#50: Create Massive Leverage Through Passive Real Estate Investing

Foreign. Welcome to the Passive Income MD Podcast, where we talk about creating your ideal life through multiple streams of income. I'm your host, Peter Kim. If you enjoy hearing about this stuff, make sure to hit subscribe so I can bring it to you every week. Now let's get on with the show. Hey, everyone, hope you've had a great week. We're gonna be talking about one of my favorite topics today. It's called leverage. I mean, I like to use that word quite a bit. Cause it really kind of signifies and kind of embodies everything that I'm about actually trying to get the maximal output for like the minimal amount of input. Not that I'm trying to be lazy or anything. I just feel like life is short, resources are short, all these things. So why not try to get the maximum impact out of everything that you do? So we're gonna be talking about leverage today, especially when it comes to passive real estate investing. But I wanted to let you know that for those who have been asking me for a while about how to get into passive real estate investments, how to do the proper due diligence for them, depending on when you're listening to this, I wanted to let you know that our course, Passive Real Estate Academy, is coming up in a few weeks. And if it's not open for enrollment yet, and we open it up maybe, you know, two to three times a year, kind of depending on how the schedule goes and how time goes. But we have a wait list going right now. So if you want to head over to www. Passiverealestateacademy.com, then you can join our wait list and we'll let you know when that is open for enrollment. And then just for a bonus to say thank you for being part of our waitlist, we offer a nice discount for those who are part of that. And we do a special pre sale for you. So if you're interested, head over to www. Passiverealestateacademy.com. and today we're going to be talking, like I said, about that word, leverage. Now, I know that I use the word passive income ton on the blog, the podcast. In fact, it's the name of our blog. It's the name of our brand. So I talk about how to generate it. I talk about why it's so important that it's a tool. You know, the funny thing is, when people think about Passive Income, oftentimes the picture that they get in their head is of a person just sitting back, you know, on a lawn chair on the beach. And Money's just flowing in. Now, it's not always the case. You know, there is some element to truth, There is some element of truth to that. But there's a couple things wrong with that assumption. First, first of all, it's not that you do zero work, at least up front. You know, there's some work upfront that it takes to get to that place where that income starts to come in on its own, relatively independent of the amount of effort that you're putting in. It does take, you know, I always say one of three things, time, capital, or effort, and all these things either upfront or throughout it. Now, the difference between passive income and regular income is that it's just the income that you receive is just not proportional to the time or energy or effort that you put into acquiring it. So even though in the beginning you might have to put a good amount of time and energy, eventually over time that starts to pay off and that income starts to grow. Which is different from, you know, most physicians where, you know, you put in time, you put in effort and money comes out and it's just kind of like a trade for your time. I don't know about you, but I'm always looking for ways to optimize and find that greatest passive income for honestly the least amount of time that you can put into it, especially in the beginning. And one of the best ways to do that that I found is simply passive real estate investing. I mean, what that is is that when you know the difference between passive and active investing is that, you know, for active investing, you buy your own rental properties and you, you know, you own it, you might have a manager for it, but you're, you're heavily invested in that business of owning real estate. Now I love that type of investing too, and I have a portfolio of those type of properties. But again, I'm limited in terms of my time and bandwidth. So I also absolutely love investing in passive real estate. Now that kind of investing is when you invest in other people's deals. Now, you might have heard the term syndications or real estate funds. That all kind of applies to this world where a deal is put together by a professional, you know, by a group of professionals. Now you're able to invest in that type of deal and get the benefits from it. Now as an investor, it's not like no work goes into it. I mean, you invest in the rest of its hands off. But in the beginning, you need to put in the time, the due diligence, the digging up to make sure that you are Investing in the right person. Now that all has to be done upfront. And I can't stress enough how important that is because that's where all the work comes in for you as an investor. Once you're invested in the deal, it's all hands off for you. But I love this type of investing because it's the closest thing that I found to true passive income when it comes to real estate investing. And why do I love it? It's because you are able to use massive leverage, meaning that for a minimal amount of effort, you're able to get maximal benefits in the backside. Now, another way of saying is that you're able to move boulders, right, with small, minimal effort on the front. When it comes to passive real estate investing, you're using leverage in multiple ways, not just in probably the traditional way you're thinking of when it comes to money and debt. But I want to go over what are the ways that you are lever using leverage to your advantage when you're investing in passive real estate? All right, number one, you're leveraging knowledge and experience. I mean, as a physician, you know, you spent 10, 15, 20 years to hone your craft, to get really great at what you do. And as you know, becoming an expert takes that time, that study, that energy to do your craft well, to be good at what you do. So when you're investing in passive real estate, you're trying to do the same. You're trying to leverage somebody's years of experience and knowledge and all the mistakes they've made to benefit as an investor. I mean, for example, I don't know if you've heard that meme in the whole physician world where it goes something like this, where it says you don't pay for the 30 minutes it takes to do the procedure, you pay for the years it took to learn how to do it. Well, now I don't know about you, but when I want to do the same, when I invest some, you know, invest with somebody else, I'm tapping into their years of successes, failures, knowledge, all that stuff wrapped into one and take full advantage of that. And that's what happens when you invest in passive real estate and you partner with the right people. Yeah. So it's absolutely important to pick the right people to invest with. The other thing, other way to leverage other people's knowledge and experience is to find like minded investors. You know, you can join, you know, different Facebook groups to talk about it, our investment clubs, I mean, what we do on the backside of our course is that once you Take our course. You are put into our platinum investor club where you just talk