Have you ever wished you had a job that could multiply your income? Not just a standard annual raise, if you are lucky enough to even get that. But truly multiply your income? Society tells us the only way to do that is to work two or three jobs and not have any rest. Well, that method stinks. That mindset is flawed. I want to tell you about a better way.
The Minimum Wage Job
When I was young, what seems like forever ago now, I got my first real job when I was 14. I worked at Dairy Queen in a small town in Nebraska, a little North of Omaha. I was super excited to get a job. I felt like I was going to get ahead in life now. I would earn my own money and buy the things I wanted. Well guess what? That job only paid $3.25 per hour. Seems like nothing now, but that was minimum wage way back then. People today are now fighting to get $15/hour minimum. I won’t get into that argument here, but the point is that was very little money then just like it is now. Obviously inflation has affected that a lot but even with that $3.25/hour I was able to save. Keep in mind I was also only working part time, maybe 20 hours a week or something.
One day, I think minimum wage went up! It went to $4.25/ hour. Yay! More money! Still not really a lot. However, I was a saver, not a spender. I only spent money on things that mattered. It paid for my first vehicle, a 1988 low-rider Chevy Blazer. And a nice stereo to go with it! I installed it myself. Alpine head unit, two 15″ Volcano sub-woofers, Linear Power amp, I custom made some mid-range boxes to fit around the back seats. I enjoyed installing stereo systems. That ride was my baby.
But the problem was I still wasn’t going to get anywhere making minimum wage. Then one year during summer I got a second job. So now I was working two jobs when I was 16. And I did that for every summer after that while in school. Most kids were out enjoying their summer, but I was working and saving. I effectively doubled or more, my income. I felt rich! I think I eventually saved up a few thousand dollars. The problem was, I had the wrong mindset. I was working more to get more money.
Mindset Shift – Which Quadrant are you?
We learn from one of the most famous books for investors, Robert Kiosaki’s Rich Dad Poor Dad, that there are four cash flow quadrants. They each have to do with what you do and your way of thinking about making money.
You are either 1) an Employee, meaning you have a job where you trade time for money. Therefore your income is limited by the amount of time you work, but really your work is making money for someone else. You are 2) Self Employed, meaning you own a job where your time is money. You can only have income if you work. Very similar to being an Employee, only you have a choice to work or not and can set your own schedule. You are 3) a Business Owner which means you have people that work for you to earn you money for you. Or 4) you are an Investor which means that your money is working for you whether you are awake or asleep or on vacation, you are earning money without doing anything.
The mindset shift comes by moving from being an Employee or Self Employed, the left side of the chart, to being on the right side as a Business Owner and/or an Investor. This way you can get away from trading time for money and free up your time to do the things you want to do.
To this day I am still bothered by something one of my managers said to me once. He was a higher executive in the company. This was in a time when there were budget cuts due to the uncertainty of the economy in late 2008 or during 2009 possibly. With the budget cuts they did away with quarterly bonuses. In some conversation I had with him where I was asking about bonuses or some type of additional compensation, he said I could just work overtime. With the budget cuts we still had overtime available when needed and in my department it was always needed due to the high volume of work to do. So basically I was told working more hours was my bonus. Yay! Sign me up. I was seriously upset at that moment that he could think that working overtime was a bonus. That is the opposite of a bonus. I want to work less, not more. So that memory still haunts me today.
Multiply Income
So, the question remains, how do you multiply your income without working multiple jobs. Maybe you don’t have an idea or knowledge about starting a business, that’s okay. For starters, you can easily start a business without much capital needed. My daughter started a “business” using some website where you make designs of your own and then using their software, can place that design on just about anything. She has sold some bed sheets, towels, stickers, and some other things. The website takes their cut and sends you the rest. This format may start off as self-employed. But once you have spent time making the designs and getting everything loaded it can easily be converted to a business. At that point the products sell themselves and you never have to make another design if you don’t want to.
Businesses are great, but still require some work to be successful. There are definitely some benefits to having a business, such as access to business credit cards you can use to build up travel rewards. I have several LLCs and have opened different Chase cards for each of them to quickly build points.
If you can move to the Investor quadrant, I think that is the best place to be. It will still require some work, especially at the beginning, but then it keeps building upon itself. The best way to do this is investing in Real Estate. I won’t cover all the ways that Real Estate pays you since we have covered that before. But I want to discuss the cash flow it provides to multiply your income.
Easiest Path To Wealth
To start off, we’ll assume you have a job where after you pay all your bills you are able to save $500 per month. This of course is easier if you can reduce your spending as much as possible. Now, the absolute, hands-down best way to start investing in real estate is by doing a house-hack. We have covered this before but to give a brief explanation, it is a way to possibly cut your housing expense to 0. Basically it is like renting with roommates. But in this case, you own the property. You buy maybe a single family house with 3 bedrooms. You use one room and rent the other two to friends. They were maybe renting someplace anyway but now they can live with friends. Win-win, and actually another win, for you. You can use an FHA loan, maybe even a first-time buyer program to help with a down payment, so you may be paying nothing out of pocket to buy it. Now let’s say your payment including mortgage, interest, taxes, and insurance is $800 per month. You rent the other two rooms to your friends for $400 each. BOOM! You just got your house paid for. Now, the money you would have spent to rent someplace or to pay your own mortgage can now go directly to your savings. Do you see why this is so powerful? If you can get a 2, 3 or 4 unit property and rent the other units and any extra rooms in your unit, then you will likely be making money where you live. If you can eliminate the thing that for most people is their largest expense, you will be light years ahead of your peers.
