13. He Who Has The Gold Makes The Rules

You are listening to the Wealth Without Bay street podcast, a Canadian guide to building dependable wealth. Join your host, Richard Canfield, and Jason Lowe as they unlock the secrets to creating financial peace of mind in an uncertain world. Discover the strategies and mindsets to a financial future that you can bank on.

Welcome.

Welcome to another episode of Wealth Without Bay Street. Now, we didn't bring our measuring tape to see if we were actually properly socially with dealing distancing, but first of all, I think we're pretty social and it's pretty tough for us to be distanced being how social we are.

True. But I also haven't been here for many days. True. And you've basically been working in a. In a ghost office during this Covid crisis, and you've been the only one here.

Yes.

You've got sanitizers located all over the place. There's one at the front of your building.

Yes.

And your door's locked. So. So I think. I think it's working well.

Yeah, it's. It is work. Yes. It's good. So let's give each other one of these.

It hasn't stopped the amount of meetings that you've.

Not at all. My calendar is busier than. Than it's ever been. And.

You know, today's episode is. Is so important because, you know, I chatted a little bit about the article that came out, the announcement from Wells Fargo on Thursday. That. And for those of you who aren't aware. So Wells Fargo not only is a banking institution that went through quite a bit of controversy with all of the, you know, predatory sales practices and everything, that really created a lot of upheaval for. For the bank and for the stockholders of the bank and for the customers, of course, of the bank.

That's one of the reasons they pulled out of the Canadian marketplace, actually.

Yeah.

Yeah. Because they weren't here for a long period of time and they. It didn't stick very, very long in Canada.

And you know, what really got me going, what really triggered me today was the. The article, the announcement that they're no longer accepting applications for home equity lines of credit, or HELOCs, as people would. Would know them to be now. Why. Why would that trigger me? Well, I went through this in 0809 when Rebecca and I were living in Riverview, Florida. And, you know, we went through that.

We weren't caught in the crisis necessarily, the recession crisis that was going on, but we had a home equity line of credit, which, you know, primarily those are in the second position for people who aren't aware, you know, you have, you have the bank that's in the first position and then you could have another lender come in, in the second position and create a home equity line of credit.

Or I got to speak to that for a second. Or you'll have. Sometimes in Canada it's popular to have what I refer to as like a matrix product where they're like a blended component where it's, it's one lender and they have, they've split. It's a, it's a mortgage is just separated into two formats. So you've got your primary traditional mortgage component and the home equity line of credit, which is just your, it's just the ability to turn your home into an ATM essentially to do things. Many people use it for, for a variety of reasons, investment purposes. Consolidations is one of the most popular items. But ultimately it's, it's still considered a mortgage instrument. It has a different label, but if you were to pull the title on your property, you will still see it listed as a mortgage instrument. So often I hear from advisors and clients and people who are, are misled to believe that that line of credit is not a mortgage or it's somehow separate. It's not, it's still considered a mortgage, which is I, I believe the appropriate thing is originally stands for pledge of death. The mortgage pledge of death. But anyhow, on a happier note, there are, they're a product that is available and many people have them. And so we're going to speak about that today.

Yeah, you know, here's another part of that announcement that triggered me. So they weren't the only financial institution to announce that. JPMorgan Chase also previously announced that it's going to stop approving new home equity lines of credit, announcing tighter credit standards for new mortgage customers. So, you know, I'm not upset that more people are going to, you know, be exposed to the process of becoming your own banker where you can actually take control of the banking function and you're not relying upon institutions like these for access to capital. But what really bothers me is what's the signal that that sends in terms of what's coming?

It's kind of eerie.

So I've been waiting to do that for so long.

We've got tightening liquidity. We have institutions that are announcing like this. What does that say?

Well, they're, they're concerned about where, where equity's going, what's going to happen with the real estate market precisely because they don't want you tapping into equity. That's no longer there.

Precisely. And so when you think about. When you think about real estate. Right. The late R. Nelson Nash.

For.

For those of you who are joining us for the first time, be sure to subscribe, be sure to comment, be sure to, if you're seeing us on YouTubes, smash the like button, the subscribe button, the. What other buttons are there? The bell. You got to click the bell so you get notified for future videos. But R. Nelson Nash developed, pioneered, founded the process of becoming your own banker. Now, what did he used to say to us about real estate?

Well, he said a lot of things about real estate, but his biggest concern was how, when he was, you know, being trained on how to go and do. He had a very good success in real estate earlier on, you know, leading in the late 70s, leading up into the early 80s, and then everything flipped on its switch. And he says they always taught you, all the gurus, they taught you about the power of that leverage. Ooh, that leverage is so good, he would say. But not a single one of them ever tells you what happens when the lever goes the other way.

