Transcription
New England. We have made it all the way to Connecticut and we are going to be in Rhode Island, Boston, and heading over to Calgary, Alberta, Canada in the next couple of days. I'm super excited about today's session because we're going to be talking about why we buy real estate and why arbitrage is never really a good strategy.
Now, tonight's meetup was so incredible, you're going to watch my teaching of a brand new person and why they should stay away from arbitrage. It's not that arbitrage is 100% bad. It's just once you find something that is so much better than arbitrage, you would never go back to arbitrage. So, my friends out there that are doing arbitrage, I'm sorry, it's a waste of time. And you'll learn why in this video. Enjoy it.
In Connecticut, you were freaking incredible. That's all it is. Okay. So, Bri, do you know what you want to do yet?
>> Yes, I do.
>> What do you want to do? What do you want to like in a year from now, what have you accomplished?
So, in a year from now, I would like to have at least I'm going to say minimum being nice five to 10 different like co-living spaces. Um, starting with arbitrage until I can
>> don't do arbitrage ever in your life.
>> Okay, good to know. Why? Okay, anyways. So, okay.
>> Can I give Can I tell you why arbitrage This would be a good learning lesson. Um, Dre, I'll tell you why arbitrage is trash. It is good for about six to 12 months and then you look back and you go, "Oh my gosh, this was the worst idea I ever had."
Why do people get into arbitrage?
>> There's one reason why.
>> What are the What are the five reasons why we buy real estate?
>> Okay, number number one is cash flow.
>> Number one is cash flow, right? That's elementary. So number one is cash flow. Can I get cash flow from arbitrage? Yes or no?
>> Yes.
>> Okay. boxes checked.
>> I got my cash flow. So, that's cool. I'm good.
Number two, second reason why we buy real estate is
>> future growth, appreciation, right? I want the property to appreciate in value and I want to hedge against inflation. Do I get appreciation with arbitrage?
>> No.
>> Okay. You immediately I'm already checked out because that's where we get wealthy.
>> Cool.
>> Yes. Ar. Okay. Arbitrage is when I go I go to a a people that do arbitrage are missing one key component and they're missing negotiation style or understanding where to find deals. And we if you guys want we can pull it up on the screen. I can show you how to find co-living deals in 13 seconds. Okay. Truly, we can do that tonight. But arbitrage means I go to a landlord who's renting a property and I go, "Hey landlord, you're trying to rent that property for $2,000. I'll rent it from you for $1,700, but I'll guarantee you a three-year rent. Right? You're giving him something more than what he's looking for. And in return, you're getting a little bit of a price reduction on the rent. Does that make sense?
>> Y
>> I then take this property and I then rease it out to another tenant. This is also called a sandwich lease. I'm leasing it and then I'm releasing it. I'm the sandwich. I'm the meat in the middle. Okay? Lease coming to me. I then rease it. That's arbitrage. Make sense?
>> Okay. So, do you own anything in arbitrage?
>> Cool.
So, number two reason, appreciation. Is the government going to continue to print money?
>> Yes.
>> Yes, they are. They just uh Jerome Pal just announced that they're stopping quantitative tightening, which means they're going to start printing money again. They've re they've lowered rates three times in just the last 90 days. And when uh we're not going to get political, but I'm going to tell you guys something very important. Politics are incredibly important with real estate.
>> We can all agree even if you like Trump or you don't like Trump, Trump is a lunatic. Okay? Sometimes good, sometimes diabolically bad. Okay?
>> But what he's going to do is when Jerome Powell Jerome Powell, we all know who Jerome Powell is, right?
>> Okay. He's the head of the the the um Fed and the Fed is who determines what our interest rates are. Okay? And it's very bonds blah blah blah blah blah. There's somebody in here way more intelligent than I'm articulating this to you. But the Fed, Jerome Powell is going to be gone in May. His term is up in May. And Trump has already said multiple times, get that freaking clown out of here. Our interest rates should be half of what they are. He will do everything in his power to make sure interest rates go from five.
Optimist,
>> do you guys believe? Do you Where's Optimus? Do you guys believe rates are going down next year when when the Fed is out on their term?
>> Yeah, they're always going to say no idea.
>> The the answer is we don't know. But what's going to happen is um Trump is a great dealmaker. He just is. Take your politics out of it. He's one of the greatest dealmakers on the planet. Um and he's diabolical in his deal making. Um he will make sure that somebody gets into the Fed that lowers rates in an aggressive way. We will, I believe, by 12 months from now, I think we'll be looking at a 3% interest rate or maybe even lower.
