BiggerPockets Podcast 503: The Millionaire Formula: 10 Steps to Hit 7-Figure Net Worth (Part 1)

BiggerPockets Podcast 503: The Millionaire Formula: 10 Steps to Hit 7-Figure Net Worth (Part 1)

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You probably know Brandon Turner and David Greene as multimillionaire real estate investors. What you may not know, is that a decade ago this was a very different story. Brandon didn’t grow up in a wealthy family, and by his 20s, had packed on about $20,000 of credit card debt while spending $1,000 more than he could afford each month. David grew up in a family where finances were a constant stressor, he later vowed to himself that he would never let money problems hurt him or the people he loves.

Now, both Brandon and David have made the long journey from rags to riches, and through investing in real estate they were able to pull themselves up by their bootstraps and reach financial independence. Today, we talk through the first five (of ten) steps that helped Brandon and David reach this financial feat.

This is a great episode to take notes on, as becoming a millionaire is close to impossible without following most, if not all of these steps. While this episode isn’t entirely focused on real estate investing, a large part of being a successful real estate investor is financial intelligence. Even if you’ve made mistakes in the past with investments, debt, spending, or any other financial lever, following these ten steps will give you a solid framework to stair-step your way into millionaire status.

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Listen to the Podcast Here

Read the Transcript Here

Brandon:
This is the BiggerPockets Podcast, show 503.
Like it’s going to be harder to become a millionaire than it was for you and I. It’s just a fact. We can’t change the fact that we can’t change the past. All we can do is look forward and say, hey, these rules helped us, they’ll help you. Regardless of where you started from, I believe these will help you.

Speaker 3:
You’re listening to BiggerPockets Radio. Simplifying real estate for investors large and small. If you’re here looking to learn about real estate investing without all the hype, you’re in the right place. Stay tuned and be sure to join the millions of others who have benefited from BiggerPockets.com. Your home for real estate investing online.

Brandon:
What’s going on everyone? It’s Brandon Turner, host of the BiggerPockets Podcast, here with my cohost, Mr. David multimillionaire Greene. What’s up buddy? How are you doing?

David:
That’s sort of a rough nickname you’re throwing at me. I know you meant nice things but let’s not have everybody running around saying, “Oh, there goes the multimillionaire.”

Brandon:
I had to come up with something at the last second. I was like, “Oh no. Well, what’s today’s show about? It’s about becoming a millionaire. Let’s do that one.” All right, I’ll work on a-

David:
I know where you came from. I just don’t want everyone thinking I’m like Scrooge McDuck swimming in my bin of gold coins.

Brandon:
Well, I don’t know man. You literally have a room in your house filled with gold coins that you dive into so I don’t know man.

David:
Well, because I’m so mature and benevolent I only do it once a week. I limit myself.

Brandon:
That’s true. That’s true. That’s true. You keep yourself limited. So good man. Well, today’s show is all about the things that made us a millionaire. And I want to preface this show with this. Millionaire’s a buzz word. We’re using it for a reason because I wanted you to click on this video or this podcast and I want you to watch this thing. What we’re really talking about here is financial independence or freedom or any of these buzzy words that basically means the ability to do what you want when you what how you want where you want with whoever you want. Like there’s so much … I remember what it was like … I’ll tell you my story here in a nutshell then we’ll get to the quick tip and everything else. But I worked at a Cold Stone Creamery. I was scooping ice cream. Had a bunch of student loan debt. Had a bunch of credit card debt. Didn’t know what I was doing. Worked at a bank for like $12 an hour, 13 bucks an hour. Hated every second. Was staring at the clock. And that was the life that I led. And every Sunday night I had this pit in my stomach of I don’t want to do this again. I don’t want to do this again the next day. And it was painful.

And now on the other side of it, despite … Yes, millionaire. But really what I’m saying on the other side of that where I get to kind of get to do what I want, where I want, when I want, how I want and with whoever I want … Like now I live in Hawaii and do a lot of fun cool stuff. It’s just so much better. And I’m not saying money fixes all your problems but it’s just much better. David, maybe in a quick nutshell give us your story. Because I know you’ve been through a similar journey. You were not born wealthy.

David:
Yeah. When I grew up my parents fought really bad and every little kid who grows up in a household like that it kind of impacts them. And a lot of the fights were about money. So my mom would go to my dad and say, “Hey, David wants this GI Joe,” and my dad would scream at her for asking and then she would have to come tell me no and I’d feel terrible because I basically like … My desire for that GI Joe sent my mom to the chopping block. And I just made this agreement with myself at a young age I will never, ever, ever let money become a stumbling block in my life. I will have enough money that I can have whatever I need and what I want and I’m not going to let it hurt people. And as I grew I saw, money led to so many fights. It leads to so much pain. We often criticize people that have a lot of money and say, “Oh, look how bad they became.” And it’s true. A lot of the time it does happen. At the same time lack of money causes people to do really bad things to.

If you think about anytime you’ve been desperate which lack of money can create, you were not the best version of you. I’m telling you I’ve seen agents on my team that were down for the cause and great attitude and then they hit financial hardship and all of a sudden greed just comes out of people from the fear of not having enough. So to me, having enough money that you can be comfortable and not have to be afraid am I going to get a flat tire, if my kid needs something am I going to give it to them, it allows you to be a better version of yourself. That you’re more giving. You can be more in tune with other people’s needs and that’s one of the reasons it’s such a worthwhile goal to pursue.

Brandon:
Yeah. Good stuff man. So yeah, that’s what today’s show is all about. We’re going to go through a bunch of different tips. We’ve got 10 here. I think we’ll probably end up making this a two part show because David and I don’t know how to keep things succinct. But we’re going to talk about these 10 different habits or traits or skills that we have developed that made us millionaires. This is not hypothetical like this should help you. All we’re saying that these 10 things that we’re going to talk about … And actually we have a bonus number 11 on there too. They legitimately and literally helped David and I become millionaires. We are millionaires because of these things and that’s what we’re going to be teaching you today. So we’ll get into that in just a moment but-

David:
Let me-

Brandon:
Go ahead. Please.

David:
Let me add one disclaimer before we go. There are many people that have … I don’t know what you want to call it. Psychological hangups when it comes to money. There’s guilt associated with having money, there’s guilt associated with wanting money. And a lot of that societal … It’s kind of trendy right now to criticize the rich. But if you’re someone who struggles with that, at the same time you feel the pull inside to own real estate and want control over your finances and you’re just stuck in this place, my challenge to you would be to ask yourself to change the way you look at money. Instead of it being a resource that is supposed to be equally spread around, that instead you look at it more like building wealth is like building fitness. Nobody criticizes someone who really cares about their health. Nobody criticizes someone who wants to be in really good shape, who monitors what they eat and when eat and how they eat and what they do for exercise. No one says, “Why are you just in the gym sweating really hard all day long? There’s more to life than just being healthy.” That doesn’t happen.

So for those that are struggling with that, that just hear the word millionaire and kind of cringe, don’t look at it like millionaire, look at it like a six pack or something. If you wouldn’t have a problem with somebody pursuing fitness, you shouldn’t have a problem with them pursuing health. And you will find that the principles that lead to each are very, very similar.

Brandon:
Yeah. I love that you brought that up because money is a skillset. Of all the things I wish I would have been taught at a younger age, this is probably one of the biggest. And that is money is not a lottery. Yes, some people win the lottery. But building wealth is literally a series of steps and skills. Becoming wealthy is just … I don’t want to say a game because some people get offended about that. No, I’ll say it. It’s kind of a game. You can learn how to play the game.

David:
It’s a game in the sense there are rules to it.

Brandon:
There are rules. And if you follow those rules just like with fitness you’ll probably get the results you want. Now, are there obscure reasons why you wouldn’t get the results that you want? Sure. Of course. Just like there’s obscure reasons why even if you diet and exercise well you still might not be in shape. There are some weird body things. But 99.9% of the time if you follow the 10 rules that we’re going to lay out today you’re going to be just fine. You’re going to get there and it’s going to be an amazing life afterwards. I hope so anyway. Unless you’re a dirt bag then you’re going to be a bigger dirt bag. In which case, turn this off.

