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welcome to get rich education I'm your host Keith why not talking about how to take slight edges that you have in your life and turn them into a great advantage that you never thought you could have and a good news update on a little-known way to take your retirement funds invest them in real assets and make all of your future gains tax free today on get rich education finally with total control financial get checkbook control of your existing 401k and IRA funds to invest in real estate yes you can move your retirement money into your own checking account but you must avoid the little-known tax that you'll get hammered with in a self-directed IRA instead start your qrp learn more and get your free copy of the qrp book by text messaging qrp in all capital letters to 72,000 the company that's provided our listeners with more loans than anyone is Ridge lending group and MLS four two zero five six you can finance more than ten single families up to four plexes serving most US states their knowledge and experience leads to your financial freedom they're number one in the investment space prequalify and then chat with president Kaley Ridge personally start on your next investment property loan right now at Ridge lending group calm you're listening to the show that has created more financial freedom than nearly any show in the world this is get rich education [Music] [Applause] [Music] here it is hey welcome to get education I'm your host Keith Weinhold and you have an accumulative advantage over everyone when you understand principles like the velocity of money and leverage and cash flow and this is pretty exciting just say that you buy a rental door and it kicks off $200 worth of cash flow to you every month I contend that that $200 is worth more to you and is more powerful to you than it is the next person and that is because you know how to leverage it five to one and then own $1,000 worth of property with your $200 and now you're compounding your cash flows in order to control more property it's the same for every two hundred dollars in tax savings that you realize it can be leveraged just the same and you're creating velocity when it's reinvested so you're enjoying a cumulative effect let's look at how when you create advantages like this it can have a greater effect than you realize than you ever imagined and we need to leave real estate for a minute and get some analogies from nature as to how this builds your wealth faster than it does for others now sometime in the late 1800s nobody is quite sure exactly when but an Italian man named vilfredo pareto was poking around in his garden when he made a small but pretty interesting discovery Pareto noticed that a tiny number of people in his garden produced the majority of the Peas now Pareto was this rather mathematical kind of guy he worked as an economist and one of his lasting legacies was turning economics into a science rooted in these hard numbers and facts unlike a lot of economists of that time Pareto's papers and books were filled with equations and so these peas in his garden they tended to set his mathematical brain in motion and he thought well what if this unequal distribution was present in other areas of life as well outside of just gardening at the time Pareto was studying well in various nations so he began by analyzing the distribution of wealth in his home country of Italy and to his surprise he discovered that approximately 80 percent of the land in Italy was owned by just 20% of the people yes similar to the pea pods in his garden most of the land was controlled by a minority of the players and Pareto continued his analysis in other nations and a pattern began to emerge for instance after he pored through the British income tax records he found that approximately 30 percent of the population in Great Britain earned about 70 percent of the total income and as he continued his research Pareto found that the numbers were never quite the same but the trend was remarkably consistent the majority of rewards always seemed to accrue to a small percentage of people this idea that a small number of things account for the majority of the results became known as the Pareto principle P AR eto or more commonly the 8020 rule now there's a good chance that you've heard of the Pareto principle before but let's expand on it and then let's talk more about how it can benefit you and how to think this way and get this advantage for yourself in the decades that followed Pareto's work his work was practically becoming gospel for economists so once he opened the world's eyes to this idea people started seeing it all over the place and really the 80/20 rule is more prevalent now than it's ever been in fact do you know what percent of the world population the u.s. population makes up you have any guess well it's just about 4% of the world's population that lives in the United States yet with just four percent of the world's population the u.s. owns 30 percent of the world's wealth here in the year 2020 in the NBA the National Basketball Association one quarter of the franchises have won three quarters of the championships and beyond that just two franchises the Boston Celtics and Los Angeles Lakers have won almost half of all the championships in NBA history so like Pareto's peapods a few teams account for the majority of the rewards and the numbers are even more extreme in soccer as of just a few years ago 77 different nations have competed in the World Cup in just three countries Brazil Germany and Italy have won 13 of the first 20 World Cup tournaments examples of the Pareto principle exist in everything from real estate to income inequality to tech startups in the 1950s 3 percent of Guatemalans owned 70 percent of the land in Guatemala