[00:03:21] Jerry Fetta: I did stocks for a while. I was a financial advisor. I was licensed here in the us and so I’m very familiar with that area. And that is, , for the average person, that is kind of where they invest. And what I like to talk about and what I love that we’re going to discuss today is the other options that are out there.

[00:03:35] Jerry Fetta: For me, when I invest, I’m big on words. I look at where the word invest comes from. And so the etymology, the root of that word, it actually means to clothe your capital. I look at that. I think about, okay, if I’m wearing clothing, I’m picking clothing that I like, things that I understand, things that fit me, things that fit what I’m going to use them for.

[00:03:52] Jerry Fetta: Things that are vital. Probably going to buy, underwear before I buy a Gucci. And then I’m also picking things that probably aren’t overpriced, and I can apply all of that with investing as well. And so for me as an investor, I really like tangible investments and I like non-correlated investments.

[00:04:07] Jerry Fetta: I’m not big on the ups and downs that can come with not just stocks, but really a lot of different markets have that. I try and isolate myself out of that and I try and have things that I can really control. And then I really do focus on, income producing investments. I’m really big into real estate.

[00:04:21] Jerry Fetta: I’m really big into private lending. I do things like leasing out gold and silver for income as well. Just things that I know it’s there, it’s tangible, it’s got that intrinsic value and it’s going to give me an income stream. And I want to dive 

[00:04:34] Rebecca Hotsko: into that a bit later with you today, how we can apply some of those.

[00:04:38] Rebecca Hotsko: And I think there is something to be said about, like you mentioned, investing in things that you can control more so, because as we saw this year with the stock market, Many retirees probably had to push back their plans a couple years because of how bad things dropped. Even if you had that perfect portfolio where it was very safe, we saw the drawdown in bonds  was just as bad, so that would’ve put a lot of people back.

[00:05:03] Rebecca Hotsko: And these events are never foreseen. And I still think at the end of the day, investing in the stock market is amazing, but it comes with risks. And the more we can diversify or learn about different strateg, I just think it’s so useful and I love to take a blended approach because it just protects yourself as an investor.

[00:05:21] Rebecca Hotsko: I really want to start out by talking about your method to do this because for our listeners that missed your last episode, and kind of just to set the stage for today’s conversation, can you talk about your sacred account and how we can use that to become our own? 

[00:05:39] Jerry Fetta: So this is one of my favorite strategies and this is probably something I use basically more than anything else in my life with my finances.

[00:05:46] Jerry Fetta: And so the Sacred Account, what it is, it’s, is actually a specifically designed form of high early cash value dividend paying whole life insurance. And it’s not the kind you usually would hear about or use. A lot of agents themselves don’t actually know what this is and don’t [00:06:00] know how to. I’ll give you a really good example is actually funny enough, it was about a month or two or two ago, I had a various experienced financial services agent send me an email and he’s like, I don’t know what you’re doing.

[00:06:10] Jerry Fetta: I think it’s illegal. I’m calling the state insurance regulators on you. And I answered the email. I’m like, well, what are you talking about? And so what it came down to is when I showed him like the Sacred account, it’s on an illustration in the numbers to him, and he’d been in the industry for a long time.

[00:06:22] Jerry Fetta: He had never seen it. So he seen my marketing content talking about it and how it works, and he was just like that. That’s a unicorn. That doesn’t exist. There’s no way. It must be illegal. And that’s an insurance professional. So the average individual, you can think, they don’t know as much even about insurance in general.

[00:06:37] Jerry Fetta: They’re probably never going to hear about a concept like this. Really, the way that it works is, , you have a life insurance policy set up with very high cash value. , with life insurance, you’ve got your death benefit, and then you’ve also got the ability to put in a cash savings on a component into a policy if you design array.

[00:06:53] Jerry Fetta: And so we’re trying to maximize the amount that we can put into that cash savings, minimize the insurance costs, and [00:07:00] design it correctly so that when we do this, if I put in, let’s say a hundred thousand, and I’m going to invest in real. That a hundred thousand will grow at three to 5% per year tax free, and I can actually borrow against it.

[00:07:11] Jerry Fetta: It’s still going to grow while I borrow against it. My net effective interest cost is maybe one to 3% if I set this up correctly and I’m still making that three to 5% while I use my money to then go invest in the real estate. And so it’s a way of double dipping. I can do that arbitrage strategy between the interest rates and earn the profit on the real estate and on the money in my sacred account, and then basically continue to recycle that back through and.

[00:07:35] Rebecca Hotsko: That was a great overview and I want to dive into a few specific listener questions in a second on that. But first I just want to know if you can explain how this strategy differs from a traditional savings, investing, borrowing framework from a bank, and why do you think this strategy is better? 

[00:07:56] Jerry Fetta: With banks.

[00:07:57] Jerry Fetta: I mean, when you think about the average person, right? We [00:08:00] get our incomes and, and after taxes come out here in the us, after Wall Street takes the four contribution, the rest of the money goes directly into a bank account. And your listeners are maybe more familiar with this, but the average person is completely unaware.

[00:08:12] Jerry Fetta: There’s a system called Fractional Reserve banking where the bank doesn’t actually keep the money in the vault so they can loan out or invest 100% of the deposits that they’re receiv. What is kind of funny with that is when you look at the balance sheet of banks here in the United States, there are about 3000 banks that actually use the sacred account concept.

[00:08:30] Jerry Fetta: It’s called bank owned life insurance, same exact design, same exact everything. And so the collective number of that represents about 20% of the reserves on their tier one capital for their, just their assets and liabilities. And that’s a total of about 200 billion collect. Bank of America, for example, they have about 22 billion in life insurance cash value more than they’re actually putting in real estate.

[00:08:52] Jerry Fetta: And so it’s kind of a middleman. When you give money to a bank, you are putting it with a glorified middleman. They’re not just keeping it in the vault. It’d be kind of like if I put my car in a [00:09:00] garage and I found out that they rented it out on Turro. I wasn’t looking and didn’t pay me anything. , they put it at risk and then sure, I can get it back out when I need it, but I, I kind of want to know that my car was put on Turo, and that’s what’s happening with our money with banks where the differences on the sacred account, , the sacred account is guaranteed to grow to some degree.

[00:09:18] Jerry Fetta: You have that with the bank, but it’s not very high. Here in the US the average savings account’s paying about 0.24% per year, and that’s going to take a very long time to really amount to anything. The sacred account is also guaranteed against loss, and you do technically have that with the bank. You have F D I C insurance and here in the US that’s dramatically underfunded.

[00:09:36] Jerry Fetta: It’s, I think about 2% of what’s needed to cover All deposits in the banking system is actually there, and it’s also taxpayer funded, so it’s ever needed, and then we have to cash in on it. I’m kind of paying for my own losses through that pass. So that’s another thing is this sacred account is guaranteed against lots contractually because the money is actually there and it’s allocated.

[00:09:54] Jerry Fetta: And they do have insurance for insolvency protection with the actual insurance company themselves. But it’s very [00:10:00] different than saying we loaned it all out. And so because of that we went in solvent versus, hey, it’s actually here when you need it. I would rather have it allocated than not. That’s a key difference.

[00:10:08] Jerry Fetta: , it is protected from taxation, the piddly interest rate. I’m going to get onto my savings in the bank. I will pay taxes on here in the us If it’s over $10, they’re going to take the taxes out as well. And then I’ve got, , protection from creditors, protection from lawsuits. It protects my privacy.

