Hey, guys, it's Ken, so I
get a lot of questions about Be Infinite, what it means, et cetera,
et cetera, et cetera, so I figured I'd do a new fresh video to
talk to you about what I think it means. But first, we're going to start
with infinite returns using real estate. I get a ton of questions on this. So who doesn't want to know
how to use other people's money? Give it back and not have any investment
in the deal and then have lots of cash while afterwards. So if you guys want to know
more about that, stick with me here. I'm going to show you a real deal, something I'm doing right
now, something I still own. And this is basically our model
for every single deal moving forward. All right. So first,
let's talk about what I think our three strategies that a lot of people
miss that you definitely need to do if you're going to have what I would consider
to be an infinite return, the first one. And we keep talking about this. It's cash flow, cash flow,
cash flow, cash flow, cash flow. So a lot of people are flippers,
all capital gains. This infinite return
strategy will not work for that because the whole point of an infinite
return is to own something and then have cash flow
come out of it later. So on a capital gains strategy, you buy
something low and hopefully sell it high. You scoop that cash, you pay tax, you pay
real estate commissions or whatever, and you go buy again. So that's an investment strategy. It's a capital gains strategy. But an infinite return strategy
means you get somebody money or your money and you invest it in something
and then you keep getting the reoccurring cash flow and benefits from that thing
long term after the money's out. And I'm going to show you how to do that. The second thing is, is
you do need a value add strategy. So what that means is
you want to find something that lets say the rents are low or let's say it's
partially vacant or 50 percent vacant, or maybe you've got some high expenses
or whatever in there. So you need to have some way
to force equity. And I like to use that word forced equity,
because a lot of people buy stuff and then just hope
the market carries them forward. And that's not what
we're talking about here. What you want to find are things
that maybe have a story to them. And the last one
I think is the most important thing is you want to make your investors money. This is a big one. And the reason why is if you could show
them that there's a cash flow strategy, that there's an infinite return strategy
and there's a value add component to this. Then when you guys go raise money
and at the level that you're heading, hopefully you're going
to want to raise other people's money and not want to use your own money. In fact, even Robert Kiyosaki says
if you're using your own money, then you're just lazy. So now I don't necessarily agree
with that strategy completely, because I like to invest
in my own deals as well. But he does have a point. In other words, as you guys are starting
to take a look at some of these big deals, if you're always focused on the cash
that you have or the cash you do not have,
then that's going to be your roadblock. That's going to be your excuse. And what we're trying to do here
is raise capital and show your investors
that you have a cash flowing deal. You have a value add deal. And you show them the progression of their equity
and when they're going to get it back. So another thing that I really need you to focus on
is you need to find something broken. So what happens a lot of times,
especially with realtors, that you're going to find that
these people are selling you something that you know, off the plan or something
that's already cooked up. One of the things I like to say
is the bigger the brochure, the worse the deal. So if something's been packaged
up and looked at and shopped and marketed and all that stuff,
I'm telling you, that's probably not a very good deal because most deals
are found like on the back of a napkin. Most deals are found by using your mind
and by seeing something that other people don't see. So things you might want to look for
are things that are like highly vacant. So I bought properties
that have been 100 percent vacant. And you have a strategy
to put it together. Obviously, if you find something
that's 100 percent vacant. It's going to be worth less than it is if you have a tenant in it
or a bunch of tenants in it. So that's clearly a value add strategy. Another one is bad management. And trust me, there's bad owners
and there's bad management. There's bad management companies. In fact, 10 years ago,
there was a management company in Texas, and we found we bought one
property from them and they were managing the property for the owner. And I said, let's just follow that manager
at a company around and try to find as many properties
that they're managing because they suck. And so a lot of times you could find that
if there are bad people, bad policies, bad philosophy is bad,
a ton of things. They just you know,
they're just not very good at their job. And so you're going to find that
just like anything, there's really. Good operators said
there's really bad operators. And obviously, if you're in the game
and you know the business, you can start to figure that out. One of the best strategies
is to find something with low rents and high expenses.
