Posted on: October 06, 2020

While there are various reasons why people get into wholesaling and real estate, most people have one reason in common—they want to build legacy wealth. Simply put, legacy wealth is wealth that is passed down from one generation to the next. If that is what you want to achieve as well, you’d surely love this episode!

Pace Morby is an industry legend and his passion for entrepreneurship knows no bounds. At 23, Pace owned and operated a thriving gas and oil company that employed 200 people and generated a whopping $15 million in annual sales. Some of his business specialties include fundraising, small business development, and business consultations.

When he built his real estate company, Pace used many winning strategies and you’ll learn all about them today. Not only that, you will also learn how to build legacy wealth, what it would take to build legacy wealth, and the techniques and strategies you can use to make it happen.

If you want to build legacy wealth the easiest and most effective way possible, this episode is for you!

Key Takeaways

  • What cash flow is
  • Three ways to purchase property
  • What is meant by “subject to”
  • What appreciation is
  • What the number one wealth builder is
  • What depreciation is
  • How you can protect what you’ve earned today
  • What inflation is
  • How you can protect yourself from inflation
  • What wholesaling is
  • What your rule should be when it comes to the percentage of money you should keep

RESOURCES:

If you are Ready to Explode Your Wholesaling Business, Click here to Book a Free Strategy Session with me right now!

Subscribe to Wholesaling Inc

Episode Transcription

Brent:
Brent Daniels, Mr. TTP, and I am here with [Pace Moray, 00:00:57], Mr. Subject Two. Pace, you own over a hundred properties, right?

Pace:
Yeah. Between me and my partners, we own a little over a hundred properties.

Brent:
Why?

Pace:
It’s the only thing to spend money on. One thing I’ve learned is, I’ve learned, you can only do one of two things with your money, and what are those?

Brent:
You can invest it or you can spend it.

Pace:
That’s right guys. So you can either invest your money or you can spend it. And I see wholesalers for years and years in the game, still chasing deals, chasing deals, chasing deals. And the one thing they’re not doing is building their legacy. And so what we’re going to be talking about today is the five reasons to own real estate so that you can build your legacy.

Brent:
Okay. So let’s break it down. Listen, guys, these are very, we hear about these, we understand these, but we’re going to break it down a little bit differently here, because you’re getting the perspective of somebody that is out there every single day, building his portfolio and the reasons why he builds these pillars into his wealth building machine. And he’s going to break it down. So this is a real treat.

Pace:
Number one is cashflow, very obvious. So it allows guys like Brent Daniels to go take five days off at his TTP cabin. It allows me to take two months off and travel the west side of the country with my family. It’s called passive income, otherwise, cash flow. What is cashflow? Cashflow is the difference between what I pay the bank on my mortgage, or on my loan, and what I collect in rent from my properties.
Now, rents could be a plethora of things. It could be my Airbnb income. It can be if I own a group home, all the income I receive off that. But traditionally, most people are renting their properties out, receiving income from their tenants, after paying all their expenses and maybe putting a little bit of money to the side for repairs and vacancy, you’re going to have a difference. And that difference is called cashflow. Some people call it mailbox money. It’s money that keeps coming every month, baby.

Brent:
And this is the thing. Building up the amount of cashflow, building up the amount of passive income to cover your monthly expenses, or to add to your lifestyle. That is what the wealthy do.

Pace:
Hundred percent.

Brent:
That is how you build a fortune.

Pace:
Yeah. And an easy way to start is you say, “Okay, what is my monthly nut? What is the amount of money I need to make every single month bare minimum?” And when I started, this is years ago when I started, I looked at, I said, “How do I just get to $5,000 a month in cashflow money that I can put in my pocket? I can go buy sushi. I can go buy new tires for my car, whatever I want to do with that money. How do I get that money in my pocket?”
And I figured out that the average house that has a loan on it and has tenants in it, the difference between those two nets, about $425 per month in cashflow. So, how many houses do I need to go out and own to basically get rid of all my needs for a job or any financial stress whatsoever? It was 10 houses for me. So I said, “How do I get to 10 houses?” Then when I got to 10 houses, I go, “That was way easier than I thought. Why?” Because as a wholesaler, I’m the lucky guy that gets to see all the best properties coming through the pipeline.

