cashflow

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.

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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. Share on X

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. Share on X

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. Share on X

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. Share on X

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.

Important Links:

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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How To Bring Your Life To The Next Level

RTW 43 | Commercial Real Estate

 

We will not succeed if we simply stay where we are and refuse change or improvement. But trudging the path to the next level of your life means facing your anxieties, financial challenges, and personal issues. To address this, Patrick Donohoe presents his course, The Wealth Standard, which focuses on helping people embrace a better version of themselves. He concentrates on getting rid of the thoughts that limit our beliefs, finding your true value as a worker, and looking at leadership from a brand new perspective. Self-fulfillment can only be achieved if you know where you are leading your life, and it starts by transforming yourself.

Watch the episode here:

Listen to the podcast here:

How To Bring Your Life To The Next Level

I’m grateful to share some thoughts with you. It’s been a while since I made an episode, especially a solo one, but I’m back. I’ve spent time developing and creating content for the new digital course that has officially launched. You guys can get more information about that course by going to Go.TheWealthStandard.com/freedom. What I like to do is talk a bit about the course, how I came up with the content, but then also unpack and dive into some of the primary themes in the responses you gave me through your candid feedback, as well as thoughtful responses to questions. That’s where I’ll start because the course is something I could have assumed I knew what you needed, what you would have valued, what was holding you back in your particular situation.

I’ve done that in the past. Sometimes it works, sometimes it doesn’t. This go-around, I decided to get responses from you to understand your world, what holds you back, and what are some of the obstacles that you’re facing. I’m humbled by the hundreds of responses I received. It made me dig down deep to understand the true root cause of those challenges, obstacles and limitations that are holding you back. What I discovered is that these are some things that have held me back in the past. These are parts of the human experience. We’re faced with similar obstacles, at the same time, the situations are all different.

I’m grateful to you. I’m grateful to have been able to think through the way in which the curriculum is created and the exercises were formulated. If you want to take your life to the next level, then this is a course that is for you. It has a 30-day money back guarantee. If you buy it and you hate it, don’t like it, too intense, too much information, I didn’t even give you all the information at one side to stagger it out week upon week because of how much is in there, but I’ll give you your money back, no questions asked. What I’d like to do is get into a couple of the primary themes that I saw in the responses that you gave me. I believe that this will give you insight into how I developed some of the information as well as exercises.

RTW 43 | Commercial Real Estate

The Next Level:  Today’s society wants things quick and fast, and with the snap of a finger or a click of a button.

 

A Year of Disruption

Thank you for investing your time and your energy. It says a lot about you and it means a lot to me because I’m inspired by those who are driven, those that are seeking information to improve their lives. I’m grateful to you. 2020 was a year of disruption. This season has been disrupted, especially here in Utah, and we weren’t able to gather as we have in the past. It makes you think about how grateful you are for the things that you have, because when they’re taken away, that provides that polarity. 2020 has been full of those opportunities. I hope you have passed your weekend grateful and had a wonderful experience. I haven’t done an episode in a while. Many of you know that I have been working on a digital course since I’ve been neck deep in recording, re-recording, and it’s been a great experience. This go-around has been different because of your involvement. I had reached out to a number of segments of the audience and pulled them, and requested feedback and answers to questions. This go-around, I wanted to create content, create a course that served you at a higher level by addressing your primary concerns, your anxieties, the things that are holding you back the most from achieving that next level of life, that financial freedom or financial independence that you and everybody else is ultimately seeking.

Your responses were heartfelt and your candor was incredible. I’m appreciative and grateful for that. What I’d like to do is give you a snippet of what the course is going to entail by addressing one of the patterns that I’ve seen throughout the responses. These are patterns are everywhere and they’re in greater magnitude these days. I believe we live in a society that wants things quick and fast with the snap of a finger or a click of a button, and looking at freedom and achieving that level of life, and then continuing to achieve it because it is not a one-time event. It’s challenging for most because they see it as a possibility, whether it’s what they see on social media, whether it’s what they read in books.

That pursuit and desire is amplified. I have had the fortunate opportunity of working with a lot of people with their personal finances. I’ve come to these conclusions or these realizations that ultimately, money is a part of the equation, but it is not the primary variable to freedom and independence. Hopefully, that comes out in what I’ll talk about. There are practical strategies, things to do, things to do differently, things to stop doing, things to start doing, but there is a mindset shift that is necessary. The variables or the components of that mindset shift will be evident because not only do I want to go through a specific response to a question. The question being, what are the primary obstacles that are holding you back from living a life at the next level? It pertains to a person, but you can substitute any obstacle that you have, where you stand in a specific place in life.

RTW 43 | Commercial Real Estate

The Next Level:  If a business wants to grow, it has to innovate and find better ways to meet the needs of their customers.

 

There is a future that you desire and you yearn for. There’s a gap or an in-between. There is what needs to take place in order for you to be at that level. Our psyche often times puts these barriers in place and prevents us from taking risks because naturally we want to avoid fear, and that fear is embedded in our DNA. Mostly it’s irrational at the same time because it’s built into us. It’s challenging for us to rationalize being able to confront it and overcome it. Let’s get into this example. I hope you find some meaning and some value in it. The course is life. Version one is up. I plan on doing lots of iteration and that’s why I kept the price point on the course low so that I can get a bunch of users experiencing it, giving feedback with both the exercises that are there, as well as the content and continue to iterate and make it even more valuable.

You can go check out version one. If you buy this first version, even though the price is going to go up in the future, you can get all those different versions, those upgrades for free, but you can go to Go.TheWealthStandard.com/freedom. This is the obstacle that I’m going to be addressing. The question, what are the primary obstacles that are standing in the way between where you are now and where you want to be in the future, that life at the next level? This specific response was short but I saw this pattern in dozens, if not more of the responses, and there were hundreds of responses. This one was, “I don’t have a business. I am an employee.” These are obstacles you can replace whatever obstacle you have as you ask yourself that question, what is the primary thing that is in the way of me achieving that life at the next level? “I don’t have a business, I’m an employee.”

There could be a multitude of meaning within what they have responded. I’m going to get into a few of them, but it’s an obstacle. The first thing is having a business. If that is the barrier that’s in the way to achieving an amazing life, business is a masochistic and risky way of doing it because the majority of businesses do not succeed. The majority of business owners who get divorced lose their relationships with their kids. They put huge investments and lose those investments, and put people’s lives on the line.

Money is a part of the equation, but it is not the primary variable to freedom and independence. Share on X

Achieving Financial Independence

It’s stressful. I’ve been in business for several years and almost going out of business a number of times. There’s a deep desire inside of me that pushed me through and had me persevere through some challenging times where I wanted to be done, but going to life at the next level as business owner, there are even more opportunities and possibilities to achieve financial independence and meaningful life by being an employee. That’s what I’m going to focus my attention because in the end, I believe that successful business and being a successful employee have same dynamic. The only difference is scale, because a business provides a service. An employee provides a service. If a business wants to grow, they have to innovate and find better ways to meet the needs of their customers.

If it’s an employee, it’s a great way to innovate where you can look at the service and the value you’re being paid for, and find ways to improve the value to reach and meet the needs of the person that’s paying you. It’s a different perspective. Sometimes employees look at this entitlement where they should receive a raise for doing nothing. You can flip that and ultimately get even more money through bonuses, raises and position increases. They allow you to make more money and with that additional money, it’s making investment. It’s saving and establishing what I define as financial independence. For those of you who have read the book, you are familiar with this. It’s when 50% of your income comes from the cashflow of investments. The other 50% comes from doing meaningful work on your terms.

Fifty percent can be established by making a lot of money as an employee, but along the way, the resume you build, the human life value balance sheet that you create by your experiences, by the relationships and the network you’ve built can position you to spend twenty hours a week doing meaningful work, and being paid a multiple of what you are paid now. That’s what I’m going to get into because the dynamic, the components, the variables of success of both a business and an employee are the exact same thing. The only difference is scale but I’m going to give you some ideas as far as scale is concerned and how to scale yourself as an employee. The first thing I’m going to do, and this is where I took a direction with a course based on the responses you gave me, because there are many different tactics, strategies, ideas, advice and insight I could give you, but unless there is a breakthrough with your psychology, then all you’re going to be doing is looking for what’s wrong.

RTW 43 | Commercial Real Estate

The Next Level: 50% of income comes from the cashflow of investments. The other 50% comes from doing meaningful work on your terms.

 

Limiting Belief

You’re going to be trying to find this confirmation bias, it’s finding the evidence of why your obstacle and what you’ve stayed as your limiting belief is true. Until you can start to question the validity of your limiting belief, no solutions are going to resonate. That’s where I’m going to start. There are some exercises in the course that facilitate the breakthroughs that you can have in order to look at yourself, your beliefs, and your limiting beliefs differently, creating empowering beliefs, and positioning your psychology so that you can be open to the slew and myriad of opportunities that are all around you. I’m going to use a simple example, but there are much more deep and profound experiences within the course that you are going to find fascinating. These are the experiences that I’ve had over the last few years that have given me tremendous breakthrough in my own personal life and my own happiness in my business.

I replicated those for your benefit, but I’m going to go through one. If I was talking to a client, an employee, a friend, my wife or my kids, and we were having a conversation about something that is holding you back, what I would first do is to address the feelings and emotions associated with that limiting beliefs. In this case, the limiting belief is, “I have to have a business. I’m an employee. I have to have business in order for me to be free.” When you think about that, financial independence and life of the next level isn’t possible because in order to do that, you have to have a business. You have to do your own thing.

How does that make you feel? The response is, “I feel held back. I feel frustrated. I’m not motivated. I’m challenged.” I would follow up with, “When you feel this way, do you even want to pursue anything that could potentially get you there? The answer is, “No way, I don’t even want to take that first step.” When you tell yourself this story that you have to own a business in order to be financially independent, in order to achieve the next level of life, you have all the information and you’ve pulled everybody. Do you know beyond a shadow of a doubt that that statement is true? That in order for you to be financially independent and live a life of the next level, you have to own a business.

Unless there is a breakthrough with your psychology, all you're going to be doing is looking for what's wrong. Share on X

This is where the eyes roll sometimes, but that’s intentional because what it does is it gets a person to say that “No, I don’t have all of the information. It could be possible that life of the next level is there, and I don’t have to own a business in order to achieve it.” First, it interrupts the belief or that confirmation bias. We’re looking for information to validate what we already believe. What this does is it opens our mind to this new opportunity that it is possible. Simply saying the words that, “I don’t have all the information. It could be possible.” It’s associating the emotions with it. The emotions are those agents of confirmation.

The emotion is if it were true that you didn’t have to be a business owner. You could be an employee to achieve that level of financial independence. How does that make you feel? That’s when they say, “I’m optimistic. I feel that it’s possible. I believe that there may be somebody out there that can help me or give me some insight or give me some information for me to believe that even more.” That’s where it starts. That’s the first domino that needs to be knocked down in order to start positioning strategy. That’s where limitations are concerned and why I positioned the first part of this digital course as breaking through the limiting beliefs.

Following that up with the actual strategies, a person can pursue to make changes, to make adjustments, to get more information, and to execute on that information. I know that if I started with that like I have in the past, most individuals are not in the mindset. They don’t have the psychology of making changes. In one episode that I did, the biggest fears that people have are being wrong and having to change. This is one of the exercises that could potentially work. In this digital course, there are a few other exercises that help you navigate through some of those limiting beliefs and start to replace them with empowering beliefs. Let’s get into solutions because psychology is one thing, but if you’re open to new possibilities and to having additional information, change is likely not to occur.

