How to Create Multiple Streams of Income Through Real Estate Investing

Henry:
If you’re listening to this show, maybe you’ve done a few real estate deals and you’re generating some cash flow, but you’re trying to figure out how to add cash to your bottom line in this challenging economy. Or maybe you’re looking to expand beyond your bread and butter strategy, but the thought of bringing in or pinpointing a new strategy is daunting and overwhelming. Or maybe you’re interested in generating income more passively because you’ve realized that real estate investing, especially being a landlord, is not very passive. If this is you, I’ve got some good news for you. You are in the right place.
Welcome to the BiggerPockets Real Estate Podcast. I’m your host, Henry Washington, and I’m here today with my good buddy and one of our seasoned Swiss army knife investors, James Dainard. James and I are going to break down how to use real estate to generate multiple streams of income and how to think about the types of income streams you want in your portfolio. Also, we’re going to talk about how James got started with these streams of income and how they all tied together to help him thrive as a business person and a real estate investor. Alright, let’s dive in with James Dainard. Why don’t we start off by talking about what do you see as the biggest benefits to you and your businesses by having multiple streams of income?

James:
Oh, I mean there’s massive benefits and it really comes down to as investors, we make money as we take our money, we go buy things with it and we create income streams, whether it’s flipping a property making profit or buying a rental property and making cashflow. But the problem is you can kind of become this cash outflow machine all the time because how do you make more money? You go buy more deals and then as soon as you make it, you’re putting it right back out the door. And when you go through market cycles, and this is really what I learned, this was in 2008, when you go through different types of market cycles, you want to make sure that you can always keep the liquidity going in because if a market slows down, it can be harder to get your money back because it’s harder to flip a house, the cash is out there longer, you have to service the debt longer.
Your cash flows can start to really amplify up. And so the purpose of our multiple income streams is no matter what market condition, we always have revenue and income coming in the door. When the rates shot up dramatically high, it slowed down our market. We were not making money flipping homes, we were not making money developing homes, but they were a big cash suck. Our cashflow rates went up, started going down a little bit. The saving grace on that is our brokerage and our lending business was paying us income no matter what. And so it allows you to balance out those revenue streams and really go through any type of market cycle and continue to build liquidity so you can continue to invest.

Henry:
Absolutely. I completely agree with you James. So I got into this business and my intent was to focus not solely, but mainly on long-term buy and hold. But when you’re new, you don’t truly understand how money flows in a long-term buy and hold business. And what you start to see in a long-term buy and hold business is that it’s not very liquid. Like your monthly liquidity isn’t very high. Yes, you invest for cashflow and cashflow is great, but as you have multiple properties, one thing breaks over here and you got to take some money and put and fix that, and your liquidity just kind of dries up. And so it may feel like you don’t have money even though you’ve got money coming in at different times. And so we started to flip houses as a way to keep capital in the door and to keep our business moving.
And what we learned through that process is there are sometimes the market is saying, Hey, this is a great time to go buy rental properties and cashflow, maybe not a great time to flip properties. And then that market might change on you and your market might be saying, Hey, this is a great time to flip houses not so great for rental properties. So right now, midterm rentals and flips seems to be doing well, and so we can shift our strategy and focus more on those types of monetization strategies and it helps us maintain some liquidity and keep our business afloat.

James:
Yet it just keeps the faucet on. When the market slows down or you go through a different change by setting up different income streams, you can always bring cash in the door that cash can allow you to astate liquid, but it also allows you to keep growing and amplify your growth because capital is the foundation to growing in real estate, whether it’s access to capital or having capital. And anytime you can turn on another faucet, it comes in and starts filling up that bucket with a little bit more capital and a little bit more cash. That’s how you can amplify your growth and reduce risk by investing.

Henry:
Okay, so we’ve probably got people listening who want to get into real estate investing. Maybe they haven’t started yet and now we’re talking about multiple streams of income and maybe they’re getting some of this squirrel effect. So if you are someone new to real estate, how should you or could you be thinking about multiple streams of income within an investing business?

