Hello my friends. Welcome back to Passive Real Estate Investing where we dive into the world of real estate investing among other related topics. To help you with your real estate investing journey, today we’re doing something a little different. We’re going to take a trip down memory lane and showcase an important episode from the past on what we call our throwback Thursday episode. Now, whether you’ve been with us since the beginning, which goes back to 2015, or you’re tuning in for the first time, this episode is a must listen, we are revisiting one of our more popular episodes from the past, and believe me, what we discussed back then, whether it’s six months ago or six years ago, is just as relevant today. So sit back, relax, and let’s rewind the clock for this great episode. Enjoy.
And I’m a little excited today because I’ve got a friend of mine on who is also a very knowledgeable strategic financial thinker. I guess that’s what I’m gonna refer to him to. You like that, Tom?
Yeah.
Well, Tom Laune is a guy who I’ve known for years. He is the creator of the Bulletproof Wealth Strategy, and I’m going to let him explain that I understand what it is, and it’s rather interesting. He’s also a leader in guiding investors to become their own bank. And don’t let that turn you off. When you, you know, hear about being your own bank, especially if it’s foreign to you and you don’t understand what that actually means, because imagine this, what if you were able to save your money and save that money?
Not for the sake of just saving money, but for the sake of being able to leverage it, to use it, to multiply it and take that those savings earn on it, leverage it into investments, have the liquidity of being able to tap into those savings control it control not only the finances, the money that you’re saving, but also control your destiny and have an insurance policy on top of that. Think of it as a kicker. At least that’s my description of it. And that’s the way I think of it. So I’m not going to steal Tom’s thunder. I’m going to let him dive into this a little further. So with that, Tom, welcome to the show.
Thank you, Marco. I’m excited to be here. I’ve been really looking forward to this.
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Well, great. Yeah, we’ve been talking about this actually literally for months about coming on the show and talking about whatever you want to call it. You know, whether you refer to it as the infinite banking concept or the Bulletproof wealth strategy, something that you created, you trademarked and you own or something different, but you have an interesting background. So the first thing that comes to mind is like working with the band REM, which is w you know, a great band. I used to listen to them for forever. Why don’t you share some of your background because it’s very interesting. And then take that and kind of segue into how you got into this area of finance.
Sure. That’s very cool. Well, I was in the music industry for 29 years and I sort of, uh, so, so I started, um, way back just by trying to record bands that I was in and I recognized that these recordings were coming out terribly. So I ended up going to college and working on a degree, actually three degrees, one in recording engineering, one in film and video production and one in electronics technology. And when I graduated with those three degrees, I really started learning what I was doing in that field. And the way I did that was through mentorship. I ended up being an assistant to guys who are really, really amazing engineers. And that is how I had such a long career in the music industry. And I got to work with just ridiculously talented people. I mean, I got to work with Stevie Ray Vaughan. I consider one of the best guitar players of all time. Um, Stevie Nicks. Um, I got to work with Mavis staples. I got to work with the fabulous Thunderbirds, Bruce Springsteen, REM. I mean, the list just goes on and on and on. And it was an awesome, awesome career. And in the middle of that, when my income was really high, because I was really just very successful in that career, I had a financial professional come to me and say, Hey, you need to protect this income while you’re doing so well, because you don’t know how long you’re going to be doing this well and what could happen in the future. And so, honestly, Marco, that was the thing that I just took the guy’s advice. And so in the, I guess it was the early nineties, I got this thing called a long-term disability policy.
I didn’t really even know what that, I didn’t even know what it was called back then, but that’s what it was. And I had a special rider called an own occupation rider on that policy that allowed, I didn’t know what that was either, but what own occupation did was it allowed me to do something else in a career, but still, if I couldn’t work in music, it would pay a tax-free income. So that was something that I didn’t really know what I had until I needed to use it. And what happened is, is that I lost a high-frequency hearing in my right ear, and I could not do that job properly because I was the, kind of the behind the scenes guy that mixed the records. So I mixed hundreds of records, and that was mostly what I did. I also did production and engineering, but my primary job was mixing.
