(Podcast) How to Participate in Market Upside Without Any Downside with Sam Prentice

So one of the things that's really beneficial about debt is it puts you and it aligns you on the same cycle as what the overall economy does to transfer wealth. So debt is made and is designed long term debt is designed to transfer wealth from the lender to the borrower.

You just blew my mind there.

Well, it'll get better.

Okay, keep going.

You're listening to Freedom Fast Lane, presented by Capitalist. This is the show about building businesses and investing the profits so that you can live life on your terms. And now, your host, the future owner of the Cleveland Indians, Ryan Daniel Moran.

Sam Prentice is creating real entrepreneurial freedom with his capital warehouse business, wealthpoint. By using the capital warehouse strategy, you can keep your money liquid, access it whenever an investment opportunity arises, and earn tax free interest with no risk of losing the money. He also explains how debt can make you more money and shares the story of how he turned an $800,000 loan into $8 million of cash flow for one of his clients. In the first section, Sam tells us exactly what a capital warehouse is and why borrowing against your real estate can bring huge, huge roi.

What's up, fastlaners? Welcome to Freedom Fastlane. Ryan Daniel Moran here. Today, I'm excited to be joined by Sam Prentice from wealthpoint. Sam, thanks for hanging out with me, man.

Thanks for having me.

You know, I was telling you that I became an entrepreneur because I really wanted to be an investor. And what I have learned is that entrepreneurs are really good at making money and taking risks and really bad at investing and keeping their money. And there are little things that I've always been fascinated by that if entrepreneurs were to think about or do just a little bit of, they could invest more in their business, they could make a bigger impact and they would actually be more stable as just in their finances. So they would actually experience the freedom that we're all in this game to experience is cash flow, wealth, freedom, be able to live life on your own terms. I wanted to have you back because I wanted to talk about some of those things that we can be doing in order to experience that. So we've had you on the show before and we talked a little bit about capital warehousing and I wanted to talk a little bit about how that strategy applies within a business and how we can use that to create more entrepreneurial freedom. We've heard Tony Robbins talk about participating in the upside by being protected in your downside. And I know that sounds great, but a lot of people don't know how that works. And as an entrepreneur I think it would be great if I could just dump my cash into a place where there would be upside and no downside. And that would make my life a lot better. So would you explain to us a little bit how that works or if that's a real thing, or if Tony Robbins is just a hype man for that?

It is definitely a real thing. And that's what's key first is, and what we're doing with the capital warehouse strategy is we're putting dollars to work just like you said, where we've got the potential for upside, we've got the limitation on downside. So you're able to put dollars over there. As a small business owner, it's always key to keep that liquidity.

So typically you think of liquid money that you can access.

Absolutely. Money you can access. So if you have something that comes up in your business, you need to purchase additional inventory. Something comes up where you have a contingency you didn't plan for. You might need that capital to be able to deal with those fires, put those fires out, or to take advantage of opportunity. So liquidity is very key in your business. And what we do is instead of having Your liquidity earn 0%, which is what typically your liquid capital does, you put it in the bank, it earns 0%. Now you have a place, like you said, where you can put it, you can earn an interest rate on it, but not have it at risk of losing money where if you needed to access it, you may have to access it when the money's down. So for example, you couldn't just do this where you go buy money or put money into a stock market. For example, you go buy stocks. The downside there is if, if you need to access that money while the stocks have had a loss, you're pulling money out at pennies on the dollar. It's a bad time to access it. So having a asset or an asset class that is not exposed to that same cycle, that's got a limitation and a floor to the downside it can experience, is very, very key for using that as a place to store capital and keep it liquid. So what we've really done is we've turned it around where instead of your liquidity equaling 0%, now your liquidity can earn you 3, 4, 5, 6% long term. And it can be tax free additional growth that's added to your balance sheet.

And what is the actual asset class?

The actual asset class is life insurance. So we use a life insurance policy that we strip out all the Life insurance we possibly can. And there's some real key points here with this in comparison to other kinds of infinite banking or strategies that do similar things but are not quite structured the same way. We've gone through and we've identified a few carriers who are, who are able to offer policies that meet the terms. We need to be able to have the kind of liquidity that makes this work. So there's a few key things that separate this from other types of strategies that are similar and use life insurance. But that's what we use. We use a life insurance policy, we strip out all the life insurance we can from it, whereas much of those dollars we put into it go into the cash value. The cash value is what's tax advantaged. And we have the life insurance cash value is also what grows inside the foreign cash.

Yeah, so we started going to the weeds there and my brain went, ah, details. I'm so confused. But basically, as I understand, as I understand it, you have the life insurance policy which pays you a, you know, a rate of return that's based on market performance, but there's no downside, which is kind of that, that famous line that Tony Robbins pioneered in a couple of his books of you can participate in the upside without having risk on the downside and you can keep the money in your pocket, in your control. So the question for me comes up, I have much fewer opportunities, it seems right now to deploy capital when the market's at this big high. Everyone is buying everything, it seems. So where do you encourage clients once they, you know, they have this asset that's growing, which is great, and they can still access the capital, they can still access their cash rather than just let it sit there in the bank. Where, where do you see people deploying that capital? Where do you see them investing?

