Keep real estate equity, liquid, safe, and earning predictable rates of return. In this episode,
I'm going to address the question, "What should I do with proceeds from sale of real estate?" And
you will be surprised with what I'm going to teach you. So, I'm Doug Andrew and I've been
an author writing financial strategy books now for several decades. I started in 1974
as a retirement planning specialist. But I also have helped many, many people understand how to
manage their real estate better to increase the liquidity, safety, and earn more predictable rates
of return than just hoping the house or the real estate appreciates in value. I often will find
people that when they sell a piece of property, they have an opportunity and they have proceeds.
Sometimes they want to take that money and put it all into a huge down payment into the next
property which sounds reasonable. I would never do that. In fact, I have never taken one dime
of equity I got out of selling a real estate property or a house
and put it into the next property, okay? You don't have to do that if you're trying to avoid
tax. A lot of people have these misconceptions about real estate equity. If you are tired
of maybe being a landlord and you're saying, "Where could I earn a good rate of return equal
to or greater than owning the real estate property but I don't want to be a landlord fixing toilets,
evicting tenants, taking out the trash anymore." Get ready because I'm going to share with you how
you can avoid inheriting a new headache by always doing 1031 exchanges into a new
property and now you just have another headache. Don't jump from the frying pan into the fire. So,
before I share with you if you buy more real estate, how to maintain liquidity, safety,
and unpredictable rates of return using the third miracle or marvel of wealth accumulation which is
leverage. Let me share with you that any real estate equity even while you own real estate
or if you're going to acquire a new piece of real estate, you wan to make sure that it passes
this laser, L-A-S-E-R test. LASER is an acronym that I've used for years that stands for liquid,
assets, safely, earning, return. And real estate in and of itself is not liquid. You either have to
sell it or be able to qualify to borrow against it if your equity is tied up in the property. A lot
of people think, "Well, I'm getting rental income. Isn't that liquidity?" No. Liquidity is when
you need 10, 20, 30, 40, 50 thousand dollars, you either have to sell the piece of property
or you have to borrow against it. And you can't borrow unless you can prove there's a need why you
should have that money and you have the ability to repay. So, when we talk about keeping your
real estate equity liquid or passing what I call the laser test, I'm going to share with you how to
have your real estate equity always accessible without having to sell the property or borrow.
Number 2, to have safety of principles so that when the real estate goes down in value
which it will likely do, you don't lose. People go, "How do you do that?" And how to
earn predictable rates of return even if it's a rental property is vacant. People go, "Huh?
How can I have a rate of return when nobody's renting it?" Oh, I'll show you how. Because you
want to protect yourself and have liquidity safety and earn predictable rates of return
and then how to have tax-free income. Because rental income is not tax-free. You can offset it
with depreciation, with interest on the mortgage and so forth. But it's not totally tax-free. So,
get ready to learn some opportunities that maybe you didn't know existed before.
So, let me explain how to buy more real estate but do it the smart way the next go around. Before
doing so, if you're enjoying this or what you're learning is something that you know somebody ought
to hear, be sure and recommend they watch this episode. Subscribe to this channel. I post an
in-depth answer to a financial question almost on a daily basis. Click the little notification bell
because you'll be notified every time I post a new educational video. And towards the end,
I'll give you a little sneak preview right now of a free gift that you can claim at the end
of this episode. When I talk about real estate investing, a real estate in my mind is a moderate
risk investment. And I compare it to the metaphor of the story of the 3 little pigs. If you recall,
one of the little pigs built a house made out of sticks. And so, I equate that to real estate. It's
moderate risk. But the big bad wolf what's that recessions, pandemics, terrorist attacks can cause
real estate values to plummet in all kinds of situations like in 2008 and so forth. In one year,
my home went down in value from a million five down to a million one back in uh 2008. So,
sometimes, things out of our control happen that causes the house of sticks to get blown down.
Well, some people have money in the stock market and this is more like a house of straw and it is
higher risk. And the big bad wolf affects the stock market sometimes within an hour or 2 of
the federal reserve announcing something. The stock market may react very violently because
of things that go on in the economy or federal reserve or terrorist attacks, whatever. And so,
that is the stock market and the risk that you incur over here. Now, what was the third house?
