How to Create $10k Per Month Rental Cash Flow, Starting From Scratch

ten thousand dollars per month is my end number but I'm here with you know thirty thousand dollars in savings and I've got to get up to millions of dollars to generate all that income how do I put all that together to get to a point maybe 10 years from now do I can have that ten thousand dollars per month [Music] for the podcast real estate investing with Coach Carson I'm your host Chad Carson you can also call me coach Carson and this is a show to help you get out of the financial grind so you can do more of what matters as you could probably tell from my voice I'm fighting a little bit of a cold but the show must go on so please bear with me a little funny story about me getting sick we as you might know we've transitioned back from Spain about a month ago as I'm recording this we moved back to the United States and one of the things I personally have a hard time with is the change in schedule I'm not an early morning person believe it or not a lot of entrepreneurs and people get up early seven o'clock is kind of my time maybe 6 45 and in Spain that worked perfectly because school started at nine for my kids we had an hour or two to I could even write my book a little bit in the morning and then take them to school and have breakfast everything a little earlier in the United States so we're taking our kids to school a lot earlier I'm getting up at like six six thirty and that's just not working for me so I'm still transitioning but enough about me today's episode is a topic that did right about in the book and one of the things I try to emphasize is that most of us have a specific Financial Independence number for example maybe ten thousand dollars per month is the number we need to replace our job income or to cover our basic expenses plus some nice luxuries I call that your financial Independence number and you can break that down into your lean Financial Independence regular Financial Independence number which is like kind of your normal expenses and then a fat Financial Independence might be your normal expenses plus some luxuries plus some some cushion in case things get out of hand with inflation and so it's a more comfortable Financial Independence so whatever level works for you is fine and getting to that lean Financial Independence is a great spot the point is though there is a specific number that I recommend you shoot for you don't have to take a lot of time to determine that just have a goal have a number but one something I want to do today in the episode is give you some case studies one of the things I try to do in the book is to make this real by sharing stories a lot of stories of real people but also you might be wondering all right ten thousand dollars per month is my end number but I'm here with you know thirty thousand dollars in savings and I've got to get up to millions of dollars to generate all that income it might be difficult to think about what does the path look like how do I go from buying that first deal maybe you're going to do a house hack or something else how do I put all that together to get to a point maybe 10 years from now maybe 15 years from now where I could actually achieve my goals where I can have that ten thousand dollars per month well that's what I'm going to go over in the episode today I'm going to go through a presentation I've been making actually when I speak in person where I share two different stories two different paths to get to that ten thousand dollar per month number now I want to emphasize up front there are dozens and dozens or maybe hundreds of different paths to get to financial Independence there's not one best path so as you listen to this and the specifics I hope the specifics are helpful I hope you hear like oh yeah that's that's a technique that I could use the burst strategy or the house hacking or paying off debt at this point that doesn't mean that is specific tool and that specific way is the only way to do it so if your path looks a little different than this great and no problem there I love helping people customize their own Financial Independence path so I just want to give you examples here to make it real to give you some stories to give you some numbers and I hope you find that helpful and let's get started so I'm going to start by telling you a story a case study of a couple who live in St Louis Missouri let's call them Liz and Tom that's what I call them in the book when I told a similar story in the small and mighty real estate investor and just as an aside if you're listening to this podcast on audio only that's great thank you for listening you might want to make a note to go back and watch this episode on YouTube all of my episodes are on YouTube so you can watch the video as well this one in particular though I'm going to have some charts and some numbers and some details and a kind of a timeline that might just be easier if you can see it as well but let me give you some details on the background of Liz and Tom first and foremost they both work at W-2 jobs meaning they have regular jobs nine to five that they make income at and together they make about ninety thousand dollars per year they've also worked hard over the last few years to save up money and so they've paid off some personal debt they have got an emergency fund but in addition to that they've saved up thirty five thousand dollars so this they're not brand new beginners financially you know some of you might be listening to this and you're still in a lot of debt I mean you have credit cards to pay off and personal loans to pay off or maybe you're just trying to get your job going I emphasize that because your real estate Journey often sits on top of a solid foundation of your financial Journey so it could take years sometimes to get to a place where you're ready to invest on rental properties and that's okay you know you could be learning if you're listening to this you just learn and understand