Build Passive Income with Autopilot Assets
Hey Empire Builders,
Welcome back to the Rise Up Live Free newsletter. Today is likely the topic of conversation that you've been waiting for, my friends. Most people come into CashFlow Tactics because they want to get involved with investment real estate.
We're going to cover that topic today, and it’s the third gear in the Passive Income Machine. We call it Autopilot Assets. Last time I shared how you can be in the business of banking using your own vault. We’re going to dive into how you can really accelerate your Passive Income Machine when you pair the vault with real estate.
Today in 10 minutes or less:
- “Son, you’re in some trouble….”
- What the rich don’t do
- Instacart real estate?
- Keep hitting singles
When I first started on my journey to become financially free, I knew real estate was the pathway to do it. But I had no idea how to do real estate! I read Rich Dad Poor Dad by Robert Kiyosaki, and I went and bought my first piece of real estate.
And I kind of walked around with my chest puffed out thinking, “I'm a real estate investor.” But I’ll be honest, I had no idea what I was doing. By my second property, that started to become very evident.
By my third property, I had a serious, full-on panic attack!
Now, why did this happen? Because the way I was acquiring real estate, I was doing the opposite of what it required to become financially free. And by the time I bought my third property, I realized I actually had a part-time job with my real estate, from acquiring, rehabbing, managing and dealing with tenants. And I was further away from my dream of achieving Financial Freedom. I still worked my full-time job as a medical supply salesman and had added this part-time job!
With my third property, I spent hours and hours renovating it and getting it ready to rent. I held an open house, and I found a prospective tenant who was willing to pay me an extra $5,000 as a down payment on the rental property, plus a couple hundred dollars more per month in rent!
His application was full of red flags, but an extra $5,000?? I thought to myself, how bad could it be? So I let him move in.
Over the following months, I realized how just hard it is to manage property with a difficult tenant.
One day I was in Rapid City, South Dakota, selling hospital beds to a boardroom of medical practitioners and hospital administrators. All of a sudden, my phone started ringing, over and over. Every time it rang, it was from the same area code, but a different number. I excused myself from the boardroom and started listening to my voicemails.
And I had voicemail after voicemail. Some from my tenant's spouse (who was crying and saying, “Please don’t evict us”). I had a voicemail from my problem tenant who was belligerent, yelling and screaming. I had several voicemails from neighbors surrounding this property.
And then I had a voicemail from a police officer saying, “Son, you're in some trouble. You better give me a call.” 😬
So I called the police officer and I found out that my tenant, who I should have evicted months ago, had actually shot a neighbor's cat, in broad daylight in the middle of a crowded neighborhood. And the neighbors around my property were threatening to sue me!
My friends, I found myself in a very difficult situation. I again wanted to melt into the corner of that hospital hallway that I found myself in. And I realized I might be on the precipice of failing in my finances yet again.
I had failed in my 401(k) and all my previous pursuits. Now, just a few years into my real estate pursuit, I was facing the possibility that I could not actually do real estate. In fact, every step I was taking down this path was leading me further away from what I actually wanted to do!
A New Perspective
Fortunately at this time, I had a coach and a mentor who was helping me. And I went to this individual and said, “I've got a problem. You told me that I needed to buy 20 properties to be financially free. And now I have a whole job doing real estate.”
From the beginning, I wanted to own real estate, but I never wanted to be a landlord. I never wanted to manage properties. I never wanted to be on call to fix toilets and deal with tenants or termites.
He sat me down, and we had a very powerful coaching conversation. He helped me get clear and rearrange my perspective yet again.
He said, “You figured out step 1. You understand that you cannot save your way to Financial Freedom. You've got your vault set up and you're buying real estate. Good job. But you've missed lesson 2 in using real estate to be financially free.”
He explained that in the book Rich Dad Poor Dad, Robert Kiyosaki (a personal friend of my mentor) taught that the rich don't work for money. And he asked me what I thought this meant.
I'll be honest with you, I had no idea. I was working very hard for every dollar that I got. I didn't understand how the rich don't work for money.
And so he opened up a concept for me that changed my trajectory.
He said, “Look, most people actually get this wrong. In the pursuit of Financial Freedom, they end up creating more active income and they don't actually build passive income.”
