Real estate vs IRAs: which one wins?

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Setting up the comparison

1. Why compare the two at all
2. The four percent rule

How the tax differs

1. Your IRA has a partner
2. Deferred only means postponed

Running the numbers

1. What a property actually costs
2. Growth without tax until you sell
3. What the IRA would have done

The answer

1. What the house bought instead
2. Which one wins

Why compare the two at all

That's the beauty of this is that all that cash flow, even if you're not planning on retiring for another 15 years, all that cash flow is coming in between now and retirement. You don't have to retire to get cash flow from your real estate. So, since I don't see any hands yet, I'm just going to dive into what I wanted to share with you today, which is how this compares with what you're currently doing for retirement. I'm going to go over here.

I've got some numbers pulled up for you. Um, and I'm going to walk you through a scenario here. Let's say that you have $300,000 in an IRA. Okay?

not 529 account, not money in the bank or a brokerage account, an IRA. If you have $300,000 in some sort of retirement account, it could be your 401k, but you usually can't get to that money in your 401k, but maybe you're planning on leaving your job, and maybe this would give you a good excuse to leave your job. I don't know. [laughter] But but let's just say, let's just say it's an IRA.

It's money that you have earmarked for retirement. It's retirement money. Okay? 300 $300,000.

Let's say you're 50 years old and you've got 40 more years of life. Let's give you till 90. Okay? And let's just say that that $300,000 is just growing and compounding with no additional contributions.

And I'll explain why I'm showing you that in a minute. All right. And let's just say that you're going to retire in 15 years. So, we've got 14 more years of earning, let's just say 10%.

Now, is 10% realistic? If you guys have never used this little tool I built, go to moneysecs.app. The This is where I just keep I keep building all these calculators for you. I don't know if you've ever seen this.

I'm going to put the link in the chat. Um so that is that is um some of these calculators that I've built. Okay. So the um so there is a there is a um market history here and we could use the S&P.

We could use the S&P and we could go back to I don't know we could just go to 2000 or any number. It doesn't matter. That's the next last 25 years. And we can see that in the last 25 years we've been averaging around um 9% is the average.

The actual has been closer to eight because you got to factor in the ups and downs. You got to factor in the ups and downs. Okay. So $1,1 would have grown to $7.

So you're about a 7.8 actual return. Okay. So, I'm going to say 10%. I feel like that's more than generous.

Okay, that's more than generous. That's assuming 10%. Okay, every year that's assuming no losses in the market or anything like that. Then, how many of you give me a thumbs up if you plan on being a little more conservative when you retire?

When you're ready to retire, are you going to leave the money in the stock market or would you be a little bit more conservative in retirement? Thumbs up if you're going to be more conservative or are you just going to go balls to the walls and leave it, you know, fully invested in the market and just, you know, do [clears throat] the ups and downs the whole time through retirement? No. No.

All right. Let's say let's say you're going to be a little bit more conservative. Okay. Let's say you're going to be a little bit more conservative and we're going to shift to 5%.

We're going to shift to 5% returns during retirement years. All right? Then let's just say that we're going to spend the interest on that money. The interest on that money.

So if the money grows, watch this. The money grows from $300,000 to 327 356. You know, this is the beauty of compounding interest at 10% a year. And then it eventually gets to a million dollars.

It eventually gets to a million dollars. But why does it stop? It stops growing because we're going to start spending it. How do you generate cash flow from the stock market?

You spend it. So, let's say that we're going to spend 4% of our money. Well, if it's earning 5% and we're paying 1% in fees for some financial advisor to buy bonds, which you could probably fire him by then at that point, you don't really need to pay him to buy buy bonds for you. So, so you could just invest in bonds, you know, but let's say you did.

You paid them 1%. [clears throat] Okay? That's what they call the 4% rule. That's the 4% rule.

You can Google it. This is the This is what financial advisors

The four percent rule

have been using for years. Um the 4% rule. What is the 4% rule? Basically, where's a nice little Where's my AI summary?

