The MapleMoney Show » How to Invest Your Money » Investing

Can Rental Properties Really be Passive Income? with Dustin Heiner

Presented by Wealthsimple

Welcome to The MapleMoney Show, the podcast that helps Canadians improve their personal finances to create lasting financial freedom. I’m your host, Tom Drake, the founder of MapleMoney, where I’ve been writing about all things related to personal finance since 2009.

Have you ever thought about getting started with real estate investing, but worried that it might be too much work? According to my guest this week, owning rental properties can be a great source of passive income, but only if you manage it the right way.

Dustin Heiner is a real estate investor living in Arizona. He joins us to discuss how he built a large real estate portfolio from an original investment of $1000 dollars. Today, Dustin and his wife Melissa live off the income generated by the rental properties they own.

According to Dustin, most people are of the mindset that they must stay within their local market when purchasing a rental property and that it requires lots of hands-on work. But Dustin has diversified his real estate properties across three different states and hires property managers to manage the day to day operations. Following this business model has allowed Dustin to remain more hands-off.

We discuss everything from the importance of background checks on prospective tenants, to when and where AirBNBs are a good idea. Here’s a hint; it doesn’t work in Oklahoma. Dustin shares six ways that you can make money by owning a rental property, and explains why he doesn’t consider house flipping to be real estate investing.

If you’ve ever considered buying a rental property, or you have a general interest in the subject, you don’t want to miss this episode.

Have you thought about investing with a robo-advisor, but are unsure how it all works? Our sponsor, Wealthsimple, let’s you book a free, no-obligation call with an experienced portfolio manager. To book your call, head over to Wealthsimple Chat today!

Episode Summary

  • Why house flipping shouldn’t be considered real estate investing
  • Building a team to manage your real estate properties
  • Real estate investing doesn’t have to remain local
  • Why you should build the business before you buy the property
  • Six ways to make money in real estate investing
  • Always do a background check on prospective tenants
  • It’s better to keep tenants long term than to always raise the rent
  • Renting may be better than buying, depending on where you live
Read transcript

Are Have you ever thought about buying a rental property but were worried it might be too much work? According to my guest this week, real estate investing can be a great source of passive income but only if you manage it the right way. Dustin Heiner is a real estate investor and founder of the blog, Master Passive Income. Dustin joins us to discuss how he generates passive income from a large real estate portfolio spread across three different states.

Welcome to the Maple Money Show, the podcast that helps Canadians improve their personal finances to create lasting financial freedom. Have you thought about investing with a robo advisor but are unsure how it all works? Our sponsor, Wealthsimple, lets you book a free, no obligation, call with an experienced portfolio manager. To book your call, head over to maplemoney.com/wealthsimplechat. Now, let’s chat with Dustin about real estate investing…

Tom: Hi Dustin, welcome to the Maple Money Show.

Dustin: Thanks Tom. I’m super excited to be here with you guys.

Tom: I’m glad to have you on. We’ve been talking in person a bit about what you do and it’s kind of foreign to me. You’re really big into investing for rental properties, right?

Dustin: Absolutely. When you use the term real estate investing, a lot of people think of the whole gamut because there’s a lot of different ways that you potentially can invest—even though I feel like investing is where you put your money one time and it works for you. Some people think “flipping” is investing. But in my opinion, no, because you put your money in the property, fix it up, flip it and pull the money back out. If you don’t do that the next time, that’s not investing. You make money when you work. It’s the same thing with wholesaling which is basically finding a property and trying to find a dealer or owner and finding a buyer and connecting them together. That’s wholesaling. You can do that one time but you have to keep doing it over and over again. Another one would be tax liens and tax deeds. They might be different but there’s many different ways to do it. I solely focus on buying one property and letting that property make me money by having a tenant live in there. That way the rent, minus expenses, is the gap— the passive income made every single month.

Tom: Okay. That sounds a lot more like investing because, to me, when I see these shows on flipping houses, that just looks like a job. You’re spending your whole day on it.

Dustin: It is. And look how much work you do. In those shows they’re working all hours. Even until midnight or later because they have an open house. It’s just a lot of work.

