Strategies helping strategies almost always result in synergy.

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Transcript:   How many times have we all seen marketing material of some sort that praises the synergy that they create for their product or service? Synergy shouldn’t be a marketing term. It should be something that produces better results or maybe results that come sooner. That’s what I talk about when I say that your purposeful plan, if possible, should include some synergistic interaction between two or more strategies used simultaneously, and I only have two measuring sticks: either you got better results or you got really cool results sooner than most would using different strategies, or you got both, which happens more than people think. Synergistic use of multiple strategies is what often, if done correctly, executed wisely and for the right reason at the right time, can produce results far superior than using the old school ways of we’re going to do A first, then we’re going to do B, then C and on down the line. We don’t have to do that now. We have experience. I’ve learned from my mentors, my dad first among them, I’ve been doing this for 38 years since we opened up Brown and Brown Investment Properties in January of 1977. What we’ve learned is that not only can you develop portfolio A, and then portfolio B and then maybe even a C. You can use two or all three of those pillars of your retirement plan even though in and of themselves, all three might be standalone producers of retirement income, not reliant on the other two at all. While you’re getting to that retirement, you can use two or all three of those, to enhance each other so that it either happens more quickly or more as far as income and retirement, or the best of all, it happens sooner and more because that is much more better in my experience.

Situational formulas, generally speaking, are reliable ’til the day they’re not. Your retirement is far to important for you to bank it on various formulas.

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Transcript:   All the time I get people that want to talk with me and the first thing out of their mouths is, you talk about EIULs for tax-free cash and retirement. An EIUL just stands for equity indexed universal life. It’s a type of insurance that’s not necessarily structured primarily for a death benefit, it’s for retirement income. It’s structured to be tax-free. Or those say, “Hey you talk about notes and getting them on a discount and all the ways you can buy it in your own name or in a tax-free envelope like a ROTH or even a normal, traditional IRA or 401k. You talk about real estate. When do you do what? Do you do all three?” There is no formula. There almost never is. One of the things that my dad taught me about formulas along with one of my oldest, oldest mentors was that almost any formula they’ve ever used successfully over time worked like a charm until the day it didn’t. I have had to learn that twice the hard way. I’m not learning again. When I tell people, “Look in general notes are great bought at a discount. Real estate, cash flow and retirement is superb. Get an EIUL and get tax-free income. Have a business and set up a solo 401k for small business owners. You can do this and that and the other, and it’s way better than what you’ve been doing.” Everything’s different for different folks. If you’re married with four children and you’re 38 years old, I’m not going to tell you the same thing. I tell the widower in Kansas getting ready to retire, all his kids are grown, he doesn’t need what you need. He needs some things that don’t make any sense for you. What we have to look at is the big picture. The first thing we do is to find out where you are now. That’s the most important thing to do first and there are no exceptions. You have to find out, not just, “Well here’s my point B, how do I get there?” Have you ever noticed when you’re going to get in your car or you’re going to go to the airport? You take a different way to Detroit from San Diego than you do from Sarasota, Florida. It’s funny how that works. If you don’t know you’re in Florida you’re going to try to drive northeast and you’re not going to get far. You’re going to have fun because you’re going to be on the beach. But you’re not going to get far. You have to look at, everybody is unique in the sense that, they might share factors with another person, another investor, even 80%. But man it’s that 20% difference that can just change your entire approach. Maybe not in the beginning but you can see 10 years down the road where you might have to change where the other guy wouldn’t. There’s this all kinds of reasons why certain people who have never invested in real estate and are at a certain age with a set of certain circumstances, should just not at least immediately maybe never buy real estate as an investment. Time is not on the older investor’s side. If they’re just getting started, their real goal, their point B is, “You know what I’m retiring in 11 years not 31 years, I need income and I need to build it to as large as it can possibly be safely in the next decade or so. Because if I fail doing that, I’m not going to be happy pointing to all the real estate I own that’s not enough for retirement.” Same thing with the EIUL. It’s really to point and say, “My son got an EIUL and when he is 60, it’s going to give him a $140,000 a year, tax-free for virtually the rest of his life.

