When I was 23 years old, I bought a rental property in Ohio worth $100,000. It now generates me over $300 a month in straight profit! Let me tell you how I did it and my simple steps for doing the same thing (even if you have ZERO experience)!

How it started

Let’s go back to May 2022.

It was summer. I had just returned home from my sophomore year of college. I had also just read Robert Kiyosaki’s Rich Dad, Poor Dad and made an important realization:

I could start my financial independence journey now. And if I didn’t start now, when would I?

Investing in something as risky as real estate seemed like a very ‘adult’ thing to do. It all felt very overwhelming.

But I couldn’t shake the idea of owning a property that would put $$ in my bank account every month. Without me having to do anything!

I started learning as much as I could about real estate, and found that there were SO many different strategies. My brain felt so full of information, especially acronyms I didn’t understand, like SFH, NOI, COC… I was lost. But I kept my main goal in mind: buy a property within the next year.

For frame of reference, here is some info about my life situation at the time:

• I had about $15,000 in savings.
• I did not have a credit card. (And therefore no credit score!)
• The only investing I had ever done was index funds and government bonds.
• I was engaged and getting married in 3 months! My wife was bringing about 15k to the marriage.

I spent the summer working and getting ready for our wedding. I earned $25 an hour and was able to save another $10,000. I was hoping to set aside every penny for real estate!

I also opened up a credit card as soon as I could so I could start building a credit score. I would need a decent credit score (650+) to get a loan for my rental property.

During the school year, we both worked part-time and saved as much as we could. We also both had scholarships which helped a lot on cutting down costs.

Game time!

Fast forward to April 2023. My wife and I had been married for almost a year and were both excited about trying to get into real estate. We had $35,000 in savings and were prepared to invest nearly all of it. My wife had just graduated college and gotten a full-time job.

Her getting a full-time job was crucial to us being able to qualify for a loan, which I didn’t learn until later.

During this time, I was doing lots of research and had focused my goals to be much more specific. I took actions steps, starting with:

1. Narrowing down which market (area of the country) I wanted to invest in. The area I lived was much too expensive for me. Since I had about 30k* available to invest, I wouldn’t be able to afford a property much more than 100k. I wanted to put at least 20% down** to secure a better rate and avoid paying Private Mortgage Insurance (PMI). Also, as an inexperienced investor, most conventional lenders wouldn’t give me a loan unless I put at least 20% down.
   
   • *Since purchasing my first property, my strategy has continued to evolve as I learn more. These days, I wouldn’t do a deal that left so much money stuck in the property, but I’m glad I got started when I did! From the beginning I knew this deal wouldn’t be a home run, but I was most interested in getting experience in real estate. If I waited to invest until I knew everything, I probably still wouldn’t have made the jump! Doing something is better than doing nothing.
     
   • **There are many ways to purchase property for less than 20% down, but I wasn’t interested in them for my first deal. Mainly because I didn’t understand them at the time and they felt more risky. Or they involved buying a property and living in it yourself and renting out a spare bedroom or the basement (this is called “house hacking”).
     
2. After choosing a market to invest (I chose Ohio because it had cheap houses and Google said it was a good place to invest*), I needed to find a good property to buy. Because I had little to no idea what I was looking for, I found a real estate agent to help me. I thought getting a real estate agent would be really difficult, but it wasn’t. All I did was look up ‘investor friendly real estate agents in Ohio’ and called some of the top people that showed up on Google. One of the first agents I talked to was the guy who helped me find and purchase my first property. I explained my situation and he was very helpful. Turns out he was a real estate investor himself so I felt I would be in good hands!**
   
   • *I think my first deal is the only property that I’ll ever purchase in Ohio. It did have cheap houses, but the homes in the area I bought aren’t expected to appreciate much. Like I said before, this first deal was more of a learning experience than anything. Nowadays I am investing more in the South.
     
   • **If you’re new like I was, you really have no idea what’s going on. You don’t even know what questions to ask! Because of your lack of knowledge and experience, you absolutely need good people to help you with your first deal. I talked to agents until I found one that I felt I could trust. Because my agent was so responsive and helpful, and also owned properties himself, I felt good about making him my point person for this process. He helped me a TON. I can’t emphasize enough how important it is to find a solid real estate agent. I’ll write a whole other blog post just on that.
     
