Date recorded: March 14, 2023
Listen on Itunes, Spotify, or watch on Youtube.
Hey friends 👋
Have you dreamt of earning passive income? Not having to trade in your time for money, but still having a constant stream of income sounds magical. Almost utopic. It would certainly get you on the path to financial freedom. With all that extra time not working to earn an income we could focus on what we truly love doing - true wealth! 😀
Real estate is probably the OG when it comes to passive income. It’s the largest asset class, it’s been around for centuries, and it helps create wealth through:
Income generated from the property
Appreciation of the property, and
Tax benefits from ownership
Andrew Luong saw the benefits of owning real estate after buying his first property in 2014, which he then scaled into 10+ properties. As he grew his portfolio, friends asked for help to replicate his process. However, when it came down to it none of them acted on his advice. After numerous similar episodes, Andrew saw a gap in the market and jumped on filling it. Thus, Doorvest was born in 2019 with the promise of making it simple for anyone to buy an investment property or even their first home online.
Buying a home can be intimidating. The process involves a lot of steps with multiple players at each of those steps. Doorvest takes care of it all, end-to-end, including managing the property after close, for a fee.
In this episode I interview Andrew about:
Why he got into real estate
His journey starting Doorvest
The benefits of owning rental properties
Overview of Doorvest’s platform and process
How Doorvest de-risks investors
His outlook on real estate in our changing economy
Investing lessons he has learnt along the way
Before we dive into how Doorvest has streamlined the single-family home buying process, I want to touch on an insight that Andrew brought up during our conversation - earned vs. learned wisdom.
Why is it that Andrew’s friends, like a lot of people, didn’t buy rental properties after he gave them step-by-step instructions on how to replicate his strategy?
How Doorvest has actually changed the premise of learned wisdom in real estate investing by taking on all the heavy lifting on behalf of their customers.
How I would personally use Doorvest.
Let’s get into it.
“Passive income”
The internet is filled with “tips & tricks” on how to make passive income. If you scroll enough you might feel like its screaming, “THERE ARE 1,000,000 WAYS OF MAKING PASSIVE INCOME!” Yet majority of us, me included, have spent countless “passive” hours researching how to make passive income without a dollar in sight.
The thought of making money without doing any work is exactly what it sounds like - a dream. People have a misconception that “passive income” means earning income without any effort. It’s passive, right? False. The reality is that generating passive income takes effort, even if just initially. To build a stream of passive income you have to make it a priority, dedicate time, and put in the effort.
95% of people that want to generate passive income give up before getting started. The effort required to start the process is too high, especially for something that is advertised as “no effort”. If you’re like me you’ve made excuses like, “I don’t have time,” or "I have too much on my plate,” but the fact of the matter is that the only difference between those who have made it work and those who haven’t is the intention, effort and focus dedicated to the goal.
Real estate is a prime candidate for making passive income, but buying an investment home is extremely intimidating the first time. Making sure it nets you positive cash flow seems even harder. It requires a lot of effort:
Understand your budget
Perform market research
Find a broker
Get pre-approved for a mortgage
Run future cash flow numbers (cash flow positive, right?)
Make an offer
Get a home inspection
Get the home appraised
Finalize mortgage
Work with real estate attorney
Close the sale
Find a property management
Find tenants
So many steps, so many points of failure. If you drill into each one of them, there are even more. Its a daunting ordeal. Throw in the fact that during the process you have to work with 15 different parties (ok, not 15 - a buyer broker, a seller broker, a lender, a home inspector, an appraiser, an attorney, escrow, and so on)... you’re probably wondering why in the world would anyone in their right mind go through this? How passive does that sound? 👀
On the flip side, once you’ve gotten over the hurdle of accepting that generating passive income does indeed require effort, you’re already better off than most. Sizing up the effort and actually executing, though painful at first, will get you to your goal. In fact, its likely that once you’ve proven to yourself that you’re capable by going through the motions of buying your first property, and you start seeing the paychecks in the mail, you’re likely to want more. It’s like starting a new habit like going to the gym for example. The first few times are brutal, but after you’ve gotten over the initial hurdle, you start enjoying the benefits.
