If you want to spend more to gain a more comfortable lifestyle, you need to secure a smooth cashflow through consistent income streams. John Michailidis shares his most effective strategic investing tips on securing profitable real estate success. He joins Matt Fore to share his experiences running a property management company and the right way to scale such a venture. He also discusses why derivatives are vastly different from hard assets and the importance of hiring a planner to handle the confidential and constantly changing aspects of estate planning.

Are you interested in investing with me? Click this link schedule time for us to connect. https://nextlevelincome.com/next-level-investor-club-application/

Strategic Planning and Investing for Individuals: Asset Protection, Diversification, and Passive Investing for Cash-flow and Lifestyle Liberation – https://www.amazon.com/Strategic-Planning-Investing-Individuals-Diversification/dp/0978819004

Atlas Shrugged – https://www.amazon.com/Atlas-Shrugged-Ayn-Rand/dp/0451191145

John’s Website:

https://wealthloop.com/

John’s LinkedIn:

https://www.linkedin.com/in/johnmichailidis/

John’s Facebook:

https://www.facebook.com/johnnymich

Twitter:

https://twitter.com/JohnnyMich

This expert guest was booked via The Expert Bookers: www.expertbookers.com

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Watch the episode here

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The Most Valuable Financial Lessons With Alejandro Szita

Alejandro, welcome to the show.

Thank you, Matt. It’s a pleasure to be here. Thank you so much for giving me a voice in your audience.

We like to start with the difficult question here. What’s your favorite ice cream?

It’s pistachio.

You are originally from Chile. I like to try different desserts whenever I travel abroad. If I go to Chile, which is on my list, where should I go? Do you have any native desserts that are out there beyond ice cream?

Yes. The native dessert in Chile, and Argentina as well, is called flan. It is quite a dessert. It’s simple, but it’s very difficult to get it right. When you get it right, it’s as addictive as ice cream or even worse. If you ever visit Chile or Argentina, ask for flan.

You are talking my language. What is it? It sounds like a baked dough type of dessert.

It’s jelly plus cream plus something else that I don’t remember right now mixed in a certain way. That is the trick. It’s like making mayonnaise. When you make mayonnaise by hand, if you don’t stir it correctly, it goes bad right away. This flan thing is similar. It uses simple ingredients like jelly, cream, and something else, but if you don’t get it right, it’s horrible. When you get it right, it’s divine.

Chile is on my list here in the next few years, so I’m going to be on the search for it. Tell our readers what the scoop is. What do you do?

I am a mortgage broker. I have a boutique mortgage brokerage for the self-employed and artists. You may think, “The artist and self-employed are different,” but from the point of view of the lender, he would put the self-employed person or the self-employed entrepreneur and the artist in the same boat. To him, they are people that are complicated to give a loan to or to finance, and to the lender, they are people that he needs to invest a lot of time in getting them qualified. Those are things that lenders don’t like to do. That is my specialty because I’m one of those people. I had so many problems through the years in my business journey, and things that don’t make any sense that I decided to become one of those people that help my brethren to get loans. That’s what I do.

I like it. I’m super excited to have you on the show because part of my journey is I scaled my single-family portfolio to ten units. After ten units, Fannie and Freddie don’t like you anymore. You’d fall out of their box. I started looking for these creative options. I want to get into that. Before we do, you are a man that has a very interesting journey from Australia to New Zealand to the UK. Can you tell us how did you end up at a mortgage broker? Where did your real estate journey begin?

My real estate journey began on the actual economy trying to find out where the money came from and this thing called an interest rate. I come from Chile. In Chile, especially at the time that I was growing up, was a very dynamic country. You could see in the headlines in the newspaper pretty much every day, “The cost-of-living index is or interest rate is,” and those headlines always perplexed me because I thought, “This interest rate thing must be very important.” This cost-of-living index or what we call inflation must be super important. It’s every day in the newspaper.

