WS1859 How to Pursue Financial Freedom | Highlights David McIlwaine

In this highlight episode, we feature David McIlwaine, a distinguished real estate professional and high-performance sales expert. Join us for a riveting conversation as David shares his incredible journey, navigating through job loss to carve out a flourishing career in real estate. Gain exclusive insights into the world of high-pressure sales, where David's experiences offer a unique perspective on turning adversity into opportunity, even in the face of meeting targets.

Our spotlight then shifts to  tax strategies and their profound impact on wealth building. David unveils his transition from a W2 position to self-employment, unveiling the secrets behind building a successful real estate business. Learn the strategic importance of collaborating with professionals such as accountants, financial planners, and trust attorneys to craft an infallible plan. David's expertise in utilizing a solo 401k and self-directed IRA for real estate investment is a game-changer, inspiring you to take immediate action in shaping your retirement plan.

The episode concludes with a deep dive into financial literacy and the art of asking the right questions in investment evaluation. Explore the current landscape of the residential real estate market and discover opportunities in acquiring distressed assets. David empowers you to break free from the 'golden handcuffs' by unveiling a personalized financial plan aligned with your unique goals and values. Embrace a growth mindset, take calculated risks, and actively seek opportunities for real estate wealth growth. Don't miss this opportunity to glean valuable insights from David's experiences and embark on your journey to real estate success.


Ready to dive into the wealth-building wisdom shared by David? Click the links below to tune in to the full episodes now! Hit play, absorb the knowledge, and take the first step towards building your real estate wealth.

https://lifebridgecapital.com/2023/02/13/ws1576-creating-passive-income-to-secure-your-future-david-mcilwaine/

https://lifebridgecapital.com/2023/07/21/ws1734-ask-the-right-questions-to-make-better-decisions-david-mcilwaine/

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Transcript

00:02 - Whitney Sewell (Host)
This is your daily real estate syndication show. I'm your host, Whitney Sewell. Today. We've packed a number of shows together to give you some highlights. I know you're gonna enjoy the show. Thank you for being with us today, David. Welcome to the show. Honored to have you on because I know many of our listeners are going to relate to your story today and going to learn a lot. Tell us a little bit about that story and we'll let us dive in about who you are. 

00:31 - David McIlwaine  (Guest)
Well. Thanks, Whitney, great to be here. I'm a recovering Fortune 500 sales executive who got into the real estate world. I had golden handcuffs and I used them to parlay that into successful career in real estate. Short answer is I was laid off twice in 18 months after having hit deliverables and through no faults or performance or reality, and I've come to realize that I have a story to share with people. It's not a matter of if you lose your job in the high-performance sales world. It's when, and my objective here is to teach people how you can take your golden handcuffs and actually make them golden feathers so you can build net wealth for your family. When it's all said and done, I ended up I'm a general partner in 1000 Doors and I'm based in Denver. 

01:12 - Whitney Sewell (Host)
Awesome. Well, you mentioned it's not a matter of if, but when. If I was in that position, that might make me a little nervous to hear that potentially, I don't know. But speak to that person a little bit it's thinking about hey, maybe this is me, maybe it's not. Maybe describe that individual a little bit that you're speaking to when you say that. 

01:30 - David McIlwaine  (Guest)
Yeah, and that individual is who I was. I was seat 1D on the airplane. I like it on the aisle on the right-hand side because I'm left-handed, so that way I can right and not hit anybody, and I crossed my legs that way, so that was my chair. We're the guys that get up on a Monday morning at 6 am, we go to the office for five, seven hours, catch a 3 pm flight, we come back Thursday night at 5 pm and we hit one, two, maybe three cities. We've got teams that we work with. We have pressure to hit SOX compliance issues. We have pressure to hit quotas. Now, with technology the way it is, we have pressure to put everything we do on a CRM that allows us and our management teams to have to maximize performance through dashboards. And the reality is that we make great money because we're under great stress and we get paid to survive that stress. However, the world is such that corporate America looks out for itself and they never look out for you, the top performing employee. 

02:23
I literally made budget for the ninth consecutive quarter in a row the day before the quarter started and I got laid off the next day, and then everybody else at my level got laid off that same day because of a merger and the new company decided that they didn't need the executives that were doing what we were doing. So I've been there, I've done startups with tech companies came in one day, got a Series B funding round secure and I actually met with a VC guy yesterday and was telling the story and he totally understood it. And I came in and I said to my CEO okay, we got a business plan to hire 35 sales executives, let's go. And she said I paid off all my debt. I said what debt? The next week I was laid off because I had reversed five quarters of negative revenue decline. However, we couldn't get the needle fast enough to keep the doors open. 

