KGCI: Real Estate on Air - The Shred Method

Episode Date: November 7, 2024

Welcome back to another episode of the Agent Goldmine. And today's episode, I am sharing my experience on the Shred Method, which a lot of people may not have heard of. But the listeners that will get the most value of this are agents that have helped any buyers or agents that know of anybody that is a homeowner. And this is why. Because the Shred method is a way to pay off mortgages in record time. It's something I personally have used.

and I'm sharing it with all of all of my clients because there's nobody better to share this information than real estate agents because you can turn your buyer clients, your buyer clients can purchase more faster using you as our agent. So in this episode, I'm going, I'm diving deep into what the shred method is, how it works because it is confusing. So you may want to write down some notes. And if you have any questions, reach out to me. I am more than happy to connect you to the shred crew. We're both, Shelby and I are both friends with Adam Carroll. He did a training in our five pillars like back in the day and online at night. And I'll save my story for later. But Shelby, you can ask questions along the way. If you have any, I know that you know,

all you also know, but excellent. I'm going to come in. Yeah. I got it. And both both of us have affiliate codes with the shred method. And because I love it. I love it. I've done it. And I see the power. And it's really just math. So let's get started. started. Let's do it. So as I was saying, the, the shred method, Adam Carroll joined one of our our sinks, which are like monthly on Thursdays for the Five Planners community. Like maybe this was like two years ago, maybe two and a half. Long time ago. And yeah. Yeah. And I was like at the time, I was like, you can pay off your mortgage in months or a couple of years instead of decades. Yeah. I was like this. There's got to be a catch. And I don't want, I don't have the time or energy right now to

invest into digging into why. This is why there's a catch. What is the catch? So I kind of put in the back of my mind to, in my medium term list of like things I look into later. And then someone else in our community, John did the shred method. I was in a pod with him. And he was like, yeah, I just finished paying off another property and I'm going to pay off another one. All my rental properties will be paid off in five years. And I was like, dude, what? I was like, are you doing the shred method? He goes, yeah. And I was like, I want to do a Zoom call. And I want you to show me your bank account, dude, like the shred portal. I was like, I want to see it all. There has to be a catch. And so we did the Zoom. And that's where I was like, okay, I had it in the back of my mind.

This, this guy is doing it. And I've seen his bank account. And I was like, I believe it now. So overall, the higher level thinking of the shred method is you're using a line of credit. the simple interest of a line of credit, of an interest only payment, instead of paying the mortgage interest, which is a compounding interest, and it's always going to be higher. So as you guys know, if you're doing a 30-year fixed-rate mortgage, you're not even paying, like every payment that you or your buyer clients have is mainly interest until 21 years. in. Only at that point, 21 years in out of a 30-year fixed-rate mortgage, does your payment become more principal than interest. And instead, with the shred method, you can take that 30-year

amortization table and just smush it, my words, not Adams. And that's not really a smush-form sound. What am I doing? Just one of us slushies. And then, so therefore, you're paying, more principal than interest way faster. And Adam's whole thing is to build real wealth in record time. And this is a great way to do that. So any questions before I start digging into the weeds, shall be? Okay. Just to hit on simple versus complex. Simple, it's simple because it is just interest only, whereas complex is complex because it's interest and principle confirming it's yeah so okay difference between the line of credit which is simple interest it's based off of the daily average balance so and I'm going to get a little bit more into the weeds into this in a second but

daily average balance so say you have a $50,000 line of credit but you only used $10,000 of it you're only being charged the 10,000 that you've used, as opposed to the compounding interest of a mortgage where you are paying the banks to, you know, like just the most amount of money. So that way they're getting money from you and then just renting it out, renting it out, pretty much renting it out to others. Yeah. Okay, got so. And I'll, yeah, go on.

I think. So with the compounding interest of a mortgage, it's based off of the last month. So you're paying in June based off the amount that you owed May 31st, like the last day of the month before that. So it's always going to be more. Even if your interest rate is a fucking 3%, which mine was, and I still chose to pay it off because financially, it was worth it. So yeah.