David:
Yes. And the same goes for fitness. Everyone knows that person that got really hot and they just became a complete narcissist. It happens with everything, not just with money. I also want to acknowledge that there are people who come from a background where they are behind the eight ball. They do not have the advantages that other people have when it comes to money just like with fitness. There are people that were raised like you Brandon. You came from a house where salad at dinner meant like what? Like fruit salad, right?

Brandon:
Snicker’s salad.

David:
Snicker’s salad. They’d put candy bars and say, “We’re having salad with our dinner.” There was dessert-

Brandon:
Exactly what my growing up was.

David:
Dessert every night. So you came from a place when it came to fitness of not a good background. You were not taught the rules of fitness from your family. That doesn’t mean you should sit and cry and say it’s not fair to me because I didn’t have good upbringing and I didn’t have advantages other people did. It actually means you had to try harder in your pursuit of fitness and that’s what this is about. This is acknowledging there are people that do not have the same privileges as others and that means they need to try harder. They need more of this information. They need to be listening to this more frequently. They need more focus because less people in their circle are going to be supportive of them. And that’s the spirit of this whole like, do you want to be a minute episode. Where it’s coming from.

Brandon:
Yeah. I like that you said that man. That’s good. It sucks. We acknowledge that it sucks. For some people born in this country it sucks more than … It’s going to be harder to become a millionaire than it was for you and I. It’s just a fact. We can’t change the fact that we can’t change the past. All we can do is look forward and say hey, these rules helped us, they’ll help you. Regardless of where you started from, I believe these will help you. So with that said, let’s get into today’s show. But first let’s get to today’s quick tip. Today’s quick tip, I want to go with this one. I’ve got a book on multifamily real estate coming out here in just few short weeks. It’s going to be the biggest real estate book launch that we’ve ever done at BiggerPockets I hope. We’ve already got like over 5,000 pre orders. I would love to get that to 10,000 and just kind of know that had we launched this through a traditional publisher I maybe could have gotten a best seller. I mean we won’t get a best seller because it’s not launched through a traditional publisher but mentally it would make me feel pretty good. And I think the books are good. I think they’ll help people become a millionaire. It’s called The Multifamily Millionaire Volume one and two. You can pre-order it at biggerpockets.com/store.
Cool to call it that. /store. I think that’s all I got then. So now I think it’s time to get to the list of how to become a millionaire. Anything you want to add before we get started David?

David:
I’m really excited about this. I would say as you’re listening to this episode this is going to be a lot of content. There’s no way around it. Now that’s good, but it’s easy for your mind to wander at a certain point. If you catch yourself just thinking about other stuff, it’s okay to pause it, listen to it later. Like your brain has a limit of what it can do just like your body does before it needs a break. I often find that when my focus starts to wander I just need to let that muscle sort of recover and I do something else while it’s recovering.

Brandon:
That’s a great point man. That’s a great point. I would also recommend taking notes if you can. When you take notes you’ll remember more of what you learned. Also they did a study at one point … I don’t remember who did it but I read this one study. They did a study on how people remember things. Some people remember … What? It was like 20% of what you read, 15% of what you blah, blah, blah. It’s like that whole thing we’ve all heard before. But what the study basically said is the number one best way to remember something is to think you have to teach it later. Is to read something or to consume something with the assumption that you’re going to have to teach it later. So starting right now, get yourself in that mindset that I’m going to have to teach my wife, I’m going to teach my husband, I’m going to teach my kids, I’m going to teach my church, I’m going to teach whoever. Some kid down the road, I’m going to have to teach him these topics. Get yourself into that mindset and this stuff well not just go in your ear and out your ear but it will internalize in your soul and make it easier to work these habits in your own life on a day to day basis. So there’s a little hack for you.

All right, let’s get to the tips. Number one. The first thing we have here is aim for a target. I know it’s a little bit of a fluffy one and we’re going to start with a little bit of a fluffy one. We’ll get more tangible here in a second. But what I mean by that is most people don’t become millionaires on accident. Myself, definitely. I read a book when I was younger by a guy named Alan Corey who’s actually been a guest on the show before. He wrote a book called A Million Bucks By 30. And I remember reading that book. I got it from my library. I was even too poor to buy a book. I got it from my library and I remember thinking, “I want to be a millionaire by 30.” When I was 30 years old is when I … I don’t know if I made it by 30 but at 30 I crossed the millionaire dollar mark. And so I’m not saying I wrote down that goal every morning and said my affirmations that I will be a millionaire by 30. But in my head that was always a target I was going to hit.

I remember when I was 20 years old telling my wife … We were just dating at the time. I was like, “Yeah, I’m going to be a millionaire someday. We’re going to be a millionaire. I’m not even remotely confused about that topic. I will be one.” Now I don’t know if it’s going to take me two years or 10 years or 20 years but the target was always there at a broad level. David, is that kind of how you looked it as well or did you just think that wealth was not attainable and you stumbled across it?

David:
No. I knew I wanted it but I definitely never sat down and said I want to be a millionaire. I found out I was a millionaire by accident. I had no idea that I was one. I had been a millionaire for a good period of time before I realized it. It was when I joined GoBundance and they basically said you have to start tracking your net worth. And originally I thought that was so stupid and egoistical. It wasn’t until later that I realized well, I track my results in the gym, I track myself on the scale, I track the number of arrests I made. Whatever I’m doing I’m looking at trying to gauge how well I’m doing and it keeps you on track. But for some reason I had that notion that tracking net worth was only about ego. And I realized it was like 1.35 way back in the day. And I just thought … Something shifted in me that I now identified myself as a millionaire and it seems silly but it made a huge difference. I spent money differently. I had more confidence. That had a lot to do with me actually going to apply to be on the BiggerPockets Podcast as a guest which obviously opened a lot of doors for me. So I realize I need to be setting … Like having more targets out there. I’m not a person that struggles with putting effort into something.

I definitely need to know where I’m putting that effort into. And so that started a trend of developing different targets in different areas of my life and then realizing hey, if I can become a millionaire I can do this other stuff too.

Brandon:
Yeah. That makes a lot of sense. And I want to call out one thing that I’ve seen you do in your life. And I mean call it out in a good way. Like five years ago you and I … Yeah, probably about five years ago now. You and I were hanging around right after we met. We were hanging around Oahu, Hawaii and we were driving, I remember, on that elevated highway that’s super cool. I remember right where we were. And I remember you telling me, you were just getting into real estate, being a real estate agent and you were telling me all this cool stuff about Gary Keller that you learned and reading the millionaire real estate agent book and all that. And you were like getting going with it. But you said, “Yeah, I want to be a millionaire real estate agent. Like make a million dollars a year as a real estate agent in the next three years.” Or five years I think you said. And I remember just thinking at the time that was such a cool … You knew were you were headed. You didn’t … I want to be an agent. Like a mediocre agent. Like I’m going to go back $50,000 a year as an agent. Most people get into real estate agents and they think I’m just going to make 50 grand.

You had a target and you were like, “I’m not going to be an agent if I’m going to make 50 or 100 grand a year. I want to make money.” I don’t think it even took as long as you had set a goal for but you did it. Now you’re a killer real estate agent and one of the top in the country and I think it’s because you had a target. So that’s why I think almost all the millionaires I know, they have a target and they for it. Just like that.

David:
You said that and I started looking through the list of stuff we’re going to get into. And many of the things we’re going to describe played a huge role in how that specific goal ended coming about which is actually kind of exciting because it proves this stuff works. Like number eight is a big reason why we were even talking about that topic together. So yeah, thank you very much for saying that. You played a big role in okay, that’s David’s target. Well David, why don’t you do this and what about that? Now here’s another point. By having a target you allow people to help you.

Brandon:
Yes.

David:
Once you realized what David wants you knew what kind of advice to give me and then how to guide and push me.

