BREAK the CHAINS of POVERTY with the Ultimate Wealth Blueprint GUIDE! | Wealth Breakthroughs Ep. 10

Wealth Breakthroughs is an exclusive video series where millionaires break their silence on their usually hidden secrets on how to stack up great wealth.

It's like eavesdropping on the private conversations rich folks have with each other behind closed doors.

But I partnered with the series creator, Jeff Hays, to bring that VIP pass to you right here today.

In this episode, you'll learn what Warren Buffett gets wrong about today's market how to shatter the chains of poverty, the number one wealth hack if you're starting from zero, and the top strategies to pay less taxes.

Get ready to follow the blueprint to generate substantial wealth. Enjoy.

Hello, welcome back for episode 10 of Wealth Breakthroughs. I'm Patrick Gentempo. Today we're going to start with Andy Snyder from Mad Word Press, who's going to say what so many others are afraid to say. Andy's going to show you what Warren Buffett gets wrong about today's markets. Obviously, Buffett's an inspiration to anyone seeking new wealth, but Andy says he's fallen behind for a shocking reason. Here's Andy with more. Andy, I've really been looking forward to this conversation. So thanks for taking the time to sit with us.

Absolutely. Thank you.

Well, you have a very interesting story. So why don't you tell us about your background and what got you into doing what you're doing?

Sure. So my background, I think it's pretty unique and varied. My high school career was, it was not much of a career. I think if my high school guidance counselor is watching this, I win the bet. She loses. But, you know, I never thought I'd be in the wealth world. Right. So I had a pretty lousy high school career. Took some time off, spent 2 years building houses. I think it was the best education I ever got was getting out there, you know, skipping college, taking that break and going out and just seeing the real world, building houses, learning how the business world works. You know, if something breaks in my house now, I can fix it. You know, I had to know how to do that and that's really important. So did that for 2 years, decided I want to be an engineer, follow my dad's footsteps, go into the engineering world. Did a semester in college, very quickly realized math probably wasn't my favorite thing. I did really well in it, just wasn't my favorite thing to do. Had an English class, the English professor said, you need to do this, you need to be a writer. So I actually changed schools, decided to go for English, did 4 years of that, then graduated college, realized there's nothing for an English major to do. So I went into the financial world. I was always really intrigued by that. I had a good friend that was always picking stocks. I was picking stocks on my own. I became a financial advisor. Realized quickly that nobody wants financial advice from a 22-year-old. So I put my skills together, was, you know, used the English degree to write about finance. And that's how I got into this career.

How long you been doing that now?

15 years or so. Yeah.

So basically, interesting, you didn't listen to your high school guidance counselor, but you did listen to your college English teacher.

That's right, yeah. I learned my lesson. You gotta pick and choose who you listen to.

Well, and you know, as much as that's an entertaining statement, it's true, right? Picking and choosing who you listen to because you're in the business of getting people to listen to you through your communications. So did you think that you could really make a go at just writing about financial information, or was it— did you think it had a low probability of succeeding?

I think it all depends on what you put into it. You know, writing in general is really tough. So going through college, you know, journalism, making money in the newspaper world, really hard. Everybody says you can't do that. And I'm really— I'm not in this to make money. I think that's why I did make money.

Give me— expand on that. What do you— why do you think that's why you did make money? Because you're unattached, or you're just doing it for the passion of the work?

I think the passion of work shows through. And so when you have a good product, people come for it. When you're trying to force a product onto the market, then you're going to have bigger issues.

Yeah, that makes sense. So with the writing that you do, how much of the success of what you're doing— because I could speak especially for my partner Jeff Hayes, he is a huge fan of Manward Digest, and, you know, he's always forwarding things to me that I'm reading and saying, wow, this is so well written. Very compelling, and the actual subject matter content's important. So when you look at this, how much is style of writing, you know, as far as saying, hey, the end product and its value to the reader, how much of that is the quality of the writing, if you will, and how much of that is the actual subject content in and of itself?

Sure. I'd say it's 80% style because you can have the best ideas, the best research, but if nobody reads it, nobody's going to read it. If they don't care, they're not going to read it. So, you know, I always joke that I write on a third-grade level. I take that really seriously. Make it so everybody can understand it and wants to read it. And that's— I mean, to me, that's really important. If they don't enjoy reading it, they're not going to read it.

How do you decide what to write about?

Whatever I read a lot. I try to read a new book, you know, try to dig into a new book every week. So most of the time it's just whatever's on my mind. And that's the key to, you know, just always have a curious mind. I've always said that I'm dangerously curious. My wife would certainly say I'm dangerously curious. And that curiosity propels me into new subjects, you know, all the time.

Where has that curiosity led you? You know, any wild destinations or interesting places?

Sure. Probably the most dangerous place it's ever led me was the wilds of Alaska.

How long ago was that?

That was about 14 years ago, 12, 14 years ago. So I was doing this job. I was working from home one day. So you should never work from home. And I got a little bored. And so I have my captain's license. Big passion of mine is fishing. So I went online and decided, wonder what happens if I applied a couple of lodges. I think I applied at 3 or 4. By the end of the day, I had 2 job offers and I said, this one has good internet. I can still do what I'm doing here up there. So I went for it. Day 1 or day 2, I met my wife. Ended up spending 2 years there and met some of the greatest people I've ever met, some of the richest, wealthiest people. And a lot of my thought process now on wealth evolved up there. So going into that, it was very conventional fundamental analysis, what I was taught in college and then through grad school, the traditional fundamental analysis that everybody talks about. Then I get up there, I'm fishing with hedge fund managers. John Malone, the richest or the largest landowner in the country, movie producers. My claim to fame, I was on the producer of The Aviator, his Christmas card holding a big old fish and got to know these guys really well and learned how they make money and what they think about money and how for many of them money made them miserable. They were coming up, you know, getting away from California, getting away from the lower 48, coming up to the middle of nowhere, had all the money in the world, but it didn't matter up there. They just wanted to get away from it all. And get into nature. And so that's when my thoughts on wealth really started to evolve.

Can you maybe drill down a little and tell us some of the lessons you learned specifically, maybe from certain people that stand out in your mind?

Sure. You know, talking with— I forget his name right now, but he's a huge billionaire, Walmart heir, owns— at the time owned the Denver Nuggets. And so we flew him up, or he flew up to be a part of this entertainment investing group. Group, right? And so he just flew his private plane into Ketchikan, flew a float plane out there, and he lands at the dock, shakes all of our hands, says, I hope this is worth it. You know, so I look around and, and, you know, we're in one of the most beautiful places in the country with great people, couldn't ask for a better thing. And all he really cared about was, was making more money. And he just looked miserable. And, and you could just see how that permeated a lot of people. But I got to see the, the transformation of folks. So The way it worked up there is folks would fly in, you could only get there by boat or float plane. So once you were there, you know, on the rock we called it, you were there. And they'd get off the plane, they'd introduce themselves, they'd say, hey, I'm John, I'm an architect, or I'm John Fred, I'm a lawyer. They kind of identified by who they were, how much money they made. You didn't see the real person. Then we'd spend 3 days, 5 days up there fishing, exploring the wilderness, really getting to understand how the world works around us. And they'd change and we'd see their happiness go up, And, you know, they started thinking less about their bank account and how they had to make more money and how they can enjoy what they had and why they had it.

Does that lead you to certain conclusions about what— how you might define success or how you might define wealth?

Sure. Wealth. I'll never deny that wealth is important. You know, I just got back from Nicaragua, one of the second poorest countries, only to Haiti, in the Western Hemisphere. Very poor, but very happy. But those folks aren't free. They're stuck, you know, in their little postage stamp plot of land. They can't get out if they wanted to. There's a lot of political tension, a lot of turmoil there. So they don't have the money to get something better, but they're still happy. And I think that's key. Where I see wealth really being important, what we write about a lot in Manward, is that liberty side. You look back through history, the wealthiest aren't always the happiest, but they're the freest. When political tension rises, when whatever happens, family issues, they have the ability to move wherever they need to go or do whatever they need to do. You know, they have the ability to quit a job if they don't like their boss. They can go on vacation here versus there. And you know, that wealth really pays off there. So it's not the quest for more money that should drive you. It's that quest for freedom that I always say should drive your idea.

Well, circling back to the billionaire you're talking about saying, I hope this is worth it, meaning is he gonna somehow make bigger deals or acquire more wealth when he can't possibly spend the money he has in multiple lifetimes. Did he have a breakthrough? Did he have an epiphany? You know, what happened for him?

Not while he was there. I certainly haven't seen that. But other people did based on that. So, you know, that comment that, you know, he said, I hope this is worth it. Everybody heard it. We went for a hike later that day. I was with some younger guys. They heard it. And these were guys that were kind of following in his heels. And they absolutely had an epiphany. They were up there to discuss making money, do business deals in the entertainment world, and they went away knowing that those deals are important, but there's a whole lot more to it. They didn't want to end up like that billionaire that's kind of miserable. You know, they want to be the billionaire that doesn't have to go to work every day.

So he became their cautionary tale almost.

Exactly. Yeah, don't be this grumpy guy that married into one of the wealthiest families, built his own wealth, and still isn't happy. That's not what any of us are looking to do.

Yeah, it's interesting too because when you talk about Nicaragua or, you know, when people are impoverished in such a way, you know, when you're in survival mode, you know, that's— it's a really tough circumstance to break out of and create some level of freedom. Do you find just, you know, in your writings and kind of your experience that some people are actually in that situation, like in a third world country such as that, But some people are here, but they're like that in their mind, and they're kind of stuck in that in their mind, and they can't break free.

For sure. You know, you asked, uh, did I expect to make money writing? You know, there's a conventional logic that nobody gets successful writing books or novels. You know, I wrote my first book when I was still in college or grad school, didn't make much money on it. That was the mindset. But so many people, especially in America, one of the, you know, the strongest countries in the world, have this mindset that they can't do better on their own. They depend on the government. You know, with the elections, so many people are depending on their party to pick them up. I tell people it doesn't matter. You know, it's what's in here that's going to set you free or make you wealthy. And if you have a mindset that you're trapped and your family, for whatever reason, or because of who you were, who you are, where you were born, that you're always going to be poor. Yes, you are always going to be poor. But you always see people that break out of that. They read books, they They set their goals, they, they are determined to make money and they find a way to do it. And I think that's the absolute key. It's, it's, it's not the people in Nicaragua that were born. There's people there that are absolutely getting rich and are taking advantage of their entrepreneurial opportunities and doing well. And that can be anywhere, the streets of Baltimore, New York City, wherever.

What are you writing about most now? Like what's got your attention?

What's got my attention right now is a lot of that taking that conventional logic. I look at, investing today as a great evolution. So, you know, I ended up going to grad school, very conventional background there. But everybody talks about modern portfolio theory. I think it's a joke. You know, modern portfolio theory was invented in 1952. It's anything but modern these days. But yet it's the, it's the investing canon. It's what everybody talks about. You know, when modern portfolio theory came out, the internet wasn't around. News still traveled really slow. We didn't have 24/7 news cycles. So, so many folks are still looking at like a guy like Warren Buffett, who's got billions of dollars that he doesn't know what to do with right now because he's stuck in that old mentality. Meanwhile, the stock market was up 20% last year and people are just eclipsing his rate of growth because he's kind of that old-school investing. And now it's, it's less fundamental. This is what I write about probably the most is getting away from fundamental analysis and looking at technical analysis and what's really driving the market these days. I look at a lot at volume. You look at the algorithms that are driving the market, digging into what really moves the market and investing in those ideas.

Back to some of your math skills, I guess.

I guess so. It all comes back to it. Yeah.

Interesting. So in looking at that, and this is interesting, so as far as your philosophy here, you know, fundamental analysis, you know, looking at companies, which is kind of a Warren Buffett approach, right? Really like, you know, study the company, understand the company, know its culture, getting into all the fundamentals. But now basically, do you see the market as this sort of— it's got its own identity, its own sense of life, if you will, and that's why you can do more technical analysis to figure out what the market is, how the market's running, or what it might do?

For sure. You can look at the market as one big ball or many different segments, you know. Fundamental analysis, somebody's always doing it, but to think that I can do it any better than the guys on Wall Street at Goldman Sachs that are pros, have all the tools in there, in this efficient market where, you know, information travels at the speed of light, we can't do that. But there are certain patterns that are really obvious. Like right now, we're in a strong momentum pattern. And so when I look for stocks, and we're killing it just following momentum, you don't look for the stocks that are doing something different. You know, the stock market was up 20% in 2019. So find the stocks that did better than that, figure out their patterns, and don't try to reinvent it. Don't try to catch, you know, the falling knife. You know, it was a strong momentum market, so buy momentum stocks until that doesn't work, then figure out that pattern. And, you know, within that overall orb of the stock market, figure out what works and keep doing it.

So let's say that I am viewing this right now and I've got— I want to have my own wealth breakthrough and I'm trying to— I'm a little confused or have been a little confused about what to do. I figure out that maybe a lot of these wealth management people or advisors are commissioned insurance salespeople in a sense. And they're trying to put me into certain things. And I'm looking at the market and I'm seeing people are making a bunch of money in the market. And some people are trying to tell me about real estate. And I see all these paths in front of me. So now if I'd say, you know, I relate to this Andy guy, kind of like what he's saying resonates with me, how would you start me on the path and walk me down it?

Sure. The first thing I tell you is to look at all that investment literature. You know, what are the brokers telling you? What's the traditional financial advisor telling you? What is, what is it that 90% of people are doing? Identify that, put it over here, and don't do that. If you do what everybody else is doing, that's the definition of mediocrity. If you're fine with mediocrity, absolutely go, you know, invest in those ETFs that everybody's touting. But if you want something better, you have to by definition do something different. So start looking at and identify those patterns that nobody's doing. If you Google something and, you know, you know, portfolio diversification, you're going to get 9 out of 10 results will be the exact same thing. Follow that one thing that's different. Figure out why it's different. It may not work for you. It may not be right, but figure out why it's different and follow that path.

How much do I rely on my own judgment versus trusting the judgment of experts?

90% rely on your own, you know, but you have to create a good baseline judgment to start from. You can't go into it ignorantly or blindly. So read books, read as much as you can, read a diverse array of books. Don't just figure out what you like and read more of that. Read the stuff that negates the stuff that you like. And start building on that. And then you'll train your gut. There's all sorts of research that shows why your gut instinct is so smart. You know, your brain can take old patterns and reconfigure them into new information. And when your gut is telling you something, 90% of the time it's right.

