RPF0675-Friday_QA-Buying_a_Business_Minority_Shareholder_Gifting_a_Rental_Refinancing_Mortgage

00:00:00.000 | Don't just dream about paradise, live it with Fiji Airways.

00:00:05.000 | Escape the ordinary with Fiji Airways Global Beat the Rush Sale.

00:00:09.120 | Immerse yourself in white sandy beaches or dive deep into coral reefs.

00:00:14.040 | Fiji Airways has flights to Nadi starting at just $748 for light and just $798 for value.

00:00:21.160 | Discover your tropical dreams at FijiAirways.com.

00:00:24.920 | That's FijiAirways.com.

00:00:26.640 | From here to happy.

00:00:28.160 | Flying direct with Fiji Airways.

00:00:29.960 | It's Friday, live Q&A.

00:00:34.720 | Welcome to Radical Personal Finance, a show dedicated to providing you with the knowledge,

00:00:54.280 | skills, insight, and encouragement you need to live a rich and meaningful life now, while

00:00:58.440 | building a plan for financial freedom in 10 years or less.

00:01:01.200 | My name is Joshua, and any Friday that I can make it happen, where I'm sitting at a computer

00:01:05.120 | and I'm not traveling and I have a decent internet connection, etc., blah, blah, blah,

00:01:09.600 | any Friday that I can make those things happen, we host a live Q&A, and that is what's on

00:01:14.420 | deck for today.

00:01:23.560 | These live Q&A shows work exactly like talk radio.

00:01:26.320 | You call in and we chat about anything you wanted to talk about.

00:01:28.520 | So if you want to ask a technical financial planning question, you want to talk about

00:01:31.080 | your situation, we can do that.

00:01:32.880 | If you want to give feedback or talk about a topic that's been on the show, all of those

00:01:36.200 | things are available to you.

00:01:38.540 | If you would like to join me for one of these Friday Q&A shows, become a patron of the show.

00:01:42.080 | You can do that at patreon.com/radicalpersonalfinance.

00:01:46.160 | Patreon.com/radicalpersonalfinance.

00:01:48.520 | Sign up to become a patron of the show there, and you will gain access to the call-in information

00:01:52.760 | to be able to call in for a Friday Q&A show.

00:01:56.480 | Today we have, looks like, five callers on the line, and we go first to Lou in Toronto.

00:02:02.040 | Lou, welcome to the show.

00:02:03.040 | How can I serve you today, sir?

00:02:04.040 | Louie (00:00): Hey, Josh.

00:02:05.040 | I want to get some advice on some of my plans for next year.

00:02:12.840 | I'm looking to buy a business early next year.

00:02:19.320 | I'm currently going through the process of selling an investment property to raise equity

00:02:24.720 | for that.

00:02:27.680 | My question is more around the timing in the new year.

00:02:32.520 | I've got a few different ideas that I wanted to get your opinion on.

00:02:39.240 | First off would be, I continue in my current job.

00:02:43.640 | I conduct my search nights and weekends.

00:02:47.360 | And once I have something lined up and ready to pull the trigger on, then I'd go and quit

00:02:53.120 | my job and then start this new venture.

00:02:57.600 | The other option I was looking at is waiting for the new year.

00:03:04.280 | I get my year in bonus.

00:03:06.840 | I then quit, or actually go on, I have the option of going on maternity leave, which

00:03:12.280 | is a nice little bonus.

00:03:14.680 | So I'd have some income coming in and conduct my search full time.

00:03:21.200 | And once I have something lined up, then obviously go into that full time.

00:03:27.080 | The third option is something similar, except when I'd quit, I'd take a month off.

00:03:35.640 | I would go back and visit family for a month and then dive into the search full time from

00:03:42.960 | there.

00:03:45.320 | And obviously there's risks and benefits for all those options.

00:03:50.960 | In terms of some other details around me, I'm the provider for the family.

00:04:00.080 | My wife stayed at home.

00:04:01.160 | So taking that time off does really impact.

00:04:07.880 | We would have some maternity income, which would be about $500 a week versus about $1,500

00:04:13.560 | a week for our regular income.

00:04:17.280 | In terms of our net worth and stuff like that, we're probably around about $500,000 looking

00:04:23.600 | at equity for the business, so about $300,000.

00:04:29.000 | So liquidity and cashflow of $100,000 and then retaining 20% or $100,000 in equity in

00:04:38.520 | the home.

00:04:40.280 | And how much are you currently earning at your job?

00:04:43.840 | It's about $110,000 gross.

00:04:50.000 | It ends up being about $1,500 a week.

00:04:54.320 | Would you be able to effectively conduct a search for the type of business you're planning

00:04:58.160 | to move into on nights and weekends?

00:05:04.440 | That is a tricky question.

00:05:06.920 | I sort of struggled with that.

00:05:10.560 | I think I could.

00:05:12.680 | It would be a lot more work.

00:05:15.960 | Part of the thing that sort of weighs on me with that would be perhaps you're missing

00:05:25.160 | out on the opportunity by not investing yourself full time in that search.

00:05:33.320 | Or possibly the deal that you end up making isn't as of higher quality as what you could

00:05:39.800 | have if you did invest all your time and all your focus into that.

00:05:45.480 | On the flip side, I can also see, well, if you're doing nothing but that, you'd kind

00:05:52.760 | of feel a bit of pressure to get something rolling, which maybe is less than ideal as

00:05:59.400 | well.

00:06:00.400 | Right.

00:06:01.400 | Yeah, I think your analysis there is spot on.

00:06:04.360 | And to me, that would be a big, big deal.

00:06:09.000 | If you're the sole income earner for your family, obviously you have some money saved

00:06:12.680 | so that can get you through a time.

00:06:14.800 | But if you're the sole income earner for your family, you quit your job and you focus exclusively

00:06:21.700 | on finding a business, you can't make business deals pop out of the woodwork.

00:06:27.840 | They occur when they occur naturally in the cycle of the current owner, etc.

00:06:33.560 | And just from a negotiating perspective, if the current owner knows that you've been looking

00:06:39.820 | for a business for a while, you quit your job, you've got to have something, that's

00:06:45.040 | a big negotiating chip in their favor versus you're well employed, you're making lots of

00:06:49.800 | money, you're looking for a business and you're serious about it, but you don't have to have

00:06:53.640 | this one.

00:06:54.640 | You've got some other candidates, etc.

00:06:57.640 | And I'm not sure that when you talk about looking for a business, I don't think we need

00:07:03.960 | to go into the details of the specific type of business, I'm not sure how you could actually

00:07:07.840 | invest 50, 60 hours a week into looking for a business.

00:07:12.760 | Could you profitably invest 50 to 60 hours a week into looking for the kind of business

00:07:17.000 | that you want to move into?

00:07:20.480 | That is a great question.

00:07:22.840 | I could definitely see that being hard to do.

00:07:25.760 | I do see the benefit though of, as opposed to sort of like the online and telephone inquiries

00:07:36.000 | and getting information that way, you would have more time to set up meetings and sort

00:07:42.880 | of create the network with brokers and in that space, which could lead to better quality

00:07:55.000 | deals that haven't actually hit the market yet.

00:07:58.880 | Does your job allow you normal levels of flexibility where you could take a midday meeting if you

00:08:04.720 | came in a little bit early, you could take some lunches, you could take a day off here

00:08:08.360 | or there if you needed to, or is it a hardcore, you've got to be here nine to five every day

00:08:14.200 | kind of job?

00:08:17.200 | It does have that flexibility.

00:08:19.120 | It is sort of like a middle management type role.

00:08:25.160 | Taking that time off does, that work doesn't disappear as opposed to say, say for a shift

00:08:31.120 | work where you take the time off, it has to be covered by someone else.

00:08:37.480 | That could be done, but then it's also, it is tricky trying to balance that work.

00:08:43.440 | Have you and your wife already had the baby or is the baby expected at a certain time?

00:08:48.920 | She's been a month old now.

00:08:51.520 | So you can still take off maternity leave now?

00:08:54.680 | Yes.

00:08:55.680 | Yes, I'm up in Canada.

00:08:58.680 | So it's a year maternity leave.

00:09:02.360 | So and say in about four months time I took maternity leave, I would still have eight

00:09:09.240 | months maternity leave available to me.

00:09:12.680 | But you don't get paid during maternity leave or do you?

00:09:16.480 | I would get about $500 a week as opposed to about $1,500 of regular income.

00:09:28.760 | So the income is not such a, so important specifically because you are, you're implying

00:09:37.720 | that you're positioned either way.

00:09:39.240 | You know, you're considering completely quitting, taking a month off, visiting family, etc.

00:09:44.760 | So certainly unless there's some really compelling thing that you really want to do with option

00:09:50.920 | three, I don't think you should go with option three.

00:09:53.240 | Why quit if you don't have to?

00:09:54.560 | At the very least you could hedge your bets and use maternity leave.

00:09:59.080 | But there's not, probably not any reason to really quit.

00:10:01.600 | And with a month old baby.

00:10:02.600 | I'm sorry, I didn't actually mean, when I mean quit, I would in either a scenario would

00:10:08.080 | take maternity leave.

00:10:09.080 | And then I have the option of coming back if things did go pear-shaped.

00:10:13.560 | Right, right.

00:10:15.360 | If it were me, I think I would do it nights and weekends.

00:10:18.380 | And I would schedule a day off, schedule a half a day, every couple of weeks to do those

00:10:25.420 | interviews, to do that networking, etc.

00:10:28.780 | Now very clearly that could raise your profile at work.

00:10:33.940 | If you are not accustomed to taking those times away from the office during the day,

00:10:39.720 | now all of a sudden you're gone for two hours here, you're gone for a half a day there.

00:10:43.500 | It's certainly possible that they would say, are you looking for another job?

00:10:47.320 | But that's probably not a big concern for you, even if that were the case.

00:10:51.780 | But I think that, I think my option would go in option number one.

00:10:55.980 | If you are earning, you know, let's just do the math here.

00:11:00.720 | If you are earning $115,000 per year, ignore taxes, let's just say $75,000 net of taxes,

00:11:06.660 | $75,000 to $100,000 net of taxes.

00:11:10.000 | If you're in a position where you would consider simply stopping work and living on savings

00:11:15.560 | while looking for a business, then that basically implies that you could save virtually, you

00:11:23.620 | know, in a sense, all $75,000 or $100,000.

00:11:27.540 | Well at a net worth of $500,000, for you to be able to save $100,000 over a year of working

00:11:34.140 | would be a huge deal.

00:11:35.500 | It's a dramatic increase in your net wealth.

00:11:38.680 | So it's not like the income is unimportant to you.

00:11:41.760 | So I would keep the income coming in, save like crazy, keep my expenses as low as possible,

00:11:48.160 | and look diligently at nights and on weekends for the type of business opportunity, and

00:11:53.380 | then schedule in the time that I need during the work week.

00:11:57.100 | I wouldn't sacrifice to not be able to take those midday meetings and just do everything

00:12:02.460 | online.

00:12:03.660 | But it's hard for me to imagine how you could productively employ 50 to 60 hours a week

00:12:09.380 | looking for a business.

00:12:10.940 | I can understand how you could employ 20 hours a week looking for a business.

00:12:14.780 | I can understand how you could employ 10 hours a week, you know, doing interviews or doing

00:12:20.900 | due diligence, etc.

00:12:22.920 | But I think you could work that around your job and the extra money will be helpful to

00:12:27.620 | you when you do find the business.

00:12:29.760 | And I think it puts you in a much stronger negotiating position with the business seller.

00:12:34.360 | It also potentially puts you in a better financing position where you have an income.

00:12:39.120 | So if you need to borrow money, you have an income, it's easier for you to borrow money

00:12:42.240 | when you have an income than when you're unemployed.

00:12:44.440 | And it takes the bear off of your back of saying, "I've got to get this business.

00:12:48.620 | I've got to make this deal work," which you know as well as I do, that's when you make

00:12:52.440 | a bad deal.

00:12:53.540 | So I would go with number one until I were convinced that I had to do something different.

00:13:00.740 | And then if you're convinced that you have to do something different, then maybe go to

00:13:06.180 | maternity leave and go to that option as well.

00:13:09.000 | But the goal of course, do it, find something as quickly as possible, then you can make

00:13:12.000 | the transition as quickly as possible.

00:13:14.400 | But I wouldn't quit.

