c c, Author at Simple Passive Cashflow

Taking Profit First w/ Mike Michalowicz

https://youtu.be/lj56RsKnpvQ

Super excited to be having Mike McCalla, widths author of the very popular book profit first now Mike came over to a mastermind that I’m a part of and gave a keynote. And I’ve heard about the whole profit first system, which. Do you guys know Google ed? There’s a chart online where it spells it out. Pretty simply. We don’t really need to read the whole book, but, I think it’s good to hear about it.

Different ways, listen to this lewd show. So what does it inspire? What does the action plan that I did? You’re supposed to pay yourself for said kinda split things out now. Not as super childish as an envelope system. But a virtual envelope system, right?

So you have your checking account maybe is your owner’s pay. Or I had been using my infinite banking account as another sort of virtual envelope. And also my spouse’s account as another envelope to take things off the table, take profit first, at least that’s how I’ve been using it. If you haven’t heard of the infinite banking, check out the infoPage@simplepassivecasual.com slash banking.

And also while you’re at it, learn how we use these short-term liquidity sources as our opportunity fund. You can learn more about that concept@simplepassivecashflow.com slash Oh fun. But enjoy the show

hey, simple passive cashflow listeners. Today. We have a real life author. Who’ve actually sold more books than a hundred, like some of those other podcasts.

That’s the best intro Everlane. That’s it we’re done. I’m so to social proof right there. But, Mike and I met a few months ago in San Diego. He came and gave the keynote speech at our mastermind. He wrote the profit first book, clockwork search, the pumpkin plan. That was a popular one.

And he’s also looking to release his next book, fix this next. He, by the age of 35 founded and sold two companies w one to private equity and another to a fortune 500 today is working on his third multimillion dollar venture profit first professionals. And he’s a former small business columnist at the wall street journal for more business make-over specialists on MSNBC.

And he is here to help give some insight more for the passive investor today. But thanks for coming on, Mike. Really appreciate it. Yeah. Happy. We were able to pull this off. Thanks for coordinating this lane. Yeah. Yeah. Once you go over your story and kind of you were working in corporate and I think a lot of

the investors and listeners here are in that cubicle. Maybe they’re middle management, maybe they’re upper middle management. Maybe tell us a little bit where the inspiration for like the suite of, pretty awesome books came from. Thank you. Yeah, I did corporate for one year, my adult life, and it was difficult.

So the quick story is I’ve been an entrepreneur for the entirety of my life. When I graduated college, I tried to get the corporate job and couldn’t start a business in the tech space. Through raw effort, a lot of ignorance, but I was able to sell it to private equity. I then was in computer crime investigation, had that company.

It was a fast run, sold it to a fortune 500. I was acquired by Robert half international, if you’re familiar with them. And that’s the corporation I worked for one year after being acquired, it was for me, murderous figuratively speaking, I just had never experienced bureaucracy. Like that or gamesmanship or whatever it wasn’t about getting results.

It was much more about the politics and I couldn’t handle it nor could they handle me. Like it was oil and water. So I left that I was escorted out in fact gratefully and started my next business where I was an angel investor. And I was just horrible at it. I started a business that had no right to be in.

I thought, cause I knew entrepreneurship so well. I two exits I had proof. I knew the process and I sucked at, I collapsed. I lost all my wealth. It was Financial travesty and, ultimately triggered depression and struggle and but a restart. So I’m actually most grateful for that period of my life because I felt called to figure out.

How to make entrepreneurship simpler for me and for our fellow entrepreneurs, how to really master the journey. And I decided it was 12 years ago, decided to become an author. And I started writing books to solve my own challenges. I started new businesses that I own today that made them the Guinea pigs and platform profit.

First professionals is one. I own four companies now. And have those businesses operate and use these principles while I teach the systems. And that’s who I am today. I’m an author. I love entrepreneurship. I love micro business and small business. I am convinced it is the backbone of our planet and these businesses, our businesses need to be successful.

So I hope my books are support in that journey. Yeah. Let’s talk about profit first, because that was my first introduction to your content. And I’m going to share this little image. I took your ideas and I, hopefully I didn’t bastardize it too much. This is good. This is an engineers interpretation.

Of your ideas. So for those of you guys don’t know, you can correct me if I’m wrong, Mike, see, this a game of telephone worked that profit first is this idea of, obviously paying yourself first. And I think a lot of us are like, all right, done. I can go home and back to my nap, but it’s a little bit of based on how much you make and for a lot of us that working the day job, that may just mean how much income you bring in.

Yeah. So based on which category you’re in, you can split off how much profit you want to take off the top, which you should spend because after all, that’s what makes us happy. And then how much we need to pay ourselves as owners. And then how much we did to save for tax and operating expenses. Yeah.

That’s exactly it. Yeah, that’s called the taps chart or target allocation percentages. What we did is my business. We studied about thousand other companies, but they were the fiscally elite. The leaders in their industry and it was everything from like a pizza shop. What’s the best pizza shop financially in the world achieve numbers to real estate, to professional services and everything in between.

And we found that these are what. On average, the fiscally strongest companies are industry agnostic. One thing is interesting about that chart. You’ll notice that column B, C and D. If you look the profit or increasing profits from five to 10% to 15, and then in column D it drops back down to 10, 15%.

What’s interesting is that there’s a sweet spot. We found for businesses once a business surpasses a million dollars in revenue. There’s a fundamental shift where the business owner is extracting themselves from the business. Actively and is investing more in the growth of business, through automation, efficiencies and so forth.

So we see a dip percentage-wise in profit and also the owner’s compensation continues to drop. But then these businesses, once they surpass the $5 million Mark, we see the profitability start increasing dramatically. And the owner, you can see the owner’s pay continues to drop because they’re extract themselves from the business in the process and the.

Reward they get is ultimately in the distributions of the business, but they’re not working in the business anymore. Yeah. But 5% of 5 million is way more than 50% of Texas. Exactly. It’s way more. I’m an entrepreneur and what I did here was my goal for my little coaching and education group.

Right now, I’m in that stage, B C that you said I’ve got normally when at any business you bootstrap it from the beginning, right? You do everything yourself. I’m still editing podcasts and stuff like that. We’re recording my own video, editing the video, uploading the video, taking it, all this silly stuff.

But as you said you take after you hit a certain level of scale, you need to slow down to speed up. In a way, when we started a business, when you’re in the a stage, if you will, the only way to run the business, if you’re the sole partner, is you doing all the work?

And if you start with another partner, you’re splitting the work amongst each other, but is not just. Contingent upon the owner is fully dependent on the owner’s effort, but very quickly as we get to stage B C and in really in column D that’s where our behaviors and owner needs a change. So in the beginning you must support the business.

There is no other resource. Quickly on, especially by column D we need to change our behavior and not do the work anymore, but really become delegators at work to specifying and having clarity on the outcomes we want for our business, but have other people at the resources, do the work. And that’s a tough transition for many people.

Many people will, since you start a business and launch it off your sweat, the common belief is I got to keep sweating. I got to do more work myself, and we get in this trap of thinking that the growth of the business. It’s fully contingent upon our effort and working harder. We’ll get more results. But of course there’s a cap on that and we hit it and then we get stuck.

What do I do? Cause I do everything. I’m the hero for this business. No one can do it. I can do. And that’s the problem. We need to start transitioning our mindset from doing the work, to designing the outcomes, to saying I have to create a business structure that is healthy and strong and delivers the outcomes that I expect.

But without any of my effort, it’s where we stop asking me, how am I going to do this work? And asking, who’s going to do this work. So that’s that transition? Another big takeaway I had. And if you didn’t come speak on stage, I would have never got this highlighted there in red, the operating expenses for the category that I thought that I was in and I realize I put in there 28%.

I don’t know why I did that, but I was like, okay, I’m almost spending nothing. I’m doing everything. I’m not spending anything on operating expenses. And to me, that kind of was like a big wake up. Hey dude, you got to spend money on this. I got to hire people to help me

it’s a rare circumstance. Most businesses that I walked through this are spending more than they should. It’s rare, but does happen that people are spending less than they should. And they’re like, my business is nailing it. I’m not spending any money, but then they realize perhaps you did in your case is I’m not investing.

Forward. So if you’re in column a or B, for example businesses at that stage sometimes can run solely off the owner and we can have a tremendous amount of personal income coming in, with very low operating expenses because we’re doing the work. And so there is no operating expense, but that becomes a trap in itself in that you have to do the work.

So now. The only resource us is the exhaustible resource. And the day we decide to take off are one, a little break. The business starts slowing down. So this pathway from a to F was designed on the analysis of businesses that grow with the intention of investing in having other people, other resources, technology, doing the work, some business, if you’re like in a.

Uber driver or you’re in the gig economy and stuff. Let’s see. We can cut the expenses even more. If you just want to be the one person ever only doing the work profit first, the percentages as I show them here, may not be optimized for you and you can ramp up the profit and ramp up your compensation, but realize the trade-off is you won’t be putting any money flowing into the business to scale beyond yourself.

Yeah. This business I’m working on is like a mastermind and private group coaching business. And initially when I was in step a here. I was just doing conference calls every week, zero costs other than those three week subscription. But then, like after you came and talked I started to implement, trying to spend some money, different reports, different other subscriptions that add value and I’m really having trouble spending money on the group.

So I keep asking them what do you guys need? I’m willing to spend some money here, even hired another membership coordinator. That was the way I took your word and put into play. Yeah. No, well done. I’m just looking through your chart right now. It’s a pretty good interpretation.

I give you an a plus. Thanks. Yeah. My parents never gave me any good compliments. So I really appreciate that. This is super good. And the interesting thing about profit first is, and you do the exact right thing. Lane is. It is a, framework, but it is not a manual, a definitive manual. Each business can customize the process to cater to their unique works or unique needs around the framework.

That’s why I see what you did here. Nice, sweet, nicely done. Let’s switch over from, most of the people listening there are entrepreneurs and, one of the topics that came up at my recent Hawaii mastermind is look, maybe the, our highest and best use is just going back to our day job.

So speaking for those. Those W2 guys that are just stuck there and, it’s probably not the worst place to be. I started to think, how can I apply this to a lot of, my avatar, that is my passive investor. And one way I realize is like a lot of these guys, most of the times it’s like the dude, right?

The dude there’s so many dudes in my like mastermind. There’s like maybe 20% are like the wives and they take the reins financially. But, regardless, like there’s always one person in the relationship that is a little bit more gung ho about the financial stuff and the other one takes the back seat reluctantly, most times.

So what I thought was like, instead of taking this profit. Like the profit is essentially put it in your spouses of spending bucket and have them to see some of the gains. Any thoughts on how does a, somebody who’s not an entrepreneur doesn’t really have any op ex. How did they apply this to their normal life?

Yeah. If you’re not an entrepreneur yeah. So this can play into your personal finances or your personal endeavors. But let me tell you the intentions of each account. So the profit is in a business sense as a celebratory account, meaning. That is a reward for doing something that very little of the population does do, which is start a business only about 7% of the world population will ever start a business.

So that you’re called a shareholder. And so profit is a reward for making this investment and owner’s pay is the pay for the operations of the business, as well as the key employee. So many it’s called an owner operator. Many business owners also operate the business. So that’s your pay if you had to replace you and taxes are reserved for your tax liabilities and op ex is the ongoing concern of the business.

In our personal lives, in the book profit first, there’s a whole section called profit first life. And we talk about this. It does translate to, because a family income, a family of one, two, I have three children, family of five is like a small business. In fact, most small businesses don’t have more than two employees.

So most families are bigger than most small businesses. And. We treated the same way. There’s an income source. Maybe it’s your salary. And maybe there’s contributors to that. So you have multiple income source or revenue streams rights. There’s multiple contributors. It goes into this main bucket and then we divide the money up also, and the labeling may be different, but the concept’s the same.

You may have a retirement account, which is your profit, which is, future savings. You may have your lifestyle account. To support your life. My wife and I actually, we have a debit account. She has one and I have one. So we have our allowance or with the primary working. And when my debit card, I can’t run the debit cards cause I have depleted my account, but she can still use hers.

And so that’s how that works. Then there’s tax reserves and so forth. This is the. Old world. Our envelope system is just a modernized flavor of it. We do this at our bank. So every time you log into your bank account, you don’t have to read income statements. You don’t have to read your bank statements, bounce.

She’s got the Rihanna stuff. Use lie in your bank account, and you see where money is allocated with what intended use before you spend it. Yeah, we had Benjamin Hardy on the podcast here recently and, he wrote the book, willpower doesn’t work and he’s totally true. Like we suck at controlling it solves we do.

So w I love that. So willpower. Is like a muscle it fatigues, right? So we can be very staunch about something. I’m not going to touch this money. I was going to sit here, I’m say for my future. And then we’re like like a muscle, it starts fatiguing and you put a little weight on it’s males borrow from this account and then we start unwinding the whole system and we’re done.

So with profit first, we, same thing as willpower. We don’t try to use willpower because it’s a weak muscle. What we do is with profit. For example, in these reserves, we actually will transfer money out of your main bank account. Hide it away from you. You intentionally hide it from yourself in another bank, so you can’t access it.

So you can’t see it and you have to make, do with what you have. When we can’t see something, we don’t worry about that thing. So don’t use willpower, use your habits, to your benefit, block and tackle for yourself in advance, by moving in, hiding money from yourself so that you won’t play a game with yourself.

And then, how I implemented that as I, over the last six months, I’ve been opening up new bank accounts, not just making sub-accounts in the bank account, but brand new bank accounts. In my name and wife’s name and signing the profit and owner’s pay. And she’s what the heck are you doing?

What is all this stuff trying to explain? Hey you for the five, 10% of profit, I’m like, I don’t know. It’s going to take some time. Yeah. Know, it will take time. And it confuses some people, they see it. They’re like, what the heck is this? And they don’t get it. So that skepticism and it’s normal.

You know what I encourage people to do? I set the system up for myself 12 years ago. I didn’t even believe it would work. I was, it was desperate times for me. I’d wipe myself out financially. I needed to do something. And it took me a few iterations. I was like, Holy cow, this is working for me. And it’s been life-changing for me, the system.

And So I expect skepticism. And why invite people is let’s just try on a small basis. Let’s just have one account, a profit account or something. Let’s just transfer a small amount of money in there. Every time money comes in, we’ll put small percentage, meaning just one or 2%, and we’re going to hide that money from ourselves.

Then the rest of our lives will run the normal way. After two or three months, let’s see how much our normal life has resulted in savings. And let’s look at how much this little profit account has. And inevitably the profit account is more consistent accumulate more money. And more effective. And then when they start ramping it up, it’s, we’ve got to buyers way into this channels, our existing habits logging into a bank account, seeing the balances to our advantage.

And then once we start seeing the advantage, that’s when we start winning our favor into it. And then we start rolling out the whole system. So one thing I do with like I said, with the profit, that just goes into the spouse’s account. That’s gone off the face of the earth. Lucky for me, they don’t spend it that much.

The second the owners pay is like I use if in a banking, I’ll throw that into my life insurance as an overfunded payment and then it’s gone. And then everything else I’ll keep it. My plethora of bank accounts. I love it. The bank may get frustrated, so as we set up profit first, we have over 300,000.

We think it’s 350,000 businesses now, but over 300,000 businesses have implemented it. The feedback we regularly hear is the bank is like, what the hell are you doing? Why Sam all accounts and there’s confusion over it. Realize you get a bank is a vendor. You can negotiate them and say, listen, if you’re gonna charge me fees, I ain’t going to bank here.

So I want to set these accounts. Don’t charge me fees, just like any other vendor. They have flexibility and can, if they want your business address that, then we start transferring money in and what the banks notice. And what you’ll notice is now you’re accumulating more money because you know what the money intended uses.

So we don’t spend flippantly or frivolously. And the banks, we got banks calling us saying, we want your client to improv. At first they store more money with us. They’re more active with our bank. So if these accounts don’t let the preconceived notions of banks or an account, and our bookkeeper who does not understand the process, dissuade you from it, we’ve 300,000 plus businesses at serving.

It will serve you. I’m convinced of it. You’ve got to try it out and get past that initial. Negative rhetoric. You may hear from, to some people that just aren’t familiar with this process, right? And for a lot of you guys who have reluctant spouses I did write an article for you guys@simplepassivecashflow.com slash spouse.

This is on the list of tips, right? Create a profit first account for them to just see the rewards, as opposed to them just thinking you’re just socking away, investment money, given away, checks here and there for investments, they don’t see any of the cashflow with. It goes, hand-in-hand like, every time we close a deal, I tell you guys like, go and celebrate, go for a nice dinner or something, make it a milestone that you can not you don’t care, but your family and your spouse can point back to yeah, listen with profits.

So I’ve been distributing, when we take a corporate profit. Our entire family shares in it. And my wife and I own the business, but my wife and I, we share the profit from the business that you’ll start family, the majority of it, but the kids get to, and now there’s an excitement as we’re recording this, it’s a quarter ends in just five more days and there’s a profit distribution coming out already.

My kids were like, Hey, how is the business doing? Because I consider them investors. They don’t invest money. They make sacrifice. And so there’s an excitement around it. When you engage your family, what are some things, you don’t give them money or, what are you celebrate?

Or like a company retreat or what are some things? Yeah, no, I actually do give them money, but we will celebrate collectively in some way. But They actually get a portion of money and not nothing substantial. Like I don’t want them to think that there’s free money being handed out, but I do want them to appreciate what the business is doing and how it’s impacting them and the family as a whole.

So that’s why we’re sharing some of it, but we do some activities and when I first did, I remember the first distribution 12 years ago, it was $8. I just started system. It was $8 that came out, but it was the best eight hours of my life. I went right to Starbucks and said, give me a nice cup of coffee.

And I enjoyed that. And for the first time I didn’t have to use a credit card or debit card or borrow money or make an expense. It was just, the business was rewarding me. I was like, Holy cow, it’s amazing. And it’s grown to, A lot of money. And so we’ve gone, we rented a castle out in Ireland and spend time out there and, we’re doing these activities that are dream activities for us all from the business.

And it’s taken them a while to get there, but it’s just a celebration every single time. I think that character trait is. Very common amongst my group. This past few months in the Hawaii mastermind, nobody stayed in four or five star will tell they all stayed in the two or three star value.

