Don’t Take Big Financial Risks Until You Hear This Wealth Growth Advice

Aviva (00:00)
This week's listener of the week is for Mattify for Mattify. Thank you so much for leaving us a five star review. And for those of you listening, if you leave us a five star review below, you might be next week's listener of the week, week, week, this week on commercial real estate secrets. have Mark Willis. Mark is a certified financial planner and the owner of Lake growth financial services. Mark, thank you for being on the show today.

Mark Willis, CFP® (00:29)
So glad to be here. Thank you.

Aviva (00:31)
Yeah. Mark, if you wouldn't mind telling the listeners who you are, where you come from and what you do.

Mark Willis, CFP® (00:39)
Sure, I'm strangely enough, stumbled into becoming a certified financial planner of all things. Like most folks, I did not grow up with a silver spoon in my hand, but came out of college with six figures of student loan debt and no plan to pay it off in the midst of the Great Recession. So for me, that was a wake up call of epic proportions. And I got very interested in my own personal financial journey.

And as I stumbled across some unbelievable strategies that changed my family tree, I wanted to pass the word along to others. And so part of what I get to do and have the privilege of doing is working with real estate investors specifically. And most CFPs would shy away from the real estate space because they want you to put all your money and stuff they can control. I'm a little bit different. I'm not your average financial planner.

And that's the name of our podcast too, not your average financial podcast. And what we do on that show is we talk about real estate strategies that help the real estate investor not be beholden to the bank, not have to kiss the ring of the banker, but swim upstream financially and take back more control and agency over your real estate portfolio and your life overall.

Aviva (01:52)
So that all sounds really exciting. Can you dive into what being a real estate investor in 2024 looks like to you?

Mark Willis, CFP® (02:04)
Well, the so average real estate investor is maybe different than most of our clients. And we work with clients in all 50 states. So maybe I'll explain what I see happening to the, the, unfortunate investor who's been caught like so many people with higher interest rates, nibbling away at their cashflow. And then some ways, not just nibbling, you know, wholesale swallowing their cashflow. and many people are unfortunately seeing the cap rates.

shrinking and their profit margins shrinking. The banks are starting to come and collect and their balloon payments are coming due on their HELOCs. I'm starting to see 12 and even higher 14 % HELOCs as of this recording. That's not sustainable for folks when HELOCs are approaching near credit card territory. And we're looking at people who now certainly are

are dealing with renters who are facing the same inflation everybody's dealing with. And that's getting now harder for most folks to pay rent. That includes commercial, whether we're talking multifamily, residential or business, you know, as well as I do that the business and just commercial real estate in general can be tough. I know you guys have some incredible ideas in terms of warehouse and other asset classes that I think are going to be more resilient than ever.

I mean, I look around our landscape and I see more Amazon warehouses and more than, than I see a new office space is going up. That's for sure. So, you know, what you've done and what I think most folks need to do is one, think creatively about the asset class. That's one, you know, think outside the box, literally the box that might be, you know, warehouse space, that might be storage units. That might be things that.

you know, mobile home park investing. could be a syndication deal in spaces that you may not have thought, you know, would be your cup of tea earlier. and be willing to think creatively and listen to this show, commercial real estate secrets, give them that five star review, be that next listener of the week, week, week. And then, and then how are we going to finance those deals? That would be where the financial planner comes in and the creative notions like the bank on yourself strategy.

to help people make the acquisitions, to not have to be dependent on that banker, to make those smart choices like the ones that you might share on your show.

Aviva (04:31)
You know, I was talking to a title rep last week who told me he's barely seeing any deals come through, get through the finish line with a lender right now. Can you explain the current lending status that you're experiencing and how you can combat that as a CFP?

Mark Willis, CFP® (04:42)
Mm -hmm.

Well, I can just tell you that the best borrowers are the ones that come to the closing table with capital. The more strong you look on your balance sheet with current assets and contingency funds for your contingency funds, the more likely you are to be the one to finalize the deal. How many people have lost that deal because they couldn't show enough liquid capital on their balance sheet?

So in this day and age, cash is king, who to thunk. And so where we keep our capital is what I specialize in. You know, this is not just put your money in a brokerage account and hope that the stock market goes up and, by the way, I'll take my fee off the top. No, I don't believe in that. And the Department of Labor, by the way, says that if you put your money in a brokerage account, that's only, or an IRA or anything that's charging an average of 1 % fees,

The Department of Labor says that over a 35 year period, typical holdings on a brokerage or a retirement account, you're gonna spend about a third of your life savings just on fees, 27%, just on stinking fees. That's unbelievable. Now why would someone choose to do that when they have so many other alternatives for a parking space for your cash? And for the real estate investor,

This is an opportunity to think creatively about where to park your profits in between your deals. And surprisingly enough, one of the strategies that's come to my attention and that's been extremely helpful for myself, but also from our real, our real estate clients is a tool known as bank on yourself. And, you know, in all things, I would have never guessed this, but a, a specially modernized designed form of whole life insurance.

allows the real estate investor to have a liquid pool of capital, a cash value, not just a life insurance death benefit, but a cash value. That's the stuff you can spend while you're alive. That's, you know, it's kind of when I like to spend money as well while I'm alive. So the cash value is there for you to use for anything, including a down payment on a property, including property taxes, including an HVAC upgrade.

