Helping Healthcare Scale
Imagine you're friends with multiple CEO's of billion dollar organizations. You can call them anytime you like and ask them all that they've learned about real estate and investing, including some of their biggest mistakes.
That's the mission of this podcast, to teach the insider strategies used by the big guys to everyday healthcare operators in order to get access to the best strategies and real estate at the best prices.
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Helping Healthcare Scale
The Truth About Your Investment Returns: What Wall Street Isn't Telling You
Your financial future isn't what you've been promised. The startling revelation at the heart of our conversation with Mark Willis, owner of Lake Growth Financial Services and bestselling author, is that average investment returns are functionally meaningless. While Wall Street touts 9% returns, actual investor results hover around 3.6% according to research from Dalbar—a discrepancy that could derail healthcare professionals' retirement plans.
Mark shares a powerful explanation of how volatility destroys compound growth with a clear example: if your investment grows 100% one year and drops 50% the next, the financial industry will claim you earned 25% annually—but you've actually made nothing. This mathematical sleight-of-hand affects everyone from physicians to dentists who rely on traditional investment vehicles for retirement.
The conversation takes a fascinating turn as Mark introduces an alternative financial strategy gaining popularity among healthcare professionals: using specially-designed dividend-paying whole life insurance as a personal banking system. Through a detailed case study, Mark demonstrates how a dentist accessed $50,000 for practice equipment at just 1.92% interest while his policy continued earning approximately 5.5%—creating an arbitrage opportunity conventional banking cannot match.
What makes this approach particularly valuable for healthcare practice owners is the guaranteed access to capital regardless of economic conditions. Unlike HELOCs or business loans that can be reduced or called during downturns, these policies provide contractually guaranteed liquidity under your control. Mark explains how practitioners can use this strategy to finance equipment, real estate, or practice acquisitions while building a growing pool of capital that ultimately converts to guaranteed lifetime income.
Ready to explore how these strategies might work in your healthcare practice? Download a free chapter of Mark's new book "The Business Fortress" at newbankingsolution.com and discover how to reclaim control of your financial future without relying on Wall Street's mathematical fictions.
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The point is, average returns are meaningless. They're meaningless because you cannot eat a rate of return. You can't actually spend a rate of return at the grocery store. What you need is like real returns. You need an internal rate of return, or what they call a compound annual growth rate, and these never get talked about and they're always less than the average rate of return. So, like, the average rate of return of the S&P 500 over the last 20 some odd years is about 9%. But the real investor return, according to third-party research, these are real investor returns after fees but before taxes, over a 30-year period. According to Dalbar and that's a research firm out of Boston, that's D-A-L-B-A-R Austin. This shook me to my core when I learned this the real investor return over 30 years was closer to 3.6%, not 10 or 12.
Speaker 3:Is that people who?
Speaker 2:invest in virtual funds. The goal of this show is to help healthcare organizations scale by leveraging real estate strategies and interviewing high-level healthcare executives in order to pull out lessons learned along the way. Interviewing high-level healthcare executives in order to pull out lessons learned along the way. If you'd like a free site selection analysis from our team, visit us at wwwreuniversityorg and drop us a line.
Speaker 3:Hello everybody, welcome back to Helping Healthcare Scale. I'm Austin Hare, your host. Our guest today is Mark Willis. He's the owner of Late Growth Financial Services and a bestselling author of several books, such as how to fire your real estate banker, and he just wrote a new book called the business fortress, which comes out this month. He's also the host of the not your average financial podcast, and today we're going to talk about how to take control of your finances and maximize some tax strategies that you've probably never heard of.
Speaker 1:So, mark, thanks for hopping on, hey thanks, austin, for having me on the show.
Speaker 3:All right, I think it'd be helpful to get your story. I know we're chatting a little bit offline about how you were seeing everybody's retirements, net worth, stocks, real estate melts all around them back in the 2008 financial crisis. So walk us through where you were at in your life and what you learned that got you to be a financial service provider.
