Epic Real Estate Investing - How to Invest in Real Estate for Passive Income | 1202

Episode Date: May 12, 2022

In today’s show, Matt is joined by Willie Booker, a new real estate investor, and private REI Ace client. Matt and Willie discuss strategies for creating passive income using real estate. Particularly, how our guest found them and how he structured his passive income streams. BUT BEFORE THAT, you will learn how to use debt to get rich, a lesson that is especially important these days, when we are facing rampant inflation! Are you ready? Let’s go! Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terio Media. For most people, debt is a bad word, but it can make you rich if you know how to use it. And it's not rocket science either. I mean, it's how most rich people got rich, and you can do it too. And I'm going to show you how. You ready? Let's go. Welcome to the all-new, epic real estate investing show.

The longest running real estate investing podcast on the interwebs, your source for housing market updates, creative investing strategies, and everything else you need to retire. early. Some audio may be pulled from our weekly videos and may require visual support. To get the full premium experience, check out Epic Real Estate's YouTube channel, Epic rei.tv. If you want to make money in real estate, sit tight and stay tuned. If you want to go far, share this with a friend. If you want to go fast, go to reiase.com. Here's Matt. Lots of people will tell you how to get out of debt. Like, Dave Ramsey and Susie Orman and Chris Hogan and just about every personal finance authority you see interviewed on TV. Yet very few will show you how to use debt instead. And this is unfortunate, particularly for people who aspire for more than mediocrity, meaning a focus of getting

out of debt is a defensive play, one that will significantly slow your personal journey to your riches. Eliminating debt, it fits in snugly with the saving money and sacrificing and living below your means type of advice, all of which center around a lack of understanding of how money works. But really, mostly people are just kind of scared to use it. The idea that you must get out of debt to be rich or even just moderately successful is a lie. And sadly, it's accepted as an unequivocal truth. Those that tell you to get out of debt, believe debt is bad for you and that you don't have the wherewithal to manage it correctly. They're saying you lack financial know-how. And I don't know, maybe that's the case for now.

Stand by and we're going to change that. The truth is, the wealthiest of society carry a lot of debt. And the realization of that can feel, I don't know, counterintuitive. But when you understand what they use debt for, it makes a whole lot more sense. You know, few people will argue with you that your money should work for you. And you can certainly get rich this way. But we only have so much of our own money to put to work. When we get other people's money to work for you, you can get wealthy.

because there's no limit to other people's money. And for most wealthy people, that's exactly what they did. Because they don't use debt on cars and vacations or shopping sprees. That's bad debt. But rather, they use it to buy assets that more than make up for the debt that they carry. That's good debt. And it's the income and the gains from those assets. That pays for their cars, their vacations, and shopping sprees.

And during times of rampant inflation like we're experiencing at the moment, knowing how to use debt is critical right now to not just building your wealth, but preserving it. And for two reasons. One, you're limited to the return your own money can generate. For example, if your mutual fund is on track this year for a 6% return, an 8% inflation rate nets your returns to negative 2%. If you're not earning more than 8% in your investment portfolio right now, you're losing money. Number two, as inflation eats up your investment,

returns and the purchasing power of your dollar, it does the same thing to the money that you borrow. So would you rather inflation destroy your money or the money you borrowed? Exactly. So it makes sense to learn how to use someone else's money. In other words, borrow money to buy your assets, doesn't it? A simple example of using debt to make money might look like this. You borrow $100 from John at 6% interest and you loan that $100 to Joan at 12% interest. Joan pays you each month $1 to cover the interest on the money that she borrowed from you. And then you, in return, pay John each month 50 cents to cover the interest on the money you borrowed from him. Now, you've got 50 cents left over, and that's yours to keep.

