How to Earn $200,000 Passive Income a Year From Real-Estate Properties

  • Danny Gudorf is a 33-year-old real-estate investor in Ohio who owns a portfolio of 24 properties. 
  • Gudorf shares how he went from renting out his first house to building a real-estate business.  
  • He also breaks down a house-hacking strategy that allows for rent- and mortgage-free living. 

Danny Gudorf said he got into real-estate investing “out of dumb luck.” But the 33-year-old did not build a portfolio of 24 properties from nothing. 

Aside from managing his real-estate side hustle, which three years ago became a business and now employs six people, Gudorf also runs his own registered investment advisor and works for a family law firm and tax business in Ohio.

“I work six or seven days a week but I enjoy it,” Gudorf told Insider. “Overall, my goal is to someday build a large enough portfolio where I have enough passive income coming in through the rental portfolio that I don’t have to worry about spending time with family or doing things I enjoy.”

Gudorf did not set out to become a real-estate investor when he bought his first house in 2014. But when he had to move about 30 minutes away to be closer to downtown Cincinnati, he decided to put the house up for rent.  

“I was able to rent it out in about 48 hours, and I was making about $500 a month after my mortgage taxes and interest,” he said. (About four months ago, Gudorf sold the house, a foreclosure that he paid $153,000 for with a 5% owner-occupied loan, for $284,000, he said.)

In the up-and-coming neighborhoods in Cincinnati, Gudorf noticed that apartments shared by roommates were being rented out for between $1,600 to $2,500 a month. That observation got his brain churning.

“That’s a lot more money than a family can afford in the suburbs area,” he said. 

Before long, Gudorf started the journey of buying single-family houses, renovating them, and renting them out. Today, he owns 24 properties, predominantly in Ohio, according to property records viewed by Insider. Additionally, income statements for his LLC showed his properties earned more than $200,000 in net income during the 12 months through August.

His strategy — how to buy, renovate, and sell/rent

With a background in finance and economics, Gudorf is always thinking about how to gain an edge in any type of investing. Throughout the years, he has found his real-estate-investing edge in construction.

That means “finding properties that are in good neighborhoods but have a lot of deferred maintenance,” he said. For example, he would take a house that needs all the plumbing replaced and would probably rent for $500 to $600, completely renovate it, and rent it out for almost double the amount.

But in today’s market, finding such deals is almost impossible given the surge in prices. “Any deal that’s on the market is probably a bad deal because it’s already been syndicated or sent out to all the investors who have relationships and connections,” he said.

Instead, novice investors can hustle their way into a fair bargain off the market.

“One of the strategies is driving around the neighborhood and finding apartments or houses that look kind of rundown or depleted,” he said. “Try to get a hold of those owners, whether it’s an email, an address, or phone number, and say, ‘I’ll buy your property from you with no fees, no broker commissions.'”

Once the properties are purchased, renovating is the key to increasing the value of the property. While Gudorf started off making do-it-yourself improvements to his first house, he now uses a construction team to be more efficient. 

Selling is a matter of simple math. Single- and multi-family houses are priced based on comparables or what other houses in the neighborhood have sold for. Gudorf uses sites like Redfin to check the comparable sales within the past six months or a year. Even before buying the property, he budgets how much he can pay for the house and how much renovation costs he can afford to determine a final selling price. 

A house-hacking strategy for rent- and mortgage-free living 

As the housing market continues to heat up, Gudorf has increasingly pivoted from single-family houses to duplexes, multifamily houses, and multiunit apartment buildings. 

“I would not recommend the single-family route in today’s market. The prices are just astronomical,” he said. “They just don’t make sense as single-family rentals.”

What he does recommend is a house-hacking strategy that can quickly get new investors started. The strategy is to buy a duplex, triplex, or quad with a Fannie Mae or Freddie Mac 3% down mortgage and live in one of the units while renting out the other two or three

“It is going to allow you to basically live rent-free and mortgage-free, which allows you to stockpile that cash,” he said. “It’s also going to get you some experience in understanding the property-management process, what it’s like to rent a property, deal with tenants and contractors on a smaller scale, and get some hands-on experience.”

The strategy requires little money to get started because a duplex, a three-family, or four-family house costs between $250,000 and $500,000 in most states, which means investors need to save up between $7,500 to $15,000. 

It also allows investors to scale up significantly from there, at which point they can execute the famous “BRRRR” or “buy, rehab, rent, refinance, repeat” strategy introduced by the real-estate-investing forum BiggerPockets.

Gudorf’s approach to the strategy is to always buy a property with cash for $80,000 to $100,000, put the renovations in for between $20,000 and $50,000, rent it out, and then go to a bank for a cash-out refinance.

“When you go to a bank for a cash-out refinance, the bank will give you 75% of that appraised value. Because you fixed up the house, it’s now worth $200,000, instead of $150,000 for example,” he said. “So the bank is going to give you $150,000 back, and that’s all the money you have in it. Then you just take that pot of money, and you just rinse and repeat.”