Speaker 1:I almost wasn't, as I watched a CPA that I worked for at the time make those dreaded phone calls. I'm sorry, mr 63-year-old client, I know you've been my client now for 30-plus years and told you the market always goes up in the long run. But now you're 63 years old and I just lost you a 30 your life savings. That's the phone calls I was hearing the CPA that I worked for have to make, and those were terrible conversations. I didn't want any part to have with that. So I almost left the industry altogether and I was also in debt up to my eyeballs at the time because I'd graduated in 2008, when it was a great time to be looking for work, austin, let me tell you, in 2008, when it was a great time to be looking for work, austin, let me tell you, man, everyone was hiring in 2008, if you remember no, I'm just joking, of course we had tons of student loans and no job, really. So I worked at the time for a property management company just to scratch together some money and pay off my other wife. I jokingly say I married two wives in college. One was my actual wife and the other was Sally May, the student loan provider. She wanted money every month, so, anyway.
Speaker 1:So we wanted to get rid of that terrible landlord, let's say of our lives, as quickly as possible, and so my wife and I worked as many side jobs as we could, one of which was that property management company I told you about, and I just remember, after getting my fancy master's degree, feeling like I was too cool for school and they handed me a wet, dry vac and said, hey, get under that broken elevator and just suck out whatever you find.
Speaker 1:And that was the ego busting experience that I think every young adult needs to have after they go through college. It was humiliating, it was messy, it was all sorts, everything you could imagine a lot more. But it taught me I got to get out of this pit, not just the literal pit in that broken down elevator shaft, but the financial pit of being in all that student loan debt. And, more importantly, who's really making money here? It wasn't me under that elevator, it was the guy that was owning the property, that was really collecting the rents, and so that really got me inspired, both with real estate, second with not just being debt free but being truly wealthy, and in all senses of that word, and so that's what got me on the journey to discovering real wealth, not just paper gains that you see on Wall Street, but real wealth that can't be taken away from you.
Speaker 3:Well, let's talk about that. What's the difference, then, between paper gains and real wealth?
Speaker 1:Well, let me have a little fun math and magic here with you. I'm a CFP, so what's a good episode without a couple of numbers? So let's imagine that you invest some money in XYZ stock Okay, 10,000 bucks. You'd put 10,000 bucks in this stock and then over the course of the year it goes up a hundred percent. So what's your return now? So you've got a hundred percent return. You put in 10 grand. It doubled with a hundred percent return. Now you have 20,000 bucks. You're feeling great. So you're like man, let's do this again. So you roll the dice you stick with XYZ stock. Unfortunately, in year two you lose half your money. So your 20 grand drops back down to the original 10,000 bucks. Now do you feel any wealthier after this little experiment? You started with 10 grand, you went up to 20,.
Speaker 3:You're back down to 10. You feel a lot worse than if you just had the 10 grand the whole time.
Speaker 1:I guess. So yeah, if you just put it in a 10 can you probably feel better. That's a good point. But just mathematically speaking, our rate of return was zero. Right, exactly. But on your account statement that you get at the end of the quarter or whatever, it says that your average rate of return was 25%. And you're like what the heck? This isn't right. So you check out the math and oh, wow, it's right. 100 minus 50 divided by two years is 25. Your average rate of return was 25. Now every financial advisor would show that to you and be like, hey, austin, aren't I cool, aren't I worth your fee that you every year, which weren't even represented in our little math experiment there. Fees, that is um. Every advisor and SEC allows average rates of return.
Speaker 3:But that's Let me, I'm lost. Okay, so you have 10 grand. It goes up 100%. The next year it goes down 50%. So it averages. So you made 100, you lost 50. You made 100%, you lost 50%, so they allow you to average that out to 20%, right.
Speaker 1:Well, every 401kk, every brokerage account, every real estate transaction, typically, if you do an analysis of any investment, they're going to show they meaning the traditional financial industry will show you an average rate of return. So that's 100 minus 50, so that's 50. Total percent divided by two years is 25 per year. So an average rate of return over two years of 25%. Now most people are like well, market never, it never goes up a hundred percent, and I agree with you. It probably wouldn't do these extreme volatile swings it. The market has dropped 50%, however, several times over the last century. It's never gone up a hundred, but it has gone down 50.
Speaker 1:So the point I'm making and you could do the same math with other you know series of numbers, but I'm just keeping it really simple for our podcast you know audience today the point is average returns are meaningless. They're meaningless because you cannot eat a rate of return. You can't. You can't actually spend a rate of return at the grocery store. What you need is real returns. You need an internal rate of return, or what they call a compound annual growth rate. These never get talked about and they're always less than the average rate of return, the average rate of return of the S&P 500 over the last 20 some odd years is about 9%. But the real investor return, according to third-party research, these are real investor returns after fees but before taxes, over a 30-year period. According to Dalbar and that's a research firm out of Boston, that's D-A-L-B-A-R Austin this shook me to my core when I learned this the real investor return over 30 years was closer to 3.6%, not 10 or 12.
