value of that property goes up, the mortgage gets bought down. He also gets the tax benefit for that property which ends up being about 1% after depreciation, 1% in real money. He also gets monthly cash flow on his properties. So all those things will add up to being a very attractive number. And he doesn’t live in the same states as his properties exist. He just has a property manager. And I say, well, does the property manager, because he was thinking about selling one set and selling, and buying, you know, buying some more in another area so he only had one property manager handling it. I said is the property manager doing a good job in both of your areas?
Joe: He says, yeah, I don’t have any complaints. I’ve been working with him for ten years. I said, well, then stick with him. You know, stay with the properties. Unless there’s a reason to sell those properties or you can get a better deal elsewhere then it probably makes sense to hold onto those properties for the long term. You’re just using that money to live on anyway.
Joe: So that’s a great way to get passive investment money on these properties and it’s just going to go up over time because rents are going to go up. It’s inflation proof. So rents are going to go up over time, and the value of the property’s going to go up over time. The mortgages are going to get paid down, you’re going to get the tax benefit of those properties at least for 27.5 years.
Joe: The other way to make your properties a passive investment quicker is to use zero interest loans. And I know I harp on this a lot, but I can’t say it often enough. It’s such a profitable way to buy properties. Instead of paying a property off like a subject to property that takes 30 years to pay off, you’re paying these properties off in 10 years because every bit of money that you’re paying to the lender is going towards principal. You’re not paying any money as interest to a bank.
Joe: So if you can structure deals like this it’s going to pay off much quicker. And that’s going to make it a passive investment so much quicker because you don’t have to worry about debt. You don’t have to worry about negative cash flow. The only expenses you’re going to have for those properties is keeping it in decent condition and paying for the taxes and insurance. So owning these properties with zero interest loans makes a lot of difference. And also owning them free and clear because you paid cash for them or paid them off over time makes a big difference as well. You just don’t have to do as much work.
Joe: All right. I hope that answers the question. If you like this channel hit subscribe and hit the like button.