Rich vs Poor: The Best Rule for Becoming a Millionaire.

hey everyone meet kevin here boy oh boy

there is so much debate over the stock

market and i will tell you there is one

lesson it doesn't even have to do with a

stock market but that can make you a

multi-millionaire and that lesson is

what we're going to talk about in this

video it's probably the greatest lesson

that i've ever learned it is what made

me a multi-millionaire before i ever

even started making youtube videos you

know i think it's easy to look at

youtubers and go oh yeah okay they just

made it to be a millionaire because they

make youtube videos and they get a bunch

of subscribers or whatever it's not the

case sure that's helped after the fact

but all that did was change a

multi-millionaire number to another

multi-millionaire like whatever that

doesn't matter the reason i want to

share this story and we're going to do

it in sort of segue with kevin style is

because i i think it's so important that

it's just a raw chat between you and i

because really

this is the most important lesson that i

ever learned and i owe it to make it

super clear to you what that lesson is

so first i want to talk about what it's

not and that's

stocks i have

invested in stocks since 2008 i've

studied stocks and financial reports

since 2008 i remember in 2011 sitting in

escrow on my first home and standing

there looking at a stack of the facebook

earnings way back then thinking hmm

facebook or apple while i'm trying to

fix up a property right

so

like stocks what i've learned what's

fascinating about stocks is

you can have the best fundamental

analysis in the world

and be wrong in the short term

long term usually fundamental analysis

plays out unless of course the

fundamentals change now one thing to

always remember about real estate

analysis is the fact that with a real

estate analysis you can actually know

that homes are under market value for

example if all of the comps in a

neighborhood are selling for four

hundred thousand dollars and you can buy

a fixer-upper for two hundred fifty

thousand dollars and you don't have any

kind of weird market movements where the

market is sliding down and comps you're

looking at are like a year old or

whatever if you're looking at recent

comps and you could get a property

that's a fixer well under market value

and the difference is less than the cost

to fix up well then you're getting a

good fundamental deal let's make that

clear if you need to take twenty

thousand dollars to fix up that 250 k

house and now it's worth 450 just like

all the others in the neighborhood or

four hundred thousand dollars whatever

now you've profited not 150 but 150

minus 20 for fix-up it's 130 000 of a

net worth boost which you can extract

tax-free via refinance this is why

people always talk about the burst

strategy that of course is buy

rehabilitate

rent

refinance repeat it's basically taking

wedge deals extracting the cash cash

free from those deals because you're

buying properties under market value and

the reason you can do that fundamentally

in real estate is because people

overvalue how much work you actually

have to do to get a property ready for

rent and that means you constantly have

to be paying attention to stocks and one

of the difficult things with stocks is

that you don't actually have control

over the companies right so you're

trying to analyze fundamentals on

companies where corporate executives are

actually trying to

appease shareholders for the short term

so for example in this morning's

earnings call

with target

course members and i reviewed it and

going into detail on it we notice how

target basically when you read in

between the lines tells us they don't

have earnings power anymore or pricing

power anymore and instead they need to

cut their investments on consumer

discretionary items and go really really

heavy on food and value items because

people are transitioning to value and

they're having trouble selling these

discretionary products but they don't

tell you that bluntly they kind of try

to say oh we're getting more traffic and

our focus is more traffic and our

customers are so happy with what we're

doing you know we had too many employees

getting distracted by too much inventory

and then you look at the cash flow

statement you're like no you had a

negative operating cash flow because you

bought too much inventory in in the

first three months of the year you guys

done screwed up yep you get executives

who essentially try to manipulate that

information so that hopefully it doesn't

have as bad of an impact on the actual

stock performance in the short term and

that's something that i also hate about

stocks because in the short term you get

so much uh divisiveness in stocks it's

almost worse than politics it's oh look

here's some data that's negative oh

you're a fudster oh that's stupid you're

not paying attention to this or you're

misleading with this or oh here's data

that's uh bullish oh you're a

flip-flopper oh you're uh you're missing

this oh you're not considering china oh

my gosh this is all terrible it's it's

you can never say anything right

and so what's fascinating is i've

noticed that most people because of all

this noise don't actually become

multi-millionaires from stocks they

might be multi-millionaires who invest

in stocks and over the long run if you

return and compound seven percent

