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  • Randy Rodenhouse

How I make money in real estate

One of the newsletter subscribers emailed and asked “Hey Randy…from where do you making the bulk of your money.”


I will try to be transparent and talk about how I make money and what are the main areas from where I receive monthly income. Every month I track my cash flow from various sources of income. Approximately 70% of the income streams are for the most part passive and the remaining 30% are active. This is pretty fluid and changes each month. For me, the key performance indicator is measuring the free cash flow (FCF) which is represents the cash that my company generates after accounting for cash outflows to support operations and maintain assets. I want the FCF to consistently go up each month.


Below is a list of the main income streams split up in 2 buckets - passive and active. The passive and active is not black and white and there are shades of grey. The charts below will help give you a visual picture of how it all breaks down.


PASSIVE

  • Mortgage notes: 37%

  • Rentals and seller financed houses: 18%

  • Private lending: 5%

  • Fund investments as limited partner (syndications in apartments, self storage, businesses, etc.): 5%

  • Principal paydown: 5%

ACTIVE

  • REO - Real Estate Owned (houses that I have taken back through the foreclosure process): 21%

  • Consulting/Advisory Services: 9%

Many of the active real estate activities will become passive or pseudo-passive. For example, if a loan is non-performing we have to do some "activity" to get it re-performing like a loan modification. Once modified then the activity becomes more passive over time as the now performing loan seasons.


When comparing 2021 to 2022 you can see an increase in the amount of income derived from private lending and fund investing (as a Limited Partner) and the REO activity has decreased due to the low inventory of non-performing loans available on the market which is where most of our REO inventory comes from. It is important for you to shift as the real estate market shifts and be constantly making adjustments to maximize your cash flow.


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