Posted on: April 19, 2022
WI 932 | Rental Properties

 

Are you wondering how to increase your income, build wealth fast, pay fewer taxes, invest more of your hard-earned money and ensure a financially secure future for you and your family? Well, buckle up because Mr. BRRRR, David Dodge, is here to walk you through the beauty of investing in rental properties! So you can eventually build long-term wealth and achieve that freedom that you’ve been dreaming about.

How To Build Long Term Wealth With Rental Properties

Episode Transcription

In this episode, we are going to talk about how rentals can create wealth. We all want financial freedom and security. Although very few of us have been taught how to build long-term wealth while earning an income. I’m here to teach you exactly how you can increase your income and build wealth fast. Rental properties are a foolproof way of achieving these goals while also allowing you to pay fewer taxes, invest more of your hard-earned money, and ensure a financially secure future for you and your family.

Let’s learn how to work smarter, not harder. Let’s learn how to take control of our finances and make our money work for us. If you are here now, you have likely accepted the fact that nobody can become rich and stay wealthy by just working and trading time for money. It is time to shift your focus from short-term gains to long-term wealth creation.

In this show, I will teach you how to build wealth and create cashflow, all while paying less in taxes. Let’s get started, guys. We are going to talk about how rentals can create wealth. There are many ways that rentals can create wealth. The first thing I love about rentals is we are able to acquire rentals if we use the BRRRR Method, which is my specialty, my favorite thing to do about it, and my favorite strategy in real estate. We are able to acquire rental properties with none of our own money. We are allowing leverage to come in and help us acquire an asset with other people’s money.

Learn how to work smarter, not harder. Take control of your finances and make your money work for you.

I buy all of my rental properties with private or hard money loans. I borrow the purchase and the rehab. I pay cash for the properties at closing. I never use my own money. I always borrow the money to buy rentals. The beautiful thing about this is it allows me to go do 10, 15 or 20 of these simultaneously. That may sound crazy but I have fifteen rentals now that are somewhere in the BRRRR process. Either I’m trying to buy it and I have it under contract. I may be in the middle of rehabbing it or it is sent over to the property management team and they are leasing it, or it has been leased already and we are waiting for a refinance.

With rentals, we can create wealth by using other people’s money. We are not limited to doing one at a time. It is a business that is very easy to scale. Number one, we can create wealth by buying assets without using any of our own money or little to none of our own money. For those that do not know the difference between an asset and a liability, let me tell you the difference. An asset is something that puts money into your pocket every single month. If you own something that you think is an asset and it is not putting money into your pocket every single month, I have terrible news for you. It is not an asset. An asset puts money in your pocket.

A liability takes money out of your pocket. If you have a plane, a boat, an RV, a camper, a jet ski or a motorcycle, these things are not assets. These are liabilities because they cost you money to own, operate, store and manage them. They cost you money to pay taxes to own them in some cases. You probably have to insure these things that you might think are assets. In reality, they are liabilities. Everything you own that does not put money into your pocket is a liability. That is why I love rental properties because they are assets. They pay me to own them.

WI 932 | Rental Properties

Rental Properties: With rentals, you can create wealth by using other people’s money, and you’re not limited to just doing one at a time.

 

Number one, you have leverage that allows you to buy, control and add these assets to your portfolio with little to no money. Number two, they are assets, which means they are going to pay you to own them. Let’s break that down. When you own an asset and it pays you to own it, how does that work? You go buy a property, rent it out and you are going to collect more rent than it costs you to own it.

If you buy a property and it rents out for $1,500 a month and you only have $1,100 a month in expenses, that is a $400 surplus every single month that it is rented. That $400 is what we refer to as cashflow. It is the most beautiful thing because if you get good at creating cashflow, you can achieve time freedom and financial freedom. You are getting paid while you sleep. That is why I love rental properties. Leverage is number one. Number two is the cashflow because these are assets.

Number three is it’s a good debt. I know there are probably some people out there that are thinking, “I do not want to get into debt and own this property. That seems risky.” You are going to have to manage this property or you can hire a property manager to help you do that. That is going to come with an expense, but the cool thing is you are creating debt that I like to consider good debt. It is not bad debt.

An asset is something that puts money into your pocket every single month. A liability takes money out of your pocket, and it costs money to store or manage it.

What is the difference between good debt and bad debt? Good debt is debt that somebody else is going to pay off for you, whereas bad debt is debt that you have to pay off. Good examples of bad debt would be buying that boat, plane, RV or jet ski. I love that example. If you are buying these things or financing these things and you are not paying cash, you have bad debt. You have to pay that back yourself. You have to trade your time for money and make these payments. With rental properties, somebody else is paying off this debt. Those are the tenants. The tenants are the ones that are paying off the debt. That is an amazing reason to get into a lot of good debt because over time, somebody else is paying that debt off for you.

We talked about leverage, cashflow and good debt. There are more reasons why rentals will create wealth. The next is one of my favorites. It is tax benefits. There are immense and massive tax benefits to owning real estate. You are able to depreciate a property every single year on your taxes for every single property you own.

