How to Stop Being a Wage Slave and Grow Wealth - Part 2 with Mike Ayala

Mike Pine: Welcome to the Hidden Money Podcast, the only place that shows you how to use taxes to grow your wealth. When you stop being afraid of taxes, you can start using them to your advantage. Every week, Kevin and I will look at different part of the tax code that's specifically designed to help you keep more of your money.

There's truly wealth inside the tax code. Let's go get your hidden money.

Speaking of education, Mike has this great white paper out there called Overlook Tax Deductions for the Investor. I think you can find that, correct me if I'm wrong, at www.velocityventurepartners.com/tax. Those are some great tips and tricks, and I would highly encourage anyone to check those out. There's a whole mess of awesome tax opportunities and hidden money in the tax code.

What are some of your favorite tax tips that you've learned over time?

Mike Ayala: I think just real estate in general is great. I think that's in every front. And I don't want to infringe on your lane, but as somebody who was making a lot of money in the business that I was involved in, if I had known then, I'm glad that it worked out the way it did.

By the time I sold my business in 2014, we had. 5 mobile home parks, 45 single family properties, and three commercial buildings that we owned, without investors, and that was huge for tax purposes, and I became a real estate professional. I don't know what year that was, but probably 2014.

And so knowing all of that was great, but honestly, nobody told me that I could invest passively with other people and not have to go do it all on my own too. And so I think just real estate is probably by far my favorite because I love making money in business, and there's so many people. Real estate's been easy the last 10, 12 years.

Money's been easy. There's been more coaches and real estate mentors than probably any other industry ever, in the history of time because it was so easy and because of the tax benefits, but I fell into it and loved it, and had a lot of opportunity in it. But if I had known then that I could invest passively too, I don't know, I probably would've done a lot more passive and put a lot more time and energy and money into my business than I did learning the hard way how to buy houses, and everything else.

Again, to answer your question, I think real estate, by far... but also understanding different types of real estate, passive versus active, I think that's where the win's at for sure. And then the debt that's associated with. There's not very many things, whether active or passive, that you can get the benefits that you can get out of real estate while leveraging debt too, and getting, 7 cents of debt on every 10 cents, or whatever the number is, but real estate by far. Love it.

Kevin Schneider: We do too. We do too. And looking at your white paper that Mike referenced it, we could tell you've been educated. So you have definitely been going forward thinking even on the Tax PA. It looks like it was written by a CPA. That's a really good white paper- encourage everyone to go download it.

But I love what you said also on the pact investing passively and you've mentioned [00:03:00] passive and active. Mike and I have gone on our prior podcasts about those different buckets of income, passive income and active income, and generally most everyone's tax problem's an active tax problem, which is your W2, your self-employed business.

If you're actively running a business that's in the active bucket, and you can't invest passively to offset active income because they're in the different buckets. But the trick is how do I passively invest but get the benefits of active losses from those passive investments, and there's so many ways to do that.

And that is one unlocks the hidden money is because we don't incur additional time requirements of managing and getting that active status, but there's ways to jump over those hurdles to where we could still be passive by nature, but we get active tax treatment, and you can have your cake and eat it too in those scenarios, and real estate is just such a great industry to do that in, is because if you're going to be a real estate professional, you're going to hit 750 hours a year in qualified real estate activities and over half your working time if you can hit that first step.

Now we just need to get some hard assets to manage locally, one or two rental properties yourself, you manage those two rental properties, you can actually make an election. Now to invest passively into other syndications, and make an election to group those syndication investments in, with those two assets or one or two assets, you actually manage yourself. Now the whole bucket is active, so you're actually doing, kind of, what Mike was laying out there as you can passively invest into something, but you get active tax losses on it.

Now there's those hurdles of real estate- professional designation, and things like that you know, every tax situation's different, but where we see this a lot is, let's say you have a high-income earning spouse. They're a doctor, W2, or they're self-employed and one stay-at-home spouse, or another one who just maybe doesn't earn as much. They can actually transition their career or on the side do real estate because they can hit the rep status and your spouse can actually hit obtain rep status, and we could use the high income earner's income to invest passively and to investments, but that because of the real estate professional spouse, we could use those investments to offset the high income earning income.

