It Took Me 40 Years to Learn About Debt What I’ll Teach You in 11 Minutes

In 2008, I had a multimillion dollar portfolio and I lost almost all of it. And it's not because the market crashed, which of course in 2008 it did, but it was really because of one decision I had made before that it crashed. Now today I wanna tell you exactly what that decision was and what I'd say to myself if I could go back in time and I could stop it. Ready? Let's go. All right, so to understand the story, let's just go back in time. Okay, let's go back to the early 2000s. And you know, I had built up a couple businesses, two different businesses as a matter of fact, that I had big exits from. One was a high-tech medical equipment device company. I sold to the, the largest medical distributor in the world. Another one was an internet company, big exits. And I had been also developing real estate. And I decided that I was going to sell my businesses and I was going to put it all in, in real estate, all in, push all the chips in. Now, right off the bat, maybe that sounds risky, but that's not what actually brought me down. But what happened is, before I tell you exactly what went wrong, so fast forwarding, of course, 2008 comes and we have a great financial crash. The great financial crash took down the banking system, of course, and it was a real estate crash throughout the United States. And of course, the, the rest of the world felt that. But in a few states, in a few areas, it was felt more than others. And of course, here in California where I'm at, we were hit extremely hard. Now, in that downturn, the real estate in California had dropped about 60%. And you have to understand what type of real estate I was actually doing at the time. I had sold almost all of my rental properties that were producing income, and I was developing. I was building from the ground up. I had mixed-use commercial, residential. I had condo complexes we were building. From the ground up. And so you have to understand the context of what the portfolio actually looked like, what I was concentrated in. We were in real estate, specifically real estate of building and development real estate without the cash flow coming from rental properties and without the cash flow coming from businesses because I had sold those as well. Now, if you understand that, it helps you understand what went wrong and what I could do differently next time. You see, a lot of people are afraid of two things. That I think are beneficial for us. The first thing that people are afraid of when it comes to building wealth is volatility. They think volatility is dangerous. I talk about Bitcoin. Oh, Bitcoin's way too volatile. It's too dangerous. Maybe for some real estate, it's too volatile and too dangerous. But volatility is not the problem. The problem is being a forced seller, being forced to sell at the bottom of the market. And that's what happened to me in my real estate portfolio. When 2008 came and the market dropped by 60% in a year, I was forced to sell a lot of the buildings at the bottom, down 60% of my portfolio. If I hadn't been forced to sell, I could have ridden them back up. Today they're worth way more than they were back then. So the volatility wasn't the problem. It was being a forced seller that forced me to sell at the worst possible time. So then the question becomes, why was I a forced seller? And this is where we need to take the rest of the story so you can understand how to build wealth differently today. Okay, so if it wasn't the volatility that was the problem for me, it was being a forced seller, then what else was it? Then my— someone might point to, but Did you have loans against them? That's probably why you were a for sale, right? You had loans, you used debt, you had leverage. And you know, that's why Dave Ramsey says that I shouldn't have any debt because debt is dangerous. Debt cuts both ways. Well, it does cut both ways. Debt is a tool. Debt is leverage. And that leverage helps me gain faster, but it also helps you lose faster. I like to think of debt and leverage sort of like fire. Fire is absolutely necessary. Fire cooks my food. Fire warms my house. But if I use it wrong, it burns my house down. It's absolutely necessary, but it must be used the right way. So it wasn't the fact that I had volatility in my portfolio, and it wasn't the fact that I used leverage or debt in my portfolio. What happened is that I didn't mitigate against the risk. I didn't put the fire in the fireplace. I let the fire burn down the house. So if I was going back and doing it all over again, knowing what I know today, how I've built my wealth today, Things will be completely different. So let me walk you through the 4 layers of protection or liquidity that we use to mitigate the risk. Okay, now real quick, before I keep going and I show you the 4 layers that I use to protect myself, I do want to let you know that I have my team. They run these free audits where they can go through your portfolio and find out where the risk is and help you prevent the risk before it happens. Like it happened to me. If you want to book one of those calls, I'll put a QR code here on the screen. We'll put a description down below. Go ahead and grab your spot and let's keep going in the video. Okay, so let me show you what I'm talking about now. Let me just change your mindset first before we get into the taxes of this. And what am I talking about mindset? The problem with the mindset for most people is they think that things are risky or not risky. So I won't buy Bitcoin, it's too risky, or I won't invest, it's too risky because if I invest into this asset, this thing, whatever, I could lose my money. So they think that there's risk in doing the investment and there's not risk if they don't do the investment. And that's where we want to start because that's not true. There's risk in everything, and there's risk in both options. Let me give you an example that's easy to understand. If I go to the gym to stay in shape, it's risky. I could get in a car accident on the way to the gym. I could hurt my shoulder when I'm lifting weights. It's risky going to the gym. If I don't go to the gym, it's not risky, right? No, wrong. If I don't go to the gym, then I have risks of heart disease and obesity and depression. Now, if I don't want obesity and heart disease and depression, how do I mitigate that? Well, I go to the gym. And so if you think that investing is risky and not investing is not, well, if you don't, you're going to run out of money. If you don't, your wealth is not going to carry you into retirement. So how do I mitigate against that risk? I invest. And then how do I mitigate