Accredited Coaching Call w/ 3M Business Owner

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 Hey, simplepassivecashflow listeners today, we have another coaching call for an accredited investor.  Net worth is around a couple million.  He’s got a pretty decent size rental property portfolio. But the question we’re going to try and answer and strategize is how do we get into the simple passive cashflow gravy train, pay less tax as well, work in the day job.

Hey Steve, you there. Yes, I’m here.  , thanks for doing this. I know a lot of people will get a lot of value out of it. And, I think a lot of people will get to your position one of these days, but I want you to give people a little bit of background on yourself and, how you came into this world of alternative investing.

Okay. Thank you. I appreciate the opportunity late and, again, my name is Steve. I’ve, an accredited investor. I actually own a company in the construction industry here in California, where I reside. I’ve been living in California now for about 20 years. originally grew up in Pennsylvania and, made my way West stopped in Texas for a few years where I worked as a mechanical engineer before I transitioned into sales and, made my way to California, even had a background, worked at UBS and financial services for.

Two years in between, doing equipment sales and, ended up, acquiring a business from, one of the competitors, to where I had sold equipment before, which was a nice transition since I had quite a bit of background in mechanical engineering. And, but at the time at UBS did, opened my eyes up a lot about what’s going on.

it was very interesting to see that, most financial advisors there knew absolutely nothing about investing. and I don’t know if I should really say that or not, but it’s true. Most of the financial advisors were really there to gather assets, , and there wasn’t a financial planning aspect.

I shouldn’t say that I learned a ton in the couple of years I was there and it was a good way for me to diversify from my mechanical engineering background and really learn a lot about some other things, before I ended up acquiring the business and really starting to grow that and, really start to build my network.

my first rental property, I purchased a fourplex back in Pennsylvania, next to where I went to university, probably about 15 years ago. I knew some other people,  I knew the area, cause it was, by where I went to school back at pop now. so , I bought a place back there, and , that’s more of a place where you’re going to see it, cash flowing type real estate.

You’re not going to see a lot of appreciation. I don’t know that it was the best investment when I made it, it was a fairly old building and definitely over the years have put some money into that. Cause it was probably a hundred year old building my bought it, for the most part I do get, at this point, 15 years later I get quite a bit of cash flow off a bit.

for the most part that one’s almost paid off. but then I, hooked up with another, property manager there and they started bringing me deals, back there. And then I bought another unit that actually bought the.  the unit next door is the one that I had, which was a vacant building at the time.

The owner really just, didn’t keep up with it and it, lost its occupancy permit at some point. I had the opportunity a few years ago that kind of go and add to my portfolio there and, So , I went and bought that building and, fixed that up. And, that was a seven unit apartment building next to the  fourplex I bought.

And that’s seven flags I found actually, after it took a while and a significant amount of money and, probably more money than I had originally budgeted, which has, especially, that’s again, another, probably a hundred year old building that wasn’t occupied at the time. but it was right next to the building I owned and actually cleaning that one up and getting that fully rented now probably made the building I have next to it.

probably a little bit more valuable, at least that’s one of the, cemeteries I thought about that. let’s pause there, Steve, a little bit. Let’s catch people off. So like your profile is pretty typical. A lot of my investors are engineers technical background. you moved off to a different industry.

But today’s, you’re in sales and that’s something I noticed is very common. the guys who are  the linear path thinkers are the ones that stay in their technical roles. And you guys, I’m sure you’ll vouch for this, that I’ve heard it from a lot of other people in similar situation that the sales job.

That if you can speak the technical language in the sales job, that’s like the ideal strategy and lifestyle and highest pay. Okay. Oh, for sure. and, now I own a company where I hire technical salespeople and, I actually have a very interesting story about how I was recommended to go into technical sales.

I don’t know if it’s interesting or not, but, it, yeah, but if you can actually speak the technical language. And understand the interpersonal relations with people and going out and, convincing them,  and being able to speak in layman’s terms would be able to speak the technical jargon and be able to, accurately and quickly learn products and be able to actually articulate and go out and speak to people.

yeah, you can earn a lot more money than the person that’s just going to sit there and run calculations and not be able to have those effective communication skills. I think, especially now that I hire a lot of people doing that as well, to find that person that can handle both the technical aspect and the people aspect, it’s a rare commodity.

And it sounds you’re in that boat as well with the technical background. Yeah, we can do a spreadsheet or two, but we can talk to people. Yeah. Most anybody can learn to talk to people. I can learn to do the spreadsheet, but it’s, some of those, innate qualities of being able to have the communication skills and, being able to relate to other people sometimes more difficult for.

We’ll learn that side of the business. and I think as a credit investor, that’s the name of the game is building connections with other accredited investors. of course, getting in the right room is a big thing, but once you’re in there at Rome, being able to build organic relationships, which I think kids these days, especially in a pandemic world are just Sol.

