Private credit is one of the hottest alternative investments right now, and Yrefy has a truly innovative investment that serves both sides of the transaction - borrowers and investors.

Laine Schoenberger, Chief Investment Officer and Managing Partner at Yrefy, joins me to explain their platform. Yrefy helps borrowers trapped by private student loan debt while offering accredited investors attractive, non-correlated returns. Laine shares the stories behind their clients, explains how their underwriting process works and explains the advantages for investors, including flexible terms and steady, fixed interest rates.

Top 3 takeaways:

• Real Impact for Borrowers: Yrefy’s program isn’t just about numbers; it’s changing lives. By negotiating down distressed private student loan debt and refinancing at affordable, fixed interest rates (average 3.9%!), borrowers get a custom solution that restores their credit and financial dignity.

• Investor-Friendly Structure: Accredited investors can participate with as little as $50K, picking their preferred term (1-5 years) and enjoying fixed, non-correlated returns up to 10.25%. There’s also a feature that provides flexibility if early liquidity is needed.

• Transparent, Human Approach: Every loan is handled in-house, borrowers are required to prove their seriousness before funding, and Yrefy’s average default rate is low (around 2%).

Private credit that genuinely “does well by doing good” — this is a case study in how investors and borrowers can both win.

Links:

To read more about Yrefy www.yrefy.com

Take the quiz - How Alternative Assets Can Fit in Your Portfolio

• Transcript

  Introduction to the Unconventional Investor Podcast

  Welcome to the Unconventional Investor Podcast. I'm your host, Michelle Moses, certified financial planner, licensed realtor, and founder of ME Financial. If you're an accredited investor feeling overwhelmed by managing your portfolio and looking for alternative investment strategies that go beyond the traditional stock market, you're in the right place.

  Let's head into today's episode so you can start taking control of your financial future.

  Understanding Reverse 1031 Exchanges

  So are people mostly doing that when they just find a screaming deal and it's okay I'm not ready to sell this. Like I just haven't whatever, gotten the renter out or, they're just not ready to sell it, but they found this other property and they're like, oh my gosh, I can't pass this up.

  Is that Most of the time it's usually that. Okay. It's usually that the higher the net worth, the more experience the investor, the more likely they are to do reverse. I have clients that will not do forwards, they don't like the 45. Day timeframe, they're like, interesting. I don't wanna put this on the market and get caught with a deal that I don't love.

  So that's why the reverse is so powerful. If you've got access to capital and you see a great property, you go, I gotta have this. And typically those great properties will have multiple offers, don't want contingencies or it's an off market deal. And so what I've found is the more experience, the better the deal, the more capital access to capital the client has.

  They will do a reverse all. Now, they could get under contract and try to sell a relinquished if they could, but if they can't, then they'll reverse. We'll close and they eat, and then we'll continue to market and sell the relinquish property. I just think it's great though that. Even though you've identified a property and you know you need to move fast on it in order to get it.

  Yeah. That the 10 31 isn't off the table because of it. Exactly. 'Cause most of the time you think about a 10 31, it's a slow okay, we've been thinking about this for a few months now. It's one of those investments. Yep. So it's nice that it has the flexibility to move at the pace of what investors move at really.

  Yeah. Exactly. Yeah. So that's cool. And sellers don't want contingencies. No, they want to. They wanna know this thing's closing. And so imagine, your net worth growing your portfolio as an investor growing. And I have clients that just go, I'm buying this one. Let's go to the portfolio and decide which one we're gonna sell.

  And then the, and they just love the reverses. And which is a niche I've carved out for in the QI space. I love doing reverses. A lot of qis don't like touching 'em. 'Cause they're very complex heavy documentation. But it sounds like a lot of paperwork. Yeah. Yeah. It's it's a niche.

  I really enjoy. I like forwards too. Yeah, they're easy. They're very easy. But the reverses are. And each state's got their own.

  Navigating State-Specific 1031 Exchange Rules

  Entity issues like California, right? If you're watching this from California, you got, an entity's $800 to set up just an LLC. And California's got their own their own rule rules with the franchise tax board in regards to 10 31 exchanges.

  They sometimes don't follow federal guidelines and so they can be very interesting. So there's lots. And my point is there's lots of dynamics as you go in different states, but I really do. So you're able to do any state, in any state in the, in the country for a replacement property, relinquish properties heavily licensed states like Idaho.

  We're almost done with our license. I've, that's been a almost a six month project for me to try to finish doing relinquished properties in Idaho, which we're about to do. And then Maine's another one that really, we can't do a relinquish property in Maine, right? Nor do. Want to go through the licensing, so it just gets too complicated, basically.

  Yeah. 'cause some of the states are more regulated than others. Yeah. And so you have to just play ball with them. But Idaho's a great state for me because, we're in Arizona, we get a lot of movement up there. And Maine, I don't. I'm not gonna probably, yeah. There's not a lot of people from Maine here, and it's not something I want to probably the headache and adv aggravation.

  Yeah. But for for every Welsh we do every other state, every, okay, interesting. Yeah. And I could do replacement properties into Maine too. That's, which isn't a problem. It's the relinquish that you have to worry about. It's a short answer. Yeah. Pretty much everywhere.

  Okay. Pretty much everywhere. Yeah. And we do, we, from Hawaii to New York and Florida. I've got stuff in Texas right now. I had one out of Alaska, which was always, which was really fun because of the. The taxpayer was up there as well. And it was dark for, three or four months.

  And it was just an interesting thing. He lives there during the winter too, which is, which was cool to deal with. See all kinds of different things. Yeah. And they all have their own nuances. Back east. They have closing attorneys out west we have, escrow Yeah. Title. So Yeah, I know every state is very different Yeah.

  When it comes to real estate yeah. Yeah. Very different. Okay, so let's circle back around to the. Third type Oh yeah. Of 10 31 exchange. Yeah. And to put a kind of bow on the reverse thing, I think if you're thinking about the reverse, just make sure you get with a Q qi that has experience with the reverses too.

  And really get into an exploration of, one, does this make sense? Two, can I have access to capital?

  Improvement Exchanges Explained

  The third kind of exchange is an improvement exchange. This requires a little bit less to the less capital. 'cause typically, when we're in a forward construction exchange, and I'm gonna use the example of a 300,000 property, we sell a relinquished property for 300,000.

  Remember, equal or greater value, we have to buy at least $300,000 in property. Improvement exchange allows us to use some of the funds to do repairs. Oh, so you could buy like a $250,000 property? Let's talk about that. Let's talk about that. Okay. So we bought, we go out and find a great fix up deal of 200,000.

  We acquire that. We have to use the eat LLC because I can't transfer the property to you until the entire $300,000 is spent on the replacement property. So we close on the relinquished, we have $300,000 in the exchange account. Assuming it was all cash and we take 200,000, we acquire the replacement property, now we have a hundred thousand dollars left over, we can use that to improve the property.

  And so this works great for value adds. It works great. If you're an investor looking for a good deal and wanna, get something. Yeah. I think sounds amazing. Yeah. And and the other thing as an investor, which you don't want. Is to buy a property, put a renter in there, and then you're constantly doing repairs and repairs.

  So the improvement exchange works great. 'cause you can just do the rehab, get everything done right, and then and charge more. And charge more. Yeah. And you don't have to deal with the headaches. So repairs every 10 minutes. So the a hundred thousand, this brings up a question though. So you said I can't release the funds.

  Are you actually taking. Possession of the funds. It's not is it held at escrow, like in title or it's held in escrow at our bank. We have a, at your bank. Okay. We have a bank that it's a Raymond James bank, a subsidiary that we use that specializes in helping Qis. Okay. So if I go down to Chase Bank and try to ke set up 15 sub-accounts for my exchanges, they're not gonna know what to do.

  So they, they specialize in this type of okay. In this industry they really do. So each client's gonna have their own bank account set up with their name and they have to sign off to for the money to move. And when we have, in this case, we spent 200,000 on the replacement property, we purchased it in the eat.

  And in addition to the property management agreement, I'm also gonna give them a construction agreement that states you can work on this property. Now I'm gonna want. Licensed bonded and insured contractors working on the thing, if we possibly can for a variety of different reasons.

  And if you are an investor, working with contractors, you got, you want licensed, bonded insured, you don't wanna cut a check, you know that a hundred thousand I have an account I cut a check for 30,000 and the contractor takes off 'cause he's not bonded. And takes off with the funds.

  And that happens more often than you would you would. Think or care to know about. So there's some things that I'm, I'm talking with the clients about is, hey let's make sure this is a good contractor and then I'm gonna start cutting checks that a hundred grand, I'm gonna draw it out, for the repairs, as the repairs are getting done.

  Oh, so you're in charge of doing all that? It's not okay. That's why the improvement exchanges are what they are cost wise. And depending on the size of the improvement, if we're doing $2 million in improvements, you know the fee's more than 84, 95, there's usually a monthly fee. But we, that's what we're doing.

  We're basically going, okay, what's what's the repairs on this? Show me the bid. And then, we'll, as the repairs start getting done, now at the end of this, the a hundred thousand dollars is spent, the improvements are done to the property. At that point, I take the entity, the LLC. I changed the membership interest over to the taxpayer and we have a good exchange and so I'm not going to transfer the entity to them until the repairs is done and we gotta get it done within 180 days.

  Oh wow. Total. Okay. Yeah, total from the sale of the relinquish property to the to the date we transfer's, gotta be within 180 days. So when we're doing improvement exchanges, especially on like small single family stuff. We're really lining everything out to make sure that those things, the permits are drawn, everything's ready to go, and boom, we can start.

  So that you can start right away. Start and get done. Yeah. And do you help people? 'cause I, there's such a price difference between the different options. Do you help them like compare. The different options. Yeah. To make sure that it's worth their time and they're not eating up all their tax savings, basically.

  Yeah. Okay.

  The Importance of Proper Planning and Legal Advice

  One of the, one of the things I do being the sole owner of my company, and I've got some great employees and we have a great process, but I treat 'em all like family. So if this exchange ain't gonna work, I'm gonna tell 'em, I'm gonna tell 'em. The upside. The downside in regards to the is in regards to which exchange might work best for them, and.

  I just tell 'em, I don't even know if this, one out of every 10 calls I'm like, why are you doing an exchange? You barely have, $5,000 in realized gain. You get 1195 in fees and headaches. Do you really wanna do this? I'm happy to take, I'm happy to do the exchange, but is this really make sense?

  Talk with your accountant. Does this make sense? And some people call and it. A reverse. They didn't even know that the reverse existed. And I'm like this is an option if you're because they're, I didn't even know a reverse existed till today. And I've, most people don't.

  I've studied a lot of this stuff yeah. Very interesting. Most people don't, and even CPAs I think the tax codes like 11,000 pages, it's okay if your CPA's not an expert on. On 10 31 exchange. It's okay. But they gotta know how to fill out the ADA 8 24 and they should have experience with that.

  And we should visit the CPA A and I'm on the phone every week with a different cpa a talking about the complexities of a different of all different sorts. I be bet. And make sure we're on the same page about how we're, how we're how we're, how this transaction's gonna Yeah.

  How it's gonna be reported. Because there, I'm a third party. Qualified intermediary. I'm not a tax, I'm not giving tax advice and legal advice. And so they need those. It's really important to work with their financial advisors and the team that they have. And that's, I think what I've what I advice I could give to investors is.

  Spend a little bit of money and time with those people. And I tell you, the ones that do are the wealthiest ones. Oh, it's, they are for reason. I agree. I was talking with I have a, one of my best friends is a real estate attorney. Outta state. And I was talking with her and I go, I am just floored by how much people, what people will do to save a buck, a hundred dollars, even $200, and it backfires.

  Biggest way. And she's that's why I have a job. That's what she said. She goes, that's why I have a job, is 'cause people don't wanna pay money. I, and I've had that happen to me where they're like I found a qi to do it for a thousand bucks. I'm like that's hundred bucks. That's, I think that's great.

  I consider, some of this value that you're getting a CES, you're getting somebody right, that's been down that road and really. So I, I think that's just be mindful as an investor, somebody that's working at property. Be careful. Yeah. Not to be too cheap on some of this stuff.

  And and I think with real estate, the legal. Structure and the paperwork. It is, it can all come back to bite you. Yeah. So badly. Yeah. It is really important to get it correct. When you, especially when you are buying property with somebody else, yes, you're buying it with someone else, you're buying it and the structure of a business, anything like that, that it's not your own personal property.

  It is just a totally different. Animal and you do not have the experience to do it. Yeah. Unless you are a lawyer or, yeah. Someone in the field. We are constantly working through issues where two individuals buy a property together and one wants to 10 31 exchange and one doesn't.

  How they take title of that. That's called something called tenants in common where you own a percentage or tendency in common where you own a percentage of the property, where you both own 50% of the of the property, let's say in a partnership. And so we're constantly working through those issues.

  So when you're by the property, it's best to know, Hey, what are our long-term goals with this? When do we wanna sell? At what price do we wanna sell for? And do we both want a 10 31 exchange out of this or do we wanna keep it in our partnership or do we wanna own it as 10 a common and go our separate ways?

  So those are some of the planning things that people don't think about. They buy a property together and the thing appreciates buy $500,000 and then we got. We got some challenges down the road. So it's really back to just the original point, just do a little bit of planning a little bit.

  When I was starting my 10 31 exchange company, I found the best attorney in the country and he was a thousand dollars an hour, and I didn't bat an eye. Because I knew there's only so many attorneys in that know this and there's probably about 20 in the country that I think are just absolutely phenomenal at 10 31 exchange.

  And I just went and hired the best. And I've spent hundreds and thousands of dollars in legal fees, but it. One of the things that I've really gotten out of that was an incredible amount of knowledge, but also we did it right and we know, and I think yeah. It's right. You don't need to go back and redo it.

  Yeah. And if I said, Hey, I'll just go, I'll use paperwork from someplace or Right. I'll take it from the internet. Yeah. 'cause I was cheap about my attorney fees and so that investment and back to the original point. It's just really good to start and do it right. Yeah.

  It spend a little bit of money up front. You'll save tons on the back end. Yeah. Yeah. And I think that's an inherent. Lie out there about real estate is that it's so easy 'cause I think it's easy for people to understand. Yeah. But the nuances are what people don't understand. Yeah.

  And the nuances are what's gonna cost you money and lawsuits and, all of those sorts of things. Or be not being able to do what you want to do. Yeah. And if you like, for the partnership example, if you set up wrong. From the beginning, then you're gonna spend three times as much fixing it.

  Exactly. Down the road. Yeah. Yeah. Okay. That's great advice. Yeah. So thank you. Yeah. This is it was really hopefully helpful. Enlightening. Yeah. It's very helpful. I learned something.

  Conclusion and Final Thoughts

  So I hope all of you guys learned something and I have to appreciate, I just have to thank you for being on.

  Yeah. Thank you for coming down, you guys. I just called Michael out of the blue. I found him online and was like, Hey, will you come on my podcast? I wanna talk about this. So thanks for taking a chance. You bet. You guys can get ahold of me at 10 31 exchangeable.com. You go to my website, lots of helpful videos.

  You can Yes. Fill out a form bill and that's 10 31 exchangeable and com and I'll have it in, I'll have it in the show notes. And he has lots of videos on his website also that will help you with just different topics of, and you have 'em in short little snippets too, so it'd be easy to learn about.

  Yeah. Most of em, most of 'em are a minute between a minute and five minutes. So that's the of video I like. You can learn quickly what you need. That's, yeah, that's what I like. Yeah. I don't like these even eight minute videos. I know. We don't have the attention span for No. I'm like, just get to the point, man.

  Where is it not? Yeah. Hey everybody. And I'm available too. I think that's the other thing you get a hold of calls on through our website there. I'm available, so I'm the one that's probably gonna talk to you. Yeah. And so we'll get into the nitty gritty details of what your particular situation is.

  Yeah. Wonderful. Yeah. Yeah, so if you guys have rental property or any sort of business real estate as we said, you can, 10 31, don't. You do not have to pay the tax when you sell these things. And so I definitely think it's worth an exploratory call when you are thinking about selling these properties to see if you can do a 10 31 exchange either into another property or into an investment.

  There's lots of different options out there. Yeah, absolutely. Yeah. Yeah. Thanks for having me today. Yeah. Thank you so much for coming on. And you guys, thank you so much for listening. I appreciate you tuning in. I appreciate the feedback about the show and I hope you learned something and I hope you have a wonderful day.

  Thank you. Thank you for listening to the Unconventional Investor Podcast. I hope you feel more confident in how you can grow your wealth using the strategies I shared in this episode. If you're ready to take the next step in diversifying your portfolio outside the stock market with alternative investments, head to me financial.net/contact us to book a 15 minute consult call with me.

  Let's discuss how we can work together to achieve your financial goals. Until then, I'll see you on the next episode.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

Tax strategy conversations are some of my favorites, especially when they bring clarity to areas most investors never hear about. Many people feel boxed into buying yet another rental property after selling an investment home but there’s a much wider landscape of choices that can lighten the workload, protect your cash flow, and keep your tax bill manageable.

I’m sharing how 1031 exchanges can go far beyond the usual “property-to-property” route. Options like Delaware Statutory Trusts (DSTs) and oil & gas mineral rights can preserve your tax advantages while shifting management responsibilities to someone else. For many investors, especially later in life, these alternatives offer a smoother path forward and reduce stress for the next generation.

Top 3 takeaways to keep in mind:

• 1031 exchanges offer more flexibility than most investors realize. You’re not limited to trading one property for another.

• DSTs and mineral rights provide passive, tax-advantaged options that remove the burden of active management.

• Thoughtful planning today can simplify future wealth transfer, helping both you and your heirs navigate the process with ease.

Links:

Take the quiz - How Alternative Assets Can Fit in Your Portfolio

• Transcript

  Introduction to the Unconventional Investor Podcast

  Welcome to the Unconventional Investor Podcast. I'm your host, Michelle Moses, certified financial planner, licensed realtor, and founder of ME Financial. If you're an accredited investor feeling overwhelmed by managing your portfolio and looking for alternative investment strategies that go beyond the traditional stock market, you're in the right place.

  Let's head into today's episode so you can start taking control of your financial future. Hello everyone, and thank you so much for tuning in.

  Exploring Tax Strategies

  Today is a solo episode and it's just going to be me talking about some tax strategies. In a previous episode we met with a, what's called a 10 31 exchange inter intermediary, and I wanted to, it's like I'm giving you all of these topics, right?

  Of, oh, you can do a 10 31. Oh, you can do, this investment. And I, this is gonna be one of the episodes where I'm tying it all together and how you put these tools together to actually save on taxes or how you would actually do these financial strategies which is. My job and it's, what I do and why I get paid.

  What I do is to bring all these pieces together into the financial strategies, because that's really where the magic happens. Or at least that's what I get excited about.

  Understanding 1031 Exchanges

  So I'm gonna share today about 10 31 exchanges. So in the previous episode of last week, we, I went over, with Michael he went over what 10 30 ones are right?

  If you, and so I'm not gonna get like into the nitty gritty about what 10 30 ones are, but I want to start talking about how you would put these together in your portfolio and what your choices are. Because. Part of the reason I do what I do is I love alternative investments because nobody knows about them and you don't even know that you can do these financial strategies.

  And that's what I want to get the word out about is that you can do these advanced financial strategies and they, they're available to you. It's just that they're not widely known. So in 10 31 exchanges, essentially what you're doing is if you have an investment property or a property for a business, okay?

  So it could be a commercial property, it could be like a long-term rental that you've had. You're usually what happens is people get tired of managing it. They don't want deal with the tenants and things like that. And so you'll do a 10 31 exchange. And the reason that you do that is so that you don't have to pay the taxes because when you own a property for.

  Investment purposes are for a business. You get depreciation on that, right? You're getting to write off all of these expenses. You get depreciation on the property itself every single year, and it's hugely beneficial to your taxes. That's generally why. One of the reasons why people own real estate is to write things off on their taxes, and they don't have a large tax bill.

  So when you go to sell that, you would have to recapture all of that and you'd have a huge tax bill. So when you go to sell an investment property, a lot of times people will do what's called a 10 31 exchange. And so you are exchanging that property for another property. So it's easy to think of if you're going from a residential rental to another residential rental.

  And we discussed in the previous episode about how it needs to be of equal or greater. Value. So if you're selling something for $300,000, then you need to buy something for 300 or higher. And we didn't get into if there's a mortgage on it that, there's a lot of things that might get into details of your situation.

  But I wanted to talk about the different investments that you could actually use to invest your 10 31 because. You don't necessarily have to go from a residential property to another piece of real estate that you manage and you have to manage tenants. 'cause even if you're going from a. Like a residential property to a commercial property, you're still gonna have tenants to manage, right?

  It is easier probably and cheaper, but if you just don't wanna manage at all, there are different areas that you can go into and namely is that you could 10 31 into other real estate, right? So that's your first option and the one that people talk about the most.

  Delaware Statutory Trusts (DSTs)

   But you can use these alternative investments to 10 31, so you can 10 31 into what's called a.

  A-D-S-T-A Delaware statutory trust. And essentially what that is it is, I'm gonna totally simplify it. It is basically more real estate, but it's managed by someone else. Okay. And they keep it. In the 10 31 parameters. So there are whole companies that specialize in DSTs. There are a million DSTs. When I go to different, alternative asset conferences, I get tons of emails about DSTs.

  It is a thing. So when you want to go from maybe one house. And then you could go into a DST that has commercial property into it, or you, it could have multiple properties. A lot of times I've seen some people, they go from a rental home and you can go into a hotel that is a Delaware statutory trust.

  Now, when you go into a Delaware statutory trust, though, there's a lot of. Rules that go into it. And I hadn't been a fan of them for a long time because one of the rules is basically you can't refinance. You can't do any updates to the property. And so I was like, why would I wanna invest in a commercial property and not have it updated for however many years?

  That, to me, that would be blight. And I don't want to put something like that in the world. I don't wanna add to blight out in the world. And so I've never been a fan, but now there's tons of other things out there that you can do a Delaware statutory trust into. And essentially the reason people do this is so that they can, defer their taxes still, right?

  Because they go from a house into one of these investments but also then someone else is managing it. And then all you're doing is getting checks in the mail right from the rental of whatever property it is. So if it's a hotel from people staying at the hotel if it is a commercial property, it's from people leasing it.

  And so you're basically getting what they call mailbox money. So you go from managing a property to having someone else manage it, and you are just getting, checks in the mail. So a lot of times as people are in retirement, they're tired of managing things they will do a 10 31 so they don't have to pay the taxes.

  And I think the benefit of that too, let's say you're 75 and you do a 10 31 so that you can defer the taxes into an investment. When you pass away, that real estate gets a step up in basis for whoever your heirs are. So is it simple terms? If it was a house and you bought it for a hundred thousand dollars and you sold it for 300 and then you put it in the DST for 300 let's say it depreciates to three 50, by the time you pass away, then your heirs would get it at $350,000 and not have to pay the taxes.

  You only have to recoup all of those taxes and the depreciation. When you're alive. So if you pass away, then it gets a step up in basis, which is what people are going for when they're doing this. So the other option, so the first two options for your 10 31 exchange, there's another piece of like real property, real estate.

  Your second option is a Delaware statutory trust DSTs.

  Investing in Oil and Gas Mineral Rights

  And your third option is oil and gas. Most of the time this is going to be what's called mineral rights. And that is when you are purchasing the rights of the land. Because essentially you're going from what real estate, right? To another like kind thing, which is land.

  So also real estate, just not with a house on it. And so that's why you why it works, right? Because you have to do in a 10 31, you have to do a like kind exchange. You couldn't go from like a house to, art. Or something like that. It needs to be like kind. You've got, you have to it needs to go from real estate to real estate.

  But one of those options that I don't think a lot of people know about is oil and gas and the mineral rights. So mineral rights are essentially you own. You don't own the land, but you own all of the rights of the land from the ground down. So whatever oil is below land below the ground, you own the rights to that.

  So someone else will drill it, someone else will, do the survey. You'll, they'll do all of that and then they basically pay you royalties. For having the privilege to drill on your land and get the oil and natural gas out of it. And so you can do a 10 31 into these. And I don't think a lot of people know about this option.

  They just think that they need to go from property to property. But you don't need to manage all the property. If you're tired of managing the property and you have a large tax bill with. One of you know your business or investment property, you can go into a Delaware statutory trust or the oil and gas.

  And with any of these though, you need to have a qualified intermediary. The timelines still hold true. There's still, timelines between when you sell your property and when you have to have the money invested. There is no negotiation on that, otherwise you lose all of your tax deferral.

  And the qualified intermediary honestly could get in trouble. So they're gonna make sure that you're hitting those goals. And it might be easier, honestly, to not only from a management standpoint too. Do a 10 31 into some of these investments. It also just might be something that, you find more interest in and that you can learn about too.

  And I think that the mineral rights is something that not everybody knows about. And I really love the mineral rights too, just because it's like yours and you can. Pass it off to your heir, you can give it to your heirs and it could just live forever. So like when you hear about these oil and gas families in Texas, a lot of times they own mineral rights and so they lease their land to, Exxon or whoever it is to drill, and then they just make all the royalties from everybody else doing the work because they own the rights to the land.

  So those are I think, some other options that are. Big I in the 10 31 space, at least in my space. But I don't think that people know about them. And I wanted you to know about them and the different strategies that you can take, that you do not have to necessarily manage a property, that you can have someone else manage it for you and still defer the taxes and you still get the step up in basis when you pass away.

  And I think that's important too. You don't want someone else to have to pay the taxes.

  Conclusion and Final Thoughts

  So, I hope this helps. I know this is just. The short little snippet here. I'm gonna do more of these financial strategy episodes. I'm going to, I wanna do them with some other things just on how you can save taxes and how to put things together because it's like, teaching you guys about all these one little.

  Things, that's great that you know about them, but then how does it like really all come together with your taxes and your lifestyle and just logistics is what I call it. And this is one of the ways that you can, is that, when you have a property that you wanna sell, your only other option is not to just buy another rental property.

  You have a lot of other options out there that I don't think are. Well known. So I hope this helps. Please forward to anyone that you think might be helped by this episode and let me know if you have any topics for other things that you wanna hear about. Thank you so much for listening, you guys.

  I really enjoyed doing this and I hope you learned something today. Have a great day. Thank you for listening to the Unconventional Investor Podcast. I hope you feel more confident in how you can grow your wealth using the strategies I shared in this episode. If you're ready to take the next step in diversifying your portfolio outside the stock market with alternative investments, head to me financial.net/contact us to book a 15 minute consult call with me.

  Let's discuss how we can work together to achieve your financial goals. Until then, I'll see you on the next episode.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

If you’ve ever wondered how you can generate passive “mailbox money” from the energy sector, or if you’re looking for creative 1031 exchange opportunities, this episode is for you. Jace Graham, a fourth-generation oil & gas expert and CEO and Founder of Rising Phoenix Capital joins us to explain how mineral rights work and how his team acquires off-market mineral rights.

Top 3 takeaways:

• Mineral Rights = Passive “Mailbox Money”

  By owning mineral rights, investors can earn regular royalty payments from oil and gas production—without the risks or hassles of drilling themselves. It’s a truly passive income stream that’s less “hands-on” than many real estate or drilling deals.

• Unique & Direct Acquisition Approach

  Rising Phoenix Capital stands out by doing serious ground work—they source mineral rights directly from owners, avoiding auctions and middlemen. This potentially allows for better pricing and value for their investors.

• Great 1031 Exchange Option

  Since mineral rights are considered real estate, investors can use 1031 exchanges to defer taxes by transitioning from investment property into mineral rights. This opens the door for retiring landlords or anyone looking to reposition their portfolio while keeping more money compounding for them

Links:

Read more at www.risingphoenix.com

Take the quiz - How Alternative Assets Can Fit in Your Portfolio

• Transcript

  Introduction to the Unconventional Investor Podcast

  Welcome to the Unconventional Investor Podcast. I'm your host, Michelle Moses, certified financial planner, licensed realtor, and founder of ME Financial. If you're an accredited investor feeling overwhelmed by managing your portfolio and looking for alternative investment strategies that go beyond the traditional stock market, you're in the right place.

  Let's head into today's episode so you can start taking control of your financial future. Hello everyone and welcome to the podcast. Thank you so much for tuning in today.

  Exploring Oil and Gas Investments

  We are going to be talking about another oil and gas investment, but it is going to be geared more towards mineral rights and royalties.

  So if you've ever explored any oil and gas there are different ways to invest. You can invest in the actual drilling. There's many ways, but you can invest in the actual drilling. And then there's other things called mineral, right? And we will get into what those are. But if you are looking for things like mailbox money or a 10 31 exchange on something that you like, a investment property that you have owned, this might be a great opportunity for you to learn about what you can do with those funds.

  To do a 10 31 exchange so that you do not have to pay the taxes. Or again, as I said, maybe you are going into retirement and you just want some monthly or quarterly mailbox money. So this might be a great investment for you.

  Guest Introduction: Jace Graham

  So today to talk about this, we have Jace Graham, and he is the CEO and founder of.

  Phoenix Rising Capital, and he is a fourth generation oil and gas professional who has spent the last two decades identifying, acquiring and managing more than a hundred million in operated and mineral royalty assets. So thank you so much for joining us, Jace. Hey, thanks Michelle. Really excited to be here on the podcast.

  I've listened to a few of the episodes and think you do a great job of really opening up some of the unique alternative investments that are out there for credit investors to look at investing in. So yeah, thank you. Thank you very much. I'm excited to have you on because we were just at a conference a couple weeks ago.

  It's a specialty oil and gas conference and you really. Stood out to me because of what you do is very different. So we're going to get into why it's very different and why I agreed to have you on the podcast because you guys are, there's I can't even tell you how many hundreds of funds that are out there.

  And you just, some of them, especially when it comes to like multifamily, they just run together. And there are a lot of oil and gas ones out there, but you really. Stand out with your mineral rights and what you do.

  Understanding Mineral Rights

  And so can you explain a little bit what mineral rights are and why they are attractive to investors?

  Absolutely. So I think we take it back. The oil and gas mineral rights are part of the bundles of sticks that go along with the real estate. So in its essence, it is real estate. And when the first president patented deeded over that first track of land, back in say, 19 or 1840s or 1820s.

  The owner of that land owned from the center of the earth basically to, they say the zenith in the sky, all rights, all title, everything. And over time, obviously, they started developing oil and gas minerals. Started actually up in the northeast in Pennsylvania, but down in the Permian Basin in West Texas.

  And now, throughout the United States, minerals started trading. You could sell your real estate, your surface, and you could reserve the mineral estate, or you could reserve 50% of the mineral estate and convey 50% to the next owner of the surface. And so what happens over time is these minerals get fractionalized out.

  The Acquisition Process

  And what our firm does is we go after and we reach out directly to these mineral owners across the United States to try to have a conversation with them about. Entertaining an offer to sell their minerals. So a lot of our opportunities that we go after and we acquire are off market. These are not auctions, these are not marketed deals that are out there.

  These are off market where our team, our internal team is picking up the phone and having conversations with mineral owners throughout the United States. So I think that's, it's not easy. There's a, there, it's a heavy ground game component and something that we're, we do very well. That we're known for.

  And so by doing so, we're able to buy further down without kind of the middlemen, if you will, at a reduced purchase price that then we're able to pass that back to our investors in returns. And you were talking at the conference about your, the process that you guys go through, you identify an area, right?

  And then you target that area based upon the production, how old the production is and all that. Exactly. Yeah. Okay. I've got a in-house petroleum engineer. He's trained to look at these areas and look at recent activity and what operators are doing what and development.

  And then we focus our acquisition team into those areas where there is recent development and production and all that stuff that's going on, permits that are happening. To, I talked to mineral owners specifically in those geographic regions. Okay. Yeah. And that's why I thought you guys were so different is you don't hear.

  People say that they're actually going door to door and asking people to buy their mineral rights. And so you guys as just a brief ex, I know he's talking about to the sky and down below mineral rights, you basically own what is below from the ground. Down. Yeah. And when they're drilling oil or natural gas they go down so many feet and then they might leave and go somewhere else, and then it might become more feasible to come back and go deeper. So there might be tons of minerals underneath there that haven't been explored, that are just deeper than what the well is, or where they've drilled right now.

  And so when you own the mineral rights. You actually, you own everything that's down below. But you don't have to drill, you don't need to do anything. You could just own it and not allow people to drill on it. But obviously this is what people wanna do. You want to own these rights so that you are allowing other people to drill on, quote unquote, your land, and then they pay you royalties.

  So when we're saying royalties, that's what we're talking about is you own the land, they're drilling on it, and you are getting mailbox money. You're getting. Royalties. So a lot of times you're gonna hear us say mailbox money a lot in this podcast, and that's what we're talking about. You're just getting your money mailed to you from them drilling and selling the oil, and then it just comes to you because you happen to own the rights to that land to drill.

  Am I missing anything, Jace? No, you did a great job of explaining.

  Investment Strategies and Returns

  I think just to step back, what happens like an operator like ExxonMobil will come in and lease your minerals? Okay, so they're, they've done a geological study. They say, Hey, we think there's oil or natural gas there, or a combination of the two.

  And so they'll lease that mineral owner, and typically they'll do it for a three year, five year term where they've got three to five years to actually drill that first well, and then they'll pay a little bonus on the front end, say, a thousand bucks an acre. But really where the revenue comes in is the royalty income from the royalty rate.

  Typically 20 to 25% of everything that comes outta the ground gets. I passed on to the royalty owner. Okay. And so that's what we focus on, is that royalty owner gets that passive income. And you're right, it's very quiet. I think that's why a lot of our investors like this asset, because it's not noisy.

  You're right. It shows up every month. We get a check every month from the operator. We verify to make sure we're being paid properly, that the decimals of interest are correct to our ownership. That's important. And then we get a little monthly check and. Turn around and distribute that back out to our investors.

  And I think it's really, I love it because it's not well known. Honestly, this was not really well known 10 years ago. This was not super popular. I don't it, it wasn't out there. It was just drilling. Yeah. And now there are different ways. I think just like the derivative market, now there's options and there's futures, it's the same way when it comes to oil, just because I also think it's because it costs so much. To drill. It costs so much to do all of these and to set everything up that you have to break it up and we're human. We're gonna figure out how to make money in all different ways. Exactly. Yeah. Yeah. So you really stood out to me basically, because you guys are doing the hard work. They, you guys are doing the grunt work of going door to mom and pop to families, that maybe have owned these things for a hundred years and, their kids don't even live in the state anymore.

  So I think this is really important. And Chase, I wanna go back to your experience too because I think your experience is really important. And I, the, I have been studying this for about 10 years. And I haven't really felt like it came together until the last couple years of really understanding how all of this goes.

  And what I have seen in the industry is the people that really understand and know what they're doing are people that grew up in it. And you grew up in it. Your dad did this. And you were probably being explained to this right, when you were four or five years old, how things were working.

  Am I, is that how it was working? You're exactly right. I remember, going out to Big Lake, Texas in the Permian Basin and sitting on a rig with my father when I was four or five. And in fact, I just took my two boys. Jet and Bow that are nine and 11. We just drove back through Big Lake on our way up to our place in Colorado, and I was able to point out some things that, that my dad showed me when I was their age.

  Oh, wow. Some rigs and stuff. So we're. We're trading the fifth generation in the Graham family on what oil and gas is all about. But yeah, I grew up in and around it, I learned on the shoulder of a giant. My father was a tremendous operator, did things ethically in the right way and raised capital privately from investors.

  And so I got to see everything from actual, the drilling of wells to the leasing of the land before you drill to mineral funds that we started putting together. And so when I formed Rising Phoenix Capital. Mineral funds is the mineral asset class is what I really gravitated towards.

  And so that's kinda what we built our portfolios around. Yeah, and I did too. I remember when I first got into it, I was, when they said mineral rights, I was like that right there, that is the easy, 'cause when you're drilling you don't know. Now I think the technology, they know if there's oil there, they didn't always know if there was a lot of oil there and if it was successful.

  This, yeah. The minerals, the drilling deals. There's benefits to investing in those. You get, big tax write-offs from the intangible drilling costs they call the IDCs and that's great. There's also that dry hole risk. It's out there. It's inherent.

  And then on the other end of the spectrum where we play. In the minerals is that it's, it's very passive from an operating standpoint. We're not drilling wells, we're just buying that asset one time from the mineral owner. And what we like to look at, you talked about the different le la layers, right?

  Like a layer cake, if you will. Like the Permian Basin has many different zones in depth that you can go in and develop horizontally into, but it'd be like buying a one story apartment. That you paid for and then an operator drills another well, and another well, and you're adding a second story and a third story, and you're getting the rent from the second and third story, but you didn't have to pay for it.

  And so that's what we really like about owning minerals. Long term too is just that serendipity, that upside when operators do come in and they start to figure out how to develop some of these additional zones that may not, they may not be economical today, but they might be tomorrow. Much improves.

  Yeah. Yeah. Then they develop those and that's what we, that's when it just really gets fun. Yeah. And that's what's happened, right?

  The Future of Oil and Gas

  I mean, I think we've become more efficient, not only with our cars, if you look at how much barrel, how much use we get for a barrel of oil in the United States, but also it has become more efficient in the way that people are drilling.

  And the way that they can get to the oil. I essentially, yeah, the United States is energy independent. We are now an exporter of oil and now natural gas. Yeah, natural gas is qu look natural gas as well. So usually was constrained by pipeline. We're now exporting LNG, liquified natural gas overseas.

  Oil and gas is not going anywhere, anytime. No, and I think that's what we've realized. I think if you saw my history, you'd be really surprised that I have you on the podcast because I started the green Chamber of Commerce here in Phoenix, all about, being nice to the environment, and I was all about, solar and everything. But it, I just realized over the years, it's just, it's gotta be a mix of everything. There's just you, I think, I agree, know it's totally agree with you. Just, I don't think we're helping the earth, but at the same time we have. Ways that we wanna live and that we are living and we need to support that in some way.

  Absolutely it just is what it is. Okay, so can we go into a little bit, and I know we're gonna go over time on this one and I'm okay with that 'cause I really want people to understand this is so when you are buying these mineral rights, you're targeting it and you already know that there is a driller that wants to drill or they're already drilling there.

  Is that the, what's going on? Absolutely. Yeah. That's one of the main fundamentals that we're looking at in our funds is there existing production, is the area well-defined? Meaning there's production all over and you can point to what you think production will do in the future. And so that's the main criteria that we look at.

  Okay. So we're not buying what they call white space. Ahead of the bit. Ahead of the bit. These are producing already. Yeah, producing 'cause our investor base, and myself included, we want yield day one. And so that's what we, that's what we look for. And then once we find that area and we find the operators that we like, that's when we deploy our sales team into those areas to start having conversations with the hundreds of mineral owners that may fit in that area.

  And so do you find, are you, because I know when you drill it, you know the oil is coming out fast, right? But then let's say it's a year or two in, are you looking for the new ones or are you looking for the ones that. I'm not, I, not I, you guys all have terminology for this. You're looking for the ones, great question.

  No, you're right. 'Cause the production on an oil, it's a declining asset, right? There's a decline curve. So a lot of it comes out, what we call flush production in the beginning, and then it tapers out and then levels out and goes flat a. What we try to do with our portfolio, and this is what Adam Lapu, our petroleum engineer is just really good at, is finding this blend so that we can have kind of a flat yield to where we're buying some stable cash flow.

  Today we're buying some with some additional kind of upside, some meat on the bone, if you will. That's what our buyers like. And then we got some that may just be a little bit of that, that initial flush production. And so what we're trying to do is build a portfolio that has these blended assets that kind of have a average, a flat, and we're pushing 15 to 20% cash on cash based on a historical That's wonderful.

  Okay. That sounds great. And I'm, it's a smart way to do it. Obviously yes. Blending it would be the, a smart way to do it so that you yeah.

  Investment Opportunities with Phoenix Rising Capital

  Or you're not taking too much risk and so I, so let's talk about your funds and the way, 'cause you've got we have two tiers of way you can do it, the reason that you can do the 10 31 alluding back to where I started in the podcast, you guys is. That you're owning land, so you would be selling an investment property, something that you own for business, and you could 10 31 it into mineral rights and and because you're actually owning the land, so it's real estate for real estate.

  And then you, so you have that prong, right? Jace, of that you can 10 31 into some mineral rights. And then what is the other prong that you guys have? The other option, the other thing we do and again, really what our bread and butter is our high yield mineral funds. And with the 10 31 exchange, you're.

  Directly investing into maybe, a handful of assets or wells, in a fund and in a portfolio. You're in, hundreds of wells diversified across multiple basins. And that's where we've really found a niche for. 'cause like you said I mean there's really not a lot of this type of product out there.

  Just Google invest in oil and gas minerals and you're just not gonna see a lot of opportunities to do that from, accredited investors. That's what we look at we're looking for good cash flow, or the return profile that we're targeting. We want to have a 15 to 20% kind of cash on cash yield during the hold of the fund, and then look to divest the fund in a, call it a three to five year window for one and a half to two to one moic or multiple on invested capital.

  So you invest a hundred grand. We wanna get you 150 to 200 grand back and our current track record is on par to show that. And it's been underwritten by Mick who was at the conference we were at not too long ago. And how do you exit? What's your, how do you sell it to other producers or. You there's various ways.

  And so right now, we're taking our port portfolio and we're actually finding best buyers based on asset class and where they're buying. So you got big private equity funds that are in the market now that have come in within the last, call it 10 years or so that just they want to buy as much as they can and they're not gonna do this ground game.

  They gotta put, a hundred million, 500 million to work and no, they want people like you doing that work. Exactly. So we're happy to sell to 'em. Uhhuh part, another way to do it, there's some public auctions that you can go onto, like energy net or oil and gas clearing house, where we can list these at a strike price that works for us.

  But also our, we just the industry's, it's a small pond and so we know probably best buyers for each asset class or asset that we own. And so we reach out and it's, again, it's very personable, just like we are with our sellers, with our buyers of being in the business and knowing what they're looking for and being able to deliver that to 'em.

  Okay. I think that sounds wonderful. And so then if they did a 10 31 and just did mineral rights, the idea is that you would own that for the long term until you wanted. Exactly. Exactly. So what we have, we've got clients that do 10 30 ones with us as well. So you can't 10 31 into a fund, you have to have that direct title like you mentioned.

  And so we hold their hands, show them what we have in inventory that could work for a 10 31 exchange. And if they say, Hey, that works, let's do this, then we can help facilitate that whole transaction. And then we hope to earn your business on the mineral management side in that world because there is some kind of uniqueness with, division orders that get issued from an operator.

  When a new well comes online, you want someone to verify some of that. Stuff. And then the check stubs come in and they're sometimes complicated to understand from a layman's per perspective. Oh yes. Very. And so we do all that and send out, monthly reports and just manage and just make it super simple.

  And so that's something we also do as well. Okay. And as the mineral rights, to me, this is something that I own and I'm just going to hopefully own it forever and give it to my kids. That's the way I think of it. Great strategy is that great IRA is can about this, right? Yeah. Yeah.

  To own, long term minerals. It, it never hurts again, that serendipity, that upside that maybe we can't point to right now, but we know it's out there. We know that we're seeing operators develop d different zones maybe. Five miles away is gonna happen. And timing shows us that it works.

  So I love we own minerals, obviously long term. We also have some that we're gonna be turning shorter term, so we play on both. Both, yeah. So you probably analyze yours a lot closer than mine is more I guess I would get to the point. I'm just more of, I'm just gonna buy some every year.

  I, can't go wrong here. Keep and just keep going with it. I think on the, where we bring value on the mineral management side is we also can see indicators on activity that's gonna be happening in and around your portfolio. Or the asset that you acquired. And we will reach out and say, Hey, they just filed six permits just to the north of where.

  Your asset is, and oh by the way, there's a rig there. All of a sudden the value goes up on it. Maybe a good time to maybe reach out and see what the market would be willing to pay if you're interested in, in, in selling or divesting. Oh, so it'd be a good time to sell and then maybe buy somewhere else.

  Exactly. Yeah. Or do something else if with your money, if you want to, sometimes it's just time. So why are people actually selling their mineral rights? Is it just run the gamut of a thousand different reasons? It's, it seems to me they would just own it forever, but sometimes maybe they just need money.

  Yeah. Yeah. It varies. There, there's various life events that occur. There's the good and the bad, right? There's, people need money, they want to cash out. We see a lot of times when people get a little bit older, they just they want to consolidate and make it easier on their spouse or their heirs.

  And just. Cash out and take that money and do something else with it. We work with, companies that may be selling down. They need cash to go drill. We worked with a family that had 10, hes, and there was a elderly gentleman and he basically got 'em all together and just said, now's a good time to consolidate all this.

  And for various reasons. What we really try to do is understand the why and help with the why and try to provide as much value to our sellers as we can. Whether that's providing an engineering report on how we value the minerals to, so they understand, again, pop in the hood to say, here's how we value, here's what we're seeing, here's how we're underwriting.

  And providing that back to our sellers as a value add. Something that we just, we try to, leave everybody with a little bit of value. Yeah, absolutely. My whole philosophy is we can all win. We can all make money together. We don't need to be ripping people off to No. Be doing anything.

  Yeah. Yeah, and that was another thing I liked about the conference. You just seemed real honest and just, I'm not looking for everybody. I'm just looking for my people. I know. I just say that. Yeah. I'm just looking for my people. Yeah. And I think that's a great attitude, especially when it's a relationship business like this.

  And a lot of it is relationship business. Yeah, you really stood out in that. And then also you, I don't know if you've listened to all these, I have litmus tests for funds and Phoenix Rising has skin in the game. They put their own money into every single fund that they do so that they're interests are aligned with the investors.

  Absolute. And as you guys know, that is my number one litmus test for any alternative investment. And they do this. And then Jason says. Tons of experience. He is been doing this his whole life. Again, that's why I agreed to have you on the podcast. So listen, I really appreciate it's an honor to be here and no we're, it's hard work that what we do.

  We're not trying to be the biggest fund out there. We know what we do. We know how much we can deploy in a year, and we stay very focused on that so that we can turn around and deliver the best returns back to our investor base. And I think that's how you get the best returns because when you get into these.

  Super large, anything it was, you're talking about oil and gas, you're talking about multifamily. When they get really large, the returns tend to go down. There's just more hands in the pot. There's more people working it, it is, there's just more fees. So I tend to be just with my style of investing and for my clients is medium to small.

  Just because I don't always. Like the tried and true huge, it's safe, but you also just don't earn as much. So I tend to lean towards the medium, which is where you fall. Okay. Am I missing anything of the highlights of Phoenix Rising or anything?

  Yeah. Rising Phoenix. No, I think you, I think. I think you I think you, you did a great job. You nailed just about everything. Sorry. I always say Phoenix. 'Cause I live in Phoenix, so I Yeah. No, that, that's the name of the soccer team, right? Yeah. Yeah. And so you guys, if you want to go to their website that, and check out the fund, it is La Plata Peak Fund, LA.

  Pl A TA peak fund.com. And I, and Rising Phoenix does have a website. It's Rising phoenix.com if you wanted to check that out too. But if you just wanna do the fund, it's la plata peak fund.com. And Jace, thank you so much for being on. I really enjoyed our conversation. And I, I hope that something good comes of this, and listeners, I hope that you found some, found this very interesting and maybe it'll fit in your portfolio.

  I appreciate the time. Michelle. Thank you for having, yeah, thank you, Jace. Have a good day, everybody. I hope you got something out of this.

  Conclusion and Contact Information

  Thank you for listening to the Unconventional Investor Podcast. I hope you feel more confident in how you can grow your wealth using the strategies I shared in this episode.

  If you're ready to take the next step in diversifying your portfolio outside the stock market with alternative investments, head to me financial.net/contact us to book a 15 minute consult call with me. Let's discuss how we can work together to achieve your financial goals. Until then, I'll see you on the next episode.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

Kenny Rose, founder and CEO of FranShares, joins us to discuss an innovative investment opportunity: investing in franchises as an alternative asset class.

If you’ve ever thought franchising was limited to fast food, think again—Kenny shows us how franchises span everything from automotive to home services, and how FranShares is making it possible for everyday investors get a piece of the action.

We talk about how franchise investments can bring diversification, stable cash flow, and even a sense of local community impact to your portfolio.

3 takeaways:

• Franchise Investing is Evolving: Anyone can invest in franchises as easily as buying stocks or real estate—no need to be a millionaire operator or have hands-on experience.

• Vetting and Opportunity: FranShares doesn’t just fund any franchise. They thoroughly vet brands, operators, and the overall opportunity, ensuring investments go to proven businesses and experienced operators.

• Diversification & Community Impact: Franchise investments can generate steady income, hedge against inflation, and provide real community value—plus, investors can now support and benefit from local businesses they know and trust.

Links:

Read more at www.franshares.com

Take the quiz - How Alternative Assets Can Fit in Your Portfolio

• Transcript

  Introduction to the Unconventional Investor Podcast

  Welcome to the Unconventional Investor Podcast. I'm your host, Michelle Moses, certified financial planner, licensed realtor, and founder of ME Financial. If you're an accredited investor feeling overwhelmed by managing your portfolio and looking for alternative investment strategies that go beyond the traditional stock market, you're in the right place.

  Let's head into today's episode so you can start taking control of your financial future.

  Exploring Franchise Investments with Kenny Rose

  Hello everyone and thank you so much for tuning in. Today we are gonna talk about something different and that I had never heard of before Kenny contacted me. It is a platform for investing in franchises. So I'm very excited to learn about this in ways that you can diversify your portfolio in different ways.

  And so to talk about this, we have Kenny Rose, who is the founder and CEO of Fran Shares. Welcome Kenny. Thank you so much for having me, Michelle. Yeah, I'm excited to talk about this. Kenny has worked with over 600 franchise brands in more than a hundred industries, and he is an expert on franchise evaluation and he's able to identify the best ways to deploy capital into franchise ownership to maximize return on investment and operations.

  He holds a certified franchise executive, which is A CFE with the International Franchise Association. So thank you so much for being on. Thank you so much for having me. I'm very excited to chat with you about this. Yeah.

  Kenny Rose's Journey into Franchising

  So how did this come about? Because, we all know, I think people, a lot of people know the basics of franchises, right?

  And you just think, okay, you could start one if you wanted to, or, buy into one. And so what, yeah. What is the story with how you came up with this? Yeah I'd actually come from your side of the fence. Many years ago I was a advisor at Merrill Lynch once upon a time, and I learned I was not built for the massive corporate life, and I.

  Wanted to see what else is out there and a family friend. Threw me a curve ball. He said, what do you know about franchises? And I'm like, McDonald's Subway what do you know about them? And this is the guy who's, he he had a company that coaches CEOs. And then I found out that company was a franchise actually.

  So I'm like, wait, there's franchises for coaching CEOs and I find out they franchise everything from, we, you mentioned the a hundred different industries I've worked with, but like most people just think about fast food when it comes to franchising, but. They franchise everything from hair care, automotive, fitness, everything home.

  Yeah. It's, yeah. And just when you think you've heard it all, then you find something like the parking lot striping for parking lots, and it's wow. They literally just franchise everything. And a lot of people think of, it's oh, you franchise for the big brand name. But the thing is that, if you own a parking lot, there's not like a big brand name for doing the striping.

  But they focus on all those other business systems in place. As you could tell, I got very interested to learn that it was, almost a trillion dollar industry that. College educated guy didn't know that much about. And so I got into the space in what's called as a franchise broker. So like being like a realtor or even investment advisor, but for the world of franchising.

  So if you said, Hey, I'm thinking about owning a franchise, but I don't know anything about franchises, I'd recommend brands for you based on your budget, your skillset, and your goals, and coach you through how you research and purchase a franchise.

  Challenges and Solutions in Franchise Investing

  And after about a decade of doing this, I realized a couple like really glaring problems.

  The first was that. Most people who have a million dollars to invest in a franchise, unsurprisingly don't want to go run a franchise. They want someone else to run it for 'em. Then you also have people like the majority who don't have a million dollars laying around, but would love to be able to invest in a cash flowing, predictable business like a franchise.

  And then on the other side, for the franchise themselves, I realized they had a big problem, which was that. I'm in Chicago at home and McDonald's and their biggest barrier to growth is millionaires. They could add another 10,000 locations, but they need people who are millionaires then want to be in franchising and then god forbid, wanna actually run the location themselves.

  So you've got people who are really great operators. But don't have the million dollars and the people with the million dollars who don't wanna operate. So that's a very long way of saying, oh, I needed to separate where money comes from to who runs franchises and really make it as an asset class.

  How Fran Shares Works

  And so that's where F Shares came about.

  The first platform that lets anyone invest in franchises like you could stocks or real estate, and into something that is income producing, hedge against inflation, diversified from the stock market and. Honestly just an alternative asset class that people can actually understand, which I think is very welcome in today's day and age.

  I totally agree. Which is why I have my podcast. Which, I think people want to invest in things that they understand and a lot of the franchise businesses are things people understand. You think about almost anything that comes to your home with blinds and carpet and all of that. A lot of those are franchises and people.

  Yeah. They get that. Yeah. I was just really surprised. 'Cause I did mention that I did a pocket. Or another podcast about franchises just in general. I was really surprised at the, a little amount of money that you could get into franchising, but I could see how there would be just a mismatch of, the people that have the drive, but they don't have the money, which is, a with a lot of industries.

  But it sounds like you found like a great solution to this. Yeah, and I'll say two things about that. One is that, there are ones that are less expensive to get into, but they typically require. A much more hands-on skillset. And especially a lot of times they're pretty sales driven.

  Like good example is the senior care industry. People really love to look at that. 'cause how many boomers are retiring every day. But at the end of the day, that's a very competitive industry. It's very sales driven, so you can get into it for a pretty low amount because it's. Typically doesn't require storefront, but that doesn't mean it's an automatic ticket to success, right?

  And so you really do want people who come from those industries and have the experience and just get the opportunity and this creating opportunity. I have to say, I. Part of it I didn't come up with, I just reinvented a very well-functioning wheel which is Chick-fil-A. Most people don't know that Chick-fil-A should cost like 2 million bucks to start one.

  But Chick-fil-A realized the same thing, is that they need people who are hands-on, owner operators who are gonna, eat, sleep, and breathe the business. And so they made it. So you have to start working from within, work your way up to management, and then apply to be a franchisee. And if you're selected, it's only $10,000 and they finance the rest.

  Now there's pros and cons to this. Pros, you could debate that if they have the greatest chicken sandwich, but you can't debate that they have the highest average unit volume or sales in all franchising. And you could say it's the chicken sandwich, but when you watch the commercials, that chicken sandwich is sitting on the stool on the side.

  It's the operator that's front and center. But that being said, Chick-fil-A also has done things wrong. Those people don't have equity in the businesses, which I find to be a very big problem. And so we want people who are, have the experience and just don't lack the access to capital because frankly, banks are financing them like they're buying homes.

  And so yeah, it's just something that like it feels like a no-brainer when you deconstruct it, but it's just that people have looked at it at the same lens for decades.

  Vetting and Selecting Franchise Investments

  And so what are the types of businesses that you, so obviously you're vetting them, right? You're going through due diligence process.

  So what are the types of business that businesses that are on your platform, and then when people are going to invest, do they get to choose which one? Or do you have a fund? Yeah, so it's a very heavy vetting process, but on three main fronts, the brand, the operator, and the opportunity. There's more franchise brands out there than there are stocks on the nasdaq, and that does not just like stocks on the nasdaq.

  That does not mean they're all good. There are plenty of bad ones. Great thing about franchise and that you may have learned in your previous episode is that it's regulated by the Federal Trade Commission. And so because of that, each franchise has to put out. Publicly available disclosure documents, things like how much it costs to start a location.

  What they can make is their litigation against the brand company financials. And so you're able to do a lot of due diligence on these brands on your own. And so we've vet very heavily on the brands, either that they are a well established one or very high growth one that they have strong return on investment, that they have a strong support system.

  They're growing in locations year over year. Then the operator, you could have the greatest brand name in the world, like a McDonald's, but you could run a McDonald's in the ground very quickly being the wrong person for it. And so we only work with people that are either already franchisees or they are those operators with all the experience that are becoming franchisees.

  Okay. And we love an emphasis on if they have the, so if they have the experience, then your platform would basically raise money for them to open up the franchise that they wanted. Exactly. Yep. It's almost like racing from friends and family. We just bring a whole lot more friends to the table. Okay. Yeah. And sorry, I didn't mean to interrupt you, you were going no. Sometimes you get on a roll and then off the tracks. But, you can take it where you want. Yeah, no, that's fine. So you got two people. So you got the people that you that need the money. And so how do they find you then?

  So are you out looking for them? Yeah for one, we go to all the industry conferences. So you get a lot of existing franchisees looking to expand or get into other brands. There's also operators that come through that are, franchise curious, just not sure how they're gonna get the money.

  We do. A lot of work online, so we get a lot of operators that reach out to us. But what I found to be the best is going directly to the brands because they know who they want to expand. You go to Comfort Inn and say, Hey, who should be your next hotel owner? And they'll say I've got this person who's been in operations for 10 years.

  They. Are absolutely killing it when it comes to their sales and profitability, but they have no access to capital. And so the franchisors know who these great operators are that would run through a brick wall given the chance, and now they have the ability to turn them into franchisees who are gonna be those hands-on owner operators.

  And so when they are, so they're basically awesome, right? So they're awesome operators and so you're giving them a chance to finance their own franchise. And so then do they get equity in it? If it's that way, okay. Yeah. Yeah. So they have to get equity. I don't believe in people work, working and not getting ownership.

  Totally. And and for one, it's the right thing to do, but for another, you want them to have skin in the game to, really care about it and make sure they want to be successful in that it's not just a job they can walk away from. In addition to these like operators that were turning into owners, we also worked with existing franchisees that you know, many different types.

  Like they come in all shapes and size and from mom and pops that went. All in on their first or first couple locations. They have all the experience and they're ready to scale. But then the bank's looking at them like they're trying to buy three new houses and they're like, is your net worth triple is do you have a couple million dollars laying around?

  But really it's, they've done the hardest part, which is learning the system and building this foundation, and now they're ready to scale it. And but we also work all the way up to like institutional level franchisees. Some of the largest holders of franchises are private equity groups.

  And they like it because they're stable, predictable, and diversified. A lot of these like institutional type franchisees and they get up to be worth multiple billions of dollars, but a lot of 'em, they don't like working with private equity. It's just been the necessary evil because.

  They need the money to scale, but private equity needs a lot of control. And oftentimes they need to have that majority ownership and voting rights to tell them how to run their business. And franchisees don't like that. They got into it to be their own boss. And we're actually about to launch with one of the largest pizza franchisees in the world. And they're also just top 10 largest franchisees of anything between all their different brands And, they're looking to really scale this and have something that's like a predictable source of equity that they can go and deploy.

  But it's something where they've typically had to go to these like larger family offices and private equity groups, but they love the idea of being able to, set their terms, be able to raise and focus on running their business. But also they are they really love something that I've said and why brands like Duncan Love working with us is that, equity crowdfunding, which is what powers all most of these alternative investing platforms.

  People can put capital into it, but then it just becomes something in their portfolio that they stash on the side and they forget about it. But yeah, I like to think of it, it's like Reddit versus Wall Street, where when you give the littler guy ownership. They love it and they're gonna be ecstatic and raving fans about it.

  And they're gonna go to Dunkin’ Donuts, or they're gonna go to whatever franchise that they actually own, and they're gonna try to support it. And so it's a, it's a win-win on all of it. Exactly. Exactly. They never go to Starbucks again and they ridicule their friends who try and go there.

  And I go to a lot of meetings and this, what the show is about is alternative investment in private placements. And I have asked some of the owners of some of these private placements of why aren't you just purely with the private equity? And the ones that aren't, they love doing what you're talking about.

  It's, we can call it crowdfunding, but just going to the retail space is what we call it. They love that because they have more control and they don't have to answer to it. Whereas the, yeah, they say the same thing about private equity is that they just don't like answering to them the institutional money, and so they want to break out, even though it is harder, obviously, to raise money from multiple different people than just one, one trough, it's worth it.

  Investment Opportunities and Returns

  Um, so can we talk a little bit about numbers? Like when you are talking with these franchisees, like how do you break up the numbers? Do you do they get a certain amount of ownership and shares and can you explain how all of that works? Yeah, so every deal's gonna be pretty different because at the end of the day, we're not.

  Private equity or an investment banker and telling them how their terms are gonna look. We're usually setting them up with like legal counsel that specializes in different types of organizational structures and funding. So that they can come up with something that makes the most sense for them.

  But typically what I like to see is that the franchisee's gonna maintain the major, like a majority ownership stake. For a number of reasons. From an investor point of view is that we. Most time they'll be preferred returns and also like a waterfall structure. And so they're, they don't necessarily have the majority ownership, but they're still gonna get those returns in the, in a structure that makes sense for 'em.

  Because franchisees also don't want to have minority interest in their own business. We're a venture backed company at F Shares and if someone came in right off. Day one and say, Hey, we're gonna take majority interest in. You gonna tell and we're gonna tell you how to run the business.

  I would never have taken a check. But yeah yeah, they don't want that. So do, I guess I'm just looking for examples do they maintain sometimes 50% ownership of the, and 'cause is it like even if they had an established franchise like a house, you're refinancing the house.

  Are you refinancing part of the business like that? Or how is it, how's. Yeah. There's different ways that they're doing it. So for some people they're new locations, so it's like a new venture. Others that they're allowing investors to invest into their existing locations. Sometimes we have opportunities for acquisitions, for remodels.

  Like I said, new locations, developing entire regions. So just a lot of, you think about any type of financial products out there for stocks, there's an equivalent in the franchise space. So things like growth opportunities, things like income opportunities. Okay. And and you, I forgot something you had asked before, which was about choosing investments and right now it's really build your own portfolio style and so you're really picking.

  The brand and the operator that you want to invest in down the road, we'll definitely have a portfolio option for you. But I think for now as we build a track record and our franchisees build their own track records they really want to understand who they're investing in and what their experiences really be able to hear from them.

  So I find it's important for people to be able to, understand each individual investment while they get used to franchise investing as a part of their portfolio. Absolutely. And I could see that your platform would be something where they would learn about it. And and I think that's what's exciting about doing these alternative investments, which is just really investments outside the stock market, is it's helping people invest in, like things that they see every day, and. Way that they're living their life. And I get so many calls of people, they're like, I'm driving by that building that's being built. And like, how do I get in on that? Because that's a great idea. Whatever it is. Yeah. So this is, yeah, a great opportunity. And I just think it's like genius on the franchise side that if someone's going to invest in that business, then yeah, they're going to be a patron of it, yeah. I mean that why spend money on marketing when the people could pay you to be marketing for 'em? Exactly. And you're paying them and they're an investor, and then they'll bring their friends, or they'll buy gift cards or, whatever it is happens to be. That's just like genius right there.

  Yeah.

  Community Impact and Future Plans

  And honestly, it's really big for creating wealth in your own community too. I always find it hilarious how some people don't see franchises in small businesses when that's entirely what they are. They see oh, they've got big. Corporate support. It's yeah, it's so they don't fail.

  Yeah. People have the warm and fuzzies about shopping at Trader Joe's when most of your money does not. It doesn't just stay in your community it doesn't stay in the country 'cause they're owned internationally versus you invest in the local Duncan. It's yeah, there'll be a royalty that goes out, but you're inve like local capital's, investing into a local business owner to create local jobs to.

  Have money going through the local economy. They have a house here, they're paying bills here, they're patronizing this grocery store, they're doing their health insurance here. All of that. Stuff. Yeah. Where it stays in the economy rather than, yeah. Again, yeah. Shopping at Target at Walmart and then most of the money just leaves.

  Yeah. Yeah. Yeah, that makes absolute sense. And so do you see, okay, so let's go. So if somebody goes to your website, then. It's for accredited investors, but you are opening it up for crowdfunding here really soon, right? Which means everybody can invest. Yep, exactly. But right now, just accredited very soon opening it up for everyone and each offering will have different tiers.

  So if you're non-accredited, you can invest in one way. If you're accredited, it'll have a higher minimum with more favorable terms to incentivize like larger check sizes. But. I'm a big fan of getting this in the hands of the everyday investor. Especially when we talk about people promoting it within the local community.

  The person who writes a million dollar check is gonna keep that close to the vest. The person who writes a $500 check is going to sing it from the rooftop. I, yeah, I agree. And so when you're accredited investor, what are the minimums that you can invest? Is it 25,000 or five or what are some typically our minimum's gonna be 10,000 for the accredited.

  Okay. That's good. I think a lot of the investments I have on here are 25 at a minimum. Yeah. I think, and honestly that's why it's good to spread it across multiple offerings too. Yeah. Because then you, again, you're like building your own portfolio within the franchise space. Yeah. And so is that what you recommend is that you come on with the idea of let's take a certain percentage of your portfolio and maybe pick two or three franchises to get started with and then the just return it.

  Does it vary from like. All the way from 8% preferred return to 12% or what, can you give us kind of a range? Yeah when it c before I get into the returns you'd asked another question there too. I'm sorry. No, I was just making a statement about it would be nice to that if somebody just came to the table with a certain amount of money and that.

  They then they could invest in maybe three and diversify. Oh yeah. That way. Yeah. So de definitely good to diversify and leads right into the allocation side of things too. 'cause I don't think anyone should ever go all in on anything. And so you wanna diversify your asset classes and you wanna diversify within those asset classes.

  And so that's why I think it's good to, build out a portfolio in the franchise space and. I'd be super greedy if I said, oh, alternative investing should go through franchising. No, it's diversified. And depending on the advisor, 20 to 30% in alternatives, I think franchising's worth 10% of that.

  So I think it's a good two to 3% allocation of the portfolio. We have people who are doing more because they're more focused on the income side of things which. Again, different types of offerings from whether they're more income focused versus equity growing. And so to your question about returns we try and target like a total net IRR of 15 to 20%.

  We have some that go lower, some that go much higher, and you'll see some that are gonna be higher on the income side of things, but then you're not gonna get as much on that like later exit that happens. And then vice versa, you'll see somewhere you get, not a lot of income because they're reinvesting instead, but then you're gonna get a higher equity.

  So when they do exit, eventually you get a bigger payout there. So again, it's not just diversifying. Within different brands and industries, but also different investment goals as, as well. And so if people go to your website and they have questions, do you have people that will help them choose which investments to go into?

  No. We're not an ra a so we are not able to give investment advice and plus, i'm, maybe it's just old school way of thinking, but I wanna present opportunities, not sell deals. And I think it's important for people to like, do their own due diligence, make an informed decision.

  We put a lot of information on each offering and when I get people who ask what's the best one? It's I don't personally know you there. It could be any of them. I blast that. Yeah, it could be all of them. I'm not sure, but you should be comfortable. It totally depends on what you need.

  Yeah. And I love, yeah. People ask that. It's people ask what's the best stock? I'm like, oh my God, this is Rudiment. Yeah. This is not a conversation to be, if I don't know you, that we should be Yeah. Conversation. Yeah, exactly. Search a little bit more. And then so one of the questions that I did have too about what you were saying, so does the owner of the franchise give updates to the investors?

  'cause I know sometimes I've invested in things and then I'll get like quarterly updates about what's going on, yep. So at the minimum you get quarterly financial updates and it's information they're already collecting anyway because they have a franchisor that they're paying royalties to.

  Typically we're even gonna give more updates than that, including like monthly qualitative ones. Besides just what are the numbers? It's who you hire, what's going on in the community did you get a big catering or it's. Like friends and family investing, they would give you updates on both the financials, but also just what's going on.

  And so we, we have them do the same thing. Sometimes it'll be emails. A lot of times we have them record videos to be able to send out. So again, you're like building the relationship even more with that owner. But yeah, it should feel like you are an owner because you are an owner. And do you find that people tend to invest, like in their community wherever they live?

  Or do they invest all over the place? So right now they invest all over. It's also because like we're still a fairly new platform, so you know what, we obviously just are scaling up more deals that there will be more that's gonna be local to people. But whenever we have an offering coming out, we are promoting it to investors in that area first, and then also doing active marketing in that community Because again I don't just want to fill capital needs there's something to be said about.

  Getting the local community behind a local businesses back. And so we wanna make sure that it's gonna be, again, a great investment for the investor, but also something truly beneficial besides capital for the franchisee. Yeah, absolutely.

  Conclusion and Next Steps

  Well, I think this is a great idea and I love your website and I'm just so glad that this came across to be able to share this with people because I get, I do think franchises are.

  Underrated. I wanna say, I think that people don't know about them and I'm so glad that you came up with this so that people can invest in it. 'cause people come, there's so many people that come to me that wanna diversify outside the stock market and they don't know how, and they're not accredited investor.

  Yeah. Really give kudos to you for keeping, there's people, there's billions of dollars of these people's money that they want to invest and they wanna get into all these exciting things and not just, the stocks and bonds thing is just so out of their control, yeah.

  It's just there and they're just letting it go, whereas this is like something that they could actually participate in. Yeah. I'd say one of the main things that I love about diversifying is just staying away from. The fear, like in stock markets, you're a tweet away from losing a huge chunk of your net worth versus, like we've seen things even with one of McDonald's CEOs was embroiled embroiled in really bad stuff.

  But like the brand is bigger than one executive and their cash flowing locations that people are going to every day. So you really are insulated from a lot of those like market influences. Yeah. Yeah. I think it's a great idea, you guys. It's fran shares.com if you want to go check it out. And they are gonna be opening up for crowdfunding, so you do not need to be an accredited investor for this one.

  So I'm very excited to highlight you for that reason also. And thank you so much for being on. I appreciate you sharing your story with us and what this is all about. And, you guys let us know if you have any questions about it or go to their website and I'd be happy to advise you on how much you should put into this if you wanted.

  There we go. You can do it. I just said it. I would be able to do that. So thank you for your time. Thanks for being on. And thank you so much for having me, Ahuh. And you guys, thank you so much for listening. Let me know if you have any questions and I will talk to you next week. Thank you for listening to the Unconventional Investor Podcast.

  I hope you feel more confident in how you can grow your wealth using the strategies I shared in this episode. If you're ready to take the next step in diversifying your portfolio outside the stock market with alternative investments, head to me financial.net/contact us to book a 15 minute consult call with me.

  Let's discuss how we can work together to achieve your financial goals. Until then, I'll see you on the next episode.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

I sat down with Sherwood “Woodie” Neiss—the policy architect behind the JOBS Act and author of Investomers. Woodie shared how investment crowdfunding is giving startups and retail investors a new path forward, bypassing traditional venture capitalists.

3 takeaways:

• Crowdfunding Is Maturing. Since the JOBS Act’s implementation, over 8,300 companies have collectively raised nearly $3B.

• Diversity & Access Are Up. In the last month alone, 50% of crowdfunded companies had either a woman or minority founder. Investment crowdfunding is opening doors for underrepresented entrepreneurs—and for investors who wouldn’t have qualified under the old rules.

• Investomers = Influence + Investment. Startups can now turn passionate customers into “investomers,” who do more than just buy—they market, advocate, and help shape the company’s success.

Links:

Learn more at: Crowdfund Capital Advisors

Book: Investomers

Take the quiz - How Alternative Assets Can Fit in Your Portfolio

• Transcript

  Introduction to the Unconventional Investor Podcast

  Welcome to the Unconventional Investor Podcast. I'm your host, Michelle Moses, certified financial planner, licensed realtor, and founder of ME Financial. If you're an accredited investor feeling overwhelmed by managing your portfolio and looking for alternative investment strategies that go beyond the traditional stock market, you're in the right place.

  Let's head into today's episode so you can start taking control of your financial future. Hello everyone, and thank you so much for tuning in.

  Crowdfunding vs. Venture Capital

  Today we are going to be talking about crowdfunding specifically about how community backed startups are beating out venture capitalist companies. And today to talk about that, I have Sherwood.

  Woodie Neiss to talk about this, and he is a venture capitalist, the policy architect behind the Jobs Act and the author of Investomers, a book on how customers are becoming the next wave of startup investors as the co-creator of the law that legalized investment crowdfunding. Woody's message is that capital isn't just coming from Wall Street anymore, it's coming from the community.

  He's testified before Congress advised the World Bank and now uses AI to analyze. Thousands of early stage deals through his firm, D three BC, ai. Thank you so much for being on Woody. Thank you so much. It's super exciting to be here today. Yeah. I am excited to hear about this because I remember when the Jobs Act came out and the whole crowdfunding thing.

  'cause my whole thing is accredited investors and alternative investments, but I'm always looking for ways for non-accredited investors to get into things. So when the Jobs Act came out and crowdfunding became. Legal, I was so excited. And I'm glad to see that you're utilizing it 'cause you don't see tons of people utilizing it.

  And the way that, you know, I, and I don't know if that's because of paperwork or whatever, so we'll get into that of how to, get more people to be using it. But first, why don't you like tell us.

  Woody Neiss' Journey and the Jobs Act

  About how you got started in all of this and how did you even become the persons to the person to, be in front of congress in creating the jobs act the right place at the right time?

  Yeah. So I was living in Washington dc which made all of this incredibly helpful because, that's where the policy gets made. I had started my career on Wall Street, went to the, worked on the trading floor for Paine Weber. When out to Silicon Valley, worked for a venture capital, started a back company, learned all about VCs.

  Started my own healthcare technology company called Flavor Rx. We flavored medicines for children's with a more compliant, grew that from one pharmacy to 40,000. We were VC funded. Sold that to a private equity group. But I always got these calls from mothers saying, I got my kid to take medicine.

  Never could I again take medicine before. How do I invest in your business? I'm like, listen, you can't, like these laws were written in 1933 to protect people like you from investing in risky startups like mine. And they're like, but I really believe in you. And so after we sold Flavor x, I said to two of my friends, this is a missed opportunity.

  Right now, this is in 2007, 2008. It's Washington DC is looking for jobs. It's the great recession. Why don't we finally update these securities laws to the internet age? And that's what we did. We sat down, wrote an eight bullet point framework, walked over to the SEC with it. They said it was cute to go to the building with a white dome.

  And naively enough, we literally started walking the halls of Congress. Really? Both si, both sides of the aisle spoke to everyone. I got people very interested in what we were doing, particularly because we were talking to staffers, not the senators or the Congress, Congress people themselves, but the staffers.

  And we'd be like, do you know you can't invest in any startups? Like you're not smart enough? And the staffers were like, what are you talking about? Of course I can. No, actually these laws that you know were written in 1933 prevent you from investing. And so we were able to get them engaged in what we were doing.

  And they were able to go to their bosses and be like this is, this law is just needs to be updated. A hearing was called. The White House had someone at that hearing, they called me, I probably hung promptly hung up on them. 'cause I thought it was a friend placing a prank call on me. They called back and said, no, this is actually the White House calling.

  Wow. We're very interested in what you're doing. Gave them a two page writeup and two months later, president Obama came out with a statement of administrative support, which is like a, the highest press. It's like literally it's that. Put it on my desk, I will sign it into law. And it passed the house 4 0 7 17, the Senate 73 26, and we were at the White House for the bill signing ceremony.

  That is amazing. And you don't ever hear, I feel like you don't hear about Bills passing that quickly. That's like really quick for just a couple months. And I'm sure a lot of it had to do that. You were talking to younger people that were very internet savvy and realize Hey, this is an issue.

  It was 460 days from when we walked into the halls of Congress, until we were sitting in the White House. Even at the bill signing ceremony president Obama said, this is one of the fastest pieces of legislation to go through Congress. And, other than naming a street. So yeah, great timing.

  Yeah, it sounds like it was just meant to be. That's absolutely wonderful. I have to thank you for doing that because I was excited when it came out. So I'm very excited to meet the person that did it. So I, and I, it's it, you did see a need, and that is what happens. That's what happens to me just as an advisor, is that people call how can I get into this water technology that, desalinate the water, and how do I, just like all that different stuff.

  I'm like, you can't. You have to be a venture capitalist and the minimum of that, you gotta have millions of dollars. There's just no way that you're gonna be able to do that. Okay. So congratulations on getting it passed. That is really awesome and I think there's millions of us that thank you for doing that.

  Impact and Evolution of Crowdfunding

  And so where has it gone since it has been passed and what are you seeing out there? It took four years for the SEC to come up with the regulations, of course. So as in 2016 2012, it went live in 2016. And since then, about 8,300 companies have now used this to do 10,000 rounds of financing.

  Over nearly $3 billion has been raised by these companie. In 500 different nas, which is like an industry classification code in 2300 cities across the United States. 50% of the companies that were raising money last month had either a women or minority founder. So it's been transformative for them.

  And it's just, we're seeing the evolution of companies coming in change as well. It used to be pre-revenue. Early stage companies coming in less than three years old. Now these companies have an average revenue of a million dollars and they're over three years old, so the risk profile has drastically changed.

  The other thing that's changed as well is when this launch, these. Steves were like, don't touch it. It's not, these are the, adverse selection companies, but now you're seeing a lot of VCs on the cap table. VCs are syndicating these deals on these platforms because they realize they can, the crowd can do something that they can't.

  They can buy marketing and advertising, but they can't do it in a viral way that the crowd can. And so when you convert these customers into investors, or as we call them investors, you actually turn them into brand advocates and they're bringing customers, sales, future investors into these companies, and it's been really transformative for the businesses themselves.

  Absolutely. So what you're seeing is more experienced, businesses coming forth, wanting to crowdfund because they're needing to raise money to probably develop something or grow their business. Yeah, I mean it's the entire spectrum. When we, when this got started, we thought it was just going to be software technology companies.

  We thought there was gonna be an opportunity for debt crowdfunding. So the whole Main Street type of retail businesses that are cash flowing has been a whole vertical within this sector that has not received the attention that I think it serves, only because the yields for investors are as high as 10% right now.

  So it's really attractive. And the default rates are much lower than bank loans because people, issuers don't wanna let down their customers, unlike issuers that go into a bank and who's the bank loan? I don't care. It's one bank. So it's completely different. But with the, with when you on the other side with the equity side, it's just seeing this huge influx of fascinating companies.

  The companies that we're looking at are healthcare technology companies that are both early stage and ones that are going through clinical trials right now. You've got AI in a lot of what's happening in the space. And it's just fascinating the whole spectrum of opportunities here. But the opportunity, this whole industry is burgeoning right now because VCs have stepped out of the space.

  In what we saw a couple years ago with a collapse of Silicon Valley Bank, they started to sit on the sidelines and that created this opportunity for these startups to be like. I still need capital. Whether or not you are investing, we still need money. So they're going online to these platforms and they're raising money up to $5 million a year from that, from their investors, the crowd, to help them achieve these goals that they couldn't do with VCs 'cause they're not there anymore.

  And so you think the drive for the growth has come from the VCs stepping to the side and now this is their other option besides going into the the retail space of, financial advisors and things, this is another option for them to go through. Oh yeah. This. Most people don't even know about investment crowdfunding today.

  And I mean by the fact that there's only been 8,300 companies. And you can consider the hundreds of thousands of them that are out there in the United States. So we're at the early stages. And by the way, I think. The whole landscape for the venture market has shifted. I, people are like when things calm down, VCs will come back in.

  I'm like, yeah, no, I think they've gone upstream. I think they realize deals are less risky. The bigger they are, the more revenue that they have, and it's created this void for early stage investing. That's why. Oh, so they're going with more tried and true companies? Oh yeah. Okay. I think there will be.

  Early stage funds, like the one that we started that invest in this space. But we still have to get them into the marketplace. I think a lot of the funds that are out there are just gonna move upstream with the bigger deals.

  Navigating the Crowdfunding Process

  And so how do people find out about crowdfunding and how to do it? Like a company, so they go to a lawyer or they go into a bank and looking for money.

  Somebody mentions it. How do they find out about this? The easiest thing to do is just go to Google and type in investment crowdfunding. That's what I would say. I are people not, they don't know that they can even do it. And then, or are these business owners, they're pretty savvy and they know that they can do it, and so they're exploring it.

  No, I think you have a point. I think education is missing. What we're doing right now is helping increase awareness of what's happening in the marketplace. You can go to the biggest websites are Start Engine, Wefunder Republic on the equity side Honeycomb and the S and BX. On the debt side, I would tell anyone, just go there, look at the deals, see how people are marketing their offerings.

  This is a regulated process, so you have to go through. Disclosures. You, in some cases you have to have audits. So you have to see what other people are doing. And because it's a standardized, it's a process you go through. So it takes a lot of the brain work out of it to know that I just need to complete these fields.

  I need to complete these disclosure documents, and I too can go out and try and raise money from my customers or. Friends and family. And so what is you said something about that there it is regulated and that some are having to go through audits. What would make someone have to have an audit and not have an audit?

  Sorry. That's okay. If you've had an audit before, you need to have an audit again. That's the main thing. So you can't like, have had an audit and then be like, I don't wanna have audited financials. If you're a first time issuer through investment crowdfunding, for the most part, you don't need an audit.

  If you're raising over a certain amount, the audits might be necessary. But for the most people that are out there raising in the first round, you're not, you're gonna need financials for the most part that are, reviewed by A CPA by, which by the way, is not an easy process. So you've got certified financials up to 124,000 CPA reviewed financials, over 124,000.

  And that's where you're gonna have to spend some time with the, with an accounting firm going through your books and all that stuff, showing them how you receive money, how you do inventory. But it's just a very high level review of what you would do through a really deep audit. Yeah. And I don't think that there's any way that you can raise money, that you aren't going to have to do a lot of work as a business owner.

  Even if you were to go with venture capitalists, you're gonna have to get your ducks, this is getting your ducks in a row and even in what I call the retail space of going to financial advisors, you have to get your ducks in a row and register with the SEC too, so there's a lot.

  Of homework that goes through any channel. Do people pick two channels or do they normally just pick the crowdfunding channel and then that's it?

  Investment Strategies and Wealth Creation

  I often tell people that raising capital is like getting on a highway. There's multiple liens and there's cars going down. You actually have to be in multiple cars.

  So investment crowdfunding's one lane, and you could have a, an accredited investor offering a 5 0 6 C offering. We're seeing a lot of these companies doing parallel offerings because with the $5 million cap that you have in investment crowdfunding, if you do a parallel offering with a 5 0 6 C, you essentially can raise an unlimited amount of money.

  You don't have to be limited to one or the other. But what we do find is a lot of companies that are just getting their feet wet and wanna learn about it, stick with an investment crowdfunding offering, go to, Wefunder, one of those platforms and do a small offering and understand the process.

  I don't know if you remember back in the early two thousands, this whole lean startup methodology world was very popular then, and companies only raised as much as they needed. And that was like the mantra. And then all of a sudden VCs are like, here's big checks. Million, millions of dollars. Spend, spend, spend.

  And it changed the whole rationale. Well, VCs, again, like I said, they've, they're gone. Startups still need money. They're raising money in its lean startup methodology right now, which is only gonna raise a small amount. Do smaller amounts of financing. I'm gonna set milestones. I'm gonna achieve those milestones.

  I'm gonna report back to my investors, which by the way, is brilliant. In terms of communication and accountability, it allows you to attract VCs later on. But they're gonna go back to the crowd and they're gonna do another round of financing. And the best part about that is when VCs invest in companies, they have to wait for another institutional round or another round of price that follow on round.

  When these companies are doing these smaller rounds, they're doing. Incremental valuation increases over time because they've proven that they can achieve their milestones. Every time they mark it up, we get to see what that incremental increase is. And so we have this database that has every single offering in it, and we track every single valuation round.

  And so we can see these increases that are happening. It's. Fascinating to watch the wealth creation that is happening right in front of our eyes. And do you mean wealth creation for everybody? For the company and for the crowd, the investors. Absolutely. It's great for the company and the founders themselves because they're building wealth for themselves and their families.

  But for all of these investors that are getting in, this is the first time retail investors are able to be like mini venture capitalists. And they can come in and invest really on the same terms as VCs and get in on these dur. These deals at the earliest stages the lowest valuations in many cases, and just watch that opportunity grow.

  Now, nothing changes just 'cause this exists and people should be thinking, how much am I really will willing to risk? Because failure's always an option. So you have to keep your eyes wide open and think about that. But I will tell you a data point that we have in our dataset is. Longevity of these firms.

  Now, the SBA will tell you that 50% of startups will go out of business. Within the first five years. We've been tracking all this data since 2016, and every year we run an analysis, see how many companies are outta business. So since 20 16, 21 0.7% of the companies that started. Out of business. So we've got companies that are sticking around much longer than your traditional company, which is great for, wealth creation, the odds of you actually doing well in your investments as well.

  But this is still a risky investment and people should consider that before they decide, oh, what am I gonna put? Yeah, absolutely. Because it is a startup and that it is tight. Things are lean, yeah. And I had an and I have only done it twice. And I invested in a bread bakery here in town.

  And we did it on main vest dot com and main vest went under. Yeah. Something happened with their banking or something like that. So is that the only.

  Understanding Investment Risks on Crowdfunding Platforms

  Risk in terms of, 'cause if you're going on Wefunder or one of these websites, there is a risk that they would go under, but you still have your investment with that company, right?

  The paperwork is still there. It's just that they were the facilitator and if they go under it's. Not a huge deal. Like it's a big deal, but it's a pain in the butt, but it's not, yeah. Like you lose your investment. They had to have a wind down procedure that would allow all the investors to know that they would still get their monthly payments.

  That's part of what you sign up for when your platform. Okay. With Wefunder, one of the equity ones, you actually have the shares. Like you, you're on the cap table. So if we funder or one of the bigger platforms were to go outta business, it really wouldn't affect you only because you still have that stock certificate.

  Okay. And then back to your comment about only having 21% of the new companies go under, I would imagine that there's less, because in the SBA loans, those are. Pretty hefty payments, right? The, it's pretty big and it takes a lot to go through it, but that's one lender. And as you were saying, it's not like you have this crowd that you are not only marketing to, but they're your investors.

  I would think that would be some sort of incentive too, that. You that the benefit of having all of these people that know about your company or getting updates about your company and then are talking about on the street 'cause they wanna see their investment improve, right? I'm sure the mix between all of that is very interesting, as to why they do succeed.

  That is where we are today. You have hit the inflection point that is taking place, which is before investors were people that you met but didn't necessarily know. Now we are at this evolution where every company's going to be looking at their customers. Not just for a, someone that buys their product or service, but as a marketing agent for their business.

  And they're going to want them to be investors in their business if they think there's the opportunity for that business to be sold, merge, or go public. And that's what we're looking at is all of these individual investors going.

  The Role of Millennials in Modern Investing

  It, it's, I, this is another term I coined. It's called the Vester.

  So you know how TikTok, all these millennials? And by the way, if you're listening to this, you have to remember. Everything that's happening is because of this millennial revolution as well. So a lot of all that's happening around us is people thinking these millennials are the future investors, these millennials are the future entrepreneurs.

  How are we helping them? How are we investing in them? And so TikTok is social media and we've got these influencers that are telling us, buy the viral Dubai chocolate. It's amazing. And everyone's okay, I'll try it. And, but what's the evolution of this? Marketplace is. You are now an investor in my business.

  Go on TikTok and tell a story about why you invested. Why do you love our company so much? What? Why do you love the product or service? Tell people about that. Tell people about our offering. Bring them in, and they're going to be driving people into these companies through social media, and this is just the beginning of that whole movement as well.

  Oh, I love that. I would think that, yes, that, now that you say it, it's obvious. Like side thing that has happened, but just in the way that everything works. But I love that so much. That's such a great idea. And it's free marketing for this company, basically. It's more of, instead of marketing, which is a lot of times, I call it just throwing stuff against a wall and seeing what sticks.

  Absolutely. Whereas this is, you've actually got people on the ground that are invested in your business and they have an interest. And having it succeed. Yeah. That's really cool.

  Analyzing Crowdfunding Companies with AI

  And so what are you seeing in your, so in your company, so not you are, it's D three vc ai, so you are analyzing all of these crowdfunding companies, the p the companies that crowdfund.

  What are other things that you're seeing? So you're, are you analyzing them for like a hundred different things or, does it change every day? How does that go? So the key difference in what we do to what VCs do is we follow investor sentiment. So we believe that if the number of checks that are written every day into an offering and the dollar amount that's being committed every day into an offering are two signals that should be telling us something that we don't know.

  So where you've got a crowd of people swarming into a deal. What is going on? What do they see that I don't see what is happening that they are so excited about that I don't know about? So we look for that as a signal. Then we also look at how much money's going in, because if it's a lot of small checks.

  That's interesting. But if the average check size is normal, is higher than normal? Something very, these people are willing to risk a lot more money. I wanna follow that signal. So we created an algorithm. There's 150 data points we collect on each offering. There's over 5 million data points in our entire data set.

  And every day there's new companies coming in, and every day there's companies raising capital. Companies file annual reports. So there's all this data that we're pulling in and we created an algorithm to look for signals in the data set of companies that are most likely to gonna go on for a follow on round of financing.

  Not a company that is going to have a successful exit, because I don't think anyone can predict that. But there's enough learning now in these models where you can look at the signals of other companies that have gone on for follow on round of financing. See if that exists in the current company, and you follow those signals, you layer on the investor sentiment.

  Every week we get a ranking of all of these companies, and we do what VCs do at that point. We go through the deal, we go through the financials, we look at their ip, we look at the team. We send questions to them.

  The Importance of Investor Sentiment

  By the way, if you're listening to this and you're interested in this, go to the comments section on these offering pages on Wefunder or StartEngine.

  Read the comments. You will be blown away at the knowledge and depth of questions that these investors have. These are not like necessarily retail investors that know nothing, that might just know the CEO and wanna invest. These are scientists. These are doctors. These are people that are PhDs that know these industries inside and out and ask very telling questions for which, if there's a good answer, it builds confidence in you as an investor to want to come in.

  If they're silent, hey, that's a signal, right? If they're not answering that now, who's to say that they're gonna answer later on? So VCs are also looking at this to be how transparent and forthcoming these companies are, because it's a great metric, a gauge for them to know, should I invest in this company later on?

  Absolutely. I could see that for sure. And just like the comment section anywhere it is, very interesting. But when you have all the science behind it, and I think it's just more of. How responsive and how much they care about people. And I think crowdfunding also goes into that, right?

  Is that there's a lot of companies that want to do good in the world. They want to bring people together. And I think all of this allows that. And then being able to do all those comments and see all of that, it just, it. It's the whole circle. It's the whole package, oh, it is. Yeah.

  Success Stories in Crowdfunding

  There's so many stories of issuers, entrepreneurs that have raised money from the crowd. I was just talking to a woman who started a company that's got $63 million in revenue now. She started with nothing crowdfunded it. And VCs came in and they're like, we want to buy out the the early stage investors.

  And she says, okay, as long as you are fair to them. And so they had this conversation and then they thought, you know what? They've actually built this business to where it is. Why buy them out now? Like they've done the work that we need them to continue to do, but so you've got these entrepreneurs that do not want to let their crowd down either, and it's fascinating to see the dynamics of that taking place.

  Absolutely. I could absolutely see that. Again, it's not just the one person or the bank or the people at Goldman Sachs. It's a whole crowd of people that could go on social media and trash talk you or whatever it is, that you're worried about or that you care about. So I think this is wonderful and I'm glad that you're out here talking about this because I have often wondered why isn't it more popular?

  It's there. The Reg D, stuff for accredited investors and then they have the little sliver of things that aren't for accredited investors, but it's time consuming and expensive to do. You don't see a lot of companies doing it. And so I think something like this would be a good option.

  Cost and Process of Crowdfunding vs. Reg D Private Placements

  And so is this, is crowdfunding generally as an offering, is it cheaper to crowdfund than it is to do the Reg D private placements? I don't know if I know the true answer to that, only because I think a lot of venture capitalists want you to have an audit and that's gonna cost money. In a crowdfunding offering, an investment crowdfunding offering, you have to put a video together, okay.

  That's gonna cost money. You need to make sure that your marketing material is so you're doing more on the marketing end than you are in the paperwork end. Yeah. We've done, we did a research report analyzing the costs that people spent outside of the fee that you pay for the, the transaction fee on the each investment.

  And it was about 7% of the raise is what you're gonna pay in terms of fees to put, to get it to go live. So keep that in mind. The bigger that you are, of course you can spread those costs over a wider net. But the smaller you are, it could cost a lot. I don't think that's that expensive.

  And some of the Reg D private placements, 7% is just what you pay to a company to have it on their platform this is 7% in addition to the the probably 7% you're gonna pay the platform itself. Okay. All right. And if someone wants. To raise money this way.

  How to Get Started with Crowdfunding

  I know this wasn't what you exactly, but if somebody had a company and they wanted to just explore the crowdfunding, would they just go to Wefunder and then they would be able, or is someone like that and they'd be able to point 'em in the right direction?

  Or is you go to a lawyer first or. We did write a book. Investors. Yes. Oh, so that's what your book is about, is how to do it. Yeah. If you like. This is a very deep analytical dive into the world of investment crowdfunding. If you want to raise money, we've got a chapter that's in there.

  Totally data driven on what we've seen in the most successful offerings that have raised the most money. And and if you're investor in there, we have a whole chapter in there on what you should look for in these companies. So I would tell people, spend your time learning about what's happening in the marketplace before you actually, put one of these offerings together.

  Because you can't just throw something up, you can't throw a net out there and expect, all this money to come in. The very first thing you need to do even before if you're thinking about this, is consider who's my crowd? How big is it? What have I done in terms of social media awareness, blogging, educating people about the problem that our company solves.

  That's, you have to build that community before you crowdfund, right? So it's a lot, it is a lot like marketing. 'Cause you're finding what, who your ideal customer is and you know that, that sort of thing. Oh yeah. Yeah. Oh yeah. Okay. Whole marketing exercise. And then where is your book?

  Your, is your book on Amazon and all the places? Amazon, Barnes and Noble. You can find out about our book and everything in D three VVC and everything on emer book.com. Okay. And then on D three vc, you analyze all these crowd funds and then you invest in some of these co companies, right?

  And so people can also invest in your fund that then invests in how many hundreds of these other companies or. Exactly. Okay, think about it this way in April, at the end of April, there were 650 active deals. Imagine if you're an investor and you're like, okay, where do I start? You sit in front of your computer, it's overload like, by the way, whose time to do that?

  So AI has time to do it. Ai, yeah, exactly. But we thought, built the algorithm. Let it feed us the results. Why don't we make our own investment decisions based on what we find and people can invest in our fund. That way they can diversify in this, in a basket of opportunities that we are investing in and they can benefit it from it.

  And, some of our early results, and we've only been at this for, 10 months, is, we're seeing a 1.47% return because going back to what I was telling you. A lot of these companies are doing these small rounds of financing, showing valuation increases. And it seems to be our algorithm and our team are really picking companies that are going on for those following rounds.

  Oh, that's wonderful. Okay. So there's multiple ways. You've got your book that can teach people how to fundraise, right? Or even how to invest. So if you wanna get to know crowdfunding and what you might need to invest in, or they can have you do the work and just invest in your fund at D three vc.

  That is correct. Okay. All right.

  Conclusion and Final Thoughts

  Well you guys Woody's book is called Investomers and this has been so enlightening and I'll tell you, I gotta thank you again. I have to thank you again for getting this leg legisl legislation through. I was so excited about it when it came through, and I'm just really believe that we're better when we're together.

  Just in general in people, our ideas and then the crowdfunding, it's not only the money that's coming together, but it's the ideas and the social media and the talking, your network. And I just don't know how things can fail when you're bringing a bunch of people together in one energy or spirit, kind of thing.

  I am, listen, I created the lemonade, so I'm fully have drunk the lemonade, but. I firmly believe that the future unicorns the future. Facebooks the future. Googles are starting in this data set right now. This is where, this is the pond. So if you're interested in who are these companies and where they're gonna be, the.

  Pay attention to what's happening in the space. 'cause it is evolving rapidly and it's fascinating. Yeah. I believe it. Wow. Thank you so much for all of this information. And thank you for sharing your book and your company and you got a lot going on and I am interested to read your book. I'm absolutely gonna pick up your book and read it.

  And thank you for taking the time to speak with us. You guys, I'm gonna have everything about Woody in the show notes about his. Book his YouTube channel, how to learn more about his company. I'll have all of that in the show notes. If you have any questions feel free to contact me or Woody or whoever you need to get out there to get started with some of your crowdfunding and get out of the stock market and into some things that you wanna or interested in.

  That's the way I put it. Anyway, Woody, how do you put it? I think I, I couldn't have said it any better. Okay. That's how I talk about it. Thanks again for being on you guys. Thank you so much for listening. Let me know if you have any questions and I hope you have a wonderful day. Thank you for listening to The Unconventional Investor Podcast.

  I hope you feel more confident in how you can grow your wealth using the strategies I shared in this episode. If you're ready to take the next step in diversifying your portfolio outside the stock market with alternative investments, head to me financial.net/contact us to book a 15 minute consult call with me.

  Let's discuss how we can work together to achieve your financial goals. Until then, I'll see you on the next episode.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

I think it's time we rethink our portfolios, especially from that 60/40 recommendation of the past. In this episode, I talk about why it’s time to add 20-30% in alternative investments—think real estate, lending funds, and even franchises—to balance your growth and give you more control. 

Diversifying outside just stocks and bonds can help you sleep better at night and potentially boost your returns. I also share how to use self-directed IRAs and why a Roth IRA should be top of mind. 

3 takeaways from this episode:

• Modern Portfolio Mix: The classic 60/40 (stocks/bonds) split is making changing for a more diversified mix—what Michelle calls the “50/30/20” model: 50% stocks, 30% bonds, and 20% alternatives. 

• Strength of Alternatives: Michelle sees alternative investments (like lending funds, real estate, and franchises) not just as a buffer from market volatility, but also as potential replacements for part of the bond allocation. 

• Roth IRA Strategy: I stress the importance of the Roth IRA and why you should keep it top of mind in your retirement planning. Consider a backdoor Roth IRA.

Links:

Take the quiz - How Alternative Assets Can Fit in Your Portfolio

• Transcript

  Introduction to the Unconventional Investor Podcast

  Welcome to the Unconventional Investor Podcast. I'm your host, Michelle Moses, certified financial planner, licensed realtor, and founder of ME Financial. If you're an accredited investor feeling overwhelmed by managing your portfolio and looking for alternative investment strategies that go beyond the traditional stock market, you're in the right place.

  Let's head into today's episode so you can start taking control of your financial future. Hello everyone and thank you so much for tuning in. Today is gonna be a solo show with just me.

  The New Portfolio Allocation Strategy

  I want to talk about something that's been coming up in the news and that is very pertinent to what I talk about is a new way to think about how you should allocate your portfolio.

  And I'm really glad I saw this in the news because it shows me that I'm also on the right path, and this is what I've been preaching for years about alternative investments. And it's the whole, you see all these articles on like money and. Whatever, all the, Yahoo, all those places and they talk about how you should have your portfolio or whether you should take 3% retirement and that kind of stuff that you I see it all the time.

  And they used to say it was like a 60 40, 60% stock, 40% bonds, and now they're saying that you should have at least 20% in alternatives. Which is what I have been talking about people. I have been talking about having some of your money in alternatives so that you do not have to ride the waves of the ups and downs of the stock market.

  So I could not agree with this more. So the adage is that it's 50% stocks. 30% bonds and 20% alternative investments. I think if you're really into alternatives, I don't see any reason going up to 30% is not a big deal. I think with alternatives, which you have to deal with more so and think about is liquidity.

  And if you've been listening to some of my episodes, there are some alternatives that mostly the lending funds that have, I wouldn't say high liquidity, but you would be able to get your money out after a year, no problem. So there are some. Options in there that I think would be good. And I do think that some of them are good options for replacing your bond por your, the bond portion of your portfolio.

  And they even say that in some of the episodes, but it is really the lending ones. That I think could possibly replace some of the bonds in your portfolio if you wanted to. And there are some I just did an episode with F Shares, which is investing in franchises and I wanna do more episodes about crowdfunding.

  I do think that's gonna get bigger and, I don't. I agree with the accredited investor standpoint that you do need to be accredited investor to invest in some of these things, but it also keeps back some people that are just stuck in stocks and bonds and they would like to invest in some other things.

  The franchises would, are allowing people to. To do that. But anyway, if you can't, if you're not an accredited investor and you want to do alternative investments, there are some things that you can do If there's some mutual funds and ETFs out there that you could diversify into.

  Real Estate and Diversification Benefits

  The point is it could also be real estate. I guess you could look up a real estate investment trust and R-E-I-T-A reit. And I do think that al having alternatives in your portfolio, it gives you, I. A sense of control. And I think the more that you diversify outside of the traditional stocks and bonds, it's gonna help you feel better and to, be able to sleep at night.

  Really, you're not gonna be worried about the stock market going up and down so much. And I find that's what people, you don't have any control over it. And so it is very stressful and. I could think of nothing more stressful than to have all of my investments in just the stock and bond market because I feel like there's just no control over that.

  And it's not to say that I. I am in control of these businesses that I invest in. It's just that I understand them more, or I have chosen them, for their management of these hotels. I have chosen them for the management of, whatever they're managing of that apartment building or if it's a data center.

  And so you're just more interested in getting the newsletters and seeing what's going on rather than it's just this nebulous, big, huge swath of stocks in a mutual fund. So I think people are always surprised that I'm a financial advisor and that I don't love the stock market. I think that it is necessary to grow your your wealth.

  And I think that's just an option that you have. But I don't think it's something that you need to spend a ton of time on researching. Like people, it cracks me up because people are like, did you see the market today? And I'm like, yeah, no, I didn't. Ha, because I am planning people's lives. I am putting together all of the pieces.

  And then you let that thing, which is the stock market, go do its thing and it's going to behave like it's going to behave. I'm not saying you shouldn't look at it, but it's gonna behave the way that it's gonna behave. And if you invested the way that you. Short term, long term, I'm trying to say, growth, that sort of thing, and the way that aligns with you, then you should just let it ride.

  And I just think that the media has not done us any favors by. Making people think that they need to research all of these different stocks, or that they need to know exactly what is, in their portfolio. I just don't think that you're gonna understand it. I'm not trying to put people down or anything, but it's it's so super complicated and unless it's gonna be your hobby, that's something that you wanna look at all the time.

  I think you should just get some good ETFs or good mutual funds and just. Keep saving in it in your 401k because the stock market is where you have to invest in, your 401k. So let's pretend that you just have a 401k and that's it, and it's all in one big pile, and you wanna diversify into alternatives.

  If you did wanna do that, most 4 0 1 ks will allow you to take out a portion of your. Balance and move it over into an IRA. So you could move it into an IRA and then you could invest in alternatives, but you are going to wanna keep them like in separate accounts so that you can see the separate returns.

  And most of the time, if you're doing an alternative investment in an IRA. You are going to you're gonna need to do in a self-directed IRA, which of course I've done another podcast on if you want to listen to it. And I do need to take this time just to plug the Roth IRA. I want to remind you that with the secure act that was passed in 2018, I believe that the Roth IRA is king.

  Now, you do not want to max out your IRAs and your 4 0 1 Ks and all of that because when you pass your. Kids or whoever inherits your money that is not a spouse. If they are 10 years younger than you and you put them as a beneficiary, they're gonna have to take out all of that money within 10 years, and that is a huge.

  Tax deficiency. And so what you really wanna focus on is getting your Roth IRA up. And so I wanna just take this time to plug it, continue to plug it that if you cannot do a Roth IRA, I want you to do a backdoor Roth IRA and everyone is eligible to do a back backdoor Roth IRA as long as you have the cash to do it.

  Again, I have another podcast about that if you would like to do it and I can. I can tag it in the show notes. So I'm just that little thing there. And so what my plan is, and so I'm going to, so you have your 50, your 30, and your 20% in the alternatives.

  Personal Investment Plans and Client Experiences

  My idea is that when I get closer to retirement, I would like to put an alternative that pays monthly or quarterly income.

  Out of my Roth IRA, because then that income is going to be tax free. So this is my plan for my Roth. And so right now I am 49 years old and so I have it more in a growth investment. But my plan when I get closer to retirement is to then switch it to more of an income so that income could then be paying me every month or every quarter, and it would be tax free.

  And so then you have some money coming out of your IRA also. That would be then be taxable. But you don't wanna take out too much out of your taxable accounts at one time because then obviously then you have too much tax. And it kind of messes with your social security and if that's taxable and it gets complicated.

  And so my plan is to have all these different, I'm not gonna call it buckets, but I'm going to, all these different accounts. And I wanna take some outta the IRA, some outta the Roth IRA, and then I could use some of my cash. But that's the goal that you're going for here. But the new portfolio idea is the 50, 30, 20, and I don't even know if you need the 30% if you're young.

  There's a whole school of thought out there that's like, why are you taking, why would you even put money in bonds if you've got the time? The stock market has proven time and time again. That it's going to grow and it's gonna give you the best return. So if you just set it and forget it and just keep investing, you could make that 80% stock and 20% alternatives.

  But I really do think that you need to have some alternatives in there. Just is. Because not so many companies, there aren't as many companies going public, and so it is becoming like a smaller and smaller field of stocks to choose from. And again, I think the diversification is amazing. Some of these alternatives, you're shooting for a 15 to 22 to 25% return on these items.

  They don't work the same way as a stock does. You aren't gonna get the daily valuations and be able to see all the GRA pretty graphs and all of that, but it is going to help your return and it's going to help even it out. So for me, I'm argue, this is me that knows all of this stuff. I have stocks and I have alternative investments.

  I don't do bonds. I do, I have a cash savings, like an emergency savings. And to me that's just. What I would need. I'm not going to go into my bond investments in order to get cash. So I do see the rationale with that, but my job is to work with people so that they can sleep at night. And so we will often put bonds in there so that they don't have to ride the stock market up and down completely, the highs.

  But if you have the stocks, the bonds in there, you are not going to get the highest stocks and you're not gonna get the lowest lows. You're going more like in the middle versus. I feel I'm achieving the same thing with my more like 70% stocks and 30% alternatives. And when I say alternatives, I mean you could be doing real estate.

  I have some clients that they hate the stock market and we just do it for just a little bit. And then they have all like home rental homes and things they love real estate. And. Again, I think another tangent is if you don't like the stock market, then I would not invest in it because the people that don't like it, I, they don't it.

  It's incredible. They just don't make money or they don't make a lot of money, and they make a ton of money in real estate because they like it. They're interested in it, they're always looking for things and then we're partnering on it. So whatever you're really interested in, then try to get into that.

  And even if it can't happen right now, it could happen in the future, as you're starting to read about it. Or you could buy some sort of. If there's a derivative stock or mutual fund for everything out there today. So you could at least invest that way and start researching. So anyway I know I've gone off on a lot of little different tangents there, but yeah, your portfolio mix, I think just looking at it from an overview, I think it would be great to to allocate.

  The 20 to 30% into alternatives. And I, my clients love 'em. They love getting the newsletters about these businesses. They love learning about the businesses and what they're all about. And the returns have been great. I'm not saying on all of them. Some of them do go sideways or last a long time.

  But on the whole, I think a lot of them are really great. Yeah, the new portfolio mix is now 50, 30, 20. But mine is 70 30, but I just do 30% in alternatives. I hope this helps. I know this is a short one and just a little tidbit of how I want you to start thinking about the, your retirement structure of your accounts and what the investments are inside of them.

  If you have any questions, you're welcome to call me. I have a link on my website that's for a free 15 minute consult. You're, we can just chat a little bit about what you need, see if it's a good. A good match. And I also have a quiz on there about how alternatives can fit into your portfolio and so it divides it up into income, into growth and, mixed use and stuff like that.

  So anyway let me know if you have any questions and thank you so much for listening you guys. I hope you have a wonderful day. Thank you for listening to the Unconventional Investor Podcast. I hope you feel more confident in how you can grow your wealth using the strategies I shared in this episode.

  If you're ready to take the next step in diversifying your portfolio outside the stock market with alternative investments, head to me financial.net/contact us to book a 15 minute consult call with me. Let's discuss how we can work together to achieve your financial goals. Until then, I'll see you on the next episode.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

If you’re interested in multifamily real estate investing with a manager who truly does things differently, this one’s worth your time! There are HUNDREDS of multifamily (apts) investors out there, but this one stands out.

Matt Incitti from Hamilton Point joins us to share what makes Hamilton Point special. Key takeaways:

• Ethics and Alignment Matter
  Hamilton Point stands out in the crowded multifamily space for their strong ethical track record and investment alignment with investors. The founders and team invest alongside clients—on the same terms—which means their interests are directly aligned with investor outcomes.

• Disciplined, Nimble Strategy
  Instead of chasing huge fund sizes, Hamilton Point maintains disciplined fund growth and prioritizes quality over quantity. Matt shared that their current focus is on buying newer multifamily properties from distressed builders—adapting to market cycles rather than forcing growth, which has helped them consistently deliver solid performance.

• Clear Communication & Operational Excellence
  Transparency and communication are big differentiators. Investors receive quarterly updates and timely tax documents—something that’s surprisingly rare in the private equity space. Hamilton Point’s focus on reporting, responsiveness, and investor experience helps build long-term trust.

Links:

If you’re exploring alternative investments, it’s crucial to work with partners who have a proven, ethical approach—and who treat your money like their own. Contact Hamilton Point - www.hamiltonpointinv.com

• Transcript

  Introduction to the Unconventional Investor Podcast

  Welcome to the Unconventional Investor Podcast. I'm your host, Michelle Moses, certified financial planner, licensed realtor, and founder of ME Financial. If you're an accredited investor feeling overwhelmed by managing your portfolio and looking for alternative investment strategies that go beyond the traditional stock market, you're in the right place.

  Let's head into today's episode so you can start taking control of your financial future.

  Overview of Multifamily Investments

  Hello everyone and thank you so much for tuning in. Today we are going to be talking about a multifamily investment and I'm having them on here for a special reason because right now in the industry you could throw a rock or whatever that saying is, and you will hit someone that is doing multifamily, which is apartment.

  We in any city that you're in, you are gonna see what these huge apartment buildings going up because we are having some housing issues as everybody knows. But I am having Hamilton point on today because they really stood out when I went to a conference and when we had our little discussions when it's basically when everybody leaves and then we can talk about them behind their back, even though they know that we're doing it.

  Hamilton Point had tons of people from the audience. Stand up and tell everyone how ethical they were, and I'll get into the details, but they had nothing but really great things to say about them. So I actually reached out to Hamilton Point so that I could get on their platform and and all of that.

  Long story short, today to talk about Hamilton Point, we have Matt Incitti. To talk to us and he is the Vice President of Sales and marketing for Hamilton Point Investments where he is responsible for establishing and maintaining relationships with registered investment advisors like myself and family offices.

  Hamilton Point Investments is a realist. State private equity investment company that owns and manages multi-family apartments, and it was founded in 2009 and it has acquired more than 150 properties and over $3.8 billion since inception. So Matt, thank you so much for joining us. Thank you for having me, Michelle.

  Appreciate the kind words. Yes. As I was saying, you guys do multifamily, so why don't we just start out with kind of an overview of what you guys do and anything that makes you stand out from the crowd. Yeah, absolutely. Thank you for that. Yeah, we're a little bit different than a lot of multi-family managers out there.

  Certainly. Most folks would say that, but we're different in, first off, where our headquarters is, where home office, home base is an old Lime Connecticut, a small kind of seaboard town on the Long Island Sound in Connecticut. There's just a several office buildings and we own one of 'em. It's a little bit unique in that nature.

  Started as you mentioned in oh nine by Matt Sharp and Dave Kelsey, who started investing in their own accounts and then ultimately formed this, Hamilton Point Investments in 2 0 0 9. What also makes us a bit unique and Stand Out is our track record. We've been doing this since oh nine in a series of funds starting with No Surprise Fund one launched in 2010.

  We're now in fund 14, and we have a lot of folks that continue to work with us because of the things we've been able to do. Performance, as you mentioned, ethics, et cetera, operations, and just a pleasure to work with is what I've heard. That's also what people said. Yes. A pleasure to work with.

  So are you the service business, right? You are. So are you guys building the apartments from the ground up or are you buying them distressed or what is. The main focus? Absolutely. Great question. So we are not builders developers but we are vertically integrated in the sense that we have our own property management, Hamilton Point, property management.

  So we are buying resale and ultimately doing some value add. In other words, fixing 'em up if necessary. Over our history 15 plus years, naturally there's been different iterations of our funds and different opportunities at different points in the cycle. So some funds have been more heavy value add, which means just essentially, larger projects, others are more light value add and just fixing.

  Cosmetic things and perhaps ripping out the carpet and painting the walls and increasing rents if we can. What we are seeing today fund 14 and just in the general market sense. Is opportunities to buy from, we call it distressed sellers. So these are builders who've been building, developing over the last couple of years.

  It takes several years to permit these properties, these assets, and then ultimately about two years, give or take, to build a conventional, multifamily suburban asset. And then ultimately there's leasing up and trying to bring in renters in a very different environment than when they started building.

  So there's a lot of supply in, in markets. And then also as it's been well documented, the capital markets is different, right? Interest rates have virtually doubled since that time. A lot of them do have, variable rate construction loans. And so now they're stressing out because they've got some high rates that they need to pay.

  That's exactly right. Yep. And it's interesting, so you're trying to bring in tenants all while you have these looming debt payments, and you're looking for ultimately some permanent fixed financing, right? From agency financing, we call it, Fannie Mae and Freddie Mac. Which you need to be stabilized which means you need to be at least at 90% occupancy.

  To obtain that type of financing, generally speaking, so you know, if it's taking longer to lease up, they can't get to that point and therefore there's that kind of unknown of what they're gonna pay under their debt. So they're looking to unload. They've made a development fee throughout and they've made a lot of money and they've done very well over the last several years because there is a lot of demand for multifamily, which continues to occur.

  So and a lot of times they'll come to you when they haven't had it up to 90% leased. But it's, it might be done exactly right. Okay. Yep. So we'll buy it. Generally we're looking at new builds 23, 24, again, for this iteration, what this market opportunity presents itself and perhaps put on a, some bridge financing, right?

  So something in lieu of getting to stabilization, bringing enough tenants in. And a lot of that is just to do with some timing. We think that. It's essentially an opportunity to potentially take advantage of distressed sellers, but also robust demand. We're seeing record demand and terminology in the space is absorption, so essentially renters renting departments.

  And ultimately we expect that to continue because. There is still supply issues despite the fact that there's been significant supply in these markets. We're still underserved. And you mentioned it, in your opening comments, the affordability, right? Renting is significantly cheaper than owning.

  Mortgage rates and otherwise. We see the opportunity continue. Yeah. And so are you saying some of your other funds have been more distressed properties and so right now what you're seeing is that you're buying new builds from the builders, basically. And that's the opportunity right now.

  But maybe fund 10 was more about, distressed properties or it the flavor changes. Absolutely right. Okay. Yeah, so our first couple of funds, think about the vintages, like 2010 was our first fund really coming out of the global financial system. Yeah, you probably had a lot. Yeah, a lot of distressed.

  Exactly right. So those were distressed assets, right? Receivership, bankruptcy, et cetera. And then it shifted to a more of a value add approach. Buying 20, 30-year-old product or assets and doing a value add component, fixing 'em up, and then charging, of course, according rent or appropriate rents.

  Excuse me. Okay. That's just changed. And like I said, it's just been in this fun kind of format and we've been comfortable. And where, what locations are you guys normally purchasing your properties? Yeah, we've been, national just domestic, no international exposure. But specifically today we're looking at, we look at high growth markets, no surprise, but high population growth, high job growth, employment growth in the south, southeastern markets primarily, or the Sunbelt.

  Texas, Florida, the Carolinas, we see some opportunity. It's also where there's been a lot of building, but obviously we can take advantage of that. Okay. And I feel like that's where, that's where everybody's moving. So if you guys listen to the podcast, it's almost what everybody says about housing is the Sunbelt states.

  It's 'cause where every, that's where everybody is moving. I'll be interested to see if that changes in the future. If it just gets too. Full or something for people, 'cause I know that's why I moved to Arizona was it was leading in April and I was like, I just can't do this anymore. So I moved out.

  Absolutely. Yeah. Okay. So is how long do your funds normally is, has this fund been open for a while? Do you normally keep 'em open for a couple years? What's the kind of timeline on things? Yeah, absolutely. Obviously all this is potentially subject to change, but typically we will raise one fund in about one year.

  Okay. Then the expectation after the fundraising is four to six years for an exit. Historically we've been able to do it actually within five years. All of our full cycle funds, we call it, essentially investors put money to work. We go out and buy apartments. And then we ultimately deliver that money plus a preferred return, plus essentially extra returns and income back to investors.

  And we've been able to do that in that timeframe. And I think that's important. You guys you don't realize that a lot of people will say four to six years and then it ends up being 10 because of COVID and like it. It really is important when you're looking at people that are, you're going to be investing with, have they been able to actually close their fund?

  Because there's a lot of funds out there where it's like they've got this one piece of real estate that they just can't get rid of, or they don't know what to, there's some issue with it. And so then the fund has. To stay open and it, you have to do lots of fees of lawyers' fees and CPA fees, all of that to keep this thing open and it really erodes your return.

  And so having people that have actually had a track record and closing the funds and obviously so that you can see what return they've made, but re the actual closing of the fund has become more and more important to me anyway, as the years have gone on. So very well said. Absolutely. Yeah. Yeah.

  The ability to raise capital, do what you say you're gonna do, and then ultimately to your point Yeah. Exit. Yeah. And not have it drag out forever. 'cause I do have a couple that are dragging out forever and my clients are like, what is going on? I'm like, I know it was COVID and now we got these interest rates and now we got terrorists.

  And it's just yeah. Yeah. So not sometimes, not some good situations. Okay.

  Fund Performance and Returns

  So can you tell us a little bit about your historical returns that you've seen from some of the funds? Or do you I wouldn't, I don't know that I'd go back all the way to like 2008, but maybe in the last five years.

  Yeah, absolutely. So obviously past performance is not indicative of future results, but we do print in our private placement memorandum, the offering documents for the funds a. Specific to the current one and prior, last couple of funds, a 14% expected IRR internal rate of return. Again, that's the expectation we've delivered north of that.

  Historically we've delivered north of 18% weighted IRRs for all of our full cycle offerings. Start to finish, as I mentioned. So we've done well, and certainly expect that to, to continue. But we do print the expected IRRs. We do also pay some income as well, and that does bake into that.

  So there is some current income. So you got some current income that people can expect as the, as when they're invested. And then they'll get obviously large chunks as the properties are sold. Absolutely. Yeah. Okay. Yeah. So what we'll do is typically current fund and last couple, as I mentioned earlier, eight to 12 apartments in a particular fund.

  We're looking at. 200 million, eight to 12 apartment communities buying about 400, four $50 million of real estate all in with leverage. And then ultimately paying income along the way that's paid quarterly. And then of course looking to, sell those assets along the way so it'll be special cash distributions, if and when we sell those assets.

  And that'll be delivered back to the investors in the form of, payments as you mentioned, lump sum. And then ultimately. Okay. We hope to disolve it. And do you have a preferred return or is it just your, you've, your what am I trying Your 14% IRR we do, yeah, we do. Okay. We have a single hurdle, so we have a preferred return of 6%.

  Okay. So at 6% clients. Should expect that. And then after that, any, appreciate or any profits, excuse me, above that 6% return for the investor are split 75% to the investor, 25% to Hamilton Point. So that incentivizes us, of course, to produce. Real results. And then ultimately it gives the investors the opportunity to, participate in that as well.

  And then of course realize those gains. And this is another reason that I called you, is because in the closed door session what we talk about a lot is returns obviously, but the management of it and the management of Hamilton Point invests alongside their investors in all of the funds, correct.

  That is correct. Yeah. And so their interests are very much aligned with the investors. And you guys know how much I talk about this. I talk about this all the time, Matt, if you listen to my podcast. That I really think that there needs to be some skin in the game with. Some of the managers. And so Hamilton Point stood out in the fees that they charge in that, that sometimes they will forego charging a fee or they'll get their money in another way so that the investor as whole or that they're making a better rate of return and they're also invested alongside the investor.

  So they really stand out in their integrity in. Making sure that the investor is happy, that they're whole and that they're making a good rate of return, was the way that it was put in the meeting. Can you ex, do you wanna expand on that at all? Absolutely. Very well said. Are you just happy that people are talking behind your back about those nice things?

  I, yes. I'm very happy to hear that. Especially in that light. No it's true. They invest Matt Sharp and Dave Kelsey, the principals managing principals, co-founders Hamilton Point, invest alongside at the same terms as friends and family. So they're, paying the same fees as friends and family employees, et cetera.

  And then ultimately they are incentivized on the preferred return. And you even mentioned other fees, perhaps. Not for this, but it's there. Certain fees are subordinate to an investor's return and things like that. And the last point I'd make is it's been consistent with our funds.

  These funds do have fees, right? Of course. They're professionally managed of course, but at the same time we do, market them, at market or below market in fees. And I think we've been rewarded for that with re repeat, investors and people, folks that. I guess speak highly of us, so that's great to hear.

  And you guys seem to stay in your lane. 'Cause most of the time, and we were talking before we got started, but most of the time what will happen is that people have success with one fund. And then they'll say, okay, we raised, I don't, our first one was only 10 million, and so now we're gonna go to 15, then we're gonna go 25 and they'll just continue to go higher and higher.

  And Hamilton point, you guys stay in your lane, as in you're keeping your funds about the same. Size correct. So that you can deploy it and you're not having to deploy it into things that are bad investments. Absolutely. That is something that, could get you in trouble potentially.

  Yes. I appreciate you mentioning that. Yeah. We've stuck to our, comfortable size, how much money can do we feel comfortable putting to work in a given year. Also, of course, how much money we can raise within a given period of time. So we have that track record of being able to do that.

  And I think that has a lot to do with just, with the success we've had. Yeah it's potentially easier, easy to go out and say we've had success doing this, let's. Let's grow the size of the offerings. Let's do, an evergreen structure. Nothing wrong with that at all.

  It's just that's not what Hamilton Point, I always say, not better or worse, just different. What Hamilton Point is comfortable doing and has done well, in my opinion, it is better. You can be all. It's not better or worse. It, because I think if you're gonna make more, I like the way that you guys are doing it because from my perspective is that the ones, the big behemoth.

  That have gotten so big, the return is not there. 'cause there's so many cooks in the kitchen and they are not able to just deploy it into smart investments. They have to deploy the money or they're not gonna make anything. And so it's not always the best investments. And so I think with your size and what you guys are doing, it's.

  Sometimes the return is higher. This is just from my experience, I'm not saying that yours is definitely, but from my experience is when you constrain that, then you're able to make smart investments and then their return is higher. That's my experience. No, absolutely. So I know you're not legally able to say a bunch of stuff, but I'll give my little 2 cents in there about things.

  I can tell you. We do focus on this particular deal. We do a ton of due diligence. We obviously have a reputation in the market with sellers and lenders. We have investment memos that we publish. We're not buying port, to your point. We're not raising so much money where we have to.

  Put money to work because we're not ing anything on it. And then buying portfolios and things of that nature is just not what we're, we tend to do. And that's certainly the yeah, you're out there finding deals. And that is another thing that I like too, is because you do, on your website it says you do manufactured housing and hotels, but that's not the main thing that you do.

  It's just. That those deals happened to come up and they were great deals. And so you pivoted into those great deals. And so this is my jam is being able to do those types of things. And I think that's what most people want, is they want people that are managing their money as if they would do it.

  When a good deal comes along hey, this isn't normally what we do, but we do know how to do this hotel. Whatever that particular investment happens to be. So I really respect that Also. Absolutely. I appreciate you saying that. Yeah. We want folks to be with us for the long run and have an experience with us and, everything from performance and, quarterly reports that we publish and getting the tax documents out on time, March 15th every year, bar none since inception.

  That operational stuff that we it's important have, get, right? Yeah. It's important. Yeah. Yeah. And I've talked about this before too, as I have some investments. They will literally send an email once a year for a development deal with just a couple pictures and it's you don't even know if they're alive sometimes, or, and so you it, and it doesn't make sense to me because you have these investors and they're already warm leads.

  Why wouldn't you want them to just reinvest with you? So give them a good rate of return a great communication. And then they'll easily want to reinvest with you. That's my opinion and how I would see the marketing of it, but that's not how everybody does things. So it's good to hear that you guys do that.

  Okay.

  Investment Details and Closing Remarks

  And so can we just go over, wrap it up with a little, so your minimums or it's for accredited investors, and are there any other details that we need to know about the fund? Correct. Yeah. Credit investors, it's a regulation D offering private placement. There is no liquidity of a small kind of percentage, but virtually, for conversation purposes, there is no liquidity.

  So four to six years is the expected timeframe of it with current income along the way, paid quarterly. We, we have it's the fund 14 is the current fund in the marketplace. We started raising money toward the tail end of last summer. We expect to be wrapped up by late part of this summer.

  And you'll take IRA do you do IRA money. And then the minimum is 50,000, correct? Yes. Okay. Yeah. See, I'm sorry, you did ask that question. $50,000 minimum investment for for 10 units. They're at 5,000 a unit. And then ultimately, it's, it's every two weeks we take in new investments.

  Okay. All right. Wonderful. You guys, I hope you learned something about Hamilton Point and even just multifamily in general. Because there's lots of different funds that do multifamily but they obviously operate very differently. And I know it can get overwhelming and that's why I'm here, hopefully as.

  To find some diamonds in the rough. So Matt, thank you so much for being on. I always love talking to you. You're a very nice guy and you put this in great layman's terms for my listeners. I appreciate it. So thanks for being on and you guys, if you have any questions, I'm gonna have all the Hamilton points information in the show notes.

  You can always call me. You can reach out to Matt, he's on their website. And let us know if you have any questions. So thank you so much for being on. Thank you for listening, and I hope you guys have a wonderful day. Thank you for listening to the Unconventional Investor Podcast. I hope you feel more confident in how you can grow your wealth using the strategies I shared in this episode.

  If you're ready to take the next step in diversifying your portfolio outside the stock market with alternative investments, head to me financial.net/contact us to book a 15 minute consult call with me. Let's discuss how we can work together to achieve your financial goals. Until then, I'll see you on the next episode.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

If you're curious about how farmland can diversify your portfolio, act as an inflation hedge, and support a healthier planet, you’ll find plenty in this episode. Michelle is joined by Chris Zuehlsdorff, CEO of Iroquois Valley Farmland REIT.

Iroquois Valley supports experienced organic farmers through long-term leases and mortgage financing, helping to preserve farmland and build a more resilient food system.

Key takeaways:

• Farmland as a Diversifier & Inflation Hedge: Investing in organic farmland provides real asset exposure that can balance a traditional 60:40 portfolio and help hedge against inflation.

• Accessible, Values-Driven Impact Investing: Iroquois Valley makes it possible for both accredited AND non-accredited investors (minimum $10k) to support organic farmers. (Its SEC-registered Reg A structure and B Corp certification.)

• Support the Next Generation of Farmers: The REIT’s portfolio skews younger, focusing on supporting millennial farmers to scale their sustainable businesses.

Links:

If you’re interested in learning more about how to align your investments with your values, or want exposure to organic farmland, check out the full episode or visit iroquoisvalley.com

• Transcript

  Introduction to the Unconventional Investor Podcast

  Welcome to the Unconventional Investor Podcast. I'm your host, Michelle Moses, certified financial planner, licensed realtor, and founder of ME Financial. If you're an accredited investor feeling overwhelmed by managing your portfolio and looking for alternative investment strategies that go beyond the traditional stock market, you're in the right place.

  Let's head into today's episode so you can start taking control of your financial future.

  Exciting Guest: Iroquois Valley Farmland CEO Chris Zuehlsdorff

  Hello everyone and thank you so much for tuning in. I am excited about this one. This one is something that I have been watching. We're gonna have Iroquois Valley farmland today, and we're gonna have the CEO Chris Zuehlsdorff talking with us.

  I'm excited to have this one on because a lot of this stuff that I talk about when it comes to alternative investments is not. So green and sustainable, and I have been watching Iroquois Valley for, I wanna say seven or eight years and watching what they're doing and looking at their updates and so they're finally on the podcast, so yay.

  So I have Chris Zuehlsdorff, who is the CEO of Iroquois Valley Farmland REIT here, and he is a farmland. It is a. I'm sorry, I'm tripping over myself. He's a farmland investment company focused on organic regenerative agriculture, and the company provides long-term leases and financing to organic farmers and works to build a more resilient food system by preserving farmland for organic production.

  So Chris, thank you for being on. Thank you for having me. It's great to be here, Michelle. Yeah, I I don't think that people really know that this type of investment exists. I get a lot of calls and people say, I wanna buy some farmland. We gotta get into this. This is it's something that people want.

  People obviously want to buy organic. Just look at Costco, right? I mean it, the organic sells out and that's what people want. They want to be healthier. So I think it's wonderful that you guys, what you're doing. And so can we just start out with like how long Iroquois has been around and how it got started?

  And then I really wanna get into your story 'cause your story is also like very interesting. Yeah.

  The Origin Story of Iroquois Valley Farmland

  Happy to do that. So Iroquois Valley was founded in 2007 by Dr. Steven Var and David Miller. They were actually college roommates at Loyola Chicago and grew up in the same small town near Kankakee, Illinois.

  Dr. Var was a emergency medicine doctor for nearly 30 years, and Dave Miller spent most of his career in kind of commercial real estate. And they were, I think, having a cup of coffee at, the local IHOP in, in Chicago and began discussing really the kind of the declining patient population that Dr.

  Ard would see in his in his practice in coming through the er. So whether it's the increased prevalence of diabetes and heart disease and cancer and they traced it back to, really chemicals in our food system. And the solution that they came up with was to go out and buy a farm and transition it to organic.

  So we bought one farm, I think in 2007 a second farm in 2009. And then by 2012 they had a small little kind of friends and family investment fund that kind of got got things started. And in 2016 as the company started growing Dr. Ard and Dave Miller converted the company into a real estate investment trust and a public.

  Benefit company, which is a structure that we have in place a they are now in the day-to-day activity that Iroquois Valley. And I was fortunate enough to join the company in 2022 and became CEO in February, 2023. Okay. And then that kind of segues into your history. So let's go start in yours.

  Chris Zuehlsdorff's Journey from Dairy Farm to Finance

  'cause you grew up on a dairy farm, right? That's right. Yeah. Small family dairy farm in Fergus Falls, Minnesota. So west central part of the state, about 500 acres and maybe had a herd of cattle of about eight 80 head or so that we that we milked on the small family farm.

  And then you went into finance, right? And you spent many years in New York in finance. Is that correct? That's correct. Yeah. So I grew up, on the farm in the 1980s and 1990s and, that was the last kind of, let's call it really severe recession and almost depression, farm economy.

  And candidly, in high school, one. You probably get as far away from the family farm as I could. And so I went to St. Ola College down in Northfield, Minnesota to study math and economics. And then after a short career in the Minneapolis area slowly migrated to the east coast, went to graduate school in Pittsburgh, and then yeah, like you said, I spent about.

  Years working in New York City in the more traditional kind of alternative investment space. The company I was with advised kinda high net worth individuals endowments, foundations, and other institutional investors on, alternative investment and kind of hedge fund allocations.

  So we kinda identified and built built portfolios for those types of clients. And I did that for for, yeah, for nearly 20 years until looking to ha get back into agriculture and do something in the next kinda chapter of my career. So you were looking out for, you wanted to do something in agriculture after doing the, all the finance stuff for 20 years.

  Yeah the catalyst was probably twofold. I had gotten involved in a nonprofit in the Hudson Valley of New York Glenwood Center for Regional Food and Farming. And so they had a a working farm a very kinda large successful apprenticeship program where they're training the next generation of of farmers around sustainable farming farming practices.

  And there was a whole kind of suite of programming around convening thought leaders and change makers up and down the Hudson Valley from Albany down to New York City. And so that kind of got me kinda reengaged interested in this space. And what I kept coming back to was how do we mobilize capital?

  How do we get the same type of investors that I'm working with in my day job, so to speak, more interested and passionate about sustainable and regenerative agriculture. And yeah, I, I left in, summer of 2021 from my finance career and really focused on how to have that kind of next next chapter in food and egg agricul.

  Yeah, I can't agree with you more. I, there's so much money out there of, private equity and these funds that if it could be put towards some of these things that people really do want, like organic farming and regenerative farming it. I it's like it could change the world, honestly.

