Wealth Formula by Buck Joffrey

Is this market hot? Are real estate and equity prices too high? Invariably you are hearing this left and right these days. In fact, I can honestly say that I have been hearing that for at least the last three or four years. My initial response to the impending zombie apocalypse was to stop deploying capital. That was a mistake. While those of us listening to Chicken Little sat on cash a few years back, other investors made money hand over fist.  So who’s to say that that people sitting on cash three years from now won’t be saying the same thing? It is very difficult to time the market.  So, what do you do? If you lose money by not deploying cash and letting inflation eat away at it and if you are worried about deploying capital into an over-heated market, what’s left to do?  Of course there are options like building up cash in Wealth Formula Banking that may make sense for cash accumulation that is very conservative. However, another simple concept is to be selective of where you deploy capital! For those of you in Investor Club, you know that I am deploying capital heavily right now. Why? Well, the projects we are doing are not of the “buy and hope” variety. We are buying heavy value add properties and budgeting significantly for capital expenditures.  We are not relying on market appreciation to increase the value of properties, we are creating value through forced equity. In doing so, we effectively deleverage ourselves and perpetually de-risk our assets. Am I afraid of an oncoming recession? Not really. A recession is part of the business cycle. We just happen to be in the longest economic expansion in the history of the United States. I fully expect a recession in the next few years. But a recession does not necessarily mean zombie apocalypse. We used to have recessions all the time that people barely noticed. Despite my belief that a recession will happen sooner or later, I am also of the belief that the next decade will be one of prosperity along with a fair amount of inflation. That long-term perspective helps me to focus on the idea of buying high quality assets in good markets and the creation of equity through value add strategies. Even if the economy slows and markets correct a bit, I consider this is a pretty solid approach and superior to sitting on cash that simply erodes in value over time. Now, I should point out that when times are good like they are now, it is also not a bad idea to take some profits off the table. If you were lucky enough to invest in real estate over the last five years, you look like a genius right about now—even if all you did was buy and hope. Selling a business is a pretty good play as well given private equity’s on-going quest to find yield wherever they can. Whether you’re selling a business or real estate, liquidity events can be very exciting. The idea of a big lump of money headed my way always puts a smile on my face. But one of the things you have to think about before it gets to you is how you are going to keep as much of it as you possibly can. If you don’t, the tax man will be happy to take some of that big wad of cash out of your hands. Unfortunately, most people having liquidation events have little knowledge of all of the potential options that they have to defer taxes. In fact, there are multiple strategies to do so and my guest on this week’s Wealth Formula Podcast is here to tell us exactly what they are. Don’t miss it. Brett Swarts is the CEO of Capital Gains Tax Solutions and every year equips hundreds of business professionals with the Deferred Sales Trust tool to help their high net worth clients solve capital gains tax deferral limitations. His experience includes numerous Deferred Sales Trust, Delaware Statutory Trusts, 1031 exchanges and $85,000,000 in closed commercial real estate brokerage transactions. He’s an active commercial real estate broker and investor himself with experience and holdings in Multifamily, Senior Housing, Retail, Medical Office and Mixed-Use properties. He is a licensed California Real Estate Broker and holds series 22 and 63 licenses. He is formerly an associate at the largest Commercial Real Estate Brokerage firm in the country and has years of experience and hands-on training from some of the best in the business. Shownotes: Brett’s background Dumb Debt, Risky Debt and Smart Debt Capital Gains Tax Solutions Return on Investment capitalgainstaxsolutions.com/

At a recent investor conference in Tenafly, NJ, I spoke on the topic of what I call Wealth 2.0. This is my preferred paradigm for investing that can be simplified into the the following equation: Wealth=Leverage(Mass X Velocity) Mass is simply the amount of money that is actually deployed into investments. After all, it doesn’t matter what kind of return you get if you aren’t investing any money in the first place. You’ve got to deploy enough to move the needle. The good news is that mass, like all variables in this equation, can be manipulated by the savvy investor. For example, paying attention to the tax implications of your investments can actually decrease your tax burden and free up more money to invest. Case in point, I have invested a significant sum of money into projects that we have presented through our Investor Club this year. I am estimating that, in addition to creating equity through my investments, I am simultaneously significantly reducing my tax burden for this year—up to 80 percent of all my invested capital should be tax deductible! How is that possible you ask? Well, It’s because I am a real estate professional and can utilize bonus depreciation on all of my real estate investments (even those done passively in syndications). If you navigate the tax law thoughtfully, you will have more money to invest. It’s that simple. Now let’s look at the next variable—velocity. People often talk about a certain cash on cash return when they think about investing. That’s useful, but I prefer to ask the question,  “How long before I get my money back?”. You see, 10 percent cash on cash is great but that means that for the first ten years of my investment, I’m just getting my own money back. I prefer investing in opportunities that get me ALL of my invested capital back within 5 years and yet still allow me to keep my equity in the asset. In that case, my cash on cash return is not five or ten percent—it’s infinite! Think about it. If you have all your initial invested capital back in your pocket and still have equity in a deal, its like recycling capital and using the same money in multiple deals. That certainly speeds up the wealth building process—another reason to call this variable velocity! The last variable in our equation may also be one of the more underrated—leverage. Leverage is critical to building wealth. In fact, infinite returns as I have described above, are virtually impossible to attain without the skilled use of leverage. Most people familiar with real estate understand instinctually that leverage is important to making money in real estate. But when you do the math, the numbers can be staggering and