Yeah, I don’t, it’ll be interesting to see what happens  I have a daughter  that’s one of the other things about my background. I have an 11 year old daughter now and   last year she finished up her school on zoom this year, know she’s doing two days a week and zoom in two half days in person.

really being able to learn at that age to form those interpersonal relationships is probably one of the most important things in life. If you’re having to do school on zoom and not really having some of the, it’s going to be interesting to see how that affects the long-term impacts of, our society.

hopefully it’s only for a year here, but we can get back to normal and the kids aren’t, they can get back to forming those interpersonal relationships and really, probably one of the best things about learning. At least that’s some of the things I hope for the next generation, especially with my daughter.

 You’re right on the verge here, your net worth is around two and a half million. If we can get you up to four and a half, we can turn that daughter into a trust fund kid pretty easily. So we don’t have to worry about that too much. Yeah. And to be honest, like that’s my net worth excluding my business.

Yeah,  that’s icing on top of the cake. Let’s try and get top of the cake, and that’s how I’ve looked at it from my personal perspective. If at the end of the day, I do want to sell that business. And if I am fortunate enough to be able to get anything out of selling that business, that’ll just be icing on the cake.

I really want to build my net worth and my passive income. So I don’t have to rely on my primary business during the day. And I don’t have to worry about it cause I have seen, and that’s one of the things I’ve seen in my life. So many small business owners really just overvalue their business. And when they go to sell it, they put such a high value on their business.

 They can’t sell it because they can never get as much as they think it’s worth. And I guess I’ve been coached along the way , cause I’ve been on both sides of the fence, working, I did sales and I did a little bit of financial advisory work. now a business owner. So I try to see it from all  sides of the perspective here.

I don’t want to have to rely on being able to sell my business for, an astronomical amount that I might not be able to get someday to be able to retire. I really want to build my assets and my passive income to really be able to take care of my lifestyle outside and my business. And then if I am fortunate enough to be able to sell my business for a good amount of at some point.

yeah, that’ll be like you said, icing on top of the cake and yeah. Yeah. I think what I would like for you is get proof of concept with this 2 million bucks before and see if this is all a sham or not. Yeah, for sure. When you can sell the business, you definitely just triple charge yourself and go into Lightspeed with this stuff.

 went back to the rentals. So like this one, the six Oh six Lake and. This one here you bought.  in a previous life, right? A long time ago.  Where were you at? Like career-wise or like net worth wise back then, or so career-wise, I didn’t have much of a net worth probably then and the six Oh six Lake street, to be honest, I’ve never sold a piece of real estate, gave one away in a divorce one time, but I’ve never sold a piece of real estate.

The six Oh six Lake street was one of my first purchases, but , It’s a condo  in the city that I live in and, I was where it was my primary residence at the time. I was very fortunate in life. When I did go into technical sales, I was able to quickly become probably one of the top technical sales reps in the company that was working for very quickly and became a higher earner.

You know what I’m saying, making a high six figure income at that time. really, I started out of college with. maybe a thousand dollars in my pocket, just from working summers lifeguarding back in Pennsylvania. So I really didn’t have much of a net worth. but I was fortunate, when I did go into sales, I.

Lived off of my base salary. And every one of my bonuses I got from doing sales, I started putting away it started maxing out my 401k every year, as soon as I started, as I moved to California 20 years ago. so that’s really helped as well. But yeah, like I said, the six Oh six, I really didn’t have much of a net worth then.

I was fortunate enough to have a 10% positive. Which surprisingly in 2005, when I went to the bank and told them I had enough for a 10% deposit, they’re like, wow, most people hardly have anything, cause that was the time when everybody was doing negam loans and all kinds of crazy things that, ended up, causing that the great recession of 2007.

But sorry, I’d say, I really didn’t have a lot of a network at that point. I was really just, starting to build from scratch. If you will. I was fortunate enough to be successful at work. I was doing as working as a sales engineer during the day, had a pretty good , high six figure income at the time for being fairly young at the time in my twenties.

But I went and bought the six Oh six Lake straight again, not with my primary residence at the time after I moved out. I just really just turned it into a rental, the one 19, place in Pennsylvania, I went and, acquired that as, startup. Somewhat trying to start building my passive income and, as an investment strategy as well.

But so if you guys have been, also check this out on the YouTube channel, we have the personal financial sheet of then the property, cashflow worksheet of,  Steve was talking, I was playing around with some members here. I got  the amount of equity you have in each of these properties.

And I did some quick calculations on the percentage of equity you have.  so the game plan here is to go after, you kinda know this, You know how this,  we gotta go shoot the or whatever animal you’d like to eat. Buffalo status Buffalo here. So that’s probably looking at like the three Oh one North property that you acquired in 2016.

You have no mortgage on it. Is that right? No. I bought that one for cash and, being that one’s, in the South that, I was fortunate enough to catch  A good rise. And, versus the properties I bought in the Northeast, I would say never really appreciated that much, that one, which was in the South, you seem to get good appreciation down there because so many of the folks are moving from the Northeast and going South the same space.

Exactly. . Yeah. It’s a great shifts. Is the book about that?  what did you buy that one for I bought that for $65,000 cash and I just paid cash for it at the time. but it’s, it was located in a redeveloping area outside of the city, down in Florida. It was a redeveloping area at the time.