I literally work 30 minutes a month. Not a week or day—30 minutes a month on all my properties because all I do is get my statement from a property manager, look at it and say, “Okay, they’re not stealing from me and everything is good.” And I put it away. Then I have the rest of my month to do whatever I want. So I basically don’t do any work. My properties do my work. My property manager, contractors, realtors—all the team does the work and I don’t do anything. It’s great.

Tom: That does sound much more passive. I’ve rented an apartment when I was in college from a normal, single guy that had this condo. For me it didn’t seem passive at all. I can’t remember exactly but I think our washer or dryer broke and he had to get a new one and bring it in and everything. My experience with it was that didn’t sound that passive but you mentioned having a team. Can you go into all those different parts of your team and how that saves you from doing the work?

Dustin: Absolutely. I’ll start with one quick step just before doing that. It leads into what exactly we’re talking about. The easiest part is buying the property. Many people have bought property. If you’re going to live in your own home, you want to buy it. It’s just as easy as that. If you’re going to buy a rental property, it’s really simple to buy the property. But setting up the business—having the business on its own without you, that is the whole hard part about this business. Like I said, anybody can just buy a property, get a renter in there and then lose money because it happens all the time. I get a lot of students who say, “I had this, and I had this, and I had this and this is the negative thing that happened,” and I say, “Well, at this point you could have done this…” What you want to do is build the business first. And what I mean by building the business first is, like you just said, Tom, is having a team of people around you. When I first started investing, I was in California in 2006. In 2008 and 2009 is when the market crashed so I started investing right before the crash. Prices were ridiculously high. I was in California so the prices were crazy high. But every country is big. You don’t have to literally invest a mile away or two miles away. You can invest anywhere. And so what I decided to do was invest in Ohio which was 3000 miles away. It has similar laws. Just like if you’re in one part of Canada, the other part of Canada should have similar laws. But the principle really is what I was going after. What I decided to do was find a property that made me a minimum of $250. I don’t know what that would be in Canadian—but $250 a month. Find that one property and put that in my inventory. But what I had to do first was find property managers, realtors, contractors, inspectors, plumbers, electricians… I basically had to build the entire business before I bought the property. And the way I do that is by interviewing. Even though these people are subcontractors or an employee of another company, I’m employing that company so I still interview everybody just like they were an employee of mine. Especially a property manager. Like I said, I only worked 30 minutes a month on all my properties because I just get the statement so I need to trust my property manager. I usually find six to seven property managers in a specific city I want to invest in. I call six or seven different property managers and literally interview them as slowly as possible, asking them as many questions as possible. I have a whole list of all these different questions you need to go through. The property manager is basically the captain of your team. This is the main person running your business like a general manager. This is the one that’s going to make sure things are done. They’re going to have contractors go in there, plumbers…They’re going to get the tenants inside and collect the rents. They’re going to pay out all these maintenance things. The property manager is going to be the number one guy. Then you have things like realtors, wholesalers, and people finding properties for you. Inspectors are key. You definitely want to have a home inspection done before you buy the property. You don’t want to have a bad property and get into a money pit. But yes, you’re right, Tom. You definitely want to build the entire business. Imagine it like this; you’re going to build a store. Let’s say a convenience store or a gas station or something. You don’t just buy the inventory and put it inside the location and expect people to come in give you money and have that work. You don’t put the inventory in first. What you do is build the entire business first. You get the coolers you’re going to put the sodas in. You’re going to get the gondolas and all the little pieces of candy that are going to go in. You’re going to get the counter, the cash register. You’re going to open a bank account. You’re going to create the business. Then you get candy bars to fill up all of your shelves. You do all this work first. It’s the same thing with a real estate rental property business. You develop the entire business first and get that machine running. Each property is like another piece of inventory you put in to your business and you view as inventory. I have 30 plus properties right now. If anything happens to them, I realize it’s just a piece of inventory I put in. After I build the business, I can just keep putting more inventory into the business because it’s already running itself.

Tom: You mentioned having it off in a different state. I understand now how that actually forced you to have a team. You can’t be the guy bringing the washing machine over. Do you keep them all pretty much in that state? Because I’m thinking every time you go too far away, I’m thinking you have to build another team, right?