And that is very, very similar to painting. And it’s kind of like a painter who all of a sudden starts to lose his color perception, right? If you can’t hear properly, you can’t mix. So that is why I ended up going, wow, this is a huge impact for me having this income protection. And so I ended up using this time that I had to go back to school and get three financial designations, which took four years of really hard work and tons and tons of tests to get there. But that’s what I did. And that was kind of the germination of realizing how important income protection is. And by the way, that has nothing to do with infinite banking. Okay. Infinite banking has no component of what I’m talking about in it. So I created a strategy called Bulletproof Wealth that looks at everything a little bit more holistically. I’m trying to make sure that as much as humanly possible, someone is protected. If they get disabled, if they can’t work, if they get sick, if they get hurt, if they have some thumps, something that prevents them from doing their main job, that is, you know, what they earn a living doing. So that is how I created the Bulletproof Wealth Strategy.
So before we start to lose a few people or have people’s eyes glaze over a little bit, let’s make sure that people understand that this is not just one thing. In fact, we were just talking offline and I randomly said that this is almost like a rubik’s cube. You know, it’s got multiple facets. It’s not just one thing. It’s a bunch of things together. And what I fear is that people will lose interest or skip over something that could be very beneficial for them and their family and for generational wealth, because they got confused too early on. So do me a favor. Do the audience a favor, break this down a little bit. Like, what are the parts or the pieces of this small puzzle? And then we can talk about how we use and leverage each of these pieces together to create synergy and multiply your income, multiply your wealth. Because I think without clarifying the parts, it’s hard to see what this thing is.
There’s three elements to develop proof wealth strategy element. Number one is a long-term specially designed long-term disability policy with these unique riders that most people don’t get. Okay. And that protects your ability to earn a living. That is the number one thing we have to protect your income. Number two is a banking policy, okay, but it’s not a straight up, Hey, this is an infinite banking policy. It has elements to it that protect your ability to earn a living as well. And I accomplished that through what they call disability waiver premium writers, which is a little bit complex, but what it means is that the whole thing is not going to blow up. If you, you can’t work. Okay. If for some reason you get sick or hurting, can’t work. This thing’s going to keep churning on. And the third element, the final and third element to the Bulletproof wealth strategy is an option strategy that uses convertible term insurance. To give you the ability to a protect your family, to the maximum possible income replacement that you can do. And then B allow you to get a larger banking policy as you earn more money in the future without having to re qualify medically. So those are the three elements.
Can you explain the third one and a little bit more? What I’ll call plain English? I know it was probably crystal clear to you, but for a lot of people they’re listening to that and they’re thinking, wow, there’s a lot of words in there that I don’t normally hear on a day-to-day basis.
Sure, sure Marco. So term term insurance is where you put in the least amount of money possible for the most amount of life insurance. That’s what term insurance is. Now, if you earn $200,000 a year and you are, let’s say a 45 year old male, you can qualify for 25 times your income or five, $5 million, right. 200 times 25. So you can get multiple on your income. And a lot of times people don’t put, you know, don’t have the resources to do that all with a big banking policy. So I make sure that they can have this term insurance, which is very inexpensive, but it gives them the ability to get a whole life policy or a banking policy in the future. That’s what it is.
Yes. Okay. So when you put these things together and maybe this kind of segues into your Bulletproof strategy, what are the benefits of setting up a package for lack of a better word or description like this?
Yeah. So setting up a package like this gives you as many options as possible, and it allows you to step in and not go all in at once. At the very beginning, it allows you to step in, but only have to qualify once. That is what is so attractive about the way that I set this up is that you’re not saying, you know, let me just go a hundred miles an hour, right? To start, you can phase in to saving more and more of your income. Um, over time inside of these specially designed policies that give you all these amazing advantages, which we haven’t really even talked about yet, but you can do this over time. And at the very beginning of it, you’re fully covered, right? Once we, once we get you onboarded, you’re fully covered to the most, you can be protected.
So at the risk of oversimplifying, what you’ve just described, you have a policy which has a savings component. It gives you insurance protection. It gives you income protection, which you can describe further. And what part of my missing here.
So there’s this banking policy that gives you the ability to save money. There. That’s, that is the middle part of the strategy. There’s a second policy called a disability policy, which is what a totally different company. These two, it’s not even the same company and it’s two totally different things. Okay. And that protects your ability to earn a living, right? That’s what that protects. And then there is convertible term insurance. The third thing that allows you to create a larger banking policy in the future, whenever you are ready, those are the three elements.
