How Debt and Taxes Can Make You Rich

Hello, future billionaires! I'm Ellis Hammond, and for the last time this month, for better or for worse, I'm in the host seat. And all month we've been doing this series sharing some of the biggest lessons from Ben and Bob's book Invest Like a Billionaire. And this book is out at the beginning of September, and we are so, so excited to share it with you. In fact, you can pre-order it now and download the first 6 chapters of the book and start giving us your feedback. So make sure you check that out. But we are here with Ben and Bob to share what might be, I think, the most important lesson from the book, which is the billionaire mindset, how billionaires are thinking differently from the average investor, and really what we can learn from them. So welcome guys to kind of this final series in this book-related episode.

Man, I'm so excited about this. Yeah.

Exciting. Book's almost out. We're so close. I know. It's about game time. Yeah, we're so close.

I'm so excited. So let's just dive right in, guys. What did you notice? I know you've done a lot of research in this book, but just knowing a lot of these types of folks that these billionaires have in common that the average investor does not, like, what are the common threads?

I mean, even before we get to that, I mean, one of the biggest differences is allocation to alternatives, right? There is a huge gap between the way the ultra-wealthy are investing, the billionaires and, you know, pensions, endowments, foundations, relative to the average retail. And it's not by just the incremental amount, it's by a massive factor of magnitude. And average investment that we've seen from all the studies, research we've done, we have all these charts in the book. Of, you know, the ultra-wealthy, the billionaires, they're investing between 50 and 60% of their portfolios into private alternative investments. What are those? Real estate, private equity, hedge funds, private credit. These are the things they're investing in, whereas the average retail investor on the high end has 2%, 5% maybe into alternatives. And if you've been listening to this series talking about the book, you're catching this thread that The industry is shifting to this model, to this billionaire model, because it is a better way. It's so clear. And if you read the book, you'll see it is undeniable that this is the better way to invest with lower risk, higher returns. And investors are starting to realize that, and the mainstream financial system is needing to shift. They're trying to make these changes, but The thing that I think investors are realizing and needing is, how do I get access to invest in alternatives? And maybe you buy into that already, maybe you're new to that idea. But the next big question is, we're going to get into today's episode with Mindset is, how do I have confidence to go and make these investments? How do I actually shift the way I'm thinking about this, my framework, to go and do do this and execute a disciplined plan of investing alternatives so I can get that outcome that you're saying, Ben and Bob Fraser, like I can go get this, you know, higher returns, lower risk, you know, better financial future with lower volatility. That's possible. But things we're going to talk about today are going to help you understand the kind of basic frameworks to get there.

Let me jump in with another point here, just as we're kind of laying an early foundation. So most retail investors pretty much throw all their money at a financial advisor and say, you make all the decisions for me. Billionaires don't do that. They don't do that. Now, do they have advisors? Absolutely. Lots of advisors, lots of attorneys, lots of— but they're the bosses. They're the ones making— they're the ones that are self-educating. They're the ones becoming informed CEOs of their money. And I think that's one of the first mindset shifts we want our readers to make is, you know what, why don't you set your goal to be a great investor? Not just throw your money overboard. What if you threw your marriage decision overboard? I'm going to, I'm going to just outsource my marriage decision. I'm going to outsource my child rearing. You know, I don't know how to raise children, so I'll just get the experts to raise them. You know, this is as important as that. And so to make a decision to go become a CEO of your money. So this is a huge kind of Billionaire Mindset is build a team and become a great investor and take control of your money. Yes, have advisors. Yes, get help, but you become a great investor.

That's exactly right. I mean, no one is going to care about your wealth, your financial future more than you do. Sure, financial advisors and the people we surround us with, they want to help us out and we want to believe they have our best interest at heart. Many times they do, but it's never going to have the same level of ownership than if you take that on yourself. And that's what these billionaire investors are doing is they're the CEOs of their wealth. Right. And to Bob Fraser's point, it doesn't take the same level of investment of education, of time, of resource that it takes, you know, a highly paid professional who goes and spends all this time education to build a great career. You don't need to invest that much time, but the power of getting a little bit better return with less risk over a long period of time compounded is so much of a bigger driver of wealth growth than the earning power of that person's career. And this is, I think, the foundation of the balance sheet mindset versus the income statement mindset. It all comes down to understanding how to make your money, the net worth that you have, the investments that you have, work harder to make you more money than you are working to make more money through your career, right? As soon as you can divorce your time and your effort from the primary driver of what's driving your wealth, and now you're creating better approach, a better system, a better portfolio that can grow faster, all of a sudden creates this massive powerful force that allows you more time freedom. I've seen this firsthand with people they work their entire careers, they work 40+ years in a job they hate because they're a slave to the income. They've kind of a lifestyle that they've created that creeps up to the amount of income they're making with the hope that one day they can retire, they'll have enough. And they hand the keys over at 63 years old to the financial advisor and they just hold on for the ride of the roller coaster. At that point, I hope they have enough, right? And meanwhile, there's a very different way. And so to me, that's the foundation of this balance sheet mindset. The other things we talk about in the book, the income statement mindset, it's— you're thinking about how do I make more money, right? How do I increase my income?

