Alternate Sources of Income and Why You Need Them
by Bryan Wittenmyer
Being a professional landlord has to be one of the best career choices one can
make. The benefit “package” is difficult to beat. As landlords we have it all:
personal freedom, perpetual monthly income, asset values (and rents) riding on
inflation, no “formal” office, outstanding tax treatment (no self-employment tax
on rents, long-term capital gains), forced savings plan via property debt
reduction, little need for actual employees (contractors instead), and on and on
the list goes. Any single benefit mentioned above is reason enough for stating
that professional landlording is one of the finest home-based business
opportunities available today. Personally, I love the freedom and flexibility
owning rental properties gives me (on average, only 2 hours of management per
unit per month).
Since you already have the wisdom to own income-producing property, allow me to
share a secret of many highly successful professional landlords. By the way, my
definition of a professional landlord is someone who earns a large portion of
their income or NET WORTH from income producing properties. For most, this
threshold means only owning 4-5 properties, since it only takes a few hundred
thousand dollars in controlled assets to account for the majority of a person’s
net worth (estate), which eventually will translate into cash flow. (Sidebar: I
told one millionaire landlord — “You can’t eat equity.” He retorted—“I am.”)
One big secret to successfully buying and holding long-term rental producing
properties is this: Have alternate sources of cash flow working for you. It is
no secret that rental properties can have their own ups and downs in income that
come your way: unexpected vacancies, evictions, slow-pays, repairs and major
mechanical failures (heaters, roofs, worn out rugs, long-term tenant moveouts
needing substantial remodeling, etc). Because of the high cash demands of our
business, I recommend investors have another cash-flow business that they
operate in conjunction with their rental business. Not only will the cash flow
business augment your existing rental income, but most importantly: The
cash-flow business will fund future building acquisitions. Let me repeat that
again because it is the critical part of the secret: Having a cash-flow service
business will fund your future real estate down payments and purchases!
Real estate is an industry operated by independent contractors. For instance,
virtually all builders are not really “builders” at all. They are managers and
organizers that outsource virtually every aspect of the building construction to
independent contractors who perform their specialty in putting the building
together. The largest builder in my area doesn’t build anything. As a company
they simply bring all of the parties and contractors together. They are
construction “managers”. There’s a lesson somewhere here!
Where the opportunities lies for you is finding your own specialty niche
somewhere in the real estate industry. (Sidebar: Your cash-flow service business
does not have to be real estate related. The principal remains the same: Have
some additional cash flow business operating synergistically with your rental
properties.)
There are 2 major opportunities everyone thinks about when you talk about real
estate businesses. Since these are reasonably obvious and well known, I will,
for the sake of space and time, not cover them, although many folks make a fine
living operating these as businesses. They are: buying and selling houses or
being a licensed Realtor. I know successful several landlords who do one or even
both of these businesses.
Being involved in several real estate businesses myself and knowing scores of
active real estate entrepreneurs, allow me to throw some ideas and brainstorming
at you to get you thinking about your own real estate service businesses you can
start.
The first idea is to create a business where you acquire distressed income
properties and create what I call Turnkey Investor Packages. I know several
investors who purchase distressed multi-unit properties (usually vacant or
nearly vacant) who then rehab the building and then rent out all of the units.
They then “package” the building for sale completely “turnkey” to investors who
don’t have either the time or experience to do it themselves. Some of these
turnkey packagers then provide after the sale on-going management for the new
owners for a fee. The profit goal is usually $25,000-50,000 per deal. In most
cases, no license is required, except possibly for the management services and
there are ways around that if needed.
My second idea: If you are the mechanical, physical work type, consider starting
and operating a service whereby you detail rental properties for landlords. Also
known as Apartment Preparation Services. The typical fee to clean and “prep” a
unit is around $500 per unit. Do 2 units per week and that’s $1000 per week.
Granted, this isn’t for everyone, but it could bring in an extra $30,000-50,000
per year to supplement your rental income. This may sound mundane, but there are
many creative variations of this service that can help you earn even more. How
about detailing houses For-Sale? How about doing this for $1000 per house? REO
cleanup/securing services are another idea? Or, perhaps an advanced service for
property sellers, charging $2500, whereby you “guarantee” to increase appraisal
by $10,000.
Let’s suppose you are the super organized type—is it possible you could create a
salable service where you help other landlords organize, systemize, computerize
their home office and records? Perhaps for a fee—say $500, you would spend a
long day in their office getting them professionally organized and systemized.
You bet you could. You’d need to deliver some true value, but with some thought
and creativity it could be very saleable. You wouldn’t need a license for this
either!
Here’s a what-if idea. What if you became a rental cash-flow consultant. Suppose
you were a master at operating a rental business and squeezing every dime out of
properties. Do you think you could do a 2-day consultation for $1500-2500 if you
guaranteed the client that your service would essentially be “free” from all of
the newly found revenue in their business. You would have to be hot stuff for
this to work, but if delivered and marketed correctly, I bet it would.
There are dozens of viable opportunities in real estate. As I mentioned earlier,
real estate is a business dominated by independent contractors and specialists.
You could be one of them: title searcher, real estate website publisher, storage
garages, dealfinder/birddog/wholesaler, home inspector, broker, manager,
marketing consultant, rehab/maintenance services, cash-flow consultant, tax
appeal services, 1031 exchange services, eviction services, rent-to-own expert,
mortgage broker, or any number of other creative variations or combinations.
Don’t limit your income. Some diversification is wise.
Bio:
Bryan Wittenmyer has been investing in real estate for the past 15 years. He's
not the new kid on the block. In the past five years he has written extensively
in the real estate field. His articles have appeared in Creative Real Estate
Magazine and the Real Estate Entrepreneur. Bryan served on the board of
directors of the Real Estate Investment Association of Berk's County for 3
years.
Although Bryan hasn't attended formal university studies, he keeps himself
educated reading a plethora of books, newsletter, journals, and listening to
hundreds of audio tape lectures. He jokingly considers himself to be an
information junkie. You can also benefit from his years of practical business
experience, having managed several income stream businesses, ranging from
automobile debt instruments to appliance paper. He also has bought numerous real
estate debt instruments - he knows the income stream business.