the tools of real estate investing maybe you do buy a principal residence that's often the good way to get started which I'm going to share in a second but the point is Liz and Tom have gotten to a place that wasn't they didn't just start yesterday they've had to take some time to save up this thirty five thousand dollars so now that you know how Liz and Tom started I want to take you through their real estate Journey from beginning to end so the beginning of Liz and Tom's story they owned a house they live in their residence that's the one property they own and so the way they started their journey is just renting out their current house and then buying another house to move into now this is such a simple strategy I call this your live-in and then rent it's often so simple that it's overlooked but if you just did this in the beginning this is a fantastic way to get started now why is that is that you already own this property that already has a mortgage you already had to put a down payment on it and I'm imagining because it's an owner occupant loan it might be the best interest rate possible with the longest terms possible and perhaps you got in with a lower down payment so the financing itself is a great way to get in because when you live in a property there's just better financing for getting started the other benefit is that you know the property now not all houses are going to be great rentals so if you own a 3 500 square foot property with multiple heating and air units you know there's a lot of things to break and there's a lot of have to repair every time you move out of a rental so the typical or the best rental might be a house that is 1500 square foot to 2 000 square feet at least that's my ideal but the smaller the better the simpler the better it doesn't have to be a tiny house but if it's simpler it's going to be better to be a low maintenance property and the better your materials are so that you don't have to replace them all the time for example if you have floors that are hardwood floors or tile a luxury vinyl plank or if you have exterior siding I love brick or something that's kind of low maintenance but the point is you're not ever going to have a perfect property but often when you move into the house you can decide okay this is a good rental property that's going to be a good rental Long Term or no this is not such a good rental maybe I should sell this one but in this case Liz and Tom had that situation they kept their property and they just bought another residence and so at the end of this like beginning period when they just just started they have a residence they have a rental property now fast forward about a year they're studying they're listening to podcasts they're reading books they're networking with people and they learned enough to buy their third property and this time they just bought a pure rental so remember they had thirty five thousand dollars saved up which they probably used a good bit of that to buy their residents when they moved into that but they were able to save up money and work really hard and not you know sacrifice a little bit maybe they didn't go on a vacation this year but this is early in their journey and every single dollar counts so they're able to save up enough money to buy their second rental and it was nothing fancy they didn't do any fancy burst strategies or seller financing or creative stuff which I'll talk about here in a little bit they just bought a typical single family house put 20 percent down and that's it but now they have two rental properties they're former residents and this new rental and they have their residents they live in and they keep moving forward so by the time they get to the end of year to both their money their wealth but also their knowledge has really compounded and this is something you don't maybe think about when you're in the journey but your knowledge is the most important factor to how well you grow in addition to having the money but what you find is that the more you know the more you learn if you can learn techniques you can copy other people how they they've done it you can then figure out ways to be creative with the money and so in this case at the end of year two they decided to ramp things up a little bit and they learned a strategy called the Burr strategy which you might have heard of before buy a property renovate it and then get it rented out so you get kind of You Take by Fixer-Upper property and typically the best part about a birth strategy is buying it below value so they were out you know generating leads they're marketing they're doing driving for dollars they're sending Direct Mail you know I talk a lot about that that's one of the most important skill sets you can have is finding good deals and when you're in this acquisition this load up phase like they're in right now their main focus is let's buy properties like they're having a you have to do a lot of inertia a lot of work to get to ramp that up to where you can buy properties but they've used up all their money on their prior rental so people run out of money that's what happens it happened to me it might happen to you some of you listening so they had to think outside the box and they were able this year then at the end of the year two to buy two properties instead of the one they bought the prior year they were able to do that with a burst strategy because there's a way to reach cycle your money they found good deals they used private money or maybe hard money or maybe a commercial loan from a local bank so use some kind of short-term debt to cover all of their costs maybe they had to use a little bit of their own money maybe a line of credit you got to get really creative and Scrappy early on just to find to put together all the money but the point is because they found good deals below the full value 80 percent maybe 70 percent of the full value they're able to refinance the property pull out or pay off all of the cash or the debt they