At the time of this recording, the stock market's at all-time highs. And do you feel like it has room to keep going? Do you feel like maybe we're getting ready for a correction? Do you have a sense about this?

Sure. What I'm on record saying is we're going to keep getting these all-time highs until we get close to the election, then a politician's going to screw it up. Right now, the markets are very politically driven, and we have all sorts of debt issues, starting to see some currency issues, that sort of thing. None of these problems are new, but they're going to start to snowball. Interest rates are the thing. I always get picked on for my love of interest rates. I have a book at home that's 2, 3 inches thick on the history of interest rates. I think it's the greatest financial tome ever written because it explains the evolution of how money has evolved and what governments have done to really screw it up. And once you understand that, going back to that baseline knowledge, you can make some good decisions. So watch interest rates. Right now they're falling. I'm on record saying they're going to go negative in the United States. We're one recession, one big problem away from them going negative, that's when things are really going to turn. I think the elections, the variability, the volatility with the elections are going to— if anything is going to take us away from those record highs, that's it.

So interesting, as you talk about the government screwing up currency, which I am in complete alignment with that, do you have any sort of perspective on crypto and what that might mean to the world in these markets?

Sure. It doesn't mean— in my world, it doesn't mean a whole lot right now. I love the idea. I love the background behind it. I just think the government is going to be too heavy-handed in regulating it, keeping it out of the mainstream. Once we see some sort of collapse or we get some sort of political enemy really pushing for it, then we could see it evolve. But I think the central banks are going to go in there. You know, the Fed's already talking about creating its own form of crypto. So the idea behind it is fantastic. The freedom, the liberty behind it, I'll stand behind all day. Whether it turns into something fruitful, Within our lifetimes, I don't know. Someday, absolutely. But the dollar's going to have to collapse. America's debt problem is going to have to implode. Then we could see that.

It's interesting. The Fed creating crypto, it's kind of a contradiction. The whole idea is to get it out of the hands of the government and regulation and make it a free currency. Yeah. So it's like they maybe are using the technology, but it defeats, I think, what the intention of the whole thing is. Exactly.

Yeah.

Really, really interesting. Do you give perspectives for investment outside of the market, or do you basically stay in the market?

Most of what I write about and talk about is related to the market. That's my bread and butter. You know, I've done some real estate investing. I'm a big believer in farmland. One of my passion projects— we live on a farm now. I love anything related to community-based farming. I think it's a great great way of looking at just the economy itself. So many of the things that are wrong with our culture and our political sphere, I think a lot of that really comes out of, you know, having homegrown food, understanding that. We published something recently about how when folks are disconnected from where their food comes from, what that does to their psyche. And I think that comes, you know, we write so much about know-how in Manward If you don't understand what's going on in the world around you, you can't make good decisions. And our culture has really pushed people— this is getting kind of to the base, the foundation of Manward. Our culture has pushed folks into kind of identifying themselves with one thing. Like I said, in Alaska, folks would get off that plane and say, hey, I'm a lawyer. That's the only thing they know. I think that's dangerous. The more we understand everything that's around us, the smarter we'll be, the better decisions we'll make, and ultimately the wealthier we get. So to answer your question, I stick mainly on the financial or the, the stock side of things, option side of things, but there's, there's no reason that people can't get involved in other investments.

Now you're, you're hitting a couple of, uh, positive buttons for me because, you know, the whole idea of, uh, you know, growing your own food, living that lifestyle. What's fascinating, and I'd love to see your, your philosophy on this because you're kind of portraying a philosophical view of, hey, there's some relationship between how you live, how you're being maybe even self-sufficient, and what kind of habitat or environment you create around you. And that does relate to your investing and how you deal with money and wealth accumulation, where most people say, okay, I need to read maybe one newsletter on this subject, another newsletter on this subject, Somehow you're weaving these things together. Can you speak that out a little bit?

Sure. So at Manward, we focus on 3 things. We call them our triad: liberty, know-how, and connections. And so that question is kind of tapping into all of those. The liberty side, of course, is the wealth side. The know-how side is, you know, understanding so much of what goes on around us, um, you know, understanding what it takes to be a strong real estate investor. That ties directly over to, you know, equity, buying shares of Procter Gamble, something like that. Then we talk about connections, and that's really where we get back to that Alaska story and taking advantage of the folks that know more than you do. I just wrote today about the idea of nobody has ever built an empire entirely on their own. Barack Obama got in trouble for saying, you know, you didn't build that. Won't get into the politics of that, but there's a very strong sense that, you know, You can't. It's kind of the American psyche right now that you have to do it entirely on your own. Like, nobody— someday the cure for cancer is going to be really, really obvious, but right now it's, it's far from obvious. We have to build our knowledge, you know, block upon block to get to that point. And so when it comes to investing, that's a really important thing, is to read as much as you can, take those nuggets and build on it, and then understand You know, there's the old adage of invest in what you know. It's really important. Really, there's thousands of investments out there. Focus on what you truly know and build on that.

So in that respect, the grass isn't greener in the places that you don't know.

No, absolutely not.

Go deep on what you do know.

Yeah, stick with what— stick in your own pasture. There's plenty of grass there.

You know, it's interesting because the idea of, you know, American success, I think for a long time has been about rugged individualism, right? And that's what the country had to be built on, declaring an independence, et cetera. You had the rugged individuals that had to make that stuff happen, had that grit and then rise. But I know even for our company, one of the themes we chose for this year is collaboration. So are you seeing— it's probably a leading question based on what you said, but are you seeing that collaboration is really the path forward as compared to doing it on your own?

I do. There needs to be that sense of independence that you really— if you think collaboration, that the government is going to do it for you, that's bad. That's where that rugged individualism, you know, as an individual, it's on you to figure out your own path to success and how to get there. And how to get there usually involves teamwork, collaboration, building on other people's ideas, coming up with better ideas. You know, you put two people together, They're each going to come with their own ideas, but put them, you know, together and start brainstorming, you're going to get a much better idea. So you have to have that individual determination to go and do it. You know, America wasn't built by one person. It was boat after boat coming from different parts of the country, building on that idea, you know, going in that hall in Philadelphia, really brainstorming those ideas and saying, well, this would work, this won't work. I think that's what's really important. I think we're getting away from that. From that. So many folks just, you know, think the election is going to change their life and if so-and-so gets in the White House, we're all going to be rich. It's not true at all. You know, our wealth rarely hinges on what happens in Washington. You know, so much, of course, of politics is local. That's where that collaboration comes in and, you know, where an individual voice can really have some power.

It's interesting how, I guess I'll call it seductive, you know, the 24-hour news cycle is for, you know, get you in it, get you riled up, get you— and would you advise people to maybe tune that stuff out and just get to work on— like you talk about Washington's not going to make you rich, and maybe even having to tune that out and tune out the drama and get focused on maybe your life, your identity, and what you're trying to do in this world?

Absolutely. We don't have a TV in our house. We don't watch CNN, Fox News. I kind of enjoy traveling because then I can admittedly binge on some crappy TV. But, you know, this is what I learned in Alaska. We didn't have— you turn the radio dial, you could spin it from one end to the other. Nothing. You know, I was up there during the 2008 election, didn't miss a thing. You know, left under one regime, came back with another. Nothing changed. I didn't miss, you know, having Fox News telling me what to think or CNN telling me the other side of things. It's dangerous. You don't want somebody telling you what to think, especially if all they're trying to do sell radio spots and commercial spots. You need to get out there, read some books, figure out what you believe in. And I'm not saying don't get involved in politics, just the opposite. You have to know what's going on, but you have to know what's going on from basically the side of the truth, understanding firsthand what happened. I went to the FDA last year and spoke about CBD and some of the issues there. Get involved. I took a team there and we came back, we were just shaking our heads at that, you know, there's thousands, millions of folks relying on them to make a decision. And some of the questions they asked us were just— they needed to know those answers ahead of time. So I think if people really saw what was going on, they'd tune out the election, they'd tune off, turn, you know, tune out of the news and go about their own thing.

What caused you to go down there? What was it you needed to do?

Sure. I wanted to go down there and represent Manward readers. So I polled the readership, asked them what they thought about CBD, some of their confusion. and, and how they thought we need to come out of this prohibition of, of a, of a plant that was legal and a big part of our industry, you know, for hundreds of years. And so I took a bunch of comments down there and basically just read off what readers were thinking, added my own, um, thoughts to it, and kind of spun it all together into an almost finger-pointed at the FDA for not making better decisions and not being more informed when, when so many folks are depending on them to make smart decisions. That was really the, the, the, the grasp of the whole thing was that this body was, was making very important decisions that affect the lives of folks. And here's this board that's really ignorant on the decisions they're making. They're relying on information coming to them from the scientific community, but for 80 years they cut off that information. You know, the prohibition of cannabis, marijuana. There's virtually no studies. China, Israel, those countries are doing the studies and putting us to shame when it comes to potential cures. And here we have this kind of arbitrary prohibition that didn't work out so well. And so we went down there and kind of poked holes at a hearing and got some good attention. We got some nationwide or global press out of it. And I think we helped move the needle. So that's something I'm really proud of.

You should be. And I guess, you know, the good news is The bad news is they were woefully inadequate in their understanding. The good news is though that they received you. Exactly. And that maybe you moved the needle a little bit and that at least that process still is available to us.

Yeah, and I think that's something we really have to protect. And 100% you're right that the government still is by design, by that 250-year-old design, has to listen to us. And we really as Americans, as voters, We have to keep pushing to make sure that those ideas stay there and that we can continue to, to get our voices heard. We don't just have, you know, a news outlet telling us what to think and the decisions being made behind closed doors. Very important.

Yeah. And very admirable that you took the time to go do that and to represent the community that you built. And so let's talk about that for a moment. You know, you said there's kind of like 3 guiding areas or principles that you use This is, it sounds like, and tell me if I'm wrong, it seems like it's about community building in Manward Digest. It's about saying, hey, we're gonna have a conversation and we're gonna build a community. And it doesn't sound like you're trying to appeal to as wide an audience as possible, but literally you just have a vision and a direction and the people that want to come on that journey can.

For sure. Our audience is folks that want to be better, want to do better, and want to learn more. If you're closed-minded, you're not gonna enjoy what I write. 'Cause I write things that push the boundaries, that tell the truth. And if you're stuck in that conventional mindset and this is it, you know, this is what the TV told me to believe, this is what I believe, you're not gonna enjoy it. But if you truly wanna get better, if your goal for 2020 is to make more money, be healthier, and get more done, we write a lot about productivity, then you're absolutely gonna enjoy it. And to do that, you have to have that open mind, You know, we have core principles to be sure. We have very— I think our political views are pretty obvious to anybody that reads more than 2 or 3 essays. So we have those core principles, but you have to be open to other ideas and let them inform your own ideas.

So it seems like you still have a lot of passion around this. You've been doing it for 15 years, you said. So what keeps you excited and where do you think this is going to go?

Sure. I'll answer the second question first. I don't know. I want it to go as big and far as it will naturally go. I'm not going to push it. I'm not going to do anything that doesn't make sense for our readers, for our overall core beliefs. But what pushes me— I got a note the other day. We had a trade in 48 hours. An options trade went up 150%. It happened just like the technical charts would tell us. And I got just a bevy of notes. And one of those notes was a guy that just bought 2 options contracts, a couple hundred bucks. It was his first trade. He absolutely nailed it. And so many folks are afraid to make that first trade. They think they're gonna lose their money. They think, you know, they've been trained that options are bad or that trading's bad. They just need to buy an ETF and hold it. And so much of that's wrong. That's that knowledge that 90% of people are going with. But seeing notes from folks that say, you know, you really changed my life, or you turned my 401(k) around. That's really what drives me. That financial side of things is definitely the underlying, you know, theme in everything I do.

Your enthusiasm for what you do is contagious, and I am really heartened to see, you know, kind of the purpose that's driving all this and the experience that drives it all and how it's serving people out there in the world. So it's a different view, I think, of wealth and wealth development and how it might happen and how you're your personal story kind of ties into it. So, I very much appreciate you taking the time to sit and share it all.

Well, thank you. It's fun to share it.

We are over the moon excited about the feedback we're getting from the Wealth Breakthrough Series. And I want to give a very sincere and special thank you for those who bought the series. It supports us, supports our work, allows us to get this out to the world for free so people everywhere can have their wealth Breakthrough. But for those who bought the series, it's especially heartening to us to be able to know that you're supporting this work so we can do what we do every single day. Welcome back. Next, we have Brian Page. Founder of B&B Formula, here to show you how you can tap into the billions per year travelers spend on Airbnb to stay in homes. It's an incredible wealth hack. Brian can even show you how to find homes for rent, rent them out, then list them on Airbnb to make up to thousands per month. It's simple. It puts automatic cash in your pocket. Here's Brian with the full story. Brian, thanks so much for taking the time to talk to us.

Glad to be here.

So let's talk about what got you doing what you're doing today. Like, what led up to this?

I started as a real estate investor right out of college. I didn't really want to have a traditional job. I wasn't very good at holding a job down. I got fired from basically every, every employment situation that I had. So I was looking to be an entrepreneur, and I got into real estate. That's how I started as a real estate investor.

What got you into real estate?

You know, I was just researching how people become wealthy. I spent a summer after college doing an internship, and I had a lot of free time after work. I was an intern at Hilton Resorts at Hilton Head Island in South Carolina. And so I started reading all these books on making money in the stock market, making money investing, and in real estate. And I learned that most people either hold their wealth or become wealthy through real estate, and I thought that might be what I wanted to do.

You know, it's interesting because, you know, with the concept of wealth breakthroughs, you know, I see people approaches from different ways. Some are, you know, they've got a passion and that drives them into a particular business and industry, and others like yourself saying, you know, I want to have financial independence, you know, be wealthy, so let me go and study, you know, the most, the highest probability ways I can get there. So it sounds like that's kind of the path you took.

Yeah, yeah, I really wanted to just find something that was kind of tried and true and something that wasn't too difficult to follow in someone else's path. And I also wanted to create cash flow because I really wanted financial independence, which is totally different than wealth building. And I think that's what everybody should aim for.

Can you make the distinction? So how are they different?

