Epic Real Estate Investing - Fixing and Flipping vs Buying and Holding - Best Way to Create Wealth | 627

Episode Date: April 9, 2019

Today, we are sharing our opinion on the fixing and flipping vs buying and holding debate and giving you the 10 reasons why the latter is a better wealth creator. Flipping houses is fun. It can make you rich. However, holding properties generates various and often overlooked profits, which allow you to accumulate wealth. Learn what those profit centers are, how they function, and why real estate is safer than any other kind of investing. Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terrio Media. So you want to be a real estate investor, but you don't want to 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. Hello and welcome, welcome to Turnkey Tuesdays. My name is Mercedes-Torres, the Turnkey Girl, and I am lucky enough to be. partners in crime with Mr. Matt Terrio, the gentleman who created the epic real estate empire.

This is the real estate investing show for busy people. Busy people just like you who understand the importance of real estate, but don't have the time or the desire to learn everything they have to learn to do all the work yourself. If this is the first time here, glad you made it. Welcome, if this is not your first time here, welcome back. So, as many of you know, I get to speak to a lot of you who reach out to me. In fact, I think that's my favorite part of my job, is speaking out to our podcast listeners, to our clients. I love it.

I love the cool people that listen to our show and reach out. And as many of you know, you either speak with me by setting an appointment, or I get to meet you. at groups where I'm invited to speak at, like RIA groups or meetup groups, or I get to speak to you know, large real estate investors and expos. And last week, I was invited to speak at a real estate women's group. And I'm always asked the infamous question as to why I stopped fixing and flipping and why I became a buy and holder, so to speak. Now, I don't know. if any of you know this, but I get asked this quite a bit because several years ago, I did a show called Flip That House. I was on the show, and it was a great time. It was a reality show before all of the real estate reality shows that currently exist today.

You know, you've got the couple that's flipping, and then you have the two brothers that are flipping. Well, I did this way before any of them did it. And it was great fun. It was a lot of fun. It was a lot of cameras and not a lot of retaking. And the reality is it took a lot of my time because although it's a reality show, it's staged in some shape, way or form. And it took a lot of time and certainly not bashing reality shows. Reality shows are reality shows. But I chose not to continue to do it just because I really didn't like the staging of it.

I didn't like the, you know, having to paint on a camera. didn't like having to cut tile myself, just because that's just not me. I don't really paint and I don't really cut tile and I didn't feel like that was a good representation of what I was doing. But it really did take a lot of extra time. And what it really did for me was, in my mind, it was dipping into my profits because it was taking a lot longer having camera cruiser around. And anyway, long story short, I know this is a real estate investing show, meaning you don't want to do all the ins and outs and all the heavy lifting because after all, ladies and gentlemen, real estate is a lot of work. I mean, you have to first find the house. You have to make sure it's a deal and that the numbers

work for you. Then you have to find a team to rehab the property or fix it up. Then you have to past inspection. Then you have to find tenants and you have to make sure that you screen the tenants so that we collect rents. I mean, it is a lot of work. Anyway, that's probably why you're listening. Because for some reason or another, you want to get into real estate or you're already into real estate and you're smart enough to know that you want to leverage someone else's resources and expertise and efforts. I got it. I totally get it. So today, I'm going to share with you why I went from fixing and flipping to buying and holding. Now, I flipped up to 24 properties in one year. That's on average of two flips a month. And mind you, I'm in the L.A. market. So Los Angeles

numbers and Los Angeles real estate is completely different. But, The fixing and flipping is the same amount of work, whether it's a $40,000 property, an $80,000 property, or a $750,000 property. So I want to get into why I chose to go for fixing and flipping and now buying and holding. Why you ask? Well, because it makes financial sense. we're going to talk about the difference between flipping and holding and why you want to do one or the other. Actually, it's kind of a biased opinion of why holding property is so much better.

