Real Estate Lab https://realestatelab.live This is your real estate investing lab room Mon, 30 Mar 2020 03:52:03 +0000 en-US hourly 1 https://wordpress.org/?v=5.3.2 Real Estate Lab will walk your through the real estate investing world with different real estate strategies to up your real estate investing game. Discover how you can create passive income to replace your current W2 job or keep it if you have a job that you love. Vee has participated in over $15M in real estate transactions in different capacity (wholesaler, flipper, property manager, deals closer, deals underwriter etc.) since 2009. He invested in 220+ units passively. Real Estate Lab will be a place for everyone to learn about the current real estate trend, real estate investing strategies, apartment syndication, self-directed IRA investing, buy private note/mortgages, flipping houses, buying tax lien certificates, marketing to find deals, 1031 exchange, raising capital, passive investing, turn key properties, buy and operate mobile home parks, creative financing strategies, creative deals structuring, tax strategies, etc. all from the freedom of your owner schedule. If you are a fan of Robert Kiyosaki, Napoleon Hill, Gary Keller, Jeff K. Johnson, etc. then this podcast is for you! Vee Khuu Vee Khuu info+5d9419aa37752c556955b8fa@mg.pippa.io info+5d9419aa37752c556955b8fa@mg.pippa.io (Vee Khuu) Vi Khuu Buy More Properties! Real Estate Lab https://assets.pippa.io/shows/5d9419aa37752c556955b8fa/1569987079722-ba4e63549d7f4288e8e17d1c431c94bd.jpeg https://realestatelab.live/episode-archives/ EP 22: Dr. Amanda Barrientez – Invest in Mindset https://realestatelab.live/ep-22-dr-amanda-barrientez-invest-in-mindset/ https://realestatelab.live/ep-22-dr-amanda-barrientez-invest-in-mindset/#respond Mon, 30 Mar 2020 05:45:00 +0000 https://realestatelab.live/?p=550 Contact Email: DrAmanda@NFACoaching.com www.NFACoaching.com www.linkedin.com/in/NFACoaching www.instagram.com/NFACoaching www.youtube.com/NFACoaching www.facebook.com/NFACoaching Show Notes Get love notes from your money: www.DailyMoneyLoveNotes.com At the time of my recording, everything was still going great. We were on top of the bull market. And now, as you are listening to this podcast, things are not the same. You might be at home, in self-quarantine...

The post EP 22: Dr. Amanda Barrientez – Invest in Mindset appeared first on Real Estate Lab .

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Contact

Email: DrAmanda@NFACoaching.com

www.NFACoaching.com

www.linkedin.com/in/NFACoaching

www.instagram.com/NFACoaching

www.youtube.com/NFACoaching

www.facebook.com/NFACoaching

Show Notes

Get love notes from your money: www.DailyMoneyLoveNotes.com

At the time of my recording, everything was still going great. We were on top of the bull market. And now, as you are listening to this podcast, things are not the same. You might be at home, in self-quarantine at the moment. This episode is what we need more than ever.

If I can help or support you in any way, don’t hesitate to reach out. I am just one phone call away. Reach me at www.CallwithVee.com

[00:06:20] Listen to Dr. Amanda as she shares her background with us

[00:10:26] Amanda was in grad school with three kids and on food stamps…

[00:19:41] What is the Demartini method?

[00:24:11] Tap into your genius juice

[00:28:53] The 7 Ps of profitability

[00:33:33] Tackle imposter syndrome

[00:37:59] How to get your inner voice/ inner critic out of your head?

[00:42:04] How to have a powerful network?

[00:44:32] Connections from mastermind events

The post EP 22: Dr. Amanda Barrientez – Invest in Mindset appeared first on Real Estate Lab .

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https://realestatelab.live/ep-22-dr-amanda-barrientez-invest-in-mindset/feed/ 0 Contact Email: DrAmanda@NFACoaching.com www.NFACoaching.com www.linkedin.com/in/NFACoaching www.instagram.com/NFACoaching www.youtube.com/NFACoaching www.facebook.com/NFACoaching Show Notes Get love notes from your money: www.DailyMoneyLoveNotes.



Contact



Email: DrAmanda@NFACoaching.com



www.NFACoaching.com



www.linkedin.com/in/NFACoaching



www.instagram.com/NFACoaching



www.youtube.com/NFACoaching



www.facebook.com/NFACoaching



Show Notes



Get love notes from your money: www.DailyMoneyLoveNotes.com



At the time of my recording, everything was still going great. We were on top of the bull market. And now, as you are listening to this podcast, things are not the same. You might be at home, in self-quarantine at the moment. This episode is what we need more than ever.



If I can help or support you in any way, don’t hesitate to reach out. I am just one phone call away. Reach me at www.CallwithVee.com



[00:06:20] Listen to Dr. Amanda as she shares her background with us



[00:10:26] Amanda was in grad school with three kids and on food stamps…



[00:19:41] What is the Demartini method?



[00:24:11] Tap into your genius juice



[00:28:53] The 7 Ps of profitability



[00:33:33] Tackle imposter syndrome



[00:37:59] How to get your inner voice/ inner critic out of your head?



[00:42:04] How to have a powerful network?



[00:44:32] Connections from mastermind events
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Vee Khuu 1:00:10
EP 21: Karen Ford – Money Matters https://realestatelab.live/ep-21-karen-ford-money-matters/ https://realestatelab.live/ep-21-karen-ford-money-matters/#respond Mon, 23 Mar 2020 05:00:00 +0000 https://realestatelab.live/?p=546 Karen Ford Contact: www.KarenFord.ORG https://www.facebook.com/moneymanaging/ @kbfmoneymanaging Karen’s Books:  Money Matters: Motivation, Methods, and Manners for Increase! – https://amzn.to/2xdZV6a You Can Do It!: Real Estate Investing Made Simple – https://amzn.to/3bhottF [00:00:54] Highlight some key members of the mastermind community that I am in.  Stephen Byrum: https://www.facebook.com/stephen.byrum.7 – @Stephen.Byrum Melinda Byrum: https://www.facebook.com/minimepaul Daniel Swaw: https://www.villagerealestate.com/agents/180679-Daniel-Swaw/ [00:06:24] Karen’s first transaction…...

The post EP 21: Karen Ford – Money Matters appeared first on Real Estate Lab .

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Karen Ford
Karen Ford

Karen Ford

Contact:

www.KarenFord.ORG

https://www.facebook.com/moneymanaging/

@kbfmoneymanaging

Karen’s Books: 

Money Matters: Motivation, Methods, and Manners for Increase! – https://amzn.to/2xdZV6a

You Can Do It!: Real Estate Investing Made Simple – https://amzn.to/3bhottF

[00:00:54] Highlight some key members of the mastermind community that I am in. 

Stephen Byrum: https://www.facebook.com/stephen.byrum.7 – @Stephen.Byrum

Melinda Byrum: https://www.facebook.com/minimepaul

Daniel Swaw: https://www.villagerealestate.com/agents/180679-Daniel-Swaw/

[00:06:24] Karen’s first transaction…

[00:07:00] What are State Auditor Offices?

[00:08:44] What to do when you buy the property?

[00:11:17] What’s the State Auditor Auction process?

[00:14:56] What to do if the owner wanted to redeem?

[00:15:37] At the time of this recording, the market was really hot. As you are aware, today we are living in a world of uncertainty due to the Coronavirus (COVID-19).

[00:17:26] How long do you have to wait after the winning bid to get the house?

From the day you get the house, it will take 3 to 6 months for you to get the deed.

[00:20:13] Karen changed gear to invest in real estate from her RN job.

[00:23:55] Acquire and dispose of properties through auction.

[00:24:29] Karen uses Joe R Pyle auction to get rid of her properties (https://joerpyleauctions.com/)

[00:25:56] Karen shares her current career as a master financial coach.

[00:35:34] The unexpected benefit of financial coaching

Check out other episodes of the >> Real Estate Lab Podcast <<

The post EP 21: Karen Ford – Money Matters appeared first on Real Estate Lab .

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https://realestatelab.live/ep-21-karen-ford-money-matters/feed/ 0 Karen Ford Contact: www.KarenFord.ORG https://www.facebook.com/moneymanaging/ @kbfmoneymanaging Karen’s Books:  Money Matters: Motivation, Methods, and Manners for Increase! – https://amzn.to/2xdZV6a You Can Do It! Karen Ford



Karen Ford



Contact:



www.KarenFord.ORG



https://www.facebook.com/moneymanaging/



@kbfmoneymanaging



Karen’s Books: 



Money Matters: Motivation, Methods, and Manners for Increase! – https://amzn.to/2xdZV6a



You Can Do It!: Real Estate Investing Made Simple – https://amzn.to/3bhottF



[00:00:54] Highlight some key members of the mastermind community that I am in. 



Stephen Byrum: https://www.facebook.com/stephen.byrum.7 – @Stephen.Byrum



Melinda Byrum: https://www.facebook.com/minimepaul



Daniel Swaw: https://www.villagerealestate.com/agents/180679-Daniel-Swaw/



[00:06:24] Karen’s first transaction…



[00:07:00] What are State Auditor Offices?



[00:08:44] What to do when you buy the property?



[00:11:17] What’s the State Auditor Auction process?



[00:14:56] What to do if the owner wanted to redeem?



[00:15:37] At the time of this recording, the market was really hot. As you are aware, today we are living in a world of uncertainty due to the Coronavirus (COVID-19).



[00:17:26] How long do you have to wait after the winning bid to get the house?



From the day you get the house, it will take 3 to 6 months for you to get the deed.



[00:20:13] Karen changed gear to invest in real estate from her RN job.



[00:23:55] Acquire and dispose of properties through auction.



[00:24:29] Karen uses Joe R Pyle auction to get rid of her properties (https://joerpyleauctions.com/)



[00:25:56] Karen shares her current career as a master financial coach.



[00:35:34] The unexpected benefit of financial coaching



Check out other episodes of the >> Real Estate Lab Podcast <<
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Vee Khuu 46:45
EP 20: Chris Prefontaine – Real Estate on Term https://realestatelab.live/ep-20-chris-prefontaine-real-estate-on-term/ https://realestatelab.live/ep-20-chris-prefontaine-real-estate-on-term/#respond Mon, 16 Mar 2020 04:01:00 +0000 https://realestatelab.live/?p=543 Contact: Chris Prefontaine Email: support@smartrealestatecoach.com Website: https://www.smartrealestatecoach.com/ Podcast: http://www.smartrealestatecoachpodcast.com/ Facebook: https://www.facebook.com/smartrealestatecoach/ YouTube: https://www.youtube.com/smartrealestatecoach Free Resources: Free Book: https://links.realestatelab.live/Chris Free Webinar: http://bit.ly/2INRJvT Show Notes: [00:01:10] If you want to learn more about the coaching program, schedule a call with me at www.CallwithVee.com [00:01:23] Grant Baldwin (http://grantbaldwin.com/) recently released a book called The Successful Speaker: Five Steps for Booking Gigs, Getting Paid, and Building...

The post EP 20: Chris Prefontaine – Real Estate on Term appeared first on Real Estate Lab .

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Contact:

Chris Prefontaine

Email: support@smartrealestatecoach.com

Website: https://www.smartrealestatecoach.com/

Podcast: http://www.smartrealestatecoachpodcast.com/

Facebook: https://www.facebook.com/smartrealestatecoach/

YouTube: https://www.youtube.com/smartrealestatecoach

Free Resources:

Free Bookhttps://links.realestatelab.live/Chris

Free Webinar: http://bit.ly/2INRJvT

Show Notes:

[00:01:10] If you want to learn more about the coaching program, schedule a call with me at www.CallwithVee.com

[00:01:23] Grant Baldwin (http://grantbaldwin.com/) recently released a book called The Successful Speaker: Five Steps for Booking Gigs, Getting Paid, and Building Your Platform (Check it out https://amzn.to/3aXCcpy)

[00:03:21] You can get a copy of Chris’ book for free at this link https://links.realestatelab.live/Chris

[00:04:08] If you want to attend a live event, Chris is putting on an event in early April called Biz Scaling. Check http://bizscaling.com/ for details!

Or you can go to his event in Fall called QLS Live – http://bit.ly/2WecMj3

[00:05:18] Chris shares his experience about the dinner he had with Dr. Joe Vitale.

[00:10:38] What does it mean to buy real estate with term?

[00:13:09] Chris talks about an example of a recent deal his team did.

[00:15:40] How Chris structure his deals

[00:18:06] What are the three paydays?

[00:22:01] How to get deals in hot markets?

[00:25:51] System and process that Chris and his team use

[00:33:34] You can go to this link for Chris’ free webinar: http://bit.ly/2INRJvT

[00:45:14] What do you do if you need rehab money?

[00:50:15] Chris does something really cool with his associates along with the Wheels Up Program

The post EP 20: Chris Prefontaine – Real Estate on Term appeared first on Real Estate Lab .

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https://realestatelab.live/ep-20-chris-prefontaine-real-estate-on-term/feed/ 0 Contact: Chris Prefontaine Email: support@smartrealestatecoach.com Website: https://www.smartrealestatecoach.com/ Podcast: http://www.smartrealestatecoachpodcast.com/ Facebook: https://www.facebook.com/smartrealestatecoach/ YouTube: https://www.



Contact:



Chris Prefontaine



Email: support@smartrealestatecoach.com



Website: https://www.smartrealestatecoach.com/



Podcast: http://www.smartrealestatecoachpodcast.com/



Facebook: https://www.facebook.com/smartrealestatecoach/



YouTube: https://www.youtube.com/smartrealestatecoach



Free Resources:



Free Bookhttps://links.realestatelab.live/Chris



Free Webinar: http://bit.ly/2INRJvT



Show Notes:



[00:01:10] If you want to learn more about the coaching program, schedule a call with me at www.CallwithVee.com



[00:01:23] Grant Baldwin (http://grantbaldwin.com/) recently released a book called The Successful Speaker: Five Steps for Booking Gigs, Getting Paid, and Building Your Platform (Check it out https://amzn.to/3aXCcpy)



[00:03:21] You can get a copy of Chris’ book for free at this link https://links.realestatelab.live/Chris



[00:04:08] If you want to attend a live event, Chris is putting on an event in early April called Biz Scaling. Check http://bizscaling.com/ for details!



Or you can go to his event in Fall called QLS Live – http://bit.ly/2WecMj3



[00:05:18] Chris shares his experience about the dinner he had with Dr. Joe Vitale.



[00:10:38] What does it mean to buy real estate with term?



[00:13:09] Chris talks about an example of a recent deal his team did.



[00:15:40] How Chris structure his deals



[00:18:06] What are the three paydays?



[00:22:01] How to get deals in hot markets?



[00:25:51] System and process that Chris and his team use



[00:33:34] You can go to this link for Chris’ free webinar: http://bit.ly/2INRJvT



[00:45:14] What do you do if you need rehab money?



[00:50:15] Chris does something really cool with his associates along with the Wheels Up Program
]]>
Vee Khuu 1 53:10
19: Bonnie Kaake – What is Tangible Property Regulation? https://realestatelab.live/19-bonnie-kaake-what-is-tangible-property-regulation/ https://realestatelab.live/19-bonnie-kaake-what-is-tangible-property-regulation/#respond Mon, 09 Mar 2020 15:53:33 +0000 https://realestatelab.live/?p=539 Contact Info: Bonnie Griffin Kaake P: 720-504-5776 E: BonnieGK@costsegregationservices.com W: https://links.realestatelab.live/bonnie Show Notes: [00:00:58] Accelerated Mastermind hosted by Michael Zeller [00:02:01] Shout-out to my friend, Kristen Boss – https://www.kristenboss.com/ [00:04:34] Bonnie shares her favorite cause to donate money to. [00:06:37] What’s tangible property regulation? [00:08:21] Real-life example of what you could do with this tax law. [00:13:12]...

The post 19: Bonnie Kaake – What is Tangible Property Regulation? appeared first on Real Estate Lab .

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Contact Info:

Bonnie Griffin Kaake

P: 720-504-5776

E: BonnieGK@costsegregationservices.com

W: https://links.realestatelab.live/bonnie

Show Notes:

[00:00:58] Accelerated Mastermind hosted by Michael Zeller

[00:02:01] Shout-out to my friend, Kristen Boss – https://www.kristenboss.com/

[00:04:34] Bonnie shares her favorite cause to donate money to.

[00:06:37] What’s tangible property regulation?

[00:08:21] Real-life example of what you could do with this tax law.

[00:13:12] How to capitalize on these benefits?

[00:16:17] How to offset active income?

[00:17:00] 95% of cases claimed to be a real estate professional get overturned when the IRS does audits.

[00:21:10] Real Estate Professional Category

[00:22:57] Material Participation

[00:32:59] Being a real estate professional doesn’t automatically turn your passive loss into an active loss.

The post 19: Bonnie Kaake – What is Tangible Property Regulation? appeared first on Real Estate Lab .

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https://realestatelab.live/19-bonnie-kaake-what-is-tangible-property-regulation/feed/ 0 Contact Info: Bonnie Griffin Kaake P: 720-504-5776 E: BonnieGK@costsegregationservices.com W: https://links.realestatelab.live/bonnie Show Notes: [00:00:58] Accelerated Mastermind hosted by Michael Zeller [00:02:01] Shout-out to my friend,



Contact Info:



Bonnie Griffin Kaake



P: 720-504-5776



E: BonnieGK@costsegregationservices.com



W: https://links.realestatelab.live/bonnie



Show Notes:



[00:00:58] Accelerated Mastermind hosted by Michael Zeller



[00:02:01] Shout-out to my friend, Kristen Boss – https://www.kristenboss.com/



[00:04:34] Bonnie shares her favorite cause to donate money to.



[00:06:37] What’s tangible property regulation?



[00:08:21] Real-life example of what you could do with this tax law.



[00:13:12] How to capitalize on these benefits?



[00:16:17] How to offset active income?



[00:17:00] 95% of cases claimed to be a real estate professional get overturned when the IRS does audits.



[00:21:10] Real Estate Professional Category



[00:22:57] Material Participation



[00:32:59] Being a real estate professional doesn’t automatically turn your passive loss into an active loss.
]]>
Vee Khuu 1 36:16
18: Robert Orfino & Jason Bible – Real Estate Mastery https://realestatelab.live/18-robert-orfino-jason-bible-real-estate-mastery/ https://realestatelab.live/18-robert-orfino-jason-bible-real-estate-mastery/#respond Tue, 03 Mar 2020 02:33:44 +0000 https://realestatelab.live/?p=532 Contact: Facebook Group: https://bit.ly/2HizjmC YouTube: texasrealestateradionet.com Facebook: https://www.facebook.com/TXRealEstateRadio/ Instagram: @texasrealestateradionetwork Twitter: @TexasRealEstat2 Show Notes [00:01:12] Dr Greg Reid’s Three Feet from Gold: Turn Your Obstacles into Opportunities! – https://amzn.to/3cnSB8a [00:05:16] Robert shares his background [00:08:46] Jason Bible shares when he changed the business operation [00:09:59] Robert Orfino shares the story of how they met [00:13:03] Jason sold his...

The post 18: Robert Orfino & Jason Bible – Real Estate Mastery appeared first on Real Estate Lab .

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Contact:

Facebook Group: https://bit.ly/2HizjmC

YouTube: texasrealestateradionet.com

Facebook: https://www.facebook.com/TXRealEstateRadio/

Instagram: @texasrealestateradionetwork

Twitter: @TexasRealEstat2

Show Notes

[00:01:12] Dr Greg Reid’s Three Feet from Gold: Turn Your Obstacles into Opportunities! – https://amzn.to/3cnSB8a

[00:05:16] Robert shares his background

[00:08:46] Jason Bible shares when he changed the business operation

[00:09:59] Robert Orfino shares the story of how they met

[00:13:03] Jason sold his business and immediately jumped into buying long term rentals.

[00:13:56] Jason’s business model

[00:14:45] You need good construction crew, capital to take down a building and good property managers.

[00:18:08] How Robert and Jason find the funding and deals

[00:23:50] Flooded properties

[00:28:57] How to get into their 506C fund.

[00:32:42] What you need to get started.

[00:43:37] Robert shares info about his mastermind. You can text 281-401-9008 for more info.

[00:57:12] Books that Robert shares:

– Rocket Fuel: https://amzn.to/2PHqvuG

– The Tao of Pooh: https://amzn.to/2TeSELN

The post 18: Robert Orfino & Jason Bible – Real Estate Mastery appeared first on Real Estate Lab .

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https://realestatelab.live/18-robert-orfino-jason-bible-real-estate-mastery/feed/ 0 Contact: Facebook Group: https://bit.ly/2HizjmC YouTube: texasrealestateradionet.com Facebook: https://www.facebook.com/TXRealEstateRadio/ Instagram: @texasrealestateradionetwork Twitter: @TexasRealEstat2 Show Notes [00:01:12] Dr Greg Reid’s Three Feet...



Contact:



Facebook Group: https://bit.ly/2HizjmC



YouTube: texasrealestateradionet.com



Facebook: https://www.facebook.com/TXRealEstateRadio/



Instagram: @texasrealestateradionetwork



Twitter: @TexasRealEstat2



Show Notes



[00:01:12] Dr Greg Reid’s Three Feet from Gold: Turn Your Obstacles into Opportunities! – https://amzn.to/3cnSB8a



[00:05:16] Robert shares his background



[00:08:46] Jason Bible shares when he changed the business operation



[00:09:59] Robert Orfino shares the story of how they met



[00:13:03] Jason sold his business and immediately jumped into buying long term rentals.



[00:13:56] Jason’s business model



[00:14:45] You need good construction crew, capital to take down a building and good property managers.



[00:18:08] How Robert and Jason find the funding and deals



[00:23:50] Flooded properties



[00:28:57] How to get into their 506C fund.



[00:32:42] What you need to get started.



[00:43:37] Robert shares info about his mastermind. You can text 281-401-9008 for more info.



[00:57:12] Books that Robert shares:



– Rocket Fuel: https://amzn.to/2PHqvuG



– The Tao of Pooh: https://amzn.to/2TeSELN
]]>
Vee Khuu 1 59:46
17: Chris Miles – Increase Your Cash Flow with Whole Life Insurance https://realestatelab.live/17-chris-miles-increase-your-cash-flow-with-whole-life-insurance/ https://realestatelab.live/17-chris-miles-increase-your-cash-flow-with-whole-life-insurance/#respond Mon, 24 Feb 2020 04:00:00 +0000 https://realestatelab.live/?p=528 Show Notes Contact Info: Chris Miles Email: Chris@MoneyRipples.com or info@moneyripples.com Website: www.MoneyRipples.com Podcast: The Chris Miles Money Show Social Media: www.facebook.com/moneyripples [00:01:23] Vee shares about his friend’s company, Qualified Apparel. Each item purchased at this site, Ryan Huff, the founder, will donate enough money to feed 20 meals via Feeding America. Check them out at www.Qualified-Apparel.com [00:05:21] Chris shares about...

The post 17: Chris Miles – Increase Your Cash Flow with Whole Life Insurance appeared first on Real Estate Lab .

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Show Notes

Contact Info:

Chris Miles

Email: Chris@MoneyRipples.com or info@moneyripples.com

Website: www.MoneyRipples.com

Podcast: The Chris Miles Money Show

Social Media: www.facebook.com/moneyripples

[00:01:23] Vee shares about his friend’s company, Qualified Apparel. Each item purchased at this site, Ryan Huff, the founder, will donate enough money to feed 20 meals via Feeding America. Check them out at www.Qualified-Apparel.com

[00:05:21] Chris shares about his main plan before going into real estate.

[00:07:35] Chris met financially free people who were in their 20s and 30s, and that’s what got him interested in real estate.

[00:08:04] Chris retired in 2006 at the age of 28. But shortly after that, the recession hit, and he was upside down.

[00:09:03] Chris shares with us the mistakes he did around the recession period. One of the mistakes was he was counting on appreciation too much.

[00:09:58] Another mistake was that Chris cut off the other income streams he had.

[00:12:23] Chris shares info about the “income trap.”

[00:14:47] How do you get your real estate to pay you twice?

[00:23:01] Chris starts to talk about infinite banking and whole life insurance.

[00:27:06] Example of this infinite banking concept

[00:30:10] What if you never pay back your loan?

[00:41:52] Who is this strategy NOT for?

[00:51:44] Books that Chris had given out the most:

– Think and Grow Rich: The Original, an Official Publication of The Napoleon Hill Foundation: https://amzn.to/2wFutgU

– Rich Dad Poor Dad: https://amzn.to/38RaXMJ

– Killing Sacred Cows: Overcoming the Financial Myths That Are Destroying Your Prosperity: https://amzn.to/38Rq6xB

Chris Miles

Transcription

Chris Miles 0:01
private loan, again, no monthly payment. Now say that I do borrow that $20,000 for that hundred thousand dollar property. Say that that pays me 200 bucks a month right? Now instead of just taking that 200 bucks a month put in savings because if I liquidated my savings to 20 grand out, I’m gonna be putting the 200 bucks a month back in and building that up slowly so I can do another investment which could take forever.

Vee 0:25
Welcome to the show, you are listening to The Real Estate Lab Podcast. In this lab. we decode the stories, secrets and skills of the most brilliant minds in real estate investing and turn their wisdom into practical advice and knowledge that we can use to boost our income. And now let’s turn it over to our host Vee.

Vee 0:45
It’s a great day to be alive and to invest in real estate. My name is Vee Khuu and you’re now listening to my show The Real Estate Lab Podcast. How are you doing my friends? I hope you’re having a marvelous time. Thank you so much for tuning in to my show. How do you like the content so far? Do you have any feedback for me? Let’s schedule a call to chat. Yeah, you can do that at www.callwithvee.com. Hey, I’m so excited to share today’s episode with you. But before I do that, though, I wanted to share something special with you.

Vee 1:23
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Vee 2:23
Let’s get back to our show. Our guest today is a leading authority in teaching entrepreneurs and professionals how to get their money working for them. Today is an author, a podcast host and he appeared on CNN Money, EO Fire and US News. Our guest today is Chris Miles. Chris is the host of the Chris Miles money show. His company Money Ripples helped his clients increase their cash flow by over $100 million in the last nine years. You can contact Chris by sending an email to info@moneyripples.com, and make sure to check out his show the Chris Miles money show. Now let’s dive in to my conversation with Mr. Chris Miles.

Vee 3:17
Hey, welcome to another edition of The Real Estate Lab Podcast. I have Chris Miles here with us. Thank you for joining us today, Chris.

Chris Miles 3:26
Hey, it’s a pleasure to be on Veee.

Vee 3:28
Awesome. So something I usually do for the audience, just to build a little bit of a context is to talk about your background a little bit and I don’t just want to talk about your professional background. I want to take it way back to let’s say, you and I, let’s say we’re buddy in high school. We’re having lunch right now. What kind of conversation will we be having right now?

Chris Miles 3:52
Well, I grew up near Portland, Oregon, and we believe you all were all Californians. So if anything, it would be a lot of dude. Dude, you know, it’d be a lot of that right? Um, but I mean, back then I was doing like sports. I love to do things I actually went from like baseball, football eventually a cross country and track and that kind of stuff. But I was always kind of a renaissance man. Like, I mean, even in college, like I had a major in my main major was sociology, right?

Vee 4:24
Right.

Chris Miles 4:24
My minors would have been in psychology, Japanese and ballroom dancing. He had a triple minor or could qualify for triple minor in those things. I just stayed majored in sociology. So I was kind of just the guy that did everything kind of really well and always saw the big picture really well, you know.

Vee 4:44
So, this is a lab environment. I want to know what exactly got you to think, hey, maybe I need to give up on this triple major in sociology path and just go into real estate and pursue this career that you’re on right now.

Chris Miles 5:00
Yeah, it was interesting because I always had, I don’t know why I always thought differently I just did. My dad was the kind of guy that you always worked hard, you work forever, you know, you get a good job, you get a good education, even though he never got an education. He just told me to go get a good education, and then get a good job and stay at that forever, right.

Vee 5:20
Yeah.

Chris Miles 5:21
And, and you know, and I remember, like I was my main plan was going to business consulting, so I was planning to work with corporations and whatnot. And I figured, wait, if I’m going to start consulting business owners on their businesses, shouldn’t I have real life business experience, not just books, you know, not just study but real life experience.

Chris Miles 5:29
And so with I actually dropped out, you know, I was planning to go get my masters but I was like, I’m going to drop out and and get a business and I didn’t know what that business is going to be. And the first business opportunity that came up that kind of got me intrigued was becoming a financial advisor. And I didn’t realize at the time I thought it was really hard. I thought about was like boiler room. I thought it was like you had you had to like, you know, it’s cutthroat you had a fight your way in I didn’t realize that hired anybody off the street.

