Welcome back friend. So, we're continuing this conversation of how do we make
millions of dollars in real estate. You got to understand 10 core foundational
principles. And today, I'm going to talk about the foundational principle of cash
flow.
You watch any of my videos. It's a word I use all the time. And you might be
thinking, I don't know if I understand exactly what Kris means when he talks
about cash flow. I'm going to give you my very technical understanding of that. I'm
going to talk about why it's important. And again, it's one of the 10 principles
that you need if you want to know how to make millions of dollars in real estate.
So, this is the principle that got me the most excited about real estate in the
first place. Because cash flow is tied to residual income. Cash flow and residual
income are not the same thing. Cash flow is a leftover by-product. Which
I'm going to explain to you. And residual income is money that comes in no matter
what. They're closely linked. Check this out.
We're buying a house. And let's just say for all intents and purposes that this
is a house that we're buying for $100,000. I know some of
you live in parts of the country you're like, "I can't buy a house for 100...."
That's okay. Connect with me and my team. Get involved
with us. I'll actually give you access to the markets where this stuff is real. So
it's not just hypothetical. Some of you have backyards like in LA and New York
where you should not be investing. Should not. You shouldn't buy be buying things
above the national median. So, if we have a house that we can get for
$100,000. And let's just say for a moment that when we buy this house,
we're buying it in a specific market. Where we're less interested in
discounted equity. And we're more interested in maximizing cash flow. Let's
say that this particular house has a... Once you buy it for $100,000
we're going to put a 20% down payment which is going to be $20,000.
So now, the house, regardless whether it's worth 100 or 120, we owe 80 on
it. And that mortgage of $80,000 is going to have a payment associated with it.
Let's just say that that payment on that mortgage... We're going to refer to that
mortgage as P-I-T-I. Principal and Interest, Taxes and Insurance. All 4 of
those things come into making up what your real payment is going to be. So, your
principal and interest of your total payment might be $500.
But then you're like well taxes are $2,000 a year. So if I back
that up and divide that out and add in my insurance... Let's just say for this
example that with principal interest, taxes and insurance my payment actually
becomes $650 a month. But let's say this is a
house that you can rent out for $1,000 a month on rent. If this house is rented
out and I have a true cost of 650 a month, what's left over?
Well $1,000 minus 650 equals a
byproduct of $350 a month cash flow. Now, cash flow
means the difference between what's owed and what I'm getting. Residual income
means I'm getting it without working. So, let's say I own this out of state. Let's
say I have a property manager managing it. Let's just say I do nothing but
collect the money. Now, that's a true residual income. So right now, the average
millionaire has 5 streams of income. They don't just make all their money at
a job and that's it. They have multiple streams of income. You now have a new
stream of income because maybe one stream is from a job and now another
stream comes from the property that you own. Now the $350
a month, if you take a look at that, think of some of the bills that you
have in life. I remember when my first car had a payment of 340 dollars a month.
That house would actually buy my car. So, I could be driving all around town and
enjoying this car. And the reality is it's actually being paid for by my house.
It's not me trading dollars and hours. And this is really the goal of cash flow.
You have got to stop trading dollars in hours. This is what so many people don't
understand. When my wife and I bought our first house, we were living for free.
Because the basement we brought in the cash flow covered the whole mortgage. And
we still got to live in a part of the house. My second house had a $600 month
cash flow. So, living for free and getting $600 a month on the third month of
owning that, my wife who was terrified of investing and totally skeptical. Finally,
she said, "Kris, I keep getting this left over $600. What is this?" And I said, "Honey,
that's called cash flow." She's like, "Okay, what do we do with it?" She was trying to
do the budget and the balance sheet and couldn't figure out where to put the
money. Because it didn't come from my job. I said, "Honey, we now have 2 streams of
income. Job and now we also have our investments." And I asked her. I said, "What
have you been doing with it?" She's like, "I've been paying off the credit cards."
I'm like, "How does that feel?" She's like, "I love it."
So after conversation, you know my wife said? She
said, "Kris, we need to buy more real estate." That's when we dreamt of
producing a cash flow of $10,000. Now, we reverse engineered. If you
know how much money that you want to make that will buy your freedom then you
got to ask the question. How much, how many homes do you need to buy to meet
that? For us, we knew that we needed 25 homes. And that if we could find a way to
buy 25 homes, then we would have $10,000 a month. And I'll tell you that by the
time we got to 25 homes, it wasn't 10,000 a month. It was actually $12,000
a month. And that's when I quit my job. And I realized, "Oh, my gosh. I'm free again."
Like I'm off a financial life-support. Like I can live life the way I want. I
can live life on my terms. It was so exciting. That's why you need to
understand this principle. $350? You might look at that
and say, "Kris, that's not a lot." No. This is the magic number. How many homes do you
need? And then you start saying, "But Kris, I don't got the money to buy 25
homes. I don't even have the money to buy one." And that's why you need to learn how
to buy homes with OPM --Other People's Money. That's why you need to learn how
to be resourceful. It's not about how many resources you have. It's about how
resourceful you are. And I'm going to teach you how to be resourceful that I'll show
you how to get your hands on deals, how to get your hands on money. Marry the 2
and get deals done. And neither have to be yours. So, understand that the goal
here is to buy properties with good cash flow that makes sense that can
ultimately help you achieve your goals and achieve your dreams. My friends,
that's the principle of cash flow. There's a lot more to teach on this,
there's a lot more to share. And I'm just reminding you that if you want access to
the real, to my personal 10X course, I've made it crazy affordable. It's actually
one of the products I designed for everyone on YouTube because just like my
young daughter, I want to give everyone access to the baseline information for
the 10 principles you need so you can have a foundation. When you have a
foundation, you can build wealth on that foundation. And so if you click the link,
you've got full access to it. Otherwise, make sure you are a subscriber because
one of my next upcoming videos is going to be part three in this series. Which is
going to be me sharing and enlightened one of the next 10 principles that can
help you go from nothing to Millions.