Financial Independence Through Real Estate and Entrepreneurship

When I quit my job in advertising and moved into the real estate industry, I knew it was important to develop a central goal that would guide me throughout my professional life. I thought about why I wanted to become an investor in the first place. I thought about what I hoped to accomplish. And the answer was clear: I wanted to help people attain financial independence through real estate.

Perhaps you want to spend more time with your family, but your work schedule makes that impossible. Maybe you want to travel across the world and do crucial volunteer work. You might want to finally write the book you’ve been putting off for years.

Since my big career change, I have been able to achieve this goal by working with people just like you on fruitful investing opportunities.

In this section of my blog, I will help you understand what it takes to substantially improve your strategy for gaining financial independence through real estate and other business endeavors. I will walk you through the steps I took to become a successful investor. I will spell out seven key principles for attaining a net worth of half a billion dollars. With the help of financial planner Joshua Sheats, I will offer financial advice that can change your life forever.

Once you have read through all the posts, you can check out both of my books to learn more about financial independence through entrepreneurship. Additionally, for regular insights on the industry, you can listen to my podcast, Best Ever Show, the longest daily podcast on real estate investing ever made.

And if you want to schedule a planning session or feel ready to start investing with me, you can get in touch anytime by clicking here.

The 6 Steps to a 7-Figure Income

Who wants to be a millionaire?

No, not the popular TV game show. I’m talking about becoming a long-term, sustainable millionaire as a real estate entrepreneur!

 

Pat Hilban, who is a billion-dollar real estate agent, spent over four years self-reflecting, researching, and writing his New York Times Best-Selling book, 6 Steps to 7 Figures. The book outlines a 6-step, money-making strategy he, his mentors, and other successful entrepreneurs have followed to go from little to no money to over seven figures in annual income. In our recent conversation, Pat provided a blueprint you can follow to learn how to make millions and achieve the same.

 

Related: 5 Tips for Achieving Internal Success While Pursuing External Goals

Step #1 – Goals and Affirm

The first step is to set your huge, overarching, long-term goal. Then, break it down into smaller, bite-size pieces.

 

Pat said, “A lot of people just set really large goals. For instance, they set a goal ‘I want to be a millionaire,’ but they don’t set the small daily goals that it takes to be a millionaire, such as ‘I save $10/day,’ or even the goal before that is ‘What are you going to do to earn that extra $10 or save that extra $10?’” In this example, the long-term goal is to become a millionaire, but what you are really striving for is to save $10 per day by doing X, whatever you determine X to be.

 

Finally, you want to create a statement to affirm that goal. If your goal is to become a millionaire by saving $10/day, Pat said your affirmation would be “I am a millionaire. I save $10/day by doing X every day.”

 

Related: Set Goals + Don’t Be Greedy + Create an Incredible Team = Success

Step #2 – Track

Once you have set your overarching goal and broken it down into daily objectives, the next step in this money-making strategy is to track your progress. “I’m an avid tracker,” Pat said. “I’ve tracked everything for years. Every successful person I talk to tracks like crazy. People that tend to not get very far don’t track at all.”

 

Pat lives by the following truism: “If you track, you succeed. If you don’t track, you fail.”

 

For an example, for the longest time, Pat’s goal was to become a hundred-percenter. A hundred-percenter is having 100% of your bills paid by rental real estate and passive investments. He said, “In order for me to get to a hundred-percenter [status], I need to do a couple of things. I needed to first of all earn money, and then with that money, save money, and then with that savings, investing that money and invest it wisely. So my ultimate goal is to become a hundred-percenter; my daily goal that I might track would be I needed to list a house a day, or a house every three days. My goal from that would be to save $10,000/month in commissions, and then from that it would to invest. Then I would obviously track… Everything was tracked, from what I did to get the listing, what I did to save the money, what I did once I investing the money, and then how the money paid me sideways.”

 

There are a million different ways to track, but the idea is to have a system that tracks your daily objectives based on your overall goal.

 

Step #3 – Learn from Masterminds and Mentors

Step three is to join mastermind groups and get mentors whom can each offer their money-making strategy for you to consider. “I’ve had over 50 mentors that I can count that I have learned form and stepped upon. Kind of used to climb the ladder of success,” Pat said. “Many of those mentors I was able to find at masterminds. A mastermind is just simply a collective genius, so to speak. It’s 5 to 100 people that are all thinking the same and are sharing best ideas and best practices where you could just learn in abundance from multiple people all at once. People that have gone through what you want to go through.”

 

As far as I’m concerned, to learn how to make millions, mentorship is a must. However, there are strategies to gaining an education and getting advice from a mentor-type figure for free! The articles, “Two Ways to Gain Direct Knowledge From Experienced Investors for FREE” and “How a Wannabe or Experienced Investor Can Obtain a FREE or PAID Real Estate Education” are a great place for you to start.

 

Related: The Secrets to Starting a Relationship with Someone You Don’t Know

I feel the same way about meet-up groups. You can follow Pat’s money-making strategy of attending meet-ups hosted by other investors in the area, or you can get even more out of a meet-up by creating your own. In fact, Anson Young, an investor I interviewed on my podcast, created his own meet-up group, resulting in over $100,000 in profit. Meet-ups are not only great places to find potential mentors, but a great way to find deals, create partnerships, and make money.

 

Step #4 – Act

Now it’s time to act – that is, the forceful act of moving forward.

 

After completing his book, Pat’s goal was to make the book a best-seller. He went out to find some mentors, and he landed on Gary Keller, who has written multiple best sellers like The One Thing, The Millionaire Real Estate Agent, and the Millionaire Real Estate Investor.