03:12
And if you're in the startup world, this is a very familiar story. If you look at Amazon or you look at Twitter or you look at anybody in the news. Right now we're recording this the first quarter of 23 and layoffs are prevalent. It's the same thing that happened in 2000. Same thing that happened in 92. Same thing that happened in 2008. We go through cycles and if you're a high performing sales guy, you're gonna lose your job just a matter of when, and if you don't, you are a unicorn. I can't tell you the number of friends I've had that have gone through this and unfortunately, none of us have horns on our heads, so we're not really unicorns. We have golden handcuffs and we hate them. 

03:46 - Whitney Sewell (Host)
I have seen numerous ads where, at Google, Facebook, I mean just tens of thousands of layoffs as we speak. I would mention that Lycbridge is hiring though, which maybe that seems all, but we are for a few positions. Maybe I'll reach out to Google, but anyway, no doubt, David, I mean it's like with the W2, and it was a even I wasn't a high paid sales guy by any means. However, even when I had a W2, it was just something I knew that I couldn't see myself doing forever. But everybody in my family and sphere of influence at the time did see that as this quote secure position, right, and you had benefits, and it was the golden handcuffs like you're talking about. It was like oh man, what are you doing? You can't quit that. It's so good, right, but man, it was exactly what you're talking about. But I would love for us to dive in to help those individuals like to be prepared, right, when this happens. Right, Like you say. How can you help them to be prepared for that? 

04:42 - David McIlwaine  (Guest)
Well, the first thing you got to do is you got to make a plan and you got to look at your taxes. There's an old adage that it's not what you make, it's what you keep. I remember during the first Gulf War, I was literally looking at my tax burden and I was buying a missile every year for the US government and I remember I was at my grandfather's funeral, actually in Virginia, as it were, and we were laughing about this and that's when I really got paid attention to the tax structures. And one of the beauty effects of real estate, if you make a plan, is that you can create tax strategies to defer tax, to reduce your W2 tax burden, to actually lower your effective tax rate. One of the things as a W2 employee is that you don't have a whole lot of deductions and with the tax act changing in 07, we really changed it out. 

05:27
But one of the things that I did was I opened a side hustle company, which wasn't called a side hustle back then, but it allowed me to create a different stream for some revenue. Was it legitimate? Absolutely. Did I have a legitimate offering? Absolutely. Did it affect my W2, affect the tax rate? They dropped it by about nine points, which might not sound like much, but if it's $100,000, that's $9,000. And if it's $500,000, 9 times 5 is $45,000. That's a new Mercedes at that point. 

05:57 - Whitney Sewell (Host)
If somebody doesn't think that that's much, just call me. I'll be glad to take that off your hands. 

06:03 - David McIlwaine  (Guest)
Yeah, you can write a check. It's David M-C-I-L right. 

06:06
No problem, yeah. And so first is build a plan. Second, you have to look at your retirement structures. One of the things that used to drive me crazy was when I worked for as in the advertising business. So I worked for a division of Viacom and they had a very poor 401k match, and as a highly compensated employee I couldn't contribute to Roth's. I couldn't contribute more than the 2% average above the company norm. So I think I was capped at 7% contribution levels, and so I had to go find other alternatives, and the rules have changed since then, and now you can do things with Roth's that are bigger. 

06:42
You can do things with self-directed IRAs it really were not germane at that point in time and if you don't have a self-directed IRA and you have all of your money in your company 401k plan, you're sitting on a block of dynamite. If your general motor's employee in GM goes bankrupt, like they did in 08, what happens If you're an Amazon guy and let's say that Bezos figures out a way to monetize the next magic and Amazon falls in value? If all your eggs are in that W-2 employment basket? You're not diversified, and one of the things that we do with alternative investments in the real estate field is we create some diversification. So putting money in a self-directed IRAs and buying real estate in a self-directed IRA or in a solo 401k if you are eligible to buy one or a self-employed IRA, a SEP is another great way to do this, so that you actually structure things in a way that you have tax deference it's not avoidance, because you're gonna pay the man at some point in time, but the less you have to pay, the better. 

