Wealth Well Done

Did you know that the official inflation rates may not be telling the whole story? In this episode, Eric Scovill dives into the hidden aspects of inflation, risks of high national debt, and implications of the U.S. losing its top reserve currency status. 

Eric sounds the alarm on potential economic storm clouds on the horizon and provides strategies for weather-proofing your portfolio. Learn strategies for navigating this period of uncertainty and discover why diversifying with real assets could be a game-changer for your investment strategy.

Here are some topics from today’s discussion:

• Why inflation numbers are misleading

Episode Highlights:

[07:12] Inflation, Its Measurement, and Potential Causes of Hyperinflation

Eric argues that the Federal Reserve's reported inflation rate of 3.7% might be misleading due to rising rent costs and political incentives to downplay inflation. Eric warns of hyperinflation risks and economic instability when money supply grows over 50% per month, and highlights the challenges posed by the soaring U.S. national debt exceeding $33 trillion. Citing historical resilience of the stock market, Eric advises listeners to ignore market swings, diversify their portfolios, and hold onto their investments, given the average post-recession growth of 164%.

[16:06] The Devaluation of the US Dollar: A Shift in Global Oil Trade and Excessive Spending

A key reason behind other countries holding large reserves of US dollars is to purchase oil. However, major oil producers and consumers are now considering conducting trades outside of the US dollar, leading to a decrease in demand for the currency and causing its devaluation due to excess supply. This is not offset by the US withdrawing money from circulation, as its spending continues to escalate. With a federal deficit of $1.7 trillion, federal spending at $6 trillion and tax revenues at $4 trillion, the US is injecting more money into the system than it's taking out, exacerbating the situation as other countries use fewer US dollars.

[19:01] Investment Strategies and Market Valuation

Eric points out that the stock market appears to be overvalued by an average of 114% based on various metrics. He underscores the importance of accurate asset valuation behind investments, warning that market hyperinflation can lead to portfolio overvaluation. Discussing alternative investment options, Eric draws attention to real estate, commodities such as oil, and US Treasuries as potential hedges against a declining US dollar. He particularly stresses buying real estate at a good price, echoing Isaac Bennett's advice that "basis is forever," and highlighting its effectiveness as a hedge against currency devaluation.

[21:23] Potential Portfolio Hedges

• US Treasury bonds/bills: As discussed, these provide exposure to safe government debt with various maturity dates. They can help balance risk.

Join us this week as we revisit a thought-provoking episode where Eric Scovill engages in a conversation with Jeff Miller about the profound impact of money on marriages. Jeff Miller, a highly experienced licensed therapist with close to three decades of practice, is the co-owner of Glen Manor Counseling and serves as the chairman of the elder board at Northwoods Community Church. Whether you're hearing this for the first or second time, tune in as Jeff sheds light on the significance of money within the context of marriage.

Here are some topics from today’s discussion:

• Understanding the different needs in a relationship and the role of money

Episode Highlights:

[07:33] The Flawed Mentality of Tying Success to a Perfect Life and Recognizing True Worth in Relationships

Many men tie their sense of success to their wife's happiness and having the appearance of a perfect life. However, this mentality is flawed because it does not address the underlying issues that occur behind closed doors. The goal should be to work on the root issues instead of merely painting a facade of a perfect life. Men are often taught that their worth lies in what they do, rather than who they are. This leads to them walling off their hearts, numbing their emotions, and ultimately damaging their relationships. To break free from this mindset and realize their true worth, men need to recognize that their role as a provider, protector, or caregiver goes beyond just earning money. It takes intentional effort to reflect, evaluate, and communicate with vulnerability and openness. 

[23:57] The Importance of Setting Up Ground Rules for Conflict

Setting up ground rules for conflict is crucial in any relationship. It affirms the value of the relationship and sends a message that it matters. By establishing ground rules, we are essentially saying that we are not going away and that we value the other person. Ground rules provide safety and security, which everyone needs in a relationship. Without ground rules, there is no safety, and this can lead to fear of rejection and abandonment. Ground rules don't have to be elaborate, just two or three points can be enough. 

