Have you ever wondered how the wealthy manage to keep getting wealthier by the day? It’s all because of a banking system that they’ve discovered long ago that’s hidden in plain sight, so to speak. The Founder of The Money School, and America’s number one Money Mentor, Chris Naugle, joins this episode to share and educate people about the perfect banking system which utilizes the insurance companies that everyone’s familiar with. He goes into the details of the processes step by step, while explaining how this system works to your advantage. Chris uses his own experience as a guarantee for this method and extends his expertise in helping you understand the alternatives you have in investing in a wealthy future.
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Insurance: The Perfect Banking System with Chris Naugle
I’m excited about our guest, Chris Naugle. He is on a mission to be America’s #1 Money Mentor. He’s a financial advisor, real estate investor, syndicates deals and does fix and flips. He’s been on TV and he’s been featured in Forbes, HGTV, ABC, and House Hunters. He’s going to deliver action-packed content here. There are tons of meat and tons of value he’s going to add. I hope you enjoy the show.
Our guest is no exception. This gentleman has dedicated his life to being America’s #1 Money Mentor. His success includes managing over $30 million in assets as a financial advisor in financial services and also tens of millions in real estate business. He has over 200 transactions that he has done as an HGTV pilot show since 2014. He’s also a well-known speaker and has an amazing podcast. He is the Co-Founder of FlipOut Academy as well as the founder of The Money School and Money Mentor for The Money Multiplier. He has a book called Mapping Out The Millionaire Mystery. We’re going to be talking about that along with being featured in Forbes and ABC and speaking to over 10,000 Americans. Chris is going to share some knowledge with us. Chris Naugle, welcome to the show.
Thank you for having me on. I appreciate it.
Chris, maybe you can share a little bit about a brief overview of your story and then also your focus.
I grew up in a humble household. Dad was an alcoholic and mom had to raise me. I barely had anything growing up, but she always made the best of it. Since we didn’t have any money, I always had to hustle, go out there and do whatever it took to make things. Whatever I wanted to buy, I had to go work for it. I worked on farms and shovel driveways. I did that and that’s how I grew up. Until I was sixteen, I didn’t even realize that wasn’t the norm. That was the life I lived. It was the norm for me, but not the norm for everybody else. When I started working at this restaurant, I realized that other people had different luxuries that I didn’t. I remember in that restaurant, they degraded me badly that I ended up quitting. I came home to my mom and I said, “Mom, I’m never going to work for anyone again.” I want to start a clothing line in the basement called Phat Clothing Company. That’s where my entrepreneurial background began.
At sixteen, I opened Phat Clothing Company. It was a clothing line that I did at a skateboard and snowboard shop. I would take that clothing out as I was trying to be a pro snowboarder and I would sell it to all the shops. While I was doing this, I started thinking, “These guys got it made. They’ve got their own stores, their lifestyle business. I need my own store.” At seventeen, my infatuation began with wanting to have my own store called Phatman Boardshop. When you don’t grow up with any money, you don’t know any people with money. I went around and asked everybody for the $70,000 that I needed and I got told no by everybody. I almost gave up then. My mom didn’t want me to fail and didn’t want me to not follow my dreams. She had the house that she got in the divorce and had exactly $75,000 in equity. She put the house up. I was a crazy seventeen-year-old punk snowboard kid who chases dreams and opens Phatman Boardshop.
I had turned eighteen at this point and I had this retail store, $70,000 in debt, mom’s house on the line and I knew nothing about running a business. Fast forward from that, everything went well. I went on to be a pro snowboarder. I ran these stores successfully and opened several different locations, all the way up to the early 2000s, I was doing quite well. I was living the dream. I had my pro snowboarding career, retail stores, crew, and managers, then the planes hit the towers in the early 2000s. I’d never been through a recession like a lot of the Millennials. They don’t remember the Great Recession in 2008. All they’ve seen is this upward market and this good time. That’s all I’d seen up to this point. What happened is my retail stores took a big hit and I had to go get a job. That job ended up landing me as a financial advisor. This was supposed to be a temporary thing. Either deliver pizzas or be an advisor, I know that sounds weird, but that’s how I looked at it. There was that and then once I got through this little rough period, I could go back to my life of being a shop owner and a pro snowboarder, but something weird happened.
I love snowboarding, but I ended up loving the advisory. I was good at it. I started excelling and I became one of the top advisors. During this process, it forced me to not work in my stores, but work on my business. I turned over a lot of the responsibilities to my managers and they did a great job. As this went on, all the way up to 2008, I was crushing it. I’d started flipping a couple of houses because many watched a show on A&E back then about flipping houses and I’m like, “I got to do that. That looks like a great way to make money.” The first flip was ‘06 and things were great. By 2008, I had my next great idea. I wanted to open a big retail shop, like a shopping mall. It was a dilapidated building so I bought that building with private money. I borrowed money from the wrong guy. His nickname was Knuckles. In 2008, I had no idea that the recession was coming. I was going full steam ahead. When that recession hit, it brought me to my knees. It crushed me like a Mack truck hitting me at full speed ahead. I got to one payment away from being completely bankrupt.Start questioning everything and seek out the knowledge that they don't teach you. Click To Tweet
That guy, Knuckles, I remember when I said, “I’m having a hard time with these payments. Can we do something?” I’m not going to tell you what the answer was, but it was one that scared me enough to say, “Chris, you’re not going to be sleeping much and you’re going to be working all night to finish this thing.” How I got through this time is I came home one night, my girlfriend who’s now my wife, had moved in. I remember looking her in the eyes, and this was hard for me, and I said, “I need your help. I need your help paying the mortgage. I need your help paying the utilities. By the way, that bedroom down to the end of the hall, we have to rent that out to my friend, Pete, because I can’t make it. I’m going to lose it all if you can’t help me do this.” I knew it was a 50/50 shot. She was either going to walk out the door and say, “I’m not dealing with this,” or she was going to stay. She liked me because she stuck around and we ended up getting married. Because of that, I made it through that time. As soon as I got through that time, right after that, I was always a good investor. I was an advisor and I loved Warren Buffett’s, “Buy low, sell high and don’t lose money.”
