Create More Wealth & Pay Less Taxes with Patrick Lonergan

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Close nodes, Scott Carson. Good morning, good afternoon and good evening, everybody. Hey, welcome to this episode of the Note Closure show. As always, Scott Carson jacked up. Today we've got a very special guest that I guarantee you probably want to take some notes on for you guys out there. This guy, he is an expert in his field. He is a rock star who's definitely helping a ton of people out there really take their businesses to the next level in a variety of fashions. But he owns Vital Strategies and they work with entrepreneurs. And many of you guys listening here are entrepreneurs who make over $1 million a year that have a tax problem. We're getting to the end of the year. I mean corporate taxes are due relatively soon. People like him and pushing off Uncle Sam giving the old Heisman pose. So our guy on here, he's also a real estate investor for over 20 years. So you're definitely want to listen what he has to say. So who am I talking about? Well, we're talking about Patrick Lonergan. So. Hey Patrick, glad to have you here on the Note Closure show today. How are you doing today, Scott?

I'm doing very well. I appreciate you having me. I'm excited about our conversation. I think this is going to be a lot of fun.

Yeah. Now I love it. If you're listening to this, you can't see his background. I love the background and I especially like the sign to your left. This is do hard things. You know what I mean? That's obviously got to have a little bit of impact on your mentality and where you're, where you focus. Can you, can you talk about that?

Absolutely. I, I think it applies to just about every area of our life. You know, we can think about it from a business perspective. I, I'm yet to do anything business wise that I, that goes as easily as I think it's going to. You know, every, every venture I wander into, I, I, I get started and then there's this dip that you get to just decide am I going to grind through this for, are we going to just give up and go try something else. And so I, I think there's a lot of value that comes out of grinding through the, the dip and making it through to the other side. You, you get a hang out in territory that most people don't get to. And I also think it applies to lots of areas of our lives, like you know, relationships. I've been married over 20 years. Like relationships are hard and it's the same way, you know, we, you grind through it and it's just, it's just worth it. I'm a parent. I think about health and fitness and all those other things. Like I'm yet to come, come to something that's like. It doesn't take work to, to get through and find the, the fulfillment on the other side. So yeah, that's, that's where that comes from. Thank you, I appreciate that.

I, I totally believe that because I think anything worthwhile takes a little bit of that four letter word called work. And it's not easy. You know, if you do something worthwhile it takes, takes work, it takes showing up and doing the hard things. And especially I love it because in your little buy you talked about focus on living a great life. Well, I don't think a great life is just given to you. I think it's hard doing the things that maybe most folks don't want to do to achieve successes that hit that rare area that most people never achieve. Right?

Yeah, absolutely. And you know, I think we, we could sort of lied to a little bit by society about what a great life looks like. Generally we, we think it's a lot of money. And I am, hear me say I am not opposed to making a lot of money. But if we think money's going to make us happy, it's, that's not the truth. There's this acronym we really like called reach. So Rs for relationships, ease for experiences. A's for advancement, growth, that type of thing. C's contribution. It's better to give than receive. And then H is our health. We think there's three components to that. Spiritual, emotional and mental health. Right. Like you can't, or my physical health. You can't give me cancer for any amount of money. If I'm depressed and can't get out of bed, it doesn't matter how much cash I have in the bank. So, so we think we have a lot of control over all of those things. And so I would rather see us like live a full life and have zero dollars at the end of the day than a hundred million dollars in our bank account and chasing the wrong things. So yeah, that's, that's where a full life comes from. And we think that that really Matters.

I like that. That's very catchy. You know, expanding your reach. Definitely on that aspect of there, that I'll have to have you send that to me again and go back and listen to this myself to mark that down, because I really like that. And that's the thing too is, is so many entrepreneurs out there. I think the biggest thing is, hey, get ahead, make more money. You know, get, you know, he, who, he or she who has the most toys at the end wins. Well, if you can't enjoy the toys or you can't take it with you, what are you missing out in? A lot. I got a buddy right now who's picking up his, his Tesla truck today. Okay. And he's been working on it for two years, you know, waiting for two years this truck to be. I'm like, you know, you know, what is that going to do for you? In the last two years, you've had to sell your business because your partners disagreed. You got divorced because you're spending too much time out drinking. Now your two kids don't love you or don't want to spend time with you. Was it worth it? You know what I mean?

Absolutely. And, and you're, you're nailing it. And one of the reasons we like that acronym reach is, you know, the world tells us to go pursue things outside of our reach, get a bigger, faster, shinier, you know, the next thing is where, you know, dissatisfaction will come. And it's, it's not true. There's a lot of it just right here that we can control. Goes back to, you know, do the hard things with the things you've got. So good. I love it. Thank you.

Well, so you've, you know, you've got, you're currently an investor and you're in over $120 million worth of projects and stuff like that. And you built Vital Strategies. Can you talk a little about kind of that aspect of that transition or going in? What led you to creating Vital and building the company?