had used to buy the property and then they can do it again so if you look at the scorecard at the end of year two they've bought five properties now they're residents plus four rental properties and they're picking up the pace and I want to kind of accelerate how I'm explaining this a little a little bit as well each year they go on a pattern of buying two properties per year and they also continue the pattern of expanding their financing toolbox that's one of the patterns one of the themes I hope that you pick up on here is that first you walk before you run you know it's okay to use the lemon then rat the house hacking some kind of strategy and buy a property per year or go nice and slow when you first start but eventually as that knowledge compounds as your money compounds you then can pick up the pace and they're not going on a crazy Pace here but just two properties per year and they start using different types of strategies to get the financing so the next time they buy property six and seven then maybe they use the burn method for one maybe they use seller financing for another seller financing is a great tool there's a lot of different variations of that to get in with a smaller down payment and in a year where interest rates are getting really higher and that might stay for a while getting seller financing can also allow you to buy a property with an interest rate below the market value so instead of paying eight percent maybe you can get six percent even five or four percent it's very possible I've done it before lots of people have done this it's something you want to learn and if you want to go deeper on how do you negotiate seller financing I'm going to have a link in the show notes in the YouTube description to a podcast and video I did earlier that kind of goes to all the negotiation strategies and why that's different than a typical property you're buying but this couple they learned how to do it they bought some properties so let's just kind of accelerate here end of year three they bought properties six and seven these are more single family houses year four they've all property eight nine year five they bought property ten and eleven and they rolling you know they're just consistent at this point year six they bought property 12 and 13 and then year seven they bought property 14 or 15. and the details of those we could go into details but the main point is they use a variety of financing tools sometimes they use their own cash as they're able to save up money but many times they ran out of their cash and they had to get creative by using other alternative financing sources but the point here and let's pause they made it through seven years and whether it's five years or seven years that's a pretty typical time period from someone who starts to someone who kind of gets to the point where they've finished the loading the load up phase or the Acquisitions phase of their rental property Journey now I like I like going in five year increments sometimes three sometimes seven just in life in general these are often where I take many retirements or take a break or maybe you take your foot off the pedal on how much work and time you're putting into real estate investing that's kind of a natural thing like our lives go in patterns and ups and downs to think that you can go 10 15 20 years at the exact same Pace you know really you know type A going going is really difficult I can burn out your your health it can burn out your mental capacity it could burn out your relationships and so I just like to emphasize that whether it's seven years or three years or whatever it's nice to have kind of some Cycles there of patterns of on and off and that's okay if you take a break for a year or two and then get back into the rental property business that's perfectly normal in fact you might be better in the long run taking those little breaks but listen Tom just to kind of summarize their story we get to the end of year seven they've got their 15 properties they're managing those properties self-managing them they're doing some work on the side they're still working their full-time job so they're busy this is a busy time of their life but they've decided that they've they've hit this point that is enough and this is one of the key components that I talk about the small and mighty real estate there is understanding the numbers you're trying to get to and that you don't have to have 100 Properties or even 50 properties in this case they don't even need 15 or 20 properties they once they reach these 15 properties they may say you know what if we paid off a good chunk of these properties maybe some of them maybe all of them we would have enough money we could have ten thousand dollars per month coming in for the rest of our life with low risk and we can start taking more breaks we can start having that two hour real estate work week that Chad talks about let's see if we can figure out a way to change our Pace to change the game we're playing here and kind of pivot our strategy and that's the key here this is another theme that a lot of people they learn how to grow they learn how to start and how to grow the starter phase the Builder phase but they kind of miss the off ramp for taking this different route turning from a builder to an Ender and so Liz and Tom they took the off ramp here and they said you know what we're going to start using all our extra cash flow from our rental properties we're not going to touch any of the cash flow in our rental business and any money we make in our W-2 jobs we're about a hundred percent of that not on new properties anymore we've got 15 and we're happy with that we're going to start paying off the debt using a rental debt snowball I've done another video which I'll put a link to on how the rental debt snowball works it's a lot like the personal finance debt snowball where instead of paying off a bunch of properties over 15 years with 15-year loans take a hundred percent of your cash flow