I remember when I came to the US in the 1990s, I was flabbergasted, and nobody knew what a cost-of-living index was, while in Chile, I saw it in the newspaper pretty much on a daily basis. I ended up in the mortgage business trying to answer those questions for myself. I ended up in the real estate business because where I live, which is Southern California, in order to be able to become a mortgage broker, at the time that I applied for a license back in the early 2000s, you had to have a real estate license. There was no mortgage license independent of a real estate license. I had to go through the whole course. I kept saying to my instructors, “Why do I need this? I’m never going to do real estate. I just want to do loans.” He says, “If you want to do loans, you have to do this.”

I became a realtor and real estate agent. I then started working on loans. I’m from Chile, so I speak Spanish. My broker said, “Do you speak Spanish?” This was in the early 2000s. I said, “Yes, I do.” I said, “Would you like to make a double commission?” I said, “How come?” He said, “Go and help those people. You have a real estate license, you’ll do a loan, but do the real estate side as well.” I’m helping them not just with the loan, but I’m helping them with the paperwork, the pricing, making the offers, doing all of their disclosures, and so on, and then I’ll make a double commission.

The problem was when I did that, I loved the real estate side. I didn’t know it was so much fun. For many years, I became a realtor. I did luxury properties, commercial, and loans. This is how I met my mentor on the West side of Los Angeles. I shifted from the residential world into the commercial world. I was the slave of my mentor for several years. I did everything he asked me, and that’s how I learned about commercial real estate law. Although I’m not a lawyer, I learned how it affects real estate per se. I also learned all the ins and outs of commercial real estate and how they relate to residential.

That made me a better loan broker or loan officer because I now have the full picture. I also work for a real estate hedge fund, which raised capital in order to invest in real estate projects. I did that for a little bit. After all of that, I now have the full picture, not just the loan but the real estate, capital racing, and the law behind it. That made me a much better broker with a lot more experience.

You cannot imagine successful artists that make money have the same problems that a first-time home buyer would have when they apply for a loan or you that already have ten investment properties. Now, I need to listen to someone for 30 minutes, and my mind immediately wraps around the problem and immediately sees the loan they need, how to do it, and so on.

Usually, when I talk to someone, unlike other mortgage brokers, I don’t ask them for anything. All I say is, “What do you want to achieve? What is your goal?” They say, “My goal is to get a lower rate.” I said, “No, that’s not your goal. Your goal is to buy a house, investment property, or send your child to college, but it’s not to get a lower rate because whether it’s low or high, we don’t know yet. We need to know what your goal is.”

I listen for the goal and try to understand where the person comes from, how much money they make, and what their lifestyle is. A loan is a set of rules. There are hundreds of those sets of rules. I would rather know the person and then go to my toolbox and pick up the set of rules that apply to that person rather than try to feed him or her into a particular toolset, which is what happens when you go to Fannie Mae, Freddie Mac, or the traditional route. That was my journey into real estate.

When you were doing the commercial with your mentor, were you representing both the realty side, the realtor side, and the mortgage side as well, or were you just doing the real estate side?

I was doing the real estate side because, in that case, you had complicated transactions that involved 1031 exchanges. One of your questions is what is the biggest barrier that I have encountered. The biggest barrier is human emotional reactions. I’m not talking about the nice reactions like, “I love you. You’re great.” I’m talking about the bad ones, “I’m going to sue you. You’re bad.” I’ve seen and even in myself, that’s why I don’t do my own real estate deals because of this reason, you become emotionally involved and that interferes. It’s not about the numbers. You’ll be surprised.

Emotional reactions are the biggest barrier in real estate. You may find yourself stuck in doing your own deals just because you are letting your emotions interfere.CLICK TO TWEET

On a commercial transaction, you’ll think it’s about the numbers or rate of return. It’s not that. It’s about the ego and the emotional thing. It’s about, “You told me this, and now it’s that.” It becomes so involved that by trying to be the listing agent or the buyer’s agent and trying to put everyone together to agree on the deal, that pretty much consumes my time, I didn’t have the time to do the lending side as well.

