How Much Passive Income 12 Houses Pay Me

what's up everybody meet Javon here today I want to talk to you a little bit about passive income from a real estate but from the point of view that most people won't initially think of see oftentimes we hear the phrase why is it that the rich keep getting richer well I think I may have found one of the reasons one of the reasons is the rich tend to look at investing in ways that most of us don't see most of the time we're regularly thinking about okay well you know if I'm gonna invest in real estate it just needs to create some cash flow because that's what we're brainwashed to here which look this is not a video saying cash flow is bad cash flow is very good cash flow is very important everything in this video has cash flow as a baseline but what I want to focus on in this video is what goes beyond cash flow so let's talk about that that is a what are four ways that you can make money and not considering that cash flow so what I'm gonna do is I'm gonna take 12 properties for my portfolio all single-family houses and I'm gonna use those and assume that there is no cash flow there is cash flow but let's not even consider the cash flow just so we can see how can you actually make money with single-family houses not considering cash flow and there are four main ways that you can do that I'm gonna not only break down those four main methods whether we're gonna show you exactly what my numbers are on those single-family houses so again this is not consider in cash flow this is not considering multi-family real estate solely money that you could make passively while being on a Disney cruise hanging out with my kids and Mickey Mouse and getting paid to do that so first things first my favorite day of the month is what's generally most people's worst day of the month the first of the month the reason for that is pretty simple every tenant for me at least is required to pay rent on the first and they're late if they don't pay by the first in fact they get a discount on their rent if they pay early especially if they pay through auto pay which is really convenient for me because then I don't even have to deposit checks because I'm kind of lazy in that way I don't even want to sit there photo depositing checks but there's something really special akule that comes out of that every single one of these properties there is a mortgage which I know some people might hear that anything Kenneth are you serious you're massively in debt I'll just be transparent upfront my total debt ratio is never any more than 65% debt which leaves 35% in actual equity although lately I've been a lot closer to 50% equity because values have gone up and I don't like to speculate on market values so I don't always like to refinance and take cash out I've leave a lot of extra money in these properties just to insulate in case values go down you know I still want to be in a safe position I don't want to go bankrupt because of too much debt so in real estate do not take out too much debt that might be different if you're starting out obviously they're buying your first place you're gonna have more debt [Music] all right so first things first we've got 12 the single-family houses in this scenario I'm gonna put up on screen here the principal pay down for every single one of these properties it looks like we've got a low here of five hundred eighty four dollars of monthly principal pay down and a high of eight hundred eighty two dollars principal pay down is the amount of money that the tenants are paying off the debt on these properties four main every single month which means at the first of every single month the tenants are basically paying off a total of seven thousand seven hundred twenty-four dollars with me doing absolutely nothing that is I literally get rent auto paid to me and the mortgage gets paid automatically now I profit a difference in cash flow but this video isn't about cash flow remember this is solely what my debt gets paid down off every single month and that total is seven thousand seven hundred twenty-four dollars which if you multiply that by 12 my net worth goes up by this amount doing nothing which if I divide that by day that's two hundred fifty seven dollars per day a passive income passive wealth building basically and just so you know the difference between passive income and passive wealth building is passive income is money you have to pay taxes on passive wealth building is your net worth goes up by 257 though once a day and I don't have to pay taxes on it which is even better then passive income but anyway 257 dollars a day doing nothing so this floated over to me truly hard seltzer I kind of took it out of the pool because I thought it was weird that I was floating around I could buy a lot of those every single day doing nothing and just sitting here in the Sun chilly whoooaa honestly I have to say like this seems really basic I just talked about principle pay down like big deal yet principle pay down creates almost twice the average monthly income that most people make in the United States just from controlling these properties and know that I didn't come from a wealthy background either I came from a background of being nine years old and going through the foreclosure process having no money and my family divorce and then guess what happens right after my father gets back on his feet after the 2002 hiccup 2008 recession so didn't really come for money in other words if today you were net worth is zero or slightly negative or slightly positive know that you can make this happen too so these properties are cashflow positive and my principal pay down happens automatically but what do I get beyond the fact that on one hand I'm taking money in on the other hand I'm paying the mortgage I get this other special thing I get an interest write-off so here's how that works every single month when I pay interest on these loans I pay about four and a half percent interest on average some properties are like 3.5 some are 3.99 some are like 4.75 that I should probably refinance but I don't I'm not a big fan of refinancing I talk about that in the investing course all the time all my reasons