The 3 Real Estate Wealth-Building Factors

The 3 Real Estate Wealth-Building Factors

Sean: So you were able to learn about all these things about real estate. And a lot of entrepreneurs also want to get into real estate, either as an end game strategy or as a supplement, sort of like a passive income while they’re doing their business. What are your methods in creating wealth using real estate?

Sensei: Well, to create wealth, you actually have to buy and hold. If you think you’re going to get wealthy fixing and flipping properties, you’re not. You could become cash rich and it could be a great business. How do I know that? Because that’s how I started. And that’s what I do today. I am known for flipping properties by volume.

So for me getting into real estate back in the day, it wasn’t about buying and holding. I didn’t have the cash to do that. I didn’t even know my own home at the time. It was about buying something. Creating value and selling it retail value. And so when you told your audience that you really need to learn and do your due diligence about the business that you’re seeking, I couldn’t agree with you more. Because I can tell you this as a real estate coach and instructor, most people fail in real estate because they don’t study.

And that’s a huge issue. You know, they just want deals to fall in their lap where they want someone to provide for them. And I won’t do that. So to answer your question, you have to buy and hold real estate for the long term so that you can get the trifecta and the trifecta is cashflow, appreciation in value that asset, and the tax benefits.

And when you can take those three ingredients and intertwine them, that is a true wealth builder. If you remove one of those ingredients, you’re not building wealth, you either have a tax deduction or you have something that’s possibly growing in equity, or you have cashflow, but you have to have all three.

Sean: So I’m not really an expert on real estate, but what, what I can understand is cashflow would be the rentals. Equity would be when you sell it. And the tax benefits comes only in the US when you sell it, is that right?

Sensei: Somewhat. Right. So the cashflow, obviously we all understand cashflow I believe, right?

Cashflow is what you net after all expenses and that’s important. That’s what everybody’s after everybody’s after cashflow. You don’t want something in a negative position. Otherwise we’ll create another recession, like we did back in 2008 over here. The appreciation or the equity would come through the principal pay down of a loan where your loan balance gets lower, and the value stays up here and you create this gap of equity of everything that’s in between.

And then the value of this property grows because of demand creating another gap of equity through appreciation. And I can tell you right now that the quickest path to wealth is through appreciation. It’s not through cashflow and it’s not through tax deduction.

I can give you a good example. I can’t speak for the Philippines, but I can speak for here in the United States. And I’m in Southern California, there’s a lot of demand here. So when we had the great recession, 2008, we were at the top and we quickly sank to the bottom. Since we have a very strong economy here and we have demand for rentals and for home buyers, we are one of the quickest to bounce back up.

There are still markers today, 12 years later that are still trying to recover from the recession, but where I’m at is not one of them. Why is that? That is because the demand, when it comes to real estate, the demand for rentals and demand for home owners. Those people that bought properties in Southern California, you know, all the way up to 2006.

Well, they bought it at a retail market, but those that came along and bought properties at 2009, 10, 11, 12, and 13 bought way down here. And now we’re in to you know, getting ready to hit 2021. Those people that bought in the post recession are up here and they created this equity gap. Their house has doubled or tripled in value.

Now that could be literally hundreds and hundreds of thousands of dollars for your average house. Where if I were to go from cashflow of 2008 to 2020, we’re not talking hundreds of, we’re not even talking a hundred thousand dollars, we’re talking maybe tens of thousands of dollars.

So when I say appreciation is the quickest path to wealth, it has been shown historically over and over and over again, that you must buy real estate in areas that are poised for appreciation if you want to grow value in your portfolio. Same goes for business, I would never get into a business where I couldn’t grow a value in equity spread because businesses are not meant to be owned for a life.

They’re meant to be bought and sold. And so my intentions with the mini business I’ve been involved in is to take a business that is maybe distressed or a startup and grow value in it, and then sell it at top dollar. Kind of like buying a house that needs to be repaired, fixing it up, making a turnkey into a retail value, buy low, sell high, flip it and get onto the next.

Sean: That is something that I have not looked into yet. Buying a distressed business or a legacy business, growing it because, you know, I think that takes so much time and effort to do. I mean, you are literally trying to repair a business and you are also doing your other businesses, your other karate dojos or schools, and you’re doing this real estate business.

Now the question. How are you doing all of these things?