James:
I talked to a lot of people about this. You can start to chase that shiny thing, right? There’s so many new strategies that come out every 12 months in real estate. Yes, I mean midterm rental, that’s pretty new in the last 18 months. You have ations, you hear people talking about innovations all the time, and so there’s all these things that come out and then what they do is before they systemize their current business, they jump over and start working on this and then they just become inefficient. And so it’s all about focusing first. Again, we started in real estate. I was 24 years old as a wholesaler. I did not have a lot of business experience. I liked to work, but it was about how do we maximize our time and every deal And what we did before we started exploring that next income stream, we had to master the one that we were currently in.
It wasn’t just me as a wholesaler. We had built now a team of salespeople. They were working underneath us. We had a process, we had a system and a staff, they could help handle that. The more systemized it is, the more time you have freed up from there. It was about what is the next logical step and how do we ize every piece of that transaction? So instead of doing a new business and getting distracted, you can go, how can I add in another piece? And it could be as simple as I’m a real estate broker and I’m going to partner with a title and escrow company and start making a little bit of revenue on this title and escrow company. I’m already selling a property, it has to go through title and escrow, all the fees, go to a third party company and now I can white label and own part of that process and make another fee.
At that point, it could be I’m a real estate broker and then add in, I’m also a mortgage broker. Now I’m selling the property to the same client I am owning the escrow company, making a little fee there and then originating a loan. And so it’s about taking that next step in the transaction because that’s where you’re already good at and that’s what’s worked really well for us. It’s how we scaled everything. We went from flipping houses to building houses, but we didn’t go from doing cosmetic to building. It was about cosmetic, more of a standard massive rebuild than building. So that’s where we’ve been most efficient and that’s how we created eight companies at the northwest. It’s they all compliment each other.

Henry:
I want to ask you about those eight companies, but before I do, I kind of want to echo what you’re saying. Maybe say it a little different way. I feel like the best way for a new investor to focus on multiple streams of income is to focus on one stream of income. Because what you don’t know when you get into real estate investing is anything you don’t really know if you are going to even like the exit strategy that you choose, you could get into this and think, man, I really want to be a fix and flipper. And then you could do your first fix and flip and go, you know what? That sucked. I don’t want to do that at all. You could get into being a landlord and this happens to a lot of landlords. You can get into being a buy and hold investor and realize it ain’t for you, right?
You could get into it and realize, man, I am really, really into the renovation, right? I have a construction background, I did my first flip, I loved it. And then after you understand how to do one income stream, you can bring in other income streams that are either related to the thing that you are like or the thing that you were good at. You could get into this and realize, man, I love being a landlord, but I really, really liked designing properties. And so maybe it’s that now I need to venture into short-term rentals so that I could design properties and furnish them, right? You’re going to learn a lot. I see this a lot with people who they want to get into real estate and so they decide to get their real estate license and they quickly realize that having your real estate license doesn’t necessarily make you an investor. And I’m not saying you should or shouldn’t get your license when you’re getting started. I’m saying let’s go focus on finding a deal. Let’s go focus on monetizing that deal and you’re going to learn a lot what you as an investor want to do and what you and investor are good at. Alright. Now that we’ve got the basics down, how do you generate these alternate income streams? How do you know which type of income stream is right for you? James and I will break all of that down right after this.
Hey investors, I’m here with James Dainard and we’re talking about how you can use real estate to turn the cash faucet up. So let’s jump back in. Alright James, so you said you have how many businesses now?

James:
We’re a little bit addicted to the deal, so we have eight businesses up in the Pacific Northwest.

Henry:
Can you talk to us a little bit about, if you don’t mind sharing what those businesses are and how they’re tied to real estate in some way?