I feel like you’re being my psychiatrist right now because I’m buying a personal home that’s getting built right now, and it’s exactly that. “I do real estate and understand what’s going on in this transaction. You don’t need this, you do need this. Why are you saying this? I know it’s not true, but you’re telling me it’s true. Now all of a sudden, I’m upset because it’s not true.” Ego is definitely a thing.

Even with my mentor, my mentor had a $4 million building that was his building. He wanted to save money. He tried to sell it and couldn’t. His wife came to me and says, “Alejandro, could you please sell our building?” I said, “No problem.” I did sell it, but at the time, he has years of experience as a real estate investor, broker, and loan guy, and still is. He couldn’t sell his own building. That tells you how involved and how emotional this business is.

I want to now shift this to the mortgage side. You’ve mentioned a couple of times that artists and self-employed entrepreneurs have a difficult time getting loans. Most of our readers are probably very familiar with the traditional homebuying experience but do not understand the backend process. In the traditional homebuying experience, you have a W-2. Can you walk us through what that looks like? We’ll then go into some of the challenges that an entrepreneur would have.

This, in my opinion, doesn’t apply anymore, but they still do it the same way. Many years ago, the lending industry realized that most homebuyers had a certain profile. They were employed. Therefore, they got a W-2 and had a certain income bracket. They created a system to automatically give them a loan. When I say automatically, it’s automatically in brackets. Even though you use a lot of computers and a lot of forms, it takes between 10 to 15 people to process one W-2 loan employee.

For lenders to save money, they have narrowly defined what each employee can do. I’m talking about employees of the lender, not the employee that is applying for the loan. Most of the people that work for a lender have a very narrow set of functions. They usually don’t talk to each other very well. They usually don’t want to talk to you on the phone because in order to save costs, they have to process many loans per day. They have to do it via email or text. The problem is in the world of lending, there are a lot of abbreviations and acronyms. Not everyone understands the same acronyms. You also see that the level of language of people is decreasing as schools don’t do a good job.

This is interesting because I’m talking about things that have nothing to do with lending, but these are impacting lending. As the literacy level of people declines and forced into these types of jobs they cannot look to see what the other guy is doing and only have to do a specific thing like texting for things that sometimes they don’t understand, they can barely do a W-2 employee person that applies for a loan. If this loan has anything out of the ordinary like the person has a side job and maybe has a trivial credit report issue that could be solved in a couple of weeks, the person for some reason or other doesn’t exactly fit into the box. The team of people cannot handle that, and that person gets rejected.

To summarize, when I, a traditional W-2 employee, walk into Bank of America, Wells Fargo, JP Morgan, and all these big institutions out there and I go get a loan, what they’re ultimately doing is they’re using their system and people to make sure that you fit in this box. Once you sign that loan, what they do is sell it to Fannie and Freddie or give it to Fannie and Freddie that it’s backed, and sell it on the open market to someone else.

I have struggled in this process because I have W-2 income, a number of different rental incomes coming in, I have portfolios out there, and my DTI ratios look weird, but when you see that they’re backed by rental income, they’re not weird. You have come in to help solve the problem of, “You fall outside of this box.” From an entrepreneur’s standpoint, why is their situation different?

There are two reasons. One reason is their credit score, and the other reason is because it takes time. You have to have someone willing to sit down and look at all of your finances, and how they’re put together. You mentioned rental income. You need to look at the tax return and the amount of depreciation and put that away because that’s not a real expense and only for tax purposes. Also, you need to look at how many days in the year you are renting. You need to start putting in the time. If you put in the time, you will understand this person’s financial situation. However, lenders usually don’t pay much to their employees.

Number one, they cannot afford to put in the time, and sometimes, they don’t have the expertise to understand a financial situation that goes beyond the W-2 income. The W-2 income can be seen and you get the form, but if you have a 200-page tax return like some of our clients, they are not equipped to look at that and understand it. That’s when you use tax returns. Tax returns are 1 of the 7 forms to qualify people. You can also use bank statements, but in bank statements, it becomes a little trickier. It’s the amount of time and expertise that traditional lenders are not equipped for and don’t have the personnel to do this because they make more money doing simple W-2 loans. That’s what it boils down to.