explains why so many real estate investor have become so darn wealthy. However, leverage is not just about borrowing money from the bank. Inherently, the word leverage simply implies the use of a tool that amplifies ones efforts. Certainly bank money fits that description but there are many other creative uses of leverage that often go underutilized. For example, what if there was a way to leverage your charitable giving? In other words, what if you could support your cause by donating a certain amount of money that had the simultaneous benefit of amplifying the size of the deduction on your tax returns? Wouldn’t it be great if you could donate $10K but get the benefit of donating 50K on your returns? Believe it or not, there are ways to do things like that. My guest on this week’s Wealth Formula Podcast is in the business of land conservation. It’s something that, in my opinion, is a very important cause that I would support even without the financial benefit. However, there happens to be some pretty significant leveraged benefits to this kind of giving so it’s even more appealing. Suffice it to say, this is an interview that you simply cannot afford to miss! Jim Sullivan is the President of Terra Optima LLC, a Florida based real estate and tax specialty firm that provides education, consulting and opportunities in tax efficient real estate. As President of Terra Optima, Jim intersects with Family Offices, Tax Advisers and the broader business and “Impact Investing” community relating to “all things real estate and tax efficient”. Shownotes: What are Conservation Easements? Who does valuation for Conservation Easements? Are Conservation Easements a loophole for the wealthy? jsullivan@terraoptimus.com

Learning is an electrical function of the brain. When we first start learning something, our brains start developing connections to integrate that information. Over a period of time, those electrical connections become stronger and stronger giving the perception of something becoming second nature. It isn’t until a basic function becomes second nature that you can then start adding layers. For example, a professional baseball player was, at one point, an infant who couldn’t walk. Eventually he went on to develop his athletic prowess to the point where he might even chew tobacco while hitting a hundred mile an hour baseball with a piece of wood. At that point, he doesn’t have to think about how to walk anymore.  You see, expertise in things requires depth of experience that allows for complex neural circuitry to form and to make certain, more basic skills, run on autopilot. At that point, you are able to absorb information in multiple dimensions—some conscious and some not. This next level in learning allows us to function at a higher level. So how does this relate to investing? Well, becoming a sophisticated investor requires some of the same layering of information and development of neural circuitry to allow for a more comprehensive approach to personal finance. I’ve talked before about how novice investors are often attracted to the “good from far but far from good” investments. You know—the kind with big front end cash on cash returns that then depreciate to zero in just a few years. Seems obvious to avoid such things but cash on cash is a simple thing to cling on to for novice alternative investors after reading books like Kiyosaki’s Rich Dad Poor Dad. It represents the metaphorical “learning to walk”. Over time, the successful investor starts layering depth and complexity to his investing strategy. He might even start paying attention to the more nuanced lessons in the Kiyosaki books that are often overlooked at first glance. I will admit whole heartedly that there was a time several years ago that I was just “learning to walk”. There is no shame in that. Over time, I just spent so much time thinking about this stuff that I got more sophisticated than most when it comes to thinking about money. That said, I’ve been around for a long enough time to know that five years from now I’ll be a hell of a lot smarter than I currently am! Now, over the last several years, one of the most critical elements of investing that I have learned is to understand the importance of the interplay between deploying capital and taxes. In fact, I would say that taxes play a DOMINANT role in my investing decisions and, for that matter, my life decisions. Let me give you an example of what I mean. Say I earn $100K that I can deploy however I wish. For better or for worse, the first thing that comes into my mind is the fact that a big chunk of that is going to get sliced off and sent to the government in the form of income taxes. That is, unless I do what the government wants me to do like invest in real estate. You see, the tax code is largely a series of tax incentives. If you do what the government wants you to do, you will will be rewarded by paying less taxes. What does the government want you to do? It wants you to stimulate the economy through business activity and investments into things people need like a roof over their head.  If I want to keep as much of my earned money as possible, I personally invest it in real estate. With cost segregation analysis and bonus depreciation, my investments not only serve to build my wealth in the future, but also decrease the amount of money I have to give to the government today. That is one hell of an incentive to ignore! Now compare that to investing your hard earned money into another opportunity that might be appealing but not so tax advantaged. For example, a lot of people in the alternative space really like debt funds that pay higher cash on cash returns than other investments. I get it—returns look great. But the way I see it, if I invest in real estate equity instead, not only do I get the benefits of tax sheltered income, but I also get to largely write off the invested capital itself! And don’t forget, investing in real estate also gives you the upside of appreciation.  Investing in debt has NONE of those advantages. I’m not saying don’t do it—just look at it like a multidimensional investor rather then a rookie investor seduced by big cash on cash returns. Think about your investments holistically. Earlier, I mentioned that the tax code has not only influenced my investing decisions but actually some life decisions as well. You see, after I left medicine, I had to decide where to focus my time. I was already investing in real estate and enjoyed it so one of my options was to become a full time real estate professional. A real estate professional, defined by the IRS, requires a minimum of 750 hours documented real estate activity per year with no other activity that you spend more time doing. If you meet those criteria, the tax benefits are HUGE. Specifically,  all of those passive losses you get from investing in real estate become “activated” making them applicable to any other source of income that you or your spouse (if filing jointly), may earn in a given year. If you don’t understand what I just said, read this paragraph again. It’s huge and it was one of the