  So I think what you guys are doing is so amazing. And so can we go into how you guys grow, and how, like how the fund kind of works so that, are you attracting farmers? Are they coming to you? Like those sorts of things. Yeah, no, great question. Happy to discuss that.

  So I mentioned that we're a private real estate investment trust and a public benefit corporation. So we're focused on delivering both, financial returns and impact to our to our investors. We use that capital to support farmers transitioning farmland to certified organic production.

  And we do that in partnership with with our farmers. I think our business model is pretty simple. We raise capital from those impact driven investors and we use that capital to provide long-term leases, mortgage financing, and post-investment support. To farmers, they are the ones bringing us the transactions and the deal flow.

  Typically we're not managing the farms ourselves as Quai Valley in a top down way, whether rather we're relying on our farmers who are the best stewards of the land, locally on the ground to to go through that organic organic transition, which is a three year. A three year process.

  And so farmers value our six year kind of long term lease model that we have have in place. So they come to you with a farm already or are some of them looking to get into farming? Almost all of them are successful kind of organic farmers in their own right, and they're looking to grow their business and grow their acreage.

  So we're almost like growth capital or kind of growth equity in a way for farmers that maybe have transitioned 200, 300 acres of farmland to certified organic production and another. 80, 120 acres, in some cases, 240 acres may come available. And we'll help them get tenure and secure that farmland via long-term lease so they can be in growing their business and their their overall portfolio.

  And so does the fund buy the land that they're wanting to expand and then you're leasing it back to them? Or are you giving them loans or, it's a combination. That's right. We, we buy the farmland and then lease it back to the farmer. That's about 80% of our portfolio. The other 20% of the portfolio is is mortgage financing.

  That got started really to support farmers in some of the anti-corporate farming states. In the, I would say the west of the Mississippi. River. So states like Iowa, Minnesota, the Dakotas Nebraska, where corporations are limited in owning owning farmland.

  The bulk of our portfolio is in Illinois and Indiana. So 80% of our portfolio is owned farmland, under that purchase lease model that I just described. And then another 20% is mortgage mortgage financing. So today our portfolio is about $125 million. We manage about 37,000 acres in partnership with 70 farmers in 20 states.

  Wow. And is that all in one fund? It is all in The one fund. Yep. It's all in the reit. Yeah. That is really interesting. And so most of the time they're coming to you saying, okay, I already am an organic farmer. I already know. So they know the basics of organic farming. And so is that kind of what you guys are looking for?

  Is that they already have some knowledge of farming?

  Investment Structure and Farmer Support

  'cause you're not into that like education piece of it. That's right. Yeah. Farming's is hard and in its own right. And organic, if farming is even harder, so like I Ideal farmer, I. Our ideal customer has gone through that transition hopefully at least once.

  They've got a history, an operating history that we can now look at a kind of financial history that we can look at and underwrite. Ideally they've got their own network in place. They have their own markets already established. And we can begin to help them grow and and build their build their business.

  We also have our own network of farmers technical assistance providers and other kind of financial partners that we can help connect them with and further, further their business as well. It's when I mentioned some of the post-investment support that we can provide, but ideally farmers are bringing some of that.

  Network to the table and mentorship to the table. Already. Yeah. And I wouldn't think that you would be the education piece of it, but just from the emails and things that I get from you, there is so much education about what. Regenerative and organic farming and highlighting some of these farmers that, I guess I assumed that you guys were educating some of these people because you do such a good job of, just with your communications and to investors and to the public.

  Yeah. And there are a lot of great organizations out there that are, really kinda leading on that front, on education and technical assistance. And earlier this year we announced the STR strategic partnership with Rodale Institute to really kinda deepen our support of farmers going through the transition.

  There's a few different organizations that we like to work with and put farmers in touch with when it makes sense to do and so what do you mean about transitioning? So if they already have an organic farm and they're looking to purchase like more land, so is do they need the funding from you guys?

  Because you said it takes three years. What does that look like? Is it that it can't, that land can't be farmed and so that's why they need the money from you guys? Or how does, what's the story there? Yeah good question. We're typically buying conventional farmland and then the farmers undertaking that transition to certified organic production.

  And the point of of going from that. Day one to being certified organic and selling your crop under the USDA organic certification is a three year process. And our long-term leases give farmers at le the six year period to undertake that transition. And then in year three, begin selling their production at a organic premium.

  And then. On into the future. So you take a pretty big hit in years one and two, when you're going through the transition, you're you're facing very dramatically lower production, lower yields, and you're selling into conventional markets. And so farmers either need to have, a big pool of acreage to spread that decline in revenue across, they need to have access to, capital, whether that's operating lines of credit.

  Or cash on their balance sheet in order to weather that initial kind of two to three year transition period. And so the typical agriculture finance model is not set up for organic transition. So our leases are attractive to farmers to help them get to get through that transition.

  So basically in those three years they have a lower payment. Is that kind of what it is? Yeah, we have a, there's a base rent that we that we establish with farmers, and then after certification. We have a variable rent component in our leases as well. We share in some of that kind of up upside with with farmers after they get through the the the transition.

  Okay. That's wonderful. Yeah, because I would think it would be difficult to, I was thinking that they couldn't farm on the land at all if they were trying to turn it to organic, but really what they're doing is organic farming, but they can't call it organic because it hasn't been the three years.

  That's correct. Yep. Yeah, it's considered transitional ground and you're selling it into conventional kind of commodity markets. Lower, which is lower prices to begin with. And then you also have lower yields and lower production. 'cause you're not putting any chemicals on there.

  There are very few markets that exist for transitional crop land. That's one area of opportunity, for transitional production. But really that doesn't, that's a very small component of it. Most of it is going into the kind of conventional commodity markets. Okay. And I'm also very surprised by your emails of that.

  The people that are, I feel like from what I see is that a lot of the farmers are young. Is that, are there a lot of young people wanting to get into far, are there newly established farming or and they're wanting to expand? Is that a good, or is that a correct perception that I have from reading everything?

  Yeah. Yeah. Our portfolio very much skews younger, millennial and below. I think the average age of the American farmer is almost 60 years old. The American Farmland Trust has an interesting stat, but they expect 40% of farmland to transition in the next 20 years. And, the next generation of farmers and farm families are at least I would say like organic, curious and interested in, regenerative organic practices and how they can.

  Have a career farming that is free of chemicals and healthy for their kids and their families on on the on the family farm. And so yeah, our portfolio skews skews much younger because of that. Yeah, that was a really interesting stat to me. And then do you, since you said you have most of your farms in Illinois and Indiana, do they like partner?

  Because you'll see sometimes I went to a wine, I think I was on a wine tasting and they had the ducks, going from, and the goats. Change them from different wine, like they would share them all on the, in the different wineries. So do they share any resources, if they're really close together, or do you bring them together in any way?

  Or is it strictly, we're just financing and leasing and that's about it. Yeah, that's a great question. And it's something that we're exploring a little bit more deeply in what we call a building hubs or very like regional groupings of farmers so we can have some more knowledge sharing and more connection.

  There is one of the original farmers that we work with Harold Wilkins and his son Ross Wilkins. Farmed several thousand acres organically in in Illinois. And they've all actually established a a mill for some of their production. And I do believe other organic farmers in the area that we also partner with probably have contracts and supply into that into that mill.

  But there are some opportunities like that, that we're looking to explore more more deeply. Yeah, I think it's really cool when people do that. Like they had the little ducks, and they would take, go from one. Property to the next and all that. I don't know a whole lot about it.

  Obviously I'm very novice in this, but I know more than the average person I guess. So maybe. And so when you're talking about these people that your first investor that kind of brings up, do these people, how long are these, leases and mortgages and all that? Are they in the fund forever or is there a chance for them to pay this off?

  What's their exit strategy? Yeah, the, so the leases, like I said are six year six year in duration, the first part, and then they evergreen renewals every two years thereafter. And then it's after year six that farmers have the ability to repurchase or purchase the farmland from Iroquois Valley.

  Should they should they want to, typically, it's a farmer is kinda making that operating expense or kind of capital expense decision for their business. And, the typically they. Farm land is very profitable 'cause they've gone through a six year, six years of, three years of transition and another three years of certified production.

  They have a very profitable farm and they're happy with our lease payments and our lease structure and they want to keep that operating expense and maybe grow land elsewhere. And so one of the stats I find really interesting is that the repeat investment rate with farmers in our portfolio is extremely high.

  I think, something like 60% of our portfolio as two or more farms with the same the same farmer. And that's them making the, almost the operating expense decision rather than a capital expense decision. And then with the mortgage financing, it's a 10 year a 10 year mortgage term.

  We have five year interest only to help again, get through that kind of transition period. And then a kind of a five year principle plus ization before kind of that. Payment at the end of year 10. So the typical outcome there is farmers will get through their, get, through their transition and look to refinance with a traditional traditional lender.

  Okay. And are the traditional lending rates usually higher than what you guys are charging from the reit? It it, it depends a lot on the interest rate environment. Yeah. I'm sure, to be honest. Yeah. But in the past, has it been.

  When rates are higher, we tend to be a little bit more competitive than when rates are low, just because of the nature of a, kind of our cost of capital. Okay.

  Investor Information and Fund Details

  okay, so now let's switch. So now we know what your fund does. Okay, so everybody is putting money into this large reit, everyone.

  So a REIT is a real estate investment trust. And essentially it's, I describe it as like a mutual fund or everybody pools their money and you are. Dean Iroquois, who is the manager to then manage that money. And they're basically deploying it and then they pay you whatever the rate of return is.

  And so what can you give us the the basics of what your fund pays out and maybe the minimums and things like that? Yeah. So the do you mean like the investment minimums? And the kind of terms of the fund as well. Yep. Yeah. Happy to do that. So we are, I think, unique in the marketplace in that we're also registered with the SEC under a reg a exemption.

  So we can take non-accredited investors as low as $10,000. So we have 950 investors in our, in our fund in our reit today, so as low as $10,000 all the way up to a large family office that has close to $10 million invested with us and everything in between. So we have a very diverse investor base and we are, also given our that our real estate investment trust structure required to pay out about 90% of taxable net income or greater every single year. Investors get the benefit of a small dividend stream from our investment. And then the the long term capital appreciation of of organic farmland that makes up the.

  The return to to investor, which since inception has been just over 9% per per annum. And is that 9% the dividend that they're receiving or you're, that's combined the appreciation with the dividend. 9% total return, and it's driven largely by the kind of capital appreciation of the farmland and the dividend income or current income is a much smaller component of that.

  It's range between half of a percent to sometimes as much as 1% as we grow. We expect our, our, hopefully our dividend yield to increase over over time as we get more scale. Yeah, it's, I've, that's the way that I've pitched it. I've had a couple of investors invest with you and that is the way it's been more of, this is a long-term play of that.

  You, you're gonna wanna appreciation over time of land and if you want to buy some farmland, this is the way to do it. That's the way that I've Yeah. Told them about it. It's, you're not looking for regular income. You're looking to one help out with organic farming and you want the appreciation from the land 'cause they're not making it anymore, and so I really think it's great. I want to circle back to this reg a registration that you guys have. You guys, I think it's really great that you did that. It is. So expensive to do it, and I, the paperwork I hear is about twice as much. And so I really wanna applaud you guys for doing that because it's, it just shows the kind of company that you are.

  'cause I think a lot of companies, they shy away from it just because of the time and energy and resources that it takes. No thank you. It is a significant undertaking and we're, very excited to have as broad and diverse of an investor base as we can. And, the real estate investment trust really a, affords us that semi-permanent capital base, but also with the reg A exemption and being able to take non-accredited investors, extremely proud that we've been able to really democratize access to a diversified portfolio of organic farmland. Yeah, I completely agree. And there's so many of these investments and people that are not accredited investors that come to me wanting to get into some sort of alternative investment. They don't want all their money in the stock market and in bonds and, they're normal things.

  And there's so many things that are shut off to them even though they wanna diversify and invest in something that they're more excited about. So I hats off to you for doing that. I think it. You guys are certified B Corp. You're doing all the right things. So I, you guys really have some values and morals and principles that you seem to follow all the time, and so I just think it's really great that you do that.

  Thank you, Michelle. Yeah. And so is there any exit strategy that investors need to think about with your reit? So if they invest money, do they have to hold it for a certain period of time in your fund or is there anything like that? What is their exit strategy, yeah. When buying equity shares in our reit there's a five year commitment or a five year lockup.

  And then after the end of five years, we offer quarterly liquidity to to investors, subject to a a 6% kind of annual gate. So one, I think one and a half percent per quarter can be redeemed. One of the thing that's very important to us in trying to be values aligned is we never wanna be forced to have to sell a farm out from under a farmer that's invested all that kind of sweat equity into the transition.

  And so this gives us kinda that semi-permanent capital base that I mentioned but yet the ability to provide liquidity to to investors over over time. Yeah, you would never wanna sell. Just because of redemptions. Yeah. To sell a farm if they've been working it and doing all that.

  That sounds terrible. Yeah. You guys, I, it's really easy to invest with Iqua. Their website is set up. You just go to invest and they have the paperwork. I, it is. Super easy again. And Chris, you guys have done a great job with your marketing. Your newsletters are wonderful. And you guys, if you've listened to a lot of my episodes, then you know how important client communication is to me.

  Having skin in the game, having the right principles, all of these. Things and I can attest that the client communications are very good. That your marketing is great. You send out lots of like meetings and all of that. You definitely know what's going on with the fund.

  And so I think that's wonderful that you guys do that. So yeah, thumbs up to you. Thank you. And yeah, shout out to Donna Holmes and Nicole Far and our investor relations and business development team. Yeah, they've done a lot of great work. Yeah. Getting our investor communications where they are today.

  Yeah, no, they do a great job. Is there anything that I'm missing that's a key part of why some people might invest with you or different ways that people use your fund in a creative way? Am I missing anything or do you feel like we've covered. The basics of people wanting to, if they wanted to find out more, then they could contact us or go to your website.

  Yeah. I guess the one thing I would add in is in thinking through how I've seen in I use us in the past is, farmland's very much a real asset. It can provide kinda a strong portfolio diversification and, it can act as an inflation hedge, it can provide current income.

  And so it's I think it's a nice diversifier and kind of a traditional 60 40 portfolio. The other benefit, or I guess maybe convenience that that people like with, with our REIT structure is that we issue 10 90 nines and not K ones. So some clients appreciate that.

  Absolutely that aspect of it as well. Yeah. You are waiting on the K ones 'cause you guys, if you haven't invested in any of these, most of them give what's called K ones, which is. Like you need those to do your taxes and they don't come out until the week before your taxes are due. So a lot of times you have to file an extension.

  So that's what he means by that. It just makes it a lot easier to file your taxes. So totally agree with you. Chris, thank you so much for being on.

  Closing Remarks and Contact Information

  I really think that I thank you for what you're doing for organic farming and I think a lot of people wanna live healthier. With less chemicals.

  Thanks for your time of explaining Iroquois and you guys will have all of Iroquois information in the show notes. Can you tell them what the website is just before we go? Yep. It's iroquois valley.com. A lot of great information about our farmers and our team and our kind of overall investment approach.

  Yes, there's a lot of information and you can just invest, like right there, there's paperwork and all of that. And as he said, you don't have to be an accredited investor, so you don't even need somebody like me to invest in it. You can just go straight to the source. So Chris, again, thank you so much for being on.

  You guys, thank you so much for listening. I appreciate you tuning in and learning about all of these investments. I hope that you found something interesting here and I hope you have a wonderful day. Thank you so much. Thank you for listening to the Unconventional Investor Podcast. I hope you feel more confident in how you can grow your wealth using the strategies I shared in this episode.

  If you're ready to take the next step in diversifying your portfolio outside the stock market with alternative investments, head to me financial.net/contact us to book a 15 minute consult call with me. Let's discuss how we can work together to achieve your financial goals. Until then, I'll see you on the next episode.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

This week we have real estate investor, Jesse Lang on the show to talk about investing in real estate without your own money.

Jesse started her journey accidentally through house hacking, and within just 36 months, she scaled from 11 to 70 rental doors—all without using her own money. Her focus on the BRRRR method (Buy, Renovate, Rent, Refinance, Repeat) is a game-changer for anyone feeling like they can't get into the real estate game.

Here are the biggest takeaways:

• Leverage over Capital

  Jesse uses private lenders and hard money to invest in real estate, allowing her to grow rapidly while offering double-digit returns to her lenders.

• Systems are Scalable

  Standardizing renovations and targeting congruent neighborhoods save her time and make property management much easier. Consistency means faster analysis and fewer issues.The Value of Accountability

• Education and Community Matter

  Jesse didn’t do it alone—masterminds, mentors, and constant learning helped her succeed. She now pays it forward with a “Rentals Made Easy” mastermind and book, breaking down the process for other investors.

Links:

Take the quiz - How Alternative Assets Can Fit in Your Portfolio

• Transcript

  Introduction to the Unconventional Investor Podcast

  Welcome to the Unconventional Investor Podcast. I'm your host, Michelle Moses, certified financial planner, licensed realtor, and founder of ME Financial. If you're an accredited investor feeling overwhelmed by managing your portfolio and looking for alternative investment strategies that go beyond the traditional stock market, you're in the right place.

  Let's head into today's episode so you can start taking control of your financial future. Hello everyone and welcome to the podcast. Thank you so much for listening today.

  House Hacking and the BRRRR Method

  Today we are going to be talking about house hacking and how you can basically buy multiple doors to of real estate. I'm butchering this, I'm sorry, Jesse with the bur method, and we're gonna explain what the bur method is.

  And so to talk about this, I have Jesse Lang to talk with us, and she started investing in real estate by house hacking over 10 years ago and has. Since grown, a substantial rental portfolio that she manages with the help of a small remote team. And in the last 36 months, she's grown from 11 doors, bought the wrong way with 20% down to 70 doors and counting.

  She's laser focused on the bur method, which is BRRRR method, if you guys don't know what that is which allows her to put her money to work over and over to create generational wealth. And she partners with private lenders to buy real estate with none of her own money. All while providing them double digit returns on their investment.

  Thank you so much for joining us. Thank you, Michelle. Thanks for having me. I'm excited to be here. Yeah. I am excited to talk about this because I, I know about this and I've heard about it. I have never actually implemented it, so I'm excited to hear what you have to say.

  Jesse Lang's Real Estate Journey

  So why don't we go ahead and start, and you can tell us a little bit about yourself and why you got into this.

  Yeah. Yeah. Thank you. So I live in Columbus, Ohio. We were just talking about how bad the weather is, but outside of that it's a great city. It's a great town. Yeah, great town. I am in Columbus investing here, but came here via Austin, Texas. And so I started my real estate journey really by accident, like probably a lot of investors out there do.

  I had bought a little condo that I was living in. I was renting out some rooms, so that was the kind of house hacking before I even knew that house hacking was a term. I did that for a couple years, moved on to the next one, bought a new house with, 5% down conventional owner occupant financing, and rented out the first one.

  Long term. Your rolls around. Do it again. And then, so I have two long-term rentals. I have roommates where I'm living and I'm like, I don't know, 26, 27 at this point. And I have my job as well, so I'm able to I have no bills. I'm able to save all this money. And it was, I. Afforded me the option 2016 rolls around, afforded me the option to actually go travel the world for a year.

  And during that year abroad, I met my gorgeous wife. I met the company that brought me here to Columbus moved here on a whim. I had never even stepped foot in the state of Ohio and was like, after a year of travel, why not? Why not? And that was eight years ago and I can't even believe it.

  It's been this long. The real estate community here is incredible from day one. I moved here for a job, but for day one I was going to real estate meetups. I was meeting just anyone and everyone who had talked to me about real estate. And I was building my courage to actually turn real estate into a career because up to this point I had just thought of it as a hobby.

  I thought of it as some side income. I didn't really understand. This was like a life choice. Yeah. Something that would just be good for your retirement and oh, I'll just hold onto these two and it'll just add to it. Correct. Correct. So I was doing all this education. I was meeting tons of people who were investors and they were just normal people.

  I thought to be a real estate investor. You had to, have a Ferrari and wear a suit and be snooty and all this, and it just, it was not true. And so through these RIAs and meetups, I was like, okay, cool. This is like maybe a valid option.

  Transition to Full-Time Real Estate Investing

  And so up to that point I really, I was always working for someone else.

  I didn't have the courage, but I finally, I got the courage. 2018, I went to work for myself in real estate. I was a full-time real estate investor. I was wholesaling everything for those first couple years. That's the paid education that I was working on. Do you mean you were wholesaling, like you were buying the homes to wholesale them or you were buying wholesale properties to then flip?

  I was making my income by putting a property under contract direct to seller. And then would sell that contract. Okay. So I had the only three I had purchased up through this point were all owner occupant financing. Like I live there, and they're looking at my whole bank account. They're doing all of it.

  And so off market, direct to seller was a whole new ball game. And so the first couple years, all I was doing was wholesaling contracts. I was still saving up money. I was buying deals, as you mentioned in the intro, but I was buying them completely the wrong way. I was taking my wholesale income and I was saving up until I would get 20% down on a property and then I would go buy something off the MLS or.

  Through another wholesaler, but I wasn't buying my own deals because I didn't know how they were closing in two weeks. I didn't know how my buyers were doing this and how they were funding. I thought they were actually paying their own cash. So I'm like, I don't have enough money for this.

  And then so I finally figured out, the 11, I bought the wrong way. Great. Glad I have 'em. I do call them my early mistakes. Yeah, I was gonna say 11 is a good amount. That's a significant amount of money. Yeah. And I'm, I'll say I actually don't own that many anymore. I called them my early mistakes.

  Because I just, I had too much equity tied up in them. I was not doing the right repairs. I wasn't doing, I wasn't placing the right residents in there. So it was, just a headache to be perfectly honest. Okay. All right. Yeah.

  Mastering the BRRRR Method

  Yeah, so they were very 11, very challenging doors and then I finally, it wasn't until January, 2021 through the help of a mentor, I figured out the Bur method.

  And it, seriously, this is so dramatic. It like fixed every single part of what was broken in my previous process. That's wonderful. I was able to. Purchase with little to none of my own money in the deal or upfront. I was able to do the right renovations when I was buying 20% down. All that renovation money came out of pocket.

  No, there was no lender financing on it, so I was skimming, I was saving, I was cutting corners. I wasn't doing the right things. So perfect that, I was able to have a nice asset that people actually wanted to rent. So I was attracting the right renters. I can take it and get it refinanced and assuming you underwrite correctly, you're able to pull all of your investment or your lender's investment back outta the deal.

  And you own an asset with none of your own money and you still have 25% equity in that deal. And so can you explain to everybody what the BRRRR method is like? Give a brief overview. Yeah, absolutely. So Burr, there's B and four Rs. It's five renovate rent. Refinance, repeat. We're on the purchase. We are looking for properties that are distressed, either condition wise, it's mostly condition and often situation wise.

  So the seller may be going through a foreclosure or bankruptcy, divorce, et cetera, and the property, they are willing to let go at a discount to buy those, typically in exchange for that discount. They just wanna be done. They wanna be done with the property. So we're closing fast. And unless you have your own cash, you know here in the Midwest, maybe 75 to 150 K sitting on the sidelines, unless you're cash, which you could really close the next day, we're able to close in really three to seven days using other people's money.

  And so that is the key, is that you can close fast in exchange for the discount. And then you have an asset that needs work, so you take it to get it renovated. I do the same renovation over and over and over and over. I was reading that on your site. Yeah. That you do the same thing in every single property.

  Every single property. I am not reinventing the wheel. Some will. One's on a slab, one's on a basement, one has a sunroom garage. There's subtleties, but there it is identical. If you look in my portfolio, they all look the exact same. And that's on purpose. It makes management much easier than what paint color did we use here and what floor did we use here?

  It's it's all the same.

  Scaling and Managing Real Estate Investments

  And so in all these properties that you own, they all have renters in them. And so now you have become, it's not fix and flip, it's buy fix up and rent. Fixing that and then you have it for the long term. Yeah. Yep. So we're looking at minimum 10 year holds on anything I buy.

  If I can keep it going longer than that, it's just keeps getting better. But that's what we underwrite is minimum 10 years. And can I ask another question? And I know this might be getting too far into the weeds too soon, but do you put each one like in an LLC or separate it out. We don't, no.

  Okay. No, that would be a logistical nightmare. That's what I would think, too. Bank accounts, we don't, we do, of course, have quite a few entities and they are split out, but it's not on a per property basis. Okay. All right. Sorry. Yeah. It's not, no, you're fine. Not to take this in a different direction, but that's, no, you're where my mind is going.

  No, you're goods. Where my mind is going is logistics. We're doing the same renovation over and over. I know. I know. I'm buying in a lot of the same. Zip codes even more narrow than that. We have probably a dozen that there's two houses on literally the same street. Oh, I'm sure. Yeah. You're doing the same street neighborhood.

  'cause it could become so much easier just to get to know so much. Yeah. One zip code and just certain neighborhoods. Yeah. And watch them. So we're like pretty targeted into the locations that I buy and so I know what it's going to rent for. I know the, quality of renter that we're going to attract.

  I, I just know all of this stuff going in and that's. What makes it scalable? Because if you're trying to figure this out for every new deal, there's no way you're gonna just spend all of your time in a research phase. Whereas I can look at a deal, and I'm not kidding you, within five minutes or less to have a firm offer on it.

  That's amazing. Yeah. And so we get it renovated, same renovation every time. Take it out to the open rental market. I know what it's gonna rent for. Like I said we list it on Zillow. Get applications through Zillow. We do our showings, we do our background credit, all that, all those checks. So you obviously have a team.

  I, yeah. When I'm saying we, it's literally me and one fulltime employee. Really? Okay. Yeah. It's super lean. That's by design. She has a lot of autonomy and authority. We, as you mentioned in the intro, we all work remote. I'm in my home basement. She works at her home, like we don't have an office.

  It's incredibly lame. That's by design. Yeah, boring is usually profit profitable. It's when it gets like too fancy. I find that it's not profitable, but boring works. Boring works. Boring. I'm telling you, if you wanna have fun, do it in your personal home. And I tell people this all the time, do not have fun on your investment properties.

  And like it should be. It's a widget and we're always aiming for clean, safe housing. I don't treat our residents like a widget by any means, but I do treat the houses and the, renovations like Yeah. 'cause they're not gonna, they're not gonna treat the house the way that you would, and so you just don't know what you're gonna.

  Walk into, I don't know. And I think that if you have a lot of fun with it, then you're worried about something happening to it, right? Totally. Yeah, totally. Go have fun on your Airbnbs, go have fun on your personal home. Have fun, but just not on your long-term rentals. Okay. All right. That makes sense.

  Makes sense. Get it rented out, do our checks, all that.

  Refinancing and Maximizing Returns

  And then once it's rented, we have the option, and it's part of my method, but you don't necessarily have to, is you get it refinanced and. The refi, we, we can do an example with numbers, but typically they're going to give you 75% of the new appraised value.

  And through the renovation, through the market rate resident in place, you know that market rate lease you have now forced the value of that property more than how much you have into it. So I've forced the value, the bank will gimme 75% of that new value. And the idea is if you bur correctly that. The 75% new refi loan, that amount will cover your hard or private money lender that you used to buy it.

  If you had any down payment, if you had any holding costs. It covers your renovation. It covers all of what we say. Your all in costs. And The payment on this new loan would be covered by the rent. Yes. And that's probably a key part of it. Yeah. Yeah.

  Understanding the BRRRR Method

  So when you're underwriting a bird deal, it needs to qualify in actually two different ways.

  It needs to qualify. Like numerically on the bur cycle itself. So from purchase, renovation, rehab sorry, refi all, and then it also has to qualify on your monthly cash flow. So there's some, I look at a lot of deals where it's great on the bur side, but it doesn't cash flow or the cash flow is great, but I'm leaving way too much money in the deal.

  So it, it's a little bit trickier, like you do need to underwrite in two different ways, but as long as it meets those. Then, so you're underwriting it from the standpoint of just fixing it up, right? With the hard money loan that you're taking? Or you said hard money loan, is that what you're taking at first and then you're underwriting it as remodeled and what you can get for rent and what it would be refinanced for.

  Okay. Yep. Correct.

  Underwriting and Financing Strategies

  So when you're underwriting, if you are doing super high level numbers, you pretty much need the purchase price. The loan to value is how much your lender will give you on the new value. Typically 75, sometimes 80%. You need the renovation number and you need the after repair value. So if you have those four things and one of them is always the same, so if you have those three things, then you can get pretty dang close on what.

  Your numbers will pan out too. And are you buying houses that are typically just the same size also so that your renovation cost is the same? That's part of the secret sauce. Yeah. Yeah.

  Choosing the Right Properties

  So we call it like congruent neighborhoods. That is something that I swear by. If you look at satellite view or street view and all the houses are the same distance apart, they're the same size, they're the same.

  I really like a good. Kind of block system where all the streets are, on a grid. And if you're looking in those neighborhoods, it's going to be very easy to determine what it will be worth once it's fixed up, because you're going to have comparable sales if you are buying somewhere that is.

  I dunno yeah, in the middle of nowhere or it's on a lake or there's just special circumstances with the house. Yeah. I grew up in Austin, like I said, and there's neighborhoods that are so quirky where every single house is different and it's that's gonna be really hard to figure out what your comparable sales will be.

  And you, that's your after repair value. You have to know that number. Before you buy it or you could get yourself in trouble. Yeah, that makes sense. Okay.

  Remote Investing and Management

  And so the with, can we back up to just even buying it in the first place? So how do you teach people how to, so you guys, she has a mastermind and mini course and things that you can take.

  And so do you teach people, the lenders that they can go to get qualified? Is that how you get set up with all of this? Yes. So what we would help a student with as far as financing is connections with exact hard money lenders that I use. We have people nationwide. If you are investing in Ohio, which we have students.

  Mainly on tons of West Coast investing in the Midwest. And so if you don't even live here, but you wanna invest here, we can connect you with some of our local lenders that just the level of service and terms, it's like, it's really hard to beat. So That's interesting. So do people move there for a certain amount of time to do this or they're, they don't live there and they can still do this?

  They're investing remote. Wow. Yeah. And they don't have to manage the remodel? No. Oh, gosh, that's amazing. If so, if y'all are out there listening, you're like, I wanna invest, but I don't know where. If you come to central Ohio, your numbers are gonna look great and I will connect you with our, my, like my gc, the one I used personally.

  They've done our last like 45 projects and they're fantastic. They actually bankroll your entire project, so you just have one payment at the end. That sounds wonderful. Yeah. Rather than, I need $5,000, I need 10, I need 30, or whatever it is. Yeah. Okay. Alright, this sounds really interesting.

  Mastermind and Mini Course Overview

  And then can you tell us a little bit about your mastermind? 'cause I wanna make sure that we spend some time on that too. Can you tell us about what you teach people in your mastermind and how long it lasts and all that? Yeah. So it is a six month program and it is designed to get you through an entire bur cycle.

  We start with, we call bootcamp, and it's called Rentals Made Easy. I should say that. Rentals made easy. We start with bootcamp where we're getting you connected with all these lenders we talked about. We're also helping you raise private money. That would be your own friends and family, your personal network, but we give you all the tools to go out and do that.

  Your entity set up in creation, bank accounts, EIN, like your tax relationships, all of that. We get you deal sources coming in the door, so agents and the the different feeds you need to be on. I'm sure you set up those constantly. And then like actually working with wholesalers, that's a big one.

  So there's a whole world of off market deals that Oh, it's huge. It's huge. Yeah. And the deals are frankly better. So yeah, you gotta learn to work with wholesalers if you want to find the by distress, if you're just looking. Yeah. Because once it hits the MLS, it's, yeah, it's over. If you're just looking for something turnkey, then MLS is probably your best bet.

  But if you want the burn method and you want something under market value, then you almost are required to learn wholesaling. Not wholesaling. Learn to work with wholesalers. Okay. This sounds super, so you get people like really set up. They're ready to go. Oh, totally Set up. That's wonderful.

  Okay. Yeah. And then how would this go with different market cycles? So could 'cause you've been through a lot, you've been through a down market. Different in a down market than in an up market or even like how it is now because Austin is going down. And so there's different markets across the country.

  Yes.

  Creative Financing Strategies

  So I think you just need to get a little bit more creative with your funding strategies. So we actually, yesterday I had a group call that was all about creative finance and different strategies that, maybe hard money or private money at 12% isn't going to work, but the seller. They're three years into that, four years into that COVID mortgage rate.

  And maybe they wanna sell subject to, or they're willing to be the bank. So we do talk about some of those like more creative finance strategies as well. Okay. And so the cycles, right? And you guys, seller financing is when somebody basically has a house that's paid off, or the subject to is they have a mortgage and you're able to take it over.

  Which that would be a whole nother conversation. That's a, that's totally going into some deep diving, some things. And so you're saying that as the markets are changing, then you just have to get more creative with the way that. That you're financing? A hundred percent. Okay. And more creative not only on the purchase, but also on the exit.

  Sometimes long-term rentals, which is my bread and butter, sometimes that isn't the answer. Sometimes the neighborhood can warrant a midterm rental or even a short-term rental, and you can increase your income, which can help offset, the higher rates that we're seeing in higher purchase price.

  Although we are as of. Last couple months seeing sellers back off those COVID expectations. The, I think we all know by now that the economy's a little, so it's not what it used to be. Yeah. And there's just a lot of uncertainty right now. And there's I had a show too about, and I got certified in Assumable loans, and I think that's actually a really great thing for investors also.

  Would you be able to do this with an consumable loan like you would assume it at first? And then refinance it or would you keep it the whole time? So it depends on the condition of the property, because if you're doing a $50,000 rehab, no one is financing that with an Assumable loan, right? So you would just have your 50 K stuck in the deal and until you refinance one day.

  We have offered sellers and done plenty of deals where it was sub to their existing loan for 12 months. Hey we're gonna take it over right now, but we're gonna have it paid off within 12 months. Okay. And then that's on, and that's when you refin, the renovation outta pocket.

  Okay. But knowing I'm gonna refinance right away. Okay. But you're saying with your typical BRRRR method that you are using other people's money you're using hard money lending to per, not only purchase the property, but also pay for the renovations. Hundred percent renovations. That's amazing because I think that's where it gets really sticky is, hey, okay, I can finance this house, but then, you know what, if you wanna put in $80,000 for a renovation?

  So yeah, it ties up a lot of cash and that's where I, my early mistakes, that's where I was seriously, I was skimping on everything because it was going to be locked up that any money I put into the house was locked up in the house. I didn't really understand yet that you could refinance and pull that money out.

  That's really interesting. This sounds great. It sounds like you've been doing it for a really long time. You know what you're doing, and the reviews on your website are really great for your mastermind. Oh, thank that. People were getting up and going, and the fact that you've purchased so many properties in the last three years, that's a testament, that's a lot of properties.

  It is been a wild ride in a good way. Yeah. I would say, there was some learning curves and bumps in the road of course, but it's pretty dang systematized at this point. Yeah, it sounds like it. Since you were saying if you just have these, what was it, four different numbers?

  The purchase price, the renovation costs, the rental, the loan to value. Okay. Yeah. And that one's always the same. So it's really purchase price after repair, value and construction cost. Okay. And if you have those, then you're able to figure it out within five minutes. I mean with practice? Yes. Yeah. Yeah, with practice it was knowing your markets.

  If you're bopping all around the country, look at your, no, that's gonna probably take you an hour per deal. But if Hey, I own a property three blocks away and it rents for this, like you already know the market, it really helps. Yeah. You know the market and what's happening in it. Okay.

  Upcoming Projects and Book Launch

  And so what is, and then I is there anything you have that you're excited about upcoming real estate or business projects that you're excited about? Yes. We actually just launched, can I tell 'em about the book? Yeah, I was gonna say 'cause your rental's made easy book is in the background. If you guys aren't watching this on YouTube.

  Everything that we have talked about today and from the bur cycle and ongoing management, because we manage everything in house, I swear by it. I believe everyone should manage their portfolios. We go over all of that in my book. Rental's Made Easy, it's the program. Obviously you don't work with me, but it's the program content itself.

  So it's available on Amazon. We are on ebook, so if you're a Kindle reader, like I am or we have the paperback as well. Okay. And I'll have all of that in the show notes. You guys, I'm gonna have her website. I'm gonna have a link to your mastermind. Even your, I think, your free mini course too.

  You've got a lot of stuff on your website, like you're ready to go. Yeah. It's been fun building this. Honestly, what, it's so funny. When I started coaching, I was like, oh, I'll just hop on and teach some people about real estate, and that is not the case, but like in a good way.

  It's been a journey to build it all. Yeah. And I was tell, I was telling you before we even got started, you guys, like I, I was telling her about, I, I get, I'm not kidding. 10 emails a day about people pitching to be on my podcast. And I rarely even reply and I answered yours because you were just a real person.

  And most of the time when people are pitching real estate investing, it's like I was a TEDx talk and I've been on this and it's so big that it's like I just want a normal person that just can teach normal people how to do things. Exactly. That's what I'm all about. And that's how you come across and that's how your website is.

  And even, the pictures that you have. And so I just, yeah. I it. So if you, listeners, if you like me, then I think you're probably gonna like Jesse too. I appreciate. Not that we know each other personally, but just from talking and our website and, just the minimal amount of contact that we've had, I really think that this is just.

  Easily digestible and implemented and all of that. So kudos to you for that. Thank you. Yeah, I'm glad that's obvious because that is exactly what we stand for. Yeah, I didn't set out to become a real estate investor. It took me probably 10 years to even figure out it was a choice and then.

  Once I figured it out, we had bumps in the road along the way, but I've, I keep standing, so I appreciate that. Yeah. Oh, that's wonderful.

  Conclusion and Contact Information

  Well, you guys, Jesse's website is called unlocked rentals.com, and that's where you can find her book Rentals Made Easy. But again, in the show notes, I'm gonna have all of this.

  Linked and you can reach out to her if you wanna do her mastermind or her mini course or buy the book. And thank you so much for being on. Yeah, I really appreciated the nuggets of wisdom that you have, and I think if anybody's interested in doing this, you would be a great resource for it. So thanks.

  Thank you so much. I appreci Janet. Yeah. Have a great day, you guys. Thank you so much for listening. I appreciate all the feedback that you have about the podcast. I hope you learned something today and I will see you next week. Thank you for listening to the Unconventional Investor Podcast. I hope you feel more confident in how you can grow your wealth using the strategies I shared in this episode.

  If you're ready to take the next step in diversifying your portfolio outside the stock market with alternative investments, head to me financial.net/contact us to book a 15 minute consult call with me. Let's discuss how we can work together to achieve your financial goals. Until then, I'll see you on the next episode.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

In this solo episode, Michelle gets into the topic of money psychology and the impact of emotions on financial decisions. With 20+ years of experience as a financial planner, Michelle shares her observations and opinions about balancing the emotional and logical sides of managing wealth.

Key Topics Covered

• The Emotional Side of Money

• Investment Decision-Making

• The Value of Accountability

• Budgeting & Emotional Spending

• Learning from Losses

Links:

Take the quiz - How Alternative Assets Can Fit in Your Portfolio

• Transcript

  Introduction to the Unconventional Investor Podcast

  Welcome to the Unconventional Investor Podcast. I'm your host, Michelle Moses, certified financial planner, licensed realtor, and founder of ME Financial. If you're an accredited investor feeling overwhelmed by managing your portfolio and looking for alternative investment strategies that go beyond the traditional stock market, you're in the right place.

  Let's head into today's episode so you can start taking control of your financial future. Hello everyone, and thank you so much for tuning in.

  The Psychology of Money

  This is going to be a solo episode of me talking about the psychology of money, how your emotions impact financial decisions. And this is something that is super near and dear to my heart that I think I spent the first 15 years of my career studying, going to classes for doing myself and really, figuring out my shit because I need to figure out mine before I can help other people. And I think this is really important because I think it's something that is 50%. Of your financial life is your emotions. It is not the spreadsheet. It is not the numbers. The numbers are all one thing and you need to know those.

  But the other 50% of your financial life is your emotions and your beliefs about money and how you feel when you make those investments or spend your money.

  Emotional Impact on Investment Decisions

  So I'm going to give some quick examples of what I'm talking about. So there's a lot of times where people will make investments and they're completely focused on the income that they're gonna make, and oh my God, this, whatever restaurant could be such a big deal.

  And it's downtown and, you're caught up in all of the lights and what it could be in. People, I find that people aren't necessarily always looking at the downside. They're looking at, oh, I'm finally able to. Get out of my 401k and invest in something that I'm excited about. And I totally, absolutely get that.

  And when you are excited about something and you're looking at that, what I often see is that either people are overexcited or they're under excited. And what you're looking for obviously is like right in the middle. And I know nobody wants to hear that. 'cause I didn't want to hear that. You wanna hear, oh, I'm like so overexcited about this.

  This has gotta be it. And usually when you're overexcited and you've got. Rose colored glasses on about it. It's not usually I guess unless you know what you're talking about, but it's if you don't know what you're talking about and you're getting into an industry that you don't even really know, I would say the rose colored glasses of, this is gonna be so amazing and we're gonna be in the newspaper, or, all I've seen people, do all that.

  Or the potential for this app is so huge. Yeah, there's a lot of potentials out there for business ideas. There's tons of them. And I'm not saying some of them aren't a good idea, but the execution and the people that you invest with are also very important. And so I, I see a lot of times people getting overexcited about something.

  And then the other part of it is I think people following their emotions, or I would call it their intuition about an investment is if they just can't get themselves to do it. And my experience is if you can't just can't get yourself to do it, and you're not really avoiding things like you are paying attention to your money, you are investing, you are paying attention to what it's invested in you've already got all of that down.

  Like you're good with your money. I think that if you just can't seem to pull the trigger or it's just eh, I haven't thought about it since you even talked about it, then don't do it. And like a lot of times when I meet with people and I give them ideas of here's what we can invest in.

  I've got this and this. A lot of times what I'll say is go home. And the one that you can't stop thinking about, that's the one that we're gonna do. And if they don't like any of 'em, that's fine, but most of the time they really like one. And most of the time in the meeting they're like no.

  This one is the right one. And I think that's where the value of working with someone, it's like a coach, is that someone like me can. Remind you of what your goals are and the other things that you said that you wanted, to balance it. Hey, you also wanted to do this insurance over here, so if you wanted to do that, then we could do, this investment along with the insurance.

  And so a lot of times it will come together like that when it's a good partnership. And that's what you're looking for. I think if you were working with an advisor then, they can help you to work through some of your emotions of what is a, whether you're overexcited or not excited and be able to give you that feedback.

  But those are the two areas that I see of your emotions getting, with your financial decisions. And then the other way, and that's with the like big investments.

  Budgeting and Everyday Spending

  The other way, what I would say would just be like everyday living, and I've talked about this a million times before, but your budget and the way you spend money every single day is where the tire meets the road.

  That is where the answers are of whether you're gonna have money in the bank or you're not. That's just there's no way around it. So if you are budgeting and you are saving. I would argue you need to know where your money is going because then you can look at what your emotions are. And so for me, I cannot have any stipulations on the amount that I spend at a grocery store.

  And I'm not saying that I go crazy, but I have to be able to buy the random bag of whatever, oh look, this just came out. I really want to try this. So I am like queen of, look at this sauce. I want to try this sauce. Or look at this new cookie. I love cookies. I want to try this one. I cannot go to the store.

  Like those people that go to the store and they have a list of everything that they're gonna get and that's all that they get and they've added it up. And that's just so not the way that I am. And I don't think it's the way most people are. Most people want freedom, right? And you want freedom to spend in all these categories, but you need to choose when you're doing your budget, I guess is what I'm saying, is.

  Choosing which category are you gonna have a limit in? And are, is it gonna be your phone bill? A lot of those kinds of things that you can control a little bit and are fixed. You could, not have the Apple Watch or you could not have, you can cut down on certain things.

  You can cut down a lot of the subscriptions like Netflix and stuff like that. So a lot of that will help you feel better. And you're. Emotions if you're doing a budget, can be in check more because you know exactly what you're spending and you know if you have the money to spend it. And it, even as you make more money doing the budget, I have people that do budgets and they make a lot of money.

  Million dollars a year. And they still do a budget and they claim that it is still. The way that they stay on top of their money, they know where it's going, and that is what I hate because, I started a budget when I was making nothing and I started my business and then now we really don't need to worry about it.

  But I love it because I don't like not knowing where my money is. Going because some days it's wow, we have spent a lot on kids activities, haven't we? I don't know. I need to go back and do the budget. And so I really like knowing okay, that got a little outta control. Next month we're not gonna, go to the jump place as much.

  And so keeping your emotions in check with your budget, like that really helps. That is where the tire meets the road, right? So keeping your emotions in check with the budget then helps you with all the long-term stuff of what you're saving for. Because then it's okay, I can keep this in check of, I don't need to go to the mall all the time to buy clothes.

  I'm fine with just spending such and such amount. So you're in control of that, right? And so then you feel like, yes, I can save towards my long term. Goals, and so I know it's very subtle and it's all very personal and you need to. You just have to practice. And it's like your intuition, it is. You need to listen to your gut and it's all about practicing and using it and trusting yourself. And it is the same thing about your emotions and money. It's trying things out.

  Learning from Financial Mistakes

  And so my last point about the emotions and money is that you are going to mess up. You are going to make some bad investments.

  They're not all going to be amazing and you cannot get down on yourself. So I have shared that. I've lost I did lose quite a bit of money with the crypto, the the fx, I think it's FX anyway, the guy that lost the billions of dollars a year and a half ago. And it's not like it wiped us out, but I was disappointed, and sometimes I feel like, okay, it's good to humble yourself a little bit.

  And to get caught up in that, because I was testing out all these different platforms and so I had crypto like at four different places. And so fine, it's my job, I do feel like sometimes I'm, trying some of these things out so that I can give advice, but at the same time, I can't get all caught up.

  And I, you need to know that sometimes this stuff can go sideways, but you just need to keep going. It's a new day. It's like eating, like just because you overate at a meal doesn't mean you need to overeat at the next meal. It's just a new meal, and so then you just like start over.

  So it's the exact same thing with money is like you're just. Starting over and just okay, I lost the money on that one, but we're gonna go on this one. And I hit this stock right? And I made a ton of money. And the key to having money is just to consistently save. It's obviously to make more money too, but it's to consistently save.

  You're always gonna be trying to spend more, think that we live in shiny penny land. Maybe as a woman I'm like that. I don't know if it's like that for everybody, but I do think people tend to overspend and doing a budget again, where the tire meets the road then allows you to make better decisions for your long term in your retirement.

  And how you want to invest that way.

  Personalizing Your Investment Strategy

  And I was actually thinking about this last week and about. Who do I want to be in my investments and what's gonna make me feel good? And I really just had to sit there and think about all of these different investments of what was going to be really serving me and what did I feel good about?

  What made me feel rooted? And that's what you're wanting. You're wanting to feel grounded, you're wanting to feel rooted. And if you're at the beginning of your journey and that feeling rooted is gonna be having $25,000 in a savings, like a high yield savings account for your emergency fund, then focus on that.

  But as you get, as you have more and more in your portfolio. What is going to make you feel good, especially going into retirement? Is it gonna be having one big 401k or is it gonna be that you're investing in a couple different businesses and then you can see it all on a graph? Is it going to be that you're investing in like environmental type, the ESG type investments?

  Or is it gonna be, I really believe in oil and gas, some of these things. It's all very personal. It is just, again, with the food reference, it is like eating. No two people eat the same way and feel great in their body, and it is trial and error of. What are you allergic to? What are you not?

  And that is exactly what money is, but our society doesn't allow us to fail in this category. I don't feel and I am here to tell you that you are going to have some small failures. Yeah, they suck. It absolutely sucks because it's like, you lose a $20 bill like on the ground somewhere, or somebody takes it from you.

  That's what it feels like. But you need to look at it more of a standpoint that you are learning. And that is what this whole thing is about learning what's good for you, learning what you want, and you're not gonna be able to do that if you aren't saving, if you aren't opening the accounts, if you're not getting in there and trying some things, trying sports.

  How do you know whether, as little kids, right? They try soccer, they try baseball, they try all these different things. It's the same thing with your money as like you're trying some things, you're doing some research and again, you're not gonna get it all right. And some of them are gonna go right, and it's gonna be wonderful.

  And is it is, it's a great feeling. And you just. You just gotta stay in there. I, there's no other way around it. You just gotta stay in there and keep trying. Again, I think it's how you get better in sports. It's how you get better at eating. It's how you get better at money, and it all goes together.

  I have learned a lot over the years. By no means am I some sort of guru that knows everything, but. I know that I, as a woman advisor and I just haven't seen a lot of men in my industry that will say that emotions are probably 50% of your financial decisions. Because whether you feel good about something or not, that is going to drive more of your financial decision than anything else.

  If you don't like the investment, if you don't like the person, that kind of stuff, it's going to deter you from. Investing in some of these things. And I just want you to watch what you get super excited about. Oh my God, everybody's into real estate investing right now. I really need to get into that.

  It might be too late because there are so many people in real estate investing. It's like I saw that Italy was cutting off the passport thing, whereas even if you had a distant relative, you could get a passport because companies had, they had, companies had opened up to sell this.

  Service for people to get a, an Italian passport. And now they're limiting it to only parents and grandparents. And so it's great if you got into it when it was very obscure, but now that it has become so popular, then it's like a big shiny light is on it. And so that's how I feel about the real estate investors is that there's so many of 'em.

  But I live in Phoenix. I don't know how it is everywhere else, but in Phoenix. A very large portion of the economy is built on real estate because we have so much land and new buildings going up, and there are so many real estate investors that you really need to have a well-oiled machine, I think, to compete in this market versus if you were somewhere else.

  The point of it is if you were not willing to go that deep and have that mastery of it, it might not be the best place to go, but you could possibly find something else. And none of it is gonna be overnight. A lot of it is years of studying and learning things and putting different things into place and, getting the essence of what you want to do for a little bit so that you can then go towards it and.

  I just think that people have thought that, oh, I'm just gonna either hand this over to somebody so that they can make all my decisions and then I'll make money. And you're not gonna make money that way because you are trying to wash your hands of it. But if you are truly trying to partner and learn about it, then I do think that people will make money and things that you've been thinking about for a while, then it's, okay, I'm gonna sign up for that class, or I'm going to, invest in that particular investment.

  I think it makes a huge difference. And the other reason that I say that financial decisions are 50% of it is because I want you to be able to sleep at night. You do not wanna take so much risk. That this one investment has to return, such and such percent in order for you to make money. It's like these people that you see online, they sell everything and they go into one stock.

  I could think of nothing else that would be more stressful. You don't wanna do any of that. You wanna be able to think, to sleep at night, to know that you're taking care of things and that you're paying attention to them and looking at your money is. Half the battle and when I first started, I would look at it twice a week just to make sure I knew where everything was going and that I didn't overspend because I would overspend a lot at like restaurants and going out to eat and shopping, just normal girl stuff.

  And. Or maybe it's male stuff too, and you you just wanna watch it and then you feel proud of yourself. So there is, you gotta pay attention to your feelings around your money.

  Final Thoughts and Contact Information

  And if you have any questions, honestly gimme a call. I know that I don't have counselor written after my name, but I think any financial advisor will tell you that we feel like financial coaches, there's a lot of emotional baggage that goes with all of this.

  There's a lot of financial trauma that happens where people freak out. And it is important to address that kind of stuff just like you would if you were getting into a new relationship and you had trauma from another relationship. You want to deal with it, and you want to admit like money is an important part of your life.

  Just like your health is important and your relationships are important, money is an important part that you do need to look at. So I hope this is just a, fun little tidbit car ride for you guys and that you got something from it. If you do want a call, I do have 15 minute free consultation on my website.

  And there is a quiz on there too. So feel free to take that. And thank you so much for listening. If you do have some time, please take review the show. It really helps the algorithm and to have for me to reach other people that I don't know personally. So thanks so much for listening. I hope you have a great day.

  Thank you for listening to the Unconventional Investor Podcast. I hope you feel more confident in how you can grow your wealth using the strategies I shared in this episode. If you're ready to take the next step in diversifying your portfolio outside the stock market with alternative investments, head to me financial.net/contact us to book a 15 minute consult call with me.

  Let's discuss how we can work together to achieve your financial goals. Until then, I'll see you on the next episode.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

Wondering how you can trust an investment? In this episode of the podcast, I share my personal “litmus test” for evaluating alternative investments and private placements.

If you’re exploring real estate, private funds, or other non-traditional opportunities, here are my top three takeaways to keep in mind:

• Do they have real skin in the game?

  Always ask if the managers are investing their own money, not just raising funds and charging fees. When their money is on the line, their interests are better aligned with yours.

• Are there useful tax benefits?
  Some investment strategies, like Roth conversion options, can give you substantial tax benefits.

• Is the rate of return fair?
  Compare promised returns to similar opportunities and industry standards. If returns (or communication!) seem subpar, dig deeper or rethink your choice.

Links:

Take the quiz - How Alternative Assets Can Fit in Your Portfolio

• Transcript

  Introduction to the Unconventional Investor Podcast

  Welcome to the Unconventional Investor Podcast. I'm your host, Michelle Moses, certified financial planner, licensed realtor, and founder of Me Financial. If you're an accredited investor feeling overwhelmed by managing your portfolio and looking for alternative investment strategies that go beyond the traditional stock market, you're in the right place.

  Let's head into today's episode so you can start taking control of your financial future. Hello everyone, and thank you so much for tuning in.

  Today's Topic: Litmus Tests for Investments

  Today we are going to be talking about my litmus tests for investments. And this is specifically for alternative investments, but I think that you could attach this to real estate investments also.

  This is, and not to say that with this litmus test that if they fail all of these that I necessarily say, Nope, I'm never gonna look at you, but the ones I really love have certain things in common. And the first thing, let's just dive right into it because it is so important, and I know I'm not the only one out there that thinks it's so important is, when you, people are asking you to invest in their fund, right?

  They're in, they're asking for you to invest with them because they're the manager, all right? So even if you're doing real estate or they're flipping a house or anything like that. You are investing in this person is what you're doing, right? You're investing in this company or the people that are leading it and you wanna be able to trust them for, that's first and foremost.

  Like when you're talking to 'em, you wanna be able to trust them that what they say is right, but.

  Litmus Test 1: Skin in the Game

  My first litmus test is do they have skin in the game? Do they have their own money in the deal? Because I have seen some of these investments where they just wanna raise money from all these people and then they wanna make an income from that on a monthly or a quarterly basis, but they're not putting any of their own money in.

  And I don't see how your entrance. Your interests can align with the investor if you don't have your own money in, if you're only, having all of this big pool of money so that you can then make a, like a wage or that you can invest. The way that you want. That's great, but it's other people's money, so you just are not going to care the same way as if you had your own money in the deal.

  And I want to reiterate that it is their own money in the deal and it's not a loan because sometimes you'll see people and they'll say, yes, oh yeah, we're giving a loan to get this thing started at 6% and then after two years we're gonna take it back. Once you know there's enough money in the loan, in the investment.

  No, that's a way to make fees. To me that is a way that you can loan money and make fees on a fund, and then you get your own money back, and then everybody else's money is still in there. And then you're charging fees on that, right? You have a big pool of money of everybody else's money, and you're charging fees on top of that.

  And so where is your interest at? Your interest is just at making fees and just trying to get that thing going as long as possible, right? Like drawing out. The fund as long as possible instead of having your own money in the deal and getting it back out so that you can do something else with it. So that is my number one litmus test.

  And I would say most of the stuff that I invest in, that is a common denominator. It isn't always, because sometimes there are investments that have some tax advantages that you just can't ignore.

  Litmus Test 2: Tax Strategies

  there is one, I did an episode for Cedar Street, let's, for example, where you could do a Roth conversion strategy, which means you take your IRA money and you convert it to a Roth.

  So that is like a, that's a tax benefit, a tax strategy, and. It's a good fund, but they didn't have tons of their own money in the fund. Like as much as I would've loved to maybe have seen, I don't remember what it is off the top of my head, but it's, that wasn't why I picked that fund. It was because of their track record of what they do.

  But then they also have this Roth conversion strategy, and so that might supersede, whether they have their own money in the fund. Obviously it is better if they do just because you want, you wanna pile up the benefits, but these tax strategies might outweigh it because you're, you have a year where you're not making a lot of money and you want to convert your IRA to a Roth.

  Doing one of the funds where, you know, you, I'm just gonna give a synopsis of what that, that episode was about if you put in a hundred thousand dollars into the fund. You invested a hundred thousand dollars in the land and the building isn't built yet. And so the real value of it is actually, I think, oh, $60,000.

  So then. You take that $60,000 that your IRA now says it's worth and you convert it to a Roth, so you just save $40,000 on your Roth conversion. So those kinds of tax strategies, that's what we're looking for, that is like the number one. And then we're picking the best out of all of those funds and able to do that strategy.

  So attack strategy is another litmus test that I would. Go for when I'm looking for a fund. And you might be able to transfer that over into real estate also, right? 'cause that's why people have rentals is so that they can the tax benefits, obviously the income, but the tax benefits with the depreciation of the homes or the commercial property.

  Litmus Test 3: Fair Rate of Return

  more other litmus tests that I go by is the, do they give a fair rate of return? And that is in comparison to the other vehicles that are out there. So if you're gonna lend money for a house that somebody is flipping, you're not gonna loan it for less than what they're gonna get at the bank, right?

  You're probably gonna look up. What is hard money lending? Doing what, what are the other rates that they could get out there? And if your money is easier, quicker, doesn't have as many, as many hoops to jump through, you're gonna charge a higher rate of return. And then if if you're investing, you really want to, or the giving a fair rate of return to you.

  And so when I'm talking about alternative investments and some of these private placements. Sometimes I think that, the investor is the one taking all of the risk and then it's guaranteed that the owner of the fund makes, 7% on their fees. And so those are paid no matter what, and then you are getting your, like 5% when all the other funds are paying more like 8%.

  So those are the types of things you want to, compare and contrast. And I think it really helps. Having chat GPT and all these AI models that you can ask questions about these different types of funds, it will help tremendously. Whereas before you needed to know and you needed to read all of them, whereas now I think that you could ask the A whatever AI model that you're using and probably get a fairly good answer.

  My first litmus test is do they have skin in the game? Do they invest their own money? The second one is there a tax strategy involved? And the third one is, do they give a fair rate of return in comparison to all the other investments out there in the same. Industry. So if you are in mobile homes, you wanna make sure that it's fair.

  In mobile homes, if you're in self-storage, you wanna make sure that all the other self-storage, there's not another one that's paying 12% and you're gonna about to sign up for one that pays six. Why? Why are they only paying six? Is it structured differently? Are they taking more risk?

  Are they putting more money in? There's usually a reason why, or it just might be that they just didn't want to give that much of return.

  Importance of Client Communications

  I think another one that often is overlooked is what are the client communications like? I have invested in some funds that are actually pretty good, but the client communications are so bad I would never invest with them again.

  In a million years, they email me like once a year. I have to pound on their door to say, Hey, what's going on? Are you guys still there? Did you take our money and run? You know what? What is going on? The one the companies that I wanna work with are, when COVID happens, they lean in and they're doing more webinars, they're sending more emails, they're giving more updates about what's going on.

  That is I think, a key to making sure that people feel good about where their money is. Because we're not talking about small amounts of money. This is not, I threw $5,000 at a stock. This is usually, I put a hundred thousand dollars into this investment. I wanna know what's going on with it and that you're legit.

  And if you are legit, then you're sending me at least every six months an update about what is going on. Even if we're doing a building, you could take a couple pictures and put it in an email. But most of the time they have nice newsletters and. A portal that you can log in to see an update and what the value is of your investment.

  So you wanna make sure that the client experience is good, unless you're doing something that's with your friend, and you guys are all pulling together to buy some real estate. That's a little bit different. You're not gonna have client updates. But if you're doing what I am, you know what I usually sell, which is like a private placement.

  You're gonna want some client communications and some of the. Fund sponsors, they really fall short on this. And so it is one of the questions that I ask that I wanna see an example of it. I want to know how much they're, they are, how often they're sending it. And I wanna know what kind of portal that the clients can log into to see valuations.

  I don't wanna just be emailing someone and then they can email it back to me. And I have no access to anything other than you know them emailing me because. Employees come and go, but if they have some sort of online access, then you can always log in and get your documentation and get your K ones and your tax documents.

  That stuff is important, especially, as I said, the K one around tax time. And if you want to know what's going on with your stuff.

  Additional Litmus Tests and Considerations

  I would say some of these other ones I are less important. I wouldn't, I don't know if I wanna say less important. They're just at the bottom of my litmus test list, let's put it that way.

  One thing I look at is exit strategy. And I only say this because I have looked at some funds where. They only have one exit strategy and it's where you, they have real estate and they go into what's called an upreit. And basically what that means is that you have invested in this one building or maybe five buildings, okay?

  And then they wanna sell that and they wanna transfer this fund to like an institutional buyer. Okay? And that the institutional buyer basically wants to buy the fund. And if your only option to get out is to buy. Parts or is basically for your interest to transfer to this institutional investment so that basically you're going from owning five buildings to maybe owning 500 buildings inside of this, like probably publicly traded mutual fund or closed what's called a closed end fund.

  That is a big deal because you are going from buying, owning five to eight properties and being able to ride off the depreciation and getting a K one, and then they're saying, okay, you can only go into the up, and I say this as it's. And I know this is getting like way more complicated.

  Probably some of you guys are like, what the heck is this even? But you just wanna make sure that there's multiple ways to exit or that their only way is I'm gonna liquidate this and then you're gonna get your money back. Because there are some out there that will trick you and say, no, we're gonna, we're gonna do this.

  And most of the time when it is. There's only this one option. It is with these very large conglomerates. And it is very difficult to read and understand some of it, but you just wanna make sure you know what the exit strategy is. And then some of the other stuff that you really wanna look at is obviously the fees you wanna look at, what kind of fees are they going to be generating on a yearly basis.

  Without. So even if things go down they're still gonna be generating the fees based upon the amount that is in the fund. Are they egregious? Do they charge, 2% for getting the property and 2% for getting it, selling it and 3% for even doing due diligence. And you wanna add up all of those fees and see what those add up to and make sure that they are in alignment with what the industry standards are.

  And again, I think with all the AI models, that is very easy to look all of that stuff up if you're going through an investment. So those are my. The big things that I even have a sheet where I have all of these things to make sure that I don't miss them when I am looking at a deal so that I can check off whether these are all true or not, and how I feel about the rate of return.

  How do I feel about their fees, is there some sort of certain tax strategy that should go through? But I think these are all like a, I call it my litmus test. You can call it whatever you want, but this is my litmus test for looking at investments. And I hope it helps you, but I think the money in the game thing has made a, is in my experience that really separates people from.

  There's just a huge, I don't even wanna say disconnect. It's just, it is just such a big difference in the funds and the returns. If they have money in the fund and if they're in alignment with the investors, like their interests are in alignment with the investors. They are not just in it to have a big pool of money and be making fees, because there are companies out there that.

  That is literally what they're doing. They are raising money so that they can charge all these fees and loan the fund, money. And that's like how they make their livelihood is just having a big pool of money and being able to charge fees on it by doing all of these things. They are doing the real estate and they are doing the investments, but they're making a ton of fees in the process.

  Anyway.

  Conclusion and Contact Information

  I hope some of that helps. If you, obviously if you have any questions, feel free to reach out. You can always schedule just a free 15 minute consultation with me on my website. If you have any quick questions or wanna explore some things further, I also have a quiz on my website that is about fitting alternatives into your portfolio and how you might do that.

  So please let me know if you have any questions and thank you so much for listening. You guys have a great day. Thank you for listening to the Unconventional Investor Podcast. I hope you feel more confident in how you can grow your wealth using the strategies I shared in this episode. If you're ready to take the next step in diversifying your portfolio outside the stock market with alternative investments, head to me financial.net/contact us to book a 15 minute consult call with me.

  Let's discuss how we can work together to achieve your financial goals. Until then, I'll see you on the next episode.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

I sat down with Braden Hudson, CFO and cofounder of Trellis Energy, to talk about an oil and gas investment opportunity. Trellis isn’t your typical operator—they specialize in fractional ownership of wells alongside major names like Chevron and EOG, giving accredited investors direct access to proven energy projects.

With a focus on downside risk, diversified deals, and strong tax benefits, their fund offers an alternative growth platform outside traditional markets. If you’re looking to diversify your portfolio and tap into energy investments in a smarter way, this episode is a must-listen!

Key takeaways:

• Diversification Through Non-Operated Interests: Trellis Energy provides fractional ownership in oil and gas wells across top-tier U.S. operators, which spreads risk across different projects, regions, and commodities. This isn’t about chasing 10x returns—it's about steady capital appreciation with a strong downside risk focus.

• Distinct Growth Platform Model: Trellis doesn’t operate the wells themselves—instead, they invest alongside proven, reputable operators (think Chevron, EOG, Oxy) in projects too small for major institutional players, but out of reach for most individuals. This model enables earlier cash flow recycling and tailored exit timing, seeking 15–20 projects per fund lifecycle.

• Investor Alignment & Tax Efficiency: With an 8% preferred return and significant personal capital invested, Trellis aligns its interests with investors. Plus, 70–85% of capital may be deductible in year one, depending on structure—adding another layer of efficiency for portfolio strategy.

Curious how private energy investing could fit your portfolio—either for tax planning, diversification, or long-term growth? Check out the full episode or let’s connect!

Links:

Contact Brayden Hudson with Trellis Energy Partners - https://trellisep.com/

Take the quiz - How Alternative Assets Can Fit in Your Portfolio

• Transcript

  Introduction to the Unconventional Investor Podcast

  Welcome to the Unconventional Investor Podcast. I'm your host, Michelle Moses, certified financial planner, licensed realtor, and founder of Me Financial. If you're an accredited investor feeling overwhelmed by managing your portfolio and looking for alternative investment strategies that go beyond the traditional stock market, you're in the right place.

  Let's head into today's episode so you can start taking control of your financial future.

  Introducing Today's Topic: Trellis Energy's Oil and Gas Investment

  Hello everyone and thank you so much for tuning in. Today we are going to be talking about an oil and gas investment from Trellis Energy. They have a private placement that we are going to be talking about and to talk about that I have Braden Hudson here.

  You wanna say Hi Braden. Hi everyone. Thanks for having me. Thanks Michelle for setting this up. Look forward to the chat. Yeah, me too.

  Meet Braden Hudson: Co-Founder and CFO of Trellis Energy

  So Braden is a licensed CPA and has over 13 years of oil and gas experience. He is a Heart Energy 40 under four 40 award recipient, and he is the co-founder and CFO of Trellis Energy.

  And thank you so much again for being on. All right, so let's get started here. I wanna talk about so we met at a conference and I have been reviewing Trellis energies, all of their documents and due diligence reports and everything, and I thought they, it would be nice to have them on because in the oil and gas sphere.

  There are a lot of the tried and true guys that have been around for years and they are structured in a certain way and Trellis seems to be trying to do something different, which is why I wanted to have you on. So would you like to give us a overview of what tr, what your private placement is and what you're raising money for?

  Overview of Trellis Energy's Private Placement

  Sure. Trellis Energy, as you mentioned is in the oil and gas space. So we predominantly focus in the upstream, which is. Just the development to oil and gas wells actually drilling and completing fracking, all those terms that y'all have heard. But we do it from just a slightly different perspective in the sense of we're a non-operated along gas sponsor, and so we don't actually, we're not the ones out there actually drilling the wells.

  Scheduling time and employees, et cetera. We don't have all the field ops. Effectively, what we're doing is taking a fractional ownership in each of these development projects.

  Investment Strategy and Diversification

  we do that across really any and all areas across the us We took, we haven't touched international development yet, but I don't suppose that won't happen someday.

  But what that does is really we're a growth platform, so we're looking to recycle cash flows from projects as they come in. So we'll deploy, as capital over two to three years. It'll be all focused on, or I guess spent over, probably 15 to different 20 different projects that'll be spread across the us.

  It'll be spread across different commodities. Gonna be spread across different operators in ultimately different areas. And so what that does is provides a diversified platform. So our goal really we're not gonna have maybe the huge 10 x types results that maybe some of these other people try to tell.

  What we're really looking to do is to limit the downside and control the environment so that way, especially in this space. For individual investors that, are actually providing a capital appreciation to them even in kind of market such as today, maybe that's a little volatile. And so we're looking to raise 25 million minimum investments.

  50,000. We are a 5 0 6 C, so credit investors only. But that allows us really to talk to anybody and everybody. And then as I mentioned, we're looking to, capital will be deployed over the first two to three years. So we are a growth platform. Most projects in oil and gas pay out in less than probably two to three years.

  And so we're looking for projects that pay out in less than 18 months, so that way we can start recycling cash flows. And provide that growth platform for your clients and other clients out there.

  Recycling Cash Flows and Exit Strategy

  And in your in your fund that you're talking about recycling cash. When do you decide to stop recycling it and then give it back to the investors?

  Is there any sort of tests that you have or is it just gonna be time? It's not necessarily a a quantitative test or anything specific per se. We do have written into the PPM that we will start making distributions after year three at a minimum. And so it's possible we start making distributions sooner than that.

  But it's all gonna be based on current market environment current, that's both m and a dynamics, both just general market sentiment et cetera. And depending on how the funds. Going depending on the type of really project flow that's coming at us.

  And so if it's maybe a dead time, then maybe that's probably the right time. The other side of that too is the exit. And so we are looking to exit these assets over the course of probably a year. Four to seven is ideal. And so again, everything I just said on from a buying perspective is flipped to the other side on a sell side.

  And so if we get to year four, maybe we stopped recycling projects because it's the right time to sell and to, and exit the investment. So both of those things are running in tandem. And we're looking at the market to make sure that, we're hitting both of those at the right time.

  And would you be able to sell, so you are, you're invested in. Oh a is that what I should just say? Okay. So you're just invested in this and it is producing, and could you exit it? Are you saying you would exit it by selling it to someone else or that the operator would let you out?

  Like how would you exit? Yeah, so predominantly it would be a sale. And so we're gonna, we have, several different groups out there. In the public space you've got groups like Northern Oil and Gas, or NOG, there's a betas. There's also a bigger group called Risa, and so these are big multi-billion dollar enterprises that are looking for larger packages.

  And so what we're doing is we're taking kind of some of these smaller projects that are anywhere from 500,000 to $5 million at any given space and aggregating that to a point where hopefully it's worth. Maybe nine figures or more, et cetera. And so then that all of a sudden those players type start to come into play.

  And so then you would sell it all as one, is what kind of what you're thinking. Okay. Yeah. The idea would be to sell it all as one. Although we've, in prior iterations of this and it things, it's been outside of kind of this fundraising environment within, RAs and individual broker dealers.

  We've sold it in multiple troches. So again, looking at who's the buyer what are the market dynamics? That could be regional, that could be United States, it could be geopolitical, right? And so there's just so many different factors that come into that We're constantly evaluating, so that way we don't miss in a certain timeframe.

  And so when you're talking, so it, you did touch upon this about the 500,000 to 5 million. Is that why you have this sweet spot and why you're starting this fund is because you. Are able to deploy capital in those increments and other people are, don't even wanna look at those deals. That's correct.

  There is a large set of non-operated players. I used to become more competitive. I like to think that my co-founder, Jake Bailey started the movement back in 20 17, 20 18, and then you've seen a lot more activity in this space. But what you're gonna find is any industry, the more longstanding relationships, the more times you can treat people right and be effective in clothing assets, selling assets, et cetera, stuff like that.

  That those are the, be the groups that. Withstand any sort of competitive dynamics within kind of people entering in the space. But yeah there is a market for, a hundred million dollar deals. You got some of those that are looking at billion dollar deals and then you've got, like I said, some very small, and so we fit into a space.

  Where you've got groups. In fact, we just closed the deal into this fund. I could, it's been two months ago now. Whereas an individual who was being asked, there's some new wells is being asked to fund roughly $5 million of capital. This is an individual, I don't know how many individuals out there necessarily have $5 million just sitting on the side waiting to put into projects, but particularly an individual didn't.

  And so we stepped in, purchased as assets, and now we're gonna participate in that 5 million going forward. And so you have a lot of that where on the smaller scale you start to get into smaller groups who are saying, yeah, we play in the, a hundred to million dollar space. We play in the million to $10 million space we play in the 50 to 150 million.

  And you just got these different chunks. And so we're on the smaller end. And like you said, I do think that allows us to fit a niche that. There are other players, but I think that we do pretty successfully. Okay.

  Understanding Non-Operated Ownership in Oil and Gas

  And then could you go in more into explaining what a non, you said non-owner operator, is that, am I using the right terms?

  Yes. What that means to just like a regular person. Is there a way to explain that so that they could understand it or make it like someone something else? Do a, what am I trying to say? Make it. The same as like a story, right? Yeah. So I think you similar in maybe think of it as like a real estate.

  Somebody buys a building more often than not that individual's not gonna actually run the building. But sometimes they do. So sometimes you got an individual who buys a building, leases it out, manages it, does all the maintenance, et cetera. Of course that individual may not be able to purchase the whole.

  Building. And so they look for other investors to come alongside them. And so that's where we fit. We're just taking fractional ownership and then they are the ones effectively. Buying the building, we're taking partial ownership of that. And then they're the ones, being the property managers and taking care of all the decisions and all the maintenance, and of course the drilling completions up front.

  But then everything there out. So we're literally, the hardest thing we do is get a check in the mail and make sure it's classified in the right way, and get a invoice in the mail and make sure it's, put in the right spot. Of course, there's. Certain things that we do within that communications with those people who are managing the properties, making sure they're doing it right.

  There's a lot of forecasting and under and backward looking cashflow analysis to make sure that we're getting charged appropriately and they're running the assets appropriately, but effectively they are, in charge. Okay. And so obviously then you are investing with operators that you have a history with.

  We already covered this. And so you trust them or, you're wanting to really get into that area or it's just, a sound investment. And so you're, so is there a goal for how many different investments that you're going for in this fund? Like what's your forecast with that?

  Yeah. So it's hard to pin it down exactly, but like I said, we're raising 25 million and because of the recycled cash flows, it probably means we're gonna spend somewhere between 40 to $50 million of capital dollars CapEx. Which, again, if you go back to the 500,000 to 5 million probably means we're going to be doing somewhere between 15 to 20 individual projects.

  And one thing I wanna touch on, you mentioned it. A little bit, just briefly, there was, we are looking to participate behind or alongside operators who really know what they're doing. And EOG, Chevron, Oxy some big names out in the public space and in the private space.

  And we always joke that we do a lot of our analysis based on ology and not geology. We look at wells that are right around, we look at the operator in that area. And if we get too far down the rabbit hole of trying to make sure that the geologic formation works versus the success rates around the area, then we've gotten probably too risky.

  And again, that's why I, I say that we're somewhat limiting. Or bracketing the upside to some degree because we're not out there doing super prospective areas. But also extremely limiting the downside because we're behind very successful operators and proven areas. That make sense. And I thought that's what was so interesting when we were talking, is that you said we're investing with companies that you've mostly heard of, that most everyday people have heard of.

  It's not just. Some fly by night or somebody that's just trying to get started. I think that is a source of comfort. And I think it's important because they have to have the capital to ride the ups and downs of whatever is happening in the oil and gas industry. Okay, so what, so the time horizon for your fund is five to seven years.

  That's right. Is that right? Okay. And then is there any sort of preferred return structure, distribution, waterfall or anything like that in your fund? Yep. The day one investors come in there's an 8% preferred return that's compounding annually. So again, that starts day one. And then after the eight percent's returned whatever point in time that is there will be an 80 20.

  Split. Okay. So 80 to the investor is 20% to management. Okay. So pretty normal. You guys, this is that's pretty standard in funds is the eight, seven to 8%, and then the 80 20 split after all of your capital has been returned and your preferred return has been returned to you. And so are, can, is there any specific way that this investment might fit into an investor's?

  Market Dynamics and Investor Benefits

  Strategy that you would recommend or is it a pure income or growth play or anything like that? That's right. So I'd say probably a couple different things to that. First I'll go touch maybe more on the market dynamic side of it. And then the second I'd touch to more yeah, as an individual investor, how this would fit.

  But from the market perspective, as we talked about, we're investing alongside or behind these proven and successful operators. And those operators, especially from a public company perspective, are obviously a lot more correlated to the markets or volatile towards what happens in the market sentiment commodity prices and et cetera.

  And so there's a lot of factors that kind of go into, but we're doing is we're providing these same results that these guys get except, it's not bled through all of those lenses. And so what I would say is. We typically end up performing a lot better and higher commodity prices than like what a public equity stock might do.

  But also we're not as volatile as prices go down because again, we're not dealing with market sentiment and so we tend to correlate a lot better in those scenarios. For an investor, again, where you're bracketing the downside, but also being able to participate in the upside, and we do that predominantly through.

  Edging. And so effectively what we're saying is we're locking in prior future prices. On projects that we invest in, so that way we know what our returns will be on that project. We could spin a whole podcast episode, probably two or three on how we look at that. But just know that we're trying to walk in as much as we can along the way.

  Tax Benefits and Investment Structure

  And then from an individual investor perspective we're not a true or pure drilling fund. And so they're, not maybe the same. I mean there are the same tax deductions as what you would get in a drilling fund. So I would tell investors that, hey, if you're looking for energy exposure, I would pull out of your public equity stocks, put it into private investments.

  'cause we are getting the direct at the well returns versus, through the market. Of course that provides the tax benefits. And so typically 70. Percent of 85% of all capital deployed is deducted year one. The remainder is can be, deducted through bonus depreciation and or over time.

  So you're getting those deductions right away, and we're promising that 50% of your investment over those first 24 months will be deducted. So that could be a tool from a tax perspective. And then really predominantly what we're focusing on is bringing a private equity type growth model to this space.

  And so typical drilling funds or even just kind of other funds in this space, I feel are driving so hard tax. That they're foregoing maybe some. Higher returns. And so we typically, I shouldn't say typically, we really don't look at returns from a tax perspective. We want good gross returns and that were a result, of course, in good net.

  Tax returns. And so if a project doesn't make sense. On a whole, we're not gonna invest in it just because the tax benefits might be there. Again, I think that's smart in life anyway. That's smart for any investment. Yeah. Yeah. I just, I understand in this space that it is convenient to Yeah.

  It's fall into the whole tax when you've got, you've got a lot of tax bill coming due. It's a great option and we're, we can still provide that. It's just gonna come in differently. And so within that time horizon. We're investing for the first three years, like I mentioned, during that timeframe, we should be generating a net tax loss to the investors because of the tax deductions and the capital that we're deploying.

  And then as things move across, your forearm we're making distributions, hopefully some of those are going against your tax basis, so you're not necessarily paying taxes, but there will start to be income generated and that's when we would exit the asset, convert all that future income. From ordinary income, from a taxable perspective to capital gains.

  And so again, really it, this isn't, it could be income and growth, it's predominantly growth thinking through a private equity type approach, just saying, Hey, I'm giving you more privatized access returns to these public operators. And of course private operators from a private operator perspective that an individual investor would never have access.

  And I think it's important to, to point out you guys when he's talking about, so that if you sell your equities that you were already owning in, let's say, Chevron. You're not gonna make as much on your dividends. It pro and who knows what the stock price is doing, but because you're not, because Chevron is making the same amount that Trellis is because they are a co-owner with them.

  And because Chevron has all of these people to pay and, tax people and everything that they need to do to be a public corporation, you're not going to get as much. Whereas Trellis is very. Small, you guys have a handful of employees, and so a lot of that is passed on to the investor. And so you're basically getting like direct access to the co-ownership of these wells to the drilling.

  And it doesn't have as many people to, funnel through essentially. Am I explaining that? Yeah. Do I understand? No. Okay. That's, yeah. Okay, great. I just wanna make sure I understand it right. Because that's one of my, I try to always just put it in a way, that you can like, see it in your mind yeah.

  And that's why I think you guys are unique because you are investing right alongside of Chevron and most of the time in oil and gas, which. See is they need capital for the actual equipment. They need, you're going to buy the land to do own the mineral rights. You're going to actually be, paying money so that they can drill.

  All of these are very capital intensive. And so that's normally what from a fund. Whereas with Trellis it's a little bit different. Whereas you are going to in as a co-owner and you're, buying part of, you could look at it is what his. Ex explanation was, is a building, but really you're co-owning part of that drilling operation.

  Yep. Yes. Yeah. No, that's all great. Okay. All right. Good. Let me know if I'm messing up anything, if I should be saying something else. Okay. No, that's perfect. Okay, wonderful. And so one of my questions that I always ask is, do you guys the managers, do you guys have your own capital invested in the fund also?

  Yes. Yeah. So we as of now we've got I guess roughly 20% of the fund of in our own capital. Okay. And so we're, this is good. I think in order to make this work, we have to because of the way that projects stack on top of each other, you're gonna see production do this, right?

  And so we're in that phase right now where we're starting to pile different projects into there, which requires funding upfront prior to our full fundraise. And so we are, funding that portion of it, and most likely that'll all stay in. And so our, the PPM says we're required a million of the 25, but it ended up being.

  Much more than that at the end of the day. Okay. All right. That's good because one of my litmus tests for any fund is making sure that the sponsors that your interests are aligned with the investors' interests. And I like to have the money in and not just as a loan, like your money is actually in the fund.

  Am I missing anything? I don't, am I missing anything huge that makes your. Funds stand out from the others because I feel like we've given kind of a brief overview of people that would be able to then ask for some more information. Again, this is open to accredited investors and the minimum is $50,000.

  You can you use IRA money? You can use IRA money. Of course, some of the tax benefits that we mentioned will. Not be applicable in those scenario. So if you want the tax benefits, you guys, you obviously have to have you need to just put in cash. But I have, there are people that wanna put it in their Roth IRA because you want to grow that as, as big as you can by the time you're retired so that you can then have tax free income when you go into retirement.

  So I also see that as a benefit too. So I, I do applaud what you're doing. I think that it. Is giving access to people, that they normally wouldn't have access to something. I wish you luck and I'm really glad that you were on the show.

  Conclusion and Contact Information

  Definitely. I appreciate you having me.

  Yes, this has been great. Yeah. Let us know if you have any questions. You guys, I'm gonna have Braden's and Trellis information so that you can check out their website in the show notes. And you can always call me if you have any other questions and then we can talk about your situation. So thank you so much for listening.

  Thank you again for being on and let me know if you have any questions. You guys have a great day. Thank you for listening to the Unconventional Investor Podcast. I hope you feel more confident in how you can grow your wealth using the strategies I shared in this episode. If you're ready to take the next step in diversifying your portfolio outside the stock market with alternative investments, head to me financial.net/contact us to book a 15 minute consult call with me.

  Let's discuss how we can work together to achieve your financial goals. Until then, I'll see you on the next episode.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

We're diving into a new area of interest: Oil & Gas Investing.

If you’ve ever wondered about the differences between drilling programs and royalty programs, how to spot a quality operator, or why oil and gas remain such a compelling option for accredited investors seeking both tax advantages and portfolio diversification, this conversation is for you.

Brad Updike, LLM, JD joins us from Mick Law PC, a premier oil and gas due diligence firm, to explain.

Key highlights you don’t want to miss:

• Oil & Gas 101:

  Brad explains why oil and gas is the 7th largest industry globally and why its market fundamentals continue to attract smart capital.

• Investment Structures Explained:

  Learn the difference between investing in public oil and gas securities (like Exxon and Devon) versus private placements—including limited partnerships and mineral rights deals.

• The Power of Tax Benefits:

  Discover how investors can utilize intangible drilling costs (IDCs), tangible equipment deductions, and percentage depletion to substantially lower their tax liability. Brad breaks down real-world scenarios of how these can shrink your investment’s out-of-pocket costs dramatically.

• Transcript

  Introduction to the Unconventional Investor Podcast

  Welcome to the Unconventional Investor Podcast. I'm your host, Michelle Moses, certified financial planner, licensed realtor, and founder of Me Financial. If you're an accredited investor feeling overwhelmed by managing your portfolio and looking for alternative investment strategies that go beyond the traditional stock market, you're in the right place.

  Let's head into today's episode so you can start taking control of your financial future. Hello everyone and thank you so much for listening.

  Meet Brad Updike from Mick Law

  I am very excited about this 'cause today we have Brad Updike from Mick Law and I know that a lot of you probably don't know about Mick Law, but when you are in the world of alternatives and you're going to, all these conferences and talking to all the different people about what their investment.

  Are they often say, oh, we have a M report. Oh, we have a Mick report. And so Mick Law is very well known in the alternative asset space, and Brad is often piping up and understands the, just all the fees and the backwards and forwards of everything, of all of these. So I am very excited to have you on.

  Thank you so much for taking the time, Brad. You're welcome. So Brad, and I'm gonna read his bio and it is probably the longest bio that I have had, but I'm going to read it because it is so impressive to me. So Brad's areas of focus include structuring, underwriting and due diligence of private placements, including oil and gas.

  Real estate, private equity, and structured finance. He has reviewed hundreds of sponsor companies in approximately 800 unique private placement offer offerings for various clients. He has also provided income tax consulting and underwriting support on non-traded investment program strategies involving 10 31 like kind exchanges, life settlements.

  DSTs, qualified opportunity zones, renewable energy products, conservation, e easements, and private placement life insurance. So thank you again for being on Brad. Absolutely. Good to be here.

  Understanding Oil and Gas Investments

  So today we're gonna be talking about oil and gas specifically you guys. And I told Brad before we got started, I have 'em on for my own benefit too, because I have read quite a few of these.

  But they are very complicated. It's a very popular, area to invest in basically, mostly because of the tax benefits. And I think now we have this big push to become energy independent and I, whenever there is a crisis, we all kind of wanna be energy independent. So I do think that there's a push on this.

  But the oil and gas. Funds are structured differently and they are hard to understand. And so I'm hoping to get a little bit of clarity in this podcast. So let's go ahead and get started, Brad. And so can you, let's give an overview of oil and gas and can you tell us like why people normally invest in oil and gas and what the benefits are to it?

  It's the seventh largest economic industry in the world. And I think it's important to point out that the top six industries actually depend on it as their source of power. If you actually look at the s and p 500 ENP returns, exploration and production returns in 23 and 24, they were both indexes grew by more than 20%.

  I think with that. Smart investors and advisors naturally want some exposure to this asset class.

  Investment Avenues in Oil and Gas

  But that said, there are two main investment avenues for oil and gas for investors that want exposure to it, but they require liquidity and they have maybe a low. To medium risk tolerance, I think you're gonna look at the publicly traded companies and their securities.

  That's your eqt, Diamondbacks, Exxon Range Resources, Devon Comstock Resources in the world. And on that point, if you're objective. Is income. I think you're gonna look at bonds, but if your objective is some income maybe, and a lot of upside, I think you're gonna look at maybe the common stock offerings of these companies.

  And just a side note on that, for those that invest in the common stock of these publicly traded companies, they get a pretty nice tax benefit in the fact that when they get dividends, those are actually taxed at capital gains rates as opposed to ordinary income. You're second. Investment avenue is the non-traded security sector.

  That's where I live. And this sector includes oil and gas investment programs that are sold by broker dealers to retail investments. To retail investors. These are structured as private placements. In some cases. They also include S one offerings and reg A offerings.

  Tax Benefits of Oil and Gas Investments

  In the private sector, the products are sold to investors that are often looking for income tax advantages, and they're willing to maybe sacrifice that liquidity that you would otherwise get.

  From a public investment in order to secure that tax benefit as the most common form of private investing for re the retail channel. I think many retail investors are looking at the drilling programs where they can accelerate 100% of their allocated intangible drilling costs. That's also referred to as IDCs.

  If certain tax requirements are met and the IDC deduction in these drilling programs can be pretty significant. It's about 65 to 80% of that investor subscription. What that does, that's actually lowering the tax effective cost to that investment from perhaps maybe a hundred thousand dollars. If your investor submitted a subscription for that, it actually lowers it to maybe 65 to 70.

  Thousand dollars. So yeah, that helps the return the tax from a tax effective standpoint. Some other good tax notable tax deductions that you often get in these retail drilling programs, the tangible equipment deductions, those are also allocated to the investors. Generally is about 10 to 20% of the subscription.

  And you generally get about 40% of that in the year that the equipment is placed in service under the actual, the bonus depreciation rules. So yeah, the tangible equipment layered on with the IDC, it actually lowers that effective cost of the investment pretty significantly. Another thing, and I think this is perhaps maybe the most important.

  Benefit is the percentage depletion deductions, and basically what you're getting to do, the investors are actually getting to take they get 15% off of their gross oil and gas production income. That's pretty significant. And you get that actually regardless of where your cost basis is.

  So you could actually. You could bring your cost basis like down to zero, but you still get that percentage depletion every year. So that's pretty significant in addition to the income tax features. Another key component of the benefit is the outsized returns. If you're underwriting this correctly your goal in terms of return, you're gonna want something that's significantly above what a high yield, public investment would bring you. And for drilling programs, when we underwrite these, I'd say our general expectations for drilling programs, we wanna see the investor have an opportunity to achieve an IRR. In the neighborhood of 15 to 30% and a return of capital four to five years.

  Royalty program's a little bit different. Our general expectations for royalty programs about an eight to 15%. IRR. Can you explain what a royalty program is? Just real quick. A royalty program is where you're act, you're not acquiring a working interest in the lease, you're actually acquiring the mineral rights and the royalties associated with that.

  I think I should probably go back. To the oil and gas lease in a drilling program. What the program is actually buying is a working interest, and that's basically the the less, the lessee of an oil and gas. They're actually leasing the drilling rights from the mineral interest owner. In cons, what they get is they get the ability to drill on the property and then what the actual mineral rights owner gets, with the mineral interest, you, they could actually drill it themselves. But 99.9% of the mineral interest owners in America, they don't really have that wherewithal. So what they do is they lease their drilling rights to these oil and gas companies and what they get. In exchange for that, they get a lease bonus and then they also get a type of a rent that's called a royalty, and it's a percentage of the production.

  And it's actually they don't have to share the burden of the lease operating costs. They do pay some of the production taxes and some of the costs to move the oil and gas, but they don't have to pay lease operating costs. Costs. They don't pay drilling costs, which is very expensive. All of this, you guys is very expensive, not royalty.

  That rent. Yeah. That's coming to them free of yeah. The CapEx. That's normally associated. So do you normally see funds that are with there's just drill? Do they combine them? Because I, what I have seen is, okay, we're selling mineral rights and they just have mineral rights, and then there is the working interest.

  In it and and then there's equipment. And so there's the different ways to invest in, and I've seen them separated out. But do you see them all combined also? Never. Actually. The two basic types of oil and gas investment programs. I talked about drilling programs a little bit. They're basic.

  That's where the program is. Taking money. They're raising money from retail investors and they're using that to acquire working interests in oil and gas wells that are going to get drilled. The second type of investment program that would be. Those that actually acquire mineral rights and royalties, they're taking the other side of the oil and gas lease.

  They're buying interests in which they're going to be receiving the rents, the royalties as that oil and gas is produced. As far as the drilling programs go in terms of structure, they're all structured as limited partnerships generally under Texas or Delaware law, but they have this special feature, it's called the GP LP election, in which the investor, that retail investor, they can decide whether or not they want to participate in that drilling program as either a general partner or a limited partner.

  And often they make that decision just depending on their sources of income. So the way that works, if I was a doctor lawyer. Or just another professional with a lot of like wages, W2 wages, active income. I'm gonna make a gp general partner election, and that's gonna give me the ability to actually take that IDC and all of the allocated deductions, and I can use that to offset my active income.

  On the other hand, maybe if I was a senior citizen with a lot of passive income, maybe I make that limited partner election, which I can then use the IDs. CS I can use like the other allocated deductions to shelter my passive income. Just continuing with drilling programs. Some have the ability to specially allocate the offering costs and the intangible drilling costs maximize that investor first year deductions.

  So in cases where we have a sponsor that actually puts in a lot of their own capital into these deals, what that allows, the program to do is to specially allocate the offering costs and the leasehold costs to the sponsor, whereas the investors are actually going to get specially allocated the IDCs intangibles, which actually drive up that first year deduction.

  And so do you see that? So it drives up the, what'd you say that drives up the first year reduction. First year reduction. Okay. Because IDC, if you meet certain tax requirements to accrue that deduction you're allowed to actually deduct your IDCs, your eligible share of the IDCs in the year of investment.

  Yeah. 'cause that's what I see is that people invest, it's almost like an addiction. They invest in oil and gas, and then they get, like 80% write off, let's say if everything adds up. And then the next year they want the same thing, and so it's that's what I call it almost it's almost like a tax addiction as they're investing so that they can get that tax write off.

  Which isn't a bad thing. I'm just, it's, no, it's not a bad thing. A funny way that I put it. It lowers the tax effective cost of the investment, but still you have to have the true non-tax economics to make it work because these tax benefits in these programs, although they're very nice and they're competitive compared to other alternative investments.

  Yeah, it's not gonna first. Get you home, make you whole. So you really also have to look at the quality of the operator. You gotta look at oh yeah, the quality of the areas that they're drilling. And you have to actually run the numbers, do a reserve report in an effort to determine, under realistic conditions, can I get.

  Like a non-tax adjusted IRR of that 15, 20, 20 5% on my money. And so and you touched on something about looking at the operator. How do you know, 'cause there are the, the oil and gas industry is very big and there are, it, there's a just a lot of details, right? Because you guys I think you need to understand like when you're getting your reports, it's literally like this on this.

  Little track of land and it's really complicated when you're getting your income reports. So Brad, is there a way to review, I know you guys have your due diligence reports, but is there a way that you would recommend of looking at operators that it would make it a safe investment? Is it time in, reading your reports?

  Are there other things that we could be looking at?

  Evaluating Oil and Gas Operators

  Yeah, we're looking at the financial wherewithal of the operator. We're looking at a lot of things. First of all, we wanna make sure. That this is an operating that's well capitalized. They have the wherewithal to actually drill and to manage the fund 15, 20, 25 years into the future.

  The problem is sometimes, like some of these programs come out, you get these sponsor operators that just have to raise that money, that slug of money to stay in business, and that's not what you want. So I think financial statement analysis is critical. From a sponsor level perspective, you're gonna look at the current ratio and liquidity.

  You wanna make sure that this is a company, that it's not gonna go out of business if maybe they don't raise maximum amount of capital that they're looking for. You're gonna look at debt to equity ratios. You're gonna actually call the bankers. You're gonna make sure that the loan covenants.

  On, on the loan, if there is one that they're following them, you're gonna look to debt, to earnings. You're also gonna look at prior performance. You're gonna want to take a look at the sponsor's, operator's, track record, just to see like how well they have. Done in projects in the field that money is being deployed.

  I think that's also important, from a sponsor perspective. 'cause in a lot of cases, we've dealt with sponsors where maybe they've established a good track record in one basin, but because of economics, because oil and gas prices move the way they do, maybe they're at least positioned in a certain area, is becoming uneconomic.

  Or it's not as good from a return perspective. So maybe they try to allocate capital and they get a position in a basement that they don't understand, how to operate. So yeah, that's something that we also have to take a look at. Yeah. Yeah. When an operator style drifting, when they're going outside of their basin of competence, core competence that can be actually problematic.

  And in most cases it is. And then also I think you wanted. Look at sponsors. You wanna do business with sponsors that have optionality, that actually are so well capitalized, that they have the ability to maybe drill when prices are good and to keep production at high levels or low levels when prices move.

  They're not maybe beholden to have to drill all the time and to be a price taker. These are like companies that are actually price makers, not price takers. That's a great, that is a wonderful point. Yeah, because it have the ability for It goes up and down. Yeah. Yeah. Oil goes to 40 or 50, they don't have to just keep drill, baby drill.

  They. Keep the production on, they actually have the financial wherewithal maybe to shut down that production a little bit or to cut it back, to choke it back in order to maybe preserve some of the economics for the investor down the road. Yeah. And you guys, it's and I think what goes into that, if you haven't looked into oil and gas is it is really expensive to drill in certain places and not in others.

  And it, it's. So when the price of oil is going up and down, it makes it feasible to drill, let's say up north in the winter, where you're having to put in something out in the middle of nowhere. They have to create these huge cities. It takes a lot of capital to do that.

  And and so when the price of oil is low, it doesn't make sense to drill there. So that's. Basically what we're talking about. And so we, you wanna make sure that they have the ability to not drill and still make money because of the drills that they have already done in the past. And most of the time, Brad, tell me if I'm wrong, the ones that are cheaper are mostly in like Oklahoma and Texas.

  It's just. The structure, the infrastructure is there it's easily accessible and is therefore cheaper to drill. And you're not having to set up whole cities in the middle of nowhere of North Dakota. So can we touch on something for because years ago I was really into mineral rights and you don't see that as much as in investments and mineral rights are more like owning the rights of the land and whatever is beneath it.

  Do you find that is like a safer investment for people to go into? Or does it just depend on their situation? I think it depends on their situation. Yeah. I think it's just a different. They, it is a different investment. It's got different tax features, for example just talking about the tax benefits that are associated with royalties, mineral rights, a lot of.

  The, these investments are actually considered real estate under state law. So if you buy into a a royalty or mineral rights acquisition program, you can actually use it as replacement property for a 10 31 like kind exchange. If that program's actually structured as one where the investors actually have like direct title or a fractional interest in the in the asset.

  Which I think is a wonderful asset to also, yeah. Yeah, royalties, mineral rights, it's a passive investment. Just a different tax objective. Like for drilling programs, those tend to be sold to professionals, lawyers, doctors, with W2 active income, whereas when you're looking for investors for mineral rights and royalties.

  They don't necessarily need that high IDC right off to maybe offset a bunch of active income, but they're looking for maybe a tax preferred source of income down the road where the depletion allowance is gonna help them actually from an income. From an income efficiency perspective, and then also again the direct title royalty programs are actually 10 31 eligible, so well, so would that protect you from the company going under if you owned the mineral rights versus if you were in an IDC?

  That is correct. Yeah. You own the mineral rights and the royalties, so it's a perpetual, yeah. So it would, you're not so dependent on the sponsor that you're investing in because you actually own the mineral rights for mineral rights. We do look at the under underlying operators that are actually drilling the wells with within those, mineral acreage areas. I think that's important. So yeah, you do wanna look at the quality of the operators and you wanna make sure that yeah, you're well diversified in terms of operator account. But yes the mineral rights and royalty programs, they're unleveraged they're not using debt. And yeah, you generally have the wherewithal to basically maintain your investment if.

  Oil and gas prices go low. Okay. And so what are, and I think this is a good segue, so what are some of the biggest risks that investors should be aware of in the oil and gas private placements? Biggest risks, I think, again, thinly capitalized operators. We've seen a lot of these program blowouts occur when we have an operator that just.

  Had to raise the maximum amount in order to stay in business, and that's really problematic. I know that the private placement markets, it's created this kind of startup, capital venture capital. But yeah, when you're selling to retail investors, I don't think necessarily that general rule holds true.

  You're really wanting to look at operators and programs that are maybe better in comparison to maybe, you know what? What type of quality or risk, you're getting well, and a lot of that comes with time if they've got the capital right. That it comes with time of being able to have the capital in order to do all of this.

  And it, it has been astounding and shocking to me. The amount of capital that drilling takes it is really mind blowing. Yeah, you wanna definitely do business with a tier one operator. Good balance sheet, good liquidity again. You also have to make sure that this operator has a relevant prior performance in the area where money is being deployed again.

  We've seen operators that have done well in, in prior like deals, but yeah, they get into a situation where oil and gas prices move and then their inventories are un economics, so they just. Move everything over to a new field, a new base, and then they just don't understand the operational characteristics and requirements of that.

  And that also could go bad, just as bad as the first scenario that I just explained. And then also, I think optionality, doing business with a new bird and MDS or US Energy, that actually has a pretty strong balance sheet that's. Important too because yeah, you want to do business again with these companies that just don't have to drill baby drill, that don't have to be producing at 100% rate in order to stay in business companies that have optionality to be able to cut back their production, to cut back their activities, and to time it based on, where based on the price.

  Yeah. Okay.

  Current Trends in Oil and Gas

  And where do you see the current trends of oil and gas and where things are going? Oh, as far as like market fundamentals we've got a really interesting I think situation here. You've got different levels of optimism in oil and gas. I think oil, you could say that again, a little bit of a bull market here.

  You've got the tariffs, you've got the trade war, and there. I guess a natural obvious sentiment that's gonna lower demand worldwide. If you look at the energy information administration's forecasts, I guess they're forecasting oil for this year to be about 64, 60 $5. I guess on the WTI and then actually if you look at their forecast for next year, it's actually about 60 59 60.

  So yeah, you've got some bullish sentiment on the oil side, whereas natural gas is a little bit different story. I think you've got really good market fundamentals. 'cause there's a s. That. Yeah. This is Trump's darling. He wants to increase LNG exporting substantially. There's also data center construction going in in order to support the AI movement, which is gonna require natural gas.

  So there's a real, a real good argument. That demand in natural gas is gonna go up about 2025, perhaps 30% over the next four to five years, which is why you're seeing actually a little bit different. Optimism and then natural gas markets. The EIA for this year, I guess they're predicting. $4 and 30 cents in MCF, which is about probably 35% higher than what they were predicting last year.

  Wow. Wow. That's good. And you guys natural even for, yeah, for 26, they're almost close to $5 in MC. Oh wow. Four 60. So yeah. I hope it holds through well. Yeah. And you guys, natural gas is a natural byproduct when they're drilling, so they they come out together just so that, I think that's also a good due diligence point.

  Yeah. Are you like. I think you also maybe want to take a closer look at the sponsors, the operators that are actually drilling both oil and gas and liquids and that actually have that diversification of commodity mix. And there's some good companies out there that are doing that. Like Bert for example, they're in the Permian base and where you get a mix of oil, gas, and liquids.

  Also, Waveland resource partners. Number seven. That's a non-traded type of hedge fund. They're buying a lot of like non-operated working interests in operators projects in the bachan, and they're exposed also to oil and natural gas and liquids. So they've got that going for 'em. Yeah. Oh, I, and I agree.

  Being able to pivot, especially like with what happened however many years ago, was that 10 years ago, 15 years ago? Yeah. So there were a lot of operators that went outta business and I think being able to pivot and go into different products is important.

  Conclusion and Final Thoughts

  And I. I know that you guys, this podcast is not gonna help you be like, okay, I know exactly what I'm doing.

  But the more that you listen to this and read it, you are going to start to understand some of what is going on in oil and gas. And then I've had some people feel bad about investing just because the electric cars and, we have all. Things. And I think what has happened is that we realize we need all the energy, we need the solar and the wind and the, we need clean nuclear and we need oil and gas.

  It's, there isn't going to be one single answer that is going to, solve all of our energy needs. I think we've realized that these batteries in the cars are not as great as what we thought they were and, to get all the minerals out of the earth. And so I'm really trying to highlight all the different energies that are out there.

  And I think oil and gas is already established. We already, know what we're doing and we have a ton of it in the ground. And so I think, it's important to take a look at it. Yeah, I think that, yeah, it's gonna take all of that. It is. It's, and especially with AI and data centers and, yeah.

  Those types of things it is gonna take more and more energy. Brad, I really appreciate you taking the time to be on here. And I am going to your conference here in a couple months, or no, next month. It is in a few weeks. And you guys, thank you for listening. I hope that you learned a little bit about oil and gas and what some of the private placements offer and the tax advantages that they offer.

  And again, Brad, thanks so much for being on. Thank you. Okay, everybody, have a great day and thanks for listening. Thank you for listening to The Unconventional Investor Podcast. I hope you feel more confident in how you can grow your wealth using the strategies I shared in this episode. If you're ready to take the next step in diversifying your portfolio outside the stock market with alternative investments, head to me financial.net/contact us to book a 15 minute consult call with me.

  Let's discuss how we can work together to achieve your financial goals. Until then, I'll see you on the next episode.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

Financial fraud is on the rise — how can you protect yourself?

There's been a sharp uptick (25% increase!) in financial fraud this year. In this episode, I go over some strategies to recognize and protect yourself from scams.

Key takeaways:

• Watch for red flags: Be wary of unsolicited calls (even when they appear to come from legitimate institutions) that create urgency, ask for sensitive info, or pressure you to act quickly. Always hang up and call back using a verified number you found on their website.

• Strengthen your digital defenses: Enable two-factor authentication, set up transaction alerts on your accounts, and use strong, unique passwords—especially for financial logins.

  • Michelle also suggests having a separate email just for financial matters.

• Stay vigilant—and help others do the same: Many scams target older adults or those less familiar with digital security. Talk openly with family and friends about common tactics fraudsters use, and encourage them to lock down their accounts.

Taking proactive steps now can make all the difference in protecting your money and accounts.

If you haven’t reviewed your account security lately, now’s the time!

Links:

Take the quiz - How Alternative Assets Can Fit in Your Portfolio

• Transcript

  Introduction to the Unconventional Investor Podcast

  Welcome to the Unconventional Investor Podcast. I'm your host, Michelle Moses, certified financial planner, licensed realtor, and founder of Me Financial. If you're an accredited investor feeling overwhelmed by managing your portfolio and looking for alternative investment strategies that go beyond the traditional stock market, you're in the right place.

  Let's head into today's episode so you can start taking control of your financial future.

  Today's Topic: Financial Fraud

  Hello everyone and welcome to the show. Thank you so much for tuning in. Today is gonna be a solo show with just me. We're gonna be talking about financial fraud and I think that this is on a lot of people's minds especially with your email and your wifi and.

  I just think the cybersecurity attacks are getting more sophisticated and I think this is a very timely episode because we have seen already this year a 25% uptick in financial fraud attempts. And. Not that I've had this happen myself, but I do get a lot of emails and updates and meetings and things about these types of things.

  And the companies that I work for namely Schwab, they are seeing an uptick in all of this.

  Recognizing Financial Fraud Tactics

  And today I wanna talk about financial fraud and how to recognize it and how to protect yourself. And I'm going to go through a couple of examples of things that. These fraudsters have done, and I have done an episode 30, who is on title fraud.

  And that one was really interesting because it's more about when you're buying real estate or you have land. So I urge you to listen to that one and I will put it in the show notes, but it, it's the same thing. Where there are fraudsters and that's what I'm gonna call them. I feel weird, it's calling them that, but they are going to try to obviously gain access to your accounts and.

  Essentially what they'll do is they're trying to gain access to your accounts, change a bunch of stuff very quickly. They seem to be very prepared to change, the bank account that your account is linked to, things like that. And and then check, transfer all of your money to another account.

  And then once it's transferred, obviously you can't get it back. So we are going to go over how these. Scams typically work and then we're gonna go over like some red flags and then some things that you can do to protect yourself. Okay.

  Real-Life Examples of Financial Fraud

  So usually the way this starts out is that they will spoof a caller id, so the scammer will make a call look like it's coming from a, like a legitimate financial institution or a stock custodian like Schwab or Fidelity or wherever you might have your accounts.

  And then they will have a sense of urgency about them. So they'll claim their suspicious activity on your account and try to verify details immediately to prevent the loss. So there's usually a sense of urgency to, so that you can't think straight, that's the way that they're catching you off guard and.

  What they are wanting to do is get your credentials. So they're going to ask for your account numbers, so social security numbers, your login credentials, and your two factor authentication code. So sometimes they'll say, okay, there's gonna be a code sent to your sent to your phone. Please read it to me.

  Don't ever read that to someone unless you have initiated the call. But so that's because they could be trying to log into your account. And then you're getting the two factor off of off the. Authentication of should I let this person into the account? And then by you giving them the credentials from your phone, obviously then you're allowing them to log in from whatever computer they're in.

  And then once they are in, they take over the account. So once they have that info, they can initiate withdrawals or unauthorized trades. They can change your account settings. And a lot of times what they're trying to do is lock you out of your account entirely. So they'll change the email address.

  They'll change the phone number associated with it, things like that. So they are ready to pounce as soon as they get access to the account. And I think that's what these meetings have been stressing is they are surprised at how quickly the fraudsters are changing the information inside of your account so that you can't get into it.

  And that they're, how poised they are, how ready they're, they are to go as immediately once they get in. So you don't even wanna give them five minutes inside of your account. And I have also seen at this, these stories are from re meeting I was recently at, but then I was at a meeting like a year ago, and they were talking about how these fraudsters would gain access to people's Gmail account or whatever, email.

  But usually it's Gmail and they would be logged in at the same time. So like the client could also. Be getting these, be getting their email and think nothing was wrong. But then they had access to their Gmail account and they were sending emails from their actual Gmail account to the advisor or to Schwab, but normally to the advisor.

  And then they would be saying things like, Hey, I wanna take a withdrawal of $40,000. I wanna redo my bathroom. And it's up to me as the advisor to say we've never talked about you redoing your bathroom, and why are you wanting to change your bank account to another financial institution in order to make this trade?

  So knowing what I do, I wouldn't do that, but this is what they were trying to do is email the advisor, say, I wanna take out money to do a, to update my. My house. And then they would say, but no, I don't want you to transferred to this Wells Fargo account. I wanna change it to such and such bank.

  And then I think the advisor would do it, or Schwab would do it, thinking that it was them. And so that's why you want to really lock down your Gmail and have all these two factor authentications. I know that it's such a pain, but when it comes to. Being a victim of fraud you would be happy that you had all this stuff in place.

  So essentially, those are the stories about what they try to do is take over your accounts or get money out of them by tricking people.

  Red Flags to Watch Out For

  And so I think what you need to watch out for, so red flags that you need to watch out for are unsolicited calls from someone claiming to be from your brokerage or your custodian.

  So if they are calling and it isn't about something that is in process hey, we're processing this paper transfer paperwork that used. Signed yesterday or something that you already know about, you need to hang up the phone and you need to call them back from a number that is on their website or on that you can easily find on the internet.

  If they call and have a sense of urgency, you need to call back and say, Hey, what number can I call you back at? And then verify it online and then call them back and make sure that it's okay because they are getting very sophisticated. Someone could know your name, your address, and they could also actually know your social 'cause We all know that a lot of this information is.

  Widely held out there on the dark web. And so you wanna make sure that it is a situation that you already know about. And if you don't hang up the phone and call the financial institution yourself. So if there is a pressure to act fast or your account will be frozen then you know it's a red flag.

  And then another thing is spelling issues. And I'll tell you, I almost got caught with one of these. I it's no. I have some crypto and in the hubbub of about a year and a half ago, I was trying all these different accounts to test them out, and there was one called Block Fi, and it went under with the whole FTX scandal.

  And I had to go through, they were going through bankruptcy and then we, I was waiting to get all my crypto back and they were gonna transfer it to a wallet. Come to find out that apparently the list of all the block fi. I think because bankruptcy proceedings, I didn't really do a lot of research, but a bankruptcy proceedings are public and so then my email became public and so I started getting these emails and I almost clicked on one, like one looked so legitimate and I watch out for these things and I didn't click on the button.

  I actually went to the website 'cause I already knew it. I was like, oh, let me login and see what this was. There was nothing in it. And so then I went back to the email and of course I clicked on who it was from and it said block fi, and it had the picture. But then obviously then when I clicked on the email, it was coming from 24 hour Fitness or something like that.

  So now whenever I get a financial email of any sort, I always look at what the email is. Even if it looks like it's coming from the financial institution, I will just go to the institution and log in and see if it's in there and then make a phone call. Because that one really scared me. It was so perfect.

  It had the amounts that I had in the bankruptcy proceedings. It had I, I mean it, it had my email, everything. So I really highly suggest don't click on any links. Go to the actual website. It's. Self. And then if you do get a phone call that does look like it's from your financial institution and there is a sense of urgency, that is a red flag.

  So if you have all the safety precautions set up, then you are already gonna know that something is wrong in your account. So let's go over some of that too.

  Protecting Yourself from Financial Fraud

  So some of the ways that you can protect yourself is obviously setting up alerts for any transactions in your account. If there's a withdrawal, if even if you're getting dividends and interest, you can set up alerts.

  It might be boring sometimes, but sometimes, it might come in handy. I have already mentioned this. Another way to protect yourself is to hang up and call back on the number listed on the firm's official website. And I know this is super tricky and a lot of older people are not into listening to podcasts.

  So if you have your mom or your dad or your aunt or uncle that you think could be susceptible to this. I highly recommend that you at least talk to them about what they need to do, because I have seen some elderly people get very caught up in this urgency because they don't want to be ripped off. And so they do think that these institutions are calling them and saying, Hey, we're trying to help you out.

  We really, they're just trying to get all these information from them to harvest. All of their information. And then once they have all that information, they could go to all of the major custodians and try, the same email address and say they lost the password and that sort of thing.

  So you don't ever want to give them all those credentials enable your two factor authentication and use a very strong password. Okay, we're past the days of using, I used to use the same word for everything. We are past the day, the days of being able to do that. You need to have a very strong password with symbols and numbers and especially for your financial things.

  And I even go as far as, I have a separate email strictly for all of my financial accounts. So banks, crypto. Anything that is sensitive, I have a one separate email that isn't even a Gmail. And I use that specifically for financial things so that I know if it's coming to this other Gmail account, it is not, it's not real.

  And that has helped it because. It's I, this other Gmail account I have had for years and years, whereas this other one is newer, so it's not out there. So I would recommend maybe doing that too, so that you're basically creating like a, a box for your financials. So the email all goes there, your two factor authentication goes there.

  You can use your cell phone if you want, but I have seen things where they will port your cell phone and take it over. That goes into a whole another thing. You need to make sure that they can't port, move your cell phone. And there is a button that you can go in and log into Verizon or to T-Mobile or whoever you have, and click the button that basically says that your number cannot move to any other carrier no matter what, unless.

  You uncheck that box or that, they go through a whole system. It's like putting a fraud alert on your credit. So anyway, back to ways to protect yourself. Don't share your personal or financial information over the phone unless you initiated the call using a verified number. So if they start asking for information, you're going to immediately hang up.

  Look for another phone number. Look for the phone number on the website, and then you can give your financial information if you know that you're calling that company. And then I think if you see any suspicious activity, you need to call your investment advisor your custodian, things like that. It's really being vigilant, but you can circumvent a lot of this just by setting up the alerts and the two factor authentication that is already available in your email and in all of your accounts.

  So you do wanna make sure that you have those things set up. And then I have the Authenticator app, so you know, every single time I log in, I have to put in like a six digit code. Those. Really are a pain. 'cause sometimes you don't have your phone right there, things like that. But that really will lock it down.

  My only recommendation there is just because it happened to me, is I switched phones and I didn't change my authenticator app and it took me months to gain access to a lot of things and I actually lost. Access to my Instagram forever, and I had to change. Which isn't financial, so if you do have an authenticator app, make sure when you get a new phone that you transfer all that information over to your new phone.

  Otherwise you're gonna be in a world of hurt. But it does create a lot of safety in your accounts. You can oftentimes click, remember this computer for 30 days, that sort of thing. But,

  Final Thoughts and Recommendations

  I do think you need to be vigilant about all this financial fraud that is going on, and if you haven't set up the two factor authentication or alerts on your account maybe go into one and just do it slowly over time or as you're in there.

  It is very important to do because once the money is gone from your account, there is not really anything that people can do. So please share this with your friends and your family. And I'm going to put this a lot in the show notes, if people are not all about listening to this. And again, the other episode that I mentioned is episode 30 and it's about title fraud and that is about people taking over the title of a house or a piece of land or often a vacant house and people not knowing it.

  And then once that's done and they will resell the house. Then there's not a way to actually get that real estate back. So I urge you to also listen to that one because that one is really interesting. And if you have any questions please feel free to reach out. I'm happy to help.

  And thank you so much for listening. If you have any topics or anything, I would love to hear that. Or if you would care to leave a review for the show, that would help me tremendously. And thank you so much for listening. I really have a good time with us. So have a great day guys. Thanks.

  Conclusion and Next Steps

  Thank you for listening to the Unconventional Investor Podcast. I hope you feel more confident in how you can grow your wealth using the strategies I shared in this episode. If you're ready to take the next step in diversifying your portfolio
  outside the stock market with alternative investments, head to mefinancial.net/contactus to book a 15 minute consult call with me.

  Let's discuss how we can work together to achieve your financial goals. Until then, I'll see you on the next episode.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

If you’re looking for an alternative investment opportunity that’s well outside the usual suspects, this one is worth a look.

Industrial Outside Storage, think equipment or supply storage for companies that have large items to store or operate.

There are a few reasons this might be a good fit:

• Fragmented Market: Over 80% of industrial outdoor storage assets are owned by non-institutional (mom and pop) operators. This creates tremendous potential for portfolio consolidation and value creation, especially with a current estimated $166B of deals out there.

• Attractive Returns with Less Competition: By focusing on deals in the $1-10M range, there’s far less competition from institutional investors, allowing for cap rates north of 10%—a rarity in the real estate world, especially without leveraging debt.

• Strong Fundamentals, Limited Supply: IOS sites are often hard to replicate, thanks to strict zoning and city limitations. This acts as a natural barrier to new supply and helps secure long-term value for investors.

If you’re an accredited investor looking to diversify with something truly unconventional—and income-focused—this fund deserves your attention. Listen to the full episode for all the details, and reach out if you want to discuss how this could fit into your portfolio.

Links:

Contact COARE - https://www.coareindustrial.com/

Take the quiz - How Alternative Assets Can Fit in Your Portfolio

• Transcript

  Introduction to the Unconventional Investor Podcast

  Welcome to the Unconventional Investor Podcast. I'm your host, Michelle Moses, certified financial planner, licensed realtor, and founder of Me Financial. If you're an accredited investor feeling overwhelmed by managing your portfolio and looking for alternative investment strategies that go beyond the traditional stock market, you're in the right place.

  Let's head into today's episode so you can start taking control of your financial future. Hello everyone and thank you so much for tuning in today. I am very excited about talking about this one 'cause it's a fund that I have.

  Guest Introduction: Hansel Rodriguez and COARE Companies Honestly, I've never heard of anyone doing anything like this and we have Hansel Rodriguez here again to talk to us.

  We had him on the show, I think about a month ago to talk about his mobile home community fund. And today we are gonna be talking about industrial outside storage. You wanna say hi Hansel for a second. Yeah. Hey. Hey everybody. Thank you for having me, Michelle. Hansel is the CEO of COARE Companies and it's an alternative asset manager focused on niche investment strategies.

  And this is definitely niche. And prior to COARE, Hansel worked as an associate at East Still Secure, which is a premier real estate investment banking and investment sales firm. So thank you so much for coming on again. Yeah. No. Thank you Michelle. Okay, so as I said I am excited to hear about this 'cause I've never seen a fund that is in this.

  And I think your mobile home community fund is actually very niche 'cause there's not a whole lot that do what you do.

  Exploring Industrial Outside Storage

  And so what is industrial outside storage? Yeah, no. And to give a little history too, the reason we got into the industrial business is it's still land at the end of the day.

  So part of kind of the history of our firm, we started in manufactured housing. We've acquired north of 200 million of that asset class. Which is really just a land play on affordable housing, right? And so incomes industrial outdoor storage, which is think of, whereas in, mobile home park, you own the land.

  A resident owns the house above it. In this business, we're buying land where we're catering to industrial tenants. We. So think of the companies like a United Rentals that has construction material or construction equipment for rentals, right? Building material storage, landscaping, pavers.

  Where does that get stored? So a lot of times the guys that own those businesses. They get an enormous, dollar per acre savings on rent by storing it outside. So it's not necessary to store it inside versus putting it in a traditional warehouse. So very much a niche strategy. The idea being we will provide cash to owners that own these operating companies, right?

  If you're a landscaping company and you bought the real estate, plus the company, we will do a sell lease back with you, give you a bunch of cash. Now we rent from you as an operator and we get the benefit of the real estate cash list. So now. Whereas in mobile home parks, it's become a little more institutional.

  There's financing and there's a lot of, competitive investors out there and industrial outdoor storage. You couldn't even get bank debt two years ago. And the first actual exit from a operator that bought a lot of these community bought a lot of these assets and sold, just happened in the fall of last year, like true arms length sale.

  Market Opportunities and Challenges

  It's an exciting industry 'cause it's so new. There aren't many guys that have done it. So we think there's a lot of opportunity to buy and consolidate that, that industry. And I also feel like it's very early. We, our estimates say that north of 80% of the real estate that's out there is classified as outdoor storage is owned by non-institutional owners.

  So we estimate that at about $166 billion worth of deals that can be done. Yeah. Very different than what we're used to in our traditional real estate asset class, like multifamily and other things. Yeah. But it is a land play at the end of the day. Well, and that's what I was so excited about is that I had never seen this before and I do think that the mobile, not that the mobile home park, 'cause there's like an arch of.

  Of investment timeline. And you don't wanna be the last one in. Whereas this, I've never heard of this before, but I think it's genius because I do know many people that have had outdoor storage facilities and have gone to sell them. And it's just a really fragmented, it seems like a really fragmented market.

  Am I correct in saying that you're just hoping to find a buyer? Yeah, no, look, I'll say that if you had done this five years ago, there pretty much was nobody to sell to, right? Like you'd have to sell to another operator that has a business that wants to buy or a very limited set of buyers.

  Now there's probably five that are super competitive. But that's it. That's a very small number. When you compare that to yes, what we're used to in other industries now. But I will say, I mean as of two years ago, you could finally start to get debt financing on real estate for these assets.

  And we just had our first exit. So there's a lot of people that are interested. But the other thing that I love about it is the largest investors have the same challenge that they do in every asset class. They can't do deals under $10million. So when we were doing our research about the industry, the biggest rub is that guys wanna enter the space, but they can't do anything.

  Like one of the conversations we had with an institutional partner. We needed $15 million worth of deals to be able to present it to their investment committee. Right. I think the opportunity is doing deals one to 10 million. 'cause there we're getting to very attractive cap rates. Like in our first two deals we're getting to north of 10% cap rates, which I've just never seen in real estate.

  Now they're small, right? They're very small transactions and we bought them all cash. But that's the exciting part of it. Like you, you don't see that in real estate very often. But yeah, it's very much early days. I think when I did take. A stab at trying to estimate how much capital's been raised.

  It's and if it was all deployed tomorrow, it's something like three to 4% of the industry would be bought up assuming they bought everything tomorrow with the money race. Wow. So we've got, that would take 83% down to 79%. So there's so much to do. In terms of fragmentation, it's like the beginning of.

  Like you are at the very beginning of whatever this investment time horizon would be. So yeah, this is exciting.

  Investment Strategies and Value Creation

  So what exactly is outdoor? Is it anything, is it anything that has to do with a business that has a lot to store? So the way it's coined, like the term that we use is that heavy industrial usage, right?

  So in industrial there's sub buckets, right? There's your a hundred thousand plus square foot of warehouse space, that's gonna be like your Amazon warehouses. We know famously, right? Really beautiful big boxes in the middle of whatever MSA they're in. Small bay is like under a hundred thousand square feet, like you're in between.

  Might have a little bit of outdoor storage, but have some warehouse space. The warehouse is more than the land though, typically. And it's a smaller warehouse to print than like your Amazon type boxes. And then you have industrial outdoor storage, which literally like, to put it in simple terms, just means the majority of the sites, if it's five acres.

  Call it no more than 30 to 40% of it has any building. And the building's gonna be a small warehouse, bathroom, facilities maybe a small office. But it's the majority of the value is land. So if I'm an operator that needs a. No, but like when I think what people could picture is like with the metal recycling type places or something like that, that's what you, that would bean example. Yeah. Like you've got the little building and then there's just like a lot of land there, basically. Exactly. Okay. No, the easier way to think about, it's yeah, where does United Rentals, like if you were gonna rent equipment from United Rentals, where's that gonna get stored?

  Landscaping companies like pavers landscaping, outdoor materials like you'd see in a building material yard that. That would be outdoor storage. Okay. Truck, where do you park your trucks? Your Amazon Sprinter vans, that would be considered industrial outdoor storage. So any storage that's outdoors.

  And again, we use the term heavy from an a zoning perspective. 'cause the other thing we like about it too is it's very difficult to get a city to entitle that kind of use. It's arguably ugly, right? So that means there's barriers to building new
  ones. You're, you have, if it's truck usage, you've got heavy trucks, diesel trucks driving through town, getting there, so it's just not a pretty use.

  So cities are very deliberate about how much land they'll even allow to have this kind of usage. And we love that because it means there's not gonna be a lot of new supply that'll compete with us in the future. And so really what you're interested in, obviously is the land, right? And then what is your end goal with this?

  Is your end goal to package all of this and then sell it to institutional investors? Is that kind of what you're thinking? Correct. There is. Yeah, there's really two paths, right? So I think all the value in this industry is basically doing these one to 10 million deals, building a portfolio, call it 25 to 50 to a hundred million dollars of real estate, and then now you open up the size of buyers that can buy it.

  Because today at a million dollars, the only, there's only maybe five guys, six guys that can buy that. And pay a, a reasonably good value, right? But now when you get to $50 million or larger, now you can attract the larger institutional investors who have a much cheaper cost of capital than we would have, and they would be a buyer for it.

  We saw an industrial REIT that had never owned industrial outdoor storage that. Buy of a five and a quarter cap rate against what we're seeing at like north of eight and a half cap rates as we're buying individual. So there's a lot of, they're the big universe of buyers who can get it that big.

  So the goal is either sell to one of those groups or have their equity come in and recap. The initial investors, right? Because regardless, we're gonna get bumped up in value and still provide a really good return to the investors. Okay. And as your, as an exit strategy, are you thinking that the whole fund would be purchased or would be bought out, or are you thinking something like an up read or something like that?

  Yeah it'll definitely be a fund. If. If we can do much larger than just a couple hundred million, then I think that's where something like a public market execution would be exciting. There are no publicly traded REITs today in industrial outdoor storage, which I think is an exciting opportunity though.

  I don't know that today's the time to go public. Yeah. And there's some guys that are big enough where they could justify it, but as we all know, it's a pretty tough environment just globally right now. That is a future discussion. I think simply we will buy it, we will, we'll raise the fund, we'll put the money out.

  There will be a very large group of buyers that will want exposure to that portfolio, so long as we do the right thing in terms of identifying the right assets, right? Whether that's an insurance company, pension fund, whether it's private equity to be seen but there's gonna be a lot of appetite just given the size if we can hit our size target.

  Okay. And are you, what about geographically all the locations? What's your goals there? So very different than housing. So here we plan really focusing on industrial footprint and what do I mean by that? Our tenants. If you think about an industrial outdoor storage user, their most important features are where are you relative to an interstate?

  Where are you relative to a port? Where are you in relative to larger MSAs? So the way we think about industrial outdoor storage is we want land and places where there's not a lot of land, right? So think of like at yeah, think of Miami or Inland Empire Kearney New Jersey or New York now.

  I think those markets are pretty competitive. I don't know that we'd be the most competitive there, but even here, like here in Phoenix would be one too. 'cause a lot of this stuff is down by the airport where nobody wants to go and yeah. Exactly. I could see you be a lot of mom and pops. And that's the thing, right?

  So coming from housing, it's funny how different it is. So you, for housing, you wouldn't wanna go by the airport for industrial, that's fantastic. Because that means your airport's there, your key hubs for industrial or there your warehouses where you might be putting it for storage is all within close proximity to the airport, which is probably the most expensive thing to replicate if you ever wanted to replicate it.

  So the, as like the land in Phoenix by the airport is pretty scarce because what is the availables there? But then you've got a lot of land that's off limits owned by some larger groups that will probably never sell the, whether it's the tribes or or federal land, whatever the case might be.

  So that's the ideal, right? But in my head, I always think of like urban dense areas like Miami, where if you had five acres of industrial outdoor storage zone to land, there's nothing but density around it. So you cannot replicate that land. It'd be impossible to convince the city to tear down the building to put out outdoor storage again.

  That's a key feature though. I don't think we'd be as competitive in markets like, some parts of the Midwest where there's a lot of land available and you could argue that you could justify getting entitlement for it. Okay. And how did you decide you wanted to do this?

  Were you like doing research for your other fund and then this kind of came across as you were looking at other mom and pop and lands and the different Yeah. Lots and things like that, or. Look, at the end of the day, I'm a bit of a nerd when it comes to the investment, strategy side of it.

  That's the funnest part for me. I had been around this for two years, frankly ,and, but at the time, maybe longer than that now, but at the time interest rates were fairly low. There was a lot of competition that wanted to enter this space, and I felt the cap rates just didn't make. What we've seen now is that cap rates have normalized.

  A lot of the guys that shouldn't have been in it aren't in it anymore, and now you're seeing cap rates on a sale lease back at an eight cap, which is exciting tome, right? Like I don't think we should be priced on multifamily cap rates, which is what was happening two and a half years ago. But we are now priced as true industrial net lease real estate with an understanding of if it's investment grade quality, you get a lower cap rate.

  If you're not investment grade, you geta higher cap rate. That's exciting, right? Especially in an environment like now where we don't know the future of interest rates and we do have concerns around where debt might be. So for us to buy at cap rates, that we could buy all cash and make really good dividends to investors.

  Is exciting. But no I'd studied it for two, two and a half years, roughly two to two and a half years. And there's a guy that we [00:13:00] brought on Steven Barry. He had focused he had worked at a company called Zenith. I think they're the second largest operator of outdoor storage. We had talked about, going out and doing this for some time, but valuations didn't make sense.

  And now we sit today at a time where it does, and we were able to close in our first two early this year which have been exciting to work on. And so Steven who's, leading that. He's done over 52 deals in the iOS space. Wow. So he knows the space pretty well. Yeah. Yeah. Okay.

  And those, so these first two deals, that is the beginning of this fund, correct? We actually did that before the launch of the fund. Oh, okay. Yeah, and there's, I think a third that we'll wrap up before we, we truly get our first dollars in. We just launched the fund last week. But the ultimate goal is to basically deploy out of the fund because to the same point, right?

  When you're doing one to 5 million deals to raise money per deal is to exhausting. So the real value is can we construct a healthy portfolio that investors would be excited about? And the best way to do that from a mechanism perspective is a fund. Yeah. I've had really good success with funds that, like what you're talking about, even in multifamily [00:14:00] when it's 5million or even 7 million and under, if there's funds that can specialize in that ,just because there aren't a lot of players.

  That are able to, deploy capital and that amount, which I know, some of the listeners you guys are thinking, okay, that's like a lot of money, but in the institutional space and then when you're talking about like a fund, it's just really not that much money. They wanna deploy very large amounts of money at onetime and so doing anything $5 million and under it just isn't worth their time.

  'cause there's a lot of due diligence and there's just a lot that goes into. Review, reviewing all of the deals. So anyway, I've had a lot of great success with returns on funds like this, so I'm again, very excited about your fund here. I think this is a great idea. So thank you.

  Fund Details and Terms

  Can we talk about like some of the basics, like your minimum investment and the, what, everything that's on your PPM?

  Yeah, sure. No. It'll mirror exactly what we did with. H basically. And I'll touch on too, like what are we doing when we buy these things too, because I know this is a little unique. But [00:15:00] Oh, terms of fun. Oh you, do you wanna go, do you wanna go into that first of what you do after you buy 'em?

  Let's do that first and then we can go into the terms. Yeah. Yeah, for sure. So just the way I rank value that we'll create the biggest value at the end of the day is the fact that we are buying individual properties at one to 10 million in size. And as Michelle said, I mean it's even talking to me, but it is true under 10, even $15 million, the appetite from large investors who have arguably the cheapest.

  Cost of capital or have the lowest return expectations, it's just not there. They cannot spend the time on it. We, and we've talked to groups like that, like one in particular that said, literally we would, we love this strategy, gave us a term sheet for 25million. It was excited about it, but they're like, before we do anything though, we need $15 million worth of real estate to even be able to bring this up.

  And, but just to give you like a flavor of how real that is. By buying one to 10 million and putting it into a portfolio that's larger than 15 million, we think that alone increases and creates a lot of value. The second thing we do is we may buy vacant sites. Like for example, we bought a deal in Orlando.

  It was vacant, but every iOS site adjacent to it was leased. So we did an assumption of what the market rents are. So we bought the site, vacant, had the old tenant move out, and we basically released that site to a new user. We're in the middle of releasing it now, and by doing that, we get a huge mark to market on rents, right in that case, close to 40% higher.

