Your Path to Wealth (course class 7)

All right, your Path to Wealth. This is what you've been waiting for. What we've been doing to this point is helping you to understand the foundation of what I'm about to teach you now. It's like driving a car. If you don't know all the mechanics of how a car works, just to simply go and start it up and fire, maybe fine. But if you don't know how to drive that car, you're going to crash and burn. You're going to get hurt, you're going to hurt other people. And that is true in real estate as well.

Building this foundation to this point is critically important. But now that you have that foundation, now we're going to take the next step and this chapter is about taking you from wherever you are, whether it be a renter or a homeowner, or even if you're already in early a flood, by taking you to millions and millions of dollars of wealth. So Your Path to Wealth is starting now. So here we start with, what is your starting point?

When I talk about your starting point, it includes a few factors. It includes starting off with where you are financially, but we also need to take into account is... We're going to go through all this, but one of the other important points here is how old are you? Now, I got in the real estate industry when I was 18, I bought my first property was a minimal when I was 21. So if you're young like that, that's awesome. The most powerful weapon you have in massive wealth growth is time. So the younger you are the better. But whether you're someone that's 18, 19, 20, 21 years old, or you're 65, 70 years old, we have senior strategies too. But your starting point is critically important. So what is your net worth? Is it zero? Most of the clients we have, guess what their net worth is? It's zero.

They're a renter. They have a few thousand dollars saved up and in their mind they believe that they're never going to be rich. They don't even come in the point of talking about being rich and that's not even on their horizon. It's just like, "Can I just get to so a place where I could be financially secure, my family could be financially secure?" It can be way better than that. So wherever you are, and I'm excited that you just watch it.        

That makes a huge statement because I'm going to tell you the sad truth, and this is why I called my book Why the Rich Stay Rich and The Poor Stay Poor, is I come from a family on both sides. You know what to do something. I just had a conversation, my mother is near the end, my father is near the end and we were talking, I have so many uncles and aunts. I didn't even know how many it was until I asked them. Like 40 on each side, that's 28 most. I mean, not most all of them were poor. And maybe one, my father was able to get out of poverty and get to the middle class.

The key determinant factor is what people believe. And that's why I say, if you're watching this, you still believe and you have hope that you can have a better life. And that's awesome. But you know, the people I'm talking about that have given up hope. So, I encourage you to be positive with those people. And what I'm going to share with you today is going to change your life, but get them excited and bring them in the loop so we can help as many people as possible. So what's your current network? Your current non-employment income for most people is zero, but we want to identify where we are so we know where we need to go. And then we're going to do some future retirement calculations, recap a few things there. So we're going to walk through these numbers.

 

 

 

Assumptions
Years to Retirement	25
Current Monthly Expenses	$ 5,000
Monthly Savings Amount	$400
Total Current Savings	$ 20,000
Anticipated Inflation Rate	3%
Anticipated Rate of Return on Savings	4.5%

Results
Total Saved	$282,674
Annual Expenses	$125,627
Years of Retirement	2.25
Monthly Income at Retirement	$ 1,060
Monthly Expenses at Retirement	$10,469
Monthly (Shortage) / Overage	($9,409)

 

It's critically important we understand okay, where are we are, but we also understand where we need to go? What are the numbers we need to hit? So let's walk through some of these numbers and see current monthly expenses, $5,000 a month it's an estimate. So this would be like red carpet. This is all your bills, food, utilities, entertainment. And so on. Let's say you're saving 400 a month and you have $20,000 saved in your retirement. This is what our typical client's life looks like. Inflation is out about 3% a year for over the past 100 years. And let's say you received four and a half percent net return on your retirement account. This means after management fees, if you're in this category, plus or minus, let's say what that looks like is a time of retirement at $282,000 in your life savings. But your expenses will be more than have doubled. And if we look at this, you can see divide this into this. It's less than 2 and a half years.