Absolutely. So we started off as a just mom and pop real estate company, getting my hands on deals any way I could. And that, that, that business grew nicely. I eventually recruited my wife into the business, and that's when it really took off. She's the, she's the brains of the operation.

Aren't they always?

Yes, absolutely. And so we, we moved into large multifamily projects. And then the, the recession came in 2008, 9, 10, and it was my job to go find the deal, raise the money, and then I handed it to My wife and she, she managed the operations. And at that point in time, we owned a bunch of property in Texas. Texas was actually a great place to own property at the end of the early 2000s because oil was doing so well. They didn't see the big run up in prices there. And so they didn't see the dramatic fall off. And so. But there was no deals to be had really outside of that. And so I was like, okay, I need to reinvent myself. And so we, Julie continued to run that. It's transitioned into more senior housing property. And my thought was, okay, as a, as an entrepreneur, I would have financial advisors come talk to me. And they were completely missing the boat. I don't need your stock market returns, you know, my best investments in my business. And so I need tax strategy, I need liquidity. As a, as a real estate guy, I was always had more deals than I had time and money to execute on. And so it was like I needed somebody to sort of pull the reins back and make sure I had enough cash available and then really just helping me accomplish our goals. And so when I got into the arena, I thought, that's the direction we're going to go. We're going to help business owners grow their business, manage liquidity, pay the least amount of tax possible. And we've come to understand and realize there's sort of three pillars that fall into that. Owning the business that generates a lot of cash is sort of a key piece of holding a lot of wealth in real estate. I understand the. I'm going to call it passive. I'm going to argue a little bit that real estate isn't exactly a passive investment. I agree with takes. It just takes time and energy. I can't go buy like Amazon stock, forget about it, come back 10 years later and it's worth more money. If I do that with my real estate project, I'm going to have a massive problem. It'll be foreclosed, the tenants will have consumed it or, you know, whatever may.

Not be even be there anymore, you know.

Right. It just, it does take time and energy. So, but we, I hold the majority of my wealth in real estate, but we do think there's a third pillar of portfolio assets that really, you know, it's sort of the stock and bond. It's not very sexy. But at the end of the day, if I just want to go sit on the beach, I can turn that into an income stream. It can replace my income from the business and just take care of me. I don't need to invest time and energy doing it. And so we think that's a critical piece too. But the business and the real estate, that's where all the wealth happens in, in my mind. So that's, that's how we started in real estate and moved to financial advisory. And now we're working with clients just helping to build those, those pillars and live a great life. So.

Well, as an ex financial advisor myself, years ago, when I was in the banking and handling that stuff and doing IT and license and all that stuff, that's what, one of the things when I was doing research on you, I was like, oh, this guy speaks the languages. And I think a lot of people, especially real estate investors, entrepreneurs out there, it's, it's a black and white thing. I'm gonna buy something, I'm gonna make this profit. And they, that, that's all they look at. They don't understand. There's a lot of gray areas out there in, in the, in the tax planning, the operations, stuff like that can really boost that black and keep you out of the red. But it's a whole different level of, I say profit that most people don't tap into because they don't know about it or they just aren't educated on that aspect of things. Right?

Absolutely. And one of the things I left out of owning real estate, that is just phenomenal, especially when your real estate portfolio is growing, it can effectively wipe out your tax bill. Oh, yeah. Now we can start looking at things like depreciation, accelerated depreciation, cost segregation studies. You know, there's PAD studies, partial asset disposition, 45L, there's some different energy efficient tax benefits there. And my wife and I have been able to, you know, she continues to grow the portfolio. I've got the profitable financial advisory business and at the end of the day, we're hardly paying any tax. And it's like, this is, this is fantastic. When the government's not taking a third or a half of all the dollars you're making, like, think of what can happen with your wealth. And so we just look at that and go, all right, this is, this is where people need to be. And we have to think about the tax code as a, it's an incentive plan, right?

Yep.

The government is just pulling levers to get us to participate in different activities. Right. Like we get a tax deduction when we fund 401k. Cool. They're trying to entice people to do that. You get a tax deduction when you own and develop real estate in the form of depreciation. Great. They're just incentivizing me to do that. So let's just go find those incentives and use them to. To the max.

Yeah. And that's what I think. I kind of call it a cheat code, because they'll literally tell you all the different ways if you'll take the time and have a professional that can read that matrix or read it. Because sometimes it's like reading Cantonese. It's not reading Latin of some sort. It's different. But understand that. That those things, they're there to benefit you. And I'm always. I'm always cracking up at the news or people, they're like, oh, this guy didn't pay any taxes. It's like he's just using the cheat codes that are available to you as well. Right. And you're like, you're smiling there and you're. I take it you agree with me there a little bit there.

