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550: Real Estate Pays 5 Ways: Your Audio Masterclass to Financial Freedom
About this Episode
Unlock the Wealth-Building Secrets of Real Estate Investing! Learn how strategic real estate investing can dramatically transform your financial future.
Discover the Revolutionary "5 Ways You Get Paid" Strategy, updated for today's times:
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Appreciation: Turn a 5% property value increase into a potential 20% return
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Cash Flow: Generate steady monthly income from tenants
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Return on Amortization (ROA): Let tenants build your equity for you
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Tax Benefits: Enjoy generous government incentives for providing housing
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Inflation-Profiting: Transform economic challenges into your personal wealth generator
Key Highlights:
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Potential 38% first-year return on investment
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No special certification or license required
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Ethical wealth-building using other people's money
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Proven strategy for creating generational wealth
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Simple, accessible investment approach for ordinary people
Your wealth-building journey starts today!
Share the wealth by sharing this episode with a friend.
Free Resources:
Connect with a free GRE investment coach at GREinvestmentcoach.com
Download the infographic gift summarizing the five ways real estate pays here.
Show Notes:
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Get mortgage loans for investment property:
RidgeLendingGroup.com or call 855-74-RIDGE
or e-mail: [email protected]
Invest with Freedom Family Investments.
You get paid first: Text FAMILY to 66866
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Complete episode transcript:
Automatically Transcribed With Otter.ai
Keith Weinhold 0:01
Welcome to GRE. I'm your host. Keith Weinhold, real estate pays five ways updated for today's times, even with conservative assumptions, watch your total return from real estate climb to great heights today. You'll understand what billionaire real estate investors don't understand a new free audio course today on get rich education.
Since 2014 the powerful get rich education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate investing in the best markets without losing your time being a flipper or landlord. Show Host Keith Weinhold writes for both Forbes and Rich Dad advisors and delivers a new show every week since 2014 there's been millions of listener downloads of 188 world nations. He has a list show, guess who keep top selling personal finance author Robert Kiyosaki, get rich education can be heard on every podcast platform, plus it has its own dedicated Apple and Android listener phone apps build wealth on the go with the get rich education podcast. Sign up now for the get rich education podcast or visit get rich education.com
Speaker 1 1:12
You're listening to the show that has created more financial freedom than nearly any show in the world. This is get rich education.
Keith Weinhold 1:28
Welcome to GRE from Belgrade, Serbia to Bellingham, Washington and across 180 nations worldwide. I'm Keith weinholder. You are back inside get rich education. Today you're going to understand real estate investing really well, probably better than anyone that you know, in less than an hour. Now, before I begin investing in real estate, I seriously wondered how in the world it could possibly be a lucrative investment vehicle. I mean, like, how would that even work? Because you've got this physical structure where elements wear down the outside, tenants wear down the inside, and the whole thing only appreciates it about 5% a year. Yawn. That is really boring. Well, later I would start to put the pieces together. And actually didn't really understand leverage in cash flow until after I had bought my first rental property, I became the person, however, to coin the real estate pays five ways concept, and I discussed that years ago on the show here, and now I have updated it for today's times. So the principles remain the same, but the numbers are different. That's because today, cash flows are lower and interest rates are higher than they were five and 10 years ago. So let's see what total rate of return we come up with today, and just how we get there. And on the way, you'll see even more evidence of why compound interest does not build wealth, and getting your money to work for you doesn't build wealth either. And to say that is total heresy. In a lot of financial circles, you'll clearly see how real estate has really made more ordinary people wealthy than anything else. This is course level instruction, and you're getting it all free right here today as part of one of our weekly episodes. This will help you retire earlier than you ever imagined, or just find the time for yourself to become the best version of yourself. Now, for long time, listeners, I've got to tell you first, much of today is going to sound like a review, but I've got a really surprising twist at the