Create Generational Wealth Using Passive Investments With Drew Breneman | 740

 

We often talk about creating financial freedom for ourselves. How to have our wealth grow beyond our time on this planet? How can we establish a foundation for our children and grandchildren to have a better life than we had?

My guest, Drew Breneman, will share how you can have perpetual wealth to last for generations. Here’s how to do it!

—

Listen to the podcast here

 

Create Generational Wealth Using Passive Investments With Drew Breneman

This show is for you, those that work so hard for your money, and you’re now ready for your money to start working harder for you today. You want that freedom of cashflow now, not 30 or 40 years from now, but you want it today so that you can live that life that you love doing what you love. Most importantly, guys, it’s not about getting rich. It’s about living a rich life.

As you are blessed financially, you have a greater capacity to bless the lives of those all around you. That is why I’m here to do this show. Thank you for tuning in and binging. I appreciate you guys reaching out. In fact, I would invite you, if you haven’t done so, if you’ve gotten any benefit from this, in fact, if you’ve taken some of these strategies that it’s helped you either free up money, increase cashflow, or even increase your passive income, let us know.

Send us a quick email, Info@MoneyRipples.com, and say, “I did this thing from the show, and I made this much money.” I would love to hear it. Please do so, and might as well make it a review while you’re at it too. I’ve brought on a special guest, Drew Breneman. Drew, I am going to tell you, the story of this guy is incredible, and you’re going to learn about it. I know very few people that have accomplished what he did, especially at such a young age. This guy started an internet business and, at the age of 19, eventually transitioned to doing real estate investing. Not only did real estate but built that up, not in the Sunbelt in the Midwest and everything else, but he built up his portfolio to be over $200 million.

He’s blowing it up with what he’s doing. He also has his podcast, the Breneman Blueprint Podcast. I invite you guys to check that out. I’m excited to bring him on today to talk about and share his perspective on what he’s learned over time, especially between the business and the real estate space, but also about how he can build generational wealth. How can you specifically be able to have that wealth passed on from generation to generation and knock it out of the park? Drew, welcome to our show.

Thanks for having me. I’m excited to be here.

You are going to give us the story. I was internet dumb. You’re about nine years younger than I am, but what ko internet business did you do, and how’d you get started?

I was always entrepreneurial when I was a kid. I did a music performance once for my parents. I remember I was telling someone the other day. I charged them admission for it. I wouldn’t perform for free to your parents. Who would do that? I was always entrepreneurial, thinking about ways to make money. Some of my friends were playing this video game when I was a freshman or sophomore in high school called Diablo II. When they are done with playing the game, your character accumulates items in the game, and they sell those items on eBay for real money. I was like, “That sounds interesting.” I didn’t care about playing the game. If I played any video games, it was more sports games, but that doesn’t matter.

I looked on eBay and sometimes these same items would sell for $5 and sometimes for $10 or $20. I figured, “Why don’t I invest $5 or $10 and try to buy low and sell high? I did that. I bought something at an auction that was ending in the middle of the day on Wednesday for $5 and then put it up on the Buy It Now auction for $20, and it’s sold. I did that thousands of times. From my sophomore year of high school to my freshman year of college, I did thousands of transactions. I still have 5,000 or so positive feedback on my eBay account selling on my website.

I recently moved from Chicago to Austin, Texas. I was going through all this stuff in my office, and I still have the notebook. I kept track of all the deliveries then. I, no exaggeration, have two full notebooks that 70-page school notebooks where every line front and back filled out with the delivery and crossed out. I didn’t get rich from anyone’s sale there or anything. I made between $80,000 and $100,000 over that time period. The important thing is I kept all the money. I only spent money on gas for my car. I then bought a radar detector after I got a speeding ticket. Otherwise, I saved everything.