Right.

And that's not a bad thing to think about, right? We all want to try and make more income, but then it's okay. I make more income, I reduce my expenses, and I can keep a little bit extra. I can invest a little bit extra. But the challenge is for most people is to make more income. They have to—

I work harder, I take another job, I work harder, or I save money. It's all like effort, effort, effort.

Exactly. Yeah. And they're also going to have to be paying more taxes, right? If you make more money, we have a graduated tax system that the more you make, the more you pay. And so they're going to now have to work harder to make more money to pay more taxes.

Right.

And then the biggest challenge, and this is where we have all these examples in the book where they never tap into the power of compounding, right? Because they're working harder, they can only have so much growth on the income that they make because it's tied to their time and they're paying more in taxes. So the net effect at the end of the day, isn't that much bigger than it was before. And you're never tapping into the power of compounding. That's what we call the income statement mindset.

And what's the difference in the balance sheet mindset?

The balance sheet mindset is very different. And we talked about thinking about your wealth. How do you make your assets and your wealth work harder than you are for your income? How do you make your money make more money, right? That's the idea. You know, Bob talks about in the book, it's one of the sharks is Mr. Wonderful, right? He says he views all of his dollars as little soldiers going out to war and, you know, fighting the battle of making more money, right? He views every dollar that he invests as a way for that dollar to go and make more money and bring back more for him. And one of the most powerful, I think, shifts of allowing people to not feel like a slave to their income, to have to work harder to make more. And that's where you can achieve what I call this kind of, you know, wealth escape velocity, where your wealth starts to make more money than you do.

I'm so glad you brought up the tax point too. It's such a good point. Like, if you're always just thinking about income, it's so interesting to think like how most wealthy people we know like don't want to show that they make money because they understand the tax game. And if you focus on the balance sheet, that's how you can experience this outsized growth because it's like at the casino, you just can never outearn and go against the tax man because the harder you work, the more you get taxed. It's this treadmill almost, right? Like you have to get off of it in order to really build significant wealth in your lifetime.

You're exactly right. Paying less taxes is another big mindset shift for a lot of people, right? And billionaires, they don't pay that much in taxes. And most people get annoyed by that, frustrated by it. They want to throw you know, all these big billionaires under the bus for, they're not contributing to their share of, you know, what tax share that we need to pay as a country. But the reality is they're doing this all legally and they're doing this with the same tax code that you are being applied to as well. You can go do the same things they're doing. And I think that's helpful to think about, right? If you're focused on balance sheet, on assets, gains in your assets, growth of your balance sheet does not result. And having to pay taxes, right? If your stock goes from $1,000 to $2,000, you don't pay taxes on that until you sell it, right? But if your income goes from $1,000 to $2,000, you are going to pay more taxes on it. So that's a very powerful shift here to that balance sheet mindset, where you will be paying less in taxes as your assets start to grow. Then you can start to be strategic in how you, you know, plan for taxes and minimize the tax impact of your wealth and your growth.

