Real Estate Investing for the W2 Working Professional
https://www.youtube.com/watch?v=o01WDWtr9pg
Alex, are you still there? That’s his policy.
Yeah. Alex, just be aware that you’re not paying back yourself, that 5% interest is going to the insurance company. You may get some small trickle of that based on company’s profits gets paid back. That’s part of this goes to the dividend rate that you receive, but the inch that 5% interest is not going to you directly.
https://www.youtube.com/watch?v=uzx-1-AfbqI
That question about the index participation, I guess that kind of makes it almost half an IUL. Is that right?
Are you talking about Guardian Index Participation on the actual IVC. So if you selected that, that makes it like a hybrid IUL is there right. It’s still whole life so that you have less risks on there. But so for those of you. That aren’t aware of what Mary’s saying is it’s Guardian has Index Participation feature on it, where instead of receiving the stated dividend rate, which is currently 5.65%, you would be able to get index rate based off the S and P 500. There is a company caps of 11% and 4%, and then they charge you 2% to get it. So right now, the max you could get is 9% and the law of 2% as your dividend rate instead of the 5.65. So it’s not in addition to the 5.65 it’s instead of the 5.65. And what it’s doing is it’s indexing the S and P 500. So on your policy anniversary date, it’ll look at what the S and P 500 was at last year and then what it is at this year. And then that percentage rate is what you’ll receive.
But the trade-off, what is the trade-off when you click that box?
It’s a free thing. It cost there’s zero cost for it to be a rider on your policy. So it’s there, but if you use it, if you allocate any money to it, then they charge you a 2% on the return.
You can choose anywhere between zero and a hundred percent participation. It’s nice where you don’t have to allocate all of your funds to it. For me personally, the reason why I chose those whole life is for kind of the stability. You know what you’re going to get. I already have some exposure to the stock market, through retirement accounts and other things. That’s just me personally. I may use that feature when there’s a major stock or a market correction. It tanks a portion of the funds to receive that potential higher dividend, but the risk is more unknown. It’s based on your policy anniversary date so everyone’s returned maybe slightly different and basically it just index annually.
And that kind of, we’re not going to get into this topic, but that kind of transitions into what you had at a certain point. In my opinion, people who, if the whole life kind of banking to the IUL or some people call this a philosophy banking where it’s got stock exposure. And to me, that’s the end game, right?
If your net worth is four or $5 million or more, you’re in cruise control and you’re not going into individual deals or investments or rentals, you know, you just want like a no-hassle single-digit greater return. That’s what that product is for. And I think at this point I’m not getting it personally, but I think one of you guys would probably push me at some point to make more content around it. We’ll create more videos and information about that product here in the future. But for now, you know, the infinite banking is for folks who are million dollars to five, $6 million net worth who are taking, putting the money in there. We’re getting a little nice rate of return, tax-free off the table, creditors and litigators, but to take the money right back out and invested in deals or whatever you’d like to do with it.
https://www.youtube.com/watch?v=O_HE_HgsFLA
Hopefully your existing policy has no additional P lease. A lot of them that either evaluated existing policies, even. And this is where the design is so important because it’s a guardian policy. It’s a foster guardian policy. Yeah. It’s a fair product that we use heavily and it was just designing. So the other person couldn’t contribute anymore.
It was basically all based premium and he couldn’t put in Peewee. And if you can send him, reached out to me, I’m wanting teachers quickly. I can do a quickie, which of the color. But yeah, this is more than likely the guy built it. Not with the idea that you’re going to get the liquidity. Right out of it, you know, I think my wife had something like this, but we just chose to just cash it out.
Or I think Tyler, you can do like a 10 31 exchange or life insurance too. Why would you do one or the other, like the cash it out or that template? What is it called to building one for life insurance? What was that called? 1035.
Close.
Basically, I will do a tender most of the time. I would recommend doing a 10 35 just because you don’t wait when you do the withdrawal, it becomes a taxable event.
You do the 10 35. You can reserve all that cash value, put it into a new policy. Then you’d have access to that cash value via policy. I personally, haven’t had a pretense. I still have a Prudential spot on me. It’s so small. I was about to just take the cash value and instead I’m keeping it there and I’m just taking all policy loans.