07:43
I don't know I'm kind of talking in a high level, but if you think about it from a how did Mitt Romney run for president? And he had a $100 million IRA? It's one of the questions my father asked me back in. I think he ran in 2012,. I don't remember the exact year, but the reality is that he had a self-directed IRA and he put compensation in there and let it ride. If you put compensation in or if you roll over, when you're changing employers and you roll the money over from your previous 401k to a self-directed IRA, there's no contribution requirement. That says you've got to only put in five grand. You can roll over an entire process when you change employers. If you're not doing that, you're leaving money on the table, or if your 401k is too high, you can roll over a percentage of it. The ultimate question is, for people that are in anywhere above 30 and older, is that we are now the first and second generations that have to provide our own nest egg for retirement. There is no pension. 

08:42 - Whitney Sewell (Host)
There is no safety net, right, yeah, you better be thinking about it, that's for sure, early as possible. 

08:48 - David McIlwaine  (Guest)
Right and, like my dad, was a 28-year vet and so he's got a military retirement, he's got an American Airlines pension and he's got four streams of income. If I don't use my handcuffs to build other income streams, I am living only off my principal, and as a highly effective sales rep, that's like living off of the current client base with no pipeline for new bids. It's a kiss at death and I think it's crucial that people investigate that stuff. 

09:13 - Whitney Sewell (Host)
I wanted to just back up just a little bit, because one of the first things you said was make a plan, and this can seem pretty overwhelming, right, or already pretty scared because we think we're gonna lose our job, or we know we're gonna lose our job, but you know we're talking about IRAs and Roths and self-employed IRA and some of those things. Who could we talk to, like to figure some of this out, or any recommendations on where to educate ourselves a little bit better, on what path or even how to make a plan, because it can seem daunting, like well, I don't even know what I should consider, like I just hear it often, right, so I don't even like who do I even talk to to figure out what my plan should be? 

09:48 - David McIlwaine  (Guest)
So let me walk you through what my experience was and I'm not gonna give any names for anybody specifically, because I think everybody has their own situation. I will tell you. I'm getting ready to launch my own podcast focused on this, called Break your Golden Handcuffs, and I will dive into this in depth. But the basics thing is, I started talking to my accountant, I started talking to my financial planner, I started talking to my trust estate attorney, I started talking to my human resources department and then I started really researching what the options were. My accountant said to me you gotta have some deductions. Go build a company. 

10:21
So I did a side company that immediately allowed me to have a series of deductions for legitimate business expenses that I couldn't maximize because I was at a compensation level where the deductions were capped. But in a business you can have, ordinary expenses aren't capped. They're not capped. It's a one-to-one deferral versus ordinary income. So that's a big part of it. 

10:44
The second thing was that I was able to build a structure where, instead of getting income paid for my business, I got paid dividends. So I talked with my accountant to work through how do you get paid different systems. A dividend is paid once, maybe twice. A constant paycheck is pretty self-explanatory. And the difference in tax rate is one is at normal tax burden and one is at a 15% capital gain structure Big difference, short-term, long-term, depends on the situation. 

11:15
And so you start to think about what can I do? 

11:18
To add to my tax complications, to add to my picture, to make it more complicated in essence, but it actually simplifies it. 

11:26
So if you're a passive investor in a real estate business and they go through cost aggregation and you get a loss of $25,000 a year to use, that devalues over time as you make more income. But there are ways to carry that forward. If you talk with an accountant I'm not a CPA, I just did this by myself because I had to learn it, and what I learned allowed me to have commissions from 2000 still making me money today. Bonuses from 2012 are still making me money today, and the objective when you're working with those people and you're in corporate America is to build yourself not a golden parachute but a safe place to enjoy life. And I think that a plan starts with those three professionals your trust attorney, your accountant and your financial consultant. And then I would spend a lot of time looking at guys like myself or guys like you who make our living helping people build their net worth? Yeah, for sure I don't make any money unless somebody else makes money first. 

12:26 - Whitney Sewell (Host)
That's right. You know it's interesting when we started the business and all that stuff. You know we're having to learn all that ourselves as well, right? But for me too right. I mean as far as IRAs and whatnot, and, you know, leaving a W2 position and thinking about what do I do with this? You know now that I'm self employed, are you about to start a podcast or producing a podcast and tired of doing the editing yourself? 

12:47
We have produced over 1000 daily shows and the production team I've created, called Vox Valens Media, is now available to produce shows for you as well. We can do as little or as much as you need, from finding and communicating with guests preparing introductions to editing the audio and video. You will sound better, have a more professional presence and be able to spend your time doing more valuable tasks in your business. Let me know if you're interested by emailing me directly at Whitney at LifeBridgeCapitalcom and maybe speak to that transitional a little bit and what that looked like for you. But then also, what does this look like as far as you know this IRA? Do we have to do it immediately? You know that transition. Can it sit there for a while? How urgent should they feel about making this happen? 