And, it’s funny on that property. I probably get two, three calls a week from people trying to buy that property from me now. But  I bought it for about 65,000. I did have to go in and, it needed a new air conditioner, some new plumbing, some new electrical, but it’s a nice three bedroom, property down there in Florida.

Okay. Okay. And  you don’t put any other like improvements in it. For $225,000 capital gain, is that right?  I don’t know. I guess that’s an estimate. It can be a high estimate too. People always say Oh, I got to check with my CPA. I was like, your CPA, it’s going to take them two hours to figure this out.

And they’re going to ask them the same questions I’m asking you now.  that could be a little bit of a high estimate. Yeah. that could be a little bit of a high estimate on that property, but that’s what, I do get quite a bit of calls. Nobody’s probably quite offered me that for it, but, 

 I guess I did make some improvements on it. Like I did new plumbing, no electrical and do air conditioning. there were a couple of maybe new windows and things like that. And , it was about five years ago, but that part of Florida really seems to have been a redeveloping area.

And I think I got that one for a pretty good deal. I bought it from somebody who was looking to sell it. it was a cash as is deal. So I’m sure I bought that way under market at the time as well. So it was probably also a good purchases of $300,000.  It might be,  maybe it’s only two 50 or maybe it’s even 200, but, it’s definitely, probably it’s in that range.

I don’t know. I’ve always. Put 300 in there. Okay. let me just catch it down to two and 54, just for calculation sake. And then what I’m also trying to do is  you got to add a little bit more, maybe like 20 grand to each of these, for the depreciation recapture.

 you know what that is, right? Like you’re probably thinking of loss on the building value every year. And then this, the property that you bought 15 years ago, 2005, 2006, maybe I’m just going to hard type that in an extra, maybe  50 grand. So  how do you monetize that depreciation recapture, if you will.

because I don’t know, is there a way to monetize that? I’m just throwing it a placeholder of 50 grand.  here’s how you do it. Would you buy this one at the  six Oh six language you buy it at? So I actually paid 665,000 for that one, back in 2005.

Okay. And  where’s this at? Okay. So expensive area. So this is good for taxes because I’m just, shooting from the hip here. Like usually one third of the property value or 0.3, 3% of that six, $665,000 is the. Building value. Yeah. Yeah. The improvements versus the land. Correct. And some of the other ones I’ll use a third for, or two-thirds of the building. So  that’s the total building value is 221,000. And then I’m to divide that by 27 years. Yeah. And I know my accountant on a annual basis on my taxes does. Use some of that. And I don’t know what the numbers are off the top of my head, but I know my accounting firm, the used do depreciate, those assets and the rentals versus the net income that I get from on an annualized basis.

Yeah. So they are probably doing around 8,200 bucks a year. And  we’re doing the math right here. It’s super simple.  it’s not perfect, but it’s close enough for government work for our purposes.  you’ve owned us for what? 15 years? Yeah. About 15 years.

So I’m going to say $123,000 is what I think you should add to your capital gain. Oh, I see. So what you’re saying is, yeah, you’re adding that back into the capital gain. Yeah. So I’m going to do that, the same thing to that other one that you bought in 2008.  that one you bought one about for what? 200 hundred?

Yeah, 189,000. Okay, let’s call it 200 grand just to be more conservative and that’s in California too, or no that one’s in Pennsylvania so that the land value is probably much less for sure there. Yeah. Yeah. We’ll call it half because half the Democrats have for full weekends, stay away from that. I dunno.

I don’t know how, it’s definitely not like Texas or Alabama or Georgia. I don’t know, let’s just call it half. You’ll have a split state, as we know, it was a split state for sure.  and then you own that one for a while? About 14 years. Yeah. So boom, 51 grand.  so then we T we add that to that, and then that this is our real tax one.

This one it’s we could probably do the same math. Sheila, I’ll just, I don’t, I dunno if I want to do that, but I just, I don’t have a central little purchase price. Yeah. Yeah. these are like, you bought it sold little bit and only like a few years ago. it’s probably not much, if I would just be conservative, maybe add an extra 20 grand, I don’t know.

But the big ones we got, right? Yeah. So the reason why I’m doing that is like you’re going to sell these things, but let’s also look at, that’s a two factor decision here. We have to go kill the Buffalo. That is the fattest and not doing anything, the laziest money, which is this one and this one, but we also have to factor in all right.

when we do that, will we have $195,000 of passive losses to offset that transaction? This is the decision process, or instead, maybe we go after this one first that’s $150,000 of passive losses, or I know you went into the last deal with us, in Houston. I don’t know how much you put in, but let’s just say you put in a hundred.

Yeah, I didn’t do the Houston one. I did the Dallas one and the Alabama one. So I did two deals. Yeah. Oh, okay. Okay. Okay. Yeah. The Dallas one thing, hopefully you got your check already. I did, yes. I got my first check from, investing in one of the simple passive cashflow and one of Lane’s, deals.

