The executive Real estate investing Show
Be Your Own Bank and Control Your Finances with Mark Willis
This week on The Executive Real Estate Investing Show, host Michael Holman talks with Mark Willis.
As a Certified Financial Planner (Lake Growth Financial Services in Chicago), Mark Willis has been helping people get a handle on their financial future and build their businesses with proven, tax-efficient financial solutions. He specializes in building custom-tailored financial strategies that are unknown to typical stock-jockeys, attorneys, or other financial gurus. Mark co-hosts the popular “Not Your Average Financial Podcast™”, where he offers up strategies for everything from real estate investing to paying for college. He’s a huge proponent of “Self-Banking,” and today he gives Michael an introduction to that idea, and how to get started with financing real estate investments.
Focus on Both Sides of Building Net Worth
There are two ways of building net worth, and you need to be aware of both. The first way is to increase your income and revenue. The second is to decrease your expenses. Michael hears the cries from his friends a lot: “I need to make more money.” But when he asks them why, they say it’s to buy a new sports car! If you can cut frivolous expenses, your net worth will increase. On the other hand, Michael warns that being too frugal comes at a price. “I could drive a twenty-year-old car, and not buy any new clothes, but who wants to live like that?” Finding balance is the key.
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Note: Audio transcription has been automatically transcribed
Welcome to The Executive Real Estate Investing Show. This podcast is for you, the busy business owner or executive looking to create generational wealth. Here, we’re going to show you how to do that through real estate investing from multifamily to industrial and everything in between. You will become a real estate investing expert. And now, here’s your host, Michael Holman.
Michael Holman: Hello, everyone, and welcome to another episode of the Executive Real Estate Investing Show. I’m your host, Michael Holman, fantastic episode to share with you today, we have a guest, Mark Willis. It’s awesome, you want to know why? It’s a little bit different than all the other episodes that we’ve done up to this point. Mark is a certified financial planner, he is really laser focused on a few of these items that are really big wealth building tools, and it’s fantastic because it applies in all aspects of your life. It applies to, if you wanting to invest in Real Estate, as a limited partner, if you want to invest in Real Estate by buying single family rentals, it applies even if, heaven forbid you want to buy stocks. Whatever the case may be, he has solutions here to help you. The best part of this whole episode is something that gets thrown around a lot. You hear a lot of advertisements for it, on other podcasts, this idea of being your own bank and how’s that possible.
There’s all this clickbait surrounding this. For the first time that I’ve heard in a long time, Mark is going to go into details on what that means. What does that look like and how does it work. He gets into some of the nuts and bolts, which is so exciting, because it takes this idea and this concept that always just seems so foreign and too good to be true and he’s gonna break it down. He also goes over tax strategies; he goes over how you can invest in eal estate using these different strategies. I love it. It’s really exciting. I was really engaged throughout this entire podcast, I felt like I could have talked to him for four hours about everything that’s going on. It was just a very, very entertaining episode. So be sure to listen, check this out. But before we get into it, as always, we got to do two things.
I got to remind you to go subscribe to the podcast, if you’re listening, you like it, go hit subscribe, you’re gonna get it every single week, it’s like clockwork, you can go right into your apple podcasts or Spotify playlist. You can listen to it, they’re short, but they are to the point, and they are going to help you get better at business and get better at Real Estate investing so you can create that wealth that you’re looking for. Number two, leave us a rating, leave us a review, and check out the website Executive REIShow.com. In this episode, Mark is going to give you just a whole lot of information, he’s going to reference different things. He’s also going to give you his websites where you can contact him all of that in the show notes. If you go to Executive REIShow.com, you can see all of that, it’s right there, you don’t have to worry about frantically, writing something down or hitting replay like 15 times for that 10 second period. It’s all their Executive, REIShow.com.
You can also sign up for the newsletter ask us an executive question, which I personally will answer on this show. Lastly, it’s time for today’s executive tip. Today’s executive tip is to be focused on both sides of building net worth. What do I mean by that? I mean, you have to do two things to build net worth. You got to focus on two things, you got to focus on generating more income, more revenue and you got to focus on decreasing expenses. Both of those things play into net worth and a lot of times we get focused on one or the other, whether it’s personally or in business. I see this all the time, based on your personality. Some people it’s like, I got to make more money, I got to make more money, I got to make more money. That’s the only focus, nothing else matters. I got to make more money. I turn around and every time I see them, it’s like hey, I got to make more money.
Well, why did you just buy a Porsche? Well, I got to make money. I got to pay for it. What’s the next car you looking for a Ferrari? When does it end? Some people, that’s the only mindset and then you have other people, which is what I’m more prone to, probably based on my CPA background is cutting expenses. Where it’s like, I could live off of $50,000 a year for the rest of my life. I don’t need to make a dime more. I just cut out all my expenses. I don’t go on a vacation the rest of my life. I drive a 20-year-old car. I don’t buy any new clothes, and I can live the rest of my life like this. It’s like, come on who wants to live like that? Honestly, nobody wants to live like that. Maybe you could live like that, but this show is not geared towards people who are interested in just living, just barely good enough. You got to focus on both income and expenses. One’s got to go up one’s got to go down. That’s how you build net worth and that’s why one of these episodes like this with Mark Willis is so great, because he’s gonna talk to you about both of those items.
