Today, we will use a case study to calculate the returns and bring the 5 profit centers of turnkey investing closer to your understanding. Stay tuned and learn what the benefits of appreciation are, how to calculate the amortization, and why you should consider turnkey real estate investing.
What You Will Learn About 5 Profit Centers of Turnkey Investing:
- People who made it with Cash Flow Savvy
- Why money is important
- Why real estate is the fastest and the safest wealth creator
- Lee’s case study
- The benefits of appreciation
- What the amortization is and how it is calculated
- Depreciation and tax advantages
- What cash flow is
- The worth of your time
- Why you should consider turnkey real estate investing
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- Also, check these out:
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Speaker 1: This is Theriault Media.
So you wanna be a real estate investor, but you don’t wanna do the work. If there were only a way where someone else could do it for you. Now there is. Tune in here each and every Tuesday, on the Epic Real Estate Investing Show, for Turnkey Tuesdays, with your host, Mercedes Torres.
Mercedes Torres: Hello, and welcome. Welcome to Turnkey Tuesdays: Real Estate for Busy People. My name is Mercedes Torres, and I’m lucky enough to be partners in crime with Mr. Matt Theriault, creator and brains behind Epic Real Estate Investing. If this is your first time here, glad you made it, make yourself at home. If this is not your first time here, welcome back my friends, good to see you again.
So, first and foremost, I’m gonna start off this week’s episode, because I wanna acknowledge a few listeners that have totally reached out to me this week. So, O’Neill F. from Connecticut, a gentleman serving our country, he serves for the US Army Reserves. First and foremost sir, thank you for your service, and I wanna acknowledge you for reaching out. I know that you are sick of being in the rat race, so to speak, and I think I pointed you into the right direction. It was a pleasure speaking with you, sir.
Chris and Shelby. Currently living in the UK, both Americans, they went to the UK for two years for his job, and they recently, like last week, just got approved for lending. So congratulations, I so look forward to serving both of you, and really to meeting you when you come back to the country. Tina and her husband. I know you are currently living in Northern California, they’re actually from England, and they have investments in England, and they are looking to dip their toe into the water with real estate in the United States. So, thank you for considering Cash Flow Savvy, it was a great call, I hope I answered all of your questions.
And, Brian L. from Southern California, a pleasure connecting with you, sir, and answering all of your questions. You are on the right track, it looks like you’re moving at the speed of instruction, and I am absolutely honored that you’re considering Cash Flow Savvy for your next step. I mean, I can’t possibly name everybody that I spoke with this week, but I just want to commend each and every one of you that have reached out to Cash Flow Savvy, to get your questions answered, you know, to get you geared up to pick up an investment property, kudos to you.
And I really want to commend those that actually closed on investment properties this week. A huge congratulations is in order. Darren and Lisa [Verasami 00:03:02], from Northern California, they were guests on our podcast a couple of weeks ago. Darren is an executive of his own company, and Lisa, she is a real estate agent. They were both referred to us by a friend of ours, a friend of our show named Lee, from Northern California. They picked up their second property with Cash Flow Savvy, first one was in Alabama, the second one is in Indianapolis. Anderson, Indiana, to be specific. And they got smashing property, so congratulations to you both my friends.
To Laurie and Nestor, congratulations to you as well. You picked up your second property, and the second one was in Indianapolis as well, Lebanon, Indiana, to be specific. Your first one was in Alabama as well. So, funny story about Nestor, when he contacted me, he says, “Okay, we’re just gonna try one,” so when they closed on their first one, they talked about how easy it was, and then Laurie said, “Well, how fast can I pick up the second one?” And within a couple weeks she was in the queue, and congratulations on your second property guys.
Nick and Kristy S., you picked up a stunning single family residence in Birmingham, with almost a 10% cash on cash return. And to our newlyweds, Kimberly and Eric, from Southern California, they actually got married while they were in our investor queue, I find that amazing. So congratulations newlyweds not only on your marriage but definitely on the acquisition of your two properties. You guys are already off to a great start, so kudos to you. And last but not least, Miss Sarah R., from Southern California. She was referred to us by a friend of Epic Real Estate, a friend of the show.
You know, everybody becomes a friend once you start working with us, but Enrique Santana referred her to us, and he’s the crazy gentleman that was interviewed on our podcast on Turnkey Saturdays, at the end of 2018. At that time, I think he had picked up six properties, I’d like to report that Enrique is now on property number nine, so Enrique, thank you so much for referring Sarah. This isn’t about you Enrique, this is more about Sarah, congratulations on your amazing first acquisition, and by the way, Sarah is in the queue already looking at her second properties.