So just diving into that a little bit deeper. So somebody says, you know, listening to this, then, oh, well, gosh, you never sell. Well, you never get to reap the rewards. Well, that's not true. And so what billionaires will do and what the wealthy do is, let's say you have an appreciative asset, you borrow against it. And there was a great article that came out about how the billionaires pay no taxes, and it just really created an uproar. I don't know if you all remember that, but it's all legal. And one of the ways that they don't pay taxes— well, first off, the investment quadrant is more favorably taxed than the income quadrant. So if you have capital gains, you know, your apartment complex went up in value, you're paying 15 to 20% capital gains taxes. If your income goes up in value and you're in the high tax brackets, you're paying 37 or 39%. Of that, of taxes. Well, that's a pretty big difference. But then add the fact that, as Ben said, and if you don't sell, you don't pay taxes at all on an income investment. Well, borrow against it. And this hits another major mindset shift for the ultra-wealthy, and that is debt. So I can't tell you how many people I know in my circle that think of debt as evil. And they think of debt, you know, their whole goal in life is to get out of debt. And honestly, I look at it, that is just nuts. And there's some very famous people out there, you know, advisors and educators who say get out of debt is the main thing. And the reality is that debt and assets are exactly the same thing. If I borrow money, if I borrow a dollar from Ben, well, I'm now in debt a dollar, but that dollar is Ben's asset. And if you have savings and you've saved money, you put it in a bank. The bank owes you that money. It's actually debt on their books. So you can't have an asset that isn't someone else's debt, really. And so it's— to say debt is evil is ridiculous. It's to say assets are evil and savings is evil. And so debt is great because our economy is built on debt and it's allowed capital to flow to where it can be utilized for productive purposes. Debt is awesome in allowing capital to free flow to where it can do the most benefit. And so, I'm a huge fan of debt. I say in the book, I say, "Debt is like a fire. You can burn your house down with it or you can cook a steak." And so, I say, "Cook steaks and don't burn your house down." It's not that hard to do, right? It's not that hard to not burn your house down. Just don't be stupid with debt and get debt that's well-priced, that is backed by assets and that services its assets. But debt is your friend. Debt is awesome when it's used properly. It's a powerful accelerator that's used by the ultra-wealthy.

A key point here, because I think we don't want to miss the reason why debt matters, is, you know, one of my favorite things that we get to do in our business is what's called a cash-out refinance, right? We buy an asset, we improve the value of the asset. All of a sudden, that asset's worth more. We can go get new debt, new leverage at a higher amount, but it's still at a very comfortable leverage position, right? That 60 to 70% sweet spot. But we actually get to take cash out because we've improved the value of the asset. And that cash out is not taxable, right? Because the proceeds are from debt. You haven't sold the asset. And so this is what we've seen over and over again with the billionaires, right? When they need income, if they have all these assets, they can go and use leverage against those assets to generate the capital that they need. And it's not a taxable event, right? So this is why it's so important to build up assets, build up investments, because it creates the ability to have many ways to generate capital, to generate, you know, more gains without having to pay a lot more taxes. And so just wanted to make that point because, you know, it's such a key part of this kind of wealth growth process is understanding how to use debt and really the benefit of it.

Bob Fraser mentioned it is a double-edged sword though. And so before we move on from debt, I want to talk about one other key concept in terms of the mindset of billionaires. But I think it would be missed to not ask you, someone who's gone through multiple cycles, if you were talking to your 20-year-old self though about debt or giving, you know, you've lived this life and you can go back and talk to your 20-year-old self. I mean, what would be the lesson you would tell them about leveraging debt over the next 40 to 50 years of their life.

Yeah, I mean, I've told all my kids, go buy real estate, go buy houses. And all my kids own real estate today using debt, and everyone has benefited dramatically by doing so. So I think get in debt as quick as you can, but there's two kinds of debt. There is debt for consumption and there's debt for investment. And one is pretty bad and the other's pretty good. As long as you keep it moderate, you keep the rates managed and you keep the level managed, right, where you're not at risk of not being able to service the debt and you're not at risk of negative equity. Those two things, the value test and the income test. But consumer debt is pretty much a trap, right, where you're using debt to consume. That's what I advise young people.

Let's talk about another hot topic you expound in your book, and that is inflation.

And it's actually related.

Yeah, I think this is another one people hate, you know, or fear. I mean, you hear inflation in the headlines, you're like, oh no, inflation. Right? So, but you say in your book, inflation isn't just something to brace against, it's something to leverage.

Absolutely.

What do you guys mean by that?

I can't control whether inflation happens or not, but I can sure control how it affects me. And you know, if you don't like the price you're paying at the gas pump, we'll get on the other side of the gas pump, right? Get on the guy who's pumping the gas. And if you don't like inflation, we'll get on the other side of inflation. And so, you know, real estate, which is the first first pit stop on the alternative investment continuum. Its superpower is inflation. And so, let's say you buy an apartment complex, but you leverage, you take 60% debt on that. Well, that means only 40%, you've got 2.5 times the amount of real estate relative to the capital you put in, right? You carry 2.5 times more real estate than the cash that you used to buy that real estate. Well, that means as the values of that property go up from inflation, you get a 2.5 multiplier on your cash. So you benefit. And I think the numbers are something like, oh, so at 8% inflation, which we're not having right now, but let's say 8%, the value of a property is going to double in 10 years. And for you, if you've leveraged, you know, 65%, then you've got a 2x multiplier on your capital. So you're not just doubling, you're tripling or quadrupling your capital. So that's what I mean. Get on the other side of inflation. And it's even better than that because let's say you, you borrow 60, 65%. Well, the dollars that you borrowed are getting devalued, right? That's what inflation does, is it reduces the value of a dollar. So the debt you owe is getting less valued in today's dollars and tomorrow's dollars. And so you get this double whammy, which is why one of real estate superpowers is inflation.