Speaker 3:Is that people who invest in mutual funds?
Speaker 1:These are people who are invested in your target date, funds that you're going to find in your IRAs, your 401ks, your brokerage accounts. The typical index funds, Like you said. Yeah, mutual funds too. A blend of stock and bonds.
Speaker 3:Okay. So if you were to have just invested in the SPY ETF, you'd be closer to that 9%.
Speaker 1:Right, but we were saying Actually no, that's the shocking part about this whole thing, because, for one, there's a number of fees involved two people dollar cost average, which is a total. It's not a healthy way to invest, even though the typical investor tells or investment planner tells you to, because you're buying as prices go up and as they come down, rather than just dropping all your money on in 1999 and then letting it grow for 30 years or whatever. No, the investment portfolio of an all equity performance of real investors, after fees are included, even if it's just like a SPY ETF, is going to be closer to 5.5% to 6%, and that's again. Don't take my word for it, go check that out. According to Dalbar, that's D-A-L-B-A-R. They do a quantitative analysis, investor behavior study each year and over a 30-year period. If folks think they're getting 9% because it says so on their statement, but their real change in value, the compound internal rate of return, is closer to 5%. That's going to have dramatic implications. For are we ready for?
Speaker 3:retirement. You're saying that just because of the extra. If you invested in just an ETF like the most simple form of no other mutual funds, no third party whatever. You're just buying SPY on the New York Stock Exchange. It averages closer to 5% rather than 9%, just because of their fees, aren't there fees like Not just fees, but the timing of the deposits or investments that you're making.
Speaker 1:So think about it. Here's the difference. Let me give a simple example. Let's say that you and I live in the same neighborhood. We both work at the same office building.
Speaker 1:Let's say that you leave your office building and you have a straight site to your house and you just drive straight home. Okay, but I'm going to need to drive across town to pick up the dry cleaning. I got to go back across town to pick up the kids at soccer practice. I got to go back to the office because I forgot my lunchbox or whatever. I forgot my briefcase, and now I got to go all the way home. So who between us is going to spend more energy, time and fuel? I will.
Speaker 1:Why is that? Because of volatility. We both took the same ultimate destination. We both started at one point, ended at another point. But the volatility is what destroys compounding, and that's the difference between an average rate of return and a real rate of return. So in the Midwest we have this phrase it's called as the crow flies. You probably know this. You can start at one point, end at another point and it's a straight line from one to the next. The market doesn't go in a straight line. This goes up and down, and up and down, and that beta destroys the compounding of your portfolio and it lowers it. It always lowers it Even. In fact, the more beta there is, the less you are able to maintain a straight line projection, like you might have if you had something that grew guaranteed every year.
Speaker 3:Wow, okay. So I guess I just sorry you're so surprising. So it's not only the fees, it's the combination of the fees and the dollar cost averaging. But theoretically, if you would have invested a lump sum in to the, to the ETF in 1999, like you said, then you would be closer to that 9%.
Speaker 1:No, even that. No, because volatility destroys your compounding. So I've got a calculator here and I know we I don't know if we're able to share screens- or not?
Speaker 3:Yeah, you can share your screen. It's mostly for audio, but yeah, that's all right.
Speaker 1:I can quickly share some numbers. So in the year 2000, if you just dumped 400 grand into the S&P 500, what would your real return be? What would your real return be if you just dumped 400 grand in 2000, right On January 1st 2000. So in the real, like the S&P 500, if we included dividends over that many years this is from 2000 to 2021 is how far my calculator goes here so 21 years, so S&P with dividends the average rate of return in my calculator here says 9.13%. This is shocking to me. I hope it's shocking to you.
Speaker 1:I hope it's shocking to your audience, because as a CFP, this is like the bread and butter this is what we're all soaking in our brainwashing. You might say, of typical, oh-so-average financial advice that we're supposed to just fall off a log and get 9.1% over 21 years if we just stick it in a SPY ETF, right, okay, now I'm looking at 400,000. If I just dropped any, we can pick any number a hundred grand, a million, let's just pick. We drop in 400 grand into the SPY ETF. We have an expense factor of one and a half percent. That's the average fee for an IRA. That includes your internal load costs plus any other advisor fees and Fidelity or TD Ameritrade they're not doing this for free or Schwab or any of these guys, so let's just do an expense factor of 1.5 um.
