In today's video,
I'm going to show you the nine steps that you can
use to create passive income through real estate investing. This is going to be
a powerful video. And we are going to deep
dive every step of the way. This is the exact
strategy that I've used to become financially free. So in today's video, we're
going to help you bottle up all of your limiting
beliefs, all of that sort of
negative self-talk that keeps you
from taking action. We're going to show
you the snowball effect and how getting that
one property-- and then the snowball effect will cascade
into multiple properties. We're going to show you
how there are no obstacles. Money is not an issue,
that is a limiting belief. And we're going to
show you how I did it. I had a foreclosure. I also had all of
my assets frozen. I woke up one morning,
my entire bank account was frozen because of a
deficiency judgment against me because of a foreclosure. I had a 590 credit score. I had no money to work with. This is the exact
strategy that I used to create passive income. So I want you to
grab a pen, I want you to grab a pad of paper. And I want you to pause
the video if you need to. We are going to deep dive
every step of the way. And I'm going to show
you specific houses, specific strategies, and
exactly how I did it. You ready to dive in? Let's get to it. All right, before
we dive into it, if you're not a subscriber
to my channel, it's free. Just click the Subscribe
button right down there. We have tons of great
videos and resources on how to become a buy and
hold real estate investor. All right, break time. First subscribe. [MUSIC PLAYING] OK, break time is over. Let's get down to business. First, off the top here, I want
to say that I am not a genius. I am exactly like you. I was in a position,
maybe just like you, where I was frustrated that
at the end of the month I just simply didn't
have any money left over. My wife and I would
sit down and we were wondering how we were
going to pay our mortgage. And there was actually
a time literally where we had to go
through the house and look at donating--
books that we were going to sell just to make ends meet. And here I was, I thought
I was making good money. I thought I was saving
correctly, and I simply wasn't. And at the end of
the month, we had nothing to show for
all of the hard work that we put in for the month. So I'm just like you. I'm not a genius. I've simply followed
a path that has been laid out by many,
many smart real estate investors before me. Real estate investors
that frankly didn't even go to college, that have created
multimillion's in their wealth, this is the exact system that
many of them use to get there. So what did I do? I took some of
them out for lunch. I found out exactly
how they did it. For instance, my friend Abe who
owns thousands of properties, he started with one property. And he explained to me
the exact nine steps that I'm going to teach
you today in this video. And his snowball
strategy for creating that in a matter of
years, he did it in I think like 3 and 1/2 years. For me, I hit that financial
freedom point in about 5 years. So you can do this, too. Every month now I have enough
passive income coming in from real estate
that I never have to work another day in my life. That is the power
of passive income. And if a chump like me can
do it, you can do it as well. So get rid of those
limiting beliefs, pull them out of your brain. And if you think-- if you're
sitting back there for now and you've got your
arms folded and you're saying, yeah, but this guy,
he's doing it this way. I know there are better
ways of doing it. Great, go out there and
do them that other way. I buy single family
homes in real estate. That's how I've done it,
single family residences. Other people buy multimillion
dollar apartment complexes. That's not how I did it. I'm not an expert in that. I'll tell you how I did it. And if you'd like to
learn, let's get to it. Some of your criticisms
or objections are going to come
right out right now. And I guarantee you some of
those objections and fears are going to be tied to money. You're going to be saying to
yourself, I have no money. This guy has money,
there's no way I'm going to be able to buy
real estate with no money. First of all, I want you to
get that out of your brain right now. Money is not an obstacle. Money is a manifestation. It is absolutely true. Again, I had a foreclosure. I had a 590 credit score. I had my entire
bank account frozen because I was going through
a deficiency judgment. Imagine that morning,
when I woke up and I saw negative
numbers in my bank account and I couldn't even
buy a sandwich. I freaked out. And I took a deep
breath and I said you know what, this is--
I've hit rock bottom. There's nowhere to
go but up from here. So if I can do
it, you can do it. And besides that, if
you're worried about money or you're thinking
I can't possibly get enough money
to buy real estate, I've created a whole series
of videos right here. You tap on this and it's
a whole series of videos on obtaining private money. There is so much private
money out there of people willing to lend you money
to make your real estate transactions happen,
that you can-- I'll walk you
through step-by-step in a series of videos on exactly
how to obtain private money. It's the exact system
that I've used to do it. And thousands of other people
do the exact same thing. So please, please, please
do not be scared about money in this entire system. Put that out of
your brain for now and let's get into some of
the mechanics of how to do it. OK, in just a moment
here, we're going to go through the nine steps. And we're really
going to deep dive. And I'm talking get out
a pad of paper and a pen and we're going to go through
each of the nine steps. But first I want to lay
out what is passive income. You probably think you know
what passive income is, but if you're
watching this video, chances are you might not
understand the mechanics of it. And frankly, the reason I'm so
passionate about passive income is because our current
system is broken. And there are
three huge problems with our current system
of wealth building in this country. And it all centers around
the idea of the 401(k). OK, the 401(k) is OK. But it's actually pretty
awful for building wealth and I'll explain why. Number one, the
first huge problem is that it's
incredibly complicated. That if you actually want
to dive in and understand the mechanics and the
fees that are associated with your 401(k), it's actually
really hard to figure out. It's not easy. And when you start to map it out
and you start to understand it, it can become a
little maddening. Why am I paying these fees? Why am I paying all
of these structures? Who is benefiting? Your employer is ultimately
benefiting from the funds that your employer chooses for
you to use in your 401(k) plan. The second huge problem
with our current structure around the 401(k)
for wealth building is that it's a limited. It has a limit to it. The federal government
sets a limit to how much money you can
put into your 401(k) plan in order to create wealth. Why? Why limit the amount that
people can grow their wealth by? It's insane. So that's the
second huge problem that there is a
limit to how much you can put in to
grow your savings. And the third biggest problem
with this entire system is frankly that it's encouraging
you to grow your savings, not to create wealth. Let me explain that. The 401(k) and the
idea of wealth building around your 401(k) is
that it's encouraging you to grow your savings. You're putting a little
money into a savings account and then it's growing years--
so that years later you can take some of that money out. That's the opposite of what
we're talking about here today in creating passive income. That we want to
create wealth, we want to grow wealth now, today. So that every day I've got
thousands of dollars coming in every month into my house. Why would I be focused
on 40 years from now? And a little bit of savings
growing over 40 years? Makes no sense. So again, the
three huge problems with the current state of
affairs with wealth building. Number one, it's complicated,
it's hard to figure out. And they intentionally
keep it complicated so that you can't figure it out. Now there are going
to be people that are going to watch
this video and say-- who might be financial advisors
and who might get upset with me, and that's fine. I totally appreciate that. But I know many, many
financial advisors who have told me the
exact same thing, who now invest in real estate. They were a product
of the stock market. They will sit down at lunch with