Most people, when they aim to be wealthy, they decide, you know, I want this kind of net worth, I want to be worth X millions of dollars or have a certain amount of money. But what they don't realize is that if you have a certain amount of cash flow to pay for the lifestyle that you want, then you can be what most people call financially independent. And that number might be a lot lower than what most people think of, like, when I get $5 million, then I'll be where I want to be financially. So I think cash flow is something that is different for each person, but if you can create that cash flow in your life, you can have financial freedom.

So with the real estate, how do you create cash flow out of real estate, or how did you when you started out?

Well, I did it the traditional way. So most people would buy property and then rent it out and make cash flow that way. I was also flipping properties, which wasn't really cash flow, but I was making pretty good money doing that. I was doing all the traditional real estate models, but it was after the real estate crash around 2007, 2008 that I had to start over. And so coming out of that was very painful.

I was going to say, was it a really tough time for you?

It was very tough.

Like, were you caught off guard and, you know, were you holding a lot of stuff?

I mean, everybody was making money on the way up, everybody. And when it crashed, um, It took me off guard. I was into speculative real estate pretty, pretty heavily, and I was caught— like Warren Buffett says, you know, when the tide goes out, you see who's naked, right? So the tide went out with the real estate market, and a lot of people lost everything, and I lost everything. And so my whole portfolio, and of course my credit was decimated, and I had no money. And so I had to start over. And so for several years, I was trying to figure out what that thing would be. And I didn't really want to go back into debt again. I didn't want to go back in and do traditional real estate. And so I was just looking for, I guess, a hack. And I found that hack through short-term rentals, through Airbnb. And that's kind of where I started down that road.

How psychologically do you get past that? So here you are, you get out of college, you say, I want to generate wealth, I want to be financially independent. Yeah. And you're successful, you got momentum, It seems like you figured it out, right? Like, okay, I did it.

Yeah.

And then everything, you lose everything, including your credit, which is very important if you're going to try to get started again. So, so how did you psychologically find a path forward to be able to even start exploring new ideas?

Well, you know, it was very painful because I thought I was a big shot. I became a millionaire in my 20s doing real estate. And when that all got taken away from me, I mean, I was in the hole. It wasn't just that I was back to zero. I was severely in a bad spot financially and in debt and all that kind of thing. So I had to find a way to start over. And for me, it was realizing that with this new sharing economy, with the new gig economy, whatever you want to call it, that you don't need any of the traditional things that you need with most investing. In fact, you can leverage other people's assets to create money in your life. And that's what I found right away is that I could approach people that had homes, that had properties, and leverage those to create cash flow in my life. And that was how I was able to become financially independent the second time.

So what was that like? So, okay, so you're showing up saying, here I am with no money, no credit, but I've got an idea.

Oh, it was, it was not easy.

Yeah. So I can imagine what that might have been like. But so what was, what was the idea exactly? You said, you know, I think I can probably piggyback on this thing. So walk me through the thinking process.

Okay, so it's essentially what it is, is this rental arbitrage. So just like you take something wholesale and sell it for retail, well, the same thing here. I'm taking a property that's for rent for, say, $1,000 a month. I turn around, put it on a home sharing site like Airbnb, and I make $3,000 a month. I pay the owner what they're asking, $1,000, and the difference I get to keep playing that arbitrage. And the reason that you make more on a site like Airbnb is you're selling it, that property, by the night. And you're paying for it by the month. So there's a tremendous spread there that you can make money. And the amount of cash flow that you can make on one property is significantly more than if you're just a traditional real estate investor. So I was being able to do that by approaching owners and saying, hey, I have this crazy idea, but if you'll work with me, I know it'll work. And I could speak their language because I was a landlord myself in the past.

And so you actually say that you generate more revenue doing this than when you're having to take the risk, go into debt, you know, If you're flipping a house, putting in all the money, the time, the rehab, etc., you're basically just, you're taking existing assets other people put their money into.

Yeah.

And then you're just, you're just, you're figuring out, at least you said it's like an arbitrage. You're just saying, I'm going to buy it kind of wholesale and I'm going to sell it piecemeal at a retail price.

Yeah. Not just a little bit more, but, you know, an order of magnitude more. So 10 times more for an example. If I were to take a studio apartment or a 1-bedroom apartment when I owned it and I rented it out long-term, I'd make $200, $250 a month, whereas now I can make $2,000 net on a 1-bedroom place. So it's just, there's no comparison between the old way and the new way. And also with the traditional model, you have to come up with a down payment. So if you're going to buy, you put down 20%, you buy the property, you've got to have credit, all these different things. And there's nothing wrong with that. It's a great way to build wealth is to own property, and I do once again own property. But this allows anybody to go turn someone else's asset into their cash flow. And I don't know of any way to do that except through this new sharing economy.

And the homeowners, the other people who are actually renting to you, are they okay with you going? Because if they're renting monthly, do they also rent nightly? They just— it's— they have two prices quoted, or they just want to do the monthly rental?

No, I'm just looking for a traditional landlord that's looking for a one-year lease, and I signed a one-year lease with them, but I get written permission to do home sharing. So they know upfront exactly what I'm doing. And then there are owners that I'll partner with. So if an owner has a place for rent and they're not really sure if they want to do this with me because it's too out there, then I can partner with them and I can say, let me put your property, turn it into a short-term rental, and then we'll split the revenue 50/50. So they make more than they would normally, and I make money with no money out of pocket, no, no deposit, no long-term commitment, no lease. So there's different Several ways to do this.

Was Airbnb kind of an inspiration to kind of look at that and say, God, look at what these guys are doing. I could probably do that, you know, in the way that you're doing it.

Yeah. Yeah. Well, I use Airbnb as the platform. There are other sites. There's VRBO. There's a bunch of sites like this. And, and the really interesting thing is it's expanded way beyond property. So now there's ways to do this with cars. You can use sites like Turo. There are sites where you can make money with your backyard or with your raw land. You can turn yachts or RVs into income. You name it. I mean, just about anything now can be shared and turned into cash flow.

Yeah, and you keep referring to the sharing economy. In a prior project, we interviewed Paul Zain Pilzer, the economist, about the whole sharing economy theme. So on the macro level, it's a fascinating thing to see how it's emerged. Yeah. The demand, though, is the demand really constantly there? Do you find yourself sometimes saying, well, you know, I rent this place for month or for a year and, you know, it's not meeting the demand, it's not meeting our needs, or is it still robust?

That's a good question. Well, the number of users is growing as fast or faster than the number of providers, the number of people that are providing the homes, providing the underlying thing that you're going to pay for or rent. So we're not yet— I don't believe we've entered the maturity yet for the market. There's still tremendous opportunity. And if you look at all these sharing economy companies that have come online, most of them only been around about 5 to 10 years, so not very long. So we haven't entered that maturity yet, and they're expanding very aggressively, so there's plenty of opportunity.

Are there certain profiles you look for as far as regions, or do you do cities only, or, you know, immediate suburbs, or how do you figure out where to go with this?

Well, I started locally, and I most— I recommend most people people start locally wherever you live. But I now have taught thousands of people all over the world how to do this, and I've seen that there's really no correlation between how well somebody does and the size town they live in. So I have people that are in rural areas, small towns that are doing well, large metropolises, large cities, different countries, not just in the US. So that— and the other thing that's really interesting is it's not just tourist destinations. I live in a touristy area. We're here in New York. This is definitely a big destination.

Yeah.

But it works in places that you would not think it would work. And the simple answer for that— how is that possible? Well, it's because you are serving essentially the same purpose hotels serve. And if you look at where hotels are located, they're located basically everywhere. They're on the side of the highway, they're in small towns, they're in big towns. Those are people that are looking to travel short-term. And guess what? People are also looking to travel short-term on Airbnb and VRBO for various reasons way beyond just tourism.

Well, let's, let's use me as a use case. So I'm gonna get some free advice here. So of course, through whatever circumstances, I'm holding 2 homes in New Jersey, in the suburbs of Manhattan, but it's still a little bit of a trip. And as you're saying it, I'm like, oh yeah, there's this hotel over here, this motel, and they seem to be actually pretty full and pretty busy. But yeah, I'm looking at, you know, suburban town, I wouldn't think there'd be much demand. And, and I'm running, you know, rents right now that have me at a negative cash flow. You know, just that are long-term.

Yeah.

So should I start to be thinking about, "When my lease comes up, you know, on these rents, I maybe should go into short-term rentals and see if we can actually turn this into a positive cash flow situation." You certainly should.

In fact, your cash flow, I would say conservatively, could be 200% to 300% more. So if you're doing $2,000 a month, you could look at $4,000 to $6,000 as a short-term rental. That's pretty typical. So it's tremendously more money. Now, would you have to furnish it. Yes, you would have to furnish it if it's an unfurnished place, right? But the, the net cash flow is considerably more. So it's definitely something that some owners are doing now, and I would suggest that people take advantage of it.

Does it work on different size scales? Because one of the houses, which is an investment property from long ago, but it, you know, it's a smaller 2-bedroom place that maybe lends itself to a little bit more. The other ones, you know, 5-bedroom, 5.5-bath, a bigger place. Do people rent those types of places?

Yeah, I found that anything from— I've done everything from very low-income areas, very inexpensive places. For example, I have a 3-bedroom house that goes for $99 a night, which doesn't sound like much, but you do that times 25 days a month, maybe a couple hundred dollars on the weekend, it turns into some serious money. So that's a lower-income area. And I also have luxury properties. So I have a multi-million dollar home that I don't own that's in Scottsdale, Arizona, and And we do very well with that, over $100,000 a year on that one property. And now we're looking at a bunch of properties in Florida that are also luxury properties. And then of course I have some in the middle as well. So anything from low income all the way up to luxury can be put on these sites and turned into essentially an income stream.

And you said you use mostly Airbnb as the platform.

I do, yeah.

So this is fascinating because I know so many people, entrepreneurs that want to, you know, same kind of a disposition saying, I really want to work for myself. I'd like to generate cash flow. I don't really have a great idea and I don't have any capital resources to go invest in something. So this is like, it sounds like the investment is little to nothing to get in.

And you can create cash flow in the next 30 days. So I'm a big fan of Robert Kiyosaki, who I think you had on the show as well, or one of your other shows.

We interviewed for one of our other series.

Yeah, and Robert Kiyosaki talks about you're out of the rat race when your passive income exceeds your monthly expenses. Well, I don't know of any other vehicle where you can do that with 1 or 2 moves. So within just a couple properties, you can get 2 or 3 of these properties on Airbnb and be generating more than the typical American makes in a year full-time. So I was able to do it in 4 properties. So by the time I got 4 properties, I was able to replace the income from my full-time job, and I was working 50 hours a week doing that, down to 3 or 4 hours per week managing my properties, which weren't even mine. They were just managing my Airbnbs. So the time savings, first of all, to be that wealthy with time was tremendous for me because my, my dollars per hour went stratospheric. But then also be essentially out of the rat race within just a few months. And not only have I done this, I've had many, many students that have done exactly that. So for somebody that's starting now with nothing and wants to get out of the rat race, I don't know of any faster way to do it.

You know, it's one of those Almost sounds too good to be true kind of propositions because, you know, as you describe it. But let's, let's do a walkthrough. So, okay, now I'm watching this, I'm hearing what you're saying, I'm like, oh my God, I would love to do that. But now I— yes, and now my first step is to identify some properties. Sure, I guess, right? So where do I go to identify properties? I look, you know, for rental pools online, realtor.com, or, you know, where would I go?

There's two main sources. There's There's online and offline. So online could be any number of sites for your local area. It could be anything from Zillow to Craigslist to your local paper that's online, any kind of online source. There's— if you just Google your city and rentals, you're going to find all kinds of long-term rentals. So that's where you start online. Endless sources there. And depending on what country you're in, you might be looking at other sites in Australia, for example, than you would here in the US. And then there's offline. Leads, and that would be driving neighborhoods looking for, for rental signs, looking for anything that's out and about. So you go, you go to a real estate investors meeting, for example, and find a real estate investor. That's a great source because usually a real estate investor is going to have many properties. So if they have 40 properties and they're like, hey, I got a couple vacancies coming up next month, you want both of those? And so you get multiple properties from one owner. So there's online, there's offline sources, really anywhere you would look for a rental to live in That's what you're going to look for rentals to do this with.

Do I need to have some amount of creditworthiness? You know, if they're going to rent me a property, I guess, I mean, you, because you understood it, probably were able to talk.

The answer would be normally, yes. But if you do what I teach, you don't have to even have that. I was able to do it with my credit being essentially decimated.

That's what I was wondering, saying, why would somebody take a chance on you saying, I'm going to, you know, you're not showing the wherewithal to be able to honor the terms of the lease, but nonetheless I'm gonna bank on you.

Well, there is no lease because there's two ways to do it. So the way I do it is I approach it as a service. So if I'm approaching you as an owner and I say, you know, you're asking $1,000 a month for your property, what if I get you $1,500 a month with no extra work on your part, no extra liability, no extra risk? I'll do all the work and we'll do month to month. So at any point, if you don't like the way this works, I'll just walk and we'll part ways. Who would say no to that? So now you're not gonna check my credit. I'm just gonna say, okay, I'll be here tomorrow and I'll take photos and we'll I'll get this thing listed. Let's say it's a furnished property, right? So we sign a deal, you sign a piece of paper, and we're off to the races. So I'm offering you a service, right? So there's no lease, there's no deposit, there's no first month's rent, there's none of that. And you'd be surprised how many owners will take that deal. So, so in that case, you don't need any credit. I was actually able to get owners on board with doing leases with me even with my credit being bad. And that's a whole other discussion, yes, how to do that. But it is possible to do it even when you don't have any credit.

Is your preference the joint venture with the owner as you just described, or to say you're just gonna walk in, take the lease and take over, but they, you know, in the lease you have to have permission to sublet, I guess?

Well, I prefer leases because a lease gives me full control over the property for a year and all the profits, 100% of the profits, because I'm not giving them anything beyond what they're asking for. They're just getting a great tenant. They're getting me as a tenant. When I go with a partnership, then I've got to give them some of the profit. The advantage, of course, is there's no commitment on my part, and there's a lot less money involved. So it just depends on what model you want. I like to do leases because I know for sure I'm going to make money with it, and I don't mind signing a lease. But if people are risk-averse, they might want to try the partnership model.

Yeah.

Do you ever run into difficulty with people saying, you know, I don't want nightly renters in here?

Uh, oh yeah.

