George Antone. (Location 9)
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“Let me ask you this. What’s the most powerful, wealth-building strategy ever known to man?” I asked. (Location 99)
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“The absolute, most powerful wealth strategy ever known to man? I can tell you with certainty what it is,” my mentor announced with confidence. “It’s not something I think I know, it’s something I know I know! And the richest people in the world will tell you the same thing. (Location 107)
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Consider the Rothschilds, the greatest banking dynasty the world has ever known, still going strong, still passing these same strategies from one generation to the next. (Location 123)
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The banker is playing with a different set of rules – the banker’s rules. (Location 136)
The banker plays a safer game and makes more money. If he needs money, he can create more money. (Location 147)
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Of the average American’s income, 34.5% goes towards paying interest alone. That doesn’t include principal – just interest. (Location 162)
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Bankers – and other wealthy people – realize that it’s about cash flow first. (Location 225)
Cash flow is about arbitrage (creating a spread between the cost of borrowed money and what an investment pays). Arbitrage is nothing more than a leveraged strategy. The figure below illustrates that. (Location 226)
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To create an arbitrage opportunity, you need to have the following criteria (a simplified formula for passive income) in place: 1. An income-producing asset (such as an apartment building, rental property, insurance policy, business, bonds) 2. A lender that is willing to lend against the asset as collateral (obtain leverage) 3. Income that is larger than the loan payments and expenses related to the asset (Location 229)
For a business owner buying, let’s say, a car wash, the business is the income-producing asset (criterion no. 1); and lenders are willing to lend against it to help the business owner buy it (criterion no. 2); and finally, hopefully, the income is larger than the loan payments and the expenses of the business (criterion no. 3). (Location 239)
Now, if you could buy as many of these black boxes as you want, would you prefer to own the car wash, rental properties, or this black box? Obviously, the black box. (Location 249)
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We don’t buy them simply for the sake of buying them or owning them. In fact, when I hear people say how excited they are to own real estate, (Location 252)
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Suppose a borrower borrows $50,000 at 10% from a lender and signs a mortgage to the lender. The lender now has an income-producing asset (the piece of paper – the mortgage – is now an asset that produces an income – the interest – for them). (Location 256)
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At this point, the lender receives payments at 10% interest and pays 7% interest, leaving a 3% spread. This meets criterion no. 3. (Location 261)
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To generate passive income, you need, at the core of it, two things: an asset and leverage (borrowed money). (Location 262)
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But the banker simply prints the collateral, the mortgage document, and as long as someone is willing to sign it, that document is now an income-producing asset that can generate passive income! (Location 264)
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Investors have to buy physical structures, such as properties or businesses, to use as collateral to get leverage (borrowed money) so they can generate cash flow. (Location 266)
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Bankers create collateral out of paper, borrow against it, and create an arbitrage opportunity immediately. This is power! But, it gets better. (Location 275)
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You create your own arbitrage opportunity as a lender by creating collateral out of thin air, shifting the risk to the borrower (putting you in a safer position), (Location 277)
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Bankers recognize that generating cash flow from spreads is nothing more than a financing game. (Location 281)
The only reason they purchase a building is for the sake of creating a spread. It’s not about the tenants. It’s not about the physical property. (Location 283)
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They know they’re in the business of financing, safety, and making lots of money. They have the best position. (Location 288)
Bankers know it. They’ve shifted the risk to the borrower. They’re in position to make money, and they tied up the borrower’s collateral, just in case. They’re in the business of financing and safety. (Location 290)
The world is divided into three teams: consumers, producers, and bankers. (Location 369)
Bankers finance both consumers and producers. The consumer uses that money to buy products and services from the producer, and the producer uses that borrowed money to produce those products and services for the consumer. (Location 377)
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They are masters of shifting risk to the borrower and financing. (Location 379)
Consumers have to work hard all their lives to pay for the financing of goods and services. (Location 382)
Producers borrow money from bankers, use that to generate products and services, and pass on the cost – along with hefty profits – of the borrowed money to the consumer. (Location 390)
Bankers, on the other hand, make the most money. They use borrowed money to lend out and tie up the borrowers’ collateral. (Location 395)
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Through a combination of using borrowed money and “printing” money, they can make money, and lots of it. (Location 400)
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The producer uses that money to hire experts (creating jobs), manufactures the product (more jobs created), and sells it to consumers through retail stores. (Location 418)
The producer and banker also understand it’s a game of leverage. However, the producer sees it as leveraging other people. (Location 441)
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The banker, on the other hand, sees it as making money off of money. To the banker, every dollar bill is equivalent to an employee. (Location 447)
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Consider fund managers – mutual or hedge fund managers, for instance. (Location 451)
They make money off of money. The highest-paid hedge fund managers have gotten paid more than a billion dollars over the past few years! (Location 452)
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now, I hope you see that as long as Carl keeps borrowing money from Bob, he will owe more and more until the point where he will have to work for Bob. (Location 488)
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But the cost of money (the interest) is being passed along to the ultimate consumer of that product. So the consumer ultimately pays for that interest through borrowing more or working for it. (Location 492)
