Epic Real Estate Investing - Step By Step to Get Out of The Rate Race & Create Passive Income Part 4 | 722

Episode Date: July 23, 2019

In the 4th part of the series, Mercedes explains why leverage is rocket fuel for your real estate business. Specifically, find out the benefits of leveraging other people’s money and leveraging other people’s expertise, as well as how to avoid risk in your journey to financial freedom. 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, brought to you by Epic Real Estate Investing. My name is Mercedes Torres, the turnkey girl, and I am lucky enough to be partners in crime with Mr. Matt Terrio, the guy who created the epic real estate empire.

This show is about real estate investing for busy people. Busy people just like you who understand the importance of real estate just don't have the time or the desire to learn every single nuance there is to start building. your real estate portfolio or creating passive income for yourself. If this is your first time here, my friends, glad you made it. Make yourself at home. If this is not your first time here to my regular listeners, welcome back. So this week, we are continuing part four of our multi-series episodes titled

Step by Step Plan to Get Out of the Rat Race and Create passive income. Or if you were to go on to my website, we call it the frustrated investors' guide to passive income. Now, we started this multi-part series way back in episode 701. We continued it in episode number 708 and then last week was episode number 715. Today we're doing episode 722. So this is episode 722. And if you're just now checking in, I urge you to go listen to 701, 708, and 715, because in this episode, 722, we are wrapping it all up just to make sure that you can get out of the rat race. Cool? Awesome. So let's get started. Over the last couple weeks, you made two important decisions. One is you decided to shift your focus and efforts from building piles of money to creating

streams of money. And step two, you decided to use real estate as your passive income vehicle. Great decisions, by the way, my friends. I personally have done that myself. So we are relating on the same level. So, as you can see, you can start putting action behind these decisions just by moving at the speed of instructions. Now, you're reading and you're learning about real estate investments, you are hunting for properties, which, by the way, can take forever. Finding the deal, I say more times than not, is probably one of the most difficult things. to do in real estate investing is finding the deal. And then you're analyzing deals. You've liquidated some of your underperforming assets. You now have the capital in your hands to pick up your first investment. So you start finally negotiating on deals that have landed on your lap that you've

searched for. And finally you are closing deals. Then you start renovating and repairing properties, building your teams, hiring property managers and contractors, and other staff to support you because after all, you still have your day job. You know, most of you begin this journey and you're a full-time something else, whether you're a physician or an attorney or work for a bank or you're a teacher. your full-time something else. So most of you are doing this on a part-time basis, which elongates the process even more. And finally, after a few months of front-loading all of this work, you rent your property and bam, the hard work pays off. You get your first rental deposit. it, check-ching, or not? After a couple months, you get a call from your tenant and they've lost their job and need some

extra time to make their rent. It's probably one of the most deflating calls that you can get. When your tenant calls you and says they've lost their jobs. And then the following week, they call you about a waterline busted in their home. home and water damage all inside the house. So you dispatch your plunder that you've been working on with your own home and he needs to call a specialist to dry the place out because the entire unit is flooded. The plumber now needs to call a specialist because they need assistance in the plumbing lines of the house and a week and a half later,

the plumber sends you a bill larger than you even expected, of course. You then do the math and you realize it's going to take an entire year to cover the bill that you just acquired with that busted pipe. It's going to take you no mishaps in your property this coming year in order to make yourself whole. when all you want is a responsible tenant in a quality property that pays the rent on time, but instead you're wondering, what did I get myself into? If you get this part wrong, my friends, that's pretty much what can happen. tenants have endless excuses as to why their rent will be late and possibly your property

breaking down is the last thing that's on your mind but it all comes crashing down at one time. Now, your contractors overcharge and in the interest for you to move forward financially, you realize you're actually moving backwards. But when you get this part right, you find a responsible tenant that pays their rent on time every month, and you find low maintenance in your property because you did it right. And you work with competent contractors that care for your business as if it's their own. and your dream of passive income finally becomes a reality. This is what happens when it's done right.

As I mentioned previously, the key to getting passive income and overall wealth creation to materialize is leverage. Leverage is the rocket fuel. leverage will make your journey to financial freedom not only exponentially faster, but significantly faster. Now, when most people hear the word leverage, the first thing they think of is leveraging somebody else's money, and in most instances, that's a mortgage via a bank. The typical scenario is you invest 20% of your own money and the bank provides the rest, 80%. That's a 5 to 1 ratio of other people's money.