The reality is it's actually worse because always keep in mind, what's in your retirement account is not all your money. There's this false sense of security that a lot of people have, they say look at this, they go away and my account money's building up. And they think they're in great shape. I had a client consultation with a gentleman that was pretty successful. He had a million dollars and wanted to retire, and I tried to say, "You know that's not all your money." And he goes, "What are you talking about?" He goes "Yeah, it is." I said, no. I said a big chunk of that goes to this data in California, it goes to the federal government. And when we did the analysis, it was about 30% that he owed the government. So all of a sudden you can see the light bulb and the switch go and he goes, wow, I don't have a million. I don't have really 700,000. And he had a pretty expensive lifestyle. And even that wasn't near enough.

 

Retire Today Analysis
Monthly Expenses	$10,469
Rate of Return	4.5%
Savings Needed	$2,791,733
Number of Years	25 years
Monthly Amount to Save	$3,096

 

We've got to factor income taxes in retirement income on your life savings is only 1,060, but yet monthly expenses are 2000. So we have this $9,400 a month shortage, get some social security still no good, not anywhere near enough. If your expenses are 10,469, then we need income taxes to pay, right? So if your expenses are 10,469, means you need to have at least 13,000 a month in non-employment income. So you can retire and not worry about money. Now I'm going to repeat that. If your expenses today are 5,000 a month and I'm telling you nationally, that's probably a good average, but in California, that's on the low side.      

If you're in California, your monthly expenses are more like six, seven, 8,000 a month today. And if you're 40 years old or younger and you want to retire at let's say 60 to 65 years old, that's the goal. The minimum number, as far as non-employment income you're going to need, is going to be North of $10,000. We need to have a plan that's going to generate more than 10,000 a month in income. I can't emphasize enough how important this is. We have blind spots. This is the number one financial blind spot that people have, because they believe it's all about saving money. They don't do any of this analysis. They don't have any of this conversation. My point is they do not have a goal or a destination, if you... They're making that if you don't know the number you need to get to, then what are the chances are you going to get there? Pretty much zero. It's not going to happen.

I'm going to say this again, because it is critically important that you know what your destination is, your mathematical destination. Is it 10 grand? Is it 12 grand? Is it 15? Is it 20,000 a month? That number is critically important. We need to know what the destination is. And now I'm going to show you in this class how we're going to get there. So if you want to live a fairly affluent life and travel the world and have a great vacation, then we're probably talking 20,000 a month in non-employment income. So then how are you going to get there? And if you can see here, saving a 401(k) or IRA is not going to get you there for all the reasons you learned earlier in our course. Here's the retired today. If your expenses today were 10,469 and you were retired, and we're basically saying, this is what they're going to be at 25 years, at four and a half percent return, you need to have 2,791,000 to save this over 25 years is 3000 a month.

The average middle class person in this country cannot save $3,000 a month or anywhere near that number. But as I said before, this is still on the low side, because if you need 10,000, the reality is add income taxes. Now we take this to 13,000. Then this needs to be closer to like 3,500 or even 4,000 a month. So it's just showing you the point of saving money through a 401(k) or linear wealth growth, isn't going to get it done. Now we have a future retirement calculator on mark1wealthacademy.com, you can go on to that calculator, super simple to use, enter some numbers as we've done here, enter some numbers and play around with some estimates. But it's critically important that you identify what your target is and what your goal is so we can get there.

All right. So we've talked about the timeline. What's your timeline for retirement? And if you're already 55, 60, 65 years old, there's alternative ways to get there. The non-employment income we need it. We've pretty much covered that. And we want to build a legacy of wealth. Let's talk about a legacy of wealth is we want to put you in a place where you have multi-millions of dollars, that you have an asset that you can pass on to your next generation. All right, from renter to a multimillionaire. Here's what we're going to do, is we're going to start from ground zero. Now, anything above ground zero makes it easier, right? It makes it faster. It makes it easier. But I want to show you a starting point of, let's say you're a young person, no net worth, renting, just getting started and what is possible. And when I say renter to multimillionaire, that's exactly what I mean. I only show you how we're going to turn you into a multimillionaire with retirement income or non-employment income. That is well in excess of $10,000 a month.

