What's a money move only rich people know that sounds completely insane? — Transcript

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1. 0:00What's a money move only rich people
2. 0:01know that sounds completely insane? I
3. 0:02underwrite loans at a private bank, the
4. 0:04kind of place where the smallest account
5. 0:05on the floor still has seven figures in
6. 0:07it. Most of our clients are predictable.
7. 0:08Then there's Mr. Delaqua. He owns
8. 0:09something like a dozen apartment
9. 0:10buildings across the city, pulls in
10. 0:11millions a year in rent, drives a car
11. 0:13worth more than my house, and every
12. 0:15single year his tax return shows a loss,
13. 0:16a big one. The first time I processed
14. 0:18his file, I was sure it was a mistake or
15. 0:20that the man was quietly going broke. I
16. 0:21actually flagged it for review. Here's
17. 0:22this guy with a real estate empire, and
18. 0:24on paper he lost $400,000 last year
19. 0:26while buying another building in cash.
20. 0:28It made no sense to me at all. The whole
21. 0:29desk had opinions. Our newest analyst, a
22. 0:31kid named Brody, nearly fell out of his
23. 0:32chair reading the file. He's underwater,
24. 0:34Brody wheezed. All that property and he
25. 0:35can't even turn a profit. That's the
26. 0:37dumbest empire I've ever seen. My
27. 0:38grandma's savings account outperforms
28. 0:40this guy. Even our floor manager came
29. 0:41over to look. And by lunch, half the
30. 0:42team was calling Delaqua the millionaire
31. 0:44who can't make a dollar. It became a
32. 0:45running joke for weeks. Anytime a deal
33. 0:47looked shaky, someone would mutter,
34. 0:48Careful or you'll pull a Delaqua. We
35. 0:50were all certain we were watching a guy
36. 0:51pretend to be rich while quietly
37. 0:52bleeding out. Then his statements came
38. 0:54across my desk again, the actual bank
39. 0:55balances, and my stomach dropped. The
40. 0:57man wasn't losing money. His accounts
41. 0:58were fatter than almost anyone's on the
42. 0:59floor. Every losing building was full of
43. 1:01paying tenants and worth more than he'd
44. 1:02bought it for. The loss was a fiction,
45. 1:04and somehow it was making him richer. It
46. 1:05was Delaqua himself who finally
47. 1:07explained it, because I think he could
48. 1:08tell I was the only one still curious
49. 1:09instead of smug. He leaned on the
50. 1:10counter one afternoon and asked me a
51. 1:11question. When I buy a building for 2
52. 1:13million, how much of that do you think
53. 1:14the government lets me pretend wears out
54. 1:16every year? I said I didn't know. He
55. 1:17smiled. A lot. It's called depreciation.
56. 1:19The tax code says a building slowly
57. 1:20loses value over decades. So every year
58. 1:22I get to deduct a huge chunk of the
59. 1:23purchase price as a loss on paper, even
60. 1:25though the actual building is standing
61. 1:26there full of tenants going up in value.
62. 1:28Something clicked in my chest. So the
63. 1:29loss isn't real, I said. Exactly, he
64. 1:31said. The rent checks are real. The
65. 1:32appreciation is real. The mortgage
66. 1:33getting paid down by my tenants is real.
67. 1:35The only thing that's fake is the loss,
68. 1:36and the loss is the whole point, because
69. 1:38that paper loss cancels out the tax on
70. 1:40almost everything else I earn. He kept
71. 1:41going, and I couldn't stop listening. He
72. 1:42explained that because he qualifies as a
73. 1:44full-time real estate professional,
74. 1:45those paper losses don't just shelter
75. 1:47the rental income. They wipe out the tax
76. 1:48on his other income, too. He'd made
77. 1:50millions and legally paid almost nothing
78. 1:52because on paper he was a struggling
79. 1:53landlord losing money every year. And
80. 1:55here's the part your analyst missed
81. 1:56while he was laughing, Delicqua said.
82. 1:58Every one of those buildings he thinks
83. 1:59is dragging me down went up in value
84. 2:01this year. My tenants paid down my loans
85. 2:02for me, and the cash flow landed in my
86. 2:04account tax-free because the
87. 2:05depreciation ate it. I get richer three
88. 2:07different ways at once, and the
89. 2:08government sends me a refund for the
90. 2:09trouble. He tapped the counter. Poor
91. 2:10people are taught to earn a dollar and
92. 2:12pay tax on it. Rich people are taught to
93. 2:13own things that lose money on paper
94. 2:15while making money in real life. He
95. 2:16straightened his coat to leave, and then
96. 2:17he said the thing I've never forgotten.
97. 2:19The insane move isn't the one that looks
98. 2:20insane. The insane move is working 80
99. 2:22hours for a paycheck the government
100. 2:24taxes at 40% while a guy across town
101. 2:26earns triple and pays nothing because he
102. 2:27learned that the tax code isn't a set of
103. 2:29rules for taking your money. It's a set
104. 2:31of instructions for keeping it, and
105. 2:32almost nobody bothers to read the
106. 2:33instructions. Then he smiled and nodded
107. 2:35toward the analysts still snickering by
108. 2:37the coffee machine. Tell your friend the
109. 2:38dumbest thing in this building isn't the
110. 2:40man showing a loss. It's the people
111. 2:41laughing at him on a salary. He left,
112. 2:43and I stopped laughing at that file. A
113. 2:44month later I bought my first rental
114. 2:45property. I read the instructions.