So I did, I just got it. Yeah, it worked. I got my first check. So my, yeah, check. Oh, you did you get your K one? No, I didn’t get a K one. I did. I invested in that one. it was called the colony. and that’s it now on this summer, what was it maybe June or may you, haven’t got your K one. You’ll get your K one in March for that.

Yeah, my guests that was pre all these, so like  lately, like all these deals have, like these COVID reserves, it’s dilutes the pot, so it lowers the motto, the deduction. So I think with colony. Don’t quote me on this. Of course, we’re on recording here, but maybe you’re going to see if you put in a hundred grand, you’re going to get like 60 to $80,000 of passive losses back.

Okay. let’s just go with that. Okay. So  I don’t know how much passive losses you have. You have to look up. I think it’s the 58 something form. people can figure out this form, go to my taxPage@simplepasacastle.com slash tax. But this is a question to ask your CPA’s okay, can you go to my tax 58, whatever form.

And tell me how much passive losses I have now. , I’m just guesstimating with the amount of stuff you have. I’m guessing you have maybe. A hundred thousand dollars of passive Boston’s plus or minus 50 is what I’m guessing. So with your hospital, I don’t know, off the top of my head, but yeah, usually you’re surprised that you have more than what you’d think.

Typical.  label this pals. So now you have to, you went into the colony for a hundred grand. Let’s just say you get. I don’t know, to be conservative $60,000 of passive losses. So now you’re walking around with $160,000 of passive losses. And then I did the one in Alabama, too, which is I don’t. That was more of a buildup deal.

I don’t know if there’s going to be passive offices for that. yeah. Not until we put the asset in service. So that’ll be on the 2021 K one,  just for. So show the scenarios, let’s see you. That was a regular deal, right? Where it wasn’t a development deal where you got the losses this year, or it was already making money.

 As long as we can we’re making $1, we can do, we can give you the losses that exceed the income. So let’s just say, that one, maybe you got $70,000 of passive losses just saying, so add this up. Let’s just say. You’re walking around with $230,000 of passive losses. So that would allow you to sell this asset, take your hundred $95,000 depreciation, recapture and tax hit, but then you have 230,000 to offset it.

So you have to deduct this from your two 30 and you should still have some leftover, but when you take this deal and there’s what $250,000 of equity and.  That’s the game plan, And you got the deployment tab. We’ll get, maybe we’ll get to the deployment tab on this personal financial sheet, but that might be, I don’t know what your goals are for 2021, but maybe that’s your goal is to invest all $250,000 into two, three deals, whatever.

Okay. And then let’s just say you. You invest that money. And an add a 50% ratio, maybe you get $125,000 or more passive losses to replenish that. That kind of makes sense. Yeah. So if I invested that two 50, I might get another, 125,000 pops of losses for the following year. yeah.

And this is what I call the simple passive cashflow gravy train. You don’t seem like a drug user, but if you were a juggler user or not the old days, this is going from one high to the next.  any questions on that? no, I’d have to get the concept where, you’re redeploying, you’re selling those assets that are appreciated and going back in and, redeploying those assets and something that’s flowing more cash, That’s. Or a higher rate of return. Really? That’s what you’re talking about doing,  you got a lot of things going on. You got the witch Buffalo. You’re going to go on hunt down first this isn’t going to happen overnight. this is positive two or three years to sell all these.

Yeah. And then I also, I’ve been redeploying quite a bit of cash. I made probably four or $500,000 in investments this year alone.  just based off of last year. It was a good year. My income as a business owner now is completely variable, but. In a good year, I can go and invest, significant some that as well.

and I think that’s good. Like you segregate. That’s what I do with my business and education side. Like I segregate my investing and  and sometimes I’ll have, even my wife will have her investment stuff that I segregate even more, just so I can see how I’m doing.  but we’ll look at this personal financial sheet.

And what I looked here is like, all right, what velocity are you moving at? Just set a cashflow standpoint. So   you make about 37,000 of income. your expenses going out is actually pretty good. I’ve seen people that make a third of the less money of you have just as much expenses.

So you’re doing a good job there. the magic number, the net is 27,000 a month. so yeah, you’re in the top, 1% of my investors. I would say if you’re making, if you’re able to net more than a hundred grand, you’re doing super well. Okay. Yeah. And to be honest, like those income numbers are.

They don’t really include the profits of my business either. in good years, it can be significantly higher than not, but in bad years, if you run a business and the type of industry, especially with COVID this year,   we may not make it. We’re certainly not going to make a lot of bonuses or anything like that.

Other than that. Yeah. Yeah. And a lot of my clients are just. Working stiffs, That W2 guys. but there are some business owners. definitely a minority of my clients are business owners so they can relate. But,  but yeah, if I would say whether you’re a business owner or you’re W2 guy, if you’re netting more than a hundred grand a year and your net worth is a million dollars, at least.

 you’re on the, you’re going to be in five or 10 years, you’re going to hit financial freedom unless you spend a lot of money. Yeah. And that is the trick. Cause if it’s sitting there, people tend to spend it. Yeah. Yeah. But I would S the reason why I say, I just want to point that out to you is because you’re doing like better than two and a half times that.

