The Real Estate Law Podcast

37 - Self-Banking, Buying Back Debt, and Banking on Yourself With Certified Financial Planner™ Mark Willis

February 08, 2022 Jason Muth + Rory Gill Season 1 Episode 37
The Real Estate Law Podcast
37 - Self-Banking, Buying Back Debt, and Banking on Yourself With Certified Financial Planner™ Mark Willis
Show Notes Transcript

Mark Willis is a CERTIFIED FINANCIAL PLANNER™, a three-time #1 Best Selling Author, and the owner of Lake Growth Financial Services, a financial firm in Chicago.

Mark works with individuals who want to create wealth in ways that are safe and predictable, become their own source of financing, and become financially set for life. During our conversation, Mark gives us a ton to consider regarding how the cash value of whole life insurance policies can open doors into tons of investment opportunities.

Mark is also the host of the This is Not Your Average Financial Podcast, where he invites guests and listeners to engage the new and improved steps for establishing financial sanity.

In true pandemic-form, we managed to record this episode with a special guest star: our toddler Cecily, who makes numerous appearances throughout the episode (which will be far more clear to you if you're viewing this on YouTube or Facebook!)

Unfortunately, Disney+ on the TV in the living room didn't keep an inquisitive Cecily from discovering Daddy J (attempting to) record in her bedroom, so she felt compelled to investigate, the result of which is this episode!

In this episode, we talk about:
-- What is whole life insurance and why is it a creative investment mechanism?
-- What is self-banking and how can you do it?
-- Trying to record a podcast episode with a curious toddler
-- Recurring financial questions that drove Mark to launch his podcast
-- How becoming a new parent changes one's perspective on everything
-- Collecting uncoordinated financial assets over time
-- Crippling student loan debt and how to overcome that financial burden
-- Building the attributes of the perfect financial game plan
-- Breaking through with a 1-pound rock rather than 1 pound of pebbles
-- What does buying back debt mean?
-- What if you could become your own source of financing?
-- The T-G-I-F strategy of whole life insurance

Get in touch with Mark:
Mark Willis' website - http://nyafinancialpodcast.com/
Mark Willis on LinkedIn - https://www.linkedin.com/in/marklakegrowth/
Lake Growth Financial Services on Facebook - https://www.facebook.com/lakegrowth

(And the link to Jason's childhood money book from 1979!)

Join Jason Muth and Attorney / Broker Rory Gill of NextHome Titletown and UrbanVillage Legal in Boston, Massachusetts for another episode of The Real Estate Law Podcast!

#financialplanning #financialpodcast #firemovement #creativefinancing #realestatepodcast #nexthome #humansoverhouses #realestate #retireearly #realestateinvesting #moneymanagement #lifeinsurance #wholelifeinsurance

_____________________

The Real Estate Law Podcast is hosted by Jason Muth and Attorney / Broker Rory Gill.

This podcast and these show notes are not legal advice, but we hope you find both entertaining and informative.

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Mark Willis:

Whole Life Insurance, of all things, does some really cool things related to self banking and tax strategy. So I'll explain this quickly. I'll try to keep this brief. But there are at least four reasons why I was compelled to add whole life insurance to my own personal portfolio. And for some, some of our clients, it also makes great sense. So in the first and I'll put this into T-G-I-F, just to make it real simple for all of us.

Announcer:

You found the real estate law podcast, because real estate is more than just pretty pictures. And law goes well beyond the paperwork and courtroom argument. If you're a real estate professional, or looking to build real estate expertise, then welcome to the conversation and Discover more at real estate law. podcast.com

Jason Muth:

Welcome to another episode of the real estate law podcast. I really appreciate your once again downloading this or choosing to listen to it, it means a lot to all of us. I'm Jason Muth and here with Attorney broker Rory Gill, from next home Titletown real estate and urban village Neil in Boston. Howdy. Hey, Jason,

Rory Gill:

how are you?

Jason Muth:

Excellent. And we're here with a special guest today. We're really excited to have Mark Willis on. Mark Willis is a Certified Financial Planner and he is a Bank on Yourself professional based out in Chicago. And Mark, I have to tell you that you have the privilege of a children's room as a background for where we're recording this. I both apologize and and I'm excited to make this episode unique. And we'll explain why I'm sitting here in a second but you just showed me a drawing from your daughter is it or your son?

Unknown:

Yeah, my daughter brought this in right when you and I were talking about your background so you know. No apology necessary. I mean, what are we doing this all for? If not for our kids and it's a privilege to have the chance to work from home when possible, so what a gift. And what a cool background. I asked you at first if it was virtual, it was so well lined out all the little you got we have a live in front of a studio audience here today. Jason, so thank you.

Jason Muth:

These are legitimate. These move around. That's Luke, right? Okay, cool.

Unknown:

All those nice stuffed animals there.

Jason Muth:

Downstairs in our daughter's bedroom while she is outside watching Frozen. Excellent parenting that we're all doing during the pandemic, which is basically do whatever you can. And yeah, she's home from daycare today. So I thought that starting frozen before we record this coming into her bedroom to record it would allow it to be quietest environment for me, and maybe least distracting. But it's very possible. We're gonna have two children on this, this podcast from our engineer, friend.

Unknown:

That's right, we're gonna find out at the same time. So keep listening audience for to find out.

