Listen to the podcast here:
Avoiding The Volatile Market: Where To Put Some Of Your Dollars Away
Rates Of Return
How does the market making you feel? If you got money in the market, are you one of those people who you look at it every day, once a month or once a quarter when your statements come in? The market has been very volatile in the last couple of months. If you’re looking for a place to maybe take some of those dollars out that you don’t want to be volatile and you want to put in a fixed rate of return, a consistent place is going to pay you monthly income or you can compound it. We have a great solution to that problem of volatility. Can you stomach an 8% rate of return per year? Can you stomach 8.5% or 9%? This is a business loan that is secured by Pari Passu Security Interest in the project loan documents perfected via a UCC financing statement in favor of each lender. You become a lender and these perfected liens are created when the lender files a UCC statement with the appropriate authority, usually the Office of the Secretary of State and the statement specifies the collateral, which secures the loan and gives a lender precedent in the collection process if the borrower defaults.
You’re lending your money. Yes, there’s risk involved. There’s risk involved in everything but this is a great place, in my opinion, to carve out to be a piece of the pie of your portfolio. If you’re looking for a place to get monthly cashflow that does not dip into the principal this is it. It’s one-year simple interest of 8% and two years is at 8.5%. You lock your money up for three years and get 9%, divided it up over twelve months. For number’s sake, say you put a $150,000 into the one-year note, 8% of one year is $12,000. 8% of $150,000 is $12,000 a year, $1,000 a month. If you do it for two years and get 8.5%, that’d be $25,500 over the two years. The three-year and 9% would be $40,500 over the three years total.
There’s a place where you can put $150,000 in and receive $40,500 over three years. That’s going to be roughly around $3,375 a month, every month for three years. At the end of the 36 months, you receive your principal back, your basis. It’s not bad. Not a home run I understand. In terms of my house, as we refer to everything in life, baseball and softball is a solid double, sustaining double. I like being liquid. I like having access to my cash and a lot of people will put $50,000 in a note and then do a $50,000 six months later. Every six months, they have it maturing and you can decide then, “I don’t want to renew it. Give him the $50,000,” and you still have another $50,000 earning 8%. If you don’t want the monthly cashflow, they reward you with a little bit higher interest and compounding interest. One year when you’re compounding is 8.3%, put your money for $50,000 for one year, you sit and do nothing. At the end of the year, you get your $50,000 back plus $4,149.
Show me another place to put money. There are some out there but they’re not available to everyone. Show me another place where you can lock money up for one, two or three years and you know exactly to the penny what you’re going to get per month or you know exactly to the penny what you’re going to get at the end of the term. There are very few things out there like that. This is a place where we do that and your funds when you lend this company your money, we are acquiring, developing and liquidating mineral assets in proven Texas oil fields, mostly the Permian Basin. It’s an alternative way for your money to make money that is not running through Wall Street. How do you make money on this? I’m a salaried employee. Whether someone invests $50,000 or $250,000, they’ll make the same amount of money per month. Your money’s not getting eaten up in fees because most advisors they’re going to charge you probably 1% fee per year to manage your money. Maybe 1.5% to 2%, maybe a 0.5%. They can charge what they want to charge.
Some of that over the length of time can dip into earnings and it’s very volatile. Again, this is not a place for all your money. This is a place for a portion of what you feel comfortable and it’s an opportunity to be in the oil and gas sector, in the oil and gas industry and looking for a fixed rate of return. The way this is going to be taxed is as ordinary income. This is a great place if you have what I call lazy money, old IRA or 401(k) money laying around, $50,000 is the minimum but it’s a great place to put a portion of that. Again, if you’re looking for cashflow per month each month, there are very few places that I know of where you can put money in, know exactly what you’re going to get per month and then wrap it up and you get twelve, 24 or 36 months.When you lock your money up for too long, you're not liquid and God forbid something happens. Click To Tweet
The rates of return to this are nice and I hadn’t paid taxes on them, but the 8.5% and 9% simple interest, the 8.3%, 9.23% or 10.28% compounding interest, those are nice. I like knowing what I’m going to make and knowing that I’ll be done in one, two or three years if I want to be, I’m going to have that option. If you lock your money up, if you call for an annuity, you’re looking at seven, ten or fourteen years locking your money up. I know it’s safe, but annuities are a bad place to store money. They’re okay if you’re patient enough, whenever you want to turn the income on but be wary of the phantom fake bonus that they offer because sometimes it’s not real money. It’s a gimmick.
