Hey guys, Toby Mathis here. And today
we're going to talk about the BURL method BURL buy utility rent luxury. It's right over my shoulder here
buy utility rent luxury. Before we dove
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let's jump into the burl method. What is the burl method? What is this whole buy
utility rent luxury? What goes a little something like this? You live
in a house all throughout your life. Let's say you buy in the neighborhood that you wanted to be in the right school
district, low crime. You got a nice pool,
you got some extra bedrooms so people can come visit with you. And then some rural guy comes along
and says, You don't really need that. You should rent out that luxury and buy something that's not as luxurious for half as much outside the city, maybe
in a little more sketchy neighborhood. But get rid of that pool. You don't need those extra bedrooms. Nobody really wants to stay with you
anyway and they get you to do
the little dropdown. This is very common
and it's because people do this whole you don't need that luxury. So they rent out the luxury. Let's just say, hey,
I can rent out that home for $5,000 a month. And because you're going to buy
a new utility, you're going to buy something outside that area,
you're going to be able to buy a home for, let's say, it's $3,000 a month. That's your costs, you know, your property
taxes and your mortgage or whatever. So they go, hey, look,
this will pay for that. Why put that out? And you still have $2,000 a month. What a great idea you could live in
in all your days of your life. That way. And, you know, no worries. See, I solved all of your problems, except you don't have a pool anymore and you can't have your family
stay with you anymore or friends. But you didn't need that. Remember? They just talked
you out of your lifestyle. I hate that. I think that's a load of poo. I get what they're saying and it works. But so does hey, you know,
I know you like going to restaurants and you like going to movies. You like going to shows. You like to go out with your friends. You like to go get a beer,
but you don't need that. You could just eat pork
and beans at your house every day. We could get that really cheap. And look,
you could live off of a lot less. Heck, you could get rid of your house
and you could live in a fifth wheel. You could live in a tent. Yeah. What they're talking about
is lowering your expenses by lowering your lifestyle. I don't believe in that. I just tell you real straight up,
what I always look at is there is needs, wants and wishes. So I just put there there's needs wants in wishes. Always. Everybody has this.
What do you really need me? A roof over my head. I need water and food. Right. And there's a dollar amount your wants. Hey, you know what? But I want to be able to go out to dinner. I want to be able to take my wife out. I want to be able to do things
with my kids. Maybe I want to go on vacation. I don't need to do these things,
but I want to. So you're going to say that X plus Y these are the
these are the little things. And I'll draw the line here,
so don't get confused. I have X plus Y. So these are the things that I want to do,
but I don't need to do and then use your wishes, X plus Y plus Z. You know, on the Z's, the big one, this
I want to go around the world. I want to give money to my my church
or my charity. I want to be able to do this. I want to be able to buy a house
for my kids. Like those are the wishes, right? And all we do as planners,
I'm just I'm just a dumb tax attorney. I'm not a financial planner.
I'm not a CPA. I'm not those really cool letters, CFA,
C, all these cool things, right? They have all these really great things. They have. What it boils down to is
you need to have enough income coming in to pay for these things because. So does it work to lower yourself
to your needs to be able to live by renting out
something that you would want to live in? Yeah, it will. But so does cutting out all other food types
other than rice and beans, right? You'd be pretty darn miserable. And you could live in utility. You live in a tent
and live off of practically nothing. And you could rent out
some things that you actually like and you could get there too. But I would say that your lifestyle takes
a big hit and life would pretty much suck,
so I don't want that. What I want is to figure out what
these amounts are, and I like the wants. That's where we start is let's make sure that we have enough passive income sources
not talking about your job. If you want to be at a retire, you're going to have to have passive
income sources coming in. And those those income sources are rent royalties, dividends, cap gains. I use short
term off the sale of of options. I don't like buying options
and I don't like selling things for the most part, but I'll sell an option against stocks
that are trading dividends. Topic for a different day,
but I love those things. Rent, royalties, dividends, capital gains
and interest interest has been really low
like savings accounts suck in your ponds are not that great
even doing hard money loans. Money's been so plentiful
over the last few years. Maybe you can get back into it. Where we see people make most of
their money is up, not the royalties. It's rents and dividends. And if they're good with dividends,
they have enough of a portfolio. Then they start renting it out
by selling options against covered calls. That's what I see. So I be adding these up and I'd be saying,
All right, how much rent can we get? Dividends and capital gains? Do I care? It's the house that you
that you grew up in. Not really. So let's say that let's do a version of the Burl method. Let's say that you're in a house. Hey, it's way bigger. You had five kids. You don't need all the extra bedrooms, so you had four extra bedrooms and you're like, Gosh, I don't need that, but I really want an extra bedroom so I could get a two bedroom, but I also have an office
and I really like three bedrooms, so. And you know what?