Speaker 3:The average ira is from the that's charged at the platform level. So if you have an account with schwab, you're saying they'll charge you one and a half percent a year.
Speaker 1:Yeah, yeah, even inside the etf itself there are internal costs. They're not doing it. The etf is not doing it for free either. They're not a charity. Even if we took the fee all the way down to zero, it still changes the number, turn the fee all the way off. So if you drop 400 grand into the SPY, no fees at all. If you found like a charity doing your investing for you which, if you do find that, please tell me because I like that, because there's nothing out there that's doing it for free and you just let that money sit there and soak in the SPY for 21 years, the final balance would be $1.9 million. After 21 years 1.9. Now if you just did a straight line from $400,000 to $1.9 million over 21 years Austin, that's not a 9.1%, that's a 7.5% return.
Speaker 3:In that situation, that's just because in that situation, that's just because of the extra fees.
Speaker 1:No, no fees. There was zero fees on that.
Speaker 3:Yeah, no fees Is the math wrong, the way it's calculated. In the first example you said it was nine and a half percent and this is 7%.
Speaker 1:Go back to my analogy of the two guys driving home from work. One guy has got a straight line and you've got a compounding that goes up in a straight, projected straight line.
Speaker 1:The other guy is doing back and forth, up and down, back and forth. There's up years, there's down years in the real interest earned. There's a couple of bad years in the years 2001 and 2002, 2008. I lost 168,000 bucks on my calculator here in 2008. The average rate of return is totally meaningless. So please, guys, when you get your 401k statement or your brokerage statement, it says hey, year to date or last 10 years, you've had an average return. Just shred the paper because it's totally meaningless.
Speaker 3:The number to be clear, then, in both those like, the first scenario you gave was 400 grand and you said that there was a 9% rate of return. The second scenario was 400 grand and you said there was a 7% rate of return.
Speaker 1:No, no, no, yeah, so if you're just looking at the S&P. This is not what I intended to talk about, but it's good. I'm glad we're doing this. Take the S&P with dividends. It was a negative 9.1% in year one of the year 2000. It was a negative 11.8% in 2001,. Negative 22 percent in 20 in 2002. What was going on there? That was the tech bubble, right. But then we've had a couple of good years 28, 10. So if you just average all those returns from 2000 to 2021, that's an average annual return of 9.1 percent. That's just the s&p numbers, plain and simple. But when you put dollars, dollars into it that's the average rate of return.
Speaker 1:I'm just looking at percentages of the.
Speaker 3:S&P. If you put in 400, how much money would you have in scenario A?
Speaker 1:So if you put it in scenario A zero fees, 400,000 goes in, you have 1.9 million, as I said earlier, after 21 years. But now we're looking at dollars. Right, Because we're not just taking an average, because it's just like Sesame Street, right? We're all special. Nobody's an average anything. Nobody ever gets an average rate of return. We're all special. Every year is special. Some are more special than others, see reference 2008. So the real return again. The difference here is the difference between an average rate of return and an internal rate of return. That internal rate of return is what really matters. So from 2000 to 2021, we went from 400 grand to 1.9 million. That's a 7.5% return without fees. If I add a one and a half percent fee on this thing, your return drops.
Speaker 2:Now your internal rate of return is 5.9% after 21 years.
Speaker 1:Investment planners have an incentive to get you to invest money with them and they'll be retired by the time you figure out that you only got 6% and they're laughing all the way to their retirement beach right.
Speaker 3:And because it's compounding, I think we have a tendency to think okay, 9%, 6%, that's only 3%. No, you could have one third amount of money over a long enough time horizon.
Speaker 1:Big difference, and most people are not aware of this, and most people are furious when they find out that this is the reality and there's no guarantee. You don't listen to the lies of typical Wall Street financial gurus and you find ways to build real wealth generally in a way that's in a straight line. That way, you can actually build a plan. How can you even build a plan around something that has up and down financial results? That's partly what we started our financial firm for, and I know why we include real estate in our portfolios for our clients. But even real estate is not guaranteed. So what is and how can we incorporate it? This is where the bank on yourself strategy makes a lot of sense, and for folks that are in the medical profession dentists, doctors, physicians this is a tool that I found, as a certified financial planner, to be especially compelling to me. So give me a minute and a half or two to really explain what this is. We're using, at the end of the day, a chassis called dividend paying whole life insurance, which has a lot of bias and a lot of history to it, but if it's properly constructed, it can be an unbelievable tool alongside your real estate or your business. Here's a couple of quick examples.
