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Tax Smart Real Estate Investors Podcast
308. How to Leverage Insurance and Investments for Real Estate Growth with Austin Dean
00:42:40
In this episode of the Tax Smart REI Podcast, Tho…
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Podcast Host 1
You're now listening to the Tax Smart REI Podcast, the number one tax podcast.
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Podcast Host 2
For real estate investors.
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Austin Dean
Your source for.
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Podcast Outro Host
All things real estate accounting and tax. Here we reveal our secrets that can save you thousands in taxes, streamline your accounting process and help grow your business. Stay tuned to hear insightful interviews with industry experts, successful real estate investors and current clients on what strategies they use to grow their business and how they steer clear of Uncle Sam.
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Podcast Host 2
Thanks for tuning into this week's episode of the Tax Smart REI Podcast. Today we're joined with Austin Dean of Waystone Advisors, who are actually real estate friendly financial advisors. I know those are hard to find in today's world, but here we are.
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Podcast Host 1
Today we're going to be diving into.
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Podcast Host 2
Financial planning for real estate investors and people who invest in alternative assets. Thanks for joining us today. Would you be able to give our listeners a brief overview of your background and how you got involved in the financial planning space specifically for real estate investors?
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Austin Dean
Yeah, absolutely. It's, it's good to be here as far as background. So I, I, I did start out, I mean it's over 13 years ago at this point in the financial planning world. Spent the first couple years starting my own business. I got a, you know, the traditional route, I got a Certified Financial Planner designation, a few other ones that people don't necessarily know, including a ricp, which stands for Retirement Income Certified Professional. And what happened with me being in my early 20s at the time, I very quickly realized that the traditional method of saving a bunch in the retirement accounts, hoping the market grows over the next 10, 20, 30, 40 years and hoping I have enough money when I'm 60 plus, wasn't necessarily the route that I wanted for myself. And as a result, I started looking around and saying what are other ways? What are other ways to build wealth and things that I imagine you guys have concluded. But I found in my research that the most wealthy tend to be people that build businesses, that buy real estate, that understand how to use debt as a tool. Obviously there's risks to that, but knowing how to make your money work harder and not necessarily trap it into, you know, places where it's only doing one thing for you. So as I was building that, that kind of ideology and that framework of a more non traditional approach to financial planning, I ended up connecting with a couple of new clients that had, you know, three, four, five different single family properties. They said, hey, we're looking for an advisor who can help us build money in places that can help us do more real estate, not less. And that gave me all the permission I needed to start really building out that framework of, you know, how do lines of credit work? And how do we use investment accounts in a way that's complementary to financial independence? And. And how does life insurance actually work? And over time, you know, part of why we're here is because it turns out that idea of having financial flexibility without having to wait till 60 is a really attractive one, not just for people in their 20s, but anybody looking to build wealth and have more control over their finances makes a lot of sense.
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Podcast Host 2
And I know a lot of financial planners that we've spoken to, our clients have spoken to over the years tend to shy away from real estate. You know, I know you mentioned you had, you know, some clients who had some rentals that kind of put you onto the space, perhaps, and, like, kind of digging in. But what made you want to be in real estate as opposed to just going the route of all the other financial advisors who kind of just stick to their stocks and bonds and traditional assets, for lack of a better word?
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Austin Dean
Yeah. What I found with real estate was that when done correctly, I mean, there's a variety of different ways to build wealth with that, whether that's you can be the lender and you can make money by lending to people doing real estate. You can go, you know, flip, which obviously has its own very unique versions of risks. You could do syndications, real estate, and those come with, you know, tax benefits and ways to force appreciation. And perhaps most importantly, the ability to eventually create cash flow. And cash flow is inevitably what creates the ability to replace your need to work and creates more of that financial flexibility. And traditional market assets don't have the ability to create cash flow in the same way, nor have the ability to create those same tax benefits. Which doesn't mean somebody should only do real estate. We want to have a comprehensive, diversified plan. But I came to realize that it's a mistake to not think about the benefits of real estate when incorporated well into somebody's unique plan.
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Co-Host or Guest Contributor
Right.
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Podcast Host 2
I know you're not a real estate purist. You do believe in having other assets, some of those traditional assets. So how does this all kind of come together in your overall investment philosophy? How do you look at the puzzle of just investing overall?
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Austin Dean
Yeah, we've created a few filters, and the first one is everybody's unique situation has their own goals. So any financial planning decision should be made based off of us helping really develop and understanding somebody's goals. Somebody who wants to have maximum cash flow as soon as possible is Going to invest differently than somebody who wants maximum net worth the next five, 10 years.
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Co-Host or Guest Contributor
Right.