Brent:
That’s it. And here’s the thing. Guys, listen, when you are sourcing your own opportunities, when you’re out there finding deals, that’s all wholesaling is, all wholesaling is, is finding deals. You get to determine what the exit strategy is for them, and what you’re saying is, keep some for yourself, build up your portfolio.

Pace:
Yes. Actually one of your students, Katie and Jack, you know them very well, they’re an amazing couple. I’ve done multiple deals with some of his students here in town. They’re crushing it, by the way. And I see them, they’ll make a 10, 15, a 25 or $30,000 assignment fee. But now they’re starting to get that passive income, because they figured out, “I’m going to cherry pick the very best ones.” So now they’re starting to accumulate cashflow on top of picking. So they make a determination, “Which ones do I want to assign? And which ones do I want to keep?” And every house, you’re going to get 400 to $600 a month in cashflow in your pocket.

Brent:
But how do people keep these properties? Right? If somebody’s building up, they’ve done a couple deals here and there. They don’t have enough money to be able to just buy these properties cash. How do you own these properties, if you can’t right now, maybe get a loan, you can’t buy them cash. You find these great deals. What do you do?

Pace:
So there’s three ways that you can buy property, in my opinion. Number one, everybody knows about, it’s going out and getting a loan, right? You’ve got to have good credit. You’ve got to have all this stuff. Everybody knows that route. So we don’t need to go into the details of it. Number two is, I can get it sold to me on seller finance, which means I tell the seller, in fact, Katie and Jack, who I just referenced, their first property, they bought on seller finance. A seller, who they got a package of homes, a little over 35 homes, Katie and Jack wholesaled a few, and then ask the seller to seller finance one of those properties to them, which means the seller says, “I want 200 grand for the property. I’m willing to give you a loan for 190, if you give me 10,000 down.” So what Katie and Jack did is they got a $25,000 assignment off one of their previous houses, took 10 grand, gave it to the seller, and now they’re making $500 a month in cashflow.

Brent:
Awesome.

Pace:
So that’s way number two. The third way to buy properties is actually taking over somebody’s existing debt. And that would be called Subject Two. You guys, we’ve talked about this a bunch. If you want to know more about that, go to my, Creative Finance, Facebook group. So what that means is that I bought a property, actually, from another one of your students. And I’ve bought properties from you, where there’s no equity in the deal, but the seller is willing to hand the keys over to you and say, “Just relieve me of the burden of this house.” And what is the burden? The burden is their payment. Sellers are not real estate investors like us. So they don’t look at that house as an opportunity to rent it out. They look at that and- [crosstalk 00:06:45]

Brent:
Mm-mm (negative). Nor do they want to.

Pace:
Nor do they want to.

Brent:
They don’t want to be landlords.

Pace:
No, not at all. They don’t want to do what we want to do. So I’ve bought properties, actually, one of my best deals came from you guys this year, on Pueblo. I did a whole breakdown on that house. I bought it for 44 grand. I’m into it, all in, about 50 grand. But none of that was out of pocket because I took over existing debt. That house cash flows me $900 a month.

Brent:
Incredible.

Pace:
No money out of pocket.

Brent:
Incredible, that’s bananas.

Pace:
I took over a seller’s [crosstalk 00:07:15] debt. That’s all it came down to. So you can buy properties three ways. I try and teach people, do seller finance, or subject to, because you don’t need credit, you don’t need credentials. A lot of times you don’t need any money out of pocket.

Brent:
Let’s move on to appreciation.

Pace:
Oh my gosh. Appreciation is amazing. It’s this magic wand that you don’t even know it’s happening. So-

Brent:
This is what I see as the number one wealth builder. Listen, you buy a property at a certain price at a certain time, and like magic, all of a sudden now it’s worth double, triple, quadruple what you bought it for it. That is real wealth.

Pace:
It’s gravy.

Brent:
That is you’re making wealth just from the world turning, right? This is just time, right?