You just made money by borrowing money. Now, 50 cents is nothing to get excited over, but we could easily add a few zeros to the numbers, couldn't we? And now you're making an extra $500 per month, or $5,000 per month, or $50,000. That's how it works. The sky's the limit. a more realistic way might look something like this. Let's say you take out a home equity line of credit on your house for, say, $100,000 and your interest rate is 5%. And you invest it in an index fund in the stock market, of which historically has produced an 8% annual return. You're earning about

$667 per month from your index fund, while paying $416 per month on your home equity low. Your wealth is growing by $251 per month. And over a 10-year period, you're looking at it. at an extra $30,000 added to your net worth for doing nothing else than moving money from your house to an index fund and then waiting. Here's another example of using debt to create wealth that's a little bit more exciting and not surprisingly much more common, like borrowing money from a bank to purchase a single family income property. We'll say this house has a value of $100,000 and rents for $1,000 per month. Now, these types of houses are readily available at cashflowsavvy.com, by the way. So if we did what Dave Ramsey suggests paying cash for this house, you could expect a

conservative return of 3% in annual appreciation, which would give you $3,000 at the end of the year. After deducting about 40% from the rent you're collecting, you should expect about a 7% return on your cash flow, and about a 1% return in depreciation. That's the tax benefits the IRS gives us for owning real estate. So a total annual yield of 11%. Not terrible. You're staying ahead of inflation, least. Now, if you were to purchase the same house in the way that I suggest by putting down 20% and borrowing the rest using the exact same numbers, your annual profit and appreciation would be about 15%. Your cash flow would bump up to about 9%, your depreciation 5%, and then you get two bonuses. A return in amortization of about 1%. This is the return you get from your tenant paying down the

money that you borrowed. And this number, it actually gets bigger the longer you own the property. It's kind of small in the first years, but it gets really big later on. And then the inflation-induced destruction of the money that you borrowed of 32%. Yep. See, inflation, it's a bad thing when it comes to your money, but it pays well when it's someone else's money used to buy your assets. So a total annual yield of 30%, 62% if you add the return on inflation. Some people may want to challenge me on this math,

so I'll just kind of put that off to the side. But it's real. You can count on it. So with this house, you get an 11% of, return on your investment by avoiding debt. You get a 30% return at least by using it. So under which scenario would your wealth increase faster? Not to mention how quickly could you get started if you only needed a $20,000 down payment versus the whole $100,000? If you had $100,000 to originally invest, you could purchase four additional houses that are all yielding 30% versus the one house

at 11%. And it gets better. Using the equity of one house after a couple years of appreciation to borrow against, you could buy more and then repeat the process. Bad debt makes you poorer, such as credit card debt and car loans, stuff like that. I agree with Dave and Susie on this. Good debt makes you richer, such as a loan for an investment property or equipment for your business or education that teaches you how to use debt properly or teaches you how to invest and or run a business. And whether you're borrowing, borrowing money to relend it, borrowing money from your HELOC to put it into the stock market, or borrowing from a bank to buy an income property.

It's not the investment choice that makes good debt good. It's the educated investor that does. And now you've got some insight. You're a little bit more educated. That's the first piece of the puzzle, understanding how it works. The second piece is learning how to find good deals that cover the cost of the money that you're borrowing, while leaving some leftover for you, that being your cash. flow. This is where Mercedes and I focused in the beginning, just finding good deals and then

concerning ourselves with the money later. And what we quickly learned was that once we found a good deal and put it under contract, it was really easy for us to prove to potential lenders how they would make money by lending to us. And so they did. And so we got started with really small, just $50,000 houses in Illinois, in Tennessee, Ohio, and Indianapolis. And then we moved to bigger properties in Alabama, Missouri, and Nevada, and now we're moving to even bigger ones. And you can check in with cashflow savvy.com if you'd like them to find today's best deals for you. Or if you'd like to do it yourself, answer a few short questions at reiase.com, and then we can hop on the phone to brainstorm some ideas as to what that might look like for you.

We've all been taught to think of debt as a four-letter word, but it doesn't have to be, especially once you have the financial know-how to see how debt can work for you instead of against you. Thanks for sitting tight while we pay our light bill. We'll be back. Right after this. Hit pause on whatever you're listening to and hit play on your next adventure. This fall get double points on every qualified stay.