It was a house of bricks. Now, among those, you have insurance contracts,
maybe annuities bonds, CDs, money markets. You can tell some of these are pretty pathetic as
far as the rate of return is concerned. But because it's a bank that is insured by FDIC
and the government has the ability to print money or raise taxes, people feel like well that's safe.
Yeah, hard for the big bad wolf --the terrorist attacks and so forth to blow down the house of
bricks. But maybe you're not earning a rate of return equal to or greater than inflation. So,
I choose to put my serious cash into insurance contracts because they have safety ratings that
are sometimes 6 notches higher than the banks and credit unions that pay lower rates. And a lot of
people don't understand that. Insurance contracts are where I have earned between 6 to 10 percent
net cash on cash rates of return tax-free for more than 4 and a half decades. This is where I keep my
serious cash. So, my message right now is when I own real estate, I may buy a piece of real estate
but I will leverage it and I own it, I control it with very little or none of my money tied up or at
risk in the real estate. I keep my real estate equity over here safely tucked in the house of
bricks so that when the big bad wolf blows down the values of real estate, I don't lose. When
my real estate goes down in value, I don't lose because my equity is not trapped in the property.
It's over here. And I'm actually earning rates of return here that are usually double or more than
the net cost of the mortgage here. Did you hear that? In other words, if I borrow money at 6%
interest for a piece of property and it's tax deductible in my tax bracket, 33% tax bracket,
it doesn't cost me 6, it cost me a net of 4. So, every million I borrow at 4% is 40,000 a year. But
the million that I actually kept over here instead of putting in and paying this off here, physically
paying it off... Because anytime I want, I could make a phone call and pay off the mortgage. This
is earning 8% or more over here. So, I'm making 80,000 every year and that's not even compounding
it. And the net cost is 40,000. How much more is 80 than 40? It's a 100% more. I make 100 rates of
return and I keep my real estate equity liquid and safe over here and I'm also able to more or
less double dip. Is this making sense? So, there are basically four things you can do with money.
You can spend it, lend it, own with it or give it away. Now, I sort of double dip. I own and loan on
the same assets especially when it relates to real estate. When you have money deposited in a bank or
a credit union or an insurance institution, it's in a lended position, okay? You are loaning them
your money so to speak and they are paying you interest. Are they just a benevolent
institution they put your money in a vault? No. What are they doing with your money that you
lend them? They are turning around and loaning it back at higher interest rates or investing it and
they're earning a higher rate than they're paying you. How does money work? The last several years,
we've had a low interest environment. And so, many banks, credit unions they pay a measly 1% interest
to borrow your money. It's called opm, other people's money. So, every million that we deposit
into a bank or a credit union that we loan them and they pay 1%, they only have to pay $10,000
a year in interest. So, where do those banks put that money? Do you know that they will invest 30
to 40 of their tier-one assets? What's a tier-one asset? Money that they have to have on hand liquid
and safe in the case of a run on the bank, an emergency. They put it in to insurance companies,
into BOLI, b-o-l-i. Bank-owned life insurance. And that's where they borrow our money at 1% and
they turn around and earn 4 or 5 percent at the insurance company that's ranked 6 notches higher
in safety than they are. A lot of banks are only rated triple B. Most of the insurance companies
where I put my money are rated triple A which is actually 6 notches higher in safety. So, a bank,
a credit union increases the safety. And the rate of return up to 4 or 5. How much more is 5 than 1?