00:13:15.560 | Not with a new baby, not with a wife at home, not without a business in hand, I wouldn't

00:13:19.920 | quit.

00:13:20.920 | Okay.

00:13:21.920 | Thanks, Josh.

00:13:22.920 | Yeah, my pleasure.

00:13:23.920 | All right, we go now to Dave in New York City.

00:13:29.760 | Dave, welcome to Radical Personal Finance.

00:13:31.240 | How can I serve you today, sir?

00:13:33.240 | Hey, Josh.

00:13:34.240 | Thank you.

00:13:35.240 | Can you hear me?

00:13:36.240 | Yes, sir.

00:13:37.240 | Sounds good.

00:13:38.240 | I have a similar question about a potential purchase into a business.

00:13:42.680 | My questions for you are, I'm an employee and I have an opportunity to buy a minority

00:13:49.320 | interest in the business.

00:13:50.920 | I've been there for eight years or so.

00:13:53.960 | And what are your thoughts on what are some of the key protections you might advise somebody

00:14:00.720 | when entering into this kind of deal?

00:14:04.080 | Secondly, if you had any thoughts about persuasion, discussion, negotiation for why selling equity

00:14:13.000 | to some employees would be beneficial.

00:14:15.800 | And like the prior caller, some of the funding options, if any of those, if you feel like

00:14:20.560 | you have any insight on any of those three, I'd love to hear them.

00:14:24.160 | In terms of your process of buying in, what is the deal that's been offered you?

00:14:30.640 | We don't have a structure yet other than this is something that was on the table as part

00:14:40.760 | of like the opportunity come join this business, help us grow it.

00:14:43.920 | And now we're at the stage where we're now, the owner has said, I'm interested in pursuing

00:14:49.760 | this.

00:14:50.760 | Let's figure out some ways to do so.

00:14:53.420 | And so it's a relatively blank canvas.

00:14:56.600 | Do you think that this kind of opportunity would ever result in your moving into a majority

00:15:01.440 | ownership stake?

00:15:03.960 | No.

00:15:07.360 | So if that's the case, then in a way, there's really no point in looking at this as a business

00:15:13.600 | owner.

00:15:14.660 | This is basically a form of incentive-based compensation.

00:15:19.320 | The idea being that you'll be more closely tied to the business and you have an opportunity

00:15:24.140 | to share in the profits of the company.

00:15:27.320 | But if you're only going to be a minority owner, then there's not going to be any, you're

00:15:33.960 | not ultimately going to have control of the business.

00:15:37.520 | How many other owners are there currently?

00:15:41.760 | There's currently one owner who recently bought out, there were two partners, the current

00:15:47.540 | owner as 100% and earlier this year bought out the other partner.

00:15:53.440 | And the idea was with the second partner gone, there's opportunities for us too.

00:15:58.480 | And then there'd be three employees, myself included, who would potentially be stepping

00:16:03.300 | into that other position.

00:16:08.040 | And what's the nature of the business?

00:16:11.080 | It's a training company.

00:16:12.560 | Okay.

00:16:13.560 | Okay, great.

00:16:15.440 | So here's how I look at it.

00:16:17.260 | If you've got one majority partner in a company that doesn't have a lot of significant assets

00:16:23.200 | or equipment, et cetera, and if you expect that current majority owner to continue as

00:16:31.640 | an owner, then you're never going to wind up controlling this business.

00:16:36.180 | This is not the kind of thing that you're going to wind up controlling.

00:16:38.760 | So just think about it like a form of incentive-based compensation.

00:16:43.880 | That's really all it is.

00:16:45.360 | You aren't going to have any real input in the decisions.

00:16:50.160 | Yes, you can offer your opinion, maybe there'll be some change in status if the lead owner

00:16:56.840 | has a company meeting and says, "Let's talk to the partners."

00:16:59.160 | Yeah, they'll listen to you, but probably he's listening to you now.

00:17:04.240 | So is that going to be that big of a difference?

00:17:06.000 | I don't see it.

00:17:07.560 | And if you don't think you're going to grow into a majority owner at some point yourself,

00:17:11.640 | then this isn't really owning a business.

00:17:14.820 | This is having a minority stake in a business.

00:17:17.680 | So you analyze it on that basis.

00:17:20.040 | It's great, absolutely, to have a minority stake, but you analyze it differently than

00:17:24.400 | something that you can control.

00:17:26.480 | So with this case, you look at it and say, "Will my compensation go up based upon having

00:17:32.800 | a stake in the business?"

00:17:35.520 | And it might be, right?

00:17:37.320 | The idea from the owner's perspective, if I own 100% of a company, why would I give

00:17:43.280 | away some percentage of my ownership in that situation as a business owner?

00:17:48.200 | The number one reason I want to do that is I want to create increased loyalty on behalf

00:17:54.840 | of my employees, and I want a way to compensate them on their productivity rather than with

00:18:02.840 | a promise.

00:18:04.220 | So the loyalty thing is a big deal, because for the owner of a company, the hardest thing

00:18:09.040 | that they have to do is to find good employees who work well in the company.

00:18:16.040 | And so you want to do everything you can as the owner of a business to get your good employees

00:18:20.400 | to be connected to you very tightly.

00:18:23.440 | In the financial planning world, we call it golden handcuffs.

00:18:26.160 | And so you create programs that are going to put golden handcuffs around the wrists

00:18:32.000 | of your employees.

00:18:34.000 | You create some form of deferred compensation plan so that when they're thinking about going

00:18:39.020 | somewhere else, but they recognize, "I'm not vested in a pension yet, but I'm going to

00:18:43.840 | vest in a couple of years," then they say, "Well, I'll go ahead and vest in this pension."

00:18:47.800 | You build perks into the job that would be hard for them to replace, and you try to make

00:18:52.760 | sure that they have a long stake in it.

00:18:55.880 | Now, the easiest plan, the easiest way for me as a business owner to put golden handcuffs

00:19:01.720 | around my employee is to give them a minority stake in the business, because now they're

00:19:06.900 | going to share in the profits of the business, but I'm off the hook for any kind of promises.

00:19:12.260 | If I make a specific promise of a deferred compensation program that I have to fund,

00:19:17.900 | and my share of that funding is $100,000 per year, I've created a cash flow liability of

00:19:24.240 | $100,000 per year.

00:19:26.100 | But if I create a share of ownership that you would expect that your share of the profits

00:19:31.840 | of the company is $100,000 per year, I only have to pay you that share of ownership if

00:19:37.800 | we actually produce the $100,000 of profit, the extra $100,000 of profit that would, on

00:19:44.340 | a pro rata basis, to your shares.

00:19:46.540 | That's the basic reason that I, as a business owner, would be trying to do that, would be

00:19:50.760 | trying to create that opportunity for you, is I want to create loyalty and put golden

00:19:57.620 | handcuffs around my employees' wrists so that they will be incentivized to stay with me

00:20:02.740 | longer.

00:20:03.740 | So now let's flip and let's talk about it from your perspective.

00:20:06.220 | Is that a good thing to do?

00:20:07.620 | Well, the answer is, is that the best deal that you can get?

00:20:11.180 | Certainly, if you're making $300,000 per year today, and the boss says, "Tell you what,

00:20:17.140 | I'm going to give you 10% of the company, and your 10% stake would make you an extra

00:20:23.540 | $100,000 per year at the current profit margin, etc.," and the boss is just giving you that

00:20:28.260 | as a gift, now your income is going to go up to $400,000.

00:20:31.860 | Well, of course, why not?

00:20:33.260 | There's no reason not to accept that, because even though you are now a minority shareholder,

00:20:39.300 | you're not stuck at the company.

00:20:40.620 | You could leave, you can go somewhere else, and now you can just simply take your share

00:20:43.700 | of the profits, whether or not you're working there or not.

00:20:46.380 | So there's no reason not to take it.

00:20:48.100 | Now if there's a buy-in process of some kind, then it becomes a little bit more difficult.

00:20:53.740 | If you have to buy in, if you have to pay, if you have to create some difference other

00:20:58.780 | than just simply your labor, now you have to assess what's going to be the long-term

00:21:02.500 | value of this company and of these shares of the company based upon my buy-in.

00:21:10.100 | Your analysis there would be, number one, how much is it going to cost me versus what

00:21:14.860 | am I going to get?

00:21:16.380 | So if it's going to cost me $100,000 to buy in over the next year, and then I create $100,000

00:21:22.460 | per year of extra money, well, it's worth considering it.

00:21:25.740 | But where is the profits of the company going to go?

00:21:27.740 | Are they going to go up, going to go down, et cetera?

00:21:29.740 | And then the second thing is, what's going to be my protection?

00:21:32.780 | Because with a small private company, you don't have any ability to control the direction

00:21:37.820 | of the company.

00:21:38.900 | The owner gives you and the other three employees 20%, but now dies.

00:21:45.300 | And now his widow is caring for the company or gets divorced.

00:21:48.380 | And now all of a sudden you're in business with someone else.

00:21:50.820 | And if you have a company that's just a small company that doesn't have a lot of plants,

00:21:54.500 | a lot of equipment, a lot of big professional management, as most smaller companies are,

00:21:59.460 | there's a good chance that company dies with the death or the disability of something of

00:22:05.140 | the founder.

00:22:06.300 | So could you be getting in at the entry level of a Coca-Cola?

00:22:10.980 | Certainly you could.

00:22:12.340 | But it sounds like that's probably not the kind of company that you're working for.

00:22:15.820 | So as far as I'm concerned, you look at it and say, is this the best deal that you can

00:22:19.580 | get?

00:22:20.580 | In some ways, you're better off getting a deal of more guaranteed compensation or you're

00:22:25.140 | better off getting a deal, sometimes a deal where you have a more direct scenario.

00:22:32.260 | For example, if I knew I was never going to become a majority owner, would I rather just

00:22:36.700 | have a different commission structure based upon my actual productivity versus a share

00:22:45.020 | in the profits of the company?

00:22:46.260 | Maybe.

00:22:47.260 | You'd have to look at the numbers.

00:22:48.460 | But it's hard for you to say what's going to happen with the profits of the company.

00:22:54.360 | Profits are dependent upon the expenses of the company, and you don't have control over

00:22:57.980 | that necessarily.

00:22:59.300 | Whereas if you have a direct commission structure that's paid to you based upon your activity,

00:23:03.380 | that can open up a little bit more.

00:23:05.440 | So that's how I would analyze it and think it through.

00:23:09.380 | Not a bad thing, but this isn't going to be the kind of thing where you're going to ultimately

00:23:12.580 | control the company.

00:23:13.580 | It's just a matter of, is this the best deal you can get?

00:23:17.020 | Right.

00:23:19.140 | And along that line of what is the cost versus what do I get, if we are a profitable company,

00:23:25.780 | so you can look at, in that regard, you could look at this as what are the returns that

00:23:32.340 | I can expect and project as best I can having my money in this business, my business, or

00:23:39.220 | the business I'm operating in, versus invested in the market at large.

00:23:44.300 | Is that a reasonable way to think about this?

00:23:47.020 | I think it is, as long as you adjust for risk, certainly.

00:23:51.220 | It can be a wonderful thing and a wonderful investment for you, especially if the business

00:23:55.420 | is on a growth path.

00:23:57.100 | Let's say that now there's one owner, but there's three key employees, but the owner

00:24:01.640 | has plans to quadruple the size of the company, and he wants you and the other three employees

00:24:08.420 | to participate in that.

00:24:09.860 | Well, if you can quadruple the size of the company, and now you own 10% of a company

00:24:14.820 | that's quadrupled in size, that could be an extremely wonderful return.

00:24:18.940 | And definitely, without question, if the owner has growth plans like that, and you're a key

00:24:24.340 | part of them, it could be, without question, one of the best investments you could make,

00:24:29.180 | because now you're leveraging the work, labor, and productivity of other people, of a larger

00:24:35.180 | growing company.

00:24:36.780 | And even if you never control the company, that could be a tremendous financial benefit

00:24:42.080 | for you.

00:24:43.080 | And yes, without question, you should compare that to all of the other investment opportunities

00:24:47.380 | you have.

00:24:48.740 | And it better be a way higher return than when you get buying GE stock on the stock

00:24:53.420 | market, because a small business has a lot more room to grow, usually.

00:24:58.600 | It can, and you can have a much bigger stake.