Life's the trip. Make the most of it at Best Western. Visit bestwestern.com for complete terms and conditions. From coast to coast, epic investors are doing the most. It's time for another epic field report. Hey, there, Epic investors. Welcome to the Epic Real Estate Investing Show. This is where we show people how to invest in real estate so they can escape the daily grind and retire early.

Today, we're going to talk about a couple of different strategies for creating passive income using real estate that a reasonably new real estate investor and private RAA's client has been able to pull off in just the last six months or so. So we're going to talk about how he found them and how he structured his passive income streams. If you're still looking to get that first deal done or it's been a while since you got the last one, I put together a free training for you. Go to Matt's free training.com. If you'd like to go fast, like our guest here today is how he's doing by working together one-on-one, head over to r-ei-a-a-a-a-a-a-cac. Answer a few short questions about yourself and your goals and then you can pick a time for us to hop on the phone

and brainstorm some ideas about getting you to where you want to go to your estate investing. All right, it's all about you. So perfect. So my guest today, I'll just bring him on here. please help me welcome to the show, Mr. Willie Booker. Willie, welcome to the Epic Real Estate Investing Show. Hey, Matt. Thanks for having me. You bet. Glad you can make it.

And you're managing a day job and you're doing your real estate on the side. So I really appreciate you making time for us. I know everyone's going to want to hear how you've been able to do what you've been able to do. So let's talk about your deals. Let's talk about your passive income. But first, can you tell me what it was that you were trying to accomplish when you found epic? Were there any challenges specific problems that you're trying to? to overcome. I would say for me, what I was trying to accomplish was obviously financial independence,

but if we dig deeper into that, it's having the freedom, option, and choice to make that decision. For me, if I want to be in my 9-5, I would love to have that decision if it's suitable for me and my family at that point of time. So for me, that's what I've been chasing, it's that freedom, option, and choice. Got it. So what would it was mean to you, personally, you know, if you were able to get that done. Oh, man, it would mean the world to me. I think for me personally, I just operate from position of fear. So the reason why I even started in real estate investing was because it was at the

beginning of COVID. And I've just seen people do the right things. They're putting money in their 401K. They're going through their 9 and 5. And when COVID happens, it's just the money that they just put away, they don't have control of it. And I didn't want to be in that situation. situation. And also for me, I want to be in a position of being able to take care of my family

or my mother, right? There's going to be a point in time where she needs me. And I want to be set financially of when that time comes, okay, mom, what do you need? What do you want? I got you. So it's just being able to get to that point of having some sort of control. Right. We all want to take care of mom, don't we? Yeah. For sure. So you joined the RIAEAS program and you also invested in our one-on-one flyout to your market where you had Jeremy, one of our epic coaches here come out and work with you in your market for a few days. What did you find most valuable about that experience? I would say what I've learned from the experience is it allowed me to truly understand what it takes to be a flipper or the analytical approach that you need to have once

you're under contract. And I would say that would be something that I took away from it with that would be that piece. I remember, I know you're a lot of you. I know. haven't got into it, but I came to you about this where it's when I'm at the seminar and I hear about these different strategies and I termed it as you're going a mile wide but only an inch deep. And for me, that's what I felt victim to was that piece of it. I was like, man, I'm hearing these great strategies. They sound so sexy. Let me try. And I want to do, and I got home and I want to do all of it. And it's just life tears to slap you in the face. And it's like, you know, you ain't doing that today. What I had to do and had to figure out is what was the need

that I need to solve for myself. And of course, it's being able to get passive, have passive income. But how can I do that? Do am I really married to those strategies that will allow me to get to that goal for me? Right. So what I need to accomplish for myself is to establish an income floor. So that's why for me, I had to repivit and focus on buying hold for right now so that I can focus on maybe buying properties creatively or being able to flip where I'm able to amplify

my cash position so that I can buy more real estate. So it's just thinking about it differently so that I can attack those strategies that I did learn in the seminar from the one-on-one fly-out. Right. Yeah, we're entrepreneurs, right, at heart. And we see all of these different things that we want to do and we just have these big dreams. We want to go bigger and bigger and bigger. And I suffer from the same stuff. And I just have to remind myself to focus on, okay, what's working? Let's go deeper with that and optimize that before we jump ship and try and add something else. Because a lot of time do you start? chasing all these things, then you kind of lose focus on what was actually working. So, great, great lesson. So I guess up to this point, you share with me via text before we started,