And then with this, with this, you can have no. you can get rid of your mortgage in three to five years. I did mine. I'm a competitive person. I was like, you know what? I'm going to do mine in less than one year. I was like, I'm going to prove the shred method even raw. You know, like, I'm going to do this in record time. I did. I paid off my car, which was $13,000. And I paid off one of my rental properties, which was, which originally had a balance when I started the shred method at $121,000. So $121 plus $13. Is that $13?33. I'm no idea. I paid that off in four months. And it was.

Okay, yeah, yeah, let's get into the how. Let's do it. Because that's insane. Yeah, and it feels fucking good. And now the only way I'm going to ever pay off properties is not the bank's way, which is pay off, you know, majority interest, each payment being majority interest and slowly a little bit more principal until you finally have more principle. No.

What I'd been doing before was anytime. I got a, I got a check. I was, I was throwing money into my TSP. I was throwing money into my which is the military's version of 401k. I was doing the Roth IRA. I was doing some random stocks. I was doing a little bit of crypto. But to double down on this, I stopped all of that and I put it all into a property. So, and anytime I had just like extra money, I would throw 300 bucks, maybe 600 bucks, extra principal only into one of my mortgages. But I would, It was like all spread even instead of doubling down on one property. So the way that this works the best is the software will tell you.

You don't have to guess. You input everything. The software will tell you which one is most beneficial. And if you have any questions, let me know. Let's help me know. We'll connect you to the people that like know if this is the best. I call him tutor Nick. Nick will be helping you.

And you just literally do what the software tells you. And after a while, you'll start realizing like what the software is going to be telling you. But overall, you're moving money around multiple times a month. And so I want to, I do want to make it clear. This is not for the Shreepathet is not for people that like debt. My personal goal is to eliminate all debt. I want to live debt free.

I want all my properties paid off. So that way I'm thinking in case of a rainy day, I can throw a line of credit on any of the properties and pay for whatever I need to. But I would rather, especially with Britt retiring, I mean, she retired. So now her income is reduced by six. 60% 60. So she's only making 40% of what she was making prior and us moving and me not wanting to continue just, you know, being in the rat race, I want to have more time freedom. That's my goal. My goal is to pay off the properties and that way I don't have to work to continue, you know,

just be a rat race. You don't have to work to live. Exactly. So. Okay. Yeah, how do we do it? I guess also. So, so those who this is for, I'm going to get. into the requirements of what you actually need at the very, very end after I, like, just continue going a little bit through this more. So everyone has heard of the truth in lending disclosure, the tilt. In there, that's like that important sheet that like you have signed when you're buying a property, that your buyer clients sign when they're purchasing a property. And it shows you how much of the amount that you're financing, aka like the amount finance, your loan. and then also how much extra in hundreds of thousands of dollars you'd be paying for the interest

on that loan. Even if it's a super low interest rate, which right now we're not seeing, even if it's at 3%, buying a house that's $150,000, $200,000 can cost you an extra $150,000 in just the interest. So that is what we are eliminating. So in today's rates, which we're seeing 6%, 7%, maybe 7.5, if we're looking at a home at $500,000, by just the amount of interest that you're going to be paying, you're looking at an extra $300,000, $400,000 in just the interest. So that's what we're eliminating. Because again, in a 30-year fixed-rate loan, you're only starting to pay more in principle in 21 years in. When was the last time you knew of anyone that was still paying, that still had the same loan or was still even the same

house, 21 years later. That's no one. I'm pretty sure. Very rare. Yeah, I think that, yeah, for real. Yeah. I think NAR showed that people move every seven years. Some people say, some people have stats saying people move every five and a half years. And in our community, military, they're moving every two. So this is why the banks are rich. This is why bankers are rich people. It's because they've gamed it No way that they're really profiting off of everything, really. I'm not an expert, so I'm going to shut up,

