I’d like to give each and every one of my listeners a gift this year so I’m going to do that the only way I know how—to give you some unsolicited advice (not to be confused with financial advice). Take it or leave it but these concepts have served me well. So…let us begin!
Invest in people, not deals. This is just as true whether you are investing on your own as owner-operator or as a passive investor. It is easy to understand from the perspective of a passive investor. Once word gets around that you might invest in a private placement, you will get a lot of garbage thrown your way. My advice…if you don’t know who it’s coming from, delete it.Proformas and glossy offering memorandums can be made to look whatever way you want them to look. You can make swamp land in Florida look good on paper. It’s like putting lipstick on a pig. Work with people that you know, like and trust.
What if you are contemplating a new venture on your own or are thinking about buying your own apartment building? Same principal here…invest in people, not deals. In this case, you have to invest in your self. You have to take the time to learn and get the help you need from mentors and masterminds. If you are going into a dark cave for the first time, bring someone who’s been there before.
Be careful on this one—lots of gurus out there who aren’t going to help you that much. They are too busy selling their programs to be true mentors. It’s better if you find a real person willing to take you under their wing who’s got some scar tissue. To master anything new, you have to learn from mistakes…but they don’t have to be your mistakes.
Finally, remember to keep an open mind and try to learn from multiple sources. A mentor is great but should serve as a foundation for your on-going learning. Get perspectives from others. I have found that perfectly intelligent people can disagree on how things should be done and both or neither can be right at the same time.
I have missed out on some big opportunities in the past few years because I kept listening to the same people crying wolf about the economy over and over.I have found that when everyone thinks the same thing, it is usually time to second guess the assumptions that are being made.
So…please keep listening to my podcast and become an active member of the Wealth Formula Community. But also listen to others who have a different perspective. Tell me when you think I am wrong. But if you do, back it up rather than quoting another podcaster or blogger.
On my end, I will continue and try not to let myself get boxed into one kind of thinking and to continue to provide you with truly unique and useful content that isn’t just a replay of someone else’s podcast. I think we have just scratched the surface.
Buck: Welcome back to the show everyone. This is a special show. Today is the Christmas edition of Ask Buck. Today joining me I have got two of the people who helped me with all of this Wealth Formula stuff. The first person many of you have spoken to is Phil. Phil you want to say hello?
Phil: Oh Hello.
Buck: Hello Phil. Phil is of course the media guy. A number of you have encountered Phil in various ways and I apologize for that, just kidding Phil. And then we also have Madalyn. Now I have to let you in on a little secret. For those of you who have have been emailing with Joanie, Joanie is actually Madalyn. So you may be asking why, it’s because Madalyn was my assistant she’s been my assistant for a long time, three years yeah so it’s like by far and away the longest lasting assistant I’ve ever had. And so that says a lot about Madalyn.
Phil: I like to think of Joanie as her superheroine alter ego.
Buck: Well that’s right. So what so what happened was the weird thing and the reason why her email is always Joanie@wealthformula.com now is that is that Madalyn went away for a brief period of time to finish up her degree and she wasn’t sure if she wanted to you know go off and teach or if she wanted to come back, we wanted her to come back obviously, but anyway we hired somebody named Joanie in the interim and then Joanie didn’t work out and we ended up having somebody else and then finally Madalyn came back but rather than put everybody through the turmoil of having multiple emails from my assistant we just stuck Joanie’s email so Joanie is actually Madalyn so that’s a secret. Right so everybody who thinks Joanie’s great, it’s actually Madalyn that is great and Phil, well Phil is just Phil. So anyway guys thanks for everything that you do for me. I know I’m not the most easy person to work with but I’m glad you guys are here to help me out. So Madalyn and Phil are gonna help me with the show today by asking questions, playing audio etc. and so let’s just you know let’s go crazy, let’s just get started here. We have it we have a mixture of written questions and audio questions why don’t we start with the first one here it’s from Parker. Phil why don’t you play that question.
Parker: Hey Buck, this is Parker. Really enjoy being part of the group thanks again for everything you provide in the podcast. Wanted to get your thoughts on investing or buying non-performing notes from the bank especially given the current climate within the market cycles etc, I wanted to see if you put any thought into it. Thanks.
