A Case Study Part 2 — Video

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A case study part 2 — the second of three parts in a case study. Download Audio   Transcript:   Our 32-year-old couple who were making $180,000 a year, before taxes, have a duplex in Texas, and they’ve spent about $80,000 out of their $100,000. They kept $20,000 back for cash reserves, and I asked them if they would please build that up to about $45,000 over six months. They could do that because they save about $4,000 a month. When they did that, they immediately started an EIUL with the specialist in that discipline, David Schafer, and they put in $1,000 a month. They’ll do that for at least 20 years until they’re 52, maybe until they’re 59 and a half, probably no later than 62. They’re going to end up, depending on how long they go, 20 to 30 years is a big difference, somewhere between $4,000 and $9,000 a month tax-free for virtually the rest of their lives once they start. What’s next? Remember, they have $50,000 in a retirement plan. Now, I initially said it was a Roth IRA. Many people don’t have Roth’s. They have a normal IRA. Maybe they have a solo 401k because one of them is already a small business. We’ll deal with that later. I said it was a Roth IRA, so let’s do it this way. They take $50,000, and let’s be conservative and say they buy a $85,000 note in first position. When they did that, they made a profit right away. They bought into it, because the ultimate payoff of that note, $85,000, they only have $50,000 in it. What’s happening now is they’re making, give or take, $500 to $600 or $700 a month. They’re going to pay taxes on that. Let’s say for the sake of discussion they were doing around $6,500 a year. Let’s say now that’s, give or take, about $4,500 a year; $4,000, they’re going to take that $4,000 and now we get into the synergistic blending of strategies. That’s what’s really going to help them down the road. Now our couple has invested in a small duplex, in EIUL, and some discounted notes or maybe just one to start with. They had $50,000. What do they do with those things? How can we use what I call synergism with the strategies? I call it strategic synergism, to enhance either the growth or speed up the time in which they can reap the rewards of all of these investments. First or all, one of the strategies that we’re going to blend with another is the buy-and-hold strategy using prudent leverage of 25% down with a fixed rate, remember they paid about 5% for their loan, with the strategy of buying a note. Now, we can’t really take the income from the note, because we’re going to let them keep doing it and keep doing it inside their Roth. What can they do with notes outside? Here are their choices. We’re going to take another $1,500 out of the $3,000 dollars have left they’re saving. They’re still saving $1,500 every single month they’re going to add to their $45,000 cash reserves; $1,500 every month is going to be added to the cash flow each month on their duplex and is going to be used to pay off that loan way sooner than just 30 years. Now, that cash flow’s going to ebb and flow, but that $1,500 a month is not. Probably what’s going to happen is they’re going to pay off that loan give or take 8 to 12 years. Let’s say it’s 12. They’re 44 years old now. They own a property that’s, give or take, worth $280,000 to $300,000. What do they do? I don’t know any more than you do. What’s the market? What’s the economy? Are we at 5% or are we at 9% interest? Are we at 16% interest like we were in the early ‘80s? What’s the real estate market itself? Does it make sense to stay in Texas where they bought, or does it make far more sense to go to another state?

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