Going back to my JP Morgan and Bank of America situation, they are making a transaction fee for putting it all together and packaging it up. The more of those they could do, the better. What they want is a nice clean borrower that they could push through the system fast. You mentioned depreciation. An entrepreneur in real estate, for instance, might receive $200,000 of income from rental income from the past few years on their tax return but show $0 of income. The reason is depreciation.

They’re writing all of that off. One of the benefits of real estate and why we love real estate is because you can pay little to no taxes on real estate. However, it looks like you have zero income coming in and don’t fit that box. You mentioned credit scores out there, and we were chatting about it beforehand. A credit score is one of those things that everybody in America has, but they might not know what their credit score is or what the factors that go into it. You’ve referenced several times, the 7 Steps to A 720 Credit Score book that influenced your career. Can you talk us through what is a credit score and the factors that go into it?

I’m going to tell you first the theoretical side that you can read on a website and what I found out to be the practice. In the early 2000s, this very enterprising loan officer called Philip Tirone put together a system called 7 Steps to 720. I have no affiliation with him. He’s not paying me to say this. You can buy them on eBay for $20 or $30. You should find one as I did, buy it. As I said, I’m not making any money. I’m not trying to plug him in. He has another way now. If you go to his website, he does this online. In my opinion, you can buy six CDs for 40 minutes each, which is a lot better than what he did online. He’s a great guy, and I had spoken to him on the phone.

He is the only guy, in my opinion, that if you follow his system, you will get to 720 or beyond because this is what happens. The first thing I heard when I came to the US about the credit score is, “Don’t worry. Pay your bills on time and you’ll have great credit.” I said, “That’s easy,” but it’s not true. You can pay all your bills on time and never even have a credit score. The first thing you need to understand is that the bills that you need to pay are the institutional lender’s bills. They don’t care about your bills. They care only about the institutional lender bills. That means credit cards, installment loans, and mortgages. That’s what they’re talking about paying on time, but paying on time is only a small part of it.

What happens is this. Most people think that credit scores are a measure of success and how ethical you are or how good of a business person is. It could be that you are a successful person and so on and have high credit, but that’s not why it was invented. Credit scores were invented by lenders that wanted to find out and spot and call the people that will make the most money when they lend. This is not for you or for me, this is for the lender. They want to identify those people. This is totally arbitrary. This doesn’t follow logic. That’s the second mistake.

You’ll be surprised, and this is what happens to all of my entrepreneur clients. They have the money so they go, “No problem, I’ll pay for it.” I have to stop them and say, “Don’t pay because the pay is not the solution.” They go, “If I pay, isn’t my credit score going to go up?” I say, “Not necessarily because these people are not rewarding you for paying. They are rewarding you for debt management. It’s not just any debt management. It’s debt management according to their arbitrary criteria.”

Do not pay your credit if you want your score to go up. You are actually rewarded for your debt management according to the bank’s arbitrary criteria.CLICK TO TWEET

I’ll give you an example. If they lend you $100, they don’t want you to use more than $50. Ideally, they don’t want you to use more than $10. You go, “If they gave me $100, you mean I cannot use the $100?” “Yes, you can, but if you use them, you’ll be penalized.” That doesn’t make sense right there. Entrepreneurs like me and you live off cashflow. If we have a cashflow, it goes up and down. If we have $100, we use them, buy something, get the rate of return, and then we pay. If you do that, which is logical from an entrepreneurial point of view, it’s totally bad from a credit score point of view.

From a credit score point of view, you should get $100, use $10, pay the minimum payment and keep the $10 as a recurring balance. That’s what they want you to do. Why do they want you to do that? There is no logical reason. That is what they decided themselves. It’s not because it’s better, ethical, moral, good, or bad. It’s a decision that they made and they based all their system on that.

