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242: Ask Buck Q4 2020 Part 2!

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Buck: Welcome back to the show and let’s begin with our questions. We’ve got a lot of them. We won’t finish them in this show either so we’re gonna have another Ask Buck for sure. I’m trying to group these questions sort of according to topic so we’re not you know kind of all over the place going back and forth but it’s a little challenging because there’s a lot of questions here so I will do my best and the first set of questions is really related to this thing that we call Wealth Formula Banking which as you know I’m a big fan of. If you don’t know what that is go to wealthformulabanking.com and check out those webinars there’s one for Wealth Formula Banking there’s one there for Velocity Plus. Now I am a huge fan of these these kinds of strategies that fall under the auspices of life insurance retirement plans but there’s also you know this notion of cash flow banking otherwise known as infinite banking you know all sorts of different names we call it Wealth Formula Banking because the way we do it and the way we design these things is optimized for the purpose of investment.

So the first question here is from Jason Beck who writes Buck I’d like to revisit your take on using whole life insurance in a “be your own bank” type application where one borrows against the cash value to invest with. I have looked at this a few different times but have not yet gotten comfortable with it. This go around, I am looking at in relation to doing it through a c-corp mso or management service organization I guess where I get confused is the concept that christian and Rod propose that the interest return on the cash is compounded whereas the interest on the amount borrowed is simple interest seems to me if you always have the maximum about borrowed that is continue to add your borrowed amount with additional loans against the policy as it becomes available and keep it borrowed to invest then it is effectively compounding that interest as well thus negating any interest benefit. Clear as mud right that’s the question. So yeah I mean and you’re right Jason except for the idea is that you don’t keep just borrowing you actually do pay it back you and so that’s why the there’s a significant value to you know it’s basically what you’re looking for is the arbitrage right so you’re not letting these things you’re you’re not never paying back the loan you are paying it back you’re just paying it back to yourself but you know I wanted to make sure that I got some good answers for you so I have one recorded here I have a couple answers recorded from Rod Zabriskie of Wealth Formula Banking so I’m going to play that now and then I’ll follow it up with any additional comments so let’s see what Rod has to say on this topic.

Rod: Hey Buck, hey Jason this is Rod Zabriskie and I’m more than happy to help answer this question. I think the place to start is to talk about the premise behind Wealth Formula Banking and what we find is we meet up with a lot of cash flow investors in other words people who are investing in business or real estate or notes and they find a really big inefficiency in the way that the cash flows as they’re doing that so specifically what’s happening is they’re saving up they’re kind of building up their account inside of their savings account or or a money market account and then they go out and use that money they invest it. It creates some cash flow that comes back to them they’ll flow that back into the savings account build that back up and go and do it again right just this whole idea of velocity but what happens is they get pretty discontented with the idea that the money is just not really doing anything for them when it’s between deals so what Wealth Formula Banking is doing is it’s allowing it’s creating a system a way to do the exact same investing but by flowing the money through the Wealth Formula Banking policy we’re just able to capture growth that’s tax-free and some of these other there’s arbitrage between simple and compound that that Jason is is talking about so in other words I’m building up my opportunity fund. Now I’m going to do it inside of this whole life policy and then when I’m ready to go and invest then I take that money I go and invest it it creates the cash flow I flow it back into the policy to build it back up so again it’s the same model I’m just able to capture some additional efficiencies so I think the idea behind Jason’s question is that all right well what if I’m just always able to capture every dollar and get that right back into any investment and it doesn’t have to go back to my policy or my opportunity fund regardless of what I’m using for that well I think what my experience tells me from the types of investors that we work with is that that’s well good in concept or an idea there just always is down time for that money in other words let’s say I’m i’m I own a rental property as I receive those monthly rents I don’t have a new property that I can use for you know 500 Bucks or a thousand Bucks whatever that and that monthly income is and so I have to have a place to put it while I’m building back up so I can go and find another opportunity to invest that money as great of an idea as that is to just always have every dollar working for me inside of this cash flow investment world there just always is down time for for some of those dollars and so whether that’s for a month or a year or five years we’re just creating a system where we can capture that and so flowing that money back into my policy and to replenish it to to be able to go out back out and do it again at some point as a part of that flow it’s covering the interest on that loan and so that’s what keeps the interest simple and and while at the same time the cash value that’s in my policy it’s going to continue to grow which it’s going to do either way right whether I take a loan against it or not it’s going to continue to compound and grow because it never leaves the account when I when I do my investing so we’re solving a problem for cash flow investors that is unique to a cash flow investor in other words when they have those monthly rents or those quarterly distributions annual distributions coming to them and they’re not immediately deploying that money there’s some down time for those funds then this Wealth Formula Banking creates a huge efficiency that they just can’t capture anywhere else one thing that I would add that can make a big difference with this that christopher and I have been looking into recently is we always talk about using loans from the insurance company which is the easiest the the most direct way of doing this there are actually banks out there that will make loans still using the cash value as collateral for the loan so it’s the same model we’re getting a loan using the cash value as collateral in this case when we go to the bank we can get lower interest rates right with interest rates being where they have been recently we’re actually seeing some banks offer loans like this in the three three and a half percent range and so if the insurance company is offering five percent but I can get three through the bank then obviously that’s a lot better right I can capture more of that arbitrage if I’m paying interest but it’s at three percent while I’m continuing to earn at the five percent so that’s another thing that I think people could benefit from and we always suggest hey go to your banks that you already have relationships with see if you can if that’s something that they do and if so then great if not get in touch with us we have banks that we have relationships with where we know that we can do this and we’d be happy to facilitate that if that’s something that you would be interested in so if that’s the case go ahead and shoot me an email [email protected]