Let’s get into it right now with Mark Willis. Hello, everyone, and welcome to another episode of the Executive Real Estate Investing Show. As always, I’m your host, Michael Holman and we have an awesome guest with us today. I’m excited because it’s a little bit different than our standard guests. His name is Mark Willis. Mark Willis is a man on a mission. He’s here to help you think differently about your money, your economy, and your future. I am excited to have him I even saw he’s a three-time number one best-selling author. He’s the owner of Lake Growth Financial Services in Chicago. Welcome to the show Mark.
Mark Willis: Hey, Michael. Thank you. Glad to be on.
Michael Holman: I would love to hear all about you, Mark, tell us about yourself and your past.
Mark Willis: Well, the past and the present in the future, all related seems now to banks, when you look back on your life, you can kind of start to see themes popping out, I’ll tell you a quick story from way back as a young child, I had somehow accumulated about 50 bucks, I was five, six years old. I grabbed all that money from allowances and other things, put it in a paper bag in my sock drawer as a young kid, that’s a lot of money. That’s more money than most college grads have. My mom being a good parent took me to the bank to open up a checking account. I gave all my cash to this strange man who said he was going to keep it safe for me. His name was Mr. Banker. Well, little did I know that paper bag was most likely a safer place to keep my cash than the bank. Fast forward a few years, I’m now a graduate of college, two private school degrees plus one more from my wife, between all three of us, we had about $120,000 of student loan debt.
Once again, banks have their fingers in our marriage, I kind of jokingly say I’m married to women in college, Michael, my beautiful wife of now 18 years and Sallie Mae later, but she was very much in our marriage at the beginning. It was that burden; you might say or that experience that really got me homed in on and focused on money. Up until then there was no real awareness of the debt we were creating, the problems we were creating for ourselves, how much profit the banks were going to reap off our backs. Now I realized as a certified financial planner, that the person in the banker’s seat in your life is the most important person on the financial team.
The banker, whoever is on the right side of the banker’s desk in your life will win the money game. I don’t care what your rate of return was on your mutual funds, or even your Real Estate portfolio was great as both of those will be for you. The real power, the real leverage in your financial life is who is controlling the banking function in your life. That brings us to today where I’m owning the firm the Lake Growth Financial Services, we help 1000 plus clients all over the United States, all 50 states, we’ve had the tremendous pleasure of helping people feel and truly take control of their financial future by grasping and retaining and reclaiming the banking function in their family life or the life of their business.
Michael Holman: I love it. There is like a million things to talk about with that introduction. I’m gonna get right into it. Mark, you talked about, whoever controls the baking function in your life, they’re the ones that have control over what happens to you. Why do you say that?
Mark Willis: If you think about it, according to the US Commerce Bureau, 37% of the average Americans income goes to servicing their debts. Let that sink in for a minute. If time is money, what is 37% of your day? That’s a third of your day just working as a slave for a bank. I don’t view that as ideal or efficient in any way. We’re working a third of the day just to appease our banker overlords. Then what about taxes, through taxes on top and even if you’re a business owner, you’re working half the day for somebody other than yourself and your family. By recapturing that banking function, that’s 37% and then we do have strategies that help you reclaim even the tax portion of your outgoing cost.
We can actually benefit from the tax bill that you’re having to pay or even eliminate the tax bill, that helps you get back more life. You live more of your life when you’re living it for yourself rather than living it for someone else. I don’t know how more how much more plain I can make it. Too many Americans are in debt up to their eyeballs, or they are working feverishly to try to maintain some sort of lifestyle that doesn’t necessarily benefit only them. There’s a reason why banks have the biggest building in town. It’s because they’re obviously the most profitable business on the planet and have been for 1000s of years. There’s a great book, Michael by David Graeber. The book is called Debt the first 5000 years. That’s a real wake up call, just the title itself, helps me sort of convey the message to convey that bank are permanent, or I should say it this way, banking is permanent.
Banks are not, banks, as they are shown in today’s world are kind of a modern phenomenon, really, since the Magigies in Italy 200- 300 years ago. Since the 1930s, after World War One, they’ve really become what they are now. But before that, we’ve done banking, as a human civilization for as long as we have human history. We can reclaim this banking function. I love banking as a verb, the nouns of banks and our world today, a big fan of, but I love banking as a verb. If you can bank on yourself, and if you can truly take that banking function back and put it in your business or put it in your family. The freedom that comes from that and also the rate of return that comes from pulling back 37% of money that was leaving your pocket is tremendous.
Michael Holman: I love it. Even just what you’re saying correlates exactly with what the banks are even analyzing. They’re not hiding this, nobody’s trying to hide this 37%. Because you can even see that when you go to apply for a car loan or mortgage. What are the ratios that they’re running. How much of your income is going towards servicing debt. Usually it’s 36% to 40%, depending if you’re on the front end or the back end. They’re out there, they’re very clear about, hey, we are planning and hoping and trying to take 35 to 40% of your annual income. I love it. One of the phrases that you said in there was banking on yourself. We talked about this banking function. I know for myself, I grew up in a fairly traditional household, went to the bank, I put money in there, that’s just where things from a very young age just like you. Banks are like a very big part of my life, especially as a Real Estate Developer. We’ll get into that later. That’s a little bit of a different topic. But you’re talking about banking on yourself. It almost sounds like you’re saying, you don’t need a bank and I’d love to hear why.