Value As An Employee

RTW 43 | Commercial Real Estate

The Wealth of Nations

A business and employee are similar. They both provide a service of value in which they’re paid for. The only difference is scale. In a business, multiple people are involved. A famous definition of scalability is by Adam Smith when he talks about the pen factory in his book, The Wealth of Nations, where he identified that one person making all the different parts of a pen and putting it together has a certain amount of output at the end of the day. If you divide that labor, the division of labor, where multiple people are involved, each of them is responsible for one piece of the assembly, then you’re able to have scalability. The output is a multiple. That’s the idea of scale. There’s scalability possible for an employee, but you first have to identify the value that you provide as an employee. We’re all wired to look at ourselves and to come to a determination of why we’re valuable, rarely do people step outside of them and define, “Why does an employer think I’m valuable? What do I do? What is it about what I do that I’m paid for?”

This comes down to doing an audit of the different tasks and responsibilities and where you spend your time during the day. There are tasks that are meaningless or tasks that have low value. There are the tasks and the value that you’re paid for. In the process of doing this, you’re starting to look at yourself as the customer or the client. The patron looks at you, in this case, it’s your employer. This is a key to business. Peter Drucker says that to grow a business, you have to have focus on two things, innovation and marketing. Innovation is constantly finding even better ways to serve and meet the needs of your customer or client. Marketing is getting people to do more business with you. Looking at employee and employer relationship, this is where you start to understand the needs of the employer. What are they trying to do? What’s their revision? Were they trying to achieve? What are they trying to accomplish? How can I do something potentially different to bring even more value to them? If you go through this process as an employee and bring that success to a business, you’re going to have a much higher likelihood of being a success in business.

You might as well figure out how to do it as an employee first. I look at being an employee as one of the most incredible ways to experiment and to do things that potentially could be incredibly risky as a business, but doing it as an employee, there’s more agility and resilience because you can try things. If it doesn’t work, try something else. The worst thing is you can get a slap on the hand or get fired, but then you can go find another position where as a business, there are people’s jobs that are on the line. There are expenses, leases and other commitments that you’ve made that are on the line. Whereas an employee, there’s more resilience associated with experimenting on the ways in which you can create even more value. Coming from an employee, it’s finding leverage in the tasks that you’re already doing and defining all the different things you do throughout the day and what you’re paid for. As you look for more ways to scale, that’s an easier way to scale.

Identify yourself as the asset, find out why you're paid, and figure out how to make that asset even more valuable. Share on X

Looking at it from a position standpoint, are there other positions that you would be better at, that you could be paid for? This is going to, what’s your skillset? What’s your experience? What do you love doing? That’s going to give you those nuggets where you can start to look for other positions, whether it’s inside the company that you’re with or within the employee base of another company. Nonetheless, it’s starting to identify yourself as the asset and find out why you’re paid and figuring out how to make that asset even more valuable. There’s an eBook that I wrote a number of years ago before my official book came out and it’s essentially how to invest in a $50 million asset, which is you.

A Look At Leadership

What it does is it shows the math behind instead of getting a 3% raise per year, which is customary, you get a 10% raise per year. That 10% doesn’t come about by entitlement. That 10% is going to come about by you being more valuable and demonstrate that in the digital course as well. Let’s segue into an essential variable or dynamic of a successful business. It’s also an essential component of a successful employee. This is leadership. We are conditioned in our society to look at leadership from a hierarchical perspective. There is tenure within the public-school systems. There is the vice principal, the principal, the superintendent, the same structure exists in government. In corporations, the same structure exists.

We get this idea that leadership is management, but I believe that management in and of itself is a horrible way to get leverage. Leadership-focused management is an empowering way. Management is getting people to do things whether it’s usually by a stick. Rarely it’s a carrot, but I believe that even stick and carrot are limiting. There is a way in which you can empower people to do good work. Leadership is a huge opportunity because the majority of employees are conditioned to look at leadership as a hierarchical management structure. I think that’s limiting. It’s figuring out how to hone in on your leadership abilities, your ability to involve others in projects and get scale. Use that division of labor dynamic. This could come from reading books and taking courses. It’s the experimentation side of things. It’s learning how to be a good leader, finding mentors whether it’s direct or indirect, and incorporating their style of handling meetings, their style of executing projects or being part of a project.

RTW 43 | Commercial Real Estate

The Next Level: Focus on the areas that you’re best at and allow others to fill roles that they’re best at.

 

The leadership dynamic is huge because it’s empowering people, especially in our day and age, when you have a fleeting employee base, where employees are jumping from company to company for a 2%, 3%, 4% raise. Maybe a little bit more benefit here. What’s going to keep them is good leadership, which is caring, empathy, but also instilling in them a desire to do good work and even more good work after they’ve done the initial good work. Leadership is huge because that’s when you can work in teams and get way more done. You can focus on the areas that you’re best at, and allow others to fill roles that they’re best at.

A Meaningful Life

That right there brings about a greater output. That is essential for scaling as an employee. I know a lot of people that make high six figures and even seven figures in the employee world. This is where sometimes research into, what is the maximum income that you can earn in your position or a position that you desire? What does that look like? Start to define what is inside of the gap between where you’re at right now, what you’re paid for and what a person at that caliber is paid for. All along the way, you’re making more money. The point is it’s not to solely reliant on your profession to achieve that end result, that financial independence or a meaningful life.

It equips you to, number one, establish an asset base that is providing cashflow that covers your lifestyle. Second, it’s to be able to evaluate what you’re doing inside of your work as an employee and always, either find ways to have more enjoyment, success, achievement and fulfillment. If you don’t, you have a lot more latitude because of how you’ve established your assets to either move to a consultant position or to a part-time position. Move from company to company, if that environment is not suitable to the terms and conditions you set up for yourself as far as defining a meaningful life and a meaningful career.

In the end, retirement is a flawed idea, which is 100% living off your assets. We’re wired to create value. We’re wired to contribute and improve the lives of others and in the process, improve our own lives. That’s a natural occurring energy that keeps us alive, happy and fulfilled. Without it, it doesn’t matter how much money you have, fulfillment is unlikely. Looking at the continual pursuit of improving yourself as an asset, whether you own a business or not is going to be vital to achieving this financial independence, whatever that next level looks like for you. This is where it all end. Even if you get to that 6, 7 figures and you’re a highly valued or highly paid employee, it doesn’t mean that you have to stay in those positions. You can look at consultant positions and being on boards.

You could be part-time. You could be a contractor or a free freelancer, and do work from anywhere in the world on your terms. That’s where a big piece of the course comes is to help you define what are the terms. What is the criteria? What is life of the next level look like? You can define that first and have that end result always in your mind. More often than not, people don’t necessarily come up with a clear definition of what they’re after or the results that they want. They go through the motions on a daily basis without the milestones that are necessary to get to that end result. The clarity that one can get from establishing that ideal life and a life on their terms is powerful.

Unequivocally, I see individuals coming to the conclusion and realization that to live life at that level, it doesn’t require what they thought it was going to require. It’s a lot easier. At the same time, this is a process. There are many people that are struggling because of our environment. I empathize with that. I understand that there is disruption. At the same time, there are incredible opportunities for those that exercise the fortitude of a healthy and abundant mindset because opportunities are everywhere. Thanks again for reading. Thanks for investing your time into educating yourself. Hopefully, this message has resonated with you. Go check out this new course called A Path to Financial Independence. It’s at Go.TheWealthStandard.com/freedom. Next, I’m going to be tackling another insightful obstacle that many of you had expressed in relation to achieving that life at the next level, and that is taking time and money away from family. In this case, wife and children. It’s the confidence to commit more time and money into a business, but also keeping spouse and children in mind. That’s what I’m going to tackle next. We’ll see you next time. Bye.

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The Pursuit Of Financial Certainty And Happiness with Will Street – Part 2

TWS FF 7 | Financial Certainty

 

In this second part of Financial Friday, we are still with wealth strategist Will Street as we move on to talking about the pursuit of financial certainty and happiness. We examine a scintillating article published by the Business Insider, detailing a woman’s insight by studying 600 millionaires on the effects of where you choose to live to building wealth. We discuss the importance of putting one’s happiness and where they find meaning in life to the equation of wealth-building. Learn how to balance financial certainty and security with real life, taking into account friendships, family, and environment. Know that we don’t have to give up the enjoyment of right now to the mirage of the good life in the future.

Watch the episode here:

Listen to the podcast here:

The Pursuit Of Financial Certainty And Happiness with Will Street – Part 2

Financial Friday

We are in part two. We started with part one last episode. We’re going to continue with a scintillating article. I’m here with my friend, Will Street. It’s an interesting article from Business Insider. It is the insight a woman had by studying 600 millionaires and she discovered where you choose to live has two effects on your ability to build wealth. First off, we’ll recap the last episode. What did you think of the last episode? How did you like that discussion?

To recap it a little bit, it was good because we talked quite a bit about building wealth in the right way and building it from the base up and talking about uncertainty. Where a lot of people go wrong is they thirst after this uncertainty, but they seek it out without having the proper foundation in place. Not every financial decision is going to pan out. If you’re out and about in search of success or financial freedom or whatever that means to you and when you come across one of those scenarios where it doesn’t pan out. If you don’t have the right foundation to fall back to, that’s when things become difficult for people. You shared a couple of examples of some of those failures, the Puerto Rican fish farm. You got to do the due diligence. Things aren’t always going to work out. In fact, often things don’t work out exactly according to plan. The best that you can do is put yourself in a position to weather the storm and to have the right type of foundation, the right base and to keep moving forward.

You should always try to live within the possibilities, not the limitations – Will Street Share on X

The other point that you made that I thought was super compelling was this idea about tier two. We used as examples a couple of tier two assets, real estate investments, starting a business. The investment in ourselves and finding something that drives us. Finding something that gives us purpose and meaning and the value that it brings as we feel that sense of drive to get out of bed and make it happen. If that’s what is driving us, more often than not, we’re going to have a whole lot more in the tank to be able to push forward and be successful.

It’s the distinction between escaping. Most people are pursuing retirement, which is the escape of what they’re doing because they wouldn’t choose to spend all of their time working in what they’re doing. They’d rather spend their time somewhere else. They’re trying to escape from that. We advocate the discovery of doing meaningful things. I referenced some Tony Robbins material that says that the most fulfilling life comes from discovering that meaning and then spending 50% to 60% of your time doing that, not all of it. That’s where you look at people that retire and are miserable or people that achieve tremendous wealth and then decide to take their own life.

Where that true, that core meaning wasn’t discovered. Money or success or something else they thought was going to help them to discover it, where it’s the other way around where you can discover it without achieving wealth. This is something that’s not talked about when it comes to financial planning or financial advice or what you should do with your money and I think that it’s a tragedy. Most typical retirement planning solves for a specific end, which I don’t think is the end that people are seeking. Let’s get into some typical financial advice by a woman who studied 600 millionaires and she discovered where you choose to live has two effects on your ability to build wealth.

Here are a couple of her claims. She says the key to wealth building is to live in a home that one can easily afford. If you live in a pricey home and neighborhood, you will act and buy like your neighbors. The more affluent the neighborhood, the more the residents spend on almost every conceivable product and service. If you’re high income-producing, high-consuming neighbors roll up to the driveway in a BMW or a Mercedes-Benz, it’s likely you’ll feel the urge to do the same. The pressure to keep up with the Joneses can also be affected by lifestyle creep. The tendency to spend more whenever one earns more. First off, let’s take her perspective. What is she saying? What is she trying to allude to when it comes to a person’s ability to build wealth?