Chris Miles 5:40
And so I became a financial advisor. And and did that for four years. I actually never went back to school I just something about being an entrepreneur controlling my time controlling my destiny and the amount of money I can make. I went the entrepreneur route, right. And did that for four years realized that after those four years when I really ran the numbers, right, when I really looked at evidence, that’s when I realized that it wasn’t working. I was like, wait, there’s no way people can retire based on real life numbers, not on what they say you might earn, but offer real life numbers. It’s impossible to retire off that. So I quit. I vowed never to go back to financial advising again. I would just be a mortgage broker. I would uh, you know, teach ballroom dancing on the side in that kind of thing, right?

Vee 6:54
Yeah, that’s right. You’re You’re really good at ballroom dancing, right?

Chris Miles 6:58
Yeah. I used to be on the nation’s top amateur ballroom dancers back in the early 2000s.

Vee 7:04
So top amateur ballroom dancer doesn’t mean you is not as good in the professional realm, but you’re qualified for professional.

Chris Miles 7:14
Well, pretty much the only difference between professional and amateur is that professionals will charge to teach. So when I did I kind of did under the table.

Vee 7:23
Okay?

Chris Miles 7:25
The professional space, they were more at the amateur level, but I’m an amateur level goes all the way up to adults as well. So basically, it just depends on whether or not you charge to teach dancing.

Vee 7:34
Right. Right.

Chris Miles 7:35
And so yeah, so that’s, that’s kind of what I was doing. And at that time, that’s when I started me guys are in real estate investing and things like that back in 2006. And, and I said, All right, like I can tell you the evidence here again, I like to look at evidence. I’m like, I can see that these guys are in their 20s and 30s. And they’re financially free. While every financial advisor I know is not, right? Even it doesn’t matter if they had the investment the very investment they have been recommending they weren’t financially free. But these guys in real estate were.

Chris Miles 8:04
And so that’s more the path I took. And I went through the recession, you know, like I actually was able to retire when I was 28 back in about summer of 2006 I was able to retire. But I came out of retirement 2007 start teach people how to get out of the rat race. And at that moment, I was teaching real estate investors. And you can imagine when it happened when all sudden the recession hit just a little while longer, and I cut off my own income streams, which was dumb, right?

Vee 8:28
Yeah.

Chris Miles 8:29
And I did that. And of course, now I’m stuck. You know, I went from millionaire to upside down millionaire. I was over a million dollars in debt because of my real estate decisions and everything else. I was going more speculative. I wasn’t doing I wasn’t investing for cash flow like I do today. Right. And so I found myself in a hole and and I avoided bankruptcy. But I had to dig and I claw my way back out over several years to pay that debt back. And three years ago, it will retire again.

Vee 8:58
Could you go into a A little bit deeper about the mistakes that you made the first time around?

Chris Miles 9:03
Yeah. The first the first thing is was, I was just trying to bank on the appreciation. Right? That was the biggest mistake right there. You know, I thought, hey, doesn’t matter what the debt is because if it keeps appreciating, keeps going up, great. And the problem is a lot of us with some of the properties I had, they were negative cash flowing. So they weren’t even paying my mortgage payment. But again, when money’s coming in, and you have your banking on appreciation, you know, you’re making this big lump sum. It’s it’s sexier, right? Like me, it’s much it’s much sexy. When you much sexier when you go to an a, like a real estate investment course. Right? And they say, Hey, I did this, I made 50 grand off of this one deal. Versus, hey, I’m making 300 bucks a month off this deal. And I was guilty of doing the former I was going for the trying to go for the home run, only realizing I was striking out especially when the recession hit. So that was my biggest thing.

Chris Miles 9:58
The other mistake I learned to is like I said, I cut off income streams to I mean, I had other residual income streams through my businesses that I had that I created. And I cut them off because the partners I was working with said, Hey, you should be focused just here. This is our mission, you know, we all kind of came out of retirement to do this. And so he said, okay, cut off those income streams focus on this only, which was dumb that I did that.

Chris Miles 10:20
Because I’ll tell you, even if you have, if you have a nice secure job right now, right, or a nice business, maybe you’re a doctor, or you have a great business that pays you, I will tell you that that money is not guaranteed. You know, it doesn’t matter if you have a business or not, you know, that one of the best ways you can create safety in your situation is creating passive income is actually investing to have multiple streams of income coming in. So if one of those streams of income goes under, you’re still okay, you still have these other streams of income paying and you don’t freak out. And the problem was, I cut off the streams of income. I had one main stream again, right. And then when that wasn’t paying me very well, now isn’t panic mode, because I just purchased a, you know, a $700,000 house. And, you know, and I was, I was, you know, I had a higher lifestyle than what I had before. And now I’m, I’m in the whole $16,000 a month, right? And that’s, I just definitely don’t recommend that. So.

Chris Miles 11:16
So that’s why second time around, I’m like, I’m going to be smarter about it, I’m going to invest for cash flow. I’m not trying to swing for the fences, I’m just gonna go for those basics every time. And the truth is really, when you hit those base hits, you eventually find out that you win the game, right? And you’re doing that, you know, just building multiple streams of income to create safety and security around my situation to the point where now, I mean, I currently work 20, 30 hours a week. Not because I have to, but because I want to because I’m mission driven about teaching people how to do something different to get out of that rat race, you know, and, and that’s where it’s fun because now I only have two active streams of income and I do my podcast and I just enjoy my time and rest time I spend with family taking care of my eight, my eight kids, you know,

Vee 12:02
Do you have have eight kids?

Chris Miles 12:04
blended? Yeah. So my wife brought two from her previous marriage and I had six from mine. And so we we created the Brady Bunch, basically.

Vee 12:12
Oh, well, I mean, the good thing with your business now is that you are in control of your time and you can choose to spend time with your family if you if you want and not working, right.

Chris Miles 12:23
Yeah, it’s it’s such a different level of freedom, right? Because, like, I just recorded a podcast here recently about the income trap, you know, and I find this happening with a lot of my clients, especially those that are even those that are doctors or their business owners and they make great money, but deep deep down, that the fears come up of will am I going to do this forever? I’m gonna have to work forever. Is this ever gonna end right?

Chris Miles 12:46
They don’t work. You know, they work and they have a great lifestyle and from the outside, everybody sees them and says, Wow, man, your life must be great. You make such good money. Maybe you’re an IT manager, right? I get a lot of IT managers that follow me or engineers and people Like that, or, or whatnot and, and, and they’re like, yeah, life’s good. But deep down, they know that they’re not free. They know they have to keep working and they wonder how long it’s going to keep going. And you get caught in this income trap where you make, you know, maybe multiple six figures a year, right? But you’re still trapped, you’re not really free. But when you have the streams of income coming in, especially when the residual or their passive streams of income, like when you get from real estate, it’s a totally different life. It’s it’s research to live by choice you work because you want to not because you have to, right you actually get to work and that that money actually becomes a gravy it’s bonus and it only actually what all it does is allow you to create more cash flow because negative all your income, invest it, create more cash flow and you create this income snowball that just gets bigger and bigger as time goes on. And, and again, you get you have that freedom, you have options.

Vee 13:52
So one of the, I guess, one of the vehicle that allow you to get to where you are today, you know, get out of debt again and enjoy your lifestyle right now is a concept that you are trying to get out to your client and, and teach people. So just exactly. Chris, how do you get your real estate to pay you twice?

Chris Miles 14:17
Yeah. So this is an interesting concept because it’s not new. It’s been around for a few decades. But the problem is that the perspective that you get some of these financial people teaching it from, and they’re usually insurance agents, right? They’re teaching from a place of a saver mentality. And I will tell you that especially because I’ve worked with a ton of like, you know, whether they’re doctors or you know, especially if they’re Asian clients, like my, my Asian clients will save at least sometimes at least 50% of their income, right half of their income, and they save great but they don’t have real cash flow. And, and the problem with that is, is when you come from that saver mentality, you lose, you don’t actually create any freedom and that’s what every financial person out there is teaching. They’re teaching you to save and save and save and save right for someday, some of them will even tell you the gamble at the stock market, you know, with mutual funds and things like that. Problem is the stock market the last 30 years is only produced a seven and a half percent actual return. And that’s all

Vee 15:15
No it can’t be right. In the last few years so many people makes money from the stock market, right, Chris?

Chris Miles 15:21
Oh, yeah, of course they have because it’s been up, right. It’s just been up. That’s why I never trust financial advisors have been around for like 10 years or 11 years or less, because they’ve never seen a down market. You know, my experience. I’ve seen two of them. I saw y2k. And I saw the Great Recession, right. And the truth is, when you look at the 30 years, when you look at the actual return, like if you were to put a number in a calculator and get the stock, we’re going to come out with the right number. It’s actually right around depending on the day, and when you hear this, it’s right around 7.45 to 7.55% return is the 30 year average, right? Not 10 or 12. Like I used to teach it’s like less, it’s much less.

Chris Miles 16:02
And, and when you start to put that number in a calculator in, by the way, you don’t get seven a half percent even if you have, you know, like the actual ETFs. Like you buy the S&P 500 fund because you think it’s cheap, right? Those index funds do not pay you the full amount, they still take out their administrative costs and everything on top of that. So you’re lucky to net six and a half to 7%. Now if say you did put six and a half percent a calculator and you ran that out with your IRAs or whatever you’ve got right? And you start putting in the amount of money you’re putting in six and a half percent and then you take out taxes is not very impressive.

Chris Miles 16:36
You’ll start to realize that if you want to good hundred thousand dollar your lifestyle and you want to retire in 20 years, you got to start saving now at least, at least 10 grand a month. At least, sometimes a little bit more than that. Most people won’t even say it came to say they came to save that money in their 401k is not even allowed to save that much into a 401k or IRAs. But that’s what you have to do to even have 100 Thousand Year lifestyle when you factor in inflation, taxes and everything else.

Chris Miles 17:05
So, from that standpoint, that’s part of the problem when when we talk about this strategy of double dipping your investment returns, almost every financial person out there is telling you from the saver, you know, false return type of mentality saying, hey, put away for the long haul, save forever, you know, save everything you can right and, and eventually, someday you might be able to retire. And the truth is, it’s not about accumulation.

Chris Miles 17:29
It’s about acceleration. It’s how quickly can you get that money producing results for you and ultimately, creating income. That’s what’s really important, right? It’s gotta create income. That’s the one thing that they all miss. They all are looking for the future someday accumulation of money to then live off the income. But in truth if you if you want acceleration, you start thinking more like the bank, you start thinking hey, how can I leverage my money and my assets in a way that pays me more? And, and, you know, just like with my clients that do real estate, with usually expect at least a 10 to 12%. Minimum, year over year returns, right? At least average on that. So this concept you’re talking about with double, you know, where you’re able to get your money to pay you twice is a concept called infinite banking. And and some of you guys might have even heard of it before, right? I know, I know., Vee. You’ve heard of it from about 10 years ago. Right?

Vee 18:21
Yeah. You know, back in 08 09, just right. At the beginning of the recession, you know, there was a group that came to Denver in local REA here, and they talked about it, but I haven’t heard anyone else talk about it since.

Chris Miles 18:37
Yeah, it’s it’s a concept that is gaining some steam like I’ve started hearing more about the last few years more people have said, hey, I’ve heard about from this person or that right. But there’s a lot of people saying, Chris, dang, I never, I never heard of this concept before. And this almost sounds too good to be true. Which is not it’s actually just easy numbers.

Chris Miles 18:56
So, so the problem is, again, mostly or insurance agents, right? And they’re just trying to make a livelihood. And they have this debate. So for example, in my situation I remember, because I used to sell insurance, they sell people on indexed universal life and term insurance and things like that. And by the way, these these, those tools are not good for the strategy. We’re talking about the strategy we use, the tool uses whole life insurance. I used to, I used to hate whole life insurance. I didn’t have a good reason. I was just told by other financial advisors, the whole life was bad, right? But when I got out in the real world, and I start talking to real investors, I found out that these investors were leveraging whole life like crazy, and they were putting sometimes hundreds of thousands of dollars a year, if not more than that. And I’m like, Why? Why would you do that?

Vee 19:43
And I and Chris, but before you dive too deep, can you take a step back and explain whole life insurance versus term life insurance?

Chris Miles 19:50
Yeah, yeah. Term Life is just simple insurance, right? It’s just like your car insurance. You only get paid if you die, and you don’t get paid. Somebody else does right? Death insurance. That’s what term insurance is term insurance also is only for a set period a number of years. So you could have a 10 year term policy where they only cover you for 10 years, it might be 20 or 30 years, but only cover for a period of time. And then after that, if you want to keep it, the numbers become astronomically expensive, right?

Chris Miles 20:20
So what happens is most people cancel it. So the whole by term invest the difference, ironically, came from insurance companies telling you, hey, we make more money off term than anything more profit because term insurance policies rarely ever pay out. Because people will usually there were always taught I even taught as a financial advisor, that once you get your assets to a certain point, cancel your life insurance. When I started to look deeper into that, I found it was the insurance companies telling you to do that because they don’t want to pay out. They want you to cancel your term insurance when you’re most likely to die. So they want the easy cash flow, the money coming in, right? Again, they want cash flow, but they were just they just want all the profits from the term assurance of whatever company you ask almost any company I’ve talked to, they only pay out the term insurance policies only power from anywhere from one half of 1% to 1% of the time, so that every one out of 100 or 200 policies ever pay out. So that’s term insurance, right? It’s the insurance that most people have bought.

Chris Miles 21:18
Whole Life is different, whole life actually does cover you your entire life, it’s kind of the difference between, you know, like term would be the equivalent of renting a house, where whole life is like buying the house. Whole Life actually has a higher premium. That’s the thing that people will say as negative because it has a higher premium than term insurance. But the premium never goes up. It stays the same your whole life, which is why they call it whole life and never go never expires and never goes away. it expires only when you die. The cool thing is, is that on top of it being the same premium, you actually have this this tax free cash savings component that’s growing inside of it too.

Chris Miles 21:55
So you have this cash like growing inside, and you have a death benefit, right? It’s kind of the the alternative to buy term invest the difference. But the differences here is that when you invest wherever money you have inside these policies, they are tax free. And on top of that they’re protected from creditors and lawsuits to, and in most states, it’s 100% protected. I mean, you could have a couple million dollars in there. And if you got sued and leave that person, one, they couldn’t access that money at all. Sadly, you know, other than your 401k, they can get your IRAs, Roth IRAs, 529 plans, they can, if you get sued, and they win, they can access any of those things, savings accounts and get to anything they want. Except for life insurance. So, so that’s kind of what the difference is their whole life, same premium whole life if you do it the traditional way, which I don’t usually recommend, and then term insurance dies at a certain point it ends before you do usually.

Vee 22:53
So then, just exactly how does whole life insurance play into this infinite, infinite banking concept.

Chris Miles 23:01
Yeah, so the key concept here is that that cash savings, right? They call it cash value. That’s that tax free savings account that’s inside of it. It’s kind of like a Roth IRA, in a sense, where it grows tax free, and it can come out tax free. But the cool thing is, is that you don’t have to wait till you’re 59 and a half to touch the money. You can access the money right away with no penalties or anything, right. And so that’s the key thing. So the infinite banking says, Hey, when we create our own little personal banking system, we’re using real estate as the example right? Say you want to buy a property, say it’s $100,000 rental property you want to buy, you know, you can get bank financing for 80% of it, you know, so you know, you can get an 80,000 loan. Well, you got to come out of pocket $20,000 to pay the down payment on that property. Well, you have a choice, you can either just access it from savings, right and just pay it out of there. Now, when you pull money out of savings, you’ve lost the ability to earn interest on that money but if instead you use life insurance, you have the cash that’s in there. And the way I design it, you have cash in there from day one.

Chris Miles 24:08
So we’re traditional whole life usually go two years before you, or even three years before you have any cash in there, because it’s all going to insurance costs, I found ways to design them to where you can get minimal cost, dumping maximum cash, you can get in there over however many years you want to put the money in.

Chris Miles 24:25
And you can get the best ROI out of it the best rate of return. So what I would do instead is instead of doing that I just borrow, you know, actually can do a line of credit with the insurance company 20,000 bucks. I use that as my down payment. And the cool thing is this is that when I do a line of credit gets my savings on my life insurance. It doesn’t show up on my credit report. It’s not there. Secondly, there’s no minimum monthly payment. So if I were to borrow from my home equity line of credit, I’m going to have a monthly payment right I got to make the payment every month even if I bought that property and it’s not cash flowing yet I stopped to pay that monthly payment on keylock, but on life insurance, there is no minimum monthly payment. And they’ll charge me an interest. Of course, they’ll charge me like 5% per year, right. But so it’s a very low rate, but they’re not going to require me to make any monthly payments, I can pay it. However, whenever I want the deadline to pay it off, if you were to call it a balloon payment, right, the deadline to pay it off is death. And they just take it out of your death benefit, which is kind of cool. But I can pay that back however I want. If If I ever want to pay it off, right, I can just let it compound interest against me. But the way to make it worse, where you can make money twice, is this and I have a video on YouTube that actually explains this much better if you want to get deep into the numbers and how it all works. But here’s the basic concept is that I’m borrowing at 5% private loan, again no monthly payment. Now say that I do borrow that 20,000 for that hundred thousand dollar property. So that that pays me 200 bucks a month right now instead of just taking that 200 bucks a month to put in savings because if I had liquidate my savings took 20 grand out, I’m gonna be putting the 200 bucks a month back in and building that up slowly. So I can do another investment, which could take forever. But the cool thing is, if I borrow from the insurance company, right, I’m getting a line of credit or loan from them, my money is still in there that 20,000 is still in their earning compound, tax free interest.

Chris Miles 26:23
So if I had, you know, if all I had in there was like, $50,000, I borrow 20, instead of having 30,000 left, I actually have 50,000 earning tax free compound interest, and they’re paying me decent returns there. Well, non borrowing an interest rate. But the cool thing is, as I’m taking that 200 bucks a month, I’m now using that to pay towards a line of credit just like you might do with your home equity line of credit, right or mortgage, putting the money back in. I’m just doing that to my life insurance. I’m creating my own bank, my own, you know, my own system, right? And when I do that, even though they’re charging me 5% interest, I’m making more in dividends than they’re charging me. So what ends up happening and I did an example of this with a with actually some some turnkey rentals here recently.

Chris Miles 27:06
You know, I did example where someone took out $95,000 to put as a down payment on two properties. They were cash flowing 1070 bucks a month. And so I said, All right, well, this thousand bucks a month with almost 100 grand here. Let’s see what this does. Well, what happened over time is if I just took that thousand bucks a month or so and put into my savings, after nine years, and making the whoppin point nothing percent interest in my savings account, right? After nine years, I’d have about 128,000 saved back up from that cash flow.

Chris Miles 27:38
Now, doing that same thing with my life insurance policy, I would actually have 178,000 in cash because of how that money compounds faster because I didn’t have to withdraw any of the money. It’s still in there, pay me compound interest. And I’m taking the cash flow putting it back in. So I actually had $50,000 more that’s that’s really like a 50% actually. rate of return on my cash just by using the life insurance instead of a savings account. In fact, even if you get the same return if you want to have a savings account give you the same returns up with a life insurance policy, it would have to pay you at least anywhere from five to 9% a year to even match that.

Vee 28:18
Okay, now Chris, so I mean, this concept is obviously great. However, if you are someone just new, brand new, and you’re looking to start and you know, going down this path, creating your own bank, going and buying a whole life insurance. Well, how much money you need to put in at the beginning so that you can draw money out day one and borrow against that policy?

Chris Miles 28:45
You know, depends there’s a few factors. I mean, one is your age, and other factors your health, right. It’s kind of cool. I had this as woman she was in Hawaii, she’s she’s born in Korea moved to the US and she was living there and and she was trying to dump it. ton of income and even with her health, she had her thyroid removed. And somehow she still got the top health rating, because there was nothing else around there was just no thyroid, right? So that one, you know, still worked out great in her favor, because the better the healthier in and the younger you are, the less you have to put in to get to get the maximum ROI, as I say the max rate of return, right. But truthfully, I mean, depending on your age and everything else, if you’ve got at least five to 10,000 years that you’ve been saving, whether it’s putting away for doing investments, whether you’ve been dumping 401ks, I’ve had a lot of people have said Why would I put this in a 401k I gotta wait till I’m almost 60 to access this money. I can put this money here actually do real estate investing, create cash flow, I could retire early, right? So I’ve had a lot of people stop consuming the 401k is and using that money to put in these two. So if you’ve got at least five to 10,000 a year of cash that you’d be putting away in savings, you could probably start to create a decent one. But again, it just depends. Everybody’s situation is different. But what I’ve noticed is that you’re younger, at least 5000 year if you’re more my age, if you’re in your 40s or so you probably want to put away at least 10 to 15,000 plus a year into these things.

Vee 30:10
Okay, and so another questions I have is regarding the example earlier we had, so you borrow that $20,000 for down payment from your policy from the insurance company. Right? What if you never pay it back in your default? What then?

Chris Miles 30:27
Well, the good news is, is that’s pretty hard to default, at least if it’s designed the way I do it. You mentioned like, you know, going out and, and trying to set these up. The truth is that most insurance agents don’t either one, don’t know how to do what I do with this and create this max return, right? Like, for example, someone puts in 20,000 in the first year, right, that’s the max they put in, that’s up to the 20,000 Max, and they’ll usually have at least 15,000 available right away from day one.

Chris Miles 30:55
Most insurance agents you put $20,000 in there, there’s gonna be zero cash in there. It all goes to fees and insurance cost. But again, I found ways to do it to where you can put 20,000 in and you have almost all your cash available. Right? That’s that’s the first key. The second thing is like say you do have a balance on your loan right now for the same reason. Now, I just did. I just quoted a guy recently doing the same thing. 20,000 a year, he’s 40 years old. 20,000 a year, and he would about have about 15,600 cash in the first year. Well, the minimum so that’s a cool thing that I set the max at 20,000, I always reverse engineer, I figured out what’s the maximum we want to put in. And then the minimum, in his cases is just like 4100 bucks a year. So even though the max is 20 grand at anytime, you don’t have to do 20 grand a year, you can do anything between that 4100 and 20 grand right? It’s a kind of proportional depending on your age and everything else, you know, so even if he’s doing 40 grand a year, the minimum is about 8200 bucks a year and so on. Right? Well anyways, with that, so he asked the same questions like well, what if I can’t pay the premium? Well, Cool, well, then you have to ask yourself one, Can I at least pay the minimum 4100 bucks? Well, if I can’t do that, I can borrow from the policy and pay it, right. But the cool thing is the way I designed it after the third from the third year on whatever money you’re putting in, it’s growing by more than what you put in. So same thing here, right? The only way to make these things implode is if you in the first year put in some money, took out a max loan, blew it all, and then you couldn’t make premiums for the rest of your life. Right? That would be the only way that these would probably implode. But if you’re, if I mean, but if you take out a normal loan, though, you know, and you’re still putting in, you know, money adding to it. Even though it’s compounding interest, the thing that’s cool is that the cash you’re putting in is also compounding interest at the same time. So yeah, it might be compounding interest, but you’re also earning interest on that same money anyway. So it’s, it’s really hard, very, very hard to get it to implode. Toriel like you said, like, go into a place where they’ll say, Hey, we need, you put it in a little bit more money. So this interest doesn’t overtake the cash value. It’s the way I designed them. It’s almost impossible to do that.

Vee 33:13
Okay, and then going back to the the interest, the 5%, that you mentioned earlier, is that something that the insurance company said, Oh, do you set it yourself? Who, who’s getting the benefit of this interest payment?

Chris Miles 33:26
Yeah, so the insurance companies set the interest rate every year, like one of the companies I use, they’ve been at 5% for at least the last 15 years straight, right. So they haven’t adjusted the rate at all. But yeah, like in that case, the insurance company sets the rate, they decide what the rate is. But how you pay it back and when you pay back is entirely up to you. So it’s, like I said, it’s just like a private line of credit. It’s not something that shows up on your credit report. It’s just a contract between you and the insurance company. If you don’t ever pay anything towards it.

Chris Miles 33:57
Well, then they just compound the interest so say for example, you borrow 20,000 bucks, they charge you 5%. That means you mean you have an extra thousand bucks of interest that’s charged that year, let just means it grows to 21,000 as a loan balance, and the same thing happens, they’ll charge 5% on that, and so on, right? So you can pay it however, whenever you want. Again, if you want, the numbers are really seeing to really get you that that that double dip effect where you can get paid twice where you’re earning compound interest, and you’re earning money from your properties. The way to make that work is where you take cash flow, float right back through, you’ll start paying down that that line of credit anyways and freeing up the cash to use again, and by the way, you can have multiple loans out at the same time. Unlike a 401k. We can only do one at a time and you have to pay it off to do another one. With insurance. You can have dozens of loans out and there’s no real limit. So you can do it. The only limit is you can only use up 95% of your cash value. That’s the max they’ll let you borrow

Vee 34:57
95% what’s the catch? What’s the cash value, is that premium in there. I’m sorry, was that

Chris Miles 35:05
that’s the tax free savings that’s in there. That’s the cash value.

Vee 35:09
So it’s different than the amount of you pay that you pay every month for premium. So this is different.

Chris Miles 35:16
Yes, a different number. Yeah, exactly. So when you pay the premium in, right, you’re, you’re also buying insurance, there’s a death benefit that’s associated to it. Right? Right. And again, I go for the minimum death benefit necessary to dump in the max cash. So like, in that guy’s case, we’re doing 20,000 a year, his death benefit was about $560,000. So just over a half million. Now, with that, of course, there’s insurance costs that come out, but there’s also a cash savings component. So when I do it, instead of just like term insurance, where everything goes to paying for your insurance costs, and you get no benefit other than a death benefit, right. Right here you got a living benefit. You’ve got the money that’s there in cash. So like in that first year, he would have about 15,600 bucks available of the 20,000 you put in, meaning that about 4400 bucks went to insurance costs. And that’s the most expensive year by the way. insurance costs over time go down and whole life with term insurance. They go up over time. so so yeah, 4400 bucks went to insurance costs that first year. Now the next year, if he puts in another 20 grand, the cool thing is now only about 2000 goes to insurance costs. So 18,000 mortgages and so now he’s got out of the 40,000. He’s put towards his insurance. He’s got like 33,000 and change sitting there in cash, he can use it anytime.

Vee 36:35
And then they could borrow 95% of that 33,000

Chris Miles 36:38
Exactly, yeah. So you can borrow over 30,000 of that money and invest it however he wants.

Vee 36:47
Okay, let’s see. So use this as a line of credit and does the insurance company care how you take title at all? Doesn’t matter?

Chris Miles 37:06
Yeah, they don’t. Yeah, they don’t care at all how you use the money. They don’t even ask. I mean, for example, I mean, if someone says, Hey, Chris, I want to borrow 40,000 bucks for my policy. I was like, cool. Let me shoot an email over them. And they’ll ACH into your account within the next week or so. You know, it’s that easy. If it’s over 50,000, then they might say here, sign this form, sign your name to it. So we know it’s you. But that’s about it. It’s very simple. It’s not like you have to go through underwriting like you’re getting a mortgage. Because they know the cash is in there. They just have to say great money’s in there. All right, we’ll send it to your bank account checking account sound good, you know, and they send it over.

Vee 37:43
Right? Because in a way, this is your own money that you’re borrowing against. Exactly.

Chris Miles 37:49
Yeah, it’s the same thing I did even even before the recession. I remember when I was launching a business with some partners I remember I had I had 25,000 just sitting in my savings account doing nothing right. It was earning att that time, one and a half percent, which was awesome back then right? Or will awesome now compared to back then. But uh, but yeah, I was already one and a half percent on my 25,000 just sitting in savings.

Chris Miles 38:12
And I remember I got the idea. I said, Wait a minute, I could do the same thing I could do with life insurance, can I get a secure line of credit from the bank? So I went to my bank, and I said, Hey, can I get a $25,000 line of credit against the savings? And of course, they said, of course, yes. And they and they would charge. I was earning one and a half percent they were charging, you know, 4%, right. And I thought back then again, because interest rates were higher, I thought, 4% that’s dirt cheap, that’s awesome. And I would have to pay like 220 bucks a month towards that loan, you know? So I thought I got a great deal.

Chris Miles 38:48
The thing I didn’t realize is, wait a minute, I could have done that with the whole life and it would have been way better. Because you know, the thing is with it. The reason that the bank was willing to do is because they knew if I didn’t make my payment, they would just take the money out of my savings right there just say, Great, we’re getting our money back, done, you know, where they could close down a line of credit. And even if I maxed it out, they’ll say, All right, we’re closing it down, we’re taking your savings away. Thanks. And we’re in their secured, right. They have secured money, insurance companies no different. They’re saying, hey, the money’s in here, we’re going to let you you know, withdraw or borrow up to 95% of the cash that’s in here. And no questions asked. There’s not like, unlike the bank, or the bank still had to put me through underwriting. There’s nothing like that within life insurance because there’s no minimum monthly payment, there’s no deadline on it. There’s nothing like that. It’s just purely Alright, we’re charging you 5% simple interest, while at the same time we’re paying you compound tax free interest on that money too, right? By the way, if you’re a business owner, the cool thing is if you are being charged interest on your life insurance loan and you use it for business purposes, now you can write off the interest. So now you’re even getting a bigger advantage. Because now the the net interest is even less and you’re making more of a spread on that money.

