How I Replaced My Expenses with Passive Income #realestateinvesting #realestate #kenmcelroy

So everyone online is selling you this fantasy of passive income. Retire by 30, live on a beach, make money in your sleep. This sounds great, except that's complete nonsense. I say that by someone who's actually been doing this for over 30 years. I own over 10,000 apartments. My income comes in whether I'm working or not. And yes, while I'm asleep. So I know exactly how this game works. And I'm going to show you the truth about passive income that nobody's talking about. Because this is not quick. It's a long game. And it happens over time. But passive income, it is real. But it's not easy. It's not quick. And if you chase the wrong strategy, you're going to lose time, money, and of course, peace of mind. But if you do it right, you can buy back your time. You can stop trading hours for dollars. And you can build real wealth over a long period of time. And most importantly, you can create yourself some financial freedom. So let's start with the myth. Passive income is not set it and forget it. A lot of people treat real estate like a stock. It is not. It's a business. This is not sipping cocktails and magically hoping that checks show up. This is not a vending machine that you buy off a TikTok or an Airbnb strategy that's completely short term and based on some consumer that's going to pay you a high nightly rate. That is not what this is. The truth is passive income is front loaded work. Once you get that right, then it's just a process and a system. It's effort, capital, and risk on the front end in exchange for income on the back end. So I bought my first real estate property in 1995. It was a two bedroom condo and I scraped together my down payment. And it cash flowed maybe 50 bucks a month. Was it life changing? No. But it was proof of concept. In other words, it worked. What I learned is someone else was paying my mortgage, my expenses, and giving me cash flow. So I was using the bank's money and my money, but somebody else was paying it all off for me. It showed me that money could come in while I was doing something else. The only thing I had to do was make sure that that condo was rented. And that's when I realized if I can figure out how to do this at scale, then I won't have to work forever. And that's when I started to focus on how much passive income would I need just to cover my expenses. Because once I got to that point, then I became financially free. And now I can make whatever decisions I wanted. In other words, when my expenses were covered by the passive income, yes, it does take work. But at that point, I have all the passive income coming in I need to cover the expenses for my lifestyle. And that, my friends, is true financial freedom. Because at that point, you can do whatever you want. So let's break it down. Passive income is simple to understand. It's income that comes in without having to trade your time each and every day. Let's don't confuse passive with effortless. So there are really only three types of passive income. One is real estate, two is business ownership, and three are dividends or interest from paper assets. Now, personally, I focus almost entirely my time on the first two real estate and business because I love the control of those things. I can manage the expenses and I control the income on those two things, which of course then controls my passive income. Because when I get control, I can improve them. I can scale them and I can protect them. So when I own an apartment building, for example, I'm not counting just on the market going up. I'm actually managing operationally the property itself. I'm making sure that the occupancy is high, the rents are at market, and the expenses are managed. So I'm collecting rent, managing the expenses, and of course, more importantly, getting paid each and every month in the form of passive income. It's predictable, it's tangible, and I can hand this off to any management team and still get paid. So just yesterday, I had a dinner with an investor that had over 100 single family properties. And he said that he has two calls a month and everything's outsourced to a management company. Now, he's about my age. It didn't start off this way. That's not exactly how he started in the game. But now at 60 years old, he's turned it all over to a management company. And he basically has about two calls a month with his management company. On the properties that tenants are paying off each and every month for him. And of course, more importantly, he's crushing it on the passive income and the cash flow. So that's the kind of passive income that builds wealth. And of course, it lets you sleep better at night. The key, of course, is to buy something that somebody else pays off for you each and every day. Now, here's what kills most people before they build passive income. Gold is near all-time highs, but appreciation isn't the only way to benefit. Monetary metals, you could potentially earn a yield on your gold paid in physical gold without selling it. Here's how it works. When you lease your gold through their platform, pre-qualified companies pay to use it under strict guidelines, like renting out real estate, but with gold. Instead of paying to store your metal, you may earn up to 4% annually in gold. You stay in control and you can choose which leases to participate in. Monetary metals handles the due diligence, lease terms, and all the administration. Thousands of investors use this approach to grow their gold, not just sit on it. Visit Monetary-Metals.com forward slash Ken to learn more. Leasing gold involves risk and returns are not guaranteed. This is not an offer to buy or sell securities. Please review all risk disclosures at Monetary-Metals.com. Visit Monetary-Metals.com forward slash Ken to learn more. They don't know how to manage their own expenses, let alone something on a building or a property or a business. Look, if you don't know where your money's going, how the heck are you going to redirect it into assets? So a lot of people think when they're managing their expenses, it's simply just being cheap. And while that might be some of it, having a scarcity mentality, it's not just not spending money. It's actually managing the actual expenses that you have. And there are numerous