annually you know that's pretty amazing

once you're already a multi-millionaire

but it doesn't do you much good if you

have a portfolio of say twenty thousand

dollars or fifty thousand dollars it

really does you little good and and it's

not going to get you to

multi-millionaire status uh unless you

have serious like cojones of steel to

get through all the noise and the

craziness like the noise is there if you

want to listen to it but the more you

listen to the noise the more you tend to

make portfolio mistakes because again

stocks behave irrationally in in the

short term you know you could have an

amazing company with phenomenal

fundamentals do terribly in the short

term uh and an amazing company with

great fundamentals get overvalued in the

short term it's phenomenal so what's the

big lesson

the big lesson i noticed

goes back to the first lesson that i

ever learned about investing and it has

to do with the fact that the things

around me

are actually what create millionaires

see the new york times found before the

pandemic and it's even more true now

after the pandemic that the greatest

wealth builder has always been real

estate and that's actually why we have

massive gender wealth gaps that's why

blacks are

less wealthy than whites for example

because whites own more homes and that

probably has to do with decades of

redlining and discrimination and

worse job opportunities and worse

qualifying opportunities

uh but you know this isn't designed to

be a political video the point is that

the average net worth of a homeowner is

in excess of two hundred thousand

dollars whereas the average net worth of

a tenant somewhere around five thousand

five hundred dollars

and uh we're coming up on a property

that uh

i specifically want to drive by because

i feel like i made a mistake with this

property uh and and i i regret that

mistake because i have these fond

memories of going through that property

when jack was my son my first son who's

about to turn seven in about 20 days uh

actually in about 15 days

my first son

we walked through the property when he

was two

years and 10 months old

and this was a property that i made a

big mistake on and there's a big lesson

to learn from this property because see

with real estate

you don't have to play the noise of the

stock market you can you can sell real

estate which i don't recommend you do

now i i sold some of my real estate but

that's because i'm starting a real

estate company and i'm actually going to

be going larger into real estate so even

though i might do something personally

that's not what i recommend i don't

recommend people copying me because i

don't think other people are first of

all are starting with millions of

dollars in the position i am right now

or or you know creating a real estate

startup generally i don't recommend

selling real estate and that's because

real estate is a perfect way to become a

multi-millionaire in fact

one of my employees is a w-2 employee

and they continue to buy real estate

every chance they get they buy real

estate they will end up being a

multi-millionaire working for me with no

stress of the stock market or the noise

of the stock market and here's the house

the house is right here

this particular house is a house that i

bought and i completely remodeled see

it's got my famous

diamond uh driveway uh those are our

colors the exterior colors we didn't do

all this landscaping here but we did

those windows we did the wood repair

work on the outside uh we did the roof

and i'm going to keep going here because

i don't want to be awkward and filming

in front of what's now somebody else's

home but the lesson of that home

is one that we can apply to everyone and

it's a mistake that i made

2018. anyone could have bought that

house uh in fact that's exactly what

these folks did with five percent down

for six hundred thousand dollars now a

lot of folks are gonna hear six hundred

thousand dollars and think what that

little house six hundred thousand

dollars that's insane that's because you

live in stupid california that's that's

crazy you know people make fun of

california all the time and again this

isn't a political video i happen to live

in the best weather that exists in the

country which

only a small sliver of the country can

actually have it's not my fault that the

weather looks like this and it's 65 to

75 degrees every single day all year

long and it barely rains here which also

causes water problems but then again we

have an idiotic governor that doesn't do

anything about that that's why i ran

against him for governor but oh well

that's beside the point what's more

important is that anybody could have

bought that property with five percent

down

and you might think okay five percent

down but kevin and this is what's so

fascinating about real estate is the

objections immediately come up but kevin

then you have to pay mortgage insurance

well

that property with five percent down you

would have borrowed

95 of that property's value five percent

down represents thirty thousand dollars

you didn't have to fix it up because i

already fixed it up i sold that property

i sold that property to somebody who put

five percent down they spent forty

thousand dollars to control that

property

that property today is worth eight

hundred thousand dollars now while i

don't believe that's sustainable and

sure real estate prices can and they

