The Debt Millionaire

by George Antone

  good and bad. In fact it was debt that the ultra-wealthy used to shift wealth from the left

  side to the right side, thus the terms they used, “Paying” side and “Receiving” side.

  But not knowing how to use this weapon could really harm you.

  And that is EXACTLY the problem with most people today, they simply were not

  trained to USE it. The wealthy knew how to obtain the weapon, control it, measure it,

  and ultimately use it to become wealthy.

  So the problem isn’t debt itself, but rather HOW to use debt.

  He or she, whoever masters debt, wins. Pure and simple.

  He or she who plays with fire without being trained will hurt themselves. The same is

  true with debt.

  My mentor went on to fill in the gaps in my understanding of what we had covered that

  day. He explained that most people who mastered debt in conjunction with The WealthQ

  Method could reach financial freedom much faster than those without that mastery.

  He explained that most people think it’s the ASSET that they purchase that makes the

  difference. But the reality is different. The asset and the debt both fit into the bigger

  game of FINANCE. It’s a financing game, and the game pieces (think of Lego) such as

  assets and debts have to fit together to fit your financial goals.

  The WealthQ Method was a holistic method, taking into consideration how the finance

  game worked, and built to make the system work for you the investor.

  The mindset for most people is to borrow money (debt) to be able to buy an asset.

  That’s the wrong approach. The more effective way is to establish the correct type and amount of debt and equity against a stable asset to help generate a specific goal.

  You don’t buy a brick for the sake of owning a brick, but rather to build something.

  Assets are just a brick of the bigger picture. Debt is another. They have to be matched to

  fit well together to build a stable and strong foundation (also known as capital structure—

  more on that later).

  In fact the debt is where wealth is created, not the asset. The asset just allows you to

  obtain the debt.

  It boils down to this…

  The wealthy use debt strategically. They obtain the debt against low risk and stable

  assets.

  The rest of us use it as a necessary evil to buy assets, typically assets with a lot of

  volatility (higher risk).

  I recalled a conversation with my mentor that afternoon. He used an analogy to

  explain debt as follows.

  “If you want to drive from San Jose to New York, would you drive a slow car or a fast

  car?”

  “Fast car, of course” I chuckled.

  “What if your loved ones said to you that you should drive a slow car because it’s safer,

  what would you say George?” he responded promptly.

  “I would say then I wouldn’t want to drive, or I would say I would drive the fast car,

  but drive it at a pace where I feel comfortable. Just because it’s a fast car, I wouldn’t

  drive fast. But I would have the choice to drive a little faster than SLOW if I wanted” I

  replied.

  He paused. I could see the wheels spinning in his mind. He was trying to compose how

  to say whatever he was going to say next.

  He smiled and said in a slow pace “George, what you just said is incredibly powerful.

  With a fast car, you have a choice but with the slow car, you don’t. So pay attention to

  what I am about to ask you he said…”

  “What controls the speed at which you drive?” he asked cautiously.

  “Me, the driver?” I questioned.

  “Yes, but HOW do you control the speed of the car?” he asked as he leaned forward.

  “The gas pedal?” I questioned. I wasn’t sure what he was getting at.

  “Exactly George, you have the OPTION of controlling the speed of the car with the gas

  pedal. So is the fast car dangerous if you drive it at your own pace or even slow?”

  “No” I said confidently.

  “So what you are saying George is that the fast car is not dangerous if you control the

  speed with the gas pedal, but can be dangerous if you press the gas pedal all the way

  down and cannot control the car?”

  “That’s correct” I replied. I still wasn’t sure where he was going with that.

  “So let me ask you this George. Think about it carefully. When someone says a fast car

  is dangerous, are they saying the car itself is dangerous, the gas pedal itself is

  dangerous, or is the dangerous part the careless driver who is not properly trained on

  how to drive a fast car fast?” he asked as he smiled again.

  “That’s really interesting. I never thought of it that way, but it’s really the careless

  driver that is dangerous, not the car, nor the gas pedal. But what does the gas pedal

  have to do with this, and where is this leading to?” I asked.

  “George, the gas pedal is the debt. The debt affects how fast you go. If you drive too

  fast, that means you are using too much debt. The car is the asset. The gas pedal is

  debt. But it’s the careless driver that’s the danger. When people tell you that debt is bad,

  they are telling you the gas pedal is dangerous. They prefer you drive the slow car to

  New York. In fact, with no gas pedal, they are telling you to walk to New York! Because

  debt helps you move at a faster pace, and so having no debt, you have no gas pedal to

  press down. You are walking to New York” he explained.

  It was making sense.

  “Debt is not the problem. The asset is not problem. The careless operator is.

