Episode 4: TAX FREE Wealth Strategies for Real Estate Agents

Peter Lount (00:00):

Think about this, right? There’s three places where your money can go in transition. One is to your family, two is to CR, a, and three is charity. You can only choose two. Which two would you choose?

Chris Cook (00:22):

Today I am joined by Peter Lount, someone that I’ve had a ton of conversations with about building and protecting wealth as a real estate professional. If you’ve ever wondered how to keep more of what you earn and give less to the CRA, this episode is for you. Peter, welcome to the Mind your Real Estate Business podcast. I’ve been on your podcast before, which is Cashflow Canucks, which you’re still running that right now, are you not?

Peter Lount (00:53):

Yeah, I’m doing, I’ve kind of transformed it a bit and really to me has just been creating more focus. I think Cashflow Connects is so wide varying in terms of just creating, it was across topics, various topics of creating wealth and prosperity, and now I’m focused really more so on what I do, I’m super focused on, my primary role is in life insurance and we focus on things like tax mitigation, but I’ll simplify it down to three main things that we really look at is dealing with. I won’t teach people how to necessarily make their wealth. There’s so many varying ways to do it, right? You make it through real estate, you do it through business. All these different ways. I’m teaching people how to create pipelines to move corporate wealth to personal wealth saved so much money in there, but they don’t know how to get to it at the end of the day, right? It’s stuck in a corporate without having to pay massive taxes. So create pipelines to move corporate dollars to personal dollars, create tax related savings in your corp. And the third one is a combination of taxes and giving back is turning taxes into charity. Those are the three main things I focus on these days.

Chris Cook (02:06):

Awesome.

Peter Lount (02:06):

Yeah,

Chris Cook (02:07):

I mean I really wanted to get you on, you and I have had quite a few chats over the last year or so especially, and it really resonates with a lot of the work that I’m doing where I’m talking with real estate agents that like myself, they don’t really have a firm grasp on what to do with the money that they do make, how to protect it, like you say, how to stop from paying any undue taxes, how to save, how actually improve their financial position. And that’s really why I wanted to bring you on here today. I think it’s such an important part of building your business is understanding how is the cash flow, how are you going to set yourself up for retirement one day? That’d be nice. So I wanted to start by rewinding and going, let’s talk about business and financial planning for dummies. Let’s start as if you were talking to somebody that was brand new coming into real estate, they got no business training. What would be a place that you would start if you were a brand new real estate agent with not a lot of savings and assuming that the first year you’re going to have an income somewhere in around 80 to hundred thousand dollars, what does that look like for you to start on some long-term investment planning?

Peter Lount (03:35):

And to me, again, to me at the end of the day, you got to divide it up into different components. One is what is your burn rate? What are you going to be making for your, what do you need to live off? Two is if you’re running a business, a real estate business, whether or not you’re part of a team or your individual, you got to understand what your budget is to run that setup from a business perspective. And then after that, okay, what are we looking at in terms of savings? So after all said and done, where is that money going? You’re in 80 to a hundred K. You’re probably not at a point where you’re setting up a corporation at this point, but good to be mindful of. Where I get into a lot of where I focus on is just educating, being ready to build some of these, putting the right components in place to build a foundation for you to, when your business does grow or multiply, to have a place to put it right.

(04:33):

And one is going to be you guys are in that world, you’re living it, breathing it every day is real estate is great, but understanding the implications of that as you build out that business, you build out your wealth, where is it going? So there’s two components where that can play out is that wealth. You’re building something in real estate. Every dollar we make, the government’s going to take a piece of it no matter how much you have in there. Inevitably any kind of transition you have in that wealth, the government’s going to take their 25 plus percent out of it just in capital gains alone. But if as your income goes to higher income tax bracket, like say two 50 plus, they’re taking over 50% of it. So let’s put structures in place. We get into some of the more mature or say prosperous agents that are working as look at structures like putting in a professional real estate corporate PC place is very common. So building the right structures and be able to facilitate growth at tax minimized state for each of them.

