WS1580: Strategic Investing Beyond Wall Street | John Michailidis

EPISODE 1580

[INTRODUCTION]

John Michailidis (JM): People need to get out of the Wall Street rat race, and really start taking charge of their financial futures. Because, you know, I see hard times coming. I hope to God, I’m wrong. But I see hard times coming. And I see, so many people are going to get hurt because they’ve bought into this lie that investing in Wall Street is the way to financial freedom.

 

[INTERVIEW]

Whitney Sewell (WS): Honored to have guys on and gals who have expertise in so many different parts of our business. And today, our guest has just that, I mean from broker, property manager, 30 years, career author, educator, mentor, coach and attorney. Man, just grateful to have John on the show. Welcome.

JM: Thank you very much. You humbled me.

 WS: Well, grateful to have you on John, I know that our listeners are going to learn a lot from you today. And let’s jump right in. Who is John? You can do a lot better at telling the listeners a little more about who you are, and how you got to where you’re at right now than I can.

JM: Who is John? Well, currently, I own a property management company. I’ve been in the real estate space for 33 years, I think, over 30 that I know. I’m 60 years old, I’ve been around a long time. I’m an author, I do a little bit of speaking, I do some real estate investing myself, of course, I’ve brokered hundreds and hundreds of properties over the years, I’m involved with various charities. And that’s what I do,

 I started my real estate journey in 1989. And I decided in 1997. If anyone’s fact checking, I made the offer in a year or two. And some of the things I say they’re distinct, but you get in ’97, I decided to go to law school, not to become a lawyer to get a job, but because I wanted to learn the law. So I went to law school, I graduated from Northwestern University in Chicago School of Law, sat for the Illinois bar, passed the bar, and I keep it active. I don’t know why it cost me 400 bucks a year. 

But I’m an active attorney in Illinois, I’ve never practiced law in my life. I jumped right back into the real estate space after I graduated law school. I also have a master’s degree in international real estate from Florida International University. My undergraduate is in economics. So the world I play in is real estate and I’m interested in finance and economics, which of course, inevitably leads you into the political sphere, and all of that stuff interests me.

 WS: That’s awesome. Well, I love just the desire for learning, right? Even to the point of going back to law school, not just everybody will do that, right just to gain that knowledge and expertise, like you have. So hats off to you for going and you know, go into that depth of learning. 

And we were talking about before we started recording to just having books or reading a year and some of that you know that drive to read, write and even your drive to write as well. We’ll talk about a little bit today. But you know, you recently wrote a book about strategic planning and investing for individuals, right. And so I want to dive into parts of that. And define investing, you know, as you see it,

 JM: Ah, investing is I see it is something that pays you to own it. So it isn’t buying a piece of stock, a piece of paper, an undifferentiated share in a mega global corporation that doesn’t know you, doesn’t care about you, and you might make some money, probably aren’t going to make any dividends, most stocks, it might go up in value, it’s probably going to lose value in the in the near-term future. So to me, that’s not investing. What your employer tells you to do with the 401(k) to me, is not really investing. And that’s unfortunate because most people get suckered into thinking that that’s investing. As a matter of fact, it’s been my experience, if you deep dive into what most people are investing in, there’s the calculating. 

Many people don’t own a single investment. Their entire portfolio is a speculation. And that’s scary. And that’s the primary reason why I wrote the book was to teach people what investing really is — the mindset it takes, the team that you need to build. It’s not a lone wolf endeavor, and the different things you can invest in real estate syndications. But you know syndications is a form of pulling together funds to do whatever real estate businesses, most motion pictures or syndications, people don’t realize that. 

So limited partnership, partnership investments — buy a share of Exxon and tell me you’re a partner with Exxon, tell me you’re gonna call Exxon, and they’re gonna have a conversation with you about your concerns and such. I ramble. If you’re BlackRock, Exxon will listen to you. Exxon will not listen to me and they don’t care what I think about what they do. My general partner, in my limited partnerships, does care what I think. That’s the difference.

WS: Yeah, that’s incredible. I love just the definition that you give to investing. I think it makes a ton of sense. And you should make sense, right? By that buying something that pays you to own it. And it seems simple, right? But I think it’s like you said 401(k), we did listen to the HR lady. And you know, just kind of put it in there and forget it, right? We just assume that it’s going to grow instead.