from the dangers of investing? That's what we're going to talk about. So if I could have only known this back in 2008, here's how I could have changed everything. And it's how I run my portfolio today. And you might want to as well. So if you want to build wealth, you're probably going to use some debt. The age-old way to build wealth has been through real estate. I'm gonna buy rental properties. I'm gonna go into apartment complexes, buy a home. But nobody thinks about buying those with cash. Of course, we're gonna buy those with loans. And the reason why that's important, real quickly, is that money is created through debt issuance. You have a money tree in your backyard. The money tree in your backyard is the bank, and the bank will give you as much money as you want as long as you have the collateral for it. But that leverage has to be managed properly. So how do we do that? Well, if I take on debt or I use leverage and I want to buy a home or an apartment complex or whatever, and then maybe I want to use some of that equity and put it into another asset too over here. Well, now I have payments that are due. And so the question that most people ask is, what happens if I can't afford the payments? What happens if the asset loses value or something like that? And obviously that's a pretty good risk because Mark, you just told us our story. That's what happened. To you in 2008, right? As I said, it wasn't the volatility that got me because the properties are worth more today than they were back then. It was not being able to sustain them. Okay, well then why? Why wasn't I able to sustain them? It's because I didn't have any cash flow. Why? Because I had sold my businesses and I had sold my cash flow real estate. So I didn't have any cash flow coming in. Now I did owe money on the properties I was building. I owed money on the apartment complexes and the, and the condo complexes that I was building. And so when the market was going volatile like this, here, it was good. But when it got to here, I didn't have the money to put in. Easy enough to understand. So the easy, obvious answer is, well, make sure you have money, which sounds easier than it sounds, but let me show you an actual strategy that you can use to make sure you don't run out of money. Now, I call this my 4 layers of liquidity, and I want to break my assets down like this. Okay. So we have 4 layers here. Now, layer number 1 is my operating capital. So I have income coming in, I have expenses going out, and I have some money left over. So if I have investments, if I have money that's being owed for these investments, I want to make sure, number 1, do I have enough free cash flow to make those payments? In my case, I didn't. Why? Because I had sold my businesses and I had sold my cash flow income. So I didn't have that. So number 1, I want to make sure, do I have enough money coming in to cover those payments? Now, where does the money come in from? Well, it can come in from your business, right? It come in from your job. It can come in from investments, wherever that money comes in from. But I want to make sure I have enough free cash flow to cover that. Then number 2, let's say that I run out of this money. Let's say that I don't have enough to cover that. I didn't cover it for as long as I thought I needed to cover it for, or my business or my job takes a hit and I don't have that. Well, then I fall back to layer number 2. The Putting number 2 is what I call cash equivalents. Okay. So those are cash-like equivalents, meaning that they're not volatile. They're not going up and down. They're earning me yield. They're investments that earn me yield, but they're not subject to volatility in the market. That could be Treasury bills. It could be certain stocks that I use that have high cash flow, things like that. And so I'm earning money here. It's not cash. I'm earning yield. It's an investment, but it's cash equivalent. So if I run out here, then I need to make sure this layer is enough to cover all of this. Well, let's say that, man, this is worse than 2008. This is even deeper. Not only did I lose my job, lose my income, run out of number 1, now I burned all the way through layer number 2 as well. Shoot. Okay, well then I have layer number 3. What's layer number 3? Well, these are my assets, but these are assets that are collateral assets, meaning that I can get liquidity against these assets if I need to. Remember, volatility is not the problem. It's being a forced seller at the worst time. So my goal is just to get myself back up to the top. So I've gone through 1, I've gone through number 2. Now, Number 3, I tap into my assets that are used as collateral. And let's just say that, man, this is worse than 2008, worse than 2020. It's the worst we've ever seen. And now I've burned through layer 3. Well, now I have layer number 4, and these are just my assets, not collateral assets. These are other types of assets. And maybe I have to— unfortunately, I have to sell some of them in order to cover that. But I have 4 layers that protect me until I implode, until I'm forced to liquidate everything at the worst possible time. Now, the strategy is simple enough. It's not easy, but it's simple enough. The questions that you need to figure out is what should those buckets be? How big should they be? Should bucket number 1, should that be 3 months, 6 months, 12 months, 18 months? And layer number 2, what assets should be in there that still get me a good return, a 10, 12% return? And how many months of coverage do I need to have in there? What do I think about timeframes? How fast can I access liquidity? Same for number 3 and 4. So simple in nature, not as easy to apply, but understanding this framework work is the difference. This would have saved me in 2008 and I'd be, uh, way more wealthy today if I would have known this. And you will be as well, because again, the volatility is not the problem. The volatility is our friend. Everybody wants the volatility to the upside. What everyone's afraid of is the volatility to the downside. But as long as you build your fortress properly, you don't really have to worry about it. And this is what allows you to go harder, to push harder and build wealth even faster. Okay. So this is what I wish I would have known. And I'm always going to tell you what I wish I would hear if I was on the other side of the table. Now, if, uh, hearing about the past problems I've made isn't enough, you might want to hear about what I'm doing now today, not just to protect myself, but to build wealth. And if you want to know about that, you're probably going to watch this video right here, and I'll see you over there.