And we just had a client use their policy for, you know, totally renovating their first floor of their warehouse space. and they used it, you know, and they got the money in about four or five business days. And that gave them the money they needed for the deal without having to use a bank.

Aviva (07:33)
Wow. So let me ask you, what do you feel is the most safe and predictable way to grow wealth? And then I'm going to ask you thereafter, what is the risky way right now that you're finding to grow your wealth?

Mark Willis, CFP® (07:46)
Sure. Yeah. Safe and predictable is something I think a lot of folks are looking for. And again, there are 400 plus financial products out there. There are millions of ways to combine them together. So we're talking infinite portfolios. Where should we put our money? That's a key question. A lot of people have. And where you put your money makes it act differently. This is just a simple concept, but

Most people go their whole life and never consider where they should put their money to do what they want it to do for them. It more feels like they're on a hiking or backpacking journey. They've got a backpack on their back. They see a pretty looking rock and they pick it up and they put it in their backpack. that's a nice looking rock.

So they find a couple of credit cards, they put it in their backpack, they find an IRA and they put it in their backpack. that's a pretty looking cryptocurrency. Let me put that in my backpack. that's a nice looking rental property. Let me put that in my backpack. Before long, you got this big bag of rocks and you're like, what am I doing with all this stuff in my backpack? Does it align with my interests? Do I even believe that it makes sense to put money in a 401k? You might be starting to ask that as you...

as you conceive of the future where taxes might be higher. And as you consider, wow, I'm putting money in a tax deferred 401k. And yet I believe that my tax rate might in my federal tax rates and my state taxes will be higher than they are today. Why would I defer my taxes into a future when tax rates would be higher? This is just one of maybe three dozen different paradigm shifts that we have with clients to ask them to help them to help.

Aviva (09:06)
Right.

Mark Willis, CFP® (09:31)
me as a fiduciary and as a fiduciary financial planner, determine what is in your best interest to put this policy to, you know, this paradigm, this portfolio together, whatever it might be. Again, if we're designing, you know, a system, not just a product, but a system that in a paradigm that helps us meet our goals without taking unnecessary risk. Here's my basic approach to ask your, to answer your question about safe and predictable.

Let's do a big pile of money in something that's guaranteed to be there. Whole life insurance is one option. We talked about that earlier. So big pile of money in something that's guaranteed contractually to grow every single year, regardless of the stock market, regardless of real estate market. Let's put a big pile of money in this liquid, safe, accessible fund. And then on the other side of our portfolio, kind of like a barbell,

You know, we've got one pile of money over here that's safe and predictable and liquid over here. We invest in smart things that we can control and understand. And by doing those two things, you can really create an incredible financial portfolio between risk and risk -free assets. and one feature that, that I found to be just totally compelling about this, you know, this, again, we call this a bank on yourself strategy here. You can borrow against the life insurance.

to do whatever you need with the money, buy a car, invest in real estate, and that policy will continue to compound and grow as if there was no loan, as if you hadn't borrowed a dime of it. So let's say you had like 200 grand in cash value, and let's say you borrowed out 160 grand for a real estate deal. Your policy would still grow on the full 200 ,000 bucks, even on the capital you borrowed like there was no loan. It's huge.

Aviva (11:11)
Wow.

That's crazy.

Mark Willis, CFP® (11:28)
It's game changing, game changing. You can do that. Now some people say, what's the catch? Well, remember this is a policy loan, but it's not like a loan you might get at the bank, like a line of credit or a home equity line. What you're getting is a loan against your death benefit. So if you should pass away after you took that loan, your family would get, let's say a million bucks minus whatever loan you have against it. So that's why you're able to get the loan. They know you're good for it.

Aviva (11:54)
Wow.

Mark Willis, CFP® (11:57)
You know, they know I'm good for it because someday I'm going to graduate. So the insurance company is going to be able to pay my family a little less. And hopefully I borrowed that money out and put it into something like a real estate deal where they, my family gets the real estate anyway.

Aviva (12:10)
Would you consider that leverage?

Mark Willis, CFP® (12:13)
Yeah, it's a non recourse loan. is leverage, but, you know, there's this old phrase in real estate. You want to use other people's money, you know, OPM, other people's money. And that's fair. That's a fine idea strategy, but the funny thing about OPM, other people's money, they, they usually want their money back, which can become dangerous if you're not in the position to pay them back all the time. Right. So when you use a life insurance loan, it's a non recourse loan.