will go down in the future in fact we

might be on the precipice of real estate

prices going down uh you know maybe even

as much as 20 even if it goes down 20

from 800k it's still worth 640 000

which what's incredible about that is

if they bought the property for six

hundred thousand dollars and it's worth

640 and they put 40k into it down

payment and closing costs they basically

spent no money on the property

they owned the property essentially for

free

now of course the beautiful thing about

real estate is

there's very little debate

somebody who holds that property for the

next 30 years in a high quality area

even considering maintenance costs and

fix up over time will build a lot of

wealth

and that is the key

to becoming a multi-millionaire is

moving into that kind of property with

five percent down living there for a

year or two and then guess what after

you live there for a year or two maybe

even live there for five years you move

and you turn it into a rental the

payment on that property at the time was

probably somewhere around three thousand

dollars they could rent that property

out right now for thirty eight hundred

dollars thirty eight hundred dollars

it's kind of insane rents have gone up a

lot but they would have a positive cash

flow a few years after buying it that's

not necessarily to say that that's

always going to repeat itself even if

they had a slightly negative cash flow

of let's say even a couple hundred bucks

negative okay that's 2 400 bucks a year

can't afford to invest another 2 400

bucks a year into real estate come on

the objections people have for real

estate are really sad but over the long

term what's phenomenal is that that

property and that person's equity

will grow so much faster

than the interest that they pay

and that's because they put forty

thousand dollars into a property that

now has probably somewhere around over

two hundred thousand dollars of equity

and so they basically turned if their

net worth was all of the cash they put

into it if their net worth was 40k they

5x their net worth it's 200k

they do that again with

another property in a few years or now

uh then they do it again a few years

after that

they'll likely be a multi-millionaire

within 10 to 15 years

i highly believe that somebody buying

real estate every three to four years

will be a multi-millionaire

easily within 10 to 15 years the same

can't be said about the stock market

because there's so much noise and so

what was my big mistake with that

property

in my opinion in 2018 i should not have

sold that property i think it was a

mistake to flip that property i called

it the youtube flip though and if you

type into youtube meet kevin youtube

flip you can actually see the series

it was kind of during a little bit of a

challenging time because in in the

spring of 2018 uh mortgage rates

skyrocketed about one percent and we had

sort of the noise of the market in the

panic of the market and a temporary

reduction in prices uh in the summer of

2018 which is quite remarkable because

that's when the feds started becoming

aggressive kind of like what we're

seeing now but i think the biggest

lesson

that everybody should really be

internalizing is what can i do to get

into real estate what can i do to build

wealth with real estate and the answer

is get started with your first home

the objections that come up are usually

oh but then you have mortgage insurance

okay so after a few years after you

build equity especially if you buy it

right or just over time prices goes up

prices go up

you can get rid of your mortgage

insurance the average amount of time

that someone has a mortgage is seven

years

but most people get rid of their

mortgage insurance within three years so

calculating mortgage insurance that's

this 30-year cost is ridiculous that's a

flaw

most people look and say oh but kevin

but but what if the foundation is broken

or what if the roof is damaged or the

sewer's broken you can inspect for these

things foundations aren't broken without

external evidence roofs aren't broken to

the point that you can't see it when

you're walking on it and inspecting it

plumbing isn't broken to the point that

you can't stick a camera down a vent

pipe and inspect the sewer lines under

that house in fact that's exactly what

we did and we replaced all of the sewer

lines in that house so the buyer there

has a new roof has new windows has new

sewer lines there's a new electrical

system they have everything

and so what's going to go wrong oh you

have to replace an appliance every few

years who cares you know you don't have

that concierge service of a landlord

doing that for you but the reality is a

landlord isn't going to do

what you expect anyway most landlords

suck most landlords won't even won't

even fix things they have to fix let

alone provide you a concierge service

which some people think oh but you know

i could just call my landlord and get a

new dishwasher really you want the you

want the dishwasher your landlord's

going to give you or do you want to buy

your own

and actually build wealth in doing it

so look you know everybody knows at this

point that yeah i have programs on

building your wealth through real estate

link down below but i i just this isn't

this video isn't designed to pitch that

or the coupon code expiring on the 26th

it's to suggest that my biggest mistake