One of the natural tendencies we have as humans is we value community. Share on X

The common expression that you hear is somebody who’s house-poor. She’s saying, “Don’t be house-poor. Don’t spend or don’t buy a house that uses up more than a certain percentage of your disposable income. That’s a term that is somewhat familiar is this idea being house-poor. That’s the first piece, the size of your mortgage relative to your income. The second is if you live in this neighborhood and you see the neighbor across the street rolled up in a new 7 Series BMW, my 3 Series is not adequate anymore. I need the 7 Series. I need the S-Class Mercedes. I can’t resist that urge. If I see that my neighbor has something that I don’t, I’ve got to keep up with him or her. We’ve got home automation, swimming pool in the backyard, we’ve got it all. Pickleball court is the latest. “My neighbor’s got the pickleball court. I need the ball court. I’m going to spend it, even if it means I’m spending now what I would otherwise save.”

One of the natural tendencies we have as humans is we value community. We value friendships. We value relationships. If you live in a certain neighborhood, you want to be a part of that. I don’t think there’s anything wrong with it. She categorized that the wrong neighborhood, then you are most likely going to spend more than you make and you’re going to get into financial trouble. That’s what she’s alluding to. You’re not going to save and then you’re going to affect your future or ruin it, or both. Consider billionaire investor Warren Buffett. He lives in a modest house worth 0.001% of his total wealth. This is a commonly held perspective. I understand the accumulation of wealth. If you spend less, you’re going to accumulate more. It’s hitting on the financial principle, not the lifestyle and the meaning behind where you live and the memories and the experiences. It approaches it from a purely economic standpoint.

TWS FF 7 | Financial Certainty

Financial Certainty: Your home is not an asset because it does not produce cashflow.

 

The thing with economics is it doesn’t take into consideration human behavior. She’s saying that human behavior, you’re going to spend less and you’re going to have more to accumulate. Is there anything that’s lost? This is where we’ll pivot to the other side of the coin when it comes to home ownership, the home that you live in. I’ve heard it as your home is not an asset. Robert Kiyosaki talks a lot about that because your home doesn’t produce cashflow. Someone else isn’t paying your mortgage, you are. You’re putting money into the maintenance and you’re putting money into upgrading this and upgrading that. You have to have Mercedes-Benz and BMWs. I look at the value of living in a nice neighborhood, the value of living in a nice home and what value that provides you when it comes to lifestyle, meaning, memories, family, etc. What do you think of the other side of the coin? How could you say, “I see what you’re saying, but here’s another opinion?”

I see what you’re saying is this idea. It’s the Dave Ramsey budgeting. Is budgeting generally a good idea? To tip our cap to her a little bit, it would be generally should you not spend every disposable dime that you have on a mortgage? The flip side of that coin is that also doesn’t mean that you should live in a studio apartment if you don’t have to. You don’t need to live in a trailer park if you don’t have to. There’s something to be said about a good safe neighborhood with good schools and a good community feel where it’s safe to walk on the sidewalks at night and spend time together as a family. The other flip side to this hyper-focus on budgeting and saving and as most people probably do, you probably have met people in the past who are hyper-focused on saving a nickel. They drive 30 miles to save a nickel on gas. The rational person would be like, “What did you do? Why did you do that?”

Your environment has more to do with your experience of life than you think. Share on X

The flip side there is you can take it to the extreme, where generally, are there some good core principles there? The flip side to that is the happiness piece, the safety piece, the security, the peace of mind. Especially when you consider how much time you spend at home with your family and the experiences all of us want to have with our families. Your house is the key component of that. You can do all that without obsessing over the neighbor’s car and making sure that you put in the pickleball court that’s slightly bigger than your neighbors.

These are all good points. I’m going to continue on with this perspective, hitting on some different things. I understand this person’s point of view and she makes valid economical points. At the same time, if you look at what life is about according to me and it’s different for everybody. I’ve had lots of clients. There’s a period of time within a year that they had divorces, eight or nine people all got divorced and they were around the same age as me. One, in particular, hit home to me because he had made the statement, “All the work I’ve done, everything I’ve done has all been for my family and now they’re gone.” He built tremendous wealth. He worked all the time. I look at that and his intention was genuine. His actions didn’t necessarily correspond to that. You look at a home and where you live. It’s like, “That’s what gives life meaning is the memories and things you can do with your family.” I’d also say the friendships that you have.

TWS FF 7 | Financial Certainty

Financial Certainty: Your environment has a lot to do with the ideas that are in your mind, the expectations you have of yourself, and the questions you ask others.

 

If you look at living in an affluent neighborhood, it’s affluent for a reason. They may drive BMWs or Mercedes-Benz, but the conversations that I’ve had with people in my neighborhood, I would not have had in another neighborhood. I look at my neighbor next door. I’ve had some fascinating conversations with him. He runs a microfinance bank and he consults with countries. He does a lot of work in Myanmar, Asia and Africa. It’s fascinating to have these conversations with him. He’s a computer programmer by trade. Those are the conversations. Those are the things that you can learn and be inspired by people. I have a neighbor that lives across the street and he’s been a successful attorney. What he knows and the books that he’s read. I have incredible conversations with him and we’ve made other friendships as well. I look at what’s the price of those relationships? What’s the price of those friendships? What ideas have they given that would not have come by living in a neighborhood that was 0.001% of your income? I looked at that and there are many intangibles associated with it.

Getting to this person’s point, how can you have both? How can you be responsible? How can you have the experience of life right now, not waiting 30 years or 20 years down the road to retirement where you are able to have the permission slip to experience life? This comes down to your financial education. It’s understanding a financial statement, money in, money out. If you can’t afford the neighborhood, it isn’t, “We have to live in another neighborhood.” It’s asking the question, “How can I live in that neighborhood? How can I live in that home?” That starts to engage a part of your brain where you start to look for opportunities. You may not be able to live there at this point or this point, but at some point, you may be able to live there. It’s the pursuit of that because you figured out ways to make more money. I look at the home that we live in.

We’ve lived in the same neighborhood for many years. This is the third home in the neighborhood, but I lived on the outskirts for a number of years. We almost moved a few times, especially during the financial crisis but it’s because this neighborhood is somewhat affluent neighborhood and it’s because I had established relationships there. I had friendships there and I wanted to also have a nice house for my family and also a happy wife because happy wife equals happy life. It was one of those things where I could have taken the money that went into a house and invested it. I would have had more money, have more cashflow, at the same time, I wouldn’t have had the experiences with my family.

You look at what that does to your soul, what that does to your drive. It can affect many different things. That’s the conversation that’s not typically had with these types of articles. They give you this, “Step one is to make sure that your mortgage payment is less than 20% of your earned income,” which are always technical steps and there’s merit to some of those. It’s disempowering because it almost assumes that you’re at the income level you’re going to be for the rest of your life and you better deal with it. If you want to retire one day, you better scrimp and save and not enjoy life until you’re 65. I don’t think that’s the right mentality. They may not say that’s what they mean. That’s the feeling you get.

You're one idea away from a totally different life. Share on X

That’s where the motivation comes from where in order to build wealth, you don’t figure out how to earn more and be more valuable, but you scrimp and save based on the money you are earning. That’s the only money you’re going to earn. That money there is going to somehow compound and grow and you have enough money to live for the rest of your life at 65. It’s a narrative that is disempowering. Looking at our perspective, it doesn’t mean that you need to go out and buy a beautiful home and BMWs and Mercedes, but you need to start asking different questions. There’s merit to her perspective. There’s also merit to the other perspective. Hopefully, you’re seeing that. You sit on the edge. It’s up to you to determine what’s right for you at this point.

I can resonate with a lot of what you said about the neighborhood that you live in. For us, we moved a few years ago. It wasn’t to try and get into some fancy neighborhood where we wanted to be surrounded by a bunch of gazillionaires or anything like that. For us, it was family. We live within about a mile or so of my wife’s two brothers. The result of that is we live in a neighborhood that we love, that we’re comfortable with, that’s a good neighborhood. The interaction with our kids among their cousins and holidays and things like that, it’s a completely different dynamic.

The thing that’s interesting is for me, I didn’t grow up like that. It’s one of those things where I would have been stuck in that old mentality. I would have imposed this artificial ceiling on myself that, “We can’t do that. We got to take where we are right now, assume that that’s our maximum and operate from that level and below. We can’t do that.” My wife helped me stretch a little bit and see opportunity, meaning and value. Now that we’re there, my kids are having a completely different experience as kids from what I had. The family is so much more critical, so much more part of their everyday lives than it was for me. I wouldn’t trade that for anything. It’s huge.

Your environment has more to do with your experience of life than you think. It’s the environment, whether it’s where you live, the culture of your office and the social networks that you’re in. Those are environments and that environment can make life miserable or it can totally empower you. It can also stretch you. I’m going to give you one example. This was a long time ago, but after my sophomore year of college, I went to a hockey camp in Minnesota. It was sponsored by the Anaheim Ducks. It was a humbling experience because I was in an environment of these Triple-A players. There are a couple of pros there, it was a camp where it was training but also spotlight. I remember getting out onto the ice the first time and the speed that they were warming up. For me, it’s the speed of a game where it was all out. What it did, it raised my level of play because I was in an environment that stretched me. I believe that anybody can be stretched. Anybody can make more of a difference tomorrow than they did now.

A lot of it depends on the environment that you’re in. Some of it depends on your internal drive and what you want for life, your vision, your mission. Your environment has a lot to do with the ideas that are in your mind, the expectations you have of yourself, the questions you ask yourself and the questions you ask others. You’re one idea away from a totally different life. You’re one decision away from a totally different life. Your environment influences a lot of that. That’s why I try to go to events. I try to participate in mastermind groups. I try to be around individuals who are inspiring, who are pushing the limits, that doesn’t settle for the status quo. That inspires me, it helps me stretch. If I didn’t have that, it would be more difficult for me to do that. What do you think of part two?

We dissected it pretty well. There’s always a second side or even a third.

Life needs to be valued and celebrated. Share on X

It’s one of those things where I find it disheartening sometimes that people sacrifice the enjoyment of life right now for what I consider a mirage of the good life in the future. Sacrificing now, I don’t think you’re suddenly going to have an amazing life when you retire or you achieve success. Life needs to be valued and celebrated.

I think so much of those limitations are mental. I can remember as a kid growing up where I had some friends who were better off than we were financially. They came from amazing families. I got to see from the inside. I had friends whose families were awesome and who included me in a lot of what they did, vacations and stuff like that. I got to be able to see it from the inside. My parents were that limiting frame of mind. They would refer to my friend’s families. It was with some jealousy and with, “We could never afford to do that. It’s nice that they can do those types of things, but we can’t do any of those things.”

I was living in an environment where I was hearing all these limitations, but I was spending a significant amount of time within these other environments where I was seeing everything that was possible. It’s not like they were burning $100 bills for the fun of it because they had so much money. It wasn’t anything like that. They prioritized what was important to them and they lived within that framework. Early on in my teenage years, I consciously made the decision what I wanted. I wanted out of where I was, that mindset, those limitations. I wanted to gravitate toward what my friends’ families had. The number one reason why I went on to become an attorney was that my best friend’s dad was an attorney. I saw the family dynamic. I saw the lifestyle. I saw what they did together as a family and what I didn’t do. I bee-lined it straight for that.

