Catch the full episode: https://www.wealthformula.com/podcast/277-investor-roundtable-on-wealth-formula-banking/
Buck: Welcome back to the show, everybody. Today we’re going to do something sort of special. The last few weeks, we have interviewed members of the Wealth Formula community and figured out their individual journeys. There’s one thing that we talk about frequently on this show as sort of a nice place to start for investors, a nice sort of baseline, so to speak. And that is the concept of Wealth Formula Banking and Velocity Plus, which you hear is talking about quite a bit. And a number of you already are doing it. And if you have been involved, you already know Rod Zabriskie and Christian Allen. And so what we decided to do today was to try to shed a little bit more light on how these types of products work, sort of ultimately as a foundation for some of the other things that we do in Wealth Formula and Wealth Formula Investor Group and all that. So I am going to interject, but this is going to be mediated largely by Christian and Rod. So why don’t I hand it over to you, Christian, and you can kind of introduce what we’re going to do and all of our panel.
Christian: Yeah, that sounds great. So like you said, we’re excited to have a panel of guests. All of them are existing clients that we’ve worked with and done a variety of different strategies. And so the goal today, and this is something that we’ve just heard. And as we meet with people, there’s oftentimes people asking us, what are other people doing? They want to hear the stories. And so today, like you said, Buck, we’re going to hear some of the experiences and stories of some of the people who are active and part of the Wealth Formula community. So with that said, I want to first just introduce the three members of our panel, and I’m going to turn that over to Rod so he can just give a short bio about each one of them. That way we know who we’re hearing from.
Rod: Yeah. Sounds good. Okay. So first we have Julie Rehfeldt, and Julie is coming to us from Michigan. She’s an internist, also works as a clinical assistant professor in the Department of Medicine at Western Michigan University. She’s been utilizing Wealth Formula Banking for about the last four years and is very active in real estate investing. We’ll learn more about that as we go. Secondly, we have Dave Ferguson, who’s coming to us from Texas. He is the owner of Celebrate Dental & Braces, has several locations across four States. He recently started the Celebrate Institute, where he teaches dental professionals across the country specialized techniques. And he also has incorporated Wealth Formula Banking as well as premium finance, and his own captive insurance company, will get into a little more on that as well. And then finally, we have Ryan Stieg, who’s coming to us from Montana. He has worked many years specializing in transportation insurance, but he’s now actually transitioning out of his regular working career, moving toward being a full time entrepreneur and investor, becoming franchisee, becoming partner in an investment company, et cetera. And he is also active in Wealth Formula Banking and Velocity Plus as well. So thank you all three for joining us.
Christian: Yeah. Thanks, everyone. We’re excited to have you. And just so everybody listening now, these are all highly successful people who have been doing a lot of cool things with well for banking, Velocity Plus, Premium finance, all of the things that we talk about and teach so much. So what I want to do first, I think, is maybe just open up kind of a question for everybody just to kind of get us going. And the first question is kind of what attracted you to the Wealth Formula Network. So, Julie, why don’t we start with you? Just kind of give us an idea how you got connected with Buck’s Group and kind of what it’s meant for you.
Julie: Initially, I was looking to retire early. I’m working at a VA in Michigan, and I wanted to find a way. After my mom passed away, I wanted to find a way that I could have more meaning in my life and spend more time with my girls. So I was looking at a lot of podcasts, and Buck came on a podcast and said instead of saving all my money and living in poverty till I retire, I can earn money and live with abundance and actually earn money instead of retiring. And I can just stop working or do a different career. So that’s kind of what got me into Buck Group. And I heard back and then I watched the videos. I listened avidly to every podcast that I missed already. And I’ve been listening ever since. And I joined the Wealth Formula Network about three years ago.
Christian: Excellent. Yeah. Thanks, Julie. And she’s been very active anyway, a really good part of the community. Hey, Dave, why don’t we move over to you just kind of how you got connected to Buck’s group?
Dave: Yeah. I really take credit for Buck’s viewership or listenership because I think I was one of the first. And so he hasn’t given me the things that I see as soon as I started listening and I started telling everybody around. And next thing I know, everybody’s listening to Buck on.
Buck:I was wondering about that. Dave, it was you. One day, I only had five listeners. The next I was getting like 20 or 30,000 downloads a month.
Dave: It was me. I was the person. And now there are so many just connecting the dots. In all honesty, I had always heard the same old stuff get term life insurance, investors, yadayada. And long story short, the more I listened to the Buck, he kept talking about it over and over and over. Instead of being annoyed with it, I thought, well, everything that Buck says, it really resonates with me. And so I better really look into this. And the more I did, he connected me with Christian and Rod, you guys. And the more we talked about it, the more we went over. It just makes sense. At the end of the day, numbers or numbers, and it either works or it doesn’t. And for me, it’s and I’m grateful for it.
Christian: Yeah. Awesome. Thanks, Dave. Ryan, your turn. Tell us a little bit about how you got into the group.
Ryan: Yeah. Well, I feel like I’ll echo the first two, although I can’t take quite as much credit as Dave for the listenership to Buck, it’s a similar path kind of as I started investigating this alternative investment space or financial independence, what have you through a series of podcasts. Buck was on one of them, and his message resonated with me too. Kind of the same trigger event that Purple Book often talked about on this podcast. Here was one of the triggers for me too. And so his message resonated with me. And I’ve been a listener since probably. No, I don’t know when you got started, but probably late 17 or 18 is when I got introduced and have been listening ever since. And then Julie went through the course and part of the network, although I’m not able to join the calls biweekly, but now listen to all of them and try to put as many of them into practice as I can. So kind of a similar path. Just been listening since the beginning.
