Disclaimer: Transcripts were generated automatically and may contain inaccuracies and errors.
Today I want to talk about the worst performing investment in America to start with. Then we’re gonna show you how that same worst performing investment in America can actually be way more powerful than you thought it would be if you view it through the right lens and you understand the actual numbers behind it.
So how’s that for a claim? Right? We’re gonna call it the worst and then we’re gonna call it the coolest. So you guys better stay tuned. What would your life look like if you could replace all of your working income with simple and conservative investments that could do it for you? Over the last 13 years, we’ve helped.
Thousands of clients transact over half a billion dollars in simple and conservative real estate transactions, allowing them to begin replacing their work income with real estate investment income. Each week we’ll be pulling back the curtain on the ins and outs of real time retirement based real estate transactions that will transform your financial future.
Even if you have no real estate experience, this is replace your income with. Kevin Clayson and Steve Earl. Okay, well, hello everybody and welcome to Replace Your Income. It’s super good to be with you, Steve. How are you man? I’m doing great this morning. How you doing, Kevin? Oh, I’m good. Well, I mean, I’m tired, but I’m good.
Because I was at this office at my desk till about 3:00 AM last night. No big deal. Oh, so you went home early? Yeah. So I went home. It was a, it was a nice early day. I got to go home and relax. But today was one of those mornings where, you know, those days when you just have a really hard time getting your engine going, Oh, I like laid in bed for like a half hour.
Like, I don’t wanna do this. And then I got up and I’m, and I’m good. Thanks to the Red Bull. I drank. Oh yeah, you go . Hey, um, how are you doing man? What’s going on with? Oh, things are going good. Good. Can’t complain about anything. The uh, it’s blue skies out. It was up early this morning, mowed my lawn. Oh, nice.
You do yard work. Wow. That is awesome. That’s, I just like to pay somebody to do it just cuz I’m not a peasant, but you know what I mean? Like, it’s super cool that you mow your own lawn. That’s really, it’s it’s therapy man. It’s therapy. I’m just kidding everybody. I go in the yard, I do my, my therapy is yard work right now because I can’t run Normally I get up or ah, yes, I’ll run.
It can’t do it right now until my knee, you know, recovers. And so I’m just going out and doing yard work and my yards never looked better. You know, I’m, by the way, everybody, I’m kidding. I do my own yard work. We all do. Uh, but did I tell you I ran six miles on Saturday? What? Yeah. So, Okay. So Steve and I and a couple of the guys in the office were kind of in the middle of this weight loss challenge, and I had a deadline that I had to.
And it was like on Sunday and I was really close. I’m like, I am not gonna miss this deadline. So I have not, I had been running a couple miles, cause I haven’t trained for a marathon for four years. Right. And so I’m like, you know what, I’m gonna go run six miles. And I ran six miles. Wow. And my 41 year old hips.
Told me the next day that I maybe should have eased into it a little bit. You walking a little funny this week? Yeah. Oh man. It actually felt really good. It felt really good to be up there. Well, you know what, guys? We are so excited to be with you and as always, Oh my goodness. Thank you so much. We are now.
This is so cool. Steve and you, you know like we’re starting to get invited on other people’s podcast. And to come talk about replace your income. I literally hear from you guys, you listeners, you awesome people every single week saying, Hey, we listen to the podcast. We love it. In fact, I just had lunch yesterday with a friend of mine and I didn’t even know this, and he’s like, Oh yeah, my father-in-law.
He’s like thinking about getting into real estate and he’s been binging your episodes, and I’m like, Oh my gosh. Like, that’s so cool for me to hear. It’s never expected. And so it’s all because of you guys out there, you listening, those of you who click play every week and who, uh, who’ve subscribed and left us reviews.
Thank you so much. It’s so good to be with you and, uh, we’re gonna have some fun. I like today’s topic, Steve, I’m excited about today’s topic because this is another one where we’re going to give you a different perspective. On something that you probably have heard a lot about for lots of years, and I guess true to form, Steve and I have a very sort of different take on this particular thing that we’re gonna talk about.
