30-Something Earns 6x His Former Salary With Just a Few Rentals

If you are like me, financial freedom—or at least, the very real ability to leave your day job and live life on your own terms—is a thought that’s always foremost in my mind. For many, it is the key attraction to real estate investing.

It started for me back in 2009. I had just received the keys to my new house! It wasn’t actually “mine” though; I was renting it with five of my friends. I had just graduated college and landed my first banking job as a teller making $12.61 per hour.

I couldn’t have possibly been more excited about my life! The six of us were each paying $475 for a private bedroom and shared rights to the rest of the house (bathrooms, kitchen, living room, etc.). We had an absolute blast. Those were some of the best years of my life.

The Profit Potential of Rental Properties

But one day I had a thought. While this house was great, a real quality piece of real estate, it wasn’t anything special. It was in decent shape and most likely worth around $150,000. I did some quick calculations online and figured out the debt service on the property was something like $1,200 per month, including taxes and insurance.

Hold on. This landlord guy who comes over to mow the lawn once every three weeks is making $2,850 gross per month and only paying out $1,200 for the mortgage, taxes, and insurance? That is $1,650 per month in his pocket for doing nothing! At $12.61 an hour, I would have to work 131 hours to make that!

Little did I know at the time, there are always expenses at properties to budget for (expenditures and the like). However, this was when the light bulb went off.

We continued to enjoy our time renting that house until 2012, when we all finally decided it was time to move on. About half of us were set to leave the town; the other half were going to stay but rent something different.

How I Transitioned From Renter to Rental Owner

I realized this was the perfect time to strike. It would be an excellent opportunity to jump into the real estate rental game and rent a property out with my friends as the tenants.

A short while later, my friends and I were out looking at properties that we might like to live in and I might like to buy. All of the ones I liked, my friends disliked. So, I ended up caving and agreed to buy a property that they liked. Personally, I thought it was a little pricey at $140,000.

By that time I was at a new job, raking in $30,000 per year. Yes, I was feeling rich, and yes, I was approved to buy the house via FHA financing. As they say, the rest is history.

The property was a duplex with six total bedrooms. Just as my previous landlord had done, I rented out individual bedrooms at $475. My mortgage, including taxes and insurance, was $1,200. And, most importantly, I was living for free!

Unfortunately, I ended up buying a Mustang, three trucks, and an Audi with my savings—but hey, I felt cool.

How I Started Earning $15,000 a Month With Rental Properties

Fast forward a few years later, and I owned four properties. Two triplexes, the duplex, and a single family. I rented every single bedroom out for right around $525, utilities not included. Across all four properties, there were 29 bedrooms. At $525 per bedroom, my gross monthly income was about $15,225.

Now, let’s back up a second. How does renting by the room even work? Is that not strictly for college students? There’s no way you can stick strangers together and expect that to work, right?

No, it is not just for college students, and yes, strangers are perfectly fine living amongst people they had not known previously. The way it works is, you simply lease out individual bedrooms to people who are looking for a nice, clean, and affordable space for themselves. They receive a private bedroom that has a lock and key, and then they are welcome to share the rest of the unit with the other occupants.

This is somewhat of a niche space that does take some finesse to operate. Finesse meaning, if possible, it is best to pair people with similar interests and personalities in order have the best possible chance at having their behaviors and living habits be a good fit. Furthermore, each tenant is only responsible for their share of the rent as described in the lease. There are many ways to structure this, but I like my tenants to take comfort in the fact that, if John Doe down the hall doesn’t pay, it has no effect on anyone else.

Here is another beautiful piece to this puzzle. In my estimation, you will be collecting an additional 30 to 50 percent over normal per-unit rental rates using this strategy. For example, any of my three-bedroom units is worth probably $1,000 per month in rent, at most. I am receiving $1,575 for the unit when I utilize this strategy. That is nearly a 60 percent increase over the standard market rent for a single occupant in that unit. Point is, you can reinvest some of that margin back into the tenant experience.

Utilizing this strategy means I can afford to take extra good care of my tenants. Reinvesting means that they enjoy and are comfortable in their space. The tenant experience is paramount in real estate investing. Every single person who rents from you should have an experience worthy of sharing with friends and family. Luckily, you can afford to make that happen with this strategy. Sure, you could aim to have the same thing with per-unit rentals, but your margins are smaller and would ultimately have less capital to devote to such a cause.

Either way, if you are sick of earning only a few hundred dollars per month on each of your properties, take a look at this strategy. Is $15,000 per month enough to quit your job? It depends on your lifestyle. One thing I am sure of though is that this a way to catapult yourself much closer to financial freedom.

Disclaimer: Be sure to check with your local ordinances for regulations. Most towns and cities have language regarding these arrangements but normally allow it up to a certain number of occupants per unit.

Do you have any questions for me about becoming a landlord? Or about renting by the room?

Ask me in a comment below!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.