Christian: Wonderful thank you. Okay. We’re going to kind of transition and start talking about some of the fun stuff, the strategy part of it. Okay. Well, let’s jump into it then. Buck, why don’t you give us kind of a high level overview of what Wealth Formula Banking is before we jump into the deep end?
Buck: Yeah. This is important because we have a lot of new listeners and we always talk about Wealth Formula Banking. And you hear about cash flow banking and infant banking, all these things, they’re basically the same. And for the longest time, I was like, okay, be your own bank. What does that even mean? I don’t understand that. Always just never pay attention. The AHA moment for me was when I realized, okay, you could have life insurance. But the point for these is less of a life insurance and more about growing money and then being able to deploy capital efficiently in Wealth Formula Banking policy. Essentially, what happens is you are over funding a life insurance policy, and it is whole life. So essentially what happens is that you are creating an investment account. And that investment account is growing at I think mine was growing at five and a quarter or something like that. But it’s growing at a compounding rate, which in and of itself is really important. And for real estate investors, we don’t talk about that as much as we should, but it is important because the concept is similar to velocity. It is like compounding interest. You look it up on Google, compare compounding interest to simple interest. It’s a huge, huge difference because it’s interest paid on interest. I know there’s a split between dividends and guaranteed rate and all that, but all in if you’re getting about 5.2% or something like that, it’s pretty significant now. Okay, that doesn’t excite me too much. But what does excite me is the next part that was the AHA moment, which is that I could borrow this money significant portion of it from the insurance bank, from the insurance company itself, not tapping into the money that’s in my cash value, but rather using that money in my cash value is collateral to get a loan and a loan that is charging me a simple interest rate. Now, that in itself is huge. There’s an arbitrage between compounding and simple interest. But right now we’re actually getting, you know, a significant difference in the number of points, too. I mean, I think some people are getting simple interest. Well, their money is growing at a compounding rate of 5.2. So that may not seem like a huge difference. But if you go back, if you go to WealthFormulaBanking.com, and you look at some of the differences in terms of growth over time of cash flow investments, it’s enormous. So now the other thing that we’re going to hit on is Wealth Formula Banking. It’s essentially being able to invest your money in two places at the same time. That’s really what it is. And that’s what the value of that is. The other thing that we talk about is and I think I’m going to just talk about it a little bit because I know Dave Ferguson in particular, has done some of this stuff. There’s another thing that we call Velocity Plus, which is a slightly different way of doing things. And in this situation, what you have is the same type of deal as permanent life. You have an investment account, but instead of you leveraging it yourself and buying real estate, this one is going to basically be based on the performance of the S&P 500 or some related stuff like that. And the beauty of that kind of thing is that you take the upside up to a certain percent, but you don’t take the downside. So if the market goes up by 8%, you can take that 8%. But if it loses 20%, you don’t have to lose 20% of the value of your portfolio. How is that possible? Well, it’s magic, but basically it’s an options play. But again, you may say, well, that’s fine. But here’s the thing is, when you add leverage to that, he becomes like or more in the case of higher amounts of leverage. So I don’t want to get too complicated. But if you want to go back and watch Wealth Formula Banking dot com and look at those videos, that will help to clarify that. And then these conversations will actually even become more powerful if you’re not familiar with the concepts. But hopefully that’s just a high-level introduction. So I’m going to give it back to you, Christian. I’ve thoroughly confused everybody now, and you can take it.
Christian: I think it’s perfect. That was a good overview. So we talked about two strategies here. We talked about Wealth Formula Banking, where we are using the cash value in the policy as an opportunity fund. It’s liquid, gets a good return, it’s safe, creditor protected, all that good stuff, just like you talked about. And similarly on Velocity Plus, like you said, we’re just changing the direction. Instead of us paying money into the policy, we’re letting a bank do the majority of the premium. So we’ll get into that again in a minute. But let’s kind of talk a little bit about the Wealth Formula Banking side of things. And Julie, I want to jump over to you. You’ve probably been a client for the longest of anyone on this call. And I know you’ve done a lot in the real estate space. So why don’t you just talk a little bit about what kinds of investments that you use in conjunction with Wealth Formula Banking?
Julie: Well, I had to build up my equity in the life insurance policy initially. And so I’m still working on that. I’ve had, I think, three times big money entered into the policy. And so once I got the money into the policy and I was able to immediately take the money out at pretty much the same amount that I put in to use towards buying property. And so and as I’ve been working to increase my income, I’ve also been working to increase my network. So I’ve been using it for buying single family homes as well as I bought a syndication in ATMs as well as I did a syndication with Buck. And then as I have a liquidity moment, pay back the policy loan that I took, and then I go use it again on something else that comes up so I can kind of wait. It allows me to wait a little bit to figure out what I’m going to invest it in next. And then it’s really easy to get the money back out by just asking for a loan. I get a check and it’s done. And it takes about three days total. It’s great.
Buck: And so the concept for you, Julie, is a concept for you again, I guess when you look at it, you’re amplifying the amount of leverage and therefore amplifying your returns.
Julie: Absolutely. So I’ve been buying things with leverage by using the policy loan.
Buck: So effectively, the equity is coming from the policy, the policy loan. And then you’ll have bank leverage on the rest.
