The Personal Finance Podcast - How to Find Your Freedom Number (with Real Estate Investing!)

Episode Date: June 5, 2023

In this episode of the Personal Finance Podcast, we're gonna show you how to find your freedom number when it comes to real estate investing. How Andrew Can Help You:  Join The Master Money Newsletter where you will become smarter with your money in 5 minutes or less per week Here! Learn to invest by joining  Index Fund Pro! This is Andrew’s course teaching you how to invest!  Watch The Master Money Youtube Channel!  Ask Andrew a question on Instagram or TikTok.  Learn how to get out of Debt by joining our Free Course  Leave Feedback or Episode Requests here.  Thanks to Our Amazing Sponsors for supporting The Personal Finance Podcast. Chime: Start your credit journey with Chime. Sign-up takes only two minutes and doesn’t affect your credit score. Get started at chime.com/ Shopify: Shopify makes it so easy to sell. Sign up for a one-dollar-per-month trial period at  shopify.com/pfp Policygenius: This is where I got my term life insurance. Policygenius is made so easy. To get your term policy go to policygenius.com and make sure your loved ones are safe.  Links Mentioned in This Episode:  How to Build Wealth With Airbnb Short Term Rentals with Lauren Keen Aumond 10 Things You MUST DO to Get Started Investing In Real Estate (Step-By-Step!) The Bulletproof Scaling Method In Real Estate (And How to Evaluate Repairs!) With Andresa Guidell From 100K in Debt to Building Generational Wealth as a Couple with Josh and Ali (The FI Couple) How to Invest In Real Estate Without the Headaches (Fundrise VS REITS!) Real Estate Investing Vs. Stocks: Which Is Better Right Now? 21 Ways to Invest in Real Estate (8 Ways are Completely Passive!) 10 Things You MUST DO to Get Started Investing In Real Estate (Step-By-Step!) 26 Ways to Find Real Estate Deals (Some You Have Never Heard Of!) Why Live-In-Flips May Be the Best Way to Invest in Real Estate with Carl and Mindy Jensen Book:  Building Wealth, one House at A Time by John Shaw Estimating Rehab costs Connect With Andrew on Social Media:  Instagram  TikTok Twitter  Master Money Website  Master Money Youtube Channel   Free Guides:   The Stairway to Wealth: The Order of Operations for your Money  How to Negotiate Your Salary  The 75 Day Money Challenge  Get out Of Debt Fast  Take the Money Personality Quiz Learn more about your ad choices. Visit megaphone.fm/adchoices

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Find your advisor at IG Private Wealth.com. On this episode of the Personal Finance Podcast, we're going to show you how to find your freedom number when it comes to real estate investing. Everybody and welcome to the Personal Finance Podcast. I'm your host, Andrew founder of Mastermoney.com. And today on the Personal Finance Podcast, we're going to talk about how to find your freedom number in real estate investing. If you guys have any questions, make sure to hit us up on Instagram, TikTok, Twitter,

at Master Money Co. And follow us on Spotify, Apple Podcast. or whatever podcast player you love listening to this podcast on it. If you want to help out the show, leave a five-star rating and review on Apple Podcasts or Spotify or whatever other podcast player you love to listen to this podcast on right now. Now, also, if you want to watch the show on YouTube, the Andorgen-Cola YouTube channel has the podcast there now

so that you can watch the YouTube channel and watch some of the stuff and the graphics that we are talking about. You can see those on the YouTube channel. In addition, obviously, on the YouTube channel, we also have original content with other YouTube videos. We deep dive into different stocks and index funds and those types of things so that you can kind of have some visuals on that front as well. Now today, we're going to be talking about how to find your freedom number in real estate.

And I'm really excited about this because I'm going to show you exactly step by step what I did early on in my real estate career to try to figure out what my final goal is. And what this is going to do is show you what is your retirement number when it comes to real estate investing. If real estate investing is a major part of how you want to figure out how to retire, this is a fantastic way to go about this process so that you have your goals in place because the last thing you want to do is just mindlessly go about real estate investing. You want to have a systematic approach when it comes to real estate investing so that you can achieve the goals that you want to achieve. Now, I'm going to show you today how if real estate is your primary vehicle

that you want to retire, how you can use this in order to retire really fast. Honestly, you can do this in a decade or less if you do this the right way. Or if you want to do a hybrid method where you're investing in index funds and ETFs and real estate, you can also use a portion of this episode to figure out, hey, maybe I want to do a portion of this in real estate and a portion in index funds and ETF. So I'm fully diversified.

