The Airbnb Experiment: 42 Guests, 1 Police Visit, and $19,000

This article is Part 3 of The Airbnb Series. Before you read this, check out Part 1 and Part 2, and when you’re done, visit Part 4

Use this link to get a $25 discount on your first Airbnb guest stay. (I’ll also get a $25 credit if you use it, a win-win for both of us.)

http://affordanything.com/wp-content/uploads/2014/11/How-much-money-could-an-Airbnb-host-earn.jpg" alt="How much money could an Airbnb host earn?

Eight crazy months, 42 guests, one police incident, and $19,000 in gross income.

After three seasons as an Airbnb host, I could write a book. But instead, I’ll package the adventures, ideas and oddities into this blog post.

Brace yourself, this is an epic one.

New to this blog? Here’s the background: I own a handful of rental units. One year ago, I went on a renovation kick, morphing a 1-bed, 1-bath Atlanta apartment into a gleaming, upscale, stainless-steel-and-granite beauty.

It could fetch $1,100 per month on a traditional one-year lease. But I’m too antsy for the normal road. I strangely (and perhaps masochistically) subject my life to oddball experimentation for the sake of my personal curiosity and my readers’ amusement.

So I launched “The Airbnb Experiment,” in which I compare running a vacation rental against a traditional, one-year lease.

The vexing question: Could I earn more as an Airbnb host than I could as a “traditional” landlord?

If so, HOW much more? Is it worth a Rebel’s time?

Huh? What’s Airbnb?

Airbnb.com launched during the depths of the 2008 recession.

Its co-founders were roommates in San Francisco who couldn’t afford the rent. To scrape the rent payment together, they started inviting tourists to sleep on air mattresses (“air beds”) in their living room, and they served their guests breakfast — hence the name, “Air Bed and Breakfast,” which later shortened to Airbnb.

By 2010, the company had 15 employees working out of the roommate/founder’s shared apartment. To make room for these employees, the CEO gave up his bedroom and started couch-hopping through Airbnb. He lived out of a suitcase until the company could cough together the funds for an office space.

Their sacrifices paid off: Airbnb grew at an astronomical rate, gathering more than 800,000 listings in 192 countries over the span of six years.

I list my apartment on two vacation-rental websites, Airbnb.com and VRBO.com, although most bookings come from Airbnb. Three months into the experiment, I penned my first Airbnb update, and now … drumroll please … here’s the latest, 8 months into this project.

Shocking Adventures in the Vacation Rental Biz

Well, it’s official. When you host 42 guests over the span of 8 months — an average of 5.25 guests per month, or a turnover every 5 to 6 days — you’re bound to get at least one nut job.

That’s precisely what happened. It would be unprofessional to spill the gory details on the Internet, but let’s just say “we called the cops” and leave it at that. On a lighter note, I can now utter the phrase “we had a domestic” at cocktail parties. It’s my new favorite party trick.

(If I sound jesting or flippant, it’s because I use humor as a coping mechanism. Also, hats off to the City of Atlanta Police Department. Y’all rock.)

After what I’ll dub “The Incident,” I made a game-changing decision: I decided to stop using VRBO entirely, and I refuse to host any “new” Airbnb user. Here’s why:

In a traditional rental, landlords run extensive background checks on the applicant, which include:

  • Credit report
  • Criminal background
  • Employment history
  • References from previous landlords

By the time “tenant screening” is done, I know that the applicant holds a B.A. in Music from the University of Texas, made one late payment on their MasterCard, waited tables at TGIFriday’s for 17 months, and got an underage drinking citation when they were 19. Creepy, huh?

Obviously, we can’t go to those lengths for vacation rentals (imagine having your credit screened every time you stay at a hotel?!)

Yet most vacation-rental hosts will ask: “How do I know this guest isn’t a huge weirdo?” The answer: Read the reviews.

On Airbnb, the hosts and guests review one another. (I’m proud to have 18 reviews with a 5-out-of-5-star average.) On VRBO, the guests review the hosts — there’s no vice versa.

There’s an (inevitable) snag in both of those designs.

Airbnb’s skyrocketing popularity is a double-edged sword: Hosts get inquiries from guests without reviews. I’m often contacted by people within a few days after they’ve established a new account.

