Main Street Business

#599 Top 10 Due Diligence List: How Smart Investors Protect Their Money

• Mark J Kohler and Mat Sorensen

Share episode

Recorded live at the Alt Asset Summit in Phoenix, this episode of the Main Street Business Podcast brings you a high-energy, audience-fueled breakdown of the Top 10 Due Diligence Must-Dos Before You Put Money Anywhere.

Join hosts Mark J. Kohler and Mat Sorensen as they share stories from the trenches of asset protection, investing mistakes, client war stories, and lessons from 10,000+ hours advising entrepreneurs, investors, and small business owners. From understanding what you’re investing in, to the dangers of pressure tactics, to CRUTs and crypto, to structuring a Solo 401(k) the right way—they cover it all.

What You’ll Learn:

  • The #1 rule Warren Buffett follows—and why you should too
  • Why “I don’t buy hype, I sell it” could save your portfolio
  • Legal pitfalls of raising money and kickback commissions
  • How to use a CRUT (Charitable Remainder Unitrust) for crypto gains
  • Real client horror stories involving napkin contracts and pressure to invest
  • Solo 401(k) strategy stacking and the Side Door 401(k)
  • The difference between building wealth and preserving it
  • Why saying “No” is a power move for every investor

Plus: Live Q&A with audience members on Roth contributions, estate planning, and real-world investing scenarios.

SPEAKER_04:

Welcome everybody to the uh Mainstream Business Podcast, another episode. We are here live at the Alt Asset Summit in Phoenix, Arizona, with the live audience. Yeah, see, there we go.

SPEAKER_03:

All right. We also have the laugh light over here. So when we turn that on, even if it wasn't funny, let's practice that.

SPEAKER_04:

Laugh lights on. This is so good. We gotta keep that in the can. We gotta use that every every time. All right. Well, thanks everybody. We have had a blast. Matt Sorensen Craig, congratulations. Spearheading, sorry, congratulations, spearheading another all asset summit. You've done a great job. We've are at the the last portion of the event where we're gonna do our top 10 due diligence must-dos before you put money anywhere. Yeah. And then we're gonna take live questions from the audience from the weekend.

SPEAKER_03:

Anything else? Is that it? That's pretty much it. We've had an awesome time here at the Alt Asset Summit. We wish all of you were here. So if you're catching this late, come next year. Um super incredible time because of the people, all these incredible people here. Uh have a great time meeting so many of you and hearing your experiences and stories. So uh let's dig into it and start on the list. Okay. Now, Mark and I remember we started this list. It well was the podcast was going, so maybe 10 years ago. Okay. And we had just, you know, we've done the 10,000 hours as a lawyer, talking to clients over the years, entrepreneurs, investors, lessons they learned, and things that we've learned in talking to them and trying to help solve their problems and their train wrecks sometimes. Yeah. And so we said, we need to come up with a top 10 list.

SPEAKER_04:

Yeah. A top 10. And we love our clients, but I think it has been such a blessing seeing clients make so many mistakes and so many good moves. And it is really, I think I've benefited the most. Um, and I've said many times recently that you're not paying me or Matt or one of our lawyers 500 bucks an hour or whatever for an hour's time. You're paying for their last 10,000 hours. Like, what did they learn from those last consults that they're bringing to the table? And when you that's the real value in paying an attorney for an hour or any professional is that life experience. It's better than Chat GPT or GROC or whatever. Okay, what's number one? Number one, due diligence item.

SPEAKER_03:

Number one, if you don't understand, don't invest. Okay, and I think it was we talked about the hot crazy matrix, the risk return matrix.

SPEAKER_04:

By the way, I've got to tell you, when I heard that you came up with that, I was like, damn. Golden, right? Golden!

SPEAKER_03:

You're like, why didn't I come up with that?

SPEAKER_04:

I know the hot crazy matrix, so so good. Yeah, Mark. No, so what's the official title of the matrix?

SPEAKER_03:

It's the risk return matrix. You can put hot in there? Well, I call it the hot crazy matrix, but for investing.

SPEAKER_04:

Okay, there you go.

SPEAKER_03:

That'll be the YouTube title.

SPEAKER_04:

And Matt came up with 50 shades of gray in investing. You've been on one, it's very good. Yeah, I've got to hand it to you.

SPEAKER_03:

I call it the 49 shades of gray.

SPEAKER_04:

Okay.

SPEAKER_03:

Yeah, yeah. So uh, but seriously, number one, that's the number one thing. If you don't understand, don't invest.

SPEAKER_04:

Don't understand the deal. And may and I've we've got two stories on this. First, Warren Buffett is really the the man that the guy that came up with that when he said, I don't invest in anything I don't understand. And so he's pretty critical of the blockchain and things like that. Because it's like I don't understand it, I don't do it. But the funnest part of this was I had this client, he was out of Texas and he was just larger than life, kind of, you know, investor making millions. And he's like, Mark, I'll tell you, when I get to the table and I see everybody investing, and if I look around and I don't know who the the fool is at the table, it must be me. So I out, I'm out. You know, he's like, and there's always someone there with dumb money. And if I can't figure out who it is, I'm out. And so I think that's very, very sage wisdom. Like, let's not get caught up in the hype. Yeah. I I I don't buy hype, I sell it. And I think a lot of people get emotional. Do you like that quote? Is that good? My rancher in Utah told me that he's like this 80-year-old marble or man, like rodeo, you know, winner, and he's all this, and he's like, Mark, I'll tell you in my life I learned I don't buy hype, I just sell it. I was like, dude, that was awesome. But that's all about point number one.

SPEAKER_03:

What did you buy?

SPEAKER_04:

Well, we were talking about some cows. We weren't talking about the we were talking about horses. I've got a good, I've got a good horse story. Maybe we'll come to it. All right, keep it.