Dustin: Well, that’s a great point. So yes, every state and every city I invest in, I build a whole brand new team. The business model is that you have a new business in each every single location. When I first started I bought one property and stayed in that same city. I kept buying another property and another property. Eventually, I started to feel like I had all my eggs in one basket so I decided to go to another city. Eventually, I branched out to another state. Right now I’m in Ohio, Texas and Arizona. I was in California but I sold all those. What I’ve been doing is every single place I go, I’ve built up another team. But here’s the beauty part. If that team has already built up and it’s working for you, it takes me like literally three hours from the beginning—from finding the property online or through a realtor or a wholesaler. When I’m sleeping I get emails from people saying, “Hey, here’s a good property. You should check it out,” so I don’t even have to work to find the properties. From the beginning to end, it’s three hours to where I actually have the property and I give it to my property manager and say, “Okay, get it rented.” So, I don’t do any more work. The property manager does all the work. But yes, every single city and every place I go you develop that team, but then you can keep adding inventory into that team.

Tom: Yes, I can see the benefits of staying in the same city. But like you mentioned, you’re in three states so there’s some diversification there in case one city gets wiped out by some state issue. Like here in Alberta, with the price of oil going down over the last few years, real estate prices have dropped. So I can see the benefit of someone who wants to do this in Canada. You should be in different provinces. Don’t just stick to one province.

Dustin: Absolutely. And that’s something that a lot of my students ask; at what point should they move on to a new area? And really, it depends on your own risk tolerance. How much you can tolerate having many properties in one area before you feel like it’s time for you to move on? For me, I think it was having eight properties in one area. I knew I had a good amount of properties so I decided to start building in another area. Remember, it doesn’t take me any time. With my eight properties in one area, I wasn’t doing any work. It wasn’t any more time on my hands. So I thought, “Hey, let me just go ahead and do it over here. I have free time so let’s do it again.”

Tom: My way of passively investing in real estate has been through REITs. Can you just give us a little bit of a comparison on where the difference is because it sounds like your way was pretty passive, but certainly investing in REITs is really passive and really diversified. How do you see those two playing out?

Dustin: I bought some REITs before. I’ve also obviously owned real estate and realize that I make so much more money in real estate. I’ll give you six different ways that you can make money investing in real estate. And you tell me, Tom, if a REIT would actually give you these things. So number one, I invest for passive income every single month. Every property I buy, I make sure I have $250 or more coming in my pocket every single month. Number two, it will be equity capture. Let’s say I see a property for $100,000 but I offer $80,000 and they accept it at $90,000, I just captured $10,000. If the market value is higher, I captured $10,000. Another one is regular appreciation. Just in general, the market’s going to go up. It just does over time. So we have regular market appreciation. Then I have forced appreciation where I go in, change the carpet. I paint the walls, make the things look pretty. I put $2,000 into it. But what was worth $100,000 is now worth $125,000. I put something like $5,000 into it so that’s $20,000 in equity capture or forced appreciation that I got on top of that. Those are the four that I really love. Another one that’s absolutely amazing; if I buy a property for $100,000 and I put $20,000 down which is 20 percent, I still owe $80,000. What the great thing is, even though I owe $80,000 and I owe interest, taxes, and insurance, I personally don’t pay those. My tenant pays every single one of those. So I buy a house for $20,000 and that’s it. My tenant pays the rest of $80,000 and all the interest on my mortgage so my equity grows as the mortgage goes down. The last one is tax advantages. I buy one property and it’s literally a business. My cell phone’s is write-off (at least in America). My home office is part of the write-off. There are so many write-offs because it’s just one property and seen in America as a business. So those six ways in comparison to a REIT, I just got a little bit of the dividend. That’s all I got. Man, it’s not enough. I need more.

Tom: That’s a good point. I really like the ability to buy a property for 10 percent less. And my REITs not going to let me negotiate my way into paying 90 percent of its value. One thing you brought up was tenants paying for everything. What happens when you don’t have a tenant in it? How common is this? How do you find the right tenant to avoid that?

