Epic Real Estate Investing - The Benefits of Leverage | HTH 021 | 563

Episode Date: January 9, 2019

Today, we are talking about the benefits of leverage and why it is an outstanding strategy for scaling up your real estate business. Learn what leveraging means, why it is the biggest wealth creator, and how it empowers you to help other people. Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terrio Media. Don't wait for appreciation to buy real estate. Buy for cash flow and wait. In other words, Hold the... Your host's Matt Andrews and Matt Terrio. Hey, flipping houses can make you rich. Holding them will make you wealthy.

This is the Hold That House show. I am Matt Terrio and over there is Mr. Matt Andrews. Use the force, Luke. And before we begin, we've got a free gift for you. Go to hold thathouse.com and download the four-hour work month, the Ten Commandments to Managing Property Managers. It's really the key ingredient to financial independence through real estate that nobody's telling you about. They're not going to tell you about it because it's kind of boring, but it's actually what works. It's what gets you there. And you can get that for free at hold

that house.com. Hold that house.com. All righty, coming to you today, live from Tampa, Bay, Florida. And it's not raining. And it's not raining. It hasn't been every day for the last four weeks, so this is good. Right. So I don't know if you can tell or not. We're not going to know until after we're done recording how this sounds. We are using a different setup. We're in a boardroom, and we're going to have to do some post-production magic.

So Mr. Producer, if we're a little heavy on the base, cut that out. If we're a little high on the hiss, cut that out, then, you know, make it sound good like you have been up to this point. Cool, cool. Cool. So, Maddie, today we're going to talk about the benefits of leverage. leverage. It's probably the single biggest ingredient or reason that real estate is such a wealth creator. If you don't have leverage on people, how can you blackmail them? I mean, you've got to have leverage. Oh, wait, wait. That's not what you're talking about. I'm sorry. That's not that kind of

leverage. Different podcasts. Different podcasts. Okay. All right. No, leverage in your business. Obviously, guys, you know, leverage is what helps you scale up in a way that nothing else could in your real estate business. Leverage is the difference between doing one deal here and there and doing 10 deals here and there like Matt Terrio does and like I do. So, leverage is such an important piece of your business, but you know what, man, it's really misunderstood in so many ways. And people, you know, there's bank loans for first-time homeowners, and then there's actual loans for investors. And some people equate one with the other and just get confused and think loans are loans. It's a whole different ballgame when we're talking about real

estate and business ownership and scaling up a business. Those are different loans. And it's confusing for a lot of investors. Right. Absolutely. Well, let's talk about leveraging of money real quick. And it's very basic sense to why it is the wealth creator. So if you have a $100,000 property and you borrow 20%, so you've put 20% down, you put $20,000 down, right? And if that property should increase 10% in value, right, you get the benefit, that appreciation on the whole $100,000, not just the $20,000 you put in. That's one of the biggies. That's why it's, I don't know, I can't can't think of another investment out there that's available to the average person where you can put money to work with that type of power. And that's just the appreciation we're talking about.

That's just the appreciation. And certainly there are business and businesses that are structured in a way that you can get some kind of returns like that, but certainly, you know, for the average investor or for the elite investors, nothing provides what real estate does here. Just that simple example right there. I mean, think about how much your power grew exponentially there, what you open yourself up to that you wouldn't have if you'd didn't have leverage. Exactly. Exactly.

Got to have it. So you get the benefit of leverage through the appreciation, but you also get the benefit through the acquisition is you got a $100,000 property without having to use a $100,000 of your money. Exactly. So now you can start building faster than you can and other. You know, there's a couple other podcasts out there. And you'll see the gurus come around where they're talking about notes, right?

and how great it is because there's no management. And if you do it in your IRA, there's no tax issues. And you know, you don't have no maintenance calls. You don't have property taxes. There's great passive income. Some good benefits to know. Absolutely. Yeah.