That’s what Andrew means when he talks about earned vs. learned wisdom during our conversation. Reading about investing in rental properties will get you nowhere. You have to throw yourself into the mix - do the market research, run the numbers, and the other 11 steps I listed earlier, and learn from it. Books will only get you so far. The only way to learn is by actually taking action.
How Doorvest makes purchasing homes truly passive
Ok, ok! I’m done with my rant on being intentional and proactive about what we want to achieve. The good news is purchasing a rental property is no longer as difficult and intimidating. You still have to go through all the steps, but Doorvest will do it all for you. Voila, truly passive income!
Doorvest helps customers fund and purchase homes based on their criteria (think location, budget, financial objectives, etc.). In fact, they will go as far as purchasing the home for you, renovating it and leasing out the property on your behalf. That includes not only find tenants, but also guaranteeing rents for 12 months. They will even take care of property management.
Here’s how it works:
Almost feels too good to be true. They take care of all the hassle, end-to-end, allowing you to reap all the returns. Ok, maybe not all the returns. All this comes with fees. Doorvest charges a 5% transaction fee and a 10% property management fee. For someone who isn’t willing to put in the time and the effort on their own, it’s a pretty good bargain.
That being said, don’t expect to be cash flow positive right off the bat. Here’s an example of what you can expect to earn from a property valued at $225,000 that requires a 25% downpayment of ~$56,250 (source):
Property value: $225,000
Downpayment: $56,250)
Again, this is just an example put together based on past performance, but as you very well know - the past is not an accurate predictor of the future. Take the example with a grain of salt as an outcome with a large standard deviation. In the long-run you will do fine, but no one knows how things will go in the short run. Especially after the significant property appreciation and rental increases we’ve seen in the market compared to 2020.
So how is Doorvest able to pull this off? By operating at scale in the markets they specialize in. Real estate, at its heart, is a relationship-based business. For it to work at scale you have to cultivate relationships with brokers, contractors, home inspectors, lenders, property management and so on in the area. That’s exactly what Doorvest has been able to do. Throw in the fact that since they are operating in these markets, they constantly have an eye out for open listings, are constantly performing due diligence, and are constantly running rental projections, they have a good pulse on the local markets. They are able to leverage economies of scale.
Working at scale brings a lot of benefits to the end customer. Doorvest is able to de-risk a lot for it’s customer:
They purchase the home and perform renovations
They are so confident in their renovations that they guarantee maintenance for 1 year
They guarantee your rental income for 12 months as long as the tenant is paying rent. In the first 3 months, if the home isn’t leased or the resident doesn’t pay, Doorvest will cover the full amount
How I would use Doorvest
After speaking with Andrew, I believe Doorvest has a solid value proposition. Most people don’t take action because of the initial effort involved, even if they want to start generating income from a rental property. Doorvest solves that problem by taking on they heavy lifting of finding properties, running the numbers and making sure that they match your financial goals. Additionally, their guarantees provide give peace of mind.
That being said, I don’t recommend anyone blindly rely on a third party for due diligence. For me, Doorvest solves the initial procrastination problem. I can no longer make the excuse that I don’t have the time when Doorvest has a team of experts that will take on the heavy lifting and narrow down my options.
If I were new to real estate investing, I would use Doorvest to lose my real estate investing virginity. I would work with Doorvest’s team to go through a purchase end-to-end to learn:
The single-family rental market in the United States
How to narrow down the market based on my criteria
How to run the numbers
The types of fees I am expected to pay to close a deal
That being said, I would not close the deal until I ran the numbers myself and got fully comfortable. Use the Doorvest team to buy your first home and build your due diligence experience. If you like the experience of working with Doorvest enough, you can always work with them again on future properties as long as you are comfortable with their fees.
Thanks for reading! I hope you found the interview and the newsletter insightful.
If you enjoy this post please like ❤️ , subscribe 🔔 and/or share!
For short-form content check out my twitter, linkedin and instagram.
If you’d like to give me feedback or just shoot the shit, DM me on twitter.
Andrew Luong: Earned vs. learned wisdom