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 after any mistakes. After reflecting on more than a decade of investing in real estate, I’ve concluded that five things have been the most influential in my success thus far. These five things will also likely remain essential during my career as a real estate investor.

In less than 10 years of intentional investing, I’ve managed to build an eight-figure investment portfolio that generates net cash flow in excess of $1 million annually. This was achieved by adhering to these five core concepts below. I hope this helps you reach any investment goals you have in less time than you think!

1. I started investing and never stopped

I started 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 properties. During my time as an investor, I have never let analysis paralysis stop me from taking action and investing in a property I believe in. And every year, I’ve found ways to buy more real estate, which means I need to be creative and consistent to keep my money flowing strong.

Even when I lost my money in a deal or faced major obstacles, I continued to invest in real estate. Over time, the mistakes you make will help you become a smarter investor. Start investing and keep investing to earn the returns you are looking for. Do not lose sight of the fact that income from rental properties will accumulate over time. It’s better than taking a long time to find the perfect property.

2. You were intentional with where you bought the real estate from

We always hear about location, location, location. But what does this mean? It means finding the right macro and micro markets that align with my investment goals. Different sites are more suitable for different people and investment strategies. One thing that has allowed me to take my portfolio to the next level and generate large amounts of passive income quickly is not limiting myself to the local market.

Instead, I set very specific investment criteria based on the goals you set. Then you invest in the markets that fit these goals and offer the best returns. Yes, that means I need to educate myself other markets And building teams of professionals who have worked in these markets. It’s a process that takes a lot of time and work but is essential to building the right teams.

I was always looking for the next best market to invest in, which allowed me to never be satisfied by investing in just one location. Although I continued to expand in a location where I had developed an established team, I still moved into other markets in order to better diversify my portfolio.

3. I used all available resources to help me expand my portfolio

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

Over the years, I have used many methods to acquire and own more real estate. For example, I have accessed equity in my current investment property via Home equity lines of credit (HELOCs). This money is used for down payments and leverage. I also converted a file IRA in self-guided IRA, which is a type of account that allows you to invest in real estate. Over time, I partnered with other individuals and borrowed money from colleagues and private investors who were also interested in real estate. Some of the other opportunities I’ve taken advantage of to earn capital include:

• Cashing out small portfolios of securities to be used as down payments on more rental properties.
• Create side hustle, only some of which focus on real estate.
• Income saved from my rental portfolio to reinvest.
• He built a brisk REI business, rent-to-retire.
• Take advantage as much as possible – responsibly, of course.

Scalability is the name of the game if you want to generate significant passive income and generational wealth with your real estate portfolio. As you acquire more capital to reinvest, that money will build up over time. Your main goal is to create more income in a way that will accelerate your goals.

4. I maximize tax benefits

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

I have used my existing portfolio to purchase more properties and have always reinvested any positive cash flow. This was achieved through performance 1031 Exchange, using HELOCs, and cash refinances in properties that have grown in equity over time. all of these Tax-deferred or tax-exempt strategies To gain access to equity in a property to reinvest in additional property. I’ve also doubled depreciation by doing cost separation studies on all of the properties I own. Doing so helps speed up depreciation by allowing me to take a huge loss on the property in the first year, which in turn offsets the income I earn from all sources of income. This allowed me to have more capital to reinvest and immediately earn a return on the capital that would otherwise have been paid in taxes.

All investment properties in my portfolio show a loss each year through normal depreciation and expense write-offs. Although these properties have positive cash flow, the tax benefits available to me allow me to significantly reduce my taxable income. These same benefits are available to any investor who owns rental properties. 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 annually in tax-free cash flow, that would be the equivalent of earning about $175,000 in earned income based on my current state and federal tax bracket.

Even if you are aware of some of your tax advantages, most people are not aware of every write-off and tax deduction available to them when investing in rental property. It’s also common for investors not to track expenses properly, which means they can’t take full advantage of all tax deductions. It is estimated that about 97% of people who own investment property have at least one mistake on their investment tax returns. This point brings me to my last point.

5. I’ve added the right people to my team

I have made sure to surround myself with high caliber professionals in all aspects of my investment career. Every person I add to my investment team is a professional investor the same. It allows them to give me the best advice regarding the investment goals I am 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 are different from accountants. An accountant is more defensive in nature when it comes to preparing and filing taxes on your behalf. By comparison, tax strategists are in the wrong and will help you create a strategy to improve your portfolio.

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

This is not an easy or quick process. However, she has always found the right people to work with, and has done whatever it takes to keep them around. Sometimes that means going through 10 or 20 bad contractors or property managers before finding the right one. At Rent To Retirement, we have these team building resources and will make them available to you across the country, which could prove invaluable when you’re trying to achieve long-term success as an investor.

Conclusion

During my time as an investor, I’ve taken advice from people who are just where I want to be. I have specifically looked for mentors who have developed a level of success that I am striving for. There are many people who are quick to give their opinion on things they don’t try, which is especially common in the real estate investment sector. I never listen to these people. Instead, the professionals I gain advice from are almost always more successful than I am. I find ways to add value to their life or business, so they share some nuggets of knowledge on how they earn their success over time. This process alone has made me millions of dollars!

Consistently following these five steps over time is an effective way to create financial independence and generational wealth through real estate investing. It takes time and effort, but it’s also not a very complicated process. My biggest advice to me is to simply start investing now and never stop investing. Consistently apply all the lessons you’ve learned to become a smarter and more successful investor. Real estate investing is a journey of a lifetime as there is always something new to learn!

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