Announcer: You’re listening to Real Estate Investing Talks, a SimplyDoIt podcast. Your journey to success in real estate investment starts right here, right now. Here’s Dani Beit-Or.
Dani Bei-Or: Alright, we are live. Thank you everyone for joining. I want to say happy Thanksgiving for everyone who is in the US. I know we have people that are not in the US. Obviously, happy Thanksgiving, and happy Black Friday.
The fact that you are online now maybe indicates that you’re not somewhere in some Black Friday line. I hope, for your sake. Even if you are, and you’re watching from some electronic store, that’s fine too. No problem.
My name is Dani Bei-Or. I live in California. I know we have people from California, from the east coast, from the European regions, so different time zones that we have here. Thank you for taking the time and joining me.
The main purpose of this session which we do every week on Friday at 11:00 a.m. is actually to have a Q&A session, so I am much more favoring you joining and with questions then me just talking about whatever topic I have which I always bring.
Feel free to ask questions related to the topic or somewhat not related to the topic. I hope you’ll keep it within real estate because I’m not sure how much expertise I have in other fields, so let’s not go too far from real estate.
I have my own topic for this week which, actually, is a session I had earlier this week that came from one of my investors as a request. I really like the way he presented the question.
I also like the fact that he asked something that I haven’t done for, probably, two or three years because I’ve done it multiple times in the past. The whole purpose of what he said is, “Dani, here is my goal. I’m 36 or 37. I have three kids. I live in Silicon Valley. I have a job, software engineer. My wife has a job as a software engineer. We make good income. We own our own home in–” I can’t remember: San Jose or Sunnyvale.
“We started investing with you. Everything is okay so far. We’re just starting our steps of investing. I had decided to take a step back for a second. My goal, when I get to be 50 which is somewhat of 13/14 years from now, I want to have a net worth of $5,000,000, but, I must say, my house is going to be worth that much by that time. I have some retirement money. Realistically, I want the real estate to be worth around three/three and a half million. How do we get to that point?”
I’m going to push aside the worth of this house. I’m going to push aside the retirement account. I’m going to target a $5,000,000 net worth 20 years from now. I hear it many times from investors in one way or another.
I see a lot of people want to get to that point, and I think the best way to get to that point of that net worth of whatever that number is. It could be a million. It could be two. It could be 10. In real estate, many times, it’s a building block. You need to decide how to build it, how to use it.
Of course, you’ve got a starting point. Each one of us has a different starting point in terms of financially, age, risk, etc., but I’m just going to lay out a general structure, and I’m not going to dive into the fine details of every transaction because it’s a little bit challenging at this level of what we’re doing here to really dive into the fine, fine, fine details, but at least we’ll have a general outline.
I want to start with this. My goal, as an investor, is to have a net worth of $5,000,000 in 20 years from now. Now, that means if I’m looking to have, I’m assuming, a $500,000 home free and clear in 20 years– so I need 10 of those houses. In order to get 10 of those houses, if I do the present value of $500,000, in 20 years, that present value today 20 years earlier is about $200,000. Remember, I’m rounding the numbers just a little bit. I’m not massaging them too harshly.
If I buy a $200,000 home today, in 20 years, it should be worth about $500,000. That means I need 10 of those homes to get that number. Let’s assume 20% down plus $10,000 in cost per home. That means I need $50,000 for that house, so $50,000 per house, 10 houses. That means I need 500,000 right now in order to accomplish that, so 500,000 in today’s value will get me to that point in 20 years. That’s really the basic formula. That’s where we start.
By the way, when we’re looking at those number of homes, if you take into consideration also 20 years worth of cash flow, on average, $200 per house after everything while you have a mortgage for the next 20 years, that also means in the next 20 years, you’re going to almost get to $500,000 just by accumulating all those cash flows. $200, 10 houses, 12 months, 20 years, will get you almost that cash flow that you need. Don’t forget about that as well.
Of course, the whole point is for those houses, when we get them to be paid off in 20 years or even sooner but not wait even 30 years, that means each one of those houses will probably generate net average cash flow of 1,350 a month. That’s also an additional cash flow that I will have coming from those houses, again, once it’s paid off in 20 years, so I will have the net worth of these houses and the cash flow.
If you really break it down, you can probably assume that even less than 10 houses will get you to that point because the cash flow will help build that additional reserve of net worth that you’re looking for. That’s something else you want to think about.
To get to a $5,000,000 net worth, if we’re doing some reverse engineering, you probably need about 10 houses. Each one of those houses will cost you, with 20% down, $50,000. You need about $500,000 to get to that point. The problem that I’m seeing from a lot of investors is, how do I get to that point of 500,000 if I don’t have it?
Let’s just say right now, you have 100,000, and you still need $400,000 more in order to get to buy all those houses. I have tackled that problem myself. How do I generate more cash flow in my life without having all the money that I need to buy the portfolio that I’m looking to build for myself? What do I do about it? How do I go about getting that money, assuming I work and I save?
