Podcast

How The New Spending Bill And Tax Plan Can Impact Your Overall Wealth Strategy With Tom Wheelwright

TWS 82 | New Spending Bill

 

With the new president and administration coming in, a new spending bill has been passed. It tells an interesting story, but what exactly is its difference from the past spending bills? Patrick Donohoe brings back Tom Wheelwright to tackle this very subject. They also go into Biden’s tax plan and its implications to the overall economy. Tom is an entrepreneur, bestselling author, and the personal CPA of Robert Kiyosaki. He is studying the goings-on of the Biden administration when it comes to the spending plan that passed, as well as some precedents that are being set for future changes to the tax code that could potentially impact your overall wealth strategy.

Watch the episode here:

Listen to the podcast here:

How The New Spending Bill And Tax Plan Can Impact Your Overall Wealth Strategy With Tom Wheelwright

Thank you for reading another episode. Hopefully, you’re not just reading. You’re learning and getting some key insights into ways in which you can improve your wealth. I hope you’ve enjoyed the last couple of episodes, speaking about some current events. That’s what we’re going to do now with a good friend of mine, Tom Wheelwright. He is the personal CPA of Robert Kiyosaki and has been for years. He has been a great friend for years. I was intrigued based on some of the stuff he’s put on his YouTube channel and show. He is studying the goings-on of the Biden administration when it comes to the spending plan that passed, as well as some precedents that are being set for future changes to the tax code that could potentially impact your overall wealth strategy. It’s a great conversation. You guys are going to enjoy it. Make sure you check out Tom’s podcast. He has a CPA-facing show, as well as an investor and business-owner-facing show. He also has an awesome YouTube channel. Let’s get to my interview with Tom Wheelwright.

Tom, it’s good to have you. Thank you for coming back. What a couple of months we’ve had of 2021. It’s entertaining, isn’t it?

It’s almost like 2020 hasn’t ended yet.

It’s a continuation. It keeps going and going. We talked about what the stimulus meant with regards to the response to COVID. We’re with a new president and administration. We have this massive, I don’t know if massive is the right word. There’s probably some crazy word three levels above that that’s appropriate. You have this spending bill. I think it tells an interesting story. As you’ve been monitoring this, what are some of the things that you were curious about or found interesting as it related to how this spending bill might be different than past spending bills?

TWS 82 | New Spending Bill

New Spending Bill: We’ve made unemployment non-taxable up to $10,000. We’ve made forgiveness of student loans non-taxable.

 

First of all, of course, it’s the timing because we’re on the way to recovery. We have only 6% unemployment, which historically is a very good unemployment rate. We have lots of businesses that can’t find people like restaurants. What we’re doing is we’re extending the increased unemployment. We’re sending checks when we have a historically high savings rate. We have not had as high savings rate since 1984. What are we doing? We’re giving more money. It’s very interesting both the obvious stuff like the $1,400 checks, which by the way, unlike the CARES Act, doesn’t just go to you and your spouse but also goes to your kids. It’s not a reduced amount for your kids. It’s the same amount for two kids.

We’ve got this Child Tax Credit and Child Care Credit. We’ve made unemployment non-taxable up to $10,000. We’ve made forgiveness of student loans non-taxable, which is interesting because it sets up the obvious question. The only reason you do that is because you’re expecting to forgive student loans. They’re not forgiving yet. You’re expecting this to happen. It’s clear that the Democrats are expecting President Biden to issue an executive order. It’s very interesting. For example, you have $350 billion going to states with the requirement that they can’t use it for tax cuts which is an interesting question because it begs the question, “Money is fungible.” Let’s say to use it for that other stuff, which frees up money for tax cuts, to make new other tax cuts. Even if they have a banner year, are they prohibited from giving any tax cuts?

There’s some clear unintended, maybe unintended. We don’t know but it is a massive spending bill. There’s a lot of stuff in there. Some of the spending is not going to happen until 2027 and you’re going, “How does this have anything to do with this crisis?” The reality is that most of it doesn’t but Joe Biden’s agenda. For example, eighteen months of COBRA, the insurance paid by the government. It’s tough to argue that. People need insurance when they’re unemployed. They don’t have money to pay for it. Having the government pay for their insurance for eighteen months, there’s certainly an argument for it. If you look historically, presidents are trying to make a big impact in their first 100 days. It’s interesting that this is the direction that they chose.

Earned income credit has long been thought of as a negative income tax. It's a social payment. Click To Tweet

Given what he ran on, does it surprise you that this has come out?

Yes, and no. They had to get it passed to some conservative Democratic senators. Joe Manchin in West Virginia and Kyrsten Sinema of my own state, Arizona. To do that, there are certain things they could include and didn’t include. As much as the far-left complains about it, it’s a good inroad into Joe Biden’s agenda right off the bat. It’s not overly surprising, the $350 billion to the states. I don’t have mixed feelings about this bill. I don’t like the bill at all. I’m not particularly opposed to some of the things, but I am opposed to the price tag. The price tag is enormous and it’s going to come back to bite us.

What does this tell you about other agenda items that the Biden administration campaigned with?

Take for example, healthcare. He was a very big fan of universal healthcare. This makes inroads into that. He was a very big fan of unions. There was some stuff for unions. There’s an expectation that he was voted in by the Left Coast, the West Coast and the East Coast, so a lot of money are going to those states. There are expectations that a lot of that money will end up to bail out pension plans.

That was one of the provisions of the bill. It’s billing out the Pension Guaranty Association.

There’s a lot of bailout money in this bill. Let’s be honest, there was bail money in other bills too. The PPP loans are bailout money. They’re just bailout money for small businesses. The $300 a week unemployment is bailout money for unemployed people. One of the differences is that it’s not just the big businesses that are getting bailed out this time. In 2008, 2009 and 2010, it was only the big businesses. The small guys got hammered. One thing that you can say is that this is a bailout for pretty much everybody.

Going to where your specialty lies, you understand the tax code better than anyone I know. You have read some of the bills, especially during COVID. What do you think this means for changes to taxes in all respects, the business and investment side of things?

Most of these payments are tax payments. The $1,400, that’s a tax credit. The $3,600 for kids, that’s going to be paid out ahead of time $300 a month, but that’s a tax credit. Dependent Care, that’s a tax credit. The forgiveness of student loans, that’s a tax exemption for that. The unemployment not being taxable, that’s taxed. You see that all of this policy, most of it, with the exception of the actual handouts of the $350 billion to the states and $300, there’s that but a lot of it is taxing. We’re seeing social manipulation through the Tax Law, which we’ve always had. Let’s face it. I’ve always said that the Tax Law is a series of incentives. What we’re seeing is a shift in where those incentives are going. They’re going towards families. Another thing, you no longer have to have children to get the Earned Income Credit. That’s new.

TWS 82 | New Spending Bill

New Spending Bill: By definition, a company is valued-based on its PE ratio. If their earnings go down because you’ve got higher taxes, your price comes down with it.

 

They’re doing it for 65 and older too, right?

Right. Earned Income Credit has long been thought of as a negative income tax. That was first proposed by Milton Friedman, the conservative economist back in the ’70s. It’s a social payment. The Child Tax Credits are social payments because they’re refundable now. That is also new that they’re refundable. What you have already seen is, through the Tax Law, a redistribution of income. What will happen next is that they will use the deficits they’ve created to justify tax increases on the “wealthy.” They defined it at $400,000. Interestingly enough, Joe Biden is going to stick with that $400,000 threshold. That’s very important for everybody who’s reading.

As soon as I heard him say that in his campaign, I’m going, “That’s my target. I don’t want any clients making more than $400,000 of taxable income.” You can make millions and millions of dollars but don’t make more than $400,000 of taxable income. We’re already seeing in the dependent care credit that the threshold is $400,000. That’s a good indication that that’s where we’re going. This is a shift of benefits to lower-income, lower-middle-class. Not even middle-class, but lower-class because all of the stuff is refundable. It’s not just offsetting taxes. It’s a payment that’s a direct payment.

You can think of the child credit as a universal basic income for children. That’s what it is. They already are talking about making that one permanent. The Democrats have been very smart about this. They can make this shift for taxes using the reconciliation process. They only need right there 50 plus 1 majority in the Senate. They don’t need 60 votes in the Senate for this. The other thing they’ve been smart about is, rather than giving a universal basic income to adults, which gets a lot of pushback, they gave basic a universal income for kids. How do you argue with that? From a purely political standpoint, I have to applaud them.

There are probably some fundamental differences between what Biden has proposed and what he campaigned with as far as what’s going to happen with taxes. What happened in 2017 with Donald Trump in what he proposed? What are those 30,000-foot fundamental differences?

It’s just to get incentives. That’s all it is. They are still incentives. For example, Biden wants to increase the top tax rate back to 39.6%. I would guess that will happen. It’s hard to fight that one. That’s a tough argument that people that make that much money of $600,000 married need a tax break. They don’t. It’s not going to affect the economy if they raise those taxes. That’s a small shift. I don’t think that’s a big deal. He wants to tax capital gains over $1 million at a much higher rate. That will be an interesting one because as long as he exempts businesses and real estate, then that one could easily fly. That’s an easy one to exempt for personal residences. There are a few things they’re going to have to exempt in that one, but that will apply.

A lot of the other tax increases are much tougher. Joe Manchin does not like the change in the estate tax. He voted to get rid of it completely. There are uphill battles for Biden in his bigger agenda, but they’re making inroads. To President Biden’s credit and the Democrats, they’re being very careful. They gave up the $400 unemployment and cut it back to $300, but then they extended them. There were trade-offs here. They’ve been smart about what they’re doing. All we’re doing in 2017, we had big tax incentives for businesses and real estate. There are going to be social payments like we see in this bill, but there are also going to be a lot of incentives for clean energy. The next big thing is clean energy. That’s where the tax incentives are going to be. My clients are already talking about shifting their strategy from residential real estate to real estate associated with clean energy. It’s not that hard to do. It’s just a matter of understanding the law and taking advantage of the incentives that are there.

