Real Estate Investing: Episode 3

Jason Bramblett Real Estate Show Podcast 

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Jason:  Good morning, Triad. Welcome to Triad Real Estate 911 and also the Jason Bramblett Real Estate Show.  I hope everybody is doing fantastic on this Saturday morning.  It is hot.  It is humid.  It is the south. It is what we love.  Well, not really, but it is where we live.  It is what we have got to deal with.  Right?

Mikell:  Absolutely.

Jason:  So last week we started a little series that we are doing on real estate investing or just investing in general.  Of course, I have a little real estate spin to it. Obviously, being a real estate guy.  But I am just going to walk you down that path, and we are going to continue that for the next several weeks and teaching you really some of the things just to be aware of.  I am not really going to teach you how to do it, but I am going to give you some principles that work.  They are proven and I have watched them work not only for myself but other people that we have worked with and buy a lot of real estate.  So, last week we kind of broke down the why, and we are going to continue to move through that each week.  We are going to tackle a step, if you will, every single week.  So if you missed a show, you can always go to Jason Bramblett dot com, click on our blog and the radio show notes are there, but also the streams.  You can listen in.  So you can listen and read at the same.  Hopefully, those match.  It would be good if they did.

Mikell:  Yeah, there you go.

Jason:  It is always a plus when the words match the audio. And hopefully that is the case.  It should be.  And then you can always fact check me and send me those wonderful emails I get.  Right?  Which we love.  Keep sending them because hopefully we learn from those and we get better each and every week.  Reasons for investing. It is very, very important to know why.  Why you want to invest.  What is the purpose behind that?  And most investors that I come across or that reach out to us for the first time fall into probably looking for the quick buck type investor.  Okay?

Mikell:  Absolutely.

Jason:  This is the group of people a lot of people call flippers.  Right?

Mikell:  Right.

Jason:  There are a lot of seminar guys that get you into the hotel or wherever they are sending you, and they are there to sell you a product or a system or something.  How to flip, and they love to use this term other people’s money.  It works.  They fill them up.

Mikell:  It does.  I have been to one.

Jason: They have been doing that forever. 

Mikell:  If you want to make $50,000 or $100,000, come here.

Jason:  In your spare time. Because that is all anybody has got. Spare time. Right?  There are actually those little signs that they put out on the road, they are called bandit signs.  You will see the ones that are on the corners and they will say part-time investor needs apprentice.  Make between $50-100,000 a year. That is a big swag.

Mikell:  Wow.

Jason:  Think about that.  If you went in to apply for a job and they said look, we have got a great opportunity for you.  You can run this forklift and we are going to pay you between $7 and $21 an hour, but we will let you know what we are going to do.  Right?

Mikell:  Wait a minute.

Jason:  It is a pretty big swag.  Right?

Mikell:  Yeah.

Jason:  Most people are going to be like wait a minute, I would like to have something a little bit more with confidence behind it.  Right?

Mikell:  There you go.

Jason:  I would like to know what that check is going to look like at the end of the month.  It is kind of that way with there are these enticing things to draw our attention, but house flipping, it has been going on for a hundred years.  HGTV just really put it on the map.  Now I do not even know how many shows are on HGTV about flipping and flopping houses, but it is a lot. 

Mikell:  At least 4-7.

Jason:  Yeah, it is a bunch. It is like the Food Network.  Ninety different ways to cook chicken.

Mikell:  Absolutely.

Jason:  Everybody has got something.  It is not bad.  And really, it is just not great either.  It is good, but not great to flip a home. And the reason being is it is really the same reason that real estate sales is good but it is not great.  And the reason being is once you flip the home or once you sell the house, you are out of business.  You are back to zero. Right?

Mikell: Right.

