How To Own An Asset and Become Your Own Banker

Doug Andrew, a financial strategist and retirement planning specialist with over five decades of experience, and someone I have followed for over fifteen years, explains in the following video why he typically does not pay cash for assets, and nor should you and I. He cites four main reasons for this decision, including the importance of maintaining liquidity, ensuring safety, earning a rate of return, and taking advantage of tax benefits.

https://youtu.be/UYyjl5nodXE?si=tpy0zgrpdGNRxlGl

Doug explains in this video how to become your own banker and that maintaining liquidity is crucial in ensuring financial flexibility in the face of unexpected events such as recessions or pandemics. When assets are paid off, they can be difficult to access when needed, and borrowing against them can be challenging.

Safety is also a significant concern, as assets can lose value during tough times, leading to financial difficulties. Earning a rate of return and taking advantage of tax benefits can further sweeten the deal and make asset management more profitable. In the following sections, we will delve deeper into each of these four reasons.

Key Takeaways

• Pulling money out of investment accounts to purchase assets can be costly.
• Doug Andrew cites four main reasons for not paying cash for assets: maintaining liquidity, ensuring safety, earning a rate of return, and taking advantage of tax benefits.
• Each of these reasons plays a crucial role in effective asset management.

Understanding the Concept of Pulling Money Out of Investment Accounts

Pulling money out of investment accounts to purchase an asset is a dynamic concept that many people do not fully understand. Doug Andrew, a financial strategist and retirement planning specialist, explains why he usually does not pay cash for assets and instead teaches people how to become their own banker to make money and utilize the three miracles of wealth accumulation: compound interest, tax-free accumulation, and safe positive leverage.

There are four big reasons why Andrew does not pay cash for assets. The first reason is to maintain liquidity. If money is tied up in paid-off assets, it can be difficult to access in times of cash flow crunches or unexpected situations such as recessions or pandemics. Borrowing against an asset can be challenging when the money is needed the most. Banks and credit unions often loan money based on the ability to repay, and borrowing may not be possible if the borrower cannot repay the loan. As a result, the asset may need to be sold at a lower value than it was at one point.

The second reason is safety. During tough times, assets like real estate, machinery, equipment, or automobiles can go down in value. Real estate, for example, can take a 30-40% hit during a recession. If a lot of money is tied up in an asset, it can be challenging to access it because banks may not loan money based on the appraised value of the asset. Instead, they may loan money based on the ability to repay, which may not be possible during tough times. Andrew’s strategy of separating his money from his assets allows him to maintain control and safety of his money.

The third reason is earning a rate of return. By separating his money from his assets, Andrew can earn a rate of return on his money while still having access to it. For example, he may borrow money at a net cost of 4% and earn a rate of return of 8-9%. This allows him to be in control of his money and make double or triple the rate of return over the cost of the funds. Sending extra principal payments against a mortgage may not be the best strategy because it gives up liquidity, safety, and earning a rate of return.

The fourth reason Andrew separates his money from his assets is for tax advantages. Interest on most assets, whether it’s a business asset or personal rental real estate, is tax-deductible. Borrowing against an asset at a lower interest rate and using the tax benefits can sweeten the rate of return.

Overall, understanding the cost of pulling money out of investment accounts to purchase an asset is crucial. Maintaining liquidity, safety, earning a rate of return, and tax advantages are all important factors to consider when deciding whether to pay cash for an asset or separate money from assets.

The Four Reasons He Does Not Pay Cash for Assets

Doug Andrew, a financial strategist and retirement planning specialist, explains why he usually does not pay cash for assets. There are four main reasons why he follows this approach.

