MASSIVE
INCOME
TO
PASSIVE
INCOME
BY BRANDON TURNER
Massive Income to
Passive Income
Brandon Turner
ODCFund.com
01
Massive Income to
Passive Income
Take a look around your office and describe what you see?
Are you staring out of that corner office you had your sights
on since you started with the company? Or maybe you are
staring out of the window to a mountain view from your
home office? Are your shelves lined with awards you have
received over the years for growth in your field of expertise?
Maybe your walls are decorated with photos from your
bucket list adventures? How about a vision board of
everything you still wish to accomplish?
It took focus, dedication, and consistent action to achieve the
massive income and results you are currently experiencing.
You may have a good life, maybe even a great life. Yet, if you
are anything like me, there always seems to be more you
want to achieve. Is it that we are wired differently? Or is it that
we want to make a larger impact in the lives of family, our
community, and the world?
This reminds me of a recent quote I heard from Gary Keller
(Founder of Keller-Williams Real Estate):
“The true purpose of financial wealth is to finance the
material foundation necessary for you to achieve the
personal mission for your life.”
The question remains: How do you take massive income from
a profession, such as a doctor or lawyer, and turn it into longterm passive income to pursue your mission in life?
02
First, what is considered “massive income”?
Massive income is not a specific amount of money. It is when
an individual earns significantly higher-than-average levels of
compensation from work that requires their regular, ongoing
involvement to receive that compensation
Examples of professions earning massive income include:
Doctors
Lawyers
Consultants
Celebrities
Athletes
CEOs/Entrepreneurs
Now, what is “passive income”?
Passive income is income that no longer relies on an
individual trading time for money.
It is typically income generated from assets, including:
Real estate investments
Franchise ownership
Stocks / Bonds / Mutual Funds
Royalties
Autopilot businesses
Out of all the assets listed above, Andrew Carnegie said it
best:
“Ninety percent of all millionaires become so through owning
real estate. More money has been made in real estate than
in all industrial investments combined. The wise young man
or wage earner of today invests his money in real estate.”
03
Why is real estate such a powerful investment vehicle for
building passive income and generational wealth? The first
four wealth generators of real estate are:
1. Cash Flow:
a. The income generated by the asset after all expenses,
reserves, & debt service are covered.
2. Appreciation:
a. Over time, prices will increase. Almost any property
purchased 20 years ago is worth much more today.
3. Loan Paydown:
a. The additional equity you gain monthly from your
tenants paying down the mortgage.
b. Even if you purchased a property that never cash
flowed (highly discouraged approach) and it never
appreciated, but you held it for 30 years… Your tenants
would have paid off that mortgage, thus adding more
to your wealth.
4. Tax Benefits:
a. Real estate provides a LOT of tax benefits to offset your
massive earned income.
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Four additional reasons not discussed very often:
1. Tangible Asset:
a. You can physically see and touch this asset, compared
to other digital products.
2. Never Goes to Zero:
a. Real estate will always have a value.
b. Not to say it will never go down in value or that you
cannot lose money, it is simply a tangible asset that will
always have value.
3. Hedge Against Inflation:
a. Real estate prices will go up with inflation.
b. A gallon of milk was once $1, but milk is now $3.
c. Rent was once $50, but rent is now $500. Rent could
eventually go up to $5,000.
d. However, you can lock in a payment at a historically low
rate today for 25-30 years! While rents increase and
property value increases, your mortgage payments stay
the same. Meaning you get wealthier & wealthier with
inflation.
e. Inflation is an investors best friend!
4. Control:
a. Your wealth is not reliant upon the decisions made by a
company or CEO.
b. A poor decision or scandalous story could drastically
impact the performance of a stock. In real estate, you
have control over the performance of the property.
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Now, the downside to real estate is all the work required to get
started. And it is a LOT of work, including but not limited to:
Acquiring the knowledge required
Saving the capital
Identifying an ideal investment
Researching the right market
Marketing for the ideal property
Analyzing hundreds of opportunities
Making offers
Negotiating
Due diligence/inspections
Qualifying for financing
Find contractors
Manage renovations/construction
Advertise for potential tenants
Take prospective tenant calls and applications
Show units and screen tenants
Sign leases
Take phone calls from current tenants
Address issues (repairs, replacements, mental)
Maybe find a property manager (and likely fire property
managers!)