 

At this point, Pat’s money-making strategy was to friend request everybody he could find in the real estate industry on Facebook and post about his book daily. Gary told him that wasn’t enough. He told Pat, “What you need to do is you need to quit what you’re doing and you need to go out on tour and start speaking to real estate agents at offices throughout the country, talking about your book.” And that’s what Pat did.

 

Pat sold his real estate business to his top agent and went on a book tour. He spoke at 53 offices in 53 different cities across the county over a seven-month period and got all of them to commit to buying a book on the first day it came out.

 

“When my book was released, we sold 10,600 copies in the first week,” Pat said. “My point is that Gary told me that I needed to act. He said something I’ll never forget. He said, ‘You reap what you sow 100% of the time’ It’s so true… There’s no free lunch.”

 

Now that is what I call MASSIVE ACTION.

 

Step #5 – Build

One of Pat’s mentors used to always say “Build on a success, not from the ground up.” What that means is, you already have success with something, leverage it for more success. For example, when I am inviting guests onto my podcast, I always mention that I have previously interviewed well-known, successful individuals like Barbara Corcoran, Robert Kiyosaki, Emmitt Smith, etc. Those are all successes I’ve had in the past that I use as a sort of bait to get other successful people on the podcast.

 

Related: The Ultimate Guide to Getting Booked as a Guest on ANY Podcast

“For a real estate agent, if you have a house in a neighborhood that you just sold, don’t go to some other random neighborhood and try to prospect and farm it,” Pat explained. “Go to the neighborhood where you had the success and build on that success up, because you’re much more apt to get a listing in a neighborhood where you could say, ‘Oh we just sold a house up the street. You may have seen my sign.’”

 

The goal is to find every little success that you’ve had and keep building on those same blocks as a money-making strategy.

 

Step #6 – Invest

Finally, the last step is to use the money you’ve saved or created from steps 1 through 5 and invest in real estate. “Bust your ass, save money,” Pat said. “Be a good saver, be an excellent saver. Take the down payments and invest in real estate – that’s how I did it – and then live off the horizontal income from those investments.”

 

Conclusion

Pat’s 6-step process for reaching your million dollar real estate goal is:

 

  1. Set a HUGE goal, break it down into smaller steps, and continuously recite your goal in affirmation form
  2. Create a system for tracking your progress
  3. Find masterminds and mentors to guide you on your journey
  4. Take massive action
  5. Build and maintain momentum by leveraging past successes

Invest in real estate

Follow Pat’s 6-step money-making strategy, put yourself on the track towards your long-term real estate goal, and ultimately achieve financial independence.

independence

4 Steps to Financial Independence Through Real Estate Investing

On this day over 240 years ago, the United States of America declared independence from the British Empire. Over 7 years later, on September 3, 1783, the Treaty of Paris was signed in which Britain agreed to recognize the sovereignty of the United States.

 

To commemorate our country’s Independence Day, I want to provide a strategy for you to gain your very own independence – financial independence from your corporate full-time, 9 to 5 job.

 

Fortunately for you, unlike the original 13 colonies, gaining your independence will be much easier. There will be (hopefully) no blood shed, and all you need to do is commit to following the tried and true 4 steps to financial independence that many investors have used to quit their full-time jobs and become full-time active or passive real estate entrepreneurs.

 

#1 – What is my freedom number?

 

The first step is to calculate your freedom number.

 

Your freedom number isn’t a unit or property count. It is how much income you will need to at least cover your current expenses, or be equal to the income you are currently receiving from your full-time job, or ideally, to be able to afford your idyllic lifestyle.

 

The best way to accomplish this is to open up an Excel spreadsheet and list out all of your current expenses. If you want to replace your current income, then your freedom number is your pre-taxed income. If your goal is to afford your ideal lifestyle, determine how much that will cost you and that is your freedom number.

 

Let’s say you are currently making $50,000 a year at your current job, and you calculate that you will need an additional $15,000 a year to achieve your ideal lifestyle. Your “freedom number” is $65,000, or approximately $5,500 a month.

 

Advice in Action #1: What is your freedom number? _____________

#2 – How much real estate will I need to achieve my freedom number?

 

Next, you want to calculate how many rental properties you will need to achieve your freedom number. This calculation will be based on your specific investment criteria.

 

For example, when I was first starting out, my investment criterion was single-family homes that cash flowed at least $100 per month after all expenses. Other investors may have an investment criteria that is a cash-on-cash return – 15% for example.

 

Using the $100 a month in cash flow criteria, you will need 55 single family properties in order to cash flow $65,000 a year.

 

If your investment criterion is to only purchase properties that achieve a 15% cash-on-cash return, you will need to invest $433,333 to achieve your $65,000 a year freedom number. That can be purchasing one apartment building for $2.2 million (assuming it is a 20% down payment loan and you have that amount of capital available), but most likely, it will be a combination of single-family homes and small to mid-sized multifamily properties worth $2.2 million in total. For example, purchasing 22 duplexes for $100,000 each.

 

Advice in Action #2 – How much real estate (number of units or overall value) will I need to achieve my freedom number? _______________

 

#3 – Create a freedom timeline

 

Next, you want to create a timeline for how often you will purchase properties in order to achieve your freedom number.

 

Timelines will vary widely, depending on your current situation, market, investment strategy, etc. I recommend having a “freedom date,” and then reverse engineering a timeline.