what have your biggest wins been so far? My biggest wins up to date is that I have one property in Milwaukee. I have two under contract right now. They're all single families. But again, I found a market that for me is a cash flow play for me. And I found a market where I can get deep into and have deep connections with my with my relative with my property manager and also the lender. So I think for me, I'm developing the relationships to be able to go deep into Milwaukee. That's good. You know, you had mentioned one thing. You did some sort of, you live in Seattle, right? Or is it, I'm watching the Seattle out there. And you had to do the house hacking. We'll talk about your rentals in just a sec, but that's something that a lot of people talk about, but I don't think

a lot of people actually pull off. Can you tell me about that? Yeah, I was reading a bigger pockets book. It was like a house hacking book. The goal for me was to, one, purchase the property with cheap debt. So I have the VA loan so I can purchase the property zero percent down. But one of the benefits of house hacking is that it reduces one of my most expensive living expenses. So for me in Seattle, my mortgage is over $33, $3, $3,400 a month. So if I could, if I have a tenant, that can pay $2, $2,400, that's making a significant chunk. Right, right. And a living expense. So for me, it was an easy decision. So it's just being uncomfortable temporarily for a long-term gain. Nice.

So do you purchase that property just through traditional means then? Yep. It was on MLS through a realtor. I bought it in the area that is up and coming. It's near a light rail station. So for me, I tend to purchase properties that are near light rail stations or some structure that's going to be there for a while. So it, typically speaking, when

those structures are there for a while, the value tends to hold. So for me, that was my logic and that's how I approached it. Perfect. So you've got a one rental already in Milwaukee. How did you find that first one, the one that you closed and you actually own?

It was through the realtor. He set me up on the search. I just kind of took away what Jeremy showed me, like he has like this tracker and you have to do it every day. like the numbers of like here's your cash on cash, here's the rents, here's the cash flow. And I just tracked it every single day. And I had a, I had an understanding of, huh, okay, yeah, that's my deal. Let me go tackle it. And that's how I approached it. The second one, it was off market.

The ones that are under contract right now, they're off market. Got it. And you found those through marketing efforts? Which ones? No, it's through the realtor. Oh, through the realtor. Okay. So you've been able to create to relate to. And kind of leverage their efforts, their connections. And that's how you've been able to pull your deals together. Right. Yeah.

Super. All right. So that first one, what is that producing right now? So the rents on the first one is not 50, give or take. The mortgage is $4.24. So I'm cash flowing around $361 a month. Okay.

So you got the $361. And then you've got the house hacking thing about another, what, $2,600 bucks, $25, something like that. Yeah. Okay. So they're very good. And then you got two more of the contracts. So what are your plans for those?

Same thing? Yeah, I'm just buying a hold for right now. So here's my plan. And just kind of go back what I said before, just focus on one strategy at the time. Yeah. Is that for me, if I go deep into buying a whole and out of state markets, for me, I'm able to create a system that will allow it,

allow this strategy to feed upon itself, meaning that I'll have the cash flow to buy even more real estate or even I could leverage the equity to go to a bank and get a secure line of credit and buy even more properties. But the goal for me would be to do a 1031 exchange into probably apartment building and just didn't use the cash flow from the apartment building to go buy more properties out of state. These duplexes are seen and rinse and repeat. For me, that's what I'm thinking. It sounds good in my head.

But right now, it's just acquire these properties and just getting singles and doubles. That's the game right now. Just get momentum, get confidence and just keep moving. That's how you win the World Series, right? Single and doubles? Perfect. So I know people are probably thinking, how are you acquiring these properties? How do you paying for them?

It's a number of ways. Traditional means? Yeah, you can say that. I'll say it's traditional. So I've used some of my cash to purchase the deals. I've also leveraged my assets. So I have a whole life insurance policy that I would leverage the cash value to take out a policy loan to for a down payment.