So I would say, you’re going to get there. I don’t know what kind of lifestyle you live, but yeah. Fly first class, buy a nice car, yeah. Relax a little bit. Take your time. Getting there. Yeah. That’s for sure. So yeah, I think that’s just a matter of, you don’t really need to sell 

these types of properties, because you have so much cashflow coming in, you can invest your normal liquidity, but maybe just, I dunno, if these are fun to you, they’re probably not what rental property is fun. just to simplify your life and lower your liability,  getting rid of these rental properties, like I would be concerned with one of these rental properties that 10, the liability and 10 or 20 LP investments.

Okay.  I don’t know what you’re doing with asset protection. Now we don’t have to get into this, but because it’s recorded, but for you, I would definitely be looking into more of an irrevocable trust or something more heavy duty, like a bridge trust. Yeah. We can talk about that. I really haven’t done too much.

yeah, there are certainly things I have done already, but yeah. I don’t know if I’ve done everything yet, either on that. But yeah, definitely get rid of the direct frontals simplify her life.

But yeah. any questions you had, some of the things I really haven’t, you said you are a proponent of the infinite banking thing, and that was something I put on there. and I’ve had a couple of scenarios run and I guess. How do you utilize that infinite banking concept? You yourself have a whole life policy and do that.

It is something I’m looking into, but haven’t really done it, but it is something you’ve mentioned to me before I’ve heard on your things that you do. how do you utilize that and does that help increase your cashflow? I personally do it, but you gotta find other guys that are in your situation, I guess maybe you and I are in the same situation.

a lot of guys in my mastermind, I put them together because they’re in the same situations. They’re W2 guys.  but I need to have a few hundred thousand dollars in case that deal doesn’t go that well, or we need to put money in escrow as a requirement of the lender. So for me, it’s a very good like place to store  liquidity because I need it at hand.

Whereas if you’re just a W2 guy, a doctor, you don’t really need that much liquidity and you can run pretty neat,  I don’t know how you do things, whether you keep cash reserves in the business. I do keep Castro’s within our business as well. And we have, obviously lines of credit with our corporate banking relationships.

We have, lines of credit for things with the business as well. But, I do like to keep some liquidity on hand, but I have gone and invested very aggressively at times and taken that down.  yeah, I do need to keep some liquidity, obviously because of the rental properties. Because things come up, you might need a new roof somewhere.

You might need a bunch of appliances somewhere, but about, if it’s 50 grand, a hundred grand or less that’s me meal, right? Like I’m talking to a capital overlay of a quarter million, half a million for your business that you potentially need. that’s what I skip in that bank for personally.

 but yeah, I would probably put you in the category of just, you can probably run pretty lean with your liquidity. Therefore you can load up your infinite banking and just start investing the majority of it where I, what I’m saying is for me, I load up my infinite banking, but I got to keep it.

In fact,  My thought with the infinite banking was I could load up money in there and then deploy it into something like these LPs or other rental investments or other passive potential passive cashflow. For you, it’s a no brainer.

 But for the guy who’s like under a half, a million dollars net worth, they need to get every penny they have. And not funnel that through something where they’re going to get hit on fees, 10, 20%, their first few years, they need to invest it where  this is  perfect for you because you’re a little bit inefficient with your liquidity.

you’ve got a bunch of liquidity parked in rentals. You got money coming in. I don’t know if I call some of those rentals, liquidity. Yeah. But just, just in your, like your money yeah. Your net, 200,000 plus a year. I don’t know   what’s your practices on your, just personal finances on your checking account savings account?

How much liquidity do you keep in there? But I would move towards keeping most of it in your infinite banking. And, it’d be less than 10, 20 grand in your checking account. Okay. But that’s what you do, some of your cash on hand, you move into the infinite banking. Cause even if you’re getting, that three, 4%, at least that’s what I’ve seen from some of the illustrations that, you know, and it also takes that what, four to five years now, maybe six years to where what you’re putting in kind of hurdles over the.

to you’re actually getting money, you need to be setting it up where that, whole life policy needs to run for a significant amount of time before you start seeing higher cash values than what you’re putting into it. Yeah, but if you would have taken all those like fancy things, they show you, it’s not entirely true.

They don’t have parrot. If you would have taken that money and put it into a rental or syndication, if you do that, that’s going to skyrocket way more. So there’s opportunity lost costs that not taking into effect, but you don’t need to be.  super efficient, right? Like you’re paying costs to  silo to put this money.

That’s tax-free and it is off the table litigators for the most part, there’s a benefit you’re getting, and there’s a cost from paying for it. And for you, it’s a no brainer, but it’s just to what extent. let me just throw something out. let me know what your thoughts are, if you’re able to save 200 grand a year and you’re making a commitment to at least going into a couple of deals every year, so maybe $150,000, you’re deploying every year religiously.

 and that leaves you 50 grand of play money. Maybe I would throw in at least 30 grand a year, I would feed into a policy. Okay. Yeah. I had done looking at 25, but yeah, that’s kinda, I always say, I tell people start off with a lot less than they think. Maybe because when I did it, I did  50 grand a year.