But one thing that they never point out is you don't have to benefit of leverage. Right. You have, if you want a $100,000 note, you have to buy $100,000 note. You have to take $100,000 out of your pocket. Sure. And, you know, there's places for both of those strategies. in your portfolio. But, you know, really buying notes is much better strategy to sustain your wealth. Sure. If you're looking to build it, you're not going to build it that way. It's going to move

really, really slowly. So you need the leverage. So that's another acquisition. Yeah, exactly. And just to come off that point, you're not going into any bank saying, hey, I'd like to borrow some money to buy some notes. Right. You know, like, that's not happening, right? They're going to be, first of all, the person you're talking to is going to look at you with a blank stare because somebody at a bank counter is not going to even understand that, probably. But secondly, you can't leverage. like Matt said. So that's just not going to work. Now, notes, we will have a show on that probably in the future. And that's a great strategy for growing wealth.

No, sustaining wealth. But not for, yeah, not for what we would call inception of wealth. Right, right. Yeah, perfect. And even then, sustaining, I mean, when you start looking at the devaluation of the dollar and you're holding notes, if that dollar drops, so does the value of your note. Absolutely. People try to get the best of both worlds and you really can't. Thanks for sitting tight while we pay our light bill.

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Go to turnkey allies.com to get this new idea that Wall Street doesn't want you to know about. Turnkeyallies.com. More control. Less Risk. Turnkey Allies.com. So the other thing that I like about leverage is leveraging other people. Yep. And specifically, I'm speaking of tenants that need a place to live. They're going to live somewhere.

And then, you know, until housing goes out of fashion. Until roofing gets, you know, when that trend blows over. Right. I think we're in a pretty safe market. Yeah. Right. People still like shelter. Absolutely. And it's also their most important bill of the month for most people. I have tenants where it's not actually. I was about to say, our hope is that it's their most important bill of the month. Exactly. If it's not, it won't be a bill for them much longer, right?

That's how it. So when you have the tenant in there renting your property, their rent goes to pay off that gap. So you've taken $20,000 to acquire the property. You're getting all of the appreciation. You're getting all the tax benefits. You have the ability to keep acquiring. But it's your tenants who are actually paying off that $80,000 that the bank gave you or somebody else that gave you. It just gets better and better.

It does. You know, I read, you know, and I know you and I've talked about this a lot, I read Rich Dad, Poor Dad, when I was pretty young. And one thing I got out of it was how you can leverage and start to use money to leverage. And so, you know, when I got out of college, I didn't have a lot of money, but I put together enough for 20% down to buy a house. And then I got two roommates, two, you know, college buddy roommates that actually paid rent. And actually did pay me, which was nice.

And I leveraged them for five or six. years. You know, they paid off a good chunk of that house for me. And that's a house now that I run out. I own it free and clear. I owned it for, you know, over a decade now, you know, but I really was able to hold on to that because I leveraged people and I leveraged money, right? I leveraged with actual, with a loan and with two good roommates that actually paid. So I learned that lesson early. And then I thought, hey, I could do this over and over again. I could do this with tenants, like you said, and then leverage them. So that's how it works, guys. It allows you to leverage people. It allows you to leverage money. It creates what you have and lets you

have the benefits of more than you actually put into it. Absolutely. Those are some of the biggest ways that I can think of the benefits of leverage in real estate. Now, there's other ways that you can put leverage to work for you, but it's probably available in other opportunities or other ventures, is leveraging other people's experience. Yep. You know, have fellow investors, creating a network of fellow investors. Unfortunately, a lot of people, especially the newer investors, come into investing and they think that everyone's competition. Right.