All right. So let’s talk about how this works in the real world. I can practice maybe a fictitious example or, you know, or a real example, whatever you want to provide, but you know, what would be a common scenario? And most of our listeners are, you know, it real estate investors. And I know that you focus on real estate investors because they are more of a investment and control mindset. Yeah. So, you know, take that wherever you want, but, you know, an example would be great.
Well, guys, everybody has to save money somewhere and you have to have what I call dry powder or liquidity or access to the capital, whatever you want to call it, you have to have money. So when a deal presents itself, that you really like the terms and it looks like a great opportunity. You can jump on it and take advantage of it. So the whole thing is, is the problem with that is that typically real estate investors, to be able to jump on a deal when it comes along, save their money in a checkings and savings account, they just literally leave it in a bank so that it’s liquid and ready to jump on a, an opportunity. The problem with that Marco is that it doesn’t have any other advantages. There’s zero other advantages to saving money in a bank other than access to your money.
It’s not paying you any, any interest. That’s, you know, negligible it’s paying you almost nothing. And then the tiny interest that it does pay is taxable at ordinary income rates. So you got no tax advantages and it’s just not efficient to leave money. And then when you do find an investment, let’s just use the a hundred thousand dollars for simplicity. Let’s say you have a hundred thousand dollars in a bank, and then you find it an investment, a syndication or something that you’re wanting to put a hundred thousand into. Now it’s gone from the bank and it’s in the syndication. So it’s either in the bank or the syndication, one of the two, but it’s not in both. So the thing with that, that strategy of just leaving money in a bank is just an inefficient way to use money. It really is. And I try to help people understand, you know, how to increase that efficiency of their, their money so that they can do more with it. There’s this concept. And I’m really going to try to make this simple of using an asset to purchase another asset. Okay. Real estate investors do this all the time, where you would build up equity in a real estate or a property that you own, any, any real estate. And then you would take an equity position against that and use it to buy another property. You know, that that’s not an a foreign concept at all, correct?
You’re just leveraging, you’re leveraging against your existing assets or collateral. So you don’t lose the ownership or the control over your original assets. You’re just using the equity. That’s there to create more equity elsewhere. Right?
Totally. That’s exactly that, that is the concept that I’m teaching in a nutshell, the problem with using real estate to buy real estate and then using that real estate to buy more real estate. And then using that real estate to buy more real estate is that then you become highly exposed to real estate, meaning that it’s all correlated. All of those assets become correlated. So in a downturn, in the entirety of the real estate market, then when those, you know, things start to lose value, which does happen. Okay. It hasn’t happened in a while, but I don’t know. I remember 2008 and nine pretty well. Uh, you know, and so you don’t want to have all of your assets correlated. So what this does is it gives you a place to put money initially that is completely uncorrelated to the real estate market that is going to be there guaranteed and be guaranteed to increase in value over time that you can still have a very high collateralization factor or like a hundred percent collateralization of the cash value inside of these policies. So when you have a safe thing that you’re taking a collateralized loan against versus a risk asset, overall, you have more safety. I’m trying to make that as simple as possible. Does that make sense to you Marco?
Yeah, it does. And I think what we’ve done here in the last few minutes is we’ve been dancing around one of the big aha items of what you’re offering, what you’re doing, because you can create this account where you’re putting your, your capital, your savings into, and it’s growing over time, both from your own contributions, but as well as the interest earned on that. But here’s the important thing, which I think hasn’t been clearly said, and I want you to take the baton from you here, but essentially you don’t need to take those funds out of that account in order to use as your down payment for the next acquisition or purchase, you’re basically borrowing against it.
Yes, exactly.
Dive into that because that for many people is an aha moment where it’s like, oh, I still have my savings. I still have my cash, but I’m also able to purchase real estate as if I took the money out of that policy or that account and use it as a down payment, but it didn’t have to do that. It’s still there earning interest and protected, but yet I have the capital that I could borrow against it to make additional acquisitions in real estate or whatever the investment may be.
