Epic Real Estate Investing - How Wholesaling Is Killing Your Financial Freedom | 281

Episode Date: July 10, 2017

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This is Terrio Media. Broadcasting from Terrio Studios in Glendale, California, it's time for Epic Real Estate Investing with Matt Terrio. Yeah. What's that? Hello. And welcome to Epic Real Estate Investing. This is the place where I show people how to escape the rat race using real estate. And if you're just getting started and or you're looking for new and creative ways of making money in real estate, I've put together

free course just for you, including a checklist on how to find motivated sellers. Those are property owners that are willing and able to sell you their property at a discount. So to access that free course, go to free real estate investing course.com. All righty, got a fantastic show for you today. Tickets still available for the Epic Intensive in St. Louis, August 3rd through the 5th. That's just three weeks away as I'm recording this episode right now. So to take advantage of your early bird pricing, go to Epicintensive.com. Do it right now if you're considering going as the price will increase as we reach capacity. The theme of this intensive weapons of mass production,

going to give you the highly potent and powerful tools and methods every real estate investor can use to find more motivated sellers, buyers, and lenders in as little as 60 seconds. Even if you think you've heard it all before, I got something special for you. So with the weapons of mass production at your disposal, you're going to find more deals, cash for more checks, and really finally start calling the shots in your business and in your life.

Early bird pricing available right now for a very limited time. We have already had three price hikes, and it will continue to rise the closer we get to capacity, and we're getting really, really close. So if you've been thinking about going, I want you to get in. I want you to get in right away. So go to epicintensive.com to reserve your seat, already? Cool. All right. So I know I've got a lot of different types of investors that listen to this show.

Wholesailing is one thing that a lot of people are really excited about because it is one of the true ways that you can make a lot of money. you can make a good chunk of money in real estate with very little to any of your own money or credit. And so for those of you that consider yourself a wholesaler, I mean, do you consider yourself a wholesaler? Is that your primary strategy in real estate? Well, this show is just for you and for those that have ever been considered wholesaling as their main strategy. It's for you. and this is also if wholesaling is of no concern to you, if that's not even on your radar,

this episode is for you. So if you are a wholesaler, if you consider yourself a wholesaler, I'm going to ask you to consider, you may want to consider, if that's your primary real estate strategy, that I'm going to suggest you that you are robbing yourself from your future of ever being financially free.

All right, I want you to consider that. You don't have to believe me right now. You don't have to say BS or write on, I knew that already, whatever it may be, I just want you to consider that you're robbing yourself from your future of ever being financially free, even if you're crushing it in wholesaling right now. Even if you're closing two, four, six deals a month, you're making $20, $30, $50,000 a month. If that's your situation right now, I still want you to consider it. But Matt, life's good. I don't need to hear that. I'm getting richer and richer and it's getting better and better and blah, blah, blah.

No, I want you to still consider it. And after you've heard what I've got to say today, if you don't agree with me, that's fine. Go on about your business, doing what you're doing. But I want you to really consider this today, okay? It's not about being right or wrong. It's about being better off later than you are right now, okay? And sometimes wholesaling and flipping properties that can give you a real false sense of security. And I just want you to be aware of it.

Once you're aware of it, you can make up your own mind. You're a big boy, big girl. You all put on your britches the exact same way. you can make up your mind later. Okay? So consider that wholesaling properties, flipping properties is prolonging your journey to being financially free. And here's what I mean.

