How To Calculate Your RE Financial Freedom Number - Why Unit Count Doesn't Matter

Achieving Financial Freedom with Big Commercial Real Estate Deals

In this episode, I break down how to stop wasting time with small deals and start crushing it with larger commercial real estate projects. I take you through my 19-year journey, showing how I went from chasing small multifamily properties to making life-changing commercial investments that replaced my income in just one year. We dive deep into the importance of knowing your 'why' to push through the hurdles, and I show you how to set meaningful, actionable goals for your real estate journey. You’ll also learn the critical differences between ROI and ROE and why focusing on equity can skyrocket your portfolio growth. Plus, get actionable tips on minimizing expenses to fast-track your path to financial independence. Ready to scale up and live life on your terms? Tune in and let's get to work!

00:00 Introduction to Go Big Live Real Estate Investors Podcast
00:37 Matt's Journey: From Small Deals to Big Wins
01:30 The Importance of Knowing Your Why
02:17 Setting Up Your Commercial Real Estate Goals
03:48 Why Unit Count is the Wrong Goal
04:33 Focusing on Financial Independence
06:59 Understanding ROI vs ROE
09:02 Reverse Engineering Your Path to $100K Annual Income
10:11 The Power of Momentum in Scaling Your Portfolio
12:41 Conclusion and Next Steps