She’s one that closed on Monday, and on Tuesday she was right back in the queue looking for her other properties. So, kudos to all of you, congratulations, you guys are on the right track to wealth. I speak from personal experience, and you know, it makes me so happy just to see you guys think outside the box. I mean each and every one of you, when you reached out to me, this was really your first investment, just in real estate generally.
I’m honored that you allowed me to hold your hand through the entire process, but I’m even honored that you guys came back for a second property, just because you get it. And the fact that you’re doing something different is already setting you apart from just society in general. So, you took a leap of faith in Cash Flow Savvy, you’re absolutely doing something unconventional to what society thinks you should be doing to create wealth. You took a different route, and I just commend you and congratulate each and every one of you for doing that. It makes me so happy.
So, okay, enough of that, enough kudos, enough congratulations, and now let’s get on to our episode because I think what I’m gonna talk about is really important. Today I’m going to tap on the five profit centers of turnkey real estate investing. And out of those five, two of them are totally under the radar. So, you know, Matt and I often say that, you know, we are just big fans of practicing what we preach, and we’re huge fans of belonging to mastermind groups. And just surrounding yourself with a community of like-minded people, and you know, it’s really important not only for your personal development but for your business. For growth in general.
So, we’re huge fans of mastermind groups, and last week I was lucky enough to meet with my mastermind group. You know, my mastermind group is based out of Southern California. I’ve been a member of this mastermind group for less than a year, but it took me a minute to get into this group, ’cause there’s a qualifying process. And when I met with them this week, you know, the topic was, you know, money isn’t everything. And by the way, my group is not only real estate investors. It’s just people in the professional business world. So anybody that’s in business, and there’s criteria, so the business has to make an X amount of revenue in order to be accepted into this group. First invited into this group, then accepted into the group.
So, in my group there’s somebody that has an Amazon business, I mean a 10 million dollar Amazon business. There’s a woman that has a line of aesthetics, she does like beauty products, and you know, nails, and hair, and eyelash extensions. Anyways, her business, I think she’s franchising it, and just over the top. And then there’s an attorney there, so just to give you an idea, it’s a group that is super diversified in business, and they’re just growing their business.
So the topic this week was, you know, money isn’t everything. You know, there’s that old saying that says, “Money can’t buy happiness,” and it isn’t everything, it’s not the most important thing in the world, and … Well I heard all of my colleagues points, and some of them, by the way, had really great arguments. I almost begged to differ. You know, money is the most important thing in the society in which we live in, because it puts food on the table, because it puts roof over our heads, puts our kids through school. You know, it puts clothes on our kids’ backs, shoes on our kids’ feet, pays for medical bills, and it enables us to provide all of the things for the people that we love the most.
You know, if money wasn’t so important, then why do people commit at least one third of every day of their lives, I mean upwards to 40 years, working to get it? They do it, because life is better when you have money. It’s better for you, it’s better for your family, and we live in a society where one just can’t live to the fullest without money. And you know, I’ll never apologize for saying that, and neither should you if you feel the same way I do. There’s nothing to be ashamed of, you know, wanting to eat and put a roof over your head, and have a comfortable place to live. Or, you know, travel the world and try new things, taste new foods, and have an uber amount of fun. You shouldn’t apologize for that.
You know, and some of us want to look good while we’re doing it, and they want to take their family to experience the finer things in life, and taking your loved ones on that ride, there’s nothing to be ashamed of that. There’s certainly nothing wrong with wanting to be able to do all those things, especially after you’ve worked really hard and after your working days are over. And the only way you’re going to be able to do that is to make more money than you need while you’re working. The only way to do that is to work hard and to put that money to work so that it works harder for you than you do for it. And there’s no faster, simpler, easy or more dependable way for the average person to do that, than through real estate.
You know, Matt often says, you know, on YouTube, and on his podcast, and just all around, even when we’re working with our students, one on one … He always says, “Real estate is the final frontier where the average person has a legitimate chance of creating wealth.” There’s no secret to that. And today, this is why I am sharing this with you, and I bet most of you, you’ve never heard this before. In fact, I went and searched to see if somebody had ever talked about this, via books, blogs, you know, YouTube, other podcasts. So, if you find another show that shares with you what I’m about to share with you, I’d really like to know. I mean, email me, call my office, tell me. I’d really like to know about this.
