How To Become A Millionaire Through Real Estate Investing (Newbies!)

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

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