To use your point of that $100, if I’m an entrepreneur, I could use that $100 to buy inventory and invest in a different property, and that $100 could turn into $500 or $1,000, but to the credit agency or credit report, it basically shows that I’m a bad debt management because I had $100 and I used a $100. Sometimes if you do it right in entrepreneurship, using that $100 to its full extent is good for you.

Let’s switch to the entrepreneurial point of view. If you get $100, use them. If the payment date comes and you go, “I could pay it, but I’m better off not. I’m going to pay a little late and pay the fee.” The entrepreneurial person uses $100, doesn’t pay it on time, doesn’t care because it’s the cost of doing business, and then he pays it all off. He’s surprised because he says, “They charged me a fee, and I paid it. Isn’t that good?” I said, “No, because they’re judging you not because you paid it. They’re judging you because you used it and paid it late.”

I mentioned earlier that I’m going through this house-buying process. I’m struggling with my mortgage lender because it’s the same situation. I showed a bad DTI ratio, but in essence, all that debt is backed up by income that’s producing way more than the payment. Shameless plug, why I got into whole life policies is because you can borrow against them hidden from these credit agencies.

All of a sudden, I’ve got $200,000 stuffed in these policies. I can go grab $200,000 and they don’t see that I have $200,000 out, but if I have it from a bank like Bank of America, HELOC, business line of credit, a credit card, or something like that, it looks like, “You had $200,000 and used all of it. We’re going to ding your credit score.”

You mentioned something that is so cool. Again, I could tell from when we started doing this that you are advanced. A few people know what you said, but for an entrepreneur who is under the age of 60, having a properly structured whole life policy is their best investment. You will never find this because if you search for whole life policy, you’ll find bad advice and misinformation about it. That’s another topic.

I try to use this example because I was talking in 2020 and 2021 about whole life policies and how I leverage them and overcharged the difference in all sorts of things like that. People were saying, “Why would you do that? Why would you pay a guaranteed 5% interest rate when rates are 2% or 3%?” What I’ve been screaming about ever since then is that we’ve gotten lazy with how easy liquidity has been in our system, how cheap, and abundant it is.

I remember at some point in 2021, Wells Fargo closed all personal lines of credit, which meant that you had 30 days to pay whatever you had outstanding or it was going to look horrible on your reporting. This is another example of how that affects you and another use for those whole life policies.

You’ve come from Chile, and one of the things that you experienced during those times was different types of inflation area environments. Here in the States, we’re doing this the day of the Fed policy announcement here in December 2022, where inflation is ticking down a little bit, but we’ve never experienced high inflation like this. We have in the ’70s, but not in my lifetime. Can you talk us through a little bit about your experience during that time and some of the best assets or best strategies that me, as an individual investor, reading this could implement, knowing that we might experience high inflationary times like that again?

I was born and have lived in a high inflationary time. It wasn’t until I came to the US that I started to experience a non-inflationary time. Even though you call 5%, 6%, or 7% high inflation, I came from places where 12% is low. I come from a place where 20%, 30%, or 40% was the norm. 6% to 7% is high, and even though it could be double or triple what it was before, you didn’t see anything yet as they say.

This is what I saw. My father was an entrepreneur. He owned 1 of the 3rd largest clothing manufacturing companies in the country. I could see what he did. In a highly inflationary environment, you need to stop thinking of currency as something valuable. Currency is something transitory. I saw factory workers got paid on a Friday, and by Sunday, everything was spent. The reason is because money loses its value more and more, and what becomes more important than that are the objects that you can buy.

In 2022, you also saw a lot of people moving out of the cities, especially here in California, but this was a national phenomenon. People were buying homes like crazy. This is the interesting thing, the government thinks that we are stupid, but you don’t need a degree in economics. Anyone that has a job, checkbook, or credit card can feel this. Even without having a degree in economics, people could feel. At the end of 2022, those low rates were not going to be there forever. They could feel what was anticipated. Anyone that could put in a deposit to buy a home, did it.