Julie: Actually, for some of the things I’m complete from the policy. And then and then on some of the things I’ve also been doing on bank leverage, the issue comes is when you get enough loan, it’s truly a pain to talk to banks. So I got to the point where I was hitting about six or seven loans and they want too many documents. And I actually got denied for a loan, but I had promised some friends of mine that I would buy a duplex from them. And I said, okay, how am I going to pay for this duplex? So basically, I had enough equity in the policy that I took all the money out, and I just paid cash for the duplex from the policy loan. So essentially, it was kind of like my own cash. I just use my piggy bank. And then I’ll replace it because I sold something last week. And so I’ll replace the policy loan with the money that, I just had a liquidity event. And so that liquidity event will then be on the rest of the policy. Actually, just last night, I was thinking about what’s next.
Rod: Oh, yeah. I think you hit on something that’s really important because we run into a lot of people who are not yet using it. Well, for me, the banking and one thing that they really get dissatisfied with is the money between deals. It’s sitting in the bank account, and it’s just not doing anything right. And so this idea that you can be earning something on those dollars while you’re between deals, and like you said, maybe that gives you the freedom to even take your time. You don’t have this pressure of okay, got to get some money working for me, because it is. And it will be there working for you, whether you take the loan against it or not, right?
Julie: Absolutely. And I found that there’s never a problem of finding a deal. There’s always lots of deals. And as you do more of them, you get called by people. And I found that just kind of putting things out and talking to people, either Buck has a deal or there’s a deal in the community or everything. And so each way I just kind of I’m trying to keep the cash flow growing as well as now. My husband wants to retire, so I got to pay for his retirement and also increasing the amount of overall network we have to pay for the children’s college.
Buck: So the way Julie does this is pretty classic. This is like the classic use of this for real estate investors. And sometimes people ask the question, well, why isn’t she just using a home equity line of credit? The answer to that really is the big difference between a home equity line of credit and what she’s doing with the banking policy is when you borrow on the home equity line, that money is not there anymore. In other words, if you have $100,000 of home equity and your home equity line of credit and you borrow that well, you borrowed it, you’re not making money on it anymore. But what Julie is effectively doing is borrowing against $100,000 and leaving it there so that she continues to make money on that initial $100,000. And that’s the magic here.
Christian: Ryan. I want to transition to you just a little bit, and you’ve gone all in and done multiple policies. You’ve done Wealth Formula Banking, you’ve done Velocity plus. But maybe let’s just talk a little bit about what attracted you to, let’s start with Wealth Formula Banking and the kind of things that you’re planning to do are actively doing now.
Ryan: Yeah. So I think before I got introduced to you guys, I had term policies on my wife and I and I had read as Buck referred to earlier, Bank on Yourself by Nelson Nash, which is loosely a loose translation of what we’re doing here. And so getting connected with you guys. And then listening to the initial podcast on the why behind a Wealth Formula Banking policy, I think one of the terms of Buck use that really clicked for me is double dipping. And so when that clicked for me, that’s when I changed to get rid of my term policies. And like you said, I kind of went on. I initially a policy for all of our family members. So me, one for my wife, one for each of my kids. I think kind of the why behind this is I was investing in a 529. So I essentially replaced the investment that I was making in a 529. They’re offering me more flexibility and also locking in a policy that they have the ability to keep for life. So from that standpoint, it was kind of a no-brainer for me, as well as the ability to really teach them some of the functions and features of how to use banking efficiently. And we’ve even used that since then for my son. He wanted a motorcycle. And so we talked about taking a loan from the policy and how to pay it back and then being able to reuse and recycle those funds. So that’s kind of the why behind the policy for each of my boys. But for our policies for my wife, and obviously, the life insurance is the benefit that is at the base of why we do it anyway. But the double dipping has allowed us to invest in cash flowing assets to strategically pay off debt when and where. It makes sense. Obviously, if the rate is low enough, it makes sense to keep the debt there. But it allowed us to have that flexibility we’ve used it for. I’ve been in the past more actively involved in turnkey real estate, as Julie has. And so I’ve used that for down payments on turnkey real estate overall, liquidity. It has really given us that sense of security that one. We have life insurance, but it’s also liquidity that we keep at a base layer, and we know that we’ve got that there. I haven’t gotten into the ATM funds, which I know I might be in trouble for, because that’s one of the best uses of a policy like this. I’m waiting on that, too. But it’s really given us flexibility. And I hate to steal the term, but being our own bank. And so it’s given us the best of both worlds of protection in life insurance and liquidity, but also the ability to use those finances strategically for when and where we need them.
Buck: Ryan, when you say, and I’ve used the word double dipping, but why don’t you explain what it means to you when you hear you said that’s? What made it click for you
Ryan: Kind of going back to what you said just a couple of minutes ago is that if that cash is sitting in my bank account and I use it for an investment, it’s now gone, and it’s got a single purpose. But if I use that from my policy, I’m using that from my policy. So now I’ve got an interest rate associated with that, whether it’s or what have you. But that amount is still growing at a compounding rate within the policy. So as long as I’m smart about the arbitrage on that rate, as long as I’m investing at a greater rate than the policy rate is, I’ve got that arbitrage in interest rate that the policy cash value is still growing, but I’m also using it. So double dipping, essentially, to me, means that I’m using that same dollar in two different places.
