When I sent out our annual survey for the last year, so many of you mentioned that you would love to hear more about investing, financials, and most specifically: real estate. I won’t be turning this podcast and blog into a real estate business hub (don’t worry!), but I know that you may be wondering as you grow your business what to do with the money you are making (other than to just spend it on your lifestyle). For Adam and I, we made the decision to start investing in real estate and that’s what we want to talk a little bit more about today!
If you are reading this and already thinking, “I don’t have any properties and I’m not ready to invest in real estate”, I want to just pause a moment and encourage you to read on anyway. If you told me ten years ago I would have five properties now, I wouldn’t have believed you. If you don’t think it’s possible for you, I really want to use this episode to encourage you today.
Joining me on this week's (and next week’s) episode is my husband Adam! I always love chatting with him and having him share his perspective, and today, we went deep into the REAL numbers of three of our properties. While I won’t list out all of the numbers he mentions here on the blog, I want to encourage you to tune into the episode when you have time to catch those figures. I know you all appreciate real numbers and honesty and transparency around money and I do too. Adam and I joked that this could have very well been a shareholder’s meeting with you! We don’t hold back.
Besides sharing the figures, we also talked about working together in our marriage, macroeconomics, the house market right now, and a little advice at the end from Adam if you are excited about the opportunity but are still on the fence.
LISTEN TO THIS EPISODE NOW:
Before I dive in, I just want to say this: one of the most beautiful things about running a profitable business is being able to invest in other profitable businesses. If you are interested in investing in real estate one day but you are thinking - wait, I need to make money in my own business first - you need to check out my course Booked Out Designer. If you love the podcast and feel like you learn a lot here then trust me, you’ll learn even more inside the course.
I’ve poured out absolutely everything I know about running (and growing) a profitable business including pricing to make a profit, running a client project from start to finish, discovery calls, booking clients, marketing your business, and so much more. I even share real meetings with my clients so you can really see behind the scenes! On top of that, there are tons of templates and swipe files you can use today to save you time and money. No matter what stage of business you are in, if this sounds like something that would help you hit your goals this year, I would love to welcome you inside Booked Out Designer today.
Now, let’s dive into my conversation with Adam! This episode was really just to update you all on how things are going now (since the last time we talked about real estate was before Colin was born - a literal lifetime ago!). In case you are interested, you can find that three-part conversation here:
- Part 1: How We Got Started In Investing, Buying In A Seller’s Market, Working With Your Spouse, Picking The “Right” Property, And AirBnbs Vs Long Term Rentals
- Part 2: How Much $$ Do You Need, Screening Tenants, Management Companies, Buying Multiple Properties At Once, And Financing!
- Part 3: Strategies For Getting Started, Other Ways To Invest Your Money, How To List Your Properties, And The Challenges We’ve Experienced Along The Way
As you can imagine, a lot has changed! We have learned a lot and we can’t share a little behind the scenes with you today.
Today, we are sharing our numbers, what it’s been like, and how the business has grown.
The last time we talked, we had 3 properties that were all purchased in early 2021. One of our properties is almost hitting its 2-year anniversary! What’s really cool about that (compared to the last time we recorded a podcast), is that we have complete numbers for 2022 since these properties were up and running for an entire (normal operating) year.
In the first year, it’s really hard to get numbers on how much each property is making. There are starting costs and closing costs, as well as an assortment of things that might need to be fixed, HOA fees, time the property is vacant while we were fixing things up, and so much more.
This year, we also grew our real estate portfolio by adding one property out of state (in Huntsville, Alabama) and purchasing a new primary residence (and keeping our old home as an investment property). We won’t dive into the numbers of our two newer properties today, but I wanted to share that in case you are interested.
Read more: If you love to dive into financials, you may also want to check out this interview with my bookkeeper last year!
Our First Rental Property
We anticipated about $9144 in free-flowing profit looking at the amount it rents for and deducting the mortgage costs, property tax, insurance, and HOA. This would have been about a 16.5% cash-on-cash return. If you are familiar with the world of investing, this would have been a fantastic return! The US Stock Market averages tend to fall between 7-9% over time.
We don’t include capital tax in that figure but we will talk more about that in a later episode!
If you are interested in learning more about how to calculate cash-on-cash returns, we highly recommend How to Invest in Real Estate by Brandon Turner and Joshua Dorkin. It’s not the only way to calculate your ROI but it’s a great place to start.
We had initially invested about $55,000 into the property back in 2021. This particular property did not need a lot of work, so this figure was almost exclusively the down payment and closing costs.
Now let’s share the actual numbers! The actual free-flowing profit from this property was $9026. What this means is: what we thought would happen actually happened (which definitely is not always the case in real estate!).
Our Second Rental Property
For this one, our projections were $7116 for the year and in reality, it made $902 in free-flowing cash. The reason we were a little farther from our projections this year was that the HVAC system needed to be replaced which cost us about $6000. Fortunately, we used the Spark Cash back Card (which if you are in Booked Out Designer you’ve heard me talk about before) so we did get a little cash back on that large, unexpected purpose.
