How Rental Properties Create Wealth Beyond Monthly Cash Flow

Steve Lawson (00:00)
I bought a house for $48,000 and I agreed with the seller to let me pay for it over four years. Actually, a little a little over $48,000, paid $804 a month for four for five years. I found a tenant at $800 a month, they ended up staying there the entire five years. And so that house was really costing me $4 a month to buy that house.

I’m using other people’s money. I’m using the tenant to pay down the r the rent or to pay down the the loan. And in five years, that house was paid off. Not only that, it had appreciated from forty-eight thousand to seventy-five thousand because that’s how much I sold it for. So I invested at two hundred and forty dollars to get seventy-five thousand dollars. That is how you create wealth. That’s not just kind of growing what you have, that’s creating wealth.

Dylan Silver (02:14)
Hey folks, welcome back to the show. Today we’re joined by Steve Lawson, a seasoned Indianapolis real estate investor, author of Wealth Highway, helping financial independence faster, and owner operator behind Reilocity, a done for you solution in the single family space. Steve, thanks for joining us today.

Steve Lawson (02:33)
Thanks so much, Dylan. Glad to be here.

Dylan Silver (02:35)
Now what are investors missing today when they’re scaling their business?

Steve Lawson (02:41)
Well, when they’re scaling their business in in particular in real estate, ⁓ so one of the things I’ve noticed is that a lot of people aren’t really jumping into real estate because they’re missing the big picture. ⁓ I’ve seen a lot of people who look at it as like, well, gosh, if you run the numbers today, you look at the interest rate and this and this, and I’m only gonna make $200 a month, this just isn’t worth it. You know, the third thing is, well, you know, why invest in cash? Well, if you if you’re only gonna get $200 a month. I’ve I’ve seen other analysis where they’re comparing it to stocks. Hey, look at the appreciation.

Average appreciation is four, maybe five percent per year. Stocks are averaging seven to ten percent, depending on which index. Why bother investing in real estate? And so I’ve seen I I think that a lot of people are missing is they’re looking at the benefits wrong. And so ⁓ one of the things that I show people is, you know, yes, you do get cash flow if you do it right, use a little bit of cash flow. It may not be amazing, but that’s not the number one benefit. That’s actually a very small benefit.

What you’re also getting are tax benefits, which are usually more than your more than your cash flow benefits, but you’re getting appreciation. And ⁓ I shared an example of a $200,000 house, which is pretty reasonable. I just use it because the math is easy. If if you’re getting four percent appreciation, that’s about eight thousand dollars a year. That’s about seven hundred and fifty dollars a month of appreciation on average. And so yeah, you’re you

Two cash flow may only be $200 a month, but that appreciation is $750 a month. Your tax benefits are another two or three hundred a month if you start breaking it down that way. And so I think a lot of people miss that. ⁓ and then the what the what I use for real estate is the tax free income. And so ⁓ some of the properties I’ve had, you know, more than 10 years, I’ve refinanced ⁓ refinanced a couple this year, pull out a couple hundred thousand dollars, tax free. And so it that appreciation builds over time.

And then you can pull that money out tax free and because it’s a loan. It’s you you’re not selling it and you just refinance and you keep doing it and you get enough properties in your portfolio. Every year you refinance one or two, pull out a bunch of money tax free, blows away that two hundred dollar a month passive cash flow that most people think is what you’re supposed to get from real estate. So I just that’s one of the things I point out.

Dylan Silver (04:47)
You mentioned several of the additional benefits of owning real estate, tax benefits, appreciation, the ability to refinance and put that money into ⁓ other properties. When folks are looking at these strategies, do you see any common mistakes or things that they overlook in this process?

Steve Lawson (05:54)
Well, aga it’s not an easy process. Again, I love to say it’s just flip a button and and you’re you’re creating wealth with real estate. ⁓ but there are you know, there’s ⁓ resources that are required. And one of the things I talk to people about is it takes time, it takes money, it takes knowledge. And some people, you know, when they invest in real estate, they go all in and they become, you know, that’s a part time job and they’re doing tons of it. And they may be spending five, ten, twenty hours a week. Great, you’re gaining knowledge, you’re putting your time into it.

you’ve you have capital or you’ve capital. And so that’s how you can create wealth with real estate. But people we work with are you know successful professionals and they want to get involved in real estate. We’re like, I can’t do a part-time job. And so ⁓ that’s one of the things that we try and help people with is those three resources. ⁓ most people they’re limited. So if you’re short on capital, we we’ve got resources where we help people get the capital for the hard money loan or a private lending actually to purchase and rehab a property.