In ‘09, everything was on sale so I started buying real estate. From ‘09 to ‘14, I bought 36 apartment units, pennies on the dollar. It would seem like I was crushing it again, but I wasn’t. I was buried. The banks decided when I brought them the 37th deal that I didn’t fit the little debt-to-income box, so they froze all my lines of credit. I had to sell all 36 units, but that wasn’t the worst part. What I also had to sell was the dream house that my wife and I bought. At that point, I wanted to quit. I was done. There’s nothing left for me. At that point, I decided I needed help. That help came in the form of a postcard to go to a three-day seminar to learn how to flip houses. There are no two ways about it. Don’t even think for a second. I was going to this seminar to learn how to flip houses. I was going to this seminar because I had nothing to lose. By going, I was getting an iPod Shuffle. That’s what they were giving away to come. Free iPod Shuffle or stay home and wallow in my misery, so I went.
While I was there, by the second day, I met two people. I met Mike and Greg. These were the guys that were speaking and they started talking about how they were buying real estate, getting money and using hedge funds. Everything they told me made me realize quickly that everything I was doing was the complete opposite of what they were doing. I had a realization that if this is the opposite of everything I’ve been taught my entire life as an advisor and everything else, what else don’t I know? I started questioning everything. At that point, I dove in and I did everything that it took to seek out the knowledge that they don’t teach you. That’s where the story begins. That journey brought me up to the present.
Greg is one of my partners and Mike is one of my good friends. It was self-realization of the things that we learn our entire lives about how money works is not what the wealthy do with money. What the wealthy do with money like what you guys do, most people are not privy to that information. You have to seek that knowledge out. Once I did that, I learned that the biggest problem in my life wasn’t money. The problem wasn’t the economy. The problem was the misinformation that I’ve been given my whole life. That’s when I got off the financial hamster wheel and started learning everything that I know and started applying all these secrets of the wealthy, the things that I wrote two books on. That’s exactly how I did it.
What an inspirational story from starting from nothing. Your mom, being that hero and guide that supported you in the beginning, hitting the wall for a first and a second time and then overcoming with some new guides with Mike and Greg. Before we dive into some of the tactics and some of the wisdom here to flesh out on exactly what you’re talking about, who was Chris before the seventeen-year-old snowboarder and entrepreneur by spirit? Even more so, what particular gift were you given? We’re all given some superpower. It’s a God-given gift that you use. How does that connect how you help people? I want you to connect that gift with how you help people.
My mom’s been my unconditional one in my entire life. One of the things she taught me when I was young is to spend more time listening to people and be a good student. She said, “Always listen more than you talk. Take what you learn and apply that knowledge because we didn’t have money. All we had to do is take what we had and make the most of it.” I became a good listener and that’s gone through until today. One of the reasons that I’m a good coach and a great money mentor is because I’m good at listening, but I’m also good at taking complicated things and bringing them down to a simplified level. Back then, I wasn’t smart. I was never that A-student in school. I was never that Ivy League kid in college.
I was the average kid who knew enough but I was willing to outwork and out listen to everybody else. I was a phenomenal student. When someone told me something, I took great notes and applied that knowledge immediately. I wasn’t the type that took the knowledge and said, “I’ll get to this someday.” No. I took the things that I wanted to learn and I immediately found a way to apply that knowledge. That’s been everything that I’ve done my whole life. Even my high-level coaches, they all say I’m one of the best students, but I spend more time just listening. I’d say that would be that thing prior to that sixteen-year-old kid that I had.
Apply that to how you help people.
It’s multifaceted. I’ve got The Money School and The Money Multiplier, which are two different things. The Money School is an education platform that teaches people how money works, but it does it more with a real estate and an entrepreneur focus. In The Money School, we’ve created an entire system to teach people where all the money is for all the real estate deals they’ve ever wanted. These are places where they wouldn’t think to go for money. These aren’t the traditional banks. Even though we teach how to use banks and how to leverage banks, that’s not mostly what we talk about. We talk about private lenders, hard money lenders, and where all this money is. The biggest source of money, as you are well aware, is in employer-sponsored retirement plans. There are tens of trillions of dollars sitting in 401(k)s, 403(b)s, TSAs, and all those fancy government-sponsored and government made, in some cases, retirement plans. Those retirement vehicles are one of the places that I’ve gotten good at.The problem isn't the economy. The problem is the misinformation that you’ve been given your whole life. Click To Tweet
When I was a financial advisor, I worked for a lot of big firms and I’m not going to get into the names of them because I try to leave that out. Some of the biggest firms that you deal with and hear about every day, I was a high-level advisor and I got to the point where I was managing large portfolios for them. While I was doing that, I learned all the things that you needed to learn about investments, mutual funds, ETFs and specifically, the rules behind employer-sponsored plans. I never liked the fact that as a young man, every dollar I put into the 401(k), I gave up control of that money, but I never understood how to take back control. The Money School shows people with basic 401(k)s on how they can leverage their 401(k) and how they can use the money in their 401(k) through loans to fund deals or to lend money to others for their deals because not everybody wants to swing hammers and flip houses. I don’t blame them, but some people want to make more money on their money. When the markets start falling apart, a lot of people want to know what other options they have so we teach a lot of that.
The second thing that we teach is a lot about self-directed IRAs. How to use traditional IRAs, Roth IRAs, and how to self-direct them and use them for things like real estate, things like what Mitt Romney would, private investments, private funds, and stuff like that. The other thing that we do with The Money School is we teach people how to solve people’s problems. If you need money in any capacity for your business or anything you’re doing, the last thing you should ever do is ask for money. I’ve asked enough times to learn that every single time I ask, I hear the answer no, so I stopped asking. I started learning that if I need money, what I have to do is solve people’s problems. People all have the exact same problem. It’s beautiful that this is a uniform thing, that the problem is they all want to make more money. Isn’t that the problem you come across a lot? People want to make more money or keep more of the money they make. That’s it.