00:25:01.380 | And so yeah, it certainly is much more impactful.

00:25:05.480 | But there's a very different risk profile between your having some shares of a very

00:25:11.540 | large company that has professional management, etc., versus you're having the shares of a

00:25:15.580 | company that is probably very dependent on a few key people, and is working in a much

00:25:20.820 | smaller market that could change at any time.

00:25:24.440 | So I wouldn't compare them exactly, but I would pursue, without question, the smaller

00:25:28.860 | business and the productivity of that, even if it did cost me some money.

00:25:32.380 | >>Toby: Great.

00:25:33.380 | All right, great.

00:25:34.380 | Thanks for all this insight.

00:25:35.380 | I really appreciate all you do.

00:25:36.380 | >>Steve: My pleasure.

00:25:37.380 | I don't know if there's any specific suggestions at this point on the actual structure, the

00:25:45.500 | details.

00:25:46.500 | You'll hammer that out with the owner and with the lawyers.

00:25:49.700 | I think the biggest thing that I would want to see is simply fair negotiations, and a

00:25:54.920 | lot of openness, and a lot of clear, honest communication, and making sure that everybody

00:26:00.760 | understands the incentives in place.

00:26:03.220 | You want a win-win deal.

00:26:04.400 | You want to make sure that the owner does not...

00:26:07.800 | You need the owner to feel like he's getting the better end of the deal, because now his

00:26:12.840 | team is being enhanced.

00:26:14.560 | You don't want him to feel like he's getting the worse end of the deal, because he's lost

00:26:18.020 | 30% of his company.

00:26:20.000 | You want to make sure that you feel like you're getting the better end of the deal, where

00:26:23.200 | now you're participating in the profits of the company instead of just having a higher

00:26:30.880 | salary.

00:26:31.880 | Which, from a tax planning perspective, by the way, I guess we should mention that, certainly

00:26:35.320 | it can be much better for you to be a partial owner of the company than just to receive

00:26:39.520 | more earned income.

00:26:42.720 | You may be able to put in place some interesting executive benefit programs as an owner of

00:26:46.360 | the company or a key employee that you may or may not have access to right now.

00:26:50.520 | Think about that.

00:26:51.520 | I think you're a little bit premature on the tax planning.

00:26:55.300 | We go now to Mark in Texas.

00:26:57.280 | Mark, welcome to the show.

00:26:58.280 | How can I serve you today, sir?

00:26:59.280 | Mark Cunningham Hi, Joshua.

00:27:00.280 | Good to talk to you.

00:27:01.280 | Thanks for all you do.

00:27:02.280 | My pleasure.

00:27:03.280 | Can you hear me?

00:27:04.280 | Yes, go ahead.

00:27:05.280 | Sounds good.

00:27:06.280 | Okay, good.

00:27:07.280 | My dad has had a couple of rental properties for years and years.

00:27:15.280 | He's been making noise for a few years about getting rid of those and getting out of that

00:27:22.160 | phase, part of his financial life.

00:27:26.280 | He's decided to transfer ownership of this one house to my sister and myself.

00:27:34.600 | This house is a rental house in a suburb about 30 minutes away from where I live.

00:27:41.080 | Its value is $160,000.

00:27:45.280 | The current renter is moving out.

00:27:49.040 | He's been using a property management company and he's been very hands-off, letting them

00:27:54.000 | handle most everything.

00:27:57.680 | His CPA, I think, has advised him that to transfer it to us would save about a $25,000

00:28:08.000 | tax bill that he will have to pay if he sells it himself and takes the proceeds.

00:28:17.680 | He's also been helping us pay for some college tuition for our kids.

00:28:26.360 | He's thinking that this will also be the funding for some of that ongoing tuition stuff for

00:28:36.400 | my side.

00:28:37.400 | It doesn't affect my sister.

00:28:41.000 | There's that objective thing that we're checking as well.

00:28:45.600 | I'm just looking to see if we turn around and sell the property after it's transferred

00:28:51.880 | to us, am I foregoing any great opportunities in particular to transact this all in this

00:29:05.960 | way?

00:29:07.800 | I am open.

00:29:10.680 | I like the idea of having rental property, but this has come on suddenly and I don't

00:29:15.360 | know that I'm prepared to take on this house.

00:29:18.680 | It may need some significant updating or repairs.

00:29:25.360 | Just want to see where you go with this.

00:29:28.760 | How old is your dad?

00:29:29.760 | My dad is 78.

00:29:33.640 | Do you know about what his basis in the property is?

00:29:39.320 | I think it's around $100,000.

00:29:45.400 | Do you know what your dad's total income is or his marginal tax bracket?

00:29:53.320 | Is it high, higher than yours, low, lower than yours?

00:30:02.240 | Higher than mine.

00:30:05.200 | It's probably at the 25 to 32 range, somewhere in there.

00:30:11.160 | He's retired.

00:30:12.160 | How much is your dad's net worth?

00:30:15.480 | It's probably a million two.

00:30:23.520 | Let's talk just about the one property first.

00:30:26.760 | If your dad sells the property right now, he's going to ... Let's just assume that his

00:30:32.880 | adjusted basis on the property is $100,000.

00:30:36.880 | That may or may not be true.

00:30:38.600 | It's probably not.

00:30:39.600 | It's probably his adjusted basis is lower because of the fact that you said his accountant

00:30:44.840 | says he's going to have a $25,000 tax bill.

00:30:48.200 | It would be pretty unusual if the property has $160,000 value but his true basis is $100,000.

00:30:55.600 | I don't see why we would lose $25,000 of taxes.

00:30:59.480 | Most likely, his adjusted basis is much lower than $100,000 for some reason.

00:31:05.840 | There's going to be additional recapture of gains that's different.

00:31:09.840 | For the sake of our discussion, I'm going to use that $100,000 and $160,000 number so

00:31:14.240 | you understand the principle.

00:31:16.080 | Let's go through some scenarios.

00:31:18.440 | Scenario number one is your dad just simply sells the property.

00:31:23.340 | He's going to sell the property and he's going to have $60,000 of capital gain.

00:31:29.960 | If he has $60,000 of capital gain, he's going to pay long-term capital gains taxes on that

00:31:36.520 | $60,000.

00:31:38.480 | Let's assume that he winds up netting $125,000 number.

00:31:46.080 | Let's say that he nets $135,000 of cash after the sale.

00:31:50.560 | At this point in time, with $135,000 of cash, he can give you and your sister each $70,000

00:31:59.880 | of cash.

00:32:01.920 | He gives it to you guys.

00:32:05.920 | He's still well under his lifetime gifting amounts for gifting exclusion, file a gift

00:32:11.200 | tax return, but he gives you guys each $70,000 cash.

00:32:14.440 | You walk away free and clear.

00:32:17.320 | That's the first thing.

00:32:18.320 | Make sense?

00:32:19.320 | >> Steven: Yep.

00:32:20.320 | >> Adam: Okay.

00:32:21.320 | Now, option two is going to be if he gives you the house.

00:32:25.600 | Let's say that he gives you and your sister the house.

00:32:28.280 | He deeds it over to you.

00:32:29.760 | Well, you're going to inherit the property, but you're going to keep the basis of the

00:32:36.240 | property as it's given to you.

00:32:39.920 | You have $100,000-

00:32:40.920 | >> Steven: Current value?

00:32:41.920 | >> Adam: Sorry?

00:32:42.920 | >> Steven: Current value?

00:32:44.160 | >> Adam: No, the basis.

00:32:46.240 | You will inherit his tax basis.

00:32:48.800 | He's going to give you the property.

00:32:50.080 | It's worth $160,000, but he has $100,000 tax basis in the property.

00:32:55.000 | He gives it to you.

00:32:56.280 | You and your sister put it on the market.

00:32:57.800 | You sell it for $160,000.

00:32:59.840 | Now, you have a $60,000 capital gain.

00:33:05.360 | You're going to pay capital gains taxes on the $60,000, you and your sister, at long-term

00:33:10.640 | capital gains rates.

00:33:13.240 | You're going to pay the same amount of taxes probably that he is, unless there's some dramatic

00:33:17.620 | difference in your effective bracket, depending on which long-term capital gains tax bracket

00:33:23.560 | you're in, etc.

00:33:26.320 | I don't see that there's a big win there either way.

00:33:29.740 | It really isn't going to be that big of a difference one way or the other because when

00:33:33.080 | you get the property as a gift from him, you don't get a step up in tax basis.

00:33:38.280 | >> Steven: Okay, I thought you did.

00:33:40.960 | >> Adam: No, you don't.

00:33:41.960 | You don't, not as a gift.

00:33:43.680 | Now, how could you get a step up in tax basis?

00:33:46.320 | Well, your dad can continue to own the property and then he can keep it until he dies.

00:33:53.760 | And then when he dies, he can leave you the property in his will.

00:33:57.920 | And in that situation, if he leaves you the property in his will, then he can put himself

00:34:03.800 | ... So let's just assume that your dad keeps the property.

00:34:08.640 | Three years from now, he dies.

00:34:10.480 | The property is sold.

00:34:12.040 | Now as the executive's will, you sell the property for $180,000.

00:34:16.320 | At that point in time, you have $180,000 that you split with your sister and there's no

00:34:21.300 | capital gains taxes paid in that scenario.

00:34:24.920 | So the only way to get a step up in tax basis for this property is for him to continue owning

00:34:30.520 | the property until he dies.

00:34:34.120 | Now, I don't know if he should do that or not, but I'll tell you here are some ideas,

00:34:41.400 | some ways that you could do that, that you could make this work if he wanted to keep

00:34:47.400 | owning it.

00:34:48.440 | The first thing I would say is that if he's just simply tired of managing it, let's say

00:34:53.600 | it's a good property, but he's tired of managing it, then you can start a property management

00:34:59.520 | company and/or your children who are in college can start a property management company and

00:35:05.240 | you can make an agreement with him to manage the property for him in exchange for a management

00:35:11.240 | fee.

00:35:12.360 | And that I think would be a really good idea.

00:35:14.960 | I would much rather have your children start a small property management company under

00:35:19.800 | his tutelage and then they receive 10% of the rents on the property as compensation

00:35:26.080 | rather than them just simply getting money and being given money for their college tuition.

00:35:33.640 | You can do the same thing.

00:35:35.120 | And there would be substantial tax benefits for you and for your children in having a

00:35:38.880 | property management business.

00:35:40.620 | It could be the seed of a bigger business and you can have other clients that you also

00:35:46.140 | manage property for and it could provide you with the ability to try out being a landlord

00:35:53.040 | without having to go and actually buy the property.

00:35:55.540 | This could be a good way for you to see do you yourself want to be a landlord or not.

00:36:00.020 | That would be one way of accessing some of the money in it.

00:36:03.720 | The next thing is let's say you say, "Well, 10% of the rents is not going to solve our

00:36:07.560 | problem.

00:36:08.560 | What we need is we need $30,000 to pay a college tuition bill."

00:36:11.160 | Well, your dad can just simply take out a $30,000 mortgage on the property.

00:36:16.960 | He takes out a $30,000 mortgage.

00:36:19.360 | Then he can give you $30,000 as a gift and then in time he will let his tenants pay down

00:36:26.100 | that mortgage again.

00:36:27.800 | So then he can continue to own the property.

00:36:30.480 | He gives you the gift.

00:36:31.760 | You receive the gift of $30,000 tax-free.

00:36:34.800 | The property stays in his name.

00:36:36.560 | He continues to own it.

00:36:38.040 | Then when he dies, the property receives a step-up in tax basis and you inherit the property

00:36:43.080 | at the higher level with no taxes due.

00:36:45.680 | So that would be one way of accessing the equity in the property as well.

00:36:50.540 | So it all depends on what do you need.

00:36:54.480 | Is the property worth keeping?

00:36:56.080 | Do you need a lump sum of money?

00:36:57.300 | Do you need an income?

00:36:59.200 | Or is it better just we pay the tax and be done with it?

00:37:03.040 | But that's how I would analyze it.

00:37:04.960 | >>Ted: Okay.

00:37:06.760 | Yeah, I mean he's got the flexibility that he can give the money.

00:37:15.240 | He doesn't have to get a mortgage for it.

00:37:18.440 | He just thought this was going to kill two birds with one stone and get him out of it

00:37:25.560 | and while dealing with the cash flow and giving part of his estate to us two kids at the same

00:37:38.040 | time.