 JM: Why? Why do we assume that? Because MSNBC told us to assume that? If you think it through, you have pieces of paper, you have an account, you don’t own anything, you have an account. But what do you owe? You have real estate, you own something. If you have gold and silver, you own something, you have businesses or shares of businesses, meaning partnerships, shares in businesses, you own something. You have royalties, you own something. You’re going to the casino when you go to Wall Street. And that just scares the dickens out of me that most people are playing the casino with their life savings.

 WS: Yeah. Speak to speculation versus investing.

 JM: Speculation is literally gambling. You put your money on the table and hope you win something back. You could crap out, you could lose everything. Think of the folks that owned a company called Enron. Does anyone remember the name Enron? They were Wall Street darlings, high-flier, they went to zero. That is possible, not likely, but possible with every single Wall Street investment that you have. Now, quite frankly, that’s possible with every limited partnership investment you have. But the difference is, is you get to vet to know the people that you’re investing with, you get to look at their track record. They’re responsive to their investors, because their investors are the lifeblood of their business. Once the initial public offering is out, the company has their money. 

What happens on the secondary market, people trading shares back and forth, isn’t putting money into the coffers of that company. They really don’t care about you. They certainly don’t care if you lose your $500,000 nest egg. It doesn’t doesn’t mean a thing. If your GP loses your $500,000 nest egg, that’s going to impact the future of their business. They’re going to do everything they can not to lose your $500,000 nest egg. Not the same when you’re investing in Wall Street. And you’re also getting returns, right? You’re getting quarterly payouts, monthly payments, semi-annual, annual payouts, whatever it is, in the deal, you’re in, you’re getting payouts. 

You’re getting money on your capital. Now, we talked about investment, and I just said that’s something that pays you to own it. There’s another aspect that you need to be cognizant of, you want to put it into something that’s going to preserve your capital too. I mean, just because you’re in a piece of real estate or just because you’re in a business, doesn’t mean it’s going to be a good investment. I’m not saying, investment, good; speculation, bad. Investments go bad, just like speculations go bad, but understand the differences. One is a pure bet. And there’s a lot of professional gamblers out there that make a lot of money. 

But for goodness sake, don’t call yourself an investor. If you’re a speculator and part of what we do in the book is explain the difference between investing and speculation. We say hey, whatever you want to do that’s up to you just know what you’re doing. Know the pros and cons of what you’re doing.

 WS: How do we break away from Wall Street right? You know, speak to that individual that’s listening and say, ” I you know, I’m guilty I have everything in that 401(k) attached to Wall Street somehow. What does that look like to change that mindset, right?

 JM: Well, let’s talk About 401(k), what does that mean? That’s a section of the Internal Revenue Code: section 401(k). “K” is part of 401. 401 has A-B-C-D-E-F-G, right? What about section 401(a)? What about that section that allows you to be in complete and total control of your funds, a qualified retirement plan, it’s exactly the same as a 401(k) in every single way. All of the bankruptcy protections, all of that protected against creditors, but you get to put your money wherever you want. 

Now, you can’t buy a Ferrari with your retirement funds. Same rules apply. It’s a retirement account. You can’t buy your personal home with your 401(a) qualified retirement plan, but you can buy real estate, you can buy precious metals, you can invest in businesses, you can lend money, you could become a banker, so to speak. And you could also speculate in the Wall Street market, you could also buy bitcoin, God forbid, if that’s what you want to do. How come? Nobody tells you about that? 

How come and MSNBC isn’t screaming from the rooftops, “Hey, everybody, get your money out of 401(k), where they can show your money and put it into a 401(a) where you control your money? How come nobody’s screaming that? ‘Cause they want your money. Think about what a 401(k) plan is. It’s a subscription service. Every month, Wall Street is pulling money out of your paycheck, and putting it into the things that are going to make them money. Now, you’re hoping you’re gonna make money and many people do.

But they’re definitely making money off of that subscription service. I tell you what, at least with my Netflix subscription, I get to watch movies, but with my 401(k) subscription, all I get is a hope that my money doesn’t go away, and a hope that it’s still there someday when I need it. Why not pull your money out of that rig system and set up your own retirement plan?