Buck: Good question Parker. In fact I have thought about this a great deal in fact, I thought about it enough so that I actually signed up for a course. Because you know there’s a general rule I like to say that if you’re gonna go into a dark cave, go there with somebody who’s been there before. And sure you can learn, you got to learn from mistakes but they don’t have to be your mistakes, etc. So I signed up for this course, I actually paid a ton of money and it was a lousy course and I didn’t learn anything. After this I was sort of disappointed, I called my friend Jorge Newberry who you know is the founder and chairman now of AHP servicing formerly known as AHP American Homeowner Preservation and I said Jorge can I come to your office and just learn this stuff? And so Jorge said yes so he invited me to Chicago and actually Phil came out there with me, we recorded for two days the process and at some point we’re gonna release this to everybody, it’s not going to be something that we’re selling or something, it’s just literally just pure information for anybody who wants to go through the process, but suffice it to say that it’s not easy. I thought sounded kind of easy right, you just buy some notes and you know you either modify, etc. The bottom line is that there’s a tremendous amount of due diligence involved with buying these things and the information is so scattered that it’s extremely time-consuming. And so I go to the AHP servicing office in Chicago and they’ve got like a whole floor just full of people working on this stuff. And I’m not saying it can’t be done, it can be on an individual basis but I think the mistake is to think that this is something that you can kind of do you know with very passively like almost like turnkey rentals or or something like that, it’s really not. I certainly would not say I’m not interested, because I am. In fact I you know I did buy a few notes from George I bought performing notes were sort of which were not non you know they were performing previously they were not performing. I bought ones that I thought were pretty safe. I looked at ones where there was equity etc, but again the major point that I want to bring out here is that I think it’s a good space to be in. I think what you’re finding in that market though is even the notes are getting expensive, so whereas non performing and reperforming or whatever, all these things you were getting crazy yields before, now the yields are not nearly as good as they were, but the risk potentially you could argue is potentially even higher because if there’s a down cycle you may have more defaults. So you know of course the other alternative than to do what I always consider a conservative approach which is to invest enough in a fund that’s doing it, and Jorge’s fund of course I’m not a partner in any way or anything like that but I have invested on AHP servicing many times and this year’s fund it’s tighter it’s 10 percent not 12 but it’s still really good and for doing nothing and I think it’s gonna be a fifty million dollar fund, again it’s one of the situations where right now if you can on your own get 12% or 14% but there’s a risk that somebody just stops paying or you’re in the middle of a big fund that pays 10% and it’s so big and so liquid that it’s constantly throwing off a consistent amount. You have to kind of make that decision. But I think that right now if you are thinking about it, it might be a good time to learn because I do think that there will be probably some cycle turn where more and more the stuff will become available and the yields might go a little bit higher. So that’s all I have to say about that so we’ll stick to it. Okay so let’s see Madeline who’s the next question from?
Madalyn: Mike says, Buck, I really enjoy listening to your podcasts. I look forward to them each Sunday. I have been thinking about agriculture and looking for syndications for agriculture in the U.S. I know you have talked about coffee and chocolate before in other countries and the benefits of agriculture but wanted to know your thoughts on U.S agriculture syndications and if you have found a good provider or would consider putting together a syndication. Thanks and keep the good shows coming.
Buck: So thanks for the compliment and the question Mike. What I will tell you is that first I want to make a quick disclaimer and understand that the shows that I had are for educational purposes only. And particularly early on in the podcasts when I was really first starting out I was you know I just pretty much was out there getting different opinions and different opportunities, but I was not vetting any of these things ahead of time. So I want to make sure it’s clear that just because I have somebody on this show, especially the earlier shows, that it is that you don’t assume that I considered a good investment or that I am investing in those things myself, so just to be clear on that, do your own diligence and you know I mean I think just understand that this is education and don’t assume I’m investing in it. So that said, let’s go back to your question. In terms of culture in general, I love agriculture, okay. I love the idea of Agriculture. Why? Because you go back to the whole reason why I like multifamily real estate. So there’s this thing called Maslow’s hierarchy of needs right? People need, what do they need? First and foremost they need food, they need water, and then they need shelter and safety after that, right? Shelter and safety is multi-family, but obviously food and water is agriculture. Now I will say that the challenge that I have had on the agricultural side is exactly what it sounds like you’re having some issues too, which is like it’s not easy to find an investment that really makes sense. They tend to fall into two categories and from what I’ve seen, one is that they’re too small, I personally am not really that into investing in foreign agriculture. I do want to have some kind of stability to to the agriculture itself and you know