D literally different than I have ever heard any, I know this sounds like a bold claim. I have never heard anybody talk about this instrument today in the way that we’re gonna address it in, in two really unique, powerful, and different. I’ve never heard anybody outside of this room address it this way.
Have you? Well, I remember several years ago when you kind of came up with this different Yeah. Perspective, right? That you actually wrote, I think a little paper on I did, yeah. Say or like an article that we published. Yeah. Published it and, and we’ve talked to it on occasion for sure. Yeah. And, and it really just gives kind of a, a unique take on.
On this subject. Yeah. And so I think it’s gonna be kind of exciting and, And actually Kevin, on this subject itself, like really there’s three different perspectives we’re gonna share. Oh yeah, yeah. Oh yeah. The same. What is kind of a normal boring Yes. Of a topic. Yes. And so I’m kind of excited about Yeah, no, it’s gonna be good.
So here’s what we’re gonna take us. Slightly different approach. We usually tell you about the investments that we think are awesome. We usually tell you that we love real estate and we love single family residences. Today I want to talk about the worst performing investment in America to start with.
Then we’re gonna show you how that same worst performing investment in America can actually be way more powerful than you thought it would be. If you view it through the right lens and you understand the actual numbers behind it. Yeah. So how’s that for a claim? Right? We’re gonna call it the worst and then we’re gonna call it the coolest.
So you guys better stay tuned. You’re like, what could they be talking about? I don’t understand. It’s Bitcoin. We’re talking about bi. I’m just kidding. We’re not talking about Bitcoin. I don’t know anything about Bitcoin. To me it’s like it’s electrical money. I don’t, I don’t get it. I Cryptocurrency. It sounds like something that would be in the Da Vinci Code.
Okay. That’s how I feel about it. Feel anyway. No, we are gonna talk about something that I, So this article that I wrote a number of years back, I titled it The Worst Performing Investment in America, and here was the premise. So at the time I was getting a lot of conversa, I was having a lot of conversations with people as they were considering entering the investment realm and considering replacing their income with simple and conservative real estate.
One property at a. And, uh, and they were kind of considering where the resources that I need to have, how am I gonna break into this investment world? Because they’re taking a slightly different approach than, than the typical kind of thing that they’ve heard their whole life. And, and I would always get the same set of questions about this one particular asset and this one particular investment, and whether or not this particular investment.
Could be utilized for their real estate portfolio. And the answer is, this particular investment we’re gonna talk about, can 150000000000% be used for your real estate portfolio? But a lot of people were afraid to tap into it or to access it. And I got frustrated like I was getting bugged. Right? And, and at the time I was actually.
Trying to have conversations with my wife about the same thing because as we were starting this company, I was starting to shift my perspective and I was trying to get her to come along with me. And so I initially wrote this article as a response of something I could formulate and share with my wife, but then would double.
As this way that I could share it with other people. And so that’s the big lead up. Now let’s jump into it. It’s an article I call The Worst Performing Investment in America, and here’s the premise, okay? I want you to imagine that you have a financial planner, you’ve got a financial, somebody that you know is, is.
Gonna sit down with you and, and help you invest hundreds of thousands of your dollars, your hard earned dollars, and this is what they do. They sit down and they say, Oh man, I’ve got the investment for you. In fact, this investment I’m gonna share with you, it is so unbelievably popular. That like more than 70% of Americans put money into this type of an investment every single month.
And you’re thinking, Oh my gosh, Wow, that sounds worth 70%. Man, what do people know that I don’t know. And then the investment advisor goes like this, he said, All right. So Steve, we’re gonna role play. Okay? You’re gonna be, you’re gonna be the guy. You come into the office, right? Okay. I’m wearing a nice suit because I think as a financial advisor, I should wear a nice suit.
