I had the privilege of spending a day filming Brant Phillips, a Houston-based real estate investor who has quickly made a name for himself. He specializes in buying under-valued properties, rehabbing them, and flipping or holding depending on the circumstance. He enjoyed real estate investing so much that he started his own contracting company where he does it for other people as well.

Brant was able to quit his day-job after a few short years investing in real estate. He is proof that it can be done.

I tend to get a lot of flak when I write articles touting real estate as the most efficient vehicle to financial freedom. People invent a lot of excuses about why they think that it doesn’t work.

Guys like Brant just do the work and reap the rewards.

Enjoy this five minute reality style video of Brant and his crew as they take on the crazy world of flipping houses for profit.

A very wise man and mentor, Steve Davis, once taught me that the key to marketing is not what you say, but how well you can transfer emotion to your audience.

Subtlety

It’s an extremely hard concept to master because it’s subtle. There is no instruction manual on how to transfer emotion. This is bad news for over-analytical types that want the exact formula for success, and good news for creative types that know how to tap into other people’s emotions.

Considering that marketing is a part of everything you do, from getting a date to getting a job to asking your parents (or boss) for money; you would serve yourself well to understand and learn to implement this concept.

Why do you think that top actors are among the wealthiest in our society? They have mastered the concept of transferring emotion from the screen to you in your seat.

If you’ve ever heard Steve on his radio show, you understand that he is the master of transferring emotion. He is passionate about helping others succeed and he is able to get that across over the radio waves.

Digging Deeper

Steve taught me this concept about a year ago, and since then I have been working on it weekly in my role as a presenter and mentor. Over the last 3 months, I’ve submersed myself even deeper through the process of training my business partner, Shauwn, to present.

It has been a fascinating experience to watch his growth as a presenter from an outside perspective. We have learned without a doubt that Steve was right. Shauwn (or I for that matter) could say the exact same thing on two different nights, but the results might vary drastically based on how well he transferred his passion on the subject to the audience.

Sometimes it even seems like he could say almost anything as long as he transferred the emotion well enough.

The “Ah-Ha” Moment

A few weeks ago, I sat in as Shauwn gave his presentation. I could see in his eye that something had changed. The information was the same (making the same mistakes in the material.. damn you Shauwn!), but the delivery was very different. I found myself looking up and leaning forward in my chair, where before I had the tendency to mentally wander.

It ended up being his best night up to that point. Interestingly enough, he didn’t quite understand why. He told me that he actually felt like he had given a worse presentation that in previous nights. No…., I told him, It’s not the presentation that mattered, it was your transference of emotion. It was there!

I find it fascinating that the difference was so subtle that it was hard for him to put his finger on, but the audience could sense it.

How To Transfer Emotion

You may not be a public speaker like Steve, Shauwn, and I; but the concept still applies to you. Anytime you want something that someone else has, such as money, attention, acknowledgment, etc; you market yourself to get it. To be effective, it’s important to transfer the emotion of urgency, desire, sympathy, or whatever feeling is necessary to get them to take action.

Transferring emotion to another human being takes a delicate balance of passion, communication skills, and empathy.

Passion

To transfer an emotion to someone else, you first have to strongly have the emotion yourself… but how do I tell you to how have an emotion?

Feelings are funny, subtle things… especially for men. Maybe that’s why women tend to be better communicators.

If you don’t have passion for what you are selling, writing, asking for, etc; you are not going to be successful. Your audience can sense your feelings for the subject matter. If you are weak in this area, it’s possible that you are suppressing your emotions (a lot of us men), or maybe it hasn’t been properly marketed to you yet.

It might help to go back and become an audience member again for someone who is passionate about the topic. For example, if you are a blogger who wants to write about poetry (and you’re not feelin’ it.) It might help to find someone who gets excited about the ancient poets and listen or read them for awhile to hopefully acquire their excitement for it.

You see, we all pass emotions to each other like currency flows in an economy.

Controlled Passion

Once you have sufficient excitement for your topic, it’s important not to go overboard (I told you this thing is subtle). With practice, you will eventually find that delicate balance between passion and control that your audience will respect.

Too much passion and people won’t believe you. Too little passion and they won’t even hear you.

Communication Skills

In our school system, it’s very hard to find classes on communication. I guess we’ve decided as a society that we should learn it on our own. I made it through high school and 1 year of college before I took an elective class on interpersonal communication; and I will argue that it was the most beneficial class I have ever taken.

Think about how inefficient interpersonal communication is: Right now, I have an idea in my head that I’m trying to transfer to your head. The idea has to be translated into an imperfect language that took thousands of years to develop and put into words on this page before it gets to you. By some chance, it got to you, and hopefully I kept your attention long enough for you to make it this far in the article. You now have to take the words and the language and try and reconstruct my idea in your head.

The closer I can come to reconstructing my idea in your head, the more successful I have been as a communicator. That being said, it is impossible to reconstruct an idea perfectly in someone else’s head.

Mastering communication takes study and practice. Start by learning what makes people tick. Learn the differences between how men and women think. Learn the different Meyers-Briggs personality types. Learn a different language.

Take your knowledge into practice by talking to people. Get in front of groups. Write. Communicate!

Empathy

The most important part of marketing is actually caring for your audience. You have to actually care enough about how they feel to transfer your emotion to them.

Steve used to tell me to “love your audience.”

The Bottom Line

In conclusion, marketing is tough and takes a lot of practice. It is a pursuit that takes a lifetime to master.

The journey, though difficult, is worth every step. If you can master the transference of emotion, you can have anything that you want in this life.

I find it interesting that wisdom is often clearly laid out before everyone in a book or a lecture, and few truly understand it. It’s just as Napoleon Hill wrote in “Think and Grow Rich” when he hinted that one needs to re-read the book several times; and even then, the wisdom can only be captured when a person is ready to hear it.

The wisdom that I have in mind as I write this article is the treasure that can be found in the children’s fable “The Goose and The Golden Egg.”

The idea was further developed in popular wealth literature such as George Clason’s “The Richest Man in Babylon,” which was echoed in Kiyosaki’s “Rich Dad, Poor Dad” and also supported by Warren Buffet’s 1st and 2nd rules of investing.

Pay Yourself First

The simple, but powerful concept is generally known as “pay yourself first”.

Most of you that read this article will be familiar with the principle, but my guess is that few truly understand it; and fewer still practice the concept.

The concept is so simple, yet possibly the most powerful wealth building principle available to the average person.

What Does “Pay Yourself First Mean?”

In “The Richest Man in Babylon,” Clason describes a technique that includes putting aside 10% of your income to “pay yourself first.” The idea is simple, yet profound in it’s implications.

I find that there is widespread misunderstanding about what “pay yourself first” means. The definition is subtle, but important to understand if you plan on using it to create wealth.

Let’s start out with what it’s not.

Luxuries

Some people think that “pay yourself first” means to treat yourself to something nice when you get your paycheck. For example: someone might get their paycheck on Friday and decide to go out to eat with the first dollars of the check before they pay their bills.

It’s important to realize that this scenario does not pay you first, but instead, pays the restaurant first. Do you see the subtle difference? If you were paying yourself first, you would still have the money.