And we will have a future episode talking through how you can do the hybrid method, which is what I call that, the hybrid method between investing in the stock market and investing in real estate as your two primary vehicles to being able to retire early. So today we're going to talk about the real estate. side of the equation. And we've done a number of other episodes if you haven't heard these episodes

and we'll link them up down below in the show notes. But we have some talking about real estate investing versus the stock market and some of the pros and cons of each one. In addition, we talk through all the different ways that you can invest in real estate, how you can build wealth with real estate. And we have an episode with 17 different ways to invest in real estate. And eight of those ways are actually passive in that episode. So make sure you check those out if you have not heard those episodes. We talk about real estate a lot here. I started investing in real estate in my late 20. it is one of my favorite ways to build wealth, and there's a large portion of millionaires who have built wealth in real estate.

So finding that freedom number, knowing what your goal is is a very important step when it comes to learning how to invest your money. And real estate is a very powerful way to build that wealth. In fact, real estate is one of those ways where I've made the most money I've ever made is through real estate investing. Now, I was privileged to be able to invest in real estate at a time where it was just skyrocketing and booming. So that is one reason why that happened. but at the same time, this is a way that you can really build generational wealth with some tangible assets. If you're one of those people who do not like only investing in the market because you can't see the asset, you can't feel the asset, then real estate investing is a fantastic solution for that problem for you.

So we're going to talk through how to find your freedom number today with real estate investing. And we'll get into some tactical stuff on how to invest in real estate also, but we have some beginners guides. We also have guides on how to run the numbers, all those different things. So make sure you check out all of our real estate episodes. because it's an all-encompassing thing, and it does take some time to learn how to invest in real estate. Real estate investing is a skill. It is not something that you can wing and fly by the seat of your pants.

It is a skill that you absolutely need to learn. You can learn it in a couple of months. It's not a very difficult skill. And once you learn how to run the numbers, which is the most important part, then you have the skill of real estate investing. So today, we're going to go through how to find that freedom number. So if that's something you're into, let's get into it.

So if you've ever heard our episodes where we talk about how you need to your freedom number when you're investing in index funds and ETFs or if you're an index fund pro member, we go through that at the end of the course so that you can figure out what is my number that I need to invest towards so that I can build that generation of wealth. Well, today, we're going to talk about that with real estate investing. And the first step is still going to be exactly the same.

Because any time you're doing this process, you need to figure out what your current expenses are. If you want freedom from that cubicle, if you want freedom from that job you hate and you want to get there as fast as you possibly can, then you need to replace your income with some sort of assets. And when those assets are in place, cash flow can replace your income so you're not stuck in that cubicle anymore. This is the power of building wealth. It gives you the freedom of your time back. And having freedom with your time is one of the greatest assets you can have

overall. But we've got to figure out how much money do we spend every single month so that we can create that freedom for our lives. And so that is what the first step is to figure out what your actual expenses are. So the goal that we're going to try to figure out, and I'm going to give you some steps on how to do this, but the goal is we want to be able to open up some bank statements and take a look over the last six to 12 months and figure out what our spending has been. The reason why we want to do a longer time horizon with this is because we want to look at seasonal expenses that pop up all the time. And we also want to be able to look at a longer time horizon picture. This is not like doing a budget where you're looking back at one, two, three months

potentially. This is one where we want to look at a very long time horizon so that we can get a very picture of exactly what we need. And then once you get to this point and you're going to figure out this number and I'm going to show you how to figure out this number, I want you to pad this number. I want you to add 10% on top of it at least so that you have an extra cushion available. And if you don't need that extra 10% on top, all that's going to happen here is you're going to have extra money to spend to go on vacations or whatever else you want to do. But I want you to have that cushion in place because a lot of times life changes. And when you're pursuing some of these goals, maybe you have kids or you get married or some other

things start to happen in your life, then you're going to want that extra 10% in place so that you can deal with the increased spending over time. So we want to make sure that we have that extra 10% as we go through this process. So the first thing I want you to do is gather up some bank statements or financial documents. Now, this is the process that I actually go through this every single year, even though I have a budget. Now, if you have a budget in place, you're going to have a lot of this available to you. You're going to have a lot of this data available to you. And historically, you can go into something like Wynab or Mint, and you can see how much you've spent, over the last 12 months. Very cool stuff to be able to do. Even if you use something like

Empower, which used to be personal capital, they also have some spending data if you link up those accounts together. But I want you to go back and I want you to look at your spending from the last 12 months. Now, one easy way to do this is a lot of banks will allow you to export this data into something like a spreadsheet. You can do it in a CSV file and then you can export it into a spreadsheet. When you do that, you can total up all the stuff and categorize it very quickly and very easily. For example, last year, I wanted to look at some of our discretionary spending, places at Target or things like that.