major reasons that I decided that the best option for me was to become a full time real estate professional. This designation is particularly good for people selling businesses looking for new careers. The sale of a business often comes with a significant liquidity event. Say you were one of the lucky ones and sold your dental practice for $10 million. What if you then decided to focus the rest of the year on going full time into real estate investing and became designated as a real estate professional? Well, all of that money gained from the liquidity event could theoretically be invested into real estate and, with bonus depreciation applied to offset capital gains, you may not have to pay any taxes at all! That’s not theory. That’s reality and it’s totally legal. I’ve seen it done over and over again. I just wish everyone with a big liquidity event knew that it was an option. Think of how much money you could save if you were in that situation! That’s why I say that being a good investor requires a tax strategy. The emphasis should be not on what you make, but what you keep (after taxes). Like a business, you can’t focus on your top line and never think about your expenses. If you are like most people, taxes are your biggest expense. Run your personal finances like a business and a lot of things will become more clear. Of course when I finished surgical training a decade ago, none of this was remotely on my radar. It wasn’t until a couple of years later after following Robert Kiyosaki that I discovered a book that would fundamentally reshape my thinking about taxes. The book, Tax Free Wealth, was written by Robert Kiyosaki’s CPA, Tom Wheelwright. Tom is a genius and has taught me a great deal over the past few years. Now, I’m happy to call him my CPA as well. The more you listen to Tom, the wealthier you will become.  So listening to my interview with him on this week’s Wealth Formula Podcast should be a no-brainer. Tom Wheelwright is a CPA, CEO of WealthAbility (Tempe, Arizona) and Best-Selling Author of Tax-Free Wealth. Wheelwright is a leading wealth and tax expert, global speaker, and Entrepreneur Magazine Contributor. Tom is best known for making taxes fun, easy and understandable, and specializes in helping entrepreneurs and investors build wealth through practical and strategic ways that permanently reduce taxes. Shownotes: Buy, Borrow, and Die Why do you need a tax advisor? Tax strategies with the current tax law The biggest issue with asset protection estate planning is that most attorneys don’t speak English. wealthability.com

If you can’t explain it, you don’t understand it. Remember that the next time you look across the table at a financial advisor type and feel confused. Ask yourself if you could explain what you were just told to someone else with some level of confidence. If not, start asking questions because the advisor will not expect you to! You see, this is a set-up—a financial ambush so to speak that high paid professionals get caught up in all the time. Let’s say you are a hotshot surgeon coming out of residency and you just signed a contract that’s going to pay you $500K per year. You know nothing about about investing, taxes, or asset protection and suddenly, you have a bunch of new “best friends” who want to help you invest that money and do your taxes. The money manager starts talking about all these buckets and different kinds of risk and yield. He seems to know what he’s talking about but you don’t really get it. Even though you don’t know how those different buckets produce the returns the way the guy said they would, you figure he knows what he’s talking about. After all, he manages money for all the other guys in the practice.  Instead of asking a lot of questions that might sound dumb, you decide to just to trust him and give him all your money. After all, like you, he is a “specialist”. Let him do his job! Now, as a Wealth Formula Podcast listener this scenario may sound ridiculous to you, but I can guarantee it happens every year when surgical residents graduate and start making money.  Even surgeons with massive egos are fooled into thinking that personal finance is too complicated for them and should be handled by a professional. After all, we have all been brainwashed into believing that by Wall Street. They want you to be afraid. They want you to think that what they do is so complex that you would be down-right irresponsible to take things into your own hands. It’s actually a brilliant marketing play if you think about it. The idea is to weaponize complexity to generate fear. The highly educated, highly paid professional falls for it all the time! Do me a favor, next time you are in a situation like this with a money manager, tax professional or asset protection attorney, start asking them all the questions you can think of even if they seem stupid. After all, if they can’t explain it, they either don’t understand it or they are simply trying to make you feel dumb. None of this stuff is over your head. Furthermore, if you think you are too busy to learn about your own financial matters, you will pay a steep price that you won’t discover until the end of your career when you look at your bank accounts and start wondering why you don’t have more money. I see this all the time with doctors and other highly specialized professionals and its sad—people making hundreds of thousands of dollars per year for decades and winding up with less than a million bucks to retire! I am sympathetic though. The fear of complexity is powerful. I have to admit that I have followed the lead blindly into some things as well. A few years ago, I signed up for a foreign asset protection trust because it seemed like a good idea—and for me it was.  The problem was that I didn’t really understand the strategy very well. But the guy who recommended it to me seemed like he knew what he was talking about and was very confident that it was the right thing for me. And to be clear, he is a smart guy. But I always left meetings with him a little confused and frankly embarrassed to ask any more questions. I figured he knew what he was talking about and that he was taking care of me. When it comes to asset protection, that’s pretty dangerous. After all, when push comes to shove, you have to know exactly what your situation is. There is no time to be confused in a knife fight! For better or for worse, I was in some asset protection knife fights over the past year after a business failure. Everything turned out ok but I found significant flaws in the way I was set up. It’s never a good idea to stress test your protective mechanisms in real time but that’s what I did. Since then, I have been on a mission to really understand asset protection at a higher level. I told my CPA Tom Wheelwright what I was trying to do and he recommended I speak with Doug Lodmell—my guest on this week’s Wealth Formula Podcast. Doug is unique in that he is brilliant, practical and a great communicator. If you want to start understanding this stuff and protecting your assets in a practical manner, don’t miss this interview. Born in Geneva, Switzerland, attorney Douglass S. Lodmell has excellent knowledge and the highest level of experience in estate planning, taxation and strategic asset protection for domestic and international clients. In addition to a Juris Doctorate from Cardozo School of Law, Douglass has a Bachelor of Science degree in finance as well as an advance law degree (LL.M.) in taxation from NYU School of Law. He has authored numerous articles for professional journals as well as a popular book about the explosion of lawsuits in America called The Lawsuit Lottery: The Hijacking of Justice in America. Doug’s extensive experience in asset protection make him a frequent guest speaker at medical, and professional conferences and seminars throughout the country, as well as teaching concepts of asset protection to other attorneys at continuing legal education seminars throughout the country. Shownotes: Doug’s background What is Asset Protection? Different levels of Asset Protection Finding legitimate means of Equity Stripping lodmell.com (602) 230-2014

