Tag: 1

This week’s money myth focuses around a common myth around making money.

I used to believe having one source of income that continued to grow was the most important thing. For that reason, I focused on crushing it at work and increasing my W2 income. What I completely missed to realize was the fact that exchanging my time for money was the main problem.

Having a strong W2 is great while you are early in your investing career, but having many income streams is even more important. Look at some of the most well followed financially independent influencers are will see more than one source of income.

If you have all your eggs in one basket, what happens when that basket is gone? What happens during a recession or if your company is trying to cut costs?

I wish I would have read about creating more than one income stream earlier on in life. Now that I know what I know, my main focus is around creating more than one income stream that produces monthly cash flow.

What Is A Horizontal Income Stream?

A horizontal income stream is something that produces cash flow for you. Your W2 job is a horizontal income stream. If you invest in index funds, the dividends they produce is a horizontal income stream. Anything putting money into your pocket on a monthly basis is a horizontal income stream. To be clear though, this does not mean diversification. By all means, you can diversify your horizontal income streams, but that is not the point of this post.

Why Are Horizontal Income Streams Important?

Horizontal income streams are important because they focus on one thing: make sure your money is working for you as hard as you work for it. That is right, ever took a second to think about this?

Is your money working as hard for you as you are working for it? For most, I would argue probably not. I know I still have some money currently sitting in cash that I would love to have working harder for me. I do have it in a high yield savings account, but that is only earning me 2% interest.

There is nothing wrong with having one major income stream. If you like index funds, and that is all you know, by all means knock yourself out. From my perspective, I want to create more than one income stream.

My Current Horizontal Income Streams

I am continuing to work harder to create more income streams. At this point, I would say that I have 7 different income streams:

1. W2 – my current job where I make the majority of my monthly income
2. Full Home Airbnb – First full investment property that is not a house hack! I am excited to continue to see how this home performs as I get a few months further in and come out of the slow months of the year.
3. House Hacking Room #1 – first bedroom in my current house that I rent to a long term tenant
4. House Hacking Room #2 – second bedroom in my current house
5. House Hacking Room #3 – third bedroom I created in my home that I rent out. Checkout this post to see more details on how I identified this opportunity!
6. Dividends from my index funds and companies I invest in. I am currently invested in VTSAX, VTI, Starbucks, and Walmart
7. High Yield Savings Account – as mentioned before, I earn 2% in a High Yield Savings Account with Wealthfront.

What Are My End Goals

My end goal will be to continue finding opportunities to add more horizontal income streams. The more the merrier if they are cash flow positive.

I will continue down the path of purchasing real estate, house hacking, and indexing. There are plenty of opportunities out there even with the current state of the market. I pulled most of my money out of the market due to the volatility. I am continuing to invest $1,200 every week into the market in low cost index funds. This will help my Dollar Cost Average back into the market while I have liquid capital for some real estate investments.

Key Takeaways:

• Take a step back and determine how many horizontal income streams you currently have.
• One income source is not the best idea. Try to always have more than one income stream where money can flow to you.
• Buy assets, things putting money into your pocket, not liabilities.

The first major thing I am trying to take advantage of is the largest expense for 99% of people. Housing!

Most Americans spend 30-35% of their disposable income on housing associated costs. This includes the mortgage/rent, utilities, HOA and capital expenses that come up.

By far the largest single thing I have been taking advantage of is housing. I have taken advantage through what some refer to as House Hacking. This term means I rent out the home I live in to generate income each month.

When I moved to Orlando three years ago, I knew I was ready to buy versus rent. What I didn’t know at the time was how much of a home I could afford. I bought a home that I shouldn’t have bought and before I knew it this huge mortgage was hitting met each month.

I went from paying $1,100/month to rent out a one bedroom apartment in PA to paying a mortgage of $1,800. I was a single guy living in a 2,100 sq. ft. 3 bedroom/2 bathroom home by myself. I had more space then I knew what to do with.

