Fund Your FIRST Rental Property with These Side Hustle Ideas (Rookie Reply)

Do you need moreIf you’ve ever felt overwhelmed at beginning your real estate journey, we’ve got some good side hustle ideas,Make money and discover your real estate strategy. There are so many ways you can earn income and expand your business in real estate.I’m Ashley Kehr.And I’m Tony j Robinson. And welcome to the Real Estate Rookie Podcast where every week, three times a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey.We are diving deep into questions from the BiggerPockets forums and the BiggerPockets Facebook groups.Alright, so our first question here, it says, I’ve been interested in real estate investing since starting university and recently saved up what I think is a good amount to get started. I’m in my early thirties with zero debt, excellent credit, and currently live in Minnesota, hoping to move to another state soon. I’m looking to get started and want a solid plan for scaling. I’m thinking of starting with an owner occupied two plus unit to give myself a bit of experience owning and being a landlord. I’ve been trying to put together a general five-year plan goals after five years minimum cashflow of six to $7,000 per month. Is this an even realistic goal? I want to invest in real estate to heavily supplement my W2 income to open up options and financial security. I have a few other questions that I’m hoping I can get your opinions and advice on as well. Number one, I’ve always read about people starting in their twenties, are there people who started in their thirties and achieve their end goals that they may have had earlier in life? So this listener goes on to ask a few more questions, but before we jump into those other specific questions, Ashley, I think maybe let’s address the first part of this question here of is that goal of six to seven K per month realistic? So I guess what are your initial thoughts hearing the part of this roadmap this person’s laid out?I think it depends on how much capital they have. So right now I think that it would be hard to do all zero down deals or putting very little down and cashflow six to seven KA month after five years. I honestly think that would be hard to do. But if you are putting more capital into the deals, which is increasing your cashflow, it becomes easier. So I think what is the financing options? How will you be purchasing the deals? Plays a really, really big role in how you can maximize your cashflow to actually hit that goal. So I think better and maybe a better metric is cash on cash return, where they’re actually looking at how much capital they’re putting in. Because I could invest a hundred thousand dollars and get 6,000 a month of cashflow, but you could invest nothing and get 3000 a month cashflow. So which one would you prefer? I’d rather not invest anything and get the 3000 a month cashflow. So to really compare apples to apples, I would think look on the cash return, how much capital you will have to invest over those five years.So I couldn’t agree more. I think looking at it from a cash on cash return perspective gives you a better sense. Obviously he’s looking at owner-occupied property, so maybe there is a scenario where the listener’s able to house hack and maybe they’re doing slightly larger, maybe four unit small renting out every single, not even just the room, but maybe they’re putting two people in one room, maybe they’re getting really creative with it, maybe there is a possibility. But at seven grand a month we’re talking about $84,000 a year. And if we use, I dunno, a conservative cash on cash return of say 8%. So if we want $84,000 of cashflow at a roughly 8% return, that means we would need to deploy just over a million dollars in capital over that timeframe to get that return. So the first question is do you got a million bucks you could just drop in over the next five years to get you to that 8% consistently potentially.