Buying a House to Live In

Many people think that they are “paying themselves first” by putting aside money to purchase a home. While this isn’t the worst thing you could do with your money, a home doesn’t qualify as a cashflowing asset. Robert Kiyosaki describes in “Rich Dad, Poor Dad” that your home is actually a liability because it takes money out of your pocket each month.

Automatic Distributions to a 401k

Many people arrange for their employer to automatically deposit 10% of their paycheck into a 401k. While this is in line with the spirit of pay yourself first, it doesn’t completely qualify under Warren Buffet’s rules of investing.

The problem with a 401k is that people tend to invested it in stocks or assets that might lose value. To make matters worse, people tend to tap into their 401k early by borrowing against it or taking a premature distribution.

Worst of all, the majority of retirees have to draw down their 401k principle, which is effectively “killing the goose.”

The Real Definition

Based on my understanding of the works of Warren Buffet, Napoleon Hill, George Clason, and Robert Kiyosaki; I have have come up with a definition of what “pay yourself first” really means.

The simplest comparison I can make is the goose from “The Goose and the Golden Egg.”

Wealth is created by consistently feeding the goose that provides you with golden eggs. In order to continue to grow in wealth, it is important to always feed the goose and never destroy it.

The Equity Goose

I like to call it the Equity Goose: an asset or group of assets you own and contribute to on a regular basis that rewards you with passive cashflow.

Your equity goose is not your net worth. The two concepts are loosely related, but not the same thing. Many of the assets you might own that contribute to your net worth will not qualify as your equity goose.

In order to qualify as an equity goose, your asset has to meet 3 requirements:

1. It Can Not Be Tapped Into

It is of the utmost importance that your equity goose always grows and never gets smaller. This automatically disqualifies your “rainy day fund” because you might potentially tap into it (when it rains).

It disqualifies your checking account, because you use it to pay your bills. Remember, the equity goose can never get smaller.

It disqualifies the equity in your home if you ever take out a home equity line of credit.

Basically, your equity goose needs to have a firewall around it. It needs to be hard as possible to tap into.

For example: the simplest form of an equity goose is a money market account. Money market accounts limit your ability to access the asset for this exact reason. I even suggest getting a money market account at a different bank than the one you use to pay your bills. The temptation to make an online transfer from one account to another might kill the goose.

Don’t trust in your own will power to protect the goose. Humans have weak moments. The smart thing to do is to keep it away from yourself.

2. It Can Not Lose Value

Warren Buffet’s 1st and 2nd rules of investing are: 1) Don’t lose money, and 2) Don’t forget rule #1.

I’ve known these rules for many years, but only recently did I understand what he was trying to tell us.

Warren Buffet is telling us not to invest in anything that has the possibility of going down in value. This immediately eliminates stocks. Ironic as it may seem, Buffet is telling you not to invest in stocks because they have the possibility of losing value.

The only way to protect your asset from losing value is to buy it at wholesale. Warren Buffet buys $1 Million companies for $500k. 50 cents on the dollar.

To keep your goose healthy, you need to buy assets at 50-70 cents on the dollar. The most practical asset class to accomplish this rule is real estate investing.

By either buying a house at 70 cents on the dollar or becoming a private lender who loans no more than 70% loan-to-value; you are protecting yourself from losses.

3. It Must Cashflow

The masters have been trying to tell us for hundreds of years to buy assets that produce realized cash on a monthly or quarterly basis. So why do people buy stocks with no dividends? Somewhere along the way, we have been sold on the concept that we don’t need cashflow; but we do.

Sources of cashflow include: interest on savings and money market accounts, dividends on stocks (not capital appreciation), and cashflow from real estate.

A money market account is the most secure form of cashflow, because it is guaranteed by the FDIC. These accounts only yield 1-2%, but they fit all the requirements of the equity goose.

Rental real estate is my favorite form of cashflow, and provies a higher rate of return, anywhere from 10 – 20%. If you buy your rental real estate a at wholesale with cashflow, you are protected from downturns and it meets all the requirements of the equity goose.

The First Step

The first step is to figure out how big your equity goose is. Given the strict guidelines laid out above, many people will not have many assets that qualify.

It’s okay if your number is not impressive, the key is to know where you stand so that you can plot a course.

Everyone Has 2 Numbers

To really take advantage of the wisdom of “pay yourself first”; every person should know 2 numbers: 1) Their equity goose, and 2) the cashflow, or “golden egg” that their goose provides.

It’s kind of like knowing your weight, or your GPA in school. Each person should know where they stand; but few do.

If Your Number is Zero

If your equity goose is nil, your first action should be to scrounge up enough money (even if it’s just a few hundred bucks), to open a money market account that you will never allow yourself to tap into except to purchase cashflowing assets. Remember to choose a different bank from the one you already use for you monthly bills.

You will feel a tremendous amount of accomplishment by taking this simple step. The sum of your whole life up to that point was a zero equity goose, but now you have planted the seed that will soon make you wealthy!

Every month from this point on, it’s important to put something in the account. Even if you can’t afford the entire 10% of your salary, at least you are feeding something to your equity goose.

Your First Acquisition

Before long, you will have enough in your equity goose to purchase a cashflowing asset; but don’t rush it… your money market account fits all the requirements until you find another qualified asset to move it to.

It’s more important to keep your money in a low-performing asset that fits all the criteria than it is to risk your goose on a higher-performing asset that doesn’t fit.

When you find an asset selling at a wholesale price that cashflows, do your due diligence and if it qualifies, purchase the asset.

It might be a single-family home selling for less than it’s worth.

It might be a private loan that you make to a real estate investor at 70% loan to value.

Cashflow

As long as you follow the rules, you can take comfort in the fact that your goose will always get bigger and your cashflow will grow along with it.

Ultimately, your goal will be to live on the cashflow without ever touching your goose.

In real estate, you can reasonably expect to make 10% cashflow on your investment. That makes it easy to determine how big your goose needs to be to support you.

If you need $50,000 a year to live on, you need an equity goose of $500,000. If you need $100,000, you need $1 million.

Make a plan to grow your goose until it’s big enough for you to live on.

One of the greatest things about real estate investing is that anyone can do it. People think they need money or credit to become a real estate investor, but that is simply not the case.

No matter where you are financially: broke or bulging pocketbook, there is a place in the real estate investing world for you.

The Ladder

I like to think of it like a ladder. We are all want to make it out of the rat race, and each of us is on a rung on the ladder. Whether you have a lot of money and are near the top of the ladder, or are just taking your first step; it is as simple as a series of steps.

It’s obviously easier at the top of the ladder because you have the most options. Cash is king and buying real estate with cash will get you the best deals and terms.

Because you have the most options at the top, it’s logical to choose the highest returns with the least amount of work. The top rung should be on the passive side of the passive income continuum.

At the bottom of the ladder, your options are limited, but not as much as you might think. You will need to find ways to invest in real estate with little or no money. You will have to give up some long-term gains for some short-term money to get you on the next rung of the ladder.

Let’s start at the top of the ladder and work our way down to the bottom.

5th Rung: High Net Worth, Wants Low-Risk Cashflow

People on the 5th rung have enough money to retire and are looking for low-risk, cashflowing assets that will give them a steady stream of passive income in their retirement without digging into their principle.