Wealth and income growth, forecast or report. We're going to get into that. I'm going to show you a couple of investment analysis on how we were going to analyze two properties scenario. We call this our two investment strategy. So we're going to walk you through that formula. And then we're going to analyze the income and wealth and show you the growth process. And then once you understand property one and then property two, and then how we can repeat the process and continue to grow the wealth. All right, projected purchase price. Let's say, you're buying your first property, $500,000 property. Now the down payment on this three and a half percent now here's where the three and a half percent down comes from. It's an FHA loan. There are conventional loans, 3% down if you're a first time buyer. Now, if you look at this you're, "Wow, I have zero money, I can't come up with $17,000. As far as the down payment."

Projections: Investment #1
Projected Purchase Price	$500,000
3.5% Down Payment	$17,500
Mortgage Balance	$482,500
Mortgage - 3% interest rate	30
Mortgage Payment (PITI)	$3,036

 

There are all kinds of down payment assistance programs where you can borrow the down payment. Some that are zero interest. Many that are two or 3% interest rate, but there's all kinds of down payment assistance program. Now, they even have closing cost assistance. So there's a lot of different ways to get started with next to no money. We don't have a lot of clients that the only money they come up with is to pay for an appraisal of about $500. And that's it. And they can get started. Now here's what's awesome about that. Let's say you're starting from this point of zero, but now we get down payment assistance and you're getting a $500,000 asset. So in your 401(k) or your IRA, you're starting from zero. And if you save 500 bucks a month, well, zero then it's 500 then it's a thousand.

How long is it going to take you in your 401(k) or IRA to get to $500,000? For many of you, you'll never get there. And take your whole life and you still won't be there. And yet in this scenario, you could start at 500,000 immediately. You see what a life altering change, just that is that real estate provides? All right, so now here's what the mortgage balance would be. Again, this is not an FHA loan. We're doing a calculation on a 30 year mortgage with an interest rate of 3%. And here's your mortgage payment as far as the principal interest taxes and insurance. Now on an FHA loan, you're going to have mortgage insurance could be a condominium, so it could be HOA. So we need to factor those numbers in. If you're looking at condominiums and townhouses in that. Now, you buy this property, you're going to start it. And let's take a look at where we're going to be in five years.

Here's our five-year forecast. Now, five year forecast, here are some of the assumptions in here. You're talking five years. The property value is going to be 608. We've used a 4% annual appreciation growth rate. Now nationally, the U.S. national appreciation level is 5%. California, the average appreciation rate is 7.3%. So 4% is a very conservative number in the state of California historically, here's where your loan balance would be. So your loan balance will have dropped. So what's happening is because interest rates are so low historically, the percentage of your mortgage payment that's principal reduction is more than it's ever been. So the combination of property value going up low balance, going down very rapidly is creating massive wealth growth very quickly. In five years, you'd have 179,000. Let's call it $180,000 of wealth growth in five years. What's 180,000 divided by five? Over 30,000 a year, about 35,000, over 35000 a year right?

YEARS	MARKET VALUE	LOAN BALANCE	EQUITY	RENTAL INCOME
5	$608,326	$428,973	$179,353	$3,042
10	$740,122	$366,796	$373,327	$3,701
15	$900,472	$294,569	$605,903	$4,502
20	$1,095,562	$210,669	$884,892	$5,478
25	$1,332,918	$113,210	$1,219,708	$6,665

 

Remember we talked about trying to save 3000 a month? Here's what's awesome. You're basically saving somewhere around this $3,000 a month. You're building this kind of wealth growth at an incredible rate without saving money. So you're becoming wealthy on autopilot, and that's what we need. It's a lot like a pension. You just live your life and get rich. So this is where we're seeing the massive equity or wealth growth. Now, the last thing, let's say you bought this property, you're living in the property, but what we've done is we've identified what the market rent would be. So remember, we talked about the utility value. This is critically important because financial planners, aren't going to talk to you about this. Even though you're living there, stocks do not have a utility.

No one is going to say oh, let's put your money in Amazon. And let's say you get 8% a year, but then you say, why can't live on my Amazon stock? So I got to pay rent. So I wanted to dock my rental expense from my Amazon return. Nobody's going to do that. Financial planners will go, what are you talking about? They're not related. Yes, they are related. Here's why they're related because it's in real estate. You get that the utility value, right? You get the land and structure, you can use it. So we have this extra value. So here's my point, that home is providing you this utility to live in it. And that's the extra value. And what we've shown is that the rent we've used 4% rent appreciation growth. So we're saying that this property at the time that you bought it, the market or street value to rent was 2,500, five years later, it's grown over 3000.