I didn’t pay rent. I’m a high schooler. I already owned enough clothing and I owned a car. Why go waste this money and buy a used Ferrari or something probably most 18-year-olds would’ve done? I started reading all the books people read when they’re 40, Rich Dad Poor Dad. I did a book report on Think and Grow Rich and invested in the stock market and stocks. This is a teenager where I had to have my dad sign on the account somehow. It’s a custodial thing to open it. The light bulb for me on investing went off reading Rich Dad Poor Dad, thinking about getting outside of that whole employee mindset and there are these other ways to make money.

I like that book. It’s very simple. He is not going to tell you any tactics on how to make money but the mindset. Get out of the employee quadrant and get over to investor one of these business owner ones. That all made sense to me. I started reading about investing. I read The Intelligent Investor but the light bulb went off on real estate investing when I was reading a book called Investing in Real Estate by Gary Eldred. He had a super simple example. As you do this more, you realize how oversimplified it was. Let’s say, you buy a duplex, you put 10% down, and then the property itself goes up 3% a year on average every year. That’s a 30% return on that 10% down payment.

That’s the appreciation. That’s not factoring in cashflow or paying your loan down or the tax breaks you’re going to get along the way. I didn’t understand a lot of the rest of that. I understood cashflow but I thought, 30% or whatever it’s going to be, that sounds powerful. I got the real estate bug at that point. I’m from the Milwaukee area. I was going to go to UW-Madison for college, and I did. I figured when I go there, I’m going to buy a rental property my freshman year and move into it my sophomore year and I did. That was my first real estate deal. I put $35,000 down from the internet business money and bought my first property, moved into it, rented out the bedrooms in my unit and to my friends, and then rented out the upstairs unit. I was living for free. I was house-hacking before they ever came up with the term.

That’s pretty incredible. It’s fascinating because you went from flipping eBay products. That’s what you were doing there. It’s funny because it’s almost like you were selling the Metaverse before as the Metaverse, weren’t you?

Later on, in some of these games, they built it into the game, where you can buy items from them. That’s how that Farmville game and some of these other things worked. I was beyond the video game age playing by the time those came out. I was early doing that. It was a nice run with not a lot of competition. As more people figured out you could make money doing this, people would accept less of a profit margin. By my freshman year after I bought that property, what I was making from selling those items still was turned into a waste of time. I could make more money focusing on the next real estate deal. That was when I stopped.

It seems the only thing you haven’t done is day trading, or did you?

I tried doing that when I was in high school, but this was before smartphones. You would put a trade-on. You’d enter it in before you go to school. People can see where this is the flawed strategy with this is what 16-year-old Drew was doing. I’d put the trade on. I’d go to school and have no smartphone, no nothing. Maybe I went to the library, wanted to see what happened, and then I’d come home and see what happened. Maybe the trade went through at the open and then the market dropped and then you’re in on your sixteen. You’re going, “I should sell tomorrow. Maybe give it another day.”

It wasn’t day trading in and out throughout the day, but I was trying to trade stocks. I had no strategy and no edge compared to the other investors. That’s something I’ve figured out as a real estate investor, you want to have an edge against the competition, something that sets you apart, where versus paying full price for a deal for sale that everybody can bid on. I didn’t know that at the time, but now I do, thankfully.

We talk about this show. If you talk about the most proven strategies for creating wealth, even though there are people that do it wrong and they lose money. There’s always that exception, but the one that’s been proven in the show that there are more millionaires and billionaires has been either 1 business or 2 and/or real estate. You’ve been in both spaces. Where’s your preference? Do you like both? What is it for you?

What’s great about real estate is for the risk involved, the returns are very high. If you think about it, you have signed contracts. I do multifamily. I have some commercial deals I bought in 2009, ‘10, and ‘11. We have signed contracts in place with people, and that money is more or less guaranteed. Some people don’t pay their rent, but 99% plus due and compare that to any other business, a restaurant, or whatever you have in your head of a business, you’re not guaranteed your revenue tomorrow in any of these businesses. You then combine that with being able to lever it up by putting debt on it. You’re creating high returns and something that’s fundamentally not that risky.