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It also helps to explain why 34.5% of the average American’s income goes to financial institutions to cover interest alone – they’re working for the banker! (Location 501)
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Every time you charge interest as a private lender, you “create new money” that did not exist before, and someone has to pay it off by either borrowing more money or by working for it. This is the reality of the world. (Location 510)
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Hypothecation takes place when a borrower pledges collateral to secure a debt. (Location 533)
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Now the bank has a loan that’s secured by the property. They can turn around and reuse that loan (a piece of paper) and pledge it as collateral for their own loan. (Location 534)
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Use leverage (OPM – other people’s money). (Location 542)
Find borrowers. Without borrowers, they can’t make money. (Location 543)
Do relatively safe loans secured by assets. Bankers are always about safety; they’re not in the business of taking risks. (Location 543)
The three things lenders do are: (1) find borrowers, (2) find money to lend out, and (3) structure safer and profitable loans. (Location 547)
Arbitrage is “the spread” between the rate at which you borrow money, and the rate you gain from investing that money. (Location 678)
Imagine a scenario where you can invest money into acquiring an income-producing asset, get your capital back in 90 days, and have recurring passive income for years to come from that income-producing asset, with your money comfortably back in your pocket 90 days later, or sooner. (Location 709)
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For every dollar you have, you can earn interest on it, or you can give up the interest you would have earned on it (if, for instance, you spent it or put it under a mattress). (Location 746)
After all, bankers are in the money business. They are masters in understanding risk and shifting risk away from them. Bankers make more money while taking on less risk! They also know how to use other people’s money to make money. (Location 754)
Bankers want to shift as much risk to the investor as possible. Investors want to borrow money for their deals and are willing to give up a lot for that. (Location 836)
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The investors’ stress levels go up significantly for the duration of their projects because they have a lot to lose for the potential money they could make. (Location 838)
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They are in the financing game, not the investing game. (Location 841)
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“Let me ask you this, George. How would you like to ‘clone’ money and create spreads as much as you want? How would you like to do all that by simply using paper, without dealing with the hassles of properties, businesses, or physical structures?” he continued. (Location 846)
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Let’s assume you found a real estate deal worth $500,000 you could purchase directly from the bank for $250,000. Assume, also, that you had 10 days to close this deal. (Location 868)
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Why haven’t I heard of this before? Banking has been around for a long, long time. So has private lending. In fact, some of the top executives in the San Francisco Bay area, where I learned about this, are doing it. (Location 886)
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“One more thing, George. Once you decide to start doing this, and you want your spouse to listen and pay strict attention to every word you say, talk in your sleep,” he joked. I laughed, thinking of his wife, France, and her tolerance of his jokes. (Location 891)
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SLOWLY OPENED THE MANUSCRIPT TO A PAGE ENTITLED, “IDEAS for Widening the Spreads Through Finance.” The page was filled with diagrams, arrows, calculations and notes. Dr. Jazz said, “Herbert was intrigued by how one could increase one’s spread. That means, increasing your returns and lowering the cost of money without changing either!” (Location 904)
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The spread is 4%, the difference between 12% and 8%. Now imagine that the person pays you 12%, but you receive 13%. (Location 908)
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velocity of money. (Location 916)
Now, the reality is that you might not be able to lend out the money immediately, as stated earlier. It might sit idle for a few months. There are two ways to address that. (Location 939)
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Banking consists of four parts: vehicle, banking, borrower, and depositor. (Location 1022)
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Let’s divide depositors into three sources: you, friends and family, and strangers. Of course, you can “deposit” your own money into your own banking system and use that for lending. You can also borrow money from friends and family. Remember, though: Be sure that you comply with all federal and state laws pertaining to borrowing/lending money (beyond the scope of this book). (Location 1046)
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Underwriting criteria are the conditions and standards or benchmarks you create that all your borrowers must meet and that will help minimize risk. (Location 1197)
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The business will seem relatively simple once you’ve done a few deals. The broker sends you the loans, you compare to your underwriting criteria, you follow your policies to fund deals (if you choose to do them), and you structure the deals in a way that will be safer and most profitable for you. (Location 1228)
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Look at what happened to all the banks that started writing 100% LTV and 125% LTV loans. (Location 1261)
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Rule No. 1: Banking is about safety. Shift the risk to the borrowers. (Location 1267)
Rule No. 2: Banking is about financing, not about investing. (Location 1272)
We do not invest to make money; (Location 1273)
we make money by lending. It’s a financing game. (Location 1273)
We do not absorb their risk. Investors (borrowers) are welcome to take as much risk as they like, but we want to be in a safer position. (Location 1275)
Rule No. 3: Be a disciplined money manager. (Location 1279)
Rule No. 5: Remember The Golden Rule of banking: “Whoever has the gold makes the rules!” (Location 1298)
Cash flow is everything! Access to capital is king. Control is everything. (Location 1304)
“These machines cost me a lot of money. In fact, all the furniture, computers, medical equipment, monitors on the walls, and this whole office cost me a lot. I’ve been paying for this for years,” he said. (Location 1350)
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Consider that 34.5% of the average American income goes towards paying interest alone. Over a lifetime, that will be a lot of money! If that money were placed in a tax-advantaged environment to grow at a good rate of return, the resulting amount of money could be significant. (Location 1426)
