Updated: Aug 5, 2020
Contact Michael Ciardella: (973)-809-6480
Today on the Passive Cash Flow Podcast we will discuss, mortgage industry updates, new lending restrictions with COVID, ways to take advantage of low rates, goal setting and business building during COVID, and other preferred topics!
0:00 - Intro
0:34 - What does Michael do?
3:00 - Changes in the financial industry
9:15 - Prepare for the election
15:20 - Financial advice
20:43 - contact Michael
The Passive Cash Flow Podcast is for beginner or experienced investors. Subscribe today to learn how you can diversify out of the stock market, own a part of an apartment building & start earning Passive Cash Flow!
Peoples Capital Group has been helping passive investors build wealth in NJ real estate for 10 years. Visit www.PeoplesCapitalGroup.com to find out if you qualify to start earning passive income and pay less taxes via investing in real estate. IRA's and 401K's are accepted.
Aaron Fragnito: Ladies and gentlemen, it's Aaron Fragnito, with the Passive Cashflow Podcast. We are going to get started here. We have a special guest, Michael Ciardella. Did I nail it?
Michael Ciardella: Yes, you did.
Aaron: Excellent. Excellent stuff. Michael, tell us a little bit about what you do and how you do it.
Michael: Sure. Thanks for asking Aaron. Thanks for having me on. My name's Michael Ciardella. I'm a financial representative. I work with Certified Financial Services which is headquartered in Paramus, New Jersey. We also have an office in Parsippany New Jersey, and offices in New York and Connecticut. The firm has been around for about 34 years, and it is a privately owned financial firm which is something that's very important. The reason why I got involved in what I do is I enjoy helping people. I have a background in employee benefits, helping employers with their group health and other group programs.
What I started to see over the years as I was conducting employee meetings for my clients is that the conversations very quickly became financial related due to the fact that the cost of healthcare continues to go up. The cost burden shifts within the planned parameters more so to the member with more out of pocket costs. Our conversations quickly became about affordability. That really helped me pushed me in the direction on wanting to help educate people and get them more financially organized.
Aaron: I like that. We're in the same space there as well. I feel like a financial advisor often talking to accredited investors, sophisticated investors about diversifying out of the stock market and real estate, and all different types of things. How'd you get started with this type of position?
Michael: Well, like I said, I do have a background in employee benefits. I did that for 27 years. I've been in insurance and financial markets for 27 years out of college. Not something that I anticipated I would be doing, and 27 years later doing it and I really enjoy it. I enjoy helping people, and the work I do on the insurance side, the group insurance side, and the financial side they complement each other very, very well.
Aaron: What are some changes we're seeing with everything going on? The COVID happening here and what are some changes in the financial industry, in the insurance industry? I know that's a very loaded question but what are some top things we're seeing right now?
Michael: That's actually a great question. We're seeing a lot of things. A lot of things have been implemented. One of the things obviously that we've seen is the market volatility, especially at the beginning of the pandemic was roughly a 30%, 33% drop in the market. Since recovered quite a bit which is great. What's important to remember that people should always remember when we're talking about market volatility due to an occurrence like this, is not act with your emotions and try to put things in historical perspective. We broke the tech bubble in 2000, the global financial prices in 2008.
The market always rebounds. Don't panic in terms of that. The other thing, the CARES act which is very important that was something that was recently enacted by Congress. What the CARES act one component of it, it allows people that have been affected by the pandemic to withdraw up to $100,000 out of the qualified retirement account without occurring the 10% early withdrawal penalty which is very good. Also, you have three years to pay that amount back. If you choose not to pay back, you're then taxed on it but you're taxed on it over a three-year period, which would be years four, five, and six. That's something really nice and people that may have been affected by the pandemic should certainly look at that.
Aaron: That's amazing. We were talking with an IRA custodian last week on the Passive Cashflow Podcast and she was saying how that new rule is incredible. In fact, about two months ago, I had an investor, about a month ago invest similar to that way. She was going to self-direct her IRA, but instead pulled out of it and is investing in a building we're buying right now. I said, "Whoa, make sure you talk to your accountant and your IRA director before doing this because it sounds like you're going to get hit with taxes." That was before I knew about this rule but that's incredible.
Michael: It gives people such an opportunity and probably an opportunity that we'll never have again in our lifetimes. To avoid the early withdrawal penalty, not pay taxes for three years. Then when you do pay the taxes, pay it over a three-year period. It's definitely something that people that may have been affected by the pandemic should look at. A couple of other things that have happened or changed, individual life insurance carriers, they've relaxed some of their underwriting requirements to make it much easier for policies to get issued. Obviously, life insurance is extremely important especially during a pandemic.
In times like this, everybody should have life insurance to protect their loved ones. Individual insurance carriers are easing up some of those restrictions or not restrictions but requirements. On the employers' side, there are several state and federal laws that have recently asked some expand upon FMLA and paid sick leave. Grace periods for premium payment have also been extended amongst other things. The carriers themselves too, have taken steps to make premium payments easier for groups with deferring payments or accepting credit cards. There's many, many more things on a state-federal, and even the carrier level that have taken place. Way too many to mention right now.
