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Read Transcript of “The Secrets Of Building Wealth With Your Business”
I recommend everyone have passive investments, but to have a business, you need to have cash flow. Here’s some of the advantages of passive investing and some tips on how to create cash flow and passively invest in real estate.
“Should I do quick flips or should I hold properties for the long term?” – Sheena in Vermont
Joe: Sheena, there are two ways that you can do this. If you do them long term, that’s typically what I would consider passive investing. I do a lot of property like that. I have a lot of property in different states all over the country. I don’t manage it myself. As a matter of fact, I bought it in areas where I thought it was going to make the most sense to buy, where I thought it was going to appreciate the most and it would also be in good stable markets with a little bit lower priced properties.
Joe: I tried to stay between $100,000 and $200,000. I typically stay at around $150,000 because with those properties, even if I fully mortgage them, I can still break even on my cash flow with the income that’s coming in from rent, and sometimes have a small positive cash flow. Sometimes I even take a small negative cash flow because it makes sense with the tax savings that I get, depending on the property and how we structure the deal and set it up.
Joe: So, you want to have passive investing. I’m going to suggest that everybody have passive investments. I don’t care if you’re a realtor or a real estate investor – everybody should own this type of investment, because it’s better than stocks, it’s better than mutual funds and it gets a much better return. I believe it’s safer because its investment property that’s secured against real estate. You ought to have passive investing.
Joe: But, I also find that most people that get involved are entrepreneurial minded and they want to have their own business. If you want to have a business, you have to have cash flow. That means you have to do the flips; you have to create cash flow. If you create cash flow just by holding rental property, the cash flow’s going to be so small that it’s not going to be easy to do unless you have a lot of capital to invest.
Joe: If you have hundreds and hundreds of thousands or millions of dollars to invest and you can buy a bunch of property and it can create cash flow, that’s great, but most of the time, people don’t have big chunks of money to invest. They want to buy a bunch of properties, and they can do that, but they’re going to have to pay the mortgage so they’re not going to have much income from holding the property. They’re going to get income instead through flipping properties.
Joe: You can flip properties a lot of different ways. You can buy them under value and sell them. You can buy them at market value on terms and sell them for more than their value and take an assignment fee or lease option fee. Or, you can lease option them and keep them and take the lease option fee, and that way, you do both, which is probably the best way to do it.
Joe: That’s how “The Millionaire Matrix” is structured, to where you’re buying the properties, keeping them and getting the lease option fee, so that you’re getting chunks of money and the long term value from the property.
Joe: No business can survive without cash flow. If you look at my business back in 1986/87/88/89, when I was buying that first 17 million dollars of property that I purchased and then the market turned around and crashed in 91’ and I lost it all, with the way that I structured it then, it didn’t have income.
Joe: It was based on loans. It was based on appreciation. It was based on building the property and then eventually selling and then making a chunk out of selling, but it took six months, a year or two years on some of those deals to make them work, and then the market hit me in the middle of it and it took me down. If the market had stayed solid and I’d been able to ride it through, maybe it wouldn’t have happened that way.
Joe: But I have a feeling that eventually it’s going to hit you if you’re doing your business that way, e.g. if you’re counting on appreciation, if you have high leverage that is not going to turn around and you don’t have any plans to keep it for the long term. You’re not going to be able to sustain it that way. You have to eat. You have to pay your way, and you want to have a good quality of life, so you need to be able to create that income. And that’s what the flipping is all about.
Joe: The first thing that I teach people when they come into the Mentor Program is how to flip deals quickly, make money, make cash, get in the deal and out of the deal and then you’re no longer responsible for the deal once you’re out of it. Once you learn how to do that and start creating cash that way, then I’m going to say, ‘Now it’s time to start keeping some of these properties for the long term.’
Joe: You can still make money. You can make the short term cash flow if you use the “Subject-To” – if you buy it “Subject-To” and sell it on a lease option – you can still make a chunk of money on the lease option fee plus you’ll be able to keep that property for the long term.
Joe: It just depends on what type of property you’re doing. If you’re dealing with $600,000 or $700,000 properties, it’s harder to do it with those, so you’ll want to move out of your state and into areas where you can buy between $100,000 and $200,000 or $250,000 because you can generally keep those properties long term without having to worry about not being able to cover the mortgage or about negative cash flow. So, I hope that helps. Thanks.