Are most investors investing in the right regions? If they are, most of ’em are merely fortunate they happen to live in one of them.

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Transcript:   What we want to talk about today is how does a newbie investor get started, or maybe you’re not quite brand new in it. Maybe you have a rental that was your previous primary residence and you’re an investor by default. One of the things that I tell people is that before you do anything, kick back and check out your local market. Is it really worst investing in? Does it measure up to many areas of the country that might be superior and give you overall better results? Look it, we’re all investing for one reason for the most part. We’re investing to have a bigger net worth down the road, but mainly so that when we retire we have more income. The more income in retirement the better it is. We don’t want to spend our net worth. We want to spend our cash flow. Here’s the thing, first check out your market, and even more than that, spread that search out. Make it what I call a macro-analysis. Look at the region, however you may want to define that. For instance, I live in Southern California so I just would look at California in general. I look at California in general, how would they treat people who are landlords vs. tenants for instance. In San Diego, where I live, if you go to court as a landlord you are Satan’s child before you walk into the room. In other parts of the country that’s not true. They treat the contract as the pivotal factor in ruling in a landlord-tenant dispute. Now that’s just one thing. How does your region treat both income taxes for citizens and income taxes for business? How do they treat that? Let’s use California again. In California they tax anything that moves and half the things that don’t. If they can’t tax it they regulate it. California is not fond of investors. The only reason they like free enterprise business is because it provides tax money to the treasury. Now compare that, and before you go to another region for that comparison, look at what you found out. Now if you live in California what you’ll say is “Why would I invest in a place that is biased against landlords, the taxes are very, very high, they’re going into debt at an alarming rate, and all the things with regulations. Then you start digging a little deeper, going a few layers beyond that. You find out that it’s not just people that are leaving my state, it’s business. What’s the main thing business does from a citizen’s point of view? It employs them. We have jobs leaving California right and left. The latest one that will get your attention is the Toyota headquarters. They just moved to a city in Texas called Plano, or they announced it. If you find out all these things and you’re in another state somewhere in the country, and it gives you this bad taste in your mouth, then stop thinking about investing in your own market. I’ll tell you the number one reason that makes uncomfortable, because you want to be able to drive by, don’t you? That’s the worst reason to invest in real estate, because if it turns out well you lucked out if that was your driving force. What you have to understand is that you’re in it for the long haul, and if you’re long-term investing and you’re in a place like California you’re not going to win over the long haul, or at the very least you not going to do as well in a state that welcomes your capital as an investor, that welcomes businesses, that don’t overtax their citizens. In many state they don’t even have an income tax, where their courts are fair and they go by the contract, not each side of that contract.

Wanna know why 9 of 10 real estate investors are lost when understanding loan over basis? They’ve never heard of it. It can and often does prove a very expensive lesson.