Hotels. I love it. Yeah. It can get weird, right? Like they don’t want to spend money cause they’re always going by that attitude of saving. So there’s gotta be a balance and right. You’re saving, but you can get to the point of being a miser and you have to define your definition of it.

But when I travel for business, it’s all about the profitability. I stay at The motel AIDS. I remember going to a conference. It was this ritzy hotel in Scottsdale, Arizona. And after the event Isaac, my presentation people’s event Hey, you want to hang out? What hotel room are you?

What room are you at? Oh, I’m down the road at motel eight. And they’re like, wow, you’re not paying $500 a night. I’m like, no, I’m paying like 80 bucks a night. And they’re like why I’m like, cause the profitability and I, we actually share profit with my employees. Now we’re small. We have 12 employees here but my employee, Lisa is the Booker for my scheduling, my travel, she books, hotels.

And she knows if I’m staying in a motel eight, we’re all sharing a little bit more profit. So when it comes to the lifestyle, my business it’s healthy, but it’s frugal. And then when the profit comes out as a bonus distribution, you know that’s my opportunity to splurge a little bit, as I define it.

And that’s when we live a little high in the hog, but then we go back to appropriate lifestyle for the business to be healthy and sustain. Yeah. Yeah. Hey man, I did the same thing. I think we met at the Torrey Pines in San Diego. I don’t stay there. I was not saying that I was not staying there.

Yeah. I stay in the Airbnb. That’s a hundred something bucks. I stayed at the motel eight. So you stayed at a ritzy place compared to yeah, there was no I don’t remember the event. I walked into the lobby and there was vomit on the floor and I. Someone was just drunk and puke. I took a picture of it.

I said to Lisa, I said, I think this is the last motel eight. We got to go beyond the puke level. Yeah. Go at least holiday and or fed. Exactly. Exactly. Live a little bit better. So let’s switch over to the pumpkin plan. Now I didn’t read the book, people have been telling me about some of the ideas of it.

Cause this is one of the first ones you wrote. Yeah, you give a little bit background for people, for the passive investors out there. What’s the pull from this one, there’s the short and thick of it is that it’s the application of the parade of principle or the 80 20 rule that 20% of your opportunities are going to yield 80% of the benefit.

So how do you determine that? And I made into a multi-step process. It was actually formulated after the process of growing colossal pumpkins. I found that. The vast majority of pumpkin farmers, no shock here, ordinary pumpkins for Halloween and the fall holidays, but there’s a small faction grow class of pumpkins and they changed the process just a little bit, but the pumpkin responds with organic explosive growth.

So in the book I document. Their process loosely, but translate to the exact steps businesses need to make. Who are those colossal potential seeds you have around your organization? How do you water and feed those things have colossal growth. There’s usually a few things in your business, matching your, there.

It is matching your best clients to your true uniqueness in your environment and systematizing it that becomes this seedling. To fuel the super fast growth. So the way I look at that, another idea, it was like when I had 11 rentals, I would look at maybe 20% of them that sucked the boss and try and look to sell it or unloaded.

That’s the other side of it. So it’s. Yeah. And I talk about that. I call that the rotten pumpkins, there’s certain ones that are distracting and there’s actually certain clientele that They’re so difficult. They don’t pay well. They threaten I’m gonna slam you on Yelp.

You’ll never get another client again. They damage your property. Those clients are actually costing us to keep them we needed and there’s rules of course ramp, but you need to jettison them as quickly as possible. So you can matriculate or serve your best clients. So I think when I kind of work with investors and a lot of you guys, there’s probably about a dozen pass free coaching calls.

I’ve given people in exchange for having their lives on the internet on YouTube. But like most times I look at people’s portfolios. It’s not really about getting into that next deal at 15, 18% IRR it’s they’ve got most of their portfolio doing absolutely nothing, either debt equity, or. California rental, that’s making $2,000 a month.

That’s over 600 grand. Like it’s amazing, like most cases, even with, investors that are listening to podcasts, pretty good network that this is the case and yeah, that’s the pumpkin plan needs to be put in place.

Mike let’s let’s pitch people on the new book, the new idea that’s coming out. Let’s talk about that one a little. Thank you. So the new book is called fix this next and what the thesis as I determined that the biggest challenge entrepreneurs face. Is knowing what their biggest challenge is.

So the vast majority of business owners are to scrambling, to put out whatever fire presents itself. And it’s a constant rush to all the apparent issues that present themselves. But they don’t know, what this, there it is. They don’t know what the specific challenges that they have. And what. This does what fixes sex does is a tool like a compass to very quickly pinpoint the specific need your business.

Has I call it the vital need and with every business at any given moment, there is a vital need. The question is what is it? So this is a. Design around a hierarchy of needs. It’s a compass. If you will, to very quickly through a series of simple questions, pinpoint what to work on next. And when you concentrate your effort on that and resolve it, then you go through this process.

Can you find the next fix? You start deliberately stepping forward. One step after the other and March forward, most businesses are scrambling and they never get unstuck because they keep on circling around and around. Now with fix this next. We know what to work on next and move our business forward.

It’s particularly applicable now, by the way, with this, with a macro crisis going on, there is a impact what’s called micro crisis on small business macro crisis facilitates more micro crisis. So how do we navigate the individual crisis isn’t challenges our businesses are facing in this moment.

Well said. I’m not big on the shelf help guys who read a whole bunch of books and never do anything I’m big on. I hope I’ve never heard that actually. That’s funny. Yeah. Actionable advice. And like Mike’s books have really helped me out in terms of, here’s another example like on our 3000 units on the operational side of our house, we’ve implemented the profit first.

Awesome. Hold them to put away invested distributions in a little side account for us. They’re a little annoyed by that, of course, but Hey, we’re the boss, your business is your business because we have just we pay taxes, we have to pay investors. Like Mike’s books have really helped me out and giving me actionable things that change my business.

And if you’re one of those guys who reads a whole bunch of books and not really any habit change, I think you guys need to do that. We have the book club. Now we read a book every other month. You guys can get access to that lean and simple passive cashflow, or go and sign up@simplepassivecashflow.com slash lane hack.

And we’ll probably. We’ll do a mic book here. Have you the self exists next? I hope you, I think it will serve you. I really put my life’s effort into this and I think that it will be a great impact, so I hope you guys enjoy it. Yeah. Anything else? Parting words, Mike, for the passive investor stuck in the day job, any.

Yeah, you’re the irony is your clients want you, so I know taking the leap to out of a day job into doing this full time. Maybe it’s not appropriate for you, but it is a necessary side hustle clients. It need great offerings. And I suspect if you’re doing this and you’re listing stuff like this, that you’re committed to being of great service.

So market aggressively make sure clients are aware of you because if they don’t find you, they’re going to find the alternative. And I suspect the alternative is not better than what you have to offer. Yeah. Said. All right. Thanks Mike. Really appreciate it. Thanks brother. Pleasure talking with you lane.

Tax Deductions | Single Family Home vs Apartment

https://youtu.be/z_gYhWYhf1Q

It sounds great. Right? You’re getting 10 to 15 times more deductions of first year, but there’s a cost to this. And when I do it for my large apartment buildings, I’m usually paying five grand or so on that thing to do this, to extract it out. But that requires sending out a guy on expenses to travel out there, but that’s obviously not cost effective to spend $5,000 to get $20,000 of deductions.

At 25% tax bracket, that’s a break even. So that’s where this do it. Yourself. Cost segregation product comes in, but bill, let me put you on the spot here. Why would Lane’s spend $5,000? What else am I getting it by cost? Say that somebody’s spending 600 bucks and one of these things. Isn’t getting just sitting no eyes wide open what they’re going into.

Well, there’s a huge difference. And I think on your bigger deals, if you’re spending 5,000, you’re not getting a very good study. You need to spend more than 5,000. Are there usually between five and 10? So on an apartment complex, it might be 7,506, six to eight, depending again, on the engineering that’s done.

So on a full study, we look at it and I think anybody else would look at. What are the engineering hours it’s going to take to do the work? Cause we send somebody on site. We count everything. We qualify everything and we do all the asset detail. So in a full study, you get complete asset detail, meaning all your roof deal tale, all your HVAC detail, all your straight line detail.

As well as all your short life detail, carpeting, flooring, cabinets, everything, you’ve got some, and we give a hundred page report or back to you showing out all that detail. And we go into everything, electrical breakers, no one else gets the breakers. We need things that people don’t do. So we are deeper, but everybody goes in an engineer’s pretty deep and gets all the outlets and things.

So that’s what a full study is. It’s a lot of pages. It’s a lot of research. And a lot of documentation with the guy on site here. Oh, you always see the guy inside. Yeah. You always send a guy inside an engineer. We send our own engineers. Some people would send picture takers and interviewers and stuff, but somebody all wasn’t goes on site.

That’s pretty much what happens now with DIY it’s a non inspection product. So DIY means we’re modeling. So we’re going to air conservative. So if we would’ve gotten a 25% results by going on site, we might get. 19% by the DIY because you’re not sending somebody on site. If in fact, you’re audited, though, again, as I mentioned, we will go send somebody on site and we will do that a hundred page report for you.

But what you’re going to get with DIY is a model solution, which is what a lot of the people out there do models and residuals and sampling, and they add pictures and some engineering. But what you get is a one-page report that gives you your five, seven, 15 and 27 and a half year. And then some categories of generally what it would be, and then a receipt, and then your data inputs, because some people put the date wrong, we fix it for them.

We don’t charge afraid of that. You get a very streamlined report, but that’s all the CDA cares about CPR. 100 pages they want. Five seven, 15 and 27 and a half to put on your tax return and they’re done. So that’s what DIY does. So it gives you a lower number. It’s a lot less expensive. And so that’s why it’s good for the lower value properties where maybe you can’t justify a five or $10,000 study.

Asset Protection for the Accredited Investor w/ Brian Bradley

https://youtu.be/qBmh2TFVWnw

What’s up investors on this week, we are going to be talking to a lawyer

Diving into some other legal strategies to protect your wealth that you probably don’t hear that often. We’re going to be going over the LLC, and why that may not be the best means to protect your wealth, especially if you’re a higher net worth little update on what I’ve been up to.

It’s been a really crazy week. Two closings. We had close on a class ADL in Dallas and another class B deal in Houston. Glad to get those knocked out, always a little stressful to close , go to loan committee, get it all wrapped up.

It’s not a race, it’s a marathon. And then we get hard work. If you guys haven’t checked out all the good news that’s been in the economy, make sure you guys at least check up the monthly reports, which are@simpleclassiccastle.com slash investor letter. All the videos that we do on a monthly basis are up there.

If you want to dive into the headlines and get a little commentary from myself. You can access that there again, simple plastic capsule.com/investor letter. And this is your guys’ last call for the incubator group, where we help younger and newer investors under a quarter million dollars net worth to get their first turnkey remote rental.

If you guys go to simple passive cashflow.com/turnkey, there’s a free guide there. There is also the remote investor e-course which if you buy that and you eventually joined the incubator, we do credit you back to what you paid there, but thank you, Bader is really all about the peer group, right?

Your network is your net worth. You have folks around you and where we can help you move through the process. Especially in, through the inspection process and connecting with all the brokers, lenders, property managers, just connecting with the folks in our role at that. But here is the show.

We’re not giving any legal advice out there, but through my travels and connecting with high net worth investors and things, I do myself, open this up@simplepassivecashflow.com slash Vigo, enjoy the show.

Okay, simple passive cashflow listeners. Today. We are going to talk to Brian Bradley here about some of the misnomers I’ve been hearing about, legal protection. Again, starting out with the Cabot. I am not a lawyer. So I brought a lawyer here to talk about this stuff, but nice to have finally have you on again, Brian.

Yeah, thanks lane for having me back on and it’s going to be a fun topic and I gotta let everybody know I’m not your legal guru, like I’m really good at what I do, we’re just going to talk about this, in generality and I’m definitely going to blow up a lot of the status quo and misconceptions, especially around LLCs.

Like our last episode, we had a cool slide presentation, but this is going to be a different. Topic today. Yeah, Brian’s has been doing some stuff for my high-end clients and the family office, Ohana mastermind. So if you guys are interested in doing that, check out the sales page, it’s simple, passive casual.com/journey.

If not continue to devour the free podcast land and hear the same stuff over and over again on all podcasts. But I think we’re going to blow it out of the water, the sobriety of like I think the first question just to kick things off is. Everybody thinks that they’re super protected with an LLC, right?

Wyoming, Nevada tell us like the dark side of these LLC. Are they truly Bulletproof? No, there’s there. There’s nothing that’s truly Bulletproof, especially if it’s purely domestic like whatever you create. Eventually, if you get to a high net worth, like you have over a million of unprotected, net worth of assets, you should start adding some sort of offshore component to it.

Because we have what’s called the U S constitution full faith and credit clause. So it’s always been to limit. Anything purely domestic, LLCs. I’m not gonna, like coopoo all over them. They’re I use them, they’re a foundational level. But there’s a lot of things that aren’t just being spoken about them.

And a lot of people being misled, I think, either intentionally or not. Or just from lack of knowledge on what happens in court, like in these things called jurisdiction and legal nexuses availing yourself of state rights and that’s where this needs to get sorted out.

And and I’m going to pick on California a lot here because it’s the most, a lot of people live in California. There’s a lot of money in California. And you have a lot of California investors investing all over the state. So I think it’s a great example of a state to use. And so I want to start.

With, like I think the big misconception is with charging orders and what a charging order is just trying to limit the member of an LLC legal responsibility to paying a judgment. They’re trying to keep it within just the LLC a court order just within the LLC. And so you hear these States and there’s a lot of fusion over word.

You go, do you go to Delaware, Wyoming, Texas. And at the end of the day, it really just comes down to, what are you holding? So let’s just stick with the example of the state I’m talking about. Let’s say it’s California real estate, and you own some California real estate. You’re a California resident.

And you went and set up a Wyoming LLC because you read it on the internet or your CPA told you to go ahead and do that. What you did is just convert your Wyoming, LLC to a California LLC, because you’re doing business in the state of California. And not only are you going to pay the franchise tax, but if you ever have a liability issue in California the judge in California is going to apply what law, like California law, not Wyoming law, because you’re a resident there, the properties there the lawsuits coming through there.

A California judge, doesn’t give a hoot that you have a Wyoming LLC. There’s no legal nexus there. That Wyoming, LLC just did a fancy thing called legally availed itself with the protection of laws of California. And like I said, that’s the state, the assets in that’s the state that injury or damage occurred in.

And this can go for any state, if you had an asset in Ohio and you put it in an, a Wyoming, LLC is the same principles that apply. And so I want to harp on this just a minute longer because I do get a ton of calls on this and clients just confused as heck on what they shouldn’t stuff into, a Wyoming LLC.

And it’s because just by simply owning an out of state, LLC, you have to register that LLC is doing business in the other state, like you have to register it in California and pay the franchise tax. And this is just basic case law. And once you do that and you, again, avail yourself of the privileges and laws of that state and given that state jurisdiction there’s a great case.

Indian palms country club association versus anchor bank in 2015. And it lays out all the multiple standards, like the legal standards that you’d have to meet to successfully beat a piercing, the corporate veil argument. And so for sticking with California now that LLC is registered and paying the franchise tax in California, you just gave California jurisdiction over the LLC, plain and simple.

And you’re a resident of that state. There’s another caveat against you. And then you have a California asset in an out-of-state Wyoming, LLC, or Delaware, LLC in Nevada, LLC, with no connection to Wyoming whatsoever. You just did this fancy word. I told you about a village yourself. Of the laws of California.

And so you just transferred that Wyoming LLC to a California LLC by was called a direct, substantial and systemic contact with California. Yeah, something I see common, cause I always say the tail end of this, especially when my clients work with me and they’re, what happens most of the time is like the lawyers just going down their check sheet and their sales form and ask the client like, Hey, do you want to be anonymous?

And then the clients obviously Oh yeah, I would like to be on office. Alright, sign you up for this thousand dollar Wyoming, LLC, which is also a pain in the butt to upkeep in the future. That’s a classic case. And I tell my guys like, all right like how you’re saying, it’s not truly anonymous.

But like anybody who’s going to get sued, they’re going to Pierce right through that. We’re just going to make things a little bit harder, right? This day and age nothing’s ominous. Correct. And that was going to be my next blow up of this whole thing of an amenity.

And so it’s a big concept, a big misconception. And I think that people just think that you can create this, anonymous Wyoming, LLC. It sounds so cool. Like I can just disappear and ghost to lawsuit, and I’m like the legal system doesn’t work that way. Like one, if you’re creating these LLCs.

You have to also pay for a registered service person, like service of agent and that costs money. Their sole job is to say, Hey, congratulations, your LLC just got sued. You’re served, go find a lawyer, defend yourself. And then the simple reality is that once a lawsuit’s filed and starts and you’ve been served because you’re not going to avoid the legal service.

The legal process starts, and this is thing called legal discovery. And then you’re going to end up going into court. And the judge is going to say, Hey, like you’re getting sued for, $1 million or whatever the law and the number is like, here’s an asset declaration list all of your assets to make sure that , there’s something that can be collected on.

And at that point you can do one of two things. You list your assets or you lie and commit perjury and say you don’t own them. Or the LLC doesn’t own any. And then that’s called perjury. You go to jail. You get sanctioned, your lawyers get sanctioned and a lot of bad things happen to you. So there’s no such thing as an amenity.

Once a lawsuit starts and amenity works in the sense of, I own an LLC, I want some privacy to where someone can’t just look up my house residents and go egg my house and harass me because they don’t like me. And if they’re resourceful enough, they can find all that stuff. I have access to that stuff.

I just use, a scraping program and a skip tracing program and I can find. Where you used to live with your cousin’s name is where they live, what their number is. What’s your dad’s name? It’s like it’s. No, exactly. So I think that a lot of these burns are just preying on the naivete of a lot of people and the idea of Oh, wow.

So you’re telling me, I can just become a ghost by creating this, anonymous LLC. And no one will ever be able to find me. And if I did get sued, I never have to respond and show up. Sorry, like you’re going to have a default judgment entered against you and you wouldn’t even be there to know.

