Investing in Rental Real Estate: A Conversation with My Hairdresser

Everyone knows that you learn the most interesting things in your hairdresser's chair. In my case I have known my hairdresser for almost twenty years and I always enjoy talking to her about a variety of things, but on this particular day we were discussing the rental houses - duplexes relaly - that she and her husband own.

Since I am fascinated by earning residual income, I was happy to ask questions and learn more about their real estate investments and how they work for them. Here is the basic information:

They own fourteen rental duplexes. I asked why duplexes and she wasn't really sure. They have owned rental houses (single family) before but always ended up selling them to their renters, she said.

They have a mangement company. There is a company in charge of checking out potential renters for them. They check FICO scores, etc. One thing she told me was key: they are very picky about their tenants.Because of that, she said they have good experiences with them. She and her husband (and their business partner) are not afraid to let a duplex sit vacant for a month or two until they find the right tenant. The fact that they get good tenants may have to do with the next item.

They usually 'gut' the rental prior to leasing it. This often includes a new a/c and heating system, granite countertops, fresh paint and carpet, etc. This allows them to be picky about their tenants and rent for a higher price, resulting in more monthly cash flow for them. This also means they aren't innundated with phone calls from tenants requiring repairs.

They often do their own work. Her husband, her son, and her husband's brother are all handy and actually enjoy doing repairs and improvements. She did mentioned that their last duplex was purchased at a time when they didn't have a lot of extra time, so they hired the work done. But usually they do it themselves, although they do hire out the snow shoveling and grass mowing.

They don't advertise their rentals. The only 'advertising' they've ever needed for their rental homes is a sign in the window and word of mouth. Probably due to the excellent condition of the rental unit.

What Makes Their Real Estate Investment Business Profitable

In my opinion, their real estate rental investment business is profitable because they look for god deals in their duplexes (they don't get emotionally attached to a property; it's always a business decision). The fact that they do the work themselves also helps with their bottom line. Being picky about tenants is a huge part of their method of profiting from real estate.They also protect themselves with good insurance.

Here's a quick and dirty estimate of what monthly cash flow would look like on a rental property:

Income: Rent

Less:

Debt obligations (if any) on the property

Property Maintenance

Insurance

Property Taxes

Management Fess (if any)