Transcript

matt-drouin---oakgrove-development_2_08-14-2024_140059: 0:00

What is up everybody? My name is Matt Drouin I'm the host of Go Big Live Real Estate Investors podcast. And we are the show to listen to and to watch. If you are a experienced real estate investor that is looking to scale and doing bigger, chunkier commercial real estate deals that deliver exponentially higher. financial impact on your life. So you don't have to be busy chasing small deals to pay you chump change, but you can focus on buying, let's say one deal, one bigger deal a year that delivers life changing results and gets you to the goal of replacing your income and becoming financially independent. So you can stop trading your time for dollars much quicker than the way it took me. Cause I've been doing a real estate for 19 years. If you've been listening to this show before and during my first 11 I spent chasing smaller deals, smaller multifamily that it took me 11 years at 25 properties, 76 doors in order to replace my income. And I was able to achieve that same result in one deal in one year and replace my wife's income when I transitioned to a larger commercial deals and haven't looked back. And I've been focused on doing that and pushing the envelope ever since. This is one of the last few podcasts and I'm recording for those of you who have been listening, or maybe you haven't this has usually been an interview podcast. If you haven't definitely go back and listen to older episodes where I interview the titans of commercial real estate that have the Gino Barbaro, Matt Faircloth Reed Goossens Tyler Cauble Ashley Kehr, Paula Nichols those people on how they did their first big deal and extracting out the excruciating detail on what it led up to them. So in this episode I am going to cover the last one I did was on, my why, okay was why I was obsessive over achieving financial freedom. A reason being, long story short is I lost both my parents in my twenties. I saw two hardworking people doing everything the right way. And and they. Died basically with nothing left over. Those two, my brother and I, they were living paycheck to paycheck. We didn't even know it. And so I decided I did not want to participate in that system. That's the reason why I became obsessed with achieving financial independence. So I could spend time with my loved ones and really live life by my own design and on my own terms. Okay. So that's the why and the, my why. All right. And the reason why I covered that was not only for you to get a better sense of who I am and my origin and foundation, but also for you to think about your why as well. Okay. In this show, we are going to cover how to set up the goal posts for your commercial real estate journey. Okay. Cause you may think that you want to do it, but if you don't have an actual end destination in mind, like you're going to be. You're not going to be able to measure your progress towards that goal if you don't have a destination. So we're going to, calculate that and go through the math and that and what you can use to apply in your own journey to set up that destination in multiple phases as well. But the reason why your why is so important is because your journey is going to be hard. My transition from residential to commercial, my first commercial deal was the hardest deal or transition of my life. So even with me on your team, if you hire me as your advisor, cause this is what I do for my active business is I help residential real estate investors achieve financial independence much quicker through buying larger deals. You're going to face. Curve balls, resistance, and setbacks along the journey. All right. So your why is going to be your guardian angel in those darkest hours. It's what keeps you moving forward when things get tough, because if you do not have a big enough, why, for instance, you are going to face resistance, adversity and challenges, and you're more likely to give up because you don't have that thing that's compelling you for that. All right. So let's talk about setting up goals, right? A lot of people, when I get on sales calls with prospective clients, I ask them in the discovery process, it's like, all right what's your end goal? What's ultimately the goal? And nine times out of 10, I have these prospective clients tell me a certain unit count, right? I want to have 100 units of apartments. Okay, here's why unit count is the wrong goal. This is where people get things wrong in terms of setting that up. So why is unit count square footage or number properties a bad way to set goals? Really? It's because it's arbitrary. These numbers might stroke your ego or give you bragging rights, but they don't define. Actually to find what success looks like for you, you can own a hundred units and they could not be making any money. Okay. You can own a 25 properties and then not making any money whatsoever. All right. Or you might be buying junk properties that may be cash flowing a lot, but really don't provide value in the back end within which to extract that value and scale your real estate portfolio at light speed. So what should you be focusing on instead? This is what we're going to talk about in this video. If your goal is to create the big, beautiful life living on your own terms, then the first major milestone should be number one is replacing your income. So if you're married, then the next step is replacing your spouse's income. But let's focus on you first, because you're the one that's watching this video and actually wants to do this. This milestone financial independence can be reached sooner if your living expenses are lower. Now this seems obvious. Okay. But a client told me back in 2007 when I was a newer agent, when I was scaling my own real estate portfolio, he said this thing, it stuck with me to this day. It's very simple and stupid sounding, but it stuck with me. So I'm going to share it with you. If you do not spend any money, then you do not need to make any money right now. This doesn't mean you have to make drastic lifestyle changes like selling your house and moving into an apartment. But let me ask you, when's the last time you actually went through your credit card statements and your bank statements line by line, in the last 90 days, and then when's the last time you actually went with a yellow highlighter? And highlighted all of those discretionary items that you had on there that really weren't like necessary. Remember if you are able to decrease your lifestyle expenses, then you can actually replace your income a lot sooner. This is the reason why, if you're young, this is a great time to get started before you have a family, before you have all these other obligations that us like, people that are, doing the later stages, adulting out there have to juggle. Because there's that lifestyle creep that happens. When you get older, when I was originally traveling with my, my father and brother on vacations, that sort of thing, we would stay in like flea bag motels or condos that he found off of some classified ad that were like, absolutely a hundred percent like ski vats, like felt like my skin crawling when we checked to these places. And my wife and I traveling through, through Europe for instance, or my fraternity brothers when we went on a Euro trip for instance, sleeping in a A hostile in a room filled with 10 bunks, was fine. Fast forward to now. It's I don't want to stay in anything less than a JW Marriott, which are with the family. Because we want to, we value comfort and all that. It's very difficult to go back to let's say a motel six. And then another example, like my wife and I used to go out to eat twice a week at a hundred dollars a meal. That's 600 a month. That's half of a mortgage payment. Actually, it's half of our mortgage payment, our own house. So once you've dialed in your expenses and figured out your bare minimum financial target, then we can start engineering your path to financial independence. So before we go into that. There's a, some terminology here that's going to allow you to understand like how I come up with these numbers, right? So this is ROI versus ROE. This is the key to scaling faster So I know you're probably familiar with return on investment or ROI but are familiar with return on equity or ROE Here's why this matters The framework I use eliminates your own capital as a bottleneck to scaling your real estate portfolio. So I help clients with raising the equity from passive investors, securing the best debt from banks, and finding off market deals with massive upside. The goal is to find opportunities within which you can marry passive investor capital with bank financing, for instance, and then rapidly increase those the value of those properties in two years or less so that you can actually Force the appreciation of properties, cash at refi, pay your investors back, deepen that relationship with those those capital partners and also widen your network at the same time strategically. So for example, if you buy a property for a million bucks and you force the appreciation of 1. 