[00:10:22] Jerry Fetta: It’s a one-way contract between me and the insurance company. And I do have the ability to borrow against my deposits. And, and that growth comes from me being made an owner in the insurance company. That’s that dividend. It’s the profit that they’re sharing with. So there’s a lot of that that I just can’t get with the banking system.

[00:10:37] Jerry Fetta: I can’t get those types of protections. I can’t get that kind of growth. I don’t get that kind of, I guess, mutual benefit. I’m not a big fan of, of large financial institutions, as . So I think the way that I like to navigate that is if we’re partners, they’re not going to do anything to me that they’re not willing to do themselves as well.

[00:10:55] Jerry Fetta: And so that profit sharing, that dividend, it means that they want to make money and they’re incentivized too, and it [00:11:00] helps me when they do that too, versus they’re going to make X, Y, Z decision with my money and I’ll pay a fee or a commission. But there’s no, they’re not tied to my outcome really, in the sense that we’re actually mutually invested.

[00:11:11] Jerry Fetta: So that’s, those are some of the key differences there. In a funny way, when someone does deposit money in a bank, Rebecca, and then they get a loan for a car or a mortgage or a house, they kind of are borrowing themselves in other people’s money, right? Because that’s deposits the bank’s loaning out. So if I have 300 grand in the bank and I go to the bank and I take out a mortgage in a weird kind of a way, I basically borrowed my own money from them and I’m paying them a lot more than they’re paying me.

[00:11:34] Jerry Fetta: Or I borrowed the money from some random person who deposited their money and they’re making 0.24% as. There’s no way around the deposit borrow thing. Like that’s just part of the way banking works. And so that’s where, if you can flip it to where, the, I call it the banking quadrant, , everyone’s a depositor.

[00:11:50] Jerry Fetta: Some people can be borrowers, almost nobody’s the banker and almost nobody is the shareholder. And so if I can be all four of those, then I make money by depositing, borrowing, and doing smart things [00:12:00] with that I make money or organizing and arranging those loves with the arbitrage, and I make that dividend as a share.

[00:12:06] Jerry Fetta: I 

[00:12:07] Rebecca Hotsko: really like the framework and after you came on the first time, it’s something that I’ve been looking into a lot. I am wondering though, because it goes back to you talking about how you like to invest and do things that are in your control, and this is just one more avenue where your money is in your control and you have control of all aspects of those things.

[00:12:29] Rebecca Hotsko: The savings, the investment, what you’re doing with your. But I’m wondering why do you think there’s such a negative connotation associated with using life insurance to do this? Because I saw a couple, I’ve just seen that generally kind of negative comments 

[00:12:44] Jerry Fetta: surrounding it. I actually had those myself when I started.

[00:12:49] Jerry Fetta: I worked with Dave Ramsey. I don’t know if you guys are familiar with Dave Ramsey, but he’s totally against whole life insurance. I was an endorsed local provider for him for investing in like eight different states and then so I was [00:13:00] all about buy term life insurance Max, how your Roth IRA put everything into the get 401K manage and whole life insurance was one of those topics where I had all of the reasons not to do it and I was like, it’s a scam.

[00:13:10] Jerry Fetta: It’s a terrible product. Da da da da. And so that was, I was passionate about it cause I would see it and I didn’t, , I was trying to help people with their finances and I would see these really badly designed policies where agents I knew were getting paid basically the first three years in commissions.

[00:13:25] Jerry Fetta: , the premiums that are going in are going to pay the agent in the company. There’s very little growth, very little cash value. And so when someone told me about this, I was like, there’s no way that exists. , it was kinda like the guy that emailed me. I was like, that’s impossible. And so when I saw correctly design illustration, I literally was like, I don’t, I don’t know how I’m looking at this, like this can’t be real because it was designed correctly.

[00:13:46] Jerry Fetta: And so that negative connotation comes from a couple of things. The first thing is, a lot of times people will hear this and then they’ll say, good, I want to do this. It involves life insurance. Let me go contact my life insurance agent. Well, that individual probably doesn’t know how [00:14:00] to design this, right?

[00:14:01] Jerry Fetta: So I learned this from an agency that specifically worked with corporations and large banks and institutions. They knew how Bank of America wanted their, their bank on life insurance designed, and they knew how to duplicate that. That’s very different than the normal, ordinary run of the mill life insurance policy you’re going to buy.

[00:14:17] Jerry Fetta: So if you get a whole life insurance policy from like a normal, let’s say, you just go down the road to the agency that, that everyone knows. Generally speaking, you’re going to have $0 in your cash value for the first three years. You won’t break even for maybe 15 or 20 years. The internal rate of return is very poor and a lot of the companies discourage against borrowing.

[00:14:35] Jerry Fetta: They don’t want borrowing because they would rather have that money in in-house. They can invest it and keep it and grow it. So there’s a lot that goes against that. The biggest piece that Rebecca, is that the agent, in order to design this, obviously they have to have the technical skill and know-how.

[00:14:48] Jerry Fetta: But they have to be willing to take about a 300% pay cut. We’re minimizing insurance costs, which means we’re minimizing commissions. And so if you just think about it from a sheer business model standpoint, at the individual agent level, [00:15:00] that takes someone that’s ethical enough to say, I’m going to make significantly less money to do the right thing for the client.

[00:15:04] Jerry Fetta: Knowing that the client probably doesn’t know any better, I could probably tell them, yeah, this is it, and sell it to them. And I would make a lot more, and they wouldn’t be, , they’d be none the wiser. You have to have a really ethical agent that is trained their skilled, but then from an agency standpoint, if you think about if there’s an office and they have a bunch of agents, they’re not going to go out usually and say, go sell our least profitable product.

[00:15:23] Jerry Fetta: , they’re going to say, Hey, we want you to sell the thing that brings the most profit in for the agency. And so there’s not really incentive from a training standpoint and a sales management standpoint standpoint for these organizations to push that. And then the companies, they’re really kind of, they’re, they’re going to design whatever you asked them to.

[00:15:39] Jerry Fetta: So if you go. , a New York Life or a Mass Mutual or for you guys in, in Canada, you go to Emanu Life, they’re not going to say, Hey, we, we do the Sacred account. They’re going to say, Hey, we do whole life insurance. Your agent needs to tell us what it needs to look like and we’ll design an issue, whatever your agent asks for.

[00:15:52] Jerry Fetta: And that agent’s only going to design what they’re trained for and they’re only going to design what they’re willing to, to, to communicate to the client about based on if they’re making commission [00:16:00] and what that looks like. So as you can see, there’s a lot that has to be aligned with the best interest of the client.

[00:16:05] Jerry Fetta: The company’s gotta be the right company and it’s, it’s about 1% of policies that actually come out. Like if you’re doing a whole life insurance sacred account, they come out properly designed. That is probably where a lot of that negativity comes from. Another part of it too, is on the back end, , there is more control and with control comes responsibility.

[00:16:22] Jerry Fetta: And so if somebody doesn’t get the help on how do I take a policy loan, how do I pay myself? How do I invest the proceeds? Then it kind of turns into a bad experience. And so that’s another part that the agent really needs to take responsibility for is I’ve helped this person buy a policy now, let me help them use it correctly and and have a good experience with it on the back end.