Absolutely. Like, you know, there's. And you're right. You know, the tax was like 85,000 pages. We don't even know how many pages are in the thing. And, you know, but that's what it's there for. And the thing we've come to understand is entrepreneurs move quickly. The government does not. So when they create a loophole, like, we're going to find it and expose it as quickly as we can. And we've got four different levels of tax planning that we like to lean into. And I'll just walk through those real quick. But level one is the IRS gives us guidance, and it doesn't take any investment. Okay, so what's a good example of that? One would be, like, home office deduction. If we're looking for, like, super. The Augusta rule, if you're familiar with that, you can rent your house out for 14 days and not have to claim it as income. So why shouldn't my business hold some business meetings at my house, and I can get a deduction on the business side and not have to claim it as income. On the personal side, like, love that strategy. Same thing. We can put our kids to work. Right? Put kids to work in the business, have them doing legitimate things. Especially when we own real estate. Like, there's always a project. They can go rake leaves, mow grass.

Always a yard to clean up. You know what I mean?

Absolutely. So you can pay your kids $13,850. That moves it from your top tax bracket into the 0% tax bracket, because that's the standard deduction amount. It's like, okay, these are just good administration, bookkeeping type things we should, we should be taking advantage of. And when we look at those, it's like there's 10 grand of tax savings without it costing me any money. Like we should just do those. Level two is the IRS gives us guidance, but it takes investment. Most Common Strategies, 401K Plan, IRA. But you can get into strategies like a cash balance plan where we've got clients putting four or five hundred thousand dollars a year into those strategies that you don't have to pay tax on. We think those are great. Level three is the IRS permits it, but they may not like it because it's been abused in the past. Okay. And a good example of that would be like a captive insurance company. Okay, you can set up your own insurance company and fund it, but those have been abused. And it's not like a bank account that you can just go take the money and use it. So the IRS looks very closely at those. And so if we're going to set one up, we need to understand we got to have the right third party administrator and do it all properly. And then level four. Level four is tax fraud. And the reason we bring it up is because people are out there selling these strategies like they're legitimate. Like, hey, if you just create this amazing trust structure that predates the United States, you'll never have to pay tax. It's like that's where the Department of Justice comes and knocks on your door and takes you off to tax jail. Like that's, that's not a real thing. And, and we can actually take any one of those, those strategies. Level one, two, three, abuse them and they end up as a level four strategy. If I put my kids on payroll, they don't actually do any work and I pay them, it's pretty much tax fraud. Like I shouldn't be doing that. Let's, let's like teach our kids something about the value of work and get them to it and you know, it's win all the way around. So we think those four levels of tax planning make a lot of sense. We always start at level one, fill up those buckets until we, we finish at level three. A lot of times we don't make it that far because you got to invest real dollars to, to get those deductions. And so that's, that's how we, we look at those things. But real estate fits into those, those scenarios so well to create deductions for, for people.

Oh, it totally does. And if you know the difference, ins and outs and loopholes is definitely a great thing. What are when you talk with me? Because you've got, you're not working with just a brand new investor. You're usually looking for somebody who's at least what, in the seven figures? Arrange that. Right, Patrick?

Yeah, that, that's a, that's a good question. So a lot of times our, our clients don't have a lot of investment dollars because all of their wealth is tied up in their business. But they do generally have free cash flow. And what we found is somebody making about a million dollars a year. They spend about a third of it on lifestyle, they send about a third of it to the government, and then they save about a third of it. So there's about 300 grand that they're just like, okay, I don't necessarily know where to put these dollars. A lot of times it goes back into the business. And so when we're looking at those things, we're going, okay, what are your goals? Let's, let's try to minimize the tax bill. If we can cut a hundred thousand dollars out of that figure that you're sending to the irs, let's get that reallocated into, into wealth building. So, yeah, those are, those are typically the clients we work with. And a lot of times we're trying to catch people on that, that upward curve and we can, we can serve those people in, in lots of different capacities. We've got some free resources that people can find on our website that just can go help them start saving some money, you know, and then they save some money. They should turn around and call you and go, all right, Scott, I, I need to build my real estate empire. Help me do that. So.

Right, well, but that's, that's one of the things doing a lot of research out there. There's that niche really, that group of individuals out there below that $10 million value, 5 million, that really are underserved. I mean, everybody's out there trying to chase those whales, have a lot of cash and stuff like that. But there's a lot of investors out there that fall in, into that category you're talking about. They're making money, but they're heavily invested in real estate. And many of them have started it, you know, started off just being mom pod, making things happen and, and riding that appreciation growth. They're adding a, a property or two every quarter, stuff like that. Whether it's a rental or sub, two deals or note, investing is what our niche is. What are the, some of the things that you see that stand out as big as big. Aha. Moments for folks when they're, they're sitting down with their things that make immediate impact. You mentioned a couple small things there, but on the average somebody doesn't have any kids, you know what I mean? What are some of the things that you're like, hey, have you done this? Or you see that pop up regularly that you're helping folks with?