So I would total them up really, really quickly. And I was very surprised how much we spent on very specific things, even when we had a budget. So it's one of those things that it's really actually good to do this yearly. I know it's a pain in the butt. Most people won't do it. I do it yearly to make sure that I have all the information available going for the next year. Then I want you to be able to categorize these expenses. If you don't have a budget, categorizing all of your expenses so that you, you

that you know how much you spend every single month. And once you have all these categorized and you have all these expenses added up, I want you to look at this at a monthly rate. So you can either take the total amount of each one and you can divide it by 12, or you can look at this as an overall rate just to figure out how much you spend every single month.

Now, this is important to nail this down. Why? Because if you're happy with your lifestyle now, you need to nail this down because you don't want to be short on this. If anything, you want to have the extra cushion. So if you're really not certain, you don't want to go through the extra work and you want to just do three to six months, for example,

you can go and do that, but just make sure you're adding additional cushion so that you understand this may be higher than what I actually spend, but it's going to be enough to allow me to get the accurate number. And then make sure you adjust for seasonal expenses. There are seasonal expenses that happen in every single person's life. Maybe all your kids' birthdays are within the same three months

and you have to spend a lot of money on parties and things like that during that time frame. We also have end of the year holidays, if you celebrate Christmas or whatever else you celebrate, you're going to have a lot of expenses during that time frame. So I want you to make sure you adjust for those seasonal expenses in there as you go through this and then review and adjust regularly so that you know what this number is because you may have to make adjustments on your plan as you go through this. So once you have that number in place, this is very, very important so that you know

how much do I spend every single month? Because once we have this number, we want to replace this number with cash flow and real estate is going to be the vehicle that's going to allow us to do that. So let's move to step two. So in step two, we're going to decide now that we know how, much we're spending every single month, we want to decide what type of properties are going to fit our timeline. So say for example, you absolutely hate your job. You're in a cubicle. You hate your job. You can't stand it anymore. Well, maybe you want to choose a strategy that

may accelerate your path to that freedom. And then once you get to that freedom point, you can decide what you want to do if you want to go forward by moving into additional types of asset classes and or do you want to stay in the same asset class that got you to that freedom because it's what you know. So I'm going to go through a bunch of different assets. classes. I'm going to talk about some quick pros and cons of each of these. We have an entire episode talking about different ways to invest in real estate like I talked about at the top of the show. So if you haven't heard that episode, you can go through that where we dive deeper into some of these. But I'm going to go through each one of these and talk about some of the pros and cons. So number one

is investing in single family homes. So single family homes are some of my favorite ways to invest. And this is one of the ways that I got started. My first property was a single family home that I actually bought from a hedge fund. And when we did this, single family homes are something that have a lot of pros in my book. Now, they do have some cons as well, but they have a lot of pros. And they're much easier to manage, number one, because it's a house.

And so it's very easy to manage. You don't have a bunch of walls or tenants arguing or things like that. They are one specific location. Number two, they are very easy to liquidate or to get out of because when you have a single family house, most families who are looking for homes are looking to buy a single family house.

So you can sell them very quickly and you can liquidate those single family houses very quickly. In addition, a lot of times, we found is that tenants stay longer in single family homes because they've made it their own home. They usually stay there longer. And a lot of times they take care of the property more so than our tenants maybe in multifamily properties would. And so this is a great way to kind of look at this. And a lot of times tenants are willing to take on some maintenance responsibilities. Whatever you allow within the lease, they're willing to do some of that stuff. Now there are some cons. Some of the cons are,

all of your assets within that property are in one single tenant. So if you have a multifamily property and one tenant is a problem and they're not paying on time all these different things. Well, you have maybe two or three other tenants in place that will kind of pick up the slack. In this situation, this is an all or nothing situation. You have one set of tenants that are paying you for that specific single family house. In addition, the cash flow is typically lower on single family houses than it would be on multifamily, for example, because multifamily, you have multiple doors and typically the cash flow will average out to be a little bit higher than single family.