Now it doesn’t have to be a million dollars with the same cash. Maybe you’re borrowing, right? Maybe you have a hundred thousand dollars, but you do that 10 times over the next year that still gets you to the million dollars of deployed capital. But you’ve just got to figure out and kind of back into it, whether it’s your cash that you put in, whether you’re recycling the same capital, whether you’re getting creative with some kind of owner finance deals. So is it possible? Yes, you’ve just got to back into the right roadmap and the right game plan.And also if he’s going to only do house hacking, that means it over five years, he’ll only be able to buy five houses. Well, if he holds for two years, if he’s not going to sell them, if he was going to sell them and not pay capital gains, then two years. But if he’s going to just keep them as rentals, he really technically only has to live in them for a year. So that would be five houses that he could buy each year that he could live in. So there’s definitely people who have done this. I’m pretty sure Craig Op has reached this cashflow number within five years. So it’s definitely can happen, but it really depends on how much capital. But also like Tony had said, how much you’re willing to rent out. So Craig slept on the couch, his house hack for a long time just so he could rent those extra bedrooms.And just really quick, we saw Craig at BP Con and I’m pretty sure he said he’s done with house hacking. He’s at a different phase in his life. He’s married now, I think he has a kid on the way. So it’s not super functional for his life anymore to sleep on the couch with a wife and a baby. So you do have to think about that piece as well. How much does your lifestyle kind of support the house acting strategy as well?Basically what are the sacrifices you’re willing to make to reach that goal? Play a big part in itSo it is realistic just back into it. But let’s kind of break down some of the other questions that this listener has as well. So the first question here says, I’ve always read about people starting investing in their twenties. Are there actually people who have started in their thirties and still achieved their end goals that they may have had earlier? So do you think investing in your thirties is too late to get started, Ashley?No, not at all. I mean, look at most successful entrepreneurs, they aren’t making their money until they’re in their sixties sometimes. So it is super realistic to achieve in your thirtiesAnd if anything, it’s almost easier, right? Because you’re a little bit further along in your life, you’ve probably got a little bit more discretionary income, you’ve maybe saved up some more capital. It’s easier to invest. I think as you get into that phase of life because you’ve laid the foundation, the 20 year olds, they’ve got a lot of time, they’ve got a lot of energy, but they don’t have as much money. So I think you just got to pick the strategy that lends itself. But again, if we go back to the beginning part of this question, it says, I’m in my early thirties, zero debt, excellent credit. So it sounds like you’ve got a good foundation there. So I wouldn’t be worried at all about the timing of when you’re starting.So the next question is, what was the largest fear you had starting out? How have you overcome this fear or how did you work to ease this fear? Mine super easy. I was worried the roof was going to blow off. I was worried the tenant was going to fall down the stairs and sue me. So my biggest thing was that I would have to come up with the money right after I closed down the deal and I would not have enough of it. And I think the reasons I overcame that fear was because I partnered with somebody who did have reserves, and along the way that fear has eased because I’ve invested time and energy into learning. What would I actually do if that were sick? Case scenario happened. And once you kind of have a solution or a plan, it doesn’t seem as scary because the steps that you have to take to overcome that.And honestly for me, I wouldn’t say that I necessarily had a biggest fear and I think it’s because I framed that first investment up in the right way. We’ve said this so many times in the rookie podcast, but your first deal, no one’s ever retired off of one real estate deal. No one did their very first deal and was like, all right, this is it. I’m done. I’ve reached a pinnacle. I don’t need to do any more real estate investing. So the purpose of the first deal is not to make you rich, it’s not to retire yourself, it’s to give you a foundation. It’s to build your confidence and it’s to give you proof of concept. And I think if we reframe that first deal from this needs to be perfect to this needs to be good enough to teach me, we lose a lot of that fear that comes with it. So reframe what the first deal is for don’t invest every single penny you have saved into the first deal because to Ashley’s point, if it does go wrong, make sure you have something left over. And if you take that approach, reframing investing less than what you