Dustin: Keeping a tenant in there is so much better than trying to raise the rents because you want to make a little bit more money. Thinking about keeping a tenant in there or if it’s not rented, how do you get it rented? Let’s start from the beginning. If you’re going to find a tenant, you must do your “due diligence” on each particular applicant for your property. If you have four people that are applying to stay in your place, you want a background check every single one of them. You even (at a bare minimum) need to see what their credit is like. See if they’ve been evicted before—do an eviction check. See if they’ve actually been in jail or prison before. Do all those checks to see if that potential tenant is actually going to be a good tenant. Then you also call their employment and say, “Hey, is Joe Smith literally working there?” You can even go where they’re currently living. And here’s a quick tip; if you’re going to be doing it yourself (which I don’t do because I have property managers do it) when you sign a lease, don’t have them meet you at the property. Go to their house where they’re currently living. Take the lease, walk in the door and say, “Hey, let’s sign here at the table.” If it looks like everything is just trashed and stuff, it’s because that’s how they’re living. Do you want to have that person as a tenant? You can actually walk in, see how they live and walk back out again.

Tom: Take that lease and run.

Dustin: Yeah, you don’t want a bad tenant in there. Those are a few tips you can do but a big one is, absolutely, do a background check. That’s going to tell you their whole entire history. The other part of your question was what if a tenant moves out and you don’t have the mortgage paid for because the tenant is gone. Well, here’s what it really comes down to. If you have a good property and it’s priced right, you’re going to have people wanting to go in there as fast as possible. Now, there are some areas of the country where it’s not as nice to live so it might take a little longer. But remember, if you price it right—even if you have to price it just a little bit lower could get people that want to really be in there and stay in there because it’s a good property, it’s a good price. If you try to out-price the market by having them pay $50 more, they might say, “Hey, this place is okay but I’m paying $1,000 a month but that place over there is $950. It will save me $50 a month.” To them it may be a lot of money so they’ll just move. So, keep the price a little lower so that you keep people in there. I personally lean on the side of keeping people in longer, raising rents slower or even very little because one month of the tenant moving out and new tenant coming in—from painting, new flooring, mortgage payment, carrying costs you’re almost at $1,500 to $2,000. I’d rather keep them in there.

Tom: Yeah, for sure. The first townhouse I owned, the lady next to me had rented for 30 years and was still going at the time I left. With that kind of tenant, it would be an easy decision. But you never really know that ahead of time other than trying your best.

Dustin: Well, you go in cautiously. But after they’ve been there for one year, you give them more leniency. But if they’ve been there five years, you know they’re good tenants so you may not want to raise their rent because they’re actually paying off your mortgage. You don’t tell them this though. But if you’ve got a tenant that’s been in there for 30 years, don’t raise their rent because they’ve paid off everything and haven’t cost you a dime. Let them stay in there.

Tom: You’re just building up that equity of paying off the mortgage. It would be great. Obviously, you don’t know that ahead of time, totally.

Dustin: And remember, I buy them with a minimum of $250 in my pocket every single month so for those 30 years I’ve got $250 every month from that property.

Tom: Let’s talk about that. This is where I feel like I’m missing something in this whole real estate conversation. You’re talking about making $250 on a rental but then on the other side I hear a lot of people in personal finance say you’re better off renting than you are buying. How can the renter be ahead? How does that work out?

Dustin: That is something you would think of in certain areas of the country, in Canada, America or anywhere. Wherever you’re going to buy, if it’s going to be two times how much it would be to actually rent, then you would have to be kind of question that. Here’s what it really comes down to; the people in America you would hear saying that are on the east and west coasts. They’re prices are literally ridiculous. In Los Angeles, if you want to go buy a house you might be paying maybe one million for certain areas. Somebody might have bought the house 30 years ago and they’re still holding onto the property so the purchase price is up here and rents are still down here. You could rent it for cheaper than you could get a mortgage. So here’s what I would do; number one, I would move. I would just literally move to another state… “I’m getting out. This is crazy!” Which I actually did. I moved California and now I live in Arizona. It’s so much cheaper here. The other thing is, if I bought a house and got a mortgage it would be much more than I can rent. I would literally rent and use that money to buy that house and other properties in other states to get more passive income coming in. Does that make sense?

