Real Estate Investing - How To Start Making Passive Income

Hey, capitalists. I'm Ryan Daniel Moran. Welcome to Capitalism tv. In this video, we're going to talk about generating passive income and creating wealth in real estate. If you're watching this video, it means that you've already begun your journey of looking for something more, of creating something great. And you might have also discovered that real estate has created more millionaires than any other vehicle in history. The challenge with real estate is there's a bunch of different ways that you can go. And so we're going to demystify this and make this simple for you to move forward in this video. Grab a seat, we'll have some fun.

Before we jump in. Just as an anecdote, I'm an entrepreneur. My full time focus is creating businesses, building businesses, selling businesses, dropping my mic. Just like most entrepreneurs, I got into this game because I wanted enough passive income and wealth to live life on my own terms. And for most of my young life, I thought that vehicle was going to be real estate. And I still am a real estate investor. In fact, most of the very successful people that I know doesn't matter if they're worth a hundred million dollars or a million dollars. Most people have some sort of a holding in real because it's just a proven asset class, because real estate holds its value really well and it tends to spit off cash flow. So as you are exploring the path that you're on, it's important to say, do I want this because I want to be a passive investor who gets passive income, or do I want to make real estate my business? There are two different approaches. If you watch HGTV or if you've got a friend who flips houses, real estate is their business. That's their full focus. They make money in real estate, but it's not passive income. They're very active in that business. And that's a great approach because if someone is active in real estate, they're going to find great deals, they're going to have a head start on everybody else. They're going to know the bankers, they're going to know all of the subcontractors that they'll need. They'll have an expertise that gives them an advantage over everybody else. So if you want to make real estate your business, that's one approach. The other approach is to say, what I'm really after here is passive income and I don't want to be a house flipper and I don't want to be sourcing deals all the time. If that's your goal, then your set of Strategies is going to be different. So it's important to address that upfront, because a lot of investors or entrepreneurs get into the wrong vehicle thinking that eventually they'll start to hit their goal without ever addressing what their goal is. If you know what it is up front, we can get there a lot faster. Now, you can, of course, do both. One of my buddies, his name is Jason Hartman, he's a goof and a half. I love the guy. And he also seems to get younger every year. Whatever biohack he's doing, he needs to hook a brother up. But Jason, however old he is, does both of these approaches. He is active as a real estate investor, and then he takes the profits of that, and he is investing that in places that are more passive. And this is what he had to say about it.

You can do a lot of ways, but I like being a direct investor where I own and control the property directly. Because when you're a direct investor, you don't leave yourself susceptible to three major problems. Number one, you might be investing with a crook, okay? And you know, there's no shortage of crooks in every industry in every part of the world, right? That can simply rip you off. But number two, assuming they're honest, you might be investing with an idiot, okay? And just because they're so stupid, you'll lose your money, right? So assuming they're honest and competent, you pass those two hurdles. The third problem is they take a huge management fee off the top for managing the deal. And so when you're a direct investor, you eliminate most of those problems. You do create a new problem, though. The new problem is more work. You've got to be more engaged. You've got to be more involved.

Now, if you're first starting out, it can feel a little bit intimidating to say, I don't want to make this my full business right out of the gate. Well, Jason's strategy is incredibly simple. He very publicly, on his podcast and in his content, says that single family houses are the most proven asset class in the world. His entire strategy is simply to invest in single family houses in good markets and get them rented and hold them for a really, really long period of time and have a little bit of cash flow on each house and go do the next one. On the 1% podcast, we did an interview with somebody named Todd Dexheimer, and his approach was exactly the same. He realized that when he invested in single family houses, he was making just as much money as his teaching job. And he went, wait a minute. I think maybe I should Become a full time real estate investor. But that's the formula that has created a lot of full time real estate investors going all in on the business, which is acquiring small deals, single family houses, duplex, and then moving on to bigger deals. Once you have enough cash flow to be able to live life on your own terms and you're a full time real estate business person or real estate investor, there's other ways to do this too. I want you to meet my friend Tom. Tom is an orthopedic surgeon here in Austin, Texas. Very, very successful, very wealthy. But he was working 80 hour weeks when he started investing in real estate. And so he knew that he could go out and source deal after deal after deal after deal. He had to find good one, one good one. And he was doing it nights and weekends and looking for the passive income side of this. And I want you to watch the story of Tom sharing how he found the first deal and how it then tipped the scales into allowing him to look for more deals after that. Watch this. You're coming out of school today. Most doctors are, are covered in debt. Exactly right. I mean, they're just completely covered in it. And most people don't know that. They just know how much doctors make.

Right.

So everybody thinks doctors are rich.

Right.

You come out probably have student debt. I'm assuming you're working 80 to 100 hours a week. How did you have the excess to start doing this?

Passion, I think.

Did you say passion?

Yeah, had to be passion, Stupidity, one of the two. And so I really wanted this. Now I was actually building my practice, loving what I did. I'm a orthopedic surgeon. I'm in sports medicine. I was a frustrated athlete. So I'm perfect, I'm with my people. But on the money side, I really enjoyed the real estate. I love, I love buildings and I love the development and construction process and I love every part about it. So my, the reason I started small was it was evenings and weekends, truly evenings and weekends. One time I was reading, if your listeners remember, this thing called a newspaper back in the day, on Sundays there was a classified section and it had real estate in the back and there was a little section, apartments and condos that was down in the Texas, down the University of Texas area. And I was zeroed in on student housing. And I read it, I read a, read an ad and I told my wife, I said, I'm buying this tomorrow. She said, how do you know? I said, look, I've been in this market, I know I like the back of my hand. Somebody's either underpriced this thing or there's something badly wrong with it. So I was seeing patients in my office, saw a patient, said, I'll be right back, slipped out the back door, drove down eight blocks quick, went through the place, made an offer, got it accepted, and came back and kept seeing patients. So that's how we did it mostly weekends, morning weekends, early mornings in the evenings. And then as my, my real estate income started getting more prolific, I was able to sort of cut back on days. And that scale just kind of changed like this.