pay the minimum amount on all the properties except for one and take all the extra cash flow and pay off one property at a time and so you're basically taking a big snowball of cash and paying that property off very quickly instead of a 30-year mortgage you could pay it off in two or three years and so that's what Liz and Tom start doing they start applying extra cash flow towards one property that gets paid off now they free up some extra cash flow there then they go the second one which happens a little bit faster and then the third notice though this is kind of a slow grind and you get impatient and this is kind of the difficult part of Building Wealth where you can get bored you can get impatient you can get frustrated and so it takes a lot of self-discipline to get through this stage and just stick to your plan and when they even get the they get into that plan they're like you know we are a little impatient and so they pull another tool out of their wealth building their small and mighty real estate investor toolbox which is to add to the death snowball selling off some of their excess properties in order to end up with a smaller number of properties so remember they have 15 properties and so the end of year 15 and this could have been at year 12 could have been at year eight this I'm just kind of picking a number but 15 is nice and round number to think about I could actually finish my journey from start to finish in 15 years most people work their entire lives and never get to this point but at year 15 they decide to sell five properties and something I talk about in the book is pruning your properties like pruning off the properties that are not your ideal rentals and so Liz and Tom have made a list of all their rentals which ones are their favorites which ones are the best locations which ones are the best properties in terms of low maintenance which ones keep their tenants the longest and on the other end of the list which ones are their worst locations the worst properties in terms of Maintenance the ones that don't attract the best tenants who stay for a long time and so the ones at the bottom of the list are ones they prune almost like you're pruning an apple tree you're going to cut off the branches of the tree and get rid of those branches by selling the properties in order to make the whole tree healthier in this case your whole portfolio and so they decide to sell five properties and the benefit of that they could go take these properties sell them and buy more properties with them that'd be the efficient growth strategy but instead they choose to sell the properties pay their realtor commission the closing costs whatever they have to pay to pay mortgage pay off the debt on those properties so I gave you some numbers here if you're watching on the screen let's say they sell all five properties for 1.25 million they have sales costs of 62 500 they have their mortgages about 518 000 and they also have to pay income tax and I'm not giving you have a video on income taxes if you want to see how much tax you pay on a rental property I'll put a link to that as well but I'm just going to summarize for you here maybe it's about 150 000 in income taxes now that hurts to pay that income tax if you're trying to maximize your growth but in this case what they're trying to get to is simple a simpler portfolio and they're trying to get to that cash flow that 520 000 or so that's left over then they can then use to apply to the rest of the debt on the properties they're keeping so let me pause there because I've been through a lot of details here to understand what we've done here 15 years later they now own 10 rental properties they own their best 10 rental properties they pick the ones that are the best ones to keep they've been doing a debt snowball for a while to pay those debts down but they weren't all the way there they needed a little bit longer so they finished the deal by selling five properties using the 519 000 bucks to pay the rest of them off they now are in a spot where they own those 10 properties free and clear with no debt and let's take a look at what those numbers would be for Liz and Tom after this all said and done now if you're watching this YouTube you can see the chart of all of these properties but I'll summarize for those of you who are listening again they own 10 properties and each property they own we're just going to make it pretty simple they offer about the same rent that the same type of properties that each property rents for one thousand eight hundred dollars per month so ten properties times one thousand eight hundred equals eighteen thousand dollars per month and the rent that they collect but of course they don't get to keep all that rent they have operating expenses like taxes Insurance maintenance they got to save money for Capital expenses like replacing the roof they might have to pay a management fee in this case they're probably going to self-manage but in any case they have other expenses and I'm going to say just estimate is about 40 percent of the rent they collect so forty percent of the rent they collect goes away to those operating expenses so they have 60 percent left over in this case that's one thousand and eighty dollars per month per property or on that 10 properties if you total all that up that's ten thousand eight hundred dollars per month in cash flow that goes into their bank account now remember the promise of this whole episode was how can you get from zero from scratch to having ten thousand dollars per month well we've accomplished that it hasn't been easy it hasn't been a short Journey but there are a lot of details along the way but this is a pattern that lives in Tom were able to get to to have 10 free and clear properties that is a super simple portfolio to manage they can definitely do this with less than two hours per week they can be very flexible yes it's still a little part-time job but it's passive enough you can do a lot of things you