Christian: Right. Excellent. Okay. So I want to make sure that we spread the love a little bit. But before I do that, Ryan, why don’t you just hit on what attracted you to Velocity Plus? Because you’ve done both of the strategies and obviously, Wealth Formula Banking is the more active. But in addition to that, you implemented Velocity Plus just talk about kind of your feelings or logic behind that move.
Ryan: Yeah. I think, as he has several times in the past, Buck’s podcasts on the subject kind of helps. I think one of the things that’s most relatable about Buck is his ability to make something understandable and layman’s terms when we’re first getting introduced to the concept. And so Velocity Plus for me is when I kind of started getting less enchanted with the stock market and the variability in the stock market and some of the cycles and volatility, I kind of took a step back and I stopped going down the accumulation path of a 401k. And so eventually, where I got two. And it was a follow up conversation with Rod at one of Bucks events a year or so ago. Really, the thought process for Velocity Plus for me, one is the ability to use leverage to the ability not to take the downside. As Buck would say, if I’m going to invest in the stock market, I don’t want any of the downside. I want the upside. And so that’s one of the things, too. But also essentially it’s a long term play. This is not Wealth Formula Banking where you get to use that cash or that cash value in a short period of time. This is a long term play for down the road. And so what it has essentially done for me is it has replaced my investment in a 401k, and I reallocated those funds again to have the ability to have a life insurance policy that’s behind it. And two, I’m planning on using that as additional income when I’m in my late 50s, early 60s, whatever that is down the road. And so it’s essentially replacing what has traditionally been for me, a 401k investment for eventual income down the road. And so that’s really the play that I’m using as well as the ability to have leverage to which some people are not keen on using leverage. But as long as it’s used responsibly, I like to use it as a strategy.
Buck: Yeah. I mean, in this case, your leverage is basically it’s just amplifying your upside, right? I mean, obviously, the downside, you’re going to pay some interest, but it’s almost like an insurance policy, right? If the market falls 20%, you’re certainly not paying that much in terms of the amount of leverage payment for the year. So it is a little bit of an insurance policy on the downside. And the upside, it sort of just revs things up. The other thing I think is kind of interesting to note is that you’ve talked about it as a replacement for four. One I’m all for that. I have to tell you, and effectively, whether it’s through banking or through wealth Velocity Plus type things that we’re talking about here. What we’re seeing right now is more and more regulations, and no matter what these 401ks and IRAs, ultimately you’re still at the mercy of the government and new legislation and all that. I’ve already seen some potential changes that are occurring with Roth because of the guys like Peter Teal and stuff. We’ve accumulated so much money in the Roth IRAs. If you have this kind of set up outside of the qualified fund system, you don’t have to worry about the legislative risks in the future. So for me personally, I don’t have an IRA or 401k or anything like that. I much prefer something that’s outside of that system so that I don’t have to worry about those kinds of legislative issues.
Christian: That’s a great point, Buck. And it’s really unique in the sense that there’s really no other way from a retirement planning perspective to add leverage to it. We call it conservative leverage because it is pretty conservative, but the amplification that it can create on income is just remarkable. So I’m biased, but I firmly believe and haven’t been able to find a place to create anywhere near the same kind of cash flow with the same kind of dollars. So I think it’s really powerful. Okay, let’s jump over to you for a few minutes. Now. You’ve done a bunch of things and some of the stuff that you’ve been doing before we even connected. I know you had a big banking policy prior to us connecting that we’ve been helping with since, but kind of the main thing that we’ve done with you is on the premium finance side and maybe got connected with our friends to put the captive insurance company together, too. Why don’t you just talk a little bit about what attracted you to the concept of premium finance and maybe what the process is like, good and bad just kind of give us your overall take on the experience that you had with premium finance.
Buck: Before Dave starts with that, again, my job is to make things simple because that’s the way I roll, right? I don’t put any spin on it. And I have to understand from A to B before I can get to see when we say premium finance, what we’re talking about specifically here is a type of Velocity Plus thing. Again, this whole using leverage with the S&P 500 or that kind of thing. Velocity plus plans that we have in place for most people are three to one leverage, and they’re built off of what Dave is doing, which is a more traditional high net worth product, which has been known as premium finance. What that means is the premium is finance, just like in Velocity Plus. But now, if you hit a certain threshold in terms of your net worth or your income or whatever, you can actually get more leverage. And so we just called that premium finance. Sorry to interrupt, but I wanted to make sure that people understood that.
Christian: So, Dave, why don’t you give us just a little bit of your thoughts around what was the experience like? Why did you initially do it?
Dave: Yeah. First of all, thanks for having me. It’s really wonderful listening to Ryan and Julie’s story, because it also helps me realize that I’m not as unique as sometimes I think I am or as weird as I think I am. Because their story resonates a lot with me. So thanks for their shares. You know, for me, even though I’m talking about Velocity Plus, I think I got to go back to originally I was a real estate investor, and so I was going around and acquiring real estate because, hey, that’s the smart thing to do with my money, right? I can earn more than I can in the stock market. There was depreciation appreciation, leverage, amortization and all the other benefits that came with it. But then I started listening to Buck. He said, hey, you can earn money in two different places at the same time. And I thought, oh, I like that. So then what happened was I went and did a whole life policy. And what happened was then I started telling everyone like, hey, if you’re going to go buy real estate, do that, continue to go buy real estate, but get a whole life policy first and then go use that money to the exact same amount of money that you were going to invest in real estate, because then you’re going to earn 5% compounding, and then you’re going to go and make 12% or so in the real estate instead of just to 12% in the real estate. And then the asset protection and everything that comes with that insurance policy was also beneficial. Now why do I share that? Because then what happened was I started having too much money in my whole life policy.