[00:16:43] Rebecca Hotsko: And I guess in general, the insurance agency then, like you mentioned, they have no incentive to want to really push this product. And if they knew that you were borrowing the money to use it in this framework, would that, could they, I guess, ever say no [00:17:00] to your request to borrow against your 

[00:17:01] Jerry Fetta: loan? So they can’t really say no, but they can slow the process down.

[00:17:06] Jerry Fetta: And so an example of this is we, my company, we help clients set this up all over the us. We actually just opened one an office in Canada. That’s a cool thing since we last talked, but basically, , we’re independent and so we’ll look at based on what the client’s trying to to do, out of all the companies we can work with, who’s the best match.

[00:17:23] Jerry Fetta: And so we recently had a company that we had to take off of our roster because it’s not that they weren’t doing loans, they were discouraging it. They were like, we can make more money elsewhere. And so when someone requests a policy loan, we’re going to take longer and we’re going to give you a little bit more pushback.

[00:17:39] Jerry Fetta: And for me, I don’t like that. I want to, if it’s, if it’s a loan and I’m doing this, I just want to be able to take it quickly. They were really big on in the first year. They’re like, especially in the first year, we want to make sure that the loans aren’t coming out immediately. Those are things you’ve gotta look at.

[00:17:51] Jerry Fetta: And again, that’s why it’s so important to have the right team with this so that you have somebody that knows that. And if it does come up, they have a way to help handle. So that’s kind of what [00:18:00] I would say there. They can’t really hold it and they’re not going to be, they don’t care too much what you’re using it for, as long as you’re not funding terrorism and drugs.

[00:18:06] Jerry Fetta: Right. They’re usually like, use it for whatever you would like to use it for. Okay. And I want to 

[00:18:11] Rebecca Hotsko: ask you about, I had a couple questions come in from listeners. Well, maybe there were just more comments and one was that this is one of the most highly commissioned financial products and that the supposed safe cash portion growth of three to 5% that you mentioned.

[00:18:29] Rebecca Hotsko: It’s dependent on the stock market. So they were kind of just these, it sounded kind of a negative comment on those two things. I’m wondering what your response would be to those 

[00:18:39] Jerry Fetta: concerns. So on the first one, , they’re actually right. It is one of the most highly commissioned products, and that’s, that’s why you have to make sure you’ve got the right agent designing it.

[00:18:49] Jerry Fetta: We want to minimize the insurance costs. And so that means that once we’ve done that, it no longer is one of the most highly commissioned products. And so that’s, that’s where if an agent doesn’t know better, or maybe they [00:19:00] know better and they want to make more money, regardless of what the client wants, they might just sell it the way that they want to sell it to make that higher commission.

[00:19:07] Jerry Fetta: That’s really something that unfortunately, like you can’t mitigate that out other than just knowing better as a consumer knowing that, no, no, no, this is what it’s supposed to look like and here’s what I should be watching for when I go have that conversation with an agent. Then when they minimize those insurance costs, , the agent does make quite a bit less.

[00:19:24] Jerry Fetta: So those are things you’d look at on the illustration. Like when you do a contribution in year one, you should have 70 to 90% of what you put in there available for loans immediate. And if you don’t see that, then that the agent designed it with lower rates, , on on, sorry, lower liquidity, sticking higher rates on their commission.

[00:19:41] Jerry Fetta: And that’s an easy one to look for. So that’s kind of what I would say there. And on the stock market, that’s on, on a whole life policy. That’s actually not true. I think maybe they’re thinking of indexed universal life, which is kind of roughly based on the stock market with a correctly designed whole life strategy.

[00:19:57] Jerry Fetta: Your growth is coming from a guaranteed interest [00:20:00] rate that’s issued by the company, and then anything beyond that is actually coming from dividends The company pays out and that’s based on the growth of the insurance company. That’s based on their profitability. So that’s, it’s actually non-coating. , the stock market can have down years and you’re still making dividends and it still continues regardless.

[00:20:17] Jerry Fetta: That 

[00:20:17] Rebecca Hotsko: was really helpful to hear you clear those things up on the, I guess the savings rate, so you mentioned three to 5%. Is that standard then for the average policy, or when would a listener see perhaps a different rate of 

[00:20:31] Jerry Fetta: return? Three to 5% should be about the standard. And that’s based on compounding annual growth rates that we look at.

[00:20:39] Jerry Fetta: What’s the total cumulative contribution over the life of that policy, and for how many years was that? And then we plug that into a compounding annual growth rate calculator, and that tells us, , it was three, or it was four, or it was five. So it’s usually going to be in that range from a year to year basis.

[00:20:53] Jerry Fetta: There’s going to be the net internal rate of. Right. And so the way that that’s going to look is in the earlier years of the policy, [00:21:00] it’s going to be a little bit lower and it claims each year as the policy grows, you could actually see higher than 5% on a net internal reti rate of return basis. You might see six in some years, you might even see seven, depending on what dividends do.

[00:21:12] Jerry Fetta: And in the initial years you could see lower than three for the first few as you’re capitalizing the policy and building it up. So that’s another important thing to look. Is, what is the compounding annual growth rate and then what is that net? I r r? For me, personally, I focus more on the compounding annual growth rate because I’m not looking at it from any one year.

[00:21:29] Jerry Fetta: I’m looking at it as a, as a cumulative financial strategy, and I’ll continue to borrow against it and use it. And so what happens in one year doesn’t matter to me as much as what happens throughout the life of that strategy. 

[00:21:41] Rebecca Hotsko: So when you build this policy, it’s not written in the agreement that this is your, because you mentioned it as a guaranteed rate.

[00:21:48] Rebecca Hotsko: So that’s not written in the contract. What your rate of return will be. It fluctuates year to year, 

[00:21:53] Jerry Fetta: thens. Good question. So there’s two components to look at. There is a guaranteed rate. And so that [00:22:00] guarantee rate’s usually going to be a gross rate of like maybe three to 4%. And that is contractually guaranteed.

[00:22:05] Jerry Fetta: When I say gross rate, because there will be some insurance cost and expenses that come out and so their, their, your net will be a little bit lower, and then you’ve got your dividend, which is non-guaranteed, but they have paid dividends for over 150 years in a row. So it’s like, it’s not guaranteed, but it’s something that they’ve done for a very long time and haven’t missed a beat.

[00:22:22] Jerry Fetta: So on your contract, you can actually run the illustration. And this is another thing to know as a consumer, you can look at what’s the guaranteed column, say. So if they never earn a dividend, what’s going to happen? And then what is the non-guaranteed column? Say if the dividends are earned like they have been over the last 150 years, what does that look like?

[00:22:38] Jerry Fetta: So that’s kind of from a contractual standpoint what you should be paying attention to. Generally speaking. For me, I look at the, the, the non-guaranteed with the dividend, just because I know that even though that’s non guaranteed, when you do something from the Civil War through the covid crisis of 2020 and don’t miss a beat, I mean it’s pretty solid.

[00:22:56] Rebecca Hotsko: And then the other thing you mentioned last time is that [00:23:00] you like to use this account then as a savings vehicle because it also earns the three to 5% plus dividends as you are building your cash value. And then you can choose to withdraw that or take a loan on your policy. And I guess I’m just wondering if you can talk a little bit about using this as a savings.