worldwide today about 8 percent of the world population controls 85 percent of the world's wealth today Google dominates the global search engine market share with over 90 percent of all search queries worldwide being handled by Google I mean say who would really want to voluntarily use the world's fourth best search engine when they're looking for information why would you do that you just rather use the best well why do these disparities all over the place happen why do just a few people or a few teams or a few organizations enjoy all these massive rewards in life and to answer this question let's consider an example from nature and we're going to tie this all into how you can use this to your advantage as a better investor in really every other facet of your life shortly here and it's really about what's called the power of a cumulative advantage the Amazon rainforest is one of the most diverse ecosystems anywhere on earth scientists have catalogued approximately 16,000 different tree species in the Amazon but despite this amazing level of diversity researchers discovered that there are only about 227 hyper dominant tree species that make up nearly half of the rainforest just 1.4 percent of tree species account for half the trees in the Amazon are well why how could this really happen alright just imagine this imagine two plants growing side-by-side in each and every day they compete with each other for resources like sunlight and water and soil if one plant can grow just a little bit faster than the other then it can stretch out just a little further and it'll catch more sunlight and it will also soak up more rain and then the next day this additional energy that it got from the previous day allows the plant to grow even more in this pattern it keeps reinforcing itself and it continues until the stronger plant prouds the others out and takes the lion's share of the sunlight and the soil and the nutrients so from this advantageous position the winning plant has a better ability to spread seeds and reproduce as well which then gives this species and even bigger footprint in the next generation and this process gets repeated again and again until the plants that are only slightly better than the competition soon go on to dominate the entire forest in just this way and scientists refer to this effect as a cumulative advantage what begins as a small advantage gets bigger and bigger over time one plant only needs a slight edge in the beginning to crowd out the competition and take over the entire forest so then there are these winner-take-all effects and something similar happens in your life just like plants in the rain forest you're often competing for the same resources as others in your economic life you compete for the same dollars as others politicians compete for the same votes authors compete for the same spot at the top of the bestseller list athletes compete for the same gold medal companies compete for the same client television shows compete for the same hour of your attention the difference between these options can be razor-thin but yet the winners enjoy massively outsized rewards imagine two women swimming in the Olympics one of them might just be 1/100 of a second faster than the other but yet she will get all of the gold medal and whoever at second place gets say no metal or they're even forgotten most of the time ten different companies might pitch a potential client but only one of them will actually win the project and you only need to be a little bit better than the competition for you to secure all of the reward or perhaps you're applying for a new job 200 candidates might compete for the same role but being just slightly better just 1% better than the other candidates that earns you the entire position in these situations were small differences in performance lead to outsized rewards but really what we call winner-take-all effects and they typically occur in situations that involve relative comparison where your performance relative to those around you is the determining factor in your success and not everything in life is a winner-take-all competition but so many are and some of them have limited resources that you're competing for so in situations like these being just a little bit better than the competition least those outsize rewards because the winner does take it all you only win by one second or by one dollar at an auction or to buy a property but yet you capture 100% of that victory the advantage of being a little bit better is not a little bit more reward it is the entire reward the winner gets one and the rest gets zero these winner-take-all effects in individual competitions can really lead to winner take most effects in your larger game of life that you're playing and now from your advantageous position with your gold medal in hand or with your cash flowing property now you begin the process of accumulating advantages that make it easier for you to win the next time around see the Olympic list gets all of the commercial endorsements what began as a small margin is starting to trend toward the 80/20 rule the Pareto principle see if taking one road is only slightly more convenient than the other then more people travel down it and more businesses are likely to build alongside it and that's where the more valuable real estate is going to be as more businesses are built now people have additional reasons for using the road and so that road gets even more traffic and well soon you end up with a saying like 20 percent of the roads receive 80 percent of the traffic let's look at capitalism if one business has a technology that is just a little more innovative than the other then more people will buy their products and as the business makes more money that means that that business can invest in additional technology