end here, in the fifth of five ways that you're paid, I also have a free gift to give to you and to all listeners today. And this is not in any way, replay of old material. It's not AI generated. It never is. It is me talking to you updated for today's times. And this is we're about to get started. This is just with simple buy in hold real estate. So you don't even have to be a house flipper or a wholesaler or a landlord, and you can just use normal 30 year mortgage loans. And as we see, it doesn't even take a ton of money. These are fundamental wealth building attributes that lay people don't understand and will change your life. I mean, more than 95% of real estate investors don't even understand what I'm about to share. We're going to calculate your rate of return from each of the five ways we'll calculate, then your cumulative return on investment until it builds up and culminates. In your total return at the end today, and I'll tell you anything less than a 20 to 25% total return in this buy and hold real estate is actually disappointing, and you don't even need to take on inordinate risk. But you'll see the exact percentage that we get up to today, and how it gets even higher than 20 to 25% I mean, this is how real estate creates Young Money and old money and Fast Money and slow money, and gives you access to other people's money. Ethically, all of that, we have some new listeners dropping by today. So if you're new here, I'm Keith Weinhold, get rich education founder, Forbes real estate council member, best selling author, and long time real estate investor, also an incomprehensibly slack jawed and snaggletooth to podcaster. But see here in the audio only, you only have to hear the slack jaw, but video platforms where you'll find me and this course on YouTube and rumble, oh, through a disaster, because you both hear my slack jaw and have to see my snaggletooth. It's dreadful.
Getting back to the course here, you know, school did little to teach you and I about the most important things in life, like nutrition or relationships or money. And you know what drives most divorces? Can you guess what it is? I mean, it's not arguments over trigonometri or English grammar or the periodic table of the elements. No, it's money problems. Well, the financial education in this course, it's gonna help you solve that as much as anything you need to take on the mindset of how you must unlearn what you've learned before you can believe something else.
We're gonna use this same simple example of a $200,000 income property throughout the course a rental, single family home. Yes, you can still find many of these, and it's with a rent paying tenant. Now, if you want to think bigger than a 200k property, no problem. Say you want a $20 million apartment building, you can just multiply everything by 100 because we're talking about ratios today. Say that when you buy this property, your down payment and closing costs have you putting in 25% All right? So you've now got 50k invested on this 200k property.
Well, in the first of five ways you're paid appreciation is what it's called. Well, historically, real estate appreciates at about 5% per year. All right, see your 200k Income Property appreciates to 210k There's your 5% yawn, boring. That might only be about the real rate of inflation. That's what most people think. But look at what you just did there already. You just did something amazing. You already benefited from a force greater than compound interest. You just created compound leverage, and most people don't even know it, because your return is far greater than the 5% total appreciation your return on investment is your gain, which is 10k divided by the amount that you have invested, which is 50k because that's all that you put into this. You just got a 20% return from only the first of five ways you're paid appreciation. And now, if you're scratching your head wondering how that just happened, how did 5% return go to 20% no worries, I will slow it down. And this course never gets more complicated than this, you achieved a 5% return on both your 50k invested and the 150k that you borrowed from the bank. See the return on the bank's money doesn't go to the bank, it goes to you all while the tenant pays the interest on the mortgage loan. We'll get to that part later for you, this could be your first moment of epiphany in this course, a light bulb moment. Yes, today you'll get more light bulb moments than Thomas Edison. That is the magic of leverage. It's so simple ethically use other people's money, but most people are only getting compound interest, a return on their money, only not theirs and others like they could have great so where does appreciation come from? What is its source? Supply versus demand for real estate an area's wage growth, population growth, a region's infrastructure improvements contribute to this. The shrinking availability of developable. Land and more. Now what if real estate prices go down? You're covered. That will be addressed shortly. Here we are just scratching the surface. You're starting to figure out why wealthy people's money either starts out in real estate or ends up in real estate. And the thing is, is you can do this the same simple way that I did when I began as a real estate investor. You don't need any degree or certification or real estate license in order to do this. Real Estate pays five ways.