And then you’re going to end up having to pay the maximum out because you didn’t even try to defend it. Yeah. Along the lines of this anonymity thing. Is more from a tax perspective. Again, Brian’s the lawyer on hand here, but just speaking for taxes, this is corporate transparency act that got enacted in January, 2021.

So now, I guess what they were trying to block was people were just making all these random LLCs and none of it kind of points to them personally. And they were possibly hiding a bunch of nefarious action, or maybe just hiding, disproportionate amounts of income and expenses likely it was happening as most good business operators try to do to some extent.

But now on a lot of K ones, we have to put social security numbers on there. Even if you have LLC. So a lot of investors have gotten upset with us and it’s Hey man, it’s not our fault. We’re just following the corporate transparency act. So even now the IRS is like blowing this way.

There’s nothing that’s transparent. There’s really nothing. And that’s where real act like asset protection for it to work. You want it, you do not want to be not paying your taxes. You’re going to have to pay your taxes. Otherwise that’s tax fraud. And the system blows up or you don’t want to be committing fraud, were fraudulent transactions and things like, so whenever you you’re creating an asset protection plan.

It has to be taxed neutral. And this whole idea of anonymity and hiding, if you excite assets, that’s bad, like IRS is going to come down on you. Like the, the judge is going to come down on you. So fraudulent transfers after a lawsuit. That’s why you have to be proactive when you create these in Korean, before issues, before problems, these are all the things that you need to think about.

Get your system set up as a business structure early, and then let it grow with you. But like you said, like even the IRS is cracking down on asset disclosures. So I’ll just have a system that’s just strong where you don’t have to hide. And of course, maybe it goes without saying, people listening, if you guys are doing any nefarious action you guys should go to jail.

And we’re talking to people running good businesses and doing things the right way. But yeah, so if the LLC is not the way to do it, LLC, so owner, so now we’re going to get into some strategies here where you don’t own it. You perhaps control it. Like the big sane is the Rockerfeller’s right?

Own nothing. Control, everything. Correct. Rich people don’t own assets. They just get the use and benefit and enjoyment of them, their LLCs on them, their management companies do their trusts do. And then it’s just how you properly construct them, layer them and use them. That gives you the benefits of it.

And for example, if you’re owning real estate, like I would say, like everyone should go jump back on that last episode we did for the really good long presentation, but your real estate, you put into LLCs. And that’s going to operate as a holding company. Your LLCs should then be owned, not by you as the member, but by a management company.

As the member of that LLC. And then that management company should be a limited partnership so that you can then split ownership and you would be the managing member of the limited partnership. And then that management company would then be owned by a very strong asset protection trust when the timing is right and asset protection trusts come in a lot of different flavors like everything else.

So it’s just a matter of picking the right tool that fits the right client profile at the time. And what’s, Brian’s kind of alluded to, I think we did a previous presentation, but I think we did that just with our private foam group, Brian. But if folks listening here are interested in an, of course it needs to be an accredited investor and a part of our investor group, but just shoot me an email laying at school, past cashflow like that.

You guys take a sneak peek of that, but, But, yeah so there’s different, layers to this, right? Based on how much net worth you have, how much liability may be going into some of the layers. Yeah, correct. And so like the entry level, like we’re talking about, like when we were, dogging, LLCs, that’s the foundational level.

That’s where your start. That’s not where you think you’re, silver bullet vampire, wearable Slayer is going to be like, that’s the base layer. I own an asset. The very first thing you should also do is budget to put that asset into something because there’s risk with it. So that goes into an LLC in the state where the assets at, because that’s where the lawsuit is going to be coming from.

You’ll hear some people talk about series LLCs, and I know we were talking about it off air. Like you can give your own thoughts on that, but mine is, I use them, but I only use them for clients where they won live in a state that has series LLC statutes. And the asset is also in the state that has series LLC statutes.

Otherwise, if you’re in California and they don’t recognize a series of LLC, you’ll get no protection from it, but you’ll be paying extra franchise tax on each sub series. But to get back to the point is if you’re just starting out your green horn and investing, you start out with an LLC and insurance, let’s say you start growing, you have four or five more units.

Your net worth is probably around 500,000. No five, 500,000. And, depending on your professional risk, that’s where you add a management company to own those LLCs and all your of those. LLCs will full directly through to the management company. So it’s just one tax filing. You’ll be doing your business.

Out of that management company, you’d be managing that layer. And then the, and that management company is just an LLC. It would be a limited partnership, actually limited partnership. Why would it not be an LLC? The big difference between an LLC and the limited partnership is that a limited partnership has dual classifications of ownership.

Think of it as like a split personality. So you have a general partner and limited partner, the general part portion of it. Is it going to be the what’s going to be owning all of your assets? Like all of your LLCs, your passive syndication shares whatever it is that you own, whatever’s risky, whatever we need to protect around that would be, like owning those.

You wouldn’t be managing that general partnership share. The limited portion side of the limited partnership is what actually owns that management company that would be a trust like an asset protection trust, or a bridge trust, or a quantum living trust. And you can’t get that layer and split personality of ownership with an LLC.

It only comes through the limited partnership. So that’s

very clever. Yeah. And so that’s what legally separates you from management from ownership, because you actually can split it with the limited partnership. So if you think of it in terms like a syndication deal, there’s general partnership side, there’s some it partnerships, which is why a lot of past investors like to invest in the LP side because they’re not managing members are very low non liability.

But in this case, you’re running your own syndication or deal in a way where you’re both. But you have the LP portion, which is the actual valuable part of it as the LP side. Of understanding. Yeah. So the ownership side. So if you think of it as like a syndication, all of your deals would be owned by the GP site and then the LP.

Is what is the ownership, the controlling portion of the whole management company. And that would be your trust, like a, a bridge trust or an asset protection trust. And then you would just be the beneficiary and the creator of that trust. And so you’re just a managing member of that management company, which then that management company owns all your sub assets.

Yeah. And I think this is very common folks, half a million million dollars net worth and above, they have this type of. Holding company. I think most people have it as a set up as an LLC though, the wrong structure, because it doesn’t give you the flexibility for the third stage properly. And because you don’t have that split ownership status.

And so the second layer should be a limited partnership if done. And specifically, I like Arizona for the limited partnership because Arizona is the only state that allows you to disconnect that management company from a trust by statute. No other state allows you to do that yet. Not even like Wyoming or Delaware.

And what that does is. During a lawsuit, we can disconnect legally the management company from the asset protection trust. And like with our bridge trust, you’re now fully foreign offshore. When everything, like your doomsday scenarios coming at you, just take us logically so should you get sued?

Wouldn’t they just say okay, you’re controlling, but you also own that and control that. How would you, how would that happened? That’s a great question. So the bridge trust is both an offshore trust and a domestic trust. So it’s actually a foreign asset protection trust.

We just build the bridge back domestically to the U S for the IRS to classify it as a domestic trust, to keep your costs down and not have to have you do the IRS. Acid declarations. Now let’s say a big lawsuit comes and we agree it’s really bad. And we drop IRS compliance. That’s how it then becomes a foreign asset protection trust because it already is.

It’s a cook islands, foreign asset protection trust from day one. When we create it registered offshore with an offshore trustee from the moment it’s created, we’re not doing this after the fact. So as legitimized. What we do is just name through the control test is a state and you, as the trustee, all we have to do is blow up one of those elements to fall out of compliance with the IRS and the way we do that is just by removing the name trustee.

So you’re no longer the trustee. The offshore trustee is automatically foreign asset protection trust with no more domestic connection and no more domestic compliance. And how do you get around like the fraudulent transfer? And for those that aren’t aware, it’s a ubiquitous term, right?

My understanding is if not for this lawsuit, you wouldn’t have done this. Yeah. So all of this is created before the lawsuit and because it’s just one trust and it was a fully registered foreign asset protection trust from day one. And then the trust was fully funded from the moment we created it. There was no fraudulent transfer of this going on whatsoever.

And the trust itself is a foreign trust. So there’s no transferring of assets. Yeah. So the think of it figuratively, the bridge was built. You just disconnected one then, which is not a chance, maybe just thinking of it as a bridge. And then like some bridges have gateways that open up. The gate to the center, part of the bridge, we just opened up and we’d already had the assets over on to the foreign asset side of it.

Yeah. So again, those, I’d say like when to go off shore, Stephanie, more for the higher net worth guys or higher, job liability folks, and to categorize that, those are those you guys doing deals out. There were doctors in the spotlight of litigation. It was just a lowly computer program.

I don’t think you have too much to work out. As far as occupation, we get a lot that meets the, like that client profile are the self-funded real estate investors, like the cops, firefighters, nurses, who over the last 15, you know, school teachers who over the last 15, 20 years invested in real estate to fund their retirement.

And they have that, that net worth, but one lawsuit they’re completely wiped out forever and they have nothing to go back on. And so that’s the other profile that we get a lot of calls from are the self-funded we, real estate investment retired. So let’s dig into some of these, in the middle strategies, right?

A little bit better than an LLC, not as heavy duty as a bridge foreign, going to the cook islands came in wherever, the cool place to Sydney. Yeah. It’s the cook islands is the strongest, the other places There’s just too many ways for the us to reach control and jurisdiction and get access to your strategies, like in the Caymans or The Bahamas Caribbean we always end up having to build back exit strategies out of those, to the cook islands anyways.

So that’s why we just go straight to the cooks, but a lower level of protection. Let’s say you’re under 1 million there’s this trust called a quantum living trust, which is actually one of my favorite asset protection trust because. I’ll be honest. Like I see the most risk is that, 250,000 to below a million net worth because you’re new, but a lawsuit is going to wipe you out and you may not be able to get it back.

Yeah, you’re exposed that first hundred, $250,000, the hardest money to make came up. Yeah. And then breaking like the above 1.5 million is the next hard one to push through. And, but you’re at that level to where you can’t really like, you use a boxing term, you’re going to take a floating ribs shot, and that’s going to knock you out where a more experienced fighter can take that they know what it feels like.

And it’ll phase them. But they can get back up, dance around, get, recollect themselves and get back in the fight. So for that under 1 million, we ended up creating a quantum living trust, which is just a bridge trust lights. Is this like some reference to like ant man and Fanta umbrella or.

No. I don’t know why we ended up coming up with, like the quantum, I don’t get into the naming.

Okay. I’ll have to ask Doug Hey, like who ended up? Was it your wife that ended up coming up with the name of this? Or like why? But I never got into the question of why it was named that, but the great thing about this trust is, it’s half the cost of the bridge trust.

And then it works as an offshore trust and a domestic trust, but it also works as a revocable living trust. So you get almost a three for out of it. And it comes in at an affordable entry level spot to give a new investor or a person with a lot of assets, but low risk, some offshore component protection when they need it.

And then when they can keeps scaling. So you and I were discussing offline little bit my asset protection strategy. And then you kept using this term grant or trust. Can you define it? Yeah, a grant or trust is a trust essentially like the easy way to do it is it gives the trustee the power and authority to manage their assets, is the easiest way to do it.

It doesn’t take anything out of your exercising control. Yeah. And I think that’s, this is where it confuses a lot of investors, right? Coming outside of asset protection, there’s a lot of marketable products out there, like 10 30, one exchange. You can call it the 10 31 super Sonic exchange.

Right now it’s just a marketing term for the adapter and 31 exchange or a QRP are essentially solo 401ks with a little bit of twist, where quantum. Auto row asset trust. Is it an, the grantor trust is like that distinguishable legal term of, is it or is it not? Yeah,

and so in the world of asset protection, I have an irrevocable asset protection trust, and then some banks haven’t, it’s hard to get lending through, but that’s because they’re not using a grant towards trust. And so there’s different types of trust. And so it depends on the type of trust that you create and what is being created for.

So we specifically use grant toward trust because again, we can still have them irrevocable, which for an asset protection trust you want, but banks and lenders understand them and they’re easier to use and manage. You are given because it’s a self-settle spendthrift grant towards trust authority to manage your affairs.

So it’s easier. When it comes to closing deals if you went to Nevada and created a Nevada irrevocable asset protection trust, a lot of these trusts aren’t grant towards trust. And so banks get a hesitation or pause. Like you were talking about how you have a hard time with, a setup from the past getting funding and that’s because it wasn’t a grantor’s trust.

Yeah. Every time I S K P I, one of these deals. I have to answer the question. Sometimes they, they ask sometimes they don’t. I just don’t say anything until they ask, but. Yeah, I have to explain. It’s not a grantor stress or well, with anything you set up, even if it’s just an LLC, they’re still gonna ask.

So you just got to understand, like, all they’re doing is doing their due diligence, just like when you’re buying a property or an investment. And they just want to make sure Hey, if you’re having a mortgage, are you going to be able to pay? Or are you trying to set this up to, the bank on payments?

That’s all they’re essentially, they’re trying to figure out. And then you’re usually working with a junior level employee. Doesn’t just check in boxes and doesn’t know what the heck you’re doing. Cause that’s why they still have a day job. Exactly. And then it goes to the underwriters who then they call them, they say, what is this like, Oh, I’m just putting it into my asset protection trust for, a rainy day.

Okay, great. No problem is essentially how for our side of it, because we use grant or trust. It’s a really easy, quick conversation, but I would just tell your listeners expect. To explain some stuff like when you’re creating asset protection, because if you look at it as a flip side of the business or the lender, they just want to know.

Yeah. And I’ve had to do it where I take it off the UCC filing to and on. And this was just my personal thing. Like more asset protection you do, it can complicate your life. And if you’re a very unorganized person, Who doesn’t have a good understanding.

It can be very confusing a lot. And this is where you need a network people around you to best practices and in Tara and the right professionals too. And that’s where I’d also say if the system someone’s creating starts getting too convoluted and the optics look bad is because it’s too convoluted and the optics look bad, like we create a flowing system through stuff that.

Banks and lenders understand LLCs limited partnerships, grant or trust they’ve been using them for decades. There’s a lot of case law on it when you start using stuff, because I want to hide because of an amenity and you start getting all these creative, like some people send me their spreadsheets.

Like you did the same thing of your setup. And I’m like, Oh my God, just looking at this makes me look like I’m looking for curious, George right now. And a bank is going to look at that and say this is just too confusing. Like I didn’t want to spend the time. So we create things that are very flexible, but are very strong and just using legal systems and processes with easy flow through that banks and lenders understand.

Yeah. When you get to be too cute with your strategy and lenders and those guys, they just tell you no, after a while. Yeah. And you’re also just spending a lot of money, and it’s not going to do the intended purpose. This probably doesn’t apply to most people, but it’s a cool conversation starter.

And I think a lot of people maybe they’ve listened to this for cool things, the sound cool around the cocktail party when they can have a cocktail party again. But yeah, I have your cake and eat it too. Just, yeah it’s a good one. Like I work with Jeffer Dawn. So this is where like your high rollers, like I don’t even bring this.

Trust up unless you have a hundred million or more, because essentially it’s called the high set trust and it’s have your cake and needed to. And that’s because essentially you have to be able to take out about, max out your gifts exemption in amount, so like 22 million, I think it is right now and put it into.

A trust that you would gift to, your grandkids for the issue in the past was when you gifted assets to someone, you can’t get them back. Like it’s more of a tax strategy this trust to decrease your taxable estate and let it grow, capital gains tax free. But once you gift that money to someone, it is no longer yours it’s gone.

And what happened was in 2009, we realized we may need that money back. Like we just gifted $22 million to, Johnny. But now we lost 60% of our wealth and we need that money back, but we couldn’t get it. And, or Johnny is a crack head and, or you change your mind because good boy, Johnny turned into cocaine, Johnny, and you’re like, there’s no way I’m giving 22 million to cocaine, Johnny, because what is he going to go do?

Spend it all on below and cocaine, like cocaine, no. You wanted to be able to change your mind and get the money back at a certain point. And so Verdon genius, attorney to the stars. And I don’t even think not even like Uber high net worth is right term for who he represents, but.

Came up with a high set trust and it allows you to gift, that money, as long as you’re willing to be able to give up the 22 million or what, like 15 million, if you want to not need it to live gifted to whoever in your family, you want to gift it to decrease your taxable estate. At the same time, the money is going to increase.

Let’s say it’s over 20 years, 15 years at 6% as you’re investing. So you just turned like 20 million into, 60 million growing tax, deferred capital gain tax free, and then you want the money back. You can get it back and not have to pay the taxes on it. And that you stay in limbo land or you run the Wildcat offense based on maybe some years, The administration might bring that $22 million threshold up or down. Right now I’m expecting to get to go down, and so we’ll see what happens, like right now the bed is going to be like that gift amount is going to go back to where it was before or lower. Yeah. So you just wait maybe 10 to 20 years for it to go swing the other way.

And then you get it out. Yeah. And that’s where all of these, tax mitigation strategies and different trusts, cause not all trusts you use are for asset protection. Some are just for tax mitigation, strategies and taxes change per administration. Yeah. And that’s per state, right? To have per state and per state.

Exactly. Certain things that you do in one state, you won’t be able to do one another. But like I said, tax advantages and benefits and credits especially federal change as a new administration comes in. So that’s why you always have to be talking to your CPAs and your lawyers and your representatives.

And like you mentioned before a creative team, don’t be your own expert because you’re not going to be able to know all of the specialty, gadgets and gizmos and what to do. That’s what our jobs are for. Your job, go find deals, close deals. Let us take care of you. Protect you, let your tax guys, let you pay zero taxes, if you can.

Exactly. And like another one that is that kind of like the AP trusts. I’ve heard of that. I had a few clients that did something like that. That essentially the same thing. There’s a there’s trust with a, B portions in there, but I never heard of like an Abe unless it’s like a marketing term of a B.

It’s probably a marketing term, but it sounds like the same thing. You have the option to at a certain period of time. Yeah. Yeah. Yeah. And then there’s different trusts. Like people spin off quantum trust or tiger trust platinum trust. Like you hear all these different spinoffs, but what you need to just pay a caution to is, go and look up on the IRS website.

If you’re looking at a system and you want to make sure that the IRS won’t red flag you there’s a page that we have. I can send you the link and you can link it on there. For tax avoidance and hindrance. And some of these marketers and, legal service providers, if they’re advertising for tax advantages and tax cuts through asset protection planning, that’s a red flag because asset protection is tax neutral.