Because there are a lot of people out there that are willing and ready to teach you about real estate investing, whether it’s through a real estate program, or an expensive coaching program, or those free seminars, you know what I mean? And we all know that at the end of the day, they aren’t free. Now, there’s nothing wrong with investing
In your education. In fact, I endorse it. Matt and I spent a large investment every year into our own education.
But the problem with those free seminar companies is they teach you just enough education to need the next program. And then when you get to the next program, they’ll sell you another one and then they do it again. So they teach you just enough so that you need the next program. You see, it’s a sales organization, not an educational one. And this is why Matt and I give all the education away for free. I mean, we totally have been saying that. We give you all the information, all the education for free and we reserve the right to charge for implementation.
Now, that’s a whole different subject if you will. But the tragedy is when you are doing these free real estate courses, you spend more time learning than actually doing.
Anyway. That’s a huge pet peeve of ours. And my opinion it’s typical, you hear the sizzle when you’re at these amazing events, but rarely do these events teach you the steak, so to speak.
So today I’m going to give you the bone in ribeye information and the five profit centers of turnkey real estate investing. And two of them are completely under the radar.
So first let’s look at real estate overall performance over the years. I found a Wall Street Journal article from the late 90s and they conducted a 66-year survey, back from 1926 probably as far as that these people were keeping records. I went back to the 90s article simply because that’s the one that had the longest amount of time that was surveyed because I’m trying to make a point here.
So they all compared all kinds of investment opportunities like the Dow, industrial stocks, real estate bonds, T bills. And in their charts, they actually had that stocks beat real estate by about 1%. I think the stocks were something around 12 something percent, 12.2%. And real estate had appreciated over time to like 11.1.
Now, what this study failed to show was that most people when investing in real estate, they use leverage. The typical scenario is they put 20% down and the bank brings in 80%. So that’s a five to one ratio of other people’s money being used other than yours, of which it produces five times the return. So the stocks might’ve barely beat real estate without leverage. But with leverage, real estate crashes Wall Street, it’s not a contest.
And this type of leverage isn’t available to the average person than any other vehicle other than investment in this study. I mean, you could purchase stocks on margins, but you better have some insider information to back it up or at least the reserves to back it up in the event that the stock market crashes or the option gets called.
I mean, have you ever thought about why banks will allow you to leverage real estate but not stocks? Have you ever stopped to think about that? The bank isn’t playing that game. Never go near stock or allow you to borrow funds to invest in a stock. And right there, that’s a clue in itself. So there’s profit center number one, appreciation. And when real estate is leveraged, your appreciation is boosted five times.
Now, a client of ours, Lee from northern California, he purchased a property about three and a half years ago in Birmingham, Alabama. He did the typical financing, 20% down, 80% is covered by the bank or on loan to him by the bank. So he put down approximately $25,000 for this property and the bank funded the rest.
Now, Birmingham just by default or by mistake, so to speak, I shouldn’t say it’s a mistake. But Birmingham, it’s a pretty hot market right now and in the last few years, it’s appreciated. Therefore, his money has appreciated 19% but his investment return because of this appreciation, 95%. So to calculate that you divide your down payment by the equity gained in appreciation.
So in this case, we take the $25,000 that he invested, because that’s what he used as a down payment, and you divide that by $24,000. That’s what actually gained in appreciation. Now that’s how leverage works.
Now, I am not a huge fan or a big believer in appreciation. I’m not that appreciation investor because let’s face it, nobody has a crystal ball. Nobody knows what the market’s going to do in the future. Now, we can project, we can assume just kind of based on history repeats itself, but the reality is we don’t actually know if a market is going to appreciate. It just so happened that Alabama appreciated a bit more because last year, Birmingham or Amazon announced that their next hub was going to be in Birmingham. So that caused that market to appreciate a little bit more. But nobody had that set in stone because although Amazon had talked about it, they also talked about 17 other markets that they were going to potentially open their hubs.
So Matt and I are not huge fans of the banking on appreciation, but in this case, it just so happened. So I like it. I’ll take it and I’ll go with that. But I like it. I’ll take it and I’ll go for it. Appreciation is just not an investment decision for me personally. But nonetheless, it is a profit center. And it’s profit center number one. I don’t bank on it, but it exists and I’ll take it when I can get it.