At this level, you could theoretically just dump your money in Treasury Bonds and live off the 1-2% return, but you can do better than that in real estate while keeping your risk to a minimum.

Multi-Family Value Play

As real estate investors, we are all heading in the direction of the multi-family value play. That’s where you buy an apartment complex that is in good condition and already stabilized; and enjoy a steady 10-20% return on your investment through monthly cashflow.

If you have a high net worth and are close to or in retirement, you want an investment that will give you a high rate of return without much hassle. Those that want the least amount of hassle should look for an opportunity to be a passive investor in a multi-family deal put together by an experienced lead investor.

Many lead investors will accept passives with as little as $100,000 to bring to the table. Your commitment might be as little as the optional quarterly meeting to vote on distributions. If you have placed your money with a solid lead, all you have to do is go to the mailbox and deposit your check.

Before entering in any deal with a lead investor, make sure they have a solid track record of safe, steady returns.

If you are willing to put more time and energy into a deal, and have the skill-sets to manage large projects, you might consider learning to be a multi-family lead investor. As a lead, you would earn extra compensation for putting the deal together and managing the asset.

Private Lending

Finding a great multi-family value play might take a little time, so in the mean time you can make a steady 6-10% return by lending money to real estate investors to buy property. Your investment would be secured by the piece of real estate at no higher than a 70% loan to value (LTV).

If you hold a 1st lean position on a piece of real estate at 70% LTV, the worst thing that could happen is you would have to foreclose on the borrower and take over a property with a 30% equity position.

You could sell the property and probably walk away with more money than you would have made if you had not foreclosed. Some people consider this the BEST case scenario.

(For more information on private lending, please visit PassiveEquity.com)

4th Rung: Medium-High Net Worth, Wants Big Gains

People on the 4th rung are either still building their nest egg, or are wanting to get more aggressive with their investments. They are looking for opportunities to make a 50-100% gain on a deal in a 1-5 year period.

Multi-Family Value Play

A Multi-Family value play is where you buy an apartment complex that is beat up with low occupancy, and rehab the asset until it is in good condition and performing at a high level.

There is more risk involved with such an undertaking, but the rewards can be massive. Think about it: If you by a apartment complex that was selling for $30k a door five years ago for $10k a door in foreclosure; imagine the possibilities if you could run that asset properly.

Before you embark on such an undertaking, get as much information from experts in this sort of deal. Find a local investor group with multi-family investors to learn from. Go to NationalREIA.com to find a local investor group.

3rd Rung: Medium Net Worth, Wants to Move Up

People on the 3rd rung have a good foundation, but not enough to get into multi-family investing. Their main concern is building their nest egg as quickly as possible while adding to their passive monthly cashflow.

Single-Family Buy & Refi

If you have $20-$100k to invest, you should be mainly concerned with preserving your liquidity. The object is to buy as much real estate with as little out of pocket as possible.

One way to do that is to buy rental real estate and then refinance your money back out in order to buy the next piece.

The first step is to buy the property with either cash or a hard money loan. In order to make this work, you will need to find a property that you can buy and rehab for 75% or less of it’s after repair value (ARV).

Once you have rehabbed the property, most commercial lenders will give you up to 75% of the value of the house in a refinance mortgage. Take your money back out of the property and do it again.

Rinse and repeat.

When you have built up enough equity to move into multi-family, sell your properties to liquidate your equity and move up.

2nd Rung: Low Net Worth, Good Credit

If you have somewhere between $5k and $20k with good credit, you are still in good shape! Your real estate investing plan should be to buy as many properties as you can with hard money loans.

Hard money lenders are non-traditional banks that will usually lend up to 70% of the after repair value of a property. This differs from traditional lenders who lend based on the current value.

If you can find a house that will be worth $100k when it is fixed up for $50k with $10k in rehab and $10k in closing costs, you will be all in at the end of the day for $70k. Since 70% of the ARV is $70k, the hard money lender will lend you everything you need to buy and rehab the property. In this case, you will have nothing in the deal.

If you are all in for $75k, you would only need to come out of pocket $5k.

Hard money allows you to stretch your minimal capital as far as possible.

1st Rung: No Net Worth, No Credit

If you have no money and no credit, you can still be in the game. Since you won’t be able to qualify for a loan, your strategy will be to find deals for other investors and make a short-term gain.

Wholesaling

Wholesalers are sometimes known as “bird-doggers” because they spend their time hitting the pavement to find deals for other investors. If you don’t have money or credit, you will have to bring value to the deal with sweat-equity.

You will set up a marketing campaign to find motivated sellers by putting up signs, sending out mailers, walking the streets, plastering your car with ads, networking, etc. If you can find a $100k for $45k that needs $10k in rehab, you could easily sell it to an investor for $50k, giving you a quick windfall of $5k.

(Remember that most investors are looking to be “All-in” for around 70% of ARV.)

Conclusion

I know people who make a living at every one of these rungs of the ladder. The reality is that it can be done no matter where you are financially.

After hanging out with a bunch of millionaire real estate investors for the last few years, it’s amazing to me how much most people DONT know about creating wealth. The average reaction to this article will probably be skepticism because most people have never even imagined creating wealth this quickly.

The investors who run in my circle are doing this every day.

Is $200 a month a lot of money?

How you answer this question speaks to your level of financial sophistication.

How Far Would You Go for $200?

Most people would not go very far out of their way to make an extra $200 a month. When compared to a monthly salary of $3,000 or $4,000; $200 sounds pretty insignificant.

A person might pick up an extra shift on a Saturday for a little vacation money; but the uncomfort from losing a weekend day keeps them from making a habit of it. Someone might sell an outdated computer or game system for a few hundred bucks, but that money’s usually gone by the end of the weekend.

As a way to create wealth, $200 doesn’t even cross most people’s minds. The average person spends more time buying lottery tickets and gambling in casinos than looking for ways to add another $200 to their monthly cashflow.

Successful Real Estate Investors

I happen to have the best job in the world. I get to produce videos about real estate investors, which allows me to meet many successful people and pick their brains in the process.

I’ve found that all the successful real estate investors I meet are excited about $200 a month in cashflow from one of their rental properties.

In most cases, that $200 a month is the main reason they pursued the property.

The Definition of Wealth

How you feel about $200 a month has a lot to do with how you define wealth. Most people associate wealth with a large dollar amount: Alex Rodriguez signed a $80 million dollar contract, or Bill Gates is worth $80 billion.

Throughout most of my childhood and early adult years, my definition of wealth was 1 million dollars. The day I opened up my bank statement and it said “$1,000,000″ was the day I was going to be wealthy.

Rich Dad, Poor Dad

My definition of wealth changed the day I read the book “Rich Dad, Poor Dad,” by Robert Kiyosaki. If you have never read the book before, your next click should be Amazon.com to order yourself a copy. This book changed the way the world looked at investing.

One of the most important concepts in “Rich Dad, Poor Dad” is the definition of wealth. While most people look at wealth in terms of a large, one-time amounts of money; Kiyosaki says that this has nothing to do with wealth.