SPEAKER_03:

All right, okay, all right. Okay, so at the but here's the seriousness of this, and now this happens all the time. I would get clients, they'd send me documents, and like, I want to invest in this thing, or I'm partnering with this person on this deal and I'm putting in money to it. And I'm like, okay, so how what is this money going to? Um to the investment. I'm like, well, I mean, how are they using the money? Um, well, we're starting a business. I'm like, okay, okay, all right. Like, and or it'd be like, okay, are are they getting paid with this money? Are they taking this money to pay themselves a salary in this thing? I don't know. Okay, what do the documents say? Well, they don't address that. Okay, so I'm like, well, you got to understand what the investment is. It doesn't have to just be the investment, like the concept of the investment. Like, I don't understand crypto or something, so I'm not gonna invest. But like, it needs to be like, what do you understand the context of the investment? How is your money being used? There's a bunch of questions here that need to be disclosed. They should be in the documents, you should be understanding that. And if that's not being discussed, that's not written down, we're gonna come to that. You don't understand it enough to be putting your money into it. Okay, all right. Number one, check. What do you got for number two? Do you want my list? I do. It's my list. I just gave it to you.

SPEAKER_04:

It's our list. All right. Demand documentation. You misspelled documentation. If you are giving adequate, just joking. Okay. Did I really demand demand documents? I love this because you've got to get it in writing. It is so crazy how many people do deals that come across our our client phone call lists. I mean, just that call up that are in just a bad way. And the documents are terrible, and it's really sad. And we get so excited about the deal that they don't document it well, and it's just so critical.

SPEAKER_03:

Yeah, I mean, I remember you had the client that sold what was like the magazine business or something back. Oh yeah, that's the talk.

SPEAKER_04:

Oh my gosh, that's it.

SPEAKER_03:

And what what was the document?

SPEAKER_04:

It was like I'm not kidding you. It was it was literally uh it was not a napkin.

SPEAKER_03:

They had a document.

SPEAKER_04:

Yeah, they had a document. It was they came in and they go, they were so upset, and they were like, Oh, we've we've this we've sold our business. It was like they sold their business for 50 grand. It was just a small business deal. It was a back when magazines were in print. Have you ever seen those? They're kind of it's kind of neat. But anyway, um, they had sold their magazine business. A local magazine. Yeah, a little local magazine thing that you'd get on a stand at the grocery store or something. And they sold it for 50 grand, and they were coming in to complain that the person they sold it to was not making payments anymore. So they they used pace more, you know, the buyer used a pay pace more be principal, you know, no money down, you know, seller finance. And so they had financed the deal, and the guy had quit paying. And so I was like, okay, I get it. All right, show me the deal, show me your documentation. And I I really feel like he was like a kid in high school that like pulled it out. It was like paper, you know, it was like on college rule paper. And I was like, okay, and he had to do it. And I was like, I kind of held like it was a dirty napkin. This is the deal, this is your whole deal. It was like literally a paragraph, and it said, I will pay you X and you sell me your business. And I was like, You've got to be kidding me. It's like this is not he did not get his money, so it did not go well, but it's just oh there's a lot of money at stake, and you've got to pay sometimes for the legal work to do it right. And I know it's hard, it's not fun to talk about or say, but we've got you got a budget for the legal work to be done right.

SPEAKER_03:

Yeah, that's definitely part of the process to make sure that you're protected, and we'll get to that a little bit more here. All right, all right. Next thing we're gonna keep them rolling. Um, don't accept commissions for raising money unless you're licensed to do that. Okay, one red flag we will see is they're out there raising money, and they'll say, Well, I invested in this thing, and they told me if I get other investors in there, I get 10% of whatever money they raise. That is a massive red flag, unless you're licensed as a broker or with the SEC to be able to.

SPEAKER_04:

You get 10% of the prison time too.

SPEAKER_03:

Yeah, exactly 100% of the prison time, actually.

SPEAKER_04:

Yeah. Um not good. Yeah, kickbacks, cut of the deal, finder's fee, bird dog fee, all those are, you know, like bing, bing, bing, red flag. Okay, what's going on here?

SPEAKER_03:

Yeah, and some of that stuff, there's little carve outs that could be okay, by the way. But like the typical, well, I'm gonna get to 10% or 5% if I bring in investors and you're just getting like cash payments for that. I'm just telling you, like when you're in a fund structure or raising money, that is gonna be illegal. So be careful doing that. Um, and we're always worried about the companies that are willing to do that and pay someone for raising capital like that. They always seem to be the ones that don't make it.

SPEAKER_04:

Yeah. And let's put this in context for a minute. I'm glad that we're talking about this topic because when you talk about alt assets, sometimes in alt alternative investments, we think, well, okay, they might have an alternative way of doing the deal. There might be different rules for this type of investment or that sort of thing. And that is not the case. And so we don't want to fall into the trap that I'm gonna be uh uh more relaxed or loosey goosey on what I would normally do to make sure this is a good deal. So I anyway, I just want to put in context again. That's why we talk about this. I think it's a great topic.

SPEAKER_03:

I like how we're sharing.

SPEAKER_04:

Hey, if I'm gonna invest money uh or sorry, lend money, if I'm going to lend money, uh get security. Of course, this is a good life principle anyway, but if you're using your IRA to lend money, uh if it's gonna be a real estate deal, obviously we want it secured by real estate. But um, I was talking about a transportation deal the other day where they were gonna um buy uh some vehicles for their transportation business, like SUVs and spinner vans and things, and he was going to buy them um with a seller carry back. And I said, Okay, well, they're gonna use CC3, they're gonna lean those vehicles. And I had to explain what that whole process was about. So security could be a personal guarantee, it would hopefully be real estate, it could be vehicles, it could be equipment. Uh, so just whenever you loan money, unless it's to your brother-in-law or family, uh plan on getting paid back or try to get security, you know, and it's just so important. And then the I, you know, it's just it's amazing what people will do lending-wise without getting security.