The idea was nurtured over the course of time, but it may have come in one experience. Those ideas can come frequently if you’re in the right environment. That happened to be the circumstance at the time for you. You can intentionally be in certain environments that can inspire you, stretch you and push you beyond what you consider your limitations. Hopefully, this has been a valuable episode for you guys. It’s setting the stage for some future ones that we’re going to do when it comes to investment and also some other financial strategies. Thanks for joining us. Make sure you go and listen to our past episodes as well as our primary episodes. We’ve had some awesome ones, G. Edward Griffin, Lawrence Reed, it was fun interviewing those guys. The topic’s capitalism so learn about capitalism. We’ll see you on the next episode. Thanks.

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About Will Street

TWS FF 7 | Financial Certainty

Will earned his Bachelor of Arts degree from Brigham Young University in 2005. After graduating from BYU, Will attended the University of Iowa College of Law and received his Juris Doctor in May of 2008. Will began practicing law with the law firm of VanCott, Bagley, Cornwall & McCarthy the oldest and one of the most well-respected law firms in the State of Utah. Will’s practice focused primarily on consumer finance-related litigation, consumer finance transactions, sale and purchase agreements, NDA’s, RFP’s, teaming agreements, security agreements, creditor’s rights in bankruptcy, and estate planning. Working directly with clients to analyze a problem, develop a solution, and working to ensure a successful resolution are what Will enjoyed most about being an attorney. Will comes to Paradigm after nearly six years in the private practice of law.

After his exposure to the Infinite Banking concept and seeing that his legal training would be directly relevant to his role at Paradigm, Will made the decision to leave his practice. Paradigm allows Will to continue to do what he enjoys most – develop client relationships, dissect problems, create solutions and work collaboratively with the client towards a successful resolution. Originally from the Tri-Cities area of Eastern Washington, Will currently resides in Salt Lake City with his wife, Sunny, and their three children.

 

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The Hierarchy Of Wealth Unpacked

TWS FF 1 | Hierarchy Of Wealth

 

This is a replay of the presentation Patrick gave at 2018 Cash Flow Wealth Summit about the hierarchy of wealth. When you look at the hierarchy of wealth, there is always a starting place which is the foundation. There is a process that you go through step by step. Patrick ranks these different levels or categorizations of wealth based on the degree of control as well as risk. Patrick created The Hierarchy of Wealth to help him as well as the clients that he works within the personal advising space to prioritize investments, financial decisions, and opportunities. Learn this simple model so that you can position certain assets in different places as well as their priority and sequence.

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The Hierarchy Of Wealth Unpacked

Financial Friday

It is an honor to be able to talk about financial strategy with you in the 2019 Financial Fridays season. This is going to be the first episode. Instead of me going into a diatribe of my financial philosophy, I’m going to replay the presentation I gave at the 2018 Cash Flow Wealth Summit. Some of you are familiar with it and some of you may not be familiar with it but for more information, you can go to CashFlowWealthSummit.com. We also have a podcast, the Cash Flow Wealth Show, but I’m going to just introduce the topic that I spoke of in the Cash Flow Summit relating to my financial philosophy. For those of you who have listened to The Wealth Standard for a long time, you probably came to an idea of what my philosophy is in general. When it comes to my financial philosophy, I believe it’s very similar if not the same.

TWS FF 1 | Hierarchy Of Wealth

Heads I Win, Tails You Lose: A Financial Strategy to Reignite the American Dream

The presentation is one way in which I like to explain it. I thought this out quite a bit for the book that I came out with, Heads I Win, Tails You Lose: A Financial Strategy to Reignite the American Dream, and it’s what’s called the hierarchy of wealth. The inspiration behind it was the nature of an investment and how investment is evaluated by an individual. I don’t think it’s evaluated in the exact same way. I look at the Maslow’s Hierarchy of Needs as well as the framework in which I built the hierarchy of wealth. Maslow has a hierarchy or a process by which humans meet their needs starting with physiological ending with self-actualization. There’s a number of them in between, but there is a process where you go step-by-step. You don’t necessarily skip steps. I look at the hierarchy of wealth and I believe that there is a starting place which is the foundation.

I ranked these different levels of wealth or categorizations of wealth based on the degree of control as well as risk. There’s a different way of looking at something depending on the person looking at it and that’s where the control on risks come into play. Looking at the hierarchy of wealth, it starts with a foundation of tier one. That tier one has certain characteristics of wealth and a certain percentage of your overall financial strategies that should be in that foundation. Then there’s tier two where you progress to which has a good degree of control and perhaps slightly more risk associated with it. Tier three, which has less control and more risks. Finally, tier four which has very little control, if any control, and very high risk. Looking at the financial strategies, the typical financial plan, it’s an inverted pyramid. People start with the riskiest whether it’s mutual funds or stock market-based investing where they don’t have much control and also take on a tremendous amount of risk as it relates to the performance of their overall strategy. I believe that that is the opposite way to look at it.

You are going to learn quite a bit in this presentation but throughout the Financial Fridays, I’m going to be talking with who I consider experts. Some I know very well and some I don’t know very well. The nature of the questioning is around the financial strategy that is in their business. These are individuals who offer their services to investors and you’re going to see that I take two angles. The first angle is the actual service and product and what they do. What I believe why a business succeeds or fails is the other angle that I take, which is around their business operations. It’s an angle that most people don’t know how to take. It’s the most important because financial failures and investment failures come from the operations and not the product itself. A good example of that is a Wall Street model where they have an incredible business and operational system and a lackluster, poor product that has not performed. I look at why they’ve been so successful. It’s not because of the product and it’s very similar to the McDonald’s and the quality of their hamburger. They’re so successful because of their operations. It’s not because of the quality of their food.

If you look at alternative investments, I believe there are gems in the alternative space whether it’s a rental property or other alternative investments. However, there’s a tremendous risk and that risk may not always be the actual product itself and the offering of the investment. It’s the actual people behind it and their operational structure, their background, and their experience. That tells you a lot about what they will do when it comes to challenges in the economy or challenges with their business, which is an inevitability. I hope you enjoy this first segment of understanding the hierarchy of wealth so that you can figure out the ways in which you position where your wealth is, where your money is allocated, where you focus your attention and your time and what you decide as a pursuit of expertise when it comes to understanding certain investment categories. I hope you enjoy the rest of the season where we’re going to be talking on Fridays about financial strategy.

I wanted to acknowledge you for being here and the time you have been willing to invest in listening to what my expertise is. This is what I do outside of being the co-host of the Summit as well as the co-founder. It’s something I’ve dedicated my life to and it does mean a lot to me that you are investing time and you’re investing attention and I don’t take that lightly. Thank you for doing the things that I believe are necessary to accomplishing financial freedom and achieving your goals. Thank you for being here.

My topic is called the hierarchy of wealth. The hierarchy of wealth is something that I created to help me, as well as the clients that I work within the personal advising space, to prioritize investments, financial decisions and opportunities. Priorities are very important because there are so many choices. We’re adding to these choices and adding to the opportunities just based on what you’re learning at the Summit, but where do those opportunities fall in your specific strategy and your specific path to those end goals that you’re seeking? I believe that the hierarchy of wealth is a simple model so that you can position certain assets in different places as well as their priority and in sequence. This is something that I use personally and it’s helped me personally to stay focused. Before I get into the meat of the presentation, I wanted to introduce myself to those of you who may not know who I am.

Priorities are very important because there are so many choices. Share on X

I am the author of the book Heads I Win, Tails You Lose: A Financial Strategy to Reignite the American Dream. It’s something that took me a couple of years to write and it’s been well-received. It has a lot of my stories and my experiences over the years and also a lot of details in regard to the financial strategies that my firm specializes in. I’m also the host of The Wealth Standard Podcast, which has been out there for years. It started about 2007. Something I love doing is interview a lot of people and talk about things that are of interest to me. The topics range anything from financial strategy to financial products to economic issues and theories to investing and business. I do get into a lot of personal development topics as well. If you haven’t listened to the podcast, I would encourage you to do so. It means a lot to me to support me and it’s something I love doing and I’m passionate about. This is getting into my expertise and my firm. I was honored by Investopedia as one of the Top 100 Most Influential Financial Advisors. It comes down to the influence that we’ve had in the marketplace by putting out what our financial strategies are and how they are benefiting the lives of our clients. I do that through my firm, which is Paradigm Life.

In Paradigm Life, I am the President and CEO. I also still do some personal advising, but we specialize in certain financial strategies that help people achieve financial independence. In addition to that, I’m active on social media. I’m relatively active on social media and I would love to connect with you out there. I share a lot of information and other resources that you may find valuable. Let’s get into the hierarchy of wealth. The hierarchy is something that didn’t necessarily just spawn one morning. It’s a conglomeration of the experiences that I’ve had with individuals and their unique financial situations. We do business with people all over the country and Canada and even outside of the United States. I have had the tremendous privilege to see where people are in their finances, what they’re trying to do, what are some of their challenges, what are some of the things that keep them up at night.

Maslow’s Hierarchy Of Needs

I’ve been able to position certain strategies to help them. In addition to that, I’ve experienced all of the investment opportunities, ideas, and innovations that are out there. It gets confusing sometimes and I get excited about certain things and become unfocused on others, so the hierarchy of wealth is something that helps me. It’s a simple model where you can position and prioritize your wealth building by essentially adding a label to the different opportunities that you have. The model and the pyramid and the word hierarchy was originated from Abraham Maslow and I was participating in a business event and the training was around the Maslow’s Hierarchy of Needs. As I was learning about that psychological model that outlines our instinctive behaviors to pursue the certain thing that’s called human needs, I made a connection between that and finance. What I’ll do first is just explain what the Hierarchy of Needs is for those of you who are unfamiliar with it. Abraham Maslow was a very famous psychologist and this is a very famous model that has been used in a number of publications and a number of contexts. The model essentially illustrates the sequence of needs that we have as human beings and also the order in which we seek those needs.

The first is the foundational level of the pyramid, which is physiological. The physiological is food, shelter and clothing. Ultimately, we seek those instinctively before we seek anything else. Once we have established food, shelter and clothing, we seek to establish safety. That could be the safety of our community, our neighborhood, the country that we live in, the state that we live in. It’s seeking a safe environment. We naturally seek that once we have established our physiological needs. As you’ve established physiological and safety, then once those two are established, the next need that we seek are relationships. Those relationships could be friendships, family or community but also our intimate relationship with a partner. That is something that comes after our basic foundational physiological needs are met and our safety needs are met. We pursue those relationships. Once those three sets of needs are established, the next thing we seek is self-esteem. Our identity, our meaning in the world and our self-concept. There are a number of ways to explain it, but we seek to separate ourselves from others. We seek to magnify who we are and, in our uniqueness, compare to others.

TWS FF 1 | Hierarchy Of Wealth

Hierarchy Of Wealth: Financial education and having a financial statement are foundational elements upon which rest all the other investments that you have as well as financial decisions.

 

The Hierarchy Of Wealth

Once you’ve established all of these others, physiological, safety, relationships, self-esteem, you pursue what Maslow called self-actualization. Self-actualization is pursuing something outside of you. It’s a common altruistic idea where you’re seeking not for personal gain but you’re seeking to provide ultimate value for people. What does this have to do with anything? For me, it is a very famous model that makes sense. I believe as human beings, we like models to create a context for us which we organize, help us understand, give us direction or simplify. What I did is I connect the dots between the Hierarchy of Needs and how to position investments and financial decisions and that’s where we created the hierarchy of wealth. This correlation is important for you to understand and I’ll try to make it as simple as possible. The first arrow going down is control and influence. I’d also say it corresponds to the nature of certainty. If you go to the red side, it is uncertainty and then risks, the probability of loss. The idea is on tier one, tier two, tier there and tier four. These are different types of investment decisions and investments themselves. Financial decision could be considered here.