What I found is a system in a way to show people how to solve that problem for people. First, show them how their vehicles work, what they can do with their vehicles, then present them an opportunity that solves that problem. That opportunity when you present it, you’re never asking for money. You’re just talking about the pros of your deal and the things about your opportunity. At that point, that person is going to want to engage with you because you didn’t ask them for something. You’re sharing something with them. We created the entire system of how to take that opportunity and structure it so that that opportunity could be shown to a bank, private money lender, institutional lender and anybody under the sun that’s got money that would want to see this opportunity. How do you present that to get results? That’s Money School. I went one step further. I’m a big private lender. I lend a lot of money and the biggest problem I hate as being a private lender is when people bring me deals that are incomplete. It takes time, energy and it takes teaching people how to then go back, get the deal and make it the right way so that I want to look at it and I got all the pieces that I need.
I created the standard operating procedure on how every deal should be put together and this works for banks and everyone else. I said, “How cool would it be to have a community almost like eharmony.” It’s the dating site where they match up people. What if I created a community where I had borrowers and lenders, and in the middle, I had an education? I taught them exactly how to be a good borrower or a good lender but then outside of that education, I created a standard operating procedure. The lenders and borrowers have profiles as they would in any other account, then the borrower can submit their deal to the lenders that match up with their profile of the deal. I created the eharmony for lenders and borrowers in the community and that’s blossomed. I did it self-serving because I wanted better borrowers. I didn’t want to have to spend time teaching them how to bring me a deal so I standardized everything. I created systems and processes to do that.
Back to when I was a kid, I learned how to listen to what people wanted, what they were struggling with, what things they didn’t like and what things they didn’t want. I kept solving those problems. Some of it was self-serving because I wanted to give back and help other people learn how to do this. That’s what The Money School is. The Money Multiplier is probably one of the craziest things that I can even explain. It’s the single thing that changed my life more than anything else I’ve ever learned. That is the one thing in 2014 when I learned about it, then I saw it. It was brought to me by that guy, Mike. He showed it to me out in Salt Lake City and I said, “Mike, this is too good to be true. I’m an advisor. I know all this stuff. There’s no way this is possible to do this.” That’s the biggest thing I do. I travel the country speaking on stages.
I’m in three different cities every week speaking about this topic, The Money Multiplier and teaching people how to take back the banking functions in their life and become their own bank by changing one thing. I teach people how to build wealth through their own debts and expenses that they already have and then I show them how to change this one thing and that one thing that changes everything else in their life. This whole system is beautiful because it’s the system that the wealthiest Americans have used for hundreds of years. It’s created by the Rockefellers, JP Morgan and Rothschilds. Every bank under the sun uses it. Every Fortune 100 and 500 company uses this banking system, yet not many people know what it is. Even the ones that think they know, they have a little trouble understanding its true potential.
Before we dive into exactly what that is, here at Capital Gains Tax Solutions, we’re all about exactly what you’re talking about, creating, preserving, keeping and saving more wealth. A part of that is learning about these systems, strategies and proven tactics that people have used for a long time. What’s been the single biggest challenge you’ve seen when it comes to capital gains tax deferral and/or traditional tax savings either for yourself or for your partners or maybe one of the biggest mistakes you see wealthy, educated people make every single day? Can you walk us through that and then connect it to the strategy you were referring to?
Let’s go back to the most commonplace people put money, the largest source of money, which is employer-sponsored plans. From a young age, and even my grandmother told me this, we’re taught to save money for retirement. If you look at statistics of Social Security, they say that out of 100 people, only five of those are going to be financially secure at the age of retirement. The easiest way that we know how to save as soon as we get into the workforce and the career force, we’re shown 401(k)s, employer-sponsored plans. It’s easy. Some of them don’t even need to sign a paper. You just get employed and automatically you’re enrolled. We put money in these employer-sponsored plans. The biggest struggle that I’ve had and the biggest mistake a lot of people make is if you boil down and think about what you’re doing when you’re funding a 401(k) is number one, you’re saving for retirement. That’s a good thing.
Number two, aren’t you giving up good dollars? You’re giving up control of the money that you could use for opportunities. The thing I always tell people, “Your dollars are worth the most because if an opportunity comes across your desk, you need to have money to take advantage of that opportunity.” Most people that I see, even wealthy people, put a lot of money, and sometimes most all their savings outside of their primary residence, into these employer-sponsored plans. They’re putting the money in there and while they’re doing that, they’re giving up control of their money. What they’re also doing is they’re giving up control of their good dollars to be paid back with weaker dollars later. Do taxes go up or do taxes go down? We could all agree that taxes go up. Even if they don’t go up, don’t they find more crap to tax us on?
Look at Florida. I love this example. People flocked to Florida because there’s no state income tax. When you drive down the roads, the throughways in Florida, how many toll booths do you hit? It’s one every 0.25 mile. Tolls are taxes. They find more crap to tax us on. If taxes go up, then we’re putting money into these employer-sponsored plans and we’re deferring this money to an age of 59.5. For someone young, that’s a long time. You have limited access and limited control of this money. The financial companies are in control of the money, not you. They give you a basket of investments that you can invest in and then you pick those investments. Most people don’t even know much about what they’re investing in. They know whether they made money, when they got their statement or they lost money or they know whether they’re in conservative, moderate or high risk. A lot of people don’t have advisors. They rely on the advisor that’s on the employer-sponsored plans. They don’t have people like you guys that are watching out for their best interest.
They’re putting this money here and that money is growing or not growing in the market. Eventually, they have more money. Over this long period of time, what has also happened? Haven’t you compounded the tax on your money? If you’re in a traditional 401(k), when you take that money out at 59.5 years old or when you decide to take it, you’re taking that money out at your current tax bracket. Your tax bracket is probably going to be higher because you’re making more money. Taxes probably went over that period of time, but even if they didn’t, you’re still taking it out on a larger sum of money. The government figured this all out. “We’re going to give you the ability to put money into this and we’re going to give you the benefit, but then we’re going to hit you on the larger amount in the future.” They’re not dumb. They know exactly what they’re doing. The biggest mistake people make is they get led down this path of giving up control and then being paid back with weaker dollars later.Spend more time listening to people and be a good student. Always listen more than you talk. Click To Tweet
I always tell people, “We do things with money we would never do with things that money buys.” Would you ever buy a loaf of bread, come home, put that loaf of bread in your freezer, close the door, wait 5, 10 or 15 years, come back, take that loaf of bread out, eat it and enjoy it? You’d be freezer burn. You wouldn’t eat that. Would you buy a car and wait 5, 10, or 15 years to drive the car? Would you buy your primary residence and wait 5, 10, or 15 years to live in your house? If you did that and you’re married, you wouldn’t be anymore. We do things with money we would never do with things that money buys. When we put money in these plans, we’d never realize that we gave up control where we’re losing opportunities if that’s our only money. Later, the biggest mistake I seek, as an advisor, I saw this all the time, is that people get to that age of 59.5 where they can take that money and they don’t because they don’t want to pay tax on it. That money sits there and then the government makes them take it out at 70.5 for RMDs. When that happens, they still complain about taking it, “I don’t want to take this and pay tax on it.”
