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episode # 298

An Infinite Bank for Real Estate with Darren Mitchell

What are financial rules that the wealthy ignore? Here’s a hint: stop following the herd and put that hard earned cheddar to work! This week, financial guru & best-selling author, Darren Mitchell, joins Matt & Adam to discuss creative wealth building strategies while taking control of the compound (interest, that is). How can you super charge your real estate portfolio? How can you get multiple returns on each dollar? And how can you, too, have an infinite bank for real estate investing? This one will be sure to put your financial horses into overdrive. Giddy up!

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Episode Summary


Please tell us about yourself.

I have lived in several places in Canada but am back home now on the east coast. I worked in traditional financial advising until 2008 when everything changed. I realized I wasn’t in control of my clients’ money and not in control of my money, so something had to give. I went on an education crusade to learn how wealthy people make and keep money. I paid for education to learn how to do things differently so 2008 wouldn’t happen again. 

What do most average Canadians get wrong when it comes to wealth building?

90% of the wealth is in the hands of 10% of Canadians. But we typically follow the other 90%. What the wealthy have figured out is if you want to be rich, you have to do what rich people do. Rich people invest in themselves – you are your greatest asset. Learn a skill that is valuable to somebody. 

90% of the millionaires and billionaires invest in real estate. You have to be in control of your money. There’s nothing wrong with RRSPs and the stock market, but that’s not where your greatest chance of wealth will come from.

Why real estate?

One thing I love about real estate is that a dollar can have many different jobs; you can have appreciation, cash flow, tenants paying off your mortgage, value add with renovation, leverage, and much more. In the stock market, your dollar can only do one job. That’s why people see huge returns in real estate because their dollar is doing five or six jobs. 

What do you tell people who are established in their lives or jobs and don’t have a lot of time or money?

Investing in yourself doesn’t have to cost money. You can start by listening to podcasts or watching YouTube videos by real estate investors. Once you find a strategy that works for you, you’ll get excited and find the time to learn more. If you want to get ahead, real estate is one of the time-tested ways to do that. You don’t have to recreate the wheel; just copy what the rich people do! 

How do we figure out what the wealthy are doing?

My area of expertise is to help people implement infinite banking high cash value life insurance as part of their financial plan. The foundation of your financial plan needs to be bulletproof – and to me, this policy is bulletproof. That’s your opportunity or emergency fund. It gives you control of your money to take action. 

Let’s unpack this strategy. What is a cash value life insurance policy and how does it work?

99% of life insurance policies in Canada start with a death benefit. With an infinite banking policy, we’re doing the other extreme. We focus on the cash. Long term, you’re growing your cash 3.5-5% tax free. You can borrow 90% of your cash value and the money inside your account isn’t affected. So you’re saving for retirement and also using the cash to invest or deal with emergencies. When you can access the money and save at the same time, you can save for the long term and have funds in the short term.

So you can save funds tax-free and borrow 90% of the value to invest in something else. Is the idea that you focus on this policy instead of a TFSA or RRSP? How much do you have to contribute? What would you tell a 25 year old wanting to get started with this?

I wouldn’t say forgo the RRSP, especially if you have a matching plan at work. Definitely jump on board with that. But it all depends on what you’re trying to accomplish. If you want to be wealthy and grow in real estate, cash value life insurance is the way to do it. $500 is kind of the minimum to make your account large enough to grow so you can use it. 

With the RRSP, it’s very hard to get money out of it. A TFSA is easier to access, but I call it an “or asset.” You can either contribute to your TFSA or buy real estate. With a cash value policy, it’s an “and asset.” You can save money and buy real estate or whatever your and opportunity happens to be. 

People must be wondering why this isn’t talked about more. Is it a secret?

It’s not a secret. Wealthy people have been using this strategy for a long time. But most large financial institutions, like banks or mutual funds, don’t want you to be in control of your money. Banks can’t sell life insurance so of course they’d prefer you invest with them for the rest of your life. That way, the bank is in control of your money. If you want to be in control of your money and take advantage of opportunities that come along, cash value is a way to do that. 

Is this the core idea of how to “Be the Bank” like you say in your first book?

Absolutely. There’s one chapter on real estate in that book. As I grow my business, 80% of the people I work with now are real estate investors. The strategy works so perfectly for real estate investors, so that was the impetus for the second book. I could see how real estate investors were successfully using this strategy and I wanted to share that information. 

So you get started with the cash value life insurance policy, contribute to it over the span of your life and at the same time, you’re borrowing against the funds to grow wealth through real estate. When it comes to retirement, how do you withdraw funds and at what point? 

Over the years you’re borrowing funds to do deals or for emergencies. Let’s say you do that from age 25 to 55. At some point, after having done way more deals that you would’ve been able to otherwise, you then look at your options for retirement. 

One of the options is to take out loans and never pay them back. And I mean never. Because this is still a life insurance policy and the death benefit will always be larger than the cash value. So it’s like you’re spending your own death benefit before you go. If you borrow $800,000 but your death benefit is $2 million, when you die your family will get $1.2 million (your death benefit minus the money loaned). 

For the people who have a regular life insurance policy, would you advise them to revisit their policy and shift to cash value?

Every case is different. I wouldn’t recommend you cancel any existing policy until you meet with one of our wealth coaches. Typically we don’t get rid of those policies initially because you want to ensure your death benefit is large enough. That doesn’t happen on day one but eventually we can look at replacing some of those traditional policies.

You have a section in your book called big wealth destroyers. What are the big wealth destroyers people should be aware of?

There are four big ones and cash value life insurance guards against all of them. The biggest one in Canada is tax. And it’s only going to get bigger, which makes the tax-free cash value life insurance policy so attractive. The other three wealth destroyers are fees, volatility of the stock market, and spending. If you save $20,000 and then spend it all, your compounding goes back to zero. But with cash value, your compound interest continues while you borrow against the policy.  

What are the big risks with a cash value life insurance policy? 

The biggest risk is funding it for a year and then stopping. Year one you will be underwater. Whatever you deposit, you will have less than that in cash value. So if you only put money in for a year and can’t afford to continue, you’re going to lose 30-40% of your money. This can’t be something you fund for just a year; typically we’re looking at funding for 6-8 years or even 10-20+ years. Once you fund it for 2-3 years, you have some breathing room. So you have to be confident you can fund your policy for the first few years. 

You talk about the hierarchy of wealth in your book. Can you tell us more?

It goes back to the basis of your financial plan being a place of control. Step one is the base of your financial plan – it’s the widest part of the triangle. From there you move into investing in yourself, investing in your business and growing real estate. You’re making your money work for you. 

I’m not anti-RRSP or anti-stock market but it doesn’t make sense to me to tell a 30 year old investor they need to give up control of their money. That’s why we start with control at the bottom of the hierarchy. 

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