Here's where we're going with this. We want to get your new, your first property as quickly as possible. So you've made that happen. Whether you use down payment assistance or whatever we get into the first property. Now let's take a look at the growth on this property. In 10 years, you can see market value is now 740. Our loan balance is down even lower, I will able to look at what's happened to the rental income in five years. Here's the power of compounding, and this is why real estate blows away the stock market. And every other asset is because we just start from zero. We started from half a million dollars on an asset base. And we started from an income base on that half million, as far as the street value of 2,500. And in five years, it went to 3000. But look what happened here.

The 3000 went to 3,705 years. So you notice what happened is that grew even faster. Why? Because we're taking these numbers and we're compounding every single year, we're compounding a bigger number and a bigger number and a bigger number. And so now here's where the goal is. We want to take this initial property that you're going into and turn it into a rental. And then now you start to collect all this money as rental income. And you can see now after 15 years, 20 years and 25 years. All right. So, let's recap this. Here's our wealth growth five year six from half a million to 608 to 740 to 920 to 1,000,003.

From 500,000, the wealth growth is more than doubled. It's about two and a half times just in this growth section here. Your loan balance is almost done, 30 years a loan will be paid off. However, if we turn it into a rental, you can see the rental income. We can take this rental income as the rents go up and up and up, and we can accelerate this and pay this off even sooner. And that's what we want to do, but I'm going to come back to that. Now, look at your wealth growth. Without saving a single nickel, you've accumulated over $1.2 million in equity. Over this timeline, you have an income of $6,600 a month. Now let's subtract your taxes and insurance. More HOA fee if it's a condo, let's say that's a thousand. So you got $5,600 a month in income on this one property, which started out as a fairly modest investment. And it's all happened on autopilot. Again, like a pension. This is what we want.

It's autopilot. It's not linear whilst both where you're doing it alone. Here's the other components is the loan balance, free money from you've got the bank that's coming in and why I call it free money, remember is that if you turn it into a rental in five years, we get where we turn it into rental. Then this rental income starts to pay this and you acquire almost half a million dollars of free money. Where else are you going to get that kind of free money? And the answer is nowhere. And why is it real estate? Why is there only real estate?

The utility value, this utility value it's just a mammoth factor that consumers are unaware of. But you can see on this property, if we were just to do this, you can see the kind of wealth growth, compare this to what we showed you earlier on the wealth growth you're going to have in a 401(k) or IRA, where the average person is going to have around 250 to 300,000. If they're consistent in saving in a 401(k) or IRA, they're going to have around 250 to 300,000. If they're consistently saving about four or $500 a month. The majority of people, the reality is 70% of the people save zero. Here, without saving any money. You're going to create this asset in 25 years, it'd be worth over 1,000,003.

Alright, here's the recap on a five year investment, you got $141,000 total net profit. That's assuming you put your own money for the down payment, and looking at the compound annual return 45%. Try to find a stock that you can only get you 45% compounded return for five consecutive years. I mean, really difficult to find those. Not difficult to find in real estate, it's all over the place. This is a very... And not only is this an average Seller, it's a conservatively average seller, because remember I said, we only use 4% appreciation. So why is the number so high? Because of the five economic benefits that real estate has.

 

5 YEAR RETURN ON INVESTMENT
Total Return ($)	$141,763
Compounded Annual Growth Rate	45%

 

All right, now, here's the next level. So you bought that first property. We've grown the wealth on that. What we want to do is we want to repeat the process. All right? So here's a new home, new investor. Now you can see analyzing turning your home into a rental, how much wealth and investment income will this property create? And what is the timeline? Now, if you already own a home, you're halfway there. But here's why I'm suggesting and introducing turning your home into a rental. Now, a lot of people say, well, this is my at home. Our kids in here, we've been here, we don't want to rent our house. We don't want to move. There is nothing wrong with that. But here's why I'm suggesting this. Here are the advantages of going this way, is number one is you're going to get better financing. You can buy your next property with lower interest rates, lower down payment, and it's easier to qualify.