Buck: Okay so bottom line is again as Jason said this stuff is always clear as mud right but and I should point out also if you’re confused as I was a little bit I think what happened with that recording was Rod was initially recorded the first part and then he had some other ideas so it again it sounds a little bit different from where he did it the second time anyway listen here’s the deal, let me just say the idea is you are there’s an arbitrage again as Jason mentioned when you have a cash value in this it’s growing at a compounding rate say it’s five and a half percent and when you borrow it you’re borrowing at a simple rate so that alone and your money continues to grow at a compounding rate even though you’ve borrowed the money at a simple rate. So that is the concept between being able to invest in two places at the same time with the same money which is a pretty good deal if you can get it and that’s exactly what Wealth Formula Banking is now I think to answer Jason’s specific question I would go back to this simple I think I’m answering the question here which is well if you’re doing this and you’re borrowing the math suggests that you’re also compounding the debt and that is absolutely true except for the fact that you need to understand that the reason that this is really good for cash flow banking is that you want to always make sure you’re covering your debt for the year so if you have an interest if you have a loan out there for five percent at a five percent simple rate you want to make sure during the year that you pay five percent simple rate for the year okay so that’s really important unless because if you just let these things sit without paying the interest then you’re right then the interest itself gets compounded but again the idea is you’re going to create an arbitrage you might be getting 10 somewhere else and you’re using your banking money to leverage further and you might be borrowing that for 5 and so that’s going to give you an additional bump now the numbers are pretty compelling when you do it this way if you look at you know again go to wealthformulabanking.com and you’ll see some some examples in in that webinar on Wealth Formula Banking. We also sent one out recently as it relates to the wf velocity fund but hopefully that answers your question we’ll you know we’ll circle back but if this is something people are interested in go to wealthformulabanking.com. 

Now let’s go to let’s see let’s go to another Wealth Formula Banking question and hopefully this one completely confuse you even further.

Josh: Hey Buck this is Josh from omaha. I love your show look forward to it every week learn so much so thank you for that. I have a question about Wealth Formula Banking and my long-term strategy has always been to to get a policy I haven’t done that quite yet but it’s in the in the cards or it has been and it seems to me that even now more than ever with these low interest rates you know you you should find a different way or different vehicle to to have liquid you know funds that you can tap into and that seems to be a good alternative to what we have considered in the you know traditionally my concern is the interest rates currently and specifically whether if the us goes negative and and what that means for the viability of these policies I know in the in the you know past it hasn’t been a worry and these companies have performed well but we’re in weird times and I just wanted to see if you had a comment on that thank you.