Vee 39:57
Okay, and the interest is fixed or is it arm?

Chris Miles 40:03
it’s variable. Technically, they’ll they’ll update their interest rates once a year. But they change very, very rarely, they change very slowly, depending on the company. There are some companies that like to move the rates around a lot like Northwestern Mutual, that’s one cup I don’t like to use, because they’ll run their dividend rates all over the place and their loan rate, for example, their loan rate on the on the money, as well as few other companies are like, you know, 8% but I know other companies, I can get anywhere from like four and a half to 5% loan rate on the money that I borrow. So I usually use those kind of companies.

Vee 40:38
So what, right because now what I see could happen potentially is, let’s say you have a loans out for $20,000. And next year, the insurance company decided to adjust the rate to 10%. If they still have That’s right, yeah, if they did

Chris Miles 40:56
That’s pretty rare. you’ll ever see that happen. Like for example, like I I’ve seen you over the over the last 10 years because interest rates have gone down, the dividend rates have gone down a little bit as well. But their their loan rates have gone with them too. So loan rates tend to follow the dividend rates. So if dividend rates go up, the only reason that a loan rate would go up that high is most like if the dividend rates like up over 12% or something, you know, so you would only see that happen if the dividend rates went up higher. That’s so they usually give you a there’s always a spread there, right? So if dividend if the loan rates drop, it’s probably because the dividend rates have dropped. So low rates tend to follow dividend rates.

Vee 41:37
Okay, got it. So can you share what are some of the pitfalls of using this strategy or the cons of using this strategy?

Chris Miles 41:45
Yeah, I mean, at least the way I’ve done it because I minimize the risks so much. There’s not a whole lot of cons but I’ll tell you this.

Chris Miles 41:52
Who it’s who is not for one it like I said if you’re if you don’t have at least $5000 a year, you’re putting away towards savings for investments. Any kind of savings for that matter, then you probably should just do term insurance, right? Just do something simple like that. You know, another reason to, it’s like I get sometimes I get people in their 70s. You know, sometimes it makes sense.

Chris Miles 42:12
But, you know, sometimes we might do a different type of strategy for them, you know, versus doing this. This is best used, if you’re in that that phase where you’re accumulating and growing your assets to increase your cash flow. So if you’re in the asset accumulation phase, where you’re trying to build savings, you’re trying to buy more assets, buy more properties, and things like that. This is the perfect strategy for that because this is a better strategy than just using your plain old savings account, you get better protection, better returns, you don’t get taxed on this money. You know, it’s it’s just awesome. So that’s who it’s really for. For those it’s not for it’s those that either one their cash flows so tight, they have no extra cash flow. And they’re not really saving for investments anyways, or two they might be into their 70s and then it may not be the best strategy for them

Vee 43:02
What are some? What are some of the fees that associate with this setting up this strategy with you?

Chris Miles 43:10
Yeah, there’s no fees it’s just those insurance costs right? Like when I get paid I get up for this particular thing that I do like I get paid off from the insurance company when you set up the policy and they just pay me a percentage of the of the insurance costs that you’re paying. So the really the reason why you don’t even the insurance agent that do know how to do this, which is a very small minority the reason why they don’t usually do it is because they don’t want to cut their commission’s back, because the way I do it, I mean, you’re cutting your Commission’s by at least 75%, you know, by at least you’re only earning about a quarter what you would make normally if you just did the mainstream thing, you know, so yeah, so there’s no actual fees out of pocket. It’s just purely, you know, my own my own. You know, gains that I get is just based on those insurance costs that we’re already minimizing to be the minimal possible for the tax free investing aspect.

Vee 44:02
And then another question that I just thought of, is because you’re borrowing money from this insurance company, who I imagine would be working nationwide in or international level? Is it truly free for you to take this line of credit out to do anything even investing in let’s say, pot producing businesses? or? Yeah, some crypto or anything that you want to do?

Chris Miles 44:32
Yeah, I mean, I, I don’t, depending on what it is and always recommend it, I usually recommend using the strategy for investments that will pay you at least monthly, quarterly or it’s a short term investment. So when I get people that are doing like, fix and flips, you know, and they maybe need cash for six months, but they don’t have to pay any monthly interest on it. It’s like great, this is the perfect strategy for that because you don’t have to pay any monthly payments, right? I mean, there’s interesting cars but you don’t pay any monthly payments. So it’s kind of cool cash flowing investments. You know, whether it’s they’re paying you quarterly dividends or returns that way or like in a syndication or if it’s a cash flowing real estate where you’re getting paid every month, it’s perfect, right? four things are speculative. I mean, you have to be careful because, you know, for example, I mean, I’ve I’ve purchased Bitcoin before and even made money on it, right? But if you have bad timing, you don’t want to be gambling with it to the point you say, oh, shoot, well, I just bought Bitcoin at $20,000 a Bitcoin and now it’s down at 8000 Oh, you know, now I don’t have no, I have less money, right? So

Vee 45:32
Right

Chris Miles 45:32
Personally, my personal preference, and what I teach my own clients to do is, Hey, if you’re gonna use it, I mean, you could use it for whatever you want, right? I mean, you can use it to consolidate debt. I’ve had clients, you know, pay off credit cards using the cash in there, versus just using the cash from savings, you know, using cash from a life insurance policy and then taking them off the payment payment right back in and build up the cash.

Chris Miles 45:51
They make a little extra interest than what they do just using their savings account. Right. And I mean, I haven’t do things like that of having to invest in businesses for and business can be a great one because again, you don’t you don’t have to worry about monthly payments to a bank like you like would there, right?

Chris Miles 46:05
Same thing you can say, hey, this might take me 6-12 months for start cash flowing from this marketing strategy I just put money into or, or paying for buying this piece of equipment for my practice, you know, because I work with dentists and stuff, right? It’s like, Cool, alright, we can do that, get the money rolling in and start using that money to pay pay back however you want, you know. So that’s, that’s a cool thing. There’s a lot of flexibility. You can use it anywhere you want. But yeah, I mean, be careful. And you mentioned internationally too. That’s the sad part is that there is restriction internationally, I’ve got clients in Australia and New Zealand, they cannot actually have get a policy like this. They cannot even do this infinite banking concept, even though they want to those countries don’t allow it. So the only way I can get around is if they have you know, either investment properties here in the US, or a corporation here, which my clients usually do because they want to invest in US right because US real estate, it’s way better than money. The other countries. So they do that cool. Now I can actually get a policy on them because they’ve got some sort of domicile here in the US. So there’s ways or work around it. But I’ll tell you from an international perspective, US rocks when it comes to investing right now.

Vee 47:16
Definitely a lot of international money’s coming in. Yeah. And, you know, from the example that that we talked about earlier, you know, the hundred thousand dollar house, yeah. $20,000. Maximum. That’s that worked out perfectly. But, you know, in the real world, in Utah, in Colorado right now. I mean, the fact is $100,000 doesn’t get you anything at all. So I can see that. I mean, at $20,000 a year maximum, it could take you a few years to build up your cash value to be big enough for that for you to use this strategy. Is that right?

Chris Miles 47:53
Yeah, it can be Yeah, depends on how you’re doing it. Right. I mean, that would be true either way. I mean, if you put your money in a savings, right, it’s gonna be the same. thing. They The one thing that’s kind of cool, and this is what I do personally, right? And you can use it however you want. But this is how I personally use my policy. You know, my wife she wants at minimum, she’s like, Chris, I want $120,000 available for savings at any time. You can’t touch it. Unless we’re in emergency dire straits situation, right? Well, the only problem is $120,000. You think about the opportunity cost on that, you know, even if you get into online savings, or any one or 2% that’s not much, right. And so I told her, I said, You know what, I’m willing to do that. But let’s do this. Let’s instead get two thirds of my emergency savings. Let’s get it into our life insurance policies. Let’s get them built up in there. Keep some of the banks some that we can get overnight, but I know for in a really bad emergency. We can you know, we’ll probably have at least a week’s advance notice and knowing we have to get some money so great. We can do that get the money from insurance company, but now at least in this case, is protected from lawsuits and creditors. It’s tax free as earning a better return than point nothing percent in the bank. Right? And, and that’s kind of how I use it. And then anything above and beyond that anything above that two thirds that those reserves extra cash value I have in my policy, the extra savings there. Right? I can invest it however I want. So that might not be a bad thing. You might say, okay, it might take me a few years to do that, depending on where you are, where you’re doing real estate investing, if you’re doing it locally, if you’re in the western United States, it’s more expensive. And, sadly, the rate of returns aren’t great. You know, I just talked to a guy in Colorado does a ton of properties there. And he’s like, yeah, I gotta sell these. I can get way better deals out of these, you know. So it just depends on what you’re looking at. But yeah, you can build up the savings in there. And it might take a few years, but at least now your money’s doing something more than earning nothing in the bank. And then you get taxed on that nothing. You’re right.

Vee 49:49
Right, right. Definitely. Now, Chris, just to sum up this strategy, I see that whole life insurance better than term life insurance. You need to pay for your premium and that premium part of it is your cash value. And then in the end, when you die, you get the cash value back and you get the death benefit. Is that correct?

Chris Miles 50:12
That’s right, that we’re overpaying the premium. So we’re putting all this extra money in cash, while also getting our insurance costs too.

Vee 50:20
So, for instance, let’s say a person premium is $1,000 a month, $12,000 a year, you can still set up so that you can pay in $20,000. And the extra eight grand goes to your policy as cash value.

Chris Miles 50:35
Oh, yeah. And if it’s if we’re looking at 12,000 of actual insurance costs a year, most likely, it’s because I made the maximum about 50 to 60,000 a year. So

Vee 50:46
Oh, wow. Okay

Chris Miles 50:46
I try to make a much bigger spread. So yeah, just like the example that guy with that’s 40 years old, with 20,000 max a year. He’s putting in 20,000. But his real, and that’s not even his full insurance cost, right. This is the first years insurance costs every year that costs go down. But his first year’s cost was 4100. So really that extra almost 16 grand, it’s just bonus money we’re putting in to go in that tax free savings.

Vee 51:10
And he could do it or not do it at all. That’s fine. His base is always at 4100.

Chris Miles 51:14
Exactly, yep, you have the freedom to choose to do anything. Anything to the minimum, the maximum at any time. It’s a very flexible, great, it’s great for when you expect the best, but you still want to prepare for the worst, which is my mantra.

Vee 51:30
That’s great. That’s great. Now before we wrapped up, Chris, just one last question before I let you go. Yeah. What is the book that you have given most as a gift and why?

Chris Miles 51:41
The book I’ve given most as a gift?

Vee 51:42
Yes.

Chris Miles 51:44
Oh, man, I, I would probably there’s a few books. That’s probably a tie pretty close tie. Either Think and Grow Rich, which is a very old classic right from Napoleon Hill. Actually, I should probably add that list. Rich Dad Poor Dad by Robert Kiyosaki that’s a given.

Chris Miles 52:03
And then another book I’ve given a lot away is a book called Killing Sacred Cows by Garrett Gunderson who was actually one of my former partners, and Killing Sacred Cows is a great book especially if you want to question a lot of what I talked about earlier in this interview, right where we talked about you know, the the mindset of what people talk about with the myths around money if you guys say forever, right? You know, all this kind of messy here about he really dispels those myths and that killing that book Killing Sacred Cows, so great book to kind of open up your mind for sure.

Vee 52:36
Was he the one who introduced you to this concept but did you already know about this?

Chris Miles 52:41
I found it out through another person but but yeah, he’s he used the similar concept. He doesn’t quite get as rich numbers when he when he’s done it for himself. But yeah, he’s he’s, he invented actually I was one that got him onto this concept of over funding your life insurance to get extra cash and funny enough

Vee 52:59
that’s great. Now, Chris, thank you so much for your time sharing your knowledge with us on Infinite banking. This is truly an eye-opening concept. I have been in delve into some of the details that you have shared with us today for a long, long time. And so I’m sure the listener benefit greatly from your knowledge.

Chris Miles 53:21
No, I appreciate that. It’s always fun to teach. That’s, that’s why I keep doing what I do is I want to inspire hope. I know that, you know, no matter who you are, I mean, no matter what place you’re at, there’s there’s hope of creating that financial freedom, especially if you keep listening to what what you’re talking about Vee. I mean, that’s the thing is that, you know, it’s it’s not doing the same old traditional stuff you’ve been doing the whole time. It’s doing something different. And I love I love what your show is all about. That’s what that’s what makes us so fun to be on the show.

Vee 53:47
Right? It’s the lab, you just have to try out new ideas, right?

Chris Miles 53:50
That’s right. Yeah. We want to get different results than you. You’ve always had. You got to do something different than what you’ve always done, right?

Chris Miles 53:57
Correct. Thank you so much, Chris.

Chris Miles 53:59
You bet.

54:01
That’s the end of the show, don’t forget to subscribe, leave a five-star rating and review on iTunes for The Real Estate Lab Podcast. Until next time, have a prolific week.

The post 17: Chris Miles – Increase Your Cash Flow with Whole Life Insurance appeared first on Real Estate Lab .

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https://realestatelab.live/17-chris-miles-increase-your-cash-flow-with-whole-life-insurance/feed/ 0 Show Notes Contact Info: Chris Miles Email: Chris@MoneyRipples.com or info@moneyripples.com Website: www.MoneyRipples.com Podcast: The Chris Miles Money Show Social Media: www.facebook.com/moneyripples [00:01:23] Vee shares about his friend’s company, Show Notes



Contact Info:



Chris Miles



Email: Chris@MoneyRipples.com or info@moneyripples.com



Website: www.MoneyRipples.com



Podcast: The Chris Miles Money Show



Social Media: www.facebook.com/moneyripples



[00:01:23] Vee shares about his friend’s company, Qualified Apparel. Each item purchased at this site, Ryan Huff, the founder, will donate enough money to feed 20 meals via Feeding America. Check them out at www.Qualified-Apparel.com



[00:05:21] Chris shares about his main plan before going into real estate.



[00:07:35] Chris met financially free people who were in their 20s and 30s, and that’s what got him interested in real estate.



[00:08:04] Chris retired in 2006 at the age of 28. But shortly after that, the recession hit, and he was upside down.



[00:09:03] Chris shares with us the mistakes he did around the recession period. One of the mistakes was he was counting on appreciation too much.



[00:09:58] Another mistake was that Chris cut off the other income streams he had.



[00:12:23] Chris shares info about the “income trap.”



[00:14:47] How do you get your real estate to pay you twice?



[00:23:01] Chris starts to talk about infinite banking and whole life insurance.



[00:27:06] Example of this infinite banking concept



[00:30:10] What if you never pay back your loan?



[00:41:52] Who is this strategy NOT for?



[00:51:44] Books that Chris had given out the most:



– Think and Grow Rich: The Original, an Official Publication of The Napoleon Hill Foundation: https://amzn.to/2wFutgU



– Rich Dad Poor Dad: https://amzn.to/38RaXMJ



– Killing Sacred Cows: Overcoming the Financial Myths That Are Destroying Your Prosperity: https://amzn.to/38Rq6xB







Transcription



Chris Miles 0:01
private loan, again, no monthly payment. Now say that I do borrow that $20,000 for that hundred thousand dollar property. Say that that pays me 200 bucks a month right? Now instead of just taking that 200 bucks a month put in savings because if I liquidated my savings to 20 grand out, I’m gonna be putting the 200 bucks a month back in and building that up slowly so I can do another investment which could take forever.



Vee 0:25
Welcome to the show,]]>
Vee Khuu 1 54:07
16: Travis Watts – Financial Independence Through Passive Investing https://realestatelab.live/16-travis-watts-financial-independence-through-passive-investing/ https://realestatelab.live/16-travis-watts-financial-independence-through-passive-investing/#respond Tue, 11 Feb 2020 13:18:00 +0000 https://realestatelab.live/?p=519 Travis Contact: travis@ashcroftcapital.com https://www.facebook.com/travisjwatts www.linkedin.com/in/traviswatts1234 https://www.biggerpockets.com/users/TravisWatts Instagram @passiveincometravelers Show Notes [00:00:38] Schedule a call with me at www.CallwithVee.com [00:01:04] Check out my interview with Erik Smith from Fitness and Finance Podcast at www.FitnessNFinance.com [00:02:12] Tickets for BEC20 available here: http://bit.ly/31D16Ho – Use code “GOALS20” to save 20% at checkout [00:03:59] Travis started his investing journey...

The post 16: Travis Watts – Financial Independence Through Passive Investing appeared first on Real Estate Lab .

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Travis Contact:

travis@ashcroftcapital.com
https://www.facebook.com/travisjwatts
www.linkedin.com/in/traviswatts1234
https://www.biggerpockets.com/users/TravisWatts
Instagram @passiveincometravelers

Show Notes

[00:00:38] Schedule a call with me at www.CallwithVee.com

[00:01:04] Check out my interview with Erik Smith from Fitness and Finance Podcast at www.FitnessNFinance.com

[00:02:12] Tickets for BEC20 available here: http://bit.ly/31D16Ho – Use code “GOALS20” to save 20% at checkout

[00:03:59] Travis started his investing journey with the book Rich Dad Poor Dad – https://amzn.to/31M360c

[00:07:04] Travis shared info on his first passive transaction. He put too much emphasis on a Pro-forma.
Pro forma is financial statement produce based on certain assumptions and projections.

[00:07:31] You are not investing so much in the deal but the team.

[00:08:28] Travis talks about his investing process. He starts with vetting the sponsor/ operator. Then looks at the market and the deal itself.

[00:09:36] Travis dives into how to vet a sponsor.

[00:12:19] What questions should you ask the operator? You can also download a guide of all the questions to ask at www.ashcroftcapital.com/passiveinvestor.

[00:14:33] Travis shares the red flags to look for when vetting someone

[00:18:28] How Travis work on his deal flow

[00:21:48] How to find what conference to attend to find good operators.

[00:28:14] Travis shares a day in his life

[00:34:46] Travis shares his last thoughts on what investors should pay attention to before going in a deal

Transcription

Travis Watts 0:03
I mean, you really can’t be good at everything. You might kill it on one of those projects and you might fail another one. And I’ve seen that unfold firsthand with numerous groups. So I look for groups that have that consistency.

Vee 0:17
Welcome to the show. You are listening to The Real Estate Lab Podcast. In this lab. we decode the stories, secrets and skills of the most brilliant minds in real estate investing and turn their wisdom into practical advice and knowledge that we can use to boost our income. And now let’s turn it over to our host Vee.

Vee 0:38
It’s an amazing day to be alive and to invest in real estate. My name is Vee Khuu and you’re now listening to my show The Real Estate Lab Podcast. Hey I cannot wait to share with you about today’s guests. But first, if you haven’t done this already, let’s schedule a quick chat with me. Just a quick 10 minute phone call. You can head on over to the www.call withvee.com to set that up.

Vee 1:04
Also, I was recently interviewed by my good friends, Erik Smith of Fitness and Finance podcast. Eric is an awesome financial advisor. Be sure to check out his podcast at www.fitnessnfinance.com.

Vee 1:19
Let’s get back to today’s guests. Our guests started investing in 2009 and is currently the Director of Investor Relations of Ashcroft capital. He’s a full time passive investor having invested in over 27 syndications between 14 firms. Ladies and gentlemen, our guest today is Mr. Travis Watts. Travis now dedicate his time to educating others in the world of investing and has made it his mission to share passive investment strategies in order to help others achieve and maintain wealth in real estate, and he also love traveling the world with his wife. On a side note, Travis and the rest of his peers at Ashcroft Capital will be at the best ever conference in Keystone, Colorado.

Vee 2:12
Check out the show notes for ticketing links and discount code. And now here’s my conversation with Travis Watts.

Vee 2:25
Hey, welcome back to another episode of The Real Estate Lab Podcast. I have Travis Watts from Ashcroft Capital here with me. It’s great to have you on the show here, Travis.

Travis Watts 2:36
Hey Vee. Thanks so much for having me today. I appreciate it.

Vee 2:39
No, with the best ever conference around the corner. I know you’re super super busy. So really appreciate your time here. Let me just, I typically want to ask the guests about something that they have done recently. And so what’s your most favorite food that you ate in Thailand?

Travis Watts 2:58
Yeah, my wife and I love Travel. So we were in Thailand about not a year ago and man, we ate Pad Thai almost every single day across that entire trip. So there’s not a tremendous amount of food options per se over there. And at the time we were vegan, so that made it really difficult. So a lot of pad thai.

Vee 3:19
Okay, you know, I start with that questions because you for work now even you travel a lot this to some cool places and your, your schedule was really, really hectic. So what was it like before you start this whole journey? Was life is this life, the life that you always wanted when you went down this path?

Travis Watts 3:39
Well, it’s kind of a funny story, really. I you know, back in 2007, 8, 9, I knew I wanted to get involved with real estate. I ended up starting in 2009. And all I really knew was I was fascinated by this concept of passive income and cash flow. Right.

Travis Watts 3:59
I’d start with like a lot of folks, probably the Robert Kiyosaki’s books and Rich Dad Poor Dad and all that kind of stuff. And I was just so intrigued by the by the concept, but I ended up going about achieving that in the completely wrong way. In the beginning. That’s the way that I see it.

Travis Watts 4:17
So later in my process around 2015 I shifted over to investing in real estate syndications where I could be a limited partner in a deal, where a bunch of folks are pooling money together to buy bigger assets for those that aren’t aware of syndications. And I could literally and finally be completely passive in my investing approach. That is what allowed me number one to leave that oil field job and have a better quality of life and pursue work more meaningful to me. And number two, for my wife and I to travel a whole lot more, and it freed up a lot of my time, actually, so quite the opposite of what it was.

Travis Watts 4:17
Anyway, I did a lot of active single family stuff. I was doing some flips and vacation rentals. And really what was happening is I was building myself a job on top of the oil field job that I had at that time, which was really just kind of a paycheck play at I worked you know, hundred hour work weeks away from home. Out in the weather. I worked overseas in Saudi Arabia for a while There’s a lot of crazy stuff. But long story short, I had no time to be dedicating to real estate, but I loved real estate and I feel like it’s the best way to build passive income and cash flow.

Vee 5:37
Now, were you always in the oil industry?

Travis Watts 5:40
No, I wasn’t I did a handful of jobs. But you know, just miscellaneous stuff before the oil field. And then after I did a handful of things just that I wanted to pursue for just self education and self development. So instead of just going to work for the paycheck, which, you know, yeah, I paid quite well as the six figure job. But you also had to sacrifice literally your entire life to do it. I was never home and overworked and you know, 14 hour days, all that kind of stuff. And so, you know, it could only go on so long, right? I couldn’t see myself staying in an industry like that for 30 plus years.

Vee 6:17
Definitely. So you invested in your first syndication in 2015. You said?

Travis Watts 6:22
Right. Yeah, I started basically selling off all of my single family portfolio I had and transitioning just one by one as I would have that liquidity event upon sale to syndications. So just selling one house and putting that and maybe two or three different syndications where your properties your single-family home properties, were they in the Denver area and different part? They were all up and down the front range of Colorado for those familiar Fort Collins through Commerce city, Henderson Brighton Denver all over, but yeah, just Denver ish.

Vee 6:57
Okay, so can you tell me some more details about your first syndication that you invested in?

Travis Watts 7:04
Yeah. So you know, one thing that I kind of look back on. And I think, in hindsight, I would have done this a whole lot differently. But the first couple of deals that I did, I put way too much emphasis on a pro forma, which is just kind of the the expectations for the project, the projected returns, all this kind of stuff. And I was taking that information face value, thinking, well, hey, you know, these are some pretty sweet numbers.

Travis Watts 7:31
But what I fail to realize is, you’re not so much investing in the deal. As much as that is important, you’re investing in the team that is actually going to be executing the deal. And so what ended up happening in those first couple is they were they were newer operators, and they ran into a handful of things that popped up they didn’t know how to handle and the easiest path out for them was just to put the property up for sale and exit. So thankfully, we ended up with exiting at a profit, so I can’t complain too much. But you know, you go in with the expectation, it’s going to be a five to seven year play, and you’re going to have this cash flow rolling in year after year. And then, you know, 18 months later, it’s all over. And you’re starting over scratch, which probably was a good thing. But that was my lesson learned.

Vee 8:19
So what was something that you did in that deal? And you now no longer do besides, you know, looking at the performer for its face value?

Travis Watts 8:28
Yeah. So now kind of what my process is, is I start with vetting the sponsor and the operator, I feel like that’s most important at the end of the day. The second thing that I’m looking at, and it’s almost a tie between is between the market that it’s in and the deal itself, both are hugely important. I would almost go as far as to say that the operator sponsor then the market then the deal last, and that’s the process that I take.

Travis Watts 8:57
The theory behind that is if you’re working with an experienced operator with a track record that’s done this over and over again, has the proof and the numbers to show you, they specialized in that niche market, all these kinds of things, they’re going to be doing a good deal. I mean that that’s the assumption. I’m not saying I would just, you know, do a deal because of that, you still have to vet everything out. But in general, that tends to be kind of the play, and the approach that I take.

Vee 9:23
So then, can you share? So you said, You vet the sponsor? Then you vet the operator? vet the market? And then the deal? Can you share what you do when you vet a sponsor?

Travis Watts 9:36
Yeah, exactly. So there’s a number of things. And I think even I mean, I left a couple elements here out I should probably just in transparency probably mentioned this first before you even get to that point, I would sit down this is this is what I failed to do in the beginning of my investing career in real estate that I wish I would have done sooner. But literally sit down, get to know yourself, reflect inward a little bit. Get To know your goals and your why, you know, if you want passive income, why do you want passive income? How much passive income okay? If you have that much passive income, what would you do with your time, you need to be asking yourself these questions and they’re not going to come easy, it’s probably not going to come in one sitting. But these are conversations to be had with a partner, spouse, or just by yourself.

Travis Watts 10:23
And then defining your investing criteria, right? So like, if now you’ve got your goals outline and why you want to do it, but what’s your criteria? Are you going to take an approach of I want to go invest in self storage, I want to go invest in multifamily. I want to go fix and flip houses I want to you know, so then it’s kind of defining the model that you want to chase after, for me it’s mostly multifamily. I do invest in other spaces like self storage and ATM machines and notes and other things, but it’s like 80% multifamily focused, then we’re getting to basically the team.

Travis Watts 11:00
So the things that I loosely mentioned, there are track record experience and then looking for consistency of business plan, it is a maybe more of a personal preference. This is something I look for. And my theory is, there’s a better likelihood of execution and a lower risk associated with a group that does nothing but the same thing over and over and over and over again, they found what works, they get real good at it. They build a connections and their network around it. And they just keep trucking along versus a group that says, well, we’re going to do a multifamily deal here, then we’re going to do a ground up construction over there, and then some self storage on the side.

Travis Watts 11:44
And, and the theory there is that, I mean, you really can’t be good at everything. You might kill it on one of those projects and you might fail another one. And I’ve seen that unfold firsthand with numerous groups. So I look for groups that have that consistency. Then it’s meeting with them right writing down your questions. When you’re presented a deal, it’s going to have a lot of information about the markets projections and rent growth and hold period and all this stuff. So most your questions should be answered from that. But still write down additional questions that are important to you.

Travis Watts 12:19
Such as what if we go into a recession? What does that mean for this project? Or what do you guys suspect you’ll do if that were to happen? Or, you know, I noticed some vacant land around this unit. What if somebody builds another apartment complex next door? how might that affect this business plan? Things like that. So you’re just trying to get genuine answers that make sense to you from the sponsor. Nobody has a crystal ball. No one can tell you exactly. But just to feel comfortable with those responses, I think would be a very important thing to do.

Travis Watts 12:52
And the last thing I’ll say about the sponsors, just simply getting a gut check. If you can meet face to face, that’s always the best. If you can’t make be doing a zoom call or you know, an online webcam type thing. If you can’t do that, at least do a phone call or two. And maybe they have some exposure out there. Maybe you can YouTube them and there’s some videos and speaking events they’ve done and you’re just trying to overall feel out the person make sure they seem trustworthy, genuine, forthright, honest, all that kind of stuff, and that they’re being conservative. I guess I left that out look for, you know, conservative approaches in the business plan, not very high, aggressive, quick turnaround, stuff like that.

Vee 13:30
Do you have a list of questions that someone should be asking an operator?

Travis Watts 13:36
I actually do so it’s in a free passive investor guide that any of your listeners can download. And you can find that at ashcroftcapital.com/passiveinvestor. There’s a whole bunch of them and there’s some visuals to go along with it. It’s just much better presented in that form. And you can kind of scroll through like common QA and how to vet sponsors and things like that. So again, that URL is ashcroftcapital.com/passiveinvestor.

Vee 14:10
That’s good. And if you want to send Travis an email also, I just want to mention, his email is travis@ashcroftcapital.com . Now, let’s go back to the topic of vetting the sponsor, you have done a lot of passive deals up to now, what are some of the red flags that you have seen from people you have vetted so far?