So, we don't want the tax, this whole tax tale to wag your lifestyle. We don't want you to force you into real estate or force you into something. You're going to be miserable. But if you do maybe have a passion to owning one or two local rental properties in managing them, and you're staying at home, or you have a job that you don't like and maybe you want to transition careers, there's terrific opportunities to invest,

and then once you get those investments, just link up with Mike here and start getting into some syndications and realizing those tax benefits from a higher level that are going to offset your active income.

Mike Pine: Yeah, just from a bigger picture, if you go back to the book that I suspect almost everyone's read, Rich Dad, Poor Dad talks about the [00:06:00] quadrants that you can be in if you're just, what'd you call it, a wage slave? If you're a wage slave, is that right? I love that. I love that. If you're a wage slave, there's only so much time in a year, in a day, or in a week, and you can only earn so much.

It's not scalable. It cannot really produce good financial freedom, cause you're always going to be trading time for money, but if you can find ways to grow exponentially, grow your net worth or your financial freedom through some type of more passive activities, that's scalable. Passive activities are scalable, active activities... again, it's only 24 hours in a day. There's no way you can make more of that.

Mike Ayala: I love it. And yeah, and one of the things that I've often said, my wife actually told me not to say this when I first ran it by her, but I just can't not say it. Your boss will never pay you enough to be his neighbor, and when you hear that, it just, opens my eyes to what we're talking about with like wage slavery.

There's nothing wrong with being a W2 employee, and I want to make that clear. Like, If you love your job and you want to be there forever, that's great, but again, your boss is never going to pay you enough to be his neighbor, and so you have to figure out how to make good money, and whether that's in your W2 job, or whether that's in the business that you're running, or whatever, we have to figure out how to take that money that we're earning and deploy that in the best way possible to get a return on it.

And as you guys know, and your audiences probably knows or is learning, what's even better is when we can deploy that hard earned money that we're making, keep more of the taxes that we would be paying, and invest it making more return, keeping more in the taxes. So, when you hear that statement, your boss will never pay you enough to be his neighbor,

if you want to be your boss's neighbor and continue to work for him, you got to figure out how to invest with other people, or invest yourself with real estate, or start a side business, or whatever that is, and that's the reality of- No.1, keeping more of the money you make by not paying taxes, or No.2, make more of it.

And we just have to figure out how to condense that time because again, like we've talked about, nobody has any more time in the day than anybody else. So, how is my boss doing this, and how do I become his neighbor?

Kevin Schneider: You've landed some bombs on us today. That is great. I've never heard that before. Never heard that before, but it's so true. It is very true.

Mike Ayala: Well, I remember one day when I was a young laborer working for my boss, Doug Snyder, and he called me up and said, “Hey, I need you to jump off this job and go up to my house. There's a truck there, a sofa that my wife needs help unloading.” --And I remember seeing my boss's house, like, unloading the sofa, and I was happy to do it.

I actually really liked my boss. He was a good guy. But every time I go do work at his house, I'm like- how do I become his neighbor? it was not by working for him, I know that.

Mike Pine: If we can enter the Mike Ayala Coaching 101 class. If you're someone who is W2 or has their own business, but they're stuck trading time for money, they're the wage slave even if they love their job. What are your top few tricks or tips? I guess not tricks... tips on how to expand your horizons?

Where to [00:09:00] go? How to get started doing something different?

Mike Ayala: I think the first thing, which may or may not be obvious, for me it's something that call REM and depending on the age of your audience, it's not the band. REM- I love that band. Yeah. It's something that I sum up as relationships, experiences, and memories and what that really means for me.

Like we talked about the Investing for Freedom podcast and if you listen to that podcast, some of it is about tactical investing, but most of it is about figuring out what you really want in life, and bringing on guests and people where I dissect, know, what they did and why they did it, and more importantly, know, what's driving them, which is the question that I think we really need to start out with.