Jason:  And you have to start that process all over again.  We do it every single day.  We sell people’s homes. They hire us to provide them a service to market their home to get them as many options or offers that they can possibly look at in whatever time period that is. But at the end of the day when we sell that home, they do not need our services anymore.  So therefore, we have to go find new people.  We have to keep going out there and finding new people to sell their homes, to provide that service to them. It is not bad.  It has actually been really, really good for us. But it is not great in that –

Mikell: Right.

Jason:  -- it does not repeat itself. When you look at an investment, you want to invest in something that is great. The best thing that you can invest in to start with is you because there is only one of you. You are unique, so the best place to start is pouring in as much information and education in a positive way that you possibly.  I listened to a podcast this past week.  Jim Rohn, one of the most famous guys out there.  Just a humungous mentor.  When he was 25, he would wake up in the morning, get a cup of coffee and read the paper.  It was all war, break-ins, just horrible things.

Mikell:  Nothing positive.

Jason:  Nothing positive.  And then he goes then I would read the back page and look at the obituaries.

Mikell:  Obituaries.  There you go.

Jason:  He was like how do you think my day went?  Right? Because it started off with negativity.  It started off with things that are not positive.  I have a rule that myself, I do not touch my phone for the first two hours that I am awake.

Mikell: Wow.

Jason:  I will deal with whatever is in that thing after I get myself in the proper mental frame to deal with whatever may be on there. Good, bad, or indifferent.  It does not matter.

Mikell: I like that.

Jason:  I am not going to take the risk of derailing my day and dealing with something that could be negative right off the bat. Whatever it may be.  It may be a newsfeed.  It may be a real estate agent.  It could be a family member, but I am going to get myself in the right frame of mind and positively ready to deal with whatever comes my way.  The really cool thing about that is when you can get rid of that phone and put it to the side, all that stuff, and you really get your mind right, man, this stuff it is not even difficult.

Mikell:  Not at all.

Jason:  It is not even difficult to do.  Now, I know some of you will say but my phone is my alarm.  Well, go buy a $3 alarm. Get an alarm for your bedroom and throw your phone as far away from you as you can, and that way it is not the first thing that you go to in the morning.

Mikell:  Well, honestly, you can just hit stop and then walk away.

Jason:   That is right.

Mikell:  That is not hard either.

Jason:  It is all habit and behavior. And think about this. It takes 21 days, they say, to create a habit.

Mikell:  Absolutely.

Jason:  It takes a lot longer to break one.  Especially one that you are as addicted to it as you are like your telephone.  Right? 

Mikell:  Yeah.

Jason:  Because it is not the device. It is the feeling that it gives you. Right?  Because you look on Facebook and you are like wow, so and so is my friend, and so and so is an idiot.  And so and so is really cool.  Anyway.  How does that apply into investing?  It is coming up with a game plan and you have to have the right mindset.  You have to have the right plan in real estate investing and investing in general is the same.  It does not matter if it is real estate, dog houses, widgets.  It does not make any difference.  You have got to have the proper plan.  So if you get into sales and you flip homes, so when you sell it you are out of business. Right? You have to start it over.  It is really the product. It is not long lasting. Right?  Because there is a finale to it.

Mikell:  So how do people consistently flip houses?

Jason:  Well, the interesting thing about consistently flipping homes, you are on a treadmill.  Right?

Mikell: Okay.

Jason:  You can never stop it.

Mikell:  Right.

Jason:  Where is, and what I wanted to get into and we will talk about is the real way to create wealth is not through buying a product and flipping it or selling it or whatever.  It is actually when you create an asset and you have an asset and you hold it.

Mikell:  Right.

Jason:  If you hold that asset for, well, you can hold it for infinity.  It makes no difference.  As long as it is returning capital to you and returning revenue to you, why would you ever want to sell it?  Right?

Mikell:  No, not at all.

Jason:  It does not make any, sometimes you sell them because things happen maybe in your life or maybe there are shifts that happen in geographical locations where this location was good 20 years ago and now it is not so good and the city has changed and all those things. But holding it for 20 years, that is pretty good. That is not bad. Most people have about a 4-second timespan that they think about, so 20 years is like eternity.