Why do we give up control of our money to later not want to take it because you got to pay tax? You hear, “It’s a legacy thing. I’m going to leave that money for my family or my beneficiaries.” Great. That was good up until the new SECURE Act. The whole stretch IRA thing and you guys are well aware of this, when somebody would pass away or as I like to call it graduate and they had money in IRAs or employer-sponsored plans, they could roll that money over into a stretch IRA or an inherited IRA. They could defer those taxes for a long period of time. Not anymore. You have ten years to take all that money out. How much money does that make government taxes? I don’t know, but it’s a lot. The biggest pitfall I see is that people give up control of money chasing a future goal of retirement, which someday isn’t what they wanted. They’re scared to take the money because they don’t want to pay tax on it.
There’s a better way and part of why we’re on this show is to help people create and preserve more wealth through investment real estate and other financial instruments. Don’t get us wrong. There’s a place for each tool, but what we’re hearing is many people are passive, give up the control, fall the habits of 401(k) investing and lose out on opportunity cost. It’s like trading time for dollars. In this sense, you’re trading and putting in the 401(k), which is locking up time for all of the opportunities you could be making with funds. You could be putting them into real estate deals which you can use depreciation and accelerate depreciation to offset all of that income, then start to compound your money even more so and/or do hands-on value add real estate deals where you’re putting sweat equity and you’re making your money and yourself work for you to build that wealth. If you don’t want to do it yourself, there are groups that syndicate deals and operate deals. That’s what I personally do, senior housing, mobile home parks, multifamily, and mixed-use. There are ways to create and preserve more wealth beyond traditional means. That’s step one. What’s step two after that, Chris?
Step two is what we tell people is. I’m not knocking 401(k)s. They’re good vehicles for some people and if you got a match, by all means, you should be putting in up to that match and capturing that match. What you should be focused on is diversifying. A lot of people, when I say the word ‘diversifying’, they think, “I’m diversified. I’ve got this stock, bond, mutual fund, and ETF.” No. I mean to diversify your cashflow and your asset classes. In other words, you got some money in employer-sponsored retirement plans. Maybe take some money and put it into real estate, but then you say, “I don’t want to own real estate. I don’t want to get calls on Sundays.” Great. Do syndication deals. Do private funds. Be involved in real estate because real estate is single-handed, in my opinion, one of the greatest investments of all time. You can do so much with it. You can force appreciate it, leverage it and it can never go to zero. If you think it can, then you forgot that you have to put insurance on the properties.
Also, the best thing is the tax advantages. There are massive tax advantages. Why do you think the wealthy put money in real estate? Number one, it’s a great investment. Number two, they understand so much, like you guys. When I had you on my podcast, the things you said, “I’d never heard of them. I’d never heard about what I’m going to explain about this banking system until 2014.” When I heard about it, I’m like, “No way. Why wasn’t I ever shown this? How come nobody ever taught me this?” That’s the reason why people go to the traditional, conventional financial places that their advisors tell them, but they never realize that there are other alternatives. There’s nobody out there talking about these other things because it’s difficult to make money on people when you’re giving good advice and telling people what the wealthy do. What I always tell people to do is I say, “If you believe even a little bit about what I said about not wanting to give up control and then taking back some of that control by changing one thing, what is one of the greatest things where people like to put the money?” People like to put money in a place where they have complete access to it. That’s number one.
They don’t want to work any harder or any longer. They want to continue doing what they’re doing. It’d be nice if you could build wealth by doing nothing other than building wealth through your own debts and expenses you have. If we could take back the interest that we’re paying to everybody else and have a method to do that, then you could build wealth by taking the money back you’re giving away every day. That’s one thing. The other thing that people don’t love is a risk. This thing that I’m going to talk to you about, which is freaking simple, is guaranteed. What the wealthy have figured out hundreds of years ago is they found that the best place to put money is not conventional banks. Banks hold way too much risk. If you ever read the book, The Creature from Jekyll Island, that will teach you why you should not have too much money at banks. It’ll scare the living tar out if you read that book. It’s 600 pages.
The wealthy know that banks are a place where you got to have some money, but not all your money. What they did is they found that the safest place to put their money, if it’s not banks and they want it to feel and look in and have liquidity like a bank, is insurance companies because insurance companies don’t practice fractional lending. Insurance companies are boring and they’re old school, especially mutually owned insurance companies. They do things by the old rules, the Austrian economics if you will. What the wealthy and what the banks figured out is, “What if we can create banking systems using insurance companies?” What we’re after is we want those returns of those insurance companies’ general accounts because an insurance company, if you think about it, they have all the money and they constantly have new money coming in. People are always paying the premiums so the insurance companies constantly got new, fresh capital to take advantage of opportunities.
The returns in an insurance company’s general account are that which can’t even be matched by about anybody. They’re steady and solid because insurance companies invest for hundreds of years, not for 10 or 5 years. They look hundreds of years in the future and therefore because they do that, they can capitalize on things no one else can. The next question comes, “That sounds great, Chris, but how do I create a banking system with insurance companies?” This is the part where I lose people because people constantly think they know what they don’t know. Do you know who that person was? This guy right here. In 2014 when I was told this, the first thing I said was, “That sounds too good to be true, so it must be.” What they do is they use one of the oldest financial vehicles called whole life insurance. Dividend-paying whole life insurance from a mutually owned company, but they don’t use whole life insurance like you know whole life, which is for life insurance. That’s what you know. You go to your life insurance store and you buy a whole life policy.