You may make some decent money as a wholesaler. You may make some great money as a wholesaler. You may even become rich as a wholesaler. But you'll never be wealthy. And you'll never be financially free as a wholesaler. And like I said, if you're a fix and flipper, I suggest that it might even be worse for you. if you consider yourself a fix and flipper if becoming financially free is your goal now if being financially free isn't your goal if that's not a goal for you then fine just just keep doing what you're

doing you get no judgment for me whatsoever we all we all live in a great country in a great world where we get to do what we want to do with our lives and if you're happy doing what you're doing keep doing it okay flip as many contracts as you can flip as many houses as you can fix and flip as many properties as you can just don't ever expect to reach a status of financial freedom And what is being financially free? I mean, I'm sure there's a lot of different definitions out there and variations. And it could be rather personal question as well. But in its most simplest definition I can think of is, and the most literal definition as well,

is being free of financial concerns, meaning you can live the life you want indefinitely with the money that you have available. I think that's a good one. You can live the life that you want indefinitely with the money you have available. and the life that you want, I put it that way because we all want a different life. Some of us want to, you know, we're cool with just, you know, enough to pay the bills and so we can sleep in each morning and watch TV all day. If that's the life you want and you want to live that life indefinitely, then that's your

definition of financial freedom. If you want to be a jet setter and take a different vacation on a different continent every single month and you want to take your family and friends with you, then that's your definition, okay? And you want to do that for the rest of your life? Absolutely, that's your definition. and I put in here with the money that you have available, right? And why money?

Well, we're actually talking about financial freedom, so it does have to do with money. But just understand that we live in a world that money serves us in the way that nothing else does, unless you want to go start trading goats and chickens and stuff like that. Right? Money, it pays for the food on our table, puts the roof over our head, the clothes on our back.

It pays the hospital bills. It pays for our recreation. And it allows us to do all of those same things for the people that we love and care and then to help those that are in greater need that can't help themselves. It allows us to do all of that. But it's money that allows us to do that.

So money is important. So you can live the life that you want indefinitely with the money that you have available. All right? So when you wholesale a house, let's say you make $10,000, right? That's good money for a single transaction by most people's standards.

But then what? I mean, how long will it take for your life to work through that $10,000? How long is that $10,000 is going to last you? three months, two months, one month, one week, whatever it is, there's a point where that pile of $10,000 of cash is going to be reduced to zero, right? And then what? What do you have to do then? You got to go wholesale another property, right? You're not free to live your life in the way that you want. You don't have financial freedom because you have to go find another property to flip.

So let's say the next one, twice is good and you put $20,000 in your pocket. That's a good wholesale deal right how long will it take for your life to work through that again whatever that time limit is for you there's a point where it will be gone all right so let's say you get three of those properties and each one pays you $20,000 and you have $60,000 in your pocket that's a good month right you've done really well so how long then doesn't really matter whatever it is it will hit zero at some point and you'll have to go find another deal got it I mean even if you made that 60,000 each and every month.

I mean, that'd be $720,000 for the year. That's a very nice year for most people. Some of you might even consider yourself rich if you had $720,000 in the bank. That's more than many people make in a lifetime. And in what we do, that number isn't even close to being out of the realm of reality. That's doable.

But again, how long will it take for your life to work through that $720,000? dollars whatever it is there's an ending point and again it will be time to go find another deal once it's gone or once you start getting low all right so how much would you have to have in your bank account to feel you could live the life that you want without a concern for money what is the financial freedom number for you mean for the rest of your life would it be a hundred thousand dollars a year would that work for you you know um hundred thousand dollars not what it used to be I'm telling you.

It won't get you very far today and it's likely going to get you even less in the future and probably the very near future. So let's say at least $200,000 a year to live comfortably. And you'll still have some restrictions, right? You may not be able to vacation with your family every month. You may not be able to live by the beach or in one of the big cities. But there are beautiful places in the United States where $200,000 a year could provide a very comfortable and decent living. So next question. how long are you going to live?

I mean, how many years do you need that $200,000 a year? That's a real question, by the way. I always thought that was a silly question when financial planners would ask that question in one of their planning sessions. That's part of their financial plan for you. They're going to ask, how many more years do you plan to live? Like, you know, but that's one of their questions. That's a real number that they, per their retirement strategy,

that they have to factor in. And what if, you know, what if your answer to that question? is wrong. What if you don't guess right of how long you're going to live? What if you say 85 and you live to 95? What are the last 10 years of your life going to be like when you run out of money? Can you go back to work? At 85? Right? Who wants to do that? You got to move in with your family? You got to have your family take care of you. You got to be dependent on somebody. You go to the church or the state got to take care of you. Right? So that's right there, that's a clue. When someone is setting up a financial plan for you and they ask, how long do you plan to live?