  Than what was in place or what would've been in place with the existing user. So that is a big value add. And then of course just managing from, so there's a thing called wall, right? So weighted average lease term if you buy one site and it's under three years of term left, you're not gonna be able to get a bank to finance it 'cause it's not enough maturity.

  Usually they want five years or longer, right? So we may take deals where we'll buy it. There's only two years left on the lease. We will reten it in the second year. Now we've got a five year lease, and, but because it's the part of a portfolio, the portfolio itself could be larger than five years. We've just created a ton of value because as in that lease, you may know.

  The value is all in a lease. So if there's no lease, you get a huge value, step up or basically you buy at a much better price because you've gotta do the work of releasing, right? And so our job is to match that and construct a portfolio that when we take it to a bank, it's financable, take it to a buyer.

  It's exciting because of the amount of rental revenue. Left. So those are the three biggest value adds. We're not doing any kind of heavy development. We're really not trying to do super substantial value add. These are outdoor yards, so there's not much to be done anyway. If you had to do it, it'd be road paving, graveling, securing the perimeter with a fence, that sort of thing.

  So plays on the fact that we like to stick to kinda low CapEx businesses or pieces of real estate. Where the management side is much less intensive. Yeah. Yeah that's the key pieces on the value add side. Okay. And are there any 'cause in our last episode I totally skipped over all the tax advantages.

  Are there any tax advantages or anything that we need to be aware of with this? Oh, so now this one is truly, yield driven. Okay. The exciting thing about this one is just you are like, we are able to buy real estate and arguably get investors eight to 10% cash on cash without any debt.

  Which is unheard of in real. So like our first two deals were trending north of that and we will put on debt as part of a refinancing, as a broader refinancing, but at the individual site level, we don't put on debt. So to be able to do 10 plus cash on cash in some instances on real estate without debt is unheard of.

  And we think also given the environment we're in. That's incredibly exciting, right? Because there's not gonna be a bunch of financial risks as you would otherwise have if we took on like bridge debt or floating rate debt. Which is what would be required at those deal size. Yeah.

  But tax advantage is very limited. There's not the kind of depreciation we have on though. Yeah. On the mobile side. Yeah. But so it's a pure like income play basically. Yeah, correct. Yep. And very good one. Appreciation on the ex. Yeah. Very good one, everybody. Okay, so now let's go over, let's go over the terms of, and Sure.

  Your minimum investment and what, if you've got a waterfall feature and all that kind of stuff. Yeah, so it's a hundred percent return of capital to investors first. And then a minimum 8% pref. And then our goal is to return capital, so you get all your money back, plus an eight pref. Then after that, it's a 70 30 split.

  And then our management fees are 4% on rental revenue, which is our, kinda like our property management fee. And then we charge a 2% acquisition fee at the close of each transaction. And then no, no equity management fees or asset management fees. And that was one of my questions. Okay. 'cause when I was looking at your fees, I thought 4% was a lot.

  But if you're not having any of the other fees then that would make sense. Exactly. Yeah. No, we're just it's off of revenue and it's we're not doing any equity management fees or asset management fees. Okay. There's a, our incentive is aligned with the LP in the sense that we want to be able to either do the best exit or recap that we can.

  So that's why we structure our incentives that way. Okay. And then is the minimum 50 minimum, sorry, I should know that off the top of my head. That's all right. The minimum is a hundred. Okay. But we but all that is said, obviously if it's part of a group like in, which might be the case in yours, we can have a discussion about it.

  Okay. But we are gearing towards a hundred. Okay. It's a hundred thousand dollars minimum. And then basically what everything that he says means you guys, in case. I know we're throwing around a lot of terms is that until that the fund cannot technically make money like as a profit until you get your return of equity plus an 8% return every single year.

  Is it every year? That's that's right. 8%. If we can't pay it for any reason, it accrues. Yes. And it to, we have to catch it up when we sell. Yeah. And so then you have to catch it up. So then once you reach that point, then the split of the profits is 70 30. So the investor, you would get 70%. And then co r companies gets 30%.

  Am I explaining that right? Okay. That's right. So just so that you get, I'm just a little bit slower on all of that, and when you're not around all these deals, sometimes we're throwing out all these things, but that's essentially how a lot of these work is that you get what they call a preferred return.

  And until you reach that preferred return, they're not allowed to take the profits and win. And then when they do, it's usually split 70 30 or 80 20. And I do see a lot of 70 30 splits in self storage manufactured housing and, situations like this. Whereas when you're doing like multifamily or office buildings, a lot of times the split is 80 20.

  So this is pretty much like in line with a lot of the other. Funds out there. It's just a function of, and that's just a function of deal sizes. Since the fund itself is fairly small, we're targeting 25, we might hit up to 50 million. But the, at those at those dollar amounts, it's yeah, as it's just much smaller than like multi office, right?

  Yeah. So you have to charge a higher percent. Am I missing anything about your fund? I think this sounds pretty straightforward and like something that everyone would understand of how it works. Yeah, no, look, the only other thing I'll mention is it is an exciting time to be a buyer in this type of real estate, if you think about it, right?

  A lot of companies right now are trying to find ways to get cash right? So especially asset intensive businesses like in, distribution freight guys that own trucking companies. So it's an ideal scenario for real estate buyers because we're coming into the owner and saying, Hey, you own your business, but here's a couple million dollars.

  For the real estate and we're gonna let, we want you to rent it. So from a buyer landscape perspective it's actually a very exciting time. Which is why we're in a bit of a rush to, to fundraise. 'Cause we do see, we're seeing a lot of opportunities now that you normally, we were not seeing two and a half years ago when we were first talking about it.

  Loved the strategy, but certainly wasn't the right time to buy Now. There's a lot of need for liquidity. And we're hoping to, that this would be a good way for them to be sale stacks. Yeah. No, I could see that this would help a lot of businesses especially in that price range, that they would have a hard time selling to the right person.

  Yeah. I think this sounds wonderful. I'm excited to talk to people about this fund. Thank you. I'm glad to hear it's the first time you've heard of it. That's awesome. Yeah, I and I read a lot of deals and go to a lot of conferences and when I was reading about this one I was like, oh boy, this is a good niche right here.

  Wait till you see the picture of what these sites look like. It is. Yeah. There it's definitely like industrial. Yeah. You have to, shit. I have been, my next door neighbor actually owned a lot like this and here in Phoenix and oh really? It took a year to sell it. And it was. He was renting it to, it was, I think, metal like recycling or, like storage.

  And it took a lot to get it, it's not like you can zone it for different things and it was right up against railroad tracks. There's just a lot of complications with some of these pieces of land and not everybody's gonna wanna buy them. Yeah, that's true. I think this is a great niche and I'm really glad that you came on to tell us about it.

  Awesome. Thank you for having Michelle. Seriously. Okay, thankyou so much. And you guys Hansel's information or COARE information will be in the show notes. I'm also gonna reference the mobile home community, or I know you guys you call it manufactured housing, but most people can mobile home communities.

  Yeah. I'm gonna reference that also in the show notes so that you can hear about both of the funds that COARE does. And let us know if you have any questions. We would be happy to help. So thank you again for being on Hansel. Sorry. No, no problem. Thank you for having me.

  Conclusion and Contact Information

  Thank you for listening to the Unconventional Investor Podcast.

  I hope you feel more confident in how you can grow your wealth using the strategies I shared in this episode. If you're ready to take the next step in diversifying your portfolio outside the stock market with alternative investments, head to mefinancial.net/contactus to book a 15 minute consult call with me.

  Let's discuss how we can work together to achieve your financial goals. Until then, I'll see you on the next episode.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

Downsizing or transitioning to a new living situation can be especially overwhelming for seniors and their families.

In my recent episode, I had the pleasure of chatting with Zach Gariti, founder of Reavanti, a company specializing in senior move management.

Here are 3 key takeaways:

• A Personalized, Stress-free Approach: Reavanti manages every aspect of a senior’s transition—from sorting and packing, to donating and selling unwanted items, all the way to recreating familiar home environments in new spaces. Clients remain at the center of the process, but without the heavy lifting (literally and figuratively!).

• Flexible, Compassionate Support: The timeline is tailored to each client’s needs. Whether it takes days or more than a year,  they can adjust to clients’ schedules, family situations, and emotional readiness.

• Specialized Care for Memory Challenges: For clients moving into memory care, Reavanti emphasizes recreating familiar surroundings (even arranging photos and setting up favorite TV shows!) to ease transitions and maintain comfort, dignity, and a sense of control.

If you’re helping a loved one—or know someone who is—navigate a major move, check out Reavanti or connect with a senior move manager in your area.

Links:

Contact Zach with Reavanti - https://reavanti.com/

Take the quiz - How Alternative Assets Can Fit in Your Portfolio

• Transcript

  Introduction to the Unconventional Investor Podcast

  Welcome to the Unconventional Investor Podcast. I'm your host, Michelle Moses, certified financial planner, licensed realtor, and founder of Me Financial. If you're an accredited investor feeling overwhelmed by managing your portfolio and looking for alternative investment strategies that go beyond the traditional stock market, you're in the right place.

  Let's head into today's episode so you can start taking control of your financial future.

  Meet Zach: Senior Move Manager Hello everyone and thank you so much for tuning in. Today we are going to be talking with a company called Reavanti and they are senior move managers. And to talk about that I have Zach here who is the owner of ti.

  Thank you so much for being on. Yeah, thank you so much for having me. Yeah, this is his first podcast and I thought. This company is so unique that I really think that everybody needs to know about it, especially if you have like elderly parents or grandparents or something where you're trying to help them.

  TI is the ideal company for families who are exhausted from juggling the downsizing and moving processes and want a smooth and easy transition for themselves or their loved ones. So thank you so much for being on Zach, and we're gonna get into this about what you guys do. Okay.

  Understanding Senior Move Management

  So is that a good synopsis of what you guys do?

  You wanna explain a little bit more about what senior move managers are? Yeah, absolutely. Again, thank you so much for having me today. Really the whole goal of a senior move manager is just reducing as many of the stressors that someone might. Face as they're looking to transition.

  Usually it's a very overwhelming process and our whole goal is just to be that support system throughout the entirety of the process. And I'm happy to go into some of the, the more fine details, but that's the overarching goal is just, if there's a stressor that they have, I want 'em to put it on me so that they don't have to worry about it anymore.

  And essentially when someone that is senior is either moving into from their house. Into a 55 and over community or memory care or something like that. Yeah. The vast majority of our clients are usually in a pretty substantial downsize couple thousand square foot house into, like you said, independent living, which is usually under a thousand square foot.

  Okay. So they're like moving into an apartment. Yeah. That's kind of thing. Yeah. Okay. And they're overwhelmed with all the stuff that they have, right. And they're not sure what to take. They don't even know where to begin. Okay. Okay. And they don't know what to pack, what to give away, what to sell. Is that, those kind of the categories?

  Yep, yep. Exactly. And so typically our whole goal is we do it usually in two phases and it's just to, try to make it into bite-sized chunks. So part one is making 'em comfortable into their new home. So we identify, all the most essential pieces of furniture dishes. Artwork, everything that is most important to them, to make sure they take it with them into their new space.

  And then part two is, working through the items that they did not wanna take with them. So whether we need to donate items, we have some wonderful charities if we need to sell items for them, we have wonderful partners that we use of varying degrees. So really high end all the way to day of.

  Day-to-day items. And really just the whole goal is to find a home for all of these things and try not to throw away if we can help it. Okay. All right. And does that take, I guess it depends on how much stuff they have. But what kind of timeframes are we usually talking about with all of this?

  So the really cool thing about our company two, is we can be totally flexible with our clients and usually that's really essential for them. Whether it's working around doctor's appointments or, they might. Family in town or whatever their schedule might be. So we've worked with clients for over a year.

  They just wanted to see me once a week. But if they really wanted to get everything out of the house, we've done that in a couple days. So really just, we try to be as flexible as we can. Oh, so we could take as long as a year. They could, if they really just wanna take their time. Okay.

  We've had, they wanted to talk with us, see how they're doing, get some ideas, help, have some conversations, and then, try it out for a month. Or they we have someone who was, they were living in Colorado, so they were gone for. Five months and they came back and, okay.

  So yeah, just whatever their timeline is, we try to match it. Okay. And are you helping them decide what category their things go into or anything like that? Yeah, so typically we have, three main piles to start with. So part one is, keep, like they definitely wanna keep this. Part two is they're okay letting it go.

  And we have a maybe pile and the maybe pile is, if it could fit or if it would look nice. That'd be awesome to take. But if it doesn't, that's okay. And then once, once we know they don't wanna keep it, then we usually try to sell it first and then donate. And then if we need to dispose of anything at the end, we'll do that at the end.

  Okay. And you have teams that do all of this stuff? Yep. Yep. So all, all within our umbrella. Wow, that's impressive. And so they don't have to worry about any of it, like you're doing the heavy lifting and all that, like taking it from their house. And the way that we're designed is the client is the one who's still the center.

  Center of the process. They're the one who making all the decisions. They're still the one in control. They usually talk with one of our project managers, this is that if they have any questions or they need to schedule anything or anything on their mind they talk to them and they form, a really wonderful relationship.

  And that project manager's the one who then coordinates everything on the backend. And this just really reduces a lot of the stress for the person transition. Because instead of having, to juggle several conversations. They have one person that they're really comfortable with, and that just helps the process substantially.

  And you guys are actually moving the items from their old house to their new house or condo or wherever they're living. Yeah. Okay. So they don't have to touch a thing. They have to touch a thing, but they, yeah, so they do, they put it in the different piles or they like marking it with so typically pieces of paper or something.

  Sometimes we've had. Clients who really wanna be engaged. But sometimes, or, and probably more common than not, we usually have set up a chair relatively close to our staff who's working with them and they just, how often do you use these plates versus these plates? Which pictures are most important to you?

  And so they, they are the ones who are making the decision, but they're typically. Just leading the process without doing any of the physical part. Okay. And then who normally contacts you? Is it the person that's moving, that contacts you? Is it the real estate agent that's selling the house?

  Or is it like a, the par the kids that are helping the parents? So I would say it's about 50 50. So about half the time the client will reach out to us, the other half. The family member and then, yeah. So sometimes will have the realtor make, if they don't have children or something along that line or, some other individual For the most part I'd say it's about 50 50 family and then the adult children. Okay. 'cause the adult children are the ones that are feeling like they have to help them. And so if they're out of town, then it's really hard for them to come back and forth and manage all of it, right?

  Yep. Yeah. And you guys, I had I've had Zach on because I've heard so many great testimonials in the meetings that I go to from the people that have used TI and just how easy it's been and and some of the kids that have been tasked with the downsizing and what a relief it has been and how much you guys take care of everything, especially like placing it in the new.

  Home. And so let's go over that. 'cause I think that's really cool, like how you guys lay it out and everything. Yeah. Thank you for that. And yeah, so one of the important steps too is recreating the new space to feel as close as we can to the original space. So our staff, we take tons and tons of pictures whether it's, the arrangement of.

  The dishes, do things need to be positioned like to the right of the fridge, so that way when they move into the new spaces where they expect, or their bed, that'll be made up for them when they walk in, the pictures will be hung. And the whole goal of that is that when they walk into their new space, there's that, there's not that.

  Oh, now I gotta unpack. Now I gotta get settled in. And that's one of the huge differences too between us and typical moving companies is while sometimes moving companies, they might unpack things. They don't place it in a strategic way to make it functional and safe and comfortable for the client.

  So we just step in and just try to make sure that space feels as similar as we can. Can to original. Okay. And that's what kind of sold me too, is that the bed was made. 'cause that's the biggest thing when you move, it's if your bed isn't made and you have nowhere to sleep it's a very bad feeling.

  Yeah. So we actually just took on a pretty substantial move pretty recently. And the really sweet lady. She knew it was gonna be a couple day for unpack, and she's the biggest thing for me is I need my bedroom and closet to be done, and I want my kitchen to be functional.

  So day one is we just made sure that closet, all the clothes were hung up, the bed was made like all the toiletries were put away, the kitchen, like everything was right where she needed to be. So that way, even though there was. Still a little bit more in the process.

  She started to Ray feeling comfortable in her new environment. Okay. So that's really important. And so she was there and then you guys came back like the second day and you unpacked more? Yep. Yeah. Okay. Okay. 'cause it's not like this all happens or are there times where you put the whole. Their whole new living situation together, and then they move into it.

  So the vast majority of our clients, we move and unpack everything on the same day. Okay. So we usually do a lot of pre packing before we do, we call 'em non-essential items. So this is, items that they don't need day to day leading up to the move. Like artwork is always a great example.

  And then on move day will. Pack those final items, whether it's the final clothes, the last toilet trees, we'll do the move and the whole unpack on the same day. So we'll unpack all the toilet trees, we'll make the bed, put away all the dishes, so that way at the end of move day, everything should be ready for them.

  Okay. And then all the giveaway and the selling has already taken place. So that is we'll usually talk about the timeline for. Clients there. Typically we do that part after Oh, the move. Okay. Just so that way they can focus on one thing at a time. And, sometimes it just feels too overwhelming to think about everything.

  They're not taking that, they don't even think about what they are taking. So we recreate that new space first, and then usually the next day or the next week, if they are ready for us, we'll go in and then start packing up all the items that they don't want and getting those items out of the house.

  Okay. All right. That sounds really cool. It sounds like very stress free. Move. Absolutely. Yeah. You know how it is to move. It's like really overwhelming. This just sounds very magical. And so can we pivot a little bit because I think this is really unique. Can we talk about like your memory care clients the people that are moving into memory care and what you do for them? Yeah, absolutely. So memory care is a very. Special group that we need to take extra precaution, just recreating the spaces to feel as they originally did. So I know I mentioned earlier about pictures. We take even more pictures.

  So for example, today actually we just did a memory care move. And she had her pictures arranged on this bookshelf in a very particular way. The dishes were in a certain space. The, the bathroom, everything is just in a particular spot. She had a certain picture that was mounted on her wall.

  That reminded her that this is her bedroom, not the other bedroom. 'cause she had a two bedroom. And really just the whole goal is just taking the pictures and making it as identical as possible. So that way the transition feels like it almost didn't even happen for them. And they walk into their new space and almost felt they didn't lose a step.

  We've even had individuals where he loved. Star Trek, that was his thing. And as long as that was on, he was okay, but if it wasn't on, he was not okay. So that was like priority. One of the organizing process is making sure that on move day we got the TV mounted and stationed a Star Trek. So that way at the end of the day when he walked in, he found his chair and it felt nothing happened.

  That was wonderful. And it's just so loving, and I think that's what seniors need. I think that there's so many people are like, oh, whatever, they're fine. They need to roll with it. That kind of stuff. And I just think that your service is just so loving towards them. And I think that's wonderful.

  'cause I, I work with a lot of seniors and I just think they deserve respect. They have a lot. Of knowledge and, history and all of that. And so that they deserve this kind of treatment. I think this is wonderful. Yeah. Lots of fun stories and usually that's their favorite part is reminiscing as we're going through the items and yeah.

  And sometimes they feel like they're, losing a little bit of control. I think it's just really important to us, again, to make sure that we give it back to them and know that they're the one in charge, they're the one who are making all the decisions and we're just there. Helpers.

  Yeah. Yeah. You said that earlier about making sure that they feel in charge and I think that's really important. 'Cause that's what starts to happen is they feel like they're not in charge. Especially with computers and Right. Needing help with all that kind of stuff. So I think it's wonderful that you guys think that way.

  And I'm happy to set up the computer for 'em though. No worries. Yeah, I'm sure you're very helpful. It takes a certain personality to do all of this to be just I dunno. Patient maybe, and yeah. And you seem that way. So I think that is wonderful. We're lot wonderful staff and they're all very similar and they just, they do it 'cause they love it and most of 'em are actually retired and they just love doing it.

  Yeah. So it makes it really fun. Yeah, I'm sure it's, it again, it's just a really loving and caring thing that you can do for someone else. So I think it's wonderful. And then, okay, so can we talk a little bit about.

  Pricing and Consultation

  Like how do you price all of this? Because there was somebody at the meeting the other day and they were talking about how surprised at how reasonable it was because she priced out, like just moving companies and you guys, and that it was just totally worth it and just so stress free.

  So I know you can't. Give like a certain price, but is there like a range or something you can tell me? Yeah. So we always start with a free consultation. And these are helpful a, for us to get an idea of, the scope of work, but also to start forming that relationship. I know I alluded to it earlier, just starting that bond with our client.

  So we always do those free consultations and we always get an estimate at the end of that consultation. I would say the two biggest variables are quantity of items and the speed that the client wants to work. Some people are like, get rid of it. Other people want to, go through plate by plate, page by page, which is totally okay.

  That just takes a little bit longer. And then, a thousand square foot house versus a 10,000 square foot house that, that range is substantial as well. So typically we, I would say for most of our transitions it can be if it's like really small, like the memory care one we did.

  Today that was, and including the cost of the movers is around like 800. And then, the substantial one I was talking about that was over 20,000. So the range is really substantial. Yeah. But with a mover, it would be that different, there would be like a big difference like that too.

  But you're adding this extra service to it, which I think would be totally worth it. And every single time they all. Clients always wish they reached out sooner and didn't delay the process like every single time. Really? Yeah. You mean because they feel like rushed, like they should have started earlier with the whole process?

  No just because they've been, usually delaying it for years. So usually it's not that, like they thought about it for a week and then they called and it's, they've been. Knowing they've, or they've wanted to move or they've been thinking like it's ready time for move, but they look at all the items and there's there's no chance I can do this.

  And they've put it on for years and years. We had a client and it was a similar situation, five years, they've been delaying it just because it felt so insurmountable. When I met with them like, oh. Can we move next week? And yeah let's move, let's do this move next week. Let's do this.

  Yeah. Just because theyre, they usually, this is such a, an unknown service still. It's growing, which is awesome. But it's just such a helpful thing that most people don't realize, and then that usually is a big hurdle that can be removed. Yeah.

  Nationwide Network and Cross-Country Moves

  So that is do they have other, are there other companies that do this out there in other cities and, yeah, so we're part of, we're part of an awesome organization called nasa, which is the National Association of Senior Move Managers.

  And it's a nationwide. Company and they have different companies similar to ours who do what we do. Okay. And it's really awesome to use a NASA company because we have a very strict code of ethics that we have to follow.

  This just prioritizes the senior throughout the whole process, making sure that they're being taken care of and that everybody is, staying within reason and taking care of them.

  Again, sometimes that, that can get lost. So that's like my priority one is making sure that they're okay. And the cool thing too is since it's a national organization, if someone's moving, say from Arizona to California, or someone's moving, let's say from like Wisconsin down to Arizona, I would connect with a different naam company and then they do something similar.

  So that way the process continues to be smooth regardless of where. Where they are, where they're going. Do you have a lot of cross-country moves or outstate moves really? Yeah, we do. Okay. And so we actually originally started up in Wisconsin, which is interesting. We only had a couple of interstate moves.

  But since moved to Arizona, we've had a lot more people going back to their family members typically like the Midwest or California. It's just been interesting to see. Yeah, no, that makes sense that they move out here to retire. And then they're moving back with their kids. Yeah, exactly.

  Or wherever they are. Yeah, that they would need some help doing that. It's a it's a big project, so I think it's wonderful. I'd never even heard of someone doing like the type of company at all until I was with the brokerage and saw you guys present. So I think this is wonderful. I'm just so thankful we can get the word out about it.

  Am I missing anything? I actually, what I wanted to talk about was. When I was talking that she was talking about moving people up to a bigger house too. So I know that most people are seniors, but there are just regular people that hire you Yeah. To just move. Yeah, absolutely.

  So I'd say the majority of our clients are definitely seniors who are in the down. Process, but we've actually moved college students before. We've moved families. They were like in their forties, but they just had so many other things going on, like work and family that they just weren't able to, get everything packed and moved by their closing deadline.

  Or like this example, they actually work in increasing the size of their house. But they still needed a little bit of help, making sure it all flowed well. Packing everything and doing the unpack. So we're happy to work with any clients. The majority again, are seniors, but that's definitely not our only scope.

  We're happy to help anybody. It's like you're removing concierge or something like that. That's perfect. Yeah. Yeah. That's a way I would put it anyway. Okay. Am I missing any part of overreaching themes or things that you guys do. No. Yeah, I think that's perfect. Yeah.

  Yeah. I think just the highlight too is just the two phases are really important just to, again, reducing the stress of getting 'em comfortable into their new space first, and then working through the items that they didn't wanna keep for. For part two. And just taking care of anything on the backend.

  And that's really where we typically work with realtors as well, is getting the house staged. And sometimes there's, that, that specific weekend that, that needs to be on showing and we can get things done, in, in a week and we can do deep cleaning, handyman work, sale of items, just anything to get that house.

  House on the market. Yeah. Because they leave stuff behind in order to have it. B stage. Yep. Yeah, exactly. Yeah, I mean it sounds like a win-win all the way around, I think so, yeah. Thank you so much for being on. I appreciate you taking the time to share your company with us and. I'm gonna put like your website in the show notes and all of your information in case you guys want to reach out to ti to, for a move for you or your family.

  And your website is just reavanti.com, right? And they are local here in Phoenix, but as Zach said, there are, there's a nationwide association that you could put in contact with and we'll put all that in the show notes. Yeah. Perfect. Thank you so much for having me. Yeah. Thank you again for your time and thank you so much for listening, everybody.

  I hope this was a valuable use of your time and I hope you have a great day. Thank you for listening to the Unconventional Investor Podcast. I hope you feel more confident in how you can grow your wealth using the strategies I shared in this episode. If you're ready to take the next step in diversifying your portfolio outside the stock market with alternative investments, head to mefinancial.net/contact us to book a 15 minute consult call with me.

  Let's discuss how we can work together to achieve your financial goals. Until then, I'll see you on the next episode.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

In this solo episode, Michelle gets into the nuts and bolts of investing in alternative assets.

If you’ve ever wondered how difficult the logistics are to invest outside your traditional brokerage, this episode is for you. Michelle breaks down the logistics of alternative investing—from setting up self-directed IRAs to filling out subscription agreements—so you can feel confident taking the next step toward portfolio diversification.

What You’ll Learn in This Episode:

• The Basics of Alternative Investing: Why more investors are looking beyond stocks and bonds.

• Self-Directed IRAs Explained: How they work, when to use them, and why they might save you money on fees.

• Subscription Agreements: What they are and how to complete them.

• Investment Timelines: How long it takes to move from decision-making to execution.

• Cash vs. IRA Investments: Key differences in process and paperwork.

Links:

Take the quiz - How Alternative Assets Can Fit in Your Portfolio

• Transcript

  Introduction to the Podcast

  Welcome to the Unconventional Investor Podcast. I'm your host, Michelle Moses, certified financial planner, licensed realtor and founder of Me Financial. If you're an accredited investor feeling overwhelmed by managing your portfolio and looking for alternative investment strategies that go beyond the traditional stock market, you're in the right place.

  Let's head into today's episode so you can start taking control of your financial future.

  Understanding Alternative Investments

  Hello everyone and thank you for joining me. Today we are going to be talking about what it is logistics. Like to invest in alternative investments. I get a lot of people that come to me, obviously, because they want to to add alternatives to their portfolio.

  And they go into two different camps. And so I'm gonna go over the two different camps and how it usually goes because. People are confused on how to actually invest. They're like, I want to do something like this, but I'm not sure how to do it. Because we are so used to hearing from the media, right?

  Or, I shouldn't even just say the media, but whatever online about you are doing stocks and bonds and this is your brokerage account, that is so drilled into us that we know all of that. And so when. I start to talk about alternative investments or they see my page or something that I've said, then they're like, oh, how does that actually happen?

  And that's what I want to talk about today, is the logistics of how it actually happens. And the thought process of things and what the, maybe the timeframe too.

  Diversifying Beyond the Stock Market

  So I think the largest group of people that come to me that want alts are the people that have everything in the stock market. They're 401k, they've got brokerage account.

  They even have their HSA is in the stock market and it's just a lot for them. They would like to diversify, but they're working so much that, getting an Airbnb or having another, it's just a lot of work to do to diversify into real estate in that way. And I think traditionally over the last 10 or 15 years, that was drilled into us of get a rental, get a, rich dad, poor dad type of thing.

  That used to be the thing. And now it's real estate is really high and and managing Airbnb is a lot, and I'm not really interested in doing that. I would like something to be making money that is outside of the stocks and bonds because people, they get really stressed and it's like out of their control, right?

  It's like I have all my eggs in this one basket besides my house, or besides this other little investment that I have, I would like to diversify into something else. And so that is usually when they come to me. And they aren't even sure what's out there. And to just say the logistics of it, it's mostly just an education time frame.

  Sometimes they've listened to the podcast and they say, Hey, I really like that investment. I wanna do that one. Or I like that one, but let's talk about some of the other ones. And they might have some tax. I should say desires to save taxes. And if that is the case, then there are certain funds that we could put 'em in for that sort of strategy.

  And a lot of times it does take months because they are, we're going through their finances and making sure that they're a good candidate for it and that they can handle it because these funds. Are a minimum of three years usually. Usually they're five to seven years. They're a long time timeframe.

  So if you're 73 years old, usually that's not a timeframe that people want. They're like no, that's too long. I don't want something that long. You're in your forties, your fifties, even your thirties, and you want to get into alternatives, and that timeframe fits then great. So usually what we do is, we go through everything and we see what fits about mostly.

  Do you want income? Do you want something for long-term growth? And honestly, most of the time it's just mostly what people are mostly interested in. And what I tell 'em is we're gonna talk about these couple ones and then you tell me. Sometimes they can tell me right away. I'm so excited about that one.

  That's the one I'm most interested. We're gonna do that one. Sometimes they need to go sleep on it. And I just say, tell me the one you can't stop thinking about. That is probably the one that we need to be doing. And I say that about a lot of things, by the way, guys. So if there's any, anything with your finances, if you can't stop thinking about it, it's usually the right way to go.

  That. And so what we do is we'll go into, and sorry, I'm getting ahead of myself here.

  Setting Up Self-Directed Accounts

  We will transfer off and we'll split up their account. So if it's an IRA, we have to go into what's called a self-directed account. And so we will transfer out the certain amount that we're going to put into the alternative investment into that self-directed account.

  So it's opening a new account? Yes. Having a new login. I know, we all have so many logins, but yes, it's having another login and it is then doing the paperwork to actually subscribe to this alternative investment. And. I think people ask can't I just do this alternative, in my Fidelity or in my Schwab account?

  And you absolutely can. It's just that if you go to a self-directed custodian themselves, it's usually cheaper. When you are at Fidelity or Schwab, it's like 250 to $300 a year to have these on in your account. And if you get four or five of these going, you're at $1,200 a year just in fees.

  Just to have it there and it really erodes your rate of return if you've got one, maybe it's not worth it and you don't really don't want the login. I totally understand that. But most of the time we're transferring over to a self-directed IRA and we are transferring the money over there.

  And then essentially what you do is you tell the self-directed IRA place you say, Hey. I wanna invest in X, Y, Z corp. Here's the paperwork for me to subscribe to x, y, Z corp. And I am instructing you to send this a hundred thousand dollars that's in my IRA to them, and you're going to send them that money.

  And then in your self-directed account, it's going to book as you are invested in X, Y, Z corp with so many shares and it's worth a hundred thousand dollars or whatever it happens to be. That is essentially how it works. I think that it is easier to do. It's actually harder for people to understand because people are so used to having stocks go up and down and you can log into your Schwab account and you can see like what your rate of return is.

  Whereas having the self-directed account it is. Just there to keep track of it because it's an IRA. Now, if you have cash, so let's pretend that you didn't want to invest in an IRA, but you just had a brokerage account with some cash in it, or you had a savings account with cash. You technically don't need to have the self-directed account.

  And to hold it, you could send the money directly to the company and then invest that way, and then the company would be sending you statements and they would be sending you newsletters and things about whatever your return is, you do not need. A custodian, a self-directed custodian to keep track of what your basis is and you know what your dividends are and all of that.

  You'll get all of your paperwork directly from the company. So that's the difference between the two. The only reason some people, because they're working with an advisor, they'll go into the self-directed account with cash so that they can pay my fee over time. Just 1% a year. And instead of paying like a big fee up upfront.

  And so they'll choose to have the account that way. And I know it's another login, but then they have me, to ask questions to and do things like that. So that's I would say the timeline for that is usually, it can be fast, it could be three or four months depending on the person, but sometimes it's just a couple months by the time we go through their accounts and then decide, okay, this would be the best one to use for this particular investment.

  It's really just going through and deciding what you're most interested in and then. You know what account hasn't been doing that much or it's just been sitting there since, you left that particular job and you want to do something with it. Everybody has the reason. Going through and deciding all of that sometimes takes some time.

  Advanced Strategies for Experienced Investors

  The other category of per person that comes to me, that, that wants to invest in. Alts is usually someone that is more sophisticated. They have alt already or they've done like some he metals that they've invested in. They already have done like a self-directed account just to do some real estate.

  Obviously, I guess I'm just saying they have more experience with just investing outside of the stock market and they'll come to me and just say. I want to do this particular STA tax strategy. I need an 80% write off. I need, I need to do a 1031 exchange because I have this house that I want to I don't want to buy another house.

  I would rather just go into an investment. They know exactly what they need to do. And so then I essentially. Present to them the different funds that will do those things that I like. I did another episode where it was my litmus tests and I'll put that in the show notes of what episode and the number and all that.

  But I did a litmus test one, and I will, so at the ones that satisfied my litmus test, I will then give them the ones that fit the particular need. That they have. So if they're rolling over the real estate, there might be only two or three that they like or there could be a ton in multifamily, but I'll be like, no, I like this one because of this because it's, a big manager, it's a medium manager, so everybody is different.

  It's just depends on. What their needs are. But that track can go super fast, like two weeks that someone comes to me, they say, this is what I need. I have, a hundred thousand dollars that this is what I want to do. And then we just do the alternative investment and they're, on their way.

  And it can be the same thing if it's in an IRA. Then it needs to be at the self-directed. And if it's cash, then they can invest directly with the company and then they don't need me anymore. Technically my name would still be on the investment as the advisor that sold it to them, and I would still have access to see what the value is and what the returns are.

  But I wouldn’t. Be necessarily how am I, how do I put this? I wouldn't necessarily be on the account like at a custodian, like a Schwab or at your self-directed IRA place. It would just be at the sponsor what's called the sponsor level at the alternative investment. So there's, that's the logistics of how it works because I think a lot of people are just wondering like, how do I do this?

  And really it's just different paperwork. If you're using cash, you're filling out the paperwork for the fund, and a lot of times these subscription agreements are like. Eight pages. They're not that long. And so you are giving them all of your information. You're sending your cash in some way, shape or form.

  You can send a check or a wire, and then you're invested and get your reports back, you get your login information, and then you'll probably get signed up for their newsletters and whatever their updates are. If it is within an IRA, it's a little bit more complicated because we are.

  Opening up the account, we're transferring the money from your custodian, and then we are having to set up some sort of fee schedule with me to manage it. And then we're sending the paperwork over to the company to invest the money. So it is just a little bit different, and I think it's just important to know the difference between the cash.

  The IRA, and then if you're just more sophisticated or if it's gonna just take some time. And I do get some people that are, just in the stock market, they want to do alternatives. They're not an accredited investor, but they would like to get there or they wanna do something else. And so I, I can work with those people because there is something called Reg a Plus, which is just a $10,000 investment.

  They're just not as, popular. They're not as, they're not as popular in the marketplace and it's harder to find them because it is so much more expensive to get registered as a reg A plus. I'm hoping that they fix that in the future, but there's not a lot of people that are doing that right now. So anyway I hope you found this helpful because I do, it sounds simple and if you've done it before, you're like, why are you even doing an episode on this?

  But this is, these are the questions that I get because people are wondering, like, how do I actually get a hold of these things? This is this whole world that's out there that I don't even know about and you don't know about it because it's only for accredited investors and it is behind a wall.

  You, if you were to go to a website, you have to certify that you're an accredited investor. But. For being able to see some of the deals, but then also what are you even looking at? Because there's so many, it's not it's like looking at this huge line of ETFs and mutual funds and you have no idea who's good, who's not.

  But in this world of alternative investments, anybody with money and that can get a lawyer, they could put together a deal. They can get the paperwork and they could technically be legal in order to go raise money, in order to go on their project. And so you want to make sure it's not like anybody is looking at them and going, yeah, you're illegal and you're not, and you're not able to do this.

  That's why you have this third party due diligence reports that a lawyer does to look at so that you know that they're legit. So it's like you get into this world, you get past the the world of doing, of being an accredited investor. And then there's this whole other world that you have to look at and look at their fees and, is, are they a good manager or not?

  What's their history? And it's a whole another learning curve in that. And so hopefully you find someone like me to help you go through all of them because it is a confusing world. But I find it very exciting. I think, people love alternatives. My clients love them because it doesn't put all their eggs in one basket.

  It helps them sleep at night. They love to not just be at the whim of something that is not in their control. And it's not that the alternatives are in their control, like you split it up, you know that something is going to hit. So if you've got some, some. Metals, and then you also have an alternative, and then you have a house, and then you have, your 401k and maybe something else, you're like diversifying, right?

  It makes you feel better. And then it's, one thing goes down, the other thing might not go down. And it just helps you sleep better at night. And so I'm really trying to bring these to you so that there's a whole another world because I get. I like, I get on Reddit and I'm on the Henry, the high earner's, not rich yet.

  And people are like I have this extra money, what should I do? And the advice is always go open another brokerage account. And I'm like, man, that sounds fricking boring as all get out. Unless you love watching the stock market, like I do not want to have anything but my 401k in the stock market unless it is short term cash because I find these so exciting and I.

  I would never just want to have another brokerage account 'cause I've already done that. Like I'm already doing that and I can have that exposure in one account. So why would I have this in this other account? That's my rationale for myself. So anyway, let me know if you have any questions.

  Conclusion and Next Steps

  I do have a quiz on my website that is about how alternatives can fit into your portfolio.

  You can also book a 15 minute call with me just to discuss your situation if you want. It's free. Again, that's on my website @mefinancial.net. Thank you so much for listening. I appreciate your time and I hope you got something from us. Thank you for listening to the Unconventional Investor Podcast.

  I hope you feel more confident in how you can grow your wealth using the strategies I shared in this episode. If you're ready to take the next step in diversifying your portfolio outside the stock market with alternative investments, head to mefinancial.net/contactus to book a 15 minute consult call with me.

  Let's discuss how we can work together to achieve your financial goals. Until then, I'll see you on the next episode.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

With interest rates on the rise, private credit funds are gaining popularity among investors seeking alternative opportunities.

In this episode of The Unconventional Investor, we talk about the fundamentals of asset-backed lending, the innovative structure and strategy of The Bedrock Fund—a private lending platform for home flippers—and discuss how it offers accredited investors stable, non-traditional returns.

Joining us is Mark McKeller, Principal & Director of Originations at The Bedrock Fund. With over 20 years of experience in real estate investing and asset-backed lending, Mark shares what makes The Bedrock Fund unique and how it can complement your investment portfolio.

Links:

Learn more about The Bedrock Fund: https://thebedrockfund.com

Take the quiz - How Alternative Assets Can Fit in Your Portfolio

• Transcript

  Introduction to the Unconventional Investor Podcast

  Welcome to the Unconventional Investor Podcast. I'm your host, Michelle Moses, certified financial planner, licensed realtor, and founder of Me Financial. If you're an accredited investor feeling overwhelmed by managing your portfolio and looking for alternative investment strategies that go beyond the traditional stock market, you're in the right place.

  Let's head into today's episode so you can start taking control of your financial future.

  Introducing the Bedrock Fund with Mark McKeller

  Hello everyone, and thank you so much for listening. Today we are going to be talking about the Bedrock Fund, which is a lending fund, and I'm excited to have this one on here because I think it's a very straightforward fund for people to understand and to talk about that we have Mark McKeller here.

  Welcome, mark. Hey, thank you, Michelle. Yeah, thanks a lot for having me. Yeah I'm glad you could be here. We've been talking for quite a while, so I'm glad to have him on the show. And Mark McKeller is the principal and director of Originations for the Bedrock Fund. He's a longtime real estate investor and was a franchisee with Home Investors of America, which is the biggest single group of investors in the country that buys discounted single family residences.

  Thank you, mark, for coming on. Yeah. Thanks a lot for having me here.

  Understanding the Bedrock Fund's Lending Model

  So, let's just talk a little bit about the basics of what the fund is and how you would describe it to someone you know, in just your short little elevator speech. Sure. The Bedrock Fund is a fund for lending money to real estate investors who wanna buy, fix, and sell houses.

  So it's asset backed lending. We lend money at a discount off the value of the house. If something's worth, say, a hundred grand, we won't loan more than 70 or 75,000 on it. So we always have equity. And when people fix them and sell them, then they pay us back. So it's pretty straightforward. It's, it's, , commercial alternative lending.

  We're not the same as a mortgage company. We have a different. Set of rules that we follow. But, the reason we got into that business is because we're experienced investors ourselves. I've bought lots of houses. I hold a good number of rentals now and over the years being part of that, home investors, we buy ugly houses, company, I've gotten to know a lot of investors and we all have the same issue.

  most lenders, they underwrite their loans to the lowest common denominator, to investors that don't have a lot of experience. And they do that for a reason. They do that because they wanna keep their money safe. But that also means that very experienced investors, like the people at home, investors and us have to play by a set of rules that's kinda, can be hard sometimes.

  So we got in the business to be able to provide a product specifically to highly established. High performing investors, and that's what we do. So we have a loan product that goes to people that are very successful already that we don't have to worry about defaulting on us, and we know them through the home network 'cause we've been part of it for so long.

  And the proof's in the pudding. In six years we haven't had a single default or had a single investor not pay us a monthly payment because that's who we, that's who we, that's who we count on, and that's who we target. How many people are we talking about here that you loan to? Home as a group has about 1200 franchisees, but we only loan money to the top echelon.

  We have about a hundred investors okay. We don't target anybody, in fact. You can't just call me and say, I'd like to borrow money from you. We invite our investors. We select them specifically based on their performance at home investors. And since we're part of that organization, we can see the performance of different franchisees and how they do.

  And so we actually, when we need. To put more money to work. We will, I will go out and look at the different franchisees and how they're performing and I'll interview them and if we decide to invite them in we'll loan them money. So we're different than other funds that have a big budget for trying to get customers in and having to take in customers and people they don't.

  We only do business with people we know very well that have proven themselves. So that's one of the main things that makes us different. And while we're so good at keeping our own money safe and keeping the money safe with people that invest in our fund, because we're so peaky about who we loan money to.

  Yeah.

  The Network and Market Focus of the Bedrock Fund

  'cause I think when you say home flippers, people just automatically think of. They have a vision in their mind. We all know what that is, right? They do. And what you're talking about is people that have a system, they have a network, and even if there was a house that went sideways, you would have another investor that would probably be interested in that house.

  It's not like it would go into foreclosure and then, go out onto the street. It's more of there is a network. If something happened to this one flipper, then there is a whole other, team that would come in. Correct that, that's a great, that's a great point. That's one of the values of being part of a part of this network.

  I'll give you an example. If I loaned money to someone in Atlanta that's part of home vests and he had a problem first of all, since that's, so that's where our home office is. We, and we know how to buy, fix, and sell houses. That's what we've been doing for, 25 years. If a house if a investor we were loaning money to had a problem there, I'd probably just go get the house myself and fix it and sell it. But if I didn't wanna do that for some reason, I could just call another home investor's franchisee right there in town and say, Hey, would you go get this house from Joe and help Joe out and help me out and, pay me back.

  And you can have the profit that's left over. So you're exactly right that most li, most banks. Their big risk is they're not investors, right? And so they don't have that kind of network and they don't have the ex expertise to handle a problem. We haven't had any problems yet, but if we do, we'd know exactly how we would handle it.

  And you're right, a foreclosure would be the last thing that would happen, right? Because there's the, there this, the network of people. And then I also think this is what stands out to me about your fund is that can you tell us where the houses normally are and what. They normally go for, because I think in today's market, yeah, especially here in Phoenix, you have to have at least a million dollars in order to flip a house, a nice house.

  You did. And so yeah, why don't you tell us about the markets that you're in and the price points. Sure. We focus mostly in the southeast, a little bit in the Northwest and a little bit in the Southwest, but mostly in the southeastern United States, and also the Rust Belt, like Pennsylvania, Ohio.

  Michigan, because those tend to be working class, moderately priced houses. And it's really important to us that if some, for some reason we had to take a house back and for some reason couldn't sell it, that we could rent it for something that would cover the investment. And, that's hard to do in Phoenix.

  That's hard to do in California. That's hard to do in New York. That's why we don't loan money there. Whenever we want to go into an area we do. We do some analysis of the market conditions there to make sure that if something went wrong that it that we wouldn't be upside down. So most of our stuff are in the more moderately priced, our average loan amount is around $200,000, a little over it.

  That's. You're not gonna find much of that in Phoenix. And I think that's what, when I tell people about your fund is I'm like, no, they're in Oklahoma and in these other states where you can actually find a house for $175,000 and that's what you guys are going towards is more of I would call it affordable housing now.

  And that's what you're flipping and so it's not anything that's gonna overtake the entire fund. No, you're right. And we also are pretty careful too. Stay outta places that tend to be the first ones to suffer in a downturn, right? If you think about the places back in oh 8, 0 9 and even, in the early two thousands and also just a couple of years ago the places that really suffered the most weren.

  Oklahoma and Alabama and Georgia and North Florida. We don't do anything really in South Florida, north and central Florida, those places didn't get hurt

  near as bad as some of the other markets. So that's important to us too. Okay.

  Fund Structure and Investment Details

  And so now can you explain about the structure of your fund?

  Because it is, you guys, I always, I feel like a broken record in talking about this, but it is open to accredited investors and essentially what I call it is a credit fund just because you're offering credit to people. Yeah. And that makes it easy for people to understand. So can you go through just the.

  The numbers of your fund, the minimum investment. Sure. Yeah. I'd be happy. The minimum investment is 50,000. Maximum is a hundred million. We don't, we're not out to raise another a hundred million. We, right now we're looking for 10 million. And if I had 10 million tomorrow, I could place it all.

  I know exactly who I would call. I've already in interviewed 'em. I just hadn't told 'em I'd loan 'em any money yet. 'cause I need to raise a little more. Currently we have 26 million in equity in the fund and we have a $20 million line of credit with Western Alliance Bank. And by the way, that in and of itself, if people really look into it, will show you.

  How much credibility we have, because Western Alliance typically doesn't do business with firms as small as we are. They love us. The due diligence that you have to go through in order to get something like that. Yeah. There was another fund that I interviewed. Yeah. And they got approved with Citibank and the years of due diligence that they had to go through to get it.

  So I would imagine it's kinda like that. Yeah. Two years. Yeah, two years of the kick in the tires basically, and interviewing you. Okay. And so you have a line of credit through them. And so how does that work with the fund? Because you're raising money from regular people, right? And so you have a pool of that, and then you have this line of credit.

  And so how does that all go together? The 26 million that we have from private individuals those folks invest directly in the fund, and then we loan that money back out. We pay our investors a flat eight, 8% a month. That's in the PPM. And, if you let it compound monthly, of course it'll go up with compounding.

  But the, we pay that out automatically every month. And then we turn around and we, and that's about the rate. We borrow the money from Western Alliance also, and so we turn around and we loan that out to investors and we charge them more. We charge them 1 1% a month and then a point a quarter. So that spread is how we make money.

  That's how we're able to pay our investors every month because we're making more. Then we're paying out. And the, an investor that invests in the fund becomes actually a member. He's not lending money to the fund. He's actually becoming a member in the fund itself. And he gets his pro rata.

  Protection with the asset pool. So let's just say, make the numbers easy. We've got around around 45 million with the in debt and equity. So if we loan out $45 million in, in, in all that money, the actual properties will be worth probably 65 or 70 million, right? So each person's investment is protected by that equity.

  Their pro rata percentage. So everybody has a pool that they're protected by. And the reason that's better than having your money protected by one house or one asset is because if that thing forecloses, you lose all your money. This way when you're protected by a pool, if one thing goes wrong, it's gonna have an insignificant effect on you as an investor.

  'cause it's such a small part, if you got 45 million out one, $225,000 house isn't. Isn't very much it. And so being protected by the people is better. Does the line of credit protect you? If there were, I know you haven't had a foreclosure, but if there was a foreclosure, does that line of credit come in to basically protect that you wouldn't have to foreclose and that you would just go and finish the house?

  Is that kind of Yeah. Yeah, we there's always a little bit of money left over in. Either the line of credit bank account or in the, at the equity bank account, we all, it's just theoretically impossible to keep all your money on the street all the time, even though you'd love to, 'cause you're paying interest on it to investors and to the bank, right?

  But the bank doesn't investors and invest in the fund. You get your 8% on your investment every month. It doesn't matter whether we've loaned your money out or not. With the line of credit, they only charge us when it's out. So we keep some of theirs in the bank for that rainy day problem because it doesn't cost us anything.

  So that's exactly what we would do. If a house foreclosed and we needed to buy it back ourselves, we would just use the line of credit money. But typically that's not what happens. 'cause to your point, we'll just call another investor. And we'll get the person who's having trouble to quit claims the house and we'll just let the other investor fix it.

  So we probably wouldn't have to do that, but we would if if you had to. Okay. Okay. So if an investor invests $50,000 minimum in your fund, they get 8% a month return and they're here. There's 8% or so. Oh, I thought you said a month. Okay. I was like, wow, that's a lot. Okay, so they get their payments every month, but it's okay.

  I see what you're saying. Percent 12. Yes. 8% a year. I'm like, damn, that is a lot. Okay. Okay. Sorry. I was misleading. That's okay. So they're getting paid every single month and isn't there, there's a year that you have to stay in the fund, right? There's a minimum. That's right. Just you don't have to, if you need your money, you can take it, but there's a little bit of a penalty if you take it out early.

  After you leave it in a year, you can take it out anytime you want. Because we, our loans are short, all right? And the per average person that bars money from us needs it for a little less than six months, which means we've got millions of dollars paying off and then being relent every month. So if somebody needs some money, chances are if it's only 50 or a hundred grand, it's sitting in the bank, we just write 'em a check.

  But if somebody needed a million. I may need a month or two or three to collect that money from payoffs and send it to 'em. But they can do that anytime they want. As long as it's after one year. Just before one year there's a little penalty. Okay. Yeah. So your fund is just so different than all the other ones.

  'cause usually you invest in something that's a private placement and you're. For at least three to five years. Five years, usually five to seven, eight years, I would say with, I think people are idealistic with how long they think it's gonna go. And so I think yours is so different because it truly is like just lending , and I always put yours next to, 'cause People say what is the like flavor of the moment and right now doing credit.

  Is where you're gonna make the most money in this market. That's, I if you are in some sort of credit fund, because the banks are not lend ing and they're very heavy on commercial real estate right now. They are not wanting to lend out a whole lot. And so the market is going towards all these private credit funds that we're talking about, but a lot of them, you have to have your money in there for, th the credit funds have a shorter timeframe of three to five years, but you're.

  They do. Yeah. Yours is different though because you've got the minimum of a year. Really. It's flexible, but then you can take it out. And I always put yours next to, 'cause a lot of accredited investors, they don't have time to go manage all these money, all this money. I'm like, okay. So you could make a lot more by being the direct lender on a home if you really wanted to.

  But then you'd have to go through title company that's, and you would have to then foreclose on something on if it something happened. And you would also, and you may have to have a license. Yeah. And then the, then there's your fund that would be in between. 'cause on that, they could make maybe what, 11%, like what you're talking about of lending to your investors.

  But this you guys take a few percentage points and then you can make your 8% a year by just having you guys do all the work. That's the way that I put it, next to each other and what you're saying. Makes such sense. I'll tell you something funny about it. So we have some direct competitors that are in the business of originating loans, like you're saying, but they experience exactly what you said.

  They can't keep their money out all the time and they have to manage it. So those people, those actual direct competitors have money invested in our fund too. Because our fund pays 8% every month, the monthly amount, 8% every month, whether it's L out or not. And that gives them steady cash flow because they can't make that happen in their own lending business.

  They can't keep it going. So that's the difference. Yeah. And you guys have this whole network of. I'm gonna call 'em flippers because it's hard for people. You say they're, yeah. When you say investor, it's is it the money investor or is it the real estate investor? Correct. But you have a whole network of flippers to fall back on.

  And I think that is the key is how healthy is that network and and then you guys have all been in the business and then you were actually a franchisee of this, of the home. The home I've been in that network. I've been in that network for 25 years and we've gone through various ups and downs, and the home franchisees had better success and less trouble and less defaults as an organization by far than any other investors in the nation.

  Even in oh eight, only 10% of our network even. Had any troubles with loans and most because of the training you guys do. Yeah, it's the training. Training and the systems and how risk averse we are. We have a mantra, you never get hurt by the house you don't buy. So if there's any ch. If there's any chance it's gonna be a bad deal, just go to the next one.

  We're, yeah, just walk away. Yeah. Just don't fool with it. And most investors aren't like that. They're they try every way they can to make something work. And that's a risk. And [00:17:00] we're, since we're trained that way, we're also that way as lenders. And a lot of the times our investors will.

  They u they don't, our investors don't leave us. They love us. Our flippers that we loan money to because they know that if we have concerns about a loan, we're gonna talk to 'em about it. If, like another investor, 'cause that's what we are, and they'll listen and a lot of times we'll show 'em things they didn't see.

  And, then they may not even, I've got several examples of people not buying houses because we showed 'em stuff they didn't see. Do you guys approve every single hou, so does it with the investors. So you're approving every single loan and you're underwriting it. Okay. I didn't know if sometimes the flippers got trust and then it was just like, okay, no, Joe knows what he's doing.

  No, it's not like that. No. Okay. No, that's good. If they are guys, like if Joe, somebody we trust if we look at it and it doesn't look like he said it looked, we won't just say No Joe. We'll go back and say, [00:18:00] Joe, show us how you figured out what. Show us why you think what you think. 'cause we see it differently and often we'll go, oh yeah, okay, we didn't see that.

  And then. We'll do it Joe's way, but we're not just going to assume he's right. We're, it's your underwriting. Sometimes we're, yeah. You're underwriting each individual loan. Okay. But they appreciate that back and forth communication. A lot of bankers, they aren't like that. They just, you get a call from some, some loan originator who's never bought a house himself and goes, oh we can't do that.

  Here's all we can do. And he doesn't tell you anything or give you a chance to, so it's a different relationship. Okay. And that's one of the reasons that it's easy for us to originate more loans, is because the people that we do business with know us already and they and you already have, yeah.

  And you already have that relationship and the financials and Yeah. I'm sure there's a lot of time that's saved with all of that. It's, you mentioned, no, go ahead. I was just gonna say, you mentioned something a minute ago that I wanted to touch on for a second. The difference in what we do with [00:19:00] other, a lot of these real estate investments where you're tied up for three to five years that are maybe on a, an apartment project or something, they, there, there is a potential you could make more than the 8% a year we pay.

  You might make 10, you might make 12 but you might not. You gotta wait three to five years to figure it out. That's what I would call a growth investment. What we are is more like a protect your cash investment. It's like you're gonna get your 8% a year, you're not gonna get any more than that unless you let it compound.

  And then you can, run a compounding table and see what that would be. I can show anybody that wants to see it, but that's clear. That's what it is. There's no less, no more. It's just what it is. But that's predictable. And it's only one year. It's really a different pot of money than the other.

  A lot of people, maybe they'll have money they wanna throw into growth. That's, I don't wanna try to get that money. The money we want is your asset protection money, your cash, you know what you might, instead of putting it at buying a T bill or instead of doing a, money market or a CDD might wanna do something like this.

  Yeah. At 8%, right? Okay.

  Investor Experience and Security Measures

  And so is there anything that, do you have, I guess when somebody. Registers or subscribes to your product, then do you have some sort of portal that you look, that they look at to see what the returns are? Can you explain what the customer experience is? Yes. First of all, in your diligence, if you want audited financials, if you want, to see a loan tape, if you want anything to give you more numbers, you certainly can get that and we'll send that to you anytime.

  There's a new audit coming out in about a week. You know anybody that's interested, certainly welcome to it. Once you're, once you are an investor, you don't go to our bedrock. The Bedrock Fund website to get to your portal. That's for our borrowers. And it does have basic information for investors, but the portal that you would then have access to is an investor.

  And our fund is a Thompson Rooters product called Onvio. And the reason we use that is it's so secure and so information about your investment, information about the return you're getting, your monthly statement. All of those things is in a portal hosted by Envi o that that we give you a password for.

  And not everybody can get access to those. Our firm and our, the funds manager, Brit Jennings has the ability to have an envi o fund because of our status. But it's a it's a different thing than our portal itself. It's more more secure.

  And then you guys have a quarterly newsletter too? We do, we send a letter, a quarter newsletter out about every quarter. And again, any, anytime anybody wants to see anything at the moment, all you gotta do is call us. We'll send you anything you want. Okay. All right. I think this is a great overview of the fund and if you want more information, they can get in touch with you or go to thebedrockfund.com, right?

  That is correct. Okay. And I will have all of your information in the show notes if you guys are interested in you can always call me too if you want. I could say that also. If you're interested, thank you in investing in this. But again, you do have to do, be an accredited investor. The minimum is $50,000 and it seems pretty straightforward.

  A lot of the funds, you guys, there's just a lot of fees and wrap up things and origination stuff, and this is pretty straightforward. Okay. Again, I think it, it would be a great replacement if you were just wanting, something besides treasury bills or some sort of other safe thing that you had.

  This is not gonna replace like your stocks unless you're wanting to go safer. Let us know if you have any questions and thank you so much for being on Mark. I really appreciate it. And you guys, thank you so much for listening. I hope you got something from this. Alright. Thanks a lot. Thank you.

  Thank you for listening to the Unconventional Investor Podcast. I hope you feel more confident in how you can grow your wealth using the strategies I shared in this episode. If you're ready to take the next step in diversifying your portfolio outside the stock market with alternative investments, head to mefinancial.net/contact us to book a 15 minute consult call with me.

  Let's discuss how we can work together to achieve your [00:23:00] financial goals. Until then, I'll see you on the next episode.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

Software engineer & developer, Andy Woodward joins us to give an update on cyptocurrency and it's place in our financial markets. 

As someone who's been following the crypto space since 2018, Andy provides a wealth of insights into the world of cryptocurrencies.

Key Takeaways:

• Understanding Crypto's Resilience: Andy highlights how, despite the buzz around meme coins, the top cryptocurrencies like Bitcoin and Ethereum have remained relatively consistent over the years. It's crucial to look past the short-term noise and focus on the long-term potential of these digital assets.

• Crypto as a Tool for Global Economic Participation:  Crypto's role in enabling people from struggling economies to participate in global commerce. Whether it's providing a stable form of currency in inflation-hit regions or simplifying international transactions, crypto offers some unique advantages our current system doesn't have.

• Exploring Innovative Crypto Projects: We discuss fascinating projects like liquidity pools and platforms like Poly Market. These developments not only enhance the utility of cryptocurrencies but also offer new ways for individuals to engage with and profit from the crypto marketplace.

Links:

Take the quiz - How Alternative Assets Can Fit in Your Portfolio

• Transcript

  [00:00:00]

  Introduction to the Unconventional Investor Podcast

  Welcome to the Unconventional Investor Podcast. I'm your host, Michelle Moses, certified financial planner, licensed realtor, and founder of MeFinancial. If you're an accredited investor feeling overwhelmed by managing your portfolio and looking for alternative investment strategies that go beyond the traditional stock market, you're in the right place.

  Let's head into today's episode so you can start taking control of your financial future. Hello everyone and welcome to the podcast. Thank you so much forlistening.

  Revisiting the Crypto Episode with AndyWoodward

  Today, we are going to revisit our crypto episode that we had almost two years ago. I cannot believe it's been almost two years. It was episode six of the podcast.

  Wow. Yes. So I've, we've come along way, Andy. I got Andy Woodward here to talk about it, and he has been on, four times, I think so. A few episodes. Yeah. Yeah. I think this is probably fourth. Fourth time. Yeah. You've been on here.

  The Evolution and Current State of Crypto

  And Andy is a software developer and he is my friend and he is very into crypto and he understands how payment systems work and we thought it would every [00:01:00] timely for him to come back on and give a update on what's going on in the world of crypto.

  Because it has surpassed my knowledge for sure. There's a lot going on that. Just takes a lot for, the layman to understand. So I'm excited to hear what you have to say about it. Yeah. Thank you. Glad to be back. I know you and I have been talking about crypto for a long time.

  I was digging around in our previous conversations or whatever, and I know we talked like it was way back in 2018 when we first started. Talking about crypto, back in the day when Bitcoin had plummeted to 3,700 hundred dollars I know, and then it stayed at 3,700 for six months. And I have you to thank for even getting me into crypto.

  'cause I remember having lunch with you one time and I was like, I gotta buy some of this. Yeah. You did a pretty deep dive on it. Yeah. Yeah, I did. It's very interesting to learn about. And so why do you think it's timely that we are having this conversation now to [00:02:00] revisit crypto? I think the more things change, the more they stay the same.

  There's, there's a lot of buzz these days on crypto. A lot of it's around meme coins, Pepe Coin Peanut, the Squirrel, they here today, gone tomorrow. But if you actually look at crypto, if you look past a lot of the the noise, the. The main crypto, the top 10 have remained relatively the same.

  And it, it all depends on what people are into.

  Crypto as a Store of Value and Investment

  Some people are traders, they they like to flip crypto, but I tend to be more of an investor where I have an idea the long term prospects, and I use it as a gauge as well as an investment with a longer term horizon. So I look at things a little bit differently.

  I don't, generally, I pay attention to what goes on with the meme coins and everything, because those all ride on the, pretty much the top 10 or the top 20cryptos. But if you look back, couple of years, the top 10 have not changed. They [00:03:00] move around a little bit. They're Bitcoin, they're still there.

  Bitcoin, Ethereum, light coin, all that. Yeah. Yeah. The same ones. Solana is another one. That's been an up and comer, but. They've all re remained relatively constant, but when we look at markets as a whole, we can't really look at 'em in a, as in a vacuum. Over the last couple years, a lot of, there's been a lot of turmoil from an economic standpoint.

  The stock market's done great, gold has done great. The the dollar. Continues to be really robust. So what I thought we could do is really talk about where is crypto and how does it relate to some of these things? Do a health check, yes.

  What is uhs? Where is crypto? I think that's, yeah. I think it's a great thing to do because there's two camps. People that believe in it, and the people that think it's a scam. Yeah. Because of people getting ripped off. And so obviously then the media kind of clamors onto these things of where people are getting ripped off, even though we know tons of people get ripped off with our regular banking system all the time.

  There's always bad actors everywhere. [00:04:00] And so I know that there's, just two different camps. And so yes, I'm interested to hear what you've got tosay. Do you wanna talk about the two different camps of people? Do you have any opinions about that? We might be talking about different camps.

  I think there's probably more than two camps, but the let me know what you're thinking. As far as the two camps. No, just the camps are the people that think that it's it's a scam. They think it's made up. It's a total scam. It would never, it's a Ponzi scheme, that you hear all that kind of stuff.

  And then there's the people that are all about it and believe in it as a long term solution. And some of people think that we should, get rid of our dollars, our fiat currency, and, go to crypto because it's, quote unquote more secure. So I would love to hear what, just, you're probably just more of a middle of the road guy.

  If I had to guess, it's I'm not a, I'm not one who's into absolutes on anything, and and initially to, if you're unfamiliar with crypto, it's a hard thing to wrap your head around. The people that are. Anti crypto are saying you're just buying bits. It's [00:05:00] nothing. Yeah.

  But stocks is nothing. You're futures are nothing. Your options are nothing. It's all these financial tools that we have literally made up outta thin air. We ascribe value and belief to, I. Many different things. Like the state we live in is an idea. Exactly. It's not an actual thing.

  We don't fly over the country and go Oh, the, it's not like the cartoons. We seethe borders of the country and the state. Yeah. But then even in your financial, everything, we've made up insurance, we've made up, we make up all of these things and then we invest in them.

  That is our entire financial world, if you think about it. And this product isn't any different, oftentimes it, I think it's more of a store of value than a currency. I think if we start looking at it as, a tradable item, you actually need to look at who takes it. Can you go into Safeway and buy your groceries with Bitcoin?

  No. But is it a store of value? Is it one of those things that appears on stock market or financial news as. Having a particular value.

  Global Economic Impact and Crypto Adoption

  Yes, it is, [00:06:00] and I could see how it would be a great store of value if you are an international traveler, if you have international family, that sort of thing.

  It makes your banking that much easier if you can convert into a coin. Send that over a wallet anywhere in the world, and obviously then exchange it for whatever currency that you have. Or even bigger picture, there's a lot of broken economies right now. Whether it's Venezuela or Argentina or Turkey or Lebanon or Ukraine.

  There, those are economies that have people that are willing to work, but are dealing with broken, closed economies. Cryptocurrency allows people in those economies to still participate. So I, as a software developer, I still do business in some of these areas where I am able to engage with developers and they're grateful for the work because they're being able to be paid in a hard currency versus.

  A currency that's subjected to the whims of a dictator or extreme inflation. And so they're happy to work for Bitcoin or whatever you end up paying them in. [00:07:00] Yeah, absolutely. And it's it, but it also allows us to reach a particular market that would be difficult for me to go, alright, I need to actually convert this to, Argentinian dollars.

  Yeah. Or something to that effect where I can just go, do you accept bitcoin? And we come up with an agreement and off we go. Yeah. Makes it a lot easier. So I think there's a lot of opportunities from an economic participation standpoint, and that's been a thesis that I've had for a long time. And you're saying worldwide.

  Economic participation. Yeah. And for that it totally makes sense. And then you go, but then what about the bad actors? Or, things like that as just a normal person, with our media and that's what you tend to go to. So it's cool that you're able to do that. But then am I gonna be traveling somewhere that I would wanna use Bitcoin and then I'm not, privy.

  I know that you use all these secure. Ways of doing all of your phone numbers and emails and all of that, but not everybody does that. And [00:08:00] so I just think if I would be somewhere, would I have accidentally get ripped off just because I don't know the system that well, you're just as likely to though to be pickpocketed in a exactly.

  As in a transit area or something to that effect. I, there certainly Bitcoin doesn't obviate the need for being aware of your surroundings and what's going on, and it actually adds it from a digital standpoint being, keeping your password secure and actually looking, is this email valid or there's stuff going on right now where people are, you wouldn't think we're being caught by that.

  Are being caught up in malware or something. Just because they clicked on the wrong thing. So that's another layer that people need. Overall personal cybersecurity, aware anything of what they're doing. Just for anything. Yeah. Yeah. 'Cause that's probably what you hear about more than anything when it comes to crypto is, you're gonna get ripped off and you hear of people losing their ATM pin or their credit card or their bank account, but it's just because we're used to that. Now it's more [00:09:00] that it, this is news because it's new and we don't know about it. And so then when you don't know about things, you tend to think bad things. But it is new, but it isn't, it is new related to the overall, like writing checks, using credit cards and things like that.

  So crypto has only been on the scene for less than 20 years. But. It's also been around for a number of years, so it's actually really tried and true, and it's a multi-trillion dollar prize for somebody to knock it down. The crypto market's over $2 trillion at this point, and largely concentrated in a handful of cryptos.

  It's, that's a big, tasty prize for hackers, and they have not been able to break it. Especially the grand granddaddy that you talk about, which is Bitcoin has been around a good, long time. And they're not fiddling with it. And so far it's stood the test of time. Which needs to give it some prop, some credit for that.

  Okay. So what I wanted to talk [00:10:00] about related to that also is let's you know when it I'm a big believer in the saying from a financial standpoint, when in doubt, zoom out. 'Cause if you're looking at what's going on right now, as we tend to do, it's ooh, crypto's down 10% in the last week, or something to that effect, and you focus in on that one particular thing.

  And so it's ooh, is this really a long-term prospect where again, you and I have been talking about crypto for a really long time. If you actually back out and the ideal number I pulled up is five years. It's pretty easy to pull together chart related to five years. And it's astounding when we talk about just how crypto has done in the United States over the last five years.

  'cause if we look at the last five years, that's the entirety of. COVI, all the way through it. The ups and downs in there. The economic turmoil. The political turmoil to get to the point that we are right now. So that's a lot of ups and down sand the trend overall has been [00:11:00] up. So if we actually just look at the US stock market, just as a comparison, 'cause you know you gotta have like for the s and p 500 is up about a hundred percent over the last five years. So if you had start, stayed through the market in COVID, you would've doubled your money. But in the same timeframe Bitcoin is up 896% where gold is up 76%.So Goldstone pretty well, but it hasn't beat the the market. We really can't do that.

  Or Ethereum at the same time is up. 950%. So they've all done pretty well. If you zoom out and look at the bigger picture and kind of ignore some of the fud, it's actually been a really good long-term holding through a lot of turmoil. And I think when you own it and you follow it, that's what, that is what cracks me up.

  Because you'll see, Bitcoin took a dive today. And then I'm like, oh, it's at $90,000. And oh, what are you even talking about? That would be, it took a dive, [00:12:00] would be going back to $30,000 or Right. Again, somewhere around in there. I'm like, this is nothing, I'm not worried about this at all.

  Yeah. And five years ago it was about $16,000. Yeah, pretty significant increase. But when we look at things from an inflation standpoint, when we talk about people in economies that are disadvantaged, that are broken, it's worth doing a comparison. And I've pulled together an extreme example.

  One of the economies is Turkey, it's a relatively. Modern economy. They're modern banking part, they're in nato, they participate in global commerce. Their, our peak inflation in 2022 where our inflation peaked over the last five years was 9%, peaked at 85%.

  Significant difference. Let's back into some other numbers. Their stock market over the last five years is up 700%. Pretty nice. So if people were in the market, they [00:13:00] at least would've close to have kept pace with that ramp in inflation. But at the same time, Bitcoin in Turkish lira is up 5743%.

  Yeah. So what you're pointing out is that basically it all goes up together. Yeah. That there's ways to, hit your wagon to a star or the tide floats all boats.

  Inflation, Real Estate, and Asset Diversity

  But it also is a useful tool to actually just go, I. Let's extrapolate out interest rates or inflation or go, how does inflation relate to real estate?

  How does inflation, 'cause we all typically think about what does it mean at the gas pump, or what does it mean related to food? We don't think about. What does it relate to us and other economies?Because if you had just stayed in Turkish lira in that timeframe, five years ago, a US dollar would've gotten you six Turkish lira.

  Now it would get you 36. So if you were in currency in that timeframe, you would've be taking an [00:14:00] 84% loss. So it's useful just for a comparison to go, alright. If I compare and, the U US has been relatively stable, but as they talk about inflation, you gotta actually just go, what's done well.

  In an extreme example, and. Bitcoin has done well. Gold by comparison is up 933% in well, and if you look at the real estate market too, if you're in the real estate market, so basically what we're talking about is if you own the assets. During inflationary periods. Exactly. Then you're gonna make money.

  Yeah. So one of the, one of the lessons here is, in when facing inflation is probably don't get outta the market of some sort. Having asset diversity is still very important in times of inflation. In a lot of ways. It's more important, there's gonna be a lot more oscillations and volatility as there is right now in the markets.

  But overall, again, if you. When in doubt, zoom out. If you start looking [00:15:00] at the bigger picture, holding onto assets like real estate's done over the same time period has done extremely well. And. I think when you do zoom out, then you see the ups and downs. You just see the ups and downs of everything.

  And I can speak to the real estate market of just how it's basically going sideways. It's not doing anything right now. Yeah. 'cause you're waiting, you're just waiting for people's for their income to come up to be able to afford things, so yeah. It's and things don't move in a straight line.

  Yeah. They don't move in a straight line. And so you can look at all the graphs and see the line going through it. And then the real line going around that straight line that's going up. Yeah. And but like real estate and Bitcoin is similar, is that if you need the money shorter term and can't ride out the ups and downs, do the zoom out and actually just go, alright, I have a longer term horizon on it.

  If you're gonna get freaked out, maybe don't put. It's measure your risk. It's put in the amount that you think is appropriate, that you're willing to ride out the ups and downs in order to make [00:16:00] the long-term picture actually come to fruition. Exactly.

  Yeah. And I think anybody that's read any financial books, it's always better to buy the assets and hold 'em and, it's just like stocks just take all the risk and yeah. That's the way to make the most money. That's a really interesting way to look at it of comparing all of the.

  With Turkey and Yeah. Since a lot of my work is international and my business partner, he's international and he's done just keeping his money in the us. He waits until the very last minute, until he needs money elsewhere in order to pull money out just because it's worked really well.

  It also forces us to actually look at things from a global macro standpoint. And I think it's something that we need to consider in an asset that moves with other assets. Or it can be a hedge. And that's the part of the point here is Bitcoin's been a fantastic hedge against inflation rates.

  Exactly. And some of these economies.

  Bitcoin and Ethereum: Global vs. Domestic Influence

  So do you think Bitcoin is mainly US based, like a lot of the movement of it is [00:17:00] us or is it really a global coin or, I would, I wanna say Bitcoin and Ethereum, let's put, since those are the two biggest ones I really do think those are more global. There's, other cryptos like XRP, which seems to be very domestic.

  There are ones, Solana is a lot more centralized. But it's been doing very well. But the ones that are true, like Bitcoin being the the grandparent of all of these is truly global. It shifts based upon. China every few years boots out all the Bitcoin miners or makes it illegal, and then it slowly creeps back in there.

  So based upon political whims of whoever the leadership is, it does shift. But it is, but the top ones in particular are definitely global economies. So there, it's not that they're us influenced. I'm sure there's some influence, but yeah. Like our stock market is US influenced versus if we were to go through a recession and people were needing to pull their money out to spend their money and that makes the stock market go down more.

  You don't think [00:18:00] that's the same thing that would happen with Bitcoin or Ethereum because it's worldwide. It is. But yeah, you also do need to look at concentration risk. The the US dollar, even though it's globally recognized and used for trading of oil and commodities, is still one of those things that there's concentration risk because it is largely held by the us.

  So I haven't actually pulled what the breakdown is, but I would bet the. A significant amount of the holders of Bitcoin are US based just by the nature of the size of the economy. And it's probably relatively, I would, again, I'm assuming, but based upon things that I see, I would assume it's relatively.

  Distributed based upon economic participation.

  Emerging Economies and Crypto Adoption

  And the ni the encouraging thing is some of the economies that are on the low side, the developing economies seem to want, view it as an opportunity to actually participate globally. I. So they're looking at things in favor of crypto [00:19:00] over, over something like the US dollar, or including it in a basket of currencies.

  So they're not sharing that concentrated risk. They can diversify a little bit. Yeah. And I could see if you were in one of those countries, if you had a an unstable, economy or our currency wanting to be and participate with us of having these stable. 'cause I don't think we realize how lucky we are.

  And having a stable currency and just a stable economy. Since 2008 really, it's been pretty stable. And yeah, they're wanting to participate. So I love your viewpoint on it and that it get how much it gives them opportunities. Yeah. Okay.

  Introduction to Liquidity Pools

  So let's shift a little bit that I know you wanted to talk about a couple of the projects that are going on in crypto right now.

  And some of these have been going on for a while. I, I saw a, a talk recently. It was actually somewhat of an AI financial related to talk, which we've talked about in the past. And one of the things that he was talking about and the guy's name is Tom Soff. He was the original founder of Think or Swim, and now he [00:20:00] runs tasty Works is his latest one interesting guy.

  Terrible at naming products, but, but one of the things he was talking about is liquidity pools, being able to take two sides of a market and you actually take the fee. So there are continual swings from US dollars to Ethereum or Bitcoin or between Bitcoin. And Ethereum. So what it allows you to do in liquidity pools is take both sides of that particular market and keep one person.

  Take the both sides. Yeah. Okay.

  How Liquidity Pools Work

  So you put in an equal amount by dollar value of Ethereum and Bitcoin. For example. And then you keep the fees as people go back and forth. There are risks, there's a, like I've been in, in the product that does this, so the system is called Unis Swap.

  It runs on Ethereum, but it allows you to actually be a little bit of a market maker on, and then actually potentially [00:21:00] make money on the fees going back and forth. I've been in the Ethereum Bitcoin pair. For probably about four years. So what do you do? Do you stake it there or something? Or what are you doing there?

  Somewhat. What you have to have is both tokens in your wallet. And this is probably a little bit of a technical explanation, but it's something that people can dive into or we can talk about another time. But basically you have to have an equal amount by dollar value and then you stake it, if you will, in this liquidity pool where.

  You have a transaction that then is it's almost your own currency, if you will. Okay. They actually use NFTs to do this. I know that's a bad word, right? But it's a neat use of it. And then you can see on a real time basis how much you're collecting in fees. And then also what there is in the way of slippage, because sometimes.

  Bitcoin's really popular, so people will be moving out of bit out of Ethereum and buying more Bitcoin. But then I've noticed over the last four years, [00:22:00] it's, it swings back and forth. So sometimes I have more Bitcoin, sometimes I have more Ethereum, but either way, I'm winding up, collecting about. Not including the appreciation in the assets about seven or 8% per year just in fees in this currency, period.

  So I'm not understanding why you're getting a fee. So you're basically giving unis swap. Not giving them, but you're like loaning them and putting it on their platform. It's your crypto, like a, it's kinda if you when you travel internationally and you go to one of those exchange places and you convert your US dollars to British pounds or euros or something to that effect.

  Take a look at the fees that they actually charge, right? If some of them are charging upwards of three, four, 5% in order to do those currency conversions. So this is the same thing, okay?

  So you having a little bit of Ethereum and a little bit of Bitcoin that you put up on this, you get the currency conversion fee, okay? So what Sona was [00:23:00] talking about is the potential for these pools to exist in, let's say you own a lot of Disney stock, so the conversion of Disney stock to cash and back and forth, being able to eventually, I. Provide these liquidity pools in a variety of different things. But would Bitcoin or Ethereum ever not have a liquidity?

  Would they ever have a liquidity problem? Potentially. Really? Yeah. Okay. Like anything, like if something happened. And this is where the risk is. If something happened that really discredited Bitcoin then, and everybody was trying to get out, everybody was trying to get out, then the next thing you know, you wind up with a lot of Bitcoin and not a lot of Ethereum.

  Okay. Or if you're doing US dollars to Ethereum. So you're providing an equal amount of both, and Ethereum is really blowing up. Like it's become really popular, and this actually happened to me when I was experimenting with this. It's like then you lost a lot up. So instead, [00:24:00] all of my Ethereum got converted to cash.

  I'm not sad about it, but it's one of those things that there is what's called, liquidity risk or impermanent loss that eventually becomes permanent. I lost out on Ethereum going that much higher because I was in a liquidity pool and it converted to cash and it converted to cash.

  Okay, now that I understand that, I understand a little bit better. So to me, it reminds me of options. Calls and puts and you're putting yourself out there Yeah. To provide the liquid liquidity of I have these coins if you were going to need them. Yeah. And in a stable market, you're just making the fees.

  Much like selling an option. Yeah. The term that comes up a lot and stocks is market makers. Yeah. In order for you to be able to trade. Your stock very quickly. You wanna get rid of it. There are market makers behind the scenes that are pulling the levers, like using options. And things like that, that are able to immediately just give you cash for [00:25:00] it, even though they don't have a particular market for it, and vice versa. So usually your big central brokerage firms are in a lot of ways, the market makers. They're the market. Yeah. So what this allows you to do is participate in market making.

  So there's, it's cool. It's a neat thing. It's still, even though these have been around for a few years, it's still one of those things that it's just an interesting idea to explore. It's just fascinating, the potential, and I remember exploring it a couple years ago and thinking, this is so over my head.

  I'm not gonna, I'm not gonna do anything with this. I'm one of those that I need to start putting money into it. Watching it. Yeah. In order to understand it. It in order to figure it out. Yeah. Yeah, absolutely. No, it sounds cool because I think that's what is. Neat about crypto just in general is that instead of, because all market makers are these large banks, right?

  We could, we all know them and there's no way we're getting in on that. But with crypto we can get in Yeah. On being a market maker. And it's the same thing about it, opening up economies and and not [00:26:00] being a fiat currency that is manipulated and it's, it's on a, on everybody's computer.

  For that reason, I do think that it is. Very it gives me a lot of hope, yeah. To allow the people to participate in not just these large, conglomerates. Yeah. And it goes to show then it, that it's more than just stick your money in there and you get this particular number.

  And there's value on it. There's other things that are going on behind the scenes that provide a lot more utility than just the particular store of value. And it's just neat to see. Okay.

  Exploring Poly Market

  So what is this other one, the project that you're interested in? The poly market? Poly market is another liquidity pool, but it's essentially gambling or betting.

  But what's interesting about it is that people can put up. Anything as far as a particular market and it's being used heavily right now from an interesting standpoint for politics. So poly market pretty much predicted, like it or not [00:27:00] predicted to last election. So I find myself, but there are people that are choosing one side or the other and.

  They actually get to propose what it is. Our, there was a lot of movement back and forth on the recent German elections or so. Whatever people are willing to take a side on, they can provide the liquidity pool on it and it. It's interesting to watch it move back and forth. And so I understand how you're, so you're saying that not only are you, can you bet on who's gonna win or lose or however something's gonna turn out.

  And I know we've all heard about this because sometimes it's even on the news. And, but you're saying that people can provide a liquidity pool. For that also. Okay. So it's a two-sided market. So in any one thing it's a yes, no thing is it this person going to win? Yes or no? Or, choose from the particular ones and then it's a percentage adding up to a hundred percent.

  So if the one you actually wanna put money on [00:28:00] is 30%. Then there's a potential to make 70% back if that actually works out that way. I don't know that I'm doing the explanation justice. It's just one of those things that like I check in on it like every couple of days just 'cause I'm curious to see. I. What's at the forefront that people are actually willing to put money on?

  Like I've I've got a lot of British friends, my father was British. They bet on everything like royal. They used to bet on the gender of royal babies. And the name that they chose and things. It's like the head of lettuce. Yeah, it is. Who they are. Yeah. So it's funny to see though, but it's, it also gives me an awareness of maybe I have some blind spots because it's not only is this is the thing, but it's something that people are willing to put money on and take a side on.

  So it's just, I just identify it as a potential, let's keep an eye on the future because this could be a thing where things are going okay. And it's just another fascinating use of. Because it's all on crypto. [00:29:00] And it's another fascinating use of these crypto, of what can be used for networks.

  Yeah. So again, there are more than a just a store of value. I'm not saying people go out and go gambling, but you're just saying that this is something that's coming out, something new. That has come from it. And it, and that's how we all learn about investments in markets, is first you gotta watch 'em.

  And dabble. Yeah. Dabbling in it and understanding the logistics of it. Okay, so let's wrap this up because I want to know your opinion because I did start it out with the, there are the yes and no people on crypto. Do you see, because when you log to any finance website, you see now Bitcoin as something that's listed next to the s and p 500 and next to some of the indexes. Do you see it just. Continuing that way. Yeah. That it is just gonna be like gold I think. So it's gonna be an a another asset that we can invest in, which I think is needed because there, not as many companies are going public and so [00:30:00] it's not like our stock market has been growing at the pace of our wealth.

  And we, and the real estate market is seeming to be I wouldn't say tapped out, but there's a lot of real estate investors sure. Compared to 20 years ago. And so to me, I. I am glad that we have this other outlet because we have all of this wealth that's growing and growing, and we're going to continue to need new financial tools in order to make money so that people can be diversified and they're not just invested in, one or two things.

  Yeah, absolutely. And there are a lot of ways to invest in Bitcoin if you're not there's everything from, the centralized exchanges like Coinbase, for example, to, they're traded on the futures market. So you can, if you're into futures, you can actually trade Bitcoin futures, there's ETFs for it.

  So these are so big and well established as far as institutional players go, that there are a lot of vehicles to actually use to invest in it. If you Yeah. If you're in concerned about direct investment, yeah. And then so do you see it going [00:31:00] anywhere else? Are is there anything else that I didn't cover that you see it, where, a place that you see it going?

  No, I think I think we covered it. It's just it's interesting that it's a recap a couple years later. The more things change, the more they stay the same, the top players at the same that they were a couple of years ago. And there should be some comfort in that. I, but it also gives us something to watch.

  Is Solana's approaching the top. It's a crypto to watch. It's in the top five. Is there gonna be a Solana ETF? Is there gonna now be three in the top three that we're gonna be talking about on a regular basis? You mentioned Litecoin. If you go on CNBC, Litecoin still shows up and it makes me laugh 'cause the light Litecoin, nobody talks about it.

  No, but it's still there. It's still in the top 10. Yeah, I get updates on Coinbase all the time on my phone, and I'm like, I don't even know what this one, this one's a mover. I'm like, I have no idea which one this is. Yeah. It's just a, it's hard to keep track of all of them. It's just pick a few and watch those.

  The me, the meme coins are the ones that get me. 'cause people ask me all the time, should I invest [00:32:00] in Pepe? And I'm like, that's not an investment. That's. Speculation. There's a difference. This is something fun, speculation. Yeah. Yeah.

  Lessons from Crypto Platform Failures

  And I do have to share with you all about my experience with, so I got, I had.

  Four or five different crypto accounts by at one point in time a couple years ago because I was testing out all the different platforms, and so I had a Coinbase account, I had a block fi account. I'm not gonna remember all of 'em.

  Binance. And then FTX happened. And block fi got hit really bad and I had about a lot of my Bitcoin that I had bought at $6,000.

  Yeah. In there. So I don't even know how much I've tried to add it up, but you just don't know because I did get some back with the bankruptcy. And it's just all a lesson that I would go with. If you're going to be testing out different platforms, don't do with as much money as what I was doing it with and possibly, I like Coinbase a lot because it has all the banking.

  Safeguards. Yeah. With [00:33:00] it. And I wouldn't just put it on any platform willy-nilly. And Coinbase is publicly traded, so they have disclosure requirements. Exactly. Same thing with Robinhood and PayPal. They have, you can trade crypto on those. And they're all, they all have financial disclosures ,which kind of helps, and they have regulatory oversight.

  And that's what I, that's what I'm saying. They have the regulatory oversight and then they also have the banking reserves and and so they were the, one of the ones that didn't. Get really caught up in, I would love to say I've had a, I've been in crypto since 2014 and I would love to say I've had a perfect timeline, but I haven't.

  I've gotten caught up on in some of the same things, but that's one of the reasons why you diversify. Yeah. You hope that they all work out, but. Yeah, in the end it has worked out. Obviously I have made money, but who knows how many, honestly, hundreds of thousands of dollars that I probably lost in that just because I bought Bitcoin at, $6,000.

  And so I just use it as a lesson to. [00:34:00] Just be careful of the companies that you're investing in because it is new. It's not like you're gonna be with Wells Fargo and these other institutions that have a lot of safeguards. And I know that we love to complain about how hard it is to open an account and how, we, they need their driver's license and there is a reason for all of that and it's so that you don't get ripped off.

  And so I've just become way more thankful for our banking system over the last 10 years. Likewise. I agree. Yeah.

  Final Thoughts and Advice

  But that's a, for the same reason as why, if you're not sure, look at the top 10 and then if you wanna speculate a little bit, maybe the top 20. But if you're not sure, don't go below that 20th.

  No, don't. This is a new thing that somebody's coming out with and you just don't know how. Things are buried and it makes me think of the oil and gas industry. You'll hear me talk a lot about this. It's just so convoluted and complicated that you're not ever going to be able to do the research to figure out if it's on the up and up.

  Just because it is so complicated. So anyway is there [00:35:00] anything else that you wanna add? No, I think that Okay. I think that's, I think that's a good summary. I really appreciate you being on, I always, I've had a couple people call me or email me after listening to a couple of your podcasts that you've been on and they're like, I just like this Andy guy.

  I just almost want go have lunch with him. He really knows his stuff, so it's really funny that they don't know you, but they feel like they know you now. Oh, that's awesome. I'm flattered. Yeah. Yeah. Thanks for being on it. Of course. I always enjoy this. Yeah, it's always so much fun. Yeah, it's fun. And you guys, thank you so much for listening and let me know if you have any feedback or other topics that you want to hear.

  I appreciate you guys all tuning in. Have a great day. Thank you for listening to The Unconventional Investor Podcast. I hope you feel more confident in how you can grow your wealth using the strategies I shared in this episode. If you're ready to take the next step in diversifying your portfolio outside the stock market with alternative investments, head to mefinancial.net/contactus to book a 15 minute consult call with me.[00:36:00]

  Let's discuss how we can work together to achieve your financial goals. Until then, I'll see you on the next episode.
  
  

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

Ever dreamed of traveling the world for less?

This week, I chat with Julian Kheel, founder of Points Path and travel expert, about how to unlock the power of airline miles and credit card points. Julian explains the often-confusing world of travel rewards, sharing his 15+ years of experience and turning the complex system into an exciting game.

Learn how to leverage credit card perks, maximize sign-up bonuses, and strategically use flexible cards to earn and redeem rewards for travel deals. Julian also highlights his game-changing Points Path browser extension, designed to make deciding between cash and points a breeze.

Key Takeaways:

• Travel Rewards: Julian breaks down the complexities of airline miles and credit card points, making them accessible and understandable for everyone.

• Maximizing Credit Card Points: Learn the secrets to earning the most points possible through strategic spending and bonus categories.

• The Power of Sign-Up Bonuses: Discover how to leverage lucrative sign-up bonuses to quickly accumulate a wealth of points.

• Strategic Use of Flexible Cards: Understand the benefits of flexible rewards programs and how to use them to your advantage.

• Cash vs. Points: Julian introduces the Points Path browser extension, a powerful tool that simplifies the decision-making process when choosing between paying with cash or points.

• Travel the World for Less: This episode has tips and strategies to help you travel more and spend less.

• Take Control of Your Financial Future: Learn how travel rewards can be a powerful tool in your overall financial strategy.

Links:

Contact Julian or download the Points Path Browser Extension - https://pointspath.com/

Take the quiz - How Alternative Assets Can Fit in Your Portfolio

• Transcript

  Introduction to the Unconventional Investor Podcast

  Michelle Moses: Welcome to the Unconventional Investor Podcast. I'm your host, Michelle Moses, certified financial planner, licensed realtor, and founder of ME Financial. If you're an accredited investor feeling overwhelmed by managing your portfolio and looking for alternative investment strategies that go beyond the traditional stock market, you're in the right place.

  Let's head into today's episode so you can start taking control of your financial future. Hello everyone and welcome to the podcast.

  Meet Julian Kheel: Travel Expert and Points Guru

  Michelle Moses: Today we are going to be talking about airline and credit card points with Julian Keel. And Julian Keel is a seasoned travel expert and the founder of Points Path, a travel tool dedicated to simplifying the world of airline miles and travel rewards.

  With over 15 years of experience navigating the landscape of points, miles, and loyalty programs, Julian has built a reputation as a go-to resource for travelers looking to maximize their rewards and ma minimize their travel costs. Julian spent several years as a senior editor at The Points Guy where he provided advice on earning [00:01:00] and redeeming miles, reviewed travel credit cards, and offered analysis of loyalty programs.

  Welcome to the show, Julian. Hi, Michelle. Thanks for having me. I appreciate it. Yeah, I am very excited to do this.

  The World of Credit Card Points and Airline Miles

  Michelle Moses: I'm, I am, I'm glad that we connected because I have started to do this in my life over the last couple of years, and I cannot even tell you the world that has opened up. It is just wild to me how, like complicated, but then it's not complicated once you get to know it, but, like it's just, it's a huge world, this whole points thing.

  Julian Kheel: It really is. And a lot of people, when they haven't done it, do te take a look at it and say, oh my gosh, there's a lot going on here. And there is. But if you think of it as almost a little bit of a game where you know you're seeing like how much value can you get out of your credit card?

  Then it really becomes. Really a lot of fun, frankly. And of course the beauty of it is you get free travel and you can go places that you don't have to pay any cash or very minimal cash for.

  Michelle Moses: Yeah, it has opened up a whole [00:02:00] wide world of things. 'cause I was thinking, gosh, we spend a lot of money like on our credit cards and so why don't we, and so I just started to research it myself and there, there's obviously like lots of websites and things out there of ways to learn it and, but the people that I knew, it was like. Their hobby. It was a part-time job for them, and I'm like I don't know that I want to do that.

  But then now that I've been doing it, I can see how you can just pay attention to it for a little bit and then not, you know what I mean? It's, it doesn't need to be a full-time hobby like some of these other people are doing it.

  Julian Kheel: It doesn't, it really it depends on how whatever you put into it is you know what you'll get out of it.

  The more you put into it, the more you can get out of it. But that doesn't mean you have to spend hours and hours of your life digging into it. The other beauty is that there are now more tools than ever to help you cut down the amount of time that you need to spend taking care of all these things.

  And I'm sure we'll talk a little bit about that as we go.

  Michelle Moses: Yeah. And to keep track of like your credit cards. Like which ones and all that. So let's get started of how you get started. Really what we're talking about here is credit card points [00:03:00] to start off with. 'cause you're, most people are not gonna get the amount of points that they need just from flying unless you're doing that professionally.

  Okay.

  Julian Kheel: That is correct. In fact, we are at the point now where the majority of all airline miles that are issued in the world are not earned from travel. They are, in fact, especially in the United States, earned from credit card spend, and it is somewhere around 60 to 65%. Now that don't come from flying on an airplane, you're not gonna get a huge amount of miles.

  From actually flying, especially now, 'cause all of the airlines, or almost all of them, have switched their systems over where you no longer get rewarded for the distance you fly. You now get rewarded for how much you spend. And most people want the cheapest tickets they can get. Oh, I didn't realize that.

  Really? That's right. Yeah. Okay. Only Alaska in the US is still rewarding miles based on how far you actually travel. Everyone else did some variation of what you spent on your ticket. Okay. Yeah. Yeah, credit cards are definitely the way to go when you see [00:04:00] people on Instagram or whatever flying around the world and first class or whatever, that's all about credit cards and especially the signup bonuses.

  And how that has become a very lucrative part of earning miles. To quickly so that you can take those trips and not have to spend years collecting mock.

  Michelle Moses: And I think that's where, and so that's what was the most surprising to me was that it was the signup bonuses, right? But that those change.

  So some people are like I was shown that I got a hundred thousand and I was shown that I got 70,000. And it really depends on like the algorithm, I guess, or what offer you get from the different credit cards. Oh boy. It's all

  Julian Kheel: absolutely it. It is all over the place. It can be geo-targeted. Some companies like Amex will target based on your location, based on what they know about you, and the cookies on your machine.

  It really, yeah, you can absolutely see a totally different offer than someone else. And in fact amex on some of their application pages specifically says, if you navigate away from this offer, you may not see it again. Yeah. [00:05:00] So you, yeah. So it's important to know, and this is where you do wanna do a little research, when do you see an offer for a bonus for a signup bonus on a card, to take a moment and Google and say what's the best bonus available on this card both right now?

  And what has been the bonus? Recently because these bonuses also change constantly and there might have been a higher bonus a month or two ago, in which case there's probably gonna be a higher bonus again a month or two now. And so it might be

  Michelle Moses: better to wait or something like that. That's correct. Okay.

  Exactly.

  Julian Kheel: Or it might be the highest bonus that they've seen recently, in which case, that's the time to strike.

  Michelle Moses: Okay.

  Choosing the Right Credit Cards for Your Needs

  Michelle Moses: And what would you recommend of the best way for someone to get started if they know nothing and they just are like, I've just always had my Costco credit card, yep. I, the

  Julian Kheel: first thing I would say, and I'm just giving this disclaimer, I think your audience probably already knows this of course, is that if you are going to get, earn credit card rewards, you gotta pay your bill in full on time every month.

  Absolutely, yes. The mo the moment you pay a dime of interest, you've lost the game. Yeah. Don't, yeah. If you guys, if

  Michelle Moses: anybody, yeah. If you're listening to this and you have a problem [00:06:00] with debt, this is not for you. This is for, you spend, you track your sa you, you track what you spend, and you pay off your credit card every single month, and then you're just accumulating the points.

  Julian Kheel: That's exactly right. The, I always say you are not spending any more than you would otherwise. You are simply replacing cash or your debit card with a credit card. Exactly. And you're spending the same amount. Yes. So just wanted to get that out of the way so everybody's on the same page. Yeah, totally agree.

  But yeah, and yeah, I think again, most of the members of your audience are probably pretty disciplined and able to do that. So if you are then starting out and say, okay, like you said, I've had my Costco card and that's not unusual. Somebody, you get a Costco card and you stick it in your wallet and it's there for 10 years or whatever it might be.

  And that is usually the first mistake is you do wanna look at your credit card at least once every three years. I say, because there's probably a better option on the market at that point because products are evolving so quickly and they're constantly coming up with new things. So that's the first thing.

  If you had your credit card for more than three years you should look at what else is out there. The next question [00:07:00] then, if you're saying Okay. Do I wanna earn travel rewards? Maybe cash back is right for you if you're not gonna travel that much. Or if you don't want put in any effort into, figuring out how to maximize your points.

  There's some really great cashback cards out there. The basic cashback card earns 2% on everything and has no annual fee. And there's several banks that issue, that Citibank and things like that. Could be very simple, just go with a cash back card. In which case that's the way that I need way, the way

  Michelle Moses: that I transitioned from my Costco card, and this was quite a few years ago, was I realized that I hated paying for hotels.

  And so I went and I searched out the Hilton and the Marriott cards. Yeah. And said, okay, we're gonna spend, use this one for this and used this one for this. And it ended up, we got lots of free nights. And we got, all kinds of points and we could stay for free. Which was really nice.

  But then once I started to really look into the points, I was like, oh, wait a minute. Now I have all of these hotel points, compiled right? And I have enough going on here. I'm like, I need to then expand into airline points, which I know this is [00:08:00] not the way I think that normal people do it.

  I'm just kind of sharing that for, if people are looking for an easy way to kind of transition into it. That, just doing, if you hate paying for rental cars, maybe getting a Hertz rental car, credit card might be it, and then you can start to kind of learn the game.

  Julian Kheel: Yeah, Michelle, the way that you got into it is not uncommon.

  People often, say I wanna start finding a way for hotels to be free or for my flights to be free, or I wanna take a big trip and so I wanna start. Accumulating travel rewards. The key to this is of course, that you can get more value from travel points than you can from cash back if you work at it.

  So that's where why travel rewards are worth it if you are willing to put in a little time for it. And then the question is, so what do you start with? And the answer is generally, I say start with a flexible. Card start with a car that earns flexible points and miles like a Chase, ultimate Rewards and Amex membership rewards, something like that is a good place to start.

  Michelle Moses: Okay. And that way that you can transfer the, all of those points [00:09:00] to different airlines, to different, car rental cars, you can transfer 'em basically anywhere, right? That's right. You can transform not quite everywhere.

  Julian Kheel: And each bank has its own set of partners, but you can also use those points and redeem them directly for any airline, any hotel, any car rental through the bank's travel portal.

  You won't get as quite as much value that way, but you can basically get any travel that you want.

  Michelle Moses: Okay. And there are websites out there where you can put in your stuff and then it'll tell you, Hey, you should use this one. And it. And then they have the offers of right now and then obviously that's how they make their money is if you apply through those different websites.

  Exactly. Okay. So let's pretend that you get started, right? And so you've got this one credit card and you are spending on it, and you're about to get the signup bonus. Then what do you recommend? Is it like they, they automatically get another one? Because I, that's. My whole thing was the shift, the mindset shift of I'm not gonna have this credit card for three years.

  I'm like literally getting the signup bonus, and then I'm trying to [00:10:00] switch.

  Julian Kheel: Yes. So right, you can, as we said before, you can ramp this up as much as you want or do it wherever you're comfortable. But yes, it does take a little bit of a mindset switch and you gotta maybe push yourself a little out of your comfort zone.

  'cause most people are used to just having one credit card and that's the card they have and they haven't for years and years, but. More advanced credit card users have multiple cards and they rotate them constantly and they're constantly opening and closing cards. I just as an example have 25 open credit.

  Cards. Now I don't have 25 open credit cards sitting in my wallet. I have about three cards sitting in my wallet and maybe four, and the rest of them are in my sock drawer. Okay. And don't get used. I got them for the bonus, maybe for the perks, depending on whether, what kind of card it is, and then they just sit in that drawer and the only time they come out is when that annual fee is due.

  At which point I have to say, okay, am I getting enough value from this card to continue to pay this fee? Or should I cancel it or convert it [00:11:00] to a no annual fee card and then go on to something else?

  Michelle Moses: Okay. And there are websites out there too that will you put in all your credit card information and it will remind you, Hey, your annual fee is coming up right?

  And then you need to analyze whether it's worth it or not.

  Julian Kheel: Yep. One of, one of the sites that I that's a friend of mine I have no financial, interest in it, but just to mention it travel Freely is a site that, that was the, yeah. That was the one

  Michelle Moses: that I started out with. And then you put in all your credit cards and then they would recommend what your first one was?

  Yeah. Yep. Yep. Yeah, it's a terrific site. Yeah. Yeah. A friend run

  Julian Kheel: by a friend of mine, Zach Hood, and it's a really great way to do it.

  Michelle Moses: Okay. All right. Wonderful. And then, so then kind of the next step is you sign up for the cards. You have all these cards you're keeping track of, but then you ha so you obviously, they're not gonna give you unlimited cards.

  And so it the thing that I also found interesting. So let's pretend you keep these cards. And you don't have the signup bonus, is it worth it to keep it? What are ways that you can then maximize your points if you aren't having the signup bonus? And it's not, it's not a brand new card, [00:12:00] in other words.

  So yeah, so first, like, how do you keep the points going without just. Doing your normal spend. So they're not gonna give you unlimited

  Julian Kheel: cards at one time, but they will give you unlimited cards over time. Okay? So what I mean by that is that you're right, you can't have a hundred open credit cards.

  At some point a bank will say. We've issued you as much credit as we're willing to give you, given your income and your credit history and whatever it might be. However, that is the point. Once you hit that limit that you start closing open cards to open up some of that credit. And then be able to get new cards.

  Now with that said, again, you can ramp it up as much or as little as you want. There is a maximum. You're not gonna get. 20 cards a year. Most people aren't. But yes you certainly can. I rotate through probably half a dozen cards every single year. New cards, closing old cards.

  So it can be done. And I have, sometimes you'll hit an issuer that says, you know what, we're not gonna give you a new card right now, but you've had a lot in which case, you just gotta give it a little time, give it in, six months, a year, and then go back to, and then you go back

  Michelle Moses: to that

  Julian Kheel: one.

  Okay. And in the [00:13:00] meantime go to other banks and get other cards.

  Michelle Moses: Okay. And then do you use certain cards? So I also have this app called Max Rewards. And so I can go to a store and it'll say, Hey, use your Chase Sapphire card or use your Amex at the different stores, depending on where it is.

  'cause I've let it use my location. So do you use something like that too?

  Julian Kheel: I don't, but I do the same thing. I just do it in my head. Because I've been doing this a very long time, so Yeah. But yes, I usually do. And this is the way, 'cause you're, you've got two pieces to the puzzle.

  You've got the signup bonuses that we've talked about, and then you've got your actual everyday spend, which you should be putting on some sort of card that earns rewards because why not? So what I usually do is I have. Two or three cards on my per personal cards. Then I have a card or two for my business as well.

  And for each of those cards, they has a use. So I have one card that I say this I use for restaurants. Because it earns three points per dollar I spend at restaurants. That's a bonus carry. I use this other card for [00:14:00] grocery stores and then I usually have a catch-all card where if it's a car, where if it's an expense that I don't necessarily have a bonus category.

  If that's the card I go for, it's a 2% cashback card or two, two miles per dollar, that sort of thing. Okay. So that's the strategy I have. And again, I, you can ramp it up as much or as little, you can have 20 cards in your wallet or you can have three. But you should definitely have a couple I.

  The other thing to keep in mind don't forget about your mobile wallet. If you have an iPhone, you can use Apple Pay. You can load these cards into there and still get the same bonus categories, and then you don't have to carry around 20 cards and you can just select and use what you need.

  Michelle Moses: Right?

  And I found what's happened to me is that I'm getting confused on what card is what. And so that's why I have needed some of the spreadsheets and the apps and, all of that. And it's I applied for, I mean I think I was just at three and I was like, okay, I don't even know. 'cause I was so used to just having two, one personal, a debit and a business card.

  And so then it's like you're opening up all [00:15:00] these cards and you're getting all these bonuses and you're banking all of 'em. But you need to make sure that they can transfer to each other. 'cause usually like the chase can transfer to each other, the Amex can transfer to each other. But. It, then it started to get confusing and that's why I downloaded the Max Rewards app was so that I could keep track of not only the offers and activating them on my card, but then which one was good to use at the grocery store.

  But your tactic sounds much better of let me just use this at restaurants and then this one at restaurant or at groceries and stuff like that.

  Julian Kheel: Yeah. A low tech way to do it if you don't want to download an app, and by the way, a lot of people are using apps like that and it is a great use of the technology because the like you said, you can say, share my location, and then they know where you're at and which card to use.

  But if you're looking for a more low tech way or you just don't wanna, provide that sort of a level of location you can literally take a little piece of masking tape and just put it on your card and write restaurants on this one. And that way when you go to your wallet, it's, I'm at a restaurant, grab that card. Yeah, most people do need some [00:16:00] sort of system and look, even I have a spreadsheet where I have all my open cards and the bonuses and when they were opened and all of that in the annual fees. So I can track it. I can't track 25 cards in my mind. All at once either.

  So yeah, you should have some sort of method of organization if you're gonna ramp it up.

  Michelle Moses: Okay.

  Deciding Whether to Keep or Cancel Credit Cards

  Michelle Moses: And then when it comes time for the annual fee, how do you determine whether you should keep it or not?

  Julian Kheel: So that's a really good question. 'cause that annual fee is all about what are you getting from the card.

  If that card is sitting in your drawer not being used and you're not using any of the perks, it's time to either close that card or convert it to a card that's not, that doesn't have an annual fee. You should not be paying annual fees for cards that you're not actively using. Okay. With that said, let me be clear about something.

  When you first open a card and get the signup bonus and you pay that first annual fee. Keep that card open for the first year. Don't close it before the first year that's where banks will get upset with you. If you're opening a card, getting the bonus, and closing it. After four months, you're gonna be on the naughty [00:17:00] list very quickly and you're not gonna get more cards.

  Wait at least until that second annual fee hits before you make a decision to close it. And by the way, most banks. We'll give you 30 days after the fee is charged to decide whether to close the card or convert it and get that fee refunded. Okay? So just because you saw it charged already doesn't mean it's too late.

  In fact, that's the time to pick up the phone and call them.

  Michelle Moses: And so then you can call and say, I want to cancel. And they'll give you, they'll give you that back.

  Julian Kheel: Okay. Or convert it to a card with no annual fee. Which can be beneficial for your credit. Yeah.

  Maximizing Your Credit Score with Unused Credit

  Julian Kheel: 'cause if you have credit and it's unused, you're not carrying debt against it, that actually increases your credit score.

  Having more cards does not hurt your score as long as you are using them responsibly and you don't have an excessive amount of debt. Rule of thumb on this is that if. For excellent credit score, you want to have your usage be 10% or less across the board that's across all your cards, and to at least have a decent credit score, you want it to be less than 30%.

  Okay? So those are the thresholds that, and again, that's [00:18:00] adding together all of your credit limits across all your open cards and then all of your credit debt across all your open cards. So that's why keeping a card open with no annual fee. It's useful because you've got another credit limit that you're not using, and so that's adding to your ratio.

  Right?

  Michelle Moses: And this is where it kind of gets, I feel like, also complicated. I've said that a few times, but when I was using my Marriott card and then I started to do this, I didn't want to pay the annual fee for the Marriott, but if I would've canceled, then I would lose my status. With their bonvoy program.

  And so this is where you really wanna read what's going on with the credit cards and what are you gonna lose. Because if I would've canceled that, then I wouldn't get the same benefit as when I went to stay. And I still have all these Marriott points. So even if I canceled the card, I'd still have the Marriott points, but I would not be a, it's not Diamond, but I, whatever I am at Marriott I, so I just downgraded it to the free card so that I could keep all those other bonuses.

  Yep. Per and perks. That's what I

  Julian Kheel: mean. Yep, [00:19:00] exactly. That's what I mean by perks. It's not just about the points, it's about the other features of the card. Are you using them or not?

  Strategic Use of Airline Credit Cards

  Julian Kheel: For instance, I have a Delta credit card. I think it's a Delta Gold Card. I pay $99 a year for it. It never goes in my wallet because Delta cards are usually not the best place to spend money.

  They don't earn enough miles. And also then you're locked into Delta Mile, right? You can't transfer them somewhere

  Michelle Moses: else. Correct.

  Julian Kheel: But I keep that Delta card sitting in my drawer, paying $99 a year. And you might say why are you doing that if you're not getting anything out of it? And the reason is.

  I am getting something outta it. Just by having that card, I am getting a waived baggage check fee every time I fly Delta. That fee is now about 30 bucks each way on a Delta flight, or it might even be 35, which means if I fly Delta twice round trip. That's over a hundred dollars in free in check bag fees.

  I've saved. I pay 99 bucks for the card. I've already saved money. So for me, even though I know use that card, it all [00:20:00] gets attached automatically. You don't have to charge it to that card. Yeah. So just by having that card sitting in my drawer, you get free pay $99 a. I'm actually saving money.

  That's a

  Michelle Moses: genius idea. See? This is what I love about it. Or it's like the Southwest credit card. Did you know that you get two a upgrades and there's just a lot of little things. Or you get some of these cards you'll get TSA pre-check. They'll pay for that. They, you'll get a credit for that.

  Yep. Some of them for clear. It just depends on what the card is and there's all these, and if you're really using them like I got a Amex Gold and I'm just getting, I'm out there spending up these restaurants and I get $10 credits all the time, and I'm like, I don't even know why I'm getting, it's like you just activate it.

  Yeah, I know which coming card. Yeah. And you just get the $10 credit. So it really does, if I, and I don't even spend that much time on this anymore. It's more like I just. Have a night and I'll spend an hour or two going down the rabbit hole and then I learn a little bit more and, then it kind of builds on itself.

  Okay.

  Compiling Points for Travel Rewards

  Michelle Moses: So let's kind of switch off to, so now we've kind of given a brief overview, I guess, of compiling points and what that looks like from the beginning. And so now you [00:21:00] have these points and I even think after two credit cards, you probably have enough of with the signup bonuses to go take a trip.

  Yeah, absolutely. Absolutely. Would you agree with that? Even after one, I would, if you get a hundred thousand points. A hundred

  Julian Kheel: percent. First of all, it depends on where you want to go and how you want to get there, and are you bringing someone with you. Yes, obviously if you want to go as a couple or with a friend or family member somewhere, to Singapore in first class, then one card's probably not gonna do it.

  But you know, if you've got. Say 80,000 chase points, and you want to go spend a couple of nights at an all inclusive resort. Chase has got a bunch of them. You could easily do that together for two people and save on the entire stay. And then just get some cheap flights to get there and back and have everything paid for with all your drinks and food and everything.

  Michelle Moses: Yeah. It didn't take that. I was surprised at if your dates are flexible, I think then it's very surprising what you can do for a very little amount of points. And that's. That's the key that

  Julian Kheel: you just said. You gotta be [00:22:00] flexible. The, where people run into problems and where they say, ah, this doesn't work, is they're set on a specific flight, on a specific date.

  And that flight happens to cost a lot of money or a lot of points rather. Because it's a popular flight, because it's nonstop and it's exactly the right time or whatever. If you can be a little more flexible with your dates and your times, and maybe you make a connection, that's where you can really get massive value.

  Spend very few points to get some really great trip.

  Michelle Moses: Yeah, I came home for, I went to the Paris Olympics last summer, and I spent 20,000 points to get home. It was just like, that's amazing. Yeah. And that's amazing because I had a flexible date. It just was nothing. I was like, and I was like, this cost me like nothing.

  It was, it's insane. It was direct too, from Paris to Phoenix. You can find fantastic. Some really amazing things out there. And so let's talk about what you do, because obviously you have a job and so your extension, so you have a website or a web extension that actually searches [00:23:00] for the flights,

  Julian Kheel: yes. My, my company is called Points Path, and what we do is, first of all, we, our whole goal is to make travel tools that help people use their frequent flyer miles. As you've said that it's complicated to earn them, but I. That I think a lot of people can figure out fairly easily once they dig into it, using 'em is where it gets a little more tricky.

  Like we talked about, you go on and you find some flight and you're like, ah that's not a good deal. Or, I don't want that flight. And then even when you do find a flight, you say, all right, say it's, 15,000 miles or $120 which is the better deal? Should you be paying cash and save the miles for later or use the miles and every airline's miles.

  Are worth a different amount. You can't just say, oh, 15,000 miles is worth 150 bucks. It doesn't work that way. They're all different. So what Points Path does, it's a browser extension that you install any, either Google Chrome or Microsoft Edge, and we have Safari coming out next year. We, and then you take when you do a search in Google Flights, which is a very popular search [00:24:00] engine for flights, you search, Phoenix to Paris or whatever it might be.

  Google gives you all the options for that date in cash. Points, path, adds all the points, prices for each of those airlines, and then tells you for each flight. Which you should do, should you use cash? Should you use miles? Is it a good deal with miles or is it a great deal with Miles?

  Michelle Moses: And this is a godsend.

  It does

  Julian Kheel: all of this in about

  Michelle Moses: five to seven seconds. Yeah, that is a godsend. It's free. I know that's not,

  Julian Kheel: it's free too. Yeah. Yeah.

  Michelle Moses: I, booking this and then figuring out, I got my calculator out figuring out is that a good, exchange versus this one at United. And on this one, the fact that you have this extension.

  I am so happy that you invented this, so thank you, because yeah, it's very difficult to figure all that out. It just takes so much time.

  Julian Kheel: That's right. And that is exactly why we created Points Path. I, as you mentioned at the beginning I've spent a lot of years in this business. I've worked at the Points guy.

  I've worked at CNN writing about travel rewards and credit cards and it's all great [00:25:00] information. Those are great sites. But I always wanted a way to be able to help people use their mouths. Without them having to spend hours digging through a website or a blog points path is the way to say, to answer the simple question, do I use my miles or do I use cash?

  Just tell me the answer. I don't wanna dig into all this, just tell me what I should do.

  Michelle Moses: Yeah. I think this extension sounds wonderful and I. I cannot wait to use it. And I, because I wanted to talk to you and I, maybe I should have used it before I even talked to you so I could give my experience.

  I didn't think about that, but I have had such an issue with figuring out how Yeah. To Is it worth 50 cents? Is this worth a dollar? Yeah. All of that. So this is really a godsend to be able to figure out your flights. And that has always been, 'cause people say you should not, so do you recommend that you go to Google Flights?

  Because you always hear, don't go into the, like credit card. Sometimes they'll have good deals, but like going into their, what do you call that? Their portal for travel, their portal. Yeah, so if you go to the Chase [00:26:00] portal to book travel, everyone on these I've joined all these Facebook groups about doing all this travel hacking you guys.

  And so that's where I get a lot of my information is listening to everybody ask the questions and things. But then do going, they say don't go into these portals to book. And do you have any comments about that?

  Julian Kheel: Yeah. Booking direct usually is the preferred way. You generally aren't gonna get a better deal by going through a portal, though.

  Again, if you need to use your points to, on a flight that isn't covered by a transfer partner, then you might have to use the portal, in which case that. It's fine, but you do wanna check the price. In other words, if the flight is available on Chase's portal for $300, you go to Google Flights and look that same flight up on the same date and make sure that the airline is actually charging $300 for it and not two 50.

  Okay. Because if it's, if there's a markup on Chase's portal or any of the banks, then it may no longer be worth using the points. Okay. So yeah, you basically, if you do go through a portal, you just want to crosscheck it directly with the airline or hotel. Make sure you're still getting a good deal.

  Michelle Moses: [00:27:00] Okay. All right. Are there any other, like tips and tricks you've got about actually using the points? We've got lots of things. I know, but like anything that I'm really missing,

  Julian Kheel: Here's one of the things that, yes here's one of the very simple tricks that I always say when it comes to redeeming your points and miles.

  And it's going to sound silly, but it's really very very valuable, even though it sounds like it shouldn't make a difference when you are booking flights. Search one way at a time. Don't search for round trips with points. Most people, right when they book a flight, especially with cash, they sit down and they say, all right, I'm coming from Phoenix and I'm going to Paris I need to leave May 16th and I need to come back May 23rd, or whatever it might be.

  And they just put that all in and they get the results. Which for cash is usually fine, but with points, because it's so complicated, because there's all these partners and different options and all of that. The airline and bank websites are generally not very good at piecing together the [00:28:00] best round trip options.

  So you're better off searching one direction first from your home to wherever you're going with points, and then. The other direction. Homes. Okay. Separately. And even booking them separately, which generally there's no additional fee for that. You generally won't have to spend more points for booking them separately.

  It gives you the flexibility to change, right? One side or the other without affecting the other side. And finally, it gives you the opportunity to mix points together. So let's say you've got 15,000 points with United and 15,000 points with or miles with American. That's not quite enough to get a round trip to domestically in either program, but it is enough to go one way on United and the other way.

  Oh, okay. So that's the way that you can mix your miles on one trip and use them all

  Michelle Moses: and just use different airlines? That's right. Depending on, that's right. Because that might work. Yeah. They might just have a cheaper day or what? Yeah. [00:29:00] You're, so you're really specifically looking for that one day and then you start your search over and then you're searching for that one other one day, correct?

  Exactly. Yeah. Regardless of what airline, unless you're, you have those certain points

  Julian Kheel: right at that airline. And the reason you're doing that is because unlike cash, every airline's miles are different and you can't otherwise mix and match them. Cash is cash you, whether you're booking American or United or Delta, you're still paying in the same cash, but with miles.

  If you're booking on Delta, you gotta use delta miles. If you're looking on American, you gotta use American miles. So the only way to mix them that way short of booking across partners is to do it that way, book it one way in each direction using a different set of miles.

  Michelle Moses: Okay.

  Advanced Features and Community Support

  Michelle Moses: And do you offer any help in helping people book some of these things or support outside of having your extension?

  So we, so

  Julian Kheel: we only have the extension. We don't have, some sites offer a concierge service. It's usually very expensive, so we don't do that. What we do have is we have a group called the Founder's Club. [00:30:00] It is a paid group. It's not very expensive. It's about a hundred bucks a year. And part of that group, it's a small limited group, and we have we, we have a Facebook group, we have email support and that sort of thing.

  And that's where, even if I am not necessarily available to help you. Others will, other members will be able to help. Yeah. And that is, we limit that to only 10% of our installed user base so that it doesn't turn into 40,000 people. But but that is a way that we try and have people help each other when they're looking for advice.

  Michelle Moses: And I think that's where you learn a, that's where I've learned a lot anyway, is just reading other people's situations and and then honestly booking your own stuff, but reading other people's situations. That's really where you get into it and it just becomes. I don't know that mine's a part-time hobby like some of these other people I know, but it's, it's kind of a hobby that I get into here and there.

  So if you are enjoying

  Julian Kheel: doing it

  Michelle Moses: then I, and you're

  Julian Kheel: getting something out of it, then I'd say it's a hobby. Yeah. It's like hacking the system. That's right. Exactly. I should also mention with Founders' Club, you also get advanced features in the Points Path extension [00:31:00] itself. We have things like price tracking where you can say, Hey, I wanna select this.

  Flight in points and let me know by email when the price goes up or down. Oh, cool. Counting points. We have a seven day calendar where when you do a search, you can see the best prices for three days before, three days after, across all of our points programs. So we have advanced features like that in founders club as well as the Facebook group, as well as priority support, email support and such.

  Yeah.

  Michelle Moses: Oh, that's wonderful. And I think that's the way that you're gonna learn about it, is when you have a group, you have to have that group. You can do it on your own, but you don't even know if you're doing it right or if you're,

  Julian Kheel: it helps to have people give you feedback.

  Yeah. Say, yeah. And say oh, that's a good idea, but try this, and it might be even better, whatever it might be. And that's how you learn.

  Michelle Moses: Yeah. And then, so my last question is, and I haven't done this yet, but this is what on the group is by linking your card. To Raku in or maximizing your shopping more than what we've even talked about of this is my grocery.

  This is my restaurant. Do you have any recommendations for that?

  Julian Kheel: Yeah, that. No, that's a [00:32:00] really good point is that beyond just using your credit card and flying, there's a million other ways to earn points and miles. Now, one of the things you're mentioning, Rakuten, is a shopping portal. If you're buying anything online from a Walmart or a Target or wherever it might be, you should be looking first at a shopping portal.

  There's a bunch of them. The rack in is a cashback portal. You can get Amex points as well, but every airline has. As some sort of a shopping portal. You go through the portal first to that site, you still end up on the same target.com or walmart.com. But anything you buy there during that trip, that shopping trip, you then get additional bonus miles from the shopping portal.

  So that's another great way I. To earn extra miles. There's dining portals where you can add your card, like you said, and then when you're out dining, then you get bonus miles, lots and lots of other opportunities. You just have to kind of dig into it all and find them all.

  Michelle Moses: Yeah, it's a whole world I hope that.

  Final Thoughts and Getting Started with Travel Hacking

  Michelle Moses: This helped you you guys just even if you aren't part [00:33:00] of the travel hacking and all the points and everything, that this even gave you a clue of what's going on and how big and exp and just to even get started or some of the websites to get started. I hope it helped you 'cause I find it to be a lot of fun and I'm sure you do too, since you do it for a living.

  Julian Kheel: Absolutely. And I wanna emphasize, you don't have to be a travel hacker. You can go from, just knowing nothing about it. So just one or two steps forward it, start there. Yeah. And just get a little value out of it and you'll very quickly just figure out if you're addicted or not.

  Michelle Moses: Yeah, just do a a card for six months and then do another one for six months and then you could be done with it and it maybe even get a free trip out of it and see where it goes. Okay. So you are with points path.com. Correct. Yep. Okay. That is correct. And the extension is free. And you have a group that you can join and thank you so much for joining me on the podcast.

  I really appreciate it. Yeah. Thanks for having me, Michelle. If you have any questions, just let me know. I will. And we'll, I'm gonna put all of Julian's information in the show notes if you'd like to get in touch with him. [00:34:00] And thank you so much for listening to The Unconventional Investor, you guys, I really appreciate you listening and have a great day.

  Thank you for listening to The Unconventional Investor Podcast. I hope you feel more confident in how you can grow your wealth using the strategies I shared in this episode. If you're ready to take the next step in diversifying your portfolio outside the stock market with alternative investments, head to me financial.net/contact us to book a 15 minute consult call with me.

  Let's discuss how we can work together to achieve your financial goals. Until then, I'll see you on the next episode.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

Take the quiz - How Alternative Investments Can Fit In Your Portfolio

• Transcript

  Introduction to the Podcast

  Welcome to the Unconventional Investor Podcast. I'm your host, Michelle Moses, certified financial planner, licensed realtor, and founder of ME Financial. If you're an accredited investor feeling overwhelmed by managing your portfolio and looking for alternative investment strategies that go beyond the traditional stock market, you're in the right place.

  Let's head into today's episode so you can start taking control of your financial future. Hello everyone and welcome to the podcast. Thank you so much for listening.

  Overview of Alternative Investments

  Today we are going to talk about the different categories of alternative investments, and this is just the way that I am splitting them up.

  And if you are on my website and you take the quiz, this is the way that they are split up because people often wonder how can they fit in? Can. To your particular portfolio, do you just pick any alternative? Are they all the same?And I am here to tell you that they are very different.

  Much like you would pick, your stocks and bonds and all the different investments that you have with all these mutual funds. What is your goal? Are you trying to keep it safe? Are you trying [00:01:00] to grow it for 30 years? Ordo you just have 10 years? And so it really depends on.

  What your goals are and what you're comfortable with. So I wanna talk about the different categories that I split them up into and the ways that I then recommend them to people. And then we'll talk a little bit about some of the strategies that go along with some of these. So the four categories.

  That I split them up is growth, income a mixed, and then just pure real estate. And that is just owning the pure real estate, the actual property itself.

  Real Estate Investments

  So why don't we, let's start with that one, because that is the easiest when I say real estate, everybody knows what I'm talking about.

  You can choose, say, commercial property. You might buy one building. You might buy a house on your own with your IRA. But if you listen to another episode, we recommend against that just 'cause it takes so much paperwork and rules and regulations. But you can get into an alternative [00:02:00] investment.

  Where does buying one single. Property and a lot of them call them like sidecar deals, where it's like, Hey, we have a really great opportunity in this one particular commercial property with these office buildings. And it might be mixed with some, a different rentals or some retail that's down below, or there's a hotel that is right on the beach and it's in this super hot spot.

  So it doesn't take that much for. People I usually see these is when it's like a hotspot and it's like a special deal where it's just gonna be owning like one type of property of real estate. And you're gonna find a lot of alternative investments are real estate based. And they're just now getting into some of the business ones.

  And I, when you google alternative investments, you're gonna see it say private equity cryptocurrency. And when I'm talking about alternative investments, I, I am talking about those, but the ones that I have the authority to sell are what are called in the retail channel. [00:03:00] They are for financial advisors to sell.

  These people try to raise money for their particular deal and they're going to financial advisors to say, Hey, we want. People to invest in this at a hundred thousand dollars at a time, or $50,000 or two 50 whatever it happens to be, butthey are, they've done all of the paperwork that is included to be able to do that.

  Okay? It needs to be structured in a certain way. When you go on Google and you're looking at. Different alternative investments. It's gonna say some sort of private equity thing. You can absolutely have a person that you talk to. Your friend says, Hey, I wanna start a fitness app. Can loan me $25,000?

  That would be like technically a private equity raise you could invest in. I've had some people bring me things that are for nonprofits that. One interesting one. The cannabis industry was a big [00:04:00] one where people were doing a lot of private equity. And so those types of things, when you see those online, that's not necessarily what I'm talking about because that would be directly, that would be you deciding what you wanted to invest in and then you could directly invest with that company.

  I am more in the investment field, obviously, and that's why I'm splitting these up into these different categories so that you can then fit them in your. Into your portfolio. So you would have like your stock investing and then you would take some of your either brokerage account or your IRA and then you would invest it into some of these alternative investments that are not in the stock market.

  So real estate is one of those categories.

  Growth Investments

  The other category that we're gonna talk about is growth investing. And this one focuses just on capital appreciation. So you want to think more long term. That you are investing in something and it's going to take many years in order for the profit to come to fruition.

  A lot of times these are development deals they are looking for money to [00:05:00] build like a retirement home. They're looking for money to build student housing, and they literally have the dirt and and then obviously it takes time to build the building and then it takes time to lease it out in order for them to then start making money.

  And depending on the investment, they'll sell it right away after it's been built and leased a little bit. They usually have a certain percentage that they want to lease it up to, 50% lease,60% lease, that kind of thing. And then they will sell it, and then you can get out of it.

  Sometimes they'll just refinance it because obviously the building leased is worth more than just the dirt. And the idea of having the building there that is the. Most common type of growth investment that there is out there. And obviously if that was something that you wanted to put in your portfolio, you would need to have that time horizon.

  'Cause a lot of times those are the five to seven year deals where it's, we're going to build this, we still have [00:06:00] permitting. COVID really messed all of that up because then lumber prices and then there was no labor and then they had to not build for a little bit. The cost of the money went up.

  So there's a lot that goes into that. And you've just gotta be able to weather the storm and wait for that return to come back to you. And if that is your time horizon and you're really excited about the project, totally fine. It's just that you need to be able to have the time horizon. I have some retirees, they are real, they love alternatives, but they're, I say something like that and they're like no, that's too long.

  I'll be, 87 years old. You just wanna make sure the time horizon is fitting and then obviously that it's a good investment. The other category is income. And I think you need to think of this as just like you would with a bond if you were buying a bond or a utility stock and it gets paid to you every single quarter or.

  Or a month or year or whatever it is that these types of investments, these alternative investments that are income based, those are also paying you a dividend on a regular basis.[00:07:00] So sometimes these are, a lot of the hard money lending ones are income based. The ones where they're already leased multifamily would be a good one.

  Hotels is a good one. These are where people are staying. They're paying to stay, and then you're making part of whatever that income is. These are great. They, these do run the gamut, I should say. So you've got some companies that are newer and, you got like the hard money lending going on, and those are like with house flippers, right?

  So they're doing hard money lending to some of these house flippers. And you're making money on a regular basis, but then it's. Just a little riskier, because you're, you've got the housing market, whereas there's some of these companies that are, they're huge behemoths. Okay. And I'll have some of them on the show, but they are more of an income play where you are more of a tried and true and they know what they're doing.

  They have got. Connections all over the United States, you're not gonna make as much just because there's more hands in the pot. And, they have the leasing office and they have, all the people in their [00:08:00] office to, to run it. And the more overhead you have, the more fees that they have to charge and all that.

  But a lot of the, the income and if you're looking for just regular income, the, if you're, you want to think about like leasing or lending money is usually where these things the category that these things fall into and I it where you, where people get hung up on this is it does create taxable income if it's not inside your IRA.

  And so that's where you really want to get clear on what you want. My idea too is that you would. Go into retirement. If you did have some of these income, this would be a great time to, if you were just going into retirement, to get some of these income investments going so that you knew exactly what you were going to make on a monthly basis.

  And even better if you do it inside your Roth IRA, so that income is tax free. And I, I, people really like the income ones. The growth ones are harder just because if you're not. Used to [00:09:00] investing in these types of things, and you have to wait five to seven years to get any of your money back, and all you're getting is, A PDF or an email update about the investment.

  You might not like that. You might want to see some inve, you need to see some return on it. So some of the first time investors and alternatives, I will never put them in something growth because you do not see anything money and they're like what is this even gonna pay out? And what the heck is going on with it?

  They want to see some dividends. They want to see like a quarterly, something coming in. So the growth. Tends to be for the younger people or for the not, I wouldn't say young, but accredited investors that are on the younger side that have the timeline, but they also have experience with investing and so they're not as worried.

  And it's good to like mix these up so that you've got the boring growth and then you also have, the income one that is paying on a more regular basis.

  Mixed Investments

  And the last category that I do is mixed. And this would be a mix between the income and the growth. And a lot of these are let's take for [00:10:00] example ,I have another episode about Peachtree Hotel Group.

  And I. Love them. So that's why I keep bringing them up. But they buy hotels, fix them up and run them, and then they might sell them or they might keep them. That would be a great mixed use because they also have the ability to lend money to people that own hotels. So if the. If it's a mixed fund, the it, they have the ability, the manager has the ability to not only purchase the real estate, but they also have the ability to manage it or to lend money to other people.

  So that is a good example of, of a mixed, those just get a little bit more complicated in like the reporting of understanding them, you have to trust the manager of the fund anyway. So as long as you're going with a reputable manager, I don't see any problem with doing any of that.

  Some of these in just in alternatives and in. General do you have specific type [00:11:00] of tax benefits, I should say? So in talking about the real estate and income ones, I think you could put those together and they're these funds called DSTs, so they're deli. Delaware statutory trusts, and that's, if you, let's say, own a rental for a long time, you have a rental home or a commercial property and you wanted to roll over your capital gains and you didn't want to pay the capital gains taxes when you actually sold it.

  You're tired of running the property, you're tired of managing it. You don't even want to have a property manager. And a lot of times it's when people are going into retirement, they want to get out, start to, and not have as much work to doon their portfolio. So they will sell their real estate and they'll roll it into these DSTs.

  And there are thousands of DSTs, I don't know if I'm exaggerating with thousands, but there's at least hundreds. There's a lot you can go into. There used to be just a lot of commercial buildings. There's a lot of. Laws around what they can do or not[00:12:00]with these DSTs, so you can't like refinance 'em.

  You, like you're buying this building and then you're renting it and then people are making an income from it basically. And so you just would have to explore whether it's right for you. But you could 10 31. Into A DST and that you're buying real estate, right? But then it would be producing the income to you until, whatever, until you pass.