Now, in some areas, obviously, real estate is very. very location specific. So this could be very different in your area, but in our specific area where I am, that is the case. And it's been the case in some other areas that we've looked at when we were in the numbers through the process. So this is one where if you were trying to accelerate your path and you're trying to get there really, really fast, then maybe you want to consider a different option. Or if you like the thought of single family, because over time, we know they appreciate really well. We know they're easy to liquidate if we needed to. We know that the tenants stay longer and we don't want that headache of tenants jumping in and out of properties.

and this is a great way to do this. Now, a great book on this is called Building Wealth One House at a Time by John Schaub. And John, I've had the pleasure of meeting before. And this is a fantastic book about how to buy single family houses. He has a great strategy on how to do that. So if you haven't checked that book out, that is one. I'll talk about different books throughout this episode that you can check out. That will kind of dive into some of this stuff so that you can check them out because I've read way too many real estate books in my day when I was learning how to do this. I actually had an analysis paralysis for the first three or four years because I was reading so many different books and so many different strategies. And so you can definitely, overlearn this stuff. So what I want you to do is once you understand how all this stuff works and you understand how to run the numbers, you got to take some action when it comes to this. Number two is small multifamily property. So these are things like duplexes, triplexes, four plexes. So my first house, like I told you, was a single family house. The second property I bought was a small multifamily, a small duplex which gave me all sorts of problems. If you've ever heard me talk about my problem property, that was the one that gave me all sorts of problems. My first one was super easy. I was like, I got this thing down. I could do this all day long. My second property was a very

difficult property. It was a small duplex. And we could talk about the pros and cons there. But there are a bunch of pros to having multifamily properties. Number one is you can house hack them. So making sure that if your house hacking is a strategy that you're interested in, multifamily properties are perfect for that. Number two, they usually cash flow higher. So when it comes to multifamily properties, they usually can cash flow higher because they have multiple doors and it helps you kind of diversify some of the situation there. Number three is the maintenance is a little bit easier sometimes on these because you have that higher cash flow.

So there's only one lawn usually for the entire multifamily property. So you can do contracts easier. It's a little bit easier to manage sometimes for those specific things. Now, some of the cons though are you're going to have multiple tenants in one location. So sometimes you can have altercations or you can have where one's being too noisy from the other. So that type of thing is going to cause situations to arise that may require more management. In addition, what I found is we've had lower income individuals who rent out multifamily properties.

So when that happens, sometimes you have more difficult tenants. Not always. Now, if you screen them correctly, if you understand what you're doing when you manage properties, that should not happen. But sometimes it can happen. Or if you inherit a property with tenants already in there, sometimes you can have problem tenants in there. One thing that we specialize in, that property that we took over, was for struggling landlords, meaning landlords that are really having problems with properties,

and they cannot figure out how to handle the right tenant or get the right tenant into that property. That is something where you can really find a good deal like that because all the landlord wants to do is just get this property off of their hands. So there are a lot of pros and cons to multifamily, especially the small ones, duplex, triplex, fourplex. But number three is large multifamily property. So if you can find a way to get the financing for large multi-family properties, really like these because economies of scale are really ramping up as you go through this process. The more units you have, what you're going to realize in real estate investing is the more units you have, the faster you can accelerate the profitability over time. It's a really

economies of scale game early on. Because if you have one, two, or three properties, it's a little bit harder to get that cash flow moving because if one big issue happens at one property, it's going to take away all your cash flow for the year. So when you do this, economies of scale really, really matter. So if you have a couple of small multifamily property,

something like that, maybe you can 1031 exchange into a larger property and do some things with economies of scale. In addition, you can get some professional property management inside of some of these large multifamily properties. But the cons are obviously there's a higher initial investment, higher tenant turnover. There's a lot of different things

that happen and come into play when it comes to that. Now, some of the highest ways to cash flow is number four, which is Airbnb's and vacation rentals. And if you heard the episode that we had on this, we had Lauren Keen on this podcast talking about how she started investing

in Airbnb rental properties. And now she's able to become financially independent from just investing in a select few of rental properties that are Airbnb properties. So very cool way to actually build wealth and increase your cash flow so that you could become financially independent. So if you're interested in that strategy,

She came on this podcast and talked through that. We talk about Airbnb rental properties. Now, some of the cons are seasonal demand, recession issues, all these different things are available inside of some of those vacation rentals. So you definitely want to make sure that you are thinking through that. There's some great books that Bigger Pockets has out on large multifamilies, for example. I think Brandon Turner has one on investing in apartment complexes. And then on vacation rentals, Avery Carl has a great book on how to invest in vacation rentals.

So you could check that one out. And that's also a bigger pockets book, published book. That was one of the first ones that I read. And in that book, she goes systematically on exactly how to invest in Airbnb rentals. Then there's commercial real estate. So commercial real estate has a bunch of pros and cons, very different asset class than some of the residential stuff. But in addition, when it comes to commercial real estate, there's obviously potential for higher returns. You can do triple net leases.

