Dave Wolcott:
Hey guys, welcome to another episode on wealth strategy secrets. Today we’re joined by Mark Hutchinson. Mark is a seasoned executive with over four decades of expertise in the steel industry. His journey has honed him into a respected authority, excelling in steel fabrication, entrepreneurship, and alternative finance advisory. His advisory work has earned him the trust and respect of clients who value his insights. Mark’s dynamic entrepreneurial career shaped by triumphs and setbacks, while building and scaling several businesses, enriches his understanding of alternative wealth strategies. His diverse experiences position him as an invaluable source of insight and guidance. In the wake of the 2008 financial turbulence, Mark’s path led him to a personal revelation, the infinite banking concept. Since then, he has been committed to reshaping clients’ financial views, uncovering hidden truths, and Mark’s dedication to financial education is evident in his fervor and the referrals he garners from satisfied clients. Mark, welcome to the show.

Mark Hutchinson:
Thank you, Dave. Welcome. I’m glad to be here. Always fun to talk to you.

Dave Wolcott:
Yeah, no, Mark, I’ve really been looking forward to this conversation. It’s always great. When we connect, I learn from you all the time. And I think this is going to be a special episode for the audience. Because today’s episode is really, you know, taking that investor journey, right. And Mark has had a quite a prolific journey in terms of, you know, becoming more of a professional investor. uh, actually being an entrepreneur and creating businesses, um, around that. And I think, you know, his, uh, experiences in insight are going to be incredibly valuable for the audience. So, so why don’t we start Mark for folks, you know, who don’t know you, um, tell us how things started for you, you know, what, what was the, that beginning moment that kind of, you know, got you into this space?

Mark Hutchinson:
Sure. So I have an interesting background from the aspect that I was born in the US, but grew up in Africa and grew up on a farm and ranch. And so that gave me a unique perspective. And I think the perspective was that we were always working hard, everything revolved around a tremendous amount of hard work, dedication. And I think it, it It really planted the seed for me of being an entrepreneur and I suppose a little bit of a risk taker since farming and agriculture is very much a risk. So when I left Africa, my parents stayed behind and I came to the US and I really just sort of had a suitcase and a dream and wanted to see how it would all unfold as a very young man. took some odd jobs. I did some strange things. I was a commercial diver in the Bay area. I was then a feedlot cowboy, of all things. And then that job just didn’t pay enough to basically keep me from sleeping on a floor. So I found a job as a welder fabricator. And that’s kind of where things changed for me, because I figured that I could weld. certainly from the farm and so I took that job and then one thing led to another over a period of about two years I Grew kept growing inside of that company did a lot of interesting things a lot of work in Pebble Beach 17 mile drive working for celebrities and I thought Dave I can do this myself. So so I broke out on my own started a company And that company grew over a period of 13 years into a sizable steel fabrication and erection company in California. But along the way, having no formal education in business, there were some stumbling blocks and one of them came in a very interesting way. And I think shaped. also my career going forward from that point. And it was about 1990. And I was given a contract or was issued a contract from the state of California. And it was to seismically retrofit part of the US 101 central viaduct that went down into San Francisco. And it was the first contract of its kind. to repair the portion of the freeway that didn’t collapse in the 1989 Loma Prieta earthquake. So I knew that in order to do that job, I had to do something different. And I knew that my success was tailored to creating a piece of equipment that was required to do the work that we had to do. But the piece of equipment didn’t exist. So after I was awarded the contract, I leased a 40,000 foot building in addition to the steel fabrication plant that I had and started to create this piece of equipment. And about a month and a half into a six month project, which was the duration with a very substantial six figure liquidated damages per calendar day, I was kind of at a point where I was in real trouble. So I was either going to make it or I was going to fail right then, right there. of finalizing this design, couldn’t get it to work, kept making iterations of this design. Finally, we finally got the breakthrough that we needed and it worked. And so in the period of about four weeks, we had made up the month and a half behind in schedule and went up about five weeks ahead of schedule. So it was absolutely, it was just life changing at that point. So at that point, I knew that I was going to have success and stood to make millions of dollars on this contract. And about, gosh, it couldn’t have been a week after that. I got a phone call and they said, you’re not going to believe this. I think the state’s going to put this contract on hold. What do you mean they’re going to put it on hold? We could have an aftershock and the freeway could collapse. So we have to repair this freeway. And wouldn’t you know it? A couple days later, it came through written notification that the contract had been terminated for convenience. Now to the best of my knowledge and my lawyer’s knowledge, that was the first time the state of California had ever used that clause. Convenience clauses exist in all contracts, especially in the construction world. But… You don’t normally see them executed when it comes to a governmental agency. It’s just not, you don’t terminate for convenience.

Dave Wolcott:
Sure,

Mark Hutchinson:
You have a plan,

Dave Wolcott:
sure.

Mark Hutchinson:
you know, when you start, when you, when you issue contracts. So, um, about, uh, about a year and a hit took about a year and a half for me to finally settle with the state of getting paid, um, and, and in that period, I just couldn’t survive anymore. And I wound up losing the business of 13 years. And, and that was really an eye opening, uh, experience for me, because I realized that moment that things could change in an instant, things that are completely out of your control. And I was basically just drug down that path for that year and a half of trying to get paid and slowly releasing little bits and dribs and drabs because they’re in control. And so that was really, really a game changer for me professionally.

Dave Wolcott:
Yeah, yeah, sure. It’s interesting how these defining moments in our career, whether, you know, you’re, you have a particular career in W2, uh, you, or you’re an entrepreneur, how these things at the time seem so monumental and they are, uh, but we can actually grow the most, you know, from these types of experiences. Um, so next question for you, Mark was. you know, how did, you know, how did this defining moment really shape, you know, your view? Is that what propelled you to get into investing and, you know, what was your next course of action?

Mark Hutchinson:
Yeah, that’s a great questions. Uh, it, I think what happened at that point for me was that I had always been focused on building the business and, and I know professionally in, in my, my work now with client, you know, with my clients, I have a lot of business owners as clients and they’re very, very focused on investing in themselves. Right? So everything is about investing in yourself and your business and building that business. It’s not. You know, it’s not in the markets and playing and trying to do all these, you know, outside things. It’s, it’s focused on yourself because you’re, you’re betting on yourself, you believe in yourself. And, and that’s where I was. So I was just a hundred percent building my business. When, when the, when the loss of the business occurred, two things happened. One, I stumbled with my, you know, my personal confidence and I, and I thought. Who’s going to hire me? No one would want me. I mean, I’ve been self-employed basically my adult life at that point. And I don’t know how to work for anyone. I don’t, I wouldn’t know how to act. I just want to run everything. So what I then figured out was that was actually a quality that a lot of people who own businesses were looking for. And that began my career as a business builder and working inside of the industry that I had known and loved and was passionate about and building those businesses. But along with that came this component of investing where, well, what do I do now? Right? I mean, now I’m grinding all day long building businesses, but typically everything goes into it. At that time, that was really where 401ks were starting. you know, to become the mode, you know, prior to that, businesses gave you a pension and, and those types of things. So I started getting into a pretty heavy dose of market, uh, equity exposure. So that’s really where I stayed focused for quite a long time. And I, it served me, it served me well, but, but I think that, you know, knowing what I know today, that’s not what I would do. ever again, right? Because we become smarter the more we know, obviously. So I think what really was an eye-opener for me were the market events that had transpired throughout my career to that point, you know, sort of leading up to 2008. And when you look at those, it’s, you know, starts with Black Monday, I think, then we had the Gulf War, we had the dot-com bubble in 2000. We had September 11th, we had the global currency crisis, the European currency, European crisis. When you look at all of those that have transpired, it just seemed to me like it was three steps forward, one and a half steps back, or even two steps back, depending on what the timing was. So I knew that as I was working through my career and having more and more exposure to these events that I had to find something else. So that was, I think, my big revelation for me.

Dave Wolcott:
Interesting. Yeah. That was your last straw moment. And

Mark Hutchinson:
now.

Dave Wolcott:
I can definitely, that resonates with me and probably a lot of other folks. I mean, having gone through, yeah, I mean, back to 2000.com. I mean, you name it, all of these things. And I think what’s at the heart of that, you know, a lot of people don’t really talk about as much, but it’s actually having control, you know, and trying to have a sense of control over your financial freedom. know, your destiny and things like that. And, and I felt like, you know, it was just like going to the casino being completely exposed into the equity markets. And, you know, typically when something happens wrong, like, you know, you, you want to adjust, you want to make something happen, right? But you, you know, you just have, you know, no control there. So Yeah, so that’s pretty interesting that you were able to make that shift. And then, so have you refined an actual wealth strategy that you’re leveraging today?

Mark Hutchinson:
Yes, I would also add though, Dave, to that, that I figured out during that period that there’s this strange thing that happens in traditional Wall Street and brokers and things like this, that they like to talk about average returns, right? So that’s really a big thing that they will… always talk about as well, the S&P average over 10 year, 20 year, 30 year period, or the Dow Jones average. And they talk about all of these. And so if you took the example of a 10% return per year for 10 years, so we sum up the total of the returns. And so 10 times 10 is 100. And then we divide by the number of periods that we’re talking about, divide by 10. That is an average 10% return. I think we can all agree on that, right? But if you apply that a different way and you say, okay, well, let me take minus 10% for the first period and then plus 30 and then minus 10 and plus 30. And we go for a 10-year period. Well, when I add all those numbers up, it’s still 100 and I divide by the number of periods of 10, we’re at 10%. The problem with that whole logic is that when you take million dollar account and you compounded at 10% per year for 10 years, that’s like 2.59 million dollars. If you do the second iteration, which I just said of the minus 10 plus 30, that 10% average return is actually about an 8.17% return. And why? Because of volatility. And volatility, any volatility. negatively impacts the return. So while they would take that sum and tell you had a 10% rate of return, that 10-year period, the difference between those $2 million accounts is $400,000. So it’s these half-truths or misnomers everywhere in the financial industry that I found very, very frustrating. So that’s what… sort of led me on my path to get back to your question

Dave Wolcott:
Yeah,

Mark Hutchinson:
of,

Dave Wolcott:
totally.

Mark Hutchinson:
you know, what

Dave Wolcott:
Totally agree

Mark Hutchinson:
it’s

Dave Wolcott:
there,

Mark Hutchinson:
crazy.

Dave Wolcott:
market. Yeah, it

Mark Hutchinson:
Yeah.

Dave Wolcott:
is. And that’s actually why stock market losses are actually one of the top three biggest wealth destroyers. But no one has it. No one puts on that lens and looks at it that way. But just look, you’re up 15%. You’re up 18%. Everyone was thinking things were going good. but then you just lost 20% last year, right? And that’s on that total compounded value, as you were saying. So to get back up to where you were, you know, is sizably different, right? And the other thing I’ll even add, to add insult to injury, that I think, you know, I think advisors are not really, you know, helping their clients out by really talking about taxes, fees and inflation. So you just pointed out what is the actual rate of return, which is closer to 8%. But when you factor out, you’ve been paying at least a one to 2% fee over that time. So now you’re at, okay, let’s call it six and a half percent, right? And taxes, you know, everyone says defer taxes, defer taxes. But the only thing that I’m probably certain of in the future is that taxes are likely going to go up. And we don’t control that. The government controls that. So why put yourself in that risk? So once you take the taxes out, you’re probably looking at like a 4% to 5% return, right? Which is why we really kind of have this, I think, a real crisis in this country.

Mark Hutchinson:
I would agree with that. Yes, I really would. I see it all the time. I talk to people about these issues and it seems that people are really not aware. And I think people are so caught in just life, Dave. Just the W-2 job, everything that’s going on, kids are so active now in all of the sports. So parents are running in every direction. They just don’t have time to really… learn these things and then certainly, you know, apply great concepts to their life, their financial life.

Dave Wolcott:
Yeah, such a great point, Mark. It’s exactly true. There’s just so many things going on. And look, we all learned this, right? We learned this from our parents, from our peers, from our employers, every time you start a new job. Well, it’s mandatory. You have to sign up for the 401k program. And they’re giving you, and that’s the other thing, they kind of sucker you in by saying, hey, we’re gonna give you a free match of whatever points it is. but you should still do the math and look at the net income of what you’re going to get, even though they’re saying it’s, Oh, it’s, well, it’s free money. I’m getting, you know, uh, free points here, right?

Mark Hutchinson:
Absolutely, absolutely. And then you’ll be taxed at a rate that you have no idea what it’s going to be at some point in the future, however old you are, right?

Dave Wolcott:
Yeah,

Mark Hutchinson:
And then

Dave Wolcott:
exactly.

Mark Hutchinson:
the, and then the RMDs kick in and whether you want that money or not, it’s time to pay up.

Dave Wolcott:
Right, right.

Mark Hutchinson:
Yeah.

Dave Wolcott:
So Mark, tell us a little bit about the infinite, how did you come across infinite banking concept in 2008? What was your revelation there and what problem did it really solve for you?

Mark Hutchinson:
So, you know, 08 was really the, you know, as you had said, the final straw for me. I had enough at this point. So I set out on a journey to see what other way I could interact with the financial system. There had to be something out there for me. And I stumbled into this letter called, it was an advisory letter called the Palm Beach Letter. And they were talking about this thing called income. for life, the IFL. And the way that they did it was they just drip, it came out in dribs and drabs. So it took me a good probably six or seven weeks to get enough information fed to me that I could then go out on my own and go, what are these guys doing? I can’t wait for six months for you to tell me what this really is. So I got enough information and then I discovered what. what we call, you know, the infinite banking concept, IBC. But when I, when I figured out what this was, uh, Oh man, I, I went down the rabbit hole day. It was, it was bad. So I,

Dave Wolcott:
Hehehe

Mark Hutchinson:
I tried, uh, to figure out everything I could about this. And I wanted to be a part of it. Uh, I had to get my capital deployed because there were just too many things that were resonating with me. Too many things that in my past years of working and investing You know is like pouring salt on wounds. So What struck me though about this was that I Have dealt with a lot of insurance professionals in my life in my own business other businesses You know, I’ve always been insured as an executive and all the companies that I’ve been involved in And not one person had ever said anything to me about this, which means they probably didn’t know about it. And literally every single one of them never considered any type of a permanent insurance. It was always term, rent it. And that really stuck with me. I was just wondering what was really going on. Well, later on, I figured out what the issue was. But boy, at that time, it… It was a little bit of anger involved. I’m not gonna lie. It just didn’t.

Dave Wolcott:
Yeah. So what do you think the issue is?

Mark Hutchinson:
I think the issue is training. So the insurance companies train agents to sell products in a very specific way. And they just do not expose them to something like IBC. Their most profitable products are not permanent. Their most profitable products are things that expire and go away without an event occurring.

Dave Wolcott:
like

Mark Hutchinson:
So.

Dave Wolcott:
term insurance, yeah.

Mark Hutchinson:
like term insurance, tremendously profitable for the insurance companies. Remember that every time you sell a permanent product, as far as they’re concerned, there’s going to be a payout. Just the way the product is structured.

Dave Wolcott:
Yeah, good point.

Mark Hutchinson:
Now, you know, you have situations where there isn’t necessarily a payout. So that’s when someone surrenders a policy, but there, you know, that’s, there’s not a lot of that going on. People surrender policies. No one that I would work with would ever surrender a policy. Because we’re, you know, we’re trying to educate people on why that’s just such a horrible idea. But it happens. It does happen.

Dave Wolcott:
Yeah. So let’s just go rewind. Can we just rewind for a sec? Because I

Mark Hutchinson:
Yeah.

Dave Wolcott:
want to go back to those earlier comments that you made and help the audience understand, you know, when you were first coming across this concept, what were the things that really struck you that’s that said, Wow, you know, this, this is resonating, you know, this really makes sense for me.

Mark Hutchinson:
So when I discovered that I could actually put money into an instrument, let’s just call it a financial instrument, that would grow every single day that I’m alive, irrespective of what the market does. Not tied to markets, not tied to anything that I knew that I was not going to go backwards. I had done too much of that in the past. And so… I thought to myself, if I could know every day that I’m going to be wealthier, right? Wealthier than I was the day before, that really means something to me. So that really struck a chord with me. And then as I started to understand like how the actual product could be utilized and all of the, what I call living benefits of these products and properly structured, I was just blown away. that you could, you know, take a policy loan and then go invest that somewhere else at a higher rate of return. So in essence, your money is kind of working in two places at the same time. Then I started to build models that would illustrate some of this stuff. Well, what if I, what if I took $10,000 and I bought a dividend stock and I did that every single year and I just took one, you know, so I started to figure out. what that would look like. And then, well, what if I took my 401k plan and, you know, and started to take penalties in IRAs and fund this? And so I just started to explore and build examples, Dave. And the more that I did that, I was just like, okay, I get it. I get it now. I understand

Dave Wolcott:
Yeah.

Mark Hutchinson:
why people are doing this.

Dave Wolcott:
Yeah, no, that’s such a great explanation. You know, when I came across it, for the first time, right, I was seeing investors who are using it, you know, the use case was basically to, to amplify your returns by, you know, as you talked about, you know, using the same dollar twice in two different places. But you know, I can really relate to your story early on, you know, with your business as, and as an entrepreneur, and even in, in my days of, you know, career building, you know, when I transitioned in between jobs, um, you know, typical financial advice is to just, okay, do you have, you know, three, six months of savings and it’s in savings, uh, you know, and that’s your, that’s kind of your, you know, sleep at night capital, right. But. you know, now, you know, people talk about, you know, is there like an impending recession or all of these unknowns or all of this uncertainty, let’s say in the market? Well, the ultra wealthy are literally have three years of personal, you know, operating capital that they can go through any economic downturn before they have to actually sell their assets, right? So to me, and I don’t think Mark, people really talk enough about having a liquidity strategy to your portfolio, right? Because you can be so much more efficient with the existing capital you have. So let’s take that six months or 12 months, whatever that amount is, and then if it starts exactly like you defined it so well, which is my wealth is growing every day in this vehicle. And if I need that capital, It’s there for me to borrow against. But in the meantime, you know, what a great like sense of security, you know, to just know that, Hey, if something unpredictable happens, which it does happen and that’s life,

Mark Hutchinson:
Mm-hmm.

Dave Wolcott:
um, you

Mark Hutchinson:
Right.

Dave Wolcott:
know, now you have kind of a resource to do that. And then you start adding on like some of these other additional benefits, like, you know, it’s asset protected, right? There’s asset protection around it. it’s actually a legacy strategy because you know, you can give it to your heirs, right? Without paying taxes. So I, I know the audience, I get fired up about this stuff because it gets, it’s kind of geeky here. I mean, we get really

Mark Hutchinson:
Mm-hmm.

Dave Wolcott:
excited, but when you can take, you know, $1 and you can do multiple things with it, I mean, it’s super powerful, right?

Mark Hutchinson:
It absolutely is, Dave. And, you know, when I talk to clients who are in these products and I’m working with them and, you know, they’ll have a large real estate portfolio that they’re investing in and using policy loans to fund the real estate, you know, and I hear comments like, I can sleep at night, Mark. I can sleep at night knowing that if something, heaven forbid, happens to me. all my real estate’s paid for. It’s all paid for. We can’t do that at the bank. So you save up the money, you put it in your bank account, then you drain your bank account, right? And then you go buy the real estate and then something happens. Well, maybe if you had some term insurance, you know, that might help. But, um, think about it from that respect, that every investment that you might make, where you take a policy loan, that, that you know that that your spouse or partner is taking care of, your family’s taking care of if something were to happen to you. That’s powerful stuff, you know? And I just don’t think that people really understand. Like when they really dig into it and start pulling back the layers of the onion, there’s so much there. And I understand why a lot of advisors don’t want people to get into these types of products. There’s a lot of bad rap about them.

Dave Wolcott:
Yeah.

Mark Hutchinson:
And

Dave Wolcott:
And

Mark Hutchinson:
I understand.

Dave Wolcott:
why, I was going to ask that way. Why, why do you think that is from your perspective?

Mark Hutchinson:
So I think it’s all about assets under management.

Dave Wolcott:
Mm-hmm.

Mark Hutchinson:
You know, and look, I realize there’s a lot of advisors who are fee-based. That seems to be more and more the deal out there. But regardless, they’ll place products, but they really want you in the markets. That’s where they want you. I mean, it’s clear. It’s absolutely clear that they want you in the markets because that’s where all the action is for them.

Dave Wolcott:
Yeah.

Mark Hutchinson:
And so,

Dave Wolcott:
Yeah, it’s.

Mark Hutchinson:
yeah, I think that’s honestly the primary thing. I think honestly though, Dave, a part of it is a lack of understanding as well that hangs in there. And, you know, there are commission structures with life insurance and at the end of the day, everybody has to be paid for their time and their expertise. So it’s no different than advisors, no different than going to a lawyer or to a mechanic. You’re going to pay. for their expertise and their ability. And so it’s the same in life insurance and it gets a bad rap. And what I find very interesting about fees is, if you were to take, just pick a number, right? A hundred thousand or let’s say a hundred thousand dollars worth of insurance premium that gets paid into a policy over 10 years, let’s call it, and take the exact same money and put it with an advisor. I guarantee you that after 30 years of you having your insurance policy and having your advisor that your fees with the advisor are probably 10 or 15 times the fees that you will have paid to your insurance agent.

Dave Wolcott:
Yeah.

Mark Hutchinson:
It’s just the nature of the beast.

Dave Wolcott:
Yep.

Mark Hutchinson:
They’re front loaded on the insurance side and they are not on the other. The other is just, let me manage it for the rest of your life and I will have, as long as I have enough of it, I will have a fantastic life.

Dave Wolcott:
Yeah. No, it’s

Mark Hutchinson:
Yeah.

Dave Wolcott:
interesting. And then if you bring that back full circle to what we were talking about earlier with that 10% return, if you actually look at it on paper with the compounding, you know, it’s, you know, here, here’s the question, right? Is, is a 6% return in the insurance policy better than the 10% return that Wall Street is advocating? Right. And the, you know, the life insurance, right. It does compound, uh, tax free, but you know, why don’t you, why don’t you unpack that? Right. What that, what that looks like.

Mark Hutchinson:
Sure. So on the life insurance side, you know, your money technically, we’re going to say technically, it builds in a tax deferred environment because if you were to surrender your policy at some point in the future, you would owe income tax on the difference between your premiums paid and your cash value. So if you paid a hundred thousand in premium and you have a hundred fifty thousand in cash value. you will receive a 1099 from the insurance company upon surrender. They will issue that and they notify the IRS that you have a $50,000 gain. So it’s not tax free, right? You were, you earned it tax deferred. Now we don’t surrender policy. So, you know, in people who are in the IBC world, you, me, all of our, you know, everybody wants to keep that policy forever. And then what we can do is we can take policy loans in the future and we can structure those policy loans for a steady stream of income and we can do that for 10, 15, 20, 30 years, whatever, whatever period you want to structure payments for. You can take that money out of your policy and never repay it. And the reason that happens and people get very confused by this. Like. Well, how can I take a loan and not repay it? The reason is, is because the insurance company is in the long game. Unlike us, they’re in the long game. So they know that eventually you are going to meet your maker. And when you do, that’s when they’re going to get their loan repaid with all the interest that’s due to them. Because when upon your death, you receive the death benefit minus any outstanding loans or accrued interest owed to the insurance company. So they always get paid and being in a long game, they don’t mind waiting. So, uh, I think a lot of clients find that, uh, strange, but it’s that mechanism, Dave, that gives us the complete use and control of our money to where we are in control of the repayment structure of our debt. So if you were going to go and invest in oil and gas, let’s say, and you needed $100,000 investment, you could take a policy loan. And if you need to wait for three years for that investment to repay you, you can just sit back for three years with $100,000 open loan and nothing negative is going to happen to you. So you do not have to repay that. You are in complete control. of your loan repayment system. We want you to be an honest banker, right, if we’re going to use the word banking. We want you to be honest because it’s in your best interest to always repay those loans because we need them in the future, right, if we’re going to have a retirement strategy where we’re going to pull some capital, take loans, and give ourselves a stream of income in retirement. So we want to use our policies. while, you know, before we get to retirement and then when we get to retirement, we’re going to change the way that we use our, our policies. And I’m speaking in general terms, obviously.

Dave Wolcott:
Yeah, for sure. No, it’s such a great example. Um, and then I’ll just add another point that also I think is such a misnomer, uh, from, you know, traditional planning, uh, which is, you know, they use this Monte Carlo simulation and they basically age you out. So, you know, whatever you’re, you’re a male age 55 and they think, you know, based on your genetics, you are going to pass at 91. So if you’ve taken that route and you’ve gone with this accumulation theory approach, to try to build up enough of a nest egg, and then you start dwindling that down every year, you run the risk of outliving your money. With the advancements in technology and where we’re heading these days, I think it’s completely possible to live past 100. Well- Would you want to be scrambling for how am I going to have income at that point in your life when you’re say you’re 96, but

Mark Hutchinson:
Right.

Dave Wolcott:
the life insurance, it continues, correct?

Mark Hutchinson:
Correct, correct. It will continue on basically forever, however

Dave Wolcott:
Yeah.

Mark Hutchinson:
long you live. Yep.

Dave Wolcott:
So it continues to compound and you continue to

Mark Hutchinson:
Yes.

Dave Wolcott:
draw the income off of it, which is that’s what everyone’s looking for anyway, right? However you get there, it’s income, whether it’s passive income or you’re selling your equities to get income or you’re getting income from this. But I mean, this is such a more strategic way to do it. And after I’ve really spent so many years like uncovering the strategies of you know, family offices and ultra high net worth. This is a complete cornerstone to their strategy and what they’re using. Right.

Mark Hutchinson:
It is. And you know, with so many people have brokerage assets, and the reason obviously is the 401k, right? Or those type of qualified plan, I’ll just put it that way, qualified money. But what people I think fail to realize, until they get there, Dave, they don’t realize the issues you could have with sequence of return. and the risk associated with sequence of returns. So you have this qualified money, you’ve got a million, two million dollars worth of qualified money, you now have to lean on it because it’s your only source of income, and you start to lean on it, and the market goes down 20%. Well, now what? You know, you’re now in a position where you’re going to be drawing off of an account. that is losing value. And so you’re taking a double hit. And you might be in a position where you have no choice or, heaven forbid, you’re in RMDs and forced to take out your RMD. But let’s say you’re not yet at RMDs. You’re in that position where you need to protect that asset. And I’m telling you, there’s no better asset that you could have than the cash value of your life insurance. Because I can show you a strategy where if you’re drawing on your qualified money and we get a negative year of returns in the market, you would take, let’s say you’re taking 45,000 a year out of your brokerage account. You would not take the 45,000 for the year of the negative return. So if it looks like this is a terrible year and the markets are bad, you do not take the return this year or next year. Instead, you go to your policy, you take $45,000 this year, you take $45,000 next year, and then in the third year, you then take out the $90,000 to repay your policy loans and the $45,000 that you take for yourself. You can take all of that out of there and I can model it up with actual market returns where if you don’t do that, your policy collapses. And if you do use the sequence of return by utilizing, you know, pools of capital somewhere else, if you use that strategy, the account remains viable. It’s an absolute game changer, but people don’t even know this until they get to that point and then it’s too late. Right. You need to understand these strategies early. Take the defensive measures, put these tools in place to protect your retirement.

Dave Wolcott:
Yeah, such a great strategy, Mark. So many great insights. As I said, I’m always learning from you and love these kind of, you know, discussions as we dive in. I know the audience is going to enjoy this one. So can you tell us, Mark, what would be if you could give just one piece of advice to listeners about how they could accelerate their wealth journey? What would it be?

Mark Hutchinson:
So I think that what I’ve experienced both in business and with my client base and people that I’ve worked with is to take action. I have seen this as the number one issue over and over and over, Dave. People do not take action. They’ll analyze and analyze and analyze. And I think people are looking for… Um, having a greater understanding, you know, having complete knowledge of a subject or whatever it is. And I just think there’s so many problems with that. I think that, you know, all of us are really good at trusting our gut. You know, you, you just get that gut, that gut instinct. So what you need to do is gather enough information that you can make an intelligent decision, take action, trusting your gut, and then you course correct. So if. If it wasn’t quite what you thought, or maybe it isn’t playing out the way that you thought it would play out, then you take the time to course correct from there, but if you don’t take action, there’s, there’s no shot, right? I think that that’s the number one thing that I see with people that they could change that would, would really change their trajectory.

Dave Wolcott:
Yeah, great advice, Mark. Really appreciate that. I also wanted to ask you, Mark, I’ve had the pleasure of getting to know you and you’ve been part of the Pantheon Mastermind and Virtual Family Office. And just wanted to get your thoughts in terms of your experience, how that’s been so far for you.

Mark Hutchinson:
I have absolutely enjoyed it. It has exceeded my expectations. I’ve enjoyed, I just think you’re an incredible curator. The things that you bring to the table are really interesting. You’ve always got good salient points that are impactful, meaningful. I’ve always known about… you know, goal setting and things like this, you know, just being in business. I’ve had so much business training as well. Um, but, but I think your approach to it was very interesting. I love your, uh, the, you know, hundred list, what you want to be, right. Good. You want to have who you,

Dave Wolcott:
Be do

Mark Hutchinson:
right.

Dave Wolcott:
and have, yeah.

Mark Hutchinson:
Be do and have, yeah, the be do and

Dave Wolcott:
Yeah,

Mark Hutchinson:
have, uh,

Dave Wolcott:
yeah.

Mark Hutchinson:
wow. What you learn so much by doing these things and, uh, You know, I just, I wouldn’t know these things without having come across this. And I cried, I find it incredibly valuable and I’m very grateful, actually very grateful that, that our paths have crossed. We’ve come to know each other and, uh, that we’ve come into each other’s lives. So.

Dave Wolcott:
Yeah, really appreciate that Mark. And, and I think, you know, it kind of ties for me, this kind of ties a little bit to what you were saying is, you know, people struggle with actually taking action. And, and I think part of that reason is, is because, you know, look, as humans, we follow the pack and 95% of the pack is putting their, you know, capital into 401ks and IRAs, right? That’s what they’re doing. So when you talk about a new concept, I think it’s scary for people. They’re like, wow, I gotta do something completely against the grain. And so this was one of the reasons why I really wanted to create this mastermind in family office is to say that you’re not alone, right? We have shared peers who are going through similar experiences where everyone says, that’s an excellent idea, right? And look. you know, look at the, you know, experiences Mark has just shared, you know, from his journey. And, and then that becomes inspirational to the whole group, as well as plugging into these advisors. I mean, I just can’t talk enough about like some of the advisors that we’ve had that I’ve spent 20 years pounding my head whether you need an attorney. for something such as asset protection, you need a CPA. I’ve fired so many CPA firms like over the years. Nobody really gets all this stuff. But when you can kind of bring it all together, you know, in one room, right, with like-minded people, it’s just really amazing. So appreciate those thoughts, Mark. I really appreciate your time

Mark Hutchinson:
Yeah

Dave Wolcott:
coming on to the show today. And if folks would like to, you know, learn more about you, connect, to learn more about the insurance, what’s the best place?

Mark Hutchinson:
places to reach out to me via email. My email is livingbenefits at mail, m-a-i-l dot com. That’s the best way.

Dave Wolcott:
Awesome. Well, thanks again, Mark. Really appreciate it. Uh, and thanks to the listeners out there, uh, spending your most valuable resource with us, your time, uh, really appreciate it and we’ll see you next week.

Mark Hutchinson:
Thank you, Dave.

Dave Wolcott:
How’s it going everyone? Welcome to today’s show on wealth strategy secrets. Today we’re joined by Corey Peterson. As the CEO and founder of Kahuna Investments, Corey has acquired over 225 million in real estate nationwide and raised over 95 million in private equity. He’s the bestselling author of Copy Your Way to Success, Standing on the Shoulders of Giants, and hosts the Multifamily Legacy Podcast. His company’s mission is to partner with passive investors to create award-winning apartment communities. Families are proud to call home. Corey, welcome to the show.

Corey Peterson:
Yeah, thanks a lot, Dave. Thanks for having me.

Dave Wolcott:
Yeah, no, looking forward to the discussion. I think the audience is definitely going to enjoy this. You have such an interesting background and journey, to get where you are today. So why don’t we start there and share your background with the audience.

Corey Peterson:
Yeah, I love to man. So I started off, you know, I was a used car salesman and the kind you’d picture in your mind, that was probably me. Until my wife said I couldn’t do it anymore. She’s like, she couldn’t marry a used car salesman.

Dave Wolcott:
And

Corey Peterson:
But really,

Dave Wolcott:
what age was this? I mean,

Corey Peterson:
this

Dave Wolcott:
okay,

Corey Peterson:
is, I was probably about 25,

Dave Wolcott:
okay.

Corey Peterson:
27, right?

Dave Wolcott:
Yep.

Corey Peterson:
And something magical, it was like 23 years ago, I’ve been married for 21. So two years before I got married, That’s when my life changed forever. My mom was married to a man named Bruce and I call him Bruce Wayne. He wasn’t Batman, but he did have a lot of money. And so we go to Hawaii to stay with him and he’s got a home right on the beach. And I’d never seen a guy that had time and money. Bruce had both. And so I had to ask, what do you do? And that’s when he said the magic words. He said that he was in real estate and that he owned apartments. Well, I left that island thinking he was the big kahuna. Like he had something that I’d always wanted. And so I had to go kind of figure out what I wanted to do. And I started reading a bunch of books on real estate. Finally, I read that little purple book called Rich Dad Poor Dad, and the light went on for me. And so from that moment on, I got obsessed with real estate. And I went full-fledged into it. I started off as a single-family fix and flip guy. And that lasted for about three deals, right? I did my first three deals and I ran out of money. I was like, oh my gosh. And at that point I didn’t really know how to get past it. So luckily, sorry about that. Luckily, my wife’s friend, she had a guy that was, he was a financial advisor. And so when I ran out of money, I was like, I gotta go back and get a job, because I’d quit my job, I thought it was so great on those first three flips. And then I realized I had no income and like I couldn’t survive any farther than that. And so I got a job as a financial advisor and up with, with Edward Jones. And that was around 2004. And what happened was it was a, it was a crazy time because, you know, I put my dream on hold of real estate, but the financial world took, you know, taught me everything about money, stocks, bonds, mutual funds, insurance, the whole gamut. And. I was like, that’s what I’m gonna do. I was all in all of a sudden, a change kind of moved my cheese a little bit. I still wanted to do real estate, but I thought if I could make enough money being a financial advisor, I could go buy more real estate. And that was great. 2005, six, seven, all of a sudden, 2008, 2009 happened, the great recession. And at that point in time, I had built a pretty solid book of clients and business. And I realized that I had… No control, Dave, right? I’m telling you, I had a client that was, him and his wife worked at Intel, they retired at 65, had about $4 million in retirement funds, right, from 401k between the both of them. I mean, they’d done a great job saving, and we, you know, this was like in 2006, we diversified this portfolio, and in 2008, they come to me and it’s worth half. And I mean, they don’t just come in, they come in. I mean, she’s sobbing, the guy looks distressed, he doesn’t even know what to do. And they’re looking at me for advice. And here I was, I told them I was gonna watch over their money. But I realized as a financial advisor, Dave, I had no control. I had to say it’s the market. And here I was, I was a younger, I thought I was king hot, hot dingling, yet I really hadn’t, there’s nothing I could do. except say it’s the market. And then they’re like, well, we want to move our money. And then I had to charge them a fee, like adding injury to insult. And so when that happened, my heart just left that business. I realized there is no control on the roller coaster of being a financial advisor. And it is truly indeed a roller coaster. It goes up and down for no reason. And it’s emotionally stressing, I think, on my investor pool. Probably a lot of people are listening to, they know what they can understand that ride, it’s scary. And so I actually got fired from that job. When your heart leaves the business, so does your cells. And so that was the best thing that ever happened because it forced me to go full time in real estate. And all I did was take what I learned in raising capital for stocks, bonds, and mutual funds, and I applied it and did, I started doing single family fix and flips, ultimately to start buying apartments. I realized that… I could not scale single family homes, but I could scale multifamily investments. And so the goal was then to partner capital and put it in the right kind of cash flowing deals that made sense, that could give our investors kind of better returns that they were getting in the stock market. And we’ve done that very successfully, but here we’ve come into another storm. And that’s the one thing about real estate is always going up and down and kind of crazy, Dave. What I realized in real estate is we have levers. There’s lots of things you can do to manipulate your property, to make it more profitable. I think for your audience, if you’re looking at syndicators like me, these are the things you’re looking for, some of the clues you’re looking for is how have they performed in down times? Because anybody can look great in a good period of time, Dave. It’s when the storm comes, what are you gonna see? And when that tide comes out, some people are naked. And so you wanna make sure that you’re understanding what that operator can do. And really it’s the things you’ll have to navigate. So we’ve just come through COVID. Now COVID was a blessing for most of us in the multifamily sector. But for Quarry, I have a lot of student housing, right? I rent to colleges or to the kids that go to colleges by the bed. So COVID for me was… horrible. It was a very hard time. We went with properties that were 100% three years in a row and all of a sudden went to 45% Dave and 45% occupancy is a death wish. It really is. And so we immediately that school year for when it was COVID because no one showed up to go to school. They’re all doing it remotely or at home. They’re not staying at my, you know, at my property now. And so we had to immediately get slim, right? We you know, we got a skeleton staff. So we started pulling levers. And I’m very thankful to say that we didn’t lose any of those assets and it could have been really bad, but we just, we consolidated. And this year, something extra that we’ve done is we’ve vertically integrated. In other words, we’ve taken over property management. And so property management, it’s a little bit different. Like, why does that matter? Why should you be… me pay attention, is it good or it’s bad? Just understand that most syndicators in this space, like me, they’re usually using third party management companies, and I’ve done it for the 15 years that I’ve been doing real estate, that’s what I’ve done. It’s only to this point now that I’ve, and I said I would never self manage or create this thing, but I realized that what became more important as I’ve gone on this journey, and I’ve kind of grown my portfolio, and what I realized is like, man, control. is more important now than ever. Understand, and really it’s not about, it’s about your people. People make or break your business, Dave, right? It’s your staff at the property level, it’s your ground troops that are on the pavement. Those are the ones that will make or break your company. And when you are using a third party management company, you do not have access or really control on the people aspect. And so we just knew that we had to get that part of it under control and then influenced them with our culture, with our code of ethics, the way we want to do business. And then all of a sudden, and the magic thing about that, and as we move through it, Dave is that we started seeing all our costs. I mean, almost across the line start to go down. Our general GNA, admin costs started going down. Our payroll started to go down. because we weren’t really wanting overtime. And so we said, hey, one of our policies is we can’t, we don’t want overtime. And all of a sudden things started getting done in the allotted time. Well, because we mandated, we kind of created stuff like that. And so those little simple things produce NOI, right? You save money, you’re gonna increase your NOI. And in a time like right now where we’ve had interest rates double, 100% increase, even though some of us, we have cap rates, That’s an expense that none of us really perform it. And so again, you gotta have, this is about being lean and mean on your current assets. I think for a lot of people that are invested in guys like me in the last three to four or five years, it was great. And this last two years, it’s been very different. It’s been very difficult because you have to get lean. You have to get very price conscious integration. I call it Six Sigma, your supply chain, you want that thing dialed in, so you’re not got a bunch of stuff sitting on the shelves. You gotta be efficient. And efficiency is what’s gonna win the race right now.

Dave Wolcott:
Yeah, such a powerful lesson, Corey. And I think not enough people really talk about it, right? It’s that it’s just having control. And I think this alternative strategy is very new to a lot of people to be investing in real estate, to be investing in private equity, because most of us were frankly taught by the financial services industry that we’re going to outsource our wealth to someone who is smarter than you. And, you know, they’re going to manage it for you. Um, but what you get with that is, you know, you basically get average returns for the retail investor. So if you’re looking to outperform that, you know, part of the equation is really taking back control. So you have decisions in terms of how you’re, uh, placing capital, right? How are you allocating today? How are you managing your risk? uh, into your point when you’re starting to purchase tangible assets, you know, there’s so many knobs that you can push, right? It’s a, it’s a living business. And the operator, the other thing that’s, I think, very different than the stock market, right? Is you have mutual alignment with your investors. So as an operator, you’re not going to make money, you know, the investors aren’t going to make money. If you don’t make money, we’re like, we all make money together.

Corey Peterson:
Yeah.

Dave Wolcott:
Right? So So you’re incentivized to turn those knobs, look for new, you know, revenue ideas and new creativity, cutting costs, you know, doing all those things. So I think that point of control just really can’t be understated.

Corey Peterson:
Yeah, it really is. And I always say this too, like, when I think back to the investor base is like, who’s going to care more about your money? You know, is it you or is it somebody else? And I always say it’s you. And if you really once you understand that you’re like, okay, so then taking a little bit more control a little bit more active, you can still be a passive investor, but control what you’re putting your money to don’t just give it. I mean, you think about it, you get to a financial advisor. And what that financial advisor does is he has, you know, growth fund of America, you know, and he shows you this, uh, you know, 20 year track record history. And so you invest in it. And I always say like you invest in that fund and then how many people does it go to tell finally that there’s the one guy that says we’re buying blank shares of this company and who is that person and can you call them? You can’t. And so you’ve, again, you’ve settled for average returns. when the rich and wealthy people understand this, I think more than ever, is that they understand that if they control their money, they can make it work a lot faster and a lot better most of the time, right? So there’s still understanding your risk profile, I think is more important than ever, but I find that most investors, when they start taking a little bit more control of what they’re doing and understanding the kind of investments they’re putting, the alternative investments out there, They can do a lot better than what the average stock market return of 6% to 8% is.

Dave Wolcott:
Yeah, for sure. And the other thing that, you know, as I went through that journey myself, I mean, I just got so tired. I’d be at the gym in the morning, you know, and all you see is a sea of red because something happened in China, something happened politically, and you just kind of throw your hands up. You’re like, I, you know, I want to do something. I want to get involved, right? How can I, how can I do something? And it’s, you know, that feeling of helplessness, right? Just, just really sucks. But when you can get into, you know, investing in tangible assets and real estate, you know, I see it really as mitigating your risk really three dimensionally. Right. Because if you have a thousand bucks, let’s say you have a thousand bucks worth of Amazon, the only thing that you’re actually hoping for is that stock value can go up in price. Right. But when you have real estate, you’ve got tax efficiency, you’ve got passive income. And just like you pointed out, you’re driving value every day into that asset to increase your net operating income.