In the past, I’ve always given new guests a chance. Not anymore. After “The Incident,” I require every guest to have at least one positive review. And I won’t accept any new reservations from VRBO.com, since that website doesn’t have the functionality to evaluate the guests.

(In fairness, 41 out of 42 guests were rockstars. It’s that 1 out of 42 that hogs the spotlight.)

The drawback to my self-imposed policy? My vacancy rate will probably jump. The benefit? I hopefully won’t need to call the cops again.

Spill Your Numbers: What’s Your Airbnb and VRBO Income?

Speaking of vacancy rates — let’s cut to the chase. Time for all numbers to be revealed.

Note: This isn’t gratuitous “financial porn.” I’m sharing these numbers because I hope it will be an effective teaching tool — and I’ll expand on the lessons carried by these numbers in the rest of the post.

In the past 8 months, the gross income from Airbnb and VRBO came to $19,004.93, which is an average rate of $2,375.62 per month. Given that the unit rents for $99 per night (plus cleaning and pet fees) and I’ve had strong occupancy, this makes intuitive sense.

Here’s the spreadsheet. “HomeAway” refers to VRBO (it’s the parent company). “Withdrawals” are security deposits I’ve refunded.

How much do Airbnb hosts make

But wait! “Gross” revenue is meaningless. Let’s check out the expenses:

how much can an airbnb host earn

The results are in: Being an Airbnb host allows me to earn, on average, $605.55 per month more than being a traditional landlord.

That’s an extra $4,844.37 above the “benchmark” in the 8 months I’ve conducted this experiment.

What’s Your Hourly Rate?

I’m glad you asked.

I didn’t keep great notes on the time I spent, but I think two hours per turnover is a reasonable approximation. That represents:

  • 90 minutes of cleaning per turnover
  • 30 minutes of emails, phone calls, etc.

(I hired a housecleaner on a few occasions, but I also dealt with miscellaneous oddities, so we’ll call it even.)

That comes to 84 hours, which we’ll round up to 90 hours to err on the conservative side.

An extra $4,844.37 across 90 additional hours of work comes to a $53.82 hourly rate. That’s not as stellar as the $92/hr rate I estimated after three months, but it’s not bad.

A few notes:

  • Consumables such as soap, coffee, shampoo, detergent, etc., cost less than I expected. Yay!!
  • Utilities cost waaayyyy more than I anticipated. “When the landlord is paying, let’s crank the A/C!”
  • Cleaning I’ve handled myself, unless Will and I are both out-of-town.
  • Landscaping costs more than I’d spend on a traditional rental property, since I’m planting more flowers around the apartment entrance. (It creates a better guest experience.)
  • Standard overhead (e.g. mortgage, maintenance, etc.) are the same regardless of whether this is a vacation-rental or a traditional-rental, so they’re excluded from this spreadsheet. If you’re curious, you can scope out those numbers here.
  • Nerd Alert: The $1,100 benchmark is pre-vacancy, while the actual Airbnb/VRBO numbers reflect vacancy. I contemplated reducing the benchmark to adjust for this occupancy discrepancy, but decided to hold to an $1,100 benchmark because its a conservative estimate — the apartment may rent for anywhere from $1,000 to $1,250 depending on the time-of-year and market conditions. #GeekSpeak

Passive Income vs. Active Income: Showdown!

Travel is one of my greatest loves. These days, I’m out-of-state more than I’m home.

As a “traditional” landlord, this ain’t no thang.

Rental properties (done right) are wonderfully passive. In fact, I’ve coined a formula: “PM + PM = Passive,” which means “Preventative Maintenance + Property Manager = Passive.”

  • Preventative Maintenance means spending lavishly on “Keeping Sh** from Breaking.” Tune your HVAC, re-caulk cracks, replace that prehistoric water heater before it triggers an emergency. Prevention also means enforcing strict tenant criteria.
  • Hire the best property manager, not the cheapest.

A great-condition property with an incredible tenant and a kick-butt manager is a gloriously passive asset — on par with an index fund portfolio. Legit.

But here’s the problem with vacation rentals:  

  • Inability to properly screen tenants (as we chatted about above).
  • Insufficient margin to pay a manager and still make a profit.