1. Maintaining Liquidity: Doug Andrew believes that maintaining liquidity is crucial. He has learned this lesson the hard way and understands that when assets are paid off, they become illiquid. In case of a cash flow crunch, disability, unemployment, or any other unexpected situation, it becomes challenging to access the money tied up in paid-off assets. Banks and credit unions do not loan money based on the appraised value of the asset but on the ability to repay. This makes it difficult to borrow money when it is needed the most. Therefore, Doug Andrew prefers to keep his money liquid and not tied up in assets.
2. Ensuring Safety: Doug Andrew believes that assets, including real estate, machinery, equipment, and automobiles, can go down in value during recessions or tough times. If an individual has invested all their money in an asset, they might face difficulties meeting the mortgage payment during a market downturn. Doug Andrew prefers to keep his money safe by not investing all his money in an asset. He borrows against the equity of the asset and keeps his money separate.
3. Earning a Rate of Return: Doug Andrew believes that investing all the money in an asset does not give a good rate of return. By separating his money, he can earn a rate of return on his investment. He borrows against the equity of the asset and invests the money in other investments that provide a good rate of return. This way, he can earn a rate of return on his investment, which is more than the cost of borrowing.
4. Tax Advantages: Doug Andrew believes that separating his money gives him tax advantages. He can deduct the interest paid on the borrowed money from his taxes, which lowers the net cost of borrowing. This makes his rate of return even better.

In summary, Doug Andrew prefers to keep his money liquid, safe, and separate to earn a good rate of return and to take advantage of tax benefits.

The Three Miracles of Wealth Accumulation

Doug Andrew, a financial strategist and retirement planning specialist, teaches people how to become their own banker and utilize the three miracles of wealth accumulation: compound interest, tax-free accumulation, and safe positive leverage.

Safe positive leverage is the ability to own and control assets with very little or none of your money tied up or at risk in that asset. This concept may be difficult for some Americans to understand, but it can be a powerful tool for wealth accumulation.

There are four big reasons why Doug Andrew does not pay cash for assets when acquiring them.

• The first reason is to maintain liquidity. When an asset is paid off and tied up in it, it can be difficult to access the money when it is needed the most. Borrowing against the asset can be challenging, and selling it in a soft market can result in a loss of value.

• The second reason is safety. During recessions or tough times, assets can go down in value, which can result in a loss of money. By keeping money separated from assets, Doug Andrew is able to protect his principal and maintain control over his finances.

• The third reason is earning a rate of return. By utilizing safe positive leverage, Doug Andrew is able to earn a rate of return that is higher than the cost of borrowing. This allows him to make money while still maintaining control over his assets.

• The fourth reason is tax advantages. By borrowing against assets, Doug Andrew is able to deduct the interest on his taxes, which can sweeten the rate of return even further.

Overall, the three miracles of wealth accumulation can be a powerful tool for those looking to optimize their assets, minimize taxes, and empower their authentic wealth.

Understanding Opportunity Cost

Opportunity cost is the cost of pulling money out of investment accounts to purchase an asset. It is a dynamic concept that many people do not understand. Doug Andrew, a financial strategist and retirement planning specialist, teaches people how to become their own banker to make money and utilize the three miracles of wealth accumulation: compound interest, tax-free accumulation, and safe positive leverage. Safe positive leverage is the ability to own and control assets with very little or none of your money tied up or at risk in that asset.

Doug Andrew does not pay cash for assets for four big reasons. The first reason is to maintain liquidity. Liquidity is important because it gives you the ability to access money when you need it. If your money is tied up in paid-off assets and you need money, you may have to borrow against it or sell the asset in a soft market for less than its value.

The second reason is safety. Assets such as real estate, machinery, equipment, or automobiles can go down in value during recessions or tough times. If you have a lot of money tied up in an asset, you may not have the ability to access it because banks will not loan you the money.

The third reason is earning a rate of return. If you have all your money tied up in equity in a property, you will not be able to earn a rate of return. By keeping your money separated, you can earn a rate of return.

The fourth reason is for tax advantages. Interest on most assets is tax-deductible, which sweetens the rate of return. By borrowing out of a home at 4.5% interest on a first mortgage, you are paying 4.5% but that’s tax-deductible, and in a 33% bracket, it’s only a net cost of 3%.

Overall, understanding opportunity cost is important in making financial decisions. It is important to maintain liquidity, safety, and earning a rate of return while also taking advantage of tax benefits.