Speaker 1:The policy I'll summarize this in a couple of brief bullet points. Number one the policy grows in a straight line every single year. It grows guaranteed, so we can have and dividends are on top of that guarantee, so we can actually build a predictable growth flight path from your current age to five years, to 20 years, to 50 years from now and every point along the way, and you know exactly what your net worth is going to be every single year. Second, the money is accessible and liquid and there's in many cases no taxes due on accessing that money. So it's like a line of credit for yourself or for your business.
Speaker 1:So it's meant to be, in essence, a line of credit that you can tap against your cash value, borrowing from, in essence, yourself, banking on yourself, as we say, to use it for whatever you might need. Maybe it's a personal matter or maybe it's a business investment. We just had a dentist use it to purchase a bunch of x-ray equipment and he was able to use the policy as a line of credit, a guaranteed line of credit, when no banks were lending to him in his area. So he accessed the cash value in his policy to buy a bunch of equipment and now his business pays him back vis-a-vis a loan from the business to him and then he repays the policy loan on a means that he can control. He's in control of that repayment plan and there's nobody who's going to tell him.
Speaker 3:Can we do actual numbers on that scenario real quick? I can grab them really quick, sure yeah, so in that situation, like he essentially wanted to, did he use the money to buy the equipment and the real estate, or just the equipment?
Speaker 1:Yeah, in his case he used it for some equipment. It was about 50,000 bucks in his case. There's other scenarios where you could use it for any other matter real estate, whatever.
Speaker 3:But 50,000 bucks in his case. There's other scenarios where you could use it for any other matter real estate, whatever but let's talk about the equipment. Okay, yeah, what were the numbers there? Just curious, Cause it sounds like a. Yeah, just a way. It's a different way to access capital.
Speaker 1:It brought him a lot of peace, but also the math worked out well too. So some people think, mark, shouldn't I just pay cash for big expenses like equipment or a car? A lot of folks use this for their business vehicles or their personal vehicles. Let's do the math on that. What are our options? We can finance the equipment, we can lease it or we can pay cash for it. That's the typical options right Now. What's the problem with financing or leasing? We're paying interest or we're renting the property, the equipment that is, and we're paying interest, and profits go to somebody else's bank, not yours. So some people think, mark, let me just eliminate financing and let me just be a saver, let me follow the Dave Ramsey pathway and just save, pay cash for things. In his case, he considered that he said well, maybe I'll just save money in my savings account or money market account and pay cash. Well, austin, can you think of any problems with that? What's the big deal? Why wouldn't we want to just pay cash for this x-ray equipment?
Speaker 3:The way I look at it is always compared to what it's like. What can your money be doing for you? Even if you have the money to buy a car or a house in cash, is your rate of return what you're going to do with that money greater than your interest rate? That's kind of it.
Speaker 1:But in our little scenario you're right. In our scenario we must buy this equipment. To compare apples to apples. So we got to buy it either through financing or paying cash. So some people think, mark, I hate the idea of being in debt to the banks or the credit cards or whatever, so I'll just save it and pay cash the Dave Ramsey way. What's the problem with paying cash in his scenario?
Speaker 3:But now we know you take it out of your account, your interest-bearing account. Now you're not earning interest.
Speaker 1:Exactly. So we have the opportunity cost of paying cash. It was a $50,000 price tag for him, but over his lifetime we calculated the opportunity cost was closer to 200,000 bucks. That's what 50 grand would have earned over his lifetime had he not bought the x-ray equipment, just left it to invest and grow instead. So what if we use our policies? When we finance these operations and equipment through a policy, you borrow against your cash value. So let's presume for these numbers, because it sounds like you want some numbers. Let's presume that he has $50,000 of cash in his-.
Speaker 3:And then how does he get? How long do you have to have that before you can tap it? How much do you have to put down whatever you call it like, in order to be able to access 50,000 and that sort of thing?
Speaker 1:It's going to be different for everybody, so call me and we can talk about exact numbers for every single person. Depends on your age, depends on how you're putting the money in there. Is it 500 bucks a month? It's going to take a long time to build 50 grand in there, but you could also dump the money in and have it in there within the same month.