Who owns Corporate America? It's not mostly big stockholders. It's mostly pension plans and 401(k)s. Click To Tweet

Do you think this is something that’s going to get pushed this 2021? Do you think it will go into 2022?

It will be this 2021. They have one more shot at reconciliation this 2021. It’s very tough for them to make changes like this in an election year. I would expect this 2021 that we’re going to see any changes that they make, they’re going to try to push this through while the iron is hot.

They have two years until midterm. It’s like they’re trying to get everything, all the major items, those big rocks through.

Let’s face it. Both parties do this. It’s not like this is, “The Democrats are horrible. The Republicans they’re saint.” The Republicans did exactly the same thing. The Republicans didn’t care anymore about the deficit that the Democrats do. You can’t even take that argument. There are very few people in Congress that are looking at deficits at all these days. To me, it’s politics as usual.

Tom, as we look at the economy, we’re not economists. Sometimes we talk about it. Of course, it’s opinion. Looking at some of the studies that have been done by Tax Foundation, where they analyzed if Biden’s tax plan went through, the implications to the overall economy were negative in all categories, not hugely negative, but 500,000 jobs lost. GDP is a negative one and a half-ish. When you look at the objective of Democrats, that side of things, the administration, it’s not necessarily pushing lots of growth. It’s pushing growth in certain areas.

It’s very much shifting incentives. There’s going to be more going to unions. President Biden has been very clear that he wants to expand union activities. There’s a provision in this COVID bill that gives sixteen weeks of COVID leave to federal employees. You’re going to continue to see that same thing continue to happen. One thing that was interesting in the Tax Foundation’s findings is that they estimate that the worst thing he could do is to raise the corporate tax rate. That was surprising to me. I’ve always thought 25% is not a horrible corporate tax rate. I thought that’s probably where it should have gone in the first place. That was one of the original proposals in 2017 that was taking the 25%.

For it to go to 25%, the challenge is you can’t go much higher. Remember, we don’t just have a federal income tax. We have a state income tax. You’ve got to add on 5%, 6%, 7% to that. Now, you’re in the 25% federal, you’re in the 30% plus range, which puts you equal to other countries. We’re lower than other countries, but if you raise it to 25%, you put us equal to other countries. If you go over 25% to 28%, the 28% that he campaigned on, we’re higher than other countries. That would be devastating to us. The other thing that I don’t know that is ever considered in the public discussion is, “Who owns Corporate America?” It’s not mostly big stockholders. It’s mostly pension plans and 401(k)s. As the stock market increases, that benefits pension plans and 401(k)s. Corporate income tax is a tax on pensions and 401(k)s.

TWS 82 | New Spending Bill

Tax-Free Wealth: How to Build Massive Wealth by Permanently Lowering Your Taxes

The theory is that those values will go down just because profits are going to go down because of taxes.

By definition, a company is valued-based on its PE ratio. If their earnings go down because you’ve got higher taxes, your price comes down with it. That Price-to-Earnings ratio is you’ve got to look at the earnings to determine what the price is. That’s a tough one. When you’ve got an economy that you’re trying to stimulate to put big taxes this 2021, I suspect the corporate income taxes, they’re probably going to push these social payments. There are a couple of states in play for the Democrats in the Senate in 2022. Notably, Wisconsin and Ohio. There are a couple in play for the Republicans too. Notably, Arizona and Nevada. The Democrats think they can pick up seats if they do their legislation and follow the legislation appropriately. This is all towards gaining more control. What they like is a little more control so that they can pass more of their agenda.

Tom, this has been super helpful. I know that as we get closer to when certain legislation is going to happen when it comes to taxes, let’s chat again to talk about the specifics of it. Entrepreneurs and investors are always looking for opportunities. They’re trying to think where the puck is headed. It’s clear based on some of the things that you said, where the economy is going, where investment is going and where you can put money to pay less taxes but still get good gains. It’s going to be cool to see what are the strategies available once we know what’s coming down the line. Let’s circle back in a few months.

Yes, for sure. I don’t read some of the bills, Patrick. I read them all.

Heaven bless you, Tom.

It’s so much. These bills are fascinating. What’s in them is remarkable. The good news is they’re not going to get rid of incentives. They’re just going to change where the incentives are. Entrepreneurs can always get to tax-free wealth. We can always get there. We have to have good advisors, understand the law and have a good strategy for investing so that if we make the right choices, then we can pay less tax. We need to stay on top of it all the time.

Tom, you also have an awesome podcast. First, a podcast that is tax professional-facing, but also a podcast for the public where you teach a lot of these principles. Tom also has an incredible practice where he consults individuals just like you and businesses to navigate the waters of a complex system of sorts. Everything Tom-wise, you can go to WealthAbility.com, unless you want to cite some other things that you’re working on.

Entrepreneurs can always get tax-free wealth. They have to have a good strategy for investing to make the right choices and pay less tax. Click To Tweet

Tax-Free Wealth is the book that explains how the Tax Law works.

Are you going to do version three when the new stuff comes out?

I’m writing a new book that will come out at the end of 2021. I’m very excited about the new book. It’s a very in-depth look at some investments and the tax consequences of those investments. It’s very exciting stuff. Like you said, we have an entire network of tax advisors around the country and in Canada. In 2022, we’ll be launching internationally. WealthAbility.com is the place to go. Anything we can do to help, we’re happy to help any way we can.

Tom, as always, it’s a pleasure. Thank you for imparting your wisdom to us. We appreciate it. Like I said, we’ll circle back once we get closer to what’s going on with some of the things that are going to change in the tax code.

Thanks, Patrick.

I’ll see you, Tom.

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About Tom Wheelwright

TWS 82 | New Spending BillTom Wheelwright, CPA is the visionary and best selling author behind multiple companies that specializing in wealth and tax strategy. Tom is also a leading expert and published author on partnerships and corporation tax strategies, a well-known platform speaker and a wealth education innovator.

 

 

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Diving Deep Into The $1.9 Trillion Stimulus Bill

TWS 81 | $1.9 Trillion Stimulus Bill

 

Just recently, the House passed the $1.9 trillion stimulus bill in the hopes of rescuing America from the economic damages brought about by the pandemic. But what does it really entail? What are the underlying consequences of putting out all of this money? In this episode, Patrick Donohoe flies solo to share with us his thoughts about this new bill. He takes a look at it from different perspectives and then offers some insights on how you can best navigate your wealth and more.

Watch the episode here:

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Diving Deep Into The $1.9 Trillion Stimulus Bill

Thank you for supporting another episode. I’m glad that you’re here. I’m going to freestyle it, I’ll be by myself. I’m going to bring on some cool guests to speak about some of the points I’ll bring up. I’m going to make some comments regarding the $1.9 trillion stimulus bill. There’s enough information out there in other podcasts that analyze the details. I’m going to approach it from a couple of different angles in hopes of inciting you a different perspective of what’s going on so that you can best navigate your wealth, your business, your profession and the enjoyment of life. I believe that is what wealth is. It’s to extract, to experience the joy in life, regardless of what’s going on, tall order. Wealth is something that most people pursue. Oftentimes when they associate it with money and material things, they come to find out that it is not what they wanted.

Best to start with what wealth truly is, which is mindset, being able to look at your circumstances, look at your life and extract the good, the beauty, the gratitude, which if you think about it is all around us. I tried to approach this $1.9 trillion bill from a more neophyte position, meaning 8-to 10-year-old who understands ideas at a certain level. I look at the $1.9 trillion package from an economics perspective, a legal perspective, a precedent setting perspective. I stepped back and I look at the first idea, which is the surface, especially the title, the American Rescue Plan is pitching this $2,800 per family and also extension of unemployment benefits. I look at how much of the bill that amount is. I’ve seen figures around 9%, 10%, even if it’s 15%. That’s where the focus has been.

It’s unfortunate because in the end, when an 8-to 10-year-old see’s candy, they see an amusement park. They see the surface benefit and don’t necessarily have the experience to look at the unintended consequences. It makes sense to me. Majority of Americans do support the bill. At the same time, I believe if they took a shovel deep look into the other points of the bill, tenets of the bill, where money is being spent, it would cause even the young person to scratch their head. $1 billion here, $10 billion here, $500 million here, things that are unrelated to COVID, but at the same time are being pitched under this umbrella that it’s necessary to rescue America. That’s the first thing that I observed is looking at this from a psychological perspective and how a bill that is monumentally massive in size.

TWS 81 | $1.9 Trillion Stimulus Bill

$1.9 Trillion Stimulus Bill: The government was not set up to take care of people. It was set up to protect the rights of the people.

 

We’ve become desensitized to the language of money. I’m sure $1.9 million to most Americans is a lot of money. 1.9 trillion seconds ago is 60,000 years. This is a massive amount of money and it is going everywhere. If money were free that grew on trees, if it’s what most 8 to 10-year-olds think money is where you swipe a card and you get stuff, it makes sense. Who wouldn’t want all of this stuff? There are consequences for spending this money because it’s not free. Interest has to be paid on it. Principal has to be paid back. For those of you who are interested in economics, monetary policy, and monetary theory, this idea of MMT, Modern Monetary Theory, which removes some of the responsibilities associated with spending money at a government level, it’s something that is happening in a sense. This $1.9 trillion, the amount of debt that’s being piled up, it’s not possible to payback without some significant dire changes.

We’ll get into some of the precedent setting. A couple episodes back, I talked about some of the points of Biden’s fiscal ideas and specifically taxes, what’s going to change in that respect? I believe that because of how this bill was passed, $1.9 trillion, the majority of Republicans, all of them I think opposed it and all of Democrats were in favor of it to an extent. It was right down the line. It’s interesting where this sets a precedent with all their laws that are going to be pushed forward through the House, the Senate and then signed into law. It’s interesting to look at what Biden wants to push forward is going to be an inevitability. That’s the precedent that it sets. It may not be 100% absolute but close.

