what's up you guys it's Graham here so
this is a really fun video for me to
make because we're gonna be talking
about my favorite topics of all time in
one video that's right we got real
estate investing passive income
financial independence retiring early
and smashing the like button if you
haven't done that already all in one
place I know I can't believe it either
what it's time to be alive but anyway
here it is how to retire early by
investing in real estate and these are
the types of videos I really enjoy doing
the most because all of these are things
that I have done myself personally none
of this is theory or anything like that
all of this I have done myself firsthand
and I've seen it work for me it's taken
about a decade of saving investing and
following these strategies to get to the
point where my rental income covers all
of my expenses and at which time I can
pretty much do whatever I want within
reason of course I'm not going off in
like buying Lambos every day i buying
Tesla Model 3 s no Lambos but this works
for a Tesla Model 3 but anyway let's go
over exactly how you can replicate these
strategies so you can do something
similar and again that's the entire
point of the video by the way I realize
the term retired is used very frequently
now on YouTube like everyone is retired
and then meanwhile they're still working
like 80 hours a week on you know not
being retired so let's just make it very
clear I am NOT retired I'm not going to
call myself retired I have no plans of
laying on a beach and playing golf all
day I'm not even that good at golf
however the point of the video is to get
to the point where you could retire if
you wanted to or not the choice is
really up to you
so now let's start here and this is
where it all begins and this point is
not real estate-related
at all but it's still massively
important and that is just this take the
time to add up all of your expenses then
you'll come up with an average number
that you will need to replace with
rental income every single month I know
this point is rather dull and boring but
this is something you'll have to do
otherwise it's really like trying to
navigate somewhere without having a map
so anyway here's my challenge for you
and I dare you to do this because most
people are just gonna watch the video
and never actually do it that defeats
the point so you know you're different
than that you're actually going to do
this hopefully that is just this it's
very easy track all of your expenses for
the next four
let's track everything you spend your
money on every single penny if a penny
leaves your account or leaves your
pocket I want you to account for it you
can always use mint.com or personal
capital comm if you want automated
software that does it for you or you
could just use your own Excel
spreadsheet I don't care what you use
the point is you absolutely must know
how much money you spend every single
month so that way you can figure out how
much rental income you need to replace
that with now when doing this I highly
recommend you break up your expenses
into two categories the first one will
be your necessities the second one is
going to be your discretionary spending
for example your necessities might be
your housing payment your insurance
groceries internet utilities and
everything else that's non-negotiable
your discretionary spending on the other
hand should be something that you don't
absolutely need that you can cut back on
if necessary for instance that might be
vacations or going out shopping or going
out to really expensive dinners or
wrapping the Tesla video coming soon so
anyway once you've done this
congratulations you've done what
probably 9 out of 10 people will never
do in their lifetime so there you go
you're already ahead of the game now
your first goal should really just be to
earn enough rental income to cover all
of your basic necessary spending now if
you want to break something like this
down into even smaller goals I recommend
having a list of all of your necessary
expenditures and that way you can just
check those off every time your rental
income pays for it like I remember when
I made my first $900 a month in rental
income and I thought to myself okay now
I have my car paid for my car insurance
paid for my phone bill paid for and my
groceries are paid for and then I
thought to myself well if I have another
$900 coming in that would pay for half
of my housing payment and then if I have
another $400 coming after that I would
have all my property taxes paid for so
anyway once you figure out exactly how
much money you spend every single month
that becomes your goal that is how much
rental income you will need every single
month to replace your necessary spending
so now of course this is where the work
comes in and that is actually getting
that amount of rental income so here's
what I would do if I were starting over
with zero dollars today and my monthly
expenses were let's say $3,500 so that
now be
our goal to get $3,500 a month in net
rental income now here's the strategy
that we're gonna be following to achieve
this and there's a term for this coined
by Brandon Turner over at BiggerPockets
and that's called the BIR method except
I put my own little twist on it it's
kind of like the house hacking burr