me and they'll say, Clayton, it's exactly true. It's complicated on purpose. All you need to do
is watch the movie The Big Short to understand
how complicated it is. And how they don't
want the average person to understand what's
actually in their 401(k). Number two, there is a limit
by the federal government on how much you can
actually contribute and grow for your savings that
you can pull out when you're 59 and 1/2 years old. But that's doing nothing
for number three, which is we want to
create wealth today, not when we're 59 and 1/2 years
old-- creating wealth today. So the current system is
broken and they don't encourage you to build wealth today. So the bottom line is passive
income creates wealth for you today, not some hypothetical
day in the future, 40 years from now. You know, the average 401(k)
in this country at retirement is only about $70,000. That's true, that's a fact. That the average
401(k) upon retirement is only about $70,000. Can you live on $70,000? Well, I mean if
you're retiring at 60, can you live on it
for the next 20 years? No way. No way that is insanity. So passive income allows
you to create wealth today so that your money is
working for you now. And you can enjoy your life. You can go take trips. You can spend more
time with the family. You can not commute to work, two
hours back and forth each way. You can spend more time living
today and enjoying that wealth. So that is passive income. OK, now I want to take you
through the exact strategy that I've used to buy
my first rental property and to achieve
financial freedom. Remember it all started
with one property. And then I was able
to cascade that down to create passive
income and financial freedom. I'm going to walk through, I'm
just going to summarize now, just the nine steps first. And then don't worry,
we're going to deep dive each one of them. And each one of them might
take us like 10 minutes to get through or 5
minutes to get through. But I just want to
summarize them first. This is the exact
strategy that I've used to create passive
income and wealth. And my strategy includes
single family homes. I buy two bedroom, one
bath, three bedroom, one bath single family homes
in hardworking blue collar neighborhoods. OK, I like C neighborhoods. And don't worry, I've got a
card right here in this video. You can click on it and
it explains exactly what an A, B, and C neighborhood is
so you can go back and watch that a little bit later. Those are the types
of properties I buy. I like single family
homes because I believe that the tenant really
feels like it's their home and they want to
stay for a long time. They've got their own driveway,
they have a back yard, it's their house. They come home at
the end of the day, they sit down with
a glass of wine with their spouse, their
friends, their family and it's their home. I've got leases on
some of my properties upwards of five years,
where the tenants wants to stay for five years
because they love the house. That is what I love to buy. Those are the types of
properties that I go after. That is my bread and
butter and that's what I'm going to walk
you through today. You've got another strategy
that you like, like I mentioned, you want to buy 200 unit
apartment complexes, great. The same strategy can
apply for that as well. Another reason that I
love single family homes-- two bedroom, one bath,
three bedroom, one bath-- is that they're not
building them anymore. Again, I've got another
great video here that explains why millennials
aren't buying real estate. And therefore these
homes-- millennials are frankly skipping these
three bedroom, one bath houses, these starter homes, and
they're jumping right-- they're waiting about 10
years to get married and they're jumping right
into the four and five bedroom houses. Well, that's great for me. So that means that
builders aren't building the three bedroom,
one bath houses anymore. And the two bedroom,
one bath houses anymore. But you know what? There are a lot of people
that want to rent them because they're single
or they're a single mom, they've got two kids. They're perfect for that. So those are the
types of properties I go after because first of
all, people aren't buying them and I can buy them. And people want to rent them. So that's a perfect
win-win scenario for the types of
properties that I like to buy to create
passive income. All right, here
are the nine steps that I use to create passive
income and financial freedom. Step one, we simply
find a house. For me, my first
house that I purchased was in a little
suburb of Detroit outside of the city limits,
in a little nice suburb about 25 minutes away. And it was a single
family home in Michigan. So number 1, we have
to find a house. Number two in our list,
we have to find and hire a contractor, someone that's
going to go to the property and give you an estimate of
the repairs on the property. Step three on this
pretty simple list is to get an inspection
on the property. So that you can match that up
with what the contractor found or what they estimated. So get an inspection, usually
a few hundred dollars, and you want to
match the two of them to see what types of repairs
you really need to do and what types of
repairs you kind of need to skip because it's a waste
of money on a rental property. Number four on my
list, you want to make sure all of your numbers
are in alignment. So that when you add
up all of the repairs plus your purchase
on the property, you want to make sure
that you are going to come out below market value. So that if the house is worth
$50,000 from a retail buyer, you want to be
under that amount so that you have a little bit of
equity in your rental property. A little bit of equity is great. You don't want to be over
market value because then why didn't you just
call up a realtor and buy the house that way? Number five is that you
want to use your own cash to buy the property
or get financing from either a private lender
or a conventional loan to buy the rental property. It's that simple. Use your own cash
or get financing and you're going
to buy the house. Number six is you want to hire
a property management team to take care of the property. Usually they'll charge
between 6 and 12% a month from your monthly rent. Find a reputable
property management team that is going to be
hands on and is going to be there for the duration. And they are going
to then-- which is the next step in this
list-- number seven, of course, renting out the
property and making sure that you have cash flow
coming in every month. And number eight is
the snowball effect. This is where you want to take
the money out of that property and you want to use that money,
that equity that you just used on that house to
buy your second, third, and fourth property. So you're going to
take that money out. And then finally, number
nine is rinse and repeat. The final step is number
nine, rinse and repeat. You're going to do
it all over again. Well, there you go. That's the main
summary of the 9 steps. Now, we are going to deep
dive each of these steps. Again, I want you to grab
a piece of paper and a pen. And feel free to
pause the video, rewind the video, that's
the power of video so you can keep and make
sure you have every step. And by the way, if you have
any further questions as you're going through this video,
please leave them in the comment thread below and I will be
happy to jump in and answer them if there's anything that
you need a little bit more clarification on. But again, we are now
about to deep dive each one of these steps. Let's go. OK, now that we've
had a little summary of the nine steps,
let's deep dive each of these individual steps. Number one, finding a house. How do you find a house? Could be the most difficult
piece of this entire puzzle, but it doesn't have to be. There are a number
of obvious things we want to do to
find a house, right? We can work with a realtor. We could work with a turnkey
provider like the company that I run. You could find for
sale by owner houses. You could drive around
and look for sale by owner signs in the yard. You could call houses that are
available on Craigslist.com. There are a number of
different ways to find houses. But first, I want to
set the stage for you on where to begin
to look for houses. Now I have a whole
video on my theory on why the best rental
properties are not in your backyard. So you can click on this
video and watch that. But the short of that,
the short example of that is that most of value, we
want to go after a high return on investment. So the best rental properties