Corey Peterson:
Yeah, I always say Everybody expense rents to go up and we never disappoint them, right? You’re always gonna make a rental increase every year even as if it’s, you know, ten or fifteen dollars That’s typically the train and real estate is we’re all conditioned From the very young age that we pay our rents, right? We if you want a place to stay you got to pay rent and so and if you look at the economics, too This is what I love about the numbers because the numbers are the numbers and they don’t really lie if you look at the supply and demand for What we do in this real estate space and particularly multifamily space There is such a demand for housing for what we do because home affordability is Through the roof. It’s hard to get it’s hard for new home owners to actually buy a new house It’s almost priced out of the range. And so what are they going to do? What are their options? They’re going to look for places to stay, right? Apartments. And that trend is happening more and more than ever. And then there’s a good amount of the population that don’t even want a home ownership anymore. They want flexibility. So as you start seeing now, not every market’s the same. And this is where you got to understand the business of real estate. And this is why when I say, you know, from your, your tribe’s perspective is you’re going to look for either syndicators or you got to learn it yourself. So you either do the work and learn how to invest yourself or you learn enough about the business. And then you find operators like me that you can partner with and then come into their deals with that have spent, you know, the last 20 years. That’s all I’ve been doing is real estate. So I kind of have my PhD in it and, um, we help get everybody there a little bit faster, right? But you always have the option to do it on your own. But what I’ve found is. What most people want is they want some stability, they want the income, the tax depreciation. Like that’s not as great as it was a couple of years ago because of cost segregation and the way it’s played out, but it’s still pretty decent. And so more and more, it’s not about what you make, it’s about what you keep.

Dave Wolcott:
Yeah,

Corey Peterson:
And

Dave Wolcott:
for

Corey Peterson:
so

Dave Wolcott:
sure.

Corey Peterson:
just trying to be understanding the long game of real estate. For us, it’s been a great partnership to partner with passive investors. and create the opportunity for everybody to win. And that’s the thing is, and I think you said it Dave best is we all win together. And that’s really the beautiful part of what we do.

Dave Wolcott:
Yeah, that mutual alignment, I think is so key. Cause as you pointed out again, you know, if you compare that to, you know, Wall Street, um, you know, they’re still collecting fees, even if you’re losing. Right. So,

Corey Peterson:
Yeah.

Dave Wolcott:
um, you know, they’re, it’s, it’s really their agenda that they’re winning. Right. So any way, anytime you can really bypass Wall Street and invest in Main Street, uh, is a good thing. Right.

Corey Peterson:
Yeah. You think about how much money they spend, you know, why is there a financial advisor, you know, in every corner in every street? It seems like, you know, it’s the, and they lobby this like they’ve, they’ve conditioned a lot of people’s minds to say, no, like if I was, I already like when I have people that are, I know they’re in the stock market and that’s all they’ve done. And they’re going to go pitch the idea to their financial advisor. I said, here’s what he’s going to say. He’s going to say this is a bad idea. And I was like, That’s exactly what I was trained to say when I was a financial advisor. Why would you do that? That sounds really risky. Are they going to report, you know, this and this, and you’re going to do it with your IRA? Boy, what happens if they don’t do the reporting? You’re going to be, you’re going to lose your, um, qualified, uh, tax shelter there. And we would just scare the hell out of them because really every finance advisors, their job is to keep assets under management, right? That’s how big is your book. You keep money at your place. You don’t want everyone to leave. So you scare the crap out of you. You say, well, we would have, you know, we would offer it. Well, why don’t you just get this REIT, a real estate investor’s trust. It’s like real estate, even though it’s not, right? It’s paper asset. But that’s the conditioning. And honestly, this is the, I’m gonna give you guys an insider look of what they taught us. Those are the words. And so is that not a slick oiled salesman? you know, are they really working on your best behalf? Because if I’m telling you, when I, when I got together with a bunch of my guys, you know, when we were, when I was at F and A, we were not talking about our clients good. We’re talking about how much money we’re putting in our pockets.

Dave Wolcott:
Yeah.

Corey Peterson:
And so it is a, it’s a direct conflict of what we’re telling and what they’re saying. They’re saying one thing to the customer, but it’s all about Asset center management, 12 B1 fees, how big’s your book, and what kind of money are you making off your client base? And are you churning that enough, right? I mean, and that’s, even though they’re not supposed to, but they’re like, hey, you should be offering and moving money every, a certain percentage of everybody’s money so you can just create new fees. Scary, but that’s the truth.

Dave Wolcott:
Yeah, it really is. And I think that’s why, I mean, we have a significant problem in this country, you know, in terms of retirement, financial education, you know, and really the lack of, you know, assets that people are holding right now that, you know, is definitely a little bit scary. And I think, you know, the more you can take back control, as you pointed out, start to invest in some tangible assets, you know, things like real estate, right, that really can make a You know, you’re going to start to see some massive gains, right?

Corey Peterson:
Well, that’s why podcasts like yours, they have a more important than ever to, is to, is to alert people and let them know that there is alternatives. And they’re, you know, that to talk about the things that we’re talking about now, um, is more important now than ever because people need to be saved. They need to be retirement for most people is not good. And so how do we make it better? You got to take control in what you’re teaching. Dave is exactly what people need to listen to.

Dave Wolcott:
Yeah, 100%. So tell us a little bit about the markets that you’re in.

Corey Peterson:
So we primarily invest in the Midwest and the South. We find that in the Midwest and South, they’re more stable. They’re more affordable. And we only try to buy for cash flow, Dave. This is, I learned my lesson. So in 2000, I bought properties in 2005, six and seven, single family homes. I’ve sold most of them, but I owned them way through the. downturn of 2008-2009 and they survived. And why did they survive? Because they cash flowed. And so I’ve learned that, and I’ll never forget that lesson because I know a lot of people lost their shorts because they bought things that couldn’t cash flow. If you can cash flow now, you can normally cash flow tomorrow. The markets go up and down and they’re crazy, but cash flow is key. So we find that in the Midwest, They don’t go up too high, they don’t go down too low. That’s stable, we like those types of deals. And these are like Oklahoma, Iowa, Indiana. And then we also have a pretty healthy portion of our portfolio is in student housing. And so where we rent, we butt up to colleges. And typically that’s almost recession proof, Dave, except it’s not COVID proof,

Dave Wolcott:
Yeah.

Corey Peterson:
okay? So we learned because usually with student housing, no matter what the market’s doing, it doesn’t matter because when your kid’s 18 or 19 and they’re ready to go to college, that’s where they’re going. And so then it’s about what we look for is D2, D1, we wanna be closer to D1 schools if we can. We prefer D1s, but we’ll do D2 if it makes sense. If our location is very close to the college. So proximity. college is very important in that aspect of what we’re doing and make sure we have the right amenities and right structures. But again, though, even in those markets, we typically try to buy assets that are, you know, 90% occupied, that are already kind of doing what they need. And then we like to make the micro improvements, right? Let’s go and do a remodel refresh kitchen refresh, right? We’ll replace the flooring. and redo the kitchen, paint the cabinets, new knobs, stuff that’s really very easy for what I call turn kind of items. It’s kind of like you can do it in your sleep. We like those. We don’t like to move walls. We’re not trying to redo wiring or plumbing. It’s just cosmetic stuff. And those are micro repositionings that we can do really well. And we force appreciation in that case.

Dave Wolcott:
Yeah. Any other types of differentiation besides your vertical integration? You know, what you’ve learned over the years that really sets you apart.

Corey Peterson:
Yeah, we’ve learned that, um, funny, we’ve learned, we’ve learned, you know, you have these lessons and it’s like, wow, okay. Um, we only try to buy in markets where there’s a regional airport. Right. Um, I don’t know why that’s a big deal, but we’ve done it where there’s not. And, uh, those have not worked out well. We really look for the, uh, the trend for growth. We want to see more people moving in the moving out and we want to see the, uh, our median house pricing, we want to see that just, we don’t need to see it taken off. We just want to see a steady growth, right? If our home values are just over time, just nice and steady, that helps us a lot. We like that data point. We also like more people moving in than moving out. That’s another data point that’s really important for us. And then we’re also looking at employment centers, Dave, who are the main employers? And are they growing or contracting? And so sometimes we’ve been on a property, you know, we’re in Warner Robins, Georgia. For that proper, the location, there’s a base. Well, so there’s one big base and that’s a big employer. And so we’ve got to really watch, we’re watching that base to make sure that it’s not going to be part of any closures. Right. And it’s a big enough air force base where it’s, it’s actually a, a transport base where they have the big planes like C one thirties and that’s not, that’s always going to be needed for what we do. So we’re like, we felt really good with that location, but we did a lot of research in those areas. And so at the end of the day, understanding your markets, you have to really go into your, with your eyes wide open and you’re looking for those metrics that those data points, crime, there’s a crime statistic that we look for. And we want to make sure that our zip code is better than the, It has to be a certain metric that greenlights it for us. And because crime can ruin, you know, and crime is so weird, you really have to look at it from a zip code perspective because you can go across the street and there’s no crime over there, but on this side of the street, it’s bad. So trying to understand that is super important when you’re buying these assets. We’ve had it where we’ve went on site to properties and our primary goal when we think we have a deal, Dave, is to go kill it. Like we go do a site visit. Our job is to say, let’s kill this thing. And if it doesn’t get killed, then it’s something we still want to do. But that has to be, I think for most syndicators, I’m not gonna speak for everybody, like that’s our drive. Like we go there to kill deals and only the great ones select because our goal, our job is to find needles in the haystack. It always has been. It’s always to find the needles in the haystack. And so to do that, you’ve just got There’s no special recipe in my mind, Dave. You just got to do the work. You got to, in the markets that we track, we try to underwrite 98% of the deals that come up. Now, we’re not perfect, but that’s our goal. We want to really do a good initial underwriting to say, does this work or not? And most of them don’t. Well, honestly, most of them don’t. And then from

Dave Wolcott:
Yep.

Corey Peterson:
there, the ones that do, then it merits a site visit. We always do site visits before we make any offers. I know there’s a lot of investors that just do sight unseen. We just don’t do that. It’s not, I’ve never done business that way. I’ve got to physically put my team on site. We want to, because most of the times you’ll go there and you’re like, Oh, that’s a deal killer. We found one. We had a great property, great location, but we get there. There’s this little seven 11 right next to it. And you wouldn’t think, Oh, it’s just seven 11. But at nighttime, that seven 11 is like lots of foot traffic. And usually foot traffic is not good at night. You want people, in home, locked up tight. And so we think we actually saw a drug transaction, right? So we’re like, nope, this property is not gonna work. There’s nothing that we can do to fix that problem.

Dave Wolcott:
Yeah, great point. I mean, there’s certain things you just don’t know until you’re actually physically on the ground, right? Kind of surveying things. So a great, great due diligence step. And what do you think? I mean, you know, given today’s market dynamics, right? With, you know, higher in unprecedented interest rates, right? Kind of this reset going on between buyer and seller expectations. How has any of that, you know, changed your business model and what are you looking for today?

Corey Peterson:
We are stepping on the gas right now, Dave. So we’ve not bought anything for the last 14 months, right? So we went on a hiatus. We needed kind of everything to play itself out and we are now starting to see things drop because people that are in these adjustable, you know, rate mortgages, they’re coming due and they either have to sell I mean, if they’re selling, no one’s selling right now because they want to. It’s usually because they have to. And so that’s opportunity. So when do you buy? You buy when there’s opportunity. And we may not be exactly at the bottom yet, but we’re close enough that we are. Um, and here’s the play. I believe the play right now is if you can buy something now and cashflow in today’s interest rate, right. And you can still, and you still have some micro repositioning that you can do. Then you can buy. And then, you know, we look, we have a five to seven year time horizon on anything we buy. So we believe that in our future interest rate down the road is going to be better. We don’t know what it’s going to be, but we believe it’ll be better than it is today. And that’ll be a, just a micro little piece that’s going to happen that from, you know, 6% to four and a half or even to five, six and a half to five is a huge step in valuation and profitability. So Our goal is to buy as much as we can in today’s dollars, in today’s pricing, with today’s rates, and just make sure that our deals qualify in cash flow. If they can do that, then it’s a green light for us. We’re still gonna add our micro repositionings. We’re gonna add some value along the way, but we’re gonna get a nice little reset somewhere down the road. We’re gonna be able to refly our properties, and it’s gonna smell like Nirvana.

Dave Wolcott:
Yeah, makes sense. So Corey, what do you say the future looks like for you and Kahuna Investments? Talking 10, 15, 20 years out.

Corey Peterson:
Our goal is to become a family office. We have a very robust team. As we started, we’ve been buying deals. We have 10 active projects right now, pretty good size projects. And so as they start to mature, our goal is to keep partnering with investors, but our long-term goal is to become a family office where we’re starting to use all our own monies to buy all our own properties and just keep that machine running. I don’t think I’ll ever stop doing real estate, Dave. I love it. My kids, my son is turning 19. He wants to be in the business. My goal is to find a way to, he can’t come work for me till he’s about 24. But the goal is once he’s kind of matured and learns from somebody else, he’d come and go into all my departments and get everybody’s respect and then stand with me by my side for a minute. And then my goal is to eventually give him the keys and let him do better than I ever thought I could.

Dave Wolcott:
Excellent. Creating a nice legacy there. Love it.

Corey Peterson:
Yeah.

Dave Wolcott:
Corey, if you could give just one piece of advice to the listeners about how they could accelerate their wealth trajectory, what would it be?

Corey Peterson:
Take control. Don’t stop learning about things that you’re interested in. Find things that you’re interested in the alternative investment arena, right? Whether it’s real estate, maybe it’s singles family, maybe it’s lending, maybe there’s so many different aspects that you can get into, but find something you’re passionate about and then just get involved with it. I’m telling you, you can make so much more money. understanding just a little bit. You don’t have to understand a lot, but just understanding the fundamentals of what, of what wealthy people do. They make their money work so much better than the average investor just going in the stock market. So, uh, by listening to podcasts like yours, Dave, to getting knowledge, um, and then take action. Most people are, you know, they listen to these podcasts and they don’t do anything. And man, it’s a shame because I know if, if you would take action, it would just, It would change your life. For most people, it’s a life-changing thing when they take action, especially on the things that we talk about, Dave.

Dave Wolcott:
Yeah. Well said. Really appreciate you coming on the show today, Corey, giving so many valuable insights to the listeners. If people want to connect or learn more about what you’re doing at Big Kahuna, what’s the best place?

Corey Peterson:
Yeah, actually, I would love just to give it I’ll give away my book for free. Copy your way to success. If you’ll text the word book the OK to 480-500-1127. We’ll send you the book for free. Other than that, go to Kahuna Investments.com. You can look us up see, see about us to see what we’re doing.

Dave Wolcott:
Awesome. Thanks so much for coming on the show, Corey.

Corey Peterson:
All right, thanks Dave.

Dave Wolcott:
Alright.

Dave Wolcott:
Hey everyone, welcome to today’s show on well strategy secrets. We’ve got another excellent show today. Today we’re joined by Josh Cantwell. Josh in 2004 took his knowledge of raising capital and financial markets and started investing in real estate full time. He was able to combine his knowledge of financial planning with real estate to create a very successful business, which quickly grew into closing over a hundred wholesale and short sale deals per year. Since 2019, Josh has invested in commercial apartments full-time, having completed 19 apartment syndications and taking nine of those deals full cycle from acquisition to sale. Along the way, Josh has taught thousands of investors how to replicate his success. He’s the founder of a variety of successful businesses, including Freeland Ventures, Strategic Real Estate Coach, creator of the Maverick Multifamily Master. and also the host of the Accelerated Investor podcast. Josh, welcome to the show.

Josh Cantwell:
Hey Dave, thanks for the intro. I appreciate

Dave Wolcott:
Yeah, you bet.

Josh Cantwell:
that a lot. Thanks for inviting me on.

Dave Wolcott:
You bet. Always great to connect, Josh. Really looking forward to this discussion. I think it’s gonna provide a lot of valuable insights for the listeners. So for those folks who don’t know you, just tell us a little bit about your journey and how you got into real estate in the first place and investing.

Josh Cantwell:
Yeah, I think like a lot of people, we all kind of know that real estate is a great way to build and hold wealth. I’ve been an entrepreneur my whole life. My father was an entrepreneur, so I get to see entrepreneurship in my own house growing up. My dad started, founded, and built an amazing financial services company. It was focused on employee benefits when I was in high school and college. So I was able to watch entrepreneurship in my own home. And so when I graduated from college and I became an entrepreneur, I became a basically a 1099 all commission, uh, salesperson and financial planner. My dad freaked out. It’s like, why did I bother sending you to this expense college if you’re going to work at 1099 and not even have a salary? And I said, well, dad, I’ve been watching you for the last six or eight years. Uh, I can’t believe that you’re even really surprised by this. And so, you know, I got into that and I quickly also started studying and learning other financial kind of services and other different financial programs like real estate, oil and gas, you know, forex trading, those different kinds of things. And I would go to the weekend warrior boot camps, right, Dave? Like, so, and I learned everything my dad said. He’s like, listen, get in and out of college in four years, everything you really need to know, you’re going to learn on the job. Well, being an entrepreneur, I started at 22, 23, 24 years old, going to the weekend warrior boot camps and learning about Forex trading and learning about real estate and overfunded life insurance and all these different kind of amazing wealth accumulation strategies. And of course, I immediately started learning about real estate investments, started going to all kinds of boot camps and strategies and learning from gurus, getting pitched their coaching programs, all that kind of crazy stuff. And now you fast forward 25 years, I’m 47. And that’s been my whole life now, is just studying wealth building strategies, primarily in real estate, pivoting from single family to multifamily and now big commercial strategies. And it’s really, I think a lot of the same journey that most people should take. I think I have a very kind of replicatable, duplicatable journey of jumping from Wholesaling to larger rehabs to a private equity fund and now into massive apartment syndication So that’s been a little bit about the journey man over the last so long 25 years to kind of cover in a few minutes

Dave Wolcott:
Yeah, it is too to summarize it like that, but such an interesting background Josh, right? I mean the fact that you kind of grew up with traditional, you know financial planning right with your dad and then starting to Invest and look at you know, different asset classes and understand, you know What you know, what are some of the pros and cons of some of those things? and then to become an entrepreneur and Also to then, you know kind of niche down and focus in on real estate So you have a nice 360 degree view, I think, of the world. And what have you really learned from that? And have you developed an overall investment thesis or a particular wealth strategy that you follow today?

Josh Cantwell:
Oh, absolutely, absolutely. And I think it’s taken me the better part of the last 20 years to sort that out. When I was a financial planner, we were selling traditional financial services products. We were doing fee-based financial plans, charging clients 500 to $1,000, and then implementing all the strategies, primarily manage mutual fund accounts, overfunded life insurance policies. disability insurance and things like that. I felt out of love for the traditional financial services world one, because I knew that primarily if you’re gonna buy mutual funds, which is what your average person does in their 401k and in their brokerage accounts, 96% of the time they’re better off buying an index fund, having lower costs, lower fees. And they’re also going to get a higher return one of the books that really changed my View of what I used to do as a financial planner is Tony Robbins book unshakable Where he interviewed like 20 or 25? the world’s best money managers and wealth builders and to hear I believe his last name is Swenson. He’s the Yale Endowment Fund manager say that 96% of all mutual funds underperform their related index, and the typical financial advisor charges a 3% fee and then a 1% additional fee to the mutual fund. There’s 13 hidden fees in actively traded mutual funds, and you can wipe all that out and get a higher return. I’m like, okay, so I discovered that over time. So I do own a lot of index funds inside of overfunded life insurance policies. That’s going to leave a massive legacy to my family. That’s important. From a real estate perspective, I went from wholesaling because I didn’t have a lot of extra money to buy. I didn’t know about private lending. And then eventually pivoted to raising a lot of money and doing a lot of rehabs and rentals in the single-family space. And then we decided to scale that into a fund where we did private lending. Well, Dave, the problem with all of those is that You have flipping houses and there’s ordinary income. You have private lenders that are getting 1099s for interest income. It’s great to get a 12, 15% return, but interest income is taxable. Flipping houses is taxable. So I eventually stumbled into multifamily because I was underwriting and lending to other real estate operators and they needed funding. And so we were doing their basically underlying debt. through our fund and through brokering for other people. And I still realize the income that we were making, although it was relatively passive, was still interest income. It did not have any ability to wipe out that income through depreciation. Well, in 2017, we started to joint venture in CoGP and buy and own apartment buildings. And that led me to my current, and I believe my final investment thesis, which is to… buy and syndicate multi-family apartment buildings, which then allows us to get eight different fees, but primarily it’s about cash flow and equity and that ownership allows us to have a significant amount of depreciation. So Dave, it’s almost embarrassing because we own a 250 million dollar real estate portfolio, but because my taxes show a loss, I actually qualify for financial aid. at my kid’s high school.

Dave Wolcott:
Yeah, yeah, yeah.

Josh Cantwell:
So, because all of my income from the cash flow and the equity gets wiped out by depreciation. So when you know that you look like you’re poor, but you’re not, that really at the end of the day, really just kind of popped my head off my shoulders. And that’s where we’ve landed for the last six years. And we really love it.

Dave Wolcott:
Yeah, no, that’s perfect. The only challenge, right, once you get this figured out is when you’re trying to talk to traditional lenders about getting financing, even if it’s for your existing house or another

Josh Cantwell:
Right.

Dave Wolcott:
house, they’re like, you have no income, we can’t qualify this at all. So

Josh Cantwell:
Right.

Dave Wolcott:
I guess it’s a good problem to have though, right?

Josh Cantwell:
It is, it is. And you know, I also own my education business, so we do still run this mastermind program. We’ve got about 100 members, and I take a W-2 out of that, but I take a very, you know, very low W-2, and so all of my losses still wipes all that out. But I only take the W-2 to show some income in case I need to get some loans at some point. But at this point, you know, we’re just focused on cashflow and equity. That’s it. I’m not really worried about buying. the next house where I have to walk into a bank or a credit union and fall into their box. I know that I’m not in their box. Like the last 25 years of my life, I’m not in anybody’s financial box. It’s going to lend to me on a traditional basis. So I’ve got to be very creative.

Dave Wolcott:
Yeah, for sure. So Josh, what would you say, I mean, we have a lot of sophisticated investors in our community, right? And people are always looking for different tax strategies, wealth acceleration strategies. And oftentimes a CPA might say, okay, let’s say you’ve got a great strong income year, or maybe you even exited a business, right? And, you know, CPAs out there might just say like, okay, go purchase some real estate. Right. So you can, you know, get that, get that office offset. Um, but I think if you’re dealing with, especially if you’re dealing with say six, you know, high hefty six figures, maybe seven figures that you’re trying to actually offset, um, you know, it can be a little bit scary to say, Hey, I’m going to go do my own multifamily deal and, you know, go buy even a $5 million asset, uh, to, you know, just to offset the taxes because You know, now all of a sudden, you know, there’s, there’s a lot of competition, uh, for that market. There’s people doing it every day. You know, does it make sense? Are your assumptions right? And then do you really want to become now an active investor, you know, in that, uh, versus say doing a syndication. So what are your thoughts there?

Josh Cantwell:
Well, look, I think if that person has a big income or they’ve exited a business, it’s because they really focused on that and it worked out, right? They’re making a big income, they’ve exited a business. And so I would say, look, unless they can focus on real estate the same way that they focused on that exit or focused on their current job that pays them a big W-2, I would say don’t buy the real estate on your own. I work with a lot of groups, investor clubs, doctor groups, family offices. Primarily my deal still, when we syndicate a deal, when we raise five or ten million dollars, those are primarily just retail investors, guys that are writing checks for a hundred to five hundred thousand dollars as part of their investment strategy. But to your point, I work with a doctor group and several other family offices and different high net worth groups. And they usually have a lead sponsor that lead person, kind of leads the investment group, finds different operators, finds different syndications, find different opportunities. They can collectively then go and bring their collective horsepower to an operator and say, look, we can stroke a check for 10 million, 20 million dollars. And then collectively, because we can stroke the check, they’re gonna typically want a little bit extra, a little bit extra equity, a little bit extra cashflow. And then typically, because their main plan is get equity, deploy cash, but get depreciation, accelerated depreciation, bonus depreciation, then they come to an operator like me and say, this is what’s most important to us. So I would say to that guy or gal who’s exiting a business or has a big income is not to do it on your own, but to get comfortable in a community. Dave, maybe it’s your community, other investment clubs, other communities. where you know that you’re collectively working together, have a similar goal, cashflow, equity, depreciation, whatever that is, and then put yourself out there as a group with more horsepower, and then like we craft specific investments, and we look for specific apartment deals that we can then park with certain groups, like a certain doctor group, or an investment club, or a family office. So we know what their goals are. and we try to find an investment that matches their goals, we still remain as the operator, but we’re essentially kind of like that middle man, that middle operator, connecting the investment group to the deal where they don’t have to be the operator. They don’t have to be the boots on the ground. We’ll handle that and we will all partner up together. So I would say instead of going and buying that one deal, first of all, if you’re gonna be exiting a business, you probably know that’s happening for at least a year or two ahead of time. In that year or two, you need to do some planning. You need to make sure that you either get with some investment groups, investment clubs, you need to make sure that you can qualify as a real estate professional to take the depreciation or have your wife or your spouse become a real estate professional. Like I have a friend of mine that does that. He’s a high income earner. His wife is in real estate. She’s a real estate professional. They do a joint tax return. So collectively they can use the write-off. That’s another way, but I would say you know get involved with the group a collective investment group So you don’t have to do it all on your own

Dave Wolcott:
Yeah, no, it makes perfect sense. And I think you really hit the nail on the head, right? When you said like, if an entrepreneur or a high income earner, right, they’re doing well, then, you know, focus on what you do well at, right? Because that’s where your strengths, you know, truly lie, right? And your unique ability. And so you want to double down on that. And then you can get leverage by working with these other groups, right? You get the power of the group or getting into a syndication. You have someone who. You know, for instance, on the acquisition side, you know, has been doing it for 20 years and they have relationships inside and out of particular market. They know exactly,

Josh Cantwell:
That’s right.

Dave Wolcott:
you know, how to identify off market deals and things like that. So you’re getting some really great, uh, leverage by being able to move up, you know, into the syndications and such. So,

Josh Cantwell:
No

Dave Wolcott:
uh,

Josh Cantwell:
doubt.

Dave Wolcott:
you

Josh Cantwell:
Dave, I would

Dave Wolcott:
know,

Josh Cantwell:
give

Dave Wolcott:
appreciate

Josh Cantwell:
you one more example.

Dave Wolcott:
that.

Josh Cantwell:
Like we have a friend of ours who’s a billionaire. I’m not close with him, but we know each other pretty well. And he has basically another group that he partners with that underwrites and makes the decision. And he will often say, if they’re in, I’m in. Right? So he’s essentially offloaded that responsibility of the underwriting, the decision making, selecting an operator, selecting an opportunity because his expertise is not in real estate. His expertise is in his current business that’s made him a billionaire. So he just says, look, I wanna invest in these real estate opportunities because of the cashflow, the equity, but primarily the depreciation. And in some cases there’s some. you know, historic tax credits that are involved and they’re able to get access to those as well. But he essentially says, if that underwriter, that group is in, I’m in. So I would encourage your group as they listen to this to say, okay, who’s that one person who’s a really good underwriter, really good at due diligence, really good at selecting groups, partner up with them, build that personal relationship. And then, hey, if they’re in, I’m in. If that guy’s writing a check for a half a million, I’m in for a half a million. That guy’s written a check for $5 million. I’m in for $5 million. That is that personal relationship. And often, that underwriter should be an attorney, someone who has a legal license to lose if they screw it all up, right? If you have attorneys that partner in real estate deals or attorneys that buy out real estate deals, they have that added layer of fiduciary responsibility, that added layer of underwriting. plenty of real estate guys who have attorneys they work with. And I think that gives you that insulation to say, look, if that guy’s going to invest, and he’s a lawyer, and he’s helping this group, he’s not going to screw things up. He’s going to go the extra mile to do the right underwriting. So that’s some really niche ideas right there that I think people, if they really want to be good at this and deploy a lot of money, they need to be niche. They need to be really well-schooled in those things.

Dave Wolcott:
Yeah, no, great points. And, and again, just getting leverage, we all think of leverage typically as a rookie real estate is great. We’re going to get, you know, leverage with the lender, um, you know, to amp our returns here. But can you think about the human capital leverage factor, right? How much that kind of ties into the success of this. And it’s interesting as well, you know, working with family offices, ultra high net worth, right? A lot of this is also about, you know, not losing capital, right? Um, you know, being, being very defensive in nature, making sure you’ve done your due diligence properly, the risk mitigation, right? To make sure that the, you know, investment is going to be successful. And in some cases, you know, you may, you may hit a home run, uh, but sometimes just, you know, hitting and meeting, uh, projections, you know, is great. Uh, so Josh, what do you think about, you know, let’s talk about a little bit about the current market, uh, today. You know, we’re discussing a little bit earlier. Um, you know, I guess at the time of this recording, right, we’re kind of mid August right now, it’s been super slow in the multifamily space. Um, you know, a number of transactions has been down considerably, uh, this year, you know, primarily due to, uh, you know, the fed increasing interest rates really unprecedented, you know, that’s never been happened before in history. Uh, we have a lot of, um, you know, uh, A lot of that debt is coming due if people underwrote, say, three years ago. So what are your thoughts? What are you seeing in the marketplace right now?

Josh Cantwell:
Yeah, yeah, great question. So a couple things. First of all, things are definitely starting unthought, meaning the transaction volume is starting to pick up. I do believe that, look, if you were an investor in 2021, and 2021, August of 2021 is well known by many people to be the peak of the market. And if you were buying at that time when interest rates were super low because of COVID and everybody was in the market in liquid. then you should be buying now. Because cap rates are up, which means values are down. It means that interest rates are up, values are down, transaction volume is down, which means there’s less people involved in the industry, there’s less competition. So if you were gonna invest two years ago, there’s no question that you should be investing now. Now, what we’re planning on doing is getting deals under contract now. in Q3 and Q4, and waiting until Q1 or Q2 of next year to close. Because we do feel like by that time, interest rates are going to be flattened out, maybe not going up or going down, but they’re going to be flat. We don’t feel like the Fed has a whole lot more reason to raise rates anymore. The labor market is starting to soften. The labor market was so strong the last 10 to 14, 15 months. the Fed had to continue to raise rates, even when property value started to peak, you know, a lot of people were still hiring and the labor market was on fire. So incomes are going up, which is causing more inflation. That’s starting to slow down. You’re seeing CPI basically dropping back down to the levels that the Federal Reserve wants to see. They’re gonna wanna see that for the next several months. but I don’t feel like the Fed has a lot of reason to raise rates anymore or raise rates significantly. They’re gonna be maybe flat or maybe 25 basis points. And then I think by next year, if we saw some shines of recession, some cracks in our economy, remember, interest rates, it takes nine to 12 months for that to actually hit the economy in a real way after the rates been raised. Well, those rates went up last summer. We’re finally seeing that impact our economy today. So. I do feel like there’s a lot of deal flow out there that’s getting a lot less offers in multifamily. I do feel like the area that was overbought where there’s too much competition we want to avoid because those markets are coming down, including Dallas, Houston, Nashville, and Phoenix. I wouldn’t touch those markets right now because I think there’s some ways for them to come back. So I think the Midwest, places like Ohio, Indiana, Pennsylvania, Kentucky. those types of areas, Missouri, those types of Kansas City, those types of areas that are Midwest or landlord friendly. There wasn’t as much competition before, and there’s even less competition today because now interest rates are up. So that’s our strategy. I also feel like next year, there’s going to be some more cracks and some more deals that, from a lending perspective, we’re going to have to sell. So I think you ought to be patient. I think it’s another six months to nine months until we really see great deal flow. It’s truly a buyer’s market. The interest rates might be going down a year from now. Cap rates will continue to go up because that hasn’t totally adjusted yet. Values will still coming down. But I do think, look, if you can find a good deal today in Ohio or one of those Midwestern markets or the Southeast and it pencils. you’re only going to be three to four to five years from now in a lower interest rate environment. Nobody thinks we’re going to be in a higher interest rate environment three to five years from now. So if you acquire that deal now, even with higher interest rates today, three to five years from now, when you go to refire sell, I think if you have a great value add strategy, that property is going to be worth a lot more, because interest rates will be down, cap rates will be back down, and values will be back up. So I think people are making a mistake just totally sitting on the sidelines. If I had to guess to me at an exact time, that would be the right time to buy. The perfect time to buy is gonna be Q3 of next year. But that’s not to say that we’re gonna sit on the sidelines right now either.

Dave Wolcott:
Yeah, interesting. So given all of the market dynamics, especially over the past 12 months, how have you changed your underwriting around lending and what type of lending products are you really looking at today for a solid deal?

Josh Cantwell:
We’re trying to really do loan assumptions where we can. If there’s a good loan that was refinanced a couple years ago, somebody bought a property, let’s say in 2018, 2019. They refinanced in 2020, 2021 when rates were super cheap. And that product has some sort of fixed rate financing or interest rate cap. And we can get that financing in the mid-fours. There’s several deals that I’m underwriting right now. A couple deals I’m going to look at tomorrow, a deal I offered on yesterday. We have a $22 million on a deal yesterday. 37 we offered on a deal on Monday. We have a $5 million deal we’re looking at tomorrow. A lot of those, the smaller deals will still pencil with bank or permanent financing, new financing. The bigger deals are really hard to pencil, Dave, with 6% new financing and possibly triggering a tax reassessment. So those deals that have some sort of loan assumption opportunities are fantastic. So the deal that we looked at yesterday is not have a loan assumption opportunity. It looks like it’s gonna get reassessed. You know, whisper price on that thing was like 28 million. We offer 22, okay? I don’t know if we’ll get it. I don’t know if the seller, I think their loan amount, their basis is more than 22. So the bank would be taking a pretty major short sale. that if we could get it, but we also have another deal that we’re going to look at next week a big 400 unit deal That had really good financing put on it two years ago. It’s got long-term fixed rate debt And because the values were so high back then they got a very high appraisal very high loan amount now values have come back and So that loan to value is in the word between 80 and 85 percent So that’s a really good deal for us to buy because we have high leverage, we have to recruit less equity, we have fixed rate financing in the fours. And so those are ideal deals when it comes to the financing that’s in place. If we can find stuff like that, you gotta look a lot, you gotta dig through a lot of deals to find those, but they are out there.

Dave Wolcott:
Yeah. Tell us a little bit about the market in the Midwest. I mean, typically, you know, everyone just talks about, you know, the smile states really, you know, southwest, southeast, but, you know, tell folks a little bit more about why you like the Midwest.

Josh Cantwell:
Yeah, so the word is boom bust. Okay, boom bust. So I was investing in 2007, 2008, 2009. There were five states that were responsible for 50% of the foreclosures. Those were all smile states, right? It was Florida, Vegas, Arizona, and California. And then the last one was Michigan because of what happened in Detroit with the car business. But those four states had the biggest run up, the biggest boom, and had the biggest bust in 2007 and eight. Well, I lived through that. I was investing in that, primarily in real estate, but also in the financial stock markets and also in the currency markets and in physical gold and silver. And so I know that that’s going to happen again. The boom bust markets are exactly the markets where we saw all the activity in 2020 and 2021. It was Southern California, it was Vegas, it was Arizona, it was Texas and Florida. Maybe even in Colorado you could add that, maybe Nashville, you add that. Those are boom bust markets. And so when that happened in multifamily, you saw so much activity, so much pushing up of the prices, so much low cost money. And those are the markets that are now already getting pinched. Like I would never buy something in Phoenix or Nashville right now. Because not only is there not going to be a lot of appreciation in the price, but there’s also not going to be a lot of appreciation in the rent because they’re building so much inventory. Okay. So in order to avoid the boom bust, we focused in our backyard. I’m from Cleveland, Ohio. I like the Cleveland market, even though it’s not a super high growth market because it’s a cashflow stable market. Okay. So in 2007 and eight, Values went down. Yes, but they might want to down 8 to 12 percent depending on which outlet you’re paying attention to Depending on which data that you’re reviewing If you look at Kentucky if you look at Indiana if you look at Pittsburgh if you look at You know, Missouri look at a lot of Oklahoma a lot of states in the middle of the country. They’re not boom bust So if I’m trying to create an investment strategy in a thesis that I can stick with for the long haul I Want to remove as much bumps? Rollercoaster as I can I cannot remove it entirely I’m gonna have some volatility no matter what I invest in but if I can flatten it out I’m okay with buying a property Having it appreciate in a very methodical way Getting lots of cash flow in a methodical way and letting my residents pay down my mortgage Okay, Dave. There’s a guy that I’ll never forget. I looked at this portfolio This how this property I was trying to buy was 112 units. I pulled up This little old guy in a Cadillac gets out of his Cadillac gets in his gets in his golf cart His name is Turk and he is showing us around his properties Well, he owned almost a thousand units in Youngstown, Ohio Which is a not growing at all C class city But you know what he played the long game He invested for cashflow and equity, and he had a $95 million real estate portfolio that was paid off.

Dave Wolcott:
Well,

Josh Cantwell:
So for me,

Dave Wolcott:
nice.

Josh Cantwell:
I’d rather be Turk than a guy that’s going to play the markets in a boom bust area. So that’s why I prefer the Midwest and some markets in the Southeast. I like Atlanta a lot. I like Oklahoma, Oklahoma City. I have a 216 unit in Lawton, Oklahoma. I’ve got over a thousand units in the Atlanta market and some markets in Atlanta. But I also like if you’re going to do multifamily, you should be investing with an operator who’s investing in their backyard. Because when stuff happens like COVID, you wanna be able to manage that really, really well. And so we like the Midwest for those reasons, try to avoid the boom bust.

Dave Wolcott:
Yeah, great insights. Appreciate that. I definitely wanted to ask you also, Josh, I know you have this 10 step peak performance success formula, which resonates with me. So let’s unpack that a little bit for the audience.

Josh Cantwell:
Sure, absolutely. So there’s a few things that I really feel like are really important when I think about what I call the ACER exercise. The ACER exercise for me is about peak performance. It’s about really understanding what we want to accomplish. It’s about, it’s a 10 step process and I don’t have time to go through it all, but. That to me has really identified what I want to be, who I really want to become down the road. And that formula for me is about understanding the end result, okay? I’ve heard a lot of people talk about their why, their why, their why, like why do I do things? The why is the reasons, it’s the passion for what we really want. Well, for me, it’s not about the why. A lot of people are like, They post pictures of their family on their Facebook or their Instagram and say, this is my why. I said, that’s great. Those are your reasons, okay? But when you got married and you had kids, you sort of became obligated to those people, okay? So that has to be your why, okay? It has to be. Now, when I look at what do we really want, what I started doing years ago, peak performance success for me. The most important step is really step number four. And I’m gonna, so I’m gonna skip to that. The ACER stands for absolute clarity of the end result. So when I talk about Turk, and I talk about having $100 million portfolio that’s paid off, that’s part of the end result that I want. So I’m willing to be patient. and work methodically towards my goal, instead of being hyper active, trying to force that goal to happen in a super short amount of time. I want my end result to be happening in my lifetime. It doesn’t have to happen tomorrow, or three years from now, or five years from now. Of course I’m working hard, of course I’m motivated. But I have this vision of what I want my life to be like. And so I encourage people to close their eyes and on their perfect day, their perfect average day, what does that look like? So if we have 365 days a year, let’s say 50 of those are amazing days where we’re like walking through a rainforest or we’re on the beach in Hawaii or we’re going on a European vacation. It’s this unbelievably crazy experience. We’re parachuting or we’re whitewater rafting. These are the special days of our life. in a one year period, maybe at 50 amazing days. And maybe you have 50 unbelievably terrible days, crappy days, horrible days. You fight with your wife, you lose money in business, your kids are fighting with you, you can’t get through to anybody, you’re not motivated at all, you get rid of those. Well, there’s about 250 very average days left. And the question now becomes, what do you want your ideal average day to look like? And your investment strategy, your investment thesis needs to support that. So the end result of what we’re trying to get to in the peak performance success formula basically is trying to create an investment strategy that supports that average day, that ideal average day. Because this whole idea of living this amazing, crazy, wild life is not true. We’re going to have 250 days a year where we’re having an Average ideal average day. So what does that look like? So if everybody closed their eyes and thought about that What does that look like? When do you wake up? What do you do? What do you eat? What do you drink? Do you go to the gym? Do you play with your dog? Do you go for a walk with your wife you go for a run go for a bike? Like you go to the beach. Where do you live? What do you see when you wake up? What’s the scenery? Where do you live on the beach or in the mountains? This is the average day. This is the end result And that to me is all that’s important is having a true vision for what that looks like. That will then determine the investment strategy. Like people that were chasing these multifamily deals in Phoenix and in Nashville and in Orlando were chasing a quick nickel. They lost sight of the long term investment that multifamily should be. They fell in love with the quick nickel of cheap money, rising rents, COVID, low supply. But did they really buy something that met their ideal average day and met the end result that they were really trying to pursue? So again, for me, Dave, I go back to the Midwest because that supports my long-term vision of what I want my ideal average day to look like and what I want my regular life to look like, right? This whole sexy idea of the boats and the cars and the parties, like everybody gets sick of that. I’ll give you 50 days of that fun and crazy life. really depressing, horrible days, the middle 250 is what we’re working for. That’s what this ACER exercise and this kind of 10 step peak performance successful and it was really all about. There’s a bunch of steps in the middle, cover that some other time, but that’s really what I’m trying to accomplish in my own life and for other people that follow along in that process.