So, that is multiplier number 1. Your housing expenses go to savings. Whereas before you were saving $500/mo after your other expenses, including housing, you now cut out your housing expense. Maybe you were previously paying $600 rent for a small place. So now you are saving that expense, making your monthly savings now $1,100. Keep saving and maybe in another year you can do that same thing again and convert your previous place into a full-on rental. Now you are still not paying housing expenses for your new place and you are now making income on your old place, maybe rent that 3rd bedroom and raise the rents on the other rooms so each is paying $500. Your friends moved with you to your new place so you put in new tenants at a higher rate. Since that mortgage is still $800 you are now making $700 on that one. BOOM! Add that to your savings which is now $1,800/month. You are still working that same job and you will probably get raises once in a while as well but we will ignore that for now.
The Income Snowball Grows…And Grows…
Next you decide to buy your next property as a full-on rental, not a househack. Since you have been able to save so much and the rental income increases your buying power, you buy another property that adds another $600/mo to your savings. Since you are now making a good amount of cash flow, and still living for free, you take a risk and get a new job that pays you more. You are open to taking risks since you no longer depend on that job to live. That risk pays off and now you make 30% more at a new job. Now you are saving more.
As you can hopefully see, the path is fairly straightforward and easy. It is slow, yes, it is not a get rich quick scheme. It is get rich slowly. You may buy one property every year or two to get started. Then soon you are buying one or two a year, or do like I did and expand into other asset classes. It is the income snowball.
The Snowball Effect
You may have heard before about the debt snowball. Rolling over your debt payments as you pay off each one until you pay them all off. But there is another, better snowball. Or at least one that can work together with the debt snowball. Just like in cartoons a tiny ball of snow builds up rolling down hill until it is massive and rolls over a house. Another way to think of it is a train. When a train starts from being stopped, it moves very, very slowly. It takes several minutes to build up some speed. But once it has momentum going, it is almost impossible to stop. That’s exactly what you are doing here. You are slowly adding to your income which builds upon itself. Each successive property will add more to your cash flow. Bit by bit you are improving your life. The cash flow from each property goes toward the purchase of another. Of course you need to be smart. Be picky about what properties you buy. Not every piece of real estate is a good investment. Right now in our current times over the last 6 months from the end of 2020 to early 2021, when I am writing this, there are many people who are overpaying for real estate. They are buying it hoping for appreciation to resell for a profit. But, they are paying so much their properties are not cash flowing. That is a very risky way to invest. I do not do it that way. It has to cash flow from day 1 and have an upside for rent increases to be worth it to me.
As of right now I still only own 3 fourplexes. But because of the connections I have made, I also am co-owner in a commercial lot that we are flipping for 3 times the purchase price, which I have $0 money invested in. I will make a lot of money on that when it sells. I would have not had that opportunity without being involved in real estate and networking with people to have the opportunity brought to me and then to find someone with the cash to purchase it.
Just this week I closed on some land with another partner where we will build a new commercial space. A small strip mall with 5 or 6 units. That property alone is projected to cash flow between $15-20k per month! No kidding! Once it is complete I will of course share all the details here. When we split that income between the two of us, that income along with my other cash flowing properties, will bring me about $10k/mo in cash flow. And this is technically only my 4th investment. The other lot when it sells I plan to use those proceeds to buy a small apartment building, maybe 16-24 units. I am also networking with syndicators to become a partner on some large purchases of 100+ apartment complexes. All of this started with just getting that first property, getting the snowball rolling. And all within about 4 years. I have discussed the journey of getting started in one of my earlier posts. But just like the train metaphor, it started slow, I am still in the picking up speed phase. I am not yet where I need to be but I know I will be there soon.
The Compounding Effect of Time
Looking back on where I was when I started, I could never have imagined I would be doing the things I am doing now. But the exponential growth does happen as long as you immerse yourself in real estate. I still listen to real estate podcasts, read books, I go to meetups (virtually now), I network with other investors, I will even soon be a guest on a podcast about apartment investing. And as crazy as it would have seemed 4 or 5 years ago to imagine where I am now, I can’t even begin to imagine where I will be in another 4 or 5 years.
But, NONE of these amazing things would have happened if I didn’t start to change my mindset. I was in a deep rut. We were getting into more and more debt, I couldn’t get ahead in my job, life was full of stress. Most of that stress for me, like it is with many people, was about having enough money to live and breathe. I didn’t want to just barely scrape by. I wanted to be able to relax and enjoy life, not work 80 hours a week and fear losing my job and still barely get by. Providing for my family was my top priority.
Real Estate investing is the “magic pill” that everyone wants. We all can’t win the lottery. But we can all make changes to improve our lives. Start keeping track of your spending. Start saving more and spending less on things you don’t need. Start reading more, listening to podcasts that talk about investing, real estate, money, etc. Start filling your mind with useful information that will help you reformat your brain to begin thinking like a business owner and investor. Stop asking if you can afford something, but ask yourself HOW can you. Creative finance is how people with little or no money can find a way to still invest in real estate. Like house-hacking, you don’t need a huge down payment if you live in it.
Looking back 20 years, if I had understood something as simple as house-hacking, which you now know, I would be in a very different place today. My young family could have house-hacked multiple properties which would have set us up to be in a very strong financial position to have purchased many properties during the housing crash from 2009-2012 and we would right now be financially free for generations. And we would have enjoyed much more time together as a family when my kids were young.
You can still do that by starting smart right now. That is how you become a millionaire without sacrificing your life (trading time for dollars) to get it. Make those changes now! Read, research, study, listen. Keep reading this blog and others like it. Use my suggested books link to read more so you can learn more, listen to podcasts every day to fill your mind with experiences from other seasoned investors. Making these small sacrifices now will get your snowball started. Do this and remember this day and where you are with your personal finances and 5 years from now you can look back and thank me. I look forward to hearing from you.