[00:23:22] Rebecca Hotsko: Instead of using it as a bank account. Because one thing that I can just think of on the top of my head is that with a bank account, savings account, I’m usually, I need that money to buy things, consumable products or whatever. When I take the money outta my savings to pay for things, I’m not penalized in any way.

[00:23:38] Rebecca Hotsko: But with a sacred account, if you withdraw cash, then it would cause a tax consequence, and then perhaps other things as well. So can you talk a little bit about that? 

[00:23:49] Jerry Fetta: Totally. So that’s a good question and this is one that I get a lot is we mentioned the banking and the saving feature of it. And so what I would clarify on this is, is not going to be for living expenses.[00:24:00] 

[00:24:00] Jerry Fetta: Right. So for me personally with living expenses, I keep a maximum of one month of cash in the bank. That’s the only thing I will give the banking system, and that’s because I do need some money there to pay for, , groceries and gas and whatever, , to be totally honest with that, I’m going to use a cashback rewards credit card to pay off every month, and that’s just where I’m going to flow through my normal expenses.

[00:24:21] Jerry Fetta: Now, anything that’s like, , I’m saving up for a large purchase or an emergency came up, that’s where I would borrow against my sacred account, and it would be the equivalent of me taking a loan from a bank to pay for that, except for I am the bank. I’m earning dividends and interest, and I’m going to pay myself back.

[00:24:36] Jerry Fetta: So that’s kind of what I would look at. If you did want to withdraw money, like let’s say the car broke down and I was like, I need to go buy, , a new part and that’s 1200 bucks. And then I don’t want to take a policy loan. You can withdraw your cost basis, so you’re only going to be taxed on your profit.

[00:24:51] Jerry Fetta: And so if you’re like, I put in 10,000, that 10,000 you pay taxes on already before you put it in. And so you could pull that cost basis out and say, I’m going to use that for the [00:25:00] repair, then I don’t have to pay taxes on that portion. Now if you had 10,000 and you grew it and you pulled out 15, then you would pay taxes on the five additional.

[00:25:08] Jerry Fetta: So that’s kind of what I would look at there. But even with the car repair, I would still do a policy loan because I, I’m going to make profit on that loan and I would just pay myself back. And that is a function of savings. So it, it forces me to do more of a good thing if I increase my savings right via a loan repayment at the end of that, I’ve got more money saved than I would’ve otherwise.

[00:25:28] Rebecca Hotsko: That’s super interesting. So you can withdraw without tax consequences. It’s just the profit. And I guess you talked about, so the cash accumulating, it can be accessed by the policy holder through withdraws or a policy loan. I guess, can you talk a little bit more about maybe the pros and cons of withdrawing cash to use something versus using a policy loan to fund an investment opportunity?

[00:25:57] Jerry Fetta: So the cash, , if I do a withdraw or a distribution, [00:26:00] the biggest thing that’s happening there is I potentially, depending on how I’m designed on my policy, I’m potentially taking the money out and it’s no longer growing. And so that’s really where the loan function comes in. , taking a loan, it does obviously shelter you from taxes.

[00:26:15] Jerry Fetta: A loan is not income, it can’t be taxed, but it also allows the asset to still be there. And so for me as an investor, those are two things I hate the most, is losing an asset, paying taxe. So the loan helps me avoid both of those things. The assets still there growing cause I collateralized it rather than distributing it.

[00:26:31] Jerry Fetta: And then I did avoid the taxes. For me personally, there’s not really ever a scenario where I would do a distribution just because I’m always going to want to keep the asset there growing. I’m always going to want to avoid the taxes and I’m always going to want to save more money. So I’m totally fine paying myself back on a loan and, and increasing my savings, personal savings rate by whatever that payment.

[00:26:51] Rebecca Hotsko: Then you mentioned one of the benefits of doing it this way and taking out a loan from yourself instead of a bank is that you typically get a [00:27:00] lower rate, but I’m wondering what is this rate generally tied to then, and has it gone up with the short-term borrowing rate over the past 

[00:27:08] Jerry Fetta: year? So the rates are pretty stable.

[00:27:11] Jerry Fetta: The rate is going to be pretty close to the dividend, actually, with the insurance company. So if, if the interest rates were to come up, for example, generally the dividend paid outcomes up as well. So if you go back and you look in the 1980s, the dividend rate on a whole life policy, you could get 12 and 13 and 14%.

[00:27:28] Jerry Fetta: Now, we were also in a very high interest rate environment during that time too. So it kind of is like, it’s going to, it’s, it’s analogous. It’s going to continue along. Whether you go up or whether you go down, they’ll stay pretty. And the reason why it’s cheaper is if I do it correctly, I’m actually being paid to borrow my own money, because I’ll always have more profit on that dividend versus what my cost of interest is.

[00:27:48] Jerry Fetta: Even if I was extended a 0% loan by a bank. , if I’m earning four, let’s say, and I can borrow it too, and I’m making a positive 2% profit spread, if we put that on a scale of high, high interest rates, low [00:28:00] interest rates, and then zero in the middle, I would rather take a loan where I’m being paid 2% than take a loan that costs me zero.

[00:28:06] Jerry Fetta: Zero is better than paying, but earning 2% is better than zero. It’s 

[00:28:10] Rebecca Hotsko: such an interesting strategy, and I guess the one thing is you do have to put as much money in though as you expect to, I guess, potentially loan out, because you can only loan against, is it 70 to 90%? 

[00:28:25] Jerry Fetta: Yep. Exactly, exactly. You’ve gotta contribute into it.

[00:28:28] Jerry Fetta: So if I wanted to borrow, let’s say 80,000, I would’ve to put in at least 80,000. If I’m doing it, , in year one, like the very first year, I’m probably going to put in a hundred to be able to pull out, , maybe 80 or 90 or whatever that number is. Over time, I can borrow my, because I’m contributing, my policy grows, I can borrow much more than I put in just because it’s, but it’s still based on growth.

[00:28:49] Jerry Fetta: It’s based on, here’s your principle, here’s your profit, and you can borrow the total of. So that is the thing to consider. And then for me, from a consumer standpoint, it really reinforces good decision making. [00:29:00] The wealthy, they tend to buy assets first and then borrow against those assets to buy more assets.

[00:29:06] Jerry Fetta: For the middle and lower class, we were ti borrow money to buy the things like have, have the the loan first instead of the money to buy the thing first. And so if you flip that and it’s like, well I want a $30,000 car, so I’m going to have $30,000 first then put that in my account, then get the car. That’s a better sequence.

[00:29:22] Jerry Fetta: , I actually have the asset, I have solvency, it’s going to be growing for me. Versus I don’t have the asset and now I’m in debt with the bank. I’m giving up more income, I’m paying more interest. And that actually slows me down financially. ? And where that might vary or be different is once you do get into, , maybe real estate investing, for example, you would maybe want to do a mortgage, right?

[00:29:42] Jerry Fetta: Because that’s going to give you the ability to leverage on a property. And the difference there being is that property pays for itself. If you do it right, it’s going to pay itself down and off over time. But even then you could argue, well, let’s take the down payment from the sacred account. , let’s double dip and do both of those things.

[00:29:58] Jerry Fetta: Now I kind 

[00:29:58] Rebecca Hotsko: of want to get [00:30:00] into some examples of how you have used this method and the sacred account to build wealth. Do you have any examples, even from 2022 of what you. 