Aviva (12:33)
Sure.

Mark Willis, CFP® (12:43)
This is different than a home equity line of credit or a business line of credit or a traditional mortgage, which is required to be paid back. In this case, you do pay it back, but it's with a death benefit. Either you pay it back during your lifetime if you wish, or you just go the rest of your life, never pay it off, and the loan pays off when you pass away.

Aviva (13:05)
That is so wild.

Mark Willis, CFP® (13:08)
It's crazy and it's so crazy because it's been around for hundreds of years, but most people have put pennies into they've thought about it wrong. Like, and this is how I thought about it. Put as little into life insurance as you possibly can and then go risk it all in the casino table. That's what most people are told to do. Right. But if you flip that script and you say, let me dump as much as I can challenge myself to pump into these policies, you'll get a ton more capital.

You'll have all this liquid money sloshing around. And so when the tide goes out as it inevitably does, you'll be the one on the courthouse steps picking up deals.

Aviva (13:45)
So let me ask you, one of my favorite topics is compound interest. Does compound interest play into these policies? And if so, how does it?

Mark Willis, CFP® (13:59)
Wow, yeah, yeah, what does Einstein say? says it's the eighth wonder of the world and only those who understand it can collect it. Those who don't understand compound interest will always be doomed to pay it. So yes, in this case, compound interest, let me be clear about what this is. Exponential growth, okay, so a supernova is exponential. The algae on a lake as it expands is exponential. Life insurance,

is exponential in how it compounds. This is different than how the stock market changes in value. Why do I say this? Let me give you a quick math experiment. For example, let's say that you invested $10 ,000 of even, and let's say you put 10 grand into the stock market, some stock you bought, and let's say that it goes nuts and it doubles in value. You got a hundred percent rate of return. Wow. Your 10 ,000 bucks went up to 20 ,000 bucks and you're feeling great.

So the next year you've got 20 ,000 bucks and you stick with it, but unfortunately your investment fails. drops 50 % in year two. Your $20 ,000 goes all the way down to how much? 10 ,000. How much did you start with? 10 ,000. So you went from 10 grand up to 20 back down to 10. Do you feel any wealthier two years later? No, no, definitely not. Now any financial advisor

Aviva (15:20)
No.

Mark Willis, CFP® (15:27)
would be able legally to tell you that you had a 25 % rate of return over two years. What? It's true. The average rate of return, you went up 100, you went down 50, divide by two, that's 25 % average rate of return. And they will sit there with a straight face and tell you you got an average rate of return of 25%. And you'll look at them like a cow looking at a new gate. And you'll say, what the heck are you talking about?

Aviva (15:55)
you

Mark Willis, CFP® (15:57)
And you'll, you'll just acquiesce to them. I would most people would because they're the money guru, you know, they got the degree, they got the background, but the truth is the change in value was zero. got a zero rate of return. The, the compound annual growth rate, if you want to say it that way was 0%. But they're allowed to advertise as CC allows them to advertise that as a 25 % return. So what am I saying? Compounding.

is different than changes in value, changes in value. You want true compounding, not volatility. Okay. And why is this matter? Well, if somebody quotes you saying, Hey, the stock market's going to do 8 % a year, 10 % a year. Don't believe them because that's not the same thing as a compound real return. Okay. So what am I, what's the final point? Look for things that only go up in value.

Aviva (16:29)
Hmm.

Mark Willis, CFP® (16:56)
that never have volatility and that is true compounding. That's true exponential growth. Interestingly enough, boring old whole life insurance, since it's contractually obligated to go up in value every year, no matter what the market does and there's no volatility, you can get true compounding. Now that was a long answer to your question, but that's such an important one if we're gonna beat inflation and if we're gonna always be able to have a more efficient financial vehicle every year.

Aviva (17:13)
Wow.

So if you were just starting out, what is the best way to use whole life insurance to your own and your family's benefit?

Mark Willis, CFP® (17:32)
Yeah. And again, it may or may not be the right fit for everybody listening. I, really encourage folks to do your due diligence and most importantly, work with an advisor who's been certified in this area. So there are 400 ,000 life insurance agents out there, 400 ,000. mostly everybody has gotten a life insurance license at some point, but that doesn't qualify them to do what you and I are talking about here today.

I mean, if there were 400 ,000 heart surgeons, would you just go to anybody? Would you go to your cousin heart surgeon? No, I wouldn't. So yeah, no offense to cousins out there. So that's the first thing you want to make sure you're working with someone who knows what they're doing. second, make sure that they've thought carefully about your overall objectives. most of the time when people are just getting started, you can start a policy depending on your financial ability with even just

Aviva (18:04)
Definitely not. No offense.