Exactly. That is, that is exactly the key thing is that you’re growing an asset that is guaranteed to grow, but you are able to borrow against it, to put into another asset. Now, just talk about doing this for a second, with something that I think your audience would understand completely, and that’s a home equity line of credit. So if they had a house worth a million dollars, that they had $500,000 paid off on, they could probably get a $300,000 home equity line of credit because they typically would get an 80 20 loan to value on that. And they could get a $300,000 home equity line of credit. Now they could take that $300,000 and use it as a down payment on another asset. Okay. There’s a lot of problems with doing that though, that this solves with my strategy solves. So for one thing, that credit line is fixed.
In other words, it’s going to remain at $300,000, no matter how long it goes, it’s going to stay at 300,000, unless you go get a new appraisal and you get requalified financially, and you increase your credit line, which is a big pain to do every time you put in money, which is typically once a year, you contribute new capital to one of these specially designed bulletproof wealth policies that I create for people, your internal line of credit or your access to capital goes up every year. So it’s like an expanding home equity line of credit, right? And the cash value is the collateral inside the life insurance policies, not the death benefit. That’s something that is very confusing, but you might have a $5 million death benefit in $200,000 of cash value. They don’t give you $5 million credit line. They give it based on the cash value because that is the equity inside these special policies.
So this is the other thing, when you were to pull, you know, money from a home equity line of credit that is going to impact your credit score, because that is reported to the credit reporting agencies and it affects your debt to income ratio. So that’s going to lower your FICO score to do that strategy. And the way that I set these policies up, it does not do that. It does not impact your credit score, which is really cool. And finally, all of the interests that you would pay on a home equity line of credit would go straight to a bank and you don’t own the bank. So you’re not getting any of that back, but the interest that you pay on the loans for the life insurance policies that I set up for people goes to a mutually owned life insurance that you’re a part owner of, and they’re required to return the profit of the company once a year, back to the policy owners in the form of a dividend. So this thing pays dividends because it’s mutually owned. So it’s very similar to a home equity line of credit, but way better because the actual asset is the cash value in the life. Insurance and banks consider that tier one capital, and they just give you a very, very high ability to borrow against it. So that’s a
So that’s a good description as a hypothetical example, let’s just say someone accumulated a hundred thousand dollars into a policy. How much can they borrow against that, which would be like an LTV, a loan to value. And what are the terms like, what would the, uh, interest rate be for borrowing and as comparison? What would the interest earned be on the monies in that account?
Well, Marco, I love these specific questions. I can give you the detailed, specific answer, but I will tell you this, there’s, it’s kind of complicated. All right. Here’s, here’s the answer at a hundred thousand dollars. I can have my clients set up to do, what’s called an eye block or an insurance back line of credit where the rate goes down to three and a quarter, which is really good. That’s what it’s at right now. That’s prime. Okay. And then below a hundred thousand dollars, it’s 90% of whatever’s in your cash value the first year. And then let’s say it was $80,000. It would be 90% of that, or 72,000. And then starting year two, if it’s below a hundred, it goes up to 95% loan to value it’s, whatever the interest rate is, minus a hundred. So the thing is, is that, you know, there’s a lot of nuance to how all this works, but the bottom line is it’s between three and a quarter and 5% loan, right?
Depending on how you have your policies, uh, your collateralization structured, and the repayment terms are when you use an insurance back line of credit it’s interest only once a month. And when you borrow it straight from the life insurance company, it is unstructured repayment, meaning you can leave the loan out for as long as you want to and let the interest rate just the interest just compound inside the policy. So they don’t give you a structure on how you have to pay it back. But we structured that for our real estate investors all the time. You know, we’ll say, how long do you want to pay it back for? And then we can have it paid back, you know, systematically, or they can pay it back in chunks as their investment pays back.
And then the interest earned on that. Is that also on a scale? How does that work?
Yeah, the interest earned is based on the cash value, and it’s not called interest. It’s called a dividend. And another complex thing is that the dividend is a return of profit of the company, minus company expenses and mortality charges. So they have to take out what their company expenses are, which means that you want to find a company with low expense ratios. And you want to find a company with a higher base of affluent clients, because they tend to have a longer longevity. So they tend to have less claims, which is why the insurance company that I really like now I’m a brokers. I work with all different ones, but the one I am personally has very, very low claims experience because they have very, very high average policies, which means they’re working with people that have higher net worth, which means those people have access to better healthcare. I mean, it’s kind of this really a lot behind that question. Does that make sense?