Mark Willis: Think about that for a minute, the banks have a sort of a grip on our decision-making process, would you be able to get a loan in the midst of a downturn to get that great deal? Probably not. There’s a great quote by Mark Twain he says, a banker is a fellow who will lend you his umbrella when the sun is shining. But wants it back as soon as it starts to rain, and it’s such a true aphorism, because banks are there not to lend you a hand. They’re there to make money off of your back. They’re looking at your loan application different than what you’re looking at. You want help on acquiring this business or buying this Real Estate deal. They see you as a profit center and how much can we squeeze out of that turn? How much blood can we squeeze into that turnup.
A lot of folks will say, Mark, why are you hating on banks so much. And by the way, Mark, I pay cash for everything, so I don’t have this problem. If you’re listening, and that’s you, first of all, that’s great. I’m glad to hear it. Second, if you spend no money on debt, that means somebody else’s twice the average. If the average is 37%, somebody else is up in the 70% range. Other people say, Mark, all my debt is low interest rates. I’ve got a low interest rate mortgage, I’ve got a low interest rate car loan, I’ve got a low interest rate, student loan. HELOC are 1%- 2% sometimes. I’ll say that’s fine. But sort of like when you eat food, it’s not so much the rate that matters to your waistline, it’s not the rate at which you eat the food. It’s the volume that kills you. It’s the volume that wipes you out.
I’ll see a lot of people again the statistic is 37% of your income is going to debt. That just means you’re buying bigger houses, you’re buying more cars, you’ve got more HELOC size balance or other forms of debt. For me it was student loan debt. The question is not so much should we have lower interest debt. I’m saying what if you could be the bank, not just pay cash. Paying cash is not the answer Michael, this was the big wake up call for me as a guy that ran the traditional mindset. As I was getting my CFP, I thought to myself, well, cash is obviously better than paying a ton of interest, that’s fine.
But I realized the problem of paying cash is you’re still financing it. In fact, you finance everything you buy. Either you pay interest to a banker, or you pay cash, and you pass up the interest you would have earned for yourself, had you left it in there, in the savings account or the brokerage account or whatever. Every time you pay cash for something, you’ve broken opportunity costs, you’ve broken compound growth. That is truly a devastating blow to your future. In fact, I would rather be, and this is kind of a controversial statement, maybe but I would rather be an honest borrower at somebody else’s bank, than pay cash and steal from my future self by paying cash and losing all that future growth.
Case in point, if you save 350 bucks into a savings account, earning four or 5%, over your lifetime to buy your $30,000 cars. You’re saving it in a nice earning savings account to buy your $30,000 cars, you might end up with nine or ten cars over your lifetime. But if you hadn’t bought those cars, and just let that 350 bucks grow, it’d be almost 900,000 bucks by the time you’re at the end of your days. That’s 900 grand missed. What if and here’s kind of the crux of my specialty as a CFP and what I really help train and encourage our clients to consider is, what if you could not just pay cash?
What if you could pay yourself an interest and actually continue to get growth on the money, when you make purchases that you got to buy, we all got to buy cars. We all got to buy Real Estate, we all got to send our kids to college and all those wonderful things. How do we actually profit from those experiences, if millions of dollars are going to flow through our hands, and it’s going to go into somebody else’s bank, I’d rather go into my bank first, and then make those major purchases and bank on myself. So that’s our specialty. It’s what we help train clients to do. It’s a mindset. It’s also a tactical system and it changed my life, and it changed the lives of hundreds, thousands of our clients across the country.
Michael Holman: Mark, a lot of the listeners who are listening to all this, they probably heard the phrase be your own bank. I know I have before it shows up on other podcasts. You want to know one of the things though, that I have never actually heard someone go into and I would love it if you would take the time to do this is. Even if it’s just high level, what is that process? What are those steps? What does it look like? It’s a phrase that when you start getting into the financial world you hear getting thrown around but run me through what are a little bit you don’t have to go into too much detail, but the nuts and bolts of what that actually means and how you do it, instead of it just being some ambiguous phrase that nobody really understands.
Mark Willis: It’s a nice aphorism. It’s a nice mantra, be your own bank, it feels good to say it. But we need a tactical system that can help tackle the real issues that we have in life. There are property taxes due every year, how are we going to pay for those, is it going to be out of cash? I hope not. What about your cars, it’s going to be bought some how’s it going to be somebody else’s bank or your own? What’s the logistical way to do this? Step one, I always want to have a real conversation with folks first. Even though it’s a cool concept, I always want to sit down and listen to what their needs and goals are before I run to this tool or that tool. We are a full financial firm, Michael. If there’s a better strategy out there for helping folks achieve their goals, we will go in that direction instead. Ira rollover, social security strategies, tax strategies, the full gamut. But if this bank on your self-concept is a good fit, here’s what we do.
