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Episode #088 - Create the Life You Want Using PASSIVE INCOME!

by Criterion, Braden Cheek, Brian Duck
December 5th 2022

Today hosts Braden Cheek, Brian Duck and Joel Thompson discuss how to obtain a million-dollar lifestyle by generating passive income- with numbers to back it up!

Time Stamps: 0:00 - Introduc... More

I want a million dollar house and so I want, you know, I want to drive nice cars like $75,000 brand new cars all the time, you know, every few years I want to take massive vacations around the world. And so then I thought, okay, uh, well how much? And also I didn't want to work. That's the key here guys is that I want to be able to quit my job, not work at all and still have the lifestyle. That's, that's right. I forgot to add that part. So it's really kind of, it sounds like retirement planning, it's kind of your job and you have, not When you're 60, not when you're 65, not when you're 70, when you're 30. Alright, what's up and welcome back to how to invest in commercial real estate. My name is Brandon. This is bryan and Joel and we're from criterion, I guess jewels from precision equity as well. And we are getting into a really cool episode today. I think it's gonna help, um, you know, kind of just think about what you want in your future. But before we get to that, obviously let's, let's talk about what's going on right now. We got some moving parts were trying to cram in a couple of last minute closings before the end of the year.

That's always exciting. Yeah. So deal to new deals. Last deal we did was in Owasso were from Owasso, no, he is from Owasso, that's all that matters. And monday on one and uh, in a couple of weeks on the other. Right, Yep. So Monday is $1.9 million 10 deal. Um, super small equity raise. So we're probably only calling a handful of bigger investors on that one. And then the next one should be launching out to investors soon. And that is another retail development very similar to the last retail development we didn't want. So it's, it's not the lot next door, but the lot on the other side of the lot next door, hard corner deal retail development. That'll be super exciting. So if you haven't gotten on the investor list yet, make sure to get on that deal will go out here in the next week I think because we're closing the 16th, right, we need two million bucks. You need to get on that. So if you want to give us some money on that deal, make sure you're on the investor list, Check it out about a week to raise that money. So anyway, those are both closing for the end of the year. And then we'll start setting goals for 2023.

And when you start setting goals for the next year, you need to kind of envision what you want your life to look at, not next year, but maybe five years down the road or 10 years down the road or 20 years down the road. So you can start to break it up and bite size pieces. So you know what to do next year. So Joel kind of give us a frame of reference here. What are, what are we trying to do? So today's topic I was thinking uh is how to create the life you want using passive income. And what sparked this was kind of in the beginning for me reading all these books and having Kiyosaki and others talk about passive income. How do you translate that into the life you want? And so that's what we're gonna talk about today. And what I did when I first started out was I dreamed, what do I want? What would be like an ultimate goal at the time? I was probably making 50 60,000 a year. And I said, Okay, well I want a million dollar house. And so I want, you know, I want to drive nice cars, like $75,000 brand new cars all the time. You know, every few years I want to take massive vacations around the world.

And so then I thought, okay, uh well how much And also I didn't want to work. That's the key here guys, is that I that I want to be able to quit my job, not work at all and still have the lifestyle. That's that's right. I forgot to add that part. So it's really kind of, it sounds like it's kind of a job and you have, not When you're 60, not when you're 65, not when you're 70, when you're 30, Okay. How do you achieve this when you're 39? I was closed maybe 35. But what I did and I want, I want to encourage people listening to do is how do you translate your, your life vision without you work and being able to go wherever you want and do whatever you want, have all the time freedom. Uh how do you translate that into passive income? How much passive income do I need to achieve that to basically an amount of maybe an amount of money that you would need to earn every year in order to pay for the lifestyle I guess as well. But I started I broke it down into monthly and yearly budget. I broke it down and monthly. So so what we're gonna do is just kind of talk through that and maybe you can be thinking through what you want out of your life and what it would take for you to be happy and not want to work, not have to work.

