Epic Real Estate Investing - Wealth Building Strategy #1 | 3rd Degree Thursday

Episode Date: October 16, 2014

Exploit leverage to create your wealth, and eliminate leverage to preserve your wealth. ------- If you have a question, comment or concern that you’d like Matt to address live on the show, send it to him at [e-mail] and type "3rd Degree" in the subject line… or leave him a voicemail on the Epic Hotline at 1-888-891-7203.     See you tomorrow for a new episode of Financial Freedom Friday!   Learn more about your ad choices. Visit megaphone.fm/adchoices

Hello and welcome to third degree Thursdays, the show where I subject myself to you giving me the third degree. All righty. So before I get started, I just was curious, did you happen to see the news yesterday? The Dow Jones moved 600 points in 30 minutes. And I'm just curious, did you do anything to cause that to happen? Do you know anybody that did anything to cause that to happen? I mean, if you did, is there anything that you could have done about it? I mean, even if you have an answer, I mean,

it's what goes on in the financial world at that level is so beyond our comprehension, meaning with that much money being moved around and exchanged, who knows what's going on behind the curtain? I mean, I've been walking this earth long enough to not be so naive to that, you know, things don't happen behind the curtain that we don't know about, like behind the veil. It's amazing that just so many people have their future invested in. something that they know very little about and have zero control over. I mean, I know. I'm likely preaching to the choir here. And if you're just finding me for the first time today, you've got to get some real estate in your portfolio. That's where this is leading. You've got to get some real

estate in your portfolio. Or you've got to get a lot in your portfolio. I mean, it's just, it's that vital. It's real. It's not paper. It's not some fictitious or like this mystic mystic number floating out in space. You know, it's not dependent on whether, you know, one world leader gets the flu or not, or, you know, one little shift in oil or one little shift in, you know, whatever it may be. So you've got to get real estate. It's real and it's manageable. And if you're educated and you do it right, it's predictable.

So if you don't know how, learn how. That's what the Epic Pro Academy is for. And if you don't have the time or the desire to, you don't have the time or the desire to to do all that heavy lifting, that's what cash flow savvy is for. I'm doing my part to literally save you from the terrible financial advice being doled out at every corner. And there are other fine companies out there as well, like mine, doing the same. So if you don't do business with me to build your real estate portfolio, find someone

to do it with, or go out and do it yourself. However you do it, it doesn't matter. Just do it. I mean, real estate is the final frontier where the average person has a legitimate shot at creating financial freedom. There are no bad real estate investments. Just uneducated real estate investors. Got it?

Anyway, I'll get off the soapbox. It's just this giant move in the market. It seems to happen two to three times, the stock market I'm speaking of. You know, that's that giant move where it's giant ups or giant downs where it just causes panic or causes rejoicing. I mean, that happens two, three, four times a year and just everyone freaks out when it does. and then it settles down and business returns to, you know, to usual, and then people forget all about it until it happens again. All I'm saying, this is all I'm saying, is take control of your money.

It's your money. And if you get a little statement from your 401k every month, it's like, my grandmother, she's, oh my God. Was it last year, maybe it was two years ago at Christmas, and she was talking about her statement. And I says, well, how is that performing? She's the last person on earth that even remotely understands what I do or thinks what I do is like a real thing. But she says, well, I just look at it every month and I just hope it doesn't get any smaller. That's her mindset with her statement. I don't know where her money is invested.

It's not in real estate. It's in some financial institution or some financial instrument. But that's her, I just hope it doesn't get any smaller. So, you know, it's your money. It's just not numbers on a paper, on a statement every month. You should be taking control of it. You should be sending your money to, or you should not be sending your money, rather. You should not be sending your money to someone else to invest.

You should be investing to get other people to send their money to you. That's a financially educated person. Got it? Take control of your money. It's your money. It might not seem like money in this world of cyberspace. We've got debit cards and direct deposit and we got financial statements that we read. But it's real money and it's yours.

That's your business. You should take control of your business. Got it? All right. Anyway, on with today's episode. The episode on your personal residence being a good investment or not, that just that conversation won't seem to die. The questions keep coming in on that subject.

Like, what about this? What about that? What about this? So let's cover it. I'll actually cover two of those questions on today's episode. Okay? So got a question from Jeff, Jeff Merck. Says, Matt, love the podcast.

I heard you and Jason. He's speaking of Jason Hartman. Both say on a recent podcast that you guys rent your own residence instead of purchasing it. Why? More working capital, I assume, for houses, but would like to hear more. Thanks, Jeff. Well, yeah, that's pretty much it. More working capital.

but not necessarily working capital or I just don't like dormant money. I don't like money just sitting there doing nothing. And I think that's kind of where Jason stands as well. You know, in a nutshell, it just has to do with the opportunity costs that are missed by burying money in your primary residence. And you can bury money in your primary residence in the form of the down payment, what actually got you in the property the first place. Or you could have money buried in there because of equity, because you maybe

If you bought it really low, you got a great deal. You're all real estate investors. You should be getting good deals on all of your real estate, even if it is your primary residence, or including your primary residence, I should say. Or equity because of appreciation. All that can be locked up in your house doing nothing for you. You know, until you reach your desired residual income goal, you want as much of your capital deployed as possible working for you to get you to your income goal.

you go work hard for your money your money should be working hard for you it shouldn't be sitting there just chilling okay so once you reach your goal then you can start pulling your money back off the table and you know put in your pocket and secure in it which means paying off the debt then or consolidating or trading whatever may be the general rule of thumb is to exploit leverage to create your wealth and eliminate leverage to preserve your wealth okay Okay. Now, that's the essence of it. All done responsibly, of course, meaning be diligent with your purchases and, you know, be scrupulous with your due diligence. And then hold some cash and reserve. You don't want to be operating on zero letting all your money work. You want some reserves. But yes, Jeff, that's the gist. You know, and I think kind of the deciding factor is wherever you live, like where Jason lives and where, Jason lives and where, I live, it's more expensive to buy or to live there when you buy than it is to rent. So granted, we all need someplace to live.