Brandon:
Yeah. That’s so good. We talk about that on the episode we did. We recorded an episode of the podcast with Cameron Herold. I’m not exactly sure what number was but I’ll see if I can find it. But Cameron Herold wrote a book called Vivid Vision. It made a big impact on my life, that book. Really changed my life. Because it let me set a big target for my real estate company called Open Door Capital. And so I set a goal of $50 million in real estate and I wanted to own a thousand units in three years. We reached that goal in less than half the time. And it’s because I had a very clear target to aim for and therefore I could work backwards. Now some people … I’m a little meticulous with some of my goals. Some of my goals are more general. I want to write a kids book someday. I would love to have a New York Times best seller. But I’m not actively working towards those on a regular hardcore basis. Here’s what I mean by that. There are goals that I have that are like ambitions. I would love to do that someday. I would love to have a kids book. I would love to have a plane, a jet. And then there are goals that I … Again, this is not everybody, but I get super focused and every single day I work backwards toward that.

I mean I have an entire journal that I put together for myself and then later we sold it on BiggerPockets. We still sell it. It’s called The Intention Journal. And it’s literally designed to take your vision of where you’re going down to an annual goal, down to a quarterly target, down to a weekly benchmark. Like this is what I’m going to do this week. We called it the weekly battle plan. And then into a daily, like this is what I’m going to accomplish today. Down to this is my next step. My next most actionable steps. What this journal does is it takes a big goal and breaks it down to what do I need to do right now that’ll take me less than five minutes? That mentality of that like bulldog going at it with … It’s exhausting and I don’t do it with all my goals. But the ones that really matter to me, I treat it exactly like that. I treat it like a business and it’s very important. So anyway, not everyone does that, not everyone’s on board with that but it’s been a huge improvement in my life is when I go after a goal with just that ferocity tends to happen way more than had I not.

David:
And the important thing is that you have a target. But what I think, Brandon, that you’re highlighting here is that different people’s brains work differently and so different tools or resources are more applicable. I’m not a journaler. I don’t get anything out of it. It actually frustrates me. I don’t remember anything that I wrote down in previous journals. So when I hear about the intention journal I know that’s not really my thing. However, for people like Brandon whose brains are going in a million different directions all the time which I think is probably the majority of people. I think less people are like me that are maybe naturally focused on stuff and I need someone to bring my attention somewhere else. The journal helps you take all this crazy energy and focus it like a laser beam into one thing. It continually brings you back to what you’re trying to do. So that all of this good intention … Which I think all of our listeners have. They all want to take over the world and do something great, they just don’t know how. Well a journal can be a way that you get that Iron Man, Tony Stark focus laser coming right out of your chest, boom, onto your goal and it helps keep you on track.

Brandon:
That’s a great example. You said Iron Man but I’m going to replace it with another type of iron man. An actual iron man. Like a running iron man. A triathlon. That’s what it feels like when I’m hardcore going after a goal. It’s like I’m training for a triathlon. Every day I’m tracking my runs, I’m tracking my bike, my swim, I’m looking at my times. I hire a coach. When I did a triathlon I did all that stuff. Because that mattered to me was to cross that finish line. That’s what goal setting is to me. But I can’t do it every goal because you will just burn out. It’s an exhausting thing. If something’s important to you and you feel yourself like, “Oh man, yeah, financial freedom’s important to me and I want to be a millionaire but I have not taken any action on this thing in three weeks. I signed up for BiggerPockets Pro and I said I was going to analyze a bunch of real estate deals. I haven’t analyzed any.” Or, “I got a real estate license but I haven’t cold called a single person even though I know I need to.” If that’s you then maybe you need to be the type that sits down and writes your goal out every morning and writes down this is the thing I’m going to do to accomplish that today.

Because really most … I’ve said this before and then we’ll move on. I don’t want to stress this point too much. But most goals that you have, most big achievements in life, whether it’s becoming a multimillionaire, whether it’s improving your relationship with your spouse, whether it’s being a better parent, everything you want to go for is a series of little tiny five minute simple tasks. Everything is just a series of them. There’s just usually a lot of them. And so what we do as people is we tend to … We don’t define what it is our goal is. We don’t have the target like we’re talking about here with this tip number one. We don’t have a target. And then more importantly is we don’t take the little steps to get to the target. We just have the target and that’s it. We don’t work backwards and say, “Oh yeah, I guess all I need to do is analyze a deal next. Oh, that’s the next thing.” So that’s why having a target’s important but also working backwards. To say like, “Okay, I have not worked on this in a while. That’s stupid. Let me define what that next thing is and let me go ahead and do it.”

David:
I’d like to kind of wrap this up with a little bow for whoever’s listening. Number one is aim for a target. But there’s different ways to do it. So Brandon, we’ve said he likes to journal. He gave a great, great dissertation right there on why that works for him. I prefer maybe like what I would say is like a mastermind approach. I like to surround myself with other people and being in their presence for whatever reason helps me stay focused on the goals and keeps me motivated.

So maybe there’s a thing where I know someone’s going to say, “Hey, how’s it going with whatever?” And if I skipped doing that for three weeks I’m going to feel bad. So being in that group of people which we’re going to get to later in the show. But how do you know which one is for you? That’s what I’m trying to get to. So if you’re the person who tends to track a lot of different things, you jump from the Instagram that teaches you how to trade in Forex, into cryptocurrency methods, and then you say, “I want to get my real estate license but I think I also want to be a loan officer and I also want to flip houses.” You are interested in so many things and you know you could do all of them but you don’t actually make any significant progress in any of them, you may be the journal person.

If you’re the type of person who just keeps going to the same thing and you know this is what I want to do, like I said I want to be an agent that makes a millionaire dollars in a year, you need to get around people that are doing that. That may be more important than just getting a journal is to get around other people that are going to maybe … What’s the word I’m looking for? Kind of show you the way. For me, when I watch I could just be confused. Like I know I want to do this but I don’t know how and then I get around someone else and I watch them do it and just clicks. Oh, that’s all I got to do. I can do that. And then I take off. It’s like very similar in jujitsu probably Brandon when you first learned the triangle. There’s all this confusing stuff. Like escaping the mounts and trying to take control and transitions and it’s just so much for your brain to learn. But for some reason when you learned the triangle it just clicked. And you’re like, “Oh, I can do that. In the middle of chaos I can remember that movement.” And so boom, you developed a really good triangle. Life kind of does that to you.

You’ve got all this chaos going on inside your head and then you have that moment of clarity and it makes sense to you. So that’s how I would advise the people if they’re having a hard time figuring out their target is ask yourself what’s your struggle? Is it that you don’t take action on something that you know or that you’re taking action on 500 different things and you’re not getting anywhere?

Brandon:
That’s really good man. Hey, and I don’t want this whole section to be plug for the journal so honestly you don’t have to use it. You could write it down on a piece of paper every day. But I will say this, is when you buy the journal from BiggerPockets … I think it’s biggerpockets.com/store. You can get it there. When you get that it also includes … We actually automatically just for free include access to a mastermind with other people who are doing the other same thing. And what I mean mastermind, all we do is we take people who have bought the journal and then we put you in a group with other people who have bought the journal. And so that way you can meet together on your own over Zoom or whatever, over a phone call every couple of weeks. It’s kind of a self organizing thing but we just kind of facilitate the organization of that. So we’ll put you in a group. So again, if you go to biggerpockets.com/store you’ll get it there. So there you go.

David:
That’s actually a very smart idea that you guys did that.

Brandon:
Thank you.

David:
Because you’re sort of hitting both angles there.

Brandon:
That’s what I want to do, yeah. Because some people are daily journal people and some people are just like, “Hey, I want to meet every other week with a group of people and I’m going to tell them what I’m going to do this next week and then they’re going to hold me accountable to it.” And that’s been a huge impact on my life having those groups so it includes both.

All right, moving on to number two. This is actually huge and something that’s not talked about enough. And that is having a scalable income source. If you want to become a millionaire … We could’ve even started this episode talking about this. If you want to be a millionaire, fine. Start when you’re 20. Stick $100 a month in the stock market and by the time you’re 65 you’ll be a millionaire. That’s not what we’re talking about today. Like really it’s like how to become a millionaire way faster. And so having a scalable income source is number two. And that means having a stream of income that you can directly influence to climb. If you are a school teacher there is nothing you can do to make more money. There’s really not much.

