Chris is America’s no. 1 money mentor. He invests in real estate and teaches people how money really works. Failure is the greatest teacher and in this episode, Chris shares the lessons he has learned from his failures brought about by the 2008 financial crisis and what you can learn from this to make your money work for you during this current recession.
Chris was a high-level financial adviser who got interested in real estate. He did his first flip in 2006 where he was supposed to make $30,000 but only made $8,000.
In 2008, he had a big project, a strip mall. Chris was a pro skateboarder and owned a couple of Fat Man Board Shops. He bought a dilapidated building and planned to convert it into a strip mall. Then the financial crisis hit, and he found himself one payment away from being completely bankrupt. This would have resulted in his hard money lender taking the plaza.
He had to ask his girlfriend for help financially and kept working hard to get out of the hole. He was barely able to make ends meet and the banks wouldn’t approve his mortgage unless his mall was fully occupied. But he got lucky. A guy with a video game store rented the space, so he took that deal to the bank and got his mortgage. This made him believe that there’s a higher power.
Just as Chris got right back, in 2014, he owned 36 units and lost it all again. He failed so many times before he learned.
Chris had applied his conventional financial knowledge and took conventional mortgages in his name to save on interest rates. But this meant he could never get more than 10 properties under his name. It turned out that he didn’t know how money really works.
It took a postcard to a free seminar on how to flip houses for Chris to finally get things right. He met at the seminar Greg and Mike, who told him about self-directed IRAs, private money, and building a bank of private lenders.
Chris started studying the patterns seen in wealthy people. All had real estate but they didn’t use banks and placed very little money in stocks.
The rich put their money into mutually owned insurance companies. Wealthy people don’t trust banks because banks use fractional lending.
Chris started chasing wealth and got mentors. He learned that you could get whole life insurance and access the accounts of those policies like a bank account.
You can pull out 60-90% of the amount immediately in the first 30 days. When you take out money, you’re taking out money from the insurance company’s general account through a loan. So your policy continues to earn uninterrupted, tax-free compounding interest. For Chris, his insurance earns 6.2% with dividend payout. He would also charge his LLCs 6% for the loan interest.
But even If you don’t pay your loan back, insurance companies won’t care because the money you take out will be subtracted from your death benefit.
The IRS has a maximum 7 pay rule that if exceeded would result in a taxable event. Also, you don’t have access to 100% of your money in the first couple of years.
But even with those disadvantages, the benefits are worth it. Your policy earns an interest of 6.2%. If you pull out money, the insurance company charges you 5% interest for the loan. This means you are getting paid 1.2% just for using your money. Plus, every year it compounds, by year 5, your cash on cash return would be 10.7%.
As a real estate investor, the worst thing you could do is deposit money and leave it.
Borrow from your insurance to cover the 20% gap the bank won’t provide and then charge the interest to your company. Make interest rate payments be paid out from the rent, so the money should go back to you.
Chris learned that he shouldn’t have been putting his money in stocks and shouldn’t have been putting commercial mortgages in his name but in the LLC. Being too cheap cost him 36 units.
He learned that in order to get the money, he had to get really good deals. So now he does a lot of marketing and does 20-25 houses a month which he flips. If he couldn’t flip a property then he would bankroll it, do a BRRR, and put it up for rent. This enables him to build a rental portfolio that gives him passive income.
From 2014-2020, he did 259 flips. He still made mistakes though as he got ripped off by contractors and property managers. But with every failure, he learned.
For people dealing with the impact of COVID-19, Chris suggests looking at it as an opportunity instead of an obstacle. You have the opportunity to stand up and be a leader. You have the opportunity to make a lot of money by solving people’s problems.
Teach people how to solve problems. Tell people how to work smarter and make money. If you solve other people’s problems, your problems will be solved.
Right now is the best time to follow your dream. Everything just hit a reset, but now is the time to start on a blank canvas. There’s so much you can do at this time that will set you up for the future.
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I really enjoyed listening to Chris. It was a flashback for me in terms of losing everything back in 2008. I too ran into similar issues with my real estate portfolio at that time. I learned a lot and will purchase his book as well as visit his website. Thank you for sharing.