I didn’t do a 10 35, cause it didn’t make sense because it’s already paid up, but you can just access that cash value via policy loans. There you could possibly even just do a reduced paid-up exercise and reduced on your policy and you could kill the fees and maybe that may even be the better option.
Right. Good to know. If you don’t mind, I’d like to send you over what I have and have you take a look. It depends if it’s big enough, like over 25 grand or if it’s less than that might be easier just to simplify it like 125,000 dollar 401k. I mean, that’s not too much money as well just get rid of it.
Yeah. I mean, right now there’s 105,000 and cash value in there. So it’s grown to be significant. I think I just didn’t want to pay that. My wife’s slimeball.
Yeah, I hear ya. I think he’s trying to sell me on like a, another policy now.
It’s usually the guy that you’ve never seen since college or high school, they take you out for lunch, right? Field trip, you that your kids and your family are up the creek and you don’t do this. They’re building you up with everything that you don’t want. It’s not like they’re trying to screw you. They’re just building it the way that they were taught. And a lot of this is very counterintuitive, which is high liquidity, low death payout, which is, goes against everything that they’re taught.
And then low interest rate too, which doesn’t make sense. I’ve had these guys, they challenged me. They’re like, I thought you’re like simple passive cashflow you want returns, right? Don’t you want good returns on this? I’m like, dude, like you don’t get it. Yeah. It’s not the case.
Now, another trick that folks like did you in this business inflating other income or non rental revenue, such as trash filet, additional storage fees, reserved parking or covered parking in Texas. That’s a big one for those late hailstorms money for vending machines, money from laundry machines or any type of service that may or may not be tested by the current clientele.
This has been a way to sneak deals past even the most astute, passive investors. We have understanding of underwriting, just put stuff into other income category because most people don’t look there.
https://youtu.be/6hKezp7iSa8
Guys, this is your rich uncle here today. We’re gonna be breaking down the CNBC article, talking about. Millennials having regrets. And I’m going to tell you ultimately why I don’t think people should be buying their house until their network is two times that, of the price of their home. So yeah. Let me just go down this article and kind of summarize it for you guys because life is short after all.
So they’re saying that millennials are having regrets after buying their current home. The reason why they’re having regrets is. Because you shouldn’t buy houses, you shouldn’t buy a house to live in if you’re responsible with your money and you’re able to invest it in other things that make you a lot more money.
This goes completely against what most people think out in the world. But Hey, go figure, as in many things, the things that they tell you may not necessarily be correct. I don’t live in a place that I currently own. Because I’ve been growing my money tenfold with, by investing in single-family home rentals and now apartments today.
One of the biggest things that people cited was that these folks are underestimating their costs. One of the biggest mistakes you can do is buy a fixer-upper. You hear it about it all the time? My goodness. Stop buying a fixer upper because here’s the problem folks. Yeah, you’re getting maybe a little bit less expensive than you would have bought otherwise, if it was all shiny and new and fixed up, ready to go.
But the thing is say you have to be paintings or maybe 10, $20,000 of repairs in the property that you think you’re going to do yourself. The issue with this is that you can’t finance the repair box. The biggest thing that we talk about as sophisticated investors is, putting the least amount of down to get the most amount of returns for our money.
So if you bought a $500,000 house, you put 20% down payment down. So let’s just say a hundred thousand dollars. But then now you have to, you’ve got this fixer upper. So you got to put 20 grand into it. Now you’re in the deal for one 20, when you really should have been in it for a hundred and people who don’t understand money, don’t understand a responsible use of debt.
Don’t understand what we’re talking about here. They don’t understand it. It drives me crazy. People think that they’re getting it for less. They’re really not because this is not how money works. This is not how it should. Your rich uncle does it. This is not how the wealthy do it. Guys. You guys need to stop listening to mom and dad doing it the wrong way, or all your other coworkers or friends who are thinking, don’t go into debt.
As I say before, you got differentiate bad data, good debt.
So this is what kind of stem is from underestimating. The repairs. And this is drives me crazy about mainstream articles. They always come up with this, like, all right, what should you do? And we started just lane ways, like building up your savings. Come on, give me a break. Make sure you’re thorough.