Speaker 3:What about in?
Speaker 1:his scenario. I don't remember exactly how much. I know he's probably four or five years into his policy in his case. So I think he's putting like a thousand or 2000 bucks. I forget exactly how much he's put in there at this point, but he had 50,000 at the moment that we needed to get the money out. So he logs in, he requests the money. It took basically two questions how much money do you want and which bank account do you want us to send it to? That's literally the loan process. And within about four business days they had direct deposited it into his bank account. They meaning the insurance company. Okay.
Speaker 1:So now he's got 50 grand in his checking account. He can buy his equipment with cash. He now owns it. He has the rights to the. It's his. Nobody else has any claim on that x-ray equipment. Meanwhile his policy didn't actually stop growing. We didn't actually money out of his policy, we actually used it as collateral and we got that loan from the insurance company and the insurance company is the one that lent him the money. So his policy is still full and whole, earning compound growth on $50,000. And he's also using the x-ray equipment and making a profit within his business therein. Okay, so any questions on any of this so far?
Speaker 3:What are the interest rates on the? So he's borrowing against his policy, and then what is the interest rate on that? And then what interest rate is he earning with the?
Speaker 1:Yeah, so you're asking the smart questions. These are the key questions, cause if it's upside down, there's no sense in doing any of this. So and again, every insurance company is not designed this way. I recommend and there's a lot of people out there who call this infinite this, and cash maximizer that and family banking that. There's a lot of scenario people out there on YouTube that I would say just be very careful which companies you work with, and because all the answers to your question is going to vary depending on which company and how it was engineered. Okay, in this case it was positive though.
Speaker 1:Right, yeah, so you want to work with a bank on yourself, professional, someone who's been authorized and certified by bank on yourself, if you want this to be the way I'm about to describe it. Okay, so in his case he had borrowed out I'm looking at his numbers here. He'd borrowed out 50,000 bucks. He decides and is still repaying that to his policy over the next four years. So he's whatever that is about seven, 50 a month or so that he's repaying on his terms. So he's decided he wants to set that payment up. So, austin, if he decided, hey, I don't want to pay this month, he's not going to be like, they're not going to repo, they're not going to like, repossess his x-ray equipment, it's his right. They would just deduct it from his death benefit. If he never paid that loan off, it would just get deducted from his death benefit when he passed away. So in this scenario he pays it back over four years.
Speaker 1:We calculated the total loan interest to be $3,820. Now that's spread out over four years. So if you do the math on that, 3820 divided by 50,000, divided by four years, it's like almost nothing. That's 2%, basically 1.92% annual percentage rate. So is that a bad deal for borrowing money these days. It's a great interest rate for these days. Now some Dave Ramsey fanboys get all nervous and oh, wait a minute. They're still paying interest on their own money is what Dave Ramsey would say. Is that true? Is that a ripoff? Let's find out. So the policy is the loan is charging us $3,800. Our cash in our policy is earning interest and guaranteed, by the way, but also dividends on top of that guarantee over the same four year period, austin. So that gain let me look it up here was $12,130.
Speaker 3:Oh, wow.
Speaker 1:One to your four. So we earned 12,000 bucks, we spent 3,800. So arbitrage is the fancy word here, right? $8,310. And so that's if we stopped the clock in four years. What if he Like a 6% rate of return or something? Yeah, close to it. Five, five and a half or something like that. That's just one x-ray machine, but remember, it keeps compounding for the rest of his life. So he'll only ever spend 3,800 bucks for that purchase.
Speaker 3:But that 50 grand becomes 62 grand, becomes 82 grand, becomes 102 grand, as long as he lives that continues to compound and he can take the money out or put it back in as much as he needs to. So the money is earning him five and a half percent and he can take out as much as he wants. That's equal to the value of his policy.
Speaker 1:What would you call it? Cash value?
Speaker 3:Cash value Okay, and he's borrowing that at about 2% in this policy.
Speaker 1:Yeah, as the scenario was laid out, he put down about a 1.9% APR to repay that loan over a four-year period.
Speaker 3:Okay, and can you borrow 100% of the money that you have in the policy, or do you have to leave some in there?
Speaker 1:90% is available. It's a 90% loan to value. So this even beats a HELOC, in my opinion, because what are? What's the problem with HELOCs? What are? What are we able to do on HELOCs these days in terms of loan to value? Probably not 90%.
