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Build Your Credit When You Are Young – Guest Blog Post!

I am excited to have my first ever guest blog post from @everylittlebit.counts. 

Here we go!

When you’re in your late teens, early twenties, your credit is the last thing you are thinking about. If you are in school, that is priority number one, hanging out with your friends, girlfriend or boyfriend and enjoying life, and rightfully so! But taking baby steps to build your credit will go a long way. Your future self will thank you.

When you are young, it is easier to build

When you’re young and living at home, it is much easier to build your credit. You have fewer expenses and there is no reason to be in debt. Your debts should be immediately paid off (unless you have a car loan).

Why is it important?

Building your credit is important because later on in life when you apply for a car loan, line of credit or more importantly, your mortgage, it will be difficult to get accepted and get the best rates if you have no credit history.

Get a credit card

Hear me out first. If you have a part time job, have a savings account (even if small), you should apply for a credit card with a maximum limit of $500.

I was against credit cards when I was in my late teens. Having worked for a financial institution, I gained knowledge and I realized it was somewhat important to have one to start growing my credit.

Credit cards are not the problem; it’s one’s lack of knowledge on how they work, which is something I strongly feel should be taught in high school, but that is a story for another day.

Having a $500 maximum limit will allow you to make some small purchases. If used correctly and paid on time it will slowly build your credit score. If you are not working or struggle with money, do not apply for a credit card. Everyone’s financial situation is different.

In October 2017, my credit score was 832, which is considered very good. This did not happen overnight. It took time, patience and paying my bills on time.

Side Note

Even if you hate credit cards, they are needed to reserve and give a security deposit at hotels. During flights, if you need to buy food or gifts, the only accepted method of payment is via credit cards. Credit cards are not the issue. The issue is people don’t control themselves and they don’t understand how they work.

Get a cellphone plan

Another way to slowly build your credit is to have a monthly cellphone plan. The monthly amount is not important but what truly is is having regular monthly payments withdrawn from your account. This will slowly grow your credit and show you can make consistent monthly payments.

Apply for a line of credit, even if you do not need one

When you really need money, banks may be reluctant to give you the loan. The key is to apply for a line of credit when you do not need it. When the moment arises that you truly need one, you will already have it. The same can be said for a credit card. Apply for one when you do not need it.

Bad Good

Build good habits

Practice the following spending habits towards building a good credit:

  1. Pay 100% of your credit card debt as soon as possible. My trick is I pay my credit card every two weeks. It allows me to keep track of my expenses and know where I spent my money;
  2. Avoid using more than 30% of your credit limit. Most experts recommend it (on a $500 limit, you should not use more than $150);;
  3. Check your monthly statement. Even if you paid your full amount, check your statement for any errors.

Summary

  1. It is very difficult to apply for a mortgage without a credit history. One of the ways to build your credit is to have a credit card (with a small limit) and pay its balance in full monthly;
  2. If you buy or lease a car, make sure you are able to afford the payments;
  3. With time and a good track record, your credit score will increase. When the time comes and you need a mortgage or a large loan, the baby steps you took to building your credit will pay off.

What do you think? Leave your comments below.

Also, if you haven’t already, go checkout their blog here!

 

 

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3 Reasons Why You Need Multiple Income Streams

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?

 
Key Takeaways:
  • 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. 
Don’t forget @TheYoungRetireeBy33 3 Core Principles:
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Real Estate Investing Strategy – Ol’ Faithful Breakdown

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!

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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

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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!

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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!

So that is a breakdown of my expected income for Ol’ Faithful! If you want to see the latest month breakdown of income and expenses detailed out for Ol’ Faithful, checkout this post!

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!