Graham’s Newsletter

Three Money Ideas – Chessboard bankruptcy

Published about 1 month ago • 5 min read

Hi! If you're new here, you can subscribe and check out all previous issues here:

Why do the wealthy buy houses through a trust?

Most people think Trusts are only for the top 1%.
But owning your assets – and especially your house – through a trust could save you thousands of dollars.

A living trust is an entity that has a trustee and beneficiaries.
The trustee decides how to manage and control the assets for the benefit of the beneficiaries.
But why have a trust at all?
Here's where it gets a little morbid but this is info everyone should know.

At the time of death, there's a process called probate – the court initiates a legal process to figure out how assets should be divided.
This process can take anywhere from 9 to 18 months, and cost up to 10% of the total value of the estate.
This is the best case scenario, even if there is a will in place.
If there are feuds over how the assets should be divided, it can take longer and cost much more.
Over $3 billion is lost by Americans in probate fees every year

A trust lets you decide who gets what and avoid probate.
The estate will get transferred without any court intervention.
Trusts can also give you privacy benefits around the assets you own.

Some types of trusts can even avoid estate and inheritance taxes, and shield assets from creditors so that they won't be seized.
It's best to create a living trust as early as possible because titling an asset in the trust's name is much easier than retitling it a later point.

It's a shame that most Americans don't know about the benefits that trusts offer. This is something I wish I had known when I purchased my first property. But setting up a trust and transferring a home into a trust is now much easier than it used to be, thanks to today's sponsor GetDynasty.

GetDynasty makes the process of setting up a trust so easy that you could do it in a few spare minutes even over a computer or a phone for less than $100. The earlier you start a trust, the less assets you'll have to retitle later on, saving you much more effort.

So if you currently own a home, are looking to buy a home, or just think about how a trust can simplify your asset management, click here and get 10% off.

How did a chessboard bankrupt a king?

A chessboard almost bankrupted a king.
Here's how that story can make you money:

A minister in India invented the game of chess and presented it to his king.
The king liked the game so much that he promised the minister any reward he wanted.
The minister asked for something strange:

"Give me one grain of wheat for the first square of the chessboard, 2 grains for the second square, 4 grains for the third square, and so on till the last square."

The king was almost offended by such a petty request. A few grains of wheat?
He laughed and asked his treasurer to deal with the minister's request.
The treasurer went away and returned a while later, sweating. He said: "There isn't enough wheat to fulfill his request."
The king was shocked. "What do you mean? There isn't enough wheat in our granaries?"
The treasurer replied, "Your majesty, there isn't enough wheat in the entire world to fulfill his request!"

How could that be?
The first 10 squares of the chessboard would have only 2,047 grains in total. That isn't even half a pound.
But remember that every square is the double of the previous square.
By the time you hit 30 squares, you would have more than a billion grains.
On the 64th square, the total would be more than 18 QUINTILLION grains of wheat.

For comparison, the annual production of wheat is about 784 million metric tons.
That's about 11.7 quadrillion grains of wheat.
18 quintillion is 1,500 times the entire world's production of wheat!
And it starts with one grain.
(You know what really worries me in the story? That the king had a treasurer who didn't understand how compounding works. Well, at least modern governments have an amazing grasp of the math...)

This story is an extreme example of compounding.
Like the king in the story, it's difficult to imagine starting with 1 grain and compounding it to an unimaginable number.
Now imagine that every square is one year of your life and the first grain is your investment.
Of course, you can't double your investments every year at a 100% return.

But even $100 invested every month, at an 8% interest rate, will turn into $2.3 million in 45 years. That's a pretty good return if you ask me.

If you liked that story, you can like and share it on LinkedIn.

Why should we allow portable mortgages?

99% of home buyers have locked in a rate less than the current market rate.
Nobody wants to sell their house even at insanely high prices.
Here's a crazy solution to the problem – Let people take their mortgage with them to the next house.

In the UK and Canada, there's this concept called a "portable mortgage".
When people move from one house to another, they can take their loan with them.
They just need to pay the remaining balance of the loan but they can keep the same interest rate.
This works in the UK and Canada for two reasons:

  1. Loans are paid out over 25 to 30 years, but rates aren't locked in. Rates are renewed every 5 to 6 years.
  2. Lenders compete among themselves to give the best rates. Portable mortgages are a good alternative to variable-rate mortgages.

In the US, loans are fixed for 30 years, and refinancing used to be a more attractive option for homebuyers, because they could get a cheaper rate. Portable mortgages don't fit in neatly with the mortgage securities market in the US, because they have to be custom-made for specific buyers, and there's no tax credit like refinancing.

But here's why lenders in the US could benefit from offering portable loans:

  1. It's a unique niche in a rising interest rate environment.
  2. Many millennials and GenZ-ers want mobility, so a lender who facilitates portable loans would capture that market.
  3. They could charge a transfer fee that is cheaper than getting a new loan at a higher rate, making it a better option for people looking to sell and buy.
  4. They could provide slightly higher rates that are lesser than the current market rate if they had a good way of assessing the customer risk.
  5. Then they could also upsell and cross-sell other products like insurance, savings accounts, refinancing, and other financial services.

This would free up so much inventory and let people downsize because they could profit off of their current homes without losing their attractive mortgages.

If anyone takes the lead on this when interest rates are high, they could capture a lot of loyal customers for a long time.

If you liked reading that, you can like and share it on LinkedIn.

That's it for this week. I hope you enjoyed this article. Let me know your thoughts by responding to this email - I read every single comment :) And if you liked it, why not forward it to a friend?

Stay safe, stay invested and I will see you next week – Graham Stephan.

113 Cherry St #92768, Seattle, WA 98104-2205
Unsubscribe · Preferences

Graham’s Newsletter

by Graham Stephan

A 33 year old real estate agent and investor with over $120M in residential real estate sales. This is my way of sharing actionable ideas that will make you a smarter and wealthier investor.

Share this page