Now this is where that capital warehouse comes into play, is. So instead of having the money sit in the bank, you move those dollars over to your capital warehouse, over to your life insurance policy. So now you have your money that was going to sit in your savings account now sits in your life insurance policy. And one of the key things we can do with a life insurance policy is because it is liquid and because it's almost a cash equivalent, we're able to get very, very attractive loan terms. So you can use this to introduce additional leverage to your balance sheet as well as provide a host of other tax benefits to it as well. So we're now able, we put the dollars into this capital warehouse. And so for an environment like today where the Market's at all time highs and we have a shortage of compelling investments. That's not just an opinion. You can look and see the amount of capital that needs to be placed. There is definitely a shortage of compelling investments in today's environment. So because there's a shortage, we are looking for places where we can shift an overall balance sheet to be more liquid as opposed to less liquid. Typically, when you deploy capital, that means you're taking risk and you're tying up liquidity. The benefit of the capital warehouse is we're able to deploy capital, still earn that return. We're able to limit the risk, and we're able to maintain liquidity. A lot of times you only look at risk and return. There's more metrics to an asset and more metrics to a balance sheet that you have to evaluate that are really, really key. We've identified five of them that we use for teaching our clients how to analyze their balance sheets and their assets. Those include, of course, return and accessibility.

Okay, finance brain, what I'm hearing you say is the market's at all time highs. If you keep it in a capital warehouse, you can wait for the right opportunity in the next economic cycle or the next, the next opportunity that comes up in your business to be able to deploy that capital.

Certainly, because you'll have cyclical opportunities. So there will be times when there's more opportunity times, there's less opportunity. And so. And that'll be the case for real estate, that'll be the case for stocks and bonds. That'll be the case for the energy sector. That'll be the case for Amazon businesses. There will be a time when those may be more obtainable. They're easier to buy, they're cheaper. So if you're looking and saying, I want to increase parts of my balance sheet, I want to buy more types of an asset. Having a place where you can store capital, that doesn't take it out of the race, that still allows it to earn interest while we keep it liquid is key because then we're able to be a more savvy buyer. We're at least earning. We're still moving our assets forward by having the capital warehouse. But we don't give out that liquidity. We can wait for the opportune time to buy when the assets are at their best value. So we're buying at a value we're buying low and selling high, as opposed to what most people do, which is the opposite of that.

For those of you who are watching, the way that I have chosen to participate in this strategy is when the market's really high right now and everything is up, I'm choosing to take money off the table. And because of that, I don't want to just have it sit in a bank account somewhere and earn essentially 0%, which is what Sam referenced. I'm putting that into a place where I have access to it, but it continues to grow at a conservative, actually a moderate rate and very, very protected with little to no downside. And then when the right opportunity comes up, having access to that so that I can either buy the next business or invest in the next economic cycle when things go down. So it's my opinion that when things are really good, it's time to say, okay, what would I be glad I did right now in the event of a cycle? One of the reasons why I have sold some businesses in the last couple years is because my best friend Mark said to me, you sell when things are good, you don't sell when things are not so good. So I recently just purchased a house, bought a lake house that I'll use for networking parties and masterminds and workshops. And I paid cash for the house because debt is bad, right? And we were talking before the camera started rolling about how that's a really bad financial strategy. And I know that and I know a little bit of what I'm going to do, but paying cash got a better deal for the house and allowed me to close faster. So you were saying it'd be a really bad idea to just let that sit around and not borrow against it. Why is that?

That's a great question. So one of the things that's really beneficial about debt is what debt does, as a general rule of thumb especially, and let me clarify, not short term consumer debt. This is not your credit cards, this is not your high interest car notes. This is long term, especially real estate debt, that's got some tax deductions to it as well. So long term debt, what it does is it puts you and it aligns you on the same cycle as what the overall economy does to transfer wealth. So debt is made and is designed, long term debt is designed to transfer wealth from the lender to the borrower. And the reason, if you think about.

Why you just blew my mind there.

Well, it'll get better.

Okay, keep going.