13:32 - David McIlwaine  (Guest)
Well, I never want to put somebody in a sentence of urgency around their own retirement structures. I have a quote on my wall from Marcus Aurelius that reads no theft of free will reported, so everybody has the choice of how they want to do these things. What I would say is it doesn't take long. I was able to open my solo 401k and myself directed IRA each of them in about 15 minutes. I found a third party bank. I filled out the forms. I then ordered my actually I have Schwab, so I guess they'd be my brokerage to transfer money as an approved transfer from fund A to fund B. There's no difference in the mechanics, except for you can't hold it yourself and you can't personally benefit from it yourself. But if your IRA or your 401k is funded by your earnings, the IRS views those as separate entities. So imagine that I've got I'll just talk to the first person. There's David, then there's David's 401k, then there's David's IRA to the IRS. I'm three different people and when you get that hurdle in your plan you can understand the difference. 

14:40
And as far as my transition goes, I was in corporate America. That second layoff with the tech company. I was in the middle of an divorce and I couldn't travel anymore because I became a single dad of kids that were in middle school and elementary school. So I chose to leave corporate America at that point in time, and I got into real estate because I had built a nest egg from my golden handcuffs and I decided I couldn't live on a plane and be a dad. I could, but I chose what was valuable for me and my family, and I will never regret it. So that's how I got to this world. 

15:13
I didn't want to leave corporate America, just life happened and it put me on a path, and as far as moving the timing on this kind of stuff, I've got a friend who's in the high level insurance guy, and he and I have been talking about it for 18 months. So at some point he'll see the returns from one of our offerings and he'll decide, oh, that really was good. And until that time we keep talking about it, because the reality is that there is no time. That's better for anybody than anything else. There is a hypothesis, though, that you buy real estate and you wait, and so if you can't buy the real estate yet, you can't start waiting. If you're waiting to take action, inherently you're losing something. 

15:50 - Whitney Sewell (Host)
If you wait till you need the funds, you don't have time to wait. 

15:53 - David McIlwaine  (Guest)
Right, and it takes about 45 days to do the whole thing. But it's all said and done, depending on who your provider's like. Some providers are faster, some providers are slower. Some take 90, some take two weeks. So it's like everything else in America. Everybody's got their processes and their systems, but it's not overwhelming. 

16:11 - Whitney Sewell (Host)
And most people don't realize and I'm glad you brought it up that you can't benefit from these funds, right, so you can't do certain things. But I mean, like, you want to go buy a rental property, you could use this for that. However, you can't go work on it, right, or somebody else has to do all the work, or you know it has to be. 

16:25 - David McIlwaine  (Guest)
You're feeling they can't live in it. 

16:27 - Whitney Sewell (Host)
Right, that's right. That would be benefiting right, or your child, or whatever that would be arms length transaction for many of you. 

16:32 - David McIlwaine  (Guest)
Right, yeah, and the thing that's fascinating about these that people don't talk about is if you own it free and clear, for 366 days, there's no boot. So there's no unrelated business income tax or UBIT. So one of the models that I've had people work with is that you go out and you buy a rental property I also own a residential brokerage at Denver. But you buy a rental property, you put it on a 15-year mortgage and you buy in your IRA, so your IRA can actually incur debt. From that debt. You can pay it off in 15 years. You hold it for 16 years. You want it free and clear, no tax, but bid to fit. Your IRA has this thing you can. You bought it for 200. You sell it for 400. You got a $200,000 gain. That's free and clear, 16 years in the making, right. 

17:14 - Whitney Sewell (Host)
Yeah, wow. What if you paid it off like you just paid cash for it and owned it for a year? 

17:19 - David McIlwaine  (Guest)
Well, great More power to you. But if you pay cash for it, you got to have enough money in your IRA to do it. In Denver, the average cost of a rental property is 450. The mean house is 550 in Denver. So most folks don't have half a mill sit in their IRA. 

17:34 - Whitney Sewell (Host)
Yeah, and you wouldn't want to put it in one property if you did. 

17:37 - David McIlwaine  (Guest)
No, you want to diversify, right? That's part of the plan. 

17:40 - Whitney Sewell (Host)
Of course, see any other, like just steps that somebody should know or that maybe you know is going to hold them up when they start this process, or frequently asked question that you know holds everybody up as well. Is there like looking forward to this from this position? 