You have longer leases. So lease terms are really favorable for the landlord, depending on where you live. But you can have high investment costs. and then your professional and commercial tenants could be a new sense. There's a lot of different things that happen on the commercial side. In addition, our commercial building

is going to be around forever. Maybe in some situations they will, like doctor's offices. You're always going to have to have doctors offices, things like that. But do you always need office buildings, those type of commercial buildings? You've got to think through that a little bit

and make sure that's something that's going to be around forever. So those are some of the different strategies that you can consider when it comes to real estate investing. I would say, obviously, highest cash flow can be Airbnb's depending on how you buy. the property. You can have an Airbnb that has negative cash flow if you don't buy it right.

So that's another thing to consider. But Airbnb's apartment complexes, those are going to have really, really high cash flow, small and multi-families down to single families may have a little bit of less cash flow, but you can still figure out your freedom number by thinking through some of these options as you go through this, which is why we're going to jump to step three next. So lately, I've been noticing how fast things are changing at home. The kids are growing like crazy. Clothes don't fit anymore and routines are changing. And it's just hits you. Life is expanding. And when your life grows, your responsibility grows with it. That's something I've been thinking about more this spring, making sure the safety net we have in

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with Indeed. And listeners of this show will get a $75 sponsored job credit to get your jobs more visibility at Indeed.com slash personal finance. Just go to Indeed.com slash personal finance right now and support our show by saying you heard about Indeed on this podcast. Indeed.com slash personal finance. Terms and conditions apply. Hiring, Indeed is all you need. So once you pick your strategy And the reason why we took some time on that strategy Is because this is a very important step Because your strategy is going to matter

When you try to figure out this number If you want to invest in single family houses You can figure out what the cash flow is going to be Or get close to that on how many houses you need By running the numbers on single family houses. So step three is to figure out how many properties You need to reach how much you spend every single month To cover the amount of money that you spend every single month

How much cash flow do you actually need? And to figure out what the cash flow is we got to go through and figure out how to run the numbers on rental properties. Now I'm going to say this a bunch of times in this podcast. You make all of your money in real estate when you buy the property. If you don't run your numbers correctly, you will have a very hard time making money in real estate up front on that property. If you do this incorrectly, you'll have a very hard time. If you just heard me talk about my duplex, that was my problem property,

that property still made me when I sold it over $40,000 because we ran the numbers correctly. So even if you make a mistake on the area or where that property is, you've run the numbers correctly and you can still be profitable no matter what you do. This protects your downside. Everything comes in by running the numbers and knowing how to run the numbers. So if you don't know how to run the numbers, I want you to spend a large portion of your time learning how to run the numbers and I want you to practice and practice over and practice over again, meaning that I want you to get real properties. I want you to keep running the numbers on those properties and pretending like you're going to be buying those properties over and over and over again,

pull up the MLS, whatever you have access to, and start running the numbers on those properties. Because what most people do, and I've heard this a lot happening as of late, is a lot of people are buying assets or negative cash flow assets, meaning rental properties that are negatively cash flowing. Now, let me tell you right now, rents are at an all time high at the time I'm recording this. If they are not cash flowing when rents are at an all time high, do you think they're going to cash flow in the future? Most likely not.

So we got to make sure that we have a cash flowing asset on day one. So you got to learn how to run the numbers to be able to have a cash flowing asset. Otherwise, if you can't run the numbers on rental properties or you don't want to run the numbers on rental properties, this is not the thing for you. You need to look at something else that would interest you more so that you can make the proper decisions because running the numbers is everything. So what most people do is they think cash flow is whatever the mortgages of the property minus whatever the rent is is what the cash flow is. That is absolutely not true. If you run your numbers that way, you're going to have negative. of cash flow forever. So here's some of the things you need to consider. If you haven't heard

our episode where we talk about how to run the numbers on the property, make sure you check that out. But I'm going to go through some of the costs that you want to consider here. Number one is purchase price and financing costs. Most people don't factor in things like closing costs, or agent fees if they have to pay those agent fees on the buyer's side, depending on what state you're in, what type of agent you're working with, and or how you're negotiating this. So all those purchase price and closing costs, those are all need to be factored into your purchase price. Number two is the down payment. The down payment is going to give you your cash on cash return, meaning how much money is my money going to be making me? You need to know that number because

if it's like a 5% rate of return, for example, why not just invest in something passive like an index fund or an ETF that has historically got 10%, but we're going to bump that down to 7% or 8% just to be conservative for the future. So you got to think through this stuff because investing in a property is way more work than it would be to buy an index fund in an ETF. Renovation and repair costs. So this is what a lot of people get wrong. If you've heard our episode, we talked to the five couple. One of their biggest mistakes they said was messing up, renovation and repair costs very early on.

