How Wealthy Real Estate Pros Think About Money (and Invest Differently)

0:01Welcome to the Be Wealthy Podcast, where we bring entrepreneurs the strategies and tactics to grow your business and unlock new opportunities. Once you've achieved success, we'll teach you how to think about your money. Because wealth is about more than just cash flow. It's about freedom. Now, our host, Brett Tanner. Boom. Welcome back to the Be Wealthy Podcast. This is episode 00017 and I'm I'm joined here today by Katelyn Mitchell, my co-pilot of of season 2 and likely all of the seasons moving forward. Katelyn, welcome down.
I'll tell you what, Brett, it's good to be back back with the people back doing it. I'm jazzed.
Well, Katelyn, I'm glad you're here and I'm come hot off um a fishing expedition tournament that I did not win. We took fourth place day one for Marlin. Uh Katelyn, they don't do anything for fourth place, you know. Don't even People don't even celebrate it. Um

1:03
do they call it the third? Is it the third loser?
Uh there was a moment I was tied for third, but then a much So let me walk you through how this works, Katelyn. I've never I'd fished in this tournament before. I just never caught anything that I actually had to do the correct paperwork and try to get on a table where people hoist or host you. Um however that said. So, you take your fish and you have to present it. So, you go to the marina. This is in Porttoarda, which is not where our boats marinas, but you go there. All these people run down with like what I'm going to call, think one of those Home Depot carts you'd put like buckets of paint on. Okay? You get your fish on that. You wheel it up there. You weigh it. So, one of the things is length. One's really, it's weight is the biggest length goes to a tie off. And as you're walking up there, the current largest one is hung. So you're like, "Wow, mine's definitely not one." We know that immediately as we're walking up, I don't have the first place. And that's out. We could just check that off our list. Uh from there, they lay them together and now there's a

2:04big debate on third, you know, between who's who's going to be third and who's out. Well, turns out wasn't me. However, all that being said, last day I had the tournament winning tune on and after fighting it for 90 minutes, Kevin, I don't know if you know what happens to your body over 90 minutes. I'm going to walk you through some of the things. First of all, I have I have a sweat just being hurled on other humans. They are my body like the hardest part was the heart of my legs were giving out after 90 minutes and it broke off or got off on the side of the boat which would have been the tournament wing fish which I think paid 300,000 pesos or 350,000 pesos which I think is like $4 billion is what it would have paid. Um I'm pretty sure that's the currency exchange today. Anyway, point is Ka sometimes the scoreboard's wrong and you can win by not winning. Um, but that's enough about let's um we're going to get into something today that uh is very meaningful to you, way more than fishing. And we're going to talk about your path of money here at Be Wealthy. Every dollar in your life should have a

3:07job as it comes into your world. I want you to think about this. Any deposit you're making that comes into your world instantly should have some way to monetize that dollar. Simplest way to think about it, Katelyn. Dollar comes in. And if we had an automatic sweep account or a way to connect our sav or our checking account to some sort of savings vehicle that pays interest in a real-time way, the dollar goes in, it's shifted over there. We're making as of we're filming this today somewhere around 3 to 4% on our money as it comes in in real time.
Wow. And when we go around the country teaching this, I would say the biggest mistake I see, number one, I see people with large amounts of cash, let's call it a 100, $20, $300,000 sitting in a checking account, and you've been there many times in a room and they're earning 0 0%. And there was some big large bank like you might hear. Um, but really they're just not paying attention. And I think what people miss, Katelyn, before we jump into this, they miss the difference of a few pin for a few percentage points over decades,

4:12
right? And we we do this exercise in in one of the things we do, and I could do it in my head uh just because I've done it so many times, which is we say, imagine someone in this room's got $300,000, right? Sitting in their world. They have 300,000 bucks. And then imagine that they're going to get an 8% return on that $300,000. every month they're going to deposit $3,500 with it.
Then I ask them the question over 30 years, how much money is that? And people have guesses. Katelyn, I think you already know the answer, but what's your guess? You can remember it. It's not cheating if you remember.
No.
30 period of time. 8% $300,000 starting with it.
300,000 8% and no additional contributions.
3500 a month every month for the 30 years.
That's exactly right. I would say, let's call it $2 million.
Okay, you're close. 10 million, right?
Or and in the room, we'd hear everything, right? You'd hear a million, you'd hear, you know, you' usually hear a million to 5 million. It's $10 million.
Wow.

5:13
Now, if we take the entire thing, entire every every part of this exercise is same. Same $300,000, same 3500 a month, except we're going to change it, Katelyn. We're going to go to 12%. So, 4% difference. We know the 8% was $10 million. What's the 12%.
Probably double that. 20 million.
It's a good guess, right? 20 million, but you' think it's got to be double, but it's only 4%, right? It's not that much. And we get guesses everywhere. 30 million roughly.
Whoa. So when I when I what I what I get so adamant when I'm in a room is we've got to start monetizing every dollar because over the course of 30 years it could be tens of millions of dollars depending on how big your world's going to be. And so the difference in that 4% and the example we're talking about right now is just paying attention, right? It might be you didn't know your bank offered it or or whatever the reasons were or historically savings rates have been really really low. So it wasn't something we didn't pay attention to. However, as we sit here today, um, and you know this, I'm adamant about every account we has of a sweep account

6:14attached to it. I monitor those because I believe that I believe in optimizing for the best outcome in all things that we do. So, if we realize going into this that number one, we got to think differently about money. Number two, as a dollar comes in, right, we've got to think about how do we get it working for us? Now, I want to give you another example, Katelyn, of something you've seen me do, and it's this concept of velocity of money. And it comes from a book called The Banker's Code by George Antone. Uh he wrote a book that actually changed one of the books that changed my life. Uh recommended to me by Gary Keller. Uh and then George and I today are are friends and we actually filmed an episode this season. I'm excited to share that with everybody. Um because he had such an impact on my life and I know it'll have an impact on all our listeners. And so in that book, right, we just talked we have a dollar come in. We could put it towards a savings account. So now, Katelyn, let's say I have a little bit of debt in my life, positive debt, a line of credit that I'm using for something. Now, as that dollar comes in, what if I was to take that dollar, Katelyn, and apply it towards my line of credit instead of towards my

7:15savings account because I've already got my reserves and I'm looking for the best way to monetize that dollar. Well, as of today, uh, lines of credit against a hard asset. So most of my lines of credit are somewhere around 6 and a half to 7%. So I went and used it for likely something that's generating more than 7%. Now I have that payment come in or that dollar that comes in. I can immediately pay it towards line of credit and now I'm making 70 7% on the dollar that came in today. And so Katelyn, you we go around the world explaining this to people and I think it's just this concept where people's heads like explode and they say it's too complicated. money is hard and complicated and it's not. So, I'll pause and let you ask a few questions.
So, I want to just reiterate and make sure I understand it and understand our listeners understand exactly what you're referring to. So, the first principle you brought up was every time a dollar hits your bank account, you should have the ability to gain interest on it or to

8:20put your money to work. in essence, how is your money that's coming into your account and getting to work? And so that's the first concept. And here's the really cool part. Every person who's listening to this podcast can start that today. And you're going to show us things like sweep accounts and a few ways that every business owner or every human can do that today. So every person on this uh on this podcast that's listening can start with less than one. that can get you a 4% rate of return today, which was that difference you were talking about of $20 million over the course of time. So that's first. Then you went into what you always have the you know your brain worked so quickly but you went into a more complicated method which was now taking it and once you have your reserve set aside which you're about to show us the model for determining when is the time to go from just a sweep account to savings to this phase which is model two. And now you're taking that money and you're let's say $10,000 comes in.