Yeah. It makes sense. I guess part of what’s going on in my mind is, uh, and I’m sure the answer is to some degree, it depends, but is the cost of the borrowed money higher or lower than what you will typically see in terms of a distribution or a dividend coming back in, in other words, is there a triaged opportunity there, there, there certainly is with borrowing and investing, but in terms of the cost.
No, the answer is no, there’s no internal, and this is something that I’m just going to be straight up, you know, make sure your audience really understands this. You can’t borrow money and then make more just internally, right? You have to take that money and put it into an investment that is earning a greater rate of return than what you’re paying the insurance company. So if you’re paying 5%, you want to look for at least a 10%. You know, I, I look for 15% opportunities as best as I possibly can, but you want to look for at least a 10% return so that you are paying five and earning 10, okay. There is an internal growth to the policy that absolutely creams a savings account, right? But you compare it in risk. You have to look at the risk adjusted return and a savings account might be paying 0.015%. And this might be paying two and a half to three, but that’s still great on safe money. Does that make sense? But you might be earning three and paying five. You’re not earning seven and paying five. There’s not a greater internal growth in the amount of interest you’re paying that just wouldn’t make financial sense. And you want these companies since you’re a part owner on them to actually do well.
Okay. So the real opportunity in making money or multiplying your money is to borrow against your existing policy, the cash value of the collateral that’s there and arbitraging that into investment opportunities, whether it be promissory notes or real estate investments or whatever else do you want to give sort of a real-world example? Uh, not example as much as a strategy, because I think everybody listening to this, I mean, everybody we can say is a real estate investor, but we’re talking to people who are investors in general, they’re investing in promissory notes with us and with other people they’re entrepreneurs, they’re running small businesses. Uh, there’s probably a lot of ways to utilize this policy and take advantage of the benefits that you’re talking about. So maybe share one or two strategies that investors listening to this can take advantage of.
Ok sure. Well, I mean, for one thing, Marco, I I’ll just give a quick example of something I just did recently. This just closed where I did a hard money loan in second lien position to someone who was fixing up a house and I got 15% rate of return and that was structured as 3% at closing and 1% per month. And we held, they had the note for one year. Okay. So I’m borrowing money at 5% and turning around and making 15. So this is exactly by the way, what banks do they take depositors’ money in, pay them almost nothing very little, and then turn around and loan out their money to people at a higher rate. And they arbitrage the difference. So what does that boil down to, if you were paying 5% on a hundred thousand dollars, for example, just to make the numbers easy, you’re paying 5,000 bucks, right?
That’s the interest you’re paying. If you’re making 15%, you’re making 15,000. Now, this is where it really gets exciting in terms of doing this strategy is that you’re not putting a hundred thousand of your own money into this deal. You’re just paying that $5,000 interest. So that is exactly running through a financial calculator. A 200% rate of return. 100% return would be turning 5,000 into $10,000. 200% is turning 5,000 into 10 and then 10 to 15. So you’re to accessing what you’re spending, you’re getting back. And it’s, it’s just really exciting to see the light bulbs go on for people. This is exactly what I’m doing. And of course, once you get above a hundred thousand, then the interest rate drops to three and a quarter that increases your returns because now the cost of capital is even lower. Now in all of those math that I just did and all of those variables, I did not count the dividend that I get that increases my line of credit. That to me, is the gravy part. And I don’t factor that in to you know, increasing your rate of return. I just increase it, uh, as best I can using the arbitrage strategy of the two interest rates. And then I let that dividend be a big bonus.
That’s a great example. So basically you just took the cost of that borrowed money, which came back and you made 200% on it, and you have essentially to x that, that costs. Yes. So your net profit was 200%. Yes. So the question is, how often can I do that and how, how much can I deploy? Because if I could deploy.
Exactly Marco, well, here’s the thing. This is not a short-term strategy, it’s a long-term strategy. And it takes time, get the money in your policy. I’ve been doing it now for nine years, and I’ve been building up every year, adding new policies. Okay. It’s just a long strategy of getting enough capital to flow through your system of policies, because eventually you’re going to have multiple, I think I’ve got eight now. And then you get a line of credit that is combining all of those policies, cash values into one big line of credit, and then you deploy it for investments. And when they pay back, it becomes, redeployable just like a home equity line of credit, where you would be taking loans and then paying back, and then you have access to the money again. So yeah, the bottom line is once the light bulb goes on for people as to how this really works, they, the question that I always get is how can I put more in, right?