He helped me understand that passive income is not a side hustle. I actually had a side hustle in real estate. That’s not actively investing. You cannot trade your time and achieve passive income. And trading more time for money was what I was doing. I had a part-time job in real estate now.
He said, “Passive income is building a system where you do the work one time and then you get paid over and over and over again without investing more time. In fact, Warren Buffett even said that if you don't figure out how to make money while you sleep, you're going to work until you die.”
Now, my friends, I understand how to work hard. I'm not afraid of hard work. And I bet you've always been a hard worker.
But I ask you to consider how to work smarter as it pertains to real estate. You cannot actually achieve Financial Freedom trying to do all of the work in real estate yourself. But there is a concept in real estate that you can tap into. It’s called turnkey real estate. Or what I call Autopilot Assets.
Autopilot Assets
The people that I now buy real estate from specialize in real estate--they’re experts in it. They find good investment properties. They look at a property and can tell the after repair value. Maybe it’s $100,000. And maybe they’ll offer $65,000 because it will cost $25,000 for rehab and repair, and after they buy the property and do the repairs, they'll be all in for $90,000.
They can then turn around and sell this property to me for $100,000, the after repair value. Their profit in this example will be $10,000.
I can look at all the renovations that have been done, the scope of work, and I can run my own numbers and determine whether or not this property meets my criteria. I can choose to buy a property that was a big mess that is now a nice, tidy house with things like new floors, new paint, new kitchen and a new roof. It's now rent ready.
I can then forecast the property’s income and expenses over a 10-year period of time. Remember, we're building a 10-year game plan.
And if I'm doing this right, I can have a property management agreement in place where they will actually manage the property on my behalf. No more having to deal with tenants, toilets and termites myself!
Once I close on the property, they tell me when my first tenant is ready to go and when rent has been received. And then I just check my bank account to confirm that the rent actually showed up in my account.
My friends, this is actually the process of achieving Financial Freedom. Someone else is going to do the majority of the work. This is what it means to work smarter, not harder.
Now, if I bought the property at market price, what is my actual profit in this example?
Well, when I buy a turnkey property, my profit actually happens over time. I get everything I want just by holding the property over a 10-year period. I acquire a property, I automate a system, I hold on to the property and I'm going to profit over time.
Here's how I'm going to profit through multiple profit centers:
My property is going to generate a stream of cashflow over the coming months and years.
I'm going to own the property, which means I get all of the tax advantages.
The tenant is going to pay the mortgage down for me through the rent that they're paying.
I get to harness the market appreciation.
Equity will grow over time.
And a major source of my profit long term? I can do a cash out refinance to pull cash out of my properties, and that cash is 100% tax-free.
I’ve bought dozens of turnkey properties myself, and I've watched over 3,000 transactions by other investors within our community. On average, these properties have an annual return on investment somewhere between 20-50% when you add up all these profit centers. These are the kind of returns you need to generate Financial Freedom in 10 years or less. And that’s why real estate in the 4 Pillars is so powerful.
The ultimate profit that I get is this--
I get to own and control my TIME.
I get to have someone else work for me.
I manage a system, and I get to do everything I want along the way.
My friends, Financial Freedom is actually measured with cashflow and experienced with time freedom. It's cashflow greater than expenses, when you build a system that allows you to own and control your time. Once I learned this, everything for me finally slowed down and I saw the entire game differently.
Instacart Real Estate?
Imagine this--what if you could Instacart your first or your next piece of real estate into your portfolio?
How does Instacart work? Well, it’s like this. I like to travel a lot. When I go somewhere new, say I want to buy something from Whole Foods. I open up the Instacart app and choose the store. I add the groceries that I want to my cart. I then pick a delivery time, check out and let the driver bring them right to me.
This is exactly the process of turnkey real estate, or Autopilot Assets. Up until a few years ago, this was a relatively new process. But in the last several years, technology has flattened the earth. We can now meet face-to-face on Zoom and work from anywhere. The same concept applies to turnkey real estate.
You can tap into localized real estate expertise. Your turnkey provider is going to find the investment property, complete the rehab and make the property rent ready. You then are going to step in and fund the acquisition. You want to own the property so you get all 4 Pillars (appreciation, cashflow, tax benefits and leverage).