  And then you could give that investment to your heirs, which would then have a step up in basis and you would never have to pay the tax. So there's a lot of different strategies that you can do with that too. So with the different categories of the alternatives. So they don't all necessarily just fall into one of these categories.

  And to be honest, as time goes on, I might update these categories, but right now I think that's a good way to, to think about it because it's such a huge world and people are used to talking about stocks and bonds, but they're not used to talking about the alternative investments. And I think this is a good way to marry the two so that you.

  Can understand what what you're really getting into and [00:13:00] how it can fit into your portfolio because you do not, obviously, again, I'm gonna say, if you only have a three year time horizon, you're not gonna want to get into some, super sketchy thing that is five to seven years and it's got lots of city, permits that it needs to pull. And there's like a lot of stuff that goes into it like that. So you know, you wanna do your due diligence, but I, to me, they fall into these categories and I. Oh, oil and gas would be another one that falls into the income one.

  Sorry, I forgot that one.

  Tax Strategies and Conclusion

  Anyway give me a call or reach out to me if you would like to talk more about all of these different alternative investments. I'm really excited to talk more about them. In future episodes. I'm gonna talk a lot about different tax strategies that you can do with some of these.

  And then we also have a lot of episodes that are interviewing the funds themselves and what makes them unique and different. And you'll see that I have a litmus test for some of 'em. And I also have some episodes about some bad ones that I have seen. 'Cause [00:14:00] honestly, I sit at some of these meetings and listen to, it's not very many, but there's few where.

  I'm just like, I can't even believe that this is a thing, 'cause there's just so many fees and stuff. So I'm gonna do an episode on the bad ones that I would never invest in also. So anyway I hope you have a great day.

  Thank you so much for listening. I really appreciate it. I love doing this podcast, and I will see you soon. Thank you for listening to The Unconventional Investor Podcast. I hope you feel more confident in how you can grow your wealth using the strategies I shared in this episode. If you're ready to take the next step in diversifying your portfolio outside the stock market with alternative investments, head to mefinancial.net/contact-us to book a 15 minute consult call with me.

  Let's discuss how we can work together to achieve your financial goals. Until then, I'll see you on the next episode.

  
  

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

In this episode, we're talking about the world of self-directed accounts with our guest, Michelle Thomas from CNB Custody.

🎙️ If you're looking to invest in alternative investment strategies beyond the traditional stock market, this episode is a must-listen! Here are three key takeaways:

🔹 Understanding Self-Directed Accounts: Self-directed accounts offer the flexibility to invest in alternative assets like real estate, LLCs, and REITs, beyond publicly traded stocks and bonds.

🔹 Why Custodians Matter: Transferring funds and managing accounts through self-directed custodians, like CNB Custody, is a bit different than your traditional custodians, but still as simple.

🔹 Long-Term Investment Approach: Alternative investments in self-directed accounts are generally slower in terms of reporting and liquidity, making them ideal for patient investors focused on long-term gains.

Links:

CNB Custody - www.cnbcustody.com

Take our quiz - How Alternative Investments Can Fit in Your Portfolio

• Transcript

  Introduction to the Unconventional Investor Podcast

  Welcome to the Unconventional Investor Podcast. I'm your host, Michelle Moses, certified financial planner, licensed realtor, and founder of ME Financial. If you're an accredited investor feeling overwhelmed by managing your portfolio and looking for alternative investment strategies that go beyond the traditional stock market, you're in the right place.

  Let's head into today's episode so you can start taking control of your financial future. Hello everyone and welcome to the podcast. Thank you for listening.

  Meet the Guest: Michelle Thomas from CNB Custody

  I am Michelle Moses, your host, and today we are gonna be talking about self-directed accounts and to talk about that, I have Michelle Thomas here and she is with CNB custody and CNB custody.

  Does self-directed accounts and they're who I work with and so I asked her to be on here. And she has been with CMB custody since 2006, and she spent many years in operations before taking on a sales, marketing and client rep relations role. She also oversees the new accounts department and plays a role in new product development.

  She holds a bachelor's degree in business administration with an [00:01:00] emphasis in marketing from Kansas State University. Welcome. Hi. Good to see you, Michelle. I know. Thank you so much for agreeing to be on. I know that we talk here and there about, all the different accounts. 'cause you guys, Michelle is the one that I contact if I'm having issues or I'm assigned to her, if you will about all my client accounts and I think CNB custody is amazing.

  Thank you. You give great customer service. There's always somebody to answer the call, the phone, and obviously your fees are right and we'll get into all of that. But just so you guys know, they are the main person that I use for. Doing my alternative investing. So anyway, let's get started just talking about what a self-directed account is, because I think people get very confused about what they are in general Yeah.

  As a self-directed, because. Custodian. We mainly do IRAs, but that is not all we do. For a long time we did IRAs [00:02:00] only, and you've heard the term self-directed IRA all the time. We, in about the last eight-ish years we have had more and more demand for non-qualified accounts, so non IRAs accounts, just to custody these alternative investments.

  So we do both types, IRAs and non-qualified. And really we are here because. We needed the. The industry needed a spot for their alternative investments, a good custodian. The IRS requires a custodian on IRA accounts. So if you wanted to hold something that wasn't being traded publicly some, a piece of real estate, even a large investment, but that just wasn't on the public markets, you needed an IRA custodian.

  And a lot of the mainstream custodians that you use for stocks, bonds,brokerage funds, won't hold these types of investments. So that's where wecome into play. Michelle and I talked a little bit before it started. I said self-directed IRAs is a funny term because [00:03:00] yes, it's self-directed as far as.

  We are a completely passive capacity. We are not fiduciaries. We're not gonna tell you what to do with your investments. You're gonna tell us, but that mean doesn't mean you have to do it by yourself. We have Michelle and many other financial advisors that help clients along with this as their financial advisor.

  So self-directed, but many of those self-directed accounts do work with financial advisors. Yeah, I, it means more like participant directed, that you can invest in things. 'cause, and the way that I like to describe it is when you're at like Schwab and Fidelity, you're at all of these, you have these publicly traded companies and the bonds, and there are things that have really been vetted.

  They have been reviewed by the SEC. They're gone through tons and tons of reporting and things like that to be on the public markets. Whereas some of the things that we hold in these self-directed accounts they do go through a process of licensing and having their paperwork, but they're not reviewed in the same way.

  To be distributed to the public in the [00:04:00] retail realm is what, yeah. Describe it. Yeah, so a lot of those are for accredited investors only. So somebody that's sophisticated with their investments. But, you're gonna see a lot of other ones that, that any investor level can get into. But it does that's where they aren't as.

  Had gone through as much due diligence to be on those platforms because they assumed that the investor themselves has done their due diligence. Exactly. And then you guys, I do wanna do a little clarification too, that when we say custodian they're really reporting the value of the investment.

  So that's what a custodian does, is that basically, you have your stuff there, but they are. Making statements and reporting things because if you have an IRA then you do have to obviously report that to the government. And so you have to have some sort of, person keeping track of the transactions and the fees and all of that.

  Yeah, that's exactly right. The IRS requires a custodian on IRA accounts. The custodian's role in that [00:05:00] is really to do the tax reporting, to do the safekeeping of the investments, make sure that, they do exist. Whether we hold it in certificate form or it's on somebody's book somewhere. Report market values to the IRS report, RMDs to the clients.

  If you get into that point where you're required to take a distribution, that's an RMD. So that is our role. The IRS allows banks and some other non-banks that they apply to, to be custodians of this type of thing. Yeah. Oh, and C and B stands for community, national Bank? Everybody. Yes. Yeah. We are actually a national bank with regular bank branches, but all in Kansas.

  And then our custody division, that, that's all we do. We work nationwide. Doing this alternative asset custody. Okay.

  Types of Alternative Investments And then let's go over what some of the alternative assets that we, you guys might hold that would be different than having it at Schwab or Fidelity. Yeah, so definitely one thing that we'll do that Schwab and [00:06:00] Fidelity wouldn't even touch is.

  Direct real estate, whether that is a piece of farm property, a vacant lot, a rental home, an apartment where your IRA owns that property. The property is registered to your IRA. And then any income that you're getting on that property goes into your IRA. Any payments come out of your IRA that is for basically investment purposes only.

  You can't do that and then live in that house. So if you have an investment property. We do that. And we've been, we do quite a bit of that. We allow precious metals, which is something that those wirehouses and clearing firms aren't going to do. We don't store the precious metals here because that would, we just, we don't have the space or security for all of those metals that we handle.

  So we use a depository. They hold the metals, but we do all the reporting on them. And then what we consider alternative investments, which is just something that's not [00:07:00] traded on the stock market. We do a lot of LLCs and LPs, and then a lot of what's called a real estate industry trust and a reit.

  Those are large companies. They can be, close to billion dollar offerings, but they're not traded on the stock market, and it's a company that they'll usually specialize in. We buy senior living houses, we buy student living. We buy. Shopping malls, which isn't so much anymore. Hospitals, the last when I was at there was a lot of wine in car washes.

  Yeah. Yeah. There's all kinds of business Storage. Storage, basically. A lot of storage units. Storage. Yeah. There's a lot of self storage right now. A lot of credit, like where there's like hard money lending funds. Yeah. There's all kinds of things that you can get into, and basically they're just not listed on the public market.

  You're investing in these private companies and they go around and they try to raise money and, yeah. Yeah, invest in them. Yeah. We have people that do, livestock that there's a lot of rules and regulations when you get into stuff like that. So a [00:08:00] lot to ask, but it's possible now saying that just because we're self-directed and we allow this huge investment portfolio doesn't mean we can do everything.

  The IRS does limit you. They will not allow collectibles in IRAs and for some reason in the collectibles with everything you can collect, they mention rugs. Specifically. Why? I don't know. But if you wanted to buy some rugs with IRA funds, you cannot do that. Okay. I'm sure they're talking about, a antique special, rug fish that one out.

  So collectibles. Life insurance is another one that you cannot put in an IRA. So otherwise they are pretty open to different things. And you guys are really well known. Every conference I go to, who do you guys, I talk to people. Who do you use? It's, they use CMB. So you guys are really well known in the industry as someone to go for and, or people that are trying to sell to me to put, their investment on my [00:09:00] platform.

  Then I ask, are you signed up with CMB? And they're like, oh, it's, it's easy to get signed up with you, right? I think from these company's standpoints, because I'm not saying, we're not saying that Schwab and Fidelity won't hold some of these 'cause there are some of these investments that they will hold.

  It's just that they charge a lot more than what CNB does. And do you know why? Is that because you guys specialize in it? Is that why? It's because we specialize in it. I was on a panel once with somebody from Schwab at an industry conference and we were talking about holding.

  Alternative investments on our different platforms, and the representative from Schwab just said, we don't want to do it. We will do it, but we don't wanna do it. We're gonna make it hard, we're gonna make it expensive, and it's not gonna, and it's gonna be difficult. And that's because, that's exactly, yeah.

  We don't wanna do it. That's what they told me when I was onboarding with them, and I was like, oh, okay. Which makes sense because the money is not there with them, it's just, it's at the investment, you're just reporting on the [00:10:00] value of the investment from that company.

  And it's a very paper based. Industry, when you think about it, you're filling out subscription documents. Even if you're doing it electronically, you're signing forms to do these kind of investments. And with Schwab Fidelity, they are soused to publicly traded things where they just go in and push a button and there's no signatures anywhere.

  It's just such a different process than they're used to. It goes against their systems a little bit. Yeah. Yeah. It really does. It's not. A streamline system.

  Challenges and Considerations of Self-Directed Accounts

  And I think that brings up too, so let's talk about the difference between the investments. 'cause so many people, when I get them into alternatives, they are used to being able to log into their account and see a graph, a daily graph of what their account looks like, and, oh, I lost 20%, or I did, 10% and.

  This kind of reporting is just so much slower. It is maybe once a year. Is that what you require them to report on? The value is once a year, so we do, and the [00:11:00] IRS says that they need to give us a value at least once a year. So every December, if we don't have a new value for that year, we'll go out and ask for it.

  We may or may not get it. So sometimes it's, a year and a half because something happened and they didn't get it valued. So there, you're right, there isn't always a graph. There's usually not because a lot of 'em, they'll pay dividends. Some of them. Pay dividend. So you know you have income coming in, but you don't know if that value of the investment has changed because there's not that public market for it where people are buying and selling and somebody's saying, I'll offer you this much for this investment.

  It's that company has to go out and value it somehow. And they do it in a whole variety of ways that they will come up with a value. But they're not gonna do that every day. And they're not even gonna do it every six months, no, and I think it's you're looking at the statement, it says, okay, it's still worth, $50,000.

  It's been worth that forever. I'm like yes, because they only update their value when they're [00:12:00] gonna go and do like an appraisal on the different real estate. Products that they have. So it's just, you have to really think of it that you are investing in a business and you're waiting for that business and these people to report back to you the custodian of what that value is that they hold for that person.

  Exactly. Investor. Exactly. And the same way, if you wanted to do, to own apiece of real estate in your IRA. We're gonna, in that case, ask you for the value because you are the owner of that piece of real estate. We're not gonna ask you to go out and have somebody appraise that value every month so we can update it.

  That would be ridiculous. We actually are only gonna ask for you to app get it appraised. If there's a taxable event, if you're taking it out of the IRA or the first time you get into a required minimum distribution status and we need it. And between that time, the time you buy it and something taxable comes up, we'll say, [00:13:00] Hey, what's your best guess based on property values in your area?

  Do you have a lot of people that buy like actual real estate in their IRAs? We do. It's a newer service for us. We've done, IRA custody of alternative investments for 40 years now, and for a long time we've stayed away from that

  direct real estate thing. But in about the LA I would think, I think maybe five years about we've been allowing it and we have been seeing quite a bit really.

  I think there's that to me is like such a headache. Like I just think that, I just can't even imagine the paperwork. Just with title and everything and then having to make sure that there's enough money in there to, maintain property and, all that. It just sounds like such a headache.

  I that I don't know that I would ever do it. The paperwork and title side's not that bad. 'cause you're just going through it once. It is though. You need to keep that IRA funded because they're gonna have property taxes due on the house that Yeah. Everything has to be paid outta that. IRA. [00:14:00] Yeah. So you do have, you have to keep funded.

  You've got that headache and then there's prohibited transactions just. You gottabe real careful with it. You can't live in it, you can't mow with a lawn there. You, you, it has to be completely mean off. Everything happens. Yeah. Yeah. And that's why I just say, I'm like, if you wanna learn about it, that's fine.

  But normally my advice is don't buy a house in an IRA. But I just like to keep things simple. That's me. I'm no, I'm not everybody. Yeah. It works well for people that are like flipping houses and stuff or going through a lot of houses. They're not paying capital gains that way. Buying, they're buying and selling a lot.

  Yeah. But yeah, I. I honestly, when people call to talk to me about it, I talk more people out of it than into it. So that's what I do. That's exactly what, yeah. And we want people to do it because that's the service we offer. But I'm like, they're like, we wanna buy a house and we're gonna do this.

  I'm like, Nope, you can't do that. Then what if we do it this way? Nope. You can't do that. I know. That's the thing, once you talk to them about it, about the actual logistics of it, it's okay, maybe this [00:15:00] isn't worth it. 'cause it is. It's just like a huge headache and that's, yeah. To me, that's not worth it.

  I just like to keep things simple.

  How to Set Up and Manage Self-Directed Accounts

  Okay, so let's switch gears a little bit and talk about like the actual, I think this is what people get confused about is the actual way to roll things over, like the logistics, because everybody's used to having their brokerage account and then they're like I have this IRA, or I have this just regular brokerage account with, stocks and bonds in it.

  How do I actually then invest in the alternative investment and get set up? So you wanna talk a little bit about that? Yeah. It's really a much simpler process than it sounds like. Everybody thinks, oh, I have to establish this self-directed IRA. Exactly. It's the same thing. Yeah. It's no different than your other brokerage account.

  It is the exact same thing. We're gonna have you fill out our IRA application, which honestly it looks huge, but it's all disclosures. There's three pieces of paper that you actually put information on, and it's the same information that you're gonna use to set up an account anywhere else. So you fill out our [00:16:00] application and if you're bringing it from an IRA over to us, an IRA transfer form, we do all the work of going out to your current IRA, whether it's at Schwab, fidelity, wherever it is, and say, Hey.

  Send us this cash, this client requested this cash, they send it to us, it's here, and then we're ready to make the purchase. And you tell us what it is that you're wanting to purchase and we send the funds to that company. They title it in our name for your benefit, and it's held here. And that process works the same way, whether it's an IRA or if it's an individual trust join account.

  Except on those individual trust joint accounts, you might not be transferring money. You might just say, I've got $20,000in my savings account that I'm gonna deposit into this to open it up. And you might just deposit it that way, rather than having to transfer it from the brokerage. Yeah, and I do wanna bring up too, that with self-directed accounts, it's not as easy.

  People are really, they're like, Hey, could you transfer [00:17:00] blah, a thousand dollars from this account into my bank account? And I'm like. It's not as easy as what, 'cause we can link and we can on your bro regular brokerage accounts, you can link your bank and you can have money transferred on a monthly basis and you can do some of that.

  So you wanna talk about just some of the Yeah. Limited, but then some of the things that are the same. Yeah. So that is one thing. We are what I consider a. Good mid-sized custodian nationwide business, 40,000 accounts, 4 billion in assets under custody, but we're not schwaber fidelity to have all of the technology available to just go in and push a button and say, move money from c and b to fidelity.

  There are ways. That we try to make. Yeah. But that would take new licensing for you guys too. It would. Yes. Go ahead. There are ways we try to make it as easy as possible, but Oh, you're normally gonna have to contact us. And say, Hey, I want this money moved. And sometimes, depending on how your account's set up, we can do it.

  We can move the money because you've signed [00:18:00 ]off on something. Other times we're gonna say, great, we can move it. We're gonna need a form. But another good thing about working with us is when we need stuff like that, or you need to do something, we are very easy to get ahold of. Yeah, you guys are easy.

  Yeah. You're gonna make a phone call and somebody's gonna answer the phone. You're not going through a press one, press two. So you get a little bit more customer service here. So even though a transaction might not be as easy, a little bit more difficult. We're gonna do everything we can to make it as easy for you as we can.

  Yeah, no, you do. I'm just saying just in general, self-directed. Oh, yeah. They're just harder. It's just not as, all electronically linked with a CH and wire transfers and all of that like they're used to with like your online, money market account or something. It just is a little bit more cumbersome, or slower.

  Absolutely. Or maybe it was more in the eighties, maybe nineties, whatever. So it's just more like that. And I think if you're just, you just [00:19:00] know that these alternative assets are just slower in general. They're slower to report. They're slower to realize a gain. They're slow, all of that kind of stuff.

  It's just that you're investing in the things that are out in the world. And so it's just, it's really different. You're not just doing this electronic thing that lives, on the computer. Yeah. And you're investing in these things for the long term. Most of these are, a five to seven year hold at least, there's different kinds.

  So you're gonna see different links in there. And so the. Way we look at it is you're gonna open the account, get the money inhere, you're gonna make the investment. You're probably not gonna have a lot of activity in the our account after that anyway. It may be paying dividends, so there might be money coming in.

  And it's not that we can't a CH or wire. If there's dividends coming in, we can set it up to automatically send that dividend straight out to you. But you know, to get it. From here to this time, I want it to go to Schwab. And next time I want it to go right. I want it to go to bank account. That's bank [00:20:00] account.

  Yeah. That's where it gets, people aren't used to just Yeah. Having to sign more forms. Yeah, and I and I'm not saying as a downside, I just want people to be aware, oh yeah, this is, yeah. It's something that you wanna be aware of and you're right. Alternative investments, everything is just a slower process.

  Sometimes some of the investments will only allow purchases in on the first of the month or the. 15th of the month. We'll get the money, we'll send it to 'em. They'll usually hold it in an escrow account before they put it in. But then we'll have people calling, where's this value?

  Why is it in, why isn't it invested? I'm like, because they only purchase on these days. So yeah, everything is just A little slower. Yeah. Yeah. It just, because it's different. 'Cause it's actual people going out and deploying it in the world to go do stuff. Yeah. Do you think we're, I feel like we've covered a lot of just the basics of self-directed.

  Is there anything else that you want people to know about self-directed accounts? I do think that we've covered mostly everything. Definitely. If you have questions give Michelle or I a call, Michelle can [00:21:00] get you in contact with us. I'm sure it's, if we make it sound complicated, it's really not as bad as it seems.

  Yeah. It's really not that bad. Yeah. But it. It's for a certain type of investor and always an interesting way to get outta your money out in the marketplace in a different way that's maybe not as tied to the public markets, which yeah, sometimes is a great thing. And sometimes you think me and I wish my money was in those public markets right now.

  No, I know. Yeah. It's not always. And that's the thing, we should just warn that there are deals that go south and you are investing with these. Sometimes just two people that want to go build an RV park and you have to make sure that you can trust those two people and that they're not gonna run off to Bermuda or something.

  Yeah. Yeah. You gotta do your own due diligence. Thank you so much for being on Michelle. I appreciate you taking the time to be on here. Yeah, thank you. I'm glad you had me. And guys, if you have any questions about this feel
  free to reach out and I do offer like free 15 minute [00:22:00] calls if you just wanna talk about it or if it's a possibility for you.

  And I can connect you with c and b and I can't speak highly enough of them. I wouldn't have 'em on here if I. Didn't love them. I tell everybody all the time to oat conferences and things that, how much I enjoy you guys. Thanks again for being on and thanks for listening everybody, and I hope you have a wonderful day.

  Thank you for listening to The Unconventional Investor Podcast. I hope you feel more confident in how you can grow your wealth using the strategies I shared in this episode. If you're ready to take the next step in diversifying your portfolio outside the stock market with alternative investments, head to mefinancial.net/contactus.

  To book a 15 minute consult call with me. Let's discuss how we can work together to achieve your financial goals. Until then, I'll see you on the next episode.

  
  

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

The podcast is pivoting to focus on something I'm extremetly passionate about - alternative investments.

🎙️ As a Certified Financial Planner and independent financial advisor, I've witnessed the growing desire for investment strategies beyond the traditional stock market. Our revamped podcast aims to guide accredited investors toward alternative investment opportunities that diversify their portfolios while adding financial strategies not often seen in the marketplace.

Here are three key takeaways:

• Explore Alternative Investments: Discover a plethora of investment opportunities, from hotels and self-storage to wine and car washes, which can diversify your portfolio and potentially yield exciting returns.

• Maximize Your Returns with Strategy: Learn strategies, like tax minimization and Roth conversions, that can enhance your financial growth. For example, rolling capital gains from a sold rental property into an alternative investment can defer taxes and create income streams.

• Independent Insight and Expertise: As one of the first advisors to embrace alternative investments since 2016, I cut out hefty fees by being an independent RIA. This ensures I have a hands-on approach to vetting investment opportunities, giving you tailored advice and minimizing risks associated with conventional avenues.

Join us on this journey to redefine your wealth-building strategies and embrace the future of investing. Tune in and let's diversify your portfolio together! 📈

Links:

Take our quiz - How Alternative Investments Can Fit in Your Portfolio

• Transcript

  Introduction to The Unconventional Investor Podcast

  Welcome to the unconventional investor podcast. I'm your host, Michelle Moses, certified financial planner, licensed realtor and founder of me financial. If you're an accredited investor feeling overwhelmed by managing your portfolio and looking for alternative investment strategies that go beyond the traditional stock market, you're in the right place.

  Let's head into today's episode so you can start taking control of your financial future. Hello everyone. And welcome to the podcast.

  Exciting Announcement: Pivot to Alternative Investments

  As you will have noticed, I am making a little pivot to the unconventional investor, and I am so excited to give you this announcement. Um, this has been a long time in the making, and I know a lot of you have been listening.

  Uh, and so I'm pivoting to talk about more about alternative investments and how you can add those to your portfolio, what the different alternative investments are and how they play out. Work. I think alts are kind of the, I don't know about the way of the future, but for me, uh, for people that want [00:01:00] to get out of the stock market and they want to, I should say diversify outside the stock market.

  It's really where I want to focus. Uh, I have a lot of experience with this and it's, something I'm really passionate about and excited about. So we are pivoting the entire, uh, podcast to be about alternative investments, how you can put them in your portfolio. And I think most importantly, the strategies that you can use and the way that you can then go into retirement.

  And this is my goal, the way that you can go into retirement and know exactly how much you're going to have every single month for retirement and having some of these investments, not only diversifies you from the ups and downs of the stock market. But a lot of my clients find them more interesting.

  And, you know, if you've listened, I'm a lot about like making yourself feelgood about whatever your investments are, uh, because not only do you need to make smart decisions, but you also need to be able to sleep at night and be excited about what you're doing. And I find that [00:02:00] Implementing some of these alternative investments, uh, helps people to not only sleep better at night, but they're more excited about it.

  And they like learning about some of these businesses.

  Exploring Alternative Investments

  So what do I mean by all of these alternative investments? I am talking about investments in hotels and self storage in mobile home parks. There's even alternatives that we're going to talk about that invest in wine, uh, invest in carwashes. There are all, there's a whole world out there and I don't feel like people know about it.

  And so that's why I'm pivoting the entire podcast to talk about these alternatives. And in talking about these, you know, self storage or, you know, there could be oil and gas, there's all kinds of different ones, farmland.

  Strategies and Benefits of Alternative Investments

  a lot of them come with different strategies that you can use to either minimize your taxes or different strategies to do Roth conversions.

  And so that's, those are the different things that I want to talk about because you [00:03:00] can. Sell a residential rental. Let's pretend you have a residential rental and then you have capital gains taxes. Well, instead of paying those, you could then roll them into an alternative investment and then make a return on those, you know, and get a monthly check or a quarterly check, uh, and not have to pay the taxes until, you know, then you could leave it to your heirs.

  And then they would get the step up in basis. So I want to talk about different strategies like that. Um, this is what excites me of how you can put some of these things together. And I think it gives people an option to where you can invest in these businesses, but then you don't have to do the work.

  And that's also what my clients love about them. They're like, this is great. These people are operating these hotels. I'm getting a quarterly check and I absolutely love this. Uh, and as you'll hear me mention, it obviously depends on who you're putting your money with, uh, and how you're going to get your money back.

  But, um, we'll, we'll talk about the [00:04:00] safety of some of them, somethings to look out for. I have a litmus test for investments.

  Case Studies and Real-Life Examples

  And then I also want to talk about case studies, about the returns that people have gotten, uh, the, Mindset changes that have happened from people investing in these and then what percentage of their portfolios do they put into the alternative investments?

  Uh, some specific things that I want to talk about besides the kinds of things that you would invest in like the mobile home communities and self storage is That alternative investments also run the gamut of their, our income or their growth or their growth and income. Um, and there's a lot of lingo.

  Yeah. I go to these conferences and it's like, I understand it now, but at the beginning, I mean, there's just so, so much. So much lingo.

  Understanding Investment Lingo and Goals

  Uh, this is an income play. This is a growth play. This is like how they talk. Uh, and really it's just, if you want income, you would invest in something like [00:05:00] a, uh, you know, a hotel or something that did residential units that were rented because they're paying every single month.

  And then you would then obviously. Get a check every single month. Uh, and there's other ones that are growth where you would invest your money and you may not get it back for eight years. So it just really depends on what your goals are, how old you are, you know, your risk tolerance. Are you new to alternatives?

  Because if you're new and you're doing your first alternative, I wouldn't recommend you invest your money and wait eight years to see a result because you're not going to stay. excited consistently for that long. So those are the kinds of things that I want to talk about is not only how they're going to fit in your portfolio, but all of the different alternatives that you can then invest in, in the different ways.

  And you might be able to pair them together to, You know, to do your goals.

  Interviewing Fund Managers and Due Diligence

  And I'm also going to interview a lot of these, uh, investments on the show so that we [00:06:00] can go through and you can hear how I am interviewing them, the kinds of questions that I'm asking and the things that you may need to worry about, because I'm not, you know, there's websites out there where you can do this yourself.

  If you're accredited investor, you know, there's, there's multiple websites out there where you could prove you're accredited investor. And then there's just. you know, pages of investments that you can invest in. For me, I have a hard time with that just because I like to interview the, the manager of the fund.

  They call it the sponsor of the fund. They are offering the fund and I like to talk to them, see their history. You know, there's a lot of things when you're reviewing these deals, um, that you learn. And then I I also have the advantage of going to conferences where I talk to other advisors about their experience with some of these.

  So the people that I'm going to have on are ones that I have vetted that I have talked to other people about, you know, I'm not going to [00:07:00] just have anybody on here. Uh, and then I also want to have an episode of a fund that presented and it was one that I would never do. So, you know, I kind of want to run the gamut of how you can add some of these things and then it's not only going to be.

  I want people to realize that you don't own your wealth doesn't only lie in, you know, the stock market, that there's a whole world out there. So I'm also going to branch out in a little bit into, you know, like travel points and there's other ways to enrich your life with alternative ways of, you know, your finances, if you could put it that way.

  Uh, if there's Uh, I've also thought about having someone on about, um, like Medicare Advantage program. So I'm still going to kind of keep the whatever I'm interested in is a topic that we want to have, but I want to do more focus on the alternatives because I do think that they are the way of the future.

  I think people are very interested in them. Uh, and [00:08:00] you know, there's tons of advisors out there talking about things and, you know, this is what I'm interested in the way that I stand out. So I am.

  Michelle's Experience and Credentials

  I don't really talk about myself a lot on the, on the podcast, and I'm going to use this one episode to talk about why I do have the experience to do this.

  I start, I started my RIA when no one was going independent and everyone, I wouldn't say everyone, but I got quite a few comments about not only being so young and going independent and fee. only and having my own business, um, which allowed me to then sell these things. Because if I'm with like a big company and they're telling me what to do, they vet these deals and then say what you can sell.

  And a lot of times what happens is they're taking a fee and then the advisor takes a fee. and then whatever else is left over is what the investor gets. And so by doing it the way that I am, by being what's called a [00:09:00] registered investment advisor, which means I'm an independent, independent financial advisor, I am cutting out that man of, which is usually seven to nine percent.

  And I think that's, that's a lot of percentage, right? Um, so seven to nine percent of not having this big conglomerate tell me, you know, what I can sell and what I can't sell. The downside is that all of that due diligence and all of that risk falls on me, right? Of whether this is a good investment or whether it's not, because my clients are just going to be trusting me, whether it's good or not.

  I have been doing these alternative investments since 2006. 16 was the first time that I did these. So where I'm eight years in, 40% of my business is alternative investments. Um, and when people come to me, that's often why they come to me is that they don't find the stock market is exciting anymore or.

  They don't really want to put more in there. You know, they're like, I've got my401k, I got all this. And my only other option is to invest in the stock market. Like I want other things, but I [00:10:00] don't have time to manage a rental or, you know, an Airbnb or VRBO, they want other options. And so these alternatives have ended up being a great option for them.

  Uh, and so I have been doing them for a long time and I first got into them and I went to a conference and I think that the, this, I don't know, I don't know. This guy was head of one of these large companies and this person asked, how do you do learn about this? You know, and I'm thinking he went to a class or he took a law class, you know, Oh, it's just by reading deals.

  And it truly is just by reading deals. Like I have read hundreds of these, I spend, um, multiple hours a month going through deals and I maybe find one or two a year that I'll actually put my clients in, but I will interview maybe 15. Uh, and so I go to multiple conferences. I pick a couple then and, you know, an interview and there's different reasons why I might move forward with some, uh, because there's different tactics that you can do.

  But, um, [00:11:00] For the most part, I have read hundreds and hundreds of deals. Again, my clients love them. I was one of the first people to start an independent RIA and, and I was also one of the first advisors to go into alternative investments. I have more experience than most of these people. And, um, just because I'm a woman, I'm going to tout this that I am one of the only women sitting in the room.

  Uh, so I'm really proud of that. And I want to bring this to you because I'm really, really passionate about people investing in things that they're excited about. And I don't think that a lot of people are excited about the stock market. If you love watching stocks go up and down and you're, you know, what's going to happen with this?

  There are certain people that absolutely love it. And I'm not saying it's not going to take up a portion of your portfolio, but it doesn't need to be all of it. I go on Reddit and I see, um, some of these people that are, uh, the Henry's, the not rich yet, the high income, high earners, not rich yet. And they'll [00:12:00] say, okay, I've maxed out my 401k.

  I have an emergency savings. You know, I'm doing a backdoor Roth IRA every single year, which is basically when you convert. Your regular IRA to a Roth, um, to get money into the Roth. Okay, so what should I do now? And the recommendation is to open like a regular brokerage account and do more stock. And to me I'm thinking, wow, that sounds like not exciting at all.

  Like if I had all of that taken care of. To me, I want to go like invest in real estate or I want, you know, I want to invest in these hotels. I want to go into a different realm. And that's what this show is going to be about. If you have all of these things taken care of, and you are, you know, you've got savings and you don't have a debt problem.

  and you want to go into something else and you didn't even know that this world existed, then this podcast is for you. And I encourage you to share it with people that you might think that would be interested in alternative investments.

  Accredited Investors and Investment Risks

  Uh, with a lot of these, you are going to have to be accredited investor, which means that you need to be earning over 250,[00:13:00]000 a year, have a million dollars over net worth.

  Uh, And there are some where you don't need to have that. But the reason that they have this accredited investor is because you are going to be investing 25 to 50, 000 at a minimum. And someone could literally walk away with that. You could invest that with a company and then that could go belly up and you'd lose all of it.

  I haven't had that happen, but it does happen. And the reason that's why they have. this rule is because if you're not an accredited investor and you invested, you know, your only 25,000 that you had or your 50,000 that you had in your portfolio, then you would lose, you know, you have nothing to build on versus if you have all of these other things in place.

  losing this money. It's not fun. I'm not saying that it would be, but you wouldn't be destitute and, you know, not be able to retire. Uh, these are something that you want to add to your portfolio. And I also think, you know, if it's something that you just aspire to [00:14:00] because you will get there and there are some alternative investments where you don't have to be accredited investor and the investment is 10,000.

  And we'll be talking about those two, um, here and there, but for the most part, it's going to be for accredited investors that. can, um, afford to, you know, invest 25 to 50,000 inside of their IRA or otherwise, uh, to, you know, expand their portfolio. Uh, so I, this is the reason that I am a realtor is because I, it gives me insight into the market.

  That I wouldn't otherwise have. It gives me access to tools, to reporting, uh, to meetings and things like that. And so I think with all of that going together, um, it's kind of creating the perfect storm.

  Conclusion and Next Steps

  So I'm really excited for this pivot. Uh, so Let me know if you have any feedback on it, if you're excited about it.

  I really appreciate you guys listening. [00:15:00] And, um, here's to kicking it off because I am really, really excited about the unconventional investor because it really, I feel like it's who I am and, uh, where I've come to as being an advisor. So thank you so much for listening. And To you on the next episode.

  Thank you for listening to the Unconventional Investor Podcast. I hope you feel more confident in how you can grow your wealth using the strategies I shared in this episode. If you're ready to take the next step in, diversify your

  
  

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

No matter how much you make, tracking your spending not only helps you feel better, but allows you to make informed decisions.

A budget isn't there to cut costs or live like a miser, it's there so you know what's going on in your financial life.

3 takeaways from this episode:

• Focus on Large Items: Cars, homes, loans - keeping the cost of these items low, allows you to spend more freely in other areas.

• Embrace Financial Awareness - Track!: Use a software like YNAB (You Need a Budget), will help you see where you money is going. By constantly monitoring your spending habits and identifying areas to cut costs, you gain more control and make informed decisions to enhance your savings.

• Plan For Irregular Expenses: Budgeting isn’t just about monthly expenses; it’s about preparing for those non-recurring costs like auto insurance, holiday shopping, and emergency funds. Setting aside funds for these will help alleviate financial stress.

• Transcript

  The Importance of Budgeting

  I am a certified financial planner and licensed realtor, and today we are going to be talking about basic budgeting, tips and tricks. This is a request from a listener. It is something that used to be near and dear to my heart because I would needed it.

  Honestly, I really think I got into this business because I needed to know what, I don't even know if it was the value of money, but like really paying attention to the details. And so I think this is a great topic. It's something that everybody struggles with no matter how much you make. And I wouldn't say everybody.

  Is like really struggling with it, 'cause sometimes you can make enough that it's not a big deal. But I always think it's a great idea to be paying attention to what money is coming in and what money is going out, just so that and it makes you feel more in control of your financial life.

  And it's really where the tire meets the road. And I say that all the time. Your spending habits are where the tire meets the road. You could not make a lot. [00:01:00] And have very frugal spending habits and then save millions of dollars. We all know this, right? And it's not to say that you need to feel guilty about whatever your spending level is.

  So if you're spending $15,000 a month on just your monthly budget, then I don't think you should feel guilty about that as long as it's something that you want to do and you're aware of it. But if you have guilt about how much you spend, doing some of this basic budgeting and knowing what is coming in and out can really help you just, again, to feel more in control of your life and to know where your savings is.

  And I think it actually helps you make more money because you know what's coming in. And so then it's like a game and I'll talk about that. It's, I make it a game anyway, and. I took on a client recently. I'm trying to like, kind of branch out and help younger people and how can I help them because I feel like they need the [00:02:00] financial help more than just videos and things on social media and on YouTube that they need some help in.

  Just advice and one-on-one and how can they get that? And so I took on a client and he needs basic budgeting help, and he said something that is so true and that you become, you get used to looking at the budget versus looking at your account.

  Creating a Spending Plan

  And that is what happens when you start looking at, and you start having a spending plan is what I'm gonna, I want to call it, but we all know what budget is.

  A spending plan is where you just know where your money is going, you know what you're spending it on, and you know how much is coming in. And when you have a spending plan, you start to look at that versus, okay, I've got, $2,000in my checking account. I have enough to do blah, blah, blah, blah.

  Well, you don't know if your insurance is due, if your AAA membership is coming up, if your HOA, whatever, all these little yearly fees that you've got going on, you don't know if that's coming [00:03:00] up right? But if you have a spending plan, you know that this is coming up. You know what you, if you have the money to pay for it, and that's what it helps.

  Tracking and Adjusting Your Budget

  The first thing that I think that you need to do to track all of these things is just get on some sort of program. I really like You need a budget, which is why NAB and it. Truly brings in your credit cards and you link all of your accounts, you link all your credit cards, and then you can plan how much you're going to spend that much.

  So my mortgage is gonna be this much and my gas is gonna be such and such. And the things that you really need to plan for that we all get caught with is like shopping clothing. Hair. Hair like haircuts gifts, and then that yearly stuff that just like pops up and if I pay my, auto insurance every six months.

  And so I need to put that in. I'll usually put that in the month before it's due, and then make sure that I have enough money in there to pay for that. Things like that, the stuff that [00:04:00] just isn't on a monthly and there's tons of stuff that is not on a monthly budget, and you need to plan for some of those things.

  And if you're constantly putting money away for clothing, for example. So we barely spent anything on shopping and clothing over the summer. And now, we're getting into fall and Christmas and all of that and we have been spending so much money the last month. Just constant Amazon boxes at our house.

  And if I hadn't been, putting money into that category every single month, I would probably be thinking to myself, man, we are spending a lot of money. What the heck's going on here? But because we have all of that built up, it's nota big deal. Because your money ebbs and flows. You're spending ebbs and flows.

  Your income ebbs and flows sometimes, so it's, your money isn't like the same every single month. And it again, it just, it flows, it changes and your emotions change, 'cause money is half numbers and then it's [00:05:00] half emotions. And having something like you need a budget. Can help you just know what's going on and it's not even that you need to plan what's going on, I just want you to know what it is.

  So just know what the numbers are in there and that is gonna take you so far. 'cause you know what's gonna happen is you're gonna get in there and you're gonna start tracking things and putting them in all the different categories. And then you're gonna say, oh, I didn't wanna pay for Netflix for another month, or I didn't wanna play for Disney plus for another month.

  And then you're gonna start digging into the weeds and you're gonna go cancel that. Or you're gonna say, oh, I'm gonna log into Verizon and I'm gonna save$10 because I'm gonna link my debit card instead of my credit card, or whatever. You know how they do those different things. I'm gonna go cancel.

  One time I went to go cancel, I think it was Paramount Plus, and then they offered it to me for 299 a month. So I took it for 299 a month. So different things like that. That's what's gonna happen. You're gonna start to investigate the different charges and. You're gonna save money because it becomes, it does become like a [00:06:00] game.

  You don't, nobody wants to just waste their money and throw it out the window. And and this is, it becomes that I go, I call it going down the rabbit hole because I go down the rabbit hole and then all of a sudden I've, canceled like three things and. Then upped something else and it just happens that way.

  I remember one time when my husband and I first got married and I was doing the doing YAP and I went in and I was like, you know what? I'm gonna try, and this is when we were on my health insurance, which I worked for myself, so it's not that great. And and then our auto insurance and I shopped that, or I was like, I'm gonna shop this around.

  And I ended up saving $600 a month. By shopping all that stuff around. 'cause I hadn't done it in so long, so it does add up sometimes. So other basic budgeting tips that I would talk about besides just tracking it. Okay. You do not need to analyze it or anything. Just go in and just track it just to get started.

  And you are gonna fall off the wagon. You're gonna not do it for a [00:07:00] while. And the need to get back in, not do it for a while and get back in. I just feel like that's how like healthy eating is too. If you're trying to quit diet Coke, you quit for a while and then people get back on it, or that's how I was with lemonade.

  I loved lemonade. It took me a long time to kick the lemonade habit. So I feel like that's the same thing with this is like you feel like doing it for a while and then not, I would just set up a time that you like to do it. I loved doing mine every single week. I don't have time to do that now.

  I usually do it like every other weekend. And just see what we spent. And then again, I go down the rabbit hole of, why did we spend such and such on this? And then it makes you aware, right? Because then you're like. I don't wanna spend that much on this. I don't want to spend, $600 on my yard guy, whatever it is.

  I don't wanna spend that much. I'm gonna go try to find something else. So it does make you aware and again, in more control of your finances than what you want to do. And then. The other thing that you're gonna start [00:08:00] tracking too, is like your automatic savings. So then you're gonna start to see, Hey, I'm saving this much into the 529 into the emergency fund.

  I'm gonna save for a new car. Whatever the different things are, then you're gonna be able to redirect that and do some automatic savings. And I'm also going to recommend, and I'm gonna take this back to an episode that I did a few weeks ago. It's a review of a book called No Worries by Jared Dillion.

  And I love his book. I wish I would've written it honestly. It is my favorite financial book out there. It talks about how if you make your home your mortgage payment low and your car payment low. Then you're not gonna have any worries. And I really find that true. That, I don't worry about how much we spend anymore.

  We got Christmas, you got Thanksgiving, whatever. I don't care. I'm gonna buy the expensive Turkey. I'll buy it. It doesn't matter anymore. [00:09:00] Part of it's my age, but part of it is that we have a cheap mortgage and very low car payments. And if you can keep those low. As a certain percentage of whatever your income is, then you're not gonna have a lot of worries with your finances later on.

  You're going to have more to spend on life. Because let's be real, right? You're earning money and you're out working so that you can live life, not so that you can just pay your car payment or your, cell phone or something like that. So I really would recommend getting that book if it's something that you are interested in.

  It's a great book. As I said, it is by far my favorite book so far because I feel like after being doing. This job for 20 years, I have realized like how complicated we make things and that you don't need to make it that complicated. Again, going back to eating. That's what everybody says about eating too, right?

  It doesn't need to be that complicated. We make it so complicated. It's what people say about social media marketing. Every single person that has experience in anything says it. [00:10:00] We make it so complicated. It doesn't need to be that complicated. You keep these big things low, then you can spend on all the other things.

  Your income does matter. If you're not making a lot of money, then you know, obviously there's nothing to spend. But you get what I'm saying? Most people are gonna fall in this category. The other things that I feel like, and I was just gonna do this, like as the tips and tricks that I do.

  Travel Hacking and Credit Card Points

  I started travel hacking, which is doing the credit card points. It has been really eye-opening. Like it is a whole world, you guys, but essentially what travel hacking is you get the credit cards, you get the signup bonus. And you spend, the $6,000 or whatever, you get the points and then you can transfer it to get airlines.

  Years ago, I hate paying to stay places, like paying for hotels and Airbnbs. I just don't like spending money on that stuff. It's almost like I'd rather sleep in my car, honestly, but I don't is that. So then I got the Hilton card, and I have a[00:11:00]Marriott card, so I get like the free night rewards with just like our daily spending.

  And if you're using something like YA credit cards are not an issue. Because you're tracking the credit card inside of YA and then that's automatically saying, okay, we're earmarking this amount of money that's in your checking account to pay for that credit card and we're gonna take it out and we're gonna put it over here into the credit card payment area.

  And so then you pay your credit card and then, you start the process over again. So it's, it becomes just not a big deal to use these credit cards and to not have credit card debt and but if you have issues with debt, that's a whole another issue. That's spending and tracking your spending and paying that down and not using the credit cards.

  If you don't have an issue with debt, you could get, use your YA on the other side of it after you pay your debt off, and you could use YA to just do what I'm talking about and it's just pay attention to what you're spending. So that it then becomes you're just, [00:12:00] when you pay attention, then you just choose the person that you know you wanna be in your financial life, really.

  And it's empowering, that would be a good word for it. So I, these are the things that I do. I've really enjoyed the travel hacking. I just, I like this website called 10x. I tried to get them to come on. Actually, I hope that they write me back because I think their website's really good and some of it you can there's all these different apps where you can put in your credit cards and it will tell you like when you opened it, what the signup bonus was, how much the yearly fee is.

  And then where they can transfer to. So it is complicated of where the points transfer to and how to maximize different things. But, I've gotten some flights I, my flight to Europe this summer. My one way was 20,000 points. In what $5 that I had to pay for the TSA thing.

  Like that's so cheap. And so I really like this travel hacking thing. Am I gonna be able to use it for everything? No,[00:13:00]but can I use it for a couple trips a year? Absolutely. And it's awesome. And then I don't even have to worry about that expense. Or maybe there's two things outta the trip that are paid for and then we pay for the rental car.

  Just different things like that. I enjoy playing the game like that. I feel like it's like moving all the little puzzle pieces around of how you can fit them together.

  Streaming Services and Food Delivery Savings

  The other thing that I do is with our streaming, I have T-Mobile with the Magenta plan, I get like Hulu and Apple Plus and Netflix.

  So we don't pay for any of those. And so then if we're doing anything else, I'll turn it on and turn it off. So I will, get Disney Plus for a month and then we'll turn it off for three months. So we only binge it. I'm saying binge. We don't really do that, but we binge for a month and then I turn it off.

  So I don't have any of that extra stuff. And the other things that I've seen people spending a lot of money on that I've been working with is food delivery. That one has just, I've never been into it, [00:14:00] but that one has gotten like. So popular and it is so expensive. Your food's double the price or something.

  That one, if you are wanting to save some money, I think the food delivery, like just go to Chipotle and bring it home. If you can, or get extras while you're there and put it in the fridge and then warm it up. I don't know. But that one seems to be pretty expensive too. That's really it. I have on my basic budgeting tips, but just I the getting the right program I think YA is the best.

  The other ones I've seen. I don't think are as great. They don't assign the categories in the same way. They tell you more after the fact. It's okay, well that's how much I spent last month. And so now I see it. And I think that's why people have such a hard time with this budget thing is because they go, well, last month I spent this much on food and so I'm trying to spend less.

  But you have no idea where you are in the month of how much you're spending, like right now. And that's what you need a budget. Gives you is that you can goin on the phone app and look and say, I have [00:15:00] $700 left and I can spend it. And I have, two weeks left. And so yes, I can whatever, go out to dinner or go buy this.

  And, you can budget whatever you want to do. Maybe you're gonna eat at home more because you'd like to take $200 from that budget and put it into something else. So again, it puts you in control of things rather than looking at it in the rearview mirror of this is what I spent before and oh, well, there's nothing I can do about it now.

  And so that's what I feel like a lot of the other budgeting softwares do is they don't allow you to look at it in the moment, in the way that Y NAB does. I would be totally open to listen to some other ones that are out there. I've just, I've checked out three or four in the last couple of years just to see if I should switch and I didn't.

  See any that I thought were comparable I do not work for them or anything. I'mjust telling you like I really love them and a lot of other people that I know. Love it also.

  Conclusion

  So let me know if you have any [00:16:00] questions about this. I would love to hear your feedback and if you have some time if you could review the show, that would help me tremendously.

  It helps with the algorithm and it helps people find it. And if you have any other topics or anything please reach out and let me know what you'd like to hear. I would love to hear from you. Thank you so much for listening, you guys. This podcast is a lot of fun to do and I enjoy doing it. So I appreciate you.

  Have a great day.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

Thinking about leaving a legacy?

The SECURE Act changed the rules for inheriting IRAs, potentially impacting your financial plans. Learn how you can change your savings strategy to minimize taxes for your heirs.

What You'll Learn:

• The 10-Year Distribution Rule: Understand how the SECURE Act affects how beneficiaries access inherited IRA funds.

• The Power of Roth IRAs: Discover why Roth IRAs are even more important now for tax-free retirement income.

• Strategic IRA Withdrawals & Alternatives: Explore strategies like controlled withdrawals and life insurance to manage tax implications and secure your heirs' future.

• Transcript

  Welcome to me Financial, the podcast designed to inspire your financial life.

  Welcome to the podcast. I am Michelle Moses, your host. I am a certified financial planner and licensed realtor, and today we are going to be talking about maximizing employee benefits. To save on taxes and to talk about this, I have Carina Vara, Degos, MBA, here to talk about it. Thank you for coming.

  Thank you for having me. Yeah. So this is her second show actually, if you've listened to the other one. Carina is a financial services professional with over 25years of experience specializing in tax. Mortgage and insurance planning. She's the owner of Keen Financial Solutions here in Phoenix, Arizona.

  She's passionate about helping families create and protect wealth, increase liquidity, and reduce tax liability. That's right. Yeah. So thanks for coming again. Thanks for having me. So Corina does taxes and when we met, I was.[00:01:00]She does all kinds of things, actually do mortgages and taxes, and she reviews insurance.

  And so we had a wealth of things to talk about in terms of what she sees out in the market place. And I thought this was a really great topic because I think we all get those employee benefit packets and it's a little overwhelming. And they're all different. Every single one of 'em, right? Yeah.

  Is it a 4 0 3 B? Is it a 4 57 A? Is it a 401k? They have all these different numbers and if you're not in the industry, it's really hard to figure it out. Yeah. And what is tax deductible? If I buy life insurance through my group plan? Is that tax deductible or is it not? So people often don't know 'cause they have things that are offered that often are not tax deductible, but they get them cheaper through their employer.

  And so what we're gonna talk about today are the things that you can buy through your employer that are tax deductible. And if we do not talk about it and for your information, the life insurance is not tax deductible. You just get it for cheaper. Yes.[00:02:00]And that we're gonna talk about these things that you can deduct on your taxes.

  And we're gonna start with some things that we think are underutilized and that people don't understand.

  Dependent Care Flexible Spending Accounts

  And so what we're gonna start with is what's called the dependent care assistant, flexible spending accounts. So I think we've all heard of flexible spending accounts, the FSAs but the dependent care as assistance, flexible spending accounts are new.

  So would you like to talk about that? Yeah. Yeah. And I wanna clarify something that this benefit is not. Deductible on your tax return, but it can save you because the dependent care flexible spending account is designed to help you set aside. Pre-tax dollars that you're gonna spend anyway to take care of either an adult family member or your child.

  So childcare is very expensive. 800, a thousand, $1,500 a month simply for one child. You're gonna have to pay that cost anyway in order for you to be able to go to work. If your employer[00:03:00]offers a dependent care, flexible spending account. Take advantage of it. 'cause it allows you to set aside up to$5,000 pre-tax and that's, that can be a significant savings for you.

  That you're setting aside. And you can use those monies to pay your childcare provider. It could be struggling to, to pull up on tutor time or something like that. So you can use those monies for childcare and it can be an individual or it can be, a childcare facility, an institution, something like that.

  As long as they have a ta, a iden, a tax identity number, a TIN. You could, if you were using, let's say your neighbor was taking care of your, of your child, for example. Your return is going to ask you for those, their social security number. But if they refuse to give it to you for one reason or another, you can still, oh, you can, yeah.

  Oh, okay. You can still take advantage of that. Okay. Absolutely. And can you use it for elderly parents? Absolutely. You can still use it for elderly parents. As long as. That person, your parents obviously is not your spouse, but you could[00:04:00] have an ill spouse. So as long as they're dependent on you though.

  They're dependent on you. So it could be either your spouse or Oh, so it could be a parent, but they have to be dependent parent. It has to be. So you're saying it's a dependent. On your taxes correct. So if you claim someone as a dependent on your taxes, you can use this FSA account for 'em? That is correct.

  Okay. Yes. All right. I got it. Yeah. And you can claim an elderly parent, even if they don't live with you, if you're paying more than half of their support. Okay. Okay. And so for like adult daycare or Yes. Somebody coming in to help. Okay. But I do think that the ch the, that one, a lot of times there are.

  There's coverage, the parent has money or, but if you are paying, obviously, but I think more people would probably use it for childcare. Yes. A majority of people use it for childcare. Absolutely. Because there are oftentimes that is the biggest burden in a family's household, right after their housing and their food.

  Then there's childcare what do we do with the kids and for us to go to work? But when the money comes out, you're not taxed on it. Or are you taxed on it? No. So you have your wages. Your employer is gonna [00:05:00] set aside these monies up to $5,000 pre-tax. Then you're just like a 401k, just like a 401k.

  It's not a, you take it out kind of thing where you're not. Taking it out and using it and spending it. You're using those monies to pay your provider well but what I'm saying is that because when you bring your money out of an IRA, you have to pay taxes on it. Is this the same thing?

  No. So when you pay, then when you pay, you don't have to pay. So it's like an SHSA you get the de the deduction, or you're not getting a deduction. You're just not taxed in the first place. You're just not taxed on that money. It, you're just not taxed in the first place. And then if you use it for a qualified expense, there's no tax that you're gonna pay on that too.

  Okay. Yeah. Wonderful. Yeah. I think I'm just using the wrong terminology. Perhaps yeah. You're thinking of it like an IRA and it's not, yeah it's essentially if you're spending $5,000 or more on your childcare, why not save money on and have it set aside for you pre-tax and not pay tax on that five grand versus not utilizing the dependent care FSA and just paying it straight [00:06:00] with after tax dollars so you have less money to use to pay that expense that you're gonna pay anyway. Because you didn't take advantage of this.

  Medical Flexible Spending Accounts

  And so then a, there is a regular FSA flexible spending account. Yes. It's a medical for health, right? So if you have an employer Yeah. And you have an FSA, it is normally paired with when you have health insurance, regular, like a PPO. Yes, Uhhuh or health insurance.

  And basically what that means is you go to the doctor and they pay for it versus having a high deductible plan. And so you have an FSA, and so then you can use the FSA funds to pay for your medical visits. Testing your portion of whatever is left over. Yeah. Out-of-pocket expenses eyeglasses, dentures, things like that that you might need.

  You could use them for prescription sunglasses. And so that's, if you're somebody who has put a good amount of money in that FSA and it's right around now, October, November, and you're like, I still have a thousand dollars in there. Let's see what it is that you use that you can stock up on. If you have [00:07:00] children.

  There's certainly lots of, over the counter medications, if you give those to your children that you can stock up on first aid items you can stock up on. You can even use your FSA for feminine products as well.

  And so a lot of women don't know that, but they can use that for their menstrual products as well. And if you're getting to the end of the year and you're like, I am out of things to use, go get yourself another pair of prescription sunglasses. Get the ones that you really wanted. That made, it may have been more pricier or something. See, but here's my thing with the FSA, and we were talking about this before we even started this episode, you guys, is that I always see the FSAs where people have money in it.

  They don't even know. They're like, I just started putting money in that thing. And they don't know that it doesn't roll over. Yeah. So you have to use it by the end of the year and only $640 rolls over this year. So if you've got $2,500 in there. Then and you, whatever you were planning on doing LASIK surgery and you ended up not doing it.

  You've got to plan it and pay for it by the end of the year. And, but what I see in my[00:08:00]office is most of the money gets lost and it just goes to the insurance company and why they have this rule that the money isn't your money. 'cause why? It makes more sense that it would be like an HSA account where it's just your money, it grows forever.

  And then you could use it in retirement. And FSA could be the exact same thing. If you had a P, it's just paired with a different health insurance plan. And I don't understand why it doesn't roll over because I always see people lose money. Never once have I seen someone use all the FSA or they separate from service and then they lose all the money to anyway.

  O oftentimes the, your employer, many employers do provide a grace period that allows you to use your eligible funds up until March 15th of the following year. And you could. It does take some foresight and planning, right? It does require you to think about how much it was that you spent on your out-of-pocket medical expenses last year, and then put at least that amount in the fSA for this coming year. And let's pretend, what if you wanted to do [00:09:00] lasik and that was. $4,000 let's say. Yeah. So I'll tell you, could you front load it like in January, February so that you had that I told you exactly. Okay. Yeah, exactly. That's exactly what I did, especially so I wanted to have LASIK surgery.

  I knew that my employer and. All employers front load those monies in there. So that's in part why it, you can't it's use it or lose it because your employer front loaded all of the money that you elected to put in there upfront. On the first of the year, you could very easily go and get your LASIK done or whatever required surgery you needed to have at the beginning of the year.

  And then later decide that you're gonna separate from service from that company. Two months later, the company is out that money, but you maybe only contributed a few thousand, but you were able to use all four grand. So their portion of it, they front load? Yeah. Or, okay. No they front load the whole amount.

  The whole thing of what you're saying. You're gonna put in, if you're putting in the maximum of $3,200 into that account, then that's gonna be, a hundred and something, [00:10:00] $190, maybe every pay period. Okay. Something like that. If the, your employer is gonna front load all $3,200 in there, and let's say you use all that money to do your LASIK surgery in January, and then you decide to separate from that company in March.

  I. Then you ended up the winner. Okay. So it just really takes some planning with the FSA. It does. It takes some planning. Yeah. And I think a lot of people are really confused by them and as I said, I've never seen somebody use all of it and then they're always like, I don't know what that's for, what I should buy with it, and things like that.

  Yeah. And I think it's a lot like credit card offers. We don't even know, like all the things that are on there and then you read it and you're like, oh, I could be using such and get a $10 credit, or, whatever it is. It's like that. Okay, so let's move on. 'cause I think if you guys have an FSA, it's important to look in it.

  That's the point of this talking about it. And they are. They're very different and they do vary. So I'm just encouraging you to read whatever your employer is offering just because employee benefits vary so much. The next one I wanna move on to is an employee stock purchase[00:11:00]plan. Yeah. So that one you can purchase with pre-tax money.

  And you usually get a discount price on the stock. Correct. So those, you can you can't purchase it with the pre-tax dollars. But they do, so it comes out after tax. But many employers will allow you to purchase the company stock at a discount. There are companies that can Oh, so that's why you have it on your Okay.

  On the list. Okay. 'cause they allow you to purchase that stock at a discount. So it's an immediate profit. And if you hold it for at least a year in one day. So that it's now a term capital gain. Then you're gonna save substantially on taxes by making a long-term gain, because you're only gonna pay either zero, 15, or 20%on that long-term gain, but it's immediate profit when you're buying it at a discount.

  And I, most people, I think they participate in their employer stock purchase plan. I think that's a pretty normal, 'cause they know that the discount is worth something. Yeah. I think those who are savvy enough to know and to take advantage of it. Yeah, absolutely. There are some [00:12:00] firms that don't, that don't offer a discount. So it's less attractive. But if your company is offering you a discount on that purchase that stock purchase, you should absolutely begiving it some sort of consideration. 'cause that's immediate profit. Okay, so the next one on your list is an HSA, which is a health savings account.

  My favorite, yeah. I love health savings account and I have thought about doing just. Like a solo show on HSAs. We should because I love them so much me, and if you have access to one. It's, they are only paired with a high deductible health insurance plan, which means it's over $2,500 deductible.

  Is that correct? Usually it's, the minimum high deductible is $3,500. It's 3,500now. Okay. So if you have a deductible, $3,500, then you can also do the HSA and the amount that you can put in differs, whether you're single or married and family and and all that. And it changes from year to year. But the point is that there is no limit on your income versus like a Roth IRA or regular IRA or a lot of these tax advantage things that you can [00:13:00] do with an HSA you can always put the money in. It's always yours. You can have it grow until retirement. Yep. And then when you get into retirement, you can use it to even pay for like long-term care premiums.

  For for insurance, yeah. And things like that. You could use it to pay, obviously pay for your health insurance, or you could just use it for retirement in general. Yeah. When you get to that age, you can use it for your retirement in general. Up until that time, you can only use it for qualified medical expenses, anything.

  If you use that money for something. Other than a qualified medical expense, then you're gonna be paying an additional tax on those monies. But I love HSAs. I think they're underutilized. They're, you just explain the triple tax benefits of it. I really appreciate being able to divert some of the monies in the HSA to a, to an account with, like Schwab or eBay or something like that, so that I can use those monies that I accumulate to.

  Further grow. You can invest it in the market. Yeah. And get it working for me. Yeah, absolutely. My only thing about[00:14:00]HSAs you guys, is that a lot of people charge like 10 95 a month. They charge a lot and you can find ones that are free. Yes. So if you're paying for your HSA on a monthly even 4 95,you do not need to pay.

  So get online and look for a free HSA with a debit card because if you don't have a debit card, it makes it so hard to, you have to. Go buy the thing and then go log on and repay yourself. But if you have a debit card, obviously, then you can just use it wherever you're at. And it just makes it so easy.

  Yes, but do not pay for those that I think people, they get price gouged too. Can you tell I'm cheap? I'm like talking about all these. No I mean it, Hey we're in the business of money and we have to, for ourselves, look for ways in which we can save on taxes.

  Save here and save here. Yeah. You gotta pay. I just think that there's so many of these companies that. Prey on these things to charge fees? Oh yeah. Can I plug one that I use personally? Yeah. Yeah. I've used Lively for many years personally, and no fees on the balance that's in.

  So I don't have any monthly fees and [00:15:00] it's very easy to use. And they does have an app. So when I have a medical. Expense when I'm at the doctor's office. It takes, just a few seconds for me to snap a picture of that receipt and upload it into the Lively app and then I can reimburse myself later because I didn't bring the debit card with me.

  So it makes it really easy and they don't charge any fees and they even will pay you some interest on the monies that you have in that account. That's wonderful. Yeah. Good. So I would definitely recommend you guys to check out Lively. Yeah. Okay. Good. Thank you for the recommendation.

  And then the last thing here for is employee benefits. As tax benefits we have is your 401k, your 4 0 3 B. Yeah. And I think you guys all know about that. And I think when you get to be a higher earner, it becomes harder and harder to save on taxes. I think that we all know that. And maxing out your 401k or 4 57 B or whatever you've got at your job, I think is.

  An important thing to do. Yeah, absolutely. And I'm glad that you brought this up because I think, our audience is probably regularly already contributing to their 4 0 1 [00:16:00] Ks, but I wanna bring this up because it needs to be a conversation that parents are having with their adult kids as they're entering the workforce.

  And even if their adult kids are, already generation in generation X and already in their forties, talk to them about this particular thing because. They may not betaking advantage of it. Just because you know about it, doesn't, don't assume that your kids know about it.

  Have a conversation with them. Take some time to educate them as well on this kind of thing because especially if they're working for a larger firm that does a company match, they're doing themselves a disservice by not contributing, just, for themselves to at minimum. We hear a lot about young people who are cash strapped.

  They don't feel like they can save. This is one way that they can save and it doesn't feel the bite in their paycheck isn't as big because it's pre-tax. You, if you're making $75,000 a year, your first job out of college contributing that 3%of your income to your 401k. Even though your contribution per pay period might be [00:17:00] $85, what you're gonna see as far as what's taken out of your pay is only $65 because you saving them tax on that tax.

  Yeah. And that can be pretty significant over a year's time. And make sure that they're paying less tax so that they're take home pay is higher, it is richer while also still paying themselves first and saving whatever little that they can to afford in that. In that. Yeah. And I think getting them in the habit of just doing something.

  Yeah, exactly. Yeah. And then when they get a raise, putting, yeah, having that increasing percentage, having that automatic increase if your employer allows it to, for you to set your automatic increase to, one to two to 3%. Pretty soon, I think next year it's gonna be, most plans are gonna be going into automatic enrollment.

  Yes. So it's, there's a lot of changes. Coming in with 4 0 1 Ks Oh, there is herein the next year or so. Oh, it's coming in the pipeline. Some states have already implemented the requirement for all employers who have, even as little as five employees are required to automatically enroll their employees in and some sort of a retirement plan.

  And if you guys are business owners there are a lot. [00:18:00] Of incentives right now to set up a 401k plan, and you could almost do it for free. You're not gonna have all those upfront fees. They're really, the government is doing a huge push through. I think it's like $5,000, $4,500. It's pretty big.

  Yeah. I'd have to go back and look at what it is, but there is a huge incentive to implement a 401k for your company, and it can go a long way with employee retention as well. Absolutely. Yeah. I think it's, that's a big deal 'cause people wanna feel like they're valued, but also that they're getting somewhere.

  And then for yourself, if you are contributing to a 401k and maybe you're doing like the Roth 401k or something, doing the mix I think what's becoming popular for a lot of the Henrys out there the high earners are. Doing Overfunding, the401k and then doing a Roth conversion. Yes. So that might be something that you wanna do too, is that you could contact your employer and see if you could max fund your 401k or overfund it, I should say, and then you could roll it over into a Roth because then it.

  You're taxed on the money anyway, so you might as well get it into a vehicle where [00:19:00] it's not taxed for the future. Yeah. Now's the time to start looking at those strategies. If you don't have a tax professional, we're happy to help you. If you do already have one, certainly be proactive and make an appointment with them to talk about.

  What's going on. And so that you can try to take advantage as often, as much as you can before the end of the year. Yeah. I just had that conversation with my tax pro. Yeah. I don't even do my own, I have somebody else. And I think a lot of people, they do the max and then they get maxed out around the.

  Time. And so then their paycheck goes way up. And so if you could use the last couple of months of when you've matched out your 401k, if you can use these last couple of months to overfund your 401k and then do the Roth IRA that way. So they call it a mega backdoor. Roth IRA. In case you guys are wanting to look it up.

  Conclusion and Final Thoughts

  So anyway, thank you Karina for being on. You're welcome. I appreciate it. This is great. For number two. I appreciate it. And you guys, thank you for listening. If you have some time, please review the show. I, the starred reviews really help the algorithm and help me find other people that wanna listen.

  And have a great day. I hope this helped[00:20:00]you

  
  

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

We've all seen that long list of options your employer hands you. Do you need all of them? Which ones are worth it?

In this episode, Corina Vakira Delugos, MBA, EA talks to us about which benefits can save you in taxes - so you're spending tax-free money for your expenses. Corina is a financial services professional with over 25 years of experience in tax, mortgage, and insurance planning.

Key Takeaways:

• Utilize Flexible Spending Accounts (FSAs) Wisely:

  • Depend Care FSA: Set aside up to $5,000 pretax for child or dependent care.

  • Healthcare FSA: Use for out-of-pocket medical expenses, but remember that funds generally don’t roll over.

• Maximize Health Savings Accounts (HSAs):

  • Paired with high deductible health plans.

  • Triple tax benefits: contributions are tax-deductible, growth is tax-free, and withdrawals for medical expenses are also tax-free.

• Explore Employee Stock Purchase Plans (ESPPs):

  • Purchase company stock at a discount.

  • Hold for over a year for favorable long-term capital gains tax treatment.

of your employee benefits!

Links:

Contact Corina - www.keenfinancialsolutions.com

• Transcript

  Overview of IRA Changes

  Today we are going to talk about how IRA. Contributions have changed. There was a new law that was passed, I wouldn't say new now, but in 2019, and it is requiring beneficiaries to take all of the money out of an IRA within 10 years, and I'm gonna explain.

  Why this is such a huge deal. So if you are a retiree or if you're listening and you are 40 plus and you have elderly parents, I really think that you need to listen to this because there's, these are some big changes that could save you or will, could cost you a lot in taxes. Or if you're listening, that could save you a lot in taxes.

  Impact of the Secure Act on Inherited IRAs

  So the Secure Act was passed in 2019 and it was a huge tax overhaul. And the way that I would give the synopsis is it gave a lot of businesses tax breaks. It raised our taxes slowly over four or five years. And one of the other major changes and it also changed the way [00:01:00] trusts were handled and then it also made this change to IRAs.

  And essentially what this says is that if you inherit an IRA from like your parent, if you're more than 10 years younger than the IRA owner, you need to take out the money within 10 years. Yeah, obviously they have a few little exceptions to this rule. If you are a dependent, if you are special needs, but there are very few exceptions.

  So if you are 10 years younger than the owner of an IRA, you need to get all the money out within 10 years. And when this passed, I was super angry. I. Thought, 'cause everybody, usually when you get an IRA, you stretch it out over your lifetime and then maybe even pass it on to your kids or to whoever you were going to give it to.

  And so it provided income for your lifetime. And so you need to think about what this did. Is a lot of people that are inheriting these IRAs are [00:02:00] usually 50 to 65 years old when their PA parents are passing away, and those are prime money making years. Those are, that's when you are making the most amount of money and you are gonna be inheriting this IRA and then you have to have it out, the money out within 10 years.

  And thinking about the older generation, what they did was they put all their money into a 401k. So it's not like it is now where we're like, let's do a Roth, let's do an IRA, let's have some real estate. They were taught to put everything into a 401k and which is then like an IRA. And because of this, they have these very large IRA accounts that are going to be inherited.

  Giving it to a husband and wife, not a big deal, right? They can still operate just along the old rules, still take the money out the way that they used to. But if you inherit one of these and you are a child, this, your parents passed away, your last parent, and you inherit an IRA and you have to get this money out in 10 years and you're 55 years old and you're [00:03:00] making.

  You know the most money you've ever made in your life, what are you gonna do? Are you gonna stop working for a year so that you can take all of that out? Are you gonna stop working for two years so you can take it all out? We are talking some huge tax. Penalties just for passing away and having a lot of money in an IRA.

  And so I get it why they passed it 'cause they needed to pay for all these tax cuts. But when I think about what this is gonna do to future generations and the way that inheriting IRAs has helped different clients that I've worked with it. Almost breaks my heart because IS you know, having money makes it, it the worry that goes with money, right?

  And having that go away when you inherit something and you're able to stretch out an IRA and know that you're gonna have some money every single year from this IRA, there's a certain like comfort that comes with that. [00:04:00] And so to have that go away and force people to basically spend this money and take it out of these, out of these qualified accounts, then you're forcing it out and into the system.

  Strategies to Mitigate Tax Impact

  And I'm gonna talk about ways that you can get around it, if you will, or different ways that you could plan. But I don't think, my first piece of advice with this is that the IRA is not what it used to be. And so I don't think that you should be trying to get a gigantic IRA and the whole balance between saving taxes and putting money into some sort of qualified account, whether it's a 401k, a 4 0 3 B, whatever you might have.

  Those days are gone.

  Importance of Roth IRAs

  I don't think that you should be maxing out and just trying to save taxes at whatever cost that there is, because now I think that you really need to focus on trying to get your Roth IRA balance bigger because even if your child or your parents have a Roth IRA and you inherit it, getting it out of there [00:05:00] is tax free even though you have to get it out.

  You're not gonna have to pay taxes on it. And so that's my I did a couple weeks ago, I did a episode on Backdoor Roth IRAs. And then there's other things that you can do, like mega backdoor Roth IRAs, and a lot of 401k options are offering Roth IRAs now. And in fact, it's gonna become mandatory here really soon.

  So you should have that option. And so that's what I want you to think about is how much tax savings do you want in the IRA versus the Roth IRA, and I'm gonna take this Roth IRA even further, and you'll hear me say this a lot this year in the podcast, but with the Roth IRA, you can put the money in.

  You're not gonna get the tax deduction. But then it's gonna grow tax free. And then when you get into retirement, if you can put something in there that is then spitting off some income. So let's pretend that you bought a piece of land and now you're leasing it. And so then you just take that income out of the Roth IRA every single year.

  And then [00:06:00] it is tax free income. So you'll have your social security, you'll have your tax free income, and then you could take money out of your Roth or your 401k, or whatever money that you did put away that you haven't paid taxes on it yet. It. So it's really about mixing these different accounts together so that your income in retirement is optimized, I guess we could say for taxes.

  And just optimized for control. That's the way I think about it too, is your money is never really yours until you pay taxes on it. That's the way you need to think about it. It, like even on your account statement, it says I-R-A-F-B-O, which means for the benefit of. It's not yours yet. It's for the benefit of you.

  It's not yours until you pay the taxes on it. So a Roth, you've already paid taxes on it. And then you could as I said, get the money out into, in your retirement and have it be tax free. So I really think that this should be our goal, especially if you are, in your forties and fifties, you've got the time to do [00:07:00] this.

  To either do a backdoor Roth IRA every year, and I know it's only $7,000. Plus the ketchup. But at least it's gonna add up to something. And if you had a year with, maybe you were laid off or you didn't have a lot of income, maybe you could do a conversion from your IRA to your Roth. But the Roth is going to become much more important because.

  I know that I don't wanna create a gigantic IRA for my kids to then have to distribute within 10 years. I know the laws could change, but we gotta work with what we have, right now. The other thing that I think that we could do instead of having these really large IRAs that I have been advising my clients on is to, they, as I've been advising them, to take a little bit out, a little bit more out every single year.

  If we're taking $30,000 a year out of their IRA, I might say, Hey, let's take 40 or 45. Let's just do a little bit every single year. And what has happened too with a lot of them is that they need the cash because. When you retire, right? You [00:08:00] and I know I just did a podcast about having this life freedom, but this is what it is right now for retirees is that you retire and you have this cash, but you still have to buy cars and air conditioners and things that pop up like that.

  And you're not always gonna want to go to your taxable, your qualified accounts, the ones that are taxable 'cause. There's always something in the back of your head that's yeah, but if I take that out to pay for the air conditioner, it's $10,000 and then, but then I really have to take out 12 and I already took out such and such for, it's just good to have some cash sitting in the bank for these kinds of things.

  Okay. So just take a little bit extra out of your IRA every single year, even if you don't need it to just spread out the taxes. Obviously work with your CPA if you're really concerned about taxes about what level you should be taking them out at. But. Taking out another 10 or 15, I'm not sure that's really gonna break the bank and it might make a huge difference down the road if you're doing that for 15 to 20 [00:09:00] years.

  Life Insurance as a Strategy

  The other thing that you can do with your IRA now, if you have a very large IRA right now is doing some life insurance planning and essentially what I'm ta the. High level of this is to take money out of your IRA to pay life insurance premiums so that the beneficiary is then your kids, ideally whoever your beneficiary would be, but your, would be your kids, so that.

  They would get that tax free income because so much of your IRA is gonna be eaten up with taxes and having distribute that within 10 years, that it would almost be better to just take out the money, pay a life insurance policy, and then they just get tax free income of whatever the death benefit is of that life insurance policy.

  I don't love life insurance all the time, but there's certain places where it does fit. And I do have other episodes and I'll reference them in the show notes about giving. I give the basics of some of the life insurance options. [00:10:00] I do think for, if you have everything in the market, maybe getting a whole life policy would be good.

  'cause by the time you get pretty old, you're not gonna buy, want to buy a term. It's really expensive. That. I do cover how to do like max funding and doing, putting money into a life insurance policy. And I think buying a whole life policy, something that if your parents live until they're, 95 years old, you're gonna want something that's in place and that the.

  The premiums are not going up and down, every single five, all the five, every five years and things like that. So I really want, if you guys are thinking about these IRAs and I've, you've had that mentality of I'm just gonna save taxes and put money in there. You need to rethink that because everything has changed with the secure act being passed and getting that money out in 10 years, and it is becoming more of a.

  A strategic game of using all of these different financial products in different [00:11:00] ways so that you obviously don't have to pay all those taxes. I'm not opposed to paying some taxes, but if you have a million dollar IRA and you have to get that out in 10 years and you're making $250,000 a year plus stock option bonuses and you know your restricted stock units and there's like a lot of things that could be happening.

  You could even have a rental by that time. Yeah, you are not gonna wanna take out all of that money. A hundred thousand dollars a year out of an IRA that is probably also going to be growing in the stock market over those 10 years. That is not something that you're gonna want to do. And planning some of these things, and I think I'm gonna do a separate episode on exactly maybe some examples of how to do the life insurance option.

  That one is. A lot more complicated just because you need to estimate the taxes and what years you're gonna be taking that money out of the IRA. And so I think that would be better to just have that as a separate. Episode down the road. But I just wanted[00:12:00]to put those three things out there that we have completely changed the game with the Secure Act, and I want you to be aware of it because this 10 year change was not covered in the media very well.

  I searched and searched when this was passed and it was not covered. I did another episode on that. And again, I'm gonna, I'm gonna link all these episodes in the show notes so that if you would like to go back and listen to the one about life insurance or you'd like to listen to the different secure act ones where we just go over the act in general and this change with the 10 year rule.

  You could listen to that too. Let me know if you have any questions about this, if you want me to run through any scenarios. I do have some packages now that, we could just do an hourly thing or something like that. To run through it and to see what you needed to do. And I hope you spread the word and thank you so much for listening.

  Please leave a review if you have a moment and you can scroll down and just leave a starred review. I would really appreciate it, it would help the algorithm[00:13:00]and let me know if you have any topic suggestions. I appreciate you. Thank you.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

Have you had a hard time finding a tax preparer, or been less than happy with the match?

Many people make the mistake of picking a tax advisor without asking the right questions, only to face unexpected bills or inadequate service when IRS issues arise.

To help us navigate this, we have Corina Vakira Delugos, MBA, EA. Corina is a financial services professional with over 25 years of experience in tax, mortgage, and insurance planning. In this episode, Corina shares tips on the important questions to ask when choosing a tax professional—from understanding their qualifications and experience to knowing what types of clients they typically serve.

Here are 3 key takeaways from our discussion:

1. Understand Their Specialization and Credentials: Not all CPAs handle personal taxes. It's important to ask about their qualifications and the specific types of clients they usually work with to ensure they align with your needs.

2. Communication and Transparency: Knowing how your tax professional communicates and what they expect from you. This can include their availability during tax season and whether they provide pricing transparency upfront.

3. Proactive Tax Planning: Engage with a tax professional who is forward-thinking and proactive about tax planning. This approach can save you thousands of dollars and make the tax filing process smoother.

Links:

Contact Corina: www.keenfinancialsolutions.com

• Transcript

  Importance of Choosing the Right Tax Professional

   [00:00:00] Today we are gonna be talking about questions to ask when looking for a tax professional. I wanted to cover this because I feel like a lot of people just.

  Say, oh yeah, you can help me with my taxes. But then they get into it and they can't, sometimes people can't do if you get IRS audited and they can't do other things. So I think it's important to know what questions to ask to see if it's a good fit. 'cause I know that in the past.

  I have had a CPA and then it's like I get this bill and it's for thousands of dollars. And then I'm wondering, what they did and I didn't ask ahead of time. What I was supposed to do. Yeah.

  Guest Introduction: Karina Ra Degos

  So to talk about this, I have Karina Ra Degos. MBA here. Thank you for joining us. Oh, it's my pleasure.

  Thank you for having me. Yeah. Karina is a financial services professional with over 25 years of experience specializing in tax, mortgage, and insurance planning. She's the owner of Keen Financial Solutions here in Phoenix, Arizona. She's passionate about helping families create and protect wealth, increase liquidity, and [00:01:00] reduce tax liability.

  Yeah. So let's get started. Let's, yeah. So thanks again for taking time to be on here. I appreciate it. Of course. Karina and I have a lot of mutual interests, I should say in terms of real estate and the way that we look at numbers. And so we are like-minded in a lot of ways. So I had her on.

  Yeah. Okay.

  Common Issues with Tax Professionals

  So the topic is questions for when looking for a tax professional and Karina, you actually brought this topic to me 'cause do you see this a lot in what you, in, in your job, yeah. What I notice is when people come to me, I ask them about what has your previous experience been? Tell me, 'cause I wanna understand what their pain points are.

  And oftentimes what I've come to learn is that folks will simply. Get into an engagement with a tax professional, A CPA. Some of them are just simply not credentialed and don't have much experience and they don't ask any questions. And then when I get to their return and I'm reviewing them and [00:02:00] I'm asking more questions to understand their situation or to understand why certain things showed up on their return.

  Clients have no idea because they, they didn't have a good experience in that their tax professional, even A CPA too didn't take the time to go through and explain to them their tax return, what each page means. And so they come to me sometimes with really not knowing much and not knowing what to do about it.

  So they just feel totally in the dark where I don't even know what questions to ask.

  Key Questions to Ask Your Tax Professional

  So I developed a. A guide of questions to, to help clients or really just the general public. Here's some questions that she'd be asking when you're engaging with a tax professional and they're really critical to understand each other because like you said, it's important that it's a good fit.

  Yeah. That you guys have the same communication style, that your expectations are aligned, that if you expect to have a sit down with your. CPA, your tax professional, your enrolled agent, [00:03:00] that there's an expectation that there's gonna be some time spent to help educate you so that you can understand what's going on.

  Oftentimes when I'm working with somebody on a mortgage and I look at their returns, and it's the first time I'm seeing them because they're not necessarily a tax client. I'll have questions for them that they can't answer and they have no idea why they have a Schedule C, for example, when they don't have a business.

  And so it's really important to ask good questions, especially around what are your qualifications and credentials. Where did you not necessarily where did you go to school and that kind of thing, but where did you get your experience? Was it through practical work? Was it through doing something doing returns for your friends and family?

  Only? That's really important because you wanna get an understanding of their level of experience, especially if you're a business owner. I know you and I work with a lot of business owners and investors, it's really important for business owners to understand what's in their return. Because when you go for financing, there are some questions that will come up as a, from that return that you're gonna [00:04:00] wanna have answers to.

  And if you haven't been educated by your tax professional, it's gonna be really difficult for you to have that conversation. 'cause some of these things, when we're looking at tax returns going back two years, sometimes three. You've forgotten. Yeah. You didn't you don't remember. And so it can make things a little challenging later on down the line.

  And I find it, I found it very interesting. 'cause I have some friends that are CPAs and they don't do any personal taxes at all. Yeah. They're like, no, I work for this business. I work for this such and such business, or all I do is business valuations. Or, they don't even know how to do personal tax returns.

  And we also, we all assume, Hey, you're a CPA, you know how to do tax returns. That is a great point. Yeah. Maybe a lot of folks don't understand or don't realize, just the general public, you think CPA and it's probably because we've done a terrible job at marketing and educating the public on what it is that a CPA. Does, because some CPAs, like you said they do business valuations. They only handle audits and resolutions. They don't look at tax returns. They could be working on financial [00:05:00] statements for mergers and acquisitions. So not every CPA does any tax returns.

  There's many CPAs who don't. And in fact, there's a shortage of accountants in the country right now. Yeah. And us. Part of the accounting community are trying to bring more young people in because they're, the larger firms are really one, taking, filling in the gap on that lack, that pipeline that's missing for this particular industry and this field.

  But also to make sure that we have a robust, trying to get more women involved in the business and doing more recruiting to be able to get more accountants in especially on the tax planning side. Which is really needed because folks are, for the most part, lost on why is my tax bill this way?

  How am I taxed? It's not something that we learn in school. It's something that if you were. Personally interested in, you have to go seek that information out. Unless you have a tax professional who is more proactive in their education. And, and I am that way.

  And then during tax time, it's not like they have time to educate everyone either. Yeah. It's almost okay, I [00:06:00] got this tax return done. It's done. We're gonna have a 10 minute phone conversation over it. And then, I'm onto the next one. And oftentimes the tax preparers, those of us who are doing it, we are very busy.

  And so that time is limited and that's why it is important that when you're thinking about engaging with somebody, that you ask them about, what can I expect in terms of your availability. During tax time, will we be going over my return before filing? Because those are things, how do you communicate, how do you communicate those kinds of things so that you have that expectation.

  And another thing that's really important you had mentioned it, getting a bill from your CPA that was unexpected. What's important for us, one of the things that is important for us here at Keen Financial Solutions is pricing transparency. So we give you your pricing upfront. So that you know exactly how much you're going to pay.

  That's really rare because I, when I was having to find a new tax preparer, it was really hard to it depends on how much you have and, yeah, that's a tough one. And so we base our pricing based off of, it is a subscription [00:07:00] model, but people do have the option to pay upfront. One, and if they pay all at once, then it comes out a little bit cheaper for them.

  But one thing to, to talk about and to mention, I'm losing my train of thought here. 'cause I have too many things that I'm thinking about. Yeah. Was the upfront pricing like understanding. What is it that, that you need? I had a client just recently acquired a client who he was sure he was a Schedule C, but then later we come to find out that he actually has an S corporation, so we're actually doing his taxes under the S Corporation guidance, which is different.

  So it's important to understand what that is, and that could be some of the reason why some. CPAs or tax professionals will won't be able to give you a price until after 'cause they don't properly understand it. But that's why it's important to ask those questions upfront. Yeah, it is. And at least they could give you an estimate.

  And I find it interesting too because as I have switched tax preparers or CPAs through the years most of the time the new one I go to says, oh, this one wasn't done right. And that's what I find interesting too, is that it varies so [00:08:00] much on, is it the knowledge that people have? Is that what it is?

  It could be a difference in knowledge, but also a difference in strategy. Okay.

  Understanding Tax Strategies and Client Expectations

  And I think that's why it's important to work with the tax professional who has a forward thinking approach, who is proactive in terms of the tax. Planning. Because when we get to the tax preparation piece, your, it's already after the fact.

  I've had clients come to me who are like, Hey, I don't understand why I'm paying capital gains on the sale of this house when I lived there for 25 years. But the last five years it has been a rental. They didn't properly understand how that. Primary residence exclusion works. And that it didn't apply to them because they had been, this property had been a rental for so long.

  So when you do tax return and you're not having those pre-planning conversations, regular conversations with your tax professional throughout the year when you're planning on buying a property, that's what I think is so important. Yeah. Is that come October you need to be thinking about, if you're not, don't just a straight job with 401k and [00:09:00] own your house.

  And that sort of thing. If you have other things, going to your tax preparer and doing some planning in October can just save you thousands of dollars. Oh, absolutely. Absolutely. Because I, it's totally worth it. Yes. And then it's so much easier in April. Totally. So it could be a difference of strategy.

  But the other thing is that there, there are, there's. It, you can go about preparing the return and including or excluding certain expenses and putting them in one place versus another. Treating something as an asset versus just deducting mileage. For example, if we're talking about vehicles, there are different strategies that people employ.

  So when you go from one to the next, it may not necessarily be that it's wrong, but maybe they took a different strategy. Strategy. So how would you ask a question about what their strategy is? Because I think some people just know to ask. How aggressive they are. Yeah. Because I think it, that's what you hear is how aggressive is someone versus are they towing the line of whether that's legal or not, or straight and narrow.

  Those are the only two kind of things that you hear. So is there a way to ask about their strategy? [00:10:00] You, at least I can say that the way that we approach it is that we're looking more at what are your goals? What are you trying to accomplish? What are some of the things that you're thinking in the future that could potentially happen?

  Are you thinking of starting to, you wanna acquire a couple properties throughout the year and maybe do some 10 30 ones exchanges? So the strategy is going to depend on the goals of the client. Where are they trying to get you to? Are you trying to get to a zero tax bracket By the time we get to, to, to retirement?

  Maybe not. So it just really de depends on what their goals are. On what the goals are. Okay. And understanding if there's a W2 employee and both, husband and wife, if it's a couple if they're both W2, our strategies are gonna be limited. But if they're a business owner.

  And they're a property investor, then we open up and can unlock many more strategies that we can employ. Okay. All right. I think all of this sounds really good. And so that would cover like what kind of clients do you normally work with? Yeah. Yeah. Because that was one of the questions that you recommend is asking what kind of [00:11:00] clients do you typically work with, right?

  You wanna ask what kind of clients do you typically work with, because if you're a business owner. Let's just take myself as an example, right? I'm a business owner. I have three different product lines. You could have several different product lines or services siloed individually under an umbrella organization.

  If you go to a tax professional and you don't ask them what kind of clients that they work with, like business owners, do you have experience with business returns? If you don't ask those questions, you might be getting somebody who only does W2 employees and has no idea about an 1120 I Now, did you bring that up?

  I had that happen. I submitted all my stuff and I had flipped a house and she just said, I can't help you. I don't know what to do. Yeah. So I was like, oh, okay. And I was really late and it was. It wasn't good. Yeah. So it's important to know. Yeah. Do you have experience helping people like me?

  And it's, it's a good question. Hey, do you have a reference? Do you have somebody in your clientele that is similar in business structure as me, that I could talk to [00:12:00] about. And if they're a good professional, they'll gladly give you some referrals of folks to talk to to let them know, because they know people know what it's like.

  And I think that brings us to another question is recommendations that you recommend that you ask for recommendations and then call them Yeah. For references. Just like you would if you're hiring anybody. This is your money that we're talking about. So you wanna take the same sort of care and due diligence that you would when you're.

  Trying to work with any other financial professional. Okay. And then, so we talked about fees and then what about. Let's talk a little bit about what's expected of the client, because that's what I always find very helpful is not only the communication, what you can expect, hey, we're gonna talk once a quarter, or, whatever it is.

  But also what do you expect from the client is a good question. Oh yeah. Also I would, if I were the client, I would definitely want to know what my service provider, what my tax professional needed out of me. Because I may not be able to necessarily deliver, or I may need to say, Hey, do you guys have any additional services in terms of [00:13:00] support that could help me with this?

  Yeah. Certain things like my expectation. Would be that clients need to have a record of their receipts. They're expected to keep certain logs on mileage. I expect them to keep their receipts and save them and have, it doesn't have to be perfectly organized, but at least they need to have them and they need to have them to exist.

  'cause I'm gonna ask them to, do you have records and receipts of these expenses that you're submitting? I don't need to see all the receipts. In fact, it's better that I don't, but you are going to need to put together your list of expenses. I'm not gonna be able to tease those out if you just give me your bank statements.

  Especially if you get your groceries and some office supplies at Walmart. How am I gonna distinguish if. This expense. Yeah. You need a bookkeeper for that. Yeah. You need a bookkeeper for some of these things. And we do offer bookkeeping services if people need that. So there's a certain amount of ex of organization that is expected.

  I certainly expect my clients to re be responsive if I'm asking questions that I'm actively working on their return within a reasonable amount [00:14:00] of time. Otherwise if folks don't get back to you with those questions. You can't move on with that return. Yeah. Because 'cause some things depend on another Yeah.

  And I find that, and I don't know if this is true for you, but in my industry, that a lot of times people just wanna push all their stuff to me. Yes. And just, okay okay, you do it. And I'll do whatever. And it's really a partnership. I need them to do things. I need them to be thinking about things and, hey, I would like to do this because I'm not a mind reader.

  And if I don't know, just simple things like, I don't know that you changed your last name. You need to tell me that. So that. You know what I mean? Yes. There just needs to be a partnership versus I, because I feel like a lot of people just want to avoid the whole money thing. And they just wanna hire somebody to just do it for them. Yeah. And that's not what. We are. And because I need, and you probably do too, it sounds like you need your clients to be an active participant in their own wealth creation. As much as they might want to avoid it and just hand it all over, you've gotta [00:15:00] participate.

  And we've gotta talk about it. We can talk about it. It doesn't have to be an emotional conversation. These are just numbers. Yeah. We just need, I need to understand and be able to tell the story because if. The IRS has three years to reassess tax. So if you get audited at any time and there's a reassessment, I need to be able to understand what's going on because if I'm going to be representing you in front of the IRS in communications with them, especially if we have an audit, an examination is what the IRS calls it, or we have something that we need to resolve.

  I can't be a good advocate if I don't know the whole story. Let's, and let's go into that too. Do, that's one of the questions that you need to ask, is about do they do audits? Yes. Because do not everybody doesn't do IRS audits, right? Yeah, that is correct. Okay. I don't do IRS audits.

  I usually refer those out to a partner that I work with that has a, an audit if it's a reassessment of taxes. That is different than you need to do an examination and we need to, we need certain books and records that may be out of scope for us, where we're going to hand [00:16:00] that over to another firm that, that will be more equipped to handle.

  That just depends on the type and expanse of your business. If you're a sole proprietor and you're using a Schedule C, even if you have an LLC. Z That would be something that, that would be within our scope of services. But anything beyond that, if you had a business return and you had multiple businesses, we would outsource that and put you in touch with competent tax professionals who specialize in audits.

  Okay. All right. I think that sounds good. 'cause I know that some people you have to specialize in it, right? Yes. And you have to be like, licensed with the IRS in order to do this. And that's an important point that you bring up. So there are only three credentialed profess types of pro.

  Professionally credentialed folks who can represent clients before the IRS, and that's in a CPA, an enrolled agent and a tax attorney. If you're working with somebody who isn't one of those three. Their ability to represent you or to just communicate with the IRS or even the Arizona Department of Revenue.

  I [00:17:00] have a client that it's no better than you calling. It's no better than you calling and being on hold for hours. So if you need, they have an inside track. And if you are somebody who is running a multiple businesses, you're very busy and it's something you do legitimately need to delegate to us, great.

  You can certainly do that. We will hang on the phone and do that. Certainly there's gonna be added additional cost and at that point it's a matter of how much is your time worth. Are you gonna be better off focusing on your work and delegating that to us and then we'll, have our folks sit on the line with the IRS and discuss this for you on your behalf, and then come back and say, Hey Jim, this is how it turned out. This is where we landed. What do you wanna do from here? Would it be better if you were just like on the phone? If the client was on the phone too?

  Not necessarily. Really? Yeah, because it's just a step-by-step process. Because sometimes we're getting off track here. I'm just wondering for my own information of the, your client is gonna wanna say everything that they feel like they need to say for the IRS to understand and most of the time the IRS just simply doesn't care.

  Client Confidentiality and Data Security

  So the last question that we have here is [00:18:00] how do you handle client confidentiality and data security? Oh, that's a really big one. So we have layers of protection with an IT department that we work with. So we have a, a third party. It. Contractor that seals up.

  We use vpn, so virtual private networks. We don't log on to virtual, or I'm sorry, public networks. So we restrict some of the access that our employees can have and to use with each of our client data so that it's on a need to know basis. If we have another accountant on staff who is working on different cases and they're not assigned to that case, you can't go into and look into that customer's portal of.

  Documents and information if you are not an active person, engaged and authorized with that particular client. Okay. All right. If we have some internal safeguards and then of course having the protection that we need on the external side to make sure that I. The bad malicious things, phishing aren't coming in.

  So we have our third party company and they're regularly doing tests to see whether any of us [00:19:00] are clicking on a link that we shouldn't be clicking on. The spoofing, the phishing and things like that. Oh, they do the testing, phishing emails. Yeah. Yeah. Some of those are actually really. Very tricky. Yes.

  Yeah. Yes, I know. They're very, I know definitely companies that do that. Okay. So some of the questions just to recap you guys of things that you should ask when you're looking for a tax professional are, what are your qualifications and credentials and what types of clients do you norm typically work with, and what services do you offer?

  Ask for some references from some other clients. And I do think another big one is what's your approach to communication and how will you be able to contact them or communicate with them, especially during tax season. Yeah. What's the easiest way? Because sometimes hi, they hire like temporary, yes. Yeah. Help and things like that. How much do you charge for your services and how do you handle the client confidentiality? Confidentiality and data security. And then what are your expectations for me as a client? I would actually put that at like number three. I should have moved that up there.

  That, [00:20:00] that should go Yeah. Last, but maybe just maybe because we do what we do is that we think that is. Yeah. But Right. It's up to us. To also say that too, but I think a lot of those are very important things and I just think that a lot of times we just go with whoever, oh, my friend, yeah.

  Recommended so and and I don't even know if this is good. I'm guilty of that. Personally, I'm absolutely guilty of it. And over the years I have learned to ask questions. And then I look at things and I'm like, ha, why are we even doing this? And I do what I do and I don't even review, I review my taxes, but then I wasn't reviewing the quarterly documents that were going.

  There's just so much detail. Yeah. That to review all of it. It does it, it does take a lot. It does. And I see why people want to just offload it because it is a pain. It can be overwhelming. It certainly can be, and that's why it's really important to make sure that you have trust and confidence in the person that you're working with.

  Yeah. Because there are, I've seen some really bad things out there. The biggest bad thing that I've seen are, folks who are working [00:21:00] with un credentialed and unlicensed, unexperienced tax, I'm not even call them professionals 'cause I do think they're scammers where they don't even sign their return.

  They don't, they're not authorized. They don't have a P 10, which is your payer's or preparers tax identification number that each of us who are legitimate preparers and we have authorization by the IRS we're connected with them. If you have a return or you're looking at a return from a friend or family member and it's not signed and they tell you it was repair prepared by somebody else, you should have that one looked at by a professional.

  Because I've seen things where Schedule Cs are simply just made up out of thin air and the client doesn't even have a business because they don't know. Because they were just trying to get the tax deductions. They were trying. Yeah, they were. Because the preparer was trying to. Increase their refund.

  I've had clients come to me and say, yeah, that's what I mean. They were trying to, yeah. Oh, I just used somebody at work that everybody else used because they said that this person gets them really good refunds. Yeah. And that I, that is a [00:22:00] common thing of that. I don't know how he did it, but he got me, to pay no tax and Right.

  I just think that if you don't want to get in trouble and you need to have somebody that. Knows what they're doing and you're gonna have to pay for it. And it's not like you have to pay an arm and a leg, but you do need to pay for it and don't cheap out on it. Yeah. Because when you cheap out on it, that I feel is when really bad things happen.

  Yes, absolutely. And that was the case with this particular gentleman. This person was only gonna charge me a hundred bucks and I got a $400 higher refund than I did last year. And I said, is it worth it at to be at risk? Yeah. To have to deal with this when the, and then pay all the penalties and to pay the penalties and the interest that, that accrue on that.

  Absolutely. For 400 bucks, I don't think it's worth it. I know, but Yeah. But everybody does it differently. Yeah. And Arizona doesn't regulate tax preparers like some other states do, so that's why it's. So rampant and why it's so critical for you to ask really good questions. Yeah. To make sure that you're getting the right services that you need.

  Okay. Thank you so much for joining us and thank you everybody for listening. If [00:23:00] you enjoyed the show, be sure to leave a review. You need to scroll all the way down. I would love to have your feedback. And if you leave the review, it helps us with the algorithm and reach other people. So have a great day.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

We've all seen that long list of options your employer hands you. Do you need all of them? Which ones are worth it?

In this episode, Corina Vakira Delugos, MBA, EA talks to us about which benefits can save you in taxes - so you're spending tax-free money for your expenses. Corina is a financial services professional with over 25 years of experience in tax, mortgage, and insurance planning.

Key Takeaways:

• Utilize Flexible Spending Accounts (FSAs) Wisely:

  • Depend Care FSA: Set aside up to $5,000 pretax for child or dependent care.

  • Healthcare FSA: Use for out-of-pocket medical expenses, but remember that funds generally don’t roll over.

• Maximize HealthSavings Accounts (HSAs):

  • Paired with high deductible health plans.

  • Triple tax benefits: contributions are tax-deductible, growth is tax-free, and withdrawals for medical expenses are also tax-free.

• Explore Employee Stock Purchase Plans (ESPPs):

  • Purchase company stock at a discount.

  • Hold for over a year for favorable long-term capital gains tax treatment.

Links:

Contact Corina - www.keenfinancialsolutions.com

• Transcript

  Overview of IRA Changes

  Today we are going to talk about how IRA. Contributions have changed. There was a new law that was passed, I wouldn't say new now, but in 2019, and it is requiring beneficiaries to take all of the money out of an IRA within 10 years, and I'm gonna explain.

  Why this is such a huge deal. So if you are a retiree or if you're listening and you are 40 plus and you have elderly parents, I really think that you need to listen to this because there's, these are some big changes that could save you or will, could cost you a lot in taxes. Or if you're listening, that could save you a lot in taxes.

  Impact of the Secure Act on Inherited IRAs

  So the Secure Act was passed in 2019 and it was a huge tax overhaul. And the way that I would give the synopsis is it gave a lot of businesses tax breaks. It raised our taxes slowly over four or five years. And one of the other major changes and it also changed the way[00:01:00]trusts were handled and then it also made this change to IRAs.

  And essentially what this says is that if you inherit an IRA from like your parent, if you're more than 10 years younger than the IRA owner, you need to take out the money within 10 years. Yeah, obviously they have a few little exceptions to this rule. If you are a dependent, if you are special needs, but there are very few exceptions.

  So if you are 10 years younger than the owner of an IRA, you need to get all the money out within 10 years. And when this passed, I was super angry. I. Thought, 'cause everybody, usually when you get an IRA, you stretch it out over your lifetime and then maybe even pass it on to your kids or to whoever you were going to give it to.

  And so it provided income for your lifetime. And so you need to think about what this did. Is a lot of people that are inheriting these IRAs are[00:02:00]usually 50 to 65 years old when their PA parents are passing away, and those are prime money making years. Those are, that's when you are making the most amount of money and you are gonna be inheriting this IRA and then you have to have it out, the money out within 10 years.

  And thinking about the older generation, what they did was they put all their money into a 401k. So it's not like it is now where we're like, let's do a Roth, let's do an IRA, let's have some real estate. They were taught to put everything into a 401k and which is then like an IRA. And because of this, they have these very large IRA accounts that are going to be inherited.

  Giving it to a husband and wife, not a big deal, right? They can still operate just along the old rules, still take the money out the way that they used to. But if you inherit one of these and you are a child, this, your parents passed away, your last parent, and you inherit an IRA and you have to get this money out in 10 years and you're 55 years old and you're[00:03:00]making.

  You know the most money you've ever made in your life, what are you gonna do? Are you gonna stop working for a year so that you can take all of that out? Are you gonna stop working for two years so you can take it all out? We are talking some huge tax. Penalties just for passing away and having a lot of money in an IRA.

  And so I get it why they passed it 'cause they needed to pay for all these tax cuts. But when I think about what this is gonna do to future generations and the way that inheriting IRAs has helped different clients that I've worked with it. Almost breaks my heart because IS you know, having money makes it, it the worry that goes with money, right?

  And having that go away when you inherit something and you're able to stretch out an IRA and know that you're gonna have some money every single year from this IRA, there's a certain like comfort that comes with that.[00:04:00] And so to have that go away and force people to basically spend this money and take it out of these, out of these qualified accounts, then you're forcing it out and into the system.

  Strategies to Mitigate Tax Impact

  And I'm gonna talk about ways that you can get around it, if you will, or different ways that you could plan. But I don't think, my first piece of advice with this is that the IRA is not what it used to be. And so I don't think that you should be trying to get a gigantic IRA and the whole balance between saving taxes and putting money into some sort of qualified account, whether it's a401k, a 4 0 3 B, whatever you might have.

  Those days are gone.

  Importance of Roth IRAs

  I don't think that you should be maxing out and just trying to save taxes at whatever cost that there is, because now I think that you really need to focus on trying to get your Roth IRA balance bigger because even if your child or your parents have a Roth IRA and you inherit it, getting it out of there[00:05:00]is tax free even though you have to get it out.

  You're not gonna have to pay taxes on it. And so that's my I did a couple weeks ago, I did a episode on Backdoor Roth IRAs. And then there's other things that you can do, like mega backdoor Roth IRAs, and a lot of 401k options are offering Roth IRAs now. And in fact, it's gonna become mandatory here really soon.

  So you should have that option. And so that's what I want you to think about is how much tax savings do you want in the IRA versus the Roth IRA, and I'm gonna take this Roth IRA even further, and you'll hear me say this a lot this year in the podcast, but with the Roth IRA, you can put the money in.

  You're not gonna get the tax deduction. But then it's gonna grow tax free. And then when you get into retirement, if you can put something in there that is then spitting off some income. So let's pretend that you bought a piece of land and now you're leasing it. And so then you just take that income out of the Roth IRA every single year.

  And then[00:06:00]it is tax free income. So you'll have your social security, you'll have your tax free income, and then you could take money out of your Roth or your 401k, or whatever money that you did put away that you haven't paid taxes on it yet. It. So it's really about mixing these different accounts together so that your income in retirement is optimized, I guess we could say for taxes.

  And just optimized for control. That's the way I think about it too, is your money is never really yours until you pay taxes on it. That's the way you need to think about it. It, like even on your account statement, it says I-R-A-F-B-O, which means for the benefit of. It's not yours yet. It's for the benefit of you.

  It's not yours until you pay the taxes on it. So a Roth, you've already paid taxes on it. And then you could as I said, get the money out into, in your retirement and have it be tax free. So I really think that this should be our goal, especially if you are, in your forties and fifties, you've got the time to do[00:07:00]this.

  To either do a backdoor Roth IRA every year, and I know it's only $7,000. Plus the ketchup. But at least it's gonna add up to something. And if you had a year with, maybe you were laid off or you didn't have a lot of income, maybe you could do a conversion from your IRA to your Roth. But the Roth is going to be come much more important because.

  I know that I don't wanna create a gigantic IRA for my kids to then have to distribute within 10 years. I know the laws could change, but we gotta work with what we have, right now. The other thing that I think that we could do instead of having these really large IRAs that I have been advising my clients on is to, they, as I've been advising them, to take a little bit out, a little bit more out every single year.

  If we're taking $30,000 a year out of their IRA, I might say, Hey, let's take 40 or45. Let's just do a little bit every single year. And what has happened too with a lot of them is that they need the cash because. When you retire, right? You[00:08:00]and I know I just did a podcast about having this life freedom, but this is what it is right now for retirees is that you retire and you have this cash, but you still have to buy cars and air conditioners and things that pop up like that.

  And you're not always gonna want to go to your taxable, your qualified accounts, the ones that are taxable 'cause. There's always something in the back of your head that's yeah, but if I take that out to pay for the air conditioner, it's$10,000 and then, but then I really have to take out 12 and I already took out such and such for, it's just good to have some cash sitting in the bank for these kinds of things.

  Okay. So just take a little bit extra out of your IRA every single year, even if you don't need it to just spread out the taxes. Obviously work with your CPA if you're really concerned about taxes about what level you should be taking them out at. But. Taking out another 10 or 15, I'm not sure that's really gonna break the bank and it might make a huge difference down the road if you're doing that for 15 to 20[00:09:00]years.

  Life Insurance as a Strategy

  The other thing that you can do with your IRA now, if you have a very large IRA right now is doing some life insurance planning and essentially what I'm ta the. High level of this is to take money out of your IRA to pay life insurance premiums so that the beneficiary is then your kids, ideally whoever your beneficiary would be, but your, would be your kids, so that.

  They would get that tax free income because so much of your IRA is gonna be eaten up with taxes and having distribute that within 10 years, that it would almost be better to just take out the money, pay a life insurance policy, and then they just get tax free income of whatever the death benefit is of that life insurance policy.

  I don't love life insurance all the time, but there's certain places where it does fit. And I do have other episodes and I'll reference them in the show notes about giving. I give the basics of some of the life insurance options.[00:10:00]I do think for, if you have everything in the market, maybe getting a whole life policy would be good.

  'cause by the time you get pretty old, you're not gonna buy, want to buy a term. It's really expensive. That. I do cover how todo like max funding and doing, putting money into a life insurance policy. And I think buying a whole life policy, something that if your parents live until they're, 95 years old, you're gonna want something that's in place and that the.

  The premiums are not going up and down, every single five, all the five, every five years and things like that. So I really want, if you guys are thinking about these IRAs and I've, you've had that mentality of I'm just gonna save taxes and put money in there. You need to rethink that because everything has changed with the secure act being passed and getting that money out in 10 years, and it is becoming more of a.

  A strategic game of using all of these different financial products in different[00:11:00]ways so that you obviously don't have to pay all those taxes. I'm not opposed to paying some taxes, but if you have a million dollar IRA and you have to get that out in 10 years and you're making $250,000 a year plus stock option bonuses and you know your restricted stock units and there's like a lot of things that could be happening.

  You could even have a rental by that time. Yeah, you are not gonna wanna takeout all of that money. A hundred thousand dollars a year out of an IRA that is probably also going to be growing in the stock market over those 10 years. That is not something that you're gonna want to do. And planning some of these things, and I think I'm gonna do a separate episode on exactly maybe some examples of how to do the life insurance option.

  That one is. A lot more complicated just because you need to estimate the taxes and what years you're gonna be taking that money out of the IRA. And so I think that would be better to just have that as a separate. Episode down the road. But I just wanted[00:12:00]to put those three things out there that we have completely changed the game with the Secure Act, and I want you to be aware of it because this 10 year change was not covered in the media very well.

  I searched and searched when this was passed and it was not covered. I did another episode on that. And again, I'm gonna, I'm gonna link all these episodes in the show notes so that if you would like to go back and listen to the one about life insurance or you'd like to listen to the different secure act ones where we just go over the act in general and this change with the 10 year rule.

  You could listen to that too. Let me know if you have any questions about this, if you want me to run through any scenarios. I do have some packages now that, we could just do an hourly thing or something like that. To run through it and to see what you needed to do. And I hope you spread the word and thank you so much for listening.

  Please leave a review if you have a moment and you can scroll down and just leave a starred review. I would really appreciate it, it would help the algorithm[00:13:00]and let me know if you have any topic suggestions. I appreciate you. Thank you.

  
  

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

Tired of High Mortgage Rates?

Assumable loans can help you buy a home at a lower interest rate. Join us as Mike Roberts explains the ins and outs of taking over someone else's loan.

In this episode, you’ll learn:

• How assumable loans can benefit both buyers and sellers in a transaction.

• Which loans are eligible to be taken over and how to do it.

• How assumable loans differ from subto or seller financing.

Links:

• Contact Mike Roberts to discuss mortgage options - cobaltmtg.com

• Transcript

  Introduction and Welcome

  Hello everyone. And welcome to the podcast. I am Michelle Moses, your host. And today we are going to be talking about assumable loans. And we have Mike here to talk with us. Thank you for joining us, Mike. Yeah, absolutely. Thanks for having me. This is awesome. Yeah.

  Meet Mike and Yumi: The Assumable Loan Experts

  And Mike, uh, started a company. How long has it been?

  A little over a year. Okay. A half ago probably is when we started the company. Yeah. Called Yumi. And it is about assumable loans and that's what they specialize in. And you guys, this is pretty exciting because if you are in a, or outside of the market and you are wanting to buy a house, but the interest rates are too high for you, this might be a solution for you because you can assume these low rate mortgages.

  And we are going to go into detail about how you can get these.

  Understanding Assumable Loans

  So let's just start out about what an assumable loan is. Sure. So the, the, what I always like to do, when I explain what an assumable loan is, is first what it's not. And so like, let's say for example, you're a listing agent, you're a realtor.

  And it's like those first eight phone calls you get from just what I call TikTok investors that they went on TikTok and they saw that, Hey, I can get something for zero down. I just have to assume the responsibility for this loan. And they call you up and they say, Hey, I'd love to assume your loan, but you're, they're not actually assuming it.

  They're doing, remember that subject to wraps and where the seller is still on the hook. This is a totally different market. It is government loans that are mandated by law to be assumable. And what that means is a buyer can come in and as long as you have a qualified buyer and a willing seller. These servicers, which a servicer is just the, the, the current seller's mortgage company, they have to do it.

  So they are mandated by law to allow the assumption if you have a qualified buyer and a willing seller. And the assumption is that you are actually taking over the loan. You're not just kind of taking over the payments. Right. Your name goes on the loan with the mortgage company. Yes, key difference between that whole subject to world is the release of liability.

  Buyer goes onto the loan, seller comes off of the loan, it's now the buyer's loan. Okay, so complete release of liability, right?

  Marketing and Demand for Assumable Loans

  And so and I think and that the difference is is that the house needs to be marketed as this right? So you need to know that they're gonna have an assumable mortgage on it I mean, yes, you definitely I mean you want to definitely advertise it as an assumable mortgage Just because there's inherently there's value there to that low interest rate loan, right?

  And you've seen so I've taken some of your classes obviously, so you've seen people like clamor for these Like when a listing agent is listing their house and it's like with this as an assumable loan of two and a half percent. I mean people like clamor. They are overwhelmed. The listing agents become overwhelmed sometimes if they're not super familiar with assumable loans and they like you said if it's a two and a half percent interest rate with kind of like a low Delta meaning the difference between the sales price and the loan amount I mean, they get, they're getting offers within hours from like a lot of times investors seem to be very, they catch on quickly.

  They're savvy and they're aggressive when it comes to like these, like, I guess you would say incredible deals. Yeah, because they're going to save a ton of money so that they can then rent that house. right? For a lower amount or make more money, really. Because what really cash flows in this market, you know, the interest rates in seven and eight.

  It's just, there's no way to really cash flow. Yeah. So it's the only way that they can cash flow is getting some of these lower interest rate loans. Right. Yeah.

  Financing and Down Payments

  Okay. And so can we go through kind of the, uh, explain the difference? Because I have sent this to some people and said, okay, look, you know, you could get some of these houses, you at, you know, such and such price, um, because on your website it does say, you know, this price is 1, 300 for the payment.

  Right. And, um, I do want to take it a step further because you do have to come to the table with the difference between what people are selling it for and what the loan amount is, right? Exactly. Okay. So like in the assumption world, it's totally different than the new financing world. There is no, you don't think of it as like, oh, VA loan zero down FHA loans, three and a half percent down conventional, or 5, 10, 20, 20 5% down.

  It's, that's the new financing world, which is not the assumption world. So assumption down payments, they simply are this sales price. So let's say for example, it's 500,000 and the consumable loan amount of 400,000, that means there's that a hundred thousand dollars gap for Delta. So there's, that means it's a hundred thousand dollars down payment, but.

  Let's say for example, if you're buying it as your primary residence, there's still some conventional financing sources out there for a second mortgage where you can actually, you can, you can finance it. What is it up to? Well, the reason I stutter a little bit is because there's one out there changing every day, but they are, it's like 5%.

  There's one out there for 5 percent down, but I kind of started cause I was thinking, I didn't know if I wanted to announce that because we haven't completed one with that, that, that investor yet. But one that we've completed a lot of is 10 percent down. So that means if. So people would need to at least say, we're going to come with 10 percent down, but you might assume the loan for some of the house.

  And then for the other part of the house or the other part of the payment, you could get a second mortgage up to 90 percent of whatever the value of the house is. Like the old days of 80, 10, 10. Right. And then even so, and this is what I think is cool about your website and what you do is that, uh, you run all these illustrations.

  And so it's like, even though you're going to assume that and people go, Oh, that second mortgage is so high, you know, what are they at eight or seven or eight or 11? Oh my God. Okay. So even though it's at 11 and who knows when you guys are watching this, it might be even different, but, uh, at 11%, then even though it's mixed, just because it's such a smaller amount at that 11%, then it's still a lower payment than getting a regular mortgage at seven.

  Yeah.

  Blended Rates and Interest Savings

  So we call it like it's the, the, the concept is just blended rates. And really what that is, is just the old high school weighted average. So it's, say for example, you have that 400, 000 loan at 2875, and then you have to get that 50, 000 second at like 11%. That freaks people out, first of all. They're like, 11%?

  Oh my gosh, there's no way. But the blended rate on that's probably close to 4%. Right. And you guys, you also need to think about too, that when you're taking over these rates, or over these loans, then you have already paid like, a ton of interest. Like, the other, the seller has already paid all that upfront interest.

  And so when you go onto UMI's site and run all these illustrations, it'll show you how much you're paying in interest and how much you're paying towards principal, because you're already like jumping into a loan paying a bunch of principal depending on the age of the loan. That was the part that I was like, okay, yeah, that part is super powerful because if you really run the numbers and could calculate how much an interest you're probably going to save, I mean, you could pay more for your house.

  Because you're going to save so much more in interest. That's what I thought was like, just mind blowing. Yeah. We had that specific example of that one house. It was like 765, 000 original loan amount. And when you compared it, the, the assumable loan to the conventional loan, you saved, it was like 720, 000 in interest over the course of the loan.

  Wow. There was a story you told that this guy was saving like 34, 000 in interest a year. And so he just That's the one. Yeah. Oh, is it? Yeah. And so he went ahead and paid 34, 000 more for the house. Was it 50 more. Because he was like, that's only a year and a half in interest, and I'm going to live there for how long, you know, so who cares?

  Well, he looked at that was like, he basically looked at the interest he was saving from a payment perspective. Right. So that the payment savings was like 1, 800 on that house. That's crazy per month. Yeah, so he's like, this is a lifestyle change Yeah, I mean really you're 1, 500 that 2, 000 a month in savings.

  Yeah. Yeah, I think this is gonna be huge I mean, I I really think that as this starts to happen to catch on that, um, the listing agents need to start, you know, like people, if you're going to be listing your house, you really need to check on what kind of loan you have because you might be able to get more for your house.

  And then on the other side, if you're buying, you might be able to get into a bigger house or better house or at a better neighborhood or whatever you're looking for than what you were before. Right? That is so true. Because there's what happens a lot of times. Buyers. their, their mentality or thought process.

  They think in one thing first, they say, okay, here's a house, right? Here's my payment. If I did new financing, but there's an assumable loan on it. So my payment's going to be smaller, right? So they see that they see that as the advantage, but exactly what you just said, some of them don't think of is, so this is a 500, 000 house for a specific payment that they're qualified for.

  But if they took that same payment and they applied it to a more expensive house, And they use that payment. I mean, they're in a whole different neighborhood, a whole different school district Yeah, just with an assumable loan.

  Types of Assumable Loans

  Yeah, so the type of assumable loans We're talking about can explain the types because not all loans are assumable.

  So we didn't really go into that yet. Okay So basically, assumable loans, they're all government loans are assumable. So that's USDA and We don't talk much about the USDA thing because the the the mechanics for Assuming those loans are just they're a little I think janky I guess is the best way to put it and we don't really see too many of them.

  So we focus on VA and FHA They're all assumable Now if you go to the conventional side There's only a couple different types that are reasons why conventional would be assumable. You've got a You have conventional arms So you might have, say for example, a seven year arm, but you want to be careful, especially if you're on the listing, if you're a listing agent or you're on the listing side, because if you call into your mortgage company, cause we ran into this.

  So a client called into the mortgage company, asked if their loan was assumable and they answered, yes, yes, your loan is assumable. So the agent says, okay, great. We're going to hope, we're going to have an open house, 1. 1 million assumable loan, right? Seven year arm, super excited about it. Garnered a lot of interest.

  Well, what happened was. the mortgage company was correct in saying yes, but it wasn't assumable for another six years until they got out of that seven year arm until they're out of the fixed period. Okay, exactly. All right. And that makes sense. Yeah. So you want to be careful. Yeah. Okay. So some are assumable, but you really need to ask your questions, which is why they come to you and make sure that you know, to make sure that it is assumable.

  Yes. So would you recommend that agents, if they're going to list the house or a client, you know, if they wanted to list their house and wanted to know, they would call you first to make sure it was assumable? Yeah. Because you know all the companies and Exactly. So one of the things is the first step is obviously to find out if it's conventional.

  Hey, is this assumable? There's not many that are, but if you do have a conventional alarm, definitely get with us so we can figure that out. But all government loans are assumable. So again, VA FHA, you already know it's going to be an assumable loan. Well, and you guys, the VA and a lot of people don't, don't know is unless you have a VA loan, I think people know when they have a VA loan, but FHA is usually if you put 3 percent down, right, you usually have an FHA.

  Is that kind of a good, yeah, that's kind of a good litmus test for people to remember. Okay. Uh, and I think on the VA loans, everyone remembers that they have those, but a lot of, sometimes, um, the hesitation with those is that they don't, the, the veteran doesn't want to give up. Uh, so we should say a VA loan is for veterans, you guys.

  Right. Um, The veteran does not want to give up their loan because they think they won't then be able to go purchase another one. So that is also a rumor, right? That is not, yeah, that's not true.

  VA Loans and Entitlement Explained

  So can you explain a little bit about that? So basically when you look at, that's probably the only real confusing piece to all of the assumption industry, is a veteran's entitlement and how that works if they allow a non veteran to assume their house.

  So the way that that works is, so basically VA benefits are broken up into two things. Eligibility and entitlement. Eligibility, if you think of it as a credit card, eligibility is yes or no, you're qualified for the credit card. Entitlement is for how much. So in a, so let's say for example, a veteran has an original loan amount of 350, 000, right?

  And they allow someone to encumber their loan, meaning, assume it, yeah, take it over, and that means their entitlement becomes encumbered, which is just VA's term for tied up. So they're giving away 350, 000 of their entitlement. Credit line, right. Yeah, their credit line. Their credit line. Okay. So they still have some bonus entitlement, so they can go out and purchase another home with VA financing.

  It's just under a limited amount. And we have calculators for that. And like any, any of like the, the people watching can get in touch with you or me to figure out what that looks like. So based on what their plans are, even before they list their house, right? Because then sometimes people want to downsize and it doesn't matter if it's encumbered or whatever, because if you're going to make more on your house, right?

  You might be able to sell it for more. That might be worth it to have more cash. Because you're letting your entitlement be used by someone else. It's just a matter of getting all the information and making educated decision outside of just a, Oh no, I heard you're not supposed to do that. Right. Exactly.

  Yeah. Yeah. And it might be a great way to make an extra, who knows? I mean, that other guy made an extra 50, 000 in his house, right? Yeah. 50, 60, 000 just on, on, on based on the loan itself. Right. Because people want it. If they think they're going to be in the house for a long time, then obviously it's a good way.

  And there's no appraisals on assumptions. Right. So, yeah, so that you don't have to, listing agents don't have to worry about the appraisal issues. Buyers don't have to worry about it. Appraising there's no appraisals unless you get secondary financing, that secondary financing, uh, company would, might require an appraisal, but.

  Right. The assumable loans don't. Okay. Yeah.

  Introduction and Welcome

  Hello everyone. And welcome to the podcast. I am Michelle Moses, your host. And today we are going to be talking about assumable loans. And we have Mike here to talk with us. Thank you for joining us, Mike. Yeah, absolutely. Thanks for having me. This is awesome. Yeah.

  Meet Mike and Yumi: The Assumable Loan Experts

  And Mike, uh, started a company. How long has it been?

  A little over a year. Okay. A half ago probably is when we started the company. Yeah. Called Yumi. And it is about assumable loans and that's what they specialize in. And you guys, this is pretty exciting because if you are in a, or outside of the market and you are wanting to buy a house, but the interest rates are too high for you, this might be a solution for you because you can assume these low rate mortgages.

  And we are going to go into detail about how you can get these.

  Understanding Assumable Loans

  So let's just start out about what an assumable loan is. Sure. So the, the, what I always like to do, when I explain what an assumable loan is, is first what it's not. And so like, let's say for example, you're a listing agent, you're a realtor.

  And it's like those first eight phone calls you get from just what I call TikTok investors that they went on TikTok and they saw that, Hey, I can get something for zero down. I just have to assume the responsibility for this loan. And they call you up and they say, Hey, I'd love to assume your loan, but you're, they're not actually assuming it.

  They're doing, remember that subject to wraps and where the seller is still on the hook. This is a totally different market. It is government loans that are mandated by law to be assumable. And what that means is a buyer can come in and as long as you have a qualified buyer and a willing seller. These servicers, which a servicer is just the, the, the current seller's mortgage company, they have to do it.

  So they are mandated by law to allow the assumption if you have a qualified buyer and a willing seller. And the assumption is that you are actually taking over the loan. You're not just kind of taking over the payments. Right. Your name goes on the loan with the mortgage company. Yes, key difference between that whole subject to world is the release of liability.

  Buyer goes onto the loan, seller comes off of the loan, it's now the buyer's loan. Okay, so complete release of liability, right?

  Marketing and Demand for Assumable Loans

  And so and I think and that the difference is is that the house needs to be marketed as this right? So you need to know that they're gonna have an assumable mortgage on it I mean, yes, you definitely I mean you want to definitely advertise it as an assumable mortgage Just because there's inherently there's value there to that low interest rate loan, right?

  And you've seen so I've taken some of your classes obviously, so you've seen people like clamor for these Like when a listing agent is listing their house and it's like with this as an assumable loan of two and a half percent. I mean people like clamor. They are overwhelmed. The listing agents become overwhelmed sometimes if they're not super familiar with assumable loans and they like you said if it's a two and a half percent interest rate with kind of like a low Delta meaning the difference between the sales price and the loan amount I mean, they get, they're getting offers within hours from like a lot of times investors seem to be very, they catch on quickly.

  They're savvy and they're aggressive when it comes to like these, like, I guess you would say incredible deals. Yeah, because they're going to save a ton of money so that they can then rent that house. right? For a lower amount or make more money, really. Because what really cash flows in this market, you know, the interest rates in seven and eight.

  It's just, there's no way to really cash flow. Yeah. So it's the only way that they can cash flow is getting some of these lower interest rate loans. Right. Yeah.

  Financing and Down Payments

  Okay. And so can we go through kind of the, uh, explain the difference? Because I have sent this to some people and said, okay, look, you know, you could get some of these houses, you at, you know, such and such price, um, because on your website it does say, you know, this price is 1, 300 for the payment.

  Right. And, um, I do want to take it a step further because you do have to come to the table with the difference between what people are selling it for and what the loan amount is, right? Exactly. Okay. So like in the assumption world, it's totally different than the new financing world. There is no, you don't think of it as like, oh, VA loan zero down FHA loans, three and a half percent down conventional, or 5, 10, 20, 20 5% down.

  It's, that's the new financing world, which is not the assumption world. So assumption down payments, they simply are this sales price. So let's say for example, it's 500,000 and the consumable loan amount of 400,000, that means there's that a hundred thousand dollars gap for Delta. So there's, that means it's a hundred thousand dollars down payment, but.

  Let's say for example, if you're buying it as your primary residence, there's still some conventional financing sources out there for a second mortgage where you can actually, you can, you can finance it. What is it up to? Well, the reason I stutter a little bit is because there's one out there changing every day, but they are, it's like 5%.

  There's one out there for 5 percent down, but I kind of started cause I was thinking, I didn't know if I wanted to announce that because we haven't completed one with that, that, that investor yet. But one that we've completed a lot of is 10 percent down. So that means if. So people would need to at least say, we're going to come with 10 percent down, but you might assume the loan for some of the house.

  And then for the other part of the house or the other part of the payment, you could get a second mortgage up to 90 percent of whatever the value of the house is. Like the old days of 80, 10, 10. Right. And then even so, and this is what I think is cool about your website and what you do is that, uh, you run all these illustrations.

  And so it's like, even though you're going to assume that and people go, Oh, that second mortgage is so high, you know, what are they at eight or seven or eight or 11? Oh my God. Okay. So even though it's at 11 and who knows when you guys are watching this, it might be even different, but, uh, at 11%, then even though it's mixed, just because it's such a smaller amount at that 11%, then it's still a lower payment than getting a regular mortgage at seven.

  Yeah.

  Blended Rates and Interest Savings

  So we call it like it's the, the, the concept is just blended rates. And really what that is, is just the old high school weighted average. So it's, say for example, you have that 400, 000 loan at 2875, and then you have to get that 50, 000 second at like 11%. That freaks people out, first of all. They're like, 11%?

  Oh my gosh, there's no way. But the blended rate on that's probably close to 4%. Right. And you guys, you also need to think about too, that when you're taking over these rates, or over these loans, then you have already paid like, a ton of interest. Like, the other, the seller has already paid all that upfront interest.

  And so when you go onto UMI's site and run all these illustrations, it'll show you how much you're paying in interest and how much you're paying towards principal, because you're already like jumping into a loan paying a bunch of principal depending on the age of the loan. That was the part that I was like, okay, yeah, that part is super powerful because if you really run the numbers and could calculate how much an interest you're probably going to save, I mean, you could pay more for your house.

  Because you're going to save so much more in interest. That's what I thought was like, just mind blowing. Yeah. We had that specific example of that one house. It was like 765, 000 original loan amount. And when you compared it, the, the assumable loan to the conventional loan, you saved, it was like 720, 000 in interest over the course of the loan.

  Wow. There was a story you told that this guy was saving like 34, 000 in interest a year. And so he just That's the one. Yeah. Oh, is it? Yeah. And so he went ahead and paid 34, 000 more for the house. Was it 50 more. Because he was like, that's only a year and a half in interest, and I'm going to live there for how long, you know, so who cares?

  Well, he looked at that was like, he basically looked at the interest he was saving from a payment perspective. Right. So that the payment savings was like 1, 800 on that house. That's crazy per month. Yeah, so he's like, this is a lifestyle change Yeah, I mean really you're 1, 500 that 2, 000 a month in savings.

  Yeah. Yeah, I think this is gonna be huge I mean, I I really think that as this starts to happen to catch on that, um, the listing agents need to start, you know, like people, if you're going to be listing your house, you really need to check on what kind of loan you have because you might be able to get more for your house.

  And then on the other side, if you're buying, you might be able to get into a bigger house or better house or at a better neighborhood or whatever you're looking for than what you were before. Right? That is so true. Because there's what happens a lot of times. Buyers. their, their mentality or thought process.

  They think in one thing first, they say, okay, here's a house, right? Here's my payment. If I did new financing, but there's an assumable loan on it. So my payment's going to be smaller, right? So they see that they see that as the advantage, but exactly what you just said, some of them don't think of is, so this is a 500, 000 house for a specific payment that they're qualified for.

  But if they took that same payment and they applied it to a more expensive house, And they use that payment. I mean, they're in a whole different neighborhood, a whole different school district Yeah, just with an assumable loan.

  Types of Assumable Loans

  Yeah, so the type of assumable loans We're talking about can explain the types because not all loans are assumable.

  So we didn't really go into that yet. Okay So basically, assumable loans, they're all government loans are assumable. So that's USDA and We don't talk much about the USDA thing because the the the mechanics for Assuming those loans are just they're a little I think janky I guess is the best way to put it and we don't really see too many of them.

  So we focus on VA and FHA They're all assumable Now if you go to the conventional side There's only a couple different types that are reasons why conventional would be assumable. You've got a You have conventional arms So you might have, say for example, a seven year arm, but you want to be careful, especially if you're on the listing, if you're a listing agent or you're on the listing side, because if you call into your mortgage company, cause we ran into this.

  So a client called into the mortgage company, asked if their loan was assumable and they answered, yes, yes, your loan is assumable. So the agent says, okay, great. We're going to hope, we're going to have an open house, 1. 1 million assumable loan, right? Seven year arm, super excited about it. Garnered a lot of interest.

  Well, what happened was. the mortgage company was correct in saying yes, but it wasn't assumable for another six years until they got out of that seven year arm until they're out of the fixed period. Okay, exactly. All right. And that makes sense. Yeah. So you want to be careful. Yeah. Okay. So some are assumable, but you really need to ask your questions, which is why they come to you and make sure that you know, to make sure that it is assumable.

  Yes. So would you recommend that agents, if they're going to list the house or a client, you know, if they wanted to list their house and wanted to know, they would call you first to make sure it was assumable? Yeah. Because you know all the companies and Exactly. So one of the things is the first step is obviously to find out if it's conventional.

  Hey, is this assumable? There's not many that are, but if you do have a conventional alarm, definitely get with us so we can figure that out. But all government loans are assumable. So again, VA FHA, you already know it's going to be an assumable loan. Well, and you guys, the VA and a lot of people don't, don't know is unless you have a VA loan, I think people know when they have a VA loan, but FHA is usually if you put 3 percent down, right, you usually have an FHA.

  Is that kind of a good, yeah, that's kind of a good litmus test for people to remember. Okay. Uh, and I think on the VA loans, everyone remembers that they have those, but a lot of, sometimes, um, the hesitation with those is that they don't, the, the veteran doesn't want to give up. Uh, so we should say a VA loan is for veterans, you guys.

  Right. Um, The veteran does not want to give up their loan because they think they won't then be able to go purchase another one. So that is also a rumor, right? That is not, yeah, that's not true.

  VA Loans and Entitlement Explained

  So can you explain a little bit about that? So basically when you look at, that's probably the only real confusing piece to all of the assumption industry, is a veteran's entitlement and how that works if they allow a non veteran to assume their house.