I’m not of the school that says that investing outside of the US is something that everyone should do because I think the US economy is by far and away the biggest and I mean I think if the US goes down everywhere else is going down you have a lot more protections in the US. Now I will say also that one of the challenges that I have had in finding good things to invest in is that people understand that with great operators in the area of Agriculture that it is this is not something that people make a lot of money on because it’s very reliable, right? You’re gonna be looking at yields that are pretty low if you’re getting like six, seven percent, that’s what I talk to like larger groups and they say they’re gonna get you six or seven percent you know that just doesn’t really appeal to me. That said if there’s an opportunity that I think that is is worthwhile, certainly bring it to the attention of the Investor Club, which by the way if any of you are accredited investors and have not signed up, you absolutely should. Accredited just means you make a couple hundred thousand dollars a year or you have a net worth of at least a million dollars outside of your personal residence. Now going back to agriculture, the other issue with it is again it is a little bit frothy because there’s a lot of money going in there for safe harbor, you know trying to hedge the economy etc. And there’s not a lot of opportunity in agriculture that the way there is in real estate for what you would call a value-add, right? So in multifamily real estate or any real estate for that matter there’s always the opportunity to force equity by increasing net operating income and therefore the value of a given property. Agriculture’s not really like that, I mean I guess you could do value add type agriculture but I have not found anything remotely that I’m comfortable with right now, but it’s a good question and if you find something of interest, let me know, but as you know my process for vetting these things takes a long time too. Let’s see Madalyn why don’t you do the next question, I think we actually have some audio there?
Ravi: Hey Buck. it’s Ravi Ghanta. I do enjoy your podcast. One quick question I had was regarding oil and gas investments I wasn’t sure if you had an episode recording that. If there’s any particular sponsor or company that you would recommend I would like to learn more about this because they’re investing in this asset class for the benefits of taxes as well as potential cash flow. Thanks very much Buck bye-bye.
Buck: So thanks for the question Ravi. So a couple things, obviously I can’t really recommend any particular operator or anything on the show, I can’t really give financial advice. But a couple things I’ll point out one is, Ravi, I’m pretty sure, I’m almost positive you’re part of Wealth Formula Network. If you go to the archived mastermind calls that are bi-weekly you can see there’s an entire phone call on that and so check that out. And if any of one else is interested in that whole Wealth Formula Network opportunity with the course and the mastermind calls etc, you can go to WealthFormulaRoadmap.com and check that out, maybe it’s a good Christmas gift who knows. Anyway, but I will say this ok on that call I had very little to offer because generally speaking, my own experiences with oil and gas have not been good. We have done podcasts with oil and gas people in the past, but even ones that are know-like-trust category people, they have lost a lot of money, because why? Because inherently this is a highly speculative area and apart from a couple couple guys in our in our investor group who have had some luck with it virtually everybody else I talked to including myself has pretty much had zero luck. So why would you invest in this stuff in the first place? And I think the reason Ravi is talking about this is because oil and gas drilling, the intangible drilling costs of that, effectively what it does now especially because of bonus depreciation is that even for w2 employees and w2 income, you can effectively write-off your entire investment in the first year. So again even if it’s w2 income, say you invested fifty thousand dollars in oil and gas, most of the time now what you’re gonna be able to do is deduct that full fifty thousand dollars off of your AGI and then not be taxed on that amount. So there there’s an immediate benefit to that which is of course to get the tax benefit and that’s a type of return itself. The problem that I have had, and I think that a lot of people that I talk to have, is the rest of it is really just like you know hoping you make a little bit of money after that. This is highly speculative, so that’s the nature of the game. I am personally not a huge fan of oil and gas investments. There’s also a lot of opportunity now with bonus depreciation. Now Tom Wheelwright will be on the show again soon and we’ll talk about this more for 2019 planning. If you have, for example, some passive income, say Ravi I know you’re a physician I remember I think is GI doc or something. But say you own part of a surgery center or you own part of a something that creates a passive element to your income you could basically you know if you invest in real estate that is offering bonus depreciation, you can effectively do the same thing where you can take that that investment that you make and write that off the first year by say taking that depreciation against the passive gains that you’re getting from your surgicenter income or something like that. So there’s lots of ways to do it that I think that are more predictable. I’m not a huge oil and gas guy, but again I know you’re part of that group so check out that archive call, it was like a full hour or more of just talking about oil and gas and there was a lot of names specific names of operators etc and experiences there which obviously in a public situation like this I’m not really allowed to do so hopefully that’s helpful. Okay, let’s see. Madalyn want to read the next one?