Tom: So it’s just about being in the right market at the right time. You wouldn’t buy a place in California right now because people can rent there cheaply.

Dustin: Absolutely. And it also comes down to economics in general; are you okay with paying more because you want to own them. That’s totally fine. Here’s one thought. Thinking of airbnbs and of people going on vacation. A lot of real estate people that want to get in real estate are thinking, “You know, it’d be great to have a place in Hawaii. I can go once a year and stay in my own place.” Well, I completely agree. That’s good. I personally travel all over. We’ve been to 11 countries in Europe on one six-week vacation. We went to Japan for six weeks and traveled all over Japan. We’re going to go to the east coast and travel all over seeing historical things for four weeks. We don’t stay in the same place. But here’s what I’m thinking; I would personally rather buy long-term rentals that make me money every single month. And if and when I ever want to go to Hawaii, I’ll just go get an airbnb and $3,000 to stay there and I won’t have that headache of constant turnover, people destroying the property and all that sort of stuff. I’d rather make money and then spend it where I want to as opposed to buying a rental house I can live in whenever I want. That’s just how I am. Other people are different and it works out well for them. Here’s a great thing about real estate; there are so many options. There are so many different things. With a lot of my students they think there’s only one way to get a property or financing or finding them. There’s so many different ways. I love to show all the different ways because whatever is best for your risk tolerance, where you are financially, what your goals are, there are different ways you can go about creating that passive income. Thinking about renting versus owning, it really comes down to what your goals are, where you are at and where you want to go.

Tom: This is great. You mentioned staying in airbnbs which is a perfect segue way because one of the other questions I was wondering about was your investing for long-term rentals but how do you see it versus airbnb? Is there more money to be had in airbnb but maybe more hassle?

Dustin: Okay, there is a reason why hotels make a lot of money. It’s because they’re renting out “per door” instead of renting the entire hotel. Hotels make loads and loads of money. With an airbnb you’re literally renting out per day. So imagine (in American dollars) you can probably get a decent hotel for something like $100 a night. Well, $100 a night for a hotel room is $3,000 a month for just one hotel room (if you rented it out every single day at $100). Now, if I were to rent my house out right now, I would probably only make $1,600 for the entire month. But, if I rented out every single day to different people for a $100, that’s $3,000. I’d be making more. With an airbnb you’re renting out per day as opposed to per month which makes you more money. Now, there are pluses and minuses for both. There are ways to automate your airbnbs with sites like VRBO… all these types of sites as they become more prevalent. There are more property managers that do that sort of stuff. So there are ways to do it, but at the same time there are more headaches. There are more moving parts. Whereas in a long-term, I just put a tenant in there, set it and forget it, basically. There are pros and cons. Basically, whatever your risk tolerance and goals are—that’s the direction you should go.

Tom: Based off your example, I’d almost say the long-term way actually could be more money because if you’re an airbnb and you’re only renting it on the weekends, it’s not really working out.

Dustin: I completely agree. Also, it has to be some sort of “destination” location. You want to have a house for airbnbs where people come into. Let’s say in Oklahoma for example. Nobody really flies into Oklahoma. It’s rare that people fly into Oklahoma to sightsee. But if you’re in San Francisco, L.A. where there’s lot more traffic or even places like France or big cities, big destinations, then airbnb works really well because you have people coming all the time.

Tom: Yeah, there’s some tourism there. We often rent a house in Orlando just outside of Disneyworld. The amount of houses that are available for rentals is insane around there.

Dustin: Oh, absolutely. Because people know and investors know that this is good area. Now, I personally own all properties that have long-term tenants in there. I have one in Arizona that I’m going to be turning into an airbnb just to try it because it’s good in that area because there is a lot of spring baseball. America’s big on baseball. I know Canada has baseball as well as other countries but where I live there’s a lot of spring ball. A lot of people come in during the spring so I’m going to try it. I’m going to try to see if airbnb works. It might, or it might now. If anything, I can always just put a long-term tenant in there and move away from airbnb. But, there are a lot of people who make a load and loads and money with airbnb.

