Earning

How a real estate side hustle helped us add $1 million to our net worth in 5 years

Wealthy Nickel founder and real estate investor Andrew Herrig shares how his side hustle helped him grow his net worth and work towards financial independence.

Andrew Herrig
Andrew and Emily Herrig grew their net worth to $1 million through their real estate side hustle.
Courtesy Andrew Herrig

Starting when I was 27, a lot of things changed in my life. I got married to my incredible wife. We had two amazing kids. And, over five years, we added $1 million to our net worth through our real estate side hustle — all while I was working a full-time job as a financial analyst for a large engineering company.

When we got married, our net worth as a couple was $100,000. The following year, we bought our first rental property and began our realtor, flipping, and wholesaling side hustles, and we saw our net worth double. Over the next few years, we continued to grow our businesses. When I was 30, our first child was born, and we purchased three additional rental properties.

Our journey towards financial independence while raising two kids on a single income was not always easy. But it was worth it. Here's how we did it.

We set 'financial independence' as the goal

While searching for advice on what to invest in with my company 401(k), I came across some blog posts that introduced me to the idea of financial independence. I realized for the first time that I didn't want to spend the next 40 years in a cubicle, and that I didn't have to. 

I had experience working hard and living frugally. I had $25,000 in student loans, but I was fortunate: I got paid fairly well as an intern in college. I worked a total of 12 months while still in school and paid off all but $5,000 of my loans before graduation. I paid off the remaining $5,000 a year later using savings from my salary.

My wife and I, together, had made around $120,000 a year. But we decided that once we had kids, my wife would no longer work full time and we would live on one salary. With a mortgage, car loans, and a kid on the way, we knew we could use some help.

We chose real estate as a side hustle

I researched all kinds of side hustles and business ideas — bookkeeping, freelance opportunities, even starting a blog — and I kept coming back to real estate investing. It was something that I could do on nights and weekends. It suited my numbers-driven personality. And it seemed like I could build wealth passively without trading my time for money. 

Or so I thought.

We started small and learned from our mistakes

We made almost every mistake in the book on our first rental property. But although there were some initial hiccups, it has been one of our best performing properties to date.

In 2013, we bought a duplex that was a bank foreclosure. One side was already rented and the other side needed a lot of work. This turned out to be the perfect learning opportunity for us, because the rent from one side paid the mortgage while we worked to get the other half fixed up and rented out.

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In the process, we realized we had grossly underestimated the cost of repairs, so the $40,000 we budgeted quickly turned into more than $60,000. We also ran into an issue with our first contractor. We paid too much up front, and while the project started off well, he soon stopped showing up or returning our phone calls. By the time we gave up on finding him, we had paid him more than $15,000 for work he hadn't completed. 

While these mistakes were painful and costly, they allowed us to put better systems in place so that our next projects went much more smoothly.

Many new real estate investors are fired up to conquer the world and quickly build their real estate empire. I always caution them to take things one step at a time. You don't know what you don't know, and with real estate investing, most lessons are learned through experience.

We treated our side hustle like a job, not an investment

I learned that to make the most out of a real estate purchase, I needed to treat our property less like a passive investment and more like a side hustle — meaning it requires active, regular effort. There are a lot of benefits to owning real estate, and one of them is the more work you put in, the more money you can make. 

Instead of buying fully renovated houses as rental properties, we actively searched for houses that needed a lot of work or that the owners needed to sell quickly and were willing to do so at a discount. We developed relationships with real estate agents and even set up a website and sent out mailing campaigns.

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In many cases, we were able to purchase homes for 70 or 80 cents on the dollar, providing an instant net worth boost the second we closed. The best example of this was a house we bought for $40,000 that needed another $50,000 of repairs to make it livable. It was a ton of work, but at the end of the day, we refinanced it with an appraised value of $120,000 and got $30,000 of instant equity, plus all of our cash back out of the project.

We didn't just stop at buying rentals either. Shortly after buying our first property, we realized in order to grow our portfolio faster we needed to find ways to generate extra cash in addition to the small amount we were saving from my day job. 

My wife got her real estate license initially to save us money on transaction costs. In the process, she discovered her own side hustle as a realtor, helping friends, family, and people in our community buy and sell their homes. And with all the marketing we were doing, we ended up either flipping or wholesaling many houses that wouldn't have worked for us 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.

We used the power of compounding to our advantage

When our second child was born, we drastically cut back on the real estate side hustles. We realized we weren't out to build an empire at the expense of our family. We just wanted to support our goal of financial independence.

By this point, we had built a small portfolio of nine rental properties that we self-managed. They generated around $30,000 of cash flow per year.

To our surprise, this is when the real fruits of our labor started to emerge. We had acquired most of our rentals over a period of five years and they had slowly been appreciating in value over that time. Our original property, purchased for $180,000 after repairs, was now worth $300,000.

While the monthly cash flow was nice, the real wealth was being built behind the scenes, using smart leverage and letting the rent money from our tenants pay down the mortgage.

While home values aren't guaranteed to always go up, over the long term houses have appreciated about 3% to 4% per year in the U.S. As a simple example, if you bought a $100,000 house with a $20,000 down payment, and the house appreciated 3% ($3,000) per year. That $3,000 represents a 15% annual return on your initial $20,000 investment, and that's just with average appreciation. Additionally, part of your mortgage payment goes to the principal loan balance, so every month your debt is decreasing. 

Across our portfolio, the gains each year from appreciation and paying down debt far exceeded the pure cash flow. This is the true power of owning real estate over the long term.

We didn't have any insider information when we started our real estate journey. But by being intentional and waiting to buy good deals, being willing to put in the work, and using time and the power of compounding to our advantage, we were able to achieve our goals.

Andrew Herrig is a personal finance and real estate investing geek. He is passionate about helping others achieve financial independence and documents his own family's journey at his blog, Wealthy Nickel. Andrew and his wife were able to grow their net worth by $1 million through real estate investing in five years. They live with their two young children in Dallas, TX.

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