BiggerPockets Real Estate Podcast - 906: How to Become a Millionaire Through Real Estate Investing (Beginners!)

Starting point is 00:00:00 This is the Bigger Pockets podcast show 906. What's going on, everyone? This is David Green, your host of the Bigger Pockets Real Estate podcast. Join today by the Amazing, the Mysterious, the elusive. Rob, Abasolo, Rob, how's it going today? I'm doing well and I'm really excited because I remember listening to an episode that you and Brandon Turner did a long time ago about how to become a real estate millionaire in full circle moment for me.

Starting point is 00:00:25 We're doing this again. I'm excited to share our stories. So I'm going to lead us in here, man. And I want to ask you, when did you realize that you became a millionaire? I was about 30 years old. And I had never calculated my net worth. I was in Gobundance. And the elders in Gobundance were teaching us about tracking your goals and your net worth

Starting point is 00:00:43 is something to track. And I ran the numbers and thought, oh, my, I'm well over a millionaire. I was worth like $1.6 million. And I started to realize, I've been a millionaire for a long time. And I had no idea. Like I was just walking through the mall in San Francisco. I was actually working as a police. officer, but I was patrolling that area and just thinking, I'm a millionaire. I'm a millionaire.

Starting point is 00:01:05 How long have I been a millionaire? It was a surreal moment. And the reason I had no idea is because my equity, my energy was trapped in real estate. And I had only been looking at the cash flow. I hadn't been looking at all the other benefits that real estate brings. Wow, that's, that's very similar to me, if you can imagine. I actually always say I accidentally became a millionaire because I remember for me, I was filling up my truck in Los Angeles. It was an evening. And my friend and I were talking about what it takes to be a millionaire. And I was so perplexed at the concept because I didn't have a lot of money. Really? This is like, I think, the big misconception. I didn't have that much money in my bank account. But we had drilled down on what the definition

Starting point is 00:01:48 was because we looked it up. And it's like, if you sell everything you have, how much money would you have? And so I was like, okay, well, let me add up the equity in the four or five rental properties that I had. And I think it was like $990,000 in equity. And I had like $20,000 or $30,000 in my bank account. I doubt I had $30,000. I didn't have that for a very long time. But I think it was just enough to put me over it. And I remember being so disappointed that it wasn't a giant momentous and celebratory occasion. And I was like, oh, I'm a millionaire. Why do I still feel broke? Well, you kind of were, right? Because there's different ways of measuring wealth. And in today's episode, we are going to talk about what a millionaire is, the power of rental property investing,

Starting point is 00:02:29 what the heck equity is, and how to grow it through real estate and the sustainable and safe path to becoming a millionaire yourself. Well, let's hop into this. And let's just establish a baseline here. So we're all on the same page. Can you define what it means to be a millionaire? Yeah, this is very simple. You calculate your net worth. So basically that means you take all the assets you own of which cash in the bank is one of them. And then you take all the liabilities that you have, which would be money that you owe to somebody else and you subtract it from your assets. So if you were to sell your primary residence and you could sell it for $500,000, that's what the asset is worth. But if there's a $400,000 note against it, that's what your liability is.

Starting point is 00:03:08 There's a $100,000 of equity in your primary residence. And you just take this across every asset that you have. It could be jewelry. It could be other rental properties. It could be a 401k. It could be a stock portfolio, it can be cash on the bank. And it's pretty simple. But the idea is, if you sold everything you had, how much money would you have left? And would that be a million dollars? Sure. And so I think the big misconception here for a lot of people getting into this world of like calculating net worth, it is not how much cash you have in the bank account, point blank. I guess it's more how much money you could have in the bank account were you to liquidate everything on a fire sale. There you go. That's exactly right. And the reason that we do that is it's just not

Starting point is 00:03:49 wise to have all of your cash in a bank account and all of your, the energy that you've accumulated over the years in a bank account other than maybe very specific moments in the marketer in time. Yeah. So for me, this is around 2019, 2020, obviously a little bit of a different time than today, five, five, six years. How would you say it's different today than five years ago? I mean, the first thing that would be different today is a million dollars isn't worth as much as it was before. Have you ever thought about that? Like 20 years ago, 10 years ago, A million dollars then might be worth like two million dollars now because we've had so much more inflation.

Starting point is 00:04:24 Another big difference I think is that it was a lot easier to invest in real estate back then from the perspective that there were more deals to be had. It was a lot harder to invest in real estate back then from the perspective of managing those deals was a lot more difficult. We didn't have software. We didn't have CRMs. We didn't have information that you could just Google on the internet and figure out, what do I do if this happens?