And the second you start doing, specifically tax focus for asset protection you’re going to fall into a lot of potential fraudulent. So just to check my understanding. Today there’s a lot of market terms out there, but to me, the big ones, is it a grantor trust? Is it given mobile bookable or vocable?

Those are, to me, my takeaway is those are the two big things that said yes or no, or one way or correct. And that would also fall in the line of, do you want it for asset protection or do you want it more as a like irrevocable versus revokable. Do you want it to be able to be changed or not?

Revokable means it can be changed. And a court judge can force you to change it. Irrevocable means is not going to be easily changed and most likely it’ll be hard for a judge to order you to change it. That falls in line of asset protection or non asset protection grant towards trust, or just a different type of trust that allow you to maintain, investment control and power of the trust.

While you’re investing, it does grants more of those rights to the trustee. You, the creator of it. And then the rest of it is just making sure, like the big takeaway don’t get too cute with your system. Don’t fall into the anonymity trap. If you’re not in that state, why would you create an LLC in that state to put something into it?

Like illegally? There’s no justification for that. Cause I want to sound cool and be Anon, right? Exactly. I’m going to go to my lawsuit because I have an anonymous LLC. Yeah. Yeah. It makes sense after we talk about it. But when you’re in the heat of things and you’re getting sold a bunch of products, it can be.

Yeah, sure. That ends the car too. That’s like when you talk, make sure you talk to specialists, like that’s my other big takeaway is if it’s a real estate attorney who. They’re a real estate attorney. They’re good at closing and negotiating closing deals. And they’re not asset protection attorneys.

Like your business attorney is not an asset protection attorney. It’s I go to the right doctor for the right medical issue, go to the right lawyer for the right issue. Asset protection attorneys should be specifically an asset protection attorney. Otherwise they probably just went and took a continuing legal educational course and Oh look, I just learned about this cool thing called an LLC or a series LLC.

And then they just trying to add extra revenue into their firm and stuff, everybody into it. And that’s the wrong tool. And this is going to sound self-serving but guys, if you guys are just listening to this stuff, you guys are just drinking from the edge of the river. Jump on, in, on the pool party and join a family office or how to mastermind, there, you’re gonna meet up with 50 to 60 accredit investors, all doing the same thing, build your thing and bring in guests like Brian to answer more private questions

if not yet, just keep going through the sales calls guys. They know how to go. It’s just go call up all those lawyers up there and have them sell you stuff on a sales call. Is that what you’re going to get. You’re not going to get that other perspective that you’re going to get from him up to your best or.

I agree with you a hundred percent on that. I don’t think it’s self-serving. I think that the more someone educates themselves and gets into a mastermind group and affiliation of other smart people, you’re going to see your rate of growth accelerate and the people amount of minds that you can piggyback ideas off of is I think of it as like a pie chart.

There’s three categories. I know this, I don’t know this. And then the things I don’t know that I don’t know. And so if you’re in a mastermind with smart people, I know something. I don’t like, I already know it. I know. I don’t know this. Hey lane. I don’t know this. Can you help me? Sure. Great. Go to this person.

All right. Awesome. I don’t know. I don’t know something. And that’s where most of your assets are. That’s what you’re operating in the most out of that percentage of your pie chart, you’re going to get the most loss you’ve ever seen in your life. So the goal is to shrink that as fast as possible. Get educated. So you can have the informed conversation. Is this the grant or trust, right? Is this an irrevocable or vocable trust? Why does each one of those options matter per my specific situation, but, or you can just invest in the stock market guys and work for 50 more years, but probably aren’t you.

I get folks share contact information and I appreciate you coming up. Yeah, no, definitely. You can reach me at my email. Brian B R I a n@btblegal.com. My website has lots of informative information. I use it more as a legal reference for people. So lots of case law. Like everything that I do, I live through case law because I’m a trial lawyer by trade.

And I just like to cap people have the most information as possible. So www dot BTB, legal.com. A lot of frequently asked questions on there. More than you can probably think of yourself as well as lots of videos for educational references. So if you guys haven’t yet joined our investor clubs, simple pass the castle.com/club.

And if you just waiting around, just in podcast land join our masterminds opacity council.com/journey. We’ll see you guys next time.

How Much Should My Rental Property Cash Flow?

https://youtu.be/AETUTpDj1eQ

What cash on cash return would you recommend for a single family home rental property where the goal is cashflow not appreciation? So normally, I think least 8% return is what you’re trying to shoot for. So if you’re using an analyzer, what I would put in there and make sure you’re also including all the.

Repairs maintenance. Most people forget about the cap ex and the vacancy that you’re going to have, and also include the property management. So for a property that is friends for a thousand dollars, so you guys can buy a hundred thousand dollar houses out there that will rent for a thousand dollars. So out of a thousand dollars rent, each of my fingers is a hundred bucks.

You’re going to put aside a hundred bucks for repairs. $100 for big cap ex items. And that is you’re going to eventually need to repair the roof, maybe paint the house, big items. That’s cap ex. You’re going to need to spend another a hundred or so dollars stuff. That’s going to go wrong, right? Things are going to go the way you want it.

So you want to have that money sitting aside and you’re going to have vacancy. Another a hundred bucks is going to be paying your professional property manager because we teach you guys to be investors, not landlords. And then the remaining money, the rest six fingers here, maybe $400 is going to your mortgage, insurance and taxes.

And that leaves you. 200 bucks, right there, $200 is pretty good buffer in my own opinion that you should shoot for assuming that you’re accounting for all the expenses in your underwriting. But again, download the analyzer and run the numbers yourself. And after it’s all said and done on that hundred thousand dollar property, you’ve probably put down 20 or $25,000 and you’re making into your cashflow is that $200 a month.

That is $2,400 a year. So I think the math is $2,400 divided by $25,000, right around 10%. And that’s how we backed into that. At least the 8% cashflow number assume, and again, you’re underwriting your deal the right way. .

April 2021 Monthly Market Update

https://youtu.be/boas1zxLgPo

All right. Welcome everybody. This is the April, 2021 monthly market update, or I go over all the latest happenings that impact real estate and by investment portfolio and our, I don’t know about yours. You guys want to check this out on the YouTube channel, go to school, pass a cashflow, search that and.

This, all the videos of all these past months are found @simplepassivecashflow.com/investorletter. So let’s get going the Easter egg this month. If you guys want to grab the free giveaway, but a simple passive cashflow.com/qrp QRP quail. Ralph Paul. To get the free book to learn how to avoid UDFI and UBIT tax, you get kit.

When you start to invest with that type of accounts, your qualified retirement money in leverage investments, and you do want to use leverage, right? We all want up to a certain point, right? When you get the best returns, the cashflow But, yeah, I think if you were listening to our last office deal webinar, that was funny talking with the bank office folks.

A lot of don’t know what this QRP solo, 401ks and Roth IRAs. And we were laughing because the ultra high net worth don’t do that stuff makes, so it made me laugh quite a bit, but for a lot of you guys under $4 million network, A lot of your equity might be in your retirement accounts and this may be one way to get it out.

But I kinda think for most people, it just makes sense to take it out, but of course, therein lies the strategy and that’s why you listen to this full passive casual podcast and check us out and join the investor clubs. simplepassivecashflow.com/club and get all the insider secrets such as do I need to be using QLP or spokes.

All right. So first thing here, this is a sort of an indicator on TSA checkpoint screenings. So yeah, TSA, the security folks at the airport, this measure is a seven day moving average. And it is definitely coming back up as if March, April from the bowl, April 20, 20, over halfway there from the peak of where we used to be prior to 2020 in 2029.

So things are coming back slowly. We’re not, we’re like halfway there in terms of TSA stats. And if you guys are listening to this podcast form, , if you go to simple, positive cashflow podcasts, you want to get a glimpse of all the poor charts that I’ve put together here. And the flood graphics.

You could also check this out on our YouTube channel or it’s simple, passive cashflow.com/investor letter. Of course. Stimulus plan came out again under the $1.9 trillion one. My wife says, I asked her how many stimulus funds do you think there were? She was like three, cause I got three checks.

Really? I think there’s four or five by now. And there’s probably going to be, I’m guessing two, maybe three more to come later this year. Who knows? Maybe even next year. But yeah, I think seamless helps investors, right? That’s essentially just running up debt and the people who are going into deals with good debt, are they going to be the benefactors in the future, but here’s a little chart just checking yourself where you fall based on how many dependents you had come to you, but you guys are all smart.

You guys got your checks. You guys are cool. You guys do the direct deposit. Now, this is something interesting. Moving forward, not to say anything politically, actually I don’t see anything like that. I don’t really care one way or the other, but I do know Democrats typically spend more money in terms of stimulus dollars and which ultimately helped me, so I guess that’s a cool thing in the end, but. Senator Ben Cardin let a little things slip there on the hot mic. You said that Democrats will most likely, and I quote most likely use reconciliation on an infrastructure package. And basically what that is not that the Senate and the house is majority power going to the Democrats.

They can use this to bully their bills and stimulus packages through. So it is what it is. They have the edge actually in all the presidents, Democrat too. So all three branches of government going to the Democrats and you asked me, I don’t care. Look, guys, spend your time on making money at your job or investing your money.

And. Spend less time on worrying on things you can control, figure out where the puck is going go there. All right. Now I’ll probably get some hate mail or some trolls of the YouTube channel for that. But it is what it is anyway. A lot of folks are thinking that the us GDP is going to go gangbusters.

I think we’ve shown Fannie Mae, Freddie Mac stats here as one from the conference board where they are showing some upside projections, downside projections and the base projections actually. But I like to see the optimistic pessimistic, and then the baseline deals just to compare them.

But yeah, they’re expecting growth expectations to reach five to 6% for 2021. Due to COVID 19 release spending and the overall, things getting back and forth, both ends.

There’s some demographic trends mean this is no surprise to everybody that the green dots are where the top 10 population rank growth is. These are in no particular order going from the right to the left or East to West. Raleigh Charlotte, Atlanta, Houston, Dallas, Fort worth Austin, San Antonio, Phoenix, Arizona, salt Lake city, and Las Vegas.

Those are the top 10. The bottom 10 are Los Angeles, orange County, Milwaukee, Detroit, Pittsburgh, Cleveland, Baltimore, New York city. Believe that’s new Haven and Philadelphia.

bigger pockets. I don’t know where these guys get their data from. But they said top cities for red growth in 2020. Number one, Houston, Texas Portland, Oregon, Dallas, Texas, Chicago, Illinois, St. Petersburg, Florida, Phoenix, Arizona, round rock, Texas, Oklahoma city, Scottsdale, Arizona and Helene, Texas. If you’re reading this chart, they’re saying Houston rent growth is going to go up 19%.

I don’t know where they’re getting their numbers from, but I’m just throwing out these percentages personally, but I’m just looking at the top 10 and Hey, these are good markets is the message that I’m pulling away. As an investor, John Burns put up the school article with five new home designs, thoughts and starts.

So things that are coming in terms of trends, things are going on. First one, healthy living. So less focusing on the materials you use to build the home and start focusing on creating a healthy lifestyle in the new home, such as low VOC materials. Yeah. Marketing should emphasize things such as better sleep and easy to clean surfaces throughout the design.

Rather than those certifications or low VOC materials. I guess what they’re saying is those lead platinum silver. I always thought that stuff is garbage in the first place. It was just like a contest of who could pay the most to these guys to give them the best score.

Actually, I shouldn’t say that, but. I guess what they’re saying is those certifications are being less and less important and getting back to the basics of music services and better sleep. Next thing rethinking five CS. So are they replacing the windows in the right location and homeowners have a strong preference about their entry design and most don’t want a front porch for planned conversations with their neighbor.

I guess that’s what a garage is for. You just opened the garage, driving close the garage. You don’t have to talk to anybody. You never have to get out, just go to your, or your cubicle at home. Go get, keep it go at work, go to your cubicle. That drives you around.

Number three, functional tech smart tech should make the home run smoothly from behind the scenes going away or the touchless tech and the voice says this that’s. Still have some runway for growth. I don’t know about you, but I still don’t trust. Mrs. S she always gets it wrong. This is a I’m learning how to control that one.

I’m not going to say it because things will start to go the largest opportunity for smart homes is tech that identifies me to issues before disaster strikes. I think maybe they’re talking about those fancy refrigerators that I don’t have that tells you when something is going bad or something like that.

I know none of the subs, I don’t have a full house like that because I rent and I’m happy. Sound insightful offices are historically been in the front of the house, which is exactly where consumers don’t want them. They want to put them in the back of the house upstairs with a window in front of the desk and wall behind the desk for effective video conferencing.

Interesting. Yeah, but this makes sense, right? They want to have their office in the back. Hidden, I guess young families will invest in homes. Despite the theoretically having less disposable income, young families want the private spaces, the healthier home, and won’t they functional kitchen and the sanctioning bathrooms that most are also more likely to replace a perfectly functional appliance or fixture.

If it is job style, start focusing on more, helping them with their busy lives. Yeah, this might be the trend here, right? For the 5% that can actually enforce their own damn house. But 95% of all, or the vast majority can’t afford it and will live in rentals and apartments. So what they can afford is what, nice to have my opinion, but not starting to old sound like an old grumpy man.

Moving on to some commercial stuff here, Disney to close 60 stores in North America. So if you guys like to dive in that massive pile of Disney plush toys, I guess you probably can’t do that anymore because they don’t allow you to touch the merchandise, but they might even be closing your nearby Disney store.

So you’re going to have to go to Disneyland to get your stuff or go to evening. Refinance loans. Propelio another increase in whole mortgage lending activity during the fourth quarter of 2020. This is Adam data solutions. So what they’re saying here is purchases refinance, and he logs are on the uptick as of the last three quarters.

Now this makes sense, right? People are getting back into the market or more lending action. Another top 10 market from ALN data that call no, this is more apartments. 10 markets, Phoenix, Arizona, Tampa, Florida, Dallas Fort worth Houston. Those are your top five, top four by long shot. Now you start to get into Atlanta Seattle, North Carolina fall.

Let the bill. Raleigh North Carolina, Denver, Colorado, Orlando, Florida rounds up top 10. It Phoenix, Tampa, Dallas, Houston plant a top five

joint center for housing studies of Harvard university came up with this cool article and I sticking this one figure that I saw useful work. The rise in young adults, living with parents early in the pandemic was mostly rare first after the summer. So what they’re saying is the young adults, they obviously moved in with mom and dad starting last year, but then now they’re regressing back and take back out and it has it broken down between 18 to 24 years old.

Which, yeah, a lot more than my running back to come up, dad, as opposed to the 25 to 29 year old is a great resource. This joint center for housing studies at Harvard university. I don’t think this is very biased industry data, like some of the multifamily housing needs, but these are very rich articles.

If you guys are bored and you want a good resource. Another resource of all data that called does a lot of apartments, top 10 worst markets. And the naughty 10 is New York city, Los Angeles, Chicago grand Rapids, Michigan Birmingham, Alabama Shreveport, Louisiana, Illinois, Springfield, Northwest Arkansas Buffalo, New York, Richmond, Virginia.

But I think out of this list, New York city is by far the biggest loser New York city, the rest of the list, they’re losing some population, but not too much

huge news coming out of Phoenix, Arizona, as we mentioned them earlier, Phoenix mixed use project takes a giant leap report by commercial property executive as this. Development would comprise a 2.1 million square feet on light industrial as well. The office retail and entertainment space. And this is a Keystone equity’s recent acquisition of 129 39 acres in Goodyear, Arizona situated at the interstate 10 and three Oh three.

More things from Phoenix pin investment Suncrest, real estate to develop 109 unit build to rent community in Phoenix. Now, this is something I’ve been hearing a lot about a podcast land. Some of you guys have sent us emails on this, and I just think it’s people are just like building turnkey rentals are still too unsophisticated investors.

But it makes sense, right? People want newer stuff these days. They don’t need to be in the best areas. They just want it to be new. And I see the appeal to this. This is why people would rather be in smaller living conditions, like a condo, one bedroom, high rise apartment, whether it’s new, they have all the cool amenities and it’s cheaper as opposed to being in a larger house or traditional housing environment. But. So people have, there’s like this thesis that people want news. So when you get the people to what they want, that can’t afford it, you have to buy to rent. So the investor buys it and then rents it out.

I’m not a big fan of this, but Hey, prove me wrong, right guys. But they’re building that in Phoenix because the population growth another chart here. Market five-year rent growth projections over the national average. So this is a five-year horizon in Phoenix, Arizona. Number one on the list at 37% rent growth in this five-year period.

Second place in them. Empire, California, San Bernardino area, 32% Dallas Fort worth 32% in this five-year period, Atlanta, Georgia 31%. And then you go down to Baltimore, Seattle, New York city, Northern New Jersey, central Valley, California, orange County, Oakland, San Francisco. Why can’t I say it? And insula now these are all the big red growth jumps over a long period, right?

Not just six months or a year, but a five-year period. These are your longterm trends and out of this list, a lot of your primary markets, right? Which you’ve come to expect, but out of these, the top 20 of 24 markets that actually will catch it all. Let me go through here. The only ones who will do it will be Phoenix.

I don’t think inland empire will cashflow too much close to Los Angeles and it’s in the state of California, but Watson one real estate there. Where the tenant, it’s all the power. Dallas Fort worth Atlanta. Yeah, I like those markets, but all these other ones, they’re all blue States.

You’re not going to have the rent evaluation. You’re not going to be in the cash flow with a class B or C asset. Indianapolis number 15 on the list is on here that cash flows, salt Lake. Not really. You can’t really cashflow there anymore. Tampa Bay Detroit can sorta, but that’s getting lower on the list.

More news from Tempe, which essentially Phoenix the house enters Arizona market with $177 million multi-family development in Tempe, which will feature a 310 studio, one, two and three bedroom. So yeah more development. And also here’s another one. Intel expanse. What’s making all this Phoenix news, Intel expanse, Arizona footprint with $20 billion investment to new factories will be developed at the company’s campus Chandler Arizona, which is pretty much Phoenix.

Now, John Burns with their March madness theme came up with these fun themes. Bracketology for their next at merchant markets. So in the Southeast conference, rebuild South Carolina, Knoxville, Tennessee South is boys. To welcome 82% of the national household growth over the next decade. Just why we like to invest in Alabama and Texas looking at, I don’t know as much, not still, but yeah, Knoxville, not Memphis, but Knoxville.