I like this neighborhood. I want to stay in the neighborhood. In fact, there's some pretty cool houses
just down the street that they built. And, you know,
I want to be able to do that. Okay. I'm not sitting here saying,
how could I make that rent off from that house that you just moved out of
cover the house that you want to live in? We're not doing that. What we're going to do
is we're going to say the value of that home,
the value of that home, if we transfer it into income
producing assets, whether it be dividend paying stocks, rental real estate,
multiple family could be duplexes, it could be single family, it could be
mobile homes, it could be Airbnb. Fill in the blank. Are there assets that we could buy
with that money that will cover my my expenses? Excuse me. That would cover this. And that becomes the question. So it becomes
how much is that house worth? What could I sell for it?
What's the fair market value? And you'll notice something here when you do that
and you start looking and using the way that the realtors use,
which is comps, the income being produced out of it
is not even a consideration. In other words, you moved into your house,
not for the rental income, you moved into your house
because it was a place to live in a neighborhood
that you wanted to live in. Right. If we're if we're being true, like typical American,
you're buying in a good school district. You're buying in an area
that you wanted to live in, that you could afford, whatever. And then years later,
you're going to sell that. And somebody comes up to you and says you should rent it out
and buy something crappier. That's the burl method. And I again, I think it's absolute crap. No offense to the barrel people. I get what you're doing
and yes, it will work. But I would prefer to look at best
use of those dollars instead. Why would you keep the house
that you don't want or need? Right. I don't need it. And apparently I don't want it because I
want I want to live in something smaller. Makes me feel more comfortable. I can still have family come over.
I still have a pool. I have all these things that I want,
but I don't need that. I take that money,
I sell that property and I take that money and I invest it into something
that's giving me enough of a return to cover that house that I wanted. In most neighborhoods, let's just say I want here in Las Vegas,
I live in Las Vegas. Houses are nuts, right? But you can live in a decent neighborhood
I might buy. I'll use exact numbers because I actually live this right
during the during the big recession, you could houses before the recession,
you could buy them for a million bucks up at the anthem anthem country club
and things like that. You could rent that house $1,000,000 house
for about $3,000 a month. So I use something called the rule of 5%,
which you can write down 5%. And what it basically means is if my rents
that I could get for a property based on its fair market value are 5%
or less of that house, the renters winning if it's more than the landlord
starts to win, which is why I won. When we as landlords,
we tend to use cap rates and as a single family rental investor,
I want to see six, seven, eight caps. I want to get a bigger return. I want to get made more than that 5%. So let's use that million dollar house it could rent for 3000 a month, which is equal to $36,000 a year. What, 5% of a million? 50,000 renters winning? Why would I do that? I'm literally costing myself money. I have an asset
that's not performing very well. Why would I keep that? Why wouldn't
I just take that million dollars, sell it or I mean, there's the possibility
if you're really savvy, you could pull the equity out of it
and you could say, hey, you know what, I'm going to rent it, but I'm going to buy
seven houses in the Midwest and I'm going to go to these areas
where I'm getting a ten cap and I'll be able to pay off the mortgage
on that. I'll keep control of the real estate. Well, let's just say we'll do it.
The simple route, you sell it and you buy seven or eight properties in the Midwest
and those seven or eight properties, let's just say that
they're bringing in $750 apiece. So what do you get, you know, six or seven
grand a month off of those? That's a lot better than 3000. You know. So let's just say that
I bought something that is, okay, 100,000 our house,
maybe it's returning 500 bucks. Net cash flow, a month. So we're being pretty modest there, right? Let's just say we did that. We were able to buy ten. We take the real estate fees
and everything. So we're able to buy nine. You're getting 40 $500
a month and it's continuous 40 $500 a month
allows you to buy something that you want instead of playing this utility game
of buying something that you need. I never
tell people what they should be buying. Should you buy a really nice car? I'm not the person that's going to say
Don't own a Ferrari, right? I'm the person that's going to say,
make sure that this type of income is paying for it. You don't want to be working
for those assets because if you lose your job or you retire
or you get sick, that could be devastating
to your financial well-being. What I'm saying is whatever you have,
make sure that you have passive income sources
that are going to cover that. So again, same scenario. Hey, I want to have a Lamborghini
and it's going to cost, what, $400,000? Here's my payment. So it's $10,000
to make sure that you have enough assets to pay for that
so that you aren't paying for that. That's all I'm saying. I'm not going to say
don't buy a Lamborghini. I'm going to say most people can't afford
a Lamborghini, so they shouldn't. But if you have assets, rent, royalties,
dividends, interest and capital gains, if you have enough of those
that are paying out on a quarterly basis, annual basis,
monthly basis, whatever it is, and you have enough cash flow coming in
that you want to buy those things. Absolutely. Yeah. The Lamborghini
would probably be more of a wish. You probably put it over here. But if we're going to go
our steps, though, I always look at it real simple is here's what my need. I want to have that covered. If I'm a young person,
my needs are a lot less than somebody who's a little bit older. Maybe they have a family, etc., right? Or maybe they've had a lifestyle that they
want to maintain and it starts to go up. So if I'm a young person,
maybe I'm pretty utilitarian and I'm like, I'm okay
being in a one bedroom, one bath, right? And I cover those with these assets
and I'm smart enough to realize that I should be taking a chunk of my income. I say live off of 70%. And then of the remaining portion,
you know, giving a third of that, which equals 10%. And I say this for young people,
if you can't give because it's too painful,
like you're struggling, donate some time instead. But you take that 10th, that 10% there,
10% pay down any debts, excess payments. This is not the minimum payment. This is not pay. I'm only going to pay 10% of my
take home towards credit cards. You're going to pay them off, but
you're going to add an extra 10% a month. They're going to take 10%
and dump it into investments so you can have 70% that you're living off
of 30% that are in this other category. If you have no debt and you don't want to
give but you get, you donate some time. Or maybe you have a spouse that donates to take the whole 30%
and put it into investments. The whole idea is to continue to build up
something that's going to create
a passive income source for you. So the Pearl method is doing that. They're saying, hey, run out of, you know, rent out your house,
the really nice one, and live in something lesser
than in the really nice house will pay for the lesser then in theory, yes. In reality, no. Oftentimes you're not going to get it. Let's say again, I sell them million
dollar house and I buy the $500,000 house. That million dollar house is barely going to cover that
$500,000 house. And I reduced my my my standard of living. I got rid of my pool. I don't have a place for anybody to come.