SPEAKER_03:

Yeah, and I think, you know, one of the things we see all the time is we'll see a document that says secured note. And we're like, okay, cool. And then we see the documents, and they even with IRAs, we'll see it. And we're like, okay, so what's the security? Well, no, it's a secured note. Yeah. So what's the asset? You know, that secured note means there's an asset. If it's real estate, what's the property? What are we putting a lien on? Oh, um, so like again, if you're lending in real estate, we're expecting there to be uh something recorded on title. And the second piece to that, and this is the other mistake that we see. I know you've seen this one before too. We run across this. This is common. Is there is something signed that's like, let's say you've been a deed of trust or mortgage, but it's not recorded. That doesn't help you. Or it is recorded and it's in like third position, third position or fifth position, you're way far behind. They have no equity in that property at the place that your lien is. And what that means is like, you know, if there's lenders on that property, everyone's in priority. The first person that put a lien on the property gets first. The second person in time that puts a lien on it two years later is next for however much they're owed. And so if you're number three or four and the property's worth a million, and there's already one and a half million of liens on the property, your lien is worthless. It's not secured. There's no collateral there because there's no equity left. So okay.

SPEAKER_04:

Well, number five is researching, and I'm gonna put five and six because it's kind of the same topic, if I may, is that whenever you're gonna invest your money, whether it's your retirement account or any money, do take the time to do some research on the company and the person or the management behind it. So there's kind of a company research, which is number five, the status of the company, is it in good standing? Does research all and this is the beauty of Google now. 20 years ago, 30 years ago, it was so much harder to do this, and so many more people are taking advantage of. But then number six is do the background on the people that you're entrusting your money to. And again, that's it's so much easier now than it used to be. It's not hard to plug some names in Google and do it. And yeah. I had I had this, it was a mom and a daughter once that had I helped his clients that it both and this is a good point. This is kind of another one. I don't know if this is on the next, I may be stealing another one. Oh, yeah, it goes to number seven. I'll share it for number seven. Okay, you go back. All right. Okay, do you want to comment on giving background?

SPEAKER_03:

Yeah, so I think you know, we talked, John Shikarchi and I, we've talked about this a lot. And particularly when you're lending money, we're looking at three things, which is number one, people, number two, project, number three, property. And that was in the like in the real estate space, but for any other deal, that could be company or business, whatever it might be. But the number one thing is the person behind that. There is an individual involved, and um, you got to make sure that that person is going to, when you're lending money, pay you back. What's their track record? The number one thing I always think about is WWB D. W J. Oh, yeah, okay. Okay. Do you know what that means?

SPEAKER_04:

What would Jesus do?

SPEAKER_03:

WWJD is not how you want to actually make money. Okay. Jesus is too forgiving. Okay. All right. He would give away fish. Okay. Just give away bread. Exactly. Come on. You know, no, we don't want okay. We're investing. Travel without person scripts. You're not forgiving us if you do not pay us back. All right. We're doing WW BD. What would the bank do? Okay. The bank is going to make sure you pay them back or they will sue you. But even before they give you money, what do they ask for? What's your work history? What's your employment history? Oh, you're buying real estate. What's your experience in real estate? You're starting a business. What background do you have in business? Do you understand this industry before? Have you worked in it before? Have you actually held a management role before? What's your credit score? Oh my gosh, you've heard me. Have you filed for bankruptcy before? Do you have lawsuits already against you? Why do they do that?

SPEAKER_04:

Sounds like you've filled out a bank loan for you.

SPEAKER_03:

Yeah, why do they ask those questions?

SPEAKER_04:

Oh, geez, you're giving me anxiety just reading that application.

SPEAKER_03:

I'm just saying, I'm just saying, if you want to get paid back or your investment to go well, wouldn't it be nice to know some of those things?

SPEAKER_04:

Yeah, that's good. Okay. Good. Okay. WWBD. I know. All right. My daughter just got married, and that was the type of questions I was asking. Your your new son-in-law? I know. I'd say I said, What's your 10-year plan? How are you gonna do this? What's going on? I mean, my daughters would come home, like they literally, I'm like, I bring in home a guy from college. They'd like, I'm coming, bring home with a guy, and they would like call me or come in the house early or whatever, say, please, please, will you not ask them what their 10-year plan is? Can you just not drill him? Can you just just get to know him before you drill him? I'm like, how long do I have?

SPEAKER_03:

So funny story, funny story. So my oldest daughter, Brooke, um, I think she's got a boyfriend now. I'm not sure what status yet. Okay. Okay, she met him at surf camp in Portugal.

SPEAKER_04:

Oh, is this the new one or the funny story?

SPEAKER_03:

Oh, this is the new guy.

SPEAKER_04:

Oh, okay. Oh, yeah. Well, there's winter.

SPEAKER_03:

So um I won't okay. I won't talk about my daughter surfing. Yeah. Yeah. All right. She went and like backpacked through Europe, right? She, my oldest daughter's incredible. I love her to death. Um, but she like, you know, has been very successful at a young age. She went and backpacked through Europe all on her own, totally independent. Went with a friend, though. But anyway, met this girl, this guy, sorry. Uh not there's anything wrong with that. She met a guy, his name's David, okay? All right.

SPEAKER_04:

I'm taking a you're gonna I'm waiting to see how you're gonna come out of this one. Keep going. Okay. You started with I've got a funny story. All right.

SPEAKER_03:

I'm just trying to relate, okay? I'm just trying to relate here. Okay. So, anyway, so they've been staying in touch. He's from Switzerland, okay. He's like Swiss. I thought he was from Portugal. Oh, she met him in Portugal. Oh, okay, okay. You know, anyways. All right. So we're doing Thanksgiving in which my daughter lives in the Bay Area in San Francisco. We're doing Thanksgiving. He's coming. Oh, okay. Sorry. So I'm going to basically do some drill down WBD on him. Okay. I'm gonna be like, bro. Yeah. Have you filed for bankruptcy? Do they even have that in Switzerland?