And let me show you why this is the rocket fuel of your wealth creation. I'll use one of my clients as an example. My client Jerry's investment from a few years ago, I want to say maybe three years ago in Birmingham, Alabama, he paid for a three-bedroom, two-bath house in a really nice area, $126,000 for this property. He put down 20% down payment required by the bank, and the bank put down the rest. That's what we call a typical 80-20 loan in the world of financing. Since his purchase, Jerry got super lucky because Amazon announced that their hub,

was going to be opening in Birmingham, Alabama, just a mile away from my client's property. So the property last year appreciated a total of 19%. And now that's value, that same property that he bought for $126,000 is now valued at $150,000 and instantly gave him $24,000 in equity. So, Jerry put down $20,000 down payment. He put down $25,200 and in three years has earned equity of $24,000, producing him a 95% return. You see the math there? The property appreciated in three years, 19%. Now, normally that wouldn't happen,

but Jerry's investment did appreciate 95% if we're taking into consideration what he put down as his deposit. it. That's how leverage works. There is your rocket fuel. Well, that's fine and dandy Mercedes, but what about the time required to find and fund and fix and manage the deal? I'm glad you're thinking that. That's where the second type of leverage comes into play. The leverage of other people's expertise. The leverage of other people's money creates your wealth faster. The leverage of other people's expertise creates your wealth easier.

Let me repeat that, my friends, because that is really important. The leverage of other people's money creates your wealth faster. The leverage of other people's expertise creates your wealth easier. And this is the most important piece of passive income. And this is the what you need. This is the answer and the puzzle, if you will, if you want to scale. I mean, honestly, you don't want to interview endless people to find just the right tenant. You have people for that. And you don't want to receive a call in the middle of the

night about a leaky faucet or a busted water heater. You have people for that. You don't want to fix the air conditioner in the middle of the summer when it goes out at 120 degrees. You have people for that. If you were to buy a McDonald's franchise tomorrow, you wouldn't clean the grill or start the fries or man, the cash register, would you? If you did, your income wouldn't be passive. The same goes for real estate, my friends. Most people think if they want passive income for real estate, they'll have to manage the real estate. Most people, sadly, and tragically, are deferred from real estate investments because they don't want the headaches of being a landlord. Trust me, I understand that, but that's nonsense. That's not how it's done. You don't manage real estate, my friends. You manage

the managers to manage real estate. This one distinction right there, depending on the size of your real estate portfolio is the difference between a couple of hours a day and a couple of hours a month. Yeah, but leveraging money is risky, right? Leveraging others to watch your money only compounds the risk. If you do it wrong, maybe. Absolutely false. if you do it right. So let's wrap up the series with a step-by-step process of virtually eliminating your risk in real estate.

Risk management begins with your strategy. You must have an income-based strategy, meaning you do not invest in a single property unless it pays you. pays you more each month than what it cost you to own it. Think about that, my friends. When a property pays you more than what it costs, what's left is called cash flow. That's your passive income. Don't wait for appreciation to buy real estate, my friends. Buy cash flow and wait. Don't gamble on appreciation. Don't gamble on time of the market. Don't even speculate. Period. Don't do any of that. Appreciation, my friends, it's great. I love it. Based off a history, I almost guarantee that appreciation will happen. But it's the icing on the cake, my friends.

Invest in cash flow by right. If you invest, if you invest, in cash flow, that's the cake. That's where risk management begins. Risk management resumes and strengthens through diversification. Now, you are going to want to diversify your portfolio, specifically the locations. And this is one of the main reasons why Matt and I are in multiple markets. You may have heard that real estate is local. And indeed, my friends, that is true. By diversifying your real estate investment geographically, you protect yourself from natural and economic risk. And you're not done with eliminating our risk there. I'll show you what there is to do next to minimize risk even further. And this risk management management

tip cost me $300,000 to learn. And I'm going to give it to you here for free. So get ready. Okay, here it goes. Real estate is so risky. No, my friends, it's not. Not if you do it right. If you do it right, it's the safest investment option out there for you. So step number one, in risk management to invest for cash flow? Forget appreciation, meaning it's great. It's going to happen because history repeats itself. Just don't factor it into your decision-making process. If a property doesn't produce positive cash flow, then you don't buy it, period. End of argument. Do not bank on appreciation, my friends, because I say it time and time again, nobody has a crystal ball. Chances are your property will appreciate because history repeats itself.

