hey it’s brandon from biggerpockets and
today i want to show you on this
whiteboard a real
simple explanation of how a person can
go from really almost nothing to
becoming a millionaire
by owning rental properties and hey if
you find this video helpful
don’t forget to click that little thumbs
up button below the video it really
helps make sure more people are
reached with this message so with that
let’s first get a little bit of
clarification on how this works this
real estate thing works
first of all we’re talking about buying
rental properties which means you buy a
house or maybe a duplex or an apartment
building whatever
and you rent it out now before i walk
you through the math
behind becoming a millionaire through
real estate i actually want to get us
all on the same page or the same board
as to the fundamentals about owning
rentals on why they’re so powerful
and to do that we’re going to talk about
something called the four wealth
generators the four wealth
wealth generators
did i spell that right sure all right so
these are the
four things that really make owning
rental properties so awesome and when
they’re combined together
can make you a millionaire now i talk
about these a lot more in depth in my
book the book on rental property
investing which you can get on amazon or
barnes noble or
uh wherever biggerpockets.com says
rental book but hey let me give you them
right now the quick and dirty on the
four wealth generators
number one is going to be cash
flow so the first thing cash flow that’s
the extra money every month that a
property produces in profit
it’s income minus expenses the key to
that though is understanding
expenses because they’re kind of tricky
right make sure you get all the expenses
when you’re calculating but basically
this is just the money you’re left with
in your pocket at the end of every month
now number two appreciation
this is basically the simple truth that
real estate tends to climb
over time in value now sure things like
2008 do happen and prices do drop
sometimes a lot but over time prices
tend to climb
as long as you can hold on to a property
long enough you should always see
appreciation and that’s why
cash flow which we just talked about a
second ago is so vital
right because as long as i’m making cash
flow i can hold on to it as long as i
need to
waiting for the property to climb in
value now number three
the loan pay down
now normally when you buy a piece of
real estate you get a loan from a bank
which you then pay every month
but the cool thing is over time the loan
then gets paid down
which means you might start owing what’s
called 200 grand
but eventually you’ll own nothing right
so the loan starts here and over time
tends to drop on what you owe it and
number four the fourth wealth generator
tax benefits
okay so for the purpose of this video
we’re not going to talk a lot about tax
benefits but in real
life man the tax benefits are huge like
if you made a hundred grand from real
estate
and your friend made a hundred grand
from a job or maybe a business they own
who do you think would end up keeping
more money you would with real estate
way more money than your friend alright
so let me show you how these
four walt dinners can make you a
millionaire when combined together
[Music]okay let’s just say you bought a house
as a rental property maybe you put down
20
or maybe you found a more creative way
to finance it and you’re able to do it
with
no money down which is by the way is
entirely possible in fact we’ve got a
ton of content on bigger pockets all
about that heck i even
wrote a book on it but anyway let’s say
you bought that house
here’s our cute little house and even
three dimensional house because i’m
fancy
you bought the house for a hundred grand
and you put down twenty percent so
you bought it for the hundred thousand
dollar value
you put down twenty percent which is
twenty thousand 000
down that’s a horrible dollar sign
meaning you’re left with an 80 000
loan or mortgage as we call it
now because you bought a property that
has cash flow the first wealth generator
let’s say you’re also now at the end of
the day you’re making two hundred
dollars
every month in cash flow which is twenty
four hundred dollars
per year we’ll call it twenty four
hundred dollars per year
in cash flow
you’re a millionaire just kidding no but
this is where it starts right
all right so after one year you’ve now
made 2400
good for you right but there’s more to
that right
because during that time your loan
balance dropped from only owing
like 80 000 that’s actually dropped down
because over time the loan gets paid
down right
so you started at 80 but in fact after
that time you only owe about 78.5
so you’ve made about fifteen hundred
dollars just by
on loan paydown but at the same time
prices tend to go
