Investing in real estate is a lucrative way to appreciate an investment and enjoy good earnings. Even a small property can yield handsome profits. It’s no wonder that real estate is a career choice for many. But how profitable can real estate be when you take it up as a side hustle? Very profitable – according to Andrew and Emily Herrig, who dabbled in real estate as a side hustle to make some extra money. They ended up increasing their net worth by over a million very quickly. Here’s their story.
Andrew Herrig was not a man who neglected work or family responsibilities. He was, in fact, a full-time financial analyst working for a reputed engineering company. When he married his wife Emily at 27, their net worth was $100,000. The following year, they bought their first rental property, which was the start of their real estate side hustle. Three years later, the young couple had purchased three more rental properties. Today, Andrew Herrig is the founder of Wealthy Nickel, the owner of several businesses, and he also shares his passion for helping others build their wealth.
Our goal was to be financially independent.
Andrew was no stranger to hard and frugal living. He had $25,000 in student loans, although most of that was paid off with the money he earned as an intern in college and the rest from his salary savings. Andrew and Emily together made about $120,000 every year. However, they both decided that Emily would not work full-time once they had kids, and they would live on Andrew’s salary. When their first child was on the way, they also had other financial commitments to worry about – like car loans and a mortgage. They knew they needed more money.
When looking for advice on what to invest in, Andrew came across several blog posts that introduced him to the idea of financial independence. For the first time, he realized he didn’t have to spend the next 40 years cooped up in an office cubicle. That if he wanted to, he could be financially independent.
Real Estate Side Hustle
Andrew researched business ideas and side hustles like bookkeeping and various freelance opportunities. He even started his own blog. But all the while, Andrew kept coming back to real estate. Investing in real estate would work well for him as a side hustle. He could concentrate on his regular job during weekdays and on the real estate side during the nights and on weekends without wasting time or money. Plus, being an accountant, he was good with numbers, so real estate side hustle as an investment would be something he would be naturally good at.
Starting small and learning along the way
When Andrew and Emily bought their first rental property in 2013, it didn’t go as planned. In fact, they made almost every mistake they could make. But ask them how that property works for them today, and Andrew will say, “It has been one of our best-performing properties to date.”
The property that Andrew and Emily bought was a bank foreclosure duplex. While one side of the duplex had already been rented out, the other side required a lot of renovation. That turned out to be great for the couple; they could use the rent from the rented-out part of the duplex to pay the mortgage for the other side while they got it fixed. Then the problems began.
First, Andrew and Emily suddenly realized that they had underestimated the cost of repairs by more than $20,000. They had estimated the job to cost them around $40,000, but it quickly crossed the $60,000 mark. Next, they were cheated by the contractor they hired. They paid the contractor more than they should have upfront. The project started well, but he soon stopped showing up and wouldn’t answer or return their phone calls. They lost over $15,000 in the process.
Rather than viewing these costly mistakes as failures, Andrew and Emily saw them as stepping stones to future successes. They learned from these mistakes and put better systems in place, so their following projects went better.
A job and not an investment
A side hustle is more than a passive job – it requires to be looked after, and that’s what Andrew and Emily did. Rather than treating their new rental property as a passive investment, they put regular effort into it. Andrew says, “There are several benefits to owning real estate, and the more work you put in, the more money you can make.”
Rather than buying completely renovated, ready-to-move-in properties, Andrew and Emily actively looked for houses that were run down and needed a lot of work. The advantage of these properties was that the owners were in a hurry to get rid of these properties and were willing to bring down their asking price considerably to do so. As a part of their marketing endeavor to find more rental properties, the couple developed relationships with several real estate agents. They even created a website and sent out regular mailing campaigns.
In many cases, the couple could purchase properties for up to as much as 80 cents on the dollar. That gave an instant net worth boost as soon as we closed the deal. One of the best examples of this, says Andrew, “is a house we bought for $40,000—the property required at least another $50,000 of repairs. There was a lot of work involved to make it liveable. However, at the end of the day, we refinanced it with an appraised value of $120,000. We got instant equity of $30,000, plus all of the money we spent on the property, back out of the project.”
When they realized that their real estate side hustle business could be lucrative, Andrew and Emily went on to invest in more than just rental properties. They realized that they needed to find other ways to generate more money to expand their side hustle business, expand their portfolio quickly, and increase their savings.
Emily decided to get a real estate license. The idea was initially to save money on transaction costs. But in the process, she discovered a side hustle of her own – working as a realtor. Emily began helping family, friends, and people within the couple’s community to buy and sell their homes. With both the real estate side hustles together, they were flipping or wholesaling houses they purchased, but that wouldn’t have worked for them as rental properties.
“It was a lot of work and certainly different from“passive” investing. But we were able to bring in over $300,000 from our real estate side hustles to invest back into more rental homes”, says Andrew.
Using the power of compounding to their advantage
When the couple’s second child was born, Andrew and Emily had to step back from their individual real estate side hustles. It was not a hard decision – and that’s one of the reasons they succeeded. Very early on, they had decided that the only reason to start side hustles was to make enough money to support their goal of financial independence. Even as their real estate side hustle businesses grew, they stayed true to this goal, remembering they were not out to build an empire.
By the time they were ready to concentrate on the birth of their second child, they had built a decent portfolio of nine self-managed rental properties. Those properties alone brought in a decent sum of money (around $30,000 per annum).
That was when the fruit of all their labor started to show. “We had acquired most of our rentals over a period of five years,” says Andrew. “And they had slowly been appreciating in value over that time.” For instance, their first property, bought for $180,000 after repairs, was now worth $300,000.
The real wealth of the couple was being built behind the scenes as compound interest. Compound interest is the reason why people benefit from starting as soon as possible. Early investments generate interest earnings that result in a higher investment for the next interest period. It’s a cycle that continues, so the interest earned is continuously calculated based on a new, higher amount (since it also includes interest that is already earned).
So, in a nutshell, interest earns more interest, which in turn earns more interest. Across the couple’s portfolio, the gains each year from appreciation were much more significant than the pure cash flow. That is one of the most incredible benefits of owning real estate in the long term.
Andrew and Emily had no professional help or insider information regarding real estate when they bought their first property to start their real estate side hustle business. But they stayed true to their goals, were patient, invested only in good deals, and worked hard. And then, by using the power of compound interest, they were able to increase their net worth to over a million dollars in five years.