Chris Miles 0:00
That’s the goal is that how do we get you to actually create income streams? You know, how can we actually create passive income where you work because you want to, not because you have to. And that’s the kind of thing like that that’s where I have like countless experiences like that over and over if people were, were actually building that passive income. Now, you know, I’ve got some clients that were able to retire within the first year, because maybe they don’t have a huge overhead. Maybe they only need an extra 2 3 4 thousand a month to live. And, you know, a lot of them will do that within a few years. You know, others most of my clients use one of these 10,000 20,000 a month which, by the way, like I said, you want 10,000 a month if you’re fighting against inflation, that number keeps growing. It’s hard to hit when you’re trying to save. It’s like a Dalmatian chasing a firetruck it’s hard to catch up to it right like that’s what happens when you’re doing the mutual funds. Well, you can do in real estate or things like that, where you can create quick cash flow and create acceleration of your money. It’s amazing what you can create and accomplish.
Welcome to CRE PN Radio for influential commercial real estate professionals who work with investors, buyers and sellers of commercial real estate coast to coast whether you’re an investor, broker, lender, property manager, attorney or accountant We are here to learn from the experts.
J Darrin Gross 1:15
Welcome to Commercial Real Estate Pro Networks, CRE PN Radio. Thanks for joining us. My name is J. Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.
Today, my guest is Chris Miles. Chris is the cash flow expert and anti financial advisor and is a leading authority teaching entrepreneurs and professionals how to get their money working for them today. He’s an author, podcaster podcast host of the Chris Miles Money Show. He’s been featured in US News, CNN Money, EO Fire and has a proven reputation with his company Money Ripples for getting his clients fast life altering financial results. In fact, his personal clients have increased their cash flow by over 200 million in the last 10 years. And in just a minute, we’re going to speak with Chris about how to create an Anti Financial Plan.
But first a quick reminder, if you like our show, CRE PN Radio, there are a couple things you can do to help us out. You can like share and subscribe. I dare ya. Go ahead. And also leave a comment. We’d love to hear from our listeners. And also, if you’d like to see how attractive our guests are, be sure to check out our YouTube channel. And you can find us on youtube at Commercial Real Estate Pro Network. And while you’re there, please subscribe. With that, I want to welcome my guest, Chris, welcome to CRE PN Radio.
Chris Miles 3:07
Thanks, I appreciate it. What was in total have a radio voice. So maybe they don’t want to go to the YouTube channel. Maybe this is just safer for us not to have them go there.
J Darrin Gross 3:16
I don’t know. I guess we’ll have to see if they know that they want to check it out. I have to just go and check it out. But, Chris, I appreciate you doing this. Before we get into our talk today, if you could take just a minute and share with the listeners a little bit about your background.
Chris Miles 3:35
Yeah, you know, almost 20 years ago, I started out as a traditional mainstream financial advisor, right, like the type that you’ve always seen that, you know, wears the suit and a tie. That’s way too short, or the belly sticking out and all that kind of stuff, right?
You know, I was basically the salesman in a suit. Did that financial visor for four years, I wasn’t my intention to go into financial advising. Funny enough. I actually was planning to go into business consulting. But I figured if I was going to go into business consulting, I should have real life business experience. So I actually dropped out of college, went to financial visor because that was the first business that I realized I could do. I didn’t realize it took anybody off the street as long as you could pass a license and a test, right? That would take people but I started doing it and love being an entrepreneur and actually stayed dropped out of college never went back when it but when I did that for four years, I started to see patterns, right? I’m always the kind of guy that likes to see patterns around me sometimes people don’t always see. And the pattern I started to notice was even people that had financial advice for, you know, decades, right, even for 2030 years. They still really weren’t financially free. But, you know, part of me wanted to deny that because, of course, you know, like if you’ve been trained in that industry, they always show you the numbers they show you the stock market’s average, you know, 10 or 12% since 2000 BC, right? And they try to try to convince you that mutual funds is the way to go, you know, and and so it’s basically what you know, insurance license and I was securities licensed.