So I'm going to dive into 10 reasons as to why you should hold property. I mean, a lot of people give it a stab at flipping. They try. And I admire that. I respect that. At the end of the day, guys, it sounds really appealing because flipping houses, well, it can make you rich. You know, you put a lot of money into your pocket right away when the property sells if you did it right. And it can be a whole lot of fun. I mean, you feel like you're prospering. You feel like, you know, you're progressing towards your financial future. But the reality is you're really not. But flipping the houses can certainly make you rich, but holding them, that's what makes you wealthy. If you have an investor that's been in the real estate game for over 20 years or more, they will all say the same things to you. Hands down, if they were to start over, they would have sold less and held more unanimously. time and time again when I asked that question to veterans in the real estate world, and I ask them,

what would you have done different? Almost every single one of them says, I wish I would have held more properties. You know, as Mark Twain once said, learn from other people's mistakes as you won't be here long enough to do them all on your own. If that's the wisdom of longstanding real estate investors, take it to heart, man. You know, Mark Twain also said, don't wait to buy real estate, buy real estate, and wait. Now, there are 10 reasons why you should do this as well, and I'm going to share them with you. Okay? So I will start with the obvious, and I'm going to work my way towards the not so obvious.

And there's no particular order of importance. Know that many of these reasons will have different impacts to you and for you due to your financial situation. Some people need cash flow. Other people need tax deductions. Other people that I speak to are trying to save for their newborns college. They know that today their college is $300,000 for tuition. what's it going to be when their kid reaches 18 and gets into college? So there is no particular order of importance because they're all going to play a role in your wealth creation journey.

Okay. So if you choose to take on the real estate channel, embark on this. All right, let's start. So reason number one, appreciation. We all know that, right? appreciation. However, no one can predict it. No one has a crystal ball, but we all know because history repeats itself, appreciation will happen. Certainly, you can look back at history and you can recognize a pattern of every time that there's a bubble. Every time there's a burst,

the market bounces right back to new heights that you've never seen before. History. It's no guarantee, so to speak, but history repeating itself, the concept of supply and demand. That's fairly foolproof. Again, nobody has a crystal ball, but just based off of history. And again, supply and demand, it will happen. Demand will increase and prices go up. You know, as Matt always says, God isn't creating. any more land. We just have to build on it. And due to population demands, likely there will be a builder

that will build on our land what's left of it. Right now, there are more people walking the earth than there are homes to live in. You know, once people come to the age of independence, boy, they're going to need a place of their own. I mean, 60% of the population is a lot. I mean, 60% of the population is under the age of 30. You want to get ahead of that wave. You want to get ahead of that demand. It's already walking the earth. So let's make sure that we invest in the homes or in the roofs to put over the head of those individuals that are now coming of age that now need a home to live in. Okay. Number two, cash flow. If you haven't already guessed, that's my favorite. favorite word. Number two, cash flow is one of the main reasons why you want to buy and hold.

Now, some call it cash flow, others call it paths of income, some call it residual income. We just call it investment income. Property, we just call it investment income. Properly managed real estate is the gift that just keeps on giving every month. I mean, cash flow is a beautiful thing. Who doesn't want to have an extra couple hundred bucks in their pocket? Number three, leverage. Real estate is one of the few investment vehicles available to the average person that it empowers them with the ability to use leverage. Now, typically, people can borrow 20%. The bank lends the rest, But with that dynamic, your investment grows on the total purchase price. You only put in 20% of the purchase price and the bank puts in the remaining 80%.

But you get 100% return on all of that. You get a return on all 100% of the purchase price. your 20% investment grows at least five times the rate if they were not leveraged. Leverage is super powerful, and that's the reason why it is such a wealth creator. Now, some people get it in their heads that leverage, you know, it's not good. It's assuming new debt. You're absolutely right. But it's good debt. It's being paid down for you by someone else, your tenants. Cool.

Awesome. Moving on to number four, above average returns on investments. R.O.I. Number four is above average ROI. The ability to leverage results in a return on investment, well, it crushes Wall Street. Seriously, there is no comparison when you have the ability to use leverage. The ability to leverage positively impacts your ROI. I mean, a load for both your appreciation and your cash flow will get you above average ROI. Did you get that? Okay, cool. Number five, amortization.