So I got an infinite banking strategy then. Yeah, it's infinite banking. So I've used that. Another one I've used is I would leverage my stocks. I'll do a stock portfolio loan, a margin, margin loan to purchase property as well. And another strategy that I haven't really used that is that you could, if you have decent credit, you can go to a bank and get a personal line of credit. These are unsecured lines of credit.

So you can leverage that for a down. down payment. If you're doing it on the personal side, you would have to make sure that it's seasoned in your bank account. But you may need to talk with your lender to see how long those funds need to be seasoned in your account. But that money is there for that purpose. Super. They've been really resourceful. I mean, first we tapped into the VA loan, right? Second, we tapped into a cash value life insurance policy using the infinite bank strategy, which is something that I do over here myself. And then you went in leverage some other assets. as far as your stocks go, right?

And now you're leveraging your credit score and tapping into the bank lines. Fantastic. It was nice about all of that. It's all tax-free, right? It's all borrowed money. And hopefully if the powers that be the current administration don't get their way, it will stay that way.

But anyway, that's good. So I guess out of all that, you know, while you're working a full-time job and you're doing the real estate on the side, what are the most valuable lessons you've learned? so far. That's a good question. Just be consistent. I think that's the one thing. For a while, I was just so married to a certain strategy because it sounds so sexy. It'll be good to go to meetups and say, hey, I'm doing this with an off-market seller. It was on creative terms and it sounds great,

but it's like, for me, it doesn't matter how I get to the point as long as I get to get there. So for me, it's just not being married to an idea and just knowing when to pivot and when not to pivot. But it's just being consistent. I think for me, that's what I've been focused on. And it's like when I came to you, when we had our chat, I was like down in the dumps because I was just doing so much at one time. And I was just burning both ends of the candle where I'm not great at my, I'm not being a good employee, my nine and five. And then I come after not after five, I'm doing real estate stuff.

And it's just I'm just churning and burning. And it's not, I'm not seeing the results. need to see. And it's just tough to get out of bed every morning or wake up every single day. And you're trying to give 100% to your goals and you're not seeing what you need to see. So it's just being able to kind of have the mental fortitude of like this. I'm not going to be where bad is. It's not going to happen overnight. And maybe the reason why it's not happening because I'm not ready for it yet. So these lessons that I'm learning of these trials and tribulations, it's going to make me a better investor.

For me, that's what I've kind of taken away from. It's just embrace the journey. Just embrace the down. fall and just just be consistent. It's like being hit by a pitch. Like for me when I was playing Little League, I was so afraid of the pitcher because I'm afraid of getting hit and I've never been hit. But once you get

hit, it's like, it's not that bad. You ain't throwing that all right. So it's like, it's the same thing. So it's just once you go through it, five years from now, I won't even remember this. I won't even remember that this conversation I had with you. Like it would be on the forefront of my mind, but it'd be like, yeah, it wasn't that bigger

that. I've had bigger issues than So it's just because we're going through it right now. That's why it's a big issue. But it's just being consistent at the end of the day. Yep. And to touch on something you said, I mean, first of all, you are ready for it. And you said a couple of things that leads me to believe that with absolute conviction. And this is something a lot of people challenge when they come in to investing and they're learning how to find off market deals.

They're learning cool little strategies, whether it's acquisition strategies or exit strategies. And here it's just a good example. Someone sends out a bunch of yellow letters, right? They're sending out direct mail. And all of a sudden, a realtor calls them up and say, hey, I've got a deal for you. They close on that deal, but they feel like it doesn't count. Like, well, that didn't really come from my direct mail, right? It didn't count.

That wasn't a creative strategy. Like, it's not really worthy of talking about. But what happens is just by being in the mindset, in the space, and exercising that consistency, that you become, like, you're aware. So you did something that caused that realtor to call you because of your consistent activity. Right? So even though it might not have been directly from your efforts, it happened indirectly 100% because of your efforts. So you're right.