I got a few years and I was like, Oh shoot, this is a lot of money because then I start to go into all these deals that my money disappeared.  yeah, your liquidity dries up outside of, Your cash flow bank, at least. Yeah. Now my deals are starting to go full cycle and cash out.

So I have big liquidity events. So now I’m going to make a much bigger policy for myself to right-size and that’s the idea like once you make a policy, like my strategy is making a policy. They’re usually like five to seven years. Get as the shortest period as you can. And then go in knowing that maybe in the next two or three years, as you , start to see this strategy, play out, you layer up another one on top of it.

You layer another one on top, like layering, whole life policies are infinite banking, concept type policies. If you will, you don’t necessarily need to do it all at once. You can go in and do one and just get the shortest timeframe to where it’s actually,  Cashflow flexible. I don’t think it’s too much of a pain to do the physical thing and do the application.

No, it’s not that  I say that because the life insurance guy is always going to be like, trying to sign you up for the longest line. Like it’s just the nature of the salesman. Yeah. You want the one with the shortest duration. So that makes sense. Yeah. and then, for me, as, especially as a business owner tax reduction strategies really have to be, top of mind and especially living in California,  the,  the California, government seems to be going crazy on us, with what they want to do for taxes.

not to mention, we’re  going to becoming under a new administration. Who’s already talking about maybe increasing taxes as well. tax reduction strategies obviously are. something that are very key, to me as well. And I don’t know if you guys have any good tax reduction strategies or what you do for tax reduction.

Yeah, you’re damn right. We do. this is why like people are interested in deals, but when they come into the mastermind, they start to realize that deals is only one third of the picture. Yeah. The bigger part is keeping most of your money by paying very little taxes. Yeah, because that’s, I feel like I was fairly tax efficient, but my tax bills are enormous.

And not even just to the federal government, also to the state of California where,  they’re significant sums on annualized basis. There’s ways to better recapture some of that, I’m definitely open to listening to that. And where is your current. AGI at L ox event, Bentley adjusted gross income.

 last year it was probably after certain adjustments, like I said, it is variable. I don’t know. It was probably in the six, $700,000 range last year. Sure. Yeah. So you’re probably in the category of most doctors, so the general ideas we’re trying to get you out of the red zone, which is under 330,000 or so.

Married filing jointly.  yeah. Are you’re married? No, I’m filing single now. Oh no.  we got to find you somebody who’s willing to just say nevermind. Yeah, it was funny because there’s plenty that would probably do that. But,  I got a lot of, pilot, single pilot investors personally, like four or five of these guys and I keep telling them the same thing.

So this whole real estate professional status, 750 hours. You can’t do it. My friend. I’m sorry. , this is another idea. Maybe for the next five to 10 years is you sell your business and you become more of a passive entity, right? This is another hierarchy thing you need to be thinking about is  changing our income from ordinary to passive.

And most people think of it as terms of changing their W2 job to more rental properties indications. But it can also mean changing your business, whether it’s a chiropractic business or your business where you’re just.  you’re not an operation you don’t do work. You just have other people work for you and the business category to the eye category.

But maybe you can munch on that in your head, over the holidays or something like that. But for now, certainly I always try to adjust. and my income, this not all of it comes out as W2 income. Certainly a  large portion comes from distributions, from profitability on the company.

Versus W2 income. But again, in a perfect role, if you could maybe sell the business to some other poor soul wants to do all the works, create a royalty stream for yourself in a way. But I know the guy that we ran a corporate office building and I know the guy comes around on the first of the month or he did before he passed away, that he owned like 10 of those buildings.

 

Kind of an interesting guy and just yeah, you work way too hard for all your money goes on the first of the month. I just drive around and pick up checks. So exactly. that’s where you get to,  like for me, I don’t make much active income.  it all comes as passive income now. Yeah.

Yeah, but, and that’s what I’m trying to get to the point where I am generating more passive income and I’ve taken some steps. I still think your highest and best use is just keep doing your business because you do well there. Yeah, for sure. I’m not gonna, I’m not looking to give that up anytime soon, but I also want to have that safety net of,  substantial, passive income that, I can, Switched back into a lower gear if I need to at some point, or, If something happens or if I cancel the business, I want you to keep working your day job because that’s your highest and best use.

That’s like Tom Brady when I don’t know how old he is, but he’s just keep throwing the football. Tom’s almost my age. I don’t know how he’s still through it. He’s younger than me by I think a year or two, but I don’t know how I can still throw a football like that. I went out on the beach and was throwing a football the other day in a flag football game.

And. Yeah, this is actually like even a year or two ago. And I was like, I don’t know. My arm was about to fall off after. Yeah. The same analogous shape for me. I bet. I bet he’s super sore still too. I think his arm is falling off, but at the same thing for you,  I know that the business gives you headaches, but I think just do it a few more years, maybe five or 10.