00:37:39.040 | But without the step-up, it's...

00:37:41.080 | Go ahead.

00:37:42.080 | >>Steve: No.

00:37:43.080 | Yeah, you're not going to get the step-up on a long-term capital gain asset until he

00:37:48.640 | dies and so you have to wait for his death to get the step-up.

00:37:52.640 | So I guess just one more thing.

00:37:54.040 | Again, you and he can decide whether all these moves are worth it and in the long-term best

00:38:00.080 | interest of him and you and the whole family because sometimes it's best just to go ahead

00:38:05.880 | and pay the bill and pay the tax bill.

00:38:09.140 | But one other thing that you could do, just by way of example, are your children in the

00:38:15.440 | same town as this property?

00:38:17.480 | >>Ted: Two out of three.

00:38:20.880 | >>Steve: Okay.

00:38:21.880 | >>Ted: Are in school here.

00:38:23.440 | >>Steve: And are you in...

00:38:24.440 | You live in the same town as this property?

00:38:26.320 | >>Ted: Yes.

00:38:27.320 | >>Steve: Okay.

00:38:28.320 | >>Ted: About 30 minutes away, yeah.

00:38:30.960 | >>Steve: So the other option that he could do...

00:38:34.400 | Let's say our number one most important goal is to avoid paying the tax.

00:38:39.560 | We don't want to pay the capital gains taxes on the asset.

00:38:42.520 | That's our goal.

00:38:43.520 | Well, the other solution is if you say this particular property isn't a property that

00:38:48.280 | he necessarily wants to keep owning but there might be another property that would be a

00:38:52.280 | better property, then he could do a 1031 exchange from this property into another property.

00:38:58.160 | So let's say that what he actually says is, "This single family house is not the kind

00:39:03.520 | of property that I want to leave, but what I'd like to do is I'd like to buy a quadplex.

00:39:08.480 | And the benefit of buying a quadplex that's here is I can get a good deal on one, and

00:39:13.080 | now my college-age grandchildren can use this as a component of their property management

00:39:19.400 | company."

00:39:20.400 | So yes, they'll be managing four tenants instead of one, but I want to do this because I want

00:39:25.560 | to help them to start to learn the property business, and my son's going to be partaking

00:39:29.520 | in it as well, and it'll be a good learning experience all around, a good business all

00:39:32.840 | around.

00:39:33.920 | So what he does is he sells this property for $160,000.

00:39:38.840 | He does a 1031 exchange of the $160,000 into the quad, and maybe this is the down payment

00:39:45.560 | on it, and then he continues to own the quad until his death.

00:39:50.000 | Meanwhile, you and your children set up a property management company.

00:39:53.920 | You manage the property in exchange for a percentage of the rents, so that allows you

00:39:59.480 | to gain income from the property, and then it also allows you to use this business as

00:40:06.000 | a way to shelter appropriate business expenses, et cetera.

00:40:10.360 | Maybe you can get some other clients as well.

00:40:12.320 | This allows you to get your feet wet and your children their feet wet in the rental business,

00:40:15.520 | and then he just simply leaves it to you in his will.

00:40:19.040 | Now let's say he pays $300,000 for the quad, but it grows to be $400,000 at the time of

00:40:26.400 | his death.

00:40:27.400 | Now you inherit the $400,000 quadruplex.

00:40:30.360 | Maybe the mortgage is paid down by now, and you've received an increase from a tax-free

00:40:36.880 | increase from $100,000 to $400,000, and all of that gain, $300,000, is received by you

00:40:43.980 | income tax-free.

00:40:45.540 | You don't get the step-up in tax basis unless he owns it to the date of his death.

00:40:49.800 | Your tools are, number one, take a mortgage against the property if he needs cash.

00:40:54.760 | Mortgage because it's debt.

00:40:56.560 | Mortgages always come to you with no income taxes.

00:40:59.760 | And then with real estate, if it's profitably rented out, this is the best strategy because

00:41:05.880 | mortgages on real estate are low interest.

00:41:08.480 | You can be fixed interest, and the tenant can pay them off.

00:41:11.360 | You can deduct the interest expenses, et cetera, and/or use the property and set up a property

00:41:17.440 | management company and charge property management fees to take a little bit of the income off

00:41:22.280 | for your family.

00:41:23.280 | Those are the most tax-efficient options that I can come up with for you.

00:41:27.200 | Okay.

00:41:28.200 | All right.

00:41:29.200 | Very good.

00:41:30.200 | My pleasure.

00:41:31.200 | Anything else?

00:41:32.200 | Lots to think about.

00:41:33.200 | Thank you.

00:41:34.200 | Great.

00:41:35.200 | That'll do it.

00:41:36.200 | Okay.

00:41:37.200 | Thank you.

00:41:38.200 | We move now to Jason in Kentucky.

00:41:39.200 | Jason, welcome to Radical Personal Finance.

00:41:40.200 | How can I serve you today, sir?

00:41:41.200 | Hi, Joshua.

00:41:42.200 | How's it going?

00:41:43.200 | Very well, sir.

00:41:44.200 | Go ahead.

00:41:45.200 | I'm actually in Cincinnati, right up the river.

00:41:46.200 | We'll take it.

00:41:47.200 | So Jason in Ohio.

00:41:48.200 | Welcome.

00:41:49.200 | Yeah.

00:41:50.200 | Yeah.

00:41:51.200 | So I used to live in Louisville, of course.

00:41:52.200 | So I have two items, both related to home ownership.

00:41:53.200 | So we have a baby on the way coming end of December.

00:41:54.200 | And I'm going to be taking care of her.

00:41:55.200 | So I'm going to be taking care of her.

00:41:56.200 | And I'm going to be taking care of her.

00:41:57.200 | And I'm going to be taking care of her.

00:41:58.200 | And I'm going to be taking care of her.

00:41:59.200 | And I'm going to be taking care of her.

00:42:00.200 | And I'm going to be taking care of her.

00:42:01.200 | And I'm going to be taking care of her.

00:42:25.200 | And I'm going to be taking care of her.

00:42:51.200 | And I'm going to be taking care of her.

00:42:55.200 | And I'm going to be taking care of her.

00:42:56.200 | And I'm going to be taking care of her.

00:42:57.200 | And I'm going to be taking care of her.

00:42:58.200 | And I'm going to be taking care of her.

00:42:59.200 | And I'm going to be taking care of her.

00:43:00.200 | And I'm going to be taking care of her.

00:43:01.200 | And I'm going to be taking care of her.

00:43:02.200 | And I'm going to be taking care of her.

00:43:03.200 | And I'm going to be taking care of her.

00:43:04.200 | And I'm going to be taking care of her.

00:43:05.200 | And I'm going to be taking care of her.

00:43:06.200 | And I'm going to be taking care of her.

00:43:07.200 | And I'm going to be taking care of her.

00:43:08.200 | And I'm going to be taking care of her.

00:43:09.200 | And I'm going to be taking care of her.

00:43:10.200 | And I'm going to be taking care of her.

00:43:35.200 | And I'm going to be taking care of her.

00:43:42.200 | And I'm going to be taking care of her.

00:43:43.200 | And I'm going to be taking care of her.

00:43:44.200 | And I'm going to be taking care of her.

00:43:45.200 | And I'm going to be taking care of her.

00:43:46.200 | And I'm going to be taking care of her.

00:43:47.200 | And I'm going to be taking care of her.

00:43:48.200 | And I'm going to be taking care of her.

00:43:49.200 | And I'm going to be taking care of her.

00:43:50.200 | And I'm going to be taking care of her.

00:43:51.200 | And I'm going to be taking care of her.

00:43:52.200 | And I'm going to be taking care of her.

00:43:53.200 | And I'm going to be taking care of her.

00:43:54.200 | And I'm going to be taking care of her.

00:43:55.200 | And I'm going to be taking care of her.

00:43:56.200 | And I'm going to be taking care of her.

00:43:57.200 | And I'm going to be taking care of her.

00:44:26.200 | And I'm going to be taking care of her.

00:44:27.200 | And I'm going to be taking care of her.

00:44:28.200 | And I'm going to be taking care of her.

00:44:29.200 | And I'm going to be taking care of her.

00:44:30.200 | And I'm going to be taking care of her.

00:44:31.200 | And I'm going to be taking care of her.

00:44:32.200 | And I'm going to be taking care of her.

00:44:33.200 | And I'm going to be taking care of her.

00:44:34.200 | And I'm going to be taking care of her.

00:44:35.200 | And I'm going to be taking care of her.

00:44:36.200 | And I'm going to be taking care of her.

00:44:37.200 | And I'm going to be taking care of her.

00:44:38.200 | And I'm going to be taking care of her.

00:44:39.200 | And I'm going to be taking care of her.

00:44:40.200 | And I'm going to be taking care of her.

00:44:41.200 | And I'm going to be taking care of her.

00:44:42.200 | And I'm going to be taking care of her.

00:45:06.200 | And I'm going to be taking care of her.

00:45:32.200 | And I'm going to be taking care of her.

00:46:01.200 | And I'm going to be taking care of her.

00:46:02.200 | And I'm going to be taking care of her.

00:46:03.200 | And I'm going to be taking care of her.

00:46:04.200 | And I'm going to be taking care of her.

00:46:05.200 | And I'm going to be taking care of her.

00:46:06.200 | And I'm going to be taking care of her.

00:46:07.200 | And I'm going to be taking care of her.

00:46:08.200 | And I'm going to be taking care of her.

00:46:09.200 | And I'm going to be taking care of her.

00:46:10.200 | And I'm going to be taking care of her.

00:46:11.200 | And I'm going to be taking care of her.

00:46:12.200 | And I'm going to be taking care of her.

00:46:13.200 | And I'm going to be taking care of her.

00:46:14.200 | And I'm going to be taking care of her.

00:46:15.200 | And I'm going to be taking care of her.

00:46:16.200 | And I'm going to be taking care of her.

00:46:17.200 | And I'm going to be taking care of her.

00:46:43.200 | And I'm going to be taking care of her.

00:46:50.200 | And I'm going to be taking care of her.

00:46:51.200 | And I'm going to be taking care of her.

00:46:52.200 | And I'm going to be taking care of her.

00:46:53.200 | And I'm going to be taking care of her.

00:46:54.200 | And I'm going to be taking care of her.

00:46:55.200 | And I'm going to be taking care of her.

00:46:56.200 | And I'm going to be taking care of her.

00:46:57.200 | And I'm going to be taking care of her.

00:46:58.200 | And I'm going to be taking care of her.

00:46:59.200 | And I'm going to be taking care of her.

00:47:00.200 | And I'm going to be taking care of her.

00:47:01.200 | And I'm going to be taking care of her.

00:47:02.200 | And I'm going to be taking care of her.

00:47:03.200 | And I'm going to be taking care of her.

00:47:04.200 | And I'm going to be taking care of her.

00:47:05.200 | And I'm going to be taking care of her.

00:47:33.200 | And I'm going to be taking care of her.

00:47:34.200 | And I'm going to be taking care of her.

00:47:35.200 | And I'm going to be taking care of her.

00:47:36.200 | And I'm going to be taking care of her.

00:47:37.200 | And I'm going to be taking care of her.

00:47:38.200 | And I'm going to be taking care of her.

00:47:39.200 | And I'm going to be taking care of her.

00:47:40.200 | And I'm going to be taking care of her.

00:47:41.200 | And I'm going to be taking care of her.

00:47:42.200 | And I'm going to be taking care of her.

00:47:43.200 | And I'm going to be taking care of her.

00:47:44.200 | And I'm going to be taking care of her.

00:47:45.200 | And I'm going to be taking care of her.

00:47:46.200 | And I'm going to be taking care of her.

00:47:47.200 | And I'm going to be taking care of her.

00:47:48.200 | And I'm going to be taking care of her.

00:47:49.200 | And I'm going to be taking care of her.

00:48:13.200 | And I'm going to be taking care of her.

00:48:20.200 | And I'm going to be taking care of her.

00:48:21.200 | And I'm going to be taking care of her.

00:48:22.200 | And I'm going to be taking care of her.

00:48:23.200 | And I'm going to be taking care of her.

00:48:24.200 | And I'm going to be taking care of her.

00:48:25.200 | And I'm going to be taking care of her.

00:48:26.200 | And I'm going to be taking care of her.