Let me tell you about another one of my failures. A few years ago, I was listening to a well known podcast and I heard about this concept of turning single family houses into elderly care facilities.  The idea sounded pretty compelling so I decided to go to the “course” in Phoenix. In fact, I went out there with another entrepreneur buddy of mine. In short, we both got sold on the concept (and I mean sold). The next thing you know, we were dropping five figures on a coaching/mentorship program.  Have you ever bought something like this? I bet you have if you think about it. Good marketers know that people respond to fear and greed and this one had elements of both.  Now I am not saying that this program that I signed up for was worthless. I did learn a lot and I believe that had things gone another way, I could have had a successful small business on my hands. However, a lot of things got in the way. First of all, I bought a house that was clearly zoned for such conversion, but it was clear that the neighbors were not going to have it. But wait..if you are zoned properly, shouldn’t you be able to do whatever you want to do? Not really—that’s where the theoretical and the real world of local real estate politics collide. In short, the neighbors were making me jump through all sorts of hoops that they knew would be time consuming and expensive. The proposed traffic feasibility study alone would have cost me tens of thousand of dollars. In the end, I asked my business attorney if the neighbors could really stop me and he said, “no, but they can make you wish you had never started”.  Now understand that while all this was going on, I was making a lot of money doing things that were not nearly as hard. Had I known what kind of effort would go into this, I would have never started. So, I decided to just sell the house. A couple of weeks after listing the house, my broker called me up and let me know that he had taken a potential buyer to the property and that a pipe had burst. There was water everywhere and he could already smell the mold. Fortunately, I had insurance and it covered me for just about everything. We got permits and the contractor started to work. But things were going unusually slowly. A year later, the contractor had made very little progress other than to tear the thing apart. It started getting ridiculous. There was all sort of excuses for delays that made absolutely no sense. Eventually, the contractor confessed that he had taken the money and bought a couple of other houses to flip. The problem was, he couldn’t sell the houses that he rehabbed! Can you believe that? He then agreed to return the money to avoid litigation…until he spoke with an attorney. Then he denied ever saying he used up the funds to buy other houses. The next thing you know we were off to the legal races. If you want to know how this thing ended ask me next time you see me. But suffice it to say, this did not end up the way I wanted it to. When all was said and done, I was down over $250K with nothing to show for it. Now, I don’t blame my coach/mentor for this. The service provided was reasonable and had circumstances been different, I might have had a profitable little business. But there was a valuable lesson there. No matter how you cut it, what I was embarking on was an extremely high risk endeavor. I was doing something that really had not been done before in the Chicago suburbs. It involved significant investment into real estate and there were an enormous number of moving parts—many of which were out of my control. For a guy with some highly profitable businesses at the time, did it make sense for me to take this on? In retrospect the answer was clearly no. Even had things turned out ok, the reward simply was not high enough for the risk involved. Understand that I am a serial entrepreneur. I have successfully started multiple businesses with seven and eight figure yearly revenues. But I have also failed on some. That’s why, when it comes to my entrepreneurial activity, I never accept investor money. I am willing to take a lot of risk on my own dime but I’m leaving you out!  So, losing money in that venture was not that big of a deal to me. I’ve lost a lot more than that with other efforts. But what bothered me about this one was that the upside was so limited. Why did I think it was worth it? Well, I think I had mistook a business start up for a real estate investment. When you hear about 30 percent cash on cash projects, that sounds pretty good to a real estate investor but it’s not that big of a deal for a business start up. You should expect that kind of return from buying an established business. But for a start-up??? No. That’s enough. For reference, my successful startups have had returns in the 400-500 percent range and have been incredibly scalable. That makes up for the big losers. The best case scenario for this start-up was 30 percent cash on cash, lack of scalability, and a ton of work and responsibility (it’s a big deal taking care of the elderly!) Bottom line, I chalk this experience up as a mistake. Now, don’t get me wrong. I know there have been people doing this successfully but those who are doing it well are not treating this as a passive endeavor and, in my view, could be making a lot more money doing other things with the same level of effort. That’s my opinion based on my experience. However, others have had other experiences and are doing quite well with this. I find that those most successful in this arena are those who really care about what they are doing and don’t see it through the lens of pure profit. Loe Hornbuckle is one of those guys. If you want to explore senior living as something you want to get exposure to, you will want to listen to this week’s Wealth Formula Podcast. I didn’t hold back. I asked Loe hard questions and he did a very good job of answering them. Loe is the founder and CEO of Sage Oak Assisted Living in Dallas, Texas. Family-owned and operated, Sage Oak was founded to fill a need in personal home care for seniors. Our homes are located in some of the best residential neighborhoods in central Dallas, allowing residents to feel like they are at home, especially when compared with some of the larger facilities, which to many residents can feel more like a hospital or an institution. Shownotes: Loe talks about how he got interested in Assisted Living Assisted living facilities as a service business with a real estate component Scalability of assisted living facilites What is Boutique Assisted Living? The pitfalls of single family homes converted to assisted living facilities Loe’s future projects thesageoak.com loe@thesageoak.com