Pace:
The best thing is that while you’re cash flowing the property, your tenant is paying down the debt or whatever, you’re collecting money. And along the way, the house is actually gaining value. In Maricopa County where you and I live, Phoenix, Arizona, the average appreciation rate is 5%. So if I bought a house for a hundred grand today, next year, it’s going to be 105. And the next year it’s going to be, guys it compounds. It compounds. That’s scary to think about. People are sitting there trying to throw money in a 401(k). And they’re trying to do all this stuff in their nine to five. Meanwhile, you and I both own properties that are appreciating like crazy. In fact, two months ago in Maricopa County, our real estate appreciated 9% in one month.

Brent:
I’m telling you, I just sold a property. I bought it for 190,000, 6 years ago, just sold it for 340,000. I put less than $5,000 into it. I’ve rented it, cash flowed it, $400 for the last six years. And now I’m selling that off, and that is $150,000 difference. $150,000 difference from owning one property. That’s just one. There’s no mystery to why people become millionaires in real estate.

Pace:
It’s crazy.

Brent:
It’s these five things, I’m telling you, it is these five things. It is the cashflow, the appreciation, we’re going to get through the rest of it. But this, right here, is so powerful, because this is what really swells up your net worth.
Okay. Now let’s talk about the depreciation.

Pace:
Depreciation is actually my favorite part. Okay, because there’s a lot of TTP students, in fact, I met some of them right here in the studio last week, two weeks ago. And they were talking about how much money they’re making from the things that you’re teaching them. They’re raking in hundreds of thousands of dollars on a yearly basis. What does that mean to them, is they’re fearful of how much money they’re going to spend in taxes. Okay. So what depreciation is, it’s a tax, it’s in the tax code, and it basically allows you to take a property, and take a certain credit away from that property every year. And that credit wipes out a certain part of your tax burden.
So let’s go through it really quick. If I buy a house for a hundred thousand dollars, the IRS, that’s who taxes us, the IRS allows me to depreciate that property over 27 and a half years. So that means I take a hundred thousand, I divide it by 27 and a half, and that is a yearly increment I get to wipe off my taxes. So what would that be? That’d be about $2,700 a year I get in depreciation. So that means I can make $2,700 in my wholesale business, and my buy and hold business gets a $2,700 credit that I wipe out my tax burden over here.

Brent:
And that’s why, honestly, when we’re doing all of our wholesaling, and we have a lot of attorneys and business owners and doctors buying these properties cash, this is the reason why-

Pace:
Hundred percent.

Brent:
Wealthy people buy real estate, is because of the depreciation.

Pace:
Well, if you-

Brent:
Now, listen guys, talk to a CPA, break it all down and make sure you understand everything. We’re not CPAs-

Pace:
But let’s talk on that just for one second, because I know it can be somewhat of a boring topic, but imagine your student, that’s making two, $300,000 wholesaling, utilizing TTP. In a normal taxation, in a normal world, they’re going to spend probably 60 to a hundred thousand dollars in taxes. But if they’re cherry picking the very best deals and buying and holding those through their pipeline, they’re going to be able to wipe out that tax burden by utilizing depreciation. Okay. So my goal, a lot of times, as I say, at the end of the year, my tax accountant says, “Pace, you need to go buy six properties so that we can get your federal income tax down to zero.” You can truly get your tax burden to zero by utilizing tax depreciation.

Brent:
Listen, the government literally will reward you for buying real estate.

Pace:
Yes.

Brent:
They will.

Pace:
One of the best books I ever read was, Tax-free Wealth, by Tom Wheelwright. It’s Robert Kiyosaki’s actual CPA. He wrote, Tax-Free Wealth, and it goes all about the 2017 tax code and how they put together rules, and they give you a game plan of how to not pay taxes, by making cashflow and getting appreciation.

Brent:
Incredible.

Pace:
It’s a cheat code.

Brent:
What about capital?

Pace:
Oh my gosh. Okay. So here’s what I worry about. Let’s say that I put a hundred thousand dollars into a car. What’s going to happen to that hundred thousand dollars?

Brent:
[Brrr 00:12:23].

