A real-estate investor who was able to retire at 37 breaks down how he makes $15,000 a month in passive income
- On an episode of the podcast "The Side Hustle Show," hosted by Nick Loper, the real-estate investor Dustin Heiner explained how he was able to retire at 37 by investing in rental properties.
- Heiner broke down the steps investors should take before buying a new property and how those rental properties could make them money.
- He stressed picking the right city and state, assembling the right team, and the importance of the $250 monthly passive-income benchmark.
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Dustin Heiner is a seasoned real-estate investor who retired at 37 and makes about $15,000 a month in passive income from his rental properties.
On an episode of the podcast "The Side Hustle Show," hosted by Nick Loper, Heiner explained how he went from working in a local government office to working for himself and laid out the steps investors should take before deciding where to buy property.
In 2006, Heiner bought his first rental property in Ohio for $17,000 in cash. He said on the podcast that in his first month of renting out a home, he made about $350 after expenses. That number would prove significant as Heiner began investing more and more.
To turn the side hustle into a full-time gig, he said, he had to invest in more properties that gave him the same type of monthly cash flow.
"If I were to multiply that out, one property is $300, 10 properties — oh my goodness, that's $3,000 a month. That is $36,000 a year," Heiner said.
In 2016, he had about 26 properties, so he quit his day job and focused full time on rental-property investments. He now owns over 30 properties, he said.
Heiner said he was lucky with that first deal he found in Ohio.
"I did everything wrong," he said. However, over 10 years and many properties later, he has developed a system of steps he suggests everyone take before making a new purchase, he added.
First, pick the state you want to invest in
Once he has decided on the state, Heiner uses Zillow to do research on the cities within that state. He looks at highly populated cities with a lot of available properties, he said. Once he's narrowed down the city, he looks at all the properties within that city to see if they meet his criteria. This means looking for a property that matches up with the amount of money set aside for the investment and high rental-income rates.
"Here's a principle for everybody listening: You want to buy for $250 or more in passive income after every single expense," he said on the podcast.
The next thing to do is build the business
This step requires "finding the right people to actually run the business for us," Heiner said.
These people include property managers, realtors, wholesalers, investors, insurance experts, and maintenance workers.
The most important hire, according to Heiner, is the property manager. He suggested interviewing at least six property managers before narrowing in on one.
One time, Heiner said, "I flew to Illinois. I went to Springfield, Illinois, a great town, a great place, but I literally could not find a good property manager."
While the town was great, he said he left empty-handed because he wasn't able to secure a manager he trusted. When it comes to finding the right property manager, Heiner said, there are three things to look for: someone who has a personality that meshes well with yours, is trustworthy, and is good at communication and doesn't take long to respond to phone calls.
"A big pro tip is to ask them, 'If you were to invest your money right now in this city, where would it be? Where would you buy?' Those are great key areas of where you should start looking," he said.
After the Illinois experience, Heiner said he realized he didn't need to fly to a place to build out a business there.
"Now I literally do everything remotely," he said. "I found there's no need to actually fly to another city ever again to start in a brand-new place."
But the key to being able to stay remote is to have a solid team so that the business runs automatically and makes money every month. In fact, Heiner said this system allowed him to work just 30 minutes a month.
Why $250 a month is an important benchmark
Making $50 or $100 a month off a property is too little, according to Heiner.
"If you extrapolate that out, $100 a month is literally $1,200 a year. If you have one bad thing, like a roof go out, there goes your entire profit," he said.
Of course, it is important to have savings set aside to cover things like repair expenses, but at $100 a property, that doesn't leave a ton of money to live on, he said.
If you seek only properties that are going to make you $250 or more, once all other costs, like capital expenses, repairs, and property-management fees are paid for, then you will have a "life-changing business model," according to Heiner.
But the key here is to have multiple properties in different areas making you passive income each month. This will not only bring in more money but also limit the risk of the investment.
"I've literally not paid any money for my properties out of my pocket, I want to say for 10 years, because I have so many properties now that make me so much money that if there are any issues with any of these properties, that is coming out of the rents I'm getting from the next month," he said.
5 other ways investors make money off a rental property
Picking up properties at a discount means that when they are sold again, the sellers will realize the equity gains. This is called equity capture, Heiner said.
"We're investors. If the property is worth $100,000, we're going to offer $78,000 and then work our way to were we're probably going to be settling for $85,000 or $88,000, so we're getting the value down," he added.
Then there's forced appreciation, in which renovations increase a property's value, as well as market appreciation, a natural increase in value over time as the market goes up.
The other two ways to make money off a rental property are tax advantages offered to investors and mortgage buydowns, which mean the monthly rents from tenants cover the mortgage expenses.
According to Heiner, he doesn't pay insurance, taxes, or property managers out of pocket. Those expenses are covered by the rents he collects from his tenants.
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