3 months after moving into the home, I had a friend from NY reach out to me asking if he could come down for a few months. He wanted to play in a local mini pro tennis tour in Orlando. I had the extra space, so I told him I didn’t have any issues with that. I didn’t know how much to charge him, so I asked him what he thought was fair. At that time, he asked if $500 worked. How could I turn down $500/month of my mortgage getting paid!

I was now paying $1,300 per month for my mortgage if you accounted for the $500 my friend was paying.

How I Dropped My Mortgage Payment to $800/Month

I was loving every minute of having my friend live in one of the bedrooms in my home. I was saving money on my mortgage and he had a cheap place to crash at.

A few weeks into his stay he said there was another guy playing in the pro circuit who wanted something similar. This other guy wasn’t from the area and was looking to play the pro tournaments for a few months. My friend asked me if I would be okay with him crashing in the third bedroom for a few months. I mean…yeah, why not!?

At the time, I decided it would make most sense for them both to pay $500 per month. What just happened?! I went from having a 2100 sq. ft. 3/2 home living by myself to having two roommates paying $1k/month. Not only that, but I was now paying less for my mortgage than I did for rent in PA for a one bedroom apartment.

I was beginning to like this. A lot.

Time to Take It To The Next Level

We were a few months in and my friend decided he was going to move back to Long Island. As much as I wanted him to stay, I now saw an opportunity. I started doing some research to see how much I a fair rent was in my area for a bedroom.

What I found shocked me. On Airbnb, people were charging $30-35 per night or roughly $900 per month. I was $400 off in my rent estimate at the time from what I charged my friend.

Seeing this as an opportunity, I transitioned to renting out the bedroom on Airbnb. I will write an entire post on this at a later point, but this was a very fun experience. I was making more money through rental income and meeting amazing people from all over the world. My other roommate didn’t mind this at the time which allowed for a very smooth transition.

Updated House Hacking Numbers

Airbnb ended up bringing in much more than the $500 a month I was making from my friend. I averaged $750-900 per month in rental income on this bedroom. So now my housing financial outlooked looked like:

• Bedroom #1 Rent: $500/month
• Bedroom #2 Airbnb: $825/month
• Me: $425

I was paying for 25% of my total mortgage while the rental income contributed 75% of each payment. Not too shabby, but I knew I could do better. There was still more opportunity to optimize.

Converting Second Room to Long Term

Something very interesting happened to me while renting out the bedroom through Airbnb. I had a guest who came down to the area looking for apartments/homes to live in. They were planning to move two weeks after their stay with me. It happened to be they liked my place so much they asked if they could go long term.

How could I say no to this?!

They asked what a fair price was for rent. I looked at what their all in costs charged by Airbnb for the two week stay to help me determine what made sense. I landed on $1,000 per month. I asked them if that would work out and they immediately accepted.

I couldn’t believe what I had just had someone agree to. I was now bringing in $1,500 per month on a mortgage payment of $1,777. That dropped my total part of the mortgage to 15%.

Getting Paid to Live In My Home

I was almost optimized. The last thing I needed was for the roommate who was paying $500/month to leave or agree to a higher rent payment. I didn’t want to ask him to pay anything more than what we had agreed upon. I knew money was tight for him and he wouldn’t be able to afford an increase in rent.

Luckily for me, I didn’t have to ask. He ended up moving out a few months later and I now had more opportunity! I could do the same thing I had done with the other bedroom. That is exactly what I ended up doing.

I started renting out through Airbnb and saw roughly the same amount of income ($750-900 per month). And I ended up having the same thing happen again! Another guest stayed, liked the place so much, and asked to stay long term. I kept things consistent at this point. I charged him $1,000 per month.

Rent By The Numbers

So now let’s analyze the current state of my living situation.

That is right, I was making $223 per month in rental income and living for free. The whole time I am also paying down my mortgage principal. How incredible was this? It was incredible to see what was happening. I went from putting myself in a bad situation to now getting paid to provide a service people needed. Housing.