Maybe you go get your masters and you go from making 38,000 a year to 48,000 a year. It’s almost irrelevant. I’m not saying you shouldn’t be a teacher. We need teachers. We need firefighters. We need cops. We need all those people. But they’re not scalable income sources. So how can you build a scalable income source? And it could be your primary job. Like you leave your job to become a … For example, a real estate agent. The better you are as a real estate agent the more money you make. Or maybe you become a loan officer. The better you are at your job, the more money you make.

Or maybe it’s a side hustle. Maybe you start a SaaS company on the side. Like a software company on the side. You do something. You start a tutoring business. And when I say scalable, what I mean is literally like the ability to make it as big as you can dream. Doing tutoring the side is not a scalable income source. Yes you can make more money and I’m not saying you shouldn’t do that for extra money if you need the extra money. But it’s also not scalable. Okay fine, now you have your 40 hour a week job and you spend another 20 hours a week doing tutoring for 20 bucks an hour. Great, you make an extra 1,500 bucks or whatever it is a month and that’s it. It’s not scalable to big levels.

So David, what are some examples of a scalable business? I mentioned a couple like real estate agent and loan officer. Anything else you can think of in there?

David:
Well, the first thing we should highlight about this is that it works if you’re passionate about it. The follow your fire thing. You like real estate … So many people that listen to this podcast love real estate like we do. You and I Brandon, no matter what we do, we always come back to real estate. Can you agree? It’s like our first love. Like your married your first love and I’m still dating mine which is real estate. But there’s more than one way to be involved in it. So all the people that are like, “I’m going to quit my job and be a full-time investor,” that is not necessarily the only way to pursue your love of real estate. And it’s definitely not something you have to do right off the bat. You can break this into steps. Like scalable, achievable goals. So for me, I loved real estate. I made enough money from my investments that I could have quit and had my bills paid for but it wasn’t the life I wanted and more importantly it wasn’t to me the potential that I had. I knew I could be bigger and it was fun trying to grow something bigger. So to me there was a step in between being a full-time investor and that was being a real estate agent.

So as I worked my job, like the non scalable one, which was police officer … Which actually as a side not was somewhat scalable because you had overtime opportunity. So if you’re a nurse or you’re some type of position that you can work overtime, you have a form of scalable thing, it’s just not as good as when you’re the business owner. Becoming a real estate agent made me a business owner. And then I realized ooh, this is actually something I could scale just like in my portfolio. I could get clients and then have other people show them houses and I sort of built the system I’m building that involves … It’s a different way of doing real estate where you have one mastermind that understands how to advise the client. And other people doing different parts of the job that they couldn’t play the mastermind role. They don’t understand it that good. But they can definitely do the part they love which is making people happy. Giving them gifts, talking to them, opening doors. And I kind of created and ecosystem where that could grow. That’s incredibly scalable. I can put David Greene teams in all these different cities throughout the country which eventually is going to be the goal to do that.

Kind of what I want to highlight is that it didn’t have to be all or nothing. It wasn’t I work my job or I’m a full-time investor. There was this step in between that actually made it really easy and opened up even more doors. Now your original question was, what are some other jobs I believe you said that are scalable right? So first off, anything commission based. I like to look at the mentality of being an agent. And I don’t say this is a job. It is an opportunity to earn a commission. That’s the best way to look at it. I have the right to earn a commission on a transaction. That’s what a license is. It is not a job. And if I choose to take the actions that will lead to me earning a commission, then I can and there’s no one that can stop me in this world. There’s nothing that forces me to be in the office for 40 hours a week either. A lot of people don’t realize that I was a cop and an agent for about a year and a half before I left being a police officer. I cut back on my overtime. I replaced it with being an agent. And Friday, Saturday and Sunday is when I would show houses and do the majority of the agent work.

And Monday through Thursday my shift started at two in the afternoon so I’d get all my work done before I went into work. And I just did both of them. I didn’t have some of the obligations other people have like a family so I had more time. But you can easily … I don’t want to say easily. You could make it work where you can do both of those. And I didn’t switch into the full commission until after I had sort of ramped up and I had things going. So a loan officer, a real estate agent, a home inspector, a home appraiser, any form of construction. You could be as big as being a general contractor and running a big business or as small as being a subcontractor or even a handyman. And you just kind of get involved in the world of real estate through serving other people and you learn being in that environment while making extra money. Am I missing anything here Brandon?

Brandon:
No, that’s really good. I want to point out … Not an analogy but an example of what I said earlier. Doing tutoring doesn’t necessarily give you a scalable business. It gives you additional income. I guess here’s the shift in thinking that me and David have had that have made us millionaires. And part of this we’ll come back to later in the episode or next week’s episode. But this idea of instead of thinking I’m going to tutor 20 hours a week for an extra $400 a week or whatever the number is, what if instead you thought in terms of I’m going to hire some tutors and I’m going to create a tutoring brand in my area and I’m going to have a building where kids can go to tutor and I’m going to own that business. Because now that is a scalable tutoring business versus I’m going to go tutor. I just wanted to make that quick point of if you could some side hustle … And again, like David said, it doesn’t have to be your full-time gig at the beginning. You can step into it slowly. But someway to make more money. But thinking that way of like, not I’m going to do the work.

And this really comes back to Kiyosaki. Kiyosaki’s whole cashflow quadrant. And the first quadrant is there are people who are employed. I work as a doctor. There are people who are self employed. I own the doctor company or I own … I guess maybe the tutor is a better example of that. I work as a teacher or self employed. I’m a tutor after school. I help kids. And then there’s the business owner which is I own a tutoring business and I hire tutors and they are all working for dollars per hour but I’m the business owner, I can work as much or as little as I want and I can scale the business. And then the fourth quadrant is investor where I invest in a tutoring company. That’s what I want to do. I want to invest in a tutoring company. That usually comes once you have money though to make you next level wealthy.

David:
Well, you also want to have been in that environment for long enough to know what a good person or a business to invest in would be. It’s similar to being like a hard money lender. That’s the best place to be. But if you never flipped houses or you don’t know how real estate works, how do you know what deals to lend on? How do you protect your investment? You need some knowledge about that niche itself.

Brandon:
That’s why people tend to move through the quadrants. They start with employed, move to self employed in their similar industry. They move from there into a business owner and then move into investor. The cool thing is, you don’t have to do that. You could start with business owner if you wanted to. It helps to know the industry obviously which is why most people move from either employee to self employed or employee to business.

David:
Yeah. And when we get to number five people will have a better understanding of how that would apply in the example we just described.

Brandon:
Yeah. Yeah, there you go. All right well that was … So again, scalable income sources. Find a way to generate more money. To give you guys a background of our story a little bit, so I flipped houses as one of the things I did to increase my income. So I’d buy houses, fix them up and sell them. I made money that way. I also … I bought rental properties that produced cashflow and we’re going to talk about that here in just a minute. But it gave me more and more income. Every time I but it gave me more and more income every time I bought a property. It’s like a little oil well generating more profits for me. I wrote books. In fact, a lot of my income from the fact that I wrote what? Six books now, seven books? Something like that. And I get royalty of the books every single month. I don’t work for it. Every time I wrote a book it makes more money every month and it’s pretty great. Now again, I’m in a position that I can write a book and make a lot of money. You’re probably not. Most authors don’t make anything.

So again, look at your life and think where’s my unique position? Where’s my unfair advantage? For me it was that. And today it’s Open Door Capital. I started a real estate firm that invests in mobile home parks and apartments and so that is a scalable income source for me.

David:
Now, when we say unfair advantage, don’t hear this is something unethical. That’s just the word we’re using to describe if you have bigger shoulders spend more time on your physique with your shoulders. You don’t want to skip leg day for your overall fitness but there are things where if that’s not your niche then you don’t put as much attention into it. Brandon, we just described uses the triangle because he has incredibly long legs and arms. It’s easy for him to pull that off. That makes way more sense than the guy wrestle like your traditional wrestler who doesn’t have a neck. His jaw connects to his shoulders. You know those kind of people and they’re very defensive, strong people when you’re in combat against them. They’re going to have a different style. That’s all we’re saying. Look at your advantages. Branded had an unfair advantage with is length so he uses it. That same length can hurt him other parts of jujitsu. Just like your unfair advantage in life can hurt you in other areas. So if it’s going to be a weakness somewhere make sure you’re taking advantage of the strengths it offers.