 

For example, let’s say your goal is to quit your job in 10 years. Following with the previous examples, your freedom number is $65,000 a year and you need to purchase 55 single-family residences (SFRs) that cash flow at least $100 a month. The amount of money you will have available at first to use as a down payment will be any money you have saved up, as well as money you set aside from your full-time job. So, you first want to determine when you can purchase your first SFR.

 

After purchasing your first SFR, you will have an additional income stream – the $100 a month. How long until you can purchase your second property? At that point, you will have an additional $200 a month towards your next down payment.

 

Also, at some point, you will have enough equity in your earlier SFR purchases (from appreciation and principle pay down) that you will be able to refinance to pull out capital to buy even more SFRs.

 

Using the amount of money you will save from your job, the added income you will receive as you purchase properties, and the money obtained from refinancing, you can create a timeline of when you will be able to purchase each of the 55 properties over a 10 year timespan.

 

An important note: This is a high-level timeline. Do not expect things to follow your exact timeline. Things will undoubtable change – you will set aside more or less money from your job, you will have unexpected expenses, you will achieve a higher or lower rate of return, you won’t be able to find properties that meet your criterion, etc. This is strictly a guide to show you how long it will take to achieve your freedom number so that you can plan accordingly. As President Dwight D. Eisenhower once said, “In preparing for battle, I have always found that plans are useless, but planning is indispensable.”

 

Advice in Action #3 – Create your freedom timeline

 

#4 – Start implementing your freedom timeline

 

Finally, after calculating your freedom number, determining how much real estate you will need to purchase, and creating a high-level timeline, it is time to actually start purchasing real estate.

 

One of the best purchasing strategies out there for achieving your freedom number is the BRRRR strategy, coined by Brandon Turner at BiggerPockets.

 

BRRRR is an acronym for buy, rehab, rent, refinance, and repeat.

 

  • Buy – Purchase distressed rental properties (the level of distress you are comfortable with will determine what properties to look for, as well as how quickly you will be able to achieve your freedom number)
  • Rehab – Hire a great general contractor to repair the property (Related: How to Screen and Hire the Best General Contractor and How to Find the Right Contractor for the Right Job)
  • Rent – Lease your newly renovated property to great residents (Related: How to Create the Ultimate Tenant Experience)
  • Refinance – Obtain a new loan on the property to pull out the equity created from the rehab
  • Repeat – Use the money from the refinance to repeat the process again and again until you achieve your freedom number

 

Learn how investor Andrew Holmes (who I interviewed on my podcast) implemented the BRRRR strategy on over 160 properties here.

 

Conclusion

 

The four-step process for achieving financial independence is:

  • Calculate your freedom number
  • Determine how much real estate you need to achieve your freedom number
  • Create a freedom timeline
  • Purchase real estate, ideally using the BRRRR strategy

 

Achieving your financial independence may seem daunting, but compared to the sacrifice required to create our great nation, it’s a walk in the park. However, it will require patience, effort, and resourcefulness to navigate the many obstacles along the way.

 

Hopefully this four-step blueprint will help mitigate the number of obstacle you will face. But it will be the launching point for you to strategize and execute your plan to quitting your full-time job through real estate investing.

 

Related: The 3 Principles to Achieving Financial Independence Through Real Estate Investing

 

 

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I’d also be VERY grateful if you could rate, review, and subscribe to the Best Ever Show on iTunes by clicking this link: http://bit.ly/2m2XyM1

 

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person standing by waterfall and rainbow

The 3 Principles to Achieving Financial Independence Through Real Estate Investing

 

Escape the corporate rat race and gain financial independence.

 

That is the main goal of many who decide to enter the real estate investment game. However, it’s much easier said than done.

 

Fernando Aires, who designed computer chips in the tech industry for over 25 years, was able to achieve the coveted financial independence and leave his full-time job in 2014. In our recent conversation, in regards to quitting his job through real estate, he said, “the key for me has been to buy enough properties, mostly with long-term fixed rate financing and some cash, in order to achieve this parity with my corporate income.”

 

For Fernando, it was a long process, but the juice was definitely worth the squeeze. Along the way, he discovered some tricks that enabled him to expedite the process.

 

What are those tricks?

 

#1 – Tax Benefits

 

Firstly, Fernando didn’t pursue zero or little money down loans or a creative strategy or really anything fancy. “Most of my properties are financed,” he said. “I try to get as much long-term fixed financing as possible, so by itself the property doesn’t generate lots of cash flow. My typical cash flow for financed properties is about $250/month.”

 

That’s $3,000 a year. With having corporate salary of a quarter of a million dollars to replace, that’s a lot of properties. However, he was able to slash the amount of money he needed to replace his salary with nearly in half because of the tax benefits real estate offers. “With income property, due to depreciation, which is the best tax write-off that you can imagine, you end up paying very little in taxes when you take that into account,” Fernando said. “When I was working for Apple in California, I was roughly paying 50% of my income to the government, which means that I only need to make about half gross that I was making in corporate America in order to be at the same point, due to the tax situation.”

 

Right off the bat, the tax advantages of real estate will allow you to have a “freedom number” that is significantly less than your current pre-taxed income from your corporate career. This involves hiring an accountant who has experience in the real estate niche you are pursuing (here is a video where I outline exactly how to find the best accountant)

 

#2 – Appreciation

 

Another thing that accelerated Fernando’s financial independence was appreciation. “Appreciation is certainly something that comes into play,” he said. “Over time, the properties have appreciated and some of them I’ve been able to do an equity strip from the properties due to the things that I’ve made, and you can also do an equity strip from the properties and you don’t have to pay any taxes when you borrow money against the properties.”

