Epic Real Estate Investing - How to Escape the Rat Race and Get Rich Quicker | 500

Episode Date: October 19, 2018

Be patient and get rich quicker! Find out how in today’s episode with Matt recapping the best moments from the previous Epic Intensive, live from Boston! Learn the formula for escaping the rat race, how to leapfrog your finances in order to get rich quicker, why you should continually improve and accelerate your ROI, and why patience is speed. Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terio Media. Hey, this is Matt. Welcome to another episode of Financial Freedom Friday. This is episode 500. All right, so I'm at the Epic Intensive. We're here in Boston. We've just been here a couple days. And, you know, I have this session that I wanted to recreate.

I just don't know if I'm going to be able to. I don't even know if it's going to be applicable. But at the last intensive, we were talking about escaping the rapids. I mean, that's what it's all about. That's why everybody is here. They all flew in and drove in from all over the... country to be here to learn how to escape the rat race. And after enough conversation going back and forth, you know, with the crowd and with individuals during the breaks, we're really starting to hear

that people's actions are not in alignment with what they say that they want. So in this particular session, fortunately, we've caught it on camera, so it will live forever. But we talked about the actions that they actually are taking and how they're actually working against each other and getting them out of the rat race. So I would just want you to look at this for you. I mean, There's some math and stuff in there, and I don't even know if the math is accurate. Guy did it really fast because it was very impromptu. And it was just off script, off the cuff. But listen to the message and really look at yourself and where you are in your situation

and see if your actions are in alignment, if they're matching with what you actually want. If you want to escape the rat race, it's very important that you take specific actions. And you take those traditional actions everyone else is taking, what the majority of population is taken. It's probably going the wrong direction on how you think it's going. So I'll end there. Go ahead and enjoy. My opinion, I don't think anyone else really teaches this, what I'm going to share with you. Rat Race Escape Part 2.

We've taken an analysis of what, our assets, both the tangible and the intangible. We know our strengths. We know our weaknesses. We've got our freedom number. Now, what do we do next? We're going to start strategizing your escape. So there's an example. You should have something that looks over here like this, where you've laid out your assets, your value, and the ROI.

that you're getting for each of them. So what I want you to do, start putting them in order with the highest ROI at the top. Eric's question was, he's got three income properties, and you just need help calculate an ROI. And they're paid off free and clear. What's the value of income property number one? What's our rent? 1250 a month? So we've got 1250. So for the year, our annual gross is going to equal 15,000. So I'm going to deduct 40% for the taxes, insurance, vacancy, maintenance.

Our net income on these properties is $9,000 a year. Now I'm going to divide that by the value. We've got $155,000 here. 5.8%. You see how we got that? This is how much the value is. It doesn't matter how much you put in now

after the first year. It's how much they're worth. It's your return on the equity. So if we do that, so I'll bust through these others really quickly, now that you know the equation. So what is your freedom number, Eric? 10,000.

Okay, so we're not there yet. All right? Make note of these, and then transform over in this way, and then we'll come back to that. Okay? So Robert Primary Residence is actually a multi-unit, right? So he has three units. He lives in one.

on the 258, 1890. So there's his debt service. So what's the income from the other two units? Okay, the rent, 925 and 8, 20. 1745. Okay, so we're negative cash flowing, right? But it's your primary residence.

So you got $92,000 of equity. These? You're going to increase them today? Very good. Okay? I like it. But I would say your ROI on this 92 right now is zero. But if we go up to 1,300 and 1,200,

okay, so if we get that, that's going to be 25, times this by 1,500. So even with that nice, we're still negative. Better. You got to live somewhere. But what I'm looking at is the return of on this investment is still zero. So hold on to that thought, okay?

Hold on to that thought. Eric, you hold on to yours. There was another example of good scenario over here. John has a pile of wood, that I hear you correctly, okay? And this is part of your business and how you earn your living. So you've got this asset of this, that's a log. All right, so you were saying the value of this asset right? now is how much that's basically worth 40,000 if he liquidated it but this is

actually part of what he's turning into a business so this is really the the fuel for his active income okay we're looking to create passive income is how we escape the rat rate because we want our passive income our residual income to be higher than our expenses right so just hold on to that okay and then there was another question over here and so you had a different scenario so he's got a A reward coming to him when he leaves his business or leaves his job. And if you left today, what would that be valued at? $250,000.