[00:30:10] Jerry Fetta: Yeah, I do a lot of things with mine. So one of the things I did is, is I bought a heavy vehicle here in the US There’s a, a tax code section 1 79, and it basically allows you to purchase a vehicle for business purposes.

[00:30:22] Jerry Fetta: If it weighs over 6,000 pounds, you can write opt off up to 100% of the purchase price for business usage. For me, what I did is I did it was an Audi tron, so I think it was 6,700 pounds. This, I took a policy loan borrowed against it. We use that strategy and then you get the tax deduction as well. So you’re getting a write off, you’re getting, , the car there.

[00:30:41] Jerry Fetta: Obviously the car’s paid off and oddly enough the value went up because there’s a shortage on cars. Usually you buy a car and then two years later it’s worth less. The value has gone up a little bit over time, which is nice. I don’t expect that to be a forever thing, but it’s kind of, it is kind of neat to see that on a.

[00:30:55] Jerry Fetta: And so that’s something where the car is there as a paid off asset at the end, like, , [00:31:00] let’s say it’s a five year term. I’m at the end. I’ve got a paid off car. I’ve been saving money this whole time. The principal grew while I was still using it. So I’ve got more money in my sacred account than I started, and then I’ve also got the tax savings, , whatever that dollar amount was that I reduced in taxes.

[00:31:15] Jerry Fetta: So that’s a really cool one for business owners. , another easy one is investing, right? So I’m a very big fan of private lending and also seller finance. So I’ve done quite a few real estate deals where I borrow from my sacred account to put that in the real estate deal. And I, I do double dip on the returns.

[00:31:31] Jerry Fetta: That kind of is a function of, , I’ve got that dividend rate, I’ve got the interest rate on my investment. I’m actually having the income from the investment repay the loan for me. So that cash flow coming in just pays the policy loan back and then I can recycle that loan and, and pull another one out again when I’m.

[00:31:46] Jerry Fetta: So that’s another fun one. And then probably one of my favorite ones, just because it’s such a little, it’s a normal thing everyone does, is I self finance my couch. , I was buying a new couch for my place and I was looking and I was like, I, I could spend three grand cash and boost three [00:32:00] grand future value or I could take a policy loan for three grand by the couch with that, , by the set with that.

[00:32:05] Jerry Fetta: And then pay myself back because I did that. And that’s one that I mentioned that because everyone has to buy f. We did the same example with Christmas shopping. Like if you’re going to spend, , between travel and food and all this stuff, let’s say three grand for Christmas shopping, take a policy loan and do that, and then just pay yourself back over the next 12 months.

[00:32:22] Jerry Fetta: And now each year you have that funded and it’s also growing for you in the future, rather than paying it to Amex or Visa because you charged it on a card or buying it with cash and then never having the ability to have grown that three grand into the future. 

[00:32:36] Rebecca Hotsko: Yeah, it is interesting because at first I was thinking that it’s never good to use this to just spend on things that aren’t investments, just consumables.

[00:32:45] Rebecca Hotsko: But it does make sense because a lot of the time now there’s so many companies where you can pay installments and there’s that little fee or interest rate that you pay every month by just paying little by little, even for couches and stuff like that. So it does make so [00:33:00] much more sense. Be your own bank and borrow against your own money and then still have that value build as you go.

[00:33:07] Rebecca Hotsko: And so I guess the one thing I did want to touch on private lending a little bit with you more today, because I’ve been really interested in this ever since you mentioned last episode, how you were big on secure private lending. You mentioned you had a deal that could get 12% per year, I believe, and so that’s a higher return than the average stock market return.

[00:33:32] Rebecca Hotsko: And so I’m just wondering what all goes into that and I guess is that an average return or what dictates the return you get for these private lending deals? 

[00:33:42] Jerry Fetta: This is probably my favorite way to invest. I love, I’m a big fan of passive income and so for me, like just to kind of start the conversation out, when I was a financial advisor, we were very big on building up the nest egg, , build up your nest egg and you turn 60 or 65, you start drawing off of that.

[00:33:59] Jerry Fetta: [00:34:00] And so for me, part of my story is I was, my mom’s financial advisor, retirement age is 60, she got cancer at 60, died six months. So she never got to use that. And I saw that whole plan unravel, , right in front of me with someone I loved very much. So, as a young guy and I learning about this, I was like, that didn’t work at all like that.

[00:34:17] Jerry Fetta: Everything that I thought was supposed to happen didn’t. That’s where I really started looking at like, what are the other options? And I started seeing people that were. I wouldn’t even call it retirement. They’re just, they’re, they have passive income from investments. They don’t have to trade time for money anymore, and it’s not tied to anything that can go up and down.

[00:34:33] Jerry Fetta: So from month to month, they know they have steady, stable income. They know they have a real asset. There’s not a lot of interference or manipulation that can happen with that asset. And that’s where I kind of fell in love with the idea of like hard assets and tangible assets. No real estate was the obvious idea.

[00:34:48] Jerry Fetta: I was like, okay, well most of these guys are doing real. What I could never get my head around wanting to do was I never wanted to be a. I did not want to be collecting red checks. I did not want to be fixing [00:35:00] toilets. I didn’t want to be dealing with property managers. That all seemed like a hassle. And I would also see, like here in the US a lot of people will use subsidized loan programs to get started in real estate.

[00:35:09] Jerry Fetta: So the first two or three or four are super easy to get into because you can put 0% down or 3% down. There becomes a certain point where you use those up. And so I could count almost one for one people that I would see where after four loans they’re done for the next five years. because now they have to save up enough money for a real down payment.

[00:35:26] Jerry Fetta: And so I didn’t like that either. So I started looking at like, what are the wealthy doing? And that’s the question I always ask is what are the wealthy actually doing? Historically, like when I study that, the answers are always clear. And so I had to again look at banks and I was like, banks get passive income from real estate.

[00:35:42] Jerry Fetta: They own none of it and they’re, it’s super scalable. They’re all around the country and they do it through mortgages like, so as long as I have a property with a mortgage and I’m earning interest income, that’s the same thing banks are doing, and I can do that in literally any state in the country. I don’t have to worry about property management.

[00:35:56] Jerry Fetta: I don’t have to worry about a landlord. And if that house payment doesn’t come [00:36:00] through, ironically enough, it’s actually in most states, in the US easier to evict someone on a, on a mortgage than it is a rental contract. All of the pros were there and the con was, , okay, well what does the return luck look like and what’s the equity?

[00:36:11] Jerry Fetta: because obviously if I’m a lender, I’m not getting potentially the appreciation. That’s where I found seller finance real estate. And so we work with a network here in the US and actually this is something we offer in Canada as well. The properties are in the US but Canadians can. You actually are buying, like physically, you’re, you’re buying the property, you’re on the title, but we’re going and working with banks and we’re basically purchasing inventory from their foreclosure and auction list.

[00:36:35] Jerry Fetta: So these are very low end properties. They’re typically in the, the average investor when they purchase one is probably paying 45 to maybe 50,000 for a home. So it’s very cheap to get into. And then what’s happening is we’re doing what’s called a prehab. We are our team, our team, and our network. They fixed the house up to the minimal essential repairs are done.

[00:36:53] Jerry Fetta: It can pass an inspection, it can go on market, and then they’re finding a family that wouldn’t be able to qualify for a traditional mortgage [00:37:00] otherwise, which the stats on this one, Rebecca astounded me. 51% of Americans can’t get a mortgage because of either income or credit. So that’s more than half the US can’t get a home.