17:53 - David McIlwaine  (Guest)
How do you provide providers? How do you vet the providers? So from that point of view, it's pretty easy to do that research online. If you have questions, you can always ask me. I'm happy to help you. I use Solo 401k. I use a local bank in Colorado for the self-directed IRA. There are a whole bunch of IRA companies out there that make a lot of sense. 

18:13
And the reason I talk about this is that you can also buy multifamily or commercial syndications inside of IRAs, so you can still do the same thing without having to take on that burden of toilet's tenants and termites, and it's easy to go through that process. So I guess the question is if you really are curious and you need some vendors, send me an email and let's have a dialogue around what you specifically need and I'll point you in the right direction. I don't know if that answers your question or not. 

18:37 - Whitney Sewell (Host)
Yeah, no, that's helpful. That's helpful. I just know when somebody thinks they're going to start this process. There's always like speed bumps, right, that you know kind of knock you off track and then you spend another. You know you forget about it for a bit and then you come back a week later, and so it's helpful for listeners have a place to go to figure out hey, you want to hit that hurdle or whatever it may be. You know I can get some help. 

18:58 - David McIlwaine  (Guest)
One of the things I wanted to interject on that was the big boys Schwab, Fidelity, Merrill Lynch, Chase. Those guys don't want you doing this because intrinsically, you're taking money that's under management outside of their purview, Right. So you're going to have to look at the smaller fellows, the smaller intermediaries, and those are the ones. Like in Denver, we've got a local, local bank called First Bank and they do a ton of self-directed IRA work. I've got another bank I can't remember the name of it right now. It's where I actually bank my stuff and I would sell you if I do. But don't go to Schwab and say, hey, I want this. They do have some of them, but it's harder to get to it. Yeah, and that's important to note. 

19:34 - Whitney Sewell (Host)
David, do you have any predictions for the real estate market over the next six, 12, 18 months that you could share? 

19:40 - David McIlwaine  (Guest)
Yeah, it's going to get ugly. What? 

19:42 - Whitney Sewell (Host)
does that mean? 

19:42 - David McIlwaine  (Guest)
Yeah, I think there's an awful lot of operators that have very risky debt that's going to come do. The Fed changed the interest rates seven times? By what? 400 basis points? I don't remember the exact number, but it's obscene number, right, the highest Fed rate in 40 years. So what that means is, if you had a variable rate mortgage, your costs of skyrocket. And even if you have a rate cap, depending on where your rate cap is and a rate cap obviously is an insurance policy that you buy to protect yourself from that variability you got to get to that strike point to get that rate cap in place. 

20:14
So there's going to be a lot of operators that have been over leveraged because of bank debt and commercial banks are on five year notes, so a lot of this stuff cycles through. So if you bought something three years ago, you're coming to renewal. You might not have the process in place to actually generate a renewal on your new debt and there you're in the forced liquidation. So I see that as a possibility. I see from the residential side a flatlining in certain major metros. I don't think we're going to decrease in some metros, but we'll flatline and our growth, which has been double digit, is going to sink to very low single digits. The consumer, once they get their head around the idea that they got to pay a 5% mortgage, can live with that. But for a whole generation of Americans we've never seen debt that high and they have to get their head around that and housing prices will fluctuate a little bit to get to that stasis. But I see a lot of opportunity to buy distressed assets. 

21:09 - Whitney Sewell (Host)
Wow, what do you mean by taking agency? 

21:13 - David McIlwaine  (Guest)
Well, when people don't think about agency, I don't want to use the word control, because we don't have control over our lives. 

21:20
What we do have is control over our decisions, how we interpret the world around us and what we use to make decisions, what our processes are, what happens in our world, how we react or proactively act in any given situation, and that agency involves things from what you do in the morning when you got out of bed, to what books you read, to what food you eat, to what vacations you choose to do. 

21:49
Everything we do is a decision, and people often forget they have decision making control in their lives, and they give away their agency to their employer, they give away their agency to the financial advisor that they think knows best. And so we talked about secret powers. One of my secret powers really is helping people to know how to ask questions, to learn what it is they need to know. Financial literacy hasn't been taught well, and when I was a highly performing sales executive, I used to get a spare $50,000 a month that I didn't know what to do with, and so I had $50,000 a month I had to figure out what to do with, and I knew after the first couple of months spending it wasn't really. 