 

In other words, the equity that was created by appreciation can be pulled out, tax-free, to use as a down payment to purchase additional properties later on in the business plan. This is money on top of the cash flow from your portfolio and the money you are saving up from your corporate job.

 

#3 –Leverage

 

Fernando also benefited from another form of appreciation – inflation. And since he was leveraging the properties with debt, meaning he was able to control 100% of the property by putting less than 100% down, the benefits of inflation were compounded.

 

“A quick example for most of my properties is if you put 20% down on a property with a long-term financing fixed rate in place, which is what I recommend, you’re essentially leveraging your money 5 to 1. Five times 20% is 100% of the property. What that means is if the property goes up by let’s say 5% a year – basically tracking inflation numbers that we’re given – you’re actually making 25%, because it’s five times your leveraged money.”

 

When taking the compounded effects of appreciation/inflation into account, Fernando’s returns far exceeded what he could achieve investing in the stock market.

 

“If you add that 25% with a relatively low cash-on-cash return of 8%-10%, your already at 30%-35% for a property that is leveraged. Try to beat that with buying any stock. As a matter of fact, I’ve compared – since I’ve worked to Apple – Apple stock’s annualized return from 2012 to 2015 with my real estate portfolio, and my real estate portfolio beat the Apple stock,” Fernando explained. “My numbers were 14.8% averaged over the period, and Apple stock was 12.1%… So it’s just no comparison.”

 

Conclusion

 

Without the advantages real estate provided from a tax, appreciation, and leverage perspective, Fernando would not have been able to achieve his financial freedom, or at least not as quickly and efficiently as he did.

 

If your goal is to replace your current income with real estate, you must become familiar with these three principles. Like Fernando, it will increase both your chances of achieving financial independence and the speed at which you will be able to do so.

 

Related: 10 Laws of Successful Real Estate Investing

 

Did you like this blog post? If so, please feel free to share it using the social media buttons on this page.

 

I’d also be VERY grateful if you could rate, review, and subscribe to the Best Ever Show on iTunes by clicking this link: http://bit.ly/2m2XyM1

 

That all helps a lot in ranking the show and would be greatly appreciated. And if you have any comments or questions, leave a comment below.

 

 

multifamily

The 22 Tactics to Go from a Corporate Job to $400,000,000 in Multifamily Real Estate

 

On May 18th, 2017, I was on the other side of the mic when I was interviewed on the BiggerPockets podcast, one of the most downloaded real estate podcasts in the world.

 

During our conversation, we covered 22 different topics on how I went from my corporate job in advertising to controlling $130,000,000 in multifamily real estate – and now over $400,000,000.

 

Below, I included hyperlinks for each topic. Clicking on a link will send you directly to the time in the conversation when the topic was discussed. That way, you can skip around and find exactly what it is you are looking for.

 

If you want to listen to the interview in its entirety, ​click here.

 

7:20 – My corporate background in New York prior to buying my first investment property

 

11:44 – Why I began investing in single-family homes in my hometown of Texas while continuing to work my corporate job in New York.

 

13:44 – How I purchased my first deal in 2009 without ever visiting the property

 

17:00 – Tactic: How to invest in out-of-state real estate without viewing the property

 

21:40 Pros and cons of investing virtually

 

23:13 – Why I quit my job and transitioned to large multifamily investing via syndication

 

26:30 – Tactic: Shifting your mindset when making the leap from small to large investing and how I found my first apartment deal

 

31:04 – Tactic: 3 factors for qualifying a multifamily market

 

33:58 – What’s the strongest multifamily market in the nation?

 

36:20 – My overall real estate investing goal and why it’s cannot be all about the money

 

37:40 – Outlining how I completed my first deal: What comes first, the deal or the money?

 

40:53 – The Master Lease: Pros and cons of buying apartments with a master lease and why it benefits the buyer and seller

 

47:50 – Tactic: How to leverage your existing network to raise private money for your apartment deals

 

54:15 – Why putting your own “skin in the game” results in additional alignment of interest with investors

 

55:32 – Tactic: How to find off-market deals in a hot market

 

59:25 – Three ways I, the syndicator, make money on the deal?

 

1:01:52 – When underwriting deals, what metrics/criteria must an apartment meet in order for me to invest?

 

1:03:54 – Difference between economic occupancy and physical occupancy

 

1:04:20 – How do I find on-market and off-market deals?

 

 

FIRE ROUND Q&A

 

1:08:09 – Question #2: “I’ve been discussing potential investment opportunities in apartment syndications with my network. The toughest objection I’m coming across is ‘what if I need to get my money out early.’ How do I overcome this?”

 

1:09:16 – Question #3: “What are the downsides to apartment buildings with only 1-bedroom units?”

 

1:10:46 – Question #4: “How do I check to see if an investor group is real and not a slick organization trying to steal my money?”

 

 

Did you like this blog post? If so, please feel free to share it using the social media buttons on this page.

 

I’d also be VERY grateful if you could rate, review, and subscribe to the Best Ever Show on iTunes by clicking this link: http://bit.ly/2m2XyM1

 

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wallet with cash

How To Get Rich By Investing: 7 Principles for Attaining a $500 Million Net Worth

 

There’s rich, and then there is super-rich. If you are rich, you stay in the nicest hotels, eat at the fanciest restaurants, and drive the trendiest cars. The super-rich own those things. If you’re wondering how to get rich by investing, there are seven key principles to follow.