And there’s all kinds of crazy limits on it. You can only qualify for so much life insurance and it’s based on your age and your income. Those are the two main variables is your age and your income. And it’s just like going to a homeowner’s company and saying, Hey, I want to buy homeowners insurance, but I’m renting, right? If you don’t own a home, you can’t buy homeowners insurance. You can buy renter’s insurance, but you can’t buy homeowners insurance. So you have to qualify for this and you have to be earning income. Cause that’s what it’s doing. Marco is replacing your income. That’s why they sell it. Just like you can buy homeowners insurance because it’s replacing your house. That’s why you’re allowed to buy it. Right? And you cannot go where the $200,000 house and buy a million dollars of homeowners insurance. Because now you’re over replacing the value of your house and you cannot go with a $200,000 income and buy $50 million of life insurance. It’s just not going to happen. They limit everything with these tight regulations and guidelines. So it’s just…
Okay. Is that the reason you have eight policies is because you’re capped with each one, so you can keep buying additional policies and structure this multiple times.
Yes. As I earn more income, I can go back and requalify for more insurance. That’s exactly it because it only is replacing your income.
But In the interm, in the meantime, you have to just keep stacking additional policies.
What I do now for my clients is I get their maximum insurable interest captured, which let’s just call it, let’s call it a 25 X, multiple. Okay. So at a hundred thousand dollars, someone could buy $2.5 million of life insurance. And if they earn a hundred thousand, they buy 2.5 million, of course, that multiple changes as you age. And I don’t want this thing to get too complicated here, but let’s just say the midline is 2.5 million, then they, but they only want to do a whole life policy. That’s 1.5 million to start with because that’s how much capital they have to put into it. Then I have a $1 million convertible term policy on top of it that allows them to stack into it in the future without having to requalify for it from a medical standpoint. That’s the trickiest thing about this is that it really works best if you’re relatively healthy, your height and weight is in line with the, with their standards and all of that. So you kind of have to be earning income relatively healthy, and those are the main qualifications to get this going.
Got it. Okay. So if you don’t mind, I’m going to ask you for one more example, because the one you gave was great, you know, that arbitrage of, of borrowing a three and a half to 5% and being able to make 10, 15% or more, you know, provide some crazy returns. And if you could keep doing that every month, every year, you have a very healthy return, but that’s, you know, that’s one example and that’s great if you’re investing in paper assets like promissory notes and, you know, through neurotic capital management, we’re offering notes that start at 12% and go up to 17.5%, you know, into the new year, but not forever. I mean, this is, this offering is not going to be on the table for a long time, but we have a lot of real estate investors listening to this. So it would be irresponsible of me not to ask you for a real estate based example before we end this, uh, this interview.
No Marco. That’s great. That’s great. So the thing that people fail to realize is that traditional bank financing is not off the table with this strategy, right? Let’s just say that you’re just getting started with it. Well, the way that you radically increase your return is by using this strategy to cover the down payment that you would normally be pulling from cash. So let’s just say that you were buying a fix and flip that you found a house that was, I’m just going to do a a hundred thousand dollars. You’re buying a house for, and you’re getting traditional bank financing on it. And you’re having to put 25,000 down. Okay. You’re having to put down 25% because it’s not your primary residence. So if you took a loan, a collateralized loan against your life insurance policy for that 25,000, you’re just paying peanuts on that interest that you can hold until the thing funds completely before you pay it back.
And then the rest of it is from a bank. So now you have virtually none of your own money into this deal, right? So then you fix it up and then resell it and then boom, you have just utilize the strategy perfectly for a fix and flip. Okay. That is exactly what I have tons of clients that do is that strategy right there. Because if they get their banking policy big enough, they could just buy the whole house or that, and not have to deal with a bank at all. Right. But they are just getting started. They do, um, this for their down payment.