So there's a book called Estimating Rehab Costs. We'll try to link that book up down below in the show notes so that you can check that out. But that is one that I read very early on. And it kind of showed me, hey, what are the running rehab costs going for right now? And I would kind of use that book as a guide to figure out what the rehab costs were going to be. In addition, one thing you could do is you can contact contractors, talk to other real estate investors.

It's very important to network in this business. and make sure that you understand what some of these things cost in your area. Maintenance and repairs. Do not underestimate maintenance and repairs because your tenants are going to be calling if that sink is leaky. So you got to make sure that you have a budget in place

to take care of maintenance and repairs because they're going to happen. It's part of real estate investing. You're going to get phone calls that a toilet is exploding or you're going to get a phone call that something is not working and you have to take care of it.

People are going to say, I've never gotten a phone call in my entire life. Well, guess what? I've gotten lots of them. So you got to make sure that you have those in place and have that maintenance and repair cost available. Number five is property management. I highly advise people who really want to make this more of a passive endeavor.

It's never impassive because even if you have a property manager in place, you still have to manage the property manager and you still have to go find more properties. But if you are looking to make this more passive or you don't want to take those tenant phone calls every single day, then a property manager is going to be imperative for you to add into the numbers. I add it in no matter what, even if I plan on managing that property. So between 8 to 12 percent is a safe bet. for you to factor in for property management.

I always do the high end on everything. So 12% is the high end for me. Vacancy. You may be thinking this property is never going to be vacant. I'm going to get a tenant in there right away. Vacancies always happen. I mean, your property, if it turns over, especially if you have multifamilies,

this is the issue with turnovers, is that you can reduce the amount of money that you're making by at least a month every time you have tenant turnover. So you need to at least put an 8% vacancy rate every time so that you can factor in one month being vacant. Sometimes it's better to put 10 because that's going to allow you an extra week there to be able to kind of make adjustments.

Property taxes. Another one you're going to have to pay. Even if you pay cash for a property, you always have property taxes no matter what, even if it's free and clear. So you've got to factor in exactly what those property taxes are. You can go to the property appraiser website, figure out what those taxes are. Insurance. There's a lot of landlords out there who don't carry insurance. And your boy is never going to be doing that. I'm going to always carry insurance. Why? Because there's liability issues. There's all sorts of different things that can happen, having insurance in place is very, very important. Call your local insurance agent figure out how much it's going to cost on those properties. Utilities. If you're paying utilities,

maybe you have a multifamily unit that does not have separate meters, for example, then you're going to be paying the utilities and the tenants are going to pay you for those utilities. You've got to figure out what the average cost is and then what you are going to charge your tenants for those utilities. Next is HOA fees. If you have an HOA there, maybe you're buying a condo or something along those lines, HOAs have killed so many deals in my lifetime because the HOA costs are so high, that a lot of times if you're looking at one with HOA fees and HOA costs, I would try to avoid it as much as possible. I personally do because it kills deals A, they can raise that HOA B, and they can have special assessments, things like that, where you have to chip in for a brand

new roof for an apartment building, something along those lines. You don't want uncertainty when it comes to real estate investing. You want certainty, and that reduces the uncertainty if you avoid properties with HOA fees. Then you have legal and accounting, because unless you're going to do all your own legal stuff and accounting stuff, you've got to have that stuff back in also. If you have to evict a tenant, you have legal letters, things like that you have to have in place.

Then if you need marketing or advertising, you have to pay for that, that's available. And then things like CAPX. So this is a big one that most people miss. What is CAPX? Capital expenditures is what that stands for. And what are capital expenditures? These are things like putting on a new roof every 20 years in the property. Things like replacing the HVAC system.

system, things like having to put in new plumbing pipes every X amount of years. All of these big ticket items that you are going to have to replace at some point in time or another need to be budgeted for because if they come up, they will destroy your cash flow for years and years on end if you do not factor these into your number. So we always put about 10% to 12% going towards CAP-X because of that reason. Because you do not want this to be a surprise ever. You want this to be something where you have a little fund building up for capital expenditures and then once that property needs a new roof, guess what? The money is just there and you can cover that very easily. So setting aside money every year, 8 to 12% is going to be a good number for CAPX because

the last thing you want to do is come up on a property that needs a roof in three or four years and then you don't have the money available. That is not a situation you want to be in when you're trying to run a business. And that's exactly what this is. Now, You learn how to run the numbers. You're trying to figure out how to run the numbers. You're going to figure out how you want to finance these properties because this is going to dictate how fast you can get to that point in time. So once you start running the numbers, you can figure out what your cash flow is going to be. So that's step three figuring out what your cash flow is going to be.