We recently had a Wealth Formula Network call in which we talked about an offering some members were participating in that I didn’t care for as much. One thing to remember is that smart people can disagree about things without anyone necessarily being wrong. I pointed out some things I avoid when I invest and the topic seemed to garner a lot of interest. So, I decided to share some of the lessons I have learned over the years. After all, the best way to become a good investor is through age and experience. The problem is that age and experience are hard to teach. When I did my first face lift, I thought I was good. But looking back after doing 500, I definitely was not. I had the basics down and got lucky with my results, but it was no where near mastery. When you are a young Turk plowing ahead full of energy, you look at guys a few years older and wonder why they are so cautious until, one day, you learn for yourself—the hard way. When you make a mistake that matters it will stick for ever. The good news is that while mistakes are critical to learning, they don’t always have to be your mistakes. But in order to learn from others mistakes, you have to be humble and receptive. So, let me give you a few investing pearls that have come along with my graying hair. 1) When it comes to investing, it’s not just about the numbers. It is also an over-simplication to say to “invest with people that you know, like and trust.” Of course I truly believe that is a requirement. The problem is that I know, like and trust a lot of people with whom I would never trust my money. Would you trust your grandmother to choose where to invest your life savings? Look for people who you know, like and trust, then judge their competence by looking at what they have already achieved. A track record is important and really is the report card that you need to look at. Don’t be part of someone’s resume building exercise or someone’s multimillion dollar lesson if possible. If someone has a full time job as a software engineer and trying to get you to invest in their $20 million dollar real estate acquisition so they can work toward quitting their job, politely decline and say you might be interested in 5-10 years. 2) Avoid “good from far but far from good investments”. Every species has some kind of physical attribute that make it more likely to reproduce. Think of the peacock with colorful patterned plumage fanned out for display purposes to attract a mate. Investments have similar qualities that are irresistible to investors and deal sponsors know it. Cash-on-cash is probably one of the most attractive features to the novice investor because, on the surface, high cash on cash numbers can be pretty seductive. Everyone loves the idea of replacing their income with passive cash flow asap. Let me ask you this—would you rather get 25 percent cash on cash or 7 percent cash on cash? 25 of course, right? Well, what if the 25 percent depreciated down to zero in 4 years while the 7 percent cash-on-cash investment increased in value by 100 percent?  All investment proformas must be considered holistically. As investors, we should be looking at the profit we make from our investments rather than being content with monthly checks that represent our own money being given back to us in small increments. I would suggest looking at investments in terms of annualized returns or internal rate of return instead. In the process of making this calculation, you will need to get an idea of how the investment will be exited. In some cases, you may discover that there is NO EXIT! No exit is not a good thing—tough to get a return of any kind on that. 3) Risk should be factored into your expected return as well. Many of the real estate deals we see in investor club project an annualized return of 18-20 percent—approximately doubling your money every 5 years. That’s pretty good right? I think it is. After all, we typically deal with tried and true multifamily real estate. If an apartment building has been around since 1980 in a nice market, that’s essentially a highly stable business that’s been around for 40 years.  The risk of this business is significantly less than a start-up business that lives only in the imagination of the entrepreneur. Real estate investors really get messed up on this one. Established real estate is pretty low risk in competent hands. That’s why we are happy getting 8-10 percent cash on cash or 18-20 percent IRR. Those are great numbers for real estate. But the level of risk for a small start-up is significantly higher. If you buy a small business from a mom and pop, you are going to pay 2-3X profit. That means that you should expect 30-50 percent cash on cash on that business. Why so much higher than real estate? Risk! Now, I see people advertising investments in start-ups with returns projected at 8-10 percent. Does that make sense to you? Maybe it does to you, but not to me. Higher risk should mean higher reward. Make sure you don’t compare your rock solid multifamily real estate to a simple sparkle in an entrepreneur’s eye. There may be value in the start-up, but make sure your return prices in the risk you are taking. 4) Boring is good. The vast majority of my money goes to real estate or Wealth Formula Banking. Why?…because they are relatively boring. I like multifamily real estate because people have to live somewhere. I like some other classes of real estate too but I really like sticking to “roof over your head” kind of real estate. I like Wealth Formula Banking because of its track record dating back to before the civil war and the ability to use mass, velocity and leverage to amplify my real estate investments by investing my money in two places at the same time. I’m fortunate in that I make enough money to afford investing in some higher risk stuff too. I have my asymmetric risk allocation as well—up to 10 percent in any given year. I call this my Maserati money. This money is what I use to take some big risks that could either go to zero or 10X. For me, it’s cryptocurrency. This kind of investing is really fun but don’t do it if you don’t have the money to lose. I still drive my 2007 Toyota instead of a Maserati or Ferrari because those types of things are guaranteed to lose me money the second I drive them off the lot (if they are new). I take that money and use it to invest in high risk, high reward stuff. The bottom line is that unless you know what you are doing and have some money to lose, don’t chase shiny