So you have to find the person that's got a disposition and say, I'm okay with letting you sublet.

Yeah. You know, don't misunderstand me, there will be people that say, no, I'm not in any way interested this, but there are people that say yes, and you don't really need a whole lot of yeses to start adding up to some serious income. So I just approach people and I play it as a numbers game, and some people are going to say no and some will say, hey, that sounds interesting, let me consider that. And I've gotten good at explaining to them why they'd want to go with me over any other tenant.

What is the bandwidth on this? Like, how many properties can the average person kind of manage, you know, in this scenario?

That's a good question. So, I started getting— When I first started out, I got about 3 or 4 properties and it started to get a little bit unmanageable. Because at that point, let's say you have 4 properties. So, every night or every other night, you have 4 sets of guests checking in, 4 sets of guests checking out. That happens every day or 2. So, essentially what you're doing is you're running a hotel except your rooms are distributed. So, we're here in a hotel right now. All the rooms are in one location. They have a front desk that manages everything. You don't have a front desk. You are the front desk. So what I had to learn early on was how to outsource all that because I didn't want a job. So I found a way to create what I call a virtual front desk. And the virtual front desk is just what it sounds like. It's a front desk that manages all the guest communication, the cleaning company has to come and go, any kind of things that might break on the property, handyman services, all that kind of thing. But you can do it all virtually nowadays, right? For a few pennies on the dollar, you can outsource all of that work, all the day-to-day tasks. And so my job simply becomes looking for more properties. So you're able to leverage your time that way and essentially take a step back. So now you can start acquiring more properties, and it's really just a matter of how many you want to get. I mean, you can get dozens. You could— there's quite a few people that are doing over a million dollars a year on Airbnb now with 40, 50, 60 properties. But I would say the average person, if their goal is to, for example, do $100,000 a year, they're looking at about 4 to 6 properties that they can manage in order to make $100,000 a year. And that's kind of where I started. That was my goal, was to do a 6-figure income. And I did that actually within 6 months, my first 6 months on Airbnb.

So now, if I'm a student, like, I show up and say, this sounds great, yeah, I got to do this. What's the timeline in training? How long does it take me to learn to really do this properly before I'm actually starting my first has?

That's a loaded question. If you're going to do it without me, it would take a while.

I'm saying with me.

Yeah, no, that's fast. I, I actually take people through an entire training where I teach them how to do this. So usually I'd say it's about 60 days, 30 to 60 days. Most of my students get their first listing in the first 30 days, and then they're working on their second listing by the end of 60 days. So I would say it takes 2 months to really understand the process and how it works and how do you communicate with these guests and how do you fill your calendar and kind of working out all the kinks And a lot of people are doing that while they're working a full-time job. So they're doing on the weekends, they're doing in their spare time.

Yes. And so I'm guessing, or now I was guessing, but now I know there's nuance here. It's not like it doesn't take a week, I could train you. It's, if it's 30 to 60 days, there's a lot of little nuance that, that matter to make this work right. Otherwise it could not work out so well.

Yeah, it's, it's not, it's not difficult to do, but it is complex because you have a lot of moving parts. Now it's not complex when you have one one or two listings, which is probably 95% of people on Airbnb only have one or two listings. Once you go beyond that and start scaling, that's where you need systems, because it's all about scaling is where you make money in any business, and that's the key here is understanding that.

I have to imagine Airbnb likes this, right? I mean, it gives more properties on their platform, more offerings for the people who are showing up. So do you find that that's true? I'm assuming it, but I don't know it.

I would say they're mixed on that. And the reason is because Airbnb essentially presents itself as a company that helps people make money with their own house or with their spare room, or it's kind of a side gig, a side hustle. Not so much geared towards big operators or people that are going to build a big business on the site, although that's where a tremendous amount of the bookings and revenue comes in on Airbnb is from large operators. So really, it can be both. It can be a side gig or it can be a big business.

I've noticed you brought up Robert Kiyosaki earlier. So we went down to Arizona, to Phoenix area, Scottsdale, to interview him. And we— what we did is we rented a house on Airbnb, brought the crew in, you know, the full film crew. So we had enough bedrooms for the film crew, a place to film him, etc., etc. And I noticed that this particular Airbnb, this house, that it was one— it was branded because they had multiple homes. So are they— do you think they're, they're doing what you do, or do you think they own the homes? Because I'm sitting there saying, wow, they just built the business inside of Airbnb where they've got homes, probably 5 or 6 of them around Scottsdale. And, and it made me think, when I go back, I'm gonna look for one of those places because it was set up right, it was nicely, you know, done, it was clean, you know, all the, all the things that you care about. And I was like, I can't believe somebody's building a brand within the brand. So is that sort of what you, what you do? I mean, uh, Would people know your brand on Airbnb or would it just be kind of invisible?

You are probably staying in one of my business partner's properties.

No kidding?

So I have partnered, yes. Now I don't brand my own Airbnbs, but I have a business partner and we've now, it was a former student of mine who started doing properties in Scottsdale. And so we have 18 properties in Scottsdale, in the greater Scottsdale and Phoenix market. So you may have stayed in one of ours.

Now is that house owned by your partner?

No, none of them are owned. They're all leases.

Wow.

So, you know, $5,000 to $10,000 a month leases and up. And it's a very hot market. It's a— Scottsdale is one of the best luxury markets in the country.

Yeah.

And you may have stayed in one of our properties.

Yeah.

Wow.

So, so there's a few ways to skin this cat, I guess. There are.

Yeah, that's the great thing. It's open to really anybody, somebody that has more money, that has the ability to invest a large chunk of cash, they could do that in a luxury property without the risk of having to go buy that property and not understanding and sure of the market. And it's also open to anybody on the lower end as well. And it's really all just completely relative to whatever the market rent is. So you can make $1,000 a month or you can make $7,000, $8,000 a month on a property depending on what the market value of that property is.

So now somebody's watching this again, I'm trying to think like them and they're saying, So I didn't miss it, right? There's still going to be demand and there's still, there's still an upside with this. It's not saturated at this point for entrepreneurs coming in and saying, I'm going to do this model.

No, not at all.

Yeah.

No, there's definitely that. The recent stat that I read is that there's 1 million new users per week signing up to use Airbnb for the very first time.

1 million a week?

1 million per week.

Wow.

Yes. That's what the current stats are. And that's worldwide. But the thing about Airbnb is the awareness now is very high. So if you were to ask 10 people, have you heard of Airbnb, most of them would say they've heard of Airbnb. When you ask 10 people, have you stayed in an Airbnb, it's very, very low.

Yeah.

So awareness is high, adoption is low, and that basically shows us that we're not anywhere near maturity level yet.

And I have to imagine this is where I— if I were, you know, an Airbnb shareholder, or if I were somebody that was an investor, I'd say I'd be encouraging this this kind of behavior because I think it's creating demand, right? The fact that more properties are coming on and that they're in all these varying regions and, you know, that's creating more demand on my site and I'm getting a piece of all that.

Yeah, Airbnb is getting a piece of all that and we're not taking advantage of anybody. We're letting the owners know right up front what we're doing. Everything's in the open, everything's in writing. We make sure that we protect the owners. So I go so far as to insure the property. So I insure it for any damages. If they were to burn to the ground, the owner gets paid off. If somebody were to sue, I get liability coverage. We make sure everything— every I is dotted, every T is crossed— so that there's not going to be any issue for the owners. And so, you know, this is something that there's a demand, and we're fulfilling a demand that's out there and providing a service. And so we make money, and the owner's happy, and Airbnb is, I'm sure, very happy.

And do you find the owners are like, you know, I would never want to mess with I'm happy you're doing it, as compared to them saying, "Oh, that's a good idea. I think I'll do it." I've been asked that before.

Of all the people I've met with, and I've met with hundreds of owners face-to-face now, I've never had somebody say, "You know, that's a great idea. I'm going to go do that right now." Right. Because if they were going to do that, they probably already would be doing it. And most owners, they just want one thing. They want to have no vacancy, and they want to have a tenant that's going to take care of the property and pay the rent on time. That's what they're looking for. And they really just want to avoid one thing, and that's vacancy. And they may have multiple properties. So they're just trying to keep those things full. And the last thing they want to do is start a new venture or a new side business. And they might not even have a system to manage them. So they're not really interested in that.

How much longer do you think this is going to run before we get to kind of like where supply and demand sort of start to equal out?

You know, you got me. It's hard to even say. I wouldn't know how to answer that question.

You think it's years at least?

Oh yeah, definitely years. Yeah. I mean, I remember when Airbnb when Airbnb was, was very new on the scene, people were like, this isn't going to last, it's not going to work. There are some challenges we should talk about with regulation. You know, there's a lot of regulations just like there is with Uber and all these sharing apps and those kind of things. But the interesting thing is that about 90% of towns and cities in the US that we researched— we hired a research firm— allow home sharing. So we're sitting here in New York, for example, New York is not a very good city to do short-term rentals in. It's very, very restrictive. But there's very little, if any, restrictions in other areas that are within a short drive of the city. So I have students here in New York, and they simply go across the river to New Jersey, and they get listings in other locations. So the key is to knowing where you can do it.

Yeah, I have to imagine homeowner association rules. Yes. You know, where I live in Park City, Utah, I know some areas you gotta have—

HOAs.

—a month or more, yeah. The HOAs demand that some areas they can do nightly and some are weekly. So it's just what part of the town are you in. It's a resort town.

Yeah, it's just like any real estate, you know, you can't do commercial real estate operations in a residential area. You can't live in a commercial district. There's, there's limitations. And same thing here, there's limitations. But that's no reason that anybody should not look at this as an opportunity. There's massive opportunity here. So I'm somebody out there searching again, uh, what's the most important question I should ask you I would say, how can I learn what you're doing? How can I jump in on this? Yeah.

And so you started out doing this yourself. You now are teaching it. How many students have you taught?

We're approaching 8,000 people.

Wow. That's a big appetite for it.

Oh, definitely, definitely. Yeah, people are hungry for this. And, and a lot of people have been successful. That's the thing that really excites me is I've had teenagers that have been killing it on Airbnb, and I have people in their 70s that have never done anything with real estate, never done anything with— didn't even know what Airbnb was, and they've got properties. They're doing well.

I was just about to say, my next question is like, who's your typical student?

Like, who's showing up for this? You know, it's— there isn't really anybody typical. Every kind of socioeconomic background, you know, 31 countries around the world. Airbnb is in every country but North Korea right now. So it's really anywhere there's English-speaking people have probably heard about me and tried this. And quite frankly, it's, it's open to just about anybody. I had a couple of people that didn't know how they were going to retire, the people that were in their 70s, and they literally had no plan for retirement, were planning to live— this one gentleman I'm thinking of was going to live with his kids, and he was in a small town in Georgia. And he took my training, finally went through it, applied it. Now he's got 3 listings, makes about $3,000 to $4,000 a month net. And he said, you saved my retirement. So, I believe it's a retirement solution for people. And it's also just great for millennials and young people who are the main users on Airbnb and they want to create income with the gig economy and they're doing it.

And that anticipated my question because I would— I'm thinking like the avatar in my mind for this is young millennial, right? But I also, in the conversations we've had during Wealth Breakthroughs with so many people, there's a real challenge especially, you here in the United States with people not being ready for retirement. They're at retirement age, not even close to ready. They don't really have the resources to go. It's a crisis.

It's a retirement crisis right now. Most people are not prepared. And, and just like I mentioned at the beginning of the interview, most people say, well, once I have a million dollars and I can live off that interest, then I'll be able to retire. But I think it's a very backwards way of looking at it. It's a very old model. What you want is not the million dollars. What you want is the cash flow and the interest that that million dollars generates, which really is not much when you think about how much—

that's just great. So low, very little.

You can't even— in them, even if you invest in a hot stock market, which could go down. But when you create cash flow, that's very different. You could create $2,000, $3,000, $6,000 a month cash flow doing this model through real estate, but in a different way, through home sharing, that could immediately solve that problem. And that's what I'm finding. So what we're finding is that most people that host on Airbnb are generally baby boomer age, and most people that use Airbnb are millennial or younger. So that's starting to shift, but we see— for me, I've seen all different ages that have become hosts through what I teach.

And talking about retirement, and I think that you said a lot of people have it backwards, right? You need to generate cash flow is a better idea than trying to live off the interest, which, which is a paltry interest at this point. Yeah, I'm whatever. I mean, the type of the cash flow you're talking about, you'd have to have several million dollars in the bank to be able to produce that much interest every single month. So is there a whole reframe? I mean, you know, the idea here in Wealth Breakthroughs, where are the breakthroughs that we can have? What's the new understanding that we can have that can help create wealth? So when it comes to retirement, you know, do we have it wrong? Do we have it backwards? How should we be looking at it?

Well, I don't know that it's backwards because the old traditional models still work. You know, a financial advisor would tell you, You put your money into these investments and we're going to build a plan for the next 30 to 40 years. And at the end of this plan, if it all works according to historical averages, you'll have this much money coming in and you'll be able to retire. But what's not being taken into account is that we live in this new economy. They're calling this new economy. And the things that are possible now were not even possible 10 years ago. So Airbnb didn't exist 10 years ago. You couldn't have made $1,000 or $2,000 a month forever on a property that you don't even own. That wasn't even possible before. You can make money now with with a car. You can put a car on Turo and turn your car into cash flow. There are all kinds of ways now to start creating money and income in your life that didn't exist before, and they're possible because of technology and because of the new economy and what I call the gig economy, or most people call the gig economy. So to me, it's the idea that you don't— retirement doesn't have to be something that's out there in the future. You know, if I wanted to stop working today and just live off the money that comes in from from this new economy and what I've created, I could do that today. I could, and I've seen people do it very, very young.

Is that the idea of financial freedom? Like having cash flow that supports you without you having to do much of anything?

Well, I think wealth, I want to redefine wealth, at least the way I define it is not just income or money or net worth, it's money plus time. So if you're here in New York working as a stockbroker on Wall Street and you make $400,000 a year but you work 80 hours a week and your health suffers and you do that for 30 years, I don't think that's wealthy versus you could be making $10,000 a month working a few hours a week traveling the world which I know many young people that do exactly that. I know many Airbnb-ers that do really well doing that kind of thing. And they have time freedom and they have financial freedom. So, it's being able to enjoy your life, do things you want to do without spending all your time working.

So, it's more more of what you do as compared to what you have.