are simply not going to be probably where you live. For instance, I live in
the state of New Jersey. There is zero chance
that I'm going to find a rental property in
the state of New Jersey that is going to be around
$50,000 or $60,000. No way that's going to happen. It's going to cost me
hundreds of thousands of dollars to get a single
family home in the state of New Jersey. Well, there's just no way
I'm going to buy that house. It's not going to give me
the return on investment that I want. We'll go through those numbers a
little bit later in this video. But for now, you must
understand that those best rental properties are going to
be in areas like the Midwest. Or areas where you're going
to find a really high return on investment and a low
barrier to entry on your price. So my rule of thumb is
on a single family home, you do not want to spend
more than $150,000. $150,000 is really going to be
the cutoff for your purchasing. Here's why. With a $150,000 house,
anything above that, the value of the rent
is not going to keep up with the value of the house. So again, if suddenly
the house was worth-- if I spent $200,000,
the rent is not going to jump up a proportional
amount to match that new price. If I buy it for
$300,000, my rent is not going to jump
up another $1,000 to keep up with that cost. At one point, around
$150,000 mark, that is when the
rent stops keeping up with the value of the house. So I'd like to buy houses
that are under $150,000. And my bread and
butter houses are right around the $40,000
to $50,000 range. Those are the types of
houses that I love to buy. So in my example here, I
want to start with finding a house by using a realtor. Right, that's the
most common way that you're going
to find a house. Now if you live in a place
like New Jersey or New York, or California or
Miami, you're not going to want to call a
realtor in those areas. You're going to want to identify
the parts of the country that you would like to
purchase a property. So for me, I bought my
first rental property in the state of Michigan. Now how did I do it? Well, I simply went online
and just did a little research and found a realtor in
that particular area that I wanted to invest. So my first property
was outside of Detroit. I called a local
realtor who worked on distressed properties. These were homes
that needed rehab. These were homes
that needed help. And I had a conversation
with that person. And at the time, I really didn't
know what I was looking for. I just knew that I wanted
to find a house that was below market value that I
could do a little bit of rehab on it. And then still be under the
market value when I was done and get a good bang for my buck
on my return on investment, making sure that
my rent was going to get me a very high ROI. And again, we're going to go
through these numbers on how to figure out ROI
and the numbers that I specifically look for a
little bit later in this video. But for now, I call up a
realtor and just have a dialogue with that person. Just get to know them and tell
them what you're interested in. And you're looking for
single family homes. And that's exactly what I
said, I was more interested in a three bedroom, one
bath houses or two bedroom, one bath houses. That's what I like. That's what I was most
comfortable starting with. And he said, great. And his name was Mike. And he sent me a couple
of properties to look at. And I went through and I
considered a few of them. And he made
suggestions on ones he had a chance to walk
through those properties and take pictures. And we went back and
forth on this whole thing. But the bottom line is I was
able to look at these pictures, look at these numbers, and I
finally made a determination. I said, great. I think that's the
house that I want. That's the first property
that I want to pick up. Now what are the next steps? So I called up a
realtor who understood the value of rental properties. He himself owned some
rental properties. He was able to find me a great
property that needed some work. He was able to look
at it and assess how much work it probably needed. But that's just
one metric, right? I want to use an inspector
and I want to use a contractor to get real numbers. But he was able to give
me a ballpark idea. So on my first property
I was able to acquire it for around $27,000. I think it was the all
in or maybe $28,000 with closing costs. And well, take a look. Here is the property
that I was able to find. It was a great little
single family on a corner. So it had actually a pretty
nice sizable yard to it. And it was in a 1950s
neighborhood, blue collar hardworking neighborhood. And it had a big backyard. The trees needed
to be trimmed back. We needed to do
some roof repair. On the surface, when you
looked at it, obviously the hardwood floors
needed to be fixed up. The kitchen cabinets
needed to be redone. Drywall, windows
needed to be put in. There was a lot of
work that needed to be done to this properly. But I knew that if I could get
one property well below market value and then if I could add
value in it by doing a rehab, then I was coming out on top. That is really the key
to this whole strategy. OK, so I found the house. It wasn't that hard. The only problem
with working with realtor's-- and their great,
my father is a realtor-- is that you're probably not
going to get a consistent deal flow on a regular basis. And that's where maybe working
with a turnkey provider or doing some direct
marketing yourself and able to find properties
on a regular basis will really come into play. But for now, kind of
getting that first property under your belt, that was a
great way for me to get started and to take action was
just get out there. Just do it, just to get
out there and take action calling a realtor and doing it. I know that if I did
it through other means, I probably would have got
the house for cheaper. I probably would have saved
some money here and there. But at the end of the
day, I took action. All right, the second
step in this process. Let's deep dive this now,
which is to hire a contractor. So that hiring of the
contractor is very important. Well you're saying to yourself,
well how do I do that? I'm living 1,000 miles
away from this house, how am I going to
hire a contractor? What do I even look for? Well, you really want to get
a multiple number of estimates on your properties. So you do not want to just
rely on one contractor if you're thinking about hiring
someone for the first time. So what you want to do is you
want to jump on Craigslist. It's a simple tool. If you just go to
Craigslist and you go to the first-- the
job opportunities page, you'll find contractors
who are looking for work. And scroll down
and you'll notice that almost all of
these contractors are going to offer
free estimates. Free estimates,
now you don't want to be abusive of this, right? It's time, so it takes
them time to come out to walk through the property. And then they have to type up
a full estimate to give to you. So you do want to be
respectful of these contractors and not take advantage of them. The idea is that you would
like to work with one of them. So I would choose
three if you can. Try to choose three
different contractors who are able to offer free
estimates on your house that you're
considering purchasing. Call them up, let
them know what you'd like to do with the
house, that you're buying this as a rental investment. This is not going to be a
property that you personally are going to live in. And tell them that
you do not want to over upgrade this house
for the neighborhood. That means-- I
didn't over upgrade my house for the neighborhood. I put in Formica countertops,
I put in the base grade cabinets-- they look great. They're like cherry
cabinets, et cetera from Lowe's or Home Depot. I'm not spending three
times that amount because I personally
am going to live there. I'm also not going to go
crazy with the carpeting. I'm going to get
a nice base grade carpeting that looks great but
can handle a lot of traffic and that can be cleaned
pretty easily on a tenant turnover a few years from now. Let the contractor
know that you don't want to put in
granite countertops, you don't want to put in a
Nest Learning Thermostat, you don't want to put on a lot
of crazy bells and whistles. You want to do--
you want to make the house great for a tenant. But you don't want
to over improve the house, where you're
spending more money than you need to because you're
personally not going to live there. If you ever go into an apartment
building or an apartment complex, you're going
to notice-- I mean, the thermostats are like the