Right.

And when that happened in the early 80s, where did all the gurus go?

Well, you know, Richard, what's interesting, what you just said is that. So right now we're in, we stay. We're still in one of the lowest interest rate environments we've ever been in.

Yeah, they just dropped the rates again in order to stimulate the economic situation that's been created by the virus.

But I spoke to what really. Oh, gosh, this man. I'm telling you, this got me fired up the other day when I was chatting with a prospective client out of Ontario. And she's worked for decades, same career, and she moved on not to retire, but to actually start her own business and be an entrepreneur. And she's off to a good start.

Awesome.

But she required access to her home equity, $300,000 of equity in the property. Now, because she's decided to venture off and start her own enterprise, she was not granted access to that equity.

Right.

So when she needed the capital the most, and she had been paying on time, all the time, month after month, year after year, decade after decade, and the door gets closed on her. Now, when you think about real estate, you think about. Nelson used to say, you think about location, location, location.

Right.

In her case, it was location of the equity. Location of the equity. Location of the equity.

Right.

Had the equity been separated from the property inside of a policy or a system of policies, and she was in a position of total Control.

Then things would be much different for her and her ramping her business right now because she would not be dependent upon. You see, the process of becoming your own banker.

It breeds independent.

It repels dependency.

Right.

And one of my dear colleagues, James NETHERY in the U.S. kudos to you, James. Really picked. I loved that episode that you and Ryan did, by the way. But that's what this process does is it breeds independence. And we find yourself in a situation where so many hard working business owners, so many hard working families are being denied access to equity. Mm, net realizable equity.

Right. Well, Nelson even talks about that on page 85 of the book. He says, where would you like to have your money reside? Here's a couple of different places where you could have it in real estate. But real estate is very much a frozen asset because when you want to get access to the capital and you absolutely need it the most, often you're turned away because credit checks, you know, whatever, all these other additional reasons. But in this current timeframe, at the time of this recording, with what's been happening with the COVID virus and so forth, banks are simply, you know, they're gun shy about lending on these types of things. And not only that, people's. They only lend based on income capacity, based on someone's ability to make and prove they can make the payments. Right. So the bank can be made whole. Well, during a time frame when people are losing jobs and certain industries are being really impacted by that, well, the bank's not sure about anyone's ability to go and make those payments. Right. And so you have this great property and it's wonderful to have equity in it. But there's only two ways you can liberate the equity. One is to go back to the bank or to go to a third party capital reservoir to get secured mortgage lending.

Or sell it.

Or to sell it. And if you sell it, well, then what was the point of paying the house off if you don't have the house anymore?

Well, I think one of the more important questions is so as it relates to you, to our subscribers, to people who are on YouTubes and Facebooks and people who are just listening to us.

I like how there's more than one YouTube to you. It's like there's multiple. Multiple. It's the YouTubes. It's like some guy's got a screen, like 17 screens, he's watching programming from all over the place.

The question is, who controls the ability to get cash out of your property? Who controls that? Because if we go back to Nelson's example for a moment. So when he, he, so he shared with folks, he survived two and a half hours on a heart and lung machine.

And his heart was outside of his chest being re plumbed in four places. And he describes that because he doesn't remember it, of course, he was under anesthesia and he said, I wasn't really living, I was just existing. And this heart and lung machine was performing the function of making sure that I got oxygen and making sure that blood was circulating through my body.

So he said, you know, think about that, think about the banking business. The banking business pumps money where it's needed, no different than the heart pumps blood to where it's needed in the body.

Right.

So he said, most people out there on the street today have such a poor understanding of the importance of the banking business in their lives that they abdicate their responsibility, hence their opportunity by allowing someone else to control the banking function as it relates to their needs, which is the equivalent of, of living on a heart and lung machine.

Right. It does everything that the heart does, but only marginally so.

Right. And so when you think today about your financial circumstances, if you're, because we meet with so many people, right, Richard, you talk to people all the time who say, hey, you know, I own my home and I've got a bunch of equity, or better yet, it's unencumbered, it's debt free. Well that's great, but where's the equity and who's, who controls access to it? Do you have to go through a gatekeeper, a toll taker, a banker to get access to the cash in your property? If you contrast that to people who are practicing this process of becoming your own banker, the infinite banking concept, you're in a position of total and absolute control. And so going through the crisis back in 08 09, right. Speaking to people, getting them structured and set up with this process, they're not worried about that today.