Going back to a couple episodes ago, whether it’s higher taxes, whether it’s removing step-up in basis for real estate, whether it’s eliminating capital gains, meaning capital gains will be treated, especially for high income earners as ordinary income. These are sweeping changes, changes to the debt tax, the estate tax, the lifetime exemptions that are available and what can be included. It’s crazy. It’s time to pay attention. There is going to be an impact. This is the precedent that it’s setting. It’s setting another precedent as well, which is one that’s way more philosophical. I’ll end with this, making this a shorter episode.

The precedent is that American people are not creative enough, hardworking enough to take care of themselves, to solve their own problems, to exercise their ingenuity, which is deep inside of everybody. This is where the precedent is dangerous. An example is an article that came out a few years ago, it was a study. It was done in Europe, somewhere Sweden, I believe. The study showed that if families had one less child, it would make a huge difference as far as the carbon footprint human beings leave. It’s an incredible claim. You can remove people and we wouldn’t have any carbon footprint. You look at the human ingenuity specific to this claim. The inventor, Bill Gross, you can look him up, has a project called Carbon Capture, which is an economical way to remove a toxic carbon dioxide from the atmosphere. If one of those children that weren’t born wasn’t Bill Gross or was Bill Gross, there’s no solution at that magnitude.

The point I’m trying to make is that when we’re put in predicaments of challenge and difficulty, we can take the easy way out and most people would, if that hand is extended. We can take another way out, a route that allows us to understand ourself at a deeper level, to understand what we’re made of. Think of the loss of fulfillment, the loss of self-respect, self-esteem knowing that you overcame challenge. It’s the feeling of rising above adversity. It’s a feeling of conquering something on the surface that you did not believe was within you, what you weren’t capable of. To me, these are the massive losses that are impossible to quantify. The precedent that’s being set is that, “When there’s challenge, don’t worry about it. You don’t have to do anything. You can sit back and relax. We’ll be there to help you.”

I don’t believe that this is an environment of growth that leads to what we’re looking for, which is a sense of self-understanding, a sense of self-reliance, respect, and having the understanding, having the knowledge that we accomplished something. We overcame something. That to me is sad. I look at the genius in everyone and how that genius is being put on the altar of sacrifice. I believe that there are circumstances where people find themselves in challenging times, maybe impossible to fend for themselves. At the same time, I think that is the exception, but we are making it the rule.

There are a couple of interviews I’m going to link to as I conclude this short episode. They were done a couple of years ago, one with Greg Lukianoff, who’s the author of The Coddling of the American Mind, another one, which is a follow-up to that book with Andy Tanner, talking about what we teach our children, the importance of challenge, of difficulty, of overcoming, and the sense that comes from overcoming, the muscle that builds. It’s important especially with what’s going on now.

As a recap what to take from this episode, number one, I look at it’s a clear path to higher taxes, to inflation, and ensuring that you ask yourself the question, “How is my wealth, my portfolio, my financial future impacted by inflation?” I’ll give you a short crash course on inflation, this $1.9 trillion in addition to the north of $100 billion that hasn’t been spent from the previous COVID stimulus bill. This is the money that will go into circulation even though it goes into areas that would make you question, “Why would we do that?” Go look at some of the details. That money is going to find its way into the business’ pockets. That business is going to buy stuff. They’re going to pay their employees, maybe give them a bonus or raise. Those employees are going to go out and spend money. This money came out of nowhere. The money was not earned. Now, we have that much more that is circulating in our economy.

When you have more money circulating and a seemingly finite amount of goods and services, what ends up happening is that more money bids up the price of assets, of goods and services. We’ve seen that already and we’re going to see even more of that. What that means is that the money you have, the money you earned, the value of your assets, your wealth will be buying less stuff in the future because those things have gone up in price. That’s the nature of stimulus and inflation, higher prices. You can also define inflation as the devaluation of the dollar. That’s the first thing.

We have a prime opportunity as human beings to grow, to thrive, and to learn. Click To Tweet

The second thing is legislation that is coming down the pipe, whether it’s taxes or otherwise that is being pushed forth by the administration. We see that a precedent has been set where they can pass laws that are highly controversial. They can pass measures that are highly controversial. Pay attention and start setting up your tax strategy to help you keep more of the money that you’ve earned. Finally, it’s the context of challenge and hardship. I’m not debating that there isn’t hardship. I’m not debating that COVID hasn’t made an impact or the response to COVID has not made an impact. It has. It is evident, not just the United States but around the world.

I remind myself that government was not set up to take care of people. Government was set up to protect the rights of people. People have done some incredible things over the course of time. In this day and age with access to limitless information, resources, knowledge, we can debate the definition of knowledge, but finding solutions, whether it’s YouTube, books, blogs, podcasts, the majority of which is free if not insanely inexpensive. People have the resources to solve problems. At the same time, when resources aren’t needed, they are rarely taken advantage of. Water is not valuable until you’re in the middle of a desert and thirsty, or running a race. It’s the environment where resources become valuable.

We have a prime opportunity as human beings to grow, to thrive, to learn, not just for our own betterment and the remuneration that comes tangibly materially but it’s the feeling, the sensation. It’s the understanding we have about ourselves about what we’re made of. I think we all thirst for that. In essence, we’re being robbed of that because of what’s going on, where governments are taking care of us. They’re solving our problems. They’re giving us handouts. As I look at it from an 8 to 10-year-old, I can see on the surface that the bill makes sense, the narrative makes sense. As 8 to 10-year-old, maybe 12-year-old, when you realize you’ve been deceived or screwed, you’re going to be pissed. I look at the emotions that are going on in the social and political atmosphere. They’re high, it’s tense.

TWS 81 | $1.9 Trillion Stimulus Bill

$1.9 Trillion Stimulus Bill: People have the resources to solve problems. At the same time, when resources aren’t needed, they are rarely taken advantage of.

 

This is by no means to incite more of what doesn’t serve you, but it’s to make you even more aware of what’s going on, to navigate your life where you’re not dependent on others, you’re not dependent on handouts. You’re dependent on yourself. It’s to take actions, to make efforts to those ends. Thanks for reading. I appreciate the support. Tune in to the next couple of episodes. We’re going to be talking politics. We’re going to be talking tax strategy and some investment strategy given what’s going on with our environment, specifically how the tax implications could impact your investment strategy or wealth strategy, and some ideas of how to remedy that. Until next time, take care. Bye.

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What People Can Do To Survive The Inflation With Ken McElroy

TWS 80 | Surviving The Inflation

 

While the government’s efforts to provide stimulus packages to answer the economic issues that are happening due to the pandemic, it’s not a sustainable solution. The country is still dealing with more unemployment, and companies and businesses are facing the threat of inevitable inflation. In the first part of this interview, Ken McElroy of MC Companies sat down with Patrick Donohoe to share his investment philosophy to help people prepare for possible future opportunities in the real estate market. Today, they discuss what people can do to be on the right side of things and survive inflation: study what’s happening, gather the funds, and invest in the right stuff.

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What People Can Do To Survive The Inflation With Ken McElroy

Thank you for reading part two of an awesome interview with a real estate investment icon, Ken McElroy. If you didn’t read the last interview, go check that out, that’s part one, it will help create some context to what we’re talking about. It’s a singular topic and it’s focusing on the economy and the influence of the effect the economy is going to have on American wealth and finance and investments. I’m wrapping up a two-day financial advisor online summit that I hosted. I’m glad you’re here and you’re willing to learn. Kenny is an amazing guy. Go check out his website, go check out his books and his YouTube channel.

Let me give you a little bit of a preface before we get into this interview. The objective I took when coming up with interview questions and so forth was to bring out Ken his perspective of the economy. What’s going on? What is being done where we haven’t seen necessarily the impact yet, but we’ll see the impact in the future? There’s a lot going on right now. We try to focus on what’s going on in two areas. I believe that these are the two primary influences of the economy. Number one is monetary policy, which is the set of objectives the Federal Reserve takes to establish the reasoning behind their activities.

Second is fiscal policy. Fiscal policy is the stance the government takes, especially the administration that has the influence on how it is going to accomplish its agenda through laws, through spending bills, through modifications, through the Tax Code. The reason I’m wanting to do this is that it’s clear based on the narrative, the activities are forthcoming, they’re happening and will happen over the coming years, but the activities are in motion. The impact it’s going to have on the economy is that there’s going to be more inflation and there are going to be higher taxes. I’m not going to get into the reasons and details, Kenny and I get into some of it, but there are important details in here that I do not want you to miss. That’s why I’m going through this little monologue so I can establish context for you.

Number one, inflation is the agenda, the purchasing power of your money, which means that the money you have right now buys many things, it will buy less in the future. That’s what inflation is. You also have taxes. Taxes, whether it’s on spending, taxes on investments, taxes on gains, taxes on income, are going up, they have to go up. It’s clear based on the narrative that’s already being set, that they are going to push forth activities to make modifications. It’s important to understand what impact it’s going to have on your specific wealth. Right now, American wealth is set up to be harmed by what’s to come. Hopefully, you extract out of Kenny some nuggets so that you can start positioning your investment strategy, your wealth strategy, your business strategy, your pursuit of financial independence strategy accordingly because these things are coming and we have to navigate around them if we want to be successful. Thank you for learning again. I hope you enjoy the second part with my friend, Ken McElroy. Thank you. Take care.

Let’s move to the last point of the economy, because that is going to determine a lot of what’s going to happen, and it’s already happening. There are things that are in motion that haven’t necessarily manifested yet. How the economy is now is in large part stimulated by the government. What do you see is happening? Obviously, you don’t have a crystal ball, but you’ve experienced market’s ups and downs cycles enough where there are probably some leading indicators. What are the Feds doing? Will they continue to do? What are some of the variables that need to happen when they stop doing it?