Jason Muth:

So Mark is also a podcast host himself. Mark has the Not Your Average Financial podcast, and he has well over 200 episodes already recorded. And it's it's definitely worth a listen, very well done. Excellent show notes. You're an excellent host yourself. It's almost like you went to school for speech, or oration or whatever the word is, because I found your voice very soothing as I was listening. So you have to tell us a little bit about yourself. Tell us about the Not Your Average Financial podcast tell us about you know what you're up to these days, how you're navigating through these uncertain times that we're all in. And and then we'll jump to the conversation.

Unknown:

Well, I'll answer maybe the last question first. How are we navigating uncertain times? You do it scared, is one way to do it. Do it scared, because and that's how we started our podcast. We did it scared back in 2017. We didn't know what a podcast really was or what it was like or what it would do. But what I realized was our firm was growing in such a way that we were meeting people all across the country. And I was having 1-on-1 conversations with folks over Zoom and over the phone, even pre pandemic, and the same themes of conversations were coming up over and over again. People having questions about "Mark, am I saving enough for the future? Am I should I pay off my debt? Or should I invest? Am I paying too much in taxes for how much money I make?" These same themes were happening over and over and over again. So we really thought maybe a podcast or something like it would be able to give clarity, at least from our perspective, give some clarity to a very unsettled world. And even in 2017, when we started our podcast, there was a lot of unsettledness. Volatility hasn't stopped since we started the podcast. In fact, turbulence and volatility seems to have only increased in the subsequent years. And even now today, who knows what the end of 2022 will bring us? Here's hoping some more fun parties for our little kids and little more freedom in that regard. But it's it's definitely a question of what will happen to your finances. What will happen to your future? How do we take some manner of control and a time that feels so out of control?

Jason Muth:

So if I do the math correctly, if you have a five year old, it sounds like you started this podcast around the same time as becoming a dad.

Mark Willis:

That's right. Yeah. Well, then yeah, so the, you know, we take things at least in twos, sometimes threes, I think we also moved our offices that same year, and we just, you know, why do things one at a time for sure. Just the same time? Yeah. Well, that's right

Jason Muth:

Kudos to you for being a couple hundred episodes in. We started shortly before our daughter came into our lives and and boy that knocked us for a loop. It's a challenge. Do you have one child or? Yeah, one and only. One and only Yeah, us too. And you know, your life changes. It's so cliche, but you know, everything that you can think about, that you used to remember is no longer.

Unknown:

Yeah, one person once said: he was trying to describe the brand new world that you're existing in as a parent, he was trying to explain this to young college kids at the time. And he didn't know quite how to describe it. But what he said was, hey, college kids trying to explain like sexual attraction to a three year old or something, you know, right now, you might be buddy-buddy with your neighbor down the street. And it might just be, you know, totally a little kid relationship. But someday, you might grow up and have a brand new lens on which you see a relationship. And he kind of liken that to what it's like to become a parent. I'd be curious, your thoughts, maybe this is a topic for another podcast. But you know, it struck me as kind of accurate, that there's almost a brand new lens by which you see everything, everything else. It's almost like you, you enter into a brand new room, in your heart, and in your mind, and you know, your what you earn, what you spend, what you how you engage the world around you. It all changes, sort of, maybe I'm putting too fine a point on it here. But parenting does have a sort of transformative experience for at least some folks that I've, in my own experience anyway.

Jason Muth:

Rory, what do you think there?

Rory Gill:

I mean, it changes the reason why you do everything that you do, from earning money to organize your life to keeping yourself healthy, everything, the purpose and the reason changes, and it's not forced upon you. But it's just something that you feel in that does change overnight in a way that you don't necessarily expect. And perhaps I like your analogy, where you know, just to change a different perspective and understanding. But for me, the Y changed for almost everything. There you go,

Unknown:

Well, hey, who knew we'd be talking about this on a real estate long podcast, but I'm glad we are because this is really underneath all the money and all the rates of return and withdrawal rates and the market volatility and the cap rates. This is what we're doing it for at least hopefully, for many of your listeners.

Jason Muth:

I can actually hear her outside the door right now wandering around. So she might actually make an appearance on this this podcast. But why don't we do this first, since the "why" is knocking on the door, right? Mark? Why don't you tell us a little bit about you know how you got started with this, like, you know how you ended up in in this space right now? Maybe even like through a different lens of the parenting, how it changes and she's able to open the door now. Yeah, sure. I can roll with it. All right.

Unknown:

Hi, there. You're totally, totally beautiful. Hi, she must be about 2 or 3, maybe 3 or 4.

Jason Muth:

She will be 3 in May

Mark Willis:

3 soon. Oh, wow. Cool. The threenager. Okay.

Jason Muth:

I'm gonna go on mute right now. Yeah. Well, you chat a little.