Chris Cook (05:38):

So I think the thing that you said there, it was a number that I was given, and obviously you’ve got to understand what your personal burn is, how much it costs you to operate your business,

(05:50):

And then there’s that magic number is kind of like that two 50. Once you get over top of that two 50, then have that different tax burden that you flip into. And that was kind of where I was told at two 50. That’s where you want to consider having, being able to set that up and any residuals go and get protected from that larger tax implication. Would you agree with that? Is that something where you would say, if you were to go draw an arbitrary number in the sand, would you say it would be two 50?

Peter Lount (06:23):

Yeah, that’s an easy number to look at just to give you, just to draw off an napkin kind of number. If you’re making two 50 just as a personal agent, personal income tax is going to be about half that. So immediately 120 5K is going to tax right off the top, whereas you have it running through your professional cork first. It’s a way of creating, in a way, a tax defer or tax savings is that same money, say the two 50 is going to flow into that corp first, and if corp’s only going to be up to the first $500,000, you’re going to be taxed at 12.5%. That’s almost 40 cents for every dollar. You’re able to save in a way more tax efficient manner. The second step is, okay, how do I get that out? Because never it’s still going to be 50%, but that’s where we work with them to find out what’s the best way to create that pipeline to get it out. And depending on where they are in their journey, we find the right kind of pieces to put in place to maximize that for them.

Chris Cook (07:26):

Tell me about that. That’s something I think that you and I have talked about this and there’s still, I think in my head it’s a little bit fuzzy. It’s like, okay, what does that mean? We’re going to find some other avenues to be able to draw that money out.

Peter Lount (07:42):

So without getting too deep into the weeds on tax code or that kind of thing, but there are mechanisms in place that are set up that can help you at the UME level that they’re available to us for us to work with the tax code to maximize our outcomes. So just to simplify it is one is you’re going to have your income coming into something like a corp, right? You’re going to get 12 and a half cents of every dollar is going to be sitting there. So we want to set up structures to be able to, one is to maximize tax savings, but two, also to protect it. So protect us from say, market risk or someone suing us, anything like that as well. And so to maximize that, typically we’re going to use structures. It could be something like if we’re doing any type of investing with that money that we’re saving inside our court, we might set up a holding company or a family trust. Those are two kind of things. But then also where I play in is putting money into something like tax exempt life insurance. When you put that in, there’s some really cool things that sing with the tax code. So as an example, when these contracts pay out, it allows you to move money out of the corp tax free. So it implements there’s, there’s nominal notional account called the capital dividend account basically becomes this pipeline where you’re able to move money out of your core tax free over time.

Chris Cook (09:21):

So I’m sure it’s not the first time you’ve heard this. Okay. So I’m going to tell you, I sort of what the interpretation on the street is, is that this is some kind of scam. It seems like it’s cheating whenever I mention this and I know I don’t do a super great job of really explaining what this opportunity is, although I think I have a pretty good grasp of it. When you tell people this, I mean, does it seem like it’s the feedback that you get is where people have some initial pushback on it where they think that there’s something extra legal about it?

Peter Lount (09:59):

Yeah, I would say in general, the ironic part is that when we look at something just to be put stand life insurance on its own side

(10:09):

Is it’s been around since before tax code. It’s been around for all the companies work have been around for a hundred plus years. Company like Canada Life’s been around since 1847, been paid out since 1848 every year. It is boring as heck. It doesn’t, you’re not going to see it grow massively like you do some of these other products. So yeah, it is definitely a mind shift. It doesn’t have the sexiness of real estate is or doesn’t have the sexiness of the stock market does. I guess the way to think about it is as we see, we’re seeing this stuff going on with tariffs and market volatility. We’ve seen already in the last five years, we saw this whole thing with Covid and now we’re seeing this thing with the US election, all that. There’s massive swings and this is not, I think the mind shift is, don’t think of it as a replacement for whatever you’re doing financially.

(10:59):

I am not going to tell, again, I’m not going to tell someone how to build wealth, but I’m going to defend your wealth. I’m going to act like the quarterback to defend everything you have in there. And so when you integrate this in as a little slice or a piece of pie in what you’ve built out, so you may have a growth part of your portfolio, it’s a big part of the pie. It might be 60% of it, but you may have a lot of fixed income, so you could have have cash, you get bonds. That’s where this maybe fits into. It’s a slice of what you’re putting into. And the amazing part of it is it’s tax exempt. So if I compare it to equities, whatever it is, they got to be growing it like 12 to 14% to even match with this grows at and this grows guaranteed every single day.