Or the ⁓ DSCR loan when you go to refinance it for the long term. And so access to capital. ⁓ and then time. Again, what we do is we try and manage everything for them so that it’s not taking their time, it’s taking our time. That’s how you leverage to create wealth. And then the other one is knowledge. You know, they don’t have to be an expert. That’s that’s what our team is, that’s what we do. That’s what we’ve been, you know. I’ve done several hundred properties, and so you’re using somebody else’s capital, somebody else’s time, and somebody else’s knowledge.

to create your wealth and real

Dylan Silver (07:22)
You mentioned in the green room about, you know, it never being a good idea to manage your own properties, even if it’s on the same block, right? Why are you particularly passionate about that? And why should people not manage their own properties, even if they’ve got a small portfolio?

Steve Lawson (07:37)
Yeah. So I’ll share an example. And again, I’ve been managing I’ve been managing my own properties for years. I’ve done it because you know I’m frugal. I’m going to save some money. Why why waste 10% for something I can do myself? Right. And so I remember at one specific property, ⁓ tenant moved out, rehabbed it, it was rent ready. All right, let me find a new tenant for this. And I placed it at what I thought was a pretty reasonable rent rate. Nothing. Waited a month, month and a half. Darn it. Okay, let’s lower it by 50 bucks. Nothing. Lowered it another 50 bucks.

And after about four months of it sitting vacant and I couldn’t place a tenant, I’m like, you know what? I’m too busy for this. I’m gonna hire a property management company just for this one property. They placed a tenant in two to three weeks at my original rate. Had I placed a tenant at the last rate that I was advertising, I actually would have been making less money than I was making after paying them. And that’s when I realized they’re able to place tenants because they have the systems.

They know how to get it in front of hundreds and hundreds of people. They know how to screen. They know how to maximize the amount coming in. And that what I’m paying them, excuse me, that my net income after paying them is more than it would have been had I done it on my own. So I’m actually making more money by doing less work. I’ve never screened a tenant since. I’ve never dealt with a a foreclosure, a toilet, or anything else since. And I’m making just as much, if not more money doing so. That’s why I tell people, delegate, don’t try and do it yourself.

Dylan Silver (08:55)
I think there should be a term, you know, tenant or landlord fatigue, because you may actually like the idea of real estate and you may enjoy these the benefits you mentioned, the tax benefits, appreciation, but some of the process of ownership just becomes so labor, right? And it can become tiring and you you get to become a tired landlord. And that could have been avoided entirely by delegating, as you said. When you see folks who maybe have gone down that path and they’re the

quote unquote tired landlord. At that point, you know, is there any saving them or if you’re tired already, you’ve got to take a break.

Steve Lawson (10:06)
Well, it two things. ⁓ I I agree completely. I mean, the tired landlord, I understand because I was there. ⁓ you know, again, I wasn’t managing tons of properties, but I was managing enough. I’m like, this is it’s tiring. You know, managing coordinating this. we have to repair this, call a maintenance guy, coordinate access, da da da. You know, it it’s easy to become a tired landlord. And so your options are, okay, deal with it. That’s not fun, hire someone else to do it, or sell the property. And what I’ve seen people do, it kind of goes back to my first point, it was like,

Yeah, I had two properties and it turned out to be more work than I thought. And my cash flow was only two or three hundred dollars a month. I’m just gonna sell these things because they’re not looking at all those other benefits I pointed out, all that long term. They’re just looking at their time and they’re making a decision based on this takes more time than I thought. I’m just gonna sell. And so by again, by going out and finding a professional who can do that for you, now you save your time. Probably doesn’t cost you that much more, but ⁓

But you’re still getting the appreciation, tax benefits, and all those other things. And again, I think the key thing is so many people want to save money, just like me. I did. I was being cheap. And it you know, it didn’t work, it does not work out. So

Dylan Silver (11:14)
Is

it fair to say that in the single family space there’s more folks that are focused on longer term buy and holds, or would that be inaccurate?