base grade white thermostats. You've got your normal sort
of base grade carpeting. You have your basic
amenities in the kitchen. You have your basic countertops. You're not going crazy. I've lived in plenty
of apartments, where I felt great living there. You know, it was
clean, felt brand new, paint, nice
carpet, great bathroom. But that vanity in
the bathroom was not like going into the Taj
Mahal or something like that. It was a base grade vanity. I was able to put things
underneath the sink, in the cabinet doors, maybe
there's a medicine cabinet. But again, it's
perfect for a tenant, it's not something that
you're going to live in. So make sure you communicate
that to the contractor. And let them know that
they have competition. This is also important. Let them know that you're
gathering estimates from a couple of
different contractors. This will make sure
that they are giving you an honest assessment
in their numbers and letting you know how much
the labor is going to cost, how much the materials
are going to cost, and then they're
not going to try to over inflate their numbers
to try to take advantage of you. Especially if you tell them
that you're 1,000 miles away, you want to explain
to them that, hey, I would like to build a long
term relationship with you and do multiple houses. Like that's what we do, right? So on the properties we buy,
we have a team in place. And they know that we're
not going to rip us off. We're going to have
a long term working relationship because we're
going to do a lot of houses over many years. So it behooves them to not
drive up their numbers on paper. But again, let them know that
you have some competition. Yes, John, I'm going to be
checking in with like two other contractors. We're going to be getting
some different estimates here. But I would love
to see how much it would cost you to do this job. And I want you to see
what's wrong with the house. You tell me what you
think this house needs. Now make sure you talk
with your realtor. Have a lock box on the
house or hopefully there's a lock box available
that the realtor can meet with the contractor. Go out to the house and
let them do their thing, let them walk through with
their clipboard and their pen and draw everything up. Then of course, they
can come back to you later with their estimate
of repairs on the house. And they call this a scope of
work, an SOW, a scope of work. So ask them for
their scope of work. And then compare that with
your other two estimates from your other contractors. Now, it's not-- to me
I've done this a lot. I don't look at-- I
don't take the cheapest and I don't take
the most expensive. I like taking the
guy in the middle. I don't want cheap work
on my rental properties. But I also don't
want to pay the most. So a nice happy medium. And if the numbers
make sense for you, which we'll go over
in just a moment, then that's the guy I go with. And I want to know
the time that it's going to take to complete
this rehab and the amount of overages. So with our customers
at Morris' Invest, if we go over on our
rehab, we eat that cost. Ask that contractor,
so John what happens if you start
pulling out drywall or you start pulling out
things that need repair and suddenly you
discover some things that you didn't anticipate
by going through in your inspection when you
were giving me my scope of work. What's going to happen? Am I going to be on
the hook for that? So you need to really have
those conversations upfront with your contractors
to find out exactly who's going to foot
the bill for those things. Are you going to split it 50/50? Or how is that going
to be arranged? You don't want to find
big surprises that are going to cost
you $3,000 or $4,000 that you did not anticipate. OK, step three in this process. Let's deep dive the
inspection process. Now we found the house,
we have the contractor, who's giving us a scope
of work on the property. Now we also want to
get our own inspection. So I do that on
all of our houses. We get an inspection, we
also have our contractors walk the property. And guess what? We marry the two of them. So I look at the
inspection report from a licensed inspector
and I get the scope of work from my contractor. And we marry the two of them. So why is that important, my
little hand gestures here? Well, because in an
inspection report you're going to have structural
issues, safety concerns that are the most important
things, right? You may have a foundation crack. OK, so what do we
need to do there? Some hydraulic
cement will fix it. If not, maybe carbon
fiber stripping to actually keep it intact. That can either be a
few hundred dollar job or it can be a few
thousand dollars job. So we need to know the
safety concerns, right? So safety is important
in the house. And on an inspection
report, you'll see those, the safety
reports and those major sort of structural things, we want
to make sure are not a problem. And then, of course, the
cosmetic stuff, right? Maybe there is an
outlet that needs fixing, an electrical outlet
or there's some update. But as long as the major
electrical, plumbing, foundation things
are taken care of, then the other stuff can
really be considered cosmetic. OK, you're missing a few
shingles on the roof, but the overall roof health
is 20 years left on that roof. You'd be crazy to
replace the whole roof. So if in a storm a
few shingles blew off or there was some issue-- great,
replace those five shingles in your fix. Don't put a whole new
roof on the property. So inspection
reports can be scary. They can be thick, they
can be intimidating. In fact, I've got one right
here, let me grab it for you. So this was the
inspection report on my very first
property in Michigan. Look how scary this is. It's like, I don't
know, 50 pages. But the bottom line is I
hardly had to do any of this. Most of this stuff was
simply cosmetic stuff. Some of the things that I
had to take care of though had to do with some
of the paneling, I had some-- I had some
water in the basement that I had to take care
of with a little bit of-- with a little
bit of sealant. But most of it I
didn't have to do. So yes, you're going to get
an inspection report back and it's probably going to
be thick and intimidating. But that's what an
inspector is paid to do. But you as a landlord need
to realize that you don't need to do almost all of this. You need to do the stuff
that maybe turns it into a great rental
property and addresses all of those major sort of
structural and safety concerns. Once you have that
inspection report that is when we're going to
marry the two of them, right? So we have that scope of
work that we got over here from our contractor or with
our series of contractors and then we've got our
inspection report over here that we got from a
licensed inspector. Now we're going to marry
the two of them together. And again, we don't need to
go through and do everything in the inspection report. That's what an
inspector is paid to do is to find all of those little
nit picky things, right? So there might be a door
latch that's a little loose. OK, there might be a
window that's broken. We're going to fix that. There might be a few shingles
missing from the roof, but the rest of the roof
is in great condition and has another 20
years of life on it. Maybe a storm came through
and five shingles blew off. Oh no, the whole roof is not
bad, just those five shingles. Let's fix the five shingles,
which should be a few dollars. So you need to go through that
thing with a fine tooth comb and really decide what
makes sense to you. But then we're going to
marry the two of those things together. And when we marry the two
of those things together, we want to make sure
that it lines up nicely and you have an agreement
with your contractor on what you want to do. So again, let me go over
the types of repairs that I like to do so when I
marry the two of them they all make sense. I want a roof that's
in good condition. So now if my roof-- if my
inspector and my contractor tell me that we have
another 20 years of life left on the roof or
even another 15 years or maybe even 10 years
of life left on the roof, I'm probably not going to
spend any money on fixing a roof right now, will I? No. Windows, if I need
window repair, great, I'm going to put
in brand new windows likely where they
need to be addressed. If the electrical is old, I'm
going to put a new electrical and update the
electrical wiring. So if there's that old knob and
tube wiring in the house that is getting ripped out. And I'm going to put in
brand new electrical wiring in the house. Now I have a whole
video on electricity, why I decide to put in 200