In fairness, some vacation rentals may carry this margin — perhaps some gorgeous villa on an exotic beach. But my Atlanta apartment, which costs $99 per night, can’t support that type of margin.

The only way to collect a so-called “profit” (ahem) is by managing the turnover yourself. And that means one thing: It’s NOT passive. Not by a long shot.

So here’s my conclusion:

Running a vacation rental is an awesome side hustle. But it’s NOT a passive investment.

You Should Be a Host If: You want the cold, hard cash.

  • You’re looking for a side hustle.
  • You’re trying to pay down debt.
  • You’re restless and need a new project.

You Should NOT Be a Host If: You want a hands-off passive investment.

  • You want to travel the globe, living on passive income.
  • You have a crazy-hectic-busy-stressful job.
  • You’re looking for an alternative to an index fund or rental property.
  • You crave location independence.

For months, I fretted about WHY vacation-renting is so hands-on. “Is it me?? Do I suck at creating systems / checklists / automation?”

Then Will made an astute observation: “This isn’t the Real Estate industry. This is the Hospitality industry.”

Duh!! He’s right. As an Airbnb host, you’re not a landlord — you’re a hotel owner. A hotel of one.

(That should be a commercial tagline. “I’m a hotel of one!”)

What the Heck is ‘Management’? Do You Mean ‘Cleaning?’

Whoa, are you still reading? Awesomesauce.

If you’ve made it this far, you must be either bored-off-your-skull or dying to know more. I’ll assume the latter, and explain what I mean when I talk about vacation rental “management.” Here’s an example:

We set up an “air bed” (hey-oh!) anytime that:

  • A guest requests one
  • A guest makes a reservation for more than 2 people

Last month, our air mattress sprung a gigantic (un-patch-able) leak. We threw it away, figuring we’d replace it the next time we need one.

Two weeks later —

Will and I flew to San Diego (for the third time this year) for an arts and music festival. Before we left, we arranged everything:

  • A 24-hour gap between check-out and check-in, to leave “wiggle room” for any problems.
  • Clean sheets and towels stored within the unit.
  • A two-hour housecleaning, coupled with a step-by-step checklist (e.g. “wipe the inside of the microwave …”)
  • Keys stashed in a spot the guest can access without needing anyone’s physical presence.

In theory, everything is streamlined, systematized and automated.

In theory.

The guest checks into the unit and sends me a text message: “Where’s the air mattress?”

Uh-oh.

She booked a reservation for 2 adults. She arrived with 2 adults and 2 children. From her perspective, this is a minor oversight: She brought her kids, unannounced. What’s the big deal?

From our perspective — it was a very big deal. How could we set up an “extra bed” from California?

  • Plan A: We couldn’t Amazon Prime an air mattress to her — it would take two days to arrive — and FedEx Overnight wouldn’t arrive until morning.
  • Plan B: We called our roommate to ask for help. She couldn’t buy an air mattress, either, since she doesn’t have a car or bike, and the nearest Target is too far to walk. (She moved to the U.S. last month.)
  • Plan C: We asked our roommate to haul the physical mattress from our bed. “Can you please lug our mattress to the vacation-rental unit? Pretty please?” She tried, but that mattress was too heavy.
  • Plan D: Ultimately, she gave the guest our duvet, sheets, and as many pillows as she could conjure. The kids slept on the floor.

Needless to say, this was a lose-lose-lose situation:

  • It stressed us hardcore.
  • It gave our guest a sub-par experience.
  • It burdened our new roommate. (“Welcome to America! Can you haul a mattress up a flight of stairs?”)

And that, ladies and gentlemen, is what I mean by “management.”

No matter how well you plan, no matter how many checklists you create, you need an on-site manager who can deal with unplanned situations.

How much will that cost?

Unfortunately, vacation rental management typically costs between 40 to 50 percent of gross revenue. (I hear your groans! But don’t worry: That’s super-fair, considering how many turnovers, inquiries, checkout inspections, cleaners and key hand-offs they need to manage.)

Lop 50 percent from the $19,000 gross revenue, and you’re left with $9,500. Eek!!