There are some downsides. It’s not liquid. If it was fully liquid, it probably the returns in real estate would be lower than the stock market because it would be somewhere risk-wise between stocks and bonds. Because It’s not liquid, that drives out some investors and people. If you need your money back in the next three years, you should not be investing in real estate. Real estate is more for three-plus-year holds. That keeps the returns high, and the risk is not that high.

You should not invest in real estate if you need your money back in the next three years. Real estate is more for three-plus-year holds. That keeps the returns high, and the risk is not that high. 

If you are okay, if you’re doing the deals yourself, you are going to also be okay with the workload. That’s the other negative. Perfect for me though, as an 18-year-old reading this book, I’m a college student, and I don’t have another job. I got time to be the property manager and look for deals. If I was already working a full-time job and had kids and stuff, I couldn’t do this, or I needed my money for X, Y, Z. Whereas, for me, this was money. I was looking to turn into a lot more and not tap into it yet and wasn’t worried about putting in work. Real estate was perfect for me.

That’s insightful. Sometimes, there are passive opportunities that come along that we’ll find, and it might be business related. It could be a car wash, for example, or some franchise type of business. Even when my clients ask us about that, they’ll say, “What do you think?” We’ll say, “It could be good.” It could be a great casual play, but it’s still a little bit on the speculative spectrum.

It’s more in that speculative quadrant. Even if it has good cashflow and great potential returns, it’s more speculative. If you’re in certain types of real estate, depending on the real estate, you have a lot more certainty. You have a real asset that’s there. It’s not based on business or on cars coming through. It’s based on the people living there. You’re providing value and service that way too. It’s a very different game.

You need to factor in the risk of these things. It’s Interesting. Let’s say, you go on CrowdStreet or some of these websites where people are raising money for real estate deals. The ones that do the best are usually the ones that have the highest return. If you’re doing this day to day like I am, that makes no sense to me. The brand-new development, where you have to build a hotel and lease it out every night, or take an empty office building and re-rent it. Where the office is always overbuilt and a tenant market, those deals will raise money if they have high projected returns.

Whereas an apartment deal that might have, let’s say, those two development deals make a 20% IRR a year. A 13% apartment deal where you’re buying an existing one and maybe going to run it a little better, people are less interested in that because it makes so much less. That’s because the is 1/10 of those ones. You have to build it and do all these things and put on a permanent loan later and lease it out.

Mind you, go into your retirement calculator or compound interest formula and type in 13% a year. It’s pretty good. You don’t need to make 20%. That’s where something that always baffles me. I’m competing with people who aren’t raising money also. They’re buying it with their own money or a second-generation family doing real estate. They’re never doing those speculative deals. They’re like, “I already own twenty deals in this neighborhood. This is in a good location. I like the property. I’m paying a fair price today.” They don’t think about more. They rarely ever sell. If you want to buy more, you buy it from your cashflow or you refinance out some of your equity. That’s how you see the people that are successfully doing it. It’s interesting to observe.

It’s what I refer to as boring is sexy. The more boring it is for the operator, the sexier it is for me. I heard somebody reference it as a vanilla deal versus buying chocolate. Vanilla’s great, not ice cream normally but when it comes to those deals, I love it. I’m going to put chocolate on it to make the vanilla a little bit better and mix it together.

The less moving pieces, the better in these deals. If you can make a good return, buying a fully leased out building to the post office, that sounds pretty good to me. You got them a federal backstop. One of our industrial deals that I bought before has the post office in it. I focused only on multifamily. They’ve been in there for fifteen years. We barely heard a peep. They paid rent every month. It’s great.

It doesn’t matter if it doesn’t have that higher IRR. You’re like, “They pay. I don’t have to deal with it. There’s no time and energy expense as much as it is with some of these other deals. I love it.”