Yeah, absolutely. Especially on the real estate side, I think there's opportunities that are, are just regularly missed and those boil down to, we think cost segregation study makes a lot of sense. If we're going to get the deduction. I'd rather take it today than wait four, five, six, seven years. And the tax cuts and job act allowed us to accelerate all of the short term depreciation. It was 100% in 22, it was 80% in 23. I believe it's 60% in 24. That's still a fantastic deduction that we can take and a lot of people just leave that on the table. Another thing that we look at is oftentimes we've got clients that are business owners and then they might own some real estate, but the spouse isn't qualified as a real estate professional. Yeah, and they should like, they, they should go after that because then it allows us to. And they maybe not haven't necessarily needed it moving forward, but the real estate professional status is, it's awesome. It allows you to take losses over that $25,000 and that 25,000 fades out, phases out if you're making over 100 grand a year. So it's like let's, let's use those losses against the business income and they're really phantom losses and so can just drive that, that deduction down. And some people will go, yeah, no, I spent all sorts of time. It's like, well, let's get that real estate professional status. And just it's 750 hours and your primary activity. That's what you need to spend in a year. So I can't be a dentist working 2000 hours and try to be hit the 750 threshold. Like the IRS is going to look at that and it just doesn't work. It needs to be your primary activity and have to have at least 750 hours. So like if we can get those two married up, like that's a perfect scenario in my mind for the business owner and the real estate investor to really capitalize on, on all the opportunities available to them.

That's what, 15, that's under 20 hours a week. If you calculate all of that, I mean that's, you figure two hours at night working on leads, you know what I mean? And that's, that's 10 hours a week. Then you get five hours on Saturday, Sunday, go drive around looking at houses or dealing with your fix and flips and stuff like that, right?

Absolutely. And one, one misconception too is you don't need to be a realtor to be a real estate professional. You just need to be involved in the business of real estate. And so I think one of the best things, we think documentation is key for tax deductions, like start a Google calendar and just keep track of all of the things you're doing in regards to real estate activities. You spend a couple hours looking at the mls, like put it on your calendar, you know, so when the IRS ever questions it, we can say, look, here's all of my confirmation that these activities were done. We, we think that one's again, it's a fantastic incentive offered to us by the, the tax code.

Yeah, I, I totally agree to that. Now how important when you look at somebody who's transitioning, you know what I mean, they're going from a full time W2 career, the transition to a full time real estate investors. What are some of the steps that you highly recommend? Folks, they, they, they start putting in place ahead of time.

Yeah, this is, this is good. We've had some new business owners come to us going, hey, I'm making a fair amount of money and we start looking at their books and the books are a disaster. So I, I think the first thing you can do is really, we, we think just setting up a separate entity makes all the sense in the world. Register with the Secretary of State, get your ein, open a bank account, and then get a separate debit or credit card that you're only running your business transactions through. Like it can be okay to sort of go from this was a hobby to now I'm, I'm a professional. And they, you need to start treating it like a professional. We also think just having QuickBooks and it's really hard to do tax planning for somebody that doesn't have their books done. So we always like to look in July and go, okay, let's project out your income, see where you're at, and let's come up with a strategy to minimize the tax bill. And if all we have is bank accounts, no idea what the income and expense is other than the money sitting in the account, it's like, well, did you take it out personally? Like we don't know. So I, I think those things are fantastic first steps, like spend a minute getting those things done. I think it's good to do a little bit of your bookkeeping on your own, but as soon as you get a little bit too busy, you hand that off to a bookkeeper and they stay on top of it. And it's so refreshing to be able to look at your books every month and see, all right, I know exactly where I'm at. There's no better way to tell the health of a business than looking at the books. And, and a lot of times business owners don't have a clue, so.

Well, that's the thing. They're commingling their day in, day out, individual activities, as an individual, with the day and day activities, the business. And you've got to separate those two to see really what's a clear picture and see what's going on. A lot of cases. Then two, see what you can qualify as deductible in a lot of cases. Whether it's a business expense or it's a personal expense, too. It's different, right?

Absolutely. And the IRS is going to. If everything's coming into my business or my personal account, and I say, no, these meals were business and those were personal. They're going to look at it and go, no, they're all personal. You know where if I split them out and I go, yep, these were with prospects, business partners, and these were with my wife and kids. Fantastic. Now, I'm not saying you can't have wife and kid dinners that are business dinners, like you definitely can. You just need to, you just need to have a good system to keep them separated. So, yeah, that's, that's a fantastic place to start for, for people that are, are really just getting going. And that's a lesson. I, I'll say it took me a while to learn. I was trying to do my books. It was super frustrating. And then a, you know, a couple years in, I'm like, forget this. We're just handing it off to a professional. So I think the goal for your listeners is to shortcut the process. And I think, you know, they can engage with you to help shortcut the process. I think this is another one. Just please do what you're best at when you're in your business and hire things out to other folks that they're best at.

