Our next guests are here to tell us why investing in real estate is actually the smartest, most powerful tactic to create a reliable, passive form of income—if you use it right. They’re the authors of Busting the Real Estate Investment Lies, real estate expert Jimmy Vreeland and life insurance guru Kim Butler.

Kim Butler: The number one and number two hardest things for people to do in personal finance are: Number one, building an emergency/opportunity fund that is efficient, that they can use their entire life. Every single family, no matter how poor, no matter how wealthy, needs an emergency/opportunity fund. It’s the foundation of sustainable wealth.

That’s the number one problem people don’t know how to solve. The whole life product, absolutely solves that and makes saving automatic. It makes it efficient and it’s, as I said, the foundation.

The second single hardest problem in personal finance is creating cash flow.

Nobody knows how to do it, everybody knows how to build wealth, nobody knows how to take wealth‑$25 grand, $50 grand, not big numbers, or it could be $5 billion. Nobody knows how to build cash flow with that wealth. How to create cash flow, how to take a lump of money and get an income stream on a consistent basis.

It is the number two single hardest problem in personal finance.

That’s what real estate does in Jimmy’s world. Putting the two together, if you can solve the number one and the number two problem in personal finance, you’re done.

Nothing else really matters.

Jimmy Vreeland: We really came together because this is a big void and no one is talking about how to put them together. You could get a hundred people to talk about life insurance, you get a hundred people to talk about real estate, but you can get very few people to talk about how they work together.

Rae Williams: Your title is Busting the Real Estate Investing Lies, and I’d love to know what are some of those very big ones that we start to delve into in the book and demystify or debunk?

Kim Butler: The first one for me is that real estate investing means flipping. Flipping houses like what you see on TV.

Jimmy Vreeland: I would add that the first one for me is that whole life insurance is a lousy investment. It’s not an investment at all, and this is why these two things work so well together.

Real estate is an investment, real estate is the creation of the cash flow. Whole life insurance is the foundation that builds that emergency/opportunity fund, but people all over this country talk about whole life insurance as an investment, and it confuses clients.

Then they compare it to the wrong thing.

Uncommon Investment Pairings

Rae Williams: Tell me a little bit about why this actually matters for people—why these two things are important and then even better together?

Kim Butler: The foundation of people’s personal finances is the ability to have dollars to turn to in an event of emergency. That is the very first thing—when somebody gets out on their own, they need to build their peace of mind fund, their sleep at night fund, their emergency fund, their ability to handle things in life that come their way financially. Could be losing a job, could be a flat tire, could be a myriad of things.

And so, there is a lie out there in the marketplace that says you do that at a bank. That didn’t always used to be the case. If you go back in history, the original two products under the definition of financial plan were real estate and life insurance, and it was typically a primary residence with a mortgage and whole life insurance. They were respected anti-fragile products.

Unfortunately, Wall Street has come in and taken over and changed the definition of financial planning to mean “investing money in the stock market.” People have lost their way. And when Jimmy talks about flipping houses, that’s essentially being in the stock market, because it’s speculating and it’s trying to put in a little bit of money and get a lot for it.

That’s an American problem.

We want to work out just a little bit but have awesome bodies. We want to eat a bunch of garbage and feel good. We want to put in a little and get a lot. That’s an American goal, and it’s hurting us. We’ve got to go back to some basics. Whole life insurance and real estate as an investment, a long-term approach, both of them are going to help people build that foundation, that emergency fund first. And then, start to learn how to create cash flow in such a way that gives them the confidence that their day job is not the only source of income for their family.

And when you have a family situation where one person’s working, maybe one person’s at home with children or maybe you’ve got a single person where their job is the only income, that’s very scary. They have to rely only on their emergency fund.

Well, if you can add real estate to the picture, then you get cash flow. Though it might be small at the beginning, that can grow and build and create cash flow and take advantage of something that we talk about in the book called the strike number.

Finding Your Strike Number

Rae Williams: What is the strike number?

Jimmy Vreeland: The strike number is a play off of Atlas Shrugged, where if you’ve read that book, all the producers in the book go on strike. It’s a combination that and Robert Kiyosaki, who says, “the definition of wealth is when you’re passive or leverage income equals your monthly expenses.”

For me, in my own journey of getting out of corporate America, I needed my money coming from real estate to equal my monthly expenses.

For me and my wife and our four kids to live comfortably, I needed about $6,000 a month. My strike number was $6,000. And then I realized, I was getting about $250 a month from real estate, from my houses.

All I did was divide $6,000 by $250. I believe that comes out to 40 or 50 homes. But once I had that number crystalized in my head, I went from 10 to 60 properties very quickly.

Because I had my strike number.

And at that point, I was able to quit my corporate job. I wasn’t able to just go sit on the beach, but I was foundationally, economically free so that I did not have to work for corporate America. It’s also a strike number because my tax rate went from 40% to around 10% because rental real estate, it’s just the most tax advantaged environment you can work in.

Where in corporate America, I was paying 40% in taxes and then giving another 10% to my financial planners. So, you throw in state taxes, I was working 80 hours a week and living off 40% of the fruit, and that was not tolerable for me.