Unknown:

Sure. Okay. So I'll tell a bit about our personal background. So I graduated, my wife and I met and we got married in college. And we graduated together with with three private school degrees between us and six figures of student loan debt. We graduated from my graduate school days in 2008. So we finished all the education, we were ready to meet the world. And it was 2008. And so we graduated with really not really a very marketable degrees between us and nobody was really hiring. And the world was coming to a global standstill. And we had six figures of student loan debt, and a lady named Sallie Mae who seemed to want to move in with us for a monthly payment every single month, that was a shocker and an eye opener, for sure. And it brought me really face to face for the first time with this thing called money. Something I'd never really paid much attention to in, in previous years. And so I had to take a hard look at what is money? How does it work? I didn't know a thing about it. I kind of stumbled into student loan debt. Like so many of us do, whether it's you stumble into most things in your life, I feel like many of our clients, it's the same thing guys, you know, you you kind of stumble into your student loans, you might stumble into a couple of credit cards, you might get your first W-2 job and stumble into a 401k and all these it's almost like you're you're collecting these rocks, you know the rock of your 401k the lat the rock of your student loan, the rock of your credit cards, and you don't exactly remember maybe you get a little cryptocurrency, maybe you got a Roth IRA at one point, maybe you have a rental property even. And you've just been adding all of these accounts into your backpack, almost like you know his bag of rocks. And you're at first you're like, Yeah, I'm carrying them with you. But then it starts to weigh you down, it starts to lower your ability to respond creatively and dynamically. And over time, you just have this big ol' bag of rocks. And it's not really meeting your objectives. And you don't remember why you have these rocks. My daughter, she collects a bunch of these special rocks. And at one point, we all knew where they came from. And they had a special story. But now there's just a big ol bag of rocks in our bedroom, you know? So does that really mean anything anymore? And I feel like most people's financial life, it's the same. And that's how it was from for me. So in any case, we had to find a way to live free, we wanted that. And so we got serious about our personal financial life, we found strategies to help us pay off our debt, to invest in real estate to start our business, to invest in other businesses, since become so convinced that it matters that we started the firm like growth financial services, to share our strategies that we've learned one blind beggar finding bread and sharing it with somebody else. We're trying to get the word out. So that's what we're up to these days.

Rory Gill:

No, I mean, I love that that resonates. I think you probably read off my life financial story, I escaped college relatively well and but left law school with a tremendous amount of student loan debt. And when I emerged that student loan debt stood in the way of what really were the goals that the reason for going to law school was to kind of open up opportunities in my life. And I looked at what I left law school with in a recession in 2011, and saw that the student loan debt defeated the entire purpose of kind of going there and setting in the first place. And, you know, it's been a struggle. And I don't know, when you and your wife pivoted from having the student student loan debt and kind of, honestly, the emotion that goes behind it the creates a panic, which can be motivating, but it also, to me, I felt the conflicting emotion of kind of being defeated have been demotivated by the debt that was behind me. So how, how did you just address it mentally, before we get into the actual strategies of financial growth,

Unknown:

We wanted to emphasize, we have a prevailing philosophy that I don't want to just be a tennis ball floating down the gutter of life, right? I don't want to just be acted upon and be beat up by the world circumstances. I try to avoid the word victim or deserve as much as I possibly can in my life, in my personal life, I just feel like it yields a better life when possible. You know, obviously, there's things that happen to us outside of our control. Somebody once said, Mark, you cannot control as much as you think you can. But you can influence more than you think you can. And I feel like that's a good threading the needle a little bit there. So for us, yeah, it was it was an emotional decision determination that we were going to take a step toward influencing our future to having some better version of our future than we wanted our present or past to have. And there's a great quote by Dan Sullivan, he says, "always make your future bigger than your past." And so that decision, that commitment, that orientation toward, like a bigger future was what really got us centered on and focused on knocking out that debt, and more importantly, having a game plan.

Mark Willis:

And actually having a an outcome based financial life, rather than just reacting toward the bag of rocks that were just being given to us one by one by one. We wanted to be able to say, alright, what do we truly want our money doing for us? Rather than our money telling us what to do, we wanted to have our money doing things that we want it to do. And we literally did, we wrote down a list of characteristics and attributes. Like we took all the labels off, real estate savings account, 401k annuities, you know, hedge funds, Bitcoin, there was no real Bitcoin at that time, but you get the picture we were making, removing the labels from money, and saying instead, what are the perfect, like, if we could design our own perfect financial vehicle, we could make a financial life custom designed with what we want, what sort of attributes what sort of characteristics would we want it to have? What sort of functions do we want our money to have? And then we'll get around to finding the right ones. And in fact, after we did that exercise, that's kind of what started me down the pathway of looking into the Certified Financial Planner designation. Because it gives you the full gamut. You know, it was a personal discovery journey as much as it was a training for serving our clients. But when you get your CFP it's like a three for me anyway, it's like a three plus year deep dive into this thing called money and all the ins and outs of tax law, estate planning, insurance, investments, technical analysis fundamentals. It was wonderful and it gave me I guess, a confirmation of what we wanted our money doing for us but that was the key starting point and if your listeners get nothing else from this episode, I'd say take 5-10 minutes just tried to make yourself a wish list. You know grab a pen and paper whatever write down the current like write down currently what you want your money doing for you. What's the perfect financial vehicle? What characteristics would it have? If you could paint your own financial vehicle? If you were Pope of Money for the day? What would you want it to do? That's the sort of exercise that helped change our trajectory.

Rory Gill:

That's great. So maybe we should pivot into some of kind of the, the ideas you have. And we can give some hope or better good agency to people who are struggling either in debt or just struggling to get started with purposeful financial planning.

Mark Willis:

Absolutely, yeah. Take us where you want to go.