Dave Ramsey would say that that’s a bad idea because it’s a bad investment. Indeed, it is a bad investment, so don’t invest in whole life. I hate to say it that way. What whole life provides you access. If structured properly, which is almost the complete opposite way you’d build a life insurance policy, to give you access to the insurance company’s general account. If we had the ability to put money into the insurance company’s general account, that would give us the ability to make a guaranteed 4% return. I don’t know any banks out there paying a guaranteed 4%, but insurance companies do. We got a guaranteed 4%, but then what we did is we got smarter and we found mutually owned insurance companies, which treat us like stockholders of large corporations. We are at a mutually owned company and we’re a “policy owner.” We receive an annual dividend. Not only are we making 4%, the insurance company’s being gracious and they’re giving us a dividend every year. We got this dividend and this guaranteed 4%, but the story takes a twist.
What if I told you that the whole life policies are built properly so that they work like banking policies? You can put your money in the insurance company and in the next 30 days, as soon as your check clears, you can take your money back out and use that money for whatever. How much can you take out? That depends. It’s never going to be less than 60% of what you’ve deposited, but more commonly closer to 70%. We can get up to 90% access to your money immediately in the first year. We put our money and we’re making 4%. If you put your money in the bank and your bank was gracious enough to pay you 4%, but then the next day or 30 days later, you went back to your bank and you took your money out, your interest stop. It defeats the whole purpose of earning compound interest because compound interest works when you put your money somewhere and you leave it to set.
There’s not a business in the world that uses compound interest. Banks don’t use it. They just charge us compound interest and they pay us compound interest. Banks move money, which doesn’t mean they use compound interest. Grocery stores move inventory, which is groceries. Car dealerships move cars. There’s not a business in the world that uses compound interest, but what if you had a way to make uninterrupted compound interest? Do you know the stuff that Albert Einstein talked about? The ninth wonder of the world, the most powerful thing in the financial universe is called uninterrupted compound interest. The ability to put your money somewhere, earn 4% plus dividends, be able to take that money back out, but yet still keep earning interest on the money even though you took it out. That’s exactly how it works.
When you deposit money through your whole life into the insurance company’s general account, you can take loans from the insurance company. Your money in the insurance policy acts as collateral and continues to earn uninterrupted compound interest. While the insurance company graciously and gladly loans you money at a lower interest rate than what you’re earning, then you can take and use that money. The funny thing is if we think of banks when we take loans, don’t we have to pay loans back? If you don’t pay a loan back to a bank, what do they do? They take whatever you used for collateral or they hit your credit. Bad things happen. I’ve got to keep saying whole life policy because people constantly want to think of that fancy life insurance thing. This is built differently. When you take a loan, the insurance company will never ask you for that money back. They don’t care if you ever pay it back. Keep paying them their interest in it, which you’re already making more than what you’re paying them because you’re earning uninterrupted compound interest and you’re paying them simple interest.What you should be focused on is diversifying your cash flow and your asset classes. Click To Tweet
The reason they don’t care if you ever pay that loan back is that didn’t the insurance company promise you a death benefit to be paid upon your graduation date or your death? They did. We’re not doing this for a death benefit, but there is one there. When we take these loans, if we never pay them back, we’re just taking an advance against that death benefit. Whatever loans we don’t pay back, the death benefit drops. What you have, if you take even a smidgen of what I told you, is the almost perfect banking system. You have a place where you can put money, earn interest on that money unconditionally and uninterrupted, take your money over and over again, and never have to pay it back if you don’t want to. Someday when you graduate, there’s going to be money there that pays your beneficiaries to provide that legacy.
Do you ever think about the wealthiest families, the Rothschilds, and Rockefellers, as to why they never can run out of money? Do you think they use that system? They do. Every single time one of the graduates, a big death benefit is paid back to that family trust or the plans like what you guys create and that money is used for the next generation. I get excited and passionate because when I learned this, that one thing single-handedly changed my entire life because that system is exactly how I paid down over $100,000 in debt. It’s exactly how I scaled my real estate business by having money that I was using from the insurance policy to fund my real estate. That is how I lend money.
Let’s walk through a couple of questions that come to mind. The first one would be, let’s say someone’s worth $1 million and they’re debt-free. What percentage would be allocated? Would you suggest, “Invest in real estate, whole life policy, stocks, bonds, and mutual funds?” As a financial advising background, what would be the allocation there at any given time?
That would be the traditional way that I used to think, but that’s not how we do it. When we’re meeting with people, they’ve already got things set up. They’ve got certain things and we’re not going to advise them, “Have this much going here.” We might help them reallocate and change where some of their monies go. With the banking system, what we always tell people is we start with what you’re already doing. They have no debt, but they’re saving money somewhere. Where is their money going? We identify where all their money is going. What we say is, “How about we take the monies that are going into something similar to a bank account? Let’s take some of the money that you’re putting into these safe investments over here, maybe fixed annuities or money market accounts or treasury bonds. Let’s take that money and let’s reallocate those assets over to this asset class, this specially designed whole life.” What we’re trying to do is mimic what you already have with a bank account but do it better. That’s how we would do that.
When you look at what percentage is going to go here, there or anywhere, it’s specific to the individual. I always tell people, “The first thing I would tell you not to have much money in is qualified plans because you lose control,” but for most people, it’s already too late. They have too much money there already. They’ll say, “How much of that do we want to keep there and how much do we want to self-direct?” We’ll help them organize that a little bit. With this banking system, I take money that mimics what we’re putting the money into. I try not to take money from brokerage accounts because people are putting money in brokerage accounts as long as they’ve got good advice, which most people don’t. I’ve been telling people to be careful of what’s coming in the markets because we’re at a high point for a while. People didn’t listen. They keep rolling and then they complain that the market went down a couple of thousand points and they wonder, “Why I didn’t do something? It is because you don’t listen. You should have done something, but you should have done something before it went down.
