How You Should Diversify Your Income Streams
In my conversation with James Like, he provides his best real estate investing advice ever: Create multiple streams of income within the real estate industry, which is a strategy that works whether the market is blazing hot or Antarctica cold.
Obviously, since James is providing this advice, he follows it in his own real estate business. He has created seven different streams of income:
1. Real Estate Commissions
His first stream of income, which is also his least profitable, is real estate commission. James has collected commissions from selling over $30 million in real estate, with the majority being single-family residences. Since real estate commissions require the most amount of time and overhead, James has brought on other agents to his brokerage, passes the majority of the business on to them, and does a 50/50 commission split.
2. Property Management Fees
Property management fees are James second steam of income. Similarly to his real estate sales business, James has brought on people to help with this business, so it is fairly passive income. His fee structure enables him to collect 10% of the rental income and 50% of lease-ups for the 40 properties that he currently manages, while his expenses go towards covering the employees’ salaries.
3. Buy-and-Hold Income
His second largest stream of income comes from the 8 buy-and-hold properties that he currently owns. James uses private money, and on occasion, local banks to fund his deals, depending on the market interest rates and availability of private money from his investors. For the 8 rental properties that James owns, he was able to purchase them with zero money down, even the properties with traditional financing.
- If James purchases are property with private money, the money he raises covers the entirety of the purchase price, and he pays back the private money loan at 6-8%.
- If James purchases a property using a bank, he pulls equity out of a property that he has paid off completely and uses it to fund the down payment.
And since James has a property management company that is relatively self-sustaining, his buy-and-hold investments are managed and the income is strictly passive.
4. Fix-and-flips and wholesaling
His fix-and-flip business, which includes wholesaling, is the most profitable stream of income.
Since flipping is becoming more difficult due to increasing costs and competition, James recently added developing as another income stream. He is set to close on two pieces of land and should begin development around August.
His 6th income stream is also a recent addition, construction. James has partnered with the contractor that is taking care of his flips and repairs on his rentals and created a construction company. This provides James with savings on his projects and income by doing rehabs for other clients.
Finally, his 7th income stream is consulting, where he leverages his experiences to help others achieve their real estate goals.
Which of the 7 streams of income can you begin to work towards adding to your real estate business?
Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.