How To Become A Millionaire Through Real Estate Investing (Newbies!)

hey it's brendan from BiggerPockets and today i want to show you on this whiteboard a real simple explanation of how a person can go from really almost nothing to becoming a millionaire by owning rental properties and hey if you find this video helpful don't forget to click that little thumbs up button below the video it really helps make sure more people are reached with this message so with that let's first get a little bit of clarification on how this works it's real estate thing works first of all we're talking about buying rental properties which means you buy a house herb maybe a duplex or an apartment building and whatever and you rent it out now before I walk you through the math behind becoming a millionaire through real estate I actually want to get us all on the same page or the same board as to the fundamentals about owning rentals on why they're so powerful and to do that we're going to talk about something called the for wealth generators the for wealth wealth generate doors I spell it right sure all right so these are the four things that really make owning rental properties so awesome and when they're combined together can make you a millionaire now I talked about these a lot more in depth in my book the book on rental property investing which you can get on Amazon or Barnes Noble or wherever bigger pockets that concise rental book but hey let me give you them right now the quick and dirty on the for wealth generators number one is going to be cash flow so the first thing cash flow that's the extra money every month that a property produces in profit its income minus expenses the key to that those understanding expenses because they're kind of tricky right make sure you get all the expenses when you calculate it but basically this is just the money you're left with in your pocket at the end of every month now number two appreciation this is basically the simple truth that real estate tends to climb over time in value now sure things like 2008 do happen in prices do drop sometimes a lot but over time prices tend to climb as long as you can hold onto a property long enough you should always see appreciation and that's why cash which we just talked about a second ago it's so vital right because as long as I'm making cash flow I can hold on to it as long as I need to waiting for the property to climb in value now number three the loan pay down now normally when you buy a piece of real estate you get a loan from a bank which you then pay every month but the cool thing is over time the loan then gets paid down which means you might start owing let's call it 200 grand but eventually you'll own nothing right so the loan starts here and over time tends to drop on what you owe it at number four the fourth the wealth generator tax benefits okay so for the purpose of this video we're not gonna talk a lot about tax benefits but in real life man the tax benefits are huge like if you made a hundred grand from real estate and your friend made a hundred grand from a job or maybe a business they owned who do you think would end up keeping more money you would with real estate way more money than your friend all right so let me show you how these four walt Jenner's can make you a millionaire when combined together okay let's just say you bought a house as a rental property maybe you put down 20% or maybe you found a more creative way to finance it and you're able to do it with no money down which is by the way is entirely possible that we've got a ton of content on bigger pockets all about that heck I even wrote a book on it but anyway let's say you bought that house here's our cute little house even three-dimensional house cuz I'm fancy you bought the house for a hundred grand and you put down 20% so you bought it for the hundred thousand dollar value you put down 20% which is $20,000 down that's a horrible dollar sign meaning you're left with an $80,000 loan or mortgage as we call it now because you bought a property that has cash flow the first wealth generator let's say you're also now at the end of the day you're making $200 every month in cash flow which is $2,400 per year we'll call it $2,400 per year cash flow you're a millionaire just kidding no but this is where it starts right all right so after one year you've now made $2,400 good for you right but there's more to that right because during that time your loan balance dropped from owning owing like 80,000 that's actually dropped down because over time the longest paid down right so you started at 80 but in fact after that time you only owe about 78 five so you've made about fifteen hundred dollars just about on loan pay down but at the same time prices tend to go up on average so where the property was worth a hundred thousand dollars you now after one year we'll say on average three percent appreciation it's now worth a hundred and three thousand dollars so let's add all that together right so you have the you've had three thousand dollars in value here you've added fifteen hundred dollars there and twenty four hundred dollars in cash flow so really during the first year you've now three four five sixty nine hundred dollars you've actually added $6,900 to your net worth now of course you're not a millionaire yet but over time the cool thing is that this process speeds up use they're paying off more and more of the loan faster and faster and the value of that property goes up as well in fact if you look here the property value getting paid down the other one going up if we were to erase this and which I do on one graph you can see that over time the value of the property we'll call this the value the property was that we'll call it a hundred thousand dollars it's climbing in value three percent per year but the loan which was at eighty thousand is actually going down each year as well this spread right here is known as equity and this increases over time the longer you hold it in fact here by year 10 it's actually worth about a hundred and thirty thousand dollars but you only owe about sixty thousand dollars on the property which means just a loan there you've got about seventy thousand dollars in equity now add on the fact that that's over ten years right over ten years you've also made $2,400 a month in cash flow every single year 2500 dollars a year in cash flow which is our $24,000 so by this point you've gotten ninety four thousand dollars in what wealth built from that one property now I know a lot of you are thinking 10 years of work and you only made a hundred grand that's gonna take me a hundred years to get to a million dollars well here's the cool thing this is just one simple cheap little property I mean once you've figured out how to do one deal you can do another and another and another and furthermore you don't have to stay small with a hundred thousand dollar house in fact what if you were to buy a $500,000 small apartment complex or even a five hundred thousand dollar house the same principles apply over time the value tends to go up and the loan tends to get paid down so you're paying off a little bit more every month and add a little more value every single month and you're getting wealthier and that is how you become a millionaire through rental properties you buy cash flowing rentals that increase in value over time while also paying down the loan a little bit a little bit at a time you're becoming wealthier now a couple concerns you might be having number one how do I come up with all these down payments if I'm gonna buy a bunch of rental properties well in the beginning maybe you'll save up for the down payment but honestly I built my entire portfolio using some other creative strategies things like house hacking or bur investing or using partners or raising private money maybe you'll fix and flip houses and use the profit from those flips to invest in rentals you know there's a lot of way to put together a deal but the bottom line is if you have a good deal you're gonna figure out a way to finance it now number two how do you know if you have a good deal well you got to learn how to analyze them you know we've got calculators over on BiggerPockets com such analysis that you can use I also teach a free webinar every week on BiggerPockets where I walk people through how to do the numbers to sign up for next one at BiggerPockets complex webinar now what about number three how do you manage all these properties well the short answer is you don't I mean you could but for most of my properties I hire a property manager to look after them of course you still got a manager manager it's not a hundred percent hands-off but they're the ones getting the late-night phone calls not you all right question number four what if the market drops well that's why I buy cash flow in rental properties if the market drops great I'll just keep holding on to them and I'll buy more properties because now everything's on sale you know what you can become a millionaire through real estate I did it in under a decade yeah it's not gonna happen overnight but it will happen if you're patient you stick to sound principles and you continually educate yourself on how to become better and hey if you liked this video and you're fired up don't forget to click that little thumbs up button and be sure to subscribe to our channel for more real estate investing videos and content for BiggerPockets com my name is Brandon Turner signing off [Music]

Channel: BiggerPockets

Views: 1,119,897

Rating: 4.9187078 out of 5

Keywords: biggerpockets, real estate, real estate investing, investing, rentals, rental property, investing in real estate, bigger pockets, passive income, how to become, how to become a millionaire, becoming a millionaire, real estate millionaire, how to be a millionaire, millionaire real estate, real estate investing for beginners

Id: naZAknwNgkY

Length: 10min 4sec (604 seconds)

Published: Fri Jun 28 2019