Dave Wolcott:
Yeah, absolutely love it, Josh. I mean, that is essentially the underpinning of our entire holistic wealth strategy, right is creating a vision for yourself and having crystal clear clarity on what that vision is, right. And if you think back to, you know, Napoleon Hill’s thinking grow rich, right, how he has so many affirmations of, you know, every day you’re talking about, you’re waking up, you’re meditating, you know, you’re thinking all of these affirmations around you’re going to achieve that goal is, you know, what it looks like for you. And really, you know, when it comes to investing, again, I think you hit the nail on the head, right? Because really, what are we after anyway? Right? You know, money just buys us stuff, right? It buys us time. It buys us certain freedoms and everything. Right. So, so you have to define what it is that you’re actually going after. Right. Or if you don’t have a target, you’re basically going to miss every time. So getting clarity on that is absolutely critical.

Josh Cantwell:
Yep, absolutely, I love it. No, you talked about that when you came onto my show about having a holistic strategy. I think that’s unbelievably important. And I think it’s like, especially if you have a partner, spouse, you know, it’s really important that the two of you get together and talk about that and make sure that, you know, in my life, my wife is pretty much out of the business taking care of our kids and all the crazy things that they do. And so I want to make sure that I’m engaging the people who are important to me, my wife, my business partners, my CFO, and what’s important to them because the apartments are again, are just like you said, Dave, a tool to help not only me as the CEO and entrepreneur hit my goals, but it’s also impacting all of our investors, all of our staff, all of their spouses and all of their children. And so the more we can know about the main operator, the main sponsor, and what their goals are, now these investors and staff and spouses and partners can all align there. I think that’s really important. So going all the way back to the beginning of this conversation, Dave, if you were a limited partner making a passive investment, the more you can know about that sponsor’s ultimate goals, not just with that property, but with their life. then you can decide, does your ultimate goals line up with them? Does their Acer, their absolute clarity of their end result, does that line up with yours? And if it does, I think you have a much more higher likelihood of a successful investment.

Dave Wolcott:
Yeah, no, such a great alignment, such great point that you make there. Um, so many good insights here and good takeaways, Josh really appreciate it. If you could

Josh Cantwell:
Sure.

Dave Wolcott:
give the audience just one piece of advice about how they could really accelerate their own wealth trajectory, what would it be?

Josh Cantwell:
Look, so I have a very personal story. I can’t go through it all, but I’m a pancreatic cancer survivor. 12 years ago, I was given, I was 35 years old, I was given this wild diagnosis. I had a major surgery. And the surgeon basically saved my life on the operating table. I’ll never forget. after the surgery about six weeks later, I went to meet with my oncologist and I was sitting in front of a computer kind of like we are today. And my oncologist walked in the room and he went through this post surgery summary report. So Dr. Ali is reading about what Dr. Walsh did to me on the operating table. 10 hour surgery. They took out my gallbladder, my spleen, my stomach, most of my pancreas, most of my liver. They had to reconstruct the arteries in the back of my, your back of my pancreas and back of my liver because they were crushed by the cancer, take arteries out of my leg and put them back in. I had to relearn how to eat because I had no stomach. I lost 50 pounds in four weeks. Dave, on the operating table that day, I lost 21 units of blood. To put that in perspective, you and I, as we sit here today, we have seven units of blood in our entire body. So I have everybody else’s blood in my body except my own. I’m literally everybody else. Like none of my blood cells are mine. And I’ll never forget Dr. Ali, he sat back in his chair and looked over at me and he said, Dr. Walsh is a daring surgeon. And I looked at Dr. Ali and I said, what do you mean, is it daring surgeon? And he said, Josh, he’s like, I’m reading this report and now I realize what a miracle you are. 95% of surgeons would have never even tried this surgery. They would have opened you up and saw how complicated it was. They would have sewn you up and sent you home and said, there’s nothing we can do. And I said to Dr. Ali, I said, hey, so you’re telling me the only reason why I’m alive is because Dr. Walsh was daring. And he said, yes. And I cried. I sat there and cried because I didn’t realize the magnitude of what had happened that day. And so I would say, look, life in general, investing strategies, your investment thesis, is going to require two things. One, you have to be daring. You have to be willing to get out of your shell and do something that nobody else has done, because it’s your life. You’re in control. You have to be daring enough to try new things, go and do new things and meet new people. The second thing is I would say, look, in the theme of being daring, you can mitigate some of that risk, because that might sound risky, being daring, but you can mitigate that, like you said, Dave, earlier, with the human and relationship capital. Every good deal I’ve ever done was because I was either referred, I was brought in, I was introduced. or I got some special information from someone else. All right? And so I would say be daring in your relationship building. If that was the one piece of advice to kind of bring all that together, be daring in your relationship building. Be willing to put yourself out there. Go to events, go to dinners, go to be on podcasts, meet new people, be part of investment clubs and build up your relationships. Build up your relationship capital because That will introduce you to incredible investment opportunities and incredible people who are doing wild amazing things with their lives, but you have to put yourself out there. You have to be daring just to put yourself in these new rooms and these new groups and these new clubs. That is going to create so much flavor and color in your life. So many people though just want to live, stand by house and be a hermit. No, be daring, create new relationships. and then new investment opportunities will come.

Dave Wolcott:
Awesome. Such a powerful story, Josh. Thanks for sharing. If people want to connect with you and learn more about what you’re up to, what’s the best place?

Josh Cantwell:
Oh look, I’m really active on LinkedIn, really active on Facebook. You can just look me up there, but you can go to our main website, freelandventures.com, I’m the CEO. And that website is kind of like our home base for everything we do. You can go to freelandventures.com slash passive to learn more about our investment strategies. Freelandventures.com to check out our mastermind groups and our YouTube channel. We’ve got over 700 free videos online. We’ve got 500 podcast episodes. So I would just go to FreelineVentures.com and check out everything we have to offer there.

Dave Wolcott:
Perfect. Thanks again for coming on the show, Josh. Look forward to next time.

Josh Cantwell:
Absolutely, Dave. Thanks for having me. This was fantastic

Dave Wolcott:
You bet.

Josh Cantwell:
and fun. Thank you.

Dave Wolcott:
All right. Thanks. And for all you listeners out there, if you’re enjoying the show, getting good value out of it, please do us a favor and give us a rating and review. Really goes a long way to get awesome guests like Josh on the show. So until next time.

Dave Wolcott:
Hey guys, welcome to another episode on wealth strategy secrets. Today we are joined by Travis Watts. Travis is a full-time investor, passive income advocate and public speaker. As the director of investor education at Ashcroft capital, he’s on a mission to empower investors who want a hands-off approach to real estate investing. Recognized for his outstanding contributions, Travis received the prestigious Lindas industry impact award in 2022. Travis, welcome to the show.

Travis Watts:
Hey Dave, thanks so much for having me. Thrilled to be here.

Dave Wolcott:
Yeah, no, it’s really awesome to connect Travis. We were having such a good conversation. You, me and Jeremy Roll at the Charlotte’s multifamily conference and really thought, you know, we’ve got to bottle this and take this out to the community because there were so many, you know, pearls of wisdom in there and everything that we could unpack. So for folks who don’t know you, why don’t we start, you know, the discussion off with little bit about, you know, your background and your journey. Um, and then, you know, that we could pick it off from there.

Travis Watts:
Sure, happy to share. So first thing I would say is, you know, I didn’t come from a family of wealth or real estate or investing. My parents had split when I was five years old, got a divorce, I was raised by each of them independently and I learned a lot about frugality. Anytime we brought up finance or the term, we were talking about saving money. So grateful for that humble upbringing, but at a certain point from doing my own self-education, I realized that You know, your potential only goes so far if you’re just gonna pinch pennies your whole life. You know, the real reward comes in learning how to multiply your money and learning how to invest. So try to multitude of small business ideas early on that didn’t work out for one reason or another. And I landed on real estate when I was 20 years old, bought a single family home. This was in 2009 and you know, about 40% discount to previous pricing. And I rented it out. You know, first I lived in it a little bit. I furnished it, you know, I updated it. And then I made that my very first rental. And that was the first thing that really started to get the wheels turning. I thought, okay, I’m making whatever I was making, you know, $600 a month cash flow at that, how do I amplify this? And I knew I needed to make more money, or at least I thought I needed to make more money in order to become a serious investor. So I went seeking. jobs that just paid well, that didn’t require a lot of background experience or, you know, a specific college degree. So I ended up in the oil and gas industry and I ended up working 14 hour days, 98 hour work weeks, months away at a time working overseas in the Middle East. It was a crazy time in my life, but that’s where the frugality really paid off and I was saving tons of money, paying very little in overhead for my lifestyle. And I was dumping all of that into real estate, specifically single family for about six and a half years. I did flips, vacation rentals, buy and hold rentals. I had roommates back home that would effectively pay my mortgage when I wasn’t there. And, um, it was an interesting time. I don’t necessarily recommend people take that specific approach, but that was my, my 10 years of darkness, if you will, of just kind of grinding it out and trying to get ahead. And in 2015, I started transitioning my portfolio into multifamily private placements or syndications in layman’s terms and other passive income generating assets as well. And so it allowed me to basically get my time back, something I refer to as time freedom so that I could go pursue still active work, but work that I truly enjoy and that I benefit from and being in a position to really help people. And that’s really what I wanted to do from the get-go, but I had to put in those dark years.

Dave Wolcott:
Yeah, for sure. Did you have any particular like pivotal moments where you either learned something or you had a conversation or you read a book that really just said, okay, now I’ve got to take action on this?

Travis Watts:
Yeah, so I would say my biggest personal regret in my investing journey was starting out thinking, I’m a do-it-yourselfer because my parents were and that’s how I was raised. Why would I pay somebody $30 to mow my lawn if I can do it myself? Why pay a painter when I can paint? So I went into real estate with that kind of mindset. It was very naive. to think, you know, I don’t need a team and I don’t need to be an expert and I’ll figure this stuff out. I can do it. And I realized after six and a half years that real estate really is a team sport and it can be extremely beneficial to partner with people that are more of an expert in one area or another compared to you. So what changed is I started reading books more, I started listening to podcasts more, I started joining real estate meetup groups in person. This was out in Colorado. And I ran into a couple of gentlemen. They run a very big investment club in Colorado and they had become financially independent, probably 30 plus years prior to me meeting them. And I was kind of picking their brain about investments. And I said, what are you guys primarily investing in? Is there one thing that you really focus on? And they said, yeah, it’s well, as a general, uh, you know, bucket, it’s private equity. And more specifically, it’s multi-family apartment communities. And we’re limited partners in other people’s deals. And I had never heard of that before in my entire life. And that was a huge pivotal moment because I was starting to reach a point where I thought, if I sell all of these properties that I currently am operating and I pay all the tax and broker commissions, and I just look at what I might have in cash. and I went to invest that passively, it started to become meaningful passive income, right? So in the example of someone getting started, they got 10,000 to go invest, they go look at a passive income deal that yields them 8% a year. It’s like 66 bucks a month, right? It’s not very meaningful. What are you gonna do with $66 a month? Fill up your gas tank once on your car. So it’s not very motivating to be in that particular position. But if we take the same example, with someone who has a million dollars to go invest at 8%. Now you’re talking about $80,000 a year in additional supplemental income. That starts to be a game changer for a lot of people. And I was approaching that level in my personal journey. And I surprisingly ended up making more as a passive investor than I even did as an active investor. And so that was a huge pivotal moment to realize the power of passive income and what that can do for you.

Dave Wolcott:
Yeah, no, really great points there. And I think so many people struggle with, you know, actually taking action. You know, you, you might hear a good podcast, you know, you read a good book or something, and then you’re trying to overlay that into your own situation, you know, and you might be in W-2, you’ve got a career, you’ve got a family, you’ve got all of these intricacies involved. Um, but it’s really, you know, just having, I think that, that moment, that epiphany. where you can take action and then as you take action, you know, you can start to bear the fruits of your success, right? And then that’s going to open up, you know, new doors you didn’t even think were possible.

Travis Watts:
Yep, 100%, that’s right.

Dave Wolcott:
So Travis, I love your passive investor journey, right? And I think there’s so many different elements of this to really unpack, but let’s really talk a little bit about the psychology, right, of passive income first, right? So it’s a term just like financial independence, right? Financially free, right? What does that actually mean to you? What does having your income exceed your expenses mean to you? Because if your expenses are only $4,000 a month, maybe you’re actually still living in that frugality world, right?

Travis Watts:
Mm-hmm.

Dave Wolcott:
But you’ve technically achieved that financial freedom. So tell us a little bit about what did that actually mean? to you to achieve financial freedom and how has that evolved for you?

Travis Watts:
You know, for me, I was in a job, which was the oil and gas gig that I really didn’t enjoy. I knew this wasn’t going to be long-term. I knew I couldn’t, you know, physically withstand that type of work for, you know, 30, 40 years and make it a career. So my goal was to get out of that job. And I think, you know, what’s cool about passive income is You can start immediately. You can start with low dollar amounts. You can start with that example I gave earlier of $10,000, 8% a year, 66 a month. That’s just step one and you can build upon that. And passive income creates a backstop for you. So what’s cool is as you kind of climb the ladders of wealth, and let me identify that for your listeners what I mean by that. So I think of the wealth pyramid kind of like an upside down. So at the bottom is self-sufficiency. This is where you’re basically your paycheck to paycheck. You have an active source of income, but at least you can pay your own bills without having to be supplemented from some other source. Then you move up to stability. And this is what a lot of the gurus in the finance space are preaching, whether it’s a Susie Orman, a Dave Ramsey, these types of people. So stability is like… you know, pay off your debt and cut up the credit cards and have an emergency fund. And, you know, only at that point, can you start to think about investing right above that is flexibility and flexibility is where you have some investments. You have some passive income rolling in, maybe not enough to live on, but maybe a few thousand per month, you know? And so the flexibility is, what if I get fired or lose my job? Well, at least I have this other source of income over here. What if I want to try a new career and make a pivot? Well, it’s not so scary knowing I have a financial backstop over here. Maybe you want to take some time off and travel. We were just talking about traveling to Italy, you know? Something that both of us value. Financial independence is right above flexibility and that’s what I really teach people how to create. So financial independence to me is the ability… to solely live off of your investments, whether they’re cashflow, passive income investments, or whether they’re just owning some stocks and making sales to live on, however you want to approach it. It’s just that you don’t need active income anymore. And the highest tier is financial abundance. And these are the people, of course, in all the headlines. These are your Mark Zuckerbergs and your Jeff Bezos and your Bill Gates. And they have so much money that they could not. even live on it if they tried. I mean, you can’t spend that much money reasonably. So they’re gonna end up donating, most of them, the majority of their wealth back to society. So that’s kind of what I mean by working up the wealth level. So I think everyone can reach, in my opinion, most people can reach flexibility to financial independence. It’s just gonna be about how long does it take you? So to answer your question about mindset, I would ask your listeners to think about this. How many of, you know, did your parents teach you about passive income investing? Did the school system teach you about passive income? Did Wall Street teach you about passive income? I mean, the answer is usually no to all of those. So it’s a journey of self-education. And yes, it takes willpower, drive, motivation, you know, repetition, consistency. And a lot of people don’t talk about those factors, but they’re extremely important. And I’ve seen this unfold over the years. You know, you go to a conference, there’s a hard sales pitch on the stage. People buy these $10,000 programs and statistically the majority never even use the program, right? They, they attempt it and then they change their mind and go in other directions. So you got to get clear on your why. A lot of people talk about that kind of cheesy, but kind of true. What are you really trying to do? Is it really about money? Cause I hear people all the time talk about their money goals. I want 10,000 a month passive income. I want to be a millionaire. I want this, that, and the other. But what do you really want? So think about if you had a million dollars cash in your bank account, or you had $10,000 a month passive income right now every month, what would you do? Why do you need 10? Maybe you only need five, maybe you need 20. And is one million really the goal? Or is it just generational wealth that you’re looking to pass down? So start by identifying your goals and objectives, and then kind of reverse engineer into them. what types of investments can help you reach those goals, what kinds of companies or people are offering those types of opportunities. And so you kind of start to learn the game backwards. At least that’s what I did.

Dave Wolcott:
Yeah. And why do you think there is such a challenge in this country in terms of basically financial education, understanding passive income, understanding alternative investments, understanding, you know, investing in real estate? Why do you think?

Travis Watts:
I think it all roots back to, you know, why was the education system even created in the first place? It was to have a formalized way to train people to become employees and work for companies. So why would it be in anyone’s best interest as a company owner to empower people to have that kind of knowledge and to go create competition for them, right? Or to quit the job because now they’re financially free through their own investments. So I think it kind of rooted there. And as we’ve moved forward into the more modern era, marketing has really taken a hold of people, especially in America, in terms of you need all this crap. You need the Gucci bag, you need that BMW, you need that McMansion house, you need these things, but do you need them? Or are you just trying to impress other people or feel some kind of elevated level of status? And so again, it takes a little soul searching, but… You got to figure out what really brings you, um, you know, satisfaction and happiness, you know, and, and I’m the type of person that when I did this with my wife, we’ve done it numerous times over the years, we sit down independent of one another, we write down the 10 things that bring the most happiness and fulfillment to us. And I would say 60% of my list requires almost no money, right? It’s like walking in the park with our son. It’s going on a bike ride. at sunset, right? It’s going to the beach, which happens to be 45 minutes from our house, like very minimal stuff. And so when you start to identify that, I think you can kind of lessen the consumerism side of it, which is what’s caused a lot of people to go to paycheck to paycheck living. You know, it’s very interesting to look at excess cash that Americans have leading up to the pandemic. Most people be in paycheck to paycheck, all of a sudden stimulus checks come out. and the percentages fly up. Everyone’s got all this money, right? They’re 1400 bucks or whatever it was. And then two years after, everyone’s back to paycheck to paycheck again, because people spend their money because we live in a capitalist consumerism society. So I would just question that individually and just say, do I really need these things or are they just wants that aren’t really necessary? And it’s worth the internal dialogue with yourself

Dave Wolcott:
Yeah,

Travis Watts:
or

Dave Wolcott:
no,

Travis Watts:
your partner.

Dave Wolcott:
I think it’s really fascinating, right? Because, you know, I was raised in a middle class family as well. And you know, they’re starving children in Africa all the time.

Travis Watts:
Yeah.

Dave Wolcott:
You know, it puts you basically into a scarcity mindset

Travis Watts:
Mm-hmm.

Dave Wolcott:
with everything you do. So like you say, you know, you’re trying to do it yourself. Because if you can do it, if you’ve got the energy, the will, then you know, you can do it. But what’s interesting, right, is as you start to scale and look at things with an abundance type mindset, right, you can realize, as you pointed out, that you start to work with a professional team and now you’re getting leverage by the team, right? And then you’re also now focusing your time instead of doing, say, you know, active management of assets or whatever. Maybe it’s a side hustle or whatever you’re doing. But now you can really focus on what you’re actually good at or your unique ability. And then you can really exponentially grow, you can be more fulfilled, right? Because I think what most people are looking for in life is actually, it’s not only freedom of money, but it’s freedom of time, it’s freedom of purpose, to be able to wake up every day and be fascinated and motivated about the work that you do. It’s also freedom of relationships, like, who do you want to spend your time with, right? You know, you’re a product of the five people that you spend your time with. So are those people, you know, exciting you or are they taking you back, you know? But I think it’s, you know, I think this really shouldn’t be underestimated is that deep thinking around, you know, your why, as you point out, which is such a great, you know, exercise to do with your wife. Another way people could look at it is, you know, instead of creating a bucket list, you know, create your top 100 list of things that you either want to be, do, or have. Right?

Travis Watts:
Yeah,

Dave Wolcott:
So

Travis Watts:
I love that.

Dave Wolcott:
then it takes a little of the consumerism out of it. And then that’s what gives you the drive to move forward.

Travis Watts:
I love that. That’s a great point. And, you know, just to add real quick onto that, it’s like, uh, you know, I use the, the wealth pyramid example, but it’s like Maslow’s hierarchy of needs. At the very bottom, we need food and shelter, and then you start to move up after that and you’re looking for safety and you move above that and it’s relationships. And then, you know, at the very top, it’s self actualization, which is what you’re talking about. Who do you want to be? What do you want to do with your life? What’s your why? What’s your mission? and who do you want to hang around with. So great points.

Dave Wolcott:
Yeah, no. And I think that’s why it deserves some thought, right? Because let’s say you do reach that passive income goal, and this is why it can also be a trap, right? It can be a double edged sword. So if, if I only had, you know, whatever that amount is, 5,000 a month, 10,000 a month in passive income, exactly to your point, what is that going to enable me to do? Right? Because, you know, you don’t want to have abundant complacency. where you say, and there are a lot of people in that fire community that reach that passive income number and then they’re like, hey, I’m just going to sit on a beach and I don’t need to work anymore. I don’t need to do anything, right? But that’s

Travis Watts:
Yeah.

Dave Wolcott:
not necessarily fulfilling. It’s actually rewiring those things that you want to do. So Travis, let’s bridge that also into this dichotomy really of… active versus passive investing, because I think this is also something people really think about a lot. They say, and from the first times that I even got into real estate as well, I thought, okay, I’m going to do active investing. I didn’t even know what passive investing was either. This is like back in 2000, Rich Dad, Poor Dad just came out.

Travis Watts:
Yeah.

Dave Wolcott:
So I’m driving around with my kids at night looking at properties and how is this really going to scale? and it’s that component of time, right? You know, how do you want to spend your time? But how do you really view that and how do you talk to folks about that? Because you’ve clearly lived both sides of the coin.

Travis Watts:
Yeah, pros and cons. I’m not here to bash active investing. It was successful for me. I did it for six and a half years as I talked about. I tried a lot of different things in there. I would say that if that’s truly what you want to do, first of all, maybe try it out. Maybe get one rental property or try to do one flip and just see how it goes. It was a lot of self-reflection for me. So I started realizing that I’m really not the best at this. I’m not finding the best deals. I’m not finding… the good off-market deals. I don’t have the best connections to contractors. I’m not getting the best pricing on things. And so as more institutions started moving into the space and the market started to lift off again, I was getting squeezed out. And that was kind of that self, you know, realization that, you know, maybe this isn’t really your thing. And the other thing I was naive about is to think that I could really scale that business. Meaning, you know, let’s say I bought, I don’t know. one property a year for the next 30 years and then I retire. Well, let me tell you, having 30 single family homes that you manage is more than a full-time job. And even if you have a property management company, it’s a full-time job. And there’s a lot you have to do that’s still active. You’ve got to still find the deals, underwrite the deals, show up to closings, you know, know the markets, be attractive to lenders, you know, have good credit, have solid down payments. I mean, there’s just a lot to it. Managing tenants is only 10% of the equation. There’s a lot more to it. So, the biggest pro, there’s two big pros to go inactive. One, you’re calling the shots. What color do I wanna paint this house? How do I wanna furnish? What’s the business plan? What do I wanna do with the rents? Do I wanna refinance? Do I wanna sell? Full control, that’s awesome. So if you’re a person that needs that or wants that, then consider that. The other thing was in general, I had pretty high returns, you know, go inactive. Now, some of that had to do with where we were in the market cycle, right? We’re talking about 2010, 11, 12, 13, 14, you know, the market starting to recover and bounce up. A lot of my properties, I just lucked out and made a lot of money because the market went up in my area. Passive, though, is way more scalable. it, whether I have one limited partnership investment or I have 300, it’s not that complicated. I’m going to get probably a monthly, uh, email that says, here’s how your property is doing, and I don’t have to make any decisions on anything until we go to sell, you know? So it’s, it’s much easier to scale, much easier to diversify. Uh, I can be in markets I otherwise wouldn’t be in because they’re too far from where I live, but it’s a market I really like and would like to invest in. And to your point, I really get a maximized leverage on true industry experts that live it and breathe it and are trying to build a brand and build a legacy for themselves. And I was never really at that level, uh, on a personal note, you know, to do those same things. So, um, you know, and a lot of our investors, just to be clear, are a hybrid of the two. It’s like, I talked to investors all week long. It’s like, yeah, I got a couple of rental properties, you know, a couple of short-term rentals, whatever. And I’m just looking to diversify and try some of this, you know, passive income stuff. So you can be a hybrid. And in fact, Joe Fairless at Ashcroft where I work, he is too. He’s obviously a GP at Ashcroft, but he’s an LP in a lot of people’s other deals as well. So it’s just a way to maximize your time. We only have so much time and resources and energy in a given day, week, month, year, this is just a way to keep amplifying your income without having to put extra. work and time into it.

Dave Wolcott:
Yeah, totally agree. Do you have a particular investment thesis or a wealth strategy that you’re using personally?

Travis Watts:
I mean, the simple thesis for me is just invest for passive income. And it sounds simple, but if you think about it, again, back to what I was saying earlier, how many people taught you about that, you know, how many people are preaching that, how many ads or commercials and billboards do you see about passive income, right? Hardly any. And most people are investing with the mindset of buy low and sell high, you know, put a thousand bucks in my IRA. And when I’m 65, I’ll take a peek and I hope it grows. You know, or I’m going to buy a house for 200,000. I’m going to flip it for 300,000. That’s buy low, sell high, a lot more risk and unpredictability and that type of investing, nothing wrong with it. A lot of people do it. You mentioned the fire community, you know, doing their index fun thing and selling off shares, whatever. But I like to just live off passive income, keep my initial investment preserved in the deal. So that’s how I’ve always approached it. I’ve, I’ve averaged about over time, about an 8% average, um, cashflow yields. So some deals I’m going into today might be a little bit lower. Some deals I’ve been in for five years are significantly higher. So I just try to average 8%. And then when I have a sale happen or refinance and all of a sudden I have extra liquidity, that’s kind of just the icing on the, on the cake, right? I can, I can pay taxes with that money. I can pay for other things in my life with that money. I can choose to reinvest all of that into more deals and just compound the passive income. So my main focus is just on monthly cash flow. And I think if people really could see it through that lens, really experience it themselves, kind of start at that $66 a month and grow it to $666 a month and grow it to $6,666 a month, you would start to get the big picture that, you know, this is what the ultra wealthy And this is a very viable, long-standing strategy that people have used for decades and decades and decades.

Dave Wolcott:
Yeah, I think the problem really stems with Wall Street and what was frankly told to all of us, to our parents, to our employers, to our peers, which is this whole investment thesis around a 60-40 portfolio consisting of stocks, bonds, and mutual funds. They talk about this accumulation theory, which is getting to that nest egg number at retirement. what is that really then converted to? It’s then converted into income, right?

Travis Watts:
Yeah.

Dave Wolcott:
But you’ve had to actually wait 35 years, right, to either, you know, to access any of that income. So I think that’s where a lot of it really stems from. And people just, you know, aren’t really aware of, you know, passive income kind of strategies. And then also, you know, let’s just talk, you know, more about how you really you create this strategy, right? Because it’s a process of investing.

Travis Watts:
Mm-hmm.

Dave Wolcott:
It’s

Travis Watts:
Yeah.

Dave Wolcott:
not just invest in one deal or another, right? We wanna be doing multiple deals a year and it starts to snowball, like

Travis Watts:
Right.

Dave Wolcott:
you said.

Travis Watts:
Yeah. Yeah, happy to highlight a couple of things on that. So if you think about it, I’ll just kind of pull this example on a whim, but if you start with, let’s say $50,000, you’re investing in something that gives you a 10% return a year in passive income. So what that means in year number two, if you’re gonna just continue this investing journey, you only have to put in 45,000 the next year, because you… had received 5,000 from the previous year in distributions, right? And every year gets a little bit easier because then you only need to put in 40,000, then 35, then 30. Now, as you zoom forward and we look at a decade or so, your investments are, are funding themselves in theory, right? Cause now you’re making 50,000 a year in passive income and you can make an entirely new investment at that point by putting no new money into the deal. And this is obviously just compound interest example, but You know, that’s one approach, right? If you’re looking to truly build up a high net worth over time and you’ve got an active career that you’re happy with and all that good stuff, that’s, that’s one way to do the passive income game. I use the rule of 72 all the time. You know, 72, uh, or the, the yield that you’re receiving divide by 72. So, um, you know, what a 10% return takes, what, seven years to double your money or something like that. So I kind of look at it like that is every few years I’m just adding. new investments without having to put new capital into them. Even though I do put new capital into them. The other thing

Dave Wolcott:
Yeah.

Travis Watts:
to all… Yeah, go ahead.

Dave Wolcott:
I was just going to say, I mean, on the rule of 72, right, with the S&P average, right, it’s about seven years before you double your money, right? But

Travis Watts:
Yeah.

Dave Wolcott:
typically looking at multifamily over the past decade, you could do that in a five-year stretch.

Travis Watts:
Yeah, and many deals have, and I’d like to actually talk about that a little bit. So the reason I’ve got the bulk of my portfolio in value add multi-family private placements is to me, it’s one of the best combinations of benefits that you can have as an investor. You can get monthly cashflow. You can get equity upside participation. You can get tax benefits the whole time. And so you’re utilizing both. the buy low and sell high philosophy, but even if it doesn’t work out on that end, you still have the cash flow side of it, right? And then again, the whole time you’re getting tax benefits to offset that income, or at least having long-term capital gains upon sale if you’re holding longer than a year. So it’s really a fantastic strategy in my opinion. So you look at other things like, oh, I’m gonna go buy some bonds for passive income. Well, no equity upside. or I’m gonna buy the S&P and hope it goes up. Well, no cashflow, very little, right? So that pays like 1% or something a year. So this is just a great hybrid approach. And just real estate in general is, if you treat it that way, it’s an intermediate to longer term play with a lot of packed benefits into it.

Dave Wolcott:
Yeah. And do you think that the asset class, it’s still the right time for it? Clearly, there’s a lot of distress kind of building in the marketplace right now with people who had poor loans, say a couple of years ago, when they took out floating rate debt, they’ve gotten and with interest rates kind of where they are. in the market changing, do you still feel like the fundamentals are strong or what are your thoughts on the current outlook for multifamily?

Travis Watts:
Sure. Happy to share a few things. The first thing to realize, whether we’re talking about a real estate cycle or stock market cycle, the saying goes that the bull takes the stairs and the bear jumps out the window. Meaning it could take 10 years plus for a bull market to fully develop, but then a recession comes and it can collapse in 12 to 24 months and then start a recovery phase again. So I think that we are in the midst of seeing the final. developments of this real estate cycle reset, meaning the Fed went the most aggressive that they’ve gone in US history on raising rates that directly impacts the purchase price of these properties. So we’ve seen cap rates reverse. We’ve seen pricing come way down. We’re about to close on two deals that we’re getting about a $50 million discount on relative to pricing 18 months ago. So if you can still find a cash flowing asset and maybe you can put some fixed rate. dead on it and you’re still going to be cash flowing day one. It can be a great opportunity this year because if the fed stays near the top, you can still execute a business plan like you did in years past when interest rates were three and four percent up and down. If they taper rates back down because we hit a recession or we hit the inflation goal or whatever you might be able to refinance early maybe sell a property for more than what you projected. So I think 2023 is now a much healthier market. than 2022 and 21. I mean, even I was very skeptical in 21 as the stock market’s up 30% and real estate’s reaching all time highs and stimulus money’s flying everywhere. People are gambling, crypto’s going crazy. I thought this is not sustainable. I’m a little nervous to see what’s on the other side of this because markets don’t just go up 30% a year, and rent growth at double digits is not usual. So we’re seeing a… Uh, you know, a flattening, a reset, whatever you want to call it at this moment in time. And yeah, I’m still investing this year, uh, just like I did in previous years. I may even go a little bit harder this year, but I’m very bullish on the future from here. We know the fed can’t take rates, you know, double them again, basically. Right. Or the fed funds rates going to be 10%. I mean, you would implode the economy and the whole world for that matter. So we’re nearing the top. And like I said, you got three scenarios and two out of three can be very bullish. for real estate. And the only one that’s not is if they keep going up and up and up with rates, but again, their other obligation, the Fed is to help the economy in the event of recession. So they go much higher, they’re gonna force a recession, then they’re gonna have to cut rates to bail them out. So you get back to the third scenario of cutting rates anyway. So that’s

Dave Wolcott:
Yeah.

Travis Watts:
just kind of my personal opinion on it. Who knows? I don’t have a crystal ball, but that’s how I look at it.

Dave Wolcott:
Yeah, exactly. And I think one of the things that I’ve learned as an investor over the years is that so much of investing is around expectation management.

Travis Watts:
Mm-hmm.

Dave Wolcott:
If you’re forecasting a certain pro forma to return something and then it misses, what is the attitude that you actually have towards that? Is it that the operator did not execute according to plan? Or are there market dynamics that are outside of your control, such as the Fed doing unprecedented interest rates that we didn’t underwrite to, you didn’t know about for so long? So I think that expectation management is such a key part of investing and really knowing that as you get into these investments, I mean, look, there’s risk and… any type of investing that you do. I mean, look at bonds. I mean, look at the banks, SVB that just failed and everything, with investing in bonds, which was supposed to be one of the safest things. We’ve had two occasions where my wife, and I wrote this about this in my book, my wife was generously gifted a portion of Kodak stock by her dad to

Travis Watts:
Mm-hmm.

Dave Wolcott:
her. You know, a blue chip company that would be recommended by every financial advisor, right across the country, across all firms, they go bankrupt and there’s no recourse, there’s no nothing, right. And what’s Warren Buffett’s number one rule. Don’t lose money. Right.

Travis Watts:
Right.

Dave Wolcott:
But I think, you know, you have to realize that in this, you know, game of investing, not everything is going to be a home run. Right. And I think, you know, managing your expectations that, you know, sometimes there’s some things outside of your control you can’t kind of manage to, and that will actually make you, you know, a better investor and as you kind of allocate capital and build your portfolio.

Travis Watts:
Diversification, those are all great points, is to me the only approach to use, to your point. I mean, there could be a bad actor out there, there could be a fraud case out there, there could be an economic thing, there could be a natural disaster in a particular market, there could be a GP that fails to do their job. I mean, these are all risk points, right? So this is why, number one, I recommend that people invest in what they know and understand the best, primarily. Right. So the more, you know, the less risk you take on a particular asset type, but that you also pay attention to branching out a little bit. So over the years, um, for no other reason than learning other asset classes and having a step to pivot to, if I need to, I’ve gotten more into car washes and ATM machines and self storage and mobile home parks and, you know, covered calls with my brokerage account and ETFs that do it for me and different things. Right. So that. If my primary asset class stops making sense, let’s say a multifamily deal in 10 years says, hey, we’ll pay you 1% cash flow and 2% upside. No, I’m just not gonna do it. So I need to know what else I can do to get a healthier yield and not be a one trick pony, so to speak, but those are all great

Dave Wolcott:
Yeah,

Travis Watts:
points.

Dave Wolcott:
yeah, no, totally agree with that. What do you think is the biggest risk in investing in multifamily right now?

Travis Watts:
it’s gonna come down to debt structure and operator. So it’s the ability that the operator can actually execute the business plan that they’re proposing to you, okay? So that’s usually like, if I look at a multifamily syndication, I’m looking at really three macro level things. I’m looking at the operator, the market and the deal. They’re all really important, but I put about a 50% emphasis on the operator and that’s based off my own experiences of seeing a newer operator that couldn’t execute and what happened to our overall returns and getting into like a so-so deal, but the market was just crushing it. And we all did well. What impact that’s had in my single family days, things like that. And then the common sense of just doing a good deal, you know, that makes logical sense that cash flows day one and stuff like that, the debt structure, a lot of people now, of course, are moving to fixed rate debt on a longer term than doing these, you know, one to two year floating rate. Um, deals, you know, but what was interesting about 2021 and 2020 is if you really looked at the forward projected curve on interest rates and you really tuned into quote unquote, some of the smartest people that are out there, none of them predicted what happened. I mean, and when I say none, I’m sure there was someone that’s, you know, taking claim to fame there, but the majority were saying, yeah, they might ease up a little bit, but it’s not going to be crazy. And then all of a sudden we take them up to what? five, five and a quarter fed funds rate. So a lot of people were caught off guard with that. And that adjustable rate debt had made logical sense in all the years prior, and it had been working and working and working, just like the bond example with SBV, it had been working, but all of a sudden, things quit working because you’re gonna have a cycle reset. So something to be mindful of, and to again, just diversify if you can.

Dave Wolcott:
Yeah, totally agree. So if you could design the perfect investment, what do you think it would look like?

Travis Watts:
Ooh, it would be a real estate deal because I always like to think of things like, is what I’m investing in really needed? Is it really necessary? And this is the problem I have with so many stocks that are in the stock market. Do you really need Coca-Cola? I don’t know. Do you really need McDonald’s? I mean,

Dave Wolcott:
Tesla.

Travis Watts:
truth is we just don’t. But do we really need affordable places for people to live? Has that really been around for a long time and been working and have a long track record of success? It has. And I’ll tell you a quick story. Two weeks ago, we were out in Colorado. I was visiting some family. I grew up in Fort Collins, Colorado, and we were downtown Fort Collins. And I hadn’t been there in years and years and years, but I’m looking around at all the retail shops that I remember as a kid. And I would say at least 50% have changed hands. You know, they’ve gone under for one reason or another, and we walk by the store and on the window it says, we’ve been here in this location for 90 years in Fort Collins. And that happened to be a flower shop. So,

Dave Wolcott:
Hmph.

Travis Watts:
you know, it’s worth considering, you know, are people always gonna want flowers for one reason or another, whether, you know, wedding, funeral, Valentine’s Day? The answer is yes, you know, that usually works. The same with like a liquor store, generally speaking. you know, if we exclude the prohibition days, but you know, those typically work in up markets, down markets and sideways markets. So to go into an investment of like, I have this new trendy idea. No one’s ever thought of it’s a little hipster bar and we’re going to have little sparklers in the martinis and neon lights. I I’m not going to invest in something like that because that’s a fad and a trend and doesn’t have a proven track record of success. So back to your question, it’s a real estate deal. It’s got a hefty amount of cashflow to it. It’s got fairly low leverage, maybe 60% leverage. It’s got fixed rate debt on it. It’s got great equity upside. We’re buying it off market at a discount and it’s going to have some lucrative tax advantages that are in the tax code currently. And I just personally don’t think it gets better than that for me and what I’m trying to accomplish.

Dave Wolcott:
Yeah, yeah. No, well said, Travis. And I think really, you know, understanding the, you know, macroeconomics and fundamentals of an asset class is really where you should start. Right? We’ve

Travis Watts:
Yes.

Dave Wolcott:
had countless people talk about, you know, people always like to talk about, okay, what was your worst investment? Right? And why did that go wrong? And in a lot of cases, people really just point out they invested in something they didn’t know enough about.

Travis Watts:
Yep.

Dave Wolcott:
Right? So you’ve got to be kind of smart on that. But when you can start from that kind of macro view and realize we have a shorting, housing shortage in the country of, what is it, six million units,

Travis Watts:
Yeah.

Dave Wolcott:
currently something like that, right?

Travis Watts:
Yep.

Dave Wolcott:
You’ve got some supply demand imbalances. And then, we talked about earlier, markets like Florida, Texas, Arizona, right, some of these hot markets where people are just leaving, you know, the north and tier one cities because they want to pay lower taxes, they want a better lifestyle, you know, so a lot of things kind of driving that. So appreciate that point. Travis, if you could give just one piece of advice or your biggest insight that you could share with the audience in terms of how they could accelerate their own wealth journey, what would it be?

Travis Watts:
Oh boy, that’s a tough one. Um, a mentor of mine years and years ago said double down on what’s working. And I guess I would just happen to be at a time in my life where really nothing was working except the real estate. So I, I shut down all these little small businesses I had and, um, and I just, I went full force into it, but again, I had to do a little reflection on what we just discussed, you know, is it necessary? It doesn’t have a track record of success. Like you want to try to put. the odds in your favor. Pretend like you’re the casino in Vegas and not the consumer, right? So the odds have to be in your favor. So I like to look at any investment with maybe three outcomes and two being in my favor and one not being. But the fact is when people go try experimental businesses, the majority of those fail. So you’re starting from the opposite perspective of… Everything’s stacked against me. I hope this works. And I would just say to that person, why?

Dave Wolcott:
Yeah. Yeah, no, I mean, really sage advice there, right? Because and I think there’s a lot of misnomers and people just need to get smarter out there. And just look, you know, Wall Street is really, you know, such a culprit. And this is why I get really passionate about this topic too, because there are certain things, right, that they talk to you about, which is, you know, that accumulation theory, right, and save and save and save and defer your taxes along the way, by the way, right? Well, the only thing I’m certain of is taxes are going to go up in the future. So wouldn’t you rather pay the taxes now versus at the harvest time?

Travis Watts:
Well, you look at like a traditional IRA, which a lot of people have been sold or a traditional 401k, and you’re like, so you’re gonna make investments that otherwise would be treated in a favorable tax way, right? Long-term capital gains, things like that, real estate having all these tax advantages, and you’re gonna put it in an account where you’re gonna get taxed at ordinary income levels. So again, why? It’s like, if you just did it in cash, you might pay 15% on your tax for example purposes. but now you might pay 30 or 40% tax because it’s in an IRA. And the whole name of the game, I worked for a very large brokerage firm, one of the biggest in the world for a short period of time, is assets under management, man. Here’s the business model. And if this doesn’t make sense from a business perspective, I think you’re crazy, but here, give me your money. Let me take a 2% fee, no matter what happens to your investment or your money,

Dave Wolcott:
Yeah.

Travis Watts:
and just give me all of it for the rest of your life. How about that?

Dave Wolcott:
Yeah,

Travis Watts:
That’s the business model.

Dave Wolcott:
exactly. Yeah. Well, and another one that’s even better. Think about the government.

Travis Watts:
Yeah, right.

Dave Wolcott:
We want you to put all your money in 401ks, IRAs, all of these different vehicles. And then when you turn 65, I know exactly how much revenue you’re going to pay me. And if I’m short on revenue, I can actually tell you, you need to pay me more. And

Travis Watts:
Yeah.

Dave Wolcott:
then I can even You have to take out so you can pay me. So talk about the ultimate passive income scheme, right? It’s a beautiful business plan, like you say, on the other side of the fence for basically for the government and for Wall Street.