(11:43):

So yeah, it is a bit of a mind shift, but it’s how it compliments what you’re doing. It’s not to replace anything you’ve got, honestly, the best exercise is we go in, we do a pretty deep overview of how you’re set up and understand when you see the taxes that are owed on whatever you built. You’re like, okay, so many people are like, my kids are going to do all right, I don’t need to do this. But when you see that you’re paying 50% tax or whatever it is, you’re paying millions of dollars in tax to the government when you could just redeploy it and think about this, there’s three places where your money can go in transition. One is to your family, two is to c, r, a, and three is charity. You can only choose two. Which two would you choose? And to me it’s an exercise. It’s being aware of where your money’s going. At the end of the day. There’s relieving a lot on the table, let’s say that’s going deploying to the CRA without even knowing it.

Chris Cook (12:43):

So let’s back this up again to that new realtor, somebody that’s been in the business only for a couple of years and they’re just at the start of being able to, they’re at the start of building their wealth and let’s assume that that agent has established what their burn rate is for their business and personal. They have a portion of their income that’s going towards savings and they want to explore some of these avenues on how to protect that wealth long-term. At what point is it worth somebody reaching out to you or somebody like you to say, okay, I need to get started on this from an education perspective or even from starting to put some money into it and protecting it that way.

Peter Lount (13:28):

And to me it’s not like, okay, you’re going to break the bank to get into it. It’s taking that time to enable yourself. I’m continuing you were as well. You’re in this field of educating people. My job is to educate people, make people aware of and what they’re at. But I would say start at the beginning. Start when you’re starting up so you’re aware of, so when it’s time to do it, you don’t have to go all in on it. It could be something like we put something like people are familiar with. I think it’s even a requirement as an agent to have term insurance in place like green shield I think is the minimum that you have to put in. It would be something like this that you can take and as your business grows, you can actually convert it to one of these policies and grow over time.

(14:13):

So I’d say, and the funny part is it doesn’t, a lot of times my exercise is just like it’s a health check. Where are you at? Where are your hotspots? Where’s your check marks and where’s the XS that you want to improve over time? A lot of times it may not even involve insurance at all. It could just be as simple as getting a right will in place if you don’t have a will in place. The government’s going to eat up wherever you got when we pass, the first bill that goes to is the CRA. You don’t have control over it. And that’s not even talking about personal family things, all those other pieces. It’s like let’s just get the right pieces in place to ensure that you enable the outcome that you want to have happen. So I’d say yeah, you’re literally just starting out. At least take your time to educate yourself so that you’re in control of your own prosperity.

Chris Cook (15:00):

Yeah, I mean it’s certainly, I think a mistake that I made early on is not making, checking the correct boxes to make sure this is where I’m going to save. This is where that money is going to go. This is how we’re going to protect it. I’ve sort of made it up as I’ve gone along and I’ve gotten a lot of stuff wrong. I think it’s interesting, I’d be curious to ask you, how many business owners are brand new, newer business owners that are within the first five years of entrepreneurship are coming to you or to your colleagues? How many people start with this?

Peter Lount (15:34):

People are not running towards this. Let’s put it this way, because they’re busy building their business. I get it. As you’re building a business, that’s where you’re focused on. You don’t have time to get into these types of things. So my responsibility is to make people aware of how this works. That’s why I’m meeting people for coffees or for breakfast before they get up and running in their day to day. So we’ve got clients that literally have tens of millions of dollars, even a couple hundred million dollars a year, they don’t have a will in place, don’t have a proper updated estate plan in place. And it’s a big gap. It’s a big hole when you’re talking, you got a hundred million dollars, that’s like 20 plus million dollars is going to go to the CRA right away. So for me to say, it’s like you need to do this as soon as you start.

