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The Three Stages of Real Estate Investing - YouTube
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there are three stages of real estate
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investing that's what we're going to
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talk about in today's video let's dive
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in hey there everyone I'm Clayton Morris
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welcome back for another video on real
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estate investing
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we're devoted on this channel to talking
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about buy and hold real estate for the
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purposes of creating passive income
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that's what we're all about not talking
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about flipping houses we're not talking
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about other strategies creating passive
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income I'm the president and founder of
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Morris invest we're a turnkey rental
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company so I've done rehabs hundreds and
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hundreds of homes and I'm a long time
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real estate investor and I own many many
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dozens of properties myself today we're
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going to talk about the three stages of
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real estate investing now this really is
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the guiding principle for everything
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that I do in my personal portfolio if
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there are no other videos that perhaps
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you pay attention to on my channel I
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really want you to take this video to
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heart perhaps is the most important
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video that you ever watch on real estate
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investing why because it really reframes
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I think the our approach to buying
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rental properties most people when they
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get started in rental investing they
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think I want the cash flow I want the
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immediate cash flow right that's why we
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do it well if you are in your 70s maybe
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but if you're in your 30s or 40s or 50s
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there's a different way to look at real
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estate investing so cash flow of course
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is ultimately the goal right we want
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passive income from tenants living in
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our property so cash coming in to us
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monthly with us having to do no work
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that's the dream right our properties
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are producing cash flow every month but
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there are a few steps ahead of that that
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are more important and rich people know
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this people who are clawing the way up
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the ladder typically don't understand
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this and that's what today's video is
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all about the three stages of real
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estate investing so stage one is not
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cash flow Stage one is buy so I'm going
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to walk through the three buy owned and
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cashflow Stage one is buy real estate
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now we're buying off market
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buying discounted properties were buying
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in order to increase our net worth this
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is what the rich understand about real
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estate investing is that when you buy a
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$40,000 home but it's worth fifty five
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you've now added fifty five thousand
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dollars to your net worth build a
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spreadsheet and add up what are all of
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your assets that you own cash on hand
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real estate that you own and one of your
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liabilities the car that you just paid
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for which we all know the value of a car
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right liabilities right the boat that
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you have the debt that you have what is
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your net worth is your net worth higher
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than your liability column and the goal
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is to increase this and decrease this
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over time adding that $55,000 value
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house to your net worth now you now you
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bought that property you've increased
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your net worth we're not worried about
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the cash flow just yet when you're young
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we want to buy properties first so I
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like to think of it this way and really
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comes from the Gary Keller model the
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millionaire real estate investor model
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his model is buy a million owned a
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million cash flow a million so our goal
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is to in the first few stages buy a
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million or buy as many rental properties
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as we can using leverage using cash out
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refinances using a home equity line of
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credit
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whatever it is as long as we're buying
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properties and adding to our net worth
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we're not worried about the cash flow
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just yet buy a million buy as many
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pieces of real estate as you can in
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order to grow your net worth then once
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we own them sorry now that we pay them
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off right so we've got leverage on those
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properties we're using private money
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we're using some other form factor to
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buy that property great once those are
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paid off then we own the properties okay
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now we own them maybe it takes you a few
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years to get to the owning piece where
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you fully own them and you don't have
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mortgages on these properties anymore
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now we get to enjoy the benefits of
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the cash flow so by a million own a
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million once it's paid down and then
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cash flow a million now I want to break
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this apart a little bit further because
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you might be saying great well if I buy
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a million am i well you know we'll the
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rent cover that because I don't I can't
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afford how am I going to do all this
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great so his theory and I've talked
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about this in some other videos where we
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talk about return on investment and we
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talk about how to buy a rental property
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but I'll give you it in broad strokes
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that you want to make sure when you're
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buying your properties that all of your
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expenses are being met and covered by
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the cash flow of that property so if
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your expenses on buying this particular
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property amount to $500 a month that
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includes taxes insurance and your
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building in your safety net for repairs
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and expenses and vacancies and that
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comes to $500 a month you want to make
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sure that your rent exceeds that number
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by according to Gary Keller $1 so you
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owe 500 a month on this one property
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that you acquired everything being
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considered expenses vacancies all of
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that in that one and the mortgage note
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$500 well you'd better be make sure that
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your cash flowing five hundred and one
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dollars yes you're only making a dollar
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but your net worth is now increased by
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fifty five thousand because you bought
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this house and the tenant is paying down
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that property so you're increasing your
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overall net worth with every monthly
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payment you follow me so I like to be a
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little bit more of a cushion than one
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dollar so if you Oh 500 a month in this
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property wouldn't it be nice that the
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rent coming in is seven hundred dollars
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so that all that you're getting two
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hundred dollars above that or even 100
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dollars above when you consider
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everything vacancy repairs expenses and
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your mortgage note and all of those
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things everything be super conservative
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in that number just make sure that the
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cash flow exceeds that now imagine
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that's just one property what if you had
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thirty properties just like that where
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yes your cash flowing a little bit
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above what you owe but you've increased
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your net worth by hundreds of thousands
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of dollars so now let's go back to that
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spreadsheet and let's think about that
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your net worth column being exploded and
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your liabilities you know will go up
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because you have a bit of a mortgage but
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it's going to be far higher than your
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liabilities column now on paper your
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worth this amount if you reach that
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million dollars you're worth this amount
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and then over time it's going to do to
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do and your liabilities are going to
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drop down so we want to buy a million
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dollars worth of property and then we
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want to own now once those are paid down
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now we fully own it ha ha we got it now
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we cashflow so it's hard to sometimes
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think about these in reverse order but
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that's the beauty of this methodology is
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that it where the cash flow is there all
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along but now we at the end of it we get
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to fully enjoy that cash flow towards
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the end of the process and then we can
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rinse and repeat you know we can pull
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that money back out we can go buy more
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properties and we increase our overall
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net worth so those are the three stages
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of real estate investing the buy own and
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cash flow and just remember that smart
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real estate investors buy properties
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until they die why because now if we're
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over here with all of that cash flow
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coming in and no more purchasing of real
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estate this is all income now right and
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we have to then go to the taxman the IRS
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and we have to pay this as tax money
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this is income now all of that cash flow
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without us buying more properties to
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offset this now we're paying a lot more
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in taxes because this is all income so
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that's why smart real estate investors
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will continue to buy properties always
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adding to their net worth and the cash
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flow is coming in it's being offset by
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the purchase of those additional
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properties by own and cash flow the
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three stages of real estate investing if
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you have any questions or if this was
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confusing in any kind of way please
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leave some comments below this video I'm
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happy to answer them for you I love the
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feedback so thank you for all of your
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great questions
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we have tons of great videos here on the
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channel so explore go through and learn
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about real estate investing all of the
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strategies and tactics that we use every
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day you can watch that on the channel
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and please don't forget to subscribe
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just click the little button right here
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the little subscribe button and we
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publish videos multiple times a week so
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we would love to be a part of your life
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and publish great real estate investing
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strategies and tactics to make you a
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real estate investor I'm Clayton Morris
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we'll see you back here next time
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everyone have a great one
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