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Austin Dean
And you're working with real estate investors, a lot of doctors, tech employees, we find that, I mean people that really love their jobs, they might say, hey, we just want to make our money work harder. And some people say, you know, like we have doctors, you know, someone talking to you right now that are feeling burnt out, that say, hey, we want to feel not trapped in our job yesterday. So having that filter of what are we trying to accomplish? But then from there, philosophically, I'm a really big fan of saying what's going to create the most flexibility, the most control, the most leverage ability and leverageability, not just in the sense of adding debt, but just making my money do more than one thing at the same time. And then if we're taking that lens of somebody's goals, looking at what's the most flexible option to do the most with our money, that then leads to things like, you know, if we're looking at retirement accounts, I don't want to sound anti retirement account, but to an extent I, I am that weird financial planner. Our team as a whole that is a little bit anti putting more money without getting free money from like an employer match into retirement account because that's money that is only doing one thing where if we have money in a brokerage account or we have money in a life insurance policy, we have the ability to leverage that or deploy it without having age restrictions or penalties and potentially use those as some of the funding vehicles for things like real estate or private lending or other alternatives that make your money do more for you to bring it all together a little bit. So a few years ago I created this idea of what I call the three pillars of wealth design or financial independence with the idea of saying, hey, if we have money that is stable, so non market based, that's not going to fluctuate the market. We have market based assets that have upside potential, but ideally have the benefit of being flexible and leverageable. And we pair those with assets that are creating income and or tax benefits, things like real estate, and we merge those together, we're going to have the diversification to have our money be doing several things at the same time. And if we're doing it with the lens of flexibility control, we can design it to not necessarily have the same age restrictions or penalties that somebody might have if they want a traditional route.
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Real Estate Investor or Financial Advisor Guest
So you mentioned earlier use the phrase leverage these investments and leverage these assets. And as a real estate person, I always like catch that I'm thinking, yeah, because we're, we're as real estate investors, we're very attuned to using leverage, using other people's money. But it sounds like that's a little bit different. Like do you want to expand a little bit more on like what you mean by that? Because I think that most investors aren't probably thinking about that as much about how they can use these other types of, you know, investments, retirement accounts, things like that, to leverage additional investments in real estate, if that's like what, what you were talking about.
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Austin Dean
Absolutely. And leverage could have a few different meanings. And I'd like to, you know, take a second to say that any kind of debt or any kind of, you know, leveraging type tool has its own very unique risks that should be done ideally under the guidance of professionals. That's part of why we have a job, because we want to make sure that people are actually using these tools safely. But there are so many different ways, many of which people don't know about, to be able to use debt or even just to have your money work a little bit harder for you ones that I know that, you know, Thomas and Justin that we've talked about before, this idea of if somebody has money in a retirement account, what if they instead built that money up in a non retirement account that that upfront sounds like it'd be potentially less tax efficient because we're not deferring those taxes into the future, but we have the access to resources like a securities backed line of credit which when done well, you know, you can access anywhere from 30 to 75% of an investment account which once again should be done safely and with ideally some professional guidance. But if I can have my money invested in the market and it's growing at, you know, 6 to 10% over time, and I can borrow, you know, 50% or more of that and put that into real estate or something else. And, and you guys can speak to this more but potentially create tax deductions on, you know, if there's interest that's being used for investment related purposes. Now our money is actually working in two places at once. It's creating some more flexibility, some potential tax deductions and allowing your money to go further than it would have gone if we just put it in one place and set it and forget it.
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Real Estate Investor or Financial Advisor Guest
And so what you were saying there is talking about the growth in that account, but then also being able to basically borrow against it to invest in other assets. I just, I want to clarify for everybody listening, like are we Talking about this would be different than with the idea of like taking a loan from a 401k where you're literally taking money out of that account. Right. But what you're talking about sounds more like, no, leaving it in that account, it can still attain 100% of its growth. Right. Like in that brokerage account that it's aiming to achieve, but it's just effectively using it as collateral. Is that like the best way to say it to where, like, you're still making those investments in both places and you're not, you're not necessarily draining the value of the other asset? Is that kind of like the, like one of the advantages to highlight there?
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Austin Dean
Yes, that's. Yeah, that's a really good distinction. And I mean, for real estate investors who are thinking of maybe a comparison, something like a home equity line of credit. Right. Allows you to borrow against your asset without liquidating and reducing the value of your home.
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Co-Host or Guest Contributor
Right.
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Austin Dean
A securities back line of credit is a similar way to do that with an investment account where all of your money stays in the account, it continues to grow, and you can borrow against it to do something else. And I mean, once again, to your point, this is a conversation I have with a lot of clients who have large 401s. With a 401k loan. I mean, it's nice that you have the ability to access it, but it is something where when you pull it out, there's a maximum that $50,000, and it's money that's actually pulled out. So it's not doing two things, it's just doing one thing. And then with the downside, if you're repaying after tax money back into a tax deferred shelter, typically. So we actually, when talking to real estate investors, will oftentimes say, like 401k is a good last resort, but it's not as attractive as it sounds. Before you dive into the actual how it works.
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Real Estate Investor or Financial Advisor Guest
Okay, that makes sense.
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Co-Host or Guest Contributor
Yeah, yeah.