And some of those smaller markets that tendency even look good. I don’t really look at South Carolina to me. It’s just too far, but I hear it’s a great market. Western conference, the Tucson, Arizona, Fort Collins, Colorado are benefiting for the rapid growth and rising prices of Phoenix of Denver. I don’t know if you can cash flow a Denver or Fort Collins.

That’s the problem with that? You’re not saying that they’re bad places, but you just can’t cashflow there. Bracket busters, Myrtle beach, South Carolina and Spokane Washington are booming for their relative affordability house prices and house prices that are rapidly rising. And then the parental powerhouses, I guess these are your North Carolina’s and your Dukes.

Austin, Texas and Phoenix, Arizona, both markets are mentioned as university cities as a clear destination for full buyers, particularly out of California. Do you guys go on YouTube and inundate with these videos that people St while they’re getting the heck out of California, it’s hot stuff. These days, hot topics, very tweetable topics or YouTube algorithm, friendly topics, even California to go to Texas, Arizona Vegas.

And here’s a screenshot of the Yardi matrix, another multifamily apartment rent tracker that I follow year over year, rent growth of all classic classes.

Take a little breather here. Do you guys have not yet? Join our community, get educated, go through our pipeline. Free e-course that is up this month. Go to simple, passive for that. And if you’ve been following with us and getting a sense of our community and our unique tribe of high net worth working professionals, to try to get our network from one, the $10 million.

Check out our family office, a Honda mastermind, which is to grow your network and also get in a group of other like-minded. I paid professionals to learn more, go to simple, passive casel.com/journey. And for those of you guys just getting started, maybe your net worth is under a quarter million dollars trying to pick up your first rental property or about turnkey rental.

Check out the simple classic Castro investor incubator, check out the e-course if you just want to dip your toe in that, but you can learn more about that. It’s simple, passive castle.com/incubator for information about the e-course and incubator there. But we’re going to transition more on to what I’ve been doing a little lately.

We see, we have some live attendees there. If you guys want to drop some questions or comments into the question, answer box, we’ll get to it at the end. But I was trying to find ways keep growing, keep improving So I’ve been getting some business coaching lately trying to improve my skills in terms of leadership, which means hiring people.

I’m learning that I am going to be a father soon. So I cannot do this simple passive cashflow dance for 12 hours every single day. And I need to bring the team around me. So I am trying to grow myself that way, which is very difficult. How did we treat a little contribution this last month?

Well, a bunch of our deals just close one full cycle Atlanta, Georgia, that one you guys remember if you guys were with us back in 2018? We just more than doubled best buy in two and a half years. Huntsville investors doubled investor’s money in three years.

Another one we 26% return people’s two years and get under the Chattanooga. And we also got this other deal in Texas. I can’t say where it is yet, because it’s not final yet, but we are looking like it’s going to be 130 something percent return in five years We’re in the talks with buyers for that right now, to submit that total return.

But on that deal, it was Rocky up, started out the Gates occupancy actually went down to the 60%, which is very rare. I’ll be that happens. Things pretty goes pretty smoothly, 90% of the time, but this is like the 10% of the exceptions. We crawled all the way back and, continue to doing the business plan, rehabbing units and.

Yeah. It’s great when we can make great investors at ease and get right the ship. The truth is these assets are pretty resilient and yeah. Maybe we don’t pay out distributions for a little bit, the business plan is going along the business plans through increased rents and event, she cashed in with a big return, like how we are looking like it’s going to be here shortly.

Woo, ooh, on that. But also booboo on our recent closing last week, a 303 unit class B in Houston, Texas Cambridge village apartments. For those of you who have joined us if you guys like red wine, white wine champagne, or you’re just crazy enough, like this guy doesn’t even need a drink.

Congratulations. And thanks for jumping on this one with us a little bit on certainty here from myself, and this is the crazy thing, right? Like where does my headaches come fall? Not from these big, robust deals, but on this pain, the butt single family home that I still own two of these things.

And we’ve been trying to get this one sold for like a whole year and. I’m not complaining or anything like that, as a remote landlord, I have very little recourse control of how things go. You’re just getting fixed up. I dunno, what this thing is, XL like given up hope. I just written it off.

Luckily I think I’ll make a profit on this summer, but man, what a headache, it’s definitely not worth the trouble. I don’t know why anybody does those burst a pain. It’s cool. You can make 20, 30% for time and money like that. But for the risk of working with a bunch of lower level contractors, wiring money remotely, to me, it’s not the way for more accredited investors or guys over half a million dollars worth.

But Hey, that’s just me call me ladies, if you want. But how do I get certainty? That’s one of the big, important things for folks and, going back to that El Paso deal, occupancy job pretty much the 50%. And we crawled back in two years to get that thing back to 90% stabilizing and very confident that we’re going to get your 20% people’s money in three years on that it’s phenomenal little Rocky start, but.

That’s how things go. And the full family office on a mastermind, the group with the bank and the collective genius more information go to simple, passive cashflow.com/journey because it’s the largest it’s ever been. We got a lot of people in the beginning. Try us out. They paid the in-store price, something at renew, some weren’t the right fit.

But overall the last couple of years, people have been joining and we’re at the highest level of membership as possible. And now I’ve created more of an elder program or people stick around, they’d be up for another year and they try and help out the community more for now new members coming in, we give them a couple of mentors, people who have been in the group for more than a year to help jumpstart their networking and also have another person.

That’s another viewpoint other than myself and the other staff to help them out. So we’re trying to make this program better every single day. You guys are always interested in the crop I’m buying. So what did I buy this month? Do dads. So I bought these these felt planters. They’re still on my couch.

I haven’t put dirt in them, but. I bought them because I was going to grow like sweet potatoes and potatoes. And I guess there’s like a little Velcro flap that you can see when it’s ready. They’re like 20 bucks. I think it gets me outside. And then I actually am really into like worms and stuff like that.

So I bought this compost container, or you put like all the. Composting stuff in there. And then every few days I run it out to the worms, throw it in the compost pile that I’m getting back into the Sufi thing, sibling, fish, and steaks. But yeah, again, if you guys want to grab the QRP book, go to simple passive castle.com/qrp.

Nothing here should be taken as legal tax, financial investment advice. Think for yourself folks, we’re here just to educate you guys and connect you with the right people. But we will see you guys next month. All right. Aloha. Everybody it’s may day coming up, but.

When Should You Not Invest in Syndications?

https://youtu.be/sMGxgbMmsYs

If your net worth, income minus expenses is under $300,000, or you’re barely able to save $30,000, look, syndications are not for you stick with these turnkey rentals or even do these BRRRS that we’re kind of against in this whole video. And you’re going to have a little more gains that way. What you’re doing is you’re essentially trading your sweat equity for that extra equity at the end.

Taking Control of Your Finances w/ Rachel Marshall

https://youtu.be/GleSDBm0m7s

Hey, what’s up guys.

What I wanted to talk about today was take a pause at this moment in time now.

And I just want to, when you guys out to the water gear is I just wanted to ask you a question. Do you know how to catch a wave when you’re surfing? For those of you don’t know how to surf as someone who works all the time, , the office. And someone with self-proclaimed soft, Pete, like myself, look, I don’t know how to surf.

I’ll be honest, but follow me here with this analogy

because I’ve seen it done a few times. I’ve sat out here and I’ve watched these guys do it just go with me so I was recently talking to some of my partners and some brokers common thread in these conversations this recovery going on at the moment, we’re starting to see this country get back in order.

And certainly , a lot of us are making that call, second half of 2021 is going to be when things are going to be really strong. And I believe this is going to be the biggest wave. I’ve ever seen in my lifetime. Maybe even yours. How do I know this? The stimulus that has been pumped into the economy dwarf.

The recession of 2008. There have been many indications

if you’ve been following my monthly green sheet updates, multiple rounds are coming. 📍 No. If you can pop that slip on the time, Senator Carr against hotline incident, the last month he was talking about how he thinks that the Democrats are going to push it right around now that they have the majority vote

and basically they’re going to

the already $1.9 trillion stimulus that just went through

economic. Package that would be reportedly costing between two and $4 trillion. . This is on top of all that stuff. They didn’t. 2020 now, ultimately this helps us investors as more money flows to our tenants. And then of course, to us in our pocket books, as investors is a heads, I win tails. I win situation who knows. They may find ways to directly stimulate our already good lending programs, such as Fannie Mae, Freddie Mac,

if not we’ll keep casual line. That’s the nice thing about the business plan. , no inflation is going to come pay for all this mess and the savers, those who are hoarding money in their bank account, or keeping it locked up as home equity, not doing anything.

Relative value to the loans are eventually deflated over time as inflation happens. This is another one of the many reasons why we do what we do and we pick up good, Annie Mae, Freddie Mac debt, and from other community banks, Fannie Mae, Freddie Mac a lot of the big Economic houses out there,, forecasting, a five to eight GDP growth just for one quarter coming up the second half of this year, I’ve been consistently discussing this amongst my closest peers and amongst my inner circle investor group.

Now, what are we doing to get ready now? Going back to my surfing. How do you catch a wave? When you see that smell up there, you got to start paddling

now because you’ve got to pick enough speed. Or if you wait too long and you just wait until See those statistics come into play quarter three, quarter four, whenever lane and company are saying, it’s going to happen. It’s going to be too late. The waves, just going to go right over you.

And then you’re going to say those guys just got lucky, right?

And ultimately you’re going to be missing out on water. Biggest bull market seat. Remember open 19 brought about a health pandemic. Prior to the recession, there was nothing wrong with the economy. All time lows upon employment.

Don’t be like most people, , this wave is going to go right underneath. And they’re gonna be making an excuse on why they missed out or worst stuff. Just chalk it up to people, being lucky. Look, people who are putting themselves in position now , getting speed, paddling going into good opportunities.

They’re not the lucky ones. They were the people working hard while people who are just sitting around on their board like this.

Those who are active now picking up debt. Good deals that are cash flowing will be the winners.

Now luck equals opportunity. Plus preparation. We are preparing now by starting to invest capital last year. If you noticed what we were doing last year, we were picking up deals. We were still remaining active in 2020. Now, what this has enabled us is this gets top of the line.

When brokers finally have deals coming through the pipeline, they have us on speed dial.

Because as I say this is probably one of the biggest waves or bull markets you ever seen in this lifetime.

Don’t wait until Q4 or the summer. To see the ass and have this wave come through.

, the people who are doing this right start to see this wave off into the distance and starting to paddle now. And that’s what I personally doing. . I’m deploying my funds, getting more offers out there as we speak.

You see the wave coming.

Do you know, you’ve got to pick up some speed in order to catch the wave. What are you missing? More education. Seriously, shoot me a email lane at simple passive cashflow. If you have any education questions, what do you need? what’s missing?

Because if you’re not in the game and you’re not putting money out there, you’re not learning. Okay.

All right. Talk to you guys later. I just wanted to let myself outside of the office. I got to get back in there. I’m enjoying this break, but yeah, appreciate you guys for listening

Hey, simple passive cashflow listeners. Today, we have Rachel Marshall from the money advantage podcast, talking about a bunch of money hacks for the rich people. Rachel has a very awesome lane. Great to be here today. So one of the first things we’ll point out is you are not a traditional financial planner.

Yeah, I would say that you’re absolutely right there. And maybe I’m sure you’ve, here’s the platform to finally air it out. Why did you deviate from that path? Great question. Really. I see a lot of typical financial planning being along these lines of telling people what to do that ends up taking away their control.

And it’s really unfortunate, but I think there’s a much better way than listening to. Common financial advice where you’re going to hear things like, Hey, invest for the long haul in the stock market and just stay in. And when the money goes up and the money goes down, you’re going to be fine. Just stay in.

While you’re paying, guaranteed management fees to the fund managers and they’re winning and you potentially are really losing, we also see things like people say, Oh, pay off your debt as quickly as possible, because then you’re going to be debt free. That’s not really a position of financial control.

So when we see. So many financial strategies and so much financial information, really taking that cashflow, taking the control out of the hands of people. That’s really something that I want to be in a position of giving back the cashflow and giving back control to the people we work with. All right. So the people listening are high-paid professionals already investing in real estate, and they’re drinking the Kool-Aid.

Maybe we can talk about that HELOC strategy in a little bit, but. No, they’re already, about to break up with their financial planner. And what would you say would be people are probably calling them crazy, whereas some suggestions on what to tell your friends and family, when you’re going to get rid of that person.

That’s a really insightful question and I think it really comes back to, you have to ask yourself, who do I want to be in control of my financial destiny and, especially as a high paid professional or somebody who’s already accredited status for their investing, you’re in a position where common strategies and common financial.

Stuff just really doesn’t work for you. And if you are being honest with yourself about where you want to go and what you want to create in your life and the tremendous wealth that you want to have, I think it takes a little bit of courage to be able to say, Hey, I need to do things differently and really step out.

And be honest about the fact that I need to be in financial control. I don’t want to just trust somebody else to rely on them and really what it comes down to for us, as we say, you. The person we’re talking to you are the best financial advisor you’ll ever have. And I know that sounds really odd, especially if I’m in the financial industry, but it’s because we really believe that you are the best person to be in control.

And I think that’s really the crux when it comes down to that. People who are breaking up with their financial advisor and really going off the range and saying, okay, how do I have as much cashflow as possible? How do I invest in cash flowing assets? How do I invest in real estate? And all these deals that you are talking about lane it’s really those people who are saying, I want something different.

I saw. My dad, my grandpa invest in the stock market and I saw that money go up and I saw it come down and I saw their life savings crash in front of their eyes. And I don’t want that. I really want to be in a position where I control my future and I have cashflow coming in. And so I think we talked to a lot of people as well, like yourself that have drank that Kool-Aid and sometimes they’re earlier on that path of saying, Hey, I want to take control.

It’s usually people who’ve read Robert Kiyosaki, and they’re saying, Hey, I want to get in a position where. I’m truly an investor, a business owner, and I’m not just working for money. So there’s a huge tribe of people doing that. And I think sometimes it just takes courage to jump into that sphere and say, wow, there’s a lot of people who are already doing this.

And a lot of the mainstream advice out there are for the masses take the book by Tony Robbins. He recently wrote, which I heard was good. It’s four inches thick though. And it takes forever. But the, in a nutshell, if he’s telling people just go after the ETFs because it’s low cost, but he’s behind the scenes.

He’s just telling people, Hey, look, you’re an average person. You suck at this. You have no advantage. You might as well just go on the cheap thing cause you don’t know any better. And it’s just like people who followed grant Cardone, he has a podcast and he sorta educates you just on the surface enough to shake your paradigm.

But then he’s basically like you suck. You’re not going to be able to be a real estate investor like me because I have an army of team behind me just invest in my fund. . Yeah. Yeah. I haven’t read Tony’s book and I’ve heard people speak very highly of it as well, but I think it really comes down to, do you believe that you’re the best person to be in control and, what’s interesting as you talked about being a high paid professional and what’s interesting is a lot of people would say my income is probably similar to my neighbor or the people that I hang out with. And that’s my social circle and my sphere of influence. But, the top 25% of people make 77,000. The top 10% are making something over 133,000. The top 5% is anybody who makes over 188,000. The top 1%.

It’s not the millionaires and ultra billionaires. To be in the top. 1%. All you need to do is make $465,000 a year. So if you are in a top category, you’re not common, you don’t have common income. So don’t follow common advice. You are a person who needs uncommon strategies that really will help you to continue to Uplevel and scale and grow your wealth.

I wanted to, just to illustrate that concept there are strategies for the 1%, there are strategies for the top 90 percentile, and then there’s the rest of the strategies for the masses. I think the masses, just to use this as an example of the strategy for the masses is don’t have any debt.

And I think most of us who are listening to this. No, what a complete BS. This is, you want that you want to lock up long-term debt to create more assets that produce more income long-term and grow your net worth exponentially. That’s what’s interesting because if you do have debt, so you mentioned lockup your debt in for a long period of time.

A lot of people are saying Hey, you should have these shorter mortgages and you should try to get the lowest interest rate possible and pay things off as quickly as possible. But again, That is not uncommon advice. That is common advice. Now here’s the thing you really want to be thinking about. How do you have the smallest payment?

How do you get that while you have the longest term on your loan? What’s interesting. Japan has a hundred year mortgages. I wish that I could get a hundred year mortgage. That would be amazing. And the reason that I say that is that I would like to have all of the extra cashflow because a hundred year mortgage payment is going to be tremendously smaller than if I had a 10 year or 15 year mortgage, because that is, constricted down into a shorter timeframe.

So you have to pay more per month. And so if I think about how can I have the smallest amount of payment per month on my fixed. Payments. I’m actually improving my debt to income ratio, which means I can actually get better interest rates on future loans. I’m also in a safer position because now I’m in a position where I can easily make those payments.

And I’m not in a risk position of not being able to make those loan payments, which then means my credit score is going to be improved. And you’re in a position where you’re focused then on cashflow, not just on paying off the loans as quickly as possible. So I just wanted to illustrate your point there.

So switching over to the opposite end of the advice for the 1% it’s simple, right? For higher net worth people, it’s go get a few rental properties, maybe some turnkeys and then step into private placements and syndications and grow and invest that money and create cashflow and long-term network gain.

And interesting enough you mentioned, improve your credit score. For the 1%, I don’t care about my credit score. I’m not getting the debt. The general partners are getting the debt on my behalf. Switching back to, where I’m landing on is this advice for that top 90 percentile that maybe I know you and I wanted to bash this strategy for the 90 percentile.

It’s not horrible, but it’s not the best thing that you could be doing. And that’s the taking your hilar pain down Your home. Maybe people who haven’t heard of the strategy for me, can you outline it for us real quick? I can. And I’m honestly not super familiar with this because this is not something we recommend.

But the idea would be well, let’s have the heat lock and then let’s put all of our income into the heat lock and use the heat lock to pay off all of our expenses and including our mortgage and. All of our other debts and all of our lifestyle expenses. And the idea is that you’re going to save a little bit in interest.

At the end of the rainbow, really the goal of that is to pay off your loans quickly and save a little bit of interest. But if you really think about it, if you’re in a position where you are putting all of your cashflow into your home via your HELOC, You’re in a position where your cash is going into the four walls of your house.