[00:37:09] Jerry Fetta: And then so you think about like the American dream of home home ownership. Less people can own a home than those that can’t. And so there’s this really big market of people that because their income is 40 grand a year and the mortgage payment’s going to be higher than that, they’re notable to get into your home.

[00:37:23] Jerry Fetta: And the rent costs are skyrocketing. So it’s like they’re not really winning on rent either. And so there’s this niche of people that if they could get into a home, they would. And the barriers income and. We have a house that costs us 40, 50,000 to get into. We fix it up and then we seller finance it to them for usually maybe 20 to 30% more than we paid.

[00:37:41] Jerry Fetta: As an investor, I’m getting an immediate equity gain on the front ends. , I bought it for 40 and I’m seller financing it for 25% more. Day one. My note value is 25% higher than my principal in the house was. So my net worth just climbed immediately by 25% because of that increase in no. My [00:38:00] interest rate is going to be 12% over 20 years, and so I’m, I’m locking in, I’m going to make 12%.

[00:38:05] Jerry Fetta: But the beautiful thing of it is, is 12% of the seller finance value, not 12% of my principle. So I have 40 grand in this example, working like it’s actually maybe 55 or 60 grand, yielding 12% off of that 55 or 60 grand. So my cap rate is super high compared to what I might see on a rental property. If I pay cash on a rental, I might make 8%, , and that’s on a good one.

[00:38:28] Jerry Fetta: So on this one I’m making maybe 12 to 14% cap with an actual interest rate of 12. And so that’s, that’s kind of how I like to play. The company we work with, we take what the after repair value would be. We actually mark that down a little bit, so we could sell it from more than 20 to 30. We sell it for that 20 to 30% more because we’re going to leave typically maybe 10 or 15% of that after repair value for the family to actually have.

[00:38:52] Jerry Fetta: And what that does is a couple of things. It keeps them wanting to pay that mortgage because they don’t want to walk away from five or 10 grand in equity that we gave [00:39:00] them on the front end. When it comes down to do I find how to pay the five or $600 a month payment, or do I give the house back and lose $10,000 in actual real equity, they’re going to find a way to pay the 506 5 or $600 a month.

[00:39:12] Jerry Fetta: And so that’s a great way to not only help the family, because we’ve had just stories of like earlier this year, a family bought a house with us through this program. They paid I think 70,000, and this is the actual family living in it. They sell their financer for 70,000. A couple years later. They sold it for I think 180.

[00:39:29] Jerry Fetta: And they just, like any bank in any mortgage, the payoff is they pay the bank off, they keep everything else in. So this was a family that prior to this, couldn’t get a mortgage. , their credit was bad, they didn’t have a lot of money, and their life has been changed. And so as an investor, I love that part too.

[00:39:45] Jerry Fetta: Like when you get into private lending, it can get weird because people can get kind of predatory with it. We’re really big on the help part. Like every investment should make money. That’s a level playing field. What are we doing beyond that? And so in this, we’re taking properties that maybe don’t look so great, we’re fixing ’em up and [00:40:00] improving a.

[00:40:01] Jerry Fetta: , we’re taking a family that couldn’t get housing. We’re giving them not only housing, but we’re giving them equity and we’re giving them a good relationship with us. Like when someone gets, let’s say they get a late payment, we’re usually going to look at how can we help them out? Not let’s foreclose on them right away.

[00:40:15] Jerry Fetta: , can we help them out with getting caught up for a few months? We’ve had investors. because here’s the thing is the investors direct on the property. So it’s not like you’re in a fund. Like if I buy the property, my name is on the title till that family pays it off, they’re late and they have a missed mortgage payment.

[00:40:29] Jerry Fetta: We’ve had investors that they’re like, Hey, it’s Christmas time. Let’s just tell them. Don’t worry about it. And so you have the leeway to do that. And then you also have the lee where, where if it is a bad intention family and we need ’em out, then yeah, let’s go ahead and evict and fore. So that’s kind of what I like to do there and I like to combine that with the sacred account so that I’ve got the money growing in the sacred account.

[00:40:46] Jerry Fetta: I’ve got that equity gain on the initial seller finance value, and I’ve got that interest in coming cash flow every month. Wow, that’s 

[00:40:54] Rebecca Hotsko: such an interesting approach. I’m wondering, have you always focused on the [00:41:00] foreclosure instead of, I guess that aspect? Because there’s two ways that you could do real estate investing.

[00:41:06] Rebecca Hotsko: You kind of go for the cheapest ones, or some people think that’s too much of a hassle. But I’m wondering maybe why you chose that strategy and you’ve always done it. 

[00:41:15] Jerry Fetta: I’ve kind of always liked that, and there’s a lot of reasons for that. , the first one is it gives you some downside protect. A house that we buy on a bank foreclosure list for 35 grand can’t get much worse than it already is.

[00:41:28] Jerry Fetta: So the economy comes down. This is not the house that you see. It lost 30% in value. Like it kind of was at bottom value when you picked it up. So it gives you some downside protection. It also does give you scalability, like, I can get more units that way. And so with a, with a game like this where I’m trying to get as many of these mortgage income streams as I can, I want to be in lots of states and lots of neighborhoods in lots of areas, and spread out as much as I can and just kind of grow that as its own business or network.

[00:41:54] Jerry Fetta: And I can do that much easier. 50,000 at a time with not having to go get a mortgage. I can just take [00:42:00] cash from my sacred accounts and do it versus, , getting let’s say a fourplex where I’m going to pay 800 grand and I’ve gotta find a lender and go through closing. And it’s this long, expensive process.

[00:42:11] Jerry Fetta: I like to move quick. This allows me to do. And then the other thing too is, , because of the fact that we’re seller financing it, if I do have to take that house back, it’s generally going to be worth more than I put it out for. And that’s because, , the, it was bottom value. We did the prehab.

[00:42:28] Jerry Fetta: But the family, when they move in, they actually are agreeing. We, we communicate to them and they’re agreeing to, we’re going to fix it up while we live there. And they get to keep whatever the equity gain is. So they’re going to do carpets, they’re going to paint, they’re going to do all the stuff to make at their dream home.

[00:42:40] Jerry Fetta: And so if foreclosure does happen, I’m not getting the $35,000 house back, I’m getting the $70,000 house back. That used to be 35. But now we’ve fixed it up and it looks nicer, and a few years have transpired and it’s appreciated. So I really like that aspect of it too. And then the other thing too is just from a macroeconomic standpoint, , like let’s [00:43:00] say we rewind back to 2020 and there was a period of time where, , you could only go to work if you were considered an essential worker.

[00:43:06] Jerry Fetta: The guy that lives in this house that works at the gas station, he went to work and here and didn’t come and he covered his mortgage and it didn’t change for him. He didn’t have the ups and downs with, for this example, it was a pandemic. Other examples could be, , an economic recess. Usually, , that tier of income doesn’t experience that they’re going to make the same wages regardless of what the stock market’s doing, and it doesn’t impact their lives a lot.

[00:43:29] Jerry Fetta: That’s why I like that, rather than the high end where you go high end, there are pros to that, but also there’s a lot more things that that can be up and down and a lot more things you’re exposed to just by nature of who’s living there. , the houses are priced very high. They can come down quite a bit versus something like, It is such an 

[00:43:47] Rebecca Hotsko: interesting approach, and I guess I’m just thinking about this year where housing prices are at astronomical highs in Cross.