Tom: Yeah, Arizona might work because I know there’s tons of Canadians, especially here in Alberta, that’ll head down there for the winter. The snow birds. If someone’s looking to do this, where should they start? Assuming they don’t have a full team and are kind of doing it on their own, how do they start finding a property that can make these numbers work?

Dustin: What it really comes down to is principles. I know you’re in Canada and your listeners are in Canada. I have students from all over the world. I could talk about America. You can talk about Canada and we can try to drill down but if we go over principles—let me give you a few principles. Number one, you want to invest in a property that makes you money every single month. And here’s a great thing about making money every single month. If the market goes up down or sideways I still make money. If there’s a crash, I still make money. I start investing in 2006 right before the crash in 2009. Even with that crash (my property prices are back up to where they were) I made money all through that crash because it didn’t matter to me that the appraisal was much lower.

Tom: It’s just on paper.

Dustin: Yes, absolutely. So make money every single month. Another one is, invest in areas that people want to live. If you’re going to invest in the middle of desert, nobody wants to live there so you’re not going to make money. So find good areas because there is a term in real estate which I don’t agree with when it comes to an investor. It’s location, location, location. I don’t agree with that because everybody needs a place to live. Even if you’re not going to live there, somebody else will that needs a good place to live. They’re going to rent it out. And so you need to make sure there are people that are going to want to live in that area. Another one that I strongly recommend, if you’re going to invest away from where you can physically go to the property, you want to make sure you have a good property manager. That’s your quarterback. That’s your captain. That’s the person that runs the entire business and gives you money, sends you a check and hopefully doesn’t steal from you. So finding the right property manager is one of the most biggest blessings or curse. If you have a property manager who is stealing from you that’s just the worst thing. But there are ways to mitigate having the issue of a property manager stealing from you. I show my students how to actually do that. But when it comes to the step-by-step process you need to drill down to a certain area. Either it’s in your backyard (where you’re currently living within four or five miles) or if you’re looking at other areas maybe 1,000 miles away, first you start with the state if you’re in America, or in Canada, the region. You just keep starting your drill down with websites like Zillow. Zillow is a pretty good website we use in America. I’m not sure if it’s used too in Canada. I know it actually has some Canadian properties in there. But start drilling down from the big general broad area, like a state, then down to a city. Then you drill down to the neighborhoods. And I would suggest for everybody, if you’re going to invest away from where you are, you want to have boots on the ground. That could mean property managers, realtors, contractors, inspectors—all these people but you count on what they tell you and then you cross reference what each one says. If the property manager says it’s a great property but three other people are saying it’s a horrible property… Cross-reference what everybody is saying. From there, once you have the area then you build the business. Build the business first; you find the property manager, contractor, realtors, and make sure those teams are around you. Then you look at properties and you have realtors or wholesalers go out and find you properties. Or try to go on Craigslist. I don’t know if Craigslist is in Canada yet.

Tom: Yes, it is.

Dustin: Okay. So you try to find properties every which way. And then once you find two or three decent properties that are going to be making you $200 or $300 a month, have your property manager go and view them with the realtor. Have them do a walk-through of the property and tell you if it’s going to need paint or carpet. Whether it’s going to need maybe $3,000 worth of work before you can get it rented. Then you put those in your numbers and buy that property. If you boil everything down, that’s the quick overview of everything—all the steps to go through.

Tom: There’s something you touched on there and I’ve seen this on your site. It’s about making it rent-ready but not the best house on the street. What’s the difference there?

Dustin: If you go and buy a property that is the best catch on the street, you’re going to be spending more money than you necessarily need to because all the other properties in the area that are going to be renting, are going to bring the value of your house down but also the rent value down. It’s the same thing with if you go in and fix up a property. Let’s say you buy a property and it’s not in the best neighborhood but you put granite countertops in. You ripped out the bathroom and made it beautiful with all brand new cabinets. You just put in way much more than what is affordable in the area. What happens is you put $15,000 into the property but you can only raise the rent $50 because people can’t afford another $1,000. It’s $1,000 more on the property because I put so much into it, but they can’t afford it so nobody’s going to rent it. That’s why I say make it “rent” ready. Make it similar but maybe just a little better than the other properties in the area. That way people will say, “Oh, this looks nice. I saw another property that looks nice too and it’s a good price. Let’s move into that.” Rent ready is what’s accommodating to the tenants and also it’s going to be similar to the other properties in the area.