and pay the higher salaries and therefore lure and hire the better people and by the time the competition catches up there are other reasons for customers to just stick with that first business because customers are already used to that ecosystem and soon one company dominates the industry and this is why what they call in this day in age the phang businesses why they're so dominant and why they're so difficult to topple Fang is FA ang Facebook Apple Amazon Netflix and Google if one author hits the bestseller list well then publishers are going to be more interested in their next book and then when their next book comes out the publisher will put more resources and more marketing power behind it which makes it easier to hit the bestseller list for a second time and soon you begin to understand why a few books sell millions of copies while the majority struggle to even sell one thousand copies the margin between you being good and you being great is narrower than what it seems and that's the good news here what begins is a slight edge of you over your competition compounds with each additional contest winning one competition one property improves your odds of winning the next each additional cycle further cements the status of those at the top because now you've got more experience and now you've got more cash flow from that property so you can buy your next one and over time if you're slightly better you can end up with the majority of the rewards and those that are slightly worse end up with almost nothing and this idea is sometimes referred to as the Matthew effect and this reference is a passage in the Bible that says for all those who have more will be given and they will have an abundance but from those who have nothing even what little they do have is going to be taken away so small differences in performance can lead to very unequal distributions when repeated time after time after time and this is yet another reason why your wealth mindset is so important if you do the right things more consistently then you're more likely to maintain a slight edge and accumulate disproportionate rewards over time because you've got that belief system embedded in you you only need to be slightly better than your competition but if you keep maintaining that slight edge today and tomorrow and the day after that you can repeat that process of winning by just a little bit over and over again and thanks to these winner-take-all effects each win delivers outsized rewards and we can really call this the 1% rule the 1% rule that means that over time the majority of the rewards in a given field will accumulate to the people and the teams in the organizations that maintain a 1% advantage over the alternatives so the good news for you here is that you don't need to be twice as good to get twice the results a lot of places in life you just need to be slightly better the 1% rule says you really only need to be 1% better to rule your respective field or industry and that's why the process of a advantage is really the hidden engine underneath that drives this 80/20 rule that's what's under the hood think about places that you can apply this in all the areas of your life investing and beyond now let's use a wealth mindset and real estate investment example that's concrete and actionable for you when you understand something that we've talked about here a lot in the past like the return from home equity is always zero you're more likely to benefit from the Pareto principle a cumulative advantage and build well for yourself because look when you don't make an extra dollar a principal pay down in your home or you take cash out of your home which transfers your equity to cash you understand that you can leverage your cash five to one when you make a 20% down payment on an investment property now I've got a question for you which would you rather have $100 in cash or 100 dollars in property equity which one well if you've been a listener here for a while I think you know definitively so let's reinforce this notion of the Pareto principle and accumulative advantage with this video from our get rich education YouTube channel it's less than two minutes in length and I'll be right back to comment here's $100 how would you rather take possession of it as cash or in the form of home equity let's compare the two right now [Music] [Applause] [Music] hi I'm Keith Weinhold Forbes writer and host of the get rich education podcast if you take your hundred dollars as cash you can do whatever you want with it you can buy dinner you can pay to fix your cracked phone screen or maybe you can invest it for a 10 percent return if instead you took this hundred dollars as home equity in
a principle pay down form well that does not improve your life whatsoever in fact with most loan types your mortgage payment won't even be reduced then next month one bit if you make an extra $100 mortgage principal payment to the bank basically here is what you are telling the bank hey mr. banker here's an extra $100 don't pay me any interest on it if I need it back I'll pay you fees plus I'll try to prove to you that I qualify again now that is in a best-case scenario what about a worst-case scenario if you have an emergency or you lose your job you're going to need cash not home equity and if you lose your job your bank sure won't let you get your equity back out either they're definitely not going to give you a new loan if you find yourself in that condition cash is liquid home equity is illiquid it's trapped and its rate of return is always zero as we've discussed elsewhere compared to home equity cash is king yeah with extra principle pay down you have in fact lost leverage and like I say leverage builds well faster than compound interest that's where you're finding that slight edge because