WS: So 401(a), how would they go about that? Is that something that the controller or their employer needs to be a part of or is that something they can do on their own?

JM: No, you could do it on your own. Look it up. Damion Lupo is a guy that has a good book on the topic. eQRP is maybe I have it on my shelf right here. I don’t know.

WS: Damien’s been on the show a few times. I know Damien. qualified retirement plan. Right? Yeah.

JM: So there’s books. Look it up.

WS: Yeah. Awesome. You know, speak to just being a strategic investor. You know, like, obviously, the title of the book talks about but I know there’s a mindset and a team thinking, you know, that goes into that speak to that a little bit. 

Because I think often, we can feel like it’s so overwhelming to think outside of the norm, right? That 401(k)  It can be pretty overwhelming. So we just kind of just put it in there and forget about it. Right? That’s the easy thing to do. How do we think differently about this? And even that team thinking I like that?

JM: Well, strategic planning. Let’s juxtapose the word tactical planning. So what is strategic versus tactical. Tactical are the specific things you do. I invest $5,000 into that thing. That’s a tactic. And you have tactics to accomplish your goals, your goals, the greater picture, that’s your strategy. So when we’re talking about strategic planning, and investing for individuals, what we’re trying to figure out is, what is the lifestyle that I want to live? 

And by the way, there’s no right answer. You pick your lifestyle, you may be absolutely happy with a $100,000-a-year lifestyle. If you could have $100,000 of income coming in, passively, even better. You are happy. You don’t want to be a billionaire. Maybe you want to go for a $20 million-a-year lifestyle or a $40,000-a-year lifestyle. First, you have to determine who you are. What makes you happy? What stresses you out? What do you not want to be a part of? Once you have that figured out, now you have to think, what’s that going to cost me? Cost me in terms of effort in putting this together. 

So there’s a few things that come in, you obviously have to figure out where these income streams are going to come from. And initially, it’s going to come through some form of job, right? So you didn’t make income, and then you’re going to have to deploy your income out into the world. 

And you’re going to have to learn about alternative investments, not just the 401(k) plan. But that’s the tactics of it. When we’re talking strategically, remember, what we want to do is not only deploy our capital to generate income, we also want to preserve our capital. So this is more than just investing; it’s about estate planning. What happens, God forbid, you pass away? What happens to your family? What happens, God forbid, you’re incapacitated? Who takes care of your stuff? Who manages your stuff? Who takes care of you? Who takes care of your children? Do you want a court deciding on all of those things? Or do you want it laid out? 

So estate planning is an important part of your strategic plans. Asset protection planning is an important part of your plan. If you put all your eggs in a basket, under your name, there’s predators out there, man. The government wants a slice of everything you owe. And there’s predators out there that want to suck your blood and eat your bones. So you’ve got to have protections in place, and that’s entity structuring, right? So there’s trusts, there’s LLCs, there’s corporations, S corps. 

So this is why investing strategically is a team sport. You have to have estate planning in place, you have to have asset protection planning in place. These are the domains of experts. These are the domains of people that do this all day, every day. It’s not something that you’re going to go buy a book and create their estate plan. It’s doable, I would recommend against it. Spend the money and have it done professionally. Same thing when it comes to investing. Let’s talk about syndication. This is what your audience is primarily interested in. 

And this is also something that I’m interested in, you want to be sure that you’re investing in entities that are protected against lawsuits primarily. You want to make sure that your businesses are layered within entities that protect the structure. I own a flower shop and I own the building that flower shop is in. Someone slips and falls in the flower shop. They can take the income stream from the business, and they can take the building, because I had it all in one basket. Why not layer that one and have an LLC that owns my building, and have an LLC that owns my business, and have my business rent the space from my own LLC. So when they slip and fall, yes, maybe they can attach the income stream from my business but they can’t get to the building. It’s isolated. 

So when we’re talking about strategic planning, we’re talking about the big picture experts in terms of investing. How many people are going to be an expert in multifamily investing, mobile home park investing, resort investing? You’re not going to be an expert in everything, so you’re going to team up with people. And here’s we’re going to conferences is big. Here’s where reading is big. Here’s where podcast is big. 