up on average so where the property was
worth a hundred thousand dollars
you now after one year we’ll say on
average three percent appreciation
it’s now worth a hundred and three
thousand dollars
so let’s add all that together right so
you have the you’ve had three thousand
dollars in value here
you’ve added fifteen hundred dollars
there and twenty four hundred dollars
in cash flow so really during the first
year
you’ve now three four five sixty nine
hundred dollars
you’ve actually added sixty nine hundred
dollars
to your net worth now of course you’re
not a millionaire yet but over time
the cool thing is that this process
speeds up you start paying off more and
more of the loan faster and faster
and the value of that property goes up
as well in fact
if you look here the property value
getting paid down the other one going up
if we were to erase this
and we try to draw it on one graph you
can see that over time the value of the
property
we’ll call this the value of the
property was that we’ll call it a
hundred thousand dollars
it’s climbing in value three percent per
year but the
loan which was that eighty thousand is
actually going down
each year as well this spread right here
is known as equity
and this increases over time the longer
you hold it in fact
here by year 10 it’s actually worth
about a hundred and thirty thousand
dollars
but you only owe about sixty thousand
dollars
on the property which means just alone
there you’ve got
about 70 000
in equity now add on the fact that
that’s over 10 years right over 10 years
you’ve also made
2400 a month in cash flow every single
year 2500
a year in cash flow which is another 24
thousand dollars
so by this point you’ve gotten ninety
four thousand dollars in
wealth built from that one property
now i know a lot of you are thinking 10
years of work and you only made a
hundred grand
that’s gonna take me a hundred years to
get to a million dollars well here’s the
cool thing
this is just one simple cheap little
property
i mean once you figure out how to do one
deal you can do another and another
and another and furthermore you don’t
have to stay small
with a hundred thousand dollar house in
fact what if you were to buy a five
hundred thousand dollar small apartment
complex
or even a five hundred thousand dollar
house the same principles apply over
time the value tends to go up
and the loan tends to get paid down so
you’re paying off a little bit more
every month and add a little more in
value every single month
and you’re getting wealthier and that is
how you become a millionaire
through rental properties you buy cash
flowing rentals that increase in value
over time
while also paying down the loan a little
bit
a little bit at a time you’re becoming
wealthier
now a couple concerns you might be
having number one how do i come up with
all these down payments if i’m gonna buy
a bunch of rental properties well
in the beginning maybe you’ll save up
for the down payment but honestly
i built my entire portfolio using some
other creative strategies things like
house hacking or burr investing or using
partners or raising private money maybe
you’ll fix and flip houses and use the
profit from those flips to invest in
rentals
there’s a lot of ways to put together a
deal but the bottom line is if you have
a good deal you’re going to figure out a
way to finance it
now number two how do you know if you
have a good deal
well you got to learn how to analyze
them you know we’ve got calculators over
on biggerpockets.com
analysis that you can use i also teach a
free webinar every week on bigger
pockets where i walk
people through how to do the numbers to
sign up for next one at
biggerpockets.com
webinar now what about number three how
do you manage all these properties
well the short answer is you don’t i
mean you could but for most of my
properties i hire
a property manager to look after them of
course you still gotta manage your
manager it’s not a hundred percent
hands-off but
they’re the ones getting the late night
phone calls not you
all right question number four what if
the market drops well that’s why i buy
cash flow and rental properties
if the market drops great i’ll just keep
holding onto them and i’ll buy more
properties because now
everything’s on sale you know what you
can become a millionaire through real
estate i did it in under a decade
yeah it’s not going to happen overnight
but it will happen if you’re patient
you stick to sound principles and you
continually educate yourself
on how to become better and hey if you
like this video and you’re fired up
don’t forget to click that little thumbs
up button and be sure to subscribe to
our channel for more
real estate investing videos and content
for biggerpockets.com
my name is brandon turner signing off
oh
source:https://www.youtube.com/watch?v=naZAknwNgkY