Buck: You poor thing
Dave: I know. It’s a problem. Sad story. I had some extra money in my whole life policy, but couldn’t come up with enough Western wealth deals. They sold out too quick. And so I had this extra money that I had. Then he introduced me to Rod and Christian, and the concept was really for me. Hey, you can use this. And I get mixed up with all the names. To me, I think of it as a leveraged whole life policy. And the thought was, is the word that makes a lot of sense to me as collateral. If you have some collateral, if you have a high net worth and you have some collateral on the side, that’s just chilling. And it’s not doing anything. Well, I say not doing anything. It was still making 5% in my whole life policy. But for people like us, that’s not really fantastic. So then this idea that I could take that money that was just sitting there and I could use it as my collateral in this velocity, plus, we’re leverage whole life policy. Then what would happen is then a bank would say, okay, that money sitting there, you don’t have to use it. You can leave it in there. You don’t even have to pay interest to take a loan on it. Just because it’s in there, we’ll give you X amount of dollars, and that will act as your premium to buy a whole other policy. And so what they said to me was, you don’t even have to spend any more money. You’ll borrow this, that will be your premium. And then it set up a whole new policy that had a death benefit. It had a cash value. And so that premium was going to get funded every year. Well, then it gets even crazier. It’s more like on steroids, because then what they showed me in the tables was as the as the cash value, and that policy goes up, you don’t need as much collateral, which means now in that whole life policy, at first it was locked up for a time, but as time goes on, depending on how the stock market does. And if it does, well, you can start reducing your collateral requirement very quickly, which now then I could again use it. It was almost like using money in three places. Can I copyright that?
Buck: Now, we have not done the three places yet, so that one can be the Ferguson technique.
Ryan: There’s probably more details. It didn’t make a lot of sense the first time. And I’m not as good at maybe making it clear. But I think just this idea that if you had some extra money on the side that you could use as collateral, you could get a whole other policy, never really put money into it. You can if you want to reduce your collateral requirement, but then eventually, ten years later, whatever that cash value is, you can then pay off the loan because the bank has given me that loan to pay my premium. I wasn’t paying any of it, so I did owe them. But the thing was, because that compounding interest. Over time, my cash value was worth so much that I could go pay back all of my loan. And there was a free lump of money there. And for me, that lump of money was like, so that’s free. Other than I had to plug some collateral, that money was free. And then it got even better because they told me, hey, that free money, you could actually take tax free loans again. And then all you gotta do is die.
Buck: And then you got to die. That’s the best way to avoid paying a loan back. I think it’s death. And it’s not like you have to die in a certain period of time. It’s like, take your time, die whenever you want to, and then we’ll just pay it with the death benefit.
Rod: And that’s one of those things where some people will joke about, well, I’m worth more dead than alive or what. But in that case, the increase is so much is a better year over year that your family wants you to continue, because that leverages just amplifying that
Buck: Let me just back up so effectively what Dave has done, and I’m gonna talk to Christian and Rod a little bit about the details of this, too. But is it effectively taking an asset because each one of these permanent policies is a true asset, right? And leverage one asset that you paid for and then create a completely new asset, an extremely profitable and valuable asset out of nothing because he paid for the first asset. And then the second asset over time is worth so much money that he can create another free asset. Am I wrong here, or is that what you just told me?
Christian: Okay. Can I interject? I might make this really difficult on you, Dave, but since you’ve done so well, I think you’re up for the task. So we took this another step, and maybe I’ll drop Buck in here really quick. But tell us a little bit like what a captive and what a captive is, and then we can move it back to Dave and talk a little bit about why, why he created that, and some of the value that comes with it.
Buck: So Captive Insurance Company. The IRS code allows you to self insure and specifically for your businesses and enterprise insurance, we call. So the value of that for somebody who’s got a business, is that okay? Think about this. I’ve got some businesses and the types of the amount of insurance premiums that we pay is pretty significant. Well, you never see that back again, right? Well, anyway, there’s a lot of other things that you could also insure against that maybe are slightly lower risk, or that insurance companies won’t insure against that. You could also pay a premium with your own insurance company. And when, of course, when you pay an insurance payment premium for your business, that’s deductible. Right now, when the insurance company receives it, that’s not actually income to them. That is basically going into a reserve in case there is a some kind of event that needs to get paid out. So when you have a captive insurance company, effectively, that’s kind of what you’re taking advantage of. Instead of paying somebody else that insurance premium, you are paying your own company. But because you’re paying it, your company is taking it as a deduction. And then it’s not like you’re sending it unless eventually that insurance company gets dissolved or something. So you don’t end up paying taxes on that money. The insurance company has that money, and hopefully that makes sense. But effectively, that’s what a captive is there is again, a little bit of a heavier cake and eat it to benefit there. Is that good enough?
Christian: Yeah, that’s great. I think that’s good context. And maybe Rod can help us if we need to on some of the details. But one of the things that Dave has done is he implemented kind of a lethal combination of using Captive in conjunction with premium finance. And that does some pretty unique things. And Dave, do you remember the connection between the two and what kind of value that’s creating?