 

John Bowen, who founded four multi-million dollar businesses, authored more than 15 books, and is a regular columnist at HuffPo and Financial Planning, is a leading expert on extreme wealth, which he defines as a net worth of $500 million or more.

 

These are not your everyday entrepreneurs. In fact, according to the Credit Suisse 2016 wealth report, there are less than 2,500 US citizens with a net worth of $500 million or more. With an estimated population of 322.8 million, less than 0.0008% of the population meet the requirement for the “super-rich” designation.

 

Obviously, these are great individuals to look to if you’re attempting to learn how to get rich by investing in and/or creating successful companies. So, John recently conducted a study of elite business owners with the purpose of identifying exactly how they were able to achieve such high levels of success. Upon analyzing the results, he found seven principles that were common between these super-rich individuals. In our recent conversation, John outlined these seven principles of the super-rich. Adhere to them and maybe, just maybe, you will join the ranks of the top 0.0008%!

 

1 – Commitment to Extreme Wealth

The first principle was an expressed commitment to extreme wealth.

 

Extremely wealthy individuals share a similar mindset. They consciously decide extreme wealth is what they want to pursue.  At the same time, they’re also willfully committing to the amount of work and effort required to attain the millionaire and billionaire status.They understand how to get rich by investing their time, not just their money.

 

What it is not is a commitment to an abstract goal. It’s a commitment to a defined number. “What’s your number? That’s what you’re asking,” John said. “Commit to extreme wealth – just determine whatever that means to you. For some people, it’s a million dollars. For some people, it’s a billion. It’s anywhere in between.”

 

It’s both quantifiable and personal.

 

What’s your number?

 

2 – Enlightened Self-Interest

The super-rich knew exactly what they wanted- which varies from person to person- had at least a working knowledge of how to get rich by investing, and consciously decided it’s what they would pursue. Then, they engaged in enlightened self-interest.

Here’s how John explained enlightened self-interest: “What you want to do is you want to determine your counterparty – whoever you’re going to do the deal with, [who] you’re negotiating with, [and who] you’re partnering with. What is their criterion for success, too? And then you’re going to find that and leverage it to use it.”

 

Business isn’t done in a vacuum, and people who know anything about how to get rich by investing realize it is extremely difficult to become super wealthy on your own merits and work. You’ll need to work with others. And it shouldn’t be just anyone.

 

When the super-rich are going to do a deal with someone, John says, “I’m the first to make sure that whatever I’m doing is going to be aligned for my success criteria. Then, I’m going to try and gain a better understanding of what [they] want to accomplish. Can I help [them] advance what [they] want to achieve, and will that move me toward my success? Then I’m going to go ahead and negotiate in good faith to have that happen.”

 

This isn’t a lesson on how to get rich by investing or making deals with selfish self-interest, but enlightened self-interest. John says, “You never want to burn the counterparty, whoever you’re working with, because we’re in it for the rest of our lives. You want to make silence, and one of the things you’ll find about billionaires is they’re silent a lot. They’re letting you do a lot of the conversation, and one of the biggest risks of all is so many people negotiate with themselves. They’re going through all these mind games. What we want to do is hear from the counterparty how we can help.”

 

To earn extreme wealth, you want the “I’ll scratch your back, and you’ll scratch mine,” reciprocal relationship, not “I’m going to exploit this person to achieve my goals and then throw them to the wayside once I’ve done so.” The latter, which may seemingly work in the short-term, is a recipe for disaster in the long run.

 

3 – Put Yourself in a Line of Money

Principle number three of how to get rich by investing in real estate or business is: the super-rich put themselves in a line of money. “[For] people with $25 million or more of financial assets, 9 out of 10 made it being an entrepreneur (business owner),” John said, which includes real estate.

 

“If you’re going to be successful, you want to be successful on purpose,” John said. “If you’re going to do a nine to five job and you’re going to do it well, you can have a great life, but you’re not going to become extremely wealthy. You’re not in the line of money. Unless you have an equity ownership, you’re not in the line of money.”

 

If you are loyal Best Ever listener, you are either already a real estate investor or are in the process of becoming one and learning how to get rich by investing, so you should already have this principle covered.

 

Related: How Skateboarding Legend Tony Hawk Accomplished the Impossible

 

4 – Pay Everyone Involved

A common stereotype of the wealthy is that they are cheap with their employees and/or business partners. However, according to John’s study, this isn’t the case. The super-rich are “very deliberate on who they hire,” John said. “They work with the top talent, and they make sure they’re taken care of.”

 

You want to motivate and inspire your talented employees. They strive to make money and grow as entrepreneurs themselves, and good pay is a must to ensure an alignment of interests.

 

5 – Network is your Net Worth

business networking is how to get rich by investing

The super-rich who have become experts at how to get rich by investing are extremely well connected. They focus on deliberately forming relationships that create value, result in economic gain, and are always win-win scenarios.
 
Someone in a super-rich network, John said, is “somebody that I can get on the phone, and we can have a conversation and create value together in our collective, enlightened self-interest, and we’re going to maintain that relationship over time.”

 

More than likely, this is not your best friend, family, or college network. These are the business people that can help you reach your extreme wealth goal while you’re going to do it for them as well.

 

Related: How to Effectively Network at a Real Estate Meet-Up

 

6 – Failure, Refine, and Refocus

Another characteristic of the super-rich is their acknowledgment, acceptance, and recovery of failures. They don’t fail and go sulk in a corner. They fail, determine the root cause, analyze their mistakes, refocus, and try again.

 

Even more importantly, they are confident enough to test different strategies without fear of failing. They seek out failure as a natural part of learning how best to get rich by investing.