6 million, you can refinance return on your investor capital and still own the deal. And at that point in time, ROI becomes irrelevant because you can't divide a number by zero. Okay. So that's the reason why ROE or return on equity is a more real metric that actually matters. It tells you how much your equity actually pays you in cashflow. So for my company and my clients, our ROE target is 11%, most, myself and also my clients were typically investing in a secondary or tertiary markets across the country. This formula may not work if you are investing in a primary market, let's say New York city or Los Angeles or Miami or even Chicago, for instance. But most people, most investors across the country are owning income property and secondary and tertiary markets because they can actually achieve these financial metrics for the average investor out there. So 11 percent is our target. So if an asset performs consistently below 11%, we either. One, refinance the property and pull cash out to rebalance our debt to equity ratio, or we'll sell the asset and reallocate the capital, for instance. So 11 percent remember that. So we're going to reverse engineer your path to 100, 000 in annual income. The reason why I say 100, 000 is because most of these sales calls that get on with prospective clients is that I want my real estate. Assets paying me a hundred thousand dollars a year. That's going to give me enough income to be able to replace the income for my job, for instance. So we're just going to use that a hundred thousand dollars if it's less. Then you can achieve the goal much faster and with less property. So let's say this is your phase one goal to replace your income of 100, 000 a year. Here's how we calculate how much equity you're going to need in commercial real estate deals. All right. So we're going to take that 100, 000 and divide it by 0. 11. So that is going to determine you need about 900, 000 in equity in order to produce that type of income. And now, since we. We typically leverage properties back up to 80 percent loan to value after we get done executing a business plan to value add business plan on those deals. We'll divide that number by 0. 2 to get our target acquisition volume. All right, so 900, 000 divided by 0. 2 because 80 20 remember comes up about four and a half million dollars in total assets. Now, that might seem like a big number right now, but here's where the magic happens. This is the power of momentum in scaling your portfolio. If you focus on landing your first million dollar year deal, the time and effort you put in, even when it feels like nothing is happening, okay, like you're making deposits into the universe of time and energy. It seems like it goes nowhere, you don't get any demand, direct demonstrable instantaneous results, but those efforts are like bank deposits and will compound so most of that invisible work will pay you back in ways that you don't even see yet. For instance. All those properties you walked, made offers on the offers went nowhere. One of those deals is going to fall apart. The broker's going to come back to you because you had all your proverbial crap together and you presented yourself as somebody that had the ability to close that deal comes back to you and they say, Hey I know you, weren't the highest bidder on this property, but are are you, is your offer still good? Stuff like that. All the people that are out there in your sphere of influence, other investors, for instance, that know that you are on the ascent to buying your, a larger deal, for instance, They start bringing dealers your way all of this stuff starts to compound right just a bank account So because you land that first deal the second third fourth and fifth will happen in like a rapid succession to that one And this happens with all of my clients. The first one is absolutely the Hardest, but then the second, third, fourth, and fifth one start, start dropping, this is the reason why I spend so much time with my clients on on their OPM strategy or other people's money strategy, because a deal can handle, can come your way. Under very mysterious circumstances that, just land in a lap just like that, so let's say you do this, right? So year one you close a million dollar deal, and then year two, you close a$2 million deal, then a$3 million deal, right? So that's$6 million in assets under two years, enough to crush your a hundred thousand dollars income goal. And then once you hit that milestone. When you achieve financial independence, you're no longer trading your time for dollars and you're covering your living expenses. They don't have that gun against your head from, that I need to earn a paycheck in order to keep the lights on a home. Imagine what happens when your W2 job is no longer a distraction, right? This is exactly what happened to me at 33 years old. I'm 41 right now. I was able to go all in on my real estate business. No job, no distractions. And that's when I really poured gasoline on the fire and scaled from 3 million in holdings to 18 million in holdings. So that's the power of focused effort and compounding results. I hope you got value out of this. The next episode I'm going to drop next week is actually going to be dedicated to now that we have your why, now that we have your goal set up, the next step is going to be, how to find a develop a acquisition, an asset acquisition strategy. For your market. Okay. There's going to be what type of deal size should I target based upon my situation in market? What type of asset class should I, for instance, okay, we're going to go into that as well. So you can really, with crystal clear. clarity, be able to communicate to the world what type of deal you're looking at. And also there's going to be fundamentals and dynamics within your marketplace to have a certain amount of abundance of that deal type and product that you are going to have a high probability of landing that deal and also landing that deal with this within the next 12 months and also have enough. Room to go or runway based upon products available in that space within which to have that cycle repeatable and scalable from there. So anyways please drop a comment and subscribe anything you could do to support the show. This is the best way to support to support me because I put a ton of free real estate content out there. Subscribe to the YouTube channel. Please leave a review on Apple podcast or Spotify. Not because my ego cares about it, even though it does a little bit. Bye. This is how it actually, the algorithm recognizes that people are listening here and it more broadly gets distributed out to people that are just like you. Anyways, thank you so much for tuning in and we'll see you next week.