I don’t know, get it to a level where it’s manageable, but like now you’re trying to create legacy wealth from your family. You’re going to blow past four and a half million. I’m looking like we want to get you to eight figures. yeah, I think it’s definitely within the realm of possibility, with my trajectory and, obviously the, you got get a few lucky bounces or along the way, and you’ve got to hope nothing catastrophic happens and you got to plan for the word, you got to plan for the best, also, make up.

contingencies in case something bad happens. But yeah, if everything keeps going the way it is and keeping fortunate, like I have been in my life and keep working hard. I think I should be able to blow past that. I’m just on the precipice of, starting to build wealth, and like I said, I acquired that company about 10 years ago.

And when I did that, obviously all of my rental property purchasing stops, all those types of things and everything up. Dumped into the company. And now I’m just actually getting to the point where I’m starting to get out of the company. some of everything I had to put back into it when I first started it years ago.

so again, real estate professional status. but we’ll talk again, if you ever get married, try and integrate that. And for people listening, what we’re talking about is, using the passive losses to lower his. AGI down to that 300 level or when Biden starts to, just destroy people over that $400,000 AGI Mark.

But, that’s the game there, but since I become comment just as, so as soon as I become a real estate professional, if you will, then I can net off these passive losses from investing in your LPs or from my other real estate properties  against my income. And you do 750 hours of active participation.

Okay. So that’d be, yeah, but you have to do whatever it does to get qualified as a real estate professional. You’re right. You’re right. But because you are a single guy and you operate a full-time business, it ain’t going to happen for you. I know. I mean my account one that I actually had my real estate license at one point when I went and just got it years ago, when I started doing some real, I let it lapse now I don’t have it anymore, but that’s a misnomer.

So that’s not going to help you get the 750 hours of active participation. Yeah, it’s not in your personal portfolio is going to be those rental properties or what a lot of guys will do is they just get a little dinky short term rental and play that off.

Or they do a little thingy flip  just pure for taxes, but they can’t have that full-time day job, which is why. You need a spouse that is willing to not have a day job. That’s difficult. Yeah. There’s plenty of those out there. Looking for that position. We should have a dating thing.

That’s why in the mastermind thing, I put it here. No, we’ve got to match, make people we’re just going to get together and talk about it. Dating tips and stuff like that.  so for you, like the only thing that you have is And  I don’t do these myself personally, but I know a lot of guys in my group does them is like the land conservation easements, donating money at a five to one multiplier at most staying out of like the prohibited transaction or the greedy land where you’re abusing the system to bring down your taxable.

Like AGI or different other strategies like oil and gas investments, which isn’t the nicest, the best thing these days. And it’s really hard to find the operator in that. but really those are the only options to you.  The analogy I use a lot is  the passive loss is real realistic professional status.

That’s  good diet and exercise, good sleep, right? It’s the holistic solutions to good health. You can’t do that. Steve,  we can only give you like Lippert tour or whatever, like high blood pressure, like keeping you back from the edge right now. That’s all you got. And ideally you don’t want to be doing that stuff forever.

We got to get you to a point.  but yeah, whatever life choices you want. Yeah. I want to start working on building more of my life resume and, not so much at the office, I guess at some point, but, yeah, I got to keep doing the office thing for a while longer, for sure.  To get to that point, but right.

But that’s, that those are your options and . If you’re at $600,000 AGI, and the goal is to get you around 300 or less, maybe throw in 50 grand into a land conservation easement to get $250,000 of, lower your AGI. But there’s a max.

You can do that. I think. And this is where all the things always change. And this is why we mastermind about this stuff. And we have that group, we’re just going over this on a high level, but not getting advice. Yeah, I’ve not heard of that land conservation easement. I’ll have to do a little bit of research into that or, yeah, I, there’s a page on my website that kind of has an overview.

I think it’s that simple passive castle.com/land. I think currently you can deduct, you can only do 50% of your income now. So I don’t know if it’s AGI or GI or what, but.  you can’t drive your entire AGI down to zero.

be able to qualify for a loan again either. Yeah, no. Would you want to, but  there’s been a lot of scrutiny over these things, which I think is a little overblown, but people are doing these fee simple arrangements where. I don’t entirely know what the heck it is, but I know you for fee simple, you can only drive it down 30%, but I think still think that’s good enough, right?

Like I’m not saying go from 600 down to 300, but maybe this year, if you want to try it, maybe you put in 20 grand to get a hundred thousand dollars deduction. See how it works. Yeah. Okay. Yeah, definitely do a little bit of research on that. Thank you for the tip. I hadn’t heard of that before. It’s a it’s in December already.

So you got a couple of weeks of research study. Yeah, I guess I’ll have to get on that for sure. Yeah. But yeah, guys we’ll do this every year. Especially doctors high paid W2. Guys. They’ll do this in combination too, with real estate professional status. So you don’t burn out their passive losses. Okay. How does the doctor go about getting, a real estate professional designation?

A lot of times they have a spouse that it was a homemaker. I said, yeah, they’ll go do it.  that’s pretty common, right? Yeah, no, it is. Yeah. it’s, Actually, I do get a lot of clients where it’s like both spouses.  I have the  onboarding call with them and they both come.