ways to do this. So this is one of the biggest problems when I see these new real estate investors. They want to build income, but they don't have a clue about what's going on with their own cash flow. You cannot build passive income on the top of chaos. You have to understand how to manage expenses. So that's why I created a simple tool for you on how to track your own expenses, how to organize them all. And it's free and it's easy to use. And it will help you see exactly where your money's going each and every month. Just click the link below at KenMcElroy.com. And it's called Know Your Personal Expenses. So if you want to build cash flow, you have to first control what's flowing out. So start there. So now that you've got your personal expenses in order, what's the actual formula? The first one is to earn active income. And of course, we have videos about this all over our channel. Two, learn to pay your expenses and then invest. So the key here is to invest to pay your expenses. That's the key. Three, buy cash flowing assets. Not so easy. But of course, we've got information on this channel for all of you to check out. Four, use smart leverage. If you don't know what smart leverage is, it's fixed rate debt long term below inflation. Three, lower your taxes through depreciation. Now we're getting into the weeds here a little bit. But right now, one of my biggest strategies is to buy to reduce my taxes legally. And it's called depreciation. And there's lots of ways that you can do this. Six, reinvest the cash flow. This is the most important thing. Create a velocity of the money. Don't just pocket it and go buy shiny objects. And seven, of course, repeat. This is the real formula that the wealthy use. And that's how we bought over 10,000 apartments. One deal at a time. With boring cash flowing real estate with a long term growth mindset. So let's walk through a real example. I'll show you a real deal. So let's say you buy a duplex for 300 grand. And you put down, let's say, $60,000. Which, by the way, doesn't always have to be your money. You rent each unit for about $1,000. Which should equate to about $500 a month cash flow. That's what you're looking for is the cash flow. So that $6,000 a year is about a 10% cash on cash return. $60,000, $6,000 of cash flow. That's 10%. Try getting that from a savings account or anywhere else. 10% cash on cash is darn good. Now imagine owning five of these. That's $2,500 a month. All at 10% cash on cash. How about 10 of those? That's full-time income for a lot of people. The goal isn't always to buy one massive big property. Like my friend who owns over 100 of these. The goal is stacking small, scalable cash flow. And that eventually gets so large that it covers all your expenses. And then it starts to put real serious money into your pocket. So here's what kills passive income after you start building it. Lifestyle creep. Now keeping up with the Joneses is a real thing. So you got to be very careful, very diligent. And maintain your lifestyle during this period. It does take discipline. Two, the shiny object syndrome. And we're all guilty of this. Everybody starts buying stuff because they have this passive income. And it takes away from the overall strategy. The way to do it is to buy a cash flowing asset to pay for the thing that you want. I did this exact strategy when I bought one of my Ferraris. I bought a real estate deal that cash flowed enough to pay for the Ferrari. So that's the strategy. Not to buy the Ferrari, which is typically a depreciating asset. You want to buy something that's appreciating that somebody else is paying off. And use the cash flow to pay for that shiny object. Three is over leveraging. We see this all the time. This is when you start to stretch for a deal. So this is 70, 80, 90, even 100% leverage. So the only thing you're banking on is for that asset to grow in value. That's not the strategy we're trying to get to here. Then the fourth thing, of course, is that's chasing appreciation or capital gain strategy. We are teaching a cash flow strategy, not a capital gain strategy. So I see this all the time. People go out and buy something that might cash flow. But really, what they're really hoping is that the price will go up. That's not passive income. That's gambling. Don't buy something because it looks flashy. Buy something because the numbers work. Even if nothing goes right, you're always going to do well with that strategy. So how do you actually start? One, fix your personal finance. Two, build a small cash reserve. And understand that you don't just need your own money to buy real estate. You just need a great deal. Three, learn about real estate and more importantly, about how cash flow works, which is simply income minus expenses minus debt is cash flow. Four, buy your first small deal or invest along someone who's done this before. Find yourself a mentor or coach. And five, reinvest that income and start stacking your wins. This is a long game. So you don't need millions and you certainly do not need to quit your job. My sister did this exact strategy as a bookkeeper at a small medical clinic in the town that I grew up in. And at the end of the day, when the dust settled, she retired on the passive income and more importantly, on the equity that her tenants had used to pay off her own buildings over a long period of time. Over a 20-year period, what was left standing was a bunch of real estate deals that the tenants had paid off for her. That, of course, more than tripled her net worth. So you just need to start thinking differently and moving you in the right direction. So here's the bottom line. Passive income is not easy and it's certainly not quick, but it's real. And it's the only way that I know to absolutely buy back your time. I'm not here to sell you any kind of a shortcut. I'm here to show you the truth and help you build something that's real. So if you're serious about this, go download that free expense tracker that we talked about earlier or click on the link below. And get control of your personal finances. I'll walk you through how to spot a cash flowing deal in 10 minutes or less in this next video. So I'm Ken McElroy and thank you for watching. And remember, you don't build wealth by working harder. You build it by buying your time back one deal at a time.