Bookkeeping
Evictions
Preventative Maintenance
Maybe you don’t want to deal with the entire laundry list of
items above… Maybe you do… But chances are if you are
reading this, you know the value of your time.
And that is what it all comes down to:
How valuable is your time?
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Here is where we enter what I call
The Golden Goose Dilemma:
Your massive income might be fulfilling (or not) but it’s
likely not something you want to do forever.
You long for financial stability not dependent upon your
job.
Your job, however, is what gives you the lifestyle you want.
Most people, massive income or minimal income, live
paycheck to paycheck.
Or Lifestyle Creep has given you too much uncertainty
to step away from your job.
You’re too busy to build significant side income or passive
income. Any time spent on creating other income takes
away from your active and massive income.
Significant wealth & passive income comes from mastery.
Mastery takes time. You lack time.
You make a lot of money to live a great lifestyle, but you don’t
want to work forever. However, you don’t have the time
required to start a side business to create passive income to
replace your current income.
What I have learned in my 15 years of investing in real estate
and purchasing over 3,600 units is the value of my time. That
is why I started Open Door Capital and am such a proponent
of passive investing. I have built an entire team that helps run
Open Door Capital so that I can invest passively in all our
investments.
07
Success & Mastery
Mastery is achieved through intentional practice over
consistent, long periods of time. The longer you work at a
certain skill, and the more you master that skill, the more
success you will achieve.
I spent 12 years working on all these small real estate deals
and not making a lot of money or profit. And over the last 3
years, I skyrocketed to over 3,600 units. Now, do you have 15
years to figure out how to master real estate to replace your
current income level?
08
A few years ago, I bought a single-family house at an auction in
a decent area. I rehabbed the property, managed contractors,
tried both short-term/Airbnb and long-term rental, and hated
every second of it. After 3 years, I got burnt out on the project,
sold the property, and made a good amount of money. After
the sale, it seemed like I did really well on the project. Until I
did a simple calculation on what percentage of return I made
on my money each year (Average Annual Return or Internal
Rate of Return). On that deal, I averaged 15% on my money.
Now, 15% is not a bad return at all, especially when compared
to the average stock market return of 7-10% over the last 50
years.
When compared to the syndications that I invest in that are
projecting average annual returns much higher than 15%, I had
to look at my investing strategy much differently. I could have
simply put my money into someone else’s deal, made it 100%
passive, not had to deal with contractors, not had to deal with
tenants, and made the same return, but most likely a much
higher return.
I am at a different stage in my life that I no longer need to
hustle to make 2-cents out of nothing. I am making massive
income and can put that income to work to help create
generational wealth. Compound interest looks completely
different when you are averaging a 15% return for the next 1520 years and started with $250,000. A few million dollars
different!
That is why I am OK making money in my active method and
dumping it into passive investments. That is the IDEAL
situation for most people. I don’t believe that most people
should quit their job making massive income to pursue a side
business. If you are a doctor making $300,000/year or a
psychologist making $150,000/year, focus on living a fulfilling &
fiscally responsible life that will allow you do invest more of
your income into passive investments each year.
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Four ways massive income earners can invest in real estate
with minimal time, less risk, and higher returns:
1. Private Lending
A form of partnership in which a passive investor provides
some, or all, of the funding for a specific real estate
investment and the other partner controls the deal.
This is typically a “debt partnership” versus an “equity
partnership”. In a debt partnership, you are simply providing a
loan for a fixed interest rate/return. In an equity partnership,
you are an actual partner in the deal to share the ups AND
downs of the deal.
Private lending is typically done with house flippers or fixand-lease investors. You act as the bank to help them close
on the property. They renovate the property and either sell it
or lease it out and take it to a traditional bank to refinance to
pay off your loan, plus interest.
How do you find these investors? It is relationship-based. You
will want to ensure you know this person well, know their
systems, processes, and others that can vouch for them. One
thing you can do each month to find investors willing to
partner is by attending a local real estate meetup. Visit
biggerpockets.com/events to find local meetups in your area.
How do you protect your money? Typically, you will have a 1st
position lien on the property. Since you are the bank in this
scenario, this will give you the right to foreclose on the
property if the agreement is violated. You could then sell the
property to recover your investment. Not very passive, but
this is your protection.