00:48:27.200 | And I'm going to be taking care of her.

00:48:28.200 | And I'm going to be taking care of her.

00:48:29.200 | And I'm going to be taking care of her.

00:48:30.200 | And I'm going to be taking care of her.

00:48:31.200 | And I'm going to be taking care of her.

00:48:32.200 | And I'm going to be taking care of her.

00:48:33.200 | And I'm going to be taking care of her.

00:48:34.200 | And I'm going to be taking care of her.

00:48:35.200 | And I'm going to be taking care of her.

00:49:04.200 | And I'm going to be taking care of her.

00:49:05.200 | And I'm going to be taking care of her.

00:49:06.200 | And I'm going to be taking care of her.

00:49:07.200 | And I'm going to be taking care of her.

00:49:08.200 | And I'm going to be taking care of her.

00:49:09.200 | And I'm going to be taking care of her.

00:49:10.200 | And I'm going to be taking care of her.

00:49:11.200 | And I'm going to be taking care of her.

00:49:12.200 | And I'm going to be taking care of her.

00:49:13.200 | And I'm going to be taking care of her.

00:49:14.200 | And I'm going to be taking care of her.

00:49:15.200 | And I'm going to be taking care of her.

00:49:16.200 | And I'm going to be taking care of her.

00:49:17.200 | And I'm going to be taking care of her.

00:49:18.200 | And I'm going to be taking care of her.

00:49:19.200 | And I'm going to be taking care of her.

00:49:20.200 | And I'm going to be taking care of her.

00:49:44.200 | And I'm going to be taking care of her.

00:50:10.200 | And I'm going to be taking care of her.

00:50:39.200 | And I'm going to be taking care of her.

00:50:40.200 | And I'm going to be taking care of her.

00:50:41.200 | And I'm going to be taking care of her.

00:50:42.200 | And I'm going to be taking care of her.

00:50:43.200 | And I'm going to be taking care of her.

00:50:44.200 | And I'm going to be taking care of her.

00:50:45.200 | And I'm going to be taking care of her.

00:50:46.200 | And I'm going to be taking care of her.

00:50:47.200 | And I'm going to be taking care of her.

00:50:48.200 | And I'm going to be taking care of her.

00:50:49.200 | And I'm going to be taking care of her.

00:50:50.200 | And I'm going to be taking care of her.

00:50:51.200 | And I'm going to be taking care of her.

00:50:52.200 | And I'm going to be taking care of her.

00:50:53.200 | And I'm going to be taking care of her.

00:50:54.200 | And I'm going to be taking care of her.

00:50:55.200 | And I'm going to be taking care of her.

00:51:19.200 | And I'm going to be taking care of her.

00:51:45.200 | And I'm going to be taking care of her.

00:52:14.200 | And I'm going to be taking care of her.

00:52:15.200 | And I'm going to be taking care of her.

00:52:16.200 | And I'm going to be taking care of her.

00:52:17.200 | And I'm going to be taking care of her.

00:52:18.200 | And I'm going to be taking care of her.

00:52:19.200 | And I'm going to be taking care of her.

00:52:20.200 | And I'm going to be taking care of her.

00:52:21.200 | And I'm going to be taking care of her.

00:52:22.200 | And I'm going to be taking care of her.

00:52:23.200 | And I'm going to be taking care of her.

00:52:24.200 | And I'm going to be taking care of her.

00:52:25.200 | And I'm going to be taking care of her.

00:52:26.200 | And I'm going to be taking care of her.

00:52:27.200 | And I'm going to be taking care of her.

00:52:28.200 | And I'm going to be taking care of her.

00:52:29.200 | And I'm going to be taking care of her.

00:52:30.200 | And I'm going to be taking care of her.

00:52:56.200 | And I'm going to be taking care of her.

00:53:03.200 | And I'm going to be taking care of her.

00:53:04.200 | And I'm going to be taking care of her.

00:53:05.200 | And I'm going to be taking care of her.

00:53:06.200 | And I'm going to be taking care of her.

00:53:07.200 | And I'm going to be taking care of her.

00:53:08.200 | And I'm going to be taking care of her.

00:53:09.200 | And I'm going to be taking care of her.

00:53:10.200 | And I'm going to be taking care of her.

00:53:11.200 | And I'm going to be taking care of her.

00:53:12.200 | And I'm going to be taking care of her.

00:53:13.200 | And I'm going to be taking care of her.

00:53:14.200 | And I'm going to be taking care of her.

00:53:15.200 | And I'm going to be taking care of her.

00:53:16.200 | And I'm going to be taking care of her.

00:53:17.200 | And I'm going to be taking care of her.

00:53:18.200 | And I'm going to be taking care of her.

00:53:47.200 | And I'm going to be taking care of her.

00:53:48.200 | And I'm going to be taking care of her.

00:53:49.200 | And I'm going to be taking care of her.

00:53:50.200 | And I'm going to be taking care of her.

00:53:51.200 | And I'm going to be taking care of her.

00:53:52.200 | And I'm going to be taking care of her.

00:53:53.200 | And I'm going to be taking care of her.

00:53:54.200 | And I'm going to be taking care of her.

00:53:55.200 | And I'm going to be taking care of her.

00:53:56.200 | And I'm going to be taking care of her.

00:53:57.200 | And I'm going to be taking care of her.

00:53:58.200 | And I'm going to be taking care of her.

00:53:59.200 | And I'm going to be taking care of her.

00:54:00.200 | And I'm going to be taking care of her.

00:54:01.200 | And I'm going to be taking care of her.

00:54:02.200 | And I'm going to be taking care of her.

00:54:03.200 | And I'm going to be taking care of her.

00:54:32.200 | And I'm going to be taking care of her.

00:54:33.200 | And I'm going to be taking care of her.

00:54:34.200 | And I'm going to be taking care of her.

00:54:35.200 | And I'm going to be taking care of her.

00:54:36.200 | And I'm going to be taking care of her.

00:54:37.200 | And I'm going to be taking care of her.

00:54:38.200 | And I'm going to be taking care of her.

00:54:39.200 | And I'm going to be taking care of her.

00:54:40.200 | And I'm going to be taking care of her.

00:54:41.200 | And I'm going to be taking care of her.

00:54:42.200 | And I'm going to be taking care of her.

00:54:43.200 | And I'm going to be taking care of her.

00:54:44.200 | And I'm going to be taking care of her.

00:54:45.200 | And I'm going to be taking care of her.

00:54:46.200 | And I'm going to be taking care of her.

00:54:47.200 | And I'm going to be taking care of her.

00:54:48.200 | And I'm going to be taking care of her.

00:55:15.200 | And I'm going to be taking care of her.

00:55:18.200 | And I'm going to be taking care of her.

00:55:19.200 | And I'm going to be taking care of her.

00:55:20.200 | And I'm going to be taking care of her.

00:55:21.200 | And I'm going to be taking care of her.

00:55:22.200 | And I'm going to be taking care of her.

00:55:23.200 | And I'm going to be taking care of her.

00:55:24.200 | And I'm going to be taking care of her.

00:55:25.200 | And I'm going to be taking care of her.

00:55:26.200 | And I'm going to be taking care of her.

00:55:27.200 | And I'm going to be taking care of her.

00:55:28.200 | And I'm going to be taking care of her.

00:55:29.200 | And I'm going to be taking care of her.

00:55:30.200 | And I'm going to be taking care of her.

00:55:31.200 | And I'm going to be taking care of her.

00:55:32.200 | And I'm going to be taking care of her.

00:55:33.200 | And I'm going to be taking care of her.

00:55:59.200 | And I'm going to be taking care of her.

00:56:03.200 | And I'm going to be taking care of her.

00:56:04.200 | And I'm going to be taking care of her.

00:56:05.200 | And I'm going to be taking care of her.

00:56:06.200 | And I'm going to be taking care of her.

00:56:07.200 | And I'm going to be taking care of her.

00:56:08.200 | And I'm going to be taking care of her.

00:56:09.200 | And I'm going to be taking care of her.

00:56:10.200 | And I'm going to be taking care of her.

00:56:11.200 | And I'm going to be taking care of her.

00:56:12.200 | And I'm going to be taking care of her.

00:56:13.200 | And I'm going to be taking care of her.

00:56:14.200 | And I'm going to be taking care of her.

00:56:15.200 | And I'm going to be taking care of her.

00:56:16.200 | And I'm going to be taking care of her.

00:56:17.200 | And I'm going to be taking care of her.

00:56:18.200 | And I'm going to be taking care of her.

00:56:44.200 | And I'm going to be taking care of her.

00:56:51.200 | And I'm going to be taking care of her.

00:56:52.200 | And I'm going to be taking care of her.

00:56:53.200 | And I'm going to be taking care of her.

00:56:54.200 | And I'm going to be taking care of her.

00:56:55.200 | And I'm going to be taking care of her.

00:56:56.200 | And I'm going to be taking care of her.

00:56:57.200 | And I'm going to be taking care of her.

00:56:58.200 | And I'm going to be taking care of her.

00:56:59.200 | And I'm going to be taking care of her.

00:57:00.200 | And I'm going to be taking care of her.

00:57:01.200 | And I'm going to be taking care of her.

00:57:02.200 | And I'm going to be taking care of her.

00:57:03.200 | And I'm going to be taking care of her.

00:57:04.200 | And I'm going to be taking care of her.

00:57:05.200 | And I'm going to be taking care of her.

00:57:06.200 | And I'm going to be taking care of her.

00:57:29.200 | And I'm going to be taking care of her.

00:57:55.200 | And I'm going to be taking care of her.

00:58:02.200 | And I'm going to be taking care of her.

00:58:08.200 | And I'm going to be taking care of her.

00:58:14.200 | And I'm going to be taking care of her.

00:58:20.200 | And I'm going to be taking care of her.

00:58:26.200 | And I'm going to be taking care of her.

00:58:32.200 | And I'm going to be taking care of her.

00:58:38.200 | And I'm going to be taking care of her.

00:58:44.200 | And I'm going to be taking care of her.

00:58:52.200 | And I'm going to be taking care of her.

00:58:58.200 | And I'm going to be taking care of her.

00:59:04.200 | And I'm going to be taking care of her.

00:59:10.200 | And I'm going to be taking care of her.

00:59:16.200 | And I'm going to be taking care of her.

00:59:22.200 | And I'm going to be taking care of her.

00:59:28.200 | And I'm going to be taking care of her.

00:59:34.200 | And I'm going to be taking care of her.

00:59:40.200 | And I'm going to be taking care of her.

00:59:46.200 | And I'm going to be taking care of her.

00:59:52.200 | And I'm going to be taking care of her.

00:59:58.200 | And I'm going to be taking care of her.

01:00:04.200 | And I'm going to be taking care of her.

01:00:10.200 | And I'm going to be taking care of her.

01:00:16.200 | And I'm going to be taking care of her.

01:00:22.200 | And I'm going to be taking care of her.

01:00:28.200 | And I'm going to be taking care of her.

01:00:34.200 | And I'm going to be taking care of her.

01:00:40.200 | And I'm going to be taking care of her.

01:00:46.200 | - Okay, so let's talk about skillsets.

01:00:50.200 | Let's talk about skills, because that's probably a very accessible word.

01:00:54.200 | So the skills would be business analytics and programming.

01:00:58.200 | What other skills does that guy have that you don't currently have?

01:01:02.200 | - He'll sell skills.

01:01:06.200 | That's one area I've been working on building myself in my current role.

01:01:10.200 | And did a little bit of a road block, but yeah.

01:01:14.200 | What other skills?

01:01:18.200 | I guess if you're talking about management skills,

01:01:22.200 | I mean, most of the people are earning higher in some sort of

01:01:26.200 | management position, even if they're just managing a few people on a team.

01:01:30.200 | Or like, what's it called?

01:01:34.200 | Project management, that's a skillset.

01:01:38.200 | - Okay, good. Is there anything else that comes to mind?

01:01:42.200 | Anything else that he has that you don't have?

01:01:46.200 | - I mean, I think I mentioned

01:01:50.200 | competence, but I think that's part of it. Like communication skills.

01:01:54.200 | The phrase that's being thrown out a lot is executive presence.

01:01:58.200 | Kind of that way of presenting yourself.

01:02:02.200 | I guess it can be learned, but it's...