We have an in-depth discussion over zoom or over the phone, and we look over their objectives, their concerns, their goals, their existing debt, their income, the full picture, and we just have a confidential financial flyover at 30,000 feet to get a good sense of what husband, wife, the spouses want to do, or the business partners want to do. If it looks like bank on yourself as a mindset is what they’re wanting, and a strategy to help them accomplish their goals. Then we would look at of all things, the tool that I found, meets the criteria to function like a bank for a family or a business is dividend paying whole life insurance of all things. Now, this is old fashioned whole life insurance. This is like 200 years old; these rules have been around but it’s still very much something that’s not talked about. Not sure why and believe me as a certified financial planner, I never thought I’d be on a podcast talking about whole life insurance. I was a big Dave Ramsey fan too. So that was two strikes against me.
Michael Holman: Everyone’s who’s heard Dave Ramsey knows term. You going to get a long-term life. That’s it.
Mark Willis: He’s definitely got his sponsors. Right up through his show for sure. One of his biggest sponsors is a Term Life insurance company. There’s something there. But for all the good that he’s done, I think he’s dead wrong on this kind of whole life insurance and here’s why. The kind of whole life insurance, we’re referring to in short, Michael, I just call it bank on yourself designed whole life. But if you want a little more detail, its dividend paying whole life insurance. That’s not what Dave Ramsey talks about. Its death benefit, and its cash value is extremely efficient even in the first month, after starting your policy, I just helped a gentleman put $250,000 into a whole life policy, he immediately borrowed out hundreds of thousands of dollars that he then put to work in Real Estate investing within the same month. Again, Dave’s not talking about that.
Now, when you borrow against a whole life insurance policy, if it’s designed to bank on yourself way, it will continue to grow and earn interest and dividends, even on the capital you borrowed as if you hadn’t taken the loan at all. Let that sink in for a second. If you have $250,000, you borrow against that to go invest in some storage units. Not only do you get the storage units and all the advantages that come with that, but now you also have a compounding wealth generating asset called Whole Life Insurance Cash Value that’s earning on the full cash value 250,000, as if you hadn’t taken that loan out. So now you’ve just increased your overall rate of return. The storage unit is going to do whatever 10,12 ,25 whatever percent, and the whole life policy, which is going to do a nice, boring, consistent, but guaranteed yield.
Usually, it’s in the 4% to 6% after tax range. That’s an increase of a benefit to you of almost 25% of your ordinary investment return you would have had. That’s all done without any additional risk and by the way, you were in control of that entire process. No banker can say no thank you to you when you request that money. It’s yours for the taking for whatever you wish. You can use it for your Real Estate, or your kids Disney World trip, it can be done for any reason. In a nutshell you can do whatever you’d like to do with it.
Michael Holman: One follow up question on all of this. With the whole life insurance, is there a limit? Can you only borrow up to the amount of cash that you put in? Can you borrow more? Can you leverage? How does that work when you actually want to take cash out? So that listeners know and myself to be honest, how much cash can you actually take out once you have that money in there? Let’s use that $250,000? example.
Mark Willis: It comes down to a few things. One, what you put in there, minus any cost of insurance, there is still some insurance costs, plus any growth it would have received over the years. At first, these policies have some insurance expenses we can’t get rid of. I tell you, there’s one way to get rid of all insurance expenses. You ready? Here it is, open a savings account. That’s how you get rid of all the insurance. There’s gonna be some insurance expenses if you want everything else, so there will be insurance expenses. But these policies grow over time, at a very healthy clip, they sure beat my other savings accounts, my money market accounts, my money market funds, my CDs, again, four to 6%, I’m not seeing much of that, in the way of CDs these days.
Michael Holman: You’re lucky if you’re past like 1% of CDs nowadays.
Mark Willis: It’s gonna grow at some point, maybe you’re putting in certain amount each month or each year, it will exceed what you’ve put in there. In the first, answer to your question, it’s whatever you’ve put in there minus the cost of insurance in the first few years, usually, plus whatever it’s grown to, at some point, you might open up your account, you’ve got twice as much that you have put in there has now been built up in cash value. It’s just a long-term savings bucket where you’re watching that thing grow at a boring, some say boring pace, but I kind of like boring and I’m pairing it with my other assets and my other investment. Pair some boring with some exciting and you get something really special there.
Michael Holman: I think that’s fantastic. One of the things too, that I just want to point out, and then I really want to go into some tax strategies here. We finally have a certified financial planner on the show, we got to go over some tax stuff. But one of the things I want to specify here, all of this debt that we were talking about at the beginning of the show, you’re referring mostly to consumer debt, correct? Cars, credit cards, even mortgages, things like that student debt. Am I correct in saying that?
Mark Willis: Here’s a case in point. You could take a whole life policy, buy your down payment on an apartment building or any other Real Estate property. Use your whole life policy for the down payment and then get a low interest mortgage on a cash flowing asset, from any bank, whatever. Now you’ve got no skin in the game, let’s say of your own, it’s just the bank, it’s the whole life policy for the down payment, and you’ve got the bank with the other skin in the game. And again, that policy is still giving you arbitrage it’s the fancy word there on the down payment. Again, you’ve really done some pretty amazing work with a very simple tool, whole life insurance is old and simple to use.