Here’s we’re growing your network. Remember, it’s a team sport. Who are the other people that are interested in doing the things that you’re doing in investing in the things that you’re doing? Where do they go? Who do they listen to? Who do they hang out with? What do they attend? get to know those people that are like you, you may be here, they may be here, so what? People tend to be very gracious if you’re sincere, and not abusive with your requests on their time. Go learn, get yourself in the main loop of what’s going on in the investing world. 

And then pick the experts that you feel comfortable with to place your capital with and let them do the heavy lifting. They’re the general partners, they’re the operators, they’re the experts. You’re the limited partner that supplies the cap.

 WS: No doubt, we needed to hit so many things there. But just the thought around strategic planning is so important. Earlier, the better, that you do it too. You don’t know when you’re going to be incapacitated or all, you know, unfortunately passed away, right? We do know what’s going to happen. But we don’t know when and like you said, you know, do you want someone else deciding what happens to you after you’re incapacitated, or, you know, with your business or for your family? 

So I just think is a great wake-up call for that man, you know, you’ve got to do some planning and even the stress on spend a little money and have it done correctly. The last thing you want is to think you have it done correctly, and then figure out oh, no, like you said, we did have the business and, and the building in the same entity. We didn’t think through that, right? 

We didn’t hire that expert, we didn’t spend a few 100 or even $1,000, $3,000, to save thousands later on. But really to just the the peace of mind, I think, right? Knowing that we’ve done it correctly.

JM: And let’s talk about life insurance, for example, and how that can be a part of your investing. There’s a product called Whole Life Insurance, there are books on it, when I recommend is Becoming Your Own Banker by Nelson Nash. To get into the details is too much. But understand that you can buy a life insurance product, and have your family covered for let’s say $500,000. And that premium might cost $700-$800 a month. Remember, the first day you pay your first premium, we’re making this up, of $700, if you die, the next day bang! Your family gets $500,000. How long is it going to take you to save $500,000? 

Now for some it’ll take a few months. But for most working people, it’s going to take you a very long time to save $500,000. You can have that backstop for your family instantly, for relatively little money. Now with that same type of policy, you can have what’s called paid-up additions so you could put excess money in above the premium amount, and that’s building cash value. And then after a period, right, Rome wasn’t built in a day, you’re not gonna have a big pot of money to draw on in a year or two years, but after some time, you’re gonna have a big pool of cash value, guess what you’re allowed to do with it? You’re allowed to borrow against it. 

From the life insurance company, by the way, no qualification, no approval, no scrutiny. It’s your money you’re borrowing against. So you’re going to put in a request, hey, I want to take $50,000 out of my paid-up additions. And within 10 days in the mail, you’ll have a check for $50,000. You will pay them interest, whatever the rate on your policy is, let’s say it’s 4% 5%. Probably in the future, it’ll be higher, goes with market rates, right? 

But it’s locked in whenever you get your policy. Now, here’s what’s interesting, you’re not borrowing $50,000 out of your paid up additions. So when you have money in your insurance policy, they’re paying you interest on that money every year. So if you pulled $50,000 out of your money, you’d earn less interest next year, you’re pulling money, that’s not what’s happening. Your $50,000 stays there, you’re borrowing insurance company’s money. 

So you’re still earning interest on that $50,000 that you just borrowed $50,000. Many times there’s a wash there or a very small effective interest rate that you’re paying when you do that. And now guess what you can do with that money and opportunity comes up. You can go buy a rental property, you can invest in a limited partnership. Did the HR lady tell you about that?

 WS: Read that book right or your book that just say the least.

 JM: Did MSNBC tell you that? None of these financial places that you’re paying deep, deep attention to are interested in liberating you from them. They want you beholden to them. I want you to be free.

WS: Yeah, no doubt. It’s interesting or we’ve had a few people on this talk about the bank on yourself method and some of that and the Becoming Your Own banker book will link to that as well that you recommended. It’s an interesting book. I’ve had a number of investors ask me about that, too, about that scenario, you know, how do you do that? Is it legit? Is it you know, is it all made up? Is it something we should look into?

JM: I used money from my whole life policy to fund my master’s degree. That’s how I’d pay the tuition, rather than taking student loan or rather than taking cash. My effective rate was one and a half percent. And I paid that back very quickly. But the point is, you can buy cars, look, let’s say you’re going to take an auto loan, and the interest rate is, I don’t know, 7%. I don’t know what auto loans are. 