That’s not enough to cover the rest of the expenses:

Airbnb is good money for a side job, but is not passive income

Even if it could beat a traditional lease, the net profit (after management fees) would be too small to justify the added risk and hassle.

That’s why I believe vacation-rental hosting is a great job, not a great investment.

Update 11/15/2014: There are companies like Guesty that will conduct “virtual management” — e.g. dealing with online inquiries and booking — for only a 3 percent fee. But that’s the easy part. These “virtual management” companies can’t provide boots-on-the-ground support, when guests ask, “Where’s the air mattress?” or “Can I have more towels?” or “Help! I need a plunger ASAP.” There’s a startup called AirEnvy that provides “full” boots-on-the-ground management for only a 12 percent fee, but they only offer this in San Francisco and Los Angeles, as of today.

Epilogue

My goal (personally) is to create passive investments that support a location-independent lifestyle, so this Experiment must reach an inevitable end. But it’s an awesome side job for anyone who’s not traveling (yet) and wants extra cash.

The apartment is booked through December, so you’ll be hearing another update before the end of the year — which will feature specific tips that any aspiring Airbnb host can put into practice.

An awesome host-guest experience is a two-way street, so my next post will ALSO include tips for first-time guests, including how to choose stellar listings, what level of service to expect, and how to maximize your shot at an awesome experience.

P.S. Want to be an AirBnb guest?  Use this link to get a $25 discount  on your first AirBnb booking. (I’m trusting that you’re among the 41 out of 42 people who aren’t nutty.) I believe in total transparency, so I’m sharing upfront that if you use the link to get a discount, I’ll also receive a $25 credit. Win-win!

Update 3/11/15: Check out Episode 4 of The Airbnb Experiment  — Now at nearly $30,000 in gross income, at the one-year anniversary of launching this experiment.

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How Erika Made $20,000+ In Her Spare Time — And You Can, Too

How Erika made $20,000+ in her SPARE time
You can summarize the answer to almost every financial problem in two words: Earn more. 

Snag extra work on the side. Save every dime of this extra income. (After all, you don’t “need” the money. You’re already living fine without it.)

Boom — you’ve instantly super-charged your savings.

When I wrote that, a few readers said: “Sounds great in theory. Let’s see it in practice.”

Touché. Let me introduce you to Erika, who earned an extra $20,000+ in her spare time last year — while working full-time and attending graduate school.

****

Erika is a typical American. She lives in Orange County, California — the “home of the Real OC,” she describes.

She has a traditional, 9-to-5 day job in an office. Last March, she enrolled at California State University and began pursuing her Masters in Public Administration.

Her husband is an emergency medical technician, or EMT, who advanced to the level of firefighter this month. They married three years ago, and “the first couple of years (of our marriage) were REALLY hard financially,” she says.

Typical storyline, right? Office worker and EMT/firefighter fall in love, get married and struggle financially. We’ve heard stories like this a million times.

But Erika’s story takes an unusual twist.

The “normal majority” would either:

  1. Resign themselves to a low-income fate;
  2. Rely solely on the hope of a raise/promotion;
  3. Bury themselves in credit card debt, then convince themselves that being in debt is normal.”

But Erika is a rebel. She chose a different path. She devoted every spare hour to hustling for extra money.

She started with small wins:

“We held a garage sale, and made like $100 bucks or something,” she says. “And then (I tried) mystery shopping. The money was paltry, but I was willing to try everything.”

Then she expanded into freelance writing:

“I looked for writing jobs on Craigslist. A lot of people need writers for their small businesses, but just don’t have the budget for big PR companies. This was my target. I ended up working for some start-up companies, as well as religious organizations. I even managed social media accounts.”

Notice her strategy — she defined a target client profile. Then she began visiting the forums where that type of customer hangs out. That’s savvy.

And she didn’t sell herself short.

“I never bothered with Odesk and eLance,” she says, “because I knew I could not compete (with low-paid workers based overseas.) I did not want to work for $2 an hour … I set a standard and I never worked for free.”

She snagged her first small once-a-week writing job. Then she found another one. And another one.

“It’s not like I get a deluge of freelance offers everyday — I would say more like one every couple of months or so — but I hold onto those relationships and build more,” she says. “I’ve also been referred by people I currently work for, and that has led to more opportunities as well.”