Starting point is 00:04:45 We didn't have entire professions that were built on supporting people that own real estate like property management companies, cleaning companies, tax professionals that understood this. So you got a lot less help, but that meant that there was a lot less people doing it. So then if you were willing to do that harder work, it was easier to get in. Yeah, it's really interesting to me because being a millionaire seems like this very elusive, like very difficult thing to achieve. And it is in many regards. But I remember listening to this episode with you and Brandon. And the way you all introed it, Brandon gave a little disclaimer. He's like, all right, before we get into this, just to be clear, I'm a millionaire, and so is David.

Starting point is 00:05:22 And I remember listening to this. Like, I was like doing a DIY project at my house. And I remember being like, whoa, David's a millionaire? That's crazy. And then when I had that moment at the gas station, I was like, why did I feel the way I felt when I found out that David and Brandon were a millionaire? That is an awesome. You were more happy than I was a millionaire than you were than you were. I just thought it was like crazy because I'm like, this is something that only like the top tier real estate investors in the world can can achieve.

Starting point is 00:05:52 But I really think it's possible. But what I want to talk about now, we talked about how it was, you know, five, six years ago. But what about today? Do you feel given everything that you said where deal flow is easier? Now we have access to property managers today that might make things easier. But overall, do you feel like the path to becoming a millionaire is harder today in today's climate? than it was five years ago or 10 or 15 when you got started? No, I think the path itself is probably easier because there's content like this

Starting point is 00:06:23 everywhere that shows you how to do it. And then every step of the way, how do you find properties, how do you analyze properties, how do you acquire properties, how do you manage properties, how do you decide if you should sell it or if you should keep it? What financing options do you have available? There's so many more tools. It was like we were a caveman back in the day. Just I got a big rock and I got to hammer this nail.

Starting point is 00:06:43 Well, now you got all these different tools. they can accomplish the same thing. The challenging thing today is I don't think we have the same sense of urgency to accomplish it. We have a much more comfortable life right now. Yeah, I think also one of the things that I notice is that most people getting into real estate, we are typically focused on cash flow, building up that amount of money. And so I think that's where this idea is, like, you have to have a million dollars cash to be a millionaire. But it actually most of the time happens because of like the actual equity and appreciation that that you've built over time. And what I have found is it's very rarely in one single property.

Starting point is 00:07:19 When you realize this, that you were a millionaire, did you have an entire portfolio or did you have one golden goose that was just like the one that was propping you up into the real estate Hall of Fame? That was such a odd way that I found out I was a millionaire. So I had been buying properties in California in the years 2009 through 2013. and I was buying them for cash flow just like everybody else. And then the market in 2013 turned around really fast. It was literally in the spring of 2013.

Starting point is 00:07:49 It went from every house sold for under-asking price to everything was selling over-asking price. And my brain did not know how to understand how that had happened. It was like magic. I don't trust this. How could it go from bad to good? Well, looking back, it wasn't magic. I just didn't understand the fundamentals. You had all these short-sale people that lost their house in 2010 that were,

Starting point is 00:08:09 eligible to buy in 2013. We called them boomerang buyers. So they got kicked out of the market. They came flooding back in three years later after their short sale. They could get a loan. And they said, hey, I made a mistake getting an adjustable rate mortgage back in 2010. But in 2013, I can get a fixed rate mortgage. So all of the demand hit the market. And boom, real estate was strong. I sulked for about a year that I couldn't buy real estate anymore. And this is too hard, just like, you know, everybody else does. And then I finally realized I could go invest out of state. So that's when I started investing in Arizona and then Florida. But I was still just cash flow, cash flow, cash flow. That was all I was thinking about. And it was the properties

Starting point is 00:08:44 that I bought in California that had made me more money in equity growth than all of the cash flow of my entire portfolio. And that's the equity that had made me a millionaire. That's when I realized I had all this stuff that I could take that equity and go buy more properties. That's when I got into the BIR method because I became obsessed with how do I add equity to properties and then have them cash flow rather than how do I just target the most cash flow I can get. So to sum that up, the the strength of being a millionaire was the strength of the portfolio and the value that I created inside the properties, not the value I created in my bank account from the cash flow. Okay, this is awesome. And I love that we're talking about things that we never really talk

Starting point is 00:09:20 about. We're going to take a quick break, but there's so much more to get into here because we're going to be talking about things like how to identify high equity properties, which strategies work best in today's market to build long-term wealth, how to cross that hurdle when you've purchased a property but run out of cash right after the break. So stick with us. I have an uncomfortable question for you. If your rent collection drop to 80% next month, how long would your cash flow hold up? What about 70% for the next three months?