But I started to see that the real numbers, I started running real actual numbers, not the averages, which is a half truth, right? But real, actual yields of returns, I started realized that like, for example, up until last week, the 30 year average of the stock market was almost exactly 8%. Like the real return, but the last 20 years was 3.88%. Right? We started put those numbers in, and then you start to realize, Oh, well, inflation is actually higher than the government tells us because they’re trying to save money for themselves, and you start to realize that they’re still taxes, and they’re likely to go up, it starts to become, we have a dismal conversation. And after about four years, I was trying to hang on with my heart at war, right? Like, the heart was saying, hey, maybe this isn’t the best thing, while the brain was saying, you know, actually, this is where how you make money, what are you gonna do, right, like, you know, do just find a middle ground or whatever. And so I was mortgage, I was mortgage license, you know, Life and Health Insurance license, as well as security license, I eventually dropped the securities license. And then there was a friend that I had trained in the business that left, he and his father would decide to partner up to do real estate investing, right? And it was that at the end of 2005, we started a conversation I thought, Okay, he’s probably gonna be broke. He’s gonna want work with me again. Well, no, it was the exact opposite. He told me, he said, Chris, like the last four months have been awesome. He only quit for four months, get this right. Four months have been awesome. My dad, who’s a professor, local university has now doubled his income with passive income from his investing. And I said, Come on. And this is the type of thing you hear people say all the time, even to me sometimes is, that’s too good to be true, right? And he’s like, No, I’m dead serious. Like, it’s amazing what we’re doing right now. And we got in this debate about what’s better stocks or real estate. And he finally stopped me and say, Chris, listen, how many of your clients are actually financially free where they don’t worry about money? I’m not saying that was a retire, but the ones that are actually free? I said, Well, none, because even the retired ones, watch CNN, and you can never be free when you watch CNN, right? This better not be a CNN syndicated show, because we think
J Darrin Gross 7:11
Chris Miles 7:13
Good. And then they said, Now the second thing, question, Chris. All right, since your clients haven’t been free, how about you guys, because it’s fun as financial advisors, you should have figured out better than anyone on the planet. So of you guys how many of you are financially free, not off the Commission’s that you’re earning from selling this stuff, but actually from doing the investments you’ve been recommending? And I thought about it and thought, and I said, none I make maybe there’s just one guy my office that might be and I found out later, he wasn’t either. And so none of them were including myself, or anybody, even people have been in the business for 30 or 40 years. They weren’t financially free off their investments, either. He said, Chris, there’s your problem. I said, well give me the answer. He said, I’m not gonna give you the answer, because I don’t think you’re going to be open to it anyways. And that just made me want it more. Right. He just took it away from me. So I ended up saying all right, fine, what what is it? He’s like, Alright, if you’re really serious, go get this Robert Kiyosaki book not Rich Dad, Poor Dad, cuz you’ve read that a couple times, Chris, but read, Who Took My Money?, which basically just rips into mutual funds. So he’s like, go get who took my money. And then and then go, listen, this radio show this local am radio show was going on here in Utah. It’s like, Listen, these guys, these guys are real estate investor, you should listen to what they have to say. And so I did, and, and this was like, January, I started to do this. I went through the Kiyosaki book pretty quickly in one day. And then and I said, Listen, this radio show, and after about two months or so, they had a little, you know, live event at a hotel nearby, and, and they basically start ripping on financial advice, you know, like high risk rates, high returns, they say, Well, what is a 90% chance of losing create a 90% chance of winning, right? So if you’re in the insurance world, you already know this, you know, you you can’t, you can’t really, you know, mess up the numbers, right? You can’t take higher risk to get higher returns, it doesn’t happen. Because if that’s the case, we should all go buy lottery tickets right now, because we have the biggest chance of loss. Right?
J Darrin Gross 9:06
Chris Miles 9:07
So that doesn’t work for creating wealth. And they start talking about things like you’re, you’re in it for the long haul, well, how long is the long haul? Or you know, how about, you know, insurance is a necessary evil, they’re like, you know, that’s just insurance company trying to get you to quit your insurance if you’ve already paid them for years, right before you use it. Right? And all that kind of stuff. And, and he was going on about the stock market and what the real returns are, and average versus actual and all this stuff and blown up my entire island. And I was like, yeah, who teach this junk? And then I realized, it’s me. I’m that guy. And they even asked, they said, even at one point, they took a break. They say, Hey, sorry, like if we’re offending any financial visors, are there any financial advisors in the room? I was gonna raise my hand, but when I realized I would be the only hand in that room of 100 people, I quickly brought it down. I was like, do not point me out. And my friend, of course, laughed because he knew that that was me.
That weekend, I quit. I said, I’ll never To go back to financial advisor, again, I will just be a mortgage broker and I’ll teach ballroom dancing. Because a little known fact, I was one of the nation’s top amateur ballroom dancers. So I was going to just do that. And but the thing is, I wanted to know what they knew, I want to know how they’re creating wealth and retiring in their 20s and 30s. You know, I was 28 at the time. Well, I started learn from them. And lo and behold, within a matter of months, but that summer, I found out, I was actually out of the rat race, I was able to, essentially stop actively working. And so, so it kind of blew my mind. And I thought, well, this, this was way easier than I thought, I thought I have to save up $2 million in live on, you know, 60,000 a year if I was lucky, right? If it would not last me, you know, or I wouldn’t Outlast my money, right? But, but I was like, wait, it’s all about cash flow. Like I just started, things started to click. And that’s when in 2007, I kind of came out of retirement started teaching, you know, really about, you know, doing the opposite, essentially, how do you get out of the rat race and that kind of thing?