This is not annuity but I’m pointing out when you lock your money up for that long, you’re not liquid and God forbid something happens. What does it matter how much money you have? The saying is, “It doesn’t matter much money you have. It matters how much money you have when you need it.” We have some attractive real estate options. We are financing the first ten-unit phase of a 22-unit townhome development at the Northstar Townhomes. I’ve visited and I’ve walked this ground. I have laid eyes on what’s going on there. Northstar is a ski resort. They have a Ritz Carlton up there and I’ve been up there twice, one with my family. We went skiing in 2015 and then I went in the summer of 2018. The beautiful Lake Tahoe is gorgeous up there. A lot of people are fleeing California because of the property taxes. It’s ridiculous. A lot of folks live in Reno, Nevada because the taxes in California are too high.
We also have real estate opportunities. Sierra Rose is financing acquisition and improvement of a 7,000 square foot office building, which is located in Reno, Nevada. This is a little bit longer deal, little bit lower risk, three, four and five-year. In three years, 6.75%, four years at 7.25% and five years at 7.75%. For example, if you put $100,000 in for five years, you’re going to receive $645 a month for five years. That’s a total of $38,750 off your $100,000 for five years without ever going into the principal, the basis. Do you want to compound it? $1,000 on a five-year term compounding. It’s going to be 9.42%. The total interest is going to be $47,145. I know there are probably things out there that people can get higher rates of return on but this is pretty solid as far as looking up there, knowing exactly to the penny how much you can get back and win. This takes the volatility out.
Oil And Gas
If you’re not in real estate, this is a great opportunity to get in real estate. If you’re not in oil and gas, it is the opportunity to get in oil and gas. The income is three years 6.75%, four years 7.25% and five years 7.75% monthly income. On the growth, the compounding on this is three years at 7.45%, four years at 8.38% and five years at 9.42%. This is a little bit longer interests, a little bit longer term than the oil and gas but it’s a little bit lower risk so therefore a little bit lower yield as well. Not everybody understands being a lender but you lend them your money and they are acting like the bank. When people go, “Why does this need my money if they’re doing so well?” “Why does ExxonMobil need your money? Why does ConocoPhillips need your money? Why does Marathon Oil need your money?” “What do you mean?” They’re publicly traded companies.
You can go buy their stock and you become owners of the company right now through the stock. You go put $100,000 in ExxonMobil stock, they’re not going to turn it down. The ExxonMobil stock, I’ve been a little disappointed in that. For some reason, it hovers around $76 to $77 per share. I like it around $90. If they keep it around $90, it’d be nice. I have several ExxonMobil retirees and we often talk about that or I’ll shoot them a text message wishing to get the $90. ConocoPhillips is around $60 a share. I’m keeping my eyes on ConocoPhillips, Marathon and EOG.
There’s a lot of oil and gas activity going on a little bit north of us. I talk about it on the show because it’s something that you should all be paying attention to but also because we have some property up there that we haven’t released yet but EOG has drilled some wells. They finished one in eighteen days. My good friend Mr. Johnson sent me this email that they’re averaging 1,018 feet per day. The ConocoPhillips Erwin #1 was drilled in 46 days. The Hebert #1 took 54 days. EOG, their team has proved excellence once again. Let’s hope that for a standing initial potential and the conventional core that’s being targeted as far as below the Earth’s surface is called the Austin Chalk formation. It can change things up there in Slaughter, Ethel, Wilson and Norwood.
In case, you’re wondering what that is, that’s if you get on Highway 19 and drive north, once you get to Baker or Zachary, you hit Slaughter, Ethel, Wilson and Norwood. My good high school friend, Brendan Klein Peter and I used to talk about that. We go hunting up there and Slaughter, Ethel, Wilson and Norwood, Centerville, Mississippi. There’s lots of activity up there too in the southern parts of Wilkinson and Amite counties, Pointe Coupee Parish, St. Helena, even the northern parts of East Baton Rouge. People have leased their land to these oil companies hoping that they can figure out how to extract this oi. Let me tell you where they’re not hoping. We figured out it’s in the Permian Basin and that’s where the majority of our wells are.
I’m going to talk about that a little bit in the second segment of this show, the amazing tax benefits and the amazing tax advantages for investing your money in oil and gas. There are no tax benefits for putting your money up on the fixed asset side, the fixed rate of return side. The land where you’re lending them your money and they are finding ways. We’re acquiring, developing and liquidating mineral assets in proven Texas oil fields. That’s what you’re lending us your money for and in turn, we pay 8% for one year, 8.5% for two years and 9% for three years on the simple interest yield. On the compounding yield, it’s 8.3% for one year, 9.23% for two years and 10.28% for three years.