Yeah, yeah. Do your. Do stay in your, your zone of genius and outsource. Delegate your weaknesses in a lot of cases. And oftentimes people wait to do their books to the very end or don't do it at all in a lot of cases. You know, who, who hasn't been down that road before? So I want to ask you something. Everything that happened, especially a lot of real estate investors were impacted during COVID you know, with the foreclosure delays and people not paying rent. Were there some things that people were able to take advantage of as far as discount or write offs or. I had somebody one time say something, oh, it was a, it was a catastrophe, national disaster, basically. You write a lot of stuff off because it was national disaster and the code was written loosely. Can you clarify a little bit of that or talk more about that?

Yeah, yeah, I, I think some of the things that maybe we saw as opportunities were. There's, there's really three that I think were, were more opportunities and I don't know if they fall into the, the write off side of things, but a little bit. So PPP loans were interesting. So if you had a management operation, had revenue and wages and that type of thing, those were dollars you could go get. Now I know there's a little bit of abuse there, but at the end of the day a lot of those, a lot of those PPP loans were just completely forgiven, which you know, we can argue is free money from the government. Somebody's got to pay for it. It says taxpayers, but if we can keep the tax bill as low as possible, we'll let somebody else do it. Right. So I think that's that, that, that's one. Another one was Eidl loans. Those were, those came out at a perfect time. They gave a lot of money at three and a half percent. And it's like you sort of had the government giving you dollars if you qualified to go, you know, continue to run and maintain your business. Now you have to keep those dollars inside the business. But we're real estate professionals. Who cares if I got a million dollars from the government at three and a half percent and now even if I took those dollars and invested them in treasuries at 5%, I'm still coming out ahead. It's like that's a fantastic like arbitrage opportunity to take advantage of. And then there's the employee retention tax credits. Again, if you had some employees, there were some opportunities to go pursue those. I think again, there was a little bit of abuse on that. The, the IRS has actually shut down that any more applications for that until they sort of figure out a way to figure out who's cheating the system and who's not. But those were, those were really nice opportunities too. We saw some clients getting four or five hundred thousand dollar checks from their payroll tax. Now we do have to recognize that that does count as income in those years, but it still economically works out as, you know, way, way ahead versus not receiving those dollars. But we do have to go back and amend those returns and claim some of that as, as a net income. But I get a dollar and pay 30 cents in tax. It's okay.

So you're doing okay there. It's fine. Paying taxes, netting 70 cents on there. Now when things come to the end of the year, what are some of the things that you're reaching out to your clients? Talk about clients. Hey, you, you're, you're, you're making great income. We got to, you need to go shopping or we need to have, you have some more expenses or more write offs. What are some of the common things that you're seeing out there?

Yeah, thank you. And, and you bring up an interesting point. Like one thing that I, I want people to be careful of is we're very rarely encouraging people to go spend money, to spend a dollar to save 30 cents. Like I, I don't love that strategy. I like if I can move a dollar into a strategy that helps me build wealth now I'm excited about that. So, so I think one of the things that we, we really like to make sure all of our clients are getting and this is something we do at year end and we, we get a little, the closer we get to December 31, the more you hear from us. So if you want to stop hearing from us, like let's get it done. But the 14 days for the Augusta rule, like that one is just low hanging fruit. We put together a lease for our clients. They put those dates in there, it's from the business to themselves personally, and then they transfer the dollars and we just make sure that that's all buttoned up and then we send three Airbnb comparables to just, just validate that entire transaction again. Home office deductions, a big one. And then we're. One thing we look at is there's some strategies that we can execute in 24 for 23, but we have to have a few things buttoned up first and, and a lot of times that revolves around the employees wages. Okay. So like there's a, a strategy called a cash balance plan that somebody could get 2, 3, $400,000 into and they don't have to fund it until the tax filing deadline which can be all the way into September of 24. But it's that, that dollar figures dependent on the wages they paid themselves. So sometimes we're raising those wages up to, to get that dollar figure where we want. Other times we're looking at what's called a QBI deduction. Without getting super technical, the QBI deduction is lesser of two numbers. Okay, so it's the lesser of 20% of net income or 50% of the wages paid out of the business. Okay. So every dollar in wage we pay ourselves, it reduces net income. So a lot of times we can like get those numbers to be exactly the same. So there isn't a lesser of. Right. It's, it's right there in between. So oftentimes we have our clients paying themselves a bonus, especially if they've had a good year, to get that number up. And like we just got off a call this week where it saved a client, saved them $150,000 of income tax just by paying themselves a little more wage. And it's like a lot of times CPAs miss that because they're, they're reactive versus proactive. They're just filing, they're just gathering all the information and filing the compliance versus going, okay, let's look at where everything's going to line up. And the tricky part about that deduction, without getting into lots of detail, is like, all of the other strategies come before that, which reduce net income. You know, like Augusta rule, home office, kids on payroll, even cash balance plan that I might not fund until 24. That has to come out of that equation and be factored in. And so it's really just taking all of those things into consideration, knowing the client's situation and their goals and then going, okay, these are the things we have to get done in year end. Here's stuff we can work on next year for the 23 tax year. So we've got different timelines for those things, but that's, those are the big ones that we, we spend the most time on right now.