The bottom tier is where you have the highest degree of certainty and it’s because of an element that you possess or control and influence. The higher up you go, the more risk you take on because of the uncertainty. It’s the categorization of assets. Tier one is your financial foundation. The easy way to explain that is your reserves, your sleep well at night account, the money that’s set aside when things don’t go the way in which you had planned. I would say financial education is a big part of tier one. Insurance, insuring against those events that you may not be able to adequately prepare for. Organization skills, your business and how your business is set up and your overall financial strategy. Having a financial statement is also part of tier one. These are these foundational elements upon which rest all the other investments that you have as well as financial decisions.

Tier two is investments where you have more control and influence. In tier two, you can identify yourself as an asset or something that produces cashflow. I believe we are our number one asset because there is the greatest rate of return based on the money that we put into ourselves whether it’s a financial education or professional education or just maximizing our ability to create value. I’d also say that there are some other investments that would fit in here that have collateral that produces cashflow where you have control and influence. I’m trying to get the general concepts across. Tier three are investments that you have less control over. It’s money that you will give to another person. When you do give money to another person, you have a level of education where you can ask the right questions and you understand what the money is doing. There is cashflow associated with that investment. That investment is where you’re able to ask the right questions, do the right due diligence, understand the mechanics of what is going on and potentially also have collateral associated with it. It’s an actual tangible asset of the underlying investment and the money that you’re putting in.

Tier three is not where you have the ultimate control and influence, but it’s where there are investments that you understand, and you hand your money over to somebody else to make a return. Tier four are assets that you have the least control and influence over and it’s where the highest risks exist. The education that you possess is not adequate to understand the underlying investment. Tier four is where most people have their money. If you were to flip the pyramid around, the typical financial mindset and typical financial plan are to start with your mutual funds and your 401(k) assets that are in something where you just hand your money over to a money manager or an investment bank. You trust that they’re competent enough to make a return for you and give you the end result that you’re looking for way down the road. I don’t think that’s realistic. I think that’s irresponsible. If you look at establishing foundation and building on that foundation, that is how I look at wealth-building. That’s how I have looked at success based on the numerous experiences that I’ve had with individuals and their personal finances.

It's important to establish your foundation first which creates an abundant mindset that allows you to make better decisions. Share on X

The Hierarchy Of Wealth Unpacked

It is almost the complete opposite of how we as a society are taught to manage our money and what we’re supposed to do with our money and how to invest. That’s the basics of the hierarchy. I’m going to dive a little bit deeper into the story of how this was created. There was an event back in 2013 that touched me deeply and it helped me start to put some of these elements together. It was an investment conference where I was speaking and a number of Rich Dad’s advisors were speaking. Robert Kiyosaki is the author of Rich Dad Poor Dad. He spoke on our Summit and his wife has also spoken a few times, Kim Kiyosaki. The Rich Dad’s advisors are specialists in a particular field that Robert Kiyosaki has chosen to have as his personal advisors as well as those who have written books underneath his brand. I get Andy Tanner and Tom Wheelwright, the other Cofounders of the Summit. Andy Tanner is one of the co-hosts. they are Rich Dad’s advisors in particular areas and very intelligent and very giving people.

I’ve learned a tremendous amount from all of them but this particular time in 2013 was very simple but I had not connected the dots. This is what I was taught by Ken McElroy, Josh and Lisa Lannon. It came down to a continuum or an order of focus to create the most amount of wealth. It started with producing money as a business. It’s where your business is going to produce the most amount of wealth and cashflow. I would also add to this, it’s not just your business. If you don’t have a business, it doesn’t mean that it’s not going to produce cashflow. It’s the business of you. It’s your ability to educate yourself, figure out ways to be more valuable to others and in return, receive compensation for that value. The idea is to produce as much of this cashflow as possible. Once you’re producing that cashflow, it’s setting aside a certain percentage outside of your lifestyle to capitalize on investment.

If you haven’t read the book Rich Dad Poor Dad, the definition of an asset is something that puts money in your pocket. An asset according to that definition is also producing cashflow. The idea is to build your cashflow to the point where it’s passive. There’s not much time or effort on your part which allows you the mental wherewithal to produce more money as a business or as an individual. Here is where there are infinite possibilities associated with you learning something and being a value to other people. The financial decisions I make and the investments that I position is to be an infrastructure for me to figure out a way to be the most valuable to others. You taking on this mindset, you first have to consider yourself your most valuable asset because you are. Once you have established that belief or that idea, now it’s figuring out ways to educate your assets so that you are more valuable to other people. It’s a model or a continuum that’s simple but it connected so many dots for me.

It doesn’t matter how big your business is or no business. If you’re an established business owner or you’re just out of college in your entry-level job, it doesn’t matter. When you identify yourself as an asset, you figure out ways to maximize it. It requires education but also requires leverage. It requires insights by others, coaching, being in the right environments and these right social groups. There are so many different ways in which you can figure out how to take who you are and be a value to somebody else and have a financial remuneration for that exchange. There’s no barrier to entry to understand yourself as an asset. The equation that you do want to understand is here you are and if you improve your education and education I would say, the definition is to improve your capacity to be valuable to somebody else. Increasing education increases your value and an increase in value gives you more money. There are infinite possibilities there. There’s something you can always work on. As you establish passive cashflow, that enables more of this. Hopefully, I’ve established that point.

TWS FF 1 | Hierarchy Of Wealth

Hierarchy Of Wealth: Start to look for opportunities to increase your cashflow to make more money.

 

I’m going to expand off of that continuum. You have your specific business or the business of you and you produce value, you get money in return and then you make an investment. This is where it comes down to the hierarchy of wealth where you are able to categorize the priority of what you established first, second, third, and fourth. I’m going to break down some of the assets and give you some examples. First, as you are producing cashflow and that you are investing that cashflow, tier one is what gets filled up first. Tier one is assets but they’re also financial decisions. Some of these decisions may not be an investment that is a stereotypical investment or something that puts money in your pocket. It might be an organization. It might be a financial team. Whatever dollar amount allows you to sleep well at night and not have to worry about losing the primary income and having six or twelve months to figure it out, that is some of the most valuable money ever. Getting rid of bad debt, if that’s the situation that you’re in, is a good decision in tier one. Your financial team is important to establish. Asset protection falls there as well as your business structure.

There are numbers of other things that relate to the specific situation of the individual, but this is your foundation. This is a foundation that may not produce any return, but it is a foundation that will ensure that wherever tier two, tier three or tier four investment goes, you are protected. Whereas I see most people when one of these goes wrong, it crashes the entire house of cards. It’s important to establish your foundation first which creates an abundant mindset that allows you to make better decisions to focus more on where your strengths are and how you can use those strengths to produce massive value for others. Establishing that foundation is paramount. This is where my team and I and our expertise falls. We feel and have used it over the test of time in thousands of clients that we’ve worked with, but there is one fundamental tool that should be in your tier one arsenal. It is a specific type of life insurance policy and it is a life insurance policy that isn’t your stereotypical life insurance. It’s a life insurance policy that when you design it, it acts as a growth vehicle that has a liquid cash value as well as a number of other benefits.

As we’re talking about the foundational asset, as you are producing cashflow and you’re filling up your bucket as far as reserves are concerned, we encourage that you systematically save and put aside a certain percentage of your income. That percentage first builds whatever your reserve requirement is in six to twelve months, but then beyond that, is where you start to get into other investments. Even in the six to twelve months of reserves, the account that we encourage which we have defined as the wealth maximization account, which is this specific type of life insurance policy designed in a specific way, meets the criteria of this tier one asset. It’s something that you have control and influence over but it’s also something that you can’t lose. There is a contractual guarantee backed by some of the strongest institutions in the world, but you have a higher amount of interest that’s earned on your reserves. You have a level of protection as well, but you also have the ability to take a loan against the growing value in this account. That is important when it comes to making investments in tier two, tier three and tier four.

The wealth maximization account is something that we designed based on what your situation is. We designed it first to establish the reserves that help you sleep better at night. Once that is established, the money beyond that will become your opportunity fund. The opportunity fund or opportunity amount is what you identify as the amount of money to invest and that investment is going to be in tier two. I’m going to get into something that may seem somewhat complex. The idea of establishing your reserves is paramount than getting into money above and beyond that reserve amount as your opportunity fund. At that point, as you start to acquire tier two investments, it also produces cashflow. As you use the loan provision that is afforded to you by the insurance company, the cashflow from that asset is paying back the loan that was taken to capitalize it. It will keep you disciplined to continually save and be disciplined to payback and then capitalize more investments. Every time you make a loan payment, that money is available to make another investment.

Ask questions based on your expertise or education around an investment instead of blindly giving money to people. Share on X

As you establish your reserve amount, the six to twelve months of your comfortable living expenses and you have money that is available that’s above and beyond that which we are calling the opportunity fund, it’s when you start to look for opportunities to increase your cashflow to make more money. This might be first as far as tier two is concerned. These could be personal development type of investments and that’s basically investing in yourself. It could be a certification for the career that you’re in or the profession that you’re in. It could be learning leadership and management skills. It could be to invest in a paid mastermind group. Kyle Wilson, that’s one of his primary businesses is establishing these high-level paid mastermind groups in different parts of the country. These are groups of people that get together. They’re in different professions, different ages, different goals, and different priorities, but they get together and exchange ideas, brainstorm and mastermind so that you can get insight. Have your own board of directors in a sense to gain insight into what your biggest and best opportunities are. If you’re interested in that, pay attention to Kyle.

These are investments that you control and have influence over. It may not be a personal development course. Maybe it is purchasing a property, a property that you hold title to, a property that you control, or a property that you have influence over. If you are a business owner, it also could be to capitalize on hiring somebody or a marketing strategy or ways in which you can improve the cashflow of the business. Tier two assets are vast, but the idea is that as you acquire those, you acquire them by using your opportunity fund which is a loan provided by the insurance company. Once you capitalize it, the discipline over whether that investment is working or not is the cashflow that it’s producing. The loan payback acts as a disciplined way to ensure that it was a worthwhile investment.

I’ve personally analyzed hundreds of different types of investments ranging from real estate investments to commodity type of investments to training investments. I would never say that I’ve heard them all, but I’ve heard about lots of different types of investments. This is where I would say it’s important to realize that it’s all subjective. These aren’t just absolute rules because you may know a certain field better than another field. That may for you be a tier three or tier two investment. For me, it might be tier four investment because I don’t have that background or education. As you’re positioning where your investment opportunities are, a great thing to ask yourself is how much you know about the mechanics of an investment? How much control do you have? How much influence do you have? What’s the liquidity?

If you don’t some of those variables, then it kicks into tier three and you are now asking questions based on your expertise or education around that investment instead of blindly giving money to people. That’s what I would consider a tier four investment. The idea here is to have a way in which you categorize your investments. From a percentage of wealth standpoint, I have broken them down into different ranges as far as how much of your total wealth should be in tier one, tier two, tier three, and tier four. Here are the ranges that I’ve found to be the most successful. Your foundation which is your tier one investment is 30% to 50% of your wealth. Tier two is 30% to 40% of your wealth. Tier three is 10% to 30% and then tier four, I put 0% to 5%. I believe that a focus on just the first three can get you to the point where you have achieved financial freedom in a short period of time, but it’s establishing a foundation and going in the right sequence.