First of all, things are going to unravel as you know. The Federal Reserve cannot continue to spend this much money on that. They have to let things emerge. There might be new tax incentives and new stimulus packages and all that stuff to make it a soft landing for people, for businesses. They’re all trying to figure that out. We’re not out of the woods yet on that side of it, but once the vaccine gets rolled out and things start getting a little safer, I don’t think we’re going to go back to the way we were, but there won’t be any longer an excuse to not go into the office and to move forward. It’s going to be a personal decision. I don’t want to go down that road because that is what it is. People decide what they want to decide. The point is that right now the Coronavirus is the reason. When that goes away, then the government is not any longer palpable, “You’re at home, here’s some cash.” We’re now back to an even playing field. Now, it’s up to you. There will be some cash available for people and some things that we’re going to have to do. What the governments are afraid of is homelessness, and that’s a big one. They’re afraid of things like food shortages and those kinds of things. They’re going to be focused on those kinds of things.

TWS 80 | Surviving The Inflation

Surviving The Inflation: Inflation is inevitable because we pumped all this cash into the system.

 

As opposed to putting money in people’s pockets.

They’re going to maybe do that with the minimum wage and maybe some additional stimulus, but that doesn’t go far. $1,200 to somebody will give them a couple of months. I’m not saying that’s not good. I’m saying that at some point, you can’t continue to do that. It all leads to inflation of some kind. When you raise the minimum wage, what it does is squeezes the profit margin on a business that’s already in trouble. A restaurant as an example that got kicked out now has higher wages. All of that stuff turns into higher prices. A lot of people might disagree with me, but I don’t know how you can’t pay more people more money, and then you’re going to have businesses, either reducing employee, go to halftime, they’re going to try to run a little leaner or maybe the owner gets more involved, but potentially it’s going to create either more unemployment or prices are going to rise if they can.

That’s what’s interesting is you had businesses get the crap kicked out of them for a year. Instead of getting things back, filling their coffers again, now they have to pay out more money to employees, so their only option is to either take less money or raise their prices. Is it going to lead to not just what normal inflation would be if you had a normal economy pre-COVID and you raise the minimum wage? You’d have some inflation, but now the likelihood is a lot higher. Do you see the economy being able to support a lot more inflation? I know that’s subjective.

I’ve been trying to wrap my head around this. Our good friend, Andy Tanner, I bet he’s here more than you know, trying to figure this out because he is a massive student of this. We were in Japan together. We were talking with Robert Kiyosaki and we were there on Rich Dad. People are saying they’re on like QE 30 or something crazy. Their GDP is the highest in the world, and yet they’re not seeing this massive inflation. I call them up, “Andy, when we were in Tokyo, how can the government continue to pour all this cash into an economy, and then not see it?” What he described to me, which I thought was a good example. This is Andy, and I’m still learning like all of us, he said that the balloon has been inflated and the government has been putting money in and the balloons inflated to what it is. It could be gas prices, food prices, real estate. It’s not all just an inflation number. Everything’s a little bit different. He said that there’s a hole in it and that’s deflationary.

Take a look at the numbers, follow the math, and then try to be out in front of it. Click To Tweet

There are things that could be potentially deflationary, but they keep putting money in it to keep it at its size. That’s what’s happening now. We do have inflation on things. This phone here when I bought it, it’s worthless. I get more. That’s an easy thing to pick on. There are things that are deflationary and there are things that are inflationary, and it’s all bundled together. I do believe that we’re going to have inflation because we pumped all this cash into the system. There are going to be more goods chasing those things at some point in time.

What are some final thoughts you have in regard to the state of things and the individual investor in mind, and how they can stay even-tempered? You have the Bitcoin soaring, the crypto craze, you have the GameStop and you have forums that are trying to short squeeze some of the big, short positions that are out there. There’s a lot of buzzes. What do you do to maintain an even keel temperament? What do you talk about frequently with investors that sometimes get off the rails because of the craziness?

There’s a bunch of things. One, it’s a horrible time for a lot of people, and that’s inevitable and there’s not a darn thing we can do about it. What you can do is you can start to study what’s happening and you can be on the right side of that, whatever that is. I mentioned that with my trainer, “No one invests a bunch of money now because you’re going to have a bunch of gyms goes out of business in the next several years. Go find out what funds those are and figure that out.” It’s a long-term strategy. People, generally, like things quick and easy. Bitcoin, GameStop, that’s lazy man’s money. It’s easy to throw money into that and then watch it. That is not investing in my opinion. That’s speculative in its biggest nature. You can go online and there will be tons of people that say this is a certainty. There’s nothing certain except debt and taxes, even real estate isn’t certain.

The one thing I love about real estate is if you look at the numbers, and I thought and did this in 2008, I went through this ‘08, ‘09, ‘10, massive people dumped out of housing, out of mortgages, and they dumped into rental housing and they put this incredible pressure on rental housing. Then it moved back out again and that’s where we are. Take a look at the numbers, follow the math, and then try to be out in front of it. This is going to be the biggest transfer of wealth that we will see in a long time. That could be wrong, I don’t know what the future is going to be like. In my lifetime, this is it. This is a time that you need to have the education and be out in front of that stuff, and then put together your team so that you can go out and do things.

There are many things happening. It’s right in front of us. The hotel businesses are closed, the micro hotels especially. Nobody is going to those, nobody is paying those. There is nobody traveling. I was on the phone with my friend that owns a bunch of it. He’s getting killed, 10%, 20%, 30% occupancy. There are already funds being put together to buy those and convert those to housing. That’s what I’m talking about. All of this is right in front of you. There are people already swirling around the malls, looking at redevelopment. That’s real estate, it is what it is. You’ve got to pay attention to those kinds of things and ask a lot of questions and get educated.

Kenny, we could probably talk for a few more hours. I have 10 million questions, but let’s do this. I know you have some new digital resources that you are making available to people that teach a lot of these types of principles. Would you speak to that as we end the interview?

This has been the greatest part of the pandemic for me. I haven’t been a big social media guy or a big YouTube guy. I’ve been trudging along on real estate and buying real estate. We have 250 employees and we’re busy and flying all over the place looking at stuff. The pandemic, I was like, “I’m going to get camera crews here and I’m going to start teaching.” We started teaching in March 2020, I start putting these YouTube videos out. Now we’re up over 200,000 subscribers. We started doing these videos to help people and we put them on our website, KenMcElroy.com. It’s been great. We put out a masterclass that people could get. They can subscribe to these videos of stuff they are interested in and learning some of the things. We have a forum that people can go and talk to other members. We have thousands of people helping people now, which has been great. It’s all been collaborative. The premium membership is $19 a month. That’s $200 for a year and you could go look at all these different videos and all these what we’re talking about and get educated and learn. That’s the key to this next step.

TWS 80 | Surviving The Inflation

Surviving The Inflation: Start to study what’s happening so you can be on the right side of whatever that is that you’re investing on.

 

Sometimes chaos is the mother of invention. I know it was always out there for you because you always have been teaching, but what a great opportunity to pivot a little bit. I know there are people that rave about some of the stuff that you’re doing. Kenny, you’re amazing. Thank you for what you do. Thanks for teaching people. Thanks for your time. We’ll have to do this again, maybe as to 2021 comes to an end and 2022 starts to rear its head, and we’ll see whether it’s ugly or pretty.

It’s going to be an interesting time. People have some hope, you can be on the other side of this. It’s going to be some rough roads, but you can be on the other side of it.

I appreciate that, Kenny. Thanks again for teaching us. We’ll talk to you next time.

Patrick, good chatting with you.

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About Ken McElroy

TWS 79: Real Estate Future Opportunities

For over two decades, Ken McElroy has experienced great success in the real estate world through investment analysis, acquisitions, property management, and property development. Ken believes in sharing these successes, as well as his setbacks, to help educate and inspire investors to bridge the gap between where they are and where they want to be. In addition to sharing his expertise, Ken also shares his mindset, because building wealth isn’t simply about putting money in the right place at the right time. It’s about understanding that determination and self-motivation are the real keys to thriving. Here you’ll discover a place that reflects Ken’s passion for real estate and helping others, where investors from all walks of life can learn, grow, and thrive. We believe that everyone deserves financial freedom. Let us show you how to get there.

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An Investment Philosophy To Prepare For Possible Future Opportunities In Real Estate With Ken McElroy

TWS 79: Real Estate Future Opportunities

 

The real estate market is already unpredictable as it is. Yet, with the current COVID-19 pandemic we are all facing, this unpredictability is heightened, and you can either succumb to it or find opportunities. Patrick Donohoe is joined by Ken McElroy, the Principal of MC Companies, who has a couple of insights into possible future opportunities in the real estate market that you can take hold of. Guiding us in that process, he shares his investment philosophy around buying for cash flow and generating passive income. He then dives deep into some of the significant shifts happening, the obstacles newer investors typically see, and how they can start developing the mindset to have the confidence to take their first step. Join Ken and Patrick in this episode as they help us prepare for the future, uncertain as it may.

Watch the episode here:

Listen to the podcast here:

An Investment Philosophy To Prepare For Possible Future Opportunities In Real Estate With Ken McElroy

I have an incredible guest, a dear friend of mine, Ken McElroy. Ken and I had an interview that lasted over an hour. We are breaking the show into two parts. The first part is going to be his investment philosophy, as well as the current state of the real estate market, and then part two is going to be a discussion we had about the economy. If you don’t know who Ken McElroy is, Kenny is first a real estate investor. He’s written a number of books on the subject. He’s been an investor for over three decades. He also is a Rich Dad Advisor. What that means is he works alongside Robert Kiyosaki, who is the author of Rich Dad Poor Dad. Kenny has developed a giving attitude over the years. He was born with it but he is doing so much on YouTube. He has a ton of digital resources that you can get access to at KenMcElroy.com.