9:25You're utilizing that to pay down a line of credit that you may have against a hard asset. So, let's say you have a single family residential property. It's a rental. You have a line of credit against it. That line of credit is a 7% interest rate. You took that line of credit to go buy a second rental property. It's now making money over here on the third part, but you're going to take that $10,000 and you're going to pay down the interest, pay down the um principal on that line of credit. So now you're getting in essence a 7% rate of return on money that you borrowed to go catapulted into a new investment yet again. Is that right? and all of the rental payments and free cash flow that comes out of those investments will also go back towards the line of credit. Any additional dollars I generate in my life that are beyond what you know I need to sustain my life will go towards it. Right? And

10:26the idea is like you borrow this amount over time it's going to go to zero. That line will get to zero. Now you've got these assets and I love to go take put both of those add that to my line create a you know go buy a new asset bigger line pay it down to zero and you just keep growing this snowball you know survive that concept right there is called velocity of money right there and there's two parts to it to think about number one we all understand the 7% interest rate we're paying right it's pretty clear the bank charges seven it is what it is there's another concept that'll come from that book the banker's code called your effective interest rate What's that?
So, let's pretend for a moment, Katelyn, that um we borrowed $10,000 on our line of credit and once a month, we get a payment for $10,000 and our bills over the course of the month are $10,000. We're just going to pretend all those things are true.
So, on the first of the month, I got $10,000 borrowed against my line and my money drops in. I have $10,000 in my account. What I would do is immediately pay down the line to zero. Now, I have, you know, I have $1 in my checking

11:28account now. I have a line of credit that has 10,000 available, but I'm paying how much interest if it's at zero.
Zero.
Cool. First week, my I got to borrow a,000 bucks out of there cuz I got to pay my car payment or something. Okay.
Okay. So, now I owe but I owe $1,000 of the 10. And so, how I'm paying interest, as an example, let's just at that moment, I'm paying interest on the 7% only on the $1,000, not on the entire 10,000. Okay? Right? Because I've only borrowed thousand and next week it's I'm going to borrow 4,000 against it to pay my rent or my mortgage and other bills. So by the end of the month, yeah, I've got back to the 10,000 where I started. Okay. So all I did was I used them, I put it down. Now the question really becomes, well, Brad, this seemed like you just made my world really complicated. Each week I've got to advance money for the week. But here's what we did. The real interest rate that the bank is charging you is 7%. Your effective interest rate, depending on how you pull it out, could

12:32be half of that amount, could be a quarter of that amount.
How is that? Why? It's
because I'm not borrowing. So, like there's different ways you could do it. You could set payments of certain things, right? You know, like your credit card, your car payment, you don't have to pay them on the first of the month, right? You could you could definitely do that. You could pay it early, but you could pay it on, right, the day that it's actually due or the last possible date before you have any late payments. So because of that, you're using the bank or your credit your credit card company or your car payment company is actually maybe fronting some of that for you. So because you're not borrowing the full amount all the time, you're paying less interest and your effective interest rate goes down dramatically. It's the difference between real rates and effective rates. And so you just look at your flows of money, right? For most of us, right, we put money in our account, it just sits there, nothing happens, and then we slowly we spend it. But what if you had a way to it comes in, you pay something down, pay no interest on that thing, and then use the money when you can, right? Over the course of your life, it's tons and tons of money. And

13:34so today, I want to anchor this point a little further. But before we move on, Katelyn, does any that those two concepts make sense? Every dollar earns something. Two, how do you think about velocity of money in your life and get that snowball working for you instead of against you?
Absolutely. initially on one side it's a linear approach and the other is more of a a circular the velocity approach. I think both of those make sense and I'm excited for the model that you're going to show us of how to think about it. My takeaway so far is you need to pay attention otherwise you're missing the opportunity and paying the interest you don't need to not acrewing the interest that you want to.
Yeah. I mean the comment I thought I understood compound interest you know my whole life and I I really started understanding it about five years ago uh at 40 years old. Um but Albert I'd say he really called it right it's the eighth wonder of the world right that those who understand it earn it those who don't understand it pay it and the differences of your life when you understand how to get compound working

14:36for you as opposed to the compounding working against you is the people that live the most amazing dramatic lives and those that live lives and always struggle because they're always compounding the wrong way. It's either working for or against you and you got to figure out how to get it working for you. So, with that, we're going to go over to one of, and you could see my screen now, Katelyn, over here. Path of money.
Brett, this is one of my favorite diagrams. I absolutely love this. If people are just listening to this on Apple podcast, if you want to go onto YouTube or you want to go on to Spotify, you'll be able to actually see this video. We'll also include this diagram link in the show notes below.
Yeah, it is. Um, I mean it takes a genius to do this, right? This is comes right from the genius of Gary Keller. And he came with this idea of just path of money. And I think he did it to explain to others how he thinks about money. And so you look at the very top, right? There's really two ways we generate capital. One is human capital. Katelyn, you and I wake up in the morning, we go to work, we do whatever

15:38we do. We try to provide value to the marketplace based on the amount of value we provide. That's how much money we make. Uh, but essentially, we're going to work for money. Whether that's as in a job, whether that's in our business, but we wake up and everyone has a day job. Pretty straightforward. That's called human capital. The other side, right, is doing things right, doing the things we just discussed. Your human capital, you earn more than you make. You've got some leftover money, and you're going to put that into what we call capital assets, right? That's where your money's got a job. Now, I would tell you everyone listening to this that and most people's mistake, Katelyn, is they go into it on the human capital side and they spend all their energy there. And everyone should drive up their income. You should get your income where you're you're past the point uh of surviving and you're into thriving and you've got your income over what you need to sustain and survive. With that, the extra fund should go over into capital assets. And you should really be methodical about thinking about your capital assets. It's where all the opportunity will go. And in the future,

16:41if you do it right, you your money can make more money than you can, right? Your passive income should exceed your human capital income if you do it right over time. So regardless, Katelyn, human capital, capital assets, those create cash flow.
That's the whole goal, right, Brett? So when I'm looking at this, we have human capital. All of us, I'm going to make a huge generalization. All of us are making human capital income. We go to work, we make money, we get that W2, we get that paycheck every two weeks or we have compensation that's coming from our real estate business. Everyone who's, you know, part of our group is all making human capital. And your mission, what you're teaching in Bealthy is that freedom component. We talk about that get free and that's really when you're able to transition from all of your world your needs your burn rate being covered by your human capital that now they're being covered by your capital assets cash flow your

17:44money that's working for you and so the challenge is they're both up here at the top of the diagram how do we do that and so I think this diagram walks you through a really methodical way of how to think about And as you mentioned, the human capital side ultimately in what you're about to go to, we must make more money than we're spending in order to be able to invest it to grow the capital asset side. So when you can't increase your human capital income, that's awesome because don't spend it. Invest it in the way that you're about to show us. That's what'll allow you to move even faster. So I'm I'm excited to have you walk us through this. 100%. I mean it and can that's the key, right? Is understanding the world is designed to take your human capital away from you and not have you get it to working for you, right? The world's built that way. And it's built through FOMO. It's built through opportunity. It's built through these small rewards. And there's companies spending billions

18:47and billions of dollars in marketing and tools that are trying to get you addicted to these devices to get you distracted from where you want to go and see what other people are doing and and and the average human has zero plan for their future. That's why if you see overwhelmingly Katelyn, I mean the danger of today, right? Consumer debt has never been higher. Consumer savings never been lower. And yet here's a graph that could show people how to become millionaires. But you've got to do it, right? And so I would encourage everyone that listen to this, go get this video, get this diagram, and figure out your path of money because it will massively, massively matter for you. By the way, Katelyn, don't forget if you're wa if you're watching, listen wherever, subscribe so you get notified when we put out new podcasts every week. If you're on Apple, just go to the top, hit subscribe. You will love it. Magical things will happen in your life when you listen to this every single week. So Katelyn, that was a the most seamless way to get people subscribe you could possibly imagine. So human capital, capital assets, go to cash.

19:48
Well, let's go to this. So like I let's just start. I have no capital assets. Let's assume I have none, but I do have a lot of human capital. Let's say for the sake of this argument, I make $100,000 a year in my human capital. And that drops into the cash flow bucket that we see here.
What are our four what are our four buckets of what we can do from there? And and how should we think about those?
So four main things, right? First thing you could do, Katelyn, you could torch it. You could spend it, go out and do it. We know we have things we need to spend money on and then things that we want to spend money on. And getting really clear and separating want from a need is critical. But the first thing is you could spend it. And while we teach I don't I don't believe in budgeting. I think budgeting sucks. Um, I think that being cheap for cheap's sake is is not a great way. And I don't know a single person that cut out a $6 item and made billions of dollars and live their wildest fantasy. It's just not cutting out Starbucks if that's your thing. Well, I don't think it's a great idea to