Speaker 3:Yeah.
Speaker 1:And is there any guarantee that the bank will ensure that you can pay that back on your own terms? Are they going to maybe call you up and say, hey, we're in trouble, or hey, you're in trouble, you got to pay us back right now and they term out the loan or limit, lower your line of credit limit or whatever, and now they're not even tax deductible anymore? Yeah, in this case there's a 90% loan to value. Okay.
Speaker 3:And in his case he had put in at least it would be what? 55,000 then, in order to be able to access the 50?
Speaker 1:Yeah, his cash value was in this case a little over 50 grand, and so he could access 50 to take the loan.
Speaker 3:So 55 was his cash value when you say cash value, you mean the money that you've put in, so like you could have been putting in 2,000 a month for two years and be at 48,000, or you could put in a lump sum of 48,000. Both those scenarios is cash value.
Speaker 1:Totally Yep. So we're just taking a photo of where his policy was in time. At this moment, 50,000 bucks is what he happened to have available to borrow and, you're right, his cash value was a little above 50,000, because you can borrow 90% of that. But yeah, everybody's going to have a different plan for how they put the money into the policy. Maybe it's a lump sum, maybe it's put in over a period of years, whatever.
Speaker 3:And if he never wanted to access, if he wanted to keep all his money out, would he still be? I guess I should say 90%. He'd be paying 2% and earning 6%, so he'd be netting a 4% on that money, even though he never puts it back in.
Speaker 1:Smart question. No, in this case this gets a little complicated and we're on a podcast so I'm trying to keep it easy for folks to listen to. But the reason why he had such a low interest rate was because he had a strategic loan repayment over a four-year period. If it had taken him more like eight years to pay that loan off, his APR would be closer to 3%. If he had paid it off in two years, it'd be closer to 0.8% possibly.
Speaker 3:So the quicker you pay it off, the lower your interest rate, it's advantageous to pay it off. So if you want to hold it for like five and a half or higher, yeah, five and a half, or higher.
Speaker 1:Yeah, it'd be breaking even, you might say.
Speaker 3:Or about even, because how could the bank afford to give people? More money than they do that yeah.
Speaker 1:Guys, keep listening to Austin, because he's a smart cookie.
Speaker 3:All right, yeah, how do we tie a bow in this?
Speaker 1:Yeah, there's so much more. We just barely scratched the surface. But can you imagine what it would feel like to have a guaranteed line of credit for yourself or for your business when all the other guys or gals in your city or town or township are using the banks the old-fashioned way? Do you think that we're done with volatility? Do you think that banks are always and forever going to be kind to you? I'm guessing if you've been around the block a few times, you already know the answer to that question is no. There's going to be seasons where banks are going to stop lending, when prices are going to be down, when the real estate is in another crisis and nobody has access to credit and banks stop lending. It's going to be the people with guaranteed access to liquid cash that's going to be able to scoop up deals on the spot.
Speaker 1:I cannot wait. I hate to say it because I don't want pain for others, but I can't wait for the next real estate downturn in a significant way, because we're my clients and myself we're ready to pounce with significant portions of contingency cash in these policies, and this is just one tool. Again, as a certified financial planner, I've given some risks here and told you hey, be careful how you design these things. Make sure it's with a bank on yourself, professional, but it's not a good fit for everybody. If you're desiring triple digit returns, if you're looking for overnight success, these policies are boring. They're meant to be cash equivalent. So, as we tie a bow on this, I would just say properly conceived and put into your portfolio in an appropriate way, these policies can be the nitrous oxide in your overall real estate portfolio, your business, I mean. The opportunities are infinite.
Speaker 3:That's. Yeah, I think it's a really interesting strategy to in his exact scenario, like you guys did. What about? Okay, because we I want to use the utilize the time we have. I know we're going to bounce around a little bit, but we talked about income maximization, guaranteed lifetime income, bounced around a little bit, but we talked about income maximization guaranteed lifetime income.
Speaker 1:Is that related to this type of policy? It can be. Yeah, like all things, it's all related. So it starts with a financial review with the clients that we work with, and we never jump to this tool or any other tool. There's thousands of ways you can put a portfolio together. We don't just color by number. We want to have a real listening session, or two or three or 10, with folks before we build anything for them. But to answer your question, we talked about this idea of income maximization and guaranteed lifetime income. If you think about it, a lot of people get into real estate because they want guaranteed lifetime income. That's what rental properties are and that sort of thing. Well, is there anything guaranteed about tenants paying rent? Austin, the risk.