J Darrin Gross 10:59
Wow, so that’s quite a turn of events, on your financial career there from being the disseminator. And the know, you know, the average rate of return 8% kind of thing, as opposed to the real, the real real rate of return, and then recognizing that it’s, it’s not working for people. And I think the other thing that that your friend is asking is how many, you know, financial advisors, do you know, that that are actually able to, to retire or financially free? And that’s,
Chris Miles 11:31
that was the second question. Yeah,
J Darrin Gross 11:33
yeah, I find that to be concerning, and also revealing, you know, that, that, you know, so many of us are taught to, you know, get a good job, get a good education, get a job, you know, participate in the 401k. And over time, everything works out.
Chris Miles 11:56
J Darrin Gross 11:57
And, you know, that that’s something, I mean, because you may, it may work for you, and you may get to a point where you get to the end of your working days, no, maybe you don’t have your health, and maybe you have all the all the money or as opposed to making the money work for you. Early. So you don’t have to be tied to this illusion or fantasy or, or, you know, just the, the story we’ve been taught.
Chris Miles 12:26
Yeah. You know, essentially, you bring up the 401k, right, because that’s the one that people think is like the answer, you know, I get a lot of people say, it’s even worse if they’re business owners, and they’re setting up their own 401k. And they pay their own match, right. But for those people that are even employed, where they get the match from the company, you know, I just did a podcast, I just barely released about the 401k, how it’s impossible to retire with it. Because if you think about it, I mean, you get it, if you I did an example. So who makes 140,000 a year, they max contribute the 19,500 a year, plus, they get a 6% match from the company, which most of us don’t even do that much. But I was playing devil’s advocate against metal point, right. So there’s like almost 28,000 a year going into their 401k. But the actual when you factor in even a low rate of inflation, the actual yield after 35 years of Max funding every single year of your 401k was the equivalent after taxes about $14,000 a year after inflation. So you save up, you know, of your own money almost 20,000 a year to live on. 14,000 a year, right. And if you want to retire in 35 years, on 100,000 year lifestyle, you got to be putting away $150,000 a year into these because the returns aren’t great, the taxes aren’t wonderful either. And they really just don’t keep up. It’s really just impossible to comfortably retire and be free. just rely on a 401k
J Darrin Gross 13:50
You know, a few years ago, I guess I came to the realization that the 401k is basically a forced savings plan.
Chris Miles 13:59
J Darrin Gross 14:01
Because while you are many times invested in the market in some way, shape, or form, usually mutual funds, what you you’ve cited, based on the real rate of return as opposed to the average. You know, I love it when you do the math if you if you put in you know 10,000 or if you have 100,000 and the markets up 10% this year, so then you go up to 110,000. But then it goes down 10% you’re not done. You know if you go on two years or whatever, you come back 10% you’re not you’re not back where you started, you’ve you’ve essentially lost
Chris Miles 14:40
J Darrin Gross 14:42
Chris Miles 14:43
J Darrin Gross 14:44
And, you know, and how that average rate of return if you and I forget what it is if you if you’re up 16 or if you’re yeah up 16 one year down eight the next year. You know, the average, right? And I’m not thinking clearly on the numbers. But if you if you get an average, you will get that average 8%. But the reality is that that real rate is substantially lower. When you actually look at the real numbers. There’s
Chris Miles 15:14
Yeah, once you put it once you put a negative number, the average and the actual numbers are different. Right? Right. Like you’re saying, for example, and I remember first learning this in, I think it was 2004 2000. It was 2005. I remember now is 2005. So this is a year before I quit, right? A guy came to office and said, All right, everybody say you have $100,000. If you lose 50%, how much do you have? And we all said, $50,000. Right? He says, All right, so what rate of return you need to get back to 100%. And all of us said 50%, right? Because you lose 50%, get 50% your back even. He said, That’s wrong. He’s like, because if you make 50%, on 50,000, that’s only $25,000, you’re only at $75,000. He’s like, you have to double your money after losing half, you have to double it. That’s 100% rate of return. So he’s like, look at this guy’s like, take no 100% minus 50, that equals 50 divided by two years, that’s a 25% average return per year, even though you just got back to breaking even. He’s like, oh, and of course, there’s no cost to come out. So maybe you’re left with 98,000 after this cost, then you refactor that and return. So you actually have less after having it, you could actually lose money with a 25% average rate of return. And that’s, and that’s the big difference is that when a company, they don’t want to lie, they never want to miss state anything. But if you have the choice, if you’re a company selling investments, which one or which number are you going to show the average is always going to be higher, or the actual yield, that’s going to be lower every time because if there’s a negative year, they’re going to be different. And of course, that’s always the case, right? You lose 10%, you need to gain 11.1%. To get back to breaking even you lose 2025, you lose 33, you need 50%, you lose 90%, like in the Great Depression, you need 900% to break even. Which by the way, that’s why every stock chart that you see that shows averages over time, always includes just before the Great Depression, right? What better way to show the average than to include something where the market dropped 90% had to get 900 to break even. And that just made the averages go astronomical, you know, right. That’s what happened in last year with COVID, too, right? The market drops 30 about 35% in these about 50% return to get back to breaking even. So you have financial advisors out there saying, hey, you’ve made 50% return on your money 40% return on your money last six months, why would you get out of the market?