Kenny also has a podcast that he does. Go check him out even if you don’t go in and take advantage of some of his digital resources. This is a guy that you definitely want to follow. He’s done billions of dollars of real estate, tens of thousands of doors, and has an incredible philosophy when it comes to how he invests. I think that’s important because we’re at the crossroads of many different elements, whether it’s housing, economy, unemployment, government intervention, possible inflation, most likely inflation. It’s going to stir up emotions for those that don’t necessarily have a sound investment philosophy.

We’ve already seen that with the number of people that have lost money on trading different things. We’ve spoken on the show extensively about that. It’s going to continue and most likely amplify. There are two things that are going to happen. You can either succumb to these emotional whims and make bad decisions or you can find the opportunities which will be there in spades. Kenny drops a couple of insightful things when it comes to possible future opportunities in the real estate market, so pay close attention. Thank you so much for the support. I appreciate you. Let’s get into my part one of the interviews with Ken McElroy.

Thanks for joining me on this incredible interview. That’s somewhat presumptuous but I know Kenny. I’ve known him for a while. He’s a mountain of knowledge. I’m grateful for the opportunity for you to learn. I’m excited to learn as well. Ken McElroy, I have a bunch of your books here. You never stop writing these books. One that came out is ABCs of Buying Rental Property. You’ve got ABCs of Real Estate Investing. There’s a bunch of others too but you’ve written extensively about real estate and also entrepreneurship. I’m excited to have you on. There’s a lot going on in the world and 90% of it has to do with real estate. I can’t wait to learn from you. We had you on 2020 and things were chaotic. I’m curious to see where things are at from your vantage point.

Thanks, Patrick. It’s always great to catch up with you. I love your stuff. I love following your investment philosophies. I know we’ve been friends a while. I adore your family. Let’s get to it. Let’s talk about what we see in our crystal ball.

Buy for cashflow. Click To Tweet

Let’s start there. It’d be important for you to take a moment and describe your investment philosophy, how you view investments, purpose, good investment, bad investment.

We’ll talk real time, the GameStop thing, it’s still a buzz, how that happened, what happened, and all of that. That’s what I don’t like to do. I’m not saying that people didn’t make money but I know people lost money. In my opinion, that’s a bit of gambling. That’s throwing your money into something and hoping that it goes up. That’s not at all what I do. That’s what we would call a capital gain strategy. That’s flipping a house although that would take a lot longer. Buying something, hoping the market takes it up, and then selling it. I’m not saying that you can’t make money that way but what I’m saying is that we don’t know what’s going to happen. You don’t know if the market is going to crash or it’s going to keep going. People have strong opinions, however, on that. That’s what gets them in trouble.

What I like to do is I like to buy it for cashflow. All of my deals, Patrick, as you know, are cashflow based. I don’t have an exit philosophy. In other words, I’m not trying to time anything. What I’m trying to do is buy an asset. I’m trying to use other people’s money to buy it, the bank or investors. I’m trying to make cashflow so that everyone gets paid. I want the occupants, the tenants, the residents, or whatever you want to call them to pay it off. I want the tax consequences from that and I want to hold it. It’s a lot slower strategy. It’s a lot harder. It takes a lot more knowledge. You have to have a lot of experience to do it well. That’s my philosophy. It’s proven to be a good one. When you can get a tenant to pay off your asset, why wouldn’t you? That’s it in a nutshell.

Adding to that, you have some predominant investment purposes. People invest for capital gains or people invest for income, for cashflow. I look at the end result being unknown to most people. They don’t ask themselves, “Why am I doing this? Why am I doing that?” If you look at income, if you look at cashflow that produces month in and month out, that impacts what people were after, which is a better lifestyle. Capital gain is a short-term strategy and also it has a lot more risks associated with it. In the end, if people question their motives and their purpose, they would think twice about putting a lion’s share of their wealth into that type of strategy.

TWS 79: Real Estate Future Opportunities

Real Estate Future Opportunities: Not all experiments work out. Not all bets work out. Not all risks work out. If you have that foundation of certainty, you learn from it as opposed to being taken out of the game.

 

It’s interesting if you take it in bite size. What I did in my first thing, Robert calls the financial freedom. He branded it. When I was getting out of university, that was my first thought. At the time my expenses were super low like $2,000 or $3,000 a month or something. I was like, “How do I cover that with cashflowing assets?” From there, that would be my first step at financial freedom. Like most people, I started buying bigger houses and better cars. I was driving an old Volkswagen when I was in college. There are things that you want to help the business and all that. Your monthly expenses do go up but my philosophy never did, which is how do I generate enough passive income to cover my monthly expenses?

When that happened, Patrick, everything changed. All of a sudden, I was like, “I can do deals that I want to do. There’s no real pressure on me. My bills are covered. What do I want to do next?” That’s when I started to build my business and start to create other streams of income like that. That’s all I do. I have all this passive income and the deals keep getting bigger and bigger. My core philosophy is first it was me, how do I become financially free, then it was my company. How do I generate enough passive income in my company to make it financially free so I don’t have to be there? My philosophy has been the same the whole time. The cashflow philosophy covering your expenses so that you can take months off. When my kids were in spring break, fall break, summer break, I took that time off period. I never worked during those periods of time and that was because of this philosophy. I had money coming in.

Whether it’s Abraham Maslow or other sociologists, psychologists, they’ve narrowed in on this motivation of human beings. I think some of the first motivations that people are after is certainty. They want some foundation that they can count on. Capital gain is not that strategy. Cashflow is, especially if education around developing that. When you start to establish those foundations of certainty, then risk or uncertainty, the variety of life, going on vacation, buying a car, trying this with business, trying that with business, it becomes more digestible, especially given the fact that not all experiments work out, not all bets work out, not all risks work out. If you have that foundation of certainty, you learn from it as opposed to be taken out of the game from it.

A lot of people work their whole lives for that certainty but end up selling future certainty by putting their money on 401ks or IRAs. Click To Tweet

I think a lot of people work their whole lives for that certainty. They do it differently. They put their money on 401(k)s or IRAs or having their money over to wealth managers. That is the whole point. The whole point is that’s what they’re selling is they’re selling future certainty. I decided that I didn’t want to hand that off to other people. I wanted to do it myself. I wanted to learn myself. Also, if I did do that or I ever had to do that or I wanted to do that, I wanted to know what to ask them, what to say, and let them articulate the reasons. Maybe I can learn from them or maybe I could teach them. I never understood the philosophy of working your butt off and hand in your money over to somebody for the rest of your life and then meet with them once a year. That didn’t make any sense to me.

It’s a mirage of certainty. It’s a future promise that not many people are able to get to materialize. Let’s move on from that. I think we beat that dead horse. Let’s end with something that you did in 2020. I started seeing you on social media wearing this Be Infinite shirt. I thought that was intriguing. I bought one. I wear it often. I went into jeans and a long sleeve black t-shirt every day, except for my Be Infinite t-shirts. That’s my new attire because no one’s in the office anymore. Describe how that came to be and what that has to do with your philosophy.

It started with my Infinite Return. I’m working on a book called Infinite Return, which is basically how do you invest a bunch of money, get it back tax-free, still own the property or the asset, not have any money in it, and how does it continue to produce cashflow when you don’t have any physical investments. That’s called an infinite return when you create something from nothing or you use somebody else’s money and then you give it back to them. You still own it and it produces a long-term annuity. That’s how it started. I bought the domain name The Infinite and we started rebranding it. What happened is it took off. The infinite doesn’t have to just mean financial. It could be the mindset and all these things. It’s a work in progress. I’m not completely done with it yet but we are going to roll something out.

It’s infinite so you can never be done with it.

It’s been fun to listen and weigh into other people. A lot of the people that follow me send some cool stuff about how they became infinite. It’s not a financial thing as I learned. I started off that way but I’ve opened my mind up to. It applies to a lot of things. It could be in your relationships, in your mindset, in your health, in your finances. That’s where it’s heading and you stay tuned on that one. I still am going to do the book Infinite Return, which is more about real estate but I’m excited about where that’s headed.

If you are reading and want to pick up your Be Infinite shirts, go to TheWealthStandard.com. Kenny is also going to talk about some online digital resources he has for you. Let’s move on to real estate and what’s going on. There are some significant shifts happening. Sometimes that takes people out of the mindset where they feel comfortable making an investment. Talk about the obstacles you typically see with newer investors, why they don’t pull the trigger, and then how they can start to develop the mindset where they have the confidence to take that first step.

TWS 79: Real Estate Future Opportunities

Real Estate Future Opportunities: If you can zoom, why not zoom?

 

First of all, I want to acknowledge how hard it is to go from working somewhere hard and then trying to wrap your head around something so different. It is different. I totally get it. I call it analysis paralysis. They sit and they don’t want to make a mistake. I completely get that. There’s a lot of anxiety, stress and fear beyond that. I will tell you that what I find is if you’re open a little bit to the idea, then you can look at things. If I’m sitting at dinner with the stock guy, he’s fully against real estate. That’s the way it is. There are not many stock guys that are real estate advocates. There’s a financial reason. They get commissions and all that stuff. I’m not saying that it’s wrong to be a stock guy. I’m saying they’re close-minded in their bias. The hardest part is being biased. Let’s say you grew up poor like I did and my parents were poor. They would always say, “We can’t afford that,” and we couldn’t, all those things. You’ve got to get out of your way as I found.

The first step is backing up from the scenario and saying, “I’m in a bad relationship. Why? I’m in a bad financial situation. Why? I’m not happy at my job. Why?” People don’t do that. What they do is they point fingers out and they go, “It’s their fault. It’s somebody else. How can it be me?” You don’t have to tell everybody. You have to do it. You can start to open your mind a little bit about, “Maybe I am a little bit biased.” We all have biases. It’s interesting. It’s a long story but I had to go through a bunch of bias training to be on the Sheriff’s posse for Arizona. It was fascinating. I was in the room with all these County Sheriffs. It was all over this whole issue between Mexico, the US, and all that. That’s fascinating, the biases. I was like, “I have my own biases the way I grew up. I have biases around money. I have biases around all things.”