objects. Some things sound good but, when you get into the weeds, they are nothing but fool’s gold. Boring is GOOD! 5) It’s not what you make but what you keep. Going back to real estate, I like the fact that real estate tends to appreciate over time rather then depreciate to nothing (please don’t invest in things that depreciate to nothing!) Nevertheless, in the eyes of the IRS, real estate does depreciate and we often leverage it significantly with mortgage interest that is also deductible as a business expense. Therefore, if you get 8-10 percent cash on cash, you typically don’t pay any taxes on it. In fact, depreciation might exceed your income by so much that you can use those losses against other passive income (we see this with bonus depreciation all the time!) Conversely, if you invest in debt and get 10 percent cash on cash but have to pay ordinary income taxes on it, how much are you actually keeping? Is the risk and lack of appreciation of fixed, high risk debt commensurate with the return you are getting after taxes? It may not be when you crunch the numbers. Anyway, I could keep going—in Wealth Formula Network we recently talked about the classic great deal that is highly dependent on one guy—that’s another recipe for disaster. There are lots of patterns of bad investments that you recognize after you’ve been around the block a few times—sort of like PTSD. In fact, I would go as far as to say that the key to becoming a good investor is to quickly identify the bad ones so you can spend time diving deeper on the rest. The good news is that most deals out there are not that great so you should be able to spend an increasing amount of time on good ones as you get better weeding the bad ones out quickly. Anyway, those are just a few pearls. I could go on for a lot longer but I’m sure what I have presented is more than enough for one sitting. That said, when you are ready for more investment advice, make sure to listen to this week’s Wealth Formula Podcast that is focused on investing in those high risk, high reward start-up businesses. Damion Lupo literally wrote a book on this which he calls Unicornomics and you are going to hear all about it on this week’s episode.  Damion Lupo American Sensei. Yokido Founder. 5th Degree Black Belt. Financial Mentor to Transformation Nation. Best selling author in personal finance. Rewriting the rules and plan for retirement. Shownotes: What is a unicorn and what was the inspiration behind the book Unicornomics Centaurs versus leeches The China 1% idiot statement How to find “Unicorns” Damion talks about eQRP QRPbook.com

Debt is like a lethal weapon. It can be used for good and it can be used for greed. It can be used to create wealth and it can be used to destroy it. In short, debt is nothing more than a tool. The problem is that a fool with a tool is still a fool. Debt gets a bad name because of this. But the reality is that, in skilled hands, debt can be used to create unlimited wealth. In Investor Club, we use debt to create the extraordinary strategy of infinite returns. We also use it in Wealth Formula Banking and Velocity Plus. Debt is the weapon of the wealthy. Unfortunately, it is also the opioid of the poor who often use it to pay their bills. In situations like that, debt can be downright deadly. That said, like a loaded gun with good intentions, sometimes debt can explode at unexpected times and create unexpected casualties. That’s why it is always important to respect it and fear it… just a little bit—like driving a motorcycle. If you don’t, it will take you out in a flash. Many smart entrepreneurs have experienced this first hand and gone through the painful process of dealing with the repercussion of good debt gone bad. Jorge Newbery is one of those guys. He is a serial entrepreneur and, using debt, was worth millions of dollars as a real estate entrepreneur. Then it suddenly went south—literally an act of nature took down his empire. A lesser entrepreneur would have been wiped out for good. Not Jorge. Not only did he overcome the debt, but he built an entire career based on it. And he’s got fantastic insight on how to deal with it now. Debt is a big part of getting rich. Learning about it is a key to becoming wealthy. That’s why you should listen to this interview with Jorge Newbery now. Jorge P. Newbery Is On A Mission To Help Americans Crushed By Unaffordable Debts. He is Founder and CEO of Debt Cleanse Group Legal Services, a nationwide legal plan to help consumers and small businesses get out of debt without filing bankruptcy. He is also Chairman of American Homeowner Preservation LLC and AHP Servicing LLC, which crowdfund the purchase of nonperforming mortgages from banks at big discounts, then share the discounts with struggling homeowners. He is also a non-attorney Partner in Activist Legal LLP, a law firm in Washington, D.C.  A 2004 natural disaster triggered the financial collapse of Newbery’s former business, leaving him with $26 million in debts he could not pay. Newbery rebuilt himself through AHP, sharing what he learned from his challenges to help families at risk of foreclosure stay in their homes. In 2018, he founded Debt Cleanse Group Legal Services to assist consumers and small business owners settle all types of debts at big discounts – and not pay some at all, He is also a Board Member of the Group Legal Services Association.  He authored Burn Zones: Playing Life’s Bad Hands; Debt Cleanse: How To Settle Your Unaffordable Debts For Pennies On The Dollar (And Not Pay Some At All); and Stories of the Indebted. Shownotes: How Jorge got into the Debt Industry Creditor errors that led to getting a 5.6 million dollar debt extinguished What is bankruptcy? Why filing bankruptcy may not be the best solution for a failing business Jorge talks about “Good Debt” Debt Cleanse: How To Settle Your Unaffordable Debts For Pennies On The Dollar (And Not Pay Some At All) debtcleanse.com

I am a lousy trader. I’ve said it before and I fully recognize this fact. That’s why, I try very hard to stay focussed on investing rather than trading. Nevertheless, I still get trapped in behaviors that I invariably regret. For example, you may know that I am a believer in bitcoin. I truly believe this will be one of the best investments of my lifetime over the course of the next few years. That’s why when it dropped to $3100, I should’ve bought some more. But, I didn’t because I got greedy. I figured it might drop even more so I waited. The end result was that by the time I bought more, it had actually doubled in price. Now, over the long run I still think that’s not a bad price at all. Especially considering I believe that we will see $100,000 bitcoin within the next couple of years. However, I was kicking myself because I was timing something instead of just recognizing that it was a good time to buy. In the heat of the moment, it’s hard to remember Warren Buffett’s wisdom. Here’s a good quote for you. “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” The point is recognize when you have a good opportunity and can buy a quality asset at a fair price and just do it! Now some of you may disagree with me that bitcoin is a “quality“ asset. We can agree to disagree. However, let’s focus on that principal with another example. One of my friends is a famous home designer and is particularly well known amongst Hollywood celebrities. He told me about a house he once put on sale in Los Angeles. At the time, it was the most expensive house per square foot in all of Los Angeles. He had a very motivated buyer who happened to be the daughter of a well-known tech billionaire. My friend said that dad had three questions before he bought the house for his daughter. 