Buck: Great question so the key here is understanding that there are two components to the compounding return one is a guaranteed one which is typically about four percent and so it doesn’t matter what the interest rates are there the dividends are based in part on interest rates dividends have been paid by these companies every year through the you know through the great depression hyperinflation etc however again I want to bring in the expert so here is Rod’s answer to that one.

Rod: Hey Josh this is Rod Zabriskie and I am more than happy to address your question I think interestingly I think you kind of answer the question yourself and that is the the whole strategy because the whole idea is to have a more efficient opportunity fund and we do that what really essentially what we’re trying to do is just beat the bank right if I can inside of my policy do better than what I would otherwise have gotten at the bank then I’m in good shape right and recently when we look at the guaranteed interest plus the dividend the company’s been paying out somewhere between you know five and six percent and I foresee that continuing at least for the near future if interest rates were to continue to stay low and let’s just say kind of worse case like you said even going negative potentially in in the us then what would happen right well I would obviously continue to have downward pressure on those dividends and let’s just say hypothetically speaking let’s just say it goes all the way to the point where the companies are no longer able to pay dividends well even at the very minimum even if we only have that guaranteed four percent interest rate that’s at play then we still beat the bank right so in other words right now where they’ve been at you know if we were showing a company using six percent then their net return that they would project would be about five percent. So again let’s say it’s worst case scenario let’s say I start a policy today dividends go away forever right for decades even in that scenario my four percent guaranteed interest rate would result in a net three percent tax-free return and so again even in that scenario with the banks charging me to keep my money there right interest rates go negative or even if they stay you know historically low and and basically at or close to zero then I again I’m still going to beat the bank and so one of the things that I think a lot of people aren’t aware of is the kinds of in investments that the insurance companies are invested in are really long-term type of things and so 10 years is an eternity for interest rates to be this low for you but for these companies yes it matters but it’s not as big of a deal right that’s why they are still offering you know that five to six percent even given that so they’re in you know 30 40 50 year types of bonds and notes and other things like that and so quite literally they’re still getting they’re earning interest on things that they were got into back in the 80s and so obviously those things will mature right a 30-year bond that they were in in 1990 is maturing this year and so they’re going to put that in something that they can get now and so that’s why the dividend rates have been coming down and will continue if you know for as long as the interest rates stay low but again they’ll still have some things you know a 40 or 50 year type of thing where where they or even a you know 20 25 year thing where where they’re still getting really good rates on those things and so they can they can weather a long-term storm like this more so than what you or I could but again even if it goes to a point where where they just drop to that that bare contractual minimum of the four percent even in that situation we still beat the bank as far as what we can do with that opportunity fund so I think it’s a great question I think it’s a fair question and yet that this is one of the reasons why we like these mutual life insurance companies is just the long-term nature of what they are and the way that they do their their planning and their investing and other things like that because they’re they are in it for the long haul they have been and have just fared really well even through you know we’ve talked about before the great depression world wars and and so that’s those are the types of things that they’re doing that that help them stay resilient against things like this even over a long term like it already has been and looks like it will continue at least for the next few years.