One of her clients asked her to become the Content Manager for their website. This now accounts for between 30 – 50 percent of her side income.

She also began monetizing her blog, and advertising on her website accounts for another 50 percent of her income.

How did her results grow?

  • In 2011, she earned $1,820 in extra money.
  • In 2012, she earned $10,566 in extra money.
  • In 2013, she earned $20,000+ in extra money.

Her hourly rate, she says, is around $25 – $35 per hour. She celebrated a major milestone last year, when her “side income” topped $20,000.

“It is SO unreal to me that I was able to pull this off this past year,” she says. “I am just a regular, normal person. I work a full-time 7:30 am to 5 pm job, I go to graduate school full-time, and I bust my butt on weekends and nights to freelance.”

Wait — when does she find the time to work this hard?

“I’m in an accelerated program through California State University that is designed for full-time working professionals,” she says. “I attend class on Saturday mornings twice every six weeks on campus, and then I have weekly classes online on Monday evenings.”

In other words:

  • She works her “day job” Monday through Friday, until 5 pm.
  • Monday nights, she attends class.
  • Tuesday through Friday nights, she hustles.
  • Saturday mornings, she attends class.
  • And for the remainder of the weekend, she hustles even more.

Somewhere in the mix, she manages to study, run errands and exercise. Wowza!

Let’s crunch the numbers: If her payrate averages $30/hr, and she earned $20,000 last year, then she worked approximately 667 hours.

There are 52 weeks in a year, which means she worked about 12.8 hours per week, on average.

So let’s reframe it this way: She works a full-time job for about 45 hrs/week, plus “side gigs” for 13 hours/week, and attends grad school classes two days per week. This adds to a workload of about 70-80 hours per week … which is a typical schedule for many professionals, like doctors and executives.

awesome
I mean that as a testament to Erika. She holds high-caliber, top-performer work-ethic.

It’s a demanding schedule, yes. But millions of people work this type of schedule.

An extraordinary life requires extraordinary effort. And that effort yields real, tangible results that radically change your life.

In other words: Awesome is achievable. And Erika is living proof.

It’s not easy. Escaping the ordinary isn’t rewarding because it’s “easy.” It’s rewarding because it’s worth it.

What has Erika done with the extra $31,000+ she collected over the span of the past three years?

What advice does she have for Afford Anything readers who want to start hustling?

“I’d encourage people to spend some time — especially when they’re trying to establish themselves — to really research and network as much as possible,” she says. “I became vocal in (my) community that I was open to freelancing.”

Her goals for this year? They’re twofold:

  • Save $30,000 towards the down payment on a house.
  • Enjoy some of her awesome extra income — now that she’s finally debt-free.

“I want to go out to dinner … I want to go to concerts,” she says. “I want lifestyle inflation, people!”

****
Thanks to Erika for getting interviewed for this article. You can read her blog, Newlyweds on a Budget, here.

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Find a Niche. Conquer It. Create Something Amazing.

blog 198 copy

There’s a huge problem with traditional advice about how to earn more money.

Conventional wisdom wants you to sell yourself short. Most advice says you should trade your limited time and energy for a few cents.

Here’s what a quick search for “earn more money” found:

  • Babysit
  • Mow lawns or rake leaves
  • Clean homes
  • Host a car wash
  • Host a yard sale
  • Fill out online surveys
  • Sell your sperm (huh?)
  • Have a surrogate baby (seriously?!)

What’s the common thread here? With the exception of selling your sperm or giving birth for money (what?!), these jobs could be done by a middle school student.

In other words, these jobs don’t respect your time.

This menial work is fine if you’re desperate for some quick cash between now and next Tuesday. (You should build a bigger savings cushion, but that’s a different story.)

But man, oh man, don’t believe the writers who tell you this is the only way to earn more. You’ve got to start believing that you’re smarter than a 5th grader. You’ve got to start thinking big.

Think Big.

You have talents – c’mon, I know you do. You have special skills that can’t be replicated. You can do something that no one else can do.

You can create something special. Find a niche and conquer it. Don’t just earn a quick buck – create something amazing.

Need examples?