Madalyn: Yeah we have Donna who says Hey Buck, I’m wondering how you’d think about allocating your investments into different categories with different purposes. For example, I see cash flowing high velocity real estate syndications as the primary driver of wealth building in my portfolio (while leveraging wealth formula banking) but want to balance it with investments in vehicles like velocity plus, AHP, life settlements, precious metals, etc. I’m wondering how would you think about the purpose/goal of each of those and how they fit together as percentages of an ideal real asset portfolio.
Buck: Good question and I think the answer is not gonna be probably really satisfying, but really, it’s really about your own personal financial goals. It’s really where you’re at now, where you want to be, your risk tolerance etc. You know it’s when it comes to real estate and cash flow, you know I’ve thought about this a lot right? If you have a job already that makes a lot of money, you have cash flow, right? And so sometimes people thinking about cash flow and it sounds like really it sounds like something that would be really nice to have if you could just replace your income etc but the problem you find in a situation like that is that eight or nine or even ten percent at a time, imagine how much you have to put into a cash flow investment before you actually are getting into the kinds of the numbers you need to replace your w2 income or whatever you do as a professional. It’s a lot right? So because of that, I won’t say I’m still not a cash flow person. I am. But I think that you have to realize that if you’re trying to create for example a hundred thousand dollars of cash flow to replace your income or whatever, at ten percent you’re gonna have to invest a million bucks, if you want to do two hundred thousand it’s gonna be two million bucks and it takes time to do that. Now alternatively if you look at real estate also as an equity play, and I know Jonah that you know our infinite returns model, for those of you who don’t know about that go to WealthFormula.com and Investment Opportunities and look at infinite returns but in a situation like that, you’re recycling capital, you’re not really relying on your eight or nine percent, what you’re hoping is to recycle the same income in over and over and over again. So I agree with you, that’s really a wealth creation type vehicle. And for most people I think that is who we’re listening to, this and who our accredited investor is already making a lot of decent income. I think focusing on that might be more useful because if you can create enough equity at some point you can stop doing that and then that eight or nine or ten percent start looking more attractive because you’ve created enough mass to to actually turn the needle with that eight, nine, ten percent. Now let’s let’s just talk about some of the other things because obviously you know I just mentioned this mostly focused on the real estate the types that that we’re doing in the accredited investor club. Now notes like AHP for example I think you mentioned that. The way I look at that, for me it’s a bond, right? What’s a bond? It’s effectively getting interest its non-performing notes, it’s interest but there’s no capital appreciation. So is that a bad thing? No it’s not a bad thing, but just to understand it’s a fixed percentage return. One thing that’s nice about AHP servicing is of course there’s a lot of liquidity there which I like about their fund. But generally speaking this is, again this is cash flow without an expectation of capital growth, and so maybe a couple of places you could look for that, maybe it’s where you store cash until you find a good appreciation opportunity, or maybe if you’re looking for more cash flow, this might be an immediate way to to do that. I mean if you’re feeling like actually could use a little bit more cash in a monthly basis well there you go. But I think most of the people I talked to in the investor group they’re already making a lot of money so you know that may or may not be the reason to use it, again but it is a certainly a great place to hold money for periods of time while you’re waiting for something else to get into. Now let’s talk about some of the other things that you mentioned you mentioned Wealth Formula Banking. I think again I look at this as holding cash in and instead of in a bank you’re holding it and getting like five and a half percent returns, you’re adding leverage to your cash flow investments by borrowing against it using the arbitrage, the interesting thing again with Wealth Formula Banking is that even when you’re borrowing it, if your money’s growing at five and a half percent compounding you’re borrowing at a simple interest rate and so your money continues to grow at a compounding rate, you’re borrowing at a simple rate so you have that we had Rod and Christiane on last week. But that’s a way to enhance your current cash flowing investments for your future and enhance cash flowing investments, but it’s also a great place to just stash cash, right? Because now you’re growing at five and a half percent tax-free instead of you know in a bank where you’re guaranteed to lose money right. And why do I say guaranteed to lose money and this should is probably, this should be very obvious to most of you, but inflation is probably 2% plus right now and if you’re getting, in the bank you’re getting less than 1%. So what that means is if you have money in a