So the idea is if you think about how is, how is the government, how are they meeting unfunded liabilities, part of that's going to be with taxes. And so we think about that just from completely regardless of your Political standing. You understand that we have unfunded liability. We have people living longer than they've lived before. So there's unfunded liabilities we have as a government to the American citizens that will have to be met somehow. One way is to raise taxes, but that's really chump change. That's chump change. And notice I said chump change. That's, that's chump change in comparison to the real way that wealth is moved and redistributed from hand to hand. The real way wealth is redistributed is through inflation. Because inflation taxes the rich man and the poor man alike. It's not something that makes you lose your seat and Senate. It's very, very easy to institute and it's the stealthiest but most effective tax that we have right now. And so long term debt, what you're doing is you're effectively fixing a good portion of your balance sheet. So we take this million dollar property and we fix long term 30 year debt. Okay, think 30 years ago. It's 2017 now, so 1987. Think about what year I was born. There you go. Think about what a million dollars did in 1987. It did a lot more in 1987 than it did here today. And a lot of things as you can, some of our gold bugs and people track these things and say, well, an ounce of gold still buys the same thing it would have bought. And that's all true because gold is more of a standard to measure these things by. But you think about what that long term debt is doing, is it is hedging that portion of your balance sheet against inflation because in 30 years you'll be paying that mortgage note back with 30 year future dollars. That dollar is going to feel like a lot less along the way. What's really key here is if you have good assets to invest in, and this is always predicated by, in some people's situation, you may just have so much cash you don't have anywhere to put it in which case that's its own problem. But if you have good assets, you can put these dollars in where you can leverage it out. You can take that long term debt and you can put it in something that even if all you did was break even on the cost of the mortgage, you've done a good thing because you're hedging that portion against inflation and you've kept the liquidity outside because debt, I'm from a moral background, I know that debt can be viewed as a bad thing. We come across that quite a bit with clientele. However, when debt is used properly, it's just a tool. It's just like any other investment where you're using a tool to grow your wealth and you're using a tool that has a high likelihood of you increasing your wealth and a low likelihood of decreasing your wealth. Because unless we enter into a deflationary environment, which I think is very unlikely, unless we have a change in mortality here very soon with those who are expecting benefits, we are going to benefit from the inflationary environment with long term debt, you know, that kind of pain, pain down the side.

So if by, by borrowing against the million dollar house, taking that million dollars and buying other assets, right? Businesses, real estate, you know, I would even say, Sam, if we go back four years, not even 30 years, but four years, and I were to look at the return on investment of the $600 that I put into my first physical products business, that then became millions and millions of dollars, that was a good investment, I would say. Good investment. So to have a million dollars in a house that could borrow against and put into other assets, even looking four years from now, I don't know that I'm gonna turn $600 into millions again. But using that money to fund other businesses, to invest in our students, which I do, to put into other positive cash flow investments, and then we look ahead 30 years, the ROI on borrowing against that house is just stupid amounts of money.

It's insane. It's absolutely insane. And the thing is, you think about just. And I talk a lot about liquidity or I talk a lot about accessibility to your dollars because it's so key. Whether you're a business owner or whether you're an investor, you always are managing your cash flow. You're always managing your liquidity and making sure you can operate the way you want to operate. And you think about how many opportunities are missed because you didn't have sufficient liquidity. I have clients who missed out on 2009 or 2008's downturn. The time to buy was in 2009. But if you had your assets allocated to things that were exposed to risk, you were then in an illiquid state. You couldn't access them without taking a big hit, a big equity loss from selling at a low. If you had maintained some liquidity and had money in this capital warehouse, for example, now when the market crashes, you get 0%, but you're still liquid, you can go buy at a value and you can be an idiot in 2009 and make money and that's not the only investment. No timeframe we can make money in, but it sure is a good one.

Yeah, I mean, that makes total sense to me. You're not limiting the upside, meaning you still get to participate in the growth. So if I'm wrong and we're about to go into even another boom, then we still get to participate in that growth. And at the minute things go to the downside, we still have access to that capital. It's not growing, but it's stable. And then we could buy all of the assets that are going down in value.

Absolutely.

Which is like the world's best preparedness strategy. Right. So let me, let me ask this. When we look at, if we were to buy one of these insurance policies and get that rate of return, is there a way that we can keep that policy in our business or use the premium as a write off? Because I know it grows tax free.

Good question.

I know it grows tax free, which is awesome. It's like a IRA on the most crazy steroids ever. But is there a way to make it even more tax efficient on the front end? Because if so, I'm gonna. I might dance.

Yeah, there you go. Well, so here's the answer to that question is, so technically there's two factors that you're going to look at is your ability to leverage it, your ability to have it stay liquid, and your ability to deduct premium from it. I guess the third factor, there has to be three factors, is your ability to access or to have tax free access to it down the road. So those are the three factors we're going to look at is can we maintain the tax free status, can we maintain the ability to access it and, or can we deduct premiums? So if we deduct premiums on the front side, there are some creative ways to do that where we can reduce the amount of tax we pay on it. However, when we take those tax benefits, we have to do it through other vehicles that give up some of your ability to access it.

Okay, so we're going into finance land and my brain is starting to.

What?

So let me make that simple. So basically, in simplicity, the answer to the question is that if you deduct the premium, you can't take a loan against it the same way we're able to when you didn't deduct the premium. So there are ways to make deductions, but you give up using it as a capital warehouse. It's more of a long term investment. And so for the business owner, depending on where you sit, a lot of those questions go into is it better to pay taxes now or to defer them later? And that's a great question to ask yourself individually. And you want to look at your individual situation. You want to look at the overall economy and say, do we think taxes are going up or going down in the future? So if you feel like you're paying the highest taxes now and you'll be paying lower taxes in the future because you'll be making less money, then we may want to defer a lot of tax. If you feel that right now paying tax at a 25% bracket is a value, you may choose to pay some of those taxes now as opposed to deferring them into the future. So that's kind of one of the things we'd look at there because Uncle Sam is definitely a pay me now, pay me later kind of guy. He doesn't like to not get paid.