Stay with me. So I'm lonely and hot, right? We want to be able to buy our needs. This is the fallacy that I see so often,
especially with people that are retiring. They end up reducing
their standard of living. They get and they end up pretty miserable. And some financial planners
feeling very smug about how they figure a way
that these people can live until they're 100
and not run out of money. That's how their. Oh, yeah, we just drained a rule of 4%. Well, it was 4%, now it's 5%. You know, that's what they do is like you
got to be living off of 5% of your your net worth or your investments every year
they play. That game used to be 4%, but inflation
so how about this? These are inflation proof dividends continue to escalate
because it's drivers growth and inflation. So if things inflate, you buy
good companies. Coca Cola, for example,
has been increasing its dividends for like 56, 57 years, 3 a.m.,
Procter and Gamble. There's a whole list by good companies. They can they're going
to raise their prices just the same. And they have free cash flow
that they pay out in dividends. There's something called Dividend Kings
and Dividend Aristocrats that companies have been doing this for decades. You could buy those. They're an income. They're a nice hedge against,
you know, runaway inflation. Your rents
are going to go up with inflation. Hey, guess what? When prices go up,
so do rents. And so your rents go up. All right. So if everything gets more expensive, instead of being the financial planner,
that goes, oh, it's actually 5%, not 4%. You could say, I don't care
because everything's going up and covering that added expense, you know,
so you don't have to anticipate it. I find that to be much better. No, you know, I'm not taking a shot
at the financial industry. I'm just saying that some of the norms in those industries
are not exactly consumer friendly. I want
you to be able to live the way you want. I'm not going to tell you to drop down,
to cover just needs. All too often people do that. I see that over and over again. Downsize your house. You don't need that house anymore. And now they moved out
and they realize, wait a second, that wasn't the best move. I lost some value. I had a transaction costs,
I had these things and I bought something else
and I lowered my standard of living and I'm still not out of the woods yet
because I still don't have enough income
coming in from these other sources. What you should be focusing on instead
are these making sure that they're taking the cuts
throughout their life and minimizing like,
hey, if you just budget yourself to live off of this,
not saying go down and eat pork and beans for six months,
what I'm saying is live off of 70% of your take home, put the rest into assets
or pay down debt or and do giving. But whatever the case, take the
rest and start to build up this little engine
that's going to cover your expenses. And then you can just kind of pencil
it in. Oh, I need to buy some more assets. I need to be more aggressive
in my asset buying because I don't want to have to take an extreme
cut in my standard of living. So I'm not going to belabor the point,
but burle buy utility rent luxury while it works for sure. Absolutely. You got a great house. I could rent it out to somebody else
and I could buy something that I don't really want to live in
and it would cover it. We could go to extremes or we could just
say, Hey, I just moved down, you know, county over, maybe a city over,
maybe, you know, I moved into a, you know, an area of a smaller houses,
whatever you want to fill in the blank. But I cut my expenses down,
and that other better house, of course, should pay
for that lesser house. Of course it should. But you just lowered your standard
of living significantly. And I would say, you know,
what you should do is where should those dollars be allocated? What's the best return I can get? Instead of
just saying, Rent your luxury house out, maybe I should sell my luxury
house out by a lesser luxury, something that I still want,
but maybe a little bit less. But take that and dump it into something. Maybe some rental properties,
maybe some dividends, whatever. And I replace that income. I need that income and I use that sale of that old other property and I reallocate it
and maybe I can stay in something almost equivalent, if not equivalent. Maybe I'm able to do that
when when interest rates are really low. You actually could do that. And it was pretty bizarre for people to realize,
wait a second. I mean, I could just pull out the money,
like out of this house for 3% and I'm getting seven
or 8% pretty consistently. And like or I could build up a real estate
portfolio, let's say it's moderate 6% or something like that. And wait a second. Is covering the debt
and it's giving me more cash flow. Yes. And I don't have to
move out of my house. Yes. I don't know why more people don't look
at it that way, but sometimes they don't. Hey, you guys like this type
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