But let's not bank on that. Let's just bank on cash flow. And that is doing your math from the get-go. If your property does not cash flow at closing or 30 days after closing, then don't buy it. Step number two in risk management. Diversify your geography. Critical, my friends. By doing this, you protect yourself from natural and economic risk.

Natural risk, let's just take what happened in New Orleans several years ago. there was a massive flood and if you own 10 properties in the area that was flooded, you, my friends, would not be happy. Not only would you have to take the loss of rents, it would be your responsibility to replace your tenants and then you'd have to deal with the insurance company. That's a natural disaster. An economic disaster, take what happened to the market in 2008. If you were not well diversified and all of your investments

were in Los Angeles, for example, this is why Los Angeles was one of the biggest short sale markets, because those investors that invested in Los Angeles only, they lost it all. So, diversify your portfolio geographically. Step number three, and I bet you won't hear this anywhere else. This tip cost me, my friends, $300,000. This is not a joke. It cost me that much to learn it. And I would have paid a coach 100 grand for this tip, and I would still get a bargain for it.

Instead, I went to the school of Hard Knocks and paid $300,000 for this lesson. And here it is. Lesson number three, diversify your teams. And my teams, my friends, consist of a project manager. a realtor, a property manager, and a contractor with a maintenance team. And you will want to have at least two teams on the ground. So two property management relationships, two realtors in each market, two licensed contractors with rehab teams and maintenance teams.

And here, my friends, is the secret to manage you. your risks by diversifying your teams. Make sure, my friends, this is key. Make sure they all know about each other. By keeping no secrets about who you're working with, you will quickly notice how operating costs tend to drop and how the performance of your property management teams tend to rise. This is big, my friends. Huge. I wish when I started investing that someone would have told me to do this when I got started. The biggest mistake when I started was that I only had one contractor, one property management, one team. And I'm sure you've heard the episode that Matt did way back when about when we had one property manager in Memphis and that property manager passed away. huge, my friends. Like I said, it costs me $300,000 to fix that ordeal. So when you meet me, when you meet me at one of our events, I will tell you all about that because it was nasty and it almost knocked us to the ground. Okay. Ooh, enough about that. I get hot about that situation.

So next, my friends, diversify your property types. This is really important for a lot of my new investors, I'm really big on diversifying your property times. So if you start with single family properties, like most people do, after you've acquired several of them and you have them under your belt and you're comfortable, start acquiring either different price points or switch up the acquisition itself. Start considering duplexes or maybe even triplexes or four units. And as you start to continue to build your portfolio, you can start working your way up to larger family projects and potentially commercial units or storage developments or even developing units. Or if you continue working the single family fields, because I happen to like that, start considering portfolios of

single family residents. Diversifying property types, my friends, will straight your equity and your cash flow positions. That is also critical. You're also mitigating risk that will ultimately give you the power over your investments. Just think about it. You're mitigating risk that will ultimately give you more power over your investment. Now, I'm going to share with you how my business is set up. I'm working in 10 different markets, and as I previously mentioned, in each market, I have a project manager that manages my team, and each team consists of a property manager, a contractor, a realtor, and remember, my contractor has the contracting rehab team and the maintenance team, and each team is aware of each other's exact.

their expertise, and I intentionally do that because I found that there's an inherent element of competition that increases performance and it decreases expenses. And my clients and I benefit significantly from this. You see, in many of my markets, the combined portfolios of my clients and my personal holdings make up a significant portion of each of my team's businesses on the ground. And I found this to result in preferential treatment, if you will. I do get treated like royalty, and so do my clients. Why? Because I operate in volume and I represent a large portion of my team's business. Simply put, my clients and I are able to leverage each other's portfolios for stellar property management of our assets. And I have the same set up in each and every one of my markets.

And the people that work with us, they benefit from our relationship. The sheer volume of business that we represent to each team member makes a difference in their livelihoods. Therefore, it makes a difference in their performance. I remember one of my clients' investments in Memphis property, Sarah, she had a huge, significant bathroom backup problem, if you can imagine. No need for me to share the details. but just imagine the worst type of sewer backup you could possibly imagine multiplied by two. And it just so happened that it happened on a late Friday afternoon.