Jason Muth:

I'm just gonna add also that Cecily has decided to destroy our background, unfortunately. And the good news with how we're recording this is that I believe already has been alternating. So the people who are watching this on YouTube are probably not seeing it, but the background is gone. So I hope it's a bit distracting, Mark. But I've been I've had a microphone off in the effort to talk about rocks, actually, I have an analogy. Like when you throw these rocks in your backpack that you've been talking about with different financial plans and whatnot, you could have a similar backpack for just life events. And you know, when you throw the rock of a child in your backpack, there's an awful lot of rocks you take out, right? That's it, there's, they just don't make sense anymore. They don't have meaning anymore to like your every day, because your purpose is to raise the child, keep the child alive, healthy, learning stuff. We're grateful that she's done that you can hear in the background. But yes, I'm gonna go back on mute while, you jump into Rory's question.

Unknown:

So that's great. Thank you for that. Yeah. And I'd say, sometimes when you have to take out, you know, let's push this metaphor of rocks just a bit more, and then I'll hush. Let's imagine that your goal is to break through a window that keeps you from your destination, let's say you really need to get through, it's a burning burning house, you're trying to get out of the house. And the only way out is to break through a window and, and smash your way to freedom and safety. Let's say in your pocket, in one pocket, you have a pound full of pebbles. Okay, a pound, you know, full pound worth of pebbles for some reason, that's in one pocket. And at first, you grab your handful of pebbles, and you throw it as hard as you can, at that glass window. What do you think happens? It just bounces off right? Pound full of pebbles are so dispersed in their energy that it just bounces off. Let's say in your other pocket, now, you have exactly one pound rock, a singular rock weighing one pound. Same amount of weight. But now it's focused. Now the energy is exacting into the one spot you want to get to. And you throw that rock right where you need it to go and kaboom. Right? It shatters the glass and you're out free. That's the I guess the focus or the metaphor I've used personally for how I arrange my financial affairs. Sometimes diversification can feel like a bag full of rocks, pebbles, you know that get you nowhere and fight with itself. I'll tell a quick story. And then I'll Hush. So let's say a few years ago now, but I met with a doctor, he made great income. And he was very proud of his mutual funds and his 401k they'd done, you know, very good, low, low double digit 12-13% return over a couple of years time. And he was very happy with that. Not too bad, right. But as we got into his overall financial picture, we also learned that he had a couple of mortgages, on his several houses, vacation homes, etc, a boat loan, a couple of car loans, some old medical debt, some student loans, and he was spending a third of his income, just servicing his debt. Just to service the debt was almost a third of his overall income. So we laid those two next to each other. He was wonderfully happy with his 12% in his pre tax 401k, which after tax might be more like 8%, right. And then he had all this after tax money getting just washed down the drain to service banks to just for the privilege of staying in debt to them. He was spending a third - 30+ percent of his income. Now doesn't that sound like two little pebbles that are just gonna bounce off but he can't break through to a goal that he might want to get to maybe he wants financial freedom, maybe he wants more time with the kids, whatever it is, he won't go anywhere when he's when he's pushing so hard on a rate of return. That's not guaranteed. And yet he has all this guaranteed debt, losing a third of his income to service debt. Now, he might sound extreme but guys, according to the US Commerce Bureau, the average American spends over 34% of their income on debt. So anyway, that's a that's an amazing fact. But it just blows me away that we fight our money fights with itself. And that's why so many of us don't make progress.

Jason Muth:

Is the person you've been describing. Is any of that being put to work for any income generating assets or is it all just liabilities and fun life?

Unknown:

No. And his case now everyone's different, right. But in his case, it was all it was consumer debt, but it was also personal residence debt, vacation home, a boat, some cars. Yeah, so in his case, no, unfortunately. But I agree. I think good debt involves something that is going to net pay you some arbitrage, you know.

Jason Muth:

Yeah, we we kind of agree with that. I think that's part of the fundamentals of a lot of people that might be listening to this. Financial Independence. Yeah, there's a big movement toward, you know, letting your money work for you. And you know, getting cheap money because money is still relatively inexpensive these days, and you know, going to find income-generating opportunities with that money.

Rory Gill:

Alright, so let's take the person right there who, you know, might actually feel as though he's a financial success looking at the retirement accounts and the rate of return that he's getting on there. And not necessarily realizing the net effect he has, let's put together some of the big rocks, I'm going to keep running with this, this metaphor just a little longer to let's put together some of those big rocks for him and different ways that he can either rethink his situation or we can get to some specific strategies of what he can do to, to bust through that window and actually make some progress.

Mark Willis:

Let's do it. I'm ready.

Rory Gill:

Alright, so we have here in forgive me if I'm kind of taking them out of order. But a couple of strategies that, you know, you've talked about on on your podcast that are relatively new to me here. So we have the concept of buying back debt? Is that something that could well, first off what is but what do you mean to buy back debt? And, and how would it help somebody in the situation?