 

John says, “The nice thing in today’s world [is] the cost of testing anything has gone way down, whether you’re creating products, the ability to 3D print, whether you’re doing it electronically, the Internet, buying a few ads digitally. It’s very low cost.”

 

“Good business people always mitigate risk – we’re not big risk takers. But what we want to do when we fail, we want to fail quickly, and then [ask] how do we avoid making the same mistake repeatedly? And more importantly, doing an autopsy so we can see ‘Is there some value here that we can capture and tweak it, refine it, [and] refocus it to create value?’”

 

The key takeaways for this principle are having fearless approach, and, when testing something, if you’re going to fail, fail quickly!
 
Related: Two Valuable Lessons from a Start-Up Enthusiast on Success and Failure

 

7 – Stay Focused on Extreme Wealth

The final principle may seem redundant, but that is because it’s the most important principle when you’re learning how to get rich by investing. The super-rich didn’t just make the initial commitment to extreme wealth and then forgot about it. It is always top of mind and something they continuously focus on.

 

John said, “It’s always keeping number one in place. One of the things I like to do is to take a look, from the standpoint of ‘Where are you spending your time, your money and your energy?’ because really time isn’t an [infinite] resource, its energy. [So] take your calendar … and look at it for a week. We can really get caught up in going ahead and thinking because we’re so busy, we’re doing well; what I find over and over again (and it’s one that I struggle with, too; and many business owners and entrepreneurs do) is it’s so easy to lose track of what’s working and get defused… And as we get defused, boy, we’re in trouble. So it’s focus, focus, FOCUS.”

 

Whether it’s daily affirmations, a vision board, or getting your number tattooed on your face, you must constantly remind yourself of your commitment to extreme wealth and to spend your limited time and resources accordingly.

 

Related: The Four Archetypes of the Mastery Process

 

Conclusion

Based on a study of the super-rich, who are entrepreneurs with a net worth over $500 million and experts at knowing how to get rich by investing, there are seven common principles they all follow:

  • Commitment to Extreme Wealth
  • Enlightened Self-Interest
  • In the Line of Money
  • Pay Everyone Involved
  • Networking like a Machine
  • Failure to Refine and Refocus
  • Stay Focused on Extreme Wealth

 

I hope to see you in the Forbes millionaire or billionaire list one day!

 

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BRRRR Strategy real estate investment

BRRRR Strategy: Formula to Buy 5 Rental Properties in 2 Years and Payoff in 7

Last Updated 10/26/18

 

One of the main reasons why people become interested in real estate investing is the allure of financial freedom. Purchase enough real estate to cover your personal expenses and voilà, you’re financially independent. For some, one of the hardest parts may be learning how to determine whether the rental property in question is good investment.

There are many strategies and tactics to implement in order to accomplish the feat of financial independence, like Josh Sheets’ integration of personal and professional financing, Fernando Aires’ three principles to achieving financial independence, committing to this straightforward four step process, and passively investing in apartment syndications, among many others.

However, the fastest financial freedom strategy I’ve ever come across is Andrew Holmes’ 2-5-7 strategy. He has successfully implemented this strategy, which is a version of the infamous BRRRR strategy (buy, rehab, rent, refinance, repeat) on over 160 properties. In our recent conversation, he outlines, in extreme detail, his exact step-by-step 2-5-7 formula for how he purchases a minimum of 5 properties every 2 years and pays them off in 7.

 

What is the 2-5-7 Investment Formula?

Andrew’s investment strategy adheres to what he calls the “2-5-7” formula. In 2 years, the goal is to accumulate a minimum of 5 properties and using the cash flow pay them off in 7 years. Andrew said, “The formula doesn’t change, it’s just the number of properties, how much cash flow you want to create, and you scale based on that.”

In order to achieve his specific investment goals, Andrew has the following four additional requirements at are not necessarily included in the original BRRRR Strategy:

1. Deal Location – “Most people, whenever they own rental properties, they tend to buy … in areas that are rather challenging. We have a different philosophy, which is we tend to buy in bread and butter areas, right next to what we would call premium areas. Basically, if premium areas are A, we tend to buy B- or C+.” Click here for my ultimate guide on selecting a target investment market.

2. Minimum 25% equity– “Whenever we’re buying a property, after rehab, it must have a minimum of 25% equity.”

3. Small Ranches– “We focus on buying small, three-bedroom, one and one-and-a-half bath ranches.”

4. $400 to $450 cash flow– “They must cash flow to the tune of $400 to $450 per property after all expenses, including management.”

Similar to the BRRRR Strategy, you start with the end goal, which will likely be the amount of cash flow required to cover your personal expenses, your current salary, or your ideal lifestyle, and then reverse engineer your 2-5-7 strategy to determine what market to invest in, how much equity you need (more on that later), the property type, and the monthly cash flow requirement for each deal.

 

Related: How to Find a Cash Flow Friendly Real Estate Market

Example Deal

Here’s an example deal Andrew provided to see the 2-5-7 formula in action:

“Let’s say you’re buying a bread and butter property: three-bedroom, one bath ranch for $65,000. You’re going to put $20,000 to $25,000 into rehabbing the property. You have a carrying cost of another $5,000 to $6,000, so you’re all in cost into the property is somewhere around $90,000.”

“This is the most critical part, which to me [distinguishes] investing versus what most people do, and that is the property needs to appraise on a conservative refinance appraisal for $120,000 to $130,000. That’s the key thing – that’s the only way you’re going to be able to get all the capital that you put into the property out, so that you can efficiently recycle the same money over and over and over.”

