Today I have the pleasure of sharing a guest post by Eric Bowlin — a location independent real estate investor and personal finance blogger. Whether in the US military, investing in real estate, or blogging, Eric works hard to be the best at everything he puts his mind to. I have no doubt that he will become one of real estate investing’s leading voices over the next few years — you can quote me on that. Follow his journey and pick up some great investing tips over at IdealREI. Now, enjoy his article sharing the benefits of investing your way to location independence…
The Nomad Investor
There are a few ways to achieve the location independent lifestyle. The easiest way is to find a job that lets you work from your computer; freelance writers, programmers, and others can live and work from anywhere in the world.
But it’s still work.
I don’t know about you, but I don’t want to work for the rest of my life. My goal is Financial Independence – the freedom from having to work. It should be the ultimate goal for all people, especially digital nomads.
You probably remember from Robert Kiyosaki’s books (if you haven’t read any of his books, go buy them immediately), that you need to move from the employee section over to the investor section. Most people can’t just jump over from Employed to Investor, unless they have very high paying jobs (like athletes, actors, singers etc.).
Instead, most people need to start a business to generate cash to funnel toward passive income investments.
Once you get that business going it becomes hard to get yourself out of it. You don’t want to shut it down because it’s making a lot of money (and you need that money), but you’re essential to it functioning well.
I’m a real estate investor. For a long time, I wasn’t an “investor” as Kiyosaki defines it, but I was more of a business owner with some investments. Most real estate investors manage their own property and spend a lot of time working in their business.
I also wanted to travel and live around the world but I never gave much thought to how I would achieve that. I just assumed that someday I’d have enough money to do it.
We decided to take a short vacation to Texas about a year and a half ago; A month later we moved there. Suddenly, I was forced to figure out how to convert my Business over to an Investment.
For those of you who want to run a business but be location independent, here are the 3 key takeaways from my experience.
Understand the concepts of Financial Independence Retire Early (FIRE)
Financial independence is not just about earning a ton of money through passive income.
To achieve financial independence, you need to make your passive income exceed your monthly expenses. There are two parts of the equation – income and expenses.
Achieving early financial independence requires us to not only create passive income, but to maintain a lifestyle that puts saving and investing ahead of consumption. If you have only half of the equation, it will be very hard to achieve.
So, FIRE is all about managing your expenses, reducing your debts, and maximizing your income through solid investments. Many people can achieve financial independence in 5-10 years after making these lifestyle changes.
Automate Your Non-Income Generating Activities
The 80/20 rule tends to hold true in most businesses: 20% of sales people earn 80% of the commissions. 20% of your effort earns 80% of your income.
The reverse is also true: 80% of your time is wasted on activities that don’t add much income to your bottom line.
To fix this, list all the things you do that don’t produce income and organize them by how much time you spend doing them. Now automate your business.
The top items on my list were property management and accounting. We spent at least 80-90% of our time just managing the property we had, filing paperwork, and inputting transactions.
So, those were the first two things that I needed to automate
I had a rough formula in my head – When I tenant does X I usually do Y, but I never wrote it down or formalized it. So, I slowly started creating the “process” which I used when dealing with tenants, maintenance issues, finding deals etc.
Once I started to formalize my process, I could hire someone else to do it for me cheaply.
Focus on Income Generating Activities
You probably can never achieve 100% productivity, but you can sure try.
When you automate your non-income producing activities, you are either directly paying for labor or indirectly by paying for a product or service.
If you stop there you’ll earn the same amount but spend more on labor, products, or services. If you have a huge business and you’re ready to retire, this may make sense. For the rest of us, we need to fill that spare time with income generating activities.
This makes me think of what I like to call my “$30,000 day off”
A couple years ago I stayed home from work. I canceled all my appointments and sat around the house resting because I was tired.
I casually browsed the web, read some news, and I randomly found a great property for sale. A few weeks later I owned a new property and ultimately pocketed around $30,000 profit.
It was my $30,000 day off.
Imagine if I had said “I can’t afford to take a day off.”
If I had worked that day, I may not have found that deal. I could have done the work and saved some maintenance costs, contractor costs, or whatever else… but I would have lost that deal.
It took me a few more years to figure it out, but eventually I realized that I needed to spend all my time working “on my business” and less time working “in my business.”
I realize now that the time I spent being a landlord was stopping me from being an investor. I spent the first 5 years of my business building the first half of my inventory.
I spent the last year building the second half.
In other words, I am 5 times more productive after I automated my maintenance and paperwork. This mirrors the 80/20 rule almost exactly.
I did it simply by understanding financial independence, automating my non-income generating activities, and focusing on what makes me money.
…and I was only able to do it because I had no choice. I only automated everything because we moved.
Imagine if this was planned ahead of time. Where will you be in a year or two if you automate your business?
About the author: Eric Bowlin is a real estate investor and writer for his real estate investing blog. He bought his first multifamily at the age of 24 and it wasn’t long until he left grad school to pursue real estate full time. He became financially independent a few years later at the age of 30 and now he helps others learn how to become financially independent.