I was like, I am going on strike against the corporation I work for, I’m going on strike against the IRS, I’m going on strike against Wall Street—they would not get anything from me.

That’s where the concept of the strike number came from.

Rae Williams: I want to clarify something you guys said for people who might not know, what do you mean when you say passive income?

Jimmy Vreeland: Passive income for me is income you get that is not from your direct labor. I prefer, as I’ve gone further down the rabbit hole in this game, I prefer the term leveraged income. I own a property management business, a turnkey business, and an info business. There’s different kinds of leverage, but I employ 15 people, and the money I get from my businesses, I consider that not passive, but leveraged income.

I’m leveraging the talents of my team members.

And with real estate, on the rental real estate I own, I leveraged the other banker’s money or other private lender’s money. This income is definitely not passive, I’m definitely waking up and enjoying every day and I’m definitely working very hard, but the fact is that I am not doing W2 labor in order to generate that income.

Who Can Do This

Rae Williams: I think a lot of people when you talk about this, their first thought is well, I don’t have enough money to even invest or to start with real estate. What do you say about that?

Jimmy Vreeland: Some people, you have to say, “go make more money.” Up your level of production so that you are kicking cash first to your emergency fund inside your vault, and then second, once your emergency fund’s filled up—how much do you recommend people have in their emergency fund, Kim?

Kim Butler: It really depends on their situation, if they’re W2, three to six months of expenses is fine, if they are commission or entrepreneurial, it needs to be closer to a year, but it’s a very personal family decision, because some people are comfortable with a lot thinner approach to that, whereas others really need the certainty of a higher number.

Jimmy Vreeland: The sales guy in me, it’s so hard for me to say this, but not everybody is at the right point in their life to buy real estate.

I hang out with a bunch of entrepreneurs, and the main question I ask them is, “You put a dollar into business, how much do you get out?” A lot of them say, “50 cents to a dollar.” And I say, “Hey, well, that cash is more valuable in your business right now. I don’t think you should be buying rental real estate.”

And there are some people who have to build up their emergency fund and I say, “Hey, I can’t really sell a house to you yet. It’s not the right time for you.”

But those people who have built out their emergency funds and have cash to deploy, those are the people who should be buying these rental properties or private lending.

Leveraging Debt

Rae Williams: I’d love to know more about using leverage to buy once you have decided that this is the route you are going to go on.

Jimmy Vreeland: So, another reason we wrote this book—and I am incredibly passionate about this—is that it is getting people at least woken up to the myth of the middle class that you should go to school, get advanced degrees, work really hard, put all of your money in qualified plans and then when you are 65, voila, your whole life will be taken care of. I cannot stand that concept.

Part of that concept is also living in zero debt and not understanding debt and the leverage we recommend people.

And this is another advantage of why real estate is so great, but people with W2 jobs and tax returns can qualify for 10 conventional loans, which are 30-year fixed financing loans.

It is essentially the only subsidy you will ever get as a middle class American.

And part of the myth of the middle class for me is waking people up that there are these loans out there backed by cash flowing real estate and so you know a big thing that you have to educate people on is that all debt is not bad especially with these conventional loans.

Kim Butler: I would add to that that consumers in America do not understand that their own dollars have a cost. It is a tough concept to get arms around. Essentially people think that if they pay cash for something, they don’t have an interest cost. And what is accurate is that they don’t have an interest payment.

So, it doesn’t matter whether it is a car or a piece or real estate, if you pay cash for something you don’t have an interest payment, but you still have an interest costs because the cash had to come from somewhere.

And part of the reason, here in 2019 when we are recording this, that this is such a tough concept is that interest on typical cash accounts is so low, we are talking typically less than 1% taxable, we don’t feel the effects of the opportunity costs of removing cash from one account to go pay for something like real state or a car or anything.

So somebody paying cash has given up an interest payment, they haven’t given up interest costs and the interest cost is the equivalent of the interest rate that they are earning on the account that the cash came from.

And so, as Jimmy has said, we are helping people understand in this book that paying cash for something is not the most efficient thing to do. Furthermore, building equity in a piece of property is not the goal. Equity in a piece of property is not controlled by the property owner. It is actually controlled by the bank, because the bank is the one that could say yes to your home equity credit line or yes to your mortgage or what have you.

So, you have to step back from the picture that the banks want you to see and that Wall Street wants you to see and start looking at what the banks do, not what they say.

And banks don’t buy real estate and pay cash for it, they use leverage. Wall Street does not buy things and pay cash for it, they use leverage and so we are helping individual consumers, normal everyday people learn the value of leverage.

Jimmy Vreeland: But just to say that all debt is bad and I want to be completely out of debt it is just a horrible, horrible, horrible idea.

Prepare for the Investment

Rae Williams: So, what is step one that they should take to do all of these things transfer their finances, get in the mindset, just get ready to make this investment that is going to give them this kind of return?

Jimmy Vreeland: The first step for me is I think it takes at least 90 days that you have to start educating yourself and start going through the truth, concepts, and numbers.