The Importance of Maintaining Liquidity

Maintaining liquidity is crucial when it comes to acquiring assets. The ability to access cash quickly is essential in times of financial hardship, such as during a recession or pandemic. Doug Andrew, a financial strategist and retirement planning specialist, emphasizes the importance of liquidity as one of the four big reasons why he does not pay cash for assets.

Having liquidity means that an individual has access to cash without having to borrow against their assets or sell them at a loss. This is especially important when an individual faces unexpected financial difficulties, such as a cash flow crunch or unemployment. Borrowing against an asset can be difficult when an individual needs the money the most, as banks and credit unions often base loan approvals on the ability to repay, which may not be feasible in times of financial hardship.

Furthermore, owning an asset outright can be risky, as the asset may lose value during a recession or tough economic times. This is especially true for assets such as real estate, which can experience a significant drop in value during a recession. By maintaining liquidity, an individual can protect their assets and avoid losing money when the value of their assets decreases.

In addition to protecting assets and providing access to cash, maintaining liquidity can also provide a rate of return and tax benefits. By not tying up all of their money in an asset, an individual can earn a rate of return on their cash while still maintaining liquidity. Additionally, borrowing against an asset can provide tax benefits, as the interest paid on the loan may be tax-deductible.

Overall, maintaining liquidity is essential for individuals looking to acquire assets. It provides access to cash in times of financial hardship, protects assets from losing value, and can provide a rate of return and tax benefits. By keeping cash separate from assets, individuals can optimize their financial strategies and empower their authentic wealth.

The Role of Safety in Asset Management

Doug Andrew, a financial strategist and retirement planning specialist, emphasizes the importance of maintaining liquidity and safety when managing assets. He advises against paying cash for assets and instead utilizes safe positive leverage to own and control assets with little or no money tied up or at risk in the asset.

There are four main reasons why Doug Andrew prefers to maintain liquidity and safety when managing assets. Firstly, maintaining liquidity ensures that individuals have access to their money when they need it. This is especially important during tough times, such as recessions or pandemics, where cash flow crunches can occur. Borrowing against assets or selling them in a soft market can be difficult and result in a loss of value.

Secondly, safety is crucial when managing assets. Assets such as real estate, machinery, equipment, or automobiles can decrease in value during tough times. For example, commercial real estate took a hit during the COVID-19 pandemic. If an individual has all their money tied up in an asset, they may not have the ability to access it during tough times. Doug Andrew advises keeping money separated from assets to ensure safety of principal.

Thirdly, earning a rate of return is important when managing assets. By utilizing safe positive leverage, individuals can earn a rate of return on their assets. For example, Doug Andrew was earning a rate of return of 8-10% while paying a net cost of 3-4% on his borrowed funds. By earning a rate of return, individuals can compound their money and pay off their assets faster.

Lastly, tax advantages can sweeten the rate of return when managing assets. Interest on most business assets or personal rental real estate is tax-deductible, resulting in a lower net cost. By utilizing tax advantages, individuals can increase their rate of return even further.

In summary, maintaining liquidity, safety, earning a rate of return, and utilizing tax advantages are crucial when managing assets. By utilizing safe positive leverage, individuals can optimize their assets, minimize taxes, and empower their authentic wealth.

Earning a Rate of Return

When acquiring assets, it is not always advisable to pay cash upfront. Doug Andrew, a financial strategist and retirement planning specialist, suggests that there are four big reasons for this. One of these reasons is to maintain liquidity. When an asset is paid off, it ties up all the money in that asset, which can be problematic during a cash flow crunch. If money is needed, the only way to get it is to borrow against the asset or sell it. However, borrowing against an asset can be difficult when it is needed the most, and selling it during a soft market can result in less than the asset’s value.

The second reason to avoid paying cash for assets is safety. During recessions or tough times, assets such as real estate, machinery, and equipment can decrease in value. If a significant amount of money is tied up in these assets, it can be challenging to access it when needed. For instance, if all the positive rental cash flow is sent against the mortgage for years, and then there are 30 to 40 percent vacancies, it can be difficult to meet the mortgage payment even though extra principal payments have been made. This is because banks do not loan money based on the appraised value of an asset but on the ability to repay.