A Serial / Cereal Entrepreneur

David Roth loves hanging out in his pajamas eating cereal and watching cartoons. So he decided to monetize it.

He could have earned pennies filling out surveys about his favorite cartoons or mystery shopping in the cereal aisle. But that would have wasted his time.
earn more money by selling cereal
Instead, David Roth hustled. He talked to banks and investors, scrounged some funding together, and opened a little eatery where he serves people cereal topped with candy.

Seriously, that’s it. He pours some Golden Grahams and Coco Puffs into a cereal bowl, mixes it with mini-marshmallows and chocolate chips, and calls it the new breakfast S’mores.

(Actually, he doesn’t use cereal bowls. He serves breakfast in a Chinese take-out box.)

Instead of becoming a server, he hires servers – who wear pajama uniforms, of course. And yes, he plays cartoons in the background.

Need Cash, Will Drink Wine

Natalie MacLean had a fairly average life in Canada, with a business degree and a tech-sector job. But after she had a baby boy, she needed a change of pace.

earn more writing about wine“… in a haze of postpartum sleep deprivation, I wondered around Loblaw’s grocery store and picked up the now-defunct President’s Choice magazine,” she told The Oran, a Nova Scotia newspaper. “They had beautiful food photography, but I wondered why there was no wine column.”

“I called the editor and asked if she’d be interested in an article and she said yes … (She) asked had I published elsewhere, so I said yes — thinking of my high school newspaper — and we went from there.”

She decided not to return to her tech job after her maternity leave ended. Instead she became a full-time wine writer.

“Eventually I’ll be donating my liver to science,” she jokes.

Build The Biz You Want to Be

Lee Silber and his brothers pooled their cash together to buy a struggling little surf shack in San Diego.

The tiny retail outlet wasn’t earning much, so the brothers came up with a simple strategy: morph it into the type of place they’d like to hang out.
earn money at the beach
They played surfing movies, hosted skateboarding demonstrations, and challenged kids to compete in surf contests.

Their marketing was cheap and effective. Within months, locals were flocking to their surfing shop to watch movies and hang out – and the locals spend a few dollars while they’re there.

Moral of the Story?

What’s the common thread to all three stories?

#1: Be Unconventional

None of these people wanted to follow a conventional path. They didn’t send out resumes to 20 employers, hoping someone would hand them a job.

#2: Think Big

None of these people were wealthy, but they weren’t mowing lawns for money. They were thinking big and creating scaleable models.

#3: Take Risks

None of them had any assurances that their gamble would work out. Most entrepreneurs, adventurers and risk-takers fall flat on their face at least once, twice, three times. Then they get up and try again.

#4: Combine Niches

David didn’t invent cereal. He’s not a top chef. But he combined his interests to create something clever.

Natalie isn’t a master sommelier, and she isn’t a Pulitzer-winning literary writer – but she combined two niches to emerge as the best wine writer.

Lee isn’t the best surfer in the world – but he’s a darn good surf shop owner.

The Bottom Line

Don’t waste your time competing with middle-schoolers for extra money. Find your talent – wine, surfing or even cereal – and spin it in a create way.

The world doesn’t reward mystery shoppers. Fortune favors the bold.




Thanks to Red Car Gurl, Isante Magazine and Cuba Gallery for the photos.

Superman is Dead: The Real Secret to Success

Welcome to another round of Reader Mail: Earn More Edition!

Today’s letter comes from Carolyn in Georgia.

You may remember Carolyn from an earlier post when she asked about creating passive income and traveling the world. Today she asks about becoming “location independent” – working from anywhere on the planet, as long as you have an Internet connection.

Carolyn says:

“I turned down two job offers in D.C. because I knew that wasn’t the lifestyle I wanted. There’s nothing that I could want more than to write on my own and become location independent. That’s why I took the easy day job in June to figure out how to make this possible.

So here’s the question that I’ve hesitated to ask but am dying to know the answer – How do you do it financially? I’m sure people ask you all the time, and I feel like I’m asking some huge secret to success. I’ve seen the few advertising spots on the footer of your pages, and I know you do one-on-one coaching, but certainly there’s more?”

I like that you put the phrase “huge secret to success” in your question. There’s no secret – although you might say there are plenty of secrets, plural.