[26:24] Financial Union in Marriage

According to the biblical context of marriage, two individuals become one when they leave their families and cleave to each other. This oneness entails sexual and intimate connection, but also financial union. Keeping money separately may lead to power struggles and control issues within the marriage. Trusting each other with finances and working together as a union is crucial in building a healthy and successful relationship. A woman will have no problem submitting to a man who is in submission to the Holy Spirit and to her. However, if she sees him making selfish decisions that do not consider the best interest of their family, it becomes harder for her to submit. Women typically operate from an emotional framework and fear being hurt or left behind, making money a significant representation of trust and security in a relationship.

[28:59] How Mony Can Impact Intimacy

Money can have a significant impact on intimacy within a marriage. It can reveal power dynamics, communication issues, and emotional needs. Different views on money due to family backgrounds require open communication and compromise. Unhealthy money behaviors can lead to a lack of emotional and physical intimacy because keeping finances separate can indicate a lack of trust and unity. Focusing on careers can also detract from emotional intimacy and place too much value on external measures like income.

Resources:

• Glen Manor Counseling

Ready to go international? This is Part Two of Eric’s interview with Isaac Bennett, Mike Gudat, and Brad Stegall about a real estate development they're doing in Belize. Discover why they chose Belize as their investment destination, the risks and rewards involved, and get an exclusive look into the specific project they're building. Plus, gain valuable insights into international investing and their strategies for mitigating risks.

Here are some topics from today’s discussion:

• Real estate investing and negotiation strategies

Episode Highlights:

[03:31] The Art of Negotiation: Listening, Understanding, and Crafting Win-Win Deals

When it comes to negotiations, the number one rule is to listen and understand what truly matters to the other party. While it may be tempting to make a lowball offer, creating a split opportunity requires us to dig deeper. To truly create a deal that benefits both parties, it is crucial to comprehend their critical needs and concerns. By carefully crafting an agreement that aligns with their interests, we can forge a path toward mutual success. The process entails listening attentively, crafting the right solution, explaining our rationale, and then moving forward. While there may be instances where bold offers are made, they often stem from thoughtful consideration of the market and the other party's priorities.

[12:27] Strategic Advantages of Investing in Mahogany Bay, Belize

• Mahogany Bay in Belize offers strategic advantages as a prime investment location, evident from the Hilton's choice to establish itself there first. With waterfront access, boat slips, private beaches, and pools, the development provides an exceptional setting. What sets Mahogany Bay apart is that each parcel is individually deeded as an IBC (International Business Company), simplifying property transactions by trading business shares instead of real estate. This structure allows investors to avoid Belize's 8% transfer tax, resulting in significant savings. Designed to maintain a well-managed homeowners association (HOA) and allow creative architectural freedom, Mahogany Bay presents a remarkable opportunity for investors looking for financial benefits and a beautiful environment.

[21:07] Real Estate Investing in Belize: Risks and Rewards

• Weather-related risks, particularly hurricanes, pose a concern for real estate investors in Belize. However, the presence of a barrier reef offers protection against storm surges, and all-perils insurance is available to mitigate potential damages. Another challenge for investors is the lack of traditional financing options due to Belize's "reverse fractional banking" system, which requires cash payments. Additionally, as with any foreign investment, there is a possibility of political or economic instability. Despite these risks, investing in Belize offers enticing rewards. The ongoing development of tourism infrastructure, including hotels and hospitals, provides ample appreciation potential for properties. Moreover, Belize offers expatriate tax havens and favorable tax benefits, making it an attractive choice for foreign investors. Investing early in growing markets like Ambergris Caye allows investors to capitalize on future growth, similar to early investments made in Florida. Notably, Belize boasts strong property rights protections, with contracts and laws conducted in English, providing a sense of security. Furthermore, the high-end development at Mahogany Bay offers established amenities, reducing risks compared to other areas in Belize.