Mark Willis, CFP® (18:27)
Couple hundred bucks a month, setting aside like a savings account. Think of it almost like a savings alternative. On the other side, you might be ready to go with a large lump sum. Some people do that too. Really each person is going to have a custom designed policy. Now, what can you use it for? You can use it. My first, I used my policy for my, my, my wife had a medical need. used a policy for some medical expenses. We've used it to go on vacation. We've used it to buy a car. We used it to start our business. We've used it to invest in real estate.

Aviva (18:29)
Hmm.

Mark Willis, CFP® (18:57)
We use it to pay off all of our student loans. We use it to pay our tax bill every year. There's so many ways you can use this tool because it's a liquid fund and there's no, unlike an IRA or 401k, there's no prohibited transactions.

Aviva (19:11)
As someone who dabbles in the world of illiquid assets, it's amazing the flexibility you can have with a little liquidity and how you can use that to compound and help yourself and your family.

Mark Willis, CFP® (19:30)
I'll just underline and bold and italicize what you just said. You know, there is a rate of return to liquidity. Folks kind of look down on liquidity like you're getting zero what return? No, these policies do a fairly decent middle single digit return. Nothing fancy, but that is a tax after tax return or a tax free return of five or 6%, let's say. So a taxable yield on a 401k, you'd have to do eight or 9 % to keep up with, you know, 5 % tax free from the life insurance. That's not

Aviva (19:45)
Hmm.

Mark Willis, CFP® (19:59)
Nothing that's pretty decent. And then like I said earlier, if I borrowed case in point, if I borrowed, let's say a hundred grand from my policy to go invest in, in one of your amazing deals, for example, then I'm getting the growth in my policy and I'm getting the returns of my illiquid asset, whatever that might be, you know, my investment.

Aviva (20:23)
returns and the appreciation.

Mark Willis, CFP® (20:25)
and the appreciation and your tax advantages you might be able to offer your clients and the cash flow and so much more. The depreciation, like you said, yes, so much more. So I always tell folks it's not either or it's not like either we go get a real estate investment or we do bank on yourself with bank on yourself design policies. It's both. And I get the cash value and my policy started and then I go get the investment.

Aviva (20:52)
Sounds like a win -win to me.

Mark Willis, CFP® (20:54)
As always, you want to look at the downsides. There are costs to the insurance. You want to make sure I said earlier, the biggest risk is working with the wrong advisor. because there are so many, let's just call them YouTube insurance agents out there. you want to work with the only certification program in this area of the financial universe is the bank on yourself professionals certification program. There's about 200 people who've made it through that. took me three years to get through the program.

and they do a quality control on whatever it is we're doing. Think of it like the CFP for this space.

Aviva (21:33)
It's fascinating. And I, as a just investment nerd, love learning these other avenues of building wealth because like my old man said, there's a million ways to make money in real estate. And there's exponential ways to grow it. So Mark, what makes you happy about what you do day to day in finance, in commercial real estate? What makes you happy with what you do?

Mark Willis, CFP® (21:52)
Mm -hmm.

It's so cool to see how you make people feel when they have an absolute certainty, contractual certainty that they are going to meet their goal. That is such a cool feeling. Right. I couldn't do that when I was working in the investment world and I thankfully never had the, the, the disadvantage of losing people's money in a downturn. worked for a CPA firm, but I got to overhear those calls when she would say,

Aviva (22:15)
Yeah.

Mark Willis, CFP® (22:30)
I'm sorry, Mr. Client, I know you're 63 years old, but I just lost you a third of your life savings. Thank goodness I've never had to make that phone call. And what makes me happy is the sensation of seeing how it makes people feel when they know they own their number. They know that they have X dollars or Y dollars ready to go at age 65 or whatever it's gonna be, and they've got it covered. can think about other things now. That's so cool.

Aviva (22:46)
Hmph.

That is cool. Mark, for the listeners, where can they get in touch with you, learn more about you, find you, follow you, listen to you, et cetera?

Mark Willis, CFP® (23:09)
Yeah. If you want to dig deeper into the strategy, if it sounds like something you'd be interested in learning more about, if you can imagine yourself always opening up your account statement and seeing a bigger number every single year, we can help with that. We work with clients, real estate investors all over the country. Go to kickstart with mark .com that's kickstart with mark with a K .com. you know, if it's me or one of my colleagues, we'll have a 15 minute phone strategy session.

And help you answer your questions and talk to you a bit more about our process. Totally free. It's kickstartwithmark .com.

Aviva (23:43)
We will put that in the show notes as well. Kickstartwithmark .com. Mark, thank you so much for taking the time to be here on Commercial Real Estate Secrets. And for everybody listening, we'll see you next week.