It’s very nuanced, on how it’s engineered. It’s kind of like a bridge, a bridge is very simple to use drive over it. But it’s very complex and how it was engineered. You want to make sure whoever you do this with that they are a bank on yourself professional. It’s sort of like getting a bridge engineer to design your bridge, you don’t just want my five-year-old to build your bridge for you. You want to make sure it’s done right and Bank on Yourself is the only training program that’s been credentialed. It’s been around for 20 plus years, and it’s the only one in the industry, the insurance world that allows you to design this correctly. I don’t know if that answers your question.
Michael Holman: That does and the reason I asked that is because I’m a very big proponent of leverage on a Real Estate asset. I’m a huge proponent. I’ve done whole shows where I actually make the argument that leverage on a Real Estate asset, actually de risk your asset. I completely agree on consumer debt. Credit cards, car payments, whatever you can do to stay away from that stuff. Absolutely. Anybody who’s listening, who listened all those previous shows, I want to make that distinction. Consumer debt, totally bad. Stay away from it, don’t get into it, do whatever you can to avoid it. Leverage on Real Estate assets and debt in that regards, completely different. I’m glad we’re on the same page there.
Mark Willis: I would actually say, you get more return when you have less dead equity in the deal. Let the bank take the risk, you get a higher yield on your cash. I will also say, however, that leverage can work both directions. We know that very well. So watch out for that and so what can you do in the face of that risk? If you had a big pool of contingency cash, sitting in a bucket, like a whole life policy, earning you a decent yield, and let’s say you went upside down on a property and you had to get out fast. What bank is going to loan you some money in that situation? None. No banker will lend money when it starts to rain. When it’s raining, have that big pool of capital in that policy that you can then use to right size your ship and sell that property for a profit. Should you want to do that. Just a little tip there for some folks out there.
Michael Holman: That’s a great point to make and something that I also mentioned. Leverage when used appropriately is the key. I got to shift gears, here we are. We’re recording this right at the end of the year; this is going to air sometime at the beginning of the year. We need to talk tax strategies because everybody is concerned about that right now. You got potential changes in tax code that’s been thrown around for years, you have all of these things. Talk to me about tax reduction strategies and what you’re seeing with your clients?
Mark Willis: I’ll say this. The real question is, when do you want to pay your taxes? When? Not what, how, but when? My question for you, Michael, and this is really, for the audience, too. Ask on behalf of all of us because no one’s got the crystal ball. But do you think taxes will be higher in the future?
Michael Holman: Absolutely.
Mark Willis: Alright. Could they be way higher, like over your lifetime?
Michael Holman: Yes, I believe so.
Mark Willis: Do you want to pay those taxes?
Michael Holman: The answer is no.
Mark Willis: Most of the tax strategies you’re going to hear from CPAs are going to help you lower your taxes right now but push you into a higher taxable bracket in the future. The word tax deferred retirement plans are thrown around this time of year by hundreds of thousands of CPAs across this country, I’m sure my CPA included. When they tell me Mark, put your money into a tax deferred plan, like a 401k or a SEP IRA, or a tax traditional tax deferred IRA. I look at them like they’ve got two heads. I know what they’re doing. It’s fine what they’re doing, they’re keeping their job. They’re trying to help lower my tax bill this year. I know a lot of your listeners are busy business professionals and executives earning a high wage very likely. So good anya for making good income, but the government wants a piece of that. So the question really is how do you take care of the tax problem?
The question really do you want to pay taxes on the seed or the harvest? If you think taxes are going to be higher in the future, even just by 1%, just 1% higher, the math works out to pay your taxes on the seed now. You have a tax-free harvest. What are the text on the harvest accounts? Well, 401Ks, IRAs, SEPs simples, 457 G plans, all the traditional stuff that is tax deferred, what is deferred mean? It means just put out into the future. If it’s something as terrible as taxes, taxes are like a root canal. If you defer a root canal, how does that end up? It’s just gonna get worse and worse over time. What can you do in the face of that? Well, here’s some simple tax strategies to eliminate tax, I don’t want to defer, I want to eliminate taxes.
One, you can write off all business expenses, if you don’t have a business, even if you’re a full-time doctor, I would recommend you set up a business where you are the business owner of your medical practice, somehow, maybe that allows you then to have a home office and you can eliminate the taxes on the expense for your home office. Any home office expense you have, then you can add your car as a company car. If you do this, right, if your car weighs enough, strangely enough, bonus depreciation on section 179 allows you to really write off a very large portion of your large car. There’s a reason why you see a lot of these executives driving around very heavy cars, if it weighs over a certain threshold, and it changes every year. But if it weighs over a certain threshold, you get a higher deduction. I asked my accountant, if I could just throw some cement cylinder blocks in the trunk of my car and they said no, that doesn’t count.
Michael Holman: Got all these CEOs out there, driving diesel trucks and semi-trucks.