And this can happen a lot. Right now, I'm in the middle of a property
that we're trying to buy right now in Texas. We're actually buying two properties for about six hundred and forty
eight units total. So there's two different buildings. And what we found is
the rents are low all over the place. And actually it's
because of bad management. And so what's happened
is some of the units that were like renovated are renting for the same ones
that were not renovated. And so you start to see all these inconsistencies and you can see that
when you when you're buying properties on a bigger scale. And all you've got to do
is dig into the rent roll and you can see all these inconsistencies on the rent. And that's massive opportunity. In fact, in this property
alone, it's about one hundred and fifty thousand dollars
in rent growth just here. And the rent side is
you can find rents that are like maybe they should be more money
because they're a town home or may have nine foot ceilings or maybe they're bigger
or maybe they have a yard or maybe the location has a view
or doesn't have a view. All those kinds of things, the things that
you could do to try to grow your rent. So this is a great way to take a look at every single property
and push your rents up. And these are spined,
something broken on the high expenses. So we're seeing this now. We're seeing a very high water
and sewer bill as an example at this particular property.
So we're putting water conservation. Same thing on the electric. Same thing on the insurance. We're having that bid right
now, by the way. We're we're in escrow.
We're we're we're in due diligence. We haven't even bought the building yet,
but we're setting up these strategies on trying to figure out
how do we save on these expenses. We're combining the two properties. So we're going to save about one hundred
thousand dollars in payroll. And obviously we're going to have one
marketing platform as opposed to two. So there's all these things
that you could do as you're starting to manipulate
and drive your a.y higher and create value
for your individual owners. So you want to find something broke and you don't want to find
something that's perfect, that doesn't have any kind of movement,
because that's not fun. It's not exciting. It's not going to create this infinite return that we're trying
to get out here in a minute. OK, so now we're going to go right
into a real deal. So I'm going to plow through
some of these numbers pretty quick. But this is a real building
that I own right now. Two hundred sixty five units. I'm going to walk you through
kind of a strategy and why I believe that a cash flow model versus
a capital gain model is far better, because if I would have sold this in year one or you two,
I still wouldn't own this today. So this is a building that I actually own
right now going I'll walk you through an infinite return
and how it works and why my investors are so happy on this property
and, of course, in all the other ones. So we bought this building. It was 19 million dollars. And we went to the bank and said,
what can you give me in a loan? And they said, we'll give you
15 million dollars. OK, so obviously you have an equity issue. And so I needed, what,
four million dollars in equity. But there were some capital expenses
that was needed. It also there was a value add play. So there was about one million in CapEx. Now, we've talked about a lot about NWI. So the NWI of this property
was about seven hundred thousand dollars. So A.I. is basically
income minus expenses. So that's what it was,
that's what the seller had when we were trying to buy it.
But I saw that there was an opportunity. I'm going to talk about that in a minute. So we went back and we said, OK, the loan,
15 million dollars, what's the payment? And the lender said, well,
we got a payment of around four hundred grand. So what that does is
that gives us a cash flow of obviously about three hundred grand. So we had a cash
flow of three hundred grand. We had an investment of
about five million dollars. And so that's about a six percent return. Not a bad return on something that
we haven't even value added at this point. Now, the cool part is, is we're not going
to really talk a lot about today is we also had a depreciation expense
of five hundred K. And basically what depreciation expense
is, is it's a nonoperating expense and the government lets you depreciate
the property over a period of time. That's not something that we're going
to really calculate here for you today. This is something
that you need to do through your CPA. But just trust me,
this is the actual cash flow. In addition to that,
you get a depreciation expense. And then for that, we show a two hundred
thousand dollar negative cash flow. So we get three hundred
grand a year in cash flow, but we report that we lost
two hundred thousand. That's how that works.