TWS FF 1 | Hierarchy Of Wealth

Hierarchy Of Wealth: The hierarchy of wealth is a great way to set the foundation of a context that could give you the direction of what to focus on first.

 

As this whole ecosystem is working for you. The idea is to focus the financial returns from the investment as a means and as a medium to discover what is truly the best thing that you can do with your time to create value for other people? I would consider that as an infinite type of investment that you should always be focused on. What I wanted to do is to teach you about this in the context of a story. It’s a client that I believe represents the story very well. It’s also a client that is stereotypical of those that we work with and how the concept of the hierarchy of wealth has helped them to be more organized, have more certainty and have more direction associated with their finance.

Paradigm Life

I’d want you to meet John and how we do business at Paradigm Life which is virtually where we don’t meet with people face-to-face in person. We do meet with some, but 95% plus are those that we connect with and do business with virtually. We meet through a video conference and John was one of these relationships. I met John years ago and he was one of those driven guys that were excited about life. Similar to my four-year-old who has an on switch and he has an off switch. He’s on switch is all out all the time and that was like John. He was excited. He was motivated, and he was driven. He was excited about life. At the time, he was in a high paying government job which was difficult for him to leave especially with the carat of a pension that he had now. It was in California but regardless he had put a lot of time into this profession and he wanted to stick it out for a certain period of time where he became invested in his pension.

He had money in the stock market. He had a 401(k) on his pension but he discovered this entrepreneurial drive inside of himself and started to pursue those types of investments. He had a few real estate investments, a couple of single-family homes. He also had a handful of individual mobile homes. His master plan was to leave this particular municipality once he achieved his tenure or his vesting which is twenty years. His dream was to open a hospice franchise for a variety of reasons. I knew a lot of this before I even met John because of the team that I work in and how they do some discovery to see if our services are the right fit for people. I was excited to meet him because of how driven he was and the interactions that took place before I was able to meet with him.

How I usually start my meetings is by asking a very simple question which is, what keeps them up at night? I asked John this question and that’s when he unloaded. He described this drive within him and this frustration that his job was creating to pursue what he wanted to do. He talked about his investment experience and also talked about some of the investment losses that he had. He also went into his time is spread thin where he’s not able to focus because he’s going to conferences and he’s going to events. He had a financial coaching thing he was doing. He had his job and he had his family as well. He started to drop balls and he made some bad decisions with some investments. It started to run up credit cards. He was using credit cards to purchase the mobile homes and the thought that he would be able to get enough cashflow to pay them off before the 0% phase was done which didn’t happen.

How I usually start my meetings is by asking a very simple question which is, what keeps them up at night? Share on X

He had his finances all over the place and everything was disorganized. It was keeping him up at night and the level of uncertainty that he had was at an all-time high. As I took his story and then took some of the concerns and challenges that he was facing, I sympathize with him. I had seen those similar financial situations with other people that I’ve met with. This is where I started to explain to him how the hierarchy of wealth worked. It was a model that was so simple that we started to talk about all the different things that he was involved with and it started to place him in those different tiers. We found out that most of what he was doing was in tier three and tier four and it was putting his entire life in jeopardy. The first milestone was to figure out a way with some of his budgeting and cashflow to set aside 10% of what he was currently making into a wealth maximization account. He committed to me to not make any other investments or made investments decisions until he had established his sleep well at night account. We wanted to achieve twelve months of his expenses because it wasn’t just him sleeping well at night, but it was his spouse who was also not sleeping very well at night.

The first order of business was to set aside a systematic way in which John could save into a wealth maximization account. We started to establish reserves at the same time we were paying off some of his high-interest credit card debt which required selling a couple of his properties. One was sold at a loss, but we felt that this was something that made sense because of the high interest that he was paying. Also, the fact that two of the properties were not performing at what he was anticipating. Those are the first couple of priorities. The fourth priority and milestone was to start to establish in his opportunity fund the down payment for that first franchise, but something else occurred during this whole process. It was the fact that with this franchise that he wanted to open up. There was a team involved, a team of experienced nurses and licensed people which he was not. I can’t remember what the minimum number of people was, but it was just under a dozen and John hadn’t had much leadership or management experience. This was one of those overlooked things. Because he didn’t have that background or experience, he was now going to have to rely on those skills which he didn’t have to operate a franchise.

We came to the conclusion that this was something that he should not invest in until that experience or that understanding of leadership and management was in place. The plan was his idea. He found some opportunities within the municipality to do a lateral move which would have put in jeopardy anything that he had established as far as benefits were concerned. It was being over first and the second-year employees to the municipality. It wasn’t a two-year plan. It ended up being a little bit longer than three years, but he established an idea of how to run a team. He started to study management. He started to study leadership. He felt he was adequate at being able to provide a good office environment, a good team and business environment to make this franchise work. That mindset was paramount, and everything changed. His priorities changed, and some other opportunities presented themselves. The idea behind the hierarchy of wealth that it helped to create context and focus of what he had and how that related to what his goals and the things that he wanted to achieve with his life were.

It was an amazing experience for me and for him as well. As I look at John’s situation, your situation and the countless others that I’ve been fortunate to meet with, this is a model that is subjective. It is based on your situation which could be having a lot of money but still not being able to sleep well at night to having no money. The hierarchy of wealth is a great way to set the foundation of a context that could give you the direction of what to focus on first. This is something that I’d love to talk about. I love finance and I love seeing people succeed. I’ve seen a lot of success over the course of my career and it’s something that is inspiring to me personally, but I also see a lot of failures. That failure is preventable and at the same time, there are only so many things that we know. I’ve failed a lot at investing and business as well in the past and I’ve discovered ways in which I can take those lessons and use them to empower me and achieve better things for myself. From a financial perspective, I’m confident that this is a model that could benefit you and can help you. It could allow you to position your investments in a way that gives you a degree of certainty that is part of the mindset of financial freedom and it’s impossible to be financially free without it.

Thank you for being here. I hope that you found value in this. As far as learning more about this mindset, this philosophy, these strategies, the best direction to give you is through the audio and PDF that talks about the hierarchy of wealth as well as the wealth maximization account. There’s a whole study guide that’s online that has dozens of videos in there and you can access it even without the book. You can go to HeadsOrTailsIWin.com and you can register for the study guide and also subscribe to the podcast. This is where I’m always talking about these ideas and talking about the ways in which you can improve your life and finances. I would be honored if you subscribed. Thank you so much for spending this time and for investing in yourself. I wish you the best when it comes to your investing and on your road to financial freedom. I hope to hear from you soon or at least hear about your success. Thank you.

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Property As A Wealth Strategy with Paul Moore

TWS 7 | Property

Wealth isn’t simply a bank account balance or a dollar amount of monthly cashflow, rather, it’s a state of mind. John Locke, the philosopher whose words we used as the backbone of this season, argued that the law of nature obliged all human beings not to harm another in their inalienable pursuit of life, liberty and property. He lived at a different time period, the mid-1600s, yet the liberties he fought for would produce a similar mindset we are seeking when it comes to wealth. One of the keys to wealth is the principle of property. Paul Moore, managing director of Wellings Capital and host of the podcast How To Lose Money, talks about the importance of understanding knowledge, education, and experience, and how that relates to property.

Listen to the podcast here:

Property As A Wealth Strategy with Paul Moore

What is the key to wealth? Is there a magic bullet or a fast track? This year in the podcast, my focus has revolved around these questions. 2018 is almost over, as is season three where we are focusing on the principle of property, where are we? First, I chose the phrase, “Life, liberty and property,” because it’s a simple way to describe the foundational principles to achieve wealth. What I came to realize is that there is a natural human inclination to be wealthy. There always has been. There is an essential variable to consider when determining whether or not there is a key or a magic bullet. That variable is the definition of wealth. Ultimately, what I believe we are seeking is the combination of two mindsets, the state of mind that comes from being free and the feeling of certainty regarding your vision of the future.

Wealth isn’t simply a bank account balance or a dollar amount of monthly cashflow rather than a state of mind. Think about it. John Locke, the philosopher whose words we used as the backbone of this season, “No one ought to harm another in their inalienable pursuit of life, liberty and property,” lived in a time period, the mid-1600s, that’s impossible to fathom. Yet, the liberties he fought for would produce a similar mindset we are seeking when it comes to wealth. This mindset is available to all and is why I wrote the book and why I do this podcast. It’s so that you too can believe that it’s possible for you.

Season one, life. Do you consider yourself your most important asset and invest in ways to be more valuable to others? Season two, liberty. What are you pursuing? Independence and freedom or retirement? Season three, property. Does your wealth strategy, including your investments align with what you know or do you delegate that responsibility to someone else? My guest is the co-host of an insightfully charming podcast, How to Lose Money, which is one of the best ways to learn about business and financial strategy. Paul Moore is an experienced businessman, a real estate investor and the Managing Director of Wellings Capital. Let’s turn our brains on and get ready to learn.

TWS 7 | Property

The Perfect Investment: Create Enduring Wealth from the Historic Shift to Multifamily Housing

My guest is Paul Moore. Paul is the Managing Director of Wellings Capital. He’s also one of the hosts for the How to Lose Money Podcast. He is an acquaintance of mine and I can’t wait for this interview. Paul is also the author of The Perfect Investment. Paul, welcome to the show. Thanks for taking the time.

Patrick, it’s great to be here. Thanks.

I had a wonderful time in your podcast when I was invited to it. I had heard of it before, but the theme is amazing. It’s an incredible opportunity for you as a business person to learn from the failures of others through the theme of losing money. It’s pretty fascinating. I told the story on it that I’ve never told before and it was a great opportunity. I’d love to hear your background and how you got to the point you’re at right now with your real estate investment company as well as the podcast.

I wanted to be a parapsychologist in junior high. I’d seen the movie Ghostbusters at some point and it seemed like a good idea. I didn’t have any counsel. No one told me, “You’d probably be good at this or bad at that.” I found out there was no degree in that, especially not at the University of Utah or out in that area. I went and got a petroleum engineering degree, which sounded like fun drilling oil wells but I never used it. I went on and got an MBA. I went to Ford Motor Company for about five years. After that, I started my own company. We’re an HR outsourcing company, a staffing firm. About five years into it, it turned out that a lot of publicly traded companies were interested in gobbling up companies like ours.

When we sold our company after five years for almost $3 million, I thought, “We are smart.” I started investing and I thought, “I’m an investor now. I’m semi-retired at 34 and I’m an investor.” I found out that I wasn’t an investor at all and I wasn’t at all qualified to make the decisions I was making. I confused investing with gambling. I ended up losing a lot of the money I had made in that company, but I did get into real estate, which was a great move.

It’s much easier to avoid failure than it is to copy success. Share on X

Losing money is one of the best investments you can make. We approach life knowing certain things and we try to go to school. We try to gain an education by reading books or listening to podcasts, but there’s nothing that’s a better education than losing and feeling a level of pain. From a human standpoint, it’s an indicator that something needs to change. You experienced that firsthand as do most successful investors. What was the early lesson that you had that woke you up to the fact that you weren’t necessarily the investor you thought you were?

I started losing money. I invested $100,000 with a guy who had this amazing foreign options trading thing. He was showing us how we could make 3% a month on our money. He was doing them. At least my paperwork said I was getting 3% a month. It’s $3,000 a month and it looked great on paper. Then I went down to visit him in Charlotte and I had this funny feeling. Something he said didn’t add up with what I had heard about him. I had this gut. I went to consider investing another $100,000 and I left there with a distinct impression, “I should not invest more with this guy.” I wish I had followed my gut and withdrawn the $110,000 or whatever I had in there but instead I didn’t.