and tricks and strategies for knowing when to refinance on that by the way my birthday is the day I'm posting this video so use a special coupon code down below just as a special thank you for watching this video it's more than any coupon I've ever done before but anyway I get to write off the interest on these properties which is just one of the many things that I could write off in real estate so what that means is if I'm paying let's say four and a half percent in interest I'm saving about fifty percent of all the money I'm spending on interest that the tenants are paying for me quick example is how that works if I paid two thousand dollars in interest I on the other hand save a thousand dollars in taxes because I own rental property but for all of these twelve properties I'm left with a net taxable benefit every single month of three thousand three hundred forty five dollars per month that means every single month doing nothing I get a tax savings of three thousand three hundred dollars that's about a hundred dollars per day doing nothing that the government is giving me because I own real estate they incentivize landlords to own real estate now in total that adds up to forty thousand dollars of annual tax benefits there are some limitations on that number if you're not a real estate professional which means you're like an agent or your dealer but you should always talk to your CPA about those things so so far we've gone annual benefits of ninety two thousand six hundred ninety two dollars plus the tax benefits of forty thousand one hundred forty six dollars and doing nothing and we still haven't even considered cash flow my third main way to make money from real estate not even considering cash flow is buying deals below market value I know this is where I get comments all the time on the youtube channel where people like we'll wait a minute Kevin if you paid four hundred thousand dollars for a property that's the market value of the property how did you get it below market value and this is like the classic line that comes from somebody who just basically passed a regular economics class like a macro economics 101 basically where you learned that the market is efficient there's this thing called the efficient market hypothesis that oh yeah the market is always efficient let me just be clear that might be true in stocks but it's definitely not true in real estate C in real estate there's a saying that all real estate is local and because all real estate is local your competition is really small when your competition is small you get what are called inefficiencies in the market so basically I'm able to buy a place for four hundred thousand dollars that's worth 550 or 600 thousand dollars with a little bit of paint and carpet work because a a lot of people are uneducated B the competition pool is really small because only like eleven percent of people competing against me are investors and then I'm usually only competing against people in my local area so if there are flippers in your area you can take advantage of what I'm talking about in getting these below market value deals and I'm now able to capture all of this extra money that people are basically leaving on the table just because I have a little bit of knowledge and real estate I guess I'm downplaying myself a little bit I've done real estate for over ten years now and I've people do this exact thing for over 10 years now and now the musicians backs I'm probably gonna have to leave this spot which sucks because I'm wet so yep all right so here's how it works basically every single time I buy a property I refuse to buy it unless I can get it for at least $125,000 under market value and that way when I fix it up I get at least a boost to my net worth of like a hundred to sometimes a hundred twenty thousand dollars or more for example i just opened escrow on a deal for $450,000 that I expect to be worth over six hundred twenty-five thousand dollars after I spend maybe thirty five thousand dollars on the deal that extra money because I didn't touch it is now not taxed boosts my net worth and insulates me from movements in the marketplace over 12 deals and that's over 1.2 million dollars of bonus and network doing nothing just applying a little bit of knowledge am I in your way now lately I've been lucky last year I did that three times which is basically an additional income of untaxed $300,000 whatsits per year which is just insane and so this is where all of a sudden you start looking you go wait a minute are you serious ninety-two thousand dollars a year in principle pay down forty thousand dollars a year in extra tax benefits three hundred thousand dollars a year in extra income because of getting wedge deals basically and that's not even taxed why is it not taxed because it's valuing property which if I want to sell that property I could 1031 exchanges you just ask the government for a favor did not pay taxes for a while and then you might be thinking oh well they'll get you at some point no there are ways around the some point as well you could pretty much never pay taxes on this money so all of a sudden it's like wait a minute that's like that's like four hundred thirty thousand dollars a year of passive well doing very very little or next to nothing like I you know I never consider investing in real estate active work now what I'm describing to you like principle pay down tax benefits the wedge effect those things are passive but yeah there is some work involved in actually like scrolling through red thin every day to kind of see if there are new deals that come up but I mean come on if I consider like two hours a week work for the amount of pay that you get in real estate like okay then then my perspective is a little skewed the fourth thing that's really cool about owning real estate is you're owning an asset which assets tend to go up in value over time of course there are fluctuations right markets go up markets go down so there's always that fluctuation but if you look at real estate in a long term tends to work out pretty dang well in fact if you look back in like the last 40 years you see about 3% annual appreciation in real estate which is