Now, I wish I could tell you I have one on right now and a power tie. Now, I don’t know what a nice suit looks like or a power tie, so I’m just gonna, let’s say I wear a Donald J. Trump tie. Is that a apparent, Is that I don’t. Let’s, I’m gonna have, Yeah, I got a Donald Trump tie on, right? Red tie, There you go.
Nice bright red tie. And I say, Steve, I’ve got the investment for you, buddy. There’s more than 70% of people that put money into this thing every single month, and you’re gonna want it. And you’re thinking, Oh, this sounds really cool. Right? Sounds really interesting. And then I say, Now let me list the features of this benefit that you’re gonna put.
Hundreds of thousands of dollars into, Are you ready? And I say, Now, in order to open this investment account, you’re required to make an initial contribution of anywhere from two to 9% of your total long term investment. I’m assuming you’re gonna invest into this thing for the next 30 years. Okay? So you gotta put two to 9% of the total 30 year investment down just to get started.
Okay? That’s what it’s gonna take to open the. Check and, and they check. And then I say, Okay, now look, you’re gonna have like a limited number of options. However, you do ultimately retain the ability to choose the amount of your monthly contribution that you’re gonna be making for the next 360 months.
That’s cool, right? Sounds fair. Now, here’s the deal. You need to know that once you’ve elected your contribution mount, you’re locked. You can’t change it unless you’re gonna have to jump through a whole bunch of hoops, just so you know that, okay? Mm-hmm. . So you better decide today, cuz you’re gonna lock that thing in.
Now, here’s the thing I need you to know about this monthly amount, okay? Now you have the freedom to contribute more than the elected monthly minimum at any time on a monthly basis, However, You like that? You Okay, good. So you’ve got some control there. However, Steve, you are never, ever allowed to contribute less than the monthly minimum.
Even if you lose your job, have a medical emergency, covid 19 hits, you can never, ever pay 1 cent less than the minimum amount that you elect to pay when we open this investment account. Okay. Wait, what? What if I have like a hang nail or something? Oh. There is not a hangnail provision, Sorry to say. Yeah.
So take that into account, right? Yeah. Cuz that could be a big economic factor, I’m sure. Okay. Now here’s the other thing. If Steve, you do elect to pay less than that minimum contribution in any given month over the next 30 years, you will risk losing the entire amount that you’ve contributed up to this.
Wow. Yeah, so you know, you oughta just go into this thing with eyes wide open. Now here’s the other cool thing about this investment, man, you were gonna love this. This is why 70% of Americans put money into it because in most cases, about 95 cents of every dollar contributed in the first five years towards this investment account.
It’s gonna fund the investment company directly, but five, you get to keep about 5% of it in the first five years. Isn’t that great? 95% funds the investment account. You get to keep 5%. Love it. But, but listen, it gets better over time. So after about 30 years, You’ll have, you’ll be able to keep about. Hm.
For less than 50% of everything you’ve contributed, about 46% of everything you’ve contributed is yours. The other, the other 54%, it just funded the investment company. No big deal. Cool. Sound good? Love it. Oh good. You can tell. Can you see better? It gets better. Okay. Can you see why so many Americans invest in this?
It’s just amazing. Now I do need to let you. That with this investment account, you have zero liquidity and, uh, your money is totally tied up and unavailable. Now, Now there are certain exceptions, certain loan provisions that will give you access to the money, but, but you know what? It only gives you access to like a little tiny portion of it, and you’re gonna have to meet some pretty rigorous standards in order for the investment company to even consider.
Giving you the loan. Okay, So it’s pretty much locked up. You can kind of get some, but you’re gonna have to jump through like a billion hoops fucked up. So it’ll be pretty safe then. Oh yeah. You know what? It will be safe. In fact, that money locked up in that investment account is totally at the mercy of the market, and your principle is never guaranteed.
How does that sound? Does that sound good so far? I’m loving him, man. It sounds great. Oh, here’s another thing I want you to know. You’re gonna be making a monthly contribution. You know and remember, you can’t ever pay less than the minimum that we select when you start the contribution, but in the event that you do ever make less than that minimum contribution, you risk losing the entire thing.