actually have, if it all goes wrong, what’s your worst case scenario? So I think that’s how we can kind of approach it to make it a little less scary for the rookie store out there.So the third question is, what turned out to be the largest recurring headache you had on your real estate journey? Mine was tenant complaints, complaints, just especially in multiple units where they’re living next door to each other. I just didn’t know how to handle some of them and it just got really irritating to hear people constantly complain. It really drug me down and made me want to rip my hair out. I was so frustrated as to how to mediate these situations. So we just a long-term rental episode and a big thing was just creating policies and creating a procedure as to how to handle this. But I’ll give you an example. I had a tenant send me a video once and it was a video of the wall, but she was trying to make clear that I could hear the tenant slamming her toilet seat down after she went to the bathroom, and that was what she would consistently send to me.How do you even address that with the other person? It’s like,I mean, you start with sending a letter to the other tenant as to please be aware of how you are closing your toilet and stuff like that. And then you let the other tenant know we let them, sent them a letter and told them to please stop. AndThat’s got to be one of the funniest complaints I’ve ever heard. My neighbors closing their toilet lid too loudly, the ladies and gens. That’s what you get when you become a real estate investor. I don’t know if I’ve had a recurring headache, but definitely a big lesson learned for us was that sometimes you can scale too quickly. And we did that. We scaled in a very quick fashion in 2021 where we like five x our portfolio in the span of 12 months. And it sounds exciting, but obviously it was a lot of work. But B, we broke a lot of things internally from a process perspective or not even that we broke them, we just didn’t have processes for things. So it had us kind of running around chickens with our heads cut off. So I think there’s a time for scale, there’s a time for optimization, and you’ve got to know when you’re in which phase.So our last question here is I have a good amount of time on my hands after my full-time job. Is there a side hustle outside of being a landlord related to real estate that you would recommend looking for something in my spare time to bring funds to help grease the gears in the beginning of the real estate journey? So Tony, right now, what would be something in your business that somebody could do in the evenings after work that you could pay them some money to do? Or maybe you already have somebody that’s doing some of the things, but is anything coming to mind that you could use help with as a real estate investor?Yeah, there’s a long list, but as I think about on the short-term rental side specifically, obviously one of the things that a lot of folks do or not obviously, but one of the things that a lot of folks do in this space is that they just offer management services. So they become property managers for other Airbnb owners, and it’s a great way to build up consistent cashflow because your acquisition cost is zero on the property, you’re just managing someone else’s unit. So you get the benefit of learning and scaling, but without your own capital being expended. And most Airbnb property managers charge between 10% to sometimes 20, 30% of gross revenue. So if you get big enough deals, there’s obviously a lot of meat on the bone there. So I think in this industry that is one space. I think another one, I don’t know what this person does for their day job, but anything that’s trade related could also be major as well.
One of the things that we had the hardest time finding in our business was someone to manage and maintain all of our pools and our hot tubs in the market that we were in. It was a very big boost from a revenue perspective, but when we first launched, it was an absolute nightmare from a management perspective because we had such a hard time finding qualified individuals to take on that work. So just think about all the different vendors that you might work with as a real estate investor on a trade side and ask yourself, is this something that I could potentially pick up or help with in the right market? There could be a lot of demand for it.Well, I’ve been learning more and more about in short-term rentals, you have your cleaner that comes, and then you also have somebody that comes and I forget the word that they’reYour inspector,But also somebody who does the special touches too. So maybe sets out a little personalized note or something for somebody that’s coming. They set out a little goodie basket of candy and treats or different things like that, and they’re going through and fluffing the pillows and doing all these special touches that are kind of outside the scope of a traditional cleaner. But their sole job is to how to enhance the guest experience when they first walk in. What are those special touches that