Brandon:
That’s a great point. Again, one example of that would maybe be, again, if you’re a teacher you have an unfair advantage in that you know lots of parents and students. You know who’s struggling. So becoming a tutor gives you a leg up. Owning a tutoring business, you’re going to be way more successful at that tutoring business than I am who’s never been a teacher and I don’t know any of the kids in school, I don’t know any of that stuff. Versus, if you’re like I’m a teacher, I’m going to go build a scalable business. I guess I’m going to go sell sunglasses. There’s no advantage you have to sell sunglasses than anybody else. So look to your unfair advantage and try to build a scalable business within that. Yeah. We actually talk more about that with tip number six when we talk about synergy but we’ll get to that later.

David:
We’re also going to talk about if you want to write books, tip number nine will show you the path to get there.

Brandon:
So all that’s coming. They all kind of tie into each other don’t they? I didn’t even think about that as we were making this list. Well let’s move on to number three. Because now, ideally, you are having some scalable form of income. By the way, that tip number two, that’s not like an overnight thing. It takes time to figure out your thing and then to get good at it. We’ll talk about that later. About getting good at stuff. But hopefully by this point you’ve got scalable income coming in. Maybe you’re working overtime like David said. Or even if you’re just tutoring for an extra $1,600 a month, fine. Tip number three applies here. Fight lifestyle creep. David, can you explain what that is?

David:
Yeah. I mentioned that I have a mastermind and I really hype three components of wealth building. To me I’ve simplified it to offense, defense, and investing. Offense is how much money you make. Scalable income source number two has a lot to do with how you increase your offense. It’s very similar. Investing is pretty self evident. It’s just what you invest. The difference between what you make and what you kept. That’s investing. Well, what you spent is your defense. And what we’re talking about here is most of the time if you want to become a millionaire you have to focus on defense first. If you don’t, all the money you make you will just lose. You won’t have anything left over to invest and it’s that delta that you have left over to invest that’s actually going to move the needle when it comes to becoming a millionaire which will be number four. We’re going to get into how that applies. So lifestyle creep is this phenomenon that the more you make the more you feel justified to spend. And what happens is you increase your lifestyle which could really just be described as you increase your comfort level as your income goes up.

So it’s kind of like the basketball team or the sports team that is scoring a lot of points and so that means they think they don’t have to play defense. And you score a lot of points and you’re like we’re crushing it. You don’t pay attention to the fact that the other team is scoring a lot of points too and you’re not actually getting ahead. And the discipline to resist that is very difficult. It sneaks up on you. It’s the carbon monoxide of wealth building. Man, it kills you before you even realize you’re doing it. I’m going to come out and tell you guys in full transparency if you follow people on Instagram or YouTube so many of them are not nearly as wealthy as they are portraying yourself. They are making good money and that does not mean they are building wealth. That money is flying out the door just as fast as it comes in. And oftentimes the stuff that causes it to fly out the door is what drew you to them. That’s the dangerous thing is you see the Ferrari’s that they’re driving and you think, I want to have that. That Ferrari is what makes that person less likely to save money and then a worse role model for you to be following. That’s sort of the danger.

Brandon:
David, I work hard. I deserve a nice car. I make an extra 10,000 a month now from my side hustle. Why can’t I have all the nice cars and the nice house and the nice everything? I deserve it don’t I?

David:
Well, you can have all that but all that means is that that hard work you did just bought you a Ferrari, it didn’t get you anything else.

Brandon:
Yes. It didn’t get you wealthy.

David:
Right. That Ferrari is what you chose as your reward or that bigger house or whatever you wanted. And so you can’t now complain about how hard you work if you then go dump your money into something like that. You chose to reward yourself with the temporary gratification that comes from these things as opposed to what Brandon and I think is a better target to aim at which is getting your time back, getting your freedom back. Being able to say I’m not going to work this job that I don’t like. Like you said, you were watching the clock. You hated working at the bank. Okay. You didn’t say I’m going to stop working. You said I’m going to work at something I like. I’m going to write books. I’m going to host a podcast. I’m going to buy real estate. I’m going to have fun. I’m going to do Open Door Capital. That was your reward for fighting lifestyle creep is you got to now have a better overall life. You could have that Ferrari but be stuck in the bank watching the clock and overall you’re not any happier.

Brandon:
Yeah. By the way, don’t take this as David and saying you shouldn’t have latte’s and you got to save every singe penny. We’re not actually penny pinchers. Neither David or I. I mean David, you’re probably even more frugal than I am. But like I’m not a frugal person. But I want to introduce you to a concept I call like the 50% principle. And it basically says look, if you make an extra $10,000 a month from something … I’ll actually give you two frameworks for thinking this way. The first one, 50% principle, says if you make an extra 5,000 a month from a job raise, like you just got a raise at work 5,000 a month, then if you want to increase your lifestyle just don’t do it more than 50% of whatever your increase was. So you went from making 80,000 a year to 100,000 a year, great. Don’t spend an extra 20 grand a year. Spend an extra 10. Take that other 10 and save it. Like at most. And if you can do less, if you can stay in the 80 and save all 20, well you’re going to have a way better life. But if you want lifestyle creep which you naturally will … We all naturally do it.

Heather and I got together, we would sleep in our little Toyota Camry on the side of the road on road trips because that’s what we could afford and that’s what we were fine with. And then we started staying at Motel 6’s and then Super 8 motels. And then that went to like … We got really rich and we started staying at like a Hilton right or whatever. And then now I stay at a Four Seasons, I don’t even bat an eye or I’m going to go stay at the Disney Aulani resort over on Oahu. 900 bucks a night. Whatever. I wouldn’t stay anywhere less than that. That’s lifestyle creep. It’s totally true. But I didn’t creep my lifestyle up at the same rate at which I creeped my income. And so that’s what I’m trying to get at here. It’s okay to have nice things if you want them just don’t climb at the same rate at which you’re earning. And a second framework to think about this is if you want to creep your lifestyle fine, creep your lifestyle based on your passive income, not your active income. In other words, yeah, you make $10,000 a month because you’re doing your tutoring business, great. Don’t spend that. Dump that into what we’re going to talk about here. Number four. Why don’t we just lead into it right now. Is number four, buy-

David:
Let’s sum up the three ways that we recommending we fight lifestyle creep. Number one is the 50% rule. Can you recap what that was?

Brandon:
50% principle not rule because there’s another 50% rule. I didn’t want to confuse people. It just says don’t increase your expenses, your spending more than 50% of what your income came in.

David:
So that’s one governor you can put on your own greed to keep it under control. The next would be increase your lifestyle in accord with your passive income which is kind of the way that I do mine. If I want to spend money I have to increase passive income which means I have to increase active income and I have to play better defense so I have more leftover to invest which ultimately leads to more money that I can then spend freely. That’s your second option. Your third it would be what Michael Michalowicz addresses in Profit First where you say, “Okay, my goal is to save this much money every month and invest it into real estate. So if I’m going to make 10,000 I will spend 4,000. I have 6,000 left over. My goal is to spend 4,000 in real estate.” That gives you 2,000 that you can attribute to lifestyle creep. So those are all different ways that you can approach this same goal for different personalities. Kind of like we talked about the mastermind role versus the journal model of how you set a target. But the point is to prevent yourself from just willy nilly throwing money around because now you’re making more. And that brings us into number four Brandon.

Brandon:
There we go. Nice transition. Number four then therefore is … Therefore buy assets with your extra income. Now this is a very rich dad poor dad kind of a thought. But buy assets, not liabilities. Especially with all that extra income. For example, you’re a teacher making $50,000 a year because you make good money for a teacher. And then you start a side business that does tutoring for kids. And it’s been hard and you spend a couple years building it. And finally you’re at the point where you’re bringing in an extra $10,000 every month in profit from that business. Now of course you’re going to save some of that money, you’re paying taxes. But let’s just … Simple. You got an extra 10K a month coming in. Great. Save that 10K a month every month and every three months you’ve got 30 grand. That will buy you a rental house. At least somewhere in the mid west. So every three months you can buy another rental property. Or maybe it’s stocks. If you want to buy an asset. You can buy the stock market if you want to. Or maybe it’s another asset of some kind. But the idea being you buy assets that go up in value and hopefully produce monthly profit as well that’s why we like real estate. Because real estate you get the long term appreciation, you get the value going up over time, but you also get monthly income.