And also, every contribution you do make puts your principle at greater risk. However, It does secure the investment company’s position. Well, isn’t that neat? That’s fair to me. Isn’t that neat? Every time you put money in, you are more at risk. Is there like a not 60 page contract I can sign as well. I would love to get you 160 page contract.
Now here’s the couple other little things and we’re gonna wrap this thing up and get you going. Um, the money in the account, this principle that you’re contributing, um, it’s gonna earn this phenomenal rate of return anywhere between like zero and two and negative two. So isn’t that cool? Doesn’t that sound great?
Yeah, it’s, I I know, I knew you’d be excited about that. And oh, couple other little things. Once you’ve fully funded the investment, you’re no longer ever allowed to contribute anymore. And I know that’s gonna be hard cuz it sounds so awesome. Right? And you’re gonna want to keep contributing to this thing.
But once you’ve fully funded the investment and half of the principal is yours and the rest funded the investment company, uh, you’re not allowed to put any more in. Okay. Okay. I just have one thing to say. Yeah, sure. Where do I sign? You know what? Before you sign, let me just tell you one last thing, cause I know you’re excited.
So this fully funded investment, you will be required to pay tax on it and it will never, ever cut you any kind of a check or give you any sort of income or dividend whatsoever for the rest of your life. So now are you ready to sign? Well, I love paying taxes , so that’s a great thing. Okay, So like, this is insane, right?
So, I mean, really Steve, if you sat across from an investment advisor and, and he said, Hey, you’re gonna be putting a half a million or a million or whatever into this investment account over the next 30 years, and here’s all the, here’s all the provisions. And he described that list that I just gave you, what would you probably say?
Yeah, it’d be pretty tough. I mean, but then, but how is it that 70% of Americans are contributing to it? So what is this thing? This is an entirely new way to look at. Okay, Let me just preface this. Most people have been told most of their life that the most important investment you’ll ever make is in what primary home?
Your primary reside. We’ve been taught that for years. What I just described was somebody investing in their primary residents that they never, ever expect to utilize or leverage for the purposes of investing or replacing their income. Now look, what we’re saying is, Let me just restate that. Okay. Well, let, let me just say real quick please, because what, what you’re saying is the way we’ve been taught.
Is really, if you look at it from an investment perspective, that’s what you’re describing. Right? And if this vehicle, this tool is used in the traditional way, what you just described is exactly what Americans are doing today. And having said that, and you’re gonna talk to this Yeah. In just a few minutes, that can be turned.
It totally. But the way it’s being utilized today in its essence is exactly what you just described. Yep. So, cuz here’s the deal, right? We’re told that our primary residents paying off our home. It’s the greatest investment we’re ever gonna make. Now we’re huge advocates of a paid off primary resident.
We’re huge advocates of owning a primary resident. But here’s the deal, for most people, you’re told this is the greatest investment you’re ever gonna. And there’s really popular radio hosts and podcast people out there that talk about like, This is what you’re gonna do, right? This is the most important investment you’re ever gonna make, and you gotta do it real good and, and that’s fine.
However, if we were to place your primary residence and the loan that you go get on your primary residence, in the exact same context as other investments that you might be evaluating to put dollars. Everything that I just described is how that would go. Now let me kind of break down what I shared. And so again, we are advocates of owning and eventually paying off your primary residence, but we are advocates of saying, Look, if you’ve got a primary residence, and remember my parents’ story.
My parents bought one house for 40, 35, $40,000, and then it later sold for 700 and something 50,000. Now, if they had never sold their primary, It wouldn’t have mattered. Right? That was just a paper number. They would’ve had a mortgage and paid it off. Okay. I’m in the process of buying a new primary residence, right?