Sensei: Yeah, I know. I see my wife looks at me and says, you’re a crazy man, you know. Look, I did it the hard way in the wrong way. Meaning that, for the most of my career, I try to do everything myself. And we all have the same amount of time during the day, and we can only do so much time out of the day.

And when people tell you that you need to live a balanced life, you will never have a balanced life. We can strive for it, but we’ll never have or achieve true balance in life. For me, I was kind of acting, I’m going to go back to the Bible. I was kind of acting like Moses.

I was trying to do every thing and people run to me and I’m working, you know, all these hours during the day and night, then I was burning the candle from both ends of the wick, you know, making my life shorter. Just like Moses was doing, but the God spoke to him. He hit him hard and he says, look, you need to delegate jobs.

“But if I delegate, I lose control.” I’m a control freak. I don’t want anybody to sink the ship that I just built. Think about it, does God delegate jobs? Does he not have arch angels out there fighting? Does he not have, you know, other angels doing other stuff? I don’t know exactly what happens up in the heavens, but he delegates jobs. If God needs to delegate jobs, this guy right here also needs delegate jobs  and so do you.

Here’s the problem that I run into, when you’re a startup and you don’t have any money, you’re wearing all these different hats. You’re wearing the receptionist hat. You’re wearing the secretary hat, the database manager, hat, the webmaster hat, you know, the president CEO hat, because that’s what it says on your business card.

Right. You’re wearing all these different hats. That’s a good thing. I like that because it’s going to find out if you have the grit to move forward in business. Because if you can’t handle wearing all these hats, you should not be in business. Plus it allows you to learn the different components to your business.

And so when you start making some money, people think, oh, look, I’m making money, run out and buy, you know, fish aquariums and figuring dolls that they can put in the background, right? I’m messing with you. So we go buy these shiny things that we like, instead of reinvesting that revenue back into the business to delegate jobs that don’t make money, but are important to maintain the business.

So I had to learn that lesson the hard way. I’ve lost a lot of opportunity and lost a lot of money because I just couldn’t take that extra hour to do that opportunity. But today I approach it differently. Now I’ve made some money. And now I hire jobs out. Am I going to sit down on my computer and learn SEO?

Heck no. I’m going to hire Sean’s team to do that. I don’t have time to learn SEO. That is not my passion. That’s not the productivity where I should be. I should be productive and creative in the niche fields that I know I can generate cash and then hire everything else out. Problem is most people don’t want to let go of that money.

They’re like, “oh, that’s going to cost me a hundred bucks. Oh, that’s going to cost me how much.” That’s a problem. Sean. Everybody looks at the cost factor. They’re not looking at the investment factor, the return on investment factors which I should say.

Sean: So it makes sense. It makes sense. I’m going to stem from that question and ask you “delegating” all right. The question is, God knows who to delegate to because he created them, while we would have to delegate to people we don’t know. We don’t know the background, their history, how well they’re going to be doing the job, how much we can trust them. How do you find the right people to delegate to?

Sensei: Yeah. Darn. God’s got it pretty easy, huh? Being all knowing. He’s got it easy and we gotta do all the grunt work – come on. Look, hiring people is tough, man. I hate it. I’m hiring right now for many positions. There’s so many; well, let me back. You can be on social media and you can be whoever you want. I can be Iron Man if I want it to be right?

Post the photo, that’s maybe the – I can play this whole different alias here. And that makes it hard because who am I really hiring? You know, anybody today can make up a resume. They can make up references. They can, you know, most people have taken online courses and have no hands-on experience, you know?

So we go through a pretty hefty screening and it’s not a safe all, you know. Because we do fail. We do hire someone thinking, hey, this person’s going to be a great addition to our team. And yeah, they start out great, but the next thing you know, they’re a little gossiper that’s in someone’s ear and the next thing is stirring trouble over here.

Something’s going on over here or, you know what they’re, they’re not doing their work and they’re just doing this all day long, scrolling on their phone, looking at Facebook. Well, so like Donald Trump, we say “you’re fired.” You know, and we gotta move on the next one. It’s an unfortunate process because we all wish we can find somebody that is worthy right out of a box, like finding a prize inside that cereal box. Look what I got. I got a winner. Right? That’s not real business. We have to do what I call weed in the garden. And unfortunately there’s more weeds out there than flowers.