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212: Ask Buck Part 1

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Buck: Welcome back to the show everyone. As you know, there is no guest today. There is only me and there is you and your questions so with that said let’s move on right away. Let’s get started and the first question is an audio question because we have both audio questions and for those of you who are a little shy we have ones that were written which I will read as well. The first one is from Bruce, here we go.

Bruce: Hello, Buck. I am a primary care physician working in the suburbs of Chicago over 30 years of practice. I regularly invested in the stock market however over the past five years in an effort to diversify away from what I perceive as an overvalued and volatile asset class, I’ve moved away from Wall Street and now have a significant portion of my portfolio in cash I recently invested in an oil and gas offering with Resolute Capital Partners in an effort to take advantage of recent price declines in that asset class. What other opportunities for investment do you see presenting over the next couple of years? Thanks. Bruce Corwin.

Buck: Thanks for your question, Bruce. Well I have to say that being in cash right now is obviously fortuitous. I can’t remember if this particular question was before Covid 19 or not but if it was before well great place to be and right now, in my humble opinion that is you know cash is king and as I’ve said on this program before you know this pandemic has hit us like a gigantic earthquake but you know as we saw in Fukushima Japan after they had the big earthquake the ensuing tsunami was even worse and more destructive and the complexity of trouble from that initial insult of that earthquake including the nuclear reactor failure etc was a complete surprise you know that was not predicted by anyone so using that horrible example of you know what can happen when you least expect it after you get punched in the face well we’re waiting in my opinion right now for a tsunami to hit. I’m not sure it’s gonna hit you know to be clear it’s completely unclear what’s gonna happen to me but it’s certainly possible and what would prevent that tsunami from hitting well we have unparalleled fiscal and monetary policy measures being taken right now that are essentially warding a depression that would almost be guaranteed you know if the government the Fed weren’t doing what they were doing right now we’d all be screwed for sure. But the real question is how much of what they’re doing right now I mean all the trillions of dollars and all of the you know the feds even get involved in junk bonds and all that how much of those efforts are gonna mitigate our damage you know the stock market is obviously betting that things will get back to normal pretty quickly they seem to be very very optimistic you know you’ve got a market that’s down maybe twelve to fourteen percent and you have to ask yourself this question is this a twelve to fourteen percent problem you know I don’t think so. I think it’s a far greater problem than that. So the market is clearly factoring in this idea that there’s going to be some sort of quick recovery. You know I’ve talked to some institutional advisors and they are like oh yeah we think that the worst is behind us. You know I’ll tell you what, it’s hard for me to believe, but then again we’ve never had to do this kind of you know fiscal and monetary relief this quickly in this fast so you know I’m not as optimistic as some of those people but I’m also admittedly not smart enough to know if these interventions by the government and the Fed will give us some sort of soft landing. I would be shocked. I would be very surprised but I also am NOT going to sit there and act like I can predict the future. We’ve never been here before but you know getting back to your question, bottom line is that most asset classes are still in a falling knife scenario. You know the old saying that never try to catch a falling knife, you know if things go south everything, everything will go on sale but it’s hard to say right, it’s hard to say for sure. As you know as our listeners in our Investor Club knows, we in multifamily in apartment buildings work in class multifamily and markets like Dallas and Phoenix Scottsdale and Atlanta where we focus on high-growth markets and value-add, we’re actually doing really, really well, I mean it’s pretty extraordinary how well we’re doing throughout this and what I am realizing is that responsible operators are like the good jockeys that if you bet on the right jockeys they are showing the resilience of this asset class right now. Sure there’s you know bad operators that are using this as an example or using this as an excuse to say why they’re not performing, but the good operators are really performing well and if that trend continues it is quite possible that we could see multifamily apartment buildings you know all these assets in real estate that are performing well despite all of this craziness actually turn into like a safe harbor for a lot of you know bigger money and we could see a lot more money than going into apartments and drive up costs so it’s hard to predict but overall what I would say is it’s a falling knife you know in my opinion you don’t do anything except I don’t disagree at all with your oil investment, it makes sense to me because of what happened with oil and gas. We started out with obviously this enormous drop in energy consumption be dropped because well hey we all are home right and no one’s traveling and all that stuff but then on top of that there was this breakup between OPEC and Russia the so-called OPEC plus that caused prices to plunge even more and as you know a crude oil prices actually drop below zero so you know that oil and gas doesn’t really get beat up any more than that. You’re already negative right how much worse could it be? So I actually think that blood was in the street and as we’re seeing there’s already a little bit of a recovery there and frankly if you look at oil and gas as we get out of quarantine you know there is this natural rise in demand just because we’re gonna actually be using oil and gas so as long as you know a year from now where we’re sitting there and we’re driving cars and we’re on planes again in a year or two from now then the horizon seems to be fairly positive. Anyway, bottom line is with everything else other than oil and gas, I think my opinion is wait and see and it may be you know Q4, maybe late summer, something like that and if you’re sitting on cash, you can buy anything that goes on sale. That’s a great place to be.