Travis Watts 14:33
Yeah, the first one would be lack of experience. But there’s a caveat to this. I mean, everybody’s got to start somewhere, right? Everyone’s got to do their first deal and I’m all for it. And but here’s the thing I look for, if that’s going to be the scenario, that they’ve got somebody on their team, or maybe a mentor or somebody looking over their shoulder to help with the underwriting and the numbers and you know, that does have the track record and/or the experience and guys this is just from personal experience. The newest operators I invested with the business plans myself, the more experienced operators have been fantastic. That’s not always going to be the case. That’s no form of guarantee. But that’s one thing to definitely consider track record and everything else that we discussed. So red flags would be, we’ve done one or two deals, we haven’t taken any full cycle we’re only six months into that kind of stuff I like to see a little bit more ideally, a deal that’s gone all the way through they bought it they did their value add plan and then they had a disposition or sale and now they can share with you those numbers and say, you know, we whatever we needed our investors, you know, 25% annually or something like that for a few years. The other things are I like confidence in an answer. That’s to a difficult question. So so when you when you ask a sponsor Hey, what if we go into another 2008 2009? recession? What affects next year? What does that mean? What a big red flag would be? Well, you know, I mean, that’s not going to happen. Well, you know that that kind of thing.

Vee 16:15
Let me ask you this like, because I asked that exact same question. And the sponsor answer was that well, I cannot go into underwrite a deal thinking about a recession, because it may or may not happen, you know, if I kept on thinking like that, then I may not be able to take down the deal. pretty confident answer, but then to me, like, what am I What are you saying to me now?

Travis Watts 16:42
Yeah, I don’t I don’t like that answer. I don’t like that response. It’s got to be thought through. Obviously, like I said before, nobody has a crystal ball. No one can answer that, you know, in a very defined definite exact way. But just to have a plan, say, well, we put you know, a 10 year debt structure on a Five Year business plan, we’re hoping to actually sell it and three, you know, we’re already buying at this margin, we’ve got a 20 year track record of rents being, you know, whatever in this range or the occupancy being stabilized, you know, I just like a little bit more depth to it than just all I haven’t thought about it or Oh, we didn’t underwrite to that, or it may or may not happen, or I don’t think it’s going to happen. Those aren’t good answers to me. It’s whatever you’re comfortable with. Maybe that’s a good answer for somebody else.

Vee 17:31
So no, no, definitely not. I mean, it rubbed me the wrong way when I heard them like, you sounds a little reckless.

Travis Watts 17:38
Yeah, well, and you gotta think too, since I started investing in the space in 2015. There are so many people that have jumped on this bandwagon. I would say most of the sponsors out there at this point are new, not brand new, maybe but you know, within the last couple years or something like that. So I mean, I’m on everybody’s deal list. I get deals daily. And it’s like I said, you got to know your criteria, know why you wrote that criteria, know what your focuses, and then you know, I’m deleting 90% of those because they just don’t match what I’m looking for. So that’s why that’s kind of the first step is getting to know yourself.

Vee 18:18
So then when you, you know, when you have that many deals come to your desk, what do you do when you underwrite a deal for yourself so that you know whether or not you want to get in?

Travis Watts 18:28
Yeah, I mean, it’s kind of just just a checklist, really. So it’s my already know, myself and my goals and my why I already know the my criteria. And by the way, let me let me just expand on criteria because I just keep throwing that out there. But what does that mean? So here’s an example of what your criteria might be. I look for value add B class multifamily assets from 200 to 600 units in the Dallas Fort Worth markets with a five year hold period and monthly distributions. That’s pretty specific. That’s pretty defined. You don’t have to go that defined. You could be, you know, that’s how defined I go with it and each face. But that’s an example of knowing your criteria.

Travis Watts 19:18
`So now when I get an email tomorrow, and it’s, hey, we have this new exciting opportunity in Phoenix and its ground up construction pass, right? Simple as that. I don’t even have to look at it. So that helps a lot, because you can really get caught up in analysis paralysis. I did this a lot in the beginning, because I was so new, and I got all these deals sent to me. I didn’t know which one to choose. And so I’m looking at the pro formas. And I’m just picking off the numbers. I’m saying, you know, this deal is 10%. This deal is 8%. I’m just doing the 10. Right, that’s a higher number. And that was a big mistake.

Vee 19:53
So let’s say a deal pass your checklist. Do you actually sit down and underwrite the deal with the T12 And all the financials documents,

Travis Watts 20:03
what I usually do is I’ll ask for if they’re not already included, which usually they are in a very detailed prospectus or summary. But always ask for those, and just kind of it kind of gets back to that general concept of trust, but verified. So I’m not going to be able to verify everything but you know, when they’re saying we’re projecting, you know, 5% rent increase, you know, annually in the sub market, right? I’m just getting on Google and I’m going to CBRE and all these different websites and just kind of double checking their their stats and kind of what that submarket specifically is doing, looking at comps, not just taking what they put in a prospectus at face value. But again, this is the last stage of the process. It’s already met my criteria. It’s already in a market that I like it’s already with a group that I know I’ve already had the conversations and so now we’re just kind of getting to the final details before sending in funds.

Vee 21:03
And for the listener, you know who’s new into space and wanting to get in, where is a conference that people can find experienced operators at?

Travis Watts 21:15
Yeah, there’s man every year, there’s just more and more conferences. I’m blown away. I can’t even keep up. I’m a big conference guy. always have been. I’m just a huge advocate for self education and expanding your network and all that kind of stuff.

Travis Watts 21:29
So, so Ashcroft Capital and Joe Fairless. That’s the best ever conference that’s actually coming up February 20th, to the 22nd 2020 here this year. After that, there’s just a handful a lot of them happen out in Dallas, but just get on Google and just search for multifamily conferences.

Travis Watts 21:48
And I mean, there’s got to be 15 – 20 of them a year. It’s just outrageous. So most of those are good. I usually look for attendance count, and if they’re not putting that on the side, I’ll usually call someone that’s like organizing that event, just kind of get an estimate. And the reason is sometimes you go to these really small events and it’s not worth your time if you’re going to go travel and get a hotel and rental car and the whole mix. You know if there’s 50 people that show up, it’s more like a real estate meetup. But yeah, so 500 plus attendees is ideal. And that just gives you more exposure, right? You’re going to meet more people, you’re going to have more presenters usually, and get a lot more out of that event.

Vee 22:28
I’m glad you brought that up. Because my first conference that I went to, was in Cleveland, Ohio in 2011. Just at that time, I was trying to expand the market in Denver, and at that time I went to it was about 15 to 18.

Travis Watts 22:47
Now you got those and like every city is just look up a real estate Meetup group, right? There’s like 1000 of them. But yeah, these bigger conferences are are getting bigger and bigger every year as more people kind of jump on this bandwagon, both on the passive side like I do, and both on the active side trying to do their own deals. So that’s usually kind of a mix of, you know, 50-50 depending on the conference.

Vee 23:08
Can you talk about why you pick passive, over active in this space?

Travis Watts 23:14
Yeah, I think there’s a lot of advantages to active but for me, it was just a time constraint. I just didn’t have the time to dedicate to it. I set out to do 50 or 100 single family homes. That was my goal. And I quickly realized after 6,7,8 homes, whatever it was, that all of a sudden, it’s a part time job and it’s about to turn into a full time job. And so that was not very scalable. And yes, I put it you know, property management on site and all that, but it’s still not scalable. In my opinion, I still had to keep track of all the receipts, I still had the same issues that would that would come up and then HVAC unit blows up and there goes your cash flow for the whole year. And so you’re making no money out of it and I just got so fed up and frustrated with with that process and and not to mention, I definitely have to point this out. I wasn’t good at it. Like I had to look inward and be like, hey, there’s people around me doing this like three times better than I am. You know, here I am flipping a house for 25 K and someone over there is making 150 K. It just wasn’t my thing. I’m not a handyman. I don’t like dealing with tenants, you know, so I had to contract everything out. It got very expensive and it was just a headache. So for me and for a lot of working professionals, Doctor, dentist, lawyer, Attorney, engineer, software sales there. These are the types of folks typically that are doing syndications like I do as a limited partner, I’ve just been very grateful that I was able to eventually get to the point where I could do that full time. So now I consider myself just full time limited partner, investor. So that’s that’s a whole different world that you can break into overtime.

Vee 24:55
So now you you work for Ashcroft Capital as Investor Relation person?

Travis Watts 25:02
Yeah, exactly. So earlier when we were talking about loosely on just financial independence and whatnot. So what the whole deal was was I got the benefit of leaving the oilfield job a job I despised and hated and wasn’t good at in the whole deal to pursue more meaningful work.

Travis Watts 25:18
One of the first things I did is I went to go work for a large brokerage firm will say, I don’t know if I should put their name on the podcast, but anyway, and so I you know, I got a series 7, series 63 I got license and, you know, it’s like stocks, bonds and mutual funds. I was thinking, Man, if I could learn the paper asset world and then I could learn or I already kind of knew real estate and I could combine the two, I would just be this you know, financial guru, so to speak, that was kind of my mindset.

Travis Watts 25:46
It really didn’t resonate well with me. I didn’t like that industry at all. So you know, I left like a year later. And then I went to go work for syndication firms just to learn kind of from the inside out how this whole process works and all that kind of stuff. And then so so my affiliation here with Ashcroft, I do a lot of live events for Ashcroft. And so yeah, it’s investor relations in the sense that, you know, I’ll be a panelist or speaker, I’ll have, you know, you’ll find me behind the Ashcroft Capital booth at an event. And I’m just helping share, I mean, I’ve done nine deals with them personally. And so a big part of my portfolio. And so I just share kind of, you know, personal experiences being an investor and kind of just spread the word that way. So, to me, that’s very impactful, it’s very meaningful to be able to, you know, connect people to the right resources and but, you know, I help real estate investors on all levels and on bigger pockets and, you know, I do a blog and it’s a lot about the fire movement or financial independence. And, you know, if someone wants to know how to house hack or or how I did it, you know, I can just share that experience, and that’s very rewarding to me.

Vee 26:54
That’s awesome. And so, you don’t actually let’s say you don’t work for Ashcroft actively because you just you know doing event sharing your knowledge and talking to people. So you don’t necessarily work with Joe on a day to day basis. But for the investor who is listening to the show if you want to meet the kinds of the likes of Joe Fairless, then the guy that I know works for Joe, John Casmon really good operator, you should definitely go check out best ever conference. And that’s besteverconference.com

Travis Watts 27:27
Yeah, I think they shorten it to bec20.com. Yeah. Okay. So I’d be both but

Vee 27:35
bec20.com. Now, go back to your job now. Actually, can you tell me what’s a day in your life like now?

Travis Watts 27:45
Yeah, so I like I said previously, I’ve always loved attending conferences, attending network groups, just expanding my network just mingling with folks and just listening to panelists and speakers. I love that stuff. Even if we’re not talking real estate, if Like we’re, my wife and I are going to a Tony Robbins event, you know in March and I just love it. It’s lovely there.

Vee 28:05
The one in San Jose?

Travis Watts 28:06
Yeah, exactly. Are you going?

Vee 28:08
No, I’m not. I’m going to another mastermind of someone who was in. Okay, Tony Robbins mastermind.

Travis Watts 28:14
Okay, cool. But so so a day in the life of me it’s chaotic. It’s a I just fly around. I travel a ton. My wife works for an airline. So naturally we travel a lot. Hence where that came from. And so yeah, like I said, you might run into me at an event or be like an Ashcroft booth. You’ll see me there. Just come say, hey, just mingle network, and I do some speaking stuff. I do a few, you know, podcast things. I attend some local real estate meetups, but, you know, it’s just kind of where’s my time best spent and, you know, it’s kind of just a flexible schedule. I don’t have a defined schedule. I’m not a W2 worker or a nine to five or whatever. It’s just sort of, I’m just always on the go. It’s a fluid process.

Vee 29:00
So then What’s your goal with with all of those events that you go to? What’s your end goal? Looking for more deals more connections?

Travis Watts 29:08
Yeah, good question I intend on always being a passive, limited partner investor, I found it just to be a great risk reward type of investment. And I just don’t want to go back to being active again. I don’t want to go flip a house, I don’t want to go do my own deal and be a general partner. I just don’t. And so yeah, I don’t know. I’ve done what 27 deals that hopefully in the next 10 years, I’ve done, you know, 100 deals, and I just want to stay on that path and have the flexibility and the freedom to travel. And, you know, we’ll see kind of where where my wife’s career goes, and when she wants to kind of pull the plug on that and then who knows.

Vee 29:50
So now you’re waiting on her.

Travis Watts 29:52
Well, she loves her job, and it’s great. And I mean, she works with a tremendous team and it just it doesn’t feel right to quit. I mean, she could if she wanted to, but so yeah, we’re kind of in this hybrid space where we’re both kind of doing our highest and best and helping people. And you know, we’re surrounded by a great team. And so it’s just a good place to be. So it’s hard to say, I really don’t know. But I know I’ll stay passive as an investor. I know that.

Vee 30:19
That’s great. What are you most excited about right now?

Travis Watts 30:23
Oh, you mean besides of the best ever conference? Shameless plug.

Travis Watts 30:30
I am most so we’re about to go to Costa Rica, just after the Tony Robbins and then we’re looking at going to Bali, Indonesia, maybe later in the year. So I just I love travel both of us we just were fanatic about travel and just love experiencing different cultures and different food and just getting that kind of experience. So other than you know, of course, I mean, truly and wholeheartedly. I love helping people on a daily basis. That’s so true. That’s above all in any form or fashion. And that’s just how my day unfolds. People set up calls with me and we talk about whatever they want to talk about. Usually it’s real estate. And then sometimes we get sidetracked on the travel. But yeah, that’s what I’m excited about helping more people expanding a reach connecting people with the right folks in the industry, and experiences.

Vee 31:23
So let’s say in 10 years, when we’re when you’re done with all this investing, you’re having massive amount of cash flow coming in from your passive investing. What do you want to do at that point, then, say your 10 year plan? What do you see yourself going?

Travis Watts 31:40
Well, you know, we’re right at the point my wife and I, where we don’t have kids, but it’s coming and so we’re not going to wait too late, too late. And so it’s so hard to predict that stuff, you know, or I mean, are we gonna have one kid 234 I don’t know where we gonna live don’t know. You know, are we going to live here domestically or internationally in 10 years, I don’t know. So it’s just literally impossible to say. But I can say that we’re loving kind of what we’re doing now. And so no crazy changes in the immediate future.

Vee 32:12
Don’t I mean, it’s an awesome, awesome lifestyle what you guys have right now, I mean, it should be the goal that everyone should aim for, is to be like you and be able to just go to conferences or do whatever you want just travel, do anything you want in the free times, and then still have that cash flow coming in. And that’s the beauty of being a passive investor.

Travis Watts 32:37
Exactly. And I’m a big advocate for financial independence, whether we’re talking the fire movement, financial independence, retire early, or whether we’re just talking financial independence. I mean, I’d love for everybody in the US to reach that point sooner than later. And you can go you can build that through a multitude of different models out there. The best one that I found for us has been the syndication model. But the whole thing behind it is, when your passive income exceeds your living expenses, you now have freedom to quit your job if you want to quit, or take more risks and your job in a good way, and kind of be a little more outspoken and make a difference there, you could switch to part-time work, you could travel more, you could spend more time with family, you could be more creative and get more into art, you could be more charitable, you could launch a charity, that all these kinds of things. I mean, you look at like, just to use a public example, like a Bill and Melinda Gates, they’re running the Gates Foundation, you know, that’s what that’s their life purpose. That’s what they still work full time. But they’re choosing to spend it on something impactful and meaningful instead of just logging in to the office of the cubicle and doing the grind and then you know unwinding over the weekend.

Vee 33:56
So then I see a future in the Travis and Angelica foundation.

Travis Watts 34:04
There you go. There you go. Yeah, absolutely, man. I mean, what like, you know, there’s different thresholds, right. There’s like when you barely pass financial independence, then there’s like when you have a little bit of margin past financial independence, then that’s like when you really hit the wealth and impact stages of financial independence. That’s often where that comes from. And, yeah, for anyone pursuing this path, I think that’s very possible.

Vee 34:30
Is there any things that they should pay attention to right now, before they go into a deal, besides the things that we talked about so far? There, and what did I leave out? What’s the most important thing that you think I left out?

Travis Watts 34:46
I think what’s on a lot of people’s minds right now is where we’re at in this economic cycle, right? You hear so much about the stock market and how we’re at all time highs and how we’re in the longest Bull Run and all this kind of stuff and What does this mean? For real estate? What does it mean for stocks? What does it mean for bonds? So you know, this stuff, it takes some research and there’s, you’ll hear 1000 different opinions out there whether you know, what’s what’s about to happen next, nobody knows.

Travis Watts 35:15
But the reason I like value add B class multifamily, sometimes C class and the reason I like self storage and the reason I like ATM investing, it’s I don’t want to say it’s uncorrelated to the market, because that’s not true, but it is a lot less volatile, a lot more predictable. And a lot of these deals that we’re buying, we can look back if the sellers got the financials, we can see how the property performed in 2008 2009. And you will see in multifamily specifically, there’s usually just a slight downturn in occupancy, but I mean slight I mean it like let’s say it was 95% in 2006, and then it was 88%. In the Great Recession, ultimately, you know, your breakeven occupancy might be 60 or 65, or something. So it’s a fairly conservative play at the end of the day. It’s workforce housing, it’s affordable housing, its middle income housing. And I mean, I think we all agree that’s highly in demand, you can’t afford to build new product, and then go charge 800 900 bucks a month and rent, you just can’t make the numbers work. So this inventory is limited. And so yeah, I don’t know. I mean, you can’t change that, you know, until cap rates are 1%. I mean, there comes a level where there’s too much risk involved. But I still see opportunity today, even if we’re heading into recession. So something to be aware of think about risk, obviously, that’s very important. But to me, it’s like, you know, I could go buy an index fund and it could lose 50% in the next downturn. And in my opinion, that’s less Likely, you know, in an asset, like affordable housing or self storage.

Vee 37:04
Yeah, the end of the day, you still have to live somewhere.

Travis Watts 37:06
Yeah, I mean people do and the thing is, you know you so there’s different classes of multifamily, A, B, C, D. A is like luxury, new build high end amenities, highest rents, best neighborhoods, lot of those folks in a recession, lose their jobs, take pay cuts, whatever. They’ve got to move somewhere else. So they’re moving down to a B class product. And in some of Bs are going into Cs, but at the end of the day, yeah, there’s always a demand for mobile home parks, cell storage and affordable housing.

Vee 37:39
Awesome, Travis. Now, before I let you go, I have just one last questions. I know we’re short on time here. Just one last question before I let you go.

Travis Watts 37:49
Yep.

Vee 37:49
What’s something that you’ve said no to and your life is now better because because of it?

Travis Watts 37:56
Wow. I have said no to Investing and things I don’t understand or know, an example of that I had a buddy who was investing in the crypto space. And I don’t know, it’s like when I didn’t follow it too closely, but it was like he wanted me to start investing in it when the Bitcoin was like it. I don’t know, 16 or 18,000. And then like a week later, it was at 10 or something. And so, and I had a lot of liquidity at that time, and I’m so glad I didn’t take that advice, because it would have been an immediate 40 50% drop. So invest in what you’re comfortable with and what you know what makes sense.

Vee 38:36
Oh, my God, you dodged that bullet, huh?

Travis Watts 38:39
I did, man. It was tempting, because I’m like, you know, nobody knows. Right? It’s so new and but, man, yeah, I did dodge that one.

Vee 38:49
Good job, man. Well, thank you so much for your time. Travis. I really appreciate you coming on and share your knowledge with the audience today.

Travis Watts 38:56
Alright Vee, Thank you. Appreciate it, man.

38:59
That’s the end of the show. Don’t forget to subscribe leave a five star rating in the review on iTunes for The Real Estate Lab Podcast. Until next time, have a prolific week.

Be sure to check out other episodes from the Real Estate Lab Podcast.

The post 16: Travis Watts – Financial Independence Through Passive Investing appeared first on Real Estate Lab .

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https://realestatelab.live/16-travis-watts-financial-independence-through-passive-investing/feed/ 0 Travis Contact: travis@ashcroftcapital.com https://www.facebook.com/travisjwatts www.linkedin.com/in/traviswatts1234 https://www.biggerpockets.com/users/TravisWatts Instagram @passiveincometravelers Show Notes [00:00:38] Schedule a call with me at www.... Travis Contact:



travis@ashcroftcapital.com https://www.facebook.com/travisjwatts www.linkedin.com/in/traviswatts1234 https://www.biggerpockets.com/users/TravisWatts Instagram @passiveincometravelers



Show Notes



[00:00:38] Schedule a call with me at www.CallwithVee.com



[00:01:04] Check out my interview with Erik Smith from Fitness and Finance Podcast at www.FitnessNFinance.com



[00:02:12] Tickets for BEC20 available here: http://bit.ly/31D16Ho – Use code “GOALS20” to save 20% at checkout



[00:03:59] Travis started his investing journey with the book Rich Dad Poor Dad – https://amzn.to/31M360c



[00:07:04] Travis shared info on his first passive transaction. He put too much emphasis on a Pro-forma. Pro forma is financial statement produce based on certain assumptions and projections.



[00:07:31] You are not investing so much in the deal but the team.



[00:08:28] Travis talks about his investing process. He starts with vetting the sponsor/ operator. Then looks at the market and the deal itself.



[00:09:36] Travis dives into how to vet a sponsor.



[00:12:19] What questions should you ask the operator? You can also download a guide of all the questions to ask at www.ashcroftcapital.com/passiveinvestor.



[00:14:33] Travis shares the red flags to look for when vetting someone



[00:18:28] How Travis work on his deal flow



[00:21:48] How to find what conference to attend to find good operators.



[00:28:14] Travis shares a day in his life



[00:34:46] Travis shares his last thoughts on what investors should pay attention to before going in a deal







Transcription



Travis Watts 0:03
I mean, you really can’t be good at everything. You might kill it on one of those projects and you might fail another one. And I’ve seen that unfold firsthand with numerous groups. So I look for groups that have that consistency.



Vee 0:17
Welcome to the show. You are listening to The Real Estate Lab Podcast. In this lab. we decode the stories, secrets and skills of the most brilliant minds in real estate investing and turn their wisdom into practical advice and knowledge that we can use to boost our income. And now let’s turn it over to our host Vee.



Vee 0:38
It’s an amazing day to be alive and to invest in real estate. My name is Vee Khuu and you’re now listening to my show The Real Estate Lab Podcast. Hey I cannot wait to share with you about today’s guests. But first, if you haven’t done this already, let’s schedule a quick chat with me. Just a quick 10 minute phone call. You can head on over to the www.call withvee.com to set that up.



Vee 1:04
Also, I was recently interviewed by my good friends, Erik Smith of Fitness and Finance podcast. Eric is an awesome financial advisor. Be sure to check out his podcast at www.fitnessnfinance.com.



Vee 1:19
Let’s get back to today’s guests. Our guests started investing in 2009 and is currently the Director of Investor Relations of Ashcroft capital. He’s a full time passive investor having invested in over 27 syndications between 14 firms. Ladies and gentlemen,]]>
Vee Khuu 1 39:03
15: Paul Moore – The Perfect Investment! https://realestatelab.live/15-paul-moore-the-perfect-investment/ https://realestatelab.live/15-paul-moore-the-perfect-investment/#respond Mon, 03 Feb 2020 13:47:36 +0000 https://realestatelab.live/?p=514 Show Notes Paul’s Contact Info: www.WellingsCapital.com Twitter: @PaulMooreInvest https://www.biggerpockets.com/users/PaulTMoore Email: Paul@WellingsCapital.com [00:01:32] IF you want to stick with your resolution and goals, read Atomic Habits by James Clear – https://amzn.to/38ZBqHq [00:02:22] Paul’s book is called The Perfect Investment: Create Enduring Wealth from the Historic Shift to Multifamily Housing – https://amzn.to/2ScvBj7 [00:04:35] Paul realizes that his degree in Petroleum...

The post 15: Paul Moore – The Perfect Investment! appeared first on Real Estate Lab .

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Show Notes

Paul’s Contact Info:

www.WellingsCapital.com

Twitter: @PaulMooreInvest

https://www.biggerpockets.com/users/PaulTMoore

Email: Paul@WellingsCapital.com

[00:01:32] IF you want to stick with your resolution and goals, read Atomic Habits by James Clear – https://amzn.to/38ZBqHq

[00:02:22] Paul’s book is called The Perfect Investment: Create Enduring Wealth from the Historic Shift to Multifamily Housing – https://amzn.to/2ScvBj7

[00:04:35] Paul realizes that his degree in Petroleum Engineering tied to oil prices. 

[00:05:14] A few years after getting his MBA, Paul started to work for Ford Motor Company.

[00:05:46] Paul and his friend started a staffing company. 

[00:07:02] Paul explains the differences between investing and speculating.

[00:08:29] True wealth are our assets that produce income.

[00:09:19] Commercial real estate’s value formula.

[00:11:53] Warren Buffett Model

[00:13:03] Paul mentioned Gary Keller’s book. The One Thing – https://amzn.to/37SLrGj

[00:13:35] Adding value to self-storage units.

[00:18:42] Paul explains how well self-storage units did in the last downturn.

[00:21:34 – 00:23:45] How to research what area needs more self-storage units.

[00:24:39] How to research the operator.

[00:33:50] Things to look for during due diligence of a self-storage unit. 

[00:38:19] Learn to pull the plug quickly

[00:45:16] Paul suggests finding a book on senior living and read

Transcription

Paul Moore 0:03
Now the different the opposite lesson is what a lot of, of our guests on how to lose money have learned as well. And that is never give up. Which is kind of funny. Because some of those lessons have been, you know, the fact that if they would have quit in the year three, they never would have got the abundance that they got in your four and five and six. And so it’s really hard to know I think it’s wisdom, and many years or decades of experience that helps you know the difference between pulling the plug early and never giving up.

Unknown Speaker 0:39
Welcome to the show. You are listening to The Real Estate Lab Podcast. In this lab. we decode the stories, secrets and skills of the most brilliant minds in real estate investing and turn their wisdom into practical advice and knowledge that we can use to boost our income. And now let’s turn it over to our host Vee.

Vee 1:00
It’s a great day to be alive and to invest in real estate. My name is Vee Khuu. And you are now listening to my show The Real Estate Lab Podcast. Let’s take a moment to say goodbye to January, at the release of this episode, one month of this new decade had come and gone. Are you still on track with your goals or your New Year resolution? What resolutions? You know, the one that you made on the first of this year? Yeah, that one, hey, if you’re not on track, it’s not your fault. It’s your system.

Vee 1:32
That’s what I’ve learned recently from James Clear author of the book Atomic Habits, this is a must read. Go ahead and get it right now. For the rest of you out there with awesome systems in place, I hope you’re out there still crushing it wherever you might be listening to this recording from. I would love to hear from you regarding your goals and your resolution. Let’s hop on a call, shall we? Get on my schedule at www.callwithvee.com that is V with two E’s and we’ll make it happen. Cool bean? Let’s get back to our episodes today.

Vee 2:09
Our guest graduated with an engineering degree and MBA from the Ohio State University. He is the co host of a wealth building podcast called How to Lose Money?

Vee 2:22
He’s the author of a book called The Perfect Investment Create Enduring Wealth from the historic shift to multifamily housing. He also appeared on HGTV helped with the development of a Hyatt Hotel, Managing Director of Wellings Capital and has his own live show every Friday on Bigger Pockets. Our special guest today is Mr. Paul Moore. Paul and I would chat about investing versus speculating, what type of assets will give you true wealth? What is the perfect investment for you? And the Warren Buffett motto that his team at Wellings Capital is using your influence epic show today. Let’s get it rolling with Mr. Paul Moore of Wellings Capital.

Vee 3:14
Hey, welcome to another edition of The Real Estate Lab Podcast. It’s an honor to have you here with us, Paul, thank you for making the time to join us today.

Paul Moore 3:23
It’s great to join you Vee. Thank you for having me on.

Vee 3:27
Hey, so, a lot of people know that you have been involved in the real estate world for quite some time, maybe in the late 90s to early 2000. Can you actually take a trip down memory lane and go way way back to say the time when you were eight years old? What was it like growing up in your household?

Paul Moore 3:47
It was I didn’t know a single entrepreneur. And I don’t even know if I knew what the word meant. It’s funny I everybody I knew worked at a factory or an office building and everybody’s father worked there. And I think I met one entrepreneur, my dad’s pharmacist, and I went to with him to the pharmacy and noticed that he just seemed to own the place. But he also worked there. And I’m not sure if he had a business or just a job because he looked like he was tired and he worked there all the time. But, you know, when I when I eventually got into college, I started thinking, I think I’d like to be an entrepreneur and I eventually ended up there

Vee 4:31
Was it at the time when you went to the Ohio State University?