And you know what I’m doing? I’m taking all of this equity that I’ve built up in my existing primary residence, and I’m making it liquid by selling it, and I’m moving into a newer, larger, better home. In fact, you’re gonna love this home, Steve. It’s just under 30,000 square feet and it’s just, uh, it’s in the top of the mountains, in the tops of the mountains, just under three acres.
And so it’s be, guys, that’s not really the case. My, my house is gonna be, About 3,200 square feet on like 0.3 acres, and I can see the mountains. But we have a friend who loves to take every number that’s real and grosses it up by 10% and then goes on YouTube and tells you that that’s what the reality is.
But anyways, that was a little inside joke, but, so here’s the deal. If I just paid off my primary residence and I never liquidated it from the standpoint of turning those captured dollars, this is the way I describe it. Equity in your primary residence is equivalent. Two is the equivalent to having dollars paper money locked in a safe in the basement, of which you do not have a key or a lock.
You own it. It’s in your basement, but you can never use the dollars locked up in it. That’s what home equity is. Now, what we’re saying is a potential in what Steve’s gonna talk about in a minute. Is what if you could crack that code? What if you could unlock the safe and you could pull some of the money outta that safe and go invest it in other investments?
All of a sudden that changes the entire thing. Right. Before we get to that, let me go through, cuz I listed some pretty crazy provisions in terms of like if you were to go invest hundreds of thousands of dollars into this investment that I’m calling the worst performing investment in America when it’s your primary residence that you pay off and you never use for investment purpose.
Or never liquified the equity that you’ve built in your primary residence. How do all the things that I listed actually work out? Well, the first thing I said. Is that you’re required to make an initial contribution anywhere from two to 9% of your total long-term investment. Okay? So all I’m talking about here, it’s your down payment, right?
Your down payment could be anywhere from three and a half percent to 20% of the total purchase price, which if you look at the end of like a 30 year note, it’s gonna equate approximately two to 9% of your total in. Over the lifetime of the loan. Does that make sense? Yep. So then the second thing I said is you’ll have a limited number of options, but you’ll ultimately be able to retain the ability to choose the amount of your monthly contribution.
But once you’ve elected that contribution, you’re locked in. I’m just talking about the fact that you can shop around for a rate. You can ultimately decide, Hey, I want this rate and I want some dollars to contributed to closing costs. So you kind of have some options of what you want your payment to be.
Right. Third thing I. Was you have the freedom to contribute more than the elected minimum. You can pay extra to principle every month if you want to. However, you’re never allowed to contribute less than the monthly minimum, even in case of a job loss or medical right. Look, the government said we’re gonna put a moratorium on mortgage payments if it on rent payments, and, and some banks said, Hey, you can postpone mortgage payments during covid, but you gotta pay it all back.
Right? Here’s the deal. When you select that payment, whatever that payment’s gonna be. You can’t pay less than that. The second thing, you pay less than whatever that minimum is. The bank says, Hey Steve, we had an agreement and you just broke it. So either make it right or we’re just gonna come take your home from you.
Right? I mean, that’s the reality. Okay. Now here’s the other thing I said. I said the fourth thing was, if you do elect to pay less than the minimum contribution, you risk loss of your entire contribution to date. So that may have sounded insane when I said it, but here’s the. You have a mortgage, you’re paying it off, you’re investing all these dollars, and then you say, Ah, I’m not gonna pay that anymore.
Well, the bank comes and says, Okay, that’s cool. Yeah, you don’t have to, except we’re gonna take the property back. And you know, all that equity that you built up, all that fake money that’s sitting in the account or sitting in the. The safe in your basement that you don’t have access to, that’s coming to us as well.
Right? I mean that’s, that’s the reality. So the fifth thing I said, I said, in most cases, approximately 95% of every dollar contributed in the first five years funds the investment company directly leaving only 5 cents or 5% of every dollar going towards your principle. And that effectively, we know that right?