Now, if you have equity built up in your house. Yeah, that’s nice. But what if you want to use that money to then go put into real estate and private placements that money’s locked up? That’s not something you’re going to necessarily be able to go access and put to use in rental real estate. And so what you want to do is you want to think about how could I have my cash stored in places that a is safe.

It’s not going to drop in value unless I take it out. Where a house. If you’re putting the money into your heat lock and into your four walls of your house, if the market does drop, then you lose that equity. So you want it to be safe. You also want it to be accessible. Now, in any circumstance you want to be able to get to that money.

You don’t want to have to say look right now, I don’t have the income. And so I need to be able to tap into this mortgage and pull the money out. You want to be in a position where you can access that capital. Regardless of your financial circumstance and it’s arguable, you could say Hey, I’m high net worth and I have lots of money and I don’t have to worry about it ever been in a position without income, but you want to put yourself in a position where you’re never going to have a cashflow crunch.

If you have a lot of properties and you do dry up in income, or you have a tough month or you have a tough couple of months, you want to be in a position where you can access that capital. Because there are so many real estate investors that have been in a position when the market did dry up and they didn’t have the capital that they could access that completely wiped them out.

And so to be in a safe position, you want to prevent that cashflow crunch. So you want to store your money, not just in the four walls of the house. Like I said, you want to have it where it’s safe, where you can always access it and where it is growing. Yeah. So if you guys are a little slow to the party here and you want to watch the full one hour plus webinar on the simple pass, the castle.com/lock, and you can learn about all about this pretty bad strategy in my opinion.

But you’re paying down debt here and okay, but it’s not the best optimal strategy and people, I get this all the time. That’s how I just really wanted to talk about it. People in the mastermind will be like I heard of this strategy and it’s an awesome, like YouTube zinger headline, right?

Pay your mortgage off in four to seven years. But it’s just not a good strategy that the wealthy do. Oh, here’s the interesting thing the wealthy think about how do I have capital that I control? Because I like to think of it as an emergency opportunity fund, right? You’re going to have life come at you where you have a bigger expense in some months that you weren’t expecting that would be considered an emergency.

You’re also going to have opportunities, which is the thing that’s really exciting. It’s the reason that I want to have cash that I can get to. And that cash that I’m storing is way more valuable than paying off the loan as quickly as possible. Here’s the thing. If I have the cash to be able to pay off my mortgage, I’m not in debt.

Now, this is something that we talk about on a regular basis. And people say just because I have a loan, that means I’m in debt. But I know you and your audience are super smart and you’ve probably thought this completely through already, but you’re only in debt when you have negative equity and negative equity is a position where your assets are less than your liabilities.

Now, if you had your cash sitting somewhere that you could access and say you had $700,000 and you want to pay off your $700,000 mortgage, you could. If that was the best use of that capital for you. But what if there was something that would produce a higher return than paying off that loan? And you wanted to go ahead and put that into a commercial property or multi-family deal, or you wanted to go go into mobile home parks and invest in that you have so many options when you have cash, but you limit your options when you just focus on paying off the loan.

And interesting, like that word opportunity fund doesn’t exist with the layman. They have emergency fund. And as you can see what I do at my opportunity fund for when deals come along. My video, there is simple, passive casel.com/oh fun. But I use a little bit of infinite banking and some other more liquid investments in there.

Use that all the time. You work with a lot of clients, taking from the more high net worth guys who are a little bit more aggressive. What are some of the takeaways of aha moments that those guys are having or tweaks you’re having with those folks?

I think what’s really interesting is there can be this misleading idea that I just need to get. Better returns on my investments. And that’s the one and only strategy that I need to have in my financial life. And if you’re only looking at what you’re doing in your investing, you can be shortsighted to the foundations and the system that you’re putting in place.

It was interesting. I heard this the other day and I honestly can’t remember where it came from. So I wish I could credit the source, but they said. We all have systems in our life for everything. You have a system for your health, you have a system for how you eat. You have a system for how you sleep at night.

Now some of us have chaos as a system, but that still has system, and so when you think about your money and your finances, you want to have that in a system that is efficient and effective every step of the way. And so before the investing, you want to make sure that you’re keeping as much of your money as possible.

It’s not leaking and flowing out of your control. And then you want to protect that money. And if we’re not keeping as much as possible and protecting it, then it doesn’t matter how great we’re doing in our investments. If the rug can be jerked out from underneath us or the floor can fall out. And so when we’re talking with.

Any individual and a specifically high net worth individuals, a lot of times business owners. And if you own real estate, Chances are, you can think of that as a business. I think of all real estate investors as business owners, right? We’re in a position where you have this business that you’re growing.

If you think back to Robert Kiyosaki talking about this, he says a true business is one that can function with or without you in it. If you’re investing in real estate and you’re building up a real estate portfolio and you want to be in a position where that’s truly passive cashflow, like you talk about, you want to be in a position where that really is operated as a business.

In one of the ways that we see a lot of times, people are having money flooded, their control is taxes. And so I’ll just touch on this real briefly, but if you are paying any more dollars in taxes today, then you need to be, you are not as efficient as you could be. So think of this. If you were in a position where, you had $20,000 flowing out of your control in terms of taxes this year and every year, going forward over the span of 10 years, that’s $200,000.

What could you have put that into in terms of investing? And you talked about opportunity costs before we came on today, but the opportunity cost of having that money flow out of your control is that you could have invested it somewhere and created cash flow. You could have earned those cash on cash returns.

In the real estate instead. So for instance one of the ways that we see this happening is if you’re in a position where you’re not putting an entity structure around your business operations, if that’s your real estate, that could be what is your business in your case? You are then taking income from your business operations.

And if you’re taking those wages, that’s fully subject to self-employment tax. And when it really breaks down, this is your pain, the employer, and the employee portion of the Medicare and social security taxes, and it’s a complicated formula, but really it breaks down to about 15.3% self-employment tax.

So you have to pay that on any money that you bring from your business over as wages. And this business applies to, if you’re just a landlord with a few rental properties, you’ve got a business. So this applies to you. Yes, absolutely. Absolutely. And what you can do is you can restructure that payment.

To yourself still receive the same amount of money, but have a portion. If you’re an S-corp and you’ve formed a entity around your business, I believe this works as a C Corp as well. I would have to check specifically on that. I think it would just be a different terminology of the breakdown, but what you can do is you can pay yourself a reasonable salary.

Now. You can have the lowest reasonable salary possible that still is going to be subject to self-employment tax that 15.3%, but you can have the rest flow over as dividends. I think in a C Corp, it’s called distributions instead of dividends. But I think the strategy is the same. And I don’t want you to quote me on that, but at the same time, what you’re doing is you’re having the wages come over from the business where your real estate ventures.

And then on top of that, you’re having dividends and the dividends don’t have self-employment tax. So you’re saving that 15.3% on the portion that’s coming over as dividends. So like for instance, we had somebody who, they had a compensation from their S-corp. Of 128,000 and they were paying that all as wages.

And so instead they broke it down. They had an $80,000 salary and they had then 48,000 come over as a distribution. And so that saved them the 15.3% on 48,000. So it was about $7,300 a year that they saved on taxes just by changing their pay structure. And then they also were able to reduce their overhead.

They scheduled one staff member instead of two, where they didn’t need the additional person. They were able to have a central booking appointment strategy that they use. So some technology that they were able to use instead of the additional employee. And so that was another 40,000. And so what happened in that case is that was a savings of $47,000 per year.

And again, you might think that’s only $47,000, but if you add that up over the course of 10 years or so, 20 years, the rest of your life, what is the opportunity cost on having spent that money that you didn’t need to spend? So Rachel is talking in terms of businesses, this is where landlords out there with one or two rental cars, or maybe even got a bunch of syndication deals.

You know right now, interchange wages with rental income. So it comes in, a lot of us, I think, we’re smart enough to have LLCs comes into there, but right now you’re getting killed. Cause every single penny that you make out of that LLC is getting all that self-employment and all that Medicare or Medicaid tax.

Yeah. So what Rachel is saying, we’ll carve off a good portion of it. The more you make in that business, the bigger the amount you can carve off that you can shelter away from that self-employment tax, et cetera, which is huge. Then you’re in a position where you are thinking strategically about the future.

And what’s really interesting here lane is it’s not about, gaming the system, the tax system, really the tax code. I’m sure you’ve heard this before, but there’s thousands of pages. This thing is a beast and I would not prefer to personally read it, but there’s only a few pages that are about how to pay tax and the rest of this gigantic document are all ways.

Their roadmap to not pay taxes. And so you really need to be working with somebody who is knowledgeable about the tax code that really seeks to leverage it in your favor and not do unfortunately what most CPAs for common people do. And they say Hey, let’s just defer some money and not pay tax on it this year.

And that sounds like a great end of story. If we stop there, but you still are going to pay tax in the future. So you’re just kicking the can down the road and you end up with this big tax bill, the end, and especially for your audience and myself and our audience as well at the money advantage. If you’re looking to grow your wealth and increase your income, you’re going to probably be in a higher tax bracket in the future.

And I do not want that tax bill on a higher income in a higher tax bracket. And. With 19 trillion plus dollars in us debt right now. We’re in a position where if the government says, Oh, Hey, let’s go ahead and increase taxes and decrease tax brackets so that more people are paying more taxes in the future.

I don’t have control of that. And I certainly don’t want to be at that mercy. So I don’t want to just defer tax, which is a fancy way of saying postpone. I don’t want to just postpone taxes until the future. And that’s what a lot of times you’ll hear. As a tax strategy and it’s really not a tax strategy.

Yeah. And what you just said just drives me crazy all the time. Most CPAs don’t have a freaking clue what they’re doing. That’s why they have that job. And that’s why I sit at home in my shorts all day long. Not to say that, Hey, I’m not a CPM, not a lawyer.

This is where you have to learn these strategies and you’re not going to be the one, this can potentially be a little dangerous, right? Yes. If you go overboard with these proportions you possibly can get audited, but yeah, reasonable salary. That doesn’t mean you’re going to say, Oh, my reasonable salary is $1 and the rest of my money is coming over, without self-employment tax.

That is, that’s stepping over the line and here’s the line and you want to be working with a tax strategist that says, okay, I understand the lay of the land and the landscape. And I’m willing to walk up to that line. But I’m not going to cross over. And that’s the piece that instead a lot of CPAs will just say Hey, I’m just going to stay as far away from the line as possible.

And that’s where a lot of money gets left on the table. And unfortunately way too many people are in that position where they say I have the best CPA in the world. And yet they’re still leaving a lot of money on the table. So again, it is not about doing things that are illegal, that can land you in a huge amount of hot water.

Absolutely. Would never recommend that. But what you want to do is understand how to proactively leverage the tax code. And here’s my analogy. This stuff is like doing a surgery, rachel and I aren’t going to do surgery on ourselves, period. We’re not even doctors. No, but we can recommend possibly.

Hey, why don’t we do this? Have you heard of this other operation? And if your CPA is like any other CPA out there, they haven’t even heard of the damn thing. So maybe you have to go to first a CPA who can do that operation but also even good CPAs, they’re just looking for the easy way out more times than not, they don’t want any kind of odd potential audit in the future, even though it is totally legit, they just want to do what’s easy.

So you as the client, like I always say, you’re the boss. You’re the property manager works for you. You need to tell him what you want within reason. Same thing here, your CPA works for you. You need to tell them what you’re going for and need to hear them out. If not, you need to get a new CPA, issue and get to someone who is legit.

And I can do this stuff for you, but yeah, that’s never do it without a CPA. You are using their recommendations. Now, what you want to do is ask yourself, is this the CPA for me? Are they going to help take me to that next level? And a couple of questions you can say is, are they meeting with me outside of tax season?

That’s just one really good. Almost indicator or a marker. Are they concerned with helping me strategize? Outside of just saying, okay, what did you already do? And how can we react to what you did in your business and your real estate and your investing and all of those things, really?

You want somebody who’s going to help you plan ahead so that you use the right deductions so that you apply the right things in your strategy and process so that you can take advantage of the tax code. So a lot of people have been sending me their CPAs and, cause I’m trying to build a list of good folks to work with.

Some people only want to work with people locally. So my quick interview sheet with these guys is like, Hey, have you heard of land conservation easements you? What they say that what I don’t want to hear them say is ah, I never even heard of that. What does that, okay. I’m not here to educate your CPA.

And then number two, I want them to understand the dangers and risks of it, but I want to ultimately hear, yeah, we’ve done them in the past and for the right situation, we’ll do it. Yeah, definitely not that first answer, but that’s my quick and dirty way of vetting CPAs. It’s interesting.

And I’ll just say this, I’m not a CPA. I work in financial services and really what we help people do is increase their cashflow. Like we talk, we’re talking about cashflow strategies and so what makes me aware of all these different things that can happen in a person’s financial life? We also do a lot of work with privatized banking and alternative investments.

So that’s where we come into play. So I really just, I want to make sure that I’m not at all painting the picture that I am a CPA because I’m not. And I’m not a CPA at all. What else? No more than some of them. I do. But at the same time, you need to work with someone who is certified. And one thing that we have done on our show, we had Mike interviewed, we interviewed him and he wrote the book called profit first.

He also wrote the pumpkin plan and toilet paper entrepreneur, really great guy. And he focuses on making sure that you have profit in your business and in your personal life. But more than just having a high revenue and that message is amazing. And he actually has established a network of tax professionals as well.

That’s the profit first professionals and that’s really one way that you can step in the right direction of saying, how can I make sure that I’m maximizing my profit? So Rachel and I are not advocating to doing this stuff yourself, no home surgeries here. Absolutely not. So I wanted to talk about something for myself personally, that I was working on that you and I were talking about earlier, it’s using your home as like a meeting place, little go to tax deduction for potentially what, 10 to 20 grand a year or something like that.

It depends. I live in Hawaii, so it’s expensive. Yeah. So yeah here’s what this breaks down to. And again, this is a part of the tax code. So it’s actually been referred to as the Augusta rule or corporate rent. What happens is there’s a portion of the tax code that makes a rental property.

And so you have a rental property. That you pay tax on your rental income is something that is not short term. You’re renting at least 15 or more days a year. But if you’re at 14 days of rental or less than the income that you receive from that is not subject to tax. So here’s what it looks like.

You own a house and you’re in Hawaii. And your listeners are probably, I ran because it makes no sense though. Okay. But either way. Smart then that’s awesome. Yeah. So say you did own the property or you’re in California or wherever you live and you’re in a position where you say I want to rent out my home.

This kind of started well, it was brought to light by People in Augusta, Georgia with the masters playing the masters tournament and they would rent out their homes during tournament week when they had all the golf fans coming into town. And it was a fascinating to me because they could easily rent their homes for $7,500 a day because of the demand, the hotels couldn’t handle the volume.

And so they’re saying, okay, here’s what the market is doing and how much we can rent our homes out for. And it was two people who were coming in from out of town. Now you can rent your home. Anyone can rent their home, their personal residence up to 14 days a year. You could rent it to people who are coming into town, your neighbors, you could rent it to people coming in town for an event, football games, whatever.

But what you want to do is you can also say anyone who’s renting that the income that I receive, it fits 14 days or less. I don’t pay tax on that money. When I receive the rental income. So my business can be a renter of my personal residence. So there we go. And lane, I would have to check on that strategy.

Cause I haven’t had somebody ask me if they currently rent their residents. Can they rent it out to their business? I think so. I think so. But yeah, we have to check we’ll check. Yeah. So I know if you own it, you can. So what you’re able to good example, right? Like here, we don’t know the answer, but we’re going to ask the question the right way to not have a CPA.

Just say you can’t do that. That’s dumb like that. Now I got to knock and go meet my tee time at three o’clock. Exactly. You want to make sure that they understand what this means, and this is just one amazing strategy, but from your business, you’re then able to pay yourself personally. What would be reasonable to rent out that home.

And again, in Hawaii, it’s probably much higher than in the same bread basket of the U S or if you’re in California on the coast, you’re going to have a much higher cost of renting. So you want to have a reasonable cost. If you could rent another similar house for a thousand dollars a day, you’re not going to charge 20,000 to your business.

That would be ridiculous. But you want to have that be comparable. But then what happens is the business or your business that surrounds your real estate investing or your investing in general then can pay yourself personally. What happens is that’s a deduction on the side of the business.

So they’re not paying tax on that because it’s a deductible business expense on the personal side that comes to you as non taxable income, you don’t have to report it on your tax return. So what’s happening is that you’re, it’s an additional way to get money out of your business without paying tax on that particular portion of the money.

And so we’ve seen this in, say for instance, in our area you could rent for about $1,400 a day or so. So you stack that up over times 14. I’m going to go ahead and do the math on that. I didn’t plan that in advance, but let’s just say 1400 times, 14 days. That’s 19,600. If you’re in a, I don’t know, say 30% tax bracket here.

That’s. 58 80 in tech savings on using that strategy over the course of the year. Do you follow me on that math? It’s like cheating to me, but Hey, it’s this fall in the tax rules? It is definitely following the tax rules. And again, now don’t go overboard. You can’t charge something that’s unreasonable. You can’t go over the 14 days or all of the income yours is subject to tax then.

And I also heard of I haven’t done this before, this is what’s been told to me is that you’ve got to go through the exercise of getting some bids. I’m going to go call up three hotels in Waikiki, see what their absolute Haley price and build a note and say, Hey, we’re just going to take the average, which is 14,800, whatever.

Exactly. Exactly. And so yes, you do have to do the research. You have to document it has to be a business purpose that your business was renting the house for. So that could be client meetings. It could be meeting of your. Directors or your owners of the business. There’s many different ways.

You can have your annual business meeting there, but it does have to be documented. And again, like any strategy specifically on the tax side, everything has to be extremely well-documented. You can deduct anything that is a business use if you have a personal expense, that is a business use as well.

There’s ways that you can deduct that. But again, it has to be very clearly and articulately documented that there was a business use for that. So whether that’s travel or there’s law changes. So I don’t want to be too specific, but there’s a lot of things that you can deduct, but you have to have a clear business purpose.

I know you can do that with a C car and that’s why I’m looking to switch to a C Corp personally, but do you know if you can deal with the S-corp or just a regular LLC? I know you can with an S Corp and again, S Corp C corporate, just the taxation structure around the entity.

