This topic hits hard with everything currently going on in the world we live in today. The COVID epidemic has created over 30 million Americans who have now filed for unemployment in the last 6 weeks. Think about that. 30 million people are now trying to file for things like the Paycheck Protection Program to try and replace the sole income source they were reliant on to keep food on the table.
That is an extremely scary statistic. If this doesn’t wake up most of Americans to understand the importance of creating multiple income streams, I don’t know what will. Having many income streams is critical to your long term financial success. This got me thinking, if I were to get displaced from work tomorrow, would I be okay?
What I Mean By Many Income Streams
Before jumping into why multiple income streams are important, let’s first define what an income stream is. Here is the simple way to think about it. Your 9-5 job is one income stream. You trade your time at your employer for either a hourly wage, salary or sales commission. For the majority of Americans this is their sole source of income. A side hustle like cutting peoples hair for money or flipping things on Facebook Marketplace are also considered income streams. Anything you do that produces monthly cash into your pocket is considered an income stream.
Now let’s jump into the three reasons (although there are many more) having multiple income streams is important.
If You Were Fired From Your Job Tomorrow, How Would You Make Ends Meet?
Have you ever thought about this? Most people don’t. The majority of people are reliant on one source of income. This source of income is typically their 9-5 day job. There is nothing wrong with this approach if you are employed and want to remain employed the rest of your life. There is one major problem with having only one source of income. What happens if you were fired from your job tomorrow? Your entire income would be gone in the blink of an eye. You had no backup plans.
Your employer was in 100% control of your financial future and the ability for you to pay your bills. Being reliant on one source or income is a scary proposition to live in these days.
Multiple Income Streams Allow Financial Protection
When you rely on one income stream you aren’t in full control of your life and financial future. The more income streams you create allow for additional diversity in how you fund your lifestyle. I currently have 10 sources of income. The majority of my income comes from my W2 job, but I have been continuing to increase the amount of my income derived from cash producing assets. This has allowed me to continue taking even more risks in my day job and in some of the investments I have made.
Without multiple income streams, I would feel like my only out would be to bust my ass at work and get promoted. Over time, this would provide great wealth, but it would also be something I would be doing to make someone else rich. I don’t know about you, but I want to focus on my financial success right now. The financial success of a big corporation I work for doesn’t really benefit me too much.
Helps You Make More Money
Who doesn’t love making more money! Another huge advantage of multiple income streams is making more money. Having another income stream will never take money out of your pocket; and having more money will open up many options of what you could do with it. You could do things like:
Pay down high interest debt
Invest more money weekly into the stock market
Save for an emergency Fund
Save for a down payment on a house hack!
All of these things become possible when you can create an additional income source you didn’t previously have. If you have the one income source from your 9-5 job, the only way to make more money is usually through getting a promotion.
I’m all about working hard at your W2 to get promoted, but why not do both?
The world we live in today has made it extremely clear of the importance of having multiple income streams.
Evaluate how many income streams you currently have. If it is one, that is fine. The goal is to understand if you are reliant on a single source and if you can figure out ways to create more income streams
Having control of your financial destiny with many income streams allows you more financial freedom. Period.
Time to do a full real estate investing strategy breakdown for each of my properties. I started giving a few teasers in my Highlights on instagram, but thought giving a more detailed breakdown on my real estate investing strategy is critical. I want to provide my real world experience with actual numbers for each of my real estate investment properties. I have a variety of real estate investment strategies ranging from house hacking to long term rent by the room to short term rental properties.
Time to dive into my rental properties in the order in which they were purchased!
When I Purchased The Property
I purchased this property in August of 2019 so a little over 8 months ago. This property was going to be the first ever standalone real estate investment property I would be buying.
Was I afraid? Hell yeah I was.
Was I nervous that I was making a bad decision? Hell yeah I was.
Did I second guess myself? Hell yeah I did.
Here is the reality. It was the week of my 27th birthday and I was continuing on down a path to be financially independent through having a high savings rate and investing in the market. Nothing wrong with that. But I was comfortable. I wasn’t taking any risks. I was playing things safe and I hadn’t yet stepped up and made some big money moves in my life.
I decided there was no more time for playing it safe. It was time to take some calculated risks. It was time to start investing in my future and creating what is going to be my legacy! I woke up at 4am every morning for a full week off from work with one goal in mind. Figure out where I was going to buy my first ever short term rental property investment!
Was it easy? Absolutely not. But nothing in life that is worth pursuing is easy.
Did I do everything right? Absolutely not. But if you expect to do everything right the first go around, you are dreaming. The goal is to try to learn from others mistakes as much as you can and not make those same mistakes. There are certain things you won’t be able to account for. There are certain things you will have to learn on your own as you go through this process.
Within a week, I had 10 offers out on different properties and finalized the negotiation on Ol’ Faithful! More blog posts will come in the near future talking about how I ironed out the location I wanted to purchase in.
Strategy For Property
The strategy for Ol’ Faithful was pretty cut and dry.