want to do and they're making ten thousand dollars per month or 129 000 almost 130 000 in income per year for many people that is going to be plenty of money to do whatever they need to do and Liz and Tom have probably also set aside some money and some kind of 401k and so a very typical pattern this has been my pattern as well real estate is like my first um you know foundational piece of my retirement plan or my income plan so this is like an income floor that I have with these rental properties and then you also have other Investments so you have your 401k hopefully and maybe that has an index funds or stocks or something kind of Diversified away from Real Estate whatever it is the Liz and Tom kind of had two kind of a plan A and A Plan B and they don't have to touch their retirement account though yet so if they started when they were 35 and now they're 50 years old they can start using the rental income to leave their jobs they can take trips they can do the things they wanted to do and they can know how to draw out of their retirement account yet they can have the real estate plan and then the other plan so that's the summary of it I want to show you one more thing though about what their wealth looks like at this point so some of you spreadsheet nerds like me out there might be saying well you know what what is the value of the properties what is their net worth and I'm just going to summarize this again if you're watching you can kind of look at all the details but each house in the end is worth about 250 000 bucks I know if you're a big most expensive States out there you're going to say there's no properties that are worth 250 000 bucks they're in St Louis Missouri there are properties today worth 250 000 bucks and if it's 15 years from now of course those will be different numbers so I've had to use numbers that we understand today assuming they started 15 years ago but they're all worth about 250 000 bucks remember there's no debt on any of these properties so they have 10 properties times two hundred fifty thousand dollars is a 2.5 million dollar Equity position today in the end after paying their properties off when they first started remember they had like 35 000 to start so they had a skimp they had to put you know a few thousand dollars down on their first property and then maybe a little bit more on the second property so you can see in the spreadsheet how they started off with less money down over time they were able to use burst strategy maybe save up some more cash to put more money down and eventually they started using the debt snowball to pay off their properties altogether so it's kind of this it's really good to see these balance sheets like this these spreadsheets to see the evolution over time how you can start with a small amount of money ended up with a large amount of money and you're attacking it from multiple directions you're saving money you're saving your rental income you're growing your wealth by buying properties below their value the properties are going up in value so that's this is the essence of Building Wealth of real estate in one spreadsheet you can see how you can start with 35 000 and end up 15 years later with 2.5 million dollars it's a big number but very realistic something you can do using a very deliberate strategy like this now as exciting as the end of that story is and ten thousand dollars per month is a nice place to be and I hope some of you resonated with Liz and Tom's journey I know others of you are saying that's not my journey I live in a high cost of living area I'm not going to be going that exact same route so I want to give you one more example that shows you a little bit different path to end up getting to the same place with the same amount of monthly income now this couple let's call them Tiffany and Darius that's the same names I use in a very similar example in the book The small Mighty real estate investor they live in Oakland California so in Bay Area High Cost of Living area and together they make about three hundred thousand dollars per year but this hasn't been an overnight Journey for them either to get to this point where they're ready to invest they've had to get different jobs they've had to move up in the job World they've had to pay off personal debt they've had setbacks here and there so they've gotten to the point where they feel comfortable financially their personal financial Foundation is good and they have about a hundred thousand dollars saved up in a savings account to use on real estate now in the Bay Area even though a hundred thousand dollars seems like a lot it doesn't go a long way so let's talk about how they got started on this journey and the way they did it is one of my tried and true favorites especially if I'm in a high cost of living area is doing something called a house hack so they find a multi-unit property either a pure multi-unit rental like a duplex with two apartment units or they convert a single family house into more of a kind of quasi-duplex by putting an Adu an accessory dwelling unit in the backyard and California is a great place to do this there's a lot of local laws that have changed over the last few years that allow you by right to put Adu units which you can rent out or you could even go really aggressive live in the Adu and rent out your house but the point is they were able to find a property with an owner occupant loan which allowed them to get in with lower money down they had to search but they got their Journey started by buying this property using their down payment and moving into the property that's a house hack so house hack has a lot of benefits but one of the benefits as I said they can get in with a smaller down payment you can use owner occupant loan you kind of learn the rental business as you go now that you've got your foot in the door you can learn to be a landlord a little bit just with one property it's next door you can pay attention to things and they do that for the next two