Once you have shifted your mindset towards creating streams of income (and you have decided that real estate is the avenue) learn to cut out the risk and leverage more than money in order to build your passive income portfolio. Wealth creation gets a big boost when you utilize these risk management strategies. Just a few steps that could make 2017 the year to experience Epic Wealth.
What You Will Learn About How to Eliminate Virtually All of Your Risk Investing in Real Estate for More Wealth Creation:
Learn the key to boosting your wealth creation
Multiple ways you can put leverage to work for you
The most important piece of the passive income puzzle
How you can strengthen your risk management strategy
Ways to protect yourself from natural and economic risk
Why you should invest in real estate for cash flow
- How you can simply access wealth creation
Tips for minimizing your risk in real estate
Ways to diversify your relationships for better success
More ways to build and preserve your wealth
Read the Transcript:
Matt Theriault: Today's episode is sponsored by the Epic Wealth Experience, a live event that presents a revolutionary philosophy for understanding the building of wealth through real estate. You know how some people want to get involve in real estate investing but they don't have the time, they've already got a full time job, they've got family obligations, and/or they're running their own business already. You know how some people want to get involve in real estate investing, but they don't have a know-how, they don't know where to begin, they don't know what market to invest in, they don't know what type of properties to invest in, and you know how some people want to get involve in real estate investing but they don't have the money. I mean, they're already living paycheck to paycheck, they think they're max out on their credit, their monthly overhead is just so high there's nothing left at the end of the month. What all that really comes down to is fear. When any of these conditions are present for someone, fear sets in and it stops them dead in their track, and they do nothing, and tomorrow is the same as it was today.
At the Epic Wealth experience, there's a system in place that helps people get involve in cash flow investment properties from all across the country. There's also a system in place where an expert will hold you by the hand and walk you through the process from beginning to end. There's also a system in place that can arrange for people cash flowing investments of zero to no money down. What these systems do is give people the confidence and the ability to move forward and create multiple streams of income so that they can escape the rat race once and for all, living a life of options. I mean, imagine waking up each and every morning getting out of bed because you want to, as oppose to you having to. That's the type of life the Epic Wealth Experience can create for the busiest of people. Go to EpicWealthExperience.com for more information, and to reserve your seat for the next event. EpicWealthExperience.com. Go to EpicWealthExperience.com.
Narrator: This is Theriault Media. It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so. You don’t have a money problem, you have an idea problem. Welcome to the final frontier where the average person has a legitimate shot at creating epic wealth. Your host, Matt Theriault..
Matt Theriault: Hello, and welcome to the Creating Epic Wealth show, the revolutionary new money show disguised as a real estate show, as real estate is the final frontier where the average person has a legitimate shot at creating epic wealth. You really just don't have a chance at any sort of financial freedom unless you incorporate real estate into your financial plan. If you just don't have the time to do it, nor the desire to take on all of that heavy-lifting then this is just the show for you. So glad you found us.
Last week, you made two important decisions, you decided to shift your focus and efforts from building piles of money to creating streams of money, and you decided to use real estate as your passive income vehicle. Great decisions by the way. As you start putting action behind these decisions, you're reading and learning about real estate investments, you're hunting for properties, you’re analyzing deals, you've liquidated some of your under-performing assets, you've now got the capital to pick up that first investment property. You start negotiating, you start and closing deal, and you're renovating and you're repairing properties, you're building your team, you're hiring property managers, contractors, and other support staff. After a few months of front loading all that work, you rent the property, and bam! The hard work pays off, you get your first rental deposit. Cha-ching, or not.
See, after a few weeks this is what happens. You got a call from a tenant, they've lost their job, they need some time to make up the rent. Then the following week they call about the water damage that has happened due to the leaky pipe under the sink, so you dispatch your handyman, he needs to call a specialist to dry the place out. Then a handyman sends you a bill larger than you expected of course, you then do the math and realize, "Oh my goodness! It's going to take an entire year of rent to cover that bill." It's going to take a year of no more mishaps, God willing, just to get back to even. When all you really want, you just want a responsible tenant in a quality property that pays the rent on time, but instead you're wondering, "What have I gotten myself into?" You see, if you get this part wrong, that's pretty much what happens. Tenants have endless excuses as to why their rent’s going to be late. Properties break down, contractors overcharge, and in your interest to move forward financially, you realize you're actually moving backwards. But, when you get this part right, you find responsible tenants that pay their rent on time every month. You find low maintenance properties and you work with competent licensed contractors that care for your business as much as they do their own. Your dreams of passive income start to become a reality. As I mentioned previously that the key to getting passive income and overall wealth creation to materialize is leverage. Leverage. Leverage is the rocket fuel that's going to make your journey to financial freedom, not only exponentially faster but significantly easier.