SPEAKER_04:

Yeah. I know you know what you gotta do is like give him a drink and then just take that drink away and be like put it in a bag and then just get a fingerprints. Yeah. I'll I'll come run it. Yeah, we'll run that. Okay.

SPEAKER_03:

Yeah. What's the uh coordinate that now what's the European Agency for Crime? What do they call that? Come on. Interpool. I mean, I've watched enough James Bond to know, you know, Interpool. Yeah. Okay.

SPEAKER_04:

Okay. All right. All right. Now I okay. All right. This is an important one. And I think this is really good in our investment approach uh or approach to investing, is to not be in a hurry. Um, and what happens is we really can find the bad actors with if they're pressuring us. Like they're pressure, you know, like gotta hurry. I need to send that money. And so this is the story I was gonna say. I had this mom and daughter that I felt so bad. They had um uh sent me over documents. Oh, this these people, we invested money, and um, no, I said, I need to know what you have, like, send me the documents. They had both invested a hundred grand each, and I was like, Okay, so send me what you have. And they she sent me an email, and I'm like, there's no attachment. She goes, Well, well, the email is the document. I'm like, What? And she goes, Well, they were in such a hurry. They said, send the money, and then because we got to save your spot in this deal, and then and then we'll sign the documents after. And I was like, So what's the documents? She goes, Well, the email, you know, the email where she said that. That's all I have. And I was like, Oh my gosh. And I go, Okay, what's their name? And so I just broke my heart. And so I'd started, I'd go, well, let's Google these people's names and start trying to find some addresses for them. And she, these people that had taken their money had like 10 different aliases, and it just went on and on. And I had to break it to them. I'm like, you can we can try to get a prosecutor or an investigator, and da da da, but their money was long gone. And but it was all because of pressure. Hurry, hurry, hurry. So Matt and I have always offered, we will be your bad guy. You know, you can like if anybody's pressuring you, say, I promised, I promised Mark, or I promised Matt, I would run this deal by them before I send you the money. And even if it, you know, you're fibbing a little, it's fine. Just use us in vain or name in vain and say, I promise them. And because as soon as people know that you can't be pressured, then you start to see the real, the real story comes sometimes.

SPEAKER_03:

Yeah, and I just think any of those like pressure tactics of it's gotta you, I gotta do it now. You're gonna lose your spot, you gotta get in. I'm gonna get to the next person. Pass, hard pass, cool, let it let them do it. If I don't have enough time to get back to the point number one we made where I can understand the deal, understand the documents. One of the other tips we have in here is like hire a lawyer for my interests to review this stuff, right? When we talk about what are the wealthy people doing, and we looked at that allocation of investing in alternative assets. One of the things investing in alternative, they have professional resources, they're engaging professionals to help them, right? They're not investing in stuff and getting hurried along to save their spot. Yeah, they're not doing that. They're gonna take their time, they will pass on that hard.

SPEAKER_04:

Now, this could be a little foreshadowing. Brooke may show up from Switzerland guy and be like, Dad, I met this guy in Portugal and we're getting married. You know, it's like from father of the bride, and she's gonna be sitting in a crowd because it they they could have eloped. This could be what's happening. She's bringing them home, right? Yeah, we were in love, we were in such a hurry. I don't know. Now I have already met him, actually. Okay, already been here. Oh, see, now that's not a good sign because then she goes, go, Dan, you met him.

SPEAKER_03:

Yeah. Uh no. You don't think they eloped? No, definitely not. Portugal is pretty romantic. That's not my oldest daughter. That is not right. No, in all seriousness, okay. That was not her. Um she knows. She knows. Not to elope. No, she knows. Don't be rushed. Oh, don't be in a hurry. That's true. Yeah. She's gonna check with her professionals.

SPEAKER_04:

Her advisors. Oh, you I love your optimism. You know, don't ever lose it. That's from Night and Day, Tom Cruise. Okay, now um okay, number eight. We got three more. These will go quick. So then we're gonna get your questions. Yeah, I hope you have some questions. Or like, I am not gonna ask them anything. They're yeah, you know, we can let's talk about Brooke. Bring up any question about Brooke. Don't worry about that. Okay, number eight, engage a lawyer to look out for your interests. So I know that hiring a lawyer can sometimes be uh expensive, but here's the one tip I will give on this. I think most of us know that we need to get a second opinion, but I have two tips. This is a good one. I gave this at PACE's I gave this at PACE's class um this morning while you were all here. I was over at PACE's workshop. And one of the things many of you know, if you follow Matt and I is we love to talk about building your family board, your family board meeting. And all of you should be committed to having a board meeting between now and Christmas. And it could be on a Thursday in November when you're having Thanksgiving dinner. I don't care. But uh have a you should be establishing a family board for great tax planning purposes and better asset protection. Run your deals by your your board. You you should have your own family office, your own family board. Let your family round table a deal. Say, hey, I'm thinking of doing this deal. You know, I'm I saw Carlton Dennis talk about the one 181 uh filmmaking deduction, and we're gonna maybe do that. What do you guys think? Really? You know, get the family involved, use your board, it can be affordable, it can be a learning experience. Um, the second tip I was gonna give is give your lawyer a budget. Say, I I'll give you an hour's time, beat this up, tell me what you think, look over it. I can't afford you to like go deep on this. Just here's a small budget, here it is. Tell me what you think in this amount of time. So I don't know, just a couple of tips because you need someone to look over your shoulder. Investing can be so emotional, we can get excited, la la la.

SPEAKER_03:

So, yeah, and I think just having someone to have a conversation with about that, and that's why I love like some of these conversations.

SPEAKER_04:

When you start to describe it, you're like, Yes, yeah, but never mind.