Resources:

www.storehouseassets.com 

BiggerPockets

In this episode of the Wealth Well Done podcast, Eric interviews real estate investors Brad Stegall, Isaac Bennett, and Mike Gudat about their experiences and lessons learned over decades of investing. They discuss when is the right time to scale beyond a single-family or multi-family property, managing risk through proper financing and cash reserves, and positioning for changing market conditions. They also give a sneak peek into the real estate development project they are undertaking together on the island of Ambergris Caye off the coast of Belize, including investment opportunities available – and gain practical investment wisdom and insights into this international project.

Here are some topics from today’s discussion:

• The right time to scale

Episode Highlights:

[02:52] When Is The Right Time to Scale?

• To successfully scale real estate investments beyond a single-family or small multi-family property, several factors need to be considered.

• Ensure that your personal finances and current business/properties are stable and running smoothly before expanding. Address any existing issues to avoid chaos down the line. 

[04:46] When is the Right Time to Go Into Commercial Property

Investors can successfully transition from multifamily to commercial real estate with proper property management and expertise.

Mike advises dentists and other professionals to consider owning their own commercial space to maximize return on investment. He recommends working with proper resources and team members to lease up the property and structure contracts.

[12:07] Financial Preparedness

• It is crucial to have a properly aligned balance sheet that matches the level of risk you have taken. Whether you own a duplex and need to repair a $10,000 roof with only $2,000 in the bank or have $100 million in real estate and face a major catastrophe with only $10 in the bank, having the financial capacity to weather any storms is a critical factor that separates those who are prepared for the future and those who are not.

Resources:

www.storehouseassets.com 

Are you an entrepreneur considering an exit from your small business? In this episode, host Eric Scovill is joined by Joe Van Voorhis of Generational Equity to provide a step-by-step guide on navigating a business sale. From establishing fair market value to negotiating the optimal deal terms, Joe draws on his extensive M&A experience to offer best practices. Don't wait until the last minute - start planning your exit strategy now!

Here are some topics from today’s discussion:

• The importance of multiple buyers in selling your business

Episode Highlights:

[04:21] The Importance of Multiple Buyers in Selling Your Business

• As a business owner, you've likely received inquiries from potential buyers or marketing companies interested in your business. It's important to be cautious, especially if they are not actual business owners but rather seeking warm leads. These individuals may aim to source a deal and purchase your business at a lower price. Limiting yourself to just one buyer reduces the market pressures that can increase the value of your business. Instead, start with a larger pool of potential buyers, narrow it down to 15-20 strong contenders, and create competition and leverage. This strategy puts pressure on buyers to make better offers, maximizing your business's value. Having only one buyer severely limits your bargaining power, potentially reducing the value by up to 50%.

[13:15] Evaluating and Enhancing Business Value for Potential Buyers

Generational Equity conducts an in-depth pre due diligence process to measure the company across quantitative and qualitative metrics. They compare the business to industry benchmarks on over 30 data points like financial ratios, operational KPIs, growth metrics, and more. This identifies areas where the business is below average from what buyers expect to see. They then work with the seller to create a "roadmap to enhancing value" over the next few months. They set targets for improving weaker data points to a more desirable level by the time of sale. Examples include reducing owner dependence, improving debt-to-equity ratios, and demonstrating growth potential.

Achieving these enhanced metrics assures buyers the business meets their standards and qualifies their offer. It also gives sellers more negotiating power. By properly evaluating the business value proposition and taking steps to strengthen it, sellers can maximize the price they receive from strategic buyers.

[16:36] What Buyers Look For

Diversification. Buyers want to see how a target business can help diversify or expand their existing operations. For example, acquiring a company with complementary product lines or a stronger geographic footprint. This reduces risk.

Management team. Buyers need to know the existing management team will remain post-acquisition to ensure a smooth transition. Low owner-dependence is also important. This refers to how reliant a business is on its owner's involvement and expertise. Buyers view high owner dependence as a risk factor that can negatively impact business value. Buyers want to see systems, procedures,, and redundancies in place so the business is not solely dependent on the owner working long hours. If the owner is highly involved in day-to-day operations and administration, it shows a lack of scalability.

