Wealth Formula Podcast

We are now just a few weeks away from a presidential election. Ordinarily that is, in and of itself, a wildcard for the economy. People tend to freeze up in times of uncertainty. Factor in some kind of October surprise which would not surprise me, on-going COVID-19 fall-out and decreases in government support and who knows what happens next. If you are in our Accredited Investor Club, you have fortunately been shielded from having to worry about much. It turns out that preparing for a down cycle via hyper-focus on working class apartment buildings, self-storage facilities and other uncorrelated asset classes turned out to be the right move. Many of our properties continue to perform as well or better than pre-COVID levels. In reality, we are not seeing much distress at all in our space in the markets where we have chosen to buy. And, frankly, if we get through the next 4-5 months relatively unscathed, we may be seeing an even more expensive market than before as big money starts to see our space as safe-haven. I'm hopeful that scenario indeed happens in our niche. However, it is highly unlikely that many of the other real estate sub-classes will do well. Specifically, single family homes in middle-class markets may see some distress as mortgage mitigation efforts expire. Non-residential commercial real estate such as office and retail are likely to see big trouble as their government assistance expires and distress begins pushing prices downward. In that regard, we could see great buying opportunities in many real estate niches in which many of us have little exposure. That means opportunity. The whole real estate market is in flux and we need to continue watching it closely. While it may not seem that much is changing on the surface, guys like Jorge Newbery of AHP Servicing are seeing mortgage default rates as high as they have been in 8-9 years. To talk about this in more detail, I spoke to him a short time back and you will have a chance to listen to our conversation on this week's Wealth Formula Podcast. Don't miss it!

"Saying yes will get you to a million. Saying no will get you to $100 million." That's the advice I once got from a very successful centimillionaire friend of mine. And while, on the surface, it may seem like one of those things rich people say to sound profound, I assure you that the power of no is indeed real. As you may know, I have been a bit of a flaming entrepreneur since leaving surgical residency. I got the bug after reading a Kiyosaki book and from that point forward, I was like one of those kids who grow up repressed and tries to make up for it up by drinking too much in college. In other words, there was a period in my life where I chased too many shiny objects. I said yes to everything. It was fun until I realized it wasn't particularly profitable to be so entrepreneurially promiscuous. In fact, in 2014, I gambled away two successful businesses that were making millions of dollars per year by over-leveraging myself and trying to grow too fast. It didn't work and I lost millions in the process. That was my "come to Jesus" point where I realized that I had to get control of my desires. It was a fun ride, but I had to be more methodical going forward. And since then, I have trained myself to say no to pretty much every opportunity that comes my way. I only consider saying yes under very narrow circumstances. First, the opportunity has to be worth at least another million dollars per year in income for me. I'm not saying that it starts off that way, but it should be able to get there pretty quickly. The next criteria is that there is no significant over-head. Over-head crushed me when I tried to open up 5 surgical centers in 5 different states at the same time. I won't make that mistake again. Finally, the new endeavor cannot put anything that I am currently doing in jeopardy. This is fairly broad but, for example, I won't sacrifice ongoing cash flows from one business to support another for a prolonged period of time. In addition, I won't get involved with anything that will require a disproportionate amount of time when considering financial return (or other kinds of fulfillment). Sounds pretty obvious right? Well, try telling that to the entrepreneur possessed. It's not that easy. Whether you are an entrepreneur or an investor, you have to develop the ability to say no. Now, there is hazard on the opposite end of the spectrum as well. For example, I know guys who are very successful and they keep burying all of their money into the same business to grow it more and more. They aren't taking any of that money and creating other sources of income. That puts them at a high risk of single point failure. So, the moral of the story is that while it's probably best to lead with no, you should be open to saying yes once in a while for the right opportunity. You may be a highly successful individual who makes a ton of money through your income. What if you lost that job or were unable to continue to do it? What if there was a way for you to create significant income that was not considered W2 income and provided significant tax benefits? That's where being a business owner has its biggest advantages. You can't get fired and you will pay a lot less in taxes. However, starting a business is pretty darn risky and most fail. So, how can you mitigate that risk? Well, one option is to consider getting involved with franchises. This is an area that I have considered for years but have never really explored. But after this week's Wealth Formula Podcast interview with Franchise expert, Kim Daly, I am seriously considering it. I really enjoyed talking to Kim and I highly encourage you to listen to our discussion. It could change your life!