There are no tax benefits for that. The gains are taxed ordinary income. There are some major tax advantages and I’m going to talk about that a little bit too in the second portion of the show, the second segment of this alternative finance show, ways for your money to make money that we don’t run it through Wall Street. Wall Street doesn’t touch this money not like Wall Street’s somewhat going to affect the price of oil per barrel. If you’re in the wells, you’re putting your cash in the wells. Oil is a commodity but before we drill, what do we do? We go lease land and we borrow money from lenders and in return, we pay them a nice rate of return. It’s a great place for IRA money. If you have IRA, 401(k) money, SEP money and you are looking for a place to get a good rate of return, you could lock us up for three years and get 10.28% a year for three years and that’s pretty good.
For simple number’s sake, you put $100,000 in for three years, you’re going to receive $30,864 at the end of the 36th month on interest. You receive back your basis, your principal and that’s $100,000. $150,000, you would receive $46,296 at the end of the 36th month. It’s not bad. $50,000 for three years, you receive $15,432 at the end of the 36th month. Your $50,000 is going to make $15,432 in profit is great that you know exactly what you’re going to get at the end of the term. You know that on a CD, but CDs don’t pay much. CDs has more risk. You have to see if you’re comfortable with this and there’s risk involved in everything. Even if they get the FIIC insurance, there’s a risk in that and be aware of that. If you’re truly looking for something different, you can send me an email. Let’s get together for a hot cup of coffee.Government taxation and regulation is the primary risk of making money. Click To Tweet
A Book On The Way
Let’s get into the financial part of this show. I’m in the beginning stages of writing a book and I am collecting several different topics. It’s not going to be about one topic it’s going to be about several parts of the Tax Code that I want people to know. Several parts at the Tax Code that I’m using because I wholeheartedly believe that government taxation and regulation is the primary risk to making money. I believe that. When the government stays out of our lives, we can make this country churn and I’m not saying we don’t need government because we do, we need law and we need enforcers of the law. Our government’s too big. We have too many government employees.
The taxes are absolutely out of control. That gave me the motivation to write the book. It gave me part of my story and part of my why. My mother was a 1970 graduate of Central High School. She worked for Doctor Ialeggio for numerous years as his assistant. She went back to nursing school when I was older, became an RN and worked at several different hospitals. She worked at the Banners General Psych Ward, River West in Plaquemine, Earl K. Long and her last job, she was working at the health unit there in Port Allen where we lived. My dad owned his own business. He and my uncle owned Day Brothers Tire and that was next to the Candlelight Inn in Port Allen.
My dad had a successful tire company. I can remember getting dropped off the school bus after school and my dad was busy. He put a lot of bumpers, winches and full drive accessory kits on trucks back before it got popular. Once Walmart and Sam started selling tires, my dad shut it down. He closed the business down and went to work for some fantastic people like the Lard’s. They owned a tire distributor place out there on Nicholson. He worked there for the last ten years of his life and they were phenomenal people. He used to buy tires from them, and he had a relationship with them before. It was a learning curve because he had to learn how to operate a computer and all that stuff.
Anyway, the whole point of the story is the government forced my parents June and Hollis, the textbook definition of middle-class people to pay into Social Security and Medicare. I can somewhat agree with Medicare, but I am totally against Social Security. In fact, if the government gave me the option to walk away from Social Security saying I would never get anything I’ll put in, but I don’t have to put anything more in starting today. I would sign that because my interpretation of Social Security is this. I believe Uncle Sam, as he takes my Social Security and my wife’s Social Security if he took my parents’ Social Security every paycheck, he’s given us the middle finger. He’s telling us we’re number one because he thinks he can do a better job of managing our money than we can.
Can you believe that? Can you believe a government that is so corrupt that does not even know that it’s clueless on how to balance a budget? A government that cannot get spending under control. A government that year after year, after year, after year spends more money than it takes in is going to tell me they can manage my money better than me. That’s exactly what Social Security is and it’s terrible. My parents got screwed hard on that because they put money in all those years into Medicare and Social security. All those years, the government’s telling them, “June and Hollis, you’re terrible at managing money. We’re going to take money from you.”