22:40
Well, it's a first world problem for sure, right. Right, I'm just kidding, yeah, but the reality is that it was a problem because it kept piling up. I knew my stock guy, I liked him. I didn't know what the hell he was selling me, so I had to start asking questions, and my process is one I want to share with everybody else, which is to ask a question, hear the answer, vet it through your system. Ask the next question. Hear the answer, vet it through your system. Ask another question hear the answer, vet it through your system. 

23:15
And it's like sales. When you go into sales, sales is not selling something. Sales is actually a strategic structure whereby you help a client, not a customer, a client. You help a client achieve a solution that they may not have seen and you marry their need with one of your products. And sales does not go into the car lot and have the guy say well, this is a red car, it doesn't look pretty on you. That's manipulation, and there's a big difference between that. And in the investing world, the financial people come out and they say, well, you need to be diversified. And how many of us know what that really means? That might not be the right solution for you, and when you're an investor in the real estate marketplace, the same applies. Someone looks at oh, I want an IRR of 18. What does that mean for them? What are the accomplishments they're trying to do? 

24:16 - Whitney Sewell (Host)
They've just heard somebody else say that. Most of the time, I think. 

24:19 - David McIlwaine  (Guest)
Yeah, right, they've heard it talked about. And so they want to sound intelligent. Yeah, and they want to sound knowledgeable. I know when I had a spare 50 grand a month, I was scared to ask my broker what the hell do you mean mid cap? What's a mid cap company? What's a small cap company? Why does a small cap always lead a recessionary return? And so they do all these things and they throw it at us and we don't understand it. And my experience is that we don't understand it because we don't know the questions. And I'm working very diligently to create bespoke questioning that matters, and so we can create financial literacy for ourselves. 

25:06
I had a client recently who had $80,000 in his pocket. I can put him into a syndication. I can help him buy the rental he wanted to buy. So we sat down and we talked for two hours. Turns out, he was putting an extra $2,000 a month in principle against his primary residence. Does that sound good? I mean, the reality is, if you're a fan of Dave Ramsey, it sounds fabulous because you're retiring your debt, but what you're doing is taking. He had a mortgage at 3%, so his financial literacy was basically his financial illiteracy was killing him. He was paying down debt at 3%, which means that if he could invest at 8% on something with leverage, he was wasting 5% of his compound and growth of his money every month. Fast story, long story faster. We talked about it. We figured out what his problems were, figured out what his goals were as well. Quit paying down all that principle on his house. Took that $80,000, decided it wasn't enough money to buy a solid rental that he wanted to have with the right tenant base he wanted in Denver Metro where he lives. So instead he bought a new primary residence. With that $80,000 and that spare $2,000 a month he'd been paying, he increased his debt, but he also increases asset value. The day he closed, he made $200,000 more in net worth. 

26:39
Now think about that. If you just listen to people and ask questions, it influences everything, and so this client of mine hadn't asked the question. What's the situation for me? So I challenge all the listeners out there to start asking different questions. And it's not the 20 questions that you have on the website to say here are the 20 questions you must ask a syndicator to know if they're the right guy or not. You know what Every syndicator writes your 20 questions and they're going to write them so that they can answer yes to all of them. But what's more important to you as an investor, those are the things that we have to get to. How do we learn what is the right way to ask a question? So, for example, if I'm going to buy this, yeah, fire away. 

27:25 - Whitney Sewell (Host)
Well, I mean, I want to ask you to, like, help us think through asking those questions you know, so we can gain that financial literacy, you know, for our investors that are listening, no matter what operator or broker, whoever they're speaking to, right, I guess? Help us with some thinking, you know. I love that. You said you know it's not just this list of 20 questions, right, because it can be different, obviously, depending on what operator deal, whatever all these factors that we could take into account, but then it's also going to change depending on the responses maybe that you get as well, right From someone, right? I'm going to do that a little bit, david, to give some practical steps maybe to the listener and myself. 

28:01 - David McIlwaine  (Guest)
So some macro categories, risk tolerance, right. Are you a 30 year old that can have a 30 year horizon, or are you a 60 year old? And what's the risk tolerance? Then also think through what are the trends that you think are going to continue to improve in the marketplace to create value? So if you think housing is a good trend, then you probably shouldn't be looking at self storage if housing is a better trend. 

28:30
So part of this is to create goals. You know there's the risk factors, there's risk tolerance, there's goal setting, there's your investment hypothesis. If you start investing without a hypothesis, then you're just gambling. You know, no scientist is going to start doing an experiment without a hypothesis. And the irony of this is that David talking science is kind of strange, because I'm a fine art, I'm a language arts guy. But think about this If we're going to invest, we need to have a hypothesis. 