Amortization schedules the first five years. They’re, you’re not paying down very much principle, right? So effectively you’re funding the investment company. I don’t have a problem with that when it comes to a mortgage, if I’m utilizing leverage in the right way, right? Because I’m gonna go utilize arbitration or arbitrage.
I mean, and I’m gonna go and make more money than maybe I I’m paying in order to get this leveraged money. But a lot of people don’t think of it in those terms. I mean, imagine. Buying life insurance or stocks, and 95% of every dollar you spend goes towards the investment company. Right? Right. But that’s how it works in a primary residence situation, if you’re not gonna use that as a way to sort of grow your income replacement plan.
Okay. Couple other things and then we, I want to pivot a little bit. So I also mentioned that you’re not gonna have liquidity, your money’s gonna be tied up and unavailable. With the exception of certain loan provisions. Yeah, you could do a cash out refinance. Right. But, and, and you probably should, and we’re gonna talk about that here in a second of how to evaluate.
A cash out refinance or even just a refinance of your property through a different lens than most Americans view it through. But that’s how you would be able to access the liquidity unless you sell the property. And then I said that the money in the account, it’s at the mercy of the market and your principal’s not guaranteed.
It’s just because you the money that’s locked up. And I also said that your rate of return’s gonna be between zero and negative 2%. Cuz here’s the deal. If we think of equity like this, It’s dollars in a safe in the basement. You don’t know the combination. If that were paper money, it would be totally subjected to inflation.
And if I can just talk to that real quick. Yeah, that’s one of the reasons, Kevin, why as a company we advocate what we call a short term buy and hold scenario. Right? Because when you buy a property, if it’s appreciating, uh, call it, let’s say an appreciation is pretty healthy, uh, let’s call it 5%. If you have a property that’s valued at a hundred thousand, let’s call it $200,000, and it’s appreciating at 5% annually, that’s $10,000 that you’re basically putting in the bank, so to speak.
And it’s this paper money that, right, That you’re locking up in the safe well over the course. If it continues to appreciate over the next five years you’ll have between 50 and $60,000 in additional equity in that property locked up in the safe, right along with your down payment money, right? Yep. Yeah.
And so at when you first made that investment, Your investment, the liquidity that you had available in potentially in that home was your down payment. And so your return on investment, if you put $50,000 down, and let’s say that you were, you were making $10,000 a year, right? You have a 5% return on investment, but now if all of a sudden it’s five years later and you’ve got that $50,000 down payment plus your $50,000 in.
Guess what just happened to your roi? Yeah, that’s true. Your roi, your return on investment has been going down each year because you have more money locked up in That’s right. This property’s, and so the key to successfully taking the greatest advantage of that property is to unlock the equity growth that you’ve had over the last five years and reinvest it and leverage it further such that your ROI dropped down to two and a half percent because now you’ve got a hundred thousand dollars in.
So if you could take that, that a hundred thousand by two properties, now you can, you can get back to that 5% again, right? Or, or whatever, depending on what, whatever you bought. So the key is that over time is your equity increases. Your return on investment is actually going down because you have more resources tied up in that property in the form.
Paper dollars locked up in the safe. Well, and that’s such a unique way to look at it, right? Like a lot of people, we think about equity, we wanna grow equity, we wanna see equity in a property, we wanna pay off our home so that we’ve got equity. But in the event that that equity stays locked up, it’s, it doesn’t mean anything.
Right? It’s like the episode we did about how net worth is very, very different than income replacement, right? Yeah. And I just think so, I think it’s a compelling way to look at this through a different set of lenses, right? And that’s all we’re saying, right? We’re saying. It’s not that owning a primary residence and getting it paid off is the worst investment in America.
It’s we’re saying that if you look at it and evaluate it on the features, and even on an investment property, if you keep that equity locked up and you don’t make it liquid or you don’t roll it or you don’t leverage it, what we’re saying is there’s elements if you just evaluate that based on those specific characteristics.