Anyway, basically the first year you add up the total investments and you take out four $40,000. The idea is is that you're going to be living on the interest of your money. Now, if if we wanted to keep up with inflation and take out more than 4%, so we added a 3% inflation in there to the 4% rule. What does that do to my account balance?

my account balance goes down because it's only earning 5% and I'm trying to take out more than 4%. I started out with my $40,000 and then I went to, you know, 41, 42, 43, 44, 45. I'm I'm trying to keep up with inflation. If I'm trying to keep up with inflation in retirement, then it's going to deplete my account.

Now, some people that makes them very nervous. So, they don't take out more than just the 4%. They don't take out inflation. They stick to 40,000 a year or 4% the rest of their lives so that their account doesn't go down.

So, they don't have to worry about running out of money. And then when you die, do you leave a million dollars to your kids? No, you don't. Because this is IRA money.

Okay? This is IRA money, which means out of that $40,000, you're paying some of that to the IRS every year. You're not even taking home $40,000. This This money hasn't been taxed yet.

IRA money has not been taxed yet. So, you're living on $40,000 a year. You're paying taxes on 40,000 a year. When you die, you leave a million dollars to your kids.

And guess what? It gets added as income in the year of your death. That means that your income goes up by a million dollars, giving the IRS most of that money because there's death tax on top of it. So that year that you die, I don't care if you're in a 20% tax bracket, the year that you die, you're going to be in the highest tax bracket.

And do you think it's possible? Let's go over here to the tax history. Do you think it's possible? Uh, where's my tax history?

Right here. Looking at our taxes in the history of our government here, do you think it's possible that taxes will go up in the future? That means when you leave all that IRA money, when you die, it's going to be taxed very heavily, possibly even more than 37% plus tax plus plus death tax. All right, before I talk about how this compares to real estate, any questions on how your 401k works from a retirement standpoint or your IRA money?

Any questions on this? You can do your little hand raise if you joined us late. Um, do your little hand raise thing and I think it pops up on my screen so I can see if somebody has their hand raised. Oh, there we go.

Sean, >> yes. Hi. Thanks, Lance. Uh, what about the stepup usually for IRAs or are uh is that is that the stepups just for individual broker bridge only or is that inclusive of IRA?

>> Thank you for bringing that up. There is no such thing as a step up with an IRA. Um, that is only in a brokerage account and real estate. Yep.

So, if you bought some Apple stock before it split, you know, and it's been cruising along this whole time and you're just going to let that Apple stock ride and you never sell it, you never pay capital gains. If you never sell that Apple stock, you never pay capital gains. You can leave that Apple stock to your kids taxfree. Even if you bought it [clears throat] years ago, okay, and that Apple stock has grown like crazy, okay, you can leave that to your kids taxfree.

So, what if you need it? What if you need it to live on? If you need it to live on, you're going to have to pay taxes on it. Or you can borrow from it.

You can use a margin loan and you can use your Apple stock as collateral and you can borrow from it. But if you spend it, you have to pay taxes on it. If you don't spend it, it goes to your kids tax-free through the step up in basis. They call it a step up in basis is what they call that.

Uh but IRA money, guess what? [clears throat] When you started putting money, you know, when you got your first job and it came with benefits and and you got this 401k plan and you started to put money for retirement in this 401k plan, well, guess what? You partnered with

Your IRA has a partner

the IRS. They are your partner. They own part of that money. It's theirs.

You have not been taxed on it yet. If I go over here to [clears throat] If I go over here to this, right? If I have um $300,000 in a 401k right now. Okay.

And I am in a Where's my my zoom window keeps getting in my way. Um Oh, here we go. I got a little slidey bar here. If I'm in a 30% tax bracket, you know the IRS.

>> Hey, I'm on a virtual meeting. Can I talk to you later? >> Oops. Mute.

There we go. I muted it. Okay. Um the IRS owns $90,000 of your $300,000.