“So the property appraises for about $125,000. The lender is going to give you about 75% of appraised value… That’s the key thing. That’s the benchmark people have to look at. If the property appraises for $120,000 to $135,000, now they’ll give you the $90,000 to $95,000 refinanced.”

“So you take that loan, you pay your first lender off – the loan you used to buy the property and to do the rehab – and then you just recycle the same funds. Or if it’s your own money, that’s fine also, but you just repeat that process over and over and over, [with the] goal being you need to get to a minimum of five.”

 

Related: How to Secure a Supplemental Multifamily Loan

How to Finance the Properties, Completing the “Buy” Step of the famous BRRRR Strategy?

BRRRR Strategy for apartment investing On the front-end, Andrew explained that there are three major ways he funds his deals:

1. Partnership– “Number one, you can partner with somebody that has the capital and do a 50/50 joint venture. They buy the property, they put up the money for capital [and] you’re the driving force. You’re doing all the work, but you’re giving up 50% of the returns. That’s where I started initially”

2. Hard Money Lender– “The second way to do it is the traditional route, which is you borrow money from a hard money lender, and put in some of your own money.”

3. Private Money– “The third route, which we tend to use the most [is] private money… Join your local REIOs, join the local groups; whichever town you’re in, there are tons of them. There are people that are willing to make loans out of their IRAs, they have personal money, and you end up paying anywhere from 8% to 12% and that’s what we tend to do and that’s what we always try to get people to understand – there’s a lot of money out there where people are willing to loan for the front end of the transaction.”

As an apartment syndicator who sometimes uses the BRRRR Strategy myself, this last option – private money – is my bread and butter. Here are posts on the most effective methods for raising capital from private investors:

 

On the back-end refinance, the biggest challenge Andrew faced in regards to following this take on the BRRRR Strategy and buying 5 properties in 2 years is that most residential lenders will usually only provide up to 4 loans. However, he has found a solution to his problem: commercial loans at small, local banks.

“Basically, a five-year balloon with a 25-year amortization. It’s a commercial loan at five, five and a half percent,” Andrew explained. “The speed at which you can scale and grow is much faster.”

 

Related: How an Apartment Syndicator Secures Financing for a Multifamily Deal

 

“We tend to go to the small banks that are in town. Typically, they’ll loan on anywhere from one to five, ten, fifteen, twenty ranches. We’re not going to go to Chase Bank and we’re not going to go to the big lenders, because they don’t really offer these programs for small investors.”

 

Related: Pay Attention to These Five Loan Components to Maximize Your Apartment Returns

Meet the Bank’s VP

When Andrew walks into a small bank to get a loan and implement his BRRRR Strategy, his goal isn’t to speak with a teller or a manager or a loan officer. He wants to go straight for the bank’s Vice-President. “You always want to go and directly talk to the VP. Typically, at these small banks, the VP is pretty much the main guy there, and that’s the person you want to approach.”

When approaching a conversation with a bank VP, the first thing Andrew does is explains, in two minutes or less, his business plan. A condensed version of his two-minute elevator pitch is, “Hey, we’re buying foreclosure type of properties or investment properties that are rentals. When we come to you, they’re going to be purchased, they’re going to be already stabilized (they like that word) and there’s already an existing tenant. We do two-year to three-year (minimum) leases only; we don’t do short-term leases.”

Next, Andrew explains he has his version of the BRRRR Strategy, the 2-5-7 formula, as well as his philosophy of aggressively paying down the properties in 7 years. Then, he goes into more details and shows the VP a couple of successful past deals. However, if you’re brand new, just show them a property or two that you have in the works.

How to Find Local Banks

A great resource for finding a local bank in your target market is https://www.bauerfinancial.com/home.html. Also, Andrew advises, “whatever community you live in, I would draw a 10 to 15 mile radius around it, and then start with the ones that are closest to wherever you’re going to buy properties. Especially if it’s in a B-market, a C+ type of market, then the banks that are local in that area, they have depositors from that particular area and they need to make a certain amount of loans in that particular market. So that’s the first place to start.”

Advantages of Local Banks

Besides the ability to provide more loans than a standard bank, Andrew said local banks have three additional advantages:

  • Building Relationship– “As you start developing relations, as you start having credibility with a particular bank, they’ll scratch their arms a little bit, but in general, the place to start always is the community banks – they want to have a relationship; it’s a relationship sort of lending, and they really like that word. If you go in and say, ‘hey, we want to develop a relationship with you’ and you tell them that you’re going to put your rental deposits in their bank, they’re all over that because that’s really what in the long run they’re looking for.”
  • Flexible Loan Qualifications– “They don’t have stringent criteria. For people who may not have a W-2 income, they’ll work with 1099. If somebody doesn’t have a W-2 or 1099, but has retirement income, they’ll work with. If somebody doesn’t even that but has some assets, a good portfolio in the stock market, or just cash, they’re much more forgiving and they’re not as sensitive, even in the department of credit scores.”
  • Loans to Business Entity– “As you work with these commercial banks, you can buy properties in your LLCs, you can buy properties in your S Corps, you can buy companies under a trust.”

 

Related: How a “Rich Dad Advisor” Directs Investors to Transfer Title to an LLC

 

Conclusion

Andrew follows the 2-5-7 investment formula (which is similar to the BRRRR Strategy): purchase a minimum of 5 properties in 2 years and pay them off in 7 years.