That’s why real estate boom like crazy. That was the right thing to do because money, as it becomes less worth it, you need to put it into objects as quickly as you can. What happens is the government creates money. When they spend it first, they get the full value, but as it trickles down the line and by the time it comes to us, it doesn’t have that value anymore. We better use it for something that can be effective.

One of the things that I always say is that if you can buy a house, buy it. People go, “That’s not an investment,” but another question that you ask on your questionnaire that I would like to address now because it’s pertinent to this, is that the best advice I ever got is, “Make savings a necessary expense.” In other words, force yourself to save, and one of the best ways is a mortgage. If you have a mortgage, you have to pay between 1/3 to 1/2 to a 100%o of what you pay on a mortgage will come back to you eventually. Basically, you’re paying yourself.

People tell me, “No. You are better off investing on the market. This is about investment. You don’t get a high rate of return,” but it’s not about the rate of return. It’s about the preservation of capital. If $100 goes through your hand and, at the end of the day, you have nothing to show for it, or if $100 goes through your hand and now you have $10 to show for it, which way would you rather be? For most people, spending your money immediately and completely is the best way because we’re already doing that, but when you create expenses that are savings, you’re still going to spend all your money and have zero at the end of the month, except now you have savings.

You could argue, “Yes, that’s inefficient because if you pay a $3,000 mortgage, you are only saving $1,000 and losing $2,000. You could be better off buying this and that.” My answer to that would be, “Yes, but very few people will be able to do it.” The people that will be able to do it don’t need it anymore because it’s only when you are in affluence and making two or more times your expenses that you start acting that way. By that time, you don’t need it. Up until you get to that point, a mortgage and a life insurance policy that is configured the correct way are ways to spend your money but create automatic savings.

What you’re basically saying is in an inflationary environment, you want to buy assets. One of the concepts that I try to tell people is you need to create friction in your life because friction creates growth. I’m a big runner, cyclist, and endurance athlete. That’s my friction. It gets hard and it’s tough to do, but that’s how I grow. My body becomes healthier and things like that.

With your money, one of the tactics that I employ is I split my direct deposit. Almost every payroll software out there will allow you to split their direct deposit. Some of it goes into my checking, and I take about 50% of it and chop it into an online-only savings account. Why online only? It’s because I can’t go down to the online savings account in a brick and mortar and remove that money. I have to log online and move that money to my checking account, which takes 2 or 3 days. That’s the friction point of logging in and moving the money before I can go spend it.

What I’m hearing from this is you can almost do that with your mortgage as well. If you buy a house and got money going into that, at the end of 30 years, you’re going to own that house. Now, what you pay for that house is irrelevant because the goal is that the house will be at a higher point in 30 years than it is, which, on a general thesis, it’s every piece of real estate will be by creating that friction point.

You mentioned something about inefficiencies. In finance, investments, and personal finance, it’s a blend of math and emotion. Math will always tell you there’s a more efficient way to do things, but the emotion on, “How do I sleep better at night? Is this going to put me in a better spot 30 years from now?” is a whole separate conversation. What you ultimately need to do is a blend of both of those. If you are the most disciplined robotic person in the world, then, by all means, go try to arbitrage every penny out of efficiency as you can, but if it makes you sleep better at night, then pursue a more emotionally comforting path. What you’re talking about is a friction and forced savings plan, which I completely agree with.

One more thing I would add is don’t go in chasing the rate of return. Every time when you hear investing, you hear rate return. I almost never hear capital preservation. Capital preservation should be your number one goal. Only when that is thoroughly and completely satisfied, then you can look at the rate return. All the investments that I’ve seen are sold by rate return, but they’re not investments. They’re speculative moves. There is a big difference between speculation and investment. Pretty much everything that is out there is speculation. Even when you buy stock. It’s speculation.

Capital preservation should be your number one goal. Only when that is thoroughly and completely satisfied that you can look at the rate return.CLICK TO TWEET

One term that immediately comes to mind is crypto farming. Crypto farming in 2021, I felt like an idiot not buying some Bitcoin and lending it out for a 15% return, etc. but at the end of the day, we’ve seen what has happened to that industry right now. Not to say it won’t come back or whatever, but at the end of the day, right now, it’s looking terrible. If you’re a man with a lot of wisdom and read a ton of things like that, from a capital preservation side, what are some of the best classes you’ve seen across the world and industries as more on the safer side of capital preservation?