years so they're not like coming out of the gate sprinting and buying a lot of properties this can be one of the difficult things when you're listening to podcasts and hearing how people are buying dozens of properties at 22 years old and their first year in real estate and here you are buying one duplex and you're just sitting on it for the next two years but you're not sitting doing nothing you're paying your loan down you're learning how to manage a rental property you're saving up some more cash from your job remember how Liz and Tom those first few years every dollar counts so Tiffany and Darius are saving up money maybe they're not taking that big huge vacation that they normally would because they want to invest in real estate and they're taking their 300 000 earnings which is their engine for their investing and they're saving as much of that as they can so that two years later they can do the same thing again they can keep their existing duplex that they had or the house with the 80 unit they keep that as a rental and then they buy another property and move in to that property so they now have the old duplex that they lived in they had this new house hack that they're living in and and they live in that for another year so that's three years that they have those two properties and again the psychology of that is probably the hardest obstacle overcome not comparing yourself to others seeing everybody on Instagram posting how many properties they're buying but this is progress this is the early days are not going to feel as fast as you want but by year three their knowledge is compounded they've been networking with people they've been reading books they've been learning and observing how other people are doing it and they figure out how to use a strategy that we talked about with Liz and Tom called the Burr strategy and they found some properties and a little outlying suburb I like to call these satellite cities so you start with like the the sun of the solar system is the big economic Center maybe San Francisco in this case Oakland but then going out 30 45 minutes to the sum of the suburbs where the regular people live where people even though it's super expensive even in the suburbs this is where your people who are your police policeman and your firefighters and your technicians who work for utility companies and your nurses and your teachers the regular blue collar workers live and you find properties that are more affordable than they would be in the city centers and but the cool thing about these satellite cities the outside of the main was that they're kind of orbiting the big economic Center is the prices are typically a little bit lower but they also have their own city center of gravity like I love finding towns I grew up in Noonan Georgia Noonan has its own little downtown it's an interesting place to live it's walkable our walkability is really important to me and so you can find these little Suburban towns that had their own character had their own town center and that's what Tiffany and Darius did they started to spend a lot of money these weren't like the best cash flow deals ever but they were able to find deals below their full value they were fixer-uppers maybe they found a pre-foreclosure they use their skills to drive for dollars fine deals Network and they bought two rental properties in that third year and they use the burst strategy to use private money or a line of credit or some other way to get the cash up front and they refinance it with a long-term loan which leverages their jobs and their income and their credit that they have they were able to get long-term loans on these two rental houses and the kind of outskirts of the Bay Area so the end of year three they had two rental houses they own the house hack that they still live in and they own the original House act so they have a total of six units now let's fast forward another two years they're still going in a very deliberate Pace they're not buying any more properties until year five they're kind of the end of their load up phase when they decide they're gonna actually just buy the principal residence they found a great home with a view that they love and they just decided this is our home this isn't a rental property we're never going to move out of this house at least we don't plan to and so they just move into the residents and so that's at the end of year five all right so this is another fork in the road kind of like with Liz and Tom where they go transition from a point where they started and then they were in the wealth Builder phase taking the small amount of money they had and turning into a lot more and now it's just patience sitting for another five years of just managing their rental properties living in their home working their jobs this could be a psychologically tough time you've got a network with other people you've got to talk to other investors they're just kind of sitting on their hands not doing a whole lot but in this case they're getting ready for something that when the time is right they're actually going to sell their properties now maybe they didn't think about this originally but they get to the end of 10 years after they bought their first property their properties have paid down in value they've paid the loans down but there's also given them enough time to go through some economic cycles and a lot of the high cost of living areas you will see it's kind of like a roller coaster you'll go way up and then way down you've got to be willing and able to hold through those Cycles but if you do one of my mentors John Schaub said the wealthiest students he's had over the last five decades were people who bought in the high cost of living areas like in California Southern California Bay Area their properties have gone up enormously in value compared to maybe somebody like me who buys in a steadier cash flow-centric place which has its advantages too but I didn't build as much Equity as much wealth as