Yeah, it's what you do. It's, it's the idea of work less, have more. It's the idea that most Millennials, if you ask them today to identify who they are, to tell you— if you said to somebody, who are you? And you ask a baby boomer, they'd say, I'm an accountant, I'm a teacher, I do this. But if you ask a Millennial, they don't identify with what they do for a living. They identify it with what they're passionate about. They identify with experiences. They identify with lifestyle and these kind of things. They don't so much identify with, "I do this thing," because it's no longer you pick a career and you do that for 30 years. That paradigm is over. And so I think that that whole shift is happening, that people are realizing, "Wow, there's more to it than just— yes, we want to have income, yes, we want to build wealth and do all those things, but we also want to have the time to enjoy it." Because time is a finite resource, unlike wealth.

Are you looking at innovating any additional things that maybe build on this or are you just looking to expand more of what you're doing? Absolutely.

I want to teach people how to do this across multiple platforms in, in the gig economy. Anything from making money with vehicles to houses to anything that's kind of along this vein and be able to start focusing on creating cash flow rather than working for income. So anything that's not trading time for money, I'm about.

I imagine the fundamental principles of of what you're doing, you know, can be transported to other sectors. It doesn't have to be housing as you're describing. So once you kind of have it wired in one place, I guess that's kind of a multiplier where you can put it in multiple places.

Yeah, and it's not just in this, this whole sphere that we've been talking about. It's also in anything that relates to technology. So there's 12 and 13-year-olds that are making millions of dollars a year on YouTube just putting, you know, crazy videos on YouTube that are viewed by so many people that they can monetize them. There's people that are creating blogs and creating podcasts, and they have sponsors on these podcasts. I have a podcast, and they're creating income that way. So the idea that you can create something, put it on the internet, and it lives forever, and it can generate income for you— you do it one time and it generates income again and again and again— that's no different than owning a stock that pays dividends. But I would argue it's better because you create it for free without any monetary investment and less risk because the stock can crash. Less risk and, you know, we're moving towards the value is in the information. Information is the new oil. Information is the thing that's worth more than any other asset. And you can actually sell information, you can share information, you can create information and that can be sold and that can be an asset in and of itself. I think most people need to get their mind away from the idea that you have to have a traditional investment to create income and you can look at the opportunity that exists online.

Well, we know that the biggest companies in the world, what are they brokering but your information? If you look at Google, Facebook, etc., I mean, they're getting a lot of information on you.

You look at Uber, Uber is just simply a piece of software, you know? And Airbnb is a simple piece of software. Airbnb is worth billions, and yet they don't actually own any of the properties. They're just providing a service.

Yeah, Uber doesn't own a single car. Airbnb doesn't own a single hotel, and they're worth more than any car company Airbnb just surpassed all the large hotel brands for value. Yeah, isn't it just amazing?

And that did that in 10 years, whereas Hilton Resorts has been around for 110, something like that, 100 years. Mind-boggling. Yeah.

With what you're doing specifically in the short-term rental market, if there's any kind of a downturn, a pullback, is that a concern for you?

Well, that's a good question. I thought about that and I thought, After talking to some experts that are in the field, we kind of determined that if there's a downturn, I think that short-term rentals are going to do better. And what's going to happen is in a downturn, people are going to look for additional sources of revenue. They're going to turn their own properties into cash flow. And beyond that, people are going to look for more value when they travel. So instead of spending $300 on a hotel room, especially if they're traveling with their family, they could spend $250 or $200 instead. Stay in a home that has 3 bedrooms and 2 baths. So on Airbnb, generally you're always going to get more for your money than you would in the hotel industry. So I think the first to suffer would be the hotel industry, whereas home sharing could actually expand and do really well in a downturn. And I think that, that the opportunity really lies there if there is a huge downturn where people were to lose their jobs. They can monetize their own properties, they can monetize the home they live in even if they don't own it. And I think that's a huge opportunity for most people that might not have any other opportunity to create income.

Well, I find this really fascinating, and I guess at this point maybe you're glad that 2009 happened and, you know, you, you were knocked off your course to be able to put you where you are. So do you look back on that and you're grateful for it at this point?

I am very grateful, and it also humbled me because, you know, I think that the, the story of any, any hero's journey is that they seem to be doing well and then they go through that that, you know, pit of despair, that low point where they're redefined, they have to come out the other side. And it's taught me a lot about how to be content whether you have a lot or have little. And I'm very thankful that I was able to have success again. But yeah, I would say it's definitely a blessing and definitely something I'm thankful that happened to me.

We're very thankful that you made the trip to come here and sit with us and share all this. I think it will inspire inspire a lot of people, and I wish you continued success. Well, thank you.

It was a lot of fun, and I appreciate you having me here.

Your Wealth Breakthroughs Episode 10 Bonus Interview goes back into the scary world of taxes, starring John Briggs. Are you overpaying your taxes and basically giving the government thousands extra every year without knowing it? And do you know how to find out if you are? John's about to show you what you absolutely must get right about selecting an accountant and landing on a tax strategy that could put thousands back in your pocket every year. Let's get started. So John, thanks for taking the time to sit and talk to us about one of my least favorite and most important subjects in my life, taxes. So tell me, how, how did you get involved doing the work you're doing?

I, I was fortunate enough to go to a really good university, BYU. They have one of the best accounting programs. And when I started there, I had no idea what I wanted to do. But a mentor told told me I should either go into law or business. And it just so happens that the first business class they make you take is accounting. It's the first subject in my life where it like clicked. Just, it made sense to me automatically, which obviously probably tells what type of weird human being I am. But it did, it just clicked. And I just went down that rabbit hole and through BYU, they give you lots of opportunities. I've been at Deloitte, I've been on a few smaller businesses, local firms before I branched off on my own. But one of the things that in class, I remember one day it was a personal income tax class and I just realized there's a lot here. And I love the idea, the game of being able to take a number that the $79,000 page tax code, you know, they say, well, it could be this or it could be this or it could be this, and there's an exception to all of those. Like, okay, there's, there's, there's room here to help people. Not to mention, one of my beliefs is just that the IRS is a big bully, and I don't, I don't appreciate that. I think people need protection. So all those things kind of just were growing in me as I was starting this career and As I got into it and I got my hands into it, it just stuck. Like, I loved it. I love protecting tax people from the big bully of the IRS. And here I am.

When you started out and you were working in, I think you said, Deloitte and other tax firms, you know, they're probably fairly traditional in their approaches and kind of conservative, as accountants are known to be. Yeah. So when you branched out on your own, did you say that you had a different philosophy you wanted to adopt toward your clients and how you're going to approach this.

Yeah, you could say there's, there's two major flaws I felt existed in the traditional model. One is on the efficiency of the client's spend. There are a lot of— I mean, they're all structured similar to big law firms where the client pays the billable rate, but what they don't realize is that there's this whole team of people, an army if you will, of different level people. And the ones doing most of the work don't control their workflow, but they're also going to be promoted based on how many billable hours they have.

Is that really— so it's not basically on your expertise, but are you just producing in essence?

Yeah, just like an army of monkeys basically. And then you have the one guy who has a relationship with the client and he's the one who signs the return. But I mean, he's not even involved in the process. And so here I was as this new person, this new staff accountant at Deloitte, and I wanted to get a promotion. I wanted to get a job offer. I wanted to, you know, all those things. And if I only had one tax return to work on, you take your time because you don't want to be penalized for being smarter than the guy next to you. And so I didn't like— that was one problem I had is that that inefficiency is passed to the client, and that's not fair. And the other thing was everything was SALLY, same as last year. Like, here you go, get last year's file and plug it in. Like, well, can I ask the client questions? Do I get access to the client? Can I figure out if there's something else that's going on? Because if they were overpaying taxes 5 years ago with this methodology of SALLY, same as last year, they're going to be overpaying taxes every single year because you guys aren't looking into a single thing. All you're doing is, well, that's how we did it last year. That's, that's ridiculous. Has taxes been the same for those 5 years? Oh no, they haven't. They change every time there's an election cycle. Yeah, I think maybe we could do a little bit more for the client and ask some questions. And because they don't necessarily know— clients don't know when they do a transaction to grow their business, they're not always aware of intricacies of the tax code, and they're certainly not aware of the exceptions and the different ways that those things could be classified. So they're not going to naturally come out to me and say, hey, just so you know, I, I bought a couple properties this year and I decided to do a 1031 exchange. And like, they don't— what they are thinking is, hey, I bought some new property. Mm-hmm. It's our job to ask them the question so that we can take what they actually did and and get the best tax benefit for them. And I just didn't feel like the traditional firms were doing that.

So the tax code obviously is extraordinarily comprehensive— might be a kind word, but there's a lot there. And it does change, you know, during varying seasons, election cycles and other changes that might occur to the tax code that has to be kept up with. And then you have these clients that are, as you're saying, coming in now. If I'm hearing you correctly, you know, you were kind of— your hands were tied at these firms when you came in to work at the big firms where they just said, you know, more of a factory approach. Let's just move people through. Last year, same as last year, etc. Uh, that became a frustration for you. Are you pretty convinced that, I guess, number one, uh, that you could have saved them more money? And number two, that, uh, that's a reason maybe not to use bigger firms, which are What's your thoughts around that?

Yeah, knowing what I know now, I am 100% convinced those taxpayers could have saved money if there was an approach properly taken. Of course, at the time, the only thing that was rubbing me wrong was, but we're not talking to the client and you're the one having me do the majority of the work. How is that? How can I get any good benefit out of that? Maybe there's big firms out there that have an approach where they focus on protecting the client instead of this idea that they kind of work for the government. Like if an accountant's too conservative, what happens is they really just, they want to avoid any sort of conflict with the IRS so that if their tax, if their client's tax work is pulled for audit, they want to be able to not have any change because to them that's the status. Okay. That's how I do this. Such— I do such good work that when my returns are audited, the IRS doesn't make any changes. Well, they're never going to make changes if you screwed up in the IRS's favor. They are going to want to look at the areas where you're pushing the tax code and saying, look, this is, this is legit tax strategy and the client's not going to pay tax on whatever the strategy is. So, I mean, Yeah, I haven't seen a big firm out there, but of course, now that I'm in my own thing and focused on protecting taxpayers, I don't really know what the big firms are doing nowadays. I kind of have this feeling, though, they haven't changed from when, when I used to work for them.

So what's your philosophy in your firm? Yeah. When you say, okay, we're going to have a guiding set of principles here about how we're going to serve clients relative to their tax needs, you know, how do you approach that?

Our first philosophy is never take a position we're not comfortable defending. But I use those words specifically because it's— it is a defense, and the taxpayer deserves that type of representation against the IRS. See, a lot of people don't understand is that it's not the IRS's job to interpret the tax code. Courts have done that for us. Their job is to just enforce it. But the issue is that almost all the time in audit situations they are trying to interpret the tax code. So it becomes our job as the professional for the taxpayer to go in and say, no, this is how the courts have interpreted this. It's not your job to do that. You can only rely on what's been documented. And if you don't like it, then you can take this up further and get a better interpretation.

Well, let's talk about that process. So if there's a debate, because it really becomes a debate, right? Because the tax code is it's not, as much as it's in print, it's not really black and white as far as how you might interpret certain aspects of it and what is intended by it, and of course every scenario is a little bit different. So the idea is saying, here's the position we're taking. It might be a bit aggressive, but we can defend it. What happens though in the process if the IRS comes in and says, nope, we don't agree with your position, we're gonna, you assess a certain amount of taxes that are owed and maybe penalties, whatever, that go with that. Does it ever end up in court if you don't agree? Or, you know, at what point is it finally resolved? Yeah, it certainly can.

But so first, they'll typically send you a letter, and the letter already has an assessment without them looking anything at anything in your situation. They're just, we think you owe this much money. Pre-audit. Yeah. And so really you're coming in from a position of having to defend even from the get-go, right? But yeah, you go back and forth, you explain, this is why we took this position, this is why it's allowed. And certainly they can say, we still don't agree with you. At that point, there's a couple options that you have. What people— a lot of people don't realize is the auditor, part of his job is to keep it out of the courts because then it— they're already overloaded. And so when you keep pushing back, you can often ask for their supervisor to get involved because they also don't want it to get into the courts. They also want to keep it out of the appeal system, which is the next technical step. So there is negotiation back and forth, similar to how people make settlements in lawsuits.

So does the person, the first person that you're interfacing with, the IRS, can they just say, too bad, this is it? Or must— if you request for it to be escalated, must they escalate it?

They don't have to escalate it, but if they don't, then you immediately go to appeals, which is what they were trying to avoid in the first place.

Okay, so you have the right to appeal no matter what?

No matter what.

Okay, and then if after appeals you can't come to an agreement, you're still at odds, is that when you can push it into the courts?

Yeah, and there's a couple ways you can appeal. There's one method of appealing that's like it's a one and done. If they don't take your stance and they don't agree with it, you're kind of hosed. And then there's the other way where basically you're saying, I am willing to take this all the way through the court system, all the way up to the Supreme Court if we need to. So that, yeah, you have quite a few options. And then in between the appeals process and courts, and even, even from the beginning, anywhere In that whole process, at any point you can reach out to the Taxpayer Advocate Group, which is technically part of the IRS, but their job is to kind of be like the lunchroom supervisor, you know? And so they are much more focused on protecting the taxpayer versus the IRS auditor just trying to get a win and boosting his ego.

Now, are the IRS auditors also incentivized? In other words, if they show that they do a bunch of audits and they don't collect any money, that looks bad.

That's like having a lack of billable hours, or, uh, I know I, I can't ever get a straight answer from them, which kind of tells me there's an answer there. Yes, they aren't given commissions or additional bonuses, but I'm confident there is some sort of penalty if they don't have a certain amount of collections.

Would be like a prosecutor not getting convictions, right? Yeah, yeah, they're supposed to be prosecuting, but, you know, people end up innocent, and people might be innocent, but it looks bad for them if they keep getting—

Yeah, yeah, it's like, I want to be promoted, I want to be a lot of her promotions. So yeah, they're very—

yeah, yeah, it sounds like the, you know, pretty, uh, flawed system. It is not in favor of us taxpayers. Definitely not in favor of us. So I imagine there's really two categories, um, and maybe even more, but that you have the people who are self-employed, business owners, independent contractors, and then people who are W-2 employees. Do you see that both have a lot of room to save money, or do you think that the W-2 employees are kind of stuck where they are and they don't have much latitude, and, you know, the, the business owners are the people that really can play in the tax system and try to, you know, save money?