So go ahead and pick the cheapest place to live. And that's where you get to decide, not necessarily geographically, but decide whether what's it going to cost me to own this place and what's it going to cost me to rent this place. You know, here in Southern California, I live in a million dollar house. I rent it. and I believe our rent is just under $3,000. I think it's $2,600, $2,700.700. If I bought that house, first of all, I would have to put 20% down.

So there's $200,000 I do not have no longer because it's in the house. And then it's a mortgage payment of probably $5,000, $6,000 a month. And then you got taxes, you got insurance, you got maintenance, and you've got all that stuff. So it's a lot more expensive to do that, see? So that's why I rent because I can afford a nicer lifestyle than if I owned it. And plus, I have all my capital to use to put it to work for me. And I know that's pretty much Jason Hartman. I think he lives in a penthouse in Arizona.

And he affords a better lifestyle without having to own it and can use his money for other purposes to build his wealth. So that's the gist, Jeff. Thanks for the question. The second question on this subject comes from B.B. French. And she writes, Hi, Matt, something I would love to hear you talk about on third-degree Thursday in line with the should I buy my primary residence conversation. It starts with, we live in Seattle, a very expensive part of the country.

In fact, it's been said to be, or to me, it is impossible to cash flow in Seattle. I dare say with traditional financing, this is likely true unless you have a huge down payment. So my husband and I have been saving up to execute this plan. save up a down payment for primary residence. Purchase this primary residence within FHA loan, three and a half to five percent down, in need of some minor cosmetic work in order to force some appreciation over 12 months.

Okay, so far I like it. But just understand for the FHA loan, the minor work it may need, it's going to have to be very minor because I believe FHA guidelines are subject to an FHA appraisal. which if it needs too much work, you might not get approved for the loan, okay? So, but I like the way you're thinking. The entire time having the intent to refinance the loan, ideally to a 40-year note, love it,

and do it again the following year, moving tenants into the first house. Rinse and repeat every one to two years. I know FHA doesn't like you doing that, so even find another 5% down mortgage programs, which are in no short supply in this expensive market. Well, there you go. You got the right mindset. I suppose this residence would be a liability until you officially moved out, indeed, and then it transferred over into the asset column.

That's correct. So, we'd love to hear your thoughts on this acquisition strategy. Are we wasting our time slash money on this plan? Should we just invest where property is cheaper and stay in our crappy apartment until we are comfortable enough with our assets or just start where we can and acquire, acquire, acquire. I love that motto, by the way. Thanks, Matt, working hard to be another success story on your show.

Awesome. Regards BB French. Okay. I love the strategy. It's actually a very popular strategy. It's a very conservative and popular strategy. It's a nice, steady, and slow way to go about it. Slow in real estate time, that is, but actually quite accelerated in traditional time.

You know, if you're listening to your typical financial gurus on TV or on AM radio, you know, this is actually a very quick strategy. As long as you maintain, you know, a moderate lifestyle, I don't know, 15 to 20 years, you could be easily financially free. and it's not necessarily the speed there, it's more the greater, I get, attractiveness of that. That's not the right word, but that's what comes to my mind. What makes that so attractive is that not necessarily it's the speed of 15 to 20 years of having that work for you, but it's the likelihood that it works. It's a more, it's a strategy that is more likely to work. It's more predictable, and that's why I like it.

So 15 to 20 years, you could easily be financially free in it. And if you time the market correctly and experience some nice appreciation, which, you know, in your market, a lot of places along the West Coast are likely to do, you know, you could probably crunch that down to 10 to 15 years or so. I mean, your houses could be buying your houses because of the appreciation, and that could really speed up the process. So one thing you've got here is the right idea about utilizing leverage as well and extending it out. I love you even thinking about the 40-year mortgage payment. Get your payments as low as possible,

whether that's a low interest rate or you're extending the time of which you pay it, whatever it may be, even if it's interest only. And then once you hit your residual income goal, once you've done this over and over and over and you've got your income goal to where it needs to be, then you can start paying down all of that debt. And then as you pay that down, you start eliminating this debt and and taking those things off of that liability side of your balance sheet, your cash flow skyrockets again. So you get another nice boost in your cash flow and you can pay it off and it can snowball and you can pay all that off really, really quick.

You might not take, you might not even take the whole 40-year amortization. But by having the option to, you create options and flexibility within your financial freedom pursuit. So love it, BB French. You're on the right track. I like that strategy. We set something up here. let me go back and scan real quick.

You said something. Oh, should you live in your crappy apartment and buy elsewhere where properties are cheaper? You can do both. Do both. Okay? Go ahead. And if you like that strategy, you like Seattle. You see yourself being there for the long term.

There's nothing wrong with that. Like I said, it's a very popular strategy, but there's no reason you have to do one or the other. So that's something else to consider. All righty. So Jeff, Bebe, thank you for your questions. We're going to switch it up next Thursday. and go in a new direction. I feel like I've kind of beat this horse,

beat this dead horse enough. But if you still got questions, go ahead and bring them in. I'm still going to address everything. But let's shift gears and go towards, I got some other questions that have come in and we'll get to those, okay? So hope that helps.

Should you have any questions, comments, or concerns, or rants? I love the rants that you'd like me to address here live on the show. Send them to me at mat at epic real estate.com and type 30 degree in the subject line. Or leave me a voicemail on the end. Epic Hotline at 1-888-891-7203. Put you on the air and make you famous. See you tomorrow for Financial Freedom Friday.

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