Okay. Now, if the if your business partner if your business partner, the IRS, wants to have more, what do they do? They raise taxes. If they raise taxes to the average line, if they raise taxes, then guess what?

They own more of your IRA than you do. Does that make sense if they raised the taxes? So, you could have all this money in your 401ks and IAS that's cruising along, you know, but the IRS owns part of it. It's not all yours.

So, when you take the money out, you're taxed on it. How much are you taxed on it? Depends on when you take it out. If you take it out right now, it's based on your tax bracket today.

If you take it out in 20 years from now, it's based on the taxes in 20 years from now. Um Sean, did you have another question on that? >> Yes, thanks Lance for the clarification. So um for the IRAs and uh retirement accounts um I thought that when when you pass away uh that just gets handed over to your beneficiaries and they have to take uh they pay the tax on that when they you know take their RMDs or take a distribution themselves.

>> Yes, they pay the taxes. Sorry, you don't pay. You're dead. So you don't pay it.

[laughter] So yes, it goes to the kids. The beneficiaries, right? The beneficiaries get it but it's added to their income. So they the government still gets it through their taxes basically, right?

So you're gone. You're you're gone. So you're not in the picture anymore. So when you're gone, right, you leave that million dollars to your kids.

That increases their income by a million dollars. Unless you do a stretch IRA. And a stretch IRA through an estate planner can help you stretch out the taxes so that it doesn't add all of that money to their income in one year. But if you don't meet with an estate planner and do a stretch IRA and all that kind of stuff, then it is added to their income in one year by default.

That's the default. >> I see. Thanks. So, I guess I'm a little confused because you were you were saying that um the year that you die um that's the highest year for your your taxes.

>> Yeah. So, not yours necessarily, your kids, right? It's yours. >> Got it.

Someone has to pay it. Got it. >> Yeah. Some somebody that year somebody that year has to pay it.

Whoever the beneficiary is that gets all that money the year that you die, they have to pay it. Sorry. Would be more accurate. >> No problem.

Understood. Thank you so much. >> Yeah. No worries.

No worries. Good clarification though. Um, so does that make sense that you are not only paying so like let's look at this example. Let's say that you stayed broke all through retirement because guess what?

You know what the crazy thing is? If we think that taxes are going to go up in the future, why are we deferring taxes until later? Why does 90% of the country put money into a 401k and an IRA? Like let's just forget about the match because I've talked to lots of clients that don't even get a match.

So, let's just say you're not getting a match. Why is everyone still using a 401k and an IRA to save for retirement? What's the What's the What does your CPA tell you when you go in to do your taxes and you're you're like, "Oh my gosh, I'm paying so much in taxes." What do your C What does your CPA tell you? What What does he tell you to do to offset your taxes?

What's What's the only advice you've ever gotten from any CPA on how to reduce your taxes? >> Put more in your IRA. >> Thank you. Thank you.

Put more in your IRA to reduce your taxes. Does that save you money on taxes? It doesn't. It just kicks the can down the road and defers the taxes.

You want to know what

Deferred only means postponed

a fancy You want to know that deferred is a fancy word for postpone. Okay, you're postponing your taxes until you take the money out. So, if we all think taxes are going to go up in the future, why in the world are we postponing our taxes until later? What who who can tell me what your financial advisor has said?

Has anybody ever asked their financial advisor this question? If so, what did they say? >> Your income will be less when you retire. That >> Thank you.

That's right. Because your goal is to be a millionaire and save a million dollar. And then you retire on how much money? $40,000 a year.

You're going to retire broke. So the financial advisor is like, "Hey, listen to my advice and you'll be broke in retirement." [laughter] [clears throat] I I can say that because I was a finan Well, I guess I still consider myself a financial adviser, but I sold 401ks to businesses. I sold IAS, I sold Roth IAS, I sold life insurance. I've I've been in the financial industry for 20 years, and this is how I was trained, okay?