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Transcript:   We’re going to talk today about a problem people have that they didn’t know they were creating. It’s called loan over basis and it can get you into a real problem. You invest in a property and when you bought it it cost you $200,000 years ago. You end up borrowing 150. It got down to 100 but over all these years your property value went from 2 to 300. You say when the rates when down in the last several years, you said “You know what? I can borrow a lot of money here and Jeff says it’s tax-free when I do that.” Well, yes it is. You have a $300,000 appraisal and you go get a loan for $210,000 because they’ll let you take a 70% loan and get some cash out, and $210,000, you owed 100. You took $110,000, put it in your Levis. So far so good, right? Then we have something like the bubble bursting. Now your $300,000 property that you paid $200,000 for can only sell for enough to net $210,000. You get a check big enough to pay for Happy Meals for the wife and the kids. You say “Well, at least I didn’t lose any money.” Here’s the problem. Let’s say you had that property for a decade and you took depreciation for a decade. That means, being conservative, you probably took, give or take, $250,000 in what we’ll call straight line, vanilla, boring depreciation. That $50,000 means you didn’t pay 200,000 for your property; you now paid 150. They call that your adjusted cost basis. Let’s assume that that’s how you ended up. At 150 what they’re going to look at is that even though you didn’t get anything out they’re going to take that $210,000 sales price that you sold to your neighbor across the street and they’re going to say “You had cap gain,capital gains, which means you’re going to be liable for tax, of $60,000.” Now what if there was no real capital gain? Maybe that value went down to where there was a wash. The IRS many times is going to like at that refi you did not long before that sale. They’re going to say “You know, that smart guy was clever. He took out over $100,000 and when he closed his sale, which was for 150, he owed 210.” We call that loan over basis. Even though you had no net proceeds in a literal sense almost you’re going to owe taxes because they’re going to say “You did that in anticipation of selling, or worse, if you didn’t sell maybe you were going to do a tax-deferred exchange and you had a lot of equity but you refi’d before that 1031 exchange.” They’re going to look at it like you got cash out of the exchange, not in the refi. Either way, be careful of selling and/or exchanging your property not long after you do a refi with cash out on that investment property. The last thing is this. It doesn’t matter what your intent was, and there’s no set time. I can’t look you in the eye and say “As long as a year has passed you’re good.” I’ve seen it go two or three years and they go “No, that’s why you did that.” They’re going to tell you your intent. It’s the government, right? So beware. Talk to your tax accountant, the expert that can tell you in terms of the internal revenue code what might happen. Just don’t look at the tax-free aspect of refinancing for a cash out on an investment property.

It’s one thing to know where we’re goin’. But it’s quite another to know in which direction we should begin heading on the road to retirement when we’re not sure where we are now. We can’t get to Point B when we don’t know our Point A.

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Transcript:   Today, let’s talk about where your point B is, but more importantly, the principle that says you can’t know how to get to your point B, being retirement, if you don’t know where point A is. Let’s start taking that apart. In a blank sheet of paper or get some software program that you like, let’s start out by listing all your assets, all your liabilities, what’s really going on in your financial life. Most people that I talk to find out that they’re a little bit better off than they had anticipated. Some of us find little baby spiders that we don’t like, but now we know they’re there, we can deal with them. Write down what you think your equity is in your home, if you own a home. Do you own a rental property of any kind? What’s the equity in that since you bought it? How’s the cash flow working out? Find out if the rents are higher in other units nearby you and you’re just behind the times. What’s the equity in your cars? What’s the payments going out of all your loan payments, all your bills. How much are you saving after tax from the household family budget? Once you know all this, you can take a step back and you’ll say, “You know what, I’m worth about this much, about x amount represents my liquidity or indirect liquidity. I have more equity in my home than I thought. Maybe it makes sense to refinance, maybe it doesn’t.” We’ve talked about arbitrage here before and maybe it makes sense to start that. Maybe it’s past time to talk about taking the equity and turbocharging it in any investment properties you may own. Then when it comes to your IRAs or maybe you have an IRA that’s self directed and a 401k at work and you look at those and you go, “Son of a gun, I have more money than I thought.” I’ve had that happen many times with people. What you have to understand is until you have painted a very clear and understandable picture of where you’re at today with your net worth, and that includes everything, you can’t possibly know how you can get to your point B. I talk about this a lot in traveling. If everybody’s going to meet in Chicago, we’re going to take different routes from New Jersey than we are from LA. One’s going east, one’s going west. Once you are completely aware of your point A, then you can start mapping out how to get to your point B. Here’s the assignment. Do all this. Get to know intimately where you are. Lay it out, so the two things you’re going to find out is what’s your worth today and your liquidity on one side of the coin, and how much you’re able to save every month after tax, after your family pays all the bills. When you get all that, give me a buzz. Send me an email and we’ll talk about what’s possible.

When it comes to getting real expertise for real estate and/or note investors, most investors strike out. You want a pitcher, not a thrower.