Paul Moore 4:35
Yeah, I went to Ohio State I got an engineering degree, first of all, Petroleum Engineering degree, which was my first mistake. And then I when I got out, I made a good move. I was going to get a Masters in petroleum engineering and decided this is really tied to oil prices. I think I’d be better off getting a generalist degree like in business and so I went and got an MBA, at the last minute I changed. I’m so glad I did, because I went to Ohio State and there I got to actually take an entrepreneur class, which is really unusual class that no one talked about that back then in the 80s.

Paul Moore 5:14
And so I took a class on entrepreneuring, a friend of mine took it with me and we both got to Ford Motor Company a few years later, and we both found ourselves trying to start a side business. Honestly, quite often, we were working on that on evenings and weekends, and we loved Ford, but it was kind of boring for people who had a drive to be entrepreneurs. We eventually both left Ford and started our first company back in 92.

Vee 5:44
So what was that company?

Paul Moore 5:46
It was a staffing company. A lot of people don’t know what the term PEO means, but professional employer organization. And basically we do outsource human resource management. We did all the payroll taxes, benefits. Workers Comp unemployment insurance helped with hiring and firing and employee handbooks and all that for small to mid sized companies. And by doing that, we basically gave the employees and the owner a much better employment experience and better benefits. And we got paid a fee to do that.

Vee 6:19
And so how long did it take you to switch from doing that to real estate? And what was the reason behind it?

Paul Moore 6:28
So we actually I was fortunate enough to be finalists for an Entrepreneur of the Year in Michigan, two years in a row in the mid 90s. And a publicly traded firm heard about us and they acquired our company. And so I found myself before my 34th birthday, with a couple million dollars in the in the bank account and not having the first clue about investing but I thought I’m an investor now and I went out and wasted a lot of money.

Paul Moore 7:02
I actually did not understand the difference between investing and speculating, you know, Vee investing is when your principal is generally safe. And you’ve got a chance to make a return and speculating is when your principal is not at all safe, and you’ve got a chance to make a return and I actually confuse the two and I made a lot of money along the way, but I lost a lot of money unnecessarily as well. I learned a lot of lessons. And anyway, about, let’s see, three years later, I started flipping houses with a friend. And that grew into an obsession that led me down a long path through building ground up construction, doing a subdivision, eventually building a large multifamily property that we actually managed as well and then even a hotel before I jump back into what well We’re doing now.

Vee 8:00
So can you tell us a little bit what you’re doing now and why you make the switch to, to this field instead of the flipping business?

Paul Moore 8:11
Yeah, you know, when I was flipping houses, I always needed to do another deal to make money. And when I was doing the subdivision, we always had to get another piece of land or sell another lot. And when I was I actually had a real estate broker business as well. And we always had to sell another house to make money.

Paul Moore 8:29
But you know, Vee, true wealth are ours is assets that produce income, true wealth, and that’s what I wanted. And when I realized that commercial real estate had a completely different potential, it really intrigued me and I found it’s even better than I ever thought. If your Chip and Joanna Gaines Jr. and you can take a $300,000 house and finish the attic and finish the basement and add on to it and put on beautiful gold plated fixture not that you would. But if you did, and you spent half a million dollars beefing that house up, you had $800,000 in it, and you think you can sell it for $800,000. But the neighborhood is all $400,000 homes, chances are you’ll be limited by comparable properties.

Paul Moore 9:19
That’s how residential real estates value by comps. But commercial real estate Vee is entirely different. I’m getting excited thinking about it because it’s based on a value formula that says the value is the net operating income divided by the rate of return or also known as the cap rate. And so we can actually force appreciation on the property quite dramatically by increasing the net operating income and sometimes by even compressing the denominator in the equation, the cap rate and by doing that, we invest in lots of properties that have been able to increase in their equity value 50% or even 100% in a year or so.

Paul Moore 10:08
And it’s the key is buying from mom and pop sellers. And these sellers, these mom and pops don’t have the resources or the knowledge or even the desire to really maximize the returns and the value. And then beefing them up running them professionally, bolting on some extra ancillary services, ancillary sales and then selling to an institutional investor, who will pay a premium, which means basically a reduced cap rate. And that is the formula we are using. And so you asked what we’re doing now. So my company Wellings Capital, I wrote a book on multifamily investing a number of years ago, it’s still selling quite well. And it was called the perfect investment but oddly enough, the perfect investments not so perfect anymore if you can’t find any deals and multifamily at the time of this recording at least Vee is really overheated.

Paul Moore 11:08
And so we found that there are other asset sub classes, like self storage, and mobile home parks that have all these mom and pop sellers. And you can pay a very nice price to them a fair price. But you can significantly upgrade them, increase the value, increase the equity to the investors and have a phenomenal asset on your hands. And so we decided to expand into self storage and mobile home parks a couple years ago, but we said yeah, now I don’t think we would invest with ourselves. We we wouldn’t trust ourselves to do this because it’s late in the cycle. We know how to do it on paper.

Paul Moore 11:53
But you know Vee we’d never done it. We didn’t have a team who walked through the last one or two recessions. And really knew how to navigate this type of thing. So we decided we wanted to go on a quest to find best in class operators. So that’s what we did. And so we now our company Wellings Capital invest with those best in class operators. We trust them to have the deal pipeline them to get the debt, them to manage and operate. And we and our investors get the benefits. It’s sort of like the Warren Buffett model. Buffett doesn’t make ice cream. Buffett doesn’t design and sell insurance policies. He doesn’t build mobile homes, but he benefits from all these experts in those arenas. And that’s what’s made him the wealthiest and most successful investor on the planet. And so that’s the model we are operating under at Wellings Capital.

Vee 12:50
So now we actually have Paul Moore, the new Warren Buffett.

Paul Moore 12:55
No, I didn’t say that but I do love that model. And I do recommend That everybody stay in their lane.

Paul Moore 13:03
You know, Gary Keller, the most successful real estate broker on the planet taught us the one thing, one thing means focus on what you’re really good at, and outsource everything else. And that’s what he does well, and that’s what I want to do.

Vee 13:19
Yeah, so the topic that you just brought up is really interesting. The superpower of commercial real estate, right? So talk about mobile home park and self storage units. Just Exactly. How do you go about adding value to them?

Paul Moore 13:35
You know, I chuckled. When I first heard about value add Self Storage, I thought, Well, wait a minute. I love apartment value adds I mean, we can change the flooring and the lighting and the fixtures and the cabinets and beautify these apartments. But how do you beautify? How do you add value to four pieces of sheet metal and a concrete floor and a door?

Paul Moore 13:58
Well, there’s actually about 40 different ways to add value to a self storage facility. I’ll give you a quick example. We invested in one in Colorado, your state, and the seller was quite a mom and pop. In fact, the seller would place anxious phone calls to my friend, the operator who acquired this facility. They would call at four in the morning and talk for like two hours about all the things they were nervous about in selling this property. And my friend the the buyer became this person’s personal counselor, financial planner, and it seemed that the seller really trusted my friend.

Paul Moore 14:45
And when he acquired the property in Colorado, it had 80% occupancy which isn’t that bad, and he was able to raise it to 92% in the first six months. It also had 80% delinquency, which means four out of five tenants weren’t paying or were paying late. Well, he was able to lower that 80% delinquency down to 5% in six months. He also added a showroom that sold locks, boxes, tape and scissors and that added money to the pot. He also was able to raise rates 25% because they were below market that raised a lot of revenue. And I think really significantly, he bolted on something called U haul. He actually added truck rentals to this facility and just that alone added about $4,000 a month in revenue. Now let’s do the math on that Vee, $4,000 a month in added revenue with no capital outlay and no significant operational costs. That’s $48,000 a year.

Paul Moore 15:57
Now let’s use our formula that I mentioned the superpower formula of commercial real estate, the value is the net operating income 48,000 a year divided by the cap rate. And that cap rate he acquired at, I’m not even going to tell you about the increase or excuse me the compression in cap rate. Let’s just go with the cap rate he purchased it at which was 7%. So take 48,000 divided by point 07. That’s $685,000 in value, he was able to add at least on paper from adding U haul. That was just an operational change. He also did all the other things I mentioned him more. And so what happened is the facility when he acquired it was $2.9 million. And he was able to increase the value to about four and a half million dollars in just six months. That sounds great. That sounds Sounds like about a 50 or 55% increase in value. But it’s better than that. Because he only had about a million and a half in equity, a million and a half was was the purchase price was debt or less. And so that million and a half in equity, the bankers didn’t get their hands on that $1.7 million increase. The equity holders got it all. And so the $1.5 million in equity just went up by over double to about three or 3.2 million. And that’s in just six months. That’s a true value add story. And the great news is, for a company like my friends, who has an acquisition pipeline, and a group of people working the phones, they get opportunities like I just described almost every week.

Vee 17:52
That is fascinating to hear. I first heard about self storage back in 2009. And it was a good idea back then. However, as you remember, the crash happened, you know, in 09. So a lot of the mom and pop Self Storage operator were basically got wiped out by the crash. So another topic that I heard you talk about was the economy is about to crash or the crash is coming. So how do you protect yourself against something like that with storage facility, because in the downtime, people are not going to pay the rent in self storage, they would rather pay for say, to stay in a mobile home, or to stay in an apartment unit.

Paul Moore 18:42
Yet statistics say that overall Self Storage did very well in the last downturn. In fact, similar to mobile home parks, which you mentioned, they resisted, they had a slight downturn, but overall they did very well. Here’s one of the reasons if I’m renting, a $1,000 apartment to you and I raise your rent by 6%. You’re basically signing a one year contract to pay $60 more a month that’s $720 you might move rather than pay that. But if I’m renting to you a $100 storage unit, and I raise your rent by 6% Well, that’s only a $6 commitment because it’s a month to month lease. So most people would just not going to spend a Saturday rent a U haul get their friends to basically spend a day of their life to move their junk, I mean their treasures down the street. I was just being silly down the street to save $6 a month especially when they typically think you know, I’m going to be out of here in just a few more months anyway.

Paul Moore 19:51
Now during a recession, some of the 4000 square foot homeowners are downsize into a 2000 square foot home or a 2000 square foot homeowner might be downsized into an apartment. Some might be downsizing the mobile homes, and for a very small amount of money, they can store their stuff. And they do. So that’s what happens during a recession and a good time. People are filling up their Amazon cards, their Walmart carts, and they’re actually buying more stuff and they need a place to store it. And so that’s one of the reasons Self Storage is fairly recession resistant. I want to make a caveat here though Vee. Self Storage is micro, I should say micro local. And so while I could, Why I could say to you that self storage is overbuilt in a whole lot of markets across the country, which is true places like Boise, Idaho, Nashville, or overbill on self storage. There are sub markets within those areas that are under built like you could go to Nashville and See that it’s overbuilt, but you could go to Bellevue, which is a close in suburb on the southwest side of town. And it has virtually no self storage. And it would be a great place to build or buy Self Storage if you could find it. So Self Storage can be overbuilt, like apartments. But right now, it’s still a good time. If you know the right operators, it’s a great time to invest.

Vee 21:25
So a follow up questions to that is, how do you do your research to know what area need more storage units in what area don’t?

Paul Moore 21:34
when we were investing in multifamily, we will only only want to be in cities with a million or more least half a million, but Self Storage is quite different. There are about four things we look for on the surface. And if these four things are good, we’ll dive deeper. But those four things, number one would be the square feet of storage in a given radius. Now if that’s a if it’s a dense urban area, it might be this one mile radius. In a normal suburban area, it would be a three to four mile radius and a rural area, which we don’t ever recommend investing in. It could be a 10 mile radius. And so the metric we’re looking for, would be about seven square feet of self storage per person in a given radius. So let’s say a suburban area, three mile radius, we’re looking for seven square feet of self storage per person, man, woman and child or less, and that’s the national average now, so that means if it’s like 10, or 12, we might say, that’s maybe a little overbuilt. And if it was like one or two square feet, then we’d say oh, that’s really under built because there’s a higher demand and some of those people are probably going outside the area.

Paul Moore 22:55
A second thing we’re looking for is the occupancy and the current facilities. And of course, if it’s if it’s 100%. And it’s like I said that first metric hit, that’s another good sign. A third thing we’re looking for is the traffic on the road. If it’s on a location that has 30,000 cars per day, like I 25 going through your area, then that’s a really good thing. We also want it to be very visible on that road. It’s one thing to have a great road, but it’s another thing to be if it’s behind a hill or behind a Walmart parking lot, you can’t see it. The fourth thing we’re looking for is the income in the area. It doesn’t have to be super high income, but we want it to be at least an average income level or higher.

Vee 23:46
Right. So you don’t want it to be in a an area where the poverty is just below the state poverty level.

Paul Moore 23:52
Yeah, that’s right. I want to look at the city and state lines and see, you know, make sure that we’re above that.

Vee 23:58
What about crime rates. Do you feel comfortable having it in a high crime area?

Paul Moore 24:03
Yeah, we would dial in further if those four metrics were hit, and we would look at things like crime rate, zoning, the amount of land that can be developed nearby, making sure that we’re not going to get a competitor next door, things like that. We want a lower crime area for sure.

Vee 24:21
And so when so that’s for the property when you are looking to purchase. What about when you are looking to invest with an operator just like your company is doing, Paul? What are the things that you look for in that operator to feel comfortable enough to move forward?

Paul Moore 24:39
That’s a great question. You know, Warren Buffett bought, he actually invested I believe it was billions of dollars to help acquire ABC from from the seller to with capital cities in 1979. And then they sold it for very, very large profit to Disney in the 90s. And he made that decision on a 15 minute phone call. That was it. He didn’t do any more due diligence than that. And the reason was, he actually knew the buyer. He knew the operator really well. He completely trusted him. He’s been quoted as saying he was the best business owner/manager that he knew of in the whole country. And so in a 15 minute phone call, he was willing to invest and he made out really big with that because the operator was right.

Paul Moore 25:32
We spend a lot of time getting to know our operators, we fly to some of their locations unexpectedly. We fly there expectedly we show up at their office, we talked to their employees we talked to investors will talk to ex investors if we can find one to talk to. We’ll see how they talk about their investors, their employee, their spouse. We want to see that they had a track record that started well before The great recession that they didn’t just get into this and in the rising tide since 2011, to now, we want to see that they have a W2 staff that they’re not just a bunch of independent contractors all on their own. We want to look at the type of debt that they use. We want to look at the leverage amount. We want to see you know, what their attitude is about what happens in a downturn and how quickly they plan to sell. We look at criminal checks, background checks, all kinds of things like that, and we go on gut feel too. We had a potential operator wants that everything checked the boxes, he looked great. But we had a funny gut feeling about him and we didn’t invest.

Vee 26:47
So the point is, if you feel some, if you have some funny feeling in your gut, you just want to move on. You don’t want to even proceed any further.

Paul Moore 26:56
It’s really hard to say no based on having No tangible reasons. But I really believe that we were designed with an innate sense of knowing in our gut. When somebody as a shyster not always, obviously, a lot of people been taken in by people and been wrong, but often we can sense something, you know, they say, our brain. And I guess, I guess you could say our spirit somehow picks up on like, two or 3000 nonverbal signals that people have, whether it’s the way they’re standing or the way they, their move their hands while they’re talking, and the way they pause and their sentence, all kinds of things our brain can pick up that we don’t even know but it leaves us with a feeling like something’s funny here.

Paul Moore 27:49
I don’t know if I want to invest with this person. And usually, well, most amateur investors, I should say, override that and they just look at the numbers on paper and they say, Oh, this is my chance to get wealthy. And they override that funny feeling they have. I’ll be really honest with you here Vee, a lot of ladies are much, much better than guys at this, I find that guys are more willing to override the gut feeling or they don’t even have the gut feeling. But a lot of wives of investors that I know some of them are investors too, but a lot of times the wife or a lady in general has much better antenna and they pick up on these things and so I love it when my wife can meet anybody we’re going to invest with cuz she can often see through them faster than I can. And of course, we don’t invest in those cases.

Vee 28:52
Alright, so for your own business, how how are you finding these operator you just go to networking events or they call you How does it typically work out for you?

Paul Moore 29:04
Yeah, that’s a little tough. We’ve actually met some through referrals. There’s a couple people that I know and really trust who have been investing in these arenas for years or even over a decade. And I get advice from them on great operators are also there’s a couple websites out there that review large syndicators, and you can go and learn about great syndicators from these folks, and you can find out who’s great who’s not. It’s a little harder to get on there and to learn all about that, but that’s, that’s something you can do.

Paul Moore 29:44
There’s also crowdfunding sites. Now that may not sound like a place you want to meet an operator. But if you go to crowdfunding sites like realty mogul or fundrise, you can actually see List of operators and that doesn’t mean they’re all good. Good, some of them aren’t. But at least you can get a list on there and maybe you’ll find one, you’ll go to their website, and you’ll really realize that you really resonate with them. We met our best in our favorite operator that way on a realty crowdfunding website. That’s what I was trying to say. And through that crowdfunding website, we just got to know them personally. And we’ve had great respect for these guys. Now.

Vee 30:30
It’s interesting that, you know, this is a strategy that you are doing, because most of the investor that I talked to, they want to operate the project, they want to be the GP and raise money, but you are on the other side, you’re looking to just bring the funding in to the most trusted operator that you can partner with. Hmm. So what’s your philosophy behind that?

Paul Moore 30:59
We had to decide, do we want control? Or do we want the very best investment opportunity and best investment experience for our investors. And so since we didn’t have a team, who had been through the Great Recession, or through a couple recessions, and these asset classes that with these strategies, we thought we’d be better off being a middleman and finding the best people we can that have outsized returns, and that also treat their investors well, and who would even give us a premium for investing with them who would give us you know, a larger share of the pie and that’s exactly what we look for.

Paul Moore 31:44
Again, I’ll go back to Warren Buffett, Warren Buffett, like I said, doesn’t make ice cream or sell, you know, he doesn’t design insurance policies or mobile homes, but he actually invests and he’s made billions and billions of dollars for himself and his investors, through trusting these great operators, and trusting them to be experts in what they are focused on.

Paul Moore 32:10
Again, I go back to Gary Keller’s one thing focus on what you know, and outsource the rest to others. I was talking to an oral surgeon recently in the Pacific Northwest and he said, I’m building a retirement portfolio of 20 rental homes. And then he got to talking about and he sounded more and more depressed. And then he said, I actually, I’m only on house number three, and it’s driving me completely crazy. I I’m getting calls from tenants in the evening and I’m actually calling painters in the afternoon between surgery. I just can’t keep this up. Like there’s no way I want to manage 20 houses. He said effectively, he said, Why am I working harder than I need to to make less than I could?

Vee 32:59
I’m smiling coz one of my friends is having that exact problem.

Paul Moore 33:03
It’s very common, you know, a lot of people who think they want to build a single family portfolio, abandon that plan. And they eventually go back and they invest either as a syndicator themselves or with a larger syndicator. Very, very common.

Vee 33:21
Right. And I want to go back to the Self Storage Facility a little bit. I want to find out what other aspects Do we have to pay attention to, when we go into buying a facility or ourselves, let’s say I’m the operator, I’m brand new. I have this project, I need to be comfortable to go talk to someone like you to bring in the fun. What are maybe two or three things that I need to pay attention to? Especially doing the due diligence period?

Paul Moore 33:50
Yeah, so one thing I would look for is where’s the meat on the bones? Is there a showroom? Is there an opportunity to add a showroom? Is there room to park several U haul or Penske trucks that you could that you could advertise and manage their actually they do the advertising you just manage the trucks. Is there an opportunity to upgrade the facility you know, improve the marketing at a website.

Paul Moore 34:19
Here’s a big one. Is there any acreage Is there any land available to build an extra facility on we recently invested in a self storage facility that amazingly was on a great road, but it sat back and there was a huge, huge grassy area between this four lane road and the facility and some people said they didn’t even notice it there all the times they drove by. Well, what the operator did that we invested with is they paid a fair price for it. And then they built a large beautiful office and a climate control facility in the front of that, and by building the climate control facility on that acre and a half or whatever in front, they were able to expand capacity. The land didn’t really cost them anything because the land was already part of the purchase. And they were able to add a beautiful show room and office and do better advertising all in one fell swoop and by so doing that it was a huge value add and it’s going to be a great upside for investors.

Paul Moore 35:30
Another thing we’re going to look for, like I said before, is you want to make sure that you’re not going to get a whole lot of competitors around you. And one thing to look for is, you know, be careful there’s not a Kmart or Sears or Toys R Us empty building nearby because those can be a really discounted facility for someone to come in and build self storage. You know, a friend of mine, AJ Osborne built he actually bought a Super Kmart in Reno, Nevada. He sold off a lot of the parking lot to a multifamily developer. And he had the building and he cut it in half, believe it or not to make more exterior storage. And he built out all the inside. Of course it already had climate that already had flooring, lighting, everything was there. He built out the inside, he had two and a half million dollars in it. And he had 5 million in debt. So seven and a half million total Vee. And when it was 40% occupied, last December he got an offer from an institutional investor. Remember he only had two and a half million cash and he got an offer of $25 million for this facility and he turned it down. He wants more and he thinks he can get more once they’re at 100 or 90 plus percent occupancy and I think they’re there now

Vee 36:59
this is officially one of my most favorite worst story. This is crazy. 40% occupancy and he had it in for about 7 or $9 million. And

Paul Moore 37:12
yeah, he had seven half million dollars total in it and he got an offer at 25.

Vee 37:18
Wow, you cannot achieve this with apartment. There’s just no way someone would pay you at at 40% occupancy.

Paul Moore 37:26
Exactly. Because they were increasing an occupancy about four or 5% every month. And so on the track they were on they were going to be at 90% occupancy in another year or two. Very, very, actually, it would have been a year or less. And that’s exactly what happened.

Vee 37:45
Oh my God, that’s that’s good. That’s good to hear. Now, Paul, you have been doing real estate for a long, long time. Now. What is the most profound lessons that you’ve learned so far?

Paul Moore 37:56
There’s been quite a few. I’ve got a wealth building podcast. called How to Lose Money Vee. And we talked about the pain, the losses, the failures that many of us have along the road to success. And so, one lesson I learned and this is going to sound really funny, but is you need to learn to pull the plug quickly.

Paul Moore 38:19
We invested $390,000 in a non real estate property, unfortunately, it was a wireless internet company. And we built that if we would have just pulled had the courage to pull the plug, about a year in we could have returned at least half the money to ourselves and our investors. But we trudged on for seven years and never really turned a profit. And so we shouldn’t have learned to pull the plug sooner.

Paul Moore 38:49
Now that different the opposite lesson is what a lot of of our guests on how to lose money have learned as well and that is never give up. Which is kind of fun. Because some of those lessons have been, you know, the fact that if they would have quit in year three, they never would have got the abundance that they got in your four and five and six. And so it’s really hard to know I think it’s wisdom. And many years or decades of experience that help you know the difference between pulling the plug early and never giving up. Those are a couple lessons.

Paul Moore 39:25
Another one I learned I already shared. And that is the difference between investing and speculating. It’s really important to know the difference. If I said this to a young investor, if I said, low risk leads to low return, high risk leads to and of course, the young investor would say high return, but that’s not true at all.

Vee 39:46
It could be no return.

Paul Moore 39:48
Yes, high risk, high risk leads to no return or possibly high return. And so if you want to take high risks, you have to realize that you might end up worse off. And you might want to get to a place where a lot of us have gotten to, and that is we stop swinging for the fences. And we start trying to hit singles and doubles. I had a friend named Bruce. And Bruce spent 18 years like average of six hours a day training to be a professional baseball player. And Bruce spent one year I think he was in double A minor leagues. He spent one year he said I’m just going to focus on hitting home runs. He hit more home runs than that that year than he ever had before. He also had the most strikeouts and the worst batting average. And he actually set went backward in his career because he stopped trying to hit singles and doubles which he was very, very good at. And he started trying to hit home runs and a lot of investors realize after they get in their 40s or 50s or later That they would rather hit singles and doubles all day. You know, it may not seem like it, but that’s what Warren Buffett’s very good at.

Vee 41:07
You know, it’s interesting that you said that because I think Babe Ruth has the same story. You know, he got straight out a lot. And in baseball, especially if you got a 300 you’re really good hitter.

Paul Moore 41:21
Yeah.

Vee 41:22
300 you’re really good hitter. And I think it’s the same with real estate. If you get a home run, you know, from time to time. That’s good. But if you can get single double, that’s fine, too.

Paul Moore 41:36
Yeah, it really is. It’s really true. Jeff Zuckerberg from Facebook, of course, asked Warren Buffett. He said, what are your strategies? Not that hard, Warren. why doesn’t everybody imitate you? And like I said he was talking to Warren Buffett. And Warren said, Oh, no, no, no, people won’t generally imitate me. No one wants to get wealthy that slowly

Vee 42:01
overnight success that’s that’s like the go to slogan now every everyone one overnight success, but no one wants to put in the grind that make it an overnight success.

Paul Moore 42:12
That’s right. You are correct Vee.

Vee 42:17
And Paul, knowing what you know now and the wisdom and experience you have now, what would you have done different with that wireless deal?

Paul Moore 42:27
Well, I mean, I would have stayed in my lane. You know, I heard for years people tell me, I’d be raising money for this deal or that deal. And I’d have people say, Oh, no, no, I’m not going to invest in that, whatever that was. Because I don’t know anything about it. And I said, Yeah, but we know all about it. Well, blah, blah, blah. And I realized that it’s really, really important to stay in your lane and if you’re going to diversify, great, but diversify among things, you know, a lot about not things You know nothing about especially, don’t keep trying to start companies and growing them in new areas that you just are learning about as you go, you’ll always be working very long hours. And you will always have uncertainty in your future.

Paul Moore 43:18
And, you know, honestly probably strike out more than if you just pick something when you’re young and stuck with it. I had a friend. I have a friend named Barry who was running for governor of Colorado, about a year and a half ago and he was rubbing shoulders with lots of super wealthy, super successful people. And he said, You know, he said, These people aren’t any smarter. They don’t have any better education really than we do than the average person out there. The average successful person, but these Uber successful people typically have one thing in common. He said they focused on a goal. When they were very young, and they never strayed from that, and they said no, probably 10,000 times to potential distractions, and they stayed focused on that, and they got used to the monotony of success, you know, the monotony of success Vee is when you’re doing something that becomes very boring. You do it over and over and over til you’re really, really good at it. And that’s what he said. And I’ve taken that to heart. You know, I realized that people like Bill Gates decided as a teenager, he wanted to be involved in technology. And he said no to tons of potential distractions to stay focused on what he was good at, and he became the wealthiest man in the world.

Vee 44:44
That’s right. That’s right. Now, fast forward to present time. What exactly is that you are focusing on right now you’re most curious about right now.

Paul Moore 44:56
I am most curious. So I’m most focused on mobile home park investing, Self Storage investing and I still have an interest in multifamily. I’m just waiting for it to cool off. Now what I don’t know about and I’m most curious about is another asset class called senior living.

Paul Moore 45:16
It’s obvious that the demographics are there to support senior living. Go out and look for a book on senior living. I don’t think you’ll find one. I think it’s still a fairly right market to invest in. I’ve had two or three people I know who have looked into it and said that there’s a huge opportunity to invest. Now, I will say that what bothers me is one of the things that makes mobile home park investing so good. I know it may be confusing. I’ll explain. mobile home park investing is great for so many reasons. One of them is the fact that six out of 10 people who retire or who turned 65 I should say 10,000 of them turn 10,000 people turn 65 every day six out of 10 have less than $10,000 saved for retirement. How can that be in the wealthiest country in history? Less than 10,000 saved for retirement. So it really does drive the mobile home park success, because a lot of those people have Home Equity they’re willing to trade it in, and they’re willing to buy a mobile home and significantly drop their daily and monthly expenses. But if that’s true, who’s going to invest in a three or four or $5,000 a month Senior Living apartment? Well, I guess it’s the other four out of 10. But that’s the one thing that bothers me. And if I ever get serious about looking into senior living, I’m gonna have to get an answer. Sort of that question.

Vee 47:02
That’s, that’s interesting. You know, a few months back in one of the masterminds that I’m in, we actually had this discussion. And the verdict from that was that you’re not investing in an asset class like real estate, you’re actually investing in a business where you have to have employee, you have to have nurses. And if you’re not good at running a business, you shouldn’t even get involved with that. So that was the verdict of of that group. And then I heard what you just brought up right now is that, hey, a lot of seniors are actually going to mobile home park, maybe that’s a better way to go. Compared to the senior leaving route, but you make a lot more money from the senior living option. You can. There’s a guy here locally, he has a few facilities, just single-family home and he divided them up, to beds and he just gets Few grand per bed per month.

Paul Moore 48:01
Is that right? Well, that’s an interesting model. I’m sure that would be worthwhile to look into. I know a lot of folks are really looking into this now, but I haven’t heard of anybody doing exactly that. That’s so what do they have like a house manager or somebody just who basically just administers that property?

Vee 48:22
Correct? Yes. So you have a house manager, and then you have staff that comes in to take care of the seniors. And if you have big homes, you can afford to hire chef, massage therapists provide a lot of other services to the seniors that that live there. Well, just collect a lot of it is subsidized by the state. So you’re getting a lot more money.

