- Own and loan on the same asset
and make far more money.
In this educational episode,
I'm going to address the question, how can I double dip?
And people are usually saying, "Like you do, Doug,"
on my rental properties.
So get ready,
I hope you'll gain insights into some opportunities
that maybe you did not know existed before.
(upbeat music)
So I'm Doug Andrew
and I've been helping people optimize assets
and minimize taxes now for nearly five decades.
And so I've had the opportunity
to teach thousands of people,
especially real estate investors,
who own a lot of non-owner occupied
rental income properties, duplexes, fourplexes,
even huge multi-apartment complexes
containing 80 units, 200 units, 300 units, okay?
It all applies and it even applies
to commercial property and rentals.
So when people ask me,
"Doug, how do I double dip like you do?"
Well, I'm gonna make this super simple
and share with you that I always want to maintain liquidity,
the ability to access my money
in case of an emergency or maybe vacancies
or the real estate market plummets which it does,
I wanna have safety of my principle
in case my real estate values go down
which they'll do occasionally,
just like the stock market
that goes through the rollercoaster rides.
And I also wanna earn a predictable rate of return
regardless of whether it is rented out,
whether it's vacant or full, okay?
So how do you do that?
I find that a lot of real estate investors well intending,
they buy rental properties
and many of them are doing 1031 exchanges
from former properties and they take all of the proceeds
from the former rental property
and they put it into a huge down payment
comprising 30, 40, 50, 60% or maybe they pay cash.
But in a 1031 exchange, you're wanting to postpone
paying the capital gain tax, okay?
And so you have to buy a property of equal or greater value.
Well, the biggest problem I see
is when you think in a 1031
that you have to take all of your equity
from the former property and put in a new one,
the government's never said that.
You simply have to buy a property of equal or greater value.
And so I have always paid the least amount down.
In fact, to be honest with you,
I've never paid a down payment on any real estate
I've acquired out of my own pocket.
I've satisfied down payments, but not with my own money.
That's another topic.
But I would pay the least amount down
and keep the rest of that money liquid and safe.
Now, you don't wanna leverage where you're taking
and paying 20% down.
If you got a million dollars out of a previous property
and you're buying another million dollar property,
you use 200,000 if it requires 20% down
with whoever you're financing it through.
You don't take the other 800,000
and then leverage and get five properties necessarily
to where you now have 200,000 down
in each of those properties
'cause now you have no liquidity.
If you get into trouble,
there's only one way to get the equity of that property,
that 200,000 you put into five properties
and that's to sell it or borrow on it.
And sometimes when you need it the worst,
it's the hardest to get.
You don't qualify because they loan you money
based on your ability to repay.
And if you lack the cash flow
or the ability to repay, they'll say fat chance.
Or in a soft real estate market,
many times the value of those properties drop at least 20%.
And so you can't sell and get your money back
because you lost it, because you tied it up in the property.
Is this making some sense?
And so I've always kept my real estate equity separated
and as it continues to increase in value or appreciate,
I personally keep refinancing my rental properties
to get that lazy idle equity out in a position of liquidity,
safety, and earning a predictable rate of return.
But I've been able to earn a rate of return
usually of three times the net cost of the mortgage.
And this is how I double dip.
So let me give you an example right now.
Several years ago, I had a client
and he was 70-1/2 years old
and he was being forced to take RMDs,
required minimum distributions out of his IRAs of 401ks.
And he didn't like paying the tax
even though if he took out the small amount
that his advisor told him under the 4% rule,
it wasn't that much.
And I was telling him
you wanna get 150,000 a year out of those IRAs and 401ks,
not that required minimum of 24,000
and get the taxes over and done with,
but I could offset 100% of 50 grand of tax every year
on those $150,000 distributions out of your IRAs or 401ks.
He didn't need the money, but I said get it out
and get the taxes over and done with,
but I can offset the tax on those in your situation.
Why?
'Cause he owned several rental properties,
duplexes and fourplexes,
and he was doing what a lot of real estate investors do.
They get this positive cashflow, they're frugal,
they don't need that much to live on.
And so they take all the positive cashflow
and they send huge principle payments
against the mortgages
to hurry and get the rental property free and clear,
thinking that's the way to go,
but no liquidity if they really need it
because every time they're sending it to that mortgage,
it's like, here, Mr. Mortgage Bankers,
an extra 1,000 bucks on this mortgage.
Don't pay me any interest on that.
And if I need that money back,
I'll borrow it back on your terms
if there's a need that I should have it.
And again, then they have this rude awakening
when they need it the worst, it's the hardest to get.
So we went out and refinanced several of his properties
and he could take out with his credit million dollar loans
on so many properties.
So I'll just use this as an example.
Every property that he refinanced
with a million dollars of mortgage,
that then he could get that equity out
that was sitting in the property,
idle, dormant, doing nothing.
The property is gonna appreciate or depreciate
regardless of how much equity is in there.
See, homes and real estate go up and down in value
regardless of how much equity is in there, okay?
They could be mortgaged to the hilt or free and clear.
And a lot of real estate people
don't stop to think about that.
So we went out and refinanced
each of these properties for a million dollars.
So far so good, so now he has a million bucks
out of the property that's liquid and safe.
Where do we keep it liquid and safe?