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Podcast Host 2
Before we dive into, like, I know we want to touch on some life insurance stuff before we dive into that, you know, say you have an investor, maybe they have a job or maybe they have a business, they're doing real estate on the side. What would you think their portfolio should look like? I know sometimes they should also have some traditional assets, like stocks in their portfolio. Do you have like, a typical, like, allocation that you, that you see? I know everybody's different. Everybody's financial situations and goals are a little bit different. But have you found any, like, optimal allocation or like, is there a General recommendation or general theory that you have on how someone should allocate their portfolio?
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Austin Dean
Yeah, that's a great question. I found over time that I don't actually have a default allocation specifically for how like what percentage of somebody's wealth should be in stocks versus in your life insurance or real estate or business. And that goes back to, for me, more of a what are their goals?
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Co-Host or Guest Contributor
Right.
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Austin Dean
And if financial independence is kind of that inevitable goal that typically starts with saying, hey, what kind of cash flow are we looking for? Shoot for a long term cash flow perspective that backs us into, okay, what are the assets that are going to allow us to get there and do it the most effectively with the most amount of liquidity and safety. So that's where instead of saying, hey, you should have X percentage in the stock market, X men in life insurance and real estate and business, I more say, hey, when you have extra, let's make sure that we have a know where it should be going. So if the goal is more flexibility, more cash flow, that's where we look at, say, you know, what we want to have, you know, we want to have emergency reserves. We always want to have that protection for the what ifs. That allows us to be more intentional with our other assets. But if we prioritize things like non retirement investment accounts or life insurance, things that are growing but that we can borrow against or access without penalties whenever we want to, to then go, you know, invest back into that business or invest into that real estate, you know, investment, that's going to create the cash flow for the financial independence we're building towards. That's more of how I prioritize it of, of saying, hey, we should have these things. Because those things, by these things I mean, you know, the one possible money and investment accounts and money in, you know, life insurance, because they are going to grow differently than having just money in, in real estate or just in our business. But they're also going to, if done well, give us another tool for being more nimble with how we build our business or acquire real estate. Does that make sense? Tom's Am I explaining that way? It makes sense.
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Podcast Host 2
Yeah. No, no, it makes a lot of sense. I guess it just comes down to at the end of the day, what are your goals? Where are you in your, you know, business and investing journey? And kind of from there, the allocation is going to vary depending on, on those factors.
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Austin Dean
Exactly, exactly. If we're prioritizing, you know, flexibility, control and cash flow and you know, multiple uses of our money, that creates a really Easy filter for deciding where we put our money. Given some situation that makes a lot.
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Podcast Host 2
Of sense, moving into life insurance a little bit. I know some people believe in life insurance is just for its intended purpose, which is, you know, estate planning, for example, you know, covering certain maybe estate taxes or providing for your loved ones when you're no longer. What is your take on life insurance and how do you use it to help people to build wealth and also to protect themselves for the inevitable?
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Co-Host or Guest Contributor
Yeah.
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Austin Dean
My take, first and foremost on life insurance is that when life insurance really became a thing in the last 250 years or so in the US it started out as something that was designed for the wealthy and sophisticated to be able to grow and pass money on tax favorably. And as a result there's a lot of levers, if you will, that you can use to design it well or design it poorly. So I'd say first and foremost you want to have an advisor who, you know, if you're going to do life insurance, knows how it works so they can design it properly so you're not paying unnecessary expenses so you're using the right company. Because from a risk perspective, I see one of the bigger risks with the product like life insurance that has the potential to actually have some tax breaks and have some potential for guarantees. In some ways the risk is not doing it right. So not funding it properly, not designing it for your situation, paying unnecessary fees. But when done well, honestly, it's one of my favorite vehicles because it is something that doesn't have age restrictions. If done properly, it has the ability to grow tax free. Depending on the type of permanent life insurance, there's a few different types for real estate investors. I tend to be more of a fan of a well designed whole life policy because banks will view it like cash, something we'll educate our clients on. And this is connected to this is how much a bank will lend against an asset, tells you how safe or how risky that asset is, which goes into real estate and stocks and those kinds of things. Well designed whole life policy, you can borrow up to 95 cents on the dollar, they'll lend on it like cash.
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Co-Host or Guest Contributor
Wow.
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Austin Dean
So in a position where if it's designed well, it's. With a company that's growing, my policies personally are growing somewhere in the mid fives tax free, which I mean you guys can validate this from from a after tax basis, I'd have to be making 8% plus in a savings account to do what my life insurance is doing tax free.
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Co-Host or Guest Contributor
Right.
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Austin Dean
But then being able to Borrow it at rates that are even right now, I mean high fives, low sixes. But then if I can deduct that, I actually end up being able to have money growing inside my life insurance, have a death benefit that allows me to, you know, if something were happening to me in my business, my clients are taken care of, my family's taken care of, and if, you know, everything goes the way I planned, which is living a long time after tax deductions, I'm actually making 1 to 2% still on that money even after borrowing it out, almost dollar for dollar, which as you can imagine, really helps make your money go further.