[00:43:56] Rebecca Hotsko: I guess it’s mostly North America, but a lot of other places [00:44:00] as well. Interest rates are so high. We’re already kind of seeing housing prices come down a bit and it’s expected that things are going to get bad. I’m wondering how you’re approaching this strategy in this environment. Do you see this as, as sad as it is, it’s things are probably going to get really bad in the market.

[00:44:17] Rebecca Hotsko: Do you see this as an opportunity for this strategy? 

[00:44:21] Jerry Fetta: I think I’m going to, I’m looking at this from the standpoint of affordable housing is going to become more, more demanded than it was before. And that’s where people are going to go to, is they’re going to look at what’s my payment? So when you look at a, a rent payment, it rents have claimed tremendously.

[00:44:35] Jerry Fetta: And that’s something that, , I don’t think most people planned for mortgage interest rates have climbed up the amount of house you can buy with the same mortgage. Now, , if you look at the appreciation and the rates, it’s, you’re not getting the same thing anymore, and it is a lot more expensive.

[00:44:47] Jerry Fetta: So I think a lot of times people will climb into those things during an economic boom. They’ll get into the expensive house, they get the expensive car, they do all this stuff because money is open and it’s available and things are going [00:45:00] well. And so as a recession happens, I think people will start tightening up.

[00:45:03] Jerry Fetta: And so if they lose the. They can look at, do I want to rent and pay probably what my mortgage payment was anyways, maybe a little bit less, or do I want to look at something like this where I can get into a house and in my payments five or 600 bucks a month? And that’s half of what rent was. So I’m looking at that as an opportunity.

[00:45:20] Jerry Fetta: And another thing too is, , the, the rates rates are starting to climb. And so when someone gets a mortgage, it’s not the same rate as I was two years ago. And so when someone looks at a rate like this, 12 percent’s high obviously, but the person doing this generally isn’t going to be able to get that mortgage anyways.

[00:45:35] Jerry Fetta: And that gap has narrowed down even more because generally rates have come up anyways. I think this is a great opportunity for that. I. Just to kind of reverse this back a little bit, from a demand and supply standpoint, we’re seeing that the supply is increasing too. Foreclosure numbers are increasing.

[00:45:51] Jerry Fetta: We’re seeing more and more properties coming available for us to be able to get. And if you think about it, they were climbing a little bit prior to the pandemic. [00:46:00] During the pandemic. Banks couldn’t foreclose. , there was a freeze on that. And so just now we’re starting to see this backlog of people who didn’t make their mortgage payment.

[00:46:08] Jerry Fetta: They weren’t able to stay on time and they just couldn’t be foreclosed on during that period. That’s starting to catch up. And then with what you’re saying, just generally the economy’s going to get worse. I think that’s going to add to it. I think the demand is going to be there and I think the supply is really going to be there too.

[00:46:23] Rebecca Hotsko: That’s really interesting. And I guess, how competitive is it to get these foreclosure units? Is it, are you ending up in kind of bidding wars or not necessarily? 

[00:46:34] Jerry Fetta: You can, it depends on how you go about this. I don’t do any of this myself. We have a company we work with that does all of this for, for myself and for our clients, and they’re international.

[00:46:43] Jerry Fetta: They’ve got properties in over 30 states in the US I think 34 states in the US and over 300 counties. And so they actually, they work with the banks directly and they buy in bulk and they buy as-is. So the banks love them. And so if there’s a bidding war, , they’re, they’re going to look at, do I give it to Jerry Fetta who’s [00:47:00] looking to buy a couple homes, or do I give it, see the company we’re we work with is called Equity and Help.

[00:47:04] Jerry Fetta: I give it to equity and help, and they’re going to buy dozens of homes all at once. And so I work with them because they have that network and they, they have the infrastructure of the whole system too. They do the prehab, they list the home, they find the family, they manage the escrow, they evict the family, they put the new family in.

[00:47:19] Jerry Fetta: So it really is a turnkey operation for me as an investor. All I have to do is decide which homes I like and sign off on. So that takes some of the grit and some of the competition out of it. I have seen, and I’ve, I’ve known people that they do this themselves and you do have to show up at the auction and you do have to outbid someone.

[00:47:35] Jerry Fetta: Then you do have to find a general contractor, and then you do have to find an escrow company and handle all of the payments. And sure, you might make a little bit less profit or a little bit more profit doing it yourself, but for me it’s a scale thing. , I want hundreds and thousands of these homes, not five or six or seven, that I did all by myself and I made an extra percentage.

[00:47:54] Jerry Fetta: Because I did it myself. So that’s kind of my thought on it and, and, and how to stay out of that competitive atmosphere and just [00:48:00] make it more of a, a passive investment. Yeah. I’m glad you 

[00:48:03] Rebecca Hotsko: brought that up because I was going to ask you. I think the most daunting thing about the real estate space for someone who isn’t already in it, is that there’s so many extra steps, hurdles, things that you need to be very active in the roles you need to perhaps buy a property manager and find tenants there just.

[00:48:19] Rebecca Hotsko: So many extra things. Sometimes I think for private lending you have to set up a corporation and get certain licenses, so there’s a lot of things. But with your approach then, can anyone work with the company that you are with or how does that work? 

[00:48:35] Jerry Fetta: So that’s the beautiful thing about it. Anyone can work with them.

[00:48:37] Jerry Fetta: They handle all of it. Even from the, like you mentioned, having to set up different businesses. Every property that you buy is already owned by two different trusts, and so that gives you the business, but it also gives you the asset protection and the privacy. So when you buy a home, the home’s owned by a land trust, the land trust is owned by a personal property trust.

[00:48:54] Jerry Fetta: And so that basically puts two layers of anonymity between you and the actual house itself. [00:49:00] It does give you, here in the US a trust, you can have a bank account, a tax ID number, you could add an LLC to the mix. We just had a client where he had half a million dollars in a retirement account. He did a self-directed ira, and now his IRA owns 10 homes and it’s going to pay him about five, six grand a month in passive income.

[00:49:15] Jerry Fetta: Inside that I r. It’s very open-ended. , it is something that, that investors in the US can do, Canada can do. They’re spanning in South America. I mean, really because it’s not a fund, you’re actually physically buying real estate. There’s not as much restriction on who can do it, when they can do it, what licenses they do or don’t need.

[00:49:32] Jerry Fetta: because anyone can go buy a house and anyone can do a seller finance contract. 

[00:49:37] Rebecca Hotsko: So I just want to walk back a little bit on that then. I’m just so interested in this. So when you have, or when you’re interested in working with them, do you choose, do you just give them the money and then they go and invest in whatever units they do and then they come back with you with propositions of which you’re interested in?

[00:49:54] Rebecca Hotsko: Or how does that process work? 

[00:49:57] Jerry Fetta: The process is going to be, so as an [00:50:00] investor, like, , the first deal I did, first thing is I wire money to escrow as proof of funds. And that kind of gives them an idea of like how much I’m looking to invest. because it comes down to like, how much do I have and what’s the average unit going to cost?

[00:50:12] Jerry Fetta: Let’s say I wire, , the minimum is generally 150,000 and that’s going to buy about three homes. And so I put that in escrow and then they actually take me home shopping online. They’ll pull up the list of all the properties in inventory. They have a specialist that goes through and we look at all of the homes.