I've heard that about Uncle Sam.

Do.

I mean, we're speculating at this point, but do you have an opinion about what is going to happen in the economy over the next 18 to 36 months?

Yeah, absolutely. So with this, and this is, that's an awesome question because all of the things, when we look at a balance sheet, we look at all these factors and they all go into play. And as you've mentioned a couple times, that can get very cumbersome very quickly because there's a lot of outlooks you have to factor into each decision. And most people you're wanting to play tic tac toe when in reality we're playing the finance game on a chessboard. So we've got to really focus on a lot of different factors there. But one of those is what do we look at our short term and long term outlook. So I believe that there's somewhat of a coin flip in the economy right now. I read an interesting article the other day that talked about black swan events and it was an allegedly scholarly article that was all conjecture, but it was unique in that they said, well, what if your black swan event that happens in this decade is that there is no black swan event and that we continue on with five more years of growth because you have a lot of people who are pulling chips off the table and and are missing out on some of that upside. And while I thought that that was interesting, I'm pretty certain that that article was produced by Wall street.

When the hopes of getting more dollars in because I personally am of the belief that in the next 18 to 36 months, we will see a market correction. I believe that we're at eight year high. I think if you look at some of the jobs and other economic reports that are there don't support the stock growth that we've had. So I think that we're at a bubble. I think there's room for correction, but there's not enough data to indicate that I would want to pull every dollar away from having it exposed to some level of upside. Which is why this capital warehouse is so key, is it allows us to play both sides of the coin. You have to have a strategy that works in multiple environments. And if, you know, I'm in a coin flip environment, the economy could go down, the economy could go up. And there's a high percentage chance on both, over 30% chance it could go to either direction. We need to be playing for both sides of that coin. And we now have assets that allow you to play both sides of that coin. You know, start with the capital warehouse. There's other real estate plays that do well in your down economic environments. And it's all just a function of managing that liquidity to where if we do go through the downturn, you can buy, buy, buy. My biggest fear and my client's biggest fear is it's unique, is that when we go through a downturn, most people look at that downturn as that's your time to get out your umbrella, pull in your park and weather the storm. Because you just ride it out. If you have a long enough outlook, you're young, and if you've ever dealt with any advisors in the past, you probably have had someone tell you that you've got 20 years, 30 years, it'll all work itself out in the end. There's positive bias in the market. That's one way to look at it. And I would argue it's not the best way to look at it. Because the way we look at these downturns is I say I may only get six or seven downturns in my lifetime. I want to take as much advantage of those as I possibly can because that's when I have the highest degree of likelihood that I'm going to make money, and the lowest degree of likelihood I'm going to lose money. At the end of the day, that's all investing is. We want to make more money than we lose. We want to limit the downside and increase the upside. Having these different strategies along the way allow you to eliminate some of the areas that you would have lost money. There's a lot of ways that people lose money and don't even think about it. I want to give you just kind of. I had this the other day. I was sitting here and I was thinking, and I got kind of this braingasm of how people look at money and how they look at growing their wealth. Most people think to grow wealth, I've got to increase my rate of return. That's one way to do it. But typically that involves them taking maybe more risk than they should be taking or going to assets they don't understand or whatever else. It leads them down a path that they probably shouldn't be going down. I've got tons of case studies of people who went into assets they didn't understand, went into environments they shouldn't have been investing in, and lost a lot of money. And the point is, there's two different ways to increase your balance sheet. We've heard the old adage Ben Franklin, I think, spawned and said, a penny saved is a penny earned. So for increasing your balance sheet, if we can save a dollar, it's the same as earning a dollar. But how much risk is there? If we knew we were going to transfer money, we knew we were going to spend money in one way, if we can eliminate that expense and we can save it, or we can eliminate this unnecessary loss of money, that's going to add to the balance sheet the same as growth. But there's a lot less risk involved with saving the unnecessary losses. People transfer money all the time through market losses. They transfer money through expenses, they transfer money through taxes, they transfer money through debt service. And more importantly, is a lot of people transfer significant amounts of money through opportunity cost because they sit dollars idle that otherwise could have been employed because they don't know where to put it. And it's better than losing the money and deploying it and losing it. But when you know these other strategies and strategies the wealthy have used for many, many years, you ask the question of can this be held in a business? Absolutely. Businesses, banks use these strategies because it allows you to manage liquidity and allows you to reduce opportunity cost, which was.

You just hit on a vein that we hit very quickly. And I want to just absolutely slam this point home with a. With a grim reaper story. In my life, in 28 and 9, I had cash sitting on the sidelines and the market had just taken a. Taken a dive.

Absolutely.

The market's at 6,000. The Dow's at 6,000. Today it's at 22 billion or whatever. It's exploded. And it was at 6,000 and I did not invest the cash I had on the sidelines because I said we could keep going down forever. And you have the Harry Dents of the world and the Peter Schiffs of the world saying, you know, America is going to be bankrupt. We're going to lose everything. So I did not invest that money and I lost all of that upside. Right now. I didn't lose anything except the opportunity cost that you just said where I could have quadrupled my money by just buying an index fund. Having exposure to the upside.