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Starting point is 00:12:07 But it's also historically been sort of complex, time-consuming, and expensive. But imagine if real estate investing was suddenly easy, all the benefits of owning real, tangible assets without the complexity and expense. That's the power of the Fundrise flagship fund. Now, you can invest in a $1.1 billion portfolio of real estate, starting with as little as $10. The portfolio features 4,700 single-family rental homes spread across the booming sunbelt. They also have 3.3 million square feet of highly sought after industrial facilities, thanks to the e-commerce wave. The flagship fund is one of the largest of its kind.

Starting point is 00:12:43 It's well diversified, and it's managed by a team of professionals. And it's now available to you. Visit fundrise.com slash BP Market to explore the fund's full portfolio, check out historical returns, and start investing in just minutes. Carefully consider the investment objectives, risks, charges, and expenses of the Fundrise Flagship Fund before investing. This and other information can be found in the fund's prospectus at fundrise.com slash flagship. This is a paid advertisement. Welcome back, future millionaires. Rob and I are here breaking down the path to becoming a millionaire through real estate. So let's jump back in.

Starting point is 00:13:12 So for everyone that's looking to take a similar path as us, tell us what are the metrics that you should be looking at when you're purchasing a house so that you can increase wealth over time going into 2024? I have those outline in the book I have coming out for bigger pockets, which I think we're going to call better than cash flow. So there are ways that you build equity within your portfolio. And then also how you can amplify cash flow. You just have to understand cash flow is for immediate gratification. And equity is for delayed gratification.

Starting point is 00:13:40 So the first thing is paying under market value. That's buying equity. The next would be what I call market appreciation equity. That's what it's like when you buy a property in an area that's going to appreciate more than other areas like the property you and I bought in Scottsdale is going to do a lot better than some property that I might buy in rural Mississippi. The next is what I call natural equity. That's understanding market economics and how much money the government's going to be printing, which will cause inflation everywhere, and that's going to have your property go up. And then the last one is forced

Starting point is 00:14:11 equity, which is what can I do to improve the property to make it worth more? If you can hit all four equity factors in a deal or maybe three of the four or even two of the four really well, you will have significant value that you created in that one property. And then as you scale this, just buying one property a year, they're turning wealth for you as you're going to work and making money and saving money and being productive. So obviously we've talked about how things were easier right over the last 10 years. But do you believe that cash flow is still possible in today's market? It is. It's just a lot harder to get. And I think that when I look at cash flow, I don't just look at getting it right now. I look at getting it over the next three years or over the next five years.

Starting point is 00:14:50 If you're going to get cash flow in today's market, you have to have an edge over other people. For instance, it's a lot easier to get cash flow in a short-term rental if you buy it right than in a traditional rental. But managing a short-term rental takes skill, understanding what people want in a short-term rental, staying at the top of the algorithms on the online travel agencies take skill. So that's not passive income anymore. If you're looking for passive income, it's incredibly difficult to find cash-lough. But if you're looking for active income, whether you're improving a commercial property, managing a short-term rental, finding a niche like medium-term rentals or doing construction and development on real estate to add

Starting point is 00:15:24 unisible cash flow, it's much easier. So that's how you can optimize cash flow. But obviously, I think people tend to sleep on the equity side of this too, which I think is incredibly important for building wealth. I mean, my opinion is you come into this thing, cash flow being the thing that you're like so infatuated with. And then over time, you realize, oh, it was equity all along. It was you.

Starting point is 00:15:45 I ignored you. So how do you go about identifying properties that have high equity potential? Because I think that this is the biggest opportunity for anyone that actually wants to build real wealth in this game. I like that. Cashflow is the really good looking guy that's the rock star in the rom-com. And equity was like her best friend from high school that was there all along. She just didn't see him until the end.

Starting point is 00:16:08 I knew you were there. I think that what you're looking for in a property is a couple things. You're looking for its highest and best use, right? How should this property be used? If it's being used as a traditional rental, is it getting the most rent that it can? Should it be converted into a short-term rental? Does it have a lot of space that could be converted? I target properties all the time.

