How One 30-Year Old Built Passive Income of $40,000/Year in Just a Few Year

Brady Hanna decided to build passive income when he turned 30.

He had 12 doors six years later, and was earning $7,700/month.

It’s true, it’s not the entire profit. What is his net profit for a year? Around $40,000.

Here’s what he did exactly to build his portfolio.

The Beginning

“I stumbled upon BiggerPockets, and began absorbing as much as I could. Brady told me that he asked questions in the forums, and he started listening to podcasts whenever a chance arose.

How serious was he about his education in real estate investing?

“I installed Bluetooth speakers in my bathroom and shower so that I could listen to podcasts while I took a shower or went about in the morning. Over the years I’ve listened to each podcast several times, and I get excited every time I hear a brand new episode.

That’s dedication.

For my first property, i wanted to learn all that i had learned. I was looking for properties which met the 2% rule.

Not everyone is in agreement with the 2% rulehas its own beefs with the 2% rule. But that’s a different story. Or an article. Whatever.

Brady found a duplex that was ready to move in, located south of Kansas City, Missouri. He paid $55,000, estimating gross rents of $1,100/month.

Brady used money he had saved for his down payment from his 9-5 day job to secure a loan. “I made a 20% deposit and I was on my way.”

Early Lessons in Property Management

I thought I was more intelligent than the system, and I figured I could self-manage in order to save on the fees of the property manager.

When you feel smug or think you are beating the system, it’s time to do some self-reflection. It’s not that I would discourage anyone from managing their rental property if they are willing to invest the time and acquire the necessary skills.

Brady advertised for rent the units, and then left town immediately for two days to attend a tradeshow through his job. He received 60 phone calls over the course of two very busy days.

After the first week, after driving to the property several times for showings I saw a company on the side of the road and pulled over. I walked in and hired them immediately.

Do you think he missed an important step? It should.

I didn’t check out this property management firm. “I just assumed they would be good because they were near my rental property.”

You may have wondered what the first signs are that you need to replace your property management company.

Communication was difficult. “It was like pulling my teeth to get information from them and try to stay informed about what was happening with the property.”

For all of you who are not English majors, that’s the sound foreshadowing.

Related: Sorry but Passive Income Is a Myth For Most Investors Here’s Why.

Property Number Two, Property Three

Brady, after a few months collecting rents decided that being an landlord was all he had imagined.

I took out a $50,000 Home Equity Line of Credit (HELOC), using my local Bank. I bought a single-family property in South Kansas City for $36,000 through a short-sale. The property required $7,000 worth of repairs.”

You know that negotiating a great deal is much easier if you have ever purchased a property in cash. Brady also avoided the high fees associated with hard money loans to purchase and renovate this property.

He completed the repairs in a short time and rented out the house at $850/month. It was easy to get a mortgage and pay off his HELOC.

“House # 3 I purchased from an online auction site for $23,000 in cash (again using my HELOC). I invested $27,000 in the property over three months.

I thought this business was easy!

All the Chickens are Coming Home to Roost

This is the perfect example of a situation that could go wrong.

Around this time, my property management company started to have a lot more problems.

It’s not exactly a plot turn, is it?

He was losing money because of his out-to lunch property manager. The tenant of his duplex property left town at night. He had two empty units out of four, as his latest property was still being renovated.

He fired the manager of the company by calling the owner.

After a first-hand experience, he realized that he had to improve his screening of property managers. He went back to drawing boards. I asked BiggerPockets to recommend a good property manager. I interviewed several candidates, hired our new manager a few months later and have not looked back since.

The new company rented out his duplex unit, and then his single-family home that was just finished for $875.

The next step was to get a mortgage for the property and pay off his HELOC.

Building a Portfolio with an Evolving Strategie

Brady followed the same strategy for the next seven properties he owned: buy, renovate, and rent out the property with the cash from his HELOC, and his savings.

Or, not to get a loan if possible. “I have taken all the rental income and put it back into my business to pay down the principal on the homes. With this method, I have 12 units and only three properties that are in debt.

Brady didn’t hesitate when I asked him what he had changed since he gained experience.

“Originally, my investments were in B- and D-class neighborhoods. These neighborhoods are working class and not located in war zones.

“But my portfolio has grown and I have been focusing more on B+ areas, which are less transient, with less turnover.”

Why? Because tenant turnover is a killer of ROI, landlords should be concerned about tenant retention.

Related: 3 Real Estate Investment Strategies That Aren’t So Passive (& Four That Are)

Landlord Cash Cushions

Brady was asked what advice he had for other investors who are looking to rent out their properties.

I highly recommend putting a reserve fund into place. You never know when you’re going to have a bad couple of months or a bad month.

It’s all too true. Brady’s mortgage debt is mostly paid off, but he has also saved a lot of money.

A recent example? In November, he had not just one, but two furnaces go out. If the average cost to replace each furnace was $2,000, it would have been a devastating blow for someone who didn’t have a large cash cushion.

Another example:

We had an unnoticed leak behind a sink in one of our properties for a long time. This caused mold to grow behind the wall. We let the tenants out, hired a mold removal company that also discovered asbestos behind the wall. Then we hired an asbestos abatement firm and rebuilt the kitchen wall.

Brady lost four months’ rent and $10,800 on repairs that began with a small leak.

Last Advice: Make sure you network!

Brady said that the Kansas City real-estate market is heating up and he has had to rely more on his network for deals than the MLS.

“Go to Facebook and search for local investor groups. There are five local investor groups in Kansas City where I am a member. People post deals at discounts all the time.

You never know when your next real estate deal will come. So, network with other investors in REI clubs and meetup groups.

Your network is directly related to your net worth. As you expand your real estate network, your opportunities will also grow.

What’s Next?

Brady has no plans to retire just yet. “I intend to’retire’ from my full time job at 50. “I enjoy my work but I want to retire while I’m still young to enjoy my retirement.”

Brady, do you have any financial goals before then?

“I want to earn a monthly passive income of $10,000 so I can help others. I want to spend a year ‘not working’, spending time with family, church, going fishing, golfing and exercising. When I get stir-crazy I will help others invest in real property and focus on larger scale investments, while spending time in my church.”

I don’t know about you, but I think Brady’s onto something here, with this whole invest-in-rentals-and-retire-young strategy.

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