If you’ve purchased a home, you know that investments will often need to be made into the property. The positive side of replacing the HVAC system is that it won’t have to be replaced for the next decade (we hope!) and we can use that expense as a tax write-off this year.
Our Third Rental Property
For our third rental property, we anticipated a profit of $7464, and fortunately for us, that ended up being pretty close to our reality finishing with an overall profit of $6750. We did buy a refrigerator but we didn’t have any larger unexpected expenses.
What We Made in Our Real Estate Business in 2022
With just these three properties (not including the two new properties we acquired this year), our overall real estate business made $16,679. In case you are curious, this is just about 10% of our initial investment. Between the down payments on the property and closing costs, our initial investment was about $164,000.
I also want to add this: the profit we are talking about here doesn’t include any of the other ways you can make money in real estate which we can talk more about in the future. This is JUST the money we made from renting the properties after expenses.
Read More: Although not specifically about real estate, if you want to make more money you need to check out this episode on How to Increase Your Profits in the New Year.
Is Real Estate a Good Side Hustle?
Bringing in over $1000/month for us, we do believe real estate investing is a good side hustle income but one of the myths we want to bust here is that it is still work. It’s not just sitting around and getting checks in the mail. Adam was constantly working on this throughout the year with minor repairs and tenant turnover. With that said, we both admitted it was more of a mental load than physical hours most of the time. You are likely going to be thinking about your properties all the time, so you need to prepare for that.
Is Real Estate a Good Family Business?
We think so! Adam really does do a majority of the work but I act as a sounding board and help make the bigger business decisions. We truly believe that with a family business, it’s natural that not everything is going to be “equal” all of the time. In a lot of ways, it shouldn’t be either, because then you may end up doing twice the work for absolutely no reason.
We had a lot going on in 2022, so this was a busy year between real estate investing and just life. Colin didn’t have daycare for the majority of the year, Adam goes to school and was also working on the side, and I continued to grow my business as well. It was a BUSY year.
Real Estate Investing and Your Marriage
One of the principles Adam and I live by is “Win together, lose together”. It’s not fair to have one person making all of the decisions because eventually, something isn’t going to work and one person shouldn’t shoulder the blame. Our real estate business is a true partnership and something we enjoy working on together, the same way that we both enjoy equal parenting roles with Colin. Neither of us wants to “win alone and lose alone”.
Want a little more encouragement to start a side hustle with your partner next year? Just last week I shared 6 reasons why a side hustle is a beautiful thing.
Other Ways to Make Money in Your Real Estate Business
Below, we want to break down two other ways we are making money on our real estate investments, above and beyond what we are collecting for rent this month.
Loan repayment (Amortization): Every time you make a mortgage payment, some of the money is going to principle which is profit above what we listed here. It’s delayed, it’s deferred, but it is real. For these three properties, we have about $750/month (TOTAL) going toward the principle.
Appreciation: This is less predictable than the amortization, but we bought these properties before the peak of the real estate market hit (which we believe, we aren’t at the peak yet). Although the market has seen a dip, if we sold all three properties today, our conservative estimate of profit would be an additional $108,000. That does take into account the down payment (money in the door).
Keep in mind, we haven’t even had these properties for very long! While you may feel we have gotten relatively lucky in the first year and haven’t had any expenses that have dipped beyond our profit, we could also argue that we didn’t buy at quite the right time either. There are pros and cons to looking at our numbers less than two full years in but I hope this episode still gives you a good idea of what our first “full” year looked like.
A Note on Macroeconomics
We also want to note: the reason that housing prices are going down is that the federal reserve made an intentional decision to make them go down. There still aren’t enough houses in America. If you look at investing into a real estate business now, we want to encourage you to not sit around waiting for the market to be just right. It’s ALWAYS changing. A little behind the scenes, when we bought our first house, we were told to wait and we are so glad that we bought it anyway. Prices have skyrocketed since then. Ultimately, there is no “perfect” time and all we can do is make strategic decisions with the information we have at the time.
Eventually, you have to just say yes!
You have to say yes at some point. As Adam so aptly put it, the only way to guarantee you don’t make any money is to just do nothing. Doing nothing guarantees a zero return. We believe the risks associated with investing in real estate, are less than the risk associated with doing nothing.
We hope you enjoyed this husband and wife episode about investing in real estate. This was such a fun way to kick off 2023. Make sure to tune in next week for part 2 (and listen to the podcast if you want even more of our “real” numbers!).
This episode was sponsored by Booked Out Designer! Like I said earlier, if you are wanting to invest in real estate but need to make more money in your own business first, I truly believe this is where you need to be. I share absolutely everything I know (from pricing for profit to running a client project from start to finish) to help you build a business you not only love but one that makes you money too.
This episode was sponsored by Booked Out Designer! Like I said earlier, if you are wanting to invest in real estate but need to make more money in your own business first, I truly believe this is where you need to be. I share absolutely everything I know (from pricing for profit to running a client project from start to finish) to help you build a business you not only love, but one that makes you money too. I would love to welcome you inside!
January 17, 2023