Mark Willis: That’s right you can pay for your cars through your business and other major purchases. You can also employ your kids; this is a really cool strategy. If you can find a way to employ your children, even if they’re very young, they can maybe be the model on your desktop wallpaper or your brochure for your business or whatever. You can pay them up to the kiddie tax exemption, I think that’s 6000 bucks this year, check with your accountant, of course. They get that money tax free. You got a business deduction for doing that. You got a business deduction, they got it tax free, they can now put it somewhere, where’s it gonna go? Again, it’s gonna go somewhere, it’s got to live somewhere, my paper bag was one option, but I recommend, they could put in a savings account or a CD, or savings bond, guess what that’s going to get taxed every year, for as long as they live.
On the interest. Most of us don’t even realize this because we get paid such little interest. But when you put money into a CD or a savings account, they will tax you on the tiny amount of interest that you earned every year on your income tax return. I don’t like that, that doesn’t seem right, I use my money, and I’m getting taxed, just to not use it. If you can find a Roth IRA, that’s one option for your kids or whole life insurance of all things. If you can design a whole life insurance policy for yourself, you can certainly do it for your children, too. If they put it into a whole life policy, there’s no limit on what they can put into a whole life policy.
Just like us as adults, kids too, it’s really limited by mom and dad’s insurance limits, but there’s no government limit on what you can put into life insurance. If you’re putting in six grand into a whole life policy, it’s going to grow guaranteed for the rest of the kid’s lifetime. Can you imagine some of these young kids 80,90, 100 years of compound growth, and all that money is in there, and it’s in their not being taxed every year, like a savings account would be. Then they have access to that money throughout their lifetime, not just retirement like a Roth IRA would have. But they can use that money in the policy for any purpose. Maybe they need to go to college someday, or get married, or have a down payment on their house, or invest in their own Real Estate. Then ultimately, it’s a big pile of money tax free in retirement, the cash value in the Whole Life policies can be accessed.
Both the principal and the gains can be accessed without taxes due. Meaning this is something for you, Mom and Dad or the kids. This is a great way to never get taxed on money. In fact, you got a deduction early on when you gave that little kiddo some money for putting it into the policy. It is an income tax free death benefit, too. I would also say just in closing, there’s a bunch more ways you can really use the tax system for your advantage. I will say reach out to your accountant, make sure that they are working aggressively for you, staying on the right side of the tax code, of course, but working thoughtfully and strategically not just trying to get you the biggest deductions this year.
Michael Holman: I really appreciate all of the things that you’d mentioned in there. I am a complete believer as well pay your taxes now to not pay your taxes later. If that’s what you have to do, or even better, like you said, if you can eliminate the taxes altogether, that is the best strategy. I love the detail in there. I love what you were saying. One of the things that I got asked as we start to kind of wrap up. You have thousands of clients, I’m sure you have some of them that are really big into Real Estate. That are they’re constantly investing in Real Estate. How do you see using all of these strategies and all these things that are happening, how are you advising your clients of the best way to invest in Real Estate?
Mark Willis: You brought up a great point, I want to share an idea that relates to taxes, as well as Real Estate investing. Most people have a Real Estate, property tax. You’re gonna get a lot of great information from this podcast, guys. So make sure you subscribe to the podcast and listen to every episode that Michael puts out, because he’s working really hard on it and it’s awesome. I’ve been listening to it, be a subscriber with me. I would say the number one thing you want to do is ask yourself, what’s my greatest expense in my Real Estate project? And I would almost bet that it’s taxes, taxes overtime, are gonna eat up the vast majority because they never end. There’s the occasional fix the elevator in the multifamily or whatever the roof needs repair, but it’s probably taxes over the property’s lifetime. Because they never end.
That’s an infinite cost if you think about it. So what if you could put all that money that you’d have to pay on your taxes into a policy? And every year come tax time you borrow against your policy, and you pay Mr. Tax man? Now, what did you just do there? Well, you satisfied the government, you got to keep on the right side of the jail cell, that’s a good thing. But now you have an asset working for you, not just for the government, it didn’t move to the banker’s hands at the IRS, it’s now in your pocket, still earning an interest and dividend for you. Now, when you borrow against these policies, there’s a loan and the loan is repaid on your terms. You could take one year, 20 years, and pay it off as you please, I recommend you pay it off over a reasonable period of time. But it’s really up to you, you are the banker for yourself.
Meanwhile, the policy is continuing to earn interest in dividends, like you never took that loan. I do this every year with my taxes. Why would I pay cash for property taxes or income taxes, or any other major expense, if I can cycle it through my policy, then pay my loan off over the next year or so. I can do it all over again next year, it recycles that money rather than throwing it away. While there’s a ton of content out there on Real Estate investing, and again, listen to this podcast, because it’s chock full of great ideas, guys have an answer for what you’re doing to recoup the problem of paying taxes, because that’s going to be the biggest expense over your lifetime. If you can find a way to earn interest on that money, you’ll come away with multi-million-dollar idea on this podcast if you can implement it.
Michael Holman: You already got my head spinning with a few of these things. I already have a few limited partner investments that I was thinking about making now I’m sitting here saying, whoa, hold off. Let’s go talk to Mark and set up a whole life policy. I’ll take the money out, and then I’ll make the investment. There’s infinite number of options here and Mark is giving you just nuggets of gold. One of the things that’s important here is to understand that it just takes a little bit of time, effort, and guidance, but all of these things are possible. All right, Mark this has been fantastic. I feel like I could go on for like two or three hours. You’re speaking my language right now and I love it. I don’t even take offense. I was a previous CPA, I’m good. I never worked on taxes anyway, I bought it at a big company.