Well, why would I want to be in something so bipolar that I have no control? And that’s the real question.
J Darrin Gross 17:45
Right Right? No, I it’s it’s, it’s, it’s almost scary when you come to the realization, especially if you’ve got any time spent doing this thinking that you’ve got it all figured out? And then you come to the realization of that you how much time you’ve spent doing this. Yeah. And how much? how little time you have left to try and try and correct the situation. So let me ask you the topic. Anti Financial Plan? Yeah. I think everything we’ve been talking about thus far, would be kind of similar to what a you know,
Mainstream financial planner
would would think of a as a financial plan, you know, yeah, the education a job and you go get the 401 K. So how, what is your view? Or what’s your definition of the Anti Financial Plan?
Chris Miles 18:44
Yeah, I like this quote, you know, Jerry Seinfeld from an episode of Seinfeld, right, where he talks to Georgia stanza in an episode called opposite George, where George actually becomes a winner for the one on one episode. And, you know, he said, Well, if every instinct you have is wrong, then the opposite would have to be right. And, and that’s basically the Anti Financial Plan is, it’s like saying, What if we went away from what financial advisors offer, because if you really dumb it down, they really only just offer mutual funds, and then certain types of like annuities or insurance type based products, but that’s it. Like, it’s, it’s really just Mexican food. It’s, you know, it’s a tortilla, with beans, rice, meat, you know, veggies and things like that, right. But whether it’s a burrito or taco or tostada, they all have the same ingredients, you know, it’s just taking the same stuff and repurposing it, right.
Anti Financial Plan says, Hey, we’re gonna go do the opposite, instead of focusing on accumulation of money, which is the slow and really the guaranteed way to not create wealth that the poor middle class have been taught, let’s do the Certain Way that’s worked for the wealthy class, right, which is going for alternative investments, things like real estate, whether it be residential, commercial, whether it’s things like, you know, it could be oil and gas, potentially, right. It could be doing things where you become The bank and you’re lending money and getting better returns than then they get, you know, on different deals where you might get backed by security things that actually have real assets behind it. Especially right. You know, you invest in mortgage notes, there’s, there’s a variety of things you can invest it, right? A lot of it usually more certain stuffs going to be real estate based, you know, which is why we’re here today, right? That’s the big thing. And, and so, like, for example, I had a client where he was actually on a good track for most people. He was in his his early 30s max funding his 401k, aggressively paying off his mortgage doing everything that a good boy should do, right. And but the thing is, I said, well, let’s project out let’s extrapolate the numbers, what does it look like? And even by the time you’re 40? Well, he would actually have his house paid off, right, that would free up about 2500 a month, he would probably have built up pretty darn close between savings and his retirement plan, almost a million dollars, because the guy was just packing money away. Well, I said, as a strategy with him, I was working with him as a client, I said, here’s what I would look at instead is why don’t we instead do this one, we do a cash out refinancing your mortgage, don’t make it 15 year make it a 30 year, which creates some defense to in case there’s a bad times that come upon you like, you know, pre COVID, this was when I advised him on this. Now with COVID, he’s probably grateful for it was like let’s do a 30 year mortgage, create a smaller payment just in case something goes wrong. So we have a good defense, but we have a good offense to by taking some of this cash, we can go and invest it. And then the other savings you have as well, we can invest in by actual real estate. So he went and he bought real estate properties, turnkey real estate, so he doesn’t have to manage it or anything like that. Well, lo and behold, he went from trying to remember for about 2500 a month on his mortgage in you know, about eight years to already from the first six months, creating an extra $4,000 a month of passive income. Now, here’s the key, taking that 4000 month that 50,000 a year right? Taking that reinvesting it and buying more assets, and again, kind of create what I call an income avalanche, which just gets bigger and bigger and bigger. By the time he’s 40, he’s going to have well over a $10,000 a month passive income stream, versus just trying to save 2500 a month paying off his mortgage, and then having this money is locked of his 401k that he can’t touch for another two decades. Right? And that’s the goal is that how do we get you to actually create income streams? You know, how can we actually create passive income where you work because you want to, not because you have to. And that’s the kind of thing like that that’s where I have like countless experiences like that over and over if people were, were actually building that passive income. Now, you know, I’ve got some clients that were able to retire within the first year, because maybe they don’t have a huge overhead, maybe they only need an extra 2 3 4 thousand a month to live. And, you know, a lot of them will do that within a few years, you know, others, most of my clients, usually at least 10,000 20,000 a month, which, by the way, like I said, you want 10,000 a month, if you’re fighting against inflation, that number keeps growing, it’s hard to hit when you’re trying to save. It’s like a Dalmatian chasing a firetruck. It’s hard to catch up to it, right? Like that’s what happens when you’re doing the mutual funds. Well, you can do in real estate or things like that, where you can create quick cash flow and create acceleration of your money. It’s amazing what you can create and accomplish.