The third reason is earning a rate of return. By not tying up all the money in an asset, one can earn a rate of return. For instance, if an individual borrows money at a net cost of four percent and earns eight percent, they are making a 100 percent rate of return on that money. By keeping the money separated, the individual can earn a rate of return while maintaining liquidity and safety.

The fourth reason is tax advantages. By borrowing against an asset, an individual can deduct the interest on their taxes. This makes the rate of return even better since the net cost of borrowing is lower due to the tax benefits.

In conclusion, paying cash for assets may not always be the best option. Maintaining liquidity, safety, earning a rate of return, and tax advantages are four reasons why one should consider borrowing against an asset instead of paying cash upfront.

The Tax Advantages of Asset Management

When acquiring assets, it is recommended to avoid paying cash for them. There are four main reasons for this, as explained by Doug Andrew, a financial strategist and retirement planning specialist.

The first reason is to maintain liquidity. Having assets paid off and tied up in them may cause trouble during recessions or cash flow crunches. In such situations, borrowing against the asset or selling it may be the only options, which can lead to losses. Therefore, maintaining liquidity is crucial.

The second reason is safety. Assets may go down in value during recessions or tough times, causing losses. By keeping assets separated from one another, individuals can protect their money from such losses.

The third reason is earning a rate of return. By keeping assets separated, individuals can earn a rate of return on their money, even during tough times. This is because their money is not tied up in the asset, and they can use it for other investments.

The fourth reason is tax advantages. Interest paid on most assets, whether they are business assets or personal rental real estate, is tax-deductible. This can sweeten the rate of return and make it even better.

By keeping these reasons in mind and avoiding paying cash for assets, individuals can optimize their assets, minimize taxes, and empower their authentic wealth.

The Impact of Recessions on Asset Value

During a recession, assets such as real estate, machinery, equipment, and automobiles can go down in value. For instance, commercial real estate took a 30 to 40 percent hit after the COVID-19 pandemic. This decline in asset value can be problematic for those who have a lot of their money tied up in these assets.

To avoid this problem, it is recommended to keep assets separate from the money used to purchase them. This means not pulling money out of investment accounts to purchase an asset, whether it is an appreciating asset like a home or a depreciating asset like a car.

There are four big reasons why it is not recommended to pay cash for an asset. The first reason is to maintain liquidity. When an asset is paid off, and all of a sudden, there is a cash flow crunch, it can be challenging to get money out of the asset. Borrowing against the asset is one way to get money, but it is difficult to qualify for a loan when you need it the most.

The second reason is safety. When assets go down in value, it can be challenging to access the equity tied up in them. If all of your positive rental cash flow has been sent against the mortgages for years, and all of a sudden, there are 30 to 40 percent vacancies, it can be difficult to meet the mortgage payment. By keeping assets separate from the money used to purchase them, the safety of the principal is protected.

The third reason is to earn a rate of return. By keeping assets separate from the money used to purchase them, it is possible to earn a rate of return. For instance, if you are earning 8 percent and paying a net of 4 percent, you are making a 100 percent rate of return on the last 400,000 dollars.

The fourth reason is for the tax advantages. Interest on most assets is tax-deductible, which makes the rate of return even better. By borrowing out of a home at 4.5 percent interest on a first mortgage, it is possible to pay a net cost of 3 percent.

Overall, it is recommended to keep assets separate from the money used to purchase them to maintain liquidity, safety, earn a rate of return, and take advantage of tax benefits. This can help mitigate the impact of recessions on asset value.

The Role of Banks and Credit Unions in Asset Liquidity

Maintaining liquidity is one of the primary reasons why financial strategist and retirement planning specialist Doug Andrew recommends not paying cash for assets. When an asset is paid off, it becomes difficult to access the money tied up in it during cash flow crunches or tough times. Banks and credit unions usually do not loan money based on the appraised value of the asset but on the ability to repay, which can make borrowing or selling the asset difficult when you need the money the most.

Safety is another crucial factor in keeping assets separate from your investment accounts. Assets such as real estate, machinery, equipment, and automobiles can go down in value during recessions or tough times. If you have a lot of money tied up in an asset, you may have a hard time accessing it when you need it the most. However, if you keep your money separate, you can access it without losing your principal.