Their whole strategy is based on a pile of cash because they know it's going to hit zero at sometime. So they're going to try and time it so it hits zero on your last day here walking the earth. That's the logic behind it. Right. But let's say you are going to live until 95 years old. And let's say you're, I don't know, what, 35 years old right now. So that's 60 years you've got left, right? So you're going to need $12 million in the bank in order to live a life supported by two hundred.

hundred thousand dollars a year you need 12 million dollars first let me just check in with you how are you doing how much do you got are you getting close you got a ways to go i mean yes i know you're going to get some interest right so it would last a little longer than 60 years wouldn't it i mean what's the interest rate right now that you could get in a savings account one percent nah that'd be dreaming wouldn't it not too many accounts out there paying one percent i mean maybe you could put in the stock market but you're going to have your ups and downs along the way but i mean i mean The 1%, I mean, I think it's like 0.6% or something like that. It's much less than 1% right now.

But even if you did get that 1%, that would only be $120,000 a year. That's short of your $200K a year. But essentially it would, I don't know, just quick and dirty math. It would double the time you could live. So now your money's going to last 120 years. Okay, fine. It would work. But here's some other things to consider.

Inflation. You know, $200,000 a year, 60 years from now is not going to be what it's worth today. I mean, will we even still be using the U.S. dollar in 60 years? And I'll let's, okay, I'll just throw all conspiracy theories like that out the window. Let's say we will be using the U.S. dollar in 60 years. Your $200,000 ain't going to afford you any sort of decent life in 60 years, not what it's affording you right now, nor even probably even 30 years. I'd say even 10 years is probably going to be a little, it's going to be noticeably less.

Second thing, it's going to take an amazing amount of discipline to restrict yourself to just $200,000 a year for the rest of your life. We've got something else to consider in this equation. That's what we call human nature. And let me promise you something. If you actually go out and do what it takes to eventually stash $12 million in the bank somewhere, wholesaling properties, you ain't going to be happy with a life of $200,000 a year. I promise you that.

It's just not going to happen. I mean, when you start making just $20,000 a month, wholesaling properties. Most people's lives, they change pretty significantly and pretty darn quickly. Expenses tend to, and most likely will, rise right there in correlation to the amount of money that you earn. And here's the rub. You see, as you're in pursuit of financial freedom, that's why you're in real estate,

because this is where all the money's at. As you're in pursuit of financial freedom, you're doing well for yourself making $20,000 a month. You're earning more and more money. Maybe each month is getting a little bit better. You're improving. You're scaling, right? but as your expenses rise with your income,

you're becoming less and less free. You get to a point where you've got to go out and flip that house or two every month. You get to a point where you go, I got to flip 10 houses this month or else I'm not going to be able to pay my bills. Instead of becoming financially free, you become a slave to your bills.

And the bigger those bills get, the more enslaved you become. You know that old song, more money, more problems? by the B-I-G, notorious B-I-G. That wasn't a song written just because it made a catchy song title. No, that song was written from experience.

And if you listen to the lyrics, those are painful experiences. But let's just say that you're going to be impervious to inflation. You're going to be impervious to life's temptations. And you are the exception when it comes to human nature. Let's just say that none of that stuff matters. How many houses would you have to wholesale at $20,000 each to stash $12 million in the bank.

I won't make you pull out your calculator. It's 600. That's how many. 600 houses you're going to have to wholesale at $20,000 each to make $12 million. And that's if you average $20,000 per house. And so if you did three of those a month, how long would that take for you to hit that number of $12 million? Almost 17 years.

