The Most Common Lies About Real Estate Investing
The following is an edited excerpt from the book Busting the Real Estate Investing Lies: Build Wealth the Smart Way: Through the Most Time-Tested, Least Volatile Path to Financial Freedom by Kim D.H. Butler & Jimmy Vreeland.
Before the rise of the financial planning industry in the 1970s, the cornerstones of personal finance were “savings accounts, whole life insurance, and the home mortgage.” Most people’s number one fear was speaking in public, not running out of money. — Steve Utkus
Do you want to become a millionaire overnight? If so, this book isn’t for you! Instead, we are here to teach you how to find true financial freedom through a time-tested, antifragile system. Single-family real estate investing and whole life insurance policies are the means this system uses to achieve financial freedom. The means are important but not as important as the ideas and system that we are going to expose you to in this book.
When most people think about real estate investing, they think flipping houses, and they think high risk, and they probably think about the real estate crash of 2008. What most people know about real estate investing is entirely false. We will debunk the most common lies and show you how to use the time-tested, antifragile strategy of combining real estate and whole life insurance to create wealth. Can financial freedom really be this simple? Does it actually work? Yes! This strategy does require some capital, but the true requirement is a mindset and intellectual curiosity to understand the financial system and how to leverage it.
Let’s get started.
The Biggest Lie
Before we begin busting the lies of real estate investing, we’d like to first discuss the biggest lie of all: the myth of the middle class. Here is our working definition of the myth of the middle class: Americans are encouraged to go to school, get a good education and good grades, work hard, pay into a retirement account, buy into mutual funds and qualified plans, and then — after forty years of misery and delaying life — retire and do what we want. Right?
Wrong. We’re actually stuck in a rat race. This is not the recipe to get what you want out of life and to live that life to its fullest. This is what we’ve been told, but it’s completely false.
Everyone hears this lie, and a lot of people accept it with no questions asked. People are blind to any opportunity that’s not hour and dollar related. When you go to work and literally trade hours of your life for a fixed return that you only keep a portion of, that’s a limited life. There aren’t many ways out of that. It is a tax-disadvantaged environment. We are here to offer alternatives and provide people with options.
The Approved Plan Isn’t Working
The idea of retirement is ludicrous, actually. Incomes have stagnated, but expenses have risen. By “saving” money in conventional “retirement” plans, you are speculating on something you have no control over. Typical retirement savings are mathematically impossible. Most Americans live paycheck to paycheck and have no additional funds to invest or save. They are ill-prepared for retirement, and many employers don’t even offer retirement plans anymore.
The uncertainty and volatility of the Wall Street casino makes it hard to know which way is up. Your 401(k) investments become 201(k) investments — nearly cut in half based on a stock market crash or extraneous fees. Everything that Wall Street offers is a high-risk, volatile environment. It’s an exhausting way to live your life, and this type of retirement plan puts all the risk on the investor for a very small reward. If that’s not enough stress, the investor is taxed at ordinary income rates (either up-front or deferred) and pays penalties anytime they want to sell or transfer their money to another investment. If your balance sheet shows $100,000 in a retirement account, cut that value in half. After fees and taxes, that’s all you’ll be left with. Learn more by watching this video from Truth Concepts: https://youtu.be/GP2d3BhzWB0.
The concept of retirement is flawed and it’s hurting people. Those who retire are no longer happy. Human beings need vision and purpose. They need something to do. That basic need doesn’t end at the age of sixty-five. Only two-and-a-half generations have had Social Security and retirement even as a concept and available to them, and it is clearly not working. It can actually be detrimental to your health. In the article, “Why retirement can be bad for your health,” written by Caroline Parkinson in 2013, the BBC states that retirement “increases the chances of suffering from clinical depression by around 40%, and of having at least one diagnosed physical illness by 60%.” Studies also show that working even an extra year has a significant decrease in mortality risk. Healthy retirees show an 11 percent lower mortality risk by staying in their job those extra twelve months.
Humans don’t have an inherent need to retire or to stop working, but they do need to sustain their existence. They need to be able to sustain their basic needs of food, water, and shelter. In financial terms, they need to be able to cover their expenses. Retirement messaging is incomplete. People are told that retirement means quitting their jobs, but it should be defined as, “stop trading your precious time for money.” In order to achieve this, a person needs enough cash flow to equal their expenses. They need to be able to fund their lives without active income. Conventional retirement plans are supposed to do that, but they are based on deferment plans and are failing miserably.