Mark Willis: My apologies to all the CPAs out there. I think there are a lot of really good ones, no doubt. But I would say would you agree that the primary objective is getting the biggest deduction for your client this year? That’s the best you can do. Not a bad thing. I want my CPA doing that, but not forgetting about my lifetime tax obligation. I have to weigh both. That’s what I think CFP should be doing in conjunction with the CPA. CPA is there to really hammer down this year’s tax bill. But the CFP, hopefully and we do this with our clients with some software, we include scenario analysis, we help them look at their lifetime tax obligation. How do we limit that and even past their lifetime, so that the kids don’t get nailed with taxes either. You want to think multi-generational, which is what I’m privileged to get to do with clients.
Michael Holman: I love and I’m just joking with you. That’s fantastic. We got to get into the final segment of the show. We got two questions we ask every single guest Mark, and you are no different. Here we go. Mark, what is the best business advice you were ever given?
Mark Willis: One that I’m really loving right now is skills that got you out of Egypt will not get you into the promised land. Dan Sullivan, and it’s a reminder that what got you here won’t get you there. You really constantly have to be growing and thinking different and trying new skills to get you into that promised land. You think about Moses, he got them out of Egypt. But he didn’t have what it took to get them into the Promised Land, they had to wait around 40 years for somebody else to come around and help them into the Promised Land. Skills that got you out of Egypt will not get you into the promised land.
Michael Holman: That’s great and it’s so true. You have to be willing to pivot and make adjustments as you move forward. Fantastic advice. We’ve been a rapidly growing development firm. We found that what got us to 50 million in the development pipeline isn’t exactly what took us to 200 in the development pipeline. So I love it. Now, next question, what Real Estate investing advice would you give other business owners or business executives?
Mark Willis: Really evaluate how you can become your own source of financing. Truly, that is the biggest wake up call of my financial life. It transformed my marriage, it transformed my relationship with my business partners, it has transformed my Real Estate investing strategy. I don’t care if it’s multifamily units or storage units, or mobile, home parks or anything else. If you control the banking function in your life, you win, by default.
Michael Holman: That is fantastic advice and it’s something that is so out of the box from a traditional Real Estate investor mind. It’s like, hey, I want to go buy a single-family rental or apartment or I want to invest like I was saying, I want to go invest in a limited partnership in a syndication. The idea is you get the cash from, maybe it’s your Roth IRA, maybe it’s just cash you have you go make that investment and that’s that. I love this extra step that you’re talking about, about, hey, you can finance it. You don’t have to just give that cash away; you can still control the cash and make the investment. Such good advice. I love it. Alright, Mark, how can people get in touch with you?
Mark Willis: We have a podcast, we’ve been putting content up for several years, we’re over 200 episodes now, we’re loving, good work. We’re having a lot of fun. The show is called Not your Average Financial Podcast, you can listen to us on any podcast player, or go to Not Your Average Financial Podcast.com and if you’d like at Not Your Average Financial Podcast.com You can click on a button that says request a meeting. We can say hello and get to know you for 15 minutes. You can meet me there answer any questions. We also have a membership site that we can connect you with there as well. But you got to go to Not Your Average Financial Podcast.com and say request a meeting.
Michael Holman: We will make sure all of that gets in the show notes. So if you were just listening to this episode, and you heard Mark’s response, and you were just frantically writing all of that down, don’t worry. Go to The Executive REIShow, find this show. It’ll have all of those resources exactly. We’ll link to all of Mark’s stuff that he just mentioned, so that you can get in contact with Mark. You can start being your own bank, which is just fantastic. I love the phrase bank on yourself. Mark, thanks for joining us today.
Mark Willis: Thank you.
Thank you for listening to The Executive Real Estate Investing Show. Ready to learn more? Go to ExecutiveREIShow.com for more episodes and resources to help you create generational wealth through real estate investing. That’s ExecutiveREIShow.com.
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MENTIONED IN THE SHOW
Think back over your life and financial milestones. This could be the first time you opened an account, made a large purchase, invested your money, or got a mortgage. In how many instances was a bank involved? Probably for most of them. But what if you could actually become your own bank? Instead of being tied to banks who have the primary motivation to make money off of you, you could actually fund and finance
- Mark begins by talking about the importance of banks. As a child, he had accumulated around $50 from allowances and birthday cards, and was keeping it all in a paper bag. His mom convinced him to put the money into the bank. “Little did I know that paper bag was most likely a safer place to keep my cash than the bank.” Banks might keep your money safe, but they are making money with it instead of you.
- Fast forward a few years later, when Mark was fresh out of college with two diplomas, a wife with a degree of her own, and $120k worth of student loans. “That experience really got me homed in on and focused on money. Up until then there was no real awareness of the debt we were creating, the problems we were creating for ourselves, how much profit the banks were going to reap off our backs.” Now as a CFP, he says that the banks have the real control in a financial relationship. “Whoever is on the right side of the banker’s desk in your life will win the money game, I don’t care what your rate of return was on your mutual funds or even your real estate portfolio as great as both of those will be for you the real power and the real leverage in your financial life is who is controlling the banking function in your life.”
