08/23/15: Safety, Privacy and Yield with Private Banking

Safety, privacy and yield are important concerns for anyone with large amounts of cash…most of which is stored in bank accounts.

As your real estate portfolio grows, so do your deposits, maintenance reserves and float. And if you’re waiting for that next great opportunity, you may have a chunk of cash on hand for that too!

How to keep cash safe and private is a major concern for investorsBut in a world of insolvent banks, debt-ridden governments, financial predators, high tech snooping and identity theft, and painfully low yields

How can you best protect your cash reserves?

Wouldn’t it be great if you could get insurance against all these risks…and get paid to own it?

You can.

In studio to explain how many savvy investors and mega-corporations mitigate the risks of holding large and growing piles of cash:

  • Your high-yield host, Robert Helms
  • His very private co-host, Russell Gray
  • Special guest and private banking expert, Patrick Donohoe

No matter where you are in your investing career, we’re guessing you have or hope to have LOTS of cash.  It’s just like hoping you pay a lot in taxes.Growing cash reserves is one more important thing for real estate investors to manage


While you do your best to keep the percentage of tax you pay down, in terms of absolute dollars, you should be hoping it’s a HUGE number.  It means you’re making a lot of money.  Think about it.

So even though we like to keep our cash deployed and working, as our portfolio grows so does the amount of money sitting in and flowing through our bank accounts.

This means in addition to managing debt, equity and cash flow… a VERY important part of successful investing is managing liquidity.

In an interview with Donald Trump, the Donald told us it’s important it is to always have some cash on hand.  It’s what you use to put out fires, act quickly when opportunity knocks, and to meet what you you hope is a growing amount of profitable expenses.

But in today’s economy, there are some real concerns about holding cash:

Counter Party Risk

Counter party risk is what you’re exposed to when your asset is simultaneously someone else’s liability.  This is the relationship your tenants have to you when they trust you with their rental deposits.

Counter party risk is present when your asset is simultaneously someone else's assetAnd it’s the same relationship you have with the bank when you place your tenants’ deposit in your bank account.

You owe the tenants and the bank owes you.  Your bank account is the bank’s liability.

The danger is that many banks are financially weak.  Thanks to FDIC insurance, most depositors never worry about this.  But that’s not smart.

The bank is like your tenant in that you’re giving them use of your property.  In this case, the property is cash.

You wouldn’t rent your property out without checking the tenant’s credit and financials, right?  And if they turn out to be weak, you either reject them or ask for a co-signer.

In this case, the co-signer is the Federal Deposit Insurance Corporation (FDIC).  But what if the co-signer also has bad financials?

Right now, the billions in assets the FDIC has relative to the TRILLIONS it insures means the FDIC reserves are completely inadequate if there’s a major financial crisis.The FDIC insurance fund is woefully inadequate to insure depositors if there is a major bank failure

And there are some SERIOUS tremors reverberating through the global financial markets as we speak. (Actually, we’re typing and you’re reading…but you get the idea…)

So if the co-signer is weak, you either reject them or ask for yet another co-signer.  In this case, the FDIC co-signer is the U.S. government.

But according to the U.S. government’s very own publicly reported financial statements, the U.S. government has a negative net worth and negative cash flow.

The United State government is essentially insolventIn other words, the U.S. government is essentially insolvent.  All they have is a virtually unlimited credit line…until they don’t.

Would you rent to someone who’s broke…who’s co-signed by someone who’s broke…who’s backed by someone who’s broke and only able to pay their bills using their credit card?

No wonder the U.S. government buried a bail-in provision in the Dodd-Frank legislation which took effect in January 2014.

Why would the U.S. government give the banks the power to take your deposits if they fail…unless they think there was a chance they would need it?

So “money in the bank” doesn’t have the same level of safety as it once did.

Most people are sadly ignorant of the risk.  And even if you are aware, what do you do about it?

We went looking for an answer…and found a concept called private banking.

So if you’re a mid-size real estate mogul with more than $250,000 in cash sitting in the bank at any one time, you’ve got a risk you should think about mitigating….because if you’re holding your tenants’ deposits in a bank that fails beyond the FDIC’s ability to cover you, YOU still owe the money to the tenants.

In other words, YOU have effectively co-signed for the bank.  Make sense?

But don’t panic.

Private banking allows you to store cash where it’s backed by much stronger balance sheets.

But what about another major concern about keeping a lot of cash in the bank, which is…

Low Yield

While low interest rates are fun as a borrower, low interest rates are terrible if you have a lot of cash on hand.Low yields on cash deposits is a real challenge for savers

It takes time and effort to manage the cash, and today you can’t even count on the interest income to help offset the expenses.

Worse, you’re taking risks as we previously described, but not getting paid any compensation for it.

Plus, someone else (the bank) is getting the use of your money, on which they profit, and you don’t get compensated for that either.

It’s a racket.  And you’re on the wrong end of it.

That’s why we always try to keep our cash invested and moving.  But when you MUST hold cash, it can be frustrating.


What if there were a way to put your cash in a place outside the banking system, where it is guaranteed by much stronger balance sheets than the banks…AND you could get a credit line to access it whenever you wanted?