method of real estate investing so I'll
explain exactly how this works and
exactly what you can do now the first
thing you'll need to do is save up a
downpayment between 10 to 20% of the
property's purchase price so this means
if you're buying $100,000 property
you'll need between ten and twenty
thousand dollars saved up or on a
$200,000 property you'll need between 20
and 40 thousand dollars saved up now
this could definitely take a while
depending on how much you're making how
much you're saving and how expensive
properties are in your area however I
really believe this part is essential
this single investment can absolutely
fund your entire retirement with passive
income if you're just willing to listen
to these strategies and actually
implement them and stay consistent with
them long term and in terms of actually
saving this amount of money you really
just need to make this a priority if
that means that you need to cut back on
vacations or work more hours or pick up
a part-time job just so you'll be able
to save a little bit more money doing it
it's so worth it I can tell you 100
percent that delaying any short-term
gratification is absolutely worth it
when you see the long term end result
now anyway once you've got that down
payment saved the next step is to go and
buy a two to four unit building that you
can move into yourself now here's why
this step is so important when you go
and buy a primary residence meaning
you're going and buying a property that
you intend to live in yourself you
qualify for what's called conventional
owner-occupied financing this means
you'll qualify for a lower interest rate
and also a lower down payment when
compared to buying an investment
property now the only two requirements
when doing this is that you must buy
four units or less and you also must
live in the property between 12 and 24
months after buying it after that you
could do whatever you want with the
property but meanwhile you've locked in
your low downpayment and your low
interest rate now the reason I really
like this method a lot is that you can
get a conventional owner-occupied loan
up to four units so this means if you
want to invest in real estate you can
buy all of the units under owner
keep I'd financing with a lower down
payment and a lower interest rate even
though you're renting out the other
units and only living in one of them
this is a tremendous life hack and a
huge advantage to investing in real
estate and getting cheap financing and
as we all know cheap financing really
just means more money back in your
the third step here is that ideally you
should be fixing up the property anytime
you're looking to not only increase the
value of the property but also increase
the cash flow fixing it up is really
just the way to go for me I'll only look
at two to four unit properties that need
work because I know that when I'm done
fixing it up it's going to be worth more
than what I paid for it I personally go
for really light rehabs like redoing
floors redoing the landscape paint
kitchen and bathrooms these are all very
simple renovations that any contractor
should be able to do in less than a
month and all of these renovations have
an extremely high ROI so let's just use
this example so I can show you how it
works let's just assume you buy a
$300,000 property that's three units you
then put 10% down that would be $30,000
and you finance two hundred and seventy
thousand dollars at a four point three
percent interest rate fixed for thirty
years but then after all of that you
take an additional thirty thousand
dollars from your own money and you go
and fix it up and after that the
property's value is now worth three
hundred and eighty thousand dollars this
means that you've made an extra fifty
thousand dollars worth of value just by
going and fixing it up that is how real
estate investing basically works my
favorite places to buy are the ones that
just look a little outdated like maybe
it was built in the 70s or 80s and it's
a little old or it looks a little bit
like grandma's house maybe it needs some
new countertops and new paints you
remove the carpet you get some new
bathroom tile easy stuff like this and
in most cases I never try to rearrange
floor plans or go in add square footage
and for someone really just starting out
I don't recommend that you take on too
big of a project very light cosmetic
stuff is very easy it's very simple for
a beginner many contractors can go and
do this in a very quick turnaround time
and there's not a lot of risk when
you're going in with just a cosmetic
renovation so now the next step what do
you do when you're done fixing it all up
and that is you rent out the other units
this is where the
the other units should ideally cover all
of the properties expenses like your
mortgage or property taxes your
insurance your repairs your vacancy and
everything else that goes along with
that so now let's just use our previous
example we have a $300,000 property with
three units you put 10% down financed
270,000 dollars at a 4.3 percent 30-year
loan your mortgage payment would then be
about thirteen hundred and thirty
dollars per month we'll see your
property taxes are going to be another
three hundred dollars a month we'll say
your insurance is going to be a hundred
