Hey, guys, it's Ken, so I get a lot of questions about Be Infinite,
what it means, et cetera, et cetera, et cetera,
so I figured I'd do a new fresh video to talk to you about what I think it means.
But first, we're going to start with infinite returns using real estate.
I get a ton of questions on this.
So who doesn't want to know how to use other people's money?
Give it back and not have any investment in the deal and then have lots of cash
while afterwards.
So if you guys want to know more about that, stick with me here.
I'm going to show you a real deal,
something I'm doing right now, something I still own.
And this is basically our model for every single deal moving forward.
All right. So first, let's talk about what I think
our three strategies that a lot of people miss that you definitely need to do
if you're going to have
what I would consider to be an infinite return, the first one.
And we keep talking about this.
It's cash flow, cash flow, cash flow, cash flow, cash flow.
So a lot of people are flippers, all capital gains.
This infinite return strategy will not work for that
because the whole point of an infinite return is to own something
and then have cash flow come out of it later.
So on a capital gains strategy, you buy something low and hopefully sell it high.
You scoop that cash, you pay tax, you pay real estate commissions or whatever,
and you go buy again.
So that's an investment strategy.
It's a capital gains strategy.
But an infinite return strategy means you get somebody money or your money
and you invest it in something and then you keep getting the reoccurring
cash flow and benefits from that thing long term after the money's out.
And I'm going to show you how to do that.
The second thing is, is you do need a value add strategy.
So what that means is you want to find something that lets say
the rents are low or let's say it's partially vacant or 50 percent vacant,
or maybe you've got some high expenses or whatever in there.
So you need to have some way to force equity.
And I like to use that word forced equity, because a lot of people buy stuff
and then just hope the market carries them forward.
And that's not what we're talking about here.
What you want to find are things that maybe have a story to them.
And the last one I think is the most important thing
is you want to make your investors money.
This is a big one.
And the reason why is if you could show them that there's a cash flow strategy,
that there's an infinite return strategy and there's a value add component to this.
Then when you guys go raise money and at the level that you're heading,
hopefully you're going to want to raise other people's money
and not want to use your own money.
In fact, even Robert Kiyosaki says if you're using your own money,
then you're just lazy.
So now I don't necessarily agree with that strategy completely,
because I like to invest in my own deals as well.
But he does have a point.
In other words, as you guys are starting to take a look at some of these big deals,
if you're always focused on the cash that you have or the cash
you do not have, then that's going to be your roadblock.
That's going to be your excuse.
And what we're trying to do here is raise capital
and show your investors that you have a cash flowing deal.
You have a value add deal.
And you show them
the progression of their equity and when they're going to get it back.
So another thing
that I really need you to focus on is you need to find something broken.
So what happens a lot of times, especially with realtors,
that you're going to find that these people are selling you something
that you know, off the plan or something that's already cooked up.
One of the things I like to say is the bigger the brochure, the worse
the deal. So if something's been packaged up and looked at and shopped
and marketed and all that stuff, I'm telling you, that's probably
not a very good deal because most deals are found like on the back of a napkin.
Most deals are found by using your mind and by seeing something
that other people don't see.
So things you might want to look for are things that are like highly vacant.
So I bought properties that have been 100 percent vacant.
And you have a strategy to put it together.
Obviously, if you find something that's 100 percent vacant.
It's going to be worth
less than it is if you have a tenant in it or a bunch of tenants in it.
So that's clearly a value add strategy.
Another one is bad management.
And trust me, there's bad owners and there's bad management.
There's bad management companies.
In fact, 10 years ago, there was a management company in Texas,
and we found we bought one property from them and they were managing
the property for the owner.
And I said, let's just follow that manager at a company around
and try to find as many properties that they're managing because they suck.
And so a lot of times you could find that if there are bad people, bad
policies, bad philosophy is bad, a ton of things.
They just you know, they're just not very good at their job.
And so you're going to find that just like anything, there's really.
Good operators said there's really bad operators.
And obviously, if you're in the game and you know the business,
you can start to figure that out.
One of the best strategies is to find something with low rents
and high expenses. And this can happen a lot.
Right now, I'm in the middle of a property that we're trying to buy
right now in Texas.
We're actually buying two properties
for about six hundred and forty eight units total.
So there's two different buildings.
And what we found is the rents are low all over the place.
And actually it's because of bad management.
And so what's happened is some of the units that were like
renovated are renting for the same ones that were not renovated.
And so you start to see all
these inconsistencies and you can see that when you when you're buying properties
on a bigger scale.