Why is the ROI so important, you ask? Because that money works harder for you and it works faster for you. That's why the return on investment is so important. You get to put a little in and you get a whole bunch out. Imagine if you had to put a lot in, you get a ton out. It's relative. And ROI is critical. to creating wealth. That's why it's important because it means that your financial destination is much closer and happens much faster. Number five, amortization and principal paydown. I'm going to go back to number five because it's very commonly overlooked profit center in real estate. The tenant pays you.

They pay you every single month. They pay you their rent, and in turn, you pay down the debt of your property. You pay the mortgage on your property. Now, at first, the pay down of the principal moves kind of slow. I would agree with that. But then, as time goes on and you get closer to the end of the terms, I mean, it just hauls butt right at the end. people always forget it's not you paying down your mortgage it's your tenant paying down the mortgage now it feels like you're paying it because you're the one that's writing the check every month but it's your tenant that's giving you the rent every month so that you can in turn put it into your bank account then strike a check with that same money to pay down your mortgage

it's your tenant that's buying your investment property and all all that happens through amortization. Number six, depreciation. Now, the tax code allows property owners to take an annual deduction of 27 and a half years on their real estate, specifically the structure that sits on the land. Now, Uncle Sam, they're not going to allow you to depreciate the land itself, but they will give you an annual allowance, so to speak, to compensate you for the wear and tear of your building that the property sits on. Further, when it comes to tax benefits and real estate, the IRS sees real estate investing as a business, whether it's full-time or part-time.

They see it as a business. Therefore, they allow you to take a business expense deduction as well as the depreciation. It's a great tax shelter. That is the great tax benefit of owning real estate investing properties. Why is it so important? Well, we all have to do this. Currently, it's tax time, and sometimes it's painful for many of us. But the good thing about real estate is it really minimizes the amount of money that you have to give to Uncle Sam.

Okay. So it's our biggest expense in life. I mean, 50% of our lifetime's income goes to Uncle Sam in one shape, way, or form. 50%. That's no exaggeration. I mean, it makes me sick to my stomach. And as my daddy always says, there's two things. life that are guaranteed. It's death and taxes. So if you want to escape the rat race, you do that by increasing your monthly income and decreasing your expenses. You might as well start off with a big and with a, you may as well start off with the biggest expense first, taxes. Taxes by far for each and every one of you, unbeknownst to you maybe, is your big expense of life. And real estate helps you cut that back. You can still drink your daily Starbucks latte or you can still get your snack at your local convenience store. That's not going to make a big

impact on your wealth creation. But cutting down on your tax bill will. So with one property a year, just one property or at the very worst, one property every two years, you start eliminating, or actually you start decreasing your bill to Uncle Sam. Number seven, hedge against inflation. Real estate hedges against inflation. Now, inflation can be, or I don't know, can be a rather complicated subject for many people to grasp. I mean, I've been talking about inflation for a very long time. And I've got to tell you, for the first few years when I was talking about it, I didn't really totally understand it in hindsight.

Over the years, I realized, wow, it's a really big deal. Simply put, inflation is the reduction of the buying power of your dollar. you think back and say a nice formal dress or gentlemen a nice suit a thousand dollars today if you look back say 30 years ago that same dress or suit may have cost you a hundred bucks today it's a thousand bucks 30 years ago a hundred bucks well is the suit more expensive no the material is the same there's no additional material on there it's not more expensive. It's the buying power of your dollar has decreased. It takes more of those dollars to consume that. That's when inflation is. And when your money is invested in real estate, the buying power is essentially preserved. In fact, history shows that inflation and property values, they run neck and neck. And with property values, actually slightly outperforming, inflation so it preserves. As your money grows in real estate, it keeps up and slightly outpaces

inflation. So it preserves the buying power of your dollar. Rising rents are another part of real estate that no one can predict. But rising rents, well, history shows like appreciation, that rents will rise. They've risen over time. And with the supply and demand factor working in your favor for a long, foreseeable future, raising rents, it's almost guaranteed. I mean, they'll move up and down at different paces for sure. But over time, they are going to rise. It's inevitable.