Buck: So I think that’s a really good answer and again I think the the point here is that I think just to emphasize what Rod is saying is we still believe that we’ll always beat the bank right and we always beat the bank and so if you can get you know this sort of arbitrage and if it’s still you know guaranteed fixed return of four percent you’re still going to do better there than you are gonna with the bank and you’re still gonna get some kind of an arbitrage so you know as far as the other thing that I think is really important to understand is you know that these companies again just emphasize what Rod is saying are the strongest companies in the world really I mean they are the longest standing you take a company like penn mutual mass mutual they’ve been around for 100 years and as Rod said they paid dividends even throughout the great depression even throughout you know the world wars and hyperinflation and bank failures and if you go back into history what you realize is that a lot of people who live through the great depression it’s one of the few things that they actually invested when it was was you know permanent whole life insurance because it was the one thing that kept paying even when everything else stopped so it’s a good question but I think in many regards I think like you know you’ve kind of answered it in the sense that we’ve still are going to beat the bank right that’s that’s that’s the bottom line let’s see let’s shift gears a little bit for those of you who are tired of hearing about Wealth Formula Banking but remember you really should learn about Wealth Formula Banking because I think it’s one of the most powerful things you can do out there to really amplify what you’re already doing with your other investments it’s not I don’t look at it as investment I look at it as a strategy and a strategy of actually amplifying what you’re currently doing you know if you look at the you if you look at like you know a single unit of atms I think the pro forma that Rod was showing it was crazy like you ended up with an additional 20 30 40 000 you know at the end of seven years because all you did is because you used the you know use the account you use the Wealth Formula Banking instead of a bank account it’s a huge difference so anyway check that out go to wealthformulabanking.com and hopefully that’ll answer more questions for those of you who are still wondering what the heck we’re talking about here.

Okay let’s see so next question.

Bill: Good morning Buck my name is bill jones and I’m an experienced active and passive investor and I have a question about multi-family markets I’d like you to tell me what in your opinion are the top four metrics that you look at when considering a good multi-family market to invest in and in the order of the most important first would be great thank you very much and you have a great day bye.

Buck: Well bill that’s a it’s a good question but what I will say is that ranking the metrics exactly sort of in a one through four type way it’s a little hard because they’re all sort of intertwined so let me start with what I think is the most important metric or metrics are really hand they go hand in hand they are good jobs and population growth because these tend to go hand in hand people tend to move where the jobs are so you know usually you’re not gonna I don’t know how you rank those it’s sort of a chicken or the egg thing right and that takes this ultimately to our next metric which is the political climate of the market because listen I live in california and there are you know parts of this state like the inland empire that have tremendous growth that have you know significant upside but I want to you know invest in a place that is business friendly because I don’t want my jobs to leave the market that I invested in I also want a landlord-friendly market where I’m doing business you know there are lots of nuances to this stuff though like for example if your job growth is pretty much revolving around one industry well that may not be particularly stable to invest in either I mean so that’s something to consider as well we’ve seen boom and bus markets revolve around the oil and gas market for example and so you’ve had lots of jobs and then those jobs go away because it’s sort of a single point failure that market starts to you know have trouble well there goes the neighborhood so to speak so so I think the political climate and then finally some of this stuff for me is based on a macro view of what’s happened you know in terms of shifts in the country for example phoenix scott still has all of the elements of jobs and population growth it’s business friendly and in addition to that we know that there’s a migratory pattern that seems to be established where there’s flight from california to arizona and that’s also good for us to understand you know for the future not just for the numbers we’re seeing now we you know we it makes me feel very confident in that market moving forward because I know california is just getting tighter and tighter by the way I you know I know a lot of you don’t like california I love living here I just wouldn’t invest here and that’s just the bottom line you know things are going to get worse and worse business-wise here it’s a tough place to do business and I know people are going to move out for that reason I know people are going to move out because taxes continue to be a particular problem there’s a lot of flight to texas as well and I know people I know people hate the fact that there’s so many californians moving you know to texas but you see a lot of that in dallas and by the way dallas is another market that might still really be my favorite market of all or at least you know in the top two with phoenix scottsdale it continues to grow like gangbusters and frankly texas is just a great place for business you know and even if you look at a place like houston now houston used to be you know frankly too oil dependent but now it’s got all sorts of economic diversity it’s it’s frankly it’s really cheap to buy there in terms of comparing it to the you know the value of actually building so there might be there might be some you know real value in houston still and in that regard there may be some you know potential short-term upside that’s even better than other markets but really we need to try to buy in places that are you know that are growing and stuff like that in houston the one other thing to pay attention is well you probably want to stay away from places that seem to get affected by their thousand-year floods because they seem to be having them every couple years but anyway bottom line is what we want to see in is real growth in jobs and population we want to see a good business climate and yes I would also add that nice weather helps too by the way in my opinion you you have to always be on the lookout for you know this sort of false sense that you should be going into tertiary markets because when market gets when markets get hot and they are hot they actually are hot the ones that are hot before are even hotter now because there’s a flight of capital from other types of investments and there’s money sitting out there and and it’s only going to get hotter and when these markets get hot you know investors especially unsophisticated ones will make the mistake of diving into these tertiary markets because they think the yield is better when in fact there’s not like real substantiative you know reasons to invest in those areas and I think if you look in the last major cycle the the one that comes to mind for me is oklahoma city and everybody was starting to look at oklahoma city because well it seemed like you could chase yield there you had a little bit higher cap rates et cetera but what was going on in oklahoma city not a whole lot I mean I’m not you know dogging in oklahoma it’s just that it wasn’t like there was a bunch of companies moving into oklahoma you know still oil and gas type place etc but you know I i think that was a big mistake I think people are still you know still getting hammered because they were chasing those tertiary markets anyway that’s that’s what I got on that.