Yeah, of course, but don’t buy fixer upper skies, buy it all, ready to go or negotiate it into your contract as I’ve done the past so that the repairs get done. Prior to closing so that your lenders okay. With it in the process, and you can wrap up all those repairs that you would have had to put in.
Otherwise, again, let’s just say you had to pay $20,000, right? Cool. You just increase the price of the property, make it a $520,000 house instead. But now you, you put you finance that five 20 and now you’re out of pocket, maybe. 20% of that 20 grand, right? So $4,000 out of pocket. And then, so this is the, this is good use of money and debt.
So they also broke down. I’m going to show you this graphic, that teammate for us. So in this graphic, shows like the difference between a formal owners in general, which are like the general population and the green ones are the Greenies, the younger folks. I don’t know where they were at with these different types of aspects of the home buying process.
The people had no regrets, typically the older people, right? Because they were buying houses where the millennials are just buying houses, just to keep up with the Joneses to be, it makes no financial sense to own a house that you live in going invest the money. Heck, put it into your student loans at six, seven, 8% that you’re paying now, that’s still going to be better than putting it into your house.
I still don’t even think you should be doing that.
Every other population you can see maintenance was a big thing that we just cited there. People bought a too small of a house. See, I think this is this is just a bad data, right?
You should, for every 10% or so people who had that group, Brett. You would think that the 90% of the other ones that they bought too big of a thoughts, in my opinion, depending how the survey was designed, it should be 50 50. These are some other things that people thought of as their kind of regret for buying that big payment.
I don’t really want to get into it today, guys, but go to my room website, simple, passive castle.com/home and read my entire guide to reasons why you should, and obviously you shouldn’t buy a house to live in buying a house to live in is one of the biggest financial mistakes. I see young people making these days, you put that have to put down a large sum of money.
That you would have otherized otherwise possibly bought two, three, four, five rental properties where families are paying down your mortgage for you. That’s the difference when you own your own house, you’re working your butt to pay down the mortgage yourselves and compound that the fact that you’re going to have a much larger mortgage payment.
Now this cripples your cashflow, instead of maybe being able to save 5,000, $10,000 a year. Now you’ve shrunk that down to almost nothing at this large house payments don’t believe the nonsense that other people are saying that rent is throwing money down. The two. Sure it is. But if you have all this money that you would have sunk in there anyway, making a whole boatload of money for you at the end of the day, it’s the combined some of the two, I might be throwing a thousand dollars down the tube paying rent, but I need banking two, three, four, $5,000 a month with my rental properties that the down payment I wouldn’t have had. Otherwise, if I would have sunk it into the down payment of the property and I would also be making a lot more money to be able to accelerate by more and more rental profits.
So there isn’t a nutshell guys again. Don’t buy a primary residence until your net worth. It’s the least one to two times more than that price of the property you’re looking to get into, right? It is a financial drag on your finances. Don’t do it yet. If you guys agree with this, don’t agree. Let’s have a conversation down below in the comments.
I’ll try and answer them all. A lot of this is a lot of people get very passionate about this people. You’re like, oh, where would I live? Right where my family live own or rent something. Go find a unsophisticated landlord that thinks owning a property that where the rent of value. Racials where you take the monthly rent divided by the purchase.
Price is not greater than 1%. Actually think that’s a rental property and it’s not, it’s a bad rental property and bear on sophisticated investor. So therefore you as a tenant need to take advantage of what they do not know. So therefore you need to rent from them.
All right, guys, keep learning the good stuff from your rich uncle here, and hopefully we will get you guys to financial freedom. So take these back.
Just a, I guess a personal question. What do you think about sweeping that money into a block fire or like how Ilan is putting it? It clean, but it’s your thoughts? I’m sure it goes against the PPM. Yeah, you’re right. In our sec offerings statement, we’d have to disclose that. I don’t know. I guess the only reason to keep cash on hand is because we may have needs payables and stuff like that, acquisitions, but it is not, I’d be a little nervous if we did that and then it wasn’t readily available when we needed it.
And so I think these sit in the bank for either in an operating account or in a money market account, and definitely not.
