How I Make $1 Million in Annual Cash Flow After Less Than 10 Years of Investing

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Becoming a successful investor doesn’t happen overnight. It requires patience, hard work, and the ability to reassess following any mistakes. Reflecting on over a decade of investing in real estate, I’ve concluded that five things have been the most influential in my success to date. These five things will also likely continue to be essential during my lifelong career as a real estate investor. 

In less than 10 years of intentional investing, I was able to acquire an eight-figure investment portfolio that generates a net cash flow of more than $1 million per year. This was accomplished by adhering to these five core concepts below. I hope this helps you reach whatever investment goals you have in less time than you think!

1. I Started Investing and Never Stopped

I began investing early in my life, but it’s never too late to do so. Time is on your side when you own long-term rental real estate. During my time as an investor, I never let analysis paralysis prevent me from taking action and investing in a property I believed in. Every year, I found ways to buy more real estate, which meant I needed to be creative and consistent to maintain strong cash flow. 

Even when I lost money on a deal or hit large obstacles, I continued to invest in real estate. Over time, the mistakes you make will help you become a savvier investor. Start investing and keep investing to garner the returns you’re looking for. Don’t lose sight of the fact that rental real estate income will compound over time. It is better than taking too long to find the perfect property. 

2. I Was Intentional With Where I Bought Real Estate

We always hear about location, location, location. But what does that mean? It means finding the right macro and micro markets that are congruent with my investing goals. Different locations are more appropriate for different people and investment strategies. The one thing that allowed me to take my portfolio to the next level and generate high amounts of passive income quickly was to not limit myself to my local market. 

Instead, I determined very specific investing criteria based on the goals I had. I then invested in markets that fit these goals and provided the best returns. Yes, this means that I needed to educate myself on other markets and build teams of professionals who worked in these markets. It’s a process that takes a great deal of time and work but is necessary to build the right teams. 

I was always looking for the next best market to invest in, which allowed me to never get complacent by investing in just one location. Even while I continued to scale in a location where I had developed an established team, I still moved to other markets for better portfolio diversification. 

3. I Used All Available Resources to Assist Me in Scaling My Portfolio

Capital is the most limiting factor for anyone who wants to scale their portfolio! It’s essential that you use all of the resources available to you. Once you run out of down payment money, you need to save up for a down payment on your next property. However, you should focus on other avenues of gaining access to more capital. The most successful investors look at all available resources. It allows them to aggressively grow their portfolio, and that’s exactly what I did. 

Over the years, I’ve used numerous methods to acquire and own more real estate. For instance, I’ve accessed equity in my existing investment properties via home equity lines of credit (HELOCs). These funds are used for down payments and leverage. I’ve also converted my IRA into a self-directed IRA, which is a type of account that allows you to invest in real estate. Over time, I’ve partnered with other individuals and borrowed money from colleagues and private investors who are also interested in real estate. Some of the other opportunities I’ve taken to gain capital include:

• Cashing in small portfolios of stock to use as down payments on more rental properties.
• Created side hustles, only some of which focus on real estate.
• Saved income from my rental portfolio to reinvest.
• Created an active business in REI, which resulted in Rent to Retirement.
• Leveraging as much as possible—responsibly, of course.

Scalability is the name of the game if you want to create substantial passive income and generational wealth with your real estate portfolio. When you gain more capital to reinvest, these funds will compound over time. Your main goal is to create more income in a manner that expedites your goals. 

4. I Maximized Tax Benefits

While boring to most, the tax benefits you have access to as a real estate investor are essential to your future success. This is the most powerful aspect of REI because it compounds over time. Most people don’t take advantage of tax benefits to their full potential because they don’t know about them. Keep in mind that tax benefits aren’t available with other asset classes in the same way they are in real estate. 

I used my current portfolio to buy more properties and always reinvested any positive cash flow. This was accomplished through performing 1031 exchanges, using HELOCs, and cash-out refinances in properties that grew in equity over time. All of these are tax-deferred or tax-free strategies to access equity in a property to reinvest in additional properties. I further compounded the depreciation by running cost segregation studies on all properties I own. Doing this helps to accelerate depreciation by allowing me to take a massive loss on the property in the first year, which in turn, offsets the income I earn from all income sources. Doing this allowed me to have more capital to reinvest and immediately earn a return on the capital that would have otherwise been paid in taxes.

All investment properties in my portfolio show a loss every year through normal depreciation and expense write-offs. Even though these properties have a positive cash flow, the tax benefits at my disposal allow me to substantially reduce my taxable income. These same benefits are available to any investor that owns rental real estate. This is why we often refer to the cash flow we receive from rentals as “tax-free income .”For example, if I bring in $100,000 per year in tax-free cash flow, this would be the equivalent of earning around $175,000 of earned income based on my current state and federal tax bracket. 

Even if you’re aware of some of your tax benefits, most people aren’t aware of every write-off and tax deduction available to them when investing in rental properties. It’s also common for investors to not track expenses properly, which means that they can’t take full advantage of all the tax deductions. It’s estimated that around 97% of people who own investment properties have at least one inaccuracy in their investment tax filings. This point leads me to my final point. 

5. I’ve Added the Right People to My Team

I’ve made sure to surround myself with high-level professionals in all aspects of my investing career. Every single person I add to my investment team is a professional investor themselves. It allows them to provide me with the best advice pertaining to the investing goals I’m working towards. The team you build is essential to your success as a real estate investor. 

The types of professionals you should work with include financial advisors, accountants who specialize in real estate, and tax strategists. Keep in mind that tax strategists differ from accountants. An accountant is more defensive in nature when it comes to preparing and filing taxes for you. In comparison, tax strategists are on offense and will help you strategize the optimization of your portfolio.

Additionally, you’ll need to find lenders that offer multiple loan products, lend in multiple states, and are also investors themselves. Search for contractors, property managers, brokers, and builders who are all professional investors. 

This isn’t an easy or quick process. However, I’ve always found the right people to work with, and I’ve done whatever it takes to keep them. At times, this means going through 10 or 20 bad contractors or property managers before finding the right fit. At Rent To Retirement, we have these team-building resources and will make them available to you across the country, which may prove invaluable when you’re trying to gain long-term success as an investor. 

Conclusion

During my time as an investor, I’ve only taken advice from people who are in the place I want to be. I’ve specifically sought out mentors who have cultivated a level of success that I’m striving to achieve. There are many people who are quick to pass out opinions on things they aren’t experienced with, which is especially common in the real estate investing sector. I never listen to these people. Instead, the professionals I’ve gained advice from are always more successful than me. I find ways to add value to their life or business so they share a few nuggets of knowledge on how they earned their success over time. This process alone has made me millions of dollars!

Following these five steps consistently over time is an effective way to create financial independence and generational wealth via real estate investing. It does take time and effort, but it’s also not an overly complicated process. My biggest piece of advice would be to simply start investing now and never stop investing. Continuously apply all of the lessons you learn to become a savvier and more successful investor. Real estate investing is a lifelong journey where there’s always something new to learn!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.