  Knowledge is what makes all the difference.”

  Debt is the gas pedal on a car.

  It all made sense.

  Debt was never the enemy. It was simply how fast you wanted to move towards your

  financial goals.

  You can move slowly towards your goals, or you can master debt and move much

  faster towards them.

  Or you can choose to call debt “risky” and be ignorant.

  Knowledge was the biggest differentiation factor here. Debt was a tool, a very

  powerful tool. It wasn’t the enemy. It was my ally if I simply took the time to study and

  master it.

  He would eventually take this understanding to a whole new level… Mastering debt

  was a lot more than just “good debt” and “bad debt”—it was science and art at the same

  time.

  My perspective was completely changed.

  It would change my life.

  I went from thinking about buying assets with debt to strategically using the right

  amount and the right structure of debt against the right asset to move me to the right

  side.

  That was a complete mind-shift.

  I also started understanding how debt was allowing me to play the “arbitrage” game

  between real dollars and nominal dollars. It allowed me to hugely benefit from that.

  And the best part was how much less in taxes I would pay when playing with real

  dollars because the tax code was based on nominal dollars.

  I chose to use debt as my strategic way to build wealth. It was now my secret weapon.

  I now knew, in fact, it is so much harder to build wealth without it—almost impossible

  actually.

  It was time I learned to become a “Debt Millionaire.”

  Chapter Summary

  · Debt can be used to make you rich or destroy you. Not knowing how to use debt could

&
nbsp; really harm you.

  · The problem isn’t debt itself, but rather HOW it is used.

  · People think it’s the ASSET that they purchase that makes them rich. It’s not. It’s much more than that. It is the asset, the debt and the way they are put together, among

  other things in the bigger game of FINANCE. It’s ALL these components together that

  can make you rich.

  · “Debt Millionaires” are the investors that understand how to use debt strategically to build wealth.

  Chapter Ten

  The Third Secret Side–The Key to Wealth

  My mentor had drawn this diagram on a blank piece of paper. He referred to it as the

  3-step process he uses in identifying the assets he would focus on to generate the result

  he was looking for, whether it was to generate income or growth in his portfolio. It was

  part of The WealthQ Method.

  Table 14: Asset Identifying System

  He called it “The Emile Approach.”

  “Prepare to step into the Matrix” he laughed as he started drawing a triangle to the

  right of the diagram above.

  * * *

  Most people on the left side of the WealthQ approach investing by picking some

  investment vehicle they like, for example “I like stocks, I’m going to invest in stocks” or “I like real estate, I’m going to invest in real estate.” They start by almost randomly picking

  a vehicle to invest in. That’s exactly what NOT to do. That’s the wrong approach. They

  will only find out the result of that random act many years later, and time is one thing we

  cannot afford to waste in this life!

  Referring to the table above, they start by picking “Vehicles” first (or assets), but as

  you can see in the table, that is step 3 in the process, not step 1. The table shows you

  the right order of the steps, starting from step 1 through step 3.

  When trying to identify which assets to invest in, “don’t fall in love with the

  asset, fall in love with the result”—so follow the system. Start with the result

  you are looking for, then build a framework that identifies the financial

  characteristics you need to accomplish the result you need, then find out which

  assets meet your criteria you built in your framework.

  So let’s start with step 1.

  Step 1: Pick the Result First

  The right way to approach this is to decide on the result you are seeking first, “Cash

  Flow” or “Capital Gains.” Your portfolio should have both. These are also known as

  “Income” and “Growth.” One of them generates income and the other increases in value

  over time. For example, typically people might consider bonds for income and stocks for

  growth (that’s a simplistic example). Another way to think of them is “Income” is used to

  pay for your monthly expenses and “Growth” increases your net worth over time. Again,

  you need both in your portfolio. This is covered in more detailed in my previous book The

  Wealthy Code.

  Your portfolio should have both INCOME and GROWTH assets. Each of these

  results will have its own framework.

  Step 2: Build the Framework to Accomplish the Result

  Once you decide which side you want to strengthen (the result you are looking for)

  from step 1, then focus on building a framework (the characteristics) to generate that

  result. That’s step 2. The framework you build to accomplish the goal for step 1 (“Cash

  Flow” or “Capital Gains”) will help filter out many of the vehicles in step 3 and also help

  you decide which vehicles will help you accomplish your step 1 result.

  Think of the framework as a filter. This filter allows you to identify which assets will

  help you meet the result you want.

  The filter is nothing more than a set of checklists and rules of thumb that you can use

  to identify which assets to use to accomplish your desired result.