SPEAKER_03:

Yeah, and you start like, yeah, like so, like just hopefully you've met somebody here that you maybe connected with, and you're like, Oh, that that person seems like a good investor or someone that I could talk to or have conversations. I love the stuff that they're up to. Is when you start talking it through and you have one or two challenging questions, you realize pretty quickly that that's a dumb investment. Right, it's not such a great deal as you thought. When you start to explain it to someone else, you're like you're having to articulate and sell it rather than being sold. Yeah, you know, it starts shifting a little bit. Um, and so you find out how well you know the deal. Yeah. And how to understand it. Yeah, and I think this is why a lot of people get successful in investing in certain assets. You know, I think for you know, we had the financial advisors up here earlier, and you really like maintain your wealth by diversifying it, but you really grow and build wealth, at least in a significant way, by concentrating on something. If you look at like the Forbes 400 list, right, the most wealthiest people in America, they didn't go do a hundred different things that got them wealthy. They were like one thing that they did. Look how many of them are like private equity owners, or how many of them that were like oil and gas, or they were a real estate person. They weren't all of those things. And now crypto is another category you're you see on the Forbes 400 list, right? They weren't doing all everything. They were one thing which concentrated into that category. They became very good at it, they built a network in there, they got deal flow, but also they had people to talk to about deals. Is this a good deal? Is this a bad deal? What do you think is gonna happen with this? What's the next thing? And they get really good in that little space, which helps them diligent stuff because their own understanding of it, they can get expertise in it, they build the network, and also they have the people to talk through deals with to know what's good and what's bad. Also get reference checks.

SPEAKER_04:

Okay, no, I like the way you said it at first. You said wealthy people diversify for something, and then you said, but they get wealthy by concentrating.

SPEAKER_03:

Manage wealth once you already have it, and you go diversify it so you don't lose it. Okay, you diversify so you don't lose it, but you build wealth by concentrating on a specific thing.

SPEAKER_04:

Divert protect it by diversifying, you build it by concentrating. Okay, that's good. Julie, let's put that on a social media post. Mark Culler thought of it. Thank you. Like that. Let's use that. Maria, do it before Natalie. So, Natalie, I I was the one that really constructed extracted out of it.

SPEAKER_03:

That is not to be used without the express written consent of Matthew Insworth Enterprises.

SPEAKER_04:

Oh, no, I don't agree with that. Yeah, all right. Okay, number nine. There are we out on this.

SPEAKER_03:

Okay, that was seek the opinion of a friend or something. Okay, okay, cool. Number 10. Number 10. Ooh, I love this one. Get comfortable saying no. Um, I think particularly this is a lesson for new investors.

SPEAKER_04:

Yeah, and dads. You talk about your daughters about this, yeah. Get comfortable. See, we both three both of us had three daughters. And I got two stepdaughters now, too. I'm just in it. Oh, I know.

SPEAKER_03:

I've got bonus daughters too. Yeah, so we got some, you know. We got things to do. Yeah, we got a lot of, you know, we all have experience here. But seriously, okay, get comfortable saying no. And I think for anybody new and investing, that's a hard lesson to learn. You start doing a little bit of work, you're spending a lot of time, you're making a relationship, you're getting excited. And then there's stuff you're like, oh, I'm not so sure about this. And you have a hard time saying no. I thought it was great on the panel. One of the questions that came from you guys to Ryan, which was right, he said he might look at what did he say, a thousand 2,000 deals, and they'll only close on 20 to 25. They'll submit offers on 125. That pretty much means he says no, way more than he. Did I say something wrong?

SPEAKER_04:

No, I'm just I'm already laughing at my own joke. Keep going.

SPEAKER_03:

I've got a good one. Okay. Sorry. Okay. What then get all serious? Okay, this was investing. Okay, we're trying to teach that. All right. Okay. This is a sex ed. I know where you're going, probably. No, no. All right. All right. Are you gonna like go into the code? No, now you're throwing me off.

SPEAKER_04:

Okay. See, now you're trying to preemptively ruin. Okay, no, I was you remember Ryan Hamilton, the the Idaho comedian. He was so funny, he's got a special on Netflix. It is so funny. And um, he talks about how he came from Idaho and moved to New York, and it was like this whole new world. And he was like, I'd never been offered drugs before. And I beg, and he goes, Someone, I was walking across the street, and this guy came up and offered me drugs. And I was like, I I grew up in Idaho where I felt bad saying no. He's like, I almost said yes because I didn't want to let him down. I don't I don't want to say no to this drug dealer. It's like, well, no, I guess I you know it was like a whole new thing for me. You know, but it's funny because there's so many parallels when you start to have money and people start bringing you deals, you're like, oh, people, yeah, I don't want to, I don't want to say no to them. They worked so hard on that presentation, you know. I don't want to let them down. I better invest something. Yes. No, no, no. You know, you gotta be a shark. You gotta be a shark. Okay. There's sheep, there's lions. You want to be a lion. Okay. Or shark. What's the opposite of shark? You be a minnow, you'd be a shark.

SPEAKER_03:

I'm thinking shark tank. Oh, okay. Hey, come on. Shark tank, right? Everybody's bringing the deals, and you gotta cut it and be like, ah, you suck. Like, you know, and you gotta say, no, I'm not doing that deal.

SPEAKER_04:

So that's well now that we've probably Probably blown any faith in anyone's desire to have an answer from us on anything of any relevance in life. I don't know. Is there anyone left that has a question? Yeah, is there anyone left? We may one person. We got one. She's like, when is the conference over? It is in uh four minutes of the question. First of all, do you validate? Yes, we have to do the back. Hardly.

SPEAKER_00:

That's not what I was gonna ask. First of all, I want to thank you. This has been an amazing conference.

SPEAKER_03:

Thank you.

SPEAKER_00:

And you guys did a great job. Oh, thank you.

SPEAKER_03:

Dinner.

SPEAKER_00:

Your client appreciation dinner last night was awesome. The food was great. The panel was awesome. So good job.

SPEAKER_04:

Thank you. Thanks to everybody participating.