The next question is from Dave Clive. This is a written question. He writes, which nations or municipalities have the best bargains on farmland? That’s one question. The next question is, what is the best way to cashflow raw land? And then the final question, when will the 37th parallel open and how do you connect with South Koreans who will be developing businesses there. Wow. Well I’m not great at Trivial Pursuit Dave. I’m just kidding about that. Well I’m probably okay at it, but what I am not is I’m not an expert on farmland. I’m not an expert on raw land or Korea. I would add that I wouldn’t trust anyone who claimed to be an expert, gave you advice in all these areas. Now what I will tell you is this: when it comes to farmland, I wouldn’t get into it unless you have a farming background right, or you know someone who you really know and like and trust and has a great track record in farming to go in that direction right? I mean it sounds really appealing, I agree with you, farmland hey I’m all about it right, but I don’t know, I don’t know anything about farming and I don’t know a lot of you know farming entrepreneurs that I know, like and trust and that I think are really smart people. I’m sure they’re out there and if I knew who they were maybe I’d be investing them but I don’t know that. You have to focus on not only the asset class, but who you know who has expertise there. The other thing about farming is I would quite honestly trust virtually no one on the topic of farming in the podcast ecosystem, especially if you start hearing about anything you know offshore, I mean run the other way if you start hearing about offshore farming and stuff ok just run the other way because in my experience all this stuff particularly on the in the podcast ecosystem is that offshore means for investors well if you are getting screwed or cheated or you feel like someone has broken the law well you’re shit out of luck trying to try to get the SEC involved in the Caribbean, good luck with that. So bottom line is folks keep it boring alright and with regard to raw land which you know it’s a different thing because we’re talking about something domestic. Now maybe something I know some people have had some experience him some luck with this idea of cash flowing raw land I know the land geek talks about that and he’s been on the show but I do know a number of people have done this and the one thing that it is not is passive income. It requires a fair amount of work and it is also not something that is particularly scalable, and from an investment standpoint I like scalable right, I like something that really doesn’t have you know I don’t have to spend a certain amount of time doing it and then I kind of cap out and I can’t really do more than that but you know that said if you mind giving yourself another job, you’re looking for something fun to do and maybe get a little extra side gig income so to speak maybe check that stuff out but you know the bottom line is don’t expect it to be easy or without significant growth limitations farming and raw land or businesses they are not passive assets and I think sometimes again in this real estate podcast ecosystem there is this tendency to make them seem similar and they are not. They just are not and you should be getting substantially higher returns and anything that is a business and requires a lot of personnel and you know more than just people just needing to live someplace. As for Korea, well those kinds of large macro movements do in fact obviously create huge earning opportunities. Who knows when, if there’s really a North Korea opportunity coming in some but they’ll likely come from you know the people are gonna get rich off of this are probably gonna be in the area of private equity who already understand Asia extremely well which, again, I do not. Bottom line is I think that all of this stuff you bring up is great but remember that sometimes boring is good. Let me give you an example of this right because I’ve been through this. Every entrepreneur likes to chase shiny objects and until they realize that there’s some things that work and some things that don’t and you stick with the things that do. So before Covid 19 you know I’m giving an example here literally on this show, I talked about how I was tempted to get involved with these new endeavors right, I wrote about this and I talked about this. There were some opportunities in commercial real estate, there was you know commercial real estate with large you know tenants that seemed very stable, there was some opportunities that sounded really good with some extremely good operators in the fast-food industry and you know I seriously thought about them, may have had some meetings, but then I turned him down and I turned them around. I turned them down just a couple