How to Create Multiple Streams of Income in Real Estate

Posted by on Sep 1, 2017 in News | No Comments

Pre-Internet, information on real estate investing wasn’t as easily accessible. You could get an MBA or study real estate in college, but there wasn’t much out there for people like me who wanted to teach themselves—except for local real estate groups. As a new investor in need of financing, I decided to attend one of these meetings. Before I knew it, I was hooked.

One meeting a month quickly turned into one main meeting a month with seven additional meetings at subgroups, traveling to other nearby meetings, and eventually even hosting a meeting myself. Needless to say, I’ve been to countless real estate club meetings, meet-ups, conventions, and pretty much every form of a real estate investor networking meeting you can think of.

I’ve seen many speakers, and some of them really had an impact, while most didn’t. The ratio is pretty staggering, though I don’t think I would take back all of those nights that weren’t fully memorable. You need the bad or the unappealing (to me anyway) to really know the good. Besides, there was always something I could learn from the bad speakers, even if it was just how not to present a topic. Out of those presentations that were good or even great, there are some that I still reflect on from time to time.

Recently, in working on another piece of writing, I re-stumbled upon an author and presenter I saw many years ago, a man by the name of Robert Allen. Allen was a bit old school, somewhere between an academic and a guru. He was more aligned with the likes of Robert Kiyosaki and Jack Canfield than your average speaker, and having been to so many meetings, perhaps I could tell. 

He presented an idea that was new to me at the time—and may be new to you now—called “multiple streams of income.”

In his presentation and his aptly titled book Multiple Streams of Income: How to Generate a Lifetime of Unlimited Wealth!he talked about strategies to improve your cash flow and expense management, really focusing on how to combine them to build serious wealth. What I gleaned most from his work was a method of evaluating all profit centers and figuring out ways to maximize them, while at the same time turning expenses into assets.

Simple enough? Well, like most good things, it didn’t sink in for me right away either.

Upon seeing his presentation, I wasn’t sure how all this information was going to help me. It was only after reading his book and chewing on things for a while that I began to think how the concepts he taught could be applied in my life. Creating profit centers was one thing, but he also stressed that the ones we should be aiming for shouldn’t involve a lot of extra effort and work or a large number of employees.

At the time, I had been working as a part-time real estate agent and a full-time contractor, using my weekends and every bit of free time to build my rental portfolio. My idea of multiple streams of income before reading Allen’s book was probably just doing some contracting work for people who bought and sold properties through me. But after reading, I started to think about how I was doing my deals. After all, my personal involvement was only one piece of the puzzle.

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Finding Additional Streams of Income

I realized how much I was losing in my previous mode of operation. For example, when I purchased a property or sold a property to someone else, I was giving away the title business. So, instead of losing out on that income, I decided to become a silent investor in a title company.

Next, I left the traditional real estate brokerage I was at (with the typical 50/50 or 60/40 split) and went to a 100 percent commission flat fee company. I started making more money every time I sold a property. I even started doing property management through a brokerage. The nominal flat fee charged by my broker would cover most of the paperwork, accounting, etc.

My specialty at the time was dealing specifically with real estate investors, especially ones that had properties in my area. Now I would get paid multiple times with each client, while managing my own units.

When some referrals weren’t allowed to compensate me directly, we’d share expenses (i.e. marketing). I had a pretty large network from running a real estate investor group that branched into six different cities, in five different states. Before reading Allen’s book, I would just refer all my mortgage business, homeowner’s insurance, property management, and title business away to my colleagues without much thought. Then I realized with almost the exact same amount of work, I could get paid every time I did it! How absurdly simple.

Taking it Further

I decided there must be more ways to increase my cash flow and my net worth. I started with financing. I realized with my growing portfolio, I had quite a bit of equity to leverage by using HELOCs (Home Equity Lines of Credit). With that capital, I started to buy more properties faster and to lend private money.

There’s enough to say about that process to fill an article (see “Building Wealth: 10 Strategies for Successfully Managing Equity”). But in short, when I ask most people, “What’s the rate of return of the equity in your properties,” more often than not, I’m met with a blank stare, which usually means ZERO.

Well, if you could borrow that static money out and reinvest it at a higher rate of return than the HELOC rate, why not do it? I prefer to use it for short-term and liquid investments like lending private money or note investing, but I know many others who use it to invest in funds and hard real estate, among other things. My philosophy is: It’s your money, so why not use it?

Pursuing the Highest and Best Use

How could I decrease my taxes and insurance payments, yet still increase cash flow from my current real estate portfolio?

Sometimes, I altered the financing to cash flow more. Sometimes I held paper when selling a property to increase my yield. But the biggest change was finding more potential cash flow within the properties I already owned, simply by making improvements. These improvements could include adding extra bedrooms and/or garages for additional rent.

(Or how can you tweak your business model? For example, a friend of mine who’s an HVAC guy now finances the installations of heaters he sells, and this financing of units has grown into a huge stream of extra money that he used to leave on the table.)

While I was renovating, I also decided to take a look at my property taxes. After checking with the neighboring properties, I discovered that there was an opportunity to have some of my properties reassessed. Sometimes it pays to do this because, in my case, it actually lowered my yearly property taxes. In turn, this decreased expenses that affected my bottom line. I also chose to reevaluate the homeowner’s insurance as well, and what do you know? I was overpaying compared to insurance offered by competitors. I still do this with my insurance every year, shopping the rates to different brokers and insurance companies. The list of these savings and profit centers for me actually goes on and on. I still continue to find new savings to this day.

It’s funny how you forget how much you’ve learned over the years, especially at my age. But I’m glad I went back and got a little refresher on Allen’s work. It reminds me that all those nights at real estate club meetings weren’t for nothing. People like Allen and many of those I read and saw speak over the years helped me save money and make extra income that, in turn, led to bigger and better investments. I’ll have to thank Mr. Allen for that someday. Hopefully, spreading the word about all of the quality information I learned over the years is a way of doing that.

 

From BiggerPockets