Well, more importantly, this ties right back to what we started our chat with, which is these home equity lines of credit, which was the fire under your, the bee in your bonnet today. And so there was huge freeze ups of these credit lines that happened in the States and I'm sure it happened here in Canada. I can't think of specific circumstances offhand, but ultimately the bank just said, look, hey, this instrument where you were able to use as an ATM and do all that stuff with, we're just going to freeze that and whatever the current balance is that you owe you, we're now going to turn that into a structured monthly payment and you better. And we're going to demand. Or else we're going to demand that you pay us and make us whole right now. Right. Because they're a demand instrument. And if you read most of the, you know, the documentation, it says that they can just call it do whenever they want ultimately. Right. So they, again, they're in the control position at all times in that, in that type of a facility. Well, if you had the, if you had the policy system set up as well and that happened to you, well, you can simply make the choice to say, well, no problem, I've built up my reservoir here inside of my policy system that I control. I can go and fill their demand and I can just say, you know, send them a check and say, see you later. I don't need you guys anymore.

Yeah, that leaves you in control. You can use to do that. What's interesting is that, you know, every, so every payment that you make on a mortgage, you're strengthening the financial position of the lender and the lender's margin of safety because even though the mortgage balance might be coming down, the lender still has a mortgage on the entire deal.

Yeah, yeah, right down to the very last dollar. They have the, they, they have an encumbrance on there.

And so whose security are you trying to achieve, Yours or the banks? And so many people, because, because people look, for the most part, people that we speak to for the first time, they're looking at the world financially in the same way that everyone else is looking at the world financially.

Right.

And so once they, once they understand that they can take control of that banking function and they can create independence financially in their life, whether it's for their family or their business, everything changes. Their eyes get opened up to an entirely new financial world. And I'm so worked up about this.

Because yes, it's going to have an impact on people south of the border, but this is a smoke signal to the fire that's coming and it's going to have a ripple effect here in Canada, guaranteed.

Absolutely. Has to happen last time. It'll happen this time as well. And, and in Alberta, where we're located, even perhaps more so, because we've already been hit, economically speaking, very diff, you know, very hard from, you know, oil price adjustments and stuff. And literally, as of the time of this recording, I believe it was last week, we had negative oil prices for like the first time ever on record. And so that's, you know, when you're when you have an oil based, resource based economy like ours that's already been in a struggle position for a number of years, plus the virus, you know, plus a variety of other things, I mean, it doesn't bode well, you know. So I think anyone who's in the real estate environment should be, you know, rightfully concerned and thinking about what, what, what they can do to make sure that they're, they're, they're well preserved. But also what are the opportunities that are going to come about that may happen as well?

Oh, most definitely.

And more importantly, how are you protecting your capital? Because is it your, is it your capital protecting or are you protecting the banks?

Right.

We often do live events and one of the things we talk about, one of my favorite things to discuss is what we call the real truth in lending. And in the real truth in lending, we break down a mortgage amortization. And many people have seen them, but a lot of people haven't really dug into them a lot. And we all know that we pay an exorbitant amount of interest on a mortgage regardless of what the interest rate is. The key purpose of that example is to help people understand what is the volume of interest. And not only that, why is it, Nelson showed us in his, in his book, and he talked about this in his seminars, that the average North American will spend roughly 35 cents of every dollar towards interest throughout their lifetime. People said, well that's crazy. How is it, how is that impossible? Well, it's when you look at the volume of interest, it's not the interest rate, it's the physical dollars that are going to come into your life from your work and your income and then walk out of your life to some third party lender, never to be seen again. And so we cover that in the real truth lending example. And one of the key indicators of that is around the mortgage because people, especially in Canada, they will typically only stay in a five year fixed mortgage, on average about three and a half years. People will move, they'll get a new job, they'll need to upgrade, they had another child, they're changing the property, they need to do renovations, they need to consolidate other debts, the boat and the car and whatever. And in doing that process every time by breaking that, not only are you paying a prepayment penalty of interest, but you're also resetting right back to the very first day of that loan, right? And so you're never, you're always resetting that five year period and you're always paying the highest volume of interest during that time frame. And again, it's. It goes right back to what you said earlier. Who, whose security are you. You doing? When we tell people to say, look, instead of looking at this through the eyes of the consumer, take your consumer's hat on and put your banker's hat on and take a look at this mortgage through the eyeballs of what's in it for the bank? Right. What do they have? Well, they got a stream of payments.

Wow.

They're earning all that interest? Well, they have total security. Oh, they have, you know, hey, they make you pay for fire insurance on the property, so the homeowner pays for the fire insurance. But who's the first one that gets paid if the house burns down?

The lender.