01:02:06.200 | - Okay, so if we had more time,

01:02:10.200 | or if I were coaching you one-on-one, I would spend quite a bit of time with you

01:02:14.200 | asking you about what you're doing for these things.

01:02:18.200 | And asking you what you're doing, etc. Because of this format, I'm just going to give you

01:02:22.200 | some things that I want you to think about and some homework to do. So grab a pen,

01:02:26.200 | so you are ready. So this is a good list of things. And by way of reminder,

01:02:30.200 | we've said business analytics skills. The ability to look at a business

01:02:34.200 | and analyze it. The ability to look at a spreadsheet and analyze what's happening with the numbers.

01:02:38.200 | Programming skills. The ability to actually do a technical function of programming.

01:02:42.200 | Sales skills. The ability to close more sales and to close bigger sales.

01:02:46.200 | Management skills. The ability to manage and inspire people

01:02:50.200 | to a higher level of collective performance.

01:02:54.200 | Project management. The ability to bring a project to fruition

01:02:58.200 | in a quick and efficient way. And confidence. Personal confidence,

01:03:02.200 | executive presence, and communications skills.

01:03:06.200 | The key thing to recognize is that every single one of those things

01:03:10.200 | is a skill. It's not something that's

01:03:14.200 | inborn in a human being. You don't, you know, when my

01:03:18.200 | son came out of the womb, I didn't look down and say,

01:03:22.200 | "Oh look, he's a programmer." Right? No, programming is a learned skill.

01:03:26.200 | You don't look at a little child and say, "Oh, look, they've just got such an executive

01:03:30.200 | presence." Executive presence is something that is trained. It's a skill.

01:03:34.200 | And the key thing is, any skill

01:03:38.200 | that somebody else has learned is a skill that you can learn

01:03:42.200 | as well. Now, maybe somebody else learned it easier

01:03:46.200 | than you did, or than you can, because they have a

01:03:50.200 | better starting place, maybe they're smarter than you are, maybe their parents

01:03:54.200 | loved them more than yours did, or maybe they started out behind and they had

01:03:58.200 | to work twice as hard as you do to learn something. But any skill

01:04:02.200 | that somebody else has learned is a skill that you can learn.

01:04:06.200 | And if you want to increase your income, the simplest

01:04:10.200 | and the easiest way for you to start is to start by analyzing

01:04:14.200 | the people that are in your company. Look at who is

01:04:18.200 | making more in your company, and then try to figure out

01:04:22.200 | how do I develop the skills that they have

01:04:26.200 | that I don't currently have. And then go to work on them

01:04:30.200 | little by little by little by little. Now, there are other

01:04:34.200 | great career strategies that you can employ as well,

01:04:38.200 | but the simplest one is just simply look at the people that are in your company.

01:04:42.200 | You have a boss, you have a job, you have a work environment that you know. Look at them

01:04:46.200 | and analyze what skills they have. And so here is your homework.

01:04:50.200 | The first thing that I would strongly encourage you to do

01:04:54.200 | is to choose one person to start with, but ultimately choose a half a dozen

01:04:58.200 | people in your company that are your superiors. They're your superiors

01:05:02.200 | whether they're direct superiors or somewhere else, but choose people

01:05:06.200 | in your company that you admire. Don't choose the person you don't like, but choose the guy that you

01:05:10.200 | admire that you know works well

01:05:14.200 | and that you know has skills that you don't have and that you know is making

01:05:18.200 | more money. Choose people that are making in your company $100,000

01:05:22.200 | and ask them for lunch and say, "Would you be willing to have lunch with me?"

01:05:26.200 | And take them out for lunch. They'll all say yes. It's no big deal. So you take them out

01:05:30.200 | for lunch and specifically say, "I am working hard

01:05:34.200 | on developing my skills and I really want to develop

01:05:38.200 | more confidence. I really want to be able to progress in my

01:05:42.200 | skills at the company.

01:05:46.200 | I want to be able to move on in my career. What advice

01:05:50.200 | do you have for me? How did you get..." A good question to start

01:05:54.200 | with is, "How did you get where you are? Where did you start from and how did you get

01:05:58.200 | where you are?" And ask them what they did to get where they

01:06:02.200 | are because if they started out as we all do

01:06:06.200 | as little children not knowing anything, but over time they did

01:06:10.200 | a certain set of things. Maybe they got a degree. Maybe they didn't

01:06:14.200 | get a degree. Maybe they took a certain job. Maybe they didn't. Maybe they read a book. Maybe they took a class. Whatever they did.

01:06:18.200 | If they can tell you how they got where they are

01:06:22.200 | and then you do what they did, then it goes

01:06:26.200 | to reason that you'll get where they are in

01:06:30.200 | time. But they'll give you much better advice than that. So ask them,

01:06:34.200 | "How did you get where you are and what would you recommend that I do to develop the

01:06:38.200 | skills that I need to succeed in a job like yours?"

01:06:42.200 | And so ask them more questions. They'll give you answers, but take notes.

01:06:46.200 | They might suggest that you read a certain book. You know, "This book here on this kind

01:06:50.200 | of programming is the key book." Or, "I took this class on accounting

01:06:54.200 | and it really helped me to understand how to read a business balance sheet." Or,

01:06:58.200 | "You should go to this sales seminar or listen to this sales podcast." Or,

01:07:02.200 | "Here's how I learned management skills," etc. And ask them for their

01:07:06.200 | advice and then make notes of it. And the secret is do what

01:07:10.200 | they said. So if they say, "Oh, read this certain book,"

01:07:14.200 | you immediately go home. You order the book. You read it. And then

01:07:18.200 | two weeks later, you go back to them and you say, "I read the book that you gave me.

01:07:22.200 | Would you be willing to go to lunch with me again? I'd like to talk to you about it and

01:07:26.200 | ask you some questions from it." Then two weeks later, you go to lunch. And you

01:07:30.200 | bring the book with you, which you've marked up, you've highlighted, you've underlined,

01:07:34.200 | you've written your questions in it, and you've said, "Here's what I thought was really good,"

01:07:38.200 | or, "Here are the questions that you have," and you have a conversation with them about the book.

01:07:42.200 | And then you ask them, "What should I do next?" And they say, "You should go take this class."

01:07:46.200 | So you go take the class. And then you come back a month later, take them to lunch, go to lunch

01:07:50.200 | with them, etc. And you start to build this relationship with them. And you do

01:07:54.200 | what they tell you to do to learn the skills that they have learned.

01:07:58.200 | And what happens is, this does a few things. Number one, it starts you on the

01:08:02.200 | process of developing the skills that you need to succeed in your job.

01:08:06.200 | You read the book on programming, you write the program. You read the book on

01:08:10.200 | sales skills or go to the seminar, and then you start implementing some of the techniques in your

01:08:14.200 | business. But you're doing it with someone that's in your company that

01:08:18.200 | knows the things that work in your company and the things that don't work in your company.

01:08:22.200 | For example, just as an aside,

01:08:26.200 | I used to want to learn how to sell. And so I would read these books on sales.

01:08:30.200 | But the problem was that I was in the life insurance business. And so I was reading these books on

01:08:34.200 | life insurance sales. And a lot of the people would talk about the importance

01:08:38.200 | of what in sales world is called the "one-call close," where

01:08:42.200 | what you do is you pressure somebody to make a decision, either a yes or a no decision,

01:08:46.200 | and you pressure them to make a decision

01:08:50.200 | on the first call. You don't call back and try to make another call. You do it right

01:08:54.200 | there. But I quickly learned that that was completely the wrong advice

01:08:58.200 | for the type of business that we did. And I learned I never,

01:09:02.200 | I never sold on the first close. Never. Because

01:09:06.200 | what would happen is, the market that we were in was so totally different

01:09:10.200 | that if I sold on the first close, it was guaranteed to be

01:09:14.200 | terrible business. The stuff that we did was always something where I

01:09:18.200 | wanted somebody to take a significant amount of time to think about it and really be

01:09:22.200 | sure about what they were doing. It had to make sense. And so closing on the first

01:09:26.200 | call may have worked in 1952 when this one guy was selling a

01:09:30.200 | $322 life insurance policy, but it was not the right advice in

01:09:34.200 | 2010. And so somebody in your industry would quickly say, "No,

01:09:38.200 | no, no, you don't do that." And so you're getting the right advice from people who are in your

01:09:42.200 | industry, and they're steering you towards the type of programming or the type of business

01:09:46.200 | analytics or the type of sales skills that are helping you. You're also building

01:09:50.200 | a mentoring relationship, and you're bringing yourself to the attention of those who

01:09:54.200 | are in leadership in the company. People who are in leadership of the company are

01:09:58.200 | desperate to find good employees. They're desperate to find people to replace

01:10:02.200 | themselves. Because this guy who's making $100,000, he can't move

01:10:06.200 | up until he can find and cultivate his replacement. That's his job. If you want to move

01:10:10.200 | up in a company, your job is to figure out who's going to replace you so that you

01:10:14.200 | can move up and be promoted yourself. And so you're putting yourself on the radar screen

01:10:18.200 | as a hard worker, as an active go-getter, and as a learner, and as

01:10:22.200 | somebody who's coachable and teachable and trainable. And that's what every coach

01:10:26.200 | wants. That's what every company wants, is employees who are coachable, teachable, and trainable.

01:10:30.200 | And so the process of simply asking for help and asking for advice has the

01:10:34.200 | major benefit of raising your profile and allowing you to be a mentee

01:10:38.200 | of the leaders in your company. And within a company, this is a totally

01:10:42.200 | natural and normal function if you just simply take initiative.

01:10:46.200 | So the first piece of homework for you is schedule a lunch appointment at least

01:10:50.200 | once per week with somebody in your company that you

01:10:54.200 | admire. Now, if it's the senior executive vice

01:10:58.200 | president, and I don't know how big your company is, and they don't want to take you for lunch, at least

01:11:02.200 | say, "Listen, would you be willing to have a few minutes? I'd like to get some advice from you."

01:11:06.200 | I have done this over the years again and again, and I have never had anybody

01:11:10.200 | say no. Even at the most, the highest levels.

01:11:14.200 | Because people who are successful and highly successful respect

01:11:18.200 | people who are willing to take a risk

01:11:22.200 | and ask for help. I always think of it like this. Think back to when you were in high school

01:11:26.200 | and how hard it was, probably for you, to ask a girl out.

01:11:30.200 | Now today, being 39 years old, you look at that and say, "That's ridiculous."

01:11:34.200 | The most obvious thing in the world would have been just simply to be the

01:11:38.200 | kind of guy who asked the girl out. And by simply behaving in a confident way,

01:11:42.200 | if you went back to high school, you'd kill it with the girls because you'd just ask them out. There would be no fear.

01:11:46.200 | But you in high school had the problem of thinking that it mattered

01:11:50.200 | if she said no somehow. But you at 39, you know that's a bunch of bunk.

01:11:54.200 | It's the same thing in business. When you simply ask for help and you ask for advice, and you go right

01:11:58.200 | to the top, the guy at the top knows that that's the key skill and is

01:12:02.200 | happy to help you. So homework one, schedule a lunch appointment. Plan it at least

01:12:06.200 | once a week. You should, by the way, if you run out of people in your company,

01:12:10.200 | you should do exactly the same thing with people that you know in your industry or that

01:12:14.200 | you know in your life. Start with a friend of yours, an older person

01:12:18.200 | that you know and respect. If you have a competitor at another company

01:12:22.200 | that you met at some company function or something like that, ask them to lunch.

01:12:26.200 | Ask them their advice. And if you practice simply being a good student, that will

01:12:30.200 | help raise your profile at your job. The second piece of advice I would have for you

01:12:34.200 | specifically because you said that confidence has been a challenge for you

01:12:38.200 | and that you need more confidence, more executive presence,

01:12:42.200 | and more communication skills. You need to join Toastmasters International.

01:12:46.200 | Toastmasters International is the single

01:12:50.200 | best way for you to develop personal confidence,

01:12:54.200 | executive presence, communication skills,

01:12:58.200 | and management skills. You must join Toastmasters

01:13:02.200 | International and participate in what they do. And let me explain to you why

01:13:06.200 | Toastmasters is such a tremendous opportunity.

01:13:10.200 | Number one. I've done that in a long

01:13:14.200 | time, but I need to rejoin Toastmasters. Yeah, rejoin.

