How to Beat the Banks at Their Own Game (With Crypto) with Ivan Zhang

Ivan Zhang is a Certified Registered Nurse Anesthetist. She worked her way up into leadership for that role, and she enjoyed it. Her husband has a family-owned dairy distribution business. It started in 1976, and they distributed little half-pints of milk to schools and various restaurants around the valley.

She and her husband have always had entrepreneurship at their heart. They got into some real estate and rentals. And it found that that had done quite well, branched out into a couple of rentals in the Phoenix Metropolitan area and into Parker.

She and her husband are now a client of capital gains tax solutions. And they’re here to share their story from Airbnb to Deferred Sales Trust for the win and their challenges, what they liked, and what the Deferred Sales Trust.

Episode Highlights Here:

Ivan:

A lot of people have different names for different labels. And obviously, traders use this because if they can borrow against the assets, they can get more leverage, right? You got $5 million, or $1 million. can use that to buy more stock. And, if the stocks go up, you make more money than you otherwise.

Brett:

Let’s talk about the biggest secret to how to beat the banks at their own game with crypto. So I’ve been what is the number one secret to winning the banks at their own game with crypto.

Ivan:

So the first thing you have to understand that banks do is try to make a spread, right? Their core business is borrowing at a low rate and lending it at a higher rate. Right. And they like to do this so that they take the money in and into and then give it out as soon as possible so that all the money is put to work. One of those businesses is one that some of the listeners might be familiar with, and some might even be benefiting from it. It’s called stock margin lending. And it’s the same as home or auto loans, except the acid is back in stock, right? And I’m saying that it’s their own game because unlike a house, or other law, where you shop around if you’re a customer of their brokerage account, and let’s say you’re a high net worth individual, you have $5 million of stocks and bonds, a lot of them have appreciated a lot for a long time. So you have a huge amount of unrealized capital gains, right? And so you don’t want to sell them. Because if you do, you hit a tax, there’s a huge tax hit unless they use some tax deferral strategies that you are quite familiar with on your podcast. But in practice, they also have, like, a trading account that typically is tax-deferred, maybe it’s just a regular, taxable account, and say, I want to, you know, fund some renovations for the house, right? Now, the nice thing is that they can say, Well, look, you have an asset. Why don’t we just unlock some equity by borrowing against it? That’s what stock margin lending is. Now, a lot of people have different names for different labels. And obviously, traders use this because if they can borrow against the assets, they can get more leverage, right? If you have $5 million, or $1 million, you can use that just to buy more stock. And, if the stocks go up, you make more money than you otherwise. The other version of this is for consumption. So you can buy new TV or renovations.

And similarly, you’d rather just borrow against it to get the cash benefits. And at some point, you get dividends and something like that, and it pays for itself. So this is the bank’s game because you are a captive audience. You cannot borrow from another bank. Your brokerage sits with them, meaning they charge what they want. Now, there’s some amount of competition because they could move all their assets from one brokerage to another brokerage bank. But some people are lazy, and in practice, you know, regardless of your net worth, that’s still a consideration. They’re gonna fill out the paperwork and other banks. I like my relationship manager at this bank, and so on and so forth. And so you don’t get the best rate, and they essentially get to keep the interest for themselves. So that is the game that banks play.

Brett:

Okay, make sure I got that here. Because I think it’s making some sense. So the game they make is they make a spread on the capital that’s already invested with them, and they let you borrow against it. Right. And part of that’s because if you don’t borrow against it, you’re going to get hit with capital gains tax or so they kind of have, in one sense, the people were feeling trapped with that and then was, and then we’ve already in the account, right? They had you as a captive audience, meaning they can charge you may be higher than normal if there was a lot of competition. Is that a fair summary?

Ivan:

That’s right. And a lot of people that are in this situation, they’re not professional traders, right? So if they’ve done well, and whatever, the businesses that accumulate wealth, they’re like, hey, look, I’m just making some passive investments, right? And so they want something that can say, hey, look, we’re going to have smoothed out some of my expenses, I have a chunky purchase coming up, I can use this account to do that. So they’re not super careful about what they’re looking at in terms of the interest rates. They’re not like a hedge fund that’s like, you know, haggling for five basis points across investment banks. They’re just like regular folks, you know, small business owners and things like that. And then they allow you to do this thing which is convenient for you and benefits them.

Brett:

Yeah, it makes sense. It’s a good game that they’re playing there.