You know, and we belong to a pretty high-level mastermind group of 80 of the probably the most prolific investors in the country, at least when it comes to single-family investing, I think. And we, how many deals have we done because we're part of this group, because we know other investors? Cooperation is way better than competition, just about every time, you know, especially in real. estate. You know, people that know how to leverage real estate investing clubs and their local

clubs and know how to find the people and really do partnerships, those are the ones who do deals quicker, you know, and I will always pay somebody or partner with somebody who knows something I don't to help me get something done that I wouldn't have gotten done anyway, you know, and I teach students, you know, you and I both teach students how to flip houses too and how to start those businesses. And I always teach my students that, hey, when you're going into a market, If you're trying to flip houses or wholesale properties, other people that flip houses and wholesale properties, they're not your competition. Those are your best partners. Those are the people you want to find and say, hey, let's do deals together.

Let's make this happen together. Co-wholesale or let me refer you buyers. I've always thought that cooperation is better than competition. So that's a really big one. You said something very wise there on that one. Every once in a while. That's right. Probably have to wait four more episodes, five more episodes before that happens again.

You drop at least one nugget on each one, you know? Come on. And then other people's efforts. You're leveraging other people. You can do that in traditional business as well. But it's where you really start to create a business out of your real estate is when you create a business where, you know, you provide an opportunity for someone else. You provide a job for someone else. And in return, that creates a business that can run with or without you.

Absolutely. And that's when it really starts to get fun. Absolutely. And that's part of being an entrepreneur. You know, part of being a real entrepreneur, you have the power to, to create opportunities for people. Yep. You know,

and that's, you know, I always say, it's not government, it's going to solve your problem, it's not people, it's not politicians in Washington. It's going to be entrepreneurs

helping people and giving opportunities. Yep. So this is, that's, you know, that's that's that in action. So I love it. That's so clear to me.

I mean, that's how this country was built. Yeah. It was like, when, uh, our country was first forming, it was like three out of four people

that came over here were entrepreneurs. Yep. And now it's like one out of 40 is an entrepreneur. I don't know what the number is, but it's way off balance, and then the results of our country kind of indicate that it is off balance. You know, and it's interesting you say that, too, because when I think about the history of it, I've been told, you know, the American dream was to own your own home, right? And then that was replaced at one point by the desire.

They still wanted to own their own home, but that was replaced with the desire to own your own business. That became the American dream. Now, I don't know what the American dream is right now. I know what it should be. I know what it is for me. You know, it's to be an entrepreneur,

to own businesses and to help people, right? But at large, we're losing that. And I feel like, you know, like you said,

one and four now, so what is the American dream? You know, that's a question that, 1 of 40. 1 of 40? I was about to say 1 and 4. I thought you made 1 and 4 even 1 in 20.

When we started, I think we were closer to that in the country. But, uh, 1 and 40. Yeah, and I don't know what the numbers are. You know,

37% of all statistics are made up on this market. Right, Exactly. Exactly. I'm good at that. But yeah, no, that's huge. And we had the ability to affect that change. We're entrepreneurs. We have power to help people. And that's really what good entrepreneurs do. And that's getting lost somewhere along the line. And the messages the media is telling us and the messages politicians are telling us that's getting lost. And that's what's going to change the world, not politicians, not governments. So allow me to get off my soapbox now. All right. Watch out. Watch a step. Okay, there you go. You guys in. Oh, yeah. I was like, whoop. All righty. So that sounds good today. The benefits of leverage. We're going to talk about next episode. We'll talk about some other opportunities that you might not have as many benefits of leverage or the ability or different opportunities to use the leverage, but definitely other places and ways to get wealthy. In addition to real estate, diversification is not a bad thing.

Depending on who you talk to, I guess. But I don't think it's a bad thing. Always good to have some backups and some safety. So, yeah, I look forward to that one. Yeah. Absolutely. All right. So that's it. for today, flipping houses can make you rich. Holding them will make you wealthy. We'll be back next week. And until then, remember, don't wait to buy real estate. Buy real estate and wait. Hold that house! Contrary to popular belief, a lack of funding is not the biggest barrier to starting a business. It's excuses. But don't let a lack of funding be your excuse. We are epic fast funding, and we'd like to fund your business with up to 150,000,000.

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