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Transcript:   Today, we’re going to talk about real expertise. In baseball, we call pitchers either real pitchers or throwers. As an example, let me explain what pitchers really try to do. It’s very simple. Real pitchers break up the timing of hitters. That’s what pitching is all about. Hitting is all about timing. If you could break up their timing, you don’t have to throw 100 miles an hour. You don’t have to have the best curveball since Sandy Koufax. You don’t have to have any of that stuff. If you have control, and you can keep your ball from landing across the middle of the plate belt high, and throw hard, and throw soft, and have movement on your ball different each time, so they’re at the very least guessing, you’re probably more likely to be successful each time out than not.The same goes for real estate brokers when investing in real estate. There’s a lot of people I know, they tell me this exact same story in one form or another. They wanted to get started in investment real estate. They didn’t know how. By hook or by crook, they found a broker in their area and they told the guy or the gal what they wanted to do. The agent then went to the inventory, found the property described by the “investor” who is not an investor at all. You’re not an investor until you’ve invested. Many people who have invested in many properties just haven’t found out that they’re not investors. They just bought a lot of property. They’re property buyers. What really happens is this. They’ve entered into a situation where they’ve hired a broker to advise them who is not advising them. Somehow, they’re convinced that this guy throws a 98-mile-an-hour fastball. The problem is, as most young pitchers who never get out of the minor leagues, their 98-mile-an-hour fastball means nothing if they don’t know where it’s going, or if that’s all they have. What you find out in baseball at the major league level is that a major league hitter, if he sees a 100-mile-an-hour fastball enough times can time it. You can shoot a baseball out of a cannon. If they see it enough times, they can time it, and the ball generally comes back off the bat faster than the 100 miles an hour at which it came in. Here’s my point. Real expertise means that the investor is not telling the broker what to do. That means the investor, either in reality or only in their mind knows as much or more than their broker. That’s not a healthy position. You want your broker to, at very worst know a lot more than you about investing. It’s not just how to buy a property, write a loan to get this, that and the other. It’s about using strategies, and using a lot of times more than one strategy synergistically. They need to understand that, because otherwise they’re just like the pitcher that can throw 100 miles an hour and never got out of the minor leagues. When you’re looking to invest, and frankly, what’s worth more to you, what has more value to you, outside of your health and your family’s health than your ultimate retirement income? That dictates not only how you spend your life after work, but it also dictates that you can stop working. People make that assumption, but if you’re literally giving marching orders to your “investment broker”, you’re dealing with a thrower not a pitcher. You need real expertise.

When investors, or those gettin’ started ask me about their plan to develop long-term investments, I smile. They have the concept right. However, they tend to over simplify how they’re gonna get from Point A to Point B.