So that's how a real deal is. But here's the cool part. What we found on this property and again,
as I try to find stuff that's broken, we we had two hundred and sixty
five units, so we had two hundred and sixty five units,
and we saw that there was about one hundred dollars a unit value add. Now. Some of that was putting washers
and dryers in there, so that was about 40 dollars a unit. So now I had to buy those, of course. But the other was like just upgrades. So so we found that
there was some room in the Rantzen, et cetera, et cetera, et cetera. So that was about another 60 a unit. And that was one hundred one
hundred dollars a unit to sixty five times 100 is basically about three hundred
and eighteen thousand dollar increase. So basically, before
we bought the property, we said this has a washer and dryer play,
it has a renovation play. And this 318 is going to go
right onto the bottom line. It's basically going to increase my a.y. So I already know
before I buy the building that I'm essentially going to increase
this property to about a million dollars of Nnewi before I even buy
it based on this value add strategies. So when I brought the property to the
investors, they're like, this is awesome. You're going to grow. We've got three hundred grand
in cash for now. We're making six percent of our money
on our five million dollars. And you're going to grow it
another three hundred thousand dollars. And so that's how
we raise the money on this deal. So now let's go let's fast
forward to year four and let's walk through the numbers again. So what I did was I actually grew the a.y
to about one point one million dollars. So we obviously capitalized on that three hundred eighteen thousand
dollars of income. I had a little bit of actual expenses
that went up, but I also had some rent growth and that two or three year period
before I got to the end of year four. So we took the a.y back
to the bank and we said, what do you think
that you will give us for this property? And what do you think it's worth
now that we're at a one point one million? And keep in mind, guys,
we're also now producing about five or six hundred thousand dollars
a year in cash flow at this point. So the investors are wildly happy. Their returns have gone up
from six percent. And they said we think the thing's worth
about twenty five million right now. I said, OK, great. So what kind of a loan will you give me? And they said, we'll give you a 20
million dollar loan. I said, awesome. So I took the 20 million dollar loan
and I paid this loan off. I pay obviously the 15 off, because when you get a new loan,
you pay off the old loan. In addition to that, I paid off the five million dollars
that I owe to the investors. Now, guess what? I'm now infinite. I've now given all the investors
their money back. I've used it through a cash out refinance
and I've done it through a value add strategy. We still own the property.
It's one point one million. Now, obviously, I have a 20 million
dollar loan. So guess what? My payment goes up and I went up a lot
and went up to seven hundred K for because rates actually went up
during that period of time. So I still have four hundred
thousand dollars in cash flow here, which is awesome. So the investors have gotten
their five million dollars back and now they're into the deal for zero. They still have the same ownership and now
they're getting four hundred grand back. So they're happy because they got
all their original capital back. And guess what they do? They go do that again. Do that again. So they give me the money
for another deal. And so obviously, I still have the five hundred
thousand dollar depreciation because it's an annual depreciation expense
doesn't fluctuate all over the place. And we show one hundred
thousand dollar loss and the people have gotten
all their money back. The best part about this
is that there's no tax paid because this is a return
of original equity. So basically, they got their money back. They're still in the deal. It's still producing
about 400 grand a year. And there's no tax
because even there's four hundred grand. And that three hundred grand
was covered by the depreciation expense. So now this is why we like cash flow
versus capital gains. I could have sold the building, obviously,
for twenty five million. I would have scooped up quite a bit
more money. We would have distributed it. We would have paid tax,
all those kinds of things. And then we would have been scrambling to try to figure out
how to reinvest it again. So now let me take you out
another four years. And the management company
has done a great job. And now we've grown this
to one point five million. So how did we grow in four years? Basically, we've covered this over
and over and over. This is through normal rent
growth and and good proper management. You grow in your on a Y through. If you just calculate your rents over a period of time, you're going to see
that this is not that unreasonable. You have to grow up to another four
hundred thousand dollars and a y growth through your back to the bank. We say,
what will you give us again? And they said, well,
now we think the property is worth about thirty five million.
And I said, great. So what kind of a loan would you get? And so my partner and I said,
let's don't leverage this too much. Let's actually just
get about twenty five million. But we probably could have got closer
to twenty seven or twenty eight million. But we decided to do twenty five million
because we didn't want our payment to get so high
that we were squeezed on the cash flow. So then, of course,
the payment went up to one million. Our cash flow is five hundred thousand. Our depreciation
expense is five hundred thousand. And of course, we're still at zero. So let's sum this up. So I gave the original five million
bucks back here. I gave these people
another five million here. We made about 400 grand here,
so about one point five more million. So we paid an additional six and a half
million dollars, almost all tax free. And we've been basically infinite
in this property since year four. So that's how you
take a property that's broken. That's how you take a property
that has problems. That's how you take a property
that has opportunities and you manage it and you use the bank's money
by going back through cash out refinances and growing your net operating income
and putting more debt on here and pulling the cash out and harvesting
and harvesting and harvesting. I still on this building today, it's
obviously kicking out even more cash. Way more than five hundred grand. We want it now for I think, 10 years. But this is the difference
between long term capital gains and cash flow investing. This is it right here, folks. And obviously, our investors are very,
very, very happy because we want to be infinite here
and here and obviously in year four. They have not been invested in the deal
any longer, and they just keep getting these checks
each and every quarter. So hopefully you enjoyed a lot here.
This is how you be infinite. This is how real estate investing is done. You can do this to. If you guys like what you saw,
obviously a ton of work here, please hit the like button, please it the subscribe
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