Our cultural myth says there’s one solution: the Silver Bullet. The Holy Grail. Prince Charming.
what is the secret to success - there is no superman
This myth is convenient: Problem, solution. Villain, hero. Life will be great as soon as we find Superman / Sherlock Holmes / the winning lottery ticket.

Thanks to this myth, we say things like “I need to invest in the Next Hot Stock,” when in reality we need to invest in 500+ stocks, the majority of which grow profits and shoot out dividends.

We say “I need an awesome real estate investment,” when in reality we need to create several awesome real estate investments and invest in the market and earn a kick-butt income and not spend too much and legally minimize our taxes.

Funding my location independent life is a bit like finding college scholarships: I enjoy multiple streams of income.

[UPDATE 2015: I now generate enough passive income — via real estate investments — that this money alone can totally support my cost-of-living. The rest of this article, below, was written back when I relied on my freelance/online income to pay the bills. If you’re in that boat, enjoy this article – I hope it helps. :-) ]

One client pays me to edit their weekly newsletter. Another client pays me to write two articles per week. There’s even a print magazine that asks me to write one story per year, during the holiday season when they need all hands on deck. It adds $600 to my pocket each December — enough for a plane ticket to somewhere warm.

Our mind can only track a limited number of tasks. The key this successful juggling act is that I charge what I’m worth. I won’t waste my time on projects that pay a pittance.

Run Your Life Like It’s A Catering Company

Imagine that you run a catering company. Each year you cater some massive event like the Wimbledon Championship parties or the SuperBowl box seats.

This annual event earns your business all the revenue it needs for the year: enough to pay your staff, pay yourself, and cover your overhead.

You could cruise the easy road and not look for any other jobs. You could bust your butt one month a year and relax the other 11 months.

But this would be foolish. Your company’s success or failure would depend on a single client. If they drop your contract, you’re screwed.

So you diversify your income. You start catering weddings, graduations, reunions. They’re less lucrative contracts — more work for less money — but they provide a buffer. If Wimbledon drops you, your company will survive.

Any business owner would do this to protect his company. So why don’t individuals do this to protect themselves?

Why do we put all our eggs in one basket — relying on one employer for 100% of our income — rather than diversifying into multiple income streams?

 

Here’s The Huge Secret …

Most of the world sees self-employment – and a location independent life — as unstable. Most of the world is wrong.

People who have only one source of income — their full-time job – stand on shaky ground. Every dime hinges on just one “client,” their boss. If they get fired or if their company collapses, they’re screwed.

I have multiple streams of income. I’m diversified. I could lose a client and be fine.
earn more by understanding the pareto principle when dealing with clients
But there’s a paradox that comes into play. It’s called the Pareto Principle. This principle – also known as the 80/20 rule – states that 80 percent of your results come from 20 percent of your efforts.

In other words, 80 percent of your income will come from 20 percent of your clients.

There’s a natural tendency for this to happen. I have a few high-dollar clients – my 20 percent – that pay substantially better than the rest. I put a high priority on making sure these clients are happy. But I also pad my income enough so that I’m not dependent on them.

Losing my best clients would be a bummer. But I’d be fine because I minimized my dependence on these clients – minimized my risk – in advance.

At heart, this post is about risk management. There’s no Silver Bullet or Superman.

The Bottom Line:

A single income creates dependence. Multiple streams of income gives you flexibility.

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Read a Related Post: The Time Paradox: A Surprising Way to Prioritize Your Life.



Thanks to Scott Feldstein and Jason Theodor for the photos.

Three Awesome Ways to Earn Side Income (Without a Job!)

earn side income without a job
My friend Kim has an unusual talent: hula-hooping.

She can perform tricks and twists with a hula-hoop that few people have ever seen. To her, hooping is a serious sport, and she approaches it with the discipline of an athlete.

When she moved to Olympia, Washington, she needed some extra cash.

And she decided to get creative.

She approached a local fitness club and asked if they’d be interested in taking her on as a hula-hooping instructor.

“Just list me on the schedule,” she said. She’d teach the class; they’d provide the space and collect the student fees.

They said yes. It was a total win-win.