Unknown:

Rory, that's a great question. And it's great, because it points to one of the biggest leverage points we have in our financial life. In fact, a lot of our listeners might have low interest debt. But it's not so much the rate, that is the problem. It's the volume. It's the volume that counts, even if it is cash flowing debt. Let me kind of talk through what I mean by this, you know, and I use the metaphor of eating. It's not so much the rate by which you eat food. It's the volume that makes you skinny or fat, right? It's the volume. So the volume of interest is what killed his financial plan. All of his debt was pretty low interest. But it was the rate, it was not the rate, it was the volume that counts. It was about a third of his income. That's the volume of debt he had. Right. So in his case, what if he had followed the standard, kind of like, radio host advice, which was to pay cash for everything? Would he have been better off? Well, let's do the math on that. If you'd bought a couple of houses a boat, paid cash for your college education, a couple of cars with cash, you'd look on paper, like you had all these assets. And you know, you'd feel so good being, you know, totally debt free. But is it really that good? No. And as a Certified Financial Planner, now, I'm saying that paying cash is also not the answer. In fact, I'd rather be an honest borrower at somebody else's bank, than steal from myself by paying cash. So what do I mean by paying cash stealing? Well, the truth is, guys, you finance everything you buy. Everything you buy is financed. Because either you pay interest to a banker down the street, or you pay cash and you pass up interest, you could have earned on that money, had you left it invested instead. In fact, if you just paid cash for cars, let's say you paid 30 grand for a car, and you bought nine cars over your lifetime, you're going to need to save about $350 a month in a savings account somewhere earning 4 or 5%. If you can find one. And if you did that, and paid cash for cars, you just have a bunch of old cars in the driveway at the end of your life, right? Nine cars sitting there rusted out. If however, you didn't buy those nine cars 30 grand apiece, and you just let that money grow over your lifetime. That would be $900,000 sitting in a savings account somewhere, if you just ridden shotgun and not buy bought those cars.

Mark Willis:

So the power of paying cash is you lose opportunity growth, you lose, you have a cost to anything you buy, there's a cost to it an opportunity cost. So what is better than being debt free? You know, what is better than paying cash? If paying cash is not the answer? How can we do even better than paying cash? Well, buying back your debt, is what I would say is better than paying cash to your original question, Rory, the idea would be rather than using somebody else's bank, and rather than stealing from your future self by paying cash, what if you could become your own source of financing, and buy back your debt from your creditors? This is exactly what my wife and I did when it was time. We borrowed against ourselves and paid cash for the debt, wiped out all the debt, we bought back the debt from ourselves from our creditors. And now we were personally the creditor to ourself, and that's the best bank I want to bank at is when it's the Bank of Mark, or the Bank of Rory, or the big Bank of Jason, right? That's the best bank to bank. And because now you're in control, you get to decide your own repayment schedule. You get to get the growth on that cash as you pay yourself back with interest. And you get to enjoy the benefits of liquid capital all along the way. And you don't break compound growth along the way to which is maybe the most essential piece. In fact I don't want to be too too firm on this point here. But I would, I would want to know more importantly, than your rate of return, I would want to know who's doing the banking in your life? Is it you? Or is it some other banker? Because we're all in the banking business? It's just that most of us are sitting on the wrong side of the bankers desk.

Jason Muth:

Does that fall into the concept of self banking?

Mark Willis:

It does.

Rory Gill:

So I mean, just to for clarity sake, are you actually saying that he more than just a mind shift actually setting up loans to yourself and then paying them back? As if you, you know, with interest rate with a repayment schedule the same way you would if you were using an external lender?

Mark Willis:

That's right, yeah, not just a mindset, but actual strategies and systems and tactics, we need all of that to really move the needle in our financial life.

Rory Gill:

Great. And then when we talk about somebody in that situation, as well, I'm imagining somebody who maxes out their retirement accounts. Because, you know, that's what they've been told to do. And that's kind of the the simple, often, right, but the simple financial advice with the purpose of just reducing taxes? Is that the right mindset to just do whatever you can to reduce taxes? Or are there? Or is there a different mindset involved, where, you know, maybe reducing taxes isn't the be all end all? In your financial planning?

Unknown:

Again, there's a different discussion, and it's one that we typically have with clients, Rory. We want to discuss taxes, because taxes, unfortunately, are going to be the biggest expense of our life, we'll spend more on our taxes than we will on our own children will spend more on taxes than any other category in our life, which is surprising to a lot of people to hear me say that, but it's true. When we put money into a traditional 401k, Ira, etc, etc. We're not actually reducing our taxes when we do that. Sure, we do reduce the tax this year. But the word is tax deferred. And a lot of people hear that word, and they think, tax free. But that's not the same thing as tax deferred. And if you put off something long enough, sometimes it gets better. Sometimes it gets worse. You know, and I asked our clients, when we're sitting down having a meeting, over the phone or over zoom, and we're discussing kind of their overall financial picture, we're going through their concerns, and their, what they're excited about what their objectives are, their goals. And we look over their 401k statements, their IRAs, and I'll ask them, you know, just upfront, I'll say, Hey, do you believe over the long term? I don't care, you know, who you voted for last election? I mean, over the long term, do you believe taxes are going to be lower or higher over your entire lifetime? And guys, I don't know about you guys, but I've never heard anybody say they're going to be dramatically lower over their lifetime. It's almost always higher. And then I say, Well, you know, I noticed that you're maxing out your 401k, well done living within your means and being able to packaway, something like that. What's your understanding of how the 401k will be taxed in the future? And they said, Well, I don't know. I don't know how it would be taxed. i No one voted on that yet, or something, they'll say something like that? And I'll say, well, you're exactly right. We don't know how much of that 401k you own, and how much is owned by the IRS. So tax deferred can be a ticking Tax Time Bomb, you know, and math works out, if it's even 1% Higher, if taxes are just 1% higher in the future than they are today. Mathematically speaking, it's better to pay taxes on the seed. Now, like a Roth IRA, for example, rather than waiting to the future when we pay an unknown tax to our dear uncle.