Travis Watts:
Yeah, yeah. And you know, there’s always, you know, not to bash these accounts entirely. Like there’s reasons you might have them. There’s opportunities, let’s say your employer matches dollar for dollar on your 401k. Like there could be a reason to do that stuff. You know, you put in a thousand, your employer puts in a thousand, you know, whatever. But as far as like going hard and heavy and maxing it out to its max potential and putting all your eggs in that basket, like to me, if you read the book, 401 Chaos by Andy Tanner, It’ll vastly change your perspective. Let’s just put it that way

Dave Wolcott:
Yeah. Awesome. Travis, such a great conversation. I know the audience is really going to enjoy this one. If people would like to, you know, connect with you and learn more about you know, what you’re up to, what is the best place?

Travis Watts:
Yeah. So whatever your preferred platform is, I’m on Instagram and Facebook at passive investor tips, and I’m on bigger pockets and LinkedIn and other platforms, Travis Watts, and I have a landing page it’s Ashcroft capital.com forward slash Travis, and I’ve got my calendar on there and we can talk about whatever you want to talk about. You don’t need to be an accredited investor. It doesn’t have to be a conversation about Ashcroft capital. Just that’s where I put my calendar publicly. So I encourage you to reach out with any questions. that you didn’t fully understand, that I didn’t do a good job articulating or anything you want to learn from here and be happy to help.

Dave Wolcott:
Awesome. Really appreciate the discussion, Travis, and we’ll see you the next time.

Travis Watts:
Thanks, Dave. Thanks, everybody.

Dave Wolcott:
Hey guys, welcome to today’s show on wealth strategy secrets. Today we’re joined by Lewis O’Connor. Lewis is the founder and principal of Strategic Metals Invest, providing a unique opportunity for private investors worldwide. They’re the sole industry supplier that allows individuals to purchase and benefit from owning strategic metals. With their Europe-based operations, they offer North American clients the much needed advantage of geographic diversification. Lewis, my friend, welcome to the show.

Louis – Strategic Metals Invest:
Thank you very much, Dave. Delighted, very happy to be here with you. Thank you.

Dave Wolcott:
Yeah, no, I’m super excited, you know, to talk about this, you know, really unique offering that I think most people probably aren’t aware of. You know, most folks are just kind of inundated by, you know, Wall Street and stocks bonds and mutual funds. And I think, you know, the first thing that comes to mind when you talk about precious metals is people will think about, you know, gold and silver. So really looking forward to kind of understanding, you know, the market dynamics and the specifics around some of these precious metals. But before we start to unpack the precious metals, you know, tell us a little bit about, you know, your background, your journey, and how you really got into the space.

Louis – Strategic Metals Invest:
Sure. Well, as you can probably tell from the accent, I’m not Ohio based or born. I’m Irish. I’m from Dublin originally. Coming to you today from Tipperary. Our business is European based, but we’ll talk about that more in a minute. So, yeah, I’m just back to Ireland, Dave, actually, after 25 years traveling the world, really. I lived in Germany for 10 years. and speak German. And then I went to Latin America and mostly based in Panama, Central America, but also sort of had some did some business and stuff in Columbia, Nicaragua, Belize, and actually usually are mostly working with North Americans and Canadians. Central America was more property and real estate. And but although I’ve never lived in the US, funny enough, I’ve worked with North Americans most of my life, even when I was in Germany. So, so, um, I came back to Europe three years ago specifically for this business, because it’s a sort of a relatively new asset class and, you know, there’s a great story behind it, which happens to be true in terms of supply demand, which, which we get into. But yeah, that’s, that’s pretty much it.

Dave Wolcott:
Interesting. So was there something that kind of got you into the precious metal space kind of in your career that led you this way?

Louis – Strategic Metals Invest:
Um, it was just really, you know, I always, you know, I, we, we always live in an age where there’s something new coming around the corner. Right. Not everything works out, but I mean, you know, we look at just the last 20 years, some of the companies we know so well today probably didn’t exist maybe 20, 25 years ago. So just, you know, I’m thankfully still curious, you know, although I’ve traveled all over the world, I love to hear anything, a new book, new movie, whatever it might be. From a business perspective, I’m always looking for a niche, I suppose, something new and something where there’s a real story of, you know, in this case, it’s the demand supply dynamics. There’s a genuine, nobody in the world would argue demand for these raw materials is increasing, while at the same time, we have one country that monopolizes the market. And the next sort of five, 10 years, I mean, the last 10 years have been very profitable. And As we discuss, there’s about another 5, 10, 15 year window of opportunity there as well, specifically in rare earth elements.

Dave Wolcott:
Right. So why don’t we start with kind of just talking about, you know, what are precious metals specifically, which ones are you talking about? Where can you find them? And let’s kind of begin there.

Louis – Strategic Metals Invest:
Yeah, well, I’ll break it down because you’re using the right term there. Precious metal. So they do come under that umbrella term, right? My company is called strategic metals. And the reason for that simply is strategic. Obviously, it’s not a scientific term, but strategic is strategic to our daily life. I mean, just to give you one example, like the same my smartphone here. There’s in every smartphone today, there’s 12 or 13 precious metals. And there’s some gold in your phone, there’s a bit of silver, but the other 10 are the ones that we offer as physical assets. And the same, for example, you know, you couldn’t, we see and touch them and feel them every day. One of them is indium. You can swipe your phone because of indium. There’s gallium, germanium, hafnium. And, for example, the metal or the oxide in the speaker. in your smartphone, to be more precise, in the permanent magnet, is the same metal that’s in permanent magnets in electric cars, in wind turbines, in solar. So they have multiple, multiple applications, yet we just sort of rarely think about them. We generally just think about gold and silver, and you know, gold, you know, is most, does have some industrial use, but mostly jewelry, but silver has more industrial use. But these raw materials are specifically used in the industry. And you quite rightly said, Dave, most people wouldn’t have heard of them as physical assets. And the reason for that is, as I said, it’s a relatively new asset class. It’s only since about 2010, private investors can physically purchase them. It’s the exact same paradigm as gold and silver, except you’re buying and purchasing rare earth elements, which are, you know, supposed to have an intrinsic value as opposed to… In many ways, gold has a sort of an extrinsic perceived value because it’s mostly purchased as a store of wealth, whereas these raw materials have an intrinsic value. And, you know, there’s probably not an industry they’re not used in. I mean, you know, semiconductors for computers and, you know, all modern technology, medical devices, electric cars, aviation, rods for nuclear reactors, you know, the space exploration has become a fully fledged sort of space industry over the next sort of 25 years, so they’re critically needed there as well. So yeah, we just, you know, a lot of people are surprised and go, yeah, how come I didn’t think of that before? Because in your phone, you touch them and see them every day, you know.

Dave Wolcott:
Yeah, sure. So where do you typically mine these, right? And what is the supply side actually look like? Are some of these, you know, plentiful? Are they still rare, you know, like gold would be, for instance?

Louis – Strategic Metals Invest:
Yeah, good, great question. So despite the name, they’re called rare, the scientific term is rare earth elements. So they come in metal form and oxide form, which is powdered, even liquefied and in nitrate form. But despite the name, they’re not all that rare. And there’s plenty of them in North America. And Mountain Pass in California, actually, until the 1980s, was the largest producer of rare arts in the world. But what happened was, Rare Earths really, we only found applications from them, believe it or not, in the 1960s, when we went from black and white TVs to color TVs. That’s when we really started to use them. But I mean, as we all know, 20 years later in the 1980s, when the technology, this is when they really came in to being needed in just about everywhere. So, since the 80s is when they’re… Everything from a toaster to a microwave pretty much nowadays has a mini computer in it. And these are critical in all technology. But where the supply demand dynamic comes in, and I’ll just tell you, like China is responsible for 90% of the world’s rare earths. And obviously, that’s not a good thing, because I suppose really what happened, Dave, as an unintended consequence of globalization. I mean, for the last two or three decades, when the world was sort of high on globalization, we sort of didn’t worry too much about the fact that it wouldn’t be a good idea for one country to control one raw material that’s critical to any nation’s economic prosperity and increasingly military capability. So what happened during the 80s was China actually did People can Google and you’ll see this, the premier of China at the time, Deng Xiaoping, standing on a rare earth mine, said that the Middle East has oil, China has rare earths. Now that was a very, very shrewd statement in 1987 because right after that, you know, the technology industry sort of exploded or was already happening. And really what happened was China understood before Europe and before the US, that these rare earths would become literally the backbone of manufacturing in the 21st century. So they were about 25, 30 years ahead. Now at the time, and I’ll speak about the US just because I know your audience is North American, but at the time the US government thought, you know, because we were a little bit high on globalization, we thought, well look, what China started to do was move all the refining from actually from Mountain Pass in California to China. Now, at the time, I think the US government thought, well, look, separating and extracting and refining these raw materials, it’s complicated, it’s messy, it’s expensive. Why don’t we let the Chinese do it inexpensively and we’ll just buy the raw materials cheaply for them? So what happened then though was the US set up… a bureau of mines to keep an eye on, so the US could remain competitive. And that bureau was defunded in 1996. And literally what happened since then is China now monopolizes rare earths. And the key thing I need to tell you why is the refining important is because rare earths don’t occur naturally. And they’re always a byproduct of another raw material. So for example, gallium. is a byproduct of aluminium or you guys say aluminum, we say aluminium. Gallium is a byproduct of aluminium mining. Hafnium, which you need in jet engines and rockets, is a byproduct of zirconium mining. To give you some context, the ratio is 50 to one. So for every 50 tonnes of zirconium, you can only get one tonne of Hafnium. So they’re rare in that respect, although you could find them in any continent. finding them in sort of high grade, you know, they don’t occur naturally and that they’re chemically, they sort of exist together. So they have to be extracted, they have to be separated, they have to be refined. That’s complicated, it’s expensive. And we’ve allowed the Chinese to sort of run away with the circus there. But very, very recently, both Europe and the US have realized, you know, we have to wean our dependence off China. And that’s why they’re a good investment right now. and over the next five or 10 years, I think I covered everything there.

Dave Wolcott:
Yeah. Okay. So that’s, that’s pretty interesting, right? So where can, I mean, you talked about California as one of the mining locations. I’m assuming there’s others kind of across the world outside of China. Talk to us a little bit about the infrastructure. It’s kind of interesting that it’s really a byproduct, right, of something else. But tell us a little bit about the infrastructure. I mean, is it, is it miners, you know, similar to, you know, gold and other things that you hear, how we’re actually extracting these precious metals. And then what does the supply chain look like? How are they getting it to market? How are they making it? You know, are they selling them direct to semiconductor companies, car companies like, you know, like Tesla or whatever? How does that work?

Louis – Strategic Metals Invest:
Okay, so, yeah, you’ve just touched on a good point there, like, first of all, like who we are as well, and what we have an offer. So it’s probably the most important thing I might say today, and is the fact that, and it just might sound like a little contradiction or a paradox, but the most important thing about us is, is not this investment offer that we have. It’s the most important thing is that our core business, what, you know, 80% of our activities on a daily basis. is we’re a supplier of rare earths. So we turn over on the industrial side of the business about $100 million a year. So our office is in Frankfurt and the vault is in Frankfurt. So what we’re doing and what we have been doing for the last 30 years is we buy the raw materials directly from producers who are mostly in China, but also in other places as well. And then we resell them to industry buyers. So to be exact, We’ve 2000, at last count, we’ve 2480 industry buyers in 70 different countries. So we’d have plenty of clients in the US, plenty in Europe and the Far East. So, so that’s our core business. That’s what 80%. That’s what we’re doing 80% of the time. And it’s only because of that, that we can offer, as you guys in America like to say, the side hustle, the side hustle is the investment. And, but if we weren’t in the industry, if I was just A sales and marketing guy in Tipperary in Ireland. I’d be crazy because I’ve no connection to the industry. The only end buyer for these raw materials are industry buyers, as you said, Apple, Siemens, Volkswagen, Ford Motor Company. So the only way this works is if you’re buying from an industry supplier, unless you’re a hobbyist and then you go to eBay or Amazon and you buy small amounts and

Dave Wolcott:
Yeah.

Louis – Strategic Metals Invest:
you would have no idea what the purity of those are anyway. But to give you just some context on what you said about the sort of infrastructure, there’s one mine in America, North America producing rare earths, and they still, which is mountain pass, but they have to sell all the raw materials to China to be refined because the human capital, the engineering expertise that existed in America in the 80s is completely gone. To give you some context on that. Now, that’s all going to change, Dave, because In the Inflation Reduction Act, there’s billions of dollars in subsidies for people to refine Earth’s North America. You will see some investment coming into North America, but the current status quo is China refines 90%. To try and give you an idea, there’s 39, the critical type of person you need is a metallurgist. You need geologists and a metallurgist, which is the degree needed for the refining. China has 39 universities graduating degrees in critical minerals. You know, they’ve probably got about 200 degrees, 200, um, metallurgists graduating in a week, every week for the last 30 years. The U S only has a handful of universities with degrees in critical minerals. So I suppose to give you further context, there’s about 300,000 metallurgists in China. There’s maybe. 400 in North America and none in Europe were completely dependent on China. At the moment. Now Europe wants to change that America wants to change that. And this is why it’s such a good opportunity for investors right now is, it, you know, it took China a generation to become a sort of a global rare earth superpower so much so that they can weaponize rare earths now they just by restricting them. So we’re in this sort of very unique window of opportunity for the next five, 10 years. and where investors can hold them, physically store them, and just watch them go up in value and then liquidate them, you know, once they’ve, you know, realized, you know, whatever number they want.

Dave Wolcott:
Yeah, got it. So how does the investor participate, you know, in this type of opportunity?

Louis – Strategic Metals Invest:
Okay, so it’s the same paradigm, as I said, as gold and silver. So the investor physically owns the asset. They, it’s not a, you know, a share or a piece of paper. They physically own the asset. And so what I suppose you could say we’ve three guarantees or maybe our warranty statement is three things. One, we guarantee that the client is purchasing industrial grade, high value gallium or germanium or indium, whatever it might be. We’re guaranteed to purity levels, we’re guaranteed to chain of custody, and we’re guaranteed that what they purchase can be liquidated to an industry buyer at any time. So they qualify for that industrial grade. And obviously, as an industry supplier, we know what industry buyers want. Just like gold, there can be different purity levels. There’s also different forms. Some of them are in powdered form, but we know what we can liquidate, and we also provide the exit. But in the meantime, there’s storage. We have a storage facility in Frankfurt in Germany. It’s in the banking district. It’s two levels below ground. It’s one above. It’s a bank level secure vault with two meter walls and two meter door. It actually was a bunker in World War II and then after during the Cold War. And we bought it in 2010 and invested in it. And now it’s a fully sort of secure. fully insured, you know, we store precious metals there as well. So we also provide storage, um, in a sister company of us. And then the last part is the exit, which is we guarantee to liquidate the raw materials when the client is ready to sell. Now that’s not their only option. They own the raw materials. If they want to find the buyer themselves, they can, but, but since we’re an industry supplier and that’s really the only end buyer we do obviously. responsibly have to provide that option. So we guarantee to repurchase them at a current pricing, whatever that might be.

Dave Wolcott:
Okay. So how is the investor really, you know, kind of making money? Are they looking at appreciation off of these metals? Is that the primary play? Is this a hedge play by saying, you know, okay, now you have strategic metals in your portfolio, right? If the dollar continues to devalue, you know, now I have a certain allocation set to these strategic metals. So is it more of like a hedge play? Or is there anything else in terms of, you know, how investors really can profit from

Louis – Strategic Metals Invest:
Okay, so at the very minimum, it definitely is a hedge against inflation. It’s a store of wealth because you own an asset, a hard asset that has an intrinsic value that’s in demand in every country in the world. So at the very minimum, yes. However, because of the political instability, because of trade tensions, there’s other dynamics that come into play. But just to give you an idea, there’s 10 of them that we offer. If you’d purchased say $100,000 of all 10, so it means you’re diversified in different sort of industries, five years ago, your portfolio would be up an average of 34.25% a year. Some of them are up one, one metal is up 500% in the last three years, one’s up 6%. So that’s just the average numbers. So because of this, you know, supply demand disparity. They actually have been historically increasing in value. Now, what’s coming next? What does the future hold? Well, as I said, just three weeks ago or less than three weeks to August 1st, China has restricted the export of gallium and germanium probably to the US, Japan and Holland because they’re sort of in a retaliatory situation at the moment. So, you know, it’s a speculation, you know, much like everything else. There’s no guarantees. But if you do your homework, if you really see what’s hidden in plain sight, you’ll see that demand is off the charts. And gallium, as an example, between now and 2030 in Europe alone, we’ll be consuming somewhere between seven to 26 times more gallium than we are today. And there’s probably just not enough of them. What’s very interesting for the moment, Dave, in the next 10 years is what we call the energy transition metals. There’s five of them. which are the raw materials for electric cars, solar power and wind power, also needed in batteries and stuff. There’s going to be huge growth there because there literally will not be enough of those raw materials for every car manufacturer to go electric, which is what they want to do. So I can’t say, oh yeah, they’re going to go up X amount in value. I just can’t because they can also be sort of volatile in the short term because China China sort of controls the pricing. But in the long term view, and we suggest to anybody that’s purchasing them, please, if you do purchase, plan to stay in for at least three to five years. And then, if you look historically, you’ll see the gains.

Dave Wolcott:
Got it. Is there any tax efficiency strategies in terms of purchasing these metals or like you had talked about, or is the government putting out any subsidies or incentives in the form of

Louis – Strategic Metals Invest:
Well, if you store with us in Germany, our vault is a zone lager, which is a duty free zone. So it’s exactly the same as if you’re storing in Switzerland or Singapore. And if you hold the raw materials for a minimum of a year, then there’s no taxes when you purchase and there’s no taxes when you sell or when you liquidate. However, obviously, Uncle Sam, I know, has global taxation. So… And you know, capital gains would come into it for North American clients. And we have had recently a number of our clients go to a custodian and use a self-directed IRA, a checkbook, I think they call it a checkbook IRA to purchase, which means when they sell, then I guess the gains and the profits go back into the, into the pension and the taxes either deferred or I’m not sure obviously you don’t have take tax advice from an Irishman in Tipperary. But yeah, I mean, I do know the US is one of the, maybe one of two countries that has global taxation. So they’re tax free in Europe if they’re held for a year, but after that, then the client has to do their own reporting in their own jurisdiction.

Dave Wolcott:
Yeah, got it. So you’re basically looking for, uh, that appreciation play and within a three to five year period is.

Louis – Strategic Metals Invest:
Exactly. Yeah. I mean, gallium and germanium in the last sort of three weeks are up 10% and 15% since China announced these restrictions. So yesterday, US president announced some sort of retaliatory measures. So we think things are really going to escalate. The last time China restricted the export of rare earths was over 10 years ago. In 2011, the the Japanese detained a Chinese captain of a trawler who was fishing in sort of disputed waters. And in retaliation for that, China restricted the export of rare earths to Japan. And we saw prices sort of, you know, 5X, you know, in the space of a few months. So for the first time in over a decade, China is now weaponizing rare earths again, this time against the US, Holland and Japan again. So like… Mostly my conversation with clients is to say, look, for sure, at the minimum, this is a good store of wealth. And then in the middle, likely, you should comfortably see maybe 15%, 20% a year, just because demand is increasing and supply is limited. However, if things escalate and China decides to really weaponize them, you could, like I said, like Turbium is up 500% in three years. even without restrictions, they’re outperforming precious metals, you know.

Dave Wolcott:
Lewis, what would be the biggest risk in this type of investment?

Louis – Strategic Metals Invest:
Okay, so I’ll start with the business itself. I mean, you know, you’re purchasing from an industry supplier. Any business can experience difficulties or go out of business. What all I would tell you is that, you know, we’re in business since 1999. We’ve held a ISO 9001 QM management certificate, quality management since consistently since 2003. Our product is a product that’s in demand worldwide and is increasing. So the business itself is as safe as any business can be. I mean, it’s actually growing. We’ve moved to a bigger office this year, or we’re purchased land where we’re actually gonna build another storage facility, another vault also in Frankfurt. So the business is growing, and I would say it’s as safe as any business can be. It’s a German company. Germany is one of the most industrialized nations in the world. and revenue is continually going up. So that respect, I think it’s as safe as anything can be. In terms of the metals themselves, you could find, for example, indium, let’s say the one I mentioned that you need to swipe your phone, possibly, you know, better technology might come along that will make that easier. So demand then for indium could go down. So you could find one of the raw materials being replaced or being substituted. you can possibly, you know, I mean, supply demand. You know, the US and Europe, I mean, they reckon there’s a lot of rare earths in Vietnam. They’re saying down north of Sweden or the Arctic Circle, there’s a million tons, you know, down there. You know, in fact, Japan is mining the seabed for rare earths. There’s companies talking about mining them off comets in the outer space. So, you know. They are the backbone of manufacturing in this century. So there’s a huge demand for them. And there’s a sort of a very manifest poignant sort of an effort everywhere to where can we get more rare earths? So, so you will see more come in to the supply chain, but it’s just going to take time. I mean, this, this thing in Sweden, they mentioned, I mean, it’ll be at least 15 years before they, they reach, you know. production, you know, or sorry, before they’re in into the market. And you’ll probably hear in the US of some mines and Linus Corp from Australia just signed an agreement with the US Department of Defense to build a refining facility in either Florida or Houston. Not sure, but this is the US Department of Defense just basically securing their own, nevermind private industry. One F-35 fighter jet has three quarters of a ton of rare earths and is not one refining facility in North America. So we will see more come into supply, but prices will still rise because one, you know, labour costs in the US will be more than China. I mean, the reason China took over is we know they can do things cheaper, right? But that is not going to work anymore because, you know, they’re critical to… to each nation’s economic prosperity. So either way, again, the next five, 10, 15 years is a very good time to own them. And also you can use, our clients can use our platform, if you will, like an exchange, they can buy and sell, it’s a tax-free zone, so they can buy like 10 rare earth metals, they can buy PGMs, the platinum group metals, they can buy gold, silver, they can buy and sell. tax free within what we offer. So yeah, and that’s really, I think, the risks covered.

Dave Wolcott:
Got it. So if an investor was trying to make a decision in terms of, okay, hey, I’ve made the decision now that I want to hold strategic metals in my portfolio. But do you guys create any, you know, guidance or anything to say that, hey, you know, based on, you know, your risk profile, your timing, your outlook, we recommend like these three metals, or, you know, you should just go into one or something like that. How does that work?

Louis – Strategic Metals Invest:
We recommend two things. One, diversification is purchase maybe all 10 metals. And two, what we call maybe an extreme view, which is three to five years minimum, even 10 years. I mean, a lot of our clients now using self-directed IRAs, it’s a perfect vehicle because they won’t use the funds anyway for seven or 10 years. But what’s interesting is the clients that are sort of excuse me, are coming to us mostly are people who are probably using the raw materials. So we’ve a lot of, for some reason, we’ve a lot of surgeons, plastic surgeons, I guess they’re using a lot of reverts, engineers, and from NASA we’ve some clients who are, you know, with NASA, Google engineers. So a lot of people come and they already know a little bit about them and they probably know demand is sort of increasing. But if somebody’s not that familiar I’ll talk privately and individually with each person and they might like a particular industry, for example. They might say, well, electric cars or solar, this energy transition, there’s five metals and I tell them which they are. Somebody might be more interested in aviation or the space industry. But the safest bet, as you know, Dave, usually is diversification. But having said that, if a client knows something we don’t, wants to buy just one metal and buy X amount, we’ll happily accommodate that as well. But yeah, we tend not to give to say buy these ones because to be honest, because the market is purely driven by supply and demand, we really don’t know what’s coming from one week to the next. You know, they can go up and down a little bit in the short term, but in the long term, they’re always the arc is over, the trajectory is already… is always upward, you know, since about 2010. If you’ve held them, you know, you might have had some dips, but you would always be ahead.

Dave Wolcott:
Hmm. Interesting. So how would an investor really engage with you if they were looking to, you know, uh, make a purchase in this strategic matter?

Louis – Strategic Metals Invest:
Okay, so they could go to the website, which is strategicmetalsinvest.com. They can come visit if they want to come to Frankfurt and see the vault. But my suggestion would be send me an email. It’s louis at strategicmetalsinvest.com. And I’ll happily schedule a Zoom call or a phone call or just, you know, our first suggestion is for people just to go into information gathering mode. just to, you know, and we’ll happily educate people. We, you know, a lot of what we’re talking about, everything we’ve talked about, it’s not hidden anywhere, but it’s sort of hidden in plain sight. But once you do a little bit of digging, you’ll see, you know, the dynamics of it. But what we like, first of all, for people just to sort of inform themselves, go into information gathering, and after that, then when they feel they’re sort of fully informed from us, but also maybe independently. then maybe start to think about a purchase and you know, we’ll be with them all the way.

Dave Wolcott:
Yeah, such a fascinating asset class, Louis, and all you have to do is look around to see the demand that’s increasing. And like you say, in the 21st century, all the metals that are going into all of the products that we’re using and with technology advancements, that’s only going to be accelerating over the next two decades. So what would you say if you could give only one piece of advice to our listeners about how they could accelerate their wealth journeys? What would it be?

Louis – Strategic Metals Invest:
question. I don’t like to, you know, the expression advice is the worst advice. I really don’t like to give advice. But I suppose if you’re asking me if there was one word, I’d say diversification. I’d always come to that. I mean, my first purchase was property when I was in my early 20s, 23. which is my first apartment, and I sort of honed in on property for about 10 years, and bought properties in Ireland, in Germany, in Panama. And then I think I got a bit more curious maybe, and learned a bit more, maybe a bit more educated. I’m always, yeah, diversification. And, you know, I think that at any given time, there’s always a niche where there’s a product that’s coming in or maybe already exists, where the demand is increasing and the supply is limited. I tried to stick to that little formula, which I found in the metals. I’m also into agriculture as well, but it’s the same sort of red thread that runs through everything I do, which is, you know, demand and supply. And there’s always sort of maybe one door closing, but usually another one opening. But yet diversification, yeah, I don’t think, I mean. It’s up to people’s personal preferences as well. They get a good feeling about a certain asset class, you know. So, yeah, definitely diversification.

Dave Wolcott:
Sure. Yeah, no, if you don’t call it advice, I mean, you could call it insights, right. But, you know, part of our mission on the show is really to, you know, try to help investors get these unique insights from, you know, people who have been super successful investors and, and it is always fascinating to look at different asset classes like, you know, strategic metals, and then you’ve had experience in other asset classes and what are the parallels. right, that even stand out between the asset classes. What are the things that we can kind of take away to become better investors ourselves? So point well-made in terms of diversification, right? I think that’s key. And then that’s even a subset, right, that you talked about earlier in the strategic metals themselves is diversifying even within the asset class. So amongst asset classes and even within the asset class. So… So really appreciate your thoughts today, Lewis. You know, super, super interesting asset class, something that I think people should kind of look at and consider in terms of their portfolio. But same thing, we’re not offering advice on our show, just trying to provide some different insights and ways to think about it. And then can you just throw out one last time the best place for folks to find you?

Louis – Strategic Metals Invest:
Yes, my email, louis. at strategicmetalsinvest.com or they can just go to the website, again, strategicmetalsinvest.com and they can download a digital prospectus and if they leave their number or email, I’ll get back to them and mention they’re on the show or that they came through you, I’ll be happy to take care of them.

Dave Wolcott:
or probably at the local pub in Ireland, right? Yeah.

Louis – Strategic Metals Invest:
Well, I knew we’d have to talk about the pub at some point.

Dave Wolcott:
You’re Irish for sure. So Lewis, thanks so much for coming on the show and really providing great thoughts to the audience and look forward to keeping in touch.

Louis – Strategic Metals Invest:
Yeah, thank you very much, Dave, for taking the time. And I mean, as you said, even just having a conversation like this and taking advantage of the technology we have, you know, to talk about stuff like this is a great service all by itself, even if, you know, it’s just good to be to be getting the information out there. So thank you.

Dave Wolcott:
Awesome, thanks again, Louis.

Dave Wolcott:
Hey everyone, welcome to today’s show on Well Strategy Secrets. We’ve got another awesome show for you guys today. Today we are joined by Paul Carger. Paul is the co-founder and managing director of Boston-based wealth advisory firm TwinFocus, where he manages an over $7 billion portfolio for ultra high net worth families and individuals. Before founding TwinFocus in 2006, Paul founded the Carger

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them through a broad range of complex business, financial and life decisions, including generational wealth transfers, extreme tax planning, investing and more. Paul also leads the firm’s direct investing efforts in private equity and real estate. Paul, welcome to the show.

PK 🥋:
Thanks, Dave. Great to be here. Thanks for having me.

Dave Wolcott:
Yeah, no, awesome to have you on the show, Paul. I’ve been really looking forward to this discussion. I knew we both grew up in the New England area and have some similar values and I think some shared experiences and really some, you know, powerful learning lessons that you’ve had through your journey that I think you can impart to the listeners to, you know, help them get some value out of the show. So So why don’t we start things off and for folks, you know, who haven’t heard of you or TwinFocus, you know, tell us about your journey, how things started for you, how you even got into this space of wealth building.

PK 🥋:
Sure. Again, thanks for the time. Great to be here. So TwinFocus, as you mentioned, today is a firm that I founded about 17 years ago. I was previously, well, early days a broker at Payne.

Dave Wolcott:
I think you’re back in now. We can edit that if, yeah.

PK 🥋:
Apologies. Do not disturb. I really apologize on that.

Dave Wolcott:
Yeah, no problem.

PK 🥋:
Okay, we’ll try again. Dave, thanks for the question. So as mentioned, and as you mentioned early on, I founded TwinFocus about 17 years ago. I was previously an investment advisor. The early days were called brokers. I started my career at Payne Webber in the late 90s. Payne Webber was subsequently bought by UBS around 2000 or 2001. And I was a young broker. I didn’t have the benefit of having a deep network of folks. I really started my career. Dialing for dollars, I started with a phone book and working nights and weekends. Back 25 years ago, you could actually cold call people. Today, it’s become much more difficult. But I built up a small book of business. I think like all of our careers, you have these lucky breaks along the way. You meet interesting individuals or folks that are able to change the trajectory of your career. I had a couple of those lucky breaks early on. tend to be a pretty good storyteller and I hit some early success within a few years or 23 or so, 24 years old, I became a vice president. And I went on to at a young age around maybe 25 or 26 start my own group within UBS. We were pretty different than a lot of the other folks that were kind of in my role at that time. I pursued getting a CFA, which is pretty different for a financial advisor. Most of that happens really on the buy side or money management side. But pursued the CFA and added to my credentials and slowly, slowly climbed the curve of learning the industry and garnering bigger and bigger relationships. I met a gentleman through a referral through another client that had just sold his company for $150 million. In those days, I was managing clients in the $1 to $10 million range. So it was a pretty foreign subset of clients for me, but I jumped at the opportunity to work with this gentleman. As luck would have it, it turned out that another advisor in my office had actually cold called this gentleman about a week before I was introduced to him. Nonetheless, I went down to see him from Boston. He was based in New Jersey. And he asked me what I thought he should be investing in. And I actually told him I had no idea. I think he needed to really think about building a team first and putting a plan together. And I said, I want to do that for you. And because this other advisor had met him before me, my managing director actually called me into the office after I got back to Boston and said, listen, I want you to split this relationship. And I said, not for me. I think that margin is going to be too skinny to split. I feel like I’m going to do all the work, but good luck. Have at it. I wish you guys the best of luck in trying to capture the relationship. At that time, I went to my twin brother and I said, Wes, we should leave UBS. I said, there’s got to be more people out there in the world like this that have big issues, big issues on and above what goes on inside a brokerage account. It took some convincing, but after about a year and a half, I convinced my brother. that we needed to leave and we charted a plan to launch our own advisory firm and put that plan together kind of early days 2006 and then subsequently resigned from UBS in June 2006. I was sued by UBS. It was the first time in my life that I had ever been sued or pursued legally and learned a bit about that and pretty quickly settled with them. And it was kind of off to the races. It was my brother and I, a couple of interns that were working for free, an assistant, and a couple thousand square feet of office space atop one of the big buildings in Boston that we could barely afford. But I cashed in my 401k, which I wouldn’t normally advise folks to think about doing. But I cashed in my 401k and Wes and I were able to borrow some money from some friends with our own savings to get the business off the ground. Shortly thereafter, you know, once I settled my lawsuit with UBS, I called that gentleman up that I had met a couple years before and said, you know, hey, remember me? And he said, yes, where’d you go? I told him the story of internal, some internal politics. And I said, what did you end up doing? He said, well, I split the money across four or five different brokers. He said, I can’t track it. Everybody’s giving me conflicting advice. I really need somebody to help me oversee the big picture. And so my brother and I went down to see him in New Jersey. And inside of a couple of our meetings, he signed up with us. And that was our first $100-plus-million relationship. And it was a lot of learning. Seventeen years ago, this industry of working with the ultra-high net worth and developing this kind of family office model was very new. This was just kind of the earlier days of this large proliferation of wealth that we’ve seen really over the last 15 or 20 years. And so, you know, there are just, you know, 25 years ago, you know, to have a $100 million relationship in Boston, there was only a few folks in Boston with that kind of network. And today, you know, there’s many families that have worth of $100 million, not just in Boston, but around the US and around the world. And so there’s been this just big proliferation of wealth globally. And families like this have, you know, institutional type complexities. We often call them internally, individuals, because they have these. institutional type complexities while they’re still being individuals and at least in the U.S. paying U.S. taxes. So really, the last 17 years, starting with that one significant family, we built the business really brick by brick, client by client, to where we are today, overseeing little shy of about $8 billion for about 40-something families.

Dave Wolcott:
Yeah, wow, that’s such an awesome story. Did you, as an entrepreneur, did you have a certain light bulb moment or burning passion to say, hey, I wanna solve this certain problem or I wanna deal with this certain clientele and so I have to break free from UBS in order to do that?

PK 🥋:
You know, I noticed it when I, as I became kind of senior at UBS, running my own group, I noticed that my challenge in competition was not the other brokerage firms. It was not the Goldman’s and Oregon Stanley’s and Merrill’s. I’m sure they were at the table, but I felt like we were differentiated enough to, you know, to compete against those types of offerings. I continued to feel that the competition was the folks that were truly independent. that we’re not trying to hawk product to their clients. It was kind of product of the day that was being pushed down by the sales managers. And I also noticed internally, the fee structure issues were just very confusing for clients. And I said, in and around 2004, when I had met this large individual, I said, geez, there’s got to be a better way to do this. And so I spent about a year and a half meeting with other firms. thinking about, you know, should I open somebody else’s firm in Boston? You know, should I be there? Should I franchise? Should I, you know, figure that out? And pretty quickly, I realized that, again, this was early days of this family office concept. I said, I can do this myself. I’ll figure it out myself. You know, I’m willing to take the risk of myself. You know, always, my brother and I have always had, you know, very kind of an entrepreneurial spirit. And, you know, probably because of our upbringing, where we didn’t, we never really had a safety net with, you know, wealthy parents who were raised really by a single parent, a mom, that taught us the value of kind of hard work. And I never really considered like failure an option in my life. It was always, I knew I would just keep figuring things out. And sure you have little failures along the way in life and that’s kind of how you learn, but you just, you know, you just got to pick yourself up and kind of keep going and kind of learn from that mistake and say, geez. I won’t do that again or I won’t do it that way again. I think all of that is really in the ethos of our firm today. Any company is really the genesis of the founders. I think that’s very true of TwinFocus, this kind of hustle mentality. Frankly, our client base reflects that because I say all the time that people do business with people they like and people do business with people like themselves. And when you look at a lot of our clients at TwinFocus, they’re folks that are, in many respects, just like my brother and I.

Dave Wolcott:
Yeah, no, 100% Paul. So can you tell us also about, you know, your journey into the investment world? Because I know for me, you know, I was the same thing, right? I was raised as a middle class family in Connecticut. Once I got into the working world, all I was told that the only option was to invest in Wall Street, stocks, bonds, mutual funds, right? And that was really the option. Until I really started studying the 1%, right? And how they’re truly building wealth, how are they allocating capital? And that’s when I began to discover other asset classes like real estate, private equity, alternatives, right? And how to then really create a

PK 🥋:
Thanks

Dave Wolcott:
solid

PK 🥋:
for watching!

Dave Wolcott:
portfolio. And I know that you guys focus on real estate and private equity in addition to equities. So can you tell? tell the audience a little bit more about your journey and how you view the different asset classes.

PK 🥋:
Sure. Yeah, I mean, listen, we learn over time. And as much as I would love to tell you that I started my career working with $100 million plus families, it’s just not the case that my first relationship was the local liquor store owner that bought $20,000 of stocks from me, and I got a commission on it. But slowly, slowly over time, you kind of upgrade your relationships and your client relationships over time. And you learn, you learn based on what their needs are and trying to offer really a differentiated offering and services and products. And I learned over time as a function of what I needed to do. On the real estate side, we were investing in direct real estate opportunities on behalf of clients for the last. decade or so, but not really formally. We were kind of co-investing until 2008, I’m sorry, 2018 when the Trump administration brought this qualified opportunity zone program to the forefront. And it was a really an ideally suited program for many of the families we work with. And so we formalized our efforts around investing in real estate. You know, on the general alternative side, you know, for sure I understood alternatives, getting you know, investing in those types of products as a broker, as a financial advisor while I was at UBS. But it wasn’t really until I started my own firm that I needed to formalize our research efforts around identifying those types of managers and being able to diligence those managers. And as you know, that opportunity set is constantly shifting. You know, when you look 20 years ago, long short equity investing was very substantial. And today, it’s become harder to differentiate as a long short investor. And frankly, from an after-tax perspective for US taxable investors, it’s really hard to make sense of long short returns, even if you’re delivering north of 10% or mid-teen returns after taxes because of the way the tax profile works today. You basically don’t get to deduct the fees you pay. You actually end up, for most investors, you end up receiving a net return but paying a tax on a gross return. which is a killer. So it was really out of necessity, learning those various asset classes. And it’s interesting when you look at the CFA curriculum, how the CFA curriculum changes over time based on what the current opportunity sets are. Maybe this is reserved for a little bit later in our conversation, but today, with the rise in interest rates, there’s a significant opportunity in credit. There’s different managers playing different areas of the credit world and the spectrum of credit, whether it’s real estate credit or corporate credit. But it looks like, especially as the Fed is indicating higher for longer, there’s going to be some stress in the system. And companies that finance their businesses or finance assets in a much lower interest rate environment decades ago, 15, 20, or even 10 years ago. are now facing this day of reckoning where they’re going to have to finance assets at higher rates. And some assets may not make sense to finance at higher rates. So there’s going to be a lot of interesting opportunities out there and probably some pain for some folks.

Dave Wolcott:
Yeah, agree. So have you formulated a particular wealth strategy that you guys have or an investment thesis or current mandates that you pretty much, you know, operate with for the man, the families that you’re managing?

PK 🥋:
Yeah, so we largely split our allocations in kind of three buckets. Obviously it’s going to shift from client to client and clients that have just come into wealth and are starting today with a pile of cash is very different than a legacy portfolio that you’ve been investing for a decade plus. But largely we look at the world in terms of kind of equity, general equity exposure, cash, fixed income. provide liquidity and not take a lot of risk. And then last, this kind of alternative bucket, which is a very wide-encompassing bucket. On the equity side, we try to keep it simple. We try not to overthink it. There’s too many other things that can go wrong in the investing world and running family offices. So we use a lot of tax-managed products. We are able to harvest losses regularly, and you maintain some type of cheap exposure to beta. We use a lot of ETF type products, low cost mutual funds where we’re looking to get some kind of satellite positions with inequities. But we just don’t overthink it and we rebalance those allocations on a regular basis. On the fixed income side, obviously, the world has shifted there and you had to reach for yield the last 10 years. That’s all changed in the last 18 months. And I mean, even as of today, you’ve got the… 10 years is topping three and a half. 30 years looks like it’s going north of four. It is north of four today. Very different world, right? I mean, historically, there was no cost to investing in riskier assets because you were getting no return on your cash. Today, there’s a big opportunity cost. You could sit in short-term treasuries and make five or six percent, which is interesting. I’m not sure how long that short-term trade lasts. The Fed seems to be indicating higher for longer, so maybe it’s here longer than most folks think. But I think now is a time to think about kind of broadening out or kind of reaching out in terms of duration. I think it’s pretty interesting to be able to lock in almost 4% risk-free on 10 years. You were trying to get that in real estate a few years ago. You were buying for capital estate. Today you can get that in risk-free treasuries. And then this last bucket is alternatives. And we think of that as a bit more tactical in terms of looking at kind of what’s working today. We’re big believers as I think, you know, most allocators of capital are in terms of diversification. You know, as they say, diversification is the only free lunch. And, you know, I think one of the advantages of working with ultra high net worth families is the ability to take. really long-term views on things and to make long-term bets, you know, where you don’t necessarily need capital tomorrow to meet living expenses. You’re budgeting for those living expenses in other areas. And so, you know, today as mentioned, you know, I think the stress credit is pretty interesting. Commodities are pretty interesting as well. And you know… We’ve gained exposure to commodities in all different types of ways, from liquid to illiquid to trading managers and such. And then of course, real estate. We believe in the benefits of real estate, especially for US taxable investors, where you’re able to ostensibly lock in a yield that has some type of inflation protection, right? That’s, you know, with hopes is going to increase as rents increase over time. But that world has been turned upside down with the current state of interest rates. It’s probably going to take some time for the ship to be righted there and for some opportunities to emerge that are more evident. Today, you kind of have to take some risk on some of the hairier stuff. With the pandemic and… with shifts in kind of where folks are living and where they’ve migrated to. It’s also changed the game in terms of opportunities in multifamily and industrial and so on.

Dave Wolcott:
Yeah. And so for your clients, do you actually, you know, have some type of return profile, like an average kind of return profile that you say, you know, you’re yielding maybe an average, you know, IRR or something like that, or rate of return across all of these assets? Or are you more talking about basically, you know, wealth preservation strategies, you know, risk mitigation, in addition to you know, capital appreciation.

PK 🥋:
The answer is all the above. I think, as the old saying goes, if you’ve seen one family office, you’ve seen one family office. I would say the majority of the time, our clients don’t show up with a pile of cash. The majority of the time, they show up with a legacy of investments and a pretty fully built-out investment portfolio. So yeah, can you give me a minute? I’m sorry.

Dave Wolcott:
Yeah, yeah, no

PK 🥋:
Yes.