Pace:
Brrr. Done, right? But if I buy a property for 190,000, like you did, six years later, I made $350,000. I’ve protected my original investment. It’s 100% secure. Nobody has lost money in real estate unless they jumped out at the wrong time. So when you jump into real estate, you’re protecting your original investment. Okay? I get people all the time. I don’t know about you, but I get people asking me to invest in their weed farms and their this and their that, and all their businesses, and I go, “No, I’m all about real estate, baby.” That’s it. Real estate, real estate, real estate. Because what I earned today, I want to protect for forever, and that’s capital protection.
So, last part of capital protection is, let’s talk about this. In 1950, a hamburger was how much?

Brent:
Oh, 10 cents.

Pace:
10 cents. Yeah. But now I go down to McDonald’s and I’m buying a Big Mac for five bucks. That’s called inflation. That means the purchasing power of a dollar dwindles, which means that I want to buy the same hamburger, 20 years later, the cost is three and four and five times more. What’s cool is that hundred thousand dollars I put into a property, it goes up in value because of appreciation. So I protect myself against any inflation. And when the government dumps $7 trillion into the economy, by printing money, what’s going to happen to the power of the dollar? Brrr. But your money and my money, sitting in a rental property, actually goes up in value, while everybody else’s goes down. The cheat code is- [crosstalk 00:13:58]

Brent:
One of my mentors literally said, “Brent, I don’t care if you pay retail for properties. I know that you’re finding all these fine, good houses in good school districts, and just buy them cash, and forget about them for the next 20 years.” That’s what he’s done. The guy’s 20, $30 million net worth type of guy. This is incredible. This is the strategy that the wealthy build their fortunes on.

Pace:
One of my private lenders is an anesthesiologist, went to school for 16 years, spent half a million dollars in education, student debt like you wouldn’t believe, again, spent 16 years of his life dedicated to a craft. Here he is now in his sixties. Doesn’t own any real estate other than his own house. And he’s sitting here telling me, “I wish I never went to medical school. I wish I went into real estate, because if I would have just put my time and energy into real estate, my net worth now, which is about 5 million, would actually be closer to a hundred and fifty million.” It is crazy. He invested in the wrong things. He spent all this time. Look, anesthesiologists are amazing. And I’m grateful that he’s my lender. However, he sees the writing on the wall. Guys, if you have doctors, lawyers, all these people wishing they got into real estate, we are the luckiest human beings. Wholesale real estate is the number one wealth-building tool, if you are cherry picking your own properties.

Brent:
That’s it. You got to keep the properties. You have to keep the properties. Legacy wealth. And that’s what we’re talking about. We’re talking big numbers here. We’re talking 20 million, 30 million, 150 million, all these numbers. This is real life. This is real estate. This is what happens when first you focus on sourcing the deal, finding real estate opportunities, being able to find discounted properties, working with distressed property owners and bringing them, converting them, into an opportunity to be able to solve their problem, and either sell that property to somebody else or keep that property. Remember, wholesaling doesn’t just mean assigning deals. Wholesaling means finding deals.
It means sourcing the opportunities, and you need to keep some for yourself so that you can build this legacy wealth, so that you can be the example, in your family, of the person that buys all these properties and is savvy. And everybody goes to them and they ask him questions about business. And they ask them questions about real estate, and rentals, and all these things. And now you get to educate your family on all of these things. And now, all of a sudden, they’re buying a property a year. All of a sudden, they’re changing their financial future. All of a sudden, they’re getting the depreciation and appreciation and cashflow and all of these things. And that is what we’re talking about. Standing at the top of buildings, screaming about and telling everybody, “You need to buy real estate. You need to keep it and you need to have this,” and this because of this.

Pace:
Yeah. And the way I look at legacy wealth, is I say, “Okay, you’ve gone on three-day vacations, where you leave on a Friday, you come home on a Sunday, right?” We’ve been in that world where, on Sunday, I’m sitting here thinking, “Man, I got to get back for Monday. I got my job.” Okay. Well, what if you have enough cashflow and your houses are gaining value that you go, “I’ve got plenty of money coming in. I can go home next Wednesday. I don’t need to do this.” And on top of it, I wholesale real estate. I can work anywhere I want, which is cool. But above and beyond that, is not only spending more time with your family, quality time. I think you’re probably one of the people that have really pushed me to spending more time with my family, watching you do what you do, but above and beyond spending the time, it’s also giving your children, and your children’s children, the ability to make better decisions with their life.
And what do I mean by that? Have you ever thought about an opportunity in your life, but you say, “I can’t do that because I can’t afford it. I need to be at my nine to five job.” My kids will never have to worry about that. I can go to my kids and go, number one, my kids will work. Number two, when they find their passion, I will say, “Great. Let’s go follow that passion. I have the wherewithal and the financial fortitude. I have the money in the bank to make anything happen for you, if you put in the effort.”