Starting point is 00:16:29 Like I bought two last year that had huge garages on them. One of them had two garages on this really big lot that I can convert into basically second houses. I bought one cabin that had a massive garage with a room. Not a room. It had like an entire in-law quarters upstairs. And then I just converted the garage. garage part into living space and paid $65,000 to end up with a four-bedroom two-bathroom cabin, right? You can never go buy one for $65,000, but I bought a different one that had that big

Starting point is 00:16:58 structure on it and then I converted it. That added a lot of equity to that property. It's a couple hundred grand that you added just by converting it as well as more cash flow. So today's investor needs to be thinking about stuff like that. How do I add value to a property? How do I add square footage to a property? How do I add another space that could be rented to a property? And not just what's the easiest property I can get that's turnkey and I don't have to do any work. Yeah, that makes total sense. And yes, cash flow, I think super important. Obviously, you need the cash flow because you want to save that up and invest in more real estate. So I'm definitely by no means saying, hey, ignore cash flow. I think it's a delicate balance. I just, I want people to

Starting point is 00:17:39 understand that appreciation is so huge. But there's also the opposite. side of it, or I guess the flip side of appreciation, and that's debt paydown. So even if your home doesn't cash flow super well, explain to the audience why someone else paying down your loan could make you wealthy over time. Yeah, that's really when we talked about what equity is. It's how much the thing's worth versus how much you owe on it. So when you buy real estate, ideally you win on both sides. It becomes worth more through inflation or from the value that you add to it. And you owe on it less from your tenant paying off your mortgage. right? And that's why people buy a lot of real estate and just find that they became

Starting point is 00:18:17 millionaires without even realizing it because those two factors are working when we're not even paying attention to the property. You know, it's really interesting because I kind of did this this anti-real estate investor move with one of my properties. The first property I ever got in L.A. And I was cash flowing so well from it, which was great. But it appreciated so much that I was like, okay, you know, I started to really like the appreciation more. So I did this really crazy thing where I took $1,000 of my cash flow, and I applied it to principal. And I did that for like two years. And now, every time I log in, it's just so crazy to see now I'm just making normal payments. It's actually making a huge dent in the actual mortgage of that property. As that property continues to rise,

Starting point is 00:19:02 and for me, I think that's such a powerful thing because the faster I pay that off, the faster I'll just have pure profit on that entire property. And that to me is like my retirement. That's how I look at it. I keep that home when I'm 60, 65, I'll have this $2 million asset that is nearly 100% cash flow and I'll get to ride that way for so long. So I think that's another thing where people like, you know, the 30 year timeline is obviously the standard in real estate. But once you get there and you actually pay off for property, I mean, one property, in my opinion, could be your retirement. I did the exact same thing on most of the properties I bought in the beginning of my career is you just make an extra principal payment of $50, $100, $150. But when you plug the

Starting point is 00:19:43 into a calculator, what I found is that sometimes just paying that little amount would accelerate the debt pay down from 30 years to maybe 22 years or 20 years. It was really big. And the reason is something we call amortization. So when you take out a loan on a property, you get a payment that you make, but a portion of it goes to the principal, which is your loan balance. Then when that part gets paid off, that's where your net worth grows. The other portion goes to interest, which is what the lender keeps. Now, when you make extra payments towards your principal, the amount you owe, the percentage of the payment you're making that goes towards the interest goes lower to the interest and higher to the principal. So when you accelerate how much of your principal you're

Starting point is 00:20:21 paying off, you not only paid off that much on that payment, but of the next payment you make, a higher chunk goes towards the principal and a lower chunk goes towards the interest, even though your monthly payment hasn't changed. And then that just exponentially increases over time. It gets more and more and more faster. And that's one of the ways that you can accelerate how quickly you become a millionaire. Yeah, if you've never done this before, there are a lot of free calculators out there. You can go in and you can basically put in your mortgage. I think it's called like an extra payment calculator. And you can just calculate if you were to pay an extra 50, 100, 200 bucks every month, how much that will save you an interest over the course of

Starting point is 00:20:58 30 years? And just like you said, David, yeah, even putting in 50 bucks extra every single month can save you like tens of thousands of dollars of interest. It's pretty eye-opening. Yeah, bro. And that's when we were doing like 3% rates, 4% rates, when you're at 6, 7, 8% rates, it is even more impactful for every bit that you add. Yeah. So let's talk about now in today's market, there's so many ways to get into real estate. There's so many ways to build wealth. What are some of your favorite strategies for getting deals done in building wealth through those deals? Well, I like the Burr's strategy, obviously. Talk about that a lot. Yeah. And here's the reason I like Burr. It's not for what most people think, but most people just think is how fast can I scale? I have to scale. I need.