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Podcast Host 2
Just to follow up on that, kind of sounds like the way you kind of look at life insurance is not only for the death benefit to cover things when you pass away and your heirs need to take care of that stuff, whatever the case is, but you also look at it as a tool to build wealth and borrow against during your lifetime. Kind of similar to, similar to like the stock portfolio or the real estate portfolio. You have all these assets that are growing in value and then you just take loans out against them. So you're using the same dollar more than once.
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Austin Dean
Exactly. Once again like you borrowing it's anything even something as secure and safe as a life insurance policy is a, you know, there's risks. You got to know how to do it right and have some guidance around it. But I'd even go back to what I was saying before about leverage. Leverage isn't exclusively around debt. It's also just around how many things is my is my dollar doing for me. So in a well designed life insurance policy, I'm going to keep saying well designed because there's so many that are not. So there's, there's a reason the Internet thinks that the life insurance is either the best investment ever or a scam. It's because it can be designed to be either of those. If it's not, you know, if by somebody who doesn't know what they're doing or somebody who does, but a good life insurance policy, right, It'll protect your family right now so that if you pass away your plan and your family's taken care of, it'll build your money tax free. It'll give you access so it can be extended burnt reserves, it can replace the ability to have bonds because it's not market based. I mean even on the traditional financial planning side, my RICP designation talks about the value of having a volatility buffer. Something that when the market goes up and down just slowly goes up so that you can navigate the inevitable ups and downs of the stock market or the real estate market. And then to what you've mentioned a few times, Thomas, a permanent life insurance policy is a fantastic way to create some default estate planning so that you can pass on an asset that's liquid to help buy out the government so that you can pass on your real estate or your other assets that you want to go to your kids or to the heirs that you want them to go to. So all to say, it's once again just from a pure financial planning value of how do I make my money do the most things for me. Life insurance, when done well, does a good job of having a multiplication effect of of what it's doing for you.
- [18:16]
Podcast Host 1
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Podcast Host 2
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Podcast Host 1
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Ryan
How do you kind of determine who might be a good fit for the permanent life insurance versus like just the term life insurance? Do you have like a really clear distinction of like who fits into those buckets or is it kind of, again, based on goals and I don't know, some other things there, but maybe you could just talk a little bit about that.
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Austin Dean
Yeah, I mean, that's a great question, Ryan. I mean, the easy answer I guess is say yes, it comes down to goals and, and what they're trying to build, but I'd say go a little deeper than that. I mean, somebody who is younger, doesn't make as much money, maybe has some young kids and they're trying to just start something. Oftentimes it makes more sense to just have some default protection to protect the plan. Because life insurance ideally is something where, I mean like you want to be able to commit to funding at a, at a fairly high level for several years. The first policies I ever got are, you know, I can fund it a couple hundred dollars a month, but. But I'd say they're not as efficient as the ones that if a client funds it at 20,000 or more a year, those become a lot more efficient from an internal rate of return, growth rate those things and fit better into a broader plan. So all to say is term tends to make sense. I think when there's a larger protection need and people are in the early stage. But as somebody makes more money and has more flexibility, particularly if they're trying to do real estate or create financial flexibility early, that's when it starts to make sense to look at could a permanent life insurance policy fit a spot into that plan?
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Podcast Host 2
That makes a lot of sense. So the permanent life insurance isn't for everybody or all situations per se, but like say someone comes to you, they're building wealth in that building wealth phase, how much? So you say the importance of life insurances and saying doing a whole life policy, something they could borrow against versus using that money to build their portfolio, whether that be stocks or real estate. I always found that intriguing question like, okay, everybody has limited assets. Even if you are making a good amount of money, how do I know if that dollars at this stage of my life worth putting into funding a life insurance policy versus taking that, say that $20,000 per year and putting it into the stock market or putting it towards down payment on a property, like how does that kind of work? Or how do you look at that?
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Austin Dean
Yeah, it's a good question. The when thinking about where to put money, that goes back a little bit to me of what's the highest rate of which we can duplicate those dollars. So something like a life insurance policy, if it's designed well and somebody is healthy enough to qualify for it, how we typically design it, somebody even in year one can access usually 70% or even a little bit more of what their contributions are right away and every year because the expenses with life insurance policy tend to be a little bit more upfront, kind of like the down payment of a house where there's. They're not as recurring. The longer you have it, the more that money actually just goes towards building wealth. Someone who says, you know what? I would like to put money into a down payment on my first rental property and I expect to continue to have 20,000 or more a year that I could be putting into a life insurance policy as cash flow. I would say let's consider doing that because the younger you are, the better the health rating typically the more death benefit you'll get per dollar of expenses. And if we can borrow that money back out at 70% right away, and by right away, I mean usually within the first 30 to 60 days, we can get that money back out if we need to. That allows us to say, hey, we built it. We set up this asset and we're still able to use it for that down payment on that real estate property that I want. And I'm positioning myself to be able to do that more and more effectively in the years to come. My default thoughts on that with once you kind of ad nauseam the it depends on his goals and situation.