In essence, the entire concept of retirement is about deferring. We say, “I’ll travel when I retire.” Or, “I can’t take a vacation or do what I want until retirement.” We defer our lives and our money, stick our head in the sand, and wake up one day realizing we are at a point where we can’t enjoy the money we actually saved.
It’s time to make a change.
The American Benefits
We often get objections from people asking why they should invest in real estate or put money in a whole life insurance policy. Our response is, “What does the bank and whole life insurance company invest in?” After a pause, they usually act chagrined and say, “Oh. Real estate.”
Exactly. Real estate. So why not cut out the middleman and do it yourself?
Consider this for a moment: a bank won’t lend you money to purchase stocks or mutual funds, but they will loan you money to purchase real estate. They will also loan you money against your whole life insurance, which is a clue to why these two assets work so well together. Banks will not lend money against a qualified plan, because they know they are inherently too risky and if there is a crash, the bank loses all of its collateral. Banks understand and will lend against the cash value of life insurance and a piece of property because both have acceptable collateral. If the owner of a piece of property defaults, the bank can take an asset back (the house). If the owner of a life insurance policy defaults, the bank can take the actual cash of the life insurance policy as collateral.
Americans, through 200 years of struggle, have created the best contract and title law in economic history. People talk about American exceptionalism, but rarely do they consider the underlying reason or foundation as to why Americans have been able to create so much wealth, and why entrepreneurship is so strong in this country. We have the strongest contract and title law in the world. You can buy a piece of land or property, extract value out of that piece of land, and leverage it for liquidity — all because you can show proper title to what you own. You can divide your property, sell shares of it, or even borrow against it. It is more than just brick and mortar; it is now an asset.
In most third-world countries, people do not own and cannot show clear title to even own the land that they live on and the house that they live in. Their savings are tied up into the walls of the house, and they can’t access the money. In contrast, we can take advantage of our property law, and it’s the basis for how we are so economically strong. For further in-depth discussion of this concept, check out Hernando De Soto’s excellent book,The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else.
Whole life insurance also exists and works because of contract law. It fills an essential need in the market and is an effective way to replace the income of the breadwinners in the family, if necessary. Entrepreneurs created this system, basing it on a contract between the company and the policyholder. On the flip side, bureaucrats and politicians created retirement plans based off regulation and legislation to fulfill the political need to replace the pension system.
It is very easy to change regulation and legislation based on the political environment; Congress could — and we think will — alter the current qualified retirement plan legislation to meet their immediate political needs. Congress cannot change whole life insurance contracts without rewriting contract law, and that would affect real estate, banking, and other financial institutions, so it’s extremely unlikely to happen.
Furthermore, the whole life insurance contract is unilateral. The company is obligated to you, but you are not obligated to it. We want to be obligated because being obligated to it is to be obligated to ourselves. The traditional whole life insurance contract or policy is held inside a mutual company owned by the policyholders. There are no shares, it’s not public, and you can’t buy a piece of it unless you buy a policy. That mutual structure gives contract law even more emphasis, because the people controlling the company are the owners of the policy that also own the company.
Contract law also allows for generational wealth. Property is very easy to pass on — whether to your children, a family member, or even a charity. You can sell shares of the property or trade it, turning it into capital which moves faster and is scalable.
As Americans, we literally have the golden ticket in our hands with our access to real estate and whole life insurance.
Real estate is not liquid, so you can’t invest solely in real estate. Whole life insurance doesn’t create income streams the way real estate does, so you can’t only purchase whole life insurance. Together, they are the perfect combination of liquidity and cash flow. On paper, it may not look sexy, but you’ll find comfort in the knowledge that you’re leveraging tax benefits, you’re investing instead of speculating, and you’re operating in a very nonvolatile environment. This is an antifragile strategy that leverages the current financial system to mitigate the downside and avoid the risk of ruin that exists on Wall Street.
The best investors on the planet know the secret to growing money is not making huge gains — it’s making sure to never take a loss. Losing money can set you back years.
This strategy has been used for the last few hundred years. According to Pirates of Manhattan by Barry Dyke, every large bank uses whole life insurance as their primary vehicle to store liquidity. If most large banks are using it, why aren’t they passing this idea down to people on Main Street? Because they want you to buy their products, and then they want to put their profits from you buying their products into a system that actually works. Think about it: banks take your deposits, loan them to real estate investors, and earn the high rates of return themselves. They arbitrage your money for their own benefit. This is why we say to cut out the middleman and do it yourself — keeping all the upside to yourself. All that’s required is a little bit of know-how, which you will have by the time you finish reading this book.