but beggars are rich. Okay. Yeah, I mean, why, man, banks, I mean, you'll even drive past them. Buildings are beautiful, you know, like in not good locations. Anyway, there's a reason why banks are what you want to be,

why you want to be the bank. And this is a way that you can be your own bank. So, what do you do? And what do normal people do right now is they have, they make money, it goes into a checking account. And from their checking account, they pay off their car, they pay off whatever mortgages they have, they pay off for credit cards, they pay off whatever fund expenses, just they live out of their checking account. That's the way that banks have taught us to live. What shredders do

is instead of using that checking account, what shredders do is instead of, instead of up using that checking account, they use their line of credit. Now, the line of credit can be either a HELOC, which is a home equity line of credit. It could be a business line of credit. With a business you have to show at least two years, really depends on where you want to get your line of credit. Or it could be a personal line of credit. So you have options on how to get a line of credit. They also say that there's a rental line of credit. Please let me know if you find anybody that's able to give you a line of credit on a fucking rental. Dude, I searched for that for months.

I really did do my fucking due diligence on that bitch, and it did not pay out. No. Yeah, I called 13, 12, something like that, like crazy amount of people. And they were like, rental line of credit. No, you have to. You're like, get out. Yeah. Yeah.

You have to live there, which obviously that wouldn't be a rental line, or if I found some banks that were able to give you a rental line of credit, but you had to still live in that same state. I'm like, dude, no, I don't file tax. You know, I don't live there. Anyway, so, but the Shred method will, will help you with that too. Like the software, the people there, they'll be able to point you in the right direction. So what Shredders do, they use their line of credit in order to pay everything off. So whether you are W2 and you get steady paychecks, or you're working 1099 and you get commission, your commission and or your W2 paychecks will you'll be funding, you'll be moving money and paying that money into the line of credit.

Again, your line of credit is now your checking account. So as you get money coming in, you just move it over to your line of credit, aka you top it back up. And then as you have expenses, you're paying that out of your line of credit. Your car, your spouse's car, your mortgage, your credit card, your Spotify, your living expenses, right? Everything comes out of the line of credit. And if there is anything extra that remaining money will go from your line of credit to pay off one property. You may have many right now. You want to target one property at time. And it's kind of like that's snowball, right? Like the more, the faster you can pay off one property, the faster you'll be pay off the second one than the third one, because you'll just have more discretionary income

to throw toward that next property. So what you need, obviously a line of credit, whether it's personal, business, or Helock. And it doesn't matter what interest rate your line of credit is. Let me tell you why. When I got my line of credit, it was actually a business line of credit. And the going interest rate for mortgages at the time, It was like 3%, 3.5%.

Guess what interest my line of credit was for my business, show me? Eight. I think you may know. 11. 11. Was it 8? Oh, 11 shit. Yeah.

I had an 11% interest. And I was like, I don't know if then this is worth it. I had a $50,000 line of credit at 11% interest, but because it is based off of the daily average balance of what you're taking out of that 50,000. which you're not taking out the entire $50,000 at a time, you're taking out less than that. And the software will tell you exactly how much to take out and when. All you need to do is check done.

I did it. So because it's based off of the daily average balance, I only ever paid the maximum amount I ever paid per month on my line of credit was $350. That was the most I ever paid. at 11% interest. And that's because any single time I had a commission coming in or, you know, any money coming in, I would just pay it back up.

You pay the line of credit back up, the expenses, you take money out. And then money coming in, you pay it back up. So your average balance should be pretty low, like the amount that you have out. So it's based off, say one day you have $10,000 out, one day you have $20,000 out, one day you have $5,000 out because you paid it back up. Again, it's based off of the daily average balance. as opposed to the compounding interest, which is based off of the month before, so it's already higher, et cetera.

