MBA1908 Guest Teacher – James Knull – How To Earn Passive Income In Real Estate

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Hey O welcome to the Hundred dollar RBA Show. Valuable business lessons delivered every single day with our daily 10 minute business lessons for the real world. I'm your host, your coach, your teacher Omar Zenholm. I'm also the co founder of Webinar Ninja, an independent software company I started with my co founder back in 2014 and today's episode is a guest teacher episode. On our guest teacher episodes I bring on an expert to teach their area of expertise. Today we have James Null, a real estate investment expert. The reason why I wanted to have James on the show is because a lot of us as entrepreneurs, as business owners might be seeing our business grow and we might have a dividend at the end of the year, meaning that we have a profit after we paid all our expenses and our salaries and taxes and all that. You might be moving in that direction this year. And a lot of entrepreneurs ask me Omar, what do I do with these profits? Should I reinvest it all into my business or should I take some money off the table? Should I invest in something else? Well, I wanted to bring on James Nell today to give you an option. I'm all for reinvesting in your business, but you should take some money off the table from that dividend and diversify your investments. And real estate can be One of them, the thing about real estate is that it's fantastic for planning for retirement. As James will explain in his lesson. He's just going to flat out explain how to look for the properties that can help you with that planning, as well as why is real estate investment unique in terms of earning you cash flow? We get into that and more in today's guest teacher lesson. So let's get into it. Let's get down to business.

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Super pumped for today's guest teacher lesson with James and Null. James has invested in nearly 300 of his own real estate investments. As a realtor, he's one of the best of the best in Western Canada. And now he shares what he's learned along the way with the rest of the world@mogulrg.com I'm going to pass it on to James to teach his guest teacher lesson. But I'll be back with my own takeaways and to wrap up the episode. But for now, take it away, James.