James:
Yeah. We’ll start from the beginning to where we’re at now. So the first business we have is an off-market company wholesaling. We source off market properties, we create assignment fees through that business. We have a brokerage that’s services, investors and sources, properties on off market. We then have a financing arm, interest funding, which provides the short-term capital for these investors that are acquiring the property. That’s a problem in the deal. They need funding, we solve that problem and now we can fund all their deals. And a lot of this multiple income streams that were created with us was about just solving a problem. What does the consumer need? What does our business need? How do we create and compliment it in? And so those are our three service businesses, but they also now generate leads and deals for our other set of businesses, which is our flipping business.
In addition to our development business, we source a lot of our own properties for dirt that gives us the inventory that we can build homes with. From there we have our holdings, businesses, which also are dependent on the brokerage and the off market and the funding for down creating our portfolio building, which is going to be where we own nearly a thousand doors into Pacific Northwest. We are buying properties, we’re renovating them, BRRRR styles or value add, creating value, and then creating that income stream of cashflow. So by just starting with wholesaling and expanding out, we’ve now created six different revenue streams. It all started with the deal. If we can find a good deal, that’s your first domino in the effect. Now how do we ize it from there? Well, we can buy it ourselves, make profit, we can buy it ourselves, make cashflow, we can sell it off and make an assignment fee your commission, and then we can do the financing and get origination points and an interest spread on this.
And so just by finding the deal, it’s domino down, but it’s all focused around that internal system of we are investors that buy deals. Now on top of that, as we expanded, we were paying out with these rental doors, a lot of money and property management and we needed it to run efficient. So we now own a large property management company that services our portfolio in to our investors inside that we’re selling to from our deal finding. And that now creates a revenue stream for us. And that has been the key is if you can enhance the experience, that’s how you get the revenue stream. And so that’s our focus. How do we make it better, not just make more money? And if you focus on making it better, that’s how the revenue streams start kicking in.

Henry:
What I think is really smart about this is the businesses that you have are all tied to an exit strategy in real estate. And the reason I point that out is is because the businesses you have are all things most real estate investors are going to do. Most real estate investors are going to look at finding a deal and then they’re going to look at how can they make money on that deal. They might look at finding a deal and then assigning that contract. Well, there’s an assignment. They might look at finding a deal and then adding value and renting that property out. Well, that’s a long-term buy and hold. They might look at finding a deal and fixing up and selling it. Well, that’s a flip. And what you have done is you have taken all of those exit strategies, you figured out how to do them for yourself and then it’s not a lot of additional work to figure out how to take that income stream or that exit strategy and then make it public facing as well.
Because if it’s public facing as well, you’re able to monetize it by having clients outside of your business and you use that business for your own personal businesses. And I think that that’s what makes multiple income streams super smart is because typically you’re already doing a lot of these things for yourself, but if you take the right steps to organize your corporate structure and then make that business public facing, you can now monetize that business through the general public and take advantage of having that business in-house for your personal business. So I think that’s a phenomenal way to look at how to have multiple streams of income. It is extra work, it is going to be a little bit harder, but you can increase your revenue drastically because now you’ve taken these internal things and made them public facing. So one of the things I want to talk about next is something that you and I don’t do very much of, but we have a good friend and co-host on the market podcast who does do this.
And so when you think about multiple streams of income, you can think about the active streams like flipping houses, and then people think that being a long-term buy and hold investor is passive, but it is absolutely not passive in my mind that’s still active. It’s not as active of flipping houses, but it is an active business. But there are passive income streams in real estate investing, like investing in REITs through the stock market or investing in syndications. And so what do you think about some of these more passive streams and adding them to your diversification in your streams of income?

James:
I love it. I mean that’s our goal, right? Service businesses, flipping properties, these active businesses, they require a lot of time they can be stressful and some days you wake up and you don’t want to do it anymore. There’s been plenty of days where I’ve woke, I’m like, I never want to flip a house again. This is a terrible experience. But the goal to get passive, it is again, you still need capital to start building out your income streams in your passive lifestyle. So as we created these different income streams with services flipping an active income, we pull a portion off or I’ve always pulled at least 20 to 25% off the table and I stick it in this other bucket. That bucket is meant to invest more and more passively. But it’s about balancing that passive income too. One mistake I see people make is they have a certain amount of money saved. They go out and they buy their first rental property and they’re rushing to get in and they get a good deal and it’s giving them a good return, but now their money’s gone. They cannot go buy more properties and they run out of gunpowder. And so what I also like to do is balance the passive income. So with my passive investing, we have our real estate and our cashflow, which we’re always going to buy because that is the key to wealth building. Long-term wealth is made by buying and owning assets