(16:14):

I’m like, no, I get it. It’s not something as you’re building a business that you’re thinking about, but my responsibility is I find is to get in the minds of people just so that they’re aware and just when it’s time for them to enact on it, then there you go. The bonus to all of this is that we do it in a way that’s cost neutral too. So it’s not that you’re just, you got to break the bank to put something into it. There’s a way of using it, much like we do with real estate. We got real estate in place. Real estate is you have your market value and you have your equity that’s building inside of it. We can actually use it real estate so we can leverage that asset to use real estate. And all do is servicing interest on it.

Chris Cook (16:59):

I mean it’s unique that way. Real estate is, they always say real estate’s the only thing that you can really leverage as one of the few things that you can leverage the way that we do. And so what you’re saying is actually that this term life insurance, these policies can actually be leveraged, leveraged as well?

Peter Lount (17:17):

Yes, they can use some of that. The banks will allow you to, they eat them up. You can’t just go to your corner branch to get it done. We have specific parts of financial institutions that we’re working with to do it, but they will take on up to a hundred percent of the equity you’ve put into it and they’ll give you a line of credit. I’m really oversimplifying that part of it, but definitely there are ways of using it where now your money’s duplicating over and over and think about this too. Here’s the bonus when you use it and compliment to real estate, think about, okay, Chris, you name me. There’s actually four assets that we as Canadians can take advantage that are tax free. Can you name them

Chris Cook (18:06):

Your primary residence?

Peter Lount (18:08):

Right?

Chris Cook (18:09):

That’s it. That’s all I know.

Peter Lount (18:12):

Well, we have a government run program, the TFSA, right? And you see you’re kind of tied to that, right? And it guess around $7,500 per year and if you add that up, it can you do well with it, then there’s potential, you’re restricted to what you can put it in. But that’s where that goes to and I think that’s a great compliment. Third one is the lottery. I don’t play the lottery. It’s tax free, but let’s not say, let’s not count on that happening. Last one is life insurance too. So it’s just another, it’s kind of one of these little exceptions to the case. So why would you not take advantage with a slice of what you’re building out? So when life happens, whether or not it’s planned or not, there’s that tax bill to pay. This gives you instant liquidity to allow you to not have to sell your real estate portfolio because say you have a real estate portfolio of $10 million and you owe almost $3 million in tax, what are you going to have to do?

(19:08):

You might have to sell real estate. You may have to go to the bank and borrow, and I don’t dunno if the bank’s going to lend you money to do it, I don’t know how your bigger mortgage are. Is it the golden goose? You may have to decide you going to sell the one’s going to that’s low performing, resell the golden goose. Where’s the market at when that’s happening too? If we’re in a market where it’s either flat or it’s down like 10, 20% even for a few months, you don’t want to touch it, right?

Chris Cook (19:34):

Yeah, yeah. Every time I talk to you, I wish that I had have gotten started with this sort of stuff sooner, and it is full disclosure for anybody that’s watching. Peter and I are probably in the next couple of months going to be setting this stuff up and having these conversations. I am really late to the game on this and it’s something that’s really intrigued me. I always felt like I wasn’t in a position to do it because I was doing something else and I felt like I am going to need half a million dollars to get started on this or something like that. How incorrect am I on that?

Peter Lount (20:09):

Yeah, I would say two things to what you said there is. The first question I’ll ask you is when’s the best time to plant a tree?

Chris Cook (20:17):

Yeah, exactly. Right now, today.

Peter Lount (20:19):

Yeah. Yeah. Best time is probably 20 years ago. If not, it’s today. So I would say, yeah, just go through the exercise, get a good understanding of what it is and our responsibility as advisors is to quarterback that defense. Again, there is so much money that we build on whatever we’re doing, whether or not it’s active income or it’s assets. So think about the exercise is about moving your taxable wealth to UNT taxable and you’ve got two types of taxable. You’ve got taxable now in terms of income, you got two as taxable in terms of deferred taxes, whether that’s RSPs or capital gains, and then you move it to a shelf. That’s all we’re doing. Just reshuffling your financial furniture in that way.

Chris Cook (21:06):

I love that and it is something that I know a lot of real estate agents say, the best time, the best time to sell, the best time to buy real estate was yesterday, the second best time is today. And you’re saying the same thing. And I think it is. Certainly there’s a lot of people in this industry and every industry that could do a better job at their investing and they’re protecting their assets, protecting their wealth as you put it. My advice, and from what I’m gathering from this conversation and everything that we’ve talked about up until this point is there are a lot of people out there I think that have taken that first step of getting their P set up. They could do a better job of protecting the money that is going into there. There’s ways that they can free it up without paying taxes or having the same tax burden on it. If I was going, if I was going to get started on something like this, I wanted to do an exploratory sort of session, what would I do? Would I just call you Peter and book up a lunch?