This is really important because when you purchase your property, number one, you lock in the price and two, If it's a fixed rate, like a 30-year fix that I constantly harp on my clients, you've locked in your expenses for 30 years while your cost for your investment properties stay fixed. And because of the rising rents, your income increases. Therefore, your profit margin expands. Got it? Oh, my God. It's my most. favorite part of real estate. Okay, number nine, financial freedom. You guys hear me harp about this all the time. Yes, if you look at real estate investing as long term as an infinite play, the income from that real estate can set you free. I mean, it really can what you can accomplish in a 10-year span. I mean, just 10 years,

not to mention 20 or 30, but in just 10 years, you can accomplish what the top 1% of the nation fails to do. It's create wealth. Something the retirement plans and the pensions

and the 401Ks, they're unable to do that. You can't put money in there fast enough. You can't save fast enough. It's not difficult for the average person to achieve in just 10 years what 95% of the population is unable to do in 40. Did you get that? It's really accessible. It's really probable. With the focused mindset, the right resources, the systems and experience in place, the average person can do it. It's not difficult for them to achieve in just 10 years what 95% of the population is unable to do and

totally failing to do in 40 years. That's what real estate can do for you. And that's why I'm obsessed with real estate. You literally can do with real estate what the average person is not able to do. Think about it. Okay. Moving on to number 10, drum roll, please. You can control real estate like no other investment vehicle. If you're investing in a business and you're a business owner, you make the business decisions. You are the one that takes complete control. And as far as an investment goes, it's straight up your investment.

You can control the real estate like no way. other investment. You can't control your stocks. You can force appreciation with real estate. You can improve its performance. You can change it. You can modify it. You can sell it and turn it into cash. You can sit on it and benefit from the appreciation from the cash flow. You can do whatever you want with it while decreasing your time and management. Or you can just do nothing and just let it sit and let it ride for the next 20, 30 years. It's up to you what you do with your real estate. You call the shots. You control the real estate. I mean, that's my favorite thing of all, is you have full total control. You just don't have that with

Wall Street. You don't have that with Bitcoin. You don't have that with your 401ks or your IRAs. Unfortunately, you don't even have that with your pensions. How many people, I speak to so many individuals that are above the age of 60 that have worked 40 years with their employer thinking they're right at the very end. And right before they reach their retirement, they get laid off. Isn't that insane? I've spoken to many individuals that thought retirement and their pension was right around the corner to learn that their company is shutting down or they're being laid off. It's just tragic. Control. Control your investment vehicles because you should be able to control everything about your life and your money.

All righty, have I just converted you? Have I just given you enough reason to think I am not going to be a fix and flipper? I am going to buy and hold real estate. Okay, so let's review those 10 reasons. Why you should hold real estate. Number one, appreciation. Number two, cash flow. Number three, leverage.

Number four, real estate gives you a, above average ROI, better than any other investment vehicles. Number five, amortization. Number six, depreciation. Number seven, you hedge against inflation. You preserve your dollars. Number eight, rising rents. Rising rents is one of the main reasons why you should jump into real estate

because your money will get bigger and bigger over time. Number nine, financial freedom. And number 10, above all, number 10, control. You get to control your investment vehicle in any shape, way, or form that you see fit. And what will that do? All of these 10 reasons will allow you a faster and cleaner course to the creation of wealth and financial freedom. Have I just converted you?

Well, if you want to start by holding income property and you want to start creating your passive income, I'd love to help you make that happen. Reach out to me, send me an email, or reach out to one of our cash flow savvy specialists. You can go to passive income audit.com. that's passive income audit.com. You can book a call with me or one of our investment strategist or go to cashflow savvy.com. Download the frustrated investors guide to passive income. That's cash flow savvy with 2Vs.com. Download the frustrated investors guide to passive income. It's completely free. And it shows you how Matt and I escape the rat race in less than

four years. All righty, my friends. Great to see you again. I will catch you on the next episode of Turnkey Tuesdays. Have an epic day. Your portfolio has seen better days. But this too shall pass. And the best for you is yet to come. Together, we'll get you there faster. We're cash flow savvy. And we'd like to share some information with you that will show you how you can take control of your financial future and accelerate its arrival. Go to cashflow savvy.com. More building, less waiting. Cashflow savvy.com.

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