Page 12 - Becoming-Your-Own-Banker-R-Nelson-Nash

HOW THE INFINITE BANKING CONCEPT GOT

STARTED

First, a bit about my they never tell you what happens when the lever
background. I was goes the other way! Frankly, I made some money
educated as a forester, in the late ‘70s doing it the way the “geniuses”
graduating from the explained it (someone remarked that “financial
University of Georgia genius is a rising market”). There were several
in 1952. A large portion successful ventures in a row and it looked like there
of the root thought of was no end to this bonanza. I could do no wrong!
this concept is coming The ventures got bigger and bigger and I got more
from the study of forest finance—the fact that you and more involved, buying a large number of acres
are dealing with compound interest over a long of rural property. And then I got into real estate
period of time with no taxation on the build-up. development. With the profits from one small par-
The reverse fact is that you must make an cel, my wife and I went to Europe in 1977 and
investment and you won’t see any result for that spent a month! Would you believe it—I have never
same long period! In the forestry world you must seen that property yet? And I did it all according to
think many years into the future. I worked as a “the book by the financial geniuses”—leverage—
forestry consultant for about 10 years. other people’s money. Just have your Realtor find
Some of it is coming from the life insurance such a deal and attend to all the particulars for
business. I made a good living in life insurance you—and then sell it for you! Marvelous!
sales for over 30 years. Knowing how dividend- There was no logical reason not to expand.
paying life insurance works is an essential ingre- And so I did. The interest rate (prime) at that time
dient to it all. Most people have a minimal under- was 8%, but you must pay 1.5% over “prime” (now
standing of the subject, including the home office referred to as base rate), because the Bankers are
personnel at life insurance companies! That is not lending you money because you have real es-
strange, but very true. tate—they are doing it because they think you can
Lastly, it was strongly influenced by my ex- make payments! Why else would they require per-
perience in the real estate business. Timber is a sonal endorsement on the loan? And you must re-
form of real estate as well as the land on which it new the notes every 90 days—at the current inter-
grows, so I have been around real estate for all my est rate. I got accustomed to paying 9.5% and that
working life and I developed a strong interest in was just normal. And then, along came 1981 and
the subject, studying many books on it. If you read 1982. The prime rate rose and “peaked” at 21.5%!!
these books, the central message is not about real Add 1.5% on top of that and you see my situa-
estate at all—it is about the magic of leverage! tion—23% interest on $500,000!! That amounts
Essentially, they all say, “Buy some real estate, to $67,500 of interest per year that I was not ex-
borrow the money to pay for it, (because you are pecting to pay!
always dealing with borrowed money—you either When this happens to you, what do you do?
borrow money and pay interest, or you use your Go ask the “financial geniuses” who recommended
own money and give up interest that you could have that you do this, “What do I do, now?” If you can
earned) pay interest for a while, then sell the prop- find them, they may mumble something about
erty. All you have given up is the interest you have “selling the real estate.” But, where do you find a
paid out. That leverage is wonderful!” fool that will buy it under those circumstances! Of
That is all true—as long as things are going course, everything will sell if you get the price low
the way the “financial geniuses” describe it. But enough, but losing five times what you paid for it
is hardly a good way out.

12 BECOMING YOUR OWN BANKER—THE INFINITE BANKING CONCEPT