Real-estate investors who nearly went bust on their first and only flip are now landlords of a 16-apartment building. They say real estate is anything but 'easy' or 'passive.'

• Louisville investors Dana McMahan and Mike Consigliere bought a rundown house for $80,000 in 2020.
• They lost money on the deal, even after selling the rehabbed house for $435,000 two years later.
• Now they own a profitable 16-rental building but warn others that real-estate investing is not easy.

Real-estate investor partners Dana McMahan and Mike Consigliere own and operate what they say is a lucrative 16-unit rental property in the heart of Louisville, Kentucky's historic downtown.

But their journey to becoming successful landlords has been anything but straightforward and risk-free. 

It started in the autumn of 2020, when the pair purchased a neglected Victorian home that they planned to restore. They nicknamed the 123-year-old house Sleeping Beauty, McMahan told Insider, and their drive to rejuvenate the building was equally rooted in two passions: a love of old homes and a desire to turn a profit. 

"It was quite literally hidden behind an overgrowth of shrubs. The neighbors thought it was going to be demolished because it was in such rough shape," McMahan said of the 3,000-square-foot house. "Maybe we were naive, but we just saw the potential of how beautiful it could become." 

The partners were able to purchase the derelict home for $80,000 thanks entirely to a cash-out refinance that McMahan did on her own home just a few blocks away. But due to steep labor costs and supply chain constraints that saw building materials skyrocket in price, the project ended up costing far more than either had anticipated. (McMahan, who moonlights as a freelance writer, has written extensively about the renovation.)

After a thorough renovation, they listed the house for sale in August 2022 for just under $470,000 and ended up selling for $435,000 in November. 

Despite the significant increase in the sale price in two years, the two ended up losing money on the deal, they told Insider. One of the reasons is that they listed the property at a time when mortgage rates began to increase after record lows, causing buyers to retreat to sidelines and home prices to soften. 

There were times when the partners considered cutting their losses during the renovation, they conceded to Insider, but felt that it was important to see the project all the way through.

"More than once, people asked us if we would just sell it as is and walk away," McMahan said. "We did have some pretty serious discussions about doing that. But the thought was, we're losing money either way, if we're going to lose money, we at least want something we can be proud of. It sounds hokey, but the house deserves it."

They had to dip into retirement accounts for their second deal

After selling the house, the partners were at a crossroads and in a tough spot financially. But after getting a lead on a 16-unit rental property, they scrounged up their remaining savings and cashed out their 401(k) retirement accounts to buy it. The owner was also agreeable to seller financing, and McMahan put her own home up as collateral.

With some luck and cash in hand, the two closed on the $1 million property in September of 2021.

They've been slowly updating each unit as it becomes vacant and have also rented some of the apartments out to travel nurses, which has been both more lucrative than traditional long-term leases and more secure than short-term rentals like Airbnb.

The building's 250-square-foot studio apartments rent for around $750 a month, while slightly larger one-bedroom units go for $1,100 a month. Travel nurses and medium-length renters, though, will pay closer to $1,500 a month, McMahan said. 

Their warning to other investors

While the building is cash-flowing and the two are focused full-time on growing their portfolio, McMahan thinks its important to warn others that real-estate investing is anything but "passive income." (The popular phrase is often used by "side-hustle hucksters" and others to describe business ventures that make money but are also not a lot of work.)

The two regularly take phone calls and work out of their cars outside of the building.

"The reality is whether it's rental, or BRRRR method, or whether it's flipping houses, it's just irresponsible in my mind to tell people that it's easy or that it's passive," she said.