How to RETIRE EARLY with Real Estate Investing!
Video Transcript
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Today, I’m going to give you a complete guide on how to retire early by investing into rental real estate. I’m also going to answer a question from one of my subscribers. So, if you want to listen to this, stay all the way till the end of the video. Without further ado, let’s dive [Music] in. All right, guys. If you want to be able to retire early by living off of real estate investments, you’re going to first need to know roughly how much income you need to generate every single year to cover your expenses. I don’t know why people don’t start off with the math. A lot of people actually have no idea what their annual expenses are. If you’re in this boat, then you should get out a pen and paper, a Google doc, an Excel spreadsheet, create a full list with me of all your annual expenses. These expenses can include your mortgage, your utilities, your food cost, your average travel expenses, your vehicle cost, child care, and much more. This isn’t a one-sizefits-all thing. Some people live lavish lifestyles. It could take a lot more real estate income in order for them to retire early. And some people live extremely frugal lifestyles. it could take a lot smaller income for them to retire early and live comfortably. But I want you to get an idea of your annual expenses first. That’s step number one. Before you move to step number two, please make sure you’ve done this. If you’re going to invest into rental real estate with a traditional rental property mortgage, then we typically need a down payment of at least 15 to 20% of the property’s purchase price. Now, I’m not going to talk about creative finance. So, if you’re going to buy a property that costs $300,000, for example, you’ll need to save up somewhere between 45,000 to 60 grand. For many people, saving up for the down payment on their first property is actually the most challenging part of their entire real estate investing journey. And yes, it can definitely take a little bit of time to save up for your first down payment. But here’s the good news. You may only have to do this once. This is because once you own a rental property, you can actually use the property to help you fund your next property, which I’ll get into later in this video. There are many different ways to save for the down payment of your first investment property. You could take a certain percentage of your paycheck and stash it away. Possibly get a second job, be a freelancer. Maybe you want to sell some of your belongings. You might really have some unique stuff in your household. But trust me, cash flow can be a lot more beautiful. So, step number two can be a little bit uncomfortable. You may have to work harder and live beneath your means, perhaps forego some vacations or sell some possessions. But this phase is temporary. Once you’ve gotten your down payment money, you’re good to go and you’re ready to go to step number three. This is where the fun starts. However, you need to be very careful with this step. The reason is because you want to make sure that you buy a good property. Ideally, you want to look for properties in safe areas with low crime that are close to desirable amenities like nice parks, hotels, schools, restaurants, or other things that might attract tenants. For your first property, I would also recommend looking for properties that do not need major remodels. Most brand new real estate investors do not have massive budgets for remodels. If the home needs a few minor repairs, that’s okay. Just make sure that it’s not going to cost you an arm and a leg to make the property rent ready. There are a few other things to consider when you are selecting and buying your first property. The first is the number of units. Now, there’s no rule that says you have to start out with a single family home. And in fact, many people now are starting out with duplexes, triplexes, or even forplexes. They all can be great options. Keep in mind that it is possible to buy a multi-unit property for a smaller down payment and potentially get a lower interest rate if you’re willing to live in the property for at least one year. Many people get into real estate investing using this strategy, which is a type of house hacking. However, not everyone is willing to live in the same building as their tenants. And if that is you, don’t worry. It is not necessary. You can still do just fine buying a rental property without living in it. That’s what I did. All right, guys. After you buy the property, you want it to look as nice as possible. Why? Because generally speaking, people are willing to pay more money and rent to live in a property that is nicer. You can do things like paint the walls, add a few new appliances, maybe do some landscaping to improved curb appeal, upgrade the flooring, you know, basic cosmetics. There are many different repairs and improvements you can make without breaking the bank. Not only can you potentially charge higher rent if you fix up the property, but the property can also potentially have a higher resell value when you go to sell it down the line, which can be massively beneficial for a new investor. So, investing in some light rehabs can go a long way in the world of rental real estate investing. You got to get used to this. All right, guys. Once you have completed your renovations, you are ready to rent out the property. You can do this by advertising it on sites like Zillow Apartments.com. You’ll get comfortable going to these websites. Hopefully, your apartment will get rented quickly and you can save money on advertising cost. However, you may need to increase your advertising efforts slightly if your units are not getting rented quickly. These are things to keep in mind. All right, guys. Property prices tend to appreciate in America, and savvy real estate investors know how to take full advantage of this to acquire more properties. You see, as you continue to hold your rental property month after month, uh year after year, it’s going to go