amp versus 100 amp panels in some of my houses. You can click on that video
here and watch that later. But most of the time, if
I've got a furnace that's going to be running
on electric, if I've got a water heater that's going
to be running on electric, then I'm going to
put in a 200 amp electrical panel in the house
so that everything in the house can run off of electricity. But if I'm going to
be putting in a brand new furnace, if the
furnace needs updating, and if it's a gas
furnace, then I don't need probably to do a
200 amp electrical service. Because if it's powered by
gas, it's just overkill. So again, let me go
back over these again. A roof, I want to make
sure is in great condition. My windows, I want
to put in electrical, make sure that
that is top notch. I also want to make sure that
my plumbing is up to par. So we'll rip out old
galvanized pipe, old PVC pipe, and I'll put in
new PEX plumbing. Once again, I've got a
whole video on the plumbing that I do. You can click here and
watch that as well. We've got lots of videos
as you're learning. So we'll put in
new PEX plumbing. We'll put in a new furnace. We'll put in a new water heater. Even if the furnace is
just a few years old, typically I'm going
to update my furnace and typically I'm going to
update the water heater. So now I've got
those major things taken care of in the house. If the inspection
report tells me that I've got a foundation
problem, I want to know, again, is it just
a crack that can be fixed with some hydraulic
cement and it's not a big deal. You know 100-year-old house
has a slight crack, that house is going to be there
for another 100 years and I'm not going
to worry about it. However, if there's a
major structural problem then I'm not going
to buy the house. I'm not going to spend an
additional $5,000, $6,000, $7,000 to put in
carbon fiber stripping or do something crazy to my
foundation of this house. That's just not something
I'm going to spend money on. If the inspection report
finds that there's a little bit of
termite damage, maybe in an old floor joists or an
old beam or something like that, but the termites
are long since gone, then I'll replace that beam. But if the whole
house looks like it's about to fall down
because of termite damage, again, I'm going to
not buy that house. Those are the two
major things that I'm going to look at when
I'm buying a house. Number one, is there termite--
major termite damage? Is there a major foundational
problem in the house? Like the whole house is shifted
off cinder blocks or looks, you know, it's
about to fall over. I'm not going to buy the house. That's a ridiculous
cost when there's so many other fish in the sea. But of course, you know
if it needs a new roof, I'll buy the house. If it needs new windows,
I'll buy the house. If it needs a new furnace,
I'll buy the house. If it needs a new water
heater, I'll buy the house. If it needs new plumbing,
I'll buy the house. If it needs new electrical,
I'll buy the house. So all of those things
don't concern me. I've got a great team that
will take care of that. And any great contracting
team should also be able to take care
of those issues. Those are the major
concerns that I want to look at
when I'm marrying the two, the inspection
report and the scope of work. And then of course,
we're always going to do paint, carpet,
drywall touch up. We're going to put in probably
a new vanity in the bathroom. We're going to do new flooring,
new vinyl flooring typically. We're going to make sure that
the tub is in great condition. And we'll probably put
in-- we'll re-glaze the tub or put in the new tub if
it's in bad condition. We'll put in new
cabinets in the kitchen. We'll put in new
flooring in the kitchen. And again, then we'll cut
back some tree branches and make the yard look
good with landscaping. And that's really it. I mean with those touch
ups-- the same paint, carpet, fixing-- updating
those major things, you've got a rock
solid rental property that's going to last you for
10, 15 years before you're going to need to worry about
any kind of repairs at all. And I want you to remember
something, your furnace and your water heater,
those typically will have a 10 year
manufacturer's warranty on them. So you're not
really going to have to worry about repairs if you've
taken care of the electrical, you've taken care
of the plumbing, the roof is in great
shape, and your windows are up to looking fantastic. And you've done new electrical
and new plumbing, what repairs are you going to have? The houses that I like to buy
do not have central air mostly, so we don't have to
worry about an HVAC system or the central air. If a tenant wants to put
in a window unit, great, it's up to the tenant. But there's not a lot of other
moving parts in this house. And you can see how I don't-- I
almost never have to do repairs on my house ever. And I had one about
two years ago, where I had a toilet
that got clogged. And there was a sewer line
that needed to be snaked. So we called in
the plumber and I thought it was $175 later
after he snaked the whole line and made sure it was all
clear, then we were good to go. But other than
that, I don't have major repairs to worry about. Now in 10, 15 years, I'm
going to replace the furnace, I'm going to replace
the water heater, and we're going to look at
the life of the other things in the property. We're going to check
everything out. And then we'll make a
decision at that time to upgrade the roof, et cetera. So there you go. That's a basic overview
of the types of things that I like to
rehab in a property. That way I get a great
property, my tenants love it, but I'm not killing
myself in the wallet to go crazy with all kinds
of additional updates for that inspection report. All right, number four, we want
to add up all of our numbers. We want to get it
all down on paper and we want to see it
looking at our ROI, using an ROI calculator. So you can see first of all
what is the return on investment going to look like when I'm
done with all of these repairs and what is the after repair
value of this house going to be. OK, so adding up
all of your numbers, what does that look like? Well, number one, we want
to go through ROI, first. OK, ROI first. That's the whole reason
we are doing this is return on investment, ROI. That's it. That's the whole focus of
buying rental properties. And if the numbers
don't add up, then you shouldn't be buying the house. Just because perhaps
you fell in love with this adorable
little bungalow, uh-uh. That doesn't matter. If the numbers
don't work, then you shouldn't be buying the house. So what is return on investment? What is ROI? I'm going to give you the
formula that we use internally to figure out if a house
is worth-- Nat, my wife, and I buying it. So today we're going
to talk about ROI using the cash on cash formula. Cash on cash just means
how much cash is coming in and how much cash went out. So if you have $40,000 in the
bank, you're buying a $40,000 house with cash, what is
the return that you could expect to get on that $40,000? Now we can do a
whole separate video on mortgages and debt service. In fact, we have other
videos specifically on how to figure out the
debt service on a property if you're using a mortgage. But for this, we are
specifically using cash on cash to make the formulas
easier for you. OK, so let's dive in. So let's say we're
using a $40,000 house. So $40,000 is going to be the
cost of our three bedroom, one bath house. These are the typical
kinds of properties that I buy and renovate. And it's going to cash
flow, let's make it nice round numbers,
$700 a month. So $700 a month from a tenant,
it's going to cash flow, and that's it. OK, great. So here's how we figure out ROI. We're going to take
that $700 a month and we're going to
multiply that times 12. That's going to give
us our annual rent. So $700 times 12
gives us $8,400. Now that is the gross-- that
is the gross rent for the year. Now we are going to divide
this number by the all in cost of the house,
which is $40,000. So we're going to divide
$8,400 by $40,000. $40,000. And that's going to give us a
21% percent gross ROI, which is fantastic, right? But that's gross remember, so
that's the gross ROI of 21%. Now with all of our
properties, I always am super conservative in my
formula for figuring out return on investment because I want
to take out 40% for vacancy, repairs, expenses--
all of those things, taxes-- get thrown
into this 40%. But because remember
I'm rehabbing the house, so I don't have to
worry about expenses. I'm not going to worry
about vacancies, because I'm filling it with a tenant with