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Transcript:   Many people ask me about the home that they first buy when they were just married and they didn’t have kids yet, for whatever reason. Sometimes it’s the economy, sometimes it’s just because they could. They didn’t sell that house when they got the house they moved into when they had kids. They’ve been renting it out, and renting it out, and renting it out. Before you know it, the home that they might have paid $150,000 for, even after the bubble and everything, is suddenly worth $200,000, and they don’t owe 120, they owe 60. When you look at it, even after closing costs, and commissions to the broker who sells it for you, they’re still going to net out maybe $185,000 minus the 60. They’ve got $125,000 if they want to do something about it. Well what if it’s in an area that I don’t particularly think is good for them to be in, and I’ll pick on my own area, southern California. I have these conversations with California investors all the time, and you get a lot of hemming and hawing until you pin them down in the corner and they go, “Okay okay, the rent price ratio is horrible, and the stuff in Texas, or Boise, or sometimes in Tennessee, or the Carolinas is better. Stop saying it out loud. Money’s money, and when you can take 120 or 80 even, something like that and you can sell that, and you can either pay the taxes on it, or you can do a tax deferred exchange, whatever makes sense for your particular circumstances, you can now go get something that most of my clients like, which is the brand new duplex in a blue chip location. What the heck is a blue chip location? I erased all debate years ago when I started running into this subjective definition problem, because you’re 9 might be my 7, or vice versa. Well my mom is 83 years old. She’s had a couple of minor strokes, she lives with us now, she’s totally mobile, but she shouldn’t be alone. I would put her in every single investment that I’ve put my clients in since I’ve been to Texas, and I’d put her there to live alone. That stops all argument. That’s how good these locations are, and that’s how good the buildings are. Now what if they can take this 80 to 125,000 that they got, and they put a down payment, usually going to be about 25%. They’ve got a 30 year fixed rate loan, these days it’s the high floor is 5%. Fixed for 30 years. It’s got cash flow, and they don’t have to think about it, there’s management there, we’ve got a whole team. Everything’s done. What they’ve really done, is they’ve gone from a southern California market to a superior Texas market. Now we don’t have to go through all the reasons why they’re superior or inferior, just understand we’ve done the analysis. Anybody who lives in southern California is already nodding their head, they know what I’m talking about. Here’s what happens. They now own this duplex, and they started out with the first home they ever bought they turned into a rental. The idea is, in a nutshell, to dig out a retirement for themselves. Maybe they bought that first home in their mid-twenties, early thirties. They’re now forty, and they’re going to retire sometime between 55 and 65. They’ve got 15 to 25 years, so what to do? They don’t print money. They’re not making quarter million dollars a year. They work hard. She’s a stay at home mom, they’ve got 2 or 3 kids. They live in southern California,

Here are some snippets from our San Diego Sheraton Marina event. It sums up in a few minutes what we do for people. To get a full day of this, join live at our next event. We have a good time!

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Transcript:   What Brown and Brown, BawldGuy Inc. brings to the table that’s different is the ability to combine multiple strategies such that the results, if it works right, will literally have been caused by real empirically-measurable synergy. You know you’ve experienced synergy when one of two or both of these two things happen. You retire sooner than you anticipated or you retire with more income than you anticipated. Cash flow and capital growth are incredibly crucial to what you do. Nowadays, you’ve got so many restrictions. You’ve got so many governors on the engine of tax shelter that you have to do everything on purpose. That’s why I say purposeful planning because if you don’t have a plan and you’re not executing every single minor step on purpose, you’re going to run into some regulation that’s going to be maybe more than a speed bump on your way to a really cool retirement. Right now the sexiest thing for investing, and Dave will back me up on this, is notes. Man, everybody wants a piece of notes. You cannot look at any strategy as if it’s in a vacuum. You’re taking what the market gives you. You’re taking what the market gives you when it gives it to you. Of my almost 45 year career, I have never ever, no exceptions, seen it when the rent price ratios were really good. In areas I would put my 83-year-old to live alone in very young or brand new properties built well with freaking interest rates that go from 4 to a little over 5. That’s all at the same time. I just freeze frame every time I look at the current financials on Yahoo! Financial. That’s how bad I am. I see that, okay, everything is still in place. We’re cool. Because I know this is not going to last. I want to take advantage of it. I want to have my clients take advantage of it while it lasts, because it matters that you have this opportunity right now. This era will be called iconic. None of this is rocket science. You all can do it.

Purchasing life insurance out of a 401k is an option of which most people are unaware. Here’s a quick rundown of what’s what, the rules, and limitations.