of months before all of this Covid 19 stuff happened. It wasn’t because you know I’m claiming to predict this. I didn’t. The bottom line was that when I looked at those opportunities, the risk-adjusted returns for those investments, that’s important, the line was not even close to what we get in apartment buildings. What we’ve been targeting, what we’ve gotten in apartment buildings through our Investor Club you know just, in an example you know Western Wealth Capital is one of our main partners. They’ve done thirty percent annualized returns on average of thirty-two divestments. Thirty percent annualized returns on multifamily workforce. You know multifamily working-class real estate, I mean that’s a lot more stable than you know a burger joint or you know office space. A lot more stable. So you got to show me some serious returns and risk adjustment for me to start looking in another direction. Anyway like I said you know so I passed on that. Guess what, three months into the disaster all those business opportunities that I was thinking about well they’re toast right, I mean they may recover but they’re toast right now. But our multifamily real estate we’ve got in our Investor Club three hundred and fifty-four hundred million dollars of investment multifamily real estate and collectively. We not only kept cash flowing in the last few months through this crisis but we also actually hit all-time highs and occupancy right because people got to live somewhere. So the moral of this story, sometimes it’s better not to chase shiny objects. Sometimes boring is good. Actually most of the time boring is good.

Next question is another written question from Michael Carter. He says, Hi, Buck. I’ve been enjoying your show for the past couple of years. I’m early in my medical career and I’d like to get your thoughts and what you might do with let’s say $100,000 during this pandemic, if you put yourself back in your shoes when you weren’t a high net worth individual. I had a sizable w2 income and this pandemic fire-sale came along. What asset classes would appeal the most you under the current conditions and would you buy now or wait a few months for things to become clear? Well remember don’t try to catch a falling knife right, that’s what I’ll start with, but let me start by also saying that nothing that I tell you is advice. This is all my opinion. I am not a certified financial adviser who for some reason people think has information that is actually valuable. But what I will tell you is that what I would do if I know what I know now, if I knew that 12 years ago say when I first got out of training and in reality what I would do then is what I do now was slightly different but it’s basically the same formula for what I do now because again going back to the last questions I kind of stopped chasing shiny objects right? So now 85 to 90% of my investable assets every year going to either Wealth Formula Banking, a type of infinite banking that you know about when you go to wealthformulabanking.com or real estate or we’re sort of both which we’ll get into in a second. Specifically, in real estate, I like multifamily workforce housing as we discussed and I also occasionally will dip toes into the self-storage space as well. Now again with regard to real estate to be honest there you know everybody goes through this discovery of real estate you know maybe you read a Kiyosaki book or something like that and also and you’re like I like this real estate thing it makes a lot of sense to me but what you have to do is be honest with yourself and being honest with yourself early on is a good idea and ask yourself the question of whether you want to be a landlord or if you want the income and tax benefits of real estate and all those great things, wealth creation, etc without giving yourself another job. Now if you don’t want to be a landlord, focus on identifying operators with whom you can invest. I’ve talked about a couple you know and we deal with a lot of those people in Investor Club for accredited investors so you can go sign up for that if you’re interested but you know it’s not just our group I mean MC Companies, Ken McElroy’s company I love them too you know, focus on identifying operators with whom you can invest over and over again you know the good operators will get you consistent returns that will often exceed anything you could do on your own without the liability because you’re a limited partner or the work. Well how do you do that? Well if you’re an accredited investor it’s going to take a little work upfront right your due diligence becomes not doing due diligence on properties but actually on the operators right, choosing the jockeys and once you find the jockeys you can keep going back to them over a long period of time. That’s what we do in our accredited