So let’s move on to the next question here.

Brent: Hey Buck this is brent calling from israel hope you’re doing well you’ve talked about cryptocurrency in the past and how it might make sense to have at least a small amount invested as an alternative potentially uncorrelated investment given these uncertain times and the potential pressure on traditional currencies brought on by the unprecedented debt levels countries currently are taking on I’m wondering if you think it makes sense to up the percentage of your investment funds that you allocate to bitcoin or other cryptocurrencies wondering what you think.

Buck: Well brett good question let’s talk about bitcoin and you know other alternative cryptocurrencies separately because I do think they are different and bitcoin is clearly the safest of the cryptocurrencies it’s not going anywhere it’s not one that I’m worried that just disappears I don’t care what peter schiff says he’s wrong about that bitcoin is here to stay right and in fact I do believe that eventually we’re gonna see you know a hundred thousand dollar bitcoin I mean we’re back to I think our all-time highs now I don’t know if this is the round you know I think we’re like you know between 18 and 20 000 again with some volatility here but but listen I i think that this is here to stay however as much as I like bitcoin I don’t consider this a safe haven asset at all right now I really don’t think that that it’s there yet it’s simply too volatile and for that reason I personally would look at it as something you should and you know potentially buy because of rather that you shouldn’t buy because of you know global monetary policy because I don’t think right now bitcoin is like gold where you’re looking at it is something that is hedging you know paper money and I will say that I do think that there probably will be a time when bitcoin prices truly stabilize and then it becomes like digital gold but I don’t think that’s I don’t think that’s where we are right now and that may be you know 20 years away still I will say that I do think exposure to bitcoin is probably a pretty good idea for most people in their portfolio but I you know in fact I would say maybe everyone’s portfolio and I don’t want to give you financial advice but I do think that that is something that you ought to be considering because it is something that’s going to declare itself in one way or another is is something that’s been a major part of the world’s economy in the future but I still would suggest that this probably go into what you know you would call your asymmetric risk allocation which again I would personally in my opinion limit to less than 10 of investable assets on a yearly basis right now as far as other cryptocurrencies and let’s okay let’s say bitcoin and ethereum I’m not really considering them quite as volatile but the other ones I think these are still extremely risky investments so much so that I don’t even put them in the same category as bitcoin of course when I when I consider where you know where where and how much to allocate listen last time there was a big bitcoin bull run like there kind of is right now right I mean we’re right back where you are the alts went along for the ride and they’re almost like penny stocks and people made a ton of money if they timed it right and got out I for one made a lot of money but then I lost it because I didn’t get out because I thought they were going to continue to go up but again I don’t see it as an investment I mean this is something I’m looking as an asymmetric thing I’m gambling on these things right but and and so but we have to see right now what’s going to happen with this alt market this altcoin market because even though last time the ult markets caught up and they went crazy and I know Teeka Tiwari says they’re gonna do that you know the reality is we don’t know what’s gonna happen you know if you you you it could happen and if it does shoot you know I for one I’m going to make a lot of money because I have a lot of alts but I just don’t know the answer to that now if you want to take a shot at 10x growth and you’re not worried about that money having maybe even an equal chance of going down to zero you might want to grab some you know some of these alternatives or some good projects out there again I’m not going to recommend anything but I’ll just you know throw out some names like you know chain chain link and finance coin and you know obviously I still think hbar which is the hedera hashgraph stuff is really good dfinity is going to be a great project when it finally comes out I think so these are things that I think that are sort of uber hyper risky type things but on the other hand they they could end up making a lot a lot of money so the problem is again I don’t know if the alts will rally this time or not you know historically they have and if they’re going to rally you would think they would rally pretty soon because bitcoin’s been rocking and rolling but who knows maybe you know bitcoin needs to start heading towards 40 50 000 again for that to happen bottom line is on these types of cryptos I would personally suggest keeping investments far smaller than bitcoin for the ones for the altcoins they could still go to zero but I am confident that bitcoin will not go to zero now I will say and one last thing I just don’t think bitcoins in a position where I think you should necessarily be looking at it you know as a true hedge to the american economy.