And don't forget, you still have to feed yourself for those 17 years, right? So let's say while you're stashing away this $12 million in the bank, you're going to live off of $100,000 a year. You're going to be disciplined. You're going to make some sacrifice. You're going to live off a year. That's an extra $1.7 million you'd have to earn to live off of, to be certain that you'd put $12 million away in the account. That'd be 85 more houses you'd have to flip. So 6805 houses to make this plan work.

That's a ton of work, right? It's a ton of time. That's 17 years. And an amazing amount of discipline as well. And I'll also say an extraordinary amount of luck for nothing catastrophic in your personal life to derail you. Number one cause of financial ruin is health issues. So let's just pray to God that you're going to be healthy

for those next 17 years. Not to mention nothing catastrophic in the world to happen to derail you. What I mean by that is, there's a ton of factors completely out of your control that also have to work in your favor just absolutely perfectly over the next 60 years for that plan to really work out. And what if you're not 35 years old right now?

What if you're 45 years old listening to me or you're 55 years old listening to me? Now you've really got to put the pedal to the metal and pray for all of that other stuff to work in your favor too. I mean, when you consider all of this, how is it that real estate has created moral, wealth than any other industry or investment vehicle. How is that possible?

Because that's a true statement, by the way. But when you consider these numbers that I just went over, and that's just math, that wasn't in my opinion, that's just math, just scribble that on a piece of paper before I started recording, when you consider all those numbers, how is that a true statement? Pretty easy. When people and sources state this fact that real estate has produced more wealth than anything else, they aren't talking about flipping properties. No, that's not investing.

That's trading. Big difference. Huge. It's not even the same thing. Just because it's real estate doesn't mean you're in the same business. So what's the answer? How do you get on the right side of this?

Well, here's how. You're going to love this, by the way. Just hang in here for a minute. You're going to love this part. Rather than looking at how much we need to put in the bank to generate $200,000 a year, Let's focus on the $200,000 a year right now that happens with or without our involvement. For example, income property, actual investments.

Let's look at the investments instead. And let's, with this math, let's pick a very conservative number of, say, $300 a month. Still, even with the shifting market and the reduction of inventory, it doesn't take a whole lot of extraordinary effort to generate $300 a month from an income property. It's far more realistic than the $20,000 per flip right now, isn't it? Yeah. So how many income properties would you need to generate the $200,000 a month? Again, don't pull out your calculator, especially if you're driving.

The answer is 55. Just 55 deals, 55 properties to hold. 55 compared to 685 deals to 685 deals to flip. That's why I was saying you're going to love this. Because all of a sudden, that's far more achievable, isn't it? 55 deals doesn't seem like so long. 685 deals, depending on where you are right now, it seems like an eternity. So at one hold per month, if you just held on to one hold per month,

another example, far more realistic than flipping three per month at $20,000 a month. Just under five years, and you're at your $200,000 a year mark. Just under five years, if you just did one a month. And you're still, you're still, you're still, young enough to enjoy that $200,000 year, I might add. And then on that 56th property in every property from that point on, you just take the cash flow from there and let that cash flow work on generating your $12 million in the bank. Let the stream create the pile for you.

Don't focus on the pile to create the stream. That's the long road. That's the slow boat to China, as they say. Focus on the stream first to generate the pile. Let that stream generate that $12 million. in the bank or whatever number that is for you, that's pointless or that's not, that's relevant. Now, I can hear some of you right now. What about this?

What about that? What about interest rates? I can do better in the stock market than 1%. I don't have the money to buy properties, right? You can do this. You can do that. Certainly. All of that.

There are exceptions. There are a lot of variables at play. But it's the logic here that's very sound. It doesn't matter what number you need and how long you need it. flipping properties is a much longer path to financial freedom, not to mention a much less likely path than holding properties. You got that? I really want you to get that.

Flipping properties is a much longer path to financial freedom, not to mention a much less likely path than holding them. So what do you do? How do you proceed from here? What's the answer? Especially if you don't have the money to buy 55 properties that cash flow $300 a month. I knew you're going to ask that. I knew you're thinking that.