Now, when most people hear the word 'leverage', the first thing that they think of is the leveraging of someone else's money. In most instances, a mortgage via a bank. The typical scenarios, you invest 20% of your own money and the bank provides the rest, 80%. There's a 5:1 ratio of other people's money to your money, and I'll show you how this works and how rocket fuels reboost your wealth creation, how it is rocket fuel for your wealth creation. I'll use my client Jerry's investment from a few years ago in Birmingham Alabama. He paid $126,000 for a really nice 3 bed, 2 bath property, 126 grand in, he put 20% down, the bank brought in the rest. Since his purchase, the property has appreciated 19%. Birmingham has a booming market over the last few years, and it's appreciated in 19% and is now valued right at a 150 grand, giving him a gain of $24,000 in equity. He gained $24,000 in equity. Jerry put 20% down on that property right? So Jerry put down 25,000, he earned $24,000 of equity producing a 95% return. The property appreciated in 19%, but Jerry's investment appreciated 95%. That's how leverage works. There's your rocket fuel.
I'll share with you how this fuel boost your real estate investments in ways that it can't with your other investment options. For example, after hours of research I found an article in the Wall Street journal, dated back September 30th, 1996. It's comparing the average annual rate of return of stocks versus other investments. There are countless other articles and studies out there that you could refer to, but I chose this particular one because it represents the longest period of time that I could find of any other study. It's from 1926 to 1992. The study spans 66 years. If you could see what I'm seeing right now, but you can't, but the headline reads, "Dowell Industrials have been a wise investment decision." Dowell industrials have been a wise investment decision. In the article, it slanted toward leading the reader to believe that had they just invested in the Dowell Industrials, the small stocks of the Dowell Industrials, and just kind of left their money there, over that period they would have received an average annual rate of return of 12.5%. 12.5%, more than any other option in the article. The chart actually shows a respectable 11.1% for real estate, so that 12.5% for the small stocks, 11.1% for real estate, 5.2% for intermediate term bonds, and 3.7% for treasury bills.
What the study doesn't show though is that most people, when investing in real estate use leverage. The average person doesn't have access to leverage for the other investment options, but for real estate they do. The bank is not going to loan you money to buy a stock, no. Even if Bill Gates gave you a personal guarantee on that Microsoft stock, the bank would still not make that loan, but they'll do it everyday on real estate. Given the typical 5:1 ratio we just talked about, real estate's returns in that article jumped up to 55%, absolutely crushing the Dowell Industrials. That doesn't include the passive income received while holding the real estate, which is really incalculable but indeed significant, and what's more, the tax deductions that a company real estate of which are not available with stocks, bonds, or treasury bills increase your profit margin even further by mitigating your biggest expense in life, taxes. This is how the leverage of money serves as rocket fuel for your real estate investing. Well, that's all fine and dandy but what about the time required to find, fund, fix, and manage the deal, right? Glad you asked.
That's where the second type of leverage comes into play, the leverage of other people's expertise. The leverage of other people's money, that creates your wealth faster and the leverage of other people's expertise creates your wealth easier. This is the most important piece of the puzzle. The most important piece of the passive income puzzle if you want to scale. You don't want to interview endless people to find just the right tenant, you got people for that. You don't want to receive calls about leaky faucets, no, you've got people for that. You don't want to fix the air conditioner when it breaks down, no, you've got people for that. If you bought a Mcdonald's franchise, you wouldn't clean the grill, salt the fries, and man the cash register, would you? If you did, well, your income wouldn't be passive. Well the same goes for real estate.