About two months later, the FBI caught up with him. He still won’t tell me and the other 2,000 investors where he hid the $18 million offshore. He’s even faced with 153 years in the federal penitentiary. He still hasn’t told anybody where he hid the money and I’m not sure why. That was one of the many examples of things I invested in where I confused investing and speculating or gambling. I think investing is when your principal is almost completely safe, and you’ve got a chance to make a return. Gambling or speculating is when your principal is not at all safe and you’ve got a chance to make a return. I confused the two and found myself about $2.5 million in debt for those reasons and other reasons ten years after I sold my company in 2007. It was a tough time.

How did you piece it all together? I introduced you to the theme of this season’s podcast where we are combining the first two seasons, which talk about the importance of understanding knowledge, education, experience and how that relates to property. That combination is what creates an element of value. Looking at investments or property, you experienced investments that didn’t create value, they did the opposite. You have seen successful investments now, I’m assuming. What are some of the differentiating factors between the investments that lost money and the investments that gain money? We’ve talked about gambling versus investing. What are some of those variables that determine whether it’s a successful investment?

There was this guy on a TV commercial from the ’70s. He was a little whiny guy. He was sitting across the desk from this guy with his huge chair and he said, “Son, we only hire people with experience.” The kid turns around the camera and said, “How do I get the experience?” The experience of losing money and the experience of doing a lot of these things gave me a lot of the wherewithal I needed to make money now and to make smarter investments. Lack of due diligence was a big part of it. Trusting one other person’s word who was investing or who was paid to tell me to invest with them was helpful. This is the experience thing and the reason I told that little story is I was always surprised.

We put together a lot of successful real estate deals through the 2000s and beyond. I was always surprised when people say, “No, I don’t want to invest in that. I don’t know anything about it.” I’d say to myself at least, “You’ve got tens of millions of dollars, but you don’t want to invest $200,000 in this wireless internet project?” Warren Buffett said, “I invest in things I understand. I don’t invest in general on the internet because I don’t know where it will be in ten or twenty years. The internet will never change the way people chew gum.” When I stopped investing in things like the wireless internet or throwing money down to a bottom of an oil well or things that had a risk and things I didn’t know the outcome of, I began to do much better. The bottom line is I stopped swinging for the fences and I started trying to hit singles and doubles and that’s when everything changed.

Tell us about Wellings Capital. What are some of the projects? Who’s on the team? How do you determine who’s on the team? Tell us the story behind how you put that company together, which has resulted in some successful investment.

TWS 7 | Property

Property: The experience of losing money and doing a lot of things gave me a lot of the wherewithal I needed to make money and to make smarter investments.

 

Wellings Capital has three principals: Wade Myers, Dr. Brian Robbins and myself. Wade and I had been talking since 2007. He’s a Harvard MBA. He’s got a property management firm that has 220,000 doors under management. It’s not multifamily. It’s doing condos, HOA, POA type of work. He bought quite impressive companies. He’s had some big failures and big successes. He told me he never had any experience in real estate. He didn’t understand it. When I showed him a draft copy of my book, he read about four chapters and skimmed the rest and two hours later he said, “I want it. I want to invest.” We invited him to join our team because he’s got an incredible 55 different M&As and startups, acquisitions, plus some failures. He has invested a lot of money in Hollywood films. A big hit was I Can Only Imagine. The big money guys were behind that. He’s done well over the years and made a lot more money than he has lost.

My other partner, Dr. Brian Robbins, has been a serial entrepreneur as well as a pain management physician. I had asked him to invest with me in a multifamily project I built from the ground up in North Dakota and he said, “It’s too risky.” A Hyatt hotel that my friend built that I helped him with, “It’s too risky,” wireless internet, “It’s too risky,” something else, oil and gas, “It’s too risky.” When he heard about multifamily and I showed him the demographics that I think are going to make multifamily a great investment for decades to come, he was fairly stunned. He said, “This is something I can get behind,” then he jumped in with both feet.

What year was that when he joined up?

That was in 2013.

What’s your take in the multifamily space now? I’ve observed, and I have a personal investment in several multifamily projects in various states. I look at what the market has done even in the last four years and how much money has come into it, how much syndication is being done to either do a ground up or acquire and remodel and value-add play. I see more and more as weeks go on. How are you looking at the multifamily space these days? What are some of the conclusions you’ve come to?

First of all, we’ve concluded at the title of my book. It’s The Perfect Investment because it does a great job balancing risk and return. The Sharpe ratio measures return divided by risk for a whole lot of different asset classes. Multifamily and self-storage are at the very top of the list. They’re performing about 460% better than the Dow Jones and the S&P 500 in the return divided by the risk because the beta, the up and down of multifamily is much more stable. It’s much more predictable. Freddie Mac and Fannie Mae, according to a report I read, haven’t had a single foreclosure in multifamily in three or four years. Where else can you get something like that? We’re talking about nationwide. That does speak to the great underwriting and the conservative underwriting that they do.

Multifamily has got a lot of big things going forward. Number one, in 1995, the government tampered with the housing market and they thought that anybody who could fog a mirror should be able to get a loan. Homeownership skyrocketed from its historical low 60s to 69.2%. In 2005, I had a friend who was making $40,000 or $50,000 a year who bought a $600,000 mansion as his second home. He had no business doing it, no way of paying the mortgage. It was before Airbnb. I don’t know what he was thinking. He lost that back to the bank in a matter of months. That was happening all over the US homeownership. When things plummeted from 69% to about 63% from 2005 to 2015 and every percent dropped meant a million new renters.

Fall in love with the numbers. Don't fall in love with the property. Try to be as objective as you can. Share on X

There were all kinds of other renters coming into the renter pool as well. Number one, Baby Boomers, the smallest group of renters are the fastest growing group. The statistics say that when a Baby Boomer starts renting, they’ll never purchase a home again on average. The second group is Millennials. That’s the largest demographic group in US history with about 80 million strong. In general, they don’t see the reason to be tied down to a 30-year contract on a seemingly overpriced home when they might have new friends, new opportunities, new jobs in another part of the city, the state or the country next year. They’re much more transient and they have much more debt as well. They’re on the position with the slightly more difficult qualifications than 2005 house standards to qualify for a mortgage. They’re not quite there. Even though Millennials are starting to get married, starting to move into homes, on average, they rent far more and for far longer than Baby Boomers historically. Third, we’ve got immigration. Immigration is still playing a very significant and increasing role in the US demographic picture. Immigrants rent more often and for longer than people born in the US. I think we can look out for many years and say that this is a great investment.

In my book, I called it the perfect investment because it seemed to balance. It was a property, which is a big thing. You own a hard asset. You get all the tax benefits. There are twelve significant tax benefits you get from owning real estate directly and you get this fairly stable, fairly predictable, single or double typically. Although a lot of multifamily syndicators have been hitting homeruns for a long time. I see that coming to a place where maybe they won’t happen anymore. I’m even wondering how people are affording and why are people even investing in multifamily right now because the perfect investment is no longer perfect if you can’t find a deal that makes sense.

That’s where I was going to go because what I talked about on your show was the product could make all the sense in the world. There could be the right cap rates, there could be the right market. It doesn’t mean the investment is going to be successful or the apartment complex is going to be successful. My first question is going to be around not necessarily the market or the metrics that you do due diligence on, but how do you know you’re working with the right person? Then the second thing is there were a lot of apartment investors back in 2007 and 2008. I know in the single-family market why people were leaving their homes.

Another tangent that’s interesting and this came from the chief economist at Fannie Mae where people during 2008, 2009 weren’t even in default about leaving their homes. Fannie Mae went into bankruptcy or was taken into receivership. Because of that, people thought that they had to leave their house. That’s another side issue. My underlying question is what constitutes a good investment, not necessarily from the return, cap and market standpoint, but the operator’s standpoint? Talk to us about how important that team is.

We think that the right property manager and the right market make up about two-thirds of the likelihood of success in buying a multifamily asset. It’s incredibly important to have a market that’s large enough to support multiple significant national or regional property managers. If you might have one that goes South, and we’ve had that happen, you want to have other options. That’s one thing, the property manager. Going back to more of the philosophical level, it’s incredibly important. In our design, we have a built-in gut check thing, like the guy who invested $100,000 within Charlotte years ago. It’s incredibly important to follow your gut. I don’t know about you. I know you’re married. If you’re like me, your wife might have better instincts in some ways than you. She may not know anything about business and my wife doesn’t, but she can somehow spot a phony or a fraud and say, “I don’t know why.” I go, “I want reasons.” She goes, “I just don’t think you should invest with them.” We need to learn to listen to our gut and sometimes it sounds like the voice of our wives.

TWS 7 | Property

Property: Our brain at a very deep level allows us to be able to see things in a deeper and a more sensible way than we do.

 

Have you done that with your wife, had her do gut checks with the people that you’re doing business with?

Yes. I ignored her many times. Those were some of the things I lost money on. The wireless internet company in North Dakota, several of us started that company. She was like, “I don’t think that’s going to work.” I said, “It’s got to work. Let me show you.” I thought we were going to make a huge profit in the third month and here we are seven years into it, shutting it down. There are other times I have listened and now I eagerly seek her out. Even if she doesn’t meet the people in person, I lay it all out for her and I try to get her feedback. Now that she knows I listen, she’s way more likely to try to take a deep breath, be reasonable and not let fear drive for what she had some in the past. That’s why I was able to discount her advice. I said, “That’s just fear. I’m not listening.” That was not a great thing. She didn’t go with me on that trip to Charlotte but she if she had, I know she would have seen through that guy.

I’ve had my wife be part of business discussions and retreats and off sites but as far as bringing on key people, I’ve never had her involved. That’s an incredible idea. It depends on your spouse and their knowledge of people in business investment and so forth. I would definitely agree that she’s one to understand body language and understand the tonality at a level that is almost instinctive.

There are 3,000 signals we send off between tone, eyebrows and body language and all this stuff. We don’t consciously know what those things are, but our brain at a very deep level can make 40 quadrillion calculations per second. Our brain at a very deep level is involved with some quantum physics that I don’t understand. It allows us, and especially our wives in general, to be able to see things in a deeper and a more sensible way than we do. I’ve found that over the years, I’ve often shut that part of me off because on paper it looked like such a good profit and the wireless internet was a perfect example. It was a lot of greed on my part and it was one of the worst investments I ever made of time and money.

The balance of human emotions. That’s a game we’ll always be playing. Maybe talk through some of the elements of your book because using the word perfect could be a slippery slope in a sense. Talk to us about how and why you chose that word to define the core theme of the contents of the book.

One of my favorite internet marketers is Perry Marshall. We had him on as a guest on our How to Lose Money show. He has a book called The Ultimate Guide to Google AdWords so I named my book The Definitive Guide to Multifamily Housing. I thought it was great but everybody I talked to about it seemed indifferent or yawned. I had a friend who goes, “Multifamily, after skimming your book, it’s like the perfect investment. You should call it that.” That’s too big of a claim.

Age, wisdom, and counsel all goes into the mix of knowing when to cut your losses and get out and when it's time to start another business. Share on X

I didn’t know much about self-storage at the time. I realized that I couldn’t think of any investment I’ve ever seen, and I was a couple of years into this that was a better investment with a better balance of risk and return. That’s why I had the audacity to name it that. It’s selling quite well. I just don’t know what to do with my next book because I might write a book on self-storage someday. A lot of people in BiggerPockets, which is the ultimate forum for real estate investors with a little over a million strong, a lot of people want to come in and they want a house hack. They want to be a single-family landlord. They want to build up a portfolio of 100 single-family homes and they don’t realize the incredible toll it takes emotionally and in every other way on you to do that.