So say, for example, that you spend $10,000 for every single month and you figure out, hey, this is pretty high. But properties in my area, depending on what you're investing in, are going to cash flow $500 for each property. Okay? What, $500 each property? What you're going to need is 20 properties to be. able to be completely financially free if you got $500 per property. As you can see here, you're going to figure out, well, I need 20 properties. I need to figure out how to finance these so I know how fast I can get there. So step four, figuring out how you want to finance

properties. So the first strategy that I want to mention here as we hit step four is the burr strategy. If you've never heard of the burr strategy, it's a fantastic strategy. There is a book written on it by Bigger Pockets. Bigger Pockets has some of the best real estate books out there, if you haven't noticed. But the Burr strategy stands for buy, rehab, rent, finance, repeat. So let me explain each of these steps and how this works. Because the cool thing about the birth strategy is that you can utilize one set of capital and potentially buy a number of different properties with that one set of capital by making sure you do the strategy right. Now, if you make a mistake and you don't run your numbers property, which is why this is so important,

then you would not be able to use that same set of capital forever. But if you run the numbers properly, you could do this for a long period of time. So first one is buy. So what you want to do is you're going to find a property at a below market value, which obviously I roll. We're all trying to do that at the same time. But typically in this situation, you're trying to force value into that property. So you want something like a fixer-up or maybe something that has some cosmetic issues that is undervalued because of those cosmetic issues. So you walk into a house, maybe it has shaggy carpet, it has purple walls, it has bathrooms

that need to be redone, it has a kitchen that needs to be completely remodeled. All of these different things would be great examples of cosmetic issues. If you have right contractor and right team around you, none of those cosmetic things are a big deal. I mean, honestly, as you start to do some of the stuff, even like replacing a roof, for example is not a big deal, as long as you have the money in place to be able to do it. So some of this stuff is just learning how to do it and you'll get very, very used to it over time. Step two is to rehab the property.

Now, you have this property in place that needs a lot of renovations cosmetically. So you're going to rehab the property to force an increased value into that property. So you're going to see how this is going to go. Minor cosmetic upgrades are very, very easy to be able to do that. So once you rehab this property, so you put money into it, you bought the property, you rehab the property to increase the value. Now you're going to rent it out. And the reason why you're going to rent this out is so that you can find a tenant and start collecting rent because you want the bank to see that this property is making money and it's enough to cover a mortgage, taxes, insurance, maintenance costs, all those different things.

Then you're going to refinance the property. So your initial capital that you put into this property is all inside of this property. You're going to refinance the property and pull your capital back out, pull all of your money out of this property, and then you're going to buy the next one and repeat. So you're going to do this over and over again. and if you do this over and over again, you can force appreciation into these properties. And if you force that appreciation, you'll still have some equity in this properties

unless you pull all of it out to buy the next one. But you'll still have equity here so that you can either, A, scale up or B, just have equity in those properties so that you can move on to the next one if you're finding like kind properties. So this is a very, very cool way to finance your properties with one set of capital.

Now, some other great ways to do this are with seller financing. If you can find a property, maybe with a struggling landlord, for example, who just wants to get really, of that property and you can do it for a low down payment and you pay them monthly every single month, that is a great way to do it. Seller financing is an amazing way to buy things like real

estate or businesses or anything else. It is one of the best ways to do it because you don't have to deal with bank and the person who is selling it to you can be the bank and if you default on that mortgage, the pro for them is that they get the property back. So they get monthly cash flow with a 6% interest rate for example or whatever else you said it at. And then you can have them understand, hey, it's a win-win situation. They get 6% on their money. So the property, that they are selling to you, they're going to sell it actually for a lot more money than what they are selling it for right now. Say, for example, you have a $500,000 property. Well, in that situation, that same exact property, if you put that mortgage for 30 years in seller financing,

