That's the thing is that almost you have to do the opposite. Listening to shows like yours is a big way to do it because you're bringing on people that already are doing the opposite. For example, when I get people like that guy that had the $500,000 in his IRA. He was believing that he had to save, accumulate money, pay off his debt and that was the way to do it, but it doesn't always work that way. Another example is I had another client down in California. I have a lot of Asian clients. They've been raised to be incredible savers. He had this plan and said, "I've got my house and I got an investment property in California."
When he said investment property in California, I was like, "This thing has probably got high equity and no cashflow," which was true. He had about $600,000 of equity in that duplex he owned, but it was only cashflowing $200 a month. His return on equity was point nothing. He had his home and he was trying to pay off his home. His whole goal was like, "Chris, my goal is in the next six years to accelerate paying down these mortgages so I'm debt-free on my house and my investment property so then I can keep all the $2,000 a month cashflow I'm getting from this property." I was like, "Here's the thing. You got $500,000 of equity in your house. Let's say we only tap into $400,000, but we leave $100,000 in there."
We get a cash-out refinance, which would only increase his payment by about $1,000 a month because he already had this low or pretty high payment for a low balance. I said, "Refinance, free up some money, and then sell your investment property. We can 1031 into something else." He was like, "I don't know." I was like, "How much are you going to save if you pay off both these mortgages?” “$4,500 a month.” If we get this money unlocked, we’ve got probably $800,000 or $900,000 we could play with. Even if you only made 10%, that's $80,000 or $90,000 a year. Subtract out the extra payment, we still come out at about $70,000 a year net. I was like, "$70,000 a year, that's almost $6,000 a month versus waiting six years to free up $4,500 a month."
I said, "If you reinvest that $70,000 a year and then you keep reinvesting and building that up, you'll be over $100,000 a year of passive income by the time you hit that sixth year. You have more than double of what you were hoping to create." He was like, "I don't know," because he was so indoctrinated. That's the thing. I eventually had to work with him a little bit and finagle it and like, "Don't cash out on your home mortgage. Just do a refinance. You'll free up about $1,000 a month on your refinance. Do that and sell your other property." It appreciated at $100,000 by the time he was making the decision. I was like, "Now, you've got $500,000 you can play with. Even if you made $4,000 a month, that's better than $200 a month. You still win and you end up still making over $5,000 a month right now. That's better than $4,500 in six years."
That's the point. There was a guy I know around here that he sold his whole portfolio of product. When he did that, he retired about $120 million in debt. He put in and I'm sitting here going, "You have all of this property and debt." He goes, "I had all of this cashflow. How I built that empire was I kept trading the cash that I could get and pulling the equity out to build another project. Once I had that project, I got cashflow. $500 a month in cashflow on 50 projects and by continuing to move that money, it creates wealth, cashflow and lifestyle." We've all heard guys like Tony Robbins who teach this kind of stuff, where they go, "Are you looking for cashflow? What are you looking for here? Where are we going?" That's where we see this where it goes all the time. We can see where the people that have it do well with it because they've created it. Those are all good points. How does one achieve that and get there?
It's getting your money out of prison, is how I call it. It's like, "How can we unlock the dollars?" It could be equity and properties. With this guy, it could be like, "You've got money in savings." I talked to a guy that has $900,000 sitting in cash savings. He was like, "I was too afraid to put it in the stock market because I don't like the stock market." I said, "Good for you because I hate it, too." That’s coming from a guy who was a former trader in the stock market. I get it, but he was like, "What do we do with that cash?" I was like, "$900,000, even if you make 10%, that's $90,000 a year of passive income." The guy is an amazing and great professional in his 30s. He was like, "I don't want to work forever." I was like, "Cashflow is your key."
Most people are in that accumulation mindset. They're always taught to build equity, save and get a bigger net worth, but net worth is worthless if it doesn't generate income. That's what most people hope for when they save in their IRAs and their crappy 401(k)s. Even with the match, it's not even worth it because the return is not big enough. I tell people, "Let's get your money out of those places. Let's get it out of prison, get it working for you, and get it into things that are more certain and stable like real estate. Whether it's commercial, residential, into notes, or even things like land, there are all kinds of options you can get them into that's safer than the stock market and also gives you better cashflow."