29:02
So I passed on cryptocurrency because my hypothesis was that it wasn't needed in first world countries and it was going to be a deregulated area of fraud with crime and fraud in third world countries. I missed a lot of money, but I never worried about my investment and that was okay. I was good in my shoes because of that. But at the same time, when SBF got caught and the house of cards crumbled, I didn't take any risk. So that wasn't in my risk aversion set. So as we think about what it is, we lay out all those core things strategy, timing, risk aversion and then we go dive in deeply. So if I'm gonna be a multifamily investor, I'm gonna ask what do I think the right markets are? Where do I think? Why do I think those markets are right? What's important to me? Because the syndicators often say here's what's important to them, but it might not be the same things as what's important to the investor. And I think the crucial part of this is for the investor to think through what matters to them and why. 

30:13
I have a friend of mine that's an investor and she was investing private equity into a real estate company and we both got the same offering and I turned it down because it was a 400 times valuation of cash flow. And I did the math and I said I'm not gonna give that guy money at a 400 times cash flow valuation, no matter what she's like. Oh, it's a great deal. I trust the guy. So her mechanism was trust. My mechanism was mathematics. Neither is right nor wrong, and I think it's about knowing yourself, and that's a part that people ignore when we dig into. 

30:53
Why do we buy a stock? Warren Buffett says we invest what we know right, and so if we're gonna buy a stock and we don't know anything about hedge funds, is it wise to buy into a hedge fund? Quite, probably not. The difference between investing and gambling is very small, and so my challenge to everybody is to start asking different and deeper questions and, for example, if you're running an Airbnb, I had a guest on my podcast recently and they were talking about one of the questions that they use and I loved it, and the question was do you have a quality control inspector enter every unit, post cleanup from the housekeeping service? I thought that was a great question because it tells you a ton of different things. It tells you a do they have the size to handle detail? Are they detail oriented? Are they looking at the customer experience? If the customer experience is not important to the investor, maybe it doesn't matter, but if the customer experience is important to the investor, it really does matter. 

32:05 - Whitney Sewell (Host)
Yeah, I wanted to go back just a little bit there where you mentioned investors need to know what matters to them and why. Even going back to your you mentioned earlier risk tolerance and thinking about age and the trends you believe and I think often people may come into some money or maybe they even make some money in some way and they don't know to even think through those things that you just laid out. As simple as some of those are, think about their personal risk tolerance before they make that, say, $50,000 investment and whatever they're investing in, but even outside of the asset itself, but even them personally thinking about even they're something as simple as their age or their personal goals for their own finances. 

32:50 - David McIlwaine  (Guest)
I've got a draft written right now of a blog post that I haven't quite finished yet, which is basically going to be what's your risk number and how do you get there? 

32:59
I just we just exited an offering and the cash came into the operating company and then it went through the property manager company to distribute back to our investors. And it took a little bit longer than we thought and I had two investors who were really anxious to get their returns. And it was a really seminal moment for me because it reminded me that I probably shouldn't have had those two investors in the portfolio because they were dependent on that for other expenses. And if you're investing in long-term holds and then you're dependent on that investment for daily living, those goals might not be in alignment with your actions. You know, if you're going to buy an ill liquid investment, but you need liquidity. 

33:47
That's one of those things that people need to think through and often they don't. Let's say, it's your first $50,000 inheritance. You don't want to do with it. You got to start asking questions, you know, and one of the ways I practice this is that I think through what happens if I win a lottery. Do you realize that almost every lottery winner goes broke within two or three years? 

34:06 - Whitney Sewell (Host)
Yeah, it's very unfortunate. 

34:07 - David McIlwaine  (Guest)
Right, and it's a combination of things. Part of it's probably getting scammed, part of it is probably not thinking through what would happen when. And if we can think through, why would I need X? My daughter is a rising junior at Rutgers and she's discussing with me where she's going to go next. So the question becomes what are you going to do? And she goes oh, I might go to grad school, I might go to law school. I said why would you want to be a lawyer? And her answer was because I'd be good at it. And that's a natural thought process, right. But what's the next question after that? What would it light you up? Would it be passionate? Would you enjoy it? Are you fascinated by the law? 