So what I'm hearing you guys say, for people who aren't billionaires, but who are an average investor, especially during times of inflation, which is now, real estate is a key, is something that almost any average investor can do is to start investing in real estate of some sort.

Exactly.

Guys, we are really close to this book launching, maybe some are listening, and the book's already launched and they have it, thebillionairebook.org, or you can buy it on anywhere, of course, but the bonuses are at thebillionairebook.org. But I just would love to hear from both of you guys. I feel like this is kind of a monumental week as we get ready to launch this book. You guys have worked so hard for this. What is the one lesson, the one thing, Bob, you're sitting down with someone who's read this book and that you would say to them, Ben, the same question, the last thing you would say or the final thing you would say, the one lesson, the big key thing of reason why you wrote this book for that person, what would you say?

Go learn how the big boys are playing the game. And play the game the same way. You can earn the same returns, take the same low risks, and earn the same outsized returns and pay less taxes because the laws and the opportunities are exactly the same. So bridge the knowledge gap, and this book is step one of educating yourself to bridge the knowledge gap and play the game the big boys are playing.

I think for me, the next thing I would say is obviously understand the knowledge gap, and then go and do it. Right? We actually give you the how-tos. And the only way you're really going to get comfortable and grow in your confidence as an investor to go and get the benefit of this is to go and do it. And to get in the game and to start to see the deal flow, to start to ask these questions. And that's, to me, the hope and the excitement around, you know, getting this book out into people's hands. Yeah.

And as someone who's been on the inside and has actually read the book, I just say like, Even as someone who's been in this industry for almost a decade now, this is so good. I think what you said in other episodes, Bob, is what this industry lacks is a framework and sometimes guardrails for how to do this. And I think that this is what this book will provide for so many people, even people who've been doing this for a long time, is finally a book that actually lays out a framework for investors and to really clearly do this, but do this in a safe and profitable, and maybe even the better word would be predictable way to actually have a shot at becoming a billionaire. Because the reality is very, very few people are going to actually build the next Tesla. But a lot of people could grow wealth by investing and do a lot better.

Anyone can compound. Anyone can compound. And if you can compound, it doesn't really matter what you start with. And it doesn't matter how fast you grow, it's going to make a difference in your life. You know, that's why I'm just, I'm super pumped about this book. And I hope people pick it up. And I hope people take the time to learn because it will change your life. It will change your financial future to learn how the big boys are playing the game, to learn to get good at playing it yourself. It's not that hard to do. And you know, like everything we do, right? It's data-driven. You know, there's nothing we're going to do that's just our opinions. This is a lot of data. I think there's, you know, 70 charts in the book and you're just going to love it. If you like data, you like facts, you don't like opinions. I hate opinions, even my own. Let's just get the facts. This book is gonna really meet your needs.

I'd say too, you know, for— we're coming right up before the launch. If you guys haven't bought the book yet, pre-ordered it, it really would help us if you could go to thebillionairebook.org and pre-order. The way that these kind of bestseller lists work is they look at all your pre-orders and kind of the first week of sales. So we're really trying to get as many people in the kind of pre-order stage as possible. It really helps us to get the word out once it does launch. And we also have lots of fun goodies that you can get in addition to the book. You can get the first 6 chapters instantly via download. And so you can get a head start from those that will get the physical book when it comes out. We have an amazing masterclass. Bob and I did a 9-part video series going through the book. We have 3 sections and we break it down in way more depth than we've done even in this podcast series. And we've got Bob's top investments for 2025, a whole report from his economic analysis that he's done. All these are included if you go to thebillionairebook.org. And again, Thank you guys so much. I've already seen some amazing, you know, surge of orders and we're trying to get one more big push before we do the official launch. So, so grateful for all of our listeners and those that are supporting this book launch. Thank you.

That's it for the episode, but there is so much more in the book itself. So please go check it out. In the show notes, there is a link to preorder the book. See you next week.