It was like Friday evening. I didn't get the call until Saturday morning from my property manager. And he told me the entire story of how much damage there was, how big of a nightmare it was, how awful the smell was. and he just kept going on and on about what happened. I mean, he rambled for about 10 minutes. And then he even told me what needed to be done. And all I could hear when he was talking to me is the dollar signs it was costing my investor. I just couldn't fathom that my investor had bought this property less than a year ago and all of this was going on.

And oh my gosh. Anyway, he finished the story. And at the end of the story, he said, but you know what, Mercedes, don't worry about it. And I just, I had to stop to pause because I thought, don't worry about it. And he said, my guys were over there within an hour. And within an hour and a half, the place was looking as good as new. And you know what, Ms. Mercedes? We picked up the tab for your client to show my appreciation for all the business you've

given up. Enjoy your weekend, Ms. Mercedes, and he hung up the phone. I was floored. And that, my friends, is what happens when you operate in volume. Now, let me be real. My property managers don't pick up the check every time, but they do go out of their way to serve me and our clients because we operate in volume, because they appreciate our business, and because they know that if they do not get your property to perform, nobody makes money. We are a priority to them, and as such, they treat us and our properties with utmost priority. And that's what strengths and numbers do for you. And that's how our clients collectively benefit from each other.

Further, my clients are busy people. They're busy people just like you. They're smart. They understand that if they want real estate done right, they don't do it themselves. Meaning, by the time they find a deal, they book their airfare, they rent a car, they pay for the hotel, their food, then they fix the property and then they find a tenant and then they interview their property managers. They take that all. into account, not even to factor in the number of days that they have to take off of work, they know that it's just better for them to pay us retail or what it is that we, quote, unquote, charge for us to do everything for them. Let's be real, my friends. At the end of the day, it's a wash. Because the partnership on the grounds and the connections on the ground often pay us our fee. So to you, to the buying client, it makes no difference. The numbers are exactly the same. Our clients pay nothing to us. It's straight profit for our team based off of the work that we've done with volume. Not to mention, you save something even more

valuable. You save your time. A deal we recently closed from Alex. He purchased a property in Indianapolis. Alex is from Southern California. And he purchased a property that was valued at $125,000. That was a sales price. And the appraisal came in at the same value. And he purchased it with a long-term tenant in place paying $1,200 a month. That's a cash-on-cash return of almost 10%. We closed a deal a little more than a year ago, that deal closed, and he was tickled pink. The best part of the whole idea was that the tenant had a three-year lease in place,

of which the tenant still had two years and eight months of that rent staying the same. Furthermore, we closed a deal about maybe nine months ago with a gentleman by the name of Lewis out of Pasadena, Pasadena, California, that is, and he did this deal out of the 401K. Now, he had $100,000 in his 401k just sitting there doing absolutely nothing. So we set up a self-directed 401k to invest in real estate. And his property in Indianapolis was valued at $140,000 that also had a long-term tenant paying about $13.50 a month. And now, in order for Lewis to get into this property, he had to use $28,000 from his 401K.

That was his 20% down payment. Now, fast forward 36 months ago, his property has appreciated by 6% to now $148,000. bumping up his 401k value from what he had in there to an extraordinary 13% more all in a tax-free environment. He has virtually doubled the value of his retirement account with one transaction. Why? Because his money in his 401k was sitting idle. four years. And with the purchase of one investment property that he sat on for just a little bit, and it had a cash flowing tenant, and it appreciated the value of his investment has doubled. Well done, my friend. Well done. You know, nothing makes me happier to see the results of our clients.