Okay let’s see next question and this one’s pretty similar

Chuck:  hey Buck love the show what are your current thoughts on bitcoin and other cryptocurrencies so chuck again same question kind of give you the you know the big picture in my view but listen I think limited exposure is a good idea I think if you want to do something where you’re getting exposure of the market and you just want to buy you know one one type of of cryptocurrency it’s definitely bitcoin now one of the ways that people have done this within our group is well there’s a couple ways actually one is that there’s a gbtc I believe which is the you know there’s there’s effectively a way that you can there’s a bitcoin trust that you can invest in and obviously has a premium associated with it but on on the other hand it kind of goes up and down just the way bitcoin does so maybe the premium element doesn’t matter you’re just looking for things the delta on these things so that’s something that you can get you can invest in just through you know if you don’t want to actually go buy cryptocurrency get involved with you know the technical aspects of it that’s one way to do it another one I should mention that some people in our group are doing is they’re involved with the bitwise asset management fund that’s bitwise bitwise again not recommending anything we did have the ceo on the founder on a while ago smart guy basically what they’re doing is they’re allowing you to buy the market indexes of the market if you might if you want exposure of the top 10 cryptocurrencies et cetera it’s not a bad way to go requires like pretty much zero in terms of your you know technical skill it’s like buying stocks or anything else so that would be a way to do it as well yeah I mean I think that those are the ways without getting really into cryptocurrency those are the ways to make sure that you actually have some exposure you know particularly to a burgeoning area which you know eventually there will be some activity I just hope I hope the alts take off but you know we’ll see what happens.

All right here next question this one’s also from Joshua I think we had from earlier.

Joshua: Hey Buck Josh from omaha again I’m going to blast you with another question this one is regarding safe haven assets and specifically with gold and bitcoin and I know in the past you’ve talked some about cryptocurrencies and bitcoin and with jeff booth on this week it made me realize that you hadn’t talked about that much lately so I’m curious where you stand there nowadays and then secondly if I remember correctly you were somewhat bearish on bouillion but had dipped your toes into the mining space and so I’m just curious if you’re still considering that or are still investing there or what you think about the gold space thanks again.