- This led him to form Lake Growth Financial, a company that helps 1000+ clients “truly take control of their financial future by grasping and retaining and reclaiming the banking function in their family life or the life of their business.”
- For Mark, it all comes down to debt control. “Too many Americans are indebted to their eyeballs. According to the us commerce bureau, 37 of the average American’s income goes to servicing their debts… working a third of the day just to the just to appease our banker overlords.”
- Mark is quick to point out that while he’s not a fan of banks, banking will be with us forever. “I love bank as a verb and if you can bank on yourself and if you can truly take that banking function back and put it in your business or put it in your family, the freedom that comes from that and the rate of return that comes from pulling back 37% of money that was leaving your pocket–is tremendous.”
- Even those who have figured out that it’s better to pay cash instead of credit cards are at risk of losing money. “The problem of paying cash is you’re still financing it. In fact, you finance everything you buy–either you pay interest to a banker, or you pay cash and you pass up the interest you would have earned for yourself had you left it in the savings account or the brokerage account or whatever. Every time you pay cash for something you’ve broken opportunity cost; you’ve broken compound growth, and that is truly a devastating blow to your future.”
- Mark’s goal is helping people to realize they can bank on themselves. “What if you could not just pay cash, what if you could pay yourself an interest and actually continue to get growth on the money when you make purchases that you have to buy?”
- The nuts and bolts of “Being Your Own Bank” and how to do it:
- Mark is a CFP, and he definitely recommends meeting with a CFP to go over your finances and your goals. If college, a new car, or real estate investing is something you have in mind, a CFP can help you to make it a reality. “If there’s a better strategy out there for helping folks achieve their goals, we’ll go in that direction. IRA rollovers, social security strategies, tax strategies, you know, the full gamut. If it looks like bank on yourself as a mindset is what they’re wanting and a strategy to help them accomplish their goals, then we would look at things that I found meets the criteria to function like a bank for a family or a business.”
- One of those tools? Dividend Paying Whole Life Insurance. “as a certified financial planner I never thought I’d be on a podcast talking about whole life insurance!” Mark recommends a policy that will pay dividends. “I just helped a gentleman put $250,000 into a whole life policy. He immediately borrowed out hundreds of thousands of dollars that he then put to work in real estate investing, within the same month.”
- “When you borrow against a whole life insurance policy if it’s designed the bank on yourself way it will continue to grow and earn interest and dividends even on the capital you borrowed as if you hadn’t taken the loan at all.”
- “If you have $250,000 you borrow against that to go invest in some storage units, not only do you get the storage units and all the advantages that come with that, but now you also have a compounding wealth generating asset called ‘whole life insurance cash value’ that’s earning on the full cash value $250,000 as if you hadn’t taken that loan out, so now you’ve just increased your overall rate of return.” Of course, you can only borrow up to the amount you’ve paid in, at least at first. “It’s whatever you’ve put in there minus the cost of insurance in the first few years usually, plus any growth it would have received over the years.” Generally these policies grow at a rate of about 4%, which is better than many CDs and savings accounts. It might be a boring way to make money, but “I kind of like boring, and I’m pairing it with my other assets and my other investments pair some boring with some exciting and you get something really special.”
- Mark and Michael both caution that if you are going to get started with the bank on yourself strategy, hire a professional. “Bank on yourself is the only training program that’s been credentialed it’s been around for 20 plus years, and it’s the only one in the industry, the insurance world that allows you to design this correctly.”
- Tax Strategies. Michael shifts gears and asks Mark about taxes. Mark offers up a question: “When do you want to pay your taxes?” And what happens if taxes will be higher in the future? “CPAs are going to help you lower your taxes right now but push you into a higher taxable bracket in the future. The word ‘tax deferred retirement plans’ is thrown around this time of year by hundreds of thousands of CPAs across this country.” Keeping a tax burden low is great, but the government eventually wants its cut. “The question is really do you want to pay taxes on the seed or the harvest, and if you think taxes are going to be higher in the future even just by one percent just one percent higher the math works out to pay your taxes on the seed now so you have a tax-free harvest.”
- “Tax on Harvest” plans are things like 401Ks, IRAs, SEPs, and simple 457g. These are all tax deferred.
- Instead of deferring taxes, why not eliminate them all together? Mark fires off a few ways to do it.
- Write off all business expenses. “Even if you’re a full-time doctor I would recommend you set up a business where you are the business owner of your medical practice somehow maybe that allows you then to have a home office and you can eliminate the taxes on the expense for your home office.”
- You can add your car as a company car. “Bonus depreciation on section 179 allows you to really write off a very large portion of your large car. There’s a reason why you see a lot of these executives driving around very heavy cars–if it weighs over a certain threshold, you get a higher deduction.”
- Employ your kids. “They can maybe be the model you know on your brochure for your business or whatever and you can pay them up to the kiddie tax exemption–I think that’s six thousand bucks this year. Check with your accountant of course, and then they get that money tax-free. You just you got a business deduction!”
- These are just a few strategies. A financial advisor and a CPA would have more resources.