Mikell: That is forever.

Jason:  The power of accumulating over time is huge.  That is, most people that are flipping the home, they can make the now money, if you will, but again, the now money, there is nothing wrong with it.  I know people that do it for a profession. But really what you have created is a job, not an investment.

Mikell:  Okay.

Jason: All right.  So that investment, because you are getting rid of it every well maybe 30 days or however long it takes you to do.  Keys to investing really is to get assets that pay you money in which you did not have to do any work for. That is the type of asset class that you want to create. So if you go to work every day, and most of us do, this is what we call earned income. I did a task. I got paid. I did something. I got paid. I added value. I earned income.  That is what you did.  You earned it.  What we are looking for is an income called passive which means I did no work at all and the income came in.

Mikell:  Absolutely.  I could be sleeping, and I still get this money.

Jason:  You could be sleeping, and it would show up in your what used to be your mailbox. Now it is your telephone. Right?  As long as it hits your bank account –

Mikell:  There you go.

Jason:  -- it doesn’t matter.  Right?  But that is the type of goal that you want to establish for yourself to create assets long term that deliver passive income.  This is where why wealthy people pay almost zero to no taxes.  The highest tax rates in America are for earned income.  Employees.  People that work.  They pay the most taxes out there. They may not pay the most in total money, but they pay the most in total percentage of their money.  Most people do not realize that every time they get a paycheck they have this person, there is a silent partner in there. 

Mikell: Unfortunately.

Jason:  And that silent partner is FICA –

Mikell:  Yep.

Jason:  and the I, the R, and the S.  Right?

Mikell:  And they just wrap it up and call it your favorite uncle.

Jason:  Your favorite uncle.  There you go. I had hired a young person for the first job that they ever had and an interesting thing happened.  They came to me. They got their first paycheck and they said I do not want, I would like to opt out of this FICA thing.  I really do not want to do that.

Mikell:  Wouldn’t we all.

Jason:  I said, yeah, that is not insurance.  That is called taxes, and they are not optional typically.  That is why they get their money first.

Mikell:  Absolutely.

Jason:  You have lots of different things to think about.  Passive income is something that you really want to home in on.  It is really what you want to concentrate on.  I know we are taught differently.  We are not taught this.  We are not taught how to think wealthy.  We are taught how to become an employee.

Mikell:  Absolutely.

Jason:  If this sounds familiar to you, go to school, get a good job, get or stay out of debt, save money, and everything will be okay.  And I will promise you that is not the truth. I have sold many, many, many homes where people did just that.  They had a good job.  They saved their money and everything that they ever had was stuck in their house. So they had no real assets and they had nothing that was going to pay them.  The only asset they had was a paid-for house, which they found out really wasn’t not an asset because they found out there was still this thing called taxes and insurance they had to pay.

Mikell:  Absolutely.

Jason:  Unfortunately, they get to the end and there is not enough.

Mikell:  So let me ask you this.  Would you suggest to someone who maybe kids have gone to college or moved out of the house for them to get tenants maybe?

Jason:  I am all in favor of other people paying for your stuff.

Mikell: Okay. Okay.

Jason:  So yes.  Now you have to check your zoning and make sure your neighborhood and all this stuff.  Make sure it is legal.  You cannot create a boarding house maybe in some neighborhoods. Right?

Mikell:  Okay.

Jason:  But you can have roommates.  And of course, roommates can contribute. We have sold many homes to young, ambitious college folks that they bought the home, they got two or three roommates, and they lived there for free, and they owned the house.

Mikell:  Wow.

Jason: That is a very, very smart move in my opinion if you do not mind living with people.  Right?

Mikell:  Absolutely.

Jason:  There is a trade-off there. Right?

Mikell:  There you go.