Now that you know about the first appreciation, leveraged appreciation in real estate's case will carry forward your 20% gain and add it onto the second of five ways you're paid, cash flow. For many, this is the most important one. One way for you to think about this second way cash flow is that it's the recurring income from your tenant that shows up, whether you had any involvement with the property that month or not. That's why this is passive income most months. This one is the most liquid of the five ways, because it pays you cash every month, and therefore you can immediately either reinvest it or just spend it and increase your standard of living. This is effectively your salary increase plan. Yes, it's the opposite of a 401 k, which is a salary reduction plan, which actually was an early name of 401 K plans, since this income is sourced by your tenant rent payment, minus the property expenses. Your Cash Flow is sourced by jobs, because that's how your tenant gets their rent payment that they pay you, and this is why I like larger metro areas, your market selection is more important than your property. That's a huge lesson right there, because it's about the durability of this cash flow. All right, we're about to run the numbers and see what your rate of return from passive cash flow is. Let's do it. We'll build on our example of your ownership of a 200k income property with your 50k down payment. All right, on the 200k rental single family home, say that your rent is $1,500 a month. That is therefore $18,000 of annual rent income. But then you need to deduct out your expenses, and you do have a lot of them. They are your mortgage and your operating expenses, like I've shared with you before. The easy way to remember those operating expenses is with the acronym VIMTUM, vacancy, insurance, maintenance, taxes, utilities and management, and paying that manager is what keeps this mostly passive for you. So to be clear, your rent income minus your mortgage in VIMTUM operating expenses equals your cash flow. You can kind of think of that as your rent overflow. Okay, here we go. Say you figure that from your 18k of annual rent income that you need to pay out 15k worth of annual expenses, that leaves you with $3,000 of cash flow, or so you thought, but you have a freak plumbing problem that creates a bill of 1000 bucks. However, you have property insurance, but say your insurance deductible is $1,000 so you've just got to come and pay out of pocket for your managers, plumber to fix it, and now the $3,000 of annual cash flow you thought you'd have only leaves you with $2,000 somewhat of a thin cash flow. Then that's a higher maintenance expense than you had previously forecast in your pretty looking pro forma projection. That often goes wrong, because something stupid often happens out of the blue in real estate investing, all right, well, with your $2,000 of cash flow, which is passive income, that's divided by your same 50k invested that gives you a return of 4% from the second of five ways you're paid. That number is what's known is the cash on cash return. You thought it would be 6% but we're being conservative. The Freak plumbing problem made it just 4% add this to the 20% from leverage depreciation in the first video, and you now have an accumulated 24% total rate of return from this income property already, and we still got three ways to go. We're just gonna keep piling onto this return in the next three ways you're paid. How high is this going to go? And you know what's interesting with this? Luke. Conservative math adding up your lofty return. It's actually conservative as we proceed, you'll note that I'm using simplification and rounding you're going to see me round down more than round up. To keep this conservative and real estate math is simple. It's just add, subtract, multiply or divide. There's nothing complex, no trigonometri or calculus or exponents. This is easy. You just have to know what numbers to use, and that's what you're learning and reinforcing today.