Paul Moore 48:47
Yeah. Well, that’s that’s, that’s really, really interesting. And I think that that subsidy by the state might be the answer to my question as well.

Vee 48:57
I’m trying to find the course. I’ve heard of this course from another podcast, Gene Guarino, and he runs the workshop for risk residential assisted living homes out in Arizona, and he does it a few times a year.

Paul Moore 49:19
Well, sounds good.

Vee 49:22
So let’s go back to our our podcasts here. One last question, Paul, before I let you go, I know that you used to work at Ford Motor Company in Michigan. You’re really passionate about Ford.

Paul Moore 49:35
Yeah, I love Ford.

Vee 49:37
So what’s your most favorite car from Ford?

Paul Moore 49:41
Well, I mean, Can I count the Jaguar XJ series?

Paul Moore 49:45
Any word on the jaguar in the at least for a number of years, a lot of years. And I actually just a friend of mine, who’s a real estate investor as well just pulled up in a Jaguar XJ the other day and I was really impressed. asked, and it was almost like a limo. And he said, yeah, this was a 2005. He had, he’s really meticulous. So he had a looking almost brand new. And he said that he got it for an unbelievably low price. And I guess jaguars have incredible depreciation. And so if I can count that, that’ll be it. If I can’t count that, it would absolutely be the Ford Flex. My family is the proud owner of our second Ford Flex. And we’re very happy with it.

Vee 50:36
I thought you were going to answer the F 150. Because that’s the most car owned by millionaires in the US.

Paul Moore 50:45
Is that right? I did not know that.

Vee 50:48
Yeah, I saw that article few years ago. And it was the most popular car owned by millionaires in the US

Paul Moore 50:56
You’re kidding.

Vee 50:57
Yeah, I mean, millionaires drive Ford F150

Paul Moore 51:01
That’s amazing. did not know that, good to know.

Vee 51:05
Well, Paul, thank you so much for your time here today with the podcast. I really appreciate you coming on with us.

Paul Moore 51:12
Absolutely. It was a real honor to be here Vee and I really wish you the best and everything that you’re doing and I wish your listeners the best as well. Thanks. It’s really been an honor.

51:23
That’s the end of the show. Don’t forget to subscribe, leave a five-star rating and review on iTunes for The Real Estate Lab Podcast. Until next time, have a prolific week.

The post 15: Paul Moore – The Perfect Investment! appeared first on Real Estate Lab .

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https://realestatelab.live/15-paul-moore-the-perfect-investment/feed/ 0 Show Notes Paul’s Contact Info: www.WellingsCapital.com Twitter: @PaulMooreInvest https://www.biggerpockets.com/users/PaulTMoore Email: Paul@WellingsCapital.com [00:01:32] IF you want to stick with your resolution and goals, Show Notes



Paul’s Contact Info:



www.WellingsCapital.com



Twitter: @PaulMooreInvest



https://www.biggerpockets.com/users/PaulTMoore



Email: Paul@WellingsCapital.com



[00:01:32] IF you want to stick with your resolution and goals, read Atomic Habits by James Clear – https://amzn.to/38ZBqHq



[00:02:22] Paul’s book is called The Perfect Investment: Create Enduring Wealth from the Historic Shift to Multifamily Housing – https://amzn.to/2ScvBj7



[00:04:35] Paul realizes that his degree in Petroleum Engineering tied to oil prices. 



[00:05:14] A few years after getting his MBA, Paul started to work for Ford Motor Company.



[00:05:46] Paul and his friend started a staffing company. 



[00:07:02] Paul explains the differences between investing and speculating.



[00:08:29] True wealth are our assets that produce income.



[00:09:19] Commercial real estate’s value formula.



[00:11:53] Warren Buffett Model



[00:13:03] Paul mentioned Gary Keller’s book. The One Thing – https://amzn.to/37SLrGj



[00:13:35] Adding value to self-storage units.



[00:18:42] Paul explains how well self-storage units did in the last downturn.



[00:21:34 – 00:23:45] How to research what area needs more self-storage units.



[00:24:39] How to research the operator.



[00:33:50] Things to look for during due diligence of a self-storage unit. 



[00:38:19] Learn to pull the plug quickly



[00:45:16] Paul suggests finding a book on senior living and read







Transcription



Paul Moore 0:03
Now the different the opposite lesson is what a lot of, of our guests on how to lose money have learned as well. And that is never give up. Which is kind of funny. Because some of those lessons have been, you know, the fact that if they would have quit in the year three, they never would have got the abundance that they got in your four and five and six. And so it’s really hard to know I think it’s wisdom, and many years or decades of experience that helps you know the difference between pulling the plug early and never giving up.



Unknown Speaker 0:39
Welcome to the show. You are listening to The Real Estate Lab Podcast. In this lab. we decode the stories, secrets and skills of the most brilliant minds in real estate investing and turn their wisdom into practical advice and knowledge that we can use to boost our income. And now let’s turn it over to our host Vee.



Vee 1:00
It’s a great day to be alive and to invest in real estate. My name is Vee Khuu. And you are now listening to my show The Real Estate Lab Podcast. Let’s take a moment to say goodbye to January, at the release of this episode, one month of this new decade had come and gone.]]>
Vee Khuu 51:26
EP 14: Roni Elias – How Litigation Financing Helps Fight Your Case https://realestatelab.live/ep-14-roni-elias-how-litigation-financing-helps-fight-your-case/ https://realestatelab.live/ep-14-roni-elias-how-litigation-financing-helps-fight-your-case/#respond Fri, 31 Jan 2020 05:04:25 +0000 https://realestatelab.live/?p=510 Summary Roni Elias’ Contact Info: Email: Roni@YourTCP.com Website: www.YourTCP.com Show Notes [00:03:11] Meet Roni in person at the Best ever Conference in Keystone Colorado (https://bit.ly/36utBb8) Use coupon code “GOALS20” to save 20% at checkout [00:04:08] Roni and his company donates to Hands Along The Niles (https://www.handsalongthenile.org/) [00:11:39] Roni starts talking about litigation financing. [00:13:16] Roni shares...

The post EP 14: Roni Elias – How Litigation Financing Helps Fight Your Case appeared first on Real Estate Lab .

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Summary

Roni Elias’ Contact Info:

Email: Roni@YourTCP.com

Website: www.YourTCP.com

Show Notes

[00:03:11] Meet Roni in person at the Best ever Conference in Keystone Colorado (https://bit.ly/36utBb8)

Use coupon code “GOALS20” to save 20% at checkout

[00:04:08] Roni and his company donates to Hands Along The Niles (https://www.handsalongthenile.org/)

[00:11:39] Roni starts talking about litigation financing.

[00:13:16] Roni shares examples of how litigation financing works

[00:19:11] Roni explain why his company will only fund a case but will not step in as the lead litigator

[00:24:17] Ronis talks about what he looks for in a case to decide whether or not his firm will fund that case

[00:27:27] Roni shares example on a repayment structure

[00:31:29] Roni breaks down the differences in using litigation financing from a firm such as TownCenter Partners vs using a contingency law firm

[00:33:40] Roni tells us the reason behind why his firm doesn’t provide litigation financing in certain states

Transcript

Roni Elias 0:03
We have a short time on this earth, you know we’re it’s not infinite. So I think the year 2020 is gonna be a massive year of growth for us. I don’t want to steal, you know, Grant Cardone 10X line, you know I don’t know if he would be, you know, at 10 x multiple, but we think it’s going to be a multiple of growth and then use that not only as a multiple growth for us as a company and a team but also as a multiple growth, give back. So we can truly, you know, make a difference in as many lives as possible with our work.

Unknown Speaker 0:37
Welcome to the show. You are listening to The Real Estate Lab Podcast. In this lab. we decode the stories, secrets and skills of the most brilliant minds in real estate investing and turn their wisdom into practical advice and knowledge that we can use to boost our income. And now let’s turn it over to our host Vee.

Vee 0:57
Hey hey hey It’s a great day to be alive and to invest in real estate. My name is Vee Khuu and you’re now listening to my show The Real Estate Lab Podcast. Hey, it’s the third day of the lunar new year, the year of the rat. As I’ve shared with you on the first episode of my podcast, I’m Chinese so while you’re listening to this episode, I’m enjoying all the festivity all this celebration going on with the New Year 恭祝大家 身壯力健 新春大吉 新年快樂 万事如意 Chúc tất cả quý vị thính giả một năm mới an khang thịnh vượng và vạn sự như ý.

Vee 1:35
Alright, enough with the New Year greeting. Let me share with you about our guest for this episode. He is the lead asset manager of TownCenter Partners. He has worked in litigation cases reaching over nine and a half-billion dollars in recovery, manage a portfolio of over 520 million dollars in real estate assets at a previous firm. Our guest today received a Bachelor of Science Degree in Business Management from NSU, an MBA from Ashworth, JD from FAMU College of Law and LLM from Loyola University of Chicago School of Law. He holds multiple real estate licenses in Florida, DC, Maryland, Virginia and also holds a CCIM designation. He is also Florida Supreme Court certified family County Circuit appellate mediator and Florida’s qualified arbitrator. He’s going to share with us about a concept called litigation financing today. Our guest today, ladies and gentlemen, is Mr. Roni Elias. It’s a totally foreign concept to me at first, what is it? Why should you care? Well, you will find out soon enough from this episode. If you want to meet Roni live in person, you should go to the best ever conference in Keystone, Colorado from February 20th through 22nd of 2020.

Vee 3:11
He will be a speaker among an awesome speaker lineup such as Jeff Adler from Yardi Matrix. Matt Faircloth, author of the book called Raising Private Capital, Building your Real Estate Empire using other people’s money and Scott Trench, CEO President of Bigger Pockets, you can check out the rest of the lineup at www.BEC20.com. That is B EC with the number 20 dot com. Alright, let’s dive right into my conversation with Roni Elias.

Vee 3:52
Hey, welcome to another episode of The Real Estate Lab Podcast. I have Roni Elias here with us today. It’s an honor to have you here with us, Roni

Roni Elias 4:01
Thanks so much for having me on and very excited to do this with you today.

Vee 4:08
Now, Roni, I understand that you do a lot of giving back and one of the programs that you give money to is the Hands Along The Nile, what’s your connection with them?

Roni Elias 4:20
Sure, Hands Along The Nile. It’s a great organization, they predominantly help a lot of refugees, extreme people who are living I mean, in very, very poor situations, predominantly in the Middle East and so forth. And you know, the great thing about the organization, you know, they just help folks so of all backgrounds, all religions, and that just, unfortunately, due to either socio-economic reasons, or you know, the refugees are so forth. They’re just in such dire straits. They need assistance and not only, you know, do they get what you and I consider just salad, just normal stuff, you know, food, water and so forth. But they help try to train them. And you know, figuring out what is something you could do, how to get a job, you know, language skills and so forth. So it’s a great organization, and they do a lot of great work overseas in really very poor impoverished areas or where these folks definitely need a lot of assistance.

Vee 5:30
And you mentioned the Middle East a few times, are you from that region?

Roni Elias 5:36
The funny thing about it, I was born in Sudan, but my family’s background is in Egypt. And you know, I try to travel once a year or so forth. And, you know, just when you go back and you kind of see some of the conditions, folks are in, you can see it’s truly dire conditions that people are in.

Roni Elias 6:00
I mean, we would, you know, if we took, you know, whatever you want to consider here to be the worst of conditions, I think over there, it’s much even worse than that. So just trying to help those folks and, and it’s not just trying to help with it, hey, you know, here’s some food and money or whatever is, you know, trying to take that concept of, you know, what can we do to help truly make a difference in these folks’ lives and that’s really been through the programs they have, try and teach people skills, you know, of how to make something they can sell, you know, or trying to get a job and so forth. So, they can make a difference not only for themselves but their families and also trying to assist with educational purposes, because, unfortunately, a lot of people there, you know, probably after fifth or sixth grade in those areas, sometimes you know, there is no schooling and so forth, because they just have to go work to help put food on the table for the family.

Vee 6:30
And that’s, that’s awesome. And you. So you were born from Sudan and your family roots from really from Egypt?

Roni Elias 7:15
Correct

Vee 7:16
Right?

Roni Elias 7:16
Yeah.

Vee 7:16
Correct. So

Roni Elias 7:18
it was great, you know, moved around a lot as a child and then finally came here to the states in 89.

Vee 7:27
In 89, do you still remember the language at all?

Roni Elias 7:30
You know, as I always joke around, you know, yeah, the language that we speak is Arabic. So you know, how I usually say yeah, I can speak Arabic, but it’s kind of the word we use is macassar. Which just when you train select translate to English, it’s broken. So like, you know, it’s not 100% great Arabic but at least you know, hey, I can get to the toilet and you know, we can have a conversation and joke around a bit, and so forth. So, but yeah, I can somewhat, you know, get a full conversation out with folks and so forth. And, you know, English has become extremely as it has for many years. But also, I mean, right now with all the international stuff happening in Egypt, a lot of people speaking English over there also.

Vee 8:28
That’s great man. So, Roni Salaam Alaikum

Vee 8:36
No the reason I start with that is because you are a lawyer, so I just want to show the audience that not all the lawyers are sharks they have hearts too. And, you know, with the stuff that you do is truly truly amazing.

Roni Elias 8:52
No, I mean, you always have to give back and make a difference. You know, we’re we’re we’re very Teamwork oriented, we’re very much about making a difference with you know, not only our work, but you know, we also you have to give back, you know, I think if you were, you know, to follow some very, you know, wherever you want to call them either smart, very business successful folks, and if you try to kind of dissect quote unquote, their DNA, you’ll notice, you know, one thing that they consistently do is, you know, maybe you want to call it you know, they reap what they sow and so forth. But they, there is a portion of them that always gives back or wants to help folks that that need assistance. I think that’s a very important point to try and be successful in life and also, you know, just how we should all operate.

Vee 9:53
Yeah, definitely. We should always like Robert Kiyosaki said you always just have to give back because The moment you start giving back, you will get more reward from either the world or from people who, you know, you’ve been given to, you know, the more you give, the more you will get back.

Roni Elias 10:13
Oh, definitely. And, you know, there’s, I’m not the smartest person always in the room, but, you know, it’s it’s truly teamwork. I mean, you’ve got to build, you know, talented team around you and work with folks who are committed and, you know, can kind of work hand in hand with you to kind of help carry the whole team to that next level. And I think, you know, that can be translated easily into a real estate or into, you know, hey, we’re a manufacturing company. And, you know, we, we build cogs, and you know, how do we go from building a, you know, a million cogs a year to, you know, 10 million cogs a year. I mean, You really need to have a talented team with you.

Vee 11:03
Yeah, teamwork is a big thing. And just like anything in life, you cannot do anything by yourself and be a huge success. You’re, you’re limited by time, you’re limited by your energy manpower. So having a team is really great. And with that I want to transition over to your company now with Town Center partners, you are an Asset Manager at this company. And you have worked in litigation for a long, long time. So can you tell me a little bit about your niche right now with litigation financing?

Roni Elias 11:39
Sure. What we try to do is, you know, the worst thing you’re probably to ever have to deal with is getting a lawsuit and that could be I even think of it even the person who’s going to file the lawsuit. Nine times out of 10 they really don’t want file like, they would like to see, hey, I didn’t want to be in this situation, or let’s see how can we resolve it, and so forth. So what we do is we come in, and we say, we’re going to try, we’re going to turn your lawsuit, which is an expense item. Because you know, every month, you’ve got to write a check to your attorney. Or if you’re lucky enough, maybe you’ll find an attorney who can take it on a contingency fee basis. And all that means is, they’re going to tell you, hey, if we win this case, I will get a percentage of the possible winnings if we don’t win the case, you owe me nothing, and so forth. And in those situations, you know, there still might be you know, you have to pay for some expert witnesses. Or you might just because you’ve been harmed from this other company or individual. You still need, quote-unquote, cash in the door. And that’s kind of where we come in, you know, trying to take our what we do is litigation finance and you know, let’s say, you know, in the in the wheelhouse of real estate, some very prime examples that we’ve been involved in is the following.

Roni Elias 13:16
Let’s say you know, you’re a syndicator or you’re an apartment complex owner, God forbid, one day one of your buildings burns down. And let’s say that building has 16 units in it. And as you can imagine, now, the income of 16 units is done, call up, you know, Ring ring to Hi, Mister or miss insurance company, I’ve suffered the damage. You know, I am a loyal client of yours. I’m paying they come out and you know, the contractor comes in says okay, hey, to rebuild those 16 units is going to cost you know, and million dollars just to use a round number, insurance company says, ah, I don’t think we agree with that number, you know, what we think it’s worth, you know? $600,000.

Roni Elias 14:13
So, or we’re only willing to pay 600,000. So the person who is going to build it is telling you it’s going to cost a million dollars. And yeah, of course, you’re dealing with contractors, there’s some fluff here and there. But you know, there ain’t 40% of fluff. So now you have two options. Insurance Company only wants to pay you 600,000. So there’s a $400,000 hole. You know, one you could just say, yeah, I’ll take the 600,000 and then you’ll figure out how to make up the 400,000. Or you tell the insurance company, listen, here’s my cost. Here’s what it is. You have a policy you need to order, honor the policy. And if they tell you know, we’re not going to You know, pay you more than 600,000. Unfortunately, the only other situation you’re left in is you have to go and sue them.

Roni Elias 15:08
So you’ve filed the lawsuit against this insurance company. In the meantime, the bank, who has the mortgage every month tells you Hey, I know this happened. It’s an unfortunate incident, but we still want our mortgage payment on the first of the month. So we come in and we help fund your shortfalls. And then once you are successful, we would get repaid back. But if you are not successful in that lawsuit, no harm no foul, we then took on that financial loss so we step in and become your biggest cheerleader and give you that financial firepower to push your case forward. legally and ethically.

Roni Elias 15:56
We don’t tell you hey, you tell Mr. Mr. Insurance Company, we’re not taking a penny more than a million. We don’t exercise any control decision making on the lawsuit or anything like that, that’s left up to you. It’s your case. And that’s left up to your attorney to decide how to move the case. So we’re not exercising any control or decision making. So people love it, you know, you’re still in the driver’s seat. Someone has now giving you that financial firepower to push your case forward and so forth. Because the unfortunate thing is the other side, which is 99.99%, always some type of Fortune 500 or or extreme high net worth, company or individual.

Roni Elias 16:48
Their goal is to use time as an enemy for you because, you know, things in the court court system don’t move the fastest. They can drag things out, they can make a cost prohibitive and by doing that, every month, they know you’re out there burning money. Plus you, you’re losing money coming in the door, that they can get some type of discount against you. And we think that is not the proper way to do things. So that’s why we come in. And, you know, give folks that financial firepower and get them through this tough time so they can make an informed decision. They’re not kind of stressed or, or they’re like, Oh my gosh, I’m gonna do another two or three months of bleeding money here, or there robbing Paul to feed Peter. So that’s kind of an example that has worked really well in the real estate sector.

Vee 17:48
Man, Roni, I have to tell you the whole time you were describing that issue, I actually went through that exact same thing, but at a much smaller scale. I I had an eight unit to deal with and half of my building burned down. Yeah, so I had to do the same thing, but I didn’t know you exist. So I did everything myself, you know, having to fight with the insurance company and get every penny back at the end, we still did not recoup all the money that we needed to fix up the building.

Vee 18:26
So we still have to luckily it was just three of us partnering on the deal. So we each had to put in a little extra to you know, cover that that gap. But what you described there I have a few follow up questions for you if you don’t mind

Roni Elias 18:42
Yeah.

Vee 18:43
Okay. So, typically, you people say that no one care about your money more than you. So in your case, you saying that you fund the litigation, but the client is in control and the clients Council has to make the decision together with your client. Why not take the driver’s seat also and go through the litigation process yourself as a company? Because you are funding this, right?

Roni Elias 19:11
Correct. Because there there’s a lot of legal and ethical rules. At the end of the day, we are a financial firm. So we are just the best way to look at it. Let’s imagine me and you are at, you know, a football game together. Okay. And the team that’s, let’s say, you know, there’s the team on the left is, you know, red, the team on the right is green. The green is the plaintiff. They’re the one who was hurt. And the red is the insurance company.

Roni Elias 19:47
So we just give a check over to the green team. And they decided, hey, we’re gonna bring this type of player we’re going to do this type of actions and so forth. We don’t just sit on the sidelines, and are the biggest cheerleaders for you know, go green, go green. There’s a lot of legal and ethical concepts that come into play when you try to step into the shoes of the plaintiffs and control the litigation which causes problems for everyone. And another reason why we don’t First off, we can’t do it legally. And there’s a lot of ethics issues, but another reason why, even if for some reason we could, we would not want to do it. It’s our core principle. You suffered a damage and by you, I mean, the plaintiffs. And it’s your case, you decide what you think is a fair, reasonable offer, and, you know, take it forward from there with the guidance of counsel.

Roni Elias 20:55
You know, this is a very talented attorney. You have on your case, they have done very well before, take their guidance and you know, make a decision, you know, Hey, can you take x? Or if you don’t want to take x, no problem. The courthouse was built for a reason. And it was built to, you know, a jury of your peers will decide, was this defendant acting badly or not? You know, that’s what course houses were built for their for deal with cases. So come up and go forward. It has been our experience when we step in and help folks with that financial firepower. They’re able now to make a better informed decision. The other side then starts to see Oh, these folks don’t look stressed. You know, they’re not wanting to you know, take you 50 or 70 cents on The dollar, and then they really start to make some serious offers, which again, it’s up to the plaintiffs to take it or, you know, hey, we’re going to trial and, you know, we’re going to see what the jury decides from there.

Vee 22:17
So in your case, when you have funding the plaintiff, what’s the smallest case size that you will do? And what’s the kind of upper limit that you will do?

Roni Elias 22:27
Sure, I would say it’s kind of, you know, the range is massive. So we focus anywhere from $5,000 to a million dollars, that’s quote, unquote, our sandbox. And that’s where we have done extremely well. You know, we have a, we have a lot of colleagues in the space. So what we’ll do is, if someone calls us up and says, hey, I’ve got to sue fortune 500 company, I need, you know, $30 million. Well, already in my head, I’ve got one or two Colleagues I already know, I’ll tell him Okay, listen, I don’t I don’t want you to give me any privileged information but try, you know, paint me the, from 30,000 feet What happened? Then they’ll say that up. I was like, Listen, all right, I’m gonna go ahead and get you in contact with today, john doe. XYZ company. And at least I’ve got you in contact with someone specifically at this much larger funder. You know, go talk to them, good luck, hope, hope it works out. And again, that’s, you know, if we can’t take care of you, for whatever reason, it doesn’t fit with us or, or you know, it’s too big or whatever. We’ll try to connect you with someone else. And then, you know, we wish you all the best and hopefully, it works out and that’s kind of, you know, again, why we’ve had good relationships, you know, with with other funders, you know, some folks send stuff to ask because hey, it’s too small and We send stuff to them because you know, it’s, it’s too big everyone kind of plays in their sandbox and what they’re good at.

Vee 24:08
Okay, so besides the funding amount, what other things? Do you look at a case to assess what you will take on and what you will not take on?

Roni Elias 24:17
Sure, We’ll look at, you know, the facts will look out, okay, where is this case being filed? Because there’s some states we just don’t fund in. Like, I’ll give an example. We are we don’t fund in Maryland, we don’t find in Illinois and so forth.

Roni Elias 24:34
So we’re going to do kind of a very deep dive into the matter into the facts to kind of, you know, understand, hey, what got us near today, we are in 2019 at the end of 2019. Sometimes some of the lawsuits that we jump into they can be going on for three or four years, so we have to quickly digest, you know, sometimes and there’s you know stuff that even happened right before the lawsuit that caused the lawsuit. So we have to digest years of data to understand, you know, what got us to where we are today. And then, you know, we do our own internal right up of the matter, saying, okay, hey, you’re the contract calls for x, that the law says Why? And, you know, here the fact patterns that led us up to it, at the end of the day, you know, here is how the court has ruled previously on some cases. And, you know, here’s where there’s possibly some difficulties in the matter. And we review that all internally. And we quickly make a decision to say yes, we want to move forward on the case or no, we don’t and you know, Here are the terms that we’re willing to move forward on dollar amount, repayment structure and so forth.

Roni Elias 26:09
At the end of the day, these are not loans, because, you know, a loan puts a requirement on payment. These are just how we classify them and how everyone usually else does it. They’re non recourse advances. So, you know, let’s say, john doe moved in that lawsuit against the insurance company. And God forbid, you know, he lost the lawsuit, and we had funded him $100,000 no harm, no foul, we took that hundred thousand dollar loss. You don’t owe us anything, and so forth. So we’re truly here. If you think about it, we’ve come in believed in your manager giving you that financial strength to move forward and believe so strongly in your matter. Hey, we could get zero. And you know, we didn’t become a partner in, in your business or, or whatever. We just can’t believe that in your case and wanted to push it forward. And we felt that, you know, it would be, you should win and it makes economic sense for all the parties involved.

Vee 27:21
Can you talk about your repayment structure? How does that look like?

Roni Elias 27:26
Sure I can’t, because every case is so different. I can’t tell you, hey, so forth, I can try to give you a little bit of information. How we usually work is we’re going to fund you XYZ dollars could be anywhere from 5000 to a million dollars.

Vee 27:43
All right

Roni Elias 27:43
what happens is, every six month the repayment is increasing. So you know, let’s say if we find someone in December, you know, let’s just say sometime in June is you know, That would be the first initial amount deal. Now nothing is deal until the case settles or you win or whatever. So we’re all what we do is it’s is Alright, hey, two years from today, or, you know, six months from today, we refer back to the contract and we look at the time period. And if you’re within the six months, you owe that amount. Now, if the case does not settle, you lose it, you know, we don’t even need to look at the contract. It’s a very simple number zero. And, you know, that’s it. We, of course, always tell people, you know, litigation finance is not something that is cheap. I mean, this is not like, hey, you’re going out to the bank and you’re going to get a loan for five or 6%. You know, this is very expensive money. And the reason why it’s very expensive is because, you know, lawsuits are, you know, first off, no one really wants to put money and say, Okay, now let’s, you know, we’re, we’re fighting against each other and so forth. And, two, you might have a great case, but doesn’t mean you know, the court or the jury or whoever agrees with you, you know, again, you know, a jury of your peers doesn’t always mean you know, things are going to go your way. So there is very high risk, you know, things can still go south. And that’s why, you know, we always caution people, but at the end of the day, I think if you if you look at the industry as a whole, it has boomed, I mean, it’s now a multi billion dollar industry litigation finance and it has helped people who otherwise might not have been able to move their case forward, or they understand listen right now. I have 100% of zero. And why do I say that because at some point they’re going to run out of money or they can’t push this case forward, or maybe even from day one, they really can’t push the case forward. And they can say, Okay, well, maybe, you know, by the time I have to pay the litigation funder, okay, I gave up 20 or 30%. So I got 70%, you know, of a 100. While I was maybe in the beginning, you know, 100% of zero so, I think once people kind of sit down and and see where things are, it truly that they usually make the, of course, they talk with their attorney and their accountant and, and then you know, whatever decision they choose, it’s theirs, but I think people have continued to make the decision. litigation funding is something that truly works.

Vee 31:04
So Ronnie, tell tell me this. It sounds it sounds like the structure is very similar to if someone had a strong case and they went to law firm with contingency instead of going to your firm like Town Center partners, what’s the benefit of going with a litigation funding firm as opposed to a lawyer who has contingency?

Roni Elias 31:29
Well, you know, it really comes down to Okay, what’s going on with your business? And also, how is that set up with the lawyer because sometimes some law firms will tell you Okay, yeah, we’ll do contingency. But it’s up on you to cover the costs of experts or it’s upon you to cover you have some type of XYZ cost. So that’s where we might come in or They’ll tell you, I sure will cover everything, you know, when we’re going to do 33% plus you have to reimburse us for for costs. But the problem then starts to happen is that defendant has damaged you. And, you know, every month that goes by, you’re, maybe you’re, you’re bleeding, like, for example, like that building. It burnt down, you know, 16 units, and let’s say, you know, $1,000, a unit that was $16,000 coming in revenue a month. And you know, every month that goes by, you’re losing money. So you’re going to start to deplete cash reserves. or something’s going to start to happen where maybe you need to, like in your situation where, you know, hey, we have to do a capital call, everyone has to put money in, well, what happens if you know you can’t really put money in? So that’s where we come in, and kind of keep The business afloat, or you know, cover some type of expenses for the case. So it can continue to go forward.

Vee 33:09
That’s great. That’s great. Now, I just want to remind everyone, if you are in a situation where you need to get litigation funding, make sure make sure you go to Roni’s website, and that is yourtcp.com as www dot your TCP. com. Now Roni, I just want to go back to what you said earlier, for instance, you says you don’t fund in Maryland and Illinois. What’s the reason behind that?