J Darrin Gross 23:18
I have come to witness at myself, I mean, just the you know, I think you mentioned it the the mindset shift of asset, you know, creating or accumulating assets versus the cash flow. Yeah. And I think that the beautiful thing about real estate is it allows you both, you know, you can get the the cash flow which you seek, but also it’s tied to a real asset that is appreciating, you know, presumably appreciating depending on you know, what you’re what you’re doing or, you know, or if you are in some sort of a commercial property, perhaps you’re even able to force the appreciation. And, you know, whether you hang on to it and collect the cash flow or you roll out roll into something different multiple streams, but just a little bit more more control for your, your clients that you work with. Do you have any kind of a a benchmark, or can you cite, kind of the average what they were experiencing as far as their rate of return with they were doing it to the traditional way as opposed to what they’ve been able to achieve? Going to alternative? assets?
Chris Miles 24:39
Oh, yeah. All the time. You know, I’ll give you one example. I had a client who he had max funded his 401k since the mid 80s. So he was one of the first early adopters of being you know, typical Middle America to use the 401k, max funded it for what would have been it would have been I mean, this is 2010, he had max funded every single year only had $400,000 in it, thanks to the recession, everything else, right? Granted, if he would have kept doing that he might have built it up to, you know, pretty close to a million dollars by today. But here’s the thing that 400,000 he was able to buy about a million dollars of real estate, that he was now certain to cashflow dramatically, right? Because remember, 4000, even if you had $400,000, in your 401k, the thing is that a good financial advisor, right one that’s more up to date, that says, hey, I recognize that the 4% rule, the speed that back in the day, 20 years ago, they’d say, hey, you can live on 4%, whatever your money is to let your money last. Well, that was true based on numbers they ran in the 1970s. Right? Completely different today, because we live longer. And the rates of return on those more stable investments, like bonds, and treasuries are much, much lower than they’ve ever been. Right. So now that number is more like 2%. So if you have $400,000, that means you’re only living on $8,000 a year, right? It’s just ridiculous. But I mean, I’ve had several clients where they have $400,000, we’ve turned it into over 4000 a month of cash flow, you know, with real estate specifically, again, passive that’s net profit, after they’ve paid a property manager after they’ve paid their mortgage payments, their taxes, insurance, possible HOA fees, or whatever else, they still come out with at least, you know, 45 to $50,000 a year from their 40,000 or 400,000. Right? very different than 8000 a year that you’re trying to pull out from the market. So I get that kind of conversation a lot. You know, someone tells me they’d said, hey, my goal is 100,000 a year passive income. If they come to me, and I know they have about a million dollars, I’ll say great, possibly this year, if not this year, we’ll probably accomplish it by next year or two. Right? Like it’s just, it’s really just math. I mean, if you can make at least 10 or 12 or more percent a year, doing various types of investments and depends on which investments they do, right? If you buy real estate, you have a much higher option there on a cash on cash return. If you’re buying, you know, if you’re more buying into like you know syndications, right, like maybe you’re doing commercial real estate, maybe you’re buying two apartment complex, you might get more, but it might be more of a growth strategy, you might get eight to 10% return cash flow, before you get the big growth on the back end, right. Everything is different. And so that’s why every person has their own recipe of how to get to that number and where that and how, you know what they want to do with that money. But it’s, it’s, it’s really not hard. Like I just tell people like, hey, if you can earn at least 10% a year, do the math like or if you if you know, you can make 10% a year, and your goal is 100,000 a year you need a million bucks, right? Just for passive investments, you’re doing more active investing, you can do it faster, but most of my people are usually coming to me asking to do passive stuff, because they’re already busy working as professionals or business owners already, they’re looking for something that they don’t have to babysit a lot, you know.