look if you've only got two to one leverage in your home where you live that's fifty percent equity and you've got say zero income property as well as that two to one leverage home that you live in well let's say that you want to do something about that you learn about and apply the concept of leverage and the velocity of money so what you do is a cash out refinance into investment property well now afterwards you simultaneously have 20 percent equity in your home in 20 percent equity in three rental properties so beforehand you had two to one leverage on your own home in no rental properties afterward you had five to one leverage on four properties your home into three rental properties this right here is a cumulative advantage this is how 20% of the people can have 80% of the wealth so really you need to ask yourself hey what side do I want to be on in life the 20% or the 80% and you know see someone might say oh well this is all unfair life is unfair yeah life is unfair and since life is unfair and it's always going to be and you can't change it well then what do you do what you do is you make life unfair to your advantage that is the bottom line so to review what we've learned here the Pareto principle is also known as the 80/20 rule where 20% of the people receive 80% of the benefits and it's driven by this notion of a cumulative advantage I want to thank the book the slight edge by Jeff Olson for inspiring some of this material as well as an article in Business Insider of course resources like this or in the show notes for you coming up in the next few weeks on the show here Chris Martenson joins us to discuss how the Fed affects your inflation rate and the interest rate that you pay we're going to talk about the latest on how to qualify for rental property loans we're going to talk about the importance of home inspections also why would a turnkey provider choose to sell a home to an investor like you instead of an owner-occupant and a brand new guest that I think you're really going to like is gonna help you see the future of the economy and so many more great shows coming up speaking of making life unfair to your advantage how do you take your retirement funds get control of them so that you can invest in exactly what you want to even leverage real estate and make all of your future gains tax free even the leverage portion these are tax advantages that you're probably missing out on if you only have a 401k or an IRA even Roth IRAs don't give you this accumulative advantage and there are changes to this little-known vehicle for this year that make it even better for you in fact you can even make these benefits retroactive to last year if it's still before you file your taxes this year that's next you're listening to get rich education since 2014 the powerful get rich education podcast has created more passive income for people than nearly any other show in the world the show teaches you how to earn strong return from passive real estate investing in the best markets without losing the time being a flipper or landlord show hosts keep one home rights for both Forbes and rich fat advisors and delivers a new show every week since 2014 there's been millions of listener downloads and 188 world nations he has a list show guests and keep top-selling personal finance author Robert Kiyosaki get rich education can be heard on every podcast platform plus it has its own dedicated Apple and Android listener phone apps build wealth on-the-go with get rich education podcast sign up now for the get rich education podcast or visit get rich education com countless property investors get killed with maintenance costs but that's far less likely when you buy brand new construction let me tell you about jwb real-estate capital in jacksonville florida they pioneered the build to rent model where you can invest in new construction turnkey rental properties that's why JW B was featured on the front page of The Wall Street Journal to learn more in C inventory go to new construction turnkey dot-com this is author Jim Rickards listen to get rich education with Keith Wilde and don't quit your day dream [Music] I'd like to welcome on to the show a friend of get rich education he's a robust entrepreneur and expert in real asset investing like real estate and precious metals and he's authored a number of really well-received best-selling books in those spaces and elsewhere he's even a fifth degree black belt he's an expert in helping you get control of your retirement funds and making all of its future gains tax free welcome to get resuscitation Damian Lupo Keith it's so good to be back man I mean you say some people from unpleasant $200,000 tax bills I know that and you're doing it with EQ RPS that stands for enhanced qualified retirement plans before we talk about some of the tax changes that affect qrp s this year let's discuss just what a qrp or an EQ RP is it's a vehicle that gives you checkbook control of your IRA a lot like a self-directed IRA it does and this way investors can put those funds into things like residential property metals cryptocurrency options tax liens notes vacant land mobile home parks and a lot of other things the thing is is that with self-directed IRAs one must pay a tax on their leveraged gains and with EQ RPS you don't so tell us about that in the nasty tax that you avoid with EQ are peas that I raise don't save you from it's crazy because this thing called you bid the unrelated business income tax yeah it's sitting there and people are literally sitting on like a landmine it they're holding a grenade with a pin out and they don't realize that it's a live grenade and basically this tax happens if you've got leveraged real estate like you know multifamily or you bought a house and you got set maybe a private loan and then that's in