What about another real estate? I mean, that’s a great example for someone who’s buying, fixing, and flipping and doing that either as a side hustle or maybe that’s their full-time business, but what about someone who is a buy and hold long-term investor, a passive real estate investor that is just building a portfolio. Can they use this tool, this strategy as well? Because I would imagine that if you’re borrowing against your policy, you’ve got a time period that you’re working within to repay that, are you not?
So what we do is we will structure a time period that works for you. So if you’re taking a loan and you want to repay it on a specific time period, you will work with you to come up with what time period do you want to repay it on? And then that loan repayment will just draft out of your checking account once a month or whatever frequency you want it to be set on. And it’ll automatically pay back the loan. So a long-term buy and hold investing. The key to this is that you have to make sure that you are achieving cash flow positivity. So you have to have a renter in there. That’s paying you more than your expenses. And if you’re a, if you’re ahead, then you just take a portion of that and use that to pay back the loan. And it works.
It just works out phenomenally well for buy and hold investors as well. Okay. There’s no, um, there’s no moratorium on buy and hold. A lot of people do the burst strategy with this. I have people that do syndications. The syndications typically have a three to seven year hold period, depending on what it is that they’re doing. And they don’t pay a lot initially. And then you have an exit where you get a large equity, multiple sometimes as high as like 1.7, five or two X equity, multiple. And then they pay back everything. When they exit a few years later, just let the loan interest rate accrue over that time, or they pay it back as the thing of cash flows during the initial funding period, because they can surely cashflow just the interest rate. So it works for syndicators. It works for buy and hold. That works for, you know, note investing. It works for lending. I can’t think of one real estate type investment that it doesn’t really work for.
So let me just ask one more question, just to get a little bit deeper into the question of long-term buy and hold using this strategy, using this package, this policy, because my mind is fixated on buy and hold long-term. So if I was to borrow against my plan for the down payment, and then I’ve got positive cashflow that I can service the borrowed funds, that’s all well and fine. However, I need a plan don’t I to amortize or pay that off over a certain period of time. Whether I want to pay it off over five years or 20 years, I do need to cover the interest, but then also apply additional principle to pay down that mortgage. But that loan.
Yeah, you definitely want to do that Marco. And that is why we can do structured repayment. Okay. So I can have a way for you to say, you know what, I want to put $800 a month towards paying that loan off and or whatever amount that is comfortable for what your strategy is. And then automatically every month the loan gets repaid. Okay. Every month it gets repaid. And that way you can then get more dry powder again, to go out and rinse and repeat and do it again. It works perfect.
Okay. Maybe my last question is what about contribution limits? Are there caps to what you can contribute each year or even every month towards your policy?
So most of my clients put in money once a year because it gives them the quickest access to their capital when you do it that way, very few people do the monthly contributions, although that is possible. But when you do monthly contributions, you don’t have the same flexibility because everything I do, this is something we there’s a lot to this. So I wasn’t able to get into every nuance to detail, but there’s a minimum amount that you can contribute and a maximum. So you can put, let’s just say up to a hundred thousand and as low as 50,000. So there’s this big window of how much you can put in each year to your policy. And it’s very, very flexible when you do it annually. And your question is, is there contribution limits? Absolutely. There’s financial contribution limits, again, highly regulated industry. They only let you put in so much.
Now what it is right now is 25% of your income is your typical contribution cap. So you can get, if you are making 200,000 a year, just as a round number example, you could put in up to $50,000 a year, $400,000 a year income, you would a lot be allowed to put in a hundred thousand dollars a year. Now, that being said, there’s a way to structure year one with an extra amount that you put in that gives you access to a higher amount of liquidity. And I typically do that. Um, it’s, it’s a way to just do a lump sum cash contribution the first year, if you’re setting on money in a savings account that you want to move into this, all of that extra amount is typically available after 30 days. So that’s why I do it hat way.
Good stuff, Tom, I know there are a lot of questions that I could have asked you that I didn’t, because we’re going to go down a rabbit hole. I wanted to just expose this to people and understand what it looks like. You know, it’s not as complicated as a rubik’s cube, but I use that analogy because it’s, multi-faceted, there’s different pieces and there’s different sides and you can use this altogether and get multiple benefits from it. But I think someone who’s listening to this would probably need to have a discussion with someone like yourself and kind of go a little bit further and get more clarification and how it applies to their own personal situation, because it might be different for everybody. So having said that, my first question in closing here is what did I not ask you that I probably should have based on everything we talked about today?