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What are the potential returns? This varies wildly on the
relationship. A typical return is between 5-12%, depending on
the terms of the loan.
To illustrate this point, a friend of mine sold his startup for a
phenomenal exit of millions in profit. Outside of some low-risk
stocks giving him 1-2% return, most of his cash was sitting in
the bank making less than 1%. I was looking to purchase a
rental property in Maui, and I needed $500,000 to purchase
the property. I could have gone to a local bank for a
conventional loan with a 4% interest rate. The problem is that I
HATE dealing with banks. Have you seen the amount of
paperwork they require for a loan? And there ALWAYS seems
to be two pieces of information missing last minute that can
delay the loan and cause a deal to fall apart.
So instead of dealing with the headache of the bank, I
provided a down payment to my friend and in return, he acted
as the bank with a loan for the remaining $450,000 at 5.5%
interest. I pay him monthly and he makes consistent income
every single month off an asset that has been remodeled in
Maui. The current value of the property is probably close to
$1,000,000. Meaning, if I default on that loan, he can take the
property and sell it. Since the loan is for only $450,000, he
would recover all the money he is owed plus much, much
more.
Let’s run through this passive investment strategy on a fix
& flip:
John is a fix-and-flipper in Boston, who regularly flips 2-3
houses per month. He’s been flipping for a decade, has a great
track record, and needs financing for his newest flip.
John’s newest flip is a $300,000 purchase price and it needs
$75,000 of repair work. You agree to lend John $325,000 at
10% interest-only payments for up to two years. John brings
the rest of the capital.
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You get a first-position lien on the property. The title
company handles all the wire transfers, paperwork, and the
closing process. Each month, you receive $2,708.33
(($325,000 x .10) ÷ 12)
After 9 months, he pays you back the entire $325,000 and the
private lending partnership is complete - until you do another
deal with John.
What are the risks?
1. Something goes wrong on the project. The investor
doesn’t have the ability to pay you back.
a. You are forced to negotiate a lower amount or
foreclose on the property.
2. Your relationship changes when you became the lender.
Use caution with family and friends.
3. Usually no participation in the “upside” of the investment.
(Less risk, less reward.)
4. You don’t get your paperwork filed correctly, your
“partner” takes the money, and runs off.
2. Turnkey Real Estate Investing
A turnkey investment is where the investor purchases a
property from a company or turnkey operator. They find the
deal, renovate the property, find the tenants, and manage the
property. You simply purchase the property through a loan or
cash purchase.
How do you find these companies? We highly recommend
getting referrals from other investors that have already used
the company. You could also build a list and carefully qualify
(or disqualify) each company. You can also visit
BiggerPockets.com and search “turnkey”.
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How do you protect your money? You fully own the property
and can fire the property manager. If vetted properly, it could
be truly turnkey. Or it may turn into more of an active income
investment.
What are the potential returns? Returns vary based upon the
amount of money invested in the deal and the efficiency of
the property management company. You will typically find
between 5-10% cash on cash return. Market appreciation will
also play a large role in the average rate of return. A high
appreciating market may have your returns skyrocket, while a
market with low appreciation may keep the returns at the 510% range.
Example: You decide to buy a turnkey property in the
Memphis market. After researching turnkey operators in
Memphis, you narrow your choice down to a company called
ABC Turnkey Co.
ABC Turnkey sends you a prospective deal. You analyze the
deal using the BiggerPockets Rental Property Calculator and
determine it’s worth buying. They are selling the home for
$120,000, and it will rent for $1200 per month.
ABC Turnkey helps you connect with a local lender who
approves you for a loan for 25% down plus $5,000 in closing
costs. You bring $35,000 required and buy the property. ABC
Turnkey manages the tenant for you. The mailbox money
starts rolling in!
After all expenses, your pure cash flow is $2,500 per year,
which works out to a 7.14% cash-on-cash return. 10 years
later, you sell the property for $195,000 and your total
average annual return is north of 14%.
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What are the risks?
1. The turnkey provider’s math is incomplete. Actual cash
flow is negligible or negative.
2. The location is not ideal, only attracts low-quality tenants,
and is difficult to maintain.
3. The property is extremely old or poorly renovated. The
ongoing maintenance kills any cash flow.
4. The management company does a terrible job, forcing
you to fire them and find other options.