Starting point is 00:21:38 more. It's not always that, right? When you burr, it forces you to do a good job building equity in a property. It forces you to buy it below market value. Hold on. Before we do, explain what a burr is for anyone that may not be familiar. So burr's an acronym that means buy rehab, rent, refinance, repeat. And you basically just focus on each of those five principles and how to maximize the value that you're adding to real estate through it. So how do I buy it at the best price? How do I add value to it through the rehab. How do I get the best loan product possible on the refinance to get my capital out? How do I add how much rental income I can make from it, which is what I call forcing cash flow? And then how do I build systems that create efficiency in how I repeat the process of buying real estate?

Starting point is 00:22:21 But if you're always trying to buy it the best price you can, rehab is cost efficient and add as much of value as I can, like I described earlier where I'm converting garages or making properties bigger or better. If I'm turning them from a traditional rental into a short-term rental where I can get more revenue, at every level of real estate, I'm maximizing the energy that I'm creating. And then when you do this times four properties, five properties, 10 properties over time, you start to build this momentum that makes becoming a millionaire almost inevitable. Yeah, and that seems to be like the gold standard, I think, for building equity. It does take more legwork for you to do it, but it stands a test of time. You put in the work, you're going to get the

Starting point is 00:23:00 equity. I know so, I mean, I would say the majority of real estate millionaires that I know, it was mostly because they have an entire portfolio built on the Burr strategy, renovating, rehabbing, refinancing, all that good stuff. Kind of changing it up a little bit. I'm a fan of house hacking because while equity is good, cash flow is also pretty nice too. And I've always been a big believer. And I will always say this, that house hacking is the best way to get started in real estate. I think for a multitude of reasons. But I always think the fact that, that I was, I think my wife, that she allowed us to house hack our first home. And I got that $400 check from from our friend who was our roommate. And I remember thinking, oh, my goodness,

Starting point is 00:23:39 that's an extra $400 every month. And that to me is like so huge because I tell people when they're looking to get started, the faster you can get out of your mortgage and stop paying your mortgage, the faster you can really start accelerating your growth in real estate. Because if you have a $2,000 mortgage and you don't have to pay that every month because you're house hacking, maybe you have a duplex and you're like renting the other side on Airbnb. But if you're saving $2,000 a month on your mortgage, that's $24,000 a year, $48,000 in two years and some amount more than that in three years. I'm not going to do the math right now. But if you can save up that money, that's more money that you can use to go out and buy another property and it compounds like over time. If you just

Starting point is 00:24:18 keep following that strategy, we house hacked for, I think the first three houses that we owned. And we probably won't house hack anymore. But I think I've earned, you know, I've earned the ability to not house hack at this point in my career. And by the way, if you don't know what house hacking is, that's basically the premise where you rent out a room, a space, a basement, an ADU, some piece of your property to someone else, and you use that money that you get in rent to subsidize your mortgage.

Starting point is 00:24:47 Ultimately, the goal is if you can pay as little of your mortgage as possible using other people's money slash rent, then it's a beautiful thing because you're just saving that much every single month. Let's run through a very quick exercise of how powerful it is to house hack and how it's better than cash flow. Okay. So let's assume someone could get a 12% return. That's kind of a home run in real estate. Are you seeing that very often, Rob?

Starting point is 00:25:10 Yeah. Yeah. I mean, you have to work for it, but they're out there. Yeah, but it's hard to do. Okay. If you want to get $2,000 a month in cash flow, that means you have to get a 12% return on $200,000. Now, how much money do you think you have to make in order to save $200,000? I don't know, man.

Starting point is 00:25:27 And that's a lot of money to just have it to save up. So, yeah, a lot. You're going to get taxed. You have living expenses you have to pay for. Let's say you're massively frugal. You're a ninja at this. And so you have to make 300 grand in order to be able to save 200 grand. If you can make 60 grand a year, it takes you five years to get $200,000 that you can

Starting point is 00:25:48 then turn around and invest to get at a 12% return, two grand a month. If you only get a 6% return, it's going to take $400,000, which means it's going to to take 10 years to get there. Okay? Or let's say you buy a primary residence with very little money down, three and a half to five percent, you house hack and you find a way to get other people to cover your mortgage and you save $2,000 a month. You could do that in one year.

Starting point is 00:26:12 Okay. So you're looking at five years to try to save up the money to get $2,000 a month in cash flow or one year to do it house hacking and you get an asset that you then get to have appreciate over time. You have five years of appreciation on that asset. rather than waiting five years to get into the game. This is one of the reasons that I talk about. House hacking needs to be everybody's first step towards becoming a millionaire.