Dave: Well, yeah, I do. First of all, I suppose the disclaimer and maybe now is not the time, but I really do see the captive insurance company not really as an investment vehicle, but truly, in my business, there’s a lot of risks that are legitimate, very significant, legitimate risk across the board. And for those listeners that may apply for some listeners that it may not, I think in my situation, because we’ve got 16 office, 30 partners, we’re doing some high risk procedures. We’ve got management companies, we’ve got real estate holdings, we’ve got a lot of different types of risks. I think the benefit is if you do fall into that category and you have business risk and you can insure it, really you see it as a separate business, not an investment, but like, hey, I could start an insurance business that could insure the risks of my businesses. So sorry for the long disclaimer.
Buck: That’s the way it should be, by the way. A hundred percent. Exactly.
Christian: Yeah. We don’t want to go into a Captive unless it makes sense. Right. So I really like that you did that because we always tell people like, you don’t go to create the connection between premium finance and captive, like, they have to stand on their own, make sense individually. And then once that happens, we can do some pretty unique things to leverage one another.
Dave: Yeah. I mean, the IRS is very nice. The beautiful thing is that they’re very clear. They say, hey, this is what legitimate risks are. These are the legitimate rules that you can follow. And if you follow them and it works, then it’s great. And it’s a good business to be and not necessarily a good investment to make how it falls into leverage. Whole life is at the end, that insurance company. Now that it is a business, it can then make business investments. And some of those business investments could be purchasing debt or whole life policies. Just like Buck also often talks about how Warren Buffett buys all the insurance when people are going to die. Life settlement. So an insurance company could make investments in something like a life settlement. It also could make an investment in a life insurance policy that maybe somebody had set up, like me. And so that’s how you would then kind of tie those two together.
Buck: And understand, too. What Dave is talking about is really important because he’s not doing anything that a regular insurance company wouldn’t do. He’s protecting his company. And what does an insurance company do? One of the reasons why they are so stable over the years is they invest in things like real estate. They invest in things like life settlements. That’s what they do in order to continue being profitable. So he’s doing exactly what an insurance company would do. He’s not doing anything different.
Christian: Beautiful. Okay, Rod, why don’t you take a second and just talk about the tax benefits that come from using the do together?
Rod: Yeah. Because especially when you get past this point where what’s called usefulness of the insurance company is gone for Dave, who knows? Maybe that’s in ten years. Maybe in 50 years. But it gets to a place where those risks are no longer there. And so he no longer needs to continue this entity as an insurance company. Well, he can then shift the purpose, shift the structure of it. And now it has these reserves built up inside of the Corporation, and that opens it up even more, because inside of a captive, there really are a lot of restrictions on what you can invest in. But when it opens it up, then there’s more that you can do. And so this type of the premium finance IUL now becomes an asset that that Corporation can hold. And so by doing that, what he’s done is during the times where he’s setting the money into the captive. It’s a deduction. Right. So he didn’t pay any tax on it. Later on, if he were to start taking assets out of it, he would pay capital gains on it.
Christian: Which, by the way, is still a lot better than income taxes. A one of the reasons from a tax standpoint where someone will use a captive is because you can basically change that from income tax to long term capital gains tax.
Rod: Yeah. And then when we take it out to the next level of what he described earlier, where now he’s going to start using loans against that policy to take income. When you take loans, you don’t owe any tax on the loan. And so now that takes it another step beyond that. So he’s not even paying the capital gains on it because it’s coming as a loan from that insurance policy. And then when he passes away, there’s this tax free death benefit that pays off that loan. And again, from a tax savings, just efficiency of cash flowing in and out of the different entities that had legitimate uses. Now, when it comes to the point of starting to offload those, there’s just an additional level of efficiency that we can gain for someone who has those two entities.
Dave: And if I could add, I mean, I think the full disclosure and transparency I think the important thing is some of those things that they can’t be done anytime soon. And it will be when you get to a point where you start investing as an insurance company. Once you are investing those monies that you have to make sure that your insurance company is good and sound, you have all sorts of options of different things that you can invest in. We’re just talking about one really. You could make investments and a lot of different things when you get to that point. I have not done that and probably won’t for ten years, at least until we’ve no longer seen the risk associated with the operating entities such that we wouldn’t need those premiums anymore. So I’ll just throw that in there that I don’t have direct experience with the things that we’re talking about. It’s more conceptual at this point.
Christian: Sure, it’s in the future, it’s been set up so that it can be done, but obviously it takes time for some of these things to come to fruition. Okay. We could probably go on and on, but I’m thinking maybe what we’ll do next is just kind of get some final words of wisdom from each member of our panel. And so, Julie, I want to just ask, what would you say is the most important advice you could give the audience as it relates to real estate investing, because you kind of went through this path where you really jumped in and now you’ve learned a lot. You’ve done a lot of deals. What kind of advice would you give to the listeners specific to real estate investing?
Julie: With real estate investing, with using Wealth Formula Banking, you need to be careful that number one, you’re making more money than what you’re paying in interest and make sure that you still have money available. You don’t want to use every penny that’s in the pot because you want to be able to come back. If you have to do a capital expenditure, you don’t have the cash quite at that moment. You want to make sure that you have the money available to tap into it again if you need to. So I found that and sometimes unexpected opportunities come up. And so you want to make sure that you are not putting all your eggs in one basket and leveraging if you can get a bank loan to leverage most of it and then just do part of it from the Wealth Formula Banking. It’ll actually go quite a bit further. And I found those two things really have made a big difference. And don’t forget to pay the premium yearly of the amount that you said that you put into the insurance policy.
Christian: Great Advice!