1) Was the house in a desirable area? 2) Did the house have a great views? 3) Was the house built well? The broker assured him that all three answers were a resounding yes. The billionaire went on and bought that house for his daughter at full price. And, that house which was the most expensive house per square foot in LA at the time (in 2007), sold for a significant profit only 10 years later even after the housing correction. The moral of the story?—most of the time when we think we are saving money, we really aren’t. It may be more expensive to buy a higher quality asset or an asset that is in a higher quality area. However, over the long run, you will come out ahead. Think of it this way. Ikea furniture is not going to appreciate. So, if you can afford it, buy something that might appreciate so that, someday, you have something of greater value. This is the kind of perspective you get over time. That’s why it’s a good idea to listen to people of been around for a while. Tyler Jenks is one of those guys. He’s been in the financial industry since 1971. That’s before I was even born! Tyler can speak on a broad base of financial topics with perspective that is both unusual and multidimensional. From the S&P 500 to gold and even to bitcoin, Tyler is a wealth of knowledge as you will see on this week’s Wealth Formula Podcast.  Tyler Jenks has spent his entire professional career studying financial markets and investments. Mr. Jenks is currently President and Chief Investment Officer of Lucid Investment Strategies, previously a division of Dumont and Blake. Mr. Jenks served for ten years as President and Chief Investment Officer of Amivest Capital Management/NFB Asset Builder, North Fork Bank’s investment advisory division. Mr. Jenks served as Senior Portfolio Manager upon joining Amivest Capital Management in 1991, and was named Amivest’s Chief Investment Officer in 1998 when North Fork Bank acquired the firm. After graduating with a degree in International Relations from Principia College in 1971, Mr. Jenks spent four years as an officer in the United States Coast Guard. While stationed in Hawaii, Mr. Jenks received his M.B.A. from the University of Hawaii. Immediately following his military service, Mr. Jenks joined a major Wall Street firm and has spent the last 42 years as a student of markets and investments. During his career, Tyler has had the opportunity to work with some of the most accomplished chief investment officers, portfolio managers, fundamental and technical analysts, market timers, theoreticians and academicians in the business. Mr. Jenks’ broad overview of world economics and investment trends is not simply theoretical. He has managed hundreds of millions of dollars for institutions, charities, pension funds and individuals and has done so very effectively for over 42 years. Mr. Jenks loves to share his experience and investment acumen through classes, seminars and the financial media. He expresses challenging and complex concepts in a remarkably simple and down-to-earth style. Before joining Amivest Capital Management in 1991, Mr. Jenks founded Boston-based Kanon Bloch Carre & Co., Inc. and was Director of Research and Chairman of the investment committee from 1985 to 1991, where he was responsible for the design, development and implementation of mutual fund evaluation techniques. From 1975 to 1986, Mr. Jenks was extensively involved in portfolio management, investment research and trading system design and assessment at Dean Witter, Loeb Rhodes Hornblower and Shearson/American Express. Shownotes: General state of the markets The Debt Problem The case for a ten million dollar Bitcoin Bitcoin in the next decade lucidinvestmentstrategies.com

You might remember me talking about a part of the brain called the prefrontal cortex (remember I spent some time in the brain surgery business). The prefrontal cortex is the CEO of the brain. It’s the part that’s really good about making good decisions. For example, if you see a teenager doing something very dangerous and potentially lethal, it may be due to a poorly developed prefrontal cortex. And, if you think to yourself, “I would have done the same thing when I was 16. What was I thinking?”, the answer is likely that your prefrontal cortex has since become more mature. In fact, the prefrontal cortex seems to continue maturing until your late 30s and early 40s. The scientist in me wonders why that might be and I have come up with an evolutionary theory. You see, when you are younger, you need to be fit and take some chances to survive. A young caveman would need to hunt and not be afraid to chase down a wild boar that could, in fact, be a danger to him. Wisdom, on the other hand, may lead him to back down for fear of injury and to starve to death instead. But, physical prowess begins to decline for humans beginning at around age 30. Just look at NFL running backs—seems to be the magic number. In evolutionary terms, by the time you are in your mid-30s, you are pretty much useless. You’ve reproduced and you are not as fast as the twenty year olds. The rest of the tribe is not going to find much value in you. You are simply a waste of resources. That is, unless you have something else you can offer the tribe that younger people can not offer like say…wisdom. Recall that living well into your seventh century and beyond is a relatively modern phenomenon. Even in the United States, someone born in the 1880s might expect to live to 40. That was old back then. So, perhaps the maturing of the prefrontal cortex in the third and forth decades of life coincides with the slowing of the rest of the body and provides a reason for the young hunters in the pack to keep you around instead of pushing you down a river in a canoe with your arms wrapped behind your back. Anyway, it’s just my theory. But I must say that my prefrontal cortex really took off since I hit my late 30s and I feel like I am becoming smarter every day—even if my body seems to be headed the other way. It’s strange to think of myself a decade ago. I was a completely different person and definitely not as smart as I am now. How I would have loved to ask “Buck Today” a few questions back then—even though I was probably too stubborn and dumb to listen anyway.  It would have been nice to have me around. Speaking of “Ask Buck”, that’s the show for this week on Wealth Formula Podcast. Hopefully you get something out of it—at least enough to keep me in the tribe instead of sending me down that river.