SPEAKER_00:

Yeah. My question today is I was an early adapter into cryptocurrency in 2018, and I have um quite a few um holdings in that. And I was wondering if you could talk a little bit about the crut and how that might benefit myself in getting out with the least amount of taxes. I I'd rather get I'm I have a foundation, I have a 501c3 that I will donate my own personal one for single moms. And I want to donate that money to the crud at the end, but like how much comes every, you know, because that's my main account. So how much comes to me every year and that kind of thing, if you could talk a little bit about that.

SPEAKER_04:

Well, I'd love it. She she brought this up last night, and I was like, you got to talk to Max. And she's like, No, you know, I want to talk to you guys. I appreciate it. Because we taught Max everything he knows. So I appreciate that. Max Merritt's our attorney in our office that specializes in crutts. So thank you. Okay, so if you heard this, may I reframe just for a bit? And then we'll both. So she bought a lot of crypto when she was younger, and it's appreciated a lot. And she's like, Yeah, I'm gonna donate some to charity, but I'd like to create some cash flow for me, not pay tax out the wazoo. I've heard about this crut that stands for charitable remainder unit trust. There's actually about 30 variations of charitable trusts, but I love the crut. I think the crut is where it at. So I'll give my two or three reasons why I like it, and then maybe you and so what it is is basically you'd form a trust, donate your dollar amount of appreciated crypto. You know, it started with real estate, that's where the crutz really got popular, but you would donate this crypto that you have not sold yet to a wallet established by the crut that's gonna have its own tax ID number, and then you transfer that crypto into that wallet, and that's when you then sell the crypto into USD, let's say at that point, and so there's no tax because a charity sold it, not you. So we're about three steps in now, and so now there's this million dollars, ten million dollars, whatever sitting in this wallet by the crut. Now, how the crut works is based on your age and gender. The IRS has these massive tables that will calculate how much can you have percentage-wise of the value of that crut every quarter for the rest of your life to equal a 10% residual value that will then go to charity when you're gone. So for 20 years or your life expectancy, what is the future value back to present value? Your ability to have uh, what would that dollar, that percentage be? So let's say it's a 10% payout. So you'd get$100,000 a year off that million dollars,$25,000 a quarter for the rest of your life on this present value table. Now, here's why I love the crut. Okay, that's the basics. What's cool about the crut is you get to be the trustee and you can keep investing it tax-free. So it kind of turns into a Roth IRA. Yeah, it's kind of like that, except when you get those distributed. I'd say it turns into a traditional IRA because you get to invest it tax-free. So you can go out and buy more crypto, buy anything passive, real estate, syndications, whatever. And then as it grows, it's revalued every year. So the percentage doesn't change. Let's say it's 10%, but it could double in value. Now you get 200 grand that next year, and then blah, blah, blah, blah, blah, blah. So you get to invest it like a traditional IRA and it keeps growing and you get distributions. So I love the crut for a way to spread out any tax, avoid tax on the capital gain. Yada yada.

SPEAKER_03:

So yeah, and keep in mind if that was a million dollars, you could have a million dollar charitable deduction right now on your tax return, right? Which is gonna help you.

SPEAKER_04:

It's a present value deduction of the million-dollar gift. So it'd be probably about a 10 to 15% deduction on the gift. Okay.

SPEAKER_03:

Yep. But a charitable deduction. Yep. And this is now outside of your estate. So if you're, you know, if you're over 15 million, you know, you're gonna have an estate tax issue, but this is now outside of your estate, and all the growth of this, which you want to use to benefit a charity, you already have a charitable purpose in mind that you're already allocating money to. So you're like a perfect candidate, frankly, for this. Because where some people get hung up, I'll be honest, is that a charity is gonna get this at the end of the day. It's not gonna go down to my family, you know. And so you have to, but if you have a charitable intent, anyways, this is a perfect strategy to allocate, put some crypto over to it.

SPEAKER_04:

I and if you're healthy, you could use some of that cash flow to fund uh a life insurance policy and uh fund it um with one, two, three, single pay, whatever, and then your family gets that tax-free. So you carve out some life insurance for the family, you carve out the charity, you get cash flow. It's asset protected. Yeah. So anyway, we could talk more about it. But one follow up, yeah.

SPEAKER_00:

Yeah, how how fast can you in your office put one of those together?

SPEAKER_04:

Two weeks, week, Max. You meet with Max a week, a week and a half. We have an expedite fee. Yeah.

SPEAKER_00:

And that's paid to you tonight before I leave, right? Yeah, yeah. Thank you. Thank you for the mic.

SPEAKER_03:

Okay, thank you. Great question. You know what I'll say? That was a great question. Yeah. Um, on that. Remember the first one we did, one of the first ones, at least I got involved in, was water rights. Isn't this crazy how things have just gone over time? The first one is like some family in Nevada selling water rights of all things. Anyways, now it's crypto.

SPEAKER_04:

I didn't want the cement company, it was the first one I ever did. Okay, Sarah.

SPEAKER_02:

Okay, this is a Main Street business question and directed IRA. And I want to thank Matt for like two years of guiding me through baby steps. And I can't wait till someday I have hundreds of millions of dollars that I have to write off stuff. But we're not there yet. Well, so just sold a business. I just sold a business, and so I have 85k for that that paid into another business that I still have going. All I have right now is a self-directed Roth IRA. So my accountant said, don't do the SEP because I have to pay all those payroll taxes and all that. So, what should I do? Four uh 401k with my business to maybe do 50,000. I don't know.

SPEAKER_03:

Okay, so frame the question. First, yeah. First thing is solo 401k. Well, hold on, reframe the question.

SPEAKER_04:

So she just sold a business, or you have income this year.

SPEAKER_03:

Yeah, yeah. So I'm gonna I'll get there. Okay. Let me start. I'm gonna start. So you're gonna answer it first. I'm gonna start with the, you know, I'm I'm not burying the lead. I'm just gonna hit the punchline and then we're gonna tell the story. And you unpack it. Okay. Okay. All right. Fair enough. I just wanted to know where you're at. Okay. I would start with a solo 401k because you don't have employees, do you? No. No W 2 employees. Okay. All right. So the SEP, remember the SEP, you know, because you have an S corporation.