20:50wait in that line every day just in terms of a time efficiency thing. Um, but the $5 isn't your real problem. Now, lots and lots of $5, you know, goofy decisions throughout your day can be the problem. But the one $5 indulgence why budget budgeting sucks. So, we got to figure out your burn rate. Everyone watching this is naturally spending amount of money most likely that they're comfortable with. Now, Katelyn, I'm not saying people are living their wildest possible fantasy, but most likely you're living a life you're comfortable with. So, if that's the case, first thing you should do is spend all of your energy growing your income, keeping your expenses the same, which will create some delta that you could do things with. But regardless, you have a percentage of money you're going to spend. The next option is you could donate it. You could do charitable things, help others, and there's a percentage of your income that could go to charity. You could hold on to it. We're going to call that saving, right? You could put that in some sort of savings bucket. And lastly, you could invest it. Now, what I would encourage people to do is to figure out your burn rate and set that money in a separate checking

21:51account. So, if you've got Katelyn, if you're making $100,000 uh a year, we're just going to call that 8,000 a month roughly for easy math in my head. Uh and let's pretend your bills are $6,000 and your burn rate is 6,000. I would encourage you to take that 6,000 and put it in a separate checking account on the first of every month and spend all of your money out of there. And the idea, what we're going to try to figure out is, is your burn rate really $6,000, right? At the end of the month, do you have more money and more month? Overwhelmingly, people will have more month at the end of the money and not more money at the end of the month. So, we want to figure that out.
Is that your nice spending more? Is that your When you say more month than they have money, is that your really delicate way of saying they blew all their money in the first 20 days of the month?
Totally. When I first started doing this with my wife 15 years ago, we would get to the end of the month and we had the thing where we had more month at the end of the money. Um, and I, hey, we're just going to tough it out here. We're just going to get a little lean for a minute. Um, because I was committed to my goals and I understood compounding it a little

22:54bit. I understood if I put money away at some point in the future, I would be in a better position than I was in today. And so, I would encourage you in that example I gave, you put your 6,000 other account, I would take your remaining 2,000 and get some of that into savings. So you should work to get 12 months of your burn rate. So if it costs you $6,000 a month to live, 12 months is $72,000. Over time, we want to build to a 12-month reserve. And that reserve is not to invest in anything. You should never invest it. It's Katelyn. It's called the don't get hurt plan. And it allows you to live your current life in its exact form in all ways for up to 12 months with zero income. uh I have very rarely does a person have such a problem that inside of 12 months they couldn't solve it uh another way and so that's a way you're protected now once you get there depending on the size of your world you might increase your reserves beyond the 12-month requirement the now here's where it's Katelyn this is unique to everyone each person's got to figure out how much savings and how many months of their

23:56burn rate they need to have so their head hits the pillow and they've got total peace you know when I go around and teach this For some people, they get 12 months and they say, "Hey, I'm great. I feel great. This is more than I've ever had, and I want to put pressure uh on everything I can do to go invest it so I can grow this nest egg and make it really, really big." Some folks get to a year and they're paralyzed in investing. They're like, "I can't do it because I'm so worried that um that I'm going to lose money or I'm going to have a problem." And so, they might need to go to two years reserves. Now, I don't care if it's one years, two years reserves, or whatever, but at some point, it can't be more. I need to keep saving more. And and the story I always tell is I was giving that a presentation a couple years ago and a lady comes up to me into my presentation and she said, "You know, I'm just not ready to start investing yet. You know, I've saved up $970,000 and my bills are about five grand a month and I I just need a little more and I could start investing." And I I me you're the interest in treasury bills almost exceeds your burn rate here. Um, you're never her definition, Katelyn, of reserves was just more and we can't it

25:01can't be more. It's got to be a defined target that we can get to. So, we put that away. And what's left over? We need to start investing. Now, one of the reasons, Katelyn, we need to put so much pressure on investing is that our the biggest threat to your returns over time in the life that you'll live is inflation. Inflation's basically working against your returns. So if we're only getting 3 to 4% in savings or treasury bills, which sounds amazing, but more or less today, inflation's at 3 or 4%. So we're earning three or four. We're keeping up with the increased cost of goods. Not terrible, Katelyn, we're not going backwards, but everyone on this game, you've got to get ahead, right? To grow an empire or to grow a massive nest egg, you've got to get greater than the return, the inflation amount, right? your returns have to exceed that amount significantly. Um hopefully so we're there Katelyn and we got those four ways is how we should think about where we could place the cash flow.
To that point your hold it where your

26:05savings was that x amount of months of burn rate. That was where we started this conversation. That money should be working for you not just sitting in your insert any of the top five banks. um traditional savings where you're making 000000%. You need to have that somewhere you're making a 3 to 4% rate of return so that you're keeping up with inflation and it's not so that hold it technically needs to be put into an account reaping a 3 to 4% rate of return. Call it a T bill, a high yield savings account. And that's separate from what you're about to go talk about, which is truly investing for rates of return to increase your net worth beyond keeping up with inflation.
I'm even going to go one further. Anything below that cash flow circle in there while you're waiting to go spend it, while you're waiting to donate it, while you're waiting
to move it over your savings, all of

27:06that money needs to be earning the 3 to 4%. like the 3 to 4% is every dollar in your in your life needs to earn that instantly in real time. Everyone now even if it's a weak holding pattern, great. Get it in there, right? Because it might take an extra week to get your thing done. So, or you know to move it to to spend it or to donate it or to move it over your So, you want to as many of these things as you can automate in real time. you want to um I filmed an episode that's going to come out later this season uh with our good friend Michael Berdoff and you know he wrote the book Average Sucks. He he's trained at our events. I mean he's just an NLP master. He's a great human. Um I don't know if I told you cable one of his things is he took all these little micro auto transfers and set them up as money came into his account. So you know $50 comes in today or 100 bucks. He's got like 200 or I don't know how many hundreds of little micro just transfers out. This one goes and buys a stock. This transfers over here. this goes over here. And he's like, "The reason I set up all those transfers is they're really hard to shut off." And I just automatically started building my wealth

28:08through dollars that were in there. And he's like, "Anyone?" He goes, "Everyone on here can go set up a $50 transfer once a month."
Yeah.
So, just another way to think about it. But now I want to go Katelyn. So, we've got our money. We've picked what we're going to spend. We pick what we're going to donate. Hold it. Now, we're going to invest. And so, you've got two main choices when you think about investing. And I think what's interesting I would I bet overwhelmingly everyone listening or watching this understands the investing choice of ownership immensely. So you get lending and owning are the two choices. Everyone gets ownership. Lending is a little different, right? People don't get that you can lend. That's a choice for your investment. And so the easiest example to think about it, Katelyn, we we go down to to Scottsdale, Arizona. Go down the street. We want to buy a rental property. You could own the actual single family rental that's renting for $3,000 a month. Or you could own the debt. If that person had a mortgage, you could actually own that debt. It could be private finance. It could be hard money. Could be seller financing. But you could own the debt. So if I own the house, I

29:10own the physical building. I get to rent it. I get the cash flow. Uh if I'm on the lending side, I've put up the money. I don't get the upside. I just get the rate of return. M
and so just like just like owning the building people, you know, my first thought process, I would drive around, I'd see a great single family rental, I'd see a building, I'd see a hotel, I'm like, "Oh my gosh, I'd love to own that building." And now, Katelyn, I look at the uh the building, I go, "Gosh, I would love to own the debt on this." Um, now my reason is the debt doesn't have any of the management. It's much quieter, which we'll talk about here in a minute. So, totally different. Two main choices there that you're going to make, Ken. And I don't believe this is a chocolate or vanilla type conversation. You know, I think most of life exists in a swirl. And I would encourage everyone to think about both ownership and lending as your opportunities. And there's this kind of beautiful marriage in having both in your investment portfolio.
Awesome.
Anything you want to add to that, Katelyn, before we move on?
Well, I think of it in a really in an

30:15elementary way. It helps me to mentally digest it. So, when I think about the passive side, because you have two boxes here. There's lending and owning, but then there's two different ways to do it, and I'd like to think they're less of a box and more of a uh what would you call that? Like a not a gradient. Why can't I think of the word like a scale of how much there's
quadrangle? Oh, I just want to guess a shape. I was trying to think of really great shape to guess.
There's passive ways and active ways to do both. So on the passive side, you're typically going to get a lower rate of return, right? So you think that you want to passively lend money. The most passive way to lend money would be a T bill to the government, right? That's lending money to the government. You can also buy corporate bonds. There's all different passive ways to lend money. You also can passively own things. That means that typically there's not going to be a lot of headache or a lot of noise because you've put the responsibility of managing that asset in