So the LLC is not a tax structure. We have a great interview on our podcast as well. I can give you the link to it later, that kind of articulates more of that. Yeah, she did that over and then I’ll put that in the show notes, just with all your other stuff links into there.

Perfect. Yeah. That’s, it’s just another idea of maybe that Augusta road won’t be around forever, but for the time being, Hey, that’s free money. You gotta grab it. That’s absolutely true. And again, it’s taking advantage of the current circumstances and knowing what’s available to you and yeah, it may not be available forever.

It might not be even next year, but right now that is available. And you can do some research on that as well, but it’s it’s part of the tax code and they were going to do away with it altogether, but there was a lot of lobbying that said, Hey if we’re only renting out up to, the short term under 15 days, 14 or less, Per year, can we still keep those tax advantages?

And they came back and ruled that yes you can. Yeah. Yeah. It definitely has a fly under the radar thing. Cause I think what the weather big push on that is the short-term rental guys. Those are like the majority of people trying to fight for that 14 day rule or less. Oh yeah. And the Augusta people are just flying under the radar or people like us doing this.

Absolutely. Any other takeaways, a little tips that you can leave us and then you got to go here soon. I would say probably the number one additional thing that we see as a money leak is sometimes the money that people think they’re saving. And this again, is something that I see coming over from the typical way of thinking about money and gets almost Into our mindset in our mind frame, even when we move up in income and we move up in investing, we’re in a position where we’re still hearing this financial noise of the culture around us that says, Hey, max out your 401k.

And so I just want to talk to that for a quick second. That might be a great strategy for you or for someone else. However, it’s really important to understand what is happening and how it works. And so one thing I don’t like is when I hear someone say I’m saving money for retirement, I’m saving in a 401k.

Now, when you’re deferring. The tax on money and you’re putting it into a basket of mutual funds, which is invested in stocks and bonds. That is crappy investments. Exactly. They are. And I would absolutely agree with you on that. But when you’re investing, when you’re putting that money into the stock market, that’s investing that is not savings.

Savings is something where you know, that money is not going to drop in value. It’s going to be there for you. We’ve seen way too many people actually came into the industry after 2008, when I saw so many people that I was not able to help, I was working for a rental car company at the time and walking passengers to their car in the pouring rain and just seeing the devastation on their face.

They literally were losing half their life savings because they had put money in the stock market and they saw it wiped out overnight. And it was just terrifying to me. And I said, Oh my goodness. I never want to personally be in that position. But how can I help people as much as possible to not be in that financial position?

And so I just want to say, if you’re putting money into qualified retirement plans, a that’s not saving. Because it can, the bottom can fall out. And it also is not the ideal way to plan for the future. And I’ll say a few things on that. One is that if you see a balance, say it’s even a million dollars. And I know that this has been, Hey, if I get a million dollars, which you’re your audiences far beyond thinking that a million dollars is the end all be all.

Because they know that’s not enough to create the lifestyle that they want in the future, but say you did get that much on your account statement. It says you have a million dollars in your 401k. You’re in a position where that money doesn’t even all belong to you. The government has a portion of that, that whatever they decide to tax in the future, when you take that money out, that belongs to them.

So that 1 million doesn’t even fully belong to you. So not only is it not safe, it’s also not a guarantee that. Full balance belongs to you. So what we really want to look at instead is understanding, do I want my money in a position that’s safe? Do I want it in a place where I can access it and use it?

Oh, that’s the other thing you can’t take the money out without paying the tax. And if you’re under 59 and a half, you’re going to pay an additional tax penalty as well. So it’s not really liquid. It’s not available for you to say, Hey, I just want to take out this whole million right now and go invest that into.

Investments with lane. There’s no way that they can do that. And so really you want to have money that’s accessible to you. And that’s where we typically are looking at higher leverage strategies and things like privatized banking, which I know that you’re familiar with that as well and saying, how can I have this money in a storage tank, if you will.

That is liquid. Then I can use it and I have control, right? Yeah. I don’t have any qualified retirement plans myself. No self-directed IRAs. No. No, I think Europe, these are okay. If you guys have a lot of 401k money and you don’t want to take the big AGI hit in one year, I think that’s a good option.

Then you don’t have to unify tax, but going down a rabbit hole there. But yeah, I heard somewhere like the biggest source of income, potential income for the IRS. Qualify retirement plans, which are the 401k’s. You can bet they’re going to get at it somehow. So again, you get away from what regular people are doing.

Absolutely. Yeah. And maybe I’ll correct myself, the 401k and mutual fund stuff. It’s not, the investments are crappy. It’s just the fee structure, the hint of fee structures. Like what, taking that 10% away from all the gains at least. It definitely, it takes a lot.

And it’s just interesting because the fees are fixed and you can have your money fluctuate up and down. And the challenge with that is that if you are down, the management fee is still taken out, which means you’re going down even more negative. And when you go negative, you have to tremendously overcompensate with a gain to just get back to even, and.

This is again a whole nother subject, but if you lose half, if you lose 50%, it takes a hundred percent return to compensate for that. And so it’s just fascinating to me. When I look at somebody, if you had a thousand dollars and you lost let’s say you lost 90% you’re at a hundred thousand dollars, you lost 90% of your down to $10,000.

It’s going to take you a 900% return to get back up to. Just to just breaking even. And so yeah, you want to be in a position where you’re not just looking at the average or not just trying to have your money stay in it for the long haul and have those management fees taken out. Absolutely. Yeah, check out Rachel’s podcast the money advantage podcast and she’s got a program, so we’ll link that up in the show notes along with some other notes that we have here.

And yeah. Thanks for coming on, Rachel. I appreciate it. Absolutely. Lane, thank you so much for having us today. And again, Bruce was not able to join us, but this is just been really a pleasure talking with you today. It’s really exciting to talk with like-minded people who really, I know. Yeah.

That’s why we do the mastermind. I’m so tired of people looking cross sided with me when I’m telling them I don’t have any 401k. I don’t either. Yeah. All right. Thank you.

How Do Sophisticated Investors Make Money?

https://youtu.be/d4y_Mj9PIVU

Just grab this out of a new Mark or recently in this models, the interest rates, which, you know, all-time lows. Once again, maybe it’s been creeping up this first quarter, but still pretty much as low as it’s ever been. And the cap rates on multi-family and that’s, this is just a general cap rate for all markets, all asset classes.

So the important thing, what I want to show here is everybody asks, when does it attempt to buy? It’s always a good time to buy when you’re trashed, but as investors, what we do is we’re basically making money on the spread between the cap rate and the interest rate. So right now, cap rates are 5.8% on average, and that the ten-year treasury as is at a 0.93 investors make money on it spread.

And then of course we apply leverage good, healthy leverage. On top of that to magnify those returns, you look what’s been happening is last few months, that’s spread between the cap rate and the interest rates is a lot bigger than normal. Some of the squeeze points of times where it wasn’t a great place to be investing was mid 2018.

As you can see by the charter that there was a bit of a squeeze there, or maybe in between 2006 and 2007, there was this, there was also squeezed there, but the times were the spread of widens. Now that’s the time to invest like mid 2012 year and right now, but that’s a year academic look of how investing works essentially.

And this is what a bank does. They go in and invest in arbitrage of money somewhere else. And they take on debt, but good debt to be able to afford onto the asset that cash flows.

Tips for Getting Your First Remote Rental

If you haven’t checked out the strategy where people are using their key logs to use simple interests, as opposed to average horizon interests, go and check this strategy out@simplepassivecashflow.com/heloc to learn more now, fair warning. It works and it pays down your mortgage in a fraction of the time.

But paying down debt is not aligned with financial freedom. And I think when you guys check out the webinar that we have in there, make sure you listen to the very end, because it’ll be my disclaimer. I think , instead of paying down your mortgage debt, take that money and go invest it. And he can probably go up three or four times the pain dire debt.

But, Hey, look, it’s a start for some people, but we’ll check that out. Simple, passive cashflow.com/keylock. A little personal here. I just have a little bad dream. The other day found myself in the office of the place that I started working as my first employer. Let’s just say, call it a fortune 200 company and.

I think I talk a lot about a lot. It wasn’t a fun place to work. It was very conservative company and things were very high stress there. I had a dream where I did not have a desk and there are a lot of younger people working around there. Maybe I feel like I’m getting old, but I woke up in a cold sweat.

And thankfully I didn’t have to go to that job when I woke up for real.

But anyway, on this podcast, we’re going to be talking with a newer investor who is looking to pick up their first turnkey rental property. Now this person has been in our group for quite a while and took a look@theturnkeyrentalguideatsimplepassivecashflow.com slash turnkey. Wasn’t able to get over the hump.

So joined up with our incubator group and is on the path to getting that first rental property. And you’re going to hear her story right now, but before we do, we are relaunching that incubator program. We started the incubator last year, we ran for five months. It’s a five month program where we have biweekly calls, you’ve got the peer group around you, and we help you out with the role of ethics, who to work with.

We pretty much walk you by the hand to get your first remote rental property. If you want to go through a turnkey provider who will be got, do you want to go do it on your own and get a broker and property manager? We can help you find that person. Learn more by going to simple passive cashflow.com/turnkey and make sure you get on that list so that when we started here this next month, you aren’t left out.

The last announcement here. If you’re a high net worth passive investor and using a 401k or self directed IRA, what the heck are you doing? Check out simple, passive castle.com/qrp, which is just another good tool out there, right? It may not be good in your situation, but we’ll check it out. It avoids UDFI and UBIT tax,

which hits you whenever there’s leverage involved in ADL.

Now on this page, once again, it’s simple passive cashflow.com/prp. We’re also going to have webinars on there on self-directed IRAs. You want to turn it Roth. That’s cool too. And the QRP for you to make your own decision. Of course, if you’re not in the foam, you don’t get that personal touch and that coaching environment.

So take whatever you watch on that page with a grain of salt and good luck, but I really suggest you guys join up with our family office Silvana mastermind and get the insider perspective on how to implement all these strategies. But anyway, join your show.

Hey, simple passive cashflow listeners. Today, we are going to be talking to a non-accredited investor, trying to get started. I’ve known this person for a couple of years now. She’s actually helped me out with the syndication. E-course. A couple of years ago. If you guys haven’t seen that, I checked that out, but she was helping me put this together and she’s been trying to get her portfolio for some turkeys herself.

But yeah, Jennifer, why don’t you introduce yourself and tell us how you fell into this world as simple passive cashflow. Hey, Wayne. Thanks for having me. So yeah, I’m a management consultant and early on in my first year of working full time I had discovered pretty early that I wanted to invest in real estate.

And I started to just listen to some podcasts, which is where I came across. Simple, passive cashflow, and I really fell in love with the thought of having just a passive income, to just substitute for eventually my current income. Having gone through a lot of different like trial and errors between.

Going for a turnkey property. And then also, just trying to invest locally. I’m currently in the New York area. And I thought that I could get an investment property around the New York or New Jersey area and just going through that and realizing that the cashflow and all of that just wasn’t there.

I went back to, turnkeys and just going through a lot of different types of providers. And now I’m just at the state where. I think the market is just so competitive that you’ll eventually have to complete and assign on a property within just a couple of hours.

And you’re really only able to, back out of the deal. If something comes up during the. Review process. So this is where I’m staying between, like trying to look for a turnkey property going into maybe a different market. And yeah, I’d love to just hear your thoughts lane.

Yeah. So a lot of people that are listening, they’re either just getting started in your shoes. Or they’re older and they maybe have kids our age and they want to maybe give them a little bit insight of what it’s like working as a six-figure person in New York. Is it all sex in the city and dinner parties and, where John legend shows up in places at all?

What’s it really like? How are the hours like yeah. Yeah, that’s a good question because I think that had a lot to do with the reason why I wanted to do this passively because the hours are rough. Like I would say. And my first year I was working a solid, like 80, 90 hours a week.

It’s gotten better over the past few years, but not substantially I’ll what time do you show up? Like you work banker’s hours, like 10:00 AM to 10:00 PM or and so I’ll show up between eight or nine, and then I’ll usually be there to 10 or 11, like what do you y’all do?

Like at five, six o’clock do you guys get dinner or yeah, we order food. Yeah it’s nice when there’s like an expense budget and all that stuff, but I think you ended up seeing like your teammates much more than in your family. Yeah. Yeah, crazy. Crazy. So for all that, you get paid about a little over a hundred grand a year.

And talk to us a little bit about the bigger personal finance situation, like you were living on Manhattan for a while, and then you moved back in with parents. Talk to us about that decision process. Yeah. Yeah. So I think with those hours it’s really hard not to live nearby the office, unless of course you’re like traveling.

And my first year I thought I would just travel like Monday through Thursday and then just be around, on the weekends. But I think I quickly realized that a lot of my projects were actually local, so I needed to get a place in the city. So I. Previously I was paying, a good amount of money in rent.

And I think ever since the pandemic started, , I felt like I should just go home and save that since now we’re all working remotely. Okay. And then what were you paying for rent originally? So I had a deal where it was like 1400 a month. So it’s considered like pretty good for New York standards?

Yes, it was definitely like a closet, but yeah, so overall net worth under $200,000 Jennifer here was not born with money, like a lot of us. I think most of us listening, if you even listened to a podcast, I think we could probably safely say that you are not born with money.

You’re here to learn and grow your net worth. And I call all us first-generation wealth. Yeah. So that’s kinda cool. So you decided to move back in with your parents to pocket that money and put it to investments. Which is cool. Those are the hard decisions, right?

I think some other people are like, they do that house hacking thing, but I just think that’s a little ghetto, right? Who wants to live with their tenants? It’s with crap. My style.

Yeah. Yeah. I considered it going to New Jersey, but even then it just wasn’t really working out the numbers. Oh, I’ve never been to New Jersey, but it just hear it all in all the sitcoms and I want to be in New Jersey. Okay. We connected maybe a couple years ago and you started, okay. I got this video here.

I’m going to tease you a little bit. This is the Dave Castro best ever. This reminds me of when you were trying to do your first turnkey rental. So if you guys can see on the podcast farm, you have Dave cash or the CrossFit games guy he’s doing this, deadlift and he’s struggling with it for like over 30 seconds.

This totally reminds me of your struggle with the turnkeys and I will give it to him, but anyway, take us back to when you first started where did you go down and then maybe some people don’t make the same mistakes that you did. Yes. Yeah. So I would say like the mistakes that I’ve made where I would say the first two years I was just fearful. And I definitely went into analysis paralysis mode. I analyze so many different markets. Just talk to a lot of different providers. And at the end of it, I just didn’t feel like I could even make a real decision. And I was just like fearful of this like long distance investing.

And then I decided to switch up strategies, which ended up stalling more time of Oh, let me just look nearby New York and New Jersey to try to. I dunno, like by fixer-upper and then renting it. I remember that, I think that was like 18 months ago. And I was like, all right.

I won’t probably won’t hear about you again. But that’s just how I am as like a mentor. You guys have to make the mistakes and take the time. Yeah. Yeah. So I think quickly after that I realized I know nothing about fixing anything up, so I would have to contract everything out and it was just like a project management nightmare.

If I really got into it and the numbers aren’t even like attractive, you’re still negative every month. Yeah. But didn’t you see all the bigger pocket bros doing this, that burst strategy. Like it’s easy. Anybody can do it. But that’s what I thought until I realized it wasn’t yeah.

I think you can, I’m surely I think you can, but is it worth your time? You’re not some dude making 30, 40 grand a year. You’re working 80 hours a week. Yeah. Yeah. Even just commuting to New Jersey, I realized just was a little bit too much for me to go and see the properties.

I think it’s just like indecision. I think it’s important to come up with a good strategy upfront. And yeah, I think I know lane, like you recently came up with the remote investor incubator and I think having a group of people. To bounce ideas off of and talk to, and all that.

I thought that was really helpful too, to kind of cement, the idea is that your thinking and beliefs and just like limiting beliefs and all of that kind of just clarifying and helping Streamlined just it’s just peer group, right? And using peer pressure to your advantage.

How many of us smoke cigarettes when you’re in a circle of other people when you’re a teenager? I didn’t do that, but actually for the young people, they don’t understand that. Cause everybody knows cigarettes are bad for you and they don’t want to do that. But we’ll keep with the analogy, but in the incubator group, everybody’s taking a dive into the Lake and going remote and just doing it, doing a little bit of due diligence on the neighborhood, and then just diving in with the right people that we’ve worked with in the past.

But let’s go to this this other spreadsheet that you’ve put together here. So you also, or another one of these people, and I usually teach the computer programmers who do this, but. You have amazed me that you’ve put one of these things together yourself. So this is the infamous thing that a lot of people will do when they first get it started, create this big spreadsheet.

She have some bunch of formulas and data that they grabbed from God knows where and to figure out which city to invest in. So yeah. Why don’t you walk us through this? How do you use this? Where did you, okay, where did you get the data from for all this stuff? Yeah, I got it from a mix between Google and like the labor statistic, like a government market, sites.

And then another city data. Okay. Citi data.com. Yup. Good resource little old data, especially if you’re looking right now, since we’re doing a census right now, but. It’s for those of you guys listening on the podcast, swarm. This is pretty crazy spreadsheet with some conditional formatting that lights up green, certain areas.

I don’t know why, but on the left side we had the cities here. Just, this is just probably if I’m hearsay, right? You’re just hearing from other investors. You just put them on. You have 41 markets while these population 2000, 2018. You just manually grab this from the same data source. Okay. And then you figure it out, which is the increasing population areas.

Okay. Yup. Yup. Okay. Yeah. It’s like kind of craziest Frederick I guess the green is the first to be like, Oh, you know what? The numbers are looking good. Like you can consider this a good market. Yeah. Super logical. I think it’s great. You want to be looking for places where the population is going up and the ear of the median income is going up in medium house.

This is actually. Pretty good data right here. This, if I were to make a new column for you, if you take the average or the medium household income, and then go like 80% of it is usually the general rule of thumb. That’s usually what you want to be looking for as your rental property.

One thing that I take exception to this whole spreadsheet is like the markets on the left side, some of them are big. MSA is like Baltimore. And then some are very small, like center point is a sub-market of Birmingham, right? Like Atlanta’s humongous and Houston is huge, humongous, 3 million population right there.