Wealth is determined by this simple test:

Quit your job today; and without touching the principle on any of your investments, how long can you live on your passive income?

Passive Income

A few forms of qualified passive income are:

• Interest from Checking and Savings accounts
• Dividends on Stocks (not capital appreciation)
• Cashflow from Real Estate

All of these things A) give you cash on a consistent basis, and B) once set up, are relatively easy to maintain.

How Long Can You Live on Your Passive Income?

To figure out how long you can live on your passive income, you first need to know how much your personal bills are each month. Add up all of your expenses: everything from the house note and car note, to toothpaste and tuna. If you’re married, just do it for your half of the bills.

Let’s say that the average American needs $3,000 a month (after taxes). Since a month is about 30 days, that’s $100 a day.

So how long can you live on your passive income?

I would suggest that most Americans can only live a few hours… maybe a few minutes on their passive income. Most people don’t have anywhere near $100 a month in qualified passive income. They might be getting a few cents in interest from their savings account, but that would only cover a few seconds.

One Single-Family Rent House

Let’s say, in the next three months, you go out and buy one single-family rent house that cashflows $200 a month. Can you see how you may have done more to retire yourself in 3 months than you had in your entire working career?

That one house, and it’s $200 a month cashflow, pays for 2 days out of your month. If you don’t have more than $200 a month right now in passive income, this one house did more to retire you than you had done for yourself in your entire working career.

Now, go buy another one… that pays for 2 more days…

Buy another and you’ve now paid for 6…

By the time you have 15 rent houses, you’ve now paid for all 30 days in the month… and the month starts over again.

Theoretically, you can now live forever on your passive income.

Side Note on Kiyosaki

After seeing Kiyosaki live, buying his board game, and reading many of his books; I’ve come to realize that he is BIG on ideas, but small on details. When you finish reading his books, you’ll be so jazzed on creating wealth that you won’t know where to start… (that’s because he didn’t give you any details.)

Make sure you are part of a local investor group to fill in all the little details that Kiyosaki doesn’t tell you. My favorite is Lifestyles Unlimited Real Estate Investing, Education, and Mentoring where I am both a member and mentor; but you should shop around until you find a group or groups that you are comfortable with. Go to NationalREIA.com for a list of investor groups in your area.

$1,000,000 401k

Now, let’s compare our 15 rent houses to a million dollar 401k. Let’s assume you were the worlds greatest at-home stock trader in the early 2000’s.

You listened to Jim Cramer every day and managed to act on his good advice and avoid the bad advice that lost everyone else 40% of their portfolio in 2008. You sold everything before the market crashed and now you’re ready to retire.

The challenge you now face is how much money to take out of your 401k in your retirement so that it lasts the rest of your life

Or.. as Real Estate Investor Del Walmsley likes to put it: so you can hurry up and die before you run out of money.

The Conventional Wisdom Plan

You seek the advice of a financial planner and they give you the conventional wisdom on retirement:

1. Conservative Investments

You’re told to put your money in conservative investments that will only yield 2-4%, but at least you can have some peace of mind in retirement. Sounds reasonable.

2. 4% Drawdown

You’re allowed to draw down your 401k at the rate of 4% per year to live on: $40,000 per year.

Before the crash of ‘08, 4% was generally accepted to be the right amount to draw down in retirement. The book “The Number” lays out research from William Bengen showing that those who drawdown at 5% have a 30% chance of running out of money.

3. A Little Interest

Won’t I be getting some interest, too?

Yes, but it will be at a very low interest rate and getting smaller each year as you eat into your principle. Let’s say, another $10,000 per year.

$50,000 a year doesn’t sound as great as you had always imagined, but at least you don’t have as many expenses as you used to (you did pay off your house, didn’t you?).

4. Pay Taxes

Wait, I thought we were done!

Sorry, here comes the worst part… Now you have to pay taxes. You were sold on the 401k as a way to defer taxes, but you didn’t realize that defer was not the same as avoid. You pay roughly $14,000 in taxes which leaves you with $36,000.

$36,000 a year just happens to be $3,000 a month or $100 a day.

15 Rent Houses Did the Same Thing Faster

15 rent houses did the same thing as your million dollar 401k, but did it take you your whole working career and a huge chunk of your paycheck to build?

No. You can buy 15 rent houses in 5 years or less.

The Five Year Plan

Here’s how to buy 15 rent houses in 5 years:

Year 1: Save $5k from employment to buy 1 house with a hard money loan. (1)
Year 2: Save $5k and refinance $5k out of the 1st house to buy 2 houses. (3)
Year 3: Save $5k, refinance $10k out of last year’s 2 houses, to buy 3. (6)
Year 4: Save $5k, refinance $15k out of last year’s 3 houses, to buy 4. (10)
Year 5: Save $5k, refinance $20k out of last year’s 4 houses, to buy 5. (15)

This example only took $25,000 out of pocket over a 5 year period… much less than a million dollar 401k …and much faster.

But Wait… There’s More

The story doesn’t stop there, with 15 rent houses and $3,000 a month in cashflow. The beauty of real estate is that there are so many different ways it makes you money.

While a 401k gets smaller and smaller in your retirement, rent houses continue to increase in value and cashflow year after year.

1. Equity Capture

If you bought those houses correctly, you should have captured equity in each house. Let’s say you captured $20k in each house. That’s $300,000 added to your net worth.

2. Market Appreciation

Real estate doubles in value every 20 years. That means: by the end of your retirement, your real estate holdings would have exploded in value.

If each house was worth $100,000 when you bought it, then all 15 were worth $1.5 million. You could potentially add another $1.5 million to your net worth over the next 20 years.

3. Cashflow

Rents rise over the long run, adding to your cashflow year after year.

4. Principle Paydown

Your tenants will be paying down the notes on all of your houses. If you had 20 year notes on each house, you would have them all paid off in 20 years, adding another $1.5 million to your net worth.

5. Tax Advantages

Real estate investors pay the lowest taxes of any for-profit group in the United States. The cashflow is virtually tax-free when you account for the depreciation deduction the IRS allows you to take.

If you decide to sell and capture your equity, you can roll the profits into a 1031 tax exchange to defer the capital gains tax. When you pass the properties down to your children, they take over the property at the new cost-basis, wiping out all the capital gains tax.

Conclusion

Now, do you see why I stopped playing around with small-ball investments and focused on real estate? Real estate is the most powerful wealth-building tool that is available to everyone in the United States.

Stop playing small-ball and start investing in real estate.

This video was fun to produce. I met David Fisher about 6 months ago when he joined Lifestyles Unlimited. He and his wife were one of my first students.

While most people are very reserved when it comes to starting out in real estate investing; David is just the opposite. He studied what we were teaching long enough to understand it and believe in it and he took decisive action.

He dove right into this single-family investment project; which had a pretty ambitious rehab for a 1st time investor. It was kind of funny, because when I met him at the property for the “before” footage; he was covered in sweat. He had gotten a little bit over his head on the rehab and he later admitted that he took on too much on his own.

By the time of the “after” footage, he was in much better spirits! He had just pulled off a very dramatic improvement and was glowing in his success. He told me that on the next one, he would contract out all the rehab.