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Transcript:   I spoke before about whether a 401K plan should’s, shouldn’t’s, what has to happen for a 401K plan to purchase life insurance contracts. What I want to visit about right now though is what funds can be used from a 401K plan if the decision is made for the 401K plan to purchase a life insurance contract. Again, I’m going to say at the very beginning, you should always review these types of decisions with your tax professional because the numbers need to be crunched to determine the pros and the cons of this kind of a situation are. If the 401K plan purchases life insurance contracts, what funds can be used and is there a limitation. Funds with any 401K plan can be used but with the following restrictions. The good news is that if you establish a self directed 401K plan and you rolled over funds from another IRA or an old 401K into the plan, those are considered rollover funds. 100% of those funds can be used towards life insurance contracts. Realistically even if the plan decided to purchase life insurance contracts, would it use the whole 100% of those rollover funds for that, probably not. The power of the point I’m trying to make is that 100% of those funds can be used if elected to. Are there other limitations of funds within the plan. What about contributory funds, contributions that you make as the employee of that business, that you wish to be used towards life insurance contracts from the plan. There’s very specific rules, let’s go through them. If the plan is purchasing from contributory funds, life insurance, 49.99% of contributory funds can be used to purchase whole life insurance products. If contributory funds are being used for non whole life products, such as term, IULs, EIUL policies et cetera. 25% of contributory funds can be used towards the purchase of the life insurance premiums. We have some powerful tools to work with your 401K plan and the self directed. You can invest in traditional assets, you can invest in non-traditional assets, you can even invest in life insurance. As a reminder if the plan is purchasing life insurance contracts, the plan documents have to be written or amended to permit that. The bottom line is the plan has the ability to do that and it’s a powerful tool in addition to your traditional and non-traditional assets.

Timing cash flow with investments is often very misunderstood. This time it’s not about the relative order of the timing of cash flow vs capital growth.

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Transcript:   Today, let’s talk about the specific timing of cash flow in the real estate investment problems. I’m not talking about what I usually mean when I say timing which is buy for capital growth at first and then switch to cash flow at retirement. What I’m saying is this zero down school of though 5 or 10% down. You have to understand that the timing even if you’re successful I won’t be part of that for people. The next zero down that one of my clients buy will be without my help. I’ve never been a part of that. The next one will be my first and it will never happen. What happens with these low downs is fine but even when low down are 25 or 30% down. The timing of cash flow means this, if you’ve got 28 years before you’re scheduling your retirement don’t worry. The loan is 30 years, you might pay it off in 28, you might pay it off in 18 depending on your income and everything else you may be doing for investment in your purposeful plan. You might pay it off in 8. I’ve got clients that pay off real estate loans on small multi unit properties in two to three years but they are very high earners. The key is this, the timing should be that you enter retirement debt free. Now, I’m going to reverse myself by saying even if you enter retirement debt free what you’ve given yourself is a new page of options. Remember the principle, the investors with the most options wins. What if you have a million dollars of property and you retire next week, you just made your last payment on all of them and you own them free and clear, it’s a million bucks. If you want, even thought you’ve got cash flow from debt free property you might do the comparison and say, “You know what? I’m making 5 or $6,000 a month from these properties, maybe more.” It depends on how bad of a neighborhood you were in so how low a price you pay, right. My people buy in the best neighborhoods only. What if you decided to refinance that property at 4 to 6 or 7% at say 70% loan value. You get $700,000 loan. You just destroy the cash flow from those four properties but you’re still having cash flow. It’s paying for itself for the buffer but now you’ve got $700,000 that’s tax free, it’s not even a taxable event. You can go out and you can buy 80 to $100,000 and note income through discounted notes. Again, that’s a timing thing. You want that option. You don’t need that option till you retire but if you’ve got a wait a year, two years, three years for that to happen and you know what? Sometimes that’s a fact life. Things happen, we talk about Murphy a lot here. He knows where we all live and it’s our turn in the barrel sooner or later. Nobody escapes Murphy. For the record, O’Tooles comment about Murphy’s losses. Murphy was an optimist. The key is if you can time it right the ultimate timing factor is your debt free at retirement. You can keep those properties debt free, you can decide to borrow and get another vehicle. I use discounted notes that you might have something else to do. Maybe you’re starting a business in retirement. Nothing like having half a million tax free dollars to get a good running start. Again, timing. The fact that you could buy more real estate only means that if you’re wrong on your timing you’ve entered yourself times three or four or five if you have not the cash flow you need to retire. I’ve seen people that had to delay retirement because they missed time when they were going to be able to pay it off. You can’t be all rosy,