your IRA you don't realize you're sitting on a ticking time bomb until you probably when you sell it and then all of a sudden you get this tax and it can be like 35 to 37 percent of the gains I mean that's just Rheem and they don't tell you because there's no real reason that they have to and so I'm talking about IRA because they're not advisors they just literally tell you here's the form you have to fill out and then give it to your accountant him in your accountant says here's your two hundred thousand dollar tax bill which was about what was going to happen to our client that had a bunch of property in their IRA their self-directed IRA and when they found out about the EQ RP they said can we fix this and we said yeah we can roll it over it it's where you rolled the asset you move the asset from the IRA into the EQ RP and at that point is its exempt so they were able to sell the assets and all that money came back to their account and no tax literally zero because it's exempt you've been a savior to some people so let's just clarify before we go ahead and give an example you bit that happens when any type of IRA invests in something with debt and IRAs even Roth IRAs self-directed IRAs they don't protect you from this you bit for example a self-directed IRA in a real estate syndication would be subject to you bid that's it it doesn't matter whether it's a deferred IRA or a Roth IRA all IRAs are subject to this and all EQ RP accounts whether they're deferred or Roth are exempt so it's literally black and white there is a clear distinction one you get taxed and one you don't get taxed and there are some tax and legal changes that affect this for one there are now tax credits up to a greater threshold tell us about that yeah this is a huge thing I in December literally like on a Friday night it's kind of how Congress does things right at the stroke of midnight witching hour or something and they changed the retirement system mostly it had to do with annuities and getting the insurance companies to be able to sell more annuities to people in their 401ks there were some other things that happen biggest tax changes for that the retirement space in the 13 years and one of them was the tax credit so if you've got some employees whether you've got one employee or 20 employees and you want to set up a plan they change the tax credits this is not a tax deduction this is like a tax credits like if you owed the government a thousand dollars and you get a tax credit it's literally like they just wipe off a thousand this is substantially better than a deduction it's huge it's way better you know and so it used to be that you're setting up a qualified plan any type of qualified retirement plan you could get up to a $1,500 credit now it's 15 thousand dollars it's ten times better so it really encourages people to do it and the EQ RP is the only type that's available in the marketplace where you have employees you can get the credits and you can do alternative assets investing everything else is you're really kind of stuck like solos don't get this this is not a credit that's available for them solo 401 k's it's only for EQ RPS with the employees and that was one of the huge changes not the biggest but it was one of the big ones one of the other ones is that the EQ RP enables you to pay your kids and get a tax deduction on your income tell us about that this is a really cool thing when Congress a couple years ago did the tax reform act they changed the tax brackets so now that the lowest tax bracket is zero to twelve thousand two hundred dollars and if you pay your kid $12,200 in there under eighteen they're not gonna pay Social Security taxes and now they have this income so you get the right off you paid the twelve thousand two hundred to them they did some work for you they don't pay taxes of any type and that twelve thousand two hundred could either be in an account and just sitting there no tax and you got the deduction or what I like even better is that twelve thousand two hundred could go right into an EQ RP and a Roth EQ are that so you've got some really cool options your kids are probably doing some work you know unless they just play video games but then you maybe you can do something take some pictures of them playing video games yeah they'd be a typical if they are doing anything else if your kids are even will do something you've got a 18 at Birth you know by a twelve thousand two hundred per kid per year this is a big deal because here's the reason that this is a big deal when you put money into a Roth EQ RP you can pull that money out at any time so let's say you put the twelve thousand two hundred in there and then ten years down the road kids going off to college for some reason and you want to say okay oh that money's gonna go for college you can literally pull out the hundred and twenty thousand you contributed tax-free penalty-free so it's a really cool way to grow it get a deduction today and use the tax code for kids kind of like found money now people are beginning to soon prepare their taxes for the previous tax year and one can go ahead and make this activity such that it's retroactive and they can capture some of these benefits for the previous tax year tell us about that huge huge change it used to be that once December 31st at midnight happened you were stuck meaning let's say you go oh I wanted to have a retirement plan and I wanted to deduct fifty thousand or a hundred thousand your stock you can't set up a plan for the previous year that changed with this legislation the new legislation made it so that at any point up to the time that you file your tax return so we're in 2020 and up to the time you file all the way until like September October if you're doing an extension we can set up a retirement plan an EQ RP