It’s time to keep your money to yourself and choose your own investments wisely.
Liquidity In Times Of Volatility
The antifragile investor loves randomness and uncertainty. By not following the crowd, you can use randomness and uncertainty to your advantage. It all goes back to the old saying, “Buy when there’s blood in the streets.” The liquidity created inside the whole life insurance policy allows an investor to invest during a crash. The people most hurt during the late 2008 crash were those in a liquidity crunch, because they couldn’t invest in anything that would provide them with cash flow. However, if you sat on a bunch of cash, it was go-time. You bought everything you could get your hands on, at the bottom, and were able to hold onto them for the long haul, because the properties supported themselves with cash flow. You could sell later, when the market returned, for huge upside.
Antifragility is beyond resilience or robustness. The resilient resist shock and stay the same; the antifragile are at their best in times of high volatility.
Coming To The Realization
We are the first to admit we didn’t always invest this way. It took some eye-opening moments for us to buy into the whole life insurance and real estate strategy and for us to come together to write this book. Here’s a quick peek into our pasts and how we came to discover this life-changing strategy.
I left the military with a high suspicion of bureaucrats, and my first day as a civilian was the day investment banking giant Bear Stearns collapsed. I felt like the bureaucrats and the government had not only just screwed up the war I was fighting in, but now they were in charge of investment banking and messing that up, too. I was a high-paid W-2 and killing it, but I was stuck giving half of it to the government and the rest was spent on bills for my family. I was staring down the barrel of a gun where I would be forced to do the exact same work, living under the exact same pressures, for the next thirty years. Human beings act to alleviate anxieties and to expand. They act in order to continue to make their short time on earth constantly better. Working for money, giving that money to the government in taxes, and then giving up even more to financial institutions that you do not control — and repeating this pattern for forty years — does not reduce anxiety or lead to expansion. It is asinine. Every January 1, I’d get a new quota in the same life-sucking game. I knew I had to find something different.
I love this country and I was willing to fight for it. When I say fight for it I mean that sincerely. I was not a staff officer who sat behind a desk; I was on the front lines. I was willing to get shot at, blown up, jump out of planes, walk for miles, and spend time in the worst parts of the world — all for my country. I still am. But when I got home and started earning money, I was not willing to give up 40–50 percent of the fruits of my labor. That was the dividing line for me. I realized that my government is not my country and the people I loved. To be a patriot does not mean to support the political party that is in power at the time; to be a patriot means to support and defend the liberties of your fellow citizens.
Once I discovered Rich Dad Poor Dad, real estate investing, and entrepreneurship, I saw a new way to fight for freedom. I was heavily influenced by Tom Wheelwright, who shows that there is a patriotic way to legally pay zero taxes. It may be an even more effective way to fight. If I lived in the Middle Ages or during the time of the Revolutionary War, I would take up arms to fight for freedom. We now live in a time of abundance. Luckily, I don’t have to fight with guns, but there is still a fight to be had with assets and money. I wanted to write this book in order to take a stand and show people that there is a simple, but not easy, strategy from which they can leverage the current system and fight for their own economic freedom.
The myth of the middle class is a load of s*** and there is no way that the wealthiest and most productive people in all of human history should spend their lives shackled to jobs that they hate and rob their families of their time, only to give 40 percent of the money to the government and another 10 percent of their money to the financial planning industry that puts their money at a high level of risk for a minimal return. Only a sucker would take all of the risk in any investment and that is what you are doing in a qualified retirement plan. Tax-deferred is not tax-free, and only a sucker would pay ordinary income rates on investments.
I graduated from college and worked in a bank where I received typical financial planning training. During my time at the bank, I had many entrepreneurial clients and real estate clients. The typical financial plan strategy was a punch in the stomach when I realized it didn’t work, and it was all a lie. I knew it could be mathematically accurate, but realistically it was completely debunked because math has nothing to do with people’s lives. I had learned how the entrepreneurs at the bank built, stored, and protected their wealth. That was an important realization, because I had seen real estate investors who had no cash and got stuck, and entrepreneurs who had also been educated on whole life insurance and the use of policies as liquidity. I put two and two together and continued to progress from there.