Resources:

Generational Equity

Learn the insider secrets to selling your business for top dollar! In this episode, Eric interviews Joe Van Voorhis of Generational Equity to discuss mergers and acquisitions. Joe shares his expertise from over 35 years in the industry, including 18 years at Generational Equity. He explains the M&A process, how to properly value a business including intangible assets, recasting financials, and who the typical buyers are. Joe also discusses the current seller's market and dry powder that private equity firms have to deploy. If you’re a business owner thinking of selling your company, then this episode is for you!

Here are some topics from today’s discussion:

• Mergers and acquisitions defined

Episode Highlights:

[03:12] What Does the Term ‘Mergers and Acquisitions’ Mean?

Mergers have become a rarity in today's business landscape. Instead, it's largely acquisitions where larger companies absorb smaller ones. At Generational Equity, they specialize in assisting clients who are looking to transition from their current business to pursue new career paths or retirement. Their role revolves around helping them strategically structure their companies to attract potential buyers, ensuring they are market-ready. Furthermore, they facilitate the seamless transaction of selling their business to a qualified third party.

[09:25] How to Determine the Value of Your Business

Buyers typically assume control of the transaction process. They enter the scene, employing tactics to shape and evaluate the worth of a business based on industry standards. Often, individuals rely on the averages provided by trade organizations, as buyers possess in-depth knowledge of valuations from their professional experiences. However, to truly determine fair market value, active participation in the marketplace is crucial. A large pool of potential buyers fosters competitive dynamics and defines the value. Nevertheless, preparing a business for market readiness can be a time-consuming endeavor, usually taking around 6 to 8 months. Once in the market, the number of potential buyers can exceed expectations, greatly increasing the chances of finding the right buyer at the right price. Savvy buyers, just like sellers, begin negotiations with conservative offers and only raise them when outperformed by market forces. This competitive market approach is strongly encouraged to maximize outcomes for our clients.

[16:59] The Traditional Buyers

• Strategic buyers (companies looking to acquire competitors or expand into new markets)

Joe emphasizes that they want to cast a wide net and access buyers from multiple categories, not just local competitors. Their database has over 34,000 qualified professional buyers.

[20:54] What is Recasting?

Recasting refers to adjusting a business's financial statements to more accurately reflect its true profitability and value. Joe explains that many business owners will underreport profits on their tax returns by taking excess salary, rent payments, or distributions to family members to reduce taxable income. In the M&A process, recasting adds back expenses that were really ways to take profits out of the business, like excess salary or one-time capital expenditures. This "steps up" the reported net profits to a more accurate level that better represents the earning potential a buyer can realize. Recasting typically increases reported profits by around 30% according to Joe.

Resources:

Generational Equity

DealForce app

When discussing financial advice, there are three main aspects to consider: tactical, practical, and spiritual. Tactical advice focuses on specific financial situations such as taxes, estate planning, and investments. Practical advice looks at how these concepts apply to your everyday life, including money management within relationships and avoiding raising spoiled children. The spiritual aspect delves into what the Bible has to say about money and applies biblical principles to financial decisions, with stewardship being a key component. Today's topic will explore how to evaluate your financial advisor, encompassing all three of these principles.

Here are some topics from today’s discussion:

• Three main aspects to consider when it comes to financial advice

Episode Highlights:

[04:04] The Dangers of Acting on Greed and Fear in Investment Decisions

When you take on the responsibility of making investment decisions without professional guidance, it's natural to be influenced by two powerful emotions: greed and fear. However, acting solely on these emotions can lead to dangerous investment choices. Don't let greed and fear drive your choices; instead, seek a holistic understanding of the underlying factors before committing your hard-earned money

[12:01] The Best Places to Invest Your Money

Index ETFs: Eric believes investing in index ETFs is a good long-term strategy, but warns against frequent changes to investments due to short-term underperformance. He advises paying close attention to them and conducting thorough due diligence before making an investment decision. It's important not to be swayed by short-term underperformance and to have a long-term perspective when holding index ETFs. Adam believes that, in most cases, holding them for the long term is the best move.