investor group all the time right. Now the other thing I mentioned is Wealth Formula Banking this is also known as infinite banking or cash flow banking. It’s a strategy that you know it’s derived from whole life insurance and of course if you are a newbie and you just got out of training you’ve heard a lot of bad advice and misinformation on permanent life insurance. I heard the same thing and I couldn’t figure out why all of the sudden all these super-wealthy people around me were using permanent life insurance products when these people that you know who seem like they’re really smart when I came out of residency told me that it was worthless well it’s cuz they weren’t super-wealthy. They didn’t really know what all these different paradigms and strategies look like. The bottom line is, strategy like Wealth Formula Banking allows you to make five/five and a half percent tax-free compounding interests that’s virtually guaranteed. We can say virtually guaranteed because dividends have been paying out since before the Civil War and through that time a bunch of banks have gone defunct. You went through the Great Depression, hyper inflation etc and dividends kept peddling paying out in these kinds of strong companies five, five and a half percent tax-free compounding interest and then that’s not bad. But what I can do is I can borrow money from the insurance company collateralized by the cash values that I have and borrow that money for simple interest right, so my money is growing at a compound interest, I’m borrowing money at a simple interest from the insurance company meanwhile while I use that simple interest money to invest somewhere else, my money continues to grow at a compound interest in my cash value account that is what I call double-dipping investing, the same money in two places at the same time. The younger you start in this kind of thing, the healthier you are when you start this kind of thing, the more powerful it can become and I don’t know anybody who uses this who started doing this who regrets it so check out WealthFormulaBanking.com to learn about it. Now this strategy also has two additional benefits right. First of all it’s stable as anything gets. Far more conservative than corporate bonds in my opinion right I mean insurance companies that own all the fancy real estate in the country and all of the finest assets and have massive capital, have been around for hundreds of years through all these things. This is in my opinion going to be superior to a corporate bond. The second benefit that is often overlooked paradoxically in these strategies is this: permanent life insurance there is a death benefit, in other words, seems obvious in if you think about it this way but you can screw up your finances as bad as you want you know while you’re living but the fortunate thing is for your children that you have created permanent insurance, in other words, you could die at 120 years old and you will guarantee your children won’t pay for your investing mistakes. They’ll be taken care of. Now given where we are at in this moment with this pandemic as you asked about specifically not buying any assets for a while until the economy declares itself with either of surprising rebound or blood in the street, you know the knife is falling right? I would personally right now potentially look into setting up a banking policy go to wealthformulabanking.com. Look at it. May not be for you but I’m telling you the sooner you get this concept in your head and you learn the power of it you owe it to yourself to do that. Now I said eighty-five to ninety percent of my money goes you know either the permanent products or real estate so you might be wondering where the last 10 to 15 percent of my portfolio goes well I like to take some chances and look for asymmetric risk opportunities that could create disproportionate returns so we’re talking about startups, venture for me you know it played with cryptocurrency you know I’m not sure honestly if that’s a great idea for you until you know you you have a little bit more of a foundation as you know you start to build your wealth and you have some more money to play with. I have called this in the past Maserati money until I actually bought one so let me call it Ferrari money or you know Porsche money, the money that instead of buying a Porsche or Ferrari you decide you know what I’m gonna play with this and well if I bought one of those cars, a lot it would depreciate automatically and there’s guaranteed no return. Here I’m gonna play with something and give myself an opportunity for an enormous return, anyway let’s see. I would say that perhaps that is a good place to stop for this particular episode of Wealth Formula Podcast at least I mean with the Ask Buck component of this. We’ll be right back after these messages.