31:17someone else's hand. I always use the example Tim Cook if I buy Apple stock, he has never called me to ask me what colors the new phone should be. He doesn't care what I think because I'm very much
I actually have immense feedback for him on the things I think he should do. And for whatever reason, he doesn't care. He doesn't care about my letters. We're super passive on the active side.
That's right.
On the active side, if I own something, let's say I own a single family residential, right? I do get to pick the colors that we're going to paint that house. I am actively involved. I do get all of the noise and all of the headache, but it is likely when done correctly, I get the higher rates of return also. and everyone who's in our group, in our community, on this podcast, have the deal flow and the expertise to be able to actively own things and get higher rates of return than the general population, which is awesome. But when we get to actively lending, for some reason, I feel like

32:19every time you're talking about it in the room, everybody goes like, "Ooh." They have this like lean back nervousness. And the fact of the matter is it's one of your favorite ways to invest because you're lending money on assets that you really understand at a high level and you can do that super actively. And I know in some of the future podcasts you're going to show that. So that was one of the things I wanted to point out. You can passively or actively invest. You're going to likely get different rates of return lending money to people and businesses or actively or excuse me or owning as you like to say stuff and things are going to give you those financial returns. Brett, your whole goal while you get in a plane and fly all over the country is to help people get higher rates of returns such that their capital assets start distributing more income than their human capital and they hit that get get free moment. Like that is your life's mission right there of what

33:22you like.
That is my calling and and you've anchored this point so brilliantly. Here's the thing. When we fly around the country, here's the problem. It's really easy to go do active things and get a lower rate of return than you could have got passively and it takes all of your time.
The mistake people make, and I'm going to say it again, they're doing active things with their money or they're doing active things in active ownership, right? They're owning a crappy single family rental, not a dream one. And Katelyn, they're doing all of this work. And the worst thing is number one, they don't actually know what they're making, right? The rates, the true rates of returns. They have no comparative way to evaluate performance like cash on cash return, a rate of return, return on equity, right? There's different things we need to expense ratio. We need to understand the math so we could take an active asset that we own
and make sure that because it takes a little more of our time and energy and we got to do things and like we control it. We're actually doing some work. I need to make a much higher rate of return on that than I do if I give that

34:24money to a stranger or I invested in a syndication or I invested in the stock market, right? Like you exa you use the example of I buy Apple stock, right? My Apple stock investment should have a lower yield, right? In theory on average of lot if I had lots of passive ownership investments than active things I'm doing. But Katelyn, how often do we see someone, they apply no dollar per hour charge to their time, right? The biggest place you see this going on, the easiest example to pick on is vacation rentals. Someone owns a single family, someone has a single family rental. You know, it was active ownership. They turned it into really active ownership. You know, you could argue a single family rental at some points they're passive. Um, but I would call it more active. Um, but it's lower on the scale. Then you turn it into a single or a short-term rental where it's much more complicated to manage. Uh they're spending 10 hours a week managing it, which is not a ton of time, but they apply no hourly rate to their time. And so it appears on a theoretical

35:29level, well, I'm making a little more money.
Sure.
Yeah. But the moment you hired someone to go do all the activities, the entire thing blows up. And we see it all the time. And that's just one, I think, example. And so we want to I want to walk through here in a minute, you know, just an anchor in this point, Katelyn, but you just did such a good job of setting it up. The key is to make sure when I'm getting passive returns, they're less than my active, but I got all my time back. And what I would also say on every scale, whether it's active or passive, there's a 1 to 10 scale, right? Being the most active, the least active, the most passive, the least passive. So when we go over to lending, Katelyn, let's brainstorm. You gave one already. So, if I'm going to passively lend money to others, right? Again, think about lending. You're putting money out that someone else needs and they're going to do something with it. Easy examples, your city as a bond project, the county, uh the state may have something, but treasury bills are a great example, right? There's also though, if I say pass, lots of corporations go out and have bond offerings. So, you can buy up essentially you're buying parts of their

36:32debt. They need that money to go operate their business and they're offering depending on the quality of that business should determine the yield. Right? So when we think about the ultimate passive lending opportunity, it's going to be treasury bills. And usually people use treasury bills as the what they call the risk-free rate of return. In other words, we all live in America that if we if you're watching this podcast from America and you live here, uh, and you believe that America is going to be here in a moment, um, treasury bills, buying that debt, right, the way you would lose on that is if the United States of America ceased to exist or they defaulted on the debt, which would be very, very challenging. So, that's a really, really passive way. So, okay, let's think about one to 10 passive. If I own treasury bills, 10 being it's one being it's absolutely the most passive thing on earth. 10 being it's not passive at all. That's a one, right? I mean, I place my money, I do a one month, they're going to email me or I can do it on treasure.gov and it's going to get an email. Okay, I got to do it again, right? Not a lot to do.

37:35Similar your bonds now with your city or your county could be longer bond projects. Those could be a year, two years, five years or whatever. Um, and there's other ways to think about those are base level passive lending options that I believe, Katelyn, are going to get you between four and 7% at the high side without taking lots of risk. Now, Katelyn, let's go to ownership. Passive ownership. We talked about it. Stock market, um, REITs, um, these could be syndications or private placement alternative investments that you go to, um, own. Oh, I'm sorry. Sorry, I want to go back to passive lending. Uh, I'm going to go to P my passive ownership. Uh, I own a bunch of natural gas and oil royalties, right? Those are going to be ownership that are passive. Now, Katelyn, again, one to 10 scale 10 not pass at all. What literally when you know an oil royalty or natural gas, all you could do is call the operator and update your a form. Believe me, I've tried to do more. When are you drilling the next thing and how many more are you going to drill and

38:37how's that? They don't they don't, you know, they don't really respond to me in that way. They just say, "Did you get your AC?" Cool. So, very passive, right? Those rates of return, you know, if you're in alternative investments, you know, I'm trying to get a 7 to 10% return on my passive ownership, Katelyn, but I'm trying to do it with the least amount of risk possible. So, the the overlay to this conversation we're having, Katelyn, is how much risk are you willing to take? Right. my I am the least uh risky person, you know, like I will bet a lot on a business that I understand control and get to work with my team because I believe in what we can accomplish. That being said, when it comes to investments, I'm very clear that I'm trying to get the highest risk adjusted rate of return. And so, everyone watching or listening this, you got to think about risk. Are you taking exponential risk buying some crap coin that you could also buy some crypto coin that started yesterday in someone's basement and that's yeah that's passive ownership Katelyn for sure but it has limitless risk attached to it right so

39:42that's just an example there now we're going to cross the chasm so we're thinking about passive lending and ownership somewhere between a four and seven 8% yieldish over there now it's active We own it. We lend against it. Lending options. My favorite one. My by far my favorite one. Hard money lending. I love to lend money to others at prices I would love to own the underlying asset at. Example, someone's buying a $400,000 house. If they're putting $100,000 down and they don't pay me, should someone else not take me out at trustee sale or another person lend them the money, if I were to foreclose, I got $100,000, whatever payments they give me, and I got something worth 400 that I really only have $300,000 of my capital into it. It's a wonderful place. The amount of times that happens, not enough, right? It rarely rarely happens. In other words, lending done right actively, people pay. Because when someone puts 20 30% down on an asset, overwhelmingly they pay. If you were

40:46look at the default rates, Katelyn, of people that put 3 and 12 to 5% down and those that put 30% down. I know it's going to shock you. People default less the more skin they have in the game. So, I love seller financing. Uh, and I'm going to call those more active because we're controlling them. Again, there's there's a scale, right? P 1 to 10. Hard money lending a little active on the front end. Once the loan's booked, I mean, okay, did the payment come in this month? Deposit your account, you're really done. Uh, on the ownership side, actively, highest rates of return, ownership in companies, right? So, Katelyn, when you think about over here, I move from this the passive side, I'm getting a 4 to 8% return. When I'm lending on the active side, I want to get 12 to 15%.
Gotcha. So, and I I'm actually, in my opinion, taking I'm not as low risk as treasury bills, but I'm pretty close with a 30% down payment uh on a six-month loan. The market would have to heave, you know, 30 plus% for me to lose money, right? That's a pretty low rate

41:48of return. Now, when I go to ownership, I might have buildings. I'm a big believer in triple net commercial. We own a Starbucks. We're in the in uh escrow on another one right now. The Denny's. I got an AT&T building. So those are active buildings and ownership. I own single family rentals. Those are active. But businesses and things like that will have your highest yields of ownership. If you invest in a company, Katelyn, is it possible to to buy a $100,000 worth of private ownership in a business and at the end of a year have it return you your $100,000 back? Well, that's completely possible. We've done it many time. Is it possible that that hundred dollar $100,000 investment could be worth 500,000 in terms of enterprise value in the company in addition to getting all your money back? Yes. So those rates of return when you're looking at a business could be 40%. They could be 100% rates of return. Not forever, but over a few years. And the difference is you get to determine that value. So, one of the reasons you, as you know, Katelyn, we love buying interest in businesses where we can impact the business, whatever