SPEAKER_01:

Yes.

SPEAKER_03:

Right? Okay. In the SEP, let's say you take a W 2 of 50 grand out of your S Corporation. Okay. Um, in a SEPI or SEPIRA, you can put 25% of that in.$25 of$50,000 is$12,500. In a solo$0.1K, you take a$50,000 W2 because you want to, you might take a low W2, pay the rest out in dividends, right? No self-employment tax on a$50,000 W2 from your S Corp, you can put in$23,500 plus$5 of the$50,000 plus the$12,500. So now we're at$37,500. You could put in a solo K. They could all be Roth dollars on a$50,000 W2.

SPEAKER_04:

Plus your normal Roth of seven. So now you're up to$44,500. Oh, when you're okay, but I wanted to understand. You have a business now. I thought you just sold your business. She has multiple, she's a serial entrepreneur. Oh, okay.

SPEAKER_02:

Sold Arizona Goat Yoga, and I still have a desert paddle board. You're the goat yoga girl.

SPEAKER_03:

Okay. Yeah. So it's my business. No, so you had Jersey Shore casting. But on a lot of reality shows. Yeah, yeah. But they like came and did goat yoga with you. Yeah, America's got a lot of people.

SPEAKER_02:

Yeah, Matt said, we don't do well on any of them, but we did a lot of stuff.

SPEAKER_04:

Yeah. So now okay. All right. So you sold the goat yoga business, but you have another business. Yes. And no other employees in any other business.

SPEAKER_02:

No, set it up like an S-corp, like Matt told me, pay myself a little bit, real estate professional for the Airstream. He's helped me with all the things.

SPEAKER_04:

All right. See, I was just trying to unpack the facts. And so then, so you're looking to put as much money in your Roth this year before the end of the year. Yes. With this other business after you sold the goat yoga. Yes. Did you do really yoga with the goat? Like the goat is there with you?

SPEAKER_02:

Like you're like, hi, especially trained goats that do yoga with you. I have every joke you can think of. I've also got 10 years of goat yoga.

SPEAKER_04:

So fascinating. Okay. So yes, I would I love Matt's answer. For anybody with a small business making some money. Oh, I just want to give you some kudos. I was, you know, it's I was on pins and needles. I didn't know where he was going to go with that. So yes, I think that's awesome. I would agree to completely stay away from the SEP, solo 401k, plus your so you're stacking. I like to say that you're stacking. And so level one is seven grand Roth IRA. Then you do your Roth contribution 23.5, then you do a 25% match. And then if you really want to get crazy, you could take even more income. Uh is what's called an after-tax contribution in your and that would be opening another account, right?

SPEAKER_02:

Opening a 401k.

SPEAKER_04:

No, it'd be in the same 401k, but you can add more to it by increasing the W-2, but not as bad as but it's not as um detrimental as a SEP. And so you could get up to a total of 770 plus the seven Roth, 77,000.

SPEAKER_03:

77,000. Okay, awesome.

SPEAKER_04:

Yeah.

SPEAKER_03:

So you'd go that would be the mega backdoor Roth. So that's what I was talking about on the ideal order of investing. Go through the steps, and that's when you do the mega backdoor Roth. But if you know, if you're at 40 and you're like, no, that's what I have this year. I want to drop in for Roth dollars, cool, stop there. If you're like, no, I've got more, I want to dump in Roth, then you go to the mega backdoor, but you've got to add in more payroll.

SPEAKER_02:

Right. And that's what my accountant didn't like. Yeah, you can't use it. Okay, now this is super important.

SPEAKER_04:

It's super important. See, there's a there's a sweet spot where if you you you're aware of how much payroll you take, I can get the maximum 401k with the least amount of payroll. Okay, so that's baseline. I want to do that. But then you go, but I've got some deals. Like last night, they were those guys were talking about I wanted to get as much in my Roth as fast as I could, and they've got some deals that justify that. You may say, okay, I'll take 25 grand more in payroll so I can put 25 more grand in my Roth. Okay. And so even though you pick up FICA of 15% on 25 grand, you're like, Yeah, I'm okay picking up that three or four grand in FICA because I want to get that Roth supercharged and snowball it. So that'd be why you cool. Okay.

SPEAKER_03:

Thank you. Thank you.

unknown:

Okay. All right.

SPEAKER_03:

This is gonna be our last question. Last question, okay. Oh, thank you. Yes, last question. Make it good. No pressure. No pressure, yeah.

SPEAKER_01:

But thank you for whatever you have done here. We have really, really enjoyed it. I think to build up on the solo K question again. So I own and manage short-term rentals, no employees, but at the same time, it's on Schedule E. And I feel as far as I recall, you had mentioned at some point that if you're in that side, right side of the traffic, you probably cannot do solo K unless you go to the left side, maybe give a management fee, and then scout it out that way. Is that accurate?

SPEAKER_04:

I'll let Matt explain it, but we do call it the side door 401k. So we have the backdoor Roth and the Side Door 401k. I named that. Okay, go ahead and explain it.

SPEAKER_03:

Did I come up with that one? I came up with that one. Okay. I'll give you all the tape back. I'll give you clean trifecta.

SPEAKER_04:

I'll give you that.

SPEAKER_03:

Okay, I think I got trifecta too, actually.

SPEAKER_04:

But okay. All right, so side door 401k. So we got the matrix, right side is passive real estate, left side, nothing going on. Can't do a solo. Are you married? Single?

SPEAKER_03:

Married. She has a W2. W2? Okay. Alrighty. So yeah, the only option would be side door solo 401k. How many, how many short-term rentals do you got?

SPEAKER_01:

I man own six, but manage nine. Woo! You're already managing other people's. Uh it's uh arbitrage. Three of them are arbitrage, six of them are orange. Three of them are what? Arbitrage. So arbitrage. Yeah. Okay.