  So the way that that works is, so basically VA benefits are broken up into two things. Eligibility and entitlement. Eligibility, if you think of it as a credit card, eligibility is yes or no, you're qualified for the credit card. Entitlement is for how much. So in a, so let's say for example, a veteran has an original loan amount of 350, 000, right?

  And they allow someone to encumber their loan, meaning, assume it, yeah, take it over, and that means their entitlement becomes encumbered, which is just VA's term for tied up. So they're giving away 350, 000 of their entitlement. Credit line, right. Yeah, their credit line. Their credit line. Okay. So they still have some bonus entitlement, so they can go out and purchase another home with VA financing.

  It's just under a limited amount. And we have calculators for that. And like any, any of like the, the people watching can get in touch with you or me to figure out what that looks like. So based on what their plans are, even before they list their house, right? Because then sometimes people want to downsize and it doesn't matter if it's encumbered or whatever, because if you're going to make more on your house, right?

  You might be able to sell it for more. That might be worth it to have more cash. Because you're letting your entitlement be used by someone else. It's just a matter of getting all the information and making educated decision outside of just a, Oh no, I heard you're not supposed to do that. Right. Exactly.

  Yeah. Yeah. And it might be a great way to make an extra, who knows? I mean, that other guy made an extra 50, 000 in his house, right? Yeah. 50, 60, 000 just on, on, on based on the loan itself. Right. Because people want it. If they think they're going to be in the house for a long time, then obviously it's a good way.

  And there's no appraisals on assumptions. Right. So, yeah, so that you don't have to, listing agents don't have to worry about the appraisal issues. Buyers don't have to worry about it. Appraising there's no appraisals unless you get secondary financing, that secondary financing, uh, company would, might require an appraisal, but.

  Right. The assumable loans don't. Okay. Yeah.

  Practical Advice for Buyers and Sellers

  And you guys, a lot of these are just all listed on a website, you know, like I, I should say if they're in the system in the, in the proper way, if they're in the MLS in the proper way, uh, they are on the UMI website and we, you know, you can just go on there and look around at the different areas of town and, um, see if there's, Um, and if something makes sense and it even says, you know, the cash that you need to bring down, bring to closing, um, and if you don't have that cash, then obviously you need to, uh, work with Mike at UMI and, um, see, you know, what you qualify for, right?

  Right. See what kind of secondary financing you can get. How can you make it happen? Yeah. I think, I just think credit is so fascinating because there's just so many ways, like once you get into it and you try to start to understand it, there's just so many ways to finance different things. That's you know and people get really overwhelmed, but I think that you know You should just kind of get in there and start learning because it's just by osmosis, right?

  You know, you will start to understand it because some people just talk about what numbers their mind just goes Anything, you know, or you asked me to log on to my you know, whatever account But I do think that as you start to learn about some of this stuff I mean the ways that you can get into houses or purchase, you know a great Reconfigure some of the financing is just fascinating to me all the time.

  You know, it's been one of the biggest surprises I think in this industry for me is I thought that secondary financing was going to be a huge piece like people need, they have to, they have to get secondary financing to get into these homes, but we probably only have secondary financing on two to three percent.

  Really? Yeah, it's. So people are coming with cash. They find the money and. It's, I don't know how they all do it, but they find the money, whether they're taking from retirement because or whatever, we've had some people take from retirement, we've had kids buying and then they're, they're like, their parents are like, Oh, I remember I got an assumable loan back in 88 or something like that.

  I loved it. I will give you the down payment if you get this, you know, 2. 25 percent interest rate. Yeah. And so it's, it's just a whole different ballgame when it comes to finding money for this type of thing. Yeah. Well, and I think getting into a home is important because I do have some people, uh, in retirement that don't own, and it really does encumber your options.

  Uh, and so I, I realize you guys that getting into a home is very expensive right now and it might seem cost prohibitive, but if you can get a roommate, if you can, you know, buy a tiny little condo and have a roommate, like do whatever you can to just get some equity and to get going. Uh, It just totally pays off later on down the road.

  Yeah, because you don't want to be a victim to whatever the rents are when you're 85 years old, right? Yeah. So we've had a lot of actually some like older people or anybody that was looking to pay cash for houses because a lot of people are like, Oh, I'm just going to pay cash, right? They've sold the house somewhere, right?

  Get an assumable loan at two and a half percent. Why not come in with it? Sometimes you need a big down payment, but instead of paying like cash for everything, talk to your financial advisor and you know, you're getting debt at two in the twos and threes these days, those financial advisors will tell you all day long.

  Yeah. Take the debt. Yeah. right. I can make more money with your money. Yeah. Yeah.

  Conclusion and Final Thoughts

  If you guys have a low interest mortgage, you really need to check into this assumable thing before you sell your home. If you're thinking about, if you're thinking about listing your home, so yeah, it could bring you a lot of money.

  Well, thank you, Mike. Yeah. Thanks for all this information. I really, I think this is going to be a big thing, so I'm glad we sat down and talked about this. Yeah. All right. Thank you everybody for listening and be sure to leave me a review or let me know if you have other topics that you want to listen to.

  Thanks.

  And you guys, a lot of these are just all listed on a website, you know, like I, I should say if they're in the system in the, in the proper way, if they're in the MLS in the proper way, uh, they are on the UMI website and we, you know, you can just go on there and look around at the different areas of town and, um, see if there's, Um, and if something makes sense and it even says, you know, the cash that you need to bring down, bring to closing, um, and if you don't have that cash, then obviously you need to, uh, work with Mike at UMI and, um, see, you know, what you qualify for, right?

  Right. See what kind of secondary financing you can get. How can you make it happen? Yeah. I think, I just think credit is so fascinating because there's just so many ways, like once you get into it and you try to start to understand it, there's just so many ways to finance different things. That's you know and people get really overwhelmed, but I think that you know You should just kind of get in there and start learning because it's just by osmosis, right?

  You know, you will start to understand it because some people just talk about what numbers their mind just goes Anything, you know, or you asked me to log on to my you know, whatever account But I do think that as you start to learn about some of this stuff I mean the ways that you can get into houses or purchase, you know a great Reconfigure some of the financing is just fascinating to me all the time.

  You know, it's been one of the biggest surprises I think in this industry for me is I thought that secondary financing was going to be a huge piece like people need, they have to, they have to get secondary financing to get into these homes, but we probably only have secondary financing on two to three percent.

  Really? Yeah, it's. So people are coming with cash. They find the money and. It's, I don't know how they all do it, but they find the money, whether they're taking from retirement because or whatever, we've had some people take from retirement, we've had kids buying and then they're, they're like, their parents are like, Oh, I remember I got an assumable loan back in 88 or something like that.

  I loved it. I will give you the down payment if you get this, you know, 2. 25 percent interest rate. Yeah. And so it's, it's just a whole different ballgame when it comes to finding money for this type of thing. Yeah. Well, and I think getting into a home is important because I do have some people, uh, in retirement that don't own, and it really does encumber your options.

  Uh, and so I, I realize you guys that getting into a home is very expensive right now and it might seem cost prohibitive, but if you can get a roommate, if you can, you know, buy a tiny little condo and have a roommate, like do whatever you can to just get some equity and to get going. Uh, It just totally pays off later on down the road.

  Yeah, because you don't want to be a victim to whatever the rents are when you're 85 years old, right? Yeah. So we've had a lot of actually some like older people or anybody that was looking to pay cash for houses because a lot of people are like, Oh, I'm just going to pay cash, right? They've sold the house somewhere, right?

  Get an assumable loan at two and a half percent. Why not come in with it? Sometimes you need a big down payment, but instead of paying like cash for everything, talk to your financial advisor and you know, you're getting debt at two in the twos and threes these days, those financial advisors will tell you all day long.

  Yeah. Take the debt. Yeah. right. I can make more money with your money. Yeah. Yeah.

  Conclusion and Final Thoughts

  If you guys have a low interest mortgage, you really need to check into this assumable thing before you sell your home. If you're thinking about, if you're thinking about listing your home, so yeah, it could bring you a lot of money.

  Well, thank you, Mike. Yeah. Thanks for all this information. I really, I think this is going to be a big thing, so I'm glad we sat down and talked about this. Yeah. All right. Thank you everybody for listening and be sure to leave me a review or let me know if you have other topics that you want to listen to.

  Thanks.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

Protect Your Properties From Lawsuits

Have you ever wondered how real estate investors protect their properties from lawsuits? Join us as we explore high-level asset protection strategies with Scott Royal Smith, an experienced real estate investor and attorney.

In this episode, you’ll learn:

• How to purchase properties anonymously within a company structure to minimize lawsuit risks.

• The importance of compartmentalizing assets to protect your investments.

• How to simplify your taxes through disregarded entities

Links:

• Visit Scott's website - royallegalsolutions

Time Stamps

00:19 Guest Introduction: Scott Royal Smith

01:10 Why Protect Your Assets?

04:44 The Importance of Anonymity in Asset Protection

06:11 Compartmentalizing Assets with LLCs

14:49 Equity Stripping for Asset Protection

16:53 Simplifying Asset Management

18:59 Building a Comprehensive Financial Team

20:06 Client Success Stories and Testimonials

25:44 Getting Started with Asset Protection

30:50 Conclusion and Final Thoughts

• Transcript

  Introduction to the Podcast

  Welcome to me financial the podcast designed to inspire your financial life. Hello, everyone. And welcome to the podcast. I am Michelle Moses, your host. And today we are going to be talking about safeguarding your properties from lawsuits.

  
  Guest Introduction: Scott Royal Smith

  And to talk about this, we have Scott Royal Smith here, and he is a real estate investor and asset protection attorney.

  He likes to educate the public on asset protecting strategies to help circumvent debilitating lawsuits. Thank you for joining us. Yeah. Pleasure to be here. Yeah. So I, uh, have been wondering about this for myself and I did do a podcast about purchasing real estate, uh, that isn't in your name, like purchasing it privately.

  Um, but I am really interested in talking about this in terms of, you know, not only your house, but your investment properties and maybe apartments and, you know, all commercial property for your business maybe. Um, and so [00:01:00] where, you know, where should we get started? Started with this, like when should someone, I mean obviously they should start thinking about this before they even purchase a property.

  Yeah.

  
  Why Protect Your Assets?

  I guess the big question is, is like, why would you even do it? Mm-Hmm. and what's the right time? Yeah. You know, um, that's a tricky question to know the answer to. As you can imagine, it's probably different for like most people are gonna fail, like a little bit different. And I've always been curious about that.

  I was like, what really separates these people about how do they decide what the right level is? And the best I've been able to come to is what would make you cry. Yeah. It would make you cry if you lost it. Yeah. Right. If it would make you cry to lose it, then it probably makes sense to protect it. Mm hmm.

  Well, and you're not even like talking about protecting it from lawsuits, but protecting it from when it's passing on to your heirs or something happens to you too, right? I mean, there's a lot to think about when it comes to protection of your properties. Yeah, those things are covered by like estate planning, how to make sure to avoid [00:02:00] probate court and all those things.

  So you typically think about asset protection and insurance is how do you protect yourself against lawsuits? You think about estate planning as to protect yourself from creditors and from like the court system, make sure that your family gets those assets right away. Taxes is really just protecting yourself against the government.

  And then, you know, looking at good, like portfolio analysis is just protecting yourself against lack of foresight. Making sure that you have a good plan for like, what assets do you need to be in to get you the right cash flow, the right net worth, and the right net type of tax advantages that can come with investing.

  So everything is about like protecting, about protecting to create this durable life, a durable financial freedom. Durable existence of whatever it is that you want it to be. Yeah, and kind of extrapolating from there, I had always, um, I think in my rookie years, thought of protecting assets as just, uh, get some insurance and get a lot of insurance and then you would be protected.

  And I know [00:03:00] that that is not the case anymore. Can you kind of speak to that? Yeah, I actually ran into this. So, I mean, I was, um, you know, I bought my first property and business actually when I was in law school. It was a commercial building that I bought for 10, 000 in back taxes and I had that and then auto transmission repair business.

  So I thought I could solve for 15, make it a quick five. And, um, And it turns out we rehabbed the business in the building and we were able to flip it to pay for law school, me and a partner. So I graduated from law school without any debt and was working as a litigation attorney. So in insurance companies and buying real estate until I was making more money doing real estate than I was being an attorney.

  And I was like, Hey baby, I've got it. I got the passive income time to go to Africa and climb Mount Kilimanjaro, travel through Europe, do everything there. And I had a big wake up call. My mentor, a friend that had coached me, he got hit with the major lawsuit and it cost him 3 million. He was the guy that always told me, Hey, umbrella insurance is enough.

  And he found out the hard way. [00:04:00] He said, Oh, well, this deal that went sideways, they sued him for breach of contract and went to the insurance company and some insurance company says, Nope, we only protect against simple accidents. Somebody slips and fall. That's okay. Somebody alleges that you lied to him in an email, which is what they always allege.

  Somebody says you broke an agreement with him. Never going to cover that stuff. And that's when I started to get serious about putting LLCs protection around all of my properties and used to the series LLC because if my friend would have even just one LLC, he'd be at least 3 million richer today. And when you do the LLC, you shouldn't sign, if I'm understanding this correctly, you shouldn't sign it yourself because then it doesn't really create, um, like the greatest barrier.

  Am I correct in saying that? Yeah.

  
  The Importance of Anonymity in Asset Protection

  So when you're talking about like asset protection, right, what you're really looking for is to create a place where actually you don't own anything anymore. Now you actually just have a company that owns everything. Then the question becomes, so what's the [00:05:00] strongest kind of way that my company's going to operate?

  And the strongest kind of company structure for it is one where the company's owned anonymously, all the assets are owned anonymously. So that way, if they look to sue you, it doesn't look like you own anything. People that know anything aren't as good to sue because they got nothing I can take. But they could still sue you and figure it out, correct?

  But they probably won't go because they're a lot of, a lot of lawsuits come from, Oh, you're rich. I want to sue you. And I think that you can get something. Is that right? Or not? Am I not right in that? Yeah. Well, that's, that's the first question. As if I had to sue somebody is like, what am I going to get?

  Lawsuits are a business. That's a business. That's a guy going to Vegas. It says, if I spend this much money on the lawsuit, there's a certain percent of chance I'm going to win. And if I do win, then I can get this much money. But at the end of the day of that actually says, I have to be able to go take that money too.

  Take whatever those assets are. So when you anonymize ownership of assets, uh, it says, well, this [00:06:00] maybe this is a bad gamble or number of different reasons to say, well, we're not sure that there's assets there that we can take. So it makes this whole lawsuit, much more risky and much more, riskier gamble.

  
  Compartmentalizing Assets with LLCs

  And then what you, What to do if you're on the protection side of the things is compartmentalize each individual asset into its own bubble or its own bucket. And depending on the type of asset, it's going to depend on the structure, you know, commercial properties and multifamily. Those typically are an individual LLCs because the financing reasons that go into those your one to four unit properties, your syndications, your land, your notes, whatever those might be are typically in a series LLC as you can compartmentalize each one of those assets for free.

  And that makes it so that way, if there's a lawsuit against one of the assets, they can't go after any of the other assets. So in the business of the lawsuit, we're looking at this gamble. We, the anonymity makes it so that the whole lawsuit becomes much more risky and that even if, and that the, the [00:07:00] LLC protection or series LLC, Protection says that even if you win, you get a very small amount.

  So that's how we can shrink the pie. Like, uh, like what can they actually get? So at the end of the day, if you want to win lawsuits before they ever start, which is the ultimate goal of asset protection, but you have to understand is the facts don't matter. What actually matters is the business decision and how do you control the business decision is actually taking proactive steps to be able to make the equation of do they risk money on the lawsuit not make sense anymore.

  And so how when you're speaking about making an LLC anonymous, how, what are the details of some of the details of that? What do you mean by that? So LLCs become just two critical factors. One is the anonymity. Which you can either they're either de facto anonymous like they are in Wyoming, or you can actually create any LLC to be owned anonymously.

  If you establish some type of vocable grant or trust to be the owner of the LLC. [00:08:00] When you combine that in conjunction with a law firm, Then anything listed in conjunction with any trust or LLC all just points back to an attorney and a law firm at trust. You have a very high degree of anonymity that's also protected by the attorney client privilege.

  Additionally, what you want to be looking for with the type of LLC you want is one that has charging order protection. One that means says that if I go into, you know, Scott, for example, or Bob, uh, if he doesn't have charging or an LLC with charging order protection, I can take his ownership inside of his LLC.

  Well, that's an LLC that doesn't really provide complete protection. So that's why we want to be forming LLCs that are located in Delaware, Texas, Nevada, or Wyoming. that have strong charging water protection. Wyoming is going to be de facto anonymous. We form in another state that we want to be using an extra trust to be able to, to create the anonymity there.

  Um, and therefore using one to four unit properties or these other types of individual assets other than commercial and apartment [00:09:00] complexes, we want to be using a series LLC. Um, or if we have those commercial assets, then we'll simply add in some individual LLCs that are typically formed in the state where the property is located.

  That only on that one piece of property and the only reason we're doing that is because that's what the financing institutions want to see, uh, for those types of commercial assets. Okay. And by a series LLC, do you mean that you would split each individual? Um, I, so it's a four plex, right? You're splitting up each apartment into the one LLC.

  Is that what you're saying? Or that you're saying that. Each building can go in each series. LLC. Yeah, so the series LLC is the special type for just anybody that doesn't know. It's a special type of LLC, um, created underneath like the sta statutes of typically, you know, Delaware, Texas, or Wyoming. Um, and what it allows you to do is create like these individual child series.

  In each child series, you can think of as like a baby, like a, like a child, and it can create an infinite number of them for free. [00:10:00] And each one of those acts as like an individual LLC. So what you do is you carve each individual note, piece of land. One to four unit property and you put it needs in each individual child series.

  So there's a smallest bucket of possible things. So if something happens to that property, say grandma falls to the staircase, hopefully your insurance company is going to cover it. But if the insurance company says, nah, this was gross negligence and we're not going to cover it because you knew that the staircase, that there was a problem with the staircase and you didn't repair it.

  So we're not going to cover you for it. It says, well, then grandma can only come after that one, um, fourplex. Now, the minimum amount that you, the smallest unit of stuffness you can get in real estate has to do with a deed. So like a fourplex, the whole fourplex has to go in a child series. You can't split it up into individual, uh, units.

  Okay. I was going to say, that's like something that would be very interesting. Something I never heard. [00:11:00] And so how do you know that you can trust your lawyer to be the like What would you call it? The signer on the LLC? I mean, can't, could they just go do whatever they wanted to do with it since they're kind of in charge of it?

  Yeah, so the way that we structure it is that the attorney, myself, or one of the staff attorneys will appear as like the trustee of the, of the land trust with the land trust being on title to that asset. That land trust is kind of cool because it allows you to get personal financing, which is cheaper financing, and then put it into land trusts after the fact, and they can't foreclose on it based on Compton and St.

  Germain. So if you want to look at like how land trusts defeat, um, due on sale clauses, there's a lot of good information about that, but that's how that strategy works. Ultimately, um, that trust documents the one that governs. So if you try to sell a property out of a trust, you actually have to produce the trust document to say, Hey, you know, my name is Bob and I have the power to be able to sell this property that's listed in the [00:12:00] name of the trust.

  Well, the way our trusts are set up, um, are such that the attorney is listed, um, as being on the public records. But when you go to produce the trust document, the trust document says the attorney resigns immediately after the property is transferred to the trust and the client is at that point, the sole trustee, even though they're not going to appear on any of the public records.

  So the client actually always has control of the property and there's nothing that the attorney could do. could do with that property because once they produce a document, somebody's going to look at it and say, Hey, this attorney actually isn't in control of this property. Okay. So a grant or land trust would be how you would buy any, I mean, you could buy any property privately that way.

  Yeah. You can buy it. If you buy in cash, like some of my clients buying cash, they'll buy it directly into the trust. Their name's never going to appear in conjunction with anything inside of even the chain of title or in type of financing for everybody else that buys those properties and gets conforming loans on them.

  You know, they'll transfer them into the trust after the fact. It'll look like a sale to the trust. Um, their name still appears in conjunction with, [00:13:00] you know, some financing associated with property. Um, but at the end of the day, they're no longer the owner of the property. The trust and the child series of the series LLC is the owner.

  So if somebody tries to guess that, hey, the XYZ client still owns that property and I'm going to assume and try to go after that property. They guess wrong and they waste five to 10, 000. Right. But even if you were to have a loan on it and it did say that you, uh, moved it into the church, made a sale to the trust.

  Um, even if you weren't looking for privacy, then at least you have the legal coverage. Right. I mean, if you're not looking for privacy, then it doesn't matter. Yeah, you do have the legal coverage. Um, now and on, and when you look at any of the county clerk records, or let's say your neighbors are trying to see who owns that piece of property or whatever, it's just going to say the name of the trust, right?

  All the, all the most they'd be able to say is, Oh, this person still looks like they still owe money. on that property that's now owned by this trust underneath this other person that's listed as trustee. [00:14:00] So you can see there that like what they're really having to do is take a bunch of guesses at who may or may not be the owner and, and what that whole situation is really all about.

  Okay. Okay. So we've talked about how, so basically part of it is just. that you are trying to, um, not get sued in the first place because you are creating this degree of, uh, anonymity, uh, and safeguarding with the LLC. Is there another step after that, that it protects you even more from? After you get sued, like let's say somebody else wants, they want to sue you and they go ahead with it, it's just, is the benefit really that just that one property is in it?

  Yeah, so there's the anonymity, which is how you stop the lawsuit before it starts, right? Then there's a compartmentalization of assets, which shrinks the pie, right?

  
  Equity Stripping for Asset Protection

  Um, and then after the fact, what you're able to do, let's say if you have like a lot of equity, Inside of a property that you want to protect, um, then what you can do are things like that are called equity stripping [00:15:00] and with equity stripping, what you can do is, is create your own LLC and put your own notes, essentially your own mortgage, um, on side of your own property.

  And if you follow these things correctly and, and, and do the things that are necessary with actually bouncing the money through the bank, proper bank accounts and having it papered, you know, filing that paper with the county. Um, let's say I had a million dollar property that I only owned. I only owed like maybe a hundred thousand dollars on it.

  Maybe I own that all cash. Well then like I can own it anonymously and I can compartmentalize it, but it's still a million dollars sitting there. So what I might want to do is to create my, a new LLC. Well, she's going to do, it's going to create a note. Uh, with my asset holding company, and it's going to place a 1.

  5 million lien into my own property, and I'm going to file that and secure it with the county. So that way, if somebody comes and says, Hey, I want to sue this, uh, property, cause grandma fell through the staircase. So she's going to sue that property. Well, if she wins the [00:16:00] lawsuit and then she forecloses on that asset legally, whoever is the secured note holder gets paid out first.

  Banks always get paid out first, right? But in this case, it's my own company that gets paid out first. So there's things like that that you have to do, but notably they all have to be proactive. Yeah. Once you're sued, everything gets frozen. So this whole game of protection only works if you put it in place ahead of time.

  And so if you were to do another business that were to put the lien on the house, it obviously needs to be a different business, right? A different, you want to set up as a separate LLC. Okay. I mean, does this get too complicated for people to manage? I mean, cause you got to do taxes for all these LLCs and keep track of it.

  Is that something that you help people deal with? Cause to me, it sounds like a paperwork nightmare, but you know, you might feel this way.

  
  Simplifying Asset Management

  Operational as well as costs are really important, right? Cause the game that we're trying to play is like, how do you accelerate the path to financial [00:17:00] freedom? And then inside the games, how do you make it durable enough?

  So there's a whole bunch of stuff that you don't want to do in asset protection because it's way too costly, both in terms of setup, at how much time has to go into it, how much does it cost to maintain, like offshore trust, for example, to get you that last one to 2 percent of protection, but you're paying tens of thousands of dollars to be able to get that last one to 2%.

  And that going offshore is actually going to get you, for example. So it's finding the sweet spot. The way that we've structured everything is that you have the minimum amount of bank accounts, the minimum amount of accounting books, which typically is like a single bank account as you can do everything with a single account of books.

  As long as you keep track of the income and expenses for each property or each asset that you have separately, that's really what's required to be able to defeat any claim of an alter ego theory or piercing the corporate veil. All of the entities are typically structured to be disregarded entities for tax purposes.

  So everything that you're doing right now for tax, you can still do exactly the same way. And there's no additional tax filings or tax returns that are required for it. [00:18:00] Oh, so you wouldn't have it taxed any different way. because it's one single property, no matter how much it was making. Well, the question that becomes is a different question.

  Actually, the question that becomes is what's my tax strategy. And what I'm saying is your asset holding and your asset protection strategy can be a completely disregarded structure such that whatever you're doing on the tax strategy side can be exactly the same way. Now there might be a bunch of things that you do that says, well, I have an operating company that I take money through and I want to have that taxed as an S corp.

  So the fact that it's an LLC is part of your asset protection structure. Well, I have an operating company that owns no assets, but does everything because that protects me personally from lawsuits. Then there's a secondary question, which is, well, all the money that's coming through that as active income, do I want to have that tax as an S corp so I can save on self employment tax?

  That's a secondary consideration that you typically are looking at in conjunction with what's your asset holding structure.

  
  Building a Comprehensive Financial Team

  That's [00:19:00] why it's important to have A CPA, MBA, CFO, CPA have all of these people inside of one team because The magic is not one strategy. The magic is how do you get all of the puzzle pieces to actually work together in the most efficient and effective way to be protected and have the proper estate planning, save the money on tax, align the portfolio and make it where it's easy to operate, where you only have to look at it for a couple hours every quarter, um, and know that everything is done right.

  That's the real magic of this money making stuff. And that's what you guys have. I mean, you guys have a whole team that basically does that. Yeah, I spent the last 12 years building this full team for myself, like I'm getting out of, like, this is the team that I would need to go ice climbing for months at a time up in Colorado and go travel around the world and do all the things that I want to do.

  Um, and that my team and Royal legal solutions is just an offshoot to say, well, If anybody else is interested in being able to benefit from this, we're happy to work with them too. And we've helped about 2000 clients over the [00:20:00] last 12 years do this. We take on about six to 10 new clients a month. Yeah.

  
  Client Success Stories and Testimonials

  Well, you have a lot of great testimonials on your website too. Uh, you guys, I want to back up a little bit because he was talking, um, using some terms that I want to make sure everybody understands. A disregarded, uh, entity LLC, just means that all the income just falls Lows to you as if you were just earning it like as a sole proprietor or something like that.

  You're not having to do, uh, a lot of special taxes, like a whole separate tax return for your LLC. It's just all kind of pass through income. Am I describing that correctly, Scott? Yeah, that's right. The way I say that is you can pretend as if it didn't exist. Yeah. And then if you elect to be taxed as an S corp, which I have another episode on that, if you guys really want to get in the deep weeds about it, uh, you are electing to basically become like an employee of your, uh, business.

  And then the taxes, you know, you have a whole set of Separate tax return that you do there and you're writing [00:21:00] off separate things. Um, and it does become more complicated. So that's what we were kind of talking about is if it's a disregarded entity, that means it's a lot easier to manage on your taxes because it all just flows through.

  Versus if you're wanting to save some taxes and save on some self-employment taxes, which is like your fica, your social security, all that. Uh, then you would be elected as a tax, as an S corp. Uh, and you would, uh, pay yourself a salary of say, like $50,000 and then everything else that you made. Would just be taxed on a regular income tax.

  You wouldn't have to pay all the FICA taxes on that. So just a little caveat there. I often get feedback that sometimes they're like, I didn't understand everything you said, but so I really try to explain everything and not talk over people's heads now. Um, anyway, okay. So back to what you're talking about with your team.

  I think that you've got some great, um, testimonials on your website and, um, I mean, it seems like you've got it, all the testimonials talk about how easy it is and how it really [00:22:00] doesn't take them any time to manage all of this, which I think is really cool because when you think about managing real estate, I mean, you really do think it takes a lot of time, right?

  And books. That's what I think of, anyway. It, it took, um, it took me years working on this full time to be able to learn what it was. And I also had to join like high net worth, like groups of people like GoBundance, Tiger 21, and basically like sneak into these rooms to be able to like learn from. What, what are all of the actual rich people and really successful entrepreneurs doing?

  And then, because what I wanted to know is what they were doing and then how could I do it for myself? And then Royal legal solutions became like an extension of, well, is there a fractional way that we can actually do everything that these people that are doing that I have are worth 25, 50 or a hundred million dollars, but do it in a way that the average real estate investor and the average investor can benefit from.

  And that really became. Like the mission of the company is to say, cool, we actually think we can do this. If we do it like in a fractional way, [00:23:00] you don't need all these full time people. You really just need six weeks to get everything set up from start to finish. Work with like about a year of meetings to be able to get trained in on how.

  Everything like works for you. Um, and then after that, it's typically just quarterly meetings for these clients to be able to talk about, great, this is how much money you're making. This is the kinds of investments, um, that you need to be making for your tax net worth and cashflow goals. And then here's deals that we have inside of like our.

  Access from actually, which is my own personal deal pipeline. Um, not my deals, but ones that I put where I put my own money into that other people are, um, the GPs on and otherwise managing and don't get paid for any of those. Um, and so that way it just becomes. this way in which that money becomes very boring, but well cared for part of our lives.

  And that's ultimately, that's where I think where we start to get really free. Yeah, I agree that we're in where you're not really, again, money getting boring and where you're not having to think about it. Uh, because when it comes, becomes burdensome, it's not worth it. I [00:24:00] mean, you're really working for your money really when it becomes burdensome like that.

  And so do you do, is it like a monthly fee or how does it work to join in on all of this? Yeah. Um, so typically there's a big build phase that needs to happen, you know, in the first like six weeks to build all these state planning, the asset protection structures, the different types of tax structures, um, all of the, the tax analysis.

  Reviewing the prior to your to your tax returns or doing the portfolio, making all those recommendations. So we typically have a structured as like a, um, an upfront fee for us to be able to do that full build and then a really affordable. Um, ongoing fee to be able to say, you know, here's what the cost is to maintain everything and to keep the.

  The drumbeat of the meetings that we have found over the last, um, years and years of working with so many clients that this is actually what's necessary. And then people are able to scale into more meetings if they need more time and more education. Um, I've also [00:25:00] combined that with a resource on our website.

  All the vault that I've like 11 eBooks, hundreds of hours of video training. Um, and it's all free access. So, and this way we're able, you know, we're working with people that say, look, that's your education resource. It's free to everybody to go in there, no matter what level you're at. It's never too early to start getting educated on the right way to do it.

  And then if you do join, we're going to build everything for you. And then it's going to be you learning while working with the professionals inside of the system that's already built and running. So you're getting hands on training, essentially. That how that works and additional education at the same time to accelerate to say, it's not going to take you five to 10 years to build a team and learn how to do everything.

  It's going to take you, you know, three to six months. Yeah, here it is. It's it's ready for you when you have.

  
  Getting Started with Asset Protection

  So would you recommend that even before someone even buys their first property that they come to you or do they need to have multiple properties? Yeah, what we typically find is that, um, anybody who's making a household income above 150, 000, 200, [00:26:00] 000 a year, our entire upfront fee that we charge to be able to do all the build and get you into all of the, the programs with the meetings and everything else, um, we will save you that a much money in tax guaranteed.

  Right. We won't take on a client that we don't pay for inside of the first year inside a tax savings. Even if they've got a, like, uh, they don't even have any houses yet or any real estate yet. They just make that much with their jobs. You make that much with your job. That's great. You want to learn about money and how money really works.

  Like, okay, great. Well, you probably want, you probably have some cash, right? Okay. So that's an asset holding company. You're probably making offers or doing something. So that's an operating company that you want to be making offers through. Um, you're probably going to have, you're going to need tax shelters, strategies to protect your, um, Um, money from tax from your W 2 income, your 1099 income.

  We know strategies to help trick both of those. You need to start learning about how to look at your portfolio, to start charting out what are your goals that you're really trying to get to. When are you going to be free? And say, great, well, do I need big [00:27:00] appreciation plays? That have a big IRRs and five year exits and looking for like boring stuff like storage units.

  Do I need a lot of cash flow right now? And so I want to be looking for those kinds of deals or it's like, Oh, I just need a ton more tax benefits. So I got some oil and gas things I want to get into or I want to get into, um, deals that are much more, um, tax efficient for me versus. Learning about all of those things and getting a plan because ultimately we won't do anything for most people anyway.

  They won't do anything until they're actually sure they need to do it. And so if you're haven't, if you're, if you got, if you got money and you're making money, then you're know that you need to be investing and likely the reason you're not investing is because you're not 100 percent clear of what is the exact kind of investment that I'm looking for from cashflow net worth or tax, what's going to be safe to invest in.

  Okay. And that I have a really high probability of, of this being a great asset for me. And then how does it tie into everything else that I need in terms of like an asset holding [00:28:00] company? And how do I do this with my estate planning? And, you know, likely what's happening is you're just winging it and you're not doing it much because you're just not clear.

  And so that's where I think it comes. Um, that's where I think we give value to people in there. Of course, if you already have tons of, or you already have some assets and whatever slam dunk, right? Like we're going to, We're going to kill it for you on that, but even the people that are like making money in the beginning, I'm like, you know, this is going to get you off the, off the fence of doing nothing.

  And inside of six weeks, you're going to be like, I know exactly what I need to do. All I got to do is go make decisions. Yeah. I think clarity when it comes to your finances is like the greatest gift ever. Yeah. Honestly. It brings like this huge amount of peace. That's what I didn't realize. It took me years to build all this stuff for myself, but I didn't realize like how much tension I was carrying around all the time about thinking that there's something else that I should be doing, or something else I need to read to know that I'm doing all the things that I could be doing.

  And the moment that I really feel like I crossed the line with building [00:29:00] Building the stuff inside of Royal Eagle for myself was that I was like, Oh my God, I finally am actually relaxed. I'm, I'm not worried about it anymore. I know it's going to be fine. And you know exactly how things are going to build.

  Yeah. And you know what you need to do to get there and you just need to plug in the pieces. So yeah, I think clarity is key. That is key to everything. Yeah, that's awesome. Congratulations. I'm figuring it out for you. Cause you know, it's, it's not for it. It's, uh, stuff is, I always say stuff isn't for everybody, you know, cause there could be other people that want to go in another route, but, you know, I think it's wonderful that you have clarity and you're providing that to people and it's a, it's a great gift to give people.

  Yeah. I mean, it's just what it was important to me because I wanted to be climbing Mount Kilimanjaro and living with the Yawanawa tribe and the Amazon and ice climbing and doing this other stuff and life and, and helping, um, you know, helping nonprofits with their executive teams that are teaching inner city black kids how to read so they don't end up going to jail.

  Like that, like [00:30:00] that was the stuff that gave me like jollies in life. And that, you know, To me, like life is like a road trip and the point of life is the road trip and it just has so happens that we need this thing called gas. Yeah. So how can I make it where like gas is easy so I can actually go do this thing called live in the road trip.

  And I, I think a lot of us have gotten so distracted with worrying about gas and trying to stockpile gas to not know how much gas we need and all of the other things of what happens if we live gas gets taken away from us. And all of this stuff, and we lose sight of the road trip and that if we don't get back to focused on the road trip, we're going to wake up old, realizing that we just blew it.

  We blew the whole thing. I totally agree with you. I love your analogy. That's a great analogy. I've never heard the road trip analogy. That's great. with the gas.

  Conclusion and Final Thoughts

  Well, Scott, thank you so much for being on. This was absolutely wonderful. I have learned a lot and, uh, everybody I'm going to have Scott's, uh, website and [00:31:00] information and just everything linked to your podcast.

  What's the name of your podcast again? Yeah. So, um, website of the company is royallegalsolutions. com and the podcast is Real Estate Nerds. Okay. Yeah, that's right. I liked it. So I'll have a link to all of that in the show notes. If you have any questions or want to get in contact and let me know if you have any questions and thank you so much for listening again.

  I hope this provided a little bit of inspiration for your financial life. Thanks, Scott. Thank you.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

Alternative Investment: Peachtree Hotel Group

If you're tired of simply choosing between stocks and bonds for your investments, I have an alternative. Investing in hotels can bring stability and growth, and Peachtree Hotel Group is a leader in the industry.

In this episode, we talk hotel investments with Peachtree Hotel Group. Brian Dunn, Managing Director, discusses how Peachtree builds, finances, and operates top-tier hotels. We discussed their approach - focusing on premium brands like Hyatt and Marriott, and how they mitigate economic challenges.

Key Takeaways:

• Vertically Integrated Model: Peachtree's comprehensive business model, encompassing development, financing, operations, and sales, enables them to optimize costs, streamline processes, and adapt to market changes.

• Investor-Centric Focus: Peachtree prioritizes investor relations through transparent communication, regular updates, and involving third-party experts.

• Strategic Brand Partnerships: By partnering with premium brands like Marriott and Hyatt, Peachtree leverages strong brand loyalty and standardized quality to drive occupancy and investor returns.

*To invest with Peachtree Hotel Group, you must be an Accredited Investor.

*This is not a solicitation for sale, for informational purposes only. 

Links:

• Read more about Peachtree Hotel Group - www.peachtreehotelgroup.com.

Time Stamps

00:24 Meet Brian Dunn from Peachtree Hotel Group

00:52 Overview of Peachtree Hotel Group

01:20 Peachtree's Focus on Premium Brands

03:24 Property Improvement Plans (PIPs)

04:21 Limited and Select Service Hotels

06:57 Peachtree's Development and Acquisition Strategy

08:20 Private Credit and Non-Predatory Lending

11:30 Friends and Family Investments

19:00 Investment Structures and Returns

21:39 Communication and Transparency

25:59 Conclusion and Final Thoughts

• Transcript

  Introduction to the Podcast

  Welcome to me financial the podcast designed to inspire your financial life. Hello, everyone. And welcome to the podcast. I am Michelle Moses, your host. And today we are going to talk about an alternative investment that is invested in hotels called a private placement, and we are going to be talking to Peachtree Hotel Group.

  
  Meet Brian Dunn from Peachtree Hotel Group

  And to do that, I have Brian Dunn, who is the Managing Director at Peachtree Hotel Group, to join us. Thank you for joining us today, Brian. Thank you so much for having me. We're excited to talk to you about hotels and excited to be on the podcast. Yeah. So, uh, Peachtree Hotel Group. Let me, uh, I'll, I'll get to my, I see.

  I just want to launch right into my excitement about Peachtree, but I has, that's specifically why I wrote something here so that I would actually introduce rather than going into how excited I am.

  
  Overview of Peachtree Hotel Group

  Uh, so Peachtree Hotel Group operates finances and invests. hotels. Uh, and so I think this makes it [00:01:00] sound very basic, but they are really kind of what I call a market maker in the hotel space.

  Uh, they build hotels, they operate, buy hotels, operate them, sell them. Am I missing anything? Invest in finance them. Renovate them. Yeah. That's a big part of it. And one of the pitfalls of hotels for sure. Okay. All right.

  
  Peachtree's Focus on Premium Brands

  And, uh, Peachtree mainly deals with Hyatt, Marriott, and IHG. Is that correct? Okay. And, uh, I just as full disclosure, I am an investor in them and I have clients invested in them.

  Um, but I am a big fan and I get a lot of questions about how some of these alternative investments work. And so I thought I would get one of my favorites on here to talk about it. And, uh, so thank you again for joining us. And so Brian knows about all of the funds that there and we're just going to talk about how some of these deals are structured and what you can expect to go into them.

  We're not going to be talking [00:02:00] about a specific deal. Uh, we're not going to be talking about like a specific fund. Okay, so let's go and we'll back up a little bit and talk about what does Peachtree do? And I know I kind of touched on it. But can we go a little bit more into like how long they've been in business and that sort of thing?

  Yeah, absolutely. So we were originally founded in 2007. really as a family office. It was our three principles that came together, all three of which have backgrounds in banking or banking with regards to hospitality or ownership and hospitality assets. And they came together really to Invest their own money and their friends and family money.

  And then, uh, they're, you know, recognized as one of the market leaders and had the opportunity to expand into the institutional platform that we are today. Uh, but we've always, as you kind of mentioned, focused in the premium brands, the Marriott and Hiltons and IHGs of the world. And the reason that we like those is that they have, you know, more than anything, the app that's on your phone that, uh, [00:03:00] that takes you to their, their home page and, uh, their loyalty points do a great job of driving occupancy.

  And I think it's great that you guys focus on that because, um, I, I want to stress, you know, you have contracts, the hotels have contracts with Marriott and, and Hilton, right? And there's a lot of stipulations with that, with, uh, when you need to remodel a hotel. And so can you go into some of that too? Yeah, absolutely.

  
  Property Improvement Plans (PIPs)

  So the, the, the premium brands typically have what's called like a seven year property improvement plan and we call them PIPs, but a property improvement plan is what they are. And that's effectively, uh, you know, capital that you're going to need to put back into your hotel to do a renovation, to maintain the brand standard.

  Uh, if you don't do that, you end up losing your flag because this is a franchisees franchise or agreement. And it's a way for the premium brands to maintain experience from, uh, let's say a courtyard on the West Coast to a courtyard on the East Coast. And, uh, and again, it drives occupancy because at the end of the day, the, the folks that are going to stay there know what they're going to get.

  It's not going to [00:04:00] be, you know, kind of, I often get the question about Airbnbs and, uh, you know, the, you don't know what you're going to get with an Airbnb. Sometimes they're phenomenal experiences and sometimes they're not. And then sometimes you, you check out and you've got an extra 300 on your bill for whatever it might be.

  So you know what you're going to get with what we do. Right. And so that's, they're trying to maintain consistency across. Yeah, exactly.

  
  Limited and Select Service Hotels

  And then, you know, you mentioned that we focus in the limited and select service. We really like that model. Uh, it tends to be resilient to economic downturns. There's cost centers that are easy to control.

  So, for example, what can you explain what limited and full services? Absolutely. So limited and select services, you know, just like your courtyard by Marriott, your Hampton Garden Inns, it's, it's effectively, you know, the, the, the hotel, the, the, the room itself, and then maybe a cafe or something as compared to an upscale or a luxury brand.

  You know, we often say that we're not going to own a Ritz Carlton on the beach and we're not going to own a motel six. We like the kind of the middle ground that has multiple demand drivers. And by demand [00:05:00] drivers, I just mean, you know, folks that might want to go there for leisure activities or group activities or corporate activities.

  And what the, the limited select service brands do is that they, uh, they really have cost centers that are easy to control. So what I mean by that is going back to 2020 and during the pandemic. You know, if you owned a Ritz Carlton on the beach, that might be a beautiful hotel, but at the end of the day, it probably had three restaurants in it.

  It probably had a couple of retail centers in it. And all of those are drags on the cashflow from the operations. And by having the limited and select service focus, it allows us really to control those costs as much as possible. Okay. And there is an, so you were going to Let's go into what I would kind of backed up about the limited and select service and then wanting the, um, was I stopping you from going in another direction with this?

  Nope. Nope. Limited and select services is where we like to focus in. Every once in a while we'll do an extended stay brand because, uh, again, from a cost center perspective, those are typically cash cows. They do really well and performed phenomenally during the [00:06:00] pandemic. And so, uh, ultimately we're pretty, uh, risk off despite being in hospitality.

  We really like to be more conservative both. from a leverage perspective, but also, um, you know, from a, from a brand perspective as well. Yeah. And that's what I always like. I, when I go to your meetings and everything, it's like, um, you guys are always preparing for a recession. I feel like it's like there could be always be a recession tomorrow.

  And that's how I think when I'm investing, I mean, anytime I'm investing anybody's money, it's like, okay, what if there was a recession? Like that's just what you're always thinking about because you don't want to go through that. And like, you want to feel the minimal amount of pain. Yeah. Yeah. Absolutely.

  You know, if, if Greg Freeman, our CEO was on here, he'd tell you that at the end of the day, we're just basis investors more than anything. Uh, you want to protect your downside. Yeah. Yeah, absolutely. And that's one of the reasons that I love you guys. Uh, okay. So have we kind of covered like what peach tree?

  Well, I don't think we've covered everything. Okay. So that's what you guys invest in. And so I want to go back to you guys.

  
  Peachtree's Development and Acquisition Strategy

  Build hotels, so that means develop them, [00:07:00] buy the land, build them, you know, get the contract, get it up and going, and then with the goal to sell it, correct? Absolutely. So we have those opportunities that are out there.

  Um, you know, those are challenging, especially in today's environment. But I would, you know, I would say that today is the day to be developing, frankly. When things are hard to develop, that's when you want to develop, especially when you think about the, you know, the seven year cycle of the property improvement plans.

  It creates, you know, kind of like wine vintages of hotels. And if there's less of a vintage that can create some, some extra demand when you go to sell them. And do you guys sometimes go and look for those seven year hotels with the people that can't, can't afford the upgrades basically? Yeah, you know, that's a phenomenal opportunity that we're finding today.

  Um, you know, a lot of folks survived the pandemic. They kind of scraped by, but they spent a lot of the money that they had. in reserves in order to do so. And so now, you know, the brands were really forgiving during the pandemic, actually. They knew times were tough, [00:08:00] uh, the brands being Marriott and Hilton.

  But now that times are really, really good for hotels again, those brands are going back to those owners and saying, it's time to do that property improvement plan, Mr. Owner. Um, well, a lot of those owners, unfortunately, don't have the capital available to do so. And so a lot of them are now coming back to us in order to provide financing.

  And, you know, you alluded to it earlier of what we do.

  
  Private Credit and Non-Predatory Lending

  We provide private credit. And you know, today's environment with a lot of the banks and other kind of traditional lenders out of the market, it's provided a great opportunity for Peachtree to step in. Um, and at the same time, you know, hospitality is a very, very small niche market, and we're known for being non predatory lenders.

  In fact, it's difficult to be a predatory lender in hospitality. Due to, its really kind of, you know, tight-knit community. Because if you start going and foreclosing on borrowers, uh, real quickly you're gonna find that, uh, there's, there's folks that just don't wanna borrow from you. Mm-Hmm. . And that. Well, and that's another reason I love you guys, is not only that you can pivot, so you could pivot because you are vertically integrated, [00:09:00] is that you could go buy land or you could buy a hotel.

  You could build a hotel, whatever you need to do, or buy an existing hotel and remodel it. But then when that is not a feasible option in the market, then you can pivot and do credit. And it's not like you're doing it in a predatory way to get people to sell their hotels to you. It is, you are really actually restructuring their debt so that their payment is better.

  And you guys, you should see some of the ways that they do it. It just blows my mind, honestly. Does it blow your mind too, Brian? Oh yeah, absolutely. You know, I feel like every single day I get schooled by our C suite of, uh, of how to do things and, you know, make it mutually beneficial for everybody. You know, again, going back to the pandemic, excuse me, we bought about 1.

  8 billion worth of discounted debt during the pandemic. and didn't just turn around and foreclose on those people. We worked out the loans, you know, sometimes we extended the term. Um, sometimes we put different covenants in place, so it protected us, but also made it mutually beneficial. And now a lot of those [00:10:00] borrowers are coming back to us knowing that we treated them well in kind of the worst possible times.

  And, uh, they're more comfortable with us, even though, you know, today's lending environment, uh, is certainly a little bit better for borrower. Right, right. Yeah. And I love the, just the creativity that there is with some, and we're not going to get into that. That would be a whole nother podcast and would need to need some visuals for sure, uh, of ways that you guys restructure some of that credit.

  But it really is mind blowing to me that I'm like, wow, I would never think of to do it like that. Uh, and obviously that's why there's professionals to do it, but I just. think it's so great. And then, um, even if you guys do restructure it, if someone does default on the loan, then you have first right refusal to purchase that property, correct?

  Yeah. You know, a lot of times, even before we need to go to foreclose on somebody, we have the option to replace the operating company with our operations. And, you know, we operate about own or operate about a hundred hotels nationwide. And I really thought of as one of the premier operators. And so a lot of times we [00:11:00] have the option to step in and avoid a foreclosure.

  Uh, but if it's necessary to foreclose, then we foreclose. And again, we plug in our operating company, ramp the asset back up. That's the goal. And then, you know, sell it off. Yeah. And by operating company, you guys, he means, um, like operating the hotel with staffing and cleaning and, uh, getting groups in there, uh, for conferences and things like that so that you can, um, get the revenue back up.

  Uh, and so again, that is why I like you guys.

  
  Friends and Family Investments

  So I kind of want to pivot to another reason that I like you guys is because there's such a high level of friends and family that are invested in your funds. And do you want to speak a little bit about that? Yeah. So, you know, like I mentioned, we started as a family office and so it really started as, uh, Jutton, Matool and Greg, our three founders going around to their friends and their buddies and saying, you know, we've, we've done this successfully for a while, uh, would you like to invest with us?

  And that's, was the, really the, like the core foundation that allowed us to expand into, [00:12:00] uh, you know, institutional and, and, and kind of everything else that we do. Uh, but yeah, a, a large, large portion of our, uh, raise of any of our investments is friends and family money. They typically, frankly, are the first people in the deals.

  Um, they, they are repeat investors over and over and over again. And they, you know, they can make up anywhere from 20 percent to more than 50 percent sometimes of individual investments, sometimes even more than that. And, uh, again, you know, it's important as, as a, as an investment company to treat your investors well.

  And I think that, uh, it's indicative of, of us doing that, that they keep coming back to us to, to continue to invest. Well, yeah. And you've got, I just call it having skin in the game. I like to invest in these types of deals when people have skin in the game and if they don't have anything in that, I don't think that they're going to manage it the same way.

  And if you have your friends and family, I mean like literally your grandma is in this fund. Your mom is in this fund. You are going to manage it differently. You've got your own money in the fund. Uh, I, you know, [00:13:00] it does go differently and you do have a different communication with your investors. You know, all of that, uh, it, it does trickle down.

  Um, and so it's something that I love. It's funny. I get these reports of, you know, all of the investors that are invested in it. And there's, there's a lot of Freedmans and a lot of, a lot of Patels and, uh, a lot of Desais and, and, you know, everybody that's got a last name that, uh, that works with us here.

  Um, but also, you know, our, our owners have skin in the game, right? You know, they're investing alongside the, their investors and their friends and family, you know, again, that's, that's sometimes 5 percent of a deal. Sometimes it's more, sometimes it's less. Uh, but, uh, yeah, they're, they're putting their money where their mouth is.

  Right. Right. And I mean, they even grew up, I mean, in hotels, like, right, like living in the hotel and operating the hotel and knowing what it is to put the plastic on the cups. Absolutely. You know, I think sometimes they like to, uh, They like to distance themselves from, from that part of their lives. But we often talk about, yeah, you know, they, they were cutting clean, cutting keys, they were cleaning the rooms, they were running the books.

  Um, and so yeah, [00:14:00] they absolutely grew up. Yeah. Because you see those shows, right? Where the CEOs have no idea what, you know, who, you know, the people on the ground are actually doing. And if you actually are Uh, in the trenches, then you actually know, you know, whether that's possible. Is it that, is it possible to clean this many rooms in a day or, you know, that kind of thing?

  Without a doubt. And, you know, hotels can be kind of a, to a certain extent, a more attractive asset a lot of times than other commercial real estate assets from the aspect of the cash flows from hotels. There's typically a stronger than many other asset classes, but at the same time, along with that comes a daily operating business.

  And, you know, pitfalls. And, you know, to your point, if you don't know how to staff it, or you don't know how much it's going to cost to renovate it and what that's going to do to your occupancy when you renovate it, you can find yourself in a really tough scenario. And, uh, yeah, I'm, I'm very happy to be at a place that thinks of things again, just from a conservative standpoint.

  despite loving the asset class. Um, uh, and, and, you know, obviously, obviously always wanting to [00:15:00] maximize returns for investors. A big portion of that is managing risk. Yeah. Do you remember when you joined Peachtree? And I was like, Oh my God, you joined the right company. Oh yeah, absolutely. I was like, you don't have to sell me.

  I love Peachtree. Yeah. It was one of my favorite meetings of all time because I, uh, I walked into it as a newbie at Peachtree and we're just like, Oh, I love Peachtree. People already love us. Oh, yeah. Oh, yeah. I was like, you don't have to sell me. I already know everything, but let's meet or whatever. I feel like I could be the salesperson for Peachtree.

  It would be great. Okay. Yeah. So, okay. So let's kind of go into an, um, You know, I don't want to talk about other funds, but you guys, I do think it's important to point out that Peachtree being vertically, vertically integrated and being able to finance, build, and to operate hotels, I think is very rare in the industry when you are looking at different hotel investments.

  And so that's another reason that I really like them because you can cut costs in the different areas. Uh, and so you aren't just beholden to some company that you're going to hire [00:16:00] to operate. Um, your hotels, uh, you know, it is in house. And so they're, and they're all talking. So obviously that kind of creates an economy of scales.

  Uh, so let's go over some of the, I don't know that we need it, but you know, some of the funds, you know, there could be a fund with one hotel in it. There could be a fund with 12 hotels. There could be a fund with multiple hotels and credit, right? Am I kind of covering the gamut there? Yeah, absolutely. So we structure our investments in a way to really lean into what the opportunity is in the market, not the other way around, just to have investments that are out there.

  And that's really one of the ways that Peachtree Group shines. You know, that could be, to your point, a single asset hotel development opportunity. Um, that could be a multi asset development opportunity in the form of maybe an opportunity zone. And the way that we look at opportunity zones I think is very different than many other sponsors that are out there in that we don't let the tax tail wag the dog.[00:17:00]

  And it's easy to want to do that from the aspect of, you know, the 2017 jobs act, which created opportunity zones, um, created really some, some phenomenal advantages to investing in those. And so a lot of sponsors go out and they want to find the opportunity zone and then find an asset in the, that opportunity zone to develop.

  Well, that's in our opinion, kind of the backwards way to do it. So what we do and what we've always done is, you know, we, we, we pick places that have uh, demand drivers that have maybe, well, certainly a growing market or a hospital, entry, you know, the right brand that we can put in there. And then if it happens to be in an opportunity zone, great.

  Now we can put it in an opportunity zone fund. So we have those, we have, um, strictly credit opportunities. So this is, you know, a lot of times senior secured, uh, first mortgages, we primarily operate in shorter term notes. So two to five years. Uh, but yeah, you might see. a pure equity fund. You might see a little bit of a blend.

  You might see a pure credit fund. Again, the opportunity zone fund. So we kind of [00:18:00] have opportunities all the time. They might not be the same opportunities all the time. Um, but again, I think that's a, that's one of the major reasons that people invest with us because They know that we're not trying to fit a square peg into a round hole.

  Yeah. And your track record is amazing. So we're done. I mean, I'm just going to say your track record is amazing. I can send it to you if you guys really, if your listeners really want to see it. Uh, but we're not going to go over what specific returns were for funds. Um, but obviously I wouldn't have continued to.

  Uh, invest with you if the returns weren't great and the communication wasn't great. Uh, and to back up to you guys, Opportunity Zones are a new tax code that was just created where if you have some capital gains or a sale from a business, you can defer the taxes if you go into this long term investment for 10 years.

  Uh, there's a lot more to it. I'm just kind of given the highlights there. Um, okay. So we've got all the different kinds. Um, I'm kind of drawing a blank here on what to talk about next because I have so many things I wanna talk about. [00:19:00]

  
  Investment Structures and Returns

  Uh, I think we should talk about the way, the way that investors can invest with you, I guess, and what are some of the returns?

  'cause I, I do wanna talk about what a preferred return is 'cause in these types of investments. Um, you can either invest for growth and sometimes people will invest for depreciation. And so in talking about the different ones that he was just saying with the single hotels might be credit. Uh, you know, if you're credit and you're lending, you're obviously going to be making interest and dividends on that.

  But if you own a piece of real estate, then some of that depreciation can pass through to you. Um, and so there are different options. It's more that you're picking hotel as an asset class. And then, you know, we kind of work with you on what are you trying to achieve or what do you need, uh, on your taxes and with your investments.

  So, um, so then kind of pivoting from there, when you do invest. There are minimums. You do have to be an accredited investor. An [00:20:00] accredited investor is making over 200, 000 a year or a million dollars of net worth without your primary residence. So these are not available to everyone. Uh, and if you are accredited investor, um, then there are some minimums, as I said, that you need to, um, invest in the fund.

  Um, but there's normally what's called like a preferred return. So would you like to explain what a preferred return is? Yeah, absolutely. So the preferred return is effectively a return that starts accruing once, once you invest. So, you know, we might not be paying cash flow right away, but effectively the goal is that the, the first 8%, you know, just using the example of some of our previous offerings, uh, previous closed offerings, that is, You know, the first 8 percent of profit that comes out of the company, uh, you know, it really what's called goes into what's called a waterfall.

  So you have priority over the first 8 percent of that money coming out of the profit coming out of the business or the fund. Isn't it your investment plus the 8%? Yes. Yeah. Whatever your base, your basis is, whatever [00:21:00] you put in plus your 8%. Okay. Yeah, absolutely. And then, you know, in a, in a, in a kind of typical fund, Uh, we structure it where it's, let's say it's an 8 percent preferred return.

  And then after that preferred return, there is a, a 2 percent catch up to Peachtree, which means that we get the next 2 percent profit after your 8%. And then everything going forward is an 80 20 split. So we, you know, we think that that's very fair. Um, and again, 80 to 80 percent to the investor and 20 percent to Peachtree.

  Exactly. So, you know, in other words, it kind of is 80 20 the entire way. However, you know, again, uh, we do get that 2 percent catch up. So 100 percent of the 2%. Uh, but, uh, yeah, that's the, you know, the, the, the typical structure.

  
  Communication and Transparency

  And then from an investor experience perspective, you're going to get quarterly statements, um, regularly emailed or mailed to you.

  Uh, we have webinars on a month, on a, sorry, on a quarterly basis where we have, you know, our development team or whoever might be in charge of the different business unit on talking about, you know, What's going on the fund with pictures, with graphs of all of the, you know, whether that might be [00:22:00] the PNL, uh, that might be, um, you know, the, our indexes against other properties or something along those lines.

  And then we also have, what's really interesting to me is just an overall market update. And those happen, uh, periodically. They're not necessarily quarterly. Sometimes they're monthly, sometimes they're quarterly, sometimes they're biannually. And then those we bring in. third parties from outside of Peachtree, you know, they're still focused in commercial real estate and more specifically hospitality.

  Uh, but it gives, you know, not just Peachtree's opinion of what's going on. And, you know, that might be somebody from CBRE or CoStar, or frankly, you know, we had somebody on from the Fed previously. So, Um, it's, it's a great opportunity to hear again, people that are really well known in the field talking about what they think is happening in the market.

  Um, and you know, you can compare and contrast that to what we're thinking, you know, obviously a lot of time those things align, but they don't always. And, uh, it's, it's just a great data point for people that want to learn more, you know, especially for your more, uh, hands on folks that want to, You know, learn more about what, [00:23:00] what the deal is and, and understand the market and maybe, you know, maybe how that might impact some of the other parts, portions of the portfolio as well.

  Yeah, that's true. And that is another thing that I like about you guys is, um, especially during the pandemic was how transparent and, um, you ramped up your communications versus a lot of people, uh, were a little bit more shy about their communications and, um, and then I've invested in other deals and especially development deals.

  I mean, and I'll get one newsletter a year. And it is just crickets and it's hard for people to invest in things and to not know what's going on. And I would say you guys really excel at the communication standpoint. And it's not just webinars. I mean, your statements are detailed. Um, the newsletters are detailed.

  I mean, it is really like next level compared to, um, a lot of these other funds, because I think a lot of the ones they start Spend a lot of time fundraising and then selling it to the advisor, and they're not spending as much time to do the communication with the investor. Uh, and you [00:24:00] guys really do that well.

  And so that is another thing that I love about you guys. So, yeah. You know, it's a, a lesson that, not that Peachtree learned from me or anything like that, but it's a lesson that I learned from a good buddy of mine who was in the Army that was effectively, you know, I'd rather have bad information as soon as possible, or bad news as soon as possible.

  Mm-Hmm, , because that allows you to, to act on it rather than. you know, getting out into the field and then having a Humvee wheel pop off your, uh, your Humvee or something along those lines. Uh, but you know, one of the things that's always drawn me to Peachtree and is really just, you know, really more than anything, you know, Greg Freeman willing to be, um, uh, you know, really to have the spotlight on him.

  I don't think it's by any means something that he particularly, uh, loves to do. It's just an important part of the business. You know, when I first learned or, you know, when I first was introduced to Greg was in 2020, actually it's May of 2020. He was on CNBC talking about what it's like to be a hotel operator.

  It would have been easy to, to hide from the spotlight at that point. And, you know, [00:25:00] he kind of hit it head on. He said, you know, yeah, it's, it's a tough time. Uh, we're plugging the holes in the ship, then we're riding the ship and then we're going to go on the offensive. And I think if you think back to May of 2020.

  There wasn't really anybody that I can think of that was thinking about offense at that point, everybody was defense and everybody was frankly very quiet at that time. And it's definitely something that I think earned us a lot of, you know, nothing else. Street cred. Yeah, well, and it shows, uh, just Just how used to the ups and downs in the market that they are, that it doesn't scare them and that, you know, they're just like, okay, well this is another correction and we'll get through it.

  So, uh, I think it's great. Historically, we've performed better in times of volatility than the not. And, uh, you know, to your point that, that, that, when there, when there's blood in the water, you know, unfortunately, uh, for some people that's a bad time, but, you know, for, for those that are investors, that's typically the time that you want to really start to evaluate those opportunities because you can find discounts or, or whatever it might be.

  Yeah. You might get some good deals. Okay.

  
  Conclusion and Final Thoughts

  Well, I [00:26:00] really appreciate you being on and, uh, I appreciate all the information that you've shared and you guys, I hope that You have at least gotten a glimpse to how these deals work. I think we've given you just a great overview of just a really good hotel fund.

  Uh, there are other hotel funds out there, but I think Peachtree is exceptional. Um, and that's why I brought them on and I had to like really petition them to do this. I had to bother them to do it. So again, Brian, thank you for being on. I appreciate it. Oh, no, we, we, uh, we certainly appreciate being on and, and, well, we love hotels.

  We love what we do. We're really enthusiastic about it. We're enthusiastic about the opportunities ahead, you know, and, and to your, to your point, you know, if folks want to get some more information, you know, first and foremost, Google Peachtree, you'll see all sorts of good stuff, you know, whether it's our website or Greg, our, our owner speaking.

  Um, and then, you know, please, please, please reach out to Michelle and, you know, we can dive into things as deep as possible as you'd like. Our goal [00:27:00] is for them to be as comfortable as possible with the investment. We certainly don't want people investing with us, um, that just happened to think it's the hot thing and jump in.

  We'd rather have people that want to, you know, understand the business. Yeah. And you don't want them to be stressed out or worried about their money. And, um, my investors, uh, this is usually the first. alternative investment that I put them in just because you guys are running on all cylinders and people love it because it's like you're investing in a business, but you don't have to do anything.

  But they, you know, and so they're making all this money and, but they don't actually have to operate the business. They don't need to do stock trades, you know, anything. Um, they're literally giving you your money and then trusting you guys to do what's best with it. So. Yeah. So thank you again and thank you for doing a great job.

  Uh, again, if you guys have any questions, let me know if you have any suggestions for other podcasts, I would love to know. Uh, and thank you so much for listening. I hope that this, uh, inspires a little bit of your financial life. Have a great [00:28:00] day.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

Looking to Sell Your Business?

Are you looking forward to selling your business, and doing it for top dollar? Learn how to maximize your business's value and achieve a smooth exit.

In this episode, we get into business valuations, exit planning, and the importance of financial readiness for a successful sale. Laurie Barkman, the Business Transition Sherpa™, shares insights on protecting your business, setting growth goals, and understanding the different perspectives of strategic and financial buyers.

Key Takeaways:

• Start Early and Plan Ahead: Begin your exit planning process at least 10 years before your desired sale date to maximize your return and avoid pitfalls.

• Focus on Financials: Showcase your business's growth potential by ensuring your financials are in order and demonstrating enterprise value.

• Understand Your Buyer: Identify potential buyers for your business and tailor your strategy accordingly, whether you're targeting strategic buyers, financial buyers, or related buyers.

• Identify potential buyers for your business and tailor your strategy accordingly.

Ready to start planning your exit strategy? Schedule a consultation with Laurie Barkman or visit her website - https://thebusinesstransitionsherpa.com/

Links:

• Buy Laurie's Book, "The Business Transition Handbook" - https://amzn.to/4biANs5

• Link to Laurie's Masterclass, "Endgame Entrepreneurship" -  thebusinesstransitionsherpa.com

Time Stamps

00:26 Guest Introduction: Laurie Barkman

01:49 The Importance of Business Valuation

03:43 Types of Buyers: Strategic, Financial, and Related

03:49 Strategic Buyers Explained

06:55 Financial Buyers and Private Equity

10:34 Related Buyers and Management Buyouts

12:18 When to Start Thinking About Selling Your Business

13:28 Preparing Your Business for Sale

24:53 Common Mistakes and How to Avoid Them

31:31 Conclusion and Resources

• Transcript

  Introduction to Me Financial Podcast

  Welcome to Me Financial, the podcast designed to inspire your financial life. Hello everyone. And welcome to the podcast. I am Michelle Moses, your host. And today we are going to be talking about valuing your business, how to do it. Uh, do you want to Sell it, absorb another company, or what do you want to do with it?

  
  Guest Introduction: Laurie Barkman

  And today to talk about that, we have Lori Barkman and she is the business transition Sherpa, and she's the former CEO of a 100 million revenue company that was sold to a fortune 50 as a business transition and M and a intermediary, Lori advises owners how to create more valuable businesses and find the right buyer when it's time to let go.

  Thank you for joining us. Oh, it's my pleasure. Thanks for having me. Yeah, I can't wait to talk about this. I have been wanting to talk about this, not just for my own reasons, but just, uh, it [00:01:00] has always been something that just fascinates me about how businesses get sold, why they get sold, you know, and then how people prepare for that, you know, as they're going forward, because I would imagine if you're doing it as you're growing it, it is a lot easier to do than When you realize, Oh, I have to do all this stuff and I'm ready to go, you know, uh, so I think that this will be a very great conversation.

  So thanks again. Um, and you have a book, a podcast and a course to talk about. And so we will kind of touch on that at the end, but she is very, very knowledgeable in all of this. And so why don't we just go ahead and get started and kind of explain what the different options are when you are a business owner.

  Yeah. And I think, thank you again for having me and thank you for teeing up this topic.

  
  The Importance of Business Valuation

  It's so important because let's just start with the reality check that a hundred percent of business owners are going to leave their company one day. And that could be horizontally or vertically. [00:02:00] We can kind of chuckle about that, but the reality is it's going to happen.

  And the other reality is that very, very few owners are prepared and we ask, have to ask ourselves, well, why not? You know, what does it take to be prepared? Here's the good news. Everything that you and I talk about on this show today is going to add value. It's not like the work you're going to do is be wasted.

  It's, it's, it's work. And we've got to roll up our sleeves and we have to have an intention. So one of the things I wanted to do is help maybe set an intention for the audience that folks listening today. Don't just listen. You know, let's try to take some action at, by the end of the episode, we'll, we'll kind of.

  summarize it and roll it all up. But I think this is about listening and learning and then doing right. Um, and so your question is, well, what can we do? How does this all work? And it's, and it's not an easy answer. There's a lot of things that we can do, you know, and there's a lot of ways to get started.

  But I think, uh, I think a reality check of, um, where are we, you know, and what's important to us as an [00:03:00] owner, everybody who has either founded a business, bought a business, inherited from family, or purchased from a, you know, if it's an inside transaction, all of those are potential. exits for you too. And as I think about, well, who might own my company after me when I'm gone, who, who should own this business after me?

  And that can set us on a little bit of a mind journey to think about fit. You know, fit is a lot of things, um, mostly to a seller, the fit starts with, with you, right. And what you think about, um, so we can talk about the different kinds of buyers just to, you know, have a starting point of different categories.

  
  Types of Buyers: Strategic, Financial, and Related

  There's three top level categories. Do you want to dive into that? Yes. Yes. Okay.

  
  Strategic Buyers Explained

  So the first category that we talk about are strategic buyers and strategic buyers are companies. They could be a [00:04:00] competitor to you. They could be a supplier. They could be a customer. Perhaps they're a company that's not in your industry exactly, but like in a related industry and kind of in this bigger picture ecosystem.

  So the way to think about strategics is it's a company and there's a general rule we call the five and 20 rule. And that, is saying, suggesting as a rule of thumb, that a strategic acquirer would be five times to 20 times the revenue of your company. Wow. So it's just, it's just a rule of thumb. Yeah. And cause if you kind of look at it on the extremes, it makes sense.

  Meaning if the, if the, Company that's acquiring you is your size or smaller, and something goes wrong with the acquisition, then it could really put a lot of risk onto the capital structure of the acquiring business, right? It has to be able to, if it doesn't have cash in the bank to buy the company, they're going to be taking out debt.

  And to be able to [00:05:00] absorb it and to be able to pay for your company. Yeah, they do. And the other thing about a strategic, you know, on the bigger side of that range would be, well, you know, you talk to big corporates and they have big corporate dev departments and the juice isn't worth the squeeze, right?

  They're not going to acquire a company for a million dollars and, and worry about that when they're looking to really, you know, find a creative value. More like in the billions, right? It's just not good. They're not going to spend their time on it And so that's just giving that heuristic of the five and twenty I think the other characteristic of strategics to note is is This idea that it's an existing company and they're acquiring your assets and they're going to stitch them in So when they're putting together their financial forecast of well, what will this?

  Acquisition do they are doing the math on You Well, what expenses can we take out because we're going to have cost synergies and the synergies is a real, real thing. I [00:06:00] know we hear that word and we kind of cringe, but it's a real thing when it comes to these deals and it's really important. And it's a reason why strategics out of the three characteristics I'm going to, I'm going to explain.

  Strategics is one, financial buyers is two, and related buyers is three. Strategics tend to Pay the highest amount. Oh, okay. That's why I start with them. And that's, and also, you know, the reason why is because I just, you know, talked about it from the cost synergy standpoint. And so you mean by synergy, it's as if, okay, we already have a marketing person and we could do the same thing and absorb that.

  So they're, they're thinking about the costs that you have and the things that they already have existing and what they could just absorb easily. Okay. Yes. Yeah, absolutely. That makes sense. They don't need to, they don't need two HR platforms. They don't need, you know, two IT departments, things like that.

  Okay.

  
  Financial Buyers and Private Equity

  So the next category is financial buyers. And most commonly we [00:07:00] think about private equity groups, private equity firms. Absolutely. There's a lot of dry powder in the U S there's a lot of money still to be invested. And there's a lot of interest. uh, the lower middle market. A lot of, um, deal sizes have been coming down and a reason why is because of there's two, there's two types of private equity investments.

  One is a platform deal and the other is a hybrid or a tuck in. or an add on. Okay. They're all synonymous. And just to explain that. So let's say your company is acquired as a platform, but that means is you're a standalone. You're large enough to stand alone in their portfolio. And then over time, what they'll probably want to do is acquire smaller, smaller companies to tuck in, right.

  Or as an add on. Into yours. Underneath you. Right. And now you say, wait a minute, that kind of sounds like strategic. [00:08:00] Yes, it does. Yes. on the add ons. So when it comes to what is a private equity group looking for, of course, they all have their investment thesis focus. Some of them are very specific by industry.

  Um, most often they want to buy low, sell high, right? And most often they have a five to seven year, you time horizon. In contrast with a strategic, there's no time horizon. This is what they're doing, right? They're looking at it in perpetuity. Um, whereas a private equity firm is looking to buy low, buy, you know, buy a good price and get out in five to seven years.

  Yeah. And then another contrast in this category is it's a group that's not so well known, but there's a lot of money out there. Um, and these are family offices. There's over 30, 000 family offices in the United States with like 3 trillion of, of, of investments. Now that doesn't mean that all of those family [00:09:00] offices are looking to do investing and acquire assets, but some of them are.

  And by family office, sorry, by family offices, do you mean just family businesses? No. Okay. So a family office. is the enterprise of the family. Let's say that we've had an exit and we got 100 million in the sale. What are we going to do as a family with 100 million? I see what you're saying. Okay. And so they may want to get into another business and then they might buy yours.

  Okay. They become investors. They have a you know, the, the investment pool is for the family and they are managing their investment strategy and they're choosing which asset classes to focus on. And the thing that's so interesting about family offices is just the contrast with PE groups on the time horizon.

  They have a, they, they're investing for the longterm, right? They're investing because they're investing for the sustainability of [00:10:00] the family portfolio. And what I said earlier, my comment was about fit for some owners. That's very appealing because they may have a family business, they think, Oh, wait, this is going to be really exciting to be part of family office because they will be part of their portfolio for the long term.

  I could see how that would be very attractive to somebody that had put their soul into their business and you know, they'd want it to continue like that. Yeah. Yeah. And then there's other types of financial buyers and ESOPs and things like that.

  
  Related Buyers and Management Buyouts

  But just to kind of, you know, keep it moving, the third category is related buyers.

  Related buyers essentially are the insiders. They can be family. They can be people who know all about your business. So management, if they're interested in being an owner, which not everybody is, by the way, they might be just as happy to get a paycheck. Um, but for people who, who are a good fit for ownership with the [00:11:00] capabilities and the interest and, and the risk profile, then that's most likely you're looking at a management buyout, um, where they were going to go secure some debt.

  But it could also be where the owner wants to gift shares to family or to, uh, management or create a mechanism for, um, for equity transfer over time. So related, the related buyers are very interesting because so many owners think that that's the natural answer. And what I, what I say across all of these op is options, right?

  These are all options. Um, think about which. of the three categories make the most sense to start with, and then vet it, you know, see if it makes sense. And if not have a plan B and have a plan C. Uh, there's an example of, um, the management side. One of my clients thought his second in command would want [00:12:00] to buy this company.

  And then that person kind of beat him to the punch in this conversation and said, Hey, I'm moving to Europe with my wife. And I was like, well, there goes that plan. So then he needed to go down the other routes. He had to figure it out. He's still figuring it out. But yeah, I mean, that's the thing. You just never know.

  
  When to Start Thinking About Selling Your Business

  So what time period do you normally start to think about this when you are thinking you want to sell your business? I mean, are you starting to think about this? You know, right when you're building it and adding anything, or is it just, you know, a couple of years out? Chances are, it's not right when you're building it, but I think there are people for sure who build with the exit in mind.

  Um, there's no doubt. They, maybe they've gone through an exit already and they've kind of learned the first time and they've said, Hey, you know what? The second time around, I'm going to do that. Um, most commonly people are just, sort of figuring it out by the seat of their pants. And that's not ideal for, for reasons that, you know, you, you mentioned earlier, you can't do exit planning when you're exiting.

  You just can't. [00:13:00] And it's going to be either, you know, you're out of time, you're out of money or something's giving up. So the, what's the benchmark? I, I don't have a hard and fast answer. I can just say from my own experience, it seems to be like 10 years is a good place. Oh, wow. Okay. So that early. Okay.

  Yeah. Things just take so much longer than you expect them to when you're being proactive, even. And, you know, so let's take it from the business readiness standpoint. Yeah.

  
  Preparing Your Business for Sale

  What are some things that kind of think about, I guess, or like what would take 10 years or not all of it to take 10 years, but what would you kind of start just, you know, You know, is it to get your computers ready or, you know, those kinds of things?

  What do you, what do you, I think the main thing is to shore up the business value, you know, and make sure the business is, is attractive and transferable to a buyer and, you know, attractiveness to a buyer is, is going to be in the eyes of the buyer, not to you, right. As the seller, it's just like having a house, you know, what's going to make your house worth more than your [00:14:00] neighbor.

  And that is in the eye of the buyer. If we baseline, like you're staging, like you stage a house, you're staging your business, but you're doing your business, you're getting your financials in order. And, you know, I think there's a lot of people out there who on their tax returns. don't show a profit because they're trying to have a tax minimization strategy.

  We might want to rethink that over time, right? To be able to show a profit is not necessarily, um, you know, just wave a wand. You are probably the 10th person I have had on my podcast that has said that, that, you know, that issue always arises when people try to not claim income. It's very, very interesting that it's in so many different ways.

  It's in, you know, You know, gaining financing and I just credit it goes down the gamut. So anyway, it's very, it's interesting that everybody says that. Yeah. And it's, and it's a catch 22, right? You're trying to minimize [00:15:00] taxes, but at the same time, what are you doing in your enterprise value if you can't show a profit?

  Um, Yeah. So with the financials is, is absolutely number one is the quality of your record keeping the consistency and of course the numbers that you're putting up on the board. Um, it's the industry you serve in. Um, that's one of the eight core drivers we start with is financials. And then from there it's growth potential, you know, what have you demonstrated for growth and what, what field is left to plow.

  If someone buys your company, um, What opportunities will they have? Some of them will be native to them and based on what their vision is and some of them will be native to you. What's that special sauce? You know, what is the thing that's going to make your company have that unique value proposition?

  When you think about a customer and why does a customer buy from you? It's because you're offering something of value and it solves some pain for them. Well, think about selling your company in the same way. What? Pain. What pain points does the buyer have and what are you solving for them? Because here's the thing.

  When [00:16:00] you're not in the room, you know what they're talking about? They're asking, well, could we build what they do? What would it cost us and how long would it take? Right. And do we really need to buy this? Right. That's a good point. You have to be bringing some value that it was either so hard and took so many years to get to and that you have such a saturation point maybe in your market that that is worthwhile to them or can they catch up to you in a year or two or however long the time frame might be?

  Oh, that's really interesting. That's a good way to think about it. Particularly for strategics, there's different reasons why strategics do acquisitions. One of them is talent. You know, aqua hire is the phrase and an aqua hire strategy. Let's say it's a development team or an engineering know how, and they can't go find that talent and ramp up as quickly as they would like to.

  And so that's one of the reasons why, especially in tech, you'll see these aqua hire type of deals. But it's also like the know how and, you know, time to market and [00:17:00] accelerating a position in the market if you can acquire a company or services or products that lets you leapfrog from where you are to where you want to be.

  So that's another thing just to really be able to articulate your story. And what's ideal, you know, I'd like to talk about reverse engineering your exit. If you can think forward to work backward, right, Stephen Covey, begin with the end in mind, that is ideal. But as we go along, we might learn that certain types of buyers have different motivations and are interested in different things in, in your business.

  So if we can match that up, And you have enough time on your side to affect change. Isn't that, isn't that magical, right? What if you can 10x your value with this information? I mean, it can be dramatic. For example, let's say you have a lot of one time revenue in your business. and it can be a service business or you could sell widgets.

  It doesn't really matter, but your customers come when they come and they spend what they spend. You don't know, it's not [00:18:00] predictable compared to, you know, a company like let Netflix, let's just use them as an example. They take our credit card, they bill us exactly. And so it's very predictable. The, the owners know with, with some fair certainty about future cashflow and the more our business can be trusted in terms of that predictability of future cashflow creates value for the buyer.

  So in this example of the business model, if we're able to shift project revenue, and if we're 100 percent project revenue, can we shift it? to a 60 40. I mean, that would be awesome. Not to say you're going to completely shift to a, uh, you know, 100 shifted over to a 100. That would be really, really challenging, but could you, over time shifted to a 60 40, where you can get 40 percent recurring revenue by shifting the business model.

  It's possible, but it's going to take a lot of work. It's going to take some pain, but it could be really worth it for your [00:19:00] company. If the exit is what you have in mind. And you found out that, yeah, the key to the exit value is having a recurring revenue model. Today we have zero. We're setting a goal. You know, that kind of mentality.

  Yeah. So back to your question of, well, how long does it take? I always say, well, really, it depends. Like let's say you want to be a fitness, you know, you want to be the most, you know, you bodybuilder like, okay, well, where are you starting from? Are you starting from, you know, Arnold Schwarzenegger in the seventies?

  And you're looking to just incrementally improve. Are you looking to, to start from scratch? Um, and it's, it's a reality check, right? I think it's important for owners to just look in the mirror. And that's what I do is I, you know, I try to help people look in the mirror and assess the business readiness, assess the attractiveness.

  Nobody likes to be told their baby's ugly, let's face it. Um, but I think once people understand the risks, and hey, you know what, it's not saying your baby's ugly, it's saying we have a risk and we can address it. But [00:20:00] if we ignore it, it's not going away and it's only going to make things worse. So you mean the risk is that you wouldn't be able to sell your business and it would be worthless?

  I'm saying if you were gone, if you were gone from it. Yeah. I mean, that's the meta risk is that you're, you won't have a business that a buyer wants to buy. That's the meta risk, right? And that eventually when you want to sell, there's no buyers or there's no buyers of the value you believe it should be worth.

  Okay. So when people, they come to you and just say, Hey, I'm thinking about selling my business. Can you, you know, do you do consulting and look at their financials and it kind of goes down that path? Yeah, absolutely. Yeah, we do a diagnostic on their financials, try to level set the last few years, look at pre COVID even in, you know, has recovery been after COVID and what are some things that we might red circle to address?

  And a lot of their expense area or on the revenues or taking a look at the balance sheet and seeing what the cap table looks like. And what [00:21:00] are some issues with ownership if there are any? Um, so, yeah, we kind of start there and business valuation methodology that we use is to, to, um. use market comps and use create a range of values so that people have a good baseline of where they are today.

  So will they pay you for this consultation and then they kind of go away and make the improvements and changes that you recommend and then they'll come back when they're ready or I mean, I obviously there might be a couple check ins in between. Well, I think there's a lot of value in this process and it's not just a 24 hour kind of thing.

  It takes a little bit to establish this dialogue and work through it. So one of the things that I've You know, noticed and when I've put together for clients as a result is a process. It's called the strategic transition process. And it business valuation is one of the things we do. There's a number of things that will do as diagnostics and also uncovering along the way.

  What. What goals are important to them? You know, why do certain [00:22:00] things matter to them? And then helping them see what, um, you know, what we could be doing and working on and creating a written plan, because if we write down our goals and we write down what we're going to our strategies and action plans, we're more than 40 percent likely to achieve them.

  So I'm just trying to get us to that starting point. And there's a lot of different pieces to this puzzle. So when I mentioned risk earlier, you know, risk is also about contingency planning for your business. It's kind of the lights out what happens if something, you know, happens to you, right? If you're not able to serve in your business, what would happen?

  And that's about protecting the business as well as, um, protecting your future. Yeah. Yeah. So it's comprehensive. I mean, I, I certainly work with folks on a, you know, this month to month basis to as, as needed, but I love to start out with this. with this program because they get a lot of value out of the learning process and the dialogue and it's just so [00:23:00] interesting to see their kind of the light bulbs go off like oh wow I see how these connect now and oh yeah you know I've been wondering about this for a long time and now I can see you know how these dots are connecting um I would imagine so because they're just doing their business and growing it and not looking at it from.

  Just the numbers and the logistics down, you know what I mean? All of, and how it all goes together. And I guess how it'd be packaged together for a buyer. Yeah, exactly. So I think in terms of like kind of the phases of work we're doing, you know, we're doing valuation, we're doing goal setting, we're doing an assessment of the business.

  We're helping them assess their own personal readiness. We are evaluating, um, the industry that they're in and what opportunities there are for growth. And so growth planning can be part of this if they think that organic growth is inherently the way that they're going to achieve their, their financial vision.

  Let's say, uh, part of this too, you know, is not only baselining where's the [00:24:00] business today, we're setting goals for where they think their magic number is if their magic number is, Hey, I need to sell this business for 10 million in five years. And we measure it now at 5 million. Well, we've got a two X this business in five years.

  How are we going to do that? Are we going to acquire other companies? Are we going to, you know, what's going to move the needle? And, and that's where the rubber starts to meet the road, because when you put an exit timeline together and you put some metrics on it, Ultimately, that becomes the owner scorecard.

  And that's really fun. And most owners do not have an owner scorecard. Well, I think that's where you'd really come of value because they don't probably know. I mean, they might have some ideas, but then you coming with all these other different ideas, just because of you're looking at everything. I'm sure that just supercharges everything.

  It does. It's really eye opening for them. Yeah.

  
  Common Mistakes and How to Avoid Them

  And so what are some of the mistakes that you see people make? Well, one is just not doing anything, right? There's [00:25:00] so many people that are in their 70s and 80s and they're like the boots, the boots on people, right? They're just, they're not going to stay.

  They're not ever going to change. They're not ever going to do anything. And there's not much we can probably do for them, right? But I think for people, depending on what age and stage you are, Um, just realizing that, look, we're all human and that succession isn't a taboo thing to talk about. And there's two types of succession.

  There's ownership succession and there's leadership succession. So I think the other mistake is assuming as we can assume, right, you know, the acronym makes an ASS out of you and me. Um, we can't assume that. the buyers are going to be there, whether it's family or management. For the reasons we talked about earlier, some people just aren't wired that way.

  Heavy is the head that wears the crown. They don't want the responsibility or they don't have the financial acumen to do it, whatever the reasons are. So we can't assume that we know, we have to talk about it. You have to give yourself some of that space and time to have dialogue with, with people. And if it starts with your [00:26:00] family, then that's excellent.

  You know, create, um, A way for a family to come into the company, create a way to discuss with management if they are interested and then see it through, you know, have, have the intention to see it through if it doesn't, if it doesn't come to fruition and then you want to consider third parties. Um, you know, I think the other thing with mistakes is that a lot of people think that selling your business is like selling your house and they'll just take care of it themselves.

  and you know, for sale by owners don't usually work out that well. And there's a reason. And it's even harder when you're running your business full, full, full bore. You cannot take your foot off the gas. You're not able to discuss it with anyone because you've got to keep it confidential. You don't want your customers and suppliers and your employees to figure it out that you're looking to sell.

  And so what happens is it's all in your head. It's just, it's very overwhelming. Um, so one of the things that I encourage people to do is to, put together a business owner advisory team that can be including someone like [00:27:00] myself, a financial advisor, tax advisor, M& A lawyer, lawyer, and we are, we are your deal team.

  You know, let us help you so that you can run your business and let us help you get, you know, maximize the value of your company, um, in a transaction. There's a lot of tripwires. There's a lot of things that can go wrong in a deal. So why put that at risk? Oh, I'm sure. And where do you find buyers? I mean, are there websites and brokers and things like that?

  Um, we have an outreach proprietary database and a proprietary outreach process. Buyers are in databases, absolutely, and so it depends on, um, you know, how we might find them. But as I mentioned earlier, it's not like we can find every family member. We're not really looking for that. Um, on the strategics, you know, that's, um, publicly traded companies or privately held companies, and that's by industry.

  So we have databases for that. Uh, and then on the financial side, if it's a private equity groups and, and other, um, you know, [00:28:00] other examples, then yeah, we, we do buyer outreach for them too. Interesting. So you'll kind of pair them with people that you think might be interested in their business. We'll do outreach and it's, it's anonymous.

  We'll say we're representing a company for sale. And if you are interested, this is what you need to do. Yeah, very interesting. Oh, this is very fascinating to me. I had no idea that the timeline would be that long. I thought, okay, a couple of years and then, you know, here, let's do this. And, uh, Well, let's, let's parse it out a bit.

  Cause if 10 years sounds overwhelming, let let's parse it out. Right. So, cause your question was, when should we start thinking about a transition? And I said 10, because I don't know where we're starting from. Well, yeah, you have no idea. It's different for every business. Exactly. But if someone comes to me and says, Hey, I want to sell tomorrow.

  I'm going to try to figure out, is there something wrong? Is there a health issue? Usually there's a health issue. There's something negative, right? And what I'm trying to do is help you avoid the situation when you're in [00:29:00] a situation, you have to sell, right? You're in that negative situation. There's this thing kind of forcing your doors.

  You're either going to do this or you're going to close your doors kind of thing. Cause the sharks tend to swirl. They smell. Um, Then we want to prevent that. It's very stressful too for you. And, um, so yeah, is it possible to sell your company at any time? Maybe, right. If you don't do any prep and then you try to put it on the market and you want to give yourself 12 months to sell, is it, is it doable?

  Yeah, it's doable. Maybe, but the, The but is because there's a lot of prep that goes into all the things we talked about. Oh, I can't even imagine. The attractiveness and the, uh, the risk mitigation and all of those things. And just, let's just start with the basics. Are your financials in order? And if they're not, then work on that, you know?

  Yeah, I, it's very fascinating. And it's a very, the, the world, it seems like its own world. That you would be, you know, at a [00:30:00] conference of knowing who was a buyer and who is a seller of businesses and, and, and all that. And that's what I always find fascinating is that there's these whole worlds that we don't even know are going on while we're just like living our life.

  It's true because it's almost like I have a bat phone to the, like to the oval office. If I call my client will answer the phone, you know, it's a very, cause we do, we operate in this whole little other orbit of important things in their day. They're trying to run their business, but if we're in an active sale process, they're texting me and they're picking up the phone because they know that delays, you know, delays are, you know, it can be a challenge.

  So. No, it's, it's kind of fun that way, I think, because it's very strategic. It's very meaningful for families and what this can mean for their legacy, uh, and means for what it can mean for employees. There's just a lot of impact, um, ways to maximize value and ways [00:31:00] to minimize exit regrets. I mean, essentially that's my mission is how do I help clients do both of those things.

  I think it's a wonderful mission because you don't want to build a business and then have all these regrets about how much it was sold for. Yeah, it's a shockingly big percentage of people that do. It's really shockingly high. Yeah, no, I don't doubt it because if they're not prepared and preparing as they're going along and wanting to employ someone like you, Uh, then yeah, there's a lot of things.

  There's a lot of cogs that could go missing and then, you know, kind of mess it up. So yeah, that makes sense.

  
  Conclusion and Resources

  Well, thank you so much for being, this is a lot of amazing information and you guys, um, as I mentioned at the beginning of the podcast, she has her own podcast of called Succession Stories, uh, and I.

  a book called The Business Transition Handbook, How to Avoid Succession Pitfalls and Create Valuable Exit Options. And she also has a course that you can take and is the course obviously for business owners and how they can prepare their business. Absolutely. It's called [00:32:00] End Game Entrepreneurship.

  building with the exit in mind. You've got some great names, really. I'm loving them. So I will have links to all of those in the show notes, you guys, and reach out to her. If you or someone, you know, is looking to, uh, sell the business or even just prepare it for that. And I appreciate you being on again and you guys, thank you so much for listening and share this with your friends or leave us a review or let us know if you have any questions.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

Having Financial Conversations with Loved Ones

If you and your partner/spouse have difficulty talking about money, this episode is for you. Ed Coambs, CFP® and Certified Financial Therapist shares tips on ways to truly hear what your spouse is saying and find a way forward in financial conversations.

Key Topics:

• Common issues: judgment, criticism, and fear in money discussions

• Understanding your partner’s family background

• Review of the four attachment patterns: their characteristics and impacts

• Techniques for improving communication and connection

Join us to learn how to foster financial intimacy and strengthen your relationship through better financial conversations.

Links:

• Connect with Ed & take his attachment style quiz - www.healthyloveandmoney.com

• Buy Ed's book, "The Healthy Love & Money Way: How the Four Attachment Styles Impact Your Financial Well-Being" - https://amzn.to/4eYU9Wk

Time Stamps

00:14 Meet Ed Combs: Financial Therapist

01:17 Understanding Financial Intimacy

02:41 Challenges in Financial Conversations

04:41 Impact of Childhood Experiences on Financial Behavior

08:17 Navigating Financial Trust and Transparency

20:44 Attachment Styles and Financial Relationships

29:02 Practical Steps for Building Financial Intimacy

31:12 Resources for Financial Therapy

34:51 Conclusion and Final Thoughts

• Transcript

  Introduction to Me Financial Podcast

  Welcome to Me Financial, the podcast designed to inspire your financial life. Hello everyone. And welcome to the podcast today.

  
  Meet Ed Combs: Financial Therapist

  We are going to be talking about financial intimacy with couples, and we have Ed Combs here to talk about it. And he has. Multiple letters after his last name. I asked him, uh, what I should say with all of this.

  And he said, just say he has multiple graduate degrees and certifications. And you guys, it is a real alphabet soup. I don't think I've ever seen any with so many letters. So he is very, very qualified to talk about this. He is a firefighter turned financial planner turned marriage and family financial therapist.

  And he is an expert in helping couples develop financial intimacy with One of only 100 financial therapists in the U. S. And I am honored to have you on the show. Thank you so much for joining me. Thanks, Michelle. I'm so happy to be here with you today. Yeah, I have been watching your content and I was, [00:01:00] as I was saying, I think it is just so authentic and real and it's just what you have to get to, I think with financial intimacy and I am honored that you're on the podcast.

  So thank you again for sharing your time and your knowledge with us. I'm thrilled to be here. Yeah.

  
  Understanding Financial Intimacy

  So let's get, go ahead and get started about like what financial intimacy is and why people have such a hard time with it. Oh my gosh. Well, you know, what's so funny is I was teaching a class right now with a bunch of financial advisors.

  And about the therapy stuff, and we were just doing a role play about, um, having couples talk about their investments. You could tell, like, even though this was just pretend, they were so in the role of being upset with each other about their investments that you could just feel the tension. And it was just like Oh my gosh, that's not financial intimacy.

  Yeah. It's like, so what is financial intimacy? It's the sense of open heartedness and relaxed and ease in [00:02:00] your body when you go to talk about money with your partner. And that may be about your spending. That might be about your investing. That could be about your taxes. That could be about your insurance.

  It could be about your estate planning. Yeah. It could be a. But you're not meeting it with like a huge, okay, we had to talk about this, like that kind of thing. Right. The heaviness that, you know, like is there for so many of us is not there when you really have financial intimacy, because the, the requirement, the requirement to experience financial intimacy is the sense of relational security and acceptance that you're really going to be safe no matter what happens in this conversation.

  
  Challenges in Financial Conversations

  And for most of us, we either consciously or unconsciously bring a lot of judgment. Both money. So even though we love our partners, all those layers of judgment and criticism and fear show up in the conversations. And so it creates performance anxiety. Okay, that's a great way to put [00:03:00] it. And I always say that you've got to be on the same team.

  And I guess you're kind of saying the same thing, you know, that it's 100 percent Yeah, that it's And that's the way I guess I've always looked at it is that we're on the same team. And so we were always trying to figure out our mutual goals and mutual everything. And, um, yeah, so I, I guess what, in what you're saying is a lot more about the feelings in the body and which I think is great.

  Cause I think that's where we need to go. Yeah. Well, because we all live in our bodies now, whether we're aware of what's going on in our bodies or not, that's a whole nother question, but what we're feeling in our body will drive our level of. Availability and openness to being in the conversation with our partner, you know, so we may want to an intellectually understand We should be safe.

  We should be talking lovingly with our partner But next thing, you know, we're coming out with criticisms or we're withdrawing or we're being passive aggressive And we're not moving forward and making important [00:04:00] financial decisions for our household. So we've got to start with that concept. Yes. And I love it.

  You know, being on the same team together, sometimes it's a little easier for people to connect with. I think intimacy has that next level of vulnerability and, and real connection relationship. And it's a, you know, being known.

  And so do you find that people have to work for a long period of time in order to get to that point that they are feeling relaxed with their partner? I guess it depends on the on the couple, but yes, yes, it does depend on the couple. And by and large, it does take a little bit of time to get there.

  
  Impact of Childhood Experiences on Financial Behavior

  Because for most people, what they haven't experienced or seen firsthand, Is loving, safe conversations around money. And so literally their brain and body doesn't know how to produce this experience. If you will, it's kind of like learning to kiss for the first time and it's just [00:05:00] awkward. If you don't have that example, it's like watching your parents.

  And if you don't have that example of healthy conversations and they always fought, then that is how you know how to talk to people. That's exactly right. And that's where we first learn about talking about money. So it's what we saw happening between our parents or mom and dad or dad and stepmom and you know, whoever those primary caregivers were, we saw conversations about money.

  We heard them, we felt them amongst the adults, but we also felt them directed at us as kids. So where we treat it with love and care and respect and empathy, or we criticize, judge, where we control what kind of experiences did you have when you were being raised around money. And is it specifically around money?

  I mean, I could, I could see it being around. Can I buy this toy or what? But does it sometimes translate to other things [00:06:00] in life? Absolutely. Like food or I don't even know what other example to pull food, sex, friends, media. I mean, it's, there's such a wide range of experiences that we go through that all hold into our sense of who we are in the world.

  And that's what we bring then into our relationship with money. So, you know, when I look at the research, uh, there's quite a few of us that experienced childhood trauma and childhood trauma has a profound impact on our sense of who we are in the world. Our thought patterns, our emotional responses, and our behaviors, all of that, and then comes into the way we show up with money.

  So yeah, we're not just talking about money experiences alone, but what we are doing is shedding light that money experiences specifically have. a profound impact on it because it's the closest one to one relationship. Okay. And it always fascinates me. [00:07:00] Like, why is that? You know, I, I, I'm always just like, how did we get here?

  You know, like, I know it has been hundreds and thousands of years and we've had money, you know, not necessarily the dollar, but you know, food and, and all of that. But it just seems like there's so many more important things. And then we're so focused on money, but we have to, because you're not going to have a house or food or, you know, a phone or some things to get around and, you know, and it's just this conundrum of, no, my family and my friends and my relationships are the most important.

  And then you bring in this money element. And so we're taught these conflicting messages, right? Yeah. And so I could imagine that that's also part of why we have such a hard time with financial intimacy is because of that, because we're like, no, no, no, we don't really need to talk about it maybe, or it's not [00:08:00] really important.

  Yes. Both of those things are major factors, right? Is, is money a good thing? Is it a bad thing when we frame it in this black and white binary? Well, if it's a bad thing, well, most of us don't want to be associated with bad things. So then we create distance. Right.

  
  Navigating Financial Trust and Transparency

  Or we learn that it's going to, it evokes jealousy or envy or greed or insecurity.

  And those are not pro relational, not go there. Yeah. You don't want to make anybody feel small. Right. I mean, most of us don't, there's a few out there that seem to get their rocks off a lot, but that's a whole different problem. Um, but right. What we do learn is that what we share about ourselves. has an impact on people's response, right?

  So if we say, Oh, I'm gonna, you know, I have young boys now, and they're like, Oh, well, we're going on this trip. Well, they're watching their friend's response to that trip. And, [00:09:00] and then, you know, their buddy's going off on a trip or get a new toy and they're having a response. So they're learning as they go, Oh, people have responses to what I'm doing.

  And You know, while going on a trip is not directly about money, it takes money to go on the trip. But people will assume things when you. People are assuming and filling in all kinds of things. So, and that's the thing is, as humans, we're always making meaning and sense of things. There's no avoiding that.

  And I think that's the hard part. That, that's part of what brings the complexity. And so how do you, do you give people tools to deal with that kind of stuff? Is that kind of what financial therapy is, is not only dealing with, with your stuff, but also learning how to deal with the reaction of others?

  Absolutely. That's a large part of it is learning how to Work with your own [00:10:00] reactions, work with other people's reactions. What do you do, you know, and especially in the context of working with couples is, you know, well, I normally shut down and withdraw when my partner does this. Okay. Well, is that helping you?

  Probably not. So then how do we get into a productive conversation about talking through spending, let's say. So recently I was working with a couple where the wife, you know, And not to be overly gender stereotypical, but, you know, she was the, um, responsible for buying all the household goods for the kids, right?

  Okay, well, that's fine. No argument with that. Great. But the level of anxiety and the, the missing and her husband is trying to say, well, Hey, you know, we need to talk about this. Well, don't, you can't tell me what to do. This is my job. Defensive guardedness. Has he been critical of how much she spent? Oh yeah.

  That too. Right? So there's a history. There's a history. There's always a history, [00:11:00] right? But part of his concern that she's not seeing is he's thinking about their retirement and not working in 20 years. But at the pace that they're going, it's never going to happen. And this is not a family where there's not enough income coming through.

  So they're really stuck in trying to figure out what to do. You know, like, how do we balance this meeting the kids, the needs of today with the kids? And it's more than just saying, well, get on a budget. I mean, being on a budget and understanding the clarity of how much money is flowing through is a part of it, but it's being coordinated.

  And there's also relational trust issues there. Will you be there for me in the future? Right. And will you be, are we on the same page about our goals? Are we on the same page just about, yeah, about balancing what is for today and what's for tomorrow. And, um, yeah, I could see it. Cause if you're not on the same page, I mean, it's just, you're living separate lifestyles while in one [00:12:00] bank account.

  Yes, and that's why sometimes they go on and create separate bank accounts, thinking that will solve the problem. And yet it usually drives a further wedge. Yeah, that was one of my questions for you is what, what is your opinion about separate bank accounts? Does it work sometimes? Uh, yeah, you know, I don't think, I'm not a fan of hard and fast absolute rules, um, but in general, I think that the separate bank account thing doesn't work out in the long run.

  Um, it's, it creates a lot of issues around financial transparency. And so my big question for couples is, how do you deal with that? Why do you need separate bank accounts? Is there a, usually there's a fundamental trust issue. So if we can solve for the trust issue and build trust, does that change the need for it?

  Um, at the same token, I'm a pragmatist and realize like some partners are pretty irresponsible with money. [00:13:00] And there's a need to create some sense of separation and safety. And so I don't, yeah, I don't want anybody listening and being like, okay, well I guess I've got to just force it all together. No, please don't just force it all together.

  There's usually some changes that need to happen before. Yeah, I'm sure there's some steps, yeah, that need to happen beforehand. Yeah. And so if you're just getting married, so let's pretend people are engaged and they're coming to you and saying, I, they have ideals, right? And one wants to jump in the same, I call it jumping in bed together, jump in the same bank account.

  And then the other one is very adamant about wanting separate bank accounts. So are there, there's obviously then steps that they could get to, to then merge. Because that was a real surprise to me when I got married was, Oh, we're not only merging the house and like kids, but we're merging like our finances.

  And that was a whole nother [00:14:00] like spiritual, emotional blending for sure. I mean, absolutely. Yeah. Right. And that we're together in this, you know, and together in our goals. And that was just a huge realization for me. And just, I would imagine that some people get engaged and they're not even thinking that way.

  Yeah, I don't know what the percentages are, but the number of couples that are surprised about that process of joining their financial life together is high. Really? Like anecdotally, you know, when I talk to people, they don't have proactive conversations about their expectations, about how are they going to manage the money and blend it together.

  But inevitably there's going to be some different ideas about how to do that. And where I like to go first with couples is backwards. What did you see in your family? Why was it structured that way? Does that still make sense now in the context [00:15:00] of the relationship that you're in? But, you know, a number of people have gone through.

  family environments where it was contentious and money was taken or treated in very inappropriate ways. And so there's a natural kind of self protectiveness that comes with them around sharing their financial life and blending feels very dangerous or threatening. And so we want to respect that, just like if we're getting to know our partner and we're trying to be sexually intimate with them, but we don't know that they had an experience of sexual abuse in their past, well, that's going to color their ability to be open and comfortable and intimate sexually.

  The same is true with our finances. It's the same thing. It's that amount of intimacy. Absolutely. And isn't it interesting that money is that intimate? Like people, and that's, I've heard that saying before is that people are more willing to jump in bed together and be sexually intimate than they are to be financially intimate.

  100 percent because, you know, [00:16:00] risking sound a little crude, even bad sex is good, right? Like if you have an orgasm, okay. I had an orgasm. Maybe it wasn't the most intimate mind blowing experience, but, but if we share. Bad sex was good. Okay. But then when you share money, that could be devastating. Okay. Like you don't even get an orgasm at the end of sharing money.

  So it's not a perfect analogy. And I certainly don't want to, um, overgeneralize this, right? It is. No, I think that's a great analogy, but we, but I think if we go to the other side is when we're having great sex, it's so connecting. It's so meaningful. It's so pleasurable. What would it be like to have a financial orgasm with your partner?

  What's the equivalent of that? Wow. I don't know. That's quite a question. It is quite a question. And I, you know, I don't know that I have had, have fully had that experience or like, but it's [00:17:00] provocative intentionally because it's like, what would it be like for us to really come together in this? You great trip of a lifetime where we both have saved and we both meaningfully feel connected to it.

  And we both get through the trip. We're like, wow, that was an incredible trip. And I'm so glad we just spent 20, 000 doing it or, you know, whatever the number doesn't matter. It's that sense of joint meaning and purpose that we use our resources to create this experience. It's going back to the newlyweds.

  That's when you first really start learning about how you're going to manage money. How much money are you going to spend on this wedding? What's the value of spending money on this wedding? Yeah, are we going to argue about how much we're going to spend on the wedding? And, oh, by the way, let's add in parental expectations of what you're doing or not doing and how much support is going on.

  So we really are learning about our partners, almost, I say we're learning about our partner's financial life from the moment that we meet them. Oh, absolutely. Right. Going out to eat or [00:18:00] where they take us on the first date, the drink they have. Absolutely. It's true. They talk openly about it. How do we split the bill?

  What does that mean or represent? Gosh, this is so interesting because I'm very lucky in that, you know, my husband and I, we don't have arguments about money. And, uh, you know, I don't know. It's just not, it's just not, I feel so lucky because then I interviewed these people on here, like you, and there's like, all these people have all these issues and it's the number one reason that people get divorced.

  And, you know, so it's, uh, it's very interesting to me, but maybe it's because I talk about money all the time. And so I'm not worried about, like, I talk about my money with everybody. And so I've never understood why people get. so closeted about their money. Um, cause it just is what it is to me, but you know, I'm sure I feel differently about other things that other people are really open [00:19:00] about.

  And, um, do you think it's always been that way for you or is that something that's developed over time and with maturity and experience? It's kind of developed over time, but I think it's once I realized that we were pooling and, you know, wow, this is, We're together in this and then having that conversation with him.

  I mean, he was a little bit more, uh, you know, maybe hiding some things here and there or what, you know, not, I wouldn't say hiding. I should say, um, just not jumping on board as fast as I did just because he didn't see my vision, you know what I mean? And so it was more of the sharing the vision. Uh, but I often say that like, if he was hiding something from me, I would feel like he was cheating on me.

  Yes, we like to call that financial infidelity. Okay, absolutely. Well, that's how I feel if that was something were to happen. I mean, because I'm like, don't pay for that ship or, you know, because to me, that's cheating on me. Right. [00:20:00] Well, because if you see money as a shared resource and it's works have this expectation of full transparency, but then you're doing something separate, then we've violated our shared rule or value of being financially transparent about what's going on.

  Right. But we hide. things out of the fear of being criticized, judged, rejected, or shamed. And that may be because of the partner we're currently with, or that may be because of past experiences that we've had, or the combination of the two. So even if you're a loving, safe, open person, and it's cool to talk money with, that doesn't mean that he can transfer that fully onto you.

  It's going to have to be earned. Yeah. It's a process for sure. Yeah. Yeah.

  
  Attachment Styles and Financial Relationships

  And so, and you often talk about, um, attachments into people's different attachments. Can we kind of go into that too? Yeah, absolutely. So that's, um, you know, a field of psychological science and research that's been around for 80 plus [00:21:00] years.

  And really what it's looking at is how do we form relational bonds with our primary caregivers? So mothers, fathers, when they're caring for the babies, what's happening for the baby's development and sense of who they are in the world and what are relationships like? And what the research has led us to understand is that people end up falling into one of four kind of relationship categories.

  One is secure, one is anxious, one is avoidant, and the other is what's called disorganized or fearful. So what does that mean? So if you have a secure attachment and about 50 to 60 percent of the population fall in this broad category, Oh, that's good. I mean, I would imagine that secure is a good one.

  Secure. Well, you know, we like to classify as good or bad, but there, it is probably the most preferred, right? It's the most relationally comfortable inferred in the same secure. I guess I just put it as there's not as much trauma to heal. [00:22:00] Ding, ding, ding, ding. Yeah, because we all know that trauma takes a long time to heal.

  Trauma does take a long time to heal and it, it impacts our relation relational attachment patterns. So if you have trauma in your history, You're more likely to have either anxious or avoidant attachment patterns, right? Which are basically saying that relationships are not safe or predictable, and I've got to do one of two things.

  I need to either be overly invested in the relationship, the anxious side, and try to make sure everything is working all the time, and I'm minimizing my own needs. So I'm pretty occupied with what's happening in relationships. I'm always worried whether I'm safe or I'm accepted and I'm working really hard to try to make things go well.

  I view other people typically more positively than myself and it's exhausting. I would imagine. So on the other side is that avoidant dismissing side, which is like, I don't really trust anybody to understand my needs. I'm going to do me. You [00:23:00] can't possibly understand what I need. So I'm going to just, reject you.

  And anytime you make bids for connection or being close, I'm going to kind of create some distance. And how often and how intent that is varies depending on severity, right? But they have a more positive view of themselves. So I mentioned this, uh, other category, which is disorganized, fearful. They move back and forth between the anxious and the avoidant patterns.

  So it's a real kind of push pull come close. Once you come close, Go away, back off. Wait, why are you pulling away? Come close to me. You're coming close to me. Wait, back off. It's, it's too hot or too cold. It's never just right. Um, whereas those with the scares, like they really know how to manage closeness and separateness and they tolerate and expect closeness and separateness.

  Um, so that those. When I, when I think about my clients through the lens of attachment, it helps me better understand why are they struggling to get [00:24:00] an act. And so if they have these attachments and they are together, right? Cause I would, the anxious is often with the avoidant, right? Yep. And if they have those, there's tools that, or is it mostly like you just need to understand each other and have empathy for where they're coming from?

  Oh, no, there's lots of different exercises that can be done to try to build towards secure relating or secure attachment, right? So this has been a little bit in the weeds, but secure. Secure. Relating is just learning the patterns of like, what does it look like to relate securely? Maybe I still am more avoidant, but I've learned like, Oh, I do need to be curious.

  Michelle, how are you doing today? Oh, I see you need to blow your nose. What's happening? Or, you know, it's like, but it's like, I still really don't want to be that close to Michelle. It's just, I've just learned to, that I need to be engaged. [00:25:00] Right. Versus really like your whole relational map, what in technical words, what we call is the internal working model.

  It's a relationship map in your brain about what relationships are like. Trying to get that to evolve, that's really challenging, right? How you see and experience relations, because it's held at a mostly unconscious and automatic level. Yeah, it is. Right? Because our relationship map is built in those first months and years of our life.

  Yeah. It's pre verbal. And so we don't change those parts of our brain very easily, which is why the first couple of years of life are so important. Exactly. And even the inner uterine environment when the mother is carrying the child, very important because there's all kinds of neurochemicals and hormones that are being released.

  And so the mother's sense of wanting or not wanting the child can even be transmitted while the baby is being carried. [00:26:00] So this can feel really scary and overwhelming for people to hear and, um, understandably, and the hopeful side is there's, uh, a phrase that's used is called earned secure attachment, where when you have new relational experiences of being met, being seen with empathy, eye gaze, eye connection is a big part of that.

  It goes into that sense of, I am loved, I am safe. And we wash, rinse, and repeat that often. Okay, and that works even with adults because I know it works with kids and that you're staring at them and you know, you hear that a lot with babies, but you're saying that even as an adult that it's important to create eye contact.

  Yes, eye contact is a primary means of attachment and bonding from infancy through adulthood. Eye contact can also mean threat. too. So that's why, like, what's the [00:27:00] presence in the eyes, right? Like as where people can't see us, but we're in video, like you're looking into the camera. I can see your eyes looking at me.

  It's like, Oh, this feels pretty comfortable. It feels like Michelle is really engaged with me. I feel comfortable. So that having that experience with your intimate partner over and over again is very important. So one of many exercises is I'll have couples turn and look at each other and actually make eye contact before they start talking because if they make eye contact with each other, it automatically shifts the tone of the conversation.

  I would bet. Yeah, I bet it softens it a lot. Big time. So imagine now coming back around to financial intimacy. Before you start talking about your budget or your spending, before you talk about saving for the kids college, before you talk about how much money you're gonna spend on the trip for the vacation, what if you just took 10 seconds to slow down and say, let's get [00:28:00] connected with each other first.

  Let's have some eye contact. Yeah, I would think that would just. help leaps and bounds. Yes, especially for the secure anxiously attached person for the avoidant dismissing that's going to be more threatening because they're not wanting to connect. Right. They're abused, used to not wanting to connect. And what we want to remember is these attachment patterns were not chosen so much as they were developed automatically.

  How does anxious develop? Is it that they weren't paid attention to, but they reacted and being coming anxious? Because I see the avoidant in that, you know, oh, you were ignored. And so I can't count on anyone. Yeah. So I think it's it's right. You can have the same type of parenting experience and you can go either way on the attachment.

  Interesting. Yeah. Just depending on the the child, depending on the child. OK. [00:29:00] Interesting. Wow.

  
  Practical Steps for Building Financial Intimacy

  And so I think even cause I know that we can't dissect this down into a lot of things that people can, you know, over a podcast, but if one thing that people could take away for creating financial intimacy, it sounds like they could just before they even start a conversation, look in each other's eyes.

  Yeah, they could practice and I would offer play with, right? And, and recognize that you, okay, you listen to this podcast and you go, Hey honey, guess what? I just heard on this podcast about this thing, financial intimacy, and we're supposed to look in each other's eyes. That could go really well. That might go kind of sideways depending on where your relationship is.

  Because it could be threatening or something. Right. And it could be feel really off the wall and depending on where you're at in your relationship health, you know, let's be mindful about that as an exercise. So if you're in a reasonably loving, stable relationship, by all [00:30:00] means, have at it. If you're in deep resentment and anger, probably not the place I would start.

  Okay. All right. I might just start with, Hey, can we listen to this podcast episode about financial intimacy together? So doing something together, but not necessarily talking, right? Okay. Yeah. Or let's read the same book. Yeah, let's read the same book. Um, can be another one. Sometimes it's really hard to get a partner to listen to a book or read a book.

  And that's why I like podcasts seem to be an easier slide than a book. Um, so yeah, I mean, listening to podcasts is a way to start gathering what we would say is top down information. Understand about how it can or should be, and then moving into more of the experiential practicing and doing. Right, because knowing about attachment styles does not make you secure.

  No. It just means you know, like, this is where I sit, [00:31:00] this is where I sit. Possibly my partner sits and this is where we need to go, but you actually got to do right. Does your book cover what some steps to take with each attachment style? Yes. Okay.

  
  Resources for Financial Therapy

  So there are exercises in my book, the healthy love and money way, um, that people can grab a copy of and there's reflective exercises at the end of every chapter, as well as some of those kinds of practical exercises.

  Okay. And that's the name of your podcast too, right? Healthy Love and Money. Yeah, the Healthy Love and Money podcast. Okay. Yeah. Just making sure. You know, everybody, I will link all of that. I'll have a link to his book and to his podcast in the show notes. So, just so you know. If you don't mind, I'll put a little shout out.

  I also have a course, so if you want more exercises. I created a course called the couple's guide to financial intimacy. Wonderful. So you can access that, uh, through my website and it has 10 modules with, you know, very short lessons, five, five [00:32:00] lessons in each module, plus or minus, and each lesson will take five, 10 minutes.

  You can just baby step your way through that and, um, continue to understand the range of financial intimacy. So is it, is the online course, is it mostly, um, like filling out forms and stuff or are there some videos or? Yeah, there's a lot of prerecorded lessons and videos and then, uh, with exercises that you can do with your partner.

  Wonderful. Okay. Well, it sounds like there's a lot of resources and of course they can call you and do some financial therapy. Yes. Yes. Also through the website, um, they can do the, get the financial therapy, embed it with my financial planning process. And so what I know, you know, you're a financial planner as well, right?

  When we're taking people through the financial planning process. They have all kinds of relational reactions and psychological reactions. And so, you know, if you need that deep level of support around what's happening with me and how do I work with that, that's where the financial therapy [00:33:00] really comes into play.

  Yeah. Well, and I've learned a lot from following you and, uh, because you post videos about even your kids, things that you're dealing with, you know, it's, It's um, really a story of, again, just being so vulnerable, I think, online about like what, just the things that you're going through and even your family as in the way to talk.

  And I think that's what's so important. I've learned throughout the years is just how to talk to people and how to be empathetic and meet them where they are. And I, I just view it as like you'd be on the same plane rather than being above or below them. You are like on the same plane and you're just meeting them exactly where they are to start with.

  Yeah, absolutely. I mean, we're, we're all humans at the end of the day, right? We're all worthy from my perspective and we all have a complex history and relationship with money. We may have some areas where we're more effective. Then others, but we also [00:34:00] have our own blind spots that, you know, we need to continue to work on.

  And so, I mean, this, this work is a journey of necessity for me, right? Yes. I didn't want to see or experience some of the same things that I saw in my family or that I saw in my wife's family once I got to know them. And so it has been this kind of good on, on, Continuous questioning. How do I do this better?

  How do I do this better? And even when we're trying to do it better, we still make mistakes and mess things up and that's okay. Yeah. Cause life changes and you know, you grow and your kids grow older and there's just different situations to deal with. So that makes sense. Or you're like an awkward five year old trying to learn to do T ball.

  And it's like, I see the big kids swinging the bat. I'm surely doing it the right way. And it's like, swing and a miss, swing and a miss, swing and a miss. And then finally you hit the ball and you're like, Oh, that's what it's supposed to feel like. Right. Yeah. And then all the hard work pays off. Yeah.

  
  Conclusion and Final Thoughts

  Well, Ed, thank you so much for being on.

  I really appreciate it. Absolutely. Michelle, I appreciate the opportunity to talk with you. Yeah. This has been a very [00:35:00] eyeopening. And as I said, everybody, um, I'm going to link Ed's book and podcast and website and everything in the show notes. So if you want to, Uh, explore any of his options, then you will know how to contact him or let us know if you have any questions.

  Uh, and again, thanks for being on and thanks for listening, everybody.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

How to Invest in Alternative Investments

In this episode, we explore the basics of self-directed IRAs and how they work. Discover the wide range of alternative investments you can make, from hotels and self-storage units to real estate and even businesses.

Self-directed IRAs are less complicated than they seem and align perfectly with my philosophy of investing beyond the stock market into real estate and alternatives. Join me as I break down the essentials and show you how to diversify your investment portfolio.

We cover:

• Impact of tax status on control over IRA funds

• Overview of alternative investments not available through traditional custodians

• Comparison of costs between traditional and self-directed IRAs

Time Stamps

00:22 Understanding Self-Directed IRAs

01:01 Alternative Investments Explained

01:35 Custodians and Their Roles

04:24 Self-Directed IRA Companies

07:32 Fees and Fraud Considerations

11:18 Conclusion and Final Thoughts

• Transcript

  Introduction to the Podcast

  Welcome to me financial the podcast designed to inspire your financial life.

  Hello everyone. And welcome to the podcast. I am Michelle Moses, your host. I am a certified financial planner, realtor, and former e commerce store owner. And today it is a solo show.

  
  Understanding Self-Directed IRAs

  We're going to be talking about self directed IRAs and self directed accounts, I think is what I should say. Uh, and I, this is actually a request from a listener.

  And so I really appreciate this because I never would have thought. to, uh, talk about this because this is part of my everyday life. I mean, I deal with these, uh, every day of my working life because I deal a lot with alternative investments. And if you have listened to some of my other episodes, it is episode number four and number 35, and I will reference those again later, uh, those are kind of my deep dive on alternative investments [00:01:00] and how they work.

  
  Alternative Investments Explained

  And what I mean by alternative investments is when you want to invest in things. Uh, like, uh, real estate, self storage. Uh, you want to buy your own house, you know, like a house that you would rent out. Uh, and these things are called private placements, limited partnerships. You can buy tax lien certificates.

  Uh, and then there's other alternative investments that you could do. You could do like precious metals and commodities. So really when it's something. That you want to hold that is outside of what you can get at a normal custodian.

  
  Custodians and Their Roles

  So like Schwab or Fidelity, and you need to think of a custodian. Like, so when you have an IRA, you haven't paid taxes on the money.

  So the money is FBO for the benefit of, and then it says your name and because you haven't paid the taxes on it, it is for your benefit, but it's really not your money, that's the way I think of it. Until you pay taxes on your money. it's not your money yet. [00:02:00] And so you have it in a Roth IRA or a regular IRA or a simple IRA or you know, your 401k, which at whatever platform you have it in, whatever kind of account, that's like the, just the title of the account, but they all kind of work the same.

  Whereas, although the Roth, we should put that kind of off to the side, you haven't paid taxes on the money in an IRA and a Roth you have, however, that also has government rules. So you're following all these government rules. And when you're doing that. You need to hold your account at a custodian and what that means is that they are doing record keeping on your account and they're tracking whether you're moving 5 from one IRA to another 5, you're transferring that over to, you know, your Schwab IRA or wherever else you might have another IRA.

  They need to keep track of that and have a paperwork trail and they send in the paperwork to the government for your taxes, how much you put in, maybe you have a distribution, [00:03:00] uh, all of that. So they're really record keeping for you. And when you have your retirement accounts at one of these large brokerage brokerages, um, you, You know, you can do stocks and bonds and CDs, mutual funds, exchange traded funds.

  That's really the limit of what you've got, but you've got to think of it too that, um, you know, you're getting these from like people that have been vetted. You're, you're not going to be frauded. Yes, the market could go down. Yes, there could be something that happens in the market, you know, as a whole, but you're not going to be frauded, uh, out of your money because you, these people have to go through a vetting process and be reviewed and by the SEC and, and by, uh, Schwab or Fidelity or whoever they're on.

  in order to be on their platform. Okay. So it's kind of a safety net is how you need to think of it. And then when you [00:04:00] move over into these other custodians that do self directed IRAs, and sometimes you'll see it as an S D I R A. It's just short, shortened for a self directed IRA. It's just so that you can invest in other things outside of the stocks and bonds and mutual funds and CDs.

  And so you're, you're wanting to kind of expand your horizons and expand your investment horizons. Okay.

  
  Self-Directed IRA Companies

  And you want to go to a, there are these, Certain self directed IRA companies around the country. I mean, there's, there's quite a few of them and there's quite a few that are pretty good too, uh, where you could roll your IRA, but you're not going to be at most of them.

  I would say 99%. I actually I've never seen another one where you could do stocks. And bonds and CDs. It's not a bank. So a lot of times like Schwab and, you know, they have special like banking clearances to where you can buy all of these stocks and bonds and CDs. Whereas when you move over to the self directed IRA [00:05:00] space, they're really kind of a, just kind of a record keeper is the way you need to think of it.

  Like when you invest in something. They're asking for you to report every single six months, a year, just depends on, on the company. Um, they want reporting on everybody's accounts. You know, what is the asset valued at? Uh, whenever there's a distribution, you need to send it into the account. It can't go directly to the client's house so that we can track it.

  And so then we can then. Send the paper, proper paperwork to the government for your taxes and all of those things. Uh, so you're, you need to think of it like when you are at these custodians that you've heard of, and that you know the stocks and bonds, like we all know all of this. It's almost like we're, it's drilled into us with all of these, articles and, and things that we've read over the, over our lifetime.

  But the self directed IRAs is when you want to get into something that's a little bit different. So if you're wanting to get into some precious metals like gold or silver, um, [00:06:00] then, you know, there's these companies where you can buy actual gold, you can buy actual silver and they'll hold it like in a vault for you.

  And then they'll report to the self directed IRA company. Um, that it's worth 50, 000. And so then you can see that there's a value in there. So there's obviously a lot of advantages of that. And I use these all the time to invest in alternative investments. I'm a huge believer in not only investing in stocks and bonds and exchange traded funds and things like that.

  I really like to diversify with alternatives. And so, uh, self storage hotels. You know, uh, apartments, which is called multifamily, uh, a lot of that kind of stuff, you've got to hold it in a self directed IRA. Uh, and I, I think it sounds super exciting. People are like, Oh, okay, well, this sounds awesome. And I do think the only downside is that the custodian, the self directed IRA custodians, [00:07:00] they are not vetting these companies.

  That it's, it's truly, they, You know, reach out to these companies and say, Hey, I've got somebody that wants to invest with you or they get approved on the platform and they fill out some paperwork and then they're basically saying, yes, here's our address, here's all of our information and yes, we can fulfill the reporting requirement that is every six months or every year.

  Yes, we can send in this Excel spreadsheet or whatever this paperwork is to update a client's account. So that's essentially. Okay.

  
  Fees and Fraud Considerations

  And you're also going to be paying more fees at the self directed IRAs, right? Cause you've got two different accounts. So you're paying an account opening. You're going to pay per transaction per year because it takes a lot more paperwork, a lot more man hours in order to report on these, you know, real estate holdings and all of these different alternative investments.

  And so you want to, you know, you, you don't want to, [00:08:00] I don't know. You want to make sure you're going to make enough so that you can pay the fees. And I'm not saying it's an exorbitant amount. I mean, I'm with one and it's 50 a year per position. So if you've got 25, 000 in a hotel investment, 50, 000, a hundred thousand, it's still 50 a year for that one particular position in your account.

  So it's not like it would add up that much, but if you're not making anything for five years, then, you know, you do want to be aware of that. And back on the fraud thing. You know, I have seen some of these limited partnerships and what limited partnerships mean is, you know, you Someone says, Hey, I want to build an RV park.

  I want to go raise money for it. Here's the documents. I want everybody to put in at least, you know, 50, 000. I need to raise 10 million. And here's all the parameters of what you're going to make. I mean, these people could. Walk away and disappear with all of your money. So they don't do, you know, the, the, the self directed IRA [00:09:00] places, they don't do the due diligence.

  They don't do any research. You know, you need to make sure that you are investing with someone. Cause what you're essentially doing is you're sending your money to this custodian, the self directed IRA custodian, and then they're going to send your money, that check to whoever you say it. To send it to and then that person has your money and you are trusting them with your IRA money to then go invest it and you are trusting them to then send you distributions back to your IRA and the self directed custodian is not doing any due diligence or fraud detection or anything like that about whether they are upstanding or whether this is a good investment.

  Whereas if you're with a Schwab or, uh, Fidelity or someone like that, they have done the due diligence to make sure this is an upstanding company and that, you know, they're legit is really, I need to think of it. Um, and so I, that's really all there is [00:10:00] about, uh, self directed IRAs in an IRA. I mean, you're never going to be able to hold Life insurance and S corporation stock, which is somebody that is like my size, you know, I'm an S corporation.

  It's just a tax election You can't hold any of that and you can't hold any collectibles or anything that's a prohibited transaction which That's kind of a long conversation, but collectibles, you know, like art, you can't hold that in an IRA. So you're never going to be able to hold life insurance or collectibles inside your IRA, but you could do gold and silver, which some people are really interested in doing.

  Uh, and so I think just being aware of the fees, making sure that you're with, um, a custodian that has some good reviews, that's good to, With me and any financial company that I'm dealing with, it's always about customer service because you know how frustrating it is when you call and nobody knows what they're doing or [00:11:00] they give you a wrong answer.

  And every single time you call, It's a different answer. And so I'm just really big on customer service, because if you can't get to your money and they're basically holding it hostage, it is like the most frustrating thing ever. And I deal with it all the time. And maybe I was just telling you that because I deal with it all the time.

  And it's one of my big annoyances.

  
  Conclusion and Final Thoughts

  Anyway, I hope that helps you with self directed IRAs. Uh, and if you are investing in some of these things with just cash, you obviously. You don't need a custodian. You don't have to have it there. You could just, you don't just send your cash directly with these alternative investments.

  But when you actually want to use your IRA for something else besides the stock market, you're going to have to employ a self directed IRA place. Um, and I've seen every major city has them. Um, and, You know, and they're at a lot of these alternative investment conferences that I go to, uh, there's not, you know, millions of them or anything like that.

  And they're not huge companies. Uh, but you know, I think if you're asking an [00:12:00] advisor and they deal with alternative investments, they usually have an opinion about it or the investment that you're going with. We'll have an opinion about it. Uh, so let me know if you guys have any questions. Again, the other episodes that I have done that are about alternative investments are episode four and number 35.

  If you want to learn more about alternative investments, uh, 35 is much more of a deep dive about the limited partnerships that I was speaking about. Those are for accredited, accredited investors. And that means you have over a million dollars or 200, 000 a year in income. Uh, so thank you guys for listening.

  I really appreciate your feedback, your questions and just, yeah, I am loving doing this podcast and I really hope that this helps in your financial life. So thanks so much for listening and, uh, have a great [00:13:00] day.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

How Can You Maximize Your Social Security Benefits?

Are you wondering when to take Social Security and how to maximize your benefits? In this episode, I talk with retirement planner, Greg Kurinec, CFP®, MRFC® about strategies to get the most from your Social Security benefits so you can live a fulfilling retirement.

Greg, explains the decision-making factors for taking Social Security early or delaying it, emphasizing the need to consider health, life expectancy, and employment status.

We also cover:

• Utilizing pre-tax accounts to bridge the gap before claiming Social Security at age 70.

• Conversion of pre-tax accounts to Roth accounts.

• Potential reforms to preserve Social Security.

Links:

Contact Gregory J. Kurinec, CFP®, MRFC® - www.pennantplanning.com/

Time Stamps

00:15 Introduction to Social Security

00:31 Guest Introduction: Greg Kurinec

01:15 The Importance of Unbiased Financial Advice

02:41 Conflicting Information on Social Security

04:23 Understanding Social Security Statements

08:51 Spousal and Divorced Benefits

10:54 Early Retirement Considerations

14:14 Full Retirement Age and Beyond

15:06 Tax Implications and Planning Strategies

23:27 Maximizing Benefits for Married Couples

26:28 Final Thoughts and Conclusion

• Transcript

  Welcome to Me Financial Podcast

  Welcome to Me Financial, the podcast designed to inspire your financial life. Hello everyone. And welcome to the podcast. I am Michelle Moses, your host.

  
  Introduction to Social Security

  And today we are going to be talking about everyone's favorite topic, social security. Um, we are going to be talking about whether you should take it early or late or delayed.

  Um, and what are the benefits of doing some of all those options.

  
  Guest Introduction: Greg Kurenik

  And today to talk about that, I have Greg Kurenik and he is also a certified financial. A planner and he likes to help, uh, provide unbiased retirement planning information and spread financial literacy among the community, and it has been something he's been working on his entire career.

  Thank you for joining us. Michelle. I appreciate you having me today. Yeah, I, and this is a topic that I've been wanting to talk about, and I'm glad to have another advisor on, uh, because we were talking before the [00:01:00] show that I, you know, don't often get to talk to other advisors that are kind of at the same level.

  So it's, it's, it's, It's nice to, you know, kind of throw some ideas back and forth. So, um, Yeah, it's nice to know we're not on an island all by ourselves. Exactly. Exactly. That's exactly how I feel.

  
  The Importance of Unbiased Financial Advice

  Uh, and I want to kind of tout Greg also because his bio, if you were to go to his website, which will obviously be in the show notes, but, um, He is really all about the same things I am providing unbiased honest advice and that there's so many people out there just pushing product that we are kind of on a mission to change.

  I don't, I don't even know if it's to change the world, but to change the financial services industry to not be so pushing product and making commissions to where you're actually getting good advice and sound advice from somebody that knows what they're talking about and just has their best interest at heart.

  And yeah, yeah, right. And, uh, and it gets so frustrating sometimes [00:02:00] when you like hear people or, you know, I don't know, I'm sure you've had the same frustrations that I've had. Yeah, for sure. You know, um, like you said, we're not out to push any particular product to almost the way that I think of it. The product that I'm trying to sell is a successful retirement, you know, it's, it's a whole, it's not anyone.

  insurance policy or annuity or stock or bond or anything like that. It's looking at it as a whole and bringing it all together, which is why all these different areas need to be focused on, whether it be Social Security, Medicare, things that don't have to do with rates of return or commissions or fees.

  That need to be addressed for everybody. Right, right. Yeah.

  
  Conflicting Information on Social Security

  And I think social security is a huge question because you'll read one article where it'll say to take it early, and then you could, you know, work and maybe pocket the difference or, uh, and then other people say, well, you should delay it, and then it'll go up more.

  And that, you know, and then you're obviously working longer. So I'm excited to talk about this because [00:03:00] people get such conflicting information, right? I mean, it's like you could read an article a day. Not only is the media out there perpetuating so many different strategies, which is good because it is, there is no one size fits all for anybody.