I have a question. Yes. Okay. You mentioned shredders make the money. The money goes into the line of credit, and then you use the line of credit to pay off all of the things. Then you said all extra money after paying off the things goes from the line of credit to pay off one property. When you say extra money, are you like calculating on the side? Because you mentioned also you're not using your entire line of credit. So what do you mean extra money? Discretionary income. So the one of the requirements, you have to have more money coming in than you have spending. You know, like you have to have extra income. So as you pay off your line of credit all way back up to the top, you'll have an extra, I don't know. It could be an extra 100. even if you have, even if the amount of income that you have coming in, say, say you make

$10,000 a month and your expenses every single month are $9,900 and you have an extra $100 to play with, it'll work. So you're saying that after, you know, okay, you make the money and goes into the line of credit. When it says go into the line of credit, what it really means is paying off, right? Or yes. Yes. Yes. And then you're using, okay, so you pay down, you make the money, you put the money towards the line of credit to bring it back down to zero to I'm not using any of my line. Then you use the line

to pay all of your bills, but then same you, but you've used, you've already made the income. So you're back down to the zero. Now at this point, you've already paid off your line to zero. Anything extra that you have, because you're not going to put extra into a line of credit that's already paid off entirely, that is your discretionary income. Yes, precisely. I'm so smart, Gold Star. Gold Star, A plus plus, Shelby. Okay, have another question. Logistics. This was one of my main things about why I didn't do this so many times is because I'm thinking about the logistics of, you know, when I've set up my 75 billion different utilities and, you know, all, and these are, I have, I have a bunch of different properties.

So that's another question, too. Does this only apply to your personal life and one property? It must be, right? Okay, don't answer that. But the logistics being not every utility bill or whatever, you can't set that up with the line of credit, can you? Normally they ask for ACH or debit credit card? Yeah, that, that it does get tricky,

especially if someone like you has 45 properties. Are you manually paying them? I was manually paying them. What I did was I switched a lot to credit card. So instead of it coming out of directly for my checking account, I, to whichever utility companies and HOA payments, I could, I would switch it to a credit card. So in that way, my line of credit pays the credit card,

even if it was an extra 2% processing fee. I didn't really care. That makes sense. Yeah, I'll say my next question. to down the road. Please continue. Okay. Okay.

Excellent. So when is this best? This is best used when you have just purchased a brand new property. You just have that loan or your client. You just helped a buyer client purchase a property because the majority of their payments for the first 21 years is going to be interest only. So the more money that you can throw into that property in the beginning of that life of the loan, the more money, will save them in interest fees over time. So say your mortgage is like $2,000 a month. In the beginning of that loan, it might, the interest payment out of that $2,000 a month might

be like $1,800. Like the rest of that is going, all of that is the $1,800 a month that you're paying on a brand new loan. All that is interest. That's the compounding interest. Again, now if you had, even if you had an 11% interest rate of a line of credit, the most I ever pay, paid was $350. So I would much rather pay $350 to, you know, to pay for a property as opposed to $1,800 paying the bank in their compounding interest. So again, that's just the, it's, and as Adam says, it's not magic, it's math. I think it's both. So the, it comes with a dashboard. And in there, you're going to put all of your, all of your incomes and you could do yourself or you could do yourself and your spouse.

You're going to put every money, every piece of money like coming in from wherever you make money. You're going to put all of your expenses and you can either put some or all or one or all of your mortgages. And I would suggest putting all because at that point it'll tell you which one, which property is best to pay off first. And it'll tell this offer will tell you exactly what payment to make when, how much, it'll tell you, it'll tell you, you know, when to pay your property back, wouldn't pay your HELOC back up and when to pay all of your expenses. So, and if you have any questions, I mean, it's very, very user-friendly. But if you have any questions, let me know. I want to connect you to Nick. How much does the software slash subscription cost?