Peter Lount (22:11):

Yeah. I’d say the best way is just to understand. It’s really understanding you where you are in your journey, where you’re trying to accomplish, and then we intake. It’s kind of like taking the inventory, understanding all the different components that you’ve created, whether it’s active income, passive income, assets you’ve built out, do you have things like wills in place? It’s kind of like an interview concept in a way really to understand how do we maximize what you want do. The other powerful piece that we add to this too is, so I’m part of an initiative to help Canadians donate over a billion dollars to charity on an annual basis. So doing things like we donate on, we donate to charity. We typically we’re doing a cash and check, so it’s like an after tax dollar and it’s like, so we’re donating a hundred dollars $2 at a time, but you get a point where you may have a lot of this wealth built up. We look at things of donating taxes to charity. So a lot of that involves donating capital gains to charity. So taking things like equities, stocks, wiping out the capital gains and getting a tax credit back and not taking away from your family, but working with the government to remove taxes and give to charity.

Chris Cook (23:26):

Yeah, I love that you brought that part up and made a specific point of talking about it because it’s actually something that our brokerage is the largest, I want to be careful I don’t say something that’s not true, but we give a lot of money to Children’s Miracle Network. There’s a large organization at the brokerage here for Hallmark Giving where the huge sums of money get donated. I think we’ve donated over $4 million to the Children’s Miracle Network since its inception. They are really big on this. And if there were ways, I’m sure if there were ways that people could do where they could give more, knowing that the money was either going to go to CRA or it was going to go to Children’s Miracle Network or some other cause that we support as highly as we do, I know I would sign up for that in a heartbeat. I would much rather that money go to a children’s hospital than to the CRA.

Peter Lount (24:28):

Yeah. So two things to that, to answer your previous question, I don’t think I finished. What I should have addressed earlier was, so we intake what you have. We provide out our exercises to build out a solution to review yourself, your spouse, take that back and go, okay, here’s what income looks like. Here’s what the asset build is over time. Here’s as you go through transition, what that tax burden will look like. And then we come to you with different options, whether or not it’s for return, whether or not it’s for state, whether not it’s for charity. Build up those solutions to give you options to how to do that. The example gave you of charity. So I’m working with one of my mentors, mark Halburn is really, he’s the guy that’s really behind building this initiative to bring power to this charity initiative. And one of the examples he will use is a family that has over 50 million of wealth.

(25:19):

We have $10 million that’s due to go to CRA on wealth transition. And the exercise he did was take some of those gains that they had, donate it to charity, and the net result is $40 million net to family ends up being 50 million to family, 20 million to charity and zero to CRA. And you’re not circumventing the rules. You’re working with the government in the 20 some odd articles that they’ve legislated over the last 20 years. So you’re doing work with the government. This is not doing something offside. You’re literally doing what the government wants you to do. They don’t have the money to donate to all these charities. This could be a great thing that may compliment hallmark’s, donations to the Children’s Miracle Network as well too. So that could be something we can definitely talk to your team about it as well. I understand too. I see on real estate, you guys, industry in general is very giving industry, and I think if we knew we can empower people to give more than they thought they could, and one is to deliver to their passion more, but two is not having to give more to this area than they have to.

(26:36):

That’s always a win too.

Chris Cook (26:37):

Yeah, I’d feel much better about giving more money to Children’s Miracle Network, the MA instead of the C-R-A-C-M-N versus the CRA. Yeah.

Peter Lount (26:48):

Yeah.

Chris Cook (26:49):

I feel way better about that. Okay, so something that we are, you’re hosting some workshops and you’re doing some things coming up here. I think even at the end of the month you’ve got a workshop that you’re doing. I guess just to kind of round this out, can you tell us just a little bit, maybe give a little plug for your event that you’re running?