Absolutely.

And what we're talking about here allows you to have that exposure to the upside. And had I known that seven years ago, 10 years ago, there could have been this tremendous upside with. And then when I was ready to start my physical products business, still have it available, I still have that capital ready for me to go into that other asset class. So I didn't lose any dollars.

Right.

But I lost a tremendous amount of money by not having a good financial strategy to take advantage of that upside.

Absolutely. And.

And that's what you're saying about the dollar lost in opportunity definitely is just the same as if the money went away.

Well, it's actually somewhat disappointing because you think about how many people don't get into owning their own business, get into entrepreneurship in general. Because I do firmly believe that entrepreneurship is one of the ways that we will deal with some of the economic challenges that are going to face our generation. And there's unique challenges that are going to affect every generation. We'll have some that we'll deal with. I think that entrepreneurship is going to answer a lot of those challenges. But you think about how many people don't take that dive because they follow the somewhat herd mentality that people follow with the traditional style of how you go through life, how you make money, how you invest money. Most of those things push you away from liquidity. You put money into a 401k that ties up your liquidity. It's very illiquid unless you quit your job and you've got penalties to get to it. All sorts of things that are driving you away from getting to those dollars they're designed to hold. And put money in the hands of the stockbroker as opposed to put money in the hands of the individual.

It's just an outdated model.

It's an outdated model and one that was never designed to be the primary retirement. But that's another story for another day that's all separate. My point is that how many opportunities are missed by not having an asset that you can do like we talked about, where you can expose yourself to upside, you can limit the downside, but that has liquidity that we can get to because there's a lot of people who pass on great opportunities because they don't have a model for how to grow their wealth. And this is what we're so passionate about, and this is what I've loved working with your group is because this idea of opportunity cost. Any business owner understands opportunity cost because they deal with it day in, day out with how they manage inventory. Every investor who's invested for any period of time understands it. So what we love about this is just being able to take that and show these strategies that are just like your business. We want your business to be scalable, we want your balance sheet to be scalable. So as we have these new assets, we add new asset classes to it. We need to be able to scale these assets. And so we start off with things that give you the right profile so you can invest when you want to invest. You can fund your business. If you hit a rock, you hit a tough spot instead of going through the same cycle with your business and having to tie up your liquidity and having to sell assets at a bad time. And that's a unique side point that.

We'Ll come back to.

In this part of the discussion. Sam explains why liquidity with your money is crucial. By using the low risk capital warehouse strategy, you can invest whenever the opportunity arises. Here he tells us why it works.

Tell the story of the individual who found money sitting on the sidelines. They weren't thinking about the money they had on the sidelines because a lot of times we, we don't see that there's. That we have cash around because it's tied up in an asset and how that could be used to grow a business or to put into an investment, that really liberates us as entrepreneurs. So would you tell that story?

I certainly will. I'll be happy to. And it's a unique story because it actually highlights the point we're just talking about here very, very well. And it's difficult because as a business owner, you've got so many things going on. Thinking of your assets in this way, it really is. It's like a second job. And so that's the key of what.

Has been meaning like income potential, of income stream.

Yeah, Just thinking of how you manage your assets, that takes time, that takes mental energy, it takes research. So having the right team members in place that understand these different aspects and can bring and constantly put Good ideas in front of you is invaluable. I would be willing to say that the thing that you guys have done here with capitalism.com, where you set up the ability to bring different advisors to the table that expose individuals to these concepts that will create a significant, significant amount of wealth for people because they're exposed to a lot of unique ideas they wouldn't have otherwise been exposed to. So this example was one, and this is probably. This might represent a $5 to $8 million total transfer that we're able to recoup and plug back into the balance sheet that otherwise he might not have had.

Meaning, we found five to eight million dollars to this person's net worth over.

A period of time, maybe over 20 to 30 years, which is he'll likely live that long. And that's. We might be adding five to $8 million back into his balance sheet. We found it, added it to it, and we're doing this with. With very, very limited risk. And so that's what's key, is we're playing a game where.

Hold on, you got me all warmed up with foreplay. Tell me how we added 5 to 8 million dollars is person's net worth.

So again, we're trying to find ways where we can add money to someone's balance sheet. We can roll the die and if we hit, you know, anything two or higher, we're going to win. Those are good odds. We want to play those kind of odds. This is what we're doing. I'd say we're even better odds than that. And so this is what we did. So in his case, his balance sheet was maybe a one and a half to $1.8 million total balance sheet, meaning.

That was his net worth.

That was his net worth. That was what he was worth total. Exactly. And of that net worth. And there's some fluctuation there because he had his business. And sometimes in those early stages, as you're probably aware, the valuation of the business is really what someone will pay for it. So he was at maybe 1.5, 1.8, and of that, about 1.1 of that was in his or 1.2 of that was in his personal home. So he lived in an area that appreciated. Well, he was in very much a cyclical market out Northwest. And so he had a lot of money, he in his personal home. And so after going through.