Now here's a weird scenario. Imagine if you had a stranger out there funding a bank account for you, making monthly contributions into this illiquid savings account. I mean, does that sound too good to be true? Nope. It exists. The third of five ways that real estate pays is exactly why this is real, as this free audio course, real estate pays five ways continues for you. Real estate has so many ROIs returns on investment that one of the five is called an Roa. That's the third way you're paid. And none of this material is new or esoteric or avant garde. It's always been out there. There's just been no one else that's put it together before this, most people were never taught how to build real estate wealth in the real world. And what's insane about this third of five ways you're paid is that now you're probably already getting paid more ways than you ever have. I mean, instead, what is most people's investing experience, it's in stocks, bonds, mutual funds, ETFs, gold or Bitcoin. I mean, that's where you're typically only paid one way, capital appreciation, if you even get that, and maybe a second way is if you have a dividend paying stock. But I mean, that's all you've got. One way, maybe two. If you want to build wealth, you've got to give your money multiple jobs. That's exactly what we're doing here. ROA stands for your return on amortization this third way you're paid is the monthly principal pay down portion of your mortgage. That's your return. So we're going to add your ROA to the 24% total return that we've accumulated so far. And now you might think you already have experience with an ROA if you have a mortgage on your own home, your primary residence, but no, not actually, because in your own home each month, a portion of your mortgage payment goes toward principal pay down and the rest of pay interest, but all you did in your primary residence is you went and you had to work to earn money all month. All you did at the end of that month was move that money from your cash pocket over to your equity pocket when that mortgage payment gets made. So that's merely a transfer of funds, but with income property, your tenant earned that cash that month to pay your mortgage principal payment, and we'll tally that up in a moment. On top of the principal, they pay your entire interest payment, plus your tenant pays you a little on top of that each month called cash flow, which was the second way you're paid. So yes, your tenant is going to work for you. If your tenants rent payment is a third of their income, they're working close to 10 days a month just for you, just to pay your rent. I mean, that is amazing. If you add properties with rent paying tenants like this. It's sort of like you have all these employees out there working for you, and yet you don't have to manage them at work. It is amazing this third of five ways focuses on that return on amortization, and the etymology of the word amortize that comes from the old French meaning death. And that makes sense, your tenant is slowly killing off your mortgage balance for you over time. So let's do this. Let's add up your ROA, all right, we're using this same example where you got a 150k loan on your 200k rental, single family home. Let's say that you got a 7% interest rate on a 30 year fixed rate mortgage, so just the plain everyday loan. Just look up any amortization calculator, enter those numbers in there, and you'll see that in year one, your tenant pays down over $1,500 of your income properties mortgage balance for you, let's round it down to just 1500 bucks, because it could have been some vacancy in there as well. Your ROA is simply this year, one principal pay down divided by your amount invested again, that is 1500 bucks divided by your 50k Of down payment and closing costs that you have in the property your skin in the game. And this is another 3% return for you. That's your Roa. I mean, you are beginning to really build wealth now. This is somewhat of a hidden wealth generator that a lot of investors never consider. Many of them are aware of this, though, it's like your tenant is funding an ill, liquid savings account that has your name on it. We'll add this 3% ROA to the tally of a 24% cumulative return that we figured from the first two ways. Yes, you are now up to a 27% total rate of return from appreciation, cash flow, your ROA, and we still have two of the five ways to discuss. We're just gonna keep piling onto your return. What is the source of your Roa? This 3% it is jobs again, your tenants income. If interest rates fall and you refinance, you'll get an even higher annual chunk of tenant made principal pay down, even with the initial loan kept in place this 7% mortgage note, how in future years, your amount of 10 it made principal pay down. Only keeps increasing over time. But we're only talking about year one in this whole example. We're going to carry forward your 27% total rate of return so far into the next one as this real estate pays five ways. Audio course will continue here in Episode 550 of the get rich education podcast, yeah, even the episode number has some fives in it as we roll on, breaking down just how the five ways build wealth more after the break, I'm your host, Keith Weinhold, this is get rich education.
You know what's crazy? Your bank is getting rich off of you. The average savings account pays less than 1% it's like laughable. Meanwhile, if your money isn't making at least 4% you're losing to inflation. That's why I started putting my own money into the FFI liquidity fund. It's super simple. Your cash can pull in up to 8% returns, and it compounds. It's not some high risk gamble like digital or AI stock trading. It's pretty low risk because they've got a 10 plus year track record of paying investors on time, in full every time. I mean, I wouldn't be talking about it if I wasn't invested myself. You can invest as little as 25k and you keep earning until you decide you want your money back. No weird lockups or anything like that. So if you're like me and tired of your liquid funds just sitting there doing nothing, check it out. Text family to 66866, to learn about freedom family investments, liquidity fund again. Text family to 66866. Hey, you can get your mortgage loans at the same place where I get mine, at Ridge lending group and MLS, 42056, they provided our listeners with more loans than any provider in the entire nation because they specialize in income properties. They help you build a long term plan for growing your real estate empire with leverage. You can start your pre qualification and chat with President Chaley Ridge personally. Start Now while it's on your mind at Ridge lendinggroup.com That's ridgelendinggroup.com.