J Darrin Gross 27:57
So let me ask you. So if the people who have been doing the mainstream financial plan are coming to you, yeah. And you’re, you know, coaching, working with them to achieve cash flow right now? are what what are the steps? Are you are you going into a self directed IRA? Are you? Are you cashing out of the IRA? Are you doing these investments in, in a tax deferred vehicle? How are you? How are you achieving your, your success?
Chris Miles 28:30
It depends on Yeah, it does depend on their age, their goals, like if someone says, hey, my goal is to retire by 50 within the IRA is not a good option, right? It’s actually because that’s not the only you have a penalty to 59 and a half and you stuff to pay taxes down the road anyways. And part of the question we have now this year is after the Trump tax plan is gone next year, you know, because 2020 one’s the last year, it’s in effect, what’s going to happen? You know, are they going to reset back to what they were before where the tax rates would go back up again? You know, there’s a lot of uncertainty, right. So it always depends upon their goals, their objectives, and really their situation, right. So I’ll give you another example, I had a chiropractor in San Diego, he’s 4045 46 years old. He’d done a great job saving money he’d saved up several hundred thousand. A lot of it is in IRAs, right. Some of it in savings. He also been aggressively and this was his main goal, aggressively paying down his investment property he had there and his own house. And so his whole focus was just yeah, I’m going to save money in these plans. But I’m aggressively trying to pay off my houses, right. So I’ll be free and clear. in about six years. He’s on target for six years, that would free up about $4,000 a month for him if he did that. Instead, I said, let’s see if you can invest in property California, I can already tell you the numbers stink. You know, if you’re anywhere in the western half the United States, your real estate probably isn’t good for cash flow. And I was right. He was making $200 a month on a property that had a half a million of equity in it. And I was like, Listen, we can sell that for Get that equity out, put into other real estate to make a lot more than that, you know, again, even if it’s 10% a year, we can make easily, you know, 40 50,000 a year off that. I said, and let’s do a cash out refinance, your mortgage payment will go up about $500 to 1,000 a month, but we’ll get another 400,000 out of it for just that small cost. So net of cost after getting all invest that’s over 800,000, almost $900,000 to invest, that would generate a net of about 75,000 a year, year one right? Now keep reinvesting that same 75,000, don’t even add more to it, you know, he could add more, obviously, but not even add more to it, that would actually increase it to over 10,000 months by five years out. So the great thing is that he could be at 10,000 a month in five years versus six years paying off his mortgages to do it in that time. Now, his big question was alright, with IRA money, what do we do with it, I was like, well, that’s another source, we could self direct it. And we could invest in certain types of things, we don’t want to buy property with it there, that’s a bad use of that money, you lose the tax benefits. And it just you just never get favorable returns. But I mean, there are different syndications out there, right, there’s different ways you can lend money as easily as 10 plus percent a year, you know, so if you want to grow it, we can do that. There’s tax liens, I have somebody that does taxes, or they pretty much always do a target of about 14 to 18%, a year, great place that you can potentially put your IRA money in, let it grow and build. The thing is, though, he wants to retire before 59 and a half. So then it’s like, how do we get the money out? You know, without paying a you know, buku bucks in taxes? Well, you know, one thing to do is if we can get, you know, not just him or get his wife qualified as a real estate professional, you know, because he’s already full time in his practice, right? But his wife can be a real estate professional, we do that I forget some properties, we can get all these deductions in depreciation and cost segregation we can do even on single family homes as well as multifamily. Right. And the next thing, you know, we’re offsetting the taxes, we pull off an IRA, and there’s very little tax and penalty on that money. And so we’re able to keep more than money to invest and create more with it. Again, it’s always case by case I don’t recommend I’m not securities licensed anymore. I dropped that in 2005. But, but I definitely look at those options, say, all right, what’s your goals? Right? If you want to keep using your IRA, the thing is, that’s not going to get you there if your goals before 59 or 60 years old?
J Darrin Gross 32:27
No, no, I appreciate you diving into this, the think the realization that I’ve come to also with having older parents and a chance to become more familiar with their financial situation, and how, when you can take the money out of a 401k, as opposed to, you know, if you’re going to keep thinking it makes it bigger and bigger and bigger, and a bit more and more and more money into it. It’s, it’s, you know, it’s eye opening, when you see how you’re how the money comes out. When you I mean, because now you have the tax on it. And you have to your minimum Was it your minimum distributions I can require Yeah, rmds. The, how, you know, that accelerates and they’re looking to get the tax, they want the tax on your, on your 401k there. So as opposed to if you’re working outside of that, how you have the ability to create that asset and let it grow, and just collect the actual the cash flow, which was in my mind, that’s always what the retirement goal was, was to create a big enough nest egg that it just earned money for you kind of like a dividend kind of thing. But yeah, that doesn’t I am I’ve yet to see that work in the 401k. world.