The three ways Andrew finances his deals on the front-end are partnerships, hard money, or private money loans. On the back-end, he refinances the properties with a commercial loan from a small local bank. When walking into a bank, Andrew goes directly to the Vice-President and explains his business plan.

For those interested in following this strategy or just want to find a small local bank, visit: https://www.bauerfinancial.com/home.html. The three main advantages, among many others, of using a small local bank is the ability to form relationships, flexible loan qualifications, and loaning to your business entity.

 

Want to learn how to build an apartment syndication empire? Purchase the world’s first and only comprehensive book on the exact step-by-step process for completing your first apartment syndication: Best Ever Apartment Syndication Book.

Best Financial Advice to Achieving and Maintaining Financial Freedom


In my conversation with financial planner Joshua Sheats, he explained how integrating personal and professional financing is beneficial and almost a requirement to the speed and longevity of building wealth. He also provides the best approach to truly achieving and maintaining financial freedom.

 

Personal vs. Professional Technical Financing Defined

 

Personal finance is all the stuff that you do with your money. Classic examples of personal finance advice are:

 

  • Don’t buy a latte everyday
  • Invest in real estate
  • Get out of debt
  • Fund your 401k

 

These are the “should and shouldn’t” pieces of advice that are commonly promoted in financial articles and financial shows.

 

The world of professional technical financial planning is more specific.

 

  • If I am going to buy a piece of real estate, should I purchase it within a trust or a business entity?
  • When investing in a retirement account, should I use a solo 401k or should I establish a defined benefit pension program?
  • If I am going to buy life insurance, should I buy term life insurance, universal life insurance, or whole life insurance?

 

Personal vs. Professional Technical Financing – How it’s Sold?

 

Typically, personal finance and professional finance are sold and promoted in very different ways. Personal financial advice, especially in the realm of real estate, is usually sold through motivational seminars.

“You can get rich if you buy rental properties. With only $10,000, I can teach you how to create an empire with no money down!”

These types of seminars and forms of education are very influential. However, they promote a mentality that may land you in trouble when the going gets tough. Joshua finds those investors who avoid getting into the specifics (i.e. technical planning) will always try to solve all financial difficulties by simply buying more and more properties. For example, if an investor wants to increase their rental income to fund a vacation, instead of taking a deep dive into their budget, refinancing, etc., they will just buy another property. In other words, they take massive action with minimal details.

 

On the other hand, if you only focus on technical financial planning, you will lack the motivation and practice. For example, someone will worry about how to optimize the asset allocation in his or her retirement account when they should be sending out direct mailers or putting in offers. In other words, they have maximum direction with minimal action.

 

Therefore, the combinations of personal and technical financial planning are required to be fully successful financially in the long-term.

 

The Best Approach – Setting Goals

 

The best approach to financial planning always starts with goals. You should always build from precise, stated goals that are specific to YOU. However, often times, this isn’t the case. When Joshua asks people how much real estate they want to own, they will almost always throw out round numbers. “I want to own 10 rental houses.” “My goal is to own $10 million worth of property.” “I plan on owning 25 units.”

 

In response, the first question that Joshua asks is “why?” Usually, these whole numbers come from reading a motivating book. Maybe they came from a motivating speaker that talked about how rich they are and all the things that they can buy. Going back to the best financial planning approach, “are these goals specific to what you want and what you need?” If the answer is ‘no,’ then it is time to sit down and reevaluate “why” you are investing in the first place.

 

Real estate should simply be a funding mechanism for your life. Therefore, take the time to sit down and actually figure out how much money you need. The median household income in the US is in the $40,000 range. Depending on your market, you can hit $40,000 in net profit with 4 to 5 rental houses once they are debt free.

 

However, many people don’t actually take the time to sit down, look at there expenses, figure out how much money they need, and create an investment strategy to meet that goal. Instead, they wind up pursuing an inefficient or riskier plan to hit a financial number that they read in a book or heard from a motivational speaker.

 

The Best Approach – Create a Foundation

 

Joshua doesn’t think that there is anything wrong with wanting to spend more money (i.e. have more life expenses) or trying to accumulate a bigger portfolio. But, he believes and has seen that the quicker you can get to a place of financial stability and the lower your goals are, the easier it is to get there with minimal risk.

 

Therefore, place your $10 million goal to the side – at least for now – and do the following first:

 

  • Determine your monthly expenses (Joshua believes that you can have a great lifestyle on $4000 a month, but ultimately, that is up to you)
  • Create a plan to achieve a monthly income that covers your expenses
  • Once that income level is achieved, aggressively pursue the clearing all of the leverage on the portfolio (with zero debt, no matter what the market condition, you will have total safety)
  • After you’ve created a foundation, then begin pursuing your $10 million goal

 

Creating a solid foundation to launch yourself from will set you up for a lifetime of wealth. Then, if you choose, pursue the big fancy personal finance goal of $10 million. That way, in the pursuit of this lofty goal, if you make mistakes and lose everything, you’ll still have a solid foundation. This is much better than losing everything (like many investors did in 2008) and having to start from scratch.

 

Real Estate Is a Means to an End

 

The idea behind taking this approach is to recognize that owning real estate is not an end in and of itself. Rather, it is a means to an end. As soon as you have your foundational goals achieved, you should be working to stabilize it. It is far better to achieve a basic goal, stabilize, and move on from a place of strength, than it is to be always extending out your hand for more, more, more. Joshua believes that real estate is a fine investment class that has created many wealthy people. However, it still has it’s own problems. Without focusing on something like good financing and minimization of financing, you end up stretching to far. Then, if the market conditions change, the immature investor has to start all over again.