Dave Wolcott:
problem.

PK 🥋:
Sorry, Dave.

Dave Wolcott:
Yeah, no worries.

PK 🥋:
Yeah,

Dave Wolcott:
We can

PK 🥋:
we can

Dave Wolcott:
edit

PK 🥋:
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Dave Wolcott:
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PK 🥋:
this. Yeah,

Dave Wolcott:
and we’ve

PK 🥋:
cool.

Dave Wolcott:
also got,

PK 🥋:
Cool.

Dave Wolcott:
we can up convert on this platform.

PK 🥋:
Good,

Dave Wolcott:
So we’ll be

PK 🥋:
good.

Dave Wolcott:
able to pull out all the background noise. So no worries.

PK 🥋:
Amazing, amazing.

Dave Wolcott:
Yeah.

PK 🥋:
So, should we start again? Yeah.

Dave Wolcott:
Yeah.

PK 🥋:
Yeah, so as mentioned, we look to diversify across these asset classes. But I think the other thing to keep in mind, when you’re dealing with family offices, despite the fact that you’ve got the ability to really think long term and make long term bets, you really need to manage liquidity. And liquidity profiles are different from family to family. And as a result, portfolios look different. Certainly over time, there is some continuity across our portfolios because we’re pursuing similar trades, similar themes. But as I said, some clients have legacy positions. So it wouldn’t necessarily make sense of doubling up exposures or telling clients to sell one type of exposure that they may come into our relationship with if it doesn’t make tax sense. And the beauty of the family office model, at least our model, is that we can think really objectively and independently. And from kind of an incentive standpoint, we’re paid on the broader relationship. We’re not paid on based on the investments that we’re making necessarily. And so we’re paying just as much to tell our client, no, don’t make this investment or keep an investment you may have had before our relationship as we are, yes. And so, we don’t have any kind of perverse incentive to push them into any specific sector, product, fund, or whatever.

Dave Wolcott:
Yeah, that’s a great model because frankly, the majority of typical advisors out there just collecting that assets under management fee and not really having mutually aligned interests with investors, I think is not the way to go. We want to be advocates and real fiduciaries to the clients so they can objectively make the right decisions. Tell us Paul, a little bit about, so you mentioned extreme tax planning. It’s one of my favorite topics. I never thought I’d be so excited about talking about taxes, but over the years I’ve figured the more taxes you make, definitely tried to determine tax mitigation strategies and having exited a business myself and having some significant mitigation to go there. Are there any typical strategies that you guys are advising clients on that you can share with the audience?

PK 🥋:
Sure. You know, in building that kind of foundation for a complete kind of wealth management solution, family office or otherwise, I often say that it’s analogous to kind of cooking. I love to cook. And you don’t just show up in the kitchen and start throwing stuff on the grill. There’s a lot that goes into cooking before you actually… do the cooking, right? I mean, it starts at the grocery store, right? And you’re thinking through how many guests you have and who eats what and any restrictions that may occur. I apologize. I apologize.

Dave Wolcott:
Yeah, no problem. No worries.

PK 🥋:
And yeah, and you know, and so analogous to cooking, you know, again, it starts in the grocery store, you’ve got to think about who you’re feeding, you know, if there are any preferences, any restrictions, you know, you’ve got to think through, you know, various types of ingredients, because you’re trying to offer a diversification. From the grocery store, it goes into the house and, you know, it’s all about the prep work before things go on the grill or on the skillet. And maybe the fun part is on the grill, the fun part is eating the cooking. But it’s the same thing with wealth management. I say to folks that come into a windfall of cash that the last thing that you should be thinking about initially is how to invest the money. That’s kind of the easy part. I don’t want to diminish the fact that investing is not completely easy, but it’s a little bit more formulaic. You know, the harder part is really planning around the wealth and thinking through what are your longer-term objectives? Ensuring that you have suitable estate planning documents, you know, if you were to get hit by the proverbial Ferrari or bus and And you know and how those assets would flow over time and so when new families come to twin focus We spend a lot of time initially on setting up the estate infrastructure and ensuring that estate infrastructure is consistent with our clients’ goals and objectives. And a lot of that is your thinking through tax planning, you know, efficient transfer of wealth to next generation, charitable planning, you know, around charitable intentions. And then, you know, only then, once you’ve got that infrastructure established, those various buckets that will, you know, receive piles of cash over time, can you really think about investing? Because undoubtedly, those various buckets in your life, whether it’s charitable vehicles or trust for kids, they’re probably going to have very different risk profiles and liquidity profiles because you’ve got different time horizons and different beneficiaries in mind. And then you can think about how you’re going to invest the capital, but you’ve got to really kind of lay the groundwork. You’ve got to understand the tax profile. In terms of tax strategies, for sure. us and most of the high net worth world is thinking through how you efficiently pass down wealth to future generations. It was much easier in a lower interest rate world. There’s a lot of techniques that really rely on interest rates, on interest rates being low because effectively what matriarch and patriarch look to do is effectively kind of loan the money in certain ways to future generations and then receive back an interest payment. And then hopefully that future generation is able to make the spread tax-free, estate tax-free. So, on one hand, on the investment side, perhaps you benefit from higher rates because you’re able to invest in fixed income and assets hopefully yielding higher returns. But on the estate planning side, there’s a higher cost to doing so. And so some of these, the Gratz and Klatz and these types of vehicles are not as efficacious in a higher interest rate world. That said, there’s still lots of interesting estate planning techniques that you can use to kind of push assets to future generations and help mitigate taxes. I mentioned earlier in our conversation the Qualified Opportunity Zone program that has come into effect really over the last five or six years brought on initially by the Trump administration. It really received bipartisan support. investors to take gains, capital gains that are generated in all sorts of ways from selling your Apple stock or selling your widget manufacturer or even capital gains that you receive on a K1 from investing in a hedge fund or a private equity fund. You’re able to take those gains, roll them into investments, not pay a tax on that initial capital gain until 2026. And then there’s all sorts of tax benefits on the investments that you make. And so if you north of 10 years, you actually receive the benefit of having to pay no tax on your gain on your gain after 10 years. So we’ve used that quite a bit for our families that have had recent windfalls from selling businesses or certain types of assets, as well as many of our clients are actual professional money managers, hedge fund managers, private equity managers, and receive their annual paycheck or their annual income via K-1, via gains. So that’s been really kind of a tax nirvana over the last five years. And it’s been great for our country and it’s been great for our communities that have been able to kind of foster economic development and housing and infrastructure needs in areas that have needed the most.

Dave Wolcott:
Yeah, that’s exactly what the tax code is, right? It’s 6,000 pages of really a series of incentives, right, for business owners and investors who can understand it and then really put it to work. And sadly, there’s not enough good CPA firms out there that are really providing the right advice to help clients with that. But such a key part of really preserving and growing wealth you know, if you’re high net worth, ultra high net worth, right? The taxes are everything and especially the way the government is spending money. Uh, that’s probably the only one thing I’m certain of in the future is that taxes will continue to go up. Uh, so that tax planning is so key. And as you point out, um, you know, going down to, you know, G2, G3, G4, right. And, and really having that long-term view, I think is critical to success.

PK 🥋:
Even, you’re seeing this significant exodus of high tax states in America. As you know, folks

Dave Wolcott:
Yeah.

PK 🥋:
leaving Massachusetts, leaving

Dave Wolcott:
I live

PK 🥋:
Connecticut,

Dave Wolcott:
in one. Yeah.

PK 🥋:
leaving New York, leaving California where Massachusetts, for example, at the beginning of this year recently instituted this millionaire’s tax. So you end up paying an extra 4% on all income over a million dollars. And income is characterized by any kind of gain that you may have had if you sold a business or whatever. And so Florida, for example, Texas, Tennessee, these states have been huge beneficiaries where folks, back to our conversation around real estate, folks are leaving these high tax jurisdictions and moving to places like Florida where they don’t have significant estate taxes, they don’t have significant income taxes. So those states have been beneficiaries. anecdotally that actually moved from Boston down to Florida. They told me they were waiting in line at the RMV. When they got up to the RMV window, the woman said, what is it with Massachusetts? You’re the 24th person today I’ve seen

Dave Wolcott:
Yeah.

PK 🥋:
relocating from Massachusetts and needing to get a Florida license. So.

Dave Wolcott:
Yeah, I’ve got a friend in Maryland who actually had an $80 million exit. And he was able to purchase a $20 million home in Florida and still have money left over versus had he stayed as a resident in Maryland, you know, paying the state taxes there. Right. So he was able to put that money to work, you know, for him, uh, and do some of that, you know, geographic arbitrage. So. another key strategy. And, you know, I appreciate you sharing the insights because I think, you know, everyone is trying to get educated, right? We’re trying to learn, you know, how are the new tax laws changing? How does that impact our wealth long term? And as you so well pointed out earlier, Paul, like this all should be designed, you know, around your long term goals, your vision, you know, does the family have this vision? And really how can you align your portfolio to do that? So, you’re really living that ideal wealth, that life that you actually set out to create in the first place.

PK 🥋:
Yeah, Dave, thinking about charting a strategy for folks that come into money or have funds and are thinking through how best to allocate. Of course, it sounds like I’m talking my own book here, but I can’t stress enough. You need to hire good advisors. Analogous to getting sick, and you’re not going to go to medical school if you get sick. You’re going to go and find a great doctor and somebody you trust, somebody that you think knows what they’re doing, but somebody you trust. It’s the same is true with a wealth advisor or a tax advisor or a legal advisor. Absolutely, you should be educated on the issues, but you’re probably not going to go get a law degree or get a CPA in the time that it’s going to take you to come up the curve and make some good decisions. It’s really about going hiring some good advisors that are around the table and can help you think through really all of the issues. Because many of these issues are just, they’re multifaceted. It’s why firms like mine exist, because we’re able to help our clients think 360 and solve for these blind spots, where it’s not just legal, not just tax, not just investment, but it’s really all of these issues at once.

Dave Wolcott:
Yeah, it’s, it’s the upstream, the downstream effect, right of making one chess move. How’s that going to impact something else? And having that visibility is key in my book, the holistic wealth strategy, we talked about that as basically building your own dream team, right. And it’s so hard to find great advice, especially when you’re talking about, you know, this whole world of you know, alternative wealth strategy, wealth building, right? That’s beyond, you know, your typical advice that’s kind of coming out of Wall Street. Because like you say, you need to look at things holistically. It includes the lifestyle. It includes health, right? It includes tax, right? All of these different components. But when you get it right, and it’s such a great analogy around cooking, you know, you get all of these right ingredients together, you know, the outcome, you know, can be just, you know, really elegant.

PK 🥋:
Yeah, for sure. Yeah, for sure. Yeah, it’s hiring the right advisors and then going slow. You know, you spent your whole life trying to, you know, earn these funds or, you know, you build a business and you have a big exit. There’s no rush. You know, of course, it’s easier to say today in 2023 where you can get 5% sitting in a bank account versus a few years ago where you felt like the money was burning a hole in your pocket. But it’s When you’re high net worth, ultra high net worth, you should not be trying to optimize to a benchmark. The S&P or whatever, it has no relevance to your life. You should be optimizing to sleeping at night and ensuring that you can sustain the lifestyle that you want. You can’t reach for return. Returns are really a function of what the markets give you. You really need to just kind of manage risk and manage liquidity is really what it comes down to.

Dave Wolcott:
Yeah.

PK 🥋:
So, and that’s easier said than done, but that’s really the goal.

Dave Wolcott:
Yeah, well said. And it’s, you know, I think it’s just so challenging in today’s world, right? Because it’s worse, it’s so reactionary, right? And if you’re, you’re running a business, you know, you’re working at a high stress job, right, it’s hard to really carve out that time to determine what is it that you really want to have in life, right? One of the exercises that, you know, we help clients with is, you know, talking about, you know, build 100, you know, your 100 list of things that you want to either be, do, have, right? And try to get some clarity on that because it can really be your guiding compass, right, in terms of how you achieve these things. And like you say, once you really kind of hit a certain threshold of wealth, making more money isn’t necessarily going to change your life, right? So what are those levers that actually can drive towards those things that are really meaningful to you and important to you?

PK 🥋:
Absolutely, absolutely.

Dave Wolcott:
So Paul, if you could give just one piece of advice to our listeners about how they could accelerate their wealth, what would it be?

PK 🥋:
That’s a good one. Maybe because I’m always thinking about the downside for my families and I kind of say I let the upside take care of itself. I tell folks all the time when they’re looking at investment opportunities, number one, don’t fall in love with any investment. It doesn’t love you back, so don’t fall in love with any investment. And number two, everything in life takes more money and more time than we think. And you need to think about that when you’re allocating capital, especially the earlier stage opportunities. You may be like, oh, I’m getting in at an amazing value each year. I should put all my, I should go all in. And the truth is everything’s going to take more money and more time than you think, so there’s going to be another bite of the apple, you know, a chance for another bite of the apple. And so I think it’s really about being kind of measured and ensuring that any of these investments you make, especially once you’ve made it, quote unquote made it, that it’s not going to materially impact your life. Negative or positive. You know, you don’t want the investment to be so small that it doesn’t move the needle, but you also don’t want it to be so large that you’re gonna have to think about going back to work.

Dave Wolcott:
Yeah, well said. Paul, really appreciate you coming on the show today and sharing your wisdom and sage advice with the audience. If people want to learn more about you or Twin Focus, what’s the best place they can connect?

PK 🥋:
You can go right to our newly launched website, just www.twinfocus.com. I think you’ll find it pretty informative and there’s a contact button there if you want to get in touch with us. So really appreciate that, Dave. Thanks for watching.

Dave Wolcott:
Awesome. Thanks again, Paul.

PK 🥋:
All right.

Jason Nees:
Yes, I mean, to that point, Dave, I mean, I think my first experience with kind of credit was at a subprime consumer company that I worked for a number of years where I was responsible for both bringing in capital, but also responsible for overseeing the delinquencies. But I got my real first taste for how the underwriting was done and how to manage a collections team and things of that nature. And it’s kind of what drew me to merchant cash advances in business. Merchant cash advances. as a industry that didn’t even exist 20 years ago, but is doing about 20 to $30 billion in this year. And there’s a very natural progressive reason for that is that it’s traditionally hard for banks to move quickly or as quickly as a small business actually needs. So starting my own business, I experienced this myself. If you think about a business that needs capital in a short period of time, there are many, many reasons why Getting a merchant cash advance while it costs a bit more is just a much better decision for the business than it is to wait three or four months to go through underwriting. And so we participate in merchant cash advances and do so in a very diversified way in that we’re participating on a platform that a number of other hedge funds or other institutions will participate in. Our credit funds will traditionally participate in five to 10% of any specific deal to provide that. diversification, but also to provide that kind of asymmetric upside where it’s an investment that has a high rate of return, but is spread out and diversified across a number of industries.

Dave Wolcott:
Yeah, no, I think the point that you make right about the industry, right? I mean, this was a really a nascent industry, right? That’s just been growing. You know, the combined annual growth rate is well over 15%, and continues to accelerate, you know, all of the issues with the banking crisis that happened earlier in the year, you know, just further propel, right, the business case for merchant cash advances. So You know, we expect as a sector that this is going to continue to develop. And, you know, as you rightly pointed out, I mean, you know, being a business owner, you realize like how important capital is, right? It’s the lifeblood to expanding a business. And, and that’s the type of capital that’s being lent, right? It’s it’s businesses that are growing. right? So, so they’re doing well, they have a proven model, they’re looking for additional capital to be able to scale their business. And if you go to a traditional bank, you know, it might take three to six months to actually get the funding if you can even get the funding. And in the meantime, you turn around, you know, cash advance, they’ve got the capital in a week. they start paying that back to investors pretty quickly. So I think it’s a really nice play for a couple of reasons. One, really nice diversification across asset classes, that you’re in something else. And then the risk mitigation in this is interesting as well. So tell us a little bit about the default rate and how that kind of works. What has it historically been and how does that work?

Jason Nees:
Yeah, so, you know, kind of historically, if you kind of look over the last five years, the default rate will run anywhere between, you know, five and six percent, sometimes a little cooler, sometimes a little hotter. That’s been the general average. You have to think about the fact that a business is repaying a loan kind of on a sometimes daily, weekly or bi-weekly basis. So you have a lot of factors playing in that you can see play out and you can see that if a business hits a… a road bump or a speed bump or something happens, we have the ability to adjust and say, okay, business, you have a week or two to kind of get your affairs if some one-time event happened, and then they get right back on track. And so to that point, from a delinquency standpoint, as soon as a payment may be having NSF, we have a third party team that immediately reaches out to the merchant. tries to identify what the issue is and figure out how to solve it. In some cases, it’s something silly, like they blocked a checking account from a large check coming in or something of that nature that can be easily quickly mitigated and got back on track. We’ve experienced a couple of those. But it’s the nature of lending is that so there will be delinquencies, they will be cured and things will default, but there is a reason why we’re mitigating risk and spreading that over a number of… merchant cash advances. And we deploy new money on a daily and weekly basis to continuously doing that and participate in the asset class. But obviously risk mitigation is very important to us and providing that and doing that in a reasonable fashion, making sure that they go through all of our underwriting criteria before we actually participate. All things are there to kind of protect the portfolio, the health of the portfolio, as well as protect the returns for our investors.

Dave Wolcott:
Yeah, so that’s a great segue. Why don’t we transition into just, you know, overall how you’re really analyzing investments. How are you mitigating risk? What are the things you’re looking for when you’re trying to identify opportunities?

Jason Nees:
I will tell you this is one of the more interesting markets that I’ve seen in a number of years. And I’ve, again, I’ve been watching the market in all facets for a number of years. And it’s a unique time in investing for us in that we’ve had interest rates rise kind of faster and higher than they ever have before. We’ve gone through a period where 13 years of near zero interest rates has suddenly just kind of been over. And so, you know, Dave, we get a number of deals that we look at on a weekly basis. And it is a tough environment in that when I even talk with other allocators, I hear the same phrase over and over again, I just can’t make this pencil. And so part of that is an adjustment in the market, I think, that cap rates will naturally start to go up as we go through this and there will be pockets of stress in the market. But doing that work of kind of… due diligence, so Pantheon has a 50-point due diligence kind of framework that we go through to analyze these deals and make sure we’re considering all the factors before we put capital to work. And I will tell you that of the ones that we’ve reviewed, most of them at this specific moment haven’t passed. But I have the fundamental belief that when you find yourself in a market like this, if you just continue to look for opportunities, there are opportunities out there. We just have to keep searching for them and keep doing the work behind it. There are good deals and there are good places to place capital.

Dave Wolcott:
Yeah, what would you say would be like, say your top three, if it’s a 50 point, you know, kind of cycle around due diligence points that you’re looking at, what would you say are some of the top three things that you look at?

Jason Nees:
Yeah, so I think it’s always very important, especially if you’re participating with another general partner is, you know, who is the actual sponsor and what is their track record? You know, kind of always the big red flag for me. If you’ve only got, you know, maybe one full cycle under your belt, you’re probably not going to be where I’m going to be looking to allocate capital. So track record is certainly important, but character is another one. I mean, obviously, if you’re entrusting somebody as an expert. having reliable references and investors who have successfully invested and participated with them is a big deal. And moving past that would go down to kind of the property as well as the debt structure. I would say debt structure today is more important than it’s been in the past. Again, with zero rates moving to five, five and a half, it makes for a different market. And so, you know, trying not to identify properties that aren’t in variable rates. with shorter timeframes because as we go through this period of adjustment of higher rates and cap rates come down and prices come down, it’s just a reset of expectations. And so what we’re really looking for is a margin of error for the unknowns that are going to happen in the next three, four or five years. I would look at it from the standpoint of kind of character analysis and track record, property specific and what’s the business case? Does it align with real? realistic expectations and overall debt structure. Does this financially work and make sense?

Dave Wolcott:
Yeah, for sure. And then in terms of, you know, other asset classes, do you see any other opportunities, right? So, you know, given the interest rates, right? You know, real estate multifamily has definitely been impacted, right? You know, based upon the interest rates, but any other sectors that, you know, have less exposure to interest rates or that, you know, you’ve been kind of tracking that look to be good asymmetric opportunities.

Jason Nees:
Yeah, I still keep an eye out for multifamily because as we progress through this, I expect to see some distressed assets that we may have an opportunity to pick up some bargains. But the same would apply in self-storage. There’s going to be some, as we look through, moving these interest rates from zero to five. For anybody who structured a deal that was over leverage, we may find some diamonds in a rough there. But I do think, you know, kind of self-storage as an asset class, car washes are a unique opportunity as well. I have a number of investors who kind of talk about different ATM funds. So as I start to look through them, some of them have all of the characteristics of the things that we typically look for in that upside value, that passive income, as well as the tax benefits. And so I do see opportunities out there. it’s again, it comes back to the overall structure and continuing to look at new and different asset classes because real estate is going through kind of a transition, but also because it’s important from a diversification standpoint to help our investors not be too over leveraged in any sec.

Dave Wolcott:
What would you say is your current take on the market? There’s just been so much kind of going on this year. It’s almost mind boggling, right, when you really think about all of the different, you know, from geopolitical events that are happening across the world, bipolarization, you know, rise in interest rates. I mean, just so many different things happening at the same time. How do you make sense of it all? And what would you say is your outlook for the remainder of the year going into 2024?

Jason Nees:
Yeah, so when it comes to the stock market, it is one of the most confounding things to me at this specific moment. And really, as the year progressed, I mean, if you looked at the start of the year, everybody was kind of universally bearish across the board. And the market just, you know, first half up 18%. You know, a lot’s been kind of speculated and talked about on kind of the big eight, the big eight stocks essentially driving the entire market higher. S&P would be flat to down if it weren’t for those eight specific stocks. It’s been talked about quite a lot. But, you know, one of the things that does confound me is that, you know, theoretically, as Fed rates move up, the risk premium generally for investing goes up. So your risk-free rate, which was zero, is now five and higher. But investors continue to plow money into the stock markets at very high elevations. You could take Nvidia, for example, you know, at the… to earnings that you pay for that. It would take 40 years at their current rate to actually get that money packets. And now again, the expectation is that the E part of that multiple of earnings goes up through AI and demand. But I see this at a lot of places in the market where the valuations just don’t make sense. So, I don’t have a favorable outlook for the latter half of the year. I don’t see the risk reward there. It seems more risk than potential reward on the upside. Historically, when we get to the end of kind of a zero market cycle, you’ll get a reversion to the mean. I may be wrong on the timeline, I may even be wrong on the direction, but that’s my personal outlook is that I think there are better, more efficient places to place your capital with less risk.

Dave Wolcott:
Yeah, good, good observations. You know, one of the things Jason, for me along my journey was, you know, you hear some good podcasts or some people talk about things, you kind of get some ideas, you get a little excited to take place in an opportunity or something. And, you know, there comes this point where you just kind of have to, you know, you can’t be in this mode of paralysis by analysis, right? You just have to kind of, you know, move forward. But one of those things that really helped me do that was just objectively looking at the numbers, right? And really trying to break down a particular investment and then compare that versus another investment and then make some assumptions based on your comfort level, based on your risk tolerance and what you think kind of works for you. And then when you do that, and you can kind of compare apples to apples, you know, for instance, when I exited my 401k, I thought it was really interesting to compare that against, you know, if I progressively invested in multifamily assets, you know, for a period of time, I would, I would reduce my taxes, I would increase my return. And then that return just becomes kind of exponential, right? With a compounding kind of over time. And I’ve been so excited to bring to investors in our mastermind and virtual family office community, the wealth strategy dashboard, right, which is essentially a software tool that helps investors make those types of decisions. So for instance, you know, if you’re looking to achieve, you know, your income exceeding your expenses and have that financial independence number, let’s say in 10 Okay, what’s the quickest way to get there? And then if I reallocate my portfolio from say an equities position to moving into maybe a combination of single family rentals and some syndications, how can I get there quicker? If I can reduce my taxes maybe by 10% by doing something particular, I can get there. But when you get that objectivity… you know, in the software and the calculator, and you can kind of see that, you know, then all of this stuff really starts to kind of materialize. So can you share with us, you know, some of your initial thoughts, especially, you know, as a prior financial planner and working through something like this to look at, you know, not only equities holdings, but other, you know, asset classes in your portfolio.

Jason Nees:
Yeah, great question. And I think it’s a very, very powerful tool that we created. It’s one of the first times I’ve ever come across a tool that says you can actually manage a whole number of investments, but put it into a holistic picture and get an idea of where you are today and make a plan for where you want to go. Again, being from the financial advisory side, you know, on that side of the business, you only get one half of the equation, and that’s stocks and bonds and maybe some mutual funds or ETFs, and that’s it. But if you wanted your financial advisor to evaluate your business or your rental properties, they don’t generally, those are line items on a financial plan. And it’s not even considered as far as does the value go up or rents going up? What is your passive income look like? It’s kind of left out of the equation. It’s just a frozen asset in time. where the wealth strategy dashboard provides a lot of value is that we realized that this is the real world where these valuations change. The passive income may increase from one month to the next higher than your projections. Your multiple on exits may move higher than what you were anticipating. So it’s a real world tool that allows you to see the adjustments but apply rational logic to how am I moving from here and how do I actually get here? If my goal is to 10x my wealth, I need a plan to start moving accordingly, but I need to see where I am in a full picture first. So I think that’s the power of the dashboard. And I think I know that it’s been useful. I’ve used it with a number of our clients already and have already started developing plans to kind of 10x their wealth and move them down that path. But it’s a concrete tool that allows you to visibly see it, but also track the performance as we go through.

Dave Wolcott:
Yeah. And I think so key in that too, is just really understanding people’s goals, right? Because you’ve got different goals. Everyone has different goals, right? But how can you track towards that and make incremental progress? Because if you want to get to some real exponential growth and you have really big goals, you know, it’s not going to happen overnight, right? When we want to really put a system in place and kind of have a methodology. to how you’re investing. And in fact, that’s why the majority of people lose money over time, right? Because of the emotion in it, and they’re changing course, midstream because of something’s happening in the market or in their life, versus if you have this strategy that’s outlined for the next 10, 20 years, you just keep building on that, right?

Jason Nees:
Absolutely. Yeah. Investing is a lot like a marathon. You don’t just run a couple 10Ks and expect to run a marathon. You’ve got to do that repetition and put in the work. And that wealth strategy dashboard is the one thing that can help kind of keep you disciplined and moving forward, but also celebrating your successes and being able to adapt and adjust to the market.

Dave Wolcott:
Yeah, 100%. So Jason, on a personal development perspective, what would you say has been the one practice that you’ve done that’s actually yielded the biggest results for you?

Jason Nees:
You know, this is probably not a popular answer, but I would say treating due diligence like a religion it’s the one thing that’s helped me to Avoid pitfalls for things that I was personally attached to that I really wanted to make something work and I didn’t really do it the times when I’ve done that in my life is usually when I’ve lost the first money. I was emotionally attached to something so I would say due diligence is one but also kind of having a fast filter to be able to know that these are my experiences and this is what I do understand, but I can look at something and make a snap judgment and probably have a higher than average probability of being successful. But again, it’s only by doing it over time. So those are probably my two big ones.

Dave Wolcott:
Yeah, great. And tell us, we have so many parents in the audience, right? And, you know, our children are our pride and joy. And, you know, you get out of them what you put into them, right? And, you know, family is really everything. And I know I had challenges, right? Having triplets, as everyone knows. But but I mean, tell the audience, you know, having a child with autism, you know, much must create some extraordinary challenges for you and your wife and the family and how you guys operate. So how have you been able to manage through that? And do you have any kind of strategies that you can help other listeners with?

Jason Nees:
Yeah, I mean, from a strategy standpoints for any parent with a child with special needs, planning is utmost importance. There are special rules for social security and how you navigate that for somebody with a disability. Financial planning, everything needs to be in trust. You need a team of special needs advisors to kind of help with that. And I think, I would say that very early on, it was probably something poor that I used to say. But one of the things I used to say to my wife is, you know, Some days when it’s really tough, I’m kind of thankful that I don’t have a choice in the matter because it forces you to kind of work through it and go through it rather than to, you know, maybe run off and hide. But it’s been interesting. I’ve learned far more from him than he’s probably learned from me. Patience, I’ve learned. So a lot of things.

Dave Wolcott:
Yeah, that’s, that’s awesome. Well, kudos to you, man. It takes a really courageous person to be able to do that. And you know, your wife must be a saint as well. And, you know, keep the family strong. That’s, that’s really awesome. So, so appreciate that. And then I guess, you know, final question for the audience is, if you could share just one piece of it light advice, you know, to listeners about how they could accelerate their own wealth journeys, what would it be?

Jason Nees:
action, take action, move forward every day and be better than you were the day before.

Dave Wolcott:
Yeah, awesome. Fourth phase, right in the holistic wealth strategy. Take take massive action, right to get there.

Jason Nees:
Absolutely.

Dave Wolcott:
Yeah. Awesome. Well, Jason, really appreciate you coming on the show today having the opportunity, you know, for listeners to get to know you and everything. And if people, you know, want to inquire more, kind of connect with you, what’s the best place they can reach out to you?

Jason Nees:
Yeah, so you can send me an email, go to PanteonInvest.com and you can find me there. You can reach me by email at jason at PanteonInvest.com. That would be the easiest way or just pick up the phone. My number is 913-961-4361.

Dave Wolcott:
Awesome. All right, guys. Thanks again for tuning in today. Really appreciate you spending your time with us. Please do us a favor if you’re getting value out of the show. Please go in give us a rating review. It really helps us amp up the level of guests. And we’ve got an awesome lineup for the rest of the year. But we continue to expand on that. So really appreciate your support there. And again, we’re always here. If you want to work through some well strategy on your own to take your game to the next level. Until next time, thanks again.

Dave Wolcott:
Hey guys, welcome to another episode of Well Strategy Secrets. Today we’re joined by Adam Carroll. Adam is a renowned financial literacy expert, celebrated author, and captivating speaker who has delivered over a thousand speaking engagements worldwide. With his thought-provoking TED Talks, which have amassed over six million views on YouTube, Adam has become a prominent figure in the field of finance. His groundbreaking documentary, Broke, Busted, and Disgusted, aired on CNBC and continues to be screened in numerous high schools and colleges nationwide, inspiring young minds to take control of their financial futures. Adam’s expertise extends beyond the stage as he is the visionary behind the Shred Method, a fintech company that empowers individuals and families to achieve remarkable debt freedom in their lives at exceptional speed. Adam, welcome to the show.

Adam Carroll:
Dave, thank you for having me. I’m super pumped to be here. And let me just first say thank you for your service to our country.

Dave Wolcott:
You bet. Uh, super appreciate that. Uh, really grateful for that, Adam, for sure. Um, I, you know, I think the folks are in for a treat, uh, today and, you know, a lot of what we talk about in terms of, you know, wealth strategy secrets and, and building wealth and preserving wealth. Um, a lot of this is around financial engineering, you know, if you kind of think about it, right. And, you know, I kind of come from the consulting background, so I always think about, you know, How do we solve problems, right? What are the problems? How can we look at different ways to do that? And in the world of finance, right, there’s all these different tactics and strategies that you can do that sometimes aren’t all necessary commonplace, right? People might not have necessarily heard about them. Their financial advisors aren’t really talking about them. So

Adam Carroll:
Yep.

Dave Wolcott:
really excited today to unpack the Shred method, understand that and other, pearls of wisdom that you can share with the audience. But before we jump into that, tell folks who aren’t familiar with you, tell us about your background, your story, and how did it start for you, Adam?

Adam Carroll:
Yeah, I love telling this story because I really tried to make my mess my message. And I was a debt statistic when I graduated from college. Having grown up in a household that it was sort of like the mindset and methodology was, well, we’ll figure it out. So we would go buy things and then little did I know my parents were putting that all on a credit card. And at the end of the year, there’d be this big ballooning credit card bill that would have to be paid off. And so when I graduated from college, I had $30,000,000 in student loans and eight grand in credit card debt. I was upside down on my car and I realized that was not where I wanted to be. Um, I happened to meet a woman my senior year in college who said, get rid of your debt or I’m going to get rid of you. And, um, we, we together learned all the lessons we needed to learn to blast away that debt in the first couple of years of marriage. And as you know, and can attest and probably teach your clients, it’s amazing what happens when you have a significant amount of discretionary income at the end of every month. And so we strove for that. And then once we got there, I realized, well, this is easier than most people think it is. I should go teach people how to do it. And so that was, oh gosh, in the early 2000s, Dave. And since then, I’ve presented on over a thousand stages. I’ve been a guest lecturer at over 700 colleges and universities. And my passion deep down is just helping people create freedom in their lives because I’ve gotten to experience so much of it in mine.

Dave Wolcott:
Yeah, I really love that. And, you know, that, that word freedom, this is really what it’s all about, right? If you kind of, if you go a little bit deeper on the things around, you know, financial, you know, financial independence, right? Getting to retire, all these things people talk about, right? I mean, isn’t retirement really is just having, you know, enough income coming in that you’ve got the time freedom to do what it is you want to do. You’ve

Adam Carroll:
Yeah.

Dave Wolcott:
got freedom of purpose. to spend the time how you want to. You’ve got freedom of relationship to choose who you want to be with, right? So totally agree with that. And it’s interesting that you had the courage as well at such a young age to go to that next level of teaching other people. Because if you really look at the trajectory, right, of learning a subject, you know, true mastery is actually teaching other people. So you

Adam Carroll:
Absolutely.

Dave Wolcott:
were really at the top of your game at that. And if turned that into a great career, so, you know, kudos to you for that. So it’s really cool. So tell us about, you know, what, what is your business look like today?

Adam Carroll:
Yeah, today I have a fairly even split between speaking and doing some consulting work. Largely, it’s in the line or the industry of financial education of some kind. So, candidly, this last year, 30% of my business has been in the ag industry. Don’t know where exactly that came from other than, you know, once you get into one kind of pool of business, other people hear about it and start. requesting you to come present. So I’m also in the Midwest. So there’s a lot of ag companies around. And this may not come as a surprise to anyone, but families everywhere are challenged by what they don’t know about money. And so we have folks who are striving to get ahead or striving to create wealth, but they may have been raised in a family that never talked about it. And so the core message for me when I get out and I speak is around What’s our psychology of money? How do we grow up? And did we grow up learning that money was abundant? Actually, it’s one of the most abundant things in the world. Because, I mean, candidly, they’re printing more of it every day. So all we have to do is figure out how to dip a teaspoon into the river of the $4 trillion a day that’s flowing through society, and we can become multi-multi-millionaires. Um, but we have to figure out what is that teaspoon for us? How do we find it? So about 50% of my business is speaking and consulting and about 50% of my time is spent building the shred method, which I’m sure we’ll get into. And this is a cashflow technique and technology that we leverage and help people leverage to create freedom, to pay down debt, but ultimately to create massive passive permanent streams of income. that allow them to do what you’re talking about, have money freedom, time freedom, relationship freedom, purpose freedom. So that’s kind of my world in a nutshell. And then we try and sprinkle a month or so of vacation in a year. And I’m a guy who really likes mini-retirements. So if I can get all four weeks in one lump sum, I can work for six months, go take four weeks off, and then come back and go, all right, let’s get after it. Because I’m refreshed and ready and… still purposeful about what I’m doing in my life.

Dave Wolcott:
Yeah, that’s excellent. Being able to reconnect with your vision and your purpose. And I just had the opportunity to take some time off with my family as well. And, um, it’s just so rejuvenating, right? To be able to, uh, unplug and it’s almost like putting on a different pair of glasses, right? When you

Adam Carroll:
Yes.

Dave Wolcott:
come back and now you can kind of see the world a little bit differently. You can reprioritize things. Um, you know, you, you just have this new level of thinking, which I think can be very powerful. especially in today’s world while we’re kind of inundated with, you know, being reactionary, right? There’s just so much information that’s coming at us, you know, but if, if we can actually unplug, we can actually scale and grow and learn, you know, a lot more. So that’s, that’s really cool that you’ve been able to do that. Um, before we jump into, uh, shred stuff, um, you know, what do you think is really the problem, right? At, at, at the root cause of this problem around financial education in this country.

Adam Carroll:
Well, it goes back to what you just said about how many messages are flying at us every day. I mean, I’ve heard that there are as many as five or six thousand marketing messages a day that we’re getting and many of them are subconscious or unconscious, right? It might be the ad we hear in the background on the radio or the series of ads. It could be on TV, it could be the internet, it could be the fact that Instagram is, you know, showing us what we, or what, what they believe we need to see in terms of the algorithm. But we’re getting those, whether we know it or not. And a guy that I used to work for, he would call any kind of digital distraction device, mental chewing gum. So whether it was the radio, the TV, the internet, social media, he’s like, it’s just digital. It’s just mental chewing gum. They’re just giving you something that to chomp on and distract you. And a friend of mine was a Silicon Valley entrepreneur and he sort of affirmed this idea and said, when we build an app, if you are distracted, we win. That’s what our goal is, is to distract you. And so I think from, to answer your question about what is the problem with financial education is that people are counting on the ads they’re seeing as practical financial advice. And if you trust the ads, the ads are telling you debt is normal, natural, and good. Go into debt, drive as big a vehicle as you can, as much house as you can afford. Uh, keep up with the Joneses, take lavish vacations. Instagram itself celebrates rich lifestyles, but as you and I both know, most of those are probably either borrowed to pay for, or they’re fake. There are people who are renting the jets and the Ferraris and all those things posting. their first class life, when in reality, we’re seeing the highlight reel, not the behind the scenes. And so I think from my perspective, one of the things that’s really set my family and I and our clients apart is we tell them, hey, look critically at the messages that you’re getting from the world. Look critically at what the bank sends you, at your banker’s desire to see you do well, right? Banks, I’m seeing pop up all over my neighborhood. and you can’t drive a two mile radius around my house without hitting a $10 million bank building. And they’re building them constantly all around me. And so I kept questioning that, like if the banks are able to afford brand new $10 million buildings and it takes them years to be profitable, what is, who is paying for it? And the answer is us. And what did they know that we don’t? And if we start digging into that, Maybe we can flip the script and start acting like a bank, like our own bank, and creating the kind of wealth that most banks enjoy. So deep down, a simple answer to your question is the messages that we’re getting are not intended for us to be wealthy. They’re intended to keep us deeply mired in debt.

Dave Wolcott:
Yeah. Now, I really love the whole psychology of money. I think a lot of people just don’t really spend enough time kind of thinking about it. And then like you say, we get pulled in different directions, right? It becomes aspirational that we’ve got to go get that new car or whatever it is, that thing

Adam Carroll:
Yep.

Dave Wolcott:
that you’re looking for. So as part of our wealth strategy and part of our framework in the book, you know, we always talk about creating your vision first. You know, what does

Adam Carroll:
Yes.

Dave Wolcott:
that vision look like? for you, right? Because it could be, you know, having more time to spend with your loved ones, right? It might

Adam Carroll:
Right.

Dave Wolcott:
literally be that simple. And it doesn’t even

Adam Carroll:
Yeah.

Dave Wolcott:
really take much money to actually get there. But what

Adam Carroll:
Totally.

Dave Wolcott:
steps are you taking today, you know, to be able to put that into place. So I think that the

Adam Carroll:
Yeah.

Dave Wolcott:
vision and understanding your target is a really key place to start. And then there’s also this other aspect that I found that I kind of encapsulate in the book as well around that is You know, there’s, there’s elements, you know, you pointed out, right? Like limiting beliefs. I mean, I grew up as well where, you know, there’s starving children in Africa. You’re going to eat every scrap of things on your table. Uh,

Adam Carroll:
Yes.

Dave Wolcott:
we were vegetarian because we couldn’t afford to buy meat at the grocery store.

Adam Carroll:
Right?

Dave Wolcott:
Right. You know, all of these different things. Um, that just kind of get drilled into your head, right? So,

Adam Carroll:
Yep.

Dave Wolcott:
so it’s, you know, you’re now in this scarcity mindset, you know, versus an abundance mindset. And

Adam Carroll:
Yep.

Dave Wolcott:
it takes some time to be able to, to really kind of, you know, assimilate that and then figure out how can I, you know, how can I bridge right to the other side

Adam Carroll:
No doubt.

Dave Wolcott:
and, and see the right examples. And the other thing I’ll say as well, Adam, that’s just so important with all of this. It’s mindset. Right. I mean, what is the difference between certain people like, you know, Elon Musk, Steve jobs, I mean, you know, these, these big prolific entrepreneurs, right. Who are taking on the world and the people, let’s say you went to high school with who are in the same town, same circle of friends, same

Adam Carroll:
Yeah.

Dave Wolcott:
job for the past

Adam Carroll:
Yep.

Dave Wolcott:
20, 30 years, what is the difference?

Adam Carroll:
Right.

Dave Wolcott:
Right. I think it’s mindset.

Adam Carroll:
Absolutely. To that end, Dave, I want to add that a story that supports what you’re saying is that a friend of mine grew up in a household where the logic and the narrative was, well, we’ll never have a lot of money, so we might as well spend it now because we’re never going to have a lot of money, so we might as well spend it now. If you grew up hearing that, or in your case, if it was, we are vegetarians by need, not by desire. What happens is people will fill in whatever lack they’re experiencing, whether it’s, you know, there’s insecurity around housing, there could be insecurity around food, there could be insecurity around education. And so what they’ll do is they’ll fill that in first. And it’s an interesting kind of psychological experience or observation. When you see someone who is who is in poverty or trying to get out of poverty. But as soon as they have a little bit of money, they fill their pantry or they prepay their car payment for X number of months. And I always know what it is. It’s like, well, this was an insecurity you had at some point that you’re just filling in. The idea that mindset of what it is you’re after is an interesting one. And the vision, your comment about vision is 100% spot on. I believe that people underestimate, I’m sorry, they overestimate what can be done in one year. but they underestimate what could be done in three years because most of us could achieve some level of financial freedom or security within three years if we truly set our mind to it. And when you see other people do it, you go, oh, that’s possible. But when you’re surrounding yourself with people who are saying, well, we’ll never have a lot of money, might as well spend it now, it’s hard to fathom that kind of thing is even possible. And it’s, I mean, in all honesty, it’s why I love shows like yours. because it exposes people who are willing to listen to these stories. It exposes them to the fact that it is possible to change your state financially in short order, but you got to change your mindset first.

