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I’m talking with Tanisha Souza, CEO and president of Tardus, to tackle a tough topic that many agents face: How to get out of credit card debt, start creating a path to financial freedom and get off the commission roller coaster ride that leaves many agents longing for that regular 9-to-5 predictable income.
Souza was drowning in six-figure debt when she graduated from law school. Along with a team of Harvard mathematicians, she spent six years researching and systematizing an approach to building wealth. The “Income Snowball” was the result.
In fact, the Income Snowball is so effective at helping users create cash flow and get out of debt that Souza patented it in 2014.
What is the Income Snowball?
According to Souza’s patent, the Income Snowball is:
“A system and method for providing predictable income, leverages income, and excess cash flow into alternative income sources through linking a checking account to a revolving line of credit (L/C) and sweeping money back and forth between the L/C and the checking account. The system and method are automated using a computer running a software program.”
Souza said that when she created the Income Snowball, “I wanted to borrow to invest, leverage cash flow and take advantage of high-income producing investments.”
Financial coaching — not financial advice
Tardus is a wealth coaching company — they don’t provide specific investment advice. However, they do show you how to apply their model to find the right investments for you.
“One of the things that makes Tardus different is that we’re agnostic with investment. We don’t recommend that you buy this or that because we get some sort of commission, referral fees or kickbacks,” Souza said. “We remain neutral and take them through their investment criteria to make sure it works for them.”
CAVEAT: Regardless of the type of investment you may be considering, always consult with your CPA or tax advisor before investing.
Getting started: What level of risk are you willing to take?
When Tardus begins working with a coaching client, they ask them to take a risk assessment. This provides the Tardus coach with feedback about the client’s personal risk tolerance. It also provides a framework for helping the client make better-informed decisions about potential investments in alignment with the client’s financial goals.
Understanding the Income Snowball: Key concepts
To best understand the Income Snowball, you must first be familiar with the following terms.
Leverage
When you buy a home with 20 percent down and finance the other 80 percent, you create leverage. In other words, the rate of appreciation on your home is based upon the whole purchase price rather than the amount of down payment made. Google AI defines leverage as being:
“A strategy that uses borrowed capital or financial instruments to increase the potential return on an investment. The goal is to pay only a percentage of a property’s value in exchange for the ability to generate income or value from it.”
Cash flow
When most real estate professionals think about “cash flow,” we normally think of owning an investment property that spins off income. “Cash flow” is the amount you keep after you have covered all your expenses each month—mortgage, taxes, insurance, repairs, vacancy etc.
There’s a second way of thinking about cash flow when you have an amortized loan that generates both a return of principal and interest every month to the lender. ChatGPT describes it like this:
“When you receive amortized payments from being a lender, cash flow refers to the regular payments you receive that include both interest and principal repayment on the loan you provided. In this context, the cash flow consists of a portion of the loan’s principal and the interest income generated from the loan.”
Revolving credit, fully amortized mortgages, and car loans are all examples of this type of cash flow for lenders.
Line of credit (HELOC, all-in-one mortgage, revolving business credit line)
To capitalize on the Income Snowball, you must use a revolving line of credit to be able to swap back and forth between your LoC and investment(s). Souza said you could use credit cards, but that’s the least effective way to utilize the Income Snowball.
Since my husband is a Tardus coaching client, we’re using our All-In-One-Mortgage (simple interest rate of 7 percent) as our LC to sweep the money back and forth between our AIO mortgage account and into our investment(s).
‘Fast vs. slow-burning fuel’
Souza used the analogy of a race car vs. a regular car to explain the difference between what she calls “fast-burning fuel” vs. “slow-burning fuel.” Just as you would never put regular gasoline in a race car or racing fuel in an ordinary car, you must have the appropriate type of “fuel” to make the Income Snowball work.
“Fast burning fuel” is a short-term (12 months to five years) investment that has a fully amortized loan that returns both principal and interest regularly.
“As an investor, I want a shorter term on these investments, because it will pay me way more,” Souza said.
‘Stacking’
The Income Snowball’s “stacking feature” is what dramatically speeds up your rate of return by increasing your leverage. In our case, we’re using Groundfloor for our fast-burning fuel. This is how Souza explained it.
“Yes, it’s principal and interest, but since you’re using other people’s money to buy it in the first place, that’s providing you with a large amount of income to help you pay that leverage off more quickly and do your next investment,” Souza said.
“Every time you do your next leveraged investment, even though the total amount of money you’re investing remains the same, you’re actually getting a discount.”