Projections: Investment #2
Projected Purchase Price	$625,000
5% Down Payment	$31,250
Mortgage Balance	$593,750
Mortgage - 3.25% interest rate	30
Mortgage Payment (PITI)	$ 3,633

 

It's much simpler and it's much more cost-effective to turn your home into a rental and buy your next property. That's mathematically the best way to do it. If you just look at the numbers. Now, if you've owned a property for a while and you want to stay there, you probably built up a ton equity. So you could either refinance or get a line of credit, pull some money out, and then we can go buy the next one. But in this scenario, we're going to analyze turning your home into a rental. And if you live in your school district, if you love your neighborhood, just look at buying a property and it could be next door. It could be across the street. You can stay in the same community. So we're going to analyze that how much wealth and investment income from this property. What will it create? What's the timeline. And is it going to be enough?

Remember we know what the goal is. Every year we're talking to target of at least a minimum 10,000 a month, and non-employment income. That's the number I want to get in your head. That's the goal. How am I going to get to Northern a 10,000 a month? We know it's not going to happen in a 401(k) or IRA. We need to get there. Somehow. I'm going to show you how we can make that happen. And is there a better strategy? Okay, let's go through. All right. Projections for investment too. So now you buy the next property.     

Here's what we're basically analyzing here. Let's say your first property was $500,000. Now it's five years later, we're saying 625. We're basically saying you're buying the house next door. You're buying the house across the street. You're basically buying a comparable property and we're not making this big move up. We're just saying, okay. If we make essentially a lateral move, I know most people don't want to just make a lateral move, they want to step up, have a little bigger house, a little better area or whatever, but everything I always try to do is on the conservative side.

YEARS	MARKET VALUE	LOAN BALANCE	EQUITY	RENTAL INCOME
5	$760,408	$530,259	$230,149	$3,650
10	$925,153	$455,581	$469,571	$4,441
15	$1,125,590	$367,746	$757,844	$5,403
20	$1,369,452	$264,435	$1,105,017	$6,573
25	$1,666,148	$142,922	$1,523,225	$7,998
Option-Reverse Mortgage Year:			Age 62

 

We're going to go conservative and just say, we started here, we're going to turn this into a rental and we're going to make basically a lateral move, but a lateral move means that property value with the appreciation rate has gone up. It's now worth 625, putting 5% down. Now here's different ways to come up with that $31,000. If you have money in your 401(k)or IRA, you can borrow up to 50% of that. So if you have 50,000, you could borrow 25,000 of that. And basically what you're doing is just borrowing money from yourself. That's an easy way to do it.

I obviously have money in the bank, but let's say you don't have either one. Well, in this scenario, we would have built up quite a bit of equity into the property. So if you have 625 and you bought it for 525, you can see there's a lot of equity there, not including the principal reduction. So this is where I mentioned. You could do a refinance or you could get an equity line and we could pull the money out to put the 5% down to buy the next property. Here's what your mortgage balance would be. Now we're calculating this at a three and a quarter percent rate. Now, obviously we have no idea of knowing when interest rates are going to be in five years at the time of this, but I can tell you whatever they're going to be, this interest rate, if you buy owner occupied is going to be anywhere from a half a percent to three quarter of a percent lower than if you buy it as a rental. That's a lot of interest.

That interest savings over the long haul is going to help you enormously, because you can have lower payments. And if we keep buying owner occupied and then putting tenants in, then it's going to help your cashflow. So you're not only going to pay a lower interest rate and pay less interest, but your cashflow is going to be much higher, meaning your income to you is higher. And which also means your return on investment is much higher. Okay. So we have a mortgage payment here of 3633 on this $625,000 property.

What we're talking about again is converting your existing or first property into a rental buying a comparable property, moving in to that property. So here's what your new payment would be. So your payment's going up on that. So now we have to look at that and say, okay, five years has elapsed. So what has happened in your life over those five years? Have you gotten pay raises? Well, hopefully yes. Hopefully whatever your occupation is, is you've had at least let's say, what do you call that? Cost of inflation or that you've been able to keep up with inflation as far as having your income gradually go up over the past five years.