they did in this case Tiffany and Darius that was their strategy from the beginning it wasn't to make a ton of cash flow in the first five to ten years it was to make enough cash flow to pay the bills and then let these things grow over time because they believed and they studied the city they believed that it would go up in value over time they didn't know exactly when it was but they waited until the right time the end of 10 years their plan is to sell all of their Oakland rentals so remember they have five properties total they have the house they live in and then four rental properties and two of those are duplexes so they have six rental units or four but they're four properties they decide to sell all four of those that have gone up in value and they're going to do a 1031 tax-free exchange so this is a way of taking the equity to have in one market and then selling it and moving it to a different Market now I'm simplifying this example saying they do it all at once maybe they do this in pieces they'll probably be a better strategy unless they found all the deals at one time maybe they sell one of them and then another and then another but the point is to summarize this story they sold all four properties made about 2.6 million dollars in kind of gross sales they had sales costs paying real estate commissions things like that they had mortgages they had to pay off let's just say it's about a million dollars and when it's all said and done they had just under 1.4 million dollars of equity left over that they could use to reinvest in something else and their strategy was to go back to a market that they knew pretty well in Greensboro North Carolina they happen to know there were some multi-units there they had some relationships they built on Bigger Pockets or somewhere else and they found some properties that all together were about 50 units so multiple small multi-family properties and their strategy was to use the equity in these California properties as 30 down payments on these multi-family properties in North Carolina so when the dust settles let's take a look at what their cash flow looks like in North Carolina now the breakdown of exactly what the properties look like is not that important but let's say they had a 12 unit building and a couple 12 unit buildings a 10 unit and then a group of four plexes but they all total up to about 50 units and when you total up all their gross rent so all the rent they collected every month is just under fifty thousand dollars per month or forty eight thousand dollars but remember they don't keep all that they have taxes they have insurance they definitely have property managers because they're not living locally so they need to pay a manager so when you deduct all of those operating expenses they have about just under 29 000 left over so and just think about in your head under thirty thousand dollars but then they also have mortgage payments and here's an important point when they bought these multi-family properties one of their most important considerations was playing the long-term game so it was very important to them to get long-term financing on these multi-units so they can once again afford to hold they didn't want to have three-year loans or five-year loans or something with a big balloon note that's something I talk about a lot in the book about coaches seven rules for using debt safely my number one rule to avoid is to avoid big balloons that's how a lot of big corporations about a lot of Real Estate Investors get in trouble is having to pay the bank back one big lump sum in a very short period of time but if you can extend those out if you're going to do a balloon or an adjustable rate extend it out to seven years ten years gives you or longer it gives you a much longer Horizon to kind of get through the storms and so Tiffany and Darius did that but they had a mortgage payment a total of nineteen thousand three hundred so if you're listening to this I know all those numbers might not kind of gel but when you subtracted their expenses and their mortgage payment from their gross rent they collected they had about 9 500 per month you know almost ten thousand dollars per month or a hundred and fourteen thousand dollars per year in income from their properties after all is left over of course there's some income taxes they have to think about that's a whole another episode and something to think about but in general they're going to be pretty good from the income tax standpoint because I'll have depreciation to shelter a lot of their income um and especially now they're 15 years later they're able to leave their job and they are very tax optimized just living off their rental income so this is a very different Journey than Liz and Tom but the themes I want you to think about are number one they just got started with where they were they had to do house hacking they had to just they couldn't afford it it was a very tight Market they only had a certain amount of money that didn't go as far in a high price Market they had to start with what was available and just make it work they'd be Scrappy that's the word I like to use in those first years when you're first starting in real estate investing and then they made a big move they made this move of selling properties in one market where the equity is appreciated that was the play they made that was the game they played and then they move it to a different Market with a different game which is more kind of balanced cash flow Centric and so now they're able to live off of that that Equity that they moved into this different Market by living off the cash flow from these multi-family properties so you can see how once again this is kind of like a toolbox we had a financing this is a toolbox of markets and types of properties each property is pluses and minuses investing in a High Cost of Living Market is difficult because the rent to price ratio is pretty tough but typically they're high priced for a reason there's more