Aaron: It's really incredible what's going on right now. I feel like the government and the rules and regulations are really being angled towards consumers as best they can right now between being able to pull from your IRA and defer those taxes, or even all the stimulus checks coming into us. Making sure you do the right thing with that money. If you don't need to live on it put it into something that ideally makes more money. Don't just go on vacation with it or buy a new-
Michael: Exactly. Even for the business owners as well with the paycheck protection program and that potentially, all or a portion of it being forgivable. Small business loans that are out there that are very easy to get right now for a business owner. You're right. In terms of the average person or consumer out there, as well as business owners, a lot of the rules or legislation that's recently been put into effect seem to be really geared toward benefiting them, which is great. That's a fantastic thing.
Aaron: This is a very difficult time. It's a bit of a frustrating time but take advantage of it. I know so many people that my age more so that are just catching up on Netflix and like, "Oh, I have another $1,200 in my account. I'm going to go buy a toy." I'm like, "Man, oh man, if you just took advantage of this time, you're getting paid to not work." You could do so much with your life and money as well. Put it into something that makes more money is so important to do right now. Here's a fun question for you. We have a presidential election coming up and of course, we're bipartisan here at the Passive Cashflow Podcast.
Although if you listen to enough of my episodes, you might figure out which way I lean that I would never admit it. We have a presidential election coming up. How should we prepare? Obviously, we don't know, Biden might win, Trump might win. Biden's talking about taking away some of the tax incentives and stuff. Trump's obvious a little more pro-business, but what's a good way to prepare for this unknown presidential election coming up?
Michael: You did say something that's important, unknown. It's certainly an unknown. It's always really difficult to predict what the future holds. I certainly don't want to get too political in what I say but I'm sure the answer is in some way will trend more politically one way than the other. However,
in general, I can say, it's always it's important to be well-diversified and with many different buckets of wealth. Not all those buckets being tied to the same market or tied to the same things, or maybe some of the buckets are not tied to anything at all or any market, which is obviously a good thing. I'm a [inaudible 00:10:27] of trying to build well using tax-free vehicles when possible.
Saying that tax-deferred vehicles are not good, but it's important to realize right now that taxes are currently at near historic lows. The country has $26 trillion in debt which I believe is only going to grow. We know it's only going to grow. You made some comments as you were asking the question, one presidential candidate wants taxes even lower than where they are right now. The other candidate has openly called for some tax increases. It's important to take a look at each candidate's economic proposals as well because I think that tells a very telling story. These are just some of the things that you need to consider when you're developing and maintaining your portfolio.
At the end of the day, in my opinion, it's great to have tax-free vehicles and vehicles that are subject to capital gains taxes versus ordinary income taxes, because again back to your original question about how to prepare for one presidential election or one president over the other being elected. One candidate that I should say over the other being elected, it's important to understand what's probably going to happen with the taxes, with the economy. I believe that under one president it's going to be very, very different than under the other president.
It's safe to assume that taxes being at near historic lows, and the country having $26 trillion in debt, and we seem to be shifting in my opinion, in a scary direction. Should we follow the path of one of the presidential candidates? I always think it's good to just realize that all those factors considered probably means that our tax rates are certainly going to be much higher 10 years from now 15, 20, 25 years from now.
Aaron: Mike, of course, the government is going to cut its spending like it's always done instead of raise taxes. Of course, the government's going to say, "Wait, we are going to get rid of government waste instead of-"
Michael: You know that's not going to happen.
Aaron: One of the candidates is offering that. Neither one of them is like we're going to actually take this 26 trillion and really treat it like a business and be like, "All right, we have to do something. We got to cut some--" It is crazy. If you are really a conservative and you really want to get that debt down, you don't really have an option anymore. That's the interesting thing.
Michael: You really don't. One of the candidates is talking about having the government spend, I think it was $975 billion or something like that to reinvest it within the country in certain ways, infrastructure, things like that. Which is fantastic except where's that $975 billion going to come from, obviously tax increases. There's really no other way to generate that kind of money.
Aaron: Well, it was probably going to be borrowed and imprinted by the Federal Reserve and we'll just keep pumping money into the system, and eventually inflation is going to catch up. You might want to also invest in assets that keep up with inflation and easier said than done.
Michael: It absolutely is. Real estate, obviously as you know is a great investment. That's something great to have as part of your portfolio. There's so many different things that you can do with real estate. If you understand it and work with the right people, you could be very successful at it. The way you can defer taxes on that, and hopefully at some point, if you pass it along due to death, there may be no taxes on it in some cases. Lots to be done there, so it's really important to have part of it invested in real estate as well.
Aaron: Diversify, diversify, diversify.
Michael: Absolutely. No, you're absolutely right.
Aaron: That's good stuff. That's good stuff. That's interesting. We'll do a couple of more minutes here. I'm going to give you an example of my life right now. Maybe you can suggest some products that would be a good fit for me. All right. I got married last year. My beautiful wife and I are thinking about having children. Next year I am 39, oh my gosh, 33 years-old. I just gave myself [crosstalk 00:15:37] 33 years old. I'd say I'm worth about 1.5 to 1.8 million in real estate wealth net and I make about-- Well, I make about $150 to $200 a year. Now, I pay myself through refinances of real estate cash flow on my real estate, which is written off a tax depreciation.