The other factor though is now we turn the property into rental. And are you going to have positive rental cashflow on that property? Because if you have some pause rail cashflow, you can use that to help here as well. Okay. So now, let's forecast. This is investment too, and we're going to forecast. So now you purchased the second property. What is your wealth growth look like on the second property and what is happening to your financial situation as we go through the year? So property or investment number two. So you bought the second property. You moved into this property. Here's what this looks like.     

Remember we paid 625 and five years is now worth 760, same 4% appreciation rate, low bounce 530, your equity growth, autopilot wealth growth. And now we are looking at the income growth on this is how the rental income is steadily rising every year. That's the utility value. Now again, you may not be receiving this from a tenant, but you're receiving this value. That's the street value that if you choose to turn this one into a rental, but here's the wealth growth in 10 years, 925. Look at the equity growth. Again. If we divide this out per year, over 10 years, look at this. It's the equivalent of saving basically $47,000 a year. That's phenomenal wealth growth on autopilot.

15 years and then 20 years now, here's what's happened. We bought the first property and we waited five years. Then we bought the second property, and now you can see how the property value has grown. The loan balance has declined, your equity growth. You've owned two assets. You will get the street value on these. Here's what it will look like after 25 years. And here's the option. Now you can see it says reverse mortgage or options or reverse mortgage. Now here's what I'm talking about and why we have this as a possibility. Remember we said, retirement is about two numbers. Wealth growth is just about math. Real estate because of these five economic benefits creates superior mathematical opportunities for you. So the two numbers that we want to achieve to be financially free so that you can retire, live the life you want, is it's about the two numbers, as far as what's going out and what's coming in.   

We want the amount of money that's going out we want to reduce it. And the money coming in, we want to raise it as much as possible. When the money coming in, exceeds the money going out, right? Now, the number one expense that most people have is housing expense. It's either rent or mortgage payment. And this is why most renters never are able to retire because of the fact that he could never pay the rent off and rent keeps going up and it goes up higher than inflation. So it's very difficult for a renter and particularly a place like California to ever be able to retire. Now as a homeowner. Here's our goal, is we want to reduce your expenses. Here's a simple strategy. Two properties, no mortgage payments.

If you have two properties, a rental. So you buy your first property, then as soon as possible, we get a renter in there and the renter pays it off. Now you've acquired in this scenario about $450,000 of free money because the retro paid it off. Now you have all that positive cashflow, because we've got to keep paying property taxes and insurance, and we'd have to keep paying HOA if it's a condo. But you have a nice positive cashflow on that property from there. And let's say you started this journey at 45 years old, 20 years goes by, 20 years you're 65. You'd like to retire, but you don't have your house paid off. We got the rental paid off because the tenant largely paid it off for you. Maybe you were increasing rents and you helped accelerate to get that paid off in 15 to 20 years. But the new house you moved in, it's not paid off. This is an option. And the option is you can at 62, you can get a reverse mortgage.

When I say 62, if you're married, it's both of you need to be 62. But here's the way a reverse mortgage works essential. I'm not going to get into all the nitty details. Spend a lot of time on this, but basically you have to be 62 years old. And the loan to value has to be less than 50% of the value of the property. There's a bizarre formula that they use to enter on. But that's basically where it comes in at number three is you have to live there. It has to be on your residence. Now what's great about this is a reverse mortgage is simply a loan. It's just like a forward or a traditional mortgage, except you have the option of making the payment or not.

If you choose not to make the payment, the interest that you're being charged, it could be adjustable. It could be fixed. It's just a regular old loan. But if you say, "Hey, I don't want to pay that interest." They just add it to the mortgage and the mortgage balance gradually he goes up. So now what's awesome about this is now, without ever saving any money. Keep in mind, you bought this property with, let's say $500 to cover your appraisal costs. You did down payment assistance, you either had the seller pay your closing costs, which is very common. You can negotiate that with seller or you got a down payment assistance and a closing cost assistance. And so for $500, you get into that first property. You never saved any money. You build all this wealth into the first property. You build the equity and we use some of that equity, or we can pull somebody out of your 401(k) and we buy the second property. And now look, what's happened. Over the years, We've accumulated more wealth and we have two properties and we have the rental income.