What do those numbers look like? So for me it was a million dollar home, let's do that. Uh What do we decided that was a million dollar home. We're gonna take an average interest rate and we're gonna say that payment $6000 a month for a million dollars. So we're not even talking, paying for cash on this stuff because we want our money invested in in commercial real estate or a residential real estate. Next thing is I want I want to have to $75,000 brand new cars. I want to drive those. What are those payments cost for yourself? Are you married? I've got one for my wife for me. Uh And so that that was how much that came out to uh at 4%. That's and six years, six years, 2500 month. 2500 month up to 8500. And then I I chose, you know said, hey I if I'm gonna do this and I'm not gonna have a job, I wanna wanna go places. I chose $30,000 a year for a vacation budget, which translates into 2500 month. Right? And so then I said, okay, well how much are our living expenses? Well if I've got my mortgage covered my car payments covered my uh you know my vacation budget covered. How much are we just spending on utilities and food and clothes and you know, all that stuff and we put in there $5000 a month.

And I think that more than covers it. Um If you if you needed to. Yeah. Uh and then what we did is we added all that up and we said, okay, you're still gonna maybe have some tax burden And you're also going to have, you're gonna want to maybe give money away to charity or save some money for various things. So we added 25% on top. And so what we came up with on a monthly budget was $20,000 a month for this million dollar lifestyle debt free. We're not debt free because we have the payments, but you know, we're no job, how much passive income do I need to have to afford this lifestyle? And it was 20 grand a month or $240,000 a year. Now some of you out there, you're making $240,000 a year. But we decided to be concerned and say, Okay well how much, how much invested capital do you need in order to attain this? $240,000 a year? And we chose 12% because that's what we we give our investors and Astral Point, the investors total ir is way more than 12%.

But we're just talking about the cash flow. We pay out every single quarter. The check they get to cash every single quarter to live off of to pay for their lifestyle is around 12%. Yes and that and so that's a great point because even if you spent every dollar you're making uh in passive income, you're still getting richer because you're paying down the note, your value, your property values going up in value. So you're increasing your net worth right? All the while spending every dollar a passive income in this particular example. There's Another kind of way to think about it too is once you've got the money invested, the money doesn't have to grow, it doesn't have to grow at all. As long as you get that 12%. I mean Assuming no inflation or a low inflationary environment. I mean you can live off of that for a really long time and like you said it's gonna grow naturally and easily and and way faster than you think even if you're spending all of the 12%. Yes. Yes. And so if you take that that number of passive income divided by the 12%, you get $2 million dollars invested capital in.

Uh we're we're suggesting commercial residential real estate. And so that I know that probably sounds like a huge number uh to everybody That's a massive number dude, $2 million. But I will say there are people out there that are making 100 152 $100,000 a year and they could easily save you know 50,000 year and get invested and start that ball rolling. It's not like you have to come up with a whole two million at once. That's right, you take whatever you've got and invest it on a yearly basis And it's compounding it at 12% or greater. So it's it's not even like taking two million and say I want to do it in a decade. I mean it's not just that easy, right? There's a there's a deeper compounding math way deeper comedy math Because not only are you saving your part of your salary but then your investments we've talked about until you quit your job. You're not spending that passive cash flow that the first investments are are giving and you're not spending the amount that you're paying down the mortgage and you're not spending the amount that the properties going up in value. So this will happen a lot faster than you think it will.

Uh Most people don't try don't start because they don't have the vision to get them to the end game. Uh So what do they do? They just spend all the money that they make every year. They make 100 They spend 100. Maybe they spend 100 and 10. They make 200. They spend 200. How many doctors, lawyers, business owners do we know that make a decent amount of income. They can never quit their job right? They're not doing what we're talking about here and they'll never have the freedom that we want them to have if they will get they will change their mindset around money and investments. So I'd like to compare this just a little bit um against like a company 401k. Plan. I mean let's talk about that. How much is the maximum you can contribute? Typically on a four oh one K. Plan to take all the maximum benefits I would say right now I look 20,000 maybe 24 25,000. And then if you're over 50 it's probably an extra 5000 so maybe 30,000 year if you're over 50 and then if you're not a match is from the company percent 5% of your salary. So that that could be another 3 5000.

