An Honest Opinion About Passive Cash Flow in Real Estate

Seven years ago, with zero investing experience, my husband and I took a real estate investing course and set an ambitious goal of reaching a passive income of $10,000 a month. Based on what we learned in the course, we planned to achieve this goal by buying 50 real estate properties, each producing a positive passive cash flow of $200 a month. The math was simple: $200 x 50 = $10,000. Time-wise, we thought we’d do it over 5 years – 10 doors per year… easy-peasy!

Here is our 7 year journey at a glance. Hope it inspires you to take a leap and go for whatever dreams you have and stay positive no matter what!

2014

Easy-peasy! Passive income idea got us super-excited! The concept was that we’d buy an investment property. Our tenant would pay us rent and from that rent we’d pay property taxes, insurance, utilities, mortgage, repairs and keep $200. Then we just repeat this 10 times a year over 5 years. With some luck, by the end of the first year we owned a triplex, a townhouse, and a six-plex. The triplex and the townhouse worked like a charm.

We proudly thought the six-plex was a smart shortcut to get us to the annual goal of 10 doors.

Door count = 0 + 10 = 10.

2015
The six-plex turned out to be a nightmare. We quickly learned that the rent will not collect itself and not all tenants are amazing. We also learned that double-checking expenses before buying a property is essential. In our case, we greatly underestimated the cost of utilities, and the six-plex was barely breaking even. We didn’t take into account the time and cost of renovations and dealing with vacancies and evictions. We carried on no matter what.

Door count = 10 + 1 = 11

2016
WTF?!? To our great surprise, we accidentally figured out how money worked in real estate when we had to sell the six-plex out of desperation. When you put down $1 into a property – which is your 20% down payment – the bank
gives you $4 of mortgage, which is the other 80%. You buy a property that’s worth $5. Suppose the market goes up by 5% over a year, so you can sell your property for $5.25. You’d then have 25% return on your money because your original dollar earns you a quarter dollar of profit ($5.25 – $5 = $0.25)! This is how the market rise turned our absolute disaster with the six-plex into a success. By pure luck, we broke even on the sale and started pay-
ing attention to real estate market’s cycle and leverage, also known as using other people’s money.

Door count = 11 – 6 = 5

2017
We no longer felt invincible. The passive income didn’t feel very passive… In fact, I couldn’t handle my full time job, three kids, and a whole bunch of tenant and property management responsibilities all at once. So, drum roll………. we decided to go all out!

I quit my day job. We took an in-depth real-estate coaching program, worked with an amazing mortgage broker to leverage two of our original properties (aka increased debt level to our eye balls) and got 9 more doors.

This time, we consciously focused on finding the right market at the right time – the market that we thought would have a good chance of rising. A tiny complication was that we chose a market 300 km away. A pretty long drive,
but we stayed optimistic and kept at it, no matter what.

Door count = 5 + 9 = 14

2018 – 2019
Hooray! Are we rich yet? Real estate is considered to be one of the safest long-term investment strategies. In the long run, as the mortgage balance goes down and housing prices rise, your wealth accumulates. But… real estate is illiquid – it is not cash! You cannot buy groceries with real estate equity. And….longterm is at minimum a few years!! You cannot go in and out every 2 seconds. The passive cash flow we achieved was not as much as we aimed for. We kept going deeper and deeper in debt as we were courageously investing all our income into the venture. In 2019, we decided to eliminate personal expenses so we could hold on to our properties a little bit longer. We turned our primary residence into a cash-positive rental duplex and moved in with my parents. We sold one of our two cars. We mastered the art of minimalism. My favourite joke of the year was that I was an unemployed 38-year-old who lived with her parents…

Door count = 14 + 2 = 16

2020
All of our tenants were affected by COVID-19, some more than others. We are grateful to all of them for being amazing during the tough times. We are grateful to our government and the lenders for the mortgage deferral programs. In July when the lockdown was over, the market turned super hot and we sold several properties.

Market has risen more than our projections! For each of the properties sold, we doubled our money in just 3 years. It was a huge relief that our boldness paid off. This time, we reinvested the proceeds into liquid assets, just in case we’d need to weather another storm (or my parents ran out of patience). Staying optimistic is key! So far my favourite part of the year is that I am home schooling my youngest son. He didn’t like going to school pre-COVID and used to wake up miserable just from the thought of having to go to school. Online learning turned out to be a blessing for both of us! What can be better than hearing your kid giggle, seeing him wake up with a smile, and being able to be around for him when he needs you? I would’ve never been able to do this had I not started investing in real estate 7 years ago.

Door count = 16 – 5 = 11

I realized that no matter what you choose to do, things will always go wrong to some extent. Passive cash flow isn’t as easypeasy as 50 x $200. But every action you take leads to an opportunity ahead. And every opportunity you dare to take on, gives you a new challenge. And new challenges… well, they make your heart sing once you finally overcome them. And in real estate, “passive cash flow” turned out to be just a bait that (luckily for me) looked
yummy enough to go after. The treasure was in the learning that followed. Based on my investing experience so far, I believe that the amount of treasure you dig up for yourself and how you measure it is up to you, should you choose to go after it!

Door count = who cares!?