Rental properties have become a rampant source of passive income over time. Especially in this day and age where properties are used for almost any kind of business and people have been opting to live temporarily in places at a time. How exactly does this growing industry create long-term wealth?
In this episode. David Dodge shows us specifically how we can get off the transaction treadmill in real estate and the step-by-step process to successfully execute the BRRRR method. Along with the 5 major reasons why rentals can improve your cash flow.
If you’re interested in learning different strategies to utilize, then this is the episode for you.
Why I Love Rentals – Using the Brrrr Method to Create Long Term Wealth
Let’s face it. We all want financial freedom and security but few of us have been taught how to build long-term wealth while still earning an income. The truth is owning rental property is the best, most effective way to increase your income and build legacy wealth fast. On this show, you will discover how to take control of your finances and make your money start working for you. I’m here to show you how to build long-term wealth and cashflow while paying less in taxes through owning rental properties. Stop trading your time for money and get off of the transaction treadmill. Let’s get started.
In this episode, we are going to talk about rental properties and why you would want to own rental properties. Let’s jump on it. Why rental property? Rental property is a foolproof way to create wealth. In fact, I have been buying rental properties for many years and I love them. The first reason I love rental properties is cashflow. If you aren’t unfamiliar and don’t know what cashflow is, it is simply what’s left over after you collect the income or the rent from your rental properties, and then you pay all of the expenses.
The expenses might be a mortgage payment, maintenance, property management, it probably includes taxes, insurance and maybe CapEx. It depends on the property but after you collect your rent and you pay all your expenses, what’s left over is what we refer to as cashflow. The cool thing about cashflow is it is passive income. It’s taxed less than earned income. Number one, the reason why I love rental properties is that it kicks off cashflow.
Owning a rental property is the best, most effective way to increase your income and build legacy wealth fast.
Number two, it creates good debt. I don’t ever want to encourage somebody to go get into debt with credit cards, consumer debt or any other debt when you’re not buying an asset. When you buy assets with debt, it’s good debt. The reason it’s good debt is that someone else is paying off this debt for you. When I buy a house and I use the BRRRR method that I borrow, money to buy the house, I borrow money to fix it up, I go, get it rented and then I refinance. I’m typically in these deals for little to no money in the end but I still have debt. It’s good debt because the tenants are going to pay these properties off for me.
Number 1 is cashflow, and number 2 is good debt. We want good debt. In fact, I have a goal to create $100 million worth of good debt. It may sound crazy but that’s how we create wealth with rental property. Number three is leverage. I love leverage because that’s what makes the BRRRR method special. We are using other people’s money to buy the property and fix these properties up. I’m borrowing from private and hard money lenders. That’s it. It’s so simple.
I’m borrowing to buy and rehab. Once I get these properties rehabbed, I will go lease these properties out or have my property managers go lease these properties out. From there, I go talk to a bank, a credit union or a long-term lender that will refinance me out of these short-term loans with my private or hard money lenders. Other people’s money it’s leverage. That is the most beautiful thing about real estate. You can’t do that with other asset classes.
Number four is appreciation. Over a long enough time, real estate will typically appreciate. If you are looking at a month or a year, it may not go up over the course of three months but if you are in the game for the long haul, your real estate will typically appreciate. I’m seeing somewhere between 2% and 6% appreciation typically every single year and it compounds.
The next is the tax benefits that we receive from a rental property. When you own a piece of real estate, it’s a buy and hold or long-term rental property, and it can even be a short-term rental, too. A buy and hold a piece of real estate, every single year, you get to depreciate that property on your taxes. If you are unfamiliar, depreciation is a phantom expense. It’s an expense that you get to offset your other income on your taxes without having to spend that money. Every year you get to depreciate your rental property.
I love this right here because what it does is if you are a full-time investor like me, you can offset other income. If you have earned income, capital gains income or other types of income, you can offset the other income with your depreciation from your rental property. It’s an amazing strategy. Last but not least is the ability to create wealth. I have created millions of dollars worth of wealth in net worth by using rental properties.
Your money’s worth becomes lesser every day, but the value of a rental property always increases.
Here’s the thing about wealth. When you create wealth, you don’t have to pay tax on that. You only paid taxes when you create income. If you are focusing all of your time, energy, and efforts on creating income or increasing your income, that’s great. What that means is that you are also creating a lot of tax. The more income you create, the more tax you are going to owe Uncle Sam.
When you focus your energy and efforts on creating wealth, you don’t have to pay taxes on that wealth creation. You only pay it on income. When you create cashflow, that is income. However, it’s taxed as passive income, not as earned income. The most amazing thing about real estate is you get these crazy, amazing tax benefits when you are a buy and hold investor, and you focus your energy on owning rental properties.
Let’s recap. Why do I love rentals? I love them because they pay me while I sleep. They have allowed me to create time freedom, as well as financial freedom and an excess of $18,000 a month in passive income, which is taxed way less than the earned income. All of these benefits stack on top of each other. The cashflow is amazing. That’s number one.
Number two is good debt. Create debt that somebody else is going to pay off for you. Number three was leverage. I love leverage because it allows me to use other people’s money to acquire rentals. Number four is appreciation. Over time these properties are going to appreciate. They are going to be worth more. In nowadays’ economy, while we are printing all of this money, the government, the purchasing power of our dollars is decreasing.
Our money is worth less and less every day but with rental property, the value of the property increases. If you think about it over time, the ability to pay back the debt, even though the tenants, the ones typically doing it, becomes easier because the debt, assuming you refinance into a fixed loan, is fixed. It’s not appreciating or inflating with the rest of the market in the economy.
Number five is the tax benefits. There are literally hundreds of tax benefits. Depreciation is just one. The cashflow being taxed at a smaller percentage or a less rate than earned income is another. There are even more tax benefits from owning rentals. Last but not least was the wealth, the ability to create wealth without having to pay a crazy amount of taxes. About a few years ago, I literally stopped focusing my efforts and energy on creating more income.
Maybe not the cashflow in the passive income. That’s where I put my efforts but in terms of just creating income without the wealth behind it is something that I stopped doing. Now, I focus all my time and energy on finding rental properties that I can use the BRRRR method to buy. If you are unfamiliar with the BRRRR method, it’s very simple. It’s Buy, Rehab, Rent, Refinance, Repeat. It’s a simple strategy that we use to acquire these rental properties, which are assets using little to none of our own money.
I hope you enjoyed this episode and found a ton of value. If you are interested in creating wealth, the rental property, using the BRRRR method and achieving financial freedom in your life, go to WholesalingInc.com/rentals. Check out what the program is all about and schedule a call with my team. On the call, we will discuss your real estate investing goals and how BRRRR Method Mastery can help you get there. I would love to help you get started on your way to generating passive income and creating legacy wealth with rentals. Every single one of you is capable of success. More importantly, you are worthy of it. Thanks for reading.