up. It’s going to appreciate historically. Because of this, you’ll be able to do something called a cash out refinance. A cash out refinance is a type of mortgage refinance where you replace your existing home loan with a new one for a larger amount than you currently owe. I know, weird, right? The difference between your new loan and your old loan is given to you in cash. So, for example, let’s say you bought a duplex for 250,000. You did some upgrades. You rented it out, held the property for a year or two. After this time, you do a cash out refinance. When you refinance, you may be able to get a new mortgage for 290,000. The difference between what you owe on the original loan and the new loan amount will be given to you in cash. You can then take this cash and then use it potentially as a down payment for a brand new investment property. Thus, your first property can fund your second property. And this is how many real estate investors can continue to get in a process of rinsing and repeating, renting out their properties, cash out, refinancing many times as they need to in order to fully replace income. Here’s something else you need to consider. When you first rent out your property, you may not have huge profit margins. Gosh, I wish someone would have told this to me. Meaning, your rental income might not be much higher than your expenses for the property. However, you can periodically raise rents as time goes on, even though your mortgage payment will stay the same. If it is a fixed rate mortgage, periodically raising rents can dramatically increase your profitability because just like property prices, rent prices tend to increase over time in America. So with each property you buy, you can gradually build up equity. You can gradually increase your profit margins, generate stable cash flow, and perform cash out refinances to buy more properties. After doing this enough times, you’ll become a wizard at it and potentially have enough rental income to entirely cover your expenses, which will allow for you to retire earlier. Let’s talk about some tax benefits. In addition to the cash flow, in addition to the price appreciation, the financing advantages, rental real estate comes with some of the best tax benefits that I know of. For example, real estate investors can qualify for a massive deduction, such as the depreciation deduction. The depreciation deduction is my favorite one to talk about on this channel. You can write off the entire value of your rental property structure over 27 and 1/2 years for residential properties and 39 years for commercial properties. These timelines can be sped up using cost segregation studies to segregate structural costs from nonstructural costs, which tends to appreciate faster. In addition to being able to write off depreciation and many other costs such as repairs, maintenance, advertising, real estate investors can also use real estate losses to offset 1099 income or W2 income if they implement specific strategies such as the real estate professional status, such as the short-term rental strategy, both of which I talk about in this video. With the real estate professional status strategy, you or your spouse, if you file jointly, can qualify as a real estate professional and then the IRS will allow you to use rental losses to offset other forms of active income. With the short-term rental strategy, you can use rental losses to offset W2 or 1099 income if the average stay at your property is 7 days or less as long as you materially participate in the business. Now, many people turn their rental properties into Airbnbs or VRBOs to take advantage of this tax strategy. And guess what? You can, too. If you want to learn how to use the short-term rental strategy to reduce your tax bill by 50 upwards to 100%, then watch this video right here because your boy Carlton Dennis has your back. Now, it is time for me to answer a question from one of my subscribers. I know you’re looking forward to this. This question was asked by Anna Roso 3431 on my how to turn everyday expenses into write-offs video. So, make sure you check out that video if you haven’t had a chance to do so. The question was, Carlton, can I write off business trips for continuing education and seminars? The answer is possibly. When you’re taking advantage of code section 162A, code section 162A states that a business owner can take a business deduction if the expenses ordinary to the business owner, necessary to the business owner, and reasonable to the business owner in the pursuit of income. Let’s say as a tax professional that I needed to take continuing education classes. So, I needed to go to Arizona to be a part of this live event where I was going to be able to get CPE credits from learning about how oil and gas impacts the tax and accounting industry. By me flying there, I’m able to justify that this information directly helps my customers make decisions around tax strategies that can reduce their tax bill, ultimately turning around putting money into my pocket. So, the expense of me flying in there, the expense of me Ubering between the hotel and the venue, the food I had to pay for are all normal and ordinary expenses for somebody that’s running a tax and accounting business. It’s normal and ordinary for me to get continuing education. It’s normal and ordinary for me to have these expenses on my tax return in relation to me making money as a tax adviser. So, because I answer this question with maybe, I wanted to follow it up by giving you an example of how I would do it. And hopefully this gives you the context that you’re looking for. My name is Carlton Dennis. If you love my channel, you like what I do here, I want you to show me a little bit of love by liking this post, commenting underneath it, and subscribing to our YouTube channel so we can continue to grow this page and help out more people just like you. Thank you so much. I look forward to seeing you on the nextWelcome to Big Money Investing – Your Ultimate Destination for In The Money Facts!
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