So you want to buy a home in a massive city like San Diego, Houston, or Seattle? Well, it will take a fantastic amount of hard work, dedication, and grinding on your part.
Are you ready to do whatever it takes (legally) to get a small starter home or condo in your city? I hope so because it will make you sacrifice everything to get into the door.
Welcome back to the Saving for a House Down Payment series (Part 1), where we live below our means to build wealth via real estate.
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Double your income. Right off the rip, we need to double your income. Yes, it will be challenging, but we must at least try. Don’t attempt to buy a home in a major city with earned income alone.
Let’s take our worker Josh as an example. Josh works in San Diego, California, and makes $160,000/year. This seems like a lot of money until he puts it to work.
If Josh wants to live in San Diego proper and not a suburb, he will need to spend $1 million on his small home.
With $1 million as his goal, he would need to save $200,000 as a down payment. Now you can see how fast his salary evaporates into his housing situation.
Your monthly mortgage nightmare. Even with 20%, at today’s whopping rates (6.16%), Josh is looking at $6,037/month for his mortgage.
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His take-home pay from work (after taxes) is $9,333. This mortgage puts him at over 65% a month for just housing. This payment is unsustainable for daily living, let alone building wealth. Josh has to take drastic measures to get this under control.
Five years to success. Josh needs a five-year plan to succeed in this market. Yes, prices will rise dramatically in that time, so he needs something that can grow faster than house prices—he needs compounding.
That’s right; Josh needs to build an online business that can compound faster than housing prices. This is the one thing he can do to afford a home in San Diego TRULY. Let’s look at his options.
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Josh’s goal is to double his income in five years. His salary remains at $160,000, so he needs to make $160,000 from his online businesses in five years.
Is $160,000/year possible from an online business? Absolutely, if not even more. However, this will require more work than most humans will want to attempt.
Starting an online business. I have been working on my online business for close to two years. I mainly focus on passive income aspects of online business. However, if Josh adds in active income, he can grow his business to obscene cash flow levels.
First, Josh needs to read these books before starting any business. Don’t try to start a business without the mindset of an entrepreneur. Entrepreneurs understand that business is an exchange of value; however, most businesses fail because people only want to make money.
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Josh will need to build a brand. From there, he can start his business by releasing content. I would start with a blog and then incorporate YouTube into year two.
After building 500+ blog posts and 300+ YouTube videos, Josh should have a decent following and a nice chunk of passive income.
Active income. Now that Josh has proven himself as a content creator, it is time to convert his passive income into active income.
You can see this on YouTube all the time. A content creator becomes popular; then, they start doing live streams. During live streams, they earn active income from people watching the show live; then, they upload the video to make passive income.
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In a sense, they are double dipping into the content realm. They are earning income while creating content. It is a brilliant approach to creating a massive backlog of content.
If Josh takes this approach going into year three, he will make enough money to double his income over the next three years.
It will be tough. Now, things will become difficult once he starts exchanging time for money on his content platform. Time is of the essence, and he won’t have much of it. However, he is young and single, making this the best time to build a brand that will last his entire life.
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By year five, his content creation and online business will likely provide more than $320,000/year. It depends on how much he wants to focus on this aspect of his income.
He could potentially stop working his day job and convert to a full-time online business. However, I wouldn’t recommend that because the bank loves people with jobs. Maybe after buying his home, right?
Buying the home. If Josh puts in the work, the money for his house will be there. He can now afford his home just from his business.
However, he can’t continue to grind this hard forever. He needs to convert his business to more passive income; we call this an automated business.
He can hire a manager to take over his active income or a consultant to field his calls to customers. Or, he can quit his main job to focus on his online business.
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I would recommend doing this once he has enough money in savings and dividends to support his life fully, which would be at least $2.5 million ( equaling $10,000/month in dividend income).
Is this realistic? This story may seem unfathomable but look at your favorite YouTubers today. They started somewhere.
The essential part of building an online business is to keep creating content. Try not to exchange active income without at least being able to convert it to passive income.
Think of the live streaming example. People play video games over a live stream, then upload the recording to YouTube to continue to make passive income.
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You can use the same technique for taking coaching calls with clients. You can host the call live over a live stream and then upload the content for all to see. You can do this for live courses and webinars as well.
Conclusion. Building a home in a large city is supposed to be tough. They don’t want just anyone purchasing a lovely house in a great city. It takes the best of the best and someone with an extreme work ethic.
If you fit the bill, go forth and start building your business. I have a full-time job and focus only on the passive income aspect of an online business (blogging, releasing books).
I can tell you that the money will be there if you incorporate active income into your workflow. This income will give you the cash flow to purchase your home and live an extraordinary life. But do you have what it takes? Good Luck!
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