So I think a lot of times, know, when people are starting that journey, whether it's quitting their W2 job, or they want to start a business, or they want to start investing passively or actively, or whatever, it always becomes about this number. I just want to make an additional $10,000 a year or $100,000 a year, or I want to get to a place where if I have to in five years, I can replace my $100,000 salary.

That's usually where we start, and I think that's a good place to identify the number. But I think what's more important is really identifying why do you want that? Do you want an additional $10,000 a year? Because you know you want to take a vacation every quarter with your family instead of once a year.

Do you want it because you know you want to have $100,000 in the bank just in case. Do you want it because you know you want to be able to quit? So what's the 'Why' behind why you're doing it? I think that's the most important part because we always lead with the number. I want X amount a $100,000 in passive income.

And really, I think that's the wrong question because I don't know many of us that are motivated enough to not buy a Latte every day in order to save an extra thousand dollars. That's not the mindset or the place that I would want somebody coming from. know, I coached with Dan Sullivan for a long time with Strategic Coach, and he always said, “The eyes only see, and the ears only hear what the brain is looking for.”

So, until we really figure out what it is that we actually really want, our eyes can't go to work, and our ears can't start hearing where the opportunities are. So, my first thing would be get really clear on why you want that extra money, or why you want a passive income, or why you want to start a side hustle, or whatever it is.

Get really clear on the why behind it, because when things get difficult, investments are challenging. Properties don't perform the way they're supposed to. Investments that you get into might run into challenging situations. I've had all of the above and we always talk about our wins, but I have plenty of black eyes from business and investing,

and anybody that tells you they don't is lying to you. So, when those times get hard and you really understand the 'Why' on why you're working a full-time job and doing a side hustle, or why you're working a full-time job and analyzing investments, when things get hard, you'll remember, you know why you're doing it,

because $100,000 is not enough 'Why' for most people, when we really get down to it, we're not really doing this for money. It just so happens that we need more money to do it. Whatever it is [00:12:00] that we want requires money, and so that would be my first piece of advice is just get really clear on why you're doing it.

And then my second piece would be to know, just really find a lane and stick with it, because we know this every time I hear somebody with a new investment opportunity, or a new idea, or a new business venture, I'm like- I could do that too, and it's true. We could do that, but the reality is there's so many people out there that have a business, and they think they want to, and it could even be a job,

they think they want to quit their job, or they think they want to sell their business or shut their business down because the grass is always greener on the other side, and I'll tell you, when I sold my business in 2014, I've often said it was the best and worst day of my life. Because I'm 34 years old, I'm making enough residual income from that business for 10 years.

So I'm still getting paid from that business exit, but it was the best and worst day of my life because I woke up and I didn't have a purpose anymore. And yes, I'm 34, and achieved the American dream, but really that's not what we're looking for. It's not a monetary exit that all of us really want. It's like a purpose and a passion and contribution.

Whether it's your W2 job you're wanting to quit, or you're wanting to close your business down so you can get into passive investing because everybody says it's so much easier, or you want to move from somebody that owns 100 know, doors to a syndicator, it usually just gets more complex and we don't see the problems that are coming, and so, really getting clear on why you're doing something is super important.

Mike Pine: I love that. You also mentioned you've got a lot of black eyes. I say that my opinion is- and so do I. I continue to get them almost daily, both at home and at work, but I think there's a ton of hidden money in our failures, in our mistakes, and in our hardships. I know I have learned so much through the mistakes, and you could either. There's times where it just really hurts, man. You get kicked down,

and you can either sit there in a fetal position and just give up, or... and sometimes I've done that, I'm not going to lie... or you can get up and say, 'Okay, this is what went wrong.' and let it make you stronger and better. And I would say, in just about every client I've seen that is successful in our life, in our firm's life, those who leverage off of their mistakes or the failures, are the ones who seem to succeed the most, because you can't pay for those kinds of educations.

Or you do, but you can't go to a school and pay a couple hundred thousand dollars for a four year degree to learn the lessons that you can learn from a real big mistake. Would you agree with that?