Steve Lawson (11:23)
That’s tough. I sh I encourage people to do long-term buy and holds because that is that is how you create wealth over time. And again, there’s just all those benefits we pointed out, but every single day I talk to someone, hey, you should really build a portfolio. Nah, I just want to flip and make some quick bucks. You know, and so there’s so many people, and there’s nothing wrong with that. ⁓ we help people do that as well. ⁓ we prefer the the long-term buy and hold because we know you’re gonna be able to you know recycle the money, create wealth, and it’s gonna have a really big impact over time.

But you know, sometimes you just need some some quick cash. and one of the things we do is we have clients that’ll alternate. All right, I’m gonna flip one, generate some of that extra cash. Now I can do one to buy and hold. It’s flip another one, generate some extra cash, do the next one, buy and hold. And so there’s different ways you can do it. There, there is no right or wrong answer. ⁓ but you know, in a single family, I encourage most people to if you can buy and hold, because that’s gonna, that’s how you’re gonna create that wealth.

Dylan Silver (12:15)
Now it’s become, I guess, a little tougher, or in many cases a lot tougher in certain markets to be a flipper, right? ⁓ but then of course if you buy the property at the right price, there’s still lots of opportunity. ⁓ is there a right and a wrong market to be operating in one specific strategy? And you know, if if that’s the case, the people have to pivot at times.

Steve Lawson (12:38)
Absolutely. And talk about right market. ⁓ just so happens in the last couple of weeks. I’ve had two, I’ve seen two different articles showing Indianapolis as the best place to buy real estate. right now it’s a it’s a great market here because it does have reasonable prices, you know, the cost of living, people can actually afford to live in their homes and to live in homes, pay rent, that sort of stuff. But it’s got a strong enough economy that it’s still growing, gaining jobs, gaining income, things like that. So Indianapolis is a great market, but you know, there there are quite a few others. And so it it

A lot of times again it goes back to the numbers. Are you looking to flip or you looking to buy and hold? And if you’re looking to buy and hold, what makes sense? I’ll get off on a little tangent if you don’t mind, about the best place to buy real estate. Because this is important. If you go online and you just start Googling best cities to invest in real estate, there are going to be dozens and dozens of different websites. Okay. And but they the problem is they look at different things. And I can tell you what’s going to happen. You’re going to see some lists.

That are only looking at appreciation in the past few years. And they’re going to show places in Florida, they’re going to show Boise, they’re going to show Phoenix, Las Vegas. Look at this skyrocketing appreciation. This is where you should invest in real estate. Others, they’re going to look at just cash flow, and they’re going to end up having the markets that have lower prices, such as you’re going to see usually Cleveland, Memphis, St. Louis, Milwaukee. Some of those are going to be on that list, along with some others.

And then you see the ones that are in the middle where, hey, these are good cash flow, but there’s strong economic markets that are still growing. So you’re going to get appreciation and cash flow. And that’s where you see Indianapolis, Columbus, Ohio, Kansas City, you know, several and several others as well. But just it’s interesting when you go to look at lists of the best places to invest, make sure you understand what that list is using to ⁓ as criteria.

Dylan Silver (14:22)
Now you mentioned some of the opportunities that people have in different areas of the country to invest in. You can get a little bit of analysis, paralysis, overwhelm, especially if you’re starting out trying to figure out where to invest. Do you recommend that if folks are in one of those markets, if they’re in a Cleveland, if they’re in an Indianapolis, if they’re in South Florida, if they’re in DFW or the Greater Austin Metro, you know, or if they’re in, you know,

Baltimore, Maryland, that they look first in their backyard before looking out of state.

Steve Lawson (14:52)
⁓ it depends. For the most part, yes. ⁓ as long as that matches what your criteria is. So in other words, if you want to flip and you’re in a market that’s not good for flipping, then yeah, you look elsewhere. ⁓ but if you’re in a market that, you know, if you’re looking for long-term buy and hold and you happen to live in Indianapolis or Kansas City or Columbus or you know, DFW or you know, one of those good markets, yeah, stay in your own backyard. that it would make sense, you know.

I know some people say, yeah, I like to be I can go drive by my house if I want to. You know, it’s it’s that that comfort level. So it’s absolutely if your market matches your goals and criteria.

Dylan Silver (15:26)
⁓ I wanna ask you about the book. ⁓ when you were originally thinking about writing Wealth Highway, what was the ⁓ inspiration behind ⁓ becoming ⁓ the author of this one?