It’s you can’t really compare it with a port Charlotte, Florida or little rock Arkansas. Like these are more, you have some tertiary and secondary markets combined on here, but I understand what you’re trying to do, but like Houston, for example, it’s gone up 39% medium household income, but there’s within Houston.

There’s probably dozens of. Harrisburg, Pennsylvania, which is a tertiary market that makes up, in Eastern Pennsylvania. So just keep that in mind, maybe if you were to separate the secondary and tertiary markets and it’d be a little bit better, but, Yeah. I think in the incubator, I noticed a lot of people will do something like this.

And I usually have you guys go off on your own and waste your time doing something like this for a couple months. And then somewhere around a week, our fourth call. Cause we do bi-weekly calls. I’m like, all right, perfect. You guys have done your research. No, that was just all a waste of time, but it’s cool.

You guys know where to find the data so that when you do get the real data points of actually going and buying properties and you see how it operates, you can refer back to your original hypothesis and kind of correct yourself. So that’s great. You put on crime here. I don’t know. Crime is really subjective.

Prime is like block the block, some market to some market and then job growth is good. I like that. Okay. No, I think once you exactly what you want to do. And then tell me how many hours were you spending on like the first year of the struggle and the second year of the struggle?

Like how many hours were you going into this? Oh, man, I’m stuck between talking to. Property managers, turnkey providers, and just trying to do doing analysis and stuff, I would say yeah, definitely like maybe three, four, three to four hours a week, take, give and take a little bit per week.

When did you do this? Like on the weekends or on the weekends? Yeah. When the days were particularly tough, I was just like, I need to do something passive income. Okay. Yeah. I’m not going to lie. Like you are properly. The person who struggled with this, the longest of everyone I’ve seen.

Right.

I am amazed that you’ve stuck through this more than six months, but hopefully you make people feel good at home because there’s sure there’s somebody listening that is just lurking and probably done the same thing. But as you saw, when you were in the incubator, we pulled you out of this in a couple of months, right?

So you don’t waste the time. And that kind of goes to the bigger point, like bigger picture. Like you got to figure out what your highest and best use. In this two-year period, you got promoted. We talked to us a little bit about that and I think that really tipped the scales for you where you what became your highest and best use.

Yeah. Yeah, definitely. So I think getting promoted there’s that pay bump. And I think that once you know a little bit. More of what you’re doing. The hours aren’t as terrible. You have some people helping you out and supporting you so you can disperse the work a little bit.

So I think over time, the job itself became a little bit more variable, but yeah, and I think that it was nice because after getting promoted, like. After some time I was able to come back home and save. Just like that additional income that I’m able to save down.

So hopefully I can use that to put that to some good use. Yeah. Because right after college you’re making what, like 70, 80 a year or something like that, which is not much in New York, but you were like minion status, which. I think that’s a sad thing. Like parents don’t remember that time of their career right.

Their first five years. So they just have to suck it up. I saw like a YouTube video of this. They call it the ground, find where you’re working along hours and then you have to go to the grocery store to pick up your shitty, lunch or dinner to eat by yourself and it’s raining and it’s cold.

And you only get to go home each or make your sandwich and You got to go to sleep. Cause you got to wake up early and go to work again. Nobody teaches that part of life to you, that grind in the beginning. Hopefully you feel like you’re coming up for air now. They got you off that rookie contract.

Oh yeah. Yeah, definitely. It’s a lot nicer and I completely agree. I thought getting a job was the end all be all. And that was. It knew of happily ever after, but yeah. Would you say that maybe this you’re not the right person to ask, but do you feel like you’re going to be promoted multiple times?

I call this being red circled, like in certain companies, they kind of circle you as. The chosen one, or someone that’ll push a couple of wrongs. I was never red circled, obviously. That was never special enough. But do you feel like that’s in the cards for you or? I think that it’s interesting because like my company.

They have like promotion tracks for everyone. So typically you’re promoted every three years. And if you Excel super quickly then you can do it in two years. And yeah. So it’s almost like preset path. Okay. Okay. Which is great for training monkeys. Cause you assume it a little bit.

Yeah. Yeah. Yeah, because so most of my cohorts that buy apartments and Duke, this kind of stuff, we develop a mindset. If they’re still working their day job, they’ve developed a mindset of they hide from promotions in a way, because it takes away from their highest and best use, which is buying these investments.

But are you getting that type of feeling? Maybe because you haven’t started really investing in this stuff scene to scene that track launch, but where’s your head at now? If you can only choose one path, right? Either you go for the promotion, you stay on that fast pass, or do you think you’re going to just lay low and do the sort of bare minimum?

And just invest passively, right? Like how, when I was thinking, why would I want to work 50% harder to get 10% more pay when I could just buy a rental or two and create that passive income for the rest of my life? Yeah. Yeah. I think I’m definitely with you, eventually just thinking way into the future of potentially starting a family, like later on all that stuff, that was my initial thought I don’t think I want to be doing this forever. So I totally agree, like passively is what I’m hoping to do. Yeah. But in the meantime, I’m sure that there’s some optimal set point or maybe you have to, kick butt at a few more years or six years to get to that optimal point where you have the ideal management role.

Or the highest pay, but at least amount of work for them yeah. Pay or then you can kick it into cruise control. And then while investing passively, I think that’s the mix. Everyone’s a little bit different, but I think you’ll find that. But for now I would still keep working hard at your day job, but we got to fix this three, four hour a week.

Passive investing, like to me, if you’re spending more than five or six hours a month, Being a passive investor doing it wrong. Yeah. But, okay. So we went through a bunch of, dead ends with the turnkey stuff. Where are you at now? Where is the incubator pointing to you? What’s your next three month action plan.

Yeah. So I think three month action plan is to come up with, the market that I want. I guess in terms of finding a property, I think I’d like to find a property where I’m able to evaluate the property, given my shot at analyzing whether it’s a good investment. And then hopefully making the actual purchase.

Okay. So that was the Pennsylvania or the York folks we connected you with, right? That’s right. Yeah. I think right now, which is so competitive out there that you really don’t have time to analyze and yeah, you kinda just have to, go with it. And then if there’s anything during the inspection and.

You would you’d be able to back out. Yeah. Yeah. I think that’s, it’s always been like den. I think it will always be like that. If you’re going with turnkey providers that are legit, and this is what makes turnkey providers so hard, because if somebody is a good house, slipper, turnkey provider, they eventually stopped.

Doing rental properties for landlords, the rental grade, because landlord grade stuff is lower scope douchey only 50 to a hundred thousand dollars scope. It’s easy for them. So that’s where a lot of rookie start as they get better, they graduate to more higher end properties because that’s where the profit margins are.

It’s not like a cheapskate investor like us. Who’s only going to pay 1% rent to value ratio. They can sell it to some emotional buyer and get that nice pop. So the fact that they’re turnkey providers, it’s either they’re newbies or they have the really good marketing and now they upcharge the price of the homes to on sophisticated turnkey buyers.

So that’s just how it is. And it’s a little unfortunate because. I try and keep one foot in that world. And it’s hard for me to keep up because the people who are good, they graduate out of it. It’s like college basketball. I don’t know anybody in college basketball because they all the good ones leave.

So York, Pennsylvania has Pennsylvania where they’re close to you, but are you going to go with that one or are you going to just pick a different market? Yeah, I think I’m at the point now where I think I just need to pick a different market. Okay. Cause we had people in the incubator.

I know they’re in Cincinnati, Cleveland. I got folks in Jacksonville, Dallas, Texas. You’re not going to cash out there, Huntsville. I don’t think there’s turnkey out there. I got you covered in Birmingham center point. Memphis. I think Memphis is overplayed already, like Memphis personally, but Hey, it’s up to you, right?

But I would listen to me cause it’s all relationships, right? Atlanta, Georgia, you can’t cashflow there anymore. I’m not too connected in the Carolinas, so I can’t help you out there, but maybe an incubator, somebody else can Houston, you’re not going to be able to cash flow for single family there in Chicago, I would not go anywhere near Illinois.

Detroit. I would actually recommend Detroit and Gary Indiana, if you like Chicago, go to Gary Indiana. Kansas city, Missouri is getting low, expensive, Indianapolis, I think a lot of unsophisticated turnkey buyers have been going there for the last several years. So if you like Chicago or Indy, go to Gary Indiana, it’s like the place that people aren’t flocking to.

And that’s, what’s making this hard, right? Like every few months cycle by there’s another wave of unsophisticated. Oh, working stiffs, trying to get out of wall street into their first alternative asset, which is typically a turnkey rental. So it ain’t going to get any easier. Competition’s not going to be going down.

Yeah. And yeah I totally agree. I think my next step. Going back to your original question lane of the next three months, I feel like it’s just to reconnect with some people in the incubator just to see what specifically why they chose their market.

And maybe if you had to be able to get a property out there too. Yeah. Why recreate the wheel, just use the property manager. She used a broker, just people are nice. So she wants you join up. People help out their own. It’s like a sorority fraternity in a way. It’s like a cult.

Actually everybody wears the same bath slippers, but you’ve got these really neat rules, right? Thumb on median, household income and stuff right here, but, okay. So going back to your personal financial sheet, I want, I meant to just point out a few things. So student loans, you don’t have student loans.

Okay, good. What are you doing for your Roth? 401k, your retirement stuff that everybody says you should be doing. What’s going on there. So I put some into it, for my first two years, but I’m only putting what, I guess my company’s matching. Okay. Like 6% or something like that. Okay. And then, yeah, my Roth IRA I am maxing that out at 6.5 per year.

But I think I was really struggling with this whole real estate thing, because I know you talk about it all the time later about don’t put it in your IRA. Like you could just put it in like a real asset. So yeah, I’m hoping that once. I get this whole ball rolling with them real estate.

I’m able to, over the next few years, just start moving things over to hard assets. It’s not like you don’t have liquidity, right? You don’t have to pull the goalie to buy your first rental. You don’t have to pull your retirement, your Roth to buy that first rental you making good money.

You making the hard right decisions to live with your parents. I wouldn’t wish that upon anybody, but I think that’s the stuff that’s going to set you up. If you can do that for a few years, pick up a couple of rentals, you’ll be off your way. And then you quote, unquote, pull the goalie stepped in that retirement stuff.

Or to me it doesn’t make sense. Where’s your AGI right now? Or it was this year, last year, just under a hundred or. Yeah around them. Okay. And so the cool thing when you’re under a hundred grand is they allow you to take up the $25,000 of passive losses to lower this down to from a hundred down to 75.

So I did this for a couple years, a few years back, When you can use the passive losses to lower it. Once you go over 150,000, it’s gone from a hundred, 250,000. You’re phased out completely, but this would be like you can’t. When you go into a rental property on that, like a hundred thousand dollar rental property, the depreciation is not going to be that great.

One 27 of the building value is probably only equate to like a thousand or a few thousand dollars a year. But this is where like a syndication deal comes in, right? If you invested 40, 50 grand to pick up $25,000 of passive losses, you could use that in that same year to lower your AGI from a hundred to 75.

So that would be low-hanging fruit for you. If you wanted to do like a syndication, but yeah for those of you guys who are above 200, $300,000, AGI ropable and 50, that doesn’t apply to you guys. You guys have first world problems, but for those folks who are just starting out under a hundred thousand dollar AGI, that is low-hanging fruit to do for sure.

But yeah. Any other questions or any other? No. I guess last tips of like how to get this ball rolling. I think for you, it’s just mindset and I’m not really good at this stuff. I think you gotta find ways to get yourself moving forward. And I think for you, it’s just like, all right, I need to make a goal to buying a property and next month, and being like, all right you already know how to analyze it, right?

If people want to get my analyzer, it’s that simple pass the castro.com/analyzer. It’s free for everybody. You guys can underwrite your own properties. Your incubator students. So once you put it in there, Just put it in the group, send it to me for that final approval and yeah. Put in the offer and moved through to due diligence process, get inspector and let’s get going.

Don’t let it hang you up. Like I think we want to push you forward and give you the confidence that you’re not making a stupid mistake, but I think you just can’t do what you’ve been doing for the last six months. You gotta keep buying. And then also be mindful of how much time you’re spending on this thing.

Right? I guess it is goal-setting season this time of year, but there’s one thing I picked up where you have a goal, right? I don’t know, lose 10 pounds or buy five properties or whatever. Now think just simulate in your head, like, all right, I have to do this thing in the next 30 days.

You’re like, Oh, what do I do? And maybe it’s not realistic, but it helps you be like, all right, I got to do this. What would I do? What would I have to give up? What would I have to stop doing to make this goal come true to really make it happen? Maybe not 30 days, but seven days or three days.

If I had to lose 10 pounds in five days, what would I do? Maybe that’s not healthy or safe, but what would you do right now? It starts to makes things very clear and focus and all this other extraneous stuff just disappears. And I think that might be a good exercise for you to try out, right?

I tell you, so I have to buy property the next two weeks. First thing that should happen is you get a little twinge up your spine, if you’re like, Oh crap. And that’s good. And then you notice just observe what are the things that you were doing and that you think you would be doing that just go away?

Because I don’t have time. I have to buy property and next to it, I have to put an offer next two weeks. And just take note of that, because those are the things that you should stop doing. Got it. And then yeah. Use the peer pressure on your side. Find a couple of people that you can stay accountable to.

But maybe you’ve done that, maybe it’s not working for you. Yeah. There were a few people who volunteered to be my peer pressure person from the incubator group. Yeah. And how did you follow through or how did that go? Yeah. Yeah, no, I think the bi-weekly calls. It really help out, but like we just chat, like messenger and all of that stuff.

Just having to give updates is helpful. Okay. Yeah, but maybe at the end of the day, maybe buying a rental property, isn’t your thing, right? Maybe it’s just being a straight LP. Passive, right? Yeah. I used to think a long time ago that everybody could buy a turnkey rental.

And I was like, yeah, it’s a turnkey rental. Here’s one page document, figure it out. Turnkey. It’s called turnkey for a reason. A monkey can do this and then. A couple of years went by and I started to realize yeah, this isn’t something, not everybody can do.

Not everybody can call a property manager to be able to relationship with. Not everybody can work with a broker, not anybody can. I think that the first layer is like, who do you talk to? Cause it’s just a random people. You can’t go on Yelp or some random internet site to figure out who you’re working with.

You have to build relationships with other people. Who’ve done it before to get their referrals. And that requires a little bit of like relationship Jim Jitsu. And then I started to realize, yeah, most people cannot do this. Financial independence is not for everybody. And buying turnkeys is a lot harder than doing syndication deals as a passive.

And I started to I was like, I was trying to get my wife to do this. And I was like, she’s not an idiot, but I was just like observing. And I was like, yeah, there’s no way she’s going to do this. She just doesn’t have that the want or the aptitude or she doesn’t care to. And I realized, yeah, this buying a turnkey is not as simple as it sounds nor is it that great in my opinion, too.

But that’s where kind of the roads lead to eventually being a passive investor in many deals for diversification and scalability. So why not just go there automatically, but I like to see most investors get their feet wet with single-family homes to learn the business a little bit and get used to the ups and downs.

But maybe it’s just not for you and me. And that’s why I’m like, it’s exciting to see you progression your career because that maybe that’s your thing, right? Yeah. It ultimately comes down to what’s your highest and best use. Yeah. Yeah. But yeah, it’s nice having you in the incubator and I don’t know when the next time we’ll be launching it, probably maybe do a one or two classes per year.

But yeah, go to simple, passive cashflow.com/incubator. To learn more about that or check out the free turnkey guide@simplepassivecashflow.com slash turnkey and yeah. Thanks or listening guys. And we’ll see you guys next time.

What the Unemployment Rate Does Not Tell You About the Economy

https://youtu.be/4vPkhgIuZaA

The way they keep those statistics on who unemployment has been changing to make it look rosier than it really is. Yes. But I would say there’s another statistic, which is more important, which is labor force, the labor force participation rate, which is down around the 61% now. But as recently as the 1990s, early two thousands, it was around 67%.

So that’s a six and a half point. Decline or 10% decline if you think of it as a percentage of the whole, that’s a big deal. That number is the lowest. It has been since the 1970s, when women first started coming into the workforce in large numbers. Now, if you don’t have a job. But you’re not looking for a job.

You’re actually not counted as unemployed. The unemployment number we saw and yeah, declined from it was hit about 13%. Last spring came down to 10. Now it’s around a seven or so maybe slightly higher. That’s still high, but it’s a significant improvement over where it was last April, let’s say, but that’s not the number that matters.

The number that matters is labor force participation. So what’s happened is. Tens of millions of Americans have, have left the workforce there. And I’m talking to ages 25 to 54. I’m not talking about a 68 year old who wants to keep working or a teenager, or we’re not talking about disabled. There are perfectly good reasons for people not to be in the workforce.

There are always some, but we’re talking about able-bodied individuals between the ages of 25 and 54 prime working ages who have left the workforce. If you’re not. Banging on the door of the unemployment office is looking for a job. They don’t count, it was unemployed, but you’re not working and you’re not producing.

And so I look at that number because to me it’s a better gauge of economics displayed right here. So that’s just simply Google and the labor force participation. Right. Kept up by the U S Bureau of labor statistics. And is this pretty much it, this is what makes it hard, right? Because everybody hears the news headlines and we know they’re always just trying to sell use headlines, just like other talking about how collections are horrible, but I don’t see any of that issue happening.

In other words, saying that. Unemployment’s down, but is this really the way to cut through that noise? Yeah. This is a more manual chart than the unemployment rate. Again, this is the labor force participation rate. Now you notice you heard a lot of talk in the last March, April, may about the V-shaped recovery and pent up demand and all that.

And you look at that chart and look at labor force participation while you see the steep decline at the time of the pandemic. Okay. Got it. It came back. But that’s not a, the that’s like a half a B, in other words, the bounce now it’s flat and going down again. So yeah, you had a little bit of a bounce back.

That was to be expected after the, we got through the original round of lockdowns in may, in June, she had that bounce back, but then a flat line, and now it’s going down again. That’s consistent with what I said earlier, which is we’re heading back into another recession right now. Because there’s a new round of lockdowns.

You don’t need a Ph.D. to figure this out. You locked down half the economy. You’re going to get a reception. It’s as simple as that.