01:13:18.200 | Rejoin and make it a practice. And probably what you should do is take it beyond

01:13:22.200 | just speaking if you didn't take it before. Let me explain

01:13:26.200 | how Toastmasters works, especially for people who have never done it. The basic

01:13:30.200 | concept of Toastmasters is to collect a group of people who are

01:13:34.200 | all friendly with one another and encouraging who want to learn how to speak in public.

01:13:38.200 | Speaking in public is the number one fear that many people

01:13:42.200 | have. And yet it's also one of the most important skills that you can have

01:13:46.200 | in both career advancement, right? There's nobody who's an executive

01:13:50.200 | of your company that would be uncomfortable standing

01:13:54.200 | up at a big meeting and saying, "Hey, here's what I think." So it's important for career advancement,

01:13:58.200 | but it's also important for self-confidence. If you can tackle the number

01:14:02.200 | one fear that many people have, and you can learn to deal with that

01:14:06.200 | fear, to act in spite of that fear, and in time to eliminate that fear,

01:14:10.200 | it'll do tremendous amounts of good for your personal

01:14:14.200 | self-confidence. And so they do that by giving you a speaking curriculum and

01:14:18.200 | you're learning how to speak. The process of going through the

01:14:22.200 | curriculum that Toastmasters offers of learning how to speak in public

01:14:26.200 | and learning how to do it in the way they do it in the clubs, and for those

01:14:30.200 | who've never been to the clubs, some of it is with prepared speeches, you prepare a five-minute

01:14:34.200 | speech. Some of it is with extemporaneous speaking, where you just simply stand

01:14:38.200 | and speak on a question that's asked to you. That process will help you to

01:14:42.200 | develop executive presence. Also, you serve in all of the roles

01:14:46.200 | of the meeting. So you may have never chaired an important meeting at your job,

01:14:50.200 | but at Toastmasters you will chair a meeting, and they'll evaluate you

01:14:54.200 | at the end of the meeting on how you did, and they'll evaluate you on your executive presence.

01:14:58.200 | And you learn how to stand still in front of a room, how to take control of a room,

01:15:02.200 | how to order a meeting, etc. All of that will contribute to your executive presence.

01:15:06.200 | The process of going through it in a friendly environment will build your self-confidence.

01:15:10.200 | The process of preparing and delivering speeches, both pre-planned

01:15:14.200 | prepared speeches and speaking extemporaneously,

01:15:18.200 | will help you to build your communication skills. And then the major

01:15:22.200 | secret of Toastmasters is this. Once you go

01:15:26.200 | through the basic level of communications training,

01:15:30.200 | you can move into the management track. And they have

01:15:34.200 | both a communications track, where you can become a skilled professional

01:15:38.200 | public speaker, if that were your ambition, but they also have a management track,

01:15:42.200 | where you start by working as the treasurer of a club, or

01:15:46.200 | the secretary of a club. But then you can move on to be the president of your local

01:15:50.200 | club. Maybe there's 15 people in your local club, but you now have the chance to be the president

01:15:54.200 | of your local club of 15 people. Now,

01:15:58.200 | do you think that that experience of managing a club

01:16:02.200 | of 15 people, who are all positive, optimistic, want to support you

01:16:06.200 | when you make mistakes, etc. Do you think that that could help you to develop management

01:16:10.200 | skills that can be applied in your workspace?

01:16:14.200 | Yes, definitely. And here's the thing. Toastmasters gives

01:16:18.200 | you a manual on everything that you need to do to become

01:16:22.200 | a competent treasurer, or a competent secretary, or a competent manager of a local

01:16:26.200 | club. And then once you serve as the president of your local club for a year,

01:16:30.200 | and you have a manual on everything to do, and all of those things directly translate over

01:16:34.200 | to your business, to your job, then you become a manager of a

01:16:38.200 | region, and you can become the manager of a huge region if you want.

01:16:42.200 | Which, that's the kind of skill that now you're going and, for example, they give

01:16:46.200 | you projects. Like one of the projects you would do at one point would be to host a regional

01:16:50.200 | conference. And so there'll be a regional conference of 100 speakers

01:16:54.200 | coming together, and you'll be the organizer of that conference. Certainly, you're

01:16:58.200 | volunteering your time. Certainly it's going to take several hours a week for you.

01:17:02.200 | But once you've put together a regional conference and hosted a regional conference for

01:17:06.200 | 100 competitors, and there's 700 people that come to

01:17:10.200 | your meeting, and you're standing up in front of the room of 700 people, that

01:17:14.200 | will help you to build those management skills, and that will translate over

01:17:18.200 | to your job. So for you, my two things are this. One,

01:17:22.200 | do homework assignments of scheduling at least one meeting a lunch, one

01:17:26.200 | lunch meeting a week, with somebody that you admire, that you look up to, who makes

01:17:30.200 | more money than you do, and who is farther ahead

01:17:34.200 | in their career than you are. Ask them for their advice, and then do

01:17:38.200 | what they tell you to do. And then number two, join Toastmasters, go through the

01:17:42.200 | communications track, and then get involved in the club management track to build those executive

01:17:46.200 | management skills.

01:17:50.200 | I've got a lunch meeting already scheduled on Tuesday, so

01:17:54.200 | I'm getting started there. Good. Take a notebook and ask for advice.

01:17:58.200 | Jason, thank you for calling in. Congratulations on the birth of your baby, and I'm really glad that you're here, and I appreciate

01:18:02.200 | your listening. Yeah, thanks, Josh. All right, we finish

01:18:06.200 | out today with Shiv in Washington. Shiv, welcome

01:18:10.200 | to Radical Personal Finance. How can I serve you today, sir?

01:18:14.200 | Hey, Josh. Thanks for taking my call, and of course, thanks

01:18:18.200 | for everything, especially your recent episode on how to read books. It has

01:18:22.200 | helped me a lot. Good. With the

01:18:26.200 | question, in short, I have some confusion about how

01:18:30.200 | to diversify investment distribution between stock

01:18:34.200 | position and real estate. A bit of detail,

01:18:38.200 | I have a mortgage balance, and I have a single

01:18:42.200 | stock exposure in my portfolio in excess of a couple hundred thousand dollars.

01:18:46.200 | The stock has done really well in recent past, but I'm concerned

01:18:50.200 | now due to the market wipe and

01:18:54.200 | recession is coming, all those sort of things.

01:18:58.200 | I'm confused. Should I sell my stock or I

01:19:02.200 | mortgage, or should I keep holding the stock more, which

01:19:06.200 | has done phenomenal for me?

01:19:10.200 | How do I decide? I know I'm alluding to market

01:19:14.200 | timing here, but it's making me restless these days,

01:19:18.200 | and I also know that this is an appropriate question for a financial

01:19:22.200 | advisor, but I'm trying to learn that process to do myself

01:19:26.200 | DIY, and I would like to know how

01:19:30.200 | financial advisor thinks about it.

01:19:34.200 | So, the first thing is you should pay

01:19:38.200 | attention to the fact that you're feeling restless. One of the

01:19:42.200 | things that I don't like is when people think that they should ignore

01:19:46.200 | how they feel about, especially when it results in your money, because at the end of the

01:19:50.200 | day, it's your money, and you're the one who cares more than anybody else what happens

01:19:54.200 | with it. And so, if you feel concerned and you feel restless

01:19:58.200 | about something, you should pay attention to that. Doesn't necessarily mean you should sell,

01:20:02.200 | it just means you should pay attention. And you gotta go back and analyze that and say

01:20:06.200 | why do I feel restless? Am I exposed here?

01:20:10.200 | Have I made a bad decision? Or is this just simply an emotional

01:20:14.200 | response to the news that I'm taking in, and I need to go back and look, what's my

01:20:18.200 | core strategy? What do I own? Why do I own it? How confident do I feel

01:20:22.200 | about the future of this, etc.? And go with that process

01:20:26.200 | there. But you need to start by homing in on why do you actually feel

01:20:30.200 | restless and analyze that. So, do you have a clear plan

01:20:34.200 | that you are pursuing to...

01:20:38.200 | Do you have a clear plan that you're pursuing at this point in time?

01:20:42.200 | So, in short, my plan is to

01:20:46.200 | pay down the mortgage and have

01:20:50.200 | a chance to reach my 4% goal and then

01:20:54.200 | move out of job and do

01:20:58.200 | the gigs. I haven't decided what the gigs are.

01:21:02.200 | But right now I'm in a good place.

01:21:06.200 | My sole purpose from that income is to

01:21:10.200 | pay down my debt. The only debt I have is mortgage and build

01:21:14.200 | portfolio. So, you mentioned real estate.

01:21:18.200 | Why are you attracted to investing in real estate?

01:21:22.200 | Real estate...

01:21:26.200 | Right now, real estate is my house. So, I'm not like

01:21:30.200 | I have done research on real estate or something. It's just that I have bought a

01:21:34.200 | house, so that's why I...

01:21:38.200 | Okay. We're having a little bit of

01:21:42.200 | connection issue, which is making it a little bit hard to hear

01:21:46.200 | everything you're saying.

01:21:50.200 | The question that you're asking is fundamentally unanswerable

01:21:54.200 | because you don't have a specific scenario that you're presenting.

01:21:58.200 | I don't know whether stocks are going to go up or whether stocks are going to go down.

01:22:02.200 | I don't know whether we're going to go into a deep,

01:22:06.200 | dark, long, hard recession and depression for the next

01:22:10.200 | 10 years or we're going to go into

01:22:14.200 | the next greatest thing. Every politician wants me to believe one extreme or the other.

01:22:18.200 | I don't know. I don't know what investment strategy

01:22:22.200 | you should pursue in stocks or if you should pursue a strategy of real

01:22:26.200 | estate, etc. I don't know. But what I do know is that

01:22:30.200 | you can work your way through the scenarios by thinking them through

01:22:34.200 | and then comparing those scenarios to your current

01:22:38.200 | plans and to your current strategy. So, the first

01:22:42.200 | thing I would look at is what are my goals? What are my ultimate

01:22:46.200 | goals that I'm trying to work towards with my finances?

01:22:50.200 | What am I trying to fund? Now, you mentioned that you're trying to fund financial independence.

01:22:54.200 | I would say, "What does financial independence mean to me?" You've got a number. That's what

01:22:58.200 | you've calculated, etc. I would ask myself, "What would I do when I

01:23:02.200 | hit that number? Is there any way that I can get there faster?"

01:23:06.200 | If you are well-employed at a job that you like and your

01:23:10.200 | primary strategy for hitting financial independence is to own stocks

01:23:14.200 | and your number is a few years out and you have

01:23:18.200 | an investment plan that is solid, then you don't worry about the market

01:23:22.200 | going down because the market's going to go down. That's what happens. You get a 30%

01:23:26.200 | correction every decade. You get a 15% correction every

01:23:30.200 | downturn every year. You get a 50% correction every couple decades. That's what's going to happen.

01:23:34.200 | And so, you know that I'm going to be in a situation where

01:23:38.200 | I'm going to keep working. I've got a job that's fine. I'm saving lots of money.

01:23:42.200 | And what I would be doing if my stocks went down is I would buy, buy, buy, buy. There's no reason

01:23:46.200 | for you to be nervous in that kind of situation. Now, if on the other hand, your

01:23:50.200 | financial independence plan is to quit your job, buy a bed and breakfast

01:23:54.200 | in the smoky mountains, or buy a... You're in Washington.

01:23:58.200 | Buy a bed and breakfast with a beautiful view of Mount Olympia,

01:24:02.200 | then I would be really nervous about owning stocks because if

01:24:06.200 | my portfolio goes down by 30%, and that means I can't

01:24:10.200 | buy my bed and breakfast like I've been planning to, I'm really nervous about

01:24:14.200 | that plan. So, if I were in that situation, I would sell my stocks. I would

01:24:18.200 | say I'm not worried about getting the maximum return. I'm worried about

01:24:22.200 | getting to the next stage in my plan. Same thing if I were trying to buy

01:24:26.200 | real estate. If you're trying to move into real estate because you're convinced that real estate is a better fit

01:24:30.200 | for your personality or that you can make more money in real estate or that there's more leverage

01:24:34.200 | opportunities, etc., then I would adjust

01:24:38.200 | my portfolio. Back to your stocks. You look at your stocks and you say

01:24:42.200 | is this a fair value? If you're buying single stocks, you

01:24:46.200 | look down and company A is at $50 a share.