Yeah, I love trying to find ways to help people lower taxes so much that I don't want to make the blanket statement that W-2 people are screwed, but they're pretty close to being screwed, especially after tax reform of 2018. There are some changes that there was some benefits they could have gotten and those have just been completely wiped out. So generally a W-2 person pays tax on their W-2 income. Now that being said, I know there are some people out there that push this idea. Well, if you're W-2, get it, join a network marketing company and pay this amount per month and now you're in business. And while I love the aggressive mindset, There are some issues with that that we typically try to help our clients understand. If you're going that route, you have to make a legit effort to try to make money, right? Because it is going to be hard for me to make a— like, defend your position to the IRS if you don't have a website up, you've never gone to a meeting to try to sell your product, you know.

So basically one of the places where they could start to write off maybe a part of their home for an office, a part of their car and whatever other things they could do. Is if you're a W-2 employee, you create a side business. Yeah, but it's got— you have to legitimize the fact that this is a real side business, not a tax gimmick. Exactly. Yeah.

I would say the safest route for W-2 people is if they can figure out in their financial plan how to get a rental property. That's probably the easiest way to classify yourself as a business owner and then get to take the benefits that are applied to business taxes.

So that's interesting. So basically, because we have, you know, so many people in this series talking about real estate and real estate investment and maybe, you know, getting single-family homes, you know, and renting them out. So if, if a W-2 employee does that, now they can— I guess they say they have a business, right? It provides income. You know, they got to file all this stuff. Do you recommend they form an entity for that business? You know, or that they just kind of keep it as a personal proprietor? I mean, it's definitely more of an attorney question.

I'm not licensed, so I'll give my opinion though because I love sharing my opinion. I like having at least a single-member LLC, and the reason I call it that or say it that way is because it doesn't complicate their tax filings. It's still going to be filed on their personal return, but they would get some entity protection should their tenant decide to sue them. Plus, I like the added benefit that from the IRS side, you can say, here's the business name of their real estate business, as opposed to saying, yeah, they have this property, it's titled in their personal name, but they rent it out. So it's just, it's a little bit of a stronger defense for us if that happens.

My show intends saying, I plan on getting more properties when I can, and I want to grow this business. Let's talk about entity structure, because that's probably important too. So I heard you say single-member LLC. My understanding was that that's a— increases tax audit risk if they— that the IRS doesn't like single-member LLCs, or do they— you file it as something other than an LLC?

Yeah, so a single-member LLC, the name the IRS gives it is disregarded entity. Okay. Meaning they don't give it any regard. It doesn't exist. It's like the annoying neighbor, like I'm just gonna pretend that person's not there. And so the single-member LLC of itself isn't the audit risk. It's the filing on a Schedule C, which is generally where single-member LLCs are filed. That can be some increased audit risk. But with a real estate property, it doesn't go on Schedule C, it goes on Schedule E, which is for rental properties. And in the tax code you have this It's kind of geeky. There's really two forms of tax, like income that someone can make. And so they're taxed in two different ways. Ordinary income. So for my tax firm, the service I provide, that's ordinary income. Real estate income is considered passive. The big difference between those two classifications is that my ordinary income is subject to self-employment tax, which currently is 15.3%. That's on top of the income tax bracket that I'm already going to pay tax on. Passive income doesn't have that self-employment tax tied to it. So the IRS is, as you can imagine, more interested in looking at numbers that have a higher tax rate tied to them. And so a Schedule E, even if it's held in a single-member LLC, doesn't, doesn't increase audit risk.

So that seems like a really good way to, to be a W-2 employee and to still figure out some tax advantages for yourself. Let's talk about the other side now, the business owners, people who are self-employed, and maybe dig into that a little bit. First question I have, and this is maybe a general question across the board, regardless of your W-2, 1099, self-employed, what have you, is it your opinion that the majority of people right now, and I'm not asking this as a leading question, even though it sounds like one, But is it your opinion that the majority of people right now are overpaying on their taxes? Absolutely. So no hesitation?

No, no hesitation.

So because here's the thing that I find very interesting about this. Imagine that you were finding ways to make more money, right? Can we work extra hours? Can we add another bit? You're looking for ways to make more money when literally you can work no additional time and through tax savings, you're making more money. I mean, it's the same thing, right? It's the exact same thing. So now the follow-up question to this. So across the board, most people are overpaying in their taxes. Yes. Second question is how much? I mean, I know maybe it's a wide range, but is it a percent or two or maybe they're overpaying by 20%? I mean, what do you find is typical?

Yeah, I've— there's nothing that's typical. It does depend on everyone's situation. Because there are some strategies that are just— they're out there and I don't know why more people don't use them. One in particular we like to use in our firm, we call it corporate rent. It'll save anywhere from $3,000 to $6,000 in taxes just by implementing the strategy. But that could be— that could be a 50% savings for them. It could be a 1% savings for them. The way we look at it is cash is king, right? Not necessarily the percentages. So $3,000 to $6,000, that's still nice. Like, at a minimum, it should cover at least part of your cost for your accountant to do the work for you, right? Yeah, so I wouldn't— I don't know if there's a typical number. I just know absolutely whenever we meet with someone, we find something. And knowing how conservative the industry is, absolutely there's ways that people could find areas. I mean, The issue— here's the issue is that you really do get to the point where you feel like your accountant is working for the government. They— you come in and you're, I got this business idea, or you already have the business and, hey, I'm looking to do this. Can I write that off? The conservative accountant says, no, ask me some questions. Like, figure out the tax code is 79,000-plus pages. You can't tell me in there there's not a tax code or an exception to the rules that you think you know that can't help me? I mean, at least say, okay, what are you trying to accomplish? How could we write it off? Now, sometimes we go down that rabbit hole and they can't write it off. But to just have an accountant blatantly just say, no, you can't. Come on, let's stop being lazy as accountants and let's protect the taxpayer. They're the ones that pay our bills. They're the ones we should be serving and not the government.

So let's talk about the top 3 or 5 common areas where people are overpaying, where they could have saved money, but they're not. For sure.

The tax strategy I talked about, the corporate rent strategy.

And so explain what that is exactly.

So some people call it on the East Coast, they call it the Augusta rule because the Masters Tournament in golf is in Augusta, Georgia, every year. And what happens is these people who live there have an influx, literally like 2 to 3 times the amount of people are coming into their little city and they blow it up. Well, we're like, hey, there's not enough hotels in the area, so let's start renting out our house.

Kind of like Sundance in Park City. Yeah, yeah, yeah, exactly.

We should call it that here in Utah, the Sundance rule. Yeah, let's rent out our house. And I am willing to bet, because there's wealthy people who live down there, that at one point a wealthy person said, hey, you know, I think I have the clout and the strings that I can pull to get it so that all of us who are getting rental income down here just for this short week, that we won't have to pay income tax on it because we don't really have a rental business. And so the tax rule is this: if you have a rental property and you rent it out for more than 14 days in a year, that's That's the definition of a rental property per the IRS standards. But what people overlook is that it starts at 14 days or more, technically the 15th day. So if I rent a property out for less than 15 days during the year, it's not classified as a rental property for income tax purposes. And that means I don't have to claim the income that I get from that activity. So that's where the Augusta rule comes in.

Regardless of the amount, you don't have to claim it regardless of the amount.

Now it has to be market rate. Yeah, but yeah, regardless of the amount. So what happens is we say, look, there's no reason a small business can't take advantage of this rule. Let's have the business sign a contract with the individual, which happens to be the owner, and say, we're going to have a monthly meeting because we're a business and we should have a monthly business meeting and we're going to have it at your house. But if you do that, that's only 12 times out of the year. So my business gets to expense the rent payment because it's ordinary and necessary, meaning it's something that other businesses do, right? They, they rent out big convention centers and hotels to hold company meetings. That's all you're doing. So instead of the big venue of a conference center or hotel, you chose your house, which is probably cheaper anyway at market rate.

Yeah. And now I guess this is where the arguments come in. What's What's one-day market rate? It's probably kind of a hard thing, you know, to establish. But so now here's the question on that particular one, then we'll get on to other ones. Obviously, you know, the person saying, I'm doing this, I'm doing it as a tax strategy, you know, but it's permitted by the tax code, so I could just take advantage of that. So there's no— so you're very comfortable defending that. So We have. Yeah. Oh, you have defended it. Okay. And never a problem.

They fought it for like 3 years, but we won. Like, it's a legit strategy.

So they fought it for 3 years. And why did they fight it? Because the code is clear that you can do it.

Why did they fight it? I mean, exactly. I sometimes I think their tactic is maybe we can wear them down. You know, like, no, forget about it. We're the Rocky Balboa of tax. You know, we're going to keep fighting. I love it.

So So, okay, so that's one where— and it's established now through a 3-year fight. Yeah.

But so to answer your question about the market rate, luckily with Airbnb, it's actually not that hard anymore. Oh, that's true. Airbnb, you just find houses similar in your area and pull a couple, and that becomes your documentation and proof of why you're charging what you charged.

Is there another way to do this? Is saying, okay, hey, I want to do all 14 days at one shot. And, you know, so I'm going to rent my house to my company for the 2 weeks. But I guess I have to have a reason that the company needed that house for 2 weeks, correct? And that's the thing.

So you definitely can if you had a viable reason for the 14 days or the 12 days or however many days in a row. So we do get clients at the end of the year who it's the first they've heard about it. I'm like, oh, how is there a way for me to get this in? Well, I mean, at the end of the year, you do have— you have Christmas holiday parties. You could rent it out for that. Thanksgiving. I mean, all those types of things. But yeah, you might want to plan a training seminar just for your team. Even if it's you, you're still part of your team. I'm going to do a training seminar in my house and it's going to be multiple days. And that's—

and this is another part of the question. So let's say I did the 12-day rental, you know, a day a month for 12 days. Do I have to show that I hosted people at the house? That I— I mean, reality is we really do this kind of stuff in our houses. I'm at my partner's house, he's at my house. We are meeting actually weekly. You know, we alternate from one to the other. They are typically all-day meetings, etc., etc. So, you know, I guess that kind of stuff would be very, very valid.

That's the funnest part of this tax strategy is when I first teach people about it, a lot of times they're like, that's too good to be true. It doesn't sound right. But then they realize, I actually am using my house for business. We all do. Yeah. If you're a business owner, you're using your house for business. It happens. But yeah, I can tell you based on the audit that we defended, you definitely want proof as to the purpose of why you were there. And if you have pictures, even better. But certainly at least meeting minutes that reflect what was discussed, what was trained, all the different— like even if you have different attendees, you want to list all the different people out. Yeah. So the better— the more documentation you have, the better you're going to be able to get through the audit if they audit you. But here's the beauty of the strategy. It's rent expense on your business return. That's it. Yeah.

Rent expense. It's a small expense in the grand scheme of things. Typically, if it's only 12 or 14 days. Yeah.

So this strategy alone of itself doesn't raise any audit triggers because it's just another ordinary and necessary business expense that you have. It's not like filing a Schedule C per se, or a business use of home form on your personal return, things like that.

So typically it's going to get picked up when they're probably auditing for other things as compared to it triggering an audit. Correct. That's interesting. All right. So what's another one?

You know, in general, actually, I always start people because they get excited. Oh my gosh, how can I save taxes? Well, it's the first— it's the mindset. I'm in business, and if I spend a dollar for my business, that means it's a tax write-off based on the code. If I'm spending the dollar and it's to help my business grow or help me grow as a business owner or help my team grow, that's a tax write-off for my business. So we always tell clients, ask yourself when you spend money, is this related to my business in any form, shape, or fashion? Because if it is, you can defend the reason why you're expensing it. And if it's not, then of course don't pay it. Don't, don't try to expense it. But if it is, pull out your business card and pay for it with that. And honestly, that alone helps people find thousands of dollars a year in missed expenses.

So let's talk about that for a minute, because reality is for entrepreneurs and small business owners, it's very little that we're doing that's not somehow related to business. And I'm not saying that just for tax purposes. But to legitimately look at, you know, you know, what we do. Uh, you know, when I go out to dinner with my wife, we're very often talking about, we got this trip to make for the business, we got, yeah, we're going through, we're talking about these things. So, you know, to me it's like, yeah, you know, that, that, that was a business conversation. And, you know, I work out of the house, I have a home office, uh, I'm buying snack supplies, those are going into my office, you know, I'm eating that stuff all day long, you know, and So on. So is that the kind of stuff you're talking about, saying that, you know, we could really look at a lot of the detail of what we're doing and if it somehow touches the business, you want to write it off?

Yeah, totally. And now there you brought it up, so I just have to bring it up. There is one very black and white exception when it's eating out, even if your wife is part of the business and it's just you and her. The tax code is very clear that that can't be a write-off. So that's new, isn't it?

Is that— or is that—

that wasn't a tax reform change. Tax reform changed entertainment. And they just said you can't write off entertainment basically anymore at all. At all.

Which sucks, but I get it. Is that if you're entertaining at home? What if I'm on a business trip?

I have to eat out. I mean, I don't— meals is different than entertainment for sure. When you're traveling every day, that's a travel day, which is defined as when you're not sleeping in your bed. So if you have a hotel right next to your house and you sleep in that hotel, Yeah, it's a travel day. But when you're, when you're on a travel day, all food is a write-off. That's meals. It's the entertainment portion. So if I go to a basketball game, a Jazz game or whatever, I can't write off the cost of that ticket anymore. I can write off my food while I'm there, but I can't write off the actual ticket. It also means if I go golfing, I can't write off the cost of the golf on my green fees. I can't write that off.

So, so this gets interesting. So I'm traveling, you know, east to meet with business people, you know, people I have business or a prospective business relationship with. I can write off the plane ticket to get there. Yes, I can write off the meals I'm eating in the hotel. But if I go do something with them, like go to a game or play around a golf, that's— that's off limits. Tax reform nixed that. Okay. Yeah. And so, so that's all. But anything that's local, you can't write off meals if you sleep in your bed that night?

You can if there's a business purpose. So again, if it's just you and your wife, you might want to invite somebody else with you because when you're audited, they're going to look at your receipts or your documentation. You would say who the business meal was with. And so you'd want to make sure that you have someone else that you also as part of that.