42:52price we pay, if we're able to help them double it in the next 12 months, essentially we paid half the price that they were asking is another way to think about it. Or I doubled my return, however you want to look at it. Either way, any other thoughts, Katelyn, as I went on that long angled rant, um that hit a lot of different buckets, but I just wanted to get the core mistake I see. People are taking active money for lower rates of return than they could have got passively with less risk.
I I just I want to emphasize one thing that you mentioned that was a thread between the active side. The passive I think we all kind of captured that at a pretty high level at this point. You did a great job of explaining it. On the active side, you take the most uh how do I say this? you had reduced your risk load on the active side at such an incredible um pace that it the the the models that you've put in place have controlled it at such an incredible way that I think

43:56our entire company and your family office prefers to lend and own things on the active side that we can touch and control and get higher rates of return or not. It's we can control it versus the passive side. Here's the example and and you you alluded to it. When you lend money, if I come to you and I want to get a hard money loan, for those people who aren't in who aren't aware of what a hard money loan is, it basically means that you are taking a loan that is collaterized against a hard asset like real estate. So, I would be coming into Brett's office into Whoa. I don't know if you if people are watching this live. I just had incredible explosions behind me from a fireworks.
Well, that's because you're you're setting off the fireworks. So exciting.
Yeah. It's gonna be wild. Yeah.
I would be coming into Brett's lending arm getting with him and our and Melissa who run that side and I would own a home that's worth uh let's say I'm buying a property that's worth $400,000. He and Melissa are going to go and

44:58underwrite that property and they're going to make sure that number one, does the structure and the asset, that hard asset, is it something that fits within Brett's buy box that he would want in his portfolio to begin with just in lending the money? If the answer to that is yes, then they're going to go to tier two, which is how much would we be willing to lend on this? Typically, they come to we would lend 70 to 80% on that asset. Great. Which then goes to the borrower to say a twofold win for Brett and Melissa. Number one, they if I don't pay, they get that asset back for 70 to 80% below market value, which is a dream come true for them. They don't want harm to me but that would be a dream come true less all the payments I had made in the interim. The second is the second benefit to them is that it is very likely I will not default on the

46:00property because I have 20 to 30% of my hard-earned cash as a down payment on it. So, it makes us equally yolked in that investment to ensure that they're going to receive, call it, their 12 to 15% rate of return on the money they lent that was backed by an asset at 20 to 30% off market value. That is so low risk for someone who manages and operates in real estate. I would call it less risk than T-Bill at the end of the day when it comes to Brett. I mean, the way that you look at it. So that's when you lend, it couldn't be safer. Same thing as when you own, you're buying properties below market value that will cash flow on day one in a way that will uh hold long-term in a location and in a in an asset class that you desire, whether that's triple net commercial and it's the Dairy Queen in a city that's booming or it's a single family residential.

47:03But the point that other point that's so cool is you're actually looking at owning businesses and some people think investing in a business is scary but just like lending it's not. You're only when you have me start those calls and talking to people who are asking us to invest in their businesses. The first question we're asking is where do they need help so that we can help them to grow that business by utilizing our influence, our infrastructure in our family office. all of these components, you want to know how are we going to double that business in a 12-month period if we come alongside as active partners in the business. That's so low risk when you actually look at that investment. You're not saying, gosh, you know, you make widgets and I'm passionate about widgets and have no influence. You're saying, "Where do I know that I can invest my dollars, time, energy, and resources to get exponential rates of return?" You're not going out, you know, just on a random

48:06website and researching things. They're where you have the control to create the impact to get your unfair share in in uh the rates of return of what you're looking for. So I think the way you look at active when people first think about it it may seem a riskier investment and I would tell you the way that I see Brett running it and the infrastructure he has put in place they are our safest assets are the ones that we're actively managing
that's yeah and and the last point I would anchor into that um is when we're lending the money that example you had the 400,000 and they're putting 80 to 120 money down. Um, typically if they're buying it for 400, it's worth more than 400, right? So, the biggest myth I think you say, who's all lending this money or, you know, who's borrowing money at these rates? Almost most flippers overwhelmingly people flipping homes for investment purposes use private capital at some level, whether that's hard money, they got a rich uncle, whatever

49:08they've got. Ke, they're doing this is a established industry. So, I think to bust the myth, I think a lot of people are looking like, "Oh, how would I ever get into this?" go down to your local real estate investment association. You can go online right now and type in real estate investment association and you go down there and there's going to be no shortage if it's a good one. There'll be 50 to 100 people and I bet half of them are using hard money and you could become their lender. Now, there's large companies that'll do it for less and there's people that can close quicker and there's all different, you know, types of lenders, but you could play in that space if you wanted to. The key is to go get the right education. But the point I'm making is Katelyn, even is better than we're stating, right? Right? Cuz they're putting 20 or 30% down, but that $440,000 house, what if it was worth $450,
right?
They're buying it for$400. I'm lending 300 on something that's worth $450. It gets better. So, last thing I want to say, go ahead.
I was going to ask, I would love it. If we have time, you have my favorite case study where you walk someone through an investment, a lending opportunity that

50:10you had and Daniel, the crazy story that erupted from it. Will we have time today to go through that toward the end of the podcast?
We're going to see if we have time. If we don't, we'll do it on the future. We'll do a full case study, but I think we're going to have time. Um, so yes, we're going to go there of how how this can work. And so at the very bottom, you've now got your your passive or active income. You see at the very bottom of the screen, it goes to financial returns. That money now creates like a circle goes back to the top under your capital assets, which creates more cash flow. You still have the four decisions. And it's this process that continues to grow your snowball. Your goal listening or watching to this is to grow your passive income. Yes. Do you want to grow your net worth? Is there a correlation between the two? Maybe depends on how you do it. The one of the biggest mistakes people make is they have their net worth trapped into things that does not create cash flow.
Cash flow is the name of the game.
It's the most important thing. And I always tell this story, you know, when

51:12I'm presenting, I have two friends, um, good buddies of mine, both worth, ironically, the same amount of money, about $50 million. And one guy is kind of a rancher type. think Yellowstone not as cool. And it's a struggle, Katelyn. I mean, it's a struggle. It's a love of the game. The ranch does good, not great. And every year they're they're making money, but the entire net worth is tied up in land, right? So, land doesn't cash flow, right? It's actually got expenses. Now, don't get me wrong, you could sell it all and turn it into cash flow, but we're talking about where should your net worth be. I've got a second buddy uh works the same amount whose entire $50 million into the most cash flowing assets you can imagine very passively at incredible rates of return and he Katelyn lives exactly like you think he would right it's epic in every sense of the word all the time he lives a beautiful life so same net worth radically different lives all a choice

52:16depending on how you build it so Understanding the path of money is critical. And so, Katelyn, from here, I kind of want to go to how should we think about time frames. So, we got we get the path of money. Now, we've got a a method to think about dollars come into our life. We know we've got to monetize every dollar, but I want to go a little deeper on the three time frames to think about. So, first is everyone in here should have a wealth plan, right? If you don't, most people will spend 20 hours researching their next trip to Europe. Uh they might spend 30 hours including shower time, drive time, talking to your friends, right, Katelyn? You're all excited. And yet people won't spend two hours planning their entire lives, which could send you to Europe all the times you ever wanted. And so we've got to get so much more purposeful around around our wealth plan, around where do we want to be at distant points in the future. I always love to use decades, right? Everyone listening to this should think like in 10 years from now, I'm gonna wake up. Where will I be

53:18financially? Where will I be 20 years from now? And where will I be 30 years from now? Because you're all going to you're all going to reach that destination. And will you be where you want to be? Because being there is a choice based on the decisions you make today. Katelyn, something that gets that gets echoed in my home, which will go in my gravestone uh is the quote I say to my kids every morning when they walk out the door. I go, remember, your life will be the sum of your choices. Nothing more, nothing less. Your life will be for all of us, our lives are the sum of our choices. And I think about it, am I making the choices that allow me to live the life that I want in the future? And a big part of that is what's your wealth plan? So, everyone needs to be tracking it. If you're not tracking, we give you a sample. There's a sample net worth sheet. Katelyn, we'll get a link in the show notes where they could get a basic balance sheet. But if you're not tracking your net worth every single month on the first of the month, I'll just tell you as my mentor said it directly to me, you're not in the game. You'll never be wealthy. Uh super aggressive way that he said it in front