If you want to be wealthy, do as the wealthy do. The wealthy do not use IRAs and 401Ks to invest in heavy loaded mutual funds. That system is set up to make others wealthy! The ultra-wealthy get a completely different set of options when it comes to investing their money. They often have direct ownerships in businesses and real estate. They may own publicly traded equities, but they are not paying the fees that most people do. The ultra-wealthy also understand the importance of leverage and apply it judiciously whenever possible to increase their returns. They are also keenly aware of tax efficient investment strategies. Perhaps the biggest difference between the typical retail investor and the ultra wealthy is that the latter does not simply hope for the success of their investments: they engineer it! What does that mean? Well, let's take permanent life insurance as an example. Dave Ramsey and Suze Orman tell you to stay away from it. Yet, the wealthiest families in the world like the Rothchilds and the Romneys have used these products for generations to preserve and build wealth. In fact, the wealthier the family, the more likely it is that they are using some kind of permanent life insurance as part of their wealth building strategy. You see, the affluent do not view permanent life insurance policies as simply assets. They use the elements of permanent life insurance to enhance their other investments. Life insurance, when used properly, is a tool to leverage your other investments. So, again, why would Dave Ramsey and Suze Orman tell you that permanent life insurance is a bad idea? Well… a fool with a tool is still a fool. It's hard to become wealthy if you are a fool (or at least to maintain your wealth for long). I have been trying to uncover these kinds of secrets of the wealthy for years now. Along the way, I've learned a ton and have tried diligently to pass this information on to you. I know there is a lot to absorb. However, I will say this. If you do nothing more than to pay close attention to the concepts of what we call Wealth Formula Banking and Velocity Plus that we discuss on this week's Wealth Formula Podcast, I truly believe that I will have done you a service. Don't miss it!

People are social animals. We aren't designed to be wearing masks, not touching each other, and quarantining. Yet for the last six months, that's been our predicament. At the same time, we are increasing our dependence on digital socializing through social media and have significantly increased our collective screen times and subsequent exposure to toxic blue light at all hours of the day and night. The whole scenario is a perfect set-up for individuals already susceptible to depression or other mental health issues. In fact, people who have never experienced any psychological issues in the past are now experiencing it for the first time because of the inorganic nature of our current lifestyles. Divorces, domestic violence, and suicide rates have dramatically increased across the country. Yet, this kind of fall-out from Covid-19 have not been appreciated adequately in the media and recognized as considerations in the big picture of pandemic-era policy. The non-medical, non-economic consequences of the pandemic are real and have had a huge negative impact on many of our lives. To hear about what's going on out there in this part of human existence, this week's Wealth Formula Podcast features a conversation with therapist and personal coach, Joel Wade. If Covid has got you down, make sure to listen to this conversation!

It is the second week of September—my birthday week. And…as I reflect on the past 12 months, I can't help but think, "What a shitty year". The only solace I take in my reflection is knowing how radically things can change over the course of 12 months. The pendulum just needs to move the other way. The good news is that this time next year could, and probably will, look very different. We could be getting on planes to meet up in Dallas for a Wealth Formula meetup. We could be meeting up at the bar, shaking hands, and even hugging each other without masks and disinfectants. We could also be looking at a different economy. Perhaps things will have taken a turn for the worse from pandemic-age repercussions. Or…perhaps the sheer magnitude of pent-up desire for people to go out and have a good time will power GDP to record growth launching us into the roaring 20s. I actually think that could turn out to be an accurate prediction. I know I will be out there spending! The point is that Covid-19 has already happened. I know it's not over yet but I think it's wise, and certainly more fun, to think about what happens next. Of course this is an investing program so let's focus on that subject. If you are in our Accredited Investor Club, you probably know that I have been very clear on my investment thesis in the past couple of years—"keep it boring, stupid". This is generally good advice for all season but we do need to adapt to new environments and recognize opportunities when they become available. One of the spaces that I am interested in exploring over the next 12 months is the hotel space. Admittedly, my only previous hotel investment has not gone well. In fact, it was a construction project off-shore that has had lots of problems and, as a result, has soured me both on construction and on investing outside of the United States. But I'm not going to throw the baby out with the bathwater. I think there may be a real opportunity in the bread and butter domestic hotel space in the United States and so I'm watching it closely to see if and when it might be a good time to get involved. So, in the spirit of looking ahead at better days and possible investment targets in the post-covid era, I asked an expert in the area to come on the show and share his experience in the space. Make sure you listen to this week's episode of Wealth Formula Podcast to see if investing hotels might be right for you!