Your turnkey team will qualify and secure the tenant. They will collect the rent on your behalf. They're going to respond to and handle repairs. They're going to deal with late rent and evictions. (Thank goodness it won’t be me!)
And you are going to manage a system. I get to manage my portfolio via expectations and communication with my team.
This system allows me to live where I want (for me, that’s Utah) and invest anywhere the numbers make sense. In the beginning I was buying in Utah, but then I started buying in Arizona, Texas, Tennessee, Florida and all over the country.
Turnkey providers bring the investment properties directly to you. You do none of the hands-on labor, you do not have to manage the tenant and you can invest from anywhere. And you build a system that is your path to controlling your time and achieving Financial Freedom.
Your key to winning in this scenario is knowing which type of turnkey properties to acquire. And you’ll be glad to know we spend a lot of our time opening up our network and helping other Empire Builders apply this exact system in their own lives.
For most people, the fastest way to achieving Financial Freedom is with the most boring type of real estate--and it’s hiding in plain sight! It's a simple, single family home, generally 3 bedrooms and 2 baths. This type of real estate is the most boring but most profitable path to real estate success.
Why? Well, because you already have the expertise. Guys like Grant Cardone play up the big types of commercial real estate. But we want to simply focus on buying 20 single family homes.
I call this, hitting singles.
Keep Hitting Singles
Remember the movie Moneyball with Brad Pitt? It was all about the Oakland A's, who simply focused on getting on base. That was their entire strategy to winning and going up against the big boys--by just getting on base.
In a baseball game, if you get up to bat and all you do is hit a single, that's not too exciting. But now you're on base. And then if the next batter just hits another single, then the first runner advances from first to second base, and now we have 2 people on base.
And if the next batter hits another single, it may not seem exciting. But now the bases are loaded and the next hit drives in a run. And every subsequent hit after this just drives in one simple, boring run, one after another. Keep hitting singles.
And that’s how you win. This is how to achieve Financial Freedom.
You already have expertise in the single family game because you know what a good single family house looks like. So the framework for the Passive Income Machine is to buy the right real estate, with the right team, in the right area.
And then you just hold onto it. You’re going to use a 30-year fixed interest rate mortgage (or sometimes a 40-year fixed mortgage). You’re going to buy with a turnkey team who has a vested interest in your success, meaning they're part of your team ongoing.
You’re going to let inflation, taxes, interest rates and everything else work for you. (Imagine getting wealthy by holding an asset that actually goes up in value because of inflation, that works with you rather than against you.) You harvest profits and store those profits in your vault. And you're going to repeat that system.
If you don't believe me, believe Warren Buffett. He was interviewed by CNBC in 2012 and he explained that, knowing how hard it's been to build up Berkshire Hathaway over the decades, if he could go back and do it all over again, he would probably just buy single family homes--a couple hundred thousand single family homes--as his path to building wealth. And he would want them to have 30-year fixed mortgages.
And consider that as the population goes up, as real estate becomes more and more in demand, the one type of home that has been consistently underbuilt for the last 20 years has been single family homes. These are in so much demand, it's crazy.
People are looking for good homes to live in and to raise their family. And we live in a renter nation anyway, with 41% of the population renting. They're looking for nice single family homes in good neighborhoods.
My friends, this is your framework for achieving Financial Freedom.
Julie L. joined our group over 5 years ago. She was working in real estate professionally, but she had never heard of these single family turnkey homes. She had a good income, but she was not financially free.
She shifted her focus to building a Passive Income Machine. She started building a cashflow portfolio. And today, after 5 years of implementing her game plan, by building a single family portfolio along with her vaults, she travels the world and lives a purpose-driven life.
She started this entire process 5 years ago with the goal to retire her husband from Silicon Valley and to then live a more purpose-driven life. And she’s doing it. And so can you.
My friends, you now have all 3 gears of the Passive Income Machine:
Becoming an Empire Builder
The vault
Autopilot Assets - building a portfolio of 20 single family homes
Next time I’ll discuss the 4 phases of your game plan on your path to Financial Freedom. I hope you’ll join me.
RISE UP, so that you can LIVE FREE.
Ryan D. Lee | CashFlow Tactics