54:21of a small crowd. Um but he was right. You know, my answer to 15, 17 years ago, was I tracking my net worth, Katelyn? Yeah, when I wanted to. the months that I knew I had something good happen, I sold something, I want to update it and see it. That's not how it works. The most important time to track it actually would be when it's going down or it's going the wrong way or at your lowest point should be when you should start because all progress starts with truth. Katelyn, our dinner friend, taught us that. And we've got to start with reality. Not worse than it is, not better than it is, exactly as it is. And your balance sheet tells you how you've lived your life until this moment. Right? And again, your life's the sum of your choices. So wherever you're at right now, you're right where you're supposed to be. You could be anywhere if 5 years in the future. Literally, Katelyn, I look at what we were doing 5 years ago. And I thought we were really doing some big things at the time. And I look back now and in a weird way, it's almost laughable, right? Because the time, the skills, we've gotten better at deploying capital. We've gotten better uh at just our skills. We're getting

55:22better all of the time. And and I think we always think about compounding money. People forget that compounding your skills actually pays way more than compounding your money.
Katelyn, is it possible that I could get a 100% better as a human being over the course of the year in terms of my ability to underwrite deals? Is that possible?
Yeah, of course.
Is it possible? Right? Could I get 50% better at this other thing at at math or 40% better at reading? Yes, you could get better at everything, but you've got to have a plan to do so. And so, by getting exponentially better, you can get greater results and get there faster. So, when we think about your money, uh there's three time frames. Um I want you to think about short-term, midterm, long-term. But before we go there, Ken, there's just three there's three keys we think about um there's three anchoring points before we go to the time frames. Number one, when you invest money, your goal is to get a return that's uninterrupted.

56:25What do we mean by that? The mistake people make, right? They put their money into investment Katelyn, it goes in there for 6 months and then I change out. I'm going to switch to a new widget that my neighbor's buying. He's buying a new crypto coins, so I got to get into that. And 6 months later, I pull it out and I sit on it for 3 months and I go over to there and that doesn't work, right? The returns uninterrupted. So, you're making a great return while it's deployed, but then it's out there. And you know, I've I've studied all of the great investors and Warren Buffett being by far one of the greatest investors of our time. If you look at how he created his wealth is he got an uninterrupted return. Like I don't know what year Katelyn if you could Google it on the side. What year did Warren Buffett make his first investment in Coca-Cola his large one just say you know what year did Warren invest u the significant stake in in Coca-Cola? I think it's like 20 years ago. might even be longer would be the crazy part of the story. But he went around and the reason why he did it is he believe he saw the consumption of Coca-Cola going up and he believed that there was just blue sky and that wouldn't change. Uh there was

57:27dividend yields in that stock. And so what year Katelyn?
He began building his position in 88 right after the 87 market crash. He aggressively invested between 88 and 94. And during that period, that investment reached a total because of also its increase in asset value of $1.3 billion. Brett is part of the reason for the uninterrupted that yes, you're leaving it. it's continuing to get those rates of return, but when you're trading in and out of assets, there's drag on cash because it's not in, but also there's fees and and there's there's a lot of friction that goes around moving that money in and out on multiple trades. Is does that is that a factor here or is that part of the reason?
Shoot. Well, it's all it's taxes. Number one, when you sell anything, transactional costs are high. Now, stock transactional costs have come down. But to your point, you got fees in and out. Biggest one is you got taxes. You know,

58:30long-term, sure, you get down to 20%, but that's not I mean taxes no one talks about, they're a huge part of it, right? And there's no way to, you know, exchange that. You get down to the 20% tax rate, but and you're also might be pulling it out uh when you know the greatest thing ever happens and you were you were not in the market at the time. One more Google there. Would you just do how what how much dividends did Warren Buffett receive last year on his Coca-Cola investment? The dividends alone. I'm going to do a guess. I think it's like $400 million is what I believe his but and I just want to anchor the point of getting these uninterrupted returns. Had he traded out and switched to the newest thing or whatever, you know, it would not have created near the portfolio that he has today. What were the dividends for most recently?
It's pulling just a second. Oh,
no problem.
While you're going there, you can answer in a second.
76 $776 million in dividends last year for

59:36uh Bergkshire alone. So you think about I believe when you first started getting and I might have to look but it was maybe 50 million or whatever but I mean now you're getting $700 million in dividends and every year that amount's typically growing. So wild, right? Uninterrupted rates of return. Warren Buffett has this idea you take the 10 investments you can only make 10 your entire life. So if you make one in and out you only have nine left. How focused, methodical and how much research would you do to make those investments? Infinite. What do most people do with their investing? Again, they hear what their neighbors doing. Go do it. So, number one, uninterrupted rates of return. Get the money working for you. Leave it alone. Keep it going. Two, it's got to be passive. We talked about there's one to 10 scales. Just be really objective. I'm going to call a single family rental a five. 10 being the least passive thing ever. One being it's so passive you don't you forget you own it. Right? The more passive, the more of it you could own. You know, my original journey, Katelyn, I was going to own a thousand single family rentals

1:00:38and I got to about 120 and I realized there was there were better, more efficient ways to make more money passively that I was currently doing it. So, passive matters. Lastly, we talked about this compound returns. It's super cool to go out and and make things that have returns coming in, but how do you take that $500 per month and use velocity of money to take the 500 and pay down your line to grow that to immediately lend that money back out or get into another vehicle where the returns are compounding. So, you've got to make sure when you're thinking about your wealth plan that we're going to walk you through in a minute, it's uninterrupted returns. They're more passive. They're the most passive they could possibly be. and the compounding nature. You're thinking about a plan as those dollars come in in real time.
Smart.
Anything else here, Katelyn, before we we move on the time frames. All right. So, oh, I got to go forward, not backwards. So, three time frames. Shortterm, anything less than 12 months, money is going to come into your life for all of us. What do you do with it?

1:01:41We talked about just getting into a savings account, make 3%. But once we've got our reserves hit, we need a way to make greater than 3% on money that we can invest up to 12 months. So 0 to 12 months. And we're going to give you some ideas here in a moment for that. Second thing, midterm would be 12 months to at some point you would sell it, right? So we're not saying you know when you're going to sell it, but it's not something you would hold on to forever. Midterm investments. And these can change and we'll show you how something could flow between the three of them. Lastly, forever. What do you want to own forever? Uh, think about the greatest properties, you know, the corner of Maine and Maine, this certain building, this neighborhood that's got all this incredible data, economic data, demographic, everything's going the right way, buildings all around it. You know, there's legacy assets you want to own forever. The best time ever to start studying your forever asset right now. Right? Sometime in the next 3 years, it's likely the world's going to have some adjustments and things might go on

1:02:43sale. Learning your forever assets today matters. As we go through, uh, I owned none of my Forever assets 3 years ago. Uh, I actually deleted all the social media apps off my phone and replaced them with Crexi, and Co-Star, which is where I started looking at commercial real estate. So instead of sitting, you know, in line at Starbucks or I'm in line somewhere waiting for someone, you know, I used to go on there and I'd look at some social media things. Well, now I put it in the same place the app was. I would open up the co-star app or the Crexi, Katelyn, and I would start looking at commercial real estate and I would start wondering how the economics works and how do you underwrite it and what's the lease here? Is it double net? Is it triple net? Is it a gross lease? Started asking all those things and get and I started understanding how it worked. So my education was 18 months of reps of thousands of deals before I felt comfortable doing my first. So three time frames but start studying your forever assets today. So let's talk about Katelyn shortterm money comes into our life. We gave you the first two

1:03:45treasury bills, high yield savings. We talked about it. The next place I park money while I'm looking for midterm and forever because think of this as we're rolling the money up. I look at private hard money lending. It's the best place. So this is the three places I shove money as it comes into my life and I'm going to hang on to it. It immediately goes to a treasury bill, treasury bill or high yield savings and then I will use that in hard money lending and try to create great returns and my hard money loans are 6 n or 12 months depending on the loan. So just a system it's going to earn three or four while I'm waiting. Then it's going to earn 12 to 15 while I'm looking to do something more upstream with it.
Got it. So this is more like your hopper. money comes into your world while you're either acrewing more, meaning, you know, you're going to want to do an investment that's going to be 250,000. While that money is acrewing, we're not just letting it sit in a bank account. We're actually getting these higher rates of return until such time that we're ready to make the move. So, this doesn't count as not getting your

1:04:48compound returns or, you know, just or excuse me, not having uninterrupted. This is the hopper before we go make those bigger investments. So, this is stage one.
That's right.
Okay. Perfect.
Totally right. Totally right. Uh Treasury bills, we share some rates here if you're watching this, but Treasury bills right now are right around 4% on a one month, a 3-month, and then it gets a little lower as you get out to a year. It looks like today it's about 3.71. Um and those fluctuate. So, the shorter Treasury bills pay more today. Um that's just where they're at. If you want to go to bank rate.com, you could see all the banks. Make sure you vet that the bank's real. You know, you got some banks paying up to 4.4. I haven't heard of some of those. Uh Betterman I have heard of. Poppy Bank, I have not. But you've got all the the usual suspects. Capital One's paying 3.4. Um so three and a half to four and a half today, you could get four on high yield savings, right? It's crazy. Just make sure you can vet the health and strength of the bank. And then hard money lending.

