Welcome to Cleveland real estate investor. On this podcast, you'll hear about every aspect of the real estate investment business. You will talk to your rockstar investors about their businesses, how they built them, where they came from, and where they're going. Who am I? I'm Joe Lieber and I've made millions of dollars from the real estate investment business over the last 20 years. If you're ready to hear the good and bad from a guy who's learned this business from the school of hard knocks and get educated by some bad ass entrepreneurs, then put your helmet on, strap on your chin strap. Let's ride.
(00:36): Thanks for tuning in guys and gals. Listen to another episode. Appreciate you being here. Hopefully I can drop some knowledge bombs on you and you can get some value out of this. So the freedom number we're going to talk about today, and it might seem elementary, you know, everyone knows what a freedom number is, but maybe there's some nuggets in here that will make you rethink things and re-stimulate certain things for you. So the freedom number, just jump right in and talk about, Oh, well the first thing is what is the freedom number? The freedom number is when you take all of your bills in a month, your mortgage, your lease or utility payments, your kid's private school bill, and you add all that up, right? And it needs to be covered by passive income. It doesn't necessarily have to be from real estate, just passive income.
(01:31): Now for the purpose of this podcast is going to be talked to, we're gonna have more real estate obviously. But when I say passive income, it's really, I don't think there's anything really as passive income. It's active passive income. You generally have to do something to make sure that money comes in. So what that means is, I heard people say, also, I need to crack my nut, man. Salespeople say that I need to crack my nut. If you, maybe you're a loan officer, and what I mean by this is like a loan officer has to recreate every month new customers, right? In order to make enough money to crack his nut. Well, if he had a freedom number, investments that didn't have to recreate such as real estate rental property that would go to pay his bills, then he wouldn't have to use his earned income for that.
(02:25): And that's the whole idea, right? To get your bills covered by passive investments. When you go into your job, why don't you think about this for a second and just really let this resonate when you go into your job going in there because you have to and going in there because you want to, it's a completely different mindset, right? And everyone really should have a freedom number and have work to use their earned income, I think to bypass active passive investments, and I hope I didn't say it too quickly. What I'm trying to say is everyone take a portion of their active income and put that money toward an investment or investment vehicle that can earn them passive income that can go toward their monthly bills because the mindset changes, right? You're not trapped. You're not owned anymore. I'm not saying that you're owned by your job.
(03:19): Please don't think that. I have a lot of friends who are doctors who spend a lot of time in medical school and love what they do. They're dentists, they're just go givers, first responders, and there's nothing wrong with that. But things change and everyone thinks, why am I going to quit my job? I want to quit my job. Well, you're thinking in your head, well maybe I want to quit because I don't like the new boss or the company policy changed. Well, there's other reasons why. What if you can't work? What if you get sick now the game's changed, right? It's not about your passion or love or not love for your job. What if you can't work cause you're sick? What if you have an ailing family member that you need to take care of? Things can change very quickly and if you spend while you're working, if you spend time with an eye to your passive investments, it can serve you very, very well later on.
(04:15): So that's why I'm such a big fan of this. You know, I have derived my entire adult life from 18 has been driven just like this. I've always had an Ida passive investment. That's why I have so many houses that are rental properties of mine. And it takes a while to get there, right? So it's not going to happen overnight anyways. You're not going to get rich overnight in this business. Don't think you are. Yes, it takes money to do this business and it just is what it is. So I want to try to go through and give some examples. Now, you know, I, I don't want to just talk off the cuff things. So let's talk some numbers for a minute. Okay? Play with it before we talk numbers, I want to tell you a story. Story time with uncle Joe over here. This is a true story.
(04:56): I always tell true stories. So I want to share this with you. Okay? So about about 10 years ago, my wife came to me and said, baby, I want to buy a Cadillac Escalade. So Holy shakes, that's expensive. All right? Those are expensive vehicles. Whether you buy them, lease them, doesn't matter. It's expensive. I said to her, Hey, listen, I understand. I respect that. They're really cool and we're, we're at that time we had a small child with another one probably gonna come and it's, it'd be really nice, right? But I said there is no way that I think we should take our earned income dollars and pay a $1,200 a month Cadillac lease. Okay. That's a lot. I don't care how much money you make. That's a lot of money. When you have to earn it, you have to grind for that cash. So the only way we're going to do this is we're going to buy enough real estate to have the cashflow cover, the lease payment on that Cadillac.
(05:56): Cause I am not going out this door every morning or either is she and we're going to grind to pay a Cadillac lease. I can't do it. I mean that's, that to me is financial suicide. Can you do enough of that stuff? You're in trouble while you're owned by your job, number one. But number two, start cracking nuts like that. I mean it gets serious quick. So she agreed. She's like, all right, listen, I'm going to follow you on this. What do you think we should do now? This was 10 years ago, so the situation was different for us. You know, she had some savings, houses were cheap. We're in the great recession and we bought these houses like, I don't know, 25,000 bucks paying eight 50 a month in rent, and it was very easy for us to drop $75,000 on three houses, bringing eight 50 a month after taxes and insurance and some repairs.