Henry:
Through majority ownership,

James:
Correct? Through majority ownership. Well long-term holds require capital for longer little bit lower return, but you get the appreciation factor. How to get more money coming in the door is through doing hard money loans and doing joint venture and passive flipping. Now I always look at the money in my bank like a portfolio. Where am I trying to be with my monthly cashflow? How can I allocate that? So if I can make 12% of my money through lending hard money, then I’m going to go, I have this much money, I’m going to put it here that’s going to pay me this flipping me. And you did a flip together and we decided to partner. If I put up the money, you did the services and let’s say we do a split that can make me a 20 to 25% return on my money. That’s a little bit more active.
It’s not, but the hard money pays me monthly. The passive flipping pays me quarterly essentially or semi-annually. And then we have the holdings which is a little bit more steady, the long game. And so I like to balance it all out and as I want to work less, I invest it in the higher yielding, more steady. And so over my career, it’s about just shifting the funds around and giving you that passive income stream. So the passive income stream isn’t just about buying and holding properties, it’s about creating monthly cashflow and then how do you allocate that out? Our hard money business, the reason we can buy more rentals is because I compound that interest a lot where it’s just growing on itself. We take the profit and I go buy a rental with it. And so it’s about just setting up those different streams and it’s not just about buy and hold, it’s about, and before you go that way, you want to know how long do you want your money locked up for? What’s your minimum return and how can you get access? When I buy notes and sell notes, I can get my money back within three to six months. A rental property might be there for two to three years. And so it’s about just balancing out that axis.

Henry:
What I hear you saying I think is a great way to kind of sum up this multiple income streams for people. And essentially what you’re saying is multiple income streams is great, but you got to have a plan, right? You got to have a plan or you have to understand your goals because if your goals or your main goal is to generate a certain amount of cashflow, well then that tells you what multiple income streams you may need to focus on. And so if your goal is to generate a certain amount of cashflow passively and you’re out here flipping 10 houses a year, well you’re probably making money, but it’s not helping you hit your goals. If your goal is to build up a certain amount of capital within your bank account over a certain period of time and you’re out here buying rental properties every month, well you’re not going to hit that goal.
I’m not saying either one of those is a bad thing. I’m saying it’s not getting you to your goal. And so if your goal focused to understand what your goals are, then you can build a plan through streams of income where you feel like you have a competitive advantage that’s going to help you hit that goal. So you’re right, if you want to build up cashflow and you end up investing a whole bunch of money into a syndication, well it took all your capital and now you can’t go buy any other rental properties, you’re not going to hit your goal. And so just understand your goals and understand what your timeframe is to hit your goals, and then you can look at different strategies that you can piece together to help you get there. And then you can do it in a way where you’re able to hedge and de-risk by having a strategy where you may be doing some active and some passive strategies all at the same time. We have to take one more short break, but stick around. Our advice on exactly how to get started is right after the break. Welcome back to the BiggerPockets Real Estate podcast. Let’s get back in the conversation next. James, I want to play a little bit of a game with you. You down.

James:
Is there money? Can I win money?

Henry:
James, I need to be trying to win money from you. I don’t have eight businesses, but what I’d like to do is give new investors a way to think about what potential multiple income streams they can be thinking about based on what it is that they do. So I’m going to give you an investor who has one income stream. I’ll tell you a little bit about ’em and you tell me what other income streams that they could be thinking about for that business. Make sense?

James:
I like this. I like this game.

Henry:
So I’m a new investor, I want to fix and flip. I’ve just done my first fix and flip deal and it went well and I loved the construction and being able to make something nice and we were able to get in and out of that flip in about 90 days. I was super meticulous about my scope of work and getting the contractors in there and getting it knocked out and getting it done. What other streams of income can I be thinking about within my real estate businesses?

James:
Well, I got one question. I got to get a little bit of clarifying. How much time does this person

Henry:
Have? They got a job. They got a day job,

James:
Okay, so they’re a nine to fiver. They’re a nine to fiver, okay, little bit less on time, but they got the skillset to operate a flip and they made some money. Yep. The next question I have and I can then finally answer the question is what’s their goals to get to? Because that kind of dictates what income streams you want to do.

