Second Income – One man’s journey of learning to do it right

It’s strange the way the world works. Lately I’ve been thinking a lot about how to generate a second income. I’ve even written a few posts on it. Everywhere around me I see people working double jobs or running some small side business to generate a bit of extra income. Anyway I got an email from a friend that I hadn’t heard from in a couple of years. He had a very interesting story to tell and one I’m sure that you will find very useful if you are thinking about how to generate a second income.

Ok to protect the innocent I’m just going to call my friend Jon. This is not his real name. A bit of background is important here. Jon has been working in the IT department of a large corporation for the last seven years. Jon hates it - absolutely hates it. He admits now that he made a couple of wrong choices after he left college and ended up in a place that he didn’t want to be. After college he was in debt and was determined to pay off his debt and to him this meant staying in his job.

As the years went by Jon became more comfortable in his situation. He still hated his job but he knew it inside and out and was happy to remain in it. Jon always had a bit of an entrepreneurial flair in him and was always looking at business ideas. The thing was he only ever looked at them and very rarely did he actually go out and do something about them. That is until he got caught up in the property boom.

A few years back Jon began to notice a lot of people making a lot of money in the property market. At the start he didn’t know a thing about property – how to flip, how to manage rental properties, where to buy etc. This would eventually lead to his undoing.

Jon was concerned that if he did not act fast he would miss the boat. Off he went to his nearest real estate agent and began looking at property. He didn’t have any strategy he just wanted in. He didn’t care how he did it he wanted his piece of the pie. These are his words not mine. He’ll admit that he was too eager and innocent and was taken for a ride. Anyway he bought an apartment off the plans. He was assured by the people in the know that this was the quickest way to make money from the property market. He could ‘flip’ the property and make a quick buck. And you know what? It worked! First time out on the field and he hits a home run. He made $12,000 on the deal. The man now had the fever.

Every week Jon went to look at different properties. With credit so freely available he was able to buy three properties in quick succession. His goal was to flip one and keep the other two as rental properties. This worked out. He made another $15,000 on the second property he flipped and then he managed to rent out the two properties. All the time Jon still had his job. Life was rosy. Jon reckoned that at the rate he was going he’d be a millionaire by the time he was 35.

We all know how this story ends.

At his peak of property dealing Jon had three rental properties and was looking at buying a fourth. He had managed to flip four properties and had rolled all his profits into doing more property deals. Two of his three rental properties had tenants and one of them was vacant. He was still doing ok. His cash flow was positive.

As Jon puts it – the signs were there. It wouldn’t have come as a big surprise to the seasoned property investors. The season property investors would have known how to read the signs and back away from the market. For the likes of Jon it was like blindly walking over a cliff. Jon had got carried away and bought into the hype that property only ever goes up.

What happened next has been written about and written about everyday for the last year. The whole credit crunch and decline in property prices hit Jon very hard. He was able to maintain his cash flow for a while but then one of his property deals went wrong and he was forced to take a $50,000 drop in his selling price. This pretty much ate up all the profit he had made. Then it got worse.

One of Jon’s tenants got laid off. Jon is an understanding type of guy and let his tenant have a grace period of a month. Unfortunately his tenant had taken this kind gesture as a sign of weakness and began refusing to pay their rent. It got a little ugly but eventually it got sorted out. This left a bad impression on Jon and it added further to his stress. He now had three rental properties with tenants in only one of them.

Jon was able to survive financially for a while but he was dipping into his savings a lot. He knew it was unsustainable in the long run so he did everything he could to rent out his vacant properties. He had mixed results. He was able to rent one of the two vacant properties out. He now had to sell the other vacant property.

After months of trying Jon managed to sell his vacant property. Jon reckons he was lucky as he only lost $35,000 on the deal. Man that is tough!

At the end of Jon’s property journey he had a net loss of about $25,000 – this was costing him $400 a month in repayments as he had taken out a short term loan. He was also losing $450 a month on the rental properties.

Jon’s new plan

Jon realised that he’d made a mistake and instead of giving him a chance to leave his job his property escapades meant that he would have to stay in his job even longer. Jon’s a positive guy and after a couple of months feeling very sorry for himself he picked himself up again. He was soon back looking for ways to generate a second income. This time he was going to take a different approach.He looked around his current life situation and skill set and he thought long and hard about how he could generate cash. The only thing he could think of as something he could monetize was his computer skills. He had seven years experience working in IT for a large corporation.

Jon never looked back. He continues to work in his day job but three nights a week and at the weekend he is either giving computing classes or he is repairing computers. He told me that his average income after tax is about $1000 per month. This is on top of his salary. He is able to meet his commitments on his loans and also he can save a small amount towards replenishing his savings.

All round it appears to be a positive outcome. Don’t make the mistake of thinking that Jon’s journey was easy. It wasn’t. His initial attempt to generate a second income failed and ended up pushing Jon further into debt. It was then a case of ‘necessity is the mother of all invention’. He ship was sinking under the weight of his financial obligations and he need to start pumping fast. Knowing Jon I don’t know if he would have bothered teaching the computer course had it not been the case that he was desperate for cash. I’m not sure if his pride would have let him. This is something he will admit himself. He said that at one stage he was prepared to work in a fast food joint. His situation had become that bad.

Where does that leave you? Well if you are in debt and need to generate a second income take heart from Jon’s story. When he got desperate he looked around his life to see what skills he had and how he could use these skills to add value and generate income. He did it and so can you. It may take time to get things up and running but keep telling yourself that you are building a better future because you know what? You are building a better future.

Related posts:

1. Generate a Second Income? – You can’t be serious?
2. Debt elimination – the next leg. Generating a second income.
3. Is your mortgage a debt? Mmmm that’s a tough one!