The lender. Yep. So they're. They're in control of the whole process. That environment of control is what the purpose of becoming your own banker is all about. And the more that you can take back components of that control into your world, it only strengthens your financial ability, and it strengthens your ability for multiple generations, especially if you're teaching the next generation how to implement it.

Definitely. And this applies not only to just homeowners, but to real estate investors as well. Real estate investors who examine this process of becoming your own banker, they initially see it as an opportunity to acquire and purchase more property. Right. To expand their real estate investment portfolio. Well, what we want to do is we want to increase the margin of safety for the real estate investor, not for the lenders that they're dealing with and provide them with a growing pool of financial value that they have ready access to and that they completely control. You know, people talk all the time about the money they're making. This is how much money my properties are making, or this is how much money I'm making. What's really happening is the conversation is about how much money are you handling? Because you're. You're not really. You're not really making it. You're just handling it. It's all flowing through the books of someone else's bank. And when you need access to capital and you're in a situation like we're in right now, and mark my words, today's May 1st. Mark my words, let's take. Let's go back and we'll have a look at this episode two months from now, and we'll take a look at what's happening in the tightening of liquidity in the credit markets and the ripple effect that that's going to have across the board as it relates to Lending, credit cards, lines of credit, vehicle financing, you name it. We want to put you in a position of total and absolute control. And the first step on that journey is to first of all recognize that there's a problem. And when you can't get access to the equity in your property, that's a problem. When you're increasing the margin of safety for the lender and by proxy, dollar for dollar, decreasing your margin of safety, that's a problem. When you are permanently transferring money away every single month in the form of a mortgage payment or a payment toward an investment piece of real estate and you can't earn interest on that capital again, you can't save it again, you can't use it again, that's a problem. Whomever has the gold makes the rules. We want you to have the gold. Becoming your own banker. The infinite banking concept. Because once you have the gold, you get to make the rules. And yes, I blew a head gasket when I was reading these articles because you know, there are so many more people out there, Richard, who need.

To hear this message.

It's interesting you brought up those banks because Wells Fargo is one of the largest purchasers of bank owned life insurance on the planet.

Isn't that interesting?

They, they own, it's called Boli B O L I bank own life insurance. And primarily what they utilize that for, that is participating dividend paying whole life because they know it's a strong performing asset on their books. If it's a one of the methods of forming tier 1 capital which is required for keeping your bank charter.

That's right.

And they utilize the cash values that are created in there often for things like executive bonus packages and funding like executive benefit plans and that sort of thing.

Yeah, the commercial banks, you know, they're, they're.

I'd say from a regulatory or a compliance perspective or both, you know, their use of dividend paying participating whole life insurance is much different than what the consumer's use of it would be.

But you know what's interesting is that if they're, if they're utilizing that as a primary source of creating Tier one capital and they view it as one of the best performing assets on their balance sheet, then we can take a cue from that. But we know firsthand after practicing this process for many years that it feels a lot better to be in a position of control than we've been shouting from the rooftops for years when the next crisis hits. Now, of course, nobody had any idea that there would be a viral pandemic associated with the economic, you know, storm that was coming anyway. But clients who have been with us for years are saying thank you. I could literally reach through the computer and wrap you in a bear hug because we heard it, we heard it. It was being said repeatedly that our.

Money would be protected and that we would have guaranteed cash accumulation.

And not one client has called us during COVID 19 to say, you know what, Richard? You know what, Jason? I'm really pissed off that my cash values keep rising every day, day. It's frustrating me. We want you to be in a position of total and absolute control, but you have to want it more than we do ultimately.

You know, another thing that I was just thinking about is how.

How David Stearns, Nelson's son in law, we, we had an interview with David, her second episode actually of the podcast, and we had such great conversation with him. But going back to the, David's story about all their family policies in their system, you know, a whole bunch of small policies, a couple of bigger size ones, but it was a consistently growing, you know, as soon as he saw an opportunity, he would go get another policy. And, you know, he did an update on his family system in February at our think tank event. Phenomenal. Phenomenally done. It was so great to see the total environment of how they've built their family system up. And a lot of which is all stems from how Nelson had, you know, some of that's a rollover from Nelson. But you know, when David took over Nelson's house and you know, he always says he knocked the house down and rebuilt it and they did construction loans to, to pay for, you know, funding the rebuild of the property. Yeah, it all came through policy loans. They never lost the deed to the house. They, they maintained control over the house the entire time. And so that to me is as a perfect example, a real life example of this process in motion in, in the same format of what we're talking about here.

Agreed. And if I, if we take listeners back to the early 1980s, much different environment, interest rates peaked at 21 and a half percent. Nelson owed $500,000 in mortgage debt at that time.