Starting point is 00:26:36 Oh, and by the way, you can repeat that every year for five years. What you just said is perhaps the most powerful argument for house hacking I have ever heard. I have never thought about it that way. I've thought about it the simplistic like, hey, don't pay a mortgage and it accelerates your wealth. I never realize how much money you have to invest to make $2,000 a month. That's insane. Yeah, and that's assuming you're getting a 12% return. Hardly anybody's doing that. So more realistically, you're going to have to say $400,000 takes you 10 years to get into the game, massively hard to do versus if you just get in, you start house hacking. Now you're building equity over time. That equity becomes money you can put into the next deal that you want to try to build your portfolio. It's about momentum. That's what we're talking about. Millionaires are built through momentum. Yeah, man. That's all right. Now, now I'm going to house hack again. You're bringing me back into the trenches. But. Just to prove a point that I'm still down for it.

Starting point is 00:27:29 Okay, we've got one more quick break, but when we come back, we've got one more strategy for you, and we talk about the million-dollar question, if you will, how do you keep buying real estate when you run out of cash? Right after this. What if your CRM actually did the hard work for you? I know, crazy. Re-simply lets you pull seller lists, skip-trace them at no cost,

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Starting point is 00:31:10 and use code tax deadline to get 10% off your first report. Don't overpay the IRS. Head to costsegregation.com before April 15th. Welcome back. Right before the break, Rob and I talked about real estate strategies that you can use to build wealth, like house hacking and the burr method. But we want to hit one other strategy for you. So let's get into that. Let's talk about another strategy here. I think fix and flip. This is obviously a very powerful strategy. But this is basically where you go. You acquire property. You rehab it. And then you list it on the market. And you make a money. And you make a single money. You make a money. You make a money. Making a money. Go ahead. This is great stuff. And you make money on that spread. Now, obviously, when you do this, you're not going to capitalize on the equity side of it, but it is a fast way to make cash. And the more cash you have, the more you can deploy. So I think there's, you know, there's a lot of levers that you can pull here. Depends on, do you want the cash? Is that part of your strategy? Or is, you know, buy and hold and build an equity or strategy? Yeah, that's a great point. And let's say you buy a property, you move into it.

Starting point is 00:32:15 You fix it up, like you said, live in flit. You have the opportunity to sell. it and get your energy out and put it into something else, or you have the opportunity to keep it, refinance it. It's like a live-in burr. Let's say that as part of the rehab that you did, where you fixed it up and made it nicer, you also split it into different units that could be rented out to different people, or you added some bedrooms, or you added some bathrooms so you can rent it out by the room pad split style, or you could have an ADU that you live in and rent out the main house on Airbnb. You have all these options, okay? And options build wealth, which is part of becoming a millionaire. But what you did the same in every one of these examples was you added value to the property.

Starting point is 00:32:54 You just did it in different ways. This is how real estate investors in 2024 need to be thinking, don't buy it if you cannot add value to it unless you're buying it at such a good price that there's value built in with the price you paid. Well, that's really interesting that you say that because another one of the strategies I wanted to talk about was creative finance, which is basically the strategy of buying a property non-conventionally, not using a bank. And in my specific, example, I got a property in my neighborhood 100% seller financed. The owner was retiring and he didn't want to pay capital gains tax on it. And so I was able to get into this property at a 3% interest rate where the average interest rate on a similar type of property investment loan was probably 8,

Starting point is 00:33:36 8.5% at the time. I only had to put down 10% on my $410,000 purchase versus having to put down 80 to 100,000, 20 to 25%. And I was able to get a really amazing deal because I went straight to the seller and financed this property for them. And so that to me is like, I walked into a really amazing, beautiful deal that it wouldn't have worked conventionally, but because I got it seller financed, I should cash flow about $1,000 on that specific property. Whereas anyone else who try to buy that one, it would have probably broken even or lost a little bit of money. So I think there's plenty of opportunity there as well, but, you know, there's a lot to navigate in that space as well. Great point. So I think the age old question here that people really find themselves in quite the

Starting point is 00:34:25 conundrum is they buy their first property and they say, now what? I don't have any more money. So what happens when a person runs out of money after their first or second deal? What strategies can they use to continue to grow their wealth? If they're hungry, if they want to keep doing this, if they like the real estate thing, what's next for them? I've hit this problem. Many, times in my life where I just ran out of cash. I had invested at all or I put it all in something and now I feel broke. And what I found is the biggest jumps in my business, in my growth and everything came when my back was to the wall and I was worried because I didn't have enough money. All those things that I knew I needed to do, but I really just was putting off doing