Is there a certain percent number that you’d like to keep as cash. It’s a couple hundred dollars, $200,000. I think people will get nervous if they say, oh, where do we only have a hundred thousand dollars in the bank? Just because there’s always paid just as money comes in every day. There’s bills that come in.
And once in while almost like an emergent, Hey, we got to cover this taxes today or something like that. So there’s always typically a hundred or 200, lots of times more. And we try to manage that sometimes we’ll get significant payoffs or Oreos or significant money comes in or investments come in and it’s not readily deployed.
We sweep that money to a money market account. So we’re earning some anemic rate of interest, but at least there’s a little bit of money versus sitting in the kind of operating account where they’re earned zero. So that’s done regularly. It doesn’t add up to much, but it’s fine.
https://youtu.be/6z69B3pP-HU
What are some of those common safeguard? Or maybe not drugs in particular. Cause I think it would be that one off, but other issues into the surface with when these consults with families and how do you protect against how do you write it into a trust? The biggest again, communication is by far the biggest one.
And, but I want to hit that from a different angle that I answer your question in not a different way, but from another issue, critical David York and I he’s a coauthor on our books. But for, it was for trusting the state’s magazine in 2017 and trusted in states magazine. And our nerd world is, are our peer reviewed periodical.
And you got to do annotations and case studies and it’s, I’ll never write one of these damn things again, but we call it Gratz versus graphics. That was the title of the article. Now a grad in our world is a strategy for transferring wealth from one generation to the next extensor grantor retained annuity trust.
So the point of the title was, are you trying to pass on it again, written to our, our colleagues, other attorneys in the state world. Are you trying to help your clients pass on wealth or gratitude? Okay. We took a look at all of our families that again, have done this very well. And one of the things that we found was the biggest deciding factor about whether or not a family stays in harmony, meaning that a year after mom and dad dies, they’re still having Thanksgiving dinner.
Or we have this, the state is saying in the estate planning world that you never truly know a person until you share an inheritance with them because the best families, the claws will come out and people will fireboat fight over mom’s engagement ring. I don’t think it doesn’t say anything bad to the person.
It doesn’t necessarily mean that you’re greedy. I’ve seen a lot of greed in these scenarios, but you lose a loved one and you go through that emotional toil and then you hang on to a personal item. I remember when. Duck hunting with my dad for the first time. And he gave me a shotgun and the use, and I want that, whatever it is, it has this emotional attachment that because of the emotional turmoil you’re going through with that last one, you latch onto that.
I will see people fight over tooth and nail over that. So the point of this is the biggest deciding factor is openness being open with your family and having the open dialogue. And that’s a really counter-intuitive thing. Not so much for our generations. Our generations are getting a little bit more comfortable with it, but you have the silent generation.
There was a reason. They were called the silent generation. They did not want to talk about money. They did not want to talk about finances, include the family. David, one of my partners, he has this great story about this family. He was talking to this with, and the mom and dad looked at him and say, can we, we try to instill our kids, all these financial ideas and how lucky they are all the time.
And we did that recently on a trip because we sat in first class and we made them sit and coach you’re going. You don’t get it, pal, your kids still get it. Your kids still get that they’re flying the Maui that you’re sitting in first class, that there are assets. There don’t act like they’re stupid.
People include them. Let them know though what they’re going to expect, even if they expect nothing. Because then the anger you will, isn’t directed to you, or isn’t directed to their siblings. It’s directed at you. Who’s six feet under and they can jump on your grave all you want. So that the point being opened, the books is a really big thing that I encourage people to do.
And we really feel that kids can start getting involved in some of these discussions in age appropriate way. But his early as five years old, or just lie to them, tell them, it’s your grandparents trust. It’s not yours. No, don’t do that. No. Cause again, that’s our second principal with the first principal of them trusted families as they, like I said, they know who they are and they know who they believe.
But the second principle is that entrusted families. Prepare the next generation for the wealth, rather than concentrating on preparing the wealth for the next generation. And that’s all estate planning is doing right now is concentrating on preparing the wealth without again, the consequences it has on that next iteration, without question, including kids into.