It’s actually not a great investment by itself if those dollars stay locked up in the safe and they’re subjected to inflation and they’re constantly lowering your rate of return. Right. There’s just, it’s just a different way to look at this thing. Okay. Last couple things and then we’re gonna roll into something different cuz this is one I used to get a lot of questions on.
One of the claims I made is that, is every contribution you make puts your principle at greater risk, yet it further secures the investment company’s position. All I mean by that, and this is the example I give. So when we look at like the Great Recession and, and the massive amount of foreclosures, here’s the deal.
The bank had so many foreclosures to choose. Which ones did they go after first? Well, if Steve and I both buy a home in the same neighborhood and I put a hundred grand down on my home and he put five grand down on his home and financed the rest, and, and we both slip into foreclosure for whatever reason.
When the bank looks at my house, because I’ve put more down, maybe I’ve paid it off over a longer amount of time. Maybe I’ve owned it for 15 years. Steve’s only been in his property for five years, but the homes are effectively worth the same amount, But I owe significantly less if the bank, if. Is gonna foreclose on both of us.
And they were gonna have to make a choice between who they wanted to foreclose on first. Who are they gonna foreclose on first looking, you’re the better investment. I’m the way better investment, right? So in other words, all that money I contributed actually put my principle at greater risk in the event that I have to stop making payments in the investment company needs to come back for.
So a suggestion. Yeah. Like we just mentioned, we’re all for paying off a home. Timing is critical. Yes. The timing of of owning your property free and clear is critical and it’s. In the later retirement years, and we, we believe in utilizing a primary residence as an asset, as a resource. But here’s the thing.
Let’s say that you’re, you’re super conservative, which, which is awesome. And you, and you wanna pay your home off sooner than later, even though you’re still young. Then fine. Instead of making your additional payments each month to the bank, put it in a separate account. Yeah. And let that money accumulate to the point where when the time comes, you can just make that lump sum payment into your property to pay it off as opposed to each month putting that money into.
The mortgage bank’s pocket, and here’s a couple of reasons why, and you already alluded to them. If, for instance, you lose a home, you become disabled, whatever the case may be. If you’ve taken those extra payments over the last 10, 15, 20 years and just put them into making the, you know, increasing your monthly payments, you will not be able to access that cash because you’re not gonna be able to, You don’t have a job anymore.
You can’t work anymore. You’re not going to be able to refinance. Right. Whereas if you had been putting that money into a separate account with the intent of paying off that loan sooner than later, at least those funds are liquid. And, and on top of that, hopefully you’re, you’re earning a decent rate of return on them and you just have way more options.
But if you’ve tied up that cash in the property, Along the way, then your options have become very, very limited. Yeah, totally. Yes. Last couple things and then we’re gonna conclude the episode. And I actually think, Steve, I was just thinking about it. I’m looking at, we’ve been, we’ve been chatting about this for about a half hour, so I think we wanted to have another part of this conversation.
I’m gonna say that this is part one, and then next week we’re gonna do part two sounds right, Because this is so, and all we want you guys to do, Kate, is we’re just asking you, We’re not telling you we’re not. Take our word as the gospel truth we’re saying. Maybe you take a step back from all of the philosophical ways that you’ve looked at your money, looked at home equity, looked at your primary residence, everything that you’ve been taught in every radio program that you’ve heard, and maybe every financial book that you’ve read we’re saying, Let’s just press pause and let’s just view it through a slightly different prism, through a slightly different set of lenses, and maybe it adds color and, and some additional context to your financial life.
Because the last couple things that I mentioned with this quote unquote worst performing investment in America, which if you remember we’re saying is paying off your primary residence or building a bunch of equity that you’re never going to utilize. And I, Oh, I wanted to add one thing to what you said to Steve.
Is this idea of utilizing the equity for the purposes of income replacement. Right. And that’s the lens that I view it through, right? So we’re saying, look, you should have paid off real estate. A big part of our client’s plans when we work with them is we want to utilize leverage, help them grow the portfolio in the exact way that you described earlier, Steve.