Okay. So he's got $250,000. But he has to quit his job to get it. This is good. This is transitioning into something that I was hearing last night as well. There's people were talking about debt and how they, even though they're cash flowing and it's good debt, they want to get rid of the debt, right? There was something yesterday was, uh,

had an asset that continues to appreciate, but it doesn't create any residual income. So the formula for escaping the rat race is to get your residual income above your expenses. Now, none of this is wrong holding on to it this way. It just depends on what your goal is. What's your priority? If your priority is to escape the rat race, then you're out of sequence with what you have going on here. You know what I'm saying? You can still do this. The 401k and the IRA thing that Amy was talking about yesterday, great strategy. It just might not be the first one that you want to

pursue. Paying off your house, you get to sleep well at night and it feels very comfortable, but it just might not be the first thing that you want to pursue. No one has ever escaped the rat race on just having no debt. So escaping the rat race is looking at your assets and how do we turn what we have right now into residual income and then once we've escaped then we let the residual income go ahead and replenish okay it's just a way to do it so you have to decide what is most important to you right I would be looking at this $250,000 this is my job what was your your freedom number 1300 or 30,000 okay so it'd be difficult to take 250 grand to turn into 13,000

I mean, you have to get some pretty creative deals. So I would know I have this, but I would probably deploy other assets until I got to a point where, all right, I can close the gap with this. That's kind of how I would be thinking. Because it's his job, right? The same thing for John. Like this is going to be his source of income. This is a good asset.

What was your freedom number, John? 5,000? Yeah, taking 40 grand turning into 5 grand a month. That's going to be a little bit tough. But if you got to a point where you deployed some other assets that you have into residual income, and then you got to a point where $40,000 was a pretty easy number to go ahead and deploy it to close that gap, then I'd probably start to looking at this. So it's a priority thing.

And it's not, I'm not saying be irresponsible and quit your job, get the $250 and do this or liquidate all of your properties here. Like I want you to, this is why we list them all out so we know what to attack first. It's just a priority. What is most important to you? And you're all here because escaping the rat race was a pretty cool name for the intensive and you wanted to learn how to do that. So I would imagine that it's high up on all of your priority list. Maybe it's number one, maybe number two, but it's up there.

Is it higher than paying off your house and being debt-free on your house? Probably, yeah. Is it higher than having the security or the comfort of being debt-free on all your credit cards? Yeah, okay, so those are the types of things. is it most important to you? Because in my opinion, I really believe there's only two reasons that people don't get out of the rat race in a reasonable amount of time once they learn how.

Is one, they don't take the action or two, they don't know how, they don't know what to do first, or it's just not that important to them. So let's look at this. Now you've got your assets on the right-hand side sequenced in from highest to lowest. And this is a good thing,

because people ask me, what is a good deal? This is a very frequent question. What is a good ROI? How do I know if it's a good deal? How do I know if I pursue? And I'm always, the question is, well, what are your investments generating right now?

How hard is your money working for you right now? So in this scenario, 7% is the best performing asset that I have. So if I came across a rental property that paid me 8%, would that be a good deal? I've improved my situation. And the reason I have this sequence is because what I want you to do is say, Look at the ones on the bottom, whether it's zero or one or two percent, whatever it may be. This would be the money that I probably want to look at first.

Go ahead and put that in a position to where I can easily deploy it and take that money and put it up on top. So after I've deployed that, now my savings account is 1%, my bonds are 2%, that might be the next part that I access. And you just keep leapfrogging your finances this way. And that's how you do this really, really fast. And I wanted you to do this because I know each and every one of you have assets that you didn't realize that could help you escape the rat race.

They're giving you some level of comfort maybe, some level of security, and you have to ask yourself, what's more important? Continuing to work, having this little sense of security, quote unquote, on the side, or let's put that to work and get myself retired before I've retired all of the equity in my house. Before I've retired all the equity in this 401k, I'm going to work every single day and my money gets to sit on the sidelines and watch me work. I want you to consider flipping the script and have the money watch you retire. You got dead money sitting around. This money is taking a break, sitting on the hammock with the fruity drink, looking at the ocean, and you're getting

up and going to work every day. Yes, Eric. Yep. And continue just the process. Continue the process. And then you look at things like if you have this 250 and you don't you can't quit your job yet, fine, you just leave it alone. But then go to the next one up and keep trying to close that gap until this 250 now it makes sense. Now I've got enough knowledge. I got enough experience. I know how this works. I probably could go ahead and liquidate this and get myself out of the rat race. Other thing, let's talk about 401ks.

And I get pushback on this and that's okay. It's a little bit of a radical thought of retirement plans if you have one right now. Because if you take it out too early, what happens? Penalty, right? 10% penalty. What else happens? Taxes, right? Nasty names and words, right?

Penalties and taxes. It's really just pluses and minuses. Okay? So consider not letting those labels of that. penalty or that tax scare you into oh I can't do that that would be a penalty that would be I'd be taxed consider it being just pluses and minus is making it a business decision for example we have 401k there's 28 grand it's 6% so if I go ahead and take that money out early so I've got I got a 401k of 28,000 so if I

take it out early I'm going to get dinged right away off of Eric 10% right so I'm gonna pay 2800 there and then it's gonna get taxed say at a 30% tax bracket let's do the minus let's do that said you're right how much 84 okay all right so 28,000 minus 11,000 so I have 168 to work with if I had 16,800 dollars to work with How long would it take me to recoup this 11,200? Right? That's all I'm looking at. It's all I care about.