How often should your clients be reaching out to you? Is it should be a monthly basis, it should be sitting down for breakfast on a weekly basis. You know, maybe not that much, but you get what I'm saying. There's, there's a balance of, hey, we need to communicate, not waiting to the last two weeks of the year or the last month of the year. Call me April 10th before everything's due on April 15th. Right?

Absolutely. And we, we have a, a rhythm with our clients. I would say most of our Clients that are over a million dollars net income and are growing, we meet with every single month, and there's always work to do. And like, every year, we have an annual calendar of what all those monthly meetings are going to look like. Like, every single July, we're forecasting their. Their tax bill. Okay? So then from there, we start putting the tax plan in place. April, you know, we spent a lot of time. Also, we've got this, this tool called a cash flow calendar. Okay. All the best tax planning in the world is worthless if I run you out of cash. Okay. So we think there's an upper and lower limit to how much cash people should have. Like, low to below the lower limit is dangerous, right? Like, that puts me out of business. The upper limit is inefficient. I should get those dollars to work. So we're always looking at what we call our cash flow calendar. We're putting things on there like, okay, you've got a real estate investment, you've got this tax strategy. You're remodeling the basement. You're taking a $15,000 vacation. Like, all of that goes on the cash flow calendar to make sure that moving forward, we're never in the red as far as that cash situation goes. And if we get to the green, which means we've got too much cash, we're just finding ways to deploy that in a. In a way to either grow the business, grow wealth, those types of things.

Or investments in different.

Yeah, so that's, that's what our. I'll say Our, our annual rhythm looks like. We're meeting with our clients every month just because I'm a believer in who, not how. Like, we can teach. Especially when we're. We're growing, it's okay to take some how and learn how to do it myself. Most of our clients are at the point where they're. They're looking to bring in a who. Like, I don't need to know how. I don't have the time or energy to know how. I need somebody else to do it. And that's where we fit in. And so we just show up in their lives and make their financial life everything from, you know, we. We work on five areas of planning. It's tax, legal investments, insurance, and cash flow, because they're all pretty much intertwined. So. And that just allows the. Our clients to focus on their business and grow. So that's, that's really the main rhythm of our meeting. And now if we get somebody that's not necessarily growing, we could get into Like a quarterly rhythm meeting and meet three or four times a year at minimum, usually towards the end of the year. We're meeting with all of our clients pretty regularly just to make sure everything's buttoned up.

That makes a lot of sense there being it's always going to be proactive versus reactive and doing it on a regular basis, it solves a lot of issues before they ever pop up, right?

Absolutely, yes.

Now when you're talking about, let's, let's talk about how, how beneficial and how important is for folks. Start maybe leveraging different investment accounts like self directed IRAs or self directed accounts in a lot of cases.

Yeah, love self directed accounts. Like I've got a Roth IRA invested in a hotel deal that we're doing. It's like, I don't know, I don't know, a better investment than real estate. And if I have a tool that I could get all my money into, it'd be the Roth ira. And so, and there's, there's some ways to, especially as people's income starts growing, there's some challenges with getting dollars into the Roth. You know, I'm sure you could probably help me come up with an amazing strategy where I put four or $5,000, $10,000 into a Roth buy, noted a discount, you know, get paid off, and now I've, you know, multiplied that at a tremendous.

Love that strategy. Yeah, we, we, we, we do that all the time. Yeah. Good stuff.

Yep, yep. So it's like, okay, I, I, I could see. So that that's one way to get a bunch of money into a Roth. There's others. Like you can have a Roth 401K. There's what we call the super backdoor Roth that you can fund non deductible Roth contributions in the 401k plan. And then depending on how you set that plan up, you can get those dollars into Roth and you can roll them out in service distribution and then go self directed. So it's like I, I love the, the retirement count for real estate investing. Now there are some, some nuance with some tax pieces there that we just have to be careful of. Like, okay, does this transaction make sense to do in our Roth versus personally? Because that's another piece of the equation too. Like there's a ton of tax benefits to owning real estate, like in my personal name or having all the tax benefits flow through to me. I'm not, I really don't recommend anybody owns it in their personal name. Like, please have an entity. Oh my goodness.

Sorry for Saying that big clarification. They're the only one might be your primary residency. Other than that, everything else needs to be in an entity of some sort. For sure.

Absolutely. But, but I, I still think there's a way, like, if you're, you know, doing notes, if you're flipping deals, like, you can blow up a retirement account in a tremendous way. And if you're going to have a huge gain, like before you recognize that gain, convert the, the IRA to a Roth, like, do the conversion before all the, the dollars hit and you know, it's, it's. Yeah.