SPEAKER_04:

All right. So, but they're yours. But then you are managing some for some other people?

SPEAKER_01:

So, yes, I'm paying them long-term rent and then managing it as a basically leasing the property. Leasing the property.

SPEAKER_03:

And then he Airbnb's anybody else.

SPEAKER_04:

So you're not managing for another person. You're just arbitrary. Okay, so anyway, you got all that's good. So you have some good income. Perfect candidate.

SPEAKER_03:

Yeah. I so we you would need to do the side door solo 401k. So you need a management company. So basically, we're going to take some of the income that you're receiving from the Airbnb business and you're going to pay your other company a management fee. Which we would never want to do. Yeah, don't do this.

SPEAKER_04:

We never want to do that for solo. Some crazy company might say set up a C corporation or some stupid idea.

SPEAKER_03:

But you set up the sister LLC, that company, the management company, will adopt the solo 401k. You're going to have to take some salary out of that or take just some earned income if this is a schedule C, you know. There's we can get into how you want to do that, how much you want to put in the solo K. But this is on the left side, right? This is hitting Schedule C now, or maybe you're doing an S corporation, depending on how much we're talking here. And but that is you're only paying what you want to pay over there that's going to go into the solo K. And you're really trying to zero that return out. Okay.

SPEAKER_04:

And this is a credit, if I may ask, this would be the question: how much can you afford to put into a Roth solo 401k this year and want to? And then we work backwards.

SPEAKER_01:

As long as we can zero it out, yes. How much do you think that would be though? We can put we can maximize the if you wanted.

SPEAKER_04:

Okay, so you've got over$70,000 of annual income from managing the short-term rentals, and you don't need it for living cost of living. You're like, I can throw down, I can do it. No write-off for it. I want to throw it all in a solo. That's correct.

SPEAKER_01:

So I'm trying to maximize my Roth so that I can do more deals in it. Okay.

SPEAKER_04:

And you're doing a Roth IRA as well.

SPEAKER_01:

Yeah.

SPEAKER_04:

So your payroll, I think we've figured it out, it'll be around 73,000 of FICA wages. And we've got a little spreadsheet that's backed right into that number. And you want to claim that on your fourth quarter payroll in your new management company. So you got two and a half months to pull this off. So new LLC, new EIN, new solo 401k. Got them running 941 FICA payroll. Well, back into the exact amount that gets you to the solo 401k. The Roth IRA, that's easy. You don't take wages for the Roth IRA. It's only for the solo 401k.

SPEAKER_03:

Yeah. And what I'd say is right now a good thing. We have a special right now on the solo 401k, actually. So you want to talk to one of the lawyers about this. So you know, we do them at you. No, he he did say to plan.

SPEAKER_04:

He has a used car out and back.

SPEAKER_03:

I'm just trying to help. Trying to help. You know, I want to, I don't want people to go online and jack this up or you know, I want to help you a reliable place. Okay. So, but seriously, why would we believe in the companies we're doing? All right, here's my uh plan B. Okay. Oh, plan B. Oh.

SPEAKER_04:

Tony Robbins says never have a plan B, but you got a plan B. I'm given options. Okay. All right, you know. We're not burning the boats. Okay.

SPEAKER_03:

Right. Ships. Plan B. Okay, because you said you had a spouse that has a W-2 job, you may want to do a mega backdoor Roth in her 401k. I don't know what she's contributing there. She might be able to do after-tax contributions on her 401k and that mega backdoor. Let's say she's putting in 20 a year right now, okay, in her 401k. This is what she's putting in the company's matching. She's got another 50K she could potentially put in as an after-tax contribution in that 401k that could roll out to a Roth IRA immediately. So I might look there for her. That would be Roth IRA dollars, but I look at maybe doing a mega back. She has to have like a what do you think about that?

SPEAKER_04:

Well, I actually might learn something here. This is good. Doesn't does uh her 401k at work, what if does she have to be vested in it? Do after tax contributions can roll right out?

SPEAKER_03:

Yes, no matter what 401k. They're employee contributions. So, and after tax dollars can roll out immediately, regardless of whether you're you still work there or your retirement plan age or not.

SPEAKER_04:

She roll it out before she converts to Roth or convert to Roth inside the 401k, then roll.

SPEAKER_03:

Nope, nope. What you'll just make an after-tax, this is good on the mega back door Roth, just make an after-tax contribution. So those are after tax dollars in your 401k, and you just roll out after tax dollars. When a Roth you can receive after tax dollars immediately into a Roth IRA, no need to convert it. It's immediately Roth IRA. So convert in the Roth in the 401k first. No need to convert. You don't need to.

SPEAKER_04:

Oh, right. That's what you're saying.

SPEAKER_03:

If if you so sometimes we do the mega backdoor Roth, particularly for solo Ks, and we will we will convert after tax dollars to Roth dollars in the plan in the solo 401k. You actually have to do that. But in the when you're rolling out, if she does an after-tax contribution and her you know day job 401k, that is received immediately in by a Roth Iowa. You don't need to convert it. She didn't take a deduction. I learned that was good.

SPEAKER_04:

Okay, now I have plan C. Oh, I'll take that and raise you plan C. Do both. Have her do the 50 at work and you do the 77 at home. Boom. Now you got 120 in Roth. Self-directable. 45 days from now.

SPEAKER_01:

Love it.

SPEAKER_04:

I just broke my screen. Yeah, thank you. Okay. Okay. Well, woo! I brought us in. That's how the podcast worked. You take us. All right, everybody. Thank you, everybody.

SPEAKER_03:

We appreciate you being here at the All Task Set Summit. We are going to be over at the networking. So please, if you didn't meet some people, get over there, be social. We'd love to see you over there. Got some drinks over there. Some drinks, some apps. We'll see you guys at the VIP dinner for you VIPs over here at Flemings. We really appreciate you guys being here making the trip. Thank you so much. Thank you so much so much. Woo!

Head Shot

Mark J. Kohler

Host