you can do besides just having a super clean property? So that’s always a service you could offer too in your area as to these are the things that I bring. So in our A-frame, we provide a little snack bin or whatever in there, but our cleaner restocks that when it’s getting low on snacks, the property manager orders them, ships them to the cleaner, the cleaner takes ’em to the property, restocks the cabinet, whatever. Instead this could be something where you just bring the snacks, you bring all of these things that you’re going to use as an amenity, and I don’t even have to worry about ordering them or having my cleaner do that sort of thing. So that could maybe be another play.Yeah, I know a lady who does that exact same thing, Ashley, she services all the short-term rental in a city, but what she does is she delivers freshly baked bread every day to all the guests that are checking in, and it’s a super easy thing for her. She just bakes a bunch of bread and she goes and delivers it around. So I love that idea. One other thing, and this is maybe more so on the rehab side, but something else that we would find a beneficial, but it’s just like a runner for your flips. Someone that can go to Home Depot and pick up all the material, someone to handle all the returns. There’s always leftover material. When you’re done with the rehab, how do you make sure that stuff doesn’t just collect dust in your garage, but having someone go and do all those returns? If there are things need to be taken to the senior or to the county. So if you’re looking to gain experience, but also get some extra income, connect with the flipper, go walk properties for them, take photos, take videos, go to the department store, supply store. So there’s so many different ways you can provide value to real estate investorsAnd just these two examples we gave of the person that’s helping or helping you with your own rental of going in after the cleaner doing these personal touches or somebody who’s running materials, you’re most likely not going to see a job posting for this job. This is something that you are going to have to create a description for as to what you are going to do. And you have to present it to investors and you have to say, this is whether my business or I’m looking just to do this for one investor, here’s what I charge, here’s what I do. And you can be open to negotiating that as to maybe there’s more involved, maybe there’s less, whatever they may need. But instead of going up to somebody and say, I’d love for you to mentor me, how can I help you? I have a lot of free time. I can do a lot of work. Actually create a job, set a skill that you can actually provide for them that’s cost effective.I love that idea. I absolutely love that idea. If you really want to get some good experience, do the legwork and come up with the idea. I love that.Okay, so I think that was the end of those questions there. So if you are looking to get started and want to do the same thing as this person who has a question, comment below if you’re watching on YouTube and let us know what kind of job you are going to create for yourself that you’re going pitch to investors, because I’d love to see what kind of ideas you guys can do and then me and Tony can just hire you all to do those things for us. Okay, rookies, before we jump into our second question, we have exciting news to share. We now have an Instagram and a Facebook page just for our rookie investors so you can connect with each other and learn more directly from Tony and I. And this Facebook page is separate from our actual Facebook group, but you can follow us at BiggerPockets rookie on Instagram and BiggerPockets real estate rookie podcasts on Facebook and get all the extra tips and insider advice to help you succeed this year on your real estate journey. Both are linked in the show notes, so I hope to see you guys in there.
Okay, welcome back. So our second question says, hello. I am seeking advice or creative ideas to move closer to the goal of owning a home in San Diego County without the obvious solution of selling off my small rental portfolio. I have $100,000 in cash saved, and ideally it would like to keep the investment properties. Single family homes in our preferred area are approximately 750,000. Affordability is no more than 4,500 per month. Mortgage taxes, insurance, do I sell? Do I cash out refi? Do I have any other options? Here’s my situation. Currently renting a three, two single family home in Santi, California from my parents for Undermarket rent, but have a timeline to be out or in another property in the next one and a half years. We own two properties in Centro, California, a single family home built in 2016 worth approximately 650,000. We owe 300,000 on it. The rents are 2,800 payment, 2000 a month, interest rate, three and a half percent. The duplex was built in 1950 worth approximately 300,000, owe 150,000 combined rent. 1950 monthly payment, 1100 interest rate is at 3.8%. First off, I got to mention, look at those interest rates. What beauties? No, right?