Earning a rate of return is also essential when it comes to asset liquidity. By keeping your money separate, you can earn a rate of return on your assets while paying a lower net cost. This can help you pay off your home faster and provide you with more financial control.

Finally, tax advantages are another reason why keeping assets separate is beneficial. Interest on most assets, such as business assets or personal rental real estate, is tax-deductible. This can sweeten the rate of return and make it more profitable for you.

In summary, banks and credit unions play a crucial role in asset liquidity. By keeping your assets separate from your investment accounts, you can maintain liquidity, safety, earn a rate of return, and take advantage of tax benefits.

The Advantages of Separating Assets and Cash

Doug Andrew, a financial strategist and retirement planning specialist, recommends separating assets and cash for four big reasons.

Firstly, maintaining liquidity is crucial. If all of your money is tied up in paid-off assets and you encounter a cash flow crunch, you may have to borrow against the asset or sell it to get the money you need. Banks and credit unions may not loan you money based on the appraised value of the asset, but rather on your ability to repay the loan. This may be difficult if you are already struggling financially. By keeping assets and cash separate, you can maintain liquidity and avoid being forced into a situation where you have to borrow or sell.

Secondly, separating assets and cash provides safety. During recessions or tough times, assets such as real estate, machinery, equipment, and automobiles can decrease in value. If all of your money is tied up in these assets, you may not have the ability to access it when you need it most. By separating assets and cash, you can protect your principal and ensure that your money is safe.

Thirdly, separating assets and cash allows you to earn a rate of return. By utilizing safe positive leverage, you can own and control assets with very little or none of your money tied up or at risk in that asset. This enables you to earn a rate of return on your investment while maintaining liquidity and safety.

Finally, separating assets and cash provides tax advantages. By borrowing against assets, you can deduct the interest from your taxes, which sweetens the rate of return and makes it even better.

Overall, separating assets and cash can provide numerous advantages, including maintaining liquidity, providing safety, earning a rate of return, and providing tax benefits. By utilizing safe positive leverage and keeping assets and cash separate, individuals can optimize their assets, minimize taxes, and empower their authentic wealth.

The Importance of Control in Asset Management

In asset management, control is a crucial aspect that helps individuals to optimize their assets, minimize taxes, and empower their authentic wealth. The ability to own and control assets with little or no money tied up or at risk in that asset is referred to as safe positive leverage. It is one of the reasons why individuals are taught how money works and the actual cost of pulling money out of investment accounts to purchase an asset.

Here are the four big reasons why one should not pay cash for an asset:

1. Maintain Liquidity: Liquidity is crucial in asset management. When an asset is paid off, and a cash flow crunch occurs, it may be challenging to borrow against it or sell it. Most banks and credit unions do not loan money based on the asset’s appraised value, but rather on the ability to repay the loan. Therefore, individuals are forced to sell their assets in a soft market for less than the value it was at one point. To avoid this, individuals should maintain liquidity by not paying cash for property.
2. Safety: In recessions or tough times, assets such as real estate, machinery, equipment, or automobiles can go down in value. If an individual takes all the positive rental cash flow and sends it against the mortgage for years, they may have a hard time meeting the mortgage payment when the asset goes down in value. To avoid this, individuals should separate their money to ensure safety when their assets go down in value.
3. Earning a Rate of Return: By not tying up all their money in equity in a property, individuals can earn a rate of return by borrowing against their assets. This way, they can earn a rate of return of double or triple the cost of the funds. This is because they are in control and earning a rate of return, making their money work for them.
4. Tax Advantages: By borrowing against their assets, individuals can enjoy tax benefits. The interest on most assets, whether it’s a business asset or personal rental real estate, is tax-deductible. Therefore, individuals can enjoy tax advantages that sweeten the rate of return.

In conclusion, control is essential in asset management. By maintaining liquidity, ensuring safety, earning a rate of return, and enjoying tax advantages, individuals can optimize their assets, minimize taxes, and empower their authentic wealth.