It doesn't matter how you get there, as long as you get there. And if you're getting done the way you're doing it right now, then that's good enough. That's exactly what we're doing this for. So congrats on that. What are three things that you liked best about working with Epic? Three things that I like best working with Epic. one is the availability. I've done other masterminds or mentorship programs and the ones that I've been to or were part of it was more of, it was like one to like two or three hundred. And I just didn't have access to the person who spoke so highly of his or her program. And it's just what tends to happen is that I don't have availability. I can't ask questions. I can't engage the way I want to. So it kind of hampers to learn. It makes me question of why did I choose this mentorship program in the first place?

I would say that would be for me. That was number one. The difference is that I have access to you. And I have access to your team as well. If I had a question, someone's answering my question. And it's like for me, it wraps up the learning process for me. Even with the calls, it helps as well. Number two is it would be even these kind of check-ins for me.

Like this, I like that we're doing this. I like that you meet with students in doing this, but for me, it holds me accountable, right? Because I'm saying, telling you what I'm doing. And it's like, okay, now I got to keep doing it because now someone's watching me. So it gives me an indication that you care then. It's not just a paycheck to you. And it's like that for me, I can see it. I can sense it.

Number three, it's the content. I learned about you on YouTube. You doing an interview with Zach Ginn. He's a wholesaler, but you, were talking about creative financing and you talked about it in a way that it wasn't talked about from the masses and that's what grabbed me to to your program and it grabbed me it attracted me to you and when I was going through the the content is so in depth there's so much knowledge in there and it ranges from financing it ranges from strategies it's a to z all of it and it's like if you

the thing is if you don't succeed is because you don't put it in the work or you you don't put it in an effort, depending on your goals or strategies, but the content is there. It's there to put you in a position to be successful. It's not one of those, it's not the program or the content available. It's not like, hey, it's good enough. We're just going to package it out. And you kind of fill it, you fill in the blanks with the rest. It was very comprehensive and it was easily understood.

And I would say it was well thought out. Awesome. Thank you for sharing that. Can you finish this sentence for me? I almost didn't work with Epic. I almost didn't work with Epic because of me, if that makes sense. I think for me, I'm my biggest critic of no one's doing this. So it's like for me, where I come from, like nobody's going to be doing the things I'm doing.

It's like the rooms that I'm in, they don't talk about real estate investing. So I get a lot of side eyes when I'm talking about matter. I'm talking about the program that I'm in. So it was making sure that I got out of my own way so that I'm able to take advantage of opportunity. And I think the reason why it was almost a possibility of not me doing this is because I couldn't see it. And I think that's probably the case for a lot of people is that if you can't see, you don't believe it. So for me, it's just being able to invest in myself and just take a chance for myself and see what could happen. So right, that's awesome. Thanks for sharing that and thanks for

sharing today. So I know you've got some big goals and now you know I'm watching. So you didn't even want to come on today because you wanted to wait until you had more accomplished. But I was like, you got a plenty of accomplished. Come and share. But let's stay in touch and we'll check back in a few months and see where you're at then. Sound good? Sounds good. Yeah. Thank you so much. You bet. You bet. Thanks for being. I really appreciate you. Likewise. Take care and talk to you soon. Okay, sounds good. Okay, cool. So if you like to follow in Willie's footsteps and start building your passive income with real estate, you got two options. You can check out the free training that I created just for you at mats free training.com.

Or let's talk and customize something special for you, just like we did for Willie. Do that at R-E-I-A-A-S dot com. And that wraps up the epic show. If you found this episode valuable, who else do you know that might too? There's a really good chance you know someone else who would. And when their name comes to mind,

please share it with them and ask them to click the subscribe button when they get here and I'll take great care of them. God loves you, and so do I. Health, peace, blessings, and success to you. I'm Matt Terrio. Living the dream. Yeah, yeah, we got the cash flow

You didn't know home for us, we got the cash flow Okay, only 10 more presents to wrap You're almost at the finish line But first, there, the last one Enjoy a Coca-Cola for a pause that refreshes Hi, I'm Sophia Loper Caro, host of the Before the Chorus podcast. We dive into the life experiences behind the music we love. Artists of all genres are welcome.

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