Roni Elias 33:40
Sure, the very simple reason why we don’t do that. Maryland and Illinois have treated litigation funding, like bank loans. So one we would have to become, you know, pretty much organized like a bank and you know, Dark again, a lot of bad things can happen to us. And, and the case is because we’re not organized as a bank and so forth. So we just took it and says, okay, as much as we want to help folks in that state, the state legislation has made the decision to do XYZ. So unfortunately, we can’t be involved in those states. And that’s really the reason why because we just don’t. The goal is the end of the day is this. This capital infusion is supposed to kind of move the case forward and move everything forward. We don’t want the litigation funding to be a problem, or it creates again, you know, like we talked about teamwork. We are a team with our, you know, with the client who’s the plaintiff and the plaintiff law firm. We don’t want to create a situation where we start to become antagonistic towards each other, or so forth. So that’s why I’ve just for those reasons, one, stay away from, you know, Maryland, Illinois examples.

Vee 35:14
Are the other states that have laws like that.

Roni Elias 35:17
Yeah, Colorado is one. Mississippi is another. There’s a couple. That’s why I kind of when you go to our website, if you if you scroll to the bottom, there’s a couple of states, Vermont is another that have taken this legislation and, you know, we’re not going to complicate that the, it’s on the books, it’s been decided, you know, there’s nothing further to talk about it. But, you know, for those reasons, that’s why we kind of shy, shy away from those matters in those states.

Vee 35:51
And just to clarify question, then, when you talk about those states, are you talking about the company that was formed in those states or the property located in those states.

Roni Elias 36:02
It could be it could be either or it could be like, let’s say, for example, john doe, LLC is a Maryland LLC. So we’re not going to be able to fund it. Or let’s say, you know, john doe owned that apartment complex in his own name, and they’re a resident of Maryland, uh, you know, they’re the driver’s license is Maryland and you know, they pay Maryland taxes and so forth. So because john doe is a resident of Maryland, we unfortunately are not going to be able to fund him. And then usually, you know, a lot of people follow kind of the states that we don’t fund it. So again, you know, every everyone understands these rules and kind of, you know, doesn’t doesn’t want to get caught up, having to deal with, you know, the legislature and the courts. In that state because you know, they’ve already made the decision, hey, you’ve got to be set up as a bank, and you have to follow bank rules. And and, you know, we’re not a bank and you know, these are not loans. So that’s why the best way is to say, okay, hey, we’re not operating in that state.

Vee 37:19
Doesn’t matter if, let’s say in this in a case of a syndication and you have LPs from, from Maryland, does it matter, or no?

Roni Elias 37:30
no, because at the end of the day, it is the entity that is, let’s say that entity was, let’s say, you owned a large apartment complex in Florida, Vince Young forwarders. Very hot and everyone loves the sunshine state. So you own 300 units and let’s say john doe, LLC is a Florida LLC, but it’s got some investors from Maryland. Those are the LPS but the LLC that was hurt and the property The owner is a Florida LLC, and so forth. And, you know, that is that is the entity that is bringing a lawsuit more than likely in Florida, I guess, you know, whatever insurance company so that would be not a problem to fund and so forth. It’s just because of those other states. We have to be very cognizant of the rules because they’re at. And what’s happened is some people did fund there and then, you know, the courts came down extremely hard on those funders.

Vee 38:36
Got it got it I understood now. So, you know, before someone come to your company and yourself to ask if you could fund their case, what are some of the things that the operators can do to present a strong case to your team so that you could fund their, their trial or their case?

Roni Elias 38:56
Sure. One, what we like to do is, it’s Very simple sometimes will say, point just either you have two options, you can go to our website and fill out a funding request right there. Or you can call us up and set up a time to speak with us. And then we’ll kind of, you know, go through our points. We understand folks are you know, sometimes people are stressed and you know, there’s a lot of things they’ve got to deal with, when we when they’re dealing with a lawsuit. The first thing that, you know, we would want to know is okay, have you filed your lawsuit, who’s your attorney, who’s the parties and give us kind of the 30,000 viewpoint? from there? If all that, let’s say for argument’s sake, all that has happened, who say, Okay, next thing, what we’re going to do is we’re going to execute some of the common NDA, so we can try to all the conversations we have with you is protected, and you don’t have to worry that you know, hey, we’re gonna do something with this information. In The other side can’t try to hear this discussions and so forth.

Roni Elias 40:06
And then from there, the next step would would more than likely happen is we’ll say, okay, we’re going to go ahead and set up a call with your attorney, would you mind just kind of reaching out to them and saying, hey, it’s okay to talk to us, we probably do one or two phone calls with the attorney. And then from there, we’ll reach back out to the plaintiff and say, okay, we’ve made a decision. Yes, we want to get involved in the case, or No, we don’t. And then from there, there’s probably some more documents, we start to request, and then we make the offer of the terms and so forth. The usual, you know, if it’s a small matter, we can sometimes turn it around in a day. But if you’re talking, you know, a substantial mag are usually what we tell people from start to finish. It’s a two week process. And, you know, the only way that process gets pushed out longer, it’s just because we’re requesting documents, and we’re not getting it. Or sometimes, you know, the attorneys and trial, because you know, they’re a good attorney, they got other things going on. So we kind of have to just wait till they finish the existing trial they’re in, and then we can have conversations from there. But usually, it’s a very team oriented type of process. I mean, everyone kind of, you know, is working to a goal to make the funding happen. So it can can push the case in the next level. So everyone kind of, you know, accommodates everyone’s schedule. I mean, we’ve done calls at, you know, seven or eight o’clock at night, you know, on the weekends, whatever we can do to try to help accommodate the process. We do that so we can try and move things forward.

Vee 41:51
Okay. So, your company typically deal with the plaintiffs and you said 99% of the time your defendant is Big insurance company or some big fortune 500 companies, can you share with us, what are the common common myths about fighting these big enterprises?

Roni Elias 42:11
I wouldn’t say there’s, I’m almost gonna flip out and say there’s myth bouncing, you know, there’s some things we have consistently seen as the same tactics that they have done. And those tactics are, you know, to use time as a, as an enemy for the plaintiff. I think that is what we have consistently seen. And sometimes what we’ve seen also is, you know, this action might have, depending, you know, when is the year end books of the company, like let’s say if the company runs books from August to July, it will just happen that, you know, this bad act happens in June or July, and then it turns out to be Well, the reason why the plaintiff was damaged her in that time was it made, you know, either you know, that division or it made the PnL look better, because someone was wanting to make sure that you know, they get their bonus, or stuff like that. So we’ve kind of seen those type of things happen a lot, just because someone comes up with, you know, the bright idea, let’s take advantage of the of this XYZ, plaintiff and you know, hey, we look, then we will, you know, we hit our numbers or exceeded our numbers and, you know, everyone’s going to get their bonuses and so forth. And now say the last thing is, at the end of the day, you know, these big companies, they’re just people, you know, yes, you are, you know, international conglomerate, publicly traded blah, blah, blah. There are people that work there and the you know, unfortunate thing is, you know, people can sometimes do things that are not the right thing or the ethical or or you know, or the business prudent approach to doing things. So, that’s why you know, unfortunately these type of situations happen and so forth. So, you know, I always kind of joke you know, if you kind of remember the, the old days or when, you know, a doctor kind of had that little black bag and you know, they kind of open it up and, you know, they can pull out their stethoscope or so forth. I can tell people Hey, where do like that little black bag, you know, you pull us out if you need, you know, a scalpel, you know, we’re fine precision tool, or if you need to pull out, you know, a sledge hammer, then, you know, take a salad and use this as a sledgehammer because, you know, hey, we want to start you know, video, deposing all of these people, and you know, hey, it’s very expensive to do video deposition. Then you might have to fly, you know, if you’re, you know, your lawyers in XYZ state, but you know, there’s people all over the country got fly, there’s, you know, that starts to become serious money. But um you might not be able to get people on a video tape saying, Oh, yeah, it was, you know, we we did this action because you know, john told me to do it and he said if we didn’t do this action, no one was gonna get their bonuses. I mean and then once you get down there video tape I mean that’s that’s very damning for the other side. So that’s the great thing about us, you know, we’re, we’re just a tool, we leave it up to the plaintiff and their lawyer to decide how to use this tool to move the case forward.

Vee 45:48
So when you fund someone sounds like you’re giving a carte blanche to the attorney of that side to determine what to do to win the case. Almost

Roni Elias 46:01
well for the attorney does whatever he thinks is right. When it the best way to look at it, he’s the cap, he or she is the captain of the ship. They decide, Yo, I’m going to do X, Y, Z. I’m gonna we’re not making any decisions on what to mean that we’re just kind of, you know, what, every 90 to a 120 days when we will follow up and say, Okay, listen, give us a case status of what’s going on, you know, what’s, what’s happened so far, what’s the next you know, when’s the next if there’s a mediation? When’s the next court date and, and getting some documents and so forth. So we can kind of get a very detailed case update of what’s happening. But other than that, absolutely. The plaintiffs and the points of law law firm are in full Controlling, and they’re driving the ship, not us.

Vee 47:03
So at no point do you want to jump in and say, Hey, I don’t think this is going at the right direction, maybe you want to look at something else.

Roni Elias 47:10
We have to be very careful about that, you know, that’s not not our, not our place, if they say, you know, if we’re asked for, you know, some type of, you know, hey, where have you, you know, where are you seeing going on out there will will kind of share some information that’s not, you know, nothing privileged or anything that so forth. But again, that’s some of the due diligence that we’ve done upfront, we’re, we’ve looked at this lawyer, or this law firm and said, Okay, yeah, this is someone that has a solid track record, or they understand the issues of the case very well. And they know what, what’s going on because that’s at the end of the day. The lawyer here she is carrying that case so I mean, they’ve got to be able to eloquently explained the issues, you know, cut through the BS cut through the other sides trying to maneuver or mess the picture up. So it’s, yeah, there was a reason why we only wanted to offer him 600,000 their contractor was ridiculous. He was you know, whatever. You know, there is no, the other side never says how Yeah, you guys? Yes, we were, we were trying to pull a fast one. Our bad. They’re always going to have defenses and arguments to make. So how the plaintiffs law lawyer or law firm can kind of cut through those arguments and you know, presented in a very sometimes you know, we love the kiss method, keep it simple, stupid, you know, buying a present, this is just a very simple Matter, you’re on your Hey, we had a policy we were good to, you know, they told us pay $10,000 every month for this expensive insurance policy. We did that for multiple years. The policy says we have up to Xyz dollars, we were well below it. The contractor who, you know, is not my brother came out and told me it’s a million dollars to to do it. Other than that, I don’t know what, where I can tell you, it’s a million dollars to do it. You know, they just want to pay 600,000 you know, they need to honor the policy and the terms of their own policy and pay us a million dollars. So we found great success when sometimes folks can take care of take no matter what type of subject or or so forth and keep it kind of very simple and very controlled. So folks don’t get caught up inside issues indicates, which is usually what we try to see the other side does it tries to confuse the court or talk about, you know, 10 other different issues that have nothing to do with, you know, hey, we’re here for an insurance check payment. It can’t be any simpler than that.

Vee 50:27
And I just want to follow up with what you said there earlier about privilege. So when when someone become a client, do they have attorney client privilege with your firm or your just simple financials and you don’t have any privilege because

Roni Elias 50:42
we’re not a law firm. So we don’t practice law. We don’t you know, we don’t run into anything. But what happens is because our communications become attorney work product, or fallen there that attorney work product doctrine. They’re protected because this has to do with litigation, you’re already in a lawsuit. we’re communicating with your lawyer and so forth. So it falls all under something called the attorney work product doctrine. So it’s protecting, and there’s been some cases out there where the, where the other side will say, okay, Hey, are you working with a litigation funder? You might say yes. And then you know, the other side will immediately say, well, we want all of your communication with that funder. And the courts have ruled, no, they don’t need to turn that information over, it’s protected. And, you know, that really doesn’t have anything to do with it. You know, it doesn’t. It doesn’t matter if, you know, My Cousin Vinny is funding them or, you know, Joe Schmo from New York is funding them. You know, we’re focused here on the facts and so forth. So there’s been alive great case fall that has come out to protect the communication so forth.

Vee 52:01
That’s great. Awesome. Ronnie, thank you so much for your time today sharing a mountain of knowledge with us. Now, before I let you go, just have one last question for you.

Roni Elias 52:11
Sure thing

Vee 52:12
What’s your goal for 2020?

Roni Elias 52:14
I think the goal for 2020 is grow and expand. And, you know, give back also on a massive level, you know, I think, Hey, we’re, we have a short time on this earth, you know, we’re, it’s not infinite. So I think 2020 is going to be a massive year of growth for us. I don’t want to steal you know, Grant Cardone 10 x line, you know, I don’t know if he would be, you know, a 10 x multiple, but we think it’s going to be a multiple of growth and then use that not only as a multiple growths for us as a company and a team but also as a multiple growths to give back so we can truly kind of, you know, make a difference in as many lives as possible with our work.

Vee 53:01
Awesome Roni, thank you very much shukran. Now, if you’re listening to this podcast and you want to get a hold of Roni and his company, make sure you go check out www dot yourtcp.com or you can email him at roni@your tcp.com. Once again, thank you for your time, Ronnie,

Roni Elias 53:21
thank you have a wonderful rest of your day. And again, it was a true pleasure. And thanks so much for your time.

Vee 53:29
That’s the end of the show. Don’t forget to subscribe, leave a five-star rating and review on iTunes for The Real Estate Lab Podcast. Until next time, have a prolific week.

The post EP 14: Roni Elias – How Litigation Financing Helps Fight Your Case appeared first on Real Estate Lab .

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https://realestatelab.live/ep-14-roni-elias-how-litigation-financing-helps-fight-your-case/feed/ 0 Summary Roni Elias’ Contact Info: Email: Roni@YourTCP.com Website: www.YourTCP.com Show Notes [00:03:11] Meet Roni in person at the Best ever Conference in Keystone Colorado (https://bit.ly/36utBb8) Use coupon code “GOALS20” to save 20% at checkout [00... Summary



Roni Elias’ Contact Info:



Email: Roni@YourTCP.com



Website: www.YourTCP.com



Show Notes



[00:03:11] Meet Roni in person at the Best ever Conference in Keystone Colorado (https://bit.ly/36utBb8)



Use coupon code “GOALS20” to save 20% at checkout



[00:04:08] Roni and his company donates to Hands Along The Niles (https://www.handsalongthenile.org/)



[00:11:39] Roni starts talking about litigation financing.



[00:13:16] Roni shares examples of how litigation financing works



[00:19:11] Roni explain why his company will only fund a case but will not step in as the lead litigator



[00:24:17] Ronis talks about what he looks for in a case to decide whether or not his firm will fund that case



[00:27:27] Roni shares example on a repayment structure



[00:31:29] Roni breaks down the differences in using litigation financing from a firm such as TownCenter Partners vs using a contingency law firm



[00:33:40] Roni tells us the reason behind why his firm doesn’t provide litigation financing in certain states







Transcript



Roni Elias 0:03
We have a short time on this earth, you know we’re it’s not infinite. So I think the year 2020 is gonna be a massive year of growth for us. I don’t want to steal, you know, Grant Cardone 10X line, you know I don’t know if he would be, you know, at 10 x multiple, but we think it’s going to be a multiple of growth and then use that not only as a multiple growth for us as a company and a team but also as a multiple growth, give back. So we can truly, you know, make a difference in as many lives as possible with our work.



Unknown Speaker 0:37
Welcome to the show. You are listening to The Real Estate Lab Podcast. In this lab. we decode the stories, secrets and skills of the most brilliant minds in real estate investing and turn their wisdom into practical advice and knowledge that we can use to boost our income. And now let’s turn it over to our host Vee.



Vee 0:57
Hey hey hey It’s a great day to be alive and to invest in real estate. My name is Vee Khuu and you’re now listening to my show The Real Estate Lab Podcast. Hey, it’s the third day of the lunar new year, the year of the rat. As I’ve shared with you on the first episode of my podcast, I’m Chinese so while you’re listening to this episode, I’m enjoying all the festivity all this celebration going on with the New Year 恭祝大家 身壯力健 新春大吉 新年快樂 万事如意 Chúc tất cả quý vị thính giả một năm mới an khang thịnh vượng và vạn sự như ý.



Vee 1:35 Alright, enough with the New Year greeting. Let me share with you about our guest for this episode. He is the lead asset manager of TownCenter Partners. He has worked in litigation cases reaching over nine and a half-billion dollars in recovery, manage a portfolio of over 520 million dollars in real estate assets at a previous firm. Our guest today received a Bachelor of Science Degree in Business Management from NSU, an MBA from Ashworth, JD from FAMU College of Law and LLM from Loyola University of Chicago School of Law.]]>
Vee Khuu 53:34
EP 13: Bernard Reisz – What Everyone Should Know About QRPs & UDFI Tax https://realestatelab.live/ep-13-bernard-reisz-what-everyone-should-know-about-qrps-udfi-tax/ https://realestatelab.live/ep-13-bernard-reisz-what-everyone-should-know-about-qrps-udfi-tax/#respond Mon, 20 Jan 2020 04:29:00 +0000 https://realestatelab.live/?p=503 Bernard Reisz CPA is the founder of 401KCheckBook.com which gives investors direct control of their tax-sheltered funds for real estate equity and debt opportunities using checkbook controlled IRAs, QRPs, Solo 401K(s) and Checkbook Life Insurance. He’s also the founder of AgentFinancial.com which provides tax strategy, entity, and financial services to real estate professionals, including real...

The post EP 13: Bernard Reisz – What Everyone Should Know About QRPs & UDFI Tax appeared first on Real Estate Lab .

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Bernard Reisz CPA is the founder of 401KCheckBook.com which gives investors direct control of their tax-sheltered funds for real estate equity and debt opportunities using checkbook controlled IRAs, QRPs, Solo 401K(s) and Checkbook Life Insurance.

He’s also the founder of AgentFinancial.com which provides tax strategy, entity, and financial services to real estate professionals, including real estate agents, real estate investors and mortgage brokers.

SHOW NOTES:

[00:07:01] Bernard explains the different types of QRPs out there.

[00:11:17] Bernard explains how to correct a mistake you make in a checkbook 401K.

[00:12:40] Bernard explains about prohibited transactions

[00:13:21] What are the differences between IRA and 401K?

[00:15:02] Bernard explains the rules required to have a solo 401k.

[00:21:51] You have to include someone in a 401K plan only when they work a minimum of 1000 hours per year for your business.

[00:25:36] Traditional IRA, you can put in on an annual basis of $6,000. With QRPs, you can put in $56,000.sz

[00:26:33] Bernard explains UBIT and UDFI.

[00:30:49] Bernard explains how UDFI tax works.

[00:43:33] Cannabis businesses qualify for QRPs.

FOLLOW BERNARD REISZ:
Websites: https://www.401kcheckbook.com
LinkedIn: https://www.linkedin.com/in/bernard-reisz-cpa/
Consult and Free Entity Formation Call: https://bit.ly/2Rw9N1v
Email: Bernard@ReSureFinancial.com

Join our free Facebook Group at www.EastWestVentures.com/AIMS

Listen, subscribe, rate and review:
Apple: https://apple.co/2BdPdeJ
iHeartRadio: https://ihr.fm/2MPxyAu
Sticher: https://bit.ly/2pUgd0v
Listen Notes: https://bit.ly/2JtpZxi
TuneIn: https://bit.ly/2NhRCe2

Bernard Reisz - What Everyone Should Know About QRPs and UDFI Tax

Transcript

Bernard Reisz 0:03
Recognize that you are in control of your financial destiny, whether or not you realize it or whether or not there are people around you that are, you know that are trying to take control of your financial destiny. Ultimately, you’re going to be a beer, the risks and consequences and rewards. So you should take charge of it.

Vee 0:31
Welcome to the show, you are listening to the real estate lab podcast. In this lab. we decode the stories, secrets and skills of the most brilliant minds in real estate investing and turn their wisdom into practical advice and knowledge that we can use to boost our income. And now let’s turn it over to our host Vee.

Vee 0:50
It’s a great day to be alive and to invest in real estate. My name is Vee Khu and you’re now listening to my show the The Real Estate Lab Podcast. Hey it’s the 3rd week of the New Year. Are you on track with your goal? What is your goal for 2020? Mine is to buy a mobile home park this year. If I can support you and your goal in any way, hey, please do not hesitate to reach out to me. You can get to me at vee@realestatelab.live or you can simply schedule a call at www.callwithvee.com Alright, I’ll guess what today came highly recommended by Yonah Weiss. He is the founder of 401kcheckbook.com, which give investor like yourself direct control over your retirement funds. He’s also the founder of agentfinancial.com, a company that specializes in tax strategy, entity and financial services to real estate professionals. Before the launch of his company ReSure LLC, our guests serve as director of whole metrics partners. Our guest today is Mr. Bernard Reisz. In today’s episode, we will discuss about a tax that you might have to pay and are not aware about. If you’re using a self-directed IRA to invest in real estate, pay attention. If you have any kind of retirement account or QRPs qualified retirement plans, make sure to pay close attention to this episode. Now before I get going, make sure you hit the subscribe button, leave a review and give me a five star rating on iTunes. If you haven’t yet, make sure to check out our free Facebook community at www.eastwestventures.co/aims. Ok let’s dive into our episode today with Mr. Bernard Reisz.

Vee 2:54
Hey, welcome to another episode of The Real Estate Lab Podcast. We have an awesome awesome guest today. He is is so special, he has so many titles that I don’t even know where to begin with. Bernard, are you are a CPA CPCU ARM and ACI what are all the letters means? All right?

Bernard Reisz 3:14
CPA is very recognizable CPA certified public accountant, CPCU, ARM and ACI are all risk management designations. So those relate to taking a really deep dive into risk and insurance, but not in the way that people generally think about insurance. It’s about really about understanding and managing risk, knowing and understanding how insurance companies operate. So it’s a deep dive into risk management.

Vee 3:42
So how did you get involved in the insurance side and also get involved in the CPA side the two things are not even related.

Bernard Reisz 3:50
That’s what you think. Absolutely. I thought it’s a fair question. So for the most part, I’m really into analysis, taxes, financial stuff. And recognizing that all this stuff, all this financial stuff is really interrelated. And there really is a very specific tax aspect to this, because insurance companies actually have some really, really great tax advantages. So insurance companies get to do some pretty cool stuff. We could probably do a podcast about that in its own right. But the idea is to sum it up in a really, really in a nutshell, when you pay your insurance premiums for your liability insurance. The company takes in say you pay $1,000 in premium.

Bernard Reisz 4:38
Well, the company took in $1,000, the insurance company, but they may only pay that out never or over 20 years, 30 years right turns company takes in hundreds of millions of dollars of premium each year and or billions of dollars, with the expectation that they’re going to pay some of it out over time. But guess what they get to take a tax deduction this year for just about all of that money. So you taken a billion dollars of revenue, but you don’t pay taxes on it this year, because you tell the IRS, this is money is not really profit, because our actuaries tell us that over the next 50 years, we’re going to have to pay out a big chunk of this. So therefore, they get a tax deduction, they don’t have to recognize that revenue. So insurance companies are really neat for a tax purpose. And frankly, that’s really how I got into this in the first place is really to from the tax side. But to really do anything properly, you got to understand every component of it. And for that reason, I had to learn and master every nuance insurance and risk management.

Vee 5:43
So how do we on the real estate side, do the same as the insurance company, what are the some of the vehicles that you have been studying and you see that his car is really is an awesome strategy to shelter some of his tax?

Bernard Reisz 5:59
Yeah, there are So many different vehicles and as somebody from real estate strategies, I think we may know perhaps the good ones to focus on our qualified retirement plans and self directed IRAs. But of course, in different scenarios, you know, real estate investors, we may be talking about using S Corp. C corporations, and other entities and other tax strategies, be they 1031 exchanges cost segregation. You know, so many different things that real estate investors can use or should consider using. But everybody’s got a different investor profile. But, you know, tax shelter retirement accounts really apply to everybody, especially to people that are considering investing passively in real estate. For those people, what they have to think about are QRPs, self directed IRAs, and I think that’s a good topic that should appeal to the broadest array of listeners.

Vee 6:53
So for QRP, and self directed IRA, is QRP just a fancy name for solo 401k?

Bernard Reisz 7:01
That is a great way of presenting it. Technically it isn’t. In practice it is. Man, I’ll explain to you what I mean by that. QRP really stands for qualified retirement plan, which encompasses just potentially an infinite number of tax sheltered accounts. So just some examples of qualified retirement plans are 401k plans defined benefit plans, cash balance plans, profit sharing plans, so there really are so many types of qualified retirement plans. And in the industry, that’s abbreviated as QRP. But when it comes to using qualified retirement plans for real estate, to my knowledge, anybody that’s talking about using a QRP is talking about using a solo 401ks, even though you know, they may not call it a solo 401k what’s being discussed is a solo 401k. So while QRP again, can technically refer to almost any type of retirement plan, when we talk about the real estate investment arena, we’re talking about solo 401k.

Vee 8:10
Okay, so can you talk about some of the similarity and the differences between solo 401k QRP and a self directed IRA?

Bernard Reisz 8:20
Yes. the you know, there are a lot of similarities, but there are some very important differences. And QRP, 401k you know, has some benefits over using an IRA. At the same time, you have to qualify for that. So, while everybody can have a self directed IRA, or what we focus on, you know, was the checkbook control, IRAs, we actually get the money in a bank account. You know, it’s something that everybody can have, but the QRP 401k has some very specific requirements and in practice, most of most of us, you know, most of us will not qualify for solo 401k. More Americans than ever do qualify for it. And if you qualify, it definitely want to use a solo 401k. But for everybody out there for everybody, a self directed IRA can work. So let’s talk a bit about what each of those are and what it takes to qualify for each one of those. And if I may ask you, Vee do you have any prior experience with QRP 401k?

Vee 9:25
Not for not 401k or QRP but self directed IRA for sure. I’ve been doing this for about 10 years now. And I’ve sent a numbers of people over to a custodian here in town to set up the self directed IRA account to lend money out.

Bernard Reisz 9:43
And have you do you have any experience with you know, checkbook? 401k CheckBook IRA. So an IRA it actually gives you direct control of the money in a bank account?

Vee 9:55
Yes. And I learned very quickly that I don’t want to keep on doing that, because if you do something wrong, where you do a prohibited transaction, your IRA account is done.

Bernard Reisz 10:08
Yes, that is and that’s true. That’s a great point. One thing that everybody’s got to be aware of when using any of these types of accounts are the prohibited transaction rules. So whether you’re using a 401k, or some self directed IRA structure, you’ve got to be aware that prohibited transaction rules, in practice, will not have, you know, an IRA. Actually, this is one of the good areas to talk about. One of the benefits of the 401k over the IRA. So in an IRA, if you engage in a prohibited transaction, that kind of broken the IRA, that’s it, it’s not an IRA anymore, but inside of 401k, if there is an inadvertent prohibited transaction, it can be corrected. So in an IRA prohibited transactions cannot be corrected. In a 401k prohibited transaction, prohibited transactions can be corrected. And so there’s much, much, much greater safety when using a checkbook 401k versus using an IRA. And

Vee 11:13
so how do you correct a mistake like that in a 401k?

Bernard Reisz 11:17
So in a checkbook 401k, you’re able, two things are able to kind of just undo it, you’re able to undo it and the tax potential tax on it is 15%. Kind of as whereas in an IRA, it just is the end of the IRA when the prohibited transaction happens. And have you ever seen any prohibited transaction? You know, maybe it’s not a question to be live with, but you know, what kind of prohibited transactions are you concerned about that can show up inside of an IRA?

Vee 11:46
Well, what what we were trying to do before was that understand you cannot loan money out vertically so you’re you to your child or to your parents. You can do sideway to your Brother and your cousins. So we actually went to so my business partner and I, we went to different workshops to learn in depth about self directed IRA about 10 years ago, and the rule has for prohibited transaction, I believe are still the same, but the tax code change. So a lot of things I’m not up to date anymore.

Vee 12:21
But we were just trying to see if there are clever ways to play with the tax code. Since it’s so much out there. I’m sure you can find some loophole that you can play with it. And you can get the money out of the IRA account sooner without paying no penalty.

Bernard Reisz 12:40
And did you and I guess you learned when it comes to prohibited transactions, it’s always worth erring on the side of caution. It’s just not worth taking chances with the prohibited transaction rules. There are certain things that can fall into a gray area. But in general, we say there’s so many things that you can do without lending money to your child. parent, you know, there’s so many, you know, just do the lending to an unrelated party, and everything is great. So there’s so much opportunity that going, it’s not worth there’s no reason to ever consider taking a chance with the prohibited transactions. That being said, you know, there’s just much greater safety in using a 401k because the prohibited transactions can be undone.