Buck: I’m going to ask a question, though, too, because I want everybody to answer in terms of Wealth Formula banking. How did you determine you don’t have to give me a dollar amount, obviously. But how do you determine the size of that policy? Because that’s a frequent question that people get.
Julie: Actually, I talked to Christian and Rod and I had lofty goals of what I thought I could do, and they put me back down to earth and said you should try this. And we came up with a number that was about halfway in between their goal and Michael. So it ended up to be a good mix, and I haven’t been able to fund it each year. So that was the important thing. And it’s only for about five to seven years that you need to fund it anyway.
Buck: So I think the key I felt like in those situations is to make sure that it’s an amount of money that you are very comfortable that you will have every year. You don’t want to base it on the best or you’ve had ten years and max it out. The reason is that the over funding is the absolute critical part of this. You want to be able to put in the entire amount every year. And so you want to be somewhat conservative in that so that you can make that happen.
Julie: And Rod and Christian helped a lot with that.
Christian: Yeah. And I think one of the nice things is once people get the feel of it, there’s a lot of times where people add policies, but we’d rather have you add policies as it makes sense and over extend on the front end. So that’s always something that’s super important to us. We want to make sure that the policies are generating the return so that we can deliver on the concepts and strategies we’re talking about. That’s a great point. Julie, thank you for bringing that to the table. Okay. Actually, Buck wanted to ask that question around the table. So maybe Ryan?
Ryan: Yeah, similar to Julie, I think that Rod and I had the discussion of maybe what my stretch goal was and what my comfort zone was, the minimum payment annually versus what the Max amount would be able to be on the policy. And then we layered it in with adding a policy for my wife and kids, too. So it was kind of a multi-factor approach to see what I knew I was going to be comfortable with and then what my stretch goal was, too. So again, it was a conversation with Rod and just kind of walking forward several years to make sure that it wasn’t going to push me outside of my comfort zone. But one thing I’ll add to that, too, the Rodney I did a couple of years ago is we layered in a convertible term policy so that I lock in that underwriting or that rate. But what we can do down the road then is if I get more comfortable, I’m no longer having to go back and be completely re underwritten. I had the ability to trigger that policy, which we’ve done since then to be able to further ads trail. So we kind of took a stair step approach of where I knew I could be what my stretch goal was, and then adding that comfortable term to be able to stair step up if I had the ability to.
Buck: I think the convertible term is so important for me as you guys, Rod and Christian, you guys know I have a lot of convertible term, right. And the idea for me is that there may come a day where that a lot does not seem like a lot anymore. And I want to be able to take advantage of that without being underwritten ten years from now with whatever potential health problems I have here like that. And so having that is a twofold one. It just gives your family more protection because you have the term. But the convertible nature of it really gives you a tremendous amount of flexibility, especially if you’re early in your career and you’re younger and you don’t really have the confidence that I’m going to be able to put this much per year, or maybe you have no idea that you’re all of a sudden you’re going to be making a lot more more money in a few years before you know it you’re Ferguson, right?
Christian: You brought up another really good point, the convertible term. You also mentioned flexibility. I think this is an important point. We get the question a lot. When we create these policies, we create what we call a funding range. And so it’s just like it sounds like a range of dollars that can be funded. And so usually it’s going to be about a one to three ratio. So if my goal is $100,000, then I might have a minimum of $20 to $25,000, but the Max is 100. Now, what ends up happening then is if I only put the 25,000 I in that situation, then my policy is going to grow very slowly. Right. It’s not going to be the effective nature that we want it to be. So the first couple of years are really where we want to fund as much as we can. If we can get the whole amount in the first couple of years, the policy is going to run and fly from there on out, and we’re going to be able to use it for all the things, the investing things that we talked about anyway. But I just wanted to hit on that because I think that’s a really good point. We need to make them flexible because we don’t know about the what ifs of life. So I think that was a great point. Dave, you did this prior to meeting with Rod and I. You already had a big policy that you put together. Same question for you.
Dave: Yeah. I mean, when it comes to how much to make it, I threw a dart at the wall, and that’s what it came up with. The other answer would be, I just asked Buck. I sent him a chat question, and he just answered it online. But in all honesty, I looked at it like that, and you kind of alluded to it right there, Christian, there’s really two pieces of information that you have to know, right? What’s the bare minimum I got to put in before Armageddon happens, and they take all my money. So that is a baseline number that I knew. Hey, I have to know if all heck breaks loose and COVID happens and the government shuts down our offices and we get no income for a couple of months. I need to be secure that I can get this amount of money on a yearly basis. And then the higher end is really just again, what are your goals? What are your other investment strategies and how much do you comfortably feel like, hey, every year, I could probably put this in. And like you said, Christian, if you can do it, I do think what you said is very important that the first two years you want to make sure you can Max it out entirely. But then after that, like, hey, if you’ve come up with other strategies that are going to supersede this in the advantages, then hey, you got to fund the minimum, and that’s fine. But if you do have extra money, you can always be funding it here. What I found is putting money in two different places at the same time, pretty much just every investment I think of doing. I’m always thinking, like, do I have any room left to over fund my life policy first and then use all of those investments? So even when you find good strategies, and I think that’s kind of how I picked the number, what I found is usually I want more, then you got to go through. So I think that convertible will talk offline. Like you said, I set it up before, and my guy didn’t set up the convertible, and I really wish I would have had it at this point. So I think that’s great now, hopefully the listeners catch on to that.