Henry:
I want to build up some capital over the next 12 months so that after that 12 months I can start buying some rental properties. A little more passive flip.

James:
So they need to build capital. So there’s two things that I would do. The first thing is I would continue flipping because that is the best way to create the highest return in my opinion. You can leverage it correctly, you make the highest returns, you can grow it the fastest. The next thing I’d do is we want to build more capital to buy rental properties and start turning on that cash flow. So as a flipper, you’re getting deals sent to you on the regular. As a flipper, you should also be networking with investors on the regular right meeting with people. What’s their goals? How can you work together? How can you get referrals? Getting general contractor subcontractor referrals, hard money referrals, building that internal network in your backyard. Now as a deal comes in and as you’ve made these connections, a deal that might not work for me could work great for you, Henry.
And I’m going, Hey, my guys can’t do this. This doesn’t work. Well, I got this deal. Let me create a little bit of revenue here and go, Hey, I found this deal. It’s a great buy. I’m going to sell it to Henry and make five to 10 grand on that deal. And if I have a hundred grand in the bank to flip houses, which is a lot for a lot of people, I just increase my total liquidity by 10% in a very short term. That doesn’t take me a lot of time. I have a nine to five, I can flip my one house and then as a deal comes in, I can now create a revenue stream right there. That’s going to be the simplest way to do that.

Henry:
I absolutely agree with you. I think it’s a great strategy. What I would be looking for in this scenario is how do I do more volume by doing less work? So yes, you want to do fix and flips, that’s great, but if you want to build capital, awesome. You can do some assignments. Now I’m not saying go build an assignment business where all you doing is assignments. What I’m saying is leverage your network to assign contracts. So me, I don’t wholesale. That’s not what I do as an exit strategy. I wouldn’t call myself that, but I did assign a contract. I did it last week. So the way you could do it in this scenario is yes, you’re getting leads all the time. What happened with me, I got a lead in. I put the property into contract. I was going to close on that property.
So there’s the difference. These are properties that you could close on and you could do a flip. I put it under contract, I was going to buy it. Then I said, you know what? I’ve got four other flips under contract right now. Let me talk to somebody. I talked to somebody in my network that I know flips houses here. I said, Hey, would you take this one off my hands for this price? They said yes, and I just assigned it to ’em. So it’s not like I built this business where I was out there marketing these deals that I had no intention on closing. What we’re talking about is if you’re getting the lead flow and you’re buying properties, you could then take some of those leads and monetize them differently. The other strategy I look at in this scenario is a whole tail. So you could probably find some of these properties that you’re fixing and flipping and not fix and flip them. If you’re buying them at a great discount, you could just clean them out, make sure that they’re livable and stick ’em back on the market in as is condition, but at a discounted price. So you don’t resell them for retail, you resell them for less than retail, but for more than you paid. And sometimes you can make a good profit by doing that and skipping the renovation. And those are some of the income streams I would think about in that

James:
Scenario. And then you can add a little bit of profit dust on top.

Henry:
Next scenario, I am a buy and hold investor. I’ve a landlord. I’ve been doing this for about two to three years. I built up a portfolio. I’m getting to about 20, 25 doors now and I really like being a landlord and we’re our properties, but it’s getting a little bit intense. What other streams of income should we be thinking about for this landlord?

James:
So it’s more about time at that point. So if it’s managing the time, how do I free up time? The stress of it, there’s a couple ways. If I’m a landlord, I want to increase more margin, then I want to reduce my fee out of there. I can be an owner operator, take it over and collect that property management myself. But if I’m a landlord and the stress is getting to me, then I’m going to go find an operator. I already have money. I’m out there buying rental properties and I want to free up time. I might go partner with my property management company or someone that’s associated with it and say, Hey, look, I’m going to buy this, give you some of the equity, and then they can then take a piece of that and reduce the expenses. But I guess that doesn’t really create income at this point because we’re talking about building a multiple income stream. So now that just gave away some. It gives you time.

