May 31, 2023

JF3191: 3 Fundamentals to Building Multiple Income Streams | Passive Investor Tips ft. Travis Watts



Passive Investor Tips is a weekly series hosted by full-time passive investor and Best Ever Show host, Travis Watts. In each bite-sized episode, Travis breaks down passive investor topics, simplifying the philosophy and mindset while providing tactical, valuable information on how to be a passive investor.

The average millionaire has between three and 10 income streams, proving the fact that in order to maximize your wealth building, you need to diversify. In this episode, Travis talks about three key ways to build those income streams to not only protect your financial future but create passive income that supports your lifestyle today.


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Travis Watts: Welcome back, Best Ever listeners. You're listening to Passive Investor Tips. I'm your host, Travis Watts. I've got a really fun episode for you today. We're talking about building multiple income streams, and three fundamentals to focus on. Disclaimers as always, never financial advice, not telling you or anyone else what to do; please seek licensed financial advice when it comes to your own investing decisions.

With that top of mind, if you look at the Forbes 500 list - these are the wealthiest Americans here in the United States - you will see that all of these individuals have multiple income streams. In fact, depending on what source you tune into, the average millionaire has between 3 and 10 income streams. It's just the way that wealth goes and cash flows. And the unfortunate part is most of us were not taught any of this in school. If you were lucky enough to have any form of financial education and school, outside of balancing a checkbook or saving money, it probably had something to do with the stock market. But the stock market is primarily focused on equity building. It's buy low, sell high; it's put money away for a rainy day, and hopefully that grows over time. It has little to do with passive income streams. So if you're more interested in building passive income streams and cashflow, then this is the right episode for you. Without further ado, let's dive into the three fundamentals.

So first of all, diversification. I talk about diversification a lot on the show, for a good reason. Because it's very important. We have to remember and be realistic, that not every investment we make is going to be a home run. Investments can go down in value, distributions can get paused, delays can occur... All investing entails risk, so you have to make multiple investments to limit your risk and to diversify if one sector were to be hit. Correlation is very important to understand< and very few people talk about it. For example, private real estate has a 0.14 correlation to the broader equities market. A zero correlation would mean that there is absolutely no correlation between the two. So there's a little bit between the two in this case, but not a lot.

So for example, if my real estate were to be impacted by let's say rising interest rates, like we experienced in 2022, then I have low correlation dividend-paying stocks. And if my stocks were to get hit, then I invest in ATM machines. And if the US comes out with a digital dollar and ATM machines are no longer needed, I have private lending funds, I have car washes, and I have diversified active income streams as well. So it's not a full-proof plan, but it can certainly improve your odds if you're looking to live on long-term consistent passive income.

Number two is dollar-cost average. I've also spoke about this from time to time on various episodes, and it's extremely difficult to try to time the market. So rather than trying to time the market, I invest in the high times, the mid times, and the low times. And what happens is over the long haul, I end up getting an average price. You can think about it this way - if real estate, just for example purposes, has gone up let's say 30% over the last three years, which is probably not far from what we actually experienced, and let's say this year real estate corrects and it drops down 20%, then I would still be up in overall gain on all my investments that I made three years ago, or further back. Furthermore, I would have the opportunity to continue investing today at a 20% discount relative to previous pricing, classic example of buying the dip. And if you just look at the long-term history of real estate appreciation, you'll see it's a long-term upward trend. Now, that doesn't mean that real estate's going to go up every single year, but what it does mean is that historically, decade by decade, it has gone up in price.

Dollar-cost averaging is simply a strategy that can also help reduce risk and help you to diversify.

Break: [00:06:29.23]

Travis Watts: Moving on to number three, last but not least, focus on what is essential. There's always going to be new products, new startups, new ideas, but the sad truth of this, statistically speaking, is that many of these companies will fail. In fact, according to the Bureau of Labor Statistics, 65% of companies fail within the first 10 years. So it's important to consider what you're investing in. Most of my real estate investments have been rented out for the last 20+ years and have a long-term track record of producing passive income. I do not speculate myself on new development projects, or new ideas, like maybe 3D printed homes, as those do not match my particular risk profile.

Residential real estate has been providing an essential need for people for thousands of years, and that is housing. So unless you believe that housing will become obsolete in the next three to five years, because that's the average timeframe that I'm invested in any particular deal, then it's probably going to be here for a while. And that's why residential housing has been the core and the foundation of my investment portfolio for the entire 15+ years that I've been investing. That's not to say that's what you should do, but make sure that whatever it is you're investing in is essential, and meets the needs and the wants of people for years to come.

With all the this in mind, I want to leave you with a few parting thoughts. Number one, it's that not all your income streams need to be equaled out. And what I mean is, it's okay to have one primary source of income, whether that comes from a job, a business that you own, or one particular investment. All I'm saying is that you may not want to have all your eggs in one basket. And number two, you don't have to do all of this on your own. I made this mistake years ago, working 100-hour workweek and thinking I could flip houses, and run vacation rentals, and have buy and hold single-family all on the side, and do it all myself. Remember, you can get coaches, you can get mentors, you can join training programs, you can seek the advice of licensed financial advisors.

So in the example of a real estate private placement or syndication, I'm just a limited partner. I'm letting a professional group find the properties, underwrite the properties, manage the residence, manage the construction, manage the asset. I'm just investing in a hands-off manner my own capital, and I'm sharing in the profits alongside them.

And number three is to be realistic. This get-rich-quick mindset has embraced our culture, and I get it, everybody wants instant results. Wouldn't that be nice? But you have to understand that investing is like planting seeds; you're not going to see results overnight. In many cases, it takes years and years to start to get meaningful results. But remember that if you stick it out, if you're patient, it can be very, very rewarding. Passive income can expand your lifestyle, it can free up your time, it can allow you to be more charitable, it can lessen your stress around finances, and it can allow you to live a life on your terms.

So I hope these three fundamentals were helpful for you in this episode. Feel free to like, subscribe and share this episode with anyone you think could find value. You're listening to Passive Investor Tips right here on Best Ever. I'm Travis Watts, your host. If we haven't connected, I'd love to connect with you one on one. You can reach out to me on social media platforms. I'd be happy to give you my time and add value wherever I can. Have a Best Ever week, everyone, and we'll see you in the next episode.

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