But then eventually get to the point where they own enough real estate that once it’s paid off, their income is fully replaced. Right? Yep. And then you’re passing on something to your loved ones. That’s absolutely extraordinary. So all we’re saying is utilize the leverage available to you until you get to that income replacement level, then sure.
Get everything paid off. Why not? Right? Yep. Um, but so that’s kind of what we’re saying. The last couple things I mentioned on this part, Worst performing investment in America was once you have your fully funded investment, it’s never gonna pay any income or dividend of any kind, right? Unless you’ll get a reverse mortgage, which unlocks the equity in your latter years, or you do a cash out refinance, which unlocks some of the equity outta that safe in your latter years or sell it.
That property, your primary residence that you have paid off, produces nothing. Now, yes, it saves you payments. Sure. You could make the argument that the saved. Is a type of income, but if we just look at it through the lens of an investment, you funded an investment that never pays you anything back, but it saves you contributions.
Right. And then the last thing I mentioned is then you’re still gonna have to pay tax on your fully funded investment that doesn’t produce income or a dividend. Right. Right. And so, because obviously you’ll have property taxes, even if your home is paid off, of course, is looking at this as a as purely, purely as an in.
Yep, that’s right. And so guys, all we’re saying is we 100% advocate owning a primary residence and eventually getting it paid off. But we’re saying that depending on your situation, Dependent. Now, if you’ve got assets and resources outside of your primary residence, that allows you to start a portfolio that you can grow that portfolio and replace your income, awesome.
Right? Maybe you just get that home paid off and that just frees your mind of a burden. That’s fine, right? That’s go for it. Everybody’s individual plan is gonna be different, but we’re, what we’re saying is the vast majority of of the folks that we work with, a big asset that they can utilize and leverage is their home equity.
But they are, they are hesitant to utilize it for investment purposes cuz it feels too riskier. They’ve been taught you just pay off your home and you just leave it at that. But we’re just saying what if you view it through a slightly different lens and, and what if, if you were to evaluate that primary residence and getting it paid off as if it were an independent investment that was not your primary residence, that you.
How would you look at it? Would it be like you’ve got those dollars locked up in a safe that you can’t access and then it’s subjected to all the things we talked? Well, depending on your plan, it could be Final thoughts, Steve? No, I I just love the, the perspective that you shared, Kevin. Um, it just, it just puts a little bit different spin and helps people just take another look at, at how they view their primary residents at the different stages in life.
And, and of course there are the intangible benefits, right? I get to live there, I get the satisfaction of raising my family and, and it’s, there is a cost of living, but it’s really important. It’s really critical to, to. Evaluate every part of kind of our, our life, all the way from the vehicles that we purchased to the recreational vehicles that we purchased to our primary residents, the things that we use in our personal lives from an investment standpoint.
So, so I think it just helps us make better decisions, right? Yeah, 100%. So guys, if you go to d fy dash real estate.com/equity, On that page, you’re gonna find a copy of this article called The Worst Performing Investment in America, and you’re also gonna find a video that we’re gonna talk about next week on the episode.
And it’s a video we put together that kind of describes how you can look at refinances through a maybe different lens. And so if you go to dfy dash real estate.com. Slash equity. You’re gonna see this article, you’re gonna see that video, and I want you guys to tune in next week because we are gonna talk about another element of this thing, which is important to talk about right now, cuz interest rates are at all time lows.
We ought to be evaluating our real estate in our investments and our mortgages through the right type of lens. We’re gonna talk about something next week that’s gonna be awesome and hopefully give you another slightly different perspective, but for now, We’re signing off on this episode that we’re lovingly titling the worst performing investment in America, and we will see you next week.
Thanks everybody. Take care. Thanks so much for listening to Replace Your Income with Kevin and Steve. Do you have a question you want us to answer on the show? Head over to Apple Podcast and do three. Simple things. Leave us a rating and review and tell us what you think of the podcast. Then in that review, ask us anything you want related to real estate or income replacement.
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