Kingdom of God: One of the best places to invest is undoubtedly in the kingdom of God. The returns it offers surpass any other investment opportunity, with guarantees that extend even beyond this life. While it's important to emphasize that this is not about promoting a prosperity gospel, the assurance of heavenly rewards makes it a compelling choice.

Invest in yourself: Develop new skills through education, training, or starting your own business as they will pay huge dividends both financially and personally. Investing in yourself has the potential for high returns while also providing fulfillment and opportunities to use your talents to help others. It's an investment that keeps giving back.

Real estate and alternative assets: They provide diversification beyond stocks and bonds, may offer higher potential returns through active management and use of leverage, help hedge against inflation as real assets, and give access to private investment opportunities not available in public markets.

[16:57] Finding Value in Your Investment Advisor

To find true value in your investment advisor, Eric recommends evaluating both tangible and intangible factors. An advisor should provide thorough research, emotional management support, and discipline around diversification for fees paid. However, value is also found in holistic guidance spanning taxes, estate planning, real estate, and biblically-aligned money principles. Asking how fees translate to this full-scope advice helps ensure an advisor relationship optimizes both finances and faith.

Resources:

If you want information on ways to get access to direct investments, email Eric directly at [email protected].

Taxes play a crucial role in our financial landscape, yet they often receive little attention and recognition for their economic impact. Unless you're an ultra-organized individual, most people procrastinate until the end of the year or early the next year to compile their tax information and hand it off to a CPA. The CPA then determines what needs to be paid, and once it's settled, it's quickly forgotten, much like going to the dentist to fill a cavity. People simply don't want to deal with it and fail to give it the attention it deserves. This is precisely why we are dedicating ample time to discussing taxes here. 

Last week, we had the pleasure of hosting Thomas Castelli, a partner at Hall CPA. Today, he discusses real estate professional status and how to qualify to take rental losses against other income. He provides a comprehensive overview of the rules and strategies around real estate professional status, to help you  learn how to leverage your status and maximize tax benefits.

Here are some topics from today’s discussion:

• What is the real estate professional status?

Episode Highlights:

[03:33] What is the Real Estate Professional Status?

The real estate professional status allows real estate investors to treat losses from rental real estate activities as non-passive losses, allowing them to use those losses to offset other "active" income like salary, self-employment income, partnership income, S-corporation income, and more. To qualify as a real estate professional, the taxpayer must spend more than 750 hours per year working in real property trades or businesses and more time in real estate than any other trade or business.

[13:31] How to Qualify as a Real Estate Professional

There are two main requirements to qualify as a real estate professional:

1. The taxpayer must spend more than 750 hours during the year in real property trades or businesses. This includes activities like developing, constructing, acquiring, converting, renting, managing, or brokering real estate.

[22:26] The Two Different Types of Grouping

There are two main types of grouping for real estate professionals:

1. Real Estate Professional Grouping: This allows a taxpayer who qualifies as a real estate professional to treat all of their rental real estate activities as one activity when applying the material participation tests, rather than having to meet the tests for each separate property. This makes it easier to qualify the rental losses as non-passive.

Resources:

Tax Smart Investors

https://thomascastelli.com

Did you know there are many tax deductions available to small business owners and real estate investors that could save you thousands per year? Tune into the latest episode of the Wealth Well Done podcast to learn about home office deductions, vehicle expenses, paying your children, and more! 

Thomas Castelli from Tax Smart Investors breaks down these deductions in plain English and explains how to take advantage of them properly without raising red flags with the IRS. You'll also get tips on record-keeping to withstand an audit. 

Here are some topics from today’s discussion:

• Thomas’ career background

Episode Highlights:

[09:14] What Is A Home Office Deduction? 