Don't say 4. It's 500% more, it's 5 times. On a million, they're making 50 grand a year
tax-free. They're only paying you 10,000. You could bypass the middleman. Increase the safety
and earn 5 times the rate of return by putting money into an insurance company yourself into
what I call a laser fund. And so, I own and loan on the same assets. When we're talking about
what to do with the proceeds from real estate, if you want to buy real estate, I would pay the least
amount down... In fact, I've never paid a down payment for any piece of real estate that I've
acquired. I've satisfied down payments but not with my money. I keep my money. Every time I sell
a piece of real estate, I keep the money liquid and safe in an insurance contract. And there, I'm
earning tax-free compounding rates of return that have been averaging 6 to 10 percent. Let's say
it's 8%, okay? Compounding tax-free. That is net, by the way. Most mortgages I'm borrowing money at
3.5% right now. That's a net cost of around 2%. But even if I borrowed money on real estate at 6%
tax-deductible is only a net cost of four in a 33% bracket. So, if I'm paying 4% on every million
dollars of mortgages on real estate that I own, that's 40 grand a year to service the mortgage.
But I'm making 80,000, double that, 100% more than that on the money that I could pay off the real
estate but I choose not to. So, I'm owning and loaning on the same asset. I'm earning 100% rates
of return or greater. Do you know that many times, I'm earning 10% and i'm only paying a net of 2%
when I borrow money at 3 tax-deductible? Hello? This is how money works. And so, by using safe
positive leverage, if you want to own real estate, I would recommend you keep the equity separated,
liquid, safe earning predictable rates of return of at least double or more the net cost of the
mortgage. And you will amass a lot more wealth than just owning the real estate outright and
collecting rental income. Because this will keep making money even if it's vacant. So,
let's bring this all together answering the question, "What should I do with the proceeds from
the sale on real estate?" Yeah, you could take those proceeds and put it into additional real
estate. But I would not tie it up with unnecessary down payments. A lot of times people think, "Well,
I'm going to take the proceeds and pay a huge down payment into the next real estate property." No. I
wouldn't recommend that. And if you read my books, you'll understand why I have never taken one dime
of equity from the sell of previous real estate and put it into new real estate properties. I
always leverage with full liquidity. If you put it into the property, you give up liquidity. I keep
my real estate equity. When I sell a property, I transfer and put it over into my max-funded
insurance contracts the laser fund where I am earning 6 to 10 percent compound interest,
tax-free. It's highly liquid. It's safe. I do not lose when the market crashes or the real
estate market goes down. I can access the money. I get to participate when the market does well.
But when the market crashes, I don't lose and it's totally tax-free. Folks, this
is sometimes the greatest epiphany people get. When you take those real estate proceeds and you
keep them in something that passes the liquidity, safety, rate of return test with flying colors,
then if you choose to buy real estate, you can leverage with full liquidity. If you decide not
to buy more real estate because you don't want to be a landlord anymore, my heavens, people
are shocked when a max-funded insurance contract where maybe you repositioned a half a million,
a million,2 million... We've had people reposition 10 million dollars from the net proceeds from the
sale of real estate and we put it over into a laser fund or portfolio of several laser funds
and they go, "Wait a minute. This is generating more tax-free income or cash flow than my rental
properties ever did especially after tax. Where have you been?" I said, "Well, I've been here all
along." You had blinders on that real estate was the cat's meow and so you didn't pay attention to
anything else. It treated you fairly well. But now you know better. So, if you want to explore this,
I would strongly recommend that you read my most recent bestselling book The Laser Fund.
Here's how you can claim your free copy. So, how can you learn more? If this has piqued interest,
I would love to gift you a free copy of my most recent best-selling 300-page book, The Laser Fund
which is actually 2 books in one. This book here is about 200 pages comprised of 14 chapters with
all kinds of charts and graphs and explanations of how to diversify and create the foundation for a
tax-free retirement. Now, if you learn more right brain with stories and examples, you flip the book
over and read this one. This is about 100 pages, 12 chapters with 62 chicken soup for the financial
soul stories like the one I just told you. If you like to use your whole brain, I would recommend
you read both books. But it's 300 pages. This has been flying off of our warehouse shelves. I'll
tell you what. I will pay for the book. You go to laserfund, LASERfund.com. It's on the screen here
and claim your free copy. You contribute a nominal amount towards the shipping and handling.
I'll cover the rest of that cost and I will send out a book to you. There's also options
there for you to listen and learn and watch and learn. But here's to your brighter future.