In our case, we contribute the same amount monthly to our All-in-One Mortgage with the goal of saving towards our first reinvestment. It will take us less time to reach that amount, however, because we’re now adding the principal and interest that Groundfloor has paid us on top of our new deposits. At that time this column went to press, a total of 12 out of our 66 loans had paid off. As each loan closes, we add that principal and interest to the amount we’re contributing monthly.
Using Souza’s calculator, we currently anticipate that we will have saved enough to do our second investment probably in August 2024.
Assuming that another eight loans will pay off before we reinvest in August:
- This would leave us with 46 loans still at work in the first “stack.”
- Assuming that when we reinvest, we will receive the same number of new loans (66) that we received with our first investment, then in August, we would have a total of 112 loans, 46 remaining in the first stack and 66 new loans in the second stack.
“With each new investment, your cash flow increases significantly. For instance, an initial investment [first stack], may yield $310 per month. On the second investment, it could grow to $620, and possibly $900 within a single year,” she said. “This is why we call it the Income Snowball.”
3 scenarios
Souza described three common types of clients they work with at Tardus.
Client has a significant amount of credit card debt
Tardus uses a two-pronged approach to this issue. An important part of their coaching is to help their clients become more efficient in terms of managing their money. This involves having the client do a detailed analysis of their current expenses and then look for ways to minimize those expenses wherever possible.
If the client is struggling with credit card debt, the Tardus model can still work, provided they have some cash flow or money set aside in savings. Souza described their approach with this type of client who is often commission-based:
“We do something called ‘artificial cash flow,’ to make this whole system run, where we do a 70-30 or 60-40 split. Our calculator can determine the best split for specific individuals” Souza said. In other words,
“You’re paying off some of that leverage, and then reusing it to buy a chunk of new investments while also paying off debt at the same time. When you keep doing that, each time it goes a bit faster.”
Making their first investment
Whether you’re making your first investment or are a seasoned investor, it’s important to have a Plan A, B and C if your investment doesn’t perform as expected. In fact, one of the most important pieces of advice is to never invest an amount of money that you can’t afford to lose.
“Much of the coaching we provide relates how to identify investments that meet the requirements for “fast burning fuel, how to determine whether or not it’s a good investment, as well as what not to do,” Souza said.
“If it doesn’t perform, then how can you change from one investment to the next investment or maybe have multiple investments that you’re doing with the same amount of leverage.”
Souza then outlined several suggestions about how to locate and evaluate whether a specific investment is a good choice.
- Do your risk tolerance evaluation first to identify which types of investments are best suited to you. For example, someone with a higher risk tolerance may be willing to take more risk in exchange for a higher return. “You will reach financial freedom faster if you have a higher rate of return on your investment,” Souza said.
- Develop criteria for the type of investments you would like to make and whether it is fast-burning or slow-burning fuel. Once you have those written down, it makes it easier to decide which investments will be the best choices for you.
- Generate a list of due diligence questions to be used to assess every investment prior to investing. (If this is a real estate transaction, this would include evaluating the location, cash flow, verifying rental rolls, property condition, tax rates, whether the property is mastered or individually metered, etc.)
“Our coaches help you map all that, in order to help you weed out what will work best for you a lot quicker,” Souza said. This strategy is effective for both fast- and slow-burning fuel (longer-term investments, syndications, etc.)
Seasoned investors
When Tardus first begins working with a coaching client, they break down the investors’ current holdings as to whether they’re fast-burning or slow-burning fuel.
“Say that an investor has four or five single-family home rentals, and they have one that isn’t performing. Our coach might ask, ‘Based upon your criteria, what do you do if your investments don’t perform as expected,’” Souza said.
“So, what does that mean to that client? Is it that the renter hasn’t paid rent for three months or the roof needs a $15,000 repair? When they have their criteria written down, they are much more willing to exchange that property for something that better fits their written criteria.”
Souza also explained that perhaps that investor might want to roll those four single-family residences into a larger property. In that case, they would have to establish a new set of criteria to again identify what would work best for them.
Does the Income Snowball model work?
According to the Tardus website, 92 percent of their 7,000+ clients have achieved the goal they came to Tardus in just four years. Moreover, if the Tardus system doesn’t return at least the amount required to cover your coaching fee, they will refund it in full.
Souza’s final piece of advice is to create a plan and put an investment system in place — having a system in place gives you a tremendous advantage regardless of the market or what type of investment it is.
Bernice Ross, president and CEO of BrokerageUP and RealEstateCoach.com, and the founder of RealEstateWealthForWomen.com is a national speaker, author and trainer with over 1,500 published articles.