people moving in there's often a supply constraint there's not a lot of new building going on so owning existing properties in one of those markets tends to appreciate more that's not a guarantee is it but over a long period of time you tend to have some Tailwinds behind you and you get more appreciation when you go to these other markets they tend to have more cash flow maybe they don't have as much of appreciation although there are markets where they have both but the point is they're using the tools that they had to have the same amount of cash flow that Liz and Tom doing it in a different way and doing it in about 10 years instead of 15 years by using some tools like 1031 exchanges so let's wrap up this case study by just showing you again the final spreadsheet or if you're listening to this I'll explain what their net worth looks like in the very end so remember they started with those duplexes and with the houses in in California they sold those so they still they don't own those anymore at the end but they own these apartment buildings these 50 units minutes that total up to about 4.7 million dollars and they have debt of about 3.3 million so their Equity is just over 1.4 million dollars so that's the equity that they pulled from California they're getting about 114 000 in cash flow on that 1.4 million dollars in equity so they're doing really well for the amount of equity they have they're able to live off that cash flow and in both cases these are kind of two different extremes one using leverage one being very conservative and paying the debt off both of these can work now will your journey look exactly like Tiffany and Darius or just like Liz and Tom no as I said earlier nobody's journey is exactly the same mine didn't look exactly like that but the takeaway here what I hope you take away from the details of this is that the long-term real estate game is a game of tools which are all you can also call techniques and applying those tools strategically with a plan so most people sort of get into the real estate game and they say I'm going to learn how to do burr I'm going to learn how to use seller financing and the strategy they have is just keep growing get as big as you can what I try to show you with a small and mighty real estate investor approach is that you need to understand the phases of the journey you're in I kind of simplify this in the book by saying you're a starter you're a wealth Builder and then you're an Ender an Ender is when you take that off ramp to start making some different decisions maybe that's when you do the 1031 exchange if you're Tiffany and Darius maybe that's when you start paying debt off by doing a rental debt snowball or selling excess properties so you have different tools when you're an Ender than you do when you're a starter and that frame of mind if you can remember that if you can identify and this is something a good exercise for you to do after this episode identify where are you are you more in the beginning of the journey are you in the middle of the wealth bidding Journey where you just need to be patient and keep growing and buying more Properties or are you reaching a point where maybe you want to take some chips off the table to use a poker metaphor and start moving into that interphase where you can actually start tasting the fruits of the fruit tree of this this money tree that you built around originally instead of just growing growing growing endlessly you can actually execute a plan to live off your income to reduce the amount of time you spend on it and actually take a deep breath financially maybe you want to travel maybe you want to start a garden in your backyard maybe you want to coach your kids you know soccer team or volunteer somewhere or take care of your parents who need more time from you there's a endless number of things that matter to all of us and we just got to remember that real estate and money are fantastic tools to help you do that but if you just focus on the tools and you just use those without a long-term strategy then they'll kind of take over I in the book I call this the Frankenstein monster your business can become an entity of its own it can kind of get a momentum of its own but you're the captain you're the captain of the ship and I hope this example in today's episode gives you a little more confidence as the captain captain of your real estate ship and I would love to hear from you if you're watching this on YouTube let me know in the comments what your journey looks like where are you in the journey are you a starter are you a well Builder are you an Ender are you more similar to Liz and Tom and your approach are you more similar to Tiffany and Darius or maybe you have a different approach altogether I would love to hear from you it's always encouraging to hear your stories as well and I hope you'll stick around for future episodes I've got a lot more interviews coming with other people both some new people you haven't heard of other people that I've mentioned in the book I'm kind of going back and interviewing people who I featured in the book and then I'll also have more solo episodes like this let me know if you like these episodes where I'm going deep on different topics that I covered in the book and elsewhere to help you understand it better help you apply it to your life so thank you again for being here see you next time hope you have a great week

Channel: Coach Carson

Views: 31,468

Keywords: Coach Carson, Coach Carson podcast, Coach Carson rental, Real Estate Investing, Financial Independence, Rental Property, Real Estate Case Studies, House Hacking, BRRRR Strategy, Real Estate Wealth Building, Property Investment, Real Estate Journey, Passive Income, Equity Building, Real Estate, Education, Wealth Creation, Real Estate Strategies, Property Financing, Real Estate Networking, Investment Goals, Rental Property Tips, Property Portfolio

Id: DGuDz-MWNKs

Length: 38min 57sec (2337 seconds)

Published: Mon Sep 18 2023