Your goal should be to redirect, as quickly as possible, most of that 34.5% into your banking system. (Location 1432)
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Like any small business, your banking system will need to be self-funded. Remember, it’s your personal financing source. The money doesn’t magically appear there. You have to fund it with your money. (Location 1443)
With permanent insurance, you have basically two options: Whole Life and Universal Life. Both of these have two components, called the “death benefit” and the “cash value (or “cash surrender value”). (Location 1468)
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$50,000 will be earning a decent return. As an example, let’s say your money is earning 6%. (Location 1485)
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He purchased a $200,000 home less than 30 minutes from her house for $150,000, and she had lent him $120,000 (60% LTV) for 12%. She borrowed the money at 6%, and within eight months he had paid her back. (Location 1584)
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broker was sending her more than enough! She had also automated the task of doing safer loans and implemented several layers to minimize her risk. (Location 1596)
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Stella pays for their lunch with a card that’s paid for by her own, private banking system. She knows everybody spends money on “liabilities,” but as long as her banking system is financing it all, she’ll gladly pay it back with interest, making her system rich without changing her spending. (Location 1604)
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They’re the ideal consumers who work hard and send their money to producers and lenders. (Location 1611)
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On her way home, she decides to pass by one of the properties she had lent money against. It’s in a nice, upper-middle-class neighborhood. (Location 1615)
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Stella knows the lender she’s borrowing money from – herself – the one she sees everyday in the mirror. (Location 1629)
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Stella would never buy a car like that by financing it with a third-party lender. If her bank could finance it, and she had enough money coming in from her borrowers every month, she might then consider it. (Location 1637)
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The strategy involves spreading the risk among two or more investors. Given that they thought like bankers and understood how to minimize risk, Stella and the other investor had purchased these properties as tenants-in-common and had agreed to pay down the mortgage. (Location 1651)
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“Enjoy life, George. You never know when your time is up,” he said. “You should look back on your life and say, ‘I lived it!’” “The truth is, George, it’s never about the money. It’s about the life.” (Location 1661)
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“George, what would happen if everyone out there were a lender? You’d have no borrowers, and no one would make money. (Location 1683)
Real estate can be a very profitable business; however, mastering real estate investing is critical to success. (Location 1689)
Real estate investing has four profit centers: Cash flow Appreciation Paying down of the mortgage Tax benefits (Location 1691)
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What if you could place your money, or the money raised, in a safer position, and then pay your private lender more? (Location 1703)
Now let’s look at liquidity. When you use your money (or other people’s money) as a down payment on a performing property, the money is locked up in that property for years, typically a minimum of five or more. (Location 1706)
As you can see, in all three areas – liquidity, returns, and safety –private lending is better. (Location 1710)
In fact, property ownership, if done right, is still one of the best wealth-builders. Combining both private lending for cash flow and property ownership for the four profit centers (listed above) is a better portfolio than private lending alone. (Location 1712)
And as properties get paid, the equity is turned to HELOC (home equity lines of credit) as a money source for more private lending. (Location 1716)
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The key point to remember is that private lending is the most efficient passive-income strategy in existence. By combining it with other strategies, you start gaining the advantages of other investment vehicles. (Location 1718)
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As fate would have it, I would end up making some great money from a private loan with him months later, and years later we would end up business partners. (Location 1946)
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They had to pay it back, just as they would any other loan. At first, my wife was mad at me, but when I explained it to her, she understood. Here’s what I said to her. (Location 2056)
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“Whose money is it in the long run? It’s theirs, my children’s. After I’m gone, all of that money is theirs. But by lending it to them, I’m passing on the lessons of being the lender. They’re learning that this money should always be lent and never taken out. If this lesson is taught early to the young, it becomes part of their reality. So they, too, will pass these lessons to the next generation, while their money continues to grow, once again ready to be passed to future generations. (Location 2058)
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And one day, when they start their business, they’ll need loans for equipment and to cover other expenses. These alone could put seven figures into your banking system that you can pass along to them.” (Location 2075)
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Banking is much more than making money. It’s a major shift in mindset. Bankers just think differently. (Location 2083)
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It’s about adopting the mindset and the rules of the banker. I recognized that becoming the banker wouldn’t be easy, but I knew that the persistent ones are the ones earning their stripes. (Location 2085)
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Many find a path too late, and many others simply never find a path. Now that you know the path, assuming you want to be the lender, you’re way ahead of most people. (Location 2087)
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Making that firm decision of being the lender and committing to it is 50% of the challenge. Go out and prosper.” (Location 2091)
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“Years ago, Dr. Jazz, at the request of his mentor, was asked to accept a great responsibility. He was asked to create and coordinate an association of individuals, all bequeathed with the knowledge found in the manuscripts – to be clear, a ‘Secret Society.’ All (Location 2136)
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“As part of this society, this inner circle, we meet twice or more a year to touch base, exchange lessons learned, share stories, meet new private lenders, share opportunities, and celebrate each other’s successes. (Location 2139)
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Dr. (Location 2212)
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