Buck: Good question again Josh listen I think at this point we’ve probably said enough about cryptocurrency but let me talk a little bit about bullying about gold a little bit more I i don’t think I have you know I don’t think I’m ever really bearish on gold I just frankly just don’t really see the point okay so let me explain myself because I know in this especially in this alternative investing you know podcast ecosystem I mean even including guys like you know Robert Kiyosaki etc that you know gold is somehow this this thing that everybody should be you know piling up on because the world is about to you know hit a zombie apocalypse and you know only zombies or zombies only take gold they only take gold and silver and so we have to be prepared to pay the zombies of course I’m being a jerk but listen what is gold it’s a storage of value that’s what it is and one that has held its value longer than anything else I would say in the history of mankind an ounce of gold back in the times of christ would have bought you a nice toga and a pair of sandals and now an ounce will buy you a nice suit maybe maybe a pair of shoes depends on you know how fancy you are and you know and in that regard as a consistent store of value I do not think of it as an investment right I mean a store of value is different from an investment I think of gold as a store of value that is a hedge against inflation gold is the anti-dollar and in my opinion that’s the best way to think about it we think of gold becoming more expensive with inflation but really it’s just a dollar losing its relative value against gold which never loses its value that’s kind of the way I look at gold. So if you want to hedge against inflation sure gold might be a consideration but let me tell you what the way I think about it again these are my own opinions what are your other options well pretty much anything that increases in value with inflation is an option right so what about real estate is real estate a hedge against inflation absolutely it is but real estate also happens to throw off cash flow real estate is absurdly tax beneficial capital gains on gold are like 28 you know listen the other thing to mention about my experience well yeah I did have some experience with mining stocks you know in this canadian market so I’m not really doing much of that anymore but yes I’ve been involved with this part of the investment world is part of my asymmetric risk profile though again you know and I should say I haven’t had very good luck some people have but you know the businesses that I was banking on were ones that mine for gold and other precious metals and natural resources and I find that to be a lot more interesting because again think about it this way I’m not you know again I’m not investing in gold I’m investing in a company that mines for something that is a store of value right so it’s a business bottom line is I’m simply not convinced and I have yet to be convinced after having so many people on the show listening to so many people on other podcasts etc people I respect I’m just not convinced that there’s any advantage to owning physical gold or you know something like a gld stock instead of buying real estate no one no one has been able to convince me otherwise now one last point I’ll make there is some people say look hey even warren buffett’s involved in gold now yeah I get it but warren buffett is involved with not with gold he’s not buying gld he’s buying companies that are mining gold again he’s buying businesses that are generating cash and and gold itself doesn’t generate any cash so so I think that in my opinion if you you know if you’re you know if you’re really bullish on where gold is headed you might be better off buying into like a you know a royalty company or something like that but I I’m not a huge fan of physical gold and I don’t know that I’ll ever be convinced and only history will prove me right or wrong on this topic.

So let’s see I think we probably have time for one more so let’s do it.

Mike: Hi Buck my name is Mike from denver colorado and I am a real estate agent this is my first year as a full-time real estate agent I’ve spent the last several years working on myself just learning as much as I could and figuring out the path to become my own boss and as a first year real estate agent I made one over one hundred thousand dollars in gross commission income I plan on doubling that or tripling that in these years to come but even it when I do that I will still not be accredited for three years so I have kind of two or three questions here that relate to that and also relate to my rep status so my first one is if you were in my position and you had 150 000 to invest or 200 000 to invest would you continue to build relationships with operators and sponsors that you know who might not be as large as someone like western capital or a syndicator like that and would you try to do a jv deal with them on a smaller apartment complex or would you save that money and do something else to kind of speed up becoming accredited whether that’s taking the series the sie test on finra and the series 65 which you do not have to be sponsored for or would you hold on to that money and invest it with somebody that you know and trust as on a smaller level as a jv or possibly a gp if I’m able to pull more weight on that side of the deal and my next question is as far as rep status is concerned I don’t see any content that makes it very clear on if I need to spend more time in my investments than I do performing everyday residential kind of real estate activities that I already do in order to use my passive losses against my active income so I would love some specifics and clarity on that as well so those those are my questions thank you so much for your content and everything that you do for this community I’m truly grateful so thanks.