bank whatever you are losing money. It’s not if you lose money, you’re guaranteed to lose money if you have money sitting in the bank. So Velocity Plus, similar product you mentioned, again its exposure to equity markets with leverage but not you know but only taking the upside not the downside and I think in markets like right now where it’s very volatile again that is something I think it’s pretty appealing. Life settlements, this is basically something where you’re just buying somebody else’s life insurance policy which is something most people don’t know about. Berkshire Hathaway does 600 million dollars a year six hundred million dollars a year in this, but it’s basically buying life insurance policies from elderly individuals who need money now, you buy out at a discount, you hold it and you know they pass away, they use the money while they’re alive and then you get the death benefit. The big thing with life settlements in my opinion again, there’s not a lot of appreciation there. This is a hedge right? It’s the ultimate hedge because the only guarantee in life we know is death and what you’re doing is you’re parking money somewhere knowing that it’s gonna return something at some point, and so it’s a hedge, right? Precious metals again it’s a hedge, but it’s a different kind of hedge. Now it’s a hedge against inflation. Now I’m gonna say this again and I’ve said this in shows recently. I don’t know that I necessarily see a lot of advantage of holding precious metals over real estate. You know right now if you think about gold, what is the point of owning gold? The point of owning gold is really to hedge inflation, right? You’re worried that the dollar is weakening, that there’s a lot of debt and all those things, but remember, physical gold is not very liquid and neither is real estate, and if you sell physical gold the taxes you get hammered on. And you can’t cash flow from metals. So if the goal is ultimately to invest or to hedge inflation, I don’t see a lot of benefit necessarily of holding gold over real estate. Now the one exception to that I will say is for example, there is, and you know I don’t really do paper, but you know there’s GLD which is the gold ETF. It probably, from my opinion at least, would be a relatively stable place to have some money right now and still have a level of liquidity. I spoke to somebody recently actually who was holding some money in GLD and was actually cash flowing from options on that money. Now obviously you have to learn a little bit about that, but that’s actually a pretty smart way to go so if you if you really want to hold something that you think is the hedge against inflation. It doesn’t cash flow, you make it cash flow by selling options that’s potentially really really useful way of doing it. Again but that again is if the the major benefit of that over real estate would simply be that you have liquidity and GLD as opposed to real estate in which you wouldn’t. So it’s a long answer and as you know I appreciate the question. It’s just so personal. It just really depends where you’re at and life and for me personally right now as you know, because you’re in the investor group, I like the idea of constantly looking at building wealth and so I’m still looking at multifamily real estate, I’m looking at multi-family real estate that is moderately leveraged, that has value add, self storage I think showed significant resilience against the types of setbacks in 2008 is another thing to look at, and of course I like to the insurance products that we talked about because they think they are some of the safest things that you could possibly do right now and I think historically you look at the companies that we work with, Penn mutual etc they’ve been paying dividends since before the Civil War, that’s safer than a bank. So by the way if anybody wants to go check those things out I’m talking about go to WealthFormulaBanking.com. Okay next question Madalyn.
Madalyn: Our next one is from Wayne who had a question on SDIRA.
Buck: Okay that’s right. I remember looking at this one. So Wayne, I’m not a IRA specialist in fact I don’t even have an IRA. So what I did was I sent this question over to Damion Lupo of Total Financial Control and you may know Damion from the QRP episode that we had but anyway, why don’t you go ahead and play that, I think he actually reads the question too. So go ahead and play that Madalyn.
Damion: Hey this is Damion Lupo with Total Control Financial. Question is, if my retirement account is hit with a UBIT tax, will that income in the account still be taxed when I pull the money out? The answer is yes. Unfortunately when UBIT gets hit, it is a double whammy that gets paid when the event happens inside the retirement account and then it also if it’s a regular retirement account you’re going to pay taxes when you pull it out.The good news is, if you’re doing real estate and you have your money inside of a qualified retirement plan like an EQRP you are not going to have UBIT tax if you have leverage but you would with an IRA. So best choice is to just eliminate the whole thing and not have the UBIT ever happen and then when you pull the money out if it’s a regular account, it’ll have income tax and even better if it’s a Roth account, there’s no tax at all. So best-case scenario, Roth account that you’re doing real estate that’s leveraged in the syndication and make sure it’s done in an EQRP and not an IRA and you’ll never have any type of tax at all.