Peter Lount (27:13):

Yeah, and we don’t run. To me, my whole deal is it’s all about collaboration, whether or not it’s working, say someone like yourself in your industry, but just working with all the different professionals, so acting like that quarterback for your defense. So I work with CPAs, I work with lawyers. In this particular event, we’re going to event for high net worth business owners that are looking to transition their business. So what does it look like? So we’re working with a company called Resolve Partners. They’re a consultant that helps a business, same move. They’re looking to sell their business in two to five years. They want to accelerate or maximize the outcome. So one is just building value in that business before selling. So take it from a $10 million a year revenue business to 50 million before selling. That’s Steve Cummings going to speak about that. I’ve got a great speaker from Perview Capital.

(28:03):

He’s a chief investment officer of family office of over $300 million, and he looks at, what does he look for an investment? They invest in real estate, industrial real estate. They invest in businesses, but he’s still going to talk about that. And then I have my partner in my industry, mark Halperin’s, going to talk about what we do, and it’s all about let’s maximize that outcome. If you’re a business owner, like a true day-to-day business, say you’re not just in real estate, but you have say it’s just like an industrial business or something like that. You could literally between the gains on your shares, the gains on any assets you have in your corporation and as well the gains on transitions from the corporate to personal, you could lose over 50% of your wealth alone. So we’re looking at how do we circumvent as much as possible to maximize what you want to have happen, bring more prosperity to what you’ve accomplished and not be shocked and surprised when CRA comes knocking at the door.

Chris Cook (29:01):

I’m going to wrap it up here with just one sort of thing is that if there is somebody out there, I think there’s a couple of different steps along the way though. I think if you want to have a conversation about how to establish exactly what your burn rate is in your business and your personal life so that you can have some disposable income that can go towards savings, I think that’s a first step and certainly something there’s lots of people you reach out to for that, including myself. I do help people with that. But the next thing is if you have, you’re at that sort of $250,000 threshold or somewhere around, or you’re getting into a position where you are wanting to protect the money that you have made, then you can reach out directly to Peter. I can be a conduit for that.

(29:54):

We want to open this up for people that are finding success in real estate. They do have some money that they do want to make sure that’s going to be there after the CRA is done. I would invite anybody to reach out to me or to Peter direct and have this conversation about how we might be able to, I think first and foremost, give more money to charity, which is amazing. Redirect it. I want to recap that there’s three places your money can go, your family, the CRA or charity, and you get to pick two. I think everybody picks the same two things over and over again, but I don’t think a lot of people know that they have that choice.

Peter Lount (30:35):

Yeah, I think it’s just taking time. Everybody’s still busy and take half an hour of your time. It’s a pretty empowering conversation that you deserve yourself and you deserve for your family to have that. And yeah, I appreciate the opportunity to have this conversation with you. I look forward to expanding upon this conversation in the future, and he said, yeah, absolutely. It can be very empowering for an owner. If I look at a lot of realtors out there, they’re creating a lot of prosperity for other people. If there’s ways that we can help your yourself or your clients grow, it’s always something I love doing.

Chris Cook (31:17):

Yeah, I’d love to do a follow up with you after, hopefully we get a couple of people that are interested in reaching out and connecting with you, and then we can do a follow up, maybe a three, get another guest on here and the three of us can have a conversation about where they’ve gone with this and how it’s helped to secure their future and their family’s future.

Peter Lount (31:36):

Yeah, no, that’s great. I appreciate it and I look forward to that. Cool. Alright,

Chris Cook (31:42):

Thanks Peter.

Peter Lount (31:43):

Thank you.

Chris Cook (31:47):

Here are the top three things I took away from my conversation with Peter here today. Once your income reaches 250 K, it’s worth exploring corporate structures like a professional real estate corporation or prac to reduce your tax burden. You can use permanent life insurance policies as a tax exempt tool to move money from corporate to personal hands and even leverage them like you do real estate. And the last thing, at the end of the day, your wealth can go to your family, it can go to the CRA or it can go to charities that you care about. You get to choose two of those things. You probably know which ones you’re going to end up picking. If this conversation got you thinking, do me a favor, leave a rating and a review wherever you’re listening. It helps others find the show and brings more business savvy guests like Peter into the mix. Thanks for listening.