Can’t Stop There – Time To Double Down

It would have been great to stop there, but why not continue to push the bar. My home had a walk in office that I wasn’t using for anything. The room didn’t have any privacy, but I saw there was an opportunity for more rental income!

Checkout this link to see what I did!

$700 later and I had another bedroom to rent out! This bedroom was now ready for rent. This particular bedroom was a little different than the other two. I didn’t furnish the bedroom and it also didn’t have a closet. For those reasons, the rent was a little bit cheaper than the other two rooms.

New Housing Financial Outlook

Now let’s look at the new numbers for how my house hacking was coming along.

I was now making $2,525 a month! Note the rents of the other two bedrooms dropped a little bit as I had the long term individuals move out. Not too shabby though!

What would you end up doing if you were to be getting paid to live in the home you live in? Yes, some privacy things are a little bit different living with others. Would you be willing to make the sacrifice to be paid to live where you live. I find it to be awesome, for now.

Key Takeaways:

• Most Americans have housing costs of 30% of their take home pay. This is more than likely the most significant expense you have each month. Determining how to optimize this expense can set you on an faster path to financial independence.
• You walk by opportunity every day. Some people see it while others don’t. It is there. You need to change your mindset and look a little harder.
• Getting paid to provide something people need is a great feeling. I provide a very comfortable brand new home in a safe neighborhood. No I am not trying to be a slumlord. I am trying to provide something of great value to others in need.

What do you see in this picture? An open walkway? An awesome picture of me jumping off a ledge in front of the Colosseum? A random room with some stuff in it?

I would agree with each of those things, but I saw opportunity! Opportunity to turn my current living situation into an even more profitable one.

How I Saw Opportunity!

Opportunity is all around. Some see it while others walk by it every day. As some of you know, I currently house hack my home. House hacking means I rent out parts of my home to individuals seeking a place to stay for various amounts of time. I live in the master bedroom of the home and rent out the other two bedrooms.

Here are the current numbers for my house hacking:

1. Expenses

• Mortgage $1,777
• Utilities $180
• HOA $152

2. Income

• Renting Bedroom #1: $975
• Renting Bedroom #2: $900

So with renting two bedrooms alone, I am more or less living for free while paying off my mortgage. Not too bad right?

Wrong! I saw an opportunity to bring in even more income!

Opportunity Knocks When You Are Looking!

One thing I haven’t taken full advantage of was a side room I had vacant. This room is a walk-in room having no door (as shown in the picture). The other day I was thinking to myself, what if I framed a door in the walkway and created another private bedroom?!

Doing this would do two things:

1. This would add value to my home by the creation of another room (soon could be bedroom) once I add a closet
2. I could then rent out the room for an $600-700 a month!

Sometimes you have to look at things in a different perspective.

So what did I do?! I started exploring options to get a door and drywall in place to create value! I reached out to the General Contractor I am now using for my Airbnb to get quotes for the work. Total, my GC told me it would cost $700.

Two days later and wa la! Checkout what that old walkin room now looks like!

I now believe I can rent this room out for between $600-700 per month.

How I Am Making A Return On Investment (ROI) In 1 Month!

For most, the concept of a return on investment is foreign. Most investors want to understand what return they are going to make on their money or how long it will take to payback. This allows you to understand how well your money is working for you.

In this scenario, here is how I calculated a ROI of 1 month!

Total Cost of creating the room: $700 of material and labor

Total Income From Room: $700/month

From these numbers you would divide the $700/$700 = 1 month! Yes, that is right! The $700 invested will pay back that exact amount the first month I rent the bedroom out! How incredible is that. If you were to give someone a million dollars and they returned it the next month, would that make you happy? That is how I am feeling right now!

Had I not looked at my home a different way, I would have never seen this opportunity!

Key Takeaways:

1. You walk by opportunity every day. Some see it while most don’t.
2. Understand what your return on investment is. From my world, any return on investment where you can make your money back in less than 2 years is a no brainer. Period. The fact this pays for itself in a month is AMAZING!
3. House hack! It is the most amazing thing that is available to anyone. Yes, that means you.