my property management team right away. So this 40% doesn't
really come into effect. So at the end of the
year, my wife and I like to look at our statements. We end up usually
being right here, right around this 21% gross. But I always want to
be super conservative when I'm buying a house so I
always want to figure this 40%. How do we figure 40%? And how do we get to our number? Let's go back to the whiteboard. So $40,000 is our house and
it's $700 a month for rent. So I'm going to take that $700,
again, multiply it times 12 is going to give us the
same number, $8,400. But now, I'm going to multiply
this number times 0.6. Now, I get so many e-mails from
people that say wait a minute, wouldn't you multiply
it times 0.4? No, no, no, no. I want to take out 40%. 100 minus 40 is 60. So I want to multiply
this times 0.6. So $8,400 times 0.6
gives me $5,040. That's my net cash flow
from my tenants this month or from this year. So it's started with that. To be super
conservative, I took out 40%, which is how
you do it right here. And I'm left with
this for the year. Now I divide this by
the $40,000 number. Divide it by that
gives me a net cash flow of 0.12, which is 12%. That is a 12% return
on my investment. That is a net. That is a ridiculously high ROI. That is the number that
I go for on every one of my properties is a net
ROI between 10% and 12%. Not gross, not gross, net. I hope that makes sense. That is how you figure out ROI. Very, very simple. And remember in that 40% number
we're including the taxes, we're including the vacancies,
vacancy number, right? We're including our
expenses and repairs. And all of that gets rolled
into that 40% for me. So it keeps it
very, very simple. And it's a quick and
dirty way for you to find out especially in a
single family house or a duplex or triplex or for a family. When you start getting
into commercial properties, you're going to be looking
at other things you're going to have to consider. But for residential real estate,
doing those one single family homes, duplexes,
triplexes, or quadplexes, this is how we figure out ROI. That is how we figure
our overall numbers. Again, we want to use the
contractors numbers, how much they're quoting us as
the estimate of repairs, and their scope of work, and the
purchase price of that house. Combine that is your all
in cost of the house. Again, your ROI number, when
you're all done with this, should be between
10% and 12% return. Now that is the type
of return I go for. There are people in
New Jersey, where I live that will do rehabs and
look for-- their goal is to try to get to like an 8% return. [? SEAM ?] they're
hoping for an 8% return. I won't even touch
a house unless I can get a minimum
10% conservative net return on my investment. That's the power of
passive income, folks. That's the power of
rental real estate. These deals are out there,
that's what I do all day long. So that should be encouraging. Again, so that's how we're going
to add up all of our numbers and make sure that
we're on track. Again, if you're
not at 10% to 12%, why are you going
to buy that house? There are too many
fish in the sea for you to get a low
return on your investment. If you add up all your numbers
and you're hitting an 8%, 7%, 6%-- I'm sorry this
house isn't for you. Or maybe you could go back to
your contractor and say, hey, are we-- are you sure
these numbers are right? Are you sure that we need
to do all this extra work? Are you sure this
is what it's going to cost us to do these things? And if you can't
get any wiggle room, then I would walk
away from that house. I would not buy it. Don't get hung up and fall
in love with real estate. Focus on return on investment. All right, step five. We are here, we're almost
to the finish line. Step five is now we've
got to buy that house. We've figured out
our numbers, we see that our numbers look good. Now we've got to buy the house. Now you've got to make an offer,
you've got to put in your money and start getting this
house closed so you can start the rehab process. All right, how do
you buy the house? There are a number of ways. I'm going to throw them
up here on the screen. In a number of
different ways that you can acquire this house. The way that I mostly
acquire my houses is with cash, just cash on hand. Now cash on hand can be a number
of different sources, right? You've got cash in
your savings account, you've got a 401(k) plan, OK,
that you able to borrow from. Most people don't
even know that you can borrow from
your 401(k), I'm not talking about withdrawing
from your 401(k), that's where you get penalties and fees. I'm talking about
borrowing from your 401(k). And again, I've got
a whole video that walks you through how to do it. Or maybe you've got a self--
maybe you've got an IRA. OK, you've got some
money in an IRA. You've got $50,000
sitting in an IRA, you might be able to use-- maybe
you have a self-directed IRA. Maybe you have a military
retirement account. A lot of our
investors that we work with have a military
retirement account that they can borrow from. Maybe you've got another
retirement vehicle. Maybe it is some sort of
a life plan or something. I've seen it done so
many different ways. And one of my favorite
ways is that you have a home equity
line of credit on your primary residence. And maybe you've got
$50,000 or $100,000 from a home equity
line of credit that you can use to
buy a rental property. That's a strategy that
my wife and I use. And that is in fact
our main strategy. We use our home
equity line of credit to buy more rental properties
than any other strategy because it's such an amazing
low cost way of doing it. And the interest that you're
going to pay on that loan during the HELOC
is simple interest. And I've got a
great strategy where if you use a home
equity line of credit to buy your rental
properties, if you make small payments every
month multiple times a month, you almost pay zero in interest,
almost nothing in interest payments because
you're attacking it multiple times a month. It's a killer strategy. So again, maybe you're using
a home equity line of credit also known as a HELOC. Maybe you're using conventional
financing, like you actually want to work with a local
bank to get financing, where you'll have
to put about 25% down out of your own pocket. Maybe you're using
private financing. What is private financing? Again, private
financing could be Uncle John, who's got $300,000. And he's going to let
you buy six houses. Great, you construct a note,
you construct a mortgage note with John. And you borrow the money
for a certain percentage. Great. Or maybe you use an
institutional private lender. What's an institutional
private lender? It's kind of like John
but with more rules. And they're actually
usually a hedge fund that is actually just
lending money out and they have specific terms. Some of them won't
let you buy houses that are valued less
than or purchase price is less than $45,000. Some won't let you
do it below $70,000. So you need to kind
of pick and choose. But my point is there are so
many different ways to acquire rental properties. And again, don't
be scared of money. This might be your biggest
hang up and it should not be. Again, it shouldn't be. I've got a whole
series of videos here, a playlist
of videos, that you can watch that walks you
through private money, how to get private money. The exact strategy
that I've used. Don't be scared of it. It'll walk you
through step by step, how to put together
your one sheet, how to present this
to a private lender. It's a one page
thing you show them. Lets them know exactly
the type of house you're going to buy,
exactly where it's located, and the type of returns that
you can expect on this house. And how to present it
to that private lender. I walk you through
all of those steps if you don't have
any money on hand. But again, money, it
really is a mental thing. Again, I went through
a foreclosure. I had a below 600 credit score. I had all of my assets frozen,
all of my bank accounts frozen. I couldn't even buy a
sandwich or a cup of coffee. If I can do it, you can do it. I don't want any excuses when it
comes to getting private money. Your excuses are
your own and they are a limitation of your laziness. That's a fact. If you want to cry about
it, then this isn't for you. You can do it. If you really want to build
legacy wealth and passive income in a few short
years, you can do it even if you have no money. I guarantee you can do it. There you go. Those are some of the
basic ways that you can acquire rental properties
with different forms of cash. You can also finally even do