  The framework you build to accomplish the “Cash Flow” goal is called a “Wealth Pair

  Framework.” The framework you build to accomplish the “Capital Gains” goal is called an

  “Equity Pair Framework.” These are discussed in my previous book The Wealthy Code.

  Figure 32: The Emile Approach

  In the diagram above, the Emile Approach is shown slightly differently. Starting from

  the top, you identify the desired result, then you move down to create the filter to

  support the result you are looking for. That filter will be either a “Wealth Pair Framework”

  or as “Equity Pair Framework.” Once determined, you run various assets through the

  checklist, and that exercise should help you identify which assets best fit your checklist,

  which in turn will support the result you are looking for. Your selections once identified,

  when combined with the capital to acquire them will result in the “Wealth Pairs” or

  “Equity Pairs” you need to generate the result you are looking for.

  For “Capital Gains,” you will need an “Equity Pair Framework.” For “Cash Flow”,

  you will need a “Wealth Pair Framework.”

  “Wealth Pairs” generate cash flow.

  “Equity Pairs” generate equity.

  Each “pair” consists of two things; the capital and the asset.

  They are “pairs” because we are combining two things, the ASSET and the CAPITAL to

  buy the asset (money).

  Figure 33: The two components of a Wealth or Equity Pair

  This is discussed in detail in my book The Wealthy Code. However, the terms “Wealth

  Pair” and “Equity Pair” might be a little misleading.

  Why?

  Because there’s a hidden 3rd side and it is more like the glue that connects the two

  sides. They are called “pairs” because there are two physical things, the asset and the

  capital, but the 3rd non-physical side is as important if not more important!

  Figure 34: The hidden third side in a Wealth or Equity Pair

  Think of it this way. Refer to the image below. You have a pile of money on one side

  from various sources, and an asset that you can purchase on the other side (represented

  by bars of gold in the image). The question is how do you structure the payments to

  those people investing all that money? How much profit do you give them? These are just

  two of the key questions you have to address. That’s the “glue” that binds the pile of

  capital with the asset you are about to purchase.

  Figure 35: Capital & Asset. The missing “glue” is the capital structure

  This 3rd side, “the glue”, is known as the “capital structure” and this is where most

  people fail. It’s loosely called “deal structuring” but it’s more specifically “capital

  structuring.” So to expand on the previous example, this third side addresses questions

  such as:

  · How much debt versus equity should we have on the capital side?

  · How much can we afford to pay for each debt and for equity, and what are the

  exact terms of each.

  · What are the characteristics of the asset we are looking for on the asset side?

  I normally draw a triangle to represent this. Remember, here we are just focused on

  building step 2 to accomplish our result from step 1.

  Figure 36: Three Sides to an Investment

  You will notice in the diagram the pair (capital and asset) and the capital structure

  that binds the two sides. This is true for every investment we ever do. For example, the

  asset could be r
eal estate (rental property). The capital is what’s used to buy that asset.

  The capital structure addresses how much debt we are borrowing, how much equity we

  are raising, what the terms of the loan are, etc. This is critical not just for the investment, but for moving us to the right side of the WealthQ.

  Read that last sentence again! Five times if you have to. It’s very eye opening!

  Most people don’t realize the significance of the “glue”—the capital structure. It is one

  of the most important aspects to building your wealth. It has to move you to the right

  side of the WealthQ. It has to lower your risk, and move you towards the result you

  selected in step 1 in the most efficient manner possible. Most investors that have

  attended our professional training events nationwide have never even heard of nor

  known of this concept!

  The three sides to any investment: Capital, Asset and Capital Structure,

  sometimes referred to as “Deal Structure.”

  Capital Structure is simply how an asset is financed. In simple terms, this

  includes how much of the capital is debt and equity.

  So let’s dig a little deeper.

  The framework you build in step 2 is so much more than a filter to generate the result

  you are seeking in step 1. It has to take into consideration everything we discussed in this book so far in terms of inflation, interest, taxes, opportunity cost, etc. This work of

  building the framework is done one time, and then moving forward, the framework is

  used to filter the assets and the capital structure to help accomplish the desired result as

  well as take everything in this book into consideration automatically!

  For “Cash Flow”, as mentioned, the characteristics (“Wealth Pair”) are discussed in my

  previous book called The Wealthy Code. In that book, I shared how to use debt to

  generate passive income and how to create spreads by looking at metrics such as annual

  loan constants and capitalization rates. I also talked about other metrics to measure risk,

  volatility of income, etc. In fact, many investors around the country have specifically said

  that just knowing this information from our live trainings they have attended has

  significantly improved their investing.

  The Capital Structure has to move you to the right side of WealthQ, it has to