Brent:
That’s it.

Pace:
When I was a kid, man, I had to go bag grocery at the grocery store. I had to go do things in order to get my allowance. That’s not legacy wealth. I’m very appreciative of my father, but I want my children, and my children’s children, to be able to make decisions that will impact them in a big, big way, that doesn’t have to do with being tied to their bank account. The only way to do that is through all of this.

Brent:
Love it. Love it. It’s absolutely right. And that’s the most important thing, that legacy wealth, that freedom of schedule, that financial freedom. That’s what this is all about. Going out there, being proactive, having quality conversations with distressed property owners as often as you can, that is the start. But I want to show you what the future looks like. I want to show you what the potential of this looks like. I want to get you inspired through, through Pace’s story of owning over a hundred properties. It’s just absolutely incredible. And you’ve done this all in the last?

Pace:
Two years.

Brent:
Two years. Guys, I’m telling you, but it started with you in the office, joining TTP, getting things going. You’ve been in real estate, you’ve been doing it. It’s not like you were just right out of it, but literally you have changed everything so fast, because you decided to be proactive, start sourcing your own deals, and really getting loud about it.

Pace:
Yes. And I’m telling you, wholesaling, you said something a few minutes ago that I loved. Wholesaling is not all about just assigning deals. It’s about buying houses at wholesale prices. So here we are, buying houses at wholesale prices. We keep them, and we’re changing, not just our future, we’re changing our children’s and our children’s children’s future. It is crazy what this will do for you. It is crazy. Most people go to a nine to five job and they say, “How do I put a million dollars into my retirement account by the time I’m 65?” And I’m sitting here thinking, “Just buy five houses, let them sit and you’ll have $3 million in your retirement account.” It will do it for you. Real estate will build your portfolio for you.

Brent:
It’s absolutely right. It’s just, you got to start. You got to start, and keep that fire, keep that pilot light inside you that says, “I can do this. I can put this together. I can do this.” Two years ago, he was at bankruptcy.

Pace:
Yeah, well, I had somebody file bankruptcy on me, that owed me a million dollars in cash. And I was basically, I sold my rental properties I had at the time, to make sure my business was good. And I told myself, at that point, I go, “I’m going to stop investing my money in anything but real estate. I’m not going to buy watches. I’m not going to buy all these things that don’t appreciate in value.” And I jumped full time into real estate, long-term buy and hold. And I’m telling you, I could quit right now, but it is way too fun.

Brent:
Right? That’s it. And remember that goes back to making sure that the money that you make, you keep. I want you to keep 70 to 80% of every check that you get, and that should be your rule, so that you don’t get too crazy with your expenses, whether they be personal or whether they be business. 1700 people became millionaires today. Today, where on the calendar, find somewhere on the calendar, that’s going to be your day that you’re one of those 1700.
Because I am telling you, if you follow the plan, if you look at this, if you start sourcing opportunities, if you’re proactive, if you take this seriously, if you don’t listen to the naysayers, and the people trying to bring you down, or telling you that, “Oh, this is just one of those things that you’re into again,” whatever that is. If you put all that to the side, and stay in this world, squad up with people that are doing this, be around people that are more wealthy than you, that are doing more than you, that are just different than the people that may be holding you back, then you can do this. And you’re going to put, you’re going to mark somewhere on that calendar, and it’s going to be your day that you become, you have a net worth of over a million dollars. And that’s what we want.

Pace:
Thank you, bro. I appreciate you- [crosstalk 00:21:42].

Brent:
Thank you. [crosstalk 00:00:21:43].

Pace:
Thank you.

Brent:
Yeah. Thank you, guys. You guys are the best. I love you. Till next time. See ya.

Leave a Reply

Your email address will not be published. Required fields are marked *

Wholesaling