34:50
So, when you're investing, are you proud of your investment? Do you want to share in what that is? So it's not always the math, and I think that's an important part of it. I've passed on a lot of investments in Southern Florida because I was alive during Hurricane Harvey as an adult and I watched Hurricane Harvey dissipate the Miami area, and I know that insurance costs are skyrocketing. So one of the questions I'm going to ask if I'm looking at a property in the Southeast is what's the rate of change of the insurance rates? And that might not be a question that's as applicable in the Pacific Northwest. So I think a lot of this comes down to the geography. Look at it where you go. If you're going to buy in central Virginia, I'm going to ask what the population migrations like in the Roanoke Valley. You know, because it's different than it's going to be in Kansas City, for sure. 

35:46 - Whitney Sewell (Host)
Yeah, no doubt about that. Very different. Yeah Well, I know that's I want to. I want to go back and ask you a couple things, david, because I, you know you talk often about the Golden handcuffs were kind of. You know, we briefly talked a little bit about that. But yeah, and just with a few minutes here, I wanted you to be able to help the listener with thinking through even creating that plan, right to get rid of those golden handcuffs. Right, I want to say, at least briefly talk about that, to get them thinking about that as well. But let's start down that path a little bit, as far as just helping them create that plan and some of that. Even what is what you talked about? You know, thinking through the risk tolerance and the trends and things we've been talking about. But but I wanted you to elaborate there a little bit, yeah. 

36:30 - David McIlwaine  (Guest)
So golden handcuffs really are a place where you're. You're stuck in your employment for one reason or another and you don't want to leave, or you cannot leave for one reason or another. And the first part about breaking those handcuffs and turning them into positive bracelets is deciding that they're going to be bracelets, not handcuffs, and the first part of it is creating a mental mindset shift that says this is a good thing. I'm trapped, sort of, but I'm not completely trapped. And then from there it's starting to lay out a plan and the plan includes what are my goals? How am I going to implement those goals? Who do I need to help me? Find a mentor to go through that process, take action. It's really kind of that simple, but it's far more complex than that and I don't have the book written yet. I'm working on it and the reason I haven't completely written the book is that what I have found and talking to people on my show, is that everybody's created a slightly different plan, and I think that those who are successful have all started with the mindset shift that I can use this to my benefit. 

37:35
When I work on handcuffs, I spent a lot of time figuring out how I could turn it around into an improved lifestyle and other metrics. Yeah, I only had two weeks of vacation, or three weeks of vacation, or by the end I had a month of vacation. So I didn't have complete agency over my time. However, I did have agency over where I could spend my free time, I could raise my children, and then I had agency over my financial life, so that, when the time came, I built a structure that allowed me to say I'm going to transition from career one to career two to career three, and it totally depends on what your vocation is. A pilot's plan is going to be very different than a software engineers plan. 

38:14 - Whitney Sewell (Host)
For sure. 

38:15 - David McIlwaine  (Guest)
Yeah, you know for sure. 

38:17 - Whitney Sewell (Host)
So many things can be broken down what you just said there. It's like the mindset right, Decide their bracelets and not handcuffs, so much starts right there. You know it's your decision, I think, mentally right, but the goals and how to implement them kind of reverse engineering. And then it's such an important piece too you mentioned and I've just seen this personally so many times is finding mentors and people that can help support you right, and I think that's one aspect that are ahead of you. That's that's done so much for me and so many aspects of my life. And once I started to realize that one aspect, I'm like okay, I got to find some of these mentors that are ahead of me in these other places as well, you know, in my life. 

38:54 - David McIlwaine  (Guest)
Yeah, and I've come to that learning probably later in life than I should have. I think that the, the cultural dialogue now is more around mentors, and it was in the 90s when I came, when I started the workforce, and in the 90s the thinking was you get into work, you get a job and you stay on and you'll be okay. The reality is that the average American changes careers five times Careers, not jobs, careers and as we think about that, I think it empowers us to say hey, I've got golden handcuffs today, tomorrow I can turn those into my new business and I have the. I interviewed a person who had lost their job and because they lost their job, they were able to start their new business and from that they lost it. 

39:36
Well, no, but they did have a choice. They could have taken that severance package and gone to the next job. Yeah, you know, and like when I lost my job, I took that I made the decision to go into tech, from advertising into tech, and it was an experiment. It didn't work for me. Okay, keep moving. So you've got to have that mindset that it's an opportunity field, not a limited narrow road in front of us. 

40:06 - Whitney Sewell (Host)
Thank you for being with us again today. I hope that you have learned a lot from the show. Don't forget to like and subscribe. I hope you're telling your friends about the real estate syndication show and how they can also build wealth in real estate. You can also go to livebridgecapitalcom and start investing today.