an equity split, an equity partnership with somebody who's
looking to go and has the cash. You have found the deal. You don't have any
cash and you're going to give a percentage
of the deal and the returns to that lender, that friend,
that is ponying up the money. So there are all kinds
of different ways to structure how you're
going to actually purchase this property. But the bottom line
is now is the time, you're buying the house. All right, number
six on our list is the property management
piece of this whole big puzzle. Now this is an incredibly
important part of this process to hire the right property
management company can be the difference between
receiving rent checks and having a vacant house. Literally, the house can
be vacant for too long or you can have cash flow coming
in creating that passive income that we're talking about. Now let me just tell
you about the types of property management
companies that I hire and that I work with. I have a bunch that I work
with across the country. And these are the things
that I ask for and look for with my property
management team. Number one, I want you
to remove from your brain the idea that you are going
to manage properties yourself. You're not going to do it. I want you to repeat
after me, I am not going to manage
properties myself. There is a tendency,
especially if you're doing properties in
your own backyard, to think that it's easy. And that I'm just a
few miles down the road and I'm going to show
tenants these properties and I'm going to
manage it myself and I'm going to save
a little bit of money. No, don't do it. The point is that
we're actually building into our whole formula,
our ROI formula, our return on investment formula, we're
building in property management costs into that formula. So it is a sunk cost. I plan on paying it
and I love to pay it. I pay 10% a month in
some of my markets. I pay 8% a month in some
of my other markets. And you might find that you
might pay between 8% and 12%. It really just depends. You might get lucky and pay 7%. It's really going to depend
on how populous the area is, how much competition there is. But a good rule of
thumb is about 10% a month of your monthly rent. Now let's be clear, you're
not going to pay anything unless the property is rented. So if you are renting
it for $700 a month and you pay 10%, then
that $70 every month is going to come out
of your statement and you're going to receive
the balance of rent every month in the mail. So again, that's a sunk cost. It's part of the ROI formula. So don't think you're going
to save a few bucks by trying to manage yourself. The problem is that
you think it's going to be easy for one property. I have one property, I
can manage it myself. But I want you to think
in terms of having 10 properties or 20 properties. I want you to think
of where you will be, not where you currently are. Now picture yourself
managing 10 properties. Now picture yourself
managing 20 properties. That's frightening. That's not a business
I ever want to be in. Let's just run down some
of their job duties. They're going to do all of
the screening of the tenants-- background checks,
criminal background checks, they're going to call
up previous landlords to make sure they pay on time. They're going to make
sure that they don't have evictions on their record. They're going to
do credit checks. They're going to
call up the employer and make sure that they
actually have the job that they say they do. I remember when I was renting
in a high rise building in New York City, the owner
of the building had to call my employer
to verify that I actually work there. So my boss got a phone call,
yes indeed he works here. That's something that
you're a property management company will do or you
should expect them to do. They're also going to
collect rent checks. This is one of the most
important pieces of the puzzle, right. They're going to make sure
that the tenant pays on time. They are also going
to field phone calls in the middle of the night. If there's a clogged
toilet, they'll send the maintenance
guy, not you. Especially if you're
living 1,000 miles away, what are you going to drive
or fly there, 1,000 miles to deal with the property? No, no, no, no, no. Another thing that
they're going to do is they're going to
know the local market. So they're going
to know what rents are going for in that area. They're going to know that
well this particular part of the neighborhood,
we can actually get about $50 more than
this particular part of the neighborhood. You know, there are a whole
host of things that property management is responsible for. They are especially responsible
for dealing with the health department. If you are a rental
investor, chances are you're probably in certain
markets across the country where there are other investors. And where there are
other investors, the city tries to make
money off of investors. So they have their
Health department, right, their code
violation department. And those people ride around in
their little hybrid vehicles-- I like to think of them as
police officers with speed traps. They know how to
make money, they know how to catch flies in
the ointment so to speak. And that's what these
health inspectors do. They're going to
drive around to look for high grass in the yard. And they're going to issue you
a letter or a citation warning. If you don't get that grass
cut it's going to be $30. Maybe there's branches on
the roof from a thunderstorm. There's debris and
branches in the yard, we're going to fine you $30. Maybe kids after a football
game on a Friday night were eating McDonald's and they
walked by your rental property and threw a bag of
trash in your yard. And your tenant didn't see it
and the little hybrid vehicle, you know, health
inspector drives by and sees the bag
of trash and says, there's debris and trash in
the yard, better pick it up or we're going to fine you $300. Anyway they try to make
money off of investors. A good property
management team usually has someone on
staff who can handle that and who takes care of it. So you'll-- I get those
letters all the time. I'd never once have paid a fine. Never once. That's just part
of doing business. But that's also why you
should have a great property management team. So after a thunderstorm,
they're going to go out and check
on the property, make sure that the roof is
intact and the gutters are fine and the branches
are off the house and those sorts of things. That's what a great property
management team will do. You should also insist that
your property management team doesn't nickel and dime you. So the property
management teams that I work with across the country,
if there-- like I said, if there is a thunderstorm
or there is some problem, they're not going to charge
you a $70 site visit just to go to the house
and check on things. No, no, no, no, no. There are property management
teams that will do that. Stay away from them, you should
not be working with them. That's ridiculous. That's nickel and
[? diming ?] you. So if I've got 20
properties with one company, you better believe
that they're going to drive by and check
on my properties after a thunderstorm. Or if they get a code
violation letter in the mail because there's trash in
the yard or something else. Or there's a cracked
window on a garage pane-- I had one of that on
my properties in Michigan. The garage-- like one
of those little glass panes on the garage, there was
a cracked a piece of glass. We got a code violation
letter in the mail. The property management
team had already received the same letter and
they already took care of it. They went out and got the
little glass pane replaced and the Health department
was off of our backs. So that's the type of thing
that a property management team will do for you, you
should not be doing it yourself. So again, they're going to do
all of the criminal background checks, employment verification. You want to find out
what time of the month they're paying your rent. So most of my property
management teams will pay rent to us, the owner,
at the beginning of the month, sometimes the 15th of the
month, and sometimes the 20th of the month. It kind of just depends on what
part of the country you're in and what property management
team you're working with. So they take care of
everything and they are so vitally important to
the health and well-being of your passive income. Hire a good one and
make sure that they will work for you, not against you. All right, number seven on
the list is to rent it out. Now get the property rented. OK, you've rehabbed
the property. You've got everything