I was trained on the 4% rule. I was trained to tell the clients, "Well, you're going to be in a lower tax bracket when you retire because you're going to be broke." So, it's like, "Listen to my advice and you'll be broke in retirement and not have to pay as much in taxes." What in the world? What what how did this happen? So, so all of a sudden, okay, so we're so we're earning $40,000 a year.

Maybe we're paying 20% of that in taxes. So, during our retirement years, we collect a million dollar. Let's say we pay 200,000 in taxes and we only get to take the, you know, 800,000. That's assuming taxes don't really go up that much, right?

That's assuming taxes don't go up. I mean, taxes could go up quite a bit. So, that's that's that's the American dream right there. That is the 401k, the IRA.

That's what every financial adviser in this country is going to teach you is to save all this money in the stock market, get these great returns, and then live on the interest in retirement. That's the story. I know because I'm in the industry, and this is how I was trained. Now, how does this compare?

I'm going to I'm going to go over something very controversial, and feel free to poke holes in this if you want. If you want to fight me on it, I'm I'm happy to discuss this. Okay? What if I take what if I take some money out of my IRA and buy some real estate with it?

What's the problem with that? If I wanted to take some, let's say I didn't like the let's say that I got on this lunch with Lance and I thought, dang, I don't like my IRA so much anymore. You know, I might want to do something different. I might want to buy some real estate.

What's the downside? >> You have to take it into income and pay a 10% penalty. Okay. So, it's going to add to my income, which means I have to pay taxes on it, right?

Am I not going to have to pay taxes anyway? Like, it kind of makes it sound like, oh, if you take your money out prior to 59 and a half, you're going to have to pay taxes and a penalty. Well, guess what? You have to pay taxes anyway.

You partnered with the government. You made that bed. Now, you got to sleep in it. like you partnered with the government.

You cannot get them out of your business. They own part of your business. They they own part of your retirement money. I don't care if you take the money out today or when you're 70 years old.

Actually, the longer you wait, what is it? 72. I think that then they start like penalizing you at 50% if you don't take the money out. Like if you don't take the money out of the IRA, they're going to penalize you if you don't take it out.

So, you have to take the money out of the IRA at some point and you will be taxed when you take the money out. I don't care if you take it out today or in the future. So, what are we really talking about? The penalty.

It's just the penalty that we're talking about, right? Because we're going to have to pay the taxes anyway. Now, let's just say that I and I I picked this house just because the numbers all like rounded up and everything. Now, if I bought this house with a brokerage account or my savings account money, okay, this is a $680,000

What a property actually costs

house and uh this would be we would need to be a million dollar. It would need to be a million-doll house for the example that I'm trying to explain. But, but like if I buy if I take $300,000 out If I take 300, let's look at this example right here. If I take $300,000 out of my IRA, but I buy a million dollar house with it, I increase my income by $300,000 when I take the money out of my IRA.

But what does it do to my income when I buy a million-doll house? Okay. So, let's say I make $500,000. I make $500,000.

I am going to be paying $102,000 in taxes. If I take $300,000 out of my IRA, what does it do to my income? It increases my income. Now I'm paying $26,000 in taxes.

Well, that would suck. I'm taking $300,000 out of an IRA and I have to pay $100,000 in taxes. Yes or no? If I took $300,000 out of my IRA and blew it on a trip to Disney, I don't know what what cost $300,000.

I don't know. Okay. Then if the if I spent it on something, then yes, the money would be gone. Or let's just say I did a Roth IRA conversion.

Let's just say I'm af I'm afraid of the taxes going up in the future. I'm afraid of the taxes going up in the future. So I want to pay my taxes now. I'm going to do a Roth conversion.

I'm going to trade my IRA to a Roth IRA so I can pay my taxes and get them out of the way now. So I take out $300,000 from my IRA. I'm gonna have to pay $100,000 in taxes, right? >> But now I don't have to >> But now I don't have to pay taxes in the future, right?

Sorry. What would you say? >> Cost appreciation. >> Oh, yeah.

Why Why buy If I buy a Roth IRA, does it give me any tax benefits? I I still have to pay my taxes. I still have to pay $100,000 in taxes. I just don't have to pay the penalty.