Tom: Great. Yeah that makes sense. So basically you’re just trying to be just slightly above average and not overdo it.

Dustin: Well, it’s just your return on investment. If you want to put $10,000 in and only make an extra $25, that’s up to you. It’s not for me. It’s your return on the investment and how much you want.

Tom: Okay. We covered what happens when a tenant leaves but the other potential risk I see here is—and maybe it’s just budgeting but how do you plan for things like a broken washer or dryer? Do you work in percentage?

Dustin: Yes, absolutely. This will basically give you a little more broad principle of what you need to look for in a property and how to calculate the numbers. There are a few things you’re going to make sure you’re accounting for in your numbers. Your income is here, your expenses are here, and the difference is the passive income you make which is what you want. You want to make that money. So you need to account for the expenses. And, obviously, if you get a mortgage you have to account for the mortgage. Don’t buy a property unless you get insurance. Absolutely have insurance on the property. Even something like liability insurance. It’s a really good thing to do. You’re also going to have taxes. If you live in a homeowner’s association you might have that as well. But also, make sure you have money for repairs, capital expenses like having a water heater go out or the roof needs repair. You’ve got to fix those. If you have one property it’s different than if you have 30 properties. Right now I have 30 plus properties and I don’t budget like I have one property. It’s different. Let’s just say you’re starting with one property. What I suggest is, every single month you put away 10 percent for capital big capital improvements like a roof for something. Then pull out another 10 percent for repairs. So you rent it for $2,000 a month. Pull out $400 a month and put it into an account that’s going to be saving for that one property. You don’t need an account for each 10 percent. You can bundle it all together. But on your spreadsheet make sure you have it allocated out. Then save that until you get two times the rent. That would be $4,000. Hold that $4,000 in an account for the one property. The reason why I said if you have one property it’s different than if you have 30. If you have 30 properties, how much is that? That’s $120,000. Do you need $120,000 for all those properties? No, because not all the roofs are going to go all at once. And not all the water heaters are going to go out either so you fudge with the numbers. Save something like $40,000 for all 30 properties just in case anything happens to any of them. But here’s a beautiful thing; because I make money every single month, I’ve literally not written a check in 10 years to anybody because if I had roofs go out, the money comes in. they pay it and I still get a check. Does that make sense?

Tom: Yes. It’s basically an emergency fund for repairs. And when you have a bunch of them I get that too. It’s kind of a group self-insuring for all the repairs that could come up.

Dustin: Absolutely.

Tom: Okay. This has been great. Can you tell people where they can find you online and learn more about this?

Dustin: I love teaching about this so I quit my job when I was 37 years old. I had so many people asking me how to do it that I said, “Well, let me just put online.” So it’s masterpassiveincome.com. That’s the site where I teach specifically about rental properties. I also have my podcast; Master Passive Income Podcast. I’m pretty sure it’s everywhere. But I talk only about rental properties because it’s just my passion and I want to help people. If any of your listeners or anybody watching this wants to get a free course and if you’re interested at all of getting into real estate, I have a free course. It’s a downloadable file. You go to masterpassiveincome.com/freecourse. That will get you to that free course right away.

Tom: Perfect. Thanks for being on show.

Dustin: Great. Thank you very much, Tom.

Thank you Dustin for showing us the many ways owning rental properties can generate passive income. You can find the show notes for this episode at maplemoney.com/dustinheiner. Have you joined the Maple Money Show community Facebook group? It’s a great place to hang out with people like yourself who are interested in all kinds of money related topics. It’s also place to ask questions and share your best money tips. To join, search for Maple Money Community on Facebook or head to maplemoney.com/community. Thank you for listening. And remember to join us next week as I’ll be talking with Rob Berger about the concepts in his upcoming book, Retire Before Mom and Dad.

Here’s a quick tip…to double-check to see if a (potential) tenant will be a good tenant. When you sign the lease, don’t have them meet you at the property. Go to their house, to see how they’re currently living...cause you can always walk right back out. - Dustin HeinerClick to Tweet

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