You can depreciate it, which is a phantom expense. It goes into your taxes as if it was money that you had to spend, even though you didn’t have to spend any money. That depreciation will allow you to reduce your taxable income. If you are a full-time real estate investor like me, you can even offset other income, which is amazing. I barely pay any taxes which is crazy. Here is the coolest part about it, it is all legal and that is the most amazing thing. The tax benefits are phenomenal.

WI 932 | Rental Properties

Rental Properties: Bad debt is debt that you have to pay off, whereas good debt is debt that somebody else will pay off for you. With rental properties, the tenants are the ones that are paying off the debt.

 

With rental real estate, if you own it for a long enough period of time, it should appreciate. If your time horizon is 1 or 6 months, you may not see appreciation. If you have a long-term mindset like I do, 10, 15, 20, maybe even 30 or 40 years, in theory, the properties that you buy and own are going to appreciate, especially with our current times of inflation. I believe 2021 was about 6.8% inflation. What that means is that everything is going up. The cost to buy everything is getting higher.

If you buy real estate and wait, do not wait to buy real estate. Buy real estate and wait. Over time, it will appreciate. Not only are you getting appreciation for the value of your real estate and your rentals, but you also get to depreciate them on your taxes, which means you have that phantom expense. It is like a double whammy. You are appreciating them because they are going up in value while you are simultaneously depreciating them on your taxes. It was just on paper and it is a double whammy.

Last but not least, how rentals can create wealth, and this is my favorite thing about real estate in general. You do not pay tax when you create wealth. You only pay tax when you create income. If you are creating $300,000 or $500,000 worth of wealth in terms of equity by buying properties at discounts, rehabbing those properties, renting them out and refinancing them. That is the BRRRR Method that I like to do.

You do not pay tax when you create wealth. You only pay tax when you create income.

Let’s say you do this to a property and you create $30,000 worth of extra value. You captured $30,000 worth of equity. You go and refinance that property, you pay back your lenders and hopefully, you have none of your own money invested into this deal. You do not have to pay taxes on that $30,000 worth of equity that you captured. You only pay taxes when you have an income or you are creating income. That is the beautiful thing. My goal is to create $300,000 to $500,000 a year in wealth because it does not increase the amount of taxes that I pay.

Another way that we are going to be able to create wealth. This is a couple of these things mixed together, but whenever we are getting into cashflow, which was the first or second thing I talked about. The cashflow when it comes to taxes is considered passive income. It is an income that we did not have to trade our time for. The asset itself or the property itself generated the income by having a tenant there. Not only are we creating additional income over our expenses, which is our cashflow, but we are also paying less in tax on that cashflow than we would if we traded our time for money.

Rental properties are the best way to create wealth. You have cashflow and debt that somebody else is paying off. You use leverage when you buy it and when you refinance it. I do not like using my money to buy any property. None of them. You have massive tax benefits on the cashflow being taxed less than earned income, as well as the ability to depreciate the property on paper every year on your taxes, all while the property over time will appreciate in value.

WI 932 | Rental Properties

Rental Properties: There are massive tax benefits to owning real estate. You can depreciate a property every year, and that depreciation will allow you to reduce your taxable income.

 

Appreciation of your assets and rentals is not something that I ever factor into my numbers when I’m buying it. It is always icing on the cake. I don’t bank on the appreciation. The cool is if you have a long enough time horizon as I mentioned, 5, 10, 15, maybe 30 or 40 years, it is almost impossible for these properties that you are buying now to not be worth more, especially because we have inflation. It is not something that I’m banking on when I buy properties, but I know that over a long enough time horizon, I also get to take advantage of that appreciation.

Rental properties can create wealth in many different ways. The best thing is I’m not spending my own money to add these rental properties or these assets to my portfolio. I’m borrowing the money not only to buy it but also to rehab it. You can too. You rent that property out or you do like me, and you hire property managers that manage the leasing and the tenants. They help you with that.

You go and talk to a local banker or a local credit union. You refinance that property, which pays back that private lender for the purchase, rehab, holding costs, and interest that I owe them to borrow it in the first place. The result is that I get to add an asset, something that adds money to my bank account or my pocket every single month. I’m adding an asset and I’m using little to no money to add that to your portfolio.

You can create wealth. You are not taxed on that wealth, and you can create income that is taxed even lower all while over the years, the amount of debt on that property is being paid off and reduced every single month by somebody else. Over a long enough horizon, the value of that property is increasing ever so little every single year. It is amazing. I love rental properties. The conversation continues over on WholesalingInc.com. Go over there and check it out. Thanks for reading. Get out there and buy some assets.

 

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About David Dodge

David Dodge is a real estate coach, author, and investor with over 17 years of experience. David specializes in using the BRRRR Method to acquire Rental Properties with NONE of his own money and has taught others how to generate passive income using his systems. He’s also the co-author of the book “The Brrrr Method” and currently has over 90 properties in his rental portfolio with a goal to grow to over 200 properties in the next 24-36 months.

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