So I guess it’s hard to say to do a cash out refi because of how nice those interest rates are. It would definitely impact your cashflow to change to a higher interest rate for sure. Okay, so let’s just kind of break down that asset breakdown right now. A hundred thousand dollars cash savings, two investment properties with 500 K in total equity, positive cashflow from rentals, $1,650 per month. And then also both properties have favorable interest rates. So to purchase a home, Tony, what’s your first step? What are you going to change about this asset breakdown?Yeah, well first I just want to also make sure, right, so this person said they have a hundred thousand dollars in cash savings and their goal is to buy a house for their primary residence in San Diego County and says that the purchase price is around 70 500,000 or 750,000. I’m sorry if I’m doing my math here correctly, 750,000 say they get a 5% down some sort of conventional loan. It’s only 37 500 on the down payment. So maybe I’m missing it, but it feels like this person might already have the cash on hand to go out and just get a conventional loan or even an FHA. We get you down to three and a half percent and be able to use the cash on hand. So lemme know, actually, am I missing something in the question that says why they don’t want to tap into or maybe leverage the a hundred K they have in cash savings?Yeah, I don’t see anything about that. I mean, I would think a hundred thousand would be enough. I mean there’s even the three and a half percent down that they could put for the property. So maybe it’s more of an affordability question for the monthly payment that it would be about 4,500 per month for the mortgage taxes insurance. So maybe that’s what they’re looking for is more how can they pull out money to pay for the cash or pay for the mortgage payment every month. So yeah, I’m not sure, or maybe they just don’t know about the options of not putting 20% down that since this would be a primary residence.And I think that’s the biggest thing guys. And I’ve used this metaphor before, but it’s worth repeating. The mortgage industry is kind of like the ice cream industry. I can go to Ben and Jerry’s, I can go to Baskin Robbins, I can go to Dairy Queen. They all sell ice cream, but each place sells a slightly different flavor of ice cream. And the mortgage industry is very much the same thing where they all sell loans, everyone sells mortgages. But how they deliver that and what you can get will vary sightly or sometimes tremendously depending on which lender you talk to. So for all of the rookies that are listening, I think before you get too caught up in choosing the market, analyze a bunch of deals, doing all the work associated with that piece, the very first thing you need to figure out is what is my actual purchasing power? So go talk to a handful of mortgage brokers, of lenders, of credit unions, of banks and just tell ’em, Hey, here is my goal. I’m looking to do X. What loan products do you have that best fit this situation? So just general advice for everyone is talk to multiple lenders because you’d surprised at what products are out there to help you get into your first either personal residence or your investment property.And then I think if you are going to pull out money or tap into your equity is to use a commercial line of credit and then you won’t have to change that interest rate on the primary mortgage too. So that could be a different approach that you could take advantage of. We have to take one more final ad break, but we’ll be back with more after this. All right, let’s jump back in. Tony, what’s our last question today?Alright, last question for the day says I’m looking to build my team and I have a cousin that’s a contractor like you. He wants to start buying real estate as well and is willing to provide the labor and materials for any project we do together. But I’m not sure how to go about structuring a partnership with him. Any ideas? I would be able to find the capital to make the purchases. So we got a partnership question mine and Ashley is one of our favorite topics. So if you guys don’t know, Ash and I co-authored a book for BiggerPockets. It’s called Real Estate Partnerships, breaks Down How Ash and I have both leveraged partnerships to help build our portfolio. And if you want a copy, head over to biggerpockets.com/partnerships and you can pick up a copy there. So Ashley, what are your thoughts here? Looking for some advice on structuring this partnership with your contractor cousin, what comes to mind for you initially?So you and I have both partnered with family in the past. You partnered with Sarah’s cousin, I partnered with my sister and my brother. I have to say in my circumstance, both partnerships were passive, as in my brother was a passive partner, didn’t do anything for the property and that’s how we set it up. And then also for my sister, it was a house hack for her, so she was more involved since she actually lived in the property that we purchased. But definitely setting expectations upfront is the biggest recommendation that I can give and treat it like a business partnership and keep the personal things out of it because there will be circumstances or situations that come up that you care about this person that you may make the wrong decision or things like that because you do care about them and want the best for them, but ultimately it may not be the best decision for the business or even for yourself. You have to watch out for yourself too. So treat it like you would any other partnership and don’t do handshake deals. Make sure that everything is in writing.And I think one of the most important things to call out before we even go into any more details of how to structure it is that ultimately there is no right or wrong way to structure it. And at the end of the day, as long as you and your cousin are both happy with the structure and you both feel like it’s a win-win, that’s all that really matters at the end of the day. Because each of you have unique goals, each of you has kind of unique resources. So as long as you’re getting what you want out of the partnership, that’s what makes the most sense. Now I will say it sounds like your cousin’s going to be kind of the sweat equity here, and it looks like you’re going to be more the capital partner in this deal. I think the first thing that I’ll say is that oftentimes people undervalue the sweat equity in a partnership and maybe overvalue the capital, but the sweat equity is the one that kind of puts in a lot more time, effort, and energy.