Dave Wolcott:
Yeah, 100%. So let’s jump into the shred method. Tell us what it is, how did you develop this, and let’s peel back the onion on this one.

Adam Carroll:
Yeah, this is one of the favorite, one of my favorite things to talk about because of the difference that it made in my life. And then as I started sharing the method with other people, just how many success stories we found. It goes back Dave a little bit to in 2009, it was one of the coldest winters on record in Iowa. And we just had snowfall after snowfall after snowfall. My wife and I were living in a home that was about 16 or 1700 square feet, but about 800 square feet of that was unusable because it was so frigid. It was a split foyer. So you’d go half upstairs, half downstairs. And the part downstairs was so cold. Literally, I’d have to have space heaters on in an office down there all day long to work. And it just wasn’t usable space. While we had three kids, we were just bursting at the seams. And I said to my wife, we have to find someplace else to live. And so I drove around through a neighborhood that I thought I’d never be able to afford, found a house that we loved and we made an offer. It was accepted and they allowed us to rent back because our home sold relatively quickly. So we moved into this house, had not closed on the mortgage yet and we’re settling in feeling very grateful that we’re in this house, plenty of room for the kids to play and spread out. And I was in a business where the income wasn’t I mean, I had a very creative tax person at the time, let’s put it that way. And so I was making money, but it didn’t look like all my taxes that I made that much. And the underwriters were having an issue with me getting approved on this loan. And my wife one night was crying in bed and she’s like, they’re going to make us move out Adam. They’re going to make us move out. And the next day I swallowed my pride, called my father-in-law and said, would you be willing to co-sign on a loan with us? And graciously, he did. Uh, we closed on the loan, but it was in his name and my wife’s name. I wasn’t even on it. And I vowed to myself in that moment, I would never be in this situation again. That number one, we would figure out how to verify income so we could get, uh, I could get qualified. And secondly, I never wanted to be in the situation where I was asking someone to either vouch for me or ask for money. And it was about six months later, I was introduced to the Shred Method, Dave. And essentially the model, the method itself is widely known. There are a lot of different versions of this, if you will, out in the public. What we’ve done is we have taken the software that powers the algorithm and made it very, very user friendly for people to just follow the prompts, do what the system tells you to do, and you’ll be out of debt. in serious equity and then leveraging that into other investments in no time. And so fast forward, nine months, I got qualified. My name was on the loan, my wife and I’s name on it. And that was in around late 2010. By 2012, September of 2012, on my birthday, I made the final payment on the mortgage of $260,000. So we had blasted away 260 grand in debt, saving about, I don’t know, it was close to $180,000 to $200,000 in interest over those years, right? Extrapolated over 30 years’ time. But that’s money that we weren’t sending to the bank. It was money that started accumulating in our accounts. And we were realizing the power of having an extra $2,000 a month, not making that mortgage payment and started figuring out what do we do with this now? How do we start creating? just massive passive permanent streams of income. So that’s a little bit about the origin. And since then we’ve shared it with thousands of people. We have hundreds of shredders using the system and we’ve probably had close to, well, dozens at this point, close to a hundred people that have either paid off their home or nearly paid off their home since they’ve started working with us.

Dave Wolcott:
That’s awesome. Can you give us an example of how that works?

Adam Carroll:
Yeah. So the best example is almost a metaphor. Um, so I asked this question of a lot of people, Dave, when we first started working with them. So play along with me, if you would, if, if you got up on a Saturday morning in Sarasota and you drove to the grocery store and you knew that you’re going to go home, take the groceries in, but you had to go back to the post office. It was probably going to be three, four or five hours before you went. Would you leave your car idling in your driveway during those four or five hours? You wouldn’t. Why would you not?

Dave Wolcott:
uh, to save on the environment, to save on energy. And then that probably goes back to, yeah, the way I was raised, you know, everything was about efficiency. Um, so.

Adam Carroll:
Exactly. So efficiency, we have care for the environment. It’s crazy to leave a car idling that long. Someone might steal it. In Iowa, someone would take it and get it washed and then bring it back and park it in your driveway. That’s how that works here. But what most people do with their paycheck, Dave, is the money gets deposited in checking and it sits there for days or weeks and sometimes months on end. Little by little, it’s drawn down with debit card transactions and ACH transactions. But nine times out of 10, when I talk to individuals, particularly high income individuals, and I say, do you have a significant amount of money just sitting idle in an account? And they’ll say, well, yeah, it’s my emergency fund or it’s this fund or that fund, sinking funds, vacation funds, whatever it may be. And I say, do you have amortized debt hanging out there? Well, yeah, of course I do. I’ll always have a mortgage or I’ll always have a car loan or whatever. And I’ll say, what if there were a way that you could create a maximum amount of efficiency where you could get rid of all those debts, not change your spending one IOTA, but leverage the system like a bank would to save yourself tens and most cases, hundreds of thousands of dollars in interest. And they go no brainer. It’s an absolute no brainer. The difference is. that we’re not taught to do this by the bank because number one, the bank wants us in debt. They want car loans,

Dave Wolcott:
Yeah,

Adam Carroll:
they

Dave Wolcott:
for

Adam Carroll:
want

Dave Wolcott:
sure.

Adam Carroll:
mortgages. We are their compound interest vehicle. Secondly, it is an asset for them to have that loan on the books and it’s a liability to have money in a checking account or a savings account for the lender. But know this, that the money that we put in checking savings money markets, That is what affords the bank the ability to go out and lend the way they do. So when you see a bank say, Hey, we’re increasing our CD rates or we’re increasing our money market rates. What they’re doing is saying we need more liquidity so that we can turn around and lend it out because we have a lot of loans coming in and we go, Ooh, yay. I’m making 4% on my money market account. And they’re saying, this is awesome. This person just put 50 grand in a money market account. and we’re going to turn around and loan out $500,000 on that 50 grand. It’s called fractional reserve banking. And so when you understand that, you realize that having money just sitting idle in an account is incredibly inefficient. And what we actually want is available or accessible money, but it doesn’t need to be money sitting there insured by NCUA or FDIC, right? That’s their benefit. That’s not necessarily to our benefit. And so we teach people how to alter their cash flow where the income comes in. It goes into a simple line of credit. The software calculates how much is coming in, how much is going out. And then it says, based on these interest rates, send a lump sum of, I’ll create a number, $7,258.36 to your mortgage on this month. And when you do this month after month after month, you’re actually accelerating the amortization table of your mortgage by years, decades. And so the average American today could be out of their mortgage within three to seven years depending on the level of their debt and the level of their discretionary income.

Dave Wolcott:
Hmm. But so let’s say you’ve got this predetermined amount that you’re going to pay towards the mortgage, a car loan or whatever it is. But

Adam Carroll:
Mm-hmm.

Dave Wolcott:
let’s say if it was sitting in your checking account, it might have been allocated for something. You know, you knew you had, let’s say a vacation or medical expenses

Adam Carroll:
Yes.

Dave Wolcott:
coming up within the next 90 days. Let’s call it a quarterly basis. And so you’re kind of trying to manage cash flow. So is that reducing? you know, your flexibility to have that liquidity for cash flow or how does that work?

Adam Carroll:
Yeah, great question. And what I heard in your question is what if you are earmarking funds for future travel or car repairs or what have you, right? The reality in our world from our perspective with Shred is that line of credit that you’re taking out in our case, we tend to direct people, excuse me, to a HELOC, a home equity line of credit, it’s usually the easiest to get. But it could be a personal line of credit, a PLOC, could be a BLOC, a business line of credit. or it could be a cash value line of credit that is taken against whatever the cash value and a life insurance policy is. And so we’re deciding what that might be based on the lowest interest rate available. And in many cases, it’s going to be a HELOC or a CVLOC, a cash value line of credit. The way we look at the line of credit, Dave, is it is a liquidity pool. So it would be no different than $5,000 sitting in a… money market account waiting to be spent on a Hawaiian vacation and $5,000 that’s put against your mortgage but available in that line of credit when you need it. And candidly, the five grand sitting in a money market account might make you, I mean, call it three and a half or 4% on the high end, right, on an annual basis. But if you dropped five grand on your $400,000 mortgage, what it’s going to do is it’s going to shave five or six months of payments. off of your mortgage and five or six months of payments might equate to thousands or tens of thousands of dollars in interest that you would have otherwise paid against your mortgage.

Dave Wolcott:
Yep.

Adam Carroll:
So we tend to say, this is another metaphor analogy question we’ll ask. If you wanted to borrow a hundred dollars from me and it would cost you five dollars, but you knew it would save you $2,000 on the backend, would you do that? Would you pay five dollars in simple interest to borrow a hundred? If you knew it, it’d save you 2000. And most people would say all day, every day.

Dave Wolcott:
Yeah, so here’s another question for you. Right. So our audience is very sophisticated, right? A high net worth, ultra high net worth investors. We understand that debt, I mean, debt can be a double edged sword, right? It

Adam Carroll:
Yep.

Dave Wolcott:
can actually accelerate failure, right? And, and real estate or certain things that people get over leverage. And

Adam Carroll:
Indeed.

Dave Wolcott:
then, you know, to your point, right, you know, it can kind of reduce. your liabilities, right? And you can shorten those times, freeing up cash flow and such. But

Adam Carroll:
correct.

Dave Wolcott:
let’s compare that to an investment, right? So let’s say you can make 15 to 20% on a particular investment. And my deployment cost is whatever the rates are, 6, 7%. You know, so

Adam Carroll:
Yep.

Dave Wolcott:
does it completely make sense to allocate towards, you know, reducing that mortgage when

Adam Carroll:
Right.

Dave Wolcott:
on the other side, right, I might be able to make 20% on

Adam Carroll:
Yes.

Dave Wolcott:
that money.

Adam Carroll:
It is not an either or in my opinion. It’s a both and situation

Dave Wolcott:
Okay.

Adam Carroll:
And and the reason for that dave is I don’t disagree at all that some people who say Yeah, but I could make more if I deployed that money elsewhere And I and I would say wholeheartedly. I agree with that However, there is some amount of discretionary income that’s still flowing through your household

Dave Wolcott:
Mm-hmm.

Adam Carroll:
that for most people particularly the affluent right that are or a high income earning family. If you’re a six figure or high six figure earner, it’s not like you’re living right up to the line. Hopefully you’re not living right up to the line every month.

Dave Wolcott:
Right.

Adam Carroll:
There’s some amount of money that’s going somewhere and it’s probably just being like, there’s always 10 or 20 or 30 grand sitting in an account somewhere.

Dave Wolcott:
Yeah.

Adam Carroll:
That is the money that if I said, well, let’s flip a switch on efficiency and just begin shredding some of these loans that you have.

Dave Wolcott:
Yeah.

Adam Carroll:
What we’ll do is in this moment right now where we’re at in 2023, we’ll take a six or six and a half percent interest rate mortgage down to about a point and a half as the effective APR. And when people tell me, you know, even a three percent mortgage rate, when they go, this is the cheapest money I’ll ever have, why would I ever pay this off? What I often will tell them is because the effective APR that we can give you in a matter of 24 months in most cases is like 0.6. on 3% because of how fast we’re paying

Dave Wolcott:
Yeah.

Adam Carroll:
it down or off. And then this is a secret and this is one of the, I hesitate to even share it because it’s one of our secret sauce in our system. But we give people a strategy of, okay, so you’ve bought a, and let’s take an extreme example, you’ve bought a million dollar home. You’ve got a mortgage payment on that million dollar home that Maybe at this point in time, it’s $8,000 a month or 8,500 a month, nine grand, whatever it may be. Let’s say it’s 8,000. And not that it’s a stretch necessarily, but it’s a burden. I mean, eight grand a month, eight grand a month, right? And over the course of a year, out of that 8,000, 6,000 of it a month’s going to interest. So that’s $72,000 a year that you’re sending to your banker, not keeping for yourself or building equity with. So there’s a little bit of a misnomer when we go, oh, well, the interest rate’s 3%. That’s super cheap money. Well, it is, but on a million dollars, it’s not like that’s $30,000. It’s all of that upfront amortized on the front end of that mortgage. You know this

Dave Wolcott:
Yeah.

Adam Carroll:
as a finance guy, when you look at a 30-year fixed mortgage, the first 10 years are like the red light in a traffic stoplight. And the next 10 years are yellow, and the third 10 are green. And that reflects how much principal you’re paying down. So if in 18 to 24 months, we could go from red to green on your mortgage. And you went from a million to let’s say 600,000 or 500,000. And at that point you recast the mortgage, not refinanced, but recast it. In which case you would say, Hey, I owed a million over 30 years. Now I only owe 500,000 on 28 years. What would my payment be? And the lender will say, oh, based on that, your payment’s going to be $3,685. And you go, oh, well, that’s way easier than eight grand a month. And now I can afford to go buy a rental property or my second home or whatever. So, and you’ve got the equity in that property that you can leverage however you see fit with that line of credit. So if you want to borrow it six or 7% and deploy it at 15 or 20, by all means, do that.

Dave Wolcott:
Yeah.

Adam Carroll:
because the majority of your payments going to principal anyway on your primary mortgage. Does

Dave Wolcott:
Yeah, love it.

Adam Carroll:
that make sense?

Dave Wolcott:
So yeah, totally. So we’re basically what you’re talking about. It’s, it’s really efficiency and velocity, right?

Adam Carroll:
Yes.

Dave Wolcott:
With your existing capital. And, um, I mean, I think this is such an important, uh, point for people, not only in your personal economy, uh, but also in businesses, right? As, uh, as a business owner, right? You’re always keeping cash on hand for operational expenses, certain things that you have. Um, but you know, there’s a lot of lazy cash, right? That’s sitting

Adam Carroll:
Yes.

Dave Wolcott:
in there. You’re

Adam Carroll:
Totally.

Dave Wolcott:
paying for that liquidity. So if you could, I’m assuming you can do this in the same example of the business. Let’s say you have, you’ve purchased equipment or you purchased vehicles, right?

Adam Carroll:
Yeah.

Dave Wolcott:
But

Adam Carroll:
Right. Okay.

Dave Wolcott:
you’re keeping 90 days on hand for capital

Adam Carroll:
So, we’re

Dave Wolcott:
and

Adam Carroll:
going

Dave Wolcott:
maybe

Adam Carroll:
to

Dave Wolcott:
you only need 30 to 45.

Adam Carroll:
go ahead and

Dave Wolcott:
You

Adam Carroll:
start

Dave Wolcott:
could

Adam Carroll:
the next one.

Dave Wolcott:
much more efficiently manage that. Is that fair?

Adam Carroll:
You are absolutely correct in that. And we work with business owners all the time where we are trying to help them manage and strategize their equity and their debt, because many of them will be sitting on, you know, again, three months, six months, whatever the proclivity of the owner is all the while they are at the early stages of amortized debt or paying off

Dave Wolcott:
Right.

Adam Carroll:
equipment or whatever it might be. And we can show them. you know, in a matter of months, you could knock that down and not really have any threat of liquidity in the grand scheme of things. So there is a question we often ask, which is, you know, let’s look at your accounts receivable. What’s the aging report look like? Are your clients paying on time? Then do you really need X amount when you’ve got six months in accounts receivable coming in six months worth of expenses? You’ve got three to six months in the bank. And then you’ve got all this debt that you’re trying to pay down. What if we just re-engineered that a little bit and you chomp through the debt in no time, how much extra cashflow could you create? And, um, most business owners are shocked by the numbers they see.

Dave Wolcott:
Yeah, I’m sure. You know, it’s interesting. I mean, having run four different businesses now over the past 15 plus years, you know, I’ve always struggled with, you know, how do you manage cashflow, right? And then that

Adam Carroll:
Yep.

Dave Wolcott:
ties into your personal economy as well. And it does come into efficiency, and that’s what always drives me crazy. Now, You know, we’ve been a big proponent. We have a lot of investors using the infinite banking, cash

Adam Carroll:
Yes.

Dave Wolcott:
value, whole life insurance, which is a great way to get a multiplier on your capital. So you can,

Adam Carroll:
Confirm.

Dave Wolcott:
you can get some of that efficiency going. You still have the liquidity.

Adam Carroll:
Indeed.

Dave Wolcott:
It’s compounding tax free and everything. Um,

Adam Carroll:
Yep.

Dave Wolcott:
but it looks, if I’m understanding what you’re saying is that You know, this can be a complete amplifier. So you could use your cash value life insurance policy as the store of capital,

Adam Carroll:
Yep.

Dave Wolcott:
but then you just start making allocation decisions towards some of your debt payments, you know, based upon some of the algorithms, um, to really reduce that debt quickly and free up cash flow.

Adam Carroll:
You nailed it. You nailed it. And furthermore, for most people that are being pitched, and I say pitched loosely, being presented an insurance product, there are a lot of agencies out there that will say, well, it’s only $3,000 or $5,000 a month to put into this premium, or they’ll do a quarterly premium or semi-year premium. I prefer, and we tend to coach our clients on, it’s a once a year premium. 25, 50 grand, 100 grand at a time, because it’s coming out of your HELOC anyway, or your line of credit. And because of the cashflow tool that we’re creating, your income cycling through that line of credit. So though we ramp up the balance right away, over time, it’s just trending down. So the interest expense on it is negligible. It doesn’t feel like a big burden. And automatically in your policy, you’re creating a compound interest effect quickly,

Dave Wolcott:
Yeah.

Adam Carroll:
because the key, as you know, um, in infinite banking is we want to get to compound interest velocity as quickly as humanly possible. And so that means if you’re making four and a half, five and a half percent on a hundred grand, 200 grand, 500 grand, a million, the faster we can do that, the better. And with shred, what happens is folks who normally would say, well, 50 grand is kind of a stretch. They use shred for six months, 12 months, 18 months. They go, this is a no brainer. I would put 50 grand in here. every six months if I could.

Dave Wolcott:
Yeah.

Adam Carroll:
And then you realize really the power of that, and I’m sure you share this with your clients, but when you begin to realize you have buckets of money that are available to you to put into investments that can make way higher than the S&P 500 index averages, we’re talking 12, 15, 20, some cases 30% returns, and you have no payment on the money you’re putting in there. because you’re borrowing against a policy that doesn’t require a payment. To your point, we’re just stacking

Dave Wolcott:
Yeah.

Adam Carroll:
efficiency and productivity

Dave Wolcott:
It’s

Adam Carroll:
and

Dave Wolcott:
a

Adam Carroll:
it’s

Dave Wolcott:
complete

Adam Carroll:
like

Dave Wolcott:
snowball

Adam Carroll:
putting nitrous

Dave Wolcott:
effect,

Adam Carroll:
oxide in your

Dave Wolcott:
Adam. Yeah, absolutely.

Adam Carroll:
gas tank. Yeah,

Dave Wolcott:
And

Adam Carroll:
you just

Dave Wolcott:
we,

Adam Carroll:
put nitrous oxide in your gas tank.

Dave Wolcott:
yeah, we, we’ve helped clients. We, we built some calculators out and we’ve actually, we’re developing a software product right now, uh, which is a wealth strategy dashboard. But when you start to look at it as like a CFO would, and you’re looking at your financial view, and then you start looking at these things, you know, over time, over a 20 year period. And as you like to buy, I love that multiple permanent streams of income,

Adam Carroll:
Yeah.

Dave Wolcott:
while you’re reducing, you know, your debt, right, that you burden that you have, that yeah, the snowball effect is absolutely exponential. And I think I heard you on another show give out a quote around Warren Buffett, which was, which was really fascinating. I hadn’t heard that before. The, his 5 billion. Can

Adam Carroll:
Yeah.

Dave Wolcott:
you remember that?

Adam Carroll:
He at 65 Warren Buffett was worth $5 billion. And at 85, he’s worth something like 85 or $100 billion. So the majority of his wealth, 12 times what he was at 65, he’s now at 85. And the idea and this I think this is a Warren Buffettism, but the idea is to get to compound interest velocity as fast as possible.

Dave Wolcott:
Yeah.

Adam Carroll:
And and what that means for Again, this goes back to mindset a little bit, Dave, is that if our goal in making money and being mass affluent is like, I want all the stuff, you’re missing the point. The idea is have the stuff, but have plenty of money left over to begin to get to this point where the money makes far more than you do. I used to going back in time, I read a book, I’m sure you’ve read it or have it on your bookshelf, The Four Hour Workweek by Tim

Dave Wolcott:
sure.

Adam Carroll:
Ferriss. When I read that book, The question that I kept asking myself was, how do I make as much money in an hour as most people make in a month or a year? The answer that kept coming back was public speaking because if I can go present and make 2,500, five grand, 10 grand, 15, 20 grand in an hour, I’m going to do that. Over time, things have continually tracked higher and higher in terms of income on that front. I still have to travel. I still have to be away from my family and go do that. So what would it take to make that kind of money without any work at all? What would it require? How much either would I need to invest? What kind of deals am I finding to get there? And I encourage your listeners to think through that. Not, oh, how much less could I work to make this? But what would it take for you to not work at all and still be able to live at a lifestyle that you want to live at? Is it 10 grand a month, 20 grand a month? And now you just have to put the machine in place, if you will,

Dave Wolcott:
to get

Adam Carroll:
to

Dave Wolcott:
there.

Adam Carroll:
churn that money

Dave Wolcott:
Yeah.

Adam Carroll:
out. And we, you know, going back to the vacation conversation earlier, we spent two weeks in Italy and a couple of weeks in Hawaii recently. And as I was there, I’m listening to podcasts and reading books and just, again, disconnecting, but thinking at a high level of what I want. And I saw this video and someone said, pretty comfortably anywhere in the world on 10 grand a month. And 10 grand a month, wherever you’re coming from at this angle, it’s not that difficult to create $10,000 in recurring passive income. There are methods and ways of doing that. And if that’s what you’re focused on, you could have it in no time.

Dave Wolcott:
Yeah.

Adam Carroll:
So this is where our mindset is today and where we’re trying to. kind of bring people to is, you know, what’s the vision, how much does it cost? Let’s get to creating it and get you to that lifestyle as fast as possible.

Dave Wolcott:
Yeah, totally agree, Adam. And one thing that I really love about this, and I think all the listeners can really take advantage of this is this is low hanging fruit, right? Even if you’re not an accredited investor, wherever you are, you know, our kids in our twenties, wherever you are on your trajectory, this is completely

Adam Carroll:
Yeah.

Dave Wolcott:
low hanging fruit that you can take advantage of and reposition. right, to drive

Adam Carroll:
Yes.

Dave Wolcott:
greater efficiency, right, to really kind of accelerate your wealth. So I think that’s awesome. And, you know, my mind is really lighting up with use cases here. Like there’s so many good use cases for our audience. So one, folks out there who’ve got short term rentals, Airbnb, single family rentals, right, you could apply this to them, right? So you’re

Adam Carroll:
All the way.

Dave Wolcott:
reducing, you know, the… to debt on those. You can do it with obviously your own home, as we talked about, the mortgage or any of those kinds of liabilities,

Adam Carroll:
Yeah.

Dave Wolcott:
potential college payments, any of those kinds of things that you can do. And

Adam Carroll:
End

Dave Wolcott:
then

Adam Carroll:
of the.

Dave Wolcott:
in your business, like we talked about, having more efficiency and managing that liquidity. And then also just this way to really magnify the results of your cash value life insurance policy and kind of put it on steroids, I would think,

Adam Carroll:
Yeah.

Dave Wolcott:
by doing this. So really, really fantastic ideas here.

Adam Carroll:
I want to touch on one of those you said, and that’s the short term rental and somebody who has some properties. What we find when we work with real estate investors is they’ll say, well, I’m just stockpiling cash waiting for the next opportunity. And if you think about this, what they’re doing in stockpiling cash is they’re creating this liquid but non-efficient pool of money. And you would still have access to the funds if you’re paying down that debt over time using shred as you wait for the next deal. But then you’d have access to the capital, the equity that you’re creating in that property by having a line of credit on it. So to your point, this is low hanging fruit, no matter what you’re doing, even doing it for three to six months, 12 months, you are going to be years ahead of where you would be otherwise. And so when folks start to see the And they go, Oh, I don’t have to lock into this for seven years. I need to do it for a period of time to achieve the goal I’m after. Um, though I will tell you that for my wife and I, this is a lifestyle. We will never not use a shred method technique where money’s going into a line of credit because there is always money being deployed about every two to three months, there’ll be tens of thousands of dollars that goes out somewhere. because some is always coming back in. And I know you know this, you teach your clients this, but if you’re in a syndication and it’s a three or four year syndication, that money’s coming back in. It needs to have somewhere to go

Dave Wolcott:
Yeah,

Adam Carroll:
when it comes back in.

Dave Wolcott:
yeah, exactly.

Adam Carroll:
And with Shred, you start to do that. This flywheel is just like always, always moving. And I don’t mean to make this seem simpler than it is. but it becomes like a video game that you can’t lose.

Dave Wolcott:
Right.

Adam Carroll:
You remember playing Nintendo and

Dave Wolcott:
Yeah.

Adam Carroll:
the cheat codes on Nintendo?

Dave Wolcott:
No,

Adam Carroll:
This

Dave Wolcott:
it’s

Adam Carroll:
is the

Dave Wolcott:
a

Adam Carroll:
cheat

Dave Wolcott:
rinse

Adam Carroll:
code.

Dave Wolcott:
and repeat strategy for sure. Right. I mean, once you get your head around some of these things, it’s, it’s not really that complex. You just need to take action, right. And actually get involved. You start to see the results for yourself. It’s the same with, you know, investing in alternatives and real estate, right. You start to see the

Adam Carroll:
Right.

Dave Wolcott:
results and then you say, wow, you know, let me now extrapolate this. And I think we could do a lot better than. than we were doing.

Adam Carroll:
Indeed.

Dave Wolcott:
Yeah. Awesome stuff, Adam. If you could give listeners just one piece of advice about how they could accelerate their wealth trajectory, what would that be?

Adam Carroll:
I’m going to go ahead and turn it off. If I were to give one piece of advice about how to accelerate your wealth trajectory, it would be, and this is, this is proven true in my life. It is the very first thing you invest in is yourself. So take the courses, uh, buy the class, go to, you know, go grab the book and study it intently. Um, and I say that with a bit of an example, I, I was a huge fan. I’m still, I am a fan. of Phil Town who wrote rule one investing and payback time. And I opted to go to Phil Town’s program and watched him sort of dissect what he was doing in the market. And obviously he’s an equities guy. So there’s a portion of our wealth building plan that is in equities, but in watching him do what he did, he was dissecting Chipotle Mexican Grill at the time. And he said, this is a six or $700 a share company. And it was about $300 a share at the time. And I’m sitting here going, this is a burrito company, dude. How is this six or $700 a share? And he said, all of the metrics, you know, meet this out that this should be a six or $700. His whole mentality is that if you can buy a dollar for 50 cents, you’ll never ever lose money. And so he’s looking for those deals. How do you buy a dollar for 50 cents? And today, if you look at CMG, Chipotle Mexican Grill, it’s at 13 or $1,400 a share. And that day, he bought 10,000 shares of Chipotle Mexican Grill at $300 a share. And we are all watching him do it, kind of like, this is a huge bet. And it clearly paid off. Now this is a guy I followed and studied. And I think that is the piece of advice simply stated, is find the experts. that you want to either live by or live like, or that you appreciate their model and their methodology, track them, follow them, do what they do, because the people who have gotten to that level, they know of which they speak. I mean, success leaves clues. So invest in yourself by following the people that you wanna live like.

Dave Wolcott:
Awesome. Appreciate that Adam. Um, and really appreciate your time today and coming on the show, really sharing your wisdom and your sage advice with the audience. I think that’s definitely something worth, uh, you know, investigating further. If people want to learn more about you, the shred method, uh, what is the best place that they can reach out?

Adam Carroll:
Yeah, thank you for asking the shred method comm is our website our domain and on that domain We have a master class that you can watch that will teach you everything you need to know about it We have the ability to schedule a 20-minute call with folks who are interested in just having their numbers run, seeing what kind of savings they could experience or what’s a potential opportunity for them. So theshredmethod.com is the place to go for that. If you want to know more about me, Google my name. I’m everywhere on the internet. And what you’ll probably find right up front is a TED talk that I delivered at the London Business School that went viral. And I would encourage people to watch that as sort of a primer into who I am. It’s all about a game of Monopoly. I played with my kids with real cash. So we had a $10,000 game of Monopoly and the lessons learned were very profound.

Dave Wolcott:
Very cool. Love it. All right, guys. Thanks so much for listening today. Hope you enjoyed the show. Do us a favor if you’re really getting value from the show, please give us a rating and review really helps us out. Bring in stellar guests like Adam bringing on. So would be grateful for your participation there. Thanks again and we’ll talk to you next week.

Dave Wolcott:
Hey everyone, welcome to today’s show on wealth strategy secrets. Today we have a very special guest for you, Michael Sonnenfeld. Michael is the founder and chairman of the ultra wealthy investment club, Tiger 21, with over 140 billion in assets under management. Michael is the author of think bigger and 39 other winning strategies from successful entrepreneurs. He is an American entrepreneur, philanthropist and political activist. Currently he is the president and founder of Tiger 21. the premier peer membership organization for high net worth creators and preservers. He is also a board member of earth justice and is the president of the Goldman Sonnenfeld foundation and on the boards of several other philanthropic and political organizations. Michael, welcome to the show.

Michael Sonnenfeldt:
Thanks so much. Thanks for having me.

Dave Wolcott:
Yeah, you bet. I’m really grateful to have you on the show, Michael. I think this is going to be super valuable to the audience, especially in the time period that we’re in, right? There’s so much going on in the world, geopolitically, politically, right? The investment climate seems like we’re really just, there’s so much uncertainty out there right now. So, you know, and you’ve had an amazing journey and background as an entrepreneur, as an investor. And so really looking forward to, you know, unpacking some of the wisdom and insights, you know, from your journey. So why don’t, why don’t we start there, Michael, if you can share with the audience who isn’t familiar with you, a bit about your background, a bit about your story and how you kind of got into eventually getting into Tiger one. starting right back from your real estate days and MIT and such.

Michael Sonnenfeldt:
Sure. So I’m what would be called a classic serial entrepreneur. I’ve had four or five or six different business lives, some overlapping, some sequential, and maybe a little more unique as I’ve split my time between business and my philanthropic activities. They’re all related right now as an example. For the last 15 years, climate has primary concern and I mix it both politically, philanthropically and in terms of the investments I make. But my career really, the thing that made my career was that when I was 17, I was working in a warehouse that was on the waterfront of New Jersey directly across from the World Trade Center in lower Manhattan. And I was a meditator at the time. And I used to go out to the end of the pier, which was a warehouse then. And it was a thousand feet out in the water. Imagine the Empire State Building laying on its side. That’s how far out in the water the pier went. And when I looked to lower Manhattan, it was, it felt like it was actually closer than the land behind me. And behind me was a warehouse that had been the largest warehouse in the world, largest building in the world when it was built in 1929. But the times had changed and I had a vision for that to become a mixed use office, condominium, hotel, retail center and what was then the Harborside terminal. Seven years later, I acquired with a partner and began the redevelopment, which became the largest redevelopment in the country at the time and converted into the Harborside Financial Center, which was a great first project. It was fun that my first real estate project was the largest commercial renovation in the world. And it’s kind of good to make a career when you have a success that way. And I sold it just after I was 30 and went into the real estate business, excuse me, went into trying to figure out what to do next and went into the real estate information business, which was really technology. That didn’t work out so well, but a few years later, I went back into real estate and created a billion dollar merchant bank for real estate called MS, E-M-M-E-S. It means truth in Hebrew, and my initials are MS. And then when I sold that in when I was 43, I had my second successful exit. And I started Tiger 21, which was about 23 years ago. grown into the premier network of high net worth investors around the globe with, as you mentioned, just about 1,300 members who manage their own money. We’re not a money manager, but the collective personal wealth of our members is now about $150 billion.

Dave Wolcott:
Yeah, that’s really amazing. I actually had the opportunity to live in Harborside right when I transitioned out of the Marine Corps and it was my first job working for an international supply chain company.

Michael Sonnenfeldt:
Wow.

Dave Wolcott:
So very familiar with Harborside and all of the freight and all of the activities. And just as you say, and I was there, I guess, early 90s, but still, you know, there was still a lot of development. to happen and you look at it today and it’s just, it’s an unbelievable piece of land and what it has grown into. But tell us some of the decisions that went into that. I mean, at your age, at your experience level, all of us as entrepreneurs, we wanna make big moves on the chessboard, but you had to have made some very big thoughts and kind of manage your risk to you know, to get into this. Can you tell us a little bit more about the transaction?

Michael Sonnenfeldt:
Sure. As I mentioned, I had this sort of vision, for lack of a better term, just call it an idea, when I was 17. But the building had been owned by my wife’s family, which is a large real estate business. But they ran it as a industrial warehouse. And it wasn’t very successful as an industrial warehouse. But. When I graduated college, I went off with an MBA from MIT. I went off to Goldman Sachs for a year and then went to work for my father-in-law for three years. And one of the things I was running was that building as a warehouse. And I had this real burning passion. So I developed some plans about what it would look like and how you would go about it. And I found some mentors, very important. was an architect who had unusual financial skills named Rick Baer. And he taught me how to think about world-class development or redevelopment. But one day, a man walked into my office named David Fromer, who was twice my age. And I showed him all the plans that I had been working on. And he said, oh, let’s do it. I had been introduced to him by a common acquaintance. but this was the first time somebody saw the plans and really bought into them. And so it took about a year and a half for David and I to find the right formula that would allow us to acquire the building. In those days, you could have purchased money mortgages and we were able to get financing, David was able to get financing the… The deal that we had between us is because it was my idea and I had the plans That’s what I brought to the table and he had to bring the financing to the table And so we became 50 partners uh where the project was completely leveraged we acquired a building for 25 million dollars with literally two hundred thousand dollars down and the rest multiple layers of debt and the sellers were happy to take back the debt because they were getting a much higher price. So one lesson is that sometimes a win-win is when one person gets what they need and the other person gets what they need. In our case, we needed financing and in the seller’s case, they wanted a high price and we were willing to pay a higher price with the advantageous financing. So we closed in 1982, August of 1982, and in one of the great strokes of luck, and maybe this is the second thing, luck tends to favor those who are ready, willing, and prepared to take the risk. So we closed in August of 82 on an industrial building that was losing money with a vision that it could be converted into modern computer centers. And six months to the day later. in one of the great gifts of life, Bankers Trust, which was then the eighth largest bank in the world, leased a section of the building to put half of their worldwide data center. The minute they did that, the rest of the building became unfinished office space rather than industrial space. As they say, the rest is history.

Dave Wolcott:
Wow, that’s really definitely an amazing story. In terms of, from a wealth perspective, Michael, I mean, even before you got into, you know, really setting up Tiger 21 and creating that community, we know that as an entrepreneur, right, it’s a different skillset to build capital than being an investor, right, and preserving and growing your wealth. Have you created a particular wealth strategy for yourself or some type of, you know, guiding thoughts or parameters that you have as you’ve been building your wealth over the years?

Michael Sonnenfeldt:
You know, what comes to mind is in order to do what you’ve just asked, you need knowledge and perspective and discipline because 90% or more of entrepreneurs who are successful entrepreneurs but then have a liquidity event and all of a sudden they no longer are running a business. but now they have a pool of capital, they go from being managers and entrepreneurs to wealth preservers or investors. And for people who don’t have capital or haven’t built businesses, maybe being a wealth creator and a wealth preserver seem like the same thing, but they’re radically different. All of the things that allow some of the most successful entrepreneurs to be successful. predispose them to be mediocre investors. An example, most entrepreneurs are very emotional about the one thing that they’re working on that they’re so excited on. And so to those entrepreneurs, being an investor is kind of watching the paint dry because investing is much more dispassionate. As an entrepreneur, you focus on one opportunity. As an investor, you have to prudently diversify. And I’m saying all of these things because today the single most important issue for somebody with a wealth strategy is one asset allocation and what it What it suggests about your view of the world how you There’s lots of studies to prove that if you can pick reasonably successful investments in each asset allocation the asset allocation is more important than the investments themselves. In other words, if you have a certain percentage in stocks and a certain percentage in private equity and a certain percentage in real estate, getting the allocation of those big buckets correct over the long term is more important than the individual investments. Of course, as long as the individual investments are at least in the median of each of those areas. And in my case now, The strategy that I find most compelling is to think of my assets in three buckets. One is cash, and the cash is for both a rainy day, meaning if the market’s downturn, can I survive on the cash I have without having to liquidate investments at exactly the wrong time? In the case of Tiger 21’s members, that number is about 12%. Tiger members as a whole have about 12%, 11 or 12 in cash. And if you spend 2% a year of your wealth, if you have sufficient wealth, that’s the number. That’s about five years of reserves that you wouldn’t have to liquidate other investments in a major downturn. The second thing is what I would call my passive investments. Those might be index funds, stocks, investment in private equity funds, real estate. We’re not operating it. We’re just investing. And then the third part, and this is the biggest choice that an investor has to make, is active businesses. Do you have enough of an edge to own or participate directly in businesses that will provide superior returns, but also provide significant risk if you don’t know what you’re many people don’t have that option because they don’t have either that skill or that interest. And so then they have to say, what’s realistic if I have stocks and bonds and cash or some variation of that? But the point that I’m making is that unless you have some demonstrable, outperform the markets. And historically, that would be sort of an 8% to 10% return in the stock markets, which will be reduced by whatever cash you have. I’ll just end by saying, there’s a study that shows the stock market since 1910, I believe, has had an average of a 9.6% compounded return. But individuals have only earned in the 4% to 6% range because individuals who aren’t disciplined sell at the wrong time. They tend to sell at the low and they buy at the wrong time. They tend to buy at the high. And that’s why long-term ownership of index funds provides benefits that stock picking and even many managers can’t match.

Dave Wolcott:
Yeah, that was a really great summary. And then from your perspective, you know, why is it that you think, um, you know, certain asset classes, like let’s talk about real estate and private equity specifically. Um, you know, most people don’t really have that in their portfolio, even entrepreneurs who’ve been successful and then they’ve had their exit and then they get exposed to those S asset classes, which, you know, as you start to understand them and analyze them a little bit more, provide multiple benefits at the same time, especially if you’ve had an exit, right? You’re able to offset with taxes, getting into real estate, investing in energy, some of these other asset classes that can have multiple benefits at the same time. But most people are still looking at things from the viewpoint of, hey, I can only invest into the stock market and a mixed type of portfolio.

Michael Sonnenfeldt:
Sure, so I’d say that’s the largest distinction between both tiger members, but family offices and some of the wealthier families that if all your available investment is in the stock market, the bond market as an example, it turns out you can actually do quite well if you’re smart about it, meaning, if you had invested just in index funds that mirrored the performance of the stock market, you’d be one of the great investors. As I mentioned, you could be earning in the sort of 10-ish, 9% to 10% compounded range for a long period of time. who inherit money or they come into money for one reason or another have the hardest time understanding is how hard it is to outperform that simple index fund that is earning over a long time, nine to 10%. But if you have access to and the knowledge about and are willing to take the risks of… the two categories you’ve talked about, real estate and private equity. If you can perform in the top half and maybe the top quartile of investments, that will bring up your yield, but it’s not without significant risk. There was a very famous investor named Swenson, who was the head of the Yale endowment that really revolutionized endowment investing. And he came up with what was called the endowment model. And it turned the world upside down. It used to be 70% equity and 30% debt. And he started diversifying Yale’s investments into natural resources, forests and minerals and other forms of natural resources and private equity and real estate. And We could go into any level of detail, but the bottom line is that he pretty regularly generated in the mid-teen kind of returns as opposed to the high single digits. And the cumulative impact of that is to make, you know, five and ten times as much money over a period of time because of the power of compound.

Dave Wolcott:
Yeah. And what do you think in terms of a percentage that you see with your members in Tiger from a, you know, let’s say more of a defensive, if you have those three different buckets, right? You know, how much are they putting allocating towards, you know, defensive type plays versus looking at equity appreciation?

Michael Sonnenfeldt:
So the current asset allocation for Tiger members is about 25%, 24, 25 in real estate, about 31% in private equity. Those two add up obviously to 54, 55%. And public equities are only 22%. Well, when you add those up, that’s 76%. And the rest is largely defensive, it’s cash. at 11 or 12% and fixed income in the 7% range, some currencies, commodities, Bitcoin might be in there, and hedge funds. But the overwhelming point is that Tiger members are relatively unique in the very high allocation to private equity and real estate. if you can find the best opportunities, whether it’s through funds or directly, you can pretty regularly achieve returns that are higher than the stock market or at the very least diversified from the stock market. But I think one way to think about it is it’s a bit of a barbell, very long invested in long-term assets between the what we call the three equity buckets, private equity, public equity, real estate can be seen as equity. And then a lot of safety with 12% cash and another 6% or 7% in fixed income. And the cash really is there for the rainy day and the three equities are there to build value over time.

Dave Wolcott:
And would that strategy hold up during different economic periods, right? Especially where we are today, would that hold up for you as where we’re going to be in the next five years, say?