What do you think will happen to real estate?
>> Okay, it'll go up. Even if we get into the fours, don't we agree that the rates are going to everything is going to go bonkers? Okay, cool. Guess what you don't get when you do arbitrage? Here's what happens with arbitrage. people that do arbitrage, they end up their landlord who actually owns the property when when the property goes up in value. Guess what they don't do? Renew your lease. And now your whole cash flow and everything you worked for ends because that landlord decides, I'm harvesting this equity I just made and I'm selling the property and I'm rolling into something else. That's the risk of arbitrage. You go build something. You work at a job, I imagine.
>> Yeah.
>> Okay. You work for somebody else.
>> Guess who you're working for in arbitrage?
>> The landlord. the landlord. You ain't working for yourself.
>> Okay. You are a very risky or a very risky employee in that situation of the landlord.
Okay. What's the third reason why we buy real estate?
>> Okay. Taxes. This is something that a lot of people in in a nineto-ive position, W2 position will never truly understand why the rich get richer and the poor get poor. I made millions of dollars a year. That is not to brag. That is to let you know that it's possible. Okay. Um, I have one RV park that I netted like $400,000 this year. Thank you. Okay. I have one RV park that I netted $400,000 this year. If I was paying taxes, my tax bill just on that one RV park would have been 160,000 of my 400,000. How much did I pay out of that 400,000 is zero. I have not paid federal income tax in like nine years. And why is that why why is that possible?
>> single family houses.
>> It's because of all my real estate. Okay. All my real estate, RV parks, mobile home parks, doesn't matter. I'll give you You want me to give you a calculation on how that works real fast?
>> Okay. So, check this out. Um, is anybody comfortable with telling me how much money you made this year?
>> People are always quiet about this.
>> Not enough.
>> 20050.
>> 250. Okay. So, let's write down. I want to get rid of $250,000. I want to figure out how much real estate I need to buy to wipe out that 250. If you made 250, how much are you donating to the IRS?
>> 110 were like 60,000.
>> Okay. So 60,000. So you had a bunch of deductions and whatnot?
>> I had a bunch of deductions. I have rentals and I have books.
>> Okay, cool. So you you are in real estate, so you were able to deduct a bunch of things, but still you're at 60,000. That's pretty cool. Any W2 people that are willing to tell me how much you made?
>> Okay. $70,000. Love it. How much will you pay in taxes this year? I think around $6,000.
>> Okay, that's not bad. $6,000. But $6,000 would be a really big bump in your life. Correct. Another 8% or 10% back into your pocket.
>> Okay. So, there's this magical thing in the IRS code, the Internal Revenue Code, IRC 179. You might want to Google it or chat to you if you see it. It allows me to buy real estate as long as my um average stay duration is under seven days, okay? And I spend 100 hours a year on it, I can use that real estate to wipe out my active income, okay? And I'll give you the calculation. I'll give you a deal that I did this year and also why people go into arbitrage and they think, I'm going to jump into arbitrage because I don't have money. Why not just learn creative finance? Like why learn arbitrage? It's lazy. Arbitrage is the lazy man way to go cuz you you truly believe that creative I think that people that do arbit arbitrage think that creative finance is not real. There's no one I know that would ever do arbitrage that knows creative finance. Okay.
So, um like you guys are like you guys are together right? This is a really bad analogy. It's also Sunday. So maybe I like once you guys start making love, you guys are dating, right?
>> Okay. You're not going to tell me like we're brother and sister. We just playing. Okay. So the point is um let's do the math on this. I'll do let's write down the equation. I bought a $5 million RV park this year. Okay. The seller is my bank.
>> What does that mean?
>> Okay. Okay. But what does that mean specifically? That means the seller gave me terms, which means what? Four things that go along with terms. So, I know I'm doing I'm bouncing around a little bit, but we're going to try and condense a lot of information for some of you newer people.
>> How long?
>> Say number one is always price.
>> The number one thing the seller cares about is price. Number two, down payment. Number three, interest rate. And number four, length of time. That is what terms means. So, when you say, "Well, I want to give you terms." Okay. Um, you've got, who's got an iPhone? You got an iPhone. What's your name?
>> Jasmine.
>> I know you, Jasmine. Good to see you.
>> Okay. Jasmine, you've got an iPhone 14 or 13, something like that.
>> Yeah.