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Real Estate Investor or Financial Advisor Guest
I'm curious like I want to ask you this too is like you mentioned before, you know, we're talking about banks and using something like the insurance to that being able to lend against it much like higher percentages because it's. It's so close to cash or viewed sometimes so close to cash.
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Co-Host or Guest Contributor
Yeah.
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Real Estate Investor or Financial Advisor Guest
Do you see very often, you know, when I think of a lot of and again as some lenders are different than others but more traditional ones a lot of times don't like it when so like a down payment from for a property is coming from like another source of debt. Do you guys run into that very often or is it that a lot of investors are using the loan based off of the life insurance to be able to purchase the property entirely or a lot of them going to getting a traditional bank loan and then using this as a secondary. Is that very common the for us.
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Austin Dean
All of the above. I'd say most of our clients do more of, you know, using. Using lines of credit backed by the life insurance or backed by investment account as the down payment. That way their money goes further. And that's actually, I mean good distinction. You're. You're making Justin where you know, with a heloc, like with my heloc, the downside is it's backed by an illiquid asset. So that has to report to my credit because the only way to pay that off is with either cash flow or selling my house.
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Co-Host or Guest Contributor
Right.
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Austin Dean
Whereas generally those are the lines of credit that we help our clients set up if it's backed by a life insurance policy or backed by an investment account that are non retirement accounts because we can't leverage retirement accounts. The IRS has made that illegal. So non retirement investment accounts and life insurance because those are liquid and in theory somebody could liquidate that and pay it off. Those lines of credit don't actually report to your credit and don't impact your debt to income ratio. And most of the, you know. Well, it's not most of all of the lenders that we use, if our clients allow us to loop those lenders in, understand that and know how to view that as essentially just a version of cash.
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Real Estate Investor or Financial Advisor Guest
I guess that makes sense because they're looking at that. Oh it's just a liquidity consideration there.
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Austin Dean
Right.
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Real Estate Investor or Financial Advisor Guest
Of well we, if we're in first position, then the second loan is like self insurance policy. At least, at the very least we know that they can liquidate that or tap into it to satisfy that debt essentially.
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Austin Dean
Right, yeah, yeah, exactly. Let me just as an example, like my investment account, I currently have about lower $400,000 of my own securities back line of credit that I pulled out, not paid back and used for, you know, real estate or private lending or a variety of other alternative investments. But if I were to go get a loan like so I got a HELOC this year, this past year where I refinance to a different one to get a lower rate and I was able, like that didn't impact that process at all because if I needed to I could just liquidate $400,000 in my investment account and pay that off if it came to that. Now that's not the plan, but it allows the bank to view it differently than if it was backed by an asset that was less liquid.
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Real Estate Investor or Financial Advisor Guest
Yeah, I think that's interesting. We get a lot of questions from real estate investors all the time of, you know, how is this going to impact my lendability? You know, whether it's taking extra deductions, is that going to hurt me because my taxable income is going to look lower on my tax return. But it's kind of interesting with this, this angle of strategy. It's kind of like in the going in the opposite direction. In fact it sounds like it's making you more lendable as compared to, I feel like, you know, the question that would come up is like exactly what you just said when somebody says, well I'm going to draw my heloc, you know, your primary lender might look at and kind of frown upon that, if anything because it's another form of debt. But that makes sense. It's tied to something that's so illiquid.
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Co-Host or Guest Contributor
Yeah.
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Austin Dean
And I mean to your point earlier in terms of how it can be used. I mean, we've had clients use it as the down payment. We've had clients use it as a way to essentially be a version of buying all cash to, you know, to then be able to negotiate and get a better deal or because they're able to close faster or have it, you'll be at a lower price and then refinance with traditional debt later, pay it off and rinse and repeat. So going back to the ability to say, hey, we want to have more flexibility and control, having something that doesn't report to your credit that you don't actually have to use, but you can use it kind of however you need to, creates a lot more opportunities for a real estate investor than they would have without it. Once again, with some guidance on making sure they know how to do it properly and safely because there are risks with using debt.
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Real Estate Investor or Financial Advisor Guest
That's a really great point too. That being, I know a lot of our listeners who've been listening for a few years now that went through like the 2022, 2023 real estate years. There was a lot of quick movements like that on real estate where if you were going with just a traditional loan, sometimes the sellers would get eight offers and they'd take that all cash offer because it was so much faster. So I'd like to that point when somebody's using, let's say it's like a, and maybe this difference between a securities backed line of credit versus like the life insurance, I can let you speak to both. But as far as like turnaround time, like if you know, one of your clients calls you up and says, okay, I've got a deal, I'd like to close it in 10 days, like is that, you know, how much quicker than like the traditional lending process? And I want to say like if somebody has, let's say they've got a securities account that has $800,000 value and they just want to pull like 500,000 to do a deal quickly, like how much quicker can they do that compared to, you know, going through traditional lending?