So let’s move on to profit center number two, amortization. It’s something that is an overlooked profit center in real estate, probably because very few people understand how it works and how to calculate it.
So amortization is the paying down of the debt with a fixed schedule over time. And when it comes to income property, it’s not you paying down your debt, it’s the income from the property paying down your debt, typically by the way of a tenant. Now when those payments are made, a certain portion is allocated to the principal.
So to figure out your ROI and the amortization profit center, you divide your down payment by the amount of principal paid down. So to keep it simple, I’m going to stick with Lee’s properties. And in those three years, Lee was able to pay down $3,500 in principle, divide his down payment by the $3,500 and you’ll get right around 14%. So now with profit center number one, appreciation, 95%, and now profit center number two 14%, add those all up and Lee’s three-year return is approximately 109%.
It gets better though, I know it sounds completely unrealistic, but the math doesn’t lie, people, do the math. We’ve got three profit centers to go, I’ve just named two.
Now next, depreciation. Depreciation is a tax deduction allotted to real estate investors to recover the wear and tear of the property through annual tax deductions.
So let’s go back to Lee’s property. The depreciation is distributed over 27 and a half years. That’s what’s called straight-line depreciation. And that’s how the tax code dictates how this deduction, it’s distributed over 27 years. Estimated improvements are 80% of the purchase price, as the land that comes with the property is not depreciatedable, is that even a word? You’re not able to depreciate that.
So the typical split is 20% for the land and 80% for the structure. So divide that by 27 and a half and you get about $3,500 of depreciation, $3,500 of depreciation. And you get that every single year, by the way, every year for 27 and a half years.
This is why I always harp about real estate investment, the depreciation, and the tax benefit. Because very few people sit there and explain it to you. Now, even tax professionals, they’ll just put the number into their system. But if you manually learn to calculate it, I mean it is a huge game changer. Huge.
So Lee’s estimated tax bracket is 30%, therefore the annual depreciated amount of $3,500 multiplied by the tax bracket gives you about $1,100 that Lee can deduct from his tax bill every year. Did you hear me say that? Every year.
So over those three years, the total [inaudible 00:24:38] is around $3,300 and then divide it by the initial investment of your down payment. You get a 13% ROI. Add that to our 109% that we’ve already calculated and you get 122% return.
Are you starting to see the profit centers that add up contributing to your wealth? I mean, this is contributing to your wealth creation people. No joke. Do the math.
Okay, I get excited about it because it just, now you guys know why I love real estate and specifically buying properties and holding them. It’s like a no brainer.
So the next profit center, cash flow. The whole reason why I named our business Cashflow Savvy is cash flow. Now to be specific cash flow, it’s what’s left over after all of your operating expenses. So after we pay property management and maintenance, and then after all of your debt service, so that’s your taxes, your insurance, your mortgage payment, after all, that is taken care of what’s left over and what you put in your pocket
Each and every month is called cash flow and this cash flow adds up. Well, remember all those people that I named at the beginning of the podcast that just closed on two properties? Well, the extra money that they are now putting away, that’s money that’s going into their pocket. That’s just cash flow, I didn’t factor any of the other factors that I had named into their investments. Well, they’re going to figure it out then in a couple years or even at the end of this year they’re going to see the difference, I guarantee it.
Back on track. Cash flow, this is passive income and so Lee’s property rents for $1,475, giving him annual gross rent times three years of $49,500. Okay, now we’re going to subtract the expenses, we’re going to subtract the debt service, and you get collective cash flow for those three years of $8,640, just cash flow. We then take the cash flow, divide it by Lee’s down payment of $25,000 and you will see that Lee is receiving about a 34% return on that initial investment. It all adds up, ladies and gentlemen, and Lee’s return over a three year period on his initial investment is a whopping 156%. Crazy, right? Crazy.
Now stop and think, are your stocks paying you that? Is the vehicle where you have your money parked at the moment, are you getting 156% in three years? When we annualize that, Lee’s received approximately a 52% per year just on the Birmingham income property. Now I haven’t mentioned that my friend, Lee, has picked up, I believe, eight properties and he is currently picking up two more. Not too shabby, right?