One of the wisest mentors I have, Chuy Terrazas, once said: “If you have tool in your hand, you’re losing money.” That’s great advice and a lesson that David learned the hard way.

Enjoy the video and check out how much better the property looks after rehab!

I had the pleasure a few weeks ago of hanging out with Robert Hammond, a real estate investor who bought 74 investment properties in less than two years; accumulating $2.5 million in equity and $22,000 a month cashflow!

Everyone wants to know how the heck he did it… well, he started with around $40,000 and flipped two houses to bring that up to around $80,000. With $80k, he bought 10 houses, which is the Fannie Mae limit for single-family homes. He went to real estate mentor Del Walmsley to ask what he should do next.

Del advised him to start taking on partners. He found 6 partners to put up cash and credit for the next 64 houses!

Robert is truly and inspiration to all aspiring entrepreneurs. I am certainly fascinated by his success and have befriended him as a mentor. It will be exciting to see what he does next. Will he keep building his house portfolio, or will he move into apartment complexes?

Last month, I got the chance to hang out with real estate investor Josh Allison at his 106-unit apartment complex in Austin, Texas. It was pretty inspiring to see someone who just went out there and did it.

Josh started out as a multi-family property appraiser who invested in single-family rental properties on the side. When he appraised an apartment complex for Lifestyles Unlimited lead investor Trey Stone, Trey challenged Josh to buy his own.

One interesting thing about this deal is that he turned an old storage area into an additional unit that now brings in $900 a month, adding $10,800 to their bottom line each year.

It’s interesting: many of the multi-family lead investors that I meet at Lifestyles Unlimited are not like I imagined them to be. I guess I had images of older men in suits running these properties, but many are young, energetic, and casual. It really goes to show that anyone can do it if they put their mind to it.

I just released my first production for Lifestyles Unlimited, the real estate investor and mentor group.

It’s a video case study of real estate investor Karen Davis and her 6th rental property. Karen is one of the mentors in the Houston office of Lifestyles Unlimited. This property will add $40,000 in equity and $300/mo. cashflow to her portfolio.

I shot, directed, and edited the piece.

Please check it out, and subscribe to the podcast.

Have you ever been a little frustrated with a co-worker and wrote an email to express your concerns; and instead of reading your calm, yet concerned tone, the co-worker read a little more attitude than you intended and snapped of an even more explosive email with three other co-workers and two supervisors CC’d?

Your next move played a pivotal part in the escalation of the conflict and said more about your character than any email could ever describe.

The Pivotal Moment

Did you:

A) Snap off an even more heated email, with everyone in the company CC’d including the CEO?

B) Go into damage-control mode by crafting a very detailed email in a level-headed, yet firm tone explaining the conflict to everyone attached to the email chain.

C) Take a lunch break to cool off and resolve the issue by picking up a phone.

Technology and Civility

Here are two of my major frustrations with the onset of technologies like email, text messaging, and Facebooking:

1) Lack of Non-Verbal Communcation

2) Lack of inhibiting factors

The Downfall of Non-Verbal Communication

If you’ve ever taken a communications class, one of the first principles you were taught is that (depending on the source) 70-95% of communication is non-verbal. You can literally say the same sentence an infinite number of ways and communicate an infinite number of meanings.

Here’s an example from an article about how your brain interprets what your ears hear at The National Institutes of Health website:

Try changing the emphasis on a different word and see how it changes the meaning of this sentence:

The blue fish is too big for that tank. (Meaning: The blue fish is too big, but fish of other colors are the appropriate size.)

The blue fish is too big for that tank. (Meaning: The blue fish is too big, but other blue creatures are the appropriate size.)

The blue fish is too big for that tank. (Meaning: The blue fish is too big for that tank but may be the appropriate size for some other tank.)

Add voice tone, facial expressions, hand motions, eye contact, etc. and you can see how easy it is to make mistakes in communication. It’s amazing that we can even communicate at all.

Digital Emotions

That’s why I try to make all important or emotional communications by voice; preferably in person, but at least over the phone.

Think about a simple message such as: “Are you going to get that project done, or are you really busy?” Let’s say you were in a hurry and you decided to send it in a text-message. You sent it with a smile, in a caring tone, as if to offer help.

But think of all the ways that message could be interpreted. The person who reads it might imagine you to be crossing your arms with a snarky tone. They might imagine a smirk on your face as if to put you down. They might see you rolling your eyes in a condescending way.

You have no way of controlling how your message is interpreted, because you are not there to add your non-verbals and view the reaction.

Feedback Corrections

When you’re face-to-face with someone, you have the luxury of instant feedback in order to make course-corrections. If something didn’t come out as you intended, or if someone gets offended, you can instantly backtrack, or clarify your position.

With electronic communication, if your recipient is offended, they might stew on on it or bring other people into the conversation before you have a chance to react.

Lack of Inhibitions

People are simply more civil to each other face to face. If someone cuts you off with a grocery cart you’d probably bite your tongue and force a smile; but when you get home you might scream at the wall to release your frustration. The potential consequences of a conflict inhibited you from screaming at the person face-to-face.

Behind your computer screen at home, the consequences of offending someone else seem far away, almost non-existent. It’s much easier to tell someone “what you really think” in the heat of the moment, even if you’ll regret it later.

It doesn’t take any guts to confront someone from behind your computer. This is what cowards do, they hide behind someone or something else and yell insults.

Grow a Pair

Today, it seems like everyone wants to use email and text messaging for their dirty work. Breaking up, firing someone, canceling a date… It drives me crazy. Do you realize how little toughness it takes to fire someone over email? Grow a pair. (Yes, this actually happened to someone I know.)

People want to hide behind the digital divide and lob missiles. They say things that they never would face to face. Toughen up. Here’s a good rule of thumb: If you can’t say it in person, don’t say it at all.

The Last Time I Succumbed to Temptation

Early in my professional career I had a rocky relationship with a co-worker, let’s call her Sally. Sally had been around the job awhile and held the same position that I held. We reported to the same person; but, for one reason or another, she thought that it was their business to tell me what I could and could not do at work.

About twice a week, I would get a very detailed email from her listing what I had done wrong. I held my tongue every time it happened because I wasn’t going to lower myself to this sort of argument.

I simply ignored her and continued on with my day. My supervisors were very happy with my work and I didn’t see the problem.

One day, her frustration with me must have hit critical mass. Sally gathered all the emails she had ever sent me, pasted them into one huge email, added a few more things and emailed it. Not only did she send it to me, but to our boss, our boss’ boss, and about 5 other people who had nothing to do with anything.

My Test

I promptly drafted up the most scathing email I could write, CC’ing everyone I could think of who would support me, and sat staring at the “send” button. The email draft explained how she constantly rode me (when it wasn’t her place); furthermore, it went on to criticize everything else about her I could think of at the time.

I knew I shouldn’t send it, but in a moment of weakness I clicked…

I immediately felt remorse, but there was no turning back. The deed had been done. If I had just left it where it was; spoke to my supervisor and Sally in a civil way, she would have looked like the idiot. Instead, I went down into the mud where she lived.