1:05:50We've talked about that. We've talked about those rates. So, okay, I'm gonna I'm gonna fly through this section here.
Okay.
Next, mid midterm. So, midterm, again, these are assets you're going to hold longer than 12 months, but at some point you would sell them. These might be rental properties. So, I had a number of single family rentals. I bought as a factory went in in Huntsville, Alabama. I went and bought about 40 homes around that factory. I was waiting for the factory to actually go in, the jobs to come in, all the competitors to come in, the parts suppliers to come in, hoping the values would double. That didn't happen. Katelyn, sadly, they 3 to 4xed. Uh, and I sold those. There was a period of time where I was I was waiting for that to occur. I sold all of those. They're all gone now. And I I rolled that up into bigger assets. Those were forever assets, but I was there was a specific period of time. For some people, it might be stocks, right? Could be a midterm hold. Hey, I'm buying stock on because I believe in autonomous driving and I'm going to hold on to that for x period of time.

1:06:52And lastly, owner financing. Anything I can sell, any asset I ever sell, uh even down to cars, if I sold a car or private property, I would try to carry the finance it. I want to create income streams that roll out years in the future. But if I sell a rental property and someone will give me a 20 or 30% down, I want to finance it every single time I possibly can. Now, why is it not a forever asset? Because mortgages, Katelyn, if I set it up on a 30-year mortgage, if someone just paid it evenly, they're going to pay me off over 30 years, right? So, midterm, I've I've got my hopper for short-term, it's going into here. These returns are here, and then I'm going to look to at some point possibly roll these into large apartment complexes, mobile home parks, storage units, triple net commercial. Here's what I would say. The more efficiently you can do this and with the avoidance of tax, one of the reasons I love real estate is you can use a 1031 exchange to take a property and sell it and move it into a different asset. So I took my rentals, I 1031 exchange them and put them into some triple net commercial. And so those

1:07:57are assets that everyone should be looking at. I'm not saying you should take this list. These are my examples. Three years ago I own none of these. Today I own triple net commercial and maybe you call it a large apartment complex. 59 to 63 units. We'll call that maybe large. So we might call that medium apartment complex, Katelyn, but it's a forever asset for a variety of other reasons. But it's how we should think about stepping up the money over time. I think a misconception that happens a lot and actually happened in some of our mastermind rooms in the past couple of years was when we heard you know you've been teaching this for a couple of decades now. You've been talking about short-term midterm to forever and a lot of our mastermind members have been on that journey doing it alongside you and also watching you do it. And it was kind of funny that when you started making when you took, for your example, that group of single family residential

1:09:00properties in Huntsville, Alabama, you sold them and transitioned them into a legacy asset or or a forever asset. Some people in the room said, "Well, Brett's way beyond us now, right? He's way out there buying things that we're not even ready to think about yet." and they missed one of the key components. That key component is your wealth world. I think of it like a conveyor belt, Brett. Money's coming in. So, if we go back to that path of money mentally, cash flow is coming in. You're always putting that cash flow into short term, constantly making having it make money. as it gets to a certain point and an asset comes across, you're looking to invest that's in midterm, you're transitioning those funds into midterm to get higher rates of return, maybe some tax advantages. When the opportunity presents itself, that those assets now have increased in value or have gotten to a

1:10:04number that makes sense to sell them and move that portfolio or that portion of that portfolio into a forever. your conveyor belt didn't stop. Still, when you're doing that portion, you're still putting money as the money's coming in through that little wealth factory, if you will, of moving them down the line. So, when you started buying TripleNet or you started sharing the stories and buying the midsized legacy apartment complex for for your family office, a lot of people didn't remember to look down to the beginning. You're still investing in hard money lending. You're still buying tea bills. You're still then transitioning those into single family rentals, owner finance notes, natural gas royalties to then take those funds to move them to forever. Forever isn't the one destination you get to one time and then it's over. This is a conveyor belt that keeps building over time to move all of your assets to forever legacy pieces

1:11:10that give you great rates of return with the right tax advantages and the right cash flow with minimized risk and minimized noise over time. Think of it as just a conveyor belt that then is going to pile up all in the forever. So over time we have to keep working that shortterm and midterm. That destination doesn't mean that the journey's over. It means we just keep going faster and faster because now we're able to take the additional cash flow from for the forever. Your midsized apartment complex is going to generate, we just did the proform again, updated it, a metric crap ton, excuse my French, of cash. Where is that cash going to go? it's going to plug right back into short term as we keep transitioning through that conveyor belt. So, I think people miss that a lot to think once you get to forever, you know, it's like you won it. No, guys, this is monopoly. We keep going around the board. We keep buying more houses

1:12:12and we keep building them into hotels. We got to keep going around the board to keep winning. So, I think that's a piece that's missed that I wanted to emphasize. Well, that is it's such a great point and and the goal being, right? How do we make it cash flow better, more efficiently with less noise? And you touched on that, right? Because it why don't you want why don't I want to own a thousand single family rentals because it's it's more noise than I want to take on today. That's how I got all this white hair. Um, however, taking, you know, taking 20 of them and buying that building is really reasonable, right? especially that building may have zero responsibility, maybe totally passive on a triple net basis. But to your point, all that creates more cash and it comes on the conveyor belt and rolls out again. And so before we wrap, Katelyn, I do want to do your case study because I think this is important that how can how does that process you just described work? How do we go from the short term to the midterm to forever on an asset? So short-term hard money lending, that's my favorite. I went out and lent money to someone on

1:13:14a promisary note here. Uh they came to me. Uh property was listed for a million dollars. It was up in in Sedona, this area, and great great asset. Uh loved it. Had river access, all the right things. Seller was actually taking a second. So my loan amount was 68% loan to value of today's or list price. Um game loan 10.9% because it, you know, had less risk than normal. uh charge a $10,000 origination fee. The monthly payment is about 6,500 bucks. Now, incredible real estate. We've got great collateral on a great asset. This is something we want to look at. Now, this person was going to do a short-term rental. So, we always ask the borrower, "What are you doing with the money?" Like, "What's the end goal? What's your exit strategy?" Well, I'm going to do an Airbnb. It's going to crush it. I happen to know this market that I believe was oversaturated with Airbnbs, and I thought that could be challenging. Again, I don't get the upside. As a lender, I'm trying to reduce risk. And I know that regardless, the $700,000 loan on a million- dollar asset, I'm going to

1:14:17be fine no matter what. His first payment, we have issues. He catches up. We stumble around uh a little bit here, but ultimately, Katelyn, we got to foreclose, right? Pretty quickly, we move to foreclosing on this asset. So now usually they they would have paid longer which would be better. Um the second because there was a second with the seller is now wiped out because we foreclose. So any junior leans are gone. So I own the home. Borrower calls me up and says I made a mistake. I've got all these reasons, right? That's not uncommon. You know that for whatever reason we could have communicated the entire time. You know in Arizona it takes 90 days to from a mispayment to foreclose. Cost about $1,500. So, go to foreclosure. He comes back around and says, "Hey, I uh I'd like a second chance, you know, and I do believe in second chances." So, I said, "I I can't loan you the money again, but I'll structure it um as a lease option. So, I will lease the property to you, give you the rights to buy it back at 2