Pay a lot less taxes that way. Doing that conversion on the lower amount versus the investment amount. For sure. Definitely.

Yeah. Yeah.

With everything that's going on in, in society these days, the chaos of the markets and, and stuff like that, what are some of the hot button, maybe some of the questions that you're fielding from some of your clients right now?

Yeah, that's, that's a, that's really good because a lot of times our, often right now our clients are, are feeling like we're a little overdue for a recession. You know, I think a lot of people thought it was going to come in Covid. The economy was effectively shut down. And we thought, okay, this is going to like, kick us into that and we're going to look back at this just like we did tech bubble burst September 11th. You know, the real estate meltdown in the late 2000s. Like, okay, this is going to be another one of those things that sort of kicks that in and it didn't happen. And the government shoved so much money into the economy. So I think there's a little bit of concern of like, okay, are we going to come off this, this high from all the stimulus dollars that were pushed in? I just got done talking about Eidl, you know, ppp. There was so much money that was just being handed out there. So I think the, the, the key concern that we're looking at is like, okay, how do we just protect ourselves from a, a liquidity perspective if we feel like asset values are maybe a little higher than they've been in a while? Like, I still, I don't, I don't want to discourage people because there's always deals to be had, especially in the real estate market. It's an imperfect market. You can go find deals or all the time, everywhere, in every situation like that. That's, I don't want to say just sit on the sidelines and wait. But I think in general, our clients are looking at like, okay, we, let's. If we see a downturn, how's that going to affect my business? How's it going to affect, you know, the assets I own? Inflation is sort of helping. You know, I love real estate as an inflation hedge. Like, you know, your mortgage payment stays the same, the asset value goes up, the rents go up like that. That, that's exciting to me. So I, I don't know if there's a better place to hedge against inflation than holding assets in real estate. So I think that's sort of the main concern is like, let's just make sure we're really protecting our liquidity. Let's. I, I don't love using debt, but debt is a form of liquidity. So let's get lines of credit lined up. Right now, I'm okay borrowing money at 8, 9, 10%. That's like what some of the rates are on lines of credit. If I can go get a great deal, that's, yeah, you know, I'm getting it a 30, 40, 50% discount. Like, I should spend the money on that. Like, we've got a client paying cash for a building right now at $5 million that was just purchased a few years ago at 14 million. Like, it's, it's a fantastic deal. But he needed cash and needed to get it closed in 30 days. And it's like he had the lines of credit and the liquidity all lined up. And I think that's a important piece for people is like, okay, how do I. I'd like to use as little cash as possible doing deals, but sometimes you just need to be able to write a check and get something done. And so that, that's sort of the main thing that we're looking at right now is how do we, how do we protect our, our liquidity with everything going on in the world right now?

Well, I think it's something important. I totally agree. I laugh thinking of the mortgage. People are complaining, oh, 6%, 7% mortgage rates is ridiculous. I'm like, that was a pretty good rate back in 2004-2008, when I was a mortgage broker as well. I was like, you.

We're all.

There are a lot of spoiled people out there that are like, just looking for excuses not to get in. If you can find a deal. Yeah, if it's gonna cost you 8, 9% money, but you're gonna be making 20, 30%, the math just makes sense. Instead of saying, oh, I'm waiting for the perfect deal. Hey, somebody else is gonna die, grab that perfect deal from and run with it. Right?

Absolutely. And. And I think there's. There's too many people that sit on the sidelines waiting for the perfect situation, and there's always a reason while it's not a perfect situation, you know? So I. I think the. There's just something to taking action. And so can I tell a little story about this lemonade stand sign?

I was gonna ask you about that. I saw that in there. Yes, please, please tell me the story.

All right, good. So a friend of mine was telling me this story about how his. He lives on a cul de sac. He's got four daughters. They set up a sign outside for a lemonade stand, and he was like, this is not going to work. We live on a cul de sac. We. You don't have your science build. Right. It's probably the worst lemonade anybody's ever tried. And. But he goes, you know what happened? They sold all the lemonade. They came inside with 40 bucks. I was watching them run up and down the street. The streets going across. They were, like, flagging people down. He was like, there's no substitute for just jumping in and taking action. Your sign doesn't need to be perfect. Your entity setup doesn't have to be perfect. You don't have to have the right logo. Like, just go take action. And I'm like, my goodness, there's so much truth in that. And I'm like, I love that story. I've been telling people that story. And so he had this sign made because they basically ripped a box apart and wrote lemonade stand on it. And then he had this sign made for me that's like an identical replica of the box that they tore apart. And I'm like, this is awesome, because I told him I was telling everybody the story. So he sent me the lemonade stand sign, and I'm like, there's. There's just no substitute for action. And there's. Oftentimes I have to remember that, because it's. It's so easy for me to get caught up in, oh, I got to get this. I got to get this thing right. I got to get it perfect. And it's like, just go do it. Just take action and get started. And it's. You'll be amazed what happened, because a year later, you'll be so much farther ahead than if you just waited for the perfect conditions.