In equity.

You mean in equity, yeah.

Bought the house.

All paid off. Bought it, Paid it off. And then so now we have, you know, this $1.8 million net worth but the great majority of it, you know, 2/3 of that is in home equity. And you think about, if we talked about evaluating assets, we use the metrics and the acronym rates R A T E S for return, accessibility, tax, efficiency, expense and safety. Think about using those metrics and apply it to home equity. Home equity is really not the most attractive asset you can have. All home equity does is it saves you the money you would have paid if you borrowed it out and loaned against the property your home is going to appreciate independent of what loan you've taken against the property. That, of course makes sense there. So if you have this million dollars in the property that he's got tied up, we can take an $800,000 loan against that property at less than 25% equity remains, 75% loan to value that we're able to pull out, pull out that $800,000. And he's now able to use that $800,000 to invest along the way. He's going to pay his cost for borrowing it. But what he's done is he's now taken that balance sheet that was $1.8 million, and he's hedged two thirds of it. He's hedged a good portion of that against inflation. Because when the economy changes, when we go into this inflationary environment, which we're in right now, and it's very likely we'll continue to have this inflationary environment continue into the future, as that inflation continues, the purchasing power of the dollar is going to be eroded, which means that it's going to feel like fewer dollars are being used to pay off that mortgage.

What are you doing with this million? If you borrow $800,000 out, how is it that you're saying, great, that's going to turn into a few million dollars? Great point that we would not have had before.

So here's his specific plan. So with this, just, for example, is just showing how this pairs the capital warehouse. And then he may sit and slowly deploy that over time. So he takes the $800,000 out, he now puts those kind of dollars into a capital warehouse. So he's able to put those dollars in, that'll start earning a long term return of 5, 6, 7% and it's accessible tax free. So that's very, very key. And so he's not tied up those dollars. He's put $800,000 in. He's got $750,000 of that available he can get to over time as it's funded in and so he can get to the Great majority of what he's put and go reinvest it in other areas. But even just by itself, even assuming he didn't have another place to put it, he can put it in that capital warehouse and start earning 5, 6, 7%. So if we do 6% using the rule of 72, money doubles every 12 years. So if he's got another 35 years of life expectancy that he's going to have, we take $800,000 and we double that, you know, three times. So now we go and we go from 8 to 1.6, we go from 1.6 to 3.2, we go from 3.2 to $6.4 million. Because we have long term compounded interest on that that we're taking now. We have to factor in some of the debt costs that he's paying down on the million plus the borrowing, the interest on it. But remember that interest is tax deductible. So it's creating a tax deduction for him. It's a very low cost to borrow right now and we're paying that back in the future with future dollars. So we're getting to grow over here. If we stay in a inflationary environment, we've got an asset that's going to grow well because of the inflationary environment and we've got a fixed debt cost. So it's going to help transfer some money from the hands of the lender into the hands of the borrower in his case, which is just beautiful. That's going to add that. But along the way, remember he stayed liquid. That assumes he hasn't ever accessed those dollars for another investment. What's the likelihood in the next 35 years we will not have one or two good downtimes?

Geez, I'm sorry. I don't know if everybody hears it the same way that I do. I'm saying, geez, because like it's a no brainer. It's just I have a brain gap. The first time I ever really got this was when I realized I could turn $1 into 3.

Absolutely.

And I mean today, like today's dollar can be turned into 3 with limited risk. If this is managed well.

Correct.

And then there's the long term effects of what happens because it compounds. And what you're saying is even if you have a wash today, borrowing against the house and then putting into a warehouse where you're earning just enough to pay the interest, you're paying down with cheaper dollars and this is becoming more valuable dollars.

Absolutely.

And over the next 10, 15 years there's going to be some opportunity where you want to put that into a business or put it into something else.

Think about the likelihood of the next 30 years. We'll probably have 1, 2, 3 downturns to work with. How easy is it if you've maintained liquidity, how easy is it to buy at those? And again, you never know where the bottom of that downturn always is. But if we're buying through those, where we've maintained liquidity and we're being smart, even putting out 25, 50% of that capital and staying very liquid, which is a very comfortable spot as an entrepreneur and an investor, when you know I can get to another $3 million if I need to. You sleep very well at night. That's a great thing to have, is to have that liquidity as just your buffer and your reserve. But you take advantage of these downturns now in the next 30 years, you've just changed the psychology of the investor. You've changed the risk profile. Because we're buying at times when the risk is arguably at its lowest, because we have already experienced the downside. So there's more upside to be had than there'd be in, for example, today's environment. No one's excited to go out and put money in the stock market in today's environment. It's kind of a necessary evil for most people. In this case, we are able to keep money constantly working with the capital warehouse, which will very likely exceed the cost of the debt on the home. A very high degree of likelihood of that, where we'll have a spread on that in addition to it. Plus, when those downturns happen, now we're taking advantage of, we're not missing out because all of our capital is tied up in a crummy asset. We can take advantage of it. And that's a big key.

I think that entrepreneurs should be very, very protective of their dry powder.

Absolutely.