retroactively for 2019 and then you can contribute if you're sitting there going oh I just realized after I got all my numbers in but I have a tax problem like I I made too much money and you go what am I supposed to do I can't do anything I can't go back in time you can go back in time now because the law changed here's a really big thing that a lot of people don't realize is the tax reform Act two years ago made it so that let's say you're a company your little company an LLC if you make one hundred fifty seven thousand five hundred as an individual or less you get a 20 percent deduction right off of that it's just one of those things if you make more than one hundred and fifty seven then you're phased out of it but let's say you made 200 grand and you go I phased out I can't take the 20 percent yeah because we can literally set up a retirement plan you can fund it with $50,000 knock your an income down from 200 to 150 and at that point you get to take 20% off again you're getting another deduction so your income went from say 200 down to 120 and it's just like free money and it's because we're able to do this retro actively now let's give another example so we're talking about someone if maybe they feel like they made too much money flipping houses last year and now they have a big Schedule C income the Schedule C by the way it's just the part of your tax return this shows the income or loss from your business how could that help that person if somebody has a Schedule C so one of the things they can do it you know the kids all the work they did for their kids make sure your kids got paid at twelve thousand two hundred they could also say okay well I've got this income on a Schedule C Schedule C income is eligible to contribute to an EQ RP you could take up to fifty seven thousand dollars per person so let's say you have a couple you could literally have both parties kicking this in and you could have over a hundred thousand that's pulled off of that schedule it goes into a retirement plan and all you're doing is is taking that money and sheltering it potentially never paying taxes and that's another conversation down the road maybe with Tom wheelwright or one of the other great experts in the tax world but the way to get your money so you're not paying taxes and you move it into a retirement plan and then down the road you literally convert it to Roth and not pay taxes when you do it that's an amazing tool that Tom and I have been talking a lot about and it's a really cool way to never pay taxes on that income making it earning it converting it pulling it out never now another benefit with using the EQ RP is part-time employees and the requirement to cover them tell us about that so one of the changes was the the government wanted to include more people so what they said is well it used to be that part-time employees were not really we just forgot about them and now if you have a part-time employee that works 500 hours a year that's only ten hours a week super part-time they're gonna start to be required to be a part of your plan so a lot of people have solo 401k type of plans those plans will not work with this if you've got part-time people that are working ten hours or more a week so the e qrp solved this problem because the e qrp covers employees it's a huge difference and it was meant to include more people but what its gonna do it's gonna wreak a lot of the solo plans that are out there because they're now people have a lot of part-time employees that do work for them guess what they're now goi
g to mess up your solo plan it's not so solo when you have employees that are required to be covered so with all these benefits to the EQ RP you know I've got to ask who do you think the EQ RP is not for who would it not benefit somebody that is in love with mutual funds yes it's really not the thing for them because there's other things that are a lot simpler this is for somebody that wants to be actively engaged in their money and somebody that's that really thinks that real assets are a better plan than handing money over to wallstreet and hoping it works out like smoking the opium Keith is just not what EQ RP clients are all about indeed baby it's been an expert at administering these plans for people in really substantially changing a lot of people's lives by any ously Daymond if someone wants to learn more about the EQ RP what's the best way for them to do that simplest thing to do is grab your phone and type the word QR P all caps and send that message to the number 72,000 and you'll get a an updated 20/20 report on the EQ RP and the retirement stuff and there's also a way if you want you can get a copy of the new edition of the QR p book so just type in QR p all caps send it to 72,000 and we'll get that stuff over to you literally in a matter of seconds be sure to do that if you think that Damien and the EQ RP can help you Damien Lupo it's been great having you back on the show always great to be here thanks Keith great timely material from Damien as usual after we've done our learning I like to leave you with something actionable and if you think this can benefit you you at least owe it to yourself to learn more with your phone simply type QR p in all capital letters and text it to 72,000 i'm keith Weinhold don't quit your day dream nothing on this show should be considered specific personal or professional advice please consult an appropriate tax legal real estate financial or business professional for individualized advice opinions of guests on their own information is not guaranteed all investment strategies have the potential for profit or loss the host is operating on behalf of debt rich education LLC exclusively [Music] the preceding program was brought to you by your home for wealth building get rich education dot-com [Music]