Kim Butler: I love it. Step one is self-education—that is perfect. So, it is read the book, listen to the book because of course, we’ll have an audio version available as well. Grab the book on Kindle, and don’t just read it, study it.

Then get on the internet and pursue the authors because both of us have a lot of information out there in market place, where whether you learn by listening, reading or watching, there is a lot of material available to continue to learn to support this idea.

Then step number two is to make sure you have your emergency/opportunity fund built. Some people already are well past that, and I just want to side track quickly on emergency/opportunity.

We’ve talked about building emergency fund, that is fairly obvious to everybody. You want to keep building it, every month, every quarter, every time you get paid, keep building your opportunity fund because then you can use leverage to let your opportunity fund keep on growing, while at the same time you start to add real estate to your environment.

And these are not needing big, big dollars. If somebody just wants to start small and start saving every month, that’s going to get them there. It will take some time, but it will get them there.

On the other hand, for people who are well past that they can jump in right away and make very quick changes like Jimmy did with his family in using their opportunity funds to purchase leveraged real estate, which then creates that leveraged income that we have spoken about.

So, no matter how big your zeroes are in terms of your balance and your income, this is a viable strategy, combining these two products with the strategies that we teach in the book. And both Jimmy and I help people personally all over the country implement these ideas.

Jimmy Vreeland: And I wish it was a quick fix. I wish we could send somebody a link and they could just buy a house and get started. But my wife Suzie is our property manager, if you buy a house from us, we are going to have a 30-year relationship. And so, if Suzie or me talk to you and we realized that you maybe even haven’t read done enough digging to read a book like this, we don’t feel right selling a house.

Because we know you’ll be disappointed and it will just be a headache if you don’t understand leverage, if you don’t understand cash flow, if you don’t understand appreciation and the tax advantages and you are just trying to hit a quick fix of buying a house and thinking this will give you momentum.

It doesn’t work.

It is a process and it takes a lot of education. I’ve gone through the process and for me it’s always been a fun education and that’s where we say you can also start with Kiyosaki’s book, after you read ours of course, but to understand all of these concepts and learn all of these things. It’s fascinating.

Investment Success

Rae Williams: All right, so do you guys have any examples of some success stories and people who have applied some of these techniques and the methods in your book and have just run away with it?

Jimmy Vreeland: Yeah, I have at least 10 buyers who funded their emergency opportunity funds and then they have bought 10 houses from me, but I would not put them on the fast track and sell them 10 in a year unless they already had a life insurance policy and they already had their capital safe and secure. Those testimonials that those buyers are on our website.

Kim Butler: I will add a fun story in addition to some of the ones that are at the book. It is so interesting, fascinating is the word Jimmy’s used, amazing to see when somebody has self-educated, how quickly they can make the transition mentally, even if the financial transition takes some time.

So, we took somebody recently that was funding a 401(k) over match levels. They had term insurance and they were trying to pay down every debt that they had as fast as they could, including their primary residence.

So those were three specific things. We redirected the cash flow from those three specific things to build the emergency fund, which went fairly quickly because they already had one, and we just shifted it from sitting at the bank, just sitting at the life insurance company and then we’re able to refer them to Jimmy and Suzie because they had already self-educated.

They were able to create very quickly passive income that got one person out of a day job, and it was a person that was not super well paid. So, it didn’t take a lot of homes, but it absolutely freed that family up, and now of course they are working on getting the second person in the family out of their day job.

And so that’s the kind of thing that can happen when people self-educate. They become committed and then they take action with the learning that they have just accomplished.

Jimmy Vreeland: There is a ton of details that go into it, but that simple concept of the strike number—they find their strike number. They realize they are getting about $250 a month per house, which is not a crazy number, but over 12 months it adds up per year, and year over year. I’ve seen it firsthand that they see that strike number they understand the concepts and they just accelerate.

A Challenge for Listeners

Rae Williams: If each of you had to issue a challenge to our readers, and we have already given some really good action items that we can take, but if you had to just do one definitive challenge to your readers, to people who are interested, what would that challenge be?

Kim Butler: I’ll go first: stop reading and listening to the news.

Jimmy Vreeland: We go through this in the book, but the difference between investing, speculating, and gambling. We have a section in the book about it, but I would challenge them: can you articulate the difference between an investment and a speculation, and what is the line between the speculation and a gamble?

Because that is why I I will say flippers are great speculators, are absolutely phenomenal like what you see on HGTV. I give them a golf clap every time they finish the flip. I was like that’s a phenomenal speculation, but it is not an investment. If you are a speculator there’s nothing wrong with that. I am not a speculator, because emotionally I can’t handle the ups and downs.

Rae Williams: How can people contact you if they want to learn more and want to get your expertise hands on?

Jimmy Vreeland: Well for me at my website at vreeland-capital.com or look me up on Facebook at Jimmy Vreeland.

Kim Butler: Thank you, the book has a website forBusting the Real Estate Investing Liesand there are some additional articles that you can get only by going to the website. It is an opt in and we promise to email you. If you don’t like the emails we’re sending you are welcome to opt out. So bustingtherealestateinvestinglies.com.