I take probably another $50 to $70 in partner draws from the flips and wholesale through the year. My effective tax rates’ quite low. The way I pay myself and I also-- We own a management company which allows us to write off a lot of our income as well. I have a pretty low tax rate. I actually owed $0 to the government last year in income tax, which is great. What would you suggest as far as maybe some life insurance and things like that? What products?
Michael: That's a great, great question. Obviously, I can't be too specific. I probably have 40 other questions for you about other things going on and your goals and stuff like that. In general terms like you asked, exactly what you just said, life insurance is extremely important. You've got a nice income. You've got some great assets. You're young. You've just gotten married. You and your wife are thinking of having children within a year or so. Then potentially more children after that I'm assuming.
Aaron: If it was up to her, they already would be popping out.
Michael: That's right.
Aaron: Who knows? We were talking like two but that's going to be like six. We'll see.
Michael: Exactly. Life insurance is absolutely essential. We'd have to get into more details about your personal situation and goals and things like that, and other assets you might have to determine the balance between term life and cash value of whole life. Cash value of whole life as you probably know. You probably know a little bit about it. A very powerful tool to be used in so many different ways. When you've got other assets having cash value life alongside of that really gives you permission to spend down your other assets in ways that you might not have done if you didn't have the cash value of life.
It's not to say that you should jump into all cash value life if you don't have any life right now depending on the situation, the goals, and cash flow, things like that. You might look at a combination of cash flow and convertible term. Term that could be converted into cash value every couple of years. It's something that is vitally important in your situation without knowing more details. Certainly, something I would suggest.
Aaron: No, I love whole life, actually a big fan of it. You nailed it. Actually, I have a term life policy that I'm converting the whole-- I locked in a good rate. Last year I was 32 and I'm able to convert that to whole as I want over time. I actually like whole life insurance more than the IRA strategy. I do teach how to self-direct your IRA to real estate. IRAs are good for people to help them save money. Help get tax advantages there. At the end of the day, whole life gives you that death benefit. It may not grow as much as certain IRAs but with IRAs, there's no guarantee. Your IRA could also lose value where a good whole life has a certain floor as far as what it can earn.
Michael: Exactly. I like what you said about the death benefit. Not that I typically sell whole life or death
benefit, but having death benefit is one, especially if you want to leave a legacy to your children or to whomever the death benefit allows you to spend down all your other assets because as you're doing that, you're building both your cash value death benefit. Even if you spend your other assets down to zero, you still got cash value and there's big death benefit to leave as a legacy should you want to do that. Again, actually, in many different ways, it's also a tax advantage too, because of the cash values growing tax-free too, as well too with death benefit.
Aaron: Great. All right, Michael. Well, how can people reach you?
Michael: People can reach me by phone at (973) 809-6480 or my email address. I'm going to spell my last name out for you. It's Michael, well I'll spell the first name too. M-I-C-H-A-E-L underscore. The last name is C-I-A-R D-E-L-L-A @ C-F-S-L-L-C.com. Michael_ciardella@cfsllc.com.
Aaron: Great. All right. We'll also put that in the description for our listeners to contact Michael there for his financial services and other products that he works with and Mike, who you're ideally looking to team up with and work with out there?
Michael: I work with business owners a lot because I can help them in many ways, both for the employee benefits for their business, as well as individually of their finances. Sometimes there's opportunities to blend the two together. There's a lot of unique things we could do with business owners. I also enjoy working with young people that are just starting out, either just getting married thinking about having children. I love helping those people and putting them on the right track at an early age. I've been working with a lot of real estate professionals as well.
Aaron: Good stuff. Good stuff. All right. Great. Thank you so much, Michael. Of course, my name is Aaron Fragnito, co-founder of People's Capital Group. We buy apartment buildings like the one you see back here. We work with passive investors to acquire these buildings where the investors get all the benefits of owning real estate, like the cash flow and their wealth creation and the tax benefits without doing the heavy lifting, looking at hundreds of properties, managing them day to day and executing a 15-year reposition strategy. That's what we do here at People's Capital Group.
We're doing it about 10 years, we work with a handful of passive investors. If you want to find out, if you qualify to be a passive investor, you can go to our website. People's Capital Group.com, fill out a qualification form. That's how you can apply to qualify with People's Capital Group at PeoplesCapitalGroup.com. Hit that subscribe button. We come up with a new episode every Friday, and we are always looking to team up with new people for the Passive Cashflow Podcast and give out good information on how to build that passive cash flow.
Thank you so much, Mike, for coming on here. We're going to put this out to the world. We went live here on a number of platforms. Hopefully, our listeners enjoyed our content. I'll put Michael's contact information in the description so you can reach out to him and take a look at what he could do to help your financial situation, and also get that security in place. I've been a big fan of whole life. Mike you know a lot about that. Reach out to Mike for that whole life. It'd be great.
Michael: Awesome. Aaron, thanks for having me on. I really appreciate it. Thank you so much.