hey it's brendan from BiggerPockets and
today i want to show you on this
whiteboard a real simple explanation of
how a person can go from really almost
nothing to becoming a millionaire by
owning rental properties and hey if you
find this video helpful don't forget to
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the video it really helps make sure more
people are reached with this message so
with that let's first get a little bit
of clarification on how this works it's
real estate thing works first of all
we're talking about buying rental
properties which means you buy a house
herb maybe a duplex or an apartment
building and whatever and you rent it
out now before I walk you through the
math behind becoming a millionaire
through real estate I actually want to
get us all on the same page or the same
board as to the fundamentals about
owning rentals on why they're so
powerful and to do that we're going to
talk about something called the for
wealth generators the for wealth wealth
generate doors I spell it right sure all
right so these are the four things that
really make owning rental properties so
awesome and when they're combined
together can make you a millionaire now
I talked about these a lot more in depth
in my book the book on rental property
investing which you can get on Amazon or
Barnes Noble or wherever bigger pockets
that concise rental book but hey let me
give you them right now the quick and
dirty on the for wealth generators
number one is going to be cash flow so
the first thing cash flow that's the
extra money every month that a property
produces in profit its income minus
expenses the key to that those
understanding expenses because they're
kind of tricky right make sure you get
all the expenses when you calculate it
but basically this is just the money
you're left with in your pocket at the
end of every month now number two
appreciation this is basically the
simple truth that real estate tends to
climb over time in value now sure things
like 2008 do happen in prices do drop
sometimes a lot but over time prices
tend to climb as long as you can hold
onto a property long enough you should
always see appreciation and that's why
cash
which we just talked about a second ago
it's so vital right because as long as
I'm making cash flow I can hold on to it
as long as I need to waiting for the
property to climb in value now number
three the loan pay down now normally
when you buy a piece of real estate you
get a loan from a bank which you then
pay every month but the cool thing is
over time the loan then gets paid down
which means you might start owing let's
call it 200 grand but eventually you'll
own nothing right so the loan starts
here and over time tends to drop on what
you owe it at number four the fourth the
wealth generator tax benefits okay so
for the purpose of this video we're not
gonna talk a lot about tax benefits but
in real life man the tax benefits are
huge like if you made a hundred grand
from real estate and your friend made a
hundred grand from a job or maybe a
business they owned who do you think
would end up keeping more money you
would with real estate way more money
than your friend all right so let me
show you how these four walt Jenner's
can make you a millionaire when combined
together okay let's just say you bought
a house as a rental property maybe you
put down 20% or maybe you found a more
creative way to finance it and you're
able to do it with no money down which
is by the way is entirely possible that
we've got a ton of content on bigger
pockets all about that heck I even wrote
a book on it but anyway let's say you
bought that house here's our cute little
house even three-dimensional house cuz
I'm fancy you bought the house for a
hundred grand and you put down 20% so
you bought it for the hundred thousand
dollar value you put down 20% which is
$20,000 down
that's a horrible dollar sign meaning
you're left with an $80,000 loan or
mortgage as we call it now because you
bought a property that has cash flow the
first wealth generator let's say you're
also now at the end of the day you're
making $200 every month in cash flow
which is $2,400 per year we'll call it
$2,400 per year
cash flow you're a millionaire just
kidding no but this is where it starts
right all right so after one year you've
now made $2,400 good for you right
but there's more to that right because
during that time your loan balance
dropped from owning owing like 80,000
that's actually dropped down because
over time the longest paid down right so
you started at 80 but in fact after that
time you only owe about 78 five so
you've made about fifteen hundred
dollars just about on loan pay down but
at the same time prices tend to go up on
average so where the property was worth
a hundred thousand dollars you now after
one year we'll say on average three
percent appreciation it's now worth a
hundred and three thousand dollars so
let's add all that together right so you
have the you've had three thousand
dollars in value here you've added
fifteen hundred dollars there and twenty
four hundred dollars in cash flow so
really during the first year you've now
three four five sixty nine hundred
dollars you've actually added $6,900 to
your net worth now of course you're not
a millionaire yet but over time the cool
thing is that this process speeds up use
they're paying off more and more of the
loan faster and faster and the value of
that property goes up as well in fact if
you look here the property value getting
paid down the other one going up if we
were to erase this and which I do on one
graph you can see that over time the
value of the property we'll call this
the value the property was that we'll
call it a hundred thousand dollars it's
climbing in value three percent per year
but the loan which was at eighty
thousand is actually going down each
year as well this spread right here is
known as equity and this increases over
time the longer you hold it in fact here
by year 10 it's actually worth about a
hundred and thirty thousand dollars but
you only owe about sixty thousand
dollars on the property which means just
a loan there you've got about seventy
thousand dollars
in equity now add on the fact that
that's over ten years right over ten
years you've also made $2,400 a month in
cash flow every single year 2500 dollars
a year in cash flow which is our $24,000
so by this point you've gotten ninety
four thousand dollars in what wealth
built from that one property now I know
a lot of you are thinking 10 years of
work and you only made a hundred grand
that's gonna take me a hundred years to
get to a million dollars well here's the
cool thing this is just one simple cheap
little property I mean once you've
figured out how to do one deal you can
do another and another and another and
furthermore you don't have to stay small
with a hundred thousand dollar house in
fact what if you were to buy a $500,000
small apartment complex or even a five
hundred thousand dollar house the same
principles apply over time the value
tends to go up and the loan tends to get
paid down so you're paying off a little
bit more every month and add a little
more value every single month and you're
getting wealthier and that is how you
become a millionaire through rental
properties you buy cash flowing rentals
that increase in value over time while
also paying down the loan a little bit a
little bit at a time you're becoming
wealthier now a couple concerns you
might be having number one how do I come
up with all these down payments if I'm
gonna buy a bunch of rental properties
well in the beginning maybe you'll save
up for the down payment but honestly I
built my entire portfolio using some
other creative strategies things like
house hacking or bur investing or using
partners or raising private money maybe
you'll fix and flip houses and use the
profit from those flips to invest in
rentals you know there's a lot of way to
put together a deal but the bottom line
is if you have a good deal you're gonna
figure out a way to finance it now
number two how do you know if you have a
good deal well you got to learn how to
analyze them you know we've got
calculators over on BiggerPockets com
such analysis that you can use I also
teach a free webinar every week on
BiggerPockets where I walk people
through how to do the numbers to sign up
for next one at BiggerPockets complex
webinar now what about number three how
do you manage all these properties well
the short answer is you don't I mean you
could
but for most of my properties I hire a
property manager to look after them of
course you still got a manager manager
it's not a hundred percent hands-off but
they're the ones getting the late-night
phone calls not you all right question
number four what if the market drops
well that's why I buy cash flow in
rental properties if the market drops
great I'll just keep holding on to them
and I'll buy more properties because now
everything's on sale you know what you
can become a millionaire through real
estate I did it in under a decade yeah
it's not gonna happen overnight but it
will happen if you're patient you stick
to sound principles and you continually
educate yourself on how to become better
and hey if you liked this video and
you're fired up don't forget to click
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for BiggerPockets com my name is Brandon
Turner signing off
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