Henry:
It gives you time though, which is

James:
Valuable and the time can go create it. But if I’m an active landlord, it depends on what I am as a landlord. So if I want to create the stress of the owning property, well maybe I created really good services. Can I create a property management company and work with some of my other investor buddies and collect SD on that? Like Henry, you have created a good midterm rental business. I’ve never done that before. And if I’ve created that system, that makes sense for me to hire you and plug into your system and you can get paid for that to then create that spread. And so if I was a landlord, I would go, what am I really good at? What is the properties that I’m most efficient at running that I’m most systemized at? And then offer that out as a service to create more cashflow.

Henry:
Couldn’t agree with you more like in that scenario, I think a lot of landlords find themselves in this place where they get to that 2025 door mark and they’re trying to figure out what to do next. Do I go buy more doors? Can I handle more doors? And so one way to think about bringing in additional streams of income is solve the problem of property management. And that may mean that you can now start a company that manages your properties. You’re already managing them anyway, and you are essentially paying yourself to do it. Whether you’re doing it on the books or off the books, it’s costing you something. And so take arm and you can turn it into a business and then you can now offer, because the level of effort it’s taking you to manage 20, 25 doors, it’s going to be the same at 30 doors.
It’s not that much more effort. And so now you can offer that service out to other investors and you can bring in additional income by having your own property management business. If that’s something you are good at. And I’ve imagine at 20 or 25 doors, you should know if you’re good at it or not. Yet if you’re not, obviously you need to go hire that out. But if you’re good at it, I would say think about offering that service out to other investors within your network who may be struggling with property management at a point that where you’re going to either have to bring somebody in in-house to do it for you, or you’re going to need to hire a third party. And so if you bring somebody in in-house, I would be thinking about how do they pay for themselves and they can pay for themselves by not just managing your properties but bringing in some additional properties, maybe just some people in your network for them to manage their properties as well. Well, cool man. Well, that was a lot of fun. Thank you for appeasing me and playing these games with me. I like to make up games on the spot,

James:
Solve the problem, get paid. That’s what it’s about.

Henry:
And I want to finish with this one question. I know what the answer to it is. If you were new and you could start with one income stream, what would it be?

James:
I could start with one income stream. It’s such a loaded question. It depends on where you’re at in life too.

Henry:
I know what I would

James:
Pick. What if I had to pick one? It would be what I got started with. Wholesaling finding the deal. It’s the least amount of money. It’s a hundred percent on you on how hard you want to work because if you’re not getting a deal as a wholesaler, work harder. And so I would start with wholesaling finding with the deal, everything blossoms with a good deal so you can root your business and start building from there.

Henry:
Again, we’re going to say the same thing a different way. I wouldn’t focus so much on what the income stream is of the exit. I would focus solely on learning what a good deal looks like in the market you want to buy and learning one way to go find that good deal and go 1000% at that strategy until it produces a result. Once it produces a result and you have a good deal, you can monetize it however you want, right? If you want to assign it, you probably can. It’s a good deal. If you want to fix and flip it, you probably can. It’s a good deal. If you want to fix it and throw a tenant in there, you probably can. It’s a good deal. But don’t put blinders on and say, well, I’m going to go find a flip. Then you could pass up on other deals that could make you money in other ways.
Just go figure out what a good deal looks like. Go hard at finding that good deal and then figure out how you want to monetize it based on where you are financially at the time you have that deal and what your goals are. That’s the only thing I would focus on. Alright. Mr. James Dainard, thank you for coming in and being so transparent and talking to us about your businesses and kind of how you got into those things and how you structure, but multiple streams of income. I think it’s super helpful. It was helpful for me and I know it’s going to be helpful for our listeners too. We appreciate you, James.

James:
Always enjoy talking about creating businesses are ATMs. That’s how I look at it. New businesses, atm, go get that

Henry:
Cashflow going. Thank you, man. Absolutely. So if your gears are turning, please leave a comment on this episode wherever you’re listening or post a question in the [email protected]. Again, thank you James Dainard, I’m Henry Washington, and we’ll see you next time on another episode of the BiggerPockets podcast.