Michael Sonnenfeldt:
Well, what I would say is, first of all, nobody knows where we’re going to be. That’s for sure. And, you know, the most difficult form of investment trading is macroeconomic, trying to take the biggest macroeconomic trends and translate them into specific investments. You know, if you want to… read from the Dean of Macroeconomics, Ray Dalio is the man, and he’s just come out with a book in the last year on the great powers and the changing world order. And if you read that, you’ll see how China is accelerating and the United States is growing less strong, so China is catching up faster and in certain areas actually beating us on the statistics. And the point about that is interest rates kind of have a mind of their own, but over the last 20 years, interest rates came down and over the last year or two, they’ve been going up. So if you were a betting person, you wouldn’t want to bet that interest rates are coming down or you wouldn’t want to bet your entire portfolio that interest rates are coming down. And if you think they’re more likely to go up because of the inflation story, you’d have less fixed debt and you’d look in your equity areas for things that are inflation proof. So a simple example is if you’re in a real estate business, if you want inflation protection, many retail real estate leases have a pass through of sales to the landlord. tenant, whatever they’re selling raises their prices because of inflation, you get more and more rent as the landlord. Well, that’s as opposed to many other types of leases that just have a fixed rate and don’t have that pass through. So if you were concerned about inflation protection, you would lean a little more towards having that kind of pass through rent where you participate in the growth of your tenants’ receipts. But it’s not always available. And on the private equity side, within private equity, we don’t track it. Although anecdotally, we think why private equity has grown so much over the last 15 years is because of the venture capital component. And when a company starts out, it normally doesn’t have debt. You can only qualify for bank debt when the company is up and running and may be successful and has a track record, and that sometimes takes a couple years. Well, what that means is when the company is in its early stages or its venture capital period, debt is not that important because you don’t use debt to grow little baby companies, you use debt to grow much larger companies. So if interest rates are rising, you’re gonna be less exposed to that as a venture capitalist than as a leverage buyout guy. Leveraged buyout guy uses debt for everything. So in each of the categories there are areas that are More dependent on debt and less dependent on debt and obviously in a rising interest rate market Uh, if you could fix Interest rates at a low rate. You’ll get a benefit for many years But if your interest rate is floating Then you’re going to be exposed to the rising interest rates if that’s your concern

Dave Wolcott:
Makes sense. Any other guidance you can give on the current economic outlook from a strategic perspective?

Michael Sonnenfeldt:
You know, these are the strangest times. There are many metrics that are as good as they’ve gotten. Under the current administration, inflation has come down dramatically. Employment has continued to surge. The stock market is strong. And yet, we have this sense of unease. And it’s a very, very difficult time. It probably has to do at the very least with three or more factors, each of which is a study in itself. I think the competition that we’re now facing with China has truly profound ramifications because just look in the chip area for advanced chips. advanced chips that go into all sorts of machinery and so forth. But China has an advantage in the rare earths that are the minerals that go into making chips. So they can squeeze our ability to manufacture and we can squeeze their ability to use these advanced chips. So in many different, as an example, most of us think of Tesla, probably when we talk about electric vehicles and Tesla is accelerating at a mind boggling rate, doing amazingly well, beating all the records. But most Americans have never heard of BYD, which is a bigger electric vehicle company than Tesla. And the growth in electric vehicles will be at the smaller end through Southeast Asia, and there BYD has a huge advantage. So just generally China, America. The dynamic is changing. China has caught up in many respects and is catching up faster. You then have the polarization in America, politically, which really can take a toll on how people’s well-being feels. We’re polarized more than we’ve ever been in recent, certainly recent history. And climate change, all of a sudden, we’re starting to see. the devastating effects of climate change. And many people really haven’t thought through. This isn’t the new normal. This is just on the way to things getting a lot worse. And that’s going to have a huge economic impact. So there are a lot of different factors that go into thinking about these issues. But obviously, interest rates is the one that many of these gets translated to. And I think one of the things that we really want to do is not be prognosticators, but meaning don’t bet the portfolio because you think you know whether the stock market is going up or down. Create an all-weather portfolio that can survive in the downturn and maybe even prosper and better prosper as the world gets better.

Dave Wolcott:
Yeah, really sage advice, Michael, and would wholeheartedly concur with that. Because I think once you have a strategy and you’re following these parameters, right, of those buckets as you outline that you’re investing in, you have the ability to manage different economic conditions and things that frankly no one can predict, whatever it is that’s kind of coming across the bow for us. Also, I think it’s fascinating as well that meditation is really important for you. Um, as it has been for me, I mean, I would define it as actually one of the top three skillsets, uh, to have in life and started out trying to teach our kids even, you know, that, you know, how important that was. And you find that with, uh, you know, very successful, you know, business leaders, entrepreneurs, investors. People who have really evolved have only gotten better at skills such as meditation, regardless of the different techniques and everything, but it’s really mastering your mind, being thoughtful, being intentional about making decisions. And really when you tie that to investing as well, and Ray Dalio does like to talk about that a lot, is that we lose a lot based on the emotions. We’re making decisions based on our emotions and that’s when we’re losing and investing. Can you share with us your thoughts on meditation and how that’s helped you as an entrepreneur, as an investor to be more intentional, maybe make better investment decisions?

Michael Sonnenfeldt:
You know, there’s lots of ways to both tame, and I don’t know if I would use the word master your mind, but at least kind of wrap your head around it for lack of a better way of saying it. And one of it is through analysis. Some people think of psychoanalysis as a negative, if… Psychoanalysis is a way to open up into your unconscious and reveal issues that are on your mind. And meditation is another way. How many times have you heard people say, I was in the shower and I had an idea come into my head, or I woke up in the middle of the night with an idea and I wrote it down? It was so important. These are all variations on a theme. meditation of course being one of the most important of them and You know for me I don’t I do get some mastery as you mentioned from meditation But the more profound impact For me is that The more you can clear your mind the more things can surface that are being held below the surface. Think of it as a meditation is kind of removing a blanket from something and revealing things. I very often, when I’m meditating, something will come into my head that I have absolutely no idea where it came from. But I remember I forgot to respond to an email, or I’ve been working on a problem that I can’t quite figure out the right solution to and the solution pops into my head. Really what it means is that our brains are really working on multiple levels and we’re not in touch consciously with all of the levels that our brains are working and our brains are working on some problems that we’re not even aware of and sometimes you can’t put all the pieces together but both meditation and being in the shower and For some people, it’s hiking and so forth. Finding ways to calm and clear the mind allows some of those problem solving to come to the fore with extraordinary solutions. And sometimes I find I’ve been working on something for weeks or months, and I just, I can’t get there. But with a meditation, literally a solution pops into my head. and it feels like it’s the right solution. So there’s lots of reasons to do meditating. There’s lots of health reasons. And I guess the other one is that when you’re an entrepreneur, your ideas are important, but your execution is more important. And execution almost always involves working with other people. And one of the things about meditation is to have what’s called an observing mind. Most people are in the moment. So if they get upset, they’re experiencing the upset. Or if they get angry or they’re obnoxious or they’re arrogant. But with meditation, you start to learn how to observe what’s going on. So you’re both in the moment and you’re observing the moment. And in every personal interaction that an entrepreneur has with an employer, an employee or a customer, the more they can be aware of how they’re acting and how they’re being perceived, the more they can adjust to a more productive mode. And I think meditation is one way to build this observing mind. So you’re not just in the moment, but your mind is observing you being in the moment. And we’re all human. If I come into a room and I’m feeling insecure, because as an example, everybody is more successful than me, if I can be aware that I’m feeling insecure, it will moderate my behavior in a way that I don’t behave in a counterproductive way. Whereas without that monitoring, I might not behave as well as I’d like.

Dave Wolcott:
Yeah, yeah, no, totally agree with that. It’s such a powerful technique. And as you say, I mean, it can really benefit so many areas of your life, you know, in business, with your relationships, with your health, and with investing as well. So appreciate that. Michael, why don’t you tell us a little bit about Tiger21? I think some folks might not necessarily be aware. We have several of our partners, folks in our community and friends of our community, our members. But for folks who aren’t familiar, tell us, you know, how it started for you. What is the make-up

Michael Sonnenfeldt:
Sure.

Dave Wolcott:
today?

Michael Sonnenfeldt:
So I mentioned that I had built and then sold this very large project when I was a little past 30, I may have been 31. And I was successful beyond anything I would have ever imagined. But when I sold the project and now I had the millions of dollars that I made. I had no real thoughts about preserving the capital. In fact, I thought that if I had been so successful the first time, the second time would be just as easy. And so I didn’t have well thought out strategy about protecting capital. And I started some new businesses and I just wasn’t thinking straight in hindsight. I overestimated my success, which is very typical when people who win the lottery think they’re geniuses and forget that they won the lottery. On the other hand, they took the risk and bought the ticket, so they deserve some credit, but it’s not the whole story. And so I had some setbacks in the next round of investments and realized I needed to be smarter about it. So I went back to the real estate business where I knew something and built a billion dollar… Merchant bank called MS and company EMM ES my initials are MS and it means truth in Hebrew and And then I sold that business when I was 43 So I’d had two really terrific successes and I realized the second time I sold the business I didn’t want to ever have to go back to start a third business Because I had made stupid mistakes and I wanted to avoid the mistakes that rookies make And I wanted to learn from other people who had been very successful and then learned how to preserve the capital and maybe even enhance it without unnecessarily risking it. So I wanted to create an organization around six other people who were in similar situation to me. We were all in a Vistage group that’s an organization like YPO, two great organizations, that their members are mostly CEOs of businesses. And their peer-to-peer learning is about being great CEOs. But once you sell, kind of it’s like the Harvard and Stanford undergraduate or the Oxford and Cambridge, and then Tiger 21 today is the graduate school after you sell a peer-to-peer learning model. So I started Tiger really wanting to learn from other people how they were preserving wealth and thinking about legacy and. estate planning and most importantly children after they had been incredibly successful as entrepreneurs. And that was an idea 23 years ago and today that’s grown into the premier network of high net worth entrepreneurs around the globe. We operate in a half a dozen countries growing a few more out. When you join Tiger, you join a group. So we have over a hundred groups around the globe. 95 of those groups or more are geographically located. So you might be in New York one or London three or Tel Aviv one or, you know, Vancouver two because in many cities we have two, three, four, five groups. But now we also have global groups where you could live anywhere in the world and join a group and then you meet by Zoom every month. 11 months a year except three of those meetings you actually meet in person depending on where most of the members in the global group is You might meet in new york and then london But uh, it’s a it’s a global group, but regardless Each of these groups have about 12 to 15 members. That’s the size and the reason is that When you meet months once a month One person each month does something called a portfolio defense Where they’ve worked? very often for weeks, if not months, with their accountants and advisors to put together a way to explain their portfolio decisions to get the input of 12 peers that they just can’t get from anywhere else. It’s sort of the defining experience. It’s all subject to confidentiality. And so today at the core is a little over 100 groups, about 1300 members managing. about $150 billion. We’re not money manager, we just the organization that puts all these people together in these groups. We curate the activities and then they meet and it’s a full day meeting focusing on, as I mentioned, the portfolio. We obviously have speakers, but it’s sort of like a personal board of directors. You get 12 people who you meet with. every month for years. I was in a group yesterday that I’ve been meeting with for 20 years. It’s just an extraordinary way to get information about how other really smart people are investing, how they’re thinking about their legacy, how they’re thinking about tax planning, how they’re thinking about their children. But you’re learning from peers. That’s the model. It’s not a consultation. The groups are run by chairs, those are our facilitators, but their job is to make the magic happen between extraordinary members. And our members are uniquely successful, on average about one in 10,000 by success. What that means is if you have 1,300 members worth close to 150 billion, our members have net worth between 20 million and a billion. and on average in the middle there at about 110 million. And that makes them about one in 10,000. And the best way to understand that is if you’re in the major league, football, baseball, or basketball, you’re about one in 17,000 by accomplishment. And if you take the All-Stars out of any one of those leagues, so you have the majors minus the All-Stars. Think of the All-Stars as the billionaires. And what’s left is an extraordinary group of people. That’s about one in 10,000.

Dave Wolcott:
Yeah, excellent. And what do you think in terms of members from a, um, you know, a team perspective, right? One of the things that, you know, we see in family offices, right? That everyone is basically creating a team of superstars and expertise around you, right? To build your wealth plan. So, um, our members are typically doing their own, making their own investment decisions, you know, with members such as a CPA and everything or you know to what extent are they outsourcing to you know traditional wealth advisors?

Michael Sonnenfeldt:
So this is a core question because some wealth advisors were nervous about Tiger 21 for fear that somehow it would harm their business. Tiger 21 is a confidential community where people can share best practices. And what that means is that when one person has a wealth advisor or a broker or… somebody who’s helping them make money in a productive way. They share that information with other members. And so for the best providers of services, whether it’s legal services, wealth, investment, et cetera, for the best providers, Tiger is a way to crowdsource business because one member introduces another and another and another and another. But obviously, Part of our discussion is for two people to say, hey, my advisor is giving me this advice and producing these results and charging me these fees. How are you doing? And none of these things are black and white because you might’ve earned less but taken less risk, in which case that’s a good thing. But in the discussion, 12 really smart people can pretty much identify who the better performers are and who the worst performers are. And it’s not a surprise that the worst performers get less and less business and the best performers get more and more business, although performance is very hard to quantify. And one of the greatest benefits you have is when you sit and talk to another member and say, how are you thinking about this issue or that issue, you start getting into the nuance that either excitingly or unfortunately is at the essence of investing.

Dave Wolcott:
Yeah. Michael, if you could give just one piece of advice to listeners about how they could accelerate their own wealth trajectory, what would it be?

Michael Sonnenfeldt:
I don’t think there’s any one piece, but there’s three quick ones if I could share them with you. The first is that in the book I wrote, I mentioned that if you line 100 people up in any industry, not just finance, and line them up from least successful to most successful using any reasonable metrics, so it doesn’t just have to be. profits or returns. It could be academic papers. It could be there’s lots of different ways, but use any reasonable basis. And the half that are the most successful will overwhelmingly have had mentors in their life and the half that are least successful will overwhelmingly have excuses for why they couldn’t have mentors in their life. And peer-to-peer learning is a variation of that because If you’ve just sold your business and you go into a group with a couple people who had sold their business three or four or five or ten years ago, you’re going to learn things you couldn’t learn anywhere else. But mentors in particular was the big learning for me. I’ve been as lucky as can be to have had about a half a dozen mentors across my 50-year arc from when I was a teenager. helped me along the way. So I would say mentors is almost certainly the number one. The second is many of your members may be aware of something called the marshmallow test. It was a test with young kids, two and three year old, I think three year olds, where they put kids around the table and one marshmallow in front of each of them and said, I’m going to be back in a little while if the marshmallow is still there. I’m going to give you a second marshmallow and you can have two. And it wouldn’t be a surprise that if you had 10 kids, not all of them can wait. Most of them might want to eat the marshmallow first because they’re not sure when you’re coming back and how long they’re going to wait and they’re not even sure if they believe you. And there’s always a few kids who are disciplined enough or smart enough or wise enough to wait and then they get the two marshmallows. And it turns out as silly as this little experiment. seems they track these kids for the next 30 and 40 years. This has been going on for decades. And it turns out that the few kids who could wait for that second marshmallow learned about delayed gratification. And in almost every important endeavor, delaying gratification, making the investment upfront, but not reaping the reward for some time. those who know how to delay gratification through discipline or personality are predisposed to be far more successful because people who want to take the rewards out of an early career don’t have the resources to reinvest them and use the power of compounding to build great success. I think I’ll stop at those two.

Dave Wolcott:
Yeah, really, really fantastic. So many things kind of come to mind personally off the top of my head from that. So really appreciate you sharing those with the audience, Michael. Really appreciate you coming on the show today, giving so much value to the audience. If people would like to learn more about what you’re up to at Tiger, some of your other companies, some of your philanthropies. or would like to get involved, what’s really the best place to reach out?

Michael Sonnenfeldt:
Through the tiger website www.tiger21.com that seems to be sort of the best portal to Just get a snapshot and dig in and I’m available on LinkedIn as well

Dave Wolcott:
Super. And then how about one more last question, Michael, a trivia question. How did you came up with the name Tiger 21?

Michael Sonnenfeldt:
It stands for the investment group for enhanced results in the 21st century. And, you know, there’s a for people in finance, they’ll know that there was an amazing investor named Julian Robertson, who was the founder of the Tiger Group of Companies, Tiger Management, and so forth. He went out of business in 1998 as one of the greatest legendary investors just when we were starting. So I wasn’t taking my name from him because he had basically said he was through and he didn’t understand the way the markets were working. But he’s been the greatest father of what are called tiger cubs. There’s literally dozens of his proteges who have gone on to build multi-billion dollar funds, some of them the most successful. But we had to accommodate one another. And so we can’t sell securities the way Tiger can, and they can’t run high net worth learning groups. We have what’s called a mutual recognition agreement that has worked fine for the last 10 years, and I expect it’ll continue to work fine.

Dave Wolcott:
Wow, that’s great. Michael, thanks again for coming on the show. It’s really been an honor to learn from you and the community that you’ve created. Super impressive what you’ve done, how you’ve been able to give back is really impressive as well and an inspiration to others. So I encourage listeners to definitely reach out, follow what Michael’s doing, what Tiger 21 is doing. definitely the elite group in the space and very well aligned with our thinking here as well. So thanks again and talk to you next show.

Michael Sonnenfeldt:
Thanks so much.

Dave Wolcott:
Hey everyone, welcome to today’s show on wealth strategy secrets. We’ve got another awesome show for you guys today focused on taxes. Today we’re joined by Mitch Day. Mitch is a specialty tax manager with Provision PLC out of Tempe, Arizona, with over 20 years of taxation experience. He has worked in a variety of roles in both public accounting and in industry with an emphasis on tax planning in the real estate construction, banking and multi-state sectors. Prior to his career in accounting, Mitch was an investment advisor in Canada. In addition to being a CPA, Mitch is also a certified management accountant, a certified financial manager, and a chartered financial analyst. Which, Rich, Mitch, welcome to the show, good to see you.

Mitchell Day:
But to see a day, pleasure, great for having me on to this morning.

Dave Wolcott:
I’m gonna do that over really quickly. This is the beauty of editing. I don’t know why

Mitchell Day:
Yeah.

Dave Wolcott:
I had that screwed up. Mitch, welcome to the show.

Mitchell Day:
Thanks, Dave. Thanks for having me on. Great to be here.

Dave Wolcott:
Yeah, awesome to have you on the show and have been really looking forward to this one. I know our investors are always looking for tax strategies, tax tactics, getting smarter on taxes as I have over the years. And I’ve found it to be such a fascinating journey. It was always frustrating for me for many years. And I know I’ve told the story to many in my book. that I’ve actually fired five different CPA firms. You know, I progressed up the ladder in terms of, you know, working with more prestigious agencies and, you know, paying more and more and fees, but never really getting that, you know, strategic advice, right, from a tax provider and saying, you know, where are you today? Where are you heading? You know, let’s move pieces around on the chessboard that are most… going to align with your tax strategy. And it was such a key insight for me. And now I’ve had the opportunity for, gosh, almost a decade now to be working with folks such as yourself, to really get those insights and then kind of incorporate that into our overall wealth strategy. And I’ll give the other caveat to that as well is that, I’ve definitely identified that you know, taxes are the number one tax destroyer bar none, right? It’s the biggest expense on your income statement, whether you’re a business owner, whether you’re W2 or anything. Uh, and I love how Tom Wheelwright talks about it, you know, that, that really hits home, which is to say, you know, you could, you know, you may be working five, six months out of the year just to pay your taxes. So that’s, that’s pretty sobering. So. So Mitch, tell us a little bit more about your background and also, you’ve got such a unique background into how you got into really taxes, accounting, financial planning, and kind of just give us a perspective of your view of the world.

Mitchell Day:
Okay, well I came about, it’s kind of the securitist route I took. So I was born and raised up in Northern Ontario, a town called Sudbury, Ontario. My dad was a chartered accountant, so basically he was a CPA up there, he had his own firm. So I grew up understanding the business. And I learned from him where he was a very, where he focused more on advisory, where it’s like, and obviously in Canada where basically California looks like a tax shelter, it is tax planning is very important up there. So a lot, so he always took the perspective that it was a large part of that. And as I went through university, I wanted to take a different route. And originally I did my undergrad in statistics and chemistry, and then I did a second degree in accounting and I wanted to go into finance, basically investment management, because I loved understanding balance sheets, understanding how to create wealth and that. And I did that. Basically when I came out of college, I worked for a firm that ultimately merged in with Merrill Lynch Canada, then I worked with RBC, and I basically got my chops there, basically being a deep value type and management investments out. That was my style on it where I was trained, where I learned grand, dot, classic margin of safety, income, and growth that way. And then after the dot com bubble, basically… the entire industry changed and it basically, it was this mass carnage. And with me being basically, everybody was being like, oh, it’s like, well, I’m out of a career. It’s like no one’s hiring in the investment side. And because of my accounting background, I was able to immigrate to the US and I started working for a CPA firm in the Detroit area. And I was fortunate enough to work with, I basically got in there with my college roommate. And I started learning with him and a couple of managers, it’s like, look, tax returns isn’t just a form and it’s, it is basically a way for you to arrange your affairs so that you’re paying the bare minimum on there. And you have to look at it in terms of when you look at a tax return, a lot of people just look at it, does everything tick and tie? Is everything fill out? And that’s really a failure of our schools, of the way education is, with how colleges prep people, is that they show them how to do it correctly, but they don’t show them how to think beyond that. And I was lucky enough to have mentors, and also growing up in a family where it’s like, no, you gotta look at it different, where you look at a tax return, and you can kind of see, here’s money left on the table. Hey, if I did this, I could’ve lowered this number. Hey, if I did this, this number could have been done. So I was fortunate enough to get into a set of circumstances where I got to look at things that way, where because I had a period of time where I was away from it, I was basically starting over from scratch doing this. So I got to learn from a new perspective. And then after being in public for a couple of years, it’s like I had an opportunity to go work for Bank of America and their corporate tax department. And then I learned how large like basically the largest taxpayer in the US how they do it and their perspective is The tax department is a lot of people think of it as a cost center But you can also look at it as a revenue center Where if you organize your affairs within the structure and how you deal with counterparties? You can save You you can create significant tax savings on it. So after seeing how the big boys do it and the way they look at it, the way large corporations look at it is, CFO goes to the chief accounting officer and goes, what’s the lowest effective tax rate we can get at? And gives them basically a mandate to here’s your target effective tax rate, what can we do inside here with the tax attributes we have here to lower our effective tax rate, what are things we’re doing here or if we’re below it. Are there ways to harvest gains, take advantage of it because we’ve had an off year or we have some advantages to take advantage of things to keep within our target tax rate. And that really opened my eyes because what we’re doing, we’re no different than a business. It’s like we have a P&L which is our personal and in all our businesses and how they all flow up. But the idea is we have a P&L and probably our largest line item on there, as you’ve said before, is taxes. And so we should be thinking about it no different than a business. This is an expense that needs to be managed. The problem is we’ve been conditioned from since our first paycheck as a teenager working that it’s taken off the top. There’s nothing you can do about it. And no one tells you otherwise until you have that epiphany where it’s like, hey, wait a sec, there are ways to do it. So we try to take that approach where it’s like, OK, Here’s our expense. First, we have to learn how to measure it. How do all these pieces flow up into our return? How does it create the expense? You have to be able to measure it accurately, because if you can’t measure it, you can’t manage it. So once we measure it, it’s like, okay, here’s the elements involved with it. Then how do we manage this going forward throughout the year where we set a target effective tax rate, how do we achieve it? Now every person is different because they have different ways of making money, spending money, investing money. They also have different goals with regards to effective tax rates. And then ultimately you only have, and especially when you’re deploying capital to create cash flow and tax efficiency, we don’t have printing presses in our basement. So we’re also constrained by that. And the question is, is for everybody’s unique situation, how do we put all these traits together and within our circumstances on a year in year out basis and optimize that based on what our goals are, what our risk tolerances are, and all those other types of non-financial constraints and how do we implement the year in year out so that we are always have our finger on a pulse of what our tax bill is. And if we do it right, the tax return is the end of the process where it’s like we already know what we did during the year. All it is truing up the numbers, and we have the return, we have our projections. There shouldn’t be much variance, there’s no surprises on it, and then it’s basically repeat every year.

Dave Wolcott:
Yeah, that’s such a great summary. So why don’t we just back up a little bit, right? And I think some of the, a lot of the misunderstanding comes for folks where, you know, everyone out there probably has a CPA, right?

Mitchell Day:
Mm.

Dave Wolcott:
And they’re getting their taxes filed and they’re doing different things and they feel like maybe they’re doing, you know, making some deductions and things like that. And they’re calling that really a tax strategy, which isn’t in fact a strategy. But what… Tell us why is the industry so bifurcated really, right? Because what you’re talking about is a very strategic advice versus a lot of, I would say the majority of planners are just looking in the rear view mirror.

Mitchell Day:
Well, I think there’s a couple of reasons. As I said earlier, I have to put a lot of criticism to the university system is that when you take a tax course, it’s like, here’s the code, here’s what the numbers are, here’s how you prepare a return. And they don’t teach people to think out of there. Now, let me qualify that. I went to school in Canada. And that was the same here. And what I’ve seen from people here, it’s the same here. I don’t know about a master’s level, but what I’ve noticed is there’s not an emphasis on changing the mindset of people where it’s just, it’s very much an assembly line where it’s like, here’s the form, here’s how you do it. And the problem is that a lot of firms look at the tax return as basically a widget. It’s basically their entire business model is, Input process output input shoebox of receipts process put it into the software output. Here’s a return Pay me my fee pay the irs. See you next year because it’s just It’s a it’s just a simple model because a lot of people don’t necessarily want to do it and the other thing is that a lot of people don’t want to pay for it as One of my clients once said a lot of people Are will balk at well that’s going to cost me money but but the problem is they’re basically stepping over dollars to pick up nickels. And we as an industry don’t do a good job of explaining how we add value. And one of the things I tell people is like, look, yes, you’re paying these fees for planning and strategy, but the idea is that with us sitting together, figuring out a strategy, figuring out what your needs are and your preferences are. We can create a return on investment on those fees by tax savings. Well in excess of what you’re doing. That’s always the goal and people have to change that. They just look at, oh you’re charging me this much for a return and they go no, no. But the way I explain it is, well I’ve been doing this for 20 years. I know how to save you money if you’re willing to invest the time, which is time is money based on just the way CPAs charge. we can create a delta there for you. We can create savings well in excess of what you’re paying. And that’s the other problem, it’s just changing that mindset on people because a lot of people, when it comes to professional relationships, and you’ve seen this on your field too, where some people will spend more time in doing research for buying a TV or a cell phone than they will looking for a professional advisor. and trying to educate people on that where it’s like, no, this is how we add value. Yes, there’s a cost to it. This is the value. This is how we’re gonna create return for you.

Dave Wolcott:
Yeah, it makes sense. So, and to give you a specific example, right? You know, we just finished this tax season. We have an oil and gas fund, and a lot of our investors had submitted that to their CPAs, and a lot of the CPAs came back and said, wait, you know, you can’t offset active income, right? And they didn’t totally understand, you know, how it works. And then, you know, they were up against the deadline. You know, what would you say in terms of, you know, CPAs out there that feel like something might be risky, let’s call it a home office deduction or something

Mitchell Day:
Mm-hmm.

Dave Wolcott:
where they feel like something in a gray area, or, you know, you’re trying to, you know, take this active income and offset it based on this type of investment and they just don’t really understand it or they think it’s risky.

Mitchell Day:
Yeah, well, it boils down to what is risk. And it’s like, I’ve heard that throughout my entire career. Oh, home office will get you audited. I’ve never, 20 plus years, I’ve never seen anyone get audited on a home office. And it’s understanding, and the other part is about tax risk is like, look, if you can document it and you’ve got a fact pattern and you can substantiate it, and it’s in the code saying, hey, this is what the rules are, you take it. Because the key thing is, it’s just, you have to support it, you have to understand the code. And the problem is a lot of these guys, they don’t have exposure, like let’s just use your oil and gas one. They don’t understand working interests because they don’t see it very often. They don’t understand that the 469 rules have a specific carve out for oil and gas interest whereby if your money is at risk and your general partner, This is considered ordinary. The code did that to encourage exploration. And it’s the same with home office. It’s like, no, it’s fine. It’s just documents substantiated. It’s the same with the Augusta, well, I shouldn’t rent my house to myself. It’s like, look, as long as you have a proper rental agreement, you have a valid business purpose, you basically document what you’ve used your house for, and you have comps where you can show, hey, look, I pulled up all the comps. This is what… what the market is for my house, you’re fine. It’s just some CPAs, and I don’t wanna say this to be disparaging, some aren’t as intellectually curious to go look it up and find out what it is, spend a few minutes on Google, reading up what working interests are, and they just wanna stick in their silo, which is give me your W-2, give me your 1098s, and leave me alone. Because they don’t

Dave Wolcott:
Yeah.

Mitchell Day:
wanna spend the time, they don’t wanna spend the time, or they don’t wanna charge for the time.

Dave Wolcott:
Yeah, no, it makes sense. And I think that’s a perfect backdrop for folks. And then also just to kind of add to that, I think, you know, in creating some context around taxes and, and my journey as well was, you know, just really making that paradigm shift to understand that the tax code is actually a roadmap of incentives for business owners and investors. And when you can think of it that way. You just need to understand the code a little bit more and do what the government is looking for you to do, which is, you know, investing in energy, investing in real estate and doing these different things, because you’re creating jobs, uh, you know, you’re supporting the economy and all of these types of things. And I think once you make that paradigm shift, you know, then you can actually start looking for, you know, where are the opportunities, whether it’s in investing or in your business and try to be, you know, a proactive partner with your CPA in the journey.

Mitchell Day:
Oh, you nailed it right there. The Internal Revenue Code is basically a guidebook on how not to pay taxes. If you, ultimately, the other way it says, well, it tells me what to pay. The other way is, hey, if I do it this way, it’s giving me a roadmap on how not to pay taxes. And you gotta look at it that way. You’re right, it’s a whole paradigm shift. And once you understand that, you understand how do I manage my affairs? to do that because now it becomes also part with understanding to go, how does this impact my investment decisions? How does it impact how I work? Do I work as a W-2? Do I have an option to be 1099 and set up my own business? How to do those things? Like once you start thinking it that way, even if it’s like, hey, there might be another way. And that’s where we come in where it’s like. Ask the question. There’s no dumb questions here where it’s like, hey, can I do this? If I change my affairs this way, will this work? And often the answer is yes with an if, if we can do the X, Y, and Z, absolutely. Now let’s figure out how to implement it and let’s show what the impact is on your return.

Dave Wolcott:
Yeah, absolutely. So what have been the changes that we should be aware of in 2023 or going forward into next year in terms of our.

Mitchell Day:
there’s a couple of bigger things coming on. Because the biggest one that you’re starting to see is, and this all comes back to the Tax Cuts and Jobs Act when it came out in 2018, was that the problem was in order for them to pass it, it went through reconciliation so that the Senate couldn’t filibuster it. And because of the reconciliation rules is that it’s like it couldn’t increase the deficit by so much over 10 years. So in order for it to meet those rules and get past, basically a lot of the elements within their phase out over the next couple of years. And the classic example that everybody knows about is bonus depreciation. So when they change it, they’re like, hey, 100% expense. And this is huge for people who invested in real estate. The problem is now it’s starting to phase out. So it was 100% through 2022. Now it’s 80. It’s going to drop to 60. It’s going to drop to 40. And then it’s going to be gone. So that’s gonna change a lot of ways, because now it’s like every dollar invested in real estate, for example, or in depreciable equipment, it’s not gonna get you the same tax impact on there. So there’s that. And then it’s also gonna impact where if I have all these investments in let’s say real estate syndications at 100% bonus, and they sell, and I’m gonna have this huge recapture bill, when you reinvest, now it’s like, because it’s a lower bonus, I’m not gonna get the same offset on there. I gotta figure out other ways to mitigate that. So that’s gonna be a big one. Another big one is a qualified small business deduction, that 20% deduction you get for pass-through income. That’s gonna start phasing out in a couple of years. So now we gotta start thinking, it’s like, okay, as this goes through, how’s this gonna impact my business? How do I need to structure my affairs? Where… I can keep my effective tax rate down. And then a third one, which is not income tax related, but the estate tax exemption, it went up to $10 million per person. It dropped back to 5 million in a couple of years. So now if you’re a high net worth person, you’ve got, it’s like you’ve got $5 million as an exemption where to use it or lose it. So now you also gotta start thinking, do I wanna start get… moving assets to my heirs or into a trust now while I still have a couple of years. So there’s a lot of things going on. And the other problem that you have is what’s the tax code going to be starting in 2025? Is the composition of the house and the presidency, is that going to change things? What are the things with the finances? There’s a lot of moving pieces to it, but we do know that a lot of these things are starting to phase out and we got to start planning accordingly.

Dave Wolcott:
Yeah, really good insights. So what do you think, I mean, you know, just given what you know today, what are some, you know, good strategies? And I’d like to break this down into two parts for the listener. So the first one being, you know, why don’t we cover business owners first, and then let’s cover W-2. Secondly, those high income earners out there. for business owners, are there any top strategies, investments, things like that, that business owners should be looking at?

Mitchell Day:
Well, one of the things that I look at for businesses, obviously one of the bigger things I take a look, what I look at is, okay, let me see what your operations are. Let me see the variability of your revenues and your income. And I have some clients where they’re consistent, they have a consistent floor, a significant floor, and it’s basically stable revenues and income every year now. And we start looking at things based on the nature of their business and it’s like, okay, do we wanna look at benefit plans? Do we wanna max that out if you and your spouse are the only employees? That’s a big one there, we’re maximizing those. Other clients I take a look at is, I really like captive insurance companies. That is a great way to create deductions on your return and basically keep all that capital via captive insurance now. That’s a little bit of a longer story, but it’s a way to basically create deductions and manage your claim liabilities depending on what type of insurance it is. Well, a longer story on it, but that’s another very valuable tool on creating tax savings on there. The other thing is taking a look, reviewing your fixed asset purchases, understanding that is if you’re limited, do we need to set up a separate leasing company and lease your equipment back to yourself? Do we need to look at having a separate C Corp and running some of the operations through there where we can take advantage of the delta between personal and corporate rates on there. These are all things that we need to discuss and basically you have to make, you got to make a business case for it first because one of the key things I always tell people, don’t do something just solely for tax purposes. You have, if the cash flow doesn’t make sense, the tax benefits almost all. almost all the time will not more than justify that. So we have to make a business case on it that this makes things more efficient. And then basically the tax benefits is basically is gonna goose your return a little bit. So those are the things that I kind of look on there it’s like reviewing the operations. Are there ways to create expenses? Are there ways to create additional deductions? Is there anything within the structure that we need to look at? because some people might have it as a partnership where there’s self-employment tax, do we need to do an S-Corp? Do we need to even consider doing a C-Corporation because sometimes it’s counterintuitive, but sometimes it makes sense to do it that way. It’s having a discussion of what’s going on in the business, what do you need from the income from here, what are your cash needs and tailoring it so that we can kind of optimize it based on your tax, business and risk needs.

Dave Wolcott:
Yeah, it’s such a good point you make. And admittedly, I’m guilty of this one too, is having the tax tail wag the dog, right?

Mitchell Day:
Mm-hmm.

Dave Wolcott:
Sometimes we’re in such pursuit of some kind of tax efficiency, that we underestimate, right? The overall impact, right? Upstream, downstream, does it make business sense? Like you say, whether that’s in your business or for an investment and everything. So, you know, this is why we always advocate really creating a comprehensive wealth strategy that’s looking at everything end to end and also,

Mitchell Day:
Mm-hmm.

Dave Wolcott:
you know, downstream. You know, we’re planning for 10 and 25 years into the future. So you’re making the right decisions now, not just for this quarter or this year.

Mitchell Day:
Well, exactly. And as you

Dave Wolcott:
Is there…

Mitchell Day:
know, it’s like one of the things you say with your clients is like, what is our investment criteria? What’s the minimum return? What’s our minimum return on our investment that we’re looking for? And you got to have that discipline on there because it’s back to what my whole thing was when I was investment advisor, I’m a value investor. Here’s my criteria. I stick to it. Because when you when you drift away from it, bad things often happen because you gotta stick with what you know and you gotta stick with that criteria. And it’s like, hey, if this doesn’t meet your investment criteria before taxes, why are you touching it?

Dave Wolcott:
Yeah.

Mitchell Day:
That’s the key takeaway.

Dave Wolcott:
So, so here’s a question for you, Mitch, right? You know, how can investors really, you know, more quantifiably, you know, measure tax impact right into the future as part of their overall wealth plan? So, you know, let’s say today, like if you were, you know, going with your example, and, you know, as the CFO of your own personal economy, you said, look, you know, I want to hit a marginal effective rate of 20% this year, right? That’s,

Mitchell Day:
Mm-hmm.

Dave Wolcott:
that’s my target. You know, what are we going to do to, to try to get there? But then let’s say, you know, you make some decisions, you know, you’re investing in some real estate things, you get the bonus depreciation, but you do have that recapture coming in, say three to five to six years, you know, and how can you actually plan for those types of things in the future? Or another use case for this is, we have many entrepreneurs here who are selling their businesses, having really big liquidity events. So they’re having kind of a massive liquidity event with tax implications, right? So how can you kind of proactively plan for some of these things in your strategy?

Mitchell Day:
Well, what we normally try to do is like the first thing is we have to assume that, okay, here’s the knowns because there’s no knowns, there’s known unknowns, and there’s unknown unknowns, as Donald Rumsfeld once said. So we do know the facts that it’s like here’s the code where it is, here’s what tax rates are going forward, here’s how the rules are going to change. And you can model things out like three, four, five years out saying, okay. I’ll use the example of your liquidity event. So it’s like, okay, we’ve done the sale. Here’s what we’re gonna do to basically offset the initial impact of the gain. And then ultimately part of it is going to be, because it’s like, because I’ll use the example of real estate. So let’s say we sold the company and you basically invest in real estate, use bonus to offset it. And it’s like, okay, we know down the road you have all these assets creating cashflow. And depending on what you’re in, you also have to define what your hold period is. Because it’s often, depending on how you invested, some people are like, nope, this is buy and hold, which means, okay, that’s fine. We already know what this is. Some of them are value add three years in sell. So knowing I’m gonna have another liquidity event coming in a couple of years, this is going to impact in two to three years. How do I reinvest? Do I reinvest it? Do I take the tax hit? Take a look at things that way. We have to have that discussion now where it’s like, okay, if we know in three years, we’re gonna have this. The first question is, we have to understand, okay, how are we gonna reinvest it if we have investments that meet our investment criteria? How much of this can we, if we will defer or push down the road further? Or the other answer might be how much, or if it’s like, if we don’t have it, what’s… What’s our tax expense if we can’t find anything on there? So at the very least, we got a deferral where time value of money is. And hopefully due to where the liquidity event and where everything’s in the top bracket, where if we do have a hit, it’s at a lower bracket. So it’s really trying to figure out what the time horizon is, how willing are we gonna do that? What’s our outlook on the markets? What’s our investment outlook for the next couple of years? because that’s something else we’ve got to take a look at because as an aside, it’s like one of the big things that I talk to people with in real estate is… Real estate is basically an offshoot of the long-term bond market and is basically just a derivative of interest rates So the question is where interest rates gonna be three four or five years from now Are we in a rising rate environment or dropping rate environment? That’s gonna drive a lot of your decision Because if you’re buying now and rates are here and they’re gonna be a lot higher you’re gonna do a lot higher cap rate lower valuation different cash flow you have to plan accordingly and That’s where a lot of the back and forth is trying to figure out. What is your outlook? What are we gonna do in this case? And then try to model it out because one of the big things that we want to do is just Put it on our tax projection software try to model it out under different scenarios show what the impact is So at least we can kind of make start tapping the basis of informed decisions going forward and try to have a map Where it’s like if you will a decision tree saying well if this happens, we’re gonna do this if this happens We’re gonna do that So at least we’ve had the outline of the things that we’re going to do going forward, and we know what the financial impact of them, general idea of the financial impact going forward is, so we’re not caught off guard.

Dave Wolcott:
Yeah,

Mitchell Day:
Yeah,

Dave Wolcott:
no, that makes

Mitchell Day:
that

Dave Wolcott:
sense.

Mitchell Day:
makes sense.

Dave Wolcott:
Yeah, you’re really looking at everything comprehensively and end to end. Um, any, just off the top of your head, any, you know, top three strategies, if you are exiting a business and, you know, and you have a lot to, you know, a lot of income to try and offset.

Mitchell Day:
Well, the first question is, what are you doing after you sell the business? Because the first question is, because if it’s like, hey, I’m done working and I have free time, the biggest one right there is real estate professional. And I’ve seen a lot of people do that, where it’s like, they’ll structure their sales so it’s in January. So they’ll have the money in January. They have a whole year to be a real, to… basically put their hours in as a real estate professional, meet all the criteria, find properties, deploy capital, get the cost segregation to get that done. So that’s a big one right there. So because time is another constraint. Well, if you’re in a situation where it’s like, okay, I’m still working, I can’t qualify as a real estate professional, then what do I do? And some of the things we’ll throw on is Do we want to look at short-term rentals? Because you don’t have to, there’s different rules to deduct real estate losses on short-term rentals than long-term. Do we want to take a look at that? Is there a business, first, is there a business case to make sense on that? And if so, well, here’s a way we can create deductions. Obviously, what you’ve talked about with some of the oil and gas working interests, that’s another way to do it. Another way to do it is when you’re negotiating a deal, break it into installments. consider doing an assault where it’s like, if you’re doing late in the year, half now, half in January, break it over two periods if it makes sense in order to mitigate the bracket impacts and also that gives you a little bit more time to basically mix and match your assets for risk purposes as well as tax. So that gives you some more time as well. You can look at qualified opportunity funds. because that takes time to find. It’s hard to find ones that have a good business case that also provide the tax deferral. So the more time we have to structure that, the more time we have to look for investments that meet your return criteria that have those tax benefits.

Dave Wolcott:
Yeah, such a great point really. You do not wanna be doing this while you’re in the middle of a transaction because having gone through, you know, selling a business before in the past myself, I mean, it’s just, it’s really demanding. It’s so many different levels. You know, you’re trying to run the business, you’re trying to do so many different things. And then tax planning starts to become a little bit of an afterthought. And the last thing that you want, is to be forced into some kind of position, right? Where you have to deploy capital or you’re kind of making that decision, like you say, that doesn’t align with your investment criteria just because of the timing of it, right? You’re just trying

Mitchell Day:
Mm-hmm.

Dave Wolcott:
to do it from a tax perspective.

Mitchell Day:
Well, yeah.

Dave Wolcott:
So, that’s a valuable lesson there.

Mitchell Day:
It’s

Dave Wolcott:
Mitch,

Mitchell Day:
like

Dave Wolcott:
can

Mitchell Day:
the

Dave Wolcott:
you

Mitchell Day:
first

Dave Wolcott:
also…

Mitchell Day:
thing is as soon as you get the

Dave Wolcott:
Yeah.