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Austin Dean
Assuming there's room on the line of credit, typically we tell clients that you can get that money three to five days. Typically three or five business days. I mean we've had, we've had instances where clients needed it like the next day and we can escalate that. Now obviously that's not what we want to be doing. But yeah, if somebody says, hey, we need it in 10 days and they have the room available on the line of credit against either the life insurance or the investment account, then that's a real easy ask.
- [28:13]
Real Estate Investor or Financial Advisor Guest
Wow. Yeah, that's interesting. And then I assume a lot of people would use that. Then they take, like you said, they kind of take their time after that, after they close, just go work on doing a traditional, like refinance with their favorite lending institution or whatever, and then they just come back and pay back their securities line of credit. It's kind of how they keep things moving quickly in that.
- [28:30]
Austin Dean
Exactly, exactly.
- [28:32]
Co-Host or Guest Contributor
Yeah. Yep.
- [28:33]
Real Estate Investor or Financial Advisor Guest
Awesome.
- [28:34]
Austin Dean
Yeah.
- [28:35]
Podcast Host 2
I got one more question on this before we move on. And this is something that I guess comes down to the underwriting of the property and how much debt the property, consumer support. But like, say, for example, you have somebody who borrows against their, like their stock account or they pledge their stocks or maybe they, they borrow against their life insurance and they go and get traditional financing on a property. So now they have a traditional mortgage which is. Comes with principal payments and interest for the most part in most cases. And now on top of this, they also have a line of credit or a loan, whatever the case is, against one of these, one of these other assets. So now they have an additional payment that they have to make. Do you see that being an issue, for example, having, you know, for all intents and purposes, the mortgage in the first position and then this other thing in the second position, now they have two payments. Do you see it being prohibitive or is that something that most people can navigate?
- [29:24]
Austin Dean
I mean, I would say that ideally that's the thing that my team would help people navigate together to an extent. So I'd say in terms of how somebody can navigate that, a lot of it will come down to in that scenario, how good is the deal? Like, is the deal cash flowing to be able to cover that mortgage and potentially cover some interest on the securities back lines of credit, depending on what state you're in, if there's room on your securities back line of credit, sometimes they'll let you actually take that interest and capitalize it into principal so it doesn't actually impact cash flow depending. Unfortunately, Washington state, where I'm in, is not one of those states. So it has to be paid in some way, shape or form. But the benefit of that is if you pay it, in my experience, and once again, this is the kind of questions I bring to you guys is if you pay it, it makes it easier to deduct it, though. So that also helps. But I'd say in that situation, though, like, I mean, if we assume that an interest rate on a line of credit is, you know, somewhere in the mid-60s, for instance.
- [30:16]
Co-Host or Guest Contributor
Right.
- [30:16]
Austin Dean
But we expect our investment account to go up by more than that over time. Even if we just created a recurring distribution from that investment account to cover the interest, you know, we would expect over the next year, 5, 10, 15, 20 years to come out net ahead by borrowing versus just, you know, liquidating and shifting it into one other place. So it's due to one thing instead of two things.
- [30:38]
Podcast Host 2
Got, got. So there's multiple avenues you could take. You'd either pay the interest that the property can support it. So if the property is, you know, underwritten. Right. And it's a good deal and things like that, you might just be able to support it with the property. But we're, you know, I guess in a worst case scenario, so to speak, you could just liquidate part of that account to pay off the debt. And because the spread, because the account still growing at a greater rate than the interest, there's still spread there. So it's still beneficial to do this.
- [31:04]
Austin Dean
Correct, correct. And going back to that, because we know that we're doing non traditional financial planning with a lot of the real estate and these lines of credit and those kinds of pieces because there is risk to your point of having too much debt or not having enough cash flow. Part of our planning process, whenever possible is to create assets that have flexibility and multiple avenues to be able to tweak and adjust. Because I mean, as we've seen even the past several years, you never know when interest rates are going to spike or inflation's going to go up or housing prices stall out. And we need to be able to adjust for the unknown, Particularly if there's somebody who is a non traditional investor that's doing real estate and similar things.
- [31:41]
Podcast Host 2
Got it. Makes a lot of sense. So kind of just moving over and shifting Gears, where do CPAs, like, where do you see CPAs and financial planners crossing over in the realm? I know we do a lot of tax advisory or how to reduce taxes and also, you know, compliance, filing those tax returns and accounting and bookkeeping. Where do you see the crossover coming in?