A home office deduction allows a business owner to deduct a portion of their home expenses that are related to a home office or workspace. To qualify for the home office deduction, the home office must be used exclusively and regularly for your business as your principal place of business. There are two main methods for calculating the home office deduction - the standard deduction of $5 per square foot up to 300 square feet, or the actual expenses method where you calculate what percentage of your home is used for business and allocate that percentage of total home expenses like mortgage, utilities, insurance, etc. to the deduction.

[15:06] How to Calculate The Mileage Deduction for Vehicles

There are two main ways to calculate vehicle deductions for business use - the standard mileage rate method or the actual expenses method. With the standard mileage rate method, you multiply the number of miles driven for business purposes by the IRS standard mileage rate, which is currently 65.5 cents per mile for 2023. For example, if you drove 10,000 miles for business, you would get a $6,550 deduction. On the other hand, the actual expenses method requires over 50% business use of the vehicle, and you calculate the percentage of business use to determine which expenses, such as gas, insurance, and repairs, are deductible.

[20:51] Paying Your Children

When paying your children for work performed in your business, it's important to consider a few key factors. The amounts paid should be reasonable for the work done and the child's age/ability. If the payments are below the standard deduction ($13,850 for 2023), the child doesn't need to file taxes as a W-2 employee. Providing documentation to substantiate higher rates, like online salary data, is necessary when paying over minimum wage. It's also important to keep records of the work and payments to ensure compliance during an IRS audit. Fair wages and supporting documentation are crucial when questioned by the IRS.

Resources:

Tax Smart Investors

https://thomascastelli.com

Looking to optimize your tax strategy as a business owner or real estate investor? In this episode, Eric Scoville is joined again by Brandon Hall of Hall CPA and Tax Smart Insiders to discuss tax planning strategies for business owners and real estate investors. Brandon shares insights on classifying income as active or passive, proper business structures, and what to expect from a tax audit.

Here are some topics from today’s discussion:

• How to prepare a tax return

Episode Highlights:

[04:24] How to Prepare a Tax Return

Preparing your tax return can be manageable if you have a simple tax situation, such as a W-2 job with some itemized deductions like mortgage interest, property taxes, and charitable contributions. TurboTax can be a useful tool for self-preparation in these cases. However, it's crucial to recognize the limitations when your tax situation becomes more complex, such as starting a Schedule C business or investing in real estate. Adding a business or rental property to your return significantly increases the complexity. The IRS provides publications that offer instructions on preparing these additional forms, such as Schedule E and Schedule C. These publications also estimate the average time it takes a non-professional tax filer to complete these forms, often around 50 hours. This emphasizes the importance of seeking professional assistance when your tax situation becomes more intricate, ensuring accuracy, minimizing audit risks, and optimizing your tax strategy.

[05:59] Common Mistakes DIY Taxpayers Make

One common mistake that many DIY taxpayers make, particularly regarding real estate, is claiming deductions they are not eligible for or trying to offset their W-2 income with losses from depreciation, even if they are not real estate professionals or their property is not a short-term rental. Even well-informed DIY taxpayers who invest significant time in understanding the tax code may overlook more advanced concepts, such as partial asset dispositions and specific regulations like the 2013 tangible property regulations. These intricacies require a higher level of expertise to navigate accurately. Brandon believes tax preparation is one of the hardest businesses to run. He also advises against doing it yourself because you could be costing you more money and/or time than if you had just gotten yourself an expert.

[08:54] The Different Structures

• LLC - A limited liability company provides legal protection but is taxed as a sole proprietorship (Schedule C) or partnership by default.

[28:09] The Benefits of Passive Business Investments

Investing in passive businesses can offer significant advantages. For instance, if one invests in a hair salon without actively participating in its operations or management, the income received from the investment becomes passive income. This means that the individual can leverage this passive income to offset any tax losses generated from other passive ventures, such as rental properties. In this way, passive business investments provide a valuable opportunity for diversification and strategic tax planning. It's important to note that the concept of passive businesses extends beyond rental properties, enabling individuals to offset income and losses between different passive ventures.

Resources Mentioned:

Hall CPA

Tax Smart Insiders: www.taxsmartinvestors.com/free-trial