And what if your rate to pay back the money is 4%, you borrow out of your whole policy, or life policy. So you borrow the money for the car, and you pay cash. Had you financed it, the rate would have been 6%, you’re only paying 4% back. What if you paid yourself back 6%, the equivalent rate as if you had borrowed for the auto, now you’re making a 2% spread, you’re actually making the spread that  the bank would have made. 

Be your own vapor, finance all of your own purchases, and pay the interest back to yourself. And now that pool of cash is growing bigger, bigger, bigger, bigger.

WS: Alright, John, a few final questions, though, I want the listeners to think about the strategic plan you’re laying out and no doubt you need some experts on your side to even think through the estate planning and even Becoming Your Own Banker. I think there’s been a number of people, you know, like Nelson Nash, that have explained this. And it’s something you got to look into, because it can be so beneficial, potentially, for you. 

But I want to ask you, with the strategic planning and your thoughts right now on investing over the next, say 6, 12, 18 months, while you’re thinking about the real estate market and how it’s informing your actions as far as investing.

JM: Oh, this first of all, I want to say this is a very personal question. I don’t mean personal here that you’re intruding, I mean, to the individual, this is a very personal specific question is based on that person’s life. So for me, as the guy who went through ’08, as the guy who lost properties in foreclosure, as the guy who has been there, done that and is in a very different mental place today than I was back then. I am in a position of hoarding cash and watching. I think there’s a very good chance that the economy will be much worse a year from now. 

Oh, but wait a minute, the employment outlook is so good. If you look at those numbers, what you see is, since 2021, roughly 360,000, high-tech job layoffs. These are the best jobs in the country. Amazon, Google, all of them, Microsoft, they’re laying off people, and they’re being replaced with bartender jobs. And here’s another thing you don’t know: a full-time $150,000-a-year high-tech job goes away; a part-time fast food job comes online. They say, Oh, that’s a net wash and lost one job gain, one job, really? That’s a net wash? So this whole nonsense about the employment picture being fine.

I don’t look at something called ShadowStats.com. Shadow Stats, uses the criteria that was used back in the 1980s that the government used to figure things like inflation and unemployment. So every time the government doesn’t like the numbers, the way things are panning out, they change the way they count. And all of a sudden things look better.

WS: Blows my mind a little bit that that’s okay.

JM: If you “shadow-stat”, which are the numbers I look at, inflation’s 15% right now, not eight or nine or seven, whatever they’re saying it is this week. So I’m in a position of I don’t know. Look, I recently cashed out of a LP (Limited Partnership) deal that I was in. This was a land development, a limited partnership that was paying me 20% returns like clockwork, very good. However, I’m thinking, if this market crashes,  what is land development for? New home construction! New home construction is going to tank. 

By the way, I’m seeing 68%, I think was the number decline in traffic in new home subdivisions, sales are way down in new home subdivisions, they’re cutting prices to move their inventory, I’m thinking, I probably don’t want to have my money betting on the near-term future of new homes. But I think there may be a real big opportunity on use topes. If the market crashes, look in my area here, back in ’09. ’10, there were vacant houses everywhere. 

You could pick up three-bedroom, two-bath houses for $130,000 that are $400,000 today. I’m not saying things will go back to that. But I think there may be an opportunity to pick up assets at much lower prices in the near future. And I took a portion of that money, and I put it into cash. And I took another portion of that money. And I put it into a kilo gold bar, that kilo gold bar is up $5,000. 

Since I bought it two months ago, let me say something about gold and silver. It’s not an investment. A lot of people think it’s an investment — it isn’t. It’s insurance. Golden silver is a hedge against calamity. Look, the dollar is a piece of paper, it’s a very good piece of paper. It’s the world’s currency piece of paper. It’s probably not going to go away tomorrow. But if I could, there could be a day, especially if you look at the bricks, and what Russia and China and Saudi Arabia and they’re trying to change the way oil has been traded in what’s called Petrodollars to try to get away from the US dollar. 