awesome but let's just assume these properties just went up in value by about one percent that would generate for me an extra eighty thousand dollars of untaxed wealth every single year I could be sitting here on the Disney cruise and all of a sudden with 1 percent appreciation plus the 430 K we already talked about we're talking about five hundred ten thousand dollars of annual well we haven't even talked about cash flow this is exactly why the rich get richer is because you look at the perspective beyond what's obvious when you start looking at the income beyond what's obvious it's like oh my gosh how could I not do this over and over and over again and then obviously that's where you can get ridiculous see the way you can get ridiculous with this is you go well what if the you know appreciation rates to purse and well that's 160 KX or what if it's three percent cool well that's about 240,000 extra it's absolutely same now I know a lot of people look and they say well come on Kevin real-estate appreciation is speculative you can't guarantee real estate appreciation and that's true but you have to ask yourself if you're buying in an area where the population is going on and you believe in the United States economy then there's no reason not to use real estate as an investment tool in fact it's even a hedge against inflation which then you get people that say things like well why bother investing in real estate if you're only getting like two or three percent above inflation well it's not quite true when I with one percent appreciation create over five hundred thousand dollars of annual net worth like I did in 2019 picking up three wedge deals with principal pay down with tax benefits all of a sudden you look and you go well that's a really good return on your money in fact if we remove the whole wedge deal aspect and we only considered tax benefits principal paid out and one percent appreciation above the market I could take all of the net worth I have in these deals and put it into socks and I would have to earn seven percent to equal the returns I make here if appreciation was two percent above inflation I would have to earn over nine point eight percent in the stock market to match what I could make in real estate only considering principal Veda appreciation and tax benefit which is its aid because it's like wait a minute that's easy that's the bare minimum we're not even talking cash flow if I get five percent cash on cash on top of that from cash flow that's even crazier like how could you not be involved in real estate and I think that's why I'm so gung-ho about real estate in general let's ask yourself what should you do if today you had no assets and no money how should you get started let's do that away from the music you go in here alright here we go here's the exact thing you should start with the very first thing you should do is you should begin to control an asset now this means replacing your landlord go buy a place I often times to ask this hypothetical question what would your net worth be if you owned zero real estate and had zero debt and zero other assets your net worth would be zero what about if I gave you twenty million dollars worth of real estate but I also gave you twenty million dollars worth of debt your net worth would also be zero right except what is going to happen on the first of next month all your tenants are going to pay so you'll get paid cash flow but not even considering the cash flow what's gonna happen tax benefits principle pay down prorated appreciation whoa all of a sudden if you just had control of twenty million dollars worth of real estate you're pretty much guaranteed to make money the very next month like if somebody came to me tomorrow and said here Kevin you can have this twenty million dollar apartment building with twenty million dollars worth of debt I'm literally giving you zero dollars but I have the deed I could raise the rents I know I'm gonna have principal pay down I know I'm going to have a lot of tax benefits and as long as it's not in an area with a declining population I know there's going to be appreciation it's like easy way to make money but I think what stops a lot of people from getting started is this fear of will I don't just want to make money I want to make sure I invest my money where I can make the most money and that's where I challenge you where can you take three and a half thousand dollars and control a 100 thousand dollars of an ass aka three-and-a-half percent down on $100,000 deal or like $10,500 down on a $300,000 deal where else can you do that but real estate it's not possible anywhere else and then where else can you have somebody else pay the mortgage for you I'm sorry I got inspired to make this video because the only reason I am on a Disney cruise with a concierge round over here which basically means you have a one-bedroom suite which on a cruise I guess is like really special because cruise rooms are usually really small why can I do this because I've invested in real estate and I'm really passionate about it let's get inside and see the family hello excuse me mrs. do you like real estate yes I love real estate why I like to make money oh hi max yeah Jack you're in the bathroom that's cool any larger question for you and have I prepped you on any of these no all right what do you say to people who say don't buy a house I think that they are uneducated what about people who want to get into rental property what do you think the best way is to get started getting into rental property I think that they should live in the house first and then move and then use that first house as the rental and I highly encourage everybody to hire a property manager unless they know their stuff which if you take the property management course you would know how to be your own property manager and do the necessary things to have the easiest time doing the property management [Music] you

Channel: Meet Kevin

Views: 621,567

Keywords: real estate, passive income, passive wealth, houses, rent, rental property, income, income from real estate, investing for beginners

Id: 85MlggquqpM

Length: 18min 55sec (1135 seconds)

Published: Tue Jan 28 2020