they'd collect another $200,000 in that property over the course of those 30 years. So you can pitch it in different ways to make sure that you get them to do that, and you can put minimum money down so that you can build wealth without having to put your own money down. It's a very cool way to kind of build wealth over time. There's also traditional mortgages. So traditional mortgages when it comes to rental properties, unless you're living in the property, typically want 20 to 25% down. I've seen it mostly at 25%. A lot of people have said they got 20% for a rental property. I haven't seen that very, very frequently. But if you're living in the property, you can get some great financing terms on traditional mortgages, or you can get an FHA loan, which is 3.5% down for a first-time

home buyer. Or you can get a VA loan if you're a veteran. Another great way to do that if you're living in the property or you're doing house hacking or something like that. Or something like a live-in flip. You can also do that. If you haven't heard our episode about living flips, We had Carl and Mindy on talking about living flips. Make sure you check that episode out if you're interested in that strategy. There's also things like hard money loans, which are more frequent for our flippers because they have way higher interest rates. You really got to turn these over really quickly.

I don't recommend them for rental properties. The interest rates are typically too high. But if you're flipping the property, that's one thing that you can look at. Or private money loans. There's a ton of people out there who are looking to get into the real estate game and they want to invest in real estate notes. What real estate notes are is they lend you the money. They collect 6% interest from you every month, just like they're the bank.

And you get to have people. will lend you money for a minimal amount of money. So another cool way to do that is with private money loans. Or you can even look at things like helox, although I don't think helox are optimal in a lot of situations because the interest rates are rising on helox right now. And so it may not be the best way to do that going forward. Now, you've got your financing in place, say for example, you decide on a way you want to finance this. Now you can kind of understand how long is this going to take me? So say for example, like I said, I'm just doing this for easy math, you find out that you can cash flow $500 a property and you live on $10,000 a month.

So you need 20 properties to be able to cash flow that. So when you do this, you're running these calculations just saying, hey, maybe I could do a birth strategy. If I do a birth strategy, I could probably buy two per year based on what my current income is because I need at least six months for that birth strategy to set in place to go through the renovations, to have a loan in place and own that property for at least six months that I can refinance that property and give myself enough timeline. So maybe I can do two of those a year.

And so if you're doing two a year, then you can retire in 10 years in this example. And so this is a way for you to kind of calculate, well, how fast can I do this? Can I buy two a year? Or do I have to buy one a year? If I buy one a year, I can retire in 20 years. And you could think through this process and say, hey, I need to work backwards and figure out how long this is going to take. So this is the important part.

Very, very important part to do, step five, is to create a timeline and goals because you do not want to just aimlessly be running around town, trying to invest in real estate, but have no goal in place on exactly what you want to do. and this is what this is going to give you is your North Star, the number your Y on how fast you can get there. Say, for example, you think you can do this in 10 years. If you think you can do this in 10 years, work backwards, okay? So what is my three-year goal? If I need 20 properties, what is my three-year goal in order to achieve this in 10 years?

So maybe you want to get ahead of the curve and you want to get your first eight properties in those first three years. Well, how can you do that? You're going to set these goals in place and you're going to work backwards. What's your one-year goal? What's your monthly goal? weekly goal and daily goal. This is how you achieve stuff in real estate is that you have these goals in place

and you work towards them every single day. Real estate is a daily activity. It is one that truly is something that you really always have to be looking, making offers constantly, and doing all this additional stuff so that you can find properties and get a hold of different properties

because it's very competitive out there when it comes to real estate investing, especially right now. Everybody wants to become a real estate investor. So you have to know how can I have advantages here? What can I do? And your education and the ways that you create

Structed deals is going to be the best way that you can find and get properties over time. So this is how you find your freedom number in real estate. Now, there are creative ways to find properties. We did not get into that in this episode. There are all these different other aspects that we could talk about. But this is how you find that freedom number. Because once you have this number in place, this can change your trajectory going forward because now you know how many houses or how many properties that you need in order to build well.

So I hope you guys learned a ton about how to do this. really excited for you guys to figure out what your freedom number is. Let me know what is your freedom number. You can leave them in comments on YouTube or wherever else. Let me know what your freedom number is. Really excited to see what some of you guys are going to do as you build wealth in real estate. As always, if you guys have any questions, make sure to reach out. And don't forget to share this episode with a friend if you know somebody who is interested in investing in real estate.

And maybe they want to find that freedom number so they too can build that generation of wealth. I cannot thank you guys enough for listening to this episode. We have some really cool episodes coming up that I'm really excited to share with you guys. So make sure that you are subscribed on your favorite podcast player and leave that five-star rating and review if you got value of this episode. Thank you guys so much again. We will see you on the next episode. Rosen lasagna, medium power, 15 minutes.

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