Once you can step back from that and peel that back and say, “Where do I want to be?” I love that be, do, have. You want to have, you have to be. First, you have to be. I think people struggle with that. They hold on tight to their beliefs and they don’t believe that they are. It could be religion too. I don’t want to make this political or religious but the point is that people have their beliefs and that is what it is. They defend them. It’s the same thing with real estate once people realize. There are millions of people making money in real estate and there are billions of people doing well in real estate. As you know, you do both. You have to have an open mind first and then start letting new stuff in. There are tax advantages. We’re heading into a renter nation, Patrick, as you know. How can you have 3.5 million people in mortgage forbearance or another 10 million to 20 million people facing eviction and not have a rental issue?

Also, defaults on debt. It takes them out of the credit game because they can’t qualify for it.

It’s acknowledging live birth. How many people are going to turn 50? We already know the number. Everybody knows it’s data. We have this data that shows that the next couple of years are going to be rough. We’re going to turn like in 2008, 2009 and 2010, which I was involved in. People have to rent more. It will swing back to homeownership like it always does. At the moment, there’s going to be massive pressure on the rental housing market because there’s going to be way more demand than there is supply.

If you stepped back from it instead of saying, “I’m a stock person.” My brother is a great example, by the way. He was the A-student in our house. He is very bright. I have a tremendous amount of respect for him. When he retired, I asked him, “How are you doing?” He’s like, “I don’t know. I haven’t even went down.” I go, “You don’t even know.” “No, I trust them.” That is the marketing behind it all. I’m his brother. We’re together all the time. We talk all the time. I’m over here building this massive real estate portfolio. He doesn’t even ask a question.

There are some primary fears that people have. One is having to change and two is being wrong. We don’t realize it until we’re arguing politically, arguing religiously. Those fears dominate us whether we want to believe it or not. I think real estate being is something different than what people are programmed and conditioned to believe is investment and where they should put their money and what that means. It’s different. At the same time, look at how the world is evolving in every capacity, transportation, entertainment, work. It’s always evolving. It’s always changing. It’s like you have these two poles. You have the pole because things are changing and you have to adapt. This pole is the one that stays the same. It’s not surprising. That’s where those obstacles are mental at the same time. You run numbers, read books, have an open mind. Real estate purchasing it the right way is infinitely less risky than what people are typically doing.

I’ll tell you a funny story. I’ve had drivers for a long time. Way before Uber, I had this guy Ted. I love Ted. He was my driver. He would take me to the airport and pick me. I was going to go out and have a couple of drinks. He would come and get me, and dropped me off. I was going to go to sporting events. I had him on a contract. I was in San Francisco, which is one of the areas that they started Uber. They piloted it. I don’t know if you remember. I’m like, “This is the greatest thing ever.” I leave Uber and come back to Phoenix. Ted picks me up. I’m like, “Ted, you need to take a look at this Uber thing.” He said, “There’s no way. Nobody’s ever going to use that service.” That’s my point. I never forgot that because I was like, “Sure enough, Ted is out of business.” People can call a black car and get it whenever they want. They don’t have to have anything like that. It’s easy. That’s my point, whether it’s my brother, my parents. It doesn’t matter. They have these fixed mindsets on where they are. I think that’s the first thing. People can shake that.

Kenny, we’re in the middle of massive disruption. I think we were already going in that direction. You came out here a couple of years ago and we’re going up skiing. We drove around the city and I was pointing out all these apartment buildings that we were going up. It’s everywhere. It’s city blocks coming down, ripping down old buildings, putting up these masks and it continues. COVID was one of those other massive shocks to the system. How do you explain the impact that 2020 had on the real estate market? What’s going to be happening in the near future because of it?

There's going to be massive pressure on the rental housing market because there's going to be way more demand than there is supply. Click To Tweet

There are a couple of things. I don’t think we’ve seen yet the impact. The government said, “Everybody go home and shut down.” We can go on and on about that, states, cities, towns, mayors and governors. The bottom line is that the government threw a whole bunch of money at this issue and they needed to, stimulus unemployment, PPE, EIDL, forbearance, eviction moratorium and all those things. That has masked, in my opinion, the whole problem. Look at the facts. We have ten million more people still unemployed or somewhere in there. We have 3.5 to 4 million people in forbearance. About three million of those people are seriously delinquent. We have anywhere from maybe fifteen million people facing some eviction. They keep kicking the can down the road.

By the way, I’m a landlord. I believe they should. You can’t tell people they can’t go to work and then have the backside of it. The problem is the landlords are having problems, a lot of the small landlords. There are cracks showing up. There are people behind on their rent. There are people behind on their mortgages. There are people that have lost their businesses forever. They have lost their life savings forever. There are over 100,000 businesses that have shut down. The cities are going to lose their tax revenues. It’s going to be a mess for years. All of that has been propped up by this money. I know we’ll get to that at some point. I don’t think that it’s shown up yet but it’s all sitting there.

The question is, when is the government going to stop backstopping all that? I thought it would be earlier but with Biden coming in and the new administration kicking down the road a little bit longer. It’s there. There are real people behind that. There were landlords that can’t pay their mortgages. There are real people that can’t afford their cars, real people that can’t afford their rent, real people that can’t afford all things that they may be financed. All of that is going to make its way. I think businesses have changed the way they do business a lot. You’re going to have massive issues on the office building side. All the malls are done. We’re going to have a different economy moving forward. I don’t think that we’ve yet seen the issue. Revenues are down. Rents are down. Returns are down. Not with everything but businesses are closing. People are losing money. The mainstream media doesn’t seem to be talking much about that but it is there. I made a prediction in a video that had come out. I think that the fourth quarter of 2021 is going to be exposed a lot but 2022 is going to be rough.

I understand the objective of what the government tried to stimulate. At the same time, when you do that, there’s always the benefit that you get from it but there’s also the unintended consequence. It’ll be interesting to see how those unintended consequences play out. This might be important to talk about the migratory patterns of employees but also states that have high taxes, maybe even states that were little too strict on their protocols when it came to the quarantine. Talk about that because not only do we have this massive stimulus that has not only conditioned people psychologically to look to the government to help solve their problems, but you also have massive amounts of resources, money that has gone into not necessarily the most productive areas to stimulate. It’s more to fill the void but the hole is still there and continuing to drain. Talk about how COVID has impacted cities, what people being able to work remotely, how they’re going about moving from state to state. Speak to that. I know there’s a lot going on there.

In every city, state, and town is a little bit different. I had a conversation with a guy. He was on the 35th floor of a building in New York City. I was chatting with him. He’s a finance guy. We were talking about some debt and equity. I said, “What’s it like there?” I’ve talked to other people there as well. He said, “Our building normally has 5,000 to 8,000 people a day coming and going. The New York Times did an article on our building. They came and interviewed the door people and it’s about 100 a day. The hot dog guy out front usually sells about 400 hot dogs a day in the corner. They interviewed him and he’s doing ten.” I know I’m in New York but the point is this is going on in a lot, Seattle, San Francisco. Not in every city though, by the way. It isn’t Phoenix but it’s not Scottsdale. You have to pick and choose.

The story is those people pay for parking. They pay for gas. They get a cup of coffee. They get a bagel. They use the corner deli for lunch. They hit the ATM. Think of all the habits that happen when people are in and people are out. They have an early happy hour with some business folks. They grab the train. They go either Uber or taxi. They go back to wherever they go. All of those things are impacted every single piece. That’s one building. You start to take a look at the ripple effects of these small businesses. For sure, the landlords are screwed. They own those buildings. There are massive discussions around lease negotiation, lease modifications, forbearance, or whatever it might be. The landlords are not paying their mortgages. They’re probably not even paying a lot of their operating expenses, depending on how many businesses are paying.

I talked to another friend of mine who is in Chicago. He goes, “I’m paying rent. I’ve been paying rent on my space for a year. All my stuff is at home.” It depends on the capitalization of the business and all that. He said at the end he’s not going to renew. That’s all coming. I don’t want to make this about commercial office space but the point is that you’ve got all this ripple effect happening. I think what’s happened is people are looking. “Do I really need to spend $3,000, $4,000, $5,000 a month in rent?” They’re moving. That’s these migration patterns that you were talking about. I’ve heard crazy stories. Generally, what people are doing is they’re not moving far. They’re saying that they’re moving 20 or 30 miles away on the average, like 70% of the people. You think about that. If you’re in San Francisco, 20, 30 miles away, you could easily reduce your mortgage or your rent by half. There are a lot of people move in different states and all that’s happening.

That’s creating depressions and bubbles in individual areas depending on where people go. The jury is still out on what that’s going to look like but it’s looking like Arizona, Florida or Texas. There are little towns like Boise, Idaho, and stuff like that are jumping up too. I think that has a lot to do with Seattle. People are moving around and they’re looking for affordability. To your point, low tax, good weather, all of those things. If you can zoom, why not zoom when you can save quite a bit of money a month? That’s almost like a reverse commute. You use your office. You use your home. You go to your office every once in a while, as opposed to the other way around where you go maybe somewhere for a retreat. It’s the opposite.

TWS 79: Real Estate Future Opportunities

Real Estate Future Opportunities: If you think that you have to save your own cash and do it yourself, then you’re thinking really, really small. You’re not using a system that’s in place for you.

 

The ripple effect, you hit the nail on the head. Economies depend on $1 turning into $30. Meaning, you pay a person $1, that person takes the dollar, spends a dollar. That’s not happening. The velocity of money is at the lowest point ever, especially in fear. Most people don’t spend when they’re afraid. They hoard and they stock up. It’d be interesting. You made the point where we haven’t seen the impact yet. You’re starting to see it. There definitely were patterns already of people moving out of these big Metro expensive areas but it’s almost inevitability. Do you pay attention to any specific resources? They give you data on that. It’s relevant.