Hey everybody, My name is James Connell. I'm the CEO of the Mogul Realty Group. Thank you so much for joining me today. Today I'll be teaching you how to earn passive income in real estate. So let's get down to business. Passive income, it's something everybody wants to add to their life, to their lifestyle. It's a securitizing factor. And what I mean by that is when you have passive income in your life, that's money that comes in consistently every month in a predictable way, whether you are actively working for it or not. Now, if you have a job or a career where you get a consistent paycheck, that's a little bit easier to predict. But if you're an entrepreneur or in sales, or have a bonus structure at your job, sometimes it's a little bit more difficult to predict your income. And so having passive income really helps stabilize your lifestyle. Either way, passive income is the thing that if you're really planning for retirement, you want to start building as soon as possible. And the reason you want to start building that is because as you get nearer and nearer to retirement, you start replacing your working income with passive income. So let's say that you earn $10,000 per month during your peak earning years. What you want to try to do with your investments is slowly and steadily replace that $10,000 of active income with $10,000 of passive income income that doesn't require your ongoing time and commitment to generate. And that's typically why a lot of people have a sunset on their retirement instead of an exit date. What I mean by that is, as you build your passive income, you might go from working 50 hours a week to working 40 hours, 30 hours, 25 hours, 15 hours, maybe popping into the office a couple of times a week just to see how everything is doing and contributing. Especially in this day and age, very few people want to quit working all the way. It's nice to have something to keep you mentally engaged. It's nice to have something to participate in. But if that isn't your goal and you want to be out of active work, either way, passive income is really what you want to have. So let's talk specifically about real estate. Real estate is one of the most powerful vehicles for generating passive income, period. And allow me to explain why, when you buy a piece of property, you put a down payment down on that property. Now, in the Canadian marketplace, the typical down payment we put on a piece of property that will be used for investment income producing purposes would be 20% down. So you have 20% ownership in that property, the bank owns the other 80%. And over time, what happens is you pay the mortgage payment, you pay down that 80%, and at the end of the amortization of the mortgage, you own 100% of the property, the bank owns 0% of the property. And now instead of making a mortgage payment every month, you get to keep the majority of the rental income. It's a beautiful thing. So what happens is if, for example, you are going to be paying down that mortgage over a 30 year time frame, at the end of that 30 years when the mortgage is paid off, you get to keep the majority of the rent that becomes your passive income. With other savings vehicles, you have to start depleting the money you saved to support your lifestyle. That's how traditional RRSPs work. You save money into your RRSP and it grows and grows and grows. And then when you retire, you flip your RRSP and start pulling money back out of it. In real estate, you do not have to sell your asset to start collecting your passive income when the house is paid off. Therefore, that property and the value of it form part of your net worth, form part of your asset base, and you do not need to erode or pull from your asset base to support your lifestyle as you retire. That is a very, very powerful difference between real estate and other types of investing. And that's why it's such a important pillar of wealth for people who invest in real estate. Therefore, when you add a couple of pieces of rental real estate to your portfolio, you're playing the long game and you're creating asset that you can then rely on to be able to pass on to, for example, the next generation. Because to create the cash flow for that asset in retirement, you're not actually depleting the value of the asset. So how do we actually move forward with adding real estate to your portfolio without getting into the specifics on this podcast? Because we're looking for a high level overview. Basically, you want to select a property that you can rent out to tenants. And the key fundamental principle that you need to be aware of is that the rent, the value of the money you collect, is higher than larger than the cost of the expenses you incur to maintain and own that property. The typical expenses would be your mortgage payment, your insurance payment, your property taxes, the cost of typical repairs and maintenance, an allowance for the times that that property is vacant, and finally, if you want to hire, help to manage your asset, the cost of paying a property management company. So when you take the rent in its entirety and subtract all of those expenses, that number should be a gain, a positive number, what we call cash flow, that should not be a negative number. If it is, this is probably not going to be a great piece of property for you to own. The beautiful thing is you actually get positive cash flow that you can use to either support your lifestyle in the short term, or you can use that surplus to pay down the mortgage even faster. So instead of having a 30 year time period for your amortization to get to the point where there's no mortgage payment and you get to keep the majority of the rent. Maybe you accelerate it to 25 years, 20 years, 15 years by using that surplus cash to get you to that point sooner. Either way, it's like having a dividend that's large and useful right out of the gate. The cool thing about that dividend is that you get to access the dividend on the full value of the property. For example, a $500,000 property, if you put 20% down, that's $100,000. But you're not getting return on investment from your $100,000. You're getting return on investment from the full $500,000 value of the property. This really boosts your wealth creation and it really accelerates your growth of net worth, and it allows you to access more cash flow as a percentage of the amount of money you invested. It's fantastic. The next piece of information that I think would be incredibly useful is not only should you look at properties where you have a positive cash flow every single month, but also select properties that are in a location that has potential for growth, as well as that are in neighborhoods that tenants would want to live in. If you pick properties in troubled locations, very often you're going to have trouble attracting stable tenants. And if you do not have stable tenants, then it's difficult to collect rent on a consistent basis to create your cash flow on a consistent basis, and that ultimately results in negative cash flow, which is the opposite of what we're looking for. The nice bonus is if you pick a property in a great location, as the market grows, great locations grow and the value of your property goes up and you earn equity over and above the cash flow that you're creating. So, really, to sum it up, the power of real estate investing starts from it being passive income that you can use to support your lifestyle and replace your active income. It's important to note that when you get to retirement, you don't actually deplete the equity in your asset, because the cash flow is produced without having to deplete the equity in the asset. The best way to approach acquiring rental property is to find 20% down to purchase good quality property. And when you're looking at that property, you want to make sure that your revenue is greater than the expenses that property incurs. Finally, pick great properties in great condition in great locations that are going to attract great tenants. You want stable tenants paying rent consistently every month to keep that cash flow safe, secure, predictable, and rolling in. All right, this was James Connell, CEO of the Mogul Realty Group. If you Want to continue learning about cash flowing passive income real estate? You can Visit us at www.mogul. that's Mogul RG Mogul Realty Group www.mogulrg.com Look us up, start a conversation and we'd love to help you in the Western Canadian market pick great properties to add to your portfolio. Thanks again for joining me today. Now back to you Omar.

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Absolutely love this lesson. It's unique, it's different and it gives you a different option when it comes to investing with your profits. After I listened to James's lesson, I actually looked at my own local real estate market and tried to learn a little bit more about what would make a good property for this type of investment. Where I can rent it out and, you know, make some profit while keeping my asset and allowing it to accumulate in value or to increase in value. Of course, when I listened to this lesson I thought to myself, let me go and look in my own local market, see what are some properties that would make a good investment. I kind of remember James's advice about making sure that you make more money than you're spending on the actual mortgage. One of the terms I found useful in my research was rental yield. So basically this is the percentage of profit you would make off the rental versus the value of the property. Now obviously you want to make sure your rental yield is as high as possible because you're going to have other expenses like James mentioned, like maintenance phantom costs in real estate. But I like the idea of having an asset that can go up in value. I can earn an income or earn some passive income along the way with, you know, rent. Take it out and then I can pay off even the mortgage early and then reap the benefits come retirement time with the rent that it would take in terms of cash flow or the actual value of the property. This lesson definitely gives you a lot to think about and to research, so head on over to James's website to learn a bit more. That's mogulrg.com. thanks so much for listening to the $100 MBA Show. If you love what you hear, hit subscribe so you don't miss an episode. It also allows you to have access to over 1900 business lessons in our archives. So go ahead and do that right now. Before I go, I want to leave you with this. For a very long time I was all in on my businesses. I take all my profits, reinvest them into my business. But after some time and you've made some profits, you want to diversify what you do with that money a little bit at least and plan for your retirement. This is a really viable option to make you feel like, hey, I got something to pay my expenses and allow me to have a comfortable lifestyle come my sunset years. Thanks so much for listening and I'll check you in tomorrow's episode. I'll see you then. Take care.

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