But what— so are you saying if I have a local meal with a business partner, that's— I can write off? It's just people in your family is the way the code's written? Yeah, your immediate family. Immediate family, even if they are business partners.

Yeah, that's interesting. Yeah, we call it the— we refer to it as the spousal rule. I don't know what the IRS refers it to as. I don't know, but it's annoying.

Now, on the flip side of this, and this is something that's been confusing for me, so I imagine it's confusing for other people. Maybe you can help. The new tax code has, I think— I don't know if they call it pass-through income or, you know, some new form of income that gets taxed at a lower rate, like a 20% rather than regular income. You know what I'm speaking about? Yeah. So talk to me about that.

Well, let me first start with tax reform changed corporate tax structure, which used to be a scaling thing like we have on the personal side, and they just said it's a flat 21%. So when they did that, I don't know what person— which we're all grateful for— said, well, you just gave an advantage to C-corps and not all the other structures because LLCs, partnerships, S corporations, those types of entities don't pay taxes like a C corporation pays taxes. They actually don't pay any income tax. It flows to each individual owner and then they pay tax based on what portion of the business flowed to their personal return. So there was this, you know, disadvantage for them. They said, okay, well, let's create this new thing It's Section 199A, and it's also referred to as QBI, qualified business income. And the way it works is if you have qualified business income, there's a bunch of rules and exceptions on it, of course. But effectively, you can take 20% of that and you get it shaved off of your taxable income. So if I have $100,000 and that's my only income, and it's also considered qualified business income, I will only pay tax on $80,000 of it because 20% of $100,000 is $20,000. Right.

But so the $20,000 is taxed at the 21% rate and the—

No, $20,000 is not taxed at all.

Zero, nothing, zero.

It's just taken directly off of your taxable income.

And then you're just paying regular income tax on the remaining 80% of the remaining 80. Yep. Interesting. So that's a weird thing to say. Just 20% of it is no income tax on it.

Yeah. For some reason they just felt like the 20% was equivalent to the tax break they were giving on the C corp side. Is there a ceiling on that? There's not a—

well, meaning like, let's say my income was $2 million, so I could take $400,000. Okay. And I don't get taxed on that.

Yeah. So I don't know if you know this, but The government really likes to screw rich people.

Really? Yeah. I had no clue. I know.

That's probably the biggest, you know, mic drop, mind blown. And so if your income is above a certain threshold, now you get into these exceptions to this 199A. Okay. But that being said, the first exception is the IRS for some reason has 5 categories of businesses that they just hate. I don't know why. So at our firm, we refer to them as the hated group. Accountants are one of them. Doctors, attorneys, I guess typically the professionals who tend to make a lot of money. Now, there are some who successfully lobbied and got themselves as an exception to the exception. But regardless, if I'm in that group, and my income is above— I don't know the exact numbers because it doesn't serve me to have that exact number in my head. Call it $415,000. If my income is above $415,000 on my tax return, they are now going to limit and/or completely nix the benefit altogether. Oh, well, so as a person in the HATE group, I lose that benefit once I'm above the $415,000, whatever that exact number is. It's around $415,000 if you're filing married. If you're not in the hated group, once you're above that threshold, then they look at, well, how much did you pay in wages?

There was— yeah, because this is only on— I look at it as distributions, but you— whatever you're on payroll for, that's not included. So it's only income.

Well, so your wages your wages is an expense in the company. But if, if it's your wage, then yeah, you get to reclaim that on your personal return. That goes to part of the calculation, right?

I mean, that on the 199A does. Yeah. Okay.

And so it's either what you paid in wages or a percentage of your assets that you have on your balance sheet. So as for an example, if there's a manufacturing company, they're not in the hated group. So if they had $2 million of income, I'm assuming a manufacturing company is going to have a decent amount of wages, probably going to be more than 20% of their income, which means they would get, they would get the 20% reduction.

So I guess at the risk of not doing the entire segment on this, I know, you know, so bottom line is, you know, as we're going down this thing, where can we save money? One of the places is saying you might be eligible for this, this what you call the 199A. Income where 20% of your income won't get taxed. So yeah, so basically ask your accountant about that and definitely ask your accountant for your specific scenario.

Yeah, for sure. Because there's probably somewhere in there. Not to mention you kind of want to do that before the tax year ends because, you know, I've had clients that came in last year and they were right on that 415 bubble in the HATE group. And it made a lot of sense for them to accelerate some expenses they were going to have in the following year to get their income underneath it, because once it's gone, it's like it's not, oh, I get 20% or now I have 19%. It's you get 20% taken off or zero. Oh my gosh. And so if you have an asset, you can buy, say, $40,000 worth and that keeps you in the threshold instead of losing it. Like, I mean, that's a massive tax swing. Can I— at the end of the day, that $40,000 purchase, actually sometimes you got it for free just based on the tax savings you kept.

Could I go back and file an amended return? For 199A, you can file an amended return. Okay. So I can go back and say, oh, I missed that. Now let's amend this and do this. All right. So we've got now this— the Augusta rule. You got the 199A. Where else can I save taxes?

It amazes me how many times I get clients and we say, how many miles did you drive? And they're like, I've never been asked that before. It's one of the like most tried and true tax strategies is writing off the miles you drive for your business. Now people get confused because it's like, well, I've been writing off the miles going like the obvious ones that people think about, like, oh, I drove to that client, I'm writing off those miles. Well, as we talked about in other sections, like everything that we are doing is related to our business. So if I have to go to Home Depot to buy something for my business, the mileage driven to Home Depot is a tax write-off. If I'm driving in my car, and even if I have my family in the car, if I'm driving, say, to Southern California to meet with a client, it doesn't matter that my family's in the car. Those are business miles because the purpose was to meet with the client in Southern California.

And those miles are deduction on top of if I'm writing off a part of a lease for a car? Not exactly.

Okay. That the tax code, it's annoying. The IRS lets you take a mileage deduction or they let you write off what you actually spent on the vehicle. Okay. So if you're leasing the car, a lot of times the lease is going to give you a better write-off. But in that, you then include your gas. So you would write that off. Yeah. Insurance, whatever, all that other stuff, tire repairs, windshield repairs, whatever. All right.

So we got cars and mileage. Yeah. What's another one?

Travel is a great one. People don't realize that if you have a predetermined purpose to the trip for, for business, then it's— then you can write it off. Now, for example, let's say I fly my family. We want to go to Disneyland. Well, I don't want to go to Disneyland. I want to meet with my clients in Southern California. Right. Or if I'm a, if I have a real estate business, I want to go to California to look at real estate down there to see if I might buy something. So I want to set up a meeting with an agent down there to get the landscape. Now it just so happens that my family is going to come with me. Well, that's a business trip. Now, while I can't write off like the cost of their plane tickets because they're not part of my business, if they were part of my business, though, I could. You know, those are areas. Now we're going to stay in a hotel. Well, I'm going to stay in a hotel if it's just me or my family's with me. So I can write off the cost of my hotel because that's an expense I would have had anyways. And so there are often percentages of family trips that with a little bit of preparation you can justify as business and you can get that written off.

So basically your family can piggyback on, on a business trip, but you just can't write off their direct expense. Expenses, I guess. Right. Yeah. So now that we see, okay, these are some things that are areas where you can pick up and maybe reduce your taxes by reducing your income through the deductions. Any common mistakes you see people making where they're doing something on their taxes that would be like just a really bad idea? Yeah.

Well, I mean, my first one is, you know, if you're a business owner, filing your taxes is the number one biggest mistake because you do one a year. And if you find an accountant, they're typically doing thousands a year. So they have a little bit more experience. So don't waste your time.

So don't go to TurboTax and say, I'm going to do—

if you're a business owner, for the love, do not use TurboTax. Oh my gosh. And even H&R Block, I wouldn't— I personally wouldn't go to H&R Block if I were a business owner because the people you're talking to don't they're just not in the right mindset, in my opinion. So other mistakes that we see— Schedule C is, is a big one. And some of the mistakes we see is that we talked about a little bit briefly where I have a W-2 and I want to be a business owner, so I'm going to join a network marketing company. So now I have a really high W-2 and I have a Schedule C business that has a massive loss because I'm not really trying to grow it or make money. I just want to write off things. That happens to be an audit trigger.

Is it like in one year or if you're filing multiple years and they see just continual losses on a Schedule C?

Yeah, as we look at it on a year-by-year basis, I'm not convinced the IRS has a system sophisticated enough to track people's year over year. Where that gets in trouble, where people get in trouble with that is that if IRS audits my 2018 tax return and they see something egregious, they're going to then open up audits for '17, '16, and '15 as well. And that's where sometimes people think like it's this history trend thing. But I don't know, I could be wrong. I just, based on my interactions with the government, I think they're a little behind on the times. I don't think they have the database to track like, well, this was your number on your Schedule C this year and okay, now we've looked at these 3 years of data. Now we can— well, we'll trigger an audit based on looking at multiple years. I don't— I think it's a single year instance is what they're looking at.

So, John, so far you convinced me that there's a lot to know and I'm not interested in knowing it. I'm interested in running my business. So let me ask this. How would I vet the right accountant? Because Here's the interesting thing. It's like any accountant's going to know more than me, at least they better, right? So I'm going to be somewhat impressed. They know this, they know that, and they're going to have some logic behind what they do. What I really need to know though is that how would I interview or find an accountant that's going to take a more aggressive approach without getting me into trouble? Yeah.

I think people need to ask more direct questions for sure when they're interviewing. There's this element I feel like when I have taxpayers come in, there's— you can tell they're intimidated. Not, not necessarily because I'm an intimidating person, but because it's the subject matter. It's like taxes. It's one of those things. Even I, when I get a letter from the IRS, my heart will skip a beat a little bit. I'm like, oh, I got to deal with these people. I can only imagine what that is for someone who doesn't deal with them on a daily basis. And so they have that in the back of their head when they're approaching an accountant. And I think that gets in the way of a good analysis. I would say like approach it from a standpoint of, you know, how would you interview an employee? Like try maybe the same approach and go in and just think of him— this guy is going to be an employee for me. His sole purpose is going to help me save taxes. But, you know, I want to make sure he fits with me culturally. I want to make sure he has some technical knowledge. Obviously, they might not understand the technical knowledge aspect, but you can ask questions. Let's see, what kind of questions should they ask?

So I guess I'd want to know, let me suggest some and tell me if you think these are good questions. One would be, how many audits have you been through with the IRS and what were the outcomes of those audits?

That'd be a great question.

Is that a good question to ask? And incidentally, if an accountant or a firm, if they're giving me an attitude about wanting to ask these questions, does that automatically disqualify them? Totally. Yeah. Yep. Like they should be receptive to, to being—

you want, you want to feel like when you ask your accountant a question, they're going to respond to you and not make you feel like, oh my gosh, I have to answer this question.

This is going to be a pain in the ass client. Yeah. Yeah. Okay. Yeah.

You— and maybe that's also another thing. Maybe call them. How fast you get on someone's schedule, how fast are they responding to your request to meet them and see if you want to hire them? Send them— get their email address, send them an email with the question, see how they respond to your question and how promptly. I can't tell you how many new clients we get for the sole reason that they say, yeah, after April 15th, my accountant disappears for a month and then it takes them a month to get back to me. So I'm not hearing from him until August. You know, it's just not appropriate.

So a thing that occurs to me based on what you said earlier in this interview is that I would want to ask, because I'm curious about this now, I want to go back and ask my accountant. How much are you relying on last year's tax return to develop this year's, right? Sure. Because here's what I do know, you know, approaching April 15th, you know, there's like an overwhelm of activity at all accountants' offices, right? And I have to imagine a lot of that's because most clients, especially business owners, it's like the last minute. They're like, you know, I'm not thinking about— I'm thinking about so many other things, but now I'm on deadline and I got to get all this stuff in. So I imagine they're getting deluged with stuff. So I have to imagine also that the inclination is to say, well, let's look at last year's return. They probably still have the same house, same— they just basically start plugging in all the stuff from last year. And they're trying to get through it as fast as they can because they got a bunch of other stuff to process. Is that probably an accurate depiction? That's very accurate.

I mean, even in our firm, April 1st to the 15th, it's crazy. But at the same time, that's also— it's a good time to email an accountant if you're trying to vet somebody. How fast are they getting back to me in the heat of their season? April 1st to 15th. Now our response is, hey, thanks for reaching out. You're on my agenda now. I will get you a question, but I have to take care of the people who got to me first, you know, and that might not go over well with some people, but I mean, we're at least responding, right? Right. So you want an accountant who's responsive. It's interesting, they've— and I wish I had the date or the, the person to tell you who did the survey, um, but I'm aware of a survey I saw and they asked tax, like, clients what's the most important qualifications in an accountant. Technical knowledge was like number 7. Communication, like promptness, was number 1. Wow. Um, and I think you can bet an accountant pretty good just by how fast they're getting back to you. But at the same time, I would potentially ask questions like, have you ever heard of the Augusta Rule? Maybe ask, what do you do to stay on top of tax reform? And how do you help me as a client when there's tax changes? Like, how do you get me that information? Or do you? And you might, if they kind of like squirm a little bit. They probably don't do that for their clients.

Well, I'll tell you, one of the things that occurs to me, again, based on what you said earlier, would be, you know, what type of clients do you mostly serve? Because there's a lot of specialty in taxes. As you said, you know, if they're used to doing like one thing over and over again over here, or as you said, don't file your own returns, work with somebody who's filing thousands of them so they know you know, kind of what might be there, the— I don't want to call them tricks, but, you know, best practices for your type of person. I imagine, you know, it's very different when you're working with, let's call it, a small business owner who maybe has a handful of employees or works mostly with contractors versus, you know, people who have $100 million businesses, offices, you know, payroll for, you know, large employee pools. Those are very different scenarios and very different, I guess, types of approaches. So is it— is— are there sweet spots for, you know, different types of businesses and different scales of businesses?

Yeah, I mean, because bigger companies are probably doing stuff that hits more area of the tax code, which means there's possibility for different credits maybe that they might not have been aware of. That someone who's only dealing with small business, their clients aren't even doing like research and development, but the bigger companies are. Well, there's— you, you'd want to know that your person's familiar with those types of things.

If I were to ask you this question, what's your central focus in tax? What do you specialize in?