This is why I always say, ladies and gentlemen, at the very least just acquire one investment property a year for the next 20 years. Even if you divided that in half, what if you acquired one property every other year for the next 20 years? Think about what you’re doing to your family or think about what you’re doing for your family. Think about the wealth creation that you are creating for yourself, your family, your children, your legacy, who knows, maybe even the organization that you’ve adopted that you actually invest in every year because you have a strong belief in a charity if you will. Think about what that’s doing for you. If you’re able to produce a 52% return on one investment property.
Think about how it would impact your financial future if you were receiving 52% annualized return year in and year out, it’s for as long as you keep your property. Then I hear the argument, “Yeah, but you’re not always gonna get appreciation.” You’re darn right I’m not going to, this is why I don’t bank on appreciation. Let’s ignore appreciation all together and imagine it doesn’t exist at all, whatsoever, and you’ll never get it so let’s remove the appreciation from the equation. You’re still at a 16.2% annual return. How is that different than what your money is currently generating for your now? Is your investment vehicle making you a 16.2%. Think about it.
Now, the fifth profit center, oh it gets better, gets a lot better. The fifth profit center is your time. What’s your time worth to you? I don’t know guys, my time is really valuable. I’ve got a little boy, a seven year old, I enjoy picking him up from school every day and taking him to karate, and taking him to his American ninja warrior class, and taking him on his play dates. I live for that. I live for making him dinner every night. Actually, I cheat, I don’t make dinner every night but we do have dinner together every night. That’s really the only decision that you have to make, what’s right for you. Are you doing this for yourself?
Think about just real estate in general, that’s the only decision that you have to make right now so are you going to do it for yourself or are you going to have somebody else do it for you? Sure, you might save a few bucks if you do it yourself but is the savings worth your time? Is it worth your effort? Do you even know how to find, and fix, and tenant the property, and even more important, manage a property? Not just a property, the right property. If you know how, do you have really have the free time to do it yourself?
That’s on you, ladies and gentlemen but the ROI on your time is truly not something that you can calculate. We all place a different value on our time and so you need to decide what your time is worth for you. Investors who invest in cash flow and turnkey real estate properties, they place such a high value on their time. Unlike those investors who try to do it themselves, turnkey investors get cash flowing investment that deposits money into their bank account right away without the long months of the typical process of buying the property themselves.
First of all, searching for the property, finding the property, then buying it, doing the rehab. All of the normal delays that are associated with just conventional investing. I speak from personal experience, ladies and gentlemen, I’ve done my share and I know how time-consuming this is. This is why I am a huge fan of turnkey real estate investing, I’ve been there and I’ve done that. I only share it with you because I know I’ve experienced both alternatives, doing it myself and having a team doing it for me.
What did you learn this week, my friends? What did you notice? How is this different than how you’re doing it yourself and how you’ve been doing it? Or how you’ve been thinking of doing it. You could piece it all together and work by trial and error and some people choose to do that. They want to learn how to do it all themselves, they want to make all the mistakes themselves, they want to lose money themselves, to make them a better investor. They generally end up going slow or you can plug into a turnkey system and go fast.
What do you want to do, go slow or go fast? Fast, right? That’s a no brainer. There are so many options out there, ladies and gentlemen, it’s not just cash flow savvy, lots of options. Do your research, do your homework, do what you have to do but take action and don’t suffer from analysis paralysis. Don’t spend years listening to podcasts, and reading books, and going to seminars. Take action. Don’t let today’s episode, what you and I are discussing right now and what you’re currently hearing, don’t let it be a feel-good moment and then allow life to just pass you buy and suck you back into the rat race of going to work every day, and taking the kids to school, and doing soccer, and doing all those things. Don’t do that, stop.
Take action. “Here, do this. Matt and I did a lot of the work for you so go to cashflowsavvy.com, that’s savvy with two v’s, and download our free investor’s guide to passive income. I have broken it up step-by-step on how to do what we’ve done. Just move at the speed of instruction. Matt harps on that all the time, he’s like, “Move at the speed of instruction.” Travel as far as you can see and when you get there you’ll see further, I promise. If you get stuck, reach out to me, man. I mentioned a couple of people at the top of our podcast because all of you did something different, you all reached out to me and maybe I wasn’t able to help you but I sure as heck was able to point you in a direction that would allow you to take action and make a difference for yourself, your financial future, and the financial future of your loved ones.
Ladies and gentlemen, money isn’t everything but it is everything. That’s it for today, my friends, my name is Mercedes Torres and I will see you next week on the next episode of Turnkey Tuesdays.
Speaker 1: Is Wall Street failing to meet your expectations …
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