Speaker 2 23:45
This is Ridge lending group's president, Caeli Ridge listen to get rich education with Keith Weinhold, and remember, don't quit your Daydream.
Keith Weinhold 24:10
Welcome back to get rich Education. I'm your host. Keith Weinhold, as we continue with the real estate pays five ways audio course, before the break, we're rolling forward a 27% total ROI from the first three ways that you're simultaneously paid. Again, nothing complicated, just with a piece of buy and hold real estate that you purchase carefully. You don't have to do any renovations. You don't have to be a landlord. This is how you're going to build forever wealth, legacy wealth, if you don't come from money now, money can come from you. This can shake up your entire family tree. After today, you'll have a concrete plan. I don't come from wealth. I build it myself, and I'm laying out the architecture of how I did. Just that in a simple way for you, the fourth of five ways you're paid is that real estate investors are rewarded with a generous basket of tax benefits from the government because you are doing what the government wants. You're providing others with housing. Informed people know that if you spend money on certain things like solar panels for your home or education expenses, you get a tax break for spending that money. Well, with real estate, you don't even need to spend any money to get a tax break every single year. Incredibly, you get the tax deduction anyway. It's easy. Let's do it here. And you know, it's time to make something crystallized for you. And this can rock your world and even induce some disbelief. Some people say, don't get your money. Get your money to work for you. We've all heard that. Here is the heterodox. Here is the paradigm shift. If you want to build wealth, don't get your money to work for you. Outside of this show, I bet you have never heard that iconoclastic stance your best and highest use as an investor is not to get your money to work for you. It's making other people's money work for you. OPM, now, you probably heard that before as well, but I've got a twist on that. But see if you want to build wealth, do you think you'd have to both think and act differently than the masses? I mean, yes, you certainly do, but this is your differentiator, even multi decade billionaire real estate investors don't realize what I'm about to share with you forever. Wealth is built. Early Retirement, wealth is built. Your standard of living is indelibly elevated beyond what you ever thought possible because you are ethically using other people's money three ways at the same time, the bank's money for leverage in the loan, which we covered in the first way, you're paid the tenants money for cash flow and loan pay down, which we covered in videos two and three. And now here you are using the government's money for generous tax benefits at scale, which we're covering in this fourth of five ways you're using other people's money, three ways at the same time within this, this is why you're building wealth. And of course, this does not mean you're exploiting people by using their money, just the opposite. You're doing good in the world. Provide people with housing that's clean, safe, affordable and functional. Do that, and you'll be profitable in the long term and never get called a slum lord. Rental property income is generally taxed at ordinary income tax rates, but you don't have to pay tax on all of your rental income. The tax deductions are generous from rental property, you can deduct out your mortgage interest and your operating expenses, which I will not cover in our example. You also get a depreciation deduction. We'll look at that one closely, and when you sell, you can endlessly defer your capital gains tax so you never have to pay it all of your life, all right. Well, what does this really mean? If you buy a rental property for 200k and after a bunch of years you sell it for 500k your capital gain was 300k in most investments, you need to pay capital gains tax of at least 15% on this you would take a $45,000 tax hit. But with real estate, when you sell if you generally replace it with a property of equal or greater value, your capital gains tax is zero, absolutely zero. Now, rental property taxes are somewhat complicated, and I am not a CPA, I'm giving general guidance. I'm not going to get into things like your adjusted basis and other details. In fact, I'm not even going to consider this benefit of deferred capital gains tax in tallying up your rate of return. So instead, let's only look at your return from the tax depreciation portion of your full basket of tax benefits. It's going to keep things simple, and it'll also keep our example more conservative. Yes, even though your 200k rental property in our example tends to appreciate in value, the government says you can get a tax break because they say that the property wears out over 27 and a half years. That's just what the IRS guideline is. This only applies to rental property. There's no depreciation deduction on a primary residence. Let's do it on your 200k property, you can only depreciate the structures value called the improvement, not the land portion. We'll say that your structure or house's value is 150k and the land is 50k even the IRS knows that land doesn't wear out, only the structure. Divide your 150k structure value by 27.5 Yep. Pretty weird, arbitrary number, but that's how long the IRS says it takes to wear out. That gives you $5,454 that's how much you can depreciate or shelter from taxes