Ooh, okay. Yes. This is, let me catch a moment. notes here. Okay. So it costs about $1,100 up front. And after that, it costs $47 a month. And what you're paying for there is the dashboard. It's the software. So, but with our codes, we give you a discount up front. So before you go to just the shred method.com, reach out to us. We want to connect you. You will get your discount. And yeah, I think that's it, right? That's it. next question how did this work for your bookkeeping and taxes like i don't think it would affect taxes but i'm thinking about bookkeeping and i'm thinking about like how disastrous my life already is with books and i'm i'm going to pretend that i don't have rentals let's just pretend that i have

a primary residence that i just closed on and now because and yeah okay because now i'm i feel like i'm co-mingling. Am I not? Well, I guess I have to pretend that I'm still a business person. So I have, maybe I have a couple of rentals. Maybe I'm, Ali, I'm just you. So how did this affect? If you had all of your expenses, if you're paying things for a property that is own, you know, I assume by an LLC, maybe it was a personal name. But like, how is this not getting messy in accounting? So this is a great question for a bookkeeper attorney. I don't want to steer you in any wrong direction. This is just the way that I was doing it. So, the rental income for each of my properties was coming into its appropriate checking account for

that LLC. From there, I was moving, I was transferring to pay the property back up. So my VA disability was going to my personal account. And then from there, I was moving from my personal account to the, to the line of credit. And then every property income was going to its appropriate checking account. And then I was moving it from that to the line of credit. I, don't think that that affects anything being that it's paying a line of credit, but that is a great question for an attorney. Because I was paying a property within that LLC. Say that again?

Yeah, you were saying that's a great question for someone. And I was like, other than us. Other than. Yeah. So before you, okay, this leads me right to the requirements. So which is perfect. Number one, talk to, well, I would say maybe. this will be probably the last one to do.

Because after you understand the shred and see what kind of like the dashboard you're going to be looking at, at that point, once you get a little bit more of a grasp, talk to your bookkeeper, talk to your CPA, talk with, which I did, talk to your attorney and see how it affects anything. Does this pierce, you know, the corporate veil? Does it do anything that you don't want to be doing? Does it mess anything off? But number one, and the requirement is you need, like I said before, you need to have more

money coming in, then you have spending. Even if you have an extra $100, it'll work. $100 minimum. And of course, the more discretionary income you have, the better. So Adam did the math. And say you only do have an extra $100 a month. And you can, with an extra $100 a month, using the line of credit, you can pay off your property in nine years instead of 30, $100 a month. Like this is not, again, like he says, it's not magic. It's math. And if you have $1,000 a month, you can pay it off between three to five years.

So I had stopped putting money into like my IRA and putting like extra money here and there for principal and all the other properties. I focused all on one. And that's how I was able to do pay off the car and one property in four months. So don't think that you need to have like thousands of dollars in every month and discretionary income. You can have fucking 100 bucks. So and then from there, once you have that property paid off, you can, of course,

you'll have a lot more extra discretionary income to then snowball that into the next property or do whatever the hell you want with it, go on vacation, whatever, invest in something else, whatever you want to do. The second requirement is your line of credit needs to be. 1.5 times whatever your take-home pay is on a monthly basis. So say you make $10,000 a month, your line of credit should be at least $15,000, which is a kind of low line of credit. So just 1.5 times, that's it. And that's because when your credit line is big enough, like one of the biggest benefits of that is once your credit line, the amount that you have in your line of credit is big

enough and is more than what the remaining balance is of the mortgage that you're paying off. Say you got a $50,000 line of credit. And now at one point, you only owe $30,000 left on that property. You're trying to pay off. You can just throw $30,000 of that and just pay off the property once in for all. And then at that point, you're done. It'll save, it'll help you more on the back end as you're, as you have dwindled down the amount remaining on the mortgage.

The third requirement is discipline and patience paying off fast. And I was playing with these calculators like every day. I was like, oh my God, what if I put next to this? I'm such a nerd. But you have to do what the software. Well, I don't even say that. You know, you don't even have to do exactly what the software tells you to do as long as you do roughly what the software is telling you do.