My mother died at 54 years of ovarian cancer, four months shy of being eligible to receive Social Security disability. My mother never got a penny from Social Security, not a single penny or Medicare, either one. Where’s the money at? Where’d that money go? How can it be going broke when you have people like that that have put money in and never got a dime? When she passed away, my dad received a $255 check to help cover burial expenses. My dad passed away very unexpectedly seventeen months later. My mother was 54 and my dad was 64. He was nine years older than my mom. He never received a penny from Social Security, not a dime. The government loves people like my mom and dad who died early.
I love all these numbers. I’m a number’s geek and all these statistics. When Social Security started, the average lifespan was 65 years old and you can start receiving Social Security when you’re 62 back when it started. The average lifespan has increased dramatically, and you have a lot of people receiving benefits who never put in. I have found a way to avoid paying taxes on Social Security because there’s a double tax on Social Security. When you put money in the Social Security System, you pay taxes on that money. They double tax you and they call it provisional income. It’s another way to screw us out of more money. It’s another way of taxation.
In the book I’m writing, I’m talking about certain parts of the Tax Code. If you are a business owner and you receive your money from an S Corp, C Corp or LLC, wouldn’t it be pretty cool if you could make contributions into something that’s guaranteed, receive a tax deduction for that full amount, then take the money out tax-free down the road? There’s something out there that exists like that and I learned about it in the last couple of months and still had several conversations with a tax lawyer and put it together. If you’re a business owner and your income flows on S Corp, C Corp or LLC, you need to take a look at this because you get deductions in the amount you put in and the minimum amount’s $50,000. You got to commit to it for five years.
According to him, most people who do this commit more than five years once they see it work. Getting a deduction, putting it in and it’s tax-free and you take it out. With taxes, as a society, we are overtaxed. Our government waste so much money we can’t even comprehend, and I wholeheartedly believe that government taxation and regulation is the primary risk to making money and your wealth. If you got those similar beliefs, we’re going to get along great. If you think we don’t pay enough in taxes, don’t even call me. We’re going to waste each other’s time. Our government is beyond wasteful on spending money and they want to keep taxing us.
Some of these young radical lunatics are the people who agree in aborting a child the day before it’s born. That’s not even evil, it’s a dark side of evil. Those same people believe in taxing us more. I don’t believe in that. I wish we could do a flat tax. I’m a little disappointed in the president. I do like the lower tax brackets he gave us, but we have seven income tax brackets. It shouldn’t be that much. It should be lower than that. Four or five would be better than seven. The Tax Code is 86,000 pages. I have access to some of the Tax Code that lets you deduct expenses. I’m all about deductions and tax-free income is not an annuity because annuities aren’t tax-free with qualified money.
If you’re interested in lowering your tax burden, there are so many things out there that people don’t know about. One part of it is the Internal Revenue Code Section 263(c) 59(e). That is intangible drilling costs. Do you have any idea what intangible drilling costs are? You could Google IRC Section 263(c) 59(e). It can tell you all about it. The depletion allowance in oil and gas, Internal Revenue Code Section 611, 613, 613(c) and 613(c)(6). This stuff excites me and bores some people. They get excited and they get that big fat reduction in tax bracket and then they have ownership in some oil wells. Also, the first 15% of that revenue is tax-free.The average lifespan has increased dramatically and you have a lot of people receiving benefits who never put in. Click To Tweet
We can talk about passive activity loss rule, Internal Revenue Code Section 469(c)(3). What is the passive activity loss rule? Look it up or I can tell you about it. The US government offers very attracted tax incentives to encourage investment in domestic oil and gas projects, intangible drilling costs, which include items such as labor and water. They typically account for 60% to 80% of the cost of completing a well and can be 100% tax deductible during the first year. Depletion allowance is a deduction from taxable income that reflects the declining production of reserves over time. Independent producers and royalty owners are permitted to take a 15% reduction, the taxable gross income of a productive well to account for the depletion of reserves. This results in 85% of the income from oil and gas investors being taxable.
Decrease Your Tax Burden
Does that excite you? I love seeing people’s tax burden to Uncle Sam decrease and there are ways for that. If you own a commercial building, you may know about this, but I’m still perplexed and amazed that people who own commercial buildings are not taking advantage of the cost segregation. I don’t do that, but I have a friend who does, and I refer people to him. If you own a commercial building, there’s a way to accelerate the depreciation of your building. You don’t have to do it but it’s worth looking into. Again, I can connect you with the person who does that.