Bernard Reisz 13:21
And to take that further, let’s talk a bit about some of the other distinctions between the 401k and the IRA. So an IRA is something that just about any American can have, but a checkbook 401k has to be tied to a business. Only a business can sponsor can create a checkbook 401k or any other qualified retirement plan. So the first condition that would be looking for for somebody to set up a checkbook 401k is to ensure that they have a business and a business has to be a certain type of business. So it can’t be somebody who has investments does not have a business for the purpose of creating a checkbook 401k for the purpose of checkbook 401k, you need the kind of business that’s an active trader business, not an investment. Another thing that we encounter oftentimes is people that will think they’ve got a business because they have an LLC. From the IRS perspective, an LLC does not create a business, it’s having business activity. So if you’ve got business activity, but you have no LLC, you can have a checkbook 401k. But if you’ve got an LLC, and it’s kind of just sitting there, and you’re not actually engaging a business activity, then you cannot, you cannot create a checkbook 401k. So that’s the first component of it. Again, it’s having a business understanding what does and what does not constitute a business.

Vee 14:43
Okay, so let me stop you there for a second here. Can you define the level of activity needed? So for instance, if I’m just like a direct sales, network marketing, I just joined some company. I have a business and I may or may not make money but you know, as active business?

Bernard Reisz 15:02
Yeah, that’s a great question. And there is no definitive answer to that. That’s the truth. A business can be part time. And the IRA says as much the courts tell us as much we know, a business can be part time. But and a business doesn’t have to make money to be a business. That’s really about engaging in an activity with some measure of consistency for the purpose of generating profit. You don’t have to actually generate a profit technically, but if you never generate a profit, it may not be a business. But just to give you some extreme examples. Have you ever heard of Uber?

Vee 15:33
Yeah.

Bernard Reisz 15:34
Have you ever heard of wework?

Vee 15:36
Yes.

Bernard Reisz 15:36
But are those businesses?

Vee 15:38
I would say no, because they.

Unknown Speaker 15:42
Okay.

Bernard Reisz 15:44
Right. So these are bonafide businesses that are losing money, right? They’ve never made a profit. They’re losing billions of dollars, billions and 10s of billions and hundreds of billions of dollars, but it’s a business. So those are businesses. So again, just to illustrate a business does not have to make money. But as you say, you know, somebody is doing something sporadically and it doesn’t make any money. You know, if the IRS ever looks at that, they may say, hey, this is not a business. So definitely, you know, if you have something that’s not clearly a business, that’s kind of a side hustle, you want to either be able to show that you’re really doing some hustling. And it’s nice for if you’re making money. But, you know, obviously, bottom, every business, every startup business loses money, you generally take some time to, to be profitable. So the bottom line is, there’s no definitive answer. But if if you’re engaging in something, consistently, you know, pursuing a profit, it’s a business.

Vee 16:45
Okay, I want you to take it to another extreme here. Let’s say I create this business. And I understand that the IRS is you at some point have to make a profit. Otherwise if your hobby is not a business, right, so I’m trying to see if I just have a business and I lose money for a few years. I created this QRP for that business then I go out of business, create another company another business. Can I create another QRP?

Bernard Reisz 17:16
couple of things you can you can use the same QRP actually. That’s the truth. You can you actually use the same one. But to be clear, if a company never makes money, it doesn’t necessarily become a hobby. The hobby rules are there to give the IRS the ability to look at something and say this was never a business but right. We work almost ran out of money. Right? They were running. They were run out of money today. They were just bailed out right by Japanese banks?

Vee 17:43
Right.

Bernard Reisz 17:43
I heard wework run out of money and shut their doors. The IRS could never have come to wework and said you’re a hobby. Your 401k plan is was not a 401k plan. You are not entitled to any business tax deductions. Right? If some if the IRS says something as a hobby, you lose all your business tax deductions, you lose so many things. So it’s the the IRS has the ability to say, Hey, that was not a business that was a hobby. And the fact that you never make money is just kind of one of the circumstantial things that the IRS may say, this looks like it was never a business because you never made money. But when something is clearly a business, it’s a business, even if you never, never never become profitable.

Bernard Reisz 18:26
So it’s, it’s more of like a clue. You know, if somebody somebody does something for years, and they’re never profitable, and otherwise, it doesn’t look like a business because they, you know, they only spent an hour a month on it. That’s when the IRS will say, this is not a business. You don’t have a profit motive here. You’re not trying to make money because it doesn’t look like you’re trying to make money. To recap, even if you never make money, you’d still say Hey, that was a business right? If you created a QRP for that business, that means you’re taking the position. This is a business. I’m trying to make money here. I have a profit motive. If it doesn’t work out, well, hey, we know most startups go out of business. That’s what happens. It will you know, it’s a business. And if you eventually start a new business, of course, you can have a QRP for that business as well.

Vee 19:11
That’s great. That’s awesome. Okay, so let’s go back to your point earlier. So to have a QRP, you need to have a business. So and we have just defined what’s the businesses and you could have, you can make money or not as long as long as you have business activity you qualify, and what else?

Bernard Reisz 19:29
So you’ve got that right that business activity, which means you’ve got a profit motive, and you’ve got some measure of consistency.

Bernard Reisz 19:35
`Now being that the most economical way to do this is to do this with the QRP for a solo business. We’re generally looking for somebody that has a business that does not have any employees, full time employees that are not owners of the business. So let’s clarify that. What are we trying to get over here and why does this make it Why is this qualifying attribute? Well, QRPs or your regular company 401k plan can have lots of risks and costs associated with it. There’s a lot of compliance work that has to be done for your standard QRP. But the reason why that’s the case is because the IRS and Congress are trying to protect the company employees, the people that are not the business owners, so they make all sorts of compliance rules. And if you break the rules, the penalties can be severe.

Bernard Reisz 20:27
But when you’ve got a business where the only participants in the 401k plan, the only participants in the QRP are owners of the business, Congress says, Hey, we don’t have to protect any employees over here. Anybody that’s in this company has an owner or a spouse of the owner, you know, married to one of the owners, so we don’t have to protect anybody here. We can kind of put aside all those rules, all that compliance work just goes away when there are no employees that are not business owners. So to sum up, the second thing we’re looking for, we’re looking for that kind of business where the business only people in the business that are working full time are owners of the business. So that’s number two.

Vee 21:10
What about in a situation where you are the owner and you’re running this business, but you have 1099 employee?

Bernard Reisz 21:16
So as long as a truly 1099 employees, that’s okay. Because they’re not 1099 employees, you’re either 1099 or an employer.

Vee 21:25
Right?

Bernard Reisz 21:26
Exactly. That’s the idea. So a 1099 is an independent contractor. They’re not really part of your business. And right, you can imagine, think about this way, right? Do you have to every company uses contractors, so they have to include those contractors in their 401k plan? No, of course, of course not. So if your company’s using contractors, you don’t have to include them in the 401k plan. Now that’s a question in and of itself, right. If somebody is right, think of it this way.

Bernard Reisz 21:51
The only people that you have to include in a 401k plan are those that work 1000 hours per year or more. Somebody’s working, doing 1099 contract work for you for thousand hours, um, you may want to consider are they really a contractor or an employee, which is a question of itself. But so long as they’re not employees, they’re 1099 contractors, you’re all good.

Vee 22:12
Okay, so that’s number two, you need to have, like a business where you’re the owner and you don’t have employees.

Bernard Reisz 22:19
That’s right now you can have partners, you got business partners, because they’re also owners of the company. And you ideally want them each to own at least you know, at least 5% of the business. So so long as you that’s the scenario. Again, if you have part time workers that do less than 1000 hours per year, you can have that solo QRP. So that’s really it the two requirements. And again, with today’s side gig economy, more Americans than ever can have the solo QRP. At the same time, I venture to say most Americans still cannot because you have to have your own biz trade or business and not have any employees. So So while we set up these checkbook solo 401ks, and we want to set them up for as many people as we can, it’s very important to be cautious about getting this set up if you’re not a good fit for it.

Vee 23:10
Have you ever seen anyone screw up so bad where a 401ks, you know, they just have to pay the penalty to 15% penalty consistently.

Bernard Reisz 23:20
Oh, absolutely not. I have never seen that. I’ve seen things that should not have been done, but I’m going to leave that for off the air discussion.

Vee 23:31
I was going to ask you just you know, see what’s the most creative way someone have came up with to you know, use this QRP?

Bernard Reisz 23:38
Yeah, it’s not there’s not it’s not that there’s so much room, you know, with the creativity side, because when the rules there are fairly clear. And and we feel it’s not worth taking chances with them. It’s not worth taking liberties of this and it’s almost like a total, shall we say? cognitive dissonance. me know people. If you want Want to engage and you know, people that use the QRP, it means to say, hey, I want to pay play by the rules. I want to look at the tax code and look at what the tax code gives me. And within the rules, the tax code, maximize what I can do. If somebody’s the kind of person who just wants to break the law. You know, there are a lot of other things that they can do. Using QRP means to say, Hey, I’m the kind of person that wants to play within the rules. And I don’t want to have risk with the IRS. I want to do what is legal, and within that world do the most that I can.

Vee 24:32
So within the QRP, what kind of tax liability are we talking about here? What do we have to pay Uncle Sam’s here?

Bernard Reisz 24:40
Okay, so awesome question. So QRP is actually going to have, you know, want to think about any kind of tax vehicles out there. It’s the one with the absolute least high tax liability for the most part, QRPs right? They function very much like IRAs in the sense that you get tax deductions. If you use a you know, tax deductible QRP. And if you use a Roth QRP, you don’t get the tax deductions. But all earnings are forever tax free. So for the most part using QRP, you have no tax liability, very much very similar to IRAs, but it has some substantial tax benefits over an IRA, particularly within the real estate investing arena. So the first tax benefit is you can get much greater. This whatever you can do in the IRA world, inside of the QRPs, you can just magnify that.

Bernard Reisz 25:36
So with an IRA, Roth IRA, traditional IRA, the most you can put in on an annual basis of $6,000.

Bernard Reisz 25:43
Whereas with a QRP, you can put in 56k. So, think of it as IRA tax deductions or Roth IRA on steroids. So it’s it’s just much much more powerful. The magnitude is much greater than an IRA. The The second thing is there are certain cases where even tax sheltered retirement accounts. And really any not for profit entity can be subject to tax. There are some really great exceptions to that tax for QRPs. So have you ever heard of UBIT? Have you ever heard of UBIT UDFI, UBTI?

Vee 26:24
Yes. UBIT is unrelated business related income.

Bernard Reisz 26:28
So yeah, UBIT is unrelated business income tax.

Vee 26:32
Okay.

Bernard Reisz 26:33
And where you’re most likely like one would that tax potentially apply? So the words most relevant to real estate investors is when they have something called UDFI unrelated debt financed income and when you have UDFI, which you may be wondering, you know, we’ll talk from home what that is, I know it sounds a bit like UFO there’s the potential for tax liability and is really great. Carve out that exempts QRPs from UDFI created by real estate.

Bernard Reisz 27:05
So what is UDFI? UDFI stands for unrelated debt financed income, and it’s what you have when a tax free entity borrows money to invest. And it’s important to note this is not unique to IRAs and 401 K’s or any tax free entity, you know any charitable organization that doesn’t pay taxes a non for profit, if it borrows money goes to a bank borrows money and then invest that moneym then there’s the potential for tax there. And when now UDFI applies to any tax sheltered entity, but QRPs are exempt from UDFI related to real estate. So a QRP 401k whatever we’re going to call it, if it borrows money for real estate investment, there is no UDFI but if an IRA invest money, you know in real estate using borrowed funds, there is a potential for UDFI there. So that’s a really, really great benefit of the QRP over 401k. But at the same time, it’s very important to put it into, you know, in context. You know, if I were to ask you, now that you’ve heard about this UDFI thing, would you stop using self directed IRAs to invest in real estate?

Vee 28:21
Hmm, depends.

Bernard Reisz 28:23
And what would it depend on? You know, what, what were your thoughts be on that? What would it What would it hinge on?

Vee 28:27
I’m not sure it’s just a lawyer answer.

Bernard Reisz 28:32
Okay, yes, you can never go wrong with it depends.

Bernard Reisz 28:36
And here’s the thing. Let’s put this into into context. You know, how does UDFI work? And there are a couple of layers of this. But the first and most important thing to point out is as follows. Understanding how UDFI is calculated. So if I were to tell you, you can, you know, you’ve got $100,000 in an IRA So first question to you is you’re going to invest in real estate. Do you want to use a QRP? Or self directed IRA? What will your response be?

Vee 29:09
Without knowing the tax implication? I would say self directed IRA

Bernard Reisz 29:13
Vee. what’s going on? We just spoke about all the benefits of the QRP?

Vee 29:16
I know, but I’m saying if I’m just a normal listener, right, we Yeah, just learning about this for the first time. And before this episode, I would say self directed IRA.

Bernard Reisz 29:28
Yeah, okay. 100%. Right. Right. I get that completely. So the answer would definitely be QRP is for especially because of the QRP does not have this UDFI. And most, most real estate deals have leverage. In fact, that’s why you want to invest in real estate is because you can go to the bank, get the bank get give you 60 to 80% of the money. There’s a potential for UDFI, which the QRP is going to be accepted from, in contrast with a self directed IRA, which may have to pay some tax there.

Bernard Reisz 29:59
Now that’s great for the folks that qualify for a QRP. But the folks that do not qualify for the 401k, you know, I’ve seen lots of folks that have been talked out of using IRAs for real estate because of UDFI. So it’s important to understand why that is generally a mistake. If you can put $100,000 you know, in your IRA, and put that into into a real estate deal, you can do an all cash deal with $100,000 and not pay any tax. No UDFI no potential UDFI, or you’re given the choice, hey, you can take your hundred thousand dollars, get $300,000 from the bank, do a $400,000 deal. But you’ll have to pay tax on 75% of the income which would you prefer?

Vee 30:47
You pay tax

Bernard Reisz 30:49
Yeah, because I mean, of course, if you’d like you can do the hundred thousand dollar deal and have no tax but again, you can do a $400,000 deal and pay some tax. That’s definitely the Way to go. So the key thing to understand is that even the event that you UDFI applies, it does not apply to your total investment. It’s only applies to the portion of the return that’s generated by borrowed money. So it’s not as if you borrow money, all of a sudden your IRA becomes taxable. It does not. It’s only the portion of the deal that was financed with borrowed money can potentially be taxable. So you don’t lose by taking the loan. You come out way ahead, because on the contrary, you get the benefit of leverage. And your principal, your IRAs investment will always be tax free. It’s the bank’s money that would be subject to tax. So that’s the first thing that think that people gotta understand. When they think about you, UDFI and recognize that UDFI should not intimidate them or not stand in the way because you’re always coming out ahead, almost always coming out ahead when taking that was taking that loan. Now. The other thing to understand is, for the most part in real estate, Vee, based in your experience in the how much taxes to real estate investors paid?

Vee 32:12
very minimal.

Bernard Reisz 32:13
That’s right. So real estate investments generally actually have no taxable income. So if you have no taxable income, there’s no UDFI. So just like your regular real estate investor, you get your depreciation deduction, your mortgage interest deduction, you get all those great tax deductions that real estate has. So after all your leverage, you have no income, you have no taxable income, you have cash flow, but you have no taxable income. Well, same thing inside of an IRA. Even if the IRA has the potential for UDFI, it’s generally a phantom thing. If you don’t see it, it doesn’t exist because you’re not have taxable income. You have all those tax deductions to offset it, even within Ira, you’re generally not going to see UDFI.

Vee 33:04
So Bernard what you’re saying is that just clarify something. Earlier you mentioned, let’s say, we have $100,000, we’re taking a loan from the bank, and we only have to pay UDFI taxes on 75% of the income, is that because we are leveraging 100,000 to get another 300,000 and more by a $400,000 property, and that’s the proportion that you have to pay taxes on, based on the income.

Bernard Reisz 33:29
That’s That’s exactly it. It’s oversimplified. But that’s the concept. The idea is that you’re paying taxes only on the portion that was financed with debt. You don’t have to pay taxes, your IRA is tax free, and it stays tax free, right? The only way an IRA really is going to pay taxes if you break the IRA, right, but over here, you’re doing it a passive real estate investment, which is, you know, which is a great investment for an IRA. Okay, the fact that you took some of that outside money so that outside money is literally not IRA money and so there were returns generated by an outside money will be taxable.

Vee 34:07
Okay, so let’s say in terms of a syndication let’s say you have this GRP and you want to partner in syndication you buy membership share in an LLC and the syndicator now, after here she bought the building goes to your friends, Yonah Weiss from Madison SPECS and you do cost seg right? Then write off everything you cost seg, you do bonus depreciation. So now you have a huge phantom loss. You don’t pay taxes on on that,

Bernard Reisz 34:39
that that’s exactly it. Cost Segregation is something you definitely got to talk to Yoanh about all the ins and outs in practice. You know, the, you know, even without cost segregation, you’re generally not going to have income. In the first couple of years of a real estate investment with without cost segregation. The real benefit of cost segregation is to create Losses now, are you going to have a benefit from the loss? Whether or not you benefit from real estate losses, you’ll really depend on being a real estate professional for the most part, even without cost segregation, you generally will not have any taxable income. The benefit of the cost segregation is to create a loss in year one,

Vee 35:20
right? And by having a loss, you don’t have an income. And so, you know,

Bernard Reisz 35:25
I’ll illustrate a bit. Usually the first couple years of an investment even without cost segregation, you’re not going to have any taxable income. So like once you take your whatever your profit is, right, the rental income comes in. But once you deduct your standard depreciation deductions, you deduct your mortgage interest you direct all your operational costs there in the first couple of years of a deal. You just won’t have income once you subtract your expenses, you will not have taxable income. Right? And the key thing in real estate is, is that you’re while you’re not having taxable income can still have cash flow because depreciation which you get no matter whether or not you will cost seg study depreciation is a non cash expense, right? It’s the kind of this it’s a phantom expense and away on the tax bill on your tax return you right? We had depreciation expense, but it doesn’t cost you any money. So that’s that’s so you get cash flow, but no taxable income.

Bernard Reisz 36:23
But suppose you want to take, you want to put your depreciation deduction on steroids and create a loss. That’s where cost segregation is super powerful. Now the benefit of a loss is not that you don’t have income, the benefit of a loss is that you can take that loss and offset some other investment that you made, that does have taxable income. Or you may be able to take that loss and offset your W2 income or your business income, not every investor. This is subject of itself, but only certain people are positioned today. Take advantage of real estate losses. And I gotta clarify, there’s something called passive activity loss limitations, which means to say is that unless you’re a real estate professional, you can only use real estate losses to offset real estate income. So if you the only way for somebody that’s not more or less full time real estate to benefit from real estate loss is if they have other real estate or other passive real estate investments that have taxable income. Otherwise, the loss is suspended and you know, get no current benefit from that, from that real estate loss. Does that make sense?

Vee 37:37
Yes, totally. I’m trying to see if there are other ways that someone who was trying to invest in a syndication has to pay attention to in terms of using the QRP in a syndication

Bernard Reisz 37:51
so it’s Think of it as very much like using an IRA except you do not have to have a custodian involved. There is no requirement whatsoever to have a custodian. So an IRA, it’s in the tax code needs a custodian. So there’s got to be some sort of financial institution involved. So even when we set up the checkbook, you know, even we set up the structures that give clients IRA money in a bank account, we have to partner with custodians. In contrast, 401k, there is no requirement for custodian to be involved at all. So it’s actually in a way much more streamlined than using any type of IRA because you’re definitely going to get the money in a bank account. There’s no need to get any custodian counter signature. You don’t have UDFI. So it in any other way, it’s very much like using an IRA, just just simpler and no potential for you UDFI.

Bernard Reisz 38:48
So QRP is is a really kind of the obvious choice for anybody that qualifies for it. You know, because the UDFI thing will you We’ll encounter it and let’s bring this full circle will you will encounter UDFI on a real estate syndication is on the exit at that disposition is where there is the greatest potential for encountering UDFI Because at that point, you know and a successful syndication, right, you’re going to exit out to five to seven years. And the idea is that you’re going to sell for much higher price than you actually paid. So at that point, you’re going to be looking at a at a gain at a taxable gain. And again, would potentially to the IRA investor, it’s going to be taxable to the extent that borrowed money isn’t the deal. Whereas to the QRP investor, there won’t be no tax whatsoever.

Vee 39:48
So everything is then just tax deferred until you cash out

Bernard Reisz 39:51
with an IRA investor then the first couple of years, you’re not going to see any UDFI if you stay in the deal long enough. There definitely is the potential UDFI but certainly at the disposition of the asset, when the asset when the deal is actually exited, and this, you know, on the partnership wraps up, right at that point you’re planning to show on the K one you plan to show that you sold it for a gain. That’s where you’re going to be looking at UDFI for an IRA investor, and a QRP investor will not have any that UDFI

Vee 40:22
right so after everything you’ll have to explain right now it seems like it’s very easy to get into a QRP just based on the all the reason that you’d explain and all the things that you need to do to qualify it seems like not much for for you to qualify. So why would someone still do self directed IRA over QRP. If you can qualify for the QRP You certainly, you know, in almost all scenarios, that’s the way to go. There is one other one other factor,

Bernard Reisz 40:55
you know, perhaps but this is not the answer the this is not going to answer your question because this doesn’t explain Enough why people are not using QRP. But that is Roth IRA money cannot be rolled over to a 401k or QRP. So if people have money in a Roth IRA, it’s got to be the investment has to be made through a Roth IRA. But in any other scenario, if somebody does qualify or can qualify, and they certainly should, now, it’s, it is easy to qualify, you know, obviously, somebody’s got a business already going, they qualify. If somebody wants to qualify, it does mean that they have, they’re probably going to have to change or they’re gonna have to do something for that they have to start some sort of business.

Bernard Reisz 41:39
Now today, it’s easier than ever to have a business right now. I’m going to know if I get to ask you how many of your friends are doing some sort of side hustle or a full time hustle, you know, gig economy, freelancing, Amazon, Etsy, you know, some sort of something in the sharing economy. To be at ridesharing consulting, there’s so much opportunity to have your own business. But it’s something that people should consider doing for so many tax and financial reasons. But if they don’t have it already to qualify for QRP 401k, they’re definitely gonna have to do something. And some people, you know, to each their own, and everybody, some people can’t, you know, don’t want to change what they’re doing. Some people do want to change what they’re doing. Yes, by all means, if somebody can qualify and wants to take action, and qualify for a checkbook 401k power to them.

Vee 42:35
So in the situation of someone who is running an Airbnb business, is that something that you would consider as qualify?

Bernard Reisz 42:43
That is something that I would say as follows. Airbnb businesses, is definitely something that might qualify. You want to have consistency with what you’re doing your tax return. So when people call us And have Airbnb businesses going on what we try to tell them is be consistent, and rather than say, oh, you’re Airbnb qualifies. Now, where are you putting it on your tax return, you’re putting on a Schedule E or schedule C. And there’s, without getting into what should or shouldn’t be done, we can do that on a different podcast if you’d like. You know, all the tax rules around the Airbnb and one of my belong and Schedule E one of my belong a Schedule C, we generally want to see something on Schedule C, in order to set up a QRP.

Vee 43:33
Okay, and then one other business type that I want to ask you about is any pot-related businesses like if you grow marijuana or you own warehouse to rent out, so that someone could grow? Does that qualify?

Bernard Reisz 43:52
So if you’re growing, that sounds like a schedule seat to me, by all means, if you’re renting out warehouses, that’s really not a pot business. You know, incidentally, There’s a, you know, you’ve got a cannabis business renting from you. But you’re a real estate you’re collecting real estate rent, and which would be a Schedule E, which I think is not a good fit for a for QRP. So if you’re the grower, you know, you’re buying and selling pot. I know. Absolutely. And I know you’re, you know, you’re in Colorado, Colorado is where it all began. So while spreading to other states, that certainly the pot capital, so by all means you’ve got a pot related business. It is a business. And it’s really cool. Because think of this way at the federal level, right pot is still illegal. My it’s only the states that have allowed it. So it’s really cool to realize that, hey, this is a business. And we’re going to we’re using federal rules, right to QRP 401k. As a federal concept, but this has precedent. If you think about real drugs, you know, the tax code, talks about drug related businesses, and then even Al Capone, I think when they got they locked him up, you know, when he’s Doing they were drug running and maybe during Prohibition selling alcohol, they took him on tax evasion. But even a drug dealer in general is, is entitled to tax deductions. It’s a business, you know, the fact that it runs afoul of certain federal laws doesn’t mean it’s not a business.

Vee 45:17
This is so great. This is awesome. I’ve not ever heard that before.

Bernard Reisz 45:21
Yeah, I’m serious tactical talks about this. And yes, if you are running an illegal business, it’s still a business. And you got and you have to pay taxes. Right? The fact that you have a pot business, which is illegal doesn’t mean you don’t have to pay taxes, you have to pay taxes, the IRS can come to you for tax evasion. If you don’t pay taxes on your, you know, on your drug running, and your drug dealing. So, pot business is a business.

Vee 45:44
Oh, man, this is so great Bernard. One last question before I let you go. What is your most favorite success or mindset quote?

Bernard Reisz 45:53
Can it be my own quote?

Vee 45:54
Sure,

Bernard Reisz 45:54
I got to distill this into like one pithy sentence, but what I say is recognize that you are in control of your financial destiny. Whether or not you realize it or whether or not there are people around you that are, you know, that are trying to take control of your financial destiny. Ultimately, you’re going to be a beer, the risks and consequences and rewards. So you should take charge of it.

Vee 46:23
Awesome. Thank you so much for your time Bernard. This has been great. I learned a lot and I certainly did not know that. You know, a drug business just related business. Can you kind of write off the tax and get a deduction? That was awesome.

Bernard Reisz 46:40
Okay, awesome to have been on the show. Vee. Thanks so much for having me on. And I’m looking forward to hearing the recording and hearing future episodes. Awesome.

Vee 46:50
That’s the end of the show. Don’t forget to subscribe, leave a five star rating and review on iTunes for the real estate lab podcast. Until next time, have a prolific week.

The post EP 13: Bernard Reisz – What Everyone Should Know About QRPs & UDFI Tax appeared first on Real Estate Lab .

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https://realestatelab.live/ep-13-bernard-reisz-what-everyone-should-know-about-qrps-udfi-tax/feed/ 0 Bernard Reisz CPA is the founder of 401KCheckBook.com which gives investors direct control of their tax-sheltered funds for real estate equity and debt opportunities using checkbook controlled IRAs, QRPs, Solo 401K(s) and Checkbook Life Insurance. Bernard Reisz CPA is the founder of 401KCheckBook.com which gives investors direct control of their tax-sheltered funds for real estate equity and debt opportunities using checkbook controlled IRAs, QRPs, Solo 401K(s) and Checkbook Life Insurance.



He’s also the founder of AgentFinancial.com which provides tax strategy, entity, and financial services to real estate professionals, including real estate agents, real estate investors and mortgage brokers.



SHOW NOTES:



[00:07:01] Bernard explains the different types of QRPs out there.



[00:11:17] Bernard explains how to correct a mistake you make in a checkbook 401K.



[00:12:40] Bernard explains about prohibited transactions



[00:13:21] What are the differences between IRA and 401K?



[00:15:02] Bernard explains the rules required to have a solo 401k.



[00:21:51] You have to include someone in a 401K plan only when they work a minimum of 1000 hours per year for your business.



[00:25:36] Traditional IRA, you can put in on an annual basis of $6,000. With QRPs, you can put in $56,000.sz



[00:26:33] Bernard explains UBIT and UDFI.



[00:30:49] Bernard explains how UDFI tax works.



[00:43:33] Cannabis businesses qualify for QRPs.



FOLLOW BERNARD REISZ: Websites: https://www.401kcheckbook.com LinkedIn: https://www.linkedin.com/in/bernard-reisz-cpa/ Consult and Free Entity Formation Call: https://bit.ly/2Rw9N1v Email: Bernard@ReSureFinancial.com



Join our free Facebook Group at www.EastWestVentures.com/AIMS



Listen, subscribe, rate and review: Apple: https://apple.co/2BdPdeJ iHeartRadio: https://ihr.fm/2MPxyAu Sticher: https://bit.ly/2pUgd0v Listen Notes: https://bit.ly/2JtpZxi TuneIn: https://bit.ly/2NhRCe2







Transcript



Bernard Reisz 0:03
Recognize that you are in control of your financial destiny, whether or not you realize it or whether or not there are people around you that are, you know that are trying to take control of your financial destiny. Ultimately, you’re going to be a beer, the risks and consequences and rewards. So you should take charge of it.



Vee 0:31
Welcome to the show, you are listening to the real estate lab podcast. In this lab. we decode the stories, secrets and skills of the most brilliant minds in real estate investing and turn their wisdom into practical advice and knowledge that we can use to boost our income. And now let’s turn it over to our host Vee.



Vee 0:50 It’s a great day to be alive and to invest in real estate. My name is Vee Khu and you’re now listening to my show the The Real Estate Lab Podcast. Hey it’s the 3rd week of the New Year. Are you on track with your goal? What is your goal for 2020? Mine is to buy a mobile home park this year. If I can support you and your goal in any way, hey, please do not hesitate to reach out to me. You can get to me at vee@realestatelab.live or you can simply schedule a call at www.callwithvee.com Alright, I’ll guess what today came highly recommended by Yonah Weiss. He is the founder of 401kcheckbook.com, which give investor like yourself direct control over your retirement funds.]]>
Vee Khuu 46:55