I don't have the money to buy 55 properties. That's fine. Here's what I want you to do. This is what I want you to do, to take advantage of this logic and put these powers that be in your favor. This whole thing, all of this real estate stuff and this conversation right now is all conspiring in your favor if you follow these five things. Okay, here's what I want you to do. First, if you're a wholesaler or a fix and flipper, stop thinking of yourself as simple. such.

Okay. Stop. Remove that label from yourself. I flip properties. I wholesale properties. I'm a wholesaler. I'm a gunslinger. I'm out there and I'm flipping contracts.

I buy low. I sell high. That's what I do. If that's how you think of yourself, I want you to stop thinking of yourself as that. Every house you wholesale or flip prolongs your journey to financial freedom. I know it feels so good when you put that big check in your pocket. You get to post that big check on Facebook. book, I love it. I've been there too. I love doing that myself. It feels good. Just to understand it's

prolonging your journey. I'm not saying you can't wholesale. I'm not saying it's wrong to wholesale. I'm not saying don't wholesale. I'm not saying don't flip properties. Just don't think of yourself as a wholesaler or a fix and flipper. Not if financial freedom is your eventual goal, okay? Don't commit to the exit strategy until you know what you've got in your hand. So that's first. Second, focus solely on finding the deals and getting those deals under contract. Don't focus so much on how you're going to do the deal first. Focus on finding the deal, getting control of it, and making it the best deal you can possibly make it while you have it under contract.

Get control of the deal because once you have control, no one can take it away from you. And now you've got, for a time, for a limited time per the term in the contract, no one can take it away from you. And now you've got time to decide what you're going to. going to do with it? What's the highest and best profit for you and your current situation of that deal that you have control of? Okay, so that's number two. Focus on finding the deals. Everything else is secondary. Focus on finding the deal and get under contract.

Third, knowing what you know now, make it your intent to hold every deal. Whether you hold the property or you hold the new. note on the property, make it your intent to hold it. Your intent. It doesn't mean you have to. Just make it your intent. Okay. We'll come back to that and just a sec. Fourth, analyze every deal for multiple extra strategies. Okay. For example, you got one, two, three, Main Street under contract. Under contract, if you wholesale it, it makes this much. If you wholesale it, it makes this much. If I fix and flip it, it's going to make this much. And if I buy and hold it, it's going to make this much. And if I hold it and I resell it, hold, through seller

financing, it's going to make this much. Just line those up so you can see what each strategy is going to give back to you. Run multiple analysis on every deal that you determine or to determine what there is to make here with that particular deal. Okay, so that's fourth. Fifth, choose. Choose the best excess strategy that's going to get you to your financial freedom the fastest.

This is the difference between what you want right now and what you want most. I don't think there's very many of you out there that want $20,000 in your pocket right now more than you want financial freedom for yourself in the foreseeable future. So choose the best exit strategy that's going to get you to your financial freedom the fastest. If you need money to eat and pay your rent in two weeks, then by all means, go ahead and wholesale that bad boy.

Wholesale it. As soon as you can, so you can feed your family and you can keep them under shelter. Wholesale it. That's not wrong. That's not what I'm talking about here. But if that's not your biggest concern at the moment of feeding your family and paying rent, ask yourself how can I hold on to this creating some cash flow for myself you want to ask yourself that question because that's the fastest path to your financial freedom might not be the most

exciting might be flat out boring but it is the fastest I mean even if it's a little bit tough to actually make that happen to hold on to it it's that sacrifice right then and there that's going to get you one step closer to your financial freedom even if it's a little tougher you're a step closer let's say you're running low on marketing dollars and you need cash right now to pay for that next mailing or the next month or so of your pay-per-click campaigns, then go ahead and flip it, wholesale it. Put the cash in your bank and generate more leads. If that's what you need at that moment, then do that.