Buck: Hopefully that answers your question Wayne. I think the the bottom line is, again I’m not an expert on this, but Damion as you know was on this show before and he studies this stuff a lot so I thought it’d be good to get his perspective. It looks like, listen the problem this is a problem with the self-directed IRA for real estate. I mean you do have some taxation and you kind of have to make some decisions, it doesn’t mean you don’t invest in real estate you just say well is there a way I can do this more efficiently? If there isn’t what’s my best option out there and the best option still might be to invest in something that you have to pay a little bit of tax on. But if you are if you’re interested in this EQRP that Damien is talking about, you can get his book on this for free, he’ll send it to you, just text 44222 and put “QRPbook” I think that’s one word. Again it’s for 44222 QRPbook and he’ll send you the book on how that whole thing works. Again I don’t have a QRP, I don’t have an IRA, I use banking and life insurance products for all retirement type products myself, but for those of you who do have self-directed IRAs the good news is that you may be able to convert to an EQRP and if that is the what Damion is saying is true then that potentially even things that you’ve invested in already you could transfer them over to the EQRP and then not pay UBIT on those things. So again check it out 44222 WRPbook and get the book for yourself and read it and if you’re interested I’m sure Damion will set you all up with that. Okay let’s see here. The next question go ahead Madalyn why don’t you go ahead with the next one.
Madalyn: The next one is from Garth it says Hello Buck Garth here from Portland Oregon. I am trying to wrap my head around this Wealth Formula Banking. Let me see if i got this straight. You open a whole life Insurance account, the money you put in to this account you can then borrow from but you continue to make compounding interest on the money in Your account even though you took it out, like it’s still in there. The compounding interest turns out to be more than the simple interest you pay on the money you borrowed. So you end up ahead plus you invest the money you borrowed and get returns from than money also. My question is how much money does one have to have to start an account like this? I fall on the poorer side of the wealth scale as of now, but want to know how to tell when the time is right to start this?
Buck: So conceptually I think you got it right. Basically and this was something that I thought was really unusual and sort of in the aha moment for me too for Wealth Formula Banking which is, the idea is that you are creating this, you have a cash account right and it’s growing at let’s just say I think mine would be like five and a half percent compounding right? The idea is that your money’s growing at five and a half percent but it’s at a compounding interest rate. Now remember the difference between compounding interests and and simple interest it’s a big difference, right? Just if you if you don’t understand that I’m not going to explain it right now, but just Google the difference you’ll see the what talking about. Now here’s the thing,you’re trekking along you’re making five and a half percent on that money and one day you’ve got you know twenty thousand dollars accumulated and you want to put it into something and you want to borrow it, and say you borrowed up five and a half percent, your money is growing at five and a half percent compounding. Now you’re gonna borrow it, when you borrow it even if you borrow it at five and a half percent it would be like simple interest right? So simple in five and a half percent compounding interest over time makes a lot more money than paying five and a half percent simple interest. What you’re saying is correct in fact, your money itself the cash that is in your account does not leave your account, it continues to grow at five and a half percent or whatever it is that it’s growing at. When you’re borrowing you’re actually borrowing from the insurance company, from a general account of the insurance company, and so that general account charges you a simple interest. So that is the beauty of that, right? That’s why you can literally therefore invest the same money in two places at the same time. If you go to WealthFormulaBanking.com I think you’ll see in the webinar I think that Rod goes through an example of the difference when you use that when you deploy that out of an account like that versus just putting it through your savings account it makes a big difference. Now hopefully that makes sense and then in terms of how rich or poor you need to be, you know I didn’t know the answer so I just asked Christian and Rod to answer, so why don’t you play that for us Madalyn.
Christian: Hi this is Christian Allen. I’m just gonna take a second and answer a really great question that was asked and that is, how much money do I need in order to get into a Wealth Formula Banking policy? One of the things that we loved about the strategy overall is that you don’t have to be rich in order to utilize the strategy, start using the strategy. Now of course the more money that we have and can contribute to the policy the or benefit that we’re gonna get from it, but it’s nice to know that we can get in for just four or five hundred dollars a month. Some of it depends, we can at least create the value that we want to create with it.
Buck: So I hope that’s helpful so bottom line is Garth you don’t need to have that much money but it the more money you have the you know the more more you can make it work. The Velocity Plus product of course is a little different. I think the cut off there is you got to make it you got to make at least a hundred thousand dollars a year, which is still pretty nice though because that product is based on a high net worth product where you generally have to you know you have to be making several hundred thousand dollars a year and have a net worth of you know at least three four or five million dollars so it’s still a great opportunity check it out WealthFormulaBanking.com. Okay let’s see. Let’s go to the next question Madalyn.