So now you've seen how I've set up my business to leverage the expertise of others and virtually eliminate the risk. And you've seen how my clients have been able to benefit from that very thing. But enough about me and enough about them. Let's talk about you. if you had the leverage of money and other people's expertise working for you and a diversified structure like the one that I just shared, what kind of impact would that have for you, your life, and your family? If you think about all the time you haven't been leveraged other people's money, other people's expertise, and piggybacking off of their

knowledge or diversifying, how much has it cost you? Right now, you've got a choice to make. You can keep pursuing passive income through real estate the way you've been doing it, or you can take on a new way and start leveraging other people's money and expertise in the way that virtually eliminates the risk. Doing this new way is how you will escape the rat race while you're still young enough to enjoy your freedom. Now mind you, if you're not already doing this, it's going to take you a minute to wrap your mind around everything that I just talk about because this is not what we were taught, my friends. We were taught to go to school, get good grades, get a good job, save, save. You weren't taught to invest in a cash flowing asset that's

going to pay you streams of income. And by virtual, it's small streams of income in your eyes. So if it takes you a moment of two to wrap your mind around this, listen to this very episode two and three times over and over again until it starts to make sense because I promise you, if you think about it for a moment, it all makes sense. You know, I'm not sure why you tune in every week to listen. It could be because you're just getting sick of your job because what you're making is not enough. Or you can have doubts about your current investments or, I don't know, a big headache. that's been zooming in and out just because you just don't know how you're going to get out of the rat race.

Or after just trying to think about another vehicle to help you create financial freedom, now you know that passive income is the path to an easier life financially, and that real estate supported by the right strategies is something you can, could be confident about. And by leveraging other people's money and other people's expertise and time, you can get to where you want to get much faster with a sense of peace. So how do you want to make this happen for you? You can take what you've learned during these last few episodes,

piece this together, work by trial and error, And in other words, you can go figure it out and do it yourself with everything that I just gave you here. And you can do it and you can go slow. Or you can plug into a proven solution leveraging the expertise and efforts of other people who do it all for you that have done it time and time again and go fast. My friends, I created the cash flow savvy system specifically to help people overcome their day-to-day financial struggles. Their doubts about their financial future. And my goal is to alleviate the frequent headaches that accompany building wealth and passive income in your life and not knowing how to do it or where to get started. The cash flow savvy system I designed to make it easy to create passive income through real estate and to accelerate the rate and provide peace of mind of my financial freedom was created specifically for that.

Whether it's my turn-key operation or any other one, listen, if I were in your shoes right now looking for a solution to creating passive income, I'd be looking for three things. I'd be looking for a proven customized plan. I'd be looking for experts to take on all of the heavy lifting of that plan. And I would open a line of support to ever have any of my questions answered, any assistance that I need at any time. Those would be the three things that I'd be looking for. and that is exactly what the cash flow savvy system is created to do.

And that's how I got started. I created cash flow savvy by accident because I was doing it for me and now I'm just branching it out for you. As you know, I'm committed to helping you achieve financial freedom. So I decided to make it a no-brainer for you. It's simple, my friends. If you'd like our expertise and our assistance, our handholding, and our help, go to passive income.com and reach out to my staff, my office, or even me, fill out a passive income audit

request, and basically you just set up a call with myself or one of our specialists. No obligations whatsoever. But what it's going to do is it's going to, number one, identify the things. that are holding you back and how to overcome them so you can achieve financial freedom to get you out of the darn rat race. Number two, you'll receive three specific strategies on how to reach passive income, but not only how to achieve it, how to achieve that goal in the fastest time possible. And then after the audit, which can take, by the way, as little as 10 minutes, you'll be clear as to what path you need to start achieving passive income and ultimately financial freedom. I find this extremely rewarding to watch people open their eyes and see what's possible for them.

And that's why I'm offering. Now, I'm only doing a limited amount of passive income audits. There's strictly for free, and it's really setting up a call with myself or one of our cash flow savvy specialist to help you figure out how to help you get out of the rat race. Cool. So go to passive income audit.com. Book it directly on our calendars. It's available for you.

We normally at one time charge $500 to do an audit. It's absolutely free for my podcast listeners to go on. this particular site and you can have it done with myself or one of my specialists. My friends, that is it for today. I hope that I have you closer to escaping the rat race and creating financial freedom for yourself. Until our next week of Turnkey Tuesdays, have an epic day. Do you have doubts about your current plan for retirement actually panning out? Imagine revolutionizing your retirement plan so it pays you right now and in retirement. Change one thing one time and that revolution can be yours.

That's bad news for Wall Street, but great news for you. We're cash flow savvy and we'd like to offer you free information that will show you how one simple tweak can cause your retirement plan to pay you right now and in retirement. And it's yours for free. For the secret your financial planner doesn't want you to know, go to cashflowsavvy.com. That's cashflow savvy.com. This podcast is a part of the C-suite Radio Network.

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