The email did what it was intended to do. She had a sit-down with the supervisor and stopped the behavior, but it wasn’t worth the unintended consequences. The tension in the office made working together a problem and I was moved to a different department. I never worked it out with her and I regret it to this day.

The CC is the New Tattle-Tale

CCing your boss is really the same as telling your mom on someone. Come on. Are we still in Kindergarten?

Count to Five

Before you click “send”, force yourself to do these five things:

1. Wait 24 Hours.

Things never seem as bad 24 hours later… The emotions of the moment cloud your judgement. You might even realize some fault.

2. Don’t Make it Personal

In business, emotions can get you in trouble. Think about what you want your results to be and stick to what will get you there. Don’t play he said/she said and possibly risk much more. Just solve the problem.

3. Talk to The Most Rational Person You Know

Immediately, call a trusted friend who can talk you off the ledge. Try to avoid emotional or irrational personality types. Call the most level-headed, non-emotional person you know for some advice. You’ll almost always find that there are much simpler ways to resolve your problem.

4. Check the Ego

It’s tough to conceive, but you might actually be wrong. If you are wrong, fighting back might just make it worse. Have the courage to accept fault where deserved and move towards solving the problem. Don’t make this about destroying the other person. Make it about a mutual solution.

5. Pick up a Phone

Have some integrity and pick up the phone. Stop the CC email madness and cut to the chase.

Your counterpart will probably be so shocked that they will drop their guard. At the very least, you will get their respect. Even if they hate you for it, they will respect you because you had the integrity and guts to face your problem head on.

A little over a year ago, I joined a real estate investing and mentoring group called Lifestyles Unlimited. Even though I had read a tremendous amount of literature on passive income sources including real estate, I finally realized that Andrew Carnegie and Napoleon Hill were right in “Think and Grow Rich”.

A Mastermind Group

In Napoleon Hill’s research on dozens of the world’s wealthiest people over 100 years ago (and most influentially Andrew Carnegie), he found that the concept of a mastermind group was a top priority of the rich. When I first read this, I thought, “Hmm, that sounds good,” and then continued reading without doing anything about it.

Napoleon Hill writes in the 1st chapter that the secrets in the book will only be revealed to you when you are ready to hear them. This was one of those secrets for me. Even though it sounded like a nice concept, I didn’t finally “get it” until the 2nd or 3rd time I read the book. I took action and found an investor group in one of my homes, Texas.

Why Smart People Have Trouble Getting Rich

At one of the 1st meetings, a concept smacked me so hard across my head, it’s still wedged somewhere behind my ear. I struck up a conversation with a man who had been a member for a couple of years and had accumulated a few dozen single family homes; enough to pay all of his bills.

As you know, I love books and theories on creating wealth, so I asked him what he had been reading to get where he was. His answer blew me away and explained to me why smart people have such a hard time creating wealth.

He hadn’t read a single thing.

How could this possibly be? Here I was, a guy who had dedicated his life to reading the literature of the wealthy. I had created some passive income, but not yet enough to retire.

This guy had been at it for about the same time I had and, without reading a thing, had created enough passive income to retire. To be honest, I kind of ticked me off at first until I let it soak in and teach me what I needed to learn.

Stop Reinventing the Wheel

Have you ever noticed how the people who get rich aren’t necessarily the smartest? Think of the people you grew up with. The A students all went on to get 2 and 3 degrees and ended up working some technical job for a C student. The C student had no idea how to do the things the A student did, but he knew well enough not to try and do it on his own.

That’s not to say that no smart people ever get rich; but I would propose that they did so because they learned a lesson from the C students: “Stop reinventing the wheel.”

Smart people are tremendously talented, but often at a cost. Just because you can do many things doesn’t mean you always should. C students realize that they can’t do it all, so they find smart people to do it for them.

I picked up every book in the world on passive income and real estate, trying to invent some ground-breaking new technique on real estate investing; but only had 1 investment property.

This guy realized that he needed help and went and got a mentor. The mentor told him how to do it and he went out and did it! Duh.

Find a Mentor

It makes so much sense now. Simply go out and find someone who has done it and imitate them.

The lesson is that the education is important, but no where near as important as finding a mentor.

Knowing what I know now, it’s hard to believe that I thought I could do it on my own before. My ego must have had something to do with it. I wanted that title “Self-Made Millionaire”; but really there is no such thing.

It turns out that one of the qualities required to build wealth is humility. Who knew? The common perception is that the rich are selfish.

Quantum Leaps

Once I let my ego down and started asking questions of the mentors at Lifestyles, I started making quantum leaps in my understanding of real estate investing. Even though I had read everything out there on investing, I still was still facing little problems that were holding me back.

Why can’t I make the numbers work?
Why can’t I find properties that cashflow?
Why is it taking so long to rent my property?
Why is maintenance and vacancy eating up my cashflow?

By talking to people who were actually doing it successfully in my market, I got simple, “ah-ha!” answers to these questions that I never found in a book.

My Mentors

I hit the mentor jackpot when I joined Lifestyles. The founder is Del Walmsley, a multi-millionaire who retired himself with real estate at the age of 34.

He now owns something like 5 apartment complexes and is closing on 2 or 3 more this year. Del has been mentoring since 1990 and Lifestyles has grown to over 8,000 members.

The 1st office was in Houston, where Del’s students now own over 400 apartment complexes. That’s almost 1/3 of ALL apartment complexes in Houston. Isn’t that amazing?

Del now works about an hour a day on his radio show where he answers questions about real estate, and once a month, he teaches a 2-day seminar detailing his methods for creating wealth in real estate.

Steve Davis was one of Del’s 1st students. He is now a partner in over 3000 units and is the Vice President of Lifestyles Unlimited.

Steve also has a radio show 6 days a week where he talks about creating passive income through real estate and takes calls from listeners. He was actually the reason I found Lifestyles Unlimited.

I was driving around Austin on my vending route and I came across his show on the radio. Once I learned more about him, I found Del’s show and started streaming them on the internet. They now have all their shows available on iTunes (click here).

In addition to Del and Steve, Lifestyles now has dozens of mentors to service all the members.

Expanding

Lifestyles opened up a 2nd office in Dallas in 2006 and just opened a 3rd in San Antonio. One of the great things about this particular investment group is their hands-on approach. Members have unlimited question and answer with mentors who are currently investing in their area.

As I got to know the company more, I started to share what I had created in the realm of passive income and the internet. We found that we had a lot in common and I ended up getting a job!

The Best Job Ever

I often talk down working 9-5, but it’s really hard to call this working. I get to do two things that I love every day: create content for the internet and talk about passive income.

My job is basically a two-parter. First, I re-invented their website and turned it into what I know very well: a blog. LifestylesUnlimited.com

Second, I teach an introductory class on real estate investing in San Antonio twice a week. If you’re in town, please stop by to see me. You can find the schedule here.

The best part about the job is that I get to hang around with a bunch of wealthy real estate investors all day and talk passive income. I’ve got to tell you, this sure beats sitting in my office and reading all day.

Rui is the guest today. He is a real estate investor living in Southern California with two single family homes under contract in Houston, each with over $300 cashflow per month.

Music By:
Big Head Todd
PodShow PodSafe Music Network

Send questions to mail@geniustypes.com. Please include your City/State/Country.