The fitness club was happy to be able offer a class that none of their competitors could offer. And Kim was happy to earn extra money on the side without having to rent a space or advertise for students.

The Power of Earning More

Some people insist that it’s not what you earn that counts — it’s what you save.

That’s not entirely true. Earning more won’t benefit you if you blow your paycheck as soon as you get it. But you can’t save your way to riches, either.

Wealth comes from a combination of earning more AND saving more, just as losing weight comes from a combination of diet AND exercise.

That said, who wants a second shift from 6 pm to 10 pm every evening, as soon as you’re finished with your day job? Isn’t the point to increase your quality of life?

The best way to earn side income is through No-Obligation Jobs … side projects in which your responsibility (for even the most basic tasks, like showing up) is minimal-to-none.

This allows you to work only when you want to, and relax when you don’t.

Here are three ideas:

1. Freelancing

Companies are less likely to hire a full-time staff person to fulfill their needs. They’d rather take on a freelancer: someone who can do the work if it’s there, and who disappears when the project pipeline is dry.

The companies benefit because they don’t need to pay health insurance, payroll taxes, and all those other pesky little fees that come with hiring an employee — plus they have no obligation to keep the employee on salary.

You benefit because of the quid-pro-quo: you have no obligation to keep working. If they ask you to fill a freelance assignment next week, but you’ve already booked a trip to Aruba, you just smile and say “no.”

Freelancer jobs include writing, copyediting, web design, programming, data entry, web research, customer service, advertising, sales generating, and foreign-language translating.

Check out Elance for freelance opportunities — or try looking at industry-specific websites within your field, where employers usually advertise if they need freelancers.

2. Consulting

Consulting is similar to freelancing in the sense that you drop in (like Mary Poppins) to help a company in need, then leave when you’re done.

Consultants are prized for their specific skills, long-term vision and direction. Freelancers complete specific tasks, while consultants help shape the company’s direction.

Consultants are usually in fields such as accounting, legal, finance and management, and have a solid track record.

Building a consulting business from scratch can be a demanding full-time job, but you can venture into it by:

  • Talking to people in your industry about what companies might need your services. Word-of-mouth referrals is the best way to get jobs.
  • Scanning industry-specific websites and publications for opportunities.
  • Printing business cards that offer your services as a consultant and passing these out at conferences.
  • Listing your services on websites like Elance — by using this “middle man,” you may get a larger volume of work without investing the upfront time in finding clients.

The trick to making money is to go to the spots where people who want your skill will congregate.

Are you a history buff? Teach classes at your local museum.

3. Teaching

Chances are, someone out there wants to learn what you know — whether it’s a skill within your professional field (like how to file taxes, or how to write a press release) or a hobby you’ve cultivated at home (guitar lessons, cooking, photography, knitting).

If you go this route, decide first whether you want to teach a class or teach one-on-one.

Teaching a class:

The pros to teaching a class: You prepare one lesson plan, deliver one lesson, and reach 5, 10, or even 25 paying students at the same time. This gives you a large “bang” for your hour.

The cons: Teaching an entire class can be a large undertaking. First and foremost, you’ll need to find a space to give the lessons. You could rent a space — but suddenly, your “earn money” plan now includes an element of risk. What if no one comes? What if you don’t earn back the money you shelled out on renting a space?

Think carefully about how you can create a win-win situation that will allow you a teaching space for free.

Here’s an example:

Christine is a yoga instructor. One day, she was walking down a busy section of Boulder, Colo., when she noticed a coffeeshop that didn’t have many people inside during the daytime.

She walked in, introduced herself to the owner — and scored a free place to give lessons, on the second floor of the coffeeshop. She was happy to have a free teaching space. The owner of the shop was happy to have yoga students who stayed after class to sip chai.

One-on-one instruction:

Of course, if you’d rather start with one-on-one instruction, or if you have a skill that lends itself better to one-on-one teaching, then you won’t have to worry about organizing a space. Your main tasks are twofold: design a lesson plan and advertise for students.

These days the standard “go-to” advertising area is Craigslist (in England or Australia, use Gumtree), but this is where you’ll encounter all your competition — many of whom are willing to undercut you in price.

You’ll tweak your approach as you progress. The most critical piece is to get started.

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