What Is The Best Portfolio Structure for Early Financial Freedom?

Mike DeHaan: [0:00] Hey, hey, hey, collecting keys listeners. To today's episode of the Friday Focus. This is your first time to the show. This is the collecting keys podcast where we teach you to make massive income, not just passive income with your real estate investing business. My name is Mike DeHaan, and I am the guy who left his corporate engineering gig without a real plan back in 2018, and has now grown a $40,000,000 real estate portfolio in wholesales, just over a 100 properties per year. So did this for a little while. We got a good little system going, and we like to make money. And that is what we do. And I like to bring that knowledge and experience to all of you guys. So on these Friday folks episodes, we do a deep dive into some kind of miscellaneous topic. Sheets either an episode from me or from Dan, my cohost, or we will do these deal case studies where we interview members of our scale community, which if you haven't checked that out, should click collecting keys.com/scale and see what we have going on over there. We're helping a ton of other people grow the same success that we've been able to enjoy the past couple of years. And this particular episode is one that I got from a follower on Instagram. So if you want to submit ideas to me as well, you can shoot me a follow at Mike underscore invests. And just send me a DM.

Mike DeHaan: [1:18] Let me know something that you would like to hear. And this one actually is coming from my follower Earl Gaines. And he asked me a very interesting question on what I think is the best portfolio construction for early financial freedom. And early financial freedom, would guess means, like, when you're not old or, like, sooner rather than later for most people. Right? And now I really like this question because my immediate gut answer is one that I know he doesn't wanna hear and is contradictory to what financial freedom means to most people. But because I feel so strongly about this, I just had to pick this topic out of the other sessions that I had because I really feel it is fully on brand with what we focus on with this show and one of my basic philosophical beliefs around money. And so I know when people think of financial freedom, and what kind of portfolio is the best for a financial freedom, what they're really wanting to know about is passive cash flow. Right? Like, they're thinking what kind of rental properties or assets do I need to own to make enough money to just, like, sit on the beach and drink margaritas or do whatever the hell else they wanna do with their day to day?

Mike DeHaan: [2:29] People have different things they wanna do. That sounds like my definition of hell, has to every day. I'll do that for like a day or two, but I'm like an active traveler. But, know, that's kinda like the traditional thought of financial freedom. Right? Is you just have money that comes to your bank account, bought the assets, you did the work, and now you just gotta kinda chill, do whatever. But if you guys have listened to the show at all, I mean, we went into this pretty heavily as recently as this past Wednesday, where, like, what exactly does cash flow mean? You know, there's kinda two things. Like, first, I do not personally believe in passive cash flow from rentals because people always discount the true expenses and work that go into maintaining properties. And second, I think that people focus too much on passive cash flow and not on something that is actually much easier and more important, and that is making a massive income. Right? There's a reason that we say our show teaches people how to make massive income, not just passive income with your real estate business. It's not just because we are like a business focused show, but also because I truly believe, like really deep down in my soul, and I've actually proven this, I guess, now with several people that worked with the scale, that it is easier to make a million dollars than it is to replace a normal w two income with passive income. Right? Now, I guess I would say if you're trying to replace like a $30,000 a year job, totally, that's gonna be easier than replacing a the making million bucks, right?

Mike DeHaan: [3:55] But if you were trying to replace a w two where you're making a $100,150,200 thousand dollars a year, that's really freaking hard with assets because you will have so many unexpected things that come up, and it's gonna take an incredible amount of money to do it. K? And so what is the best portfolio construction for early financial freedom? My response is, if you're not making a very high income, say like 250 to $300,000 a year already, while also keeping your expenses significantly below that, then your job is not to get cash flow. That should not be your focus. Your job is to learn to start making major money. Right? And this is either with your own business, your own job, whatever that looks like. If you're not making big money already, you're not going to reach cat like passive income through cash flow. It's going to replace your kind of day to day in any sort of early time. Right? The fastest way to reach financial freedom in real estate is to build a pipeline of leads, and either wholesale flip or like realtor your way to a very high income, roll that income into the best properties you can find, so that you can make some cash flow. But more importantly, you can reduce your taxes. Okay, so you're, you know, you're a real estate professional now, you can take that depreciation to reduce your active income, and then bake in and invest as much cash as you possibly can while continuing to keep your living expenses low. Okay, That tax saving piece when you're making a lot of money as real estate investor is so huge and a lot of people discount that.