Back in 2014, two of my medical businesses were KILLING it. I was making money hand over fist. Unfortunately, however, I made a mistake that many entrepreneurs make. Instead of taking money off the table and putting most of it into stable assets, I decided to dump the majority of it back into the business to grow even bigger. In fact, I went on a national campaign opening offices across the country all on my own dime. I figured if I could crush it in Chicago then it would be a cinch for me to do the same in middle-markets across the country. I was fueled by people around me telling me that it was the right thing to do which emboldened me even more. Unfortunately, I was wrong. As good as I am as an entrepreneur seeing opportunities at a high level, I didn’t know what I didn’t know about being a multi-state operator. I didn’t have a sense for the staff I would need, the time it would take to turn profitable, or the marketing capital I would need to put on the line for a successful campaign. I learned a lot from that failed national campaign and lost a lot of money. In hindsight, the smart thing for me to do back then was to milk these high performance businesses for all the profit and buy as much real estate as I could. Had I done that, I would have been millions of dollars ahead of where I am today. You see, there were lots of opportunities in real estate in 2014 that were ripe for the taking. Luckily my friend Rick, who is a mortgage broker in Chicago, sent me a couple of apartment buildings that he thought I should buy and, fortunately, I took his advice.  While I lost millions of dollars in that failed national expansion of 2014-2015, those buildings I bought ended up being a gold mine. In 2018, I sold them for 500% and 600% returns. It was a good chunk of money. It was still not even close to the losses I incurred on the failed business venture, but it showed me the power of staying disciplined and not getting greedy like I did. At the time, buying those buildings didn’t seem particularly exciting. I knew that real estate is where I wanted to invest, but it was a lot more fun making money rather than investing it. Now I understand the power of investing and I also understand the power of boring. What do I mean, boring? I mean that when you find something that works or an operator that you like, you don’t have to keep playing the field. There is nothing sexy about multifamily real estate or self storage facilities, but they make for great investments. If you are a passive investor that has found a group or two that you like, you don’t have to go find another group to “diversify”. I can tell you from experience as an investor, boring works. On the other hand, there is no reason not to take a little money to play with on high risk high reward endeavors. If you want to grow your business, do it. But don’t put every penny you have into it and create a single point failure scenario for yourself. As you might know, my hobby these days is cryptocurrency. Of course that’s where I use money that I would otherwise blow on a Maserati or vintage sports car. Maybe I’ll get lucky and 100X on my portfolio…you never know. However, most of my money is still going into real estate with the same old operators. Speaking of topics that might not seem sexy, this week’s podcast is an interview I did with the founder of Harvest Returns. Investing in agriculture may not sound exciting, but people do need to eat and, as far as I can tell, that’s not going to change anytime soon. That alone should get you to listen to this week’s Wealth Formula Podcast. As a career naval officer, Chris Rawley traveled the world. Over the course of visiting dozens of war-torn and poverty stricken countries, he began to appreciate the importance of farming to every single person on earth. As a professional investor, he decided to invest in a farm, but discovered that these types of investments were inaccessible to the average person. He created Harvest Returns in 2016 to democratize investments in agriculture. Rawley has held corporate management roles in Jones Lang LaSalle, Electronic Data Systems, L-3 Communications, and served as a defense consultant at Special Operations Command headquarters with Blackbird Technologies.  He has invested in real estate and income-producing agriculture for nearly two decades. Chris has been an angel investor in early stage agriculture and food companies, including the Indian agriculture FINTECH company Jai Kisan. He serves on the advisory board of the AGTECH start-up AgroFides. As a Captain in the United States Navy Reserve, Rawley is Chief of Staff for the Naval Reserve Surface Forces, helping to oversee 3,800 sailors supporting fleet units around the world. During his 26 year military career, Rawley has filled a variety of leadership positions in naval, expeditionary, and joint special operations units afloat and ashore. He has deployed to Afghanistan, Iraq, throughout Africa, the Middle East, and Western Pacific.  Rawley has a degree from Texas A&M University, earned an MBA at George Washington University, and is a graduate of the U.S. Naval War College.   Shownotes: Chris Rawley’s background Agriculture and Crowdfunding Operators for Harvest Returns How Harvest Returns mitigates overseas risks The Harvest Returns platform Expected yields Why Agriculture? HarvestReturns.com