Mike Ayala: A hundred percent. The trend that I've seen in those, like you were talking about your clients know, people that learn from that, it's usually taking ownership, and this is one of my biggest challenges when it comes to employees... and I've taught my kids this, it's like I remember A Bug's Life, and I don't know how many of you love that show, but Grasshopper shows up and he's talking to Princess and he's like, “Where's my food?”

And giving all these excuses, and Grasshopper, like- stomps. like, First rule in leadership- it's always your fault, and that was like a moment for me years ago watching this, because know, I've told my kids this and [00:15:00] I've told my employees this, it's like I just hate excuses, and I'm not one that's going to try to give you excuses either.

And I think the majority of people that take those black eyes and do what you're talking about, Mike, is because they take ownership, and even if it was extenuating circumstances, Covid or 2007, or some client went bankrupt on me talk about all the reasons why it wasn't your fault.

That's not where the experience is because whether it was my fault or whether it wasn't my fault, I probably had some part to do in that I had a goldmine go bankrupt on me that owed me $400,000, and could've started whining about it, the reasons why it was their fault, but I started looking at- we had them on a seven day pay term too, because we knew they were struggling,

So, I could have easily said there's nothing I could do about it, but I looked at that and said, “You know what, never again.” Even seven days out, I thought we were doing well. There was a time where I got sued because a blind guy fell in the ditch that my guys were digging.

when I look at everything, the guys were like making excuses. They're like, we did everything we were supposed to do. They left for lunch and they caution-taped the ditch, which is what they were supposed to do,

but the blind guy's walking down the trench, and his seeing cane doesn't feel the caution tape, and he falls in the ditch.

And so, what do we do? We could have said, “Oh, it's not our fault there.” --We learned from that experience and from then on, we put orange mesh fence up. But every time you fail, know, if we just get better because of that, then those are the people that win like you're talking about, Mike, and get better.

But most people just want to give excuses, and I told my kids this from the beginning, “I don't care what we go through, just don't give me excuses and don't lie to me, because we can work through anything else. Let's just figure it out and let's learn the lesson.” --But most people don't want to do that.

They want to blame someone else. They want to blame the economy, they want to blame Covid, they want to blame their vendors, They

They want to blame their CPA. Just... Take Responsibility!

Mike Pine: Hidden money and taking responsibility and not making excuses. I like that. It's very true.

Mike, you mentioned how important it is to get... and we talked about this earlier, to get people that fills in your gaps of where you're not really strong at or great at, or just areas you need help in when you're starting out. Maybe not in the very beginning, cause I've seen way too many new businesspeople and new business owners invest way too much in a legal team and a CPA team and advisory teams and consultants, where they go bankrupt.

You got to have money before you can start spending it. You got to make a model, but maybe after you start getting your feet up underneath you, what is Mike Ayala's dream team that he needs to build around himself?

Mike Ayala: For the business owner or investor or whatever it is, I have this little saying that applies to this question and many others, and it's always- Lead with your need. And so usually, there's a pain point in your life or in your business that will show you who that team person or team member is that you need,

and segment this quickly because I think, there's certain team members that every business owner should have in some capacity. I love that you positioned it that way because, not everybody needs a $300,000 a [00:18:00] year CPA, if that's a thing.

I don't know.

Mike Pine: We're trying to make it a thing.

Kevin Schneider: I wish.

Mike Ayala: Yeah, everybody needs, in my opinion, legal, CPA, that kind of stuff, but there's industry specific too. And I said this earlier, as HVAC guy wanting to grow my HVAC business, I went and found an industry specific coach and I was leading with my need because I understood that there was gaps and weaknesses.

But I'll tell you quickly, and I'm not saying this just cause you guys are on the call, I would say this- I have a tax report for this reason. I think that legal and CPA are... and when I say CPA too, tax and wealth strategist kind of evolves into that, and you guys know this, like even within legal, there's people that will represent you when you're in trouble, and then there's general legal advice, and then there's syndication attorneys, and then there's all kinds of different... there's asset protection and trust,

and so, it gets complex. But really, I think every business owner should have a legal team and a CPA team that talks to each other, and I think this is important, and I'll give a quick example. When I sold my business in 2014, I ended up selling it to my business partner. He bought me out, but prior to that, we got a phone call from KPMG.