But I don't I don't save any money on taxes unless taxes go up in the future. If taxes go up in the future, then I'm I'm better to pay the $100,000 in taxes now than in the future if I buy a Roth IRA. But the but the purchasing of the Roth IRA doesn't save me any money in taxes. It just allows me to pay my taxes now and get them out of the way.

Does that make sense on what a Roth IR a Roth conversion is? A Roth conversion allows you to pay your taxes now so you don't have to pay them in the future. That's what it is. But if I bought a million dollar short-term rental with the money instead of a Roth IRA, what does it do to my income?

Puts me right back to where I started, right? So, did I save any money in taxes? If I was going to have to pay $102,000 in taxes before and then I take the $300,000 out of my IRA, I'm still going to have to pay $102,000 in taxes. So, did I save any money on taxes?

>> But, Lance, uh, the growth on the Roth IRA is not taxed. So, um I think that's the f uh that's the good thing about Roth IRA, right? So, >> the the grow there's a lot of things where the growth isn't taxed. The real estate growth isn't taxed either because you can leave it as a step up in basis.

So, is life insurance grows taxree. There's a lot of things that grow taxree. The Roth IRA only allows you to pay your taxes now. Get them out of the way so you don't have to pay them in the future.

And then, yes, you're right. there. The Roth IRA is going to grow taxfree. You're never going to pay taxes on it again, but you have to pay the taxes now.

You're you're paying you're you're paying $100,000 in taxes. If you did a Roth IRA conversion, you would do you would have to pay a hundred. So now you've only got $200,000 growing taxree. You're not you don't get the full $300,000 growing taxree.

You get $200,000 growing taxree because you had to pay $100,000 in taxes out of your pocket. >> Actually, that's not true. >> What are you suggesting in this plan? You're suggesting to take a loan on top of the uh Sorry, I joined late.

Um >> No, no, you're good. You're good. No, we're Yeah. So, watch.

I'm just I'm talking about how to use retirement money to buy real estate without it affecting your retirement. So, we haven't gotten to

Growth without tax until you sell

the punch line yet. So, so you haven't missed the good stuff. Don't worry, you haven't missed the good stuff. But if I take if I take money, I just want to make sure everybody knows.

If I take $300,000 out of my IRA, but I buy a million dollar house with it, it increases my income and then it decreases my income. Does that make sense? Are you with me on that? Okay.

So, I was going to pay $100,000 in taxes, and then I was going to pay $200,000 in taxes when I took the money out, but then I bought a house with it, which brought me back to $100,000 in taxes. So, did I save any money in taxes? If I was going to have to pay $100,000 before, and now I still have to pay $100,000 in taxes, did I save any money in taxes? What do you think?

No, but you own a house. >> Okay, so it was a trick question. You actually do save money in taxes because that IRA had not been taxed yet, remember? And now I just used bonus depreciation to pay off the government.

So, I actually saved myself a lot of money in taxes cuz remember remember if I left my $300,000 to grow to a million dollar and then I used all that money to generate income in retirement. That's a million dollars of income that hasn't been taxed yet. So, I would have to pay about $200,000 in taxes during my lifetime. And then when I leave this life and I leave the money to my beneficiaries, they have to pay a lot of money in taxes.

So you actually save yourself a lot of money in taxes, but it's not this year. You don't save money this year. It doesn't reduce your AGI to get financial aid. It doesn't reduce your AGI to save on the $100,000 in taxes that you were going to have to pay.

But you use the tax savings to buy out the government so that you're not paying taxes for all those years and you're leaving the real estate to your kids tax-free, saving a lot of money in taxes in the future. Now, you might be thinking, "But isn't the income that we get from the real estate going to be taxed?" Yes, but now you own a business. You own a real estate business. So, you can start writing off your vehicles, your home office expenses.

You can put your kids on payroll. You could use the Augusta rule to lease your, you know, business to your or your house to your business. All of your vacations now become business trips and you can write those off. So, yeah, you're going to get some taxes on those incomes from the real estate, but you can offset that with regular tax deductions.