I’m all over everything. I read as much as I can. I do. I think that’s what you have to do. For migration, I studied that moving companies have good data, North American Van Lines, Atlas Van Lines, U-Haul and Ryder Truck. You think about it if you live in Salt Lake. If people moved from Salt Lake to Phoenix, that’s a data point, a lot of that stuff. It’s not perfect but if you start to look at a lot of these different things out of state driver’s licenses turned in, all these things that you can look at to figure out the migration patterns that will give you a good sense of where people are going. The media gets it later, all these brokerage houses, CBRE, Berkadia, Transwestern, JLL. They all have these annual reports. They are slanted a little bit because they’re brokers. The truth is I get all of those. I love those because they have these big analysts that look at all the markets and what’s going on. Those go out to the investors.

That’s all free. Get on all those websites. Another good one is ULI, the Urban Land Institute. Pricewaterhouse does an incredible one. I got it right here. This is called the Emerging Trends Of Real Estate and it’s Pricewaterhouse. I love this thing because it goes into all this data. That’s all I do all day long is look at that stuff and try to figure out. Wayne Gretzky says, “You have to skate to where you think the puck is going to go, not to the puck.” GameStop. You want to look at the bigger picture. Elon Musk is a guy that does that. He’s way out over here. People get surprised but it makes sense. My friend was trying to turn in his Tesla on a lease and he couldn’t buy it. I go, “Why?” He was like, “He’s going to do the autonomous taxi service.” All of a sudden, there goes Uber and Lyft. It’s all coming. You’ve got to pay attention to the stop.

It’s chess. In chess, you can play by each move and respond to each move or you can know 3, 4, 5 moves in advance. There are a lot of mini-entrepreneurs. The successful ones are able to do that. In your space, you’re doing the exact same thing where you’re looking at those leading indicators which could do this. That’s where the opportunity is.

That’s a software play, Elon Musk getting into the taxi business. That’s how he sees it. The cars are insignificant.

There was a flyover of Starlink, which is the satellite internet company that he has. There are 1,200, 1,300 satellites. It’s not even online yet. They’re not live yet. He sees where all this stuff is going. He does crazy stuff.

The key to entrepreneurship is solving problems. Click To Tweet

This is my point. The key to entrepreneurship is solving problems. What can be done better? He does it at a massively bigger level than most people but for us and for your folks here on this show, it’s housing. There’s going to be a massive housing need in the next years as a result of everything that’s happening, unemployment, fall out on the evictions, fall out on the forbearance, fall out on the defaults, and the defaults that are going to happen to the lenders. It’s going to be like 2008. The government, at some point, is going to stop writing checks that prop it all up. Trust me, it’s going to happen. This next year run, Patrick, is going to be incredible for entrepreneurs.

I went to the gym. My trainer wants to open a gym. I said, “Wait. Find out who’s locked all the doors, put chains around, and then call the landlord and say, ‘I’m not going to give you any money but I’ll take this over.’ You have to pay for the equipment and then go from there.” He’s like, “How did you learn all that? Where do I learn all this stuff?” I go, “Trust me, it’s trial and error. It’s a lot of failures, a lot of bad decisions.” He’s like, “That’s a great idea.” I go, “If you have to use your own money and in the next years, you’re lazy. It’s all how you think and what you see.” Elon Musk did throw a lot of his money early on as we know. The overwhelming majority of everything he does is financed with other people’s money and it always will be. That’s the whole point. If you think that you have to save your own cash and do it yourself, then you’re thinking small and you’re not using a system that’s in place for you that is there. It’s a bias.

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About Ken McElroy

TWS 79: Real Estate Future Opportunities

Principal of MC Companies and #1 New York Times’ bestselling author of “The ABCs of Real Estate Investing: The Secrets of Finding Hidden Profits Most Investors Miss” and “The Advanced Guide to Real Estate Investing: How to Identify the Hottest Markets and Secure the Best Deals.”

 

 

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Will The Biden Economy Make, Break, Or Transform You?

TWS 78 | Biden Economy

 

We now have a new President and with him, a new set of economic policies and decisions that are going to affect the financial market and all of us who feel its repercussions. The question is, will the Biden economy be good to you or will it be your undoing? Even before claiming his seat in the White House, Joe Biden has been very clear about his administration’s economic platform for a while. If you’re an entrepreneur reading this, you may already know what’s coming. But Patrick Donohoe is not here to paint a bleak picture. Instead, he offers opportunities and solutions that will keep you winning even as the government tightens its noose on the wealth producers. Listen in and be inspired to take practical steps to achieve the wealthy life you have always imagined, no matter who sits in the White House and how they decide to play God with the economy.

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Will The Biden Economy Make, Break, Or Transform You? 

The topic of discussion for this episode is Will the Biden Economy Make, Break, or Transform You. I’m going to talk about the potential impact of a new presidential administration, how they are planning to influence the economy, and how that might impact you. At the end of the episode is a tax strategy. It’s an old one that I’m going to talk about. The relevance of a tax strategy will be evident based on some of the data I’m about to give you. We’ve had a lot of volatility, a lot of swinging when it comes to the markets, the economy over the last couple of months. January, the short squeeze on GameStop, the potential short squeeze that was initiated on silver.  

You have an almost $2 trillion stimulus package. You have Elon Musk investing $1.5 billion into Bitcoin. I can keep going. There’s a lot of volatility. News information spreads quickly. Unless it’s controlled, it’s a very volatile, emotional rollercoaster, anywhere from wanting to get in, the fear of missing out, also some fear, anxiety, and worry about taxes and change. I’m here to tell you that there is an aggressive agenda that is hopefully evident to you. This isn’t new. I’m going to talk about some of the details but the actual agenda, the purpose, the reasons, the results that this administration wants have been clear for a while.  

Here are some of the bullet points. Raising a minimum wage to $15 an hour, forgiving student loan debt, making college free for people making up to $125,000 per year, increasing top marginal tax’s brackets to 40%, capital gains tax for high-income earners, at the actual ordinary income tax rates. Corporate taxes going up for real estate investors. I know many of you, I am myself, this has a huge impact but removing the step-up in basis for real estate gains as a potential, as that passes along to the next generation. Biden‘s administration also wants to spend $1.3 trillion on infrastructure, $2 trillion on clean energy. The list goes on.  

I think the word free is interesting because it’s one of the first things you learn in economics. There’s no such thing as free. Money may not be coming out of the pocket of the person that’s going to college but it’s coming out of somebody else’s pocket. That brings me to something very simple that illustrates how the administration is going to pay for this and the potential impact it’s going to have. We have a $28 trillion deficit, which means there’s debt and there’s interest on debt of $28 trillion, which is a lot of money. I don’t need to go into that. There are only two ways to pay for these initiatives. The initiatives it’s to save the middle class. It’s to continue some of the aid and support for those negatively impacted by COVID. There are only two ways to pay for it, taxes and deficit spending.  

Economic volatility has always been and will always be here. It’s just the spice of life. Learn to focus on the opportunities instead. Click To Tweet

Taxes, we are currently spending double what we collect. I’m speaking as a country. We are spending double what we collect in taxes. Raising taxes by double, I would say, is stifling, most likely negatively disruptive to the economy. The easy way to do it, which has been used for quite some time, several decades, is deficit spending, which basically means that the government issues new debt, essentially IOUs, and the central bank gives them money created out of thin air in exchange for that debt. That’s where we’re at. I’m not going to stop there. I can keep going through other bullet points of some of the agenda items. A fascinating read, it’s short, but if you are interested in all that detail, go to TaxFoundation.org. They did a whole analysis of how this is going to impact things. There are some variables in there that could potentially change. It doesn’t mean that all of these things are going to get passed and included in some of the tax changes. We don’t know. This is proposed but TaxFoundation.org is always on top of it.  

Their initial analysis is interesting, where we lose about 500,000 jobs because of it. We also have a decline in GDP and GNP, Gross National Product. Everything is going down. If you look at the distribution of wealth and income in the United States, everyone essentially loses because of this agenda. There’s essentially the population that is making $125,000 and below that benefits but the benefit is slight. It’s not that much at all. It’s interesting where you’re able to look at, “What is the impact that this is going to have?” From a narrative standpoint, it’s easy to say, “We want to save the middle class. We want to create jobs. We want to bring jobs back domestically. We wanted X, Y, Z as end results and motivation to do certain things.” When you get into the numbers, it’s interesting where you have a much more objective point of view.  

Take that for what it’s worth but here is what I’m going to say. This is deviating, hopefully not reigning too much on your sentiments. The idea here was to paint a picture that the volatility of life is here to stay. I believe it’s always been here. It always will be here. I think my initial reaction to this is whether it’s my kids having to pay taxes and pay back debt or my grandkids, that narrative is used oftentimes by conservatives. I get emotionally stirred up because I know the data behind it. This isn’t going to make much of a difference. It’s going to dig our hole even deeper. You’re probably asking why I am focusing this episode on this.  

Opportunities Everywhere

I’m focusing on it because my reaction was short-lived. The punchline of it all is that there‘s opportunity everywhere. It’s always been there. As much as we want life to be programmed, robotic, predictable, and easy, it’s not how it works. There’s never been a perfect presidential administration, a perfect tax code, a perfect economy, a perfect profession, a perfect spouse, perfect kids, perfect neighbors, perfect colleagues, perfect business. The only constant is that things will change. Things will be volatile today, tomorrow, the next day. I believe that this is the spice of life. It’s the amazing adventure, the amazing ride that we’re on.  

I read something from a study by Cornell. It was done in 2005, 2006, that shows that the majority of what we fear and are anxious about has to do with the future but here’s the catch. In this study, 85% of the things that people worried and were afraid of never happened. Participants in the study, they usually will use a good sample size, so it’s not skewed or biased. The participant said that up to 15% of the events that did happen in the future, that they were anxious and afraid of, they either learn something or they handled it better than they thought they would when they were afraid and anxious about it.  