Let's do a little analysis. This is a recap on this particular property. On five years. In five years, the returns are 188,000 a year, divide this by five years, about 35,000 a year in wealth growth. So that's like 3000 a month that basically wealth growth without saving any money. Your compounded annual return is 41%. And again, I went to check. You had to wrap your mind around 41% average for five years, try to find a stock that generating 41% compound annual return every year for five years, really difficult to do. But it is not difficult to do in real estate. All right. So here's our projected 20 year return on investment. So this is on investment too. And here's why we're saying 20 years you bought the first property you had for five years, then you moved into the second. So total time that's elapsed is 25 years.
 

5 YEAR RETURN ON INVESTMENT
Total Return ($)	$188,191
Compounded Annual Growth Rate	41%

 

Property one, 25 years is a lot. Property two, 20 years is a lot. So over 20 years, your total return is over 1,105,000 on this property. But look again the compounded annual return. In your 401(k) or IRA. If you make four and a half percent, you're doing great. If you hit and I'm talking after fees and what have you, if you hit six or 7% after management fees, you're knocking it out of the park. Look where you are here on this property. Triple. Triple the stock market. I mean, it's an absolute no brainer. And here's the amazing part to me. 65% of the people are trying to get there through a 401(k) or IRA, and less than 10% of the people are going this way. Do you see now? Do you understand now why I am so passionate about trying to bring this information on this education? I learned this the hard way with my own money over my own life, over my own time. And nobody's freaking teaching this.

This is the path, but it's important also as I said to understand the science of all this, and we've covered that before. Because the more you understand how to use this, we can take these. This is just the beginning. This is the baby steps. We can get to much bigger numbers because there we're unleashing the genie of how to be a multimillionaire. I know what's going through your mind. You ain't going, you know what? Screw two or $3 million net worth. I'm interested in 10 or $20 million network. And I say Bravo to you. That's the mindset I want. If you're that guy thinking I want to have 10 or 20 million, I'm all about you. And You can make that happen. That's why we're doing this. Fake bid and let's be aggressive. We can make amazing things happen. Don't think small. I'm starting small because I know most of you don't believe in big, but I want to hope in your mind and heart to big, because big things are possible when you know what to do.

All right. So now let's recap both investments. Number one, here's equity line after 25 years, the reality is we're going to have this property paid off. We're going to have the rent or pay it off. You're going to have all that free money. Let's attract about a thousand to cover your expenses. You've got about 5,600 a month in net cash flow. Here's your equity. Number two, we're not going to have any cashflow because the fact that you're living there, unless you're renting a room and here are the totals. Now here's the awesome part.    

 

25 YEAR NET WORTH PROJECTIONS
		Equity	Cash Flow	Loan Balance
Investment #1		$   1,219,708	$6,665	$113,210
Investment #2		$   1,105,017	$0	$264,435
Totals		$2,324,725	$6,665	$377,645

           

We got a net worth $2.3 million, 6,600 a month in cashflow. Let's subtract a thousand bricks. That's about 5,600. We're going to have no mortgage payments. Now, if you add social security, let's say your social security is about 2,500, maybe 3000 in 25 years. But let's say it's 2,500. We take 5,600 plus 2,500. We're about 8,000. Is that enough? What was the target goal? Over 10,000? It's not enough, right? Way better than social security. I mean, you're way better than your 401(k) or IRA because you have about triple the income from this, but you're not touching any of your principal reduction.

Remember the rules of becoming rich and staying rich is never spend your principal. Here, you're not spending... This is the principal, which is your equity. You're never going to spend that. We're going to be living on this, but it's not quite enough. So there are other strategies and here where we have this investment and we've got all this equity. We need to either repeat this process. If this is all you did and you let's say you need $10,000 a month to live on, and what's your social security, you're somewhere around 8,500 a month. You're close, but you're not quite there.           

What are the options? Work part-time, move and downsize, move to someplace where it's cheaper than Southern California. So those are some of the options, but the best option is don't stop here. As we keep repeating the process. And let me show you, remember what we did some of the analysis of a condo versus a house versus units. And we take this property here and the wealth growth. And what we want to do is we can sell or exchange these into units and create more. And a key component is having people writing you checks.