Yeah, we specialize in small business. And what I mean by that, I should actually all say flow-through entities. So LLCs taxed as partnerships or S corporations. Those types of entities, those are the ones we're really familiar with. So there is this idea, honestly, there's about 80% of the tax code that applies to everybody. And so if I have someone who comes up to me and they're a realtor, I— their tax situation we can handle just like we can handle someone who is a beautician, because for them the tax code is almost exactly the same. Obviously then you'd want to know, like, if I'm a realtor, there are specific realtor rules, especially when it comes to owning rental properties, that you would want to make sure that your accountant knows. And nowadays with Google, like, you could probably Google, like, I'm in my industry, real estate tax specific, and you could get a general idea of concepts and you could just say those concepts to the accountant you're interviewing. And see how competent they seem when you bring them up. You don't have to be an expert, right? But with a quick Google search, you can at least know the name, like words you can use to see if they're even familiar with it. I had a client come in once and he was making really great money filing it on a Schedule C, which is a terrible idea. And I'm reviewing his returns and every copy of returns he gave me for the past 5 years, like I'm like, you've been filing this way for 5 years? He's like, yeah, my accountant said I don't need to make the switch until I'm at X amount of money. I'm like, okay. So I gave him some questions to ask his accountant. And come to find out, the reason his accountant suggested the Schedule C is because he didn't know how to file an S corporation tax return. Oh my God.

Yeah, so that's highly disturbing. And isn't it the accountant's responsibility to say, you know, I'm not really that familiar with filing returns, let me refer you. Instead, they just said, absolutely. Wow. Yeah.

So I can tell you, we've had— I— the only client I can recall turning away, uh, he was a microbrewery. And I just— I'm like, I don't understand anything about this industry. I don't have any clients in this industry. I understand manufacturing, but you're— it's just— it's a little bit different based— he's even just in the initial meeting, as he's talking about his process, of how they make their product, like, honestly, I'm just not going to be the right fit for you because I'm not going to be familiar enough with the credits that you probably are able to pull. And yeah, your accountant should be honest with you. Like, I can't— that's not in my wheelhouse.

So this begs another question, which to me sounds like it might be a good business practice. Should I be getting second opinions? You know, 79,000-page tax code, who can know everything? I mean, nobody. Nobody. So, so now it's saying Should I say, you know, I've been working with my accountant now for over 30 years, which I have, and I've got, you know, a lot of returns. Should I be taking maybe my last 5 years of returns and showing up at a place like yours, say, hey, you know, I just want another opinion. I'd like to see what somebody else thinks. Here are my returns for the last 3 years or 5 years. And, you know, just pay some of your— for your time to review these and get an opinion from you if you think that we're doing it right or that you maybe have a different strategy and how we might approach this?

Yeah, I think when it comes to anything with your money, getting a second opinion is good. I'm not saying like every month, even potentially once a year, maybe not, but it's just solid financial advice. Like, always get a second opinion.

But the worry might be, am I— am I like— is it gonna piss off my current account? If you had—

how does he know? How would he even know that you got a second opinion?

Well, because if stuff comes back and it says, you know, I think you You could have saved money doing this, this, and this. I'm going to be going back to him saying, hey, you know, why didn't we do this? Sure. Okay. That's fair. Uh, and, and, uh, so I guess if you were on the receiving end of that, if you had clients that basically took their returns that you prepared and went out for a second opinion, uh, is that something that, uh, it would— you'd find upsetting, or you'd say, you know, I think that that's a reasonable thing for them to do? Both, right?

Like, I think it's reasonable for them to do it, and at the same time, it's like Ah, come on, I've been good to you, you know? Yeah. But I don't feel like all accountants have that confidence in there that they've been good to their clients. Yeah. But we have had clients do that, and a lot of times they send us an email saying, I just want to let you know I got a second opinion and I just wanted to thank you. Yeah. Like, thank you for doing a good job because this other guy actually was confused with some of the line items. Like, what's this strategy? Like, what is this? You know? And so I'm, I'm sure our clients have taught other accountants the Augusta rule many times because it's one of the easiest ones that we start with. Like, if you're a business owner, it's such a blatantly good tax strategy. But other accountants, I don't know why they don't know it. Yeah. Or if they know it, they convince themselves that it's applied to some other tax code. But yeah, no, we've had that. In fact, I even had one guy one year, he literally we prepared his return and then he did his return on TurboTax just to see if he was going to get a deal with us or like save money. And, you know, I'm happy to announce that we did in fact save him more money than him doing himself on TurboTax. But yeah, they— yeah, it's reasonable for them to do it. Yeah.

And I have to imagine TurboTax has to be very careful because there'd be some significant liability, right? So they have to really err on the side of, you know, being conservative. Yeah. And it's a software.

And I know that they have this— the new things where you can talk to a human and whatever and they can review your return. But the software itself, they're just asking you, what's your expense in this category? Right. How do you know that as a taxpayer who doesn't live in this world where us weirdos read words and they come up with weird accounting jargon? Like, you just— you're never going to know. You need the accountant to say, hey, here's this category, this is what it means. Do you think you have any additional expenses that fit this? And that's a conversation that you can't have with a piece of software. So yeah, that, that's one of those reasons why that probably TurboTax would never work.

I don't think for a business owner. Another thing that comes to mind that I think is a booming trend right now with Fiverr and all the online contractor work sites. A lot of people are not business owners per se where they literally have a business, a team, a product, whatever service that they put out in the world. They're just an army of one. They're a graphic artist, they're a copywriter, they're whatever, a coder, they program, they develop websites. Could be any number, thousands of things out there. And I hire these people all the time. So they are not W-2 employees and they are not, you know, business owners, you know, that, you know, they're just one person, but they work for themselves. So the question I have is, and this is growing like leaps and bounds. So the question I have is number one, should they form an entity as compared to just being, you know, a contractor and, filing a personal return? And number 2, you know, are there a lot of tax advantages for these people because they're living or working in that way?

Here's the beauty of that question. The tax code basically identifies employees and businesses. So if I get a 1099 as an independent contractor, I fall in the category of businesses. And so the same tax code that applies to Apple and Microsoft and Amazon applies to me as an independent contractor.

Even if you're not an entity, that, that, uh, you know, you're, you're just an independent sole proprietor, which is the worst way to be taxed, by the way.

So, um, I would— to answer your question about the entity, it does depend on their income level. And is it like a side hobby or is it a legit business?

Let me give you a scenario. So let's say it's not a side hobby, it's, it's how I work now. I, I'm a contractor, I'm a project manager. I've got probably only 3 clients, you know, that I split my time up between, you know, maybe do 15, 20 hours a week per client. And I make a total of $100,000 a year doing this. Should I be a proprietor or should I, should I form an entity?

I would definitely recommend in that scenario you be an S corporation.

So, so basically you form a corporation, you file as Subchapter S, and then that's it. So now— and then I want all the income to come into that, that S corp. Yeah.

And it's interesting, a lot of people get confused because they're like, well, I have an LLC here. Might not be surprised. The government can be pretty lazy sometimes. When LLCs came out, the government just said, yeah, we're— especially specifically the IRS said, we're not going to figure out a new way that those need to be taxed. We're going to make you tax it based on something that already exists. So an LLC isn't actually a taxing entity. It can be taxed as a sole proprietor, a partnership, a corporation, an S corporation. All of those are You know, LLC is just— they don't exist. There's not a— this is how an LLC is taxed. They make you choose, right? S corporations, you don't go to the state and say, I'd like to set up an S corporation. They ask you, but you're actually either setting up an LLC or an incorporated business. The S corporation status is the tax filing status only. And so just to be clear, because sometimes people get confused, most of the time people have an LLC taxed as an S corporation. But for all intents and purposes, it doesn't matter what the 3 letters are at the end of the business name. If you've asked the IRS to be taxed as an S corp, we just call it an S corporation. I see. For simplicity. But yeah, in those scenarios, the reason is, is because of the way self-employment tax works. That 15.3% we talked about. If I'm a sole proprietor and I'm making $100,000 and if it's just me, chances are I have really good margin. You know, I might have $50,000 to $80,000 of taxable income on that. As a sole proprietor, I get to pay 15.3% additional tax on that, you know, $50,000 to $80,000. With an S corporation, that's not the case. I do have to follow compliance and give myself a W-2 from my S corporation, but that W-2 doesn't have to be 100% of my income.

So basically, let's say that— let's do the scenario. So let's say it's $100,000 of total revenue. Let's say 20%, you know, expenses. So I'm making $80,000. And I'd say, okay, so I'm going to maybe go on payroll for $40,000 of that. And pay the self-employment tax. And then on the other $40,000, it's going to pass through. So I don't pay that extra 15%, which is substantial. That's right. And now, of course, it begs the question, what is the test for determining how much payroll I have to take?

Well, in the tax code, not very clear. They use the word reasonable compensation. That's it. There's no magic formula. They just say it needs to be reasonable. Well, if you have a conservative accountant, what they deem reasonable might be different than an accountant who— I don't want to use the word aggressive. If you have an accountant who understands the tax code and what you're able to do, they're probably going to come up with a much smaller number than what the super conservative accountant is going to come up with.

Well, I'm told I should be maxing it out at $130,000.

Yeah, that's, that's crazy. That's crazy.

That's crazy.

Yeah. In other words, that's being overly conservative.

You will never make that payroll tax back on your Social Security benefits when you get older. And it's not reasonable. Yeah, there are factors that have to be considered. And so it is definitely a specific scenario that each person looks at because how much like are you out? Is that person outsourcing any of the work that generates revenue? Do they have any team members? How many team members do they have? How many hours a week are they actually spending in the business? All of those are factors that you have to look into to determine, is this reasonable? Right. And sometimes like, well, what could I pay somebody to do this exact work for me? Not that I think they're going to be as good as me. The tax code is neutral to that point. It's just if I need someone to physically go through the motions I go through, what could I pay that person? If that's less than $130 grand, then that's the smaller number.

Well, I guess, you know, if you're looking at the contractor who's the solopreneur, if you will, but if you're looking at, you know, say somebody's making a large amount of income and that's where they're saying, well, you gotta max out at, you know, you know, if you're making, let's say, a million dollars a year, you know, should you still max out the, you know, the $130,000 or should you take less. And I guess it depends on— it totally depends what would it cost me to replace myself, etc., etc., etc.

Yeah, yeah, it totally depends. But I definitely wouldn't make a blanket statement, hey, if you have— if you have $1 million, then go ahead and max out your W-2 for the Social Security tax. Like, uh, I would never make that blanket statement because even if you can— even if $100,000 is the correct amount, you still saved 15% on $30 grand.

Isn't it insane how much efforts that go into just figuring out taxes. Shouldn't it be simplified?

I know. If only people ask that all the time. There is a couple, a few election cycles ago, one guy was running on the platform. He was going to just have a flat tax. Yeah. And people get excited about that. And I love the idea that how simple life would be if we all had a flat tax.

But would that put you out of a job?

It wouldn't for me because we can't— we consult with clients on cash flow and other things. Yeah. Okay. I'd be happy to adapt. I mean, right now I feel like I'm the protector of people against the IRS bully. And if that went away, great, I'll find passion somewhere else. And so with this flat tax, the problem with that is that you have politicians, and what we might vote in as a flat tax at 12% or 15%, whatever it may be, they're always going to want to figure out how to get votes. And then they're going to start saying, you know what, I'm going to— I'm going to change the tax this way. Really, the tax code is complicated because of all the platforms politicians run on and they have to give tax benefits to the people, the groups of people they're trying to get to vote for them. A flat tax would never work just because of the corruption that exists with politicians. And they're always going to want more. It's like we got the— we got the whole world to sign off on the 10%. Perfect. Well, guess what? We now have control to raise to 11 and 12. Where do they stop? They're always going to want their entitlement programs because that helps their voter base. And so, yeah, it would just never work in practice.

I always said I think the tax system is more about controlling behavior than it is about collecting revenue because they can collect revenue in much easier ways. Much easier ways.

Yeah, it really is.

I mean, if you spend a lot less money, think about Obamacare.

He could not get it passed as a law. And so he enforced it as a tax. Yeah, because the tax rules allowed him to enforce it.

But they didn't want to call it a tax. Right. But, but it is— forces behavior. And I think that's ultimately what it is. Oh, we want people to own houses. We'll give a break on mortgages. You know, we want— so consumer behavior can be manipulated through tax incentive. Yeah.

One tax strategy we use a lot, especially with tax reform now, is the vehicles. Larger than 6,000 pounds. How in the world, like, why is it 6,000 pounds that you get a better tax break if you buy a car that is like, you know, guzzles gas more versus the other cars that don't?

You get tax break for over 6,000 pounds.

If it's over 6,000 pounds, with now tax reform, you can effectively take the full cost of that vehicle in the year you buy it, where in years past It's limited. You don't even get the full price. And it's taken over 5 years.

Are they considering those commercial vehicles or something, which is why they're trying to help?

But they are.

But they also provide a list of 5,999 pounds. No good. No good. Exactly. So I'll fill my tank, hopefully.

Yeah, I'll put, you know, cinder blocks and sand and rocks in my, in my car to get it to it.

This stuff is ridiculous.

Well, like, how do they come up with that number? I don't know, because there must be some behavior or maybe a car manufacturer who paid money to a lobbyist and said, hey, can you try to push this through? That—

I mean, most of the tax code is that I'll get an armor-plated vehicle now.

I remember when I was in college, the professor, we studied a section. He's like, guys, remember this as the Microsoft section. They're the ones who got this tax code implemented into our system because they paid lobbyists. And if you read through it, you're like, yeah, I can see how this directly benefits Microsoft because now that's a corporation trying to influence consumer behavior through taxes.

Yeah.

So, you know, and increase their profitability at the same time.

I'd love to tell you that, you know, geez, I wish we'd talk about this all day. And in some respects, I do want the information and understand it. And obviously you've given us a ton of information. But in the end, it's really about saying that I am doing my business a disservice if I'm really learning too much about this. I should know enough to know how to find the right expert to work with relative to all this. And you certainly have given me and our viewers a whole lot of food for thought. But in the end, I think one of the worst things an individual can do who's trying to create wealth or have a wealth breakthrough is overpay on taxes. That much I know. And I appreciate the fact that you spend your days every day trying to prevent that from happening, you know, to guys like me. So, uh, so thanks for taking the time to sit down and have this conversation. Thank you.

To see the next episode in the Wealth Breakthrough series, check the video right there next to me. I think you'll love it.

Continue to believe, and I'll see you there.

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