Christian: Yeah. Thank you. Okay. So, Ryan, one of the things we wanted to get into and didn’t get into as much with you is just kind of the transition that you are actively making from your career to, like, I guess I’m going to say full time investor, but full time investor and starting the new franchise. So maybe I just want to hear a little bit about what that transition has been like and maybe what the value of the planning techniques and Bucks community, How’s that helped you make that transition?
Ryan: Yeah, I guess I’m not really sure where to start with that, but I think that kind of going away back. It’s really just been a long term goal. And so I think the overall thing I’d say with the transition and how all of this stuff works is if this is the first podcast you’re listening to, Bucks, just know it takes patience to implement a lot of these strategies. No matter where you are, you can get started. Entrepreneurship has been in my blood for a long, long time. Investing has been an interest of mine for a long time. Like I said earlier, I’ve been listening to Bucks podcasts in probably 17 or 18 other podcasts even further back. And so it’s a marathon, not a sprint. And so you kind of take pieces from where you hear it and implement what you can. One of the things that got me caught early on is analysis, paralysis by analysis. So just getting stuck on one strategy or analyzing. Julie, I’m sure has been through analyzing a turn to real estate deal before you finally get in. And so going back to your question about my transition, it’s really just been a matter of running that marathon and kind of going through what interests me. The franchise opportunity that I’m getting into now is something that was on Buck’s podcast. Kim Daly introduced me to the next with her, and we kind of explored that. And it was a career opportunity that really interested me. Whether it was full time or part time, it will end up being full time here shortly. But just again, just kind of exploring what’s out there. But taking action, I guess, is the second part of it. So patients know that it takes time to get this stuff rolling, especially the cash value of your policy, as you said a couple of times a couple of years to really build that up and have that velocity in that policy. And again, it’s just been a matter of patients and implementing different things that are key and interesting. Me, too. So I don’t know if I answered your question, but that’s kind of the theme that I would say that I’ve taken as far as where I’ve gotten today.
Christian: That’s great. Yeah. You answered it beautifully. Dave, I want to transition to you for a second. You’ve obviously created a thriving business and maybe just talk a little bit, maybe give your best advice on how to do that. I mean, you’ve been in the alternative space, you’ve been an entrepreneur, but maybe just give the best advice that you have in general to the listeners.
Dave: Yeah. I’m going to steal a couple more lines from Buck that really if there’s anything. Look, I’ve made some money. I’ve been blessed to really make some money in life, mostly because I’ve been surrounded by smart people, not because of any natural talent I had, but I’ve lost a lot of money. And I’ve done that because I got starry eyed and thought like, hey, I did listen to a ton of podcasts and a ton of investment things, and I read a ton of books, and I did this, and I did that. And I thought I was going to go figure out how to do everything and something that Buck I’ve really appreciated for those to really go back a long time with Buck. In the beginning, he had a lot of that fun, exciting stuff. And there was all sorts of fun things to learn about, in all honesty. And I don’t know if you might have to edit this part out. The podcast has got gotten really boring in the sense, and I love it, and I listen to every single one of them. But the thing is, he talks about, for the most part, very similar things very often. And I come back to I am probably not as mature yet as Buck, because while he’s been saying these same things, those have been my best investments and my best strategies. And I still get that starry eye and go find something else and I lose it. I’m like darn it. And one last thing I would say is he said something all the time that I think everybody should listen to. He says, invest with people or use strategies like this with people you know, you like and you trust. And actually, before I did this policy with you guys, I had done it with another person, and he was a pretty decent guy. I’m not saying he wasn’t. But there are other investment things that I’ve done where I did not know them, and I ended up not liking them or certainly not trusting them. And so for the listeners, look, you may not like us. You may not like Rod and Christian or Buck or me or Ryan or Julie. I don’t know. And if you don’t like us and you don’t trust us. Then don’t do it. But the truth is my own experiences, particularly with these types of things, you want to find guys who do it upright. And there were a couple of things that I asked Rod and Christian, when I was investigating, hey, somebody told me I could do this, and it sounded really good. And they said, well, you can. But with that guy, not with us. And I really appreciated that, because the truth is it I don’t know what’s right and what’s wrong. And I don’t know some of the spaces. And there’s a lot of details with this, particularly around captives and other things that you really got to do it the right way and understand it. And so I would just leave the listeners with that do it with people, you know, like and trust.
Buck: And boring is good.
Christian: That’s Buck’s mantra. Boring is good. That’s amazing advice from all of you. Before I turn it back to Buck, I just want to say thank you guys for coming. Rod and I are really lucky to work with great people like you. Thanks for being on the show, and I’ll turn it over to you Buck.
Buck: Yeah, this is great, guys. I appreciate that. Christian, Rod, and Julia, Ryan, Dave, thanks for the podcast. This has been great. And now before I get off here real quick, Rod and Christian, you guys started your own podcast. Tell us a little bit about that so that people want to hear more about these strategies and kind of get pounded over the head with them.
Christian: Yeah, very cool. Thanks Buck, So we started the Money Inside Podcast and we talk and teach all things money in business. You’re going to hear some similar things, with the difference being that we’ll probably get into some of the nitty gritty where Bucks sometimes high level with economists and things like that. Rod, and our intention is to kind of break it down at another level. So we’re excited about it. And thanks for giving us the chance to plug it, Buck. We really appreciate it.
Buck: Fantastic, guys. Well, again, thanks to everybody for joining us. That’s it for this week. We will be right back.