When did most people take money out of the market? When it’s already down a lot and it’s too late, but that’s a general nature because that’s fear. That’s the reality of what happens. I know I’m dancing around it, but I’m not. There’s not a specific answer. We don’t work in the general capacity of the way I work as an advisor. We keep it casual. I work with lots of multimillionaires in this and I have a candid conversation. They’ll show me all their assets and I say what’s working and what’s not. They always have a problem. “I’m sick of this. I don’t like the way this one works. This has high fees.” We identify those and I say, “Here’s one option. Here’s another option.” Whatever their percentage is in that asset that they’re having issues with, we reallocate that. I know where you’re at because as an advisor and financial planner, when I was doing that, that’s how we always did it. We always had a graph and we always had pie charts. “This was your asset mix and your portfolio mix.” We don’t do it that way anymore, at least for what we do.People are trapped. They are literally in financial slavery because that's what the system is designed to do. Click To Tweet
How about the LTV? If you’re borrowing 60% to 90% of the total value, let’s imagine you had $1 million in there. You mentioned you’re borrowing against the plan, which if you didn’t die, then it’ll pay back whatever you borrow. You can take that loan for as long as you want. What’s the interest rate generally? What’s the spread there between the 4% that it’s compounding and what you’re borrowing at?
Most insurance companies we work with charge 5% simple interest. You’re making a guaranteed 4% plus the dividends. The dividend plus the guaranteed 4% is about 5.5%. It was a little higher, but most companies drop their dividends. The first year is the worst year. If you’re making 5.5% and this is your first year only, you’re paying 5%. You’re making 0.5% while still having access to your money, but then you don’t have access to all of your money in the first year. If somebody had $1 million, I will tell you they would get access to roughly 93% of every dollar they put through the banking system. I did one and that person got 93%. The other thing too that’s important to understand is that’s the first year. Remember, your money, that $1 million is compounding at 4% plus the dividend. Let’s call it 5.5%. Next year, you’ve got a higher balance. If you’ve got a loan over here, the loan is still on the same amount if you’ve never paid that loan back. We would always tell people, “We want to make money out of this plan and reallocate that money to something that we can recycle and recapture.”
For example, cars. What if I could show you that this method would be the best method where you could get all the money back for every single car you’re ever going to be driving on? I don’t care if you’re Middle America or you’re the wealthiest person. We all have cars. Wealthy people still like getting all the money back for their cars. With that method, because of the uninterrupted compound interest, you could take a loan from your banking policy. That $1 million you put in, you take whatever amount you want from that. You go out and you buy a car. You pay cash for it with your banking policy. Instead of saying, “I did that and I’m done,” because that would be a bad way to do it, what you do is you figure out what that car payment would have been if you financed it through the dealership’s finance company. You take exactly that dollar amount and you recapture that money back in your banking policy to pay that loan down. You didn’t change anything because you would have more than likely either paid cash for the car and lost the earning potential on that money.
That’s what most people do, they pay cash. They exchange money for the car and that car is a depreciating asset, but the money they paid for the car, they lost all earning potential in that money. They took it from a brokerage account or from a bank account. One of those two things, we’re paying some interest. When you take the money out, you lose all the interest. In this system, you didn’t. By doing that and using that money, you’re still making interest, but you get to recapture the monies that you would have paid in financing anyway. That’s how you get all the money back for every car that you’re going to buy, drive, and own. Ultra-wealthy, when they’re looking at this system, why are they going to do this system? What would be the biggest advantageous thing for somebody that’s wealthy? Let me talk to you a little bit about the family offices that we work with because they manage tens of millions and hundreds of millions of dollars. When they do this system, because many of them do it and they call it privatized banking, they don’t call it the money multiplier. They’re doing it because they want full liquidity of their money and want their money to earn the highest interest rate on a guaranteed basis.
When they have the opportunity to take that money out and buy into a business opportunity or take that money out and buy Apple when it’s down 30%, they immediately can take that money out and redeploy that money and buy these asset classes. The other thing they do this for is tax reasons. Every dollar that goes into these banking systems, although it goes in after-tax much like a Roth, is potentially tax-free. All that interest and all that money of the dividends they’re paying you, as long as you keep reinvesting it back in the policy, that money keeps growing. You can still access that money and not have to pay tax. If you go to a bank and you take let’s say $100,000 out of your house, you don’t have to pay tax on that because it’s a loan. You essentially have to pay that money back to the bank. You don’t have to pay it back, but you can and because it’s a loan, you don’t have to pay tax on it. You could take that money out, enjoy it tax-free and never pay it back. The insurance company will make up for it when they pay your death benefit. The wealthy use this system because of the guaranteed interest, the liquidity, and the tax advantages within the insurance policy. That’s the number one thing that I see.
When you mentioned taking it out, you’re referring to taking loan security against the policy, right?
Always. Like stocks, you can take withdrawals up to the basics without any taxes.
You can access it quickly, liquidity maybe 2 or 3 days, whatever it takes to get that money in there, and then you don’t have to ever pay it back. They get it back when you graduate or die, then the death benefit will pay it all back. Any additional interest would be passed on to your heirs.
When we’re doing the banking systems, instead of building or buying a life plan, what we’re doing is we’re putting the lowest death benefit and we’re supporting some of that death benefit with term insurance because it’s cheap. How it works is, when we first set these banking policies up, the death benefit is low, but every deposit this person makes into this banking policy, their death benefit goes up. Every time they make deposits, the death benefit keeps going up and up. Even when they’re taking these loans, they’re taking the loans off of an already increased death benefit. What we normally will see is over time, if somebody keeps using that money, even though when they pass or graduate and that money’s paid out, the death benefit is still substantial. Every single deposit increases the death benefit. It almost has to because you can never have more cash value than you do death benefit. The insurance companies have to ratchet it up as it goes, and that’s how it works. You’re always going to have a nice death benefit, even if you intentionally kept trying to take as much money out as you could and never pay it back.
Any last thoughts on that before we shift to the last few questions?
That’s a good high-level look at it and then from there, there are IRS rules that go in with it called the MEC seven-pay rule. There are lots of restrictions. Pre 1988, wealthy billionaires were putting billions of dollars into these plans and using them as tax shelters, but the IRS stopped in 1988. There are limits to how you can put money in. If you had somebody that had $1 million and like, “I want to dump $1 million in,” it’s probably going to be tough unless they’re going to put $500,000 in each year thereafter because we got to play with those IRS rules. Although that sounds great, you can’t get crazy and start dumping large chunks of money in there without getting the IRS rules into it.