I’ve seen one person after another who gets up to ten or twenty single-family rentals of whether they’re duplexes or mobile homes or whatever. They sell off the portfolio in frustration. They never make any money because there are so many hassles involved. My argument in the book is there’s a better way. There’s a better way than dealing with toilets, tenants and trash, and that is to invest with a great trustworthy syndicator. The book goes through all the different reasons. Multifamily is a great investment and then a lot of the demographics, a lot of the reasons Freddie Mac and Fannie Mae love it. Then how to find a great syndicator using that same test, that gut-level test. One of the great things toward the end is I talk about a couple of things. Number one, I talked about the various tax savings that commercial real estate provides, which are incredible. I talk about my big why which is my, “Why I’m doing this?” at the very end.

I look at the Trump tax cuts and a lot of the stuff that went through a lot. There are some big benefits to investors, especially in commercial.

A friend of mine showed me how you could take $20 million and turn it into $211 million and throw off $130 million in cashflow over twenty years. He said, “Where else can you get returns like this?” I was like, “That’s amazing.” He said, “If you play your cards right, this passive investor might pay virtually zero in taxes over those two decades.”

Your podcast is fascinating and some of the topics are fascinating. I’m going to definitely start listening because I had seen the best lessons in failure, especially when money is lost. As you have experienced, you’ve learned firsthand 100 ways that people are losing money. What are some of the primary lessons you’ve taken from that and applied to your businesses?

It’s great because it’s a weekly reminder of what not to do and that’s a key for this. I could tell you how we grew our company and sold it for $3 million in under five years in Detroit. That was great. That seemed smart and everything, but I couldn’t replicate that. If I heard that story, if you heard that story from me, it worked out well. The timing, the relationships, all these things, there’s no way to easily replicate that. The lessons I learned from that and the lessons I could teach from that, were pretty small. If I hear all these guests and if they hear me talking about how I lost $500,000 or how one guest lost $70 million, I can say, “I’m not going to do that.”

TWS 7 | Property

Property: Making a good investment comes down to not just investing because of an idea, but investing in the people that are actually supporting and running it.

 

Failure is much easier to avoid than success is to copy I think. People like Tony Robbins might say, “No. I can show you how to get successful.” I agree that’s a point as well. For me, it’s been easier to replicate not failing than it is succeeding. One lesson we’ve learned is lack of due diligence, jumping in quickly and falling in love with the property. A lot of our investors, a lot of our How to Lose Money guests are real estate investors. For some reason, a lot of them seem to lose a lot of money in 2007, 2008 and 2009. That’s when I was $2.5 million in debt. Thankfully, that was all tied to real estate, so I was debt-free thirteen months later right in the middle of the recession. Speculating versus investing has been another big lesson. Picking things for wrong reasons, like saying, “I like the Buffalo Bills. I want to invest in Buffalo.” Not that Buffalo is a bad market, I just picked that out of the air but you get the point. It’s easy to do things like that or it’s easy to justify things. It’s easy to fall in love with the property. Donald Trump when he was about 30 or 40, I heard an interview with him. The only thing I remember about it was he said, “Don’t fall in love. It’s so easy to fall in love with the property and then use every argument after that to justify why that’s a great purchase.” We all do this with cars. We do it with future spouses. We do it with investments, “It’s got a leaky basement, but the kids need a wading pool. Right, honey?” It’s maddening in all the way we justify what we want to do. My thing on that will be fall in love with the numbers. Don’t fall in love with the property. Try to be as objective as you can.

Another piece of advice would be to get great counsel. I know you spend a lot of money every year on coaching and masterminds and all that and I am starting to dive back into that as well. We’ve got a mentor. We paid $25,000 one time for this mentor and they’d been worth their weight in gold. That’s in the multifamily space and I recommend them to people all the time. We still use them four or five years later for questions. Another harder to quantify thing would be what you do with the lessons you’ve learned. I can argue both sides of this. I’ve heard both of them on the podcast. You’ve got somebody who says, “You just paid all your tuition in this horrible loss. Are you going to quit and start some new business?” Ours was, “Are you going to start out as a freshman in another business, a freshman in college again? Or are you going to dive back in and take all you’ve learned since you’ve paid the tuition and go deep and use that lesson to expand on and succeed?” That’s one argument.

The other argument on the other side of the coin is you’ve got to know when to cut your losses and get out. I’ve heard guests passionately tell that story of why you’ve lost enough and that with the wireless internet business. If we would have cut our losses four years ago and had just taken the $300,000 or $400,000 loss, then we would have been way better off than where we are now. That’s another argument but those don’t seem the same. Years, age, wisdom, counsel, all that goes into the mix and we’ve got to know when to do the one and when it’s time to do the other. Those were some of the main lessons we’ve learned from our How to Lose Money guests.

We’re in this information sharing world and oftentimes information has a candy wrapper on top of it. I thought it was refreshing to see the theme of your podcast. It was a pleasure to be on there because that’s when things get real and that’s where the true education is not by the shiny objects on the surface, but what went on to create them in the first place. There are so many points you’ve made throughout this interview that I would echo. In the end, financial tools, whether it’s real estate. Whether it’s a stock, a business, some startup or venture, it’s one of those things where the less you understand, the less involvement and value you can bring to the table the more risk you have.

As it pertains to real estate, it’s a fundamental need that we have and it’s always going to exist. It’s not necessarily just investing because of that idea, but it comes down to investing in the people that are supporting and running it. It is where I’ve seen the majority of issues. It’s not just your failure to learn from but one of the criteria I have is I won’t ever put money with people that I’ve earned who have not failed. It’s understanding what happened, what they learned from it and what they did in those moments of failure. Oftentimes it’s not even what they say but what those who were involved as an investor said during those times.

That’s what tells the story about things not going as planned, which tends to be the case with humanity. You want to know what their principles are, what their mission is and what drives them. Also what values they have so that you can get a barometer as to what decision they’re going to make and how it will affect the money you’ve given them and invested with. In your book, you talked about real estate. You talked through certain details of your story. One thing you said in there was where you talked about your purpose, the purpose of that company, your why with what you’re doing.

Real estate is a fundamental need that we have so it's always going to exist. Share on X

I don’t know how much you’ve heard about human trafficking, but people are starting to hear about it thankfully now.

The Operation Underground is here in Utah, the big one that Tony Robbins sponsors. There are tons of money in there. The ex-Special Forces guys.

If you took the total record profits from General Motors, Nike, Apple and Starbucks and combine those, double that number, and that’s less than what is believed to be the annual revenues from human trafficking worldwide. It’s a big deal. They say there are over 30 million people trafficked and a lot of those people are sex trafficked. I want to believe that if I was alive years ago, pre-civil war, that I would have been fighting for abolition. I’d be fighting to free slaves. If I would have been an adult in the 1960s, I want to believe that I’d be fighting for civil rights. We’ve got an emergency here that doesn’t get headlines and it’s not caused a civil war. It’s not causing marches on Washington, but it’s slavery and it’s a big deal.

My company Wellings Capital and I are dedicating ourselves to donating a significant portion of our profits to fighting human trafficking and rescuing its victims. We’re identifying organizations we can back and we’re already doing that. I’m also part of a group called FreedomPlaceProject.com. Our goal is to build a billion-dollar office complex in Dallas, to use that as a prototype and then build other office complexes around the country and say, “We’re giving 100% of our syndicator, of our internal profits to fight human trafficking.” That’s in the works and we’re excited about that. There’s nothing to do with that now except maybe visit the website, but I’m excited about that. My goal is to donate $1 billion to fight human trafficking and rescue its victims through my influence and personally over the next years.

Can you give out those website addresses again and if there are other new sources, feeds or groups that are out there that people can learn more about the human trafficking problem?

One I would go to is ExodusCry.com. They’re based near Kansas City. They’ve got an incredible gut-wrenching movie out called Nefarious. If anybody wants to get ahold of me, I’ll send you a copy of the film. I’m friends with the director. He’s got 800 hours of film footage and he’s making a lot of films. He’s made other ones since then but Nefarious is the one that had opened my eyes. We also have FreedomPlaceProject.com. We’re looking for a CEO to run that company. Then my company is Wellings Capital. We’re at WellingsCapital.com.

I knew it was a problem and you travel around and in airports there are signs everywhere to keep your eyes open and pay attention. From the numbers side of things, I didn’t know it was that big.

We talked about Apple, Starbucks, Nike and GM times two. Let’s go down to small. One preteen or teenage girl can generate up to $500,000 a year in revenue for her trafficker, for her slave owner. Think about that. Think about what that means to that girl.

I didn’t know it was this prevalent and this big. Thank you so much for sharing that and at a minimum, helping me be more aware of it. Thank you for what you’re doing by dedicating some of your profits to that cause. What are some of the groups that are getting together and what type of impact are they having? Is it slowing down or is it going to take a while to eradicate as it seemed like a social epidemic?

There are some great groups. There’s one well-known group that’s rescuing girls in places like the Philippines, but the reports I have are that 99% of those girls are going back to prostitution later. It’s a tough situation and now it’s becoming more prevalent. There are more ways to kidnap these girls and social awareness in airports and all over the place is going up. However, the problem I think is probably getting a little worse.

Where’s the concentration in the world? Is it international or is it the US?

It’s both. There are some statistics that say one out of every 500 girls will be trafficked. I don’t necessarily believe that because I know of people of the places I’ve visited, but I don’t know anybody in my personal sphere or anybody that I’ve ever heard of personally be trafficked, in the news but not myself. I think it’s probably more prevalent in other countries. This documentary, Nefarious, goes over some of that.

The Operation Underground Railroad, which is out of Utah, they have a documentary out as well. Hopefully, the awareness continues to rise. I didn’t want to end on that sad of a note but still inspiring that you are trying to do your part to make a difference. Thank you for that.

Thanks. I’m glad you asked about it. We all have a part to play in this. They asked Mother Teresa how to feed a billion starving kids and she said, “One mouth at a time.” We are making a difference and good will prevail. I’m sure of that.

Paul, we appreciate your time and thanks for joining us.

It’s been great. It’s been an honor to be on your show. Thank you so much.

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About Paul Moore

TWS 7 | PropertyAn expert in the real estate space, Paul Moore of Wellings Capital graduated with an MBA from Ohio State and entered the management development track at Ford Motor Company. After five years, he departed to start a staffing company with a partner. They sold it to a publicly traded firm five years later for $2.9 million.

Along the way, Paul was Finalist for Ernst & Young’s Michigan Entrepreneur of the Year two years straight (1996 & 1997). Paul later entered the real estate sector, where he flipped over 50 homes and 25 high-end waterfront lots, appeared on HGTV’s House Hunters, rehabbed and managed rental properties, built a number of new homes, developed a subdivision, and started two successful online real estate marketing firms.

Three successful developments, including assisting with the development of a Hyatt hotel and a very successful multifamily project, led him into the commercial multifamily arena. Paul is the author of The Perfect Investment – Create Enduring Wealth from the Historic Shift to Multifamily Housing. Paul also co-hosts a wealth-building podcast called How to Lose Money, is a featured guest on numerous real estate podcasts, and is a regular author for Bigger Pockets. Paul is married with four children and lives in Central Virginia.

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