And all you've got to do is dig into the rent roll and you can see
all these inconsistencies on the rent.
And that's massive opportunity.
In fact, in this property alone, it's about one hundred
and fifty thousand dollars in rent growth just here.
And the rent side is you can find rents that are like
maybe they should be more money because they're a town home
or may have nine foot ceilings
or maybe they're bigger or maybe they have a yard
or maybe the location has a view or doesn't have a view.
All those kinds of things, the things that you could do to try to grow your rent.
So this is a great way
to take a look at every single property and push your rents up.
And these are spined, something broken on the high expenses.
So we're seeing this now.
We're seeing a very high water and sewer bill as an example
at this particular property. So we're putting water conservation.
Same thing on the electric.
Same thing on the insurance.
We're having that bid right now, by the way.
We're we're in escrow. We're we're we're in due diligence.
We haven't even bought the building yet, but we're setting up these strategies
on trying to figure out how do we save on these expenses.
We're combining the two properties.
So we're going to save about one hundred thousand dollars in payroll.
And obviously we're going to have one marketing platform as opposed to two.
So there's all these things that you could do
as you're starting to manipulate and drive your a.y
higher and create value for your individual owners.
So you want to find something broke
and you don't want to find something that's perfect,
that doesn't have any kind of movement, because that's not fun.
It's not exciting.
It's not going to create this
infinite return that we're trying to get out here in a minute.
OK, so now we're going to go right into a real deal.
So I'm going to plow through some of these numbers pretty quick.
But this is a real building that I own right now.
Two hundred sixty five units.
I'm going to walk you through kind of a strategy and why I believe that
a cash flow model versus a capital gain model is far better,
because if I would have sold this
in year one or you two, I still wouldn't own this today.
So this is a building that I actually own right now going I'll walk
you through an infinite return and how it works and why
my investors are so happy on this property and, of course, in all the other ones.
So we bought this building.
It was 19 million dollars.
And we went to the bank and said, what can you give me in a loan?
And they said, we'll give you 15 million dollars.
OK, so obviously you have an equity issue.
And so I needed, what, four million dollars in equity.
But there were some capital expenses that was needed. It also
there was a value add play.
So there was about one million in CapEx.
Now, we've talked about a lot about NWI.
So the NWI of this property was about seven hundred thousand dollars.
So A.I. is basically income minus expenses.
So that's what it was, that's what the seller had
when we were trying to buy it. But I saw that there was an opportunity.
I'm going to talk about that in a minute.
So we went back and we said, OK, the loan, 15 million dollars, what's the payment?
And the lender said, well, we got a payment of around
four hundred grand.
So what that does is that gives us a cash flow
of obviously about three hundred grand.
So we had a cash flow of three hundred grand.
We had an investment of about five million dollars.
And so that's about a six percent return.
Not a bad return on something that we haven't even value added at this point.
Now, the cool part is, is we're not going to really talk a lot about today
is we also had a depreciation expense of five hundred K.
And basically what depreciation expense is, is it's a nonoperating expense
and the government lets you depreciate the property over a period of time.
That's not something that we're going to really calculate here for you today.
This is something that you need to do through your CPA.
But just trust me, this is the actual cash flow.
In addition to that, you get a depreciation expense.
And then for that, we show a two hundred thousand dollar negative cash flow.
So we get three hundred grand a year in cash flow, but
we report that we lost two hundred thousand.
That's how that works. So that's how a real deal is.
But here's the cool part.
What we found on this property and again, as I try to find stuff that's broken,
we we had two hundred and sixty five units, so we had two hundred
and sixty five units, and we saw that there was about one
hundred dollars a unit value add. Now.
Some of that was putting washers and dryers in there,
so that was about 40 dollars a unit.
So now I had to buy those, of course.
But the other was like just upgrades.
So so we found that there was some room in the Rantzen,
et cetera, et cetera, et cetera.
So that was about another 60 a unit.
And that was one hundred one hundred dollars a unit to sixty five times
100 is basically about three hundred and eighteen thousand dollar increase.
So basically, before we bought the property,
we said this has a washer and dryer play, it has a renovation play.
And this 318 is going to go right onto the bottom line.
It's basically going to increase my a.y.
So I already know before I buy the building
that I'm essentially going to increase this property to about a million dollars
of Nnewi before I even buy it based on this value add strategies.
So when I brought the property to the investors, they're like, this is awesome.
You're going to grow.
We've got three hundred grand in cash for now.
We're making six percent of our money on our five million dollars.