and twenty dollars a month and then
we'll say your repairs maintenance and
other miscellaneous expenses would be
another two hundred and fifty dollars a
month so now let's just round this off
and we'll say that this property is
going to be costing you every single
month two thousand dollars however
because it's a three unit building and
you're only living in one of the units
you can rent out now the other two to
collect rental income to offset that
payment so in this example let's just
say that the other units are gonna be
renting for nine hundred dollars a month
so in total between renting the two
units you're gonna be getting at $1,800
a month in rent so now you're only
out-of-pocket cost is $200 a month
forgetting to live in and own a triplex
plus the $30,000 is a down payment plus
the $30,000 you spent fixing it up
so $60,000 total now I realized that
right now we're not any closer to
getting to our goal of $3,500 a month in
passive rental income because it appears
as though we're now cash flow negative
$200 a month plus were sixty thousand
dollars in the hole invested in this
property but here's where the fun begins
right now you're only housing expense is
$200 a month and chances are that is
cheaper than you going and renting
something else equivalent to that
yourself we're going and buying
something without getting the additional
rental income so hopefully by doing this
you're able to save a little bit more
money on your housing expense secondly
even though you're paying thirteen
hundred and thirty dollars per month is
a mortgage just by making that mortgage
payment you're paying down the loan
balance by on average in the first year
about three hundred and seventy five
dollars a month this means that your
ownership in the property increases a
little bit more every single month until
eventually after 30 years your home is
paid off and owned in full so even
though you pay $200 a month out of
to live there you're getting back 375
dollars a month in value still though
that is not cash flow that you can be
able to live off of until that is paid
off in full but here's how we're gonna
be able to get there the next step is
that you're now going to do what's
called a cash out refinance this means
that a bank will go and give you a
brand-new loan based off the new higher
price of the property after you've fixed
it up and then you profit the difference
in cash let's go back to the original
example here $300,000 property $30,000
down two hundred and seventy thousand
dollar loan you fix it up for $30,000
and now it's worth three hundred and
eighty thousand dollars but now because
this property is worth three hundred and
eighty thousand dollars and you have a
loan on the property of two hundred and
seventy thousand dollars this means you
have a hundred and ten thousand dollars
of equity just sitting there so when you
go and do a cash out refinance a bank
might go and look at this property and
say okay we see it's worth three hundred
and eighty thousand dollars we will give
you a loan up to eighty five percent of
this property's value so on $385,000
we'll give you a loan of three hundred
and twenty three thousand dollars so now
you go and take out a new loan for three
hundred and twenty three thousand
dollars you take two hundred and seventy
thousand dollars of that to pay off the
first loan and that gives you fifty
three thousand dollars extra in profit
cash for you to pretty much do whatever
you want with entirely tax-free but now
since you've taken out a new loan at a
higher amount your mortgage payment will
jump up from thirteen hundred and thirty
dollars to now about sixteen hundred
dollars a month but remember even though
you're paying more per month now you
have fifty three thousand dollars left
over for you now to do something else
with and reinvest and of course we all
know what that means you can use that
fifty three thousand dollars to go and
buy another triplex for you to do the
exact same thing with so now let's just
assume you did the exact same thing you
bought the same triplex but the same
thirty thousand down spent the same
thirty thousand renovation it's worth
the same three hundred and eighty
thousand dollars here's where it gets
interesting because remember you still
own the first property but now since you
moved out of there to go and do this
again you now have another unit that you
can go and rent out for nine hundred
dollars a month
here's how the numbers look for an
example like this
your mortgage payments going to be going
up to $1,600 a month your property taxes
will be $300 a month your insurance will
be $120 a month and let's just bump up
the repairs maintenance and the expenses
to $300 a month so now let's just say
that roughly this property is going to
be costing you two thousand three
hundred and twenty dollars per month
after doing a cash short refinance and
after moving out of it but wait for it
because now you have three units each
paying you $900 a month instead of two
that means that you're now making $2,700
a month
now you go and subtract the two thousand
three hundred and twenty dollars from
this and that leaves you with an extra
three hundred and eighty dollars per
month in passive income just for buying
the place fixing it up doing a cash out