>> So, you are you are saving money in taxes. Yes. Sorry, you have a question. So this um this plan kind of s or really only works though if you hold the property throughout your lifetime and give it to your kids >> because if you do [clears throat] sell it early, you have to pay capital gains on the cost segregation, you know, the lowering of the cost basis.

So that 300,000 that you're taking on bonus depreciation, if you did have to sell it before you die for whatever reason, like say you family emergency or um you just need the cash so you sell your property, liquidate your property, um you will have to pay capital gains tax on that 300,000 at some point in the future and whatever else you depreciate. >> That that is that is correct. However, if you like the idea of real estate for retirement, then you're going to sell the property and buy more real estate and you're going to do a 1031 exchange. And yes, if there's an emergency, then yes, you're going to have to sell it.

And if there's an emergency, you're going to have to pay the recapture. But if you had to liquidate the $300,000 from an IRA, you would pay just as much in taxes anyway, right? So like let's say that you I mean I could make the same argument that if you had to sell your IRA in an in an emergency you would have to pay a lot of taxes on that right >> so so I'm suggesting take the IRA money put it into the real estate and then if there's not an emergency we keep using real estate for the rest of our lives as part of our retirement plan and then we leave all that money to the kids taxfree through a step up in basis. So the real estate does grow taxfree and then as long as you don't sell it kind of like the Apple stock

What the IRA would have done

I was explaining right the Apple stock grows taxree too until you sell it and if you leave that to your kids it would be taxree right so I could take my real estate and I could sell it and buy another real estate and just do a 1031 exchange and then I leave all them I still defer the taxes indefinitely. Well, the other thing too is the step up is only is is tax code. So that could change as well just like increases in taxes the tax rate in the future. >> The tax Congress could also always change the tax code if they need the money >> for some reason.

>> For sure. >> And I I guess and I mean I'm not saying your argument is not valid. It's just there are some other issues. >> There are some things to consider.

No, there's >> and then real estate property prices. We don't it's not a definite that it's going to go up. Yes, it generally has gone up, but there are ups and downs. And if you do have to liquidate it during a downtime, >> just like if you would have to liquidate stocks at a down time, same argument, right?

Yeah. >> Yeah. [clears throat] >> Yeah. Real estate real estate's going to go up and down.

Stocks are going to go up and down. You're you're right. Like that's And but again, keep in mind, I am giving you a 10% return on the stocks. I I'm giving you I'm not accounting for the ups and downs.

I'm giving you a 10% consistently with no downs, right? That $300,000 would grow to a million and it would pay you a flat $40,000 a year. Now, let's comp let's compare that let's compare that to putting $300,000 into this property. Okay?

And let's go with a $14,000 14,000 um net revenue. Okay? So, check this out. This is where I'm gonna This is kind of where I'm going to bring it all together here.

So, I'm looking at an annual appreciation of 5%. So, to your argument, stocks are going to go up and down. The real estate I'm consist I'm just conservatively saying 5%. And I'm saying that the rent is going to go up by 3%.

I could argue that because in an Airbnb, if managed correctly, it's going to be worth a lot more than that. But I'm just going to keep it at like some conservative numbers and I'm going to use the 60% ownership, meaning that you don't even like you're using us. I'm going to we're going to make this just as easy as investing in the stock market for you. We're going to do all the hard stuff.

So, we're going to make it just as easy as investing in the stock market. You would be bringing in about 14,000 a year. Okay? 14,000 a year.

Now, I don't want to get all technical. I could get I could get a little bit more technical here because if you [clears throat] invested $300,000 into this property, you actually get everything but the down payment back. You get all of your money back first before we start splitting the revenue 6040. So, actually what I should be doing is I should, you know, change this to 100%.

Because you actually get all of this money, you get all of this money until you've gotten your down um your expenses back. Does that make sense? So, any of the expenses minus the down payment. Okay?