They were representing a $8 billion a year multinational company based in Finland. I thought it was a joke when they called me, but then you fast forward eight months later and we had gone through eight months of due diligence and negotiation and they wanted to buy our mining division, and the deal ended up falling apart at the closing table because they wanted my partner to work for them for three years, and this salary...

and we were about a million and a half apart. But then I ended up selling the business to my partner, because through that process, I realized that I no longer wanted to be in that business. Not because I didn't love the business, but because of values alignment, which is a whole other conversation, but as we were going through this process and getting to the closing table of the second version, which was my partner buying me out, our attorney was at the same table with our accountants and our attorney made this comment.

She was talking to my CPA. She said, 'I just went through a transaction with a big firm from Nevada and one out of Salt Lake, and one of the guys that was selling had a business partner and they had multiple businesses... and so they brought up this point'..' I'll make a long story short- my attorney said, I don't know what it was called,

it was called some kind of like, 355-something, and so my CPA went to work on this to try to figure it out, and they connected with the CPAs from the bigger firm, and what they found out was we owned a bunch of real estate together and we had a bunch of businesses together, and so, we did a one-time stock exchange that was allowed in the tax code,

and it saved us a ton of money in transactional taxes. Actually, I don't know how much I should put this out into the ether, it's fine, but we ended up just transferring ownership in certain businesses to other businesses, and I became an employee of his company for 10 years,

and so, just by restructuring, some of the internal things that we did, and having that attorney that was at the table that just made one little comment, when... you can't expect your CPAs to know [00:21:00] everything, the attorney's the one that actually brought it up, and then the CPA went to work on it,

and it created this huge win for all of us just by having the right team at the table. A good banker- everybody should have a good banker, because the reality at the end of the day is (and Trump said this years ago), you need to borrow the money when you don't need it,

but what we tend to do.- go try to meet a banker when we're in trouble, and that's the worst possible time to build a relationship with your banker. So same thing with a lawyer too, by the way, or an accountant. Like the last thing... most people want to wait until April 15th to try to solve their tax problem from last year-

Way too late! Way too late! So, be proactive, and I think those are probably the key things if you're in real estate, obviously a good real estate broker, property manager, all the above, but those are industry specific. So every single business owner investor should have a good attorney and a good CPA, and probably a good banker.

Kevin Schneider: There was a time in my career where I was like- Okay, I'm a CPA, they're coming to me, I need to know everything for them- and they would ask me questions and I would just be like- Yeah, let me get back to you.

And I would just comb through the tax code, comb through this, try to figure out this calculation, when now I know when to raise my hand and go, 'This isn't my specialty. I can look into it, it's going to be expensive, but I already have somebody in my network who's solved this problem a hundred times over.'

So, why not I make a handshake between the two of you, and that's a big part of it is just saying, 'Hey, I can't do everything, but when I know I'm out of my comfort zone, I'm okay with raising my hand and bringing someone who is comfortable.' So I think that's a very good lesson for professionals out there.

If you see that in your professional though as well, if they don't ever say, 'Hey, I need to bring in an R&D Credit Specialist, or a Cost Segregation Engineer, if they're trying to be a Jack of all trades and do everything- Hey, I'll create your LLC for you ,and I'll do this.. Be cautious! Because there's so many traps when you get into that.

There's so many specifics that you really need a specific consultant for that need. Mike, it was just a terrific time having you. You're just an amazing guest. For all of our listeners out there- Go get that white paper! www.velocityventurepartners.com/tax, and you can also reach Mike at Investing For Freedom with Mike Ayala.

That's where his podcast is. I'm sure you loved what he was saying, and you can go, just go binge on his prior episodes on his website there too. So Mike, thank you for being a guest here, and yeah, we hope to have you again further down the line.

Mike Pine: Yes, please!

Mike Ayala: Thanks for having me. It's been great. It's great talking to you guys as always.