It's also the reality for Indiana couple Greg and Holly Johnson, both 40, who net an average $2,000 per month in rental income from two homes. The money allowed them to pay off one home "extremely early" and double up on payments for the second house, which is on track to be paid off within five years.
"We plan to use our rental income as part of our retirement plan," says Holly, who writes about personal finance on her blog, Club Thrifty. This was all possible because they purchased their first home in their 20s with a bigger goal to become landlords.
Though it hasn't always been easy, Holly says she has learned a great deal, and she shared her best advice for anyone who is considering buying a rental property.
The Johnsons' first rental property was also their first home; they were allowed to purchase it with a 3% down payment and get a lower interest rate. But, as they learned when they purchased a second property intending to rent it out, they needed a more robust 20% down, and the interest rate was higher.
They were also surprised to learn that property tax caps in Indiana are double for rental properties. Because Holly knew the market in her hometown, she was still confident that rental income would offset monthly expenses. However, landlords operating in areas they don't know as well may be in for a financial loss if they can't charge enough to cover payments.
Video by Jason Armesto
It's fairly standard for landlords to run background and credit checks. Holly is just as interested in what she can read between the lines from these reports, though.
"I mostly do this to ensure renters are being truthful on their applications," she says. "Our longest term renters don't have excellent credit, but they were very straightforward about it. I appreciated their honesty and we've had a wonderful experience with them."
When it comes to homeownership, expect the unexpected, they say — especially when renters are involved.
"We had a renter do about $5,000 worth of damage on one of our properties several years ago," Holly says. "We had to replace all the flooring, all the interior doors in the home, a giant window on the front of the home, and more when they moved out."
Having a separate fund with the equivalent of 3 to 6 months of rent reserved — essentially, a emergency fund for the business — allowed the Johnsons to cover the expenses without dipping into their personal bank accounts.
Video by David Fang
The Johnsons decided to throw their profits back into their one rental that still has a mortgage. By taking an aggressive approach, they are minimizing interest payments: "This mortgage is currently on a fixed rate loan at 4.95% APR, so we're saving approximately that amount by prepaying."
Having a fully paid mortgage also gives them a financial buffer to clean a rental or make repairs during the gap between tenants.
The Johnsons have been looking for another rental property for several years but haven't found any deals that match their criteria.
"We look for properties that can rent for around 1% of the purchase price monthly," she says. For a $225,000 home, they would hope to gross $2,250 in rental income. Although Holly says there is "some wiggle room" with this guideline, it's served the couple well to hold out.
With two fully paid mortgages within sight and decades of rental income in their future, being landlords has proven to be a profitable venture for the Johnsons — with the added benefit of being a good learning experience, too.
Emily Glover is a freelance writer and copywriter. As a founding team member at Motherly, she established the news vertical and earned praise for her reporting on the unique challenges young families may face today. She lives in Colorado with her husband and three children.
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