The software will tell you too. Tomorrow make a $5,431. $1.26 payment toward this property. Even if you do a $5,000 payment, you know, like you just input that amount instead of $5,431, whatever it is, you tell the system today, I actually did $4,000. It'll update on the back end and it'll just fix your table because you'll have an entire list of things of exactly where to move money when. So don't think that you need to do it down to the penny, you really don't. But overall, the discipline is you just need to make sure that you are changing your thinking. And instead of using the checking account, you're using

the line of credit. All the money goes back to paying up the line of credit. Otherwise, you are going to be spending a little bit, a little bit more because of the simple interest. And of course, how to pay this off even faster is I stopped my other investments. I put a pause on all of that. I was like, I'm just going to try to pay this property off, throwing everything that I could into my car, which is what the software told me to do first, and then my, and then my, that one property. So, and then number four, which I added just now, because of Shelby's question, is talk to the CPA. Talk to, you know, show them the software and tell them if I get a line of credit or a key lock or a business line of credit or a personal line of credit. How does that change the LLCs that I have in place? you know, could I be sued? Is this commingling if I'm doing it, if I'm structuring it in this way?

Because I imagine whether there's a big difference, whether you get a personal line of credit or a business line of credit or a he lock. So talk to them. And I do have a couple more notes, but I want to pause and see if you have any questions. I do have a question. So how many hours of labor would you say you invested into the strategy for a month? Because, Al, you're one of the hardest working people that I know, and I know that work doesn't phase you. I'm just trying to get managing expectations about what actually is required time slash labor-wise to execute. I, thank you for the compliment. I don't think that I spent too much time on this. Like, I think the time where I spent the most was before I even decided to do it.

You know, I had that Zoom call with John. Before that I had that one hour. you know, recorded a call in five pillars with Adam. I reached out to them to get like an extra feel for it, which they want to do with you. Like they, the, the software is user friendly once you know how to use it. And like knowing how to use it, they'll walk you through it. They have a Zoom call with you to, to show you where to put exactly what amount. So that was the biggest bulk. The first, and I would say all that, like my Zoom call with John, watching the Adam Carroll, watch it, and then scheduling a call with them was probably about four, five hours. The biggest, you know what? Actually, what took the most time was finding a

freaking line of credit. That was the most time consuming. Because I was really trying to get that run a lot of credit. I spent, I mean, I called 13 different banks. And then I was like, finally, fuck it. You know, I'm just going to get a business line of credit. And so that took the most time. That probably took, it doesn't need to take you this long. It took me probably like a good eight hours. And then after that, so once you're set up, you know, how much, how time consuming is it just to keep up in like the maintenance? I would say it's about two hours a week. And because I would it, the software, I would log into the software, see what it wanted me to do for that week. Like on Tuesday you're going to be putting money back into it because it shows you're getting paid on 30.

you're going to be putting this money into this property. So I would just, you know, take a look at it. I'd log in, see what I have to do for the week. I would do it. And if I did anything differently, which is totally okay, I would just mark it. I would just mark that instead of $3,000. I did $2,000. So all about, yeah, all around it would probably take two, two hours a week to sustain it. The biggest time is upfront. Thank you. That's all my questions for now. Okay, excellent. So, okay, so I went over who this is full. or like what the requirements are, who this is not for. Obviously, if you spend too much. If you don't have any extra money, then you can, this is not going to be for you.

So as a real estate agent, again, this is a great way to tell all of your freaking clients to pay even like your seller clients. Hopefully like before they, before they become sellers, because usually by the time the sellers hit the table, they think that they're going to make a certain amount, but then they realize that they have closing costs. They have to get their property up to shape. They have the realtor commissions. They have the title fees, the attorney fees, and what they thought they were going to be getting or netting, it dwindles down. But if they have a freaking paid off property, then they're going to be making more. So you're presenting something positive to sellers, buyers, and yourself and the people around you. And our code will give you

a couple hundred dollars off the sign up fee. And because once you tell your clients, they're going to be your clients for life, you know, helping somebody pay out their property instead of 30 years where they could pay it off in four months, they will love you forever. I love Adam Carroll forever. So if you have any questions, reach out to us. We're here to answer any questions and make the connection for you to make sure you get a discount. That's it for today's episode. Be a bro and share this show.