It depends on your level of income, but for most people, it’s buying their own home. For most people, it would be to have a properly structured whole life policy, which is what everybody did until the ’70s, and Wall Street sold every one that it was a dumb thing to do. For most people, it will be to invest in their business or their profession. If you’re a computer programmer and take another course, buy another book, get another certification, and get trained on a new system.

As a real estate professional, I constantly am looking at upping my game and investing in my business. Investing in your business, whatever that business may be, and the home and the whole life policy is, for most people, the most successful strategy. Somebody may say, “You can buy silver and gold.” You can do that too, but for most people, it will be buying their own home and investing in your activity or professional business.

I love that you said that it’s basically investing in yourself. You’re preserving and growing your skillset, which will help you preserve your capital and provide almost infinite ROI.

I’m writing a book. It’s called Money. In that, I’m trying to answer the question that I had when I was seven, “How is money created?” This is what it is. Money is a cycle. It’s created when you add value, but it’s not any value. It’s a value that the community wants. I call it the wheel of wealth. As you mentioned, some people may say, “I bought these Bitcoins for $200. I sold them where they are $60,000. I now have $5 million sitting in my bank account.” You can do that, but this is what is promoted.

Money is a cycle. It’s created when you add value that the community wants.CLICK TO TWEET

Only a few people can do that, and that’s not the way to create value. I’m not disparaging those people because you need speculators. The speculators are the people that clean up the mess when everything implodes. When everything implodes and values are at the bottom, you need someone with the guts to come and buy it when nobody wants to buy it.

There is a place for speculators. They’re the cleaners. They are people you see in those gangster movies when there is a mess and they send the cleaners to clean the crime scene. That’s what speculators do, but it takes a very special person and nerve. I don’t have it. I’m not a speculator, but of all my clients, I don’t have anyone that is a successful speculator. I’m not trying to disparage speculators, but I’m saying that doesn’t take the exception as the rule. A speculator is a very precise economic function that only very few people can do. Kudos to them. It’s great that they can do that. Most people don’t even think about going that way unless they are predisposed and one of those people that have those very special characteristics to be a successful speculator.

For most people, you want to have the wheel of wealth. The wheel of wealth means you contribute to your community, get a little bit of value, don’t spend it all, save a little, and do it again. You contribute more value and invest in yourself so you can deliver more. As you do this over and over, and some people say it takes 10,000 hours of doing it before you become successful. I don’t know if it’s true, but for me, it was true. It takes a few years and there is no escaping. You can try to shortcut it, become a speculator, buy the Bitcoin, or buy the gold at $20 and sell it for $2,000. I’ve done this by the way, and I failed, but not just me.

What I’ve seen is that you do all of this and spend all your energy and money trying to do this. After a few years, you blast it, “I’m going to do it in the ‘old-fashioned way.’” Had you done it the old-fashioned way from the very beginning, you would have had enough money to speculate. My father and my grandfather had this business. My grandfather was very wealthy.

Once a year, he went to the biggest casino by the ocean that we had and blew the money. One day, I asked, “Grandfather, why do you do that?” He said, “Grandson, when I go to the casino, I’m going to lose, but I have fun. I only do it once a year and I only do it with my own money. I don’t do it with the company money. If I win, I’m happy, but that almost never happens.” That’s what he told me. That’s what I wanted to tell you.

He’s at the point where he can do that too.

If you apply the wheel of wealth and now you are wealthy or have resources and you want to blow them on buying Bitcoin or whatever, do it, but do it for fun. Don’t do it because you’re expecting to make any money out of it. If you do make money, go and celebrate with your wife. Buy a bottle of champagne and go to Italy, but that’s my approach to it.