Jason:  Someday, well hopefully, they will probably graduate in less than five years or seven or whatever the track record is now, but if they keep that home, it will become a great rental property.  And that rental property is passive because other people will be paying for it, which is what you want to do.  You want to create that.  That is how you create wealth.  A lot of people get mad at the wealthy people because they do not pay their fair share in taxes.  Well, they do. They just get their income from a different source, and the tax rate is actually favorable to them.  Right?

Mikell:  Right.

Jason:  So you pay more when it is earned income.  But if I do not get any of my money, or any of my money comes to me from earned income, it comes from passive, and I pay the tax rate that I am supposed to pay on tax, I am following the tax code, and I am actually using the system exactly how it is designed.  The system actually is designed to create jobs and to give benefit to people that create jobs.  And when you do that, you pay lower taxes. But when you go out and you just get a job and a check, you pay a very high percentage of your income for that, I guess, type of income status, if you will.

Any time you can move, and here is the thing. The tax code actually is really favorable to big companies, people that are investors, and those things.  So copy that.  Figure out a way to shift your income.  You have to have earned income to keep your head above water, but stop increasing your lifestyle and take your money to buy assets that can become passive, and then someday down the road, you will not have any earned income, and therefore you will pay a very, very low tax rate.  I think it was Mitt Romney, I believe, when he was running for President, he paid several millions of dollars in taxes, but his tax rate was only like 13%.

Mikell: Wow.

Jason:  And people were like well, that is not fair.

Mikell:  Yeah, they were upset.

Jason:  But he is not earning income like you are. His income is passive from investments.  Your income is earned, and it is taxed at a very high rate. If you would switch your, the money that you receive to passive, you could be in the same 13% or whatever it is. It is not that the rich do anything wrong.  It is just that they do things differently.

Mikell:  If you think about it, passive income is not as guaranteed as earned income would be, if that makes sense.

Jason:  It can and it cannot be.  Right?

Mikell:  Okay, that is true.

Jason:  It can be somewhat guaranteed if it is diversified, but there is nothing 100%. Right?

Mikell:  Right.

Jason:  Other than taxes.

Mikell:  Yes. Yes.

Jason:  That is it.  So there are things that can be, there is still risk in most things. But if you build it right, then you can minimize the risk. We will talk a little bit about that.  Let’s do this.  Let’s take a quick timeout.  We are going to go pay some bills.  You are listening to the Jason Bramblett Real Estate Show.  We are going to take a quick timeout.  We will be back in just a minute.

And welcome back to the Jason Bramblett Real Estate Show.  I hope everybody is doing well.  So before the break, we were just kind of digging into different types of income.  You have got earned income, passive income, which one is better.  Well, I think most would agree that passive is good because passive means I did not really do, not that I did not do anything.  I just physically did not have to get out there and do something. Right?

Mikell:  Absolutely.

Jason:  I had already done it.  I had purchased an asset or I already invested the money.  Now I have this income coming to me which does not take my sweat, if you will.

Mikell:  The sweat equity is working for you.

Jason:  There you go. The sweat equity is working for you.  You have got to understand a little bit about money, too, and one thing that is interesting that I have noticed about wealthy people is they do not save money.  And the reason why is because they understand what that paper is.  If you read it the definition of it is currency. And currency is it needs to move. It needs to be active. It needs to be engaged.  It needs to be pushed out into the economy.  Basically, it is product that we use to exchange something of value.  Right?  We give currency, this note, this paper, and people either perform a service or give us food or do something.  Right?  But if it just sits, it is actually worthless.

Mikell:  So let me ask you this. I am a homeowner.

Jason:  Yeah.

Mikell:  And, of course, it takes maintenance to keep up a home.

Jason:  It sure does.

Mikell:  Instead of saving it in a savings account, I invest it? Or do I save it?

Jason:  No.  There are two terms there. So you could be calling it an emergency fund.  We call it a sinking fund.  There are things that are going to be happening.  So basically by putting that money in an account, you are preparing for the end.