So imagine then every three months with that extra money you made from your tutoring business you dump that into a rental house. Now that rental house now makes you $300 a month in cashflow. And you might be thinking, “300 bucks in cashflow? Come on. I’m making 10 grand a month in profit from my business. Why not just continue the business?” Well you should. You should make the business worth 50, $100,000 a month. Great. But business is unpredictable. Business can shut down. The economy can change and businesses can shut down. People stopped doing tutoring because the economy changed. A lot of things can happen in business. And yes, real estate’s not the most risk free way in the world to make money but people always need a place to live. And you buy a nice stable house in a nice decent area and you rent that thing out and make 300 bucks a month, great. Then three months later you buy another one. There’s another 300. Then three months later, another one and another one.

Now at the end of the year you’re up to 1,200 bucks a month in cashflow. And that’s passive income that’s going to stay with you and likely go up over time as rents go up while your mortgage is getting paid down. So now you’re taking all the profits that you’re making from your business and you’re dumping them into assets that produce monthly revenue and have the ability to go up in value dramatically over time. How do you want to add to that?

David:
I would say that this one here number four, buy assets with the extra income, is the hinge that swings your wealth building door. It is the most important part. In fact, I would say all 10 or all nine other ones are all geared toward making this one possible. That is how important this is. And because it is the most important one it is also the one that would be the most difficult to achieve. All the things that will stop you from achieving success will rob you of number four. They will takeaway the money that you will need to buy the assets. They will make it hard to focus on the actions that you will need to take to buy the assets. They will create a mindset of fear so that you don’t want to go buy these assets. Ever form of resistance that you’re ever going to get … I’m sorry. I’m blanking on the author’s name.

Brandon:
Steven Pressfield.

David:
Yes. Steven Pressfield’s book. Which was the book that talks about resistance?

Brandon:
The War of Art.

David:
The War of Art. He talks about this part of your head that just sabotages you, that tells you don’t engage, don’t fight, it will send all of its soldiers to this one. It does not want you buying these assets. And so what I liken it to is if you use a fitness analogy, your diet is the hardest part and also the most important part of the whole thing. If it was up to me I would bust my but harder than most people will ever workout if I could just eat whatever I wanted. And I’ve tried to do that for so long and it never worked. In fact what I found is when I got my diet under control I … I was also working out way less but I was getting way more compliments on my physique. People were saying, “You got so strong. Look at how big your muscles are.” And I was like, “What? They’re like half of what they used to be.” But the thing is when my diet improved you could see them. If you’re looking at it … I guess when I say fitness I should probably clarify like aesthetic fitness. Your diet is so much more important than everything else. It’s the hinge. You’ve got to build your whole fitness routine around supporting a healthy diet. Everything else just supports that.

When it comes to your wealth building, buying assets with the extra income that you can save is the most important thing that you could possibly do and you got to build your whole game plan around achieving success in this one area.

Brandon:
That’s good man. And for those who don’t understand real estate exactly you might be like oh, I don’t get this real estate thing. Maybe this is the first time listening to the BiggerPockets Podcast. Understand that BiggerPockets is a website all about real estate investing. And millions of people come here to learn how to do it. David and I both invest heavenly in real estate. We buy real estate because it just makes so much sense. And primarily because of the four wealth generators of real estate. This is what we call them. The four wealth generators. Number one, the cash flow. The extra money every month. And we love the cashflow. It comes in as just profit. If all your bills, all of them, expenses, everything combined equal $1,000 a month and you’re renting a property out for 1,500, that extra 500, that’s just profit. That helps you quit your job at some point. It helps you save your money. It helps you in case things go wrong. It helps you a ton of ways. But that is not all of real estate. You also get the fact that over time your property value is going up.

Yes, there are recessions. Yes, there are dips. But on average, in America and in the world, real estate is climbing. And especially now that the government’s printing so much money I think almost everybody agrees we’re going to see massive inflation in our country and around the world which is going to drive values even higher. At the same time, the mortgage that we use to buy a property … We’re usually buying a property with a loan and I’m a big fan of that as long as the property makes money so you don’t have to worry about the risk of losing it. As long as you’re making profit, I don’t care about a loan. So you get the loan and the loan’s getting paid off. It’s a fixed payment every month. The same payment every month. But over time that loan balance drops. And then there’s tax benefits. That’s fourth wealth generator. We don’t need to talk about that. It’s actually really cool but it’s boring for most people so we won’t talk about it.
But basically what we’re saying here is remember earlier I said what if every three months you bought a rental house and after a year you owned four of them, after two years you owned eight of them. And again, hopefully you get into multifamily at some point. But let’s just say that’s all you did and you own eight properties at the end of two years. If you did nothing else at all over the next few years, those properties are climbing. Let’s say 3%, 5%, 8% per year in value. At the same time those mortgages are getting paid off. You’re going to end up being a millionaire by accident. And this is how I believe, David … I mean, I don’t want to put words in your mouth. This is how you became a millionaire, right? You just bought a bunch of houses and they went up in value.

David:
100%. I just didn’t track the equity I had in those properties so I didn’t know. But I became a millionaire by accident. That’s the best way to put it.

Brandon:
Yeah. I did the same thing. I was sitting at the Starbucks filling out a personal financial statement for a bank and all of a sudden my hand starts shaking because wrote down a number that I didn’t realize I had crossed. I was 30 years old and it was like $1.03 million. It’s like having a bunch of little boats in a bathtub and then you start filling the bathtub up and they all start climbing together. Now yes, the boats drop a little bit every few years when we have a recession but then it goes even higher and then the boats drop. And then a little bit higher. So all your little boats are just … And at the same time, the rent’s going up over time because they’re just not building enough housing in America so just supply and demand making rents go higher.

So now your monthly income’s going up every year, your assets are up. And that’s why we’re so big on this idea of buy assets. If you take all your extra money and go buy cars and go buy shoes and go buy whatever else that you want to show off to your friends and how rich you are, those things just lose, lose, lose, lose, lose value. Those are not a ship that’s going up together. They’re all just sinking ships. So buy assets with that extra income and you will just automatically become wealthy.

David:
That is so funny. I love this analogy of the boats in the bathtub because what everyone does in my experience is they run around worrying about, “Well, if I put this boat in the bathtub, what happens if the mast gets a splinter? I don’t want to go buy boats because the sail could split.” Or, “All right, I’m going to go buy boats but I’m going to spend all my time focusing on how I get the next boat and I put it in the bathtub and I don’t even pay attention to what’s happening.” Well, really, the main piece of this whole puzzle that makes it excel is the water going into the bathtub, which is inflation.

Brandon:
Yeah. That’s it.

David:
And we forget that that’s even going on because we’re so worried about the little intricacies of the boat and asking these questions like, “What do I do if the fence in the backyard isn’t lined up perfectly and the neighbor says that that foot is his?” And we get so worried about that that we don’t pay attention to the freaking insane water that’s pouring into this bathtub. Where if we did have our eyes on the thing that mattered most it would be, “Look, I’m going to get the boats in the bathtub and I’m going to figure it out once they’re in there.” The important thing is to get boats in the bathtub. And that’s sort of what Brandon and I … We did that without realizing how valuable it was. We’re not taking credit for being super smart guys. We bought a bunch of houses and then it turned into this great thing and now we’re telling people about what we learned. But that’s what I want to share with everybody else. You’re probably overthinking the wrong stuff. The way that the government is printing money, the way that they’re not building housing, the way that most Americans will not manage their budget the way we’re telling you guys to will put you in a position where most people will always have to be tenants.

They’re not going to play defense with their money. They are going to engage in lifestyle creep. That gives you a competitive advantage. If we’re using a jujitsu advantage, the majority of people that are in there are out of shape and not training. If you’re just training a little bit, you’re going to beat everybody because they’ve set the bar so low. That’s what it’s like in this game of building wealth. If you’re focusing on the stuff we’re talking about, you’re improving your game, very few other people are trying to do the same thing. They’re going to be your tenant base that you’re going to build and that inflation is going to take your portfolio into the millionaire realm.