Most people think if they want passive income from real estate they're going to have the manage the real estate. Most people sadly and tragically, they're deterred from real estate investments because they don't want the headaches of being a landlord. It's nonsense. That's not how it's done. You don't manage real estate, you manage managers to manage real estate. That one distinction right there, depending on the size of your real estate portfolio, that's the difference between 4 hours a day and 4 hours a month. Big difference. Yeah, but leveraging money, that's risky. Leveraging others to watch your money only compounds that risk. True, to some degree, if you do it wrong. Absolutely false, if you do it right. This is going to be a step-by-step process here. I'm going to share with you to virtually eliminate your risk in real estate.
You see, risk management begins with your strategy. You must have an income based strategy, meaning, you do not invest a single dime into a single property unless it pays you more each month than it cost you to own it. When a property pays you more than what it cost, what's left is called cash flow, that's your passive income. You don't wait for appreciation to buy real estate, buy for cash flow and wait. Do not gamble on appreciation, do not try to time the market, do not speculate, period. Appreciation that's great, and it's going to happen, but it's the icing on the cake. Invest for cash flow. That right there, that's the cake. That's where risk management begins.
Now, risk management resumes and strengthens through diversification. You're going to want to diversify your portfolio, specifically the locations of your properties. You may have heard that real estate is local, yeah, indeed true. You see, by diversifying your real estate investments geographically, you protect yourself from natural and economic risk. What I've done here with just that, well, we got more to eliminating risk. I'm going to show you what there is to do next to minimize risk even further. This risk management tip, it cost me $300,000 to learn, and I am going to give it to you for free, right after this.
Narrator: Do you have doubts about your current plan for retirement actually panning out? Imagine revolutionizing your retirement plans so that it pays you right now, and in retirement. Change one thing one time and that revolution can be yours. That's bad news for Wall Street but great news for you. We are Cash Flow Savvy, and we'd like to offer you free information that will show you how one simple tweak can cause your retirement plan to pay you right now, and in retirement, and it's yours for free. For the secret your financial planner doesn't want you to know, go to cashflowsavvy.com. That's cashflowsavvy.com.
Now, back to creating your epic wealth.
Matt: Real estate is so risky. You've heard that before, right? It's so risky. No it's not. No it's not, not if you do it right. If you do it right, it's actually the safest investment option you have. Step one in risk management is to invest for cash flow, that's step one. Forget appreciation, meaning it's great. Appreciation, it's going to happen for you, just don't factor into your decision process. If a property doesn't produce positive cash flow, then you don't buy it, period. That's step number one. Step number two in risk management is to diversify the geography of your portfolio. Don't have all of your portfolio in one market. By doing this, by diversifying the geography, you protect yourself from natural and economic risks, stuff that's local. Those local risks, so you don't want to diversify the geography.
Now step three, and I bet you won't hear this anywhere, no. This tip I'm about to share with you cost me $300,000 to learn. I'd likely to have paid a coach, $100,000 for this tip. That would have been a bargain. Instead I went to the school of hard knocks and paid $300,000 for this lesson, and I'm going to give to you for free. Here it is.
Step number three is to diversify your teams. Step two is diversify the geography of your real estate, step two is to diversify the teams that run your real estate. You're going to want to have at least two property management relationships in each market. You need at least two property management relationships in each market, you need two realtor relationships in each market, and you need two licensed contractor relationships in each market.
Now, here's the secret. Here's the secret to managing your risk by diversifying your teams, is to make sure that they all know about each other. You see, by keeping no secrets about who you're working with, you're quickly going to notice how operating costs, those tend to drop. Oh my gosh, what happened to all the repairs? And property performance tends to rise. Oh my god, all the rents are showing up on time, and my tenants are staying longer. It's a big one. Keep no secrets about who you're working with. I wish someone would have told me that when I got started, but I didn't. I had to learn this one the hard way, like I said, this was a $300,000 lesson. When we meet, when our paths cross, ask me about it. I'll tell you all about it. It's a great story. It's a very expensive story, and very painful at the time but it does make for a good story so when we meet, ask me that. Alright.
Step three, diversify your teams. Step four, the next one is to diversify your property types. If you start with single family properties like most people do, after you've got several of those under your belt, start looking at duplexes, start looking at fourplexes, and kind of start what the intent or the mindset of it. You're going to be working your way up to a larger multifamily properties, and then potentially, to commercial properties and better developments. See, diversifying your property types, that's going to strengthen your equity and your cash flow positions. It's going to preserve your wealth a lot better.