Blue vs. White

Here’s one you may not have considered: Is it better to be a working stiff or a suit if you’re an entrepreneur who’d rather be working for himself than the man anyway?

Entrepreneurial types tend to gravitate towards management (suit), but does that really serve their greater goal? Managers tend to spend long hours on the job and usually get paid on salary (which means no overtime). Where’s the time to make yourself rich?

My Prism

I see the business world divided into two groups: working stiffs and suits. “Suit” doesn’t necessarily mean they wear a suit to work every day; it’s a metaphorical term for someone who makes the decisions and delegates work to the stiffs.

Under my definition, an airline pilot is a stiff, the same as a coal miner. Each does the job they were hired to do with little say over the larger decisions, such as which routes to fly or where to dig.

“Stiff” Characteristics

Hourly Pay
Overtime
Repetitive Tasks
Supervise Few or No People
Make Local Decisions
Gets Delegated to
Limited Upward Mobility

Stiffs:

Bartender
Airline Pilot
Flight Attendant
Construction Worker
IT Professional
Film/TV Editor

“Suit” Characteristics

Salary
No Overtime
Varied Tasks
Supervise Several People
Make Global Decisions
Delegates
Expanded Upward Mobility

Suits:

Restaurant Manager
Airline Supervisor
Construction Manager
IT Supervisor
Film/TV Producer

Risk and Reward

The decision of which path to choose is a big one. If you’re a GeniusTypes reader, you probably have high expectations. Anyone who is looking for passive income obviously wants bigger and better things. If you choose to be a stiff and the passive income thing doesn’t work out, you risk being a stiff for the rest of your life. If you choose to be a suit and never have time to create passive income, you risk working for “the man” for the rest of your life.

Even more powerful are the sociological beliefs that we and our peer groups have about our career choices. If you come from a family of college graduates, you might be expected to pursue a white collar career. Conversely, if you come from a blue-collar family, being a “suit” might be looked down upon.

To get where you want to go, it’s important to get past your beliefs about career issues and choose the path that serves your goals the best.

Restaurants

A lot of creative types work in the service industry as waiters and bartenders. In New York, LA, and Austin (all of which I’ve spent time), when someone says they’re an actor; it’s usually followed by a tongue-in-cheek “which restaurant do you work at?”

Service jobs fall under the “stiff” category, which serves artists well. The jobs are flexible, the pay is relatively decent, and the job doesn’t require much responsibility. An actor or writer can pay their bills with a bar job and spend the rest of their time creating art (which probably doesn’t produce much income).

I’ve been around the bar/restaurant scene long enough to see many artists face the same dilemma: after several years in the service industry, without much success as an artist, they’re given the opportunity to go into restaurant management.

It’s usually a tough decision. Their friends and family have been pressuring them for years to get a “real job,” and management looks much better on a resume. On the other hand, managers spend endless hours at the restaurant which leaves less time to pursue their art.

To complicate matters, entry-level restaurant managers often make less than waiters and bartenders on an hourly basis. The trade off being they have more power and the chance to eventually become the General Manager of their own restaurant: a job that pays pretty well.

In my experience, choosing restaurant management means the end of their dream as an artist. This can be a good or bad thing depending on your perspective. If they weren’t ever going to make it as an artist, perhaps it’s a good thing.

Entrepreneurship as an Art

Entrepreneurs are creative types with a little more business sense than the average artist (notice I said “little”). Therefore, entrepreneurs face many of the same challenges as artists. The rewards for their passion can be massive, but the risk is great.

In the restaurant example above, you could easily exchange “real estate investor” or “bulk candy vending entrepreneur” for “artist”.

Film/TV Business

A similar thing happens in Hollywood. Everyone’s first job is always PA (production assistant), which is definitely a “stiff” job; but after that you have to choose if you want to start on the path to producer (suit) or specialized labor (stiff).

It’s an interesting dilemma, and your choice will depend on either your personality or objectives. Producers get to call the shots. They have all the power in Hollywood, but they don’t necessarily have all the money. Think about it: who gets paid more, actors or producers? In most cases, actors do. Until you get to Jerry Bruckheimer’s level and you own the joint, you won’t make as much as a highly specialized stiff.

Being a paid actor might just be the greatest “working stiff” job on the planet. They get paid ridiculous amounts of money to have fun all day, but they don’t get to call the shots… producers do.

On a lesser scale, the same thing happens with other specialized jobs. In post-production, editors get paid much more than producers. I’ve worked in edit bays where the editor is getting paid over three times as much as the producer, but the producer is controlling the editor’s every move.

Some producers do it because they love the power. They would gladly give up the money as long as they can boss people around all day. I’m just the opposite: I’ll do anything you want, as long as I’m getting paid three times as much as you.

Editors get paid a certain amount of money because the art of editing is a specialized skill that few people possess. They need to have the technical skills of an I.T. professional AND the creative skills of a storyteller. The “suits” hire the editors for an hourly rate and tell them what to do. If an editor works more than 8 hours in a day, they get paid overtime. If a producer works more than 8 hours, they may not.

That’s not to say that there’s anything wrong with choosing the producer route; it just depends on your objectives. If you plan on running the studio some day, then producer is where you want to be.

Airline Business

The same thing happens at airlines. Airline pilots have a specialized skill that few people have and they get paid for it. I once knew a pilot that made $500 an hour.

It’s a high-paying profession, but it’s still a “stiff” job. Most of the pilots I’ve talked to say it’s actually pretty boring. After you take off, the plane flies itself (it will even take off by itself if you want). On a seven hour flight to Europe, pilots kill time by reading the newspaper and turning a little dial every once in awhile to change course.

Pilots punch the clock like any other stiff… they just get paid more.

An Interesting Idea

Consider your objectives when choosing a career path. If you’re an entrepreneur who hopes to create passive income streams in your spare time; your only criteria for getting a day job might be this: the one that pays the most for the least amount of time spent.

You need to make enough to have some left over to invest, so stay away from minimum wage “stiff” jobs. There are plenty of specialized labor jobs that pay well. Think bartender, pilot, editor, etc. Even construction workers make a rather decent hourly wage.

If you choose this path, it’s important to stay focused. If you forget to put money away to invest in your entrepreneurial ventures, then maybe you would have been better off as a suit. I know more than a few actors/waiters who never found time to act. It’s a pretty crummy feeling to have spent many years in a “stiff” job without anything to show for it.

Check the Ego

When I was starting out in the career world, I had a mental block towards “stiff” jobs. I worked at an airline for awhile and briefly considered going to flight school. I ultimately decided that I wouldn’t be happy as a pilot because I wanted more control. I saw myself as more of an executive type who told the pilots what to do. (is that crazy or what?.. for $500 an hour, I could have controlled just about anything I wanted).

That’s the thing about life experiences: they make you who you are. Because of that experience, I didn’t make the same mistake the next time around. I joined the TV/Film industry four years ago and was told that I could pursue any career path I wanted. It was tempting to take the producer route… but I chose the path to editor.

Reader Beware

Be careful when you read Kiyosaki, Robert Allen, or any of the army of gurus preaching that passive income will end all your troubles. The overall concept of “Rich Dad, Poor Dad” is profound, but it doesn’t tell the whole story. Don’t quit your day job yet.