1:15:20years in the future." Um, but the reason I did that, Katelyn, is I didn't want to have to foreclose again because a lease I can evict within 30 days. I'm shortening the time frame for default. Ah,
right. So, I go so I go from a foreclosure to where, you know, it takes me 90 days and $1,500 to where it's probably like three or 400 bucks in 30 days. So, it's a simple lease, so I don't have to,
but it's moved from a short-term just a hard money loan. you now own it and you're creating uh your your choices are you can either rent it out to a human, you can just go and sell it. You can you know create hypothetically a corporate retreat that our team could go and utilize at any time in beautiful Sedona. But this guy comes I kid this guy comes back and he says I want to work something out. So you structure this now as moving it from short-term to midterm as a rental property for him which allows you then to maintain ownership of the property

1:16:23in the state of Arizona that allows you if he does not make his rental payment you can for you can evict him now within a 30-day time period. So your tale or your risk is much shorter also costs less money. Um, and you create it with a lease option. Is that what this says here?
Yeah. And actually, I charged a non-refundable option fee, which would go towards his purchase price, but I created less risk. I said, "You got to give me $50,000 today for the chance at the second at bat." So, I do that now because I own a I own a rental now that now the beauty of a lease option is I'm not responsible for the repairs. So, one of the reasons you could lease use a lease option is I basically am out now. All the expenses go to the lease option. They're going to rent it. They're going to pay the if something breaks, they've got to fix it because they've got it's basically their home in two years should they exercise this. It's their home and so I don't pay for the repairs during

1:17:26that period of time. But because I've got this property for two years, I've got I can do what's known as a cost segregation. uh I can use my tax advantages here. And so the year of the first year depreciation uh I think went to about a hundred and added about $115,000 I think in depreciation which lowers effectively can this lowers my income by about that amount. So depreciation is one of those beautiful ways the government wants to incentivize us to own homes. Um, so depreciation is that way and you can rapidly depreciate it using what's known as a cost segregation, which is what I did here. And so I said, "Hey, here's your new purchase price. I'll sell it back to you uh it was anytime in a couple years. I'll sell it back um for $8.90." And so you've got minus the $50,000 option fee. We had to get creative on how I let him pay the option fee over time. Um but I gave him some ways out. And so now here we go. Oh, we go down the road. It was a two-year option. 11 months into the option, he

1:18:29now doesn't pay. Again,
you pardon to structure this so he doesn't get hurt. I mean, you protected yourself, but all of this was built to give him an option. You could have told him to get lost at the beginning when he came back to you and still doesn't
100% doesn't pay. Now, we've collected 100. So, the $50,000 non-refundable option is mine. So, what would you do? Well, now I'm going to fix it up and sell it. So, I ended up owning it the whole time by the time we're done over a year and we decided to fix the property up. It did not need a ton of repairs and I sold it for about the same price it was listed for originally, about the million50. Net sales price after commissions down around a million bucks. Um, again, remember I was only my initial loan amount was $719,000. You can see on the screen we made about $260,000 to flip that house. And again, so I've I started as a loan shortterm, had a lease option for 11 months. By the time I fix up, it's like 13 months.

1:19:31Well, now I flip it. Well, I'm longterm. My intention again was to own it the two years for the option. It was shorter than I expected. And so now I have the options. I can go I could sell it, just pay the tax, or I have other options. And so the mo the most interesting thing is I decided to take that money and do what's known as a 1031 exchange and go from a midterm asset to a forever asset. And so my forever asset I would have paid had I just paid the long-term capital gains. Um and again if it was 37% capital gains it would have been ordinary income that's 98,000. If it got down to 20% it would have been whatever 54,000. So, right in that range, 50 to 98,000 depending on exactly when I sold it and where the year ended. But I have a commercial broker sends me a deal. Says, "Hey, I've got a Starbucks for sale north of Atlanta. Uh, this is the actual building and there's two tenants in there. Starbucks is in one side. You've got this rug business in the other. Fully triple netted, meaning I don't pay net. The repairs go to them.

1:20:36The taxes go to them. I pay the tax. They reimburse. I pay the insurance, they reimburse. So, this is a completely mailbox money investment. I have the Rug Gallery next door. They're paying 64,000 before the triple nets. Starbucks is paying 86,000. Um, net operating income, Katelyn, right about $150,000.
Holy cow.
So, I go ahead and, you know, ultimately we looked at putting a mortgage on it of the 930. Uh, and even after all that, so I have all my money back, plus I'm up 200 grand, Katelyn, and not counting what I collected, and now I'm making about $6,000 a month. It'll go up about 2% per year indefinitely on an asset that um, started as a low. And so now I'm making this incredible yield uh, 12.38% on my cash on cash return forever. That'll go up every single year that I own it.
Wow. And it's just an example of going from again you use this conveyor belt

1:21:39example that I think is really really good short-term to midterm lease option to here and we can make the story better and better because as I moved into here I got to do a new cost segregation which gave me more depreciation back and put more money in my pocket. And so the point I want to make, Katelyn, I think that people just miss is we threw a lot at them, right? This was a kind of a a a a bigger discussion around path of money, but it was partly to show what's possible. How could you flow through it? Again, I didn't start buying uh whatever this was, a $2.3 million Starbucks or the purchase price was around 2 million, I think. Um we didn't start there. Started by buying single family houses. This started with the loan. But first of all, my first loan wasn't 700,000. My first loan was like 40 grand to someone. And so everything's possible. You build up your education, your skills, you get better, you get more comfortable, you understand how deals work. And your path of money, the better you are at it allows you to get the results you want and allows you to live the life that you wanted to live. And so for all this,

1:22:42Katelyn, we go out there at be wealthy. Our mission we wake up every day is how do we help more people go out and get free? And the way you get free is getting closer to your money, thinking about your path, thinking differently about money, realizing it's possible for you, and everyone can go out and be ridiculously wealthy. Katelyn, before we wrap today, anything else that we should just talk about to tie this up and put a put a big beautiful bow on episode 0017 um on the road to a thousand episodes. I think you I like how you started the the conversation. You started the conversation at the beginning of the path of money with the idea that you have to start paying attention. There is money in your bank account that you are likely not utilizing sweep accounts or you know investing in high yield savings or automation components to gain an additional 3 to 4% rate of return on money you already have. So you started

1:23:47this by saying pay attention. We then went through path of money and we looked at shortterm or we looked at active versus passive lending and owning of things right and in that component you said again guys pay attention you may be actively managing assets and getting subactive rates of return. Pay attention to your assets. pay attention to your rates of return and calculate those rates of return correctly so that you can achieve your wealth plan. And then you gave us this example on the back end of because you paid attention and didn't take the lazy way out. The lazy way out, Brett, was to take cash as soon as he foreclosed was to relist that property, take the cash, get out of there, rinse, repeat, start again, tell the story of your foreclosure. But what you did instead was paid a lot of attention to what are my options around me such that

1:24:50I can look at that you know beach ball from all the angles from a tax perspective what does that mean from a rates of return perspective what does that mean you went through all of that and paid incredible attention so I think the moral of this is pay attention to your dollars and do it on a consistent basis a couple other ones were hey guys are you paying attention to your net worth every single month on the first updating it. Are you also paying attention to your burn rate? Spending an extra thousand this month and having no idea where it went makes a huge difference in the year 20155. Whether you believe it or not, it's a huge dollar amount difference. So, pay attention to your path of money at every point in the machine that your dollar hits somewhere. You need to be reaping the right re right rates of return and making the right decisions by getting checked into your wealth journey, not out of it. Don't automate it and send it somewhere else. You need to be in charge and pay attention to your money. So,

1:25:52that's the one thing you've taught me all the way down to utilizing my credit card points. You just tell me that sometimes my decisions when you're coaching me through it are disrespectful to the fact that I'm not paying attention. I think these words suboptimal.
Yeah. Do you think it's very clear either you're being I think your term is Katelyn, you're either being disrespectful to your money or you're not paying freaking attention. Those are your words. And I always have to say Brett, I'm not paying attention because I don't want to say I'm being disrespectful. But it's a great lesson and I hope everyone leaves with it. It's it's the common thread of what you went through today. Pay attention to your path of money. You have the power, the ability, and the time to gain incredible wealth.
And it's possible for you, right? You're watching this, you're listening to this. It's poss it's absolutely possible for you. Go out, have an incredible week, be wealthy, and make sure you go to the top of Apple right now. Spotify, subscribe so you get episodes first delivered to you. We'll see you back here next week.

1:26:57Go out, be wealthy. See you next time.
Bye, guys.