This is the time where you reach out to Chris and you get a customized wealth plan for this type of vehicle, privatized banking, and see what would fit your scenario. Chris, you’re a wealth advisor and you also own some real estate. Talk to us a little about owning real estate and your strategies there for building wealth.What you should be focused on is diversifying your cash flow and your asset classes. Click To Tweet
The real estate’s always been my go-to. Since 2006, I started flipping houses and I never stopped. We flipped 257 houses and we had a rental portfolio of 91 units. What we’ve been doing with the market being as high as it is and a retail village is high, we’re packaging together our rentals and then we’re selling them off as portfolios. People know the 1031s and I wish more people knew what you did, but they got all this money from the sale of a big property and they’re looking to reallocate this money quickly. I’m taking advantage of that. I hate to say it but packaging these rental portfolios off and selling them off at full retail price, we’ve been doing that and we’re down to 55 units. With real estate, how I do my real estate business is a four-step process. Step number one, every deal that we find that we put under contract, I’ll try to wholesale that deal. I’ll try to sell the contract to some investor that’s looking for that deal because I don’t want to swing hammers. I don’t want to flip houses. I can’t stand it so I’ll try to get rid of the deal and make the quick dollar. It might be less than what I’d make if I flip it, but it’s still quick and easy.
If I can’t wholesale it, I try to look at, “Can I make money flipping it?” We put a deal under contract one time and I can’t get my wife off this flip train. She’s like, “I can flip this. This will be a great project.” It is. The numbers are all there so she wants to flip it. The numbers say that we will make 20% or more than that. Our strategy is if we will make 20% on the deal, we will keep it and we will flip it, which this one qualifies. Let’s say it was 10% that we were going to make. I will then move that strategy to strategy number three, which would be to BRRRR. It’s a fancy way of saying rentals. Doing a BRRRR is we buy it, rehab it, rent it, and then we take the deal. All this is done with private money, self-directed IRAs, and private lenders. We take that private money and we refinance it through a community bank because community banks love fully renovated rented properties. They’ll dish money out like candy for those things. We refi it at the bank, get all the money back, and pay the private investors.
What we hopefully have is a property that if we did it right, none of our own money is in this deal. It’s all the bank’s money. We’ve leveraged the deal to $0.80 on a dollar. We have not one penny of our money and we have created infinite cash on cash return for our money because we don’t have any money in it. I have perfected this system. I’ve even trademarked that name BRRRR because I love it so much. If we can buy them at the right price and do it right, that’ll happen over and over. How fast could you scale our rental portfolio if you didn’t have one penny of your own money? That then led me to the next thing in real estate. If I wasn’t using any of my own money and we’re still flipping, we’re building up money over here. That money is going into the banking policies, then I got to move that money in the banking policy. If I don’t have any debt to pay down and don’t want to buy any more flips, then that money has got to do something because the only way money makes money is when you keep it in motion.
What I’ve become like a private lender? I started lending money out to other real estate investors that I have taught and trained through The Money School. I taught them how to be a good borrower. I lend money to them through my own little eharmony community that I’ve created. That’s what I do with real estate. I only wish I knew what I know now back in 2009 when I had to sell all 36 of those properties in ‘14 because if I had those properties, I would have been buying Yahoo! back in its heyday and riding it right to the top. Unfortunately, I had some learning to do. I’m doing it the right way, but I’m waiting for the next downturn.
You can help more people do it and I love the BRRRR: Buy, Renovate, Rent, Refinance and then Repeat. Hold on to that asset. It’s a cashflowing asset and then go use that extra money to go leverage another one and do the same thing over and over again and help people along the way through your community. I’m curious about those 270 or so and now you have 55. How are you going to defer those capital gains taxes? What are you doing there to mitigate some of those taxes and those gains?
If I had only known you when I sold that strip mall, I wouldn’t have had to pay taxes on about $169,000 on that, but then I sold a $1.6 million rental portfolio. I didn’t know you then. That would have been a great plan. I looked at 1031 exchanges but I’m like, “I don’t want to buy anything at these prices.” I had a lot of deferred losses carried over from the flips. The beautiful thing about flipping is you can control your taxables. There’s so much you can do. With flipping, I can roll deals into the next year. I can play all sorts of fun things so that I don’t have to pay much in taxes. The year I sold that $1.6 million, I had a whole bunch of deferred losses that I carried over. That helped me a lot in 2019 taxes, but in 2020, I’m screwed if I sell any more of those. The good news is I met you guys. If I sell any more of these portfolios, which I will, I got to package them up and sell them, you will be the person that I’m going to be doing that system through because I don’t want to pay taxes on that.
To clarify for people who are reading for the first time or maybe catching on this, the 1031 exchange is a short 45 days to identify, 180 days to close, equal, or greater value. It’s not easy to do, especially in a highly appreciated market. One of the reasons Chris is selling is because the prices are so high, but by definition, that doesn’t necessarily mean he’s going to be able to find something low. It’s even harder. We say, “Don’t do 1031 when you sell high and buy higher 180 days later. Sell high, move to the Deferred Sales Trust, all tax-deferred, and then buy an optimal timing when and if it makes sense for you.” Chris may say, “I’m a private lender. I want to lend all of that money.” Great. I want you to diversify within multiple commercial real estate streams with different operators, myself, and a couple of others, different product types and different geographical locations. When he’s done that, he’s taking risks off the table, which is one of the best ways to create and preserve more wealth, especially when things are high, rather than staying in a single box, single 1031, and a single marketplace in a single product type. By definition, you’re not diversified. That is key. Any other thoughts on the 1031 exchange and any tough stories?
I hate 1031. I’ve seen more people put themselves through financial suicide through 1031 exchanges and force themselves to way overpay for properties than they should. I lost the deal on this big apartment building in Downtown Buffalo to a guy that had 1031 money. He overpaid by $65,000 on this property, which doesn’t seem like a lot on a building, but in Buffalo, that’s quite a bit. I laughed at this guy. When I found out, he did it because it was either to pay taxes, which was several hundred thousand, or put this money into this deal. The deal doesn’t look like you did anything to it. People rush to make bad decisions because they’re under the gun with deferred trust. The way I look at it, I love that you said that if I sell any more, I’m going to put it in there.