Minus the down payment. You get all of your expenses back first in our most recent 60/40 program. Okay? In our most recent 60/40 program, you get all of your expenses back first and then we start getting a more of a 60/40 split.

But but let's just keep it for simple. Let's just keep it simple for a minute and leave it let's just leave it at 60% of the revenue. Okay? in 15 years from now when you retire.

And I promise I did not plan this, but I saved this because I loved I love round numbers. I love easy numbers. Okay? And and by the way, you know, this house is not like we have several houses on our website that are much better than this one from a cash flow standpoint.

So I I didn't want to pick like our best house. I'm not trying to show you like bestase pie in the sky numbers here. I'm showing like 14,000 a year. Okay, 14,000 a year in 15 years.

Now, keep in mind, this is kind of the point of my whole training, if you will, is that if I took the same $300,000 out of my IRA and I bought this house with it, okay, my income in 15 years from now would be the same. I didn't hurt my

What the house bought instead

retirement at all because if I kept the $300,000 in my IRA, it would grow. And then if I took out $40,000 a year, I'm going to get 40,000 a year. But even though I'm going to get 40,000 a year in the in the real estate in 15 years, what did I get that I don't get in my IRA? >> Equity.

>> Yes. In addition to that, what else? >> Appreci. >> In addition to that, what else?

a fun place to go. [laughter] >> That's actually true. I actually that was actually not on my list, but I would say that this house looks a lot more fun than a 401k or an IRA in my book. I mean, I'd rather I mean, if I if all things were equal, would you rather have an IRA or that house?

I mean, come on. Now, I will say this, it's there's still risk involved. You know how you know how when the news says that the market's going to crash, what what is what kind of anxiety does it give you? You're like, "Oh my gosh, you know the market's going to crash.

What's going to happen to my retirement?" Do you ever have you ever had that feeling before? Well, guess what? I personally own some houses in Florida right on the beach and I was out there um a couple weeks ago when the hurricane came in. Same kind of feelings.

[laughter] I'm like I'm like, "Oh crap, there's a hurricane coming in right at my house. It's It's going right to my house." But guess what? I have insurance. I have wind insurance.

I have hurricane insurance. I have Airbnb insurance to cover the revenue while it's getting re rebuilt. I don't have that in the stock market, do I? But I was still a little nervous.

I'm not going to lie. [laughter] It was still kind of the same feeling. Okay, but wait, we we've kind of missed the point. I'm not we're not there yet.

In addition to all of that. >> What do I get over the next 15 years that I don't get in my >> Thank you. >> Thank you. That's number one.

Number one. That's $395,000 of income and you're still on track for retirement. Your IRA money is still going to produce the same amount of income as if you left it in the market to continue to grow, but now you've got $395,000 of income that you're not going to have in your IRA. So, in my example over here, if I left my IRA to grow in the market for retirement over the next 15 years, how much college could I pay for with that IRA?

zero. IAS don't produce cash flow until you spend the money. That's $395,000 of income that you're not going to have in your IRA money. Now what's the other thing that I get in this scenario?

What am I getting in my life in my real estate? What am I getting that I'm not getting from the IRA? What's my income doing every year? I can see >> appreciation.

>> I I can I could read Mora's lips over there. Yes, thank you. Appreciation. [laughter] Appreciation.

My income is increasing. My income is increasing. In 25 years from now, I'm getting $67,000 a year instead of 40. In 40 years from now, I'm getting $153,000 a year instead of 40.

That's huge. That's a total of $2.6 million of income compared to $1 million of income. $1 million of income over the next 40 years from my IRA versus $2.6 million of income. That's huge.

That's huge. Why? I I got my licenses to be a fiduciary so that I could charge people a fee to give them financial advice and I knew nothing about real estate. There was not a single question on the exam to become a fiduciary about real estate.

How can I charge somebody a fee to give them a financial plan as a fiduciary and not explain this to somebody? I'm sorry. It's just messed up. It's messed up.