done and ready to go. And our properties for
instance, as soon as we are done and you know we're nearing
the last coat of paint that's going to go on the property,
the carpeting has just gone in and our guys are in
there vacuuming up the little pieces
of extra carpet off the floor, getting the
dust out of there, cleaning up, right? Cleaning up their materials
and things like that, your property management
team should probably already have a sign in the
yard, ready for rent. It should probably be
already listed on Craigslist or other places for rent. Maybe you do Section
8 housing and that's something you should explore. They've got it listed on
the Section 8 website. And they are ready
to get it rented, maybe they're already going
through a pile of applications that they have
from people who've already filled out
applications because they want rental properties. And they've been waiting. So a lot of my property
management teams have a waiting list. So they'll go
through those and try to pair up the
appropriate tenant with the types of properties
they were looking for. Were they looking for a three
bedroom, one bath house? Great, we've got somebody,
let's get it rented. So that house should not
sit vacant for very long. Our properties, our goal
is that within about two weeks after that last coat
of paint is on in the house, we've already got a deposit
and we have a move in date from a potential tenant. So get it rented,
get it rented fast. That's the name of the game. Now I also work with my
property management team trying to keep the
rents very competitive so that they're always rented. Meaning if my competition
is renting their houses for $750 a month, well my
property management team I've instructed them to have
it at $725 a month for rent. That way if a
potential tenant is looking at both
of our properties and my property is
rehabbed it looks great and their property
is maybe the same or even a little bit
worse, why would they pay more, $25 more a month for
that, our competition's house to rent, than mine. So I don't want to be greedy. And I want to make
sure that everyone is taken care of in this. And so I'd much rather make $25
less per house per rent just to make sure that my
tenant is constantly staying in the property
and that I won't have vacancies to worry about. And that I can get
it rented quickly. I'd rather just eat
$25 in order to not lose the $725 that I would
lose per month in rent by having it sit vacant. All right, number
eight, on our list is to take the equity
out of the house. This is the snowball effect
that I get so passionate about. This is how high
level investors are able to go from owning
one, two properties, to 100 properties in a
short amount of time. It's that snowball effect
of owning rental properties. So if you're sitting
back thinking oh, great, I've got one house. I own one house now,
I spend $50,000. And that's it. Now I'm going to have
to wait another five years so I can buy another one. No. No, absolutely not. Now with that
$50,000 house, there are so many options for
you to pull the equity out of that house and roll
it into your second and third and fourth property. So that's exactly what I did. On the first property
that I purchased, I think my total all in
cost was around $40,000. Total, after I rehabbed it,
and everything was done, it's about $40,000 right? Well the house was worth
$55,000 after I was on-- after the repair value. So it would appraise
for about $55,000. But I spent $40,000. So what can you do
with that equity? Even if you didn't have the
equity, even if I only-- it was only at $40,000. What could I do with that? Well, I could go to a
local bank and say hey, I would like to do a cash out,
and refinance on this house. Will you let me do-- put
a mortgage now on it? It's free and clear. I own it free and clear,
can you put a mortgage on it and give me cash
for the house to put a lien against the property? Sure we will. You mean it's cash flowing? It's rented and rehabbed? Of course, we will. Banks love to do
cash out refinances. For some reason
they're much easier to work with on the
back end after you've purchased the property
and rehabbed the property and it's cash flowing,
than they are just to hand you money to buy
it in the first place. I don't know, it's
just how it works. So now I'm going to pull the
equity out of that house. If I bought it for $40,000,
maybe it's worth $50,000, maybe it's worth
$55,000, the bank will typically give you 75%
or even 80% of the value. Meaning you're basically going
to get back $40,000 roughly. So it's basically
going to get back the money you just
put into it, the bank is now going to put
a lien against it and give you $40,000. What can you do
with that $40,000? Ha, buy your second property. Now your rent is paying
back that company, the bank that lent on that property. You're able to buy
your second property. Now you own this one
free and clear, right? Because the lien is
against the first house. Then what do you
do with this one? You do the same thing again. Pull the equity out
and you snowball it. And before you know it
you'll have 10 properties in a short amount of time. That's how you do it. Now there are
other options, too. You could do a home equity line
of credit on that first house. That's a little bit different
than a cash out refinance. They'll extend to you a
line of credit on the house. Basically a blank
check, zero balance. You could write a check
for this next house using your home equity line of
credit from your first house. You could go to a private
lender and work with them. And ask them for a loan
against the first house in order to buy
the second house. You know what else you could do? You could buy 10
houses free and clear, package them up together
as one portfolio, and go to a commercial
lender and ask for a commercial portfolio
cash out refinance. There are so many
different ways to then take that equity out of
that house and roll it into your next properties. That's the beauty
of using the equity to snowball your retirement,
to snowball your legacy wealth building. That's the power of
passive income right there. So you don't have
to wait five, six, seven years until you
pay off that first house. No, no, no, no, no. Use that first house to
buy your second house. Use the second house to
buy your third house. And keep it rolling and
burning and churning. That's exactly how I've done it. That's exactly how
we've been able to hit financial freedom
in our family is by doing this exact strategy. So again, you may have
a better strategy. That's wonderful if you do. You may have a
private lender who's willing to let you buy
10 properties at once. Great, that's fantastic. I'm telling you
how I've done it. This is exactly how we
did it and I can tell you that it works. So there are other-- there are a
million different ways to slice this up. But again, this is
how I've done it. So and then finally the last
step in our whole process is to rinse and repeat. We just went through
this whole process. It's the same process
that now we'll rinse and we'll do the exact same
thing on the second property. We'll do the same thing
on the third property until you've got that
financial freedom that we hope that you will hit and acquire. That's the whole
goal of doing this. I'm telling you there is no
better vehicle in the world. And there's no better country
in the world than the United States to buy-- to
buy rental properties and to build passive income. You go to other
countries, there's all kinds of onerous
laws that prohibit certain lending, certain
borrowing, certain ownership. United States lets you build
incredible passive income, incredible net worth with the
power of rental real estate. There is no better
way, I'm telling you, than owning rental properties
for long term cash flow. It's fantastic. So if you have any
questions, again, I know this was a long video. But we went through
every step of everything that I've done in order to
achieve financial freedom. If you want any
more clarification on any particular issue,
please leave your questions in the comment thread
below and I'll answer them. We also have other
videos here, and other playlists that we dive
a little bit deeper. So for instance, if you're
interested in buying turnkey properties, we've
got a whole playlist on how to do that. We've also got other
playlists on how to do everything yourself. DIY, if you want to get your
hands dirty with drywall, paint, carpet,
nails, and a hammer, we have a playlist
on that as well. We also want you to subscribe. Hit that big subscribe
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