  It's important to know that you have options, but you know, your brother in law, your mother's brothers, cousins, best friends, uncle is going to tell you that you should absolutely take it this way. And there's all sorts of different information out there. So making sure that you have clear, concise. When it comes to your own personal situation and your filing strategy and so important, Yeah.

  And there is a just kind of like a tangent, but there was like a social media posterno, it was like an email and it was like, he signed up and get a new retirement strategy in your inbox every week. And I was like, man, that sounds so God. super freaking stressful. Like there is no way I would want a new retirement strategy to try to have to learn every single week.

  And that was for just like a [00:04:00] normal person. Like as me, even I'm like, I don't know. That sounds super confusing and that I would know, not know what direction to go in. Be two different retirement strategies in a year. That's a lot to take, put our arms around. Yeah. Yeah. And this was every week, a new retirement strategy every week.

  I'm like, I don't, I don't even know where you guys are getting your stuff, but. Not for me. Anyway. Okay. So security.

  
  Understanding Social Security Statements

  So let's come back around to social security and let's just talk about, I mean, everybody knows what social security is, right? I mean, there, there's no surprises there because we have it all taken out of our checks and so, right?

  Yeah. And so, um, what are, so we all know what it is. And I think the only changes that have really come into place is that they're not mailing statements anymore. They only mail them if you're over the age of 60. Correct. Okay. Correct. Okay. And, uh, most people just want to know. And then I, I think that's when people really start to look at it.

  I would actually say, what age do you think? I would actually say like 55 [00:05:00] people start to get like super serious about retiring. Yeah, you know, that's it. I see the, the people that I'm running into between 50 and 55, especially if they're talking to me, I'm telling them to go get it. And they don't even know how to get it or where to get it or anything like that.

  So it is still available, even though you're not getting it in your mailbox. It's available online. Just go to the social security website and you'll get your statement. It comes out in the month of your birthday each year. So that's when you get your new statement each year. But yeah, 50 to 55 because when it comes down to your retirement planning, social security is going to play a significant role into that.

  So you want to make sure that you have an accurate account for what your benefits could be at your retirement age, whether that's at your full retirement age, or you're going to work later or retire earlier, you know, so you have an understanding of, okay, what kind of role is social security going to play?

  Yeah. And I think that people, uh, don't realize when people are, and I would just say in general, to me, I mean, even people [00:06:00] that save, I mean, social security is a major part of their retirement income. Right. Yeah, for sure. You know, when social security was first signed into law back in 1935, you know, back then everybody was getting pensions.

  Okay. Now pensions are almost a thing of the past for the majority of people out there. So because of that, social security has taken the place as the pension and has become a larger portion of people's retirement planning. So they have their 401ks and IRAs and all those different things, but really social security is the one forming that base.

  Yeah. Yeah. And it's nice. To know that there's something there that will be there every single month. And then that the Medicare also, so a lot of people wait to retire because of Medicare too. They don't want to pay all the medical premiums. Um, so that, that's a huge thing too. You find that also. Yeah, absolutely.

  You know it, I'm glad that you're confident. And I'm confident that social security is going to be there because the people that I talk to are so afraid that it's going to go away, that it's going to run out of money. And again, that's, you [00:07:00] know, uh, a lie that's perpetuated by the media. So social security is never going to fully go away there.

  There are fail safes in place to help protect us, and that doesn't mean that we're not due for some reform. We haven't had major social security reform since 1983, so it's time to make some changes. And, um, from what I could see, The changes that will be made are pretty minimal where they're not going to impact us too greatly.

  So, um, I am confident that it's still going to be there when it comes to my retirement. Yeah. I think it's still going to be there and I, you know, the changes are going to be, you know, the retirement age might be later, which, you know, they move it out a year and that just saves billions of dollars for them.

  So, you know, these, these little tweaks, but no, I am not worried about it. I mean, could you imagine if social security, I mean, there would be mass anarchy. Yeah. Absolutely. I mean, it would be, yeah, it would be political suicide. It is not something, I mean, every single person relies on it for the retirement or planning on the retirement.[00:08:00]

  And they might as well just say, nobody's going to retire if that was going to happen. And that, and that would be the case. And so that's why I am very confident that Our government, no matter, it doesn't matter what party you like or don't like, they will come together and put some sort of reform together to shore up that all these people that are in retirement and entering retirement will be safe.

  Yeah. Yeah. Okay. Yeah. So we believe that it will still be around. So there we're, we're settling kind of that debate a little bit with our opinions. Uh, okay. So you can go on to the website and get your own sample. Statement And that is how we often will project out your retirement planning when we're doing retirement projections.

  Uh, and I think it is. And why don't we talk a little bit, this can get a little bit con convoluted, but people are often wondering, whose retirement can I claim?

  
  Spousal and Divorced Benefits

  So let's talk about this. And I think the key word here is that if you're married for more than 10 years, then there are options, right? [00:09:00] Do you want to expand on this a little bit?

  Yeah, if you are married, so we have a married couple, and you each have an earnings record, or maybe you don't have an earnings record, maybe that one of the spouses stayed at home and never worked at all. Yeah, You might be entitled, you should be entitled to file what's called a spousal benefit. So when you were dealing with a married couple and it comes to time to file for social security, you have two options.

  You can file under your own earnings record, or you can file under your spouse's earnings record and receive 50 percent of their benefit. Okay, so that is a way for a married couple to get to social security checks. Right, so basically, so let's Like the traditional has been, the husband has been earning more and making more.

  So the husband would take his social security and then the wife would get 50% of whatever his was. And they help you. Yeah. And they help you go through all of this. Like if you go into the office, they, they run through the [00:10:00] scenarios of no, yours is higher than 50% of his. Uh, and so there's not a lot of question.

  I think once you get there, it's more about the planning. Right. When you're, before you get there. Exactly. When the social security office will tell you whether you should claim spousal or not, but they're not going to tell give you strategies on when you should claim or who should claim first or things like that.

  That's where us as financial advisors have learned to, I don't want to say exploit the system, but work within the system to make sure that our clients get the best results that they can for their retirement. Right, exactly. And so I think another thing to bring up with just the This topic is that, uh, if you are married and you've been married 10 years and then you get divorced, this option is still there.

  So even if you're not married when you retire, but then if you get remarried, then that goes away. Am I correct in remembering that? That is correct. That is correct. Okay. And so, okay, so now let's keep going.

  
  Early Retirement Considerations

  So now you're getting to be 62, which would be kind of the [00:11:00] early retirement. And so what do you often say about taking it early?

  It depends, you know, there is no hard and fast rules. Now, if you were 62 and you were laid off from your job, or if you have medical issues, um, if you have poor family history, those are all options to really consider taking social security early. Okay. This is really, uh, a game that we're playing based on life expectancy.

  Okay. So the game we all like to play. Right. I was like, okay, we all are playing it regard. I know. I feel like we're playing that every day or with life insurance and all kinds of different insurance. And how long are you gonna live? Yeah. Anyway, go ahead. Well, how long do you plan to be around now? Now Michelle?

  I left my crystal ball in the other office. Exactly. I know. Or like I'm doing retirement projections. I'm like, okay, you're gonna live till you're 92. And some people are like, oh no, I'm not gonna live that long. You know, like, I dunno. Yeah, it's funny. When I work with clients, all the guys say, Oh, [00:12:00] I'm not even going to make it to 80.

  And all the women are like, Oh, I'm living until 95, 96. It's gonna be great. I go, Yeah, you just want that quiet 20 years after you've gone to enjoy your life. Yeah, it's true. Although some of the men are saying that they're they're living longer, it just depends on how long their parents lived, I guess. And so then they kind of have the belief after that.

  And that's the thing that that's the only true indication that we have is based on family history and our own personal health history. Yeah. Yeah. That's how we kind of try to gauge how long we're going to be around. So again, if you're short on money, short on health, Sort on life expectancy, then claiming early.

  Makes sense. Yeah. Now, if you are going to continue to work after age 62, filing early doesn't make a whole lot of sense if you're gonna make some substantial income, because then there's the offset that we have, meaning that, and we're reporting this in 2024. So if you make over, it's around $18,000 this [00:13:00] year.

  Um. then you'll start to have a reduction in your social security benefit. So that's something to take into account as well when it comes to filing early. Right. It doesn't benefit you to work and take early social security because then it'll be reduced anyway. And once you trigger it, and that's the thing about social security is once you trigger it, there's no going back.

  I mean, you have started the ball, you are going, it is, it's moving. You're not accumulating anymore. And so, um, that, you know, that, that's why it's important to discuss whether you're going to take it early or not. Um, yeah, you get a one, a one time 12 month do over. So if within 12 months, but within that 12 months, you have to pay back everything you took.

  Yeah. Yeah. So it's not really, I don't even consider that an option. Cause I know people aren't really going to do that, but, um, Uh, but yeah, I mean, I guess there are some options, uh, but yeah, once you start the ball rolling and that's why it's such a big deal and I feel like people kind of know it just kind of works out and I don't even know how to explain it, but you start [00:14:00] to plan for retirement and then you kind of get the balls rolling and you're moving things into the right order and then it just kind of unfolds.

  I don't, I don't even know how to describe it. Is it like that for you too? Yeah, it really is. You had mentioned it earlier that.

  
  Full Retirement Age and Beyond

  You know, being a retirement planner, I see people more or less delaying retirement till age 65 because of Medicare premium or you're able to enter Medicare. We don't have to deal with insurance premiums outside of that.

  So now at that point, you're really close to full retirement age on Social Security anyways. So your full retirement age is going to be somewhere between 66 and 67, depending on the year in which you're born. So most people can. Decide, all right, I can wait another year to get to my full retirement age.

  Yeah. All right. Once you get to your full retirement age, that opens up a whole window of options for you then, then if you want it to continue working after your age, 66 or 67th birthday, you can claim social security and not have that earnings test. that we [00:15:00] had previously. So that's available to you.

  Yeah. So once you reach full retirement age, guys, you don't have the earnings test.

  
  Tax Implications and Planning Strategies

  And, um, and when you, then it's, it's more of the, uh, if you earn too much, then it's becomes taxable, correct? It switches. Okay. Yeah. Then we're dealing with taxation issues, which is fine. You know, that means we're making money.

  Taxes aren't always a bad thing. I'm not afraid to pay taxes. I just want to pay my fair share. Not everybody else's fair share. Right? Yeah. I don't know. I kind of get my, I don't really like the social security is taxed. I mean, you already paid, you already paid into it. Like, really? You're going to tax it again, but you know, whatever.

  That's well, I'll go to Washington Have that discussion. Yeah. We'll, we'll march on that one. Yeah. Yeah. Uh, that's not something we're gonna solve right today, but, um, so yeah, so guys, if you start early, then you start to get a reduce in, um, early retirement. And you guys, you know, you see that on your social security statement.

  It'll say retirement or early retirement is 62, and then you've got all the different ages. And then down below that are, you know, you got survivor benefits and a death [00:16:00] benefit. Um, and if you have, um. Minor children that, uh, are, uh, disabled, that kind of thing. All those special needs, um, then you've got those benefits listed below, but your early retirement, if you take it early and you're still working, then your benefits are going to be reduced.

  And if you wait until full retirement age, then you don't have to worry about any of that. You can just take it if you want. But if you are going to continue working, then your retirement, your social security benefits might be taxed. Depending on how much you make, and that threshold's pretty low. It's like $35,000.

  Am I right about that? For, yeah, for a single filer. Mm-Hmm. and 44 for joint. Yeah. So yeah, that threshold is extremely low and that hasn't been adjusted. I've been talking about social security. For over a decade. They have not adjusted those numbers once. No. It used to be like 32, but I mean that's just not, yeah, it's not that much to make a big difference.

  Uh, and so those are the things that you're kind of considering when you're thinking about retire or when you're thinking about social [00:17:00] security guys. And I also think that when you get to retirement, what happens is, um. I don't know. People are like, okay, I'm going to work till 65. And then almost like something happens and they're like, well, if I just work until March, there'll be a bonus.

  And so then they'll work like another eight months. And so then they'll retire. And then it's only like, you know, four or five months until their full retirement age. And it's not just a big deal. You know what I mean? Like it all seems to work out that they can just carry their income for a few months while they're waiting for social security to kick in.

  Yeah. You know, it's one of those, as you get closer to it, it becomes. More normalized that becomes you start to realize the impact of it when you're 45, you know, 50 years old is, oh, give me that money as soon as I can. I'm going to rely on that. Well, no. Now, as I get to those ages, it's, Oh no, this money is substantial.

  Look how much it grew. Oh, my portfolio might be down. This money's still here and going up. I'm going to let that grow for a little bit longer. Right. Yeah. And you've been planning for it. So it's like you got these safety nets and so you're [00:18:00] not as. Yeah, you're just not like needing it as much because you have all the safety nets and I think if you're prepared for retirement, I mean, obviously we work with people that have money.

  Uh, and so we are kind of in this lane. We are not working with people that have no savings. And, you know, and I hate to say that I'm not, I'm not saying good or bad. This is just our world and that, that we just tend to work with savers. And so this is what they tend to do. Uh, and as you start to get closer to retirement, I think, you know, then we're changing the And then some of them I feel like a lot of people they're like, Oh, well, I got to offer a job to do like a consulting for a year.

  You know, do you get that too? Yeah. Yeah. All the time. It always ends up better than what people think it always does. It's almost like their intentions are out there and then it just ends up being okay. And there are so many people now that retire and they're not even touching their money until they're like 72 years old.

  Well, and here's where [00:19:00] I've seen a big shift as well. Um, because when we delay our social security benefits, we get those guaranteed growth credits that the government's giving us. So after our full retirement age, our social security benefit will grow by a guaranteed 8 percent per year. Okay. When we were going through the financial crisis and, you know, some of those lean years, There's no investments out there getting you 8 percent per year.

  Even now there's no guaranteed investments giving you 8 percent per year. So we've almost looked at social security, even as like a tax planning tool, where the majority, we already mentioned how pensions are kind of a thing in the past for a lot of us. Well, so the majority of our savings are in 401ks and IRAs.

  Those are all pre tax dollars. So if we want to retire at, let's say 65 for Medicare. Not claim social security until later, maybe age 70 for those five years. We call it the gap years. You living off of those pre [00:20:00] tax dollars first and paying less tax on them because we have no other sources of income and letting that social security compound at 8 percent per year.

  Yeah. Then at age 70, you turn your social security on full blast. Those pre tax accounts have now been drawn down, maybe converted to Roth, or you've used them to live off of, whatever the case may be. And now we've done a little bit of tax management. Right. And can you explain to them what you mean by pre tax accounts?

  So our 401ks and IRAs, those are all accounts that we've contributed to, our employers have matched on, but we've never paid a dime of tax. So if I'm going to start making withdrawals from there, that means that I have to start paying income tax on that. So when people come to me and they might have a million dollar 401k, I say you don't really have a million dollars, you have about 700, 000 in there because a third of that's going to the government.

  Okay. So if we can manage that, if we can use some of those assets before we have other sources of income to get those [00:21:00] dollars out in the lower tax brackets, the 10, the 12, the 22 percent tax brackets, then that's going to create a favorable outcome for us in the long run. Then if we were to just turn on social security immediately when we retired and then use those to supplement because when we turn age 73 is when the government forces us to take money out of those pre tax accounts.

  So it's, it's really beneficial. Yeah. This is really beneficial to have some planning to get some money out of your IRAs. And not only that, are you going to benefit from getting some money and paying a lower tax bracket of getting them out of your IRAs and 401ks. But with the new, since the, secure act, uh, you are not allowed to really roll over your IRAs in the same way.

  And so it becomes much, there's much more urgency for people to get money out of their IRAs and 401ks before they die. Because your beneficiaries have to get that money out in 10 years and it's not rolled over over their entire lifetime anymore. So I could [00:22:00] see that that would also play in to that kind of estate planning too.

  So look at look at all the different things we just named there from a planning perspective. We're talking about income planning with Social Security. tax planning with RMDs and IRA withdrawals, estate planning with getting it to inherited IRAs. Look at all those different areas we covered just by a social security strategy.

  You know, so it shows how one, one decision impacts all these other areas as well. Yeah, it really does. And then even if you're, so let's say you're 65 and you, you retire and you get your Medicare. And then you are taking the money out of a 401k or your IRAs and just to get it out and to delay your social security so that you could make that 8%.

  And you don't even need all of that money because some people they don't even need all that money. And you say, okay, well, then let's do it. Take that money and we could put it in a Roth or we could put it, you know, you could put it in a lot of different things. Uh, a lot of them are where people are worried about long term care.

  So sometimes [00:23:00] we'll do some sort of, uh, I don't do long term care policies, but some sort of insurance policy that would like save it for long term care. Uh, do you, yeah, yeah. So there's all kinds of different strategies you could do like that. Are there other strategies that you've seen people employ with their social security rather than just like turning it on?

  You know, there's a lot of different ways to approach it, especially again when we're dealing with married couples.

  
  Maximizing Benefits for Married Couples

  If there's an earnings difference or if they are similarly earned, you know, sometimes I'll see one spouse turn it on and let the other spouse delay because That's another thing. When we're dealing with a married couple, we talked about how spouses can claim together.

  If there's a lower earning spouse, they get 50 percent of the higher earning spouse. But what we haven't talked about is what happens when one spouse dies. Okay. When one spouse dies, the surviving spouse only gets to keep one benefit. Now they get to keep the higher of the two, but in theory, they're [00:24:00] still losing between 30 and 50 percent of their social security income at death.

  So that's why it's important to me, especially when we have an earning discrepancy, when the social security benefits are so high. Different that we try to maximize the highest one so that at the death of the first spouse, at least the surviving spouse is left with the largest possible benefit they could have.

  Okay, so basically you, you would take, you would take the one of the highest earners, so security, and you'd start out, and then the lowest earner, you would just let that accumulate. And I guess we're mostly, we're probably, let's talk about man and woman, because it's probably the guy still, because right now the people that are retiring, that was still the case.

  Right? So the, take the guy's social security and let the women's grow because you're going to be growing it out that eight, well, maybe not 8 percent yet, but at 65 to 67, it'll grow full retirement age. And then if he passes, then you start [00:25:00] to take, you could take the other one and it's been growing.

  Correct. Okay. We always want to let the largest one grow and get that 8 percent rate of return if we can. Oh, you're saying have the largest one grow. Yeah, let the largest one grow. Okay. So that at the death, at least they get the, even though he passed away, they still leave the largest possible benefit.

  Right. Okay. All right. So I explained that incorrectly. I was, it should be opposite. Yes, we have to though. Okay. All right. So, okay. Uh, I like that one. I haven't, uh, heard that one in a long time. I appreciate you reminding me of that. Yeah. Um, I, and because mine, I haven't been honestly that complicated. I, I, mine are just never, it, it's always, they've already got a plan of what they wanna do.

  'cause I just think it's a natural part of what, you know, and people are already thinking about their retirement too. And I think that's what's great about planning is it's not like. I don't know. It's a team effort. You know what I mean? We're all coming to the table with ideas about what's going on.

  It's like a big brainstorming session. Exactly. They closed a lot of the, [00:26:00] the fun loopholes that advisors exploited. That was back in what, like 2013 or 14, something like that, where we could do file and suspend and restricted applications. That's all a thing of the past. Oh man, that made it so complicated.

  It's been pretty straightforward. Yeah. Yeah, it is. And then they, they help a lot. Like when you go in there and they're working with the people. Uh, about what their benefits are. I do think that the, they're genuinely trying to help people and maximize their retirement. So it is good. Yeah. For sure. Okay.

  
  Final Thoughts and Conclusion

  Well, I think we've covered some good topics and some good things. Are we missing anything you really wanted to talk about? No, no, I just think I, the one thing I want to stress is that I hope people don't think of Social Security as a smash and grab system. Let's get our checks as soon as we can and go from there.

  I think does, even though we're talking about how a lot of the strategies have been simplified, it still takes some thought process on when's the optimal time for you to claim Social Security that's going to fit your retirement plan the best. So I [00:27:00] don't want to, I don't like to speak in hyperbole or anything.

  But Social Security probably is one of the largest financial decisions that you will make in your lifetime. So it demands a little bit of time and effort into making that decision. Right. It does. I agree. And I mean, also the Medicare portion of it too, and deciding what coverage you want and how much of that is going to be taken up of your Social Security.

  I mean, yeah, there's a lot of little moving parts. And if you break them down, um, then I, you know, and you're again, planning ahead of time, it's not so overwhelming. Absolutely. You know, hopefully we don't have to do any crisis planning or anything like that, that this is something that you've thought about well before retirement and have your plan in place.

  Yeah, exactly. Cause then I feel like you just turn it on and people, the people I've worked with for a long time, they're like, that's it. I'm like, yeah, I mean, we've been, we've been putting this in place for the last five years. Like all we're going to do is turn this one thing on and they're like, okay, well that was kind of anticlimactic.

  Like, cause that's what they thought, you know, they were going to do all these [00:28:00] things and all this. And I'm like, no, we're just going to turn this one thing on and then you're good. And okay. All right. And yeah, they're, they're expecting a little bit more. Yeah, exactly. So that's what good planning can, can do.

  So, uh, well, thank you so much for being on. I really appreciate you, um, sharing your perspective and I am going to put, uh, all of your information, your website and your newsletter. You do do a twice a month newsletter. Is that correct? Okay. So I'm going to put, uh, Greg's information in the show notes. If you guys have any questions or anything like that, let me know.

  Uh, please leave a review and tell your friends about the show. I appreciate you guys listening and thank you so much for joining us. Thanks for having me. Yeah. Have a good day.

  [00:29:00]

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

Commercial Real Estate: Rent vs Buy?

Considering investing in commercial real estate for your business? Learn the pros and cons of owning vs. renting for your business needs.

Mandi Hunter, the founder of Kansas City's first full-service standalone real estate law firm, Hunter Law Group, joins us to share her knowledge. 

Key Topics:

• Timing: Considering interest rates, cash flow, and business growth stages before making a purchase.

• Due Diligence: Understanding the importance of thorough due diligence before buying commercial real estate. That means getting your surveys, appraisals, environmental assessments, and title work done right.

• Legal Contracts: What legal contracts are associated with commercial property purchases.

• Cash Flow Assessment: Strategies for assessing your business's financial readiness for commercial property ownership.

• Property Maintenance: Responsibilities and considerations for maintaining commercial properties. 

Links:

Connect with Mandi Hunter - www.hunterlawgroup.com

Time Stamps

00:25 Meet Mandy Hunter: Real Estate Law Expert

01:27 Understanding Commercial Real Estate

02:30 Financing and Cash Flow Considerations

04:23 Legal Aspects and Due Diligence

10:36 Leasing vs. Buying: Key Differences

19:49 Common Mistakes in Commercial Real Estate

26:39 Conclusion and Final Thoughts

• Transcript

  Introduction and Welcome

  Welcome to me financial the podcast designed to inspire your financial life. Hello everyone and welcome to the podcast. I am Michelle Moses, your host, and today we are going to be talking about buying commercial real estate as an investment or for your business and the things that you need to be aware of legally in order to do that.

  
  Meet Mandy Hunter: Real Estate Law Expert

  And to talk about that, Mandy Hunter is joining us. Mandy is the founder of Kansas city's first full service, standalone real estate law firm, Hunter Law Group, and can't and recognized several times as an elite super attorney by her peers. Sorry about that. Pause guys, uh, Mandy and her team represent their clients in a wide variety of transactions and litigation, primarily in matters involving real estate.

  Thank you for joining us, Mandy. Thank you for having me. I'm excited. It's exciting to be here and excited to discuss the real estate market. Mandy, uh, knows her stuff, [00:01:00] you guys. She is like really, uh, killing it in the Kansas city area when it comes to real estate. And I am honored to have her on the show.

  And she is a good friend of mine from high school. We were actually like best friends. And so we are going to switch gears. We don't normally talk about all of this stuff. stuff. And so we are going to be talking business today instead of families and kids and all of that. Yeah. Yeah. So thank you. Okay.

  
  Understanding Commercial Real Estate

  So, uh, can we just get started about commercial real estate?

  Are we talking when you talk commercial real estate, is it everything except for land and residential? So typically when people reference commercial real estate, they mean anything that is income generating anything that you're going to make money off of. So land could be, could be, you know, have a commercial venture to it.

  Um, you know, real like residential properties that are investment properties could be a commercial venture. But I mean, that's typically what, [00:02:00] what they mean. I mean, usually I think people, you know, Would say that it is office space or retail or industrial. Mm-Hmm. . But it really, I mean, that's really what it means is that it's gonna be, it's, you're gonna be making money off of it.

  Okay. And that, and I think most people think of it as in, you know, their business or it's a retail bus, you know, office space or a retail business. Right. Or you're going to be buying something and then, uh, having an office and then renting the other offices to other people too, or, you know, correct. Things like that.

  Okay. Right.

  
  Financing and Cash Flow Considerations

  So is there a certain time in your business. This is what I'm very interested in that it would be more beneficial to buy a commercial property than others. I mean, or is it just more like you just know you're going to be in the same place for a really long time? Well, I think that, yeah, I think that there's certain factors that you've got to look at.

  I mean, one thing that is driving the market right now is the interest rates. Um, so that is, you know, can you afford the, you know, not just The cost of the building, but whatever the cost of [00:03:00] your loan is going to be over the, over the term. Um, the other thing you've got to look at is, you know, what, what's your cashflow like in your business?

  Does your cashflow allow you to have extra money for, um, maintenance of the building, for the taxes, for the insurance, you know, anything that you might need? I mean, what if the parking lot needs to be repaired? What if the roof falls in? Um, Um, you've got to think about the cash flow of your business and not be so strapped with your monthly payment, plus your interest rates, that it wouldn't make sense for you to buy.

  Um, so, I mean, those are the monetary things that you need to think about. The other thing you ought to think about too is, where are you in your business? Do you have, um, are you in a growth mode? where you may not, you know, maybe you're going to double in size in five years. And so maybe that is not the time to make an investment of buying a building, or maybe you're stable and [00:04:00] you know that you're whatever business you're in is going to remain stable.

  And so you can go out and you can buy the 10, 000 square foot warehouse or the 5, 000 square foot office building, and you're and you're okay with it because you're going to be in it for the long term. So I think those are just some of the things that you probably need to need to think about before you buy.

  I didn't even think about like the parking lot and all that kind of stuff.

  
  Legal Aspects and Due Diligence

  So when you are when people come to you and want, have they already secured financing when they come to you as a lawyer, like you're doing the legal or do they come to you first or just kind of depends? Um, it just kind of, I mean, it just kind of depends.

  I mean, sometimes, um, you know, people, I mean, you know, remember, I'm also a real estate agent. And so I've got, so I see both sides. So I've got, um, You know, as an attorney, usually they have found the building and they want to go through the transaction, um, on the, on the real estate side with the, with the brokerage, [00:05:00] Cerrone Hunter Real Estate Advisory Group.

  Um, you know, they may, people may just be looking for, you know, they may be in the initial stages. So, um, but, you know, if someone, if someone comes to us and they're like, hey, I want to put an offer on this building, um, there's, you know, there's several things to think about. One is. You know, what, uh, what it's part of it is the contract, but then part of it is okay.

  There's an old building. Is it a new building? Are there other tenants in the building? Are there not? Are you, um, You know, do you have a lender in place? Mm-Hmm. . If not, we can help you get that. Do you need a survey? Depends on where you're at. I mean, a lot of times it's a survey, an appraisal for a commercial building.

  Mm-Hmm. Oh, okay. So a survey. So a survey is where the people that go out and they. And so that determines the [00:06:00] boundaries of your building. It's based on your, it's based on legal description. So it's rarely done in residential sales. It's mostly done in commercial sales. And a lot of times commercial lenders require a survey.

  Um, so, you know, you've got to look at. look at, do you have a lender? Do you have a surveyor? Do you need an environmental done? Like an environmental, like a phase one is where they just go out and make sure there's no, no, um, it's basic, just making sure that there's no toxins in the ground. Um, a phase two goes into, into additional, um, additional depth, you know, and then the biggest thing too, when a transaction is, do you have a title company?

  So the title company is really going to guide the process, at least in the Kansas and Missouri markets. A title company really guides the process. So, um, so do people have financing when they come to us? Maybe, maybe not. Um, I mean, it just kind of depends. And if they don't, we can help them get there. Okay.

  And right now, aren't the rates lower for commercial real estate than they are for residential? Or is that not true right [00:07:00] now? Um, you know what? I think they're coming down, but I don't, um, But I don't know, like I, I don't know, I mean, it'll be changed by the time this is released anyway, but a couple months ago they were lower.

  So I thought that was interesting that people, there was that incentive. Okay. I mean, like I know that I was talking to somebody recently who, um, was looking at a potential SBA loan and their rates were like nine something percent. Um, you know, I mean, the higher the dollar value, the less. Interest, you know, the less the interest rate is likely gonna be.

  Mm-Hmm. . Um, but, um, but I don't, it is just kind of in a state of flux. Okay. So I think it just kind of depends. So, so basically with your advisory firm, then somebody could just come to you without anything and just say, Hey, I really wanna buy a building and I'm a Yeah. You know, I sell. You know, body lotion and I need a building to sell it out of.

  Right. I need a 10, 000 [00:08:00] square foot building to sell my body lotion. I need like two, um, two, you know, doors, you know, garage doors that go up so we can have trucks back up to it. Um, what can you find me? Okay. And you, I'm assuming you help them figure that out too, because they probably, some people probably don't even think about like, Oh, well we could just use the dot, you know, that you probably go through and say, okay, what kind of deliveries do you get and what kind of customers do you have come to and how many people and how much parking and all that kind of stuff.

  Correct. Yeah. Yeah. I mean, yeah, I think that's, um, Yeah, I mean, parking is a, is a, you know, when you're looking at buying something, I mean, you know, do you have, um, how many employees do you have? Do they have to park there? Do you have, um, is it retail where you've got people coming in and out all the time or not?

  Um, you know, cause you see that in the, with the development of some of the, uh, Older areas now in Kansas City, probably Phoenix is the same way where, [00:09:00] um, parking may be at a premium. And so you have to think about does the, does the parking fit your needs for your business? I mean, it doesn't do you any good to have a retail space if you don't have parking for people to come in and out.

  Well, and then do you help them too? Or like, what if they have to build it out? What if it is a retail space and they need to make it pretty inside? Uh, do you help them price that out too? And is that, does that go into, or is that completely separate? Like you buy the building and then there's like a completely separate loan for all the construction costs for the build outs.

  So it just depends. So, um, so what we do is like, we would get, make introductions to, you know, construction companies that would do the, that would do the build out. But the, um, Some banks will wrap up the construction with the building purchase, and they will do one loan for both. Some banks will not. So, um, the, the [00:10:00] local, the, You know, the lending market right now, from what I hear, I mean, I'm not a banker, but from what I hear the, um, banks have got a lot of construction loans on their books.

  And so they may be a risk averse bank may not be inclined to make any investments. may not be inclined to loan additional money on construction right now. So, um, so we'll see. I mean, as those start to get paid off, you know, there should be a, an upswing and banks being willing to do that, but just kind of depends on the bank that you go to.

  Right. So it's just kind of shop around just like any other, yeah, any other option.

  
  Leasing vs. Buying: Key Differences

  So is there a difference between someone that just wants to invest? In a building, like they just want it as like a passive income money maker to be an office space or, you know, is, are the paths different if you're just wanting it as an investment versus, you know, to house your business?

  Yeah, I, oh yeah, for sure. Because like, as a, um, so if you [00:11:00] were, um. If you are going to be an owner occupied building, right, so you are going to go out and you're going to buy a building that is going to that's going to have your business in it. You are essentially looking at what are you going to pay if you had to lease space?

  You know, what would your rental rate be? There, versus what your rate would be on your, does Phoenix have deeds of, do they have mortgages and notes? Okay. So you're going to look at like, what would you, what would it be to rent versus what your payment is going to be for your, on your, on your loan? Um, and then, so you've got to look at, so you've got to look at, look at that.

  Um. In some cases, like right now, the Kansas City market, there is, it seems to be a real drive for 5, [00:12:00] 000 square foot and under office space. So the rates on those are going Which that kind of makes sense now that there's like more work from home and hybrid that you don't need to house everybody. Yeah, right.

  So they're reducing, so the, so the smaller office space I think is, is in more demand. So the Once you lease a space and you've got your TI, your tenant improvement costs, you have to evaluate whether that is going to be the same as what you would pay to buy a building. You know, what that would be to buy your own space, okay?

  And so you've got to weigh those two things. Now an investor has to look at How much money are they making on the building? So an owner, an owner, I mean, is going to look at, okay, is this, if I'm paying 10, 000 in rent versus 10, 000 on my loan, well, I'd rather just, you know, build [00:13:00] equity in a building and buy and buy it.

  Um, whereas an investor is going to be like, okay, well, you're going to pay 10, 000, but I want, also wanted to make 30, 000. At least 7% or whatever would be, you know, they're hedging their bets against the market. Right. Or they're trying to diversify. And that's what I always, I found so surprising with commercial real estate was that when you're a retail company, that a lot of times they would take, you know, charge you a fee or a rent and then a certain percentage of your sales.

  And then also you're paying for the upgrades inside of it and I was like, man, I don't know how they even like afford to be in these spaces. Right, right. So then at that point, which I, you know, the Kansas City market, I think is a little bit that way right now. You're like, okay, well, um, It may not make sense to rent, you know, I mean, it may make more sense to try to find something to buy, um, you know, but again, it depends.

  It like I said in the beginning, it depends on your cash flow. It depends on what type of business you have. Are you stable or are you growing, you know, things like that. But I think from the [00:14:00] investor, um, Um, You know, the investors may be looking for buildings that already have existing tenants, right?

  They're not going to be using it and they, or maybe they are, but they know that they're going to be making. You know, six, seven, eight, 10 percent or at least, you know, on their money. So, yeah, so I think that that's what they're, you know, I think that that's what the difference between an investor and a buyer.

  Okay. And then if somebody comes to you, so let's say somebody like me, where's, To come to your advisory company, and so then what happens? I just say, okay, I'm interested in buying a building. Do you have like a fee to go through my business and my needs and all of that? Like is there like an assessment done or, you know, or, or is it just kind of you just talk and then start stuff starts rolling.

  You know, that's a good question. I mean, really your fee is, comes from a commission. If you, you know, from the real estate, like from the real estate brokerage, from that aspect, your fee is going to be, is going to be [00:15:00] from the commission. And so you're just doing what's best for your client based on the needs, you know, from the, our, when people come to the law firm, um, You know, they already have the building and we're working on the contract or, you know, that's, that's an on a, we usually do that on an hourly basis.

  Okay. Okay. So that kind of is my next segue is so when you buy a new business or you're buying a new building, what kind of legal things need to be in your contract? Because that always fascinates me because it is so different than anything else I've seen. Yeah, so I think like one of the biggest things right now, and this just depends on where you're at, like in the country and stuff, but one of the biggest hangups right now is, um, is the due diligence.

  And so your due diligence is typically, you're going to get your title work, you're going to go out and you're going to get your survey, you're going to get your phase one, you're going to get all the documents, you're going to figure out You're going to bring your structural engineer out. You're going to bring [00:16:00] out anybody that you need to that you need to make sure that this building is going to suit your needs.

  And I think that, um, what I don't know what exactly is driving this, but it's taking. It's taking a long time in Kansas City like your surveys are going to be, it'll take you six to eight weeks to get a surveyor out to the property and then they've got to do the report after that. So, um, so the due diligence, you know, a lot of people, they want a fast close.

  They want, um. You know, they're, they're, they'll say 30, 45 days and then they don't, and then the buyer doesn't negotiate an extension. And that is really problematic. Oh, so it's really important when you're negotiating in the first place that you need an extension if the due diligence goes long. Okay.

  Yeah. Cause I mean, your due diligence, like, I mean, realistically, like in the Kansas city market is going to be, you know, [00:17:00] You know, I, I'd say at least 90 days and so, um, so you've got, you know, you've got to be able to have that. I mean, I think I see that a lot because you pay all the money, you know, the buyer, the prospective buyer.

  They put this building under contract and then they have, they pay to have the engineer go out, they pay to have the surveyor go out, they pay, you know, so they're spending thousands of dollars to have these professionals go out and then if they don't have an extension in there. They just wasted all that money.

  Correct. Yeah. So because if it's, um, you know, it does happen where like, say you get it under contract, but then there's a backup offer that may be better. Maybe it's more enticing for the, for the seller and a seller that. You know, they, they may use that legal avenue to get out of the contract so they can take the higher contract.

  Right. Yeah, so it really is really different between renting. Or leasing a space versus [00:18:00] buying, because I mean, once you buy it, I mean, really, it's all your due diligence and doing all of that negotiating versus if you're leasing. I mean, there's this like, so we could probably do a whole show on that, right?

  I mean, all the little things that you would need to negotiate in a contract. The other thing too, that I see, I'm seeing a lot in the Kansas City market in terms of leasing is, um, Is I don't know, I don't know why in the last 6 months, there's just been a lot of issues with like cam charges, like the common area maintenance, you know, those are typically, um, if a tenant is responsible for the common area maintenance, um.

  Those are it's typically it's it's you know, they charge it out over the year like you pay an estimate and then and then at the end of the year, it'll be reconciled. And so we've just seen a lot of issues with that. So I just think with if you're going to be entering into a commercial lease with a landlord, you just really need to know what Is your responsibility for your [00:19:00] payments?

  You know, I mean, you're going to pay your monthly amount, but then what else, what other types of operating expenses are you going to be responsible for? And I've seen some of your posts too, where you're talking about with a lease of, I feel like ways that the landlord can get out of it or something, like the things that would void it that are like surprising or like people are very surprised at all the little things that are in there that get like snuck in.

  Uh, yeah, that I feel like it should always be reviewed by a lawyer, honestly. Right. Typically, I will say that the, that the contract that is presented by the landlord is probably written in the landlord's favor. So, um, So, yeah, always get a lawyer. Yeah. You should always, you should always have a lawyer, lawyer review it, so, yeah.

  Yeah. Don't be cheap on that kind of stuff. Okay. Yeah. Yeah. Okay.

  
  Common Mistakes in Commercial Real Estate

  And then, uh, what are some things that you see, like, so if people are buying a commercial property, what are some things that you see people mess up on or that you see like mistakes? Do they try to do it on their own? [00:20:00] I, I mean, you know, without a lawyer or a bank or, I don't know.

  What are, what are some of the things that you see there are. There are any number of things. I think that, I think you're probably, you're probably right. Um, people that try to avoid the costs, those upfront costs, it is, um, you know, we're here for a reason, you know, we have a lot of experience for, you know, and it's, we're here to help our clients.

  Um, I mean, I say attorneys are, we're a helping profession and, and that's what we're here for. Um, so. Okay. I think that not having, um, not having a transaction properly documented is, um, that can be, you know, because then you're just, you're, you're relying on the goodwill of the other side. And, um, and what do you mean by properly documented?

  Do [00:21:00] you mean like going through a title company so that all the steps are like even having like a contract that is sufficient, you know, like what if somebody doesn't pay on time? Um, you know, what if somebody doesn't make their monthly payments? What default provision? You know, what are you, what happens if they don't pay?

  Are you in tight? What are you entitled to do? You know, just anything on, um, just it we see. We, we, we see lots, a lot, lots of issues in our office. And so I think that's 1 of the things the other thing to that. I think that. Is, um, that I think that even if you do, um, even if you do use a real estate agent, um, I think sometimes like sometimes tenants and buyers, they're not necessarily accounting for all of the costs associated in, you Their purchase or in their lease, like such as the operating expenses in a lease, what are your cam [00:22:00] charges gonna be?

  Um, just like I was talking about when you buy, it's your, the maintenance, you know, the maintenance of, of the, I mean if you, um, if the roof falls in. Because of a structural issue and you don't have the money to fix it. How is your building? How are you going to operate? How are your employees going to be there?

  Do you usually help them estimate? Do you help them estimate? Is that part of the advisory services that you're helping them estimate? Um, what their maintenance costs would be when they buy a building? Yes. Okay. I mean, I don't know why you would want to buy a bill. I mean, cause that's a whole new, I mean, we all kind of know about houses cause we live in them.

  Right. But I mean, commercial real estate is its own beast. And so I can't imagine going into it and just being like, okay, I'll fix the lights. And I don't know. And not knowing about like asphalt and what, cause there's so many laws that go into place about, Um, like you do need to have a, uh, handicap [00:23:00] parking and, you know, like there's so many ADA regulations and like laws that pertain to public buildings.

  Am I right about that? Yeah. Yeah. I mean, yeah, but remember there's always, um, You know, your cities are in place with, with, you know, ordinances and things to help you in terms of that. A lot of the commercial areas, at least in Kansas City, they're probably part of a retail association or some type of commercial association that may have some guidelines about it.

  Um, so yeah, I mean, you know, but you, you know, you say that and it is, you're, you, Having to account for the deferred maintenance on a building or for any type of maintenance, you know that you would do, but it's just like owning a home and when you, um, and when you think about, you know, if you are in a stable spot and your cash flow for your business is good and you think about, well, am I going to spend, am I going to pay a landlord a million [00:24:00] dollars over the next 10 years?

  Yeah. Or instead, I, you know, you could have purchased a building within that amount of time, you know, you, you, you, you bought a building and then you've got another asset in your portfolio. Yeah. Yeah. I have, I have some clients where they have a retail company and then they own the Commercial space. And, uh, I'm just bringing them up because I met with them last week and, uh, their commercial buildings, I mean, and they're just worth so much.

  And so it's like, then they can sell the business and that business will now rent back to them the building that they own. So the, the business is for sale, but the buildings aren't. And so now they're going to go into retirement, just making income from those buildings when they just sold the business.

  And it's just genius. Yes. You know, yeah. Well, yeah. And I think that that works really well on a building that has appreciated in value. Yeah, location obviously is I mean, with real estate location is a big deal, no matter what. Yeah. And so if you have, but like, if [00:25:00] you do have a building where, you know, right now, I think that this is going to be tough because of the interest rates.

  But if you have a building that, um, Yeah. That, I mean, you're seeing this a lot where people who own property and they have a building and they bought it at, they bought it at a cheaper price. Now, the rental rates in that area may be so, so much higher that they can have a holding company. And then you can rent it to the current tenant, even if it's their existing building or their existing business, you know, and then they can make that, they can, they've got a good margin where they're making some, they're making some money on it.

  Right, right. Yeah. Because if they've purchased it 10, 15 years ago and then yeah, they can kind of transition to that. Right. Yeah, I know. It's fun to see all the different ways that people put it together. I think it is anyway. Yeah. Yeah. Well, I think it sounds like you have an awesome service. I mean, the advisory, I mean, if, cause it's always intrigued me to buy a [00:26:00] commercial building and I mean, real estate is just intriguing, but, uh, the commercial side is, I think just more daunting just because again, it's not in everyone's everyday life besides just going shopping.

  And so I think it's really cool that you have, Uh, an advisory service where you could just go and say, Hey, I need some help and show me the way. Yeah. Yeah. I mean, that's, that's our goal is just to be helpful and, um, you know, kind of figure out what people's needs are. Everybody's needs are different and, um, just try to meet, meet our clients where they're at and, and try to.

  Help 'em get to where they wanna go. Yeah. Yeah. No, I think that sounds great.

  
  Conclusion and Final Thoughts

  And so now, and you mentioned before the podcast, now you're looking for a commercial building for yourself. And so I am, I just curious, are you in, is, is it hard to find one because you're looking in a certain area and there's only so many in the area of where you're looking?

  That's part of it. Um, um, that's part of it is, is the area that I want to be [00:27:00] in. And the other, um, the other part is that there's just not a lot on the market right now. So, um, I don't know, I don't know why the Kansas City area is. I don't know. I don't know what, what it is with the market with the commercial market specifically, but, um, just, yeah, there's just, yeah, yeah, there's just not tons.

  So, well, the interest rates, everything that I'm reading is that the interest rates for all these commercial buildings are going to be adjusting this year. So it will be supposed to be an interesting year. So you never know. You might get a good deal. Yeah, it will be interesting. And I do think that there's, um, The generation, you know, above us, or maybe a couple generations above us, um, a lot of them invested in real estate and a lot of them are going to start, you know, selling because they want the cash.

  And so, um, I do think we're going to start seeing a shift. Yeah. Yeah. Well, good luck. I hope you find a business building. Thanks. Yeah. Yeah. [00:28:00] Well, thanks for being on. I really learned a lot. I appreciate it. I appreciate you taking the time because I know how busy you are. And, uh, you guys, if any time it was fun.

  Yeah. And Mandy's information will be in the show notes, you guys. And if you have any questions, just let us know. And if you enjoyed the show, share it with your friends and, uh, be sure to leave us a review. So thank you so much for listening. Yeah. Go Chiefs. Yeah. Yeah. Go Chiefs. Exactly.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

Creative Lending Options for Real Estate

"Creative real estate is anything where you're not putting 20% down with a 30 year mortgage found in the MLS." The truth is, you don't need to be a millionaire to turn real estate into a wealth-building tool.

Today, we're talking details on real estate financing - both for aspiring investors and those looking for alternative investment opportunities! Our guest is real estate investor and private money lender Kevin Amolsch.

With over $750 million in closed loans, Kevin has a wealth of experience to share on financing strategies for all types of properties. In this episode, you'll learn:

• Real Estate Investment Structures with Friends and Family: Different ways to structure real estate investments, including LLC formation, joint ventures, and profit-sharing strategies.

• Financing Residential vs. Commercial Properties: The challenges of financing residential properties with stricter down payment requirements. Learn how commercial loans offer more flexibility for investors.

• Syndication Deals: How investor funds are used for down payments in syndication deals, a way to pool resources for larger projects.

• Creative Real Estate Investing: Alternative financing methods like owner carry and lease options, needed especially in low-inventory markets.

• The Importance of Creative Financing: Why creative financing strategies are important for investors, especially in competitive markets.

Links:

Follow Kevin on YouTube - https://www.youtube.com/pinefinancial

Connect with Kevin on LinkedIn - https://www.linkedin.com/in/kevinamolsch/

Time Stamps

00:24 Guest Introduction: Kevin Amolsch

01:03 Understanding Creative Real Estate Investing

02:48 Financing Real Estate Deals

03:32 Passive Real Estate Investing Explained

05:43 Equity vs. Debt Investments

07:05 Challenges in the Current Real Estate Market

11:43 Syndication and Fund Management

17:16 Practical Tips for Real Estate Investors

27:04 Conclusion and Contact Information

• Transcript

  Introduction to the Podcast

  Welcome to me financial the podcast designed to inspire your financial life. Hello everyone. And welcome to the mean financial podcast. I am Michelle Moses, your host. And today we are going to be talking about creative real estate investing, and this is going to include passive real estate investing and real estate.

  lending funds.

  
  Meet Kevin A. Mulch: Real Estate Expert

  And to talk about this, I have Kevin A. Mulch, and he is a successful real estate investor and private money lender. He and his companies have closed over 2, 500 transactions as a buyer, seller, or a private money lender. He currently manages multiple mortgage funds with almost a billion in closed loans.

  So you have a little experience. Thank you for coming. Thank you so much for having me, Michelle, and you got my name right. You were so worried about it. Well, I just think it's a very respectful thing to do is get somebody's name right. So, uh, and you know, you never know. [00:01:00] And, and I'm happy to be here. Yeah.

  Thanks for coming.

  
  Understanding Creative Real Estate Investing

  Uh, so you obviously have a lot of experience with all of this, and as I was sharing before we got started, I'm excited to talk about this for my own personal reasons, right? And I know that a lot of people want to get into real estate investing. Uh, obviously because it tends to be the largest, uh, asset that people have in their portfolio.

  Uh, and it's fun and it's tangible, right? I mean, people understand real estate and they get it, the going up and down and the fixing up. And, uh, it, again, it's very tangible versus like the stocks and the bonds. Sometimes people don't understand those. Uh, so what, it, like, can you kind of explain all of the.

  I guess the creative real estate investing and, you know, what types of things that would include. Yeah, so creative real estate can mean a vast amount of things, right? So you think about real estate and we think about rental properties and [00:02:00] landlording or fix and flips, but the world of real estate is so much larger than that.

  Um, so it's hard to answer that question, Michelle, but I can tell you in general, the general answer would be the financing. So how are you going to, you find a property you want to buy. How are you going to fund that deal? Are you going to use some, some creative terms like owner carry or taking over loan payments, or maybe it's a long lease with an option to buy or an obligation to buy?

  Or is it other types of investing like you mentioned in the intro, maybe a passive investment where I don't, Oh, Maybe I'm a little bit more hands off, but I'm still involved in the transaction. So it's tough to answer that question because it can mean so many different things, but I would say creative real estate is anything not like you're 20 percent down 30 year mortgage found in the MLS.

  Right. Well, and I think you hit on it that that's where people get stopped is how do I finance this thing? Like we all have like really great ideas or look at this, you know, house on the corner. I would love to do something with it, but I [00:03:00] don't have enough money to do it because it takes hundreds of thousands of dollars.

  Uh, and when you talk to people that are very successful in real estate, they're like, well, I don't use my own money. I don't use my own money. But the, what I really want to answer on this podcast and what I really try to do is get to The nitty gritty, like where the tire meets the road and tell people exactly how these things are done.

  Because I think in online, we love to throw out all these terms about, you know, well, then you negotiate it and then you put it in the contract. But like, what is in the car, you know, like that kind of stuff.

  
  Passive Real Estate Investing Explained

  So let's start off with the first one of the passive real estate investing, because I'm very interested in what you have to say about this and what that is.

  Yeah, so this is super relevant right now because we are in a challenging market for real estate investors. Inventory is extremely low, making it harder to find projects. And when you have low inventory, Michelle, you have owner occupied buyers, like retail buyers [00:04:00] buying the wholesale stuff. So they're buying the foreclosures.

  They're buying the properties that need some rehab before they can move in, which is just driving up prices and making it hard for you and I to go out and find our deals. So obviously we want lots of inventory, lots to choose from. And then there's a clear separation between a wholesale price and retail price.

  So right now it's very difficult. So we have to get more creative to make money in this industry right now.

  
  Wholesale vs. Retail Pricing in Real Estate

  So what can you explain the difference between wholesale and retail price for the listeners? Yeah, so wholesale price. I mean, think about like a Walmart. So they're going to buy a widget, right? And so they pay one price and then they resell it to you in their store off the shelf for another price.

  So the wholesale price will Walmart. pays is much lower than the retail, what you pay you and I pay. So in real estate, you got to think about properties that you're going to be buying at the lowest prices. So maybe there's a foundation issue and no retail buyer wants to own it. Um, lots of times it's foreclosures, um, or other financial [00:05:00] distress.

  So you might see bankruptcies or tired landlords because tenants are wrecking the property. Those types of properties are what I would consider a wholesale. Okay. All right. Uh, and so how do people get into passive real estate investing? Like, how does that work? Yeah. So that's where I was going with this is, is because it's so difficult to find projects right now, what we're seeing is more and more investors coming in on the passive side.

  And there's a lot of opportunities here. So there's really two ways to passively invest in real estate. And when I say passive, I'm not talking about owning a rental property, because anyone who owns rental property, no, that's not passive. So passive is truly like, You're on the beach sipping your cocktail and the money just keeps on coming in.

  You don't do anything, right? So there's two ways to do it.

  
  Equity vs. Debt Investment

  You could be an equity investor or a debt investor. So on the equity side, think about your, um, your large apartments, your commercial projects where there's a sponsor or a managing member, and then you have other investors join you on your team, but they're just, [00:06:00] they're just providing the money and that's it.

  So the advantage is to, um, Investing in somebody else's project as equity is you're part of the owner. So you get the tax benefits, you get the appreciation. If there's cashflow, you get the cashflow. The downside is. You're one of the owners. So if there's a, if there is a downside, you're going to participate in that as well.

  So I can tell you, I'm in five different syndication deals right now, and only two are performing as planned because the environment's changed. And so syndication deals means there is a large pool of investors, correct? It could be a large or small pool. Um, a syndication just means bringing people together to accomplish a common goal.

  So if you're buying an apartment building, a lot of apartment syndications are happening, right? So if you want to buy a hundred unit apartment building and you can't afford it, maybe you bring in four investors for a million bucks a piece. And then you have 4 million bucks that you can use for a down payment.

  And then you manage it. Those four investors are on the sideline, right? taking the checks. Okay. So that would be a syndication. Okay.

  
  Navigating Real Estate Syndications

  But one of the [00:07:00] problems with the syndication model or an equity investment is you participate in the downside, as I mentioned. So there's capital calls. If, if the project needs more money and there isn't any money, well, where do you think the manager is going to go to get the money, right?

  They go to the owners of the property, which would be you. Um, so that's, that's definitely a downside and it's happening. right now.

  
  The Role of Property Managers

  So are the managers mostly people that are hired or do they normally have, uh, are they normally invested in the deal too? Oh, that's a great question. So there could be, it could be anything, right?

  We're creative. We can be doing anything we want. So very often it's structured where the manager has very little or even no money into the transaction at all, but they're just managing the LLC or the partnership or the group, I guess is a good way to describe that. Now they might hire outside management.

  So you can't, it's hard to manage a hundred unit building by yourself, right? So you might hire a property management company to help fill those up and do the remodels and all of that. But when we're [00:08:00] talking management of a syndication, usually we're talking about internal. Okay. All right. Uh, and so the passive is really, you're giving your money and you're just participating in a business, which that's kind of like the investments that I do, uh, that are in hotels or, you know, self storage or something like that.

  You're, you are a limited partner and the general partner is then the one that is So in these passive and what you're talking about data, the investors don't have any say in what color the walls are, or if the apartment buildings are going to be sold. Correct? Typically not. Okay. It's not always that way, but typically not.

  Okay. All right. Uh, we can get real into detail here, but I'm thinking about this. So I want to mention it. So, you know, you could have, additional tax benefits if you're actively involved. So maybe the manager says, Hey, let's vote on the color of the paint. So everyone's actively involved. I'm doing air quotes here.

  If you're listening and not watching. So it's, if you, [00:09:00] so now you've, you actively made a decision. So now you're active. So now you could be considered maybe a real estate professional for tax. And there's a lot of tax benefits with that. So I'm not a CPA. I'm not trying to get too far off track here, but I'm trying to answer your question that sometimes Passive investors.

  can take an active role, but not really active, I guess is the best way to describe that. Well, and I think that's what people are wanting right now, because they do know how much work it is to have a house or an Airbnb, you know, just to have assets in general.

  
  Challenges in Real Estate Investing

  And so if they've got cash, they would like to invest in something, get the depreciation from it, uh, but also just have their money work for them.

  And so that might be an easy way for them to be able to do that, uh, with minimal work, I guess. That's what I'm totally agree. Okay. It's just, it's just important to understand that you don't have control. Your money is going to be locked up. You can't just pull it out. And there could be a capital call, which means you would have to inject more capital or you'd be penalized, right?

  There's typically a penalty [00:10:00] built into the agreements. If you, if you get asked for more money and don't participate. Okay. So just be aware of all of that. Um, the other, the other one I mentioned was debt. So a debt investment is. It's way safer in my opinion, but you don't have the big upside, right? You're not going to participate in the, and to clarify, debt is your lender.

  Yeah. You are like the mortgager of the house. You're like the bank, right? So you get paid first and we, what we do is always be in a first position. So we're super secure. I like the debt side of real estate a lot because I'm not trying to hit those home runs. I just want the nice consistency. I want some stability.

  You're not getting that in other investments right now with all the turmoil and and volatility in the markets. So if you're looking for something with monthly reoccurring income, but you're willing to give up maybe the high potential and the tax benefits of depreciation, A passive debt investment might be well, and you [00:11:00] are the bank on that.

  And so if something were to go wrong, then you could just foreclose on the property and you're on the property. So it is extremely secure. The problem that I am seeing, and this is, I mean, just like hard money lending, right? I mean, that's kind of what we're talking about here when you're doing that. Is that some houses are getting so expensive in certain areas that like, say here in Phoenix, you can't really do that because it's going to tie up so much money, uh, of putting 000 into one house, uh, versus, uh, what I'm seeing is a lot of hard money lending is going over to Oklahoma and Alabama and all these other where people can buy a house for 100, You know, people are wanting to fix and flip them and all that kind of stuff.

  Is that a true statement? I think so, but what we might be missing here is you could syndicate debt also. Okay. So if you have a 500, 000 loan, that's what's needed to do the project. You could bring in five people, 100, 000 each and all participate. So we call those fractionalized notes. Okay. Obviously the [00:12:00] downsize to a fractionalized note is who's in charge.

  So if there's a default, then someone's got to manage that, right? So that's why we're seeing, um, We're seeing more and more debt funds pop up. Yeah. This would be, this would be like a, it's all registered with the securities and exchange commission. And it's a, it's a fund that you invest in. And the only thing it does is make loans to other investors.

  Um, I love those a lot because they're very diversified. Yeah. I think there's a default. Yeah. There's a default. The money keeps coming in. Right. And then you have a set designated manager. So if there is problems, you know, exactly who's going to fix it. So I like debt funds. Yeah. Yeah. No, I think that's a great idea.

  Okay. Uh, and then what are some, and so that would be kind of what I mentioned at the beginning, a real estate lending fund, right? Because you're, you're basically putting your money into this fund.

  
  The Importance of Trust in Real Estate Funds

  And I find with that, you really do need to trust the manager, right? Because you guys are the ones that are approving or denying the applications for these fix and flips or long term, none of them are [00:13:00] long term, right?

  Because then you'd have to be designated as a bank. Okay. Is that right? Exactly. And then the big, the, the one that I get the most Michelle is, well, how do I know you're not going to run off with the money to Mexico or whatever, right? So the, the thing about real estate and most of your listeners probably know this, but this is the most transparent asset in the world.

  I mean, everything gets recorded at the counties. the ownership and who owns the loan. So the debt gets recorded also. So you can literally just call up the county and say, who owns this and how much is the debt and who owns the debt. And it's, so it's very transparent. So it's not like, it's not like the stock funds.

  Absolutely. It's just so hard to see where the money is going. Yeah. You can definitely track the money in these funds. Yeah. Whereas I, and I deal with a lot with alternative investments and I say the same thing. I mean, some of these people go out and they want to build a, and I use this example a lot, but in our, uh, You know, an RV park, or they're wanting to build a building, you know, down at 69th and Oak or whatever it is.

  And you don't know that they couldn't run away with it. I [00:14:00] mean, you know, they could put together this very sophisticated deal, and then you invest in it. And then yes, they're gone. So when you are doing these deals, and that is why we have, you know, register with the SEC, and we have all this oversight is so that people Can't invest with some sort of trust, um, with people because it could happen, right?

  I mean, because what you're putting your money in is belief in this person, uh, because it is kind of a side thing versus investing in a stock at the stock market or a mutual fund like at Vanguard that you already know. Uh, and the reason that those are easy to invest in is because we have the SEC, you know, we have all this oversight, whereas we're kind of all going, you know, to another way because we want another way to invest.

  So yeah, all of that's true. There's two things. I should mention this because you can have private funds and public funds, most syndications. So that could happen in a syndication to the Ponzi type thing that we're talking about. So it's not limited to mortgage or debt funds. Oh, absolutely. And most, [00:15:00] most funds that you'll see in this industry are all what we call a Reg D, which is a private fund.

  There's no, there's no, um, real oversight. And a lot of times there's not even financials required for the government reporting. So what you might want to look for is what we call a Reg A fund, which is definitely public. And it allows for non accredited investors to invest in it and the sponsor can advertise, but there's twice a year reporting financials, audited financials.

  There's all of those checks and balances you would get with any type of public company. So for my listeners, I have done episodes about alternative investments. And so when I talk about accredited investors, they make over 200, 000 or half a million dollars in net worth without your home. And, uh, what we call regulation D.

  Private placements. That's what he's talking about. Um, and so some of those are for accredited investors, but over the last few years, they have opened up a whole new section for, I should say, [00:16:00] just regular people. Uh, and that is where we call what we call regulation A in our industry. And I really like them because it has opened up.

  You know, people, normal people do want to diversify outside the stock market and getting them into some real estate and I'm really glad that reggae is around, um, so that they can get into it. It's just not as popular yet. I think that it still has some massaging. Well, it's very expensive. Yeah. And it's, you have to have all the attorneys.

  You got to have the, so we have three different. CPAs, right? Mm-Hmm. We have our bookkeeping firm that helps us with all of our books, and we have to go through a third party auditor. And then we have our tax prep CPAs, so we have three CPAs for, for this fund. So it's, it's just expensive. Yeah. It's a lot of work and it's, it's hard to stay compliant, so people are not doing it.

  Yeah. Well, and it, I mean, when you have all those expenses, then it really eats into the return, so then you have to determine a. We, you know, people have to determine whether it's worth it. So I think it's awesome that you have a reg A cause I [00:17:00] haven't heard of a lot of people having them. So, yeah. So honestly, thank you for having them.

  Cause I think people who would love to invest in a reg a, they're just really hard to find. So, okay. So let's go over some other, what are some other like setups that you see when people are buying houses?

  
  Setting Up Real Estate Investment Groups

  Like, can we just talk about like if someone on Joe Schmo on the street, And they had friends and how would they go and buy this house and invest in it?

  Yeah, so let's I know this is going to go public. So i'm just going to share this I'm, not an attorney right and definitely check with your securities attorney whenever you start pooling money together What I will say what i've seen is people that are a small group and only friends and or family, they're not necessarily doing all the steps that the SEC would like.

  So you're not seeing the registrations and the notifications, the different things that you would have to hire an attorney for. They're simply putting together an LLC or a joint venture, and they're just coming together and they're spelling out all the terms on the document, and then they're doing the transaction.

  So I guess to help [00:18:00] answer the question, what I'm seeing people do is just start an LLC where there's a manager, managing member. And whoever else wants to get involved, take their little piece of ownership. And then you could structure that a thousand, maybe more different ways. What's very common is a preferred return.

  So the preferred return just simply means the investor, the passive investor or limited partner, same, same thing. They would get paid a return first and then the manager would make their money, right? So you'd like, we typically like to see preferred returns in these types of investments so that we know we're hitting at least a certain amount or we're hoping for at least a certain amount and then incense the manager to go out and do a good job.

  So very common. Preferred return and then some type of split on whatever profits above that return are. Um, that's, that's the most common way I see it. So are they financing the whole thing or are they just putting together funds for the down payment? It depends on, on the residential side. Financing is actually harder to get [00:19:00] than on the commercial side.

  So if you're looking at a Fannie Mae loan, for example, that's the best debt you could get by the way. So you want to max out your Fannie and Freddie, your conventional loans, um, 30 year fixed low interest rates, right? So you want to do as many of those as you can, but eventually they stop you. So you have to be able to figure out how else can I, can I do this now on the residential side, the conventional Fannie Freddie.

  They want the equity to be your equity. If you're signing on that loan, you need to show that you injected that capital into the project. So if you're bringing in private investors, one or two things are going to happen. Either you're going to get denied for the loan, or they're going to require that the investor signed on that debt also, um, in the commercial world, that's not the case, they don't really care where the, the equity came from, as long as there's equity, there's an equity injection.

  And so you see a lot of syndication deals on the commercial side, because I could bring in your money, Michelle, and then I could sign on the loan and then your money will count as my down payment requirement. Okay, so it's not the same as, you know, when you're qualifying for a house and they're like, where did you get this gift and it has to age so much in your [00:20:00] bank account and all that.

  Yeah, yeah. People understand that because they've gone through it. Right. A lot. I'm guessing your listeners are mostly residential investors. So. I wanted to just explain that difference. Sometimes commercial is just a little easier to operate in. It's, it's more creative. It's more flexible than residential, but on, to answer your question about how you would see it done on a residential property, yeah, it's really is both ways.

  If you want to pay all cash, you could absolutely raise the cash from private investors and do that. Um, and maybe even right now you can get a great deal because the interest rates are so high on the, on the loans. If you go out and get a loan, you're paying seven or 8 percent right now. So maybe it's a better way to go, but I would still say it's more common to bring in some bank debt.

  Okay to bring in bank debt for if you're doing a residential house. Yeah, either bank or conventional. Okay, and do you feel like everybody that comes to you that you can always find? I mean, most of the time you can always find a way to do the deal. Um, or is [00:21:00] it like 73? Oh, it's getting tougher. Really? It's tough right now.

  And here I'm trying to be as transparent as I can with you, but it's tougher right now because we have such a high demand for our loans and our money because banks aren't financing. I mean, we're like record low. If you look at the credit availability index from the Mortgage Bankers Association, you will see it's like at a record low over the past couple of decades.

  So credit is tight right now. So with banks pencils down, where are the investors going to go get their money? They're going to people like me. Yeah. And so we just have a lot of demand. So it gets to a point where I can't fund everything. So I have to turn down certain loans. And if I, if I have to get too creative to get a deal done, it just doesn't make business sense to do that.

  Right. But if there's, is there always a way to finance a deal? The answer to that question is yes. You just might need to bring in some, some help. Okay. All right. And I think that gives people hope. And, and that's what I've found, I think with anything, like if you, no matter what you want to do, it's always [00:22:00] figureoutable, you know, you just have to be able to make enough phone calls and, you know, partner with enough people and, and all of that.

  And that's what I'm kind of finding. And it's really interesting that, To me, how, so we had COVID and then all of the savings went up, right? And everybody had all this cash savings and, um, now credit is tight and people still have some of this cash that I would say people with money still have all this cash savings.

  And so they're looking for a way to return. And then this is what's happening is that people are kind of going over into the private credit market. And so I just find it fascinating of what's happening. And, um, and I don't think it's bad or good or anything. It's just, you know, the way of the world. Uh, so I.

  And I, I love how people figure out how to do deals and how passionate people get about real estate. I just think that not everybody can be in real estate. Otherwise it would be kind of, it would be crazy, you know, it would be out of reach for everyone. Um, but for the people that love it and are good at [00:23:00] it, then I think it's a, it's a great investment.

  I, I say this a lot, but it's, it's the only investment I know that's going to guarantee wealth. I mean, it really will guarantee wealth, but you have to have a long horizon because there's going to be some ups and downs. Um, but if you're in it for the longterm and you're passionate about it, you're going to get rich.

  I mean, there's just no question about it, but look, it's not just because it's guaranteed to get you rich. Doesn't mean it's going to be easy. Yeah, it's not a lot of people. A lot of people come into the industry thinking, look, there's a low barrier of entry, right? We just talked about Michelle. We just talked about how you can buy properties with no money down.

  You don't need money to go out and buy real estate. We know that. So that means it's a low barrier of entry. So a lot of people come in, but when they realize, well, I actually have to work, I have to find that seller that's willing to carry the note for me. I have to find these partners. Well, I don't want to put in that effort.

  So then the exit, right? So it's a lot of turnover. Yeah. Well, and do you find that really, that there's a lot of turnover and that people get in and that it's. So it's like, I've been doing this for over 20 years [00:24:00] now, and it's like, amazing, I go to a networking meeting and, and you were seeing the same people and then, and then the whole room turns over and now it's different.

  Oh, yeah, you don't see that in Phoenix or? No, I don't know. I guess I just don't. I mean, I don't know a ton of real estate investors, but I guess I just. Thought that the people that loved it, they love it and they're doing it. And, uh, that's not it. It hasn't been my world, right? And so I, it, I don't know. And so I'm surprised that it is turnover.

  So people are surprised. They think it'll be like HGTV and then it's not exactly. Exactly. They watch TV and they're like, this, this looks fun. I get to design and, and it's going to be easy. And then they realize, well, no, I actually have to work. And, and it's a lot of work. Yeah, it's a lot of work. I mean, there's a lot of little details that go into, you know, like the door jams and.

  Just all the little things lining up and, uh, passing code. Uh, so I did a house and knocked out some walls and did all this stuff and yeah, just the code and coming in and the things that you had to [00:25:00] install with the water and the sewage. And I mean, it was. Yeah, it was a lot, but that's why people passively invest, right?

  Right. Yeah. That's not a lot of work. You just need, you just need the money. Yeah. Yeah. But I love managing the contractors and doing all that. I think that's fun. And I, but I mean, as long as it's my investment, I don't think I'd want to do it like all the time, but, uh, it's, it's a good time when you have a vision and you see it come to fruition.

  Uh, but I am surprised because I guess I'm just not like that. Like I did it and, uh, have been more energized by it. So to hear that people get out of it, Um, that is surprising, I guess, just because it's not my world. What do you think about, like, you hear tenant horror stories, I'm sure you've heard these on your podcasts, but you get a good tenant horror story, that could push you out.

  And what do you mean, like, oh, you mean like, yes, how bad, yeah, I don't want to manage people. No, I've, I've had, uh, one tenant and they were amazing, but now that I hear. How people do squatting and just all kinds of stuff. There was a guy down the, who, [00:26:00] um, owned a house down the street and a guy like moved into his house while it was, he was trying to get it rented and he had to physically like remove him from the house.

  Like he had, he had, uh, barred himself in and all that or blockaded himself in the house. And it was like a really drama in the front yard. Yeah. I mean, just crazy stuff, right? That's a, that's a good one. I haven't experienced, I've had a, I've had a contractor move into one of my houses once, but that wasn't actually that big of a deal.

  Well, but they have squatters rights. And so that's what then they're trying to pull is this whole squatters rights thing. And I don't know all of the ins and outs of all of it. But then once I knew, yeah, what he was going through, I was like, Oh boy. So, yeah, I think once you get to know into all the nuances of your local codes Again, the tenant's rights and, and those types of things.

  Uh, and I have had a, uh, project or a, a, uh, what am I project or not a, a, uh, manager, a, you know, property manager. Property manager. I've had a property manager on the show and his [00:27:00] stories were, yeah. So there are some, I imagine, crazy things that can happen. Yeah.

  
  Conclusion and Final Thoughts

  Uh, well, I really appreciate you being on the show.

  I love talking about creative ways to. Get things done and creative ways for people to use their money because you never know what's gonna light somebody up. So, um, you know, I think if somebody is, was, you know, interested in what you're doing and that you have funds that people can invest in, uh, Oh, you know what, before we wrap up, can you tell me a little bit about the mortgage funds?

  Is it, is it the same thing where you doing a syndication and then you are giving out mortgages? Yeah, exactly. We are the Reg A, the public fund. Um, it's very, very simple. So we bring in money from private investors. We, um, we promise an 8 percent return. So it's a note. So it's a promissory note and you get, you get 8 percent and it's paid out every single month.

  So regardless of if the borrowers are paying or not, the 8 percent goes out. Um, so that's very simple. And then we just use that to make, yeah. loans on like fix and flips and you [00:28:00] develop like small new development infill type projects. Okay. Um, so that's, it's really simple. Um, pine financial group. com to get more information on that fund.

  Okay. Um, but yeah, I guess I, I don't know if that answered your question. Yeah, no, it totally answers my question. No, it's not complicated. And that totally answers my question. And then, uh, you guys will have, uh, his information, pine financial groups, information in the show notes, all the ways that you can get, uh, Uh, contact with him.

  And then are you, I know you're in Denver, but do you do loans all over the place? I mean, it doesn't matter. State is not specific. So we bring in capital from passive investors from all over the nation because it's the public fund. Now that when we lend it out, we are somewhat limited because look, there there's risk in lending.

  So we've got to be very careful, right? I mean, there's lots of different. things we do to be safe. But one of them is we're geographically focused. So we know we have people on the ground that could help us if there is a problem. So we're in four markets on the residential side, Colorado, Minnesota, Washington DC, and Wisconsin.

  I know it's kind of [00:29:00] That's how everybody is. Everybody's random all over the United States. Yeah. Okay. On the commercial side, we feel much safer in those loans for a variety of reasons. So we go outside of those lending areas on the commercial, but we're a lower loan to value. Okay. All right. Uh, well, yeah.

  And I was asking more so if people wanted to invest with you, they would just go to your website and find out some more information. And then I'm sure they could call and talk through things too. Okay. All right. Cool. Well, thank you so much for being on. I appreciate it. It's been really nice talking with you and, uh, thank you for listening, everybody.

  I hope that this, uh, help bring some clarity to how real estate investing happens on the day to day. And let me know if you have any questions.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

Multi-family Housing Investment

We hear every day about the increasing cost of housing. But what if there was a way to live in a beautiful, tech-integrated apartment without breaking the bank?

Norhart Real Estate Investing is changing the game by building affordable, high-quality apartments with a unique, vertically-integrated construction process.  

Join us as we chat with CEO, Mike Keating about Norhart's mission to help people live better lives and increase the housing supply, one apartment at a time. We'll explore their innovative building methods, how they're keeping costs down, and how you can be a part of the solution.

Links:

• Norhart Real Estate Investing

• Follow Norhart on Instagram

• Transcript

  Introduction and Welcome

  Hello

  everyone. And welcome to the podcast. I'm Michelle Moses, your host. And today we are going to be talking about affordable housing and some, uh, multiple, what am I trying to say? With, uh, Mike Canning with Norhart and they design and build apartments. And I'm really excited to talk about this because they're doing it very ethically and trying to solve the affordability crisis here in America.

  
  Meet Mike Canning: CEO of Norhart

  So So Mike Hating is the CEO of Norhart. They design, build, and rent apartments, and they are transforming the way this is done by incorporating technologies and techniques that have revolutionized other industries, and this has resulted in improved quality and reduced cost of housing. So welcome Mike.

  Thank you so much for being on. Hey, thanks for having me. Yeah. I'm excited to talk about this because before we even got started, I was [00:01:00] telling Mike that I was checking them out online and there were so many great reviews from people that had lived in your apartments that worked at your company and everyone had great things to say about How much they felt heard and cared for and just, you know, and paid, right.

  And so I'm very excited to hear about your, what you're doing in the space. And then also while he's on you guys, that he's not even going to be talking about that, but there is a way to invest in his company, um, with promissory notes. Um, so that's kind of the overarching theme, I guess. So, um, so why did you start down this road and, you know, how did you get started?

  What's the story behind all of this?

  
  Mike's Journey and Vision

  Yeah, you know, my parents originally started the business. In fact, growing up, I was onsite sweeping, picking up nails and One day, actually, my parents ended up losing everything while we were growing up. In fact, my dad was kidnapped in Peru, crazy side [00:02:00] story. But as we grew up and saw this company grow into something kind of more meaningful, I went off to college.

  And the one thing I knew when I went off to college is that I didn't want anything to do with the family business. And the reason that was, Yeah, it was because I didn't want people to think it was given to me. So I really had to wrestle with my own ego. But what I realized deep down was that I wanted to try to make a meaningful, positive impact in the world.

  And I realized I could take my parents small business and scale it up and grow it to the point of having that kind of impact. of impact. So I jumped in the first there. Well, there's a lot to be said where you have the basis, you know, you have your foundation and then you're able to jump off from that.

  Yeah, exactly. So my Dan and I, we, uh, were like two peas in a pod in the first few years. We actually doubled the size of the company together. And then [00:03:00] one day, unexpectedly, He passed away. So overnight, I became the CEO of the organization and I, well, I struggled. But the thing that I really learned through that experience was that, you know, my dad died relatively young and that we only live about 4, 000 weeks here on earth.

  And I often ask myself the question now, how do I want to spend the minutes I have here on earth? And for me, the answer to that is that I want to make some kind of meaningful, positive impact. And I think we can do that by by solving housing affordability. And were you guys doing this already before your dad passed away?

  Or did this become your goal after your dad passed away? It, it was an evolution, right? It's not, I always knew I wanted to make that bigger impact, but how, I didn't quite know. But after my dad passed away, [00:04:00] really putting the puzzle pieces together. And there's some stories and things we ran into along the way that kind of illuminated this path.

  
  Innovative Construction Techniques

  But what we started doing is driving down the cost of construction. And once we started to see that happen, we realized that if we could scale up this production model, we could be providing so many units to a given market that we can drive down those rents for everyone naturally in those spaces. And once those dots started to connect together, you know, We realized we could have that kind of impact.

  Okay, well, and I think it's important that if you were to see your apartments online, they are actually very beautiful. And I think when people think of, you know, we were cutting costs and we were, then you think, Oh, we're just living in a box of, uh, you know, what are the shipping containers or something?

  And yours are the opposite of this. I mean, really, they are really, really beautiful and nice. And so how did you, can you kind of give us a quick story of how you went about doing this and what are kind of the technologies that you do employ to [00:05:00] do this? Absolutely. And I'll first comment to what you just said.

  We actually have a partnership with Toyota and they invented the world of lean and improving systems and processes to drive down costs and their executives flat on a regular basis. And one thing they remind me of quite regularly is a lot of people see it as either cost. or quality. The reality is if you look at it from the right perspective and you take the right steps, you can actually drive both an improvement in quality simultaneously with a reduction in cost.

  Now we look at it from a bigger perspective to answer your question. Over the past 60 years, industries like manufacturing have improved labor productivity by 760%. During that same time period, construction has done virtually nothing at just 10 percent increase. Improvement. [00:06:00] See, this is unreasonable. This, this needs to be changed.

  And so we started asking ourselves the question, what things can we learn from other industries and apply those technologies into our space? One of the first things, if you look at manufacturing, is it's one plant, right? You don't have a bunch of different companies installing different components. In the world of construction, it's a bunch of different companies coming together to work on a building.

  If construction were to produce cars, you'd have a different company installing the windshield, a different company installing the wheel, and a different company installing the door. And of course, the door company, they would call you up one day and say, Hey, I am so sorry. I got delayed on another project and I can't get out there for two weeks.

  Your line would be shut down. See the world of manufacturing looks at us and says, you are crazy. And we look back at them and say, this is the way it's always been done. So we brought all that work [00:07:00] under one roof. Once we did that, we could start applying.

  
  Technological Advancements in Construction

  Technology and just techniques that others in this industry don't apply in this first one is going to sound revolutionary.

  It's the assembly line. Okay. I know it's not that crazy, but it has such a big impact. But how in the world could you take a building and drive it down a line? Well, you can't. But here's the insight, you can take the people and move them through the building. So right now our teams shift through the building by one unit every five hours.

  Because if you look at the end of our building, every five hours we have a brand new apartment unit completed. And that one technique, just that one drives, improves the speed at which we can build buildings. It takes a 15 month project and drives it down to something like nine months. So instead of like, because before it was the [00:08:00] drywallers would all come in and then they would come in and put in the doors or whatever it was.

  And so what you're saying is they go all go in kind of together. I mean, obviously there's certain things that probably have to be done and then they're finishing the apartment. In those hours that they're there, they are sequential. So what it would typically be is the drywallers would come and say, I want an entire floor, right?

  Get out of my way. I don't want anything in my way. Just want to do this entire floor or maybe a couple of floors. And what would happen is so much of the building is not being worked on. Instead for us, the drywallers are in one unit. The painters are in the next unit. The there's maybe a dry stage in the next unit.

  And the unit after that is the, um, the, the, the trim and the door and that sort of thing, because it's very condensed. It's like a train that flows through the building. Oh, that's very cool. Okay. And then were you having to, I guess, revolutionize the product that you were using the inside of the apartments [00:09:00] too?

  Yes, yes, yes. So we ended up bringing architects and engineers. In house as well. We have a whole team that designs our buildings literally from the ground up. They will do dissertation level work on metal joists. They've actually gone toe to toe with the federal government in the codebook and actually proven out where different calculations are wrong.

  What's interesting in the world of construction, typically, engineers and architects are going to deliver The fastest plan that can do that meets code, because that's what they're incentivized, right? They have a fixed price bid. They don't want to spend an extra minute on their project. But if you bring your team in house, they can start thinking about the project in much deeper ways to improve how it's constructed for one.

  But also reducing the cost of the materials involved as well. And so that is a key component to what we do. Because you're very vertically integrated [00:10:00] then. I mean, you are doing these from design all the way to finish and to renting them out, correct? I mean, you're you got it all covered. Exactly. We even have precast concrete.

  It's a facility that builds beams and columns, giant beams out of concrete. We have another plant that builds wall panels. And so, yeah, you bring it and we have sourcing and supply chain. We have people in China and Mexico delivering supply chain in house. And then we have a like kidding. So we actually deliver all the materials to one location and then it gets kitted down to individual.

  Units so that every five hours you have just as supply as you need for your unit. Wow. So yeah, you bring that all under one roof and you can make some big impact. Well, and talk about the technology that you're having to employ to coordinate all of this. That just is mind blowing to me. I would love to do a tour

  I love all those. I love all those logistics like that.

  
  Expanding and Scaling Operations

  And so are you, so you're basically, you are build, are you building in multiple states or you're just, you're building in one state with hopes to go to multiple [00:11:00] states. You know, we are in one state right now, Minnesota, although some of our manufacturing is in Wisconsin.

  We're looking to expand into Texas, but the key thing again is focusing on the production, right? So there's this engine, this almost like a manufacturing plant that builds apartment buildings. And when we do that, the goal is to do it at scale. And so you want to stay concentrated in one location until you scale up and then expand to your next location and scale that up.

  Okay. And are, how are you identifying the locations where you're building the apartments? Okay. Great. Thanks. So with, I guess I'll look nationwide first, we're looking to moving to Texas next. And the reason for that again is mostly focused on production. There are a very large population all within about a three hour driving distance of each other.

  And Uh, it's a good demographics, growing state, uh, rising rents. It also has closer proximity to Mexico. We're looking to move some of our manufacturing into Mexico and then drive that [00:12:00] across the border. So that's, that's why we're looking at Texas. When you're looking with in estate, we're looking for locations that have a good commercial area.

  How's the transportation? Is there, uh, like public transportation nearby? Um, is it a growing neighborhood? Like, is there a lot of, uh, new facilities, new buildings and things in that location? Uh, what are the, like, what's the supply and demand factors? Are there lots of new buildings going up in that area?

  So those are the sorts of things we look at. Okay. And are you buying existing buildings or land or both? We do not buy existing buildings. It is just land. If there's a house on the land, we'll buy that and tear down the house. Okay. But it's just land. Okay. Uh, but in, but most of the time it is, you're not having to tear things down and reconfigure the block or anything like that.

  Most of the time we do tear. Some buildings down as we go along, but most of the time it's vacant land. [00:13:00] And so just be, is it because you have it vertically integrated and that you have, uh, put these technology, I guess you put more technology into real estate. And then you're passing that on to make it affordable rent.

  Is that kind of the story that I'm hearing? Great question. I'll, I'll reframe it a little bit differently. What people will do is go on our website and they say, Mike, You talk about solving housing affordability, but your rents are about the same cost as everyone else in your market. What the heck? The answer is quite simple.

  We're trying to solve housing affordability nationwide. We're going to do that effectively. We first have to drive down construction costs. So we're taking the profits that we're earning in the buildings that build up the, production capability to produce those buildings to drive down those costs. As we build that out, our [00:14:00] goal over the next decade is to reach 192, 000 units under management with a 60, 000 unit per year pace.

  At that level, We're producing so many units for a given marketplace that we're now having an impact on that supply, therefore reducing the price, basic supply and demand. But here's the magic. So if we were to do it the way you described, we would solve housing affordability. For the thousands of residents that we have, but it wouldn't solve it for the market.

  Do we in a way that we increase supply, we're now reducing the cost of housing, not just for our own residents. We're solving it for everyone in the market that we're building in. Because that's our dream. You're really trying to just increase supply so that. The price goes down, essentially. All right. And then, and so are there other technologies that you, that I missed?

  Cause I know I skipped kind of to the building. Are there other technologies that [00:15:00] you're employing to help do this? Yes. You know, if I had to give the answer of what's the best way to reduce costs, it's related to people, but everyone likes the technology. So that's what I'll talk about. I'm kind of interested in the, in the people too, because I was reading how you have unlimited PTO.

  So that was one of my questions, if we could get to it. So, but go ahead, the technology. So, uh, one of the first technologies is. The architecture and engineering team, we're getting them to think about not just designing individual buildings, but it's building the system that designs those buildings. So imagine providing a computer aided site plan, kind of the lay of the land of a particular lot.

  Then, the computer calculates out What is the most efficient building design, heights, the size of the parking garage, the size of the units, the shape of the building, the parking overall, what's the most efficient design, plops that on there, [00:16:00] and then fills out the entire design of that building, and then after producing all of that, can create all the schedules, all the sourcing and supply chain, everything that goes in to producing that building.

  All automatically. And so we're, we're building out some of those technologies. We're using same AI that there's some really cool AI that's out there as well. So that's on the design side, the onsite side. So part of it is moving some of the work off offsite into plants. Once you do that, we have automated equipment that can Build components in the building.

  For example, for our steel wall panels, we put in steel coils in one end, and this machine will fold, bend, shape, cut, punch the metal to be exactly what it's needed for the walls being built. And so every stud is individually created. there is no waste. There is no time, energy and cutting or anything. It's all pre produced for us.

  Uh, and that's all programmed in right from our set of [00:17:00] plans. What I know is, oh, sorry, go ahead. Yeah. Yeah. Another thing is just the on site technologies. So the technologies that we do not have in place today, but we're looking seriously at, there's a company that has produced AI robots that can paint units.

  So imagine a robot that just paints the entire unit for you. So there's that technology. There's technology of um, autonomous excavation equipment. So instead of driving a bulldozer on site to level the ground where you need it, you actually have the bulldozer, the backhoe, everything is running on site and you're actually controlling it right from the iPad.

  It's all automated, knowing exactly the right height, the depth, the shape of that landscape that it's trying to create. So those are the kinds of techniques or technologies we're looking at today. Wow. That is really, really cool to see where it's going. And I can't believe that you're saying all of this because, um, my husband actually works for a company, um, that they do the components of [00:18:00] buildings.

  And so they'll put the walls and what I talk about is that's what they do is they build the walls and then they put them together like a puzzle piece. Or there is another area where they have these bathrooms and they're literally like in a box and then they'll just like drop off the bathroom. So I can't believe where it's going.

  And it makes total sense so that you have, you know, less waste and people are just putting things together and you're not having to rely on, um, people messing up because the problem is having the skills, you know, it takes years and years and years to do those skills. And now those skills can be used for something else.

  So I think it's just really cool where construction is going nowadays. Exactly. There's some really fun technologies like 3D printed homes, the full volumetric construction. There's the pod kind of construction that you talked about as well. The interesting challenge is that a lot of it is flashy and exciting and you get to see it on the newspapers.

  But when you get right down to it, a number of those [00:19:00] technologies actually don't reduce cost. And so the key issue, the key thing that we're trying to solve for is bring the right set of technologies together that meaningfully reduce the cost of construction. Yeah. Well, yeah, because you're probably just replacing people with computer costs or software costs or research or, you know, that kind of thing.

  Or like full volumetric construction where they're producing apartment units in a factory and then just dropping in place like Lego pieces on site. Super cool technology, but in some cases it helps reduce costs. The majority right now, it actually doesn't, is no less expensive than building on site. And so we're actually working.

  Kind of in a hybrid model right now, where we've got like tents on site where we'll actually componentize pieces of the building, but it's built right on site in like a giant tent factory. And then there's no transportation costs, right? When you're transporting a giant apartment unit, you're moving a lot of air.

  But if you can build that in a factory on site and then [00:20:00] just crane it up into place, that's another way to reduce costs. Okay. Are you trying to build your apartments close together? I like, you know, like. On blocks that are close together. Would that save costs too? Or does it matter whether it's, you know, a mile away or five miles away?

  It does save costs because there's substantial mobilization, like setting up cranes and stuff like that. There's a practicality to it though, which is that you often find good sites that are right next to each other. So we're all probably not zoned for it either. Yeah. So we're all within the Twin Cities market.

  So our staff doesn't have a very far distance to drive, but it's, it's almost never right next to each other. Okay. And so would you say that you feel like this is what, uh, most real estate builders and developers are getting wrong now is that you feel like they need to be employing more of this technology and what you were saying with the teams that we're going through.

  Yeah, [00:21:00] I probably want to be careful with my words and not saying that they're necessarily wrong. Well, I, yeah, I don't want to say that. I'm yeah, not that I don't want to criticize them. I'm just saying like where you could go with the, with the industry. Yeah, absolutely. The reality is, This is, there's a certain way that it's always been done and it's interesting when we meet with investors and bankers and just industry professionals.

  Everyone's a little skeptical. They're like, are you sure you're doing this? Like, this is so different. Why aren't you fitting the mold? Like, why do you have all this in house? And, Cause we have a proven track record of it actually reducing cost. This we believe is the future. Yeah. When I was looking at your company, I mean, you have a lot of different LLCs for all your different subsidiaries so that you can be vertically integrated.

  Exactly. Yeah. It's kind of, that's, that's incredible that you went that deep and we have a different companies for all the different components of our business. And part of the reason we had to do that is because people looked at us and said, dude, you're so different. So we said, okay, wait, wait, [00:22:00] what if we created a plumbing company?

  What if we created a. Uh, uh, precast company and they were separate entities. And then we hired the plumbing company to come work for us in this project. Oh, I guess we'd be okay with that. We don't, we're you're more fitting the normal mold. Okay. We'll, we'll do that to fit the mold. Yeah. Yeah. I would think, cause it's hard to disrupt because people first look at you.

  like you're kind of nuts or whatever. Cause I remember when I went out on my own and I started my own, what's called RIA in this financial world. And they were like, what are you doing? You can't do that. You know, I mean, I got told that a million times. So, and then I think once you start to do it, then they're like, Oh, it becomes the norm.

  And so what you're, you're doing is, you know, Hopefully going to start to become the norm, right? I mean, because we really do have an affordable housing shortage in the United States. And I think it's really commendable what you're trying to do. And, um, can we talk a little bit about your employees and how [00:23:00] happy they are?

  Just because that's what I read online by so many of them. Uh, what are some of the things that they love about working for your company?

  They're, they're, they're at the core of it. I really believe that you've got to build up an amazing team. And to build that up, you've got to provide just amazing. You know, we talk about top pay, top benefits, but it's much more than that. It's building the right kind of culture where they actually want to work.

  The one of the most, probably the most important lesson I've ever learned in life is to hire the very Best people. And when I say the best, I truly mean the best. We will fly people in from other States to come work during the week and fly them home in the weekend. One of our employees in 2007, Steve Jobs announces the brand new iPhone.

  Steve Jobs walks off stage and our employee walks [00:24:00] on that same stage following Steve Jobs announcement. And see, when you bring people like that together, they change things. they unlock doors for you that you didn't know could be unlocked. They invent the future. But see, the reason I was so hesitant about that is I was afraid that that was expensive.

  Many business leaders look at me and say, dude, like that sounds really expensive, right? And the truth is, it is. If you're going to hire the best people, you need to pay them top of market. You have to give them great benefits. You have to support them incredibly well. But here's the thing that most business leaders fail to understand.

  The best people outperform the average by two to four to 10 times as much. And so instead of looking at a cost per unit produced, look at it on a car and what they're actually doing. And you'll notice that the best people are actually you're least [00:25:00] expensive. So for those that feel they can't afford to hire the best, my response is simply, you can't afford not to.

  Now, once you bring in a team of that caliber, there's so much that we do, which I can get into to kind of support that culture and create that right environment. But it starts fundamentally with bringing the right people into that company. Well, and it comes from you and your vision too. And then everybody is going to follow that because they know that it's important.

  Which I think is wonderful. Yeah, that's exactly right. Yeah. Yeah. Okay. Well, that's wonderful. I love it.

  
  Investing in Norhart

  Uh, and I do want to touch a little bit on, um, the way to invest in this. Cause I do have a couple of questions about that. Uh, actually before we get started on that, there was one question that you had in your email about one thing that every real estate expert gets wrong.

  What was, what was your answer to that? Cause that was something that we were, yeah. emailing about. Yeah. You know, [00:26:00] I probably have different answers to this at different times, but my, my biggest answer today, and this is probably going to run, rub some people the wrong way, but a lot of people in the real estate market kind of have the mindset of fundamentally of, I want to make a good amount of income.

  We'll set it aside and go relax and live on a beach someday. And this market is ripe for that kind of opportunity. You can make a lot of money in real estate, but what I think a lot of people get wrong is that we should be having, instead of a perspective of trying to serve ourselves, we should be looking at how can we change this market to serve the community, to serve the wider world.

  And so if we reorient ourselves to doing that and serving that and driving down those costs and actually creating housing that's truly affordable, then we'll not only have a more meaningful, lifelong [00:27:00] impact that's more fulfilling, but we're also going to do well financially, right? So instead of focusing on the financials.

  Yeah. Focus on the impact. Well, I agree. And I think that everybody can win. And I see some things that come across my desk, that it's very much, you know, like, let me teach you how to invest in multifamily. Let's take that for example, you know, and I've already purchased, you know, four different buildings and, you know, I've built in the price of the project manager and the, this and the, that, and, um, you know, And it makes my stomach turn, honestly, because if everybody was buying multifamily, then everybody's going to be a renter.

  And when everybody's a renter, then nobody gets rich except for the people that own the buildings. And so, I'm not saying that there isn't a need for that, but not everybody can do it, you know, in that way. And some of these sales things that I see, I absolutely agree with you that I think it's just all, um, numbers based and I think this is, you'll see [00:28:00] why, you know, Zillow went under with what they were doing with, um, trying to flip houses is that they just thought, Oh, we can just go in there and get this done.

  And there's just so. Much more to real estate than just this, you know, this factory of we're just going to buy this and redo it. There's the people involved, there's the people that need to redo the houses, and then there's the people that you're selling to, too. And so I completely agree with you that I think that there's a way to balance it of where you can make money, but you just don't need to be completely egregious about it.

  And I think sometimes, yeah, I just think some of these selling systems, it's a little too egregious. So, okay. Now we really are going to switch to how to invest in your company. Uh, so, uh, Norhart is sells, you can invest in the company and they do promissory notes and correct me if I'm wrong on any of this and they, you can pick a term.

  So I want to equate it to like a CD or something like [00:29:00] that, where it, but it's not with a bank, you guys, this is with a company that you're investing in. And you can go from anywhere from six months to five years. And when you pick your, your time, then obviously then it goes up. So right now, as we're speaking, you know, five years is 10 percent and six months is 7.

  6%, uh, and can, people can just invest online. Is that how it works, Mike? That's right. One thing I want to just be cautious, be very clear up front is we're not a bank. We're not FDIC insured. Uh, we do guarantee that those rates as a company has no hard to invest, uh, but there's no government guarantee. So just be mindful of that.

  But yeah, you can go. They do have the first, they are the first tier though, so yeah, so this debt is not what's called subordinate debt. It was more of the, it is the first tier. So once, um, I would say [00:30:00] mortgages were paid off, right? Then these would be paid off. Am I correct in saying that? Yes. Yes. So, uh, Norhard invest is basically a fund that, uh, you can get promissory notes.

  Like it's like a CD. You get that money. back after a term. We also put our own money into KnowHow to Invest. If there ever is a loss at KnowHow to Invest, we lose all of our money, all of the invested capital first before investors are touched. That's layer one protection. The second layer of protection is KnowHow to Invest brings all those funds together and then invests into our apartment buildings.

  So there's physical, tangible real estate that's backing up these investments. Now, as you mentioned, the bank has the first position on those apartment buildings. So if we had a huge downturn in the market, then the bank could get hit. It's very unlikely. The bank's in a very, uh, safe position. The [00:31:00] second position is Norhart Invest, called Preferred Equity.

  And then the last position, again, is us. It's our invested capital. So, we would have to lose everything on the property, all of our invested money. And then we had to lose everything in order to invest before investors are touched. So I'm incredibly incentivized to make sure that I pay back you in full, not only an investment, but every dollar of interest that I owe you.

  Right. And I was, that was one of my questions is how much do you invest yourself? Is there a certain percentage or does it vary on time? Uh, it varies on time and company and stuff. Uh, within Norhardt Invest, it maybe is around 20 percent right now. Uh, and then on each property, it's about 10 to 20 percent as well as the equity layer.

  Okay. And I think it's important to point out that you could invest for, you know, two years, but Norhardt does have the option to pay these off early. Um, [00:32:00] Uh, if they needed to, or if it was in the best interest of the company. So it's not, you know, this is not a C, a CD like a bank, but I'm just equating it to that to, so that you can, um, realize how you would make the money is like a CD, but you were investing in a company, but they do have the option to pay you off at any time.

  Uh, and my other question for you was too, was do you, the, so the money that is left, you can invest it in, uh, The way that you wanted, but it didn't say, and I was wondering if you only invest in bonds or what you would invest the money when you're not using it. Yeah. So we don't, we don't invest in stocks or anything like that.

  It's just know how to invest apartment buildings. And then it, uh, is kind of like we put the cash in the CDs and things of that nature. Um, or government bonds, short term government bonds for the liquidity accounts that we have to hold for her to invest. We can be off investors as their notes come due.

  Right. Okay. And, uh, in [00:33:00] these types of investments, people can request their money back after a year, correct? Uh, you can request your money back at the end of the term, so you can't take your money out early again, primarily because they're in hard real estate and we've got a time sales buildings and things like that with investor returns.

  Um, so you can't take it out during the term, but you could take it out once the term ends. Okay. Or it will automatically roll over or it can automatically roll over. Uh, no, it does not automatically roll at the end of the term. You can choose to roll it over if you want. Oh, that's what it will not automatically.

  That's what I said. Okay. All right. Well, um, obviously if you have more questions, you guys, um, we'll have the website in the show notes. Along with how to invest, if that's something that you were interested in doing. But again, it's not with a bank. It's not guaranteed. There's no FDIC insurance, anything like that.

  You are investing in a company, but I really, I mean, that's not why we're here to talk. I [00:34:00] am interested in what you're trying to do for affordable housing, and I think that we need to highlight. More companies that are really trying to help people. And again, I just think that this whole thing of where we can all win together.

  It needs to be the future and that we really can all win together. We can all promote each other. We can all make money at the same time and we can all be friendly. It doesn't need to be this huge competitive, uh, world that we need to live in. So I just really commend you on what you're doing. And again, the reviews online from your employees and people that live in your apartment buildings are just stellar.

  And I went to multiple websites and, um, there was nothing but positive things on there. Hmm. I appreciate that. Thank you so much. Yeah.

  
  Conclusion and Final Thoughts

  Well, thank you for being on. I really appreciate you taking the time to speak with me about this so that I could learn about your investment and learn about your company.

  And [00:35:00] I can't wait to see where you go with this. Yeah. so much. This has been a blast. Yeah. So thank you everybody. As I said, everything will be in the show notes and let me know if you have any questions. Thank you so much for listening, everybody. I really appreciate you tuning in and, um, learning some things.

  I really, I hope that this has inspired your financial life in some small way and share with your friends if you feel compelled. Thank you so much.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

Gen-Z Financial Planning Tips

Struggling to save for your dreams? Financial freedom might not be about that fancy car. In this episode, we chat with award-winning investor and author Anne Lester of "Your Best Financial Life: Save Smart Now for the Future You Want."

We’ll:

• Redefine financial freedom and explore how to achieve it on your terms

• Learn mind tricks to boost your savings effortlessly

• Debunk money myths perpetuated by social media

• Learn actionable steps to feel empowered on your financial journey - no matter your age!

Links:

You can buy Anne’s book here- https://amzn.to/3z4XDGh

For more information on Anne - https://annelester.com/

Time Stamps

00:17 Meet Ann Lester: Financial Expert and Author

01:01 The Inspiration Behind the Book

02:06 Understanding Financial Struggles and Solutions

06:25 Exploring Different Money Types

07:11 The Oversubscriber: Managing Subscriptions

12:45 The Splurger: Avoiding Impulse Spending

15:44 The Hedonic Treadmill: Consumption Creep

21:09 Understanding Money Archetypes

21:24 The Crypto Bros Phenomenon

23:33 Automate Your Savings

25:35 Combating Consumption Creep

30:25 Evaluating Luxury Splurges

35:51 Final Thoughts and Takeaways

• Transcript

  Introduction to the Podcast

  Welcome to me financial the podcast designed to inspire your financial life. Hello everyone. And welcome to the podcast. I am Michelle Moses, your host. I am a certified financial planner, a realtor and a former e commerce store owner.

  
  Meet Ann Lester: Financial Expert and Author

  And today I have Ann Lester on the show and we are going to be talking about her book.

  Ann spent 20 years as head of retirement solutions for JP Morgan, and she is the author of your best financial life. Save smart now for the future you want. A book to help younger savers find long term saving success by overcoming their behavioral biases. Anne is also a media commentator with coverage from the likes of Bloomberg, Barron, CNBC, Forbes, Wall Street Journal, and the New York Times.

  And Barron's even featured Anne on their cover for her outstanding career. Welcome and thank you for being on the show. Well, thanks so much for having me. Yeah, well, obviously you have a lot of financial experience. [00:01:00] And so I'm very interested.

  
  The Inspiration Behind the Book

  Why, like what holes did you see in the marketplace? Cause we all know, I mean, you could go to the self help section and there are a million.

  self help financial books. What were the holes that you were seeing that then inspired you to write this book? Well, I, I guess on the one hand, I felt like none of them ever were talking to me. And, you know, by me, I don't mean, you know, Ann Lester cover of Barron's blah de blah. I mean, like the, the kid who, you know, kept maxing out a credit card and didn't know how to stop mistakes.

  Um, I also think that the way that we often convey financial information, even though we're, we're, and I'm talking about we in the financial services industry think that we're, you know, being relatable and talking at the right level for people. It's still full of jargon. And the second, I think a reader doesn't understand something, they immediately feel small and [00:02:00] stupid.

  And. That's the worst place in the world to try to make financial decisions from.

  
  Understanding Financial Struggles and Solutions

  I do think in the last couple of years there have been more books coming out sort of by peers, right? So, you know, you've had a raft of books in the last sort of three to four years by sort of peer to peer kind of things, and you're seeing a lot of that content on social media, and I think a lot of that stuff is great, too, because I think it's very relatable for the audience, but I guess I'm trying to do something a little bit different, which is be relatable, be human, um, acknowledge that people struggle, not sound like I'm lecturing people, um, and, and show that it's possible to overcome some of these mistakes, but also do it with the background of having worked in this industry for almost 30 years.

  Well, and I love that you're being transparent that you've worked in the industry and even though, you know, you go to work and you're learning all of these. Things that the spending is a completely, and the saving, I guess, uh, I, where I call the tire meets, uh, meets the road with like the budget. [00:03:00] Uh, that was hard for you.

  And so you wish that really hard. Yeah. You wish that a book like this would have been there for you at that age? Absolutely. And and for me, the really key, like the thing that unlocked all of this for me was. Understanding that it wasn't, I mean, it wasn't my fault I was spending all this money. Like, of course, on some level it was my fault because I was doing it, but I didn't understand that I, and it's easier for me to say now, this, this many decades on, that I just have poor impulse control.

  Like, I just do with money and food. Like, I don't have poor impulse control anywhere else in my life, but for those two things I do. And, You know, accepting that and understanding that and then building guardrails around myself have have really been transformational. And I learned a lot of that as I was building financial products, right, target date funds, to help other people save.

  But it also helped me understand that that I could forgive myself for those mistakes, that I didn't have to keep Putting myself into the same place to [00:04:00] try to make a better decision, you know, I'll put temptation in front of me and then I'll make the right decision. And, you know, that's, that's kind of silly, right?

  Well, and don't you think that as a society that we think that that's, what's going to happen when I, what I view it as just a visual is that you have to come down and you just need to accept. where you are and what you are. And that, you know, I have poor impulse control around these two items. And that is just the hand that I'm dealt.

  And there's just such a relief in that, right? I'm just, I'm just saying that, and it's not being a victim. It's just that this is just the hand that I was dealt. This is how I am. And so what are some small steps that I can take to help me with this because it's obviously going to be a lifetime of getting better at it, right?

  Is that kind of the thinking? 100%. And I think the, the, I hope the comfort my readers feel hearing, yeah, it's okay. Like we got this. Yeah. Nobody's perfect. And it's like, you know, [00:05:00] you get these emails or, you know, even on social, you see everywhere. I made this much and I'm doing this and I overcame this.

  Whereas I think what needs to happen and what people really relate to and love is when people are just being human and they are realizing, like I got an email from a coach and she was having a hard time and hat, you know, is talking about all this. Stuff that she went through with this relationship and how she had PTSD from it.

  And, and she was really surprised at the, uh, response. And I'm like, yes, because we are all flawed. We are all just trying to do better. And I think anytime you can be told, like, it's okay, I mean, you don't wanna sit there and wallow in it because then you don't feel good, but at the same time, just accept how you are and then just kind of go from there.

  It's. It's just such a freer way to live, right, than trying to like power through and be something different all the time. Yeah. This is not something you can grit through or bootstrap through. I don't think. No, no. And it's, it's a lot like food. I always talk about food and, and money, like [00:06:00] the same, they're the same.

  Yeah, they're the same. Yeah. I mean, it really is. It all applies so much, um, in the same thing. So anyway, I really applaud you for the, for the approach that you're taking to this. Cause I think that we need. Oh, so much. Yeah, I just think that we need more of it, especially online, you know, when you're getting everybody's a roll, uh, that, you know, just not everything is perfect.

  So, okay, well, let's kind of go into the book.

  
  Exploring Different Money Types

  Uh, I thought it was really interesting, um, that you had like the different money types. Can we talk a little bit about like figuring that out or and what they are? Absolutely. So, you know, the classic two biggies, right, are spending and savers. So you're a spender, you're a saver.

  I actually try to break that down a little more in there. This may not surprise anyone. More spenders than there are savers in the world. Um, it may be fun to spend. Well, and there's so many different ways to spend, right? And you know, my race, [00:07:00] this isn't a super scientific thing, right? I didn't do decades of research into your brain on money, but, but, but I have found that these resonate with people and it's really trying to align the way people are spending with some common behaviors.

  
  The Oversubscriber: Managing Subscriptions

  So when I talk about is the over subscriber, right? And this is, I think, Has always been true, right, ever since the first person came up with a magazine, but it's so much easier now to do oversubscribing because so much of it is invisible to us, right? I actually literally just went through my phone, like, last week and went, Whoa, I'm still paying for that?

  Like, I thought I canceled that two years ago. Not really. Um, so these things sneak up on us and it's a hard thing to acknowledge sometimes that it seemed like a good idea at the time and then it kind of fades, like I didn't need two robocall killers on my phone, I was paying for two of them, I don't know why, but I set them both up and there they were charging me, you know, four bucks a month or whatever, not, not huge amounts of money, but you know, Yeah, but it all adds up.

  It does add up. And, um, so, [00:08:00] Some of the tricks that I have for managing that is, you know, and some of them are easier than others, right? One is just make an appointment with yourself once a year to do a cleanse. You look through your statements on your credit card, you look through your phone, and you know, if you have an Apple phone, at least you can go see those subscriptions and apps.

  And you know, it's, it's pretty easy to go, whoa, whoa, whoa, why am I doing that? Well, and I liked how you said at the beginning of that one was that it was a woman that you had Said was the example, and that she lived with roommates and she saved money and had a job and, you know, all of these things. But the over subscriber was the, the part that was kind of leaking the money.

  So it was like she was very responsible for 75% of it. Um, but just this little one, and I think just this little part I should say, of her life. And that's what I think is so interesting is that you can do so well in different parts and make all these decisions. And let's be real. I mean, the oversubscribe, I mean, that's not, [00:09:00] it's, we're not talking about like huge, you know, binge shopping or anything, but these are just like little things that you can do, right?

  To save some money every month. It's, it's the hundred dollars or $200 a month, right? Mm-Hmm. that, you know, it's. easy for us to say this. It's so hard if you're that 25 year old to realize that actually that will make an enormous difference in your life. Right. I have a little example somewhere in the book about how much your, your, your takeout lunch is costing you.

  Right. And, and I don't want to sound like a preachy boomer, but like, You know, brown bagging it occasionally is a great way to make sure you hit your savings goals. You know, so it's, it, it is that a hundred bucks a month that is actually going to make a big difference. Just back to the food analogy, like it's that a hundred calories a day that makes you put on however many pounds it is a year, seven pounds or something.

  I mean, like, it's, it's really small. Yeah. It really is. And one of the tricks, in addition to making an appointment with yourself, which is, you know, kind of like you got to do it, right? That's a little hard. Uh, uh, a hack that I have in my, my book about, uh, subscriptions that I [00:10:00] actually do this myself. And I will just say with the massive caveat, do not get an extra credit card for this purpose.

  But if you happen to have more than one, if you sign up for anything, make sure you use the card with the closest subscription date, because it will tell you. that your card is expired and you have to renew it. And that is a very useful time to stop and say, why the heck am I subscribing to this thing anyway?

  Do I really need it? Right. Um, and I do one of the, I do one of the hacks that you have in there too, where I subscribe to like Disney plus for a few months and then I'm like, okay, everybody, we're going to end the Disney plus. And now we're going to go over to, you know, Hulu. And, and, you know, like we switch, we don't do them all at once.

  We do one at a time. And that is one of the hacks that you have in your book too. And I tell people that, and they're like, Oh, that's such a good idea. And I'm like, really? I'm just cheap. I don't want to pay for all of them at the same. I can't watch that much TV. Well, and it does also speak to the way [00:11:00] we watch TV now, right?

  Which is that you can like watch a season of something. So I'm watching something now on Apple TV and I'm going to finish it. And I'm going to turn it off until the next season's released. Like that's okay. Right. That's really okay. If they're going to make it that easy and low have such low barriers to jumping in and jumping out, then we should be taking advantage of that.

  Right. It's a great way to save some money. Yeah. Although they'll probably listen to this and be like, Oh, now we need to release. I don't think so. Because, because they're all. You know, I think about it from the company's perspective, right? Of course, they want everybody to sign up for everything and stay on it all the time.

  But like, would they rather have you do zero or would they rather have you jumping in for four months, watching the show you want and jumping back out and knowing that people will forget. So another hack that I have too, is checking the credit card offers because a lot of times you can subscribe to, you know, Paramount plus and get three months for free.

  Um, and so then I'll put a little, um, thing on my calendar that I need to cancel it after the first or, or I'll just watch what I need to watch and then cancel it right away. I don't care. Um, but there are a lot of [00:12:00] credit card offers on like Chase and American Express that you can activate on your card and then you'll get it for free.

  And I think the trick there that you say is actually Figure out a way to make sure you prompt yourself to step off, whether it's just knowing, I just want to watch this one show. That's all I want to watch. I'm going to watch it this weekend or this month and then I'm done. Um, or put a calendar reminder.

  And I just did that the other day. I signed up for something and I was like, I don't know if I really want this. I want to check it out. And I used it twice and thought, nah, I don't want it. And I, and I had the little flag in my calendar saying, remember to unsubscribe from this. And I did. Yeah. And that's why they have the free trials and all that, but yeah, you got to put it on your phone or your calendar or something.

  So yeah. Yeah. Okay. So anyway, what are some of the other money types? I think we're, we are both, uh, Maybe we were part of the oversubscriber crowd. Yeah, yeah.

  
  The Splurger: Avoiding Impulse Spending

  There's, I talk a bit about splurgers and I suppose if I, if I put myself in a camp, it would be the splurger and maybe, maybe I do that with food too, but it's like you, you're really, really good.

  You're buttoned up. You got this one thing and then you go boom and bust out and like overspend. Um, [00:13:00] And I think that that is are we talking like a trip or just close, you know, like a trip is one thing where it's thousands of dollars or could it just be like dinner? Well, I think, I think everybody's got like, this is not one size fits all, right?

  It's like, can you observe patterns of behavior that you fall into? Whether it's saying, I'm not going to go out. I'm not going to go out. I'm not going to go out. I'm going to be super careful. And then when somebody says, Oh, do you want to go out? You just totally bust loose and spend three times as much as you meant to like that.

  Okay. Just like a diet. Right. And I think the splurger, you know, where you might get into trouble is, and I've learned not to go into clothing stores without lists. Like, I need a new pair of jeans. I can't buy them online. I'm going to go try on a pair of jeans and then there's three cute things in the store and you buy all three cute things because they fit and they look good and like, why not?

  Right? And, and so it's, it's the, the splurging I think is the, you start with a thing that is awesome. A legitimate plan to maybe budgeted for [00:14:00] expense and then you slide into more other, you know, my husband once said the most expensive words in the English language were while we're at it. And we were renovating.

  Um, I was going to say, when you're doing a house, that's exactly where it can, right? You just, you just, you just go crazy. And, and it's so hard to understand where you just have to stop and say no. And It's super easy to do. It's super easy. And I think it's hard. I was actually, um, I've been thinking about this a lot, uh, over the last couple of weeks.

  I saw somebody online talking about what social media and just movies in general and how, um, it started, you know, like let's take sex in the city and how much luxury and living this luxurious life has become the norm, even if you're poor and that even if you don't have money, you're supposed to be driving a certain car and have these sunglasses and that, you know, Carrie Bradshaw in, you know, Um, that series was supposed to be poor, but then she's [00:15:00] wearing all these gorgeous outfits and designer and she's living in an apartment by herself and that we think that this, uh, we have this vision of what life is just supposed to be like, and that social media and all of these movies have just really done us a disservice because we are so out of alignment with what it truly takes to do that.

  And, uh, and have that. And we all are trying to attain this like perfect life, uh, in that we aren't even satisfied, you know, with, with other things. So I think the splurger would kind of go into that too. Absolutely. And that's a big concept in, in my book. And I'm sure you talk about it with your clients too, which is maybe not in these words, right?

  
  The Hedonic Treadmill: Consumption Creep

  There's something called the hedonic treadmill, right? Which is basically consumption creep in the hedonic treadmill. hedonism, right? Like seeking pleasure, right? You, we all seek pleasure, but you get used to it. So, you know, you, [00:16:00] you get a raise. You think, great, I can afford a new car. You buy the new car.

  And then two or three months later, you take the new car for granted and it doesn't make you happy anymore. Like it didn't change your life, right? Now there are some things that are truly life altering. Like if you're in a dangerous neighborhood and you move to a safe neighborhood, right? Or if you're in a really sketchy place where the power keeps cutting out, like, Like, absolutely, there is a threshold of, like, that you will stay happy above, but, but once you hit a pretty, I'd say, modest level of comfort, these things stop making us happy.

  Anybody who's ever gotten a promotion at work who just thought, oh, if only I got that promotion, I would love my job. And yeah, guess what? Your job is still your job, right? Even after the promotion. And so, I think one of the, the trickiest things, and I think maybe splurgers are really prone to this is, Is linking, right, that purchase with the emotional rush of the satisfaction, right, the happiness, the attainment of this thing that maybe I would say [00:17:00] you ought to spend some time thinking about is it really what's going to make you happy or is it just kind of fixing some other some other thing, you know, so I think that hedonic treadmill is a really scary thing.

  And that's another thing I talk about in my book. Like, if you're not aware of that as a, as a concept, you just slide right onto it. A lot of everybody else around you, because everybody's doing it, right? Oh, I can afford a bigger place. Oh, I can afford nicer vacations. And you keep creeping up and up and up and up.

  And you do a couple of things, right? One is, you're spending a lot of money. Um, two, you're anchoring your lifestyle at a pretty high level, which is going to require even more saving to replicate once you retire, right? So it's a very dangerous habit to get into to save, uh, not to save. More as your income goes up because you're just always chasing more and more and more and it'll never be satisfying, right?

  And and when you buy the bigger car or the more expensive car the oil changes are more expensive the cat that you know The tires are more [00:18:00] expensive stuff like that that you just really need to get real about And the insurance you get a new car The insurance is more expensive and sometimes it pays to just be cheap in some areas so that you can spend and others and I think that we as You It's a society, uh, I'm just speaking to Americans in general, I guess, but, uh, we think that financial freedom means just, I can just go spend whatever I want, whenever I want it and do whatever I want.

  And I really think that we need to redefine financial freedom as being more feeling free in yourself, that you are grounded in the decisions that you're making, that they're right for you. Is that, do you agree with that? Like I, I, I think this, I this term financial freedom has just gone off the rails and we need to bring it back to your heart and what you feel good in life about.

  I agree with you and I actually have kind of stopped using that phrase, even though me too though, it's kind of catchy and buzzy. Mm-Hmm. I like to think about financial [00:19:00] security. Yeah. Um, and I think what you said about aligning. How you're spending your money with your values is really important. We don't pause enough and think about that.

  And as I'm talking to especially younger people, um, about how to save money, it's like, I'm not trying to latte shame you, right? I'm not saying don't go to Starbucks every morning and get that latte. I'm asking you to save money. Think about, not to sound all Marie Kondo, right? But like, is that actually giving you joy?

  Is that a meaningful part of your day? I was having this conversation with somebody specifically, and they were like, Oh my gosh, that first cup of coffee in the morning. I go to the same place every day. The barista knows my name. I don't even have to tell them what I want. It just like makes my whole day then.

  Yes, please go keep having that experience because it's clearly the like the touchstone for you having a good day. Maybe don't go back in the afternoon for the second one. Maybe brown bag twice a week, right? Maybe so, so anchor the way you're making, I'm going to say non discretionary spending decisions, [00:20:00] right?

  Like, like, We will all live without a latte, right? You can make yourself a cup of 50 cent Keurig or, you know, you can, you can find coffee for a lot less than that fancy coffee drink, but. But are you really going on and on about whatever your purchase is and feeling it? Yeah. That it, it adds to your life and it takes practice.

  Is it just a habit, right? And it does take practice, right? I think it takes a lot of practice, but I think if you can just in that instant, and I can talk about some of these other hacks, right? Like. Can you make yourself pause just for a second before you click by, before you pull the trigger on whatever decision you're making?

  Because that pause is what lets a little bit of daylight kind of get between you and the impulse that your sort of fast brain is driving you towards and gets that rational part of your brain in just a second to say, Whoa, what are you doing? Like, I thought we said we weren't doing that today, you know?

  Right, right. Sorry, I didn't mean to eat that. You know, again, it's with me, it's food. Or leave it in your, or leave it in your cart and then sleep on it. And if you can't, if you [00:21:00] can't stop thinking about it the next day, then yes.

  I didn't really want it. I was just bored. Absolutely. That's a great tip. That is a great tip. Yeah. Okay.

  
  Understanding Money Archetypes

  So how many archetypes are there? Bunny types. How many money types were there in the book? Off the top of my head, I think there's seven. Yeah. There's quite a few. So it's not just spender and saver. And that's what I wanted to point that out.

  I can't. I can't. I can't. I think that's a good thing.

  
  The Crypto Bros Phenomenon

  I call them crypto bros, right? Cryptonauts. Um, and I did some focus groups, uh, around some survey work that I did a couple of years ago. And they tended to be overwhelmingly male. They tended to be super, super, super geeky about finances and following all kinds of stuff online.

  And they were the people that were doing the GameStop stuff and the cryptocurrency trading and the, And I think it's the same personality type that really geeks out about like fantasy football. They're just not interested in football and so they do it with money, but it's like mastering the minutia of all these little tiny [00:22:00] facts and wanting to be on the inside and having an idea and it's really dangerous.

  you know, really dangerous how easy it is to get sucked into again, making money decisions for reasons that fundamentally are unrelated to like building sustainable wealth and just trying to get a quick buck or what it sounds like something that you're deriving your self esteem from rather than just having self esteem.

  And that is very dangerous because you're just not going to get it right all the time, especially with money. I mean, you're just saying, Oh, sorry. If you're, if you're doing fast trading that statistically. You're overwhelmingly more likely to get it wrong, right? Yeah. And I think that, and I, that's one of my tenants, honestly, with money.

  And when you're learning, you've got to have some grace for yourself because you are going to mess up. I just put in quotes, mess up, uh, just because you're just learning what's in alignment with yourself and what you feel good about. And when you start wanting to know everything and you're going to be in the know, like not [00:23:00] everybody can be in the know like that.

  You're just, you know, You're money is all about figuring out what's right for you and what makes your heart sing, and so you gotta be going from that rather than Yeah. The, there it sounds like they're more like the gambling, like, oh, I feel good if I won, you know? Yeah. Mm-Hmm. . Well, and it's, again, it's the same geekiness.

  One of my cousins is a, is a, he's Canadian, he is a professional money manager in Canada, and he's a. Super deep baseball geek, and I'm like, yeah, the brain gets the same guy. Right? That really wants to know every single statistic and like understand how it all fits together. But you know, this, he spends his life doing that stuff.

  Yeah. Yeah. Okay.

  
  Automate Your Savings

  So I want to switch gears a little bit, uh, just because there's a couple things in the book that I definitely want to get to. So, uh, what, what are ways, so one of the things in there are what are some ways you can hack your brain to make saving savings easier? So we, I think we touched on one of them, but the first one is automate, automate, automate.

  Automate. Make it automatic. Have the money. Make sure the money doesn't go into [00:24:00] your pocket, basically. And I, again, I am somebody whose money literally burns a hole in my pocket. The second I have it, I'm like, oh goody, what can I do with it? And I learned I have to put it somewhere that I can't see and I can't get to very easily.

  And then it like disappears and I don't think about it. So it's setting up a separate high yield savings account for your emergency fund. Right. But have that deducted automatically from your paycheck. Which is very easy. Yeah. Well, and if it's, if it's automatic, then you know that you're going to get an overdraft fee if you overspend or, you know, it's going to take that extra step to stop it.

  So that makes sense. Well, and it's kind of out of sight, out of mind. Right. And, and, and it, I. In my view, you know, having that sitting on the home screen of your normal bank account where you can see all the balances is like, maybe that's not the right place for it because it's always sitting there. And at least if you're like me, it's always going, Hey, you really could afford that thing.

  Right. And that's for emergencies, right? Not for like, Whoa, I really saw that nice pair of shoes that I wanna get. Right? Like, that's not what that's for. And that's same thing [00:25:00] is true, and that's, I like to assign things for my money. And I like to do, that's why I like to do a budget, is because then I assign things to the money.

  And, uh, there is nothing that gets you from, Hey, I just made a ton of money to let me assign this to, you know, redoing my house and savings and all of that to, oh, I'm poor again in five minutes. I mean, honestly, yeah, it takes five minutes and then you're like, oh, okay, my mindset totally changed and I need to go make some more money.

  I've already spent that. Yeah. Yeah. Even though you haven't certainly, I know I have a plan for it. You have a, you have a plan for it. Okay. So what are some other ways that we could make savings easier?

  
  Combating Consumption Creep

  So, and then the second one that I talked about that, that I already mentioned is, you know, how do you combat consumption creep?

  Like if you're just starting out, you know, typical advice that I would give somebody is you long term need to be Thinking about saving 15 to 20 percent of all the money you earn, and that will be for retirement, that will be for your down payment, that will be for your, like, that number covers, like, the things that you need to have saved money for in life.[00:26:00]

  Big ticket items, right? Buying a new car, right? You can put all that under that umbrella. If you're just starting out, I don't think it's, unreal to say that you probably will struggle to do that just because if you've got student loans, if you're living in an expensive city, even if you've got four roommates, like it's just going to be rough to say, sure, I'll just take 15 or 20%.

  Right. You can't, you can't do it. Right. I think that's unrealistic. So, and when you get out of college, I mean, it's just shocking. I mean, you just don't realize how much it costs. To live. You know, I just remember talking to my girlfriend and being like, God, I thought I made so much money. And it just goes and you know, all of this stuff and yeah, you just shock and you don't take it home like you think, oh, I have this number, and ISS like, wait a minute.

  The federal government, state government, social security, health insurance, it's just gone. Right? Yeah. You do not realize. And so I think for a couple years you're kind of living in shock and like just. Trying to figure out how to make your life work with the money that you're making. Exactly. So you, you spend a little bit of time learning how you have to live [00:27:00] within your means.

  And if you're like, certainly me and many people, you make a few boo boos along the way. Maybe you run up some credit card debt, right? And you're like, well, can't do that. Maybe you do buy now, pay later. And it's like, well, can't do that. So you learn a few things and then you start, you know, as you work for a few years, most people, not everybody, most people start getting raises because you become more valuable to your employer.

  And this is the trick that lets you start saving appropriate amounts. It's not original to me. It's called Save More Tomorrow. And it's relatively pain, painless to promise yourself that when I get my tax refund, I am going to save half of it. When I get my raise, I am going to, Bump up my savings rate for at least half of that.

  I get to live a slightly nicer life. I get to have a few things I can't afford right now. So you feel better about that. And you start pushing your savings rate up from maybe zero or 1 percent or 3 percent to 5 percent to 7%. to 10%. And [00:28:00] in five or 10 years, you will be saving that 15 to 20%. Yeah. But it's, it's so painful to deprive yourself of stuff you want right now.

  And it's relatively easy to make a commitment to yourself. You can even automate that commitment on some, in some financial institutions. And again, if you have that coincide with when you have a little more money, you don't even notice you're saving more, right? So it's that is getting raises or you get bonuses or anything like that.

  And or people come into money in different ways. Right. And that is a great, a good question that I get a lot is, you know, what should I do with this? And my answer is always you should do everything. You should save some of it. You should spend some of it. You should save. Then also put some away for like maybe an emergency fund or a new car or something.

  That's more of a midterm goal. Yeah. You know, or you might wanna give some of it away too. And it doesn't have to be a lot, but you know, I like to help the animals, so I'm gonna give $25 to the animals and so do it all so that [00:29:00] you are getting. It's all about the essence of what you want because we're always dreaming like so big of like, Oh, if I could just support the art museum and, you know, like all those things and do all of this, but if you're doing it on a small level, you're going to be like, oh, okay, I'm doing it.

  I'm not doing it huge, but again, it's just those small little tiny steps, like, you know, I'll making those little habits. And I think that's what is most common of people that are financially successful is that they do do it all. And they do it all as they're going. I think that's a terrific point. And I, I talk about the importance of starting to save, even if it's only 1 percent or, you know, 10 or 20 bucks a week or whatever that number is for you, because It actually does add up and you start feeling better about yourself and then you flip the script in your own head from I can't do this to hey I'm actually doing this right and then then it starts getting a little bit fun right and then you're like whoa I am I am this [00:30:00] other person I am and I think you're doing it.

  I am a saver. I am somebody who invests in their future. I am someone who can afford to give a little bit to the, to the causes I believe in. I don't just have to sit here and complain about how I don't like my life. Right. So it's a very empowering thing to start doing. Yeah. Yeah. You're flipping the script from being a victim to actually, yeah.

  Taking control of your life. Yeah. It can start in the tiniest, tiniest of steps. Yeah. Okay.

  
  Evaluating Luxury Splurges

  And so then the other question that I have about your book is, what are three ways to determine if that luxury item is worth the splurge? Oh, I think we've touched on a couple of them. Did we already? Oh, we're already covering all this we're talking for.

  It's like, make a list. If you don't, Think you need it before you see it. You, you, you probably don't need it. You, you just don't. Like, I've heard that from people. Like, they go, I don't need anything. If I go to the mall, then I think I need things, but I don't, they're like, if I stay away from the mall, then I don't need anything.

  Well, uh, you know, advertisers and marketing people have [00:31:00] spent, you know, decades and decades and decades understanding the way our brains respond to like stimulus and the internet is a bad thing. Social media is a bad thing. Right. We get bombarded with, you know, perfect life. Seductive images that then, then, then we really think we need XYZ and I think your, your, you know, put it in the shopping cart and think about it is a great one.

  If it's not on your list, don't buy it, right? I think that's particularly important. Grocery store food. But in anything, right? If I go into this one clothing store I'm thinking of and need a pair of jeans, like I walk in and say, I'm only looking at jeans. Please don't show me anything else. I will not buy anything else.

  I'm not going to try anything on. Okay. Every once in a while I slip up, I buy it. But so you're saying that luxury basically changes based upon where you're, you know, cause I'm thinking like, Okay. Boats or so it could be luxury jeans and that you're paying a lot for and that you're having to budget for.

  So make sure that when you go in there that it's really what [00:32:00] you want and that you're in love with them. And that you can actually afford it. And okay, the jeans are a very finite thing, but let's just think it's a really attractive, like I'll keep it small, right? It's a really pretty dress or a suit jacket, right?

  Are you going to have to dry clean that thing? Because then your cost just went up, right? Like how are you going to have to take care of it, right? Your expensive car versus the less expensive car, right? Servicing that sucker is going to cost three times as much over, you The 10 years that I hope you're going to own that car or 15 years if you're me, because I'm cheap and I drive until they throw a rod.

  But, but, you know, like how do you think about not just the acquisition price? You mentioned boats, right? Boats are notorious. Yes. Money pits. Money pits. Yes. Okay. Okay. So really it's about being conscious. Yeah. Being conscious and trying to be aware. And it's, I've said that to, you know, it really is. It's just trying to be aware of your life and where you're spending and caring.

  Cause I [00:33:00] think sometimes people say, no, I don't care. I don't care that I have you do there on a level you actually do. And you're kind of lying to yourself. Well, and something else, I actually didn't put this in the book, I wish I had, it just came to me, um, is, you know, play the movie that shows you how you're going to be using that luxury item and in what sort of way, and then ask yourself if that's real or a fantasy.

  Is that really how you operate your life? Is that really your, your life? Is this, is this really your day to day life? How will it actually, I keep looking at a vacation property in a ski town and I keep fantasizing that, you know, someday we'll have the money and someday, you know, and it's literally never going to happen.

  And I enjoy fantasizing about it. And like looking at the real estate ads, it's, it's very much not going to happen. Also because my husband hates the mountains and hates skiing. So like not going to happen, but not going to happen. But. As I find myself kind of getting sucked into this, like, fantasy, I'm like, okay, really, how many weeks a year do you think you'd actually be there?

  Do you really want to Airbnb it out [00:34:00] so somebody's using it? Like, no, I don't want it. Okay, so, okay, then it's a fantasy. I'll leave it in my fantasy bucket and I'll still enjoy, like, looking at houses, but, but if I want to go skiing for a week, let me go rent something and go skiing for a week and then say goodbye, right?

  I don't need Right. Yeah, I do really don't need a vacation, right? You don't need to vacate once you start to think about the reality of it. And I do this with clothes. I buy like these going out clothes, the in heels and I wear flat, like I hate wearing heels. I mean, I'll wear wedges or, you know, but, um, I, on the every day, I want to be comfortable and I want to be warm.

  I hate being cold and I buy these clothes and I have just started in the last couple years having to talk myself into, no, just buy the every day, you know, cause it's like I want to look fancy or I want to look good or, you know, and then it, then I never wear them. And then I'm stuck wearing my workout clothes with a sweatshirt because that's the only other thing that I'll spend money on.

  And so I don't want to buy like, it's just the normal [00:35:00] clothes that I look boring, quote unquote boring in. I think it's a really helpful trick, right? Play the movie and then ask yourself, is this real? Like if you. Get invited to a fancy party and you really don't have anything in your closet and you really, it's an important thing for you.

  Okay, fine. But no, I don't get invited to parties. Yeah. Yeah. I mean, I don't know. My, my son's going to get married in a year and a half. Like I'm going to want a nice outfit for that. So like, I know that's coming, but you know, I'll wait a little while, maybe something in my closet will fit again and I'll wear that instead.

  But you know, it's like, how, how do you, how do you, again, it's, it's, it's the pause button. How do you. Find the way that works for you to hit the pause button, put it in the shopping cart, don't click, make yourself wait a night, check your list. Is it on your list? No. Do you have a long term fantasy list?

  Right? If it isn't even on that, you really don't need it. Right. Right. Okay.

  
  Final Thoughts and Takeaways

  Well, these are all great tips. I have really enjoyed talking to you and learning about your book and I think these would apply to any age. I mean, [00:36:00] honestly, if you're, or if you have kids and you're wanting to teach them about money or if you're just.

  You know, feeling out of control about money, then I think this sounds like a great book. So thank you so much. Yeah. Thanks for being on. I have really enjoyed our conversation and I'm glad to know that a lot of what we're talking about might be becoming more mainstream, you know, that if you have the same outlook that I, you know, and the ideas that I have had, that it does give me hope.

  Because I don't want people to walk around with a low self esteem about this stuff. So absolutely. It's not, it's not necessary. It just, it's, we just have to acknowledge that, that there's these poles outside of us and we just have to recognize them. And that's makes it so much easier just to understand what's going on to me.

  That's, that's a huge key. Well, I, really enjoyed this conversation. Thank you so much. Yeah. Thank you so much for being on. And you guys, we're going to have, uh, the link to your best financial life in the show notes and, uh, and, uh, [00:37:00] Instagram handle and all of the contact information that you need. Uh, and let us know if you have any questions and thank you so much for listening, everybody.