Ol’ Faithful would be a dedicated short term rental property investment. This was a pivot in the business model that I did with my first house hack at The OG. To find out more about how I use The OG, read the article where I talk through my investment strategy there.
Staging the property would be focused entirely around creating a Disney theme inside the home. This was a critical piece to the puzzle and adding Disney flare throughout the home would create that much more excitement for my guests. Knowing your core customer is extremely important with the short term rental market.
Automating many of the processes people do manually is critical to creating a great and personalized guest experience. Automating sounds like it would create a less personalized guest experience, but you would be shocked at how personalized I can still make the experience feel for guests.
Ideal guests, were people tourists (or locals) coming into town who wanted to stay at an awesome home near the Disney parks and Universal!
The nightly rate ranged drastically depending on the time of the year. Like any common destination, there are high and low seasons. The goal was to get the property operating between $110-160 per night. This was an exceptional rate to be renting at for such an awesome vacation to Orlando!
Breakdown Of The Numbers
Time to break down the numbers for Ol’ Faithful!
Let’s first look at the purchase of the property.
I purchased this home for $210,000 on a conventional 20% down payment loan. Why conventional? This is one of the ways to finance a loan on an investment property. I did look to classify this home as a vacation second home, but the property wasn’t far enough away from my personal residence to qualify. This left me with a 20% down payment of $61,253.
You may look at the numbers and immediately question how the down payment was $61k when the homes price was $210k. Here is what happened with that.
I originally got the home under contract at $215,000. The appraisal came back at $200,000. There are a hundred things I could point out on the appraisal on why they were off by over $20,000. This was the beauty though. I didn’t fight the appraisal. I knew what the value of the home was based off comps in the area.
Instead of challenging the appraisal, I used the appraisal to negotiate the price of the home down even further. The crappy appraiser actually ended up saving me another $5k on the purchase price of the home.
There was a catch though. Since the appraisal came in at $200,000 that means the bank won’t loan me more than the appraised value. This then meant that I had to come to the closing table with an additional $10k at closing in cash. This would get the price of the loan to exactly what the bank would feel comfortable lending on.
Breaking Down Income And Expenses
Now time to breakdown the income and expenses for this real estate investment property.
Starting with the expenses, as most I am sure are aware, the expenses of a short term rental are much higher than long term renting. This is mainly due to paying for utilities, HOA fees, cleaning fees and pool maintenance. Those are my main expenses at the property outside of some other capital expense money I put to the side for a new AC, new water pump for the pool , etc.
Now for the income breakdown. My target occupancy rate was 80% when I first analyzed the deal. I felt like this was a very realistic number once I got up and rolling. The average nightly rate (although I don’t analyze properties on averages necessarily) is $125. The nightly rate varies drastically depending on the time of the year and the night we are talking about. I leverage softwares that are able to understand dynamic pricing and help to generate more cashflow for the future!
After all income and expenses were paid, I project to make between $600-1000 per month. Again, this isn’t a long term rental where the monthly cashflow is more or less consistent. Good months for short term rentals will look a lot different than long term rentals. This is even more reason why you have to really take advantage of the high season and set prices accordingly!
If you aren’t already, don’t forget to follow me on Instagram!
Thanks again for all the support and continuing to come back each day for new updates in this saga!
Enjoy this article? My goal is to continue posting about my real estate investing journey and path to financial independence through investing! I want to share my journey with real numbers to people can see exactly what I am doing. Are there other ways to get to financial independence? Absolutely, this is not the only way. But this is the fun of personal finance, it is personal! Checkout more of my content here!
Second paycheck of the new year in the books and I invested almost 100% of my paycheck into retirement accounts! This continues along with the strategy of front loading my investments at the beginning of the year. Being able to invest almost 100% of my paycheck into retirement accounts will allow me to max out my retirement accounts by the end of February. Let’s take a look at where my money went.
Breakdown of Second Paycheck
The total amount for my second paycheck of the year was $6,538. Of that, here is the breakdown
The goal remains to max out my retirement accounts by the end of next month. This will then dramatically increase my paycheck for the rest of the year and allow me to invest more aggressively.
Don’t Forget To Automate
One of the keys to my strategy is automation. What do I mean by automation? Here are two ways I automate my investments each month.
First, I set up automatic deposits for my 401k and HSA contributions. For me, I set this up through benefits with my employer. We have a landing page I can go to and can update the percentage of my check to contribute to each of these accounts. I do this for one reason and one reason only. When automating this way, I no longer see that money in my bank account. This money will go directly to my retirement accounts and I don’t have to do anything on my end.
Second, I set up automatic investments every week in my Vanguard account. This money is transferred on pay day as well so I end up temporarily seeing the money in my account. Again, the goal is to automate things so I have less things on my end that I need to do.
Executing this strategy allows me to live paycheck to paycheck in an effective manner. The less money I see in my bank account, the less money I will end up spending.
Front loading your retirement accounts is one of many strategies you can utilize for saving
Don’t forget to automate your investment strategy. The less you see in your bank account, the easier it will be.
The cool thing about front loading is what my paychecks will look like after my retirement accounts are maxed out!