So don’t undervalue that, but there’s a few different ways you could structure this deal. And I’m just kind of thinking I out loud here, but say that you guys wanted to maybe just set this up as maybe a debt partnership where it’s super passive for you. If that was the situation, maybe you’re able to fund the entire deal, right? Say it’s a hundred thousand dollars purchase price and $50,000 for the rehab, so 150 K for the total project. So you’ve got that sitting in a money market account or a line of credit, you fund the entire deal and then your cousin just pays you a fixed return on your investment. Maybe you want 12% annualized so that when the deal’s done, you get your 12% back and you guys shake hands and you go your separate ways. Or it could be an equity partnership where maybe you guys both jump into it together where you guys both take ownership of that deal and you could do 50 50, maybe you get 40% or maybe he gets 40%, but just splitting it down the middle is probably the cleanest way. But again, there’s no right or wrong answer, but I think just asking yourself, for you as a person bringing the capital, what makes more sense for you? Do you want equity or you get more of the upside, but you also get more of the downside? Or do you want a debt partnership where there’s a little less variability both up and down?And I think too, in this situation, they outline that the cousin is the contractor will do the labor and materials, and then one is the capital. That one, I think you’re missing a component of it too as to who’s actually going to do the admin side, the bookkeeping of it. I mean, if you’re going to outsource that, at least have a plan for that and who’s going to oversee that person. So if you hire a bookkeeper, someone’s still going to need to send that bookkeeper the receipts or answer questions or send them the bank statements. So I think that’s a big piece of it too, that people forget about when structuring a partnership is who’s going to have that responsibility. And then that leads into outlining the responsibilities. So if there is a contractor that needs to come, who is the person that is in charge of scheduling the contractor and make sure they’re arriving on site that the job is being completed? I would assume that would fall under the cousin who was a contractor overseeing the other contractors that do have to come on site. So I think really writing out what the roles and responsibilities are for each partner in your structure too.Actually, let me ask, I know this comes up often as well, but do you think they should set up an LLC on day one for this partnership?No, I think they should do a joint venture like you do, Tony.Yeah,Because another important part is that you don’t want to get stuck into doing every deal with somebody. You want to date them and try them out and do it by deal by deal. So instead of paying to create an LLC and filing a tax return together, I would do a joint venture.I think people get like LLC happy, they see the headlines on social media like, oh, you need this crazy legal structure, get the Wyoming LLC and then put it in a trust and do this thing. But guys, I’m telling you, if you’re a rookie with not a lot of assets to protect, you could be overcomplicating things for yourself. Now obviously go talk to an attorney and make sure you get the right legal advice, but just know every entity that you create. There’s admin work and costs associated with that. You’ve got to pay your QuickBooks fees every month for that entity. You have to pay a bookkeeper to the books for that entity. You have to pay tax preparation. You have to pay tax taxes right on the LLC. You have to. There’s just a lot of costs for me in California. There’s an $800 fee even if you do nothing with ELLC, just to have it open. So just make sure you understand the costs associated with that. And the joint venture is a way to get around that because if you already have your own entity, you can just use that. If you guys choose to do it in your personal names, that’s an option as well. But just I think ease into it, as Ashley said, date before you get married.Yeah. And then if you each have your own LLC, maybe since your cousin is a contractor, he already has one, he could use that for the joint venture. If you need to create an LLC, because you don’t want to use your personal name, that LLC is now open to be used for other things too. Or maybe other deals down the road that you do with someone else or by yourself because you are the sole single member of that LLC too. Okay, Ricks, we want to thank you so much for being here and listening to the podcast. As you may know, we air every episode of this podcast on YouTube as well as original content, like my new series, rookie resource. We really want to hit a hundred thousand subscribers on YouTube, and we need your help. If you haven’t already, please head over to our YouTube channel at realestate rookie and subscribe. I am Ashley, and he’s Tony. Thank you so much for listening to this episode of Rookie Reply.