[00:50:27] Jerry Fetta: , we have a client that we recently helped do. They sold an Airbnb property. They had about a million dollars in profit and they wanted a 10 31 exchange to tax defer the capital gain so they could do a 10 31 exchange into the seller finance properties with equity and help. So they had about a million dollars.

[00:50:42] Jerry Fetta: That was about 20 homes. Our team got them connected up equity and helped sat with them every Saturday, I think for three weeks in a row till they found the right 20 properties and they probably looked at maybe 40, right? And instead they went through the inventory and they looked at pictures, they looked at neighborhoods, they looked at demographics, they looked at [00:51:00] schools nearby, restaurants as all the things you would want to consider as a real estate investor.

[00:51:04] Jerry Fetta: But it’s right there digitally. And so it’s kind of a fun, it’s kind of a fun shopping experience, but it’s also very convenient. They’re on Zoom at home with coffee. Picking out the real estate that they want to own. That’s kind of what that process looks like. Once the homes are purchased by the investor, then equity and help goes out and they finds, , the families that are going to live in those homes.

[00:51:23] Jerry Fetta: And then it’s a matter of fulfilling that passive income, , getting that actual escrow con contract set up with the family and getting, getting the investor paid, which is another escrow. It’s just passed through. The investor gets the income and they do with that income what they want at that. 

[00:51:37] Rebecca Hotsko: I guess, what are the risks with this strategy? Would it be that if, I guess the tenant doesn’t pay or anything, I guess what would be the risks to the investor’s return? 

[00:51:48] Jerry Fetta: So risks, the initial one is vacancy. We are buying a house that’s initially unoccupied, and so, and this is why, , the minimum is three homes. One 150,000 is, is if you have three, it [00:52:00] diversifies you out of that rather than, I bought one and it took nine months to occupy.

[00:52:04] Jerry Fetta: When I have that home vacant, there are going to be some utilities and holding costs. So that’s usually, , maybe one to two grand total that I would have in reserves just as an investor to cover maybe five or six months of utilities and different things that are going to be naturally occurring costs with the home until the family moves in and takes it all over.

[00:52:22] Jerry Fetta: So that’s probably the first thing is vacancy. Obviously, , foreclosure risk is, is. With the portfolio itself I think their lifetime foreclosure rate is about 7%, so they keep it pretty low. That’s within a normal range of what you would probably even see on a good managed rental portfolio.

[00:52:38] Jerry Fetta: Usually 10% or less on, on actual vacancy. But when vacancy happens, , you have, you have a foreclosure and that is a risk. That can also be a little bit of an expense if you have move out costs, things of that nature. So that’s something to. Those are probably the biggest two. There’s not a lot of other risk involved because it just is a matter of we have the home, the family lives there, they make the payment.

[00:52:59] Jerry Fetta: We haven’t [00:53:00] agreed upon interest rate. So just as how long did it take to get the family there? And then did they actually make the payment on agree? Then if they didn’t, how long did it take to move them out and put a new family in? 

[00:53:10] Rebecca Hotsko: And then you also mentioned that you do renovations and so is that the investor’s capital also used to do those renovations?

[00:53:18] Jerry Fetta: No. So that’s what I love about that. That’s done by the time I’ve bought the property. So as an investor, the price I’m paying and looking at it, , I want this home and it costs me 48 grand, for example. The pre rehabbing has already been done, and that’s something that’s taken care of ahead of time.

[00:53:34] Jerry Fetta: So I’m buying a finished product and I can just go right on market and be be sold to the family. Okay, that’s 

[00:53:40] Rebecca Hotsko: good because I was wondering if you had to then wait for several months maybe while the property was being revamped, but that is really, really interesting. And so I guess I’m wondering to kind of close things out today, what are you most excited about for 2023?

[00:53:55] Rebecca Hotsko: Or where do you see the greatest opportunities in the market, or any strategies you want to share of what you’re doing in this year? 

[00:54:02] Jerry Fetta: I mean, for me it really is going to be doubling down on my business and, and growing that. I think, when a recession happens, generally speaking, as a business owner, that’s when talent becomes available.

[00:54:14] Jerry Fetta: And so that’s something that I’m looking at is hiring marketing. I think during this period of time, things are going to get rocky. And so for the average listener, I would say focus on increasing your income more than ever. Recession is a macro thing, but the word economy, and I told you I liked words, the root of this word economy actually means personal house.

[00:54:31] Jerry Fetta: Just because the macro has a recession does not mean that my personal household has to as well. So that looks like putting in more hours, making more sales, whatever your thing is to earn income, adding more value, I think that that’s going to be the number one opportunity. And it also keeps you kind of out of the doom and gloom.

[00:54:48] Jerry Fetta: There’s a lot of news and just stuff that it’s negative and it doesn’t help. I would say that that’s probably the main thing I’m focused on. And then I’m focused on obviously, kind of the triangle of wealth itself, increasing my savings rate as a result of that, getting more homes as a result of that.

[00:55:02] Jerry Fetta: And it kind of ties back to what we said at the beginning. This is why I like the way I do it. And I don’t do stocks, my plan doesn’t change shift the, if the economy’s doing well, my plan is the same thing. If the economy is doing poor and my plan is the same thing, just because it’s not really tied to that so much, it’s more of a function of how much can I earn, how much can I save?

[00:55:19] Jerry Fetta: And then how many homes can I get. 

[00:55:22] Rebecca Hotsko: I love it. I want to thank you so much for taking the time to come on again today. It’s always such a pleasure to chat with you. Where can our listeners go to learn more about you, your work, and everything that you do? 

[00:55:35] Jerry Fetta: Thank you. So we have a book I’d like to give away, and I think we might have did this last time, but same one.

[00:55:41] Jerry Fetta: It’s jerryfetta.com/b2fpromo, and maybe we could put that in the show notes. But that’s going to have a lot of the information we covered and some, and so that’s a free thing we like to give away. And that’s a great way to not only connect with us, but also to get more information on like what some of these strategies are, get a little bit more detail on how they work and start learning how to apply them.

[00:56:02] Jerry Fetta: So that’s a great way to connect. We’re also very active on TikTok and Instagram, so just at Jerry Fetta, you can connect with us. We love answering DMs, so if you have questions, send a message. We actually had several of your real listeners reach out on DMs that just said, Hey, I listened to the show.

[00:56:16] Jerry Fetta: I had questions about this, and this. And so we were able to help with that as well. So reach out, connect. We’re always going to help out and do whatever we can. 

[00:56:24] Rebecca Hotsko: That’s amazing. Thank you so much again, Jerry. 

[00:56:27] Jerry Fetta: Thank you for having me on. 

[00:56:30] Rebecca Hotsko: All right. I hope you enjoyed today’s episode. Make sure to follow the show on your favorite podcast app so that you never miss a new episode.

[00:56:40] Rebecca Hotsko: And if you’ve been enjoying the podcast, I would really appreciate it if you left a rating or review. This really helps support us and is the best way to help new people discover the show. And if you haven’t already, make sure to sign up for our free newsletter. We Study Markets which goes out daily and will help you understand what’s going on in the markets in just a few minutes.

[00:57:02] Rebecca Hotsko: So with that all said, I will see you again next time. 

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