My favorite is if you’re a business owner and your money passes through a C Corp, S Corp or LLC, I encourage you to call me to look at this where you can take deductions on putting money into something guaranteed. Let me be crystal clear. Oil and gas are not guaranteed. There’s risk involved with that and that’s why the government gives the big tax incentives for that but there’s another strategy that is guaranteed. You can make contributions and then receive the money out tax-free. You can but you have to be a business owner. The government gives incentives for business owners for taking a risk to own a business. This book that I’m putting together is going to talk about several of these strategies that are not in the mainstream. I’ve learned about these from over the years. I’m going to compile this book and make it available for people to learn about certain parts of the Tax Code.
I’m reading the Tax Code that allows for deductions. Do you feel that the government is getting out of control with taxes? Do you think it’s fair that you pay money? I want you to think about this, you put money and you contribute money to Social Security every paycheck that is after-tax dollars. Why do they tax us again on Social Security? I know our government’s corrupt. Republicans or Democrats are both corrupt. I consider myself ultra-conservative. I’m not labeled as a Republican because it’s corrupt. We need term limits in Washington DC. A lot of people get elected with good motives and they get up there and get corrupt. You’ve got an idiot like Joe Biden. He’s a certified organic idiot. You’ve been in DC for 50 years and he’s going to say he’s the guy that can bring us a new story. They think we’re idiots and morons. They’re the morons and the idiots.
Sometimes I get violently angry about the corruption in DC and how the government is taxing us. The government gives us the middle finger and calls it provisional income. That’s how they get away with double taxing us on Social Security. It’s double taxation only because of where your money sits. If you’re pulling money out of a government-sponsored program, which by the way you’re 401(k), your SEP and your traditional IRA are government-sponsored programs. Uncle Sam is your partner in this. He’s going to tell you, “When you’re ready to take the money out, here’s the tax rate’s going to be.” We have some of the lowest tax rates ever in our country.
Some of the people I follow, they say, “Taxes are on sale,” because if someone’s telling you you’re going to be in a lower tax bracket when you retire, run. That’s a myth. I have clients that are retirees. They are not in the lower tax bracket. Some are but that is not a broad stroke to paint across the board. If someone’s telling you that you will be in a lower tax bracket when you retire, see if they will sign and date and put it on their letterhead. I feel confident they aren’t. I doubt they will. If you’re interested in tax deductions and alternative ways for your money to make money, call.
The government calls it provisional income. That’s their way of screwing us on making us pay double taxation on Social Security. If you’re married and filing jointly and your income is $44,000 or more, whether that’d be from rental properties, dividends, a withdrawal from a 401(k) or whatever it is, they’re going to tax 85% of your Social Security at whatever tax bracket you’re in. That’s why I don’t think taxes are going to be lower in the future. I don’t believe that because we have so much debt, we have so many obligations and liabilities that are coming due but there are ways to deduct taxes. This is the old seed versus the harvest.
If I’m going to the co-op to go buy some squash plants and the cashier says, “Mr. Day, you owe taxes on these seeds of squash. Do you want to pay taxes today on the seed or do you want us to come back six months later and you’re going to pay taxes on the harvest?” If I’m a good harvester, good planter or good gardener, my harvest should be more than the seed. “Ms. Cashier, Mr. Cashier, I’m going to pay taxes on the harvest.” If you believe that if you think taxes are going to be higher in the future, then why are you contributing so much money in your 401(k)? I encourage you to contribute to them the minimum amount or the minimal amount to receive the match from your company and then call me. I’m going to show you another place that most folks, once they do that, they’re receiving more money in the checking account.
If you’re not used to living that money anyway, if you want to save it, I’m going to show you another place to put it that’s going to give you liquidity when you need it. It’s a big Roth and very similar to a large Roth. If you liked the Roth, you’d like this. It’s about knowing what else is out there. The ultra-wealthy do things that we don’t know about because they have good tax lawyers and have good CPAs. There are Tax Code on the books that we can be taken advantage of. You don’t have to be ultra-wealthy. We scale it down to your income and to your assets and doing the same things that they’re doing. They’ve been doing it a little bit longer because they have good tax lawyers who can decipher the Tax Code.
I’ve done part of that. I’ve attuned with people that have done that and I read what they read and I’m constantly reading. If you’re looking for a place for your money to make money other than Wall Street, call me at 202-SAGE, that’s 202-7243. The website is SageMoneyRadio.com and you can send me an email from there. I encourage you to get educated, go over some of this Internal Revenue Code Section. I’ve been quoting 263(c) 59(e), 611, 613 and 613(c)(6), Internal Revenue Code Section 469(c)(3). Do your own research. Let me show you what I’m doing exactly with my own money. God bless you, God bless USA.