01:24:50.200 | You ask yourself, would I buy this company again at $50 a

01:24:54.200 | share? And if you would, then you keep it. If you wouldn't, then you sell.

01:24:58.200 | So, everything is going to be based on your strategy. The key thing is to have

01:25:02.200 | total clarity about your goals and then

01:25:06.200 | have as much clarity as you can about your plans and then all these

01:25:10.200 | decisions are fairly simple and straightforward.

01:25:14.200 | That makes sense.

01:25:18.200 | Here's what I would do if I were you. Here's the homework I would give you.

01:25:22.200 | Spend some time articulating as clearly as

01:25:26.200 | possible your specific financial goals.

01:25:30.200 | What you're trying to achieve. Ask yourself the why questions.

01:25:34.200 | Why is this important to me? And spend some time journaling those things out.

01:25:38.200 | Then, as you have your goals, sit down, put on some soft

01:25:42.200 | gentle music, meditation music or whatever you want to. Lie down or sit down

01:25:46.200 | in a comfortable chair and envision yourself having fully

01:25:50.200 | achieved those goals. And then work backwards in your mind

01:25:54.200 | and say how did I get here? How did I get there from here?

01:25:58.200 | What did I do? And build the plan step by step

01:26:02.200 | by step in your mind.

01:26:06.200 | When you've done that, write it down and organize it and then it should be fairly clear.

01:26:10.200 | When I left the financial advice

01:26:14.200 | business, I sold all my stocks and

01:26:18.200 | among other reasons, one of the reasons I did that was because I didn't care

01:26:22.200 | what my returns were going to be 30 years from now.

01:26:26.200 | I was in the middle of a course correction. I could see very clearly in my head

01:26:30.200 | what I wanted to build. I knew. I'd gone through all

01:26:34.200 | the exercises that I teach. I knew what I would do if I won $10 million tax free

01:26:38.200 | in a lottery. I knew the kind of life and the lifestyle that I would build.

01:26:42.200 | And I sat down and I thought it through and for me at that stage, owning stocks was

01:26:46.200 | totally meaningless. Whereas having cash was incredibly important.

01:26:50.200 | And so I moved everything to cash so I would have the maximum cash available

01:26:54.200 | to me to make the various lifestyle moves that I wanted to make.

01:26:58.200 | Now, I executed that plan. I accomplished that plan.

01:27:02.200 | It took me longer than I thought, but I made the complete change that I had

01:27:06.200 | and today the life that I live is exactly what I sat down and I imagined

01:27:10.200 | 5, 6, 7, 8 years ago. It's exactly like that.

01:27:14.200 | Now, I'm still enhancing and going from here, but at this point everything has changed

01:27:18.200 | where now the stocks are not a

01:27:22.200 | key thing. So now when I sit down as I look at my portfolio, I'm not worried about

01:27:26.200 | my portfolio creating income for me. Now I want my portfolio to create impact.

01:27:30.200 | And so I sit and I think, how do I create impact with my portfolio?

01:27:34.200 | And I imagine, what do I want to do? What is my goal?

01:27:38.200 | If I'm going to be the steward of this money, what is the goal of this money?

01:27:42.200 | Why is it in my hands and what am I doing with it? And so I'm working hard to build

01:27:46.200 | the clear vision of the impact of the money that I

01:27:50.200 | manage and then to try to see what are the paths that I can

01:27:54.200 | proceed through to make the impact that I ultimately want to make.

01:27:58.200 | I don't have it perfectly figured out, but I can confidently answer

01:28:02.200 | for me, just for me personally, I don't care about the stock market.

01:28:06.200 | I will never create the impact that I want to create by simply owning

01:28:10.200 | stocks and publicly traded companies. And so it's very obvious to me

01:28:14.200 | that for my goals, the stock market is completely immaterial.

01:28:18.200 | But that comes from sitting down, getting a very clear

01:28:22.200 | picture of where you're going, and then doing your best to imagine your way through

01:28:26.200 | the process of how you think you're ultimately going to get there.

01:28:30.200 | So that's how I would tackle it if I were you.

01:28:34.200 | That makes perfect sense. Thank you so much.

01:28:38.200 | Do I have some more time to ask some corollary questions

01:28:42.200 | on real estate? Let's do it quickly. Yeah, I got about five minutes or so.

01:28:46.200 | So go ahead. And if not, we can pick it up next week.

01:28:48.200 | Number one, with the recent interest rates going down,

01:28:52.200 | how to decide between whether to refinance or not?

01:28:56.200 | And the second one, should I treat my home mortgage

01:29:00.200 | equivalent to other investments? Should it be

01:29:04.200 | a real estate investment or should I treat it something different?

01:29:08.200 | Number one, how to decide whether to refinance or not. You go and you get

01:29:12.200 | a quote on refinancing your mortgage. And you get

01:29:16.200 | that quote as best you can. You get the best information that you can from

01:29:20.200 | a couple of mortgage brokers. And you do your best to find out

01:29:24.200 | what the full costs of a refinance would be. And then you make a spreadsheet.

01:29:28.200 | You take your current mortgage. You put it into a spreadsheet.

01:29:32.200 | All of the costs, etc. And then you get your new mortgage estimate.

01:29:36.200 | Any closing costs, refinancing costs. And you make an amortization

01:29:40.200 | schedule for both of them. And then you analyze that amortization schedule

01:29:44.200 | to see where your break-even point is. And you

01:29:48.200 | look at it and you say, "How long if I make this, because there's going to

01:29:52.200 | be costs to refinance a mortgage, how long would it take me to recoup

01:29:56.200 | these costs?" And in some cases, the answer is, "By

01:30:00.200 | 13 months from now, I'll recoup this. And my situation will be better because

01:30:04.200 | I'll have a lower payment. I'll have a lower total interest cost. I'll have more free cash flow that I can invest

01:30:08.200 | into other things." In some cases, it'll be 17 years. "I'm not going to

01:30:12.200 | do that. I'm probably not even going to be in the house 17 years." And so you sit tight. But the answer

01:30:16.200 | is a spreadsheet. Number two, should you look at your house as

01:30:20.200 | a real estate investment or as a personal lifestyle investment?

01:30:24.200 | Are you married? Do you have children? - Yes, I am married

01:30:28.200 | and I have one son. - Okay. So if you are married and you have children,

01:30:32.200 | then that's going to generally push you, if your wife is

01:30:36.200 | anything like most women, that's going to push you in the direction of saying,

01:30:40.200 | "This is my home where we live and this is where my family lives."

01:30:44.200 | Now, that's not to say you shouldn't make changes, but I'm not going to try

01:30:48.200 | to milk every dollar that I can out of my house. Right? How many

01:30:52.200 | bedrooms does your house have? - Three. - Three.

01:30:56.200 | And so you could, if you wanted to,

01:31:00.200 | you could move your children into the master bedroom, put their beds in

01:31:04.200 | there with you and your wife, and you could rent two of your other bedrooms out to

01:31:08.200 | borders to make maximum money. You could do that, right?

01:31:12.200 | But you don't, right? Because you're not trying to get as rich as you can

01:31:16.200 | out of your house. You're sitting there and saying, "This is my home. This is where we live."

01:31:20.200 | And so you're trying to build a home. Now,

01:31:24.200 | what I find is that my tolerance for discomfort

01:31:28.200 | and for lack of lifestyle

01:31:32.200 | freedom was much higher when I was younger and when I was single than it is

01:31:36.200 | now. I'm much more willing to give up money in favor of

01:31:40.200 | atmosphere and comfort at this stage of my life than I was when I was 20.

01:31:44.200 | And so the key for 20-year-olds is to rent every bedroom out of your house and you sleep

01:31:48.200 | in your pickup truck in the garage and make as much money as you can because that's not

01:31:52.200 | going to be the long-term

01:31:56.200 | environment that you're in once you're married and you have children.

01:32:00.200 | So unless your house is costing you something important,

01:32:04.200 | assuming that you live in a reasonable house, you're still able to save and invest, you're still making

01:32:08.200 | progress towards those goals, etc., then you just simply view it as a home.

01:32:12.200 | And you own that home in as cost-efficient as a way as you can figure out how

01:32:16.200 | to do. But I don't put it down as real estate. I just put it down as a home.

01:32:20.200 | That said, there's no reason not to make an intelligent decision along the way. So if you can buy

01:32:24.200 | in an area where you think there's going to be good long-term appreciation, buy

01:32:28.200 | in an area where you think there's going to be good long-term appreciation. If you can finance your home

01:32:32.200 | at a really inexpensive, with a really inexpensive plan, do that.

01:32:36.200 | You don't have to be financially stupid, but I don't consider it a real estate

01:32:40.200 | investment. I consider it a home. Got it. Makes sense.

01:32:44.200 | Makes sense. Thank you very much. Good question, Shiv. I really enjoyed them.

01:32:48.200 | And I thank you very much for calling in.

01:32:52.200 | Good questions today. I hope you guys enjoyed this. I guess I would say in closing

01:32:56.200 | here that the number one thing is always going

01:33:00.200 | to come down to goals. The longer and longer that I have done

01:33:04.200 | financial planning, the more scenarios I have worked in, what I have

01:33:08.200 | realized is if you have total clarity about

01:33:12.200 | what you're trying to do, the answers are relatively

01:33:16.200 | clear. The answers are relatively obvious.

01:33:20.200 | But if you're not sure what you're trying to do, then you can't... it's hard

01:33:24.200 | to know what's the best path forward.

01:33:28.200 | So more and more when I face a difficult decision in my life

01:33:32.200 | and I realize that I'm in a situation where I don't know what to do,

01:33:36.200 | I try to go back and do whatever work I can do to gain more clarity

01:33:40.200 | on the path, on what I'm trying to do, and then consider

01:33:44.200 | my options in light of that.

01:33:48.200 | You can come up with your own analogies to prove that point.

01:33:52.200 | But as you hear, as you listen to me answer these questions, just always hear the tone.

01:33:56.200 | Hear what comes through. If somebody has a clear goal, the path

01:34:00.200 | there is fairly simple. If somebody doesn't have a clear goal, we're not

01:34:04.200 | sure which way to go. So spend your time getting clarity on the goal.

01:34:08.200 | And I hope that helps you. I've gotten really great feedback

01:34:12.200 | about these calls because I know it's so helpful to hear other people wrestle with things and you think, "Oh, that makes my situation

01:34:16.200 | obvious." I would love to speak to you on next week's call.

01:34:20.200 | If you'd like to join me on next week's call, go to patreon.com/radicalpersonalfinance.

01:34:24.200 | Let's work on your problems a little bit. Patreon.com/radicalpersonalfinance. Sign up there to support the show

01:34:28.200 | on Patreon and you will gain access to next week's call.

01:34:32.200 | Again, patreon.com/radicalpersonalfinance. I remind you

01:34:36.200 | about the Radical Personal Finance Store. Go to radicalpersonalfinance.com/store and you'll see

01:34:40.200 | the courses. Currently I have two courses on the market. One is called "How to Borrow Money

01:34:44.200 | Safely and Never Pay Interest Using Credit Cards." And the second is called "How to Survive and Thrive

01:34:48.200 | During the Coming Economic Crisis." I just posted an update to my students in that

01:34:52.200 | "Survive and Thrive" course about my experiences. I've completed

01:34:56.200 | all of my phase one of my own plans to

01:35:00.200 | survive and thrive during the coming economic crisis. I was pleasantly surprised.

01:35:04.200 | All the recommendations that I made actually worked out better than I thought they would before I did them.

01:35:08.200 | You can find all of that at radicalpersonalfinance.com/store.

01:35:12.200 | Thank you for listening and I will be back with you very soon.

01:35:16.200 | Don't just dream about paradise.

01:35:20.200 | Live it with Fiji Airways. Escape the ordinary with Fiji Airways

01:35:24.200 | Global Beat the Rush Sale. Immerse yourself in white sandy

01:35:28.200 | beaches or dive deep into coral reefs. Fiji Airways has flights

01:35:32.200 | to Nadi starting at just $748 for light and just $798 for value.

01:35:38.200 | Discover your tropical dreams at FijiAirways.com.

01:35:42.200 | From here to happy. Flying direct with Fiji Airways.

01:35:46.200 | Airways

RPF0675-Friday_QA-Buying_a_Business_Minority_Shareholder_Gifting_a_Rental_Refinancing_Mortgage_Etc.