I think that you should have asked me one of the things that people get hung up on is how long do I have to put in money for, because they see this thing and they’re like, oh, am I, they get concerned about the commitment of it. And I want to just address that real quick, because the answer to that is that in order for it to still be considered life insurance by the government, okay, you have to at least make seven payments. So it’s this mech testing rules and they make sure you’re not trying to make an investment out of life insurance. You have to make at least seven payments. And I typically stretch that and go, you know, let’s be on the safe side and plan for eight. And the other thing is, do I have to put in the maximum that is designed or just the minimum, of course, you’re only on the hook for the minimum.
And then the other thing that people ask me is what if I’m two or three years in, and I can’t make a payment, I need to skip a whole year. Well, you can take a loan from the policy itself to pay the minimum for the following year. And then after you get back on your feet or an investment cells, then you can go back and make up through a catch-up contribution, the amount that you were short the prior year. So there’s a lot of flexibility to this. And I just want people to realize if they’re concerned about a commitment, because I think it’s a lifelong commitment. It’s really not. And the way I structured is to give you the maximum flexibility.
Got it. Cool. Good clarification. So I appreciate that. Alright. Well, good stuff, Tom, tell people how they can learn more and follow you or get in contact with you if they want to get more information or if they have additional questions.
Sure. So my website is bulletproofwealth.info – I N F O bulletproofwealth.info. And that’s where you go to get information about this. So I have the ability for you guys who are listening to this show. You just go there to that website, put in your name and email and you will get access to an awesome video training library that I have spent years perfecting and getting it all tight so that it’s not wasting your time. And it’s a lot of information in a short amount of time. So I believe you can watch like the first six really packed videos for in about 45 minutes. And that will give you a very good understanding of what it is that this is all about. And then right there on that page, if you want to contact me, there’s a way to just book a time to talk and I can go over and show you what your personal ability to do. This is so that’s generally how I do it.
Yeah, and what I’ll add to that is this, Tom, sometimes you use a lot of numbers and you have to, because you’re actually giving real examples and real illustrations, but for someone who’s looking at it or listening to it for the first time, it’s important that you don’t let that let allow your eyes to glaze over. Don’t get lost in the minutiae. It’s a very powerful tool and it’s going to apply to you differently than it will apply to someone else. So it’s important to understand that once you get into the weeds with this, it’ll make a lot more sense as you apply it to your own personal situation and your own financial situation. So don’t let the numbers lose. You just understand the concepts and how it works.
Yes. I know podcasts and numbers don’t go well together, but I do have to give some sort of some sort of just, that’s why I always use round numbers to make it to where it’s easy concepts. But I, you know, I know that that is, that is difficult. And when you see the videos, there’s a lot of illustrations and things and pictures and slides, and it’s much easier to comprehend on a video format I believe, than it is just listening.
Yeah, for sure. Tom, great information. Thanks for coming on. I appreciate you taking the time today.
Thank you so much for having me, Marco.
You’re very welcome. And for everybody else, whether you have a package and policy put together or not, I’ve got a team here to support you and help you. So don’t forget we offer free strategy sessions for those people interested in either getting started in real estate, investing or learning about real estate investing, or maybe you’re just expanding your portfolio. And you’re already a seasoned investor with 2030 properties. It doesn’t matter. We help them all.
I hope you enjoyed this week’s throwback Thursday episode. If you haven’t already, remember to subscribe so you don’t miss out on a single episode. We’re releasing one every week, sometimes two, and I would not like it if you missed an episode. There’s just a lot of great nuggets and good content sprinkled throughout this show. If you have a question about real estate investing or finance, simply go to passiverealestateinvesting.com and click the Ask Marco button. I read all of them, I reply to many of them, and sometimes I cover them on the show, and I’m gonna try and do more of that. So, I am going to encourage you to go to passiverealestateinvesting.com and submit your question for Ask Marco. Lastly, help us share the show with other like-minded people that you know who can benefit from it as well. Just visit us on your platform. Most of you are on iTunes and leave us a rating and review. I would greatly appreciate it. I read them all and I will thank you in advance. And that is it for today. Thanks for listening. I will see you on our next episode.
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