Mikell:  Absolutely.

Jason:  Eventually, the heating and cooling system will need to be replaced.  There are two ways in which you could do that. You can take that dead money essentially and park it and be prepared for when that happens, which is, in my opinion, the right thing to do. 

Mikell:  Okay.

Jason:  Or you have no plan, and the only way you can get that fixed is through using Mr. Visa or AMEX or whatever.

Mikell:  Oh, yeah, that is bad.

Jason:  Then there is really dead money, dumb money on that because now you are paying interest.

Mikell:  Absolutely.

Jason: So even though the money was not earning anything, it also was not costing you interest.  Right?  So you do need to have a sinking fund or you do need to have some money set aside for things that we know are going to happen.  Right?  Mama used to call it a rainy-day fund.  You need to have money sitting aside for things that are coming along and things that are going to happen.  But just to save to save, you will never accumulate enough to make it.  Inflation, everything, by the time you save today for 30 years from now, the math does not work.  And 30 years from now everything generally costs more, and the money that you saved will not compound.  That is what you need.  You need compounding.  The banks have figured it out.  Right?

Mikell:  Right.

Jason:  You ever seen that credit card bill? Compounding interest calculated per day?  Right?

Mikell:  Absolutely.

Jason:  That is what you want your income doing.

Mikell:  Okay.

Jason:  Compounding daily and making it passive.  So if you just flipped the credit card bill.  Instead of you paying the interest you were receiving the interest, the passive, that is what you want to create with your assets. You want to create to where that money comes in.  But you cannot leave currency sitting around.  It becomes, things that sit around get stagnant, and then they kind of develop this scum on top of them.  Right?

Mikell:  Right.

Jason:  And they start to stink a little bit. Nobody wants to be around anything that is stinky and scummy for very long.  Right? 

Mikell: Right.

Jason:  If you think about, if you need a word picture, like a pond that is just sitting there.  Right?  You want the money moving.  I am from Missouri.  We have lots of springs and different things there.  So one of the things there, if you go to a spring, if you to the head of the spring on a river, the really cool thing you will notice is the water is just as crystal clear as you can imagine.  It is freezing cold, too, so just do not jump right in. But there is just some amazing things you can learn from that visualization.  You go watch that spring. It never stops.

Mikell: Okay.

Jason:  You rarely to ever hear of a spring going dry. Almost never. Where I am at in Missouri there is a river called the Current River.  You go to the head of the river, and the spring is there.  It is just billowing out this amazing, pure, clear water. It is freezing cold.  You can get in for a minute. That is about it. But they say that that thing is almost two miles deep. It is amazing to see. That is what you want your money doing. You want to create that spring to where you have got that passive income all the time. That spring does not have to think about producing water. It just happens naturally.  That is what your income to do.  You want it to be passive.  You just want it to happen naturally. There are things in which you can invest in that make that happen.  Real estate definitely is one of those. The thing I love about real estate, we talked about it last week is I can go touch it and feel it.  I can move into it if I had to.

Mikell:  Absolutely.

Jason: Whatever the case may be. I cannot do that with a bunch of stock certificates.

Mikell:  No.

Jason:  Paper or whatever it is. Those are the things that I like to see in an investment.  Things that I can do once, get paid forever.  Here is the great thing about passive income.  If it is built correctly, it becomes legacy building. Meaning if it never stops, how many generations of your family have you set up for success.  Now I will say typically it is three. I do not know why, but the third generation always sells.  But anyway, pretend that they did not, and you set up legacy wealth for your family for a long, long time.

Mikell:  Absolutely.

Jason:  It is really cool. So things to think about with your money and creating passive income. You can get more information if you go to Jason Bramblett dot com.  You can check out the website, check out the blog, go there, and listen to the show.  We will be back next week. You are listening to the Jason Bramblett Real Estate Show.