We are going to have you back on the show and do a whole hour on what is money because I’ve got some thoughts on what you are talking about there. I’m marking this on the internet now that my life goal is to write a book about what is money and talk about it. Whether it’s in the US so people have some understanding of US fiat and currency and things like that or if it’s across the globe, that’s one of my goals too. We’re going to have you back on when that releases. I want to shift you to our last round. We’re calling this the Five Toppings. Our first one is, what is your favorite book or what is a book you’ve read that’s given you a paradigm shift?

I’ve read many books. I’ve read about 400 books according to my wife because she had to collect all the ones that were thrown around the house. The one that comes to mind is called Debt: The First 5,000 Years by David Graeber. This guy is crazy. He went 5,000 years into the past to explore the nature of money and debt. He walks you through the Sumerian times, which is the earliest civilization known to man until 2010, which is when he wrote the book. That’s one of my favorite books.

This has always been the case since the Roman times, not only because we have globalization and computers, but it has always been the case. I do that every day. It has nothing to do with mortgages and interest rates. I want to have a sense of what is going on in the world and how that affects us.

I like that you said it’s been that way because most people don’t know. The reason why we got bombed in Pearl Harbor is because we cut off Japan’s oil supplies. Basically, they were on a ticking time bomb of the amount of oil they were going to have. It was to attack America and take on the big bad boy and the beast or run out of oil and not be able to fight their actual enemies.

Very few people know that. That’s amazing.

Our third one is, what’s the best piece of advice you’ve ever received?

Transform your savings into necessary expenses and go for capital preservation. When I used to raise money for this hedge fund, I always told people who work with me that an investor only has two questions, and they go in sequence. If you don’t get a full answer to the 1st, you’ll never get to the 2nd. The two questions any investor has is, “If I give you this money, will I get it back?” Until that question is satisfied, nothing else matters. That’s very important.

Question number two is, “Now that I’m convinced that I’m going to get it back, how much more am I going to get?” You see most investors are sold by number two and never by number one, but all professional investors will never go to number two without number one. The best piece of advice is capital preservation. What is your strategy for capital preservation? If I am sure that I’m going to get my money back, only then I’m going to listen to your spiel about how much more I’m going to get.

Our fourth one is, what is the thing that you’re most proud of in your life?

I saw the potential in me when I was very young, but I had all these doubts and internal issues. What I’m most proud of in my life is I found a way to deal with and get rid of all of that so I could do what I needed to do. That has allowed me to serve others in a much better way. To make it short, I’m proud that I was able to overcome all those personal issues.

Our fifth one is if you could sit down and eat a bowl of ice cream with anyone dead or alive, who would it be and why?

It would be a long line of people that I would like to talk to, but one of them will be Martin Armstrong. Martin Armstrong is a former hedge fund manager. He’s one of the economists that I follow. He’s the one that I feel I resonate with. I would love to spend a couple of minutes over a cup of coffee, assuming he drinks coffee to shake his hand and say, “Martin, I’m very pleased to meet you. Thank you for everything that you’re doing.”

Alejandro, this has been a fantastic conversation from how you help people and clients in the mortgage business to overall economic conditions and practical advice we could give to investors. If our readers wanted to reach out to you and learn more about the services you offer or have that cup of coffee and free ice cream, where is the best way we could point them?

The best way is to go to my website, which is www.ProsperityLending.us, or send me an email at Info@ProsperityLending.us. That’s the best way.

Alejandro, thanks for coming to the show.

Thank you so much for having me, Matt.

 Important Links

• Alejandro Szita
• 7 Steps to A 720 Credit Score
• Debt: The First 5,000 Years
• Info@ProsperityLending.us
• Alejandro@ProsperityLending.us
• https://NextLevelIncome.com/next-level-investor-club-application/
• www.ExpertBookers.com

 

About Alejandro Szita

He shares the challenges these borrowers face, and how they can be overcome. He also shares tips for real estate agents to better prepare their buyers for the loan application process. Alejandro is a regular guest on real estate and finance podcasts, and he enjoys giving practical advice as well as telling stories about the crazy things you can encounter in this field.