Let's just say roughly. So do we want to call it 30,000 invested? You know typically? So yeah if you're maxing up four, okay if you have a company um that's that's doing any sort of match or sponsored benefit and you can get around $30,000 into that and get I mean what's what's an average return in a four oh one K. Right? I mean probably not great. Not 12, That could be 8-10. 8 to 10. So just if you do that for your working career. Getting 8 to 10, maxing out your four, okay, you'll still probably end up with a million million half. So just by using this approach compared to that approach, you could shave off so much time by investing more money and getting a higher return that that's taking off dramatic amounts of time again. Because it's compounding. Yeah. And I think no one allows themselves to think about a life that they don't have to work. Nobody allows themselves to go there. They just think I gotta keep working. I'm gonna spend everything I make and I gotta get to the 65 I got to get to 70. And so they don't allow them the freedom to say. But what if you're, what is life like in your thirties with your kids and you can go anywhere on the planet you want and you can Any car you want, you can have any house you want and you don't have to have to go into a job.

That's what got me motivated and excited uh to go after it, go ahead. I'm a perfect example of that because I never thought about it. And then when I got to 50, I thought, well now I gotta do retirement planning. So I went through that. I appreciate that. So, uh so I went through this same thought process, but I didn't start till 50. And here for me it was well, what am I going to do after I retire at, you know, 65 or something? I need to replace my income. I wish I would have started at 30 or younger. And I'm not telling people that love their job, They have to quit their job. But what if you had freedom to quit your job if you wanted it? I'm telling you that freedom is really powerful. Okay, so what uh, to switch gears here, I want to break it down a little bit more and say, okay, but not everybody needs a million dollar home and everybody needs those cars because some people would rather quit earlier than to keep working longer in order to have that bigger house or whatever. And so different parts of the country, you know, California, you may have to buy a million dollar house just to get a decent house. Whereas where we live a quarter million dollar house for $300,000 houses, it's a great House.

And so then uh, what we're gonna do is we're gonna walk you through real quick. Another example, let's say you said, Hey, house in Tulsa Oklahoma. I would be willing to live in that $200,000 house if it got me to my goal of total freedom sooner. And I would be willing to drive brand new $25,000 cars or even to use $25,000 car. If it got me to my goal of freedom sooner Honda accord, Honda accord. And so we did that math. I think I have it pulled up here. Um, so the, the cars you can, if you want to buy uh, two brand new $25,000 cars and borrow the money to get them. Uh, that payments 1000 a month if you want to get $100,000 house at a good interest rate, that's about 1500 a month. And then I said, okay, uh living expenses, we're gonna be pretty generous here on a lower budget and say 3000 month. Remember your house, your cars already, taken care of your vacations already taken care of your taxes and savings are taken care of. So 3000 month. And just pure expenses. And then like we said we add, I gave a travel budget.

What did I give the travel budget? 10,000 a year. 10,000 a year for vacations. That's not bad. You can take two or three really nice vacations for for $10,000. If you try hard you can take more than that. And then we added 25% on top for taxes. And uh And what the savings are gifting and you say well 25 isn't enough for savings and taxes. Well passive income is taxed at a much lower rate. And in fact if that's all the income you're getting most likely it could be zero some years or five or 10% some years. So it is it is enough. So in that scenario we get 8500 a month is what you need to have a completely free lifestyle without working 8500 a month coming in passively. Uh And so then that's only 100,000 year. And you say well Joel 100,000 lot of money. But but I'll break it down to you an average rental that you can buy. Uh probably sheds about $500 a month in cash flow. Okay. Not including Not including those.

Uh and so 500 a month. That's 6000 a year. Okay well 6000 a year. If all I need to do to give me the freedom that I want is $100,000. That's 16 rentals that's 16 16 rental houses. And again you don't have to get them all in one year. No you don't. And if you start when you're 22 23 if you bought, if you found a way to buy one a year or one every two years, what will happen is you'll buy, you'll buy one the first year. And let's say your your your excess cash from your day job is 10,000 a year, 15,000 a year. And then you're getting the cash flow from your first rental in two years, you're gonna have enough money to buy your second rental. And then and then you add that cash flow and your next one you're gonna buy in in 18 months and then the next one you're gonna buy in 12 months. And so it'll snowball. And so then you can easily work backwards to retiring with all the passive income you need for that that lower end lifestyle 30x32. But the reason most aren't gonna do it is because they've never set the vision of what they want. They've never got serious about saving money out of their their income and they've never put the plan together.