Speaker 3:Yeah, he's risking it all the time.
Speaker 1:Yeah, but there are literally thousand-year-old financial tools that provide guaranteed lifetime income and let me tie it back to the bank on yourself for a minute. That's really tying it to a really chassis. That makes that whole tool work is a life insurance contract. Contracts are really interesting and they really got me excited After I almost left the financial industry Austin because of the craziness of 2008,. It was contracts that brought me back. Contracts because real estate, syndications, crypto and insurance they're all contracts. If you really think about it, if we lose the ability to have a contract with each other, we don't have a civilization at that point.
Speaker 1:So what are contracts? A pension is a contract, an annuity is a contract, an insurance contract what is it? It's a contract to provide a guaranteed increase of your wealth. It's a contract to pay your family if you croak too soon. So let me tell you a quick story to answer your question about guaranteed lifetime income, and then I'll pass the ball back to you.
Speaker 1:So the same guy. He's in his working years but let's say his desire is to buy more equipment, maybe buy out his dental practice, maybe buy a second or third location, all using his policy, and he's using his cash flow as a means to basically manage these major purchases and investments during his lifetime. But now let's say let's fast forward 20 plus years. Now he's ready to retire and he's built up several million dollars in this cash value life insurance policy. It's not only feasible, it's guaranteed to grow at that point to where he has that kind of money when he's ready to retire. Let's pick a number. Let's say he's got, I don't know, 2 million bucks in there. I'd have to look at his exact plan to tell you, but let's say it's 2 million bucks at age 65. He could, if you wanted, to transform that chunk of money into a permanent guaranteed lifetime income stream of about 100 and 110 grand $110,000 a year to last as long as he lives, and it's up to him if he wants to do that.
Speaker 1:What's the risk of not doing that? He could outlive his money right. What's the number one fear of retirees? Even more than death. According to the recent surveys that have been done the Census Bureau did this study and RP did this study too recently they said that death is not even as scary as running out of income. All right, and most retirees are going to outlive their savings by a decade. That's according to the World Economic Forum. So what am I saying? I'm saying lifetime income is a big project and most people have no plan for it. But you can transfer whole life insurance cash value into a guaranteed lifetime income payment with the stroke of a pen and a tax-free way, and then you're getting. In this guy's case, he'd be getting about 110 grand a year for as long as About the five and a half percent.
Speaker 3:Say again it's about the five and a half percent.
Speaker 1:That's the. What is that? The withdrawal rate, or so of 2 million bucks? Yeah, what's 110,000 of 2 million, is that about?
Speaker 2:five, 5.5. Yeah.
Speaker 1:Yep, so he could live on that money, spend that money for his, even if he lives to 120 years old. Even if he spent the 2 million decades ago, the insurance company would still pay him that 110 grand a year as long as he and his wife live.
Speaker 3:Okay, Wow, Interesting. It's fascinating all the different things that you can do. So look, I know we were getting a little bit over in whether it's an average rate of return versus a real rate of return or hey, we have to put the money at risk in order to meet our goals.
Speaker 1:Where's that written? Where's that put into? Is that written in stone somewhere that I didn't see? No, you can actually reach your goals without taking unnecessary risk, and do it in a way that helps you gain more control, instead of giving up your control to Wall Street banks and other banksters.
Speaker 3:Yeah, I love it. I love it. This has been really insightful. Where can people go if they want to get in touch, learn more about what you're doing? What's a good resource?
Speaker 1:Sure yeah, Our brand new book is the Business Fortress, which talks about using this tool and many tools like it to help you within your business. So if you want to find out more about that, check out the business fortress. We give away a free chapter of the book If you go to newbankingsolutioncom. That's newbankingsolutioncom, and we can speak with you for 15 minutes, 20 minutes, whatever, and we can answer your questions. So that's newbankingsolutioncom.
Speaker 3:Awesome, I love it All. Right, man? Yeah, thanks so much.
Speaker 2:And it's been a lot of fun. Thanks a lot. If you need help finding the perfect location for your practice or you're ready to invest in commercial real estate, email us podcast at leadersreecom R-E as in realestatecom, or go to leadersreecom and fill out our form. See you next time.