Meetings. I was in meetings with family advisors, financial advisors, accountants. I was told to sit in the corner, shut up and suck my thumb, but I was also told to listen. And if I had a question, I could ask it and so forth, but it was a way for you to start speaking that language. There’s a whole nother financial language that’s out there and you’ve got, gotta be able to speak it.
https://youtu.be/1NqD1rrBvKc
You put in some of those safeguards where the trustee of the trust can suspend making distributions to that beneficiary. In the event, the trustee knows it’s going to be used for an inappropriate purpose. Doesn’t mean that the beneficiary can’t still benefit from the trust. For example, you’re worried about giving that beneficiary money cause he’s yours.
You’re going to take it and go buy drugs, alcohol, whatever, and they’ve got the problem. The trustee can pay. The person’s mortgage directly, they can make sure that the mortgage payment is going to get paid. So you have to have some of those. And then we even put in ours, the ability to obviously drug testing gets involved, but also we get counseling and have that counseling paid for.
They get a second chance. Although you have to be really careful about that. Drug has a huge recidivism, right? Those are some of the hard things that you have to craft around and identifying those is a really big part of it. And in fact, that’s what we always start out with saying is that people that successfully navigate this idea of transferring wealth with more purpose, and also, I think preserving family harmony, they routinely spend time knowing who they are.
And families don’t really do that very often, any longer. How often do you sit down and say, who are we as a family? What makes us unique? What are our core values? And that’s the other aspect to what this lifetime trust provides. It’s a way for you to pass on that personalization. I mentioned earlier that I’d come back to this.
This is where you, as a family could come in and say, these are the five core values. I don’t know, however many values you want to put in there that we really want our trust to be driven by. If you were to look at my trust document, you would see that there’s 35 pages, just giving directions to my trustees about the type of things that I would want to do, because I want to incentive my incentivize, my kids, and much more.
Then the static way that a trust is written, where it says the assets in that trust for the beneficiary are to be used for their health education, maintenance support. That’s not where I want it to end. I want my kids to be able to use it for entrepreneurial activities. I want to use it while they’re alive to help teach in some of these financial literacy ideas.
Right? Financial literacy is an extremely important thing for a parent to teach to a child because they don’t learn it anywhere else. They don’t learn it in school. You wouldn’t want them learning financial literacy in school. Last thing you want to do is take financial advice from a teacher joking, but the point being is that you, as the parent, whatever, however you define that, it really does have that responsibility for taking on that financial education to your kids.
How are you going to do that? Incentivizing them is just incredibly powerful. You’ll see things in people’s trusts, where they will provide for the family to be really thought of as a bank. And if a child wants something from the family bank, they don’t just get it given to them. They have to apply for a loan.
And if it’s for business, I don’t care if it’s a lemonade stand or like I have this family, actually, my son’s 15. Now he wants to start buying cars and, and, and reselling them and fixing them up. Right. Not in my experience, a real lucrative process, but he needs to learn his lessons and I’ll help him. And I’ll say, okay, look, I’ll loan you the money to help buy your first car, but I’ll tell you what, you’re going to come to the whole family, your brother, your sister, and I’ll ask your mom and your dad because you’re taking the family’s money and you are going to deliver us a, a business purpose, and I’ll help you.
I am teaching them how to write a business plan. And I want to understand what you plan on doing. You’ve done all the due diligence on costs, startups and all of these different kinds of things. I want him to start learning those things, even if he blows the thousand dollars or whatever that I might lend him.
He’s had a learning experience. Now, if he has an outstanding loan, he’s got to regularly come back. And deliver a state of the business address if you will, to the family. Cause that’s creating accountability, but it’s also teaching each other. There’s no better way to learn a topic or a subject than to have to teach it.
And my kids now are teaching each other about what they’re doing right. And what they’re doing wrong. In all of these activities, because I know my kids are going to make mistakes. You learn from your mistakes, but I’ll be really pissed off. If all of my kids make the exact same mistake. And if they can learn from each other, this is what I did.
This is what I did wrong. You’re creating family togetherness. You’re hopefully creating synergy for the kids working together. My kids are going to have to work together and how my plan is set up. Something happens to me. Nothing. It doesn’t go a third. Like I said, it all stays together and they’re going to have to work together on managing it under the principles that we’ve all got.
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