And that was prime rate. But he had to pay 1.1.5 above that.

And so being a point and a half above that, $63,500 a year in interest that he wasn't expecting to pay. And so here's the thing, because at that time he was looking at the world financially the same way that everyone else was looking at the world financially. It took him a while to realize that he was standing right in front of the solution to the problem. He was putting over 18,000 a year in premiums into dividend paying, participating whole life insurance policies. He had access to capital in the form of policy loans from these insurance companies at 5, 6, 7%.

Took him 13 years to get rid of the snakes and dragons as he called them. And then him and his wife Mary, for the rest of their lives they never saw a commercial bank for anything other than the convenience of debit.

Yep.

That is a peaceful, stress free financial existence.

It can be accomplished by anyone.

That's right. That was the biggest. That's one of the biggest things in Nelson's book is that he says you don't have to be rich to get into the banking business. You just simply have to understand how much of the banking requirements are needed for you in your lifetime and rethink, get serious about rethinking your day to day cash flow. Where can you find capital that's already running through your hands that you can optimize better work? You know, ideally working with a coach because usually someone will have a better. Often when we're stuck in our own financial bubble, our own financial world, there's things that we can't see because we're too close to the information. That's why working with a coach is important, because they can fly in and have a, I like to call it a helicopter view. They can get up to 4,000ft and take a look and see at everything that's going on. And they can kind of isolate and pinpoint areas where they can optimize cash flow so that you can increase or create funding resources for an infinite banking system that will allow you to begin the process of taking over these chunks in your life. And it doesn't happen overnight. And that's not its intention. It's a long term method of thinking. It's a lifestyle. As David Stern said, it becomes a financial lifestyle. It is something that you do and incorporate into your life and you embrace it and you embody and it becomes something that you do on a day to day basis. And it's a game changer.

The more you do it, the easier it gets.

Totally.

And I'll never forget Nelson saying that, you know.

The process of becoming your own banker is ridiculously simple. It doesn't need to be sensationalized. Well, when we're in an environment like this today, May 1st.

Where so many families are wondering what's in store for them in the future.

If, if you are in a place where you're, you know, Unwillingly financially dependent on a bank, a finance institution, and you want to be in a position where you are finance, you've created financial independence, then examining, giving this process a good look.

Is going to be incredibly advantageous for you. So you can reprogram the way that you do things financially. Come out of COVID 19, come out of the economic storms here that are still on the horizon.

And even. And there's also another one that's just down the, like, whether it's five years, seven years or 10 years down the road, something else is going to happen. It's going to hit. We're just gonna hit the reset button because here we are, we're a decade later from the last find, the financial crisis, as it's been known to be called. And we're literally seeing a reset where people who had every opportunity to get out of that environment of being in, you know, manipulating stock market type environment, you know, assets and investments, they had every opportunity to get out of that, that environment, and they haven't done so. And they're seeing the same. I bumped into a neighbor the other day as I was cleaning up my yard for my acreage. I'm gonna, you know, lots of yard cleanup when you have an acreage. And you know, we're, you know, we're obviously at distance because we're on an acreage. But she identified, you know, she was, you know, getting ready for retirement and now she's got to work longer because of what's happened with her retirement accounts. And it's like I'm, I'm. I'm very sad for that. I'm. It's difficult to hear because it's, you know, certainly we. Her and I've never had a conversation about, about this process. But, you know, unfortunately, that is the scenario and it's not, it's not. She's not the only one. I suspect that that's going to be a common denominator with many people who've been approaching that retirement age. And they're going to have to now work longer because they got to wait for their stuff to come back up or they got to just got to take the hit or they're going to be now more heavily reliant on the government system to therefore fund what retirement they have. Which is, which is. Where does all that money come from? Well, the money has to come from the people who are still working. Yeah. And it comes from, you know, you know, taxes and taxation coming off of, you know, everyone else that's still earning an income. So it's a, it's a crazy system and that's unfortunately where we're at. And so you, you and only you have the ability to start getting the education that's required, investing in yourself and taking the necessary action to begin a process like this and, you know, research it, verify that it's what you know, what you believe it to be and it'll work for you. And then take the necessary steps, get started. When's the best time to plant a tree?

20 years ago.

And the next best time is right now.

Literally right now.

Thanks for listening to the Wealth Without Bay street podcast where your wealth matters. Be sure to check out our social media channels for more great content. Hit subscribe on your favorite podcast player and be sure to rate the show. We definitely appreciate it. And don't forget to share this episode with someone you care about. Join us on the next episode where we continue to uncover the financial tools, strategies and the mindsets that maximize your wealth.