about deals, you know, and you share resources and information. It's great to find things like that. There are different investment clubs out there, so we have a passive income MD investor club that you can join to find out more about deals. But you're able to leverage other people's knowledge and experience to really get into great deals. Now another way you can leverage in passive real estate investing is to leverage the financial strength of another person or another group. I mean, to be honest with you, if you're trying to acquire real estate, you're going to be using leverage, you're going to be using debt, meaning that you got to get a loan. Now when you try to get a loan from a bank, what matters, I mean your credit history, credit worthiness, your net worth, your experience in running these type of things. It's a little different from buying your own residential home. When you try to buy a commercial property, it's like bringing a business plan to them and they want to make sure that they are betting on the right person. I know this happened to me when I tried to buy my own apartment building, my very first one. I was surprised at the type of due diligence it took. They didn't care so much about my bank statements, actually as much as they cared about how I was gonna operate this property, what experience I had, and this sort of thing. Now when you're trying to buy larger and larger properties, we're talking about 20, 40, 80 million dollar properties, someone like typical investor like you or me may not have the experience or know how or the connections to make that happen. Now when you are investing in some of these operators or sponsors who've been doing it for 20, 30 years with hundreds of millions of dollars under their belt, they have not only the connections in the financial world, they have the experience, the history and they're able to secure loans that someone like you or me may not be able to get. However, as an investor, you're able to take advantage of that, able to participate in those type of deals with those type of loans by leveraging the financial strength of, of the people running the deal. All right, number three, you're also able to leverage a whole built out team when you invest in passive real estate. Now as you know, for anybody who's tried to buy their own rental properties, it takes a team to run that investment. Well, not only you as a person running it, you've got management, you've got insurance people, you've got agents, brokers you've got contractors and this sort of thing and assembly. The team is probably one of the most challenging things to do as an investor now, it's very absolutely important to find those people. When you do, it all goes well. Now, when you invest in passive real estate and you find good operators or sponsors, you are able to leverage their entire team to benefit as an investor. Now, hopefully they built up that team over time. They're time tested, they're experienced, and they're able to be efficient in operations, and you're able to take full advantage of that. Number four, you're able to leverage capital. Now what does that mean? It means that for a smaller amount of an investment, you're basically able to get into bigger deals. Now, bigger deals have economies of scale, meaning that, you know, for one apartment building or one huge apartment building, you know, oftentimes the, whether it's smaller or bigger, the amount of work actually doesn't change significantly. You still have one roof, for example, that you gotta deal with. You've got one management team, you've got all these things. So sometimes as the apartment buildings, now, as apartment buildings get bigger, people say the work doesn't actually significantly increase. So there is some benefit of being able to buy or be part of deals with a certain size of property. And normally, I don't know about you, but bringing about 50 or $100,000 into an apartment deal, there's not so much I can buy on my own, not out there in the places that I want to buy. However, if you're able to invest in a deal, you're able to buy into a larger apartment building or that sort of thing with a smaller amount, and you're able to essentially leverage a relatively smaller amount of capital to buy a property that might perform better, have better overall returns, and essentially all you need to do is wait for distributions at the end. I mean, to be honest with you, I mean, most of the best deals that I've invested in are those that are much larger than I could have found on my own. And then number five, I actually think this is the most important point. You're able to leverage time. I mean, time is our most precious resource. I think that's a given. I think we all know that almost sounds cliche. But the point of investing and doing all these things is not to put more time in, not to create another job, is to create freedom that comes from cash flow and passive income that comes in from somewhere else. I mean, you're already busy, you're a physician or a high net Worth individual. You're working and you're creating capital, you're creating income, which is great. Again, the goal is financial freedom, at least for me and hopefully for people that are listening to this. I mean, the ability to do what you want with your time, spend it doing the things that you love with the people you love. And with passive real estate investing, the great thing is, yes, in the beginning it takes due diligence, and again, I recommend everyone learn to do it well. There are some great books on the topic, there are some courses out there, things like that. But once you do the due diligence and you invest, it is as close to passive income as possible. It is to me that you don't have to put any more time in for the most part, and you just get returns. And that's what I love about passive real estate investing, that aspect of it. It creates so much more income for me with no additional added time. And to me, I'm leveraging the time, the knowledge, the experience, the capital, the team, all of these passive real estate companies to get my desired goals. So all this comes down to saying leverage is a powerful tool. You know you can use it to your advantage. There are certain ways that it can work against you, especially when it comes to debt, if you put yourself in a bad situation. But when you think about not just leveraging income or debt, you leverage capital, you leverage all the things that I just mentioned. It can be a powerful way to, to help you achieve your goals, to use it for your advantage, to get exactly what you want out of life and create that ideal life. So when it comes to investing, whether that's in real estate investing or whatever other type of investing, look for ways to leverage things as much as possible and honestly, that will serve you well at the end of the day. All right, thanks everyone. Have a wonderful week and talk to you soon. Enjoy the show. Let me know by dropping a review in the podcast app you're listening to us in. And if you haven't already, make sure to hit subscribe. Are you a part of our community yet? Join thousands of physicians who are also on this journey to creating their ideal lives through multiple streams of income. You can join us on our Facebook group PassiveIncome Docs and you can always learn more at our website, passiveincomemd.com thanks again for allowing me to be a part of your journey. See you next time.