I’m like, okay, this is refreshing. And they’re both super excited about this financial independence stuff. And I’m like, Oh my goodness. don’t tell me, you guys both love your job. we both love our job and Oh my goodness, how is that possible? So I was asked like, what should you guys.

Dislike your job the most, or I don’t know, we got a word in our special way, but,  typically there’s one person that’s yeah, I’ll quit my job part time. Okay. That’s the ideal arrangement? that’s what I do. I just use what I strategize with my accountant and said we just use them.

We just burn up our passive losses to drive it down to nothing. Got the texts about that thing because their logic is a tax savings. I could probably make more money than a potential to pay 10, 20% less taxes in a future year. If you can eliminate taxes, that’s the best thing, but the second best thing is delaying them.

And if you can delay it by having, offsetting them, by some of the losses into and reinvesting into the future year. yeah, plus we’re making money on all of , those investments in the meanwhile, here’s the argument for example,  mr.

Sanders scenario, where you, again, where you have $230,000 of passive losses, Yeah. And let’s just say you already driven your HEI down to 150,000. And for folks listening, if your AGI is less than $250,000 chillax dude, like you’re not paying that much taxes for you to thrive it down even more and to  execute and  activate these passive losses that get you even lower.

It may not be worth it because the  lower your AGI goes, the less taxes percentage-wise you pay because we’re not progressing tax system. So what I was  telling Mike, my accountant was like, why wouldn’t we save this extra a hundred thousand dollars and I’ll pay some taxes, but they ultimately got me to side with their strategy.

But I think in different situations, it’s different for some people. So not one situation fits everybody. At least  you and I can intend on the G have this conversation and take that information and tenancy co converse with our tax accountant because the tax accountant is not going to really be mindful of this stuff.

Yeah. You have to guide them. Yes. Yeah. You need to guide them in the know somewhat of the overall strategy for sure. But, yeah. anything else, anything, any other strategies that you were looking at? I made, it sounds like I should probably be looking at the infinite banking system.

I haven’t, I get what you’re saying about maybe,  taking the equity out of some of the properties I have and start to redeploying that at , higher yielding assets, and possibly, limiting liability by going into some of these. And I was happy to see, I got my first check this month from the first deal we did.

So that’s working so far, you got a lot on your plate, man. You gotta sell assets. You gotta go into deals. You gotta infinite banking and you got a.  I got to run a company on my spare time. Maybe do land conservation, EAs conservation.  dude, join the mastermind. like I guarantee if I don’t  double your money.

Once you paid,  let you blog I’ll refile. Like it is a no brainer, man. Like you need to talk, even build your network with the right people around you. Okay. Yeah. I definitely have some high net worth friends as well, but some of them are much higher net worth than me then, they aren’t necessarily doing some of these strategies because they’re already over that.

That’s the problem there. Second generational wealth people. I have friends, yeah. That are like second generational wealth. And they didn’t start with zero in their bank account when they got out of college and started. Yeah. So when I can’t say I had zero, I was fortunate. At least I didn’t have huge loans that were overbearing, but, I didn’t have, obviously that thing, I didn’t have anybody to lend me a ton of money or to give me a ton of money to start with.

I was, started by saving and just, driving the first car. I had 200,000 miles.  this is your tribe, man. this is all first-generation. guys, and they’re like 35 to 55 range.  They got kids your age. They’re in that one, the $4 million range. this is your child.

Yeah, definitely. I look at it then. And how often you guys meet with the mastermind and, Oh, we just, we do a live zoom call every couple days, week. So whatever you got going on, we can take care of. But what I say is I don’t want you guys to spend more than a few hours a month with this group.

Just jump on the calls. We’ve recorded them. So that’s going to keep you busy, but use the database to just book a call with every member and see who you get along with. You got a lot of people in California and you meet up for beers or something like that. Okay. So you do have a number of members out here in California.

Yeah. I’m sure at least a dozen or two in California. that’s majority of where folks are at for guys too much taxes up there as far as for people paying all the taxes. Yeah. Yeah. But then we’ll show you the good stuff, like which word it puts your passive investments to circumvent the state taxes.

 That’s the one that I’ve been learning about from some folks lately. Okay. Yeah. I’d certainly be interested in learning more about that. If  were ways to play some of these, passive investments so that, the state of California can, not, have their greedy hands out into everything, but yeah.

But, but cause Steve, thanks for doing this. All right. thank you. there’s always a good talking to you lane and, so far happy with the deals I’ve done, so far, looking to see how they continue progressing and, be interested to see what you guys are putting out next year. I think, next couple of months I’m rebuilding up my cash reserves again, and then I’ll look to start deploying some stuff.

I got lost here in the research as well, too. Yeah. Yeah. It helped let me know, man. but yeah. Thanks everybody for listening. if you guys want to DDS, put yourself out to the world, shoot me an email at lane@simplepassivecashflow.com And, thanks for joining us, Thank you. 

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