Rory Gill:

So are there any strategies that people should consider that actually are for tax reduction, not just tax deferral, I mean, even in the real estate, real estate space, I love the 1031 exchange. But that strategy only is really, truly tax reduce tax elimination strategy, if you carry that property into your death, then we get a stepped up basis, at least in the rules right now. And then you're talking about tax rates going up in the future, I also think taxes, this tax system might be different in the future. And that's a better bet to where you don't necessarily know where that tax burden is going to fall among the different types of investments. But are there any actual tax elimination or tax reduction strategies that work and don't just kick the can down to an uncertain future?

Mark Willis:

Man, that's the key question isn't there? So there are strategies that help you one, you know, reduce your taxes to eliminate your taxes, which is, you know, a different category of conversations. And again, this was some of what I put in my little checklist of what I wanted my perfect financial vehicle to have tax reduction, tax elimination, liquid access to money, competitive rate of return, accessible outside of the reach of creditors, lawsuits, so forth and so on, especially since I want to do some real estate in my portfolio. I knew the real estate attorneys would be keeping my name on speed dial, if I was going to be doing real estate, because it's just a matter of when not if there's going to be a lawsuit, unfortunately for most real estate investors. So I had this long list myself and strange enough, and this shocked me, because I kind of was reared on the Dave Ramsey content, but whole life insurance, of all things, does some really cool things related to self banking, and tax strategy. So I'll explain this quickly. I'll try to keep this brief. But there are at least four reasons why I was compelled to add whole life insurance to my own personal portfolio. And for some, some of our clients, it also makes great sense. So in in the first and I'll put this into T-G-I-F, just to make it real simple for all of us, T-G-I-F, the first is tax free. If you design the policies correctly, you can put money in after tax, kind of like a Roth IRA. The money grows in there and is not taxed every year. And then you can access that money next Tuesday or next year or 30 years from now whenever you want it without taxes due if the policy was designed correctly from the start. So that's awesome. If we think taxes are going to go up in the future. It's like an unlimited Roth IRA, in how, you know, how a Roth IRA, there's contribution limits, and there's income phase outs, well, there's none of those constrictions and restrictions on whole life insurance. You can be making 10 million a year and still be putting money into whole life insurance at whatever pace you wish. So that's the first one is tax free. Second, it grows guaranteed. That's the G guaranteed growth every single year, no matter what the real estate markets are doing, no matter what the stock market is doing whole life insurance, if it's dividend paying whole life insurance will grow on a predictable schedule every single year, you'll have more cash in your policy this year than you had last year and the year before. And whatever you earned last year is locked in. So you know, I might get a rate of return on my Coca Cola stock and get paid a dividend on my Coca Cola stock. But if I reinvest that dividend into Coca Cola, and then they lose share this year, they lose value this year, last year's dividend got erased off my Coca Cola shares, right. But when I have a dividend on a whole life policy, which is not guaranteed every year, but they've paid a dividend for at least 100 years straight, the companies I'd recommend anyway, when I get that dividend, it becomes part of my guaranteed cash value forever going forward, which is really nice in terms of just building a financial projection into the future, and even guarantees into the future. So okay, so number two is guaranteed. Third, it is life insurance, insurance is the I. So automatically, I'll leave my daughter more than I could ever save for her in this life insurance policy. Again, income tax free when I pass away, that death benefits getting paid out. And there's nothing really I can do to stop it. You know, it's just that's just how it works. And then fourth, and finally, financing is F. So, again, I believe your need for financing is far greater than your need for insurance. While I use life insurance, and it's nice that it is insurance, I'm more focused on the financing piece, which is, you know, the the functionality of this policy that really compels me for real estate, and how I used it to pay off all my student loans, you can borrow against the cash value of whole life insurance. And when you do that, you can access the cash value and use that money for any purpose. I used it first for paying off my student loans. But I've since used it for cars, vacations, have used it for my business, used it to invest in some LP as an LP and some real estate syndication deals. And and beyond. It'll be for my daughter's college someday, and so forth. And so and ultimately tax free retirement for me and my wife. So it's used, it's used for all those purposes. But and this is really cool. When I borrow against the life insurance cash value, if it's designed correctly, the policy will continue to grow as if I hadn't borrowed against the money. So to say that another way, let's say I've got $100,000 in cash value. And let's say I borrow $30,000 to buy a car. That year, the policy will still pay me a guaranteed interest and a dividend on the entire $100,000 As if I hadn't touched a dime of the money as if I hadn't borrowed from the cash. And I'm driving my car around. And I get to decide what my repayment plan to myself is. Maybe I decide I want to pay 100 bucks a month. Maybe I want to wait a year or two and then repay the loan. It's my choice because I'm in control. And when you're the banker you get to control the entire project. So that's a I tried to make it as short as possible. I went a little long but any thoughts feedback on T-G-I-F?

Rory Gill:

My question is when is it effectively too late for somebody at what age is it or is it effectively too late for somebody to opt in for whole life insurance?