Brandon:
Yeah. That’s really good, man. The Boats in the Bathtub. The new book from BiggerPockets coming 2023 by David Greene and Brandon Turner. It’s going to be great.

David:
Wasn’t there a Bert and Ernie thing where they were playing with a rubber ducky in the bathtub?

Brandon:
Probably.

David:
They need to put our faces onto that.

Brandon:
You and I are Bert and Ernie. We’re playing-

David:
Sitting in the bathtub.

Brandon:
In the bathtub with a bunch of boats. I’m wearing my swimsuit people. Quit being perverted.
All right. Moving on to number … Let’s go to number five. In fact … Yeah. I was thinking about adding another one in here but let me just add this one in here and it really relates to what we talk about lifestyle creep. Early on … And again, I know I’m jumping backwards and then we’re going to jump back forwards again. I just want to make sure we don’t miss this point. Early on in my investing career or my career of just life, my wife and I realized at one point when I sat down and wrote out my expenses, I took my bank statement, every single dollar I spent for the last three months, and ever dollar I’d made in the last three months. This was when I was working at the bank. And I realized I was spending $1,000 more every month than I was making. Well, no wonder I was 20 grand in credit card debt at the time or whatever I was. I was spending way more than I was making.

So I read Dave Ramsey’s Total Money Makeover. I got on a budget. And literally we went on a cash budget. Everything was cash. We got little envelopes. And we rearranged our life to make it so that we weren’t spending more money. And I didn’t even have to adjust that much. Just knowing how much money was coming in and out was a psychological shift enough that stopped me from this crazy lifestyle creep. And it wasn’t even lifestyle creep, it was just lifestyle gluttony. I just bought whatever I wanted because I wasn’t tracking my money. So I just wanted to add that point in there about when you’re fighting lifestyle creep, one of the easiest ways to do that is to track your income and expenses every month. And there’s a million apps out there that will do that for you. One of them that’s called You Need A Budget, YNAB, is a very popular one but there’s other ones out there like Mint.com. Track what comes in, track what goes out, set goals for how much you want to spend if you’re in a similar state. In other words be fiscally responsible. If you’re not fiscally responsible, if you can’t learn how to live on a budget now, you’re never going to be wealthy later because you’ll blow it on crap. You won’t buy assets with it.

Because it’s that mentality that we have to shift. The asset thing. So before you even buy assets, get your financial house in order, know where your money’s going, and get some financial stability there. And then you can buy assets and you’ll have the extra money to do it.

David:
Let me tie all four of the ones we’ve given into what you just said. If you want to buy assets with extra income, you’re going to need a scalable income source to bring in more money. You’re going to have to fight lifestyle creep in order to spend less money and you’re going to have to have a target for both of those. You need a target for how much money you want to make and where your money is going, what you’re spending it on, which was number one, if you want to succeed at two and three which will allow you to do number four, which will open the door for everything else.

Brandon:
There you go. They all tie in.

David:
This is weird to say but I’m just going to say it. What we’re describing, the way that wealth is built, at least in our experience Brandon, is not that much different than the games that people love and get addicted to like World of Warcraft or other role playing games where there’s this system of progress. I don’t play World of Warcraft. Just disclaimer, I don’t know exactly how it works. But I get the gist of it that you are trying to succeed in all these little areas that ultimately allow you to succeed in the bigger one that you can scale your character up and it’s really fun. We’re just doing that in real life. And we’re showing you the techniques that we use to do it.

Brandon:
Yeah. That’s awesome man. You’re 100% right. Well, we got to get out of here pretty soon. Episode one is almost over. We are going to do a followup part two but first we’ve got our fifth tip for today on how to become a millionaire and then the habits that made us that way. And we call this one … I call it stair stepping. Stair stepping. Here’s what the analogy comes from. And I talk about this in the new book I just wrote called The Multifamily Millionaire. It’s in volume one where I talk about stair step wealth building. And that is most people, when they’re saving money or investing in the stock market or whatever they’re doing to build wealth, most people build very gradually. Like every month I’m going to stick $100 in a bank account. At the end of the year I’ve got 1,200 bucks. The next year I’ve got 2,700 because my interest is kicking in. Then the next year I’ve got 3,500. In other words, over time … And if you were looking on YouTube right now watching me, my hand’s going very slowly up and scaling wealthy.

And there’s nothing wrong with that. It’s a great way to build wealth over time and when you’re 65 you’ll be the richest person in your nursing home. However, the way to build wealth faster is what we call stair step wealth building because it looks like this. Again, you can’t see me if you’re listening but think of a graph and then a stair instead. Like a big jump up and then a little climb and then a big jump up, a little climb, big jump up, little climb. So stair stepping is a big piece of how David and I became millionaires by we kind of said accidentally. We didn’t even realize we had done it. Because let’s say you buy a piece of real estate that you owe $100,000 on it and it’s worth $100,000. Next year, that piece of real estate is worth, let’s say, $105,000. Good job. You just made 5,000 bucks in a year. The year after it’s worth 110 or maybe 111. The year after it’s worth maybe 113, 115. Nothing wrong with that. That’s the gradual slow wealth building. But what if you bought that same house for 70 grand and immediately it was worth $100,000?

What if all you had into that property was 70 grand and it’s worth 100? You immediately, overnight, the minute you bought it, boom, added 30 grand to your net worth. How long would it take to go from a $100,000 property to 130? How long would it take you to build $30,000 of equity in that property? Probably five, six, seven, eight years. But if you buy it right, you can, boom, hit that overnight and then it goes up over time. And then boom, you hit another on and it goes over time. So you can buy these properties and that’s one thing we love about real estate that you can’t do with a lot of other asset classes. Real estate allows you to get really good at finding great deals that allow you to stair step your wealth and add massive chunks of net worth every so often, whenever you invest in a new asset.

David, how did I do at explaining that one? It’s kind of a hard concept to explain.

David:
It’s so good and let me add some icing onto your cake here for anybody who still may be skeptical. This rhythm that Brandon is describing here, it’s a rhythm of how to build wealth. It’s not necessarily like this is your niche or this is your strategy. Whatever you pick, this is the way that you walk that path. I say all the time, if you’re confused as to if you should go to A or B and you’re hearing different pieces of advice, the way I always decide which to listen to is I say would this strategy work at anything else in life? If some guru is saying, “Hey, give me $15,000. You’ll be a millionaire tomorrow.”, and you don’t know if you can believe it, your question should be, “Is there anything else that I could just contribute one chunk of money and be done and just have all the success I wanted? Well, no. So I probably shouldn’t do this either.” When you are getting a promotion at work, that would be like a step up. You make more salary.

Brandon:
Yep. Boom.

David:
Okay. But now you’re in a position where you don’t know how to do that job very well. You can’t just take another promotion right off the bat. You have to work that job until you get good at it. And then when you get good at that job, your next promotion is your next step up. We’re all familiar with that rhythm. What about when you’re in the weight room and you’re bench pressing a 45 pound plate on each side and you get to where you can do 10 in a row? Well, at a certain point you’re going to add 10 pounds to each side. And when you do that, that’s your step up. But then you’re not going to do 10 in a row. You’re going to do two in a row or three in a row and you’re going to have to build up by staying at that same weight until you can do more. And then you’re going to add another weight.

My last example would be let’s say you’re a white belt in a marshal art and you’re sparring with other white belts and you get really good to where you’re beating all the white belts. Well, you don’t jump up to black belt. You go up to the blue belts and then you’re going to get your butt kicked because they’re better. And you’re going to stay at the blue belt level until you can beat all of them and then you’re going to go up to the purple belts. Everything in life works this way. We’re just trying to explain how you can make that rhythm work for real estate so that you have a feeling of confidence where you’re pushing yourself so you’re not being lazy but you’re not breaking yourself by trying to take huge steps that you’re not ready for.