>> Okay. So, watch how this works on terms. Okay. Arbitrage would be like, "Hey, can I pay you $50 a month for that phone?" You would say, "Sure." And I would then go out and I would go rent it out for $65 a month. I don't own the phone. I don't get the benefits of the phone. Nothing. Right. I'm just arbiting. Cool.
>> How much do you think you could get that get for that phone on Craigslist?
>> Coupleund bucks.
>> Couple hundred bucks. So, let's say you list it for $300, right? A little bit higher. She said a couple hundred, but let's She's like any seller. They're going to list it higher than what it's actually worth, right? So, it's going to sit on the market and after a month, she she would not have sold that iPhone for 300 bucks. So, I call her up and go, "Hey, I noticed that your phone's for sale and it has been for 30 days. Would you consider giving me terms?" She says, "Well, what the heck is terms?" And I reply back and I said, "Well, it means I'll pay you the 300 you're looking for, but I want to pay you $30 a month for the next 10 months. Would you could we technically do that? Yes or no?"
>> Okay. So, what did I work out? What were my terms? Purchase price, what was it? Right. I have terms. Write it down. What's my What's my terms on this deal? Right where I said purchase price, all that kind of stuff. What is my purchase price on that on the phone?
>> $50.
>> $300. That was my purchase price. Okay. What is my down payment?
>> Zero.
>> Zero. This is how we get a lot of zero down deals. What is my interest rate?
>> Zero.
>> Zero. This is how we get a lot of zero down and 0% interest seller finance deals. And what is my uh payment on a monthly basis or length of time? 30 bucks. Okay. So, I just did seller finance on that phone. Correct. Cool.
So, I go find a seller. I can find these properties. We if you guys really want, we could spend some time on the screen doing this. I can find these people in 5 seconds, maybe less. You could time me. Okay. This seller's name is Eric sold me a $5 million RV park and he asked for $250,000 down. That's the scary part for people in your situation. Go, oh, I'd rather do arbitrage. Cool. Sherry, have you ever loaned me money?
>> I feel like who's loan Has anybody in here ever loaned me money?
>> You bought me a Coke. Okay. Nobody in here has ever loaned me money, but I borrow a lot of money from people. Okay. So, in this park, I borrowed $250,000 for my down payment at 12% interest. So, how much money did I put down on that park?
>> None out of my own pocket, but I gave I gave the seller 5% down. Okay. So, he wanted $5 million. I gave him 5% down, $ 250. Okay? And the seller gave me 4% interest and he gave me 30-year terms. So, can I buy big pieces of real estate with no money down, no credit, no credentials, no no money out of my own pocket? Cool. So, out of the 250, here's how I paid the 250 back. The RV park makes 20 grand every single month. Net, net, net, free cash flow. Everybody's paid. Every expense is paid. 20 grand a month. So what I did is instead of for the first I think it was like 14 months, the first 14 months of owning it, I just paid off my private money lender, now I own the park with no money on my pocket and I take the 20 grand home every single month. Okay. Do I need to do arbitrage ever in my loan?
>> Do you again I'm going to tell you, do you know how many RV parks my community bought last year? 700 of these. 700. The average one being $5 million. Like there an RV park or a mobile home park is just as easy to buy to buy as an arbitrage deal. Same amount of phone calls, same amount of negotiation, just different words. Okay. All right. What's that?
>> A little bit more. I actually I disagree. Well, I I I could agree with you. She says, she says, "A little bit more risk on the arbitrage or on the buying." I actually think you have all the risk. You did all the work for very little reward and no protection.
Okay, cool. So, let's go back into um the tax situation. So, I bought it for 5 million. So, what we do is we go hire an engineering company. The company I use is a company called Madison Specs. Okay, you guys can look them up. There's another really good company called costseority.com. They're really, really good. I don't get paid to promote them. What do they do? They go to the property virtually online. They write an engineering report and they basically tell the IRS, hey, PACE deserves a six 60% of the value of this property as a write off. So, what's 60% of 5 million? 60 million
>> three million.
>> So what does that mean, my friends? That means I can go make $3 million this year and pay 0 in taxes because that property gave me a $3 million credit towards my active income. Or I could make $300,000 this year, take only 300 grand of that credit and roll it over to next year and next year and next year and wipe out $300,000 every single year for the next several years from one RV park. I could buy that one RV park for $5 million, no money out of my pocket, and wipe out $300,000 of active income for the next 5, 7, 10 years. Yeah. Heat.