Starting point is 00:35:02 happened when I felt like, holy cow, I don't have what I need to go and get what I want. And then I made the changes. I think a lot of people are stuck in a, uh, running water at a job they don't like, but they're afraid to leave it. And if they have the ability to borrow money from other people or buy property without any money down, they just stay in that same place all the time where they're not happy. When you run out of money, my personal opinion, and not everybody has the same one, is that you need to be asking yourself, are you getting the highest and best use out of yourself? Are you investing in yourself? Are you only investing into real estate? Should you go start a business? Should you start a business while working your job?

Starting point is 00:35:39 Should you get a better job? Should you ask for a promotion? Should you go take that? leap of faith that you know you've been needing to do for a long time and haven't been doing it to increase your income so that you can go buy more real estate. Now, there's practical advice we could give people like, you could take a HELOC and you could do a cash out refinance. Those are all tools you can use. But I don't know that they're great long-term solutions if you want to be a millionaire because you're basically just moving energy from one thing to another. You are not creating new energy like when you make more money, save more money and add value to the real estate you're buying. All right. So let's set expectations for people that they're listening to this. They're

Starting point is 00:36:12 like, okay, I'm ready. I want to do it. I heard that you guys became millionaires fast. How long will it take me to become a millionaire if I do this real estate thing? Well, the first question we got to ask before that is becoming a millionaire even the goal because I was reading a study like five years ago. This was a long time ago. It was like in Forbes that talked about when I was a kid making $100,000 a year was the equivalent of making about $300,000 in today's money. Wow. Right? Because you used to hear people say, I want a six figure job. Like in a lot of markets today, what is that? It's not, you're not poor, but you're certainly not doing whatever you want. But if you're making $300,000 a year,

Starting point is 00:36:51 you're probably eating wherever you want. Your family probably has two nice cars. You're taking vacations often. You're a pretty wealthy person in that case. Well, that means becoming a millionaire today is probably the equivalent of being worth $5 million back when that article was referring to back when I was a kid, right? So is being a millionaire your actual goal? Maybe you need to have bigger goals. What I tend to tell people is that that first $100,000 in net worth you're trying to create is incredibly difficult. It is super hard. Most people will quit before they ever get to that $100,000. You have to change all your habits. You have to spend money differently. You have to make money differently. You have to learn tax laws. You have to be very disciplined with what you do.

Starting point is 00:37:31 You got to eat a lot of broccoli. You don't want to eat. And you're probably used to eating your dessert first. Most people grow up in the American economy thinking I want to be happy. I want to buy that car, buy those clothes, take that trip to Cancun. I want to put me first and they don't think about putting their future first. You got to change all of that stuff. Once you got a hundred grand, to get to a million is much easier because now you're getting into investing that money into appreciating assets that sort of compound their effect. Like we were saying, we became millionaires on accident. We're like, holy cow, I didn't even know what happened. It wasn't because I was putting that money in the bank, which is what I was paying attention to. It's because of what my

Starting point is 00:38:06 assets were doing that I wasn't paying attention to. Now, once you're a millionaire, getting to five million is even easier. Now you know the rules of the game. You've already taken your lumps. You've figured out how this thing works. Now you can scale. You can hire some people. You know what deals to look for. You know what deals to avoid. You got a network of people bringing them to you. And it goes on from there. Once you're at five million, they get to 10 million is even easier, 20 million is even easier if that's the side where you want to go. So I would say before people even say, well, how long will it take before I become a millionaire? They should say, well, how long would it take before I can become a hundred thousand there? Yeah. I think that's a, that's a

Starting point is 00:38:40 good way to put it. I think, yeah, we're just so focused on it. I think, well, I mean, listen, I do not want to downplay how great it is to be a millionaire. If you, if you're there, congratulations. You know, the bigger pockets mission is to help one million people become millionaires. And that has been the mission for a very, very long time. So, but what I want to say is it's going to happen and you're going to realize it. You're going to be like, oh, nothing's changed. I still got to buy more real estate and I still want to keep investing. I still got to build up my cash flow. So don't overthink it. just continually invest. For me, it wasn't like I calculated this. It wasn't like, oh, I need to keep

