Real estate investment: 25-year-old earns $150,000 a month

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  • Humza Zafar turned to rental arbitrage to start a business listing his rented apartments on Airbnb.
  • Zafar says he now operates 106 units in Philadelphia, Detroit, Austin, Dallas and Des Moines.
  • He grew by funneling profits back into the business and using credit cards to buy furniture.

Humza Zafar, 25, earns about $150,000 a month based on his latest three-month moving average by renting more than 100 units short-term through Airbnb. Records viewed by Insider indicate that in December 2021, revenue was $137,000, in January 2022, $150,000 and in February, $162,000. These earnings reflect the slowest three months of the year, says Zafar. High season can be on average 40% higher.

Prior to getting into real estate, Zafar was an electrical controls engineer at Philadelphia International Airport, a job he landed after earning a bachelor’s degree in electrical engineering from the University of Windsor in Ontario.

“My assumptions in school about what life would be like were very different from what life was really like when I graduated,” Zafar said. “When I was in school, I was very passionate about engineering and I thought I would work on amazing things and build great things in life.”

“When I graduated, I realized there was a lot of bureaucracy and office politics that come into play,” he explained. “And the work you do, especially in the beginning as an engineer, isn’t that lucrative. So I decided I didn’t want to do this forever.”

Zafar’s desire was to build passive income so that he could become financially independent within a few years. In his spare time, he listened to real estate podcasts like Bigger Pockets and watched YouTube videos from investors.

Within 15 months of starting, Zafar was able to build a team and a process that allowed him to work only about five hours a week. This working arrangement has seen Zafar and his wife, Salma, spend most of 2022 vacationing in Dubai. However, getting to where he is today was neither easy nor passive, he said.

In November 2019, Zafar purchased his first real estate property. He landed a duplex in his hometown of Windsor, Ontario for C$175,000, or about $133,000, with a 5% down payment. He saved for the down payment on the property from his paycheck, where his take-home pay was around CA$5,600 per month.

Shortly after closing, Zafar completed a renovation of the property, including new flooring, fresh paint and updated kitchen cabinets. This cost was an additional CA$100,000, half of which came from an unsecured line of credit while the other half was charged to credit cards. Zafar then rented out the two duplexes as student cohousing, where each student paid per room per month. This property generated around CA$3,600 per month with a mortgage of CA$1,100.

After gaining some experience, Zafar wanted to offer rentals through Airbnb as it had the potential to generate a higher level of cash flow. However, he realized that buying additional properties would be too difficult as real estate prices in Canada and the United States were rising rapidly.

However, one day while browsing the web, he read about companies like Sonder and Frontdesk, whose business models are based on short-term rentals. After some research, Zafar realized that neither company owned the properties featured in their services. Instead, they were using a rental arbitrage strategy, which means signing a long-term rental lease and then re-letting the space short-term.

“So that’s exactly what I decided to do,” Zafar said. In September 2020, he spent two weeks learning all he could about short-term rentals and the work it entailed.

“I just spent the whole first month of October pitching the business model to different owners and owners and seeing if they would accept my business model,” he explained.

He told Insider he spoke to at least 50 different landlords before he found someone who was willing to work with him. The landlord who offered Zafar a lease had been stuck with a vacant property, a 4-bedroom townhouse in Queens Village, Philadelphia, for a few months and wanted to rent it out for just four months.

Upon signing a lease, Zafar had to pay the first month’s rent of $2,200 plus a $750 security deposit. Coincidentally, three of the bedrooms in the house were already furnished. He ended up spending just over $1,000 on furniture and linens for the fourth bedroom, in addition to toiletries and cooking utensils.

Three weeks later, Zafar had his first guests from Airbnb. The listing brought in between $4,000 and $4,500 a month during its tenure, Zafar said. Since Zafar and his wife cleaned the property themselves, they’ve made about $1,800 to $2,000 a month after deducting their rent and fees.