if you're in the 24% tax bracket, that's $1,309 in tax savings for you. Divide that by how much you have invested in this 200k property. Again, that was 50k when you made the down payment and closing costs. This is a 2.6% return. Let's keep being conservative and round that down to 2% there it is our number from the fourth of five ways you're paid. We are layering on another 2% return. Now, can you really call a tax break part of your return? Is that fair? Should that be considered? Yes, it is, in this case of tax depreciation, because you did not even have to incur an expense in order to get that deduction, that's why some people call it the magic of depreciation. Usually, to get a tax break, like I was saying earlier, you have to make an out of pocket expense, like pay for fees to attend a conference or buy solar panels or pay automobile expenses. But you don't have to do that here, so the 2% rate of return for your tax benefit is even more conservative when you realize that we also are not digging into how this piece of real estate can also make you eligible for other tax benefits like a qualified business income deduction, a cost segregation and bonus depreciation. And for simplicity, we're not going to go run examples on different marginal tax brackets, and there are income thresholds and other thresholds, whether you're married or single. And of course, we are excluding that erstwhile capital gains tax that you can legally duck out of to collect all the tax benefits without me having to get deeply involved. At the end of each year, my property manager just sends my property's financials directly to my bookkeeper. And yes, I know we've got some CPAs listening to this right now thinking that 2% that is much too low of a return from your basket of tax benefits, but that is all we're going to use. We're going to add this to the ROIs that we accumulated from leverage appreciation at 20% in the first way, cash flow at 4% in the second way, and an ROA of 3% in the third way, plus this 2% from tax benefits here in the fourth way, here we are up to a 29% first year total ROI from your 200k single family income property that you so wisely purchased. Now you know how to use other people's money three ways at the same time again, the banks, the tenants, and with these tax breaks the governments.
Let's move on to the fifth of five ways. Add up your total rate of return, and then I'll give you some more important takeaways to give this context, and I'm going to give you your free gift. Your fifth way is your second biggest profit center, and most real estate investors don't even know that it exists, you're going to profit from something that actually makes most people poorer. So we're going to take our 29% add the fifth way to it, and it's going to culminate in your total number. The fifth way is called inflation profiting. Remember, it's not inflation hedging. Real Estate bought the right way is not an inflation hedge. Hedging is defensive, meaning that you break even from inflation, but no instead, you're actually profiting from inflation. That's different. This is offensive. Now a conventional financial advisor. You know, they're often out there selling investment products that tout something like a 10% rate of return. You know, synonymous with a return from the s, p5, 100. Ask your financial advisor about the five drags on that return. It's 10% minus inflation, emotion, taxes, fees and volatility, and your adjusted return is often less than zero. Just look at their track record. Stocks and mutual funds don't make anyone wealthy. They might just preserve wealth if you already have it strategically bought. Real estate has hegemony over all the other. Set classes precisely because it pays five ways. Either you can be a conformer or you can build wealth. If you want to escape financial mediocrity, you can't run with the herd. You need to get into a lot of good debt. It sounds scary until you realize that debt is tied to a carefully selected income property, meaning your entire debt payments are therefore reliably outsourced to tenants. DEBT, TAXES and inflation are three forces that make most people poorer. It makes most people poorer because they either don't have the resources, or they don't have the know how to arrange their financial life. They don't have any strategy. Well, today, you're learning how to make these three forces, DEBT, TAXES, inflation, those three wealthier with the Debase purchasing power of the dollar. You know most people, they see the price of a new car that goes from 50k to 60k or that their favorite Subway sandwich goes from nine bucks to 10 bucks, and then they just kind of hope that their salary keeps up. You know, that's sort of the average experience with inflation. Now, you and I, we would not save by stashing a million bucks under the mattress, because 3% inflation would de base its purchasing power by 30k every single year. That's why we do the opposite of saving. We borrow. For every million you borrow, we'll every year say that with inflation, your wage, salary, rent, income, all go higher by 3% now it gets easier to pay back your million dollar loan all while the tenant pays the interest, and you're profiting 30k each year. So after one year, you only owe the bank back 970k and inflation adjusted dollars and 940k after year two, and 910k after year three, inflation debases savings and debt at the same rate, so borrow instead of Save and see, this is the reason why the top selling financial author of all time, Robert Kiyosaki, a frequent