Most of my investors who really follow that profile, they can probably save up about maybe the down payment for one house every year or so. Some are better than that. Some are not as good as that.
But let’s just assume that even the one that can save about $50,000 a year, that means every year, you will add another property and another property. That means it will be a little bit harder to get to that point of 5,000,000 in 20 years from now. You’re probably going to get there, but it may take a little bit longer or it will be a little bit more challenging.
How do you get to that point? I think the one challenge that most of us have is even if we understand properly that only 10 houses are needed and we need $500,000 to buy all those houses, I think that the challenge that most of us are having is how do I get more funds in order to buy more rental properties?
The way I was able to solve this problem for myself and some of my bigger investors that I work with is actually start flipping houses. The whole reason I started flipping houses for my own sake and actually offer other investors to do that as well was so we could finally create or build a short-term engine that generates short-term cash that helps build our rental portfolio.
On my end, the way I look at the flipping is, let’s do multiple flips, one after another, maybe two at a time or one at a time and let them roll for all the time, non-stop. Move from one flip to another, from one flip to another. That’s a multiple years kind of action plan.
Every flip brings in a little bit of a profit. Not necessarily a little bit, but maybe not enough to buy the next rental, but it’s half of a rental, then we do two flips. We get another half of the rental, and then we buy the next rental property, and we continue to do that.
The whole purpose of the flips was born out of a pure necessity. We have our job that is generating cash flow, and we have the flip engine that is generating cash flow for us. Then, together, we direct those proceeds from those two engines to buy more rental properties with a clear purpose to buy multiple rental properties so we can get to that net worth, in this case, of $5,000,000.
If that’s what you want to accomplish, maybe you need to modify the numbers to fit your needs. Maybe it’s not five, but it’s 10,000,000. Maybe it’s not five, but it’s 3,000,000. Maybe you have already about $2,000,000 saved, so you need just a million or two. I don’t know. Get that number, and we can try and work it in reverse to get to the point that we buy the number of properties.
By the way, it doesn’t mean that we’re all going to buy them immediately. Some of us have a little bit more experience and feel comfortable talking about 10 houses. Some of us have no experience and feel like what I’m saying here is I’m practically crazy talking about 10 houses.
It seems like a far-fetched, impossible task to do. I don’t know you. We’re all different. Some of you may say, “Listen. I live in the Bay Area. What are you talking about a $200,000 property? You are nuts. Even a mobile home in Mountain View doesn’t cost that much, not to mention a nice house.”
Of course, we’re not going to do it in the Bay area or the expensive real estate market. We’re going to actually do it in other states where those numbers are available and can be supported. That’s what I wanted to say about it.
I really like the fact that one of my investors asked me to do this exercise together with him. We had a long conversation two or three days ago. Wednesday. Wednesday morning. We talked about it in detail: if this is feasible for him, if this is something he can accomplish, what needs to be done. Kind of have a strategic discussion while also taking it to a more pragmatic level.
With that said, I’m actually done with what I wanted to talk about, so I would love to get your questions if you have.
While those questions are coming in, I just want to say, as a little token of appreciation, we have an ebook that I would like to share with you. It’s free. I’m going to put the link now. You’re most welcome to download the ebook. If you do, and you actually take the time to read it, it’s short, it’s sweet, it’s to the point, no bs. I would really love to hear your feedback on that ebook. That will be terrific.
I’m going to take questions. I see a lot of familiar names, and it’s great to see familiar names. Even some new ones. No questions are coming in. That’s fine.
Once again, we’re doing this every week on Friday at 11:00 a.m. Pacific time. Sometimes, it takes, obviously, 15 minutes. Sometimes, it takes even 45 minutes to an hour, really depending on questions.
I also want to say, for those of you that are actual SimplyDoIt investors on the rental side, we hold another session every week which is a closed session for active investors where we talk about whatever challenges you have in the process of buying, holding, analyzing, whatever, every week.
We hold it, actually, in the format of a conference call, so it offers a little bit of privacy or anonymity. It’s not an open public discussion like this one. We jump on a call for about half an hour to an hour. I take questions in advance, questions on the spot.
This is only open to our kind of inner circle or the active investors. If you are one of my investors and have not participated, we have a link for the recorded ones in case you couldn’t participate. We’ll share the link with you. Again, it’s password protected.
Hopefully, I’ll get to talk to you either in person, on your specifics, in general, in one of our sessions, live, closed group, whatever.
All in all, I want to say thank you, everyone. Have a terrific weekend. I hope you enjoy your Black Friday shopping. Who knows? Maybe you’ll get a nice deal on a good piece of real estate. Very good. Thank you, everyone. Have a terrific weekend. Have a terrific Thanksgiving weekend. Bye-bye.
Announcer: Congratulations. You are one step closer to success in real estate investment. You’ve been listening to Real Estate Investing Talks with Dani Beit-Or. To learn how SimplyDoIt can guide you through the real estate investment process and achieve nationwide success, visit us on the web at simplydoit.net. Thanks for listening.