3. Now that I had an agent, I had a steady flow of potential deals coming my way. He would send me properties that fit the price range I was looking for, and I could choose one that I liked. But before that, I needed to make sure that I had the funds ready to pull the trigger once I found the right deal. So while I had my agent looking for properties for me, I was looking for a lender to give me a loan. Turns out this wasn’t much harder than finding an agent. I just looked up ‘get a loan for a rental property’. I sent out emails to a few describing my situation and asked if I would qualify for a loan. Being a student and not having a full-time income would make it difficult. I met with a loan officer over Zoom and she was extremely helpful as well. She explained that my wife and I could qualify for a loan due to our joint income and her recent full-time offer. Over the course of a couple weeks I had to send her some bank statements and other info, but before too long I had a pre-approval letter. This meant I was all good to go on purchasing a property!
   
4. So I was set! I had an agent helping me find a deal, and a lender ready to give me a loan. Now all I had to do was choose a property. I leaned heavily on my real estate agent for this. He sent me a property that he thought would be decent. Specifically, I was looking for a property that met the 1% rule*. The property he sent me was perfect – it was selling for 100k and already had tenants in place paying 1k a month in rent. I ran the numbers* and it made sense on paper so I decided to move forward.
   
   • The 1% rule in real estate is a gauge for evaluating whether or not a deal will cashflow (put money in your bank account after covering all expenses). If a property’s monthly rent is 1% or more of the purchase price, you’re in a good spot. For example, if you pay $100,000 for a property, it should rent for at least $1,000 a month.
     
   • Running the numbers in real estate can mean a lot of different things. But mainly I cared about how much this house would cost me, how much it would generate me every month in cashflow, and what % return I could expect over time. Refer to my post on how to evaluate a rental property for the in-depth numbers.
     
5. It was time to make an offer on the property. This is pretty simple. Your agent will write up a contract with the amount you want to purchase the home for, and some other details.* The asking price was 100k, and I offered 95k which was accepted. Now onto the last step – closing on my first property!
   
   • Depending on the market, the home, and the seller’s situation, you can get away with offering a lower #. I have learned that there is generally a lot of room for negotiation, especially if the property has been on the market for a while. But because this was my first time, I just offered 95k (5k below asking price). My agent also recommended my offer to include an inspection contingency, meaning that if my offer was accepted, I could have a professional home inspector check it out first to there were no major issues. This is always a good idea, especially in my situation since I never saw this property in person.
     
6. The closing process took about 3 weeks, and there were a few things to do during this time. I had to sign a bunch of paperwork, get the home inspected, get insurance for the property, and secure a property manager. We also wired the money for the property (all-in we invested $27,879)*. All of this was relatively straightforward especially with the help of my team.*
   
   • The cost breakdown: we put 25% down on a 95k purchase price ($23,750), plus closing costs which were around $4,000 (the costs were higher because interest rates were so high at the time and we paid more up front to get a lower rate). So in total we invested almost $28,000.
     
   • Seriously, I can’t emphasize enough how important it is to have good people with you in this process! My agent and lender both answered all of my questions about the process. There are lots of small decisions to make like what type of insurance to get, or whether or not to put money in an escrow account. Since this was all so new to me, I relied on my team a lot. They gave good information and suggestions to allow me to make an informed decision. Most lenders will require you to get insurance (in case the home burns down in a fire or something, you will get $$), and my lender set me up with a good insurance company. My agent recommended a good home inspector. The home had no major issues or big repairs that were needed, so that was great. I got in touch with the property manager who was running the property already, and decided to keep them on since I felt like they were doing a good job.
     
7. Finally, on August 16, 2023 (our one-year wedding anniversary!!) a legal notary came to our apartment and we signed the documents! We were homeowners. It felt great. We had achieved our goal and were officially real estate investors! We felt so empowered knowing that we were making progress toward our future goal of financial independence.

One year later

It’s been a year since we bought that first property. It’s been performing well. I was expecting there to be more headaches, but so far I haven’t spent more than 5 minutes a month even thinking about it. Every month, our property manager collects the rent, takes 10% as a management fee, and sends the rest to our bank account. (We have now raised the rent from $1000 a month to $1100 a month). So every month I see $990 enter our bank account. It’s such a great feeling seeing that money come in, it’s like magic! We pay $679 a month for mortgage, taxes, and insurance (the lender bundles all of this into one payment for you).

So when all is said and done, and all our costs are covered, we cashflow $311 a month.* That’s about $3700 a year. Or how I like to think about it, a Chipotle burrito every single day of the year!

• *Many investors will include projected costs for repairs and maintenance. So far we have only had to pay for one repair (a leaky pipe which the property manager got fixed for $185), so that averages out to around $15 a month in repairs. When eventually we have a bigger expense like replacing an A/C unit or a roof, that will be a big hit to cashflow. Such expenses are a normal part of wear and tear on a property and should be included in calculations.