Madalyn: All right the next one is also from Garth. He said, My parents are in there 80’s and have money in an ira. Currently they get enough to take care of there needs from pension and SS. I was talking with them about the idea of taking like $70K -$80K(about $35k from the ira) and getting a turnkey property. If they bought it in full they could be getting like $400-600 a month in cash flow after management. When we asked there banker they said it was risky for there age and with a recession coming and where would i find a property for that price. (We live in Oregon) i told them a good market in the midwest. I think they thought i was nuts. I think they are nuts to call leaving all the money in the stock market and only get disbursements once a year when they could be getting cashflow every month with a real life asset. Am i wrong ? Is rental real estate a young person’s game ?
Buck: It’s a tricky call and I again I don’t want to give any sort of financial advice, but here I will say this though that I think the rules do change a little bit when we get older. When you’re in your 80s and you’ve got to be really careful about not losing money, right? You go from being being able to take a lot of risk to having a little bit more trying to be a little bit more quote/unquote conservative and then ultimately it just becomes a wealth preservation issue. I don’t think in general that, there’s two things that you said. I don’t think keeping your money just sitting in equities right now is that smart if you’re in your 80s personally. I don’t think that’s smart but I also don’t know that it makes sense necessarily to buy one single family home when you’re in your 80s either because listen I think the the challenge is that if you’re buying one single-family home, you’re gonna ultimately you’re gonna either cash flow or you’re not gonna cash flow. If you’re using leverage, if you don’t have anybody living in there then you’re gonna be paying on that so I think buying one single-family home depending on how much money they already have, I don’t know if it makes sense or not, right? It really depends a lot on what their overall situation is, I’m not a huge fan of the idea frankly for people in their 80s just to buy one single-family home in an area where they’re not familiar with because I think you know it’s a tricky thing I think I think the turnkey world can seem very easy but sometimes it’s a little bit more hazardous than it might appear. For me as you know from listening to this I have an inherent bias towards multifamily, inherent bias towards investing in larger funds, etc. I don’t know if they’re in a position to do that kind of thing, but I think those things are potentially a lot more, in my view potentially a lot more stable. One thing I would even draw your attention to again for a situation like that is maybe a small amount to consider even into AHP servicing, something that I might personally do, then you have ten percent maybe it’s not tax efficient but on the other hand you know Jorge is growing this thing to a fifteen fifty million dollar fund and these guys are really good at what they do. The inherent risk and that might not be as significant there is also the benefit there that you don’t need to be accredited, that might be worth checking out. But again I think making any sort of big big moves anything that creates instability for people in their 80s may not be smart and while at the same time we would tell you that you’re probably right about the equities part. Now if they’re about in a bunch of bonds, listen here at the end of the day what our goal is is to create enough wealth when we’re you know younger so that we can get to the point where all that money sitting there just making interest that’s really kind of what we want to do, interest or cash flow, but when you’re already in your 80s you know you just got to be really careful. So hopefully that that makes sense. It’s a tricky thing. I don’t want to give you too much advice, I don’t want to give you any advice for that matter and have it go wrong so, okay next question.
Madalyn: Ian says, Hey Buck. As you have described many times, there are many advantages to investing with proven, trustworthy, competent operators in a variety of real estate niches in the role of a limited partner. Among these is passivity. However, one of the tradeoffs/downsides is the lack of control of asset disposition. It is a trade of passivity for lack of control. I’m curious if you have an opinion/thoughts on portfolio balancing one’s real estate holdings with some assets that are actively controlled with passive. Are there general rules that you are aware of etc.? It seems to me that one could potentially become overweighted on the lack of control side of one’s portfolio. Thanks for your thoughts
Buck: It’s a good question. Ian thanks thanks again for reaching out on that. The bottom line on real estate in my view is in my opinion the big difference is either way whether you’re a limited partner or you are you own a property, you know it’s illiquid right. It’s not really something that you’re gonna liquidate very quickly. I think you’re gonna find syndicators you can find opportunities where people are aligned with your goals, I mean a couple examples you know I and Ken McEIroy Rich Dad advisor and real estate his model is buy and hold forever and that is a model that appeals to some. I’m an investor with Ken and that’s part of my portfolio. So there are others as you know we’ll have what Janet LePage on soon with Western Wealth Capital which I’m a huge fan and investor of and they are very much into the value add turning these things quickly trying to get out as quickly as possible mode and making a lot of profit.So I think you can match up some of your goals with what the operators’ intentions are. But I think either way you run into this problem of liquidity, and there are certainly