“We rented each of the rooms individually – my wife and I were the housekeepers and we learned everything we could,” he said of the experience. “We had three or four new guests coming in every day. And then my wife and I were basically on the floors cleaning the bathrooms, turning the beds, doing the laundry. We spent the whole month, every day to clean.”

Zafar did all of this while still working 9 to 5. In their first month of hosting, they brought in nearly $2,000. When the lease ended, the landlord bought the furniture for the fourth room from them.

How it quickly evolved

After the first Airbnb, Zafar realized the business model had good potential and began approaching other landlords about additional leases. He used Zillow to find properties that had been vacant for more than 30 days because he thought landlords of those apartments would be more motivated to sign a lease.

Zafar spoke with 15 to 20 other landlords until he found three apartments in Rittenhouse Square in downtown Philadelphia that were owned by the same person. After discussing terms and signing an 18-month lease with the landlord, Zafar now had three apartments – two studios and a one-bedroom apartment – to list for short-term rentals.

Before he could start, he had to pay everyone’s first month’s rent, which ranged from $1,300 to $1,400, plus a security deposit, which was an additional full month’s rent. At this point, he was using his salary and the profits from the first property to cover the costs.

At the end of the four months, the properties’ total net income was approximately $8,000. Zafar told Insider that he has kept his job until December 2021, so any profits from rentals go directly back into the business. This allowed him to rent more units and spend on general business operations.

Since working night shifts at his full-time job, Zafar had hours during the day when he could focus on the day-to-day tasks of his side business, such as buying and moving furniture, cleaning, and attending to customer needs.

At one point, he often slept only four hours a night, a move that eventually led him to fall asleep at the wheel and cause an accident. Looking back on the incident, he realized that he had prioritized expanding his business over his personal health and well-being.

“My wife and I lived very modestly. We didn’t go out anywhere and we saved every dollar,” Zafar said. “My after-tax income from my job as an engineer was $8,000 a month and my car and gas were paid for. So we saved nearly $6,600 every month after all our expenses, and we used it to grow the business.

In addition to his salary and income from short-term rentals, Zafar also used business and personal credit cards to purchase furniture for the units. Considering he was responsible for furnishing several apartments at one time, this became a significant recurring expense.

“As we grew rapidly, the strategy I used was to open business credit cards,” Zafar said. “A lot of these cards, especially from Best Buy, Amazon and Wayfair, offered no monthly payments and no interest for 24 or 18 months. [depending on the card]. That way you can go ahead and buy all your furniture to fill those apartments and houses without spending your own money.”

Zafar said Salma was nervous about the whole process, especially with putting so many large purchases on credit cards and the idea of ​​being able to pay it back. But Humza continued to follow his instincts, he said, believing that everything would work out eventually.

The couple reached a major milestone in December 2020 by expanding the business to five units. However, that was also when they realized they needed help cleaning the apartments. They earned enough from the business to cover cleaning expenses, so they decided to hire cleaners. Humza says they found help by posting the job description on a Facebook group for local jobs.

Now that the operation was almost fully automated, it began to expand out of state based on seasonality. The Zafars started in Dallas, Texas, where Salma moved on her own to stay in one of the units and start her business there.

Humza ultimately decided to sell its duplex in Windsor, Ontario in March 2021 and use the money to continue to expand its rental strategy as it determined that its short-term rental business was far more scalable than ownership of property. It brought in CA$120,000 after closing and used the proceeds to lease more units and maintain a cash cushion.

Now that the process is streamlined, Zafar’s average monthly spend on leases is $58,000. Operating costs, which include staff, supplies, electricity, water, gas, and internet, average about $37,000 per month.

It’s been 15 months since he started his business and it’s expanded beyond vacation rentals through Airbnb and says it now operates 106 units between Philadelphia, Detroit, Dallas, Austin and Des Moines. The operating entity, HS Property Holdings LLC, now also offers corporate accommodations and insurance removals.

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