So, so true. I mean, that's the biggest thing, actually. Nothing replaces taking action. I mean, if you wait for all your ducks to be in a row, they're never going to be in the row that you want to be. And you lose these six months, a year or two years. I, I still know people are waiting for things to be perfect five years and they should have started five years ago. They'd be so much further along just taking action and figuring. It's almost like building that, jumping out of a airplane and making, creating your parachute on the way down.

Absolutely, absolutely. And I think there's a belief part of that too. Like, I think there's this underlying thing that people don't believe that they can do it, you know, and I think there's, there's something to like we take a little bit of action, it builds a little bit of positive reinforcement. And then if we go back to the beginning of our conversation, like it's going to get hard. There's going to be some times where you're going to be ready to quit. And you just keep one step at a time, keep grinding through. And it, at the end of the day, you end up in territory that people normally don't get to because you were, you're willing to start and take action and do it when it was hard. So.

Well, I love that you bring that up because I think what really, truly separates a lot of folks in that rare air is taking the time to understand that, expand their knowledge or reach when it comes to the tax codes and advising themselves or working with advisors and team to help them put really a true strategy together for wealth building. Not just saving taxes, you know, that's great, but the true wealth building. And it all varies differently for what everybody else considers wealth. You know, whether it's more time. I've seen people that make a million dollars a year on the unhappiest people in the world. And the guy, it's, you know, chilling, making 10 grand a month, just as happy as can be, you know, all varies.

Absolutely. I, I couldn't agree more. And, and I think one thing too that helps shortcut the process. And this is something that I did and I think you do a great job helping people with is like find somebody that's been there and done that, that's been down the path before, that knows where the, the pitfalls are going to be and can help you avoid those because there's still going to be hard things, but there's going to be less hard things. And so just find somebody. I don't know if I've made a better investment in my entire career than investing in my education and bringing people around me that have, have been there and done that. It just, it's been so good for the long term in my growth and has accelerated me to places that I didn't think possible. You know, I can think of the most expensive conference I ever spent. It was $30,000 for a week. I was like, oh my gosh, what are we doing? But it changed my trajectory. It changed the way I thought about money. It surrounded me with people and put us in a mastermind of folks that were thinking way beyond what I thought was possible. And it reshaped what, you know, going back to my comment on belief, it reshaped what I believed was possible. Okay, these people are doing it. I mean, they're, they're amazing people, but they're nothing extraordinary, you know, so if they can do it, I'm sure I can figure out how to do it. And it was, it was fantastic for just our, our belief structure. And so I, my encouragement to the listeners is just like, invest in yourself. It. It's the best return you're going to get.

Amen to that. I think that's a great way to wrap this up. Patrick, what's the best way for our listeners and those that are listening to us or watch this to reach out to you? They can connect with you and see if they're a fit for hiring you as a coach and mentor along the way. You know, what's the best way for our listeners out there, Patrick, to connect with you and see if they're a fit for having you as their financial coach to help them to get that next level?

Yeah, no, thank you so much. We've got a podcast, Vital Strategies. Everywhere you listen to your podcast and then vitalstrategies.com is. We've got a bunch of free resources. You can find the podcast there. We're also on Instagram under the same vital dot strategies you can find us. And really there's opportunities to connect with us there. And really I think it's soak up some of our information, download some of the free resources. If you're like, look, I don't, I don't have the time or energy for this. There's, there's ways to contact us through the website to, to set up a time for us to, to sit down and meet where it would be a very special situation to take on a new client before year end. So my suggestion would be take advantage of some of those free resources. We're gonna, we're gonna kick off a $10,000 tax savings challenge for the end of the year. Just like, please take some of these free resources save 10 grand, don't pay to the IRS. Like use it to go build wealth and live a great life. And we think that would be a great place for people to start. And then in the new year, we're, we're looking on taking it some we're looking at taking on some more clients just to, you know, get started in our normal rhythm. So awesome.

Good stuff there. Well, hey, this has been awesome. I look forward to continuing the conversation back when you a little further down the road too. I think it was great episode and a lot of great stuff out there for our listeners out there. So thanks for coming on the show today.

Fantastic. Thanks for having me, Scott. I really appreciate it.

Anytime. Awesome. Great guys. Hey, got some nuggets today. Hopefully took some notes down. You take advantage of those free resources that Patrick mentioned. We'll have the links all in the show. Notes there for you. Listen to his podcast. I've been binging it and absolutely loving the episodes and one of the most knowledgeable guys when it comes to expanding your reach. And I like what Patrick said about reaching and how you define it. So go out, take some action, buddy, and we'll see at the top. Sam.