- [32:01]
Austin Dean
Yeah, I mean, there are a lot of very valuable and significant crossovers here. Even in the conversations we've had, I've pointed out a few times that I can say, hey, I think this is tax deductible. But I need someone like you guys to be able to validate that and then actually help the clients take advantage of those tax deductions. So being able to loop in and actually have a team like you guys, that does tax, not just tax prep, but tax planning. So that going into the year we can say, hey, these clients we're planning on using these lines of credit. We're thinking about putting in these kinds of alternatives that we believe have these kinds of deductions to get this kind of cash flow. While we can do some basic simulations on tax benefits. Having a team like you guys to be able to come in and say, hey, maybe we'd do it differently this way, or make sure that you're deducting in these things or having it invest it in this way that allows the core strategies that we use to go a lot further and make sure if you can save money in taxes, that stretches your dollar meaningfully farther. So having a great CPA team that's working closely with our team, it's hard to not have it be a better experience for the clients.
- [33:05]
Podcast Host 2
Yeah. And I could say on our end, we always get asked questions about asset allocation. Is this a good investment? Does this fit my portfolio? Do I need life insurance? How much life insurance do I need? Should I liquidate my retirement accounts? And while we could certainly advise on the tax elements of that, especially when it comes to like retirement accounts, for example, at the end of the day, you know we're not financial advisors. Right. We can't tell you, hey, this investment's great for your portfolio. Or no, you should allocate this percentage to stocks or bonds. You should go out get this much life insurance. Those are things that generally are not in our wheelhouse. And one of the biggest challenges has been over the last few years is finding like financial advisors who actually like real estate in their clients portfolios. You know, if you go to your traditional financial advisor and say, hey, I want to allocate to real estate. Okay, great, we got VNQ for you. We got some. And that's just an example. Or we got some REIT for you or whatever the case is. Their first reaction is not go and buy a single family house or go invest in a syndicate or fund or go invest in this piece of real estate. It's no, no, no, keep it all in stocks and bonds is typically the answer. And obviously a lot of our clients don't like to hear that because they're either in real estate primarily or they believe that real estate should be a significant part of their portfolio, not just REITs. So I definitely think there is crossover between the two for sure.
- [34:21]
Austin Dean
Yeah. To add to that, I mean, I, I would agree. My experience is most financial planning firms either are you Know, just not, not necessarily taught how to incorporate real estate outside of your basic REITs and stuff like that. And this is obviously my experience anecdotally a little bit, but also regulatorily, the SEC and FINRA and those kinds of places, they put a lot of pressure on advisors in terms of how they can talk about it. And that's part of why I've mentioned the risks a variety of times while we can have this conversation. Because real estate is a larger asset that's illiquid, that navigates debt oftentimes and has different risk profile. So it requires an advisory team to have a different set of knowledge and tools and process and how they analyze that. But even as we talked to the beginning, you know, real estate just has been a proven asset over time for being able to help people who, if they can do it right and understand the risks and navigate them well. It's one of the most powerful wealth building tools out there. It's worth exploring for somebody who wants to for sure.
- [35:21]
Ryan
Before we move on from that, I was just going to ask. So Austin, can you guys. Because we get this question, like Tom was saying, hey, should I go buy this property? Or like I talk to people on the very front end like, hey, can you guys advise me on like which property to buy or like which one to sell and things like that. Is that something that you guys do at all? Like, well, clients try to send you, like, hey, I'm gonna decide between these couple of properties, you know, which one of these should I buy? Is there anything like that that you guys do or you do guys primarily just kind of stick to like the stocks and bonds like would traditionally think of.
- [35:55]
Austin Dean
Yeah, I'd say to an extent we can. So I to caveat that little bit of, you know, we can't pull the trigger on buying that property. We can't say definitively like this is definitely going to work out, but we, but we can. And this is because as you know, as our role being independent financial planners. So you know, not being, I think I mentioned this earlier, but we're not connected to an insurance or investment company. It's my, my own company. So we have the ability to be more independent. Which means that, I mean we can wear the market based investment hat, we can wear the life insurance independent broker hat. But I'd say first and foremost we're sipping in these conversations as financial advisors, financial planners. So when somebody says, hey, I'm thinking about this deal, I think it's very much within our wheelhouse to be able to say, well, let's look at your goals, let's look at the expectations of what this deal is going to do and say, does. Is this going to help you achieve or get closer to where you're trying to go? And while that won't necessarily end up in us saying, definitely do it, but it can say, hey, yeah, I mean, I don't know that risk profile there, that cash flow is not necessarily going to be what you want it to do, or saying, hey, you have these lines of credit that we've set up, one of these different things that'll create the cash flow or the appreciation you're looking for that could fit. So in that sense, we have the ability to help our clients navigate, you know, if they bring a deal and, you know, within the range of the data we have, we can say this does or does not align with what we know your goals to be.
- [37:20]
Podcast Host 2
You, you guys aren't necessarily underwriting deals and saying, oh, hey, like, here's your underwriting spreadsheet, you know, by the way, do you know your insurance is totally underestimating that expense. Is that something you guys do? Is it just more or less, hey, great, you know, you have your underwriting here, here's the cash flow as expected, or here's your goals. You're looking at appreciation like this reaches your goals or it doesn't. Is there anything deeper than that that you guys look at?