And you're going to grow it another three hundred thousand dollars.
And so that's how we raise the money on this deal.
So now let's go let's fast forward to year four
and let's walk through the numbers again.
So what I did was I actually grew the a.y to about one point one million dollars.
So we obviously capitalized on that
three hundred eighteen thousand dollars of income.
I had a little bit of actual expenses that went up, but I also had some rent
growth and that two or three year period before I got to the end of year four.
So we took the a.y back to the bank and we said,
what do you think that you will give us for this property?
And what do you think it's worth now that we're at a one point one million?
And keep in mind, guys, we're also now producing
about five or six hundred thousand dollars a year in cash flow at this point.
So the investors are wildly happy.
Their returns have gone up from six percent.
And they said we think the thing's worth about twenty five million right now.
I said, OK, great.
So what kind of a loan will you give me?
And they said, we'll give you a 20 million dollar loan.
I said, awesome.
So I took the 20 million dollar loan and I paid this loan off.
I pay obviously the 15 off,
because when you get a new loan, you pay off the old loan.
In addition to that,
I paid off the five million dollars that I owe to the investors.
Now, guess what?
I'm now infinite.
I've now given all the investors their money back.
I've used it through a cash out refinance and I've done it
through a value add strategy.
We still own the property. It's one point one million.
Now, obviously, I have a 20 million dollar loan. So guess what?
My payment goes up and I went up a lot and went up to seven hundred K
for because rates actually went up during that period of time.
So I still have four hundred thousand dollars in cash flow here,
which is awesome.
So the investors have gotten their five million dollars back
and now they're into the deal for zero.
They still have the same ownership and now they're getting four hundred grand back.
So they're happy because they got all their original capital back.
And guess what they do?
They go do that again. Do that again.
So they give me the money for another deal.
And so obviously,
I still have the five hundred thousand dollar depreciation because it's
an annual depreciation expense doesn't fluctuate all over the place.
And we show one hundred thousand dollar loss
and the people have gotten all their money back.
The best part about this is that there's no tax paid
because this is a return of original equity.
So basically, they got their money back.
They're still in the deal.
It's still producing about 400 grand a year.
And there's no tax because even there's four hundred grand.
And that three hundred grand was covered by the depreciation expense.
So now this is why we like cash flow versus capital gains.
I could have sold the building, obviously, for twenty five million.
I would have scooped up quite a bit more money. We would have distributed it.
We would have paid tax, all those kinds of things.
And then we would have been scrambling
to try to figure out how to reinvest it again.
So now let me take you out another four years.
And the management company has done a great job.
And now we've grown this to one point five million.
So how did we grow in four years?
Basically, we've covered this over and over and over.
This is through normal rent growth and and good proper management.
You grow in your on a Y through.
If you just calculate your rents
over a period of time, you're going to see that this is not that unreasonable.
You have to grow up to another four hundred thousand dollars and a y growth
through your back to the bank. We say, what will you give us again?
And they said, well, now we think the property is worth
about thirty five million. And I said, great.
So what kind of a loan would you get?
And so my partner and I said, let's don't leverage this too much.
Let's actually just get about twenty five million.
But we probably could have got closer to twenty seven or twenty eight million.
But we decided to do twenty five million because we didn't
want our payment to get so high that we were squeezed on the cash flow.
So then, of course, the payment went up to one million.
Our cash flow is five hundred thousand.
Our depreciation expense is five hundred thousand.
And of course, we're still at zero.
So let's sum this up.
So I gave the original five million bucks back here.
I gave these people another five million here.
We made about 400 grand here, so about one point five more million.
So we paid an additional six and a half million dollars, almost all tax free.
And we've been basically infinite in this property since year four.
So that's how you take a property that's broken.
That's how you take a property that has problems.
That's how you take a property that has opportunities and you manage it
and you use the bank's money by going back through cash out refinances
and growing your net operating income and putting more debt on here
and pulling the cash out and harvesting and harvesting and harvesting.
I still on this building today, it's obviously kicking out even more cash.
Way more than five hundred grand.
We want it now for I think, 10 years.
But this is the difference between long term
capital gains and cash flow investing.
This is it right here, folks.
And obviously, our investors are very, very, very happy
because we want to be infinite here and here and obviously in year four.
They have not been invested in the deal any longer, and they just keep
getting these checks each and every quarter.
So hopefully you enjoyed a lot here. This is how you be infinite.
This is how real estate investing is done.
You can do this to.
If you guys like what you saw, obviously a ton of work here, please hit
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