Mark Willis:

Yeah, well, old fashioned whole life insurance. The expenses increased as you age, you know, so the longer you waited, the more the expense. And that was typically because the focus was on the death benefit, the insurance part. And there's nothing wrong with Whole Life Insurance specifically for estate planning and some other really cool things. But if we're using this for the cash value, not forgetting the death benefit, but if we're focused on that cash value accumulation, typically we cut the death benefit down as small as we can make it. So Rory, to answer your question, you know, if you're still in your 80s, policies can be designed for folks even up to age 85. And because we squeeze down that death benefit, cut the commission's out, cut the insurance expense out, flood the policy with as much cash as you can, as long as you can, you know, count your candles on your birthday cake, I guess you can be approved for this, and health wise, and so forth. Now, it's not a good fit for just anybody to go get. So I'll just briefly mention that, you know, if you've got, if you're unable to save, you know, if you can't live within your means I wouldn't recommend whole life insurance. It does mean you're putting money into the thing, of course. And it's not a it's not like a double digit rate of return every year, it's going to be boring you to tears when it comes to rates of return. But it's not supposed to be an investment replacer. I think a lot of people get that mistake, it's supposed to be a cash equivalent in your portfolio that you use for other investments, for say, like, you know, real estate, etc.

Rory Gill:

So very dynamic savings account.

Jason Muth:

It's very, very different from people that are into crypto. And the meme stocks, they're probably not even considering this as part of their portfolio.

Mark Willis:

Jason, you bring up a good point. Now, I will mention this, you guys might know about the the kind of the dynamic between risk free asset and risk asset. And I won't bore your audience to tears, but we actually have several episodes and a webinar we've done on how whole life insurance can be used with your cryptocurrency or any other speculative asset. Okay, so if I was to just directly invest in Dogecoin, or whatever, I only have whatever Dogecoin is worth today. Or Shiba coin or Bitcoin or whatever, all I have is the the coin. But if I'd put my money in my whole life policy first borrowed against it, then invested, then I have two assets. I have the whole life policy and I have the crypto. Now, am I telling everyone on this podcast to do that? Of course not. But, but that's the power of using one asset to make two assets. What could go wrong there? Well, the, you know, the crypto could crash. And now you have a policy loan. Now, who has to repay that? Well, you don't have to over your lifetime. If you never pay off a policy loan, it's just deducted from your death benefit when you pass away. So instead of your family getting a million bucks, they might get 900,000 bucks, I guess they'll have to struggle along and 900,000 bucks in that case, you could also lapse the policy if you never repay it and just you know, ignore the thing. That is very rare, but it can happen, which is why you need a good financial professional helping you out watching watching the thing. But in general, you would have lost the crypto anyway, and you would have been out everything. If you didn't have the whole life policy to back then you would have just lost all your money and had nothing at least now you've got a whole life policy still paying you a dividend. You know, as if you hadn't made that mistake with the crypto and you can pay it's up, maybe you pay it back over 10 years or something. And now you've made whole the policy and you've got a big fat retirement account ready to go? The whole life cash value ready to go for your needs in retirement? So is it perfect? No. But it's it's a pretty cool strategy for putting the money to work in the world. And maybe you're starting to see how this might fit into real estate as well.

Rory Gill:

We're not gonna be able to pick your brain and get every idea out in just just this one podcast episode. But for our audience, in particular, I want to see you to throw it any creative real estate funding ideas, because that is something that we get asked all the time. If you know are any, are there any of those that you'd like to highlight for our audience?

Mark Willis:

Well, we we've been focused on this one topic. And again, we are a full financial firm. So if there's other strategies that make better sense, we go in that direction with our clients. But since we've been talking about self banking, I'll bring up whole life insurance. I do think that it's much like nitro and glycerin. When you combine whole life insurance and real estate together. It's sort of like nitro and glycerin together. They just work better together. You know, it's like Thelma and Louise, it's like Batman and Robin, they just go great together. So when you couple a whole life policy, with real estate, as a funding strategy, that's a pretty cool deal. Like I bought a house in the midst of this pandemic. And I use my whole life policy as a downpayment for that house. We've used the same whole life policy for syndication investments. We have clients that use their policies, I'll tell a quick story. There's a client who she flips houses, but we're talking about like, multi million level. Okay, so like very nice antique homes that go on the market for several million dollars, five 10 million. And what she does is she borrows significantly, she borrowed about $800,000 from one of her policies, and the money was in her bank account within about a week, no questions asked, she didn't have to get approved for the loan, you know, there was no delay there. It just drops in the bank account, she uses that in tranches to buy and construct all the material for the renovation. And then she sells in a year or so later, right. And the house sells, and she pays off that loan. Not only pays off the loan, but has profit, to boot for groceries and and to start new policies, etc. What

Jason Muth:

Are the interest rates that people are paying back with these loans against the Whole Life policies?

Mark Willis:

It's a great question, Jason, because nothing's free. And to make this a true loan, there must be an interest rate. In fact, that's why you can get access to the policy income policy, cash without taxes do even on the gains. It's because there's a interest rate applied. And loans are not considered income by the IRS. That's been the case, since we've had an income tax in 1913. So when you borrow against a life insurance policy, it's going to really depend on what company you work with. So I want to tell you guys and tell your listeners really important, you want to make sure anytime you set one of these up, you work with a professional that knows what he or she is doing. I have recommended Bank On Yourself professionals for years, because it's the only credential I'm aware of in the marketplace, that actually puts people through a rigorous training process. As you guys might know, there's 400,000 insurance agents, life insurance agents in the United States. It's kind of like real estate agents, you don't want to just work with any of them, you want to work with the best one, and one that's suited to your specialty, you know, whatever it is you're looking for. So I would say the first thing is you want to find the right professional, to build the right policy with the right company. And so Jason, to answer your question, most of the companies, if I was to borrow from my policy, and pay cash for a real estate investment, and repay that loan, I'm gonna say over four years, it's simple interest, usually at 5%. But because it's simple interest, all year long, the APR, the annual percentage rate is about 1.9%, over four years. So it's about a 1.9% actual percentage on your on your loan, but realize that the policy had continued to grow on all of your cash compounding in the middle single digit range. So how does all this shake out, it ends up where you're in you're ahead, they call this arbitrage, right? You're ahead on that deal, it still cost you something, there's no free lunch, except on the wrong end of a mousetrap, as my friend one said. But at the end of the day, you come out net positive, where you still got more growth on your cash value than you paid in interest.