Of the money that they have saved those retained earnings. And I think one of the biggest opportunities lost is when people take that dry powder and they put it back into things that could be financed. For example. I think one of the greatest opportunities that physical product owners don't do is taking advantage of funding future inventory. So there's programs like Amazon Lending. There is low cost debt that you can get from your local bank to borrow and pay for your future inventory because you can predict those sales, which frees up the rest of your cash to put into people or advertising or research and development or new products or to take off the table and Invest into your long term wealth strategy.

Correct.

And one of the things I like about this is this protects that dry powder.

It does.

While allowing it to grow, protecting it from shrinking and saving it for when the right opportunity comes. And you say, okay, this is worth me putting my dry powder into it.

And this is something where a lot of people don't realize how much money they're wasting by not having these kind of strategies in place. Because when you have your dry powder earning 0%, you're literally, that's one of the transfers that's happening on the wealth you could have had. If you look and say, if you did everything perfect, which none of us will be perfect, there'll be things we can't predict. But if we did everything perfect from now until the next 30 years, we'd have X amount of money and that's perfection. And none of us are going to hit that. But the question is, how close to that are we going to get by not having these kind of vehicles set up? A lot of younger entrepreneurs are missing out on a ton of uninterrupted compounding growth they could have had. Because you need to, especially when we're in an inflationary environment, you need to have assets that are growing, otherwise your dollars, you're eroding your purchasing power as well. There's a cost to paying cash for something, there's a cost to borrowing. Your cost to borrow is your debt service. Your cost to pay cash is the opportunity cost. You just weigh those two together and say, if my cost to borrow is 35%, am I going to be able to go invest money and earn 35% this year? The answer is probably not. It's a very simple mathematical equation. A lot of people, it gets very obscured from what they need to do to evaluate whether they should or shouldn't have debt. But it's very simple. If we can take debt and we have a high degree of likelihood, we can invest money elsewhere to earn better. We want to do that. And of course, you don't go too crazy with this. You need to be prepared. I can't stress enough how important liquidity and reserves are. You need to be prepared for if we go through an economic downturn, you don't want to go bust. Where people lose is when you've over leveraged and you go bust because you've gone too far with it. So you want to manage that. You want to make sure you've got someone who's looking out for tracking your liquidity, that you're tracking your balance sheet. Making sure that your business and your individual life is prepared for a reduction in cash flow where things aren't going quite like you planned. But once you're there, you can take advantage of a lot of things.

I want to wrap by talking about cryptocurrency.

I both want your opinion, but before I get your opinion, I am thinking a lot about bitcoin and cryptocurrency as we're talking about this. Because what's interesting is as we're sitting here today, the news two weeks ago was bitcoin is where you should put all of your money. It's going to explode. It's going to go to 5 million a coin, something like that, and it's going to be the best investment ever. And the news two weeks later today is the bubble's popping. Take your money out. And the reason I'm thinking about that is because so many people, their financial strategy is to buy high and to sell low. And they're really good at doing that over and over again. Very good.

Repeating that cycle. It's very scalable.

Right. So when things are really good, people say, okay, markets at all time, highs. I guess I'm tired of not getting my upside.

Yes.

So I'm going to put my money in and then when it comes down, it's, oh, no, my money is shrinking in value. I'm going to take my money out. And this is what happens and what excites me about this is the fact that without putting any mind share to it, without thinking about it, you can put the capital over into its warehouse. It will grow along with the upside. The minute comes down without you doing anything, you have none of the downside and you can comfortably wait for the right opportunity to take that money and put it into something strategic.

Absolutely.

Now I want your opinion on cryptocurrency.

Well, I can give you my anecdotal story first, is I actually looked at cryptocurrency bitcoin back when it was a couple hundred bucks a coin. And I got all the way down to the step, like I set up the little wallet and all those things I went through and remembered my 15 words, what have you got to have to have a cryptocurrency wallet? I had this all set up, ready to go. Then the last step was I go deposit cash money into someone's bank account and hopefully my digital coins magically show up. I passed on that, unfortunately, at a couple hundred dollars a coin. That was where I kicked myself here a little bit later, because I did buy some here recently at $1,400 a coin. Now, I sold that a little quicker. We went up to 32, 34, and I said, hey, once I've more than doubled my money, I'm pulling the majority. So I left about 25%, pulled about 75% out, missed another thousand dollars of upside per coin, which is what it is. That's part of the game you play. It's pretty hard to walk away from over doubling your money and not taking some of those profits back out.

So you do speculate in certain cryptocurrencies.

This is not my investment strategy. This is just for kicks and giggles. This is Sam's play money. This is white collar gambling. It's the kind I like because I can do it from my easy chair. That's just the right kind of gambling for me. But that's what that cryptocurrency really boils down to. What's unique about that is cryptocurrency is a good example of when you have a less than savvy driver behind it. Because a lot of people buy cryptocurrency and really don't understand much of the economic drivers behind what's pushing it higher or lower. It's very much a swing asset that's super, super driven by the emotions of the investor.