And you're still practicing today, correct?

I am. I did surgery this morning.

And spreadsheets this afternoon.

The beautiful thing to this approach is Tom was looking nights and weekends for his first deal and then in between surgeries, went in and acquired his first deal, which gave him enough passive income to focus a little bit more time on building real wealth. Because it doesn't matter how much money you're making from your job, if you don't own something that can go up in value over time, if you don't own something that you control, then you can't get rich. You don't get rich on salary. You get rich on ownership. You get rich on owning a business. You get rich on owning real estate. You get rich owning a piece of business, and that's sometimes called stock investing. And so Tom did that. He went and looked at where the deals were, got really good. At one market, he knew he didn't have a ton of time to go buy a bunch of single family houses. So he bought one deal that set the path for the rest of his career.

Now today, since I am not looking at deal after deal after deal, what I do look for is people like Tom and people like Jason and people who do have the expertise where it is their business to be in real estate, real estate. And then I serve as just the investor in that deal and I take a piece of the action. So this is where I like to live. I now make my money in business, or some people make their money at their job, or some people make their money flipping houses. But then you get the wealth and the cash flow from, in my case, investing in the people who make this their full time thing. So that's people who are buying up apartment buildings or who are building new projects and then taking money from investors and paying out a portion of the cash flow. One of my best friends here in Austin, his name is jp I like to joke that he owns half of Texas. J.P. i call him the $800 million, man. He controls about $800 million worth of real estate. And he sits in that chair where he has all this deal flow, and then he raises money from investors like me, and then he does the project and he pays out his.

The very Interesting thing about JP though, he got started in his late 30s. He got started with no background in real estate. It was his second career, and he was going in a whole new direction. So ignore the $800 million that I slap on his name and look at the man who, a couple decades ago, was starting over from nothing. This clip was gonna give a lot of hope to. Those of you who are just starting your journey are wondering, did I miss it? Are my best days behind me? Watch what happened with JP do you talk about how much of a portfolio you have?

My portfolio is about 800 million in real estate under management.

Wow. When did the first deal come about?

So my first deal came about. I actually flipped a house in Austin, Texas, and I worked my ass off, and I made $12,000. And I was thrilled that I had made $12,000. It was. It was the confidence of, hey, maybe I can do this. And.

It wasn't. You know, nowadays, 12,000 doesn't sound like a lot, but at the time, it was a very, very meaningful that I actually had gone from beginning, middle to end. And that took a long time to get. To get to that place.

But how.

How long did it take you to flip that?

Eight months of hard work.

Wow.

It was probably. I was probably working for $8 an hour, but it didn't matter because it was symbolic of my new life and some completion, some success in this new direction. So here I am now. I'm 32, 33, making $6, $8 an hour, flipping homes and all.

Were you still flipping for a couple of years for, like, penny, like, pennies? Was it a couple years of, like. Like, grit and figuring it out?

Oh, so make. I was so faking it. So faking. It's like brokering a deal here, you know? Definitely. There was a lot. A lot of that going on. And then I. I got my first apartment project, and it was a small one, and it was really a rough building, but it got me started into something bigger. And it was my first break.

How did you finance that?

How do I find the deal?

How'd you finance it?

Yeah, I'm almost embarrassed to tell you, but I'll tell you, it's the truth. I put an ad in the Wall Street Journal, and it was kind of a clever ad. It was like earn, earn above 10%. As a time, it was hard to earn great rates. I literally put this ad in. So I was raising money on the phone. I didn't know all that much, but I knew enough about the deal that I had raised. My first raise was $800,000. And I couldn't believe, wow. Took me two and a half months to raise it.

Was that all from the one ad?

And then a couple friends who believed in me, which was really special, by the way, because when you're naked and you've got nothing to fall back on, and a couple of those first friends who put that first 25 or $50,000 in you because they believe in you, you're no longer that executive. They believe in you. It's what we talked about earlier, Ryan. They were, they were buying into who I was. I had no track record going forward. I only had my track record backwards.

So if you're starting over or you're in a new chapter of your life, there's still time, there's still opportunity. And I don't care what the economy is doing. Just like in business, there's always opportunity. It's about where you're looking. And are you playing victim to your circumstances or are you looking to create something new? You generate wealth by owning something, by creating value for a specific group of people. Own, create, serve. That's our mantra here@capitalism.com now just recently inside of our community we had Jason, Tom and JP share their insights on what is available right now in this economic climate. Where they see the market going, where they see opportunity, how they made the pivot from going from nothing to something. And that is inside of our members area, inside of capitalism.com, it's called the 1% and you can try it. So you can get all of that for a dollar over at the link below this video. So if you want to come hang out with other capitalists, this community is building businesses and investing the profits. And you'll hang out with the people that you just watched in this video. If you know somebody who is starting their journey, send them this video and make sure you're subscribed to the channel because we talk about all things business and Investing here@Capitalism.com I want to salute you as a capitalist because I think that capitalists create change.

Change.

So thanks for being one of them. Thanks for watching. We'll see you next time.