Mitchell Day:
LOI we need to talk because you got to look

Dave Wolcott:
Yeah.

Mitchell Day:
at the timing and you got to look at the term because You can structure the sale so it’s much more contagious tax wise. It’s just it’s part of the negotiation Because

Dave Wolcott:
Yeah,

Mitchell Day:
there’s

Dave Wolcott:
100%.

Mitchell Day:
always

Dave Wolcott:
And

Mitchell Day:
a difference

Dave Wolcott:
I would say, I would say you should be having the conversation, you know, number one, you should have someone on your team, like, like Mitch, right?

Mitchell Day:
Mm.

Dave Wolcott:
So you you’re, you’re proactively creating a group of, you know, subject matter experts in this space that can help advise you when you get to this point that you are exiting your business. So you’re thinking about it, you know, way in advance.

Mitchell Day:
Well, yeah, because I’ll give you an example for a lot of our dentistry clients. Like one of the things that I always throw is like, get a price on your practice. There’s a lot of PEO, there’s a lot of DEOs that are looking to acquire more practices. It doesn’t mean you have to buy, you have to sell it, but at least talk to these people who are in this sphere and say, how much is this worth? Because that’s the first question is, because the first question is you don’t know what the value of your business is. So you need to have a value. And it’s like, and then you understand where it’s like, okay, this is kind of like the figures we’re looking at, and at least you can start having discussion. Well, if I sold for this, what would it look like? So at least going forward, you already know where somebody comes up to you with an offer unsolicited, and it meets your criteria. You already kind of know. here’s what I gotta do for taxes on a high level, and then it’s just part of the negotiation to get the details done.

Dave Wolcott:
Yeah, a hundred percent. And then the second thing I was going to say, you know, from a learning experience as well, was that when you have that relationship in advance and you can start that conversation, when you go to the table with that LOI, you,

Mitchell Day:
Mm-hmm.

Dave Wolcott:
like you said, you can start negotiating and you have someone on your team. Cause what I found is, you know, when you start talking taxes and everything at this level. boy, you’ve got corporate, their corporate attorney, their M&A person, they’re all corporate, right? So they wanna do everything that’s like, the way 95% of them really do it. They’re not looking

Mitchell Day:
All good.

Dave Wolcott:
for things outside of the box. So it’s up to you

Mitchell Day:
And it’s a

Dave Wolcott:
to

Mitchell Day:
negotiation

Dave Wolcott:
do

Mitchell Day:
in

Dave Wolcott:
it.

Mitchell Day:
there because if

Dave Wolcott:
Yeah.

Mitchell Day:
I’m a business owner, more often than not, I want to just sell the stock because then it’s just straight capital gain. I’m selling it at E. If I’m a buyer, I’m like, no, I want an asset sale because I want to push as much of the purchase price into depreciable assets where I basically can get depreciated and kind of get an offset on there. Now obviously as a seller, I don’t necessarily want that because I might have recapture, I could have all this, I have different tax rates. And then it starts coming into part of the negotiation because you adjust the price accordingly. Well, if I’m going to take this tax hit, well, you’ve got to give me something. And then that’s part, it’s like understanding that, that this is all part of the bargain process.

Dave Wolcott:
Yeah. Mitch, can you explain your concept of a passive income generator? How that

Mitchell Day:
Okay,

Dave Wolcott:
works?

Mitchell Day:
all right, so a lot of us here, and I’m just gonna use real estate syndication. So a lot of people invest in real estate syndication, saying they’re passive, they’re a limited partner, they’re not real estate professionals. So they get their K-1 from year one, they have this huge loss, it’s suspended because it’s passive. You can only use passive losses against passive income. Now the problem that a lot of people get into is they start getting really heavy into real estate syndications and things like that, ATM funds, stuff like that. And they have all these lot passive losses. Like I’ve seen people with hundreds of thousands of dollars of passive losses that are suspended, they’re doing nothing and they’re going to sit there and do nothing until either the property, until the property sells or to expedite things, you start deploying capital into investments that generate passive income. That’s don’t have the benefits of bonus depreciation. So the idea is I have this taxor attribute. I have all these suspended losses. If I can invest in something that just generates passive income, doesn’t have losses, doesn’t have depreciation or whatnot, just has income, I can invest in this. I’m getting this cash flow, and I’m using the losses to basically shelter it from tax. So it’s a way to complement. your passive income portfolio. You have a, you know, basically you’re getting the diversification where you’re in different sectors and all that, you’re not stuck in one sector and all that. And you’re generating this cash flow where you’re using these losses to offset it so you’re getting the time value of the money and the tax savings on it. That’s the idea of a passive income generator is we call them PIGs. So the idea is that if you have a whole bunch of losses, And it’s also part of a larger portfolio strategy of diversification, getting into different sectors, different return profiles, economic functions. It also has the benefit where that income is going to be sheltered because you got all these losses. You put them to work.

Dave Wolcott:
Yeah, no, that’s a great explanation. And that was exactly our strategy on creating the credit fund that we have, right? A great diversification play. You’ve got great cashflow and, you know, from the tax standpoint, you just offset right there. So appreciate that clarification. Why don’t we jump into, I don’t want to leave out W2 or active income earners. They’re always looking to offset. They have sometimes a little bit less flexibility

Mitchell Day:
Thank

Dave Wolcott:
than business

Mitchell Day:
you.

Dave Wolcott:
owners do. But could you tell us a couple of your key strategies of how you’re helping W2 earners?

Mitchell Day:
Okay, well the most common one is, I’ll use the classic example, high W2 earner, physician, executive, whatever, spouse becomes a real estate professional, okay? And I always couch it where it’s like, here’s what you need to do first is, okay, so you wanna do that, but we have to put a dollar cost on your time. So… The idea is that if you want to do this, well, first of all, we’re assuming you want to do it. So I always put a dollar value on people’s time because this is the most valuable resource that we have because time can be converted into money. It can be converted into memories and you have to put a value on it to basically warrant whether something is worthwhile or not. And then because it’s like, I don’t want you to do something that you’re miserable doing because you’re not going to do it or it’s just going to. The whole reason of doing this stuff is so you. we can create happiness, give you the resources for happiness. So the idea is that, okay, I’m high W2, okay, spouse is going to be a real estate professional, I have this much capital to deploy, I can create this much in deductions. Well, if I can create this much in deductions, this is my tax reduction. I say, okay, well, let’s say I’m creating this, I’m creating $10,000 in tax savings. Well, divide it by 750 hours. You’re getting paid this much an hour. Your spouse is getting paid this much an hour. Tax savings divided by 750 to do it. And the question is, what’s that hourly rate? You’re basically paying them to do a job. Would I do it for $20 an hour? Probably not. Would I do it for $200 an hour? Oh, yes I would. So that’s the first, you gotta ask that question. You gotta put a value on that time because it’s like I said, tax. the tax tail chasing everything. It’s like, I don’t want you guys to be miserable doing this just for saving a little bit of money. It’s gotta be worth your while. You gotta wanna do it. Because it’s just, it’s a pain in the butt. You’re tracking your time. You’re looking for investments. You’re figuring out, does this meet my return requirements? What, how is this gonna impact for funding? How much leverage I’m gonna use? How am I gonna deal with tenants? What am I going to invest it in? because it’s like those are all things you got to look at where I’m going to deploy my capital and I’m going to create these savings. It’s a very effective. I’ve seen some dramatic drops in tax liability as a result of it. That’s the big one, but that’s a discussion as a family you need to have first and foremost and figure out do I want to do this? If it’s not, or it’s like I don’t want to do it on that scale, short-term rentals, different things. But You have to understand the business case. You’re not getting consistent income. It’s not like a long-term tenant where you’re getting a rent check every month. It’s volatile. It’s basically, it’s seasonal depending on where you are. It’s dependent on consumer discretionary income. So if the economy’s good, you’re probably doing better. If the economy’s bad, you’re not gonna do as much. You have to plan for your cashflow on that. And the question is, after you look through all that, Does it make sense for me to get this tax benefit? That’s another question. The oil and gas funds, that’s another way. Here’s what the deductions are. What’s my view on oil? What’s my view on the people who are running this? What’s their track record? What’s the risk return? Because it’s obviously working interests. There’s risks involved. Do I understand this? Does this make sense as part of my overall portfolio wealth strategy? Because the idea is that we want it to… We don’t want to put all our chips in one part unless you’re such an expert on it, where it’s like, you know what you’re doing. But if you don’t, you got to diversify and you have to understand all these different tools and how they work.

Dave Wolcott:
Yeah, it’s really such great wisdom, Mitch, that you’re providing. I really appreciate you sharing this with the audience, right? Because you’re having people do some deep thinking about this and really looking at it with a lens that’s 360 degrees, right?

Mitchell Day:
Yeah.

Dave Wolcott:
Because to your point, it might be really advantageous to set up your spouse as a real estate professional. But if all of a sudden it becomes you helping her, you know, say manage that, you know, the property in your spare time that you have, or, you know, you become hating it, or you have to travel somewhere to

Mitchell Day:
Yeah.

Dave Wolcott:
properties that, you know, you don’t want to see, or you don’t understand the market or something, um, you know, then it doesn’t make sense, right? But, but,

Mitchell Day:
Oh yeah.

Dave Wolcott:
you know, you really have to kind of think about it end to end.

Mitchell Day:
Yeah, it’s a non-cash cost because remember, the whole reason you’re doing what you’re doing and we’re trying to help people is that we have goals. Money is just a tool for us to achieve those goals. And it’s like what I put it, it’s like we’re trying to create wealth so we have time to do things. Like the way I look at it, it’s like… One of my big things would be, it’s like, I wanna create wealth where I can spend time with my family. I don’t wanna be working. I wanna have memories with my children while they’re still younger. I don’t wanna see them off to college and say, where have you been all these years? That’s something you gotta ask yourself. Or if it’s like, I wanna spend time with my wife, we wanna go travel, we wanna do this. Well, you can’t do that if you’re working two days a week doing real estate professional. You gotta ask yourself, is this worth? There’s a trade-off, so this is why I always tell people, put a dollar cost on your time. It’s so important because there’s so many non-financial things you have to look at, and you gotta ask yourself before you go down to these, because sometimes it might be, and this is an honest answer, is that, I wouldn’t do this because you’re gonna be miserable and you’re gonna lose all this. Yes, you’re gonna pay some more money in taxes, but. You’re going to be miserable. That’s not the point for living. That’s not the point of our existence is to be miserable. We want to create happiness and memories and it’s like you got to throw that in there.

Dave Wolcott:
Yeah, 100%. It’s all about creating that freedom in your life is what we’re

Mitchell Day:
Amen.

Dave Wolcott:
really after, right? Freedom of money, freedom of time, freedom of purpose, freedom of relationship, all those

Mitchell Day:
Mm-hmm.

Dave Wolcott:
things. And then if you jeopardize achieving those, just to make a tactical move on the tax side, you’re really shooting yourself in the foot. And again, it kind of points back to our overall thesis around just having this strategy that’s taking all these different dimensions. of your life into perspective, you know, so that you can, you know, you can be a better investor. And you can also realize that vision, right? Because that’s what it’s all about at the end of the day, you know, living life, you know, the way the way you want to what to meet your vision.

Mitchell Day:
And that’s why our onboarding process, it’s kind of like the first questions are, and there’s two ways to think about it is one of the sarcastic ways, what do you want to do when you grow up? Or the other one is the more, as I put it as an Aristotelian question, what defines the good life for you? You have to define that first and foremost, because then everything comes off of there. for the roadmap. Like the roadmap you create for financial wealth, you have to understand what’s the good life for them. And for me, for taxes, and to compliment what you’re doing as well, it’s like I need to know that because I don’t wanna be recommending tax strategies that don’t meet your investment criteria, don’t meet your risk criteria, don’t meet your time criteria, because then that’s, I’m not adding value there. I have to understand who you are, what makes you tick, how things work. in order to get to that goal, like not only financial, but the more holistic point.

Dave Wolcott:
Yeah, absolutely. Mitch, if you could give just one piece of advice to our listeners about how they could accelerate their wealth trajectory, what would it be?

Mitchell Day:
The biggest one, and I’m gonna context this just from my own markets experience and just from also from my other career and just seeing things from like 20, 30 years of just being, seeing markets and all that. The biggest thing I try to understand is like understand risk. Have a larger perspective on it. Because one of the… This like I said, this is my personal opinion. It’s like understanding where you are in the interest rate cycle understanding leverage how it works Leverage is a double-edged sword. You can make money on the upside or it can wipe you out twice as fast So one of the big things I have is once you understand where you are in the market cycle Where you are in the business cycle where you are whether it’s positive or negative you have those facts and you can deploy capital appropriately where you’re not over leveraging yourself or over allocating things on there. Cause that’s the first thing, it’s all business case. You’ve got to look at risks on the business case. And then once you understand that, then we can start layering in, how do we put this in on a tax basis? But the first thing I always say is just, understand your business, understand risk, understand where you are in the economic cycle, three, you know, two, three, five years on a longer horizon. Understand that. Because remember past results are not indicative of future returns and we’re now in a new cycle where we’ve gone from 40 years of dropping interest rates. And now it looks like we’re starting a cycle of rising rates. These cycles are often 10, 20, 40 years long. Understanding where you are on that will drive a lot of your investment decisions and allow you to succeed. Because if you go under the old paradigm, you could get white.

Dave Wolcott:
Yeah. Awesome. I really appreciate the time today, Mitch, coming in and providing so much value for the folks. I know I’ll be listening to this again. I never thought tax would be so exciting, quite honestly,

Mitchell Day:
Okay.

Dave Wolcott:
but it’s really kind of, you know, it’s this like complex web, right, of all these different incentives, like you say, and different strategies, and then how you can incorporate that into your life. You know, I think I’ll share with the folks as well. You know, one of my learnings and something that, you know, everyone can do out there as well, is not only create someone on your team that truly understands having a proactive tax strategy like Mitch does, right? But it’s also being educated, you know, yourself,

Mitchell Day:
Thank you. Yeah.

Dave Wolcott:
right? And understanding all of the different options that you can do. Because what that does is, You know, every day, every week, when you make decisions, whether you buy something, whether you travel somewhere, whether

Mitchell Day:
Mm-hmm.

Dave Wolcott:
you’re making an investment, you’re always thinking about tax implication. So, you know, this really changes the way you do things and that way you can be an active partner with your CPA

Mitchell Day:
Mm-hmm.

Dave Wolcott:
and changing your entire picture. So I’ve found that to be very valuable versus just the flip side would be waiting till the end of the year and saying, hey, here are all my statements. Just do the preparation.

Mitchell Day:
Well, yeah, think about it this way. It’s kind of like, do you ever think that understanding philosophy would be the basis for everything going out of here? It’s like, I would have taken more philosophy courses back in school. But the idea is they’re concentric circles. The first thing is knowing yourself, knowing what your goals are. Then it’s like, the next circle is understanding the finances, how do I create the financials on this? Then the next circle out of the, how do taxes implicate this? And then it’s like the other circle. What are other non-financial things that I have to look at? It all waterfalls from that. So once you understand that process, you’ve come to that next level of realization. It’s like Maslow’s Hierarchies of Needs. It’s self-actualization. So you start understanding where it’s like, it all fits in and how it all interrelates. It’s… It’s really good because then it’s like now you’ve now you’ve reached that higher level of consciousness when it comes to wealth in your own personal goals And then you know what you don’t know and it’s like, okay. I know there’s a tax impact. I know there’s a financial I know what question I might not know all the questions to ask But I know that I got to start asking questions and it’ll lead me down the path to the solution

Dave Wolcott:
Yeah, love it Mitch. So if people wanna reach out to you and connect with you or learn more about your firm, what you guys are doing at Provision, what’s the best place?

Mitchell Day:
Okay, well the easiest way is our website is www.provisionwealth.com. That’s our website. You can take a look at it there. If you want to talk to me, I’m happy to have a half hour call with you, talk about your situation, figure out how we can help you, whether we’re a good fit. Give us a call, 480-467-4400. Happy to have a talk with you, talk about your situation and kind of go from there and figure out what you can do. What’s next step on our journey is.

Dave Wolcott:
Yeah, that’s awesome. I’d also like to share with folks that Provision is actually one of the faculty members in our mastermind and virtual family office. So if you’d really like to take your wealth to the next level, right? And get this type of, you know, advice and strategy in your overall wealth planning situation, check out our mastermind group as well. Mitch, thanks again for coming on the show today. Really appreciate it.

Mitchell Day:
Thanks a lot, Dave, this was a blast.

Dave Wolcott:
awesome.

Dave Wolcott:
Hey everyone, welcome to today’s show on wealth strategy secrets. Today we’re joined by Joel Friedland. Joel is an accomplished real estate professional who provides clients with comprehensive solutions for acquiring, selling, leasing, and investment. Joel manages a portfolio of properties on behalf of investors, which include individual investors, trusts, and families. Joel obtained his extensive experience as co-founder of Epic Savage Realty Partners. and completed hundreds of transactions while being responsible for leadership development at the firm for over 20 years. After Joel and his 10 partners sold Epic Savage to an international real estate firm, he founded Brit Properties and Brit Asset Management where he oversees leasing, sales and asset management for numerous property investments. Joel has been a member of the Society of Industrial Realtors since 1990 and the Association of Industrial Real Estate. Having served on the board of directors and moderating panel discussions of industrial real estate topics, Joel attended San Diego State University where he was a member of the ATO fraternity and is a graduate of the University of Michigan in Ann Arbor. Joel, welcome to the show.

joel:
Thanks Dave, it’s great to see you.

Dave Wolcott:
Yeah, no, great to connect as well. Um, you know, quite, quite a background you’ve had, and I know you’ve, uh, been in the market for many, many different years and, and have been through many different cycles, which, you know, should be an interesting topic, you know, that we can kind of get in today. Um, but as we get started, you know, maybe to help the listeners learn a little bit more about you, you know, why don’t you tell us a little bit more about your background and how you got into the space?

joel:
Sure. First of all, I’m glad we’re doing this because we’ve been watching each other on podcasts. We’re finally meeting in person. This is great. So yeah, my background started in real estate when I was 22. I went to work right out of the University of Michigan for a family, not my family, but a family. Their name was Podolsky. And they were one of the bigger. owners of industrial real estate in the Chicago market. They owned 84 industrial buildings and I was looking for a job in real estate. And I cold called Mr. Podolsky. And I said, I’m looking for a job in real estate. And he said, come in today for an interview. So I went there that day and he said, my 84 building portfolio is 6 million square feet. I’ve been very successful for a lot of years, but in 1981. which was my first year, interest rates were 17%. Companies were scared to death that they were gonna go out of business. And the last thing they wanted to do was move from an industrial building that they were into a different industrial building because the moving costs and the disruption could put them out of business at a difficult time in the economy. So Milt said in the interview, he asked me, what would you do to fill up my 10 vacant buildings? And I said, I would… cold call in the industrial parks. I’d go door to door in person. It was summer, so the weather in Chicago is better in the summer, obviously. And I said, I’m just gonna go out to the industrial parks and I’ll find tenants in other buildings and I’ll convince them to look at your vacancies and I’ll try to put deals together. And he asked, what qualifies you to do that and how do you know that that’s a good idea? I said, well, when I was 14, I went door to door in my neighborhood in Highland Park, where I lived, and I convinced 70 people to let me landscape their properties for the summer. I said, I’m a really good cold caller. I said, my hit ratio when I’d go door to door, I’d meet with a husband and wife and sit with them for 20 minutes. And my hit ratio was every bit of 70%, yes, probably because I was doing it for such a low cost. I was 14, so I wasn’t charging enough. So they said, oh, let’s give this kid an opportunity. So it was similar because going and getting a new tenant at a tough time, the way to do it is to say, I’ll give you a better rent. I’ll reduce your rent because times are tough. And I filled up that first year, all but one of the 10 buildings. There was still one left. Um, but I really went crazy. I cold called thousands of companies all over the Chicago. And I worked for the family. My mentor was Milt’s son and another guy named Richard who took me under their wing. That to me, that’s the secret of all success. Having a great, great mentor or having multiple great mentors. And I had that and I was so lucky to have these incredibly brilliant, experienced people who were major players in our market.

Dave Wolcott:
Yeah, that’s really awesome. I think a lot of people just, you know, don’t really think about that in terms of mentors. And it seems to be more prevalent in certain industries versus others. You know, so I think there’s a lot of folks in real estate and you know, as my kids are, you know, starting their careers and everything, I’ve been advocating that for them as well to really just kind of latch on, right? Because it’s creating those, you know, relationships that can really, you know, up-level your game and getting the hands-on experience that you’re just not gonna get from any type of schooling, which is interesting. So Joel, tell me a little bit about, I mean, obviously, you know, you got into the real estate space at a very early age. It can be a very lucrative industry for those who excel in their specific spaces. So did you start to create a, you know, particular wealth strategy for yourself? You know, once you start to create, you know, your vision and realize, wow, you know, I can really scale this. And what did that really look like?

joel:
Well, let me give you this summary. First of all, yes. When I was working for Milt Podosky, I looked at him and I said, one day, I said, Milt, I’d like to learn to do what you do, which is being a syndicator. At the time, I was an industrial real estate broker. So I was an agent for Milt and for other people to do leasing and sales of industrial properties, which are manufacturing buildings and distribution buildings. We can talk about industrial. It’s a very different niche than most people know about. But I learned it over this period of time that I worked for the Podolsky’s as my mentors. And I said to Mill, I don’t think you made all your money being an agent. He said, he laughed and he said, I did not. I said, well, I’d like to be like you, whatever you did is what I want to do. So he said, I’d be happy to help you learn how to build a portfolio. Uh, like mine, starting with the first property, I’ll be your first investor if you put together a syndication. So I said, that’s a great offer. So I went and found a property and I said, this will be my first of many. And I put together a group. It was a $560,000 deal in a place called Gurney, Illinois. We did a 14,000 square foot industrial building. two loading docks, 18 foot clear ceilings, a little office in the front, a drive-in door so they could drive vans inside. And we bought it and we leased it and we had a tenant and I brought in a bunch of investors for $20,000 each. And they said to me, how much are you putting in? Because we’re not going in unless you do. So I put 20,000 in as well and it worked. And I went and did more and Milton invested it again in his son, Stephen, my, my mentor to this day, who’s still my partner and my close friend, went into the deal with us. And I kept expanding the network of investors through people that I knew by being an agent. I dealt with a lot of companies and owners of companies have money. So I convinced many of them to invest with me. And over the years, we bought about 100 properties up until today. Um, all really similar, uh, industrial buildings, single tenant, primarily net least and my 200 investors. I know every single one of them. And when I do a new deal, when we buy a property, I go to the same group and. Not everybody invests in every deal. So it’s good to have a good, a big group because maybe 30 or 40 will be in a position or. be interested in investing in one of our new deals. But I built up a portfolio and we self-manage. We do a lot of the leasing with a brokerage company that we’re close with. And it’s been great, but I had a disaster in 2008. Everything was going great. I thought I was like the biggest hotshot. That’s like, I was a, uh, I was a country club guy. I had a fancy car. I had a big house and I thought this is going to go on forever. And then we got slammed, uh, with the great recession. I had seven banks. I had borrowed money from. people promissory notes, I had 63 people I’d borrowed from, I owed $70 million. That’s

Dave Wolcott:
Wow,

joel:
a

Dave Wolcott:
it’s

joel:
lot

Dave Wolcott:
a big

joel:
of,

Dave Wolcott:
number. Yeah.

joel:
it’s a big number. And boy, if, if 1981 was tough, Milt had 10 vacancies. 2008 was 10 times worse. If you ask anybody out there, because the banks weren’t lending, you couldn’t refinance. Tenants were going out of business. Tenants were coming back and asking for reduced rents. So I don’t know if you’ve heard of a forbearance agreement, but I had seven banks and I had forbearance agreements at most of them, which is that means let’s let these people try to pay off the loan over a longer period of time with lower payments so that we don’t have to foreclose. It was really miserable. And I always… point to my couch in the back. That’s the couch I was lying on when I was depressed and thought I had lost 200 people’s money. My investors, I thought were gonna just be disappointed and I was just ashamed of myself. What had I done? How could I be in a position when I was doing so well that all of a sudden, bam, it stops and it looks like I’m gonna lose everything? So I literally couldn’t get off the couch. I have to tell you that I did think about taking my life and being done. I was so ashamed and embarrassed. It was hell. And with a lot of help from family and friends and some therapists and a little medication, I got off the couch and I went to work and I saved the portfolio. Not everything worked. There were still some deals that never came back, but a bunch of the deals came back. And I started rebuilding. My net worth went from millions of dollars to negative millions of dollars. And I had to work just to get back to zero. I had to borrow, this is one of your things. I had to borrow from my Northwestern Mutual Life Insurance whole life policy. I was lucky I had $200,000 at that point of cash value and I borrowed it all. And we lived on that until we came back from the depths of despair. And after that, I changed the way I do things. And some people think that it’s crazy that I buy properties now, all cash, no mortgage. I know you like leverage. I know a lot of real estate people like leverage, but for me and for my mental health, I can’t tolerate losses and I can’t tolerate the feeling of shame and embarrassment. And I’m vulnerable enough to admit that I know who I am. So now when I put deals together, we buy them all cash, no mortgage, with no intention to ever put a mortgage on. And the wealthiest people I know like it. Who knew? I had no idea that it would work. About five years ago, maybe, I went to my accountant and I said, I want to do deals all cash. And he said, you’ll never get investors. I said, well, then I’ll never get investors. And interestingly, there’s a group of people who are extremely wealthy who wanna preserve their wealth as opposed to trying to make a big return on money because they need to do it to build up wealth. They’ve already got it and they wanna make sure they don’t lose it.

Dave Wolcott:
Well, such a powerful story, Joel. Uh, I can’t imagine what was going on in your mind. And it’s so interesting how people, it really at the top of their game, you know, whether that’s, you know, sports or entertainment, you know, or business, right, have some type of, you know, massive event like that, you know, that really changes the trajectory of, you know, how you think. how you go forward and you know, thankfully, you know, you had enough support and were able to kind of get through that and Move on to the next level But what would you say in terms of you know? What do you think was the most important learning lesson kind of coming from that experience?

joel:
Well, I think it’s that mental health is everything and how we make decisions is more important than anything. And I believe that most people, if they’re honest, make a lot of their decisions based on hunches and on their mood. And that’s not good. You need to make it on due diligence and math. And so I had three partners when I built up this very large portfolio of dozens of buildings. And I trusted them and they trusted me. And some of the buildings that were bought were buildings I never even saw. And I just trusted that my partners knew what they were doing. They might’ve, but maybe they didn’t. Maybe they needed some more experience and maybe they needed to be more conservative. So I now get involved in just even the most minute details of every deal because if you let mood drive your decision to buy a property, it’s a terrible strategy. It has to be the math and it has to be thinking through what you’re looking at down the road 10 years and where you want to be as opposed to. Let’s do the deal real quick and make a lot of money and go to the next thing. So we buy long-term hold properties where it takes an awful lot to find them. I go door to door still, and I have a son in the business and a partner in the business. We still cold call to find deals. If we find a great deal, why would we wanna sell it in three years? You know, all these people who put together these offerings and… They say it’s a three-year hold. They must not be very happy with the properties of its three years, because why would you sell a great property in three years if you could hold it for a long time and make great cash flow and it appreciates? Where are you going to get something better than the thing you worked so hard to get? And so that’s my philosophy is buy for the long term, have great staying power, pay attention to the details. And in terms of mental health, don’t ever make a decision. when you’re elevated and you’re in a good mood and don’t ever make a decision when you’re struggling and in a tough place because there’s nothing better than knowing that you’ve thought something through and gotten great advice. So I have a group of advisors, I have eight investors that I run everything by before we buy a property. I never did that before 2008. I went to my three partners and said, hey, this looks great. Let’s buy this one. Sometimes we got lucky. I mean, there are deals where we made a lot. And then because of 2008, we saw where the holes were. So I think that’s the answer really, really pay attention. And it’s our micro focus. Also, we only own properties, industrial properties in the Chicago area. We don’t want to go to some other town where someone’s going to eat our lunch because they know the market and we don’t. So that’s a big part of it too, is just really being focused on one thing and doing it well. If I can’t do something really well after 43 years of doing it hundreds and hundreds of times, there’s a problem. And now it just comes down to how do we make the best decisions to protect our investors and ourselves?

Dave Wolcott:
Yeah, really sage advice, Joel. We were just talking about that in our mastermind group the other day. And it’s really, it’s that emotional factor that really gets the majority of investors, regardless of the asset class. Right. And, you know, you could be on a high, like you said, and be, you know, bullish about a particular opportunity, but you haven’t, you know, done enough due diligence, had, don’t really understand it enough and kind of be caught, you know, there. or on the low side, right? I mean, right now, fear sells, and people are trying to put you into certain assets based upon fear, right? Based upon kind of what’s going on. And this is kind of why we like to advocate creating a proactive strategy around your wealth so that if you know clearly where you’re going in the future in 10 years and 25 years, you can align to that. You know, we’ve definitely seen more success like that. And you’ve seen obviously key investors like Buffett, right? Who have just very, you know, key strategies lined up. So such an important part of, you know, being a professional investor is right. You know, having a strong strategy in place. So let’s unpack the, you know, industrial space a bit more, right? We’ve had a lot of guests on the show that we’ve talked about. multi-family opportunities, self-storage, land, I mean, all these different types. But I think a lot of people might be new to the industrial space. So if you can kind of unpack that and just kind of start as if we were at a 101 and just talk about some of the main elements of industrial.

joel:
Sure. So industrial is property that’s generally right on the highway or right on the tollway, or it’s hidden away behind other things. It’s hidden behind multifamily. It’s hidden behind retail because industrial is manufacturing and distribution. And these are buildings that the consumers don’t need to show up at because they sell through business to business as opposed to business to consumer except for e-commerce, which is a huge part of industrial. So if you drive down the highway and you see a giant Amazon building and it’s got a bunch of truck docks and a big area where trucks are parked and it’s got big high ceilings and there are these huge buildings, that’s industrial. And we call that A industrial. These are large modern buildings with high ceilings. very sophisticated, deluge sprinkler systems in case there’s a fire. They’re actually very attractive. They’re usually made out of tilt-up or out of what’s called precast concrete. And that’s a industrial. We own some of that, but that’s mostly owned by institutional owners like pension funds and insurance companies. And Blackstone and Blackrock and so forth. They’re huge, they’re expensive. A level below that is what’s called B and C industrial. And those are older buildings, smaller buildings, lower ceilings. And those are properties that don’t cost as much and are not favorites of institutions. They’re favorites of ours. So in the Chicago area, there’s 1.3 billion square feet. of industrial and most of it’s B and C. And what I love about industrial is every building has a different kind of tenant that’s in a different business. They’re all fascinating. In our case, we have a tenant that was on Shark Tank in year one who makes protein bars. He makes $18 million a year of protein bars. So the building that he’s in, he’s got 50,000 square feet, he’s got 80 employees, he built it up from nothing. When he was on Shark Tank in season one, he was doing $50,000 in volume, and he was doing it out of this little bakery. So now he’s got this big business, and you walk in there, it’s so impressive. Everybody’s wearing their white suits and their little hair nets so that the hair doesn’t fall into the protein bars. And there are machines and there’s rooms. And this is a typical tenant of ours. And he pays net rent. His net rent is $8 per square foot. So that’s $400,000 a year. Now, for us, we buy buildings all cash, no debt, and our investors insist on an 8% return. So in a building like that where the rent is $400,000, that means that… we can afford to be in for five million, that would be the value of the building because 400,000 is 8% of the five million. And then every year the rent goes up a little bit, we call those annual escalations. So our investors invest with us for cashflow and appreciation, but they’re these smaller buildings and many of them are made out of brick, some of them are metal. We’ve got so many fascinating tenants. One makes exhibits for children’s museums. We have distributors. You’ve eaten yogurt out of the yogurt cup, the little white cups that they come in.

Dave Wolcott:
Yep.

joel:
Those are made somewhere. That’s one of our tenants. So we got a guy who makes safety products for the welding industry. You know, if you’re a welder and you’re wearing the protection and you’re wearing

Dave Wolcott:
Shield,

joel:
something so

Dave Wolcott:
sure.

joel:
sparkly, they’ll get you. He makes the suits so the sparks don’t catch you on fire. And he makes the screens because if you look at the flame, when someone’s welding, it hurts the retina in your eye. So he makes these screens so that when people walk by, you can see through the screen, they’re different colors, but they’re somewhat clear. So you can see, but it protects your eyes. He makes those screens. I mean, we’ve got these amazing tenants and they pay rent and they’ve got good credit. We rarely have a tenant that we have to kick out of a building because usually they’re their divisions of much larger companies or their family-owned businesses that have been around for decades and They’re sticky our tenants are sticky manufacturers don’t like to move Because they can’t afford to lose their employees. They can’t afford to move their machines. They can’t afford the downtime so I’d say the average tenant stays in our buildings for 15 years and longer. And every year the rent goes up. Except in 2008. Again,

Dave Wolcott:
Yeah.

joel:
that was hell. Rents did not go up. So you can’t count on rents to always go up, but those are our kind of buildings. And, um, it’s, it’s so interesting because it’s the people more than it’s the companies, almost every one of these companies is owned by a family. or it’s owned by a person who’s got partners, but the family’s still involved because it’s all part of their estate. So I get to know the individual tenants and I get to know people who are in their family or who are their partners. And those are interestingly the people who become my investors. The Shark Tank guy is an investor with a million dollars in another deal. We just made a lease with somebody, they got to know us, they trust us. and the CEO of the company just invested in one of our deals. So we’re creating this synergy between our tenants and our investors. A lot of the same people are both. And I just love the business. Every day is a new adventure and learning something.

Dave Wolcott:
Yeah, really interesting. Tell me about tax advantages. Are you doing cost segregation studies and what does the depreciation typically look like?

joel:
Yeah, in a cost segregation study, there’s virtually no tax on your income for the first two years. So the 8% is tax free. Now in the third year, you don’t have that, the jump. It starts coming down to a normal level. But yeah, we do take advantage of every tax law we can on behalf of our investors. The normal building without a… tech without a segregation study. About half of the cash flow is sheltered. So there are losses. Milt Podolsky told me when I asked him to help me invest, the first time I asked him to do that, he said, yeah, I’m making about $4 million a year on my cash flow, and I pay zero in taxes. And I said, how do you do that? He said,

Dave Wolcott:
Exactly.

joel:
you’ll learn. You’ll learn.

Dave Wolcott:
Yeah,

joel:
So I’ve learned.

Dave Wolcott:
that’s part of the wealth strategy for sure. What about risks, Joel? Especially 2023, we’re in right now, lots of different things. Obviously you don’t have any interest rate risk, but tell us about what are some of the key risks in this industry?

joel:
So there are two kinds of industrial properties. The ABC, those are the property types, but there’s two kinds of properties. One is multi-tenant, which is more similar to multi-family, and one is single-tenant. A multi-tenant building, usually in our business, has three units, five units, and it’s not like where there’s 100 tenants in a building, that’s not really industrial. And then there’s single-tenant. A lot of companies want their own building. They don’t want to share a common wall with anybody. They make noise. They make some kind of smell. They just don’t want to share. So these freestanding buildings that we own, the risk is vacancy. Because if it goes vacant, it’s 100% vacant. And even if there’s not a mortgage, there’s still taxes, insurance, maintenance, and utilities. So when it’s vacant, we have to pay those. And when it’s vacant, there’s no money coming in. So I say there’s really three risks in industrial. Vacancy, vacancy, vacancy. And it happens. There are times when we have vacant buildings and we have to get through a period while we’re marketing them to find a new tenant.

Dave Wolcott:
You guys are vertically integrated though, so assuming you’re doing, you know, all the leasing and everything is run internally then.

joel:
Well, we do the property management, which by the way, is a loser. Property management generally is a loser business. Uh, the cost of managing is very high because if you do it right, it takes, it’s, it’s a daily thing. It’s a lot of accounting, but it’s also a lot of problems with a roof, problems with the HVAC problems with the parking lot and the management. Um, so run our management company. Each individual manager makes close to $100,000. And to get a good one, that’s what you have to pay. We’ve had sub-par people, but then our properties don’t get managed well. And we have all the other overhead. When you add up how much we pay people to manage properties, because they have to be sophisticated as property managers of industrial, they have to understand all the physical systems. And it’s very expensive. I would say the funniest thing is when an investor said to me, you charge 4% management, you’re making a fortune. I said, you take the management company, you manage it, and you cover the loss. He said, no, you do it. So yes, we do self-manage, and

Dave Wolcott:
Yeah.

joel:
it’s a lot of work. It’s my least favorite part of the business. My son came into the business about a year and a half ago, and I put him in management. After a week, he said, I can’t do this. This sucks. He went into brokerage or into finding deals and putting deals

Dave Wolcott:
Yeah.

joel:
together.

Dave Wolcott:
So,

joel:
But we

Dave Wolcott:
and

joel:
don’t.

Dave Wolcott:
where do

joel:
Yeah,

Dave Wolcott:
you

joel:
good.

Dave Wolcott:
think? Sorry, I was just going to go on. What do you think about where we are in the cycle for industrial specifically right now?

joel:
The market is as good as it’s ever been. Values are higher than they’ve ever been. We have a building that we paid $6 million for about 15 years ago, and today it’s worth triple. Depends on where the buildings are. We do infill, which is near the city and near the airport, and that’s where they go up in value the most when there’s an increase in asset values. I think it’s gonna… blow up. I think it’s going to be a disaster, which means I think there will be vacant buildings. It’s all about supply and demand, and they’re building too many new buildings, and I don’t think there’s enough tenants in the market to fill them all up. So I’m expecting a downturn, which is one of the reasons I’m so comfortable with no debt, because if there’s a downturn, we don’t lose our equity, we just have to get through it.

Dave Wolcott:
You’ve got that flexibility, which a lot of people are going to get caught out if they financed three years ago and weren’t anticipating this.

joel:
Yeah, it’s the opposite of what’s happening with office buildings. As office buildings are being given back to lenders and refinancing becomes a problem for the owners. I feel like they’re going through right now what I went through in 2008. It’s just a terrible time for them. And it’s

Dave Wolcott:
Yeah.

joel:
a terrible time for a lot of the malls too. But industrial is picking up a lot when retail goes bad, industrial goes well. Because Target Online and Amazon and Wayfair and everybody else who’s got products in a warehouse, online sales are booming and that means they need warehouse space. And because there’s a huge problem politically with China, a lot of companies that used to make their products in China are bringing them back. It’s called reshoring or on-shoring. So manufacturers are coming back. and that’s filling up industrial. So industrial has been booming and there’s been no let up. It has not gone down at all. But I think the interest rates are starting to affect it.

Dave Wolcott:
Yeah. Interesting. Joel, if you could give just one piece of advice to our listeners about how they could accelerate their wealth trajectories, what would it be?

joel:
Find a person who is the avatar for what you want to be and where you want to see yourself, let’s say in five years, and convince them to teach you what they know, like Milpadovsky taught me. If you work with somebody who has all the knowledge and all the judgment that made them as wealthy as they are today, and you can convince them that you’re worth their time to train so that you can help them do what they’re doing, but they can help you become successful like they are now. To me, that’s the answer. Everyone I know that has literally millions and millions of dollars started that way. People didn’t start fiddle farting around trying to figure it out on their own. Those people just, I call that wide but not deep. And they struggle.

Dave Wolcott:
Yeah, excellent. No, I think that’s such a great piece of advice and also, um, you know, in all aspects of your life, right? What you’re trying to get better in. You can have a mentor in, you know, whether it’s, you know, whether it’s your health or, uh, you know, sports or something like that, right? We always want to be, if you’re trying to uplevel your game, right, you have to make an effort to do that and you need some type of mentor to get there. So it’s not only in business. And that’s why we view this whole thing holistically, because back to your point about mental health earlier, those things are really key. How you think, how you can work through challenges, right? Because we’re always gonna have challenges in life, right? I mean, there’s so many things going on this year, but I mean, think about it. When haven’t there been so many things going on, geopolitically, environmentally, all of these different factors, but what you can control in life is you actually meet those challenges, right? And do you have the leadership and the perseverance to really get through it? So having a mentor is key to be able to grow that.

joel:
Yeah, your holistic approach, I think, is really right on target. And the things you talk about are really important. I think this, this mental health thing is a huge component. And that, that means you have to be physically healthy and that means you have to have good relationships and that means you have to have goals. And so what you talk about and the things that I’ve heard you say and understand that you help people with. I don’t think there’s anything that’s more important than what you’re talking about.

Dave Wolcott:
Yeah, appreciate that Joel. Really, it’s been such a great conversation enlightening us about your journey, I think has just been super insightful Joel, and I appreciate the transparency, you sharing that with the audience. There’s so much to learn in those lessons that you’ve shared, and as well as all your expertise around the industrial space, I think it’s a super interesting asset class. and one definitely worthy of looking at. If people would like to connect with you, learn more about you, what’s the best place they can reach out?

joel:
Sure. Our website is BritProperties.com. On our website it talks about our risk-averse philosophy and how people can invest starting with $25,000. Most people don’t, but some do. We have a few case studies in there. We have one very interesting thing. We have an article that’s called Why You Should Not Invest With Us. tells all

Dave Wolcott:
Nice.

joel:
the reasons why people should be careful and what questions they should ask.

Dave Wolcott:
Love it. Joel, thanks again for coming on the show. Really appreciate your time.

joel:
Dave, thank you.

Dave:
Hey everyone, welcome to today’s show on wealth strategy secrets. We’ve got another awesome show for you guys today. Today we are joined by Tom Burns. Tom is an entrepreneur, retired orthopedic surgeon, and a physician for the U S ski team. He has over 25 years of real estate experience and has acquired or developed over 700 million of real estate locally and internationally. He is the co-founder and principal of Persario ventures. a private real estate company focused on apartment development and private equity in Texas and the Sunbelt. And Dr. Burns is the author of Why Doctors Don’t Get Rich, a bestselling personal finance book for those who want to live life to the fullest. He’s a sought after speaker and mentor and has been financially independent for over a decade. He’s the founder of the Rich Life Mastermind created to help people create financial independence so they can con