There's a lot of volatility to it because of that. There's room and there's opportunity. Even in that, where I think that there is an actual value in cryptocurrency, I think that that is a direction that we'll head down the road. I think that we'll see that become more and more prevalent. You're seeing more and more online retailers. You're seeing more people start to utilize this. As we shift towards more of an E commerce side, I think bitcoin and cryptocurrencies are going to be a viable method to use in the future. Not there right now. But as far as investing, you realize that what you're doing there is you're taking basically gold on steroids, and you're taking the same kind of risk there that's tied to currency.

Well, my counterpoint to this is, is I have a friend who put $10,000 into Bitcoin when it was at $80.

There you go.

Today, that is worth a little over half a million dollars. Great on him. He bought it in, I think, 2009. And so over the last nine years or so. Great. He's had tremendous rate of return. Well, I have hundreds of students who have taken that same 10 grand or less, and now have a multimillion dollar business.

That they're in control of in a shorter amount of time without the fear of it all coming crashing down. I think being an entrepreneur and starting a business, still the best investment you can make, and you take that money and you put it into other places of cash flow. And if you want to take a few dollars that you earned and put it into speculative investments, go for it, help. But to act like that's investing, I.

Think, is you want to play games, you win more than you lose. That's all investing boils down to, is you want to win more than you lose. You want to have a higher degree. We're rolling the die. We want to play games that when we roll, if we hit five out of six numbers, we win. That's the kind of game we want to play. We have a high degree of likelihood of winning, a low degree of likelihood of losing, because that's going to work long term. So when we talk to. And sometimes we have this balance where you have a young entrepreneur who's been earning returns in their business of 70, 80, 250, 350% returns they're getting by reinvesting into their business in the passive world, you're not going to see that kind of same return because it's not actively managed like your business. Your business is only half money or not even half money. It's 5% money, 95% sweat equity that's going in to build those kind of returns. So when we go into the passive world, there's different investments that sound flashy and sound exciting, like Bitcoin, like these things. And that's all fine and well and good, but there are strategies that wealthy people have used for many, many years and that actually align you with the way the global and nationwide economy work and how wealth is transferred, created, and redistributed. If you align yourself with those principles as a young entrepreneur with the majority of your balance sheet, you can still have all the fun you want. It's kind of like angel investing. Who knows if you're going to pick Uber, if you're going to pick whoever. I don't know their names, obviously, but for every Uber, there's a thousand other Uber wannabes who did not make that happen. And the investment there was just. It was money that's lost. And that's fine for a small, small portion, because those are fun. I get that you should have fun with your investment, like you have fun with your business, like you have fun in life. That's all good. But there are dependable principles that if you follow long term, where you push cash flow, you want to build something that's scalable. Investing in bitcoin, that's not scalable. And anybody who says that it is lying to you. Investing in a capital warehouse, invest in real estate, investing in other asset classes that are scalable makes all the sense to the world. So if you think of this, if you really think of your assets, your balance sheet, like your business, you want to build a business that's got scalable potential to it, you want to build a balance sheet that's scalable as well. If we can do that, where you pick these good asset classes, it's going to pay off in droves. In the future, we'll be able to take advantage of those upsides.

We've gone through a lot of meat in this chat. There's a lot to digest in here. I've been digesting this for months, if not years. I say I became an entrepreneur because I wanted to be an investor. That was what was really exciting for me. If you're watching this and you say, Kaith, I'm a little bit confused and there's a lot going on here. Sam has set up a website over@gowealthpoint.com that's Sam's website. So@gowealthpoint.com Freedom his team has put together some resources that'll explain a little bit more about how this strategy works so that you can see if this fits into your overall game plan. My strategy, what I think is the fast lane to freedom is to build a business and invest the profits. So the best thing that you can possibly do for your long term wealth, cash flow freedom. I'll even argue happiness is to start a business and when that's profitable, take the profits and put them into other places that grow independently of you working and also produce cash flow so that you can live life on your own terms. This strategy might fit into your overall game plan. If it is, you can head over to GoWealthPoint.com freedom to decide and learn how this fits into your overall strategy. If you found value in today's episode, please subscribe to Freedom Fast Lane and share this with somebody who you know is missing the opportunity cost. You're missing the opportunity of cash sitting on the sidelines. I know that in today's economic environment it's easy, easy to think that there are no opportunities or to be a little bit skeptical about putting your money anywhere. I share in that concern. It's why I'm so fascinated with alternative ways to deploy capital and to use my money most effectively to position me for that long term wealth and cash flow. Because I, like you, want to live the most free and abundant life possible. So this is a piece of my overall financial portfolio and if this can be a resource for you, please share this with an entrepreneur who you know is missing out on upside or being a little bit too conservative with their overall financial plan. Thanks for watching today's show. We'll see you on the next episode.

If you know any entrepreneurs who need a new solution to managing their cash flow, please share this episode with them. And don't forget to check out Go Wealth Points to start your journey to financial freedom. Subscribe to Freedom Fast Lane on itunes and leave us a review and head over to capitalism.com for more incredible content to help inspire you to run your business better. We'll see you next time on Freedom Fast Lane podcast.