3. Real Estate Syndication
A partnership between several investors, both active and
passive, where a combination of skills, knowledge, and capital
are brought together to purchase larger real estate
investments.
Passive investors are called Limited Partners (LP’s) in
syndications as their involvement and liability is limited.
Dozens or hundreds of LP’s invest with an investment
company (General Partner/GP) to buy a large apartment or
commercial property. Cash flow and future equity is split
between the GP and LP’s.
How do you find these companies? You can also find
syndicators through real estate conferences (like BPCON21),
podcasts, authors, social media, and networking or referrals
from other investors. A lot of the investors in Open Door
Capital found me through the BiggerPockets podcast or
Instagram. You can also learn more about current and future
investment opportunities at www.odcfund.com
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How do you protect your money? There is usually a 70/30 split
(70% LP & 30% GP). Limited Partners also typically get a
“preferred return” which ensures they get paid before the
General Partners make money. The partnership is defined by
legal documents (PPM, operating agreements, etc).
What are the potential returns? 13-17% internal rate of return
are typical, depending on the investment purpose, location,
success, risk profile, and timeline.
Example: You decide to invest in XYZ Investment’s latest
offering, a 500-unit apartment complex in San Antonio,
Texas. The total cost of the property is $50,000,000. XYZ is
raising $25,000,000 from limited partners and using a bank
for the rest.
You invest $250,000 as a limited partner in the deal. The total
capital needed is from other investors. This gives you 1%
ownership of the LP side of the deal. The LP’s get 70% of the
total cash flow and equity.
You make 2% on your money in year one, 5% in year two, and
9% each year 3-5. This is from the cash flow. At end of year six,
XYZ sells the apartment for $90,000,000. You receive back
your $250,000 investment plus an additional $200,000 from
the equity. This results in an IRR of 17%.
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What are the risks?
1. The syndicator over-projected or inexperienced in their
analysis.
a. Actual returns are less or non-existent.
2. The syndicator has no experience in the market, asset class,
or management.
a. Profits are lessened or lost.
3. The real estate market crashes and/or rents drop.
a. The value of the property declines, forcing the company
to sell at a loss.
4. Your money is tied up and “non-liquid” for many years.
4. NNN Commercial
A commercial real estate investment in which the tenant is
fully responsible for not only monthly rent of the building, but
also all the expenses of that property. This includes
responsibility for insurance, property taxes, building
maintenance, and repairs.
You, or a small group of you, buy a single-or-multi tenant
commercial property. Types of assets include: Retail,
warehouse, industrial, etc. Tenants pay all the expenses.
How do you find these properties? Commercial real estate
brokers, commercial listing websites, or networking with
people in the industry.
How do you protect your money? You own the property and
have legal leases signed with the commercial tenants.
What are the potential returns? Typically, 3-10% cash on cash
returns. With the added benefit of future equity, loan paydown,
and tax benefits depending on the terms and nature of the
investment.
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Example: You buy the property and begin earning a 7%
cash on cash return on your money. You hire a local
commercial real estate manager to handle the tenants.
Eventually Starbucks leaves, and your cash on cash
return in year 3 drops to a “breakeven” 0%. After 9months of the property sitting vacant, your manager
gets McDonalds to lease the space at an even higher
rent. Now your return is over 10% and the property’s value
has climbed 25%.
What are the risks?
1. Complicated analysis, underwriting, and negotiations
with top professionals.
2. Commercial tenants may be difficult to find, leading
to higher vacancy rates.
3. Higher down payment requirements. Typically, 3040% down payments required.
4. Something changes in the market, rents, the
economy - and the investment loses value.
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Conclusion
In conclusion, all four passive income strategies discussed
(Private Lending, Turnkey Rentals, Syndications, or NNN
Commercial) have risks and rewards. It really comes down to
what excites you and how you want your wealth to grow.
As Jim Rohn so eloquently stated:
“Your life doesn’t get better by chance, it gets better by
change.”
If you are ready to make the shift from massive income to
passive income, you are going to not only change what you
invest in but also your identity. It will take an identity shift
from someone that may have been OK with average returns
or someone that may have been playing it safe, to someone
who takes control of their future through self-education and
taking more risk to reap the rewards.
Make this the best year of your investment journey and
accelerate your path to building generational wealth!
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