Mike DeHaan: [5:30] Okay? So I guess just for context, I am paying taxes this year for the first time since I started real estate full time back in 2020. I have made literally millions of dollars and never paid any taxes because I had the real estate portfolio that allowed me to depreciate against my active income because I was a quote real estate professional. And that allows me to bank significantly more money than like a doctor or like another business owner that's making a ton of high end revenue. Right? They're like top line revenue because I don't have to pay the tax, man. I just gotta keep all that and, you know, roll into assets from there. Okay. So very, very important piece. But the quickest way is to build that pipeline, keep the best monetize the rest of them through some form of high vertical income position, wholesaling, flipping, listing properties, whatever should jam, and then using your real estate professional status to not have to give up all of your money to the IRS every single year. Okay? If you focus on that, right, and actually learning how to generate that opportunity, and you don't spend all your time asking questions like, you know, how can I use other people's money to buy a rental property that barely cash flows anything? Would you pay back the investor? A lot of people feel like that's easier for some reason. They say, I don't I'll just raise the money.

Mike DeHaan: [6:44] I don't need it myself. I'll just go raise it, and I'll pay an investor. Awesome. You own an asset that doesn't make you any fricking money. Good for you. Or they'll say things like, how can I do, you know, Airbnb arbitrage or midterm rentals or senior special housing homes or some other ridiculous thing that is going to take a ton of work so I can make an extra couple $100 per month, and that will get me close to financial freedom? They focus on that, but those things are going to take a ton of time and not make you that much money. With that same effort to do all that, you can absolutely focus on building a pipeline and making big money, and literally become financially free within three to five years. Okay? I personally did it in four, And I made like so many mistakes along the way that if I had had like a proper coach and like an actual ground in real estate and sales, I've no doubt I could have gone even faster. We have people within our skill community that have done it within a couple of years. I know a lot of people that have gone from like just working kind of standard jobs to literally being millionaires within a couple of years, just because they learned how to build that pipeline and capture those opportunities. And it sucks. It's hard. You have to work a ton.

Mike DeHaan: [7:56] Okay, but the upside is so much higher than focusing on these quote unquote, passive cash flow things that aren't just as as you're telling yourself. Okay. For context, I guess, when I originally started in real estate, I was fully focused on kind of this cash flow fantasy, and had it all sort of projected out with how much I was going to need. I was predicting what my lease has going to be. My original expected financial independence target age was 50 years old. Not even kidding. I was like, at this point, I was 28. And I was like, cool. When I'm 50 years old, I'll be able to be financially free. That's so much better than corporate 65. That's ridiculous. K? Like, I'm 33 right now. That is seventeen years away. I've been able to reach financial freedom at 33. If I was focused on things being seventeen years from now when I'm 50, who even knows what the heck cash was going to look like. Right? There's so many things that'll change. Heck, who even knows what The US or the world is gonna look like at that point? I mean, we're in an election year. And every time we have one of those in The US, it seems like we are just like in the final countdown for everything. It's always just these days doom and gloom. So honestly, just lean into learning to become rich enough that whatever little things they try to do that are going to just axe away your passive income doesn't really matter because you already made a shit ton of money and so you can kinda ride it out. And so it's not so much that I'm dodging this question about the sort of portfolio makeup to get early financial freedom. But it's just that I really think that people focus on the wrong stuff.

Mike DeHaan: [9:32] And if you think about it, you can live off say $100,100 to $150,000 a year, which is a pretty good life. Like in most places, I guess you live in like New York City or something, it's more expensive. But if you live in most of The United States, $150,000 a year, you can do a lot. And my wife and I, we live on about that. And we apply first class to go to Asia. You know, we travel around, we do different things, we go out to restaurants, we eat well. If you can live off that much money, and you put a million dollars in the bank, you can live off that for like a decade. Right? You can sit and drink daiquiris for like a whole almost ten years, eight to ten years without having to do anything. But because you're the kind of person that learned how to make a million dollars, you will get itchy and you will start to make money. So instead of focusing on having to have that wedding come into your bank account on a regular basis, just focus on making that big money and it'll completely change your perspective on what financial freedom can look like. Anyways, guys, that's my take on the topic. I know it's a little bit different, and it's slightly contradictory than what a lot of people want out of real estate and why most people get into real estate, but it is very literally my view. And if you are serious about wanting to be financially free earlier in life, you know, in your twenties, in your thirties, even in your forties, you need to focus on wanting to build that pipeline, make money, make a lot of money, and leverage the tax savings that the IRS currently gives us for being real estate professionals. K?

Mike DeHaan: [10:56] What do you think? Am I into something with this? Or am I just completely missing the point? And you're over here thinking, you know, must be nice. You started buying properties for 2021. Well, you know what it is. And I'm very happy that took action when I did because I have no doubt benefited. But I continue to do very, very well after '21 as well. So I know that the concept sticks true, even though the market has changed a little bit. Anyways, regardless what you think, you should send me a DM on Instagram at Mike underscore invest. Let me know if you think that I'm totally right, or you think that I suck. Either way, I love to chat with people about it, and I love a good, you know, directed conversation. So anyways, guys, I appreciate you all listening, and I'll talk to you next week. See you.