Bridge Loan Investing For Non-Accredited Investors – Episode 49

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[00:01] Welcome to the Prosperity Podcast, fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your host, bestselling author, Kim D.H. Butler and No BS Money Guy, Todd Strobel. Hey, everybody. Welcome to another edition of the Prosperity Podcast. This is No BS Money Guy, Todd Strobel with my co-host and financial author, Kim Butler. Welcome, Kim. Thank you, Todd. Good to be here today and happy to bring forth a conversation that another listener has emailed in a request for a podcast on. And our subject today is bridge loan investing for non-accredited investors. Super. Well, just before we get into it, we want to spend a whole lot of time on this.

[00:50] But what is the difference between an accredited and a non-accredited investor? And what makes this so special? Oh, yes. Thanks for bringing that up. So accredited is a term that, you know, I don’t know who came up with it. Probably the SEC. But they have put forth that there are certain net worths, in particular, $1 million. And by the way, I think this has been around about 15 years. That number has never changed. So the definition of accredited investor is a million dollar net worth. What did change about it maybe two years ago was you used to be able to include the equity in your home for that net worth number to hit a million. And now you cannot. But I think it’s hilarious that that number has never changed.

[01:35] Nevertheless, there is a second way that you can qualify for as well. And that would be via income, either individual or joint. So there is another way you could qualify. Correct? Yes, absolutely. And the I believe it’s 200 individual, 300,000 joint. Is that right? I believe it’s gone up just a little bit. It’s 250 and 350. OK. So yes, an accredited investor is 350 of joint income or it’s not and or one million of net worth. So the SEC has put that out there as a definition. And if you fall above those lines, above the income of 250 single 350 joint or above the net worth of a million, not including your home, then you have access to certain investments that somebody that falls below that line does not have.

[02:29] Now here’s the other interesting thing about this accredited definition, and that is that only recently have the powers that be started to check and ask for proof. And it really depends on the state. As an example, Massachusetts has decided that they’re going to actually ask for proof. So you not only have to check a box that says, yes, I’m accredited, but you have to prove it in some form. It could be a letter from your CPA or proof with a number of statements or something like that. And there are other states, many of them, that don’t require any proof at all. You just have to check a box that says, yes, I’m accredited and nobody checks. Not only do you not have to provide proof, but nobody verifies it.

[03:12] So it’s an interesting conundrum, if you will. And Todd, tell us a little bit you know better than me about the the jobs act, and they were trying to make some changes about the definition and then it never really went anywhere. Yeah, that is correct. There was some language in a bill that passed that they thought retroactively opened these categories of investments to pretty much everyone. It took a very long time and basically they just decided that, you know, the jobs act had nothing to do with investors. So it really hasn’t gone anywhere. It has allowed a little bit more of an open discussion and to be able to advertise and market investments a little differently. But it hasn’t changed the ability of somebody to participate.

[04:04] Now, the driving force behind this was in the idea that people who have this level of money have a higher degree of understanding of investments. So the idea is really to protect the consumer. But what’s really sad to me is, is that if I have somebody who has five hundred thousand dollars, their need to properly invest that money and get a better rate of return is usually more than the person who has five million dollars to invest. And, you know, I completely disagree with this. I would love to see it be education based or something where you could certify the sophistication of the investor, not just the balance in their bank account. But that’s a side note. What we’re here today is to say, hey, people who are

[04:52] non-accredited, Kim has done some work and found a category of investments that can get you a good, safe rate of return for a non-accredited investor. And, you know, kind of give us an idea of what the minimum investment and what type of rates of return and that type of thing are out there. The bridge loan environment is something that we’ve been involved with for quite some time and we’ve had our challenges. We absolutely know that this area can be fraught with risk. But unlike peer to peer lending, that is you lending money unsecured, the bridge loan environment is you lending money secured, secured by typically first deed of trust investing, meaning that you are lending money as an investor to somebody that owns real estate.

[05:42] And this person is putting up that real estate as collateral. And typically this is done in funds. In other words, like a mutual fund instead of stocks, it’s a mutual fund of bridge loans. And the term bridge is used because they’re typically short term, one to two years. Now, a lot of times those are packaged. And so the actual investment time frame might be five years. But for the non-accredited investor, we have found one that is in the one to two year time frame and it earns a seven percent rate of return and has a $50,000 minimum. And again, no requirement for accredited investors. So this is a nice environment if somebody has 50,000 of extra money. So this is not your liquid emergency slash opportunity money.