guest on our show here, he says, savers are losers, debtors are winners. In an inflationary world, don't be a saver. Be a savvy debtor, because in the future, you can count on more inflation. See, the government needs inflation to occur. The easiest way for the US to repay its 10s of trillions of dollars in debt is to just keep printing lots of dollars, and that process debases every dollar that you're currently holding on to. Who cares about your debt when both tenants and inflation are just relentlessly paying it down for you? That is if you're doing real estate right, which means buying an income producing property with a loan. That's the whole formula here. That's all we're doing, buying a rental property with a loan. But when you understand how inflation both pumps up your real estate value and simultaneously debases your debt, it turns your world upside down, you almost become this inflation cheerleader, because inflation is now good for you, as this audio course is now covering the fifth of five ways you're paid. Please understand some risk still exists. You could buy in the wrong market, hire the wrong property manager, or just buy the wrong property no matter what, you're going to have some inevitable problems along the way, like that plumbing problem I mentioned earlier in the second of five ways you're paid over leverage is a risk over leverage means that you take on so much debt that you can't make the monthly payments so you can still lose money. But from listening today, you vastly increase your chances of being profitable, and that's why we say that carefully bought real estate has the best risk adjusted return. Here we go, following through with our example across all five ways on your 200k income property that you made a 50k down payment on, that is therefore a $150,000 loan that you took out at a 3% inflation rate each year, your debt is then being debased by $4,500 this is a quiet, hidden wealth generator that most investors don't even know about. $4,500 of inflation profiting divided by your same 50k down payment means that you have another 9% rate of return. Wow, a 9% rate of return that you're getting that most investors don't even know about. I mean, in the conventional financial world, I mean, they're proud to offer you a nine. Percent mutual fund return over time, and they advertise that as something good here by putting a down payment on a rental property. This 9% is another sweetener that no one even notices, and that gets added on to everything else. It's just incredible. Yes, 9% now, in the past, I used to think this return was just the inflation rate that we're using here, 3% but see, this is leveraged as well a 9% return from inflation profiting. And like I mentioned, uh, towards the beginning of the show, this is the twist for a long time get rich education. Podcast listener, see 3% that would merely be a hedge. So add this 9% to the 29% running total in the first four ways, and there you have it, an astounding 38% total rate of return from the five ways that real estate pays 38% I mean, you are really understanding why wealthy people's money either starts out or ends up in real estate, and that you don't have to be wealthy to start everything we discussed there was in year one. I mean, if someone asks you why you're investing in real estate, you can just hold up five fingers and share this episode with them. I mean, this says it all, and we could have surely come up with a higher number than 38% if you had used a 20% down payment instead of 25 then you'd have more leverage, and your total ROI would be in the mid 40s percent, and we really handled the tax portion conservatively. Here another reason your return could be higher, this was with a 7% mortgage rate and a pretty modest 4% cash on cash return as well. Yes, your total ROI is 38% now after year one returns fall over time due to the accumulation of equity in your property, so the denominator for the calculation is larger. You got 38% in year one, perhaps year two is 31% and year three is 24% but you can really see how you're getting ahead of the world in three years like that in other episodes of the show. Here, I do talk about how to limit the return attrition through refinancing and some other techniques, but these are amazing rates of return, compounding evidence that compound leverage blows away compound interest, and again, it's DEBT, TAXES and inflation that are making you wealthy. How you should know by now the formula is really simple. Just buy an income producing property with an everyday 30 year loan, even if real estate values fall, you can get paid for other ways and still have a positive return. Real estate values have always bounced back even after 2008 and see if the property is temporarily suppressed in value, you're going to have little concern with wanting to sell it when tenants are still paying you a monthly income during that time. Very few veteran real estate investors understand the five ways. Most real estate educators don't understand this either, but now you do, and to get this 38% total ROI again at times I simplified throughout I mean, your real world return is likely going to be different. It's going to be higher or lower than 38% probably. But now you know about a vehicle for actually creating durable wealth, and I would like to think that what you learned today is the most complete yet still concise way of understanding how a real estate investor gets paid. You gotta know this. This is the motivation for wanting to do this in the first place.