I don't care if it's a penalty. I don't care if it's a tax. I don't care about the label that's attached to it. It's a business decision. It's pluses and minuses. So $11,000. I mean, that might take four or five, six years maybe. It'll take a while based on these numbers right here.

But now if it's going to take me four or five years, now I've got to ask myself, how old am I and how far, how far long do I have to wait? if I could take this out tax-free. So if I was in my 30s, wow, I recruit myself by the time I'm 35 years old, and then I'll have the residual income from 35 all the way to 65. So I'm being super conservative. I don't want to sell fantasy, I don't want to sell pie in the sky, I actually just want you to think, right?

Because it's a math equation, it's a different equation for everybody. You all have different amounts available, and you're all at different ages. So if I was, you know, if I was 61, well, I just have to wait one one. more year and I wouldn't have to do this so I'll just wait so I just want you to think about that okay so as you're going through this and you're like well I can't scratch out the scratch out the woods I need that scratch out quitting the jobs I need that all the 401k I'm gonna get taxes and penalty on that don't want that oh the IRA don't want that because that's gonna be penalized just don't cross them out

so fast look at the pros and cons the pluses and the minuses if escaping the rat race is the most important thing to you I look at your situation Eric you got a lot to work with. Probably with what you have, you could get there really quickly. Just by refinancing or selling and redeploying in a leverage state. Now, let's talk about leverage. Leverage being you're borrowing using other people's money. And to some people, that's a scary thing. Some people that's Matt, how could you stand up here and tell people to do all this risky stuff? No, it has to cash flow. It has to pay for itself. Don't be irresponsible about it. Be smart about it. That's why you're here.

I can go on pretty much on the multiple listing service and do better than these three numbers. I wouldn't even have to work that hard. But with a little bit of knowledge and experience, I could easily double these. So I'm just looking at 155 making 5.8%. What if I was able to get this same amount all working at 13%. Double your return right now. You could pull this out and redeploy it and maximize this stuff. And now you got, that could be, even though it's working at 13%, you just went from three houses

to maybe 15 houses at 20% down on them. And now you have your tenants paying off 15 houses for you. With that said, on the leverage thing, this is my rule of thumb, this is my personal rule. You can have it and use it if you want or you can stick to your rule. But if your goal is to get out of the rat race and to do it as fast as possible, I would recommend you just leverage, leverage, leverage as much as you possibly can until you hit your freedom number. Once you hit your freedom number, now start paying it all off.

By the time you pay it all off, that freedom number will have doubled. It's a very basic formula. So you leverage to grow, pay off the debt to preserve. But if you've paid off the debt to preserve and you're not where you want to be yet, that's what I want you to consider. So I would look at this. So know your deal standards. This will be number four. So as we come back here, my minimum deal standards, 7%, you know, I might not want to go through all the hassle of liquidating mutual funds for an 8% property, but I would certainly consider it for a 10%. As you keep going and leapfrogging your ROI to the top to the

top, your deal standards are going to raise. So for this scenario, 10% That's a good return. I've improved my situation. I've accelerated the journey Once I get up there and now my lowest is 10% and I've got some 13s 14s 15s well I'm certainly not going to get anything less than a 15 because I'm not improving my situation I'm not increasing and accelerating the process. So when we look at this from yesterday I could do any of those to qualify for being a better investment so now I know those are all good deals if I issued the three option letter of intent I was like I don't care which one you take mr. Seller because they all improve my situation, which one's going to improve your situation the best? What's next? So begin to be patient. And the reason I say patient is because if you don't have, or even if you do have a rental portfolio that's doing pretty well, or if you don't have your first one,

the reason I say be patient, patience is speed. Because if you have this house, we talk about a little bit this on day one. And I could flip this for 30 grand, right? Or I could hold it for $300 a month. This is patience, but it's also the fastest way to get there. If I took $300 a month, it times my cash flow, it times it by 12. If I divided that by 0.78%, that is equal to rough number four hundred and sixty one thousand dollars in that bank account to generate three hundred dollars a month so what that is it's the difference

between 15 flips and one hold so this is what I mean by patience is speed plus it's a lot easier you don't have to do I have to do 15 flips to generate four and sixty one thousand dollars this feels better You feel like you're making more money, you feel like you're progressing, you feel like you're being successful, and you're really significantly slowing yourself down. This, it's not gonna impact our lives too much

just an extra $300 a month. But if you did this 15 times, instead of flipping it 15 times, now all of a sudden it's made a difference. We did that seller finance deal, we'd want those a month, this note once a month, or it's $565 a month,

Shoot, that's a year and a half, two years. You've accomplished in two years what 95% of the population that fails to do over 40 years. Okay? So it's not get rich quick. Just get rich quicker. This podcast is a part of the C-suite Radio Network. For more top business podcasts, visit c-sweetradio.com.