The Debt Hammer: The BEST WAY to Pay Off DEBT in Real Estate!

I'm going to share with you the strategy to eliminate all debt in a massive real estate portfolio. Now, there is a best way to do this, and it's not what you expect. It's not the, the debt snowball. It's not amortizing all your debt. I'm going to share exactly how we do this in this video. Listen close. Welcome back to the channel. My name's Christian. Today we're talking about the debt hammer. Now we've been talking about the 4 phases of real estate, and this is the last video in this series. This is the end of the journey and where you win the real estate game. We talked about how you buy assets in the build phase, and ultimately you're taking liabilities and you're buying assets that outperform your liabilities. We scale them up, we optimize them, we push the revenue, and then we use the revenue from the assets that we bought to pay off the debt. Now, this is a simple strategy, but there's a couple of things that you need to do differently that most people aren't talking about online. The most important piece here, you want to pay off each loan in full at one time, which sounds crazy. So say you have a million-dollar loan. You don't want to pay off that loan until you have banked a million dollars of cash and you're going to pay it off in one shot. Why do we do this? It is risk management. While you owe on a property, say you pay off 99% of the property and you miss your last payment. You can still lose the asset because you defaulted. But now the risk's all on you because all your money is in the deal. You want to keep the risk on the lender. Could be the bank, could be the seller. Whoever it is, you want to pay down that loan as little as humanly possible until you have saved enough to pay it off in its entirety. This is why the build phase is so important. We want to buy enough real estate so we can build an income stream that can actually start eliminating these liabilities one at a time. We buy, we stabilize, we optimize, we take all of this income that we bought with imaginary money, by the way. Creative finance is saying I created a liability out of nowhere, and for a signature and an idea and a promise to pay, I have now bought an asset that pays for the note that I created, which is crazy. Now we take all that excess income and we sideline it. The other piece of risk management here is what if something disastrous happens to your portfolio? Well, if you have saved up $800,000 to pay off your note in full and all of a sudden you have a roof fail unexpectedly, the wonderful thing is you can now write a check without any hesitation. One of our roofs, we re-roofed one campus, two buildings, 12-plexes, two side-by-side sixes. We re-roofed it, it was about $140,000 to add a pitch roof. Now, that could be very financially stressful unless you're sitting on $800,000 of cash, in which case you write the check. Does this set you back on your debt hammer? Yes. However, you eliminated the risk. The lender holds the risk on the debt and you hold the cash, which eliminates a lot of your capital expenditure risk. However, once we get that million dollars, we can pay off that loan in full. And now our global cash flow has gone up, much like the debt snowball concept. However, we're not paying into this one month at a time, paying it down or putting on an amortized schedule. We're sidelining as much cash as we can from the entire portfolio and paying off one property in full at a time. Once you do that, you have more cash flow. You work on the next loan and you pay it off in full. And then we do the next and the next and the next, the next with income going up and up and up and up and up. All you have to do to nail the strategy is delay, buying the yacht, the plane, the Lamborghini, whatever it is. Take the money and eliminate the debts. And once the debts are gone, you have basically unlimited money to do what you want. Say your goal was to set up a $20,000 income stream and you did that in the stabilization phase. Now you pay off all the debt. Your cash flow probably looks a little bit closer to $50,000 a month now. But if you took a decade to do that, rents have increased. You probably have $75,000 to $100,000 a month. Of income coming in with no underlying liabilities other than paying your darn taxes. If you set up that type of income stream and eliminate the liabilities, it is almost impossible to lose the real estate outside of fire or anything else that you're insured for. I suppose you could lose the building, but you'll get a check for it. Or if you just neglect to pay your taxes. Other than that, you've built a more or less invincible business. It's a heck of a lot shorter than a 50-year career to get there. This is something that you can realistically build and achieve in a 10 to 20-year cycle. In half the time that people are building their careers, you can create many multiples of the same income. It's absolutely insane, and this is something that you could absolutely pull off yourself. Now, the debt hammer is an idea that Cody and I came up with as we started building our portfolio, but it really did come from learning from all the other owners who who've paid off their debts on best practices and how they did it. Most of them have shared this information because they paid off all their debt and they did it in a different way. Maybe they paid it off one month at a time. Maybe they had a 30-year amortization schedule. This is one of the things that people have told us, hey, we regret not doing it this way. This is the best way to pay off your debt. If you follow the full cycle, you'll end up with a crazy amount of real estate. You will have it completely optimized with no deferred maintenance and you'll carry absolutely no debt on it and you will do it in less time than the average person will work a 9-to-5 career. This is the debt hammer, and this is the final cycle of winning the real estate game. If you want to learn more, by the way, check out multifamilystrategy.com or click the link below for our free course, about 10 minutes long, on exactly how you can start using creative finance to get started on your build phase.