Fast forward to today and our family now uses whole life insurance as our emergency opportunity fund and a savings account with a “bill.” What I mean by this is that the premium notice shows up every month and has forced us to save in a way we never would have. We have cash value that has supported our lives and emergency funds, to be used when we needed additional money to make payroll or for opportunities to improve the home. We used the whole life insurance cash value as needed and then always paid it back. That’s very important.
We also borrowed against the cash value for investments, like real estate, that created cash flow that helped us pay the whole life insurance back. We invested on our own and with Jimmy. We realized doing it on our own was not our area of Unique Ability® and our dollars were better spent with their model.
Like attracts like, and the two of us eventually found our way to each other; real estate and whole life insurance combined. This changed the paradigm completely. There is this constant velocity of movement of money through whole life insurance and into real estate, which is then enabling the cash flow to come back and help pay off the whole life insurance loan. We both implement this strategy now.
One family’s goal may be just to get enough real estate to pay expenses. Another family’s goal may be to pay back the cash value of the whole life insurance so they can buy more real estate, create more money, and focus on the next thing they want to do. Perhaps they want to build a business, create a nonprofit, or get involved in charity. We want to help those people have better practices. Instead of just having whole life insurance or real estate, they can have whole life insurance and real estate, and it enables their financial picture to be so much stronger.
We want to help and we decided to write this book to educate and empower others to create their own wealth. We want to help you before it’s too late, before you are misled to go down the mass-marketed path, and before you believe the lies being fed to you.
What Are The Lies?
Most of what you believe regarding real estate investing is wrong:
- It takes too much money. No. You don’t have to buy the houses. Leverage the banking system and put down the minimal down payment. Leverage, used correctly, is one of the most powerful tools for any investor.
- It takes too much time. No. You will not be spending time looking at houses, evaluating properties, putting together estimates on repairs, managing contractors, placing tenants, or managing tenants.
- It’s too complicated. No. We have simple metrics to show you that it’s about cash flow, not appreciation. When you remove a lot of irrelevant information from the equation, it can be very quick and easy to identify good investments.
- It’s too risky. No. We will remove the intimidation factor out of trying to identify a good real estate investment. We will systematically show you that it is not as risky as what you’re currently doing on Wall Street. When you invest for cash flow, it removes most of the outside factors, like market volatility.
- It’s about flipping. No. The HGTV lineup on flipping houses is a lie. We’ll teach you why it’s important to hold onto and rent out your properties for the long term.
Whole life insurance also has lies that need to be busted:
- It’s an investment. No. It’s actually a place to store cash. And you don’t have to borrow against the insurance for it to be effective.
- It’s multi-level marketing. No. Whole life insurance companies were typically created by a church or community that came together to put money in a pot if a family had a death, so it didn’t destroy the family. The idea of mutual ownership was built on that concept. Everyone contributes and everyone benefits. Private individuals and organizations saw this need and fulfilled it with companies like GoFundMe — where two-thirds of the campaigns are due to a death in the family where the breadwinner was not insured.
- It’s too expensive. No. Term insurance is certainly cheaper than whole life insurance, but the benefits are drastically different.
- It’s federally regulated. No. It’s state regulated and doesn’t have a lot of the issues that come with the banks and large corporate investments that require federal regulation.
What Can You Expect?
The following eight chapters will provide you with the path to financial freedom through real estate investing and cash value whole life insurance. This is not about making millionaires overnight. It’s about building wealth and freeing up time by creating passive income that goes straight to your mailbox.
This isn’t theory. The results are proven, and this is how we all make money. If you read the rest of this book and follow our strategies — assuming you have capital built up — we can get you antifragile cash flow in ninety days. If you need to build a base of capital, it might take a little longer.
Imagine this scenario: you have a portfolio of cash-flowing properties. You may still have a career you love, but now you have the option to take time off, try a different career field, study, or travel. Most people won’t retire, sit back, and relax. They want to live their life, and it’s important to have as much autonomy as possible. This strategy provides options and offers peace of mind. You’re not checking your portfolio balance every day or watching the stock market ticker and living on every up and down mark. You’re not worried in times of crisis.
Instead, you can sleep at night. You’ve put yourself in a position where you’re almost untouchable when it comes to financial risks. Imagine how a life like that would feel.
If this life is something you want, read on.
To keep reading, pick up your copy of Busting the Real Estate Investing Lies: Build Wealth the Smart Way: Through the Most Time-Tested, Least Volatile Path to Financial Freedom by Kim D.H. Butler & Jimmy Vreeland.