I’m not looking for more deals. The market is too high. All I’ve got to do is wait for the market to correct. As the stock market’s going first, we’re already seeing the signs of the ugly monster showing his teeth. After that, real estate values will start coming down. Guess who’s going to be ready to do this pounce? Warren Buffett and guys sitting on $120 billion ready to buy, that’s going to be me. While I’m waiting, I’ve got to keep that money moving so I’ll keep lending money. If I did that through a deferred trust or even lend the money back to myself at an interest rate, there are many things you can do with what you showed me. I’m in awe.
Chris, we’re going to finish with a quick lightning round, one-word answers, and then we’re going to move to the last question. The best book you’ve read?
The Creature from Jekyll Island.
The best podcast you’ve listened to?
What is the best real estate tool that you found that you use in your everyday business like a system or tool or something that helps create better communication or better outcomes?
It’s called the Max Offer Formula. It allows you to come up with the max offer on any property in 30 seconds.
What is the best leadership quote tool that helps you stay inspired?
“The problem in America is not what people don’t know. It’s what people think they know that just isn’t so.” That’s by Will Rogers. Not much of a business guy.
Here’s the last question and it’s my favorite question. How do you stay centered in your values, Chris? How do you stay encouraged to reach new heights and new goals after accomplishing everything you’ve accomplished, giving back so much and driving a heart entrepreneur?
It starts with me every morning. When I wake up, the first thing I do is fall out of my bed and I get down on one knee, then I thank God for that day. My days are regimented. The other thing that keeps me centered and focused is I’m always focused on helping others. When you get to a certain point, money isn’t your main objective. Things and money and cars, those used to be important, but what’s important is what can I give that I have that will help people? Not just a couple. It’d be fine if as a couple, but what can I do that will change people’s lives? That is what gets me up. That is what drives me every day. That’s why I’m always here earlier and staying later. That’s why I do what I do because I truly feel I have the gift to go out there and change people’s mindsets and change people’s lives. People are trapped. They are in financial slavery because that’s the system. That’s what it’s designed to do. I show people the way to get out of financial slavery, the way to take back control of their financial lives. That keeps me going every day, more than I can ever put words to.The problem in America is not what people don't know. It's what people think they know that just isn’t so. Click To Tweet
Thank you so much for sharing and thank you for your time. Remind our readers where they can find you and how they can connect with you.
The best way to find me is ChrisNaugle.com and the best way to connect with me is social media. Chris Naugle on Facebook and @Chris_ Naugle on Instagram. I still respond to every single message on each one of those, which is a daunting task, but that’s your best way to get ahold of me.
Chris, thank you so much from all of us here at Capital Gains Tax Solutions for being on the podcast, sharing your wisdom, inspiration, story, being open, honest and using the gifts you’ve been given to help people create and preserve more wealth, live a bolder, brighter life for the future. Thank you so much for what you do and keep it up. I want to thank everyone else for reading the show. This is Capital Gains Tax Solutions show where we believe, not having a clear plan for capital gains tax deferral is the enemy. Using systems such as the one that Chris mentioned in real estate and of course, 1031 exchanges and Deferred Sales Trust. Finding out what best fits you is the best way for you to create and preserve more wealth. I hope you can share this with somebody if you found it inspirational. If you found the information actionable, go ahead and take action and share it with somebody. Until next time, thank you so much.
What a content-filled, lots of meat on that bone to chew on from Chris. A couple of things that stick out are the diversified cashflow streams. That’s important. Diversification is not putting it into different vehicles. That’s a part of it. It’s even more so, how do you diversify cashflow streams? That could be different product types, another business, dividend-paying stock, and of course, investment real estate. It could be a syndication operation deal you’re doing with someone else and then when you’re doing on your own. Maybe it’s a fix and flip deal. A great way to create and preserve more wealth is by diversifying cashflow streams.
Also, he touched on giving up control. If there are ways that you can keep your access to liquidity to your funds and not have to give up control, that is the best way to make sure you take advantage of opportunities when they come. The best time to be liquid, be in control of your funds and be out of debt is we think in this highly appreciated marketplace, it’s a great time to sell, use the deferred sales trust and do all of that. As a reminder, up to 80% with a deferred sales trust is liquid available to go out into alternative investments such as investment real estate, hard money lending, or developing new real estate all tax-deferred. With a brand-new depreciation schedule versus the 1031 exchange. Let’s face it, the worst time to do 1031 is when it’s a seller’s market and you’re getting a premium price for the sale of your property, but you’re having to buy back into that same highly-priced appreciated marketplace. Don’t do that. Look at the Deferred Sales Trust.Focusing on helping others can keep you centered at all times. Click To Tweet
Also, he talked about outworking and out listening and applying the knowledge which he has learned. I was inspired by that. Go out with the knowledge and chance to glean from and apply it. Take the next step to apply it and of course, always reach out to us at CapitalGainsTaxSolutions.com. Schedule a free fifteen-minute call so we can talk about how you can create your Deferred Sales Trust or capital gains tax-deferred wealth plan and clarify any questions you have on the best way to do that for you. Thanks again for reading. Please share, subscribe and rate.
- Chris Naugle – Website
- FlipOut Academy
- The Money School
- The Money Multiplier
- Mapping Out The Millionaire Mystery
- Phatman Boardshop
- Podcast – Brett Swarts on Real Estate Money School podcast
- The Creature from Jekyll Island
- Real Estate Disruptors
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- @Chris_ Naugle – Instagram
About Chris Naugle
Chris Naugle has dedicated his life to being America’s #1 Money Mentor. His success includes managing over 30 million dollars in assets in the financial services and advisory industry and tens of millions in real estate business, with over 200 transactions and an HGTV pilot show since 2014.
In 20 years, Chris has built and owned 16 companies, with his businesses being featured in Forbes, ABC, and House Hunters. He is currently the co-founder and CEO of FlipOut Academy™, founder of The Money School™, and Money Mentor for The Money Multiplier.
As an innovator and visionary in wealth-building and real estate, he empowers entrepreneurs, business owners, and real estate investors with the knowledge of how money works. Innovating what it takes to break the chains of financial slavery, Chris is driven to deliver the financial knowledge that fuels lasting freedom. To date, he has spoken to and taught over ten thousand Americans.