Jason Muth:

Yeah, I, you know, I think in the real estate world, a lot of people are looking for cash sources, you know, people seem to have a lot of cash these days as we record this, so they want to invest in deals, passive income, you know, they might work full time somewhere, and they actually might want to put their money to work with an investor. But other folks are just looking. We ask the same three questions of all of our guests. The first one is very simple. If you can get on the stage, and talk for 30 minutes with no preparation, not about financial planning, or anything we've talked about today, like what would that be?

Mark Willis:

Oh, well, I was gonna say something else. But since it's not about financial planning, because I just have such a passion for this. If it's not about financial planning, I would say Hi, there. Yeah, I think I think our teacher has appeared. So you know, putting, putting the first things first in your life. And, you know, realizing that we're, we're building all of this and doing all of this for the benefit of our next our next, our next generation is just really the the ultimate outcome and goal and keeps you motivated when times get tough. So I'd focus on that if I could grab a stage and talk about anything.

Jason Muth:

That's perfect. And yes, perfect timing. Also, Cecily for joining us around this whole episode, but I've had the the microphone on mute for most of it. The second question is, what's something that happened early on in your life that impacts the way that you're working today?

Mark Willis:

Yeah, I'll tell a quick story. I and I'll keep it very brief. But I was five years old, not much older than Cecily there and I accumulated some money from allowance and other things. So my mom takes me to the bank. And I had all my money, my life savings in a paper bag. In my desk in like in my little drawer, my little five year old, just the drawers. I take my little paper bag. I dutifully follow my mom to the bank. She walks in the bank I see this person, this man come at me. And he asks for my paper bag. So he can open up the checking account. And I did not want to give it to him. All right. Why? Well, because I believed little five year old self, that my paper bag was a safer place than keeping it at the bank. And while I understand a little bit more now, I actually think my five year old self knew something that my adult self forgot, which is, banks are not safe, they're not the place, you want to keep all your cash. You know, if I put $10,000 in a savings account, how much of that money is actually in their vault? Almost none of it, how much gets loaned out to the guy behind you, in line, almost all of it. And, you know, if I, if I could set up a business that did something like that, we'd all be the wealthiest people in the world. And that's why banks have the biggest building in town. So that's my short story of, you know, my first memory of money and banks.

Jason Muth:

I love that. I had a financial book when I was a kid, The Children's guide to Managing Money. I still remember it. I still remember every single page of that book also. Well, there was one little part of the book where it said, you know, there are three things you can do with your money. It was you could buy things with your money, you could save your money, or you can give it away and I just could not get over the get give it away part. Maybe that's a little capitalist in me, but I totally get why giving it away is a good thing. But like I kept asking my parents like, why would you want to? Yeah.

Mark Willis:

I love it. That's great.

Jason Muth:

Um, finally, what are you listening to or watching or reading these days?

Mark Willis:

You know, I'm reading that Walter Isaacson book on Leonardo da Vinci. He is such an awesome writer, Walter is. And then of course, Leonardo da Vinci is such a polymath. It's just a privilege and a wonderful experience to read through this book, and to see all the different ways that the Vinci was way ahead of his time, and thinking different about art. I want to try my very best to help people think different about money, and to get them to become their own DaVinci in their minds and in their financial life. So that book has been just a lot of fun. I'd recommend it to anybody.

Jason Muth:

I will have to check that one out. You know, we don't get much beyond Mickey Mouse Clubhouse these days. Yeah, that's a good listen. So Mark, tell everybody where we could find you. We're gonna put all these links in the show notes. So you don't have to go through them all. But you know, the Lake Growth Financial Services is your company, and the podcast is the Not Your Average Financial podcast, very easy to find I was finding it through Google. How else can people find you?

Mark Willis:

That's a great one. You know, folks want to build real wealth outside of Wall Street alongside their real estate portfolio. And you want to do it without a bunch of unnecessary risk. And you might want to look into this idea of being your own source of financing. You can go to notyouraveragefinancialpodcast.com. That's notyouraveragefinancialpodcast.com and click on the button that says request a meeting. And we'll chat for 15 minutes, say hello, answer any questions and see if this or other strategies would be a good fit.

Jason Muth:

Awesome, Mark. Really appreciate that. And thank you for bearing with us as we stumble through our continued work from home life that we're all in. But we did have a special guest on the episode besides you and Cecily. So you know, this has been great. I encourage everybody to go like and subscribe and follow your podcast as well as doing the same for this the real estate law podcast. And on behalf of Cecily and Rory, I'm going to say goodbye because we're coming up to a hard stop right now. And thank you very much for listening. And we hope you'll listen to the next episode as well.

Rory Gill:

Thank you, Mark. Thank you.

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