[06:32] This is extra money that you would like to put in a place where you can get a monthly paycheck. And this company pays on the 20th of the month. And their bridge loans are typically a 65 percent loan to value. That means if they have a million dollar property, there’s maybe 650,000 of money lent against it. Your 50,000 and my 50,000 and somebody else’s 50,000 and or even up to 100. And then, as I’ve indicated, they pay an interest only paycheck of seven percent. And then you get your principal back in one to two years, depending on the time frame. Kim, just real quickly, I’d like to point out that is a check, not a paycheck. So it’s not subject to income tax as income, correct? Or as paycheck.

[07:21] It’s not. You’re not an employee. Well, correct. You’re not an employee, but it is still absolutely subject to income tax. That would be considered income. Yes. Interesting. OK, I just want to clarify that. So, yes. So that enables somebody to get cash flow. And like we talk about so many times, you need to get in the practice of investing for cash flow. And so you want to have an environment where you can start really small and then grow into that as you progress. And so bridge loans have an opportunity that, again, is secured by this piece of real estate. And we prefer first deeds of trust, because that means it’s the first position on the mortgage. Now, there are some companies that will come in behind and put a second deed on that property,

[08:09] but it’s the same company. So what we’re not advocating is that you invest in second deeds of trust. We prefer that first position lean as your collateral. OK, so to summarize, 50,000 minimum investment, seven percent rate of return, one to two year commitment. You receive a check each month for your interest and then your principal back in one to two years, whatever you agree upon. That’s correct. So if this interests you, please reach out to us. We’re happy to help you with it. We can email information and give you the company’s website, contact information, et cetera, for you to check out very thoroughly on your own. And we can be reached at partners number four, Prosperity.com. This investment is definitely not for everybody, but for those that are comfortable in investing in the bridge loan environment,

[09:08] it can work very, very well. And again, partners for Prosperity.com are emails on there. That’s the best way to get a hold of all of us. Phone numbers there as well. But if you email us and we can email you back information. One final question. Is this available for retirement accounts or strictly cash accounts? That’s a great question. It is available for retirement accounts. IRAs would need to be switched into self-directed IRAs. So if you’re not familiar with the self-directed IRA environment, you might want to do a little bit of learning about that. I know we’ve done a podcast on that. So there is a search box on our blog, partners for prosperity dot com slash blog. If you scroll down about two clicks, you can find the search box and you could put self-directed IRAs in there and find both

[10:01] some written articles as well as some podcasts on self-directed IRAs. And then, of course, yes, it’s available for cash accounts as well. Super. And I would encourage everybody, regardless of kind of where your financial situation is now, to educate yourself on this, because this is an asset class that, again, the minimum investment, 50,000 is not a small amount of money, but it’s not a huge amount of money, either something you can definitely save towards. And that seven percent of money is going to keep you ahead of inflation and allow that money to grow. That’s the biggest concern I have about the environment that we’re in right now is that your ability to purchase with your money, if you’re not getting those rate of returns, is actually declining as you move forward.

[10:45] And that’s a scary place to be, Kim. Anything else you want to talk to our listeners about before we wrap up? Well, just to reiterate the safety of the principle there, because it is secured and this company has done this for a long time. There’s lots of information that you can read about to have your principle not get cut in half. Like happened in 2008 and nine in the stock market is a critical thing. And we cannot stress that enough here. We’re recording this in early September of 2015, and the stock market is going absolutely up and down like crazy. And I don’t know how people sleep through that. That’s just not an environment that I want my money in at all. So bridge loans enable us to have the safety of principle.

[11:30] And if you talk with a typical financial adviser about them, they’re going to say, oh, my gosh, those are so risky. And I would encourage you to ask the question, compared to what? And so risk is something that you have to take a look at. Some people are more comfortable with the up and down nature of the stock market, and that’s their risk. Other people are more comfortable with the proof that real estate has the fact that the rule of law around escrow works and that they have a first deed of trust on a particular property, etc. So risk has to be defined and you have to define it for yourself. And the quote risk tolerance questionnaires out there that most financial advisers use are not going to help you.

[12:17] What you have to ask yourself is the opposite question. What’s secure? What to you is secure? And if stocks are secure, then there’s your answer. If real estate is secure, then there’s your answer. If life settlements are secure or the life insurance industry or actual investing in other people’s opportunities, like the peer to peer lending or the bridge loans, then that’s your answer. So I think that’s a better definition. And if you get the, oh, my gosh, that’s so risky question compared to what is your answer. So then the question becomes the answer compared to what? Super. Well, once again, that’s our big thing here is hopefully we can teach you to ask. Better questions. That is certainly one of our goals.

[13:02] This is No BS Money Guy, Todd Strobel for the Prosperity Podcast. Once again, thank you, Kim Butler and take care, everybody. Thank you for listening to the Prosperity Podcast. To take control of your money and have it work for you, visit us at partnersforprosperity.com. If you liked this episode, make sure you subscribe and leave a review.