I don’t know what our IRR is on that one, but we paid $5 million for it. It’s worth $8 million now. We pay the loan down to $2 million or something. We’ve been cashflowing for fifteen years. Make money slow, but made quite a bit of money and that’s one deal.

They’re paying the mortgage down for you. It wasn’t like you had to pay it down. That cashflow is helping you pay it down while you’re still taking profits too.

We have positive cashflow and then every month, we’re paying the mortgage, the principal balance down.

What was your down payment on that?

It’s $1,050,000 on that deal. We bought it for $5 million and $250,000 and then borrowed $4 million something. I bought those deals in Madison, and then I moved to Minnesota to take a full-time job. One of my coworkers there had heard about it. It’s like I was doing now, talking about the deals I was doing on my own. We went and met with his dad and then the three of us, we bought $100 million of property together in Chicago and in Minnesota. A handful of years later, I met another family with a similar deal and bought about $100 million with them as well.

The same thing, but buy and hold for the most part. We only were selling if we thought the property didn’t have great prospects going forward. We would sell it. We do a 1031 tax deferred exchange into a new bigger deal. I also syndicate deals and raise money from passive investors. Originally, I was only working with those two guys. You’d call them and be like, “It’s the last one and I need $1 million. You want to do it?”

Usually, their questions were like, “When do you need it?” and maybe something else like, “How old’s the building?” Once you’ve done a few of these, it’s almost better to focus on less stuff and be like, “The returns are similar to the last deal. It’s in a good location. Buy it. It’s a long-term hold.” We’d still run IRR calcs and other things calculator cashflow. A lot of long-term investors are not as concerned with some of those metrics as a passive investor would. We’re trying to build wealth long-term on those deals, not put up a big return for a year and post about it on the internet.

It’s not a quick transaction in that sense.

You don’t build wealth that way.

I want to ask you, what’s the best way for people to follow you if they want to do that?

I have a podcast called the Breneman Blueprint. If you’re into podcasts, you can find that on YouTube or anywhere that you have podcasts. I’m @DrewBreneman on every social media platform, LinkedIn, Twitter, and Instagram, and I started a TikTok. It’s been interesting. Those would be the best place to find me. Our company’s website, Breneman.com, is where you can find out about everything we’re doing. You can invest in our deals passively. We specialize in multifamily in a few markets in the Sun Belt.

The cool thing about hearing your story is that you made your start even prior to the last recession. You’ve been through recessions, and now we’re moving to another recession. You’ve been around the block, haven’t you?

Yes. I learned a lot in 2009 and ‘10 buying deals. We were some of the only bidders and everyone was working out their problems. You realized how important it’s to have good relationships with your lenders, with your investors, where that stuff matters. Sometimes it gets tough. The same thing happens with the brokers and everyone in the whole real estate ecosystem. That’s when it matters.

It was so important to be liquid back then too. Everybody else was illiquid. You had to almost walk on water if you had a lot of cash to work with. Let me ask you this. You’re talking about this already with these other families, but let’s talk about creating generational wealth a little bit. What are your views on the best ways for someone to create generational wealth?

It’s going to sound maybe too simple, but own real estate long-term. Let’s say, somebody was to say the goal is, “I want to be a millionaire. In today’s times, it’s not going to be enough to retire, but let’s say you want to have $1 million. You could go out and buy a $500,000 2 to 4-unit property. FHA has a program. You can put 3.5% down. Own that for 30 years. In 30 years, it should roughly double be worth $1 million, and you’ll have it paid off. You’ll have positive cashflow along the way. That’s the simplest formula. I even do that now. We have this portfolio. It’s $200 million of property. If we sit on it and do nothing but run it, this will turn into a $500 million portfolio that we have paid off.