Here's what we talked about exchanging your property for units. Now this, as far as there's... It's called a 1031 tax deferred exchange, is a whole another class in and of itself. I have that class available to you, but that's going to be separate because that's fairly involved, as far as understanding all the moving parts, but to make it simple is it has to be like for like, so basically an investment property, meaning a rental property and you sell it. And then when we sell it, we're taking the equity. You cannot receive the money. The money goes into what's called an accommodator account. Which is a third-party, that's holding the money. And we exchange the equity from property A into property B, which let's say is a duplex, fourplex, whatever. Okay. So that's what the exchange is.

Here's what's beautiful is tax law is exempt... Now, if it's your residence, if you've lived there to the last five years, you don't have to do a 1031 exchange. You have to do this tax deferred exchange. So if we turn your house into a rental and then you go buy another one, and then within a short period of time, you go ahead and sell that. Then this first step of the residents, you don't have to worry about this whole 1031 exchange. But if not, then we do the 1031 exchange. So if you've held it for a rental or it's a property you've owned as a rental for some time, then we need to look into understanding the exchange, but the best strategy, if you're already a homeowner, buy a new home, get settled in there, make sure you're in comfortable budget, then sell that home behind you. Take that equity and turn it into units.

They're not building as many units as they used to. So they're not that easy to find. Keep in mind, if you cannot find the units, we can find single-family homes that have large lots. And in California, they have a law called the ADU or the accessory dwelling unit. You can Google that and look up accessory dwelling unit. And we have a whole class on accessory dwelling units. Here's how accessory dwelling units basically work, state of California has changed the laws. They created a law, which this new lot supersedes a lot of the local city codes, which allows you to turn your garage into a rental unit build on top of the garage, built in the backyard and it circumvents the zoning restrictions and the parking restrictions. They lose those laws up after about a year because of the desperate need for rental housing.

This is a fantastic opportunity for you to turn single family residences into duplexes. And the return on investment on an ADU is even going to be higher than what I showed you here. And here's why, I call it the hassle factor. If you buy an older property, let's say the house, and I say older because the older properties have bigger lots, the newer cities for the most part, the lots are so tiny. There's no room to add an ado, but we go on to older communities where the lots are bigger. There's plenty of room to put another unit, either on the top of the garage or somewhere in the backyard or whatever.

There's a hassle. And here's the hassle. You got to hire an architect or a contractor. And now there's all kinds of loans and I'll show you that in the class, but you get the money when we build it. So the hassle factor, what it does is that if you spend basically $100,000 to add another unit, you're going to increase the value 150 to 200,000. Your return on investment goes up significantly and your rental income. So this is another option. But my point is you can see in these options of exchanging and creating units, but here are the key to think about it is setting goals, big goal, when you're well, over 10,000 a month. And non-employment income. Part of that goal is asking yourself how many people are writing these checks? How many customers do you have? I mean tenants, how many people are writing you checks?

This is the path in the mindset. We move in the direction of what we focus on. The majority of people in this country, 65% focus on because of the false belief. They focus on an IRA or a 401(k), and they focus on saving money there. And it's the wrong focus. It's the wrong direction because of the linear wealth growth We need to have a different focus. So the focus I want you to have is over 10,000 a month in monthly income. We're going to make that happen without you ever saving any money. That's in what, and we want to focus on how many people we can have writing us checks. And here's the other big focus that talked about, is we want to focus on having as much free income as we... Not free income, but it's free money. We want as much free money as we possibly can. So I explained that. Where you borrow money from a bank, you buy a property. Then we bring a tenant and they pay that mortgage up. So the big question is, how much free money can you acquire in your lifetime?

I'm telling you the wealthy accumulate millions of dollars in free money. Isn't it easier to get wealthy and create a net worth and become a multimillionaire if you're getting free money by the millions? So when you started this past, you didn't know, and you certainly didn't believe that free money was available to you. Well, we're talking. Half a million is easy. Millions of dollars of free money is accessible, available to you. You just have to master understanding of this and change your belief system. And then we have to take the steps, have the courage to take the steps.