The “Snowball” Investing Strategy For Rental Property (How I’m Investing Outside The Market)

rental property

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Yes, I’m an options trader but I’m also an investor in real estate rental property.

Part of my wife and I’s continued plan to build wealth overtime is to take the money we have saved each year and buy a rental property somewhere for cash-flow.

Currently, we have 2 properties, and I’ve talked about these a couple times before. Each makes about $500 per month after all expenses.

We still don’t use this money as “income” per-say and instead put this back into savings for another down payment.

As I continue to do on this blog and website, I want just to be open in showing everyone what we choose to do.

. . . Click here to watch the last video we did after a renovation.

Of course, you don’t have to follow this plan (or anything I suggest for that matter) but I talk about it a lot with coaching students and want to share it with you.

A 50% ROI And $850 Monthly Cash-Flow?

The latest property we just got under the contract is a student rental near a small college town. It’s already leased for 1 year and will generate $850 per month in income after all expenses.

Crazy but true. . . And we are very excited!

Ironically enough, my wife started her amazing blog (RentalRookie.com) about our journey buying rental property earlier this year. Through this process, she’ll be doing a 4 part series on everything from the offer details, inspections, closing and settlement over the next month.

You can check out part 1 of this series by clicking here if you want all the property details and deal specifics.

And yes I’m actively helping to grow her website like I did in the early days of Options Alpha, and you’ll notice that we both run the same theme and blog structure.

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The “Snowball” Rental Property Strategy

Overtime I've learned this basic but powerful concept in 2 places. . .

First, after reading Warren Buffet’s biography book Snowball a couple years ago, I realized more than ever that the basis for his wealth was on buying, holding and accumulating cash-flow.

Then I saw the same concept applied elsewhere when I worked for BB&T covering REITs as an analyst.

Snowball Investing

I would find that the most profitable and consistent companies took most of their money from cash-flow and saved it to purchase more properties. As they accumulated more properties, their monthly cash-flow would increase and thus the timeline to save for another property kept getting shorter and shorter.

. . . Hence the snowball effect right?

In talking with CFO’s about their future projections, some companies would have so much cash on hand after a while that they could buy properties in cash and rarely use leverage (or debt financing).

This became a fascination for me and something my wife and I are shooting for as a goal.

Using our 2 rentals as an example we have had them both for a little over 2 years and with $500/month each we are generating an extra $12,000 per year.

With housing prices where we want to invest it takes about $25,000 to acquire a new property.

So every 2 years or so we can buy another house (and increase our rental income overall).

This new property will generate approx. $850/month as mentioned above so now we will generate $22,200 per year and can buy a property every year from here on out.

Get the picture of how this can "snowball" into a great portfolio of property?!

Remember this only works when you DON’T use the money you make off the properties. I know that means you might have to cut back on the Starbucks Latte’s but we choose to save and re-invest, and it’s been working great.

How Do You Invest Money Outside Of Stocks?

I’d love to hear from you about how you invest money outside the stock market. Add your comments below and share your story.

Do you own a business? Rental property? Monkey Butler services (making this up now)? Seriously I would like to know and learn from what you do already.

If you want to learn more about our new student rental deal, remember to check out RentalRookie.com and follow the 4-part series and video tutorials.

About The Author

Kirk Du Plessis

Kirk founded Option Alpha in early 2007 and currently serves as the Head Trader. In 2018, Option Alpha hit the Inc. 500 list at #215 as one of the fastest growing private companies in the US. Formerly an Investment Banker in the Mergers and Acquisitions Group for Deutsche Bank in New York and REIT Analyst for BB&T Capital Markets in Washington D.C., he's a Full-time Options Trader and Real Estate Investor. He's been interviewed on dozens of investing websites/podcasts and he's been seen in Barron’s Magazine, SmartMoney, and various other financial publications. Kirk currently lives in Pennsylvania (USA) with his beautiful wife and three children.