investments out there even funds that are are highly liquid which give you some more flexibility such as AHP servicing which we’ve mentioned a few times and which you can utilize that it’s very liquid you know you have a lot of control over it, but let’s get back to real estate because it’s an important point that you bring up and I think a lot of the question really ultimately comes down to your own risk tolerance level that is the risk tolerance of your own ability to manage a real estate asset of any sort of significance. Let me give you an example. I was talking to one of our investor group people, by the way if you are you know an investor you should sign up for Investor Club because there’s a lot of good stuff that happens in there. But I was talking to a dentist who was selling part of his business, he’s gonna have a big liquidity event and his CPA is a smart guy who I know personally who used to be my CPA too, he suggested buying real estate and using cost segregation analysis and bonus depreciation to offset capital gains, which I think is brilliant and I think it’s you know it’s a great idea. Here’s the problem, the guy that I am speaking to is a very, very good business guy his wife and they’re coming into a few million dollars. They don’t have experience deploying and being asset managers for huge assets so for the amount of money that they’re going to be getting in this liquidity event, they might be looking at buying a twenty, twenty five million dollar asset. Now the reality is if you feel comfortable in your own ability to manage an asset like that, then more power to you. I will say that as much real estate that as I have been involved with, it’s been smaller, personally owned myself and managed the asset has generally been smaller than that and I’ve never had all my full capital it, I’ve never had like you know 50% or 70% of my net worth in a project to put at risk. So if you feel comfortable with that though, then more power to you. If you if you are really good at that and you think gosh I can take this and I can deploy this five or six million bucks, take down this twenty five million dollar asset, whatever, then go for it. The alternative is to let professional operators deploy your capital and this way in a syndication model. And in this situation one of the major advantages is that you are taking the risk out of your own hands, right? Now you’re dealing with professional operators that do this day in and day out and you’re also investing in not one asset but you’re investing in say, maybe you’re spreading it over five different assets, you know maybe you’re spraying over five different assets in five different cities and exposure to thousands and thousands of doors, knowing that the asset manager you know used to be an asset manager a gray star, right? I mean to me the risk the risk is inherently different and and this isn’t just apply to people who are investing you know millions of dollars at a time. The same could be saying if you were deploying $100,000 or $200,000. Let’s take $200,000 for example. So maybe you’re gonna buy what a two hundred thousand dollars get you. If you deploy two hundred thousand dollars of equity maybe you can buy an asset that’s you know maybe about a million bucks right inherently again one of the problems a in my opinion you run into is that a smaller asset is less stable than say a 20 million dollar asset. And now the performance of that and that individual investment lies entirely on your shoulders, right? So you could buy that 1 million dollar asset and deploy that two hundred thousand dollars there or you could do 25-50 thousand dollars a deal and deploy it across multiple deals, exposure to thousands of doors and then have the benefit of that kind of stability with professional operators. I get what you’re saying, I totally know what you’re saying. For me personally, as you know we’ve talked before, I’ve sold off the vast majority of the my real estate holdings so that I can participate primarily in syndications at this point and it is because of that reason. Because I want exposure to thousands of doors. I can tailor what I want to the syndication group. I can invest with can if I want to, I want to buy and hold forever I can invest with you know the Western wealth guys if I want capital growth and want to try to get the money back out quickly so I can do that. Now and again for me right now I’m only really interested in value add in this market, pushing equity into properties, I don’t myself have the expertise or the time to do anything like these professional operators do and for those of you who are in the investor club you’ve seen this on the webinars I mean this kind of stuff you have to ask yourself, can I compete with this? I mean it’s kind of insane the type of turnarounds that that these guys are capable of. But you know when I invest as a limited partner, what I’m finding is that my cash on cash returns and my overall annualized returns are similar if not better than they were at the time of you know of some of my most of my buildings now some of them have been unicorns because I bought them and got ridiculous returns because I bought them at the right time and it’s a frothy market and people paid stupid money for them but you know right now in an environment where it’s really about creating equity, I’m not confident in my own ability to do that so I lean on professional operators and you know rather than going for individual assets that I control, I avoid headaches, I don’t have any liability and I get the same tax benefits and financial benefits. So hopefully that’s helpful. Now what we’re finding here is that we have a lot of questions which is great so what I want to do is we’re going to wrap it up for this week and we’ll play the second half of this Ask Buck show at another time. So with that with some final thoughts we’ll be back in just a minute.