Chris Miles 33:50
It Yeah, it’s it, they don’t really make it work well, right. You know, it’s really tough to do with IRAs and 401k’s, you know, even even if you do an alternative investments, and you’re self directing it, still, it’s not favorable, right, like, now maybe if we move it to a Roth, you can curate some tax free income. But most of my clients, usually what we end up doing is a strategy, especially for them the the growth phase, where they’re trying to build the assets to create that cash flow. You know, we thought about getting your investment money to pay you twice, right? So I use what I refer to as like this max ROI bank, right? a tax free supercharged savings account, where I use a life insurance, I use a whole life policy specifically run the money through we have very minimal cost. So we run the money through right back out to go to investing. And what happens when you use that strategy, where you put money into a savings account, you withdraw it, you’re not making any money on the interest on the money you just withdrew right other than in the investment, you know, but the money you withdraw out of your savings now the same is depleted. You’re not earning much interest. Plus, let’s be honest, if you were lucky to earn point 1% in the bank account right now, that’s pretty amazing. So you’re not making much and then you get taxed on that point. Nothing percent right. But if I use this strategy will flow it through the life insurance, I’m getting tax free money in there, at the same time while making money inside those investments. So I’m actually able to make money in two plays at the same time. So if I make 12% cash on cash return on my real estate properties, the cool thing is if I run it through my life insurance and then back out, and I take the cash flow, flowing it back into the life insurance again, I actually end up making a net about another 4%, on top of the 12% I’m already making, so I’m able to make more money faster, which allows me to have more money to invest faster to,
J Darrin Gross 35:29
okay, run them by me one more time. So you buy the buy the whole life policy, which has a cash value, and you borrow against that.
Chris Miles 35:38
Yeah, and it has to be a very specific type, right? Don’t do the traditional whole life that like people do. Not all are created equal. And most insurance agents will never do it for you, right? Because the truth is, you got to cut for an agent to do it, you got to be with the right companies, any other catchy commissions back about 75 or 80%. And make it work, right. Not a very popular idea among the insurance industry, or among insurance companies. But the cool thing is like whole life, usually it’s front loaded. Usually, if you put in for the first two years, you have almost no cash value. In those first two years, it goes all the costs, the way I design it, those first two years usually have about 85% of your money in cash ready to use, right? So you know, you put in 25,000, a year for two years as 50,000 usually have, you know, 40 to 43,000 bucks, and you can use versus nothing or 1000 bucks, right? So low costs, higher returns for overfunding, these policies to put in more cash, but we’re keeping very low on the cost side. And then what we’re doing is we’re taking that money, we go and invest it. Now when you when you use a life insurance policy like that, especially if it’s whole life, you can’t do it with universal life, because the the numbers change on you, right, they don’t let you compound money when you’re borrowing against it. But with whole life, that’s unique, because I can actually earn compound interest in that full amount of money. So say they have $100,000, I have in cash inside this whole life policy that’s built up there. Now that hundred thousand if I borrow 50,000 of it, right? Normally, if you withdraw 50,000, the same discount, you’re only earning interest on 50,000, because you just lost 50,000 out of there. But with whole life I borrowed from the insurance company directly, they gave me like this line of credit that has no minimum monthly payment, there’s no commitment, they just charge you 5% a year, right. But the cool thing is, at the same time, my money over here that full hundred thousand is earning compound tax free interest. So what I’m doing is I’m using this line of credit for an insurance company, again, this private line of credit, using that to invest that 50,000, but put as a down payment on a property. So it’s a duplex, I took the cash off and I duplex it’s 500 bucks a month, right? I take that cash flow, I’m following that to pay down that credit with the bank with the insurance company. Now as that’s paying down, of course, the interest charge gets less and less and less, right. Just like when you do any pay on a normal loan, like a mortgage or a car loan, the more you pay towards the principal balance, the less and less gets charged interest every month, which is why your payment has less and less interest. Same thing happens here. The difference though is that now the money is still over here, compounding by itself, it far out earns the interest, you’ve been charged on alone, netting you depending on your age and health, at least a three or 4% return on top of whatever you’re earning on your investments. And that’s tax free returns to. So you double dip, you basically earn money in two places at the same time. But that same dollars you would have used, you know, give the example I showed somebody just yesterday with one of my clients in Washington State. She was trying to understand the concept and I said let’s look at your number. She’s in her mid 40s. Okay, health, very, very average if if average health, so not great numbers compared what some people will get. But I ran the numbers I said, Look, if you use your savings account, earning point 1% right. Here’s the problem is that, you know, your money would build back up over these, you know, five years to 176,000 Mike but if we use your life insurance, same money, your your money builds up to 196,000 in those five years. So you make 20,000 more in five years using this versus just using your stupid savings account that, again is taxable. It earns nothing. And by ways exposed to lawsuits and creditors, that’s another cool thing of the life insurance in most states, hundred percent protected from lawsuits and creditors. Even if you have millions of dollars in there, they can’t touch it. So there’s that, as you talked about with risk and asset protection. That’s a big thing. Especially when my real estate investors, they’re saying wait a minute, well, if I borrow from the insurance company and use that as a down payment on my on my property, and I get a mortgage from the bank, does that mean it’s 100%? leveraged like, technically, yeah. So can they make claims on it? No, there’s no equity. There are very little equity they can attach to if they do win a lawsuit right? So they’re scrambling trying to find ways to put a lien against it when they can you know, it’s it’s just so cool when you start to see what’s possible.