So there are many forces on the planet trying to do away with the dollar as the primary reserve currency. And that’ll take a decade or more to happen. But the point is, it’s in the works. So there could be a day when nobody wants to dollar. Do you really think there’s going to be a day that you walk up to someone with a gold bar and say, Hey, man, let me get some whatever. And they say, Nah, we don’t take gold. We don’t take silver. 

So what gold and silver are? Is there a hedge against calamity? Should you put all your money into it? No. Should you put how much? I don’t know, that’s up to you. But the point is, you probably should have a little pile of gold and silver sitting somewhere safe, just in case. So that’s where gold and silver is.

WS: Gold and silver have been a currency or type of currency for thousands and thousands of years. It’s not going away. I’ve heard so many people say you need to have some. I’ve still not done it yet myself.

You gotta have some, Whitney. First of all, it’s pretty. You look at it. You pick up a quarter, and you drop it and I think you can tell it’s garbage. You dropped the silver coin. And it’s heavy. It’s beautiful.

WS: Tell us how you like to give back.

JM: Oh, my wife and I are stolid, Christ believing Christians and we definitely believe that everything we have is a gift. I’m going to start crying. So we are very conscious about stewarding what we have. So we do a few things. We have some organizations locally called Gator Wilderness Camp that we support monthly. They help at-risk boys, youth. It’s an 18-month program and it gets some thinking right responsibility, self-reliance, respect, teamwork. It’s a wonderful program. We also visit an organization called Selah Freedom, which my wife and I support monthly, and they are in the space of human trafficking women that are involved in human trafficking and they have safe houses and things like that. We support them on a monthly basis. 

There’s an organization called Pacific Justice Institute that we support monthly, and that is a legal  organization that supports Christian businesses and churches that are facing legal challenges because of their faiths, faith-based beliefs. 

We support them every month, there’s a local outfit called City Commit that we support monthly, which is a Christian group that seeks to build strong men. The belief being that if you build strong men, you build strong families, you build strong families, you build strong communities, you build strong communities, you build strong nations. So City Commit is an organization that I’m involved in. 

And then lastly, my wife and I give a $10,000 scholarship to one of my alma maters, Florida International University. I sit in the Hollo School of Real Estate. It’s called The Real Estate Council. It’s a little advisory committee for the real estate school. And we give a $10,000 scholarship and teaching award every year it’s split 50-50 — $5,000 goes to a graduate of the Masters in International Real Estate program. And $5,000 goes to a teaching award for the best professors in the program. And then that’s the formal lock-in every month, every year, and then miscellaneous things throughout the year that we see a need that we’ll get involved in. But that’s a very big part of

WS: Awesome, well, John, I’m grateful for your focus on giving back as well. And just even that you can name those things. It’s like, you’re focused on those things, right, you’re seeing those things and thinking about them, praying about them. And so I just appreciate that, you know, and you’re focused on giving back and even giving back to us today, helping us to think strategically, right? With our investments, this is so important. The earlier the better. 

I just can’t stress that enough, either. That you’re taking some of this to heart what John laid out today. So John, thank you again, for your time, tell the listeners how they can get in touch with you and learn more about you and your book.

JM: The easiest way you can get the book on Amazon, Barnes and Noble, all of those places, you can also get it on my website, WealthLoop.com. If you go there, you’ll see the little store and you can order the book. And the difference between Amazon and Barnes and Noble is you’ll get a 10% discount if you buy it from my site. And I’ll also sign it and give you a personal message. Of course, the shipping is free. 

So you can get the book on the website or wherever you get your books. And really that’s my only product and I don’t have courses. I’m not trying to get you to a webinar, coaching programs. I’m just the book ,and I wrote the book because I thought it was needed. 

People need to get out of the Wall Street rat race, and really start taking charge of their financial futures. Because, you know, I see hard times coming. I hope to God, I’m wrong. But I see hard times coming and I see so many people are going to get hurt because they bought into this lie that investing in Wall Street is the way to financial freedom. And I just want to help as many people as I can to avoid possible dire circumstances in the future.

 

[END OF INTERVIEW]

[OUTRO]

Whitney Sewell: Thank you for being with us again today. I hope that you have learned a lot from the show. Don’t forget to like and subscribe. I hope you’re telling your friends about The Real Estate Syndication show and how they can also build wealth in real estate. You can also go to LifeBridgeCapital.com and start investing today

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