My question to you is, what if your entire life, all your experiences, your thoughts, your parents, your neighbors, people have influenced you, was to prepare you for a life-changing experience? What’s on the other side of that experience iyou showed up with that belief? I’m not saying that you need to believe it but I want you to consider that it might be true. What if everything in your life prepared you for something that was supposed to happen and experience? Based on how you showed up on the other side of it could have been an amazing emotional experience, a meaningful conversation, a business opportunity, an investment opportunity, a relationship, an inspiration or motivation, a breakthrough. What if that was on the other side?  

TWS 78 | Biden Economy

Biden Economy: One of the first things you learn in economics is that there’s no such thing as “free”.

 

As I’ve looked at my reaction to life’s events, typically what’s going on around me, what’s in business, the markets, news, social media, I connected with something. These are things that are always going to happen. The degree, the scope is greater than it’s ever before but I believe that leads to amazing opportunity because on the other side of how you show up is where wealth truly is. It’s where growth is. It’s where the uncertainty and the beauty, the excitement of life is. That’s where I’ll bring to the next point. What if wealth wasn’t a dollar amount in the bank? What if it wasn’t cashflow?  

What if it was bringing your best self to life? Meaning, you bring your game every day, every experience. To life is you wake it up. What if that was wealth? Through that vehicle, your being who you are, you’re able to experience what you want. Growth, enjoyment, relationship. It wasn’t next week. It wasn’t when you’re 65. It’s today. It’s tomorrow and the next day. I’m not saying that this is possible every day but what if it was something that you became aware of, something new? Do you allow yourself to be in a routine where it woke you up to life? What would be different?  

I look at my experience and the millions of dollars I’ve spent on personal development trying to understand myself, understand what I want, understand why I say, do, believe, or feel certain ways. My discovery has been I have so much to be grateful for. I have so much that is valuable. When I start to focus on those items when I start to focus on what I can bring as opposed to what I can get, life completely changes. I believe that a lot of the events that will continue to unfold is for people, the human being inside of us. Not the human doing but the human being wakes up. It allows us to exercise what we’re capable of. Human beings are not meant to sit back, get a stimulus check, spend it on Netflix and movies. It’s not meant to scroll through social media. It’s not meant to be isolated in an apartment, in a house, even if you’re living with people.  

I believe the circumstances that we’re in are allowing people to live a lax life and I think that’s anti-life. I think that’s anti-human. I think that’s one of the greatest tragedies of 2020 is that the solution wasn’t the human being. The solution to the challenges that were faced, and there were macro challenges on a big scale, I think there were some cool things that happened that allowed companies more leeway to innovate, to solve problems. I think on the micro-level, on the individual level, there was a huge tragedy with the loss of opportunity to adapt, to change, to think, to solve problems. I’m not saying that this is absolute but I was hoping that the exception wouldn’t have been this. The rule became bailout, supplement, aid, help so that people don’t have to help themselves rather than it being the rule and the exception being those that are in dire circumstances.  

The scary part is that there are some habits that have been formed and that is going to lead whether it’s student loan bailouts, whether it’s prolonged unemployment, whether it’s free education. There are going to be some unintended consequences from that but that leads to more volatility. The ability for you to ride that volatility and take advantage of tremendous opportunities because there’s a lot of cool things happening in our world. Whether it’s advances in transportation, advances in medicine, advances in entertainment, advances in energy, advances in food, it’s incredible what’s going on if you open your eyes to it. When you approach life and you’re trying to find the opportunities, you‘re trying to find the lessons. You’re showing up as your best self and realizing that your one smile, one conversation, one acknowledgment, one text, “How are you doing? One written thank you note, “I appreciate you for showing up in my life,” one step away from a completely new experience of life, a completely new business, a completely new profession. 

When you start to focus on what you can bring instead of what you can get, life completely changes. Click To Tweet

Hopefully, this is a mentality that you feel you want to embrace. It’s not easy. The first step is being aware. The second step is doing what it takes to ground yourself. It could be a morning routine. It could be a new habit of simply writing down what you’re grateful for. If you embrace this, I challenge you to do something, commit to something, put something on your calendar, because if you don’t, the human spirit in all of us will go right back to the way that it was and you’ll forget the conversation. You’ll forget the inspiration. You won’t embrace it.  

Embracing requires you do something because it makes it real. It turns it into something. That’s an idea floating around. “I should.” Do something right now. It could be as simple as, “I’m going to write down the ten things I’m grateful for every single morning. I’m going to write a thank you note every single day to somebody.” Maybe three times a week, but something. That is showing up as your best self. You’re able to take advantage of these extreme volatilities of life.  

Simple Strategies

I named them. Higher taxes, less money, potentially less wealth. That’s what goes through our mind when we hear this data but this is where I’m going to end and talk about a simple tax strategy to prove the point that regardless of what is changed, what new provision in the tax code, what new change to employment, change to this, change to that. Whatever happens, there is always going to be opportunities. Here it is. I’ve invested in real estate for a long time. I got wiped out in 2008, 2009. I had to start over again. I was afraid, I was anxious, so it took me a little longer to start than most. Getting into 2011, 2012, I was pretty active. There’s a section of the tax code, the 1031 Exchange, which allows you to defer gains on a piece of property, then you do it through purchasing another property. If you sell that property, you can roll it, defer it into another property, and into more.  

Let me give you an example. You bought $100,000 property and you sell it for $200,000. You have $100,000 gain. If you took that gain and rolled it into another property, you don’t have to pay taxes and you want another property that will go up in value. Let’s say you sell that and you keep doing this over and over again, you get to the point where you have $1 million. That $1 millionif you pass away, transfers to your estate and there is what’s called a step-up in basis. What that means is that the gains that you previously had, they start over. Start basis is essentially the $100,000 original amount of money. Now it starts at $1 million for your kids. It may not pass. It may pass. Who knows? They want to get rid of the step-up in basis. That would be a $900,000 gain if you‘ve started at $100,000, ended at $1 million and we’re betting on a step-up in basis.  

Here’s the strategy. I’m going to link to a document and video that good friends of mine did, Todd Langford and Rick Randall. Rick Randall’s an attorney. Todd Langford is a software developer. He’s the one who develops all of the financial software that I use with my Paradigm Life practice. There’s a white paper, a video, the whole nine yards. If you want to see this in practice, definitely reach out to Tom Wheelwright of WealthAbility. He’s the CPA. I’m not. I’m talking based on education only. There’s a disclaimer.  

I’m going to remind you that the reason I’m doing this is to show you that there are things that you may not know. There could be an even better solution than what is taken away. There was once a solution to your problem, whether it’s higher taxes, whether it’s a provision like the removal of the step-up in basis. There are always solutions and there’s a big one. The point is with everything that’s going to be volatile, everything’s going to change. All of these new initiatives, instead of looking at glass half full, I’m looking at it as a loss or a cost. Find the opportunity.  

There’s this old strategy called the Charitable Remainder Trust. It’s an estate planning strategy where you can essentially sell an asset to a charitable remainder trust. There are different versions of this. I’m going to talk generally speaking. Charitable remainder trust allows you to donate to this trust and you appoint a charity of choice that will be the recipient of that amount of money when you pass on. You get a tax deduction and you get to take income from that. A small percentage of what you donate to this charitable trust is passed onto a specific charity.  

Here’s where the strategy comes in. You can purchase an insurance policy with some of those proceeds or maybe there’s an existing insurance policy you have, a life insurance policy, which will act as an asset replacement trust. To avoid the step-up in basis and that huge $900,000 tax, you could get a tax benefit using a charitable remainder trust and you can use some of the proceeds to replace the full amount of that asset, whether it’s $1 million or it could be less, and you use some of the proceeds to purchase that policy. The numbers are all in this demonstration. It’s extensive but it’s a cool strategy. It may not ever be needed if it doesn’t pass but it’s something that exists as a solution.  

My point on all of this is there are going to be some extremes going on. We’re going to respond to them, react to them, it’s going to be frustrating, it’s going to be mind-numbing to an extent, but I want you to be aware of that reaction and shift gears to where the opportunity isI look at wealth and the achievement of more money, of more investment, of more cashflow, that is a small portion of wealth. It isn’t the foundation of wealth. Foundation of wealth is to experience life and to experience it at the highest level. It’s to take your best self that I know is in you. God knows that it’s in you. Your spouse knows it’s in you. Your husband, your wife, your kids, your neighbors know it’s in you, bringing that as often as possible, showing up, creating value, making a difference, experiencing the little things at a whole new level. That’s wealth. Money magnifies that.  

If you don’t have that foundational piece, it’s going to be a frustrating journey accumulating more and more money. It makes the experience worse in my opinion. Consider that as a possibility. Consider that the volatility gives you the opportunity to make new decisions about how you show up, to find opportunities, to bring out that human being inside of you that’s there. These are the opportunities that allow it to rise. Without these opportunities, you’re going to sit on the couch, go to the beach, and not contribute much to life. That’s, in my opinion, not the life that I want and I’m hoping it’s not the life that you want.  

TWS 78 | Biden Economy

Biden Economy: Volatility gives you the opportunity to make new decisions about how you show up to find opportunities and bring out that human being inside of you.

 

Life is incredible. We don’t have to worry about going and hunting for food or chopping wood to feed the fire. We don’t have to worry that our kids are going to contract some gnarly disease and die when they’re young. We have access to medicine. We have access to health. We have access to information, entertainment, relationship, more so than ever in the history of mankind, yet there’s a lot of evidence out there that points to people still complaining about life. They are complaining about their circumstances, complaining about Biden, complaining about Trump, complaining about this, complaining about that 

Life doesn’t have to be that way. I think if you realize that number one, life is always going to be volatile. This utopian view of things, that doesn’t exist. It’s a mirage. The beauty of life can be experienced by those simple choices that we make, those simple decisions that we make. I truly believe that you’re one decision away from a completely new life. Thanks for joining me. Go out there and make someone happy. Love is what we’re all after in the end. Go love somebody. Go create some value and make a difference. Until next time, see you.  

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