refinance renting it out and then moving
on to the next one that means that
you're only out-of-pocket cost to make
three hundred and eighty dollars per
month with seven thousand dollars plus
the cost of your time to go and fix it
up and buy it and rent it out that's it
and now you have three hundred and
eighty dollars per month and passive
income now you own a cash flowing rental
property and now you're also paying it
off every single month so that in thirty
years you're gonna own it outright and
also since you now have an extra three
hundred and eighty dollars per month
coming in and passive income that makes
it that much easier to now go and save
up for the next one so now we can go and
just repeat this exact same process with
the next one and assuming you do it with
the next one with similar numbers you'll
now have seven hundred and sixty dollars
coming in every single month and passive
income do it with a third place and
you'll now get one thousand one hundred
and forty dollars every single month and
you just continue doing that time and
time and time again until it slowly
builds up you can also now start
investing in more expensive properties
because you're making more money you
have more money coming in you have more
experience and that just speeds up this
entire process dramatically another
really amazing thing with this concept
is that if you just take that extra
rental income and reinvest it back into
buying more real estate you'll start
seeing these numbers grow incredibly
fast because now in addition to not only
using your own money and your own equity
you're going to be using the rental
income as well just to buy even more
real estate this means that if you've
determined you need thirty five hundred
dollars a month in rental income to go
and retire and then travel the world
smashing the like button in every single
country you can realistically do this in
about seven to ten years just by
starting with one property buying it
renovating it moving in renting out the
other units refinancing it pulling that
money into another property reinvesting
all of the rental income into buying
even more real estate and then pretty
soon within a very short timeframe or
within about a decade you'll be able to
basically retire off your rental income
the only requirements in your end is
that you just save up enough money to
use as a down payment and a renovation
budget you never spend the extra rental
income because you'll use that to go and
reinvest into buying more real estate
and you just do this consistently until
eventually you hit the number where your
rental income covers all of your
expenses the concept is all really easy
to understand but the hard part is
actually staying disciplined with this
long term and consistently putting in
the work and delaying gratification and
because investing in real estate could
be a very daunting task especially for
someone who's never done it before whose
brand new to the business doing this as
a primary residence where you can go and
live in one of the units and then rent
out the others makes this process
incredibly easier and now the icing on
the cake with all of this is that if you
do this consistently within about thirty
years all of your rental properties are
going to be paid off in full even if you
go and spend the extra rental income on
whatever you want that's because your
mortgage payment consists of both
principal and interest so every single
month you make a mortgage payment you're
paying down the loan balance a little
bit every single month until eventually
it's paid off and then like I said once
it's paid off you're gonna have a ton of
extra money to do whatever you want with
for instance if you have six rental
properties like our last example having
all of those paid off would generate you
an extra ninety six hundred dollars a
month that's because once the mortgage
payments is paid off you're not gonna
have that $1,600 a month expense on the
property so times that by six and there
you go ninety six hundred dollars a
month and also the icing on the icing on
the cake is that your rental income will
be going up over time thanks to
inflation and also demand and that just
makes this entire amount just even
larger in the future so as you can see
this is really such a great method for
retiring early and replacing all of your
expenses with rental and
all that it requires is really
dedicating a solid decade to doing this
and really just the discipline of saving
everything you can putting in the work
taking the time to make this happen and
then just repeating the process over and
over and over again this is something
that I've been doing myself I live in it
duplex right now it pays for all of my
expenses all the rental income on the
other properties pretty much pays for
everything else I do and that's it and
this is really a decade of really really
really solid saving and investing and
really being invested in real estate and
learning these principles and sticking
with it long-term and this is what I
believe anyone else could achieve as
well so with that said you guys thank
you so much for watching I really
appreciate it you guys enjoy videos like
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again for watching and until next time