Here's how my business is set up. I'm working currently in 12 different markets, and in each market, I have a project manager that manages my teams. I have a one project manager that manages my teams and each team consist of a property manager, a contractor, and a realtor. Now each team, like I mentioned, is aware of the others' existence and I do this intentionally, because that this inherent element of competition, it increases performance and it decreases expenses. My clients and I benefit significantly from this. You see, in many of my markets, the combined portfolios of my clients and my personal holdings, a lot of my properties are right next door to my clients' properties, that makes up a significant portion of each team's business. What I found this to result in is preferential treatment. Simply put, my clients and I are able to leverage each other's' portfolio for stellar management of our assets. I have the same setup in each market. The people that work with us, they benefit from our relationships, and the sheer volume of business that we represent to each team member, because if they upset one of us then they lose our business, they lose a good portion of their business. If gone up, it's going to be painful for them.
Now I remember in one of my client's memphis properties, Sandra, she had a pretty significant bath tub backup in one of our units. No need to spare the details because they're not pretty. I mean just imagine the worst type of sewer backup you could imagine, and then multiply that by two. This had happened on a Friday evening and I got a call on Saturday afternoon for my property manager, and he told me the entire story of how much damage there was, and how awful the smell was. It just kept piling it on and piling it on on the story of what had actually happened and he kept on saying, "Well, this is what needs to be done," and all I could have hear in my head dollar signs, and a cha-ching, cha-ching, cha-ching, and not good dollar signs, bad dollar signs leaving me. I mean how much is this going to cost me? Then to finish the story with, but don't worry about it Matt, I love you guys, I love your business, and I'm going to take care of your client. My guys are over there right now and within the hour, that place is going to look as good as new. By the way Matt, I picked up the tub on this one just for you to show my appreciation for all the business you've given us, and he said, "Enjoy the weekend," and he hung up the phone.
Now, my property managers, they don't pick up the checks very often, but they do make our properties a priority. That's what strength in numbers does for you, and that's how my clients collectively benefit from each other. Further, my clients, they're busy people, and they're smart people. They understand that. If you want real estate done right, you don't do it yourself, meaning, by the time they would find a deal, booked their airfare, rent a car, pay the hotel, pay for their food, fix the property, find the tenant for the property, interview on higher property manager, and then taking into account the number of days they'd have to take off work, they might have well of just paid our fee and had us do everything for them. That'd be a wash, right? Actually, when you work with us, it's better than a wash because the seller of the property pays our fee. The clients don't pay our fee, the seller pays the fee. Our clients pay us nothing of which means it's straight profit for you to have our team do all of the work for you. Not to mention, you save something even more valuable than money, your time.
There's a deal that we closed in Indianapolis recently for Sheryl. She's at San Francisco. Property was valued at 135,000, she got it for 125,000, so 10 grand under fair market value. She's got a long-term tenant with a lease in place for 1,150 per month. Right there, that's a cash and cash return of 13%. Then another property we just closed recently in St. Louis for Raymond, he's at of Richmond, Virginia, and his property was valued at 110, he got it for 97, and it's newly rehabbed, got a tenant in place. The tenant is paying 875 per month, giving Ray a cash-on-cash return of 12%. Then we closed a deal recently with Gary, Gary out of Pasadena. We did this deal inside of his 401K. Gary had about a hundred grand in his 401K, just sitting there. So we set Gary up so that he could self-direct his 401K and invest in real estate. His properties in Birmingham, Alabama is valued at 145, he picked it up for 139, so 6 grand under on the market value, had a long-term tenant in place paying 1,375 per month. Now Gary, he only had to use $27,800 from his 401K as his 20% downpayment, and in about 18 months his property had appreciated 6% to 153. In 18 months it's appreciated 6% bumping his 401K value from 100,000 to 225,900, and a cash-on-cash return from his rental income was 13.5%. All in a tax-free environment. He more than doubled the value of his retirement account with one transaction. Well done Gary, nothing makes me happy than to see results like yours.
Now you've seen how I've set up my business or you've heard how I set up my business to leverage the expertise of others and virtually eliminate the risks, and you've seen how my clients benefit from that as well. But enough about them, enough about me, let's talk about you. I'm going to do that right after this.
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Matt: That's it for today. We'll pick up from where we left off right here next week. See you then.
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