was one of my biggest well the biggest

lesson the mistake in this video was

selling that property was my biggest

mistake i've made much bigger mistakes

my biggest lesson

was

buy real estate because over the long

term if you buy real estate in high

quality areas where people want to live

you'll be careful maybe with the zoom

towns because we've got that zoomtown

phenomenon where a lot of people have

moved to for example boise idaho or

whatever and now the zoomtowns are

seeing

real pain and real estate pricing uh and

that pain is probably going to continue

as we sort of get a reversal of that

effect

but

the biggest lesson is get into real

estate and own real estate don't try to

time the market with real estate get

away from the noise of stocks get into

owning assets that over the long term

will appreciate that you can control

with the bank owning most of the debt

and the beautiful thing is when the bank

owns most of the debt you're not taking

the big risk

the bank is and that's not to say you

don't want to take risk mitigation stuff

say

it's not to say you don't want to

mitigate your risk here's how you can

mitigate your risk the same way lauren

and i mitigated our risks on our first

property

we looked and said okay

the payment on this property is nineteen

hundred fifty dollars that was our first

property what do we do to mitigate our

risk okay well worst case scenario can

we together take minimum wage jobs and

afford twenty four thousand dollars a

year and the answer to that is

yeah we could even when minimum wage was

nine dollars like we could we could even

take a minimum wage job and a second

minimum wage job each if we needed to we

would make that payment because we

didn't want to have the seven years of

no financing anymore which is what you

end up with if you go through a

bankruptcy although i think that's even

been softened to four years now so

bankruptcy isn't even that evil anymore

and in the lending world they just want

you coming back and buying more homes

kind of crazy uh that was our worst case

scenario but we're like but why would

that happen we wouldn't have to float

the whole thing unless of course we put

a tenant and had an eviction but this is

where people write comments all the time

they're like oh i don't want tenants in

toilets yeah you don't want tenants and

toilets because you're listening to

people who have rental properties who

aren't experienced professional property

managers who don't know what the hell

they're doing so what happens they end

up renting to tenants with terrible

credit scores and uh

terrible assets and terrible

qualifications and so yeah no surprise

the tenants stop paying rent and then

they have to deal with tenants and

toilets and the nightmare of that

but lauren and i you know we had uh over

20 million dollars of real estate over

over 20 uh two rental properties rented

out to to individual tenants and uh what

did we find we found that our property

management was

maybe 20 minutes a week of work i mean

it was a joke

we we generally joked that it was about

a minute per tenant per week

that's it like seriously that's not that

much work

so that was at least our experience you

know knock on wood and uh but we think

that is a replicable model if you rent

to qualified individuals

uh even if you rent slightly below

market value you know we'd rather say

okay what if we rented out the property

for for sixteen hundred dollars would

somebody rent the property of course

somebody would rent the property for 69

in fact if we had a payment of 1950 and

let's say we had expenses of a couple

hundred bucks on top of that let's say

our payment was 2200 with expenses and

repairs and everything and we're just

like please somebody just rent it for

1600 like just just just rent it for

cheap right and we get somebody with

like an 800 fico in the best quality

person ever okay so now our negative

cash flow would have been in this worst

case scenario 600 600 times 12 is 7 200

what we would have gone bankrupt over

seven thousand two hundred dollars

getting out of town

like most of these risks that people

feel about real estate are imaginary

and that's why again the greatest lesson

that anybody watching this video could

recall

and remember and take away is that if

you have an objection as to why you're

not getting into real estate ask

yourself why you have that objection

and ask yourself about

maybe you're wrong maybe you should be

getting into real estate because maybe

real estate is the surest way to wealth

and it's one where you don't have to be

so concerned about the day-to-day noise

the market's always going to shift

they're always going to be changes in

the market but don't worry about that

buy real estate don't wait to buy real

estate get in and wait and subscribe

because we're going to be bringing a lot

more real estate content especially

since i've got a huge real estate

startup coming up that i'm so excited to

share with the world uh and i might

actually start posting some more

detailed videos about it let me know in

the comments if you want to hear that uh

sort of a teaser but uh yeah attorneys

are taking a whole lot longer on

paperwork than i expected but you know i

want it to be perfect for when we launch

so

uh it's okay to wait a little bit longer

for perfect paperwork but anyway thanks

so much for watching get out there buy

real estate we'll see in the next one

bye