Starting point is 00:39:15 buying houses that are worth this much. It was just, I kept buying houses. I partnered with some people. I raised some money. I did deals with people. And then over the course of time, I realized, oh, I have like five, ten houses. And then I added it all up. And that's how it all came together. So it's probably going to be a very similar situation for most people. Most people aren't going into a deal saying, oh, this deal is going to make me a millionaire. They just keep buying and buying and buying. And then one day, they're like, oh, hey, look at that. So as we kind of wrap up today's episode, there is one more benefit that I wanted to talk about. Let me make a point why you think about that, a quick one. Okay, cool. It's also very difficult to come up with a linear

Starting point is 00:39:54 idea of in five years, I want to be there because I'm going to become worth $200,000 every year. When people were buying properties like me in 2014, 2015, 2015, 2016, 2017, they weren't, they were appreciating steady, but it wasn't massive, right? And then quantitative easing hit and they made a ton of money and the value of all of this real estate went up exponentially higher. I could not have predicted that. Nobody could. But what I don't know when the tide's going to rise, but I know that the number of buoys I have in the water when it goes up will have a lot to do with how much money that I end up making. So as you're on this journey and you know the right thing to do is acquire assets, add value to those assets, live reasonably. You don't get to tell yourself the

Starting point is 00:40:35 privilege of I know I'm going to make it in, you know, 2028, it's going to happen. But what might happen is you have another big run of inflation and you own all these assets and you become worth three times as much as you thought you were going to because you made wise decisions. Yeah. And there's a whole other world of benefit in the real estate millionaire journey. And that's the tax benefits, too. We're not going to talk about that today, but we've got plenty of episodes that talk about the tax benefits and tax advantages of owning real estate. And when you use those benefits, benefits, with cash flow, with debt pay down, appreciation, that's the path to becoming a real estate millionaire. That's exactly right. The tax benefits are incredibly crazy good and they're

Starting point is 00:41:17 there for a reason because you are taking risk when you try to become a millionaire through owning assets. And these tax benefits are basically a way that the government helps you to offset risk so that you continue providing housing, improving housing, fueling the economy through providing jobs, right? And if we investors are not creating value in the property and increasing their value. We're not hiring all these people that come in and do it, and that doesn't happen. So millionaires make everybody else wealthier too. That's right. We do. And one final tip for everybody at home, and then we're going to end today's episode. Listen, if you're like, hey, I really, the one thing I want, I want to be a millionaire,

Starting point is 00:41:52 I want to do this real estate thing. Like, what can I actually do today? It's a very simple and easy and actionable thing to do. Surround yourself around other real estate millionaires. I promise you the moment you do, you're going to say, oh, hey, these are all regular people. Some are smart. They're not all smarter than me, but some are. Learn from them. Attach yourself to them. Go to meetups, join the bigger pockets forums and understand that, you know, when you surround yourself around more of these types of people, you're going to say, oh, I can do this too. And the moment you believe that, the faster it will happen. That sounds great. Also, consider being a millionaire, quote, unquote, with the assets you already have, like your time, your energy, the effort you put

Starting point is 00:42:31 into life. Are you being a good steward of the resources that you have now so that you can be trusted with more later? Because if not, even if someone gifts you a million dollars with the real estate, you're probably going to fumble the ball and you're going to screw everything up. So practice excellence and responsibility with the stuff you have now and they continue to pursue acquiring more. Thanks everybody for listening. If you'd like to get more information about Rob or I, you can find it in the show notes. And if you've got a second, take a minute to leave us a review of what you thought about this podcast and let us know if you're listening to this on YouTube in the comments what your plans are to become a future millionaire yourself because we at

Starting point is 00:43:07 Bigger Pockets want to see you get there. This is David Green for Rob my brother, Abas Solo. Signing out. Thank you all for listening to the Bigger Pockets Real Estate podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify, or any other podcast platform. Our new episodes come out Monday, Wednesday, and Friday. I'm the host and executive producer of the show, Dave Meyer. The show is produced by Ian K. Copywriting is by Calicoe content, and editing is by Exodus Media. If you'd like to learn more about real estate investing or to sign up for our free newsletter, please visit www.com. The content of this podcast is for informational purposes only. All host and participant opinions are their own. Investment in any asset, real estate included, involves

Starting point is 00:44:08 risk. So use your best judgment and consult with qualified advisors before investing. You should only risk capital you can afford to lose. And remember, past performance. is not indicative of future results. Bigger Pocket's LLC disclaims all liability for direct, indirect, consequential, or other damages arising from a reliance on information presented in this podcast.

BiggerPockets Real Estate Podcast - 906: How to Become a Millionaire Through Real Estate Investing (Beginners!)

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