Brandon:
Yeah. It’s awesome, man. Can you explain how the BRRRR strategy applies to this? For those who have never heard of the BRRRR strategy, what is the BRRRR strategy? You wrote a book on it obviously. They can read it. But yeah, what can you tell us about that?

David:
BRRRR stands for buy, rehab, rent, refinance, repeat. It’s a way of buying houses that’s slightly different than just putting a big down payment. So you’re going to buy a house, usually a fixer upper, with cash or with a short term loan. You’re going to fix it up to make it worth more. Then when it’s worth more you’re going to take a loan out on it and you’re going to pull your capital back out of the deal because the ARV is higher so you’re getting a higher percentage of the total value of the house back. And you take that capital and reinvest it into the next deal. What it does is if you compare it to the traditional model where you’re just throwing money at a house … This is what I used to do. I throw money at a house and I got to wait a long time before I can take that next step because I got to save up all that money. The BRRRR model allows me to get my capital back out of the deal and put it into the next deal. So what happens is I don’t have to wait as long between steps. It just chops them up so I can go up faster because I’m taking shorter steps more quickly, recycling the same capital.

And I like how you brought this up because what we did was we hijacked this principle and we made it work the lending of real estate so that we could get success faster.

Brandon:
Yeah. That’s really good. The reason I wanted to bring that up is because people were probably thinking earlier, “Well, how the heck do you buy a house for 70,000 in today’s market that’s immediately worth 100?” Well, the way you do it is you buy it for 50 because it’s a piece of junk and you put $20,000 of work into it. Now you have 70,000 into it. You go get a loan on that whole $70,000 to get all your money back and now you’ve got a $70,000 property that’s now worth 100. That’s exactly how you do it. That’s how we do it on multimillion dollar apartments and on mobile home parks and on single family houses and on duplexes. I do it all the time. It’s called value add investing and it’s done in other areas too. Like technically you could buy a stock that’s a piece of crap.

David:
Or a business.

Brandon:
Or a business, yeah, that needs a bunch of work. And you could stair step your way into buying … Imagine you’re a tutor. Let’s go back to the analogy. You’re a teacher. You decided you were tutoring on the evenings but then you’re like, “No. I’m going to own a tutoring business.” So now you’re making 10 grand a month in tutoring. But then you find this other company out there that’s really, really bad at marketing. They don’t know how to tutor very well. And you buy that company for $250,000. Kind of like a 3X multiple of their profit. So you take their company, you add it to your business, and immediately you double their revenue and their sales because you’re good at what you do and they’re not. So all of a sudden their profit before was, let’s call it … Let’s say you bought it for 300,000 because it was a 3X what their profit is every year. So they were making 100 grand a year in profit. You’re able to double that to 200 grand. Well, now that same 3X multiple now means your business is worth $600,000, not 300. You just added $300,000 to your net worth just by acquiring that other company.

And again, that might be confusing to people who aren’t into buying businesses, but the point being that is a stair step because you took a big action and you found a distressed asset, you added value, and you added a bunch of net worth to your life and more cash flow and everything else. So again, this doesn’t apply only to real estate but that’s David and I’s thing is real estate so we use it.

David:
And if you doubt whether value add works, just ask Brandon’s wife. She did value add dating and it worked out pretty good for her.

Brandon:
Worked out. I thought you were going to say ask Warren Buffett or Charlie Munger because that’s their whole thing is value add stock investing, but Heather is probably a good example of that as well.

Well, with that note, I think it’s time to close up part one of this episode. We’ve got five more tips for you in the next episode, which we will be airing … I believe on Sunday will be the second half of the show. And trust me, you’re going to want to listen to it. We’ve got some more cool stuff and some advanced stuff and stuff that I’m super excited to talk about that made a big impact on David and I. But before we get that, let’s do a quick recap of the five that we talked about today and then we’ll get out of here. David, what do you got?

David:
Number one, aim for a target. You need to know where you’re going if you’re going to be able to measure your progress.

Brandon:
There you go. Number two?

David:
number two, scalable income source. You need to find a niche. Find a way to make more money, increase your offense in an area that you’re already passionate about. So that could mean picking up a commissioned job, that could mean looking for opportunity in a position you already have where you could make more money. But try to figure out a way to get out of the whole I trade time for money rat race.

Brandon:
Yeah, there you go. Number three?

David:
Number three, fight lifestyle creep. Number two that I just described was your offense, number three is your defense. Prioritize keeping the money that you make. The best way that we recommend doing this is by tracking where you are spending your money every single month or even maybe every single week so that you set a goal. Number one, you aim your target or you have a target to aim for. And then when it comes to what you’re spending your money on, track to make sure that you are staying in line with that target.

Brandon:
There you go. Number four?

David:
Number four. This is what it all comes down to. The big casserole. You take this money that you’ve made more of and you’ve saved more of and you use it to buy income producing assets. You don’t go buy expensive cars and luxurious vacations and status symbols. You put the money into something that’s going to earn you money back which is income producing assets.

Brandon:
And then by the way, you take those income producing assets and either use them to buy more income producing assets or using them to buy yourself a Tesla, which is why I own two Teslas today. And people are … They see that and they’re like, “Oh, Brandon just spends all …” No. I used my passive income and actually I flipped a house which is how I paid off one of the Teslas. But I used that income to generate that lifestyle that I have today. So anyway, number five?

David:
Number five is stair stepping wealth building. It’s the rhythm that you want to get into where you’re always increasing your wealth building. So if you’re doing this right, you should be pushing yourself to new heights, staying at that height until you figure it out and you wrestle and you improve yourself until you’re good at it and then taking the next step.

Brandon:
Very good, man. Well, really good stuff today. So again, these are the five tips or five habits that made David and I a millionaire. Again, next episode we’re going to talk about the other five, plus we have a bonus tip on the end of the next episode where we’re going to explain not just how to become a millionaire but how to turn that million into tens of millions of dollars of net worth. So it’s kind of like how to supercharge every tip that we’ve given you and it’s made such a massive impact on David and I. It’s changed both of our lives and made both of us very, very wealthy and we’re going to share that with you on the next episode. So stay tuned for that and more.

David, last question before we get out of here. What do you need in your business right now? What do you need in your life?

David:
Oh, that’s so good. Thank you for asking that. I need more team members. I need agents that want to come sell houses. I need loan officers that want to help people with loans. I want people who want a new career and they don’t want it to be easy. They understand that just like getting in shape takes a lot of work, building wealth takes a lot of work and they’re looking forward to doing that. And then I need more people that want to buy or sell houses in California. So if anybody is around here looking to do that, please let me know.

Brandon:
Awesome, man. Very, very cool.

David:
How about you Brandon? What are you looking for?

Brandon:
I want people to pre-order The Multifamily Millionaire.

David:
You really want to have a better selling book than me. That’s what this is all about.

Brandon:
That’s exactly … Oh, by the way, I don’t know if you knew this David but we have officially outsold-

David:
There it is.

Brandon:
In pre-orders, we have now sold more than you. That was the whole goal of this whole thing. But now, I got to sell more copies than you when it comes out.

David:
What is that line from Big Lebowski, the something cannot stand? What does he say?

Brandon:
I never saw it. That’s like the one movie-

David:
You don’t know that line I’m talking about? It’s something like this transgression cannot stand. That’s how you felt when you saw that I had a book that sold more than yours.

Brandon:
That’s pretty much it.

David:
That’s okay. This is why I love having people like you around me because now the next book that I write, guess what stair step I have to take?

Brandon:
Yeah. You’re going to go hardcore.

David:
Yep.

Brandon:
Yep. That’s it. That’s it, man. Well, anyway, thank you everybody for being a part of this community, being a part of BiggerPockets, and we will see you on the next episode, episode 503. I think you’re going to like it. For BiggerPockets.com, my name is Brandon and this is David.

David:
Signing off.

Speaker 3:
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In This Episode We Cover:

  • How Brandon and David discovered their need for financial independence early in life
  • Thinking of money the same way you think about fitness and health
  • Reaching huge financial milestones, even if you started out with extra obstacles
  • Fighting lifestyle creep and never falling into the Ferrari trap
  • Building an income stream that is scalable, passive, and automated 
  • The “stair-stepping” method that leads to massive wealth accumulation
  • And So Much More!

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