And I I I'm just going to be the first to admit I haven't always known this myself because I was a traditional financial adviser. I've been in the financial advis the financial industry for 20 years teaching people about, you know, regular old stock market stuff. Why? Because that's how I made money.

I got a percentage of the money I managed. They call it assets under management. I managed people's portfolios and I got paid for it. I got paid a fee for it.

We don't get paid to sell real estate. We're not even realtors, by the way. Right? So that's why nobody's talking about this, but we're talking about over a million dollar more in retirement income.

Now, am I done? Is that all? Is that

Which one wins

the end? What happened to my $300,000 that I invested into this house? What did I buy? I didn't I didn't buy I mean, yes, I kind of bought income.

Yes, I do get income. And yes, I do get a tax savings to pay the government off. But what did I actually buy? I bought a house.

I bought a house. Guess what? The house grows in value at 5%. So now when I die at a 60% deal, it would be $3 million because I get some of that as a company.

If we do a 60/40 partnership, I get some of that. Okay. But you would get three because you get all of your deposit back. You'd get all your deposit back and then you get like $3 million.

$3 million plus all that cash flow. And that money goes to your kids versus over here versus over here. We're gonna leave our kids a million dollar tax problem, right? We're going to give our kids a million- dollar tax problem.

They have to figure out the taxes on that. They're going to lose half of that in taxes versus over here in the real estate. I'm going to leave my kids some real estate taxfree with the step up in basis. Are there risks?

Of course there's risks. I would argue there's just as many risks investing in the stock market as there are in real estate. If you're currently putting 20,000 a year or so towards your your 401ks and your IAS, then worst case scenario, if this house doesn't do very well and it only performs in the top 25% of the market, then you might have to supplement it a little bit initially. Okay?

You might have to put in 6,000 out of your pocket, 4,000, 3,000, a,000. You might have to come up with a little bit of money out of your pocket instead of putting it towards your IRA that year. But hopefully after today, you're not in love with your IAS anymore. So why are you putting money into those anyway?

Just save it to cover some of these expenses. Okay. Anyway, sorry. I know that was a lot.

That was a lot of information. We'll try to get this um we'll try to get this uh recording uploaded. You might want to watch it a few times. [laughter] It [gasps] was it was a lot of information in there.

Um, I guess one of the reasons why I'm so passionate about this topic right now is because I met with a client just recently that really wanted to buy a short-term rental. That's why they joined our program. They joined our program because they wanted to get into a short-term rental, but they didn't have enough money to get into a short-term rental and they were pretty bummed. Well, guess what?

They had $1.7 million in an old IRA. So, I kind of walked through this with them and helped them to see how they can still get into a short-term rental. Um, now, is it going to help to get tax savings into your pocket next year? No.

The tax savings is just going to pay off the IRS, right? But you you are still going to save taxes. It's just not going to get this big tax savings next year. Now, if it were me, I would combine this with one of these other leveraged tax strategies where for a small amount of money, you can get a big tax savings to kind of offset everything and still get tax savings.

Like the client that's going to pay like this client, if this client's going to pay $100,000 in taxes, like let's get rid of that, too. Like, let's get rid of the taxes, too. Now, how does this help benefit from whatever IRA money you have left? Let's create a strategy to not pay taxes the rest of your life.

Let's create a strategy to not pay taxes every year. Like, let's be creating some sort of a long-term strategy where you don't pay taxes every any. And then guess what? Then you get all that IRA money that's left free.

For free. You don't even have to do a Roth conversion. You can just take the IRA money out someday and we'll offset that income with tax strategies. We'll create a long-term tax plan and then you can take IRA money out taxree because you show zero income.

I have a client right now living on $250,000 a year taxree. So anyway, it works. He's 72 years old. He's been retired for a while.

Living on $250,000 a year taxree. All right, I got to bounce. Apparently I have another appointment I'm late for. I've been I'm getting my I'm getting text messages.

Got to run. Thanks for joining. We'll get this recorded recording uploaded. Thanks for joining us.

We'll talk soon.