Well, I advised him to put it where I put my serious cash
for liquidity and safety and that's in a LASER fund.
Now at the end of this episode,
I'm gonna gift you a copy of this book
if this is intriguing you.
But the LASER fund is an acronym.
LASER, that stands for Liquid Assets Safely Earning Returns.
And what is it?
It is a property structured maximum funded
indexed universal life insurance contract.
When it's structured correctly,
I've been able to earn rates of return
averaging 11.17 tax free, netting 10.07,
cash on cash after all cost fees of the insurance
that the IRS says has to be there
in order for it to be tax free, okay.
So I'm able to earn 10%.
But ever since 1980,
before the emergence,
17 years before the emergence of indexed universal life,
just universal life was introduced by EF Hutton
for living benefits, for capital accumulation,
for working capital for things like this.
And so ever since 1980, my average has been 9.62.
Now if you understand rule of 72,
let's just round it down to 9.6 divided into the rule of 72,
your money will double every seven and a half years.
Well see, if you are owning real estate
and it's appreciating at 5% a year
and it's gonna double in 14.4 years
if it appreciates at 7.2%
which most of my properties have averaged around 7.2,
it'll double every 10 years.
So as my rental properties keep increasing in value,
I keep refinancing and keeping the equity separated
not to over-leverage
'cause leverage without liquidity is stupidity.
You wanna stay liquid.
So we took that million on each of these
and he put them into LASER funds, okay?
Max funded insurance contracts.
Well, what happened?
The mortgages were at 4.5% at the time,
and of course, that's tax deductible
because it's a rental property.
So he's paying 45,000 in interest on those mortgages.
So far so good.
And I think a lot of them at the time
were interest only mortgages, so this makes it simple.
So he has that much of a deduction
for each one of these properties
and he was in a 33% tax bracket.
So when he writes off 45,000,
that offsets 45,000 of income, okay?
So he could take out 45,000
out of his $600,000 IRA or 401k portfolio
with no tax consequence.
Did you hear that?
Okay, because he pulls out 45
and it's offset by 45 in deductions.
So we only had to refinance four properties
to easily cover the 150,000 plus
that he was pulling out of his IRAs or 401ks every year
because the interest deductions,
the new interest deductions that we resurrected
were offsetting all of the IRA or 401k taxable income,
but he was double dipping.
We not only got about, at the end of the day,
a total of 750,000 out of his IRAs or 401ks
with no tax consequence because of this strategy.
He goes, "Doug, this is incredible.
I'm making so much money now.
I don't know what to do with it all."
Well, what he's talking about
is 4.5% tax deductible interest payment, okay,
is really a net of 30,000 because he saved $15,000
in actual tax on his otherwise payable taxes
in a form of a refund or whatever.
So when you borrow money
at 4.5% in a 33% bracket, it's three.
If you borrow at six, it's a net of four.
If you borrow at nine, it's a net of six.
If you borrow at three, like I've done many years,
it's a net of two.
And what was he earning in his LASER funds?
Well, I'm gonna round it down just to 9%, okay?
He was actually earning 10% most of the time,
but let's just say nine.
So just the very first year before this starts compounding
which is going to keep getting bigger and bigger,
he is earning 9% or 90,000 tax free.
And if you don't understand why it's tax free,
that's why you need to read the book.
How much more is 90,000
than the net cost of the funds on the mortgages of 30,000?
Don't say 60, it's three times, okay?
It's 300% more.
He was becoming his own banker.
In other words, instead of sending it against the mortgages
'cause then all he experiences is positive cashflow
and his equity is sitting there doing nothing.
He freed that up to earn 300%, okay?
Three times more than the cost of the mortgage.
And yes, he has a higher mortgage payment,
but his rental income was far greater than that.
He still had positive cash flow on the rental properties,
but this sent his cash flow or his growth through the roof.
Not only was he benefiting
from the properties that appreciate over time
and also on the positive cashflow on the rental,
but he freed up millions of dollars and made 300%,
three times more than the cost of the mortgage.
This is what banks do.
They borrow our money and pay us 1% or 2%
and they turn around and they make a 5% to 6%,
they make 300%.
They pay you 2% and they turn around and loan it back at 6%.
This is just how money works.
So if this is intriguing you
and you wanna learn more about it,
I wanna gift you a copy of my 300-page book
"The LASER Fund."
This is my 11th book.
It's been flying off of our warehouse shelves.
You can go to Amazon and pay 20 bucks
plus another nine or 10 bucks for shipping and handling.
If you do that, thank you.
But I'll gift you a copy
if you'll just cover the shipping and handling.
If you go to laserfund.com, L-A-S-E-Rfund.com,
you click on the link below
and you contribute a nominal amount
towards the shipping and handling.
I require some skin in the game
and I'll pay for the book and fire out a hard copy to you
via priority mail.
And then while you're in there,
check out if you like to listen and learn
or watch and learn, there's audio and video format.
We teach educational webinars on a regular basis
and you can even schedule an appointment
to talk to one of our IUL specialists
to see how a LASER fund may benefit you
in your particular set of circumstances.
But this is actually two books in one.
This side is for left brain thinkers,
charts, graphs, and explanations.
This side is for the right brain learner.
It has 62 actual client stories
and many of those stories are about people
that own rental properties and how they double dip.
(upbeat music)