When I first read Kiyosaki, I was immediately hooked on the concept. I read all the books and they blew my mind. I bought the game Cashflow 101 and hunted down every last friend and family member who was still brave enough to donate a few hours to reliving their financial failures in a board game.

Young Passive Income Warrior

I went out and started my portfolio. The economy was on still on a real estate bender, so I was able to buy a rental house with no money down, no proof of income, and no credit. I stuck in a tenant who paid me $100 more than I paid to the mortgage company and thought to myself: …damn I’m good.

My girlfriend had the brilliant idea to start a bulk candy business for passive income. We bought ten machines and placed them in ten restaurants in Austin. Just like that, we added $250 a month to our passive income.

When we were ready to move to LA to give the entertainment industry a shot, I started scanning the internet for bulk candy vending businesses in Southern California. I found a guy who was willing to let go of 40 machines in decent locations for next to nothing. I almost covered the acquisition cost on my first day in LA. Just like that, I added another $500 a month in passive income.

I thought… damn I’m good.

King of the Anthill

At this point, I pretty much decided that I had made it. All those suckers moving to LA, struggling to pay the massive cost of living increase had nothing on me. I had $850 a month in passive income. What did they have? …a crappy job? Kiyosaki taught me that jobs were for suckers.

Hero Fallen

I went to see Kiyosaki once at the Real Estate Wealth Expo in New York City. It was an event where hundreds of real estate gurus all got together to give speeches, sell books, CD’s, and boot camps. Robert was one of the headliners and I could hardly contain my excitement to see him.

With my girlfriend at my side, I proudly stood up to greet him along with hundreds of others in the auditorium as he entered the stage. My perma-grin turned to puzzlement as he put his right hand on his forehead in the shape of an “L”. “Losers!” he yelled and the crowd cheered.

“What is he talking about?” my girlfriend asked. I wasn’t sure, so I continued to listen as he explained to the crowd that working a 9 to 5 job was the mark of a loser. Over and over again, he stuck his hand to his forehead and repeated the chant: “Loser!, Loser!, Loser!”

Wait a minute, I thought. I bet 95% of this audience has a 9 to 5 job… and they’re cheering.

Steady Ahead

The experience had taken Kiyosaki down a notch in my eyes, but I still believed strongly in his concepts. To me, he was a brilliant “big picture” guy who left something to be desired in the category of tact, humanity, and details. I didn’t need him to be a good guy to know that passive income was for me.

I found sporadic work in Hollywood producing small-time pieces for TV and internet, but never pursued full-time work. Why would I? 9 to 5 was for suckers (but not losers).

Soon after, I started GeniusTypes and added another $750 a month to my cashflow. My passive income streams were over $1500 a month. I thought: …this just keeps getting better.

The First Sign of Trouble

Life should have been good. I had done everything the books had taught me. It was almost as if everything I touched turned to gold. I had money coming into my bank account even as I slept… Big pimpin’ …right?

As I explained all of this (with great pride) to my girlfriend, something weird started to happen. I was telling her how great everything was and somehow, she was ticked off!

I don’t remember the exact conversation, but it went something like this:

Her: Your stupid “passive income” isn’t helping us pay the ridiculously high cost of living here!

Me: What are you talking about? I make that money in my sleep!

Her: Who the hell can live on $1,500 a month in LA?

Me: But it’s passive!

Her: That’s the freakin’ problem: you need to get your butt into action!

Me: But it’s passive…..?

Her: (shut down)

Something had gone terribly wrong.

Starting Over

Now you have the long version of why I stopped posting on GeniusTypes. I went out and got a job… Actually, I got two. I worked 60 to 80 hours a week in order to make up for the long period of time that I was quote/unquote “self employed” (which really means unemployed). It was the antithesis of everything that Kiyosaki had taught me.

I also went looking for guidance. Instead of believing in authors and trying to do it on my own, I found people who had achieved the success that I wanted. I found some mentors.

The Right Map

The first thing they taught me was something I didn’t want to hear. I wouldn’t have bought their book if they were selling it like Kiyosaki because it kind of sucked…

They agreed that passive income was the ultimate, but everyone needs money to survive. If I couldn’t pay for my monthly expenses with passive income, then I must do the next best thing: get a job.

…But Kiyosaki says jobs are for Losers!

…Who’s more of a sucker: Someone who works full time and supports their family, or someone who quits their job and gives all of their remaining money to Kiyosaki fpr books, CD’s, and boot camps?

Wow. That was kind of harsh.

Leverage Your Time

I re-learned the concept of leveraging time. Kiyosaki had taught me that passive income was a way to leverage other people’s time in order to free up more of my own. He was accurate in that assessment, but he left out a crucial detail:

When you don’t have enough passive income to pay your bills, the best way to leverage your time is to get a job.

Think about it. If you have no money, is it better to spend your time chasing passive income or to get a job? The answer is to get a job… but the advanced correct answer is to get a job and use your nights and weekends to build passive income.

Large in the Margin

The ultimate goal is to get enough passive income to cover your bills; but in the meantime, it’s important to view passive income as a marginal profit center. This means that passive income should be above and beyond your regular operating income and expenses.

Everyone has a minimum cost of living. No matter where you live in the U.S., it costs several thousand dollars a month to stay afloat. If you have no money, your only option (if you want to remain independent) is to get a job. Passive income would only help you if you had enough to cover your basic expenses.

Believe it or not, a job is the best way for a broke person to leverage their time. Think about it: what activity will yield me the greatest number of dollars for forty hours of work a week? If you have no money to invest, the answer is to get a job.

After the hours you need to spend to pay for your basic cost of living, the next highest leverage activity is to gather passive income. Any passive income you make from now on will be in your profit margin. When I was making passive income without a job, I had no profit margin. I was taking a net loss every month on my basic expenses.

Passive income is most beneficial when it’s in your profit margin. $1,500 a month in passive income won’t pay your bills, what if it was extra? That’s $18,000 a year that you could use to invest in real estate. Do you see what a tremendous difference it makes when you take it from primary to marginal income?

Your Credit

Another great reason to get a job when you’re broke is your credit. If you want to accumulate passive income-generating assets, you’re going to need the help of a lender. The wealthiest people I know are in real estate. In order to purchase real estate, a bank wants to know that you have steady income. If you are quote/unquote “self-employed” with no real income, the bank isn’t going to budge.

Check Your Ego

It was a bit of a reality check when I realized I wasn’t above working for the man. In fact, working for the man was the only way that I stood a chance to succeed.

Creative types are highly intelligent (which comes with a little bit of ego). It’s hard for a really smart person who thinks they know it all to realize that he can’t break the laws of nature. You might have the greatest idea in the world, but great ideas alone don’t pay your rent.

Build a Foundation

You can’t fight for financial independence until you have a foundation. Even though there are many ways to create passive income with little money, everyone needs a minimum amount of money to survive.

Furthermore, the best ways to create wealth (real estate) require money. If you don’t have any to start with, the best way to get some is to work. Work enough to pay your expenses and put away some to invest. That’s what my mentors taught me. It’s boring, but it’s proven.