And what if that “account” pays you interest at DOUBLE the rate of the banks when you aren’t using it, but charges you a net effective rate of ZERO to borrow whenever you need it?  And you don’t have to qualify!

And what if the loan doesn’t show up on any of your credit reports or affect your credit in any way…even if you decide not to pay it back?

That’s the way private banking with properly structured insurance contracts work.  It’s amazing.

But it gets better…


Privacy, or lack thereof, is a growing concern for many investors…real estate and otherwise.

Financial privacy is a growing concern for many investorsBetween the government, treasure hunting lawyers, creditors and identity thieves, there are lots of people out there looking for piles of cash to get their hands on.  And banks are the obvious place to look.

What many folks don’t realize, is that because banks are all part of a system that is computerized, centrally managed and carefully indexed, it’s pretty easy for people to find everything you have…in that system.

The obvious answer is to find a way OUT of the system.  And if you can do it, while IMPROVING your safety and yield, all the better!

Insurance contracts are private agreements between private parties.

They aren’t part of the banking system.  So insurance equity doesn’t show up in asset searches…unless you lose a lawsuit and are compelled by the court to disclose it.

But even then, the asset itself is very difficult for a creditor or government agency to seize.

So not only are the contracts private, but the equity is extremely hard to reach for anyone…except you.

Of course, we’re just real estate guys.  We’re not insurance, legal or tax advisors.  So you should check with your own advisors before doing anything.

We just get excited when we see something that can solve so many problems in just one product.

So listen in to this episode as we talk with our good friend Patrick Donohoe about the amazing concept of private banking.

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6/19/11: Be Your Own Bank – Cash Management Strategies for Real Estate Investors

Being a real estate investor means handling a lot of cash. It may not seem that way, especially at first, but think about it.  There’s the float on the cash flowing through your bank account.  Then there’s the cash you maintain and build up to handle contingencies and long term maintenance.  You have deposits you collect and hold for tenants.  Let’s not forget about the growing “Opportunity Fund” you’re stockpiling until the next great deal comes long.  And when you sell or refinance, there may be a BIG pile of cash flowing through your account on it’s way to its next mission.

Oh yeah.  You’re rolling in the dough.

“But,” you say, “all that money’s spoken for.  I just have to sit on it until I’m ready to use it – even though it isn’t earning squat.  I can’t afford to do anything risky with it!”

We feel your frustration.  But what if we told you there’s a way to have your cake and eat it too?  Would you be interested?  We thought so.

In the studio to cook up some new cash management recipes to tantalize your taste buds:

  • Host and Chief Taste Tester, Robert Helms
  • Co-host and Spoon Licking Specialist, Russell Gray
  • Special Guest, Master Financial Chef, Patrick Donohoe

Okay, after a tease like that, you might be worried this episode is all cake and no ice cream, but you’d be wrong.  We have cake, icing, ice cream and sprinkles.  You get it all.  Maybe even a candle or two to light a fire under you.

So what’s the deal?

Simply put, our guest Patrick Donohoe has opened up our eyes and minds to a completely unorthodox way to manage cash.  Only it isn’t some wacko unproven idea.  It’s something that the biggest cash managers on the planet, like Bank of America, Wells Fargo and J.P. Morgan Chase have been doing for years.  And it’s something we would have never thought of without Patrick’s help.

Without giving away the story, here’s the idea:  There’s a financial vehicle out there that enjoys very favorable tax treatment by virtue of being attached to another very old and time tested financial vehicle (hint: it’s not a bank account).

It works kind of like a line of credit secured by a property.  Remember those?  You could borrow against your equity at a low rate, use the money for whatever you wanted, then put it back whenever you wanted.  And then you could take it back out again, anytime you wanted, without prior approval.  Ahhh, those were the good old days!  (hint: it’s not a mortgage).

But as much as we liked those old HELOC (Home Equity Lines of Credit), they had some pesky side effects we just thought we had to live with:

  • You had to qualify to get them set up.  If you had bad credit and no income, you couldn’t get one.  How unfair.
  • The credit line could be shut off at any time for any reason.  Even if something minor happened, (you know, like the market crashing and all the equity disappearing), the bank would simply reduce or completely cancel the line of credit.  How rude!
  • You had to make payments.  What?!  That’s so inconvenient.
  • If you didn’t make the payments, the lender might actually foreclose on your property – even if you were still living in it.  Now that’s REALLY inconvenient. And rude.

Enough about those old crappy HELOCS.  Who needs them anyway?

Wouldn't it be nice to have you cake and eat it too?

What if you could have a system, where you took all the cash you’re sitting on for various purposes, and you dumped it (neatly) into an “account” where you could earn a much better return than at the local bank (like 3 or 4 times more); AND you could immediately borrow it back out and pay LESS than what it’s earning.

Yes, you heard right (if you verbalize words when you read).  You can get POSITIVE arbitrage when getting a secured loan.  Then you could take the loan proceeds and use the funds for their intended purpose, leaving the positive arbitrage working for you.  That’s like having your cake and eating it too.