  Have a great day.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

Financial Book Tips and Tricks

Do you feel like self-help books go in one ear and out the other? You're not alone! Millions struggle to implement the amazing tips and tricks they learn from non-fiction books. What if you could turn those "aha!" moments into lasting changes?

In this episode, Nick Hutchinson, author of “Rise of the Reader“ shares strategies for retaining information and finally putting self-help books into action.

You’ll Learn:

• Methods to remember and implement key takeaways from any book

• Strategies for finding time to read - Integrating book reading into daily life activities

• Over 100 actionable habits categorized for health, wealth, and happiness

Nick Hutchison is the visionary force behind BookThinkers, a thriving 7-figure marketing agency bridging authors and readers. In just over 7 years, he has cultivated a platform reaching over 1,000,000 people monthly and hosts the top 2% global podcast, "BookThinkers: Life-Changing Books," featuring interviews with renowned authors like Grant Cardone and Lewis Howes.

Links:

Buy the book on Amazon: https://amzn.to/45vPSW2

Learn more about Nick: www.nickhutch.com

Learn more about BookThinkers: www.bookthinkers.com

Personalized Book recommendation: DM Nick at www.instagram.com/bookthinkers

Time Stamps

00:21 Guest Introduction: Nick Hutchison

01:10 Choosing the Right Personal Finance Book

02:51 Nick's Reading Journey

05:43 Implementing Wealthy Habits

11:03 Building a Reading Framework

12:24 The Importance of Setting SMART Goals

13:23 Reading Strategies and Tips

17:12 Balancing Reading with a Busy Life

24:06 The Benefits of Reading Physical Books

26:16 Conclusion and Final Thoughts

• Transcript

  Introduction to the Podcast

  Welcome to me financial the podcast designed to inspire your financial life. Hello everyone. And welcome to the podcast. I am Michelle Moses, your host, and I appreciate you listening today. Today we are going to be talking about building wealthy habits from reading personal finance books.

  
  Guest Introduction: Nick Hutchison

  Books and to talk about that, I have Nick Hutchison here to talk about it.

  And he is the founder of the popular book Review site, book Thinkers and the author of Rise of the Reader Strategies for Mastering Your Reading Habits and Applying What you Learn, the Ultimate Guide for transforming information into life-changing results. Nick has read over 400 personal development books, but implementing their valuable lessons was tougher than just finishing the next chapter.

  Through trial and error, he developed an easy to follow framework to retain the knowledge needed to transform his life completely. Now he's sharing over a hundred habits to implement into your own reading journey. [00:01:00] And these also include many wealthy habits he's learned from personal finance books.

  Welcome. I'm excited to be here, Michelle. Can I ask you the first question today? Sure.

  
  Choosing the Right Personal Finance Book

  So I'm curious if people come to you and they say, Hey, Michelle, you're an expert on personal finance and all things money. What's the book that I should start with? I'm curious. What do you recommend? Oh, they ask that all the time.

  And I always say, I don't know. Cause there's so many different ones and it depends, it depends on, uh, where they're starting in their journey, you know, cause if they need help with budgeting, that's a whole nother story, but if they're more sophisticated, uh, so it usually, uh, entails a conversation. Uh, that's a good question.

  What do you normally say? Well, I do the same thing that you do. I say, instead of reading with my intention, let me ask you a few follow up questions so I can get a better idea of what you're looking to learn. And then I can answer the question and you can read with your own intention, if that makes sense.

  Yeah. Yeah. Okay. Well, good. I'm glad to know I'm on the right track. Yeah. Well, two peas in a pod. Yeah. I do this. And [00:02:00] sometimes it frustrates people, but I think it's more important to read a book that's relevant for your situation, not what other people think. Yeah. Yeah. They always want like, what's the overarching personal finance book.

  I'm like, there's just, I don't think that there really is one. I think simple wealth. Uh, I'm not even interested in Nick. Somebody I, it was from years ago. Uh, inevitable wealth, simple wealth, inevitable wealth. Is that right? It's got a tree on the front of it. I'm doing, I should have studied up here. Uh, Oh, you have it there on it.

  That's it. Is that the right title? Simple Wealth, Inevitable Wealth by Nick Brie. And I actually haven't read this book yet, but it was just gifted to me. So it sells the plastic on it. Yeah. Oh, you should read it. It is good. It is very good. It's, it's really about investing in the stock market and how, if you invest in the stock market, you'll make the most money.

  You just gotta, you gotta keep it in there. I'm just a little tidbit for everybody. Okay. So, well, I like that question. That's good.

  
  Nick's Reading Journey

  Uh, and so how did you get started on your reading journey? How did you get interested? What might surprise anybody that could see my background, [00:03:00] right? I've got like a thousand books behind me is that I was not much of a reader growing up.

  So I was more of the athlete stereotype, not really much of the academic. I mean, you couldn't pay me to read a book and that behavior, that attitude followed me through most of my college experiences as well. It all changed for me when I took an internship going into my senior year of college at a local software company.

  It was a sales internship. And my boss at the time, I think he recognized some unfulfilled potential, uh, that'd be putting it nicely, right? I was like this 20 kind of know it all, a little bit arrogant sales guy. And I just thought I'd get in and dial for dollars, make a bunch of money. And he said, listen, man, you're commuting.

  An hour each way, five days a week. You should check out podcasts where successful business people are being interviewed and they talk about what they've done to become successful. And I took them up on that suggestion and very quickly, right? Cause I was commuting a lot very quickly. I heard these successful people mentioned the same book titles over and over and over and over again.

  And at some point I just realized [00:04:00] like if these successful people are recommending it and I'm choosing not to read because I don't think it's cool or something like that, then I'm choosing to live under my potential. And so, you know, when I went to the bookstore for the first time, I think the original insecurity that I was trying to overcome was actually financial insecurity because I was a business student.

  that didn't know anything about money. And I was taking classes on all sorts of money subjects as a business student, and I was just barely getting by. And I didn't really understand the language, but after reading a couple of books like Rich Dad, Poor Dad by Robert Kiyosaki, The Total Money Makeover by Dave Ramsey, The Richest Man in Babylon by George S.

  Clayson, like within a couple of weeks, I was leading those conversations with friends and when I went back to school, I felt like a rock star. And so that's what started my reading journey because these books, like I was telling you before press record, they condense decades of somebody else's greatest life lessons about money in this case.

  It's like the [00:05:00] greatest shortcut ever, and people choose not to read them because it's not cool or whatever. And I, I think it's honestly backing up a little bit. I think it's impressive that you remember the titles of the books and who they're by. I always, it's always hard for me to remember the exact title and those ones that you mentioned are all very good.

  I mean, they, they're all like different ways to think about finance. And so it was, did you like continue? So how did you then continue? You did, did you, was it just like a spark that went off and then you just kept reading and reading, reading? Yes. I mean, I, I overcame something that caused a lot of anxiety for me fairly quickly.

  Oh, that's good. And then I just thought like, what other areas of my life can I apply this magic sauce to?

  
  Implementing Wealthy Habits

  Like what other areas of my life can I read about? And then solve these problems or build these skills. And so I'm working in a software sales position. And so I start reading books on sales and marketing and communication and persuasion and negotiation.

  And I'm applying them to the role and I'm [00:06:00] making a lot of money and I'm just kind of like flying up the corporate ladder and I'm trying to push these books onto everybody else and nobody wants to read them. because everybody wants to scroll on socials or watch Netflix or like go out, right? I'm in my early to mid twenties when I really get into this stuff.

  And so that's why I continued. I mean, there was a, like a relief of different anxieties and problems, but also money quickly followed the reading, which was interesting. Well, it's it. I think that makes sense though, because then your confidence went up. And so since your confidence went up and you were feeling better about it, and it really didn't take that much to just open up that dam, it sounds like, Just reading a few books and then your confidence went up and then of course the money comes in.

  That's just how it works. I believe that first book, rich dad, poor dad by Robert Kiyosaki. I mean, it blew my mind because right in the beginning of the book, he makes a statement. He says that. Poor and middle class kids have poor and middle class money habits because the subject of [00:07:00] money is not taught in the school system.

  So not everybody's on the same page. It's taught at home. These behaviors are caught by observing our parents, not taught, right? And so rich kids. They're observing rich money habits. And so they're learning financial literacy and investing and the language of money at a young age. So if you're a poor middle class kid, you have to break that cycle by reading books and getting outside of your comfort zone and asking questions.

  And so, I mean, there were so many things in that book, even though it's simple, right? It's like a, You know, kind of like a fake story. It's under 200 pages. It's very simple language, but it just, aha, after aha, after aha. And I was like, whoa, I can see something that most people can't see. That's cool. Money was available all of a sudden.

  Right. Okay. And so then what started to happen as, cause obviously there's something that start that happened in between you starting this and then writing your book. Uh, so then what happened? So as I continued to read. [00:08:00] these amazing books, uh, and my friends and family wanted nothing to do with it. I turned to social media.

  I wasn't a big social media guy at the time, but I just started sharing the books I was reading on socials, I suppose to connect with like minded people. And my following grew pretty fast, right? I'm posting the books I'm reading. I'm sharing what I'm thinking about them. And pretty soon authors are reaching out to me and offering to pay for book reviews.

  So I kind of had this side hustle starting to build on the side while I'm working my full time software sales job. This is like everyone's online story dream. Yes, go ahead. Well, and I'm reading books on business and I'm following up with these authors and trying to understand why they're promoting and marketing their books.

  And now I'm getting paid more and more as Following continues to grow. And I'm trying out all these different things at that intersection between books and marketing and podcasts and stuff. And eventually, you know, it became a full time job. My agency now got 10 people on the team. We work with hundreds of authors a year, but as the following continued to grow, people would [00:09:00] reach out.

  And, and I got the same questions hundreds of times. They'd say, how do I choose the right book for this? Or how do I deal with the fact that I can't remember anything from these books and why aren't they changing my life? Right? So I really started to Study that subject. How do we retain and implement more from these books?

  I didn't really ask to be a book influencer or like a source of knowledge on how to retain and implement more, but I suppose because enough people were asking, I realized there was an opportunity to go become a subject matter expert on that. Yeah. I mean, that's how you figure out where there's a niche to go into.

  Yeah. Yeah. So that's how I got into it. And I just decided like there was no leverage. to answering every question individually. Uh, what if I could just do the work one time, write a book about it, and then just say, here's the answer. Uh, have you ever read the book, The Millionaire Fastlane by MJ DeMarco?

  It's a good book. It's on money and accelerating wealth, but he has this [00:10:00] story in the book that I started to envision myself kind of being in. So, He drives a Lamborghini and that became kind of part of his brand. And he'd be at a restaurant or the grocery store or whatever. And people would come up and say, what do you do for work?

  How do I get a Lamborghini? And he'd pop the trunk, which I guess is in the front of a Lamborghini. I don't have one. And he'd hand them a copy of the book and say, here's the roadmap. And so I just started to envision myself being able, when somebody says, Hey, Nick, How do I take great notes while I'm reading these books?

  I envision myself being like, here's the answer, you know? So that was kind of the initial drive. I just saw a demand for writing the book. And I saw that so many people struggle with this. They're reading the books, they're consuming the information, but they don't do anything with it. Right. Yeah, because you read so many things and then it kind of lasts.

  I don't know, a week or two Or while you're even reading it, and then you're onto the next book. Right. And so would you be taking notes like how, yeah. I mean, how does it kind of work? Because I, to me, I'd be like taking notes and going back in my notebook and then maybe rereading it to keep it fresh of mind [00:11:00] or top of mind I guess would be more of the same.

  
  Building a Reading Framework

  Yeah, I have dozens of recommendations for people inside of my book, Rise of the Reader, but I'll give you one example of what I teach people to do. So I haven't read this book yet that we're talking about, Simple Wealth, Inevitable Wealth, but I will be reading it soon. So the first thing that I'll do with a new book, instead of just opening it and hoping that it's going to change my life or taking miscellaneous notes, I'll actually set a SMART goal.

  So this is part of my framework. SMART is a goal setting acronym that a lot of us are familiar with, but I'll go through it quickly. So S stands for specific. Your goal for the book needs to be very specific. M stands for measurable. So the legendary management guru Peter Drucker, he would say what's not being measured can't be managed.

  So you need to set a goal that's measurable, quantifiable. A stands for attainable. So your goal needs to be realistic. You need to be able to execute against it. If it's too big and becomes overwhelming, we all know what happens. We [00:12:00] procrastinate, we don't do anything. R stands for relevant. So you need to be emotionally connected to the goal.

  You need to have a why behind why you're reading the book, right? Is it building a skill? Is it solving a problem? What is it doing? And then T is time bound. You want to leverage Parkinson's law that essentially states like if, you know, a task will expand to the amount of time that you give it. So your goal needs to be time bound.

  So if I was reading this book, I might set a smart goal.

  
  The Importance of Setting SMART Goals

  That's kind of like this, find and implement at least one wealth building tool in my personal financial picture by the end of January or February. And so that's specific. I know what my goal is, right? I'm looking to implement one new wealth building strategy.

  It's measurable. At the end of the experience, did I implement one thing? Yes or no? That's attainable. I didn't say like make a million dollars by the end of February, just implement one thing. I'm emotionally connected to it because money matters a lot. And then time bound by the end of February. And so if I, if I set a smart goal like that, [00:13:00] and I write it on the inside cover of the book, and I review it every time I read another chapter, That I'm, I'm sharing my goal with the book so that the book can share the most important information back with me.

  Okay. And I'll only take notes on actions that I can implement because I'm not optimizing for like remembering a quote, I'm optimizing for action. So I know that was a ton of info. No. But Yeah, no, it's not.

  
  Reading Strategies and Tips

  So do you like highlight in it or do you take your own notes or does it matter? Uh, I don't think it matters that much.

  I mean, what I do is I go through the book twice. The first pass, I read every word of every page and if I find something that I might want to implement, I'll quickly highlight it and maybe I'll take some context notes, but I try not to do that on my first pass through. Okay. This pass through, I'm only rereading the things that I've highlighted.

  So that's like 1 percent of the book on the second time through. And that's when I'll think about implementation and I'll take notes and I'll journal about it and I'll reflect on it and I'll choose what to take action on. [00:14:00] So there's kind of two paths. There's, okay. I think this is good because as soon as you said the SMART goal, I was kind of, and you're explaining it.

  My anxiety was kind of going up because I'm definitely more of the reader of, let me see what this is going to present to me, you know, like, but as you were going on and just wanting to implement one tiny thing, It immediately took my anxiety down and, um, realizing having a clear goal for it. I already have a clear goal, you know, but I don't realize it and I'm not actually saying that.

  So I think it's important that we say that. Do you know what I mean? Like, because you're going to read a book and it obviously is going to, to solve a problem, but I'm not really admitting that to myself by sitting down and just saying, You know, what is this book going to just show me? Oh, that's good.

  That's good. But if I sit down and I do what you were, you're saying is just picking out one thing or two things, or, you know, there might be 10, I don't know what it, once you get into the book, but by just saying one thing, it kind of brings my anxiety down. So I like that a lot. It's a lot more intentional.

  And at the end of that [00:15:00] experience, if you've highlighted 10 things that you could implement, I would say do a quick 80 20 analysis. And I'd say what 20 percent of those potential actions are going to lead to 80 percent of the change that you're looking to make. Because not every action is created equal.

  Sometimes people, they'll read one chapter of a book and they'll say, Oh, I've got it. I'm done. And it's like, ah, what you're choosing to implement out of that first chapter might be one, one hundredth as valuable as what you would have found a couple. Of chapters later, but you're choosing not to read a little bit farther.

  So again, not every action is created equal. And I'll throw one other thing. I mean, a metaphor kind of came to mind. It's almost like budgeting. Like if you just say, eh, budgeting gives me anxiety. I don't really wanna know what my bank accounts look like, therefore I'm not gonna, I'm not gonna look at them.

  Well, now you're limiting your ability to understand what's happening behind the scenes. And you're also hurting your ability to like, have that money available for what matters most. And I think the same thing happens with the book. If you're just like, [00:16:00] well, I'll see what hits me. I mean, you're sort of ignoring the opportunity to filter for what matters most.

  Right? Yeah. And that's what I mean. Like, I think by you even saying that it just kind of turns it around for me. So I love that. Oh, good. Yeah. Oh, that's wonderful. I'll have to try it out next time. Next book. Yeah. So, and so you're not keeping track. It's like you're implementing one thing and then you move on to the next book and you're implementing one thing or maybe two or I don't know.

  Is there multiples? Right. Um, sometimes there'll be a handful of things that I choose to implement from a book, but most of the time it's just one thing. And that's because I literally got hundreds of books in. So. Sort of like became a personal development junkie and I was optimizing for 52 books a year That's how many the average CEO reads like who knows where that comes from or a hundred books in a year But that's just a vanity metric.

  It doesn't it doesn't mean anything Well, and it depends on how long the book is. Cause I do that on Goodreads and I set up, you know, like my goal for the year. And then I found myself intentionally [00:17:00] picking like shorter books so that I could read my goal and, you know, I was like, Oh, I'm not going to read that 800 page book, you know, I'll get that next year or whatever.

  So yeah, I think it is kind of arbitrary depending on the book.

  
  Balancing Reading with a Busy Life

  So do you, do you focus on one topic at a time or are you moving around to different, is there any recommendations on that? There's, uh, there's sort of, I mean, there's two categories of reading that I do today. One is for my business and I don't have a lot of agency over what I'm reading.

  I mean, yes, we, you know, we can, we can choose what authors we're working with, but there are a lot of books that I'm reading as a result of the work that we do. When I'm choosing books, I always try to start with that intention piece. I'm trying to say what problems am I facing right now that I could overcome more quickly by reading about how somebody else is facing it.

  Right. A solution exists. I mean, a lot of times, like as human beings, we think our problems are unique to us, but the fact is a hundred billion people have lived [00:18:00] before us. Millions of them have lived great lives and written books about it. And those solutions are available for 20 and a few hours of our time.

  So I read to solve problems, but I also read to build skills. Like I'm pretty ambitious. I know where I want to go in life. And there are certain things that I need to develop. And a good understanding of money is one of them, you know, but all types of skills that you can read about and you can learn more quickly.

  So I set an intention before I even decide what I'm reading. Then I go and find the best book for it. And then I sort of have my, my SMART goal. Okay. And what is your opinion on audio books? Are you reading all of them, the hard books? It's a great question. A lot of people hate me when I say this, but uh, if, if I consume 100 books a year, I am listening to about 25, but the facts are the facts.

  About 80 percent of the inputs to our brain are visual. 80%. So by default, the other senses only make up 20. And if you're only listening to [00:19:00] information, You're probably multitasking. You're probably in the car. You're probably traveling. You're probably doing chores. You're probably doing busy work. So like you're at a disadvantage because you're not getting the visual input and you're also at a disadvantage because you're multitasking.

  So I say listen to books, listen to biographies, long books, fiction, listen to books as a discovery tool to see if something could potentially solve a problem for you. And then go read the physical book after. That's, that's kind of what I recommend. Yeah. No, I absolutely agree. And I was just reading about that too, about how you only, and I'm not going to remember the numbers, but it's about that same thing.

  Yeah. That you have to read the book because you retain so much more versus listening to it. You don't retain nearly as much, but I like. I like your strategy of doing that for fiction and biographies and, you know, it may be like the first pass through, but if you're really wanting to implement something that actually reading like the hard book is, or even like the electronic book would probably be okay too, right?

  Right, right. Because they're both leveraging the [00:20:00] visual input to our brains. And so our ability to store and organize information and then recall that information, I think is so much more efficient if you're reading the physical book. And then, I mean, a fun thing that I actually recommend is read and listen at the same time, kind of a multi sensory experience.

  Sometimes what that'll do is keep you on pace. I have a lot of people ask me about, Oh, Nick, I'm always falling asleep or a daydream, and I have a hard time getting through books. And it's like, Oh, if you crank up the audible to like 1. X, and then you you're forced to follow along, then you're sort of keeping your brain engaged with the material.

  I don't know how they do that. I get past 1. 2 and I'm like, I'm. Getting a little discombobulated, so Yeah, I, I heard people do like 1.5 and two. I don't know how you even listen to that fast. I can't. I, maybe it's my brain. I don't know. Yeah. Um, so what is your recommending recommendation for reading your book?

  Is it, is it the same thing? Because obviously reading your book will then help them. everybody [00:21:00] else read other books and implement them better. Yeah, you're right. It's a little meta. So it's a book about how to get more from other books. And, uh, I recommend reading the physical paper copy or the Kindle version.

  And I do have an audible version available for people as well. If you want to use that as again, like a discovery tool or, uh, to read along with the physical book. Okay. And then, so what are there other books? I mean, other ways that people would get started. Like, what would you say to other people that, I don't know, if somebody was watching this and are listening to this and, uh, and they're like, Oh, I don't know if I really, I mean, is there something to just like push people over the edge?

  Absolutely. I love pushing people over the edge because I care so much about these books. I really do. Uh, first I ask people this question, Michelle, I say, if I paid you 10, 000 to read a book by the end of the month, what Do you think you could do it? And that same person who's like, I don't have time. I'm not a good reader.

  I can't stay focused. They're like, Oh yeah, I could read five. Right. [00:22:00] So it's not a question of whether or not we can read these books. It's a question of whether or not we value them enough to prioritize it over something else on our schedule. I was going to say prioritization. Yeah. So if we can get to the point where people are like, okay, I want to read, but I still don't have time, then I recommend.

  Kind of the following strategy. I say, instead of trying to find time, just replace a little bit of scrolling in the morning on social media, and maybe a little bit of Netflix in the evening with reading a good book. And so 15 minutes in the morning, not all of your social media, just 15 minutes of it. And maybe the first 15 minutes of your Netflix or whatever you're watching in the evening.

  So together, that's 30 minutes. Somebody who's just starting out, maybe that's about 20 pages. If you could do that five days a week, that's a hundred pages a week. by replacing again, just a little bit of scrolling and a little bit of Netflix with reading a good book. And most of these books, they're 200 pages or less.

  I mean, the one that you were talking about is, let's see, it's like, yeah, it's 200 pages. So you could read this in two [00:23:00] weeks just by 15 minutes in the morning and 15 minutes in the evening. And that's the strategy. How do I get 26 books in a year? By reading a hundred pages a week, how do I get to a hundred pages a week, 30 minutes a day?

  Mm-Hmm. . So that's kind of how I think about it. Okay. Well, and even if people don't wanna get started, I mean, just start out with one book and see what you can do. 'cause you know, it's kind of like atomic habits, right. And then you're gonna, you're gonna kind of be building on it and just. Start really small.

  If it's something, if it's a goal that you want to do, then even reading for 15 minutes a day would help. And then you can build to the 30 minutes a day. Um, and I liked that you said that because I often don't read, I read a lot until I started this podcast and now I read a lot about podcasts. But, uh, I read, I used to read a lot, but now if I have a short amount of time, I won't read.

  And so I'm very glad that you're on, um, because you are reigniting my, um, belief that I can actually still read a book instead of doing research and, you know, reading up on things. So this is really, really enlightening. [00:24:00] Yeah. Yeah. I'm happy that it is. And reading has other benefits too, obviously.

  
  The Benefits of Reading Physical Books

  Um, you know, one thing that I think about is in today's digital age, like as our attention span gets shorter and shorter and shorter and shorter, reading a physical paper book is an act of monotasking.

  It's focusing on one thing at a time. And you can almost like lengthen your attention span as a skill that's then transferable to other activities like work. And so like, if I was ever like, if my agency imploded and I ever had to go apply for a job, I said, Sometimes joke around saying like, I would list my ability to perform deep work and focus on things as a skill set because nobody else my age, right?

  Late twenties, early thirties has that skill set anymore. Um, but so that's the first half of my book. The second half, I do have over a hundred habits. They're broken down into healthy, wealthy, and happy habits, and they've come from the books that I've read. These are things that I've tried to implement, things that I've found useful, and so I've sort of shortcut.

  That's, it's kind of like a shortcut [00:25:00] for the 400, 500 books I've read. I'll put like the best of the best info in, in at least those three categories in there so that People can again, use it as a discovery tool and then maybe go do deeper research. Okay. Well, this sounds wonderful. And is your, uh, book thinkers, is it mostly self help books or is it just all books?

  It's all nonfiction, personal development style books. I mean, I say if a book can be read and then used to improve your life, like we'll cover it. So sometimes we get like business fables, some philosophy, psychology, but it's a lot of business style stuff. Okay, that's very cool. So it's a website and you're online and you can buy your book and we'll put the link to your book in the show notes.

  And it sounds like you got a lot going on. I'm very, very intrigued by all of this and thank you for inspiring me to read more. Yeah, of course. I'm happy that it resonated. So yeah, book thinkers on Instagram, that's our largest Community. We've got about 165,000 readers over there. We post a new piece of content every day.

  Our [00:26:00] podcast, we've interviewed a lot of like business type authors, you know, like Grant Cardone, Alex Hor, those, those types of people over there if you wanna get a preview for their book. And I appreciate the opportunity today. I really do. Yeah. Thank you so much for being on. This has been great. And as I said, it's very, very inspiring.

  
  Conclusion and Final Thoughts

  So well, uh, am I missing anything that you wanted to mention or any big overarching themes that are part of your book? No, I appreciate the opportunity. Again, I think that the right book at the right time can change somebody's life. And I think there's a great place to start, or you can start with simple wealth, inevitable wealth.

  Yeah, read that and get back to me and let me know what you think about it. Okay, well, thank you so much for being on. And thank you for listening, everybody. And make sure that you leave a review and share with your friends if you enjoyed it. And I appreciate you [00:27:00] listening.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

Want to Own a Franchise?

Think you can't afford a franchise? This episode shows us how $50,000 can open the door to business ownership.

Greg Mohr, a franchising expert and Wall Street Journal best-selling author joins us to share the details of buying or starting your own franchise.

I think you'll be surprised by how easy it is to get into franchising and the support you’ll receive throughout the process.

From discovering which industry is right for you, to funding, marketing and even scheduling clients - there are systems to help you succeed in a new or existing franchise. All you have to do is pick up the phone and experts are there to support and guide you.

Key Takeaways:

• Rapid Expansion Potential - Franchising can significantly speed up business growth, as it allows for leveraging other people's investments and efforts across multiple locations.

• Franchise Setup Process - Setting up a franchise typically involves an investment of around $50,000 and takes approximately three months. This includes legal documentation, training, and alignment with franchising best practices.

• Semi-Absentee Ownership - An option for those with less time but interest in franchising. This model allows owners to hire a manager to handle daily operations while overseeing the business for about 10-15 hours a week.

Listen to the full episode for little known facts about franchising and discover how easy it is to get started.

Contact Info:

Greg Mohr’s Website

Buy Greg’s Book - https://amzn.to/4cqb02q



Time Stamps

00:18 Meet Greg Mohr: Franchise Expert

01:11 Understanding Franchising Basics

02:08 Franchising vs. Owning Your Own Business

04:18 Becoming a Franchisor: Steps and Costs

06:55 Finding Franchise Candidates

10:19 Investment Requirements for Franchisees

12:13 Types of Service Franchises

13:06 Semi-Absentee Franchise Ownership

14:45 Choosing Between Franchise and Private Business

16:49 Exploring Franchise Support Options

19:46 Understanding Franchise Fees and Royalties

21:12 Personal Experiences with Franchises

22:29 Time Commitment and Exit Strategies

27:30 Funding Your Franchise

30:46 Final Thoughts and Contact Information

• Transcript

  Introduction to the Podcast

  Welcome to me financial the podcast designed to inspire your financial life. Hello everybody. And welcome to the podcast. I am Michelle Moses, your host. And today we are going to be talking about franchising.

  
  Meet Greg Moore: Franchise Expert

  I have Greg Moore here to talk about that. And he is a wall street journal, bestselling author of real freedom.

  Why franchises are worth considering and how they can be used for building wealth. And he has managed restaurants, been a micro electric circuit engineer, owned and operated dry cleaners, storage units, rental properties, and franchises. Greg has helped hundreds of people invest in a few hundred franchise units.

  Thank you for being on. I appreciate you having me today, Michelle. Very kind of you. Yeah. Well, and I don't know a lot about franchising, so I am very interested to hear what you have to say. Uh, I mean, cause I think you hear the different things, you know, you know, you pay some of your income to the franchise, franchisor.

  Is that right? [00:01:00] Am I using them right? Okay. Uh, and you know that you buy it and all that, but I'm really interested to know the details of how people get into them and who is the right person. And so we're going to talk about all that today.

  
  Understanding Franchising Basics

  Um, and so I think let's just start off with what a franchise is.

  Can we just give like a blanket overview of what one is? Absolutely, Michelle. Good question. It is leasing a business model. So the franchise has a business model for you. And what you're doing is you're leasing that business model from that franchise. on there. They've already got that plan, that game plan all laid out for you there.

  So what they're doing is, what the franchise is essentially doing, rather than going out and opening up different locations and growing it themselves, they lease out their business model to somebody else who's going to invest their money. to invest in another city, in another state, wherever. So that the franchise now brings in royalties rather than getting direct money from their own owned units out there.

  So they don't have to spend as much money on investing in the different cities and states. [00:02:00] But they don't get as much back on there. So kind of a trade off on that one. But they need other people obviously to be able to grow.

  
  Franchising vs. Owning Your Own Business

  And it's, is it a little bit better to have other people do it from like a legal standpoint, or is it more, you know, why wouldn't someone just, um, grow, I don't know, have their own stores and get funding versus going the franchise route?

  Yeah, you can't go either way. Great question on that, Michelle. You can't go either way. If. The reason that you would do it that way is that you don't necessarily want to invest your money to do it. So that's, that's more linear growth. If you're investing your money into different locations, uh, that's a linear growth because you have to come up with that money first.

  Then spend that money, hire the people to do it, uh, manage all those people. Yeah. Managing. Exactly. Whereas with, when you go on the franchising route, that's more exponential growth. Now somebody else is investing their money into it so you can grow [00:03:00] faster. on that. And you're also that franchisee that's helping you out and opening up a territory in another city and state is going to be a local owner operator.

  So it gives the community a better feeling of having that a local owner operator or local owner that that's in that area running that as opposed to a corporate location on that. So that's a great, that's a great point. And then if they become the franchisor, I would imagine they spend more of their time.

  doing marketing and, you know, helping the business on how to get the word out there. Correct. Michelle, that's one thing to take a look at when, if you're going to, and that's one thing we do, Michelle, that I probably didn't mention yet, is that we help businesses turn themselves into franchises as well as helping people becoming part of a franchise system as well.

  So I've helped a few different businesses become franchises on that. So your role then as a business owner, it will change as you indicated, Michelle, there's that. You will now be working, uh, different than you would, what you were doing [00:04:00] before on that is you'll be helping your franchisees grow and helping them market and get, they get your name out throughout the United States or throughout the world, however you want to grow.

  So your role as a business owner changes as a franchise or Versus when you're operating it just yourself as the operations manager. Right. So, okay.

  
  Becoming a Franchisor: Steps and Costs

  So I was going to talk about people buying a franchise, but let's go off of you own a business. Uh, let's go down that route a little bit. So if you own a business and you're wanting to grow, but you don't want to go out and get the funding and open up all of these things, then you would explore becoming a franchise.

  And so, okay. And so they would come to somebody like you and then you guys evaluate the business to see, or do you, how long does, would that take? I mean, if they come to you, does it take years to get set up to be able to be franchised or? Just a few months, about, um, three months is basically what it takes.

  So what they, what you're looking is that you come in and I've got a team of people that's going to evaluate that business. So what we're really looking for will [00:05:00] be really be good is if your net is somewhere in the vicinity of a hundred thousand or more. Because the people that I bring to you as a franchise consultant are really going to be making, want to make some pretty decent money on that.

  Now, not all franchises make, you know, net more than a hundred thousand, but that's a good starting point for you. If you have more than one location for your business, that's even a stronger point because then you've proven that you can duplicate your model somewhere else. The more the merrier, if you've gotten that, but you don't have to.

  You just come to us. We look over the business, we evaluate it, and we're going to be looking for things like, is this the type of business that no matter what city or state you're in, everybody needs? Which is a good start. It doesn't mean it has to be like that because there's franchises that do. You know, boat rentals and that sort of thing.

  So obviously, you know, in the middle of the desert in Arizona, it's not going to do so good. Right. But there's going to be enough cities into where you can grow your business where it's, it's, uh, it's feasible, economically feasible for you to do. And my team will put together that, uh, Basically, your directions on how to operate that business, your [00:06:00] franchise disclosure documents on that, all the necessary paperwork policies and procedures manuals for you to get that done, get all the legal work done.

  So amazingly enough, it can take about three months. Wow, that's quick. I thought that it would be much longer than that, but is it like a big team that's working on this then and getting all of the different parts in place? Yeah, you've got a big team on that and you're going to be investing about a. Give or take around 50, 000 to get it all done.

  Okay, that was my next question. Yeah, they're going to have the team that's going to do it. You're going to have the attorney on there. You're going to have the people that are putting together your, your documents. So you got your legal team on that and you've got your team that's putting together your policies and procedures manuals.

  So get all of them typing up all that. It's back and forth and it's three months as if you're going to stay on top of it and you really want to get it done. Uh, then they'll meet with you on a regular basis and you can get it done that quick. Okay. Yeah, that's quick. And it's not as much as I thought. 50, 000, I think is doable for a lot of business owners.

  Wow. Okay.

  
  Finding Franchise Candidates

  And so then once they become, uh, available to be sold, then they kind of [00:07:00] go into your network and you guys pair them with people that are looking to become a franchisee. That is one way to do it, Michelle. There are many different ways to do it. Oh, there are. What, uh, quite true. You can go out and do it yourself on that.

  So that would be the next step of the process that you would be thinking about as a business owner, is how am I going to bring in new candidates? You could just simply, and probably the best way to start is, uh, friends, family, uh, clients that you've had before that know your business that have come in there that might want to invest.

  And, and I'll build a unit somewhere. That's a good, a good way to start. Um, you can go out and just advertise yourself. Uh, just like I do. Just like us consultants do. We advertise for franchises all the time. I see them like in little newspapers or the local newspapers. Yeah. Exactly right. And you can do that.

  If you really want to go public. Real quicker. Then you get ahold of some of the, the consultant organizations like the one I belong to, which is IFPG, the International Franchise Professionals Group, and there's about five or six different ones out there. It's, [00:08:00] uh, not a large cost. I don't know how much it is actually to get into it, but just a, a couple thousand dollars for some of them to get into if you don't wanna do that.

  Advertising, marketing yourself. Then you belong to get into a consultant organization. Then what you will do is you will give a presentation to us and give us information on who it is that will make an ideal client or candidate for you. And you tell us the, you know, the exact what you're looking for.

  What's their net worth going to be? What's the background going to look like? Uh, you can allow a lot of them to run a semi absentee if you want it to run a full time. So you'll give us all this information. And then, then you just sit back and know what we do. So what I do is we go out and we vet all those different people.

  So that's what I do when my clients come in to me. I already know who the franchisors are looking for in a great franchisee, in a successful franchisee, so that I filter out my clients to find out what they want, what they're looking for in a great franchise. And as that new business owner, that new franchise says, these are the type of people I want.

  Uh, when Michelle comes to [00:09:00] me and says, you know, this is my list of what I want, then I can say, Michelle, this right over here, this, this new ones come up, great people, emerging franchise. Uh, I think you should talk to him, get some more information and just, uh, see how you feel about it. So do you have a list of like, I mean, how big is your list at one time of people that you're pairing?

  Uh, I mean, is it 20? Is it 100? I mean, could it, is it huge? No, it's not huge. I don't, uh, I try not to work with a whole lot of people on that, just to keep it manageable. About 50 people. Okay. Uh, candidates at a time that I've worked with. Uh, give or take, and then I have about 500 franchises. Okay. Well, no, that was my question.

  How many franchises? Okay. So that's a lot. About 500. Okay. So there's a lot. And so then you're interviewing candidates and then kind of matching them with what would be good. Right. So the 500 franchises, I, I know I'm all generally, uh, Uh, fairly well, but there's a few in each industry that I know real well on that.

  So I know the ones that I feel good about that I've met the people in person. [00:10:00] Quite often I'll have gone out to their site, to their home offices, and got to know them in person and taken tours of their areas. Again, what I am is all about education, education, educating people about franchising. It, I don't try and convince people it's the greatest thing since sliced bread because for some people it is not.

  And we will get to that point. Right. Yeah.

  
  Investment Requirements for Franchisees

  So let's switch back over to somebody that wants to get into franchising or into be a franchisee. They want to buy and purchase a business. So what would be a reasonable amount of money that they need to get into this? Um, or is a lot of it that they would just get a loan?

  And they have to have a good credit score. Great question on that, Michelle. So, um, as your franchise or the new one that's coming in, they can either be a brick and mortar franchise, or they can be a service industry franchise. Those are the two basic different types of franchises that are out there. So what we, you and I see on a regular basis is when we're driving around, we see the brick and mortar franchises.

  So we see, you know, McDonald's, Taco Bell, you know, [00:11:00] Mikey Mako, Supercuts, Great Clips, that sort of thing. Those ones, when you're looking at an investment level for those, since they're brick and mortar, it's going to be a little bit more. So most of those brick and mortar franchises, the franchise ores and the banks, are going to be looking for around, you know, 500, 000 net worth, maybe 300, 000 on the low end.

  net worth, and then probably around 50 to 100, 000 cash on those. So those are going to be on the high end of the investment side. Okay. For total investment on those. If you're looking at the service industry, that's where you don't need this much money because now you're doing something where your clients don't necessarily know you exist until they need you.

  So the franchise drives people to you when that need arises, but now those people are not driving by and seeing you. You've got a small office. You're working from home and going out and investing with your clients. So you're looking at a 150, 000 investment, uh, give or take. You'd probably go with an SBA, uh, express loan, I would say, and then you're putting down about 20, 000 down if you've got about 200, 000 net worth [00:12:00] and about 20, 000 cash or so, uh, and a decent credit score, 650, 000, 700, 000 or better.

  Okay, so that one's doable for a lot of people. And, okay, so what are the services? Franchisees. Like, what are, what kind of businesses are those?

  
  Types of Service Franchises

  So service franchises are ones that are like home improvement type franchises. You could start from the top. Oh, like the blinds and, okay. Yeah. Budget Blind, big craft.

  Uh, the Neighborly Group has Mr. Appliance, Mr. Rooter, uh, the Ground Skies Authority Brands has Mr. Sparky, Benjamin Franklin Plumbing. But you also get into your senior care franchises, your tutoring franchises on those. Oh, I didn't think about that. Right? So those are, are small office or work from home because you're going out and visiting with your clients again.

  Very low investment, 150 express loan, 20, 000 cash, you're good to go. Okay, so I would imagine that part of it that you're going to pair people with is, uh, their money, but then also time that they want to spend on their business, correct? So some of them are full time and some are [00:13:00] maybe part time because you're hiring employees, I would assume?

  Correct, Michelle.

  
  Semi-Absentee Franchise Ownership

  Well, what you're doing, instead of just hiring employees on that, is you're actually, if you want to do a part time, what we call a semi absentee, which is about 10 to 15 hours a week, you're hiring a manager, and then you let your manager do all that work, so you meet with your manager then, uh, you know, a couple times a week, 10 to 15 hours, you manage the manager, you manage the profit and loss statements, And there's many different franchises in many different industries where you can do semi absentee and there's just the same amount where they require you to do a full time.

  You just tell me what you want, I bring you back those, uh, that meet your criteria. Okay. And so that's truly, it's semi absentee because It's to me, I think with the business, it never, you don't care nearly as much as what your employees do. And so it does work that way, I guess, because you're meeting with the manager that often.

  You'll be meeting with the manager and going by the, uh, the store or if it's a, uh, uh, service industry, you'll go by and you'll check on [00:14:00] them every once in a while. You know, how many hours you put in, it really depends on your management skill and style. But yeah, you let your manager handle all that.

  That's their worry. That's their concern. You just make certain you have a good manager. And generally speaking, that franchisor is going to help you find, uh, find that manager. And quite a few of them also help you find the employees, especially say the senior care industry, where you have to vet out only the best senior care people because they're dealing with people in their homes.

  But you want, And that's really what you're looking for in a franchise is somebody that's going to help you with all that, that step by step procedure. Okay. Uh, and I want to get to that, but before I do, so if someone wanted to do a lot of these people that are buying franchises, have they wanted to start their own business and instead they do the franchise route or how does that work?

  
  Choosing Between Franchise and Private Business

  Or they think this would be easier to, because all of it is ready, you know, it's like ready made, like in a box, like here you go, you're ready to go. No, great question. Basically, you got your privately owned business or your franchise. Which route should you take [00:15:00] on that one? If you buy your own business, that is yours to do with whatever you want.

  You can grow it into any territory you want to. You can do whatever you want with it. You put all the money in, you get all the money out. But it takes a long time. You're an island up there. That's it. So what you're looking for in a franchise is you're looking for a franchise to get you to where you want to be two to three years quicker than if you were to do it yourself.

  Okay. You've got a team of people that are helping you grow already have that proven business model out. You've already got the team, the mentorship, not only is that franchisor going to help you out, but as you go through that investigation process, you'll be talking with franchisees who are currently running that business, so you're going to be making a whole team of people, of friends, everybody grows, almost every franchise, not all of them, but almost every franchise has a protected territory that no other franchisee goes in, so you're never competing with the other franchisees.

  Everybody's working as a team to grow it. You don't want to have to reinvent the wheel or anything like that. You just want to step into a proven model and you just want to grow with that model. That's why you get into a franchise. Okay. And [00:16:00] then are you finding that people have different personalities for this?

  Like there's certain personalities that want to start a business from the ground up, and then there's others that are like, no, forget it. You know, I'm good with taking off two years. Yeah, quite a bit, Michelle, on that. Basically, when I'm looking at, I would say, I would say probably my younger entrepreneurs that are real go getters, uh, that just want to look into franchising to see if it's an option.

  Uh, sometimes those are, uh, they've got enough energy to go out there and they don't mind doing it themselves as long as they have the money for it to do that. Uh, my older entrepreneurs that come to me, Uh, where they've done it before, they're like, I've done that before. Yeah, I don't want to do that again.

  It makes sense. They're like, I've already done that. I'm good. Yeah, exactly. I'm looking for something different and some more support and to not be doing all of the bits and pieces. Yeah. Okay.

  
  Exploring Franchise Support Options

  So if you buy a franchise, what kind of support can you, because I mentioned marketing, but what other kind of support can you get for it with purchasing that?

  And I know it's not going to be the same across every single [00:17:00] business, but what are some examples of things that you would get? That's correct. So on that one, what you'll be looking for there is perhaps a call center. If you were looking for the services industry, for instance, you'd be looking for somebody else to field the phone calls for you or for your manager, if that's, uh, if you're doing a semi absentee.

  So you want them to, uh, When the need arises, your customer calls, you've got a call center, they handle that, they schedule your call. A lot of times, even with that call center, you may be looking for, have them to give out some quotes. Maybe if it's that type of business where they can say, okay, what are you looking to do?

  They can give out some quotes, uh, and get all that done ahead of you, so you just walk right over there. Uh, to your client, and you're good to go. If you're looking at like a brick and mortar, you want that grand opening, that huge grand opening experience. Uh, if it's a membership model I haven't thought about that, yeah.

  Membership model, say for fitness, you want that team of people on your franchise team, uh, that goes out there and builds that membership model before you even open. that business. So you're kind of [00:18:00] hiring like a sales team to at the same time with the call center and people building up the business before it even opens.

  Oh, that's nice. You never want to wonder what you are going to do next. And you should never have to with a great franchise always going to be there. This is your steps. Okay, so they've got steps about opening and then they say three months in six months or even month, it might they might break it down to this is what's going to happen.

  And this is what we're going to do. Exactly right. So even with a brick and mortar, Uh, when you're doing that build out, they're going to have a build out plan with a brick and mortar. For instance, you are not a real estate person necessarily. You're not a lease negotiator, so you want to look for them to have a great real estate team that finds you that location, and then somebody that's going to negotiate that lease for you.

  And then they want the whole plan. You want that whole plan for that build out, all laid out. All you do is come up with the money. Okay. Simple as that. Okay. And then do you have a say in the location? Like say you, cause you do live in the area and maybe these people that are negotiating don't. Do you have a, could you say, [00:19:00] no, I don't really like that one.

  Can we look for something else? Okay, so a couple different things on that one. First off, yes, short answer to that. Absolutely. What they're going to usually do and what I've seen is that they'll come up with two or three different locations. Okay. They meet their traffic needs and you decide it. Uh, second, secondly, is that the franchisers want you within about a 30 to 60 mile radius of your franchise.

  So whatever locations they pick out are going to be close by. Easy driving distance. Right, because they want you to be able to pop in and, you know, undo all of that. Okay, locally owned. Right, right. Okay. And so the time commitment varies. And so what are, I guess, when you buy one of these, what could you expect to have to pay out to the franchisor for all of these services?

  
  Understanding Franchise Fees and Royalties

  Okay, so first off, there is the total investment, uh, which pretty much what we've been alluding to with the two different types of franchises there, but the two fees that you pay out to the franchisor is, one is the franchise fee, one [00:20:00] time franchise fee, give or take, it's generally around 50, 000. on that one time, one time fee that gets you everything you need to know about that franchise, get you all the training that you need, everything you know how to do to operate it.

  So it's 50 to have you set up. Oh no, that's for the business side. Sorry. Okay. So we're on the other side. Okay. So it's kind of 50 on both sides, 50 get set up as a franchise and then 50 of you want to buy one. Okay. Right. So as a franchise or you're paying 50 to get that franchise set up. Now you're a franchise.

  Now you charge your potential franchisees about 50, 000. It just, it varies, but it's about. Well, right. Yeah. So now, once you have that franchising in the system and you're franchising the system, you have what's called royalties. The royalties are what keeps that business, that franchise business growing on that.

  It's their incentive. The more they, more you have to pay out in royalties, the better you're doing. So the more they help you grow, the more money they get. But that royalties are what you pay is generally going to be between five and 10%. [00:21:00] I don't think that's that bad. I was expecting you to say like 25 or 30 percent, uh, not used staffing industry does a little bit more than five to 10, but no, it was generally between about five and 10.

  Okay.

  
  Personal Experiences with Franchises

  And so when I was introducing you, you have all the experience and storage units and we had, what else do we have? Dry cleaners were those franchises that you have been involved in, or those are completely separate businesses. Okay. Privately owned businesses, uh, which is one of the reasons why I got into a franchise because me and another engineering friend of mine, and I ran those, we ran those semi absentee.

  We didn't know anything about the dry cleaning business. And that was, uh, that was a challenge to try and figure out how to, uh, how to run a dry, your own privately owned dry cleaning business when you know nothing about the, the dry cleaning industry. Uh, so that's what made me decide later on one of the reasons to get into a franchise.

  Really? So you opened your own business, you built it from the ground up. Uh, or you bought it, but then you were operating it, okay, but it wasn't a franchise. [00:22:00] But then after experiencing that whole thing, then you were like, okay, I think franchising is the way to go. It is. I'd also been involved in a franchise way back in my high school days, uh, a long, long time ago.

  Taco Bell, I've worked there. I worked for a master franchise, but between those two things, but just knowing what it took to take over and we bought that, uh, uh, existing right clinician just to take it over to try and figure out what was going on. It's like, You know, I could have used a lot of help with that.

  Yeah, I bet.

  
  Time Commitment and Exit Strategies

  And what do you tell people is the time commitment and years of owning it? I mean, do people go into these and it's like they're going to do it for life? Or is it the idea that they'll do it for 10 years and then hopefully send it? So, you know, what's the end game, I guess? So one of the things I, I generally ask folks on that one is, you know, what's your exit strategy on that one?

  What do you want to do? Um, I've seen them take it and, and just stay with it and run with it, uh, for years on that, and turn it over to family members, I mean kids at some point in time. Your, [00:23:00] uh, franchise agreement is generally going to be between, be between about five and ten years. Okay. That doesn't, that doesn't mean you have to stay with that franchise for five to ten years.

  That's just what your agreement's for. You can sell it at any point in time. So I had a gentleman not too long ago that, uh, did a kitchen remodeling franchise. He built it up over three years. And then after three years, he wasn't making enough money on it to where he could get a good price for it. So we told him.

  So simple process to sell it. You simply tell the franchisor where you want to sell it. And generally speaking, another franchisee will pick it up. If they don't, then the franchisor tells us, consultants. That there's one for sale and uh, franchise resale go pretty quick because it's already established and you have books and you know, yeah, they've got a lot of things to look at.

  Okay. Wow. This is way more accessible than I ever thought that it would be. I just thought that there was hundreds of thousands of dollars of investment to purchase You know, I don't know, a McDonald's or something and to be able to get into that and, uh, that it was kind of out of the realm [00:24:00] of possibility for even business owners to do.

  But so let's go the two routes too. So if you're a business owner and you want to become a franchise, do they call, do they call you in both instances or how, you know, Yes. And then you can direct them in the, into the different ways. Right. So I'll stay with them and I'll help them out. They want to get into a franchise themselves or whether they want to become a franchise.

  I'm always there with them every step of the way. I've got, you know, a couple of different groups of people that will turn them into a franchise so we can compare and contrast the two of them, see which one works out best. If you are somebody who wants an, uh, yeah, an entrepreneur or inspiring entrepreneur who wants a franchise, we'll do the same thing.

  We'll look at a few different franchises, compare and contrast. I'll get you educated on that and then I'm with you every step of the way as we do this. And I don't charge anything for my services. The franchisors pay me a referral fee if you decide to invest in a franchise that I introduce you to. Okay.

  Oh, well, that's nice too. So that it's you, they can like kick the tires and see what they want to do. And then, [00:25:00] uh, if it's a match, then you make money. Okay. Exactly right. So I better come up with a good match or I'm not right. Right. I'm sure you are, but Well, this was just way, I mean, way enlightening for me.

  Honestly, I had no idea that the barrier to entry was so, it's just so much lower than what I thought on both sides and the support that you would get. And it's funny doing this show. Um, I talked to so many different people that there's all these ideas that I'm like, Oh, Oh, I like that. Oh, I like that. You know, and that's how I'm feeling about this too is I feel like this is, uh, there's just so many possibilities of what you, what you can do.

  There are. It's amazing. I can usually find a franchise for anybody that's interested in finding a franchise. Uh, but again, I'm not pushing it. We'll get you education. A lot of people just decided at this point in time, it's just not for them. For whatever reason, they don't want to spend the time or they're not quite ready to write the check.

  That's fine. At least you're educated. At least, you know, I've had people come back to me three years [00:26:00] later. and get into a franchise since they talked to me because it just wasn't the right time. Right. And that happens. Yeah. And so is there a certain ideal client that you have that you think is a good fit?

  I mean, I know we've talked about credit score and I mean, but is, is it just, I don't know, just time and credit score and money and desire? Those three things. One thing. Okay. One thing that is ideal. You got to be coachable. Okay. Because you're going to be coached because somebody's already come up with a plan for you.

  So if you can follow that plan, if you can be coachable, they're going to have that mentor for you, they're going to have people helping you out, you're, you're good to go. Uh, anything else, um, you know, it can be trained, it can be taught, uh, we can find something for you. A lot of people who are really good, I would say, uh, really good franchisees will be the people that are in corporate world that are managers.

  So they run teams of people. So they've already, uh, Run a business within a business before. So stepping [00:27:00] into a franchise role, um, whatever industry you want to get into. And if you don't know anything about it, it's no different from what you're doing. That's a great point. Running a business. Yeah, that's a great point that if you worked in the corporate world as a manager, that being able to step into this.

  and Manage People would, but you'd be able to own your own business. Yeah. Okay. Well, I love this. Greg, I'm so glad that we connected. I'm glad that I had you on. Am I missing anything that you feel strongly about mentioning to people about franchising? One last thing. Okay.

  
  Funding Your Franchise

  How do I fund the franchise? Where do I get my money from?

  We have people that fund franchises all the time. Oh, really? Yes. Funding a franchise is absolutely simple on that. The franchise has got a proven track record. So the people that are funding people I work with, they're good to go. Proven track record, no problem. They just look at you, what's your credit background?

  You got a good credit background, doesn't matter if you know anything about the industry, doesn't matter what experience you have, no matter, because they, [00:28:00] they know that that franchise is going to be vetting you out, because they, that's why they have that proven track record of success. So, as long as you've got 680, 700 credit score and you meet the qualifying requirements for net worth in cash for the franchise, nothing to it.

  So, it's, it's easy. Okay. Yeah, you can also do a rollover, a 401k or an IRA rollover and use your own credit score. Retirement money for that. That's a whole nother story. Oh, really? Okay, so any money even if it's not cash outside because that's the problem I think is that people just have retirement savings, but if they have retirement savings savings, then they can use it Wonderful.

  I do it with mine. I use my uh 401k, uh from a previous employer You have to roll it over in self-directed plan. Uh, but if you're interested in learning more about that, just again, just gimme a call. I'll tell you how I did it. Okay. And then, and you said earlier right, that a Fran, a a franchisee could expect to make at least a hundred thousand dollars a year.

  That's like your base minimum is. I would never say anything like [00:29:00] that. Okay. Uh, so that's what a lot of people wanna know is how much can I make? Right. So that is one thing that is ruled by the Federal Trade Commission. Quite a bit. So when franchises first started coming out a while ago, there are some nefarious people, unfortunately, out there that said, if you invest in this franchise, you will make this amount of money.

  And it didn't always happen, unfortunately, with some of them. So the Federal Trade Commission comes in, steps in, and says, unless you gather that information yourself, you cannot give that information to others. So I cannot tell you how much. Most of the franchises out there really want you to make a good living on that, um, and they really try hard to get you into the six figure income route, uh, but not all franchises do on that.

  I've got a pretty good idea of what you'll be hearing. When you talk with certain franchises, so I kind of steer people towards. You know what they're looking for and what they want, but I cannot. Unfortunately. Do you guys do like a pro forma? Like if you have this many customers, then this is what you'll make, [00:30:00] obviously some forecasting.

  Okay. So at least they're not going in completely blind. Franchise or we'll do that. I won't do that. So I don't touch the, what do they call that? The earnings claim. Okay. I don't touch the earnings claim on that, but before you invest any money at all. You're going to have a really good idea, as you said, Michelle, with the proforma and the franchisor is going to walk you through that as well.

  So, and then you're going to talk to other franchisees and I'll have a list of questions for you for franchisees and franchisors. So you don't miss a beat on that one. And one of the questions I'll have for you is, uh, you know, when you talk to those franchisees, how much did you make? How long did it take you to get there?

  And what do you got to do to get it? And you got to be good with that. Uh, if you're not, move on. Find another one. Okay, well I think this sounds wonderful.

  
  Final Thoughts and Contact Information

  I am really glad that I had, I've said this before, but I'm glad I had you on. I have learned a lot. I hope, listeners, I hope that you've learned a lot and maybe have realized that the barrier to entry to these is so much lower.

  Uh, Greg, thank you so much for being [00:31:00] on. Uh, and you guys, I'll have Greg's information in the show notes. I'll tag him on LinkedIn and all those kinds of things. If you do want to contact him, uh, feel free to reach out to him or let me know, and then I will connect you guys. So thank you so much for being on Greg.

  Thank you for having me, Michelle. It's an honor. Thanks. Thanks for listening. You guys.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

The AirBnb Market That’s Growing

Did you know more families are spending 3xs more on luxury vacation rentals, seeking unforgettable experiences? In this episode, Ross Greenberg, Realtor® and owner of Luxury Cash Flow shares his secrets to success in the high-end rental market. We talk in detail about:

• What to look for when purchasing a property

• How to on-board with amenities that elevate your listing

• How to find the perfect manager to keep your investment running smoothly

There are so many surprising, and new stats in this episode, be sure to subscribe to hear more!

Contact Info:

LuxuryCashFlow.com

Follow Luxury Cash Flow on Instagram


Follow Ross on Instagram

Time Stamps

00:29 Guest Introduction: Ross Greenberg

01:29 Defining Luxury Airbnbs

02:18 Financial Considerations for Luxury Rentals

05:57 Concierge Services and Amenities

07:04 Purchasing and Onboarding a Luxury Property

09:13 Financing Options for Luxury Airbnbs

12:20 Design and Furnishing Tips

18:10 Managing and Monitoring Rentals

20:32 Choosing the Right Property Manager

21:06 The Importance of Personal Touch in Property Management

23:00 Involvement in All Stages of Property Management

23:53 Finding the Right Property for Short-Term Rentals

27:15 Avoiding HOAs and Other Key Criteria

34:40 Seasonality and Financial Considerations

37:40 Conclusion and Contact Information

• Transcript

  Introduction to the Podcast

  Welcome to me financial the podcast designed to inspire your financial life. Hello everyone. And welcome to the podcast. I am Michelle Moses, your host. And today we are going to be talking about luxury Airbnbs. I am very excited to talk about this. I think I say that every week, but I really am excited about all of these topics that we talk about.

  Uh, and. Mostly just so that I can learn about them too.

  
  Guest Introduction: Ross Greenberg

  And today to talk about this, um, I have Ross Greenberg on the show and Ross is the owner of Luxury Cashflow. Founded in early 2019, Luxury Cashflow addresses what he felt was a void in the market. Investors seeking to generate meaningful income from rental properties and large scale homes that were sitting on the market being overlooked by the retail customer.

  I invited Ross on because I saw that many of the Regular, quote unquote, Airbnbs had reached their saturation point, [00:01:00] um, but the luxury space was still profitable, and I feel, and when I called him, I felt like it was a place where You know, there was space to grow and people could actually, um, still purchase the property.

  So thank you for being on. Thank you very much, Michelle, for having me. Yeah. Appreciate you thinking about me and, uh, I'm excited for, uh, us to kind of dive a little bit deeper. Yeah. I, as I've talked to Ross, I'm very, it's, it's fascinating all of the numbers that go into all of this, even before you purchase the property.

  So I'm excited to share this with you.

  
  Defining Luxury Airbnbs

  Uh, and so why don't we start out with what the definition of a luxury rental is? Yeah. So generally speaking, you know, when we shop with clients and I shop on the market for a luxury Airbnb, we're looking at properties that are generally going to be about five or more bedrooms, um, right around that 2 million and up price point.

  Um, you do start to get to a point of diminishing returns once you get to about 3 million. So I think if, you know, I was looking at all the houses on a bell curve, that kind of two to 3 million price point, um, is really the sweet spot [00:02:00] for maximum yield. And we're talking about Phoenix market right now, guys.

  So if you're listening in like Kansas, this could be completely different and you'd want to do like an apples to apples. Um, but this is for the Phoenix market while we're talking about, but Ross, you know, we could help in any, uh, industry, but we're going to be talking about numbers in the Phoenix market.

  So, okay.

  
  Financial Considerations for Luxury Rentals

  So between two and three, so why does it start to be diminishing returns at three? Just because the mortgage payments are so high? Yeah. Yeah. So, you know. The pretty much the top of the, of peak season of what you can actually charge on a per night basis without it just being, you know, too expensive for the large majority of the clientele that are looking in this market to rent a property is going to be about 3, 500 a night, um, for it to really cashflow at, you know, three, 4 million properties, particularly if you are servicing debt and kind of maximizing your leverage, you really need to be able to get, you know, 4, a night, which is just seems to be, It just seems to be a little bit of a stretch for what people are willing to pay relative to you can still get a really, really awesome house [00:03:00] with tons of backyard amenities and pretty much everything you're looking for, for kind of that 2, 500 to 3, 000 a night rate, which is kind of what we want to shoot for.

  Okay, so you're kind of shooting for the lower rate versus like 5, 000 because then you're kind of pricing yourself out of the market. You kind of price yourself out of the market and you kind of need to get those rates in order for it to make sense at the end of the year when you're looking at your kind of NOI relative to your purchase price.

  So, you know, everything we do is really. very cap rate driven. So, you know, we want to target 8 percent cap rates and above. And yeah, we find that two to 3 million price point to be kind of our sweet spot. Okay. And you guys, the cap rate is basically, um, what your, uh, return NOI is. What is NOI? Yeah. NOI is, is the numerator.

  And then, uh, the denominator being the purchase price, purchase price of the house. Uh, and so that is something that you're always looking at when you're looking at commercial property or any type of Airbnb. Yeah, exactly. When you think about underwriting, uh, an asset for investment purposes, um, we do take a lot of kind of commercial, uh, underwriting approaches for kind of these residential [00:04:00] assets.

  And yeah, we, uh, at the end of the day, we, you know, we want to find the best performing asset classes and, you know, in the last probably four to five years, um, it's been tough to beat Airbnb. Yeah, yeah, it is. Well, and as I said at the beginning of the show, um, I called it first, I think like six months ago, I was like, Hey, I don't know about Airbnbs, but, you know, the luxury market, I mean, it's definitely still hopping where I feel like the regular market, you know, some of the basic Airbnbs seem to be kind of falling off the market or the people that couldn't compete, you know, cause if people are going to be paying this much and a cleaning fee and all of these things, you know, they want to feel like they're staying somewhere right, nice and with a kitchen and.

  Yeah, I mean, so the demand side of the market has changed. Um, you know, 10 years ago, people weren't willing to drop a credit card for 10, 20, 30, 000 on a website, vrbo. com, airbnb. com. Um, those websites have done a really good job building trust. People like to travel in groups. That's a great point. Um, It's also more economical if you think [00:05:00] about, you know, a, you know, just thinking about, let's say a bachelorette party, you know, if they have 14 girls and, you know, they're looking at, uh, reserving seven rooms in a hotel block that were kind of next to each other, you know, really a cost per person per night basis, they can get a 3 million house for literally less than, you know, Three or four star hotel and just getting a block of rooms, right?

  And it has a grill and a pool and you get the amenities and you can do the private chef and there's just so many Kind of what I call experiential services that are now offered and in lots of vacation markets not necessarily exclusive to Scottsdale But in tons of them, but certainly here, you know You can there's tons of services to get the private chef to your house to get the personal trainer for morning workouts the yoga the mobile service Spas for, you know, pedicure, manicure.

  I mean, all of that stuff exists. Um, it's being heavily promoted. Uh, people find out about it on, you know, Instagram, and they, you know, get real excited about booking these Airbnbs that offer a lot of space to kind of enjoy some of those, uh, third party amenities. That's awesome.

  
  Concierge Services and Amenities

  And so do you help them do some of those?[00:06:00]

  Yeah, I think, I think most. I think now, you know, most property managers, um, have included some level of concierge service, whether that's kind of an airport pickup or, you know, if they can't check in early, which is a really popular request, we can help facilitate, you know, getting their bags from whatever bar in town they're going to, and we'll drop it off and, you know, have someone drop it off at the house.

  So yeah, there's definitely, I think most property managers have kind of adapted and, uh, offer to some degree, um, Either referrals or in house concierge services. Yeah, I think that sounds amazing. And you're probably suggesting some of these things, and it's things that they didn't even know that they could have.

  Totally. You know what I mean? Totally. Yeah, no, we get a lot of requests for, you know, people that want to set up the house with balloons, that they would need to, you know, one of the girls needs to sneak away from their group to kind of set the house up early. And hey, you know, for 125 bucks, you know that there's services out there that'll do all that for you.

  You don't have to kind of sneak away from the bride, you know, from the You know, bridesmaids and all that stuff. So yeah, tons of tons of really cool services. Yeah, absolutely. And I would [00:07:00] imagine that it's always evolving and people adding things and all that. Yeah. Oh, that's cool. Okay.

  
  Purchasing and Onboarding a Luxury Property

  So back to buying the house.

  So, um, which all of that sounds cool. We're going to come back around to all of that. That's the fun part. Uh, the, uh, when people are purchasing a house, so do you find people that they come to you to want to buy Airbnb and then you kind of talk them into a larger home because they can make more?

  Sometimes, um, the first thing I like to figure out when somebody does approach me to buy a property is, you know, how much of this property is like truly a second home for you where you're going to go with your family and host friends, host family, and really maximize the usage of your home for your personal reasons, or, um, how much of this home is actually going to be used for cashflow purposes.

  Um, are you going to use the property a week of the year? Are you going to use the property six months out of the year? So that's going to be, you know, Really, you know, just to kind of get an idea, like where, you know, the, where they're thinking, where their head is at for how much they're actually going to use the property and their intended purpose.

  And you call that an emotional person that's going to use it more as more of an emotional [00:08:00] buyer. Right. I mean, I certainly want to kind of cater what I show and certainly like my opinions on, you know, their needs. Like if they're going to use the property a ton and it's maybe not in the best You know, best location for rental purposes or maybe just doesn't have that extra bedroom that we like to see to maximize cash flow, but they love everything else about it and they love the finishes and they get a great feel and they could see their family enjoying themselves for the holidays.

  Then it's like, okay, let's, you know, take a step back from a financial perspective and yeah, it's your second home, it's your vacation property. Like pick, pick something that you're gonna enjoy. So, right. Uh, yeah, totally. Okay. So that's really the first thing I like to figure out. Okay. So there's kind of two buyers, one of the emotional buyer that wants.

  to use it for themselves and then just pure cashflow. Like they're just wanting to just have a business. Well, yeah, I mean, there, there's certainly a combination of the two as well. I mean, it's a lot of my owners who kind of came in as, you know, strictly cashflow investment, uh, you know, buyers, um, still want to try to use the property, get in there maybe once a year, twice a year, still call all, I'd still call that a full time investment [00:09:00] property, but you know, certainly it will block off.

  Okay. All right. And so once they identify a property, um, they've obviously already met with a mortgage broker if they aren't buying it for, for cash, um, and have gone through different things.

  
  Financing Options for Luxury Airbnbs

  And I do want to point out, um, you guys, I actually, uh, dropped an episode and we were talking about different mortgage options.

  So I'm not going to go over all of them, but when you have a rental, there are what these called debt service coverage ratio, um, loans. And do you want to kind of talk about what those are? Okay. Yeah, sure. So, you know, sometimes we'll run into situations where someone has the liquidity to put a down payment on a property.

  They have the 20 to 25 to 30 percent down, but whether they're self employed or whether for a variety of different reasons, they show a little, or, you know, in some cases, no income just for, Tax liability purposes. Um, I'm sure you speak a lot about that. Yes, we do. People on your episode that have certainly talked a lot more about that, but, um, those type of people are really qualified buyers to [00:10:00] be investing in properties like this, but maybe they don't have the ability to, or the W2 income or the tax returns to really get a conventional or jumbo mortgage.

  So, um, there are kinda these alternative loan programs that have become very popular called, um, you know, the DSCR, the debt service coverage ratio, um, and the way the mortgage lenders. Uh, will underwrite those, those loans, those assets is based on the, um, projected rental rates on an annualized basis for that property.

  And if those rental rates, if the gross rental revenues can cover the debt, usually at a one to a dollar for dollar ratio, um, then they'll qualify that house, um, to offer a loan. And those loans are still 70, 70 to, uh. 75 percent leverage, which, you know, 20, 25 percent down. Yeah. So that's still, I mean, that's good.

  And so I know all you're using is the potential rental rate of the home. And there's, you know, those, the way those are underwritten are a variety of different ways, but air DNA, I mean, the data and the analytical, um, you know, Um, way that a lot of these technology companies [00:11:00] are projecting rental revenues are getting better and better.

  It's not perfect, but, um, it is a really nice alternative way for somebody to get into these properties, um, by paying just a little bit of a premium on their interest rate. And that's what I was going to ask you. So does the mortgage, brokers, do they come to you for what is the potential rent or is that all done online?

  So they do that in house. Um, they use a lot of the same tools, uh, frankly that I use to project rental revenue. Um, there's not too many of them out there. So we, you know, we do, you know, use a lot of the same ones. Um, but yeah, I do find that, you know, these bigger houses, especially in the luxury space, um, they tend to qualify, um, more than, you know, maybe some of run of the mill houses, which Again, when I, when we talk about luxury, again, that kind of two to 3 million price point, um, a minimum, like just as far as search criterias go, we really like to look at a minimum of about a five bedroom, um, on three bathrooms tend to be a really huge amenity.

  So, you know, we like to have about, you know, if we can get a five bed, five bath or a six bed, five bath, um, With [00:12:00] several en suites, that's usually going to be kind of a bed bath count that we want to look for and, um, you know, we want to definitely see the outdoor living space. It's, there's no question that, um, the outdoor amenities is, is probably the number one draw for people coming out here.

  And so do you, um, help them put those in if they're not in there? Yeah. On the house. Yeah.

  
  Design and Furnishing Tips

  So just taking kind of a, I guess a holistic kind of step back and view of everything. So when people think about, you know, I want to get into this space, there's kind of three sort of primary factors they need to look at.

  The first is, uh, finding the right asset, right? If they're going to buy a 2 million house, um, and there's 75 active listings in that price point, um, they're not all created equally. So really finding a realtor or some, or some resource, uh, that can help them identify kind of the best asset. Assets for cashflow opportunities is really going to be critically important.

  Um, finding that, and then the second kind of component would be the design and onboard of the property. So, you know, largely [00:13:00] houses are sold vacant. Um, houses are rented, furnished and amenitized. So from the time someone is under contract or closed on the house to the time they get up and running, um, you know, time is money and we try to really encourage people to be.

  done onboarding their house in about 60 days. It's a little ambitious on the luxury, uh, side of the market, but there's a lot of furniture vendors. There's a lot of contractors that can get the work that you need to do to get the house rent ready done inside of that window. So we'd like to shoot for about 60 days.

  And that's why hiring somebody like you would be beneficial because you already have those connections. Whether it's me. So I have, we have great network of service providers. Um, our interior designers are very proficient in, furnishing properties and sourcing from vendors with very, uh, very short lead times on shipping.

  Um, you know, you can order a couch from, you know, Restoration Hardware that's six months on backorder. Something like that probably doesn't make sense in this business, right? So, yeah, we want to use designers that have, um, [00:14:00] And expertise in this. We want to use subcontractors when we do some hardscape landscape modifications, uh, that are obviously cost effective and, uh, get, you know, get things done at a very reasonable price and, and quick.

  It's time, time, time is money, right? And so, yeah, we, we put a lot of emphasis on the onboarding. Um, there's, you know, bedroom, bathroom count is, is critically important. The value of a bed, let's say there's a, there's an office, for example, at a property. There's value in having an office at a property and work from home, et cetera, but there's probably 5x the amount of value if that office was converted to a bedroom, having that extra king bed or converting that they could work at the kitchen table.

  At the end of the day, they could, there's other spaces that they could find to work, but the occupancy is really, is really important. So, you know, if we can convert an office and get an extra two people or, you know, with two full beds. For people, um, that's going to be a huge increase in revenue, uh, relative to just keeping it as an office.

  So, you know, we want to get that kind of, we want to get that [00:15:00] construction done quickly and we want to, a lot of times we'll want to zero scape the, the, the exterior landscape. So, um, we'll oftentimes pull sod in the outside and do artificial turf, um, putting, put putting greens within the. Artificial turf as well for an extra dollar a square foot.

  Economically, it makes sense. Oh, really? Cool. Yeah. And so, yeah, we, we, you know, amenitize and design and furnishing is, is I think probably the number one thing that's overlooked in this space and probably shouldn't be. And so, yeah, it's, it's critically important. And then the, the final. Well, that's, what's going to make the house stand out.

  Right. And make people want to rent it and pay just a little bit extra by putting that extra design time in there. Absolutely. And I'm not the first one to say it, but we hear it all the time. Uh, it is at the end of the day, kind of a beauty contest online. And, uh, I couldn't agree with that more. It's, it's very, very true.

  Um, yeah, the look, the feel, the design. You hope that people are different, but it's not true. You want to be, you want to say something new and have some fresh information. And then at the end of the day, Uh, what's been said for 10 years [00:16:00] is really true. But, um, yeah, you definitely want to have a unique feel.

  Um, it's really got to stand out from the crowd. You do see a lot of kind of themed houses, which has been a very popular trend in the last several years. Uh, we see these pink themed houses, especially the bachelorette parties. Yes, exactly. So Whether it's that or whether it's, there's, I've seen a million of 'em, but, uh, yeah, they're, they're fun.

  So the, the owner kind of decides what kind of theme they want to go with, or, or do you help them decide that? I do help 'em decide that. Mm-Hmm. . Um, I usually like to lead that or leave that up with the designers and the owner. Mm-Hmm. . Um, I like to be on the design process. I'm kind of a second line resource.

  I'm a project manager to some extent. Um, I let the designers kind of do their thing. I'm kind of involved, but you know, I like the owners to make the final selections. But aren't you telling them what would make more money? Well, as far as some different aspects of the, the rehab and construction in the house, like, Hey, do we convert this office into a bedroom or should we put a bunk, should we put two bunk beds in this room or just keep a king bedroom or it [00:17:00] should we put two full beds?

  So yeah, when it comes to bed configuration, when it comes to, uh, some of the Um, in the living spaces, uh, I definitely have some say, but as far as like, Hey, we need a, you know, 160 inch couch, I'm going to let the, uh, the owners decide what they like. Or the pink neon sign or something like that. Yeah. Yeah.

  Okay. Open crazy late. We just put one in. Yeah. Yeah. Owners, owners like that little catchphrase. So yeah, that's, uh, well, they'll have some fun with that. Okay. All right. So that's kind of more of the designer thing. And then they ask you kind of as backup. Cause that's what I would do. I mean, I would ask you like, Hey, is it more profitable to do a bachelorette party or, you know, kind of house or, uh, you know, just a family type house?

  Yeah. You know, you know, I, I would say that I personally haven't, um, set up one that's kind of geared and themed towards that bachelor bachelorette party, uh, vibe. Um, we try to just really the best renters for me are three families. Yeah, I agree. I would think the [00:18:00] families because they're going to bed early and they're not, I mean, there's noise, but not the same kind of noise or, or eight guys going on a golf trip.

  Yeah, totally. They want a hot tub and a place to sleep. Yeah. Yeah.

  
  Managing and Monitoring Rentals

  And so do you put in like the noise? You know how they have like the noise, what are we trying to say? Yeah, so there's Alarms. There's a lot of different really cool technology out there. Um, hardware. What you're referring to, there's, there's one in the market called Minit.

  Um, M I N U T. Um, yeah, it'll, we do, we put the Minit in. Um, it does alert us if, uh, decibel levels under, over kind of a certain, I think it's, it's, 10 p. m. curfew, uh, are exceedingly high. Um, there's a really cool one out there called Party Squasher, uh, which will tell us, you know, how many, uh, cellular devices are logged in within a geofence, which you put, you know, kind of around the perimeter of your property.

  So if you have, you know, you know, 60 devices that are, you know, connected to the Wi Fi, um, then there's maybe something going on there that shouldn't be. Wow. I had that happen. My friends, they got, they did an [00:19:00] Airbnb and they're managing it themselves, I believe. And, uh, this guy put a party out on TikTok.

  Yeah, I had to clean it up. There's like a week cleaning it up. It's happened to me. I've, I've been, uh, I've been at dinner on a Saturday night and gotten a call from Paradise Valley police department. Hey Ross, it's nine 30 and there's already about 70 people at your house. It doesn't look like it's dying down anytime soon.

  You might want to get over here. Yeah. Oh, so you're like the listener. You're the person listed to call. I'm the, I'm listed as the emergency contact. Um, yeah, there's, there's, I have support out in the market that kind of helps me with that kind of thing. But, um, yeah, you, you're required now through some different, uh, ordinances that have, that have passed over the last couple of years to register a local, um, contact.

  Contact, uh, at every property in Phoenix and that's right. That's a rental short term. Yeah. Yeah. Okay. All right. And, um, okay. So I want to back up to this pro forma too. So have we finished all the three parts? The third part was, yeah, we could just roll, roll lightly touch on the third. Um, it's selecting the right property manager.

  Okay. There's a bunch out there. [00:20:00] Yeah. Um, My model is kind of the one to one model. So my clients have my number. I tend to talk to them regularly. Um, just to kind of give you an analogy, just cause we're on your podcast, financial podcast, right? You know, people could invest with, um, they could invest in an ETF on an E trade, not have a account manager, no one to call.

  They just can log into their app, kind of see what's going on. Um, other people, Might want to have someone like you who they can reach out to, you know, Hey, I made more money this year. I made less money this year.

  
  Choosing the Right Property Manager

  You know, what can we do to, you know, diversify the diversify the portfolio. And I think I am more geared towards people who like the one to one touch.

  Um, there are other people who just want the biggest, you know, banner possible. The, the, how the management companies with the tens of thousands of units and that's totally fine too. Um, so yeah, selecting the right property manager for kind of your personality type. Um, you know what their fees are and what they're actually doing.

  And, you know, some of them [00:21:00] pass through fees with markups, others don't. There's just a lot to kind of vet when it, when you think about customers.

  
  The Importance of Personal Touch in Property Management

  Yeah, but don't you, do you find that the guests have a better experience because it's somebody like you that's doing, you know, you're setting up personal chefs and doing, giving it a personal touch?

  I mean, I, that's my opinion. I would say so. I would think, um, personally, I think every property manager should be, should have the ability to facilitate a five star experience. Um, You know, that's what we strive to do, but it's also helpful from like an escalation perspective. Um, you definitely have people every once in a while with that have, you know, different issues.

  And they think that because maybe they're dealing with this huge conglomerate that they can have a little bit more negotiating power to get, you know, refunds and be a little bit more of a stickler. But, you know, when it's kind of more of a, a boutique feel, a mom and pop type shop. Maybe they're a little bit more understanding.

  So I think there's some psychology that kind of goes into [00:22:00] that as well. That's been helpful and it's certainly helped me and kind of keeping my average star rating across all of my properties pretty high. Yeah. Well, I think when people feel listened to, then it's like their anger goes from 10 to, you know, five at least, you know, and at least they're being listened to and getting feedback.

  And if they get like a. Not the runaround that I think, you know, one of those big companies would probably give them, then they just feel disrespected, right? Totally. They want to feel listened to. They want to feel, they want to feel like you care. Yeah. And if you're spending that much money to rent a property, I could see that they, you know, like.

  Yes, I need you to care. Yeah. And those calls, those are inevitable. I mean, they're, you know, they're going to come up from time to time. And so, you know, you just deal with them the best you can. But um, yeah, for the most part, being kind of a boutique feel has, has served me really well. Um, I, you know, I turned down significantly more opportunities to manage properties than I take on.

  Um, you know, I, Even just with the investor client as well, um, not just the house, but, um, yeah, so the boutique feel has really served me [00:23:00] well. Okay.

  
  Involvement in All Stages of Property Management

  And do people come to you, uh, I mean, I guess they probably come to you even to buy a house, but even after they've purchased the house. Like the, Hey, I need you to manage this.

  Yeah, I mean, for the most part I like to be involved in all three stages from the acquisition, um, as a realtor to the onboard and setup and kind of management of that whole project of getting that house up and running. And then lastly, the facilitation of creating all the list. I like to be involved in as much as possible.

  Um, I've certainly been involved on the first, which is just the transactional side of things. I've been involved on the third and in some cases even I've only been hired as a consultant to project manage, um, a house that I really didn't sell or didn't have any plans to manage. Just helping them, just consulting on how many bedrooms and what to do with them and things like that.

  Yeah. Okay. Okay.

  
  Finding the Right Property for Short-Term Rentals

  Uh, and you guys, I think it's really cool. So, uh, Ross taught a class, uh, quite a few months ago to our [00:24:00] brokerage about looking for these properties and what you would look for. And there's a lot more that goes into it. I mean, I think that it, that's what I found so fascinating was, you know, you think like, Oh, I'm just going to go buy a house and whether it's the right price and then I'm going to throw some stuff in it.

  And it is so awesome. Much more. I mean, there's so many more details. So could you just go in? I don't want you to give away like all your secrets of how you look for a house, but could you like share some of them? Yeah, I mean, I think, I think the reason why I wanted to create this company luxury cash flow is because there was such a disintegrated system for getting short term rentals up and running.

  Oh my god, right? Let's say a customer from Washington. They know their cousins, brothers, nieces, uncles, a realtor in Scottsdale. They call them up, Hey, I want to get an Airbnb. Um, that person, that realtor, the 95 percent of realtors, they, especially in Scottsdale, they understand Airbnb. They know what it is, but they don't know anything beyond like [00:25:00] actually how to underwrite an asset, how to actually select a property that's maybe going to perform at a 30 percent clip compared to another one down the street.

  And so, you know, they say things like, Oh, it's. You know, 25 minutes from the airport or, oh, there's tons of golf courses around and, and they're just not offering a ton of really kind of valuable insight that that investor. I think things that'll make it stand out. Yeah. And that's really what that investor is looking for.

  They want a, a expert, knowledgeable resource. And, you know, certainly a lot of people can write contracts out here and there's, you throw a rock, you hit a reel at her, right? In Arizona, as we always say, but. Here we are. Exactly. Um, but yeah, there's just not, there's not a ton of people who really. And then once they facilitate a transaction, you know, they're calling their broker, Hey, you know, who, who manages properties in town?

  Most, you know, it's changed over the years a little bit more, but you know, three, four, five, six years ago, most realtors didn't know who in town was managing short term rentals. So they called their friends, call the grapevine and Link [00:26:00] them up with somebody that was never really pre vetted that they don't actually know who they work with that property manager would kind of use different resources.

  A designer here, a designer there. And it was again, very dis disoriented, disintegrated, um, not streamlined at all. And so that's, I just wanted to bring all of that together and kind of create a one, two, three step process to, I want to buy an Airbnb to, you know, This is a profitable Airbnb. And so, um, Well, and a good business for you too.

  I mean, you can help them buy the property and manage it and be making money, you know, over the longterm. So it's not like, you know, like you're not having to redo transactions. You've got like a steady income plus the other. I mean, and for anyone in property management, I mean, that's, you know, the managing the property is never really like there's, There's a lot of, uh, there's a lot of pitfalls to managing properties.

  It's not always the most glorious job and you know what you have to deal with from time to time, but, um, it's a great annuities business and it is, you know, reoccurring revenue for the property manager and [00:27:00] your interests are extremely aligned with the investor on a bad month for the investor is going to be a bad month, you know, uh, financially for the, uh, property manager as well.

  It's all based on a, usually based on a commission model. Um, You know, percentage of what you, you book it for.

  
  Avoiding HOAs and Other Key Criteria

  So, um, but yeah, back to your original question, you know, some of what we look for, um, you know, number one thing that we try to do is stay out of, uh, homeowner associations. Um, they'll either kick you out or try to kick you out.

  Okay. We're never going to do, they're never just going to say, Oh yeah, it's against our CCNRs. Yeah. You guys just, we like you, you're cool. Just keep doing what you're doing. So yeah, let's not avoid, let's, Avoid that as much as possible. So the first thing is stay out of the HOAs. Um, like I said, the second thing, which kind of goes back to Sorry, this is going to be very Phoenix specific, but I mean, like out in Gilbert and out South, I mean, it's all HOA, isn't it?

  I mean, so there's no, but this is just your criteria. This should be everyone's, as far as the HOA, I think it should be everybody's criteria. I mean, but there are [00:28:00] Airbnbs out there, so people are obviously doing it, but you're saying that. Well, to be fair, some HOAs do allow for 30 day rental minimums, so, you know, you can.

  Oh, but that really puts a kink in your, yeah. It messes up the model. Yeah. Yeah. 30 day, I mean, 30 day minimums, they can work. Um, it's, it's a lot harder. It completely changes the pricing strategy. I mean, I do three day minimums. My, my pricing is generally. In three tiers, I have kind of a lower tier, a medial, medium tier and a higher tier.

  Um, you know, the 30 day minimums just isn't my model. Yeah. Um, some people do it. Okay. Sorry. Yeah. No, totally cool. And so, yeah, the first thing, you know, we want to do is. Stay away from the HOAs. Um, the second thing is, you know, we, we do want to find large enough lots that aren't totally hugging up against other properties.

  Um, mostly because we want to respect the neighbors. I mean, we understand like we're not there, you know, some people misrepresent how many people are going to be staying at the house from time to time. And yeah, the more kind of insulated we are from, Okay. you know, the neighbors and the [00:29:00] street, um, which a lot of times we can accomplish with landscaping and some other things, um, is, is definitely something we look for.

  Um, like I said, that five bedroom, you know, if you asked me this question two years ago, I would say you have to be at a four bedroom minimum. Um, again, saturation is kind of creeping upward and now I really want to be at a five bed, probably a three and a half bath as like a bare minimum on a really nice sized lot.

  With a pool that has the capability to be heated has to be right. There's no, well, yeah, because people are going to come here in March and want to swim. So I would say I would estimate between November and the end of April, the percentage of groups that request and pay a daily rate for pool heating is probably somewhere between 95 and a hundred percent.

  So it's a must in booking the house for a heated pool. That is a very high percentage. It's literally every reservation, if not [00:30:00] almost every reservation, from November, even sometimes in October. Through the end of April. Yeah, wants to make sure that pool's heated. Yeah. Okay. So, wow. Um, so yeah, I mean, you know, if we want to have the capability of heating the pool, we want to have outdoor, you could add a heater though.

  You can add a heater. Um, there's, there's several ways to add a heater. A lot of properties here in Scottsdale are on gas. That's the easiest is to throw a gas heater in. Um, if they're not, there's electric heaters. Um, you could also, you know, put a, Drop a propane tank in and heat it, which is probably the most expensive way.

  Right. And most labor intensive. Yeah. Um, but yeah, you could control that stuff through an app. You don't have to physically be there to, you know, heat the pool. So, um, yeah, I would say, you know, pool, great outdoor living, five bed, three and a half bath, really want at least two of those bedrooms to have an en suite, preferably more.

  And if you can, you know, I would say that that's another, [00:31:00] that's a plus, uh, when I say, when I say living areas, like have a media room, for example, like a den in a way where people can kind of watch movies, you know, maybe the kids are watching movies and then the adults are kind of sitting in like a, a second kind of seating situation, living room, um, even if they have the outdoor area, even if they have the outdoor area, we'd like to have two kind of living spaces under roof and then as many amenities that we can kind of, you know, I don't want to overdo it and make it look too busy, but you know, if we have the space we've, you know, we'll drop in, you know, last year we dropped in a couple of, uh, pickleball courts, which has been a super hot amenity.

  Um, this year we're looking at, uh, converting a, uh, a master bath. Extended patio into kind of a wellness space, dropping a cold plunge in there, a dry sauna, we just kind of look at some trends and see what's actually, you know, what's catching people's eyes. What's a little bit different. How do we stand out?

  So I use the term every day, amenitize, amenitize, amenitize. [00:32:00] Um, and so, yeah, we want to, we definitely want to create these different experiences that stand out from the pack. Yeah, well, and I could see you, I mean, you kind of need to because it's always changing. And even what you just said that a couple years ago, four bedrooms would have been okay, but now five is what you need.

  And that goes back to exactly what I said, that it's kind of getting saturated and that now you're going to have to, you gotta, gotta stay ahead of the pack in order to stand out. So Yeah, yeah, and I don't have the data in front of me, but you know, I would suspect that if you looked at every house in the greater Scottsdale area, that was a four bedroom, three bath house, and then you looked at every house, every, the number of houses that were a five bedroom, For bath.

  So just going up one bed and one bath, I would say there, the supply is maybe only 10 percent of what it was for the four threes. So you have the total number of four threes, you know, only 10 percent of those, only 10 percent of that number is probably how many five fours there are. Right? Yeah. Well, yeah, [00:33:00] because people weren't building houses that big.

  Yeah. And they haven't really been, you know, this whole luxury space or side of Airbnb, you know, Airbnb has been around since I think 2005, 2006, I mean, people have been renting plate spaces on Airbnb for a long time, but, um, this side of the market, which there's a massive demand for has really only taken off in the last, you know, five, To six years.

  Yeah. Well, and I think that with Instagram and people posting pictures of their bachelorette parties, because that's immediately what I think of is, you know, you're going on a group trip or, you know, all your college friends or something. It's, I mean, to be honest with you, you know, again, luxury, it's, you know, I do get a lot of those parties.

  Don't get me wrong, but it's, we're getting together for, you know, The bridal party. 'cause there's weddings and they don't wanna stay at hotels. They wanna stay at an Airbnb, um, group trips for someone's 50th for their 40th couples retreats. Mm-Hmm. . Um, there is, I mean, during the week we get a lot of like executive, um, kind of executive getaways, you know, [00:34:00] they want to end of quarter, they're kind of getting together to do, you know, whatever, you know, do work, whatever.

  Um, so there's, I mean it just, uh, and then that makes sense. That's a great idea. Yeah. I mean, yeah. Tons of corporate retreat Yeah. Type stuff. That's a great idea. So I know people, I know that's the first thing when people think of like group travel, that's where their mind goes. Like bachelor, bachelorette.

  And we do get a lot of that and Scottsdale's been a hub for that for a long time. Um, but that's, you know, one of, you know, 30, 40 different reasons that's tend to come up regularly for reasons why people are traveling in groups together. Yeah. No, I think some of those, I wouldn't have thought the, of the executive group, 'cause they do, they get together to bond and Mm-Hmm.

  you know, have meetings and brain brainstorm and all that. Yeah. Yeah, absolutely. Okay.

  
  Seasonality and Financial Considerations

  Well, am I missing anything before we kind of sign off here? Um, I don't, not that I can think of. Um, you know, we talked about the criteria. Um, you know, we, I think we talked a little bit about the seasonality. Um, you know, we, we try to really talk about that, about the difference in, um, in the [00:35:00] different seasons.

  Because I, when I was interviewing, we're not interviewing, but I was asking what to talk about. And I was saying, well, how much would you make in a month or per night? And he's like, well, it depends on the month that you're talking about. Right. And what events are going on. And I get that a lot. It's like, you know, you know, if I buy this house or, Hey, we're looking at this house, like, what is it going to rent for per night?

  And it's like, well, there's 160 price variations over a 365 day calendar year. So it's, it's a really tough question to answer. So when I talk about numbers with people, I, at the very beginning, say, Hey, look, Everything we're going to discuss financially related is going to be annualized. Let's annualize our expenses.

  We're going to annualize our gross rents or NOI, et cetera. And so, you know, I would say generally March, for example, which is our top booking month of the year, it's going to be five times the revenue that you might generate and say August. Okay. And so the month on earth. When it's, yeah, totally. Like, I don't even wanna be here.

  I don't Yeah. Nobody else wants to be here. . Um, right. But, um, yeah, so, you know, [00:36:00] annualized, yeah, I mean, really the, the space I plan is, you know, two, about two, 250,000 to about 450,000 a year in top line rental revenue. On about a two to 3 million house. That's kind of that. And that's after paying the mortgage.

  That's after paying you. That's after doing the amenities. So top line. No, no. So top line is just going to be gross. Okay. So that's inclusive of the cleaning fees that the guest pays, the rental rate. Oh, okay. That's top line. Okay. Yeah. So we can't, we'll touch on expenses real quickly. So there's the three big line item expenses.

  Our management fee is number one. Cleaning fees throughout the year is number two. And utilities. Those are going to be your kind of top three expenses. And then you have supplies like your shampoos, your dish soaps, your paper towels, toilet paper, et cetera. Um, supplies, incidentals, you know, handyman, things like that.

  That's, you know, 2, 000. Yeah. Yeah. But generally, I mean, I try to run, I mean, we try to run pretty lean, right? So on a, let's just say using a, uh, around number 100, 000 [00:37:00] in gross, um, the net, which is when we talk about cap rates and net operating income, um, were. Excluding debt service, mortgage from that. So your expenses, you're, you're strictly, you're operating expenses on say 100, 000 in top line rental revenue, um, is probably going to be about 000.

  So you're running about, most managers will tell you they're going to run about 35 to 40 percent in expenses relative to your top line. Yeah, but you get to take home. 60%. Yeah. And if you have low debt service or, you know, then that's how you get, that's how we get to our higher cap rates that we're shooting for.

  Okay. All right.

  
  Conclusion and Contact Information

  Well, I think this sounds awesome. And I'm really glad that you found this niche and you guys, Ross is Thanks, Ross. I mean, he's been an awesome podcast guest, but his presentation to us about all of that goes into the numbers of figuring all of this out as to whether your property is going to be profitable or not in his opinions and experience in the market are [00:38:00] just amazing.

  So I really appreciate you coming on. Um, and I also have to tell you too, because at our brokerage, he's like one of the top 10 real estate agents. Agents. I mean, he is like really killing it. So if you are interested in getting an Airbnb out here, um, I do recommend giving him a call because he really knows his stuff.

  So thank you again. Totally. And, and my website's, uh, luxury cashflow.com. Yeah. And, uh, yeah, there's a, you know, just a little inquiry page and, uh. Yeah. Happy to answer any questions. And you can, you can see the properties that he has on there. Yep. You can see the properties I have on there. You can see more about the management aspect of it.

  Yeah. Tons of good, tons of good content on there. I'm still getting the YouTube and the Tik Toks and the IGs kind of going, but there's some, there is some informative stuff on there as well. It takes some serious time. Believe me, I know where, I know where you're at with that. Uh, and I'll have all Ross's information in the show notes.

  And, uh, whenever I post anything, I'll tag you and all of that. And then, um, if you do have any questions, feel free to give me or Ross a call or whatever, and we can point in the right direction. Okay. Thank you. Yeah. Thank you for being on and you guys, [00:39:00] thank you so much for listening and be sure to share it with your friends or let me know if you have any other topics that are of interest.

  I appreciate you. Thanks, Michelle.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

How Do You Prepare Your Finances for Death or Divorce?

Rachael Burns, CFP and Certified Divorce Financial Analyst joins me to discuss ways to prepare yourself if you find yourself on your own.

We Talk About:

• How spiking interest rates have complicated divorce settlements, especially when dealing with real estate.

• Creative living arrangements like 'nesting'.

• How you can always be prepared just by being involved in the finances regularly.

Rachel will tell us why fixating on to the family home might not always be the best financial decision in a divorce, and why sacrificing retirement savings to keep a house might lead to regret.

We'll also cover the emotional and administrative chaos that typically follows a partner's death, offering essential tips on how you can better prepare for managing finances solo. Our discussion will extend to the importance of not just knowing your financial assets but also having a hand in managing them, even if finances aren't really your thing.

Contact Info:

Contact Rachael Burns at True Worth Financial

Time Stamps

00:20 Meet Rachel Burns: Financial Independence for Women

01:07 Real Estate Challenges in Divorce

03:02 Creative Solutions for Housing Post-Divorce

04:33 Financial Trade-offs in Keeping the House

10:55 Navigating Refinancing and Mortgage Issues

15:59 Credit and Financial Preparedness in Divorce

18:00 The Importance of Financial Awareness in Marriage

18:24 Common Financial Issues in Relationships

19:14 The Consequences of Financial Ignorance

20:18 Preparing for Financial Independence

23:28 Addressing Financial Concerns Before Divorce

24:23 Misconceptions About Post-Divorce Finances

26:10 The Role of Flexibility in Divorce

27:43 Working with Attorneys and Financial Experts

28:50 Handling Finances After a Death

34:13 Final Thoughts and Advice

• Transcript

  Introduction to Me Financial Podcast

  Welcome to Me Financial, the podcast designed to inspire your financial life. Hello everyone. And welcome to the podcast. I'm Michelle Moses, your host. And today I have a special guest that I'm very excited to have on the show.

  
  Meet Rachel Burns: Financial Independence for Women

  She reached out to me to talk about real estate when, and when, um, what happens when someone passes away or there is a divorce, and I have, um, a lot of Rachel Burns here.

  Rachel is passionate about helping women achieve financial independence after the loss of their partner to death or divorce. She is the founder of True Worth Financial Planning, which offers fee only planning, divorce financial analysis, and individual management Our investment management tailored to the unique needs of newly single women.

  Prior to founding True Worth, Rachel spent 12 years advising affluent families under the top wealth management firms. She's a certified financial planner and certified divorce financial analyst [00:01:00] and has an MBA and a master's in personal financial planning. Thank you for coming on. Thank you so much for having me, Michelle.

  Yeah.

  
  Real Estate Challenges in Divorce

  So, um, as I said, we're going to talk about real estate and what to do when it comes to divorce or, um, a death. And we're kind of talking before the podcast started. I think this is going to pertain more to divorce because with death, uh, things are in place. There's laws in place, whereas divorce, obviously it's, you know, two people are still alive and you're not just inheriting something.

  Uh, am I correct in that assessment, Rachel? Yeah, divorce is kind of like the Wild West. Like, you don't really know how things are gonna, yeah, how things are gonna end up, uh, when it's a house is inherited. It's a, maybe a, maybe a little bit more orderly. Right. Right. And I, yeah, because again, there's like laws in place of things, how, how it's going to go and how you're going to inherit it.

  Whereas, um, Divorce could go any different way. You could own it 2080 or 5050 or, you know, well, it just completely depends on, uh, the [00:02:00] situation. So why is it that you think that this is important at this time, uh, at this, uh, time moment in time? So, um, it's interesting. This is not really something I've, that's come up a ton until interest rates went up so much.

  And I'm not a real estate expert. I just, all of a sudden, once interest rates. I noticed all of these problems it was causing in divorces, because in most of the divorces that I see, there's a house that has to be dealt with. If they own a house, either one person is going to continue to own it, or they're going to sell it and they're going to do something else.

  But because of the rise in interest rates, since they have bought the house, It makes planning and coming up with agreements on how they're going to deal with it. It makes it so much more difficult and it really reduces a lot of the options too. Right, because they can't move anywhere because they're in a house and then it's so much more expensive [00:03:00] to move somewhere else, right?

  Right. Okay.

  
  Creative Solutions for Housing Post-Divorce

  And so are you finding that people are getting more creative with the solutions that they're coming up with? Like keeping the house and having, you know, cause I saw something actually, I was just reading an article last week and I don't remember what they called it, but like the kids stayed in the house and then the parents moved out and then they were nesting.

  Yeah. Is that what that's called? Yeah. Which nesting. nesting. Okay. And so then they would get another place. And so the parents were the ones that moved out. And, but their argument was more that, you know, it's not the kid's fault that we're getting a divorce. So why should we do a complete copy of them so much?

  Yeah. And have them go back and forth. Whereas we're the ones making this decision, which kind of, I mean, yeah, it kind of makes sense. It does. Um, that's not an option that's available for everyone. I see that in wealthier families. I see that in families where they own several houses and they have This is the kid's house.

  And then the parents are going back and forth because otherwise. You're going [00:04:00] to be keeping the house. You're going to have the parents switching back and forth. And then what, there's an apartment that one goes and stays in on the off times. And do you have two apartments? Do you have, does each parent have their own apartment or are they sharing the apartment?

  And how annoying would that be? Right. You get divorced and you're still in your husband, you know, your ex like left the toilet seat up and made, you know, left some rotten. Lettuce in the fridge or something. It's, it's not easy to pull off, but there are, I've, I've worked with some families that were able to pull it off, but these are typically much wealthier families.

  Okay. So what are you seeing, I guess, on the, in the regular world?

  
  Financial Trade-offs in Keeping the House

  So what I see is, um, Usually one person wants to keep the house. That's just what I seem to see more often. And usually it's the wife. And this is especially common when there are underage kids still living at home and the wife will want to keep the house.

  And maybe the husband is okay with that. A lot of times the husband's like, whatever, I'll go get another house. But what happens is in order to keep the house, there's two [00:05:00] problems. One is you have to give up something else of equal value in order for it to even out. And sometimes that's not a problem.

  Some couples have a lot of assets and it's like, okay, great. You take the house. I'm going to take this big investment account. We'll call it a day and that's fine. But if there's not, A ton of other assets, or maybe the only other assets are retirement accounts. So maybe it's like, okay, I can keep this house, but I'm not going to have any retirement money in order to keep it.

  And then maybe you can work it out for now. Maybe they can swing it, but then later. They don't have any retirement savings already and then maybe the cost of upkeep, you know, keeping the house means that they can't save additional money for retirement. So then they're in really bad shape in the long run.

  Yeah. Yeah. And you don't want to give up your retirement account. I've seen people do that or where they're going through divorce and they're just like, whatever, just let him have it. Cause mostly I've been friends with women, right? Well, just let him [00:06:00] have it. And I'm like, no, no, you don't know. Don't bury your head in the sand.

  You need to like, make sure you're getting a fair deal here, you know, because that could really come back to bite you in like 20 years. Absolutely. And I see that a lot. And yeah. I think part of it is an emotional thing. They're, they're just like, I don't want to disrupt the kids, you know, and that I, I get that.

  And that's an honorable thing, but you have to understand the cost of doing that. And, um, sometimes it's not, sometimes it's just not affordable to keep the house. And. Maybe you can swing it technically, but you're going to feel the consequences of that at some point. And, you know, your kids, kids are resilient.

  I'm not a parenting expert by any means, but I feel like the amount of discomfort or, um, stress by moving is one thing, but then having, you know, as a, as a kid, and then having your parents [00:07:00] grow up to be in really bad financial shape so that you might have to support your parents. Well, and the stress that comes from that too, that they're stressed out about money.

  What are you teaching them? Yeah. Right. The day to day. Right. So it's like, well, what's better? Is it better to keep them in the same house or is it better to have everyone be more, have more financial Right. Strength later on. Yeah. Right. And to not be so stressed out about it. Yeah. Okay. So are you, so it's basically, it's getting more complicated when you're coming to the, so are there things that people can do to prepare for this?

  I mean, I guess you're never really preparing for a divorce. It's not like a death that you know is gonna come. Um, yeah, it is hard. It's hard to prepare for divorce and, uh, whether you know what's coming or whether you're blindsided, you're, you're still going to have these decisions that need to be made and these trade offs that need to be made.

  And what I would say like to anyone who is considering it or who's in the, you know, in the beginning stages of their divorce is you just have to be [00:08:00] realistic because Times have changed. Lots of things have changed. Your relationship has changed. The world has changed. Interest rates have changed. Um, things that may have been an option for you at one point might not be an option right now.

  And maybe later down the line, there will be more options. So it's not the end of the world. But you might have to consider a scenario that you didn't consider before. And maybe that means not keeping the house, or maybe that means downsizing or something else that maybe isn't ideal, but is going to be.

  put you in a better position in the long run. So I think my only advice is be as open minded as you can and don't go into that fight like fighting for something that you can't actually afford to keep. Yeah, that you're holding on to something that probably needs to be let go. Yeah, and bring something and everything is temporary, right?

  I mean, even if you have to [00:09:00] downsize and they both move into a condo, let's say, which is probably pretty realistic in today's day, right? That it's not forever. I mean, it just might be for a couple of years. It might be for four or five years, right? Because things will continue to change and interest rates might drop.

  And you know, the, the housing market might. Who knows what's going to happen with that. Things, things will absolutely change. We don't know in what direction they're going to change, but, um, yeah, it's not, it's not the end of the world. And so I, well, I would imagine that you're coaching people through this.

  I mean, I can't imagine, you know, I've, I've, I wouldn't say interviewed. I've been friends with some divorce lawyers before, and they're like, people are nuts. They just go crazy, you know? So as a lot of what you do, is it just, you know, listening and giving advice and trying to maintain your. Uh, level headedness through all of it.

  Yeah. You're probably just dealing with one. You're either dealing with the husband or the wife, right? Not both of them. I just deal with one side. There are, [00:10:00] uh, divorce financial analysts who are neutrals who work with both sides, but I don't do that. I just work with the one side. And so I deal with a lot of emotions.

  And I'm not a therapist, but I do understand how emotions influence financial decisions. And especially, especially, especially working so much with divorce, emotions impact those decisions in kind of predictable ways. And I see it over and over and over again. And so when someone is like, I need to keep the house because I need to keep the house and I don't want, you know, whatever, I get that and I honor that.

  But I. I kind of know where they're coming from and I try to separate the rational logical part from the emotional part and I try to like attack each piece. Okay. Appropriately.

  
  Navigating Refinancing and Mortgage Issues

  And then I try to just Show people their options, because [00:11:00] if someone really wants to keep the house and they don't really know what that entails, I'm like, well, here's what has to happen.

  Your ex has to come off the mortgage. And for most people, that means refinancing. Some people are lucky enough to be able to just remove a person like they have an assumable mortgage, but that's not that common. So you're going to have to refinance. Which means, um, Is it an assumable mortgage? Would that only be, well, they're not very much.

  I mean, I think the VA loans you can assume, but then they're not any of the government loans. You can't assume any. I don't think so. I only have a couple of clients who are able to actually do that. Okay, and that means that they can take over the rate and they don't have to refinance it. Basically, it's like they take over the existing loan as is nothing changes.

  It's just one person gets taken off. Okay. But for everyone else, there has to be a whole new loan and they have to Qualify based on their income based on their credit. And [00:12:00] then they've got whatever interest rate is the current market rate, which is for a lot of people is a lot higher than what they had before.

  A lot of people that I'm meeting was bought at the perfect time. I mean, interest rates were really low for a long time, which was really great, but. It's not, that's not a forever thing. Um, and so what's happening is there when they refinance or when they're looking at refinancing, they're like, my payment is going to be twice as much as it was before.

  And I absolutely can't afford that. And that's a really big shock for them. Well, and it's twice as much too, because you're not only refinancing the portion that was already in the mortgage, but you're having to take out money, right. To pay off the other spouse. And is that how most people do it? Yeah. So, so there's a couple of ways you do it.

  Uh, so sometimes they'll, they'll do like a cash out refinance where they'll not only borrow the same amount they borrowed before, but they'll take out more so that they can pay off their ex for the, their [00:13:00] ex's share. Or ideally, if they have other assets, They've got investment accounts or maybe they have another property or they've got cash somewhere and they're like, maybe they can offset it with other assets and that's ideal.

  And then they can just keep, they would have whatever the same loan balance was, but it would be at a different, at a higher rate. Um, but a lot of times there's just not enough assets to do that. Um, and because most people have money in their retirement accounts and that's how they would pay somebody off, right?

  Yeah. But it's really expensive if you have 401k to get the lawyers. It's called a quadro, everybody. Uh, it's a qualified domestic relations or relations order. Okay. I can't believe I ever pulled that out of the hat. Um, so they're really expensive to get. So it's basically a calculation that a lawyer does and then you hand it off to your 401k and then they split it off and it's, it's, it's a pain.

  I mean, even, yeah, even if you have it made, then submitting it to the company and having them [00:14:00] actually understand it and split it, it's, it takes months. Yeah. Yeah. Even if it makes sense for you to be able to do that, even if there's enough money in the retirement to where your part is going to be. You know, you're still going to have enough, there's still this process and the quadros each quadro document costs several hundred dollars.

  And if you're splitting multiple retirement accounts, it's several hundred dollars per account. And then there's this whole process where it has to get approved by the court and then it has to come back to the plan administrator. And it takes several months and it requires the cooperation of the ex too.

  Like they might have to sign off on things. I'm going through that with a client right now. where the X is just being, just not wanting to sign the documents to get the quadro done. And so it's not like, Oh, I'll just take money out of retirement to pay you off. It's not as simple as that. And then you've got taxes too.

  Your retirement accounts are probably pre tax and you're going to have to pay taxes on that money. And at least When you're getting divorced, there is a, [00:15:00] um, way around the 10 percent penalty if you're under 59 and a half, but there's a special process for that to get money out without penalty, but you're still going to have to pay taxes either way.

  So there's no perfect, um, solution in this situation. It's just, it's just a matter of which of these scenarios is going to work best. So you have to pay income taxes because you've never paid taxes on it, but you don't have to pay the penalties of taking it out before 50. If you do it correctly. Yeah.

  Okay. I see it not done correctly fairly often, and they lose that opportunity to get money out penalty free. Yeah. But if you do it right. If you come to me first, that's what everybody says, every lawyer that I've had on here is like, if you would have just come to me earlier, everybody says you gotta come, you gotta be proactive.

  Okay, so I want to back up a little bit to what you were saying about, um, having to, so when you're refinancing the house and you're having to requalify or qualify again for your same house.

  
  Credit and Financial Preparedness in Divorce

  Uh, [00:16:00] I think it's important because what happens a lot is when you are in a marriage, there's a, there's one spouse that is like doing all the finances, all the credit cards are in their name.

  Yeah. You know, that kind of thing. Uh, and it's, that's not a good thing. You know, you need to always be making sure that your credit is good and that you still have things on your credit. Right. And you're keeping up with it. Now, do you see a lot of that where like their credit score isn't good or that they don't have any savings accounts because the husband was saving and everything or whoever was working was just saving money inside of their retirement accounts?

  Yeah. Credit is a, is an issue in divorce for several reasons. A lot, a lot of times, like you said, things were in one person's name and not the other. And maybe one spouse just doesn't have credit because nothing was in their name, or maybe that spouse has bad credit, or maybe they all had bad credit. Um, and so what happens is when, once they're going through a divorce, They haven't even looked at their credit in so long [00:17:00] and they look and they're like, Oh, this is not what I was expecting.

  This is not as good as I was expecting or whatever. Um, and so it's really important as soon as you know, you're getting divorced, I think to run a credit report on yourself, um, and, and understand what loans you have in your name, what credit cards you have in your name. Sometimes there are things on your credit report that you're not even aware of because your spouse might've Who knows, taking things out under your name.

  And so it's really good to know, you know, what do I have outstanding? And also just what's my credit score look like? Okay. It's really important. Okay. Cause it can just be cause people think it'll just be easy sailing basically. And then it's not because they've got bad credit. Yeah. Or sometimes it's the other way around.

  Sometimes they think, Oh, it's going to be terrible. And then it's great. You just have to know, you just have to check. Cause if you haven't checked your credit in a long time, there can be some surprises on there and there can be mistakes on there too. And you can have them corrected, but either way you got, you have to know.

  Okay. [00:18:00]

  
  The Importance of Financial Awareness in Marriage

  Yeah. And I think it's, that's what happens a lot is they're just like, Oh, I'm married, whatever, you know, so and so's got it. I don't, I can just stick my head in the sand, but I just don't think that you can ever do that. Um, no matter if you're married or not, or make a ton of money. I mean, even if you make a ton of money, I think you still need to be paying attention to where everything is going and not even just your credit, but your savings accounts and where all your accounts are.

  
  Common Financial Issues in Relationships

  Do you see a lot where people don't even know what they have? Yeah. Like they, they, they're just hoping that the other, the other spouse, that their ex is reporting it correctly of all these accounts. It's really, really common. And sometimes it can, it can happen for a few reasons. It could be like one person is just not interested in participating in that and they delegate it to their spouse.

  And that's, that's fine. Um, sometimes one spouse intentionally keeps the other one out of the financial stuff because. There might be something in there that they don't want to be uncovered either [00:19:00] in a fair or gambling or lots of debt or something. So it's really, really common that one person is more involved and sometimes one person is not involved at all.

  And that works fine.

  
  The Consequences of Financial Ignorance

  And as long as things are going perfectly well, but as soon as there's a divorce, someone passes away, someone gets really sick, there's all sorts of things that can happen and probably will happen. I mean, chances are if you're married, something is going to happen at some point, someone's going to die or someone's going to get sick or you're going to get divorced or something.

  And the other person is going to need to step up and take over the financial stuff. And if you haven't done that in decades. Think of how much extra stress you will be causing yourself in addition to whatever stressful thing caused you to not be with that person to begin with. Exactly. Exactly. And how many years it's going to take you to understand the logistics of the accounts and how they go together.

  Not only [00:20:00] just how to log in, but you know, this one is transferring money to this one on a monthly basis or, you know, whatever. that they've got it all set up. Yeah. Yeah. It's just never good to stick your head in the sand people at it like I understand that finances aren't for everyone. Like not everyone is really interested in this.

  
  Preparing for Financial Independence

  Like there are plenty of things that I'm not interested in, but I like to delegate, umm, but finances are something that are so fundamental and impact everyone. And. You don't have to become an expert and you don't have to do everything yourself, but I think you should have a minimum level of involvement and understanding with your own financial situation and if you have a partner with their financial situation.

  Because there's a very good chance that at some point you're going to be called upon to. Right. Yeah. Deal or do something with it. Yeah. And you're going to need to log into the accounts or at least know where things are so that you can pay bills or stop a [00:21:00] draft or whatever needs to happen there. Um, and I think it's really important too.

  I mean, there's a lot of things where I'll open an account and just say, Hey, I'm just sending this to you. Like I bought some I bonds a couple years ago when they were paying so much and I just sent the email to my husband. I was like, Hey, you need to know this is here. This could be, you know, something happened to me.

  This could get lost in the ethers. Um, or having like a spreadsheet or something like that where you're reviewing them. Uh, and I'm definitely not an expert. Like I, have such a good financial relationship with my husband that we don't argue about my, you know, all. So that is such like another world for me.

  I don't deal with people that have issues with that or, you know, or even divorce. Uh, but it is something that I stress to people that, you know, you guys all need to know, you know, what's going on. Is there anything that you would suggest that people do for the, so that they know what's going on? Oh, I would say that, um, It's not uncommon that finances are an [00:22:00] uncomfortable subject.

  With their spouse, either. I don't know that that's just like a tender subject and people can kind of flare up when, when that's discussed. And I think that prevents people from having the conversations. And that's when it turns into a problem later on. And I get that and I don't know the best advice to like, have that conversation.

  More open conversations with your spouse, but like I, when, if, if I have a, uh, someone that I'm working with that is like, I, I don't know, like we, we can't have those conversations. It's just too awkward or too weird. I'm like, that's, that sounds kind of like a couples therapy type situation. Like that's maybe it's not just the finances that are the issue.

  Like, yeah. There needs to be, you might need some help in facilitating conversations. Exactly. Yeah. Conversations in general. Yeah. And having hard conversations. Yeah. Because if you give up the money [00:23:00] piece of it, you're giving up so much of your power of being able to stand on your own two legs. I mean, really, if you, if you think about it that way, uh, and when you don't have the knowledge or the, and you're not involved in the finances, then it just makes you that much weaker.

  And then if you are wanting a divorce or something does happen with a death, then you're, yeah, as you said, you're just, It's so much worse off than having that kind of tidied up, I guess.

  
  Addressing Financial Concerns Before Divorce

  And I have a lot of people reach out to me before anything is filed and they're just thinking about divorce, but they'll reach out to me and ask, can I afford to get divorced?

  They'll, they'll be like, I really want to get divorced, but I don't know if I can. And I'm like, what do you mean can? Like, And it's just, will I be able to survive financially if I get divorced? And that's a, that's a sad and scary thing that someone is trapped in this really unhappy relationship because they feel like they truly have no other options.[00:24:00]

  And a lot of times, There are other options. You just need a little bit of education. Um, and, but I, I have a lot of people call me and ask me about that. And I'm like, wow. So what is their concern that they wouldn't be able to afford a place to live? I could see that. Yeah. Um, they, they worry that. They can't find a place to live.

  They worry that they won't have any income.

  
  Misconceptions About Post-Divorce Finances

  They, they make these assumptions or maybe their ex tells them like, you wouldn't get a dime of child support from me or, you know, all the retirement accounts are mine. They, a lot of times there's some misconceptions about how the finances would be split. And so they think they're going to have no money and they're going to have to go back to work full time and maybe they have little kids and they think, Oh, it's not possible.

  It's kind of like their imagination can run wild sometimes. And a lot of times I'm like, that's not how that's going to work. This is how things are typically split. This is what, you might expect to get and they're like, Oh, [00:25:00] that's so much better than I was expecting. Okay. I thought it was more, am I going to be able to maintain my lifestyle?

  Like when they were saying that, you know, um, are they going to be able to, obviously maybe they're not gonna be able to stay in the same house, but what if you can't go get your hair done at the same rate or, you know, those kinds of things, it would be such a change in lifestyle. That would some people not go divorce because of that, I guess.

  I, in my experience, you know, that's a, that's a consideration and that's something that people are aware of, but I typically don't hear people say, Oh, well, I can't maintain the vacations and Botox and the whatever, like a lot of times they, they understand what they're giving up, but they're by the point that they're talking to me, usually they're like, yeah, that's fine.

  Let's do this. Like, it's like, I gotta get out of here. Yeah. I just, I personally don't like in my experience, I haven't had too many people who were like, [00:26:00] oh no, I really want to be able to keep doing these, you know, um, Expensive things. Okay. Usually they're kind of, they're just so over it by the time. Okay.

  
  The Role of Flexibility in Divorce

  Well, from the, from just like, I guess, giving a synopsis of what you're saying, it sounds like if you're going through a divorce, I mean, you really need to be flexible. You need to be flexible in your thinking. You need to be flexible in what your new life is going to look like and going into a divorce saying, I'm definitely going to stay in this house.

  I'm definitely going to, you know, any of that. You need to really say, I'm kind of throwing this up in the air and seeing how it's going to land. Yeah, I would say people on average do not understand how the financial process of divorce works. It is a very complicated, mysterious process. And, um, most people don't know how it works.

  Most people don't understand or wouldn't be able to even reasonably predict what life would look like on the other end. And so it's this [00:27:00] going into this. Big mysterious cloud that they have no idea how things are going to turn out. But then if you have these rigid requirements, like I need to have this much income, or I need to have this house, or I need to do this, you don't know what things are going to be like once you get into it.

  And so I think having flexibility. Is really key. Well, and it seems like if you're really rigid about all of that, then you would drag it out because yeah, you wouldn't be willing to negotiate really. And you have to be willing to negotiate on everything. And things will take longer and attorney fees will increase exponentially and everyone will be pissed and it.

  
  Working with Attorneys and Financial Experts

  Like, so are you, are you working with the attorneys too? Sometimes. Okay. So you like, you guys need to work in tandem, like, like here's these accounts that we've gotta split up or something like that? Yeah, yeah. I work with people who are unrepresented, who are in mediation, [00:28:00] who have attorneys, and sometimes I get brought in by the attorneys or, or to work alongside the attorneys.

  You know, when they're looking at different scenarios, I look at the numbers and say, yeah, that might look fair, but this. isn't really great in, in the client's long term, or this isn't actually as good as it looks because this is taxed differently. So it's typically like value divorces that I get pulled in with the attorney, but, um, I can evaluate different proposals.

  Yeah. So the attorney could give the proposal and then you're basically translating it to real life of what are the taxes? How are you going to be able to live on this? Are you going to be able to retire on this? You know, are you really going to be able to save and you're kind of where the tire meets the road of the every day?

  Okay. That sounds like a wonderful service as you're going through a divorce.

  
  Handling Finances After a Death

  I mean, cause you, I mean, I can imagine it would just be so stressful and even a death, right? I mean, you're just so stressful, stressed that you need someone to be able to tell you [00:29:00] it's going to be okay. Or what? It's not even okay.

  Just like you need the truth of what it is. And then you can deal with it. Yeah. Yeah. I think so. I think, um, You know, I, I deal with people who are going through difficult things and I help them with the math, you know, the, the part that I help with is, is actually not emotional, not, you know, it's, it's fairly cut and dry that part that I help with, but I, um, Attuned to, you know, I dunno, I, I, I specialize in people who are going through difficult things for a reason.

  And I like to be able to help. It's like, well, let me help with this part. I can make this part easy. You already have a lot of really difficult stuff you're dealing with. Let me make this simple for you and easy and like, take it off your plate so that you can deal with the other stuff. And I, like, when I think about my own wife, like just the other day, I was talking to someone about.[00:30:00]

  Care for my dad who has some cognitive stuff and like, this is like really cut and dry insurance stuff and facts and numbers and stuff, but it's got so much of my emotion wrapped around it. And I can't understand the little pieces because I'm too wrapped up in the other stuff. And I really appreciated this professional who dealt with that specific situation, who is an expert in the, numbers and the facts and stuff, but could help guide me through the emotional stuff.

  And I was like, Oh, that's kind of like what I do, but with divorce. And I was like, I, that guy was really helpful. I hope that I'm as helpful as that. Yeah, no, I get it because it's, it just gets so overwhelming and it's almost like people just can't. Yeah, there's just so much going on that it's like when, if someone can just give me a synopsis of, is this going to be okay?

  Okay, great. Then I can put that aside and I can worry about all this other stuff. Yeah. Yeah. And I have dealt [00:31:00] with some deaths. And so I get that, that that's, you know, um, you know, people get life insurance and how do I get it? And, you know, they're just going through all the accounts. And so if they have someone that can help them with that, um, it's just such a huge weight off of their shoulders.

  So, um, yeah, I, I think it's worth it for sure. People are very grateful for it with the death stuff specifically. Yeah. There is so much administrative work that has to be done when someone passes away. It's really mind boggling. Even if, even if they're not a super wealthy person, even if they don't have a super complicated situation, it's, and I just like, I, for the people that I get involved with, I'm on the phone calling the death department, you know, financial institutions, and I'm dealing with them and I have to call the same number 20 times to follow up.

  Did you get the paperwork? Did you do the check on the way? And [00:32:00] I know it is a part time job. Yeah. Yeah. And I know that I have to follow up a million times and I know that I have to ask the question in the exact right way. And I know, I know the tricks. But I think about the people that are dealing with that with no help.

  That is exactly what I think about. Yep. And these people in these service departments are rude or they drop the ball. And I'm like, this is so miserable, such a miserable experience. And to be subjecting people who are already going through this tremendous loss and then make them deal with the most annoying administrative headache they've ever experienced.

  Yeah, and the service people don't want to offer help. I mean, you're right. You have to ask the questions in a certain way. And when I'm on like a three way call with a client and I'm asking questions like, Oh, I never would have thought like you have to hold their feet to the fire and say, what is the next step?

  Are you going to turn this in? Are you going to, you know, you really do need to know exactly how to ask and you need to push them because we know, [00:33:00] well, you and I know more than the person at the service center. And so, you know, we have to go in with that of we're just trying to get past all of this paperwork mumbo jumbo, uh, so that my client, I've got one now, she's not a client, she's a friend of my friend's, my friend's mom, and, um, she's on a very limited income, and so I have offered to help them with these annuities, and it's been four months of this back and forth, and all they do is say, oh, you filled this out wrong, well, we called and filled it out with you on the phone.

  So how did I fill this out wrong? You know, so it's just all of this. And I do think about that. Like, what would they do if we weren't here to help them? I mean, they just kind of let it go by the wayside. And then two years later, it's like, okay, I'm going to figure this out now. It's just, it's not fair, honestly.

  It's not. Yeah. It's not. Yeah. It infuriates me and, uh, makes me want to scream at them sometimes, but. Sometimes I get really mad and sometimes I'm, sometimes I'm not very nice on the phone. Oh, absolutely. But you have to really deserve it. Yeah. [00:34:00] Yeah, they do. And sometimes these clients are like, I don't know how you kept your cool.

  I'm like, I know. I don't, I'm just used to it. This is my everyday. So, yeah. Yeah. Yeah. I get it. Um, so are we missing anything about you feel like with divorce and death or preparing for anything?

  
  Final Thoughts and Advice

  Um, I mean, I really, it's like being flexible in divorce and then with death, it's knowing where everything is.

  Yeah. And I just think no matter what your situation, no matter what your relationship status, no matter what your interest level in financial stuff is, just have a minimum awareness. It's going to make your life a lot easier and it's not as, it's not as overwhelming a task as I think it sounds because people hear about, I mean, if you think about all the financial stuff that you hear in the news, it's like Bitcoin or, you know, I don't know.

  It's like complicated stuff that gets a lot of [00:35:00] attention or exotic stuff that gets a lot of attention. I'm like, you don't need to worry about any of that stuff. This is really basic stuff. This is like, what do I own? Where is it? What website do I go to? What website? What's my login? And if you can't get in with your login, that's okay.

  You're not going to get locked out. Right. Some people just get so frustrated. Like, I can't remember my password. I'm like, it's okay. That's a, that's a, that's an overcomable. Yeah. We can figure that out. We just need to know that you have the account there and we'll be able to call. And you know, as long as you have people's social security numbers and yeah, some information, you can figure it out.

  Yeah. And everything is figureoutable. But you definitely have to start. But if you have like a, at least an area to start with, that helps tremendously. Uh, and on the death thing, I always tell people like, even when they're super versed and they don't need my help and it's just a friend I'm talking to, I'm like, you got to give it six months.

  I'm like, no, no, my grandma was super, you know, organized and all of this stuff has already transferred. I'm [00:36:00] like, mark my words. It's going to take six months. It'll at least take six months for you to figure out, there'll always be one little thing that's just like lingering. Yeah, yeah, I was just talking to a client about this this morning actually, like, her mom had a trust, had met with an estate planner, done all this stuff, and it's still complicated because some things had changed since she hadn't made her trust, and some things weren't updated as they should, and there are complications.

  That stuff moves so slow, like so slow, so slow. And if I could just talk to call and talk to legal, like right away, you know, I just want to call and be like, can I just talk to your legal department, please? You know, cause it just gets it so much faster, but yeah, yeah, it does take a while, but, um, okay. Well, thank you so much for being on the show.

  I hope that this helped all of you guys and just having an inkling or actually just a conversation. It's just motivating you to talk to your spouse about your finances and to get in there and it doesn't need to be huge about like, how much are we going to spend on this, this, this, just where [00:37:00] is everything and how do we access it?

  Um, and, and then you could maybe get into how much are we saving, but I think, um, this kind of thing of just knowing where it is, um, can just help you tremendously. Well, Rachel, I thank you so much for being on the show. It's been a pleasure talking to you and, uh, so much. As I said, maybe we can do a show later because I haven't had another advisor on the show.

  So it's kind of nice to do a little powwow about frustration on the phone. Okay, guys, thank you so much for listening. Be sure to tell your friends if you enjoyed the episode and I hope you have a great day.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

The Basic of Alternative Investments

Are you looking to diversify outside the stock market? Alternative investments might be the answer you're looking for. Investing in buildings, apartments or even employee stock options aren't just for the ultra-wealthy, you can have access to these funds from almost anywhere. In this episode, I explain how alternative asset funds work and how they can be added to your portfolio to reduce volatility.

I also cover:

• How to do your due diligence on these investments

• Strategies and considerations for individuals

• Litmus tests you can have when reviewing & red flags to watch out for

• I break down what makes a good fee structure

Time Stamps

00:13 Why Discuss Alternative Investments?

01:33 Understanding Reg D Private Placements

02:32 The Role of Advisors and Sales Channels

09:07 Investment Minimums and Market Timing

12:10 Evaluating Investment Opportunities

15:56 The Importance of Due Diligence

23:07 Hard Money Lending vs. Funds

27:51 Final Thoughts and Recommendations

• Transcript

  Welcome to me financial the podcast designed to inspire your financial life. Hello everyone. And welcome to the podcast.

  I am Michelle Moses, your host, and today we are going to be doing a deep dive on alternative investments. I want to do this topic because. I've had some people listening to the podcast and then they say, Oh, hey, you know, I want to hear more about the alternative investments, or I was actually just talking to a friend this weekend.

  And he was asking, um, about some of these, um, projects that he's seen around town. They were talking about how private equity. had developed these projects and he was like, well, how do I get in on this? Like, why am I just hearing about this now? And then we got into this huge conversation about alternative investments.

  Um, so I want to get into some details. I know I had an episode early on about it and. honestly, it was fine. I just wasn't as good of a podcaster. I've gotten a little bit better and I want to do a deep dive on this. Whereas in that other episode, I talked about, uh, you know, different types of things that you could do with them.

  You know, the real estate and the commer the different types of commercial real estate that you could do. But this time I want to really get into some of these deals because you can find them online. Um, there are websites that you can go to and find them. So I'd like to go over them just So that you know how they work, um, the fees that are involved and you know, just so that you know more about them.

  And um, I do think it's important that we understand that these alternative investments, a lot of them that I'm going to talk about are for people that are called accredited investors and that's if you make over 200, 000, I have a million dollars of net worth. And even if you're listening and you're like, that's just not me.

  I do think this would still be interesting because this is how, uh, people, a lot of people invest in whether the, if they're not just doing like hard money lending for things, which would mean that they're just loaning their money for different, um, projects around, you know, the country that they are investing in these, uh, Types of investments, and they are called Reg D, regulation, D private placements.

  And Reg D is really just a government, uh, law, you know, it's the name of the law. And, uh, so that's what we call 'em is private placements offerings. Uh, yeah. And as I said, reg D private placements. So the, I wanna get into some of the details of them. I love them.

  This is honestly what makes me stand out as an advisor, is that I not only do like the.

  The stock market portion of stuff, you know, like managing 401ks and IRAs and things, but I couple everybody's investments with these alternative investments if I can, because it diversifies them outside of the stock market and I love them and I actually find them way more exciting and if I could do them, I would.

  All the time I would. So let's get started. Uh, I already kind of talked about how they're reg D private placements and you have to be an accredited investor to get into most of them. With that, there is a caveat. There is a, a regulation called a plus, It is not very popular, but it does allow people that make under those thresholds to get into some of these investments.

  They are a little bit more complicated, and honestly, you don't see a lot of them because it costs so much to do the legal paperwork. I mean, it costs hundreds of thousands of dollars to launch these investments in order to sell them to all of these people. And the reason that people put these investments together is because they're like, I'm going to use hotels.

  I want to buy all these hotels, and I want to raise money from, you know, hundreds of different investors to do it. And there are regulations in place that if you are going to raise money by more than, I believe it's five people, then you are going to need to put together a fund. And if you're going to put together a fund, then you've got to have all these disclosure documents and the offering documents, I should say.

  And you need to register it with the SAC. Uh, you know, there's all kinds of legal things and hoops that you need to go through. And then what happens is they basically hire a selling team and they'll go around to people like me or they'll sell it directly if they've got clients. It just depends on how the fund is set up.

  Sometimes they will go to the advisor channel and then other times they're just going to go straight to kind of the private equity channel. And what that means is that, you know, these people are just salespeople and they'll call, you know, different offices of people that make a lot of money. And a lot of times those people will just chat and say, Hey, look at this deal.

  I mean, these things can range from investing in a new appliance, you know, different things for houses, different technologies. Uh, cannabis was a huge one. Uh, and most of the ones that I deal with are oil and gas and real estate. Now, personally, I don't do a lot of oil and gas anymore just because it has gone up and down and I have lost my shirt on it a couple of times and I mean in stock.

  And then I did have a client, one client invest in oil and gas and he lost everything. So these types of investments, the reason that they. Our four accredited investors only is because you can lose everything. I mean, it's, you need to think of it as you are investing with this company or with this person.

  'cause sometimes there's just one person that's putting together a fund and you need to make sure that you can trust them because they are fundraising for their project. And if you give them money, and then I mean, theoretically, they could just skip town and move across the world, and you would never see your money again.

  So these types of things are really, again, for experienced investors that know how to look at deals. or you need to be connected with someone like myself that can then sell you these types of deals. And you are going to see these like if you were, um, you know, so I'm independent. Okay, so I'm what's called the registered investment advisor channel.

  There is a whole nother channel that's called the broker dealer channel. I make fees, they make commissions, and the only difference is that they have another company that's above them, and they are the ones that are reviewing all of these deals, and then they're saying, hey Joe, hey Sally, you guys are allowed to sell this, but the difference is, is that company is then taking, um, part of the fees, and so they're taking part of the fees, and these, and these funds will pay to get on their platforms, and then, you know, Sally and Joe can then go sell it to all of their clients.

  Whereas they're coming, you know, the fund sponsors are coming directly to me and they're saying, Hey, Michelle, will you sell this to your clients? And because of that, then I can offer people a discount. And so that's why this is so popular with my clients also is that I don't make commissions. And so they get a discount on a lot of these funds that they're offering.

  They're investing in. Okay. So that is kind of why people would do it. I guess. , this is gonna get long. I can tell. I love talking about these and I, you know, people, they're gonna stick with real estate in the hotels and they, so they wanna get, they wanna raise money. But you guys, I've seen all kinds of crazy things.

  I gotta, I gotta go off on a tangent. I have been at some of these conferences and this one, so I mean, I've seen people raising money for like one RV park. Uh, there's one, a couple of guys that were raising money for, uh, these like African animals that they were going to sell to all these high net worth individuals that own these ranches.

  And they basically go hunting on these ranches. And so they're just. And, uh, they got eviscerated on stage, but I was just flabbergasted that that was one of the items that we were watching because I go to these conferences. And basically what happens is they come up on stage and they've got, you know, a half hour or whatever it is, and they're just pitching their deals.