Buck: Well Mike lots of lots of questions good questions there so let’s start with the rep status as you called it. Now what is this? This is the real estate professional status the real estate professional designation for your you know that you can file on your your tax forms that the irs recognizes you know we’ve talked about it on this show a bunch of times but it’s sort of from a tax efficiency standpoint it’s a little bit sort of like the holy grail for tax efficiency in a nutshell again I’m not a cpa so it’s you know I’m not giving you advice and I could be wrong about everything blah blah blah don’t sue me et cetera but you know the the law as I understand it is that if you spend 750 hours per year or more in material participation in real estate and you don’t do anything else for more time than that then you can file as a real estate professional so what’s the big deal well as you know real estate depreciation results in a lot of paper losses because you get all this depreciation passive losses passive losses right but for most people these losses will be considered passive losses and can only be used against other passive income that includes you know the the stuff like from your real estate of course and other investments but also other potential passive business activity as well like surgery centers infusion centers things like that if you are structured that way now we’ve we’ve emphasized over and over the value of having passive income and this is why because most people cannot achieve this real estate professional status because if you have a full-time job forget about it but what the real estate professional status does is it takes those losses from real estate the passive losses and because you are a real estate professional it activates those losses and what that means if you are a real estate professional and you’re say your spouse has a w-2 job and you’re filing jointly well guess what in theory and again I’m saying in theory because I’m not a cpa and I shouldn’t be saying this to you but let’s just say I probably know a little bit about this stuff so in theory your active losses that you’re generating as a real estate professional and this is from depreciation etc should be able to offset income from your spouse even if that’s w2 income again that’s not tax advice but that is a hell of a good deal for that couple right and so that is what the big deal is about this holy grail of a you know concept called a real estate professional if one at least one of two people in in a relationship have that now mike in your case you’re essentially asking about your own active income presumably through brokerage and you’ve got that active income and you’re wondering if you can offset you know any passive losses you’re gen generating from real estate against that active income from your brokerage and again I can tell you that I’m not going to give you any tax advice but I have seen my real estate colleagues effectively you know take those take that you know those active incomes and write off their losses against it but I definitely check on this with your cpa in reality I think a lot of it just depends on two things one is you know how robust is your real estate pro portfolio how much time can you realistically claim that you spend on your real estate property material time that you spend in your investment property I mean if you’ve got one single family home and then you know it’s generating like you know a couple you know a hundred dollars a month or 150 dollars a month and you’re making a hundred thousand dollars a year in brokerage income it may be a little difficult to justify that but again this is really where you need a good cpa because you know you’ve got I know for a fact that there are real estate agents taking on that you know that designation and using their activated real estate losses to offset active inc active income but I can’t tell you in what scenario that can be done you need a good cpa is what you need to navigate that part now as far as the question on what to do with 150 000 200 000 again I’m not giving you financial advice but personally I definitely would not hand it over you know to some inexperienced syndication groups I will tell you something and you can take that for what it’s worth experience indicators do not accept unaccredited investors they just don’t because they don’t have to and in taking you know you know investors who are not accredited they’re taking on a far greater amount of risks so who does take it well that leaves groups that really need your money and are willing to take unaccredited money and in my experience that is not going to be a very well experienced group a group with a good track record and you know otherwise frankly they probably wouldn’t take your money if you’re not accredited so what do you do well I don’t I don’t know anything about your experience and your own abilities and aptitude for making money so I can’t comment on doing jv’s and that kind of thing but certainly if you’re young and energetic and you think you can do it then that would be a good use of your money but if you want to invest passively you got to get accredited and of course we know that accredited has been traditionally defined by the money right you’re accredited if you make two hundred thousand dollars per year three hundred thousand dollars filing jointly for at least two years with the expectation of that being the same going forward or a million dollars outside of your personal residence and but recently as you suggested the sec has broadened the definition of the accredited investor to include various certifications including I believe the series 65 you’re going to have to look that up so if you want to make quality passive investments and you’re not going to be hitting that mark from the financial standpoint anytime soon there’s no question in my mind that I would get qualified through the series 65 or you know whatever other finra ways you can do that before I ever considered handing my of hard-earned money to inexperienced or amateur real estate’s indicators I hate to be harsh but listen we’re not about you know this this group is about you know finding experienced you know or I should say our accredited investor group is about finding experienced partners that have got a tremendous track record and as much as we hope that the amateurs do you know do well for themselves that’s not where we’re putting our money. Anyway that’s probably all we have time for questions today. We will be right back after these messages.