And hey, if you like what I've shared so far, I'd love to ask you for something, and then I have more important things to tell you and give you your free gift. As I made this course free. Hey, if you would please just share the wealth. Share this episode with a friend. I'm sure you know somebody that would benefit from this. It's really a big aha moment when you finally know how it all goes together. If you subscribe to our newsletter, you were already sent the video version of this course here in just the past couple weeks that's going to help you see how all the numbers go together. And the video course was also released free on YouTube, so if you're listening to this within a few weeks or months of the episodes release, it's still easy to find on our get rich education YouTube channel and four. Finally, in order to make this actionable and actually profit from what you learned, you can just copy me and buy properties from where I buy them at GRE marketplace, that's where there are properties conducive to the five ways you're paid. It probably does take about a minimum, oh, of a 35k to 55k down payment in order to get started. Properties are either new build or renovated. Tenants are in place. There's a property management solution, if you like, and optionally, our free investment coaching service there learns your goals, then helps match you with the right areas and properties and hey, I'm happy to tell you and announce that you can now connect directly with our completely free investment coaching service at GREinvestment coach.com, yes, this is a new URL to make it easier for you to connect with a GRE investment coach. Yeah, I kind of thought that was a good one, huh? How do you connect with a free GRE investment coach? Well, at GREinvestment coach.com I've got a free gift for you. Everything that we discussed in this course today was distilled down into one colorful infographic that we designed and laid out here so you can view it, download it, or even print it out on one eight and a half by 11 inch sheet of paper. Yeah, my team and I went back and forth on this infographic for quite a few rounds to make it just right. I like how it looks, and I've never known anyone else to do this all the ways real estate pays concisely onto one sheet of paper. The link for that infographic gift is in the show notes for this episode at get rich education.com/ 550 since this is episode 550 get it at getrice education.com/ 550 Yeah, the infographic gift is a memento of this course and the time that we spent together today. Think of it as your diploma, and it's a diploma that doesn't come with 12 years of student loan payments either. Yes, it is just a piece of paper, but is it worth more than the piece of paper known as your bachelor's degree or your MBA? I don't know. You can be the judge. So congrats, graduate. Now you know how real estate makes ordinary people wealthy, but learning this today really doesn't benefit you if you don't find the right property in the right market with a property manager. If you so choose a property manager, you've got to take action. You usually want to start small, including with investor advantage, single family rentals for as little as 200k just like our example, some cost even less. We will help you do just that, and do it for free with our coaching book a time and get it on the calendar at GREinvestmentcoach.com that's GREinvestmentcoach.com
I'm get rich education's Keith Weinhold, thanks for being here, but you weren't here for me. You were here for you. I'll see you next week. Don't quit your daydream.
Speaker 3 48:25
nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own. Information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of get rich Education LLC exclusively.
Keith Weinhold 48:49
You know, whenever you want the best written real estate and finance info, oh, geez, today's experience limits your free articles access, and it's got paywalls and pop ups and push notifications and cookies disclaimers, it's not so great. So then it's vital to place nice, clean, free content into your hands that adds no hype value to your life. That's why this is the golden age of quality newsletters, and I write every word of ours, my self, it's got a dash of humor, and it's to the point, because even the word abbreviation is too long, my letter usually takes less than three minutes to read, and when you start the letter, you also get my one hour fast real estate video. Course, it's all completely free. It's called the Don't quit your Daydream. Letter, it wires your mind for wealth, and it couldn't be easier for you to get it right now. Just text GRE to 66866, while it's on your mind, take a moment to do it right now. Text GRE to 66866.
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