  And then you go talk to them afterwards, if you're interested in them. Uh, so it can be anything, but most of the time they are for real estate. and oil and gas. And the real estate can just vary so much. I mean, it can be for restructuring debt on some of these buildings. I mean, a plain boring building that you can see on any side of the road that's for leasing.

  Uh, you know, they call it like mezzanine debt and all these different levels of debt, uh, all the way to, you know, there's hotels, there's retirement communities, all of that. So when they're trying to raise large sums of money and chances are, If you see a apartment complex going up somewhere, this is probably how they raise the money.

  So if you are wondering how, when you're, you're seeing how some of these projects get funded, this is it. If you're seeing in the news, oh, all private equity firms are buying up residential real estate so that they can do short term rentals, this is how they do it. They do it with these alternative investments that I'm talking about, these Reg D private placements.

  So the minimums of these, not only do you need to. I have a minimum salary and net worth. Uh, there are minimums of deposits. And so a lot of times they start at 25, 000. I would say most are 50 and some are like 250, 000. It really kind of depends on the timing of the market. Like sometimes I would say a few years ago, 250 was.

  And sometimes they'll start at those large numbers and then they move down because there's the same amount of paperwork, whether you're investing 50, 000 or you're investing 000. They still have to go through this same onboarding process of getting you in the system and tracking all of your dividends and interest that you make.

  So a lot of times, they'll Start or try with these larger amounts. It just depends on if they're trying to only go for a smaller piece of the pie of investors, or if they're trying to go toward more towards, you know, what you just say, like the retail channel, whereas there's just all kinds of normal people, I guess.

  So when you are going and looking at these things, and I want to tell you about this stuff because there are websites out there. And I think it's important that if you start to look at these websites and you're like, Hey, I want to get into these things, but I don't want to hire somebody like Michelle.

  You can definitely listen to this and you can definitely start looking at deals. There's, um, I only know of one website. I know there's more. It's called, it's one called equity something, but I know there's one, uh, Yieldstreet does this. And so when you sign up, they'll say, are you accredited investor?

  They'll, um, confirm your identity. Kind of like when you sign up for a crypto account, you probably have to give your driver's license, that kind of thing. So that they know that you are a person, just like if you'd have to do with me, I need to verify that you are a person that I have reviewed your finances, uh, before I can sell you these things.

  Otherwise, I could get in a lot of trouble because then you could lose all your money and sue me and then they'd say, Hey, you didn't vet them in these, these investments always have offering documents and they range from, I'd say 150 pages to 350 pages, uh, not light reading at all. Most of the disclosure documents what they call the private placement memorandum, or they call them the offering documents.

  There's so much lingo in these alternative investments. So the, The actual fund itself, you know, it's called the offering. They are offering, the sponsor is offering this to you as a potential investment. So they send these private placement memorandums out and that has all of the details that you need in it.

  And then if you say you want to sign up for it, then you sign up with a subscription agreement, you are subscribing to the offering, um, and. These documents, as I said, are very long. They, uh, are really boring and there's a lot of lingo in there. And most of the time it is, you know, investing in real estate could take a long time and it's very illiquid.

  It's just like boiler plate type stuff that they put into every single fund.

  And I think the key is you've got to look and find where the sweet spots are of where the fees are. And there's usually an executive summary that you can look at and it will tell you who's sponsoring it. Who is how they're raising money, how much money they're raising, how long.

  So that is another, uh, very important point is that these do not last forever. This is not like a mutual fund on the stock market. They are raising money from, you know, January 1st until August of next year. They can extend it. They often will have in there that they have an option to extend it for six months, because if they haven't raised all the money that they want.

  Then they need to keep it open so that they can continue fundraising. But if they're good with the amount of money, then they can close it and then they can go and deploy all of the capital to go purchase houses or hotels or commercial, different types of commercial real estate. Uh, in, in these offering documents, there will also be, you know, what your minimums are.

  Uh, the name of the fund and the objectives and the strategy and obviously that, you know, let's say they are buying the hotels. That's one of my favorite ones. So that's why I keep coming back to it. Uh, is their strategy is to uh, Fund hotels, refinance them and build, you know, two new ones in these different areas.

  So usually, you know, they have a strategy. I saw one that was for an RV, like a luxury RV park one time. And, you know, obviously it went into, we're going to have a hot tub and we're going to have, you know, the different amenities for these participants. And this is what the fee will be, you know, and obviously there's so many, uh, Um, little disclosures in there of, you know, as, as long as the prices stay the same and because we've seen so many changes in real estate prices and so many changes in the, uh, amount that it takes to fund these, uh, or to borrow funds, I should say the interest rates, uh, and then the, I think the most important part obviously are the fees that the sponsor is going to charge and what's called your preferred return and what your expected return is.

  Let's start with a preferred return because it's more fun because that's how much money you're going to make your preferred and not all of them have this, but some of them have what's called preferred return. And what that means is that in order for the sponsor of the fund to make money, They have to not only make you whole, they need to also give you a certain rate of return.

  So a lot of times this is 8, 10, 12%. They have to give you that percent of return before they're going to make money. And then after that, usually there's a split of 80 20, where you make 80 percent and the sponsor makes 20%. And I'm just kind of giving you some of the best funds that I should say. The average return.

  So if you're re if you're reading some of these online and they are way worse than that, then just know that there's better stuff out there. Uh, so the preferred return is how they need to make sure that you are getting made whole and you are also getting your preferred return. So it's kind of like, I wouldn't say guaranteed return.

  That's why they call it preferred, but it is guaranteed if they're going to make, if they sell a hotel. And make so much money on it. You are kind of, you've got your preferred return that's coming back to you. The other thing to look for out for is the fees. And this is honestly where I turned down a lot of things or just even interviewing the sponsor.

  Um, a lot of times I turned down different funds just because, uh, the sponsor is kind of shady, you know, I really go on how open and honest what their track record is. Uh, have they had any issues?

  in their background, because a lot of times when you're looking at these things, there's due diligence reports that you can request.

  And those are, those are reports that lawyers will put together saying whether the fund is, they don't give, they don't say, yes, this is a great fund, but they do say, these are changes that need to be made to the board of directors. These are changes that need to be made that this guy should probably not be managing because he has.

  Um, two different lawsuits against him from other funds that he was in. So they'll do background checks on some of the people that are operating the fund. Uh, and I find that very useful and I'll often talk to them personally just to make sure that they can answer my questions clearly and concisely and that they just know what they're doing and that they have a track record.

  Uh, and again, okay, so back to the fees. Sometimes these fees just get insane, you guys. And I thought that like luxury RV park one was just a home run, but the guy wanted 25, 000 a month as a salary. And he was doing his normal job. So he had his normal job. He was a commercial real estate broker, but he wanted to start this RV park and wanted to put this fund together, but his salary was going to be 25, 000 a month.

  So basically you're investing 50. He's going to take half of it every month. To for his salary. And I was just like, no way. Um, so a lot of times I won't invest in things unless they have skin in the game. So that to me is not having skin in the game. If he was going to invest, you know, 2 million of his own money and not take a salary until it made money.

  Okay. Then, you know, cool. Then I think my, my clients would be covered because it's your cash. You should be getting something for it. They're not really taking any risk. I mean, the only risk that they've, they've taken is. lawyers to come up with these documents and then get a sales team. So I don't think anybody really goes into it very lightly.

  But at the same time, they build in a lot of these fees. So you could have like an acquisition fee, a lot of times you'll see those where they're going and like, They're going to find, um, the properties, so there's an acquisition fee and, uh, there's just fee after fee after fee and you just want to make sure that you understand what each one of those are for and that they're not overlapping, because a lot of times they'll make enough in those fees to make it worthwhile for them to have the fund.

  And then they can make money on the end, like what I was saying, the 80 20 after you're made whole, because they're making so many thousands of dollars on these fees, just for finding it as if they would selling it to anybody else, right? Just like you, you, the fund are their client buying this piece of property.

  And so they would make a fee or a commission off of that, just, you know, like they would in every day. But then when they build in other fees on top of that, that's where I really start to question it because why isn't it? No, let's make the building make some money and then you could make off the off the other end of it.

  Then you'll make the 20 percent or 30 percent or whatever you've got built in there. So that's kind of my litmus test. Um, I really haven't invested in deals other than that, unless they've got money and skin in the game. Uh, I've invested in another one where they had a lot of friends and family in it. I mean, like when I first invested with this hotel group, it was, I honestly want to say it was like 30 or 40 percent of friends and family.

  And to me, you're, you know, you got your own money in, but you also got your moms and your uncles and you know, those types of things. You got those, you're not going to let that go south. So, as I said at the beginning, you know, these people could fundraise and then skip town. And so, but if they've got their own money in.

  Uh, then, you know, I know that they've got skin in the game and they're more likely to make it work. Um, the other thing that I watch out for is, are they allowed to purchase, uh, real estate outside of the fund? And how does that work? Is it just good faith? Is it, um, that the fund is their number one priority and then this other job is, you know, or they're working for other people that also needs to be disclosed because they could find an amazing property and go, Oh, I'm just going to do this myself and I'm not going to put it in the fund.

  So you see how there could be, um, uh, there could be some, um, conflicts of interest there. And that's exactly what that's called, uh, is when you're reading this disclosure documents, it will say what their conflicts of interest are and if they can purchase outside. And usually there are, um, which is why I like to talk to the fund manager and see what they've got going on.

  Um, I think that is about. It on the details of these alternative investments. As I said, um, a lot of these come across my desk. I read a ton of them. Um, and a lot of times what I'll do is I'll get the due diligence reports, and if you guys are interested in doing these and you are looking at the websites online, I just really urge you to again, do your due diligence and, and look at it and talk to someone.

  And learn, it might be just a great way to learn. And the only way you really learn is by doing these. My clients love these alternative investments. Um, they're always like, man, we should have done more of these. We should have done sooner. Uh, and a lot of times we'll just get started with one at 50, 000 so that they can see what it's like.

  I think the good funds, they'll do newsletters. They will let you know what's going on with all the different properties, they'll take pictures, uh, they'll send different email updates every quarter, every six months, it depends on how busy they are. I mean, there are funds where you are building the buildings.

  So obviously that is a very long lead time. I mean, cause they raise the money and then they're going out and buying the land. And then they've got to get all the permits and then they have to build, you know, so it is many years until people can start moving into those apartments or to those long term care facilities.

  And that is kind of boring for some people. And I don't recommend that you do those for your very first ones, because you're going to want more feedback. You're going to want to see. See some more things. That's why some of these hotels and some of the commercial buildings that have leases are better because people are paying their rents.

  People are paying to stay at the rooms, and so then you are making your dividends and interest based on what those properties are bringing in, and they have a lot more going on for their newsletters for you to see what's going on. So you really are investing in a business and you're investing with this person.

  Uh, and you just need to make sure that they have a track record, that you trust them, uh, maybe they're a referral from another friend, uh, although I don't know about that. I, I know some people that got burned big, big, big time by just doing the referral from another friend thing. Uh, you really do need to know what you're, what's happening.

  And, and, And honestly, I say no to deals just because it doesn't feel right. Like there have been so many that I'm like, man, this just like looks right. And it just doesn't, it just doesn't feel right. There's something off or they're not getting paid enough. So let me give an example.

  I know I'm kind of going on about this, but let me give an example about this hard money lending has been, I have had people knocking down my door the last six months about hard money lending.

  And that basically, that means take your cash. And let's loan it out to these people flipping houses and they're doing it in like Oklahoma and Alabama and all these places where you can find cheap housing still, there is one where you're going to put your money into a fund and then people make eight to 11%.

  So you put it in the fund then owns the house. The other one is where you actually lend on an actual house in your name or the name of your trust would be on the actual documents that are at the title company, you know, the loan docs, you are the lender, you're the bank, those you're making, um, you know, nine to 11%.

  So you're over here and you've got a fund where you're making eight to 11, or you've got your name on a house.

  I'm going with the name on the house, the hard money lending, even though it is a little bit harder because you have to go to the bank and actually wire the money and you need to review the house. If you wanted to, obviously you would when you were first doing it, but you'd probably get to trust people as time went on.

  But I would definitely recommend this hard money one versus this other hard money fund. Because you're going to make the same amount, but you're actually having your name on the house. So if something goes wrong, then you foreclose on the house and you own the actual house versus the fund. If something goes wrong, then you're still making your eight to 11.

  But what if something goes wrong, like in the whole country? Then, you know, the fund could seize up and you could just be sitting there waiting, hoping that these people are managing it correctly and hoping that they know how to manage it correctly. And so for me, it was just much more simpler to go with the straight hard money lending versus going with the fund, because you're not, you're not You're not making more for the extra risk that you're taking of having that extra person in the middle and putting your trust in them, putting, you know, putting all your, uh, you know what I'm trying to say.

  Uh, and I, you know, I wish I was better at this podcast. Like I, I have a hard time coming up with those words. It's like, I can see it in a picture, but I don't know the word for it. And you would think with, starting a podcast. That'd be something I'd be good at. And I'm so amazed at some of these guests and I'm like, God, you just know how to put things into words so well.

  That's why I love Brené Brown. She puts like, I'll say like five sentences and she'll put it in like three words. Uh, anyway, total caveat there. Um, and so the hard money lending, I just think, you know, those are the types of things that that's why I turn it down. I turned down another one where it was just, it was registered in the Bahamas and I was like, mm.

  No, I'm not going with anything that was registered in the Bahamas and it ended up being like a Ponzi scheme. Uh, there were other ones that I, I just didn't feel good about when I was talking to them. And it ended up that a year later, some policy, some government policy changes and that one blew up too.

  So you really do need to be careful of where you're going to invest. And I honestly, I would never really recommend investing in one building unless it was like debt. And they had. It was in a great part of town and you knew the part of town. I have seen a lot of people put their money in and these random commercial buildings.

  And I kid you not, 15 years later, they are still stuck in this thing waiting for someone to sell or do something. Because when you get into these alternative investments, you do not have voting power. You do not have, like you could all get together and sue them. Sure. But you are what's called a limited partner.

  The general partner is the one that's that makes all of the decisions you sign off on. I am not here to make daily decisions. You know, you are simply an investor and you believe in what they are selling and what their strategy is, but you are a limited investor. And so you do not have any say in the day to day.

  So that kind of becomes a problem right when it comes down to like even COVID and these things are going on for a long time. And I mean, I got one fund of hotels and I'm like, just start selling, sell a damn hotel. Will you please sell a hotel? They will not sell any of the hotels because they want to.

  Keep it as a whole and then sell it to like Wall Street as a one big package. Uh, and so do I trust them that they're making the right decision? I don't know. I call them every three months and make sure that, um, everything is okay and uh, you know, so sometimes these things can go sideways 'cause things like Covid happens.

  Um, so I think that's about it.

  I don't want to drone on too much about all of this, but I love alternative investments. You guys. I think if you have the ability to get into them. in any way, shape or form, I really believe in investing outside of the stock market and not having all of your money there. I think it's, um, you know, whether you're doing it, um, like what we've talked about in some of these other, uh, episodes about doing it with some like whole life insurance and so that you can then borrow from it and go invest in something else, uh, or you're doing these alternative investments.

  I do think that it makes it more fun and more interesting and you can read newsletters and You know, kind of learn about another topic, you know, something that you don't really know about. Um, and my clients all love them and think that they're super interesting. Um, so let me know if you have any questions.

  I hope that I could break this down and I didn't confuse you too much. And honestly, I just hope to inspire your financial life a little bit and, um, talk to all you guys. I appreciate the feedback that you guys have all given me about the show and I'm really enjoying it. So thank you so much for listening and I hope you guys have a great day.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

The Infinite Banking Strategy

Earning money in two places at once sounds too good to be true, but if structured correctly, that's exactly what you can do with something called Infinite Banking.

We talk about this alternative investment strategy with Chris Miles, of Money Ripples. Chris is a leading authority teaching entrepreneurs and professionals how to get their money working for them today.

We explain what the Infinite Banking method is, why Chris started down this path and how he’s able to create flexibility in people’s lives to give them financial freedom.

Key Takeaways:

• How unconventional approaches such as infinite banking and real estate can vastly improve financial independence.

• How to use your policy as a financial Swiss Army knife —protecting assets from creditors, boosting cash flow from real estate, and creating a work-optional life

• Infinite banking concept and its role in higher return investments

Links:

Contact Chris Miles with Money Ripples

Use the Money Ripples Calculator

Time Stamps

00:14 Meet Chris Miles: The Anti-Financial Advisor

01:03 Chris's Journey from Financial Advisor to Real Estate Investor

02:32 Discovering Alternative Investments

06:30 The Concept of Infinite Banking

07:50 How Infinite Banking Works

16:21 Setting Up and Utilizing Policies

18:32 Building a Financial Safety Net

19:05 Strategic Use of Life Insurance Policies

19:33 Diversification and Investment Strategies

20:11 Funding and Managing Life Insurance Policies

20:40 Client Success Stories and Practical Examples

23:09 Maximizing Policy Benefits in Retirement

26:58 Alternative Investment Opportunities

35:13 The Importance of Multiple Income Streams

36:28 Conclusion and Final Thoughts

• Transcript

  Introduction to the Podcast

  Welcome to me financial the podcast designed to inspire your financial life. Hello everyone. And welcome to the podcast. I'm Michelle Moses, your host.

  
  Meet Chris Miles: The Anti-Financial Advisor

  And today we are going to be talking to Chris miles of the cashflow expert and the anti financial advisor. Honestly, Chris, I kind of had you on just before.

  because that's in your title. I thought it might be fun to talk about that. Uh, and we are going to be talking about investing in real estate and creating cap passive cashflow in one way that you can do that. Uh, Chris is a leading authority, teaching entrepreneurs and professionals how to get their money working for them today.

  He's an author podcast host of the money money ripples podcast has been featured in us news, CNN money. Entrepreneurs on fire, bigger pockets and has a proven reputation with his company, Money Ripples, getting his clients fast financial results. Thank you for being on. [00:01:00] Yeah. It's been a pleasure to be here.

  Yeah. So, well, let's get started.

  
  Chris's Journey from Financial Advisor to Real Estate Investor

  Can we, um, what you want to talk about, like how you got started in this or, and what your passion is? Yeah, I got started on this because I used to be a financial advisor, like the, and more like the mainstream financial advisor, right? Like the typical person that's the salesman in the suit, just trying to sell you a bunch of mutual funds and things like that.

  Um, but after doing that for four years, I remember my dad said, Hey, why don't, why don't we have you come talk to me? You know, why don't you become my financial advisor? And so I sat down with him and looked at his portfolio and it's the first time I've ever seen his money because he was the guard. He was the guy who was very guarded of his money.

  He'd always say things like, we can't afford this. We think I am made of money. Money doesn't grow on trees. You know, you know, those kinds of things growing up. And so for him to open up was a shocker and, and I knew he was cheap and I knew he was a saver. He was the kind of guy that Dave Ramsey would look up to, right?

  Like he was the guy that I think Dave Ramsey learned from. And, uh, and so I sat down and I looked at all of his finances, saw that he paid off [00:02:00] his house early, totally debt free. He'd stuffed his money in his company's 401k for decades. Only to find out, I said, dad, here's the deal. You're 61 years old. If you wanna retire today, you better hope you die in five years, because that's how much money you have before you run out.

  And of course he's gonna say, well, that's not what I wanted to hear, Chris. What's the answer? Right? And as and as a financial advisor, not knowing anything outside of my, my realm. Even after four years, I said, I don't know. You did everything right. And it bugged me. Like it really bothered me.

  
  The Turning Point: Realizing the Flaws in Traditional Financial Advice

  And I remember it was, it was actually a guy that I hired to be in my financial firm that went and left to go do real estate investing.

  He actually kind of woke me up to it. He said, Chris, how many of your clients are really, truly financially free where they don't worry about running out of money in the retirement? I said, well, they all worry about that. You know, that's, that's just the thing, you know, in retirement is how do you let your money, you know, stretch out as long as possible.

  He said, okay, Chris, well, how about this? How many of you guys, this financial advisors are financially free, not off the commission's earning, but actually [00:03:00] doing these investments, you've been recommending like by just investing in these mutual funds. And as I really thought about it, and this isn't, this is to that end of 2005, when I was talking to him, I said, you know what?

  Maybe none. Cause there's been guys working here since the late 1970s. and still they can't retire either. He said, well, there's your problem.

  
  Discovering Alternative Investments

  And, and that kind of got me down a different path, a path that I know you talk about in the show too, where I started looking at alternative investments. Cause I wanted to see, I'm one of those people.

  I like to see that there's proof in the pudding, right? Like I want to know that something actually works. And, uh, and that's where I started finding guys that were like in the real estate space in their twenties and thirties, financially independent, financially free doing that kind of thing. And so I started following that path and it got to the point where I couldn't.

  I couldn't justify being just the mainstream financial advisor anymore, where I didn't really have any options outside of just mutual funds and annuities. Right? I wanted something better. Well, and part of it is the education that you're given when you go into those jobs, too, right? I mean, it's It's just like tunnel vision.

  It's kind of [00:04:00] like, I feel like, and I'm not going to say the name of the company, but they, uh, are really insurance salesmen. And then they get out into other financial planning places and they're like, Oh, I just sold insurance when they were taught, Oh no, I'm a financial advisor and this is what I do. And yeah.

  And, um, and yeah. And then I think that alternative investments are just so much more exciting. And my clients think they're so much more exciting. Absolutely. Well, and that's why you have your RIA, right? Because I mean, even when I was looking at it, I was like, well, can I offer this instead? No, you can't do that.

  Yeah. The client says you can't do it. Right. Yeah. It was so hard just, you know, having like, you know, the series six and 63, you know, and those kinds of things. So, I mean, long story short, I, I just, I had to choose between them. I said, you know what, I'm out. I'm going to, I'm going to just be a mortgage broker because in 2005, And 2006, anybody can be a mortgage broker.

  And, uh, I was teaching people how to trade stocks and options. You did it too. Yeah. I did that too. Yeah. Yeah. So you remember those days it was easy. Anybody with a heartbeat could get along. Right. Um, it was great. But, uh, but yeah, like I did that, I was teaching [00:05:00] people how to trade stocks and options and I just really was.

  You know, and I taught ballroom dancing on the side. So you're just trying different things. That was kind of my life. Yeah. Okay. While I was learning. Yeah. And growing. Okay. And so now what is, what is like the process of what you're trying to do with people? The same thing I did, because later that year I was actually able to become financially independent myself when I was 28.

  And uh, and so that's, it kind of pulled me out of retirement in 2007, you know, because people always want to know, well, how'd you do it? How'd you, quote, unquote, retire so young. And it was actually by me doing the opposite of what I was teaching people to do myself. Right. Um, and so that's why I've been doing, I've been helping people do that.

  Like, how do you actually create a plan? You know, we're not investment advisors by any way, shape or form, you know, we're not telling people like, here's where you should invest. Um, but we are strategists and connectors. So we help align people and say, here's some things you can do with that. Here's, here's some people we've vetted people that we've used for years ourselves.

  You can use them to, you know, whether you're investing in. You know, buying turnkey rentals, whether you're doing syndications by [00:06:00] investing in oil and gas or apartments or self storage or whatever it might be, or lending funds or things like that. Try to really kind of matchmake a little bit more and help them create a game plan to getting to the point where they are work optional.

  They have enough passive income to stop working if they want to, but they don't have to. Okay. So it's trying to use their money to create passive income so that then they can just have, you know, whatever they can retire if they want or do whatever they want. They're not tied to a job really. Okay. Okay.

  And I think it's interesting too.

  
  Infinite Banking Explained

  Um, and I, I not only picked you because you have the anti financial advisor, uh, thing on your profile or on your website, but, uh, also you do this with infinite banking, right? And is that part of one of the tools that you use? Yeah, it's so funny because even though I was insurance licensed and even though I was security licensed, knew nothing about infinite banking as a financial advisor.

  Right. And then I hear about this from all these real estate investors. But I'll tell you, the way they were doing it was so funny. [00:07:00] slow and expensive. And they're always telling you like you buy your house with it or buy a car with it. But they never, they never really taught me about how to use it with like alternative investments, like real estate investing.

  That's something I had to discover on my own later on. And Oh my goodness. Like when you, when you can really figure out how to design the right policy to then utilize that cash to then invest in two places at the same time, you know, essentially by, you know, use that, that money. To then go and use that to buy properties or buy whatever assets you have, specifically cash flowing assets, ideally, to then have that cash flow going back in to pay down that line of credit.

  And, and the amount of compounding interest you make compared to the simple interest you pay on the loan, you start to realize you can actually make a higher rate of return on your investments by doing that way, versus just using a simple checking your savings account. It kind of becomes a no brainer, doesn't it?

  Right. Well, why don't we go back and, can you go back and explain, uh, Infinite Banking to the listeners and, I mean, just kind of give a basic overview of it. [00:08:00] Yeah, I see it as just a simple tax free supercharged savings account, right? It's a savings account that is tax free. You, you've of course had your death benefit with life insurance, but that's not the big thing we focus on.

  Although it's a great perk for it. And that's the ultimate purpose of it. But the thing that's nice is that you have this tax free savings account inside of it. That is liquid. It's, it's like, it's kind of like having a Roth IRA, but you can access it without the whole 59 and a half rule, you know, or we're in about 10 percent penalties and things like that.

  So you're able to have that money grow there, be safe. It's outside of the stock market. Um, but here's the real magic that I discovered later on is that when you, one of the mistakes we hear people say all the time, and I know it might drive you nuts too, is they'll say you borrow your own money, right?

  You pay yourself back, which is so not true. Like you actually, because that money is guaranteed, the insurance companies and even some banks are willing to lend you money based on that money in there. So that money is collateral. You can get a line of credit against it. That line of credit can be paid back however, [00:09:00] whenever you want.

  The deadline for paying it back is your death, but there's no like monthly payment. So it's kind of like having a home equity line of credit, but you don't have a monthly payment. And the nice thing is too, is that it actually pays you interest where a home doesn't pay you interest. So basically what you're doing is taking so infinite banking you guys is where you're taking a whole life policy and you're putting cash into it.

  And the way that I have done it is with companies where you, so let's say you, you know, you pay your base premium and And then you've also dumped, um, some cash in at 20, 000 a year, let's say, or 30, 000. You can do more. It just depends on how much your death benefit is. And then once you get it built up, then the idea is that you borrow the money from it.

  And I know you just said you hated that, that term, but that is the technical term for it. And you borrow the money for it from it to do solar panels or to invest in real estate or do whatever you want to do. And the ones that I use, um, is when you have the money [00:10:00] in the policy and when you borrow it, then you're still making interest on that money as if it is not borrowed.

  So let's say you've got 50, 000 in a policy, you borrow 25. Inside of the policy, it is still making interest as if there's 50, 000 in there and your policy is still intact, your death benefit is still intact, you know, all of this, um, and, but it is accruing interest, but if, and it's hard to describe on this podcast, but the more that you borrow from it and the more you pay back, actually, the more that you do actually make inside the policy.

  Uh, and, um, I would just say it's kind of, you're not, you know, You're still paying a little bit of interest, but the more that you kind of churn it, I guess you could say, uh, the more that your, um, policy dollars do go up. So would you agree with my assessment of this infinite banking? Yeah. Like I said, like it wasn't about like borrowing, like borrowing for the policy is true, right?

  You really borrow for the insurance company when you do that. But. the policy is collateral. Right. So are you [00:11:00] saying you go to a bank and so you have the whole life policy and then you're going to a bank and borrowing like a line of credit against it? You could. Um, lately though, the, the interest rate has been a little bit too high.

  So it's cheaper than insurance companies right now. At least most of them, some of them charge pretty high too, but most usually you borrow from the insurance company and you pay them the interest. Right. Um, the thing that's nice though, is that, you know, you're getting paid interest all along the way. So for example, say you have a hundred thousand dollars of cash in there.

  You want to borrow 50, 000. The problem is I see a lot of people that critique it will say, well, why would I pay interest to borrow my own money? And the answer is you're not borrowing your money. Your money is sitting in that account. The 100, 000 is still in there. Even though you get 50, 000 from the insurance company, you're borrowing from them, paying them interest.

  But you're earning full interest on that a hundred thousand that's compounding tax free, right? And so like you said, like, you know, different interest rates, people say, wait a minute, but the interest rate might be higher than when I'm getting paid. Sometimes it is, sometimes it isn't. [00:12:00] Well, that doesn't matter because one thing I teach a lot of my clients is, For example, say you have a mortgage that's 4 percent interest rate, you could try to pay off that mortgage in 30 years, right?

  Just by paying it off in cash outright. Cash out all your assets, pay it off. You'll never have to worry about paying the interest on that mortgage. But the thing that blows people's minds is, What if you took that money you could have used to pay off that mortgage today, but instead kept in a CD, right?

  Just a crappy CD. Say you earn 2%. You will still beat the 4 percent mortgage because it compounds faster than the simple interest you pay on that mortgage. And that was the thing that finally clicked for me was I realized that there's two different types of interest happening. There's compounding interest, which of course has that curve that you always see goes up over time, the exponential curve.

  And then there's simple interest, which we see on loans. Simple interest is just like your mortgage where as you pay down the loan balance, less and less discharge interest and you pay more and more to principal. So like you said, depending on how you pay it back, That's where the real [00:13:00] magic happens because the amount of interest you get charged is less than the interest they pay you on that money.

  And that's how you can net positive, even if the loan rate's higher than what they're paying you in return, you could still beat the interest rate. Right. And so when I talk to people about using that with real estate, for example, I showed an example where I just used my own policy to buy like a, like a 1 million, apartment building, quarter million dollar down payment.

  If I kept that money and just took that cashflow that I liquidated on my savings account, because now there's no more money in that savings account. It's now to be replenished by the cashflow. And from that investment over nine years, I'll make a whopping 1200 bucks in interest, especially after I have taxes taken out.

  but doing that same thing with my policy. I, despite the fact I pay interest in insurance company, I still net about 126, 000 in nine years doing that same exact thing. Same strategy, just paying, instead of paying the cashflow back to my savings account, I pay it back towards that line of credit from the insurance company.

  And once, once like I talked to a lot of real estate investors, once they get [00:14:00] that, they're like, Holy cow, this is a no brainer. Why wouldn't I do it? And that's exactly the point, right? Is that once you understand how it works and how it really does allow you to make money in two places at the same time because you're earning interest faster than what you're paying on the loan.

  So you make money inside the policy while you're also still making your cashflow from your investment. It's not an either or category where it used to be like with the policy I bought my initial policy. I bought, there was no paid up additions. They told you, you couldn't do it. They said, no, no, you pay all base premium.

  So they would give me a higher death benefit policy with a high base premium, no paid up addition. So I didn't have any cash going in there. I actually lost it during the recession because I didn't have any cash in it to keep it going. Paid up additions, you guys are the ways that you get the cash in there.

  And the paid up additions are when you put extra cash up over your, Premium that you actually pay the base premium that you pay just like on a term policy. Uh, those kind of those called those are called paid up additions and you actually are purchasing more insurance that cannot be taken away from you and you are allowed to put more [00:15:00] cash inside of the policy.

  Um, we're not allowed to say like a bank account, but like a, you know, just like a savings account or something like that. You would, um, put cash in, um, it is then increasing your death benefit with something that can't be taken away. So sorry to interrupt you. I just wanted to clarify that for them.

  Exactly what I was going to say is like, it's just paying extra in there to build up that cash policy, right? The cash that you can use. Yeah. And, uh, I'll tell you that's, that's another thing too, that investors like too, is that many of them, as they start to grow their portfolios more and more, the biggest fear is how, how do I avoid losing the, the, the assets that I have?

  Well, in most states, as you know, the money that's inside life insurance policy is a hundred percent protected from losses creditors. Right. Even if somebody sues you and wins, they can put a lien, they put a lien on your house, put a lien on your savings account. I've watched it happen. Yeah. Um, you could do all those kinds of things, but they cannot take the money out of your policy in most states.

  Right. So you have that protection. Plus, you know, on top of that, you know, you've got the ability to be free, you know, be free from the banks, [00:16:00] which I don't know, like I've had more and more, um, more friends in the real estate space say, I'm just not trusting the banks right now. There's something fishy going on, especially after Signature Bank went under and everything else.

  Where can I put my money? That's safe as safe as a bank. And I said, well, yeah, life insurance is pretty, yeah, they have to have a lot of reserves. Yeah, they have to have a lot of reserves and they do have a pretty good record.
  

  Setting Up and Utilizing Infinite Banking Policies

  And so do you find that it takes a lot of time to get the policies up and going?

  Because. And, you know, because you do have to have the time of applying for the policy and then being able to get the cash in there that is enough to purchase real estate and to have a down payment for it. It depends. I mean, setting up a policy is the easy part, right? I mean, sometimes they can be done in a matter of days, could be a few weeks.

  If they're healthy, yeah. Worst case, it might take a couple months. Yeah, there are, there are some of those exceptions where if they've got bad health or health issues, but I mean, I just had a friend, uh, last week, he finally did a policy. He waited a few years, but he's type two diabetic, but, um, [00:17:00] thankfully he changed his diet and everything.

  He lost a bunch of weight. Um, for the most part, his markers were pretty good. He got, He actually did the, um, uh, what's it called? The, uh, paramed exam, you know, where the examiner's coming out to his house to test his blood and urine. He did that. And just a few days later, they approved him. See everybody, this can be like a health kick too.

  If you want to, want to apply for some life insurance, you can get your life back together, your health back together. It's really true. So, so yeah, it can, I mean, that part's the easy part. Yeah. But does it take the time? Yeah. To get the cash in there. Yeah. Yeah. Yeah. Cause once you get the cash in, usually you have to wait at least 30 days, um, for some companies, others that make you wait longer, we try to try to stay away from the companies that make you wait a year or two.

  Um, but yeah, I mean, 30 days later, you can be using that money, but I'll tell you this, I've been teaching a little bit different lately. Um, ever since 2022, um, I liked whenever I hear things in the, in the economy, right. When people start saying you should do this, I will do the opposite. So somebody says you should buy more [00:18:00] stocks.

  That's when I never buy stocks. They say, if everybody says you should buy real estate, that's the time not to buy real estate. They say everybody buy a Bitcoin. That's the time not to buy a Bitcoin. Right. Um, and same thing, like in 2022, everybody was saying you should not hold cash. And as a result, I said in the spring of 22, I said, I should be holding cash because if nobody holds cash, then the person that has cash is going to rule the world.

  Yeah. Cash is king. There's a reason that there's that saying. Yeah. And so people of course say, well, where can I store cash where it's not going to make 0.

  
  Building Emergency Savings with Life Insurance

  0%. I can protect it life insurance. And so I started building that more and I started teaching my clients. I said, you know what, honestly, even if you're set up a new policy, the first few years, don't use it.

  Like actually just build up the cash in there to diversify your emergency savings account. Cause You know, like my wife and I, we said, we want to keep 300, 000 that we don't touch that doesn't get invested. It's just there for emergencies. Well, do the math. Our credit union pays us 0. 1 percent on 300, [00:19:00] 000.

  That means we make 300 a year, but after I pay taxes, I really walk away with 200 a year of interest. But if I earmark a quarter million in my policy where I'm making over 5 percent tax free, that's already right there making 12, 500. So keep 50, 000 in the bank because I can get to it quickly where the policy might take me a week or so to get to that money.

  Well, then I could still have bank money there, diversify more into my policy, keep that money there. That's growing a much better interest and it's tax free. I'll make more money that way. And so I didn't have people cash there and then invest the rest. Right. And I get that.

  
  Diversifying Investments and Life Insurance Policies

  I think that the diversification is great is to have some money into in a life insurance policy.

  And then also in, you know, other things. Um, but my My question more about the time getting it in is that they don't allow you to put, I mean, I guess it depends on the death benefit, but you normally are going to put, you know, 20, 000 to 50, 000 a year into these policies to get the cash, get the cash balance up.

  And then after, you know, five or six [00:20:00] years, you usually kind of taper off and stop. Um, and so is that kind of what you do or how long are you trying to put all the money in and year one so that you can then use it? Yeah, I definitely don't recommend front loading very often, um, where you put a big lump sum of cash in the beginning.

  Cause I mean, there are people out there, especially in the real estate space that recommend that, but honestly that just charges you more. And that's what I think with the premium just costs more. And so what you're trying to do is keep the premium, the base premium down. We're steady. Yeah. Yeah. Yeah. Okay.

  All right. Yeah, exactly.

  Strategies for Funding Life Insurance Policies

  So like, instead of dumping on a hundred, 200 grand, we might say, let's keep it at 25 grand a year. It does take more time to build, but you know, let me give you an example. Cause this happened recently where I had a client that they were looking at doing both investing and they want to do this.

  And they're saying, well, should I run all of my money, this quarter million dollars through my policy? And I said, no, definitely not. Cause that first year is the hardest year. That's the most expensive year that just pays, pays the insurance agent more. Don't do that. I said, instead. [00:21:00] let's have you do maybe it's just like 25, 000 a year, right?

  Um, and so I said, do 25, 000 a year, but here's the cool thing. You still have 225, 000 you can invest. If that 225, 000 makes even just 10 percent return, that's 22, 500 bucks. So now you pretty much have your policy paid for just by the returns of the investment. And they can, of course pay the 25 regardless, but now they've got that extra cash.

  They might end up sending up a second policy the next year. So instead of just, you know, all or nothing one place to the other, it's no, let's do both. We can still get the policy, still build that up, but let's just invest the cash day one, get that money, start kicking off some returns, building more cashflow.

  It allows you to put away more and create that kind of what I refer to as an income avalanche, right? Where you can, Start taking more money and reinvesting it. So then it's not just 22, 500 that year, you might be able to bump up over 000 in the next few years and so on. Right, right. Okay.

  Using Passive Income to Fund Policies

  And I think that it's important to point out with some of these policies that having this [00:22:00] passive income in order to pay the policy, I like that your idea of doing that because that is where I think some people get really hung up on it.

  Is they like the idea of it, but then when you are just working a job or, you know, and you don't think that you have that passive income, it really just as becomes an expense of, you know, a thousand to 3, 000 a year that you're paying to just keep this policy in place. And, um, that is where I see people just like, Oh my God, how long are we going to do this?

  But the people that actually use the cash value to put on solar panels, buy a car, you know, they, they're doing different things with it. Yeah. But then because they don't always have the time for the passive income. So I like your, um, your idea about only using the money to create passive income so that you can then pay the, um, life insurance with it.

  Am I missing anything? Any parts of it? Yeah. So definitely safer way to go in my opinion, right? Like it's, I think that's the number one thing. And like you said, I never want [00:23:00] people to feel like it's an expense because you know, once you get past those first few years, usually by year three or four, it's paying for itself.

  Right. So it's already earning more than what you're putting into it. And when I get people to that point, like I just had a couple there in their sixties, they said, Hey, I know we're supposed to be paying this for the next, you know, for a total of seven or eight years, but honestly, I'm not so sure. I don't, I can't afford to keep paying a hundred thousand a year between the two of us.

  I said, well, you're not honestly, you're at the point where the policy is already paying for itself. You could just borrow from the cash to pay the premium forever, you know, or even just make it paid up at some point, you know, and just let that let it grow without you paying a single premium for the rest of your life, which is way better than they were thinking, trying to get a 10 year term policy.

  In their sixties. Oh gosh, no. Which is a death benefit that's probably gonna run out anyways. Yeah. So it's just wasting money, throwing money away when they already have a policy that's already paying for itself. Yeah. So once I got them to see that, then they kind of shifted their perspective a bit. Yeah.

  
  Maximizing Policy Benefits in Retirement

  So once you have enough cash in the [00:24:00] policy, you guys, it starts to make dividends. And so then you can use those dividends to just pay the premium. And a lot of people will do that, you know, when they go into retirement, they're like, okay, I am turning this thing off and the way that I sell it too. Um, and I don't know, when you took the.

  The infinite banking training, I was like 20 years ago. I can't even believe I'm saying that. But they would talk about how, um, you know, when you go into retirement, um, talking about you're gonna be spending all of your, um, different assets down. So you could spend, you know, all of your IRAs and 4 0 1 Ks, you could then.

  You know, downsize maybe. And then the life insurance is just there growing for another 10 or 15 years into your retirement. And then you could either borrow from it and then you could even do withdrawals if you want, and then you don't even have to pay it back. Um, if you're at the end of your life and it's something that you don't care to pass on to your heirs and you know, it's.

  You just want to spend it down. But if you do want to pass it on to your heirs, um, um, or have it like as a long term care fund, I mean, there's just so [00:25:00] many different options that you can do with it that, um, I, you know, I did a life insurance podcast before having you on and I was really touting, I mean, all the different things that you can do with it.

  I just think that these policies get such a bad rap and I think they get a bad rap because. People are out there only selling life insurance and saying you need to put every single dime into them. And that's just not, I mean, obviously if anybody's ever telling you that you should put all your money in annuity or life insurance or all in real estate, you know, that none, that's never the right answer is to put all your eggs in one basket.

  So. That's right. Yeah. Yeah. That's exactly it. And that's true. I like it. I like that you brought up that point because I often, you know, I, I mean, I tell people, of course that can become like your supplemental retirement down the road, but the truth is that we're so busy You know, taking your money and making it work for you, even if it's in an IRA, right?

  Self directing it into doing some other types of investments. You know, the whole goal is it really, it's just gravy. You know, the money that's in the policy, the money that could be taken out tax free is all just gravy on [00:26:00] top of all the other money you're doing. And it reminded me of one of my, one of my insurance clients where he, uh, you know, he's, he's, he's 30, right?

  So he basically wanted to create a retirement plan by the year 2030. He needed about 5, 000 a month. And so he's been buying up properties just a little bit at a time. And he's only putting in like, he's only saving like 15, year, something like that, you know, between the money he's earning from his properties and the money he's been saving.

  He's been putting that to his policy and, and I'm looking at the trajectory. I'm like, well, he's not going to get to 5, 000 a month. And then he drops the bomb on me. He says, and then in 2030, I'm going to pull out 800 a month for my policy, because you don't have to wait till you're 59 and a half, even though he's in his thirties.

  He can start pulling money from that while he had about 4, 200 a month coming from his real estate, he's at 5, 000 a month by 2030, you know. Well, and then who knows what else he's going to create. Yeah, he could create something else and then not pull it from the policy later on. It could just be like a stopgap for whenever he figures things out.

  
  Alternative Investment Opportunities

  Okay, so what are some of the things [00:27:00] that you advise people to invest in for this passive income? Can you give me like examples? Yeah. So I mentioned like, like what he was doing turnkey real estate. And what that is is where you have a property manager. They, you have somebody helps you find the property.

  It could be anywhere in the country because I know I live on the Western half of the U S. Real estate here is horrible, right? It's bad to buy rentals here. So, uh, and you don't want to have to deal with tenants, the toilets and the trash. So turnkey rentals is, uh, usually turnkey companies will help you find the property.

  They'll help get you renters in it. They'll even help you with the financing and everything else. Line it all up so that you're hands off, but you get paid the net proceeds from that. But the property is all 100 percent yours. That's one area that they could do, uh, lending your money. You can actually lend to real estate investors where you get paid a contractual return.

  It could be 10, 11, 12 plus percent a year that you're paid by lending your money to investors to use your money to make more money, right? Um, you could do things where you're in an equity type deal. So maybe you're pulling your money with other investors to [00:28:00] buy apartments. It could be buying into like self storage or assisted living, or it could be even do a carwash, you know, like oil and gas type of stuff.

  Not the drilling part, which is more speculative, but more like lacing your land to oil companies. And then even getting paid royalties on top of it. Um, even just like, uh, business partnerships. Like I have one that I do raw land investing, where again, I'm hands off. They do all the work. I'm a 70 percent partner.

  They're 30%, but already from investing about 350, 000 in the last two years, um, we're already cash flowing about 8, 500 a month. You know, from that, so over a hundred grand a year. So there's just so many different alternative ways that you can make money. That really, when you start to look at the traditional 401k, which underperforms like fidelity, they actually underperformed by about two to 3 percent from the actual market returns.

  You know, you sort of look at that stuff and you say, man, that's a joke. Even with the match of a 401k, you can't even make up the difference. Well, and it's even, it's, it's so out of your control. And I think that's why people like [00:29:00] to diversify is it's just, you know, it, it, again, it's, it's completely out of your control and you're just hoping on a wing and a prayer that everything is going okay.

  And I, you know, I, I do think that stocks are kind of a nest, like if you've worked a job and you have a 401k or, you know, they're, they are kind of. They have their place. Yeah, they, they, I just call it the base. You know, that's, that's your foundation of what you've got and everybody has that. But then this is the fun stuff that you can kind of jump off of and, um, do some of these alternative investments.

  And this is, you know, where it gets fun. Um, but a lot of those investments that you were saying, I do think it's important that people, uh, manage their, you know, cause a lot of them are longterm investments or they could be longterm investments. Yeah. You know, they start off with, Oh, we're only going to be six months to a year, or maybe five to seven years.

  But sometimes, you know, even with COVID, you know, okay, now we're into 10 years. Uh, so, you know, it is important to still have a savings or have money coming in or, you know, don't, don't again, put all your eggs in one basket and [00:30:00] then have all your money working for you and then not be able to pay your bills.

  So, uh, am I missing anything? I really like this. Uh, this concept, I think it's been really great. You've had a lot of, it sounds like a lot of success with different clients. And did they just call you and then you, um, like review everything that they do? Yeah, we, we even have our website. We have like this passive income calculator that people can put in their numbers and we can pretty accurately determine how much passive income they create in just 12 months.

  You know, um, like for example, I mean, I always tell people, you know, getting money out of prison, right. Um, cause people usually lock up money. They could be in IRAs. They could be locking up money there. They could be locking up money in home equity. It'd be lock up money. Even if they have rental properties, they have too much equity in them.

  Like I had a guy from California that. He had seriously 700, 000 equity in his rental property in California, cash flowing 200 bucks a month. You do the return on equity calculation. He makes like 0. 3 percent a year. It took me [00:31:00] two years to finally, finally get him, educate him enough to where he felt comfortable.

  And it wasn't just the education, it was the emotional attachment to that property. When he finally said, I'm going to sell this property. take all the equity and invest in other properties like in Louisiana is where he went to purchase a lot of his properties. He's now making over a hundred grand a year on that equity versus the 200 bucks a month.

  That's over a hundred grand a year. Yeah. Yeah. And he's like, Oh, now I get it. It was like, yeah, we told you that return on equity was horrible. So get your money out of prison. If you can get your money away and liquid, then you can start to see what you can do with it. And that's, and that's pretty much what that calculator does.

  Cause A lot of people are like, well, how do you calculate that in your head? I'm like, practice, but or you just use this calculator and I'll spit out a number for you. Okay. All right. And can anybody in any state come and work with you? Oh yeah. Yeah. It's not state specific at all. And sometimes we even get people from internationally, like in Canada or the UK or Australia that will come to us as well.

  Okay. And then do they work with you or is there, you have like a team? [00:32:00] We've got a whole team that does it. I, I'll do like some of the educational calls and things like that. But, uh, Okay. We're pretty close knit team, but they'll usually work with somebody else. One on one. All right. Well, wonderful. Um, do you feel like I'm missing anything that's huge?

  Like I missed asking you, you know, I mean, you've asked me some good questions already. I'll just say this. Like I like. You know, what, uh, what you're proposing, what you're proposing, right? I mean, that's, there needs to be more voices like this out there because the, the mass media, I mean, they, they are so bought into just having you do the traditional stuff.

  And if like Fidelity, I mean, give you an example. I mean, Fidelity, I looked at their stats, 45 million clients in Fidelity, only 750, 000 have over a million dollars between their 401ks. and their IRAs. And of those, then Transamerica did a study asking them how many of them feel like they could retire. Of those people with over a million dollars, 35 percent said that quote, it will take a miracle for me to retire.

  You know, why? Because they're pulling out 3%, you know, they're told to pull out [00:33:00] 3 percent a year on a million bucks. And I don't know that, I don't know that people really want to fully retire anymore. I mean, I think it's more like, I just want to be able to, you know, create the passive income and have the option and I, or I just.

  I'll look at it too as, um, you know, not everybody could be buying real estate and if everybody was doing it, then it would be not beneficial to be doing the show. Right. And, uh, you Um, and so I get it, it's kind of like how I sell some of these alternative investments where I give people a discount. Well, the only reason I can give a discount is because this other guy over here is making a commission.

  So I, you know, I, I think it's wonderful for the people that find this information and that listen to this podcast and listen to you. Um, but I'm also very grateful for, I guess, the It's the options for other people to be, um, being able to save something because sometimes people aren't able to save anything.

  And these IRAs are going to at least give them a tool to know what it [00:34:00] feels like to save some money. But I totally get what you're saying, but I just try to turn it around a little bit because I know not everybody's on the same path and they don't all have the same risk or the time. They don't want to spend the time learning all of this.

  And they don't trust people. No, I get it. Yeah. I was there too. Yeah. At one point, like, where's for me, you know, saving 4 0 1 Ks and IRAs and Roth IRAs and things like that were like the thing to do. Mm-Hmm. , you know, and it, it just, it's got to the point where I realized I couldn't keep my mouth shut anymore when I realized that people couldn't do it.

  You know, traditional mutual fund options, especially when they're for 401k options are very limited, especially those target date funds. Those are the worst performing investments you can get usually, versus like something that may be more independently managed. Like what you might do. That's a totally different ball game.

  Right? So that's the thing is that we just want to open people up to knowing that you're not stuck to falling in the rut that everybody else is falling into. That feels like they're living on a fixed income budget. Right.

  
  The Importance of Multiple Income Streams

  and And, and get to the point, like you said, like where you are work optional, [00:35:00] where you, you only work just because you want to do it, not because you need the money.

  Yeah. And so few people can say that nowadays. Most people they're like, well, I still want to work, but they realize that if their job would be eliminated today. You'd be in trouble, right? And it's kind of like, uh, I have a client that he works in Hollywood as a set designer and of course, Hollywood shut down in 2020.

  It shut down in 2023 because of the writer's strike all the time. It keeps shutting down. And the one thing he's grateful for is that he has passive income coming in. So that doesn't matter if they shut down, he can wait until Hollywood deals with all their drama, no pun intended, but once they get out of the drama, then he can actually.

  Pick it right up and not be worried about that. And that to me is like real freedom. Yeah, it is. It's important to have multiple streams of income. I'd first started this and, uh, my financial planning practice. And then the market went down in 2008. I had been in business for like two years and I had an e commerce store.

  And if I didn't have that, I would have been on the street. I don't know what I would have done. So. Yeah. You got to have multiple [00:36:00] streams of income. I mean, especially if you've got a job that were, you know, where things could go sideways and you want to have savings. So, and it feels so much better to be financially, uh, independent and okay.

  I, I really hate the word I'm getting tired of the words, financial freedom, honestly. Uh, but you know, I, it, it feels just so much better to have that taken care of and to know that if you've lost your job or for me, if the stock market went down, that we, you know, be okay for months and years on end. So, yeah.
  
  Conclusion and Final Thoughts

  Well, Chris, it's been really nice talking with you. I, uh, am really intrigued by your business and what you've got going on. And, uh, I am, thank you for taking the time to be on the podcast. Yes. Same here, Michelle. Really had fun. Thank you. Yeah. And everybody I'm going to have, um, Chris's information in the show notes and, um, let me know if you have any comments or questions for him.

  And thank you so much for listening. Be sure to share it with your friends and write a review. Thanks guys. I hope you have a great [00:37:00] day.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

Want to buy real estate privately?

There are ways to increase anonymity, but it's important to be aware of limitations. Grant McKeehan joins us to explore strategies like LLCs, understand why trusts might not be the answer, and navigate the legal landscape.

Key Takeaways:

• Learn how LLCs can offer anonymity for property ownership, especially in certain states.

• Discover the limitations of privacy due to public record-keeping and the importance of consulting legal professionals.

• Understand the difference between member-managed and manager-managed LLCs for optimal privacy and control. 📈

Take your real estate knowledge to the next level by tuning into this episode!

Links:

Grant McKeehan PLC's website

Time Stamps

00:25 The Importance of Private Real Estate Purchases

01:53 Understanding Real Estate Deeds and Privacy Concerns

03:29 Trusts and Privacy in Real Estate

12:07 LLCs and Privacy in Real Estate

30:15 Delaware LLCs and Privacy

37:32 Conclusion and Final Thoughts

• Transcript

  Introduction and Guest Introduction

  Welcome to me financial the podcast designed to inspire your financial life. Hello everyone. And welcome to the podcast. I am Michelle Moses, your host. And today I have Grant McKeon here again, a lawyer. Um, I'm not sure if you heard our other podcast on wills and trusts, but I invited him back again to talk about.

  
  The Importance of Private Real Estate Purchases

  How to purchase real estate privately, meaning without your name on it. I think this is a timely topic just because the social media, um, you know, anybody could get famous or be online and something could happen to you. You could get mad at somebody at Starbucks and then they could hunt you down. Right?

  So, uh, I was interested in this topic, so I invited Grant on. And so let me introduce him. Grant McKeon is the owner of Grant McKeon, PLC. He is And he went to the University of Kansas, Arizona State University, and the New York University School of Law for Taxation. He prepares wills and trusts, where he regularly advises clients on federal income, estate, and gift tax laws.

  He has been practicing law in Arizona for 18 years, and he is originally from Kansas City. Just like myself. Go Chiefs. He's your Chiefs fan, right? Still? Don't forget the Royals. Although the Chiefs are only on Peacock this weekend. I'm not very happy. I'm not very happy about that either. I don't know.

  Patrick Mahomes pulls more people in than that. So anyway, we could have a whole nother podcast about that as I'm sure there is. Yes. Anyway, so we are going to be talking about And this, Grant, when I asked him this, he was asking, you know, I was asking about purchasing privately and he's like, Oh, I don't know.

  So his first question on his notes is, is it still possible to privately purchase a home in the information age? And so let's get started with that. Is it still possible to do? Yes. Fortunately, I am glad to hear that.

  
  Understanding Real Estate Deeds and Privacy Concerns

  We live in a world now where You may not realize it, but if you sign a real estate deed, either to sell your home or to purchase a home, that real estate deed is in most states and counties going to be digitally imaged and available and searchable by your name on, you know, your state or your particular county recorders website, uh, and where you live.

  is probably also available on your particular county assessor's office website or treasurer's website. If someone just wants to look you up by name and find your address or maybe even find out what you paid for your home. Or what year you bought it, or how many square feet it is, how many rooms it is.

  What the layout is, you can find all kinds of things on there. Right. So in my world, for those of us that are legal professionals or work in title companies, escrow companies, This is a thing of beauty because this information we need often, uh, in our careers is so easily available and free. Um, even if you're looking for a property out of state, however, uh, it does create issues, which is that now all of that information is out there for anyone, good actor, bad actor that wants to get ahold of it.

  Um, and so the question is, is there any way for us to help you buy a property? privately and keep it private.

  
  Trusts and Privacy in Real Estate

  It's one thing to say, Oh, my trust bought it. My LLC bought it. That's great. But are there, is there a paper trail? Is there a way for someone to find out all of this information just using the internet?

  Because even if you buy it in an LLC or a trust, then there could be a paper trail. And a lot of people just name their trust, you know, the Grant McKeon. Revocable trust, right? Yes. And is that what you normally advise people to name? It is their name. Yes. Or their initials or, you know, uh, a name they like, um, Alacadabra trust, trust the, but why do you, why do you advise?

  And I've always wondered this. So it helps identify the trust, for example, if you're opening a bank account, um, in the name of your trust, it perhaps makes it easier for bankers to identify who the owners of the trust are. Um, but you know, if you have a common name, there's probably multiple trusts in your name.

  And so you can use. any name you want, the shorter, the probably better, you're going to use it all the time. Um, and as we'll talk about with property ownership, you know, if your trust name includes your name, then, you know, there isn't any privacy. Right. But if you've chosen a unique name that, that does not include your name or your business name or your nickname, then maybe you've been discreet about it and maybe you've hidden, uh, ownership of your home.

  Right. Okay. I could see that. But then if, so we'll get into this. So, uh, because sometimes you can then track people based upon, even if it does say the abracadabra trust, we'll go with that. I like that. Uh, better. I would have said the supercalifragilisticexpialadocious one, but it's abracadabra is a little bit, yeah.

  It's a little shorter, uh, that you can, you can then find a paper trail from those trusts. That's correct. Right. So if someone purchases a home in their name and then maybe as part of their estate planning, they decide to deed their home into their trust, which is a common estate planning technique. The issue is, um, even though the trust is now listed as the owner of the home, if someone wants to find out.

  If you, you know, what, where you live, they can put your name into a county recorder's website and they will find the deed that you signed when you transferred the home from you to the trust. So there is a paper trail. Okay. And as we'll talk about later. To maintain privacy and home ownership, my recommendation is that the entity you select to be the purchaser be the original purchaser of the property so that we don't have this paper trail and that someone with time on their hands can follow the steps and say, Oh, wait a second.

  This is this is actually their home. They've just put it in the name of this fancy trust. Yeah, and they did it on such and such date. Correct. Okay. Yeah. Because I mean, these deeds, I don't remember how many years our county recorder goes back, but off the top of my head, you can search for deeds that were recorded up to like 30 or 40 years ago.

  Um, so there's quite a bit of time back. I think it's even longer than that. I had a neighbor who bought his house in 1956 and I was looking at some 1960s stuff for her. Yeah. So it goes back really far. So it's very comprehensive. It's a little crazy. Yeah. Um, and. And anybody can get on there. Right. And search.

  Okay. Right. You don't have to have a membership or anything like that. No. Okay. And this is the case in a lot of states and a lot of counties. Um, whether you want to look it up. for tax records to see what the property taxes are. It's usually searchable by name or if you're just looking for property ownership records.

  Most counties in the United States now have this available. Okay. All right. And that's what worries me is because anybody that really, really wants to. I'm not gonna say hunt you down, but really wants to find out where you live and where if you own something, then they could do this. And so the important part is if you do want to buy a home privately, it's to that you're needing to start this at the purchase at the time of purchase, not after you purchase it.

  And so I've always heard sometimes too, that when people are going to purchase a house, that the, it. the day of closing that they'll put it into their house and then they'll basically like quickly put it into the trust is and they used to do that but do they do that anymore is is that kind of how it works that's a common question okay um we have we often kind of have this hokey pokey situation where we have the house and the trust and then do we need to take it out if we're going to refinance and so it depends on the lender but if you If you don't have a trust, um, yes, you're obviously going to purchase it in your name or in the name of you and your spouse.

  Um, if you do have a trust, then I like it for the trust to be the original purchaser. What it comes down to though, is the mortgage issue, the financing issue. So some lenders will, Um, permit you to use your trust to purchase your home, even though you or you and your spouse are the borrowers under the mortgage, the trust is rarely going to be the borrower.

  It's, it's often the individuals that have created the trust that are the borrowers. So depending on flexibility, and if you do have a trust and you want it to be the purchaser, then I suggest you disclose that to your realtor and to the lender. Okay. that you want the trust to take title and usually that they can work the paperwork around that.

  Okay. And so, but they would still be able to search you though because you as the trustee of the trust would be signing those documents. And so just, it doesn't really create that much privacy. Am I right about that? Exactly. I mean, sadly, I have had clients where we have named their revocable trust either with an acronym or with a special name like abracadabra.

  And the assumption. Is because the trust name doesn't include my name, Grant McKeon, then that must mean that when I purchase a home, it's going to be private and no one will be able to find out that that's what I bought. Well, not so fast, my friend, because if you have signed the deed, um, or if you are, you're the trustee, then that information is probably, on the internet.

  It's either on the recorder's website from a deed or it's on the assessor's website. So, and when, even if you're buying it in a trust, so those, you know, searchable like white pages and all those kinds of like, find a person websites. Do you have any idea if they would search it? Do you know what I mean?

  Like if you're just signing it versus if it's, that's probably a complicated question based upon whatever the website is. No, I mean, the, the, I think the general rule with a lot of these people find our websites, if you will, is that it's just kind of by, by volume. So the more volume you have, the more information you have out there with your name connected to an address, the more likely it is that they're going to catch it.

  They're going to pick up on it and then they're going to republish it on their website. So this whole idea I'm talking about today, which is privately purchasing your property, the, the point is to disconnect your name from the address of the home you live in or the home you own. We want to separate those two items so that they're not clumped together and then broadcast and repeated and republished all over the internet.

  Okay. All right. And so, um, it sounds like buying it in a trust, you're still, your name is still on it. And I can say just from a real estate perspective, if you wanted to cut down on mail and getting like mailers from a title company or real estate agents and things like that, that would probably doing it in a trust would cut down on it because you, they would just be mailing to a trust and it's a lot more, um, informal.

  And I think, uh, some people don't mail to that and I can't speak for all agents or all title companies or, you know, You know, anything like that. But, um, you can download lists and say, who lives at one, two, three main street. And it will say the name of the trust or whoever purchased that, not who was signing the documents.

  Um, so I think that can also provide some, you know, level of security or maybe, um, deterrent for getting some mail. Cause they know that you want to keep things private. Yeah. Yeah.

  
  LLCs and Privacy in Real Estate

  Um, okay, so let's switch over then to buying it in an LLC because those are the two options, right? If you want to have it be private is you can be in a trust or we could have an LLC and you can do it.

  Um, obviously, we've all, I don't know if everybody, but we've heard of Delaware LLCs. Um, I was just looking, um, online a couple days ago and I asked Grant before we even got started that somebody was touting Dua Montana LLC, you know, so all these different states, um, have different laws for their, um, limited liability corporations.

  And, uh, you can set these up, right? I mean these take a while to set up. I mean, it's not like you can just set them up in a day. So you gotta be thinking we, you know, here in Arizona, we do have expedited processing, but it's pretty expensive. I think it's 400 for same day processing and 200 for second day processing.

  But yes, I mean, it can take a few days, if not a few weeks. Okay. Don't you have to publish it in the newspaper? It depends on the, um, at least here in Arizona, it depends on how many people live in the county, as odd as that may be. Uh, for example, here in Maricopa County, we do not have to publish the articles of organization because the information is automatically published.

  By our government, but it doesn't matter. It doesn't need to be publicly. Okay. Sure. But in other counties and in other states, publication of business formation is common. And so, uh, as a listener, you may, uh, if you want to set up a business entity, you may find out that it, that, uh, Uh, it needs to be made public or at least the name of the entity needs to be made public by law.

  Okay. And so setting up an LLC to purchase a property, we'd probably still be going through the same thing. You don't want to put your name on it. Don't be, you know, Chad Smith. If you're looking for anonymity. Yeah. Name it the abracadabra LLC. Uh, and then, so my same question though, I guess, is if you do name it the Abracadabra LLC and you are signing your name as the, uh, manager of the LLC, then that, that just kind of, it just is a deeper paper trail, right?

  You're going to one website to look at the deed and then you would go on another's website to look at, oh, who owns this LLC, right? So at the very top level, you know, if you have Abracadabra Trust or Abracadabra LLC, Well, that doesn't tell me that Michelle Moses is the ultimate owner. Um, but what we're talking about is it's a little more subtle and it involves the paperwork, which is the world I live in.

  You know, my law office is all about paper. Um, so yes, if you set up the LLC, the LLC has to have members, which are the owners, and then if it's manager managed. So who are those people? Um, if it's you, then you haven't accomplished any privacy. Um, but as we'll talk about, if you use a trust and if you have someone in your life that you trust that could be a third party manager, if you will, then your name is not on that LLC paperwork.

  And who, would you hire? Could you hire a company? I mean, what do celebrities do? I'm very interested in this. Do you know? I do. I have limited experience in that, um, without saying any names. Um, you know, celebrities have managers. And, uh, or publicists. And so they have those people as the manager of their trust or of their LLC.

  They might. Okay. Yes. Okay. And they would trust that person that much? Or I would imagine there's just a lot of legal paperwork that goes with that. Well, I think you've raised a really, you hit on a very key point there, Michelle, which is. You do really have to trust someone if you're going to put them in control of a home or a rental property that you're going to purchase.

  And so if you've come into my office and you already have that relationship, then you're probably going to be all set. Because even though your lawyer can draw up paperwork to try to protect you from a bad actor, oftentimes it's going to be too late. And you're going to be chasing, you know, good money after bad if someone has hurt you by committing fraud or deceiving you or acting badly as the manager of your LLC that you set up to privately own your home.

  So, when I say it's a key point is if you want to accomplish this, you really do need to have someone in your life that you 100 percent trust to help you keep this private. Because the whole name of the game is keeping your name off of all of this legal paperwork and all of these filings with the state and the county and the deeds and so, um, this can't just be someone that you might think can help you.

  They've got to be a trusted person. And so when you're setting up an LLC, or even if I guess building on this, if you had a trusted person that was the. Manager or the member of the trust. And we haven't even gotten into that. So I'm sorry that I'm confusing everybody, but, um, it was basically the manager of this LLC, then they could go and just sell your house because the LLC owns your house.

  Yes. So you're, so that's why you would definitely need to trust them that they wouldn't sell your house out from under you. Right. And, um, there's a couple thoughts on that one. And hopefully this is educational for everyone, but here in Maricopa County and many counties around the U S they now have these property alert systems where you can sign up.

  It's voluntary in most states, but you can sign up and register your home. address to receive alert emails or maybe even texts if anyone records a document with respect to your address. And this goes into the title fraud, which is an episode we just did. So this would build on that. So if a bad actors out there, that's going to forge your signature to try to obtain a loan and pledge your home for the loan.

  Or in the example you just gave, which is, Oh, I set up my LLC so that I could keep my home private. But now I've got a manager who's gone rogue and they're trying to sell my property. You know, signing up for this alert system is a good idea because then you'll know if there are any documents recorded immediately and you can contact your lawyer or.

  Law enforcement or whoever you need to reach out to whoever to be contacted. Okay. A Superman, someone to come help me. . Yeah, .

  
  Setting Up and Managing LLCs

  So let's back up a little bit about the LLCs. 'cause there are two types of LLCs here in Arizona. Um, and is this normal? I mean there, is it different in every single state? I mean, are they.

  Like, is this kind of a normal thing of what we do? I'm just wondering for the other people that live in other states, so is by going over this, are they, is it maybe going to be able to apply it? You know, manager managed, uh, the management, what we're discussing is how, how is an LLC managed management structure, right?

  Right. So we have a couple of types of, of management manager managed or member managed LLCs. And yes, many other states have those types of LLCs. Okay. Um, okay. So the first type is member managed. Right. Okay. And so you set up an article, articles of organization for this LLC. Which is now going to be a public, remember a publicly searchable document.

  Yes. Someone can go on the internet and look at a copy of the articles of organization. Yes. And so then the name of that and address is on there for each member. So if you were going to say buy real estate with your mom and dad, you would probably have yourself and your mom and dad as managing or as members of this LLC.

  Uh, am I missing anything there? No, if, if, if it's, if it's set up as a member managed LLC, then you are correct. Those articles of organization must disclose the names and addresses of the members. And we can't get cute with us because at least in our state, if the. Members change, then you are required by law to update, amend the articles of organization to reflect the new members' names and addresses, and then that becomes a public document again.

  Again. Yes, correct. Right. So this, so the member, the member managed L-L-L-L-C. You are having to disclose ownership. So that's no bueno if we're trying to keep this private and own a home. And then we'll all see. Okay, so the second one is manager managed. And that's the one that we've been talking about the most is, you know, if celebrities were to have a manager, Uh, that would be a third party that would not be theirs, but the articles of organization again are public and so, um, explain to me how there's a manager and there's members of this LLC structure.

  Absolutely. So with an LLC, the, uh, you know, the analogy would be a corporation. Corporation has shareholders. We own a share of stock, so we own part of the company. LLCs don't have shareholders, they have members. It's analogous. So if I'm a member of an LLC, I don't hold a share, but I hold a membership interest.

  And that could be in the form of shares, or it could be a percentage, however fancy you want to be. But if you're a member, you own either all or part of the LLC. LLC. If an LLC is member managed, then those members, those shareholders, if you will, they are in control of operating the LLC. However, if you set it up as a manager managed LLC, then the members are the shareholders, and they have the equity, they're over here.

  But then there's one or more managers that are identified could be members, but they don't have to be members. They could just be third parties that are in charge of running the LLC and signing paperwork for the LLC. So why would you have a manager with different members? Oh, you mean a manager that isn't a.

  Yeah, like manager would be Tom. And then you've got Sally and Joe as, you know, members. Okay. Maybe because, um, you know, Tom has experience, uh, running real estate companies or real estate investments and Sally and Joe just, you know, want to sit back and invest and and, uh, be the members and they don't want to be involved in the day to day management of the company.

  They don't want to be bothered by their picky attorney. That's asking them to sign paperwork all the time, and they want Tom to handle that. But they want to make sure that they have a financial interest, which would basically mean they have the legal interest at whatever percentage they own the LLC.

  Yes. And they can, they can replace Tom. If he. Yeah. Is moving on, or if they aren't happy with how he's acting as manager. Oh, so they would have the, the ability to change the manager? Yes. Oh yes. So the ma the members have it, the ability to change whoever the manager is. Yes. And so that's flexibility. Uh, we like that and.

  And that happens. So in the manager managed LLC, so the manager or the members can change the articles of organization? Um, well, the members would need to authorize the manager to do that. Usually it's, it's going to be in, in the form of like a consent. Okay. So, but really the members are kind of in charge there.

  Yes. And you can use an operating agreement, which is just a legal agreement, uh, that That defines the roles and the scopes and responsibilities of the members and the managers. And, um, that's one way that the members can, uh, you know, control, if you will, what the manager can and can't do. So in this context, we like a manager because again, it's a third party that is not the ultimate owner.

  And so if that third party is their name is on the LLC paperwork, or if they're signing LLC paperwork, then you're not disclosing the names of the owners. Okay. And so then how would you, so if you're wanting to buy real estate privately, you would have a manager member at LLC with a third party manager, someone that you, that you trust.

  Yes. And then who would be named as the member? Because you can't name yourself. Otherwise, then you're leaving a paper trail that I am Oprah buying this house. That's right. You're Oprah and you're investing in, in Arizona. Um, so the, and again, every state is different. Um, but here. If you have a member managed LLC, as I've said, you have to disclose the names and addresses of all of the members, even if you only own 1%.

  On a manager managed LLC, the rules are different, and this is where we have an opportunity for privacy planning, which is The manager's name and address has to be disclosed to the state on this article's filing, but you only have to disclose the names and addresses of the members that own over 20%. Now, in most cases, if you're buying your home or your investment property, you're going to own 100 percent of the home or of the LLC.

  Um, and so how do we, what can we do? Well, we can use a trust as the member rather than you individually. And if the trust name is again, something off the wall, unique, that doesn't identify you, then no one can trace your ownership of the home back to the LLC because we've disclosed the member, which could be ABC trust.

  And then we've disclosed the manager, which could be, you know, a third party. If, if Grant McKeon is the manager of Ms. Michelle Moses, LLC, if you've never watched this podcast, then you wouldn't know that that she could be the owner, but you wouldn't know that there was any connection between the manager and and the owner.

  Okay. So then there would really, so you really could buy a house privately if you set up an LLC with the trust. Yes, even in Arizona where our state has these disclosure laws. Um, we've already gone ad nauseum on the disclosures for articles of organization, but just to put a cherry on top, every deed that gets recorded here, when you're buying or selling a home in Arizona, If the, if a trust is the buyer or the seller, the deed must disclose the names and addresses of the beneficiaries of the trust.

  Now, it's not as burdensome as one might think because most of the time, if you have a trust, um, the current beneficiary is you. Okay, so we're not having to list every single trust beneficiary that could possibly inherit from this particular trust. But, again, the deed itself, if your home is in a trust, even if it has a crazy name like Abacadabra Trust, if you, when you go to Buy in the trust or sell from the trust.

  The deed itself has to list the beneficiaries and so that fancy name you've used to try to keep this private isn't going to help you when you have to put your name or your and your spouse's name on the deed when you're selling it or when you're buying it. And so that's why in Arizona, um, trust acquisition or sale of a home isn't necessarily private.

  Right. But, but if you had a trust with the manager LLC, then it could be private. Yes, because if the LLC is the owner of the property, Then, the deeds are to and from the LLC, not your trust. Your trust simply has the equity. Your trust owns the LLC. That happens all the time. Um, that's not unusual. And if it's a revocable trust, it's not going to trigger any crazy tax issues.

  Um, but yes, uh, whether you're a celebrity or simply an investor that wants privacy or someone who just owns their own property, And once some privacy, um, to use an Arizona LLC, you're going to need to find someone that you trust to, uh, be your manager. And, you know, your lawyer can prepare an operating agreement that says what the manager can and cannot do.

  You could say that they cannot transfer the home without your written permission. Um, but again, that's all legal documents. Um, and, and, and so they hypothetically could do something without your permission. And now you have a mess. Then you'd have to sue them with those legal documents, basically. Yeah.

  
  Delaware LLCs and Privacy

  So what's the, what is the hype about Delaware LLCs?

  I mean, you see these all the time. So why do people get. So generally speaking, Delaware is known to have very favorable corporate laws. Um, they like to attract business to their state and their, their set of corporate law is part of, of what's attractive about doing business in Delaware. Um, my understanding is that.

  In Delaware, when you file the articles of organization to set up a Delaware LLC, unlike Arizona, the names and addresses of the members are not required to be listed on that document filing with the government. And as a result, um, your ownership of a Delaware LLC may be more private than your ownership of an LLC formed in another state.

  So they don't even know who owns an LLC. Um. That's interesting. So what if something happens and they don't know who owns it? Do we know? Well, I suppose in a lawsuit scenario, you have subpoena power. Uh huh. Um. And perhaps the manager, again, I don't practice in Delaware and I don't set up Delaware LLC, so I don't know the answer, but maybe the manager has an obligation to disclose that information at some point, but when we're just talking about on the surface, kind of what is the basic information that these government entities require to be provided to own a property or to own an LLC, I don't know.

  People like to use Delaware LLCs. And as you know, where we live, I won't name the newspaper, but a certain newspaper in town loves to publish the most expensive home purchases and sales in our town that are always millions and millions of dollars. And this gets published weekly. And oftentimes it's someone with a Delaware LLC.

  Um, but it's just the name of the Delaware LLC. So they've won, right? Because we don't know who the real owner was, but just this week that newspaper published their list of the five priciest home purchases and sales. And one of them was a out of state LLC. But they identified the manager by name. And so if that's, if that isn't a celebrity or it isn't you, then it's a nothing burger.

  But, um, again, at least even our local newspaper is going to do the due diligence to not only identify. The name of the buyer and the seller, but to take the next step and say, oh, it was an LLC. Well, let's go see. Let's see who own the llc. What names are connected to the LLC, right? Oh, that person is the manager.

  Let's publish their name. Okay. In the newspaper. Well, so obviously we don't need to worry about this if you're not a celebrity, but I was just more worried about it just with online stuff. 'cause you never know. I mean, you could just make a random comment on, you know, Facebook or something and then people are jumping down your throat about it or something.

  If somebody got really vengeful. So that's why I wanted to have this topic. So it does sound like that you could at least, um, shield yourself from a lot of havoc and then if you were a celebrity, then obviously you would hire the right people. Or if, you know, um, I've had people approach me that are in a scenario where they do have a very expensive home that's either going to be bought or sold and they are concerned.

  They do not want their name in the newspaper. For a number of reasons, maybe not even anything to do with privacy or safety. They, they simply just do not want that information public.

  
  Legal and Tax Considerations

  Um, I should say that, um, you, we, we, I don't want to create a tax problem for you by doing this privacy planning. So if you do set up an LLC, You do want to ask your accountant or your attorney that helps you set it up to have it taxed as what the IRS calls a disregarded entity.

  A disregarded entity means just what how it sounds. The IRS is just going to ignore the entity for tax purposes. Now, why am I blabbering on about this? Because we all have these capital gains exemptions. When I sell my primary residence, if I'm unmarried, I can exclude up to 250, 000 of gain from the sale of my home.

  Um, great. Um, but if you've put your home into a business entity, then do I still get to claim my 250, 000 capital gain exclusion? Well, the answer is maybe. Um, but if your LLC is a disregarded entity, most tax advisors seem to think that that is okay and that you're still going to be able to exclude the gain even if you've owned your primary residence, not in your name, LLC.

  Okay. So just one tax caveat there. And one other legal caveat. which is most states. Well, some states have a homestead exemption, meaning that by law, some amount of the equity in your house is protected. Even if you have a bankruptcy or even if you get a judgment against you here in Arizona, our homestead exemption has recently massively gone 150, 000 for a long time.

  And all of a sudden, now it's 400, 000. But the statute says that a person or a married couple gets one 400, 000 exemption to protect 400, 000 of equity if they lose their home. It may not protect you if an LLC owns your primary residence. So if you own your house in an LLC and you file for bankruptcy or you're sued, you, your house value, your, the equity in your house would not be protected.

  It might not be. It's, I don't want to say definitively one way or another, but the statute talks about a person can have a homestead exemption. So it's not clear yet. No. And so, um, that might be a reason why Even if you use this LLC procedure to privately purchase your home, you then need to think about, do I want to keep the home in that LLC, or do I possibly want to transfer it to a revocable trust?

  that I own that would be eligible for a homestead exemption if you think you might have creditor issues in the future. So a lot of people won't, a lot of people that are going to pay cash for a house that are going to even be concerned with this aren't going to have creditor issues, but I just want to mention it.

  Okay. All right. So there's a lot of caveats. Obviously, I feel like with any law, when you're talking about wills and trusts and LLCs, it's just It's smart to call a lawyer like Grant, honestly. I think this is good to just know what there is out there, but if you have a very complicated situation, it is important to call the experts so that you know what you're doing, but I'm really glad to know that you could, it is a possibility to buy a house.

  I was just because I was thinking with everything that there is online that you have to disclose and all the articles of organization. And just from what I know, I was thinking that you couldn't do it. So I'm very glad to hear that you can. Thank you. Yes. I mean, everybody that works in this space, law, if you work at a law firm, if you work at a title company or an escrow company, or if you, uh, you know, regularly deal with LLCs.

  You realize that, that there's so much paperwork and, uh, and a lot of this paperwork is public and I try to tell clients all the time that when they sign a deed or when they sign LLC paperwork, I let them know this is going to be publicly available. I know we are. The work we've done is to help you accomplish your goals and we're going to sign it and we're going to make it official, but I want you to be aware that it's going to be anybody can search your name and they're going to be able to see what we've done.

  Uh, and that doesn't apply to all legal paperwork, but it does apply to these real estate deeds like we discussed today. So just know that. There is a lot to it in terms of the paperwork that's out there. I, and I do have a question just because I did a podcast on title fraud, uh, just last week. And, uh, my question is, do you think that the states need to update just with given how sophisticated some, uh, people are getting?

  Do you think that they need to update these disclosure laws or at least zero out the signatures or something like that? Just in your opinion. Oh, it's a great question. Um, the title fraud that I'm aware of that has gotten publicity here in Maricopa County pertains to forgeries. And so, um, it's become very easy to copy signatures.

  in connection with title fraud. Um, the, to answer your question, I do think that in the future, there may be restrictions placed upon the ability to access these documents on the internet. When we search, We search in a lot of counties and there often are long warnings and disclosures about what you can use the information for and what you can't, but a lot of people treat those just like your iTunes terms and conditions.

  Okay, where do I click except let me just get through this. They don't read them. They don't take them seriously. Yes, I do think in the future we may, that information may become more restricted. Um, but for now it's the wild west. It is. And it does take the government a while to catch up. And I realized that, but maybe even just redacting the signatures or requiring a membership site or, you know, something like that might be.

  Um, I don't know what the solution is, but I just thought I would ask you. Yes, it's very easy to find this information now. And, um, uh, for some people, um, you know, and, and, and we didn't touch on this, but, but obviously there are scenarios where government officials, law enforcement officials, if they take the initiative, they can have their home ownership information sealed, if you will, so that it isn't searchable.

  And I have. personally interacted with that, uh, which is, Oh, this person is of high public office. And yes, they own a property and no, their name is not on their property. And you say, Oh, wait a second. Um, but there has been an exception made for their safety, perhaps because they're a public servant. So there's that aspect of this as well.

  Okay. Interesting. All right.

  
  Conclusion and Final Thoughts

  Well, Grant, thank you so much for being on. I appreciate all this information. I learned something. I hope you guys all learned something out there and thank you so much for listening and let us know if you have any questions. Be sure to share the show with the circle of friends if you, uh, care to and leave me a review.

  Thank you so much.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

Re-thinking Retirement into Living For Today

We often think of turning off working and turning on the fun when we think of retiring. Jeff Kikel, of Freedom Day Planning, wants us to think of it differently.

In this episode, we talk about re-thinking retirement from taking 4% of your portfolio to creating streams of income to support your lifestyle. Jeff shares the exact steps he follows to get there and some ideas he and his clients have employed.

If you enjoyed today's episode, share it with your circle, and don’t forget to leave a review!

Contact Info:

Contact Jeff Kikel

Time Stamps

00:30 Meet Jeff Kikel: Entrepreneur and Author

01:27 Understanding the Concept of Freedom Day

01:40 The Shift in Retirement Mindset

05:21 Achieving a Work-Optional Lifestyle

06:55 Generating Passive Income

09:26 Alternative Investment Strategies

15:47 The Freedom Day Method

22:25 Planning for Financial Freedom

23:22 The Importance of a Bucket List

24:04 Challenges of Early Retirement

25:00 Understanding Freedom Day

26:06 Personal Experiences with Job Quitting

27:50 Living the Freedom Day Lifestyle

33:04 Income Strategies for Retirement

37:16 Final Thoughts and Recommendations

40:42 Conclusion and Podcast Promotion

• Transcript

  Introduction to the Me Financial Podcast

  h Welcome to me financial the podcast designed to inspire your financial life. Hello everyone. And welcome to the me financial podcast. I am Michelle Moses, your host. And today we are going to be talking about creating your freedom day. Uh, and I would kind of equate that to somewhat of a retirement, but we have Jeff Kickel here to talk to us about it.

  Thank you for joining us, Jeff. Um, glad to be here. Yeah, I am glad. I'm excited to talk about this.

  
  Meet Jeff Kickel: Entrepreneur and Author

  Jeff is a published author, speaker, and entrepreneur. He is the CEO and founder of T Works Coworking and president of Freedom Day Wealth Management. He helps people find their work, optional lifestyle, what he calls their Freedom Day.

  He's the host of the Freedom Nation podcast and enjoys building businesses and making money. And he gets to travel because of that. So welcome. Sounds like we have a lot in common. I love it. We're in the same business. And I looked at your website and I was like, Okay, we're [00:01:00] going to get along well because you do a lot of the same stuff I did.

  Yeah. Yeah. And, uh, when we're talking about things about creating businesses, I just am fascinated by, you know, the different ways that we can do business and how easy it is to do it from anywhere. And this is just kind of what you are talking about is kind of how I, plan for retirement. And so I'm very excited to talk about what your philosophy is with the mindset of it, but then also what the Freedom Day is.

  
  Understanding the Concept of Freedom Day

  So let's start off with that about what is a Freedom Day. First off for the rest of the show, we shall not use the R word ever. Okay, we shall use the big R word. Big, you know, line through no R word.

  
  The Shift in Retirement Mindset

  Um, you know, I, Freedom Day basically came out of, you know, I've spent 30 years in the investment business and the financial planning industry, um, work for multiple firms and what I noticed was around 2012, 2013, there was kind of a mindset shift [00:02:00] in the clients that I was dealing with and so, you know, I had We're younger, you know, let's call them mid thirties to early forties.

  Um, I call them the, the four hour work week generation. They're the people that grew up reading Tim Ferriss four hour work week. That would be me. I, me too. Um, I read it every year, religiously, twice a year. Um, and have for, since the book was published. Um, and that generation is just kind of wired different from my generation.

  Uh, my generation was, you know, work hard, keep working, get your pension, all this. Yeah. You know, just you get a good job, you know, you get a good education, you get a good job, you just work hard and you'll succeed in the end. Um, that generation's like, yeah, that sounds great, but I don't want to spend 40 years working, then get to the point where, you know, I've saved and scrimped and done everything I could so that I could downsize my house, have one car, take one cruise per year and [00:03:00] wear black socks and sandals.

  I, I just don't want to do that. So, you know, they're the generation that for when they were really young and they were in their twenties, they were like, screw it. I'm going to go, you Half a year and, you know, live all over the world and do that kind of thing. And then they had kids and reality hit and they all of a sudden were like, Crap, I am working a job now, but I don't want to do that lifestyle.

  Right. I want to figure out how to get out early. Now the other side of the coin were my older clients who were You know, in their 50s and early 60s and they were going, crap, I, I, you know, I didn't plan well, I didn't save well, I followed the rules that the retirement industry gave me, and the reality is there's no way in hell I'm going to be able to retire, so I'm probably going to have to keep working, and I'm going to have to downsize my house, get one car, take one cruise per year, and wear black socks all the time.

  So that was the common thread [00:04:00] when I looked at all of that. Well, you know, you have certain clients, and I'm sure, Michelle, you see this when you sit down with a client and You know, they come in with that, Oh God, I'm never going to be able to retire. And you look at the assets that they have and their goals and what they spend.

  And you're like, before I even put it in the financial planning software, this is going to work. You're going to be okay. But you know, they have that kind of negative feeling about it. Well, and most people do have that negative feeling. I feel like, yeah. Yeah. I mean, it's just that fatalistic, you know, I'm just never going to be able to retire.

  Um, and I remember sitting down with my first client that this came up with, uh, about 2013, 2014. And, you know, I mean, I knew the numbers. I'm like, geez, I can do this on the back of a napkin. It's going to work. And I basically told them, well, you have your freedom day. You, you woke up this morning and you didn't have to go to work that day.

  And I saw this kind of smile come on their face and we went through it and they were like, wow, I [00:05:00] don't really have to get up and go to work tomorrow. And I was like, yeah, you're right. Well, I started using that terminology more and more over the next few years. And then I just got to the point where I stopped using the R word completely.

  And we started focusing on Freedom Day. And, and I think the biggest thing is, and to answer your question the long way, what is Freedom Day?

  
  Achieving a Work-Optional Lifestyle

  Well, Freedom Day is the first day that you have a work optional lifestyle. What does that mean? It means you have enough income or assets to be able to generate enough income to not have to get up and go to work that day.

  Well, the difference between that and the R word is the R word is this kind of thing that's out there and there's, it's time bound. Right, and you're going to stop working and you're automatically going to start pulling money, assets out of your retirement. I'm just, I'm not going to live a life for 40 years and then all of a sudden I'm going to hit 65 or 66.

  And then all of a sudden I'm going to start living life and I'm going to have enough assets to do that. [00:06:00] So there's this, you know, that fatalistic thing when you're coming in there and you're coming in hot at 62 and 66 is the place and you're not going to make it. And we've been so brainwashed into this thought of, well, you have to have these assets.

  and not what you should be thinking about is you have to have a certain amount of cash flow to live your life. Right. Well, Freedom Day, I mean, I could have, you know, I, and I've proven this thing three times since I got my Freedom Day. I was like, you know what, I'm going to start all over again, something fresh.

  Um, the one skill that I learned over the last 10 years of my life is how to make money. Um, I understand now how to make money. And so you can drop me in any place, give me a few dollars, and I'm going to figure out how to make money. And I'm going to generate enough income within a very short period of time.

  
  Generating Passive Income

  Now, are you trying to always, are you always trying to make a passive [00:07:00] income or are you just trying to make an income? Um, well, I mean, at the beginning, you're probably going to have to make an active income, but you know, my goal is to get to passive as quickly as possible. Okay. And by talking about passive, what do you mean by passive income?

  Well, I mean, it can be a multitude of things. It could be that you create, you know, best example of going active to passive. Let's say I have some kind of skill or I want to develop a skill. I want to be able to do SEO for local businesses. Okay. So search engine optimization, it's a skill that can be learned.

  It's really, it's really not very complicated. You just have to understand how web browsers work. So I can go out, I can learn how to be an SEO, you know, how to do SEO. All I have to do is know enough about SEO to talk about it, get my first client, and then I can use that money to pay for a course to learn how to do SEO and over deliver for that client, and then take that money [00:08:00] and continue to go and get additional clients and grow from there, but then my price for what I do is going to eventually get to the point where Thank you.

  You're welcome. I'm kind of capping out, you know, the maximum I can do with time. Well, what would I do then? Well, there's tons of people who work overseas, who work in, you know, I mean, I was in Europe, in the Czech Republic. I mean, Czech dollars, Czech kroners, I still don't understand. It's like monopoly money to me.

  But I could literally hire somebody over there that would cost me probably a hundred dollars here for like twenty dollars an hour over there and they would be making bank. So I could become the sales force at that point and manage a team of those guys and then I could scale that business in a passive way.

  So I'm not having to do the physical work. That's one example. Okay. Um, another example. And I mean, this, this year is my. Year of [00:09:00] what I call 5 by 10. So what is 5 by 10? I have 5 revenue sources. And my goal for this year is to take all 5 of those revenue sources, 2 of which are brand new, and get each of those to 10, 000 per month, every month, this year.

  So that's going to generate 50, 000 in revenue per month. Most people make in a year. Yeah.

  
  Alternative Investment Strategies

  And I like that you're talking about actual businesses because I feel like most people talk about passive income and they're talking about, uh, having rental homes. And while I think that's great, I just don't think everybody can have a rental home.

  I mean, that's just not the story for every single person. And it's not the right reality is you follow the 99 percent of the gurus out there, what they do. I mean, it works. but it works until it doesn't work. Um, you know, so the reality is, okay, I go out there, I use the burr method. So buy, [00:10:00] renovate, rent, refinance, repeat, you know, so that's the method that most real estate investors use.

  Well, the problem is you're leveraging the hell out of those properties and you know, you're, you're paying a mortgage and then you're getting rentals and you're maybe making an extra 200 a month if you're lucky. Yeah. You have to have so many. Yeah. Hope that nothing breaks. Yeah. That you don't have a renter that destroys the place and all that.

  So, you know, one of the, one of the guys I interviewed on my podcast, a guy named Scott Jellison, um, you know, Scott taught me a technique called slow flips. And you know what a slow flip is, is you find a house that's an absolute pile of garbage, you find an investor that's willing to back you, um, you know, typically most of these properties are 30, 000 and below, and they're out there, trust me, um, and you effectively buy that piece of property on a five year [00:11:00] note, to that investor at 12%.

  Um, now I've, I've got control of a 30, 000 piece of property. I immediately turn around and sell that to someone else and carry the financing myself. So now I don't own the property. I become the bank. And you know, if you'd asked me what I wanted to be when I grew up, Um, I wanted to be the bank. Yeah, I really understood how banks work and all I do is collect checks now.

  So that took me from a traditional real estate investor where, you know, I had figured out ways to make more than that extra 200 a month, but now I have none of the headaches of, uh, you know, somebody there, I have none of the headaches of, you know, managing a property. I have none of the headaches of. it being empty for a while, all of a sudden I just get an upfront, you know, amount of money for a down payment and I get checks every month.

  And so my job is to [00:12:00] deposit checks once a month into my account. Because you were willing to take the risk on the house in the first place. Yeah, exactly. And then I figured out a better way of doing it, which was to find tax deed properties in certain states where I was able to go in and buy a house for like 1, 000 and then do the same technique.

  So I was able to fund that out of my pocket. Yeah. And now I have no debt on properties and I have nothing but cashflow coming in. And so that is literally my job every day besides managing client accounts is I find those properties, acquire them and turn around and slow flip them. Okay. All right. I like that.

  And you also, and then you help people find their freedom day. Is that the other part of your business? Yeah. Okay. Well, I mean, a big part of what I do is teach. Yeah. So, you know, there's a, I only work with a very, very, very specific segment of investors. Um, you know, they're, they have to have a certain amount of assets.

  They have to be [00:13:00] willing to do some things a little bit outside the box. As far as investing, I don't do stocks, bonds, cash. We do things that, uh, that generate. income streams, and those income streams are going to come in way, way higher than what your typical, you know, stocks bond cash portfolio is going to be.

  I just call them alternative investments. I call them all alternatives. And these are really not alternatives. They're just out there. Yeah, they are just out there. Subsegments of the market and their strategies. That I've learned, and I've used, you know, I basically am always the guinea pig, so I test it in my own portfolios, and once it works, then I bring it out to the clients, but because of that, some of this stuff is a little bit more hands on and requires more work.

  Right, right. Um, you know, so I, that, I do, and then through my podcasts and the books that I write and all that, that's for the mass market. It's for those people that are sitting out there that are, uh, what I call a cubicle warrior. They're sitting in a cubicle, they go there every day, and they die just a little bit every [00:14:00] day.

  Um, I want to help them to say, Oh, well, maybe I've got a really cool skill that I can do. You know, maybe I'm great at making PowerPoints. Okay, well then, let me go sell that skill to somebody else, and once I get to the point where I'm really good at that and I'm making money at it, then I'm going to find some other people who are like me, or I can train, and then I'm just going to bring them in, and now that's a passive income source for me.

  Other people are doing the work. Well, and I think even when you're talking about people that are going to a cubicle, like for your example, uh, and they do want to, a lot, a lot of people don't want to completely retire. They want to be enjoying their life still and to do things that interest them. And, um, so I do think that retirement has become, and I know that you're talking about freedom day of a hundred percent, you know, having passive income or replace your income, uh, your current income, but, uh, that sometimes people will work and then they could retire just a little bit [00:15:00] early because they could supplement their income with a part time job or some one of these skills also.

  So I do think we're definitely seeing this hybrid thing because I know that I don't really want, I enjoy working, but I get to do what I want to do. Uh, and so it's the same thing for these people that go to a job, yeah, that they could just at least. So, so I, even if you guys, I think some people, um, do enjoy going to a job.

  I have learned this over the years. I thought everybody hated going to an office, but there are some people that thrive on it. But I do think that you'll get something from listening to this just because when you do retire, you could supplement your income with, because it is stressful to go into retirement and then go from earning all this money to all of a sudden turning off that faucet.

  And then all this, you're, you know, taking money out all of a sudden.

  
  The Freedom Day Method

  Well, and you know, I think the biggest thing is, you know, what, what I, so I created what I call the Freedom Day Method. So it's an eight step process. You know, I mean, it's, it's pretty simple. So, you know, step one. You've [00:16:00] got to figure out your situation.

  So you've got to figure out your cashflow situation. So you do, you sit down and you look at what's coming in, what's going out. Uh, first off, if it's going the negative way, uh, you've got to figure something out pretty quick. You've either got to reduce expenses or increase income. And then second step is we have you build a bucket list.

  Now, everybody thinks that the bucket list is like something you do when you're ready to die. Well, I think everybody needs a bucket list from early on in life. Why? Because you need those things to kind of be those carrots for you as you go. So then step three is you're going to look at some kind of alternative income outside of your job.

  So what could that be? Well, it could be real estate investing. It could be, you know, you've got some kind of special skill that you can sell. Uh, there's two sites that you can go to Fiverr and Upwork. where you can actually utilize some kind of skill, even if it's the skill that you have from work. I mean, [00:17:00] that's true.

  That's a good point. I've even seen people help people do couponing and do, you know, Ebates and things like that. Like they help people maximize all that money that are active income. It's where you have to actually put out effort. to do. Maybe you have to find clients. Maybe you need to, you know, you've actually got to do a project or whatever.

  But what we do is, when we do our bucket list, we pick out three things that can be done in the next six months. that have some kind of price tag to them. I'll give you an example. So when I did my first bucket list, it was right when a whole lot of turmoil was happening in my life. I went on a business trip.

  It was a, there was a, you know, industry vendor conference, went to this thing. I didn't want to talk to anybody. So I was in my room all by myself. And we had gotten a bucket list journal when we got there. And so I was like, crap, I've never done this before. I'm in this really pretty place. I'm just going to do this.

  And so I did my bucket list and I came up with. [00:18:00] And this happened last year. I realized that, you know, anything that flies, floats, drives, I am an absolute passionate about. And I realized that I had 10 things on my bucket list that were things involving flying, floating, driving, something like that. And there was 12 of them.

  And I was like, you know what, if you do the math, everything costs about 400 a month. And so I'm like, you know what, I'm living what I eat. So here's what I'm going to do. I'm going to create a, you know, a source of revenue. So basically what I, what I was able to do was acquire a property. I turned around and I started using that property for midterm rentals to nurses.

  That was really how we got into the real estate business was we started doing midterm rentals for nurses. Now here's the beauty. If you want to be a rental person, rent or find properties close to [00:19:00] hospitals. And then take those things, furnish them, put them up on, on furnish, uh, furnishfinder. com, which is where all the traveling nurses go to, and you have the best tenants you'll ever have, who pay you double the amount of rent that you would normally get.

  and they stay for like 13 weeks at a time, sometimes 26 weeks when they're on a contract. They do not complain. They do not trash your house. All they want is someplace safe and quiet to come when they get off of a 12 hour shift. Right. So that piece of property, that one piece of property was generating 500 a month.

  So I'm like, cool. So now I'm going to go live my my little dreams of all the things I wanted to do. And so I went and drove a Lamborghini on the, on the, uh, F1 track here in Austin. Um, I drove a James Bond car, you know, the, uh, the, uh, V8 Vantage in England when I was [00:20:00] over there. Um, II planes last year, uh, did all of this stuff.

  And it was all paid by that 500 a month. It was coming in that way. So that's what we do. We figure out a way to make that money. Well, and that's what I love about what you're talking about is that a lot of people would say, okay, earn this, and then you're going to save it. Whereas you're saying you're going to earn this and then you're going to reward yourself.

  And tell us what you, what you talk about rewiring the brain. Cause I really love this. It's spot on. Rewiring the brain is, is we start to realize. Okay, I want this, and I'm not going to put it on credit, I want this, and all I have to do is make some kind of money to pay for this. And you realize that 400 is not too hard to make.

  Now, let's say I wanted to go ride that, so if I wanted to drive a Lamborghini in Austin, at the F1 track. It costs 468 to do that. What could you do to make 468? Guess [00:21:00] what? You can sign up for Uber today. You can go out and drive Uber for a week and make more than 468. So that you could go do that. And you'll get, and you're driving a Lamborghini.

  Right. At the, at the F1 track. So it's not hard to make money, but what it starts to teach you how to do is, if I want this, I need to create some kind of source of income to do it. Yes. So, that's an active income way of doing it. Mine was a passive income way of doing it, taking a skill that I knew and turning it into something That gives me, and then once I was done last year, when I finished in December, I still have that 500 a month of income that's coming in that I can do whatever I want with.

  So now we've got our brain retrained. We go to our next step, which is step four. And that is we are going to eradicate debt in our lives. So we're going to get really fast, really serious about creating more and more income outside of our job. That's going to get rid of our debt because you're never going to [00:22:00] be free if you have debt.

  And are you including housing debt in this? I that's my last last thing to go. Yeah, that was my one question because I don't know that I mind housing debt, but I wasn't sure. No, I don't. You know, because I mean, you got to have someplace to live. You know, I have a 2. 75 percent 30 year mortgage. I'm not paying.

  I mean, if I, if I'm not smart enough to make more than 2.

  
  Planning for Financial Freedom

  75%, um, I need to fire myself at that point. So I don't get rid of all that, basically that, except for your house. I mean, and the goal for this year is I told you I I'm doing the five by 10. This year, uh, the goal with the five by 10 is I already have enough income to live on.

  So that five by 10 is going to pretty much eradicate the two pieces of debt that I have left in my life, which is solar panels that I put on my roof and the house at that point. And literally within a year and a [00:23:00] half, I'll have that. All, all of that will be paid off and then I'm free and clear at that point.

  All right. It's the only way I would do it. I wouldn't do it any other way. Okay. And so when you work now, and I will get back to the steps cause I know we're not done, but when you work now, uh, is it basically to go and do the things that you want to do, like you're coming up with new things? Yeah.

  The Importance of a Bucket List

  And that's why you have to have a bucket list.

  So this is another reason you've got to have a bucket list because there, there are some other strategies similar to this. I will say. Uh, that are out there and they shall not be mentioned, um, but that was one of the things that as I saw the movements of people that are like, I want to retire early. And what they do is they would live, you know, like poppers, like poppers forever.

  I just don't think, yeah. And then they expect to be able to just, oh, you're going to live this fantastic life and all that. Well, if you've lived like a popper for 10 years, you're not. And if you were disciplined enough to do that. You're not going to be able to go, [00:24:00] Oh, well now I'm going to live my life all over the world.

  And I'm going to do this and that.

  Challenges of Early Retirement

  And well, and that's how I feel when people come to me and they want to retire at like 50 or 52. I'm like, well, yeah, you, you have enough, but you need to budget. I'm like, you're not going to be able to live. Like you can now. And they're like, Oh, I'm like, well, yeah, you have a lot, but I mean, you're going to live to your 90 or 95, you know, like that's a 40 years in that traditional lifestyle.

  Yeah. 40 years of just taking my, that's a long time to, long time to have to rely on that. Yeah. You know what the industry tells you is, well, 4 percent per year. Well, that works all fine and dandy until you have inflation. Right. It's just the unexpected. Well, and all the unexpected stuff. I call it like, you're going to be.

  Uh, you're going to have fingernails on the wall because you're going to be so worried about what your investments are doing versus if you are just working part time or doing some consulting or, you know, whatever it is, it's going to alleviate so much of that [00:25:00] stress. So, yeah.

  Understanding Freedom Day

  And it's, you know, the reason I say Freedom Day is.

  Freedom Day gets you to the point where, you know, and we'll get to that next step, which is when do I get to my Freedom Day? Well, Freedom Day is the day that I have a hundred and twenty five percent of what I call my MRI, my minimum required income from the first step. What is it that I need to bring in per month to live?

  Yeah. Not to go, you know, on a world cruise or anything like that. But what do I need to live my life on a monthly basis? Once I've reached that point, You're now at the next step, which is step seven, which is, do I quit my job or do I stay? Getting to your point earlier, which was, well, there's some people that like doing what they're doing.

  That's great. If you love doing what you're doing, you are going to be the best employee that's ever existed because you know you don't need to be there and you got up, went to work because you [00:26:00] love to be there at that point. And that's when life gets really good, is when you just enjoy what you're doing.

  
  Personal Experiences with Employment

  I was, when I, you know, I, I did this all wrong, by the way. So I did everything out of order and I quit my job and started my businesses. Mainly because I just absolutely vehemently despised the company I was working for. No, that's, that's how I did it. And then I was broke for quite a few years and had debt and then had to pay it off.

  And it was, yeah, not good. I would not recommend it, but I couldn't take it. No wonder we get along well. I could not take it. It was like going to prison every day. Yeah. No, I mean, I, the, the, the last, The last review I've ever had working for anybody, uh, the president of the company, when my idiot of a boss walked out of the room to make a copy of the worst review I'd ever gotten in my life, the president of the company looked me in the face and said, you are the worst employee we've ever had working for us.

  You're too independent. You want to just go do things without permission. And I was like, [00:27:00] but you hired me to do that. That's what I was hired for. While your other morons here are just sitting in the office, sucking in leads coming in. I was out there generating business for you. Um, so that was my, that was my, I'm never working for anybody.

  I don't, I'll live in a car before I work for somebody else. Yeah. Yeah. Okay. Um, but. Yeah, it's much better if you have the income already. Yes, and you plan it and you don't have to go through the stress. Yes. Yeah. And it's less stressful. And if, like I said, if you're that person that hates what you do for a living, you are going to be the worst employee that has ever existed.

  And the fact, you know, you get up every day and you don't have to be there and you're going and you hate it. You're probably the person that needs to leave that job and then go to step eight, which is you live.

  
  Living the Freedom Day Lifestyle

  the Freedom Day lifestyle, which is, hey, I've got my, my map, my, my bucket list that tells me the things I want to do in life.

  I'm probably still going to have [00:28:00] to do some kind of work, but you know, if it's managing my investments, if it's, uh, finding real estate opportunities and taking some money and putting it into there and generating revenue, whatever it is, It's well, we're learning a new skill. Yeah. And I think that people get too caught up in that it's either real estate, you know, or it's whatever their job is, or it's consulting and it can be so much more.

  And that's what I appreciate about your outlook is that it could be driving Uber. It's, it's not that your work goes away. I mean, even the four hour work week is work. I mean, you got to work a lot to get to the four hour work week. Yeah. And so it's the same thing. I mean, you're still going to be working.

  It's just that you're going to be doing it in a different way. If you looked at more enjoyable. Yeah. What, I mean, what Tim did was okay. He built a business that I mean, basically he just sold and had all this crap ton of money, and then he put it into other investments. But, I mean, what did Tim do? I mean, Tim went from okay, I'm a stressed out, freaked out [00:29:00] entrepreneur to hey, I want to go travel the world, I want to go to, you know, I want to go to, to Buenos Aires and learn tango and then compete in like a national tango competition and win, I want to go over to Japan or over to China and you know, figure out how to win a, a, uh, a kickboxing championship and stuff like that.

  So he, he had things that he was doing in his life. While he was working. Yeah. Well, yeah. While he was working. All the stuff is in the background with Brain Balor, with Brain, whatever, Brain Quick, which that was his company. He basically made it to where he only had two clients. Um, and that was just generating enough revenue for him to be able to do whatever he wanted.

  And so. I think that's the part that people miss or they don't understand about. I agree. Yeah. Was, oh, well, you know, you can just work four hours, you know, a week and, you know, that's it. Well, yeah, you can. I mean, I. It gives you the [00:30:00] option to work four hours a week if you need it, but not every single week.

  Are you going to work four hours? Yeah. I mean, I. It gives you just a flexible lifestyle. I was on vacation in Europe. I worked for exactly, uh, 35 minutes in a bar in Prague, um, doing some of the, the trading strategies I do for clients. I do that once a week, you know, basically 9am, 9am to 10am in the market here in the United States was about four o'clock in the afternoon in Prague.

  I was sitting in a bar. All I needed was a good internet connection. And I made, you know, myself and my clients probably about 25, 000 in a period of 25 minutes with a, with a, you know, a nice. Well, and that's what we're talking about. It's not that it's going to happen every single week because you put a lot of work in to get that, to get to that point.

  And so, yeah, it's the point of just having the flexibility of not having to be at a desk. [00:31:00] Yeah, it was my proof that I could do that. That was kind of the final test of, okay, if we decide in the next year or two to go and spend a month, let's say one of our bucket list items is we want to spend a month in the Cotswolds in England.

  So that means if it's a month, that's going to be four trading Fridays and one portfolio trading day plus I've got, you know, real estate purchases that I'm making. So could I be able to do that? And so during that two week period, I was in Europe. I bought two pieces of property and I traded one day, was only one Friday where there was a trading day in that time period.

  So I, I traded the day I left and the day, the next week. And, you know, I was able to do all of that and still visit 13 Christmas markets, four different cities. Then planes, trains, automobiles all over Germany. Drink some old wine over there. No, blue wine I can't take. My wife [00:32:00] and I tried that in Munich and we're like, It's rough.

  Okay, so we literally, we shared one and it was like, Here, you finish it. No, you finish it. I know, I thought that I would love it, but it wasn't my shtick. I don't like hot wine. Hot wine. It was more the flavor for me, but it was a little strong. It's hot. And it's yes. Okay. So anyway, okay. So back to the steps.

  So you, you reach 125 percent of your monthly income that you need. And then you're at your freedom day and then you have the option to either work your job or you can go off and do your, what your chosen job. Step number seven is what I call, should I stay or should I go? Oh, I like that. Should you, should you stay or should you go from your job?

  Um, no matter what happens, whether you stay in your job, whether you decide to leave and go do something else, that next step is step number eight, and that is day lifestyle and you've got [00:33:00] to, you've got to fill in the void of getting up and going to work every day.

  
  Income Strategies for Retirement

  Um, you know, I always loved, you know, when I was, when I was still using the R word and I was talking to clients and I, you know, I, I realized what I did bad as a financial planner, which was, I was taught to do, which was you focus on the numbers and you don't focus on, you know, The next step.

  What's that gonna be like? Because in our business, you know, you know this, in our business, when somebody leaves their job, there's one of two things that happens. They're either a natural spender or they're a natural saver. So if you're a natural saver, that becomes the most stressful part of your life because you're used to going, well, I go to work and I make X amount of dollars, and I take X minus four and take that four.

  And I put it into investment accounts and I keep building. Well, that's why I hate that 4% thing. Yeah. You guys all need to go back to my, how I plan for [00:34:00] retirement because my, my clients don't feel that way because of the way that I planned for it. 'cause the 4% thing is, again, you're climbing the walls.

  Yeah, yeah. You're stressed. And, and, you know, you need to focus on the cashflow part. So the people that are good savers, if you follow the traditional cash, or the traditional retirement route, last time I'll say that, um, that says, okay, well you save this amount of money and then you can take 4 percent of that out and you're going to have it invested kind of conservatively and maybe make 6 to 8, you know, 6 to 7%.

  That's not bad. And then taxes are in there and everything else. And that's what you're going to live on. Well, now, if I'm not, you know, now I'm living on that and I'm going, well, crap, I'm not saving now. I'm totally stressed out. Yeah. The. Whereas if you have something coming in, then yeah, then you're not as stressed out.

  Yeah, you're not stressed out at all. You know where your money's coming from every month. Um, if it's passive income, okay, I don't really have to work to do [00:35:00] that. I can go and do stuff all over the place. Well, there are, and the people that I feel like are savers and that, um, Are good retirement, they actually do set up their own, um, kind of passive income.

  And it might just come from utility stocks or dividend, different stock, you know, stuff like that. Or they have one rental home that the, you know, they do have those little things where it's like, okay, it is making money versus I think what people picture is, okay, I have all this stuff just like my 401k, it's all in stocks and bonds.

  Mm-Hmm, . And then I'm hoping and praying, you know, living on a prayer here that I can make 4%. You know, and that that's how people picture it. And it's not that way. It is way more con. No, you don't want it convoluted. No, you don't want it that way because that's the way to set yourself up for stress. Yeah.

  And the way I used to do planning, and I still do for some clients that have a lot of money and you know, they have enough that lower returns can get them by. You know, I've always done planning to say, okay, let's bucketize this. And we're going to put one [00:36:00] bucket into something that's guaranteed that, you know, you're going to get, so usually we'd use an annuity.

  Um, and I'm not a big, you know, there's all kinds of annuities that pay us really well, but are crap for clients. I would typically just say, well, we're going to put it into You are speaking my language. Yeah, we're going to put it into a guaranteed annuity. That's what I do. What's called a SPIA. That's exactly what I do.

  Then I have a bucket number two, yeah, it's medium and then bucket three is like, let's just pretend to just let it ride. Yeah. Well, and you know, it's bucket two is our discretionary spending. So we might just take a certain amount of money. Maybe we take a hundred grand and we're going to burn through that over, you know, five years and we'll make a little bit of interest, but it's.

  riskless, and we know we'll have it. And then we leave our growth bucket, which is our biggest piece to grow for five years. So wait, I make time my friend instead of my enemy. Exactly. And then I just in five years, I'm going to refund that middle column again. And we'll just keep doing that. Yeah. Yeah.

  [00:37:00] Somebody's got enough money, they can do that. Yeah. And it is a big mindset shift, I think, for that, you know, and that's the thing is that you're and that's all you're talking about, too, is like, we're reconfiguring how your money is coming in. Yeah. So that you can change your mindset about it. And that's what I think is so beautiful about what you're teaching.

  Yeah. And if you, you know, so here's, here's the thing that I would tell you, if you're out there listening one, find somebody like Michelle or myself that can talk about income strategies with you. If you have somebody that's just telling you, well, we'll just put it into a portfolio and then we'll just pull 4 percent off of it.

  run, run fast because they don't know what they're talking about. Um, because that, you know, once again, like I said, with the Burr strategy of real estate, it works until it doesn't work. It works until you have a year where all of a sudden the market, you know, cranks down 30%. You know, we have a 2008 again where nothing made money.

  I mean, there was absolutely zero. The [00:38:00] only thing that made money was treasury bonds. And that was only like two or 3%. Everything else lost. massive amounts of money. And if you're living off of your portfolio at that time, you think your stress level goes up when 30 percent of your assets just disappears.

  And you're 85 years old and you can't enter the workforce again. I mean, this isn't, we're not just talking about right when you retire. I mean, you gotta be thinking about, are you 82? Are you 85? You know, that kind of thing. Or, um, or you're 65 and it's like, okay, now 30 percent of this, you know, just, yeah, I just retired and I have to figure something out.

  Whereas what we're talking about is much more at, I call it just, you're taking control of yourself. You're not being a victim to whatever is happening out there. And that is, that is the best way to not stress out about your finances is to be active and to, yeah, take control of it. Take charge of it. So, yeah, so I really like, yeah, I love your strategy.

  Am I missing anything? Have we missed anything to cover? I mean, it's as simple as that. I [00:39:00] mean, it's one of those things that I'm like, it's not hard. I didn't invent any of this stuff. I just figured out how to put it together in the right combination and be the Guinea pig who screwed it all up for 10 years to get to that point.

  That strategy will work. All you have to do is follow those eight steps, and if you just follow those eight steps, you'll get there. And you'll get there as quickly as you want to. You know, some people, Freedom Day could be, you know, let's say I need to make 5, 000 a month. You know, that's what I need to live on.

  Well, 5, 000 a month, I mean, I could do that in probably two months pretty easily. It's not hard to do that. I mean, you could go out. I mean, this is what I did when I stupidly, uh, quit my job and started a business or started two at the same time. And I was getting to the point where I'm like, Oh crap, we're running out of money.

  We're not bringing enough in. Uh, my plans were not working exactly as I'd planned. Well, I was like, what do I know really well? Well, I know how to get money [00:40:00] from banks really well. So, I started going on to Upwork and I was selling business planning services for a thousand bucks. I would do a business plan for you that, I would personally guarantee that we would get funding for, uh, because I would work with the bank for a thousand bucks.

  Cause I was like, I need money fast. I can do about one of those per week because I had a really good template and I was good at talking to bankers. And I'm like, for a grand boom, I guarantee you will get funding or I will refund your money. So, I mean, that was paying my 5, 000 bucks a month that I needed to survive.

  I like it. The other businesses. Yeah. Oh, I love it. Thank you for the examples and everything.

  
  Final Thoughts and Resources

  Uh, and we will make sure you guys listen to his podcast too. He's got, uh, again, um, that what's the name of your podcast? I'm sorry. Uh, is FreedomNationPodcast. com. Yes. If you go to that, it'll take you to the podcast.

  And if you're, you're on Apple Podcasts, so I did [00:41:00] subscribe, but if you go to his podcast, he does have examples of where he's walking people through and talking more about this. Uh, and I do think that it is a, uh, great way to be thinking about your finances. So I really appreciate you coming on here.

  Thank you. Thanks, Michelle. I appreciate it. It was wonderful. And, uh, It's good to have somebody else in the trenches that, uh, that believes the same thing. I know we got to come together sometimes, you know, especially when you go to some of these financial meetings. Uh, and you guys will, I'll have Jeff's information in the show notes.

  I'll have a link to his podcast. Uh, he has a book. He's got all kinds of things that you can check out. So thank you again for being on and everybody. Thank you so much for listening. Uh, be sure to tell your friends, share with your circle and subscribe to the podcast and let me know if you have any questions.

Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.

Annuity Basics

Annuities get a bad rap, but are they truly in the "do not use" zone? In this episode, Michelle discusses the different types of annuities and how they can fit into your financial plan.

You'll Learn:

• The various types of annuities and their functionalities.

• How annuities can be structured to benefit your retirement goals.

• Real-world scenarios where annuities might be a good fit.

• Michelle's honest perspective on using annuities with clients.

This episode is for you if:

• You're nearing retirement and exploring income options.

• You're curious about annuities but unsure of their role in your finances.

• You want to make informed financial decisions for your future.

Time Stamps

00:20 Diving into Annuities

01:47 Understanding Fixed Annuities

03:59 Exploring Variable Annuities

06:17 Immediate Annuities Explained

08:29 Deferred and Indexed Annuities

11:46 When Annuities Make Sense

17:08 Final Thoughts on Annuities

19:40 Conclusion and Listener Engagement

• Transcript

  Introduction to the Podcast

  Welcome to me financial the podcast designed to inspire your financial life.Hello everyone. And welcome to the podcast. I am Michelle Moses, your host.I'm a certified financial planner, realtor, and former e commerce store owner.

  
  Understanding Annuities

  And today we're going to talk about annuities. I should have like. Fireworks going off or something I know everybody's favorite annuities, right?

  I mean, look at the things I get to talk about on here. Life insurance, annuities, uh, and I'm going to give you my opinion about them. People have a lot of questions and I see online that, uh, most people hate them. Honestly, if you're going to look at, um, like Dave Ramsey or something like that, they say to never buy them.

  Uh, and I'm going to tell you just different ways that I have used them. I've probably sold maybe I've been doing this for 20 years. So it hasn't, there are few and far between, and I'm going to tell you [00:01:00] when I do use them. And sometimes people ask for them and that's what the way that they feel comfortable.

  So, uh, annuities are basically, I'll go over what they are and then I'm going to go over, uh, the different categories of them and which ones I would pick for different situations. And most of the time it's when. People are retiring. That, that is most of the time. Uh, and I think if you were trying to make your own pension, then that might be one, but we'll go over all the different ones and the different instances where I would use one.

  And annuities, you know, I think you need to keep in mind with any product, any financial product. Life 401k. I mean, the bigger your financial product is, you The more money you're going to be paying somebody like me and the company. So an annuity is a contract between you and the insurance company and you are paying them for guarantees.

  That's basically what it is. You're setting up your own pension plan. There are a million [00:02:00] bells and whistles. I mean, I can't keep them straight and a lot of the people that I work with, so as an advisor, what I do is I call companies and they're these marketing agencies that we work with and you call and you say, Hey, I got Joe and he's such and such age and this is his situation.

  What do you recommend? This is kind of what we're looking for. You know, we'd like to make sure that he's going to get 1, 000 a month when he's in retirement. What do you have? Then they come back with these different things and then they're telling me about the bells and whistles because it really is impossible to keep them all straight.

  There are so, so, so many. Thousands. And I want, I think we can simplify it in this talk today. And so the, when you are going into retirement, you'll know which ones to pick. You've got different categories.

  
  Fixed Annuities Explained

  So there's a fixed annuities, which are basically, Hey, put this in here for three years and we're going to pay you 5 percent a year, pretty simple, right?

  I mean, kind of like a CD. Then [00:03:00] when you take your money out, then you can go do whatever you want with it. It depends, obviously, if it's an IRA, you'd have to roll it into another IRA, but it's something, you know, that you are guaranteed. And I think that's what you kind of have to think is top of mind when you're talking about annuities is that there is a guarantee and that's what you're paying for.

  So you're not going to make as much as in the stock market. You're just not. And a lot of them tout that, you know, that you can get in the stock market and look at how much it can make, but you're paying all of these fees and you're basically buying. A lot of, uh, options, so they're calls and puts and things like that to guarantee that they don't lose a lot of money and I'm not saying they all do that, but you know, you're paying money for all of these different contracts.

  You're paying money to do those trades. You're paying money to the insurance company, so you're not going to make as much as you would just putting it into index fund at, you know, Fidelity or something. So, you know, It is more expensive, but you are going to get a guarantee when you get into an annuity.

  
  Variable Annuities and Their Complexities

  So fixed [00:04:00] annuities, you know, you get a fixed rate and then you go into variable annuities and those are the ones variable means they go up and down with the stock market. This is where you can have a lot of bells and whistles. They've got like these income. A lot of them have income in them that the word income, I should say, you'll put all these writers on it.

  And basically a lot of times what they do is when your money goes up in the stock market, it will lock in that amount. So let's say you put in 50, it goes up to 60 and it goes back down to 50. If you had this, uh, income writer on there, they're called writers. Then you could lock it in at 60. and not go back down to 50.

  But the caveat is, is to lock it in at 60. You got to keep your money in there forever. You cannot ever go out of that annuity contract and you've got to annuitize what's called annuitization, uh, with the company. And so that's not really the way that I think most people understand it. They go, Oh, it goes up to 60 and then I lock [00:05:00] it in and then I'll be able to live off of that.

  Well, you'll be able to live off of that depending on how you choose to take the money, and we'll get into that later. And I'll come back to that example. So the variable annuities go up and down with the stock market, and they also have a lot of riders that would go with them. So you can have an accelerated.

  benefit, uh, rider, which would basically mean if you got a terminal illness, then it would start to pay out. You'd, you'd get a letter from a doctor and all of these little things that, you know, like if it's a long term care rider, they have those on there too. I haven't really seen where it's easy to satisfy.

  The, uh, conditions. I always worry about what I'm saying on here, honestly, that I'm gonna get in trouble, but I've never seen anybody be able to satisfy these things. It's kind of like these people that bought these long term care policies and they came to me 15 years ago. I mean, I've had people, they paid on those for 15 years and they literally got like 2, 500 back.

  Because, and they, they were, I mean, their parent was sick, you know, having [00:06:00] home health and all of that. So I, I really think some of these writers, I haven't seen a lot of them pay out. You know, if somebody is promising that, then hey, but you know, most of the time when people are doing, um, annuities with me, it's because they want to guarantee.

  So they're either going into the fixed annuities or we're going into what's my next topic.
  
  Immediate Annuities for Retirees

  It was immediate annuities and that's basically where you take money. So let's say you took 100, 000 and you put it in there and it would start paying within the next six months. And we, we do this a lot. My clients like these because if you listen to my other podcast, I talked about, uh, how I split up and do buckets of money with retirement.

  And so I split it up between three buckets. And in the first bucket is the one that we're living on right now. And a lot of people, uh, over the last 10 years have chosen to do what's called an immediate annuity. You give your money, they can immediately tell you what you're going to get in six months.

  And so let's say, you know, you had to put in 100, 000 to get 1, 000. a month payment every single [00:07:00] month because that's what the difference was between social security and what they needed to just live in the maybe they have a pension or you know, something else that is out there, but that's that was what we need to take out of their actual money that they have saved inside the four one case.

  And IRAs. We will sometimes do an immediate annuity again, we could do this outside of an I could just put it in bonds, but bonds go up and down, you know, like we could, When people are retiring, it's just a different mentality. I mean, it really, people go from, you know, like I accumulated all this money. I just don't want to lose it.

  I mean, that's what a lot of people, they're like, I just, I just don't wanna lose it. And so I don't care about making 8% and 9%. I, I would say the, I I, the average person, they just don't wanna lose any money. And so whatever we can do to just make sure that their retirement is comfortable, that they can sleep at night.

  And again, that is my job, is can you sleep at night? I, that's what we're gonna do. Uh, I, whatever my beliefs [00:08:00] are, it goes out the windows. I want it. To be so that people can sleep at night. They're not worried about their money. And so an immediate annuity sometimes does this when you're going into retirement.

  Uh, I'm, I'm sure there's other things that you could use it for. You know, there's a new rule for the, with the Secure Act quite a few years ago where you've gotta get money out in 10 years. You know, maybe you wanna use it for that. But there's, so there's fixed annuities where you get the fixed rate, there's variable annuities, uh, and immediate annuities.

  And there is, which you'll see online, another fourth option of deferred annuities.

  
  Indexed Annuities: Pros and Cons

  Those are kind of the same in my book, uh, as a variable annuity or like an indexed annuity and an indexed annuity. Uh, boy, you guys, I really am not, I'm not a huge fan of them. I, they invest in the stock market, but basically what they do is they say, okay, we're going to invest in the S and P 500 and you are, your contract is on November 1st.

  [00:09:00] And so next November 1st we're going to look at what the s and p 500 is, and if it's, you know, down 5%, then you are gonna be down and they give you this participation rate. So it just gets more and more and more comp complicated. So you could participate in it at a hundred percent. So then you would be down 5%.

  If the market was down five, or if it was up five, you'd be up five. Only on that day, and then if you were, if you have a 50% participation rate, then obviously you would be up 2.5% or down two point a half percent, and that's what you'd be locked in for the entire year. And so it just gets real complicated because it's like your money is going up and down with the market, but it really only locks in inside of your annuity at that date.

  Of your and whatever your participation rate is and where these get the index annuities get really, really super complicated is that they create their own indexes. So these companies make a lot more money if they create their own mutual funds and indexes. So if you were to go To Merrill Lynch, they have their own [00:10:00] mutual funds, right?

  If you go to any one of these companies with their annuities, then they have their own indexes with inside inside of these annuities. And it's because they can invest it themselves. And so they brand it and then they can charge a fee to manage the money. And so not only are they making a fee for charging on the annuity side of it for the insurance portion of it, but they're able to charge a fee on managing the money itself.

  And it just gets really, really complicated, really fast. And I'm not saying that people don't make money in them. It's mostly that a lot of these indexed annuities have a sales charge on them and you can't get out of them for eight or nine or 10 years. And so I've seen some people, they come to me and they have annuities inside of their IRA, which I haven't even gotten to the tax deferred stuff going on.

  And then every single time they put in new money, it starts over. The, the contract period, basically. And so I've had to tell people like, stop putting money in here [00:11:00] so that we can get it out because you got these, the person was selling them when they were 30 years old. There is absolutely no reason you need a guarantee from an insurance company.

  When you are 30 years old, you are in accumulation phase. You're trying to just gain as much, you know, You're, you're trying to take as much risk as you can, honestly, so that you can make as much as you can. And when you put it inside of annuity, again, the fees start to eat things up. So, you know, these index annuities just get super complicated, really, really fast.

  And even with me going to like two day meetings, I still get really confused by them, no matter how many illustrations they do. Um, so I think you should just. Just kind of keep it simple if you're going to use an annuity or if it sounds good. So the cases where I have seen them do well, as I said, the immediate annuities for retirees because they don't want to worry about it.

  They don't want to see bonds go up and down. They just want to know that they're going to get a price [00:12:00] or get a payment. I have seen people create their own pension plan. So annuities are great because you can put money in and it grows tax deferred like an IRA does, but you've already paid the tax.

  
  Deferred Annuities and Tax Implications

  So let's make it more like a Roth IRA, right?

  And, but when you bring it out, you are going to have to pay taxes on whatever you earned, but just a portion of it. So let's say you put a hundred thousand dollars into a deferred annuity. And it grows to 200, 000 when you retire and you start to take that 200, 000 out, you're going to have to pay 50 percent in taxes and 50 percent was the basis because you put in 100, 000 that you already paid taxes on.

  Your money is never your money until you pay taxes on it. And these deferred annuities kind of, you know, they will build on themselves. And I think if you were keeping it simple and you just had it in the market and you wanted to create your own pension plan, that might be a way, but I just think there's so many other options out there with individual 401ks and SEP IRAs.

  [00:13:00] And, you know, there's just so many other things out there, but I guess, you know, if you had maxed out that and your income was over the max, using annuities would be a great way to defer some taxes. And then you could just put money in there and have it grow tax deferred. It's just the bells and whistles that you've got to be concerned about.

  So it's like you're, you're like the annuity and you like the idea of creating your own pension plan and having your money grow tax deferred, but that's where you need to watch out where the, uh, What index is it invested in, how is it invested, what are the fees, and then all the bells and whistles of all the riders, of the income riders that are on there.

  That's where it could get expensive and where it could kind of, you know, bite you in the you know what. Uh, and so those are the basics of the four, so you got variable annuities, fixed annuities, indexed annuities, and immediate annuities.

  
  When Annuities Might Not Be Right for You

  And I have to say, if you are young, do not ever buy an annuity. I don't think you need it [00:14:00] unless you are.

  And I think once you're getting out of your young professional phase, then maybe you would want to do a deferred annuity to create your own pension plan. But there's also so many other things that I would do before that, that, you know, I would probably buy property and maybe buy Um, you know, max fund, like a whole life insurance policy so that if, cause you're probably having kids around then, and so you could have it like a double thing of having like a savings account inside your life insurance with the kids having, you know, a death benefit.

  And then you could also like pass your wealth on to your kids. And uh, I just think there's a lot of other things that come before annuities. So if you are under the age of. At least 50. I'd probably say 55. I don't think an annuity is ever probably right for you. It's just, it's, it, you're buying a guarantee.

  And if you want a guarantee and you want to know exactly how much you're going to get, just like a pension plan, because we all know pensions are going [00:15:00] away, then great, go buy an annuity and it could give you that peace of mind so that you can sleep at night. And that is why I've honestly sold some of these is because they do not like these, these clients don't like the stock market.

  They want to get some of it out of the stock market. They want to diversify. They're worried about it. And so they want a guarantee and they just want to know exactly how much they're going to make. And I think if that's what you want, then perfect. It is perfect for you. It's just that they get so complicated that you really need to make sure that you are with someone that you trust and that is going, they don't just sell annuities and life insurance.

  Honestly, I just don't think that you should go with somebody that only sells insurance and life and annuities, uh, because they're, oh my gosh, should I say this? It's all I know. And they are taught these things, uh, from these companies, you know, how great they are. And I've heard this So many times from other [00:16:00] advisors that they're with these companies that only do life insurance and annuities.

  And then they get out into the other world and they see all these other products and what the stock market can do and what IRAs and all these different tax strategies. And they're like, Oh, I was just an insurance salesman. And it's like, they're just in this hole. And so it, you know, these insurance products, they definitely serve a purpose.

  But only for a very few people. And so if you're going to spend money like this, it is for a long time and you need to make sure that you're sure about it. And so I definitely don't think that it's something that you should just go, Oh, people, you know, cause you do hear people online and they're like, don't ever buy an annuity for any reason.

  They're just scams. And that's not true either. And it's the same for life insurance. You know, people that are just like by term and forget the difference. I really think you're leaving a lot on the table with that. And, you know, so these all or nothing statements. I think that's kind of a red flag of somebody to watch out for of the, you know, this is the way to do it.

  
  Final Thoughts on Annuities

  It's really just another tool in [00:17:00] your toolbox that you could use to guarantee what you want and maybe grow your money tax deferred. I don't know, I don't know that I want to get into like how You get your money out of these annuities because that gets more complicated. You know, like if you're younger, you can roll it into another annuity.

  And if it's, you know, cause these, I, you could just take cash and put an annuity, but you could also take your IRA and put it in an annuity. And so it just depends on what your goal is with cash. It might be to defer the taxes because as it grows, right, you have to pay taxes on the earnings. But if you're taking an IRA and putting in an annuity, You're not going to make more than the stock market.

  You would only take an IRA and put it in an annuity because you wanted a guarantee of how much you were going to be able to take when you were retired. And that would be it. I, I, I see, yeah, I, again, I saw these people with IRAs when they're 30 years old and every [00:18:00] single time they put money in, then it started back over the sales charges and they were nine years.

  And so we're sitting there just waiting for these things to expire and they're not really making that much because they're these index ones that have point to point and they are at participation max of 50%. So if the market makes 10%, then they're going to make five. And I just think when you're 35 years old, like why, why would you do that?

  Just go put it in the market and you have the time. To ride the markets up and down, because if you have over seven to 10 years, you want to be in the stock market. If you have less than that, then you want to start looking at some of these insurance products and you want to start moving your money to be safer.

  Uh, so that's, I think I'm going to end it there just because it can get just really complicated. And I, I don't want to be talking in circles about annuities. And I, again, but I just wanted to have this because I see some of these people online and they just. Flat out say, you know, if you wanna stay middle class, buy an annuity or buy life [00:19:00] insurance, or, you know, it's just like that kind of stuff.

  Those statements just are never true because everybody wants a different thing. And you'll hear me say this a thousand times. Everybody is different. It's just like the clothes you wear. You're going to decide different clothes that you're going to wear. It is the same thing. You're deciding what kind of financial life you want to have.

  And then that's where you bring in all the different products and the different investment vehicles. And it's not like it's infinite, you know, like your clothing is, but it is very confusing on how to put them together. When you're talking about taxes and retirement and IRAs. It gets really complicated.

  And so I understand why people get confused.

  
  Conclusion and Listener Engagement

  Uh, and I hope that this helped bring a little bit of clarity around a very not exciting topic of annuities. Uh, and let me know if you have any questions or if you have topics for other. podcasts. I would love to hear from you. And I really hope that this helped educate you a little bit better and just feel a little bit better about your financial life.

  [00:20:00] And I hope you guys all have a wonderful day. Thank you so much for listening. I really, really appreciate it.