Steve Lawson (16:18)
Yeah, so my goal has always been to help as many people achieve financial independence as possible, to help people improve their financial position. And someone kind of pointed out to me last a year or two ago, I was like, Well, that’s a great ⁓ that’s a great goal. How do you get in front of enough people? I’m like, ⁓ yeah, I’m not doing enough to get in front of enough people. So I need to get get the word out. And so that was where the inspiration was okay, how can I reach more people to help them achieve financial independence? And so I came up, came up with the book. It’s it’s

ideas and things that I’ve been using for years, you know, a lot of them are not you know, super new ideas. Diversify, ⁓ ta get ca ⁓ sorry, get passive cash flow, ⁓ create wealth. That’s one of the much the ones that’s more unusual. Is I explained to people the difference between growing the wealth you have and creating new wealth. So so just real quick, I’ll explain on that. So a lot of people think of investing as growing the wealth they have. So they’re gonna put it into

gold or at the stock market or crypto and hope it goes up more than it goes down, right? Or they’re gonna put it into something where they’re getting a fixed rate of return, CD or a bond or something like that. And so that’s how they’re gonna grow what they have. And that’s fine. A lot of those, you know, you’re gonna get anywhere from four to 10% a year on average. That’s fine. But creating wealth is done in one of two ways. You look at the thousand wealthiest people in America, every one of them created their wealth by owning a business or by investing in real estate.

And so what that’s how you create wealth. And one of the my first real estate examples, you’ll probably like this, Dylan. ⁓ I bought a house for $48,000 and I agreed with the seller to let me pay for it over four years. Actually, a little a little over $48,000, paid $804 a month for four for five years. I found a tenant at $800 a month, they ended up staying there the entire five years. And so that house was really costing me $4 a month to buy that house.

I’m using other people’s money. I’m using the tenant to pay down the r the rent or to pay down the the loan. And in five years, that house was paid off. Not only that, it had appreciated from forty-eight thousand to seventy-five thousand because that’s how much I sold it for. So I invested at two hundred and forty dollars to get seventy-five thousand dollars. That is how you create wealth. That’s not just kind of growing what you have, that’s creating wealth. And so that’s one of the main things I talk about in the book is how do you create wealth? You know, and there’s another term, ⁓

I forget what it is. Basically it’s it’s exaggerated not exaggerated returns, ⁓ leveraged returns basically.

Dylan Silver (18:40)
Now, when we’re talking specifically about being able to use, you know, creative strategies to create wealth, ⁓ do you see this being most applicable in the real estate space and in related spaces? You know, when you you’re looking at ⁓ creative financing and this type of thing, or can people potentially use some of these strategies in other ⁓ industries as well that are maybe just as effective?

Steve Lawson (19:05)
Basically it’s real estate and business use this the the similar strategies. How are you using leverage? You know, again other people’s money, you know, to to leverage, to launch a business, to buy real estate, whichever one. So using other people’s money. And again, I go back to that formula I mentioned earlier. Capital times knowledge times time. The more you can use other people’s, that’s how you gain leverage. That’s how you create wealth. A lot of people they’re limited to they limit themselves to their own capital, their own knowledge, and their own time.

And that’s limiting your ability to grow your wealth. But whether it’s business or real estate, if you’re using other people’s money, other people’s knowledge, other people’s time, that’s how you create more wealth. So the the formula applies to either one of those two.

Dylan Silver (19:46)
It just takes one, right? That that first business that you acquire creatively or that first ⁓ real estate deal and that’ll change a lot of things, right? ⁓ we are coming up on time here, Steve. Any new projects that you’re working on and then also anything you’d like to mention directly to our audience.

Steve Lawson (20:01)
Yeah, well of course we’re always working on new projects. ⁓ do quite a few all the time. And what I’d encourage you to do is go to a website. It’s called own O W N. Own dot reilocity. That’s R-E-I, stands for real estate investing. R-E-I-L-O-C I-T-Y. So own.reilocity.com And and just sign up for our email list, it’s free. You’ll get information on projects. But that’s what we do to help people create wealth.

where we’re doing most of the work for you, we’re managing everything, helping busy professionals create wealth with real estate.

Dylan Silver (20:35)
Steve, thank you so much for joining us today. Thanks for your time.

Steve Lawson (20:38)
Awesome.

Appreciate it. Thanks, Dylan.