That’s crazy. I would think that would be the strategy. Whether you do it yourself and buy your own deals, or you find someone you can invest with, a partner, or someone you can invest in their deals. The key, if you’re trying to build wealth, is where you don’t want to be flipping in and out of deals. There are so many transaction costs, buying and selling real estate, and also then paying tax on your capital gain. I would highly recommend looking for a longer-term hold. If it’s 5 years, 10 years, if you’re investing with someone, will they allow you to do a 1031 into the next deal? You then can do a tax-deferred exchange. That’s the 1031 thing. Delay and defer paying your capital gains or depreciation recapture taxes.

We’ve done that on some of those early deals. We’ve done three of them back-to-back now where we bought a shopping center, sold it, bought a bigger shopping center and sold it. We bought two, and then, once we sell those, we’ll end up buying another bigger deal and keep holding it. If you want to defer your taxes, you hold it until you pass away. You get a base to step up and your capital gains and depreciation recapture goes away. That’s the best way to do it. It’s so simple, but it’s playing out for me and the guys I partner with.

Also, I see that in a lot of people. One of the guys I bought a deal from in Chicago, his dad bought 40 duplexes in what turned into one of the better neighborhoods in Chicago, Lincoln Park, back when they were $50,000 and they’re all worth over $1 million now. What did he do? He’d bought a bunch of deals in the ‘70s. He’s been running them. It sounds boring, but that’s a pretty good nest egg the guy’s built up. It worked out for him.

That’s the important thing. You said it’s simple and you’re apologizing for it, but that’s the power. Simplicity is the ultimate sophistication because those of us have seen how complex things can get. You get it down to the nitty-gritty. It’s that simple. Think about how many people are trying to save in their 401(k)s for 30 to 40 years. We’ve already seen the results of that. People still aren’t becoming financially free. They’re still living on a very tight budget in retirement versus as you said, “What if I put that money into this property for 30 years?” You’re even being very conservative to say, “It only doubles in 30 years.”

Let’s say it’s a stable market. It cashflows. If that cashflow only doubles, still, that cashflow is going up with inflation, rent, and everything else. You’re still making $8,000 to $9,000 a month on that property. That takes so much more work to be able to replicate that in the stock market. It’s not impossible, but to be making $8,000 a month or $100,000 a year in the stock market, you have to have saved up at least $3 million in mutual funds. That’s no easy feat. Most people never get there.

That’s where the light bulb went off for me with real estate. It is that simple. At the time, I didn’t know you could invest with people or partner up if you got someone. Let’s say you’re older. Someone younger can do the work or vice versa. If you don’t have any money, maybe you know somebody who’s older. You guys could partner up. There’s more than one way to do it than my example of buying a duplex. You have some advantage if you know somebody who’s in a different type of real estate and you could partner up with them if you find a deal. There are a lot of things you can do.

Drew, this is great stuff. I appreciate your time. You’re very generous and insightful. That’s awesome to hear about your experience and what’s going on there. Everybody, I recommend you check out his podcast, the Breneman Blueprint Podcast. Check out his website or his handles as well on social media @DrewBreneman. This guy knows what he is talking about. He’s been around the block. He’s seen the good, the bad, and the ugly. He didn’t show up a couple of years ago. He knows what’s going on.

Another person, another voice in the wilderness that’s given you more and more evidence about how you can create generational wealth, not just for you, but that ripple effect that goes through your family for generations. This is up to you. You have the power. You have the control to make that effect happen in your life and the lives of your family. You can impact generations beyond you through the decisions you make today. Go and make it a wonderful, prosperous week. We’ll see you later.

 

Important Links

• Info@MoneyRipples.com
• Drew Breneman
• Breneman Blueprint Podcast
• Rich Dad Poor Dad
• Think and Grow Rich
• The Intelligent Investor
• Investing in Real Estate
• YouTube – Breneman Blueprint: Real Estate & Entrepreneurship
• @DrewBreneman – LinkedIn
• Twitter – Drew Breneman
• Instagram – Drew Breneman
• TikTok – Drew Breneman

 

About Drew Breneman