- [37:43]
Austin Dean
Yeah, I would say, I mean, some of the members of my team on the advisory side, I mean, we have the experience that we have the ability to point out some of those things, I would say, both regulatorily and from a risk perspective. You know, I think we're going to be hesitant to get too granular with assets that we aren't necessarily managing because we can't step out and have a fiduciary responsibility for a rental property in that sense. But if somebody says, hey, can you skim this and tell me, like, are there any things that look really off in terms of interest rate or insurance, those kinds of things, we can help with that. We also, in the same way that we have this wonderful relationship with you guys, you know, I have independent property and casualty brokers and we have mortgage lenders that oftentimes we'd say, hey, let's loop them in to have them also say, are these accurate? Are these assumptions that would be reasonable?
- [38:31]
Real Estate Investor or Financial Advisor Guest
So I could see maybe just turning that a little bit is it's maybe where you'd advise more deeply is that the client says, hey, I found a deal. I think it's A good deal, it's going to cash flow. But you know, my goals, my plans and you know, all the, like the assets that I have, like my brokerage account, my life insurance and everything else. And maybe they come to you and say, like, how should I close this? Like what they would ask you maybe like, what kind of debt should I use? And then that's where you'd have to ask a lot more questions of, well, what are we doing with this property short term, long term and stuff to figure out what types of credit and what types of loans that they might want to use, like that kind of stuff. Is that maybe a little bit more applicable on how you'd like that?
- [39:08]
Austin Dean
That we do all the time. If somebody says, I have this deal, I feel really good about it, I'm going to buy it, what's the best way to purchase it? And then we'll have a conversation. I mean, depending on the situation and the client relationship, I mean that could be. Let's schedule a meeting to talk about it. That could be. Let's jump on a phone call for five minutes and talk about which of these lines of credit do we use. And then also what's our long term plan for maybe repaying some of those so that we can use it again?
- [39:33]
Co-Host or Guest Contributor
Right.
- [39:33]
Austin Dean
So yeah, from that example, Justin, that's the thing we do all the time and we invite our clients to do that because we want to help them be making investments that align with their goals.
- [39:42]
Real Estate Investor or Financial Advisor Guest
I think that makes a lot of sense. And that's definitely where it kind of stops the buck for us, is where we would say, well, I mean, your tax benefits and deductions aren't going to be hugely different if you do a 20% down payment versus a 40% down payment, that sort of thing. But then it starts to wade into like, but what financially, what's the best way for me to play this with debt and stuff like that. And that's where again, we always kind of stop there and say, well, that's kind of where you want to talk to your financial advisor there to kind of weigh in on that. So that's great.
- [40:07]
Co-Host or Guest Contributor
Yeah.
- [40:07]
Austin Dean
And that's where our partnership works really well because we can tap in and say, you know what, we think you should do it in these ways and make these adjustments.
- [40:14]
Podcast Host 2
So yeah, I know we're coming up on time here. So this will be the final question before we wrap up. And that is going to be where can listeners learn more about you and waste on advisors if they they're, you know, looking for a real estate friendly financial advisor.
- [40:26]
Austin Dean
Absolutely. The easiest way would be to go to our our website waystoneadvisors.com on there there's an inquiry form where you can submit to have complimentary discovery conversation with one of our wealth design onboarding advisors. You can also email us@infoaystoneadvisors.com and introduce yourself and say, hey, heard you guys on the podcast with the whole CPA team. Can we have a conversation about what it would look like to partner together? So yeah, anybody who's interested and had appreciated the philosophical conversation we've had today would love to see if we'd be a good fit to partner long term.
- [41:01]
Podcast Host 2
Absolutely. So go ahead, drop that into the show notes for everybody who does want to check that out. We of course are accepting clients as well. You know it's coming up on tax time, so if you don't already have a CPA or you're looking to change CPAs, now is the time to get that conversation started. If you're interested, you could go over to www.therealestatecpa.com podcasts and you can book a free discovery call with our team. We'd love to see if we're a good fit, but that's going to be.
- [41:25]
Podcast Host 1
About it for today.
- [41:26]
Podcast Host 2
And as always, it's important to note that there are risks associated with investing in real assets and in the real estate sector, including real estate, precious metals and natural resources. So these can be significantly impacted by events relating to these industries. You definitely want to make sure that you're speaking to your financial advisor and your tax advisors before making investment decisions. Thanks everybody for tuning in and we'll catch you on next week's episode of the Tax Smart REI Podcast. That's it for today.
- [41:57]
Podcast Outro Host
Thanks for listening to today's show. If you enjoyed the show, please find us on itunes and leave us a review. You can also email us@contactherealestatecpa.com with any feedback or topics. Suggest suggestions we are always taking on new clients and with the new tax laws in play, you really don't want to navigate this alone. Let us help you save money on taxes with your accounting and CFO needs to become a client. Navigate to our client page@therealestatecpa.com and fill out a web form with as much detail about your situation as possible. Thanks so much for listening. Have a great rest of your week.