Sure, 300 bucks a month hasn’t drastically changed our lives. We honestly hardly even think about it. We haven’t spent a cent of that money and keep it all in a separate bank account to be re-invested into other projects. But the long term goal is to have dozens or perhaps hundreds of these small cash-flowing assets. Imagine 300 bucks a month x 50. That’s $15k a month, or $180,000 a year! It will take a while to get there, but it sure will be great! And even with 50 properties, if I spend an average of 5 minutes of a month on each, that only amounts to 1 hour a week. I think I could manage that! Voilà, the power of property managers. Of course there will be big decisions to make along the way, but nothing beats the feeling of owning an asset that will continue generating wealth for years to come.

The numbers keep getting better

One thing that keeps me really excited about real estate is how the returns keep getting better over time. Your mortgage payment will always stay locked in (assuming you chose a fixed-rate loan, which you probably should), but your rental income will go up as you naturally raise rents over the years. For example, if I raise the rent by an average of $50 a year for this property, in 10 years, it will be generating about $700-800 a month instead of the $300 of today. Of course, property taxes and insurance costs will go up, but in general they won’t rise as quickly as rent.

Also, we haven’t even talked about equity yet! We have 25% equity in that $100,000 home. So if we sold it today, we would get ~$25k in our bank account. (probably a bit less since there are costs associated with selling property). But the rental income is slowly paying down the mortgage. In 30 years, we will own the home free and clear, meaning that if sold it, we would keep the entire $100k. (This figure will likely be much larger in 30 years due to appreciation, but I don’t like to count on that).

It keeps getting even better! After the home is paid off, there is no more monthly mortgage payment. That means more cashflow!! As you can see, real estate is a long-term play that increases in value over time in so many ways.

The Pessimist’s View

It should be noted that a lot can go wrong in real estate. Tenants can be late or completely miss rent payments. They can vandalize or destroy your property. The rental market can go south and the home may sit vacant for months. But guess what? I’m young. I can live with some risk. Even if we had lost that $28k that we sunk into this property, life would go on and we would go try something else. I did my best to get educated and work with trustworthy people who could help me make good choices, and it’s paid off so far.

Also, as I acquire more properties over the years, the diversification will help alleviate risk. Even if one house in a portfolio of 20 has a big issue, you can just sell it (potentially losing a bit of money), but it doesn’t really affect your overall returns.

Basically, investing in real estate is awesome and you should do it too! Plus, you get to provide a clean and safe home for somebody. You can really make people’s lives better.

How you can get started today

If you want to get moving on your own rental property, let’s break down how you can do it:

1. Save up some cash. You’ll likely need at least 15-20k to purchase a property. If that’s more than you have now, there are ways to get involved in real estate for much cheaper, but that will involve a different strategy. Be patient. It took over a year between me deciding to get involved in real estate and actually buying my first property!
   
2. Find your market. Don’t overthink this. You’re not going to make a perfect decision right away. Just do some general research and pick one. I’d recommend the south, specifically outside the major cities in Alabama or Georgia. Many people are hesitant to invest somewhere other than their hometown, but this is often the only option for those starting out as it is less cost-prohibitive.
   
3. Assemble your team. You’ll need a lender and a real estate agent. You can ask them for recommendations for an insurance agent and property manager. Or you can find those yourself online. Make sure you can trust these people. See my blog post for questions you should ask as you are vetting these potential team members.
   
4. Find a property and pull the trigger! This is the scariest step, but it’s the only one that will actually make you any money. Once you’ve done your research and you can rely on your team to help you make a good decision and guide you through the process, just get started! You’ll be tempted to wait for a better and better deal, or to learn more and more before making a decision, but consider the opportunity cost of waiting. You’ll build a lot more wealth over the long term if you start sooner.
   
5. Pat yourself on the back, then go do it again. You are making passive income. Now let’s figure out how to scale and get you completely financially independent. That’s what Free By 35 is all about – building a passive income portfolio that will give you freedom to do whatever it is that you feel called to do in this life.

Final thoughts

Investing in real estate while I was still in college was one of the best decisions I ever made. The money (300 bucks a month) didn’t change anything. But I sent a message to myself – that generating passive income was important enough to me to make it happen NOW. I believe that putting my inhibitions aside and getting into it will be the catalyst to a financially-free future.

Thanks for reading. Please comment with any questions; I love discussing real estate and financial independence.