J Darrin Gross 39:53
That’s fascinating how you can I mean the tools that are available but are not necessarily considered connected. And people kind of like that. Does that work? But I think we’ve all, you know, at least saw the news story about President Trump’s taxes and stuff. And I know my friends that are non real estate, you know, people are all frustrated, but the people that are real estate oriented go
Chris Miles 40:19
Who’s his accountant? That’s what they’re asking.
J Darrin Gross 40:21
Yeah. Well, that’s that’s kind of a that’s the Option G Yeah, opportunities that exists. That’s great. Hey, Chris, if we could, I’d like to shift gears here for a second. I mentioned you before we started that, by day, I’m an insurance broker. Yeah. And I work with my clients to assess risk and determine what to do with the risk. And there’s three strategies we typically consider. We look to see if we can avoid the risk. We can’t avoid it, we look to see if we can minimize risk. And if we can’t avoid nor minimize the risk, we look to see if we can transfer the risk. Yeah. And that’s what an insurance policy is. And I like to ask my guests, if they can look at their own situation. Consider your clients investors, your situation tenants market, etc, however you want to frame the, the answer. But if you can take a look and consider what you what you or take a look and see what you consider to be the biggest risk. And for clarification, I’m not necessarily looking for an insurance related answer. And so if you’re willing, I’d like to ask you, Chris Miles, what is the biggest risk?
Chris Miles 41:41
I think the biggest risk and this would apply to me or my clients, or anybody really, is ignorance? Right? Like, I always tell people, if you think education is expensive, try ignorance. You know, ignorance is seriously the most expensive thing in your life. I mean, that’s really this whole conversation about you mentioned Trump, right? You know, people are mad about his tax turns. That’s ignorance, you know, like, it’s, it’s what you know, and what you can do that actually creates the most money creates most protection, people can say, Hey, I don’t need that insurance, right, like that protection. But if they’re ignorant to the risk they’re already taking, it doesn’t matter what they think it doesn’t matter how positive thinking you can do. That risk is still there, you know, you stuff to manage, and figure out what to do with that risk. And so I think that really is the biggest risk is just ignorance is what what you don’t know is what hurts you. And also what you don’t know is what keeps you being hurt. It keeps you living a life of struggle and lack. And if you can find the answers, if you can find out the information you need and act upon it, not just know it, but act upon it. You now you become somebody who’s actually more unstoppable doesn’t mean you don’t have risk in your life. But it just means that if you’re always in the mindset of, Hey, I’m ignorant about something at some time all the time, right? You’ll start to realize I need to keep learning and if you keep learning, you have a much better chance of success than those that think they know it all. They think that whatever they’ve been told, that’s the truth. And that’s, to me is the biggest risk.
J Darrin Gross 43:07
That’s Well said. Definitely then a lots of truth in that. Chris, Where can the listeners go? If they would like to learn more connect with you?
Chris Miles 43:18
Yeah, I mean, you’ve already mentioned the Chris Miles Money Show, I always invite people check that out. I mean, it’s great free information you can watch on YouTube or even, you know, on iTunes or whatever, right? You can definitely check out the show there. And then you can check out my website moneyripples.com that’s m o n e y r i p p l e s dot com or I’ve got some great information there, too.
J Darrin Gross 43:38
Awesome. Chris, I want to say thanks for taking the time to talk today. I’ve enjoyed it, and learned a lot. And I hope we can do it again soon.
Chris Miles 43:49
Such a pleasure. Appreciate it, Darrin.
J Darrin Gross 43:51
All right. For our listeners. If you liked this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow. That’s all we’ve got this week. Until next time, thanks for listening to Commercial Real Estate Pro Networks. CRE PN Radio.
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