Suffering from a little brain freeze?  That’s what happens when you try to gulp the ice cream.  You need to take it slowly.

Here’s a suggestion:  Listen to this episode, maybe 3 or 4 times.  With a notebook.  Make a list of questions.  Think of all the really cool things you could do with an account like this.  Then, if (when) you still have questions, contract Patrick.  He has additional educational resources to help you loosen your brain belt.  That’s what you need to do when you eat a lot of cake.

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8/22/10: What is Your Risk Paradigm? A Life or Debt Decision

Protecting your money in today’s highly uncertain economy is surely very challenging. Remember when real estate equity and bank accounts were considered among the SAFEST places to keep your savings?  Today, real estate equity has disappeared – and for many people even getting access to whatever equity they still have is next to impossible.  Boy, do we miss those equity lines of credit with their checkbooks and debit cards!

And even though you can still write checks on your cash deposits at a bank, with record bank failures even that old saying “sure as money in the bank” seems a little outdated.  Add horribly low interest rates and, to compound the injury, taxes on your meager interest earnings, it’s enough to make you wonder what this financial world is coming to.

Well, we have good news. There’s a new way to look at an old product – one that is time tested and has survived its fair share of economic turmoil.  And we got such a positive response to our first foray into this topic, we decided to re-visit it with a new guest.

In the radio lifeboat for another voyage into broadcasting brilliance:

  • Host and head lifeguard, Robert Helms
  • Co-host and lifeboat inflater, Russell Gray
  • Seasoned sailer of stormy economic seas, the Godfather of Real Estate, Bob Helms
  • Special guest, “infinite banking” expert, Patrick Donohoe

Right out of the gate we need to set the table, which is no small task with the lifeboat bobbing on the waves:  what does life insurance have to do with real estate investing?

Think about what a bank account has to do with real estate investing and you’re on the right track.  But unlike a bank account, our guest explains that certain types of life insurance – thought greatly misunderstood – offer far greater flexibility than bank accounts.  And though they aren’t FDIC insured, insurance companies are arguably more stable and conservatively run.  Unlike banks right now, you don’t hear a lot about record number of life insurance companies failing.

We also address why so many CONSUMER financial gurus are down on cash value life insurance, yet corporations like Wells Fargo and Wal-Mart buy tons of it.  Could it be there are BUSINESS purposes that make it very useful for BUSINESS people?  We say all the time that real estate investing is a business, so it makes good sense to see how businesses are using this financial tool.

For example, how’d you like you to take a tax deduction for making a deposit in your bank account?  Hmmm….that’s an interesting concept!  What about getting a loan against your equity without having to qualify?  Try doing that with a property!  And unlike property, the value isn’t determined by market forces, so your equity doesn’t disappear in a market downturn.

The point of this episode is that insurance can do a lot more than manage risk and pay a benefit. Our job is to expose you to some of the possibilities.  Your mission, should you choose to accept it, is to explore those possibilities, learn how to use this powerful tool, and decide when and where to use it to advance your real estate investing program.  It seems the economic storm isn’t over yet, so it might be a good idea to know how to operate the lifeboat.  It’s a matter of life and debt.

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The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources that help real estate investors succeed.

3/14/10: Hedging Your Real Estate Bets with Life Insurance

Are you kidding?!?  Life insurance?  What does life insurance have to do with real estate – and how can it help a real estate investor succeed?  Good questions!  So we turned to one of the foremost experts on the creative uses of life insurance and learned how to add another powerful financial tool to our investor’s tool box. Check it out!

Backing the hearse up to the studio doors:
•    Chief Undertaker and Show Host, Robert Helms
•    Pallbearer for Hire and Co-Host, Russell Gray
•    Hearse Driver and “The Godfather of Real Estate”, Bob Helms
•    Non-traditional Financial Planner, Kim Butler

Let’s face it.  Most people would cross the street to avoid a life insurance salesman.  Who wants to spend a bunch of time talking about dying?  Worse, who wants to spend money on a product you hope you never use – and when you do, all the benefits go to someone else? Yuck!

That’s what we thought until we met Kim Butler.  Kim calls herself a “non-traditional” financial planner, which had us liking her right away.  If “traditional” means turning your money over to the Wall Street Wizards to play with, we’re not fans.  So we’re very interested in what Kim has to say.

Kim teaches what she calls “Prosperity Economics” and what it means to real estate investors.  Sitting here wallowing in the Great Recession, “Prosperity Economics” sounds pretty good!

The first thing Kim tells us is that life insurance “done right” means benefits to the LIVING! What a great concept!  She says rather than waiting to die to “enjoy” (we use the term loosely) the benefits of life insurance, she explains how life insurance is a powerful financial tool in the here and now. We like it.

One of our FAVORITE parts of the discussion is when Kim reveals how one particular type of life insurance has amazing similarities to real estate as a financial tool.  Even better, she tells us how savvy investors actually use life insurance not as an investment, but as a cash management tool.  Very interesting!

We came away with pages of notes – and are still hungry for more!  Look for a follow up show on this intriguing topic in the near future.

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