If you like these "Ask Buck" shows, you've been enjoying the last few weeks. I would love to get some feedback from you as I'm always trying to improve the quality of my content. In the meantime, here is the third and last ask Buck episode of the summer! We will do it again sometime in the fall. Enjoy!

We do a lot of interview based content on Wealth Formula Podcast. However, the feedback I get is that the most learning happens during our “Ask Buck” episodes. The good news is that we have a bunch of questions lined up so we will do a couple of “Ask Buck” shows in a row for the next […]

We do a lot of interview based content on Wealth Formula Podcast. However, the feedback I get is that the most learning happens during our "Ask Buck" episodes. The good news is that we have a bunch of questions lined up so we will do a couple of "Ask Buck" shows in a row for the next few weeks starting with this one! I also encourage you to go back and listen to older "Ask Buck" shows as well. It's probably the quickest way to get caught up with all of our lingo and the concepts we constantly go back to. I hope you enjoy it!

"You're nuts!" That's what I would say to anyone a year ago who suggested that we would face a global pandemic that would put us in a recession magnitudes greater than 2008 (based on GDP), make all bars and restaurants shut down and cancel professional athletics. I would also think you were nuts if you told me that despite all of this financial destruction, our apartment portfolio would still be performing as well as it is. We truly are living in the Twilight Zone right now. So what happens in the next six months, a year or two years? Yogi Berra put it best, "It's tough to make predictions, especially about the future". So, no matter what anyone says right now it is probably akin to throwing darts. That said, let me make a couple of observations. First, apartment buildings are still doing very well. Interest rates will be artificially low for years to come. And there is a ton of money on the sidelines that must be deployed. What if we avoid the much predicted tsunami of defaults altogether and go straight from stable or slightly decreased rent growth for the next few months to massive demand and cap rate compression a year from now? I would not have said this with a straight face a couple of months ago but now I can actually see that happening and not be surprised by it. Anyway, in the interest of continuously trying to understand the future of real estate investing, I am interviewing yet another economic sage this week. He's a guy who specializes in apartments and actually spoke at our last Wealth Formula live event which now seems ages ago. His name is Ryan Davis and he's a very smart guy. Make sure to listen to this week's Wealth Formula Podcast to see what he has to say!

There is a phenomenon in finance that I have witnessed first hand that I find fascinating. The best way to explain it is to tell you about a guy I know out here in California who has been very successful as a fund manager. I asked him once about the expectations of his investors and he quickly replied: "5 percent". Knowing this guy was pretty savvy and could easily produce more than 5 percent for his investors, I said he must be making them pretty happy by outperforming that expectation on a consistent basis. "No way!" he said. "I'm not about to scare anyone off." He continued to explain that his investors saw the money he was managing for them as safe money. If they got higher yields, they would start to think of themselves as doing something risky. So, instead of scaring people by giving them bigger returns, this fund manager was kind enough to spare them the scare and pocketed the spread himself. Of course he was not doing anything nefarious at all. The agreement he had with his investors was to deliver 5 percent. As a real estate investor you might be scratching your head right now but this phenomenon is real in the financial services world. Conventional financial wisdom trains us to believe that nothing profitable could be relatively low risk. And, to be clear, there is some truth to that when it comes to traditional bond markets etc. However, I can tell you that we see exceptions to this rule all the time in real estate. If you've been to our accredited investor club for long, you've seen this play out in apartment buildings over and over again. Is it possible to have a relatively safe asset that makes money in recessionary times and makes even more money when times are good? Well, I happen to know and have partnered with a top 25 operator in a category of real estate that seems to thrive no matter what the economy looks like. Of course all real estate is operator dependent. This particular partner raised net operating income across his portfolio by 9 percent in 2008 during the financial melt down! This operator has also seen an average project level annualized return of 64 percent on all divestments! In other words, during down times he has done very well and during thriving economies he has absolutely crushed it. And to be clear, this is not a mom and pop shop that got lucky. They are the 25th largest operator of self-storage in the country. Want to learn more? Listen to this week's interview with Lew Pollack. And if you are an accredited investor, I would highly suggest you join our investor club ASAP!