(06:45): The Cadillac lease was covered and I dropped 75 grand. Now that doesn't apply today. Oh, well, no big deal. Just a story, but I want to put this story in today's context, right? How today, how this is going to work. How do you make it work? So here it is. You're ready. All right. A lot of these homes that I'm selling, turnkey right now are about $75,000. It's no big secret. That section eight is a great ticket right now. They're really paying the independent landlords high and this is what it looks like right now. $75,000 house will get you about a grand a month in rent. Okay? It's going to require a 20% down payment. Now, I'm going to assume you're going to finance. If you pay cash, it goes a lot quicker, but I'm gonna assume you're going to use leverage on this. So $75,000 purchase price, 20% down is $15,000 down.
(07:37): You're taking out a $60,000 loan. You're taking out a 30 year term. I'm going to assume investor rates around four and a half percent right now. That gives you a mortgage payments of $304 and you're going to add the taxes. You're going to add the insurance about one 50 a month, so the nut on that house is four 54 a month. Let's just call it four 50 okay? Rent comes in $1,000 minus out four 50 positive cashflow, five 50 a month. Now look, there's way more that goes into this. I get it. There's property management. I get that there's repairs. I get those. There's a vacancy. I get that there's turnover, but for the simplicity of this, it's five 50 a month. Positive cashflow. And by the way, I always want to say that is a good number. I mean, that's what it would do for me.
(08:29): You could manage the property yourself. Remember I said active passive investment? I mean teasel man with all the apps out there today, if a tenant calls you and says they have a leaky faucet, you can go to, there's a website called service sold.com where you can get a plumber on there. There's a new one called homey, H. O. M. E. I think. I haven't tried it yet. We've used service soul, but homey. You can find a plumber on there. You can just dispatch them out, have your tenant take a picture of the issue, you can upload it to the website. It's pretty bad ass to be honest. And it's a different game. Now the game is changing. So for the purposes of this example, we're going to say five 50 a month. Right now I want to pick a freedom number for a minute. Let's just say you're trying to net.
(09:13): I'm picking any reasonable. Okay. Everybody's different. Some people it's five grand a month, some it's 10 someone's 20 someone's 50,000 a month. For this demonstration, we're going to say your freedom number is 5,000 bucks a month, 5,000 a month. It's cash flowing. Five 50 a month. You need nine properties, so you need to buy nine houses to net five grand a month, ballpark. Okay, well, so would you really spend, you put 15,000 down per house times nine houses, $135,000 you came out of pocket with and you purchased nine homes that are making five 50 a month in positive cash flow. Not bad. It works, right? It will cover some bills. It will help you cover some of your recurring expenses and what I would do a situation like this is I would try to, once I got my nine houses, I would try to rapidly pay down the mortgages.
(10:04): I'm not a debt guy. I get the whole text write off stuff and depreciation and I understand that appreciation depreciation for me and just not a big debt guy because reality is you could own half of those houses cash and get the same amount of cash flow relatively speaking. So I have never been a debt guy. If I would buy a few houses and I would try to even use my earned income or whatever, I could to rapid pay down or if I was making positive cash from my other couple houses, I would use that to rapid pay down one house, get that paid off and you know, it was like the snowball effect they call it. You can read about all that crap in bigger pockets or something that they teach that somewhere else. But that's what I would do. That's what would get me to my freedom number.
(10:43): Because there's going to come a day when you're not going to want to go into your chair job every day just because of age or because of changed corporate policies or the boss or unfortunately maybe you do get sick and who the hell wants that to happen. But you gotta be prepared. You shouldn't just go run a muck out there, you know, and, and not think about tomorrow. So that's about it. That's what I wanted to share with everyone today. The freedom number. I hope that resonates with you a little bit. I've been hanging out here at my summer home, Catawba during this whole Coronavirus thing for the last two months now. I've been up there since May 13th and really this is what has allowed me to do this, is setting these investments up and they don't require much management. It always says to me, Oh, you need a property manager, this and that.
(11:30): And yeah, you do. And you should. But I don't know. I self-manage. I still do. I do really go with it. It's, it's not hard. It's really not. It's treat people right, do the right thing and don't get upset. And it's just simple conversations with people either have the money to pay the rent or you don't either have a repair or you don't, you know, that's property management for the most part, but once a year, it's a whole nother podcast. So I hope you picked up a good takeaway today with the freedom number. Thanks for tuning in. Have a great day.
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