A few weeks ago, I asked about your side hustle. What do you do to earn money on the side? I received some really great responses, and in a few cases, I wanted to learn much more about the idea. Today’s post is the first in a periodic series that spotlights specific side hustles. Many thanks to Mrs. PoP for taking the time to share her story with us. If you have a side hustle you would like to write about, contact me.
Mrs. PoP (along with her better half Mr. PoP!) blogs about money, happiness, and kittens at www.PlantingOurPennies.com.
Side hustle. Side. Hustle. Hustle is such a weird word, don’t you think? It brings to mind images of someone running around like Speedy Gonzalez from one task to the next without getting a chance to breathe much less relax. Our side hustle, though, is a bit different. Most of the time it’s a lazy man’s side hustle because it takes so little time and effort most months. And yet, the checks keep coming in.
So what’s our side hustle? We own rental real estate.
Investment Or Hustle?
“Now wait a minute. Real estate is an investment, not a hustle. That’s cheating!”
If we were paying someone to manage the property I might agree with that sentiment. But instead of paying someone else to do every little thing on the duplex and being completely hands off, we pay ourselves. And since someone’s got to do the work, and we pay ourselves, we do the work ourselves, too! We are pretty ridiculously hands-on with this property.
The Story On Our Rental Property
Our rental property is a duplex in a blue collar neighborhood not too far from the local university. It’s the neighborhood that Mr. PoP and I rented in before we got married and bought our own home, so we felt we knew the area pretty well. We knew about how much rents were, which streets were safer than others, and we had even been moonlighting providing property management assistance to Mr. PoP’s parents who owned a duplex in a different part of the same neighborhood. So even before we bought we had a pretty good inkling that we could make it work. But buying it was a story and a half.
How we bought our duplex for $50K is way beyond the scope of this post. In fact, it took us 4 posts to write about our duplex purchase. But it was highly entertaining, with knives and holes in the walls, toilets in the bathtubs, and even a one-eared impossible-to-remove tenant named Billy. In hindsight it feels like a love story that works out in the end, but right up until that moment you really start to wonder how the star-crossed lovers are ever going to end up together. At the time though, foreclosure hunting was like a second job for us.
Construction and Renovations
Once we closed on the duplex purchase, though, the real work began. All those cosmetic issues that were a turn-off for buyers needed to be addressed if we wanted to be able to get cream of the crop renters. What did we do? Installed crown moulding (renters LOVE it!), painted (walls, ceilings, patios), removed wallpaper, ripped out sheet vinyl flooring and installed tile on one side, bought and installed used appliances, tried to repair said used appliances, cleaned and often repainted fixtures, replaced electrical outlets installing GFIs as needed, and scrubbed the entire place until fingers looked like pale prunes.
We both worked full-time jobs throughout all of this, so most weekends were spent hard at work at the duplex.
Being A Landlord
The single biggest issue in being a landlord is finding the right tenants that suit your unit and your style. Mr. PoP had a pretty good idea of the type of tenants that we wanted to see in our units – younger versions of ourselves – and I wholeheartedly agreed.
We wanted to rent to college students. Not the crazy party-throwing college students, but the college students that want to get away from the dorms and the regulations like “no candles, even unlit” or appropriate for our current bunch of renters, “no playing musical instruments past 10pm”. (We could make a string quartet with the college orchestra members we’ve currently got renting both halves of our duplex.)
The college students we like the best are the ones that are old enough to know they don’t want to live in a pig sty, but young enough that the Bank of Mom & Dad usually cosigns on the lease. They’re old enough to know the importance of paying rent on time, but young enough not to realize that there are ways to work the system and that you can actually save money by (immorally) being a giant PITA for your landlord. It’s a balance.
The best part about renting to college students is that they flock together. College students want to live near their friends, so they tend to provide the best referrals. For which we pay them a cash bonus… but not one big enough that it’d be worth it to live next to someone they found truly revolting. =)
Step 3: Profit
Time – Ongoing labor is minimal. It tends to average out to about 1 weekend or so of work per year (2 people * 16 hours = 32 man-hours), though Mr. PoP does stop by and mow the lawn every couple of weeks as well, so that’s probably another 30ish hours that he puts in. (What a guy, right?) Altogether we’re in the neighborhood where on an ongoing basis it takes about 60 man (& woman) hours of work.
After Tax Profit – For the 2013 tax year, even after having to buy a brand new AC unit, and spending time and money to DIY the linoleum floors, we should clear about $6.5K after taxes, interest, repairs, and maintenance. If we assume that we’re getting a 7% dividend return on our $50K investment capital ($3,500), that leaves $3,000 in profit that we’re “paying ourselves” for property management.
$3K / 60 man hours = $50/hr
Not a bad hourly rate, but it does vary quite a bit. 2014 will likely be a little lower since we’re planning on having a new roof installed to the tune of ~$5K-$6K. And if Mr. PoP weren’t making so much money in his day job these days he’d revert back to his college summer hustle where he actually ran his own roofing business… but then after that, our profits (and implied hourly side hustle wage) should be even higher going forward since most of the big things (2 AC units and the roof) will all be less than 3 years old.
Would We Do It Again?
Absolutely… if we could find another duplex for $50K. At the moment, property values have bounced back and places like ours are listing for around $120K+, which changes the economics of the deal pretty significantly. But by staying involved with the management of the property and knowing the neighborhood, we continue to scour around for deals hoping that one slips through the cracks horribly mis-priced. =)
So that’s our lazy-man’s side hustle. Except for that 1 weekend/year of tough manual labor. That weekend is anything but lazy.
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