Uh and so for me that's what I did and now you'll be shocked to hear the numbers for me. My first rental netted me $250 a month. And so what is that a year? 3, 3000 year. Okay. I was making $50,000 a year and my first rental was 3000 and I got another one and I was making another 2 50 on that. So then I'm making 6000 month. And uh passively sorry, 6000 year passively and my I'm only trying to replace 50 grand. I'm like, man, if I could replace 50 grand, I'll never have to work again. You didn't seem that Far away. I wasn't that far away. And man, I got my first two rentals in the first year that I was investing 6000. I thought, man, you know, I could see the path to retire by 30. Now I didn't, I didn't retire by 30 but but I was I wasn't too far behind that. And when I retired, I was making far more than the 50 grand. Uh And so if you can break it down like that, I think you would give yourself the courage and the energy to reshape what you think is possible in your investing career and not just saddle yourself with, I'm gonna work till I'm 65 I might as well spend all the money I make.

You know, buying stuff, I don't need have a purpose for that money and every dollar that you save, you then begin to see the compounding nature of and how quickly it's going to get you to what you want to freedom all the freedom you've ever dreamed of. And so anyway, I don't know if that's encouraging to anybody, but that's what really encouraged me and and really change the trajectory of how I approached my life, my job savings and investing. It's a difficult topic. And and I think the hardest part is people aren't motivated to not spend money and just shoving the bank account unless they have a reason. And this is your reason, right? This is your plan. This is your long term budget when the money comes in now, you're not thinking about all the stupid shit you can buy with the money. You're thinking, oh that's another $6000 towards the goal or that's another rental or you know, you're getting motivated and and you're setting these bite sized goals to reach a 10 2030 year goal, that will change the rest of your life. Yeah. You know, we've talked about it before, but two concepts first without a vision, you don't have any direction on and you don't know where to take your energy, what actions to take because you don't have the vision outlining that.

So right? You don't have anywhere for that money to go. So it finds a place in an $8 Starbucks, You know, that's what it does. Um or in a car you can't afford that's going to go down in value, right? You have no purpose. And the second thing that we've talked about that's so important is I see every dollar that that I make as uh, you know, A future, $10 a future, $20. It's it's working me toward a life goal. And so yeah, I was cheap and frugal to a fault when I was younger, but I couldn't spend any of that money because I knew what it meant. But if you, if you don't see money that way, if you see money as something to be spent instead of something that can earn you more money in the future, that's that's a disconnect that's gonna cost you over your lifetime. Well, that's that's a difficult concept. I mean, most people don't look at an $8 Starbucks and think, okay, $8 Starbucks times 12% a year. One compounding period a year. What is that? Okay, this $8 Starbucks, I just paid $30 for from my self, three years from now.

I just robbed $30 for myself. 40 years from now. It's thousands. Maybe. I don't even know what the number is. Maybe not that high, but right, But it's like this trick. You know psych psych yourself out over drama. Uh, you know, over exaggerated is what I'm trying to say when you buy something and think, man, I'm stealing $50 or $100 I'm stealing $1000 for myself from buying a new set of golf clubs from my five year self from now. I mean it's just it's it's a thought process. Yeah, so think about it guys, the money you earn, you don't spend, you say you invest, if you see me spending money today, it's because I'm spending this this money that's spitting out of a money generating machine and there's more of it tomorrow, there's more of it next month, there's more of it next year. And so I can spend it freely because it's gonna keep coming in because of what I've set up. And so then it actually gives you the freedom to enjoy spending your money because you know, there's there's a supply that's not ending, but but if you're spending money, you earn, guess what? You gotta go earn it tomorrow again, you gotta earn it the next day again and you gotta keep earning it and you gotta hope that you do don't have something happen, you don't lose your job, you don't get hurt, you know that you got, you have to keep that money flowing right instead of the investments, keeping the money flowing.

And anyway, I think it's a powerful concept. I hope, I hope people get it one last story. I remember hearing a story from vic a long time ago and it was about a farmer Um you know, harvesting seeds, right? So when you're farming back in the day, they used to have to set aside a certain amount of the seed from that year's harvest to replant for next year. So if you ate 100% of your crop then you didn't have anything to plant next year. And it's the exact same concept. They they're sacrificing something from themselves today to reap much greater benefit the next year, so if you can just get in that thought process, everything will start to click in place, I think. Alright guys, anyway, we'll get back to you with another episode next week and thanks for joining us on how to invest in real estate.

Episode #088 - Create the Life You Want Using PASSIVE INCOME!
Episode #088 - Create the Life You Want Using PASSIVE INCOME!
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