But if you've got some cash in the bank and you've got some strong rental properties and, you know, and you've got a little bit of cash, a little bit of cash flow going, you're not in a major need for either, but you'd like to maximize your cash flow on this deal because you want to get closer to your financial freedom, maybe buying it and then reselling it via seller financing. That's going to be the best strategy for you at that moment. getting you even closer, faster to your financial freedom. Or maybe you've got plenty of cash and you know you need cash flow. That's because you got your cash rich in your bank account.

You got some under your mattress. You got some in the safe in your closet. You got some in the bank. You've got some in the stock market. Well, whatever. You got cash. And you know right now what you need is cash flow. But this particular property, this one, two, three, Main Street property,

eh, it's not really one you do want to hold on to. It might be tough to manage. It might be not be in a great location. maybe you don't have a property management that's reliable in that area. If that's your case, then go ahead and wholesale it, dump it quickly. Put some money in the bank and move on. The point here being that your needs and situation is going to change from deal to deal, but understand that the more you wholesale and flip properties,

the longer it is going to take you to become financially free. Don't be married to the exit strategy before you've analyzed your situation and before you've thoroughly analyzed the deal that you got. make it your intent to hold every deal that you get under contract make it your intent doesn't mean you have to hold it but if it's financial freedom that you want that should be your primary intent and then if it doesn't fit go ahead and flip it put some cash in your pocket and move on to the next one

all righty just don't be married to that exit strategy before you know what you've got before you know what your situation is all right money isn't necessarily the answer it's the type of money you earn is going to create your financial freedom. A bunch of money in your bank account, seeing that big number, it's seducing. It's fun to see. I love to see my cash being stacked on top of each other. But I know that's not what's going to set me financially free.

I need that stream of cash to be coming in each and every month, whether I get up and go out of bed or if I get up out of bed and go to work or not. All righty. So key points for today. Roughly understand under the best circumstances, it's going to take you. you 12 times longer to get to financial freedom flipping properties than it will holding them. Okay. It's going to take you 12 times longer to get to financial freedom flipping the properties

than it will be holding those properties. Do whatever you want to do to make your money. Just understand that that truth, that truth right there before you proceed on from this day forward. Okay. Now you know. So to make this work, here are your key five focal points I'm going to give you. One, stop thinking of yourself as a wholesaler or a flipper. Okay?

Just remove the title. You're a real estate investor. Okay? And you're going to do what's best for you at that given moment with that given deal. Stop labeling yourself as a wholesaler or a flipper. Two, focus on finding the deal and getting control of it. Focus on finding the deal and getting under contract. That's the highest and best use of your time.

It's the hardest part of the business. And it's what people will pay you the most for. If you're good at finding deals, you've got nothing to worry about. You're going to have options. Right. Three, make it use. your intent to hold. That should be your intent always. Four, analyze for every possible exit. Because maybe holding that particular deal, even though it's your intent, that might not be the best

exit for you. Okay, there might be another exit that pays you more or in a different way that you'd rather have. Five, choose the exit strategy that's best for your situation and goals. Choose the highest and best profit for you at that time. Got it? All righty. So if you can make it to the next epic intensive, I encourage you to do so as I'm going to be going over all of this in much greater detail and how you can create a truly scalable real estate investing business that works with or without you and gets you to your financial freedom faster than anything else available to the average person. If your future is that financial future is really important to you, if that's what you want most, and you can make it happen, do whatever you got to do to make it happen to get to the epic intensive in August,

right at the top of the month. I think it's third, fourth, and fifth in St. Louis. All righty? Go to Epicintensive.com. Grab your seat before they're all gone. That's it for today. I will see you next week on another episode of Epic Real Estate Investing. God bless and to your success